Nurse & Allied
stAffiNg
PhysiciAN
stAffiNg
cliNicAl triAls
services
educAtioN &
retAiNed seArch
2009 A N N U A L R E P O R T
NURsE & ALLiEd sTAffiNg
PhysiciAN sTAffiNg
We are one of the top two
providers of travel nurse and
allied staffing services in the
u.s., as well as a provider of per
diem nurse staffing services.
We market our nurse and allied
staffing solutions primarily to
acute care hospitals through
our cross country staffing,
Medstaff and Allied health
group brands. the vast majority
of our assignments are at large
We are one of the top three
providers of temporary
physician staffing (locum tenens)
services in the u.s. We market
our physician staffing services
to hospitals, physician practice
groups and other healthcare
facilities through our Medical
doctor Associates (MdA)
brand. MdA contracts with
physicians, who are
independent contractors, to
not-for-profit and for-profit hospitals, including teaching
provide medical services to healthcare customers for assignments
institutions and trauma centers, located in and around major
that may last from a few days up to and including a year. in addition,
metropolitan areas. We recruit rNs for travel and per diem staffing
MdA is one of only three locum tenens companies with an in-house
assignments and also allied health professionals in a wide range
credentials verification organization certified by the NcQA
of specialties. cross country staffing is our largest brand
(National committee for Quality Assurance), and it currently is
and has in place a number of exclusive vendor-managed and
the only multi-specialty physician staffing company that has
preferred provider relationships with hospital clients. our cross
procured an occurrence form policy underwritten by a A++ rated
country staffing and Medstaff brands (travel nurse staffing) and
insurance company.
our Allied health group (travel allied staffing) are certified by
the Joint commission under its health care staffing services
certification Program.
cLiNicAL TRiALs sERvicEs
EdUcATiON & RETAiNEd sEARch
We are a leading provider of
clinical trials contract staffing
services, as well as a provider
of drug safety monitoring,
regulatory consulting and
clinical research services to
pharmaceutical, biotechnology
and medical device companies,
as well as to contract research
organizations (cro) customers.
We market these services
through our clinforce, Assent
We are a leading provider of
retained physician search
services. our cejka search
business is a nationally
recognized retained search
organization that provides
physician and healthcare
executive search services
exclusively to the healthcare
industry, including physician
group practices, hospitals and
health systems, academic
and AKos brands. We recruit qualified candidates for our clinical
medical centers, managed care, and other healthcare organizations
trials services segment in the u.s. and internationally for temporary
throughout the united states.
and permanent clinical research opportunities. candidates we
recruit for our clinical trials services are primarily healthcare
professionals who have left a care giving role to pursue clinical
research opportunities and individuals with an educational
background and experience in life sciences.
We provide continuing education programs to the healthcare
industry. our cross country education business offers one-day
seminars and e-learning, as well as national and regional
conferences on topics relevant to healthcare professionals. We
extend these educational services to our field employees on
favorable terms as a recruitment and retention tool.
fiNANciAL highLighTs
cAsh fLOw fROm
OPERATiONs
($ in millions)
$72.3
$51.0
$51.8
$42.7
$43.3
$30.8
$32.9
$35.9
$80
$60
$40
$20
$19.8
$0
REvENUE
mix
7%
13%
26%
2009
54%
cONTRibUTiON
iNcOmE shARE
2009
2001
7%
6%
5%
13%
27%
2001
6%
5%
55%
87%
89%
‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09
Nurse & Allied Staffing Physician Staffing Clinical Trials Services Education & Retained Search
cROss cOUNTRy hEALThcARE, iNc
($000’s except per share and statistical data)
REvENUE fROm sERvicEs
OThER dATA
Nurse and Allied Staffing
Physician Staffing
Clinical Trials Services
2009
2008(a)
$ 313,038 $ 525,772 $ 576,779
2007
$ 151,853 $ 56,558 $ –
$ 71,678 $ 99,129 $ 90,613
Cash Flow From Operations
Total Debt
Debt Ratio(d)
2009
2008(a)
$ 72,319 $ 50,993 $ 35,880
2007
$ 62,514 $ 133,080 $ 39,451
17%
33%
7%
Other Human Capital Management
$ 41,668 $ 52,788 $ 50,880
$ 578,237 $ 734,247 $ 718,272
cONTRibUTiON iNcOmE(b)
Nurse and Allied Staffing
Physician Staffing
Clinical Trials Services
Other Human Capital Management
2009
2008(a)
$ 30,641 $ 53,822 $ 54,941
2007
$ 15,165 $
5,711 $ –
$
$
7,029 $ 15,301 $ 14,425
2,973 $
7,444 $
7,609
NET iNcOmE (LOss)(c)
Net Income (Loss)
2009
$
2008(a)
2007
6,694 $ (142,945) $ 24,580
Net Income (Loss) Per Diluted Share
$
0.22 $
(4.61) $
0.76
NURsE ANd ALLiEd sTAffiNg dATA
($ actual)
2008(a)
4,463
2009
2,735
FTEs(e)
2007
5,025
Average Revenue Per FTE Per Week(f)
$
2,201 $
2,266 $
2,207
PhysiciAN sTAffiNg dATA
($ actual)
2009
Physician Staffing Days Filled(g)
95,296
2008(a)
34,863
2007(a)
–
Revenue Per Days Filled(h)
$
1,593 $
1,622 $ –
(a) The Company acquired substantially all of the assets of privately-held MDA Holdings, Inc. and its subsidiaries, as well
as all of the outstanding stock of a subsidiary of MDA Holdings, Inc. (collectively MDA) effective September 1, 2008.
(b) Defined as income (loss) from operations before depreciation, amortization, impairment charges and corporate
expenses not specifically identified to a reporting segment. Contribution income is a financial measure used by
management when assessing segment performance.
(c) In 2009, net income and net income per diluted share included an impairment charge of $1.7 million pre-tax or $1.1
million after tax and a legal settlement charge of $0.3 million pre-tax or $0.2 million after tax, which together impacted
earnings per diluted share by $0.04. In 2008, net loss and net loss per diluted share included impairment charges of
$244.1 million pre-tax or $167.0 million after-tax, which impacted net loss per diluted share by $5.39.
(d) Defined as total debt, net of unrestricted cash, divided by total stockholders’ equity plus total debt at year end.
(e) FTE’s represent the average number of nurse and allied contract staffing personnel on a full-time equivalent basis.
(f) Average revenue per FTE per week is calculated by dividing the nurse and allied staffing revenue by the number of
weeks worked in the respective periods and includes revenue from the permanent placement of nurses.
(g) Days filled is calculated by dividing the total hours filled during the period by 8 hours per day.
(h) Revenue per days filled is calculated by dividing the physician staffing revenue by days filled in the respective periods.
dEAR fELLOw sTOckhOLdERs:
the past year has been the most challenging by far in my
seventeen-year tenure at cross country healthcare. A mild
recession that began in late 2007, evolved by late 2008 into
the worst economic crisis since the 1930s. By the time we
entered 2009, the headwinds on all of our business segments
were profound. in our most important customer group,
acute care hospitals, access to short-term credit was either
abruptly cut off or, if available, was four times as costly,
according to media reports. so a normally cost conscious
customer, became much more so.
“OUR AbiLiTy TO OUTPERfORm
OUR cOmPETiTORs dURiNg
This UNPREcEdENTEd
dOwNTURN givEs mE gREAT
OPTimism fOR OUR fUTURE.”
in addition, the expected response of registered nurses
(rNs) to a weak employment market which might affect their
spouse’s job prospects resulted in substantially more hours
of rN employment offered to hospital employers at prevailing
wages. this resulted in dramatically reduced demand for our
temporary nurse staffing service offerings. due to the
contract nature of our work, the reduction in our staffing
activity occurred gradually over time, and by the third quarter
of 2009, our staffing volume was off more than 50% year over
year – by far and away the steepest decline our business
had ever suffered. however, while the healing process
had already begun by this time as credit markets began to
normalize, we believe our hospital customers were
increasingly less willing to go without and nurses began to
be less willing to work as many hours per week after having
done so for an extended period. this led to improved demand
and booking activity for us starting in the third quarter of
2009, which yielded sequential improvement in the fourth
quarter, although still well below year ago levels.
in our physician business, acquired in september of 2008,
we saw the first annual revenue decline since the company’s
founding in 1987. While the same cost constraints on
hospitals that affected our nursing business were also at
JosePh A. BoshArt
PresideNt & ceo
work in this segment, i believe physicians also delayed their
for our future. As the economy heals and ultimately begins
retirement plans because of the reduction in value of their
to create jobs again, we believe we will be best positioned to
retirement accounts and their home values, which had
benefit from an expanding market, given the actions we have
negative implications for our business, as did a reduction
taken in the past twelve to eighteen months to improve our
in the number of elective surgeries.
processes and efficiency, along with our market share gains
and relatively low borrowing costs.
“RELATivE TO OUR mAjOR
PUbLic cOmPETiTORs, wE
TOOk sigNificANT mARkET
shARE iN OUR TRAvEL NURsE
ANd ALLiEd bUsiNEss.”
during the past year, the strong character of our organization
was never more clearly on display. i want to thank each and
every one of our team members for their dedication, focus
and competence, which has allowed us to survive this
hundred year flood in a condition that allows us to realize our
ambition to be the leading provider in the markets in which
we compete. We look forward to better days ahead.
As always, i thank all of our shareholders for their support,
but never more so than in a year such as that just passed.
sincerely,
Joseph A. Boshart
President & chief executive officer
March 2010
our clinical trials services business was impacted by the
weak economy and a significant round of merger and
acquisition activity among pharmaceutical and biotechnology
companies who are our customers in this segment. following
a major acquisition, research and development typically
tends to slow dramatically during the integration process as
projects are reviewed so that resources can be focused on
those projects with the brightest prospects.
While these headwinds were formidable and resulted in a
21% reduction in our revenue, we need to put our results in
perspective.
• Relative to our major public competitors, we took
significant market share in our travel nurse and
allied business.
• We grew the overall gross margin of the Company with
a significant focus on controllable costs such as the
housing we provide to our professionals.
• We were able to comply with the covenants of our credit
agreement during 2009 and maintain relatively attractive
terms, due to our ability to generate record cash flow from
operations of $72 million during the year.
“As ThE EcONOmy hEALs
ANd ULTimATELy bEgiNs TO
cREATE jObs AgAiN, wE
bELiEvE wE wiLL bE bEsT
POsiTiONEd TO bENEfiT fROm
AN ExPANdiNg mARkET...”
so while our results in 2009 were disheartening on many
levels, our ability to outperform our competitors during this
unprecedented downturn along with the long-term
demographic drivers of our business gives me great optimism
A divERsifiEd LEAdER iN
hEALThcARE sTAffiNg sERvicEs
NURsE & ALLiEd sTAffiNg
PhysiciAN sTAffiNg
cLiNicAL TRiALs sERvicEs
EdUcATiON & RETAiNEd sEARch
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
——————
FORM 10-K
(cid:59) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2009
or
(cid:133) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-33169
Cross Country Healthcare, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
13-4066229
(I.R.S. Employer Identification No.)
6551 Park of Commerce Boulevard, N.W.
Boca Raton, Florida 33487
(Address of principal executive offices, zip code)
Registrant’s telephone number, including area code: (561) 998-2232
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.0001 per share
Name of each exchange on which registered
The NASDAQ Stock Market
Securities registered pursuant to Section 12(g) of the act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:133) No (cid:59)
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 (cid:133) No (cid:59)
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 (cid:59) No (cid:133)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). (cid:134) Yes (cid:134) No
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. (cid:59)
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of
the Exchange Act: Large accelerated filer (cid:133) Accelerated filer (cid:59) Non-accelerated filer (cid:133) Smaller reporting company (cid:133)
Indicate by check mark whether the Registrant is a shell company (as defined by Rule 12b-2 of the Act). Yes (cid:133) No (cid:59)
The aggregate market value of the voting stock held by non-affiliates of the Registrant, based on the closing price of Common Stock on
June 30, 2009 of $6.87 as reported on the NASDAQ National Market, was $192,215,572. This calculation does not reflect a determination
that persons are affiliated for any other purpose.
As of February 28, 2010, 31,009,404 shares of Common Stock, $0.0001 par value per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive proxy statement, for the 2010 Annual Meeting of Stockholders, which statement will be filed
pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Report, are incorporated by reference
into Part III hereof.
TABLE OF CONTENTS
Page
PART I
Item 1. Business....................................................................................................................................................................1
Item 1A. Risk Factors. ...........................................................................................................................................................20
Item 1B. Unresolved Staff Comments. ..................................................................................................................................27
Item 2. Properties................................................................................................................................................................27
Item 3. Legal Proceedings. .................................................................................................................................................27
Item 4. (Removed and Reserved)........................................................................................................................................27
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities. ...........................................................................................................28
Item 6. Selected Financial Data. .........................................................................................................................................31
Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations.....................................................................................................................................33
Item 7A. Quantitative and Qualitative Disclosures about Market Risk. ................................................................................53
Item 8. Financial Statements and Supplementary Data.......................................................................................................54
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.......................................................................................................................................54
Item 9A. Controls and Procedures. ........................................................................................................................................54
Item 9B. Other Information. ..................................................................................................................................................56
PART III
Item 10. Directors, Executive Officers and Corporate Governance......................................................................................56
Item 11. Executive Compensation. .......................................................................................................................................56
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholders Matters. .......................................................................................................................56
Item 13. Certain Relationships and Related Transactions, and Director Independence........................................................56
Item 14. Principal Accountant Fees and Services.................................................................................................................56
PART IV
Item 15. Exhibits, Financial Statement Schedules. ...............................................................................................................57
SIGNATURES ..........................................................................................................................................................................58
All references to “we,” “us,” “our,” or “Cross Country” in this Report on Form 10-K means Cross Country Healthcare, Inc.,
its subsidiaries and affiliates.
Forward-Looking Statements
In addition to historical information, this Form 10-K contains statements relating to our future results (including certain
projections and business trends) that are “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), and are
subject to the “safe harbor” created by those sections. Words such as “expects”, “anticipates”, “intends”, “plans”, “believes”,
“estimates”, “suggests”, “seeks”, “will” and variations of such words and similar expressions are intended to identify
forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may
cause our actual results and performance to be materially different from any future results or performance expressed or
implied by these forward-looking statements. Factors that might cause such differences include, but are not limited to, those
discussed in the section entitled “Item 1A – Risk Factors.” Readers should also carefully review the “Risk Factors” section
contained in other documents we file from time to time with the Securities and Exchange Commission, including the
Quarterly Reports on Form 10-Q to be filed by us in fiscal year 2010.
Although we believe that these statements are based upon reasonable assumptions, we cannot guarantee future results and
readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions
only as of the date of this filing. There can be no assurance that (i) we have correctly measured or identified all of the factors
affecting our business or the extent of these factors’ likely impact, (ii) the available information with respect to these factors
on which such analysis is based is complete or accurate, (iii) such analysis is correct or (iv) our strategy, which is based in
part on this analysis, will be successful. The Company undertakes no obligation to update or revise forward-looking
statements.
Item 1.
Business.
Overview of Our Company
PART I
We are a diversified leader in healthcare staffing services offering a comprehensive suite of staffing and outsourcing services
to the healthcare market. We report our financial results according to four business segments: (1) nurse and allied staffing,
(2) physician staffing, (3) clinical trials services and (4) other human capital management services. We believe we are one of
the top two providers of travel nurse and allied staffing services; one of the top three providers of temporary physician
staffing (locum tenens) services; a leading provider of clinical trials staffing services and retained physician search services;
and a provider of educational seminars, specifically for the healthcare marketplace.
The long-term macro drivers of our business are demographic in nature and consist of a growing and aging U.S. population
demanding more healthcare services and an aging workforce of healthcare professionals. There are projected shortages of
registered nurses (RNs) and physicians. Demand for our healthcare staffing services is primarily influenced by the strength or
weakness in national acute care hospital admissions relative to expectations and the volume of patients at other medical
facilities, as well as labor market dynamics that influence the number of hours worked by healthcare professionals. Demand
for clinical trials staffing is primarily influenced by the level of research and development activities by pharmaceutical and
biotechnology companies. The supply of healthcare professionals in the marketplace is dependent upon the number of RNs
and physicians entering their respective professions versus retiring from the workforce.
The supply of RNs available for our nurse and allied staffing services is variable and primarily based on current labor market
dynamics. The supply of physicians available for our physician staffing services is variable and is influenced by several
factors, including the desire of physicians to work temporary assignments versus being in private practice or employed at
healthcare facilities, the desire of older physicians to work fewer hours, work-lifestyle balance especially among younger
physicians, and the trend toward more female physicians in the workforce looking to work fewer hours than male counter-
parts. The supply of clinical trials personnel in the marketplace is relatively stable and comprised primarily of healthcare
professionals who have left a care giving role to pursue clinical research opportunities and individuals with the education
background and experience in life sciences. The supply of people available for our clinical trials services is dependent on the
number of clinical trial professionals not currently employed in ongoing trials, as well as new people entering the industry. In
the short-term, demand for our healthcare staffing services during 2009 was significantly reduced due to the negative impact
that the labor and financial markets had on our customers as a result of the steep economic down-turn that began during the
fall of 2008.
We have a diversified revenue mix across business sectors and healthcare customers. For the year ended December 31, 2009,
our revenue was $578.2 million. Our nurse and allied staffing business segment is comprised of travel and per diem nurse
staffing and travel allied health staffing and represented 54% of our revenue, and is our largest segment. Our physician
staffing business segment consists of temporary physician staffing services with placements across more than 15 clinical
specialties and represented 26% of our revenue. Our clinical trials services business segment consists of contract staffing, as
well as drug safety monitoring, regulatory consulting and clinical trials management to pharmaceutical and biotechnology
customers and represented approximately 13% of our revenue. Our other human capital management services business
segment consists of education and training, as well as retained search services related to physicians and healthcare executives
and was 7% of our revenue. For additional financial information concerning our business segments see Note 16 to the
consolidated financial statements - Segment Information, contained elsewhere in this report. On a company-wide basis, we
have approximately 4,500 contracts with hospitals and healthcare facilities, pharmaceutical and biotechnology customers, and
other healthcare organizations to provide our healthcare staffing and outsourcing solutions. In 2009, no single client
accounted for more than 4% of our revenue. In addition, our fees are paid directly by our clients and in certain cases by third-
party administrative payers. As a result, we have no direct exposure to Medicare or Medicaid reimbursements.
Our net income was $6.7 million, or $0.22 per diluted share, for the year ended December 31, 2009. During 2009, we
generated a record $72.3 million in cash flow from operations and reduced our debt by $70.6 million from the prior year. At
year-end 2009, we had $8.6 million of cash and short-term cash investments, and we had $62.5 million of total debt on our
balance sheet resulting in a debt to total capitalization ratio of 17.5%. Our debt leverage ratio at December 31, 2009, (as
defined in our credit agreement) was 1.86 to 1.00, which is well under the 2.50 to 1.00 maximum allowable ratio effective for
the duration of our credit agreement.
Healthcare and Demographic Influences on Our Business
Demand Influences
According to the most recent projections by the Centers for Medicare & Medicaid Services (CMS), national healthcare
expenditures are expected to have grown 5.7% to $2.5 trillion in 2009, despite the overall economy being in recession. This
was due in part to growth in the use of services related to the H1N1 virus and to increases in individual healthcare coverage
provided through the Consolidated Omnibus Budget Reconciliation Act (COBRA).
According to CMS, hospital spending growth is expected to have increased 5.9% in 2009 to $760.6 billion driven by higher
Medicaid spending and increased demand related to treatment for the H1N1 virus offset by a reduction in demand for non-
emergency procedures due to the recession. Physician and clinical services spending growth is expected to have increased
6.3% in 2009 to $527.6 billion mostly due to higher Medicaid spending and care associated with the H1N1 virus.
Further, CMS expects national health spending to grow at an average annual rate of 6.1% reaching $4.5 trillion by 2019. In
the near-term, national healthcare expenditures growth in 2010 is expected to decelerate to 3.9%, largely attributable to a
slow-down in Medicare spending driven by a more than 20% reduction on physician payment rates called for under current
law. Hospital revenue growth is projected to accelerate after 2010 and reach a high of 7.0% in 2016. Physician and clinical
spending growth is projected to reach 6.6% by 2017.
This significant expansion in spending is expected to be driven, in large part, by greater demand for healthcare services due
to both an increasing and aging population:
• The U.S. population grew by 31% or by 70 million people, between 1980 and 2005. As baby boomers age, the number
of Americans over age 65 are projected, by the U.S. Census Bureau, to double by 2030 from 35 million to 71 million.
And by 2050, the U.S. population will expand to 420 million people, of which the number of people age 65 and older is
expected to approach 87 million, according to a Congressional Research Service report (March 2007). Meanwhile, the
oldest baby-boomers turn 65 years of age and become eligible for Medicare beginning in 2011 and the 55-to-64 age
group is expected to expand to 40 million by 2014. Hospital utilization is significantly higher among older people.
• Healthcare spending is higher for older people than younger people. Patients age 65 and older typically average six to
seven doctor visits per year compared to two to four visits annually for those under age 65. If the annual number of visits
continues at the present rate, the U.S. population will make 53% more trips to the doctor in 2020 than in 2000, according
to a November 2008 report by the Association of American Medical Colleges (AAMC). Additionally, the most costly
illnesses are more common among the elderly. As medical advances extend survival rates and improve quality of life for
those with chronic conditions, the need for ongoing healthcare services will increase. The U.S. Centers for Disease
Control and Prevention reported that 80% of people 65 and older have at least one chronic condition, such as diabetes,
arthritis or cancer. Life expectancy for Americans is nearly 78 years, the highest in U.S. history, according to
2
government statistics for 2005. In 2005, the U.S. Department of Health and Human Services reported that people over
the age of 65 comprised 38% of all inpatients. Projections from the American Hospital Association (AHA) expect the
share of hospital admissions for the over-65 age group to rise from 38% in 2004 to 56% in 2030.
Supply Influences
Overlaid on this expected increase in demand for healthcare services is an insufficient supply of registered nurses (RNs) and
physicians to provide quality medical care. The RN workforce is aging and the nurse education system is constrained by an
aging faculty and lack of teaching facilities, while at the same time there is a growing shortage of physicians in both hospitals
and practice groups.
•
In the long-term, large shortages of RNs are projected nationwide by 2025 (Health Affairs, June/July 2009), despite the
effects of the recent recession which have temporarily eased the shortage of hospital nurses in the short-term. Vacancy
rates for RNs improved from a peak of 13% in 2001 to 8.1% in 2006 to 6% in 2009, according to information from the
American Hospital Association and a 2009 survey of hospital CEOs conducted by AMN Healthcare, Inc. This was due to
increases in RN employment consisting of younger RNs continuing to enter the workforce and older RNs remaining in
the workforce longer. These recent dynamics have led researchers to revise the average age of the RN workforce
downward to just under 44 years of age and project a delay from earlier estimates in the start of a substantial shortfall of
RNs to around 2018 with the shortage growing to approximately 260,000 by 2025 (Health Affairs, June 2009). In a more
recent survey, nearly one-third of RNs reported they will not be working in their current job in 12 months and
approximately half of the respondents stated they foresee a change in their career path either out of the nursing
workforce or reducing the amount of direct patient care by decreasing their hours or changing to a less demanding care-
giver role, according to a 2010 Survey of Registered Nurses: Job Satisfaction and Career Plans (AMN Healthcare, Inc.,
January 2010). Looking toward retirement, by 2012 RNs in their fifties will comprise the largest age group in the
profession, and by 2020, baby-boomer nurses will be in their sixties, although most are expected to have retired from
working in acute care hospitals (Health Affairs, January/February 2007). However, due to the effects of the economic
down-turn, many retired RNs returned to the workforce and those contemplating retirement are keeping their jobs to
maintain household income.
• Physicians are in short supply as well. While the root cause of this shortage dates back to the 1980s and 1990s when
medical schools capped enrollment, the United States is expected to face a shortage of 124,000 – 159,000 physicians by
2025, according to a study by the AAMC published in November 2008 that expects the shortage to be most severe
among family physicians and general surgeons. The AAMC also projects potential reforms, such as universal health care
coverage, to add to overall demand for doctors and increase the projected shortfall by 25%. Moreover, while the number
of applicants to U.S. medical schools is increasing, it has not kept pace with the expected future demand given the
number of post-graduate years of training required. Surgical training, for example, requires eight to fourteen years.
Influences On Our Customers
Hospital and healthcare facility customers comprise the majority of our revenue base. Typically, they provide medical care
24/7, which requires RNs, physicians and other healthcare professionals to be staffed around the clock. Labor has historically
been the largest component of a hospital’s operating budget with nursing care accounting for about half or a quarter of total
expenditures. Hospitals are capital-intensive organizations that are paid for their services through reimbursements from the
CMS, by insurance companies paying their members’ covered claims, and by private-pay individuals. Our fees are paid
directly by our clients and in certain cases, by third-party administrative payers. As a result, we have no direct exposure to
any Medicare or Medicaid reimbursements.
Since the beginning of 2003, growth in hospital in-patient admissions has been relatively flat. In addition, hospitals,
healthcare facilities and physician practice groups have had to contend with changes to government reimbursements for their
services, changes in legislation and agency regulations, along with a large universe of uninsured patients. These factors have
been compounded by rising unemployment and higher deductibles for those with health insurance coverage, rising bad debt
as well as higher professional liability related to medical errors. More recently, according to the National Bureau of
Economic Research, the U.S. economy entered into a recession in December 2007, and coupled with the economic downturn,
a severe credit crisis unfolded in the fall of 2008 that made borrowing significantly more costly or unavailable for individuals
and businesses alike. Hospitals and healthcare facilities were impacted as many borrow to fund their day-to-day operations,
longer-term facility improvements and technology investments. Hospitals also rely on philanthropic donations as a source of
funding, which decreased significantly in response to the economic downturn while the capital they did have invested
declined in step with the sharp drop in the stock market. As a result, hospital expansion and construction projects, which
experienced a robust up-surge during the past few years, have been canceled or delayed. The recession also led to a rapid and
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significant downturn in the national labor market, which triggered RNs to provide more hours of service directly to hospital
employers at wages hospitals were willing and able to pay. These factors resulted in a steep decline in the demand for our
nurse and allied staffing services, and to a lesser extent, our physician staffing services. Physicians are revenue generators for
hospitals, healthcare facilities and practice groups while nurses are an unreimbursed cost in the delivery of care. The shortage
of RNs and physicians is likely to increase over time based on demographic expectations, and could be further impacted by
the enactment of healthcare reform legislation that significantly increases the number of people with healthcare coverage,
according to a report by the AAMC in November 2008.
In our clinical trials services segment, the pharmaceutical and biotechnology industries have historically been less impacted
by downturns in the economy and more impacted by mergers and acquisitions that result in evaluation of product mix and/or
funding of research and development (R&D) efforts. While an increasing amount of R&D had been outsourced over the
preceding years, the global economic environment has led pharmaceutical companies to look more to in-licensing or
acquiring new technologies and potential products while refocusing or scaling-back their R&D programs. The biotechnology
industry was initially severely impacted by the credit crisis and lack of available funding from private and public sources that
resulted in a number of companies being substantially downsized, acquired or shut down. However, a number of biotech
companies have recovered somewhat as access to capital and the financial markets have improved. Nonetheless, these factors
have substantially decreased R&D activity in this sector and reduced the demand for our clinical trials services.
Nurse and Allied Staffing
We are a leading provider of travel nurse staffing services in the U.S., as well as a provider of travel allied staffing and per
diem nurse staffing services. Segment revenue was $313.0 million in 2009. We market our nurse and allied staffing services
primarily to acute care hospitals, providing clients with staffing solutions through our Cross Country Staffing, MedStaff and
Allied Health Group brands. We provide RNs for travel and per diem staffing assignments at public and private healthcare
facilities, as well as for-profit and not-for-profit facilities located throughout the U.S. Our Allied Health Group provides
nurse practitioners and physician assistants, as well as staffing for the radiation therapy market to hospitals, healthcare
facilities and physician practice groups across the U.S. The vast majority of our assignments are at large acute-care hospitals,
including teaching institutions and trauma centers, located in and around major metropolitan areas. We also provide other
healthcare professionals in a wide range of specialties that include operating room technicians and various allied health
professionals, such as rehabilitation therapists, radiology technicians, respiratory therapists, nurse practitioners, physician
assistants and radiation therapy technicians to assignments in hospitals and non-acute care settings such as skilled nursing
facilities, nursing homes and sports medicine clinics, and, to a lesser degree, in non-clinical settings, such as schools. Cross
Country Staffing (CCS) is our largest brand, and as a part of its business strategy, CCS has in-place a number of exclusive
vendor-managed and preferred provider relationships with hospital clients, and continues to pursue such opportunities. In
doing so, it provides clients with a suite of solutions to facilitate the efficient management of their temporary nursing
workforce, which include full vendor management solutions. The travel nurse staffing businesses of our Cross Country
Staffing and MedStaff brands and the staffing business of our Allied Health Group are certified by The Joint Commission
under its Health Care Staffing Services Certification Program.
Overview of the Nurse and Allied Staffing Industry
The temporary nurse staffing alternatives available to hospital administrators are travel nurses and per diem nurses. Travel
nurse staffing involves placement of RNs on a contract basis, typically for a 13-week assignment although assignments may
range from several weeks to longer than three months. Travel assignments usually involve relocation to the geographic area
of the assignment. Travel nurses provide hospitals and healthcare facilities with flexibility and variable costs to manage
changes in their staffing needs due to shifts in demand as well as represent a pool of potential full-time job candidates, and
enables healthcare facilities to provide their patients with a greater degree of continuity of care. The staffing company
generally is responsible for providing travel nurses with customary employment benefits and for coordinating travel and
housing arrangements. Per diem nurse staffing comprises the majority of outsourced temporary nurse staffing and involves
the placement of locally-based healthcare professionals on short-term assignments, often for daily shift work, with little
advance notice by the hospital client. Consequently, housing and extensive travel are generally not required for this mode of
staffing. According to industry sources, in 2009 the nurse and allied staffing industry was estimated to be approximately
$6.2 billion in revenue.
With respect to quality of care and nurse education, a study by the University of Pennsylvania’s Center for Health Outcomes
and Policy Research (Journal of Nursing Administration, August 2007) reported that hospital use of temporary RNs does not
lower quality of care because these nurses are just as qualified – and in many cases more qualified – than permanent staff
nurses. The study also found that temporary nurses were more likely than permanent nurses to hold a 4-year baccalaureate or
more advanced degrees and more likely to have received their education in the past 10 years when compared to hospital staff
nurses.
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Recruiting
We operate differentiated brands – Cross Country TravCorps, MedStaff, NovaPro, Cross Country Local, CRU-48,
Assignment America and Allied Health Group – to recruit nurses and allied healthcare professionals on a domestic and
international basis. We believe RNs and allied health professionals are attracted to us because we offer a wide range of
diverse assignments in attractive locations, competitive compensation and benefit packages, as well as a high level of
customer service.
In 2009, thousands of healthcare professionals applied with us through our recruitment brands. Historically, more than half of
our field employees have been referred to us by other healthcare professionals. We also advertise in trade publications and on
the Internet, which has become an important component of our recruitment efforts. We maintain a number of websites to
allow potential applicants to obtain information about our brands and assignment opportunities, as well as to apply online.
Our recruiters are an essential element of our travel staffing business, responsible for establishing and maintaining key
relationships with candidates for the duration of their employment with our Company. Our recruiters work with candidates
throughout their initial placement process as well as on subsequent assignments. We believe our retention rate is a direct
result of these relationships. Recruiters match the supply of qualified candidates in our databases with the demand for open
orders posted by our hospital clients. At year-end 2009, we had 93 recruiters in this segment of our business.
Our recruiters utilize proprietary computerized databases of positions to match the specifications of assignments with the
experience, skills and geographic preferences of candidates. Once an assignment is selected, our account managers review the
candidate’s application package before submitting it to the hospital client for consideration. Account managers are
knowledgeable about the specific requirements and operating environment of the hospitals that they service. In addition, our
databases of open positions are kept updated by our account managers.
Contracts with Field Employees and Hospital Clients
Each of our traveling field employees works for us under a contract. Travel assignments are typically 13-weeks in duration.
Our traveling field employees that are on payroll contracts are hourly employees whose contract specifies the hourly rate they
will be paid and any other benefits they are entitled to receive during the contract period. We bill clients at an hourly rate and
assume all employer costs, including payroll, withholding taxes, benefits, professional liability insurance and Occupational
Safety and Health Administration (OSHA) requirements, as well as any travel and housing arrangements.
Operations
We operate our travel staffing business from a relatively centralized business model servicing all of the assignment needs of
our field employees and client facilities through operation centers located in Boca Raton, Florida; Malden, Massachusetts;
Tampa, Florida; Newtown Square, Pennsylvania; and Norcross, Georgia. In addition to the key sales and recruitment
activities, these centers also perform support activities such as coordinating assignment accommodations, payroll processing,
benefits administration, billing and collections, contract processing, customer service and risk management. Our per diem
staffing services are provided through a network of 15 branch offices serving major metropolitan markets predominantly
located on the east and west coasts of the U.S.
Hours worked by field employees are recorded by our operations system, which then transmits the data directly to Automatic
Data Processing, Inc. for payroll processing. Client billings are generated using time and attendance data captured by our
payroll system. Our payroll department also provides customer support services for field employees.
During 2009, we had an average of approximately 1,423 apartments open under lease throughout the U.S. Our housing staff
typically secures leases and arranges for furniture rental and utilities for field employees at their assignment locations.
Apartment leases are typically three months in duration to match the assignment length of our field employees. Beyond the
initial term, leases can generally be extended on a month-to-month basis. We typically provide accommodations at no cost to
the healthcare professional on assignment with us based on our respective recruitment brand’s practices. We believe that our
economies of scale help us secure competitive pricing and favorable lease terms.
Demand and Supply Drivers
Using temporary personnel enables healthcare providers to manage their total staffing levels of internal and external nursing
resources to better match variability in patient admissions, seasonal fluctuations, and other factors such as facility expansion
and staff training activities.
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The market for our nurse staffing services is determined by the demand from hospital customers and the available supply of
RNs and other healthcare professionals. We believe demand is a function of hospital admission trends and their level relative
to expectations, as well as dynamics of the national labor market and its impact on RN’s spouses (approximately 70% of RNs
in the U.S. are married) which influences the number of shifts or hours that full-and part-time RNs are willing to work
directly for hospitals at wages hospitals are able to pay. In general, we believe nurses are more willing to seek travel
assignments during relatively high levels of demand for contract employment, and conversely, are more reluctant to seek
travel assignments during and immediately following periods of weak demand for contract employment. We also believe
demand for travel nurse staffing services will be favorably impacted in the long-term by an expanding and aging population
and an increasing shortage of nurses.
As we began 2009, the business environment for our nurse and allied staffing services reflected hospital admission trends that
have been relatively flat since the first quarter of 2003 and the effects of the sharp economic downturn that began in the third
quarter of 2008, which resulted in a credit crisis that significantly limited hospitals’ access to capital to fund their operations.
The economic downturn also accelerated an already deteriorating national labor market resulting in higher levels of
unemployment that translated into more uninsured people and fewer people with commercial health insurance coverage. High
national unemployment typically results in RNs increasingly seeking employment as hospital staff nurses and those already
employed as staff nurses become more willing to work more hours at prevailing wages. These factors substantially reduce the
need for our outsourced staffing services and were reflected in the steep decline in our open orders from hospital customers
and our staffing volume of health professionals we had on assignment. During the second half of 2009, we began to
experience an increase in demand for our travel nurse and allied staffing services that slowly translated into sequential
improvement in our bookings activity for future assignments and then a modest improvement in staffing volume, although
these metrics were well below the comparable prior year period. Despite the turbulence in the environment for our nurse and
allied staffing services, we were able to improve our margins by reducing direct costs, including housing and insurance
expenses. Bill rates, as measured by revenue per hour in our travel nurse staffing business, contracted somewhat during late
2009 compared to the prior year.
The number of RNs in the U.S. grew 7.9% between 2000 and 2004 to 2.9 million, according to the most recent information
published by the Health Resources and Services Administration (HRSA) in December 2005. Of this total, 2.4 million were
employed in nursing with approximately 1.7 million RNs (58%) working full-time and 725,000 RNs (25%) working part-
time. According to this information, the largest and most significant employment setting for RNs was hospitals (nearly 60%)
where they represented the largest share of hospital employees at 28%.
The 2005 HRSA survey also indicated 41% of RNs were age 50 or older. This compares to 1980 when the largest age group
of RNs was in their mid-to-late twenties and to 2005 when they were in their forties. The study projects that by 2012, RNs in
their fifties will be the largest age group, and by 2020, those baby boomer RNs still in the workforce will be in their sixties.
The timing of younger RNs entering the profession and the retirement of older RNs has become a critical dynamic. While
increasing numbers of RNs have been passing the national licensing exam (NCLEX) during the past few years and entering
the workforce in their late twenties and early thirties, the number of RNs in their early to mid-twenties remains at its lowest
point in forty years, according to the Health Affairs (January/February 2007) study. On the other end of the spectrum, current
economic conditions appear to have delayed retirement plans for many older RNs. However, we believe this trend is likely to
reverse once the economy rebounds. We believe as RNs age they consider retiring from the workforce or switching to part-
time status and they increasingly reduce the number of hours worked directly for hospital employers because of the physical
demands of the job in an acute care hospital setting. We also believe the attrition of newer RNs leaving the profession after a
short period in the nursing workforce is a factor in this equation.
Foreign-educated RNs also play a role in providing nursing services. Nearly 90,000 foreign-educated RNs work in American
hospitals, or about 3.7% of the total RN workforce, according to a 2007 study by the National Foundation for America
Policy. The National Council of State Boards of Nursing (NCSBN) recently expanded the test sites for its NCLEX nurse
licensing exam beyond locations in the U.S. and its territories and other international sites to include locations in Seoul,
South Korea, London and Hong Kong as a convenience to foreign-educated nurse candidates. However, more recently entry
into the U.S. has been blocked or delayed due to immigration quotas and a lack of appropriate temporary visa categories.
Educating Nurses
As a result of more RNs entering the profession at an older age than they previously did, RNs are less likely to have obtained
their nursing education immediately after high school, as was more common in the past. Instead, people are increasingly
entering nursing by graduating from a two-year associate degree program after a period spent in another career or not in the
workforce. Additionally, people are entering nursing via “accelerated” Bachelor of Science degree programs designed for
those with other (and usually unrelated) bachelor degrees.
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Marking the ninth consecutive year of enrollment growth, enrollment in baccalaureate nursing programs increased 3.5% in
2009 from the prior year and graduations increased 3.2% from 2008 to 2009, according to preliminary survey data from the
American Association of Colleges of Nursing (AACN) issued in December 2009.
The AACN survey also indicated a surge in enrollments in graduate nursing programs, which can lead to an increase in the
number of nurses available to serve in teaching, leadership, and specialty and primary care roles. Enrollment in master’s
programs increased 9.6% and Doctor of Nursing Practice programs increased 40.9% from the prior year while the number of
students enrolled in research-focused doctoral programs increased 4.1%, according to preliminary estimates.
Interest in the nursing profession remains high based on nursing schools continuing to receive more qualified applications
than can be accommodated. The AACN preliminary data reflects that more than 39,000 qualified applicants were turned
away from baccalaureate nursing programs in 2009. Nursing schools continue to point to a shortage of faculty, insufficient
clinical education sites, and budget cuts as barriers to future growth.
Nursing school faculty vacancies dropped in 2009, as fewer faculty members retired while many schools faced budget cuts
and instituted hiring freezes. The AACN reported that the nursing school faculty vacancy rate in 2009 was 6.6%, down from
7.6% in 2008.
Legislation
In the context of a worsening nursing shortage and legislative efforts to address nurse staffing ratios and the use of mandatory
overtime at hospitals and healthcare facilities, there is a growing body of research that substantiates concerns raised by
consumer groups about the quality of care provided in healthcare facilities and by nursing organizations about the increased
workloads and pressures on nurses. Legislation, such as outlined below, has been passed and/or introduced at federal and
state levels. The passage of such legislation is expected to increase the demand for nurses.
Nurse Staffing Plans and Ratios
42 Code of Federal Regulations (42CFR 482.23(b) requires hospitals that participate in Medicare to “have adequate numbers
of licensed registered nurses, licensed practical (vocational) nurses, and other personnel to provide nursing care to all patients
as needed”. However, it is left to the states to ensure that staffing is appropriate to meet patients’ needs safely.
Reductions in nursing budgets have resulted in fewer nurses who work longer hours, while caring for sicker patients. As a
result, nurses have requested assistance from their elected officials to address these issues. Three general approaches have
been proposed:
• Require and hold hospitals accountable for implementation of nurse staffing plans, with input from practicing nurses, to
assure that safe nurse to patient ratios are based on patient need and other criteria.
• Legislators mandate specific nurse to patient ratios in legislation or regulation.
• A combination of nurse staffing plans and legislated nurse to patient ratios, along with making staffing information
available to the public.
To date, 14 states plus the District of Columbia (DC) have enacted legislation and/or adopted regulations to address nurse
staffing: CA, CT, DC, IL, ME, MN, NV, NJ, NY, OH, OR, RI, TX, VT, and WA. At this time there is no Federal legislation
pending with respect to nurse staffing plans or ratios.
Mandatory Overtime
Overtime is defined as the hours worked in excess of an agreed upon, predetermined, regularly scheduled full or part time
work schedule, as determined by contract, established work scheduling practices, policies or procedures. Due to inadequate
RN staffing, healthcare facility employers have used mandatory overtime to staff facilities. Concern for the long term effects
of overtime include impact on the caregiver’s health as well as the potential for errors from fatigue and diminished quality of
care provided. Research indicates that risks of making an error are significantly increased when work shifts are longer than
12 hours, when nurses worked overtime, or when they worked more than 40 hours per week. Voluntary overtime is not
affected.
To date, 15 states have legislated restrictions or have provisions in regulations on the use of mandatory overtime for nurses:
CA, CT, IL, MD, MN, MO, NJ, NH, NY, OR, PA, RI, TX, WA, and WV. At this time there is no Federal legislation pending
with respect to mandatory overtime.
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Physician Staffing
The physician staffing or “locum tenens” industry is more than 20 years old and we believe continues to have high growth
prospects as more physicians choose this way of practicing medicine and healthcare organizations discover the value of
temporary physician staffing. The term locum tenens is most commonly used to refer to physicians that contract with
recruitment agencies to perform medical services over a certain period of time as an independent contractor at hospitals,
practice groups or other healthcare organizations.
In using temporary physicians, the staffing needs of healthcare facilities are met while physicians gain flexibility in their
schedules and professional experience in multiple practice settings. Utilization of temporary physician coverage ranges from
rural solo physician practices to the country’s major health systems and managed care organizations. Healthcare facilities
have found that supplemental healthcare professionals are needed for a variety of reasons: to compensate for a physician
shortage, to fill in for an absent staff member who may be ill, on vacation, on maternity leave or sabbatical, as well as to
cover while physicians attend continuing medical education courses, to supplement regular staff during busy times, or to staff
new facilities while permanent providers are recruited. Many healthcare facilities across the country use temporary
physicians as an integral part of their master staffing plan. In many cases, it is less costly and more efficient for them to staff
at a minimum level and use temporary physicians to supplement their permanent staff, rather than always trying to staff at the
maximum level and having many periods of time when the staff are not fully utilized.
Physicians choose temporary assignments for a variety of reasons and at various points in their careers. For example, it is an
especially appealing option for new physicians just out of residency training. It provides them with the opportunity to sample
different practices and areas of the country before making a long-term commitment in any one spot. While medical schools
and residency programs teach the art of practicing medicine, new physicians frequently emerge from training without
knowing just what style of practice will suit them best and many report being unhappy with their first practice setting. With
temporary physician staffing, there is no pressure to rush into a permanent decision, and there are no immediate financial
burdens such as “buying in” to a practice or permanently locating to what could turn out to be the wrong place. Physicians
can use a temporary assignment to try out a specific practice opportunity before making a permanent commitment.
Temporary staffing is also the choice of many seasoned physicians who are not ready to retire, but want to scale down the
rigors and administrative burdens of full-time practice. These physicians enjoy the opportunity to keep more reasonable hours
and combine work with travel and time spent with family and friends. Other physicians choose temporary physician staffing
work in mid-career as a way to find the right position in a new area, or while they are in professional transition, such as from
military to civilian practice or while in the process of starting their own business.
Overview of the Physician Industry
In the long-term, there are not enough physicians to fill the number of vacancies at U.S. hospitals, practice groups and other
healthcare facilities – and the shortage is expected to grow even further. There were 773,809 active physicians in 2008,
according to the AAMC. However, the physician workforce is aging with a relatively large proportion of physicians
approaching retirement age just as the demand for their services is projected to surge due to an aging U.S. population. The
AAMC identified 252,000 active physicians, in 2005, who are currently at or would pass retirement age within 10 years.
Presently, nearly one fourth of the active physician workforce is age 60 or older.
In addition to retirement, physicians also leave the workforce due to mortality, disability and career change. Consequently,
demand will outpace supply through at least 2025, according to the AAMC in its November 2008 report. From 2005 to 2020,
the supply of active physicians under the age of 75 is expected to increase approximately 17% while population growth and
aging will contribute to a 22% increase in demand for physician services over this same period, with the highest growth in
demand among specialties that predominantly serve the elderly according to a HRSA study in December 2008.
Even though medical school enrollments and graduations have increased somewhat since 2005, educating and training more
physicians will not be enough to address the shortage. While the root cause of this shortage dates back to the 1980s and
1990s when enrollment in medical schools was capped, the U.S. is expected to face a shortage of 124,000 – 159,000
physicians by 2025, according to the AAMC (December 2008), with potential reforms such as universal health care coverage
projected to add to overall demand and increase the shortfall by 25%. Studies by the AAMC attribute some of the causes
behind the projected shortages to include:
• Of the more than 700,000 physicians practicing medicine today in the U.S., approximately one-third of physicians are
over age 55. Approximately 38% of older physicians report they are considering retirement in the next one to three years,
according to the American Medical Association (AMA). In absolute terms, the number of physician retirements is
expected to rise to 23,000 per year in 2025 from approximately 9,000 in 2000, according to the AAMC.
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• The shortage of primary care doctors is worsening each year, as only 20% of internal medicine third-year residents chose
primary care in 2005. This was a decline from nearly 55% in 1998, according to a 2008 report from the Center for
Studying Health System Change.
• More than half of U.S. hospitals consistently faced substantial gaps in specialist coverage in their emergency
departments between 2005 and 2007, especially in orthopedics and neurology, according to the AMA.
• The Bureau of Labor Statistics set the unemployment rate among U.S. physicians and surgeons at 0.7% in 2006, which
essentially means there was no unemployment among doctors.
• Shortages exist for all types of physicians, especially for physicians specializing in emergency medicine, cardiology,
family practice, general surgery, internal medicine, hospital medicine (hospitalists), oncology, orthopedics, psychiatry
and urology.
Educating Physicians
The number of applicants to U.S. medical schools remained stable with 42,269 applicants in 2009 compared with 42,231 in
the prior year, according to the AAMC. However, actual enrollment was approximately 18,400 students entering medical
school in the fall of 2009, an increase of 2% from the prior year aided by four new medical schools and 12 existing medical
schools expanding their class size. Graduations from U.S. medical schools in 2009 increased 2% to 16,468 from the prior
year. From 2005 to 2009, enrollments at U.S. medical schools increased 8% and graduations increased more than 4%.
Looking farther out, the AAMC estimates first-year enrollment in allopathic medical schools will grow by 21% in the 2012
academic year to nearly 20,000 from enrollment levels in 2002.
Temporary Physician Staffing Drivers
According to industry sources, in 2009 the temporary physician staffing industry was estimated to be approximately
$1.9 billion in revenue. The physician workforce is aging and projections suggest by 2020 the annual number of retiring
physicians will reach 20,000, a 60% increase from the current number of approximately 12,000 annual physician retirements,
according to the December 2008 HRSA survey. While age is the most common and reliable predictor of when physicians
leave the workforce, additional factors include: physician net worth, increased risk of burnout, health problems and eligibility
for government programs for the elderly, as well as societal expectations, spousal preferences, and financial incentives.
Physician retirement patterns could also be impacted by changes in market conditions, the health care operating environment,
or government policies that affect any of these factors.
Despite the above, the retirement rate for physicians is on a five-year downward trend with the share of all physicians who
have left a practice for retirement having fallen from 15% in 2004 to 11% in 2008, according to an annual physician retention
study conducted by the American Medical Group Association (AMGA) and our Cejka Search subsidiary. We believe the
retirement plans of permanent physicians and use of temporary physicians has been negatively impacted by the recession, the
stock market decline, and the weakened housing market. The demand for physician staff has also been impacted by the
reduction in the number of surgeries.
Hours of direct patient care and physician productivity are generally a function of age and can vary by specialty and
geography. On average, middle-aged physicians work more hours per week and more weeks per year compared to older and
younger physicians, although average hours worked for some age groups change over time, according to the HRSA study
(December 2008). Physicians age 46-55 worked more hours than in earlier years, while physicians age 56-65 average hours
worked was relatively constant. Physicians under age 36 worked 10% fewer hours in 2002 than they did in 1985, while there
is a slight downward trend in average hours worked for physicians age 36-45, and a drop in average hours worked by
physicians over age 65. In addition, approximately 1 in 4 physicians are female and approximately half of all graduating
physicians are female, so over time, women will constitute a growing proportion of the physician workforce. The AMA
reported in 2001 that the median number of hours worked per week for female physicians was 49 hours compared to 57 hours
for male physicians. Employment type and practice location can also influence physician productivity. AMA statistics show
that self-employed physicians tend to work more hours per year in patient care compared to physicians who are independent
contractors. Independent contractors, in turn, tend to work more time in patient care compared to employee physicians. Also,
physicians in less populated areas tend to spend more time providing patient care than do physicians in more populated area.
Physicians are attracted to the locum tenens industry for a number of reasons, and thus provide an ongoing supply to
physicians to the industry. Locum tenens gives a physician the opportunity to practice medicine and focus almost exclusively
on patient care without having the administrative aspects of managing a business, reimbursement concerns, hospital politics
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or malpractice costs. In addition, locum tenens can be an attractive career opportunity for physicians for other reasons
depending on their age, financial situation and stage of career.
• Physicians age 35 and under. Younger physicians who are recent residency program graduates look to experience
different practice settings and locations before making more permanent career decisions. Approximately 68% of final
year medical residents receive multiple job solicitations and in some specialties, such as radiology and cardiology, the
number is even higher. Locum tenens allows the younger physician to try out different opportunities before settling on
one. It can also assist physicians in paying off their student loans.
• Physicians 35-49. Physicians in the middle stages of their career find a locum tenens practice to suit their lifestyle as a
fulltime career, as a way to take a break from their current practices but remain working, as a transition opportunity or as
a means to supplement their income.
• Physicians age 50 or older. Older physicians at the later stages of their career normally find a diverse travel practice with
decreased time requirement to be appealing. They may look for job enrichment by choosing a locum tenens position or
looking for employment before retirement. Physicians in this category may no longer wish to operate a practice and all
the administrative issues that accompany it, but wish to continue working, even if just for a few months a year.
Our Physician Staffing Business
MDA is one of the three largest providers of physician staffing services in the U.S. It was founded in 1987 and is based in
Norcross, Georgia. Segment revenue was $151.9 million in 2009. We acquired substantially all of the assets of MDA in
September 2008. During the year, MDA handled more than 6,100 assignments for approximately 1,150 clients utilizing its
database of approximately 150,000 providers representing a wide range of medical specialties.
MDA also offers allied health providers temporary and permanent staffing opportunities at healthcare client facilities. In
addition, MDA is one of only three locum tenens companies with an in-house Credentials Verification Organization
(Credent) that is certified by the NCQA (National Committee for Quality Assurance), which verifies critical credentials prior
to MDA’s assignments. Credent uses an extensive proprietary database and interfaces with MDA’s professional liability
carrier to obtain approvals of providers. It takes risk management decisions out of the sales process by verifying credentials
of providers and approving specific assignments.
Quality medical malpractice liability insurance coverage is a critical component of the MDA business model. Clients usually
require MDA to refer physicians with medical professional liability coverage, and physicians are attracted to MDA because it
offers quality malpractice coverage.
MDA currently is the only multi-specialty physician staffing company that has procured an occurrence form policy from
Medical Protective Company, a Berkshire-Hathaway insurance company (A++ rated by Standard & Poor’s). This represents
a substantial competitive advantage in the recruitment of physicians. In addition, the occurrence-based policy is of particular
importance to physicians as it covers incidents occurring during the policy period regardless of when they are reported. The
more common claims-made policy only covers physicians for claims reported during the policy period.
When it was initially founded, the locum tenens industry primarily served clinics, group practices and rural hospitals. As the
physician staffing industry matured, an increasing amount of business has been generated from serving hospitals (in both
urban/suburban and rural settings). Large, nationwide hospital systems and associations continuously use MDA’s services
due to its ability to respond quickly to the hospital’s needs, and offer quality physicians on a temporary or permanent basis.
MDA also provide services to various U.S. government institutions, including the Indian Health Services, the Department of
Veterans Affairs, the Army, Air Force and other agencies. In 2009, approximately 51% of MDA’s business was from
hospitals and approximately 49% was from physician practice groups and other healthcare facilities.
Recruiting
MDA successfully operates a multi-site business model with employees/recruiters at several locations nationwide. Recruiters
go through extensive training in both sales and marketing specialties in order to have continuity with providers and hospitals
to facilitate quick and personal service to every customer. Each recruiter covers one specialty and one geographic region
whereas competitors typically have separate sales and marketing personnel that can add more contacts and confusion to the
staffing process. Recruiters are also responsible for managing accounts, including the responsibility for collecting amounts
due from customers, enabling MDA to have a single point of contact for customers. MDA currently employs approximately
87 physician staffing recruiters throughout its organization, including its Atlanta area headquarters, as well as offices in
Denver and Dallas.
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Contracts with Physicians and Healthcare Facility Customers
MDA contracts with physicians to provide medical services at MDA’s healthcare customers. Each physician is an
independent contractor and enters into an agreement with MDA to provide medical services at a particular healthcare
customer. Physicians are staffed on assignments that may last from a few days up to and including a year depending on client
needs and on the willingness of a physician to agree to the duration required by a particular healthcare customer.
Operations
We operate our physician staffing business from a relatively centralized business model servicing all of the assignment needs
of the independent contractor physicians through operation centers located in Norcross, Georgia; Dallas, Texas and Denver,
Colorado. The support functions of credentials verification, accounts payable, billing and collections, and risk management
are all performed from our Norcross, Georgia location. Assignment management is performed by recruiters in the three
offices as well as some remote recruiters working from their homes. Hours worked by independent contractor physicians are
recorded by our operations systems, which then produces payments to the physicians and invoices to our clients.
Clinical Trials Services
Overview of the Pharmaceutical and Biotechnology Industry
Drug discovery is the process by which potential drugs are discovered or designed. Drug development refers to activities
undertaken after a compound is identified as a potential drug in order to establish its suitability as a medication. Objectives of
drug development are to determine appropriate formulation and dosing, as well as to establish safety. Research in these areas
generally includes a combination of in vitro studies, in vivo studies, and clinical trials. The amount of capital required for late
stage development has made it a historical strength of the larger pharmaceutical companies.
The discovery and development of a new medicine is an expensive and lengthy process. In 2007, the U.S. pharmaceutical and
biotechnology industry invested $58.8 billion in research and development (R&D). The R&D process takes an average of
more than 10 years to develop a drug at an estimated cost of $1.3 billion for a new medicine and $1.2 billion to develop a
biological treatment, according to a November 2006 study from the Tufts University Center for the Study of Drug
Development (Tufts CSDD). For every 5,000 to 10,000 potential drug candidates that enter the discovery research stage, only
about 2.5% to 5% make it to the preclinical phase. Of that percentage, only 0.05% to 0.1% will enter the clinical trial testing
phase. The result of those 5,000 to 10,000 candidates is just one regulatory-approved drug to market. In 2006, there were
more than 2,700 medicines in clinical trials or undergoing review by the U.S. Food and Drug Administration (FDA) for 4,600
indications.
Another potential market for a range of outsourced clinical development activities and clinical trials is molecular medicine, or
drug therapies developed from sequencing the human genome. In 2001, the first phase of the Human Genome Project, an
international effort to determine the entire sequence of the human chromosome set was completed, along with a database of
the most common sequence variations that distinguish one person from another. There are about 20,000-25,000 human genes,
made up of 3 billion individual base pairs, the units of DNA. Each gene codes for a protein and these proteins carry out all
the functions of the body, as well as being involved in disease, according to information from PhRMA, a pharmaceutical
industry trade association.
The discipline that blends pharmacology with genomic capabilities is called pharmacogenomics. Within the next decade, the
Journal of Gene Medicine (2006) expects researchers to begin to correlate DNA variants with individual responses to
medical treatments, identify particular subgroups of patients, and develop drugs customized for those populations. Genomic
data and technologies also are expected to make drug development faster, cheaper, and more effective. Most drugs today are
based on about 500 molecular targets, but genomic knowledge of genes involved in diseases, disease pathways, and drug-
response sites will lead to the discovery of thousands of additional targets. As knowledge becomes available to select patients
most likely to benefit from a potential drug, pharmacogenomics will likely speed the design of these drugs and increase the
number of clinical trials.
The Global Economic Downturn
In recent years, drug developers have been under significant pressure to introduce new products while confronting escalating
R&D costs, blockbuster patent expirations and heightened regulatory scrutiny. Consequently, the pharmaceutical industry has
been undergoing significant change, from drug development philosophy and tightening of regulations, to restructuring,
consolidation and mergers and acquisitions, in addition to looking at new approaches such as internal refocusing,
outsourcing, off-shoring and entering into drug development alliances. The global economic downturn that began in late 2008
substantially accelerated these actions.
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The biotechnology industry also suffered during the financial crisis from a loss of access to private and public capital as most
biotech start-ups were being funded by private equity or venture capital firms and the economic climate was not conducive
for such investments. As a result, a large number of biotechnology companies significantly reduced or eliminated projects,
laid-off workers, closed or sold facilities, and attempted to merge with or be acquired by other biotechnology companies. At
the same time, pharmaceutical companies were seeking to bolster their pipelines by licensing and/or acquiring potential new
products and technologies, and also by taking advantage of the market environment to acquire biotechnology companies at
very low multiples.
Of the top 10 pharmaceutical manufacturers, six announced major changes to their R&D models, and nine have made
changes relating to the size, structure, or focus of their R&D efforts (Pharmaceutical Executive, October 2009). According to
a 2009 article in Contract Pharma and information from the market research firm, Business Insights, R&D cost cutting is
expected to continue gaining pace through 2010, with reduced emphasis from 2011 to 2014. These changes impact clinical
outsourcing companies, the services they provide, from where, and for whom. The drop in R&D spending during the last few
quarters has primarily impacted preclinical Contract Research Organizations (CROs), which are experiencing heavy
discounting, delays, and cancellations. Although R&D spend has been down, many in the industry feel outsourcing will
inevitably rise. Despite the financial crunch and a drop in early-stage research, a new report conducted by Business Insights
states that the global CRO market is expected to grow 14% per year during the next three years, making contract research a
$35 billion industry by 2013.
Despite the impact of the global economic downturn, the world-wide pharmaceutical market is expected to exceed
$825 billion in 2010, reflecting 4% - 6% growth over the prior year driven by stronger near-term growth in the U.S. market,
according to industry intelligence source IMS Health (IMS). In its latest forecast, IMS expects the global pharmaceutical
market value to expand to more than $975 billion by 2013, projecting drug sales growth at a 4% - 7% compound annual
growth rate, which takes into account the impact of the global macroeconomy, the changing mix of innovative and mature
products, and the rising influence of healthcare access and funding on market demand.
Overview of Clinical Trials
Clinical trials are one of the most important parts of the drug development process and also one of the most time-consuming.
Between 1999-2002 and 2003-2006, the length of the average clinical trial increased by nearly 70%, from 460 days to 780
days (Tufts CSDD). The clinical trial studies are not only expanding in time, but also growing in scope, as the average
number of participants needed for each clinical study increased from 1,700 to 4,300 over the last three decades (Center for
Information and Study on Clinical Research Participation, Hoover Institution, and FDA). In addition, clinical studies are
increasingly becoming more complex. In 2005, 72% of U.S. clinical studies involved more than 85 procedures, 70% more
than the number of studies in 2000 (Accenture, PhRMA).
Approximately 80,000 clinical trials are conducted in the U.S. each year sponsored by both industry and government. These
studies to advance medical science require the work of an estimated 200,000 research professionals and the involvement
of millions of study participants each year (CenterWatch).
Clinical trials are conducted to collect data regarding the safety and efficacy of new drugs or medical devices. There are
several steps and stages of approval in the clinical trials process before a drug or device can be sold in the consumer market,
if ever. Drug and device testing begins in the preclinical stage, which can involve years of experiments on animals and
human cells. Before advancing to the clinical stage, researches must submit an investigational new drug application, or IND,
to the FDA for approval to continue research and to test in humans. Once approved, human testing of experimental drugs and
devices can begin and is typically conducted in four phases. Each phase is considered a separate trial and, after completion of
each phase, investigators are required to submit their data for approval from the FDA before continuing to the next phase.
Clinical trials are conducted by teams of physicians and other clinical and data professionals in university facilities, hospitals
and physician offices around the world.
• Phase I studies assess the basic safety of a drug or device, including tolerance, absorption, metabolism and excretion.
This initial phase of testing, which can take several months to complete, usually includes a small number of healthy
volunteers (20 to 100), who are generally paid for participating in the study. About 70% of experimental drugs pass this
phase of testing (CenterWatch).
• Phase II studies test the efficacy of a drug or device. This second phase of testing can last from several months to two
years, and involves approximately 100 to 500 people. About one-third of experimental drugs successfully complete both
Phase I and Phase II studies (CenterWatch).
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• Phase III studies involve randomized and blind testing in several hundred to several thousand patients. This large-scale
testing, which can last several years, provides the pharmaceutical company and the FDA with a more thorough
understanding of the effectiveness of the drug or device, the benefits and the range of possible adverse reactions. 70% to
90% of drugs that enter Phase III studies successfully complete this phase of testing (CenterWatch). Once Phase III is
complete, a pharmaceutical company can request FDA approval for marketing the drug.
• Phase IV studies, often called Post Marketing Surveillance Trials, are conducted after a drug or device has been
approved for consumer sale. These studies have become more prevalent in recent years as the trials can be used to
monitor long-term risks and benefits, evaluate dosage levels, and to record safety and efficacy data.
Outsourcing of Clinical Research
Research sponsors commonly partner with outsourcing providers to take advantage of their clinical research expertise, skilled
workforce and resources to help accelerate the development of treatments for the cure and prevention of disease. The
outsourcing of clinical research and testing developed mostly in the late 1990’s as pharmaceutical R&D efforts became more
complex and competition in rapidly-growing therapeutic areas increased. Traditionally thought of as a short-term strategy,
outsourcing is now being used to lever the pharmaceutical industry’s core competencies to maximize productivity. The global
market for contract clinical research services is highly fragmented and comprises CROs of varying size, as well as hundreds
of niche service providers and independent consultants. In 2007, pharmaceutical and biotechnology companies spent
approximately $8.5 billion on contracted clinical services (Contract Pharma, June 2008).
Outsourcing offers a number of advantages to pharmaceutical and biotechnology companies. Outsourcing provides solutions
to the following issues pharmaceutical and biotechnology companies may face.
• Sponsors can convert the fixed costs of maintaining the personnel, expertise and facilities into variable costs
• Supplemental expertise not available in-house
• Knowledge of regulatory affairs in a particular country of interest
•
Increased complexity of clinical trials
• Necessity for medical and clinical knowledge in specific therapeutic areas or indications
•
Increased amount of data required from clinical trials
• Multinational and multi-center nature of current clinical trials
• Requirement for large patient populations
• Regionalized diseases
Our Clinical Trials Services Business
We primarily provide traditional contract staffing and outsourcing services, as well as drug safety monitoring, regulatory
consulting and clinical research services to pharmaceutical, biotechnology and medical device companies, as well as to CRO
customers. In 2009, segment revenue was $71.7 million. We market these services through the following brands:
• ClinForce provides clinical research professionals for in-sourced and out-sourced contract assignments and permanent
placement services. Customers include pharmaceutical, biotechnology and medical device companies, as well as CROs.
Acquired in March 2001, it is headquartered at the Research Triangle Park in Durham, North Carolina.
• Assent provides contract staffing services to biotechnology and pharmaceutical customers. Acquired in July 2007, it has
offices located in Silicon Valley (Cupertino, California) and near San Diego (Solana Beach, California), which are
geographic areas with high a concentration of biotechnology research centers.
• AKOS provides drug safety, regulatory and clinical trial services to pharmaceutical, biotechnology and medical device
companies, as well as CROs, in Europe, the U.S., Canada and Asia. Acquired in June 2007, it is based in Harpenden
Hertfordshire, England and is strategically located inside what is considered to be the UK’s research triangle that extends
outward from London to Cambridge and Oxford Universities.
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We recruit qualified candidates for our clinical trials services segment from across the U.S. and internationally for clinical
research opportunities, which include temporary and permanent positions with our clients. For our contract staffing services
businesses, we recruit professionals from numerous clinical research disciplines, including: clinical monitors/contract
research associates, clinical project managers, site coordinators/contract research coordinators, drug safety personnel, medical
monitors, regulatory affairs personnel, medical writers, clinical data professionals, statistical and SAS programmers, and
various preclinical related professionals. Recruiting for our non-staffing services consist primarily of regulatory affairs
personnel, drug safety associates and other clinical professionals.
Other Human Capital Management Services
We provide education and training programs to the healthcare industry and we also provide retained search services for
physicians and healthcare executives. Segment revenue was $41.7 million in 2009.
Education and Training Services
Our Cross Country Education (CCE) subsidiary, headquartered in Brentwood, Tennessee, provides continuing education
programs to the healthcare industry. CCE offers one-day seminars and e-learning, as well as national and regional
conferences on topics relevant to healthcare professionals. In 2009, CCE held more than 5,550 seminars and conferences that
were attended by more than 155,000 registrants in 221 cities in the U.S. and Canada. We extend these educational services to
our field employees on favorable terms as a recruitment and retention tool.
Beginning in the fourth quarter of 2008 and lasting through the first half of 2009, many healthcare practitioners delayed or
deferred their normal continuing educational activities. CCE’s largest market segment is made up of a variety of behavioral
health topics and attended by professionals, most of whom personally bear the cost of these continuing educational
activities. Consequently, due to economic factors this market segment showed the most significant reduction in seminar
attendance during this period. The second largest market segment consists of allied professional who are less sensitive to
external factors, since their continuing educational expenses are more often than not reimbursed by their employer. Even so,
employer education budget cuts impacted allied practitioners to some degree. In the second half of 2009, we experienced
increased attendance by professionals in most markets served due to their respective licensing requirements. Generally, the
continuing education industry continues to experience increased interest in e-learning as well as in-house opportunities across
all professions served, as many times they are more cost effective to the purchaser.
Retained Search
Our Cejka Search subsidiary, headquartered in Creve Coeur, Missouri, is a nationally recognized retained search organization
that provides physician and executive search services throughout the U.S. exclusively to the healthcare industry, including
physician group practices, hospitals and health systems, academic medical centers, managed care and other healthcare
organizations.
The restricted credit market, high unemployment and sharp economic decline in late 2008 and through 2009 impacted many
hospitals, health systems and medical groups, which are our primary clients. As healthcare organizations delayed expansion,
experienced volume disruptions and suffered operating revenue shortfalls, they reduced or cancelled medical staff
recruitment plans, and froze or down-sized administrative staffing at all levels. The sharp drop in the stock market caused
physicians to delay retirement, while declining housing values and reduced employment opportunities for trailing spouses
made relocation unattractive to physicians and executives. These factors substantially reduced the demand for permanent
physician search services, particularly through mid-year 2009. Internal changes to our sales model, in both physician and
healthcare executive search, along with diversification of recruitment and physician sourcing services contributed to
improved sales trends in the later part of 2009.
Additional Information About Our Business
Growth and Investment Strategy
Our long-term corporate strategy for growth includes:
•
•
•
attracting additional healthcare customers and healthcare professionals and providers;
strengthening our market position and margins in our businesses;
generating strong cash flow;
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• making strategic acquisitions in high growth, high margin businesses that will strengthen and broaden our market
presence; and
• maintaining a strong balance sheet to provide financial flexibility.
Competitive Strengths
We are a diversified provider of healthcare staffing services. This allows us to offer what we believe to be the most
comprehensive suite of staffing and outsourcing services to the U.S. healthcare market. Based on external information and
internal research, we believe:
• We are one of the top two providers of travel nurse and allied staffing services;
• We are one of the top three providers of locum tenens and physician search services; and
• We are a leading provider of clinical trials staffing services.
Since becoming a public company in 2001, we have significantly expanded our revenue mix across sectors of healthcare
staffing services and customers. In 2009, our nurse and allied staffing business segment was 54% of our revenue; our
physician staffing business segment was 26% of our revenue; our clinical trials services business segment was 13% of our
revenue and our other human capital management services business segment was 7% of our revenue. This compares to our
revenue mix in 2001 in which 87% was from our nurse and allied staffing business segment, 6% from our clinical trials
services business segment and 7% from our other human capital management services business segment.
Within our business segments, we also believe we have:
• Brand Recognition. We have operated in the travel nurse staffing industry for more than 25 years. Our Cross Country
Staffing brand is well-recognized among leading hospitals and healthcare facilities and our Cross Country TravCorps
and MedStaff brands are well-recognized by RNs and other healthcare professionals. We believe that through our
relationships with hospitals and healthcare facilities in supplying our travel nurse staffing services that we also are
positioned to effectively market our allied health and per diem nurse staffing services to them. Our physician staffing
business was founded in 1987 and has built a strong national brand reputation among hospital and physician practice
group clients as well as physician providers. It has grown to become one of the largest physician staffing companies in
the U.S. while competing in what continues to be the fastest growing sector of healthcare staffing. Since entering the
clinical trials services business in 2001, our core clinical staffing business has been a strong service provider to
pharmaceutical, biotechnology and medical device companies and our acquisitions have broadened our services offerings
in such areas as drug safety monitoring and regulatory services. We are well positioned to offer these services to our
customers in the U.S. and certain international markets. Our Cejka Search brand is ranked among the top five physician
placement firms in the U.S.
•
Strong and Diverse Client Relationships. We provide healthcare staffing and outsourcing solutions to a national client
base represented by approximately 4,500 contracts with hospitals and healthcare facilities, pharmaceutical and
biotechnology companies, and other healthcare providers. No single client accounts for more than 4% of our revenue.
• Vendor Management Capabilities. Our Cross Country Staffing brand offers its vendor management services to large
acute care hospitals and health systems. By leveraging technology and its single-point of contact service model, Cross
Country Staffing can manage all job orders, credential verification, candidate testing, invoicing, and management
reporting. Cross Country Staffing also seeks to gain preferred provider relationships with hospitals and health systems.
• Recruiting and Placement of Healthcare Professionals. We are a leader in recruiting and retaining highly qualified
healthcare professionals from throughout the U.S. and Canada. In 2009, thousands of healthcare professionals applied
with us through our differentiated recruitment brands. We believe we offer appealing assignments, competitive
compensation packages, attractive housing options and other valuable benefits.
•
Joint Commission Certification. The travel nurse staffing business of Cross Country Staffing and MedStaff brands and
the staffing business of our Allied Health Group are certified by The Joint Commission under its Health Care Staffing
Services Certification Program.
• Quality Assurance. MDA’s Credent credential verification division is NCQA certified, one of only a handful of
competitors to achieve such certification.
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• Continuing Education. We also have internal educational and training capabilities through Cross Country University
(CCU), a division of CCS, that we believe gives us a competitive advantage by enhancing both the quality of our
working nurses and the effectiveness of our recruitment efforts. CCU is the first educational program in the travel nurse
industry to be accredited by the American Nurse Credentialing Center, and enables us to provide continuing education
credits to our RN field employees, as well as provide accredited continuing education to other healthcare professionals.
CCU offers our RNs and other healthcare professionals additional training, professional development and assistance in
completing continuing education for state licensing requirements.
•
•
Scalable and Efficient Operating Structure. At year-end 2009, the databases for our travel nurse and allied staffing
businesses included more than 250,000 RNs and other healthcare professionals who completed job applications with us.
Similarly, the database for our physicians staffing business included more than 150,000 physicians representing dozens
of specialties. Our size and centralized staffing structure provide us with operating efficiencies in key areas such as
recruiting, marketing and advertising, training, housing and insurance. Our proprietary information systems enable us to
manage our recruitment and placement operations. Our systems are scalable and designed to accommodate significant
future growth.
Strong Management Team with Extensive Healthcare Staffing and Acquisition Experience. Our management has played
a key role in the growth and development of the healthcare staffing industry. Our management averages more than 10
years of experience in the healthcare industry and has consistently demonstrated the ability to successfully identify, make
and integrate strategic acquisitions.
Competitive Environment
All of our businesses operate in highly competitive markets. In our nurse and allied and our physician staffing businesses, the
principal competitive factors in attracting and retaining healthcare clients include the ability to fill client needs on a timely
basis, price, customer service, quality assurance and screening capabilities, compliance with regulatory requirements, having
an understanding of the client’s work environment, risk management policies and coverages, and general industry reputation.
Our clinical trials services business shares these same competitive factors while also recognizing that our pharmaceutical,
biotechnology and medical device company customers operate in a highly regulated environment. Being able to successfully
provide our staffing and outsourcing services for various types of clinical projects includes our clinical experience and
expertise, understanding of the regulatory process, price, overall project management, recruitment and project oversight of
personnel, quality control, data management, communication, and timely delivery of materials, documents and data. The
level of demand for our temporary staffing and outsourcing services is influenced by, among other things, the number and
acuity of patients requiring medical care in hospitals and physician offices, availability and affordability of healthcare
insurance coverage, national healthcare spending and reimbursement for medical care, R&D efforts and spending related to
development of potential new drugs and devices, mergers and acquisitions, general economic conditions and their impact on
labor markets and healthcare employment, and the corresponding supply of healthcare professionals available to us for
placement on assignments.
The principal competitive factors in attracting qualified candidates for temporary employment include a large national pool of
desirable assignments based on geographic location and clinical setting, wages and benefits, speed of placements, customer
service to both healthcare professionals and client facilities, quality of accommodations, and overall industry reputation. We
believe that healthcare professionals seeking temporary employment through us are also pursuing employment through other
means, including other temporary staffing firms. Therefore, the ability to respond more quickly than our competitors to
candidate inquiries and submit candidates for consideration, are important factors in our ability to fill assignments. We focus
on retaining field employees by providing high-quality customer service along with long-term benefits, such as 401(k) plans
and bonuses. Although we believe that the relative size of our databases and economies of scale derived from the size of our
operations make us attractive for healthcare professionals seeking assignment opportunities, we expect competition for
candidates to continue.
Nurse and Allied Staffing
The nurse and allied staffing market is highly competitive. While barriers to entry historically have been relatively low, they
have been increasing and the achievement of substantial scale is very challenging. We believe the utilization of temporary
nurse staffing services by hospitals has historically been approximately one-quarter to one-third travel nurse staffing and
approximately two-thirds to three-quarters per diem nurse staffing. We compete with a relatively small number of national
travel nurse staffing companies, as well as hundreds of smaller and more localized staffing firms that have the capabilities to
relocate nurses. We also compete in per diem nurse staffing with a small number of national or regional staffing firms along
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with thousands of small local providers. National competitors include AMN Healthcare Services, Inc., On Assignment, Inc.,
CHG Group, Medfinders, Medical Staffing Network Holdings, Inc., and Jackson Healthcare.
Physician Staffing
Our physician staffing business competes in the healthcare staffing market on a national, regional and local basis with other
staffing companies that offer comprehensive and or specialized services providing hospitals, physician practice groups,
healthcare facilities and systems, and government agencies with temporary physicians to fill assignments across a wide range
of specialties. We also compete in the recruitment for qualified physicians with other staffing companies as well as hospitals,
physician practice groups, and healthcare facilities and systems that have their own internal recruitment capabilities to attract
and retain healthcare providers. Competitors include AMN Healthcare Services, Inc., CHG Group, On Assignment, Inc.,
Jackson Healthcare, and several other privately-held companies providing locum tenens.
Clinical Trials Services
The clinical trials services industry is highly competitive and fragmented. In addition to the same competitive factors outlined
above, our clinical trials services business has the added challenges associated with pharmaceutical, biotechnology and
medical device company customers that operate in a highly regulated environment. Being able to successfully provide our
staffing and outsourcing services for various types of clinical projects includes our clinical experience and expertise,
understanding of the regulatory process, price, overall knowledge of project management, recruitment and project oversight
of personnel, quality control, data management, communication, and timely delivery of materials, documents and data. We
also compete to recruit a wide range of qualified professionals in the U.S. and internationally across numerous clinical
research disciplines for our staffing, drug safety, CRO and regulatory services assignments. Competitors include divisions of
publicly-held companies such as Kforce, Inc., inVentiv Health, Inc. and Kelly Services, as well as hundreds of niche service
providers and free-lance consultants. We also supply our clinical trials staffing services to, and sometimes compete with,
large CROs such as Quintiles, Covance Inc., Pharmaceutical Products Development, Inc. and Kendle International, among
others.
Systems
Our placement and support operations are enhanced by sophisticated information systems that facilitate smooth interaction
between our recruitment and support activities. Our proprietary information systems enable us to manage virtually all aspects
of our travel staffing operations. These systems are designed to accommodate significant future growth of our business. In
addition, their scalable design allows further capacity to be added to the existing hardware platform. We have proprietary
software that handles most facets of our business, including contract pricing and profitability, contract processing, job
posting, housing management, billing/payroll and insurance. Our systems provide support to our facility clients, field
employees and independent contractors, and enable us to efficiently fulfill and renew job assignments. Our systems also
provide detailed information on the status and skill set of each registered field employee and independent contractor. In
addition to our domestic information systems team, certain software development and information technology support is
provided by our employees based in Pune, India.
Our financial, management reporting and human resources systems are managed on PeopleSoft®. PeopleSoft is a leading
enterprise resource planning software suite that provides modules used to manage our accounts receivable, accounts payable,
general ledger, billing and human resources. This system is designed to accommodate significant future growth in our
business.
Workers’ Compensation Insurance, Professional Liability Coverage and Health Care Benefits
We provide workers’ compensation insurance coverage, professional liability coverage and health care benefits for our
eligible temporary healthcare professionals. We record our estimate of the ultimate cost of, and reserves for workers
compensation and professional liability benefits based on actuarial models prepared or reviewed by an independent actuary
using our loss history as well as industry statistics. Furthermore, in determining our reserves, we include reserves for
estimated claims incurred but not reported. The health care insurance accrual is for claims that have occurred but have not
been reported and is based on our historical claim submission patterns. The ultimate cost of workers’ compensation,
professional liability and health insurance claims will depend on actual amounts incurred to settle those claims and may differ
from the amounts reserved by us for those claims.
Workers’ compensation benefits are provided under a partially self-insured plan. For workers’ compensation claims reported
prior to September 1, 2009, the insurance carrier required us to fund a reserve for payment of claims. Those funds were
maintained by the insurance carrier. Effective September 1, 2009, we replaced the pre-funded program with a letter of credit
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structure to guarantee payments of claims. At December 31, 2009, we had outstanding approximately $7,149,000 standby
letters of credit as collateral to secure the self-insured portion of this plan.
Since October 2009, all professional liability insurance has been provided under occurrence-based plans. Prior to that period,
professional liability coverage was provided under various self-insured, claims-made and occurrence-based plans depending
on the subsidiary and the applicable policy year. In October 2004, we secured individual occurrence-based professional
liability insurance policies with no deductible for virtually all of our working nurses and allied professionals, except those
employed through our MedStaff subsidiary. These occurrence-based individual policies replaced a $2,000,000 per-claim
layer of self-insured exposure. We continued to provide primary coverage through a $2,000,000 self-insured retention for
nurses and allied professionals who did not qualify for the individual occurrence-based coverage, as well as for our
independent liabilities (such as negligent hiring) during these policy years. Effective October 1, 2008, the individual
professional liability insurance policies were replaced with one policy that insured each individual nurse for $2,000,000 per
occurrence and $4,000,000 in the aggregate, as well as the corporation which shared those limits. This policy had no
deductible and did not cover healthcare professionals working through MedStaff or MDA Holdings, Inc. or its subsidiaries
(collectively, MDA). Separately, prior to October 1, 2009, our MedStaff subsidiary had a claims-made professional liability
policy with a limit of $2,000,000 per occurrence, $4,000,000 in the aggregate and a $25,000 deductible per claim.
In October 2009, we purchased an occurrence-based professional liability policy that provides each working nurse and each
allied healthcare professional with coverage of $1,000,000 per occurrence and $3,000,000 in the aggregate. Those individual
limits are shared with the healthcare provider’s employer (e.g. Cross Country Travcorps or MedStaff) in the event of
vicarious liability and/or negligent hiring allegations on a claim. This policy does not have a deductible. In addition, in
October 2009, we purchased an excess layer of professional liability insurance having limits of $1,000,000 per occurrence
and $6,000,000 in the aggregate for all working nurses and allied healthcare professionals of Cross Country Travcorps
and $1,000,000 per occurrence and $3,000,000 in the aggregate for all working nurses of MedStaff. Those limits are also
shared with the corporations on applicable claims. MedStaff also secured insurance coverage having the same terms as the
primary and excess coverage described above for acts occurring on or after October 25, 2002.
MDA has an occurrence-based professional liability policy with a limit of $1,000,000 per occurrence, $3,000,000 in the
aggregate and a $500,000 deductible for MDA, its independent contractor physicians, CRNAs and allied health professionals.
MDA’s $500,000 deductible is insured by Jamestown Indemnity Ltd., a Cayman Island company and a wholly-owned
subsidiary of MDA Holdings, Inc. (the Captive). Under the terms of the Captive’s reinsurance policy there is a requirement to
guarantee the payment of claims to its insured party’s primary medical malpractice insurance carrier via a letter of credit. The
value of the letter of credit was secured by $5,000,000 of cash held by the Captive as restricted cash at December 31, 2008.
During 2009, the cash was released from restriction and replaced by a letter of credit under our credit facility. As of
December 31, 2009, the value of the letter of credit was $5,532,724.
Subject to certain limitations, we also have $5,000,000 per occurrence and $10,000,000 in the aggregate in umbrella liability
coverage after $2,000,000 is exhausted under the primary and excess professional liability policies covering the working
nurses and allied healthcare professionals. While this umbrella coverage does not extend to professional liability claims
against MDA, its independent contractor physicians, CRNAs and allied health professionals, it does cover claims brought
against all of our subsidiaries for non-patient general liability ($250,000 deductible), employee liability ($1,000,000
deductible), non-owned hired auto ($1,000,000 deductible) and clinical trials/errors and omissions ($500,000 deductible and
a cap of $5,000,000 in coverage under the umbrella policy).
Professional Licensure
Nurses and most other healthcare professionals employed by us and physicians contracted by us are required to be
individually licensed or certified under applicable state law. Our comprehensive compliance and credentials verification
programs are designed to ensure that employed and contracted providers possess all necessary licenses and certifications, and
we endeavor to ensure that our employees (including nurses and therapists) and contractors (including physicians and other
mid-level providers), comply with all applicable state laws.
Business Licenses
A number of states require state licensure for businesses that, for a fee, employ and assign personnel, including healthcare
personnel, to provide services on-site at hospitals and other healthcare facilities to support or supplement the hospitals’ or
healthcare facilities’ workforces. A number of states also require state licensure for businesses that operate placement
services for individuals attempting to secure employment. Failure to obtain the necessary licenses can result in injunctions
against operating, cease and desist orders, and/or fines. We endeavor to maintain in effect all required state licenses.
18
Regulations Affecting Our Clients
Many of our clients are reimbursed under the federal Medicare program and state Medicaid programs for the services they
provide. In recent years, federal and state governments have made significant changes in these programs that have reduced
reimbursement rates. In addition, insurance companies and managed care organizations seek to control costs by requiring that
healthcare providers, such as hospitals, discount their services in exchange for exclusive or preferred participation in their
benefit plans. Future federal and state legislation or evolving commercial reimbursement trends may further reduce, or
change conditions for, our clients’ reimbursement. Such limitations on reimbursement could reduce our clients’ cash flows,
hampering their ability to pay us. Pharmaceutical, biotechnology and medical diagnostic companies are subject to regulations
of the FDA in the U.S. and similar regulatory agencies in other countries.
Immigration
Changes in immigration law and procedures following September 11, 2001, have slowed our ability to recruit foreign nurses
to meet demand, and changes to such procedures in the future could further hamper our overseas recruiting efforts. In
addition, the use of foreign nurses entails greater difficulty in ensuring that each professional has the proper credentials and
licensure.
Regulations Applicable to Our Business
Our business is subject to extensive regulation by numerous governmental authorities in the United States and the foreign
jurisdictions in which we operate. In the U.S., complex federal and state laws and regulations govern, among other things, the
eligibility of our foreign nurses to work in the U.S., the licensure of professionals, the payment of our employees (e.g. wage
and hour laws, employment taxes and income tax withholdings, etc.) and the operations of our business generally. We
conduct business on a national basis and are subject to the laws and regulations applicable to our business in such states,
which may be amended from time to time. Future federal and state legislation or interpretations thereof may require us to
change our business practices. Compliance with all of these applicable rules and regulations require a significant amount of
resources. We endeavor to be in compliance with all such rules and regulations.
Employees
As of December 31, 2009, we had approximately 1,100 corporate employees. During 2009, we had an average of 2,735 full-
time equivalent field employees in our nurse and allied staffing segment and 418 full-time equivalent field employees in our
clinical trials segment. In addition, in the course of 2009 we utilized 152 independent contractors in our clinical trials staffing
operations and provided a total of 95,296 days filled by independent contractor physicians in our physician staffing segment.
Days filled is calculated by dividing the physician staffing hours filled during the period by eight hours. We are not subject to
a collective bargaining agreement with any of our employees. We consider our relationship with employees to be good.
Available Information
Financial reports and filings with the Securities and Exchange Commission (SEC), including this Annual Report on
Form 10-K, are available free of charge as soon as reasonably practicable after filing such material with, or furnishing it to,
the SEC, on or through our corporate website at www.crosscountryhealthcare.com.
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Item 1A. Risk Factors.
You should carefully consider the following risk factors, as well as the other information contained in this Annual Report on
Form 10-K.
We may be unable to recruit enough healthcare professionals to meet our clients’ demands.
We rely significantly on our ability to attract, develop and retain healthcare professionals who possess the skills, experience
and, as required, licensure necessary to meet the specified requirements of our healthcare clients. We compete for healthcare
staffing personnel with other temporary healthcare staffing companies, as well as actual and potential clients such as
healthcare facilities, physician groups and pharmaceutical and biotechnology companies, some of which seek to fill positions
with either permanent or temporary employees. Currently, there is a shortage of certain qualified nurses and physicians in
many areas of the United States and competition for these professionals remains intense. The current economic conditions
may make these healthcare professionals less willing to travel to temporary assignments, thus further intensifying the
competition with other temporary healthcare staffing companies to recruit these healthcare professionals. Although demand is
below historically normal levels, at this time we still do not have enough nurses and physicians to meet all of our clients’
demands for these staffing services. This shortage of healthcare professionals generally and their willingness to leave stable
full-time jobs to travel on temporary assignments in the current environment may limit our ability to increase the number of
healthcare professionals that we successfully recruit, decreasing our ability to grow our business.
The costs of attracting and retaining healthcare professionals may rise more than we anticipate.
We compete with hospitals, healthcare facilities, physician groups and other healthcare staffing companies for qualified
healthcare professionals. Because there is currently a shortage of certain qualified healthcare professionals, competition for
them is intense. Our ability to recruit and retain healthcare professionals depends on our ability to, among other things, offer
assignments that are attractive to healthcare professionals and offer them competitive wages and benefits or payments, as
applicable. Our competitors might increase hourly wages or the value of benefits to induce healthcare professionals to take
assignments with them. If we do not raise wages or increase the value of benefits in response to such increases by our
competitors, we could face difficulties attracting and retaining qualified healthcare professionals. If we raise wages in
response to our competitors’ wage increases and are unable to pass such cost increases on to our clients, our margins could
decline.
Our costs of providing housing for our healthcare professionals may be higher than we anticipate and, as a result, our
margins could decline.
We provide housing for certain of our healthcare professionals when on an assignment with us. At any given time, we have
over a thousand apartments on lease throughout the U.S. Typically, the length of an apartment lease is coterminous with the
length of the assignment of a nurse or allied healthcare professional. If the costs of renting apartments and furniture for these
healthcare professionals increase more than we anticipate and we are unable to pass such increases on to our clients, our
margins may decline. To the extent the length of a nurse’s housing lease exceeds the term of the nurse’s staffing contract, we
bear the risk that we will be obligated to pay rent for housing we do not use. To limit the costs of unutilized housing, we try
to secure leases with term lengths that match the term lengths of our staffing contracts, typically 13 weeks. In some housing
markets we have had, and believe we will continue to have, difficulty identifying short-term leases. If we cannot identify a
sufficient number of appropriate short-term leases in regional markets, or, if for any reason, we are unable to efficiently
utilize the apartments we do lease, we may be required to pay rent for unutilized housing, or, to avoid such risk, we may have
to forego otherwise profitable opportunities.
Our clients may terminate or not renew their contracts with us.
Our arrangements with hospitals, healthcare facilities and physician group clients are generally terminable upon 30 to 90
days’ notice. We may have fixed costs, including housing costs, associated with terminated arrangements that we will be
obligated to pay post-termination. Our clinical trials services business is conducted under longer-term contracts with
individual clients that may perform numerous clinical trials. Some of these contracts are terminable by the clients without
cause upon 30 to 60 days’ notice. Sponsors may decide to immediately discontinue trials at any time if compounds or
biologics being studied do not meet targeted expectations. Clients utilizing our clinical trials services may also decide to
offshore work outside of the United States to countries where we do not currently provide those services and this could
adversely impact our business. Clients may also develop their own in-house capabilities that may replace their need to utilize
our staffing and outsourcing clinical trials services. The delay, loss, termination or unfavorable change in the scope of work
performed under a clinical trials services contract could negatively impact our business.
20
Decreases in demand by our clients may adversely affect the profitability of our business.
Among other things, changes in the economy which result in higher unemployment and low job growth, a decrease or
stagnation in the general level of in-patient admissions at our clients’ facilities and the willingness of our hospital, healthcare
facilities and physician group clients to develop their own temporary staffing pools and increase the productivity of their
permanent staff may, individually or in the aggregate, significantly affect demand for our temporary healthcare staffing
services and hamper our ability to attract, develop and retain clients. When a hospital’s admissions increase, temporary
employees or other healthcare professionals are often added before full-time employees are hired. As admissions decrease,
clients typically reduce their use of temporary employees or other healthcare professionals before undertaking layoffs of their
permanent employees. In a down market, healthcare professionals may be less likely to leave a full-time position to work on
temporary assignments and clients are also more likely to focus on internal solutions for their temporary staffing needs. In
addition, we also may experience more competitive pricing pressure during periods when in-patient admissions are stagnant
for periods of time or declining. In addition, if the trend towards providing healthcare in alternative settings, as opposed to
acute care hospitals intensifies, it could result in a decline in in-patient admissions at our clients’ facilities. These events
individually or in the aggregate may cause a reduction in admissions that could negatively affect the demand for our services.
Decreases in demand for our services may affect our ability to provide attractive assignments to our healthcare professionals
thereby reducing our profitability.
Any failure by our clinical trials services business to comply with certain policies and procedures and regulations specific
to that business could harm our reputation and operating results.
Our clinical trials services business operates in a highly regulated industry. Any failure on our part to comply with the
policies and procedures established for a trial or to comply with existing regulations could result in the termination of
ongoing research or the disqualification of data for submission to the FDA and other regulatory authorities. This could harm
our reputation, our ability to win future business and our operating results. In addition, if the FDA or another similar
regulatory body finds a material breach by us of sound clinical practices, it could result in the termination of a clinical trial
which could also harm our reputation, our ability to win future business and our operating results.
The nature of our clinical trials services contracts could hurt our operating results.
Some of our contracts are fixed price and, as such, we have limits on the amounts we can charge for our clinical trials
services. As a result, the profitability of this business could be negatively impacted due to changes in the timing and progress
of large contracts. In addition, we may be responsible for cost overruns on certain contracts unless the scope of work is
revised from the original contract terms and we are able to negotiate an amendment with the client shifting the additional cost
to the client. If we experience significant cost overruns, it may result in lower gross margins on those projects.
Our clinical trials business exposes us to potential liability for personal injury and wrongful death claims that could affect
our reputation and operating results.
Our clinical trials services business is involved in the testing of new drugs and medical devices on volunteer human beings.
Due to the risk of personal injury or death to patients participating in clinical trials, we are at risk for being sued in personal
injury or wrongful death lawsuits due to possible unforeseen adverse side effects or the improper administration of a drug or
device. Many of these patients are already seriously ill. Under our contracts, we are typically indemnified unless the resulting
damages were caused by our negligence (e.g. serious adverse event is not reported timely to a sponsor or unblinding of
material for a study is not done timely to respond with appropriate information for patient safety reasons). We have insurance
coverage for certain events, however, the amount of our liability could materially impact our operating performance and our
reputation and our insurance program may not cover such event.
We are dependent on the proper functioning of our information systems.
We are dependent on the proper functioning of our information systems in operating our business. Critical information
systems used in daily operations identify and match staffing resources and client assignments and perform billing and
accounts receivable functions. Additionally, we rely on our information systems in managing our accounting and financial
reporting. If these systems are damaged or disrupted and unable to function properly in order to support our business
operations or require significant costs to repair, maintain or further develop, our business and financial results could be
materially adversely affected. Our information systems are protected through a secure hosting facility and additional backup
remote processing capabilities also exist in the event our primary systems fail or are not accessible. However, the business is
still vulnerable to fire, storm, flood, power loss, telecommunications failures, physical or software break-ins and similar
events which may prevent personnel from gaining access to systems necessary to perform their tasks in an automated fashion.
21
In the event that critical information systems fail or are otherwise unavailable, these functions would have to be
accomplished manually, which could impact our ability to identify business opportunities quickly, to maintain billing and
clinical records reliably, to bill for services efficiently and to maintain our accounting and financial reporting accurately.
Losses caused by natural disasters, such as hurricanes could cause us to suffer material financial losses.
Catastrophes can be caused by various events, including, but not limited to, hurricanes and other severe weather. The
incidence and severity of catastrophes are inherently unpredictable. The extent of losses from a catastrophe is a function of
both the total amount of insured exposure and the severity of the event. We do not maintain business interruption insurance
for these events. We could suffer material financial losses as a result of such catastrophes.
If applicable government regulations change, we may face increased costs that reduce our revenue and profitability.
The temporary healthcare staffing industry is regulated in many states. For example, in some states, firms such as our nurse
staffing companies must be registered to establish and advertise as a nurse-staffing agency or must qualify for an exemption
from registration in those states. If we were to lose any required state licenses, we could be required to cease operating in
those states. The introduction of new regulatory provisions could substantially raise the costs associated with hiring
temporary employees. For example, some states could impose sales taxes or increase sales tax rates on temporary healthcare
staffing services. These increased costs may not be able to be passed on to clients without a decrease in demand for
temporary employees. In addition, if government regulations were implemented that limited the amounts we could charge for
our services, our profitability could be adversely affected.
If certain of our healthcare professionals are reclassified from independent contractors to employees our profitability
could be materially adversely impacted.
Federal or state taxing authorities could re-classify our locum tenens physicians and certified registered nurse anesthetists as
employees, despite both the general industry standard to treat them as independent contractors and many state laws
prohibiting non-physician owned companies from employing physicians (e.g. the “corporate practice of medicine”). If they
were re-classified as employees, we would be subject to, among other things, employment and payroll-related tax claims, as
well as any applicable penalties and interest. Any such reclassification would have a material adverse impact on our business
model for that business segment and would negatively impact our profitability.
We are exposed to increased costs and risks associated with complying with increasing and new regulation of corporate
governance and disclosure standards.
We are spending an increased amount of management’s time and resources, since the inception of the Sarbanes-Oxley Act of
2002, to comply with changing laws, regulations and standards relating to corporate governance and public disclosures. The
compliance requires management’s annual review and evaluation of our internal control systems and attestations of the
effectiveness of these systems by our independent auditors. This process has required us to hire additional personnel and has
resulted in additional accounting and legal expenses. We may encounter problems or delays in completing the review and
evaluation, the implementation of improvements and the receipt of a positive attestation by our independent auditors. If we
are not able to timely comply with the requirements set forth in Section 404 of the Sarbanes-Oxley Act of 2002, we might be
subject to sanctions or investigation by regulatory authorities. Any such action could adversely affect our business and
financial results.
Substantial changes in healthcare reform or reimbursement trends could hinder our clients’ ability to pay us.
While in most cases our fees are paid directly by our clients rather than by governmental or third-party payers, many of our
clients are reimbursed under the federal Medicare program and state Medicaid programs for the services they provide.
Changes made by federal and state governments could reduce reimbursement rates. In addition, insurance companies and
managed care organizations seek to control costs by requiring that healthcare providers, such as hospitals, discount their
services in exchange for exclusive or preferred participation in their benefit plans. Future federal and state legislation or
evolving commercial reimbursement trends may further reduce, or change conditions for, our clients’ reimbursement.
Limitations on reimbursement could reduce our clients’ cash flows, hampering their ability to pay us.
Competition for acquisition opportunities may restrict our future growth by limiting our ability to make acquisitions at
reasonable valuations and lack of liquidity in the credit markets may restrict our ability to make certain acquisitions.
Our business strategy includes strategic acquisitions of companies that complement or enhance our business. We have
historically faced competition for acquisitions. In the future, this could limit our ability to grow by acquisition or could raise
the prices of acquisitions and make them less accretive to our earnings. In addition, even if we are able to negotiate
22
acceptable terms at reasonable valuations, there can be no assurance that there will be sufficient liquidity available on terms
favorable to us to complete such acquisition. If we are unable to secure necessary financing under our credit facility or
otherwise, we may be unable to complete desirable acquisitions. Certain restrictive covenants in our credit facility may also
limit our ability to complete acquisitions.
We may face difficulties integrating our acquisitions into our operations and our acquisitions may be unsuccessful,
involve significant cash expenditures or expose us to unforeseen liabilities.
We continually evaluate opportunities to acquire companies that would complement or enhance our business and at times
have preliminary acquisition discussions with some of these companies.
These acquisitions involve numerous risks, including:
• Potential loss of key employees or clients of acquired companies;
• Difficulties integrating acquired personnel and distinct cultures into our business;
• Difficulties integrating acquired companies into our operating, financial planning and financial reporting systems;
• Diversion of management attention from existing operations; and
• Assumptions of liabilities and exposure to unforeseen liabilities of acquired companies, including liabilities for their
failure to comply with healthcare and tax regulations.
These acquisitions may also involve significant cash expenditures, debt incurrence and integration expenses that could have a
material adverse effect on our financial condition and results of operations. Any acquisition may ultimately have a negative
impact on our business and financial condition.
We operate our business in a regulated industry and modifications, inaccurate interpretations or violations of any
applicable statutory or regulatory requirements may result in material costs or penalties to our Company and could reduce
our revenue and earnings per share.
Our industry is subject to many complex federal, state and international laws and regulations related to, among other things,
the eligibility of our foreign nurses to work in the U.S., the licensure of professionals, the payment of our field employees
(e.g., wage and hour laws, employment taxes and income tax withholdings, etc.) and the operations of our business generally.
If we do not comply with the laws and regulations that are applicable to our business (both domestic and foreign), we could
incur civil and/or criminal penalties or be subject to equitable remedies.
Impairment in the value of our goodwill or other intangible assets could adversely affect us.
We are required to test goodwill and intangible assets with indefinite lives annually, including the goodwill associated with
past acquisitions and any future acquisitions, to determine if impairment has occurred. Long-lived assets and identifiable
intangible assets are also reviewed for impairment whenever events or changes in circumstances indicate that amounts may
not be recoverable. If the testing performed indicates that impairment has occurred, we are required to record a non-cash
impairment charge for the difference between the value of the goodwill or other intangible assets and the implied fair value of
the goodwill or other intangible assets in the period the determination is made. During the fourth quarters of 2009 and 2008,
we recorded impairment charges of $1.7 million, pretax, and $244.1 million, pretax, respectively, pursuant to these
assessments. The testing of goodwill and other intangible assets for impairment requires us to make significant estimates
about our future performance and cash flows, as well as other assumptions. These estimates can be affected by numerous
factors, including changes in economic, industry or market conditions, changes in business operations, changes in
competition or potential changes in our stock price and market capitalization. Changes in these factors, or changes in actual
performance compared with estimates of our future performance, could affect the fair value of goodwill or other intangible
assets, which may result in an impairment charge. We cannot accurately predict the amount and timing of any impairment of
assets. Should the value of goodwill or other intangible assets become impaired, there could be an adverse effect on us. At
December 31, 2009, goodwill and other identifiable intangible assets (net of amortization) represented 90.3% of our
stockholders’ equity.
Significant legal actions could subject us to substantial uninsured liabilities.
In recent years, healthcare providers have become subject to an increasing number of legal actions alleging malpractice,
vicarious liability, violation of certain consumer protection acts, negligent hiring, product liability or related legal theories.
We may be subject to liability in such cases even if the contribution to the alleged injury was minimal. Many of these actions
23
involve large claims and significant defense costs. In addition, we may be subject to claims related to torts or crimes
committed by our corporate employees or healthcare professionals. In most instances, we are required to indemnify clients
against some or all of these risks. A failure of any of our corporate employees or healthcare professionals to observe our
policies and guidelines intended to reduce these risks, relevant client policies and guidelines or applicable federal, state or
local laws, rules and regulations could result in negative publicity, payment of fines or other damages.
A key component of our business is the credentialing process. Ultimately, any hospital or other health care provider is
responsible for its own internal credentialing process, and the provider typically makes the decision to allow a healthcare
professional to provide services on its behalf. Nevertheless, in many situations, the provider will be relying upon the
reputation and screening process of our Company. Errors in this process or failure to detect a poor or incorrect history could
have a material effect on our reputation. In addition, we may not have access to all of the resources that are available to
hospitals to check credentials.
To protect ourselves from the cost of these types of claims, we maintain professional malpractice liability insurance and
general liability insurance coverage in amounts and with deductibles that we believe are appropriate for our operations. Our
coverage is, in part, self-insured. However, our insurance coverage may not cover all claims against us or continue to be
available to us at a reasonable cost. If we are unable to maintain adequate insurance coverage, we may be exposed to
substantial liabilities.
If our insurance costs increase significantly, these incremental costs could negatively affect our financial results.
We purchase various insurance policies to limit or transfer certain risks inherent in our operations. The costs related to
obtaining and maintaining professional and general liability insurance and health insurance for healthcare providers has
generally been increasing. If the cost of carrying these insurance policies continues to increase significantly, we will
recognize an associated increase in costs, which may negatively affect our margins. This could have an adverse impact on our
financial condition.
If we become subject to material liabilities under our self-insurance programs, our financial results may be adversely
affected.
We provide workers compensation coverage through a program that is partially self-insured. In addition, we provide medical
coverage to our employees through a partially self-insured preferred provider organization. A portion of our medical
malpractice coverage is also through a partially self-insured program. If we become subject to substantial uninsured workers
compensation, medical coverage or medical malpractice liabilities, our financial results may be adversely affected.
We are subject to litigation, which could result in substantial judgment or settlement costs.
We are party to various litigation claims and legal proceedings. We evaluate these litigation claims and legal proceedings to
assess the likelihood of unfavorable outcomes and to estimate, if possible, the amount of potential losses. Based on these
assessments and estimates, if any, we establish reserves and/or disclose the relevant litigation claims or legal proceedings, as
appropriate. These assessments and estimates are based on the information available to management at the time and involve a
significant amount of management judgment. While we do have certain business insurance, it may not be sufficient to cover
our needs. Actual outcomes or losses may differ materially from those estimated by our current assessments which would
impact our profitability. Adverse developments in existing litigation claims or legal proceedings involving our Company or
new claims could require us to establish or increase litigation reserves or enter into unfavorable settlements or satisfy
judgments for monetary damages for amounts in excess of current reserves, which could adversely affect our financial results
for future periods.
Until the sale by certain selling stockholders of a significant portion of their remaining shares, those selling stockholders
will be able to substantially influence the outcome of all matters submitted to our stockholders for approval, regardless of
the preferences of other stockholders.
Charterhouse Equity Partners III (CEP III) and CHEF Nominees Limited (CHEF) own approximately 8% of our outstanding
common stock and continue to have two designees serving on our Board of Directors (which is currently comprised of seven
members). Accordingly, they will be able to substantially influence:
•
the election of Directors
• management and policies; and
•
the outcome of any corporate transactions or other matters submitted to our stockholders for approval, including mergers,
consolidations and the sale of substantially all of our assets.
24
Under our stockholders’ agreement, the CEP Investors had the right to designate two directors for nomination to our Board of
Directors. This number decreased (i) to one director when CEP reduced its ownership pursuant to a Secondary Offering in
November 2006 by more than 50% of their holdings prior to our initial public offering and (ii) the number will decrease to
zero upon a reduction of ownership by more than 90% of their holdings prior to our initial public offering. Their interests
may conflict with the interests of the other holders of our common stock.
A registration statement under the Securities Act covering resale of CEP III’s stock is presently in effect and sales of this
stock could cause our stock price to decline.
We presently maintain an effective shelf registration under the Securities Act covering the resale of stock held by CEP III.
These shares represent approximately 8% of our outstanding common stock and sales of the stock could cause our stock price
to decline. In addition, we registered 4,398,001 shares of common stock for issuance under our 1999 stock option plans and
1,500,000 shares of common stock for our 2007 Stock Incentive Plan. Options to purchase 664,907 shares of common stock
were issued and outstanding as of February 28, 2010 of which, options to purchase 659,497 shares were vested. In addition,
846,398 shares of stock appreciation rights were issued and outstanding as of February 28, 2010, 109,451 of which were
vested. Shares of restricted stock outstanding as of February 28, 2010, were 417,057. Common stock issued upon exercise of
stock options, stock appreciation rights and restricted stock, under our benefit plans, is eligible for resale in the public market
without restriction. On March 2, 2010, the Compensation Committee approved an increase in the number of shares eligible
under the 2007 Stock Incentive Plan to 3,500,000 shares from 1,500,000 shares, which increase will be subject to approval by
the Company’s shareholders at its annual meeting scheduled for May 4, 2010. We cannot predict what effect, if any, market
sales of shares held by any stockholder or the availability of these shares for future sale will have on the market price of our
common stock.
If provisions in our corporate documents and Delaware law delay or prevent a change in control of our Company, we may
be unable to consummate a transaction that our stockholders consider favorable.
Our certificate of incorporation and by-laws may discourage, delay or prevent a merger or acquisition involving us that our
stockholders may consider favorable. For example, our certificate of incorporation authorizes our Board of Directors to issue
up to 10,000,000 shares of “blank check” preferred stock. Without stockholder approval, the Board of Directors has the
authority to attach special rights, including voting and dividend rights, to this preferred stock. With these rights, preferred
stockholders could make it more difficult for a third party to acquire us. Delaware law may also discourage, delay or prevent
someone from acquiring or merging with us.
Terrorist attacks or armed conflict could adversely affect our normal business activity and results of operations.
In the aftermath of the terrorist attacks on September 11, 2001, we experienced a temporary interruption of normal business
activity. Similar events in the future or armed conflicts involving the United States could result in additional temporary or
longer-term interruptions of our normal business activity and our results of operations. Future terrorist attacks could also
result in reduced willingness of nurses to travel to staffing assignments by airplane or otherwise.
Market disruptions may adversely affect our operating results and financial condition.
The current economic conditions and the continuation or intensification of any continued volatility in the financial markets
may have an adverse impact on the availability of credit to our customers and businesses generally and could lead to a further
weakening of the U.S. and global economies. To the extent that disruption in the financial markets continues and/or
intensifies, it has the potential to materially affect our customers’ ability to tap into debt and/or equity markets to continue
their ongoing operations, have access to cash and/or pay their debts as they come due, all of which could reasonably be
expected to have an adverse impact on the number of open positions for healthcare staff they request, as well as their ability
to pay for our temporary staffing services. These events could negatively impact our results of operations and financial
conditions if this economic downturn persists. Although we monitor our credit risks to specific clients that we believe may
present credit concerns, default risk or lack of access to liquidity may result from events or circumstances that are difficult to
detect or foresee. Conditions in the credit markets and the economy generally could adversely impact our business and
frustrate or prohibit us from refinancing the revolving loan portion of our indebtedness on terms favorable to us when it
comes due on November 10, 2010.
The disruptions that the financial markets have recently undergone have led to unprecedented governmental intervention on
an emergency basis. The results of these actions have been unclear, resulting in confusion and uncertainty which in itself has
been materially detrimental to the efficient functioning of the markets. It is impossible to predict what, if any, additional
interim or permanent governmental restrictions may be imposed on the markets and/or the effect of such restrictions on us,
our customers and the operations of corporate entities generally in the United States.
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We could fail to generate sufficient cash to fund our liquidity needs and/or fail to satisfy the financial and other restrictive
covenants to which we are subject under our existing indebtedness.
Our existing credit facility currently contains financial covenants that require us to operate at or below a maximum leverage
ratio. Further deterioration in our operating results could result in our inability to comply with these covenants which would
result in a default under our credit facility. If an event of default exists, our lenders could call the indebtedness and we may be
unable to renegotiate or secure other financing.
If our healthcare facility clients increase the use of intermediaries it could impact our profitability.
We have seen an increase in the use of vendor management companies by our clients. Some of the vendor management
companies themselves provide staffing services and others solely provide technology solutions. These intermediaries
typically enter into contracts with our clients and then subcontract with us and other agencies to provide staffing services,
thus interfering with our relationship with our clients to some extent. Each of these intermediaries charges an administrative
fee. If vendor managers who themselves staff healthcare professionals win business with our current customers, the number
of professionals we have on assignment at those clients could decrease. If we are unable to negotiate hourly rates with
intermediaries for the services we provide at these clients which are sufficient to cover administrative fees charged by those
intermediaries, it could impact our profitability. If those intermediaries become insolvent or fail to pay us for our services, it
could impact our bad debt expense and thus our overall profitability.
We also provide vendor management services directly to certain of our clients. While such contracts typically improve our
market share at these facilities, they could result in less diversification of our customer base and the loss of one or more large
vendor management accounts could materially affect our profitability.
We are subject to business risks associated with international operations.
As of December 31, 2009, we had international operations in the United Kingdom where our AKOS Limited (AKOS)
business is headquartered and India where our Cross Country Infotech, Pvt Ltd. (Infotech) subsidiary is located. AKOS is a
provider of drug safety, regulatory and clinical trials services to pharmaceutical and biotechnology companies in Europe, the
United States, Canada and Asia. Infotech provides in-house information systems development and support services as well as
some back-office processing services. We have limited experience in supporting our services outside of North America.
Operations in certain markets are subject to risks inherent in international business activities, including: fluctuations in
currency exchange rates; varying economic and political conditions; overlapping or differing tax structures; and regulations
concerning compensation and benefits, vacation and the termination of employment. Our inability to effectively manage our
international operations could result in increased costs and adversely affect our results of operations.
26
Item 1B.
Unresolved Staff Comments.
None.
Item 2.
Properties.
We do not own any real property. Our principal leases as of December 31, 2009 are listed below.
Location
Boca Raton, Florida
Headquarters and nurse and allied staffing
70,406 May 1, 2018
Function
Square
Feet
Lease Expiration
Norcross, Georgia
Temporary physician staffing and allied staffing
50,000
January 31, 2011
administration
offices
Durham, North Carolina
Newtown Square, Pennsylvania
Clinical trials staffing headquarters
Nurse and allied staffing administration and
Malden, Massachusetts
Creve Coeur, Missouri
New York, New York
Tampa, Florida
general office use
Nurse and allied staffing administration and
general office use
Retained search headquarters
Clinical trials staffing office
Nurse and allied staffing administration and
general office use
and February 28,
2014
37,851 September 30, 2013
31,959 February 1, 2014
31,662 June 30, 2012
27,051 June 14, 2017
16,915 May 30, 2010
15,698 February 15, 2015
Ambler, Pennsylvania
Brentwood, Tennessee
Clinical trials staffing operations site
Education training headquarters
14,459 September 30, 2013
14,157 August 31, 2014
Item 3.
Legal Proceedings.
Maureen Petray and Carina Higareda v. MedStaff, Inc
On February 18, 2005, the Company’s MedStaff subsidiary became the subject of a purported class action lawsuit (Maureen
Petray and Carina Higareda v. MedStaff, Inc.) filed in the Superior Court of California in Riverside County. The lawsuit
relates to only MedStaff corporate employees working in California. The claims alleged under this lawsuit are generally
similar in nature to those brought by Darrelyn Renee Henry in a lawsuit against the Company, which was dismissed
(Darrelyn Renee Henry vs. MedStaff, Inc., et. al.).
The lawsuit alleges, among other things, violations of certain sections of the California Labor Code, the California Business
and Professions Code, and recovery of unpaid wages and penalties. MedStaff currently has less than 50 corporate employees
in California. The Plaintiffs, Maureen Petray and Carina Higareda, purport to sue on behalf of themselves and all others
similarly situated, and allege that MedStaff failed, under California law, to provide corporate employees while in on-call
status with meal periods and rest breaks, and pay for those missed meal periods and rest breaks; failed to compensate the
employees for all hours worked; failed to compensate the employees for working overtime; failed to keep appropriate records
to keep track of time worked; failed to pay Plaintiffs and their purported class as required by law. Plaintiffs seek, among
other things, an order enjoining MedStaff from engaging in the practices challenged in the complaint and for full restitution
of all monies, for interest, for certain penalties provided for by the California Labor Code and for attorneys’ fees and costs.
On February 5, 2007, the court granted class certification. On October 16, 2008, MedStaff filed a Motion to Decertify the
class which was denied on December 19, 2008. Trial was scheduled to occur in the second quarter of 2010; however, in
December 2009, the Company reached an agreement in principle to settle this matter. As a result, the Company accrued a
pre-tax charge of $345,000 (approximately $209,000 after taxes) related to this lawsuit. The final settlement agreement will
be subject to court approval.
The Company is also subject to other legal proceedings and claims that arise in the ordinary course of its business. In the
opinion of management, the outcome of these other matters will not have a significant effect on the Company’s consolidated
financial position or results of operations.
Item 4.
(Removed and Reserved).
27
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Our common stock currently trades under the symbol “CCRN” on the NASDAQ Global Select Market (NASDAQ). Our
common stock commenced trading on the NASDAQ National Market under the symbol “CCRN” on October 25, 2001. The
following table sets forth, for the periods indicated, the high and low sale prices per share of common stock reported on; such
prices reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual
transactions.
Calendar Period
2009
Quarter Ended March 31, 2009 ..................................................................
Quarter Ended June 30, 2009 .....................................................................
Quarter Ended September 30, 2009 ............................................................
Quarter Ended December 31, 2009 ............................................................
Closing
Sale Prices
High
Low
9.04 $
$
9.20 $
$
$ 10.07 $
$ 10.13 $
5.25
6.59
6.30
7.88
2008
Quarter Ended March 31, 2008 ..................................................................
Quarter Ended June 30, 2008 .....................................................................
Quarter Ended September 30, 2008 ............................................................
Quarter Ended December 31, 2008 ............................................................
$ 14.42 $ 10.11
$ 15.99 $ 11.49
$ 17.34 $ 12.49
7.11
$ 16.71 $
28
The following graph compares the cumulative 5-year total return to shareholders on Cross Country Healthcare’s common
stock relative to the cumulative total returns of the NASDAQ Composite index and the Dow Jones US Health Care Providers
index. The graph assumes that the value of the investment in the company’s common stock and in each of the indexes
(including reinvestment of dividends) was $100 on December 31, 2004 and tracks it through December 31, 2009.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Cross Country Healthcare, Inc., The NASDAQ Composite Index
And The Dow Jones US Health Care Providers Index
$180
$160
$140
$120
$100
$80
$60
$40
$20
$0
12/04
3/05
6/05
9/05
12/05
3/06
6/06
9/06
12/06
3/07
6/07
9/07
12/07
3/08
6/08
9/08
12/08
3/09
6/09
9/09
12/09
Cross Country Healthcare, Inc.
NASDAQ Composite
Dow Jones US Health Care Providers
*$100 invested on 12/31/04 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
Copyright© 2010 Dow Jones & Co. All rights reserved.
12/04
3/05
6/05
9/05
12/05
3/06
6/06
9/06
12/06
3/07
Cross Country Healthcare, Inc.
NASDAQ Composite
Dow Jones US Health Care Providers
100.00
100.00
100.00
92.70
92.41
111.55
94.03
94.39
122.36
102.65
99.33
127.54
98.62
101.33
134.55
107.08
107.75
132.40
100.61
100.96
120.19
94.03
105.63
128.94
120.69
114.01
132.44
100.83
114.45
138.92
6/07
9/07
12/07
3/08
6/08
9/08
12/08
3/09
6/09
9/09
12/09
92.26
123.29
143.34
96.63
126.00
145.43
78.76
123.71
157.86
68.42
105.82
112.32
79.70
106.78
106.11
90.10
95.39
104.99
48.62
73.11
85.76
36.23
70.86
75.11
38.00
85.09
92.49
51.49
98.53
100.35
54.81
105.61
116.49
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
29
As of March 4, 2010, there were 101 stockholders of record of our common stock. In addition, there are approximately 3,400
beneficial owners of our common stock held by brokers or other institutions on behalf of stockholders.
We have never paid or declared cash dividends on our common stock. Covenants in our credit agreement limit our ability to
repurchase our common stock and declare and pay cash dividends on our common stock. During the year ended
December 31, 2009, we did not purchase any shares of our common stock. We used all of our available cash to repay debt.
On February 28, 2008, the Company’s Board of Directors authorized a stock repurchase program whereby the Company may
purchase up to an additional 1.5 million of our common shares, subject to the terms of our current credit agreement. The
shares may be repurchased from time-to-time in the open market and the repurchase program may be discontinued at any
time at the Company’s discretion. The current stock repurchase authorization commenced upon the completion of the
Company’s May 2006 authorization to repurchase up to 1.5 million shares; which commenced upon the completion of the
November 2002 authorization to purchase up to 1.5 million shares. Under the remainder of our current stock repurchase
authorization, we can repurchase up to 1,441,139 shares of our common stock. See – Liquidity and Capital Resources in the
Management’s Discussion and Analysis of Financial Statements of Financial Condition and Results of Operation section of
this report. As of December 31, 2009, pursuant to the terms of our credit agreement covenants, we are not able to use cash for
either dividends or stock repurchases.
30
Item 6.
Selected Financial Data.
The selected consolidated financial data as of December 31, 2009 and 2008 and for the years ended December 31, 2009,
2008, and 2007 are derived from the audited consolidated financial statements of Cross Country Healthcare, Inc., included
elsewhere in this Report. The selected consolidated financial data as of December 31, 2007, 2006 and 2005 and for the years
ended December 31, 2006 and 2005, are derived from the consolidated financial statements of Cross Country Healthcare,
Inc., that have been audited but not included in this Report.
The following selected financial data should be read in conjunction with the consolidated financial statements and related
notes of Cross Country Healthcare, Inc., “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and other financial information included elsewhere in this Report.
2009
Year Ended December 31,
2007 (b)
(Dollars in thousands, except share and per share data)
2008 (a)
2006(c)
2005 (d)
Consolidated Statements of Operations Data
Revenue from services ...................................................................... $
Operating expenses:
Direct operating expenses............................................................
Selling, general and administrative expenses ..............................
Bad debt expense.........................................................................
Depreciation ................................................................................
Amortization ...............................................................................
Impairment charges (e)................................................................
Legal settlement charge (f)..........................................................
Secondary offering costs (g)........................................................
Total operating expenses .............................................................
Income (loss) from operations ..........................................................
Other expenses (income):
Foreign exchange loss (gain).......................................................
Interest expense, net ....................................................................
Other income...............................................................................
Loss on early extinguishment of debt (h) ....................................
Income (loss) from continuing operations before income taxes ........
Income tax expense (benefit) ............................................................
Income (loss) from continuing operations.........................................
Discontinued operations, net of income taxes:
Income (loss) from discontinued operations (i) ...........................
Net income (loss) .............................................................................. $
Net income (loss) per common share – basic:
Income (loss) from continuing operations ................................... $
Discontinued operations ..............................................................
Net income (loss) .............................................................................. $
Net income (loss) per common share – diluted:
Income (loss) from continuing operations ................................... $
Discontinued operations ..............................................................
Net income (loss) .............................................................................. $
Weighted-average common shares outstanding:
578,237 $
734,247
$
718,272 $
655,152 $
645,393
420,856
124,818
—
8,773
4,018
1,726
345
—
560,536
17,701
66
6,174
(193)
—
11,654
4,960
6,694
541,660
136,815
951
7,637
3,166
244,094
—
—
934,323
(200,076)
(132)
4,225
—
—
(204,169)
(61,224)
(142,945)
543,608
122,692
1,559
6,309
2,051
—
34
—
676,253
42,019
93
2,587
—
—
39,339
14,759
24,580
502,468
110,172
459
5,449
1,570
—
6,704
154
626,976
28,176
—
1,464
—
—
26,712
10,146
16,566
503,103
104,647
1,177
5,159
1,424
—
—
151
615,661
29,732
—
3,458
—
1,359
24,915
9,575
15,340
—
6,694 $
—
(142,945) $
—
24,580 $
70
16,636 $
(588)
14,752
0.22 $
—
0.22 $
0.22 $
—
0.22 $
(4.64) $
—
(4.64) $
(4.61) $
—
(4.61) $
0.77 $
—
0.77 $
0.76 $
—
0.76 $
0.52 $
0.00
0.52 $
0.51 $
0.00
0.51 $
0.48
(0.02)
0.46
0.47
(0.02)
0.45
Basic............................................................................................ 30,824,660
Diluted......................................................................................... 30,999,446
30,825,099
31,007,352
31,972,681
32,484,241
32,077,240
32,737,419
32,228,978
32,773,634
2009
2008
Year Ended December 31,
2007
(Net cash dollars in thousands)
2006
2005
Other Operating Data
Nurse and allied staffing statistical data:
FTEs (j).............................................................................................
Weeks worked (k) .............................................................................
Average revenue per FTE per week (l) ............................................. $
Cash flow data:
Net cash provided by operating activities ......................................... $
Net cash used in investing activities ................................................. $
Net cash (used in) provided by financing activities........................... $
2,735
142,220
2,201 $
4,463
232,076
2,266
5,025
261,300
$
2,207 $
5,001
260,052
2,134
$
5,194
270,088
2,048
72,319 $
(10,005) $
(64,136) $
$
50,993
(129,561) $
$
80,077
35,880 $
(35,328) $
8,431 $
$
32,918
(27,848) $
(5,070) $
30,790
(8,412)
(22,378)
31
2009
2008
Year Ended December 31,
2007
(Dollars in thousands)
2006
2005
Consolidated Balance Sheet Data
Working capital (m) ......................................................................... $
Cash and short-term cash investments .............................................. $
Total assets (m) ................................................................................ $
Total debt (n) .................................................................................... $
Stockholders’ equity (e).................................................................... $
———————
(a) On September 9, 2008, the Company consummated the acquisition of substantially all of the assets of privately-held
MDA Holdings, Inc. and its subsidiaries and all of the outstanding stock of a subsidiary of MDA Holdings, Inc.
(collectively, MDA). Our 2008 results include results from the acquisition of MDA from September 1, 2008, the
agreed upon effective date for accounting purposes. Refer to further discussion in our notes to the consolidated
financial statements (Note 4 -Acquisitions).
71,651 $
8,569
$
356,589 $
62,514 $
246,071 $
107,950 $
10,173 $
425,849 $
133,080 $
234,023 $
85,208 $
— $
500,926 $
21,529 $
374,856 $
98,428
9,067
535,005
39,451
390,437
$
$
$
$
$
72,810
—
483,601
25,429
359,286
(b) Our 2007 results include results from the acquisitions of AKOS Limited (AKOS) and Assent Consulting (Assent) from
their acquisition dates of June 6, 2007 and July 18, 2007, respectively. Refer to further discussion in our notes to the
consolidated financial statements (Note 4 – Acquisitions).
(c) Our 2006 results include the results from the acquisition of substantially all of the assets of Metropolitan Research
Associates, LLC and Metropolitan Research Staffing Associates, LLC (collectively “Metropolitan Research”) from
August 31, 2006, the date of acquisition. Refer to further discussion in our notes to the consolidated financial
statements (Note 4-Acquisitions).
(e)
(d) During the second quarter of 2005, we increased our reserve for professional liability insurance by $5.3 million, pretax,
based on an independent actuarial calculation which reflected unfavorable developments relating to certain professional
liability cases.
Impairment charges include goodwill and other intangible asset impairment charges pursuant to the Intangibles-
Goodwill and Other Topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification
(ASC) and the Impairment or Disposal of Long-Lived Asset subsection of the Property, Plant and Equipment Topic of
the FASB ASC. In the fourth quarter of 2009, the Company recorded a noncash pretax impairment charge of
$1.7 million, related to the change in utilization of a specific trademark and database in its clinical trials services
business segment. As a result of its annual goodwill impairment analysis, in the fourth quarter of 2008, the Company
recorded a $241.0 million, pretax, goodwill impairment related to its nurse and allied staffing business segment. In
addition, in the fourth quarter of 2008, the Company recorded a $3.1 million, pretax, impairment charge related to a
specific customer relationship in its clinical trials services business segment. Refer to further discussion of these
impairment charges in our notes to the consolidated financial statements (Note 3 – Goodwill and Other Identifiable
Intangible Assets).
(f) During the fourth quarter of 2009, the Company reached an agreement in principle to settle a class action lawsuit,
Maureen Petray and Carina Higareda v. MedStaff, Inc., which settlement remains subject to court approval. In the
fourth quarter of 2009, the Company accrued a pretax charge of $0.3 million ($0.2 million after taxes) related to this
lawsuit. During the third quarter of 2006, we agreed, in principle, to settle a wage and hour class action lawsuit,
Cossack, et.al. v. Cross Country TravCorps and Cross Country Nurses, Inc. On March 5, 2007, a final settlement of the
matter was approved by the court. During 2006, the Company accrued a pretax charge of $6.7 million ($4.2 million
after taxes), representing the final settlement amount, which was paid in 2007.
(g) Secondary offering costs include registration statement filings and public offering expenses incurred as a result of our
secondary offerings in September 2006 and April 2005. We did not register any shares of our common stock pursuant
to these registration statements. Accordingly, we did not receive any proceeds from these offerings and, did not
capitalize any of the associated costs. Refer to discussion in our notes to the consolidated financial statements (Note 13
– Stockholders’ Equity).
(h) Loss on early extinguishment of debt in the year ended December 31, 2005, relates to the write-off of debt issuance
(i)
costs associated with the prior credit facility, which was refinanced in the fourth quarter of 2005.
Income (loss) from discontinued operations reflects the results of Cross Country Consulting, Inc. The Company’s
consulting practice was shut down in the third quarter of 2005.
FTEs represent the average number of nurse and allied contract staffing personnel on a full-time equivalent basis.
(j)
(k) Weeks worked is calculated by multiplying the FTEs by the number of weeks during the respective period.
(l) Average nurse and allied staffing revenue per FTE per week is calculated by dividing the nurse and allied staffing
revenue by the number of weeks worked in the respective periods. Nurse and allied staffing revenue includes revenue
from permanent placement of nurses.
(m) The Company has classified its consolidated balance sheets for the years ended December 31, 2009 through 2005, in
accordance with the provisions of the Insurance Costs subtopic of the Other Expenses Topic of the FASB ASC as
explained in the notes to the consolidated financial statements (Note 2 - Summary of Significant Accounting Policies).
32
The Company has presented the current and non-current portions of its workers’ compensation and professional
liability accounts as of December 31, 2009, 2008, and 2007, and has reclassified its balance sheet as of December 31,
2006 to conform to the current presentation. The December 31, 2005 balance sheet has not been reclassified due to the
excessive cost of applying the methodology, which, the Company believes outweighs the benefit of the additional
information. The Company has reclassified certain other liabilities from current to other long-term liabilities as of
December 31, 2008 to conform to the December 31, 2009 presentation. Prior year amounts were not reclassified due to
the immaterial amounts of the liabilities.
(n) The Company’s senior secured revolving credit facility entered into on November 10, 2005 was amended and restated
as of September 9, 2008 (Credit Agreement) in connection with the acquisition of MDA. The Credit Agreement kept in
place an existing $75.0 million revolving loan facility and provided for a 5 year $125.0 million term loan facility with
Wells Fargo Securities, LLC and certain of its affiliates, Banc of America Securities LLC and certain other lenders.
The proceeds from the term loan were used to fund the acquisition, pay financing related fees, and pay certain
acquisition expenses. The remainder of the proceeds was used to reduce our borrowings under our revolving loan
facility. See Note 7 to the consolidated financial statements. - Long-term Debt for further information about the term
loan and amended Credit Agreement.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with
Selected Financial Data, Risk Factors, Forward-Looking Statements and our Consolidated Financial Statements and the
accompanying notes and other data, all of which appear elsewhere in this Annual Report on Form 10-K.
Certain prior year information has been reclassified to conform to the current year’s presentation.
Overview
We are a diversified leader in healthcare staffing services offering a comprehensive suite of staffing and outsourcing services
to the healthcare market. We report our financial results according to four business segments: (1) nurse and allied staffing, (2)
physician staffing, (3) clinical trials services and (4) other human capital management services. We believe we are one of the
top two providers of travel nurse and allied staffing services in the United States; one of the top three providers of temporary
physician staffing (locum tenens) services; a leading provider of clinical trials staffing services and retained physician search
services; and a provider of educational seminars, specifically for the healthcare marketplace.
We have a diversified revenue mix across business sectors and healthcare customers. For the year ended December 31, 2009,
our nurse and allied staffing business segment represented approximately 54% of our revenue and is comprised of travel and
per diem nurse staffing and travel allied health staffing. Travel nurse staffing represented approximately 42% of our total
revenue and 78% of our nurse and allied staffing business segment revenue. Other nurse and allied staffing services include
the placement of per diem nurses and allied healthcare professionals, such as radiology technicians, rehabilitation therapists
and respiratory therapists. Our physician staffing business segment represented approximately 26% of 2009 revenue and
consists of temporary physician staffing services (locum tenens). Our clinical trials services business segment represented
approximately 13% of our revenue and consists of service offerings that include traditional staffing, as well as clinical trials
management, drug safety monitoring and regulatory services to pharmaceutical and biotechnology customers. Our other
human capital management services business segment represented approximately 7% of our revenue and consists of
education and training and retained search services.
We believe the long-term macro drivers of our business are demographic in nature and consist of a growing and aging U.S.
population demanding more healthcare services and an aging workforce of healthcare professionals. There are projected
shortages of registered nurses (RNs) and physicians. The supply of healthcare professionals in the marketplace is dependent
upon the number of RNs and physicians entering their respective professions versus retiring from the workforce. In the short-
term, demand for our healthcare staffing services during 2009 was significantly reduced due to the negative impact that the
labor and financial markets had on our customers as a result of the steep economic down-turn that began during the fall of
2008.
For the year ended December 31, 2009, our revenue was $578.2 million, and we generated net income of $6.7 million, or
$0.22 per diluted share. Net income includes $1.7 million ($0.7 million after taxes) in impairment charges and $0.3 million
($0.2 million after tax) related to an accrual for a legal settlement charge. The impairment charge is a result of our decision to
consolidate our non-staffing brands within our clinical trials services business segment to gain operating efficiencies. The
legal settlement charge relates to a class action lawsuit. During 2009, we generated $72.3 million in cash flow from
operations and reduced our debt by $70.6 million. We ended the year with total debt of $62.5 million and $8.6 million of
cash, resulting in a ratio of debt, net of cash, to total capitalization of 17.5%.
33
In general, we evaluate the Company’s financial condition and operating results by revenue, contribution income (see
Segment Information), and net income (loss). We also use measurement of our cash flow generation and operating and
leverage ratios to help us assess our financial condition. In addition, we monitor several key volume and profitability
indicators such as number of orders, contract bookings, number of FTEs, days filled and price. In varying degrees, in 2009,
each of our businesses’ results were impacted by a challenging business environment, with the impact of the recession being
most severe on our nurse and allied staffing business. At the same time, we have also experienced improvements in certain
business metrics which we believe are indicators of future revenue growth, particularly in our nurse and allied staffing
business segment as noted below.
Nurse and Allied Staffing
Our nurse and allied staffing services business segment is headquartered in Boca Raton, Florida. Our travel staffing business
is operated from a relatively centralized business model servicing all of the assignment needs of our field employees and
client facilities through operation centers located in Boca Raton, Florida; Malden, Massachusetts; Newtown Square,
Pennsylvania; Tampa, Florida; and Norcross, Georgia. Our per diem staffing operations are provided through a network of
branch offices serving major metropolitan markets predominantly located on the east and west coasts of the U.S.
Our nurse and allied staffing revenue and earnings are impacted by the relative supply of nurses and demand for our staffing
services at healthcare facilities. Demand for our healthcare staffing services is primarily influenced by the strength or
weakness of national acute care hospital admissions relative to expectations and the volume of patients at other medical
facilities, as well as labor market dynamics that influence the number of hours worked by healthcare professionals. We also
believe demand for travel nurse staffing services will be favorably impacted in the long-term by an aging population and an
increasing shortage of nurses. We rely significantly on our ability to recruit and retain nurses and other healthcare
professionals who possess the skills, experience and, as required, licensure necessary to meet the specified requirements of
our clients. Shortages of qualified nurses and other healthcare professionals could limit our ability to fill open orders and
grow our revenue and net income. In general, we believe nurses are more willing to seek travel assignments during relatively
high levels of demand for contract employment, and conversely, are more reluctant to seek travel assignments during and
immediately following periods of weak demand for contract employment.
Cross Country Staffing is our core staffing brand that markets its staffing services to hospitals and healthcare facilities
throughout the U.S., as well as operates differentiated recruiting brands to recruit registered nurses and allied healthcare
professionals on a domestic and international basis. As a part of its business strategy, Cross Country Staffing is pursuing and
implementing exclusive and preferred provider relationships with hospital clients. Cross Country Staffing provides clients
with a suite of solutions to facilitate the efficient management of their temporary workforce while decreasing overall
operating costs. These range from efficiency-enhancing technology to full vendor management solutions.
We operate differentiated nurse and allied recruiting brands including Cross Country TravCorps, MedStaff, NovaPro, Cross
Country Local, Allied Health Group, CRU48 and Assignment America to recruit nurses and allied healthcare professionals
on a domestic and international basis. We believe that these professionals are attracted to us because we offer a wide range of
diverse assignments at attractive locations, competitive compensation and benefit packages, as well as high levels of
customer service.
Typically, as admissions increase for our hospital customers, temporary employees are often added before full-time
employees are hired. As admissions decline, clients tend to reduce their use of temporary employees before undertaking
layoffs of their staff employees. In general, we evaluate the nurse and allied staffing business segment’s financial condition
and operating results by revenue and contribution income (see Segment Information). In addition, we monitor several key
volume and profitability indicators such as number of open orders, contract bookings, number of FTEs and bill rate per hour
of service provided.
Our results for 2009 were impacted by a very challenging environment particularly in the first half of the year. During that
time, the environment for our nurse and allied staffing services reflected both hospital admission trends that have been
largely flat since the first quarter of 2003 and a deteriorating national labor market resulting in higher levels of
unemployment that translated into more uninsured people and fewer people with commercial health insurance coverage. Our
hospital clients had been increasingly reluctant to commit to contract nurses, most often citing low patient census and
financial pressures as factors for their hesitation. In addition, the dramatic deterioration in the economy and national labor
markets since the third quarter of 2008 likely encouraged full and part-time nurses to work more hours directly for hospitals,
thus greatly reducing the hospital industry’s reliance on the type of outsourced labor we provide.
In the fourth quarter of 2009 our nurse and allied staffing volume increased 4% over the third quarter of 2009. In addition, in
the second half of 2009, relative travel nurse bookings, defined as net weeks booked as a percentage of the average number of
34
FTE’s on assignment, averaged 107%, as compared to 75% in the first half of 2009. It takes several months for sequential
volume growth to materialize after booking trends begin to improve due to the typical three-month contract length and the
normal one-month delay from the time a contract is booked to the assignment start date. This improvement in relative
bookings has resulted from an increase in orders from the very low demand we had in spring. However, despite this increase,
our demand remains well below historical norms.
Physician Staffing
We added the physician staffing business segment in 2008 with the acquisition of MDA Holdings, Inc. and its subsidiaries
(collectively, MDA) as described in the Acquisitions section which follows. MDA is headquartered in Norcross, Georgia and
offers multi-specialty locum tenens (temporary physician staffing) services to the healthcare industry in all 50 states.
Our physician staffing business revenue and earnings are impacted by the demand for temporary physician staffing services
and the supply of qualified physicians. When there are not enough physicians to fill the number of vacancies at hospitals,
practice groups or other healthcare facilities, demand increases for our services. The supply of physicians available for our
physician staffing services is variable and is influenced by several factors, including the desire of physicians to work
temporary assignments versus being in private practice or on staff or employed at healthcare facilities, the desire of older
physicians to work fewer hours, work-lifestyle balance especially among younger physicians, and the trend toward more
female physicians in the workforce looking to work fewer hours than male counterparts. In general, we believe that in periods
when they are looking for more flexibility, have concerns with lack of malpractice insurance, or they do not want to manage a
practice, supply increases. In periods where the physicians are looking for more stability, supply decreases. Demand and
supply constraints may vary based on the specialty of the physician. We monitor several key volume and profitability
indicators for each specialty area of this business, such as physician staffing days filled and revenue per days filled. In
addition, we monitor this segment’s revenue, contribution income and contribution income as a percentage or revenue.
We believe the recent recession, the stock market decline and the weakened housing market have delayed the retirement
plans of many older physicians. This dynamic, in conjunction with fewer surgeries, has resulted in a decrease in demand for
temporary physicians, particularly in such specialties as anesthesiology. We also believe that hospitals and medical groups
have experienced financial pressures on their operations which have resulted in less utilization of temporary physicians.
Despite this decrease in current demand, we believe the long-term demographic drivers of this business have not changed.
These drivers include an aging population demanding more healthcare, an aging physician population from the baby boom
generation nearing retirement age, and more females entering the profession, which historically have provided less hours of
service. Due to these factors, we believe the long-term prospects for an acute physician shortage is just as strong now as it
was before the current downturn.
Clinical Trials Services
Our clinical trials services business segment is headquartered at the Research Triangle Park (RTP) in Durham, North
Carolina. We provide a flexible range of traditional contract staffing, drug safety monitoring, regulatory consulting and
clinical research outsourcing services to pharmaceutical, biotechnology and medical device companies, as well as contract
research organization (CRO) customers. We market these services through multiple brand offerings that have allowed us to
establish a significant geographic footprint in the U.S. along with an important presence in the European market.
Our clinical trials services revenue and earnings are impacted by the number of trials being planned by pharmaceutical,
biotechnology and medical device companies. As a result, we are impacted by our customer’s ability to obtain financing for
research and development efforts. We believe that pharmaceutical and biotech companies will continue to need to enhance
their product pipelines and conduct human clinical trials to evaluate efficacy and safety. We can provide our customers with a
broad range of services, from pre-clinical through post marketing. We rely on our ability to recruit and maintain professionals
who possess the skills, experience, and, as required, licensure necessary to meet the specified requirements of our clients. The
supply of clinical trials personnel in the marketplace is relatively stable and comprised primarily of healthcare professionals
who have left basic care to pursue clinical research opportunities and individuals with the education and experience in life
sciences. The supply of people available for our clinical trials services is dependent on the number of clinical trials
professionals not currently employed in ongoing trials, as well as new people entering the industry.
The environment for clinical trials services has been weak during the year stemming from a slow-down in clinical trials
caused largely by economic factors and financial market conditions, along with uncertainty concerning research and
development activities following mergers and acquisitions in the pharmaceutical and biotechnology sectors. We are seeing
gradual improvement in the core contract staffing component of our business while continuing to experience weakness in our
other service offerings due to project-specific factors in our CRO activities and in drug safety monitoring activities. Despite
35
the recent weaknesses, we believe an expanding and aging population will drive development of new drug treatments and
higher overall demand for drug utilization, which will drive long-term growth for this business segment.
Other Human Capital Management Services
Education and Training Services
Our Cross Country Education (CCE) subsidiary, headquartered in Brentwood, Tennessee, provides continuing education
programs to the healthcare industry. CCE offers one-day seminars and e-learning, as well as national and regional
conferences on topics relevant to nurses and other healthcare professionals. In 2009, CCE held more than 5,500 seminars and
conferences that were attended by more than 155,000 registrants in 221 cities across the U.S. We extend these educational
services to our field employees on favorable terms as a recruitment and retention tool.
Beginning in the fourth quarter of 2008 and lasting through the first half of 2009, many healthcare practitioners delayed or
deferred their normal continuing educational activities. CCE’s largest market segment is made up of a variety of behavioral
health topics and attended by professionals, most of whom personally bear the cost of these continuing educational
activities. Consequently, due to economic factors this market segment showed the most significant reduction in seminar
attendance during this period. The second largest market segment consists of allied professionals who are less sensitive to
external factors, since their continuing educational expenses are more often than not reimbursed by their employer. Even so,
employer education budget cuts impacted allied practitioners to some degree. In the second half of 2009, we experienced
increased attendance by professionals in most markets served due to their respective licensing requirements. Generally, the
continuing education industry continues to experience increased interest in e-learning as well as in-house opportunities across
all professions served, as many times they are more cost effective to the purchaser.
Retained Search
Our Cejka Search subsidiary, headquartered in Creve Coeur, Missouri, is a nationally recognized retained search organization
that provides physician and executive search services throughout the U.S. exclusively to the healthcare industry, including
physician group practices, hospitals and health systems, academic medical centers, managed care, and other healthcare
organizations.
The restricted credit market, high unemployment and sharp economic decline in late 2008 and through 2009 impacted many
hospitals, health systems and medical groups, which are our primary clients. As healthcare organizations delayed expansion,
experienced volume disruptions and suffered operating revenue shortfalls, they reduced or cancelled medical staff
recruitment plans, and froze or down-sized administrative staffing at all levels. The sharp drop in the stock market caused
physicians to delay retirement, while declining housing values and reduced employment opportunities for trailing spouses
made relocation unattractive to physicians and executives. These factors substantially reduced the demand for permanent
search, particularly through mid-year 2009. Reconfiguration of the sales model, in both physician and healthcare executive
search, along with diversification of recruitment and physician sourcing services, contributed to improved sales trends in the
later part of 2009.
History
In July 1999, an affiliate of Charterhouse Group, Inc (Charterhouse) and certain members of management acquired the assets
of Cross Country Staffing, our predecessor, from W. R. Grace & Co. Upon the closing of this transaction, we changed from a
partnership to a C corporation form of ownership. In December 1999, we acquired TravCorps Corporation (TravCorps),
which was owned by investment funds managed by Morgan Stanley Private Equity (Morgan Stanley) and certain members of
TravCorps’ management and subsequently changed our name to Cross Country TravCorps, Inc. Subsequent acquisitions and
dispositions were made as discussed below. In 2001, we changed our name to Cross Country, Inc., and in October 2001, we
completed our initial public offering. Subsequently, in May 2003, we changed our name to Cross Country Healthcare, Inc.
In March 2002, and November 2004, Charterhouse and Morgan Stanley sold a portion of their ownership through secondary
offerings. Subsequently, in 2005, Morgan Stanley completed the sale of its investment in the Company. During 2006,
Charterhouse sold a majority of its remaining ownership in Cross Country Healthcare but still owns approximately
2.5 million shares as of December 31, 2009.
Revenue
Our travel and per diem nurse staffing revenue is received primarily from acute care hospitals. Revenue from allied staffing
services is received from numerous sources, including providers of radiation, rehabilitation and respiratory services at
hospitals, nursing homes, physician practice groups, sports medicine clinics and schools. Our physician staffing services
36
revenue is primarily received from hospitals and group practices. Our clinical trials services revenue is received primarily
from companies in the pharmaceutical, biotechnology and medical device industries, as well as from contract research
organizations and acute care hospitals conducting clinical research trials. Revenue from our retained search and our education
and training services is received from numerous sources, including hospitals, physician group practices, insurance companies
and individual healthcare professionals. Our fees are paid directly by our clients and, in certain cases, by third-party
administrative payers. As a result, we have no direct exposure to Medicare or Medicaid reimbursements.
Revenue is recognized when services are rendered. Accordingly, accounts receivable includes an accrual for employees’ and
independent contractors’ estimated time worked but not yet invoiced. Similarly, accrued compensation includes an accrual
for employees’ and independent contractors’ time worked but not yet paid. Each of our field employees and independent
contractors on travel assignment works for us under a contract. The contract period is typically 13 weeks for our nurse and
allied staffing employees with a shorter duration for physician independent contractors and a longer term for our clinical
trials staffing employees. Our staffing employees are hourly employees whose contract specifies the hourly rate they will be
paid, and any other benefits they are entitled to receive during the contract period. We typically bill clients at an hourly rate
and assume all employer costs for our staffing employees, including payroll, withholding taxes, benefits, professional
liability insurance and Occupational Safety and Health Administration (OSHA) requirements, as well as any travel and
housing arrangements. Management fees are included in some of our clinical research contracts that cover the life of a
project. These fees are recognized on a straight-line basis for the specific length of the project.
We have also entered into certain contracts with acute care facilities to provide comprehensive vendor management services.
Under these contract arrangements, we use our nurses primarily, along with those of third party subcontractors, to fulfill
customer orders. If a subcontractor is used, revenue is recorded at the time of billing, net of any related subcontractor
liability. The resulting net revenue represents the administrative fee charged by us for our vendor management services.
Acquisitions
MDA Holdings, Inc.
On September 9, 2008, we consummated the acquisition of MDA. We paid $115.9 million in cash at closing, which included
$3.6 million as an estimated net working capital adjustment which was subject to final adjustments. Of the cash paid at
closing, approximately $8.7 million was being held in escrow to cover any post-closing liabilities (Indemnification Escrow)
and $0.3 million was being held in escrow to cover any net working capital adjustments (Net Working Capital Escrow).
During the fourth quarter of 2008, approximately $1.6 million of the Indemnification Escrow was released to us and recorded
to goodwill as a reduction in purchase price. Also during the fourth quarter of 2008, we finalized the net working capital
adjustment and calculated an additional payment to the sellers of approximately $0.1 million which was paid and included in
goodwill as additional purchase price. In connection with this net working capital adjustment, the entire Net Working Capital
Escrow of $0.3 million was also released to the sellers. Additionally, a post-closing adjustment to the purchase price of
approximately $0.3 million was paid to the sellers in the fourth quarter of 2008 and is included in goodwill as additional
purchase price.
The transaction also includes an earnout provision based on 2008 and 2009 performance criteria. This contingent
consideration is not related to the sellers’ employment. When earnout payments are made, they are allocated to goodwill as
additional purchase price, in accordance with the Business Combinations Topic of the Financial Standards Accounting Board
(FASB) Accounting Standards Codification (ASC). In the second quarter of 2009, we paid $6.7 million, related to 2008
performance. We expect to pay an earnout related to the 2009 performance, which amount has not been finalized at the date
of this filing.
Our senior secured revolving credit facility entered into on November 10, 2005 was amended and restated as of September 9,
2008 (Credit Agreement) in connection with the acquisition of MDA. The Credit Agreement kept in place an existing
$75.0 million revolving loan facility and provided for a 5 year $125.0 million term loan facility with Wells Fargo Securities,
LLC and certain of its affiliates, Banc of America Securities LLC and certain other lenders. The proceeds from the term loan
were used to fund the acquisition, pay financing related fees, and pay certain acquisition expenses. The remainder of the
proceeds was used to reduce our borrowings under our revolving loan facility. See the consolidated financial statements
Note 7 - Long-term Debt, for more information about the term loan and amended Credit Agreement.
Headquartered in Norcross, Georgia, MDA provides multi-specialty locum tenens (temporary physician staffing) and allied
staffing services to the healthcare industry in all 50 states. MDA is a leading provider of locum tenens staffing solutions.
MDA has an in-house Credentials Verification Organization (Credent) that is certified by the National Committee for Quality
Assurance. Credent verifies critical credentials prior to physician assignments. MDA also offers its physicians occurrence-
based malpractice coverage, as compared to less desirable claims-made policies offered by its main competitors. The
37
acquisition of MDA solidifies our position as a leading national provider of healthcare staffing solutions. We expect to
benefit from a more diversified revenue stream as physicians are viewed as revenue generators by its hospital clients, as
compared to nurses, who represent a cost center. We are also able to offer a more comprehensive suite of services to our
healthcare clients and recognize there may be some potential synergies with our physician search business.
The acquisition has been accounted for in accordance with Business Combinations Topic of the FASB ASC, using the
purchase method. The results of MDA’s operations have been included in the consolidated statements of operations since
September 1, 2008, the agreed-upon accounting date of the acquisition. MDA’s allied staffing services have been included in
our nurse and allied staffing business segment. MDA’s physician staffing services have been reported as a new business
segment, physician staffing, in accordance with the Segment Reporting Topic of the FASB ASC.
Based on an independent third-party appraisal, we assigned the following values to intangible assets: $46.0 million to
trademarks with an indefinite life and not subject to amortization, $21.0 million for customer relations with a useful life of
12 years, $1.1 million to database with a useful life of 9 years, and $1.0 million to noncompete agreements with a weighted
average useful life of 4 years. The excess of purchase price over the fair value of net tangible and intangible assets acquired
approximated $26.4 million and was recorded as goodwill, which is expected to be deductible for tax purposes. Additional
acquisition costs were incurred of approximately $0.1 million and $0.6 million, and are included as goodwill in the
consolidated balance sheets at December 31, 2009 and 2008, respectively.
Assent Consulting
On July 18, 2007, we completed an acquisition of the shares of privately-held Assent Consulting (Assent) for $19.6 million in
cash paid at closing, including $1.0 million which was held in escrow to cover any post-closing liabilities. We financed this
acquisition using our revolving loan facility. The purchase price was subject to a working capital adjustment that was settled
with a payment of $0.5 million to us in the fourth quarter of 2007.
This transaction included an earnout provision up to a maximum of $4.9 million based on 2007 and 2008 performance
criteria. This contingent consideration was not related to the sellers’ employment. In the second quarter of 2008, we paid
$4.6 million related to 2007 performance satisfying all earnout amounts potentially due to the seller in accordance with the
asset purchase agreement. Of this payment, $2.0 million was being held in escrow, subject to forfeiture to us, to the extent a
2008 performance milestone was not achieved. However, based on 2008 performance the full amount was released in the first
quarter of 2009. The entire payment was allocated to goodwill as additional purchase price, in accordance with the Business
Combinations Topic of the FASB ASC. In addition, in the first quarter of 2009, the escrow of $1.0 million was released to
the sellers.
Headquartered in Cupertino, California, Assent provides staffing services primarily consisting of highly qualified clinical
research, biostatistics and drug safety professionals to companies in the pharmaceutical and biotechnology industries. We
believe this acquisition expands our geographical presence on the West Coast of the U.S. and broadens our client base for our
clinical trials services business.
AKOS Limited
On June 6, 2007, we acquired all of the shares of privately-held AKOS Limited (AKOS), based in the United Kingdom, for a
total purchase price of up to £7.2 million, consisting of an up-front payment of £4.0 million and potential earnout payments
up to £3.2 million in 2007 and 2008, plus a working capital adjustment. The share purchase agreement also specified an
estimated additional payment of £0.5 million, paid at closing, consisting of cash purchased. An additional amount of
£0.2 million was paid in the third quarter of 2007, based on changes in net working capital along with a post-closing net
working capital adjustment, as defined by the share purchase agreement, and has been allocated to goodwill as additional
purchase price. AKOS is a provider of drug safety, regulatory and clinical trials services to pharmaceutical and biotechnology
companies in Europe, the United States, Canada and Asia.
The consideration for this acquisition was approximately $8.9 million in cash paid at closing, which included $1.0 million for
the additional payment and $0.8 million which was held in escrow to cover any post-closing liabilities. The post-closing
working capital adjustment paid by us equated to approximately $0.3 million. We financed this transaction using our
revolving loan facility.
The potential earnout payments were based on 2007 and 2008 performance, as defined by the share purchase agreement and
is not related to the sellers’ employment. In the first quarter of 2008, we paid £1.1 million (approximately $2.1 million)
related to 2007 performance. In the first quarter of 2009, we paid £0.5 million (approximately $0.8 million) related to 2008
performance. The payments have been allocated, in U.S. dollars using the exchange rate at the time of the payment, to
38
goodwill as additional purchase price. During the fourth quarter of 2008, all of the funds held in escrow were released to the
sellers.
AKOS has been conducting business since 1986 and provides drug safety, regulatory and clinical trial services to
pharmaceutical and biotechnology companies in Europe, the United States, Canada and Asia. AKOS is based approximately
30 miles north of London, England, and strategically located inside what is considered to be the United Kingdom’s research
triangle that extends outward from London to Cambridge and Oxford Universities. We believe the addition of AKOS will
allow us to provide a more global and comprehensive range of contract staffing and outsourcing services to pharmaceutical
and biotech customers.
The following table provides certain information relating to our acquisitions to date:
Acquired Business
MDA Holdings, Inc.
Acquisition
Date
Primary Services
Purchase
Price (a)
September 2008 Temporary physician staffing and
$114.7 million
Potential
Earnout
(b)
Earnout
Earned
$6.7 million
Assent Consulting
July 2007
AKOS Limited
June 2007
Metropolitan Research
August 2006
Med-Staff
June 2003
allied staffing services
Clinical trials staffing of clinical
research, biostatistics and drug
safety professionals
Clinical trials staffing, drug safety
and regulatory services providing
services to the U.S., Europe,
Canada, and Asia
Clinical trials staffing, drug safety
monitoring and contract research
services
Healthcare staffing – travel, per
diem nurse, and military nurse
staffing
$19.1 million
$4.9 million
$4.6 million
$9.2 million
(£4.6 million)
£3.2 million based
on 2007 and 2008
$2.9 million
(£1.6 million )
$19.1 million
$6.4 million based
on 2006 and 2007
$6.4 million based
on 2006 and 2007
$102.2 million
$37.5 million
for full year 2003
—
Jennings Ryan & Kolb, Inc.
(Sold in 2004)
March 2002
Healthcare management consulting
$2.1 million
services
NovaPro
January 2002
Nurse staffing
Gill/Balsano Consulting, LLC
(Sold in 2004)
May 2001
Healthcare management consulting
services
ClinForce, Inc.
March 2001
Clinical trials staffing
Heritage Professional Education, LLC December 2000 Continuing education for
healthcare professionals
$7.6 million
$1.8 million
$32.8 million
$6.6 million
E-Staff
(Discontinued in 2002)
July 2000
Internet subscription based
$1.5 million
communication, scheduling,
credentialing and training services
$1.8 million
over 34 months
—
$2.0 million
over 3 years
—
$6.5 million
over 3 years
$3.8 million
over 3 years
$1.8 million
—
$2.0 million
—
$3.5 million
$0.5 million
TravCorps Corporation
December 1999 Healthcare staffing – nurse and
$77.1 million
—
—
allied professionals, retained search
———————
(a) Acquisition purchase price includes cash paid, the assumption of debt and post-closing adjustments. The TravCorps
acquisition price represents the approximate value of our common stock that was exchanged for all the outstanding
shares of TravCorps – $32.1 million, plus the assumption of $45.0 million of debt.
(b) Earnout for 2009 results has not been finalized at the time of this filing. The potential earnout will be equal to the
amount: (1) by which the Adjusted EBITDA (as defined by the purchase agreement) during the 2009 fiscal year,
exceeds $10.0 million, times (2) a multiple of 2.37.
Goodwill and Other Identifiable Intangible Assets
Goodwill and other intangible assets represented 90.3% of our stockholders’ equity as of December 31, 2009. Goodwill and
other identifiable intangible assets were $130.7 million and $91.4 million, respectively, net of accumulated amortization, at
December 31, 2009. In accordance with the Intangibles-Goodwill and Other Topic of the FASB ASC, goodwill and certain
other identifiable intangible assets are not subject to amortization; instead, we review impairment annually. Other identifiable
intangible assets, which are subject to amortization, are being amortized using the straight-line method over their estimated
useful lives ranging from 4.5 to 15 years.
The Impairment or Disposal of Long-Lived Asset subsection of the Property, Plant and Equipment Topic of the FASB ASC,
requires us to test the recoverability of long-lived assets, including identifiable intangible assets with definite lives, whenever
39
events or changes in circumstances indicate that the carrying amount may not be recoverable. In testing for potential
impairment, if the carrying value of the asset group exceeds the expected undiscounted cash flows, we must then determine
the amount by which the fair value of those assets exceeds the carrying value and determine the amount of impairment, if
any.
See Critical Accounting Principles and Estimates and our consolidated financial statements Note 3 – Goodwill and Other
Identifiable Intangible Assets, for a detailed description of the results of our impairment reviews in the fourth quarter of 2009
and 2008 that resulted in total impairment charges of $1.7 million in the year ended December 31, 2009, and total impairment
charges of $244.1 million in the year ended December 31, 2008.
Results of Operations
The following table summarizes, for the periods indicated, selected consolidated statements of operations data expressed as
a percentage of revenue. Our historical results of operations are not necessarily indicative of future operating results.
Year Ended December 31,
2008
2007
2009
Revenue from services ............................................................................................................
Direct operating expenses .......................................................................................................
Selling, general and administrative expenses .........................................................................
Bad debt expense ....................................................................................................................
Depreciation and amortization ................................................................................................
Impairment charges ................................................................................................................
Legal settlement charge ..........................................................................................................
Income (loss) from operations ................................................................................................
Interest expense, net ................................................................................................................
Income (loss) before income taxes .........................................................................................
Income tax expense (benefit)...................................................................................................
Net income (loss).....................................................................................................................
100.0%
72.8
21.6
—
2.2
0.3
0.0
3.1
1.1
2.0
0.8
1.2%
100.0% 100.0%
73.8
18.6
0.1
1.5
33.2
—
(27.2)
0.6
(27.8)
(8.3)
(19.5)%
75.7
17.1
0.2
1.1
—
0.0
5.9
0.4
5.5
2.1
3.4%
Segment Information
Our nurse and allied staffing business segment primarily provides travel nurse and allied staffing services and per diem nurse
services to acute care hospitals. Nurse and allied staffing services are marketed to public and private healthcare facilities and
for-profit and not-for-profit facilities throughout the U.S.
In the third quarter of 2008, we added the physician staffing business segment as a result of our acquisition of MDA (See
Note 4 - Acquisitions in the notes to consolidated financial statements). MDA provides multi-specialty locum tenens and
allied staffing services to the healthcare industry in all 50 states. MDA’s locum tenens business comprises the physician
staffing business segment while MDA’s allied staffing services have been aggregated with our nurse and allied staffing
business segment.
Our clinical trials services business segment provides clinical trials, drug safety and regulatory professionals on a contract
staffing and outsourced basis to companies in the pharmaceutical, biotechnology and medical device industries, as well as to
CROs and acute care hospitals conducting clinical research trials in the United States, Canada and Europe.
Our other human capital management services business segment includes the combined results of our Company’s education
and training and retained search businesses.
40
Information on operating segments and reconciliation to income (loss) from operations for the periods indicated are as
follows:
(Amounts in thousands)
Revenue from unaffiliated customers:
Nurse and allied staffing .............................................................................. $
Physician staffing .........................................................................................
Clinical trials services ..................................................................................
Other human capital management services ..................................................
$
Contribution income (a):
Nurse and allied staffing .............................................................................. $
Physician staffing .........................................................................................
Clinical trials services ..................................................................................
Other human capital management services ..................................................
Year ended December 31,
2009
2008
2007
$
$
$
313,038 $
151,853
71,678
41,668
578,237 $
525,772
56,558
99,129
52,788
734,247
30,641 $
15,165
7,029
2,973
55,808
53,822
5,711
15,301
7,444
82,278
576,779
––
90,613
50,880
718,272
54,941
––
14,425
7,609
76,975
26,562
6,309
2,051
––
34
42,019
Unallocated corporate overhead .......................................................................
Depreciation ......................................................................................................
Amortization .....................................................................................................
Impairment charges ..........................................................................................
Legal settlement charge ....................................................................................
Income (loss) from operations .......................................................................... $
———————
(a) We define contribution income as income (loss) from operations before depreciation, amortization, impairment
27,457
7,637
3,166
244,094
––
17,701 $ (200,076)
23,245
8,773
4,018
1,726
345
$
charges, and other corporate expenses not specifically identified to a reporting segment. Contribution income is a
measure used by management to assess operations and is provided in accordance with the Segment Reporting Topic of
the FASB ASC.
Comparison of Results for the Year Ended December 31, 2009 compared to the Year Ended December 31, 2008
Revenue from services
Revenue from services decreased $156.0 million, or 21.2%, to $578.2 million for the year ended December 31, 2009, as
compared to $734.2 million for the year ended December 31, 2008. The decrease was primarily due to lower revenue from
our nurse and allied staffing business segment as well as decreases in our clinical trials services and other human capital
management services business segments, partially offset by the added revenue of MDA. Excluding the impact of the MDA
acquisition, consolidated revenue from services decreased $254.4 million or 37.7%, reflecting a challenging operating
environment for all of our business segments.
Nurse and allied staffing
Revenue from our nurse and allied staffing business segment decreased $212.7 million, or 40.5%, to $313.0 million for the
year ended December 31, 2009, from $525.8 million for the year ended December 31, 2008, primarily due to lower volume.
The decline in staffing volume reflects a weakening national labor market on the demand for our services, as well as the
impact of the liquidity crisis on our hospital customers’ cost of capital.
The average number of nurse and allied staffing FTEs on contract during the year ended December 31, 2009, decreased
38.7% from the year ended December 31, 2008. Average nurse and allied staffing revenue per FTEs decreased approximately
2.9% in the year ended December 31, 2009 compared to the year ended December 31, 2008, primarily due to a higher mix of
per diem staffing operations, which tend to have lower average bill rates than travel staffing and a shift in mix toward lower
skilled professionals within our per diem staffing operations. The average bill rate in our travel staffing operations
increased 0.1%.
41
Physician staffing
Revenue from our physician staffing business was $151.9 million for the year ended December 31, 2009, compared to
$56.6 million for the year ended December 31, 2008. We established the physician staffing business in September 2008 with
our acquisition of MDA. Accordingly, results for the year ended December 31, 2008, include the physician staffing business
since its effective date of acquisition.
Clinical trials services
Revenue from clinical trials services decreased $27.5 million, or 27.7%, to $71.7 million in the year ended December 31,
2009, from $99.1 million in the year ended December 31, 2008. This decline was primarily due to a decrease in contract
staffing volume, several clinical research projects that ended in the third quarter of 2009, a decrease in revenue from a
specific drug safety contract, lower direct placement revenue and a decrease in revenue from regulatory contracts. In
addition, a $1.1 million decrease is attributable to foreign currency translation related to our foreign operations.
Other human capital management services
Revenue from other human capital management services for the year ended December 31, 2009, decreased $11.1 million, or
21.1%, to $41.7 million from $52.8 million in the year ended December 31, 2008, reflecting a decrease in revenue related to
the number of retained searches we performed and lower average seminar attendance.
Direct operating expenses
Direct operating expenses are comprised primarily of field employee and independent contractor compensation expenses,
housing expenses, travel expenses and field insurance expenses. Direct operating expenses decreased $120.8 million, or
22.3%, to $420.9 million for the year ended December 31, 2009, as compared to $541.7 million for year ended December 31,
2008.
As a percentage of total revenue, direct operating expenses represented 72.8% of revenue for the year ended December 31,
2009, and 73.8% for the year ended December 31, 2008. The decrease is primarily due to a change in the mix of our business
segments along with a widening of our bill-pay spread in our travel staffing operations and lower housing costs, partially
offset by an increase in workers’ compensation expense as a percentage of revenue.
Selling, general and administrative expenses
Selling, general and administrative expenses decreased $12.0 million, or 8.8%, to $124.8 million for the year ended
December 31, 2009, as compared to $136.8 million for the year ended December 31, 2008. The decrease in selling, general
and administrative expenses was due to lower selling, general and administrative expenses in our organic business segments
and lower unallocated corporate overhead, partially offset by the additional expenses from the MDA acquisition.
Included in selling, general and administrative expenses is unallocated corporate overhead of $23.2 million for year ended
December 31, 2009, compared to $27.5 million for the year ended December 31, 2008. Included in unallocated corporate
overhead are $2.0 million and $1.2 million of share-based compensation expenses for the years ended December 31, 2009
and 2008, respectively. As a percentage of consolidated revenue, unallocated corporate overhead was 4.0% for the year ended
December 31, 2009, and 3.7% for the year ended December 31, 2008.
As a percentage of total revenue, selling, general and administrative expenses were 21.6% and 18.6%, respectively, for the
year ended December 31, 2009 and 2008, respectively. This increase is primarily due to negative operating leverage and a
change in mix of our business segments.
Bad debt expense
Bad debt expense was not incurred for the year ended December 31, 2009, due to improved collections. Bad debt expense as
a percentage of total revenue was 0.1%, or $1.0 million for the year ended December 31, 2008. The Company’s calculation
and methodology remain consistent.
42
Contribution income
Contribution income from our nurse and allied staffing segment for the year ended December 31, 2009, decreased
$23.2 million or 43.1%, to $30.6 million from $53.8 million in year ended December 31, 2008. As a percentage of nurse and
allied staffing revenue, segment contribution income was 9.8% for the year ended December 31, 2009, and 10.2% for the
year ended December 31, 2008. This decrease is primarily due to negative operating leverage, partially offset by a widening
of our bill-pay spread and a moderation in housing costs.
Contribution income from our physician staffing segment for the year ended December 31, 2009, was $15.2 million
compared to $5.7 million in the year ended December 31, 2008. The Company established the physician staffing business in
September 2008 with its acquisition of MDA. Accordingly, results for the year ended December 31, 2008 include the
physician staffing business since its effective date of acquisition. As a percentage of physician staffing revenue, contribution
income was 10.0% for the year ended December 31, 2009 and 10.1% for year ended December 31, 2008.
Contribution income from clinical trials services for the year ended December 31, 2009, decreased $8.3 million, or 54.1%, to
$7.0 million, compared to $15.3 million in the year ended December 31, 2008. As a percentage of clinical trials services
revenue, segment contribution income was 9.8% in the year ended December 31, 2009, compared to 15.4% in the year ended
December 31, 2008, primarily due to negative operating leverage.
Contribution income from other human capital management services for the year ended December 31, 2009, decreased by
$4.5 million, or 60.1%, to $3.0 million, from $7.4 million in the year ended December 31, 2008 due to lower contribution
income from both the retained search and education and training businesses. Contribution income as a percentage of other
human capital management services revenue was 7.1% for the year ended December 31, 2009 and 14.1% for the year ended
December 31, 2008, primarily reflecting the lower number of searches in our retained search business. Our retained search
business has the highest fixed cost structure of all of our businesses. Due to this high fixed cost structure, when revenue
declines the business suffers a disproportionate decline in contribution margin. Conversely, when revenue increases, it should
produce a disproportionately strong margin improvement.
Depreciation and amortization expense
Depreciation and amortization expense in the year ended December 31, 2009, totaled $12.8 million as compared to
$10.8 million for the year ended December 31, 2008. As a percentage of revenue, depreciation and amortization expense was
2.2% for the year ended December 31, 2009 and 1.5% for the year ended December 31, 2008. This increase is primarily due
to higher amortization expense related to intangible assets recorded for the MDA acquisition, additional depreciation expense
on fixed assets of MDA and decreased revenue from services.
Impairment charges
Impairment charges of $1.7 million in the year ended December 31, 2009 resulted from the consolidation of our non-staffing
brands within our clinical trials services business segment to gain operating efficiencies. As a result of this consolidation, we
determined that one of the trademarks and database will no longer be used and, accordingly, we recorded a $1.7 million non-
cash impairment charge. Impairment charges of $244.1 million in the year ended December 31, 2008, represent impairment
of goodwill and other identifiable intangible assets pursuant to the impairment analysis of the Intangibles-Goodwill and
Other Topic of the FASB ASC and the Impairment or Disposal of Long-Lived Asset subsection of the Property, Plant and
Equipment Topic of the FASB ASC. The non-cash impairment charges in 2008 relate almost entirely to a goodwill
impairment charge in the nurse and allied staffing business segment resulting from our annual impairment testing. The
goodwill impairment charge results from a combination of depressed equity market values and lower projected near-term
growth rates for the nurse and allied staffing business arising from the significant down-turn in the U.S. economy and adverse
labor and financial markets that deteriorated sharply during the fourth quarter of 2008. The majority of the goodwill
impairment is attributable to the Company’s initial capitalization in 1999, which was accounted for as an asset purchase, and
the remainder to subsequent nurse staffing acquisitions made through 2003. See Critical Accounting Principles and Estimates
and our consolidated financial statements Note 3 – Goodwill and Other Identifiable Intangible Assets, for more information.
Legal settlement charges
Legal settlement charge in the year ended December 31, 2009, represents an accrual for an agreement in principle to settle the
Maureen Petray and Carina Higareda v. MedStaff, Inc. class action lawsuit. In the fourth quarter of 2009, the Company
accrued a pre-tax charge of $0.3 million ($0.2 million after taxes) related to this lawsuit. See Item 3. Legal Proceedings for
additional information.
43
Interest expense, net
Interest expense, net, totaled $6.2 million for the year ended December 31, 2009 and $4.2 million for the year ended
December 31, 2008. Interest expense in the year ended December 31, 2009 includes an estimate of $0.2 million
ineffectiveness on our interest rate swaps caused by significant prepayments on our term loan borrowings as noted below in
the Credit Facility section. The remaining increase was due to higher average borrowings in the year ended December 31,
2009, partially offset by a lower effective interest rate. Higher borrowings in the year ended December 31, 2009, were
primarily due to the financing of the MDA acquisition. The effective interest rate on our borrowings for the year ended
December 31, 2009, was 4.6% compared to a rate of 5.3% for the year ended December 31, 2008.
Other income
Other income in the year ended December 31, 2009 represents a gain on the sale of marketable securities classified as
available for sale.
Income tax expense (benefit)
Income tax expense totaled $5.0 million for the year ended December 31, 2009, as compared to a benefit of $61.2 million for
the year ended December 31, 2008. The effective tax rate was 42.6% in the year ended December 31, 2009, compared to
30.0% in the year ended December 31, 2008, primarily due to the impact of the 2008 goodwill impairment charge. A portion
of the impaired goodwill related to the TravCorps acquisition was not deductible for tax purposes. Excluding the tax impact
related to the impairment charges, the effective tax rate was 39.8% for the year ended December 31, 2008. The tax rate in the
year ended December 31, 2009 was higher than the adjusted 2008 rate due to the introduction of per diem allowances for our
travel nurse and allied staffing field personnel in the third quarter of 2008 and the impact of certain discrete items including a
true-up of the estimated tax liability for 2008.
Comparison of Results for the Year Ended December 31, 2008 compared to the Year Ended December 31, 2007
Revenue from services
Revenue from services increased $16.0 million, or 2.2%, to $734.2 million for the year ended December 31, 2008, as
compared to $718.3 million for the year ended December 31, 2007. The increase was primarily due to the added revenue
from the MDA acquisition and an increase in revenue from our clinical trials services and other human capital management
services business segments substantially offset by a decrease in revenue from our nurse and allied staffing business segment.
The increase in our clinical trials services business segment was due to the acquisitions of AKOS and Assent. Excluding the
impact of acquisitions, consolidated revenue from services decreased $57.8 million or 8.0%.
Nurse and allied staffing
Revenue from our nurse and allied staffing business segment decreased $51.0 million, or 8.8%, to $525.8 million in the year
ended December 31, 2008, from $576.8 million in the year ended December 31, 2007. A decrease in volume versus the prior
year more than offset improved pricing in our organic nurse and allied staffing business.
Average nurse and allied staffing revenue per FTEs and average bill rates increased approximately 3.0% during the year
ended December 31, 2008, compared to the year ended December 31, 2007. The average number of nurse and allied staffing
FTEs on contract during the year ended December 31, 2008, decreased 11.2% from the year ended December 31, 2007.
Physician staffing
Revenue from our physician staffing business was $56.6 million for the period from September 1, 2008 to December 31,
2008 resulting from the acquisition of MDA.
Clinical trials services
Revenue from clinical trials services increased $8.5 million, or 9.4%, to $99.1 million in the year ended December 31, 2008,
from $90.6 million in the year ended December 31, 2007. Excluding the impact of the acquisitions of Assent and AKOS,
revenue decreased $5.4 million, or 6.0%. This decline was primarily due to a decrease in traditional contract staffing volume
and a decrease in revenue from a specific drug safety contract; partially offset by an increase in revenue from CRO projects.
44
Other human capital management services
Revenue from other human capital management services for the year ended December 31, 2008, increased $1.9 million, or
3.8%, to $52.8 million from $50.9 million in the year ended December 31, 2007, reflecting increases in revenue from both
our education and training and our retained search businesses.
Direct operating expenses
Direct operating expenses are comprised primarily of field employee and independent contractor compensation expenses,
housing expenses, travel expenses and field insurance expenses. Direct operating expenses decreased $1.9 million, or 0.4%,
to $541.7 million for the year ended December 31, 2008, as compared to $543.6 million for year ended December 31, 2007.
As a percentage of total revenue, direct operating expenses represented 73.8% of revenue for the year ended December 31,
2008, and 75.7% for the year ended December 31, 2007. This decrease is primarily due to a widening of our bill-pay spread
in our travel staffing operations, a change in mix of revenue from our business segments, lower professional liability
expenses and lower housing cost as a percentage of revenue; partially offset by higher health insurance claims. Our business
mix changed, primarily due to the acquisition of the MDA, which comprises our physician staffing business segment. In
addition, revenue from our clinical trials services and other human capital management services business segments were a
higher percentage of total revenue from services in the year ended December 31, 2008, compared to the year ended
December 31, 2007. Physician staffing, clinical trials services and other human capital management services tend to have
lower direct costs as a percentage of revenue than our nurse and allied staffing business segment, which declined as
a percentage of total revenue in the year ended December 31, 2008.
Selling, general and administrative expenses
Selling, general and administrative expenses increased $14.1 million, or 11.5%, to $136.8 million for the year ended
December 31, 2008, as compared to $122.7 million for the year ended December 31, 2007. The increase in selling, general
and administrative expenses was primarily due to additional expenses from acquisitions and higher compensation expense
partially offset by lower legal fees.
Included in selling, general and administrative expenses is unallocated corporate overhead of $27.5 million for year ended
December 31, 2008, compared to $26.6 million for the year ended December 31, 2007. As a percentage of consolidated
revenue, unallocated corporate overhead was 3.7% during the years ended December 31, 2008 and 2007.
As a percentage of total revenue, selling, general and administrative expenses were 18.6% and 17.1%, respectively, for the
years ended December 31, 2008 and 2007. This increase is primarily due to a combination of a change in mix of revenue
from our business segments and higher expenses as discussed above. Our clinical trials services and other human capital
management services business segments increased, as a percentage of total revenue, while our nursing and allied staffing
business segment decreased. Clinical trial services and other human capital management services generally operate with a
higher selling, general and administrative burden than our nursing and allied staffing and physician staffing business
segments.
Bad debt expense
Bad debt expense totaled $1.0 million for the year ended December 31, 2008, compared to $1.6 million in year ended
December 31, 2007. Bad debt expense as a percentage of total revenue was 0.1% in the year ended December 31, 2008,
compared to 0.2% in the year ended December 31, 2007. This decrease is due to improved collections during the year ended
December 31, 2008.
Contribution income
Contribution income from our nurse and allied staffing segment for the year ended December 31, 2008, decreased
$1.1 million or 2.0%, to $53.8 million from $54.9 million in year ended December 31, 2007. As a percentage of nurse and
allied staffing revenue, segment contribution income was 10.2% for the year ended December 31, 2008, and 9.5% for the
year ended December 31, 2007. This increase is primarily due to a widening of our bill-pay spread, and secondarily by a
moderation in the rate of increase of housing costs and lower professional liability expenses, partially offset by higher health
insurance expense.
Contribution income from physician staffing for the year ended December 31, 2008, was $5.7 million, representing the
results of operations since our acquisition of this business. As a percentage of physician staffing revenue, contribution
income was 10.1%.
45
Contribution income from clinical trials services for the year ended December 31, 2008, increased $0.9 million to
$15.3 million, compared to $14.4 million in the year ended December 31, 2007. As a percentage of clinical trials services
revenue, segment contribution income was 15.4% in the year ended December 31, 2008, compared to 15.9% in the year
ended December 31, 2007.
Contribution income from other human capital management services for the year ended December 31, 2008, decreased by
$0.2 million, or 2.2%, to $7.4 million, from $7.6 million in the year ended December 31, 2007 due to improved contribution
income in the retained search business partially offset by lower contribution income from the education and training
businesses. Contribution income as a percentage of other human capital management services revenue was 14.1% for the year
ended December 31, 2008 and 15.0% for the year ended December 31, 2007.
Depreciation and amortization expense
Depreciation and amortization expense in the year ended December 31, 2008, totaled $10.8 million as compared to
$8.4 million for the year ended December 31, 2007. As a percentage of revenue, depreciation and amortization expense was
1.5% for the year period ended December 31, 2008 and 1.2% for the year ended December 31, 2007. This increase is
primarily due to higher amortization expense related to intangible assets recorded in connection with recent acquisitions and
additional depreciation expense from fixed assets that were placed into service since the beginning of 2008 largely due to
software upgrades.
Impairment charges
Impairment charges of $244.1 million in the year ended December 31, 2008, represent impairment of goodwill and other
identifiable intangible assets pursuant to the process and calculations of Intangibles-Goodwill and Other Topic of the FASB
ASC and the Impairment or Disposal of Long-Lived Asset subsection of the Property, Plant and Equipment Topic of the
FASB ASC. The non-cash impairment charges relate almost entirely to a goodwill impairment charge in the nurse and allied
staffing business segment resulting from our annual impairment testing. The goodwill impairment charge results from a
combination of depressed equity market values and lower projected near-term growth rates for the nurse and allied staffing
business arising from the significant down-turn in the U.S. economy and adverse labor and financial markets that deteriorated
sharply during the fourth quarter of 2008. The majority of the goodwill impairment is attributable to the Company’s initial
capitalization in 1999, which was accounted for as an asset purchase, and the remainder to subsequent nurse staffing
acquisitions made through 2003. See Critical Accounting Principles and Estimates Policies and Estimates and our
consolidated financial statements Note 3 – Goodwill and Other Identifiable Intangible Assets, for more information.
Interest expense, net
Interest expense, net, totaled $4.2 million for the year ended December 31, 2008 and $2.6 million for the year ended
December 31, 2007. This increase was due to higher average borrowings in the year ended December 31, 2008, partially
offset by a lower effective interest rate. Higher borrowings in the year ended December 31, 2008, were primarily due to the
financing of the MDA and 2007 acquisitions, stock repurchases and earnout payments. The effective interest rate on our
borrowings for the year ended December 31, 2008, was 5.3% compared to a rate of 6.9% for the year ended December 31,
2007.
Income tax (benefit) expense
Income tax benefit totaled $61.2 million for the year ended December 31, 2008, as compared to an income tax expense of
$14.8 million for the year ended December 31, 2007. The effective tax rate was 30.0% in the year ended December 31, 2008,
compared to 37.5% in the year ended December 31, 2007. A portion of the impaired goodwill related to the TravCorps
acquisition was not deductible for tax purposes. Excluding the tax impact related to the impairment charges, the effective tax
rate was 39.8% for the year ended December 31, 2008. The increase in the tax rate, excluding the effect of the impairment
charges, primarily reflects the introduction of per diem allowances for our travel nurse and allied staffing field personnel in
the third quarter of 2008. A portion of these allowances are not deductible for tax purposes.
Transactions with Related Parties
We provide services to hospitals which are affiliated with certain Board of Director members. Revenue related to these
transactions amounted to approximately $0.9 million, $3.1 million and $3.9 million in aggregate for the years ended
December 31, 2009, 2008, and 2007, respectively. Accounts receivable due from these hospitals at December 31, 2009 and
2008 were approximately $0.1 million and $0.2 million, respectively. Pricing for our services is consistent with our other
hospital customers.
46
Liquidity and Capital Resources
As of December 31, 2009, we had a current ratio, defined as the amount of current assets divided by current liabilities, of 3.1
to 1. Working capital decreased by $36.3 million to $71.7 million as of December 31, 2009, compared to $107.9 million as of
December 31, 2008. Days’ sales outstanding were 52 days, 53 days, and 59 days at December 31, 2009, 2008, and 2007,
respectively, and were consistent with historical ranges.
Our operating cash flows constitute our primary source of liquidity, and historically, have been sufficient to fund our working
capital, capital expenditures, internal business expansion and debt service including our commitments as described in the
Commitments table which follows. We believe that our capital resources are sufficient to meet our working capital needs
including our earnout payment commitments for the next twelve months. We expect to meet our future needs for working
capital, capital expenditures, internal business expansion and debt service from a combination of operating cash flows and
funds available through the revolving loan portion of our current credit agreement. We are currently evaluating different
alternatives to replace our revolver due to its scheduled maturity in November 2010, including amending our current credit
agreement as described below. We also continue to evaluate acquisition opportunities that may require additional funding. In
addition to those amounts available under our existing credit agreement, we may incur up to an additional $45.0 million in
Indebtedness (as defined by the credit agreement).
Stockholders’ Equity
Stock Repurchase Programs
In November 2002, our Board of Directors authorized a stock repurchase program whereby we could purchase up to
1.5 million of our common shares at an aggregate price not to exceed $25.0 million. Subsequently, in May 2006, and then
again in February 2008, our Board of Directors authorized two additional stock repurchase programs whereby we may
purchase up to 1.5 million shares of our common stock under each authorization, subject to the terms of our credit agreement.
The shares may be repurchased from time-to-time in the open market and the repurchase program may be discontinued at any
time at our discretion.
During year ended December 31, 2009, we did not repurchase shares. During the year ended December 31, 2008, we
repurchased, under the May 2006 and February 2008 programs, a total of 924,235 shares at an average price of $11.66. The
cost of such purchases was approximately $10.8 million. During the year ended December 31, 2007, we repurchased and
retired, under both the November 2002 and May 2006 programs, a total of 704,498 shares at an average cost of $15.45 per
share. The cost of such purchases was approximately $10.9 million. All of the common stock was retired.
At December 31, 2009, we had 1,441,139 shares of common stock left remaining to repurchase under our February 2008
authorization subject to the limitations of our credit agreement. See Credit Agreement section below and consolidated
financial statements Note 7- Long-term Debt.
Credit Agreement
Our Credit Agreement consists of a $75.0 million revolving loan facility, maturing in November 2010, and provides for a 5
year $125.0 million term loan facility with Wells Fargo Securities, LLC and certain of its affiliates, maturing in 2013, Banc
of America Securities LLC and certain other lenders. The revolving loan facility and term loan bear interest at a rate of, at our
option, either: (i) London Interbank Offered Rate (LIBOR) plus a leverage-based margin or (ii) Base Rate (as defined in the
Credit Agreement) plus a leverage-based margin.
The Credit Agreement was also amended for customary covenants for similar leveraged deals such as: 1) requiring us to
hedge at least 40% of our floating rate exposure for 2 years; and 2) adding a mandatory prepayment provision from Excess
Cash as defined by the Credit Agreement. In addition, pursuant to the provisions of the Credit Agreement, in October 2008,
we entered into interest rate swap agreements to effectively fix the interest on $70.0 million of our term debt for a period of 2
years at 3.04%, plus the applicable LIBOR spread. At December 31, 2009, the interest rate swap agreements had a fair value
of $(1.4) million, which is separately stated on our consolidated balance sheets. We have formally documented the hedging
relationships and account for these arrangements as cash flow hedges. As a result of significant prepayments on our term loan
in 2009, the ineffective portion of the fair value measurement, $0.2 million, has been recognized in interest expense for the
year ended December 31, 2009.
The $75.0 million revolving loan facility has a $10.0 million sublimit for the issuance of Swingline Loans (as defined by the
Credit Agreement) and a $35.0 million sublimit for the issuance of standby letters of credit. Swingline Loans and letters of
credit issued under this facility reduce the revolving loan facility on a dollar for dollar basis. The revolving loan facility is
being used for general corporate purposes including working capital, capital expenditures and permitted acquisitions and
investments, as well as to pay fees and expenses related to the credit facility.
47
As of December 31, 2009, interest on our credit facility was based on LIBOR plus a margin of 1.75% or Base Rate plus a
margin of 0.75%. We are required to pay a quarterly commitment fee on the average daily unused portion of the revolving
loan facility, which, as of December 31, 2009, was 0.375%. As of December 31, 2009, we had $12.7 million of standby
letters of credit outstanding under this facility, leaving $62.3 million available for borrowing under our revolving loan
facility.
In addition to the above mentioned terms, the terms of the Credit Agreement include customary covenants and events of
default. As of December 31, 2009, we were in compliance with the financial covenants and other covenants contained in the
Credit Agreement. Specifically, the table below summarizes what we believe are the key financial covenants, as defined by
the Credit Agreement, and our corresponding actual performance as of December 31, 2009.
Maximum Permitted Leverage Ratio (a) .......................................................................
Minimum Interest Coverage Ratio .................................................................................
Maximum Capital Expenditures for 2009 (b) ................................................................
———————
(a) The Leverage Ratio must not be greater than 2.50 to 1.00 as of December 31, 2009 and thereafter.
Requirement
2.50 to 1.00
5.00 to 1.00
$25.3 million
Actual
1.86 to 1.00
6.74 to 1.00
$2.5 million
(b) Aggregate amount of Capital Expenditures in any fiscal year may not exceed $15.0 million, but may be increased in
any fiscal year by the amount of Capital Expenditures that were permitted but not made in the immediately preceding
fiscal year.
The agreement also includes a mandatory prepayment provision, which requires us to make mandatory prepayments
subsequent to receiving net proceeds from the sale of assets, insurance recoveries, or the issuance of our debt or equity. In
addition, when our Consolidated Total Leverage Ratio as of the end of a fiscal year is greater than or equal to 1.50 to 1.00,
we are required to make principal prepayments of at least 50% of Excess Cash Flow, both, as defined by the agreement. As a
result of the optional prepayments we have made during the year on our term loan, we do not expect to be required to make
any mandatory prepayments for 2009. The dividends and distribution covenant limits our ability to repurchase our common
stock and declare and pay cash dividends on our common stock. The Credit Agreement provides for an amount allowed for
stock repurchases/dividends. The limitation increases each year by 25% of net income provided that our Debt/EBITDA ratio
(as defined in the Credit Agreement) is less than 2.00 to 1.00 and we have $15.0 million in cash or available cash under the
revolving loan facility. Our net loss for the year ended December 31, 2008, has had the effect of eliminating the allowable
amount. We are also required to obtain the consent of the lenders to complete any acquisition which exceeds $25.0 million
(excluding the MDA acquisition) or would cause us to exceed $125.0 million (excluding the MDA acquisition) in aggregate
payments during the term of the agreement. The commitments under the Credit Agreement are secured by substantially all of
our assets.
Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
Net cash provided by operating activities during the year ended December 31, 2009 was $72.3 million compared to
$51.0 million during the year ended December 31, 2008. The increase was primarily due to a decrease in accounts receivable
resulting from decreased volume and improved collections in the year ended December 31, 2009 compared to the year ended
December 31, 2008. This was partially offset by lower net income. Number of days’ sales outstanding decreased by 1 day to
52 days at December 31, 2009, compared to 53 days at December 31, 2008.
Investing activities used $10.0 million in the year ended December 31, 2009, primarily for earnout payments of $7.5 million
related to our MDA and AKOS acquisitions and capital expenditures of $2.5 million. During the year ended December 31,
2008, investing activities used $129.6 million in cash, primarily for the purchase of MDA and for earnout payments related to
the acquisitions of Metropolitan Research, Assent and AKOS. In addition, investing activities in the year ended
December 31, 2008 used $4.7 million for capital expenditures.
Net cash used in financing activities during the year ended December 31, 2009, was $64.1 million, compared to net cash
provided by financing activities of $80.1 million during the year ended December 31, 2008, primarily due to the financing of
the MDA acquisition in 2008. During the year ended December 31, 2009, we repaid a net of $70.8 million of our total debt,
primarily from cash flow from operations. During the year ended December 31, 2008, we borrowed $125.0 million through a
term loan to fund the acquisition of MDA. We also repaid a net of $32.7 million of our total debt. In the year ended
December 31, 2009, $5.0 million was provided by the release of restricted cash. In addition, proceeds and tax benefits from
the exercise of stock options provided $1.6 million and $1.2 million in years ended December 31, 2009 and 2008,
respectively. Offsetting the inflows in the year ended December 31, 2008, we used $10.8 million to repurchase and retire
stock, and $2.6 million to pay debt issuance costs related to the financing of the MDA acquisition.
48
Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
Net cash provided by operating activities during the year ended December 31, 2008 was $51.0 million compared to
$35.9 million during the year ended December 31, 2007. This increase is primarily due to a decrease in accounts receivable.
In addition, during the year ended December 31, 2007, we paid out the legal settlement amount of $6.7 million, referenced
previously. These increases in cash flow from operating activities were partially offset by the timing of other payments.
Investing activities used $129.6 million of cash during the year ended December 31, 2008, primarily for the acquisition of
MDA and earnout payments related to our Metropolitan Research, AKOS and Assent acquisitions as well as capital
expenditures of $4.7 million. Investing activities used $35.3 million during the year ended December 31, 2007, primarily for
the purchases of Assent and AKOS as well as capital expenditures.
Net cash provided by financing activities was $80.1 million during the year ended December 31, 2008, primarily due to the
financing of the MDA acquisition and stock repurchases, partially offset by repayments of our borrowings. Net cash provided
by financing activities in the year ended December 31, 2007 was $8.4 million. Cash flow from operations and net borrowings
were used in 2007 primarily for acquisitions and stock repurchases. Cash was also provided by the exercise of employee
stock options in both periods.
Commitments and Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements.
The following table reflects our contractual obligations and other commitments as of December 31, 2009:
Commitments
Total
2010
2011
2012
2013
2014
Thereafter
Senior secured credit facility (a) .... $ 62,109 $
Capital lease obligations ................
Operating leases obligations (b) .....
Purchase obligations (c) .................
Legal settlement (d) .......................
MDA earnout (e) ............................
405
32,844
2,943
345
––
5,419 $
315
6,763
2,475
345
––
(Unaudited, amounts in thousands)
8,337 $ 19,591 $ 28,762 $
19
5,613
56
––
––
41
6,010
412
––
––
22
4,952
––
––
––
$ 98,646 $ 15,317 $ 14,800 $ 25,279 $ 33,736 $
–– $
8
2,943
––
––
––
2,951 $
––
––
6,563
––
––
6,563
———————
(a)
Subsequent to December 31, 2009, we made optional prepayments of $4.0 million of our borrowings under the term
loan portion of our senior credit facility. Optional prepayments are applied pro rata to the remaining scheduled
maturities, as per the terms of the Credit Agreement. See Note 7 to our consolidated financial statements – Long-term
Debt. Under our credit facility, we are required to comply with certain financial covenants. Our inability to comply
with the required covenants or other provisions could result in default under our credit facility. In the event of any such
default and our inability to obtain a waiver of the default, all amounts outstanding under the credit facility could be
declared immediately due and payable.
(b) Represents future minimum lease payments associated with operating lease agreements with original terms of more
than one year.
(c) Other contractual obligations include contracts for information systems consulting services.
(d) During the fourth quarter of 2009, the Company reached an agreement in principle to settle a class action lawsuit,
Maureen Petray and Carina Higareda v. MedStaff, Inc., which settlement remains subject to court approval. In the
fourth quarter of 2009, the Company accrued a pre-tax charge of $0.3 million ($0.2 million after taxes) related to this
lawsuit. We expect the settlement to occur in 2010.
(e) We have a contingent payment (earnout) related to our recent acquisition of MDA. We expect to make a payment in
2010, based on MDA’s 2009 performance. The amount of the earnout payment has not been finalized at the date of this
filing. See Note 4 to the consolidated financial statements– Acquisitions.
In addition to the above disclosed contractual obligations, the Company has accrued uncertain tax positions, pursuant to the
Income Taxes Topic of the FASB ASC of $4.4 million at December 31, 2009. Based on the uncertainties associated with the
settlement of these items, we are unable to make reasonably reliable estimates of the period of potential settlements, if any,
with the taxing authorities.
49
Critical Accounting Principles and Estimates
We have identified the following critical accounting policies that affect the more significant judgments and estimates used in
the preparation of our consolidated financial statements. The preparation of our consolidated financial statements in
conformity with accounting principles generally accepted in the United States of America requires us to make estimates and
judgments that affect our reported amounts of assets and liabilities, revenues and expenses, and related disclosures of
contingent assets and liabilities. We evaluate our estimates on an on-going basis, including those related to asset impairment,
accruals for self insurance, allowance for doubtful accounts, taxes and other contingencies and litigation. We state our
accounting policies in the notes to the audited consolidated financial statements and related notes for the year ended
December 31, 2009, contained herein. These estimates are based on information that is currently available to us and on
various assumptions that we believe to be reasonable under the circumstances. Actual results could vary from those estimates
under different assumptions or conditions.
We believe that the following critical accounting policies affect the more significant judgments and estimates used in the
preparation of our consolidated financial statements:
1) We have recorded goodwill and other identifiable intangible assets resulting from our acquisitions through December 31,
2009. Upon the adoption of FASB Statement No. 142, Goodwill and Other Intangible Assets, now incorporated into the
Business Combinations Topic of the FASB ASC, we ceased amortizing goodwill and certain other intangible assets with
indefinite lives. Instead, goodwill and intangible assets with indefinite lives are reviewed for impairment annually, and
whenever events of changes in circumstances indicate that the carrying value may not be recoverable. Pursuant to the
annual testing of goodwill, in the fourth quarters of 2009 and 2008 we evaluated five reporting units: 1) nurse and allied
staffing, 2) physician staffing, 3) clinical trials services, 4) retained search and 5) education and training. In the fourth
quarter of 2007, we evaluated the four reporting units we had at that time: 1) nurse and allied staffing, 2) clinical trials
services, 3) retained search and 4) education and training. Upon completion of the first step in our annual impairment
assessment as of December 31, 2009 and 2007, we determined that no impairment was indicated.
For the December 31, 2009 impairment test, we estimated the fair value of each our reporting units based on a weighting
of both the income approach and the market approach. The discounted cash flows for each reporting unit that served as
the primary basis for the income approach were based on discrete financial forecasts developed by management for
planning purposes and consistent with those distributed within the Company. The forecasts imply a recovery in our
businesses in 2011. A number of significant assumptions and estimates were involved in the application of the
discounted cash flow methodology to forecasted operating cash flows, revenues, margins, discount rate, and working
capital changes. Cash flows beyond the discrete forecast period of ten years were estimated using a terminal value
calculation. A terminal value growth rate of 2.5% was used for each reporting unit. The income approach valuations
included reporting unit cash flow discount rates, representing each reporting unit’s weighted average cost of capital,
ranging from 11.8% to 13.4%.
The market approach applied pricing multiples derived from publicly-traded guideline companies that are comparable to
the respective reporting unit, to determine its value. We utilized total enterprise value/revenue multiples ranging from
0.5 to 1.2 and total enterprise value/EBITDA multiples ranging from 6.6 to 10.2. Each reporting unit’s market value was
determined assuming a 60% weighting to revenue and a 40% weighting to EBITDA. The fair value under the market
approach included a control premium of 30%, which is an amount we estimate a buyer would be willing to pay in excess
of the current market price in order to acquire a controlling interest. The control premium was determined based on a
review of comparative market transactions. Publicly available information regarding the market capitalization of the
Company was also considered in assessing the reasonableness of the cumulative fair values of the reporting units. Upon
completion of the December 31, 2009 assessment, we determined that the estimated fair value of all of our reporting
units exceeded their respective carrying values as follows: nurse and allied staffing – 53%, physician staffing – 58%,
clinical trials services – 13%, retained search – 197% and education and training – 217%.
As a result of the review in the fourth quarter of 2008, we recorded an impairment charge related to the nurse and allied
staffing reporting unit of $241.0 million, pretax. The goodwill impairment charge results from a combination of
depressed equity market values and lower projected near-term growth rates for the nurse and allied staffing business
arising from the significant down-turn in the U.S. economy and adverse labor and financial markets that deteriorated
sharply during the fourth quarter of 2008. The majority of the goodwill impairment is attributable to our initial
capitalization in 1999, which was accounted for as an asset purchase, and the remainder to subsequent nurse staffing
acquisitions made through 2003. The impairment test requires us to determine the fair value of each reporting unit and
compare it to the reporting unit’s carrying amount including goodwill as step one. We estimated the fair value of our
reporting units, primarily using a discounted cash flow methodology. If the estimated fair value is less than the carrying
amount for a particular reporting unit, then we are required to calculate the implied fair value of all tangible and
50
intangible net assets of the reporting unit (as determined in step one). In this step, we must allocate the fair value of the
reporting unit to all of the reporting unit’s assets and liabilities in a “hypothetical purchase price allocation.” This also
requires the identification of any previously unrecognized intangible assets. The implied value of goodwill is compared
to the carrying amount to determine the amount of any impairment charge.
In addition, the Property, Plant and Equipment/Impairment of Disposal of Long-Lived Assets Topic of the FASB ASC,
requires us to test the recoverability of long-lived assets, including identifiable intangible assets with definite lives,
whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In testing for
potential impairment, if the carrying value of the asset group exceeds the expected undiscounted cash flows, we must
then determine the amount by which the fair value of those assets exceeds the carrying value and determine the amount
of impairment, if any. In the fourth quarter of 2009, we conducted an assessment of a particular trademark and database
in our clinical trials services segment due to a change in marketing strategy for the business that indicated the carrying
amount of the trademark and database may not be recoverable. We streamlined our non-staffing operations within the
clinical trials services segment to gain efficiencies. Based on these circumstances, we recorded a pre-tax non-cash
impairment charge which represented the entire carrying value of this trademark and database of approximately
$1.7 million. This charge is included in impairment charges on the consolidated statement of operations for the year
ended December 31, 2009. For the year ended December 31, 2008, we concluded that the carrying value of a particular
customer relationship in the clinical trials services business segment was higher than its respective estimated fair value
and recorded a $3.1 million impairment charge, pretax.
The calculation of fair value used in these impairment assessments included a number of estimates and assumptions that
required significant judgments, including projections of future income and cash flows, the identification of appropriate
market multiples and the choice of an appropriate discount rate. Changes in these assumptions could materially affect
the determination of fair value for each reporting unit. Specifically, further deterioration of demand for our services,
further deterioration of labor market conditions, reduction of our stock price for an extended period, or other factors as
described in Item 1.A. Risk Factors, may affect our determination of fair value of each reporting unit. This evaluation
can also be triggered by various indicators of impairment which could cause the estimated discounted cash flows to be
less than the carrying amount of net assets. If we are required to record an impairment charge in the future, it could have
an adverse impact on our results of operations. Under the current credit agreement an impairment charge will not have
an impact on our liquidity. As of December 31, 2009, we had total goodwill and intangible assets not subject to
amortization of $193.6 million, net of accumulated amortization.
2) We maintain accruals for our health, workers’ compensation and professional liability policies that are partially self-
insured and are classified as accrued compensation and benefits on our consolidated balance sheets. We determine the
adequacy of these accruals by periodically evaluating our historical experience and trends related to health, workers’
compensation and professional liability claims and payments, based on actuarial models, as well as industry experience
and trends. If such models indicate that our accruals are overstated or understated, we will reduce or provide for
additional accruals as appropriate. Healthcare insurance accruals have fluctuated with increases or decreases in the
average number of temporary healthcare professionals on assignment as well as actual company experience and
increases in national healthcare costs. As of December 31, 2009 and 2008, we had $1.5 million and $2.0 million accrued,
respectively, for incurred but not reported health insurance claims. Corporate and field employees are covered through a
partially self-insured health plan. At December 31, 2009 and 2008, $0.6 million and $0.8 million, respectively, of the
incurred but not reported health insurance claims accrual related to corporate employees. Workers’ compensation
insurance accruals can fluctuate over time due to the number of employees and inflation, as well as additional exposures
arising from the current policy year. As of December 31, 2009, we had $3.6 million accrued for incurred but not reported
workers’ compensation claims and retentions, net of related insurance recoveries receivable, a decrease of $1.0 million
over the amount accrued at December 31, 2008. The accrual for workers’ compensation is based on an actuarial model
which is prepared or reviewed by an independent actuary. As of December 31, 2009, and 2008, we had $11.9 million and
$12.3 million accrued, respectively, for incurred but not reported professional liability claims and retentions, net of
related insurance recoveries receivable. The accrual for professional liability is based on an actuarial model which is
prepared or reviewed by an independent actuary.
3) We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to
make required payments, which results in a provision for bad debt expense. We determine the adequacy of this
allowance by continually evaluating individual customer receivables, considering the customer’s financial condition,
credit history and current economic conditions. If the financial condition of our customers were to deteriorate, resulting
in an impairment of their ability to make payments, additional allowances may be required. We write off specific
accounts based on an ongoing review of collectibility as well as our past experience with the customer. Historically,
51
losses on uncollectible accounts have not exceeded our allowances. As of December 31, 2009, our allowance for
doubtful accounts was $4.5 million.
4) We are subject to various claims and legal actions in the ordinary course of our business. Some of these matters include
professional liability and employee-related matters. Our healthcare facility clients may also become subject to claims,
governmental inquiries and investigations and legal actions to which we may become a party relating to services
provided by our professionals. From time to time, and depending upon the particular facts and circumstances, we may be
subject to indemnification obligations under our contracts with our healthcare facility clients relating to these matters.
Material pending legal proceedings brought against us, other than ordinary routine litigation incidental to the business
are described in Legal Proceedings.
5) We account for income taxes in accordance with the Income Taxes Topic of the FASB ASC. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying
amounts of existing assets and liabilities and their respective tax bases and operating loss and other loss carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or settled. As of December 31, 2009 and 2008, we
have deferred tax assets related to certain state net operating loss carryforwards for which we have recorded a valuation
allowance. The state carryforwards will expire between 2010 and 2027. In addition, the tax effect resulting from our
goodwill impairment charge recorded in the year ended December 31, 2008, caused the net deferred tax liability position
to change to a net deferred tax asset position. We have determined that it is more likely than not that the net deferred tax
asset related to the goodwill impairment charge will be realized in the future with the exception of a specific state portion
of the net deferred tax asset for which a valuation allowance has been recorded.
In considering whether or not a valuation allowance is appropriate we consider several sources of taxable income,
including, but not limited to the following items:
• The reversal of taxable temporary differences to offset deductible temporary differences in the future.
• Carryback potential to support the utilization of the deferred tax asset.
• Projections of future taxable income exclusive of reversing temporary differences and carryforwards.
In our determination at December 31, 2009, we relied partially on projections of future taxable income, exclusive of
reversing temporary differences, to reach our conclusion that no valuation allowance is necessary on the net deferred tax
asset, except as otherwise discussed. However, if the levels of future taxable income we have projected are not achieved,
there is a risk that the Company could not recover this entire net deferred tax asset. We will continue, in the future, to
evaluate whether or not the net deferred tax assets will be fully realized prior to expiration.
In calculating the provision for income taxes on an interim basis, we use an estimate of the annual effective tax rate
based upon the facts and circumstances known at each interim period. On a quarterly basis, the actual effective tax rate is
adjusted as appropriate based upon the actual results as compared to those forecasted at the beginning of the fiscal year.
We are subject to income taxes in the United States and certain foreign jurisdictions. Significant judgment is required in
determining our consolidated provision for income taxes and recording the related deferred tax assets and liabilities. In
the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is
uncertain. Accruals for unrecognized tax benefits are provided for in accordance with the Income Taxes Topic of the
FASB ASC. An unrecognized tax benefit represents the difference between the recognition of benefits related to
exposure items for income tax reporting purposes and financial reporting purposes. The current portion of the
unrecognized tax benefit is classified as a component of the income taxes receivable account, and the non-current portion
is included within other long-term liabilities on the consolidated balance sheets. We have a reserve for interest and
penalties on exposure items, if applicable, which is recorded as a component of the overall income tax provision. We are
regularly under audit by tax authorities. Although the outcome of tax audits is always uncertain, we believe that we have
appropriate support for the positions taken on our tax returns and that our annual tax provision includes amounts
sufficient to pay any assessments. Nonetheless, the amounts ultimately paid, if any, upon resolution of the issues raised
by the taxing authorities may differ materially from the amounts accrued for each year.
Recent Accounting Pronouncements
In April 2009, the FASB issued ASC 825, Financial Instruments, which extends the disclosure requirements of the Financial
Instruments Topic of the FASB ASC to interim financial statements of publicly traded companies as defined in the Interim
Reporting Topic of the FASB ASC. ASC 825 is effective for interim reporting periods ending after June 15, 2009, with early
adoption permitted. We have adopted the required disclosure requirements in our second quarter of 2009. Since ASC 825
52
requires only additional disclosures concerning the financial instruments, the adoption did not affect our consolidated balance
sheet, statements of operations or cash flows.
In May 2009, the FASB issued ASC 855, Subsequent Events. This standard establishes general standards of accounting for
and disclosures of subsequent events that occurred after the balance sheet date but prior to the issuance of financial
statements. ASC 855 is effective for financial statements issued for interim or fiscal years ending after June 15, 2009. The
adoption of ASC 855, effective June 2009, did not affect our consolidated balance sheets, statements of operations or cash
flows.
In June 2009, the FASB issued Accounting Standards Update 2009-01, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles-a replacement of FASB Statement No. 162. The FASB ASC is
intended to be the source of authoritative U.S. Generally Accepted Accounting Principles (GAAP) and reporting standards as
issued by the FASB. Its primary purpose is to improve clarity and use of existing standards by grouping authoritative
literature under common topics. This Statement is effective for financial statements issued for interim and annual periods
ending after September 15, 2009. We have used the new guidelines and numbering system prescribed by the ASC when
referring to GAAP in the quarter ending September 30, 2009. The Codification does not change or alter existing GAAP and
there was no impact on our consolidated balance sheets, statements of operations or cash flows.
In August 2009, the FASB issued ASC Update 2009-05, Fair Value Measurements and Disclosures. The purpose of this
update is to clarify that in circumstances in which a quoted price in an active market for the identical liability is not available,
a reporting entity is required to measure fair value using a valuation technique that uses either the quoted price of the
identical liability when traded as an asset or quoted prices for similar liabilities or similar liabilities when traded as assets.
This guidance is effective upon issuance. There was no material impact to us from the adoption of this standard.
Seasonality
The number of nurse and allied professionals on assignment with us is subject to moderate seasonal fluctuations which may
impact our quarterly revenue and earnings. Hospital patient census and staffing needs of our hospital and healthcare facilities
fluctuate which impact our number of orders for a particular period. Many of our hospital and healthcare facility clients are
located in areas that experience seasonal fluctuations in population during the winter and summer months. These facilities
adjust their staffing levels to accommodate the change in this seasonal demand and many of these facilities utilize temporary
healthcare professionals to satisfy these seasonal staffing needs. Likewise, the number of nurse and allied professionals on
assignment may fluctuate due to the seasonal preferences for destinations of our temporary nurse and allied professionals. In
addition, we expect our physician staffing business to experience higher demand in the summer months as physicians take
vacations. This historical seasonality of revenue and earnings may vary due to a variety of factors and the results of any one
quarter are not necessarily indicative of the results to be expected for any other quarter or for any year. In addition, typically,
our first quarter results are negatively impacted by the reset of payroll taxes.
Inflation
During the last several years, the rate of inflation in healthcare related services has exceeded that of the economy as a whole.
This inflation has increased our direct operating costs. We are also impacted by fluctuations in housing costs and recently by
increases in costs of healthcare and workers’ compensation insurance. Depending on the demand environment, we may be
able to recoup the negative impact of such fluctuations by increasing our billing rates. We may not be able to continue
increasing our billing rates and increases in our direct operating costs may adversely affect us in the future. In addition, our
clients are impacted by payments of healthcare reimbursements by federal and state governments as well as private insurers.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
We are exposed to interest rate changes, primarily as a result of our revolving loan and term loans under our Credit
Agreement, which bears interest based on floating rates. Our term loan bears interest at a rate of, at our option, either: (i)
LIBOR plus a leverage-based margin or (ii) Base Rate plus a leverage-based margin. Refer to Liquidity and Capital
Resources – Credit Agreement included in Item 7. See Management’s Discussion and Analysis above for further discussion
about our Credit Agreement and related interest rate swaps. Excluding the impact of our interest rate swap agreements, a 1%
change in interest rates on variable rate debt would have resulted in interest expense fluctuating approximately $0.9 million
in 2009, $0.7 million in 2008 and $0.3 million in 2007. Considering the effect of our interest rate swap agreements a 1%
change in interest rates on our variable rate debt would have resulted in interest expense fluctuating approximately
$0.2 million and $0.7 million in the years ended December 31, 2009 and 2008, respectively.
We are exposed to the impact of foreign currency fluctuations. Changes in foreign currency exchange rates impact
translations of foreign denominated assets and liabilities into U.S. dollars and future earnings and cash flows from
transactions denominated in different currencies. Our international operations generated less than 1% of our consolidated
53
revenue during the years ending December 31, 2009 and 2008, and were primarily from the United Kingdom. We have not
entered into any foreign currency hedges.
Our international operations transact business in their functional currency. As a result, fluctuations in the value of foreign
currencies against the U.S. dollar have an impact on reported results. Revenues and expenses denominated in foreign
currencies are translated into U.S. dollars at monthly average exchange rates prevailing during the period. Consequently, as
the value of the U.S. dollar changes relative to the currencies of our non-U.S. markets, our reported results vary.
Fluctuations in exchange rates also impact the U.S. dollar amount of stockholders’ equity. The assets and liabilities of our
non-U.S. subsidiaries are translated into U.S. dollars at the exchange rate in effect at the end of a reporting period. The
resulting translation adjustments are recorded in stockholders’ equity, as a component of accumulated other comprehensive
loss, included in other stockholders’ equity on our consolidated balance sheet.
Item 8.
Financial Statements and Supplementary Data.
See Item 15 – Exhibits, Financial Statement Schedules of Part IV of this Report.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end
of the period covered by this Report. Based upon the evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective as of such date. Disclosure controls and procedures are
designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms.
There were no changes in our internal control over financial reporting during the three months ended December 31, 2009,
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such
term is defined in Rule 13a-15(f) of the Exchange Act. Under the supervision and with the participation of our senior
management, including our Chief Executive Officer and Chief Financial Officer, we assessed the effectiveness of our internal
control over financial reporting as of December 31, 2009, using the criteria set forth in the Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this
assessment, management has concluded that our internal control over financial reporting as of December 31, 2009 was
effective. An assessment of the effectiveness of our internal control over financial reporting as of December 31, 2009 has
been performed by Ernst & Young LLP, an independent registered public accounting firm. Ernst & Young LLP’s attestation
report is included below.
54
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Cross Country Healthcare, Inc.
We have audited Cross Country Healthcare, Inc.’s internal control over financial reporting as of December 31, 2009, based
on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). Cross Country Healthcare, Inc.’s management is responsible for maintaining
effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Cross Country Healthcare, Inc. maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2009, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the consolidated balance sheets of Cross Country Healthcare, Inc. as of December 31, 2009 and 2008, and the related
consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended
December 31, 2009 of Cross Country Healthcare, Inc. and our report dated March 15, 2010 expressed an unqualified opinion
thereon.
West Palm Beach, Florida
March 15, 2010
/s/ ERNST & YOUNG LLP
Certified Public Accountants
55
Item 9B. Other Information.
None.
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
Information with respect to directors, executive officers and corporate governance is included in our Proxy Statement for the
2009 Annual Meeting of Stockholders (Proxy Statement) to be filed pursuant to Regulation 14A with the SEC and such
information is incorporated herein by reference.
Item 11.
Executive Compensation.
Information with respect to executive compensation is included in our Proxy Statement to be filed with the SEC and such
information is incorporated herein by reference.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters.
Information with respect to beneficial ownership of our common stock is included in our Proxy Statement to be filed with the
SEC and such information is incorporated herein by reference.
With respect to equity compensation plans as of December 31, 2009, see table below:
Plan Category
Equity compensation plans approved
Number of securities
to be issued upon
exercise of outstanding options,
warrants and rights
(a)
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
by security holders .....................................
1,512,980
Equity compensation plans not
approved by security holders ......................
None
Total .......................................................
1,512,980
$13.27
N/A
$13.27
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column (a))
(c)
162,145
N/A
162,145
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Information with respect to certain relationships and related transactions, and director independence is included in our Proxy
Statement to be filed with the SEC and such information is incorporated herein by reference.
Item 14.
Principal Accountant Fees and Services.
Information with respect to the fees and services of our principal accountant is included in our Proxy Statement to be filed
with the SEC and such information is incorporated herein by reference.
56
PART IV
Item 15.
Exhibits, Financial Statement Schedules.
(a) Documents filed as part of the report.
(1) Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2009 and 2008
Consolidated Statements of Operations for the Years Ended
December 31, 2009, 2008 and 2007
Consolidated Statement of Changes in Stockholders’ Equity for the
Years Ended December 31, 2009, 2008 and 2007
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2009, 2008 and 2007
Notes to Consolidated Financial Statements
(2) Financial Statements Schedule
Schedule II – Valuation and Qualifying Accounts for the Years Ended
December 31, 2009, 2008 and 2007
(3) Exhibits
See Exhibit Index immediately following signatures.
57
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused
this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
CROSS COUNTRY HEALTHCARE, INC.
By: /s/ JOSEPH A. BOSHART
Name: Joseph A. Boshart
Title: Chief Executive Officer and President
Date: March 15, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons in
the capacities indicated and on the dates indicated:
Signature
Title
Date
/s/ JOSEPH A. BOSHART
Joseph A. Boshart
President, Chief Executive Officer,
Director (Principal Executive Officer)
March 15, 2010
/s/ EMIL HENSEL
Emil Hensel
Chief Financial Officer and Director
(Principal Financial Officer)
March 15, 2010
March 15, 2010
March 15, 2010
March 15, 2010
March 15, 2010
March 15, 2010
March 15, 2010
/s/ DANIEL J. LEWIS
Daniel J. Lewis
Chief Accounting Officer
(Principal Accounting Officer)
/s/ THOMAS C. DIRCKS
Thomas C. Dircks
/s/ W. LARRY CASH
W. Larry Cash
/s/ C. TAYLOR COLE
C. Taylor Cole
/s/ GALE FITZGERALD
Gale Fitzgerald
/s/ JOSEPH TRUNFIO
Joseph Trunfio
Director
Director
Director
Director
Director
58
No.
EXHIBIT INDEX
Description
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
3.1
3.2
4.1
4.2
4.3
4.4
4.5
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
Cross Country Staffing Asset Purchase Agreement, dated June 24, 1999, by and among W. R. Grace & Co.-Conn.,
a Connecticut corporation, Cross Country Staffing, a Delaware general partnership, and the Registrant, a Delaware
corporation (1)
Agreement and Plan of Merger, dated as of October 29, 1999, by and among the Registrant, CCTC Acquisition,
Inc. and Certain Stockholders of Cross Country Staffing, Inc. and TravCorps Corporation and the Stockholders of
TravCorps Corporation (1)
Stock Purchase Agreement, dated as of December 15, 2000, by and between Edgewater Technology, Inc. and the
Registrant (1)
Asset Purchase Agreement dated as of May 8, 2003, by and among Cross Country Nurses, Inc., the Registrant,
Med-Staff, Inc., William G. Davis, Davis Family Electing Small Business Trust and Timothy Rodden (5)
Asset Purchase Agreement, dated as of July 13, 2006 by and among ARM Acquisition, Inc., ARMS Acquisition,
Inc., Metropolitan Research Associates, LLC, Metropolitan Research Staffing Associates, LLC, Patricia Daly and
Stacy Mamakos Martin (11)
Share Purchase Agreement, dated June 6, 2007, among Cross Country Healthcare UK HoldCo Limited and
Winston Paul John Evans, Susan Morag Evans and Cross Country Healthcare, Inc. (16)
Stock Purchase Agreement, dated July 13, 2007, among ClinForce LLC, the Stockholders of Assent Consulting
and Cross Country Healthcare, Inc. (18)
Purchase Agreement, dated July 22, 2008, by and among StoneCo H, Inc., MDA Holdings, Inc., Medical Doctor
Associates, Inc., Allied Health Group, Inc., Credent Verification and Licensing Services, Inc., Jamestown
Indemnity, Ltd. and MDA Employee and Stock Ownership and 401(K) Plan ESOP Component Trust (22)
Amended and Restated Certificate of Incorporation of the Registrant (2)
Amended and Restated By-laws of the Registrant (2)
Form of specimen common stock certificate (1)
Amended and Restated Stockholders Agreement, dated August 23, 2001, among the Registrant, a Delaware
corporation, the CEP Investors and the Investors (2)
Registration Rights Agreement, dated as of October 29, 1999, among the Registrant, a Delaware corporation, and
the CEP Investors and the MSDWCP Investors (1)
Amendment to the Registration Rights Agreement, dated as of August 23, 2001, among the Registrant, a Delaware
corporation, and the CEP Investors and the MSDWCP Investors (2)
Shareholders Agreement, dated as of August 23, 2001, among the Registrant, Joseph Boshart and Emil Hensel and
the Financial Investors (2)
Employment Agreement, dated as of June 24, 1999, between Joseph Boshart and the Registrant (1)(14)
Employment Agreement, dated as of June 24, 1999, between Emil Hensel and the Registrant (1)(14)
Employment Agreement, dated as of August 31, 2006, between Patricia Daly and ARM Acquisition, Inc. (14)(15)
Employment Agreement, dated as of August 31, 2006, between Stacy Mamakos Martin and ARM Acquisition, Inc.
(14)(15)
Executive Service Agreement, dated June 6, 2007, between AKOS Limited and Paul Evans (14)(19)
Employment Agreement, dated July 13, 2007, between Assent Consulting and David Hnatek (14)(19)
Employment Agreement, dated July 13, 2007, between Assent Consulting and Robert Adzich (14)(19)
Lease Agreement, dated April 28, 1997, between Meridian Properties and the Registrant (1)
Lease Agreement, dated October 31, 2000, by and between Trustees of the Goldberg Brothers Trust, a
Massachusetts Nominee Trust and TVCM, Inc. (1)
59
No.
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
EXHIBIT INDEX (CONTINUED)
Description
222 Building Standard Office Lease between Clayton Investors Associates, LLC and Cejka & Company (1)
Amended and Restated 1999 Stock Option Plan of the Registrant (2)(14)
Amended and Restated Equity Participation Plan of the Registrant (2)(14)
Cross Country Healthcare, Inc. 2007 Stock Incentive Plan adopted April 5, 2007 (14)(20)
Amendment to Lease by and between Meridian Commercial Properties Limited Partnership and Cross Country, Inc.
dated May 1, 2002 (3)
Cross Country, Inc. Deferred Compensation Plan (4)(14)
Restricted Stock Agreement between Company and Joseph A. Boshart (4)(14)
Restricted Stock Agreement between Company and Emil Hensel (4)(14)
Restricted Stock Agreement between Company and Vickie Anenberg (4)(14)
Restricted Stock Agreement between Company and Jonathan Ward (4)(14)
Lease Agreement by and between Edgewood General Partnership and HR Logic, dated July 6, 2000 (6)
First Amendment to Lease Agreement by and between Edgewood General Partnership and HR Logic, dated
December 7, 2000 (6)
Second Amendment to Lease Agreement by and between Edgewood General Partnership and Cross Country
TravCorps, dated April 29, 2002 (6)
Lease Agreement by and between Petula Associates, Ltd. and Principal Life Insurance Company and Clinical Trials
Support Services, Inc. dated November 3, 1999 (6)
First Amendment to Lease Agreement by and between Petula Associates, Ltd. and Principal Life Insurance Company
and Clinical Trials Support Services, Inc., dated December 20, 1999 (6)
Lease Agreement by and between Newtown Street Road Associates and Med-Staff, Inc., dated June 21, 2001 (6)
Lease Agreement by and between Newtown Street Road Associates and Med-Staff, Inc., dated June 23, 1998 (6)
Second Amendment to Lease, dated October 10, 2003, between Canterbury Hall IC, LLC and ClinForce, Inc. (7)
Lease Agreement, dated January 30, 2004, between Goldberg Brothers Real Estate, LLC and TVCM, Inc. (7)
First Amendment to Lease Agreement, dated December 11, 2001, between Clayton Investors Associates LLC and
Cejka & Company (8)
First Amendment to Lease Agreement, dated December 22, 1999, between Newtown Street Road Associates and
MedStaff, Inc. (8)
Second Amendment to Lease Agreement, dated June 21, 2001 between Newtown Street Road Associates and
MedStaff, Inc. (8)
Lease Agreement, dated August 23, 2003, between Corporex Key Limited Partnership No. 8 and Cross Country
Seminars, Inc. (8)
Form of Incentive Stock Option Agreement (8)(14)
Third Amendment to Lease, dated October 6, 2004, between Canterbury Hall IC, LLC and ClinForce, Inc. (9)
First Amendment to Lease Agreement, dated February 24, 2005, between Blevens Family Storage, L.P., and Cross
Country Seminars, Inc. (10)
Fourth Amendment to Lease Agreement, dated December 15, 2005, by and between Canterbury Hall, IC, LLC, and
Clinforce, Inc. (13)
Lease Agreement, dated February 15, 2006, between MedStaff, Inc. and Campus Investors D Building, L.P. (13)
Lease Guaranty Agreement by and between Cross Country Healthcare, Inc. and Campus Investors D Building, L.P.
dated February 17, 2006. (13)
Credit Agreement, dated November 10, 2005, with the Lenders referenced therein, and Wachovia Bank, National
Association, as Administrative Agent, Swingline Lender and Issuing Lender, General Electric Capital Corporation, as
Syndication Agent, Bank of America, N.A., as Co-Documentation Agent, LaSalle Bank National Association, as Co-
Documentation Agent, and Wachovia Capital Markets, LLC, as Sole Lead Arranger and Sole Book Manager (13)
60
No.
10.40
10.41
10.42
10.43
10.44
10.45
10.46
10.47
10.48
10.49
10.50
10.51
10.52
10.53
10.54
10.55
10.56
10.57
10.58
10.59
10.60
10.61
10.62
10.63
10.64
10.65
EXHIBIT INDEX (CONTINUED)
Description
Subsidiary Guarantee Agreement, dated as of November 10, 2005, by and among certain subsidiaries of Cross
Country Healthcare, Inc., as Subsidiary Guarantors in favor of Wachovia Bank, National Association, as
Administrative Agent (13)
Collateral Agreement, dated as of November 10, 2005, by and among Cross Country Healthcare, Inc. and certain of
its subsidiaries as grantors, in favor of Wachovia Bank, National Association, as Administrative Agent (13)
Joinder Agreement, dated as of January 18, 2006, to the Subsidiary Guaranty Agreement and the Collateral
Agreement by and among Cross Country Healthcare, Inc., ClinForce, LLC, Cross Country Education, LLC and
Wachovia Bank, National Association, as Administrative Agent (13)
Lease Agreement between Highwoods Realty Limited Partnership and Metropolitan Research Staffing Associates,
LLC, dated December 2, 2005 (12)
Sublease between Oppenheimer Wolff & Donnelly LLP and Metropolitan Research Associates, LLC, dated June 5,
2003 (12)
Sublease between Port City Press, Inc. and ARM Acquisition, Inc., dated August 31, 2006 (12)
Lease Agreement between Cornerstone Opportunity Ventures, LLC and Cejka Search, Inc., dated February 2,
2007 (15)
Lease Agreement between Self Service Mini Storage, L.P. and Cross Country Education, LLC, dated February 2,
2007 (15)
Second Amendment to Lease Agreement by and between Meridian Commercial Properties Limited Partnership and
Cross Country Healthcare, Inc., dated February 17, 2007 (15)
First Amendment to Lease Agreement dated March 30, 2004, between Goldberg Brothers Real Estate, LLC and
TVCM, Inc. (23)
Fifth Amendment to Lease Agreement dated March 5, 2008, by and between Canterbury Hall IC, LLC and Principal
Life Insurance Company, tenants in common, and ClinForce, Inc. (24)
Credit Agreement dated November 10, 2005 and Amended and Restated as of September 9, 2008 by and among Cross
Country Healthcare, Inc. as Borrower and the Lenders referenced therein (25)
Lease Agreement dated February 1, 2007, by and between MDA Holdings, Inc. and ADKS Realty Corporation (26)
Lease Agreement dated March 1, 1999 by and between Medical Doctors Associates, Inc. and ADKS Realty
Corporation (26)
Lease Agreement dated as of October 29, 2007, by and between Crestline Office Center Associates, LLC and MDA
Holdings, Inc. (26)
Lease Agreement dated as of September 21, 2004, by and between TGS American Realty Limited Partnership and
Medical Doctor Associates, Inc. (26)
First Amendment to Lease Agreement dated as of September 1, 2007, by and between Cornerstone Opportunity
Ventures, LLC and Cejka Search, Inc. (26)
Joinder Agreement dated September 9, 2008 to the Subsidiary Guaranty Agreement and the Collateral Agreement by
and among Cross Country Healthcare, Inc., StoneCo H, Inc., StoneCo A, LLC, StoneCo C, LLC, StoneCo M, LLC
CC Local, Inc. and Wachovia Bank, National Association, as Administrative Agent (29)
Lease Agreement dated August 7, 2006, between Brandywine Operating Partnership, L.P. and ClinForce, Inc. (29)
First Amendment to Lease Agreement dated January 2, 2007, by and between Brandywine Operating Partnership,
L.P. and ClinForce, Inc. (29)
Second Amendment to Lease Agreement dated September 23, 2008, by and between G &I VI 321/323
NORRISTOWN FE LLC (successor to Brandywine Operating Partnership, L.P.) and ClinForce, Inc. (29)
Employment Agreement, dated as of September 9, 2008, by and between Jim Ginter and StoneCo H, Inc. (14) (29)
Employment Agreement, dated as of September 9, 2008, by and between Mike Pretiger and StoneCo H, Inc. (14) (29)
Employment Agreement, dated as of September 9, 2008, by and between Anne Anderson and StoneCo H, Inc. (14)
(29)
Form of Restricted Stock Agreement under Cross Country Healthcare, Inc. 2007 Stock Incentive Plan (14)(28) (29)
Form of Stock Appreciation Rights Agreement under Cross Country Healthcare, Inc. 2007 Stock Incentive
Plan (14)(21) (29)
61
No.
10.66
10.67
10.68
14.1
21.1
23.1
31.1
31.2
32.1
32.2
EXHIBIT INDEX (CONTINUED)
Description
Third Amendment to Lease Agreement dated October 30, 2008, by and between G &I VI 321/323 NORRISTOWN
FE LLC (successor to Brandywine Operating Partnership, L.P.) and ClinForce, Inc. (29)
Amended and Restated Executive Severance Policy of Cross Country Healthcare, Inc. dated as of January 1,
2008 (14) (29)
First Amendment and Consent to Credit Agreement, dated June 2007 (17)
Code of Ethics (8)
List of subsidiaries of the Registrant
Consent of Independent Registered Public Accounting Firm
Certification Pursuant to Rule 13a-14(a)/15d-14(a) and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by
Joseph A. Boshart, President and Chief Executive Officer
Certification Pursuant to Rule 13a-14(a)/15d-14(a) and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by
Emil Hensel, Chief Financial Officer
Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, by Joseph A. Boshart, Chief Executive Officer
Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, by Emil Hensel, Chief Financial Officer
———————
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
Previously filed as an exhibit to the Company’s Registration Statement on Form S-1, Commission File No. 333-
64914, and incorporated by reference herein.
Previously filed as an exhibit to the Company’s Registration Statement on Form S-1/A, Commission File No. 333-
83450, and incorporated by reference herein.
Previously filed as exhibits in the Company’s Quarterly Reports on Form 10Q during the year ended December 31,
2002, and incorporated by reference herein.
Previously filed as exhibits in the Company’s Form 10-K for the year ended December 31, 2002 and incorporated by
reference herein.
Previously filed as an exhibit in the Company’s Form 8-K dated June 6, 2003, and incorporated by reference herein.
Previously filed as exhibits in the Company’s Form 10-K for the year ended December 31, 2003 and incorporated by
reference herein.
Previously filed as exhibits in the Company’s Form 10-Q for the quarter ended March 31, 2004 and incorporated by
reference herein.
Previously filed as exhibits in the Company’s Form 10-K for the year ended December 31, 2004 and incorporated by
reference herein.
Previously filed as an exhibit in the Company’s Form 10-Q for the quarter ended March 31, 2005 and incorporated by
reference herein.
Previously filed as an exhibit in the Company’s Form 10-Q for the quarter ended June 30, 2005 and incorporated by
reference herein.
Previously filed as an exhibit in the Company’s Form 8-K dated July 18, 2006 and incorporated by reference herein.
Previously filed as an exhibit in the Company’s Form 10-Q for the quarter ended September 30, 2006 and
incorporated by reference herein.
Previously filed as exhibits in the Company’s Form 10-K for the year ended December 31, 2005 and incorporated by
reference herein.
Management contract or compensatory plan or arrangement.
Previously filed as exhibits in the Company’s Form 10-K for the year ended December 31, 2006 and incorporated by
reference herein.
Previously filed as exhibit in the Company’s Form 8-K dated June 12, 2007 and incorporated by reference herein.
Previously filed as an exhibit in the Company’s Form 8-K dated June 15, 2007 and incorporated herein by reference.
Previously filed as exhibit in the Company’s Form 8-K dated July 13, 2007 and incorporated by reference herein.
Previously filed as exhibit in the Company’s Form 10-Q for the quarter ended June 30, 2007 and incorporated by
reference herein.
62
EXHIBIT INDEX (CONTINUED)
(20)
(21)
(22)
(23)
(24)
(25)
(26)
(27)
(28)
(29)
Previously filed as exhibit in the Company’s Form 8-K dated May 15, 2007 and incorporated by reference herein.
Previously filed as exhibit in the Company’s Form 8-K dated October 15, 2007 and incorporated by reference herein.
Previously filed as an exhibit in the Company’s Form 8-K filed on July 25, 2008 and incorporated herein by
reference.
Previously filed as exhibit in the Company’s Form 10-Q for the quarter ended March 31, 2008, and incorporated by
reference herein.
Previously filed as an exhibit in the Company’s Form 10-Q for the quarter ended June 30, 2008 and incorporated by
reference herein.
Previously filed as an exhibit in the Company’s Form 8-K dated September 11, 2008 and incorporated by reference
herein.
Previously filed as an exhibit in the Company’s Form 10-Q for the quarter ended September 30, 2008 and
incorporated by reference herein.
Previously filed as an exhibit in the Company’s Form 8-K dated November 25, 2008 and incorporated by reference
herein.
Previously filed as an exhibit in the Company’s S-8 dated August 15, 2007 and incorporated by reference herein.
Previously filed as exhibits in the Company’s Form 10-K for the year ended December 31, 2008 and incorporated by
reference herein.
63
[This page intentionally left blank]
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Cross Country Healthcare, Inc.
Report of Independent Registered Public Accounting Firm .......................................................................................
Consolidated Balance Sheets as of December 31, 2009 and 2008 .............................................................................
Consolidated Statements of Operations for the Years Ended
December 31, 2009, 2008 and 2007 ..........................................................................................................................
Consolidated Statement of Changes in Stockholders’ Equity for the
Years Ended December 31, 2009, 2008 and 2007 .....................................................................................................
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2009, 2008 and 2007 ..........................................................................................................................
Notes to Consolidated Financial Statements ..............................................................................................................
Financial Statement Schedule
Schedule II – Valuation and Qualifying Accounts for the Years Ended
December 31, 2009, 2008 and 2007 ..........................................................................................................................
Schedules not filed herewith are either not applicable, the information is not material or the information is set forth in the
consolidated financial statements or notes thereto.
Page
F-2
F-3
F-4
F-5
F-6
F-7
II-1
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Cross Country Healthcare, Inc.
We have audited the accompanying consolidated balance sheets of Cross Country Healthcare, Inc. as of December 31, 2009
and 2008, and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of
the three years in the period ended December 31, 2009. Our audits also included the financial statement schedule listed in the
Index at Item 15. These financial statements and schedule are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial
position of Cross Country Healthcare, Inc. at December 31, 2009 and 2008, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31, 2009, in conformity with U.S. generally accepted
accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
Cross Country Healthcare, Inc.’s internal control over financial reporting as of December 31, 2009, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 15, 2010 expressed an unqualified opinion thereon.
West Palm Beach, Florida
March 15, 2010
/s/ ERNST & YOUNG LLP
Certified Public Accountants
F-2
CROSS COUNTRY HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
2009
2008
Assets
Current assets:
Cash and short-term cash investments ........................................................................
Restricted cash ...........................................................................................................
Accounts receivable, less allowance for doubtful accounts
of $4,544,954 in 2009 and $6,408,772 in 2008 ........................................................
Deferred tax assets .....................................................................................................
Income taxes receivable .............................................................................................
Prepaid rent on field employees’ apartments .............................................................
Other prepaid expenses ..............................................................................................
Deposits on field employees’ apartments, net of allowance
of $163,368 in 2009 and $187,726 in 2008 ..............................................................
Insurance recoveries receivable .................................................................................
Other current assets ....................................................................................................
Total current assets .........................................................................................................
Property and equipment, net of accumulated depreciation and
amortization of $41,759,619 in 2009 and $33,252,084 in 2008 ....................................
Trademarks, net ..............................................................................................................
Goodwill, net ..................................................................................................................
Other identifiable intangible assets, net ..........................................................................
Debt issuance costs, net of accumulated amortization
$
8,568,845
––
$
10,172,841
5,000,000
70,172,107
11,793,734
7,404,830
1,659,509
4,593,645
290,170
870,328
854,343
106,207,511
19,706,467
62,857,489
130,700,479
28,572,449
117,793,812
11,287,126
977,539
2,734,701
11,189,929
585,245
450,573
1,188,263
161,380,029
25,984,710
64,443,351
122,597,725
32,459,083
of $1,844,702 in 2009 and $705,372 in 2008 ................................................................
Non-current deferred tax assets ......................................................................................
Other long-term assets ....................................................................................................
Total assets .....................................................................................................................
1,536,278
5,390,350
1,617,872
$ 356,588,895
2,675,608
15,064,598
1,244,340
$ 425,849,444
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and accrued expenses ....................................................................
Accrued compensation and benefits ...........................................................................
Current portion of long-term debt ..............................................................................
Interest rate swaps - current .......................................................................................
Other current liabilities ..............................................................................................
Total current liabilities ....................................................................................................
Long-term debt ...............................................................................................................
Interest rate swaps ...........................................................................................................
Other long-term liabilities ...............................................................................................
Total liabilities ................................................................................................................
$
8,143,281
16,139,503
5,733,299
1,427,073
3,113,019
34,556,175
56,781,179
––
19,181,003
110,518,357
$
12,440,207
21,333,514
15,825,642
––
3,831,074
53,430,437
117,254,854
2,382,444
18,758,597
191,826,332
Commitments and contingencies
Stockholders’ equity:
Common stock—$0.0001 par value; 100,000,000 shares
authorized; 31,009,404 and 30,774,868 shares issued and
outstanding at December 31, 2009 and 2008, respectively ......................................
Additional paid-in capital ...........................................................................................
Accumulated other comprehensive loss .....................................................................
Retained earnings .......................................................................................................
3,101
240,869,496
(2,978,897)
8,176,838
3,077
237,371,902
(4,834,397)
1,482,530
Total stockholders’ equity ..............................................................................................
246,070,538
234,023,112
Total liabilities and stockholders’ equity ........................................................................
$ 356,588,895
$ 425,849,444
See accompanying notes.
F-3
CROSS COUNTRY HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31,
2009
2008
2007
Revenue from services ....................................................................... $ 578,237,482 $ 734,246,671 $ 718,272,469
Operating expenses:
Direct operating expenses .............................................................
Selling, general and administrative expenses ................................
Bad debt expense ..........................................................................
Depreciation ..................................................................................
Amortization .................................................................................
Impairment charges .......................................................................
Legal settlement charge ................................................................
Total operating expenses ..........................................................
420,856,313
124,817,550
––
8,773,088
4,017,968
1,725,926
345,000
560,535,845
541,659,776
136,815,286
950,711
7,636,712
3,165,797
244,094,000
––
934,322,282
543,608,163
122,692,133
1,558,626
6,309,538
2,051,311
––
33,654
676,253,425
Income (loss) from operations ...........................................................
17,701,637
(200,075,611)
42,019,044
Other expenses (income):
Foreign exchange loss (income).....................................................
Interest expense, net ......................................................................
Other income .................................................................................
Income (loss) before income taxes ....................................................
Income tax expense (benefit) .............................................................
Net income (loss) ............................................................................... $
66,433
6,173,457
(192,937)
11,654,684
4,960,376
6,694,308 $ (142,944,613) $
(131,956)
4,224,537
––
(204,168,192)
(61,223,579)
92,937
2,587,398
––
39,338,709
14,759,200
24,579,509
Net income (loss) per common share—basic ..................................... $
0.22 $
(4.64) $
Net income (loss) per common share—diluted................................... $
0.22 $
(4.61) $
0.77
0.76
Weighted average common shares outstanding—basic .....................
30,824,660
30,825,099
31,972,681
Weighted average common shares outstanding—diluted ..................
30,999,446
31,007,352
32,484,241
See accompanying notes.
F-4
CROSS COUNTRY HEALTHCARE, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
Balance at December 31, 2006 .......... 32,099,345 $
3,210 $ 254,272,635 $
— $ 120,579,733 $ 374,855,578
Common Stock
Shares
Dollars
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Total
Stockholders’
Equity
Cumulative effect of a change in
accounting principle ..................
Exercise of stock options .............
Tax benefit of stock option
exercises ....................................
Stock repurchase and retirement ..
Equity compensation ...................
Comprehensive income:
Foreign currency translation
adjustment ............................
Net income .............................
Total comprehensive income .......
Balance at December 31, 2007 ..........
Exercise of stock options .............
Vesting of restricted stock ...........
Tax benefit of stock option
exercises ....................................
Stock repurchase and retirement ..
Equity compensation ...................
Comprehensive loss:
Foreign currency translation
adjustment ............................
Net unrealized losses on
hedging transactions ............
Net loss ...................................
Total comprehensive loss .............
Balance at December 31, 2008 ..........
Exercise of stock options .............
Vesting of restricted stock ...........
Tax benefit of stock option
exercises ....................................
Equity compensation ...................
Comprehensive income:
Foreign currency translation
adjustment ............................
Net change in fair value of
hedging transactions ............
Net change in fair value of
marketable securities ............
Net income .............................
Total comprehensive income .......
Balance at December 31, 2009 ..........
—
182,112
—
(704,498)
—
—
—
—
18
—
(70)
—
—
—
—
1,899,196
276,967
(10,881,806)
276,663
—
—
—
—
—
—
—
(732,099)
—
(732,099)
1,899,214
—
—
—
276,967
(10,881,876)
276,663
163,242
—
163,242
—
24,579,509
31,576,959
104,626
17,518
3,158
10
1
245,843,655
1,013,863
(92,236)
163,242
—
—
144,427,143
—
—
—
(924,235)
—
—
(92)
—
151,865
(10,775,313)
1,230,068
—
—
—
—
—
—
—
—
—
—
(3,541,727)
—
(1,455,912)
—
—
(142,944,613)
30,774,868
196,583
37,953
3,077
20
4
237,371,902
1,523,498
(80,649)
(4,834,397)
—
—
1,482,530
—
—
—
—
—
—
—
24,579,509
24,742,751
390,437,198
1,013,873
(92,235)
151,865
(10,775,405)
1,230,068
(3,541,727)
(1,455,912)
(142,944,613)
(147,942,252)
234,023,112
1,523,518
(80,645)
—
—
—
—
—
—
—
—
—
—
—
—
92,194
1,962,551
—
—
—
1,076,858
—
729,544
—
—
49,098
—
31,009,404 $
3,101 $ 240,869,496 $
(2,978,897) $
—
—
—
—
—
92,194
1,962,551
1,076,858
729,544
49,098
6,694,308
6,694,308
8,549,808
8,176,838 $ 246,070,538
See accompanying notes.
F-5
CROSS COUNTRY HEALTHCARE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Operating activities
Net income (loss) ...........................................................................
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Bad debt expense .......................................................................
Depreciation ..............................................................................
Amortization .............................................................................
Impairment charges ...................................................................
Legal settlement charge .............................................................
Deferred income tax expense (benefit) ......................................
Amortization of debt issuance costs ..........................................
Equity compensation .................................................................
Other noncash charges ..............................................................
Changes in operating assets and liabilities:
Accounts receivable ..............................................................
Prepaid rent, deposits, and other current assets ....................
Income taxes .........................................................................
Accounts payable and accrued expenses ..............................
Accrued legal settlement charge ...........................................
Other liabilities .....................................................................
Net cash provided by operating activities ......................................
Investing activities
Purchases of property and equipment, net .....................................
Acquisition of MDA Holdings, Inc., net of cash acquired .............
Acquisition of Assent Consulting, net of cash acquired .................
Acquisition of AKOS Limited, net of cash acquired .....................
Acquisition of assets of Metropolitan Research Associates, LLC
and Metropolitan Research Staffing Associates, LLC .................
Net cash used in investing activities ..............................................
Financing activities
Debt issuance costs ........................................................................
Exercise of stock options ...............................................................
Tax benefit of stock option exercises .............................................
Release of restricted cash................................................................
Stock repurchase and retirement ....................................................
Repayment of debt and note payable .............................................
Proceeds from issuance of debt ......................................................
Net cash (used in) provided by financing activities .......................
Effect of exchange rate changes on cash ........................................
Change in cash and short-term cash investments ...........................
Cash and short-term cash investments at beginning of year ..........
Cash and short-term cash investments at end of year ....................
Supplemental disclosure of noncash investing and financing
activities
Equipment purchased through capital lease obligations ................
Supplemental disclosure of cash flow information
Interest paid ....................................................................................
Income taxes paid ..........................................................................
Year Ended December 31,
2009
2008
2007
$
6,694,308
$ (142,944,613 )
$
24,579,509
––
8,773,088
4,017,968
1,725,926
345,000
9,237,802
1,139,330
1,962,551
489,449
47,737,783
7,924,663
(5,384,665)
(11,369,928)
––
(973,993)
72,319,282
950,711
7,636,712
3,165,797
244,094,000
––
(68,223,408 )
383,739
1,230,068
––
19,255,354
3,537,056
(2,249,691 )
(14,878,174 )
––
(964,378)
50,993,173
1,558,626
6,309,538
2,051,311
––
––
11,347,518
150,318
276,663
75,987
84,988
494,414
––
(8,327,094)
(6,704,392)
3,982,408
35,879,794
(2,452,769)
(6,803,789)
––
(748,242)
(4,688,610 )
(111,740,667 )
(4,551,715 )
(2,143,648 )
(8,277,884)
––
(18,551,859)
(7,983,185)
––
(10,004,800)
(6,436,000 )
(129,560,640 )
(515,167)
(35,328,095)
––
1,523,518
92,194
5,000,000
––
(90,826,796)
20,075,000
(64,136,084)
217,606
(1,603,996)
10,172,841
8,568,845
122,496
5,007,477
2,146,070
$
$
$
$
$
$
$
$
(2,635,475 )
1,013,873
151,865
––
(10,775,405 )
(99,494,759 )
191,817,000
80,077,099
(403,328 )
1,106,304
9,066,537
10,172,841
(11,298)
1,899,214
276,967
––
(10,881,876)
(162,335,324)
179,483,000
8,430,683
84,155
9,066,537
––
9,066,537
$
1,306,781
3,809,038
8,632,450
$
$
$
775,083
2,170,975
2,413,120
See accompanying notes.
F-6
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
1.
Organization and Basis of Presentation
On July 29, 1999, Cross Country Staffing, Inc. (CCS), a Delaware corporation, was established through an acquisition of
certain assets and liabilities of Cross Country Staffing, a Delaware general partnership (the Partnership). The acquisition
included certain identifiable intangible assets, primarily proprietary databases and contracts. The Partnership was engaged in
the business of providing travel nurse and allied health staffing services to healthcare providers primarily on a contract basis.
CCS recorded the assets and certain assumed liabilities, as defined in the asset purchase agreement, at fair market value. The
purchase price of approximately $189,000,000 exceeded the fair market value of the assets less the assumed liabilities by
approximately $167,537,000, which, was originally recorded as goodwill and other identifiable intangible assets. See Note 3
– Goodwill and Other Identifiable Intangible Assets.
Subsequent acquisitions and dispositions were made and currently, Cross Country Healthcare, Inc. (the Company) is a
leading provider of nurse and allied staffing services in the United States, a national provider of multi-specialty locum tenens
(temporary physician staffing) services, a provider of clinical trials services to global pharmaceutical and biotechnology
customers, as well as a provider of other human capital management services focused on healthcare.
The consolidated financial statements include the accounts of the Company and its wholly-owned direct and indirect
subsidiaries: CC Staffing, Inc., Cross Country TravCorps, Inc., TVCM, Inc. (f/k/a TravCorps), MCVT, Inc., Cross Country
Local, Inc. (f/k/a Flexstaff, Inc.), CC Local, Inc., Med-Staff, Inc. (MedStaff), HealthStaffers, Inc., Assignment America, Inc.,
NovaPro, Inc., ClinForce, LLC (ClinForce)(f/k/a Clinforce, Inc.), Metropolitan Research Associates, Inc., Metropolitan
Research Staffing Associates, Inc., Cejka Search, Inc. (f/k/a Cejka & Company), MRA Search, Inc., Cross Country
Education, LLC (f/k/a Cross Country Education, Inc.), Cross Country Capital, Inc., Cross Country Infotech, Pvt Ltd. (India),
Assent Consulting, Cross Country Holdco (Cyprus) Limited, Cross Country Healthcare UK HoldCo Limited, AKOS Limited
(UK), , MDA Holdings, Inc., Medical Doctor Associates, LLC, Allied Health Group, LLC, Credent Verification and
Licensing Services, LLC, and Jamestown Indemnity, Ltd. In December 2007, TVCM, Inc. was merged into the Company and
NovaPro, Inc. was merged into Cross Country Travcorps, Inc. In January 2009, Cross Country Healthcare, Inc. transferred
ownership of ClinForce, LLC to Med-Staff, Inc. In September 2009, Metropolitan Research Staffing Associates, Inc. merged
into ClinForce, LLC. In December 2009, Healthstaffers, Inc. was dissolved. All material intercompany transactions and
balances have been eliminated in consolidation. Subsequent events have been evaluated through the filing date of these
consolidated financial statements.
2.
Summary of Significant Accounting Policies
Use of Estimates
The preparation of consolidated financial statements, in conformity with accounting principles generally accepted in the
United States, requires management to make estimates and assumptions that affect the reported amounts in the consolidated
financial statements and accompanying notes. Actual results could differ from those estimates.
Cash and Short-term Cash Investments
The Company considers all investments with original maturities of six months or less to be cash and short-term cash
investments. The Company invests its excess cash in highly rated overnight funds and other highly rated liquid accounts.
As of December 31, 2009, cash and short-term cash investments include foreign investments in highly liquid time deposits of
approximately $1,708,000.
F-7
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2009
2.
Summary of Significant Accounting Policies (continued)
Accounts Receivable and Concentration of Credit Risk
Accounts receivable potentially subject the Company to concentrations of credit risk. The Company’s customers are
primarily healthcare providers and pharmaceutical and biotech companies and accounts receivable represent amounts due
from them. The Company performs ongoing credit evaluations of its customers’ financial conditions and, generally, does not
require collateral. The allowance for doubtful accounts represents the Company’s estimate of uncollectible receivables based
on a review of specific accounts and the Company’s historical collection experience. The Company writes off specific
accounts based on an ongoing review of collectibility as well as past experience with the customer. The Company’s contract
terms typically require payment between 30 to 60 days from the date services are provided and are considered past due based
on the particular negotiated contract terms. Overall, based on the large number of customers in differing geographic areas,
primarily throughout the United States and its territories, the Company believes the concentration of credit risk is limited. No
single customer accounted for more than 4% of the Company’s revenue during 2009, 3% during 2008 and 4% during 2007.
An aggregate of approximately 18% and 11% of the Company’s outstanding accounts receivable as of December 31, 2009
and 2008, respectively, were due from five customers.
Prepaid Rent and Deposits
The Company leases a number of apartments for its field employees under short-term cancelable agreements (typically three
to six months), which generally coincide with each employee’s staffing contract. Costs relating to these leases are included in
direct operating expenses on the accompanying consolidated statements of operations. As a condition of these agreements,
the Company places security deposits on the leased apartments. Prepaid rent and deposits shown on the accompanying
consolidated balance sheets relate to these short-term agreements.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation. Depreciation is determined on a straight-line basis
over the estimated useful lives of the assets, which generally range from three to seven years. Leasehold improvements are
depreciated over the shorter of their useful life or the term of the individual lease. Depreciation related to assets recorded
under capital lease obligations is included in depreciation expense on the consolidated statements of operations and
calculated using the straight-line method over the term of the related capital lease.
Certain software development costs have been capitalized in accordance with the provisions of the Intangibles-Goodwill and
Other/Internal-Use Software Topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification
(ASC). Such costs include charges for consulting services and costs for personnel associated with programming, coding and
testing such software. Amortization of capitalized software costs begins when the software is ready for use and is included in
depreciation expense in the accompanying consolidated statements of operations. Software development costs are being
amortized using the straight-line method over three to five years.
Goodwill and Other Identifiable Intangible Assets
Goodwill represents the excess of purchase price and related costs over the fair value assigned to the net tangible and
identifiable intangible assets of businesses acquired. Other identifiable intangible assets with definite lives are being
amortized using the straight-line method over their estimated useful lives which range from 4.5 to 15 years. Goodwill and
certain intangible assets with indefinite lives are not amortized. Instead, in accordance with the Intangibles-Goodwill and
Other Topic of the FASB ASC, these assets are reviewed for impairment annually with any related losses recognized in
earnings.
The Company performs a goodwill impairment analysis, using the two-step method, on an annual basis and whenever events
or changes in circumstances indicate that the carrying value may not be recoverable. The first step in its annual impairment
assessment requires the Company to determine the fair value of each of its reporting units and compare it to the reporting
unit’s carrying amount. The Company determines its reporting units by identifying components of its operating segments that
constitute a business for which discrete financial information is available and management regularly reviews the operating
results of that component. As of December 31, 2009 and 2008, the Company had five reporting units: 1) nurse and allied
staffing, 2) physician staffing, 3) clinical trials services, 4) retained search and 5) education and training.
F-8
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2009
2.
Summary of Significant Accounting Policies (continued)
The Company estimates the fair value of its reporting units by considering (1) its market capitalization, (2) an estimated
premium to its market capitalization an investor would pay for a controlling interest, (3) market multiples and recent
transaction values of peer companies and (4) projected discounted cash flows. If the reporting unit’s fair value exceeds its
carrying value, no further testing is required. If the reporting unit’s carrying value exceeds its fair value, the Company then
determines the amount of the impairment charge, if any. The Company recognizes an impairment charge if the carrying value
of the reporting unit’s goodwill exceeds its implied fair value. Management considers historical experience and all available
information at the time the fair values of its reporting units are estimated. However, fair values that could be realized in an
actual transaction may differ from those used to evaluate the impairment of goodwill.
Long-lived assets and identifiable intangible assets with definite lives are evaluated for impairment in accordance with the
Property, Plant, and Equipment Topic of the FASB ASC. In accordance with this Topic, long-lived assets are reviewed for
impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable.
Recoverability of long-lived assets is measured by a comparison of the carrying amount of the asset group to the future
undiscounted net cash flow as expected to be generated by those assets. If such assets are considered to be impaired, the
impairment charge recognized is the amount by which the carrying amounts of the assets exceeds the fair value of the assets.
Reserves for Claims
The Company provides workers’ compensation insurance coverage, professional liability coverage and health care benefits
for its eligible temporary healthcare professionals. The Company records its estimate of the ultimate cost of, and reserves for
workers compensation and professional liability benefits based on actuarial models prepared or reviewed by an independent
actuary using the Company’s loss history as well as industry statistics. Furthermore, in determining its reserves, the Company
includes reserves for estimated claims incurred but not reported. The health care insurance accrual is for estimated claims that
have occurred but have not been reported and is based on the Company’s historical claim submission patterns. The ultimate
cost of workers’ compensation, professional liability and health insurance claims will depend on actual amounts incurred to
settle those claims and may differ from the amounts reserved by the Company for those claims.
Workers’ compensation benefits are provided under a partially self-insured plan. For workers’ compensation claims reported
prior to September 1, 2009, the insurance carrier required the Company to fund a reserve for payment of claims. Those funds
were maintained by the insurance carrier. The Company had approximately $5,025,000 recorded as prepaid workers’
compensation expense included in other current assets on the consolidated balance sheet at December 31, 2008. Effective
September 1, 2009, the Company replaced the pre-funded program with a letter of credit structure to guarantee payments of
claims. At December 31, 2009, the Company had outstanding approximately $7,149,000 standby letters of credit as collateral
to secure the self-insured portion of this plan.
Since October 2009, all professional liability insurance has been provided under occurrence-based plans. Prior to that period,
professional liability coverage was provided under various self-insured, claims-made and occurrence-based plans depending
on the subsidiary and the applicable policy year. In October 2004, the Company secured individual occurrence-based
professional liability insurance policies with no deductible for virtually all of its working nurses and allied professionals,
except those employed through its MedStaff subsidiary. These occurrence-based individual policies replaced a $2,000,000
per-claim layer of self-insured exposure. The Company continued to provide primary coverage through a $2,000,000 self-
insured retention for nurses and allied professionals who did not qualify for the individual occurrence-based coverage, as well
as for the Company’s independent liabilities (such as negligent hiring) during these policy years. Effective October 1, 2008,
the individual professional liability insurance policies were replaced with one policy that insured each individual nurse for
$2,000,000 per occurrence and $4,000,000 in the aggregate, as well as the corporation which shared those limits. This policy
had no deductible and did not cover healthcare professionals working through MedStaff or MDA Holdings, Inc. or its
subsidiaries (collectively, MDA). Separately, prior to October 1, 2009, the Company’s MedStaff subsidiary had a claims-
made professional liability policy with a limit of $2,000,000 per occurrence, $4,000,000 in the aggregate and a $25,000
deductible per claim.
In October 2009, the Company purchased an occurrence-based professional liability policy that provides each working nurse
and each allied healthcare professional with coverage of $1,000,000 per occurrence and $3,000,000 in the aggregate. Those
F-9
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2009
2.
Summary of Significant Accounting Policies (continued)
individual limits are shared with the healthcare provider’s employer (e.g. Cross Country Travcorps or MedStaff) in the event
of vicarious liability and/or negligent hiring allegations on a claim. This policy does not have a deductible. In addition, in
October 2009, the Company purchased an excess layer of professional liability insurance having limits of $1,000,000 per
occurrence and $6,000,000 in the aggregate for all working nurses and allied healthcare professionals of Cross Country
Travcorps and $1,000,000 per occurrence and $3,000,000 in the aggregate for all working nurses of MedStaff. Those limits
are also shared with the corporations on applicable claims. MedStaff also secured insurance coverage having the same terms
as the primary and excess coverage described above for acts occurring on or after October 25, 2002.
MDA has an occurrence-based professional liability policy with a limit of $1,000,000 per occurrence, $3,000,000 in the
aggregate and a $500,000 deductible for MDA, its independent contractor physicians, CRNAs and allied health professionals.
MDA’s $500,000 deductible is insured by Jamestown Indemnity Ltd., a Cayman Island company (the Captive) and a wholly-
owned subsidiary of MDA Holdings, Inc. Under the terms of the Captive’s reinsurance policy there is a requirement to
guarantee the payment of claims to its insured party’s primary medical malpractice insurance carrier via a letter of credit. The
value of the letter of credit was secured by $5,000,000 of cash held by the Captive as restricted cash at December 31, 2008.
During 2009, the cash was released from restriction and replaced by a letter of credit under the Company’s credit facility. As
of December 31, 2009, the amount of the letter of credit was $5,532,724.
Subject to certain limitations, the Company also has $5,000,000 per occurrence and $10,000,000 in the aggregate in umbrella
liability coverage after $2,000,000 is exhausted under the primary and excess professional liability policies covering the
working nurses and allied healthcare professionals. While this umbrella coverage does not extend to professional liability
claims against MDA, its independent contractor physicians, CRNAs and allied health professionals, it does cover claims
brought against all of the Company’s subsidiaries for non-patient general liability ($250,000 deductible), employee liability
($1,000,000 deductible), non-owned hired auto ($1,000,000 deductible) and clinical trials/errors and omissions ($500,000
deductible and a cap of $5,000,000 in coverage under the umbrella policy).
The Company records the receivable portion of its claims-made policy insurance claims in accordance with the Other
Expenses/Insurance Costs Topic of the FASB ASC. The Company’s consolidated balance sheets as of December 31, 2009
and 2008 reflects the current portion of the receivable of its claims-made insurance claims as insurance recoveries receivable
and the long-term portion as other long-term assets. The related current liability is included in accrued compensation and
benefits and the long-term portion of the liability is recorded in other long-term liabilities. See Note 6 – Accrued
Compensation and Benefits for further information.
Debt Issuance Costs
Deferred costs related to the issuance of the Company’s senior secured revolving credit facility (see Note 7 – Long-term
Debt) have been capitalized and are being amortized using the straight line method, over the five-year term of the debt.
Deferred costs related to the Company’s senior secured term loan facility have been capitalized and are being amortized
using the effective interest method over the respective five-year term of the related debt.
Revenue Recognition
Revenue from services consists primarily of temporary staffing revenue. Revenue is recognized when services are rendered.
Accordingly, accounts receivable includes an accrual for employees’ and independent contractors’ estimated time worked but
not yet invoiced. At December 31, 2009 and 2008, the amounts accrued are approximately $13,892,000 and $20,465,000,
respectively.
The Company has entered into certain contracts with acute care facilities to provide comprehensive vendor management
services. Under these contract arrangements, the Company uses its nurses along with those of third party subcontractors to
fulfill customer orders. If a subcontractor is used, revenue is recorded at the time of billing, net of any related subcontractor
liability. The resulting net revenue represents the administrative fee charged by the Company for its vendor management
services. The subcontractor is paid once the Company has received payment from the acute care facility. Management fees
are included in some of the Company’s clinical research contracts that cover the life of a project. These fees are recognized
on a straight-line basis for the specific length of the project.
F-10
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2009
2.
Summary of Significant Accounting Policies (continued)
Revenue on permanent placements is recognized when services provided are substantially completed. The Company does
not, in the ordinary course of business, give refunds. If a candidate leaves a permanent placement within a relatively short
period of time, it is customary for the Company to provide a replacement at no additional cost. Allowances are established as
considered necessary to estimate significant losses due to placed candidates not remaining employed for the Company’s
guarantee period. During 2009, 2008 and 2007, such losses were nominal.
Revenue from the Company’s education and training services is recognized as the instructor-led seminars are performed and
the related learning materials are delivered.
Share-Based Compensation
The Company has, from time to time, granted stock options, stock appreciation rights and restricted stock for a fixed number
of common shares to employees. In accordance with the Compensation-Stock-Compensation Topic of the FASB ASC,
companies may choose from alternative valuation models. The Company uses the Black-Scholes method of valuing its options
and stock appreciation rights. The Company will consider the use of another model if additional information becomes
available in the future that indicates another model would be more appropriate for the Company or, if grants issued in future
periods have characteristics that cannot be reasonably estimated using Black-Scholes. The Company values its restricted stock
awards by reference to the Company’s stock price on the date of grant.
The Company has elected to recognize compensation expense on a straight-line basis over the requisite service period of the
entire award. The Company uses historical data of options with similar characteristics to estimate pre-vesting option
forfeitures as it believes that historical behavior patterns are the best indicators of future behavior patterns. Compensation
expense related to share-based payments is included in selling, general and administrative expenses in the consolidated
statements of operations and totaled approximately $1,963,000 and $1,230,000, during the years ended December 31, 2009
and 2008, respectively. Related deferred tax benefits of approximately $718,000 and $436,000, respectively, were recorded
during the years ended December 31, 2009 and 2008. Compensation expense and related tax benefits during the year ended
December 31, 2007 were immaterial.
See Note 13 – Stockholders’ Equity for further information about the Company’s current share-based compensation
programs.
Advertising
The Company’s advertising expense consists primarily of print media, online advertising, direct mail marketing and
promotional material. Advertising costs that are not considered direct response are expensed as incurred and were
approximately $3,704,000, $6,419,000 and $5,936,000 for the years ended December 31, 2009, 2008 and 2007, respectively.
Direct response advertising costs associated with the Company’s education and training services are capitalized and expensed
when the related event takes place. At December 31, 2009 and 2008, approximately $1,586,000 and $1,553,000, respectively,
of these costs are included in other prepaid expenses on the consolidated balance sheets.
Operating Leases
The Company accounts for all operating leases on a straight-line basis over the term of the lease. In accordance with the
provisions of the Leases Topic of the FASB ASC, any incentives or rent escalations are recorded as deferred rent and
amortized with rent expense over the respective lease term.
Income Taxes
The Company accounts for income taxes under the Income Taxes Topic of the FASB ASC. Deferred income tax assets and
liabilities are determined based upon differences between the financial reporting and tax basis of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
The Company recognizes in its financial statements the impact of a tax position if that position is more likely than not of
being sustained on audit, based on the technical merits of the position. This treatment became effective for the Company on
January 1, 2007, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening
F-11
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2009
2.
Summary of Significant Accounting Policies (continued)
retained earnings. The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for
income taxes. See Note 12 - Income Taxes for further information.
Comprehensive Income (Loss)
Total comprehensive income (loss) includes net income or loss, foreign currency translation adjustments, net changes in the
fair value of hedging transactions, and net changes in the fair value of marketable securities available for sale, net of any
related deferred taxes.
Certain of the Company’s foreign operations use their respective local currency as their functional currency. In accordance
with the Foreign Currency Matters Topic of the FASB ASC, assets and liabilities of these operations are translated at the
exchange rates in effect on the balance sheet date. Income statement items are translated at the average exchange rates for the
period. The cumulative impact of currency fluctuations related to the balance sheet translation is included in accumulated
other comprehensive loss (OCI) in the accompanying consolidated balance sheets and was approximately $2,302,000 and
$3,378,000 at December 31, 2009 and 2008, respectively.
The net change in fair value of hedging transactions (excluding ineffectiveness reclassified to interest expense), related to the
Company’s interest rate swap agreements, is included in accumulated OCI in the accompanying consolidated balance sheets
and was approximately $726,000 and $1,456,000, net of deferred taxes, at December 31, 2009 and 2008, respectively. See
Interest Rate Swap Agreements below and Note 8 - Interest Rate Swap Agreements for further information.
The net change in fair value of marketable securities is included in accumulated OCI in the accompanying consolidated
balance sheets and was approximately $82,000, net of deferred taxes, or $49,000 after tax, representing total holding gains
for its marketable securities, as of December 31, 2009. The Company did not have any marketable securities as of
December 31, 2008. The net change in fair value of marketable securities includes the reclassification of unrealized gains
upon the sale of securities and gains or losses related to the change in fair value of the remaining marketable securities. In the
year ended December 31, 2009, a portion of the marketable securities were sold for approximately $240,000 resulting in a
gain of $192,937 included in other income on the consolidated statements of operations. The Company used the specific
identification method to determine the cost of the securities sold.
Income tax expense related to the components of other comprehensive income for the year ended December 31, 2009, was
approximately $398,000. Income tax benefit related to the components of other comprehensive loss in the year ended
December 31, 2008 was approximately $927,000. Total comprehensive income (loss) is stated on the face of the Company’s
statements of changes in stockholders’ equity.
Fair Value Measurements
The carrying amounts reported in the consolidated balance sheets for cash and short-term cash investments, accounts
receivable and accounts payable and accrued expenses approximate fair value due to the short-term nature of these
instruments. The carrying amounts of the revolving loan facility and term loan approximate fair value as the interest rates are
tied to a quoted variable index. Derivative financial instruments (interest rate swap agreements) are recorded at fair value
based on available quotations provided by a recognized dealer in such hedging agreements.
On January 1, 2008, the Company adopted the provisions of the Fair Value Measurements and Disclosures Topic of the
FASB ASC, which defines fair value, establishes a framework for measuring fair value under U.S. generally accepted
accounting principles and expands disclosures about fair value measurements. In the year ended December 31, 2009 and
2008, the Company’s only financial assets/liabilities required to be measured on a recurring basis were its marketable
securities and interest rate swap agreements. See Note 8 - Interest Rate Swap Agreements and Note 9 – Fair Value
Measurements for relevant disclosures.
Interest Rate Swap Agreements
The Derivatives and Hedging Topic of the FASB ASC requires the Company to recognize all derivative instruments as either
assets or liabilities on the balance sheet at fair value. Gains or losses resulting from changes in the fair value of those
derivatives are accounted for depending upon the use of the derivative and whether it qualifies for hedge accounting.
F-12
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2009
2.
Summary of Significant Accounting Policies (continued)
The Company uses derivative instruments to manage the fluctuations in cash flows resulting from interest rate risk on
variable-rate debt financing. The objective of the hedges is to reduce the exposure to adverse fluctuations in floating interest
rates tied to LIBOR borrowings as required by the Company’s credit agreement and not for trading purposes. The interest
rate swap agreements involve the receipt of variable rate amounts in exchange for fixed rate interest payments over the life of
the agreement without an exchange of the underlying principal amount. As of December 31, 2009, more than 100% of the
Company’s variable rate debt had its interest payments designated as the hedged forecasted transactions. The Company has
formally documented the hedging relationships and accounts for the derivatives as cash flow hedges. Gains or losses resulting
from changes in the fair value of these agreements are recorded in other comprehensive income, net of tax, until either the
hedged item is recognized in earnings or the cash flow is no longer probable. The Company also formally assesses, both at
the hedge’s inception and on an ongoing basis, whether the derivatives that are used in the hedging transactions are highly
effective in offsetting changes in fair values or cash flows of the hedged items. Any ineffectiveness is recorded directly to
earnings.
See Note 8 - Interest Rate Swap Agreements for full disclosures of interest rate swap agreements entered into in 2008,
pursuant to the disclosure requirements of Derivatives and Hedging Topic of the FASB ASC.
Reclassifications
Certain 2008 balance sheet and footnote amounts have been reclassified to conform to the 2009 presentation.
Recent Accounting Pronouncements
In April 2009, the FASB issued ASC 825, Financial Instruments, which extends the disclosure requirements of the Financial
Instruments Topic of the FASB ASC to interim financial statements of publicly traded companies as defined in the Interim
Reporting Topic of the FASB ASC. ASC 825 is effective for interim reporting periods ending after June 15, 2009, with early
adoption permitted. The Company adopted the required disclosure requirements for its second quarter of 2009. Since ASC
825 requires only additional disclosures concerning the financial instruments, the adoption did not affect the consolidated
balance sheets, statements of operations or cash flows of the Company.
In May 2009, the FASB issued ASC 855, Subsequent Events. This standard establishes general standards of accounting for
and disclosures of subsequent events that occurred after the balance sheet date but prior to the issuance of financial
statements. ASC 855 is effective for financial statements issued for interim or fiscal years ending after June 15, 2009. The
adoption of ASC 855, effective June 2009, did not affect the consolidated balance sheets, statements of operations or cash
flows of the Company.
In June 2009, the FASB issued Accounting Standards Update 2009-01, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles-a replacement of FASB Statement No. 162. The FASB ASC is
intended to be the source of authoritative U.S. Generally Accepted Accounting Principles (GAAP) and reporting standards as
issued by the FASB. Its primary purpose is to improve clarity and use of existing standards by grouping authoritative
literature under common topics. This Statement is effective for financial statements issued for interim and annual periods
ending after September 15, 2009. The Company has used the new guidelines and numbering system prescribed by the ASC
when referring to GAAP. The Codification does not change or alter existing GAAP and there was no impact on the
consolidated balance sheets, statements of operations or cash flows of the Company.
In August 2009, the FASB issued ASC Update 2009-05, Fair Value Measurements and Disclosures. The purpose of this
update is to clarify that in circumstances in which a quoted price in an active market for the identical liability is not available,
a reporting entity is required to measure fair value using a valuation technique that uses either the quoted price of the
identical liability when traded as an asset or quoted prices for similar liabilities or similar liabilities when traded as assets.
This guidance is effective upon issuance. There was no material impact to the Company from the adoption of this standard.
F-13
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2009
3.
Goodwill and Other Identifiable Intangible Assets
As of December 31, 2009 and 2008, the Company had the following acquired intangible assets:
Gross Carrying
Amount
December 31, 2009
Accumulated
Amortization
Net Carrying
Amount
Gross Carrying
Amount
December 31, 2008
Accumulated
Amortization
Net Carrying
Amount
Intangible assets subject
to amortization:
Databases ..................
Customer relations ....
Non-compete
agreements .............
Trademark ................
Intangible assets not
subject to amortization:
Goodwill ...................
Trademarks ...............
4,153,000
340,000
53,677,864
$
$ 132,593,323
64,258,658
$ 196,851,981
$
$
$
$
14,194,891
34,989,973
$
12,572,084
8,939,998
$
$
1,622,807
26,049,975
899,667
––
28,572,449
$
$
14,268,522
34,828,432
$
12,166,806
5,814,065
4,153,000
340,000
53,589,954
2,810,000
330,556
21,121,427
$
$
2,101,716
29,014,367
1,343,000
9,444
32,468,527
3,253,333
340,000
25,105,415
1,892,844
1,401,169
3,294,013
$ 130,700,479
62,857,489
$ 193,557,968
$ 124,490,569
65,835,076
$ 190,325,645
1,892,844
1,401,169
3,294,013
$ 122,597,725
64,433,907
$ 187,031,632
$
$
$
Estimated annual amortization expense is approximately as follows:
Year Ending December 31:
2010 .............................................................................................................. $ 3,858,000
3,492,000
2011 ..............................................................................................................
3,243,000
2012 ..............................................................................................................
3,090,000
2013 ..............................................................................................................
2,843,000
2014 ..............................................................................................................
12,046,000
Thereafter ......................................................................................................
$ 28,572,000
F-14
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2009
3.
Goodwill and Other Identifiable Intangible Assets (continued)
The changes in the carrying amount of goodwill by segment are as follows:
$
Balances as of December 31, 2008:
Aggregate goodwill acquired .....................
Accumulated impairment loss....................
Goodwill, net of impairment loss...............
Additions to aggregate goodwill in 2009:
Earnout payment and additional direct
acquisition costs for MDA .........................
Earnout payment for AKOS.......................
Currency translation adjustment for
AKOS........................................................
Nurse and
Allied
Segment
Physician
Staffing
Segment
Clinical
Trials
Services
Segment
Other Human
Capital
Management
Services
Segment
Total
$
258,841,211
(241,000,000)
17,841,211
$
24,666,270
––
24,666,270
$
60,783,182
––
60,783,182
19,307,062
––
19,307,062
$
363,597,725
(241,000,000)
122,597,725
308,888
––
––
6,494,901
––
––
748,242
––
550,723
––
––
––
6,803,789
748,242
550,723
Balances as of December 31, 2009:
Aggregate goodwill acquired .....................
Accumulated impairment loss....................
Goodwill, net of impairment loss...............
259,150,099
(241,000,000)
18,150,099
$
$
31,161,171
––
31,161,171
$
62,082,147
––
62,082,147
$
19,307,062
––
19,307,062
371,700,479
(241,000,000)
130,700,479
$
Impairment of Goodwill and Other Intangible Assets
Goodwill
The Company performed its annual impairment assessment in the fourth quarters of 2009 and 2008. Upon completion of the
first step in its annual impairment assessment as of December 31, 2009, the Company determined that no impairment was
indicated. For the impairment test in the fourth quarter of 2009, the Company estimated the fair value of each of its five
reporting units based on a weighting of both the income approach and the market approach.
The discounted cash flows for each reporting unit that served as the primary basis for the income approach were based on
discrete financial forecasts developed by management for planning purposes and consistent with those distributed within the
Company and externally. A number of significant assumptions and estimates were involved in the application of the income
methodology including forecasted operating cash flows, revenue, margins, discount rate, and working capital changes. Cash
flows beyond the discrete forecast period of ten years were estimated using a terminal value calculation. A terminal value
growth rate of 2.5% was used for each reporting unit. The income approach valuations included reporting unit cash flow
discount rates, representing each reporting unit’s weighted average cost of capital, ranging from 11.8% to 13.4%.
The market approach applied pricing multiples derived from publicly-traded guideline companies that are comparable to the
respective reporting unit, to determine its value. The Company utilized total enterprise value/revenue multiples ranging from
0.5 to 1.2 and total enterprise value/Earnings Before Interest Taxes Depreciation and Amortization (EBITDA) multiples
ranging from 6.6 to 10.2. Each reporting unit’s market value was determined assuming a 60% weighting to revenue and a
40% weighting to EBITDA. The fair value under the market approach included a control premium of 30%, which is an
amount the Company estimates a buyer would be willing to pay in excess of the current market price in order to acquire a
controlling interest. The control premium was determined based on a review of comparative market transactions. Publicly
available information regarding the market capitalization of the Company was also considered in assessing the
reasonableness of the cumulative fair values of the reporting units.
Upon completion of fourth quarter 2009 assessment, the Company determined that the estimated fair value of all of the
Company’s reporting units exceeded their respective carrying values as follows: nurse and allied staffing – 53%, physician
staffing – 58%, clinical trials services – 13%, retained search – 197% and education and training – 217%.
F-15
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2009
3.
Goodwill and Other Identifiable Intangible Assets (continued)
In accordance with the Intangibles-Goodwill and Other Topic of the FASB ASC, during the fourth quarter of 2008, the
Company performed its annual impairment testing and determined that the fair value of the goodwill related to its nurse and
allied staffing reporting unit was lower than its carrying value. The decrease in value results from a combination of depressed
equity market values and lower projected near-term growth rates for the nurse and allied staffing business arising from
the significant down-turn in the U.S. economy and adverse labor and financial markets that rapidly deteriorated during the
fourth quarter of 2008. The majority of the goodwill impairment is attributable to the Company’s initial capitalization in
1999, which was accounted for as an asset purchase (see Note 1 – Organization and Basis of Presentation), and subsequent
nurse staffing acquisitions made through 2003. A non-cash pretax charge of approximately $241,000,000 was recorded to
reduce the carrying value of goodwill to its estimated fair value. This charge is included in impairment charges on the
consolidated statements of operations for the year ended December 31, 2008.
Other Intangible Assets
During the fourth quarter of 2009, in accordance with the Property, Plant and Equipment/Impairment or Disposal of Long-
Lived Assets Topic of the FASB ASC, the Company conducted an assessment of a particular trademark and database in its
clinical trials services segment due to a change in marketing strategy for the business that indicated the carrying amount of
the trademark and database may not be recoverable. The Company streamlined its non-staffing operations within the clinical
trials services segment to gain efficiencies. Based on these circumstances, the Company recorded a pre-tax non-cash
impairment charge which represented the entire carrying value of this trademark and database of approximately $1,726,000.
This charge is included in impairment charges on the consolidated statement of operations for the year ended December 31,
2009.
During the fourth quarter of 2008, the Company conducted an assessment of a particular customer relationship in its clinical
trials services segment due to a change in circumstance that indicated the carrying amount of this intangible asset may not be
recoverable. The relationship with this customer remains in good standing; however, the customer began to use offshore
staffing to meet some of its needs and did not renew one of its contracts which expired in 2009. The expiration of this
particular contract impacted the projected revenue stream utilized in assessing the value of this intangible asset. The
Company does have other ongoing contracts with this customer that is expected to continue to generate business, but they are
not significant or sufficient enough to replace the revenue stream that ended in 2009. In addition, the Company was unable to
estimate any significant revenue stream in order to properly calculate an estimated fair value of this relationship. Based on
these circumstances, the Company recorded a pre-tax non-cash impairment charge which represented the entire carrying
value of this customer relationship of approximately $3,094,000. This charge is also included in impairment charges on the
consolidated statements of operations for the year ended December 31, 2008.
At December 31, 2009 and 2008, the Company believes no other impairment of long-lived assets or intangible assets exist.
4.
Acquisitions
MDA Holdings, Inc.
On September 9, 2008, the Company consummated the acquisition of substantially all of the assets of privately-held MDA
Holdings, Inc. and its subsidiaries and all of the outstanding stock of a subsidiary of MDA Holdings, Inc. (collectively,
MDA). The Company paid $115,870,000 in cash at closing, which included $3,554,000 as an estimated net working capital
adjustment which was subject to final adjustments. Of the cash paid at closing, approximately $8,690,000 was being held in
escrow to cover any post-closing liabilities (Indemnification Escrow) and $250,000 was being held in escrow to cover any
net working capital adjustments (Net Working Capital Escrow). During the fourth quarter of 2008, approximately $1,590,000
of the Indemnification Escrow was released to the Company and recorded to goodwill as a reduction in purchase price. Also
during the fourth quarter of 2008, the Company finalized the net working capital adjustment and calculated an additional
payment to the sellers of approximately $100,000 which was paid and included in goodwill as additional purchase price. In
connection with this net working capital adjustment, the entire Net Working Capital Escrow of $250,000 was also released to
the sellers. Additionally, a post-closing adjustment to the purchase price of approximately $302,000 was paid to the sellers in
the fourth quarter of 2008 and included in goodwill as additional purchase price.
F-16
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2009
4.
Acquisitions (continued)
The transaction also includes an earnout provision based on 2008 and 2009 performance criteria. This contingent
consideration is not related to the sellers’ employment. If the earnout payments are made, they will be allocated to goodwill
as additional purchase price, in accordance with the Business Combinations Topic of the FASB ASC. In the second quarter of
2009, the Company paid $6,748,000 related to the 2008 performance. The Company expects to pay an earnout related to the
2009 performance, which has not been finalized at the date of this filing.
The Company’s senior secured revolving credit facility was amended and restated in connection with the acquisition of
MDA. The $200,000,000 Credit Agreement, dated as of November 10, 2005 and Amended and Restated as of September 9,
2008 (the Credit Agreement) kept in place an existing $75,000,000 revolving loan facility and provided for a 5-year
$125,000,000 term loan facility with Wells Fargo Securities and certain of its affiliates, Banc of America Securities LLC and
certain other lenders. The proceeds from the term loan were used to fund the acquisition, pay financing related fees, and pay
certain acquisition expenses. The remainder of the proceeds was used to reduce borrowings under its revolving loan facility.
See Note 7- Long-term Debt for further information.
Headquartered in Norcross, Georgia, MDA provides multi-specialty locum tenens (temporary physician staffing) and allied
staffing services to the healthcare industry in all 50 states. MDA is a provider of locum tenens staffing solutions through its
independent contract physicians. In addition, MDA has an in-house Credentials Verification Organization (Credent) that is
certified by the National Committee for Quality Assurance. Credent verifies critical credentials prior to physician
assignments. MDA also offers its physicians occurrence-based malpractice coverage. See Note 2 – Reserves for Claims for
additional information. The Company acquired MDA to solidify its position as a national provider of healthcare staffing
solutions. The Company expects to benefit from a more diversified revenue stream as physicians are viewed as revenue
generators by its hospital clients, as compared to nurses who represent a cost center. The Company is also able to offer a
more comprehensive suite of services to its healthcare clients and recognizes there may be some potential synergies with its
physician search business.
The acquisition has been accounted for in accordance with the Business Combinations Topic of the FASB ASC. The results
of MDA’s operations have been included in the consolidated statements of operations since September 1, 2008, the agreed
upon accounting date of the acquisition. MDA’s allied staffing services have been combined with the Company’s nurse and
allied staffing business segment. MDA’s physician staffing services have been reported as a separate business segment for
the Company, Physician Staffing, in accordance with the Segment Reporting Topic of the FASB ASC.
F-17
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2009
4.
Acquisitions (continued)
The estimates of assets acquired and liabilities assumed were revised, during the fourth quarter of 2008, based on final
financial statements and the final independent third-party appraisal. The following table summarizes the approximate fair
values of the assets acquired and liabilities assumed.
Current assets:
Cash .............................................................................................................................................................
Restricted cash .............................................................................................................................................
Accounts receivable, net ..............................................................................................................................
Other current assets ......................................................................................................................................
Total current assets ...........................................................................................................................................
Property and equipment ....................................................................................................................................
Trademarks .......................................................................................................................................................
Goodwill ...........................................................................................................................................................
Other identifiable intangible assets ...................................................................................................................
Total assets acquired .........................................................................................................................................
$
3,550,000
5,000,000
22,463,000
2,302,000
33,315,000
4,304,000
46,000,000
26,419,000
23,100,000
133,138,000
Current liabilities:
Accounts payable and accrued expenses ......................................................................................................
Accrued employee compensation and benefits ............................................................................................
5,735,000
11,533,000
Total liabilities assumed ...................................................................................................................................
17,268,000
Net assets acquired ...........................................................................................................................................
$ 115,870,000
Based on the independent third-party appraisal, the Company assigned the following values to intangible assets: $46,000,000
to trademarks with an indefinite life and not subject to amortization, $21,000,000 for customer relations with a useful life of
12 years, $1,100,000 to database with a useful life of 9 years, and $1,000,000 to noncompete agreements with a weighted
average useful life of 4 years. The excess of purchase price over the fair value of net tangible and intangible assets acquired
approximated $26,419,000 and was recorded as goodwill, which is deductible for tax purposes. Additional acquisition costs
of approximately $56,000 and $610,000 were incurred during the years ended December 31, 2009 and 2008, respectively,
and are included as goodwill in the consolidated balance sheets.
Assent Consulting
On July 18, 2007, the Company completed the acquisition of all of the shares of privately-held Assent Consulting (Assent)
for approximately $19,573,000 in cash paid at closing, including $1,000,000 which was held in escrow to cover any post-
closing liabilities. The purchase price was subject to a working capital adjustment of approximately $490,000 that was settled
with a payment to the Company in the fourth quarter of 2007. Additional direct acquisition costs of approximately $113,000
were incurred during the year ended December 31, 2007 and allocated to goodwill. Assent provides staffing services
primarily consisting of highly qualified clinical research, biostatistics, and drug safety professionals to companies in the
pharmaceutical and biotechnology industries.
This transaction also included an earnout provision up to a maximum of $4,900,000 based on 2007 and 2008 performance
criteria. This contingent consideration was not related to the sellers’ employment. In the year ended December 31, 2008, the
Company paid $4,552,000 related to 2007 performance satisfying all earnout amounts potentially due to the seller in
accordance with the asset purchase agreement. Approximately $2,000,000 of the payment was being held in escrow, subject
to forfeiture to the Company, to the extent a 2008 performance milestone was not achieved. Based on 2008 performance, the
full amount was released in the first quarter of 2009. The entire payment was allocated to goodwill as additional purchase
price, in accordance with Business Combinations Topic of the FASB ASC. In addition, in the first quarter of 2009, the
escrow of $1,000,000 was released to the sellers. The Company financed this acquisition using its revolving loan facility.
F-18
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2009
4.
Acquisitions (continued)
AKOS Limited
On June 6, 2007, the Company acquired all of the shares of privately-held AKOS Limited (AKOS), based in the United
Kingdom, for a total purchase price of up to £7,179,000, consisting of an up-front payment of £3,971,000 and potential
earnout payments up to a maximum of £3,209,000 in 2007 and 2008. The share purchase agreement also specified an
estimated additional payment of £500,000, paid at closing, consisting of cash purchased, along with a post-closing net
working capital adjustment. An additional amount of £175,000 was paid in the third quarter of 2007, based on changes in net
working capital, as defined by the share purchase agreement and has been allocated to goodwill as additional purchase price.
AKOS is a provider of drug safety, regulatory and clinical trials services to pharmaceutical and biotechnology companies in
Europe, the United States, Canada and Asia.
The consideration for this acquisition equated to approximately $8,867,000 in cash paid at closing, which included
approximately $992,000 for the additional payment and $763,000 which was held in escrow to cover any post-closing
liabilities. The post-closing working capital adjustment equated to approximately $349,000. The Company financed this
transaction using its revolving loan facility. Additional direct acquisition costs of approximately $373,000 were incurred
during the year ended December 31, 2007 and allocated to goodwill.
The potential earnout payments were based on 2007 and 2008 performance, as defined by the share purchase agreement and
were recorded in U.S. dollars using the exchange rate at the time of payment. In 2008, the Company paid £1,054,000
(approximately $2,111,000) related to the 2007 performance. In the first quarter of 2009, the Company paid £509,000
(approximately $748,000) related to the 2008 performance. The payments have been allocated to goodwill as additional
purchase price, in accordance with Business Combinations Topic of the FASB ASC. During the fourth quarter of 2008, all of
the funds held in escrow were released to the sellers.
Metropolitan Research
On August 31, 2006, the Company acquired substantially all of the assets of privately-held Metropolitan Research
Associates, LLC and Metropolitan Research Staffing Associates, LLC (collectively “Metropolitan Research”) for a purchase
price of approximately $18,600,000. The consideration for this acquisition was approximately $16,100,000 in cash paid at
closing. The remaining $2,500,000 of the purchase price was paid during the fourth quarter of 2006 as the associated
milestones defined by the asset purchase agreement were reached. These payments were allocated to goodwill as additional
purchase price. The Company financed this transaction using its revolving loan facility. During the year ended December 31,
2007, a post-closing adjustment of approximately $510,000, which included a net working capital adjustment, was paid and
allocated to goodwill.
The asset purchase agreement also provided for a potential earnout payment of up to a maximum of $6,436,000 based on
2006 and 2007 performance, as defined. During the year ended December 31, 2008, the Company paid $6,436,000 satisfying
all earnout payments. This contingent consideration was not related to the sellers’ employment and was allocated to goodwill
as additional purchase price, in accordance with the Business Combinations Topic of the FASB ASC.
5.
Property and Equipment
At December 31, 2009 and 2008, property and equipment consist of the following:
Computer equipment ...............................................................................
Computer software ...................................................................................
Office equipment .....................................................................................
Furniture and fixtures ..............................................................................
Leasehold improvements .........................................................................
Useful Lives
3-5 years
3-5 years
5-7 years
5-7 years
(a)
Less accumulated depreciation and amortization ....................................
———————
(a) See Note 2 – Summary of Significant Accounting Policies.
December 31,
2009
11,933,314 $
38,917,694
3,988,990
3,493,510
3,132,578
61,466,086
(41,759,619)
19,706,467 $
2008
11,358,404
37,551,372
3,875,451
3,495,817
2,955,750
59,236,794
(33,252,084)
25,984,710
$
$
F-19
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2009
6. Accrued Compensation and Benefits
At December 31, 2009 and 2008, accrued compensation and benefits consist of the following:
Salaries and payroll taxes .................................................................................................. $
Bonuses ..............................................................................................................................
Accrual for workers’ compensation claims .......................................................................
Accrual for health care benefits .........................................................................................
Accrual for professional liability insurance .......................................................................
Accrual for vacation ..........................................................................................................
$
December 31,
2009
5,911,887
1,734,860
2,213,833
1,450,723
3,149,129
1,679,071
16,139,503
$
$
2008
8,730,101
4,160,245
2,446,313
2,027,380
2,040,764
1,928,711
21,333,514
Workers’ compensation and professional liability amounts are also included in the following accounts:
Insurance recoveries receivable:
Insurance recovery for workers’ compensation ............................................................ $
Insurance recovery for professional liability .................................................................
Other long-term assets:
Insurance recovery for workers’ compensation - long-term .........................................
Insurance recovery for professional liability - long-term ..............................................
Marketable securities - long-term .................................................................................
Other long-term liabilities:
Unrecognized tax benefits - long-term ..........................................................................
Accrual for workers’ compensation claims - long-term ................................................
Accrual for professional liability insurance - long-term ...............................................
Deferred compensation ..................................................................................................
Deferred rent - long-term ..............................................................................................
$
$
$
$
$
December 31,
2009
2008
505,328
365,000
870,328
554,532
940,390
122,950
1,617,872
3,551,607
2,429,394
10,062,245
1,376,008
1,761,749
19,181,003
$
$
$
$
$
$
312,573
138,000
450,573
362,602
881,738
––
1,244,340
1,831,937
2,837,862
11,237,752
1,094,357
1,756,689
18,758,597
F-20
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2009
7.
Long-term Debt
At December 31, 2009 and 2008, long-term debt consists of the following:
Term loan, interest at 1.99% and 4.33% at December 31,
2009 and 2008, respectively ............................................................................................ $
Revolving loan facility, weighted average interest rate of 2.97%
at December 31, 2008 .....................................................................................................
Capital lease obligations ...................................................................................................
Less current portion ..........................................................................................................
$
December 31,
2009
2008
62,109,277
$ 123,437,500
––
405,201
62,514,478
(5,733,299)
56,781,179
7,500,000
2,142,996
133,080,496
(15,825,642)
$ 117,254,854
The Company’s senior secured revolving credit facility entered into on November 10, 2005 was amended and restated as of
September 9, 2008 in connection with the acquisition of MDA. The Credit Agreement maintains an existing $75,000,000
revolving loan facility, maturing in November 2010, and provides for a 5 year $125,000,000 term loan facility with Wells
Fargo Securities, LLC and certain of its affiliates, Banc of America Securities LLC and certain other lenders. The revolving
loan facility and term loan bear interest at a rate of, at the Company’s option, either: (i) London Interbank Offered Rate
(“LIBOR”) plus a leverage-based margin or (ii) Base Rate (as defined in the Credit Agreement) plus a leverage-based
margin.
The Credit Agreement was also amended for customary covenants for similar leveraged deals such as: 1) requiring the
Company to hedge at least 40% of its floating rate exposure for 2 years; and 2) adding a mandatory prepayment provision
from Excess Cash as defined by the Credit Agreement. In addition, pursuant to the provisions of the Credit Agreement, in
October 2008, the Company entered into interest rate swap agreements to effectively fix the interest on $70,000,000 of its
term debt for a period of 2 years at 3.04%, plus the applicable LIBOR spread.
The $75,000,000 revolving loan facility has a $10,000,000 sublimit for the issuance of Swingline Loans (as defined by the
Credit Agreement) and a $35,000,000 sublimit for the issuance of standby letters of credit. Swingline Loans and letters of
credit issued under this facility reduce the revolving loan facility on a dollar for dollar basis. The revolving loan facility is
being used for general corporate purposes including working capital, capital expenditures and permitted acquisitions and
investments, as well as to pay fees and expenses related to the credit facility.
As of December 31, 2009, interest on the credit facility was based on LIBOR plus a margin of 1.75% or Base Rate plus a
margin of 0.75%. The Company is required to pay a quarterly commitment fee on the average daily unused portion of the
revolving loan facility, which, as of December 31, 2009, was 0.375%. As of December 31, 2009, the Company had
$12,681,838 of standby letters of credit outstanding under this facility, leaving $62,318,162 available for borrowing under the
revolving loan facility. The letters of credit relate to the Company’s workers’ compensation and professional liability policies
as previously disclosed in the Reserves for Claims section in Note 2 – Summary of Significant Accounting Policies.
F-21
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2009
7.
Long-term Debt (continued)
In addition to the above mentioned terms, the terms of the Credit Agreement include customary covenants and events of
default. As of December 31, 2009, the Company was in compliance with the financial covenants and other covenants
contained in the agreement. Specifically, the table below summarizes what the Company believes are the key financial
covenants, as defined by the Credit Agreement, and its corresponding actual performance as of December 31, 2009.
Maximum Permitted Leverage Ratio (a) ..........................................................
Minimum Interest Coverage Ratio ....................................................................
Maximum Capital Expenditures for 2009 (b) ...................................................
———————
(a) The Company’s Leverage Ratio must not be greater than 2.50 to 1.00 as of December 31, 2009 and thereafter.
Requirement
2.50 to 1.00
5.00 to 1.00
$25.3 million
Actual
1.86 to 1.00
6.74 to 1.00
$2.5 million
(b) Aggregate amount of Capital Expenditures in any fiscal year may not exceed $15,000,000, but may be increased in any
fiscal year by the amount of Capital Expenditures that were permitted but not made in the immediately preceding fiscal
year.
The agreement includes a mandatory prepayment provision, which requires the Company to make mandatory prepayments
subsequent to receiving net proceeds from the sale of assets, insurance recoveries, or the issuance of debt or equity. In
addition, when its Consolidated Total Leverage Ratio, as defined by the Credit Agreement, as of the end of a fiscal year is
greater than or equal to 1.50 to 1.00, the Company is required to make principal prepayments of at least 50% of Excess Cash
Flow, as defined by the agreement. The dividends and distribution covenant limits the Company’s ability to repurchase its
common stock and declare and pay cash dividends on its common stock. The Credit Agreement provides for an amount
allowed for stock repurchases/dividends. The limitation increases each year by 25% of net income provided that the
Company’s Debt/EBITDA ratio (as defined in the Credit Agreement) is less than 2.00 to 1.00 and there is $15,000,000 in
cash or available cash under the revolving loan facility. The Company’s net loss for the year ended December 31, 2008, has
had the effect of eliminating the allowable amount. The Company is also required to obtain the consent of its lenders to
complete any acquisition which exceeds $25,000,000 or would cause the Company to exceed $125,000,000 (excluding the
MDA acquisition) in aggregate payments during the term of the agreement. The commitments under the Credit Agreement
are secured by substantially all of the Company’s assets.
Long-term debt includes capital lease obligations that are subordinate to the Company’s senior secured facility. As of
December 31, 2009, the Company’s capital lease obligations mature serially through December 31 as follows: 2010 -
$314,369; 2011 - $41,223; 2012 - $19,095; 2013 - $22,286 and 2014 - $8,228.
As of December 31, 2009, the aggregate scheduled maturities of term debt are as follows:
Through Year Ending December 31:
2010 ........................................................................................................ $
2011 ........................................................................................................
2012 ........................................................................................................
2013 ........................................................................................................
2014 ........................................................................................................
$
5,733,299
8,378,039
19,610,612
28,784,301
8,227
62,514,478
Subsequent to December 31, 2009, the Company made optional prepayments of $4,000,000 of its borrowings under the term
loan portion of its senior credit facility. Optional prepayments are applied pro rata to the remaining scheduled maturities, as
per the terms of the Credit Agreement.
8.
Interest Rate Swap Agreements
Pursuant to the provisions of the Credit Agreement and not for trading purposes, in October 2008, the Company entered into
two interest rate swap agreements, both with effective dates of October 9, 2008 and termination dates of October 9, 2010.
The Company was required to execute Interest Rate Contract(s) (as defined in the Credit Agreement) to hedge its variable
F-22
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2009
8.
Interest Rate Swap Agreements (continued)
interest rate exposure in an aggregate amount of at least 40% of its $125,000,000 term loan facility, or $50,000,000 for at
least 2 years. No initial investments were made to enter into these agreements. The interest rate swap agreements require the
Company to pay a fixed rate to the respective counterparty (fixed rate of 3.1625% per annum on a notional amount of
$50,000,000 and a fixed rate of 2.75% on $20,000,000), and to receive from the respective counterparty, interest payments
based on the applicable notional amounts and 1 month LIBOR, with no exchanges of notional amounts. At inception, the
interest rate swaps effectively fixed the interest on $70,000,000 of the Company’s term debt for a period of 2 years at 3.04%,
plus the applicable LIBOR spread.
In the third quarter of 2009, the Company generated excess cash flow, which, along with cash on hand, allowed it to prepay
an additional $22,500,000 of term loan borrowings causing its $20,000,000 notional amount interest rate swap to become
ineffective. The Company made an additional $5,000,000 of prepayments in the fourth quarter of 2009. The Company
estimated the ineffectiveness as of December 31, 2009 to be an unrealized loss of $229,820 (approximately $139,000 after
taxes). The Company reclassified the after tax amount from accumulated other comprehensive loss to the consolidated
statement of operations for the year ended December 31, 2009. The Company has included the gross amount of the loss in
interest expense on its consolidated statement of operations. In addition, during the year ended December 31, 2009, the
Company reclassified $923,346 of the loss in accumulated other comprehensive income to interest expense coinciding with
interest payments on the underlying term loan portion that was hedged.
Changes in the cash flows of the $50,000,000 notional amount interest rate swap are expected to be highly effective at
offsetting the changes in overall cash flows (i.e. changes in interest payments) attributable to fluctuations in the LIBOR rates
on the Company’s variable-rate debt. The Company considers the $50,000,000 notional amount interest rate swap to be a
cash flow hedge and eligible for hedge accounting. Changes in the fair value of derivatives deemed to be eligible for hedge
accounting are reported in accumulated other comprehensive loss on the consolidated balance sheets. See Note 2 –
Comprehensive Income for further information.
As of December 31, 2009, the fair value of the interest rate swap agreements was $1,427,073 and was recorded as a liability
on the consolidated balance sheet with offsets to other comprehensive (loss) income of $1,197,253 (for the effective portion)
and interest expense of $229,820 (for the ineffective portion). Deferred tax benefits of $470,885 were also included in other
comprehensive income, leaving a balance of $726,368 in accumulated other comprehensive loss related to these swap
agreements. As of December 31, 2008, the fair value of the interest rate swap agreements was $2,382,444 and was recorded
as a liability on the consolidated balance sheet with an offset to other comprehensive income. A deferred tax benefit was also
recorded to other comprehensive (loss) income, leaving a balance of $1,455,912 in other comprehensive income related to
these swap agreements.
As of December 31, 2009, the Company expects the entire amount recorded in accumulated other comprehensive loss
($1,197,253), related to these interest rate swaps, will be reclassified to interest expense over the next twelve months
coinciding with interest payments on the underlying term loan portion that was hedged.
Interest rate swap payments are included in net cash provided by operating activities on the Company’s consolidated
statements of cash flows.
F-23
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2009
9.
Fair Value Measurements
The Fair Value Measurements and Disclosures Topic of the FASB ASC, defines fair value as the exchange price that would
be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset
or liability in an orderly transaction between market participants on the measurement date. The Fair Value Measurements
and Disclosures Topic also establishes a fair value hierarchy which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs
that may be used to measure fair value:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in
markets that are not active; or other inputs that are observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilities.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the
assets or liabilities.
During the year ended December 31, 2009, the Company’s financial assets/liabilities required to be measured on a recurring
basis were its interest rate swap agreements, its deferred compensation liability included in other long-term liabilities and
marketable securities included in other long-term assets. The Company utilizes Level 1 inputs to value marketable securities
and its deferred compensation liability and Level 2 inputs to value the interest rate swap agreements. The Company did not
hold any Level 3 assets or liabilities that are measured on a recurring basis at December 31, 2009 or 2008. The Company’s
marketable securities are measured using quoted prices in active markets. The Company’s deferred compensation liability is
measured using publicly available indices that define the liability amounts, as per the plan documents. The Fair Value
Measurements and Disclosures Topic of the FASB ASC also states that the fair value measurement of a financial asset or
financial liability must reflect the nonperformance risk of the entity and the counterparty. Therefore, the impact of the
counterparty’s creditworthiness is considered when in an asset position and the Company’s credit worthiness will be
considered when it is in a liability position. As of December 31, 2009, both counterparties on the Company’s interest rate
swap agreements are expected to continue to perform under their contractual terms of the instrument and the creditworthiness
did not have a material impact on fair value.
The table below summarizes the estimated fair values of the Company’s financial assets and liabilities measured on a
recurring basis as of December 31, 2009 and 2008:
Fair Value Measurements as of December 31, 2009
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Total
Fair Value Measurements as of December 31, 2008
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Total
Financial Assets:
Marketable securities ...... $
122,950
$
122,950
$
— $
— $
— $
—
Financial Liabilities:
Interest rate swaps –
Deferred compensation ...
current ........................... $ 1,427,073
1,376,008
$ 2,803,081
$
—
1,376,008
$ 1,376,008
$ 1,427,073 $ 2,382,444 $
— $ 2,382,444
—
$ 1,427,073 $ 3,476,801 $ 1,094,357 $ 2,382,444
1,094,357
1,094,357
—
The Company was required to measure the fair value of its nurse and allied staffing reporting unit in the fourth quarter of
2008, as a result of its annual impairment assessment. The Company used significant unobservable inputs (Level 3) to
measure its fair value. See Note 3 – Goodwill and Other Identifiable Intangible Assets for further information.
F-24
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2009
10.
Employee Benefit Plans
The Company maintains a voluntary defined contribution 401(k) profit-sharing plan covering all eligible employees as
defined in the plan documents. Eligible MDA employees were covered under this plan as of October 1, 2008. The plan
provides for a discretionary matching contribution, which is equal to a percentage of each eligible contributing participant’s
elective deferral, which the Company, at its sole discretion, determines from year to year. Effective July 1, 2009, due to the
Company’s cost-saving efforts, any further matching contributions for the program were temporarily suspended. Eligible
employees who elected to participate in the plan are generally vested in any existing matching contribution after three years
of service with the Company. Contributions by the Company, net of forfeitures, under this plan approximated $1,142,000,
$2,666,000, and $2,766,000 for the years ended December 31, 2009, 2008 and 2007, respectively.
Certain MedStaff employees are covered under a separate benefit plan. The plan allows eligible employees to defer a portion
of their annual compensation pursuant to Section 401(k) of the Internal Revenue Code. The plan is a voluntary defined
contribution 401(k) profit-sharing plan covering substantially all eligible employees as defined in the plan documents.
Eligible employees who elected to participate in the plan are generally fully vested in any matching contribution after six
years of service with the Company. Contributions by the Company, net of forfeitures, under this plan amounted to
approximately $3,000, $46,000 and $27,000 for the years ended December 31, 2009, 2008 and 2007, respectively.
The Company offers a non-qualified deferred compensation program to certain key employees whereby they may defer a
portion of annual compensation for payment upon retirement. The program is unfunded for tax purposes and for purposes of
Title I of the Employee Retirement Income Security Act of 1974. The liability for the deferred compensation is included in
other long-term liabilities on the consolidated balance sheets and approximated $1,376,000 and $1,094,000 at December 31,
2009 and 2008, respectively.
11.
Commitments and Contingencies
Commitments:
The Company has entered into non-cancelable operating lease agreements for the rental of office space and equipment.
Certain of these leases include options to renew as well as rent escalation clauses and in certain cases, incentives from the
landlord for rent-free months and allowances for tenant improvements. The rent escalations and incentives have been
reflected in the following table. Future minimum lease payments, as of December 31, 2009, associated with these agreements
with terms of one year or more are approximately as follows:
Through Year Ending December 31:
2010 ........................................................................................................ $ 6,763,000
6,010,000
2011 ........................................................................................................
5,613,000
2012 ........................................................................................................
4,952,000
2013 ........................................................................................................
2,943,000
2014 ........................................................................................................
6,563,000
Thereafter ................................................................................................
$ 32,844,000
Total operating lease expense included in selling, general and administrative expenses was approximately $8,798,000,
$7,885,000 and $7,310,000 for the years ended December 31, 2009, 2008 and 2007, respectively.
F-25
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2009
11.
Commitments and Contingencies (Continued)
Contingencies:
Maureen Petray and Carina Higareda v. MedStaff, Inc.
On February 18, 2005, the Company’s MedStaff subsidiary became the subject of a purported class action lawsuit (Maureen
Petray and Carina Higareda v. MedStaff, Inc.) filed in the Superior Court of California in Riverside County. The lawsuit
relates to only MedStaff corporate employees working in California. The claims alleged under this lawsuit are generally
similar in nature to those brought by Darrelyn Renee Henry in a lawsuit against the Company, which was dismissed
(Darrelyn Renee Henry vs. MedStaff, Inc., et. al.).
The lawsuit alleges, among other things, violations of certain sections of the California Labor Code, the California Business
and Professions Code, and recovery of unpaid wages and penalties. MedStaff currently has less than 50 corporate employees
in California. The Plaintiffs, Maureen Petray and Carina Higareda, purport to sue on behalf of themselves and all others
similarly situated, and allege that MedStaff failed, under California law, to provide corporate employees while in on-call
status with meal periods and rest breaks, and pay for those missed meal periods and rest breaks; failed to compensate the
employees for all hours worked; failed to compensate the employees for working overtime; failed to keep appropriate records
to keep track of time worked; failed to pay Plaintiffs and their purported class as required by law. Plaintiffs seek, among
other things, an order enjoining MedStaff from engaging in the practices challenged in the complaint and for full restitution
of all monies, for interest, for certain penalties provided for by the California Labor Code and for attorneys’ fees and costs.
On February 5, 2007, the court granted class certification. On October 16, 2008, MedStaff filed a Motion to Decertify the
class which was denied on December 19, 2008. Trial was scheduled to occur in the second quarter of 2010, however, in
December 2009, the Company reached an agreement in principle to settle this matter and, accordingly, the Company accrued
a pre-tax charge of $345,000 (approximately $209,000 after taxes) related to this lawsuit The final settlement will be subject
to court approval.
Cossack, et. al. v. Cross Country TravCorps and Cross Country Nurses, Inc.
During the year ended December 31, 2007, the Company paid $6,704,392 to settle the California wage and hour class action
lawsuit filed against a subsidiary of the Company in Superior Court in Orange County, California, in August of 2003.
The Company is also subject to other legal proceedings and claims that arise in the ordinary course of its business. In the
opinion of management, the outcome of these other matters will not have a material effect on the Company’s consolidated
financial position or results of operations.
F-26
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2009
12.
Income Taxes
The components of the Company’s income tax (benefit) expense are as follows:
Current
2009
Year Ended December 31,
2008
2007
$ 2,628,622
Federal ................................................................................................. $ (3,726,369) $ 4,883,160
258,504
1,541,492
State .....................................................................................................
524,556
575,177
Foreign ................................................................................................
3,411,682
6,999,829
11,347,518
(68,223,408)
$(61,223,579) $ 14,759,200
(607,057)
56,000
(4,277,426)
9,237,802
$ 4,960,376
Deferred ...................................................................................................
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company’s deferred tax assets and liabilities are as follows:
Current deferred tax assets:
Accrued other and prepaid expenses .........................................................................
Accrued professional liability ...................................................................................
Legal settlement charge .............................................................................................
Allowance for doubtful accounts ..............................................................................
Impairment charges ...................................................................................................
Other .........................................................................................................................
Gross deferred tax assets............................................................................................
Valuation allowance ..................................................................................................
Deferred tax assets ....................................................................................................
Non-current deferred tax (liabilities) and assets:
Amortization .............................................................................................................
Depreciation ..............................................................................................................
Identifiable intangibles ..............................................................................................
Impairment charges ...................................................................................................
State net operating loss carryforwards ......................................................................
Other .........................................................................................................................
Gross deferred tax assets............................................................................................
Valuation allowance ..................................................................................................
Deferred tax assets .....................................................................................................
Net deferred taxes ..........................................................................................................
December 31,
2009
2008
4,442,480
156,833
135,681
1,141,064
5,303,243
1,003,121
12,182,422
(388,688 )
11,793,734
(63,517,145 )
(3,677,667 )
(3,155,253 )
74,242,557
2,441,457
1,623,481
7,957,430
(2,567,080 )
5,390,350
17,184,084
$
$
4,006,062
188,297
––
1,791,125
5,195,666
452,417
11,633,567
(346,441)
11,287,126
(52,499,218)
(5,040,910)
(3,201,513)
72,734,484
1,955,323
3,452,944
17,401,110
(2,336,512)
15,064,598
26,351,724
$
$
F-27
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2009
12.
Income Taxes (continued)
The Income Taxes Topic of the FASB ASC requires a valuation allowance to reduce the deferred tax assets reported if, based
on the weight of the evidence, it is more likely than not that some of or all of the deferred tax assets will not be realized. As
of December 31, 2009 and 2008, respectively, the Company had deferred tax assets of approximately $2,441,000 and
$1,955,000 related to state net operating loss carryforwards. The state carryforwards will expire between 2010 and 2027. A
valuation allowance for the state net operating losses has been recorded at December 31, 2009 and 2008, to reduce the
Company’s deferred tax asset to an amount that is more likely than not to be realized. As of December 31, 2009, the
Company has deferred tax assets of approximately $79,546,000 related to the impairment of goodwill and other intangible
assets. The Company has recorded a valuation allowance based upon the uncertainty of the realization of a particular
subsidiary’s state portion of its deferred tax asset that arose from the goodwill impairment.
The reconciliation of income tax computed at the U. S. federal statutory rate to income tax expense (benefit) is as follows:
Tax at U.S. statutory rate ................................................................................................ $
State taxes, net of federal benefit ....................................................................................
Non-deductible meals and entertainment ........................................................................
Non-deductible other ......................................................................................................
Foreign tax expense .........................................................................................................
Valuation allowances.......................................................................................................
Nondeductible goodwill impairment ...............................................................................
Uncertain tax positions ....................................................................................................
Other ...............................................................................................................................
Total income tax expense (benefit) ................................................................................. $
Year Ended
December 31,
2009
3,477,119
23,677
(616,613)
25,588
56,000
342,727
––
1,811,485
(159,607 )
4,960,376
2008
$ (72,715,908)
(5,147,143)
849,734
32,638
575,177
2,159,993
14,123,967
700,366
(1,802,403)
$ (61,223,579)
The tax years 2006 through 2009 remain open to examination by the major taxing jurisdictions to which the Company is
subject, with the exception of certain states in which the statute of limitations has been extended.
As of December 31, 2009, pursuant to the subtopic of Other Considerations or Special Areas of the Income Taxes Topic in
the FASB ASC, the Company did not provide for United States income taxes or foreign withholding taxes on undistributed
earnings from certain non-U.S. subsidiaries that will be permanently reinvested outside of the United States. The Company
intends to reinvest its foreign earnings indefinitely. Should the Company repatriate foreign earnings, the Company would
have to adjust the income tax provision in the period management determined that the Company would repatriate earnings.
The Company’s estimated undistributed foreign earnings as of December 31, 2009 were approximately $6,923,000, which, if
distributed, would have resulted in a deferred tax liability of approximately $1,463,000.
The Company’s Indian subsidiary, Cross Country Infotech Private, LTD is located in a software technology park and is
entitled to 100% tax holiday until March 2011. The effect of the income tax holiday was a reduction to the income tax
provision in 2009 of approximately $642,000.
The Company recognizes in its financial statements the impact of a tax position if that position is more likely than not of
being sustained on audit, based on the technical merits of the position. A reconciliation of the beginning and ending amounts
of unrecognized tax benefits is as follows:
Balance at January 1, 2009 ............................................................................................................................ $ 2,628,000
1,963,000
Additions based on tax positions related to the current year ..........................................................................
(23,000)
Reductions based on tax positions related to the prior year ...........................................................................
(125,000)
Reductions for tax positions as a result of a lapse of the applicable statute of limitations ............................
Balance at December 31, 2009 .......................................................................................................................
$ 4,443,000
F-28
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2009
12.
Income Taxes (continued)
As of December 31, 2009 and 2008, the Company had unrecognized tax benefits, which would affect the effective tax rate if
recognized of approximately $3,726,000 and $1,914,000, respectively. During 2009, the Company had gross increases of
$1,963,000 to its current year unrecognized tax benefits, related to federal and state tax issues. In addition, the Company had
gross decreases of $148,000 to its unrecognized tax benefits related to prior year uncertain positions and the closure of open
tax years.
The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes. During
the years ended December 31, 2009 and 2007, the Company recognized interest and penalties of $114,000 and $132,000,
respectively. During the year ended December 31, 2008, interest and penalties were not material. The Company had accrued
approximately $690,000 and $515,000 for the payment of interest and penalties at December 31, 2009 and 2008,
respectively.
13.
Stockholders’ Equity
Stock Repurchase Programs
In November 2002, the Company’s Board of Directors authorized a stock repurchase program whereby the Company could
purchase up to 1,500,000 of its common shares at an aggregate price not to exceed $25,000,000. Subsequently, in May 2006,
and then again in February 2008, the Company’s Board of Directors authorized two additional stock repurchase programs
whereby the Company may purchase up to 1,500,000 shares of its common stock under each authorization, subject to terms
of our credit agreement. The shares may be repurchased from time-to-time in the open market and the repurchase program
may be discontinued at any time at the Company’s discretion.
During year ended December 31, 2009, the Company did not repurchase shares. During the year ended December 31, 2008,
the Company repurchased and retired, under both the May 2006 and February 2008 programs, a total of 924,235 shares at an
average price of $11.66. The cost of such purchases was approximately $10,775,000. During the year ended December 31,
2007, the Company repurchased and retired, under both the November 2002 and May 2006 programs, a total of 704,498
shares at an average cost of $15.45 per share. The cost of such purchases was approximately $10,882,000. All of the common
stock was retired.
At December 31, 2009, the Company had 1,441,139 shares of common stock left remaining to repurchase under its
February 2008 authorization, subject to the limitations of the Company’s Credit Agreement. See Note 7- Long-term Debt for
further information.
Stock Options
2007 Stock Incentive Plan
The Company’s 2007 Stock Incentive Plan (2007 Plan) was approved by its stockholders at its 2007 Annual Meeting of
Stockholders, held in May of 2007. The 2007 Plan provides for the issuance of stock options, stock appreciation rights,
restricted stock, performance shares, and other stock-based awards, all as defined by the 2007 Plan, to eligible employees,
consultants and non-employee Directors. The aggregate number of shares of common stock which may be issued or used for
reference purposes under the 2007 Plan or with respect to which awards may be granted may not exceed 1,500,000 shares,
which may be either authorized and unissued common stock or common stock held in or acquired for the treasury of the
Company; provided, however, that 1,200,000 shares of this aggregate limit may be used for awards that are not “appreciation
awards” (including restricted stock, performance shares or certain other stock-based awards). Due to the adoption of the 2007
Plan, no further grants will be issued under the Company’s 1999 Plans referred to below.
Under the 2007 Plan, the Compensation Committee of the Company’s Board of Directors (the Committee), has the discretion
to determine the terms of the awards at the time of the grant. Provided, however, that, in the case of stock options and stock
appreciation rights (share options): 1) the exercise price per share of the award is not less than 100% (or, in the case of 10%
or more stockholders, the exercise price of the incentive stock options (ISOs) granted may not be less than 110%) of the fair
F-29
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2009
13.
Stockholders’ Equity (continued)
market value of the common stock at the time of the grant; and 2) the term of the award will be no more than 10 years after
the date the option is granted (or, shall not exceed five years, in the case of a 10% or more stock holder). In the case of
restricted stock, the purchase price may be zero to the extent permitted by applicable law.
The following awards were granted under the 2007 Plan to the Company’s directors and management team:
Stock options .......................................................................................
Stock appreciation rights......................................................................
Restricted stock ....................................................................................
—
569,000
304,133
—
158,664
110,310
2009
Year Ended December 31,
2008
2007
8,700
170,500
92,775
The stock appreciation rights can only be settled with stock. The stock appreciation rights vest 25% per year over a 4 year
period and expire after 7 years. The restricted stock awards vest 25% each year over a 4 year period. Upon exercise or
conversion, the Company’s policy is to issue new shares from its authorized but unissued balance of common stock
outstanding or shares of common stock reacquired by the Company.
On March 2, 2010, the Compensation Committee approved an increase in the number of shares eligible under the 2007 Stock
Incentive Plan to 3,500,000 shares from 1,500,000 shares, which increase will be subject to approval by the Company’s
shareholders at its annual meeting scheduled for May 4, 2010.
1999 Stock Option Plan and Equity Participation Plan
On December 16, 1999, the Company’s Board of Directors approved the 1999 Stock Option Plan and Equity Participation
Plan (collectively, the 1999 Plans), which was amended and restated on October 25, 2001 and provided for the issuance of
ISOs and non-qualified stock options to eligible employees and non-employee directors for the purchase of up to 4,398,001
shares of common stock. In the fourth quarter of 2005, all unvested and outstanding options as of December 31, 2005 were
modified to accelerate vesting effective December 31, 2005.
Share option changes, under both plans, during the year ended December 31, 2009, were as follows:
Share options outstanding at beginning of year ..........................................
Granted ........................................................................................................
Exercised .....................................................................................................
Forfeited ......................................................................................................
Expired ........................................................................................................
Shares
Option Price
2,381,143
569,000
(196,583)
(120,399)
(1,120,181)
$7.75-$37.13
$8.56
$7.75
$7.75-$26.15
$7.75-$23.25
Share options outstanding at end of year ....................................................
Share options exercisable at end of year .....................................................
1,512,980
767,911
$8.56-$37.13
$10.13-$37.13
Weighted
Average
Exercise
Price
$14.90
$ 8.56
$ 7.75
$14.96
$15.13
$13.27
$16.21
As of December 31, 2009, the Company had outstanding 1,451,231 share options that were fully vested or expected to vest at
a weighted average exercise price of $13.43, aggregate intrinsic value of approximately $683,000 and weighted average
contractual life of 4.8 years. As of December 31, 2009, 50.8% of share options outstanding, or 767,911 share options, were
fully exercisable at a weighted average exercise price of $16.21, no intrinsic value and a remaining contractual life of
3.6 years.
F-30
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2009
13.
Stockholders’ Equity (continued)
The following table represents information about stock options and stock appreciation rights granted and exercised in each
year. During the years ended December 31, 2009, 2008 and 2007, the Company issued options and stock appreciation rights
at market price.
Share option grants ...............................................................................................
Weighted average grant date fair value of options granted during
the period ...........................................................................................................
Total intrinsic value of options exercised ............................................................
Fair value of shares vested during the year...........................................................
Year Ended December 31,
2008
2007
2009
569,000
158,664
187,000
$
$
$
3.40
253,622
411,651
$
$
$
6.38 $
9.24
577,558
$ 1,606,538
371,008
$
—
The fair value of options granted were estimated on the date of grant using the Black-Scholes option-pricing model based on
the following weighted average assumptions:
Expected dividend yield .......................................................................................
Expected volatility ...............................................................................................
Risk-free interest rate ...........................................................................................
Expected life ........................................................................................................
Year Ended December 31,
2008
2007
2009
0.00%
45.00
2.34%
0.00%
48.02
3.56%
4 years
6 years
0.00%
49.06
4.27%
6 years
The expected life of the options is based on historical exercise behavior. The Company computes expected volatility using
the historical volatility of the market price of the Company’s common stock.
Restricted Stock
Restricted stock awards granted under the Company’s 2007 Plan entitle the holder to receive, at the end of a vesting period, a
specified number of shares of the Company’s common stock. Share-based compensation expense is measured by the market
value of the Company’s stock on the date of grant. During the years ended December 31, 2009, 2008 and 2007, the Company
issued 304,133, 110,310 and 92,775 shares of restricted stock, respectively. The shares vest ratably over a four year period
ending on the anniversary date of the grant. There is no partial vesting and any unvested portion is forfeited.
The following table summarizes restricted stock award activity for the year ended December 31, 2009:
Unvested restricted stock awards, January 1, 2009 ..................................................................
Granted ................................................................................................................................
Vested .................................................................................................................................
Forfeited ..............................................................................................................................
Unvested restricted stock awards at December 31, 2009 .........................................................
Number of
Shares
179,884
304,133
(47,199)
(19,761)
417,057
$
$
Weighted
Average
Grant Date
Fair Value
15.18
8.56
15.46
13.88
10.38
As of December 31, 2009, the Company had approximately $3,221,000 pretax of total unrecognized compensation cost
related to non-vested restricted stock awards which will be adjusted for future changes in forfeitures. The Company expects
to recognize such cost over a period of 3.1 years.
F-31
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2009
13.
Stockholders’ Equity (continued)
Secondary Offerings
In November 2004, the Company filed a registration statement on Form S-3 with the Securities and Exchange Commission
for the registration of 11,403,455 shares of common stock held by three of its existing shareholders. No members of
management registered shares pursuant to this registration statement. On April 14, 2005, the Company announced a public
offering of 4,172,868 shares of common stock pursuant to this Form S-3 shelf registration statement. All net proceeds from
the sale went to the selling stockholders. Subsequently, on November 13, 2006, the Company announced a public offering of
approximately 4,000,000 shares pursuant to this Form S-3 shelf registration statement. All net proceeds from the sale went to
the selling stockholders.
14.
Earnings Per Share
In accordance with the requirements of the Earnings Per Share Topic of the FASB ASC, basic earnings per share is
computed by dividing net income by the weighted average number of shares outstanding (excluding nonvested restricted
stock) and diluted earnings per share reflects the dilutive effects of stock options and restricted stock (as calculated utilizing
the treasury stock method). Certain shares of common stock that are issuable upon the exercise of options and vesting of
restricted stock have been excluded from the 2009, 2008 and 2007 per share calculations because their effect would have
been anti-dilutive. Such shares amounted to 1,707,225, 1,665,690, and 636,167 during the years ended December 31, 2009,
2008 and 2007, respectively. For the years ended December 31, 2009, 2008 and 2007, respectively, 174,786, 182,253 and
511,561 incremental shares of common stock were included in diluted weighted average shares outstanding.
15.
Related Party Transactions
The Company provides services to hospitals which are affiliated with certain members of the Company’s Board of Directors.
Pricing for the Company’s services is consistent with its other hospital customers. Revenue related to these transactions
amounted to approximately $927,000, $3,077,000 and $3,896,000 in 2009, 2008 and 2007, respectively. Accounts receivable
due from these hospitals at December 31, 2009 and 2008 were approximately $78,000 and $231,000, respectively.
16.
Segment Information
The nurse and allied staffing business segment provides travel nurse and allied staffing services and per diem nurse services
primarily to acute care hospitals which include public and private healthcare and for-profit and not-for-profit facilities
throughout the U.S. The Company aggregates the different brands that it markets to its customers in this business segment.
In the third quarter of 2008, the Company added a physician staffing business segment as a result of the MDA acquisition
(See Note 4- Acquisitions for further information). MDA provides multi-specialty locum tenens and allied staffing services to
the healthcare industry in all 50 states. MDA’s locum tenens business comprises the physician staffing business segment
while MDA’s allied staffing services have been aggregated with the Company’s nurse and allied staffing business segment.
The clinical trials services business segment provides clinical trials, drug safety, and regulatory professionals on a contract
staffing and outsourced basis to companies in the pharmaceutical, biotechnology and medical device industries, as well as to
contract research organizations, primarily in the United States, Canada and Europe.
The other human capital management services business segment includes the combined results of the Company’s education
and training and retained search businesses.
The Company’s management evaluates performance of each segment primarily based on revenue and contribution income
(which is defined as income (loss) from operations before depreciation, amortization, impairment charges and corporate
expenses not specifically identified to a reported segment). The Company’s management does not evaluate, manage or
measure performance of segments using asset information; accordingly, asset information by segment is not prepared or
disclosed. See Note 3 – Goodwill and Other Identifiable Intangible Assets for further information. The information in the
following table is derived from the segments’ internal financial information as used for corporate management purposes.
Certain corporate expenses are not allocated to and/or among the operating segments.
F-32
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2009
16.
Segment Information (continued)
Information on operating segments and a reconciliation of such information to income (loss) from operations for the periods
indicated are as follows:
Revenue from unaffiliated customers:
Nurse and allied staffing ...........................................................
Physician staffing ......................................................................
Clinical trials services ...............................................................
Other human capital management services ...............................
2009
Year ended December 31,
2008
2007
$ 313,037,898
151,853,105
71,678,636
41,667,843
$ 578,237,482
$ 525,771,381
56,558,079
99,128,952
52,788,259
$ 734,246,671
$ 576,779,440
—
90,613,046
50,879,983
$ 718,272,469
Contribution income (a):
Nurse and allied staffing ...........................................................
Physician staffing ......................................................................
Clinical trials services ...............................................................
Other human capital management services ...............................
$
30,641,117
15,165,052
7,029,282
2,973,400
55,808,851
$
53,821,735
5,710,995
15,300,776
7,444,039
82,277,545
$
54,941,170
—
14,425,052
7,609,281
76,975,503
Unallocated corporate overhead ....................................................
Depreciation ...................................................................................
Amortization ..................................................................................
Impairment charges .......................................................................
Legal settlement charge .................................................................
Income (loss) from operations .......................................................
———————
(a) The Company defines contribution income as income (loss) from operations before depreciation, amortization,
23,245,232
8,773,088
4,017,968
1,725,926
345,000
17,701,637
27,456,647
7,636,712
3,165,797
244,094,000
—
$ (200,075,611) $
$
26,561,956
6,309,538
2,051,311
—
33,654
42,019,044
impairment charges and corporate expenses not specifically identified to a reporting segment. Contribution income is
used by management when assessing segment performance and is provided in accordance with the Segment Reporting
Topic of the FASB ASC.
F-33
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2009
17.
Quarterly Financial Data (Unaudited)
2009
Revenue from services ................................................
$ 175,416,856 $ 149,046,503 $ 129,634,637 $ 124,139,486
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter (a)
Gross profit .................................................................
$ 45,059,385
$ 40,794,429
$ 35,354,397
Net income...................................................................
Net income per common share:
Net income – basic .....................................................
Net income – diluted ...................................................
$
$
$
3,035,631
0.10
0.10
$
$
$
2,292,325
$
967,837
0.07
0.07
$
$
0.03
0.03
$
$
$
$
36,172,958
398,515
0.01
0.01
2008
Revenue from services ................................................
$ 179,251,306 $ 170,950,829 $ 178,133,832 $ 205,910,704
Gross profit .................................................................
$ 45,177,234
$ 45,639,904
$ 47,437,381
$
54,332,376
First
Quarter
Second
Quarter
Third
Quarter(b)
Fourth
Quarter(c)
Net income (loss).........................................................
$
5,850,488
$
6,370,077
$
6,171,128
$ (161,336,306)
Net income per common share:
Net income (loss) – basic ............................................
Net income (loss) – diluted .........................................
———————
(a) During the fourth quarter of 2009, the Company recorded impairment charges of approximately $1,726,000. The
0.21
0.21
0.19
0.19
0.20
0.20
$
$
$
$
$
$
$
$
(5.24)
(5.22)
Company conducted an assessment of a particular trademark and database in its clinical trials services segment due to a
change in marketing strategy for the business that indicated the carrying amount of the trademark and database may not
be recoverable. Refer to discussion in Note 3 – Goodwill and Other Identifiable Intangible Assets. The Company also
recorded a legal settlement charge of $345,000 during the fourth quarter of 2009. Refer to discussion in Note 11–
Commitments and Contingencies.
(b) During the third quarter of 2008, the Company completed its acquisition of MDA Holdings, Inc. Refer to discussion in
Note 4 – Acquisitions.
(c) During the fourth quarter of 2008, the Company recorded impairment charges of $244,094,000. As a result of its annual
goodwill impairment analysis, the Company recorded $241,000,000 as goodwill impairment related to its nurse and
allied staffing business segment. In addition, the Company recorded a $3,094,000 impairment charge related to a
specific customer relationship in its clinical trials services business segment. Refer to discussion in Note 3 – Goodwill
and Other Identifiable Intangible Assets.
F-34
CROSS COUNTRY HEALTHCARE, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2009, 2008, AND 2007
Schedule II
Balance at
Beginning
of Period
Charged to
Costs and
Expenses
Allowance for Doubtful Accounts
––
Year ended December 31, 2009 ... $ 6,408,772 $
950,711
5,585,286
Year ended December 31, 2008 ...
Year ended December 31, 2007 ...
4,373,799 1,558,626
Write-offs
Recoveries
Other
Changes
Balance at
End
of Period
$ (2,008,101) $
(1,072,319)
(472,690)
144,283 $
40,944
60,596
–– $ 4,544,954
6,408,772
5,585,286
904,150 (a)
64,955 (b)
Valuation Allowance for Deferred Tax
Assets
Year ended December 31, 2009 ... $ 2,682,953
522,961
Year ended December 31, 2008 ...
Year ended December 31, 2007 ...
320,047
272,815 (c) $
$
2,159,992 (c)
202,914 (c)
$
––
––
––
$
––
––
––
––
––
––
$ 2,955,768
2,682,953
522,961
———————
(a)
Includes the allowance for doubtful accounts on receivables acquired in the MDA acquisition.
(b)
Includes the allowance for doubtful accounts on receivables acquired in the AKOS and Assent acquisitions.
(c) Related to deferred tax assets on state net operating losses.
II-1
LIST OF SUBSIDIARIES
Exhibit 21.1
Subsidiary
Place of Incorporation
AKOS Limited
Allied Health Group, LLC
Assent Consulting
Assignment America, Inc.
Cejka Search, Inc.
CC Staffing, Inc.
ClinForce, LLC (f/k/a ClinForce, Inc.)
Credent Verification and Licensing Services, LLC
Cross Country Capital, Inc.
Cross Country Healthcare UK Holdco
Cross Country Holdco (Cyprus) Limited
Cross Country Infotech, Pvt, Ltd.
Cross Country Local, Inc. (f/k/a Flex Staff, Inc.)
Cross Country Education, LLC (f/k/a Cross Country Education, Inc., Cross
Country Seminars, Inc., and CCS /Heritage Acquisition Corp.)
Cross Country TravCorps, Inc.
Jamestown Indemnity, Ltd.
MCVT, Inc.
MDA Holdings, Inc.
Med-Staff, Inc. (f/k/a Cross Country Nurses, Inc.)
Medical Doctor Associates, LLC
Metropolitan Research Staffing Associates, Inc.
MRA Search, Inc.
United Kingdom
Delaware
California
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
United Kingdom
Cyprus
India
Delaware
Delaware
Delaware
Cayman Islands
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the following Registration Statements:
(1) Registration Statement (Form S-3 No. 333-120189) and the related Prospectus of Cross Country Healthcare, Inc.;
(2) Registration Statement (Form S-8 No. 333-74862) pertaining to Cross Country Healthcare, Inc.’s Amended and
Restated 1999 Stock Option Plan and Cross Country Healthcare, Inc.’s Amended and Restated Equity Participation
Plan; and
(3) Registration Statement (Form S-8 No. 333-145484) pertaining to Cross Country Healthcare, Inc.’s 2007 Stock
Incentive Plan
of our reports dated March 15, 2010, with respect to the consolidated financial statements and schedule of Cross Country
Healthcare, Inc., and the effectiveness of internal control over financial reporting of Cross Country Healthcare, Inc. in this
Annual Report (Form 10-K) for the year ended December 31, 2009.
/s/ ERNST & YOUNG LLP
Certified Public Accountants
West Palm Beach, Florida
March 15, 2010
Exhibit 31.1
I, Joseph A. Boshart, certify that:
CERTIFICATION
1.
2.
3.
4.
I have reviewed this annual report on Form 10K of Cross Country Healthcare, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.
Date: March 15, 2010
/s/ JOSEPH A. BOSHART
Joseph A. Boshart
President and Chief Executive Officer
Exhibit 31.2
I, Emil Hensel, certify that:
CERTIFICATION
1.
2.
3.
4.
I have reviewed this annual report on Form 10K of Cross Country Healthcare, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.
Date: March 15, 2010
/s/ EMIL HENSEL
Emil Hensel
Chief Financial Officer
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the accompanying Annual Report on Form 10-K of Cross Country Healthcare, Inc. (the "Company") for
the year ended December 31, 2009 (the "Periodic Report"), I, Joseph A. Boshart, Chief Executive Officer of the Company,
hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that to my knowledge the Periodic Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and that the information contained in the Periodic Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
Date: March 15, 2010
Exhibit 32.1
The foregoing certification is provided solely for purposes of complying with the provisions of Section 906 of the
Sarbanes-Oxley Act of 2002.
/s/ JOSEPH A. BOSHART
Joseph A. Boshart
Chief Executive Officer
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the accompanying Annual Report on Form 10-K of Cross Country Healthcare, Inc. (the "Company") for
the year ended December 31, 2009 (the "Periodic Report"), I, Emil Hensel, Chief Financial Officer of the Company, hereby
certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my
knowledge the Periodic Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 and that the information contained in the Periodic Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Date: March 15, 2010
Exhibit 32.2
The foregoing certification is provided solely for purposes of complying with the provisions of Section 906 of the
Sarbanes-Oxley Act of 2002.
/s/ EMIL HENSEL
Emil Hensel
Chief Financial Officer
cORPORATE iNfORmATiON
bOARd Of diREcTORs
ExEcUTivEs
cORPORATE hEAdQUARTERs
Joseph A. Boshart
President and chief executive officer,
cross country healthcare, inc.
Joseph A. Boshart
President and chief executive officer,
cross country healthcare, inc.
W. Larry Cash(a)(b)
executive vice President
and chief financial officer,
community health systems
C. Taylor Cole, Jr.(a)
Partner,
charterhouse group, inc.
Thomas C. Dircks(b)(c)
Managing Partner,
charterhouse group, inc.
Gale Fitzgerald(a)
retired Principal,
transpend, inc.
Emil Hensel
chief financial officer,
cross country healthcare, inc.
Joseph Trunfio(a)(c)
President and chief executive officer,
Atlantic health systems
(a) Member of the Audit Committee
(b) Member of the Compensation Committee
(c) Member of the Nominating Committee
Emil Hensel
chief financial officer,
cross country healthcare, inc.
Susan E. Ball, rN
general counsel and secretary,
cross country healthcare, inc.
Jim Ginter
President, Medical doctor Associates
Greg Greene
President, cross country education
Victor Kalafa
vice President
corporate development and strategy,
cross country healthcare, inc.
Daniel J. Lewis
chief Accounting officer,
cross country healthcare, inc.
Lori Schutte
President, cejka search
Tony Sims
President, clinical trials services
Jonathan W. Ward
President, cross country staffing
fORwARd-LOOkiNg sTATEmENTs
Information concerning forward-looking statements can be found on page 1 of our Annual Report on Form 10-K
for the year ended December 31, 2009, as well as in quarterly and other reports to be filed by us during 2010.
iNdEPENdENT REgisTEREd
PUbLic AccOUNTiNg fiRm
TRANsfER
AgENT
Ernst & Young LLP
One Clearlake Centre, Suite 900
250 South Australian Avenue
West Palm Beach, Florida 33401
BNY Mellon Shareowner Services
P.O. Box 358015
Pittsburgh, Pennsylvania 15252
Toll-Free Phone: 877.219.7066
Cross Country Healthcare, Inc.
6551 Park of Commerce Boulevard
Boca Raton, Florida 33487
Phone: 561.998.2232
www.crosscountryhealthcare.com
sTOckhOLdER iNQUiRiEs
News releases, SEC filings, annual reports, corporate
governance matters and additional information about
Cross Country Healthcare are available on our corporate
website at no cost. Our Form 10-K is available on our
corporate website or the SEC’s website at www.sec.gov.
Current and prospective investors can also register to
automatically receive by email our press releases, SEC
filings and other notices. Information about the Company
can also be obtained by writing or contacting:
Howard A. Goldman
Director of Investor & Corporate Relations
Phone: 561.998.2232 | Toll-Free: 877.686.9779
Email: ir@crosscountry.com
sTOck LisTiNgs
Our common stock trades under the symbol “CCRN” on
the NASDAQ Global Select Market, a market tier of the
NASDAQ Stock Market®. Our common stock commenced
trading on the NASDAQ National Market on Oct. 25, 2001.
cORPORATE gOvERNANcE
Information concerning our corporate governance
practices, including our Code of Conduct, Code of Ethics,
Committee Charters, and Certification of Financial
Statements, is available on our corporate website at
www.crosscountryhealthcare.com.
We also have established a toll-free phone number and
an email address for stockholders to communicate with
our Board of Directors. All such communications will be
kept confidential and forwarded directly to the
appropriate party, as applicable.
Governance Hotline: 800.354.7197
Governance Email Address: governance@crosscountry.com
6551 PArK of coMMerce Blvd, BocA rAtoN, floridA 33487
561.998.2232
crosscouNtryheAlthcAre.coM
Nurse & Allied stAffiNgPhysician staffingEducation & REtainEd SEaRchCliniCal Trials serviCes