R E S U L T S - D R I V E N
W O R K F O R C E S O L U T I O N S
2014 ANNUAL REPORT
DELIVERING RESULTS-DRIVEN,
CUSTOMIZED WORKFORCE SOLUTIONS
THAT ARE TRANSFORMING THE
HEALTHCARE STAFFING INDUSTRY.
OVERVIEW
SHAREHOLDER LETTER
FINANCIAL HIGHLIGHTS
10K
OVERVIEW
From traditional staffing to Managed Services Provider programs and predictive staffing analytics,
Cross Country Healthcare is optimally positioned to change the way healthcare organizations achieve
their staffing mission and strategy. With our recent organic and acquired growth, we have expanded
our suite of services, which includes nurse and allied health staffing, physician and executive search, as
well as education and training. We have enhanced our leadership and operations with the addition and
appointment of seasoned professionals with decades of experience in their respective areas of expertise.
Significant investments have been made to improve the way we do business, integrating our operations
and increasing our efficiency. We are excited about the many enhancements taking place at
Cross Country Healthcare. Our company is in a time of great expansion within the healthcare staffing
arena, the overall healthcare marketplace and throughout the country. We look forward to continuing
to deliver the most innovative workforce solutions to healthcare facilities across the country, offering
rewarding jobs to our nation’s healthcare professionals, and fostering meaningful careers for each of
our internal associates.
TO OUR SHAREHOLDERS
Dear Fellow Shareholders,
This was a year of transformation for Cross Country Healthcare with both
organic and acquired growth, improved profitability, expansion of our branch
network, additions to our workforce solutions portfolio and an increase
in market share. We are a much more focused company today, with clear
strategies to capitalize on the strong market conditions that exist in the
healthcare industry. Our experienced management team continues
to execute innovative strategies to reach our goals of growing at
or above the market rate and achieving Adjusted EBITDA of 8%,
on a run-rate basis, during 2017.
This was an extremely busy year for the company. As we were
integrating the December 2013 allied healthcare staffing
acquisition early in the year, we were also negotiating and
closing the Medical Staffing Network (MSN) acquisition.
Once closed, we spent the second half of the year
integrating MSN into our existing operations. While these
events had the real risk of distracting our team from the
day-to-day responsibilities of servicing our customers, we
stayed focused, delivered our services, and performed
exceptionally well – particularly in the second half of the
year with strong revenue growth. This was all done while
we continued to implement the changes we formulated
in 2013 of restructuring our sales teams and improving our
operating models.
Robust market conditions and an improved economy are good
indicators for further improvements in our financial performance for
2015. Jobs growth in 2014 was the highest since 1999, with healthcare
generating almost 11% of all jobs created. That trend has continued
in 2015. The shortage of nurse and physician candidates continues
to widen, driving demand for our services within hospitals and the
WILLIAM J. GRUBBS
PRESIDENT & CHIEF EXECUTIVE OFFICER
“ROBUST MARKET CONDITIONS,
AND AN IMPROVED ECONOMY ARE
GOOD INDICATORS FOR FURTHER IMPROVEMENTS
IN OUR FINANCIAL PERFORMANCE FOR 2015.”
growing ambulatory market. Baby Boomers, who represent almost one-fourth of our total population, are adding to an
overall aging population that is also contributing to the need for more healthcare services and clinical staff augmentation.
In addition, the Affordable Care Act added approximately 40% more participants during annual enrollment in 2015,
which should help to maintain or increase current demand levels. With our recent acquisitions and ongoing operating
improvements, we are in an excellent position to capitalize on these positive trends.
Revenue growth is an important part of our strategy going forward, but in order to drive further improvements in our
financial performance, we have identified four additional key priorities for 2015. Investments in candidate attraction,
changes in how we deliver our services, expansion of value-added workforce solutions, and improvement in operating
effectiveness will move us along the path to achieve our goals.
•
•
•
•
With current strong market demand, organizations in our industry with access to more qualified healthcare
professionals will be the most successful. We are working to ensure that we are one of those companies.
We continue to make changes to our delivery models making them more scalable to be able to drive increased
productivity from our teams.
We are expanding our workforce management solutions in line with our customer expectations. In addition to
being one of the leaders in Managed Services Provider programs, we are expanding our Recruitment Process
Outsourcing services and adding Predictive Modeling.
Finally, we are building a shared service center for many of our common corporate functions in order to
eliminate duplicate efforts and create efficiencies for our back office functions.
All four of these priorities are well underway and are expected to support what we believe will be another strong financial
performance in 2015.
Everything considered, I believe we are making excellent progress on our commitments to grow market share and improve
profitability. We exited 2014 with strong momentum and I believe we have the management team that can take advantage
of that momentum. We will continue to improve shareholder value through our commitment to provide quality services to
our customers, more opportunities for our candidates and, ultimately, better patient experiences.
Sincerely,
William J. Grubbs | President & Chief Executive Officer
TO BE A LEADER IN OUR SECTOR
LOCUM TENENS
$2.4 B
ALLIED HEALTH
$2.8 B
2013 HEALTHCARE STAFFING BY SECTOR
TOTAL REVENUE OF $9.8 BILLION*
PER DIEM
$2.7 B
25%
25%
29%
29%
46%
46%
18%
TRAVEL NURSE
$1.9 B
NURSE
STAFFING
$4.6 B
28%
18%
28%
*SOURCE: STAFFING INDUSTRY ANALYSTS
CROSS COUNTRY HEALTHCARE STAFFING BY SECTOR (AFTER ACQUISITIONS)
2014 - SECOND HALF ANNUALIZED STAFFING REVENUE OF $715.1 MILLION
17%
17%
LOCUM TENENS
$124.6 M
13%
ALLIED HEALTH
$93.2 M
13%
$20.0
$18.0
$16.0
$14.0
$12.0
$10.0
$8.0
$6.0
$4.0
$2.0
$0.0
DATA
$4.0
1 0 8 %
C A G R
$8.4
26%
PER DIEM
$182.2 M
44%
26%
44%
TRAVEL NURSE
$315.1 M
NURSE
STAFFING
$497.3 M
70%
70%
$17.2
REVENUE
($ IN MILLIONS)
2012
2013
2014
ADJUSTED EBITDA
($ IN MILLIONS)
$700.0
$600.0
$500.0
$400.0
$300.0
$200.0
$100.0
$0.0
C A G R 1 8 %
$617.8
$442.6
$438.3
2012
2013
2014
$20.0
$18.0
$16.0
$14.0
$12.0
$10.0
$8.0
$6.0
$4.0
$2.0
$0.0
$700.0
$600.0
$500.0
$400.0
$300.0
$200.0
$100.0
$0.0
$17.2
1 0 8 %
C A G R
$8.4
$4.0
2012
2013
2014
C A G R 1 8 %
$617.8
$442.6
$438.3
2012
2013
2014
HIGHLIGHTS
CROSS COUNTRY HEALTHCARE, INC.
(IN THOUSANDS, EXCEPT STATISTICAL AND PER SHARE DATA)
REVENUE
Revenue from services ............................................................................................................ $ 617,825
$ 438,311
$ 442,635
STATEMENTS OF OPERATIONS DATA
Loss from continuing operations(a)(b) ................................................................................ $ (31,534)
$ (54,250)
$ (20,745)
Net loss attributable to common shareholders(b) ...................................................... $ (31,783)
$ (51,969)
$ (42,221)
Per Share Data:
Loss from continuing operations attributable to common shareholders - basic(b) .... $
Loss from continuing operations attributable to common shareholders - diluted(b) . $
(1.02)
(1.02)
$
$
(1.75)
(1.75)
$
$
(0.67)
(0.67)
GROSS PROFIT
Gross profit .................................................................................................................................... $ 157,804
$
113,460
$
111,585
Percentage of revenue ............................................................................................................
25.5%
25.9%
25.2%
ADJUSTED EBITDA(c)
Adjusted EBITDA ....................................................................................................................... $
17,157
$
8,365
$
Percentage of revenue ............................................................................................................
2.8%
1.9%
3,977
0.9%
SEGMENT REVENUE FROM SERVICES(d)
Nurse and Allied Staffing ....................................................................................................... $ 457,034
$ 271,563
$ 272,136
Physician Staffing ....................................................................................................................... $ 123,306
$
128,781
$
129,162
Other Human Capital Management ................................................................................. $ 37,485
$ 37,967
$ 41,337
SEGMENT CONTRIBUTION INCOME(d)(e)
Nurse and Allied Staffing ....................................................................................................... $ 36,326
Physician Staffing ....................................................................................................................... $
6,700
Other Human Capital Management ................................................................................. $
514
$
$
$
18,424
8,939
746
$
$
$
10,277
10,863
1,943
NURSE & ALLIED STAFFING STATISTICAL DATA
FTEs(f) ...............................................................................................................................................
4,751
2,378
Average revenue per FTE per day(g) ................................................................................ $
264
$
313
$
2,412
308
PHYSICIAN STAFFING STATISTICAL DATA
Physician Staffing days filled(h) ............................................................................................
85,457
90,881
92,483
Revenue per day filled(i) .......................................................................................................... $
1,436
$
1,405
$
1,384
OTHER DATA
Net cash (used in) provided by operating activities ............................................... $ (4,072)
Total debt ....................................................................................................................................... $ 74,074
Total capitalization ratio( j)......................................................................................................
33.8%
$
$
8,659
8,576
0.3%
$
10,146
$ 33,859
9.6%
(SEE FOOTNOTES ON FOLLOWING PAGE)
(a) Loss from continuing operations for the year ended December 31, 2014 includes amounts attributable to noncontrolling interest
of $0.2 million.
(b) On June 30, 2014 the Company acquired substantially all of the assets and certain liabilities of Medical Staffing Network
Healthcare, LLC (MSN), and on December 2, 2013, the Company acquired the operating assets of On Assignment Inc.’s Allied
Healthcare Staffing division. The result of MSN and the allied healthcare staffing operations have been included in the Company’s
consolidated statement of operations since their respective dates of acquisition. For the years ended December 31, 2014 and
2013, the Company recognized $8.0 million and $0.5 million of acquisition and integration costs, respectively. The following
other significant items that impacted the results in each of the respective years were: 2014 - change in fair value of convertible
note derivative liability - $16.7 million; and impairment charges - $10.1 million. 2013 - impairment charges - $6.4 million, and 2012
-impairment charges of $18.7 million.
(c) Adjusted EBITDA, a non-GAAP (Generally Accepted Accounting Principles) financial measure, is defined as income or loss
from operations before depreciation, amortization, acquisition and integration costs, restructuring costs, legal settlement
charges, impairment charges and non-cash equity compensation. Adjusted EBITDA should not be considered a measure of
financial performance under GAAP. Management monitors Adjusted EBITDA for planning purposes. Adjusted EBITDA, as
defined, closely matches the operating measure typically used in the Company’s credit facilities in calculating various ratios.
Management believes Adjusted EBITDA, as defined, is useful to investors when evaluating the Company’s performance as it
excludes certain items that management believes are not indicative of the Company’s operating performance. Adjusted EBITDA
Margin is calculated by dividing Adjusted EBITDA by the Company’s consolidated revenue from services.
Reconciliation of Adjusted EBITDA
(In thousands)
Loss from operations ...................................................................................................................
Depreciation ..................................................................................................................................
Amortization ..................................................................................................................................
Acquisition and integration costs .......................................................................................
Restructuring costs ....................................................................................................................
Legal settlement charge ..........................................................................................................
Impairment charges ..................................................................................................................
Equity compensation ................................................................................................................
Adjusted EBITDA ..........................................................................................................................
2012
2013
2014
$ (24,518)
Year Ended December 31,
________________________________________
________________________________________
$ (8,022)
3,886
2,294
4 73
484
750
6,400
2,100
______
8,365
______
______
$ (10,468)
3,866
3,575
7,957
840
—
10,000
1,387
______
17,157
______
______
4,905
2,263
—
—
—
18,732
2,595
______
3,977
______
______
$
$
$
(d) Segment data provided is in accordance with the Segment Reporting Topic of the FASB ASC.
(e) Defined as loss from operations before depreciation, amortization, acquisition and integration costs, restructuring costs, legal
settlement charge, 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.
(f) FTEs represent the average number of Nurse and Allied Staffing contract personnel on a full-time equivalent basis.
(g) Average revenue per FTE per day is calculated by dividing the Nurse and Allied Staffing revenue by the number of days worked
in the respective periods. Nurse and Allied Staffing revenue also includes revenue from permanent placement of nurses.
(h) Days filled is calculated by dividing the total hours filled during the period by 8 hours.
(i) Revenue per day filled is calculated by dividing the actual revenue invoiced (excluding permanent placement fees) by Physician
Staffing days filled for the period presented.
(j) Defined as total debt, net of cash and cash equivalents, divided by total equity plus total debt.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2014
or
□ 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 □ No ☑
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 □ No ☑
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No □
Indicate by check mark whether the registrant has submitted electronically 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). Yes ☑ 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. □
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 □ Accelerated filer ☑ Non-accelerated filer □ Smaller reporting company □
Indicate by check mark whether the Registrant is a shell company (as defined by Rule 12b-2 of the Act). Yes □ No ☑
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, 2014 of $6.52 as reported on the NASDAQ National Market, was $201,393,913. This calculation does not reflect a determination
that persons are affiliated for any other purpose.
As of February 28, 2015, 31,931,356 shares of Common Stock, $0.0001 par value per share, were outstanding.
Portions of the Registrant’s definitive proxy statement, for the 2015 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.
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of Operations . . .
Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . .
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related Stockholders
Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . .
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
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Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
PART II
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
47
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.
i
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”, “appears”, “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 2015.
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.
PART I
Item 1.
Business.
Overview of Our Company
Cross Country Healthcare, Inc. (NASDAQ: “CCRN”) is a national leader in providing leading-edge healthcare recruiting,
staffing, and workforce solutions. Through diversified offerings, we are able to meet the unique needs of each client. By
utilizing our diversified healthcare solutions, clients are able to strategically flex their workforce, streamline their purchasing
needs, access specialties not available in their local area, and access quality healthcare personnel to provide continuity of care
for improved patient outcomes. Our solutions are geared towards assisting our clients to solve their labor cost issues while
maintaining high quality outcomes.
Our workforce solutions include:
managed service programs (MSP);
electronic medical record (EMR) transition staffing;
internal resource pool (IRP) consulting and development;
recruitment process outsourcing (RPO);
predictive modeling analysis to assist in forecasting labor needs;
payrolling;
traditional recruiting and staffing of temporary and permanent placement of travel nurses and allied
professionals, branch-based local nurses and allied staffing and locum tenens physicians; and
education and training programs, and retained and contingent search services.
We service a variety of clients, including public and private acute care hospitals, government facilities, schools, outpatient
clinics, ambulatory care facilities, physician practice groups, retailers and many other healthcare providers. Our business
currently consists of three business segments: (1) Nurse and Allied Staffing, (2) Physician Staffing and (3) Other Human
Capital Management Services. Our fees are paid directly by our clients and in certain instances by vendor managers. As a
result, we have no direct exposure to Medicare or Medicaid reimbursements.
In December 2013, we acquired the assets of On Assignment, Inc.’s Allied Healthcare Staffing division, and in June 2014 we
acquired substantially all of the assets and certain liabilities of Medical Staffing Network Healthcare, LLC ("MSN"). These
acquisitions allowed us to: (1) add new skillsets to our traditional staffing offerings, (2) expand our local branch network,
which has allowed us to expand our local market presence and our MSP business, (3) diversify our customer base into the local
ambulatory care and retail market, which provided more balance between our large volume based customers and our small
local customers, and (4) better position us to take additional market share at our MSP accounts. Subsequent to the MSN
1
acquisition, we centralized billing, payroll, credentialing, and other back office functions of the acquired businesses to realize
cost savings. In addition, we successfully migrated these operations onto a common information system platform with our
local branch network for efficiency purposes. For more information on this acquisition, see Note 3 - Acquisitions to the
consolidated financial statements contained elsewhere in this report.
Our operations reflect a diversified revenue mix across healthcare customers. For the full year 2014, our revenue from
continuing operations was $618 million. Our Nurse and Allied Staffing business segment was 74% of revenue and is
comprised of travel nurse, travel allied and branch-based local nurse and allied staffing. Our Physician Staffing business
segment was 20% of our revenue and consists of physician staffing services with placements across multiple specialties. Our
Other Human Capital Management Services business segment was 6% of our revenue and consists of education and training, as
well as retained and contingent search services primarily for physicians and healthcare executives. On a company-wide basis,
we have more than 6,000 active contracts with healthcare clients, and we provide our staffing services and workforce solutions
in all 50 states. In 2014, no client accounted for more than 10% of our revenue. For additional financial information
concerning our business segments see Note 17 - Segment Information to the consolidated financial statements, contained
elsewhere in this report.
Competition
The principal competitive factors in attracting and retaining healthcare clients nationally in our nurse, allied, and physician
staffing businesses include: timely filling client needs, price, customer service, quality assurance and screening capabilities,
understanding the client’s work environment, risk management policies, insurance coverage, and general industry reputation.
The principal competitive factors in attracting qualified healthcare professionals for temporary employment include: a large
national pool of desirable assignments, pay and benefits, speed of placements, customer service, quality of accommodations,
and overall industry reputation. We focus on retaining healthcare professionals by providing high-quality customer service,
long-term benefits (to employees), and occurrence-based medical malpractice insurance.
We believe we are one of the two largest full-service healthcare staffing providers with a national footprint, as the market is
very fragmented with many regional and local competitors. Similarly, we compete against many small to moderate size locum
tenens physician staffing companies on a regional and local basis and only a few nationally. We believe we are one of the top
four providers of locum tenens physician staffing services in the United States, and one of the top providers of retained and
contingent physician and healthcare executive search services and education and training programs in the healthcare
marketplace. Some of our competitors in the healthcare staffing, workforce solutions, education and search businesses include:
AMN Healthcare Services, Inc., CHG Healthcare Services, Maxim Healthcare, Jackson Healthcare, Team Health, Parallon,
MedAssets, PESI Healthcare and Witt Kiefer.
We believe we benefit competitively from the following:
Breadth of Services Offered and Workforce Solutions. We are able to offer an end-to-end suite of services and workforce
solutions to our healthcare clients for today's environment. We customize our workforce solutions to meet their unique
needs, and we have expertise in and have developed best practices from working with a large variety of healthcare clients
throughout the country for many years.
Managed Service Provider Capabilities. By leveraging technology and our single-point of contact service model, we are
able to provide managed service programs to our clients. We provide strategic and operational advantages for our
healthcare clients by streamlining processes. We efficiently manage candidate hiring, simplify contracting and billing,
provide consistent quality credential verification and candidate testing, and drive improved usages through tracking and
trending reports.
Expansive National Footprint. We have more than 70 locations throughout the United States, which allow us to cross-sell
opportunities to both travel and per diem clients. In addition, the local branch network is available to provide per diem
healthcare professionals to our MSP clients in their markets.
Brand Recognition. We go to market with four businesses using a variety of brands which are well-recognized
among leading hospitals and healthcare facilities and many healthcare professionals. These four businesses have
been operating for more than twenty years.
Strong and Diverse Client Relationships. We provide healthcare staffing and workforce solutions to a diverse client base
throughout the United States pursuant to more than 6,000 active contracts with hospitals and healthcare facilities, and other
healthcare providers. As a result we have a diverse choice of assignments for our healthcare professionals to choose from.
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Recruiting and Placement of Healthcare Professionals. In 2014, more than 17,000 healthcare professionals applied with us
through our differentiated nursing and allied healthcare recruitment brands. We believe our access to such a large and
diverse group of healthcare professionals makes us more attractive to healthcare institutions and facilities seeking
healthcare staffing and workforce solutions.
Certifications. The staffing businesses of our Cross Country Staffing and Medical Staffing Network brands are certified by
The Joint Commission under its Health Care Staffing Services Certification Program. In addition, Credent Verification and
Licensing Services, a subsidiary of Medical Doctor Associates, is certified by the National Committee of Quality
Assurance -- one of only a handful of competitors to achieve such certification.
Experienced Management Team. On average, our management team has more than 17 years of staffing experience. Led
by our CEO, a 30-year staffing industry veteran who joined the Company in April 2013, the Company has undergone
leadership changes and strengthened its leadership team by bringing in experienced executives.
Demand and Supply Drivers
Demand Drivers
Growing U.S. Population and Increased Life Expectancy. One long-term macro driver of our business is
demographic in nature -- a growing U.S. population. The U.S. Census Bureau projects the American population will
cross the 400 million mark in 2051, reaching 420.3 million in 2060. (U.S. Census Bureau). In addition to this
increased number of people who will seek healthcare, the life expectancy of the U.S. population has continued to
increase from 76.64 years in 2000 to 78.74 just twelve years later in 2012 due in large part to significant progress in
the prevention, diagnosis, and treatment of certain diseases.
Aging U.S. Population. Utilization of healthcare services is higher among older people, and the number of people
age 65 and older is projected to more than double from 43.1 million in 2012 to 92 million in 2060 -- while over this
same period the number of people age 85 and older is projected to more than triple from 5.9 million to 18.2 million or
4.3% of the total population (U.S. Census Bureau). As of 2012, baby boomers already made up 24.3% of the total
U.S. population, and by December 31, 2029, the last of the boomers will turn 65 (CNN Library, September 1, 2014).
Based on the most recent data from a 2010 report by the U.S. Department of Health and Human Services, there were
over 1 billion physician office, hospital outpatient and emergency department visits in the United States in 2010.
People aged 65 and over averaged at least four healthcare visits in 2012 (U.S. Centers for Disease Control and
Prevention - Health, United States, 2013). The American Hospital Association (AHA) has also projected the share of
hospital admissions for the over-65 age group to rise from 38% in 2004 to 56% in 2030.
Healthcare Reform Increases Healthcare Utilization. We believe the Patient Protection and Affordable Care Act of
2010 (“ACA”) is beginning to increase the demand for healthcare professionals in order to accommodate the
significant number of new patients who are beginning to use these health benefits. In January 2014, two major ACA
coverage expansion programs started helping consumers pay for healthcare: one provides for federal funding to states
that expand Medicaid eligibility and the other established the public health exchange program that allows consumers
to buy “qualified health plan coverage" from private insurers. In May 2014, three of the largest publicly-traded
hospital systems in the U.S. reported the Medicaid expansion program is having a positive effect on hospital
admissions in Medicaid expansion states, and admissions of uninsured patients and patients who would be depending
on charity fell in Medicaid expansion states and increased slightly in non-expansion states. Over time, more people are
expected to respond to the new coverage options, and enrollment is projected to increase sharply in 2015 and 2016.
Starting in 2017, between 24 million and 25 million people are expected to obtain coverage each year through
exchanges (May 2013 Report by U.S. Congressional Budget Office). The Center for Medicaid and Medicare Services
estimates total health spending will be approximately 19.9% of the country’s gross domestic product (GDP) by 2022
(December 2013, Center for Medicaid and Medicare Services). We believe the decrease in uninsured admissions will
ultimately provide relief to hospitals' profitability, which will allow them to raise staffing levels in order to meet the
increased volume of patients and reach the prescribed quality benchmarks.
Lower Unemployment. After declining in the first quarter of 2014, the U.S. GDP surged over the second and third
quarters (December 2014 U.S. Healthcare Staffing Growth Assessments, by Staffing Industry Analysts). In 2014, a
total of 2.94 million jobs were added, with 311,000 healthcare jobs accounting for almost 11% of the total jobs.
December 2014 also marked the 11th consecutive month of job gains above 200,000 - the longest stretch since 1994.
In addition, in December 2014 the unemployment rate was 5.6% - the lowest rate since June 2008, which should
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increase the number of people with employer-sponsored health insurance. (January 9, 2015, U.S. Bureau of Labor and
Statistics Employment Report). As a result, we expect the recovering economy to result in higher hospital admissions,
thus requiring more of our healthcare staffing services. The creation of additional jobs in the healthcare market should
increase demand for our services as our temporary staff are typically hired to replace registered nurses and other
healthcare workers taking vacation and leaves of absence.
Rise in Use of Temporary Workforce. The penetration of temporary workers is at an all-time peak of 2.13%, up 11
basis points since December 31, 2013 and up 61 basis points since December 31, 2008 (U.S. Bureau of Labor
Statistics). We believe contingent labor is being used more strategically, as an increase in the use of temporary
workers typically allows for cost-effective, time-sensitive solutions to specific business needs and allows
organizations to leverage the skills of temporary workers while maintaining a lean staff of traditional permanent
employees. Within the healthcare sector, we believe the impact of ACA and the improving economy have exacerbated
hospitals’ needs for more flexibility to match revenue and payroll. We believe hospitals will maintain a lower
percentage of permanent staff over time and will supplement their staffing needs with temporary healthcare
professionals to allow them to flex their workforce up and down in order to address cost concerns, patient census
needs and value-based purchasing needs.
Ambulatory Care. In 2013, ambulatory services employed 45% of healthcare workers compared to 33% employed
by hospitals, a 2% increase since 2012. Employment by ambulatory centers grew nearly 15% from 2008 to 2013,
compared to hospital employment which grew only 4% during the same period (U.S. Healthcare Staffing Growth
Assessment, Staffing Industry Analyst, December 2014). We believe the ambulatory care market provides a robust
area of growth for healthcare staffing agencies with a strong local market presence, as well as agencies that are able to
provide Advanced Practitioners, such as Nurse Practitioners and Physicians Assistants, who frequently provide
oversight in ambulatory settings.
Electronic Medical Records Implementations. Many hospitals and physician groups continue to undergo EMR
implementations. We believe the demand for our staffing services will continue to be positively impacted in the short
term from new deadlines adopted by CMS regarding EMR implementations, because hospitals often use temporary
staff to fill in for permanent staff being trained on new technologies. Stage 2 compliance for EMR implementations
has been extended through the end of 2016 for “meaningful use” for Medicare and Medicaid EMR Incentive
Programs, and Stage 3 has been extended to the beginning of 2017 for those providers that have completed at least two
years in Stage 2 (December 2013, Center for Medicaid and Medicare Services).
Nursing Shortage. Assuming registered nurses continue to train at current levels (accounting for both new entrants
and attrition), the national RN supply is expected to grow from 2,897,000 full-time equivalents (FTEs) in 2012 to
3,849,000 FTEs in 2025. The nationwide demand for registered nurses, however, is projected to grow by only 21%
(U. S. Department of Health and Human Services, December 2014). However, projections at the national level do not
take into account an imbalance of RNs at the state level, where many states are projected to experience a smaller
growth in RN supply relative to their state-specific demand resulting in a shortage of RNs by 2025 (U. S. Department
of Health and Human Services, December 2014). We believe the following factors will contribute to new growth in
demand for nurses: the changing landscape of the healthcare industry with emerging care delivery models and a focus
on managing health status and preventing acute health issues (e.g., nurses taking on new and/or expanded roles in
preventive care and care coordination), an improving economy, the uncertain level of newly insured individuals into
the healthcare market, and the number of registered nurses that re-entered the workforce during the economic
downturn that are now likely to leave their jobs once the economy fully recovers.
Physician Shortage. The U.S. Department of Health and Human Services estimates that the physician supply will
increase by only 7% in the next 10 years, however, demand for physicians is projected to grow 29.7% between 2008
and 2025, from 706,500 to 916,000, according to the Association of American Medical Colleges (AAMC) Center for
Workforce Studies (June 2010). This demand is largely due to the projected aging of the population, the passage of
ACA, and the lower number of expected graduates from medical school. The U.S. is expected to face a shortage of
more than 90,000 primary care, surgical and medical specialty physicians by 2020 - a number that will grow to more
than 130,000 by 2025, according to analysis by the AAMC (June 2010). The AAMC expects nearly one-third of all
physicians will retire in the next decade. And, while the number of applicants to U.S. medical schools is increasing, it
will not keep pace with expected future demand.
Physicians Seeking Full-Time Employment. Hospitals are seeking to gain market share by increasing their referral
base and capturing admissions while physician practices are facing a combination of factors that include: stagnant or
declining reimbursement rates, increased regulatory burden, rising costs, greater risk associated with operating a
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private practice, and an increased desire for a better work-life balance. Becoming hospital staff provides a physician
with financial certainty and the ability to focus more on practicing medicine. Over the long term, we believe this shift
in employment will increase demand for locum tenens physicians, because hospitals will need to fill open positions
when these staff physicians take vacation time, leaves of absence, and attend continuing education seminars.
Generally speaking, employed physicians are expected to offer fewer hours of service than their self-employed
counterparts, which may further exacerbate the shortage of physicians. In addition, we believe this shift in
employment will also create more demand for our physician search business as hospitals seek to fill more permanent
positions.
Supply Drivers
Networking. We rely heavily on word-of-mouth referrals for our healthcare professionals. Historically, more than
half of our field employees have been referred to us by other healthcare professionals. Our most effective “sales
force” is our network of healthcare professionals who have taken temporary or permanent assignments with us or who
are currently working for us. Online social and professional networks have made it easier for us to connect with
healthcare professionals and stay connected with them, thus enhancing our recruitment efforts.
Traditional Reasons. Nurses, allied professionals and locum tenens physicians work on temporary assignments to
experience different geographic regions of the United States without moving permanently, work flexible schedules,
gain professional development by working at prestigious healthcare facilities, earn top money and bonuses, travel with
friends and family while enjoying quality accommodations, experience various clinical settings, look for a permanent
position, and avoid workplace politics often associated with permanent staff positions.
Economic Growth. Many RNs who entered the workforce during the economic downturn are likely to leave their
jobs once the economy fully recovers (New England Journal of Medicine, April 2012). In connection with a statement
by the Tri-Council of Nursing (July 2010), Dr. Peter Buerhaus, Associate Dean of Vanderbilt University’s School of
Nursing, stated that once the jobs recovery begins and RNs’ spouses rejoin the labor market, many currently employed
RNs could leave the workforce and their exit could be swift and deep. This includes many of the more than 100,000
RNs over the age of 50 that re-entered the workforce during 2007 and 2008, who are a part of the nearly 900,000
working RNs over the age of 50, of which Buerhaus expects large numbers of them to retire in the years ahead -
independent of the pace and intensity of a jobs recovery. As these RNs leave permanent positions and transition to
retirement, many may seek temporary or flexible assignments with travel or branch-based local staffing agencies to
supplement their retirement income. In addition, we believe as the volume of orders for temporary positions increase
and as wages increase, many staff nurses will have confidence to enter the travel nurse market and improve the supply.
Portability of Healthcare. We believe that employees have historically remained employed by their employers, in
part for healthcare coverage. The portability of healthcare insurance provided by the ACA will provide more flexibility
to employees, including healthcare professionals, which may result in a less committed relationship between
employees and their employers. This should increase the supply of healthcare professionals willing to leave their
permanent employment with hospitals and seeking assignments with staffing agencies.
Increase in Number of Younger RN Graduates. In 2011, Dr. Buerhaus noted a 62% increase in the number of
23-26 year olds who entered the RN workforce between 2002 and 2009 (Health Affairs, December 5, 2011). This
reflects an estimated 86% increase in the annual number of RN-BSN graduates, and a 67-percent increase in graduate
degree awards, over just the past four years. (U.S. Nursing Workforce: Trends in Supply and Education, U.S.
Department of Health and Human Services, April 2013). We believe the increased number of RNs over 56 years old
also represents older RNs who have delayed retirement or who returned to the workforce during the last recession.
The primary supply of contract nurses are typically from the younger population, so this influx of younger RNs in the
workforce should increase the supply of contract nurses for healthcare staffing companies.
Nurse Licensure Compact Promoting Mobility for RNs. Currently, 24 states have implemented the Nurse
Licensure Compact. The National Council of State Boards of Nursing created this mutual recognition plan to allow
RNs and licensed practical nurses who reside in those 24 states to practice under the same license in states that have
adopted this mutual recognition model. It eliminates the time and expense of obtaining a license in a new state and
promotes a more streamlined and flexible licensure process, thereby enhancing the mobility of the nurse labor force.
Temporary Physician Assignment. Locum tenens assignments offer physicians the ability to focus on practicing
medicine and avoid the stress of running their own practices, the ability to avoid paying the high costs of malpractice
insurance, the opportunity to pick up extra shifts and weekends and work during vacation time from full-time staff
jobs in order to earn extra money and repay student loans, and to maintain their autonomy while practicing medicine.
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The supply of physicians available for our physician staffing services is variable and is influenced by several factors:
the desire of physicians to work temporary assignments, the desire of older physicians to work fewer hours, work-
lifestyle balance among younger physicians, and the trend toward more female physicians in the workforce who
traditionally work fewer hours than their male counterparts.
Physicians Seeking Stability as Full-Time Staff. Physicians are increasingly becoming employees of hospitals or
health systems due to business pressures and costs of operating private practices. Physician practices are facing a
combination of factors that include: stagnant or declining reimbursement rates, increased regulatory burden, rising
costs, greater risk associated with operating a private practice, and an increased desire for a better work-life balance.
We believe physicians have been seeking employment with hospitals at higher rates in the past few years due to: the
difficulty of transitioning private practices to EMR, traversing the maze of insurance company requirements, financial
strains on private practices from repeated threatened pay cuts based on Medicare’s sustainable growth rate formulas,
and the uncertain future of healthcare associated with the ACA. Becoming hospital staff provides financial certainty
and the ability to focus more on practicing medicine. We believe this shift in employment will increase supply for our
physician search business as physicians look for permanent employment with hospitals or health systems.
Retiring Physicians. The AAMC projects that the number of physicians will only increase 12.3% reflecting
expectations that nearly one-third of all physicians will retire in the next decade and enrollments in medical schools
will not be enough to meet demand just as more people will need health care. As these physicians leave permanent
positions and transition to retirement, we believe many may seek temporary or flexible assignments to supplement
their retirement income and maintain their skills which will increase the supply of physicians for locum tenens
assignments.
Our Business Strategy
Our long-term business strategy is to expand our market share and profitability by executing the following four (4) key
elements:
Strengthening and expanding current and new client relationships with hospitals and healthcare facilities by delivering
innovative workforce solutions. We deliver flexible workforce solutions customized to meet the unique needs of each
client. Our full suite of service offerings include: MSP services, EMR transition staffing, IRP consulting and
development, RPO services, payrolling optimal workforce solutions, and predictive analytics. Each of our businesses
enjoy strong customer relationships that may serve as a platform to sell our workforce solutions. As a result, we continue
to invest in sales and marketing to increase market share through cross-collaboration of our businesses.
Using our expansive branch network to improve our fill rate at current MSP accounts and expand our MSP offerings in the
ambulatory care market. We believe our large national footprint will allow us to (i) increase our market share at our
current MSPs by improving our fill rate of per diem, local and allied healthcare staffing professionals and (ii) sell our MSP
services to clients of our branch-based network.
Growing our network of healthcare professionals by investing in technology initiatives and delivering quality customer
service. Recognizing that people communicate differently and have individual communication preferences, we are
investing in technology initiatives to enhance the efficiency and effectiveness of our interactions with our hospital
customers and healthcare professionals. We continue to invest in mobile and online technologies to increase our ability to
attract and retain healthcare professionals. We believe providing communication options for our customers and healthcare
professionals will strengthen our relationships with them and further enhance our delivery of high quality customer
service.
Making strategic and disciplined acquisitions in high growth, high margin businesses to strengthen and broaden our
market presence. We believe the best acquisitions follow a structured and disciplined approach with clear strategic
objectives, detailed implementation plans and a focus on creating and capturing value for our shareholders. Our
management team has broad and varied experience in multiple types of transactions.
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Business Overview
Services Provided
Nurse and Allied Staffing Segment
Our Nurse and Allied Staffing segment provides traditional staffing, including temporary and permanent placement of
travel nurses and allied professionals, and branch-based local nurses and allied staffing through our Cross Country
Staffing™ brand. We provide flexible workforce solutions to the healthcare market through diversified offerings designed
to meet the special needs of each client, including: MSP services, EMR implementation and transition staffing, IRP
consulting and development, RPO services, optimal workforce solutions, payrolling, and predictive modeling. Our clients
include: public and private acute care hospitals, government facilities, schools, outpatient clinics, ambulatory care
facilities, physician practice groups, retailers, and many other healthcare providers. The Joint Commission has certified
our Nurse and Allied Staffing businesses under its Health Care Staffing Services Certification Program. Our Nurse and
Allied Staffing revenue and operating income is set forth in Note 17 - Segment Information to the consolidated financial
statements.
The majority of our revenue is generated from staffing RNs on long-term contract assignments (typically 13-weeks in
length) at hospitals and health systems using various brands. While the typical lead-time to staff a travel healthcare
professional is four to five weeks, we also have candidates who are pre-qualified and ready to begin assignments within
one to two weeks at a hospital client that has an urgent need. Additionally, we offer a short-term staffing solution of RNs,
licensed practical nurses, and certified nurse assistants on per diem and short-term assignments through our national
network of local branch offices. We also provide travel allied professionals on long-term contract assignments to hospitals,
schools and skilled nursing facilities under the Cross Country Staffing® brand, and we provide more than 100 specialties
of allied professionals on local per diem and short-term assignments in a variety of clinical settings.
Physician Staffing Segment
We provide physicians in many specialties, certified registered nurse anesthetists (CRNAs), nurse practitioners (NPs) and
physician assistants (PAs) under our Medical Doctor Associates™ (MDA) brand as independent contractors on temporary
assignments throughout the United States at various healthcare facilities, such as acute and non-acute care facilities,
medical group practices, government facilities, and managed care organizations. We recruit these professionals nationally
and place them on assignments varying in length from several days up to one year. The Physician Staffing revenue and
operating income is set forth in Note 17 - Segment Information to the consolidated financial statements.
Other Human Capital Management Services
We provide education and training programs to the healthcare industry and we also provide retained and contingent search
services for physicians and healthcare executives. The revenue and operating income of our Other Human Capital
Management Services Segment is set forth in “Item 8. Financial Statements and Supplementary Data - Notes to
Consolidated Financial Statements - Note 17.”
Our Cross Country Education® (CCE) subsidiary, headquartered in Brentwood, Tennessee, offers “in person” one-day
seminars, conferences and e-learning through various independent contractors who are experts in their field on topics
pertaining to their profession. CCE is an approved provider of continuing education with more than 30 professional
healthcare associations, and also works with national and state boards and associations. CCE is expanding its online
presence and intends to continue to move toward a greater offering of blended learning opportunities for a professional that
combines live seminar offerings with audio and e-learning products.
Our Cejka Search® (Cejka) subsidiary is headquartered in Creve Coeur, Missouri. Cejka has been a leading physician,
executive, advanced practice and allied health retained and contingent search firm for more than twenty years, recruiting
top healthcare talent for organizations nationwide through a team of experienced professionals, advanced use of
recruitment technology and commitment to service excellence. Serving clients nationwide, Cejka completes hundreds of
search assignments annually for organizations spanning the continuum of healthcare, including physician group practices,
hospitals and health systems, academic medical centers, accountable care organizations (ACOs), managed care and other
healthcare organizations.
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Our Business Model
We have developed and will continue to focus our business model on growing market share and achieving greater profitability
through higher efficiencies, all while continuing to offer the highest possible quality services to our healthcare facilities and our
healthcare workers and physicians.
Marketing and Recruiting Healthcare Professionals
We operate differentiated brands to recruit nurses and allied professionals. We believe our multi-brand recruiting model
helps us reach a larger volume and a more diverse group of candidates to fill open positions at our clients throughout the
United States in various clinical settings and in many different geographic areas. We believe nurses and allied
professionals are attracted to us because we offer a wide range of diverse assignments in attractive locations, competitive
compensation and benefit packages, scheduling options, as well as a high level of customer service. Our benefits may
include professional liability insurance, 401(k) plan, health insurance, reimbursed travel, per diem allowances and housing.
In 2014, more than 17,000 nurse and allied healthcare professionals applied with us through our recruitment brands. Each
of our nurse and allied healthcare professionals is employed by us under the terms of a written agreement, which typically
provides for hourly wages and any other benefits they are entitled to receive during the assignment period.
Recruiters are an essential element of our Nurse and Allied Staffing business, and are responsible for establishing and
maintaining key relationships with candidates for the duration of their assignments with us. Recruiters match the supply of
qualified candidates in our databases with the demand for open orders posted by our hospital clients. While we rely on
word-of-mouth for referrals, we also market our brands on the Internet, including extensive utilization of social media,
which has become an increasingly 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.
MDA recruits and 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
facility or physician practice group based on terms and conditions specified by that customer. Physicians are engaged to
provide medical services for a healthcare customer ranging from a few days up to a year. We believe our physicians are
attracted to us because we offer a wide variety of assignments, competitive fees, occurrence-based medical malpractice
insurance and excellent customer service. MDA is one of the largest multi-specialty physician staffing companies that has
procured an occurrence-based professional liability policy that provides coverage in all 50 states from a national insurance
company. We believe this is an important competitive advantage for MDA in the recruitment of physicians as it covers
incidents occurring during the policy period regardless of when they are reported. MDA relies on word-of-mouth referrals,
but also markets it brands on the Internet and through extensive social media.
Sales and Marketing to Hospitals and Healthcare Facilities
®
We market our Nurse and Allied Staffing services to our hospital and healthcare facility clients using our Cross Country
Staffing® (CCS), Medical Staffing Network , and Allied Health Group brands. CCS typically contracts with our nurse
and allied healthcare clients on behalf of itself and all of our other brands. Our traditional staffing includes temporary and
permanent placement of travel nurses and allied professionals, branch-based local nurses and allied staffing, and
physicians. We provide healthcare staffing opportunities to our healthcare professionals, and staffing and workforce
solutions to our healthcare clients in all 50 states. We provide flexible workforce solutions to the healthcare market
through diversified offerings meeting the special needs of each client. Our services include: MSP services, EMR
transition staffing and upgrading, IRP consulting and development, RPO services, optimal workforce solutions, and
predictive modeling. Our clients include: public and private acute-care and non-acute care hospitals, government
facilities, schools, outpatient clinics, ambulatory care facilities, physician practice groups, retailers, and many other
healthcare providers. Orders for open positions and other services are entered into our various databases and are available
to recruiters. Account managers, who develop relationships with our clients to understand their specific clinical settings
and culture, submit candidate profiles to clients, and confirm offers and placements with the healthcare facility. In 2014,
the market for Nurse and Allied Staffing was estimated to be approximately $7.6 billion, of which $1.9 billion was travel
nursing, $2.8 billion was per diem staffing and $2.9 billion was allied healthcare staffing (U.S. Healthcare Staffing Growth
Assessment, Staffing Industry Analyst, December 2014).
MDA markets its physician staffing operations to hospitals and other healthcare facilities on a national basis. We believe
we attract physicians based on our wide variety of open positions in various specialties at locations throughout the United
States, as well as our excellent long-standing reputation. Our recruiters use our large database of physicians and their
expertise in their given specialties to contact physicians to schedule short and long-term engagements at healthcare
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customers. MDA successfully operates a multi-site business model with employees at several locations. Historically, our
locum tenens business operated as a single desk model, with recruiters responsible for recruiting physicians, sourcing open
positions, and collecting amounts due from customers. In late 2014, however, MDA transitioned to a split desk model with
regional sales associates and a shared team of specialist recruiters.
CCE primarily recruits independent contractor speakers for its in-person continuing education and training seminars
through its website and trade journal advertisements. Seminar attendees are recruited through direct mail marking and
CCE’s website. Based on responses to its marketing efforts, CCE identifies venues for its in-person seminars throughout
the United States. Once venues are identified, CCE’s meeting planners rent space to hold the seminars and they schedule
travel and hotels for the independent contractors to deliver the seminars. CCE receives revenue from attendees and pays
the independent contractors a fee for each seminar based on attendance.
Cejka markets its retained and contingent search services to healthcare clients primarily through industry professional
organizations, direct marketing, Cejka’s website and word of mouth. Cejka identifies candidates to fill retained and
contingent search positions using social networking, client referrals, and various other marketing technologies. Utilizing
their expertise, Cejka’s consultants review the specific skillsets necessary for a particular position and identify candidates
who meet those particular needs. Cejka performs educational and reference checks, as well as other credentialing items
specifically requested by healthcare clients as part of its placement services.
Credentialing and Quality Management
We screen all of our candidates prior to placement through our credentialing departments. While screening requirements
are typically negotiated with our clients, each of our businesses has adopted its own minimum standard screening
requirements. We continue to monitor our nursing and allied professional employees after placement in an effort to ensure
quality performance, to determine eligibility for future placements and to manage our malpractice risk profile. Our
credentialing processes are designed to ensure that our professionals have the requisite skillset and aptitude to meet the
day-to-day requirements and challenges they would typically encounter on assignments where they are placed. We ask
each of our healthcare clients to evaluate healthcare employees who work at their facility at the end of each assignment in
order to continually assess client satisfaction and so that we may assist our employees with further educational
development, if and where necessary.
Client Billing
We bill our nurse and allied employees at an hourly rate and assume all employer costs, including payroll, withholding
taxes, benefits, professional liability insurance and other requirements, as well as any travel and housing arrangements,
where applicable. The shared service center processes hours worked by field employees in the time and attendance
systems, which in turn generate the transactions billable to the clients.
Hours worked by independent contractor physicians are reported to our MDA office in Berkeley Lake, Georgia. We bill
our clients for hours worked by independent contractor physicians and for our recruitment fee. We negotiate payment for
services with our clients based on market conditions and needs, and the amount we earn is not fixed. We keep a
recruitment fee and pass on an agreed amount to the independent contractor physician on behalf of our clients.
Our educational seminars business collects the full amount of seminar fees from its customers and pays a negotiated
percentage to its speakers, as well as other costs, such as hotel, travel, meals, and other related costs. For our retained
search business, Cejka typically bills its clients a candidate acquisition fee and is reimbursed for certain marketing
expenses.
Operations
Our nurse, allied and physician businesses are operated through a relatively centralized business model servicing all
assignment needs of our healthcare professional employees, physicians and client healthcare facilities through operation
centers located in Boca Raton, Florida; Malden, Massachusetts; Tampa, Florida; Newtown Square, Pennsylvania; and
Berkeley Lake, Georgia. In addition to the key sales and recruitment activities, these centers also perform support activities
such as coordinating housing, payroll processing, benefits administration, billing and collections, travel reimbursement
processing, customer service and risk management. At December 31, 2014, we had more than 70 branch office locations.
CCE conducts its operations at its offices in Brentwood, Tennessee; and Cejka Search operates its business from its
headquarters located in Creve Coeur, Missouri. These businesses operate relatively independently, other than certain
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ancillary services that are provided from our Boca Raton, Florida headquarters, such as payroll for corporate employees,
sales, legal, finance, and information systems support. Payroll of corporate personnel is provided on a centralized basis to
both of these businesses from our Malden, Massachusetts office.
Information Systems
Our placement and support operations are enhanced by sophisticated information systems that facilitate interaction between our
recruitment and support activities. Our proprietary and hosted information systems enable us to manage virtually all aspects of
our operations. We believe these systems can accommodate significant future growth of our business. In addition, their scalable
design allows further capacity to be added to the existing hardware platform. 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 skillset of each candidate 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 leading enterprise resource planning
software suites that provides modules used to manage our accounts receivable, accounts payable, general ledger, billing and
human resources. These systems are designed to accommodate future growth in our business.
Risk Management, Insurance, and Benefits
We have developed a risk management program that requires prompt notification of incidents by clients, clinicians and
independent contractors, educational training to our employees, loss analysis, and prompt reporting procedures to reduce our
risk exposure. Each of our temporary employees receives instructions regarding the timely reporting of claims and this
information is also available on our website. We continuously review facts and incidents associated with professional liability
and workers’ compensation claims in order to identify trends and reduce our risk of loss in the future where possible. In
addition, upon notification of an incident that may result in liability to us, we promptly gather all available documentation and
review the actions of our employee and independent contractor to determine if he or she should remain on an assignment and
whether he or she is eligible for another assignment with us. We consider assessments provided by our clients and we work
with experts from our third party administrator on certain claims, as well as clinicians and experts from our insurance carriers,
to determine employment eligibility and potential exposure. Prior to approving an employee or independent contractor for an
assignment, we review records from applicable state professional associations, the national practitioners’ database and other
such databases available to us.
We provide workers’ compensation insurance coverage, professional liability coverage and health care benefits for our eligible
temporary 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. In determining our reserves, we include reserves for estimated claims incurred but not reported.
We also estimate on a quarterly basis the health care claims that have occurred but have not been reported 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.
The Company maintains a number of insurance policies including general liability, automobile liability and employers’
liability; each with excess liability coverage. We also maintain workers’ compensation, fidelity, fiduciary, directors and officers,
and professional liability policies. These policies provide coverage subject to their terms, conditions, limits of liability, and
deductibles, for certain liabilities that may arise from our operations. We also own a captive insurance company domiciled in
the Cayman Islands that insures a portion of each medical malpractice claim brought against our physicians or MDA. There
can be no assurance that any of the above policies will be adequate for our needs, or that we will maintain all such policies in
the future.
Regulations
We provide services directly to our clients on a contract basis and receive payment directly from them. However, 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.
While not affecting us directly, future federal and state legislation or evolving commercial reimbursement trends may further
10
reduce or change conditions for our clients’ reimbursement. Such limitations on reimbursement could reduce our clients’ cash
flows, hampering the pricing we can charge clients and their ability to pay us. We continuously monitor changes in regulations
and legislation for potential impacts on our business.
Our business is subject to regulation by numerous governmental authorities in the jurisdictions in which we operate. Complex
federal and state laws and regulations govern, among other things, 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 primarily in the U.S. and are subject to federal and state laws and regulations applicable to our business,
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, 2014, we had approximately 1,630 corporate employees. During 2014, we employed an average of 6,311
full-time equivalent field employees in our Nurse and Allied Staffing pro forma for the MSN acquisition. During 2014, we
utilized approximately 1,520 independent contractors in our Physician Staffing business. We are not subject to a collective
bargaining agreement with any of our employees. We consider our relationship with employees to be good.
Additional 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. The information found on our website is not part of this
Annual Report on Form 10-K or any other report we file with or furnish to the SEC.
Item 1A.
Risk Factors.
The following risk factors could materially and adversely affect our future operating results and could cause actual results to
differ materially from those predicted in the forward-looking statements we make about our business.
Decreases in demand by our clients may adversely affect the profitability of our business.
Among other things, changes in the economy, a decrease or stagnation in the general level of in-patient admissions or out-
patient services at our clients’ facilities, uncertainty regarding federal healthcare law 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 may 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 addition, if hospitals continue to consolidate in an effort to enhance their market positions, improve
operational efficiency, and create organizations capable of managing population health, demand for our services could
decrease. Decreases in demand for our services may affect our ability to provide attractive assignments to our healthcare
professionals thereby reducing our profitability.
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. These arrangements may also require us to, among other things, guarantee a percentage of open positions that we will
fill. We may have to pay a penalty or a client may terminate our contract if we are unable to meet those obligations, either of
which could have a negative impact on our profitability. We may have fixed costs, including housing costs, associated with
terminated arrangements that we will be obligated to pay post-termination, thus negatively impacting our profitability. In
addition, the loss of one or more of our large clients could materially affect our profitability.
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
11
staffing personnel with other temporary healthcare staffing companies, as well as actual and potential clients such as healthcare
facilities and physician groups, some of which seek to fill positions with either permanent or temporary employees. With a
shortage of certain qualified nurses and physicians in many areas of the United States, competition for these professionals
remains 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 or increase
benefits in response to our competitors’ increases and are unable to pass such cost increases on to our clients, our margins could
decline. At this time, we still do not have enough nurses, allied professionals and physicians to meet all of our clients’ demands
for these staffing services. This shortage of healthcare professionals generally and the competition for their services may limit
our ability to increase the number of healthcare professionals that we successfully recruit, decreasing our ability to grow our
business.
If our healthcare facility clients increase the use of intermediaries it could impact our profitability.
We have seen an increase in the use of intermediaries by our clients. These intermediaries typically enter into contracts with our
clients and then subcontract with us and other agencies to provide staffing services, thus interfering to some extent in our
relationship with our clients. Each of these intermediaries charges an administrative fee. In instances where we do not win new
MSP opportunities or where other vendors win this MSP 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 comprehensive MSP solutions 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, increased liability and reduced margins.
Our costs of providing services may rise faster than we are able to adjust our bill rates and pay rates and, as a result, our
margins could decline.
Costs of providing our services could change beyond our control more quickly than we are able to renegotiate bill rates in our
more than 6,000 active contracts and pay rates with our thousands of healthcare professionals. For example, at any given time,
we have over a thousand apartments on lease throughout the U.S. because we provide housing for certain of our healthcare
professionals when they are on an assignment with us. The cost of renting apartments and furniture for these healthcare
professionals may increase faster than we are able to renegotiate our rates with our customers, in particular government entities,
and this may have a have a negative impact on our profitability. In addition, an increase in other incremental costs beyond our
control, such as insurance, unemployment rates, etc. could negatively affect our financial results. The costs related to obtaining
and maintaining professional and general liability insurance and health insurance for healthcare providers has generally been
increasing. This could have an adverse impact on our financial condition unless we are able to pass these costs through to our
clients or renegotiate pay rates with our healthcare providers.
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.
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
12
states. The introduction of new regulatory provisions could also 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 amount we could charge for our services,
our profitability could be adversely affected.
We are subject to uncertainties regarding healthcare reform.
The Patient Protection and Affordable Care Act was signed into law on March 23, 2010 and later amended on March 30, 2010
(ACA). It is a very complex law that regulates a wide range of components in our healthcare system. The sweeping healthcare
reforms outlined in the ACA are scheduled to take effect on various dates through 2020. Additional guidance on the ACA is
expected to be forthcoming from the IRS, the Treasury Department, the U.S. Department of Health and Human Services, the
U.S. Department of Labor and the states. The ACA also makes a number of changes to Medicare and Medicaid that could
adverse impact the reimbursement our customers receive under these programs. In addition, the ACA remains subject to
legislative efforts to repeal or modify the law and a number of court challenges to its constitutionality and interpretation. For
example, the U.S. Supreme Court will hear King v. Burwell during the 2015 session, which challenges the extension of
premium subsidies to health insurance policies purchased through federally-operated health insurance exchanges. If decided in
favor of the plaintiffs, who argue that subsidies must be limited to state-operated exchanges, it could be more difficult for
uninsured individuals in states that do not operate an exchange to purchase coverage and otherwise significantly affect
implementation of the ACA, in a manner that results in less than projected of newly insured individuals. Finally, the ACA
reforms the way Americans buy health insurance and creates a number of issues for employers that sponsor group health
plans. As ACA is fully implemented, we could also incur increased costs for health benefits we provide to our employees
without the ability to increase our prices to customers to cover those costs.
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 as well as litigation and could
reduce our revenue and earnings per share.
Our industry is subject to many complex federal, state, local and international laws and regulations related to, among other
things, 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 (e.g., federal, state and local tax laws). 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 as well as litigation or be subject to equitable remedies.
We are subject to litigation, which could result in substantial judgment or settlement costs; significant legal actions could
subject us to substantial uninsured liabilities.
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. We may not have sufficient insurance to cover these risks. 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.
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, negligent credentialing, 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 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.
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. We are partially
self-insured for our workers compensation coverage, health insurance coverage, and professional liability coverage. If we
13
become subject to substantial uninsured workers compensation, medical coverage or medical malpractice liabilities, our
financial results may be adversely affected. In addition, 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 pay our self-insured retention portion or maintain adequate
insurance coverage, we may be exposed to substantial liabilities.
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.
Market disruptions may adversely affect our operating results and financial condition.
Economic conditions and volatility in the financial markets may have an adverse impact on the availability of credit to us and
to our customers and businesses generally. To the extent that disruption in the financial markets occurs, it has the potential to
materially affect our and our customers’ ability to tap into debt and/or equity markets to continue ongoing operations, have
access to cash and/or pay debts as they come due. These events could negatively impact our results of operations and financial
conditions. 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 limit or prohibit us from refinancing our credit
agreements on terms favorable to us when they become due.
Stock issuable under our stock option plans are presently in effect and sales of this stock could cause our stock price to
decline.
We registered 4,398,001 shares of common stock for issuance under our 1999 stock option plans and 3,500,000 shares of
common stock for issuance under our 2007 Stock Incentive Plan. In 2014, we amended and restated that Plan to issue an
additional 600,000 shares, all of which have been registered. Fully vested options to purchase 25,500 shares of common stock
were issued and outstanding as of February 28, 2015. In addition, 774,170 stock appreciation rights were issued and
outstanding as of February 28, 2015, 509,923 of which were vested. Shares of restricted stock outstanding as of February 28,
2015, were 637,218. 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. 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.
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.
These systems are subject to certain risks, including technological obsolescence. With the MSN acquisition, we migrated our
existing branch-based business to the MSN platform. We are currently evaluating the technology platforms of our other
businesses. If the systems fail or are otherwise unable to function in a manner that properly support our business operations, or
if these systems require significant costs to repair, maintain or further develop, we could experience business interruptions or
delays that could materially and adversely affect our business and financial results.
In addition, 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. 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, among other things, maintain billing and clinical records
reliably, to bill for services efficiently and to maintain our accounting and financial reporting accurately.
14
We are increasingly dependent on third parties for the execution of certain critical functions.
We have outsourced certain critical applications or business processes to external providers including cloud-based services. We
exercise care in the selection and oversight of these providers. However, the failure or inability to perform on the part of one or
more of these critical suppliers could cause significant disruptions and increased costs to our business
Our collection, use and retention of personal information and personal health information create risks that may harm our
business.
As part of our business model, we collect and retain personal information of our employees and contract professionals and their
dependents, including, without limitation, full names, social security numbers, addresses, birth dates, and payroll-related
information. We use commercially available information security technologies to protect such information in digital format and
have security and business controls to limit access to such information. In addition, we periodically perform penetration tests
and respond to those findings. However, employees or third parties may be able to circumvent these measures and acquire or
misuse such information, resulting in breaches of privacy, and errors in the storage, use or transmission of such information
may result in breaches of privacy. Privacy breaches may require notification and other remedies, which can be costly, and
which may have other serious adverse consequences for our business, including regulatory penalties and fines, claims for
breach of contract, claims for damages, adverse publicity, reduced demand for our services by clients and/or healthcare
professional candidates, harm to our reputation, and regulatory oversight by state or federal agencies. The possession and use
of personal information and data in conducting our business subjects us to legislative and regulatory burdens. We may be
required to incur significant expenses to comply with mandatory privacy and security standards and protocols imposed by law,
regulation, industry standards or contractual obligations.
Cyber security risks and cyber incidents could adversely affect our business and disrupt operations.
Cyber incidents can result from deliberate attacks or unintentional events. These incidents can include, but are not limited to,
gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data,
or causing operational disruption. The result of these incidents could include, but are not limited to, disrupted operations,
misstated financial data, liability for stolen assets or information, increased cyber security protection costs, litigation and
reputational damage adversely affecting customer or investor confidence. While we have secured cyber insurance to
potentially cover these risks, there can be no assurance the insurance will be sufficient to cover any such liability.
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.
Changes in the fair value of financial instruments may result in significant volatility in our reported results.
We have issued convertible notes with certain conversion features and provisions, which we identified as embedded
derivatives. This requires us to “mark to market” or record the derivatives at fair value as of the end of each reporting period on
our balance sheet and to record the change in fair value over the period as a non-cash adjustment to our current period results of
operations in our income statement, subjecting our results of operations to greater and potentially significant volatility.
We have a level of indebtedness which may have an adverse effect on our business or limit our ability to take advantage of
business, strategic or financing opportunities.
As indicated below, we have and will continue to have a significant amount of indebtedness relative to our equity. The
following table sets forth our total principal amount of debt and stockholders’ equity.
Total principal amount of debt
Total Cross Country Healthcare, Inc. stockholders' equity
15
December 31, 2014
(amounts in thousands)
$
$
58,500
129,878
Our level of indebtedness increases the possibility that we may be unable to generate cash sufficient to pay the principal,
interest or other amounts due on our indebtedness. Subject to certain restrictions under our existing indebtedness, we and our
subsidiaries may also incur significant additional indebtedness in the future, some of which may be secured debt. This may
have the effect of increasing our total leverage. As a consequence of our indebtedness, (1) demands on our cash resources may
increase, (2) we are subject to restrictive covenants that further limit our financial and operating flexibility, and (3) we may
choose to institute self-imposed limits on our indebtedness based on certain considerations including market interest rates, our
relative leverage and our strategic plans. For example, as a result of our level of indebtedness and the uncertainties arising in
the credit markets and the U.S. economy:
-
-
-
-
-
-
-
we may be more vulnerable to general adverse economic and industry conditions;
we may have to pay higher interest rates upon refinancing or on our variable rate indebtedness if
interest rates rise, thereby reducing our cash flows;
we may find it more difficult to obtain additional financing to fund future working capital,
capital expenditures and other general corporate requirements that would be in our long-term
interests;
we may be required to dedicate a substantial portion of our cash flow from operations to the
payment of principal and interest on our debt, reducing the available cash flow to fund other
investments;
we may have limited flexibility in planning for, or reacting to, changes in our business or in the
industry;
we may have a competitive disadvantage relative to other companies in our industry that are
less leveraged; and
we may be required to sell debt or equity securities or sell some of our core assets, possibly on
unfavorable terms, in order to meet all payment obligations.
These restrictions could have a material adverse effect on our business.
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.
We currently have sufficient liquidity to operate our business in the normal course. However, if we were to make an
acquisition or enter into a similar type of transaction, our liquidity needs may exceed our current capacity. In addition, our
existing credit facilities currently contain financial covenants that require us: (1) under certain conditions, to operate above a
minimum fixed charge coverage ratio, and (2) to maintain a certain level of accounts receivables in order to draw down funds
on the loan. Deterioration in our operating results could result in our inability to comply with these covenants and 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.
We are subject to business risks associated with international operations.
We have international operations in India where our Cross Country Infotech, Pvt Ltd. (Infotech) subsidiary is located. 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; changes in regulations, 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.
16
Due to inherent limitations, there can be no assurance that our system of disclosure and internal controls and procedures
will be successful in preventing all errors and fraud, or in making all material information known in a timely manner to
management.
Our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), does not expect that
our disclosure controls and internal controls will prevent all errors and all fraud. A control system, no matter how well designed
and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of
the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that
judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally,
controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management
override of the control.
The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and
there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over
time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or
procedures may deteriorate. Because of the inherent limitations, misstatements due to error or fraud may occur and not be
detected.
Impairment in the value of our goodwill, trade names, or other intangible assets could negatively impact our net income and
earnings per share.
We are required to test goodwill and intangible assets with indefinite lives (such as trade names) annually, to determine if
impairment has occurred. Long-lived assets and other 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 carrying
amount of the goodwill or other intangible assets and the implied fair value of the goodwill or the fair value of the indefinite-
lived intangible asset in the period the determination is made. 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, trade names, 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, trade names, or
other intangible assets become impaired, there could be an adverse effect on us. At December 31, 2014, goodwill, trade names,
and other identifiable intangible assets not subject to amortization represented 39.6% of our total assets. In 2014 and 2013, we
recorded impairment charges of $10.0 million and $6.4 million, respectively.
We could suffer adverse tax and other financial consequences if taxing authorities do not agree with our tax positions, or we
are unable to utilize our net operating losses.
We are periodically subject to a number of tax examinations by taxing authorities in the states and countries where we do
business. We also have significant deferred tax assets related to our net operating losses (“NOLs”) in U.S. federal and state
taxing jurisdictions. Generally, for U.S. federal and state tax purposes, NOLs can be carried forward and used for up to twenty
years, and all of our tax years will remain subject to examination until three years after our NOLs are used or expire. We expect
that we will continue to be subject to tax examinations in the future. In addition, U.S. federal, state and local, as well as
international, tax laws and regulations are extremely complex and subject to varying interpretations. We recognize tax benefits
of uncertain tax positions when we believe the positions are more likely than not of being sustained upon a challenge by the
relevant tax authority. We believe our judgments in this area are reasonable and correct, but there is no guarantee that we will
be successful if challenged by a tax authority. If there are tax benefits, including from our use of NOLs or other tax attributes,
that are challenged successfully by a taxing authority, we may be required to pay additional taxes or we may seek to enter into
settlements with the taxing authorities, which could require significant payments or otherwise have a material adverse effect on
our business, results of operations and financial condition.
In addition, we may be limited in our ability to utilize our NOLs to offset future taxable income and thereby reduce our
otherwise payable income taxes. We have substantial NOLs. Our ability to utilize our NOLs is also dependent, in part, upon us
having sufficient future earnings to utilize our NOLs before they expire. If market conditions change materially and we
determine that we will be unable to generate sufficient taxable income in the future to utilize our NOLs, we could be required
to record an additional valuation allowance. We review our uncertain tax position and the valuation allowance for our NOLs
17
periodically and make adjustments from time to time, which can result in an increase or decrease to the net deferred tax asset
related to our NOLs. Our NOLs are also subject to review and potential disallowance upon audit by the taxing authorities of the
jurisdictions where the NOLs were incurred, and future changes in tax laws or interpretations of such tax laws could limit
materially our ability to utilize our NOLs. If we are unable to use our NOLs or use of our NOLs is limited, we may have to
make significant payments or otherwise record charges or reduce our deferred tax assets, which could have a material adverse
effect on our business, results of operations and financial condition.
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.
Our financial results could be adversely impacted by the loss of key management.
We believe the successful execution of our business strategy and our ability to build upon significant recent investments and
acquisitions depends on the continued employment of key members of our senior management team. If we were to lose any
key personnel, we may not be able to find an appropriate replacement on a timely basis and our results of operations could be
negatively affected. Further, the loss of a significant number of employees or our inability to hire a sufficient number of
qualified employees could have a material adverse effect on our business.
Item 1B.
Unresolved Staff Comments.
None.
Item 2.
Properties.
We do not own any real property. Our principal leases as of March 1, 2015 are listed below.
Location
Boca Raton, Florida
Boca Raton, Florida
Berkeley Lake, Georgia
Creve Coeur, Missouri
Malden, Massachusetts
Pune, India
Brentwood, Tennessee
Newtown Square, Pennsylvania
Item 3.
Legal Proceedings.
Function
Headquarters and Nurse and Allied
Staffing administration
Staffing administration
Physician Staffing office
Retained search headquarters
Nurse and Allied Staffing administration
and general office use
In-house information systems and
development support
Education and training headquarters
Nurse and Allied Staffing administration
and general office use
Square
Feet
70,406
44,675
41,607
27,051
22,767
Lease Expiration
May 1, 2018
December 31, 2015
October 7, 2024
June 14, 2017
June 30, 2017
20,700
November 30, 2015
16,884
16,304
August 31, 2017
December 31, 2018
The Company is subject to 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.
18
PART II
Item 4.
Mine Safety Disclosures.
This item is not applicable to the Company.
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 CCRN common stock. Such prices
reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
Calendar Period
2014
Quarter Ended March 31, 2014
Quarter Ended June 30, 2014
Quarter Ended September 30, 2014
Quarter Ended December 31, 2014
2013
Quarter Ended March 31, 2013
Quarter Ended June 30, 2013
Quarter Ended September 30, 2013
Quarter Ended December 31, 2013
Sale Prices
High
Low
$
$
$
$
$
$
$
$
10.08
6.78
7.81
10.47
6.23
5.60
6.19
10.53
$
$
$
$
$
$
$
$
9.65
6.46
7.45
9.96
4.86
4.59
5.14
5.55
The graph below compares the Company to the cumulative 5-year total return of holders of the Company's common stock with
the cumulative total returns of the NASDAQ Composite index and the Dow Jones U.S. Business Training & Employment
Agencies 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 12/31/2009 and tracks it through 12/31/2014.
19
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
As of February 24, there were 129 stockholders of record of our common stock. In addition, there were 3,043 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. On February 28, 2008, our Board of
Directors authorized our most recent stock repurchase program whereby we may purchase up to 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 our discretion. At December 31, 2014, we had 942,443
shares of common stock left remaining to repurchase under this authorization, subject to the limitations of our First Lien Loan
Agreement as defined in Note 8 - Long-Term Debt to our consolidated financial statements. Subject to certain conditions as
described in the First Lien Loan Agreement, the Company may repurchase up to an aggregate amount of $5,000,000 of its
Equity Interests. See Note 8- Long-Term Debt, to our Consolidated Financial Statements for further information. See also –
Liquidity and Capital Resources in the Management’s Discussion and Analysis of Financial Condition and Results of
Operations section of this report.
Item 6.
Selected Financial Data.
The selected consolidated financial data as of December 31, 2014 and 2013 and for the years ended December 31, 2014, 2013,
and 2012 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, 2012, 2011 and 2010 and for the years ended
December 31, 2011 and 2010, are derived from the consolidated financial statements of Cross Country Healthcare, Inc., that
have been audited but not included in this Report.
20
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.
Year Ended December 31,
2014
2013
2012
2011
2010
(Amounts in thousands, except per share data)
Consolidated Statements of Operations Data:
Revenue from services
$
617,825
$
438,311
$
442,635
$
439,377
$
406,604
(Loss) income from continuing operations
Net (loss) income attributable to common shareholders
(31,534)
(31,783)
(54,250)
(51,969)
(20,745)
(42,221)
1,548
4,098
(5,257)
(2,775)
Per Share Data:
(Loss) income from continuing operations attributable to
common shareholders - Basic
(Loss) income from continuing operations attributable to
common shareholders - Diluted
$
$
Weighted Average Common Shares Outstanding:
Basic
Diluted
Other Operating Data:
Cash and cash equivalents
Total assets
Total debt
Stockholders’ equity
Net cash (used in) provided by operating activities
_______________
(1.02) $
(1.75) $
(0.67) $
(1.02) $
(1.75) $
(0.67) $
0.05
0.05
$
$
(0.17)
(0.17)
31,190
31,190
31,009
31,009
30,843
30,843
31,146
31,192
31,060
31,060
$
4,995
$
8,055
$
10,463
$
10,648
$
10,957
325,133
74,074
130,332
(4,072)
248,245
8,576
160,667
8,659
305,924
33,859
209,123
10,146
347,884
42,046
249,300
18,296
358,359
53,513
246,009
31,522
The following items impact the comparability and presentation of our consolidated data:
•
•
•
•
Loss from continuing operations for the year ended December 31, 2014 includes amount attributable to
noncontrolling interest of $0.2 million.
On June 30, 2014, the Company acquired substantially all of the assets and certain liabilities of Medical Staffing
Network Healthcare, LLC (MSN) and on December 2, 2013, the Company acquired the operating assets of On
Assignment, Inc.’s Allied Healthcare Staffing division. The results of MSN and On Assignment's operations have
been included in the Company's consolidated statements of operations since their respective dates of acquisition.
For the years ended December 31, 2014 and 2013, the Company recognized $8.0 million and $0.5 million of
acquisition and integration costs, respectively. See Note 3 - Acquisitions to our consolidated financial statements.
The years ended December 31, 2014 and 2013, include $0.8 million and $0.5 million, respectively, of restructuring
costs primarily related to senior management employee severance pay.
The year ended December 31, 2013, includes a legal settlement charge of $0.8 million related to a wage and hour
class action lawsuit in California. See Note 12 - Commitments and Contingencies to our consolidated financial
statements.
21
•
•
•
The years ended December 31, 2014, 2013, 2012 and 2010, include non-cash impairment charges of approximately
$10.0 million, $6.4 million, $18.7 million and $10.8 million, respectively. See Note 5 – Goodwill, Trade Names,
and Other Identifiable Intangible Assets to our consolidated financial statements.
The year ended December 31, 2014, includes the impact of a change in fair value of Convertible Notes Derivative
liability of approximately $16.7 million. Convertible Notes Derivative liability relates to the Convertible Notes
issued in conjunction with the acquisition of MSN. See Note 9 - Convertible Notes Derivative Liability to our
consolidated financial statements.
For purposes of calculating diluted earnings per common share in 2014, 2013, 2012 and 2010 potentially dilutive
shares are excluded from the calculation as their effect would have been anti-dilutive, due to the Company’s net
loss from continuing operations in those years.
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
Item 1. Business, Item 6. Selected Financial Data, Item 1A. Risk Factors, Forward-Looking Statements and our Item 15.
Consolidated Financial Statements and the accompanying notes and other data, all of which appear elsewhere in this Annual
Report on Form 10-K.
Overview
Cross Country Healthcare, Inc., is a national leader in providing leading-edge healthcare workforce solutions. Our solutions
are geared towards assisting our clients solve labor cost issues while maintaining high quality outcomes. With more than 30
years of experience, we are dedicated to placing highly qualified nurses and physicians as well as allied health, advanced
practice, clinical research, and case management professionals. We provide both retained and contingent placement services
for physicians, as well as retained search services for healthcare executives. We have more than 6,000 active contracts with a
broad range of clients, including acute care hospitals, physician practice groups, nursing facilities, rehabilitation and sports
medicine clinics, government facilities, as well as nonclinical settings such as homecare and schools. Through our national
staffing teams and network of more than 70 branch office locations, we are able to place clinicians for travel and per diem
assignments, local short-term contracts and permanent positions. We are a market leader in providing flexible workforce
management solutions, which include managed services programs (MSP), workforce assessments, internal resource pool
consulting and development, electronic medical record (EMR) transition staffing and recruitment process outsourcing. In
addition, we provide education and training programs for healthcare professionals through seminars and e-learning tools.
We manage and segment our business based on the services we offer to our customers. As a result, in accordance with ASC
280, Segment Reporting, we report three business segments – Nurse and Allied Staffing, Physician Staffing, and Other Human
Capital Management Services, described below:
Nurse and Allied Staffing – Nurse and Allied Staffing represented approximately 74% of our total revenue. Nurse
and Allied Staffing provides traditional staffing, including temporary and permanent placement of travel nurses and
allied professionals, and branch-based local nurses and allied staffing. Our services include the placement of travel
and per diem nurse, allied healthcare professionals, such as rehabilitation therapists, radiology technicians, and
respiratory therapists. Its clients include: public and private acute care and non-acute care hospitals, government
facilities, schools, outpatient clinics, ambulatory care facilities, retailers, and many other healthcare providers
throughout the U.S. The Company aggregates various brands that it markets to its customers in this business segment.
Physician Staffing – Physician Staffing represented approximately 20% of our total revenue. Physician Staffing
provides physicians in many specialties, certified registered nurse anesthetists (CRNAs), nurse practitioners (NPs)
and physician assistants (PAs) under the Company's Medical Doctor Associates (MDA) brand as independent
contractors on temporary assignments throughout the U.S. at various healthcare facilities, such as acute and non-
acute care facilities, medical group practices, government facilities, and managed care organizations.
Other Human Capital Management Services – Other Human Capital Management Services represented
approximately 6% of our total revenue. Other Human Capital Management Services provides education and training
programs to the healthcare industry and retained and contingent search services for physicians and healthcare
executives within the U.S.
22
Executive Summary of Operations
Fiscal 2014 was a year of transformation for Cross Country Healthcare, Inc. After implementing significant changes in 2013,
including the December 2013 acquisition of the operating assets of On Assignment, Inc.’s Allied Healthcare Staffing division
(the acquired allied staffing business), the disposition of our clinical trial services business early in 2013, and senior
management changes in the second half or 2013 and into 2014, in June 2014 we completed the acquisition of substantially all
of the assets and certain liabilities of Medical Staffing Network (MSN), a provider of per diem, local, contract, travel, and
permanent hire staffing services. We believe the acquired businesses complement our current operations by: (1) adding new
skillsets to our traditional staffing offerings, (2) expanding our local branch network, which will allow us to expand our local
market presence and our MSP business, (3) diversifying our customer base into the local ambulatory care and retail market,
which provides more balance between our large volume based customers and our small local customers, and (4) better
positioning us to take additional market share at our MSP accounts. We also expect to increase earnings growth by the
recognition of cost and revenue synergies with the acquired businesses.
We believe we are well positioned to execute on the elements of our strategy to grow revenue in our core businesses, expand
margins and enhance the operating leverage of our infrastructure. The fundamentals of our strategy are to ensure we offer a
full range of services and specialties necessary to meet the needs of our clients, to deliver creative and flexible workforce
solutions, build a customer-centric strong sales capability with geographic access to all of our key markets, provide world
class client service with a focus on fulfillment and retention, and continuously improve our operational effectiveness.
For the year ended December 31, 2014, our revenue from continuing operations was $617.8 million, and we had a net loss
from continuing operations of $31.5 million, or a $1.02 loss per diluted share. Our net loss from continuing operations in the
year ended December 31, 2014 was primarily due to a trade name impairment charge recorded in the fourth quarter of 2014, a
change in the fair value of an embedded derivative in our convertible notes, and acquisition and integration costs. See Note 5
- Goodwill, Trade Names, and Other Identifiable Intangible Assets, Note 3 - Acquisitions, and Note 9 - Convertible Notes
Derivative Liability, to the Consolidated Financial Statements.
In June 2014, we financed the acquisition of MSN with $30.0 million in borrowings from a Second Lien Term Loan and $25.0
million from Convertible Notes. We also amended our loan agreement with Bank of America. N.A. to increase the borrowing
capacity under our senior secured asset-based revolving credit facility from $65.0 million to $85.0 million. During the year
ended December 31, 2014, we used a significant amount of cash from operations primarily to fund acquisition and integration
costs of the MSN acquisition and working capital related to the allied healthcare staffing acquisition. We ended the year with
total debt of $74.1 million and $5.0 million of cash, resulting in a ratio of debt, net of cash, to total capitalization of 33.8%.
Business Metrics
In general, we evaluate our financial condition and operating results by revenue, contribution income (see Segment
Information), and consolidated 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 to the metrics identified below, we monitor other volume
and profitability indicators such as number of open orders, contract bookings, and price.
Business Segment
Nurse and Allied Staffing
Business Measurement
FTEs represent the average number of Nurse and Allied Staffing
contract personnel on a full-time equivalent basis.
Average revenue per FTE per day is calculated by dividing the
Nurse and Allied Staffing revenue by the number of days worked in
the respective periods. Nurse and Allied Staffing revenue also
includes revenue from the permanent placement of nurses.
Physician Staffing
Days filled is calculated by dividing the total hours filled during the
period by 8 hours.
Revenue per day filled is calculated by dividing the actual revenue
invoiced (excluding permanent placement fees) by Physician
Staffing days filled for the period presented.
23
Other Financial Data
(unaudited)
Year Ended December 31,
2014
2013
Change
Change
Nurse and Allied Staffing statistical data:
FTEs
Average Nurse and Allied Staffing revenue per FTE per day
Physician Staffing statistical data:
Days filled
Revenue per day filled
Results of Operations
4,751
264
85,457
1,436
$
$
$
$
2,378
313
90,881
1,405
2,373
(49)
(5,424)
31
99.8 %
(15.7)%
(6.0)%
2.2 %
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.
Revenue from services
Direct operating expenses
Selling, general and administrative expenses
Bad debt expense
Depreciation and amortization
Acquisition and integration costs
Restructuring costs
Legal settlement charge
Impairment charges
Loss from operations
Interest expense
Change in fair value of convertible note derivative liability
Loss on early extinguishment and modification of debt
Loss from continuing operations before income taxes
Income (benefit) tax expense
Loss from continuing operations
Income (Loss) from discontinued operations, net of tax
Consolidated net loss
Less: Net income attributable to noncontrolling interest in
subsidiary
Net loss attributable to common shareholders
Year Ended December 31,
2013
2012
2014
100.0%
74.5
22.8
0.2
1.2
1.3
0.1
—
1.6
(1.7)
0.7
2.7
—
(5.1)
—
(5.1)
—
(5.1)
100.0%
74.1
24.2
0.2
1.4
0.1
0.1
0.2
1.5
(1.8)
0.2
—
0.3
(2.3)
10.1
(12.4)
0.5
(11.9)
100.0%
74.8
24.7
0.2
1.6
—
—
—
4.2
(5.5)
0.6
—
—
(6.1)
(1.4)
(4.7)
(4.8)
(9.5)
—
(5.1)%
—
(11.9)%
—
(9.5)%
24
Segment Information
Information on operating segments and reconciliation to loss income from operations for the periods indicated are as follows:
Revenue from services:
Nurse and Allied Staffing
Physician Staffing
Other Human Capital Management Services
Contribution income: (b)
Nurse and Allied Staffing (a)
Physician Staffing
Other Human Capital Management Services
Unallocated corporate overhead (a)
Depreciation
Amortization
Acquisition and integration costs (c)
Restructuring costs
Legal settlement charge
Impairment charges (c)
Loss from operations
_______________
2014
Year Ended December 31,
2013 (a)
(Amounts in thousands)
2012 (a)
$
$
$
457,034
123,306
37,485
617,825
36,326
6,700
514
43,540
27,770
3,866
3,575
7,957
840
—
10,000
(10,468) $
$
$
$
271,563
128,781
37,967
438,311
18,424
8,939
746
28,109
21,844
3,886
2,294
473
484
750
6,400
(8,022) $
272,136
129,162
41,337
442,635
10,277
10,863
1,943
23,083
21,701
4,905
2,263
—
—
—
18,732
(24,518)
$
$
$
$
(a)
(b)
(c)
In 2014, the Company reclassified the revenue and contribution income of certain higher level staffing professionals
previously included with Nurse and Allied Staffing to Physician Staffing. In addition, in 2014, we refined our
methodology for allocating certain corporate overhead expenses to our Nurse and Allied Staffing segment to more
accurately reflect this segment’s profitability. Prior year information has been reclassified to conform to current year
presentation.
We define contribution income as loss from operations before depreciation, amortization, acquisition and integration
costs, restructuring costs, legal settlement charges, impairment 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 ASC 280, Segment Reporting.
During 2014, we incurred acquisition and integration costs related to our MSN acquisition and the acquired allied
healthcare staffing business. See Note 3 - Acquisitions to the consolidated financial statements. In addition, during
2014, 2013, and 2012 we recognized impairment charges in related to our Physician Staffing and Nurse and Allied
segments. See Note 5 - Goodwill, Trade Names, and Other Identifiable Intangible Assets.
Comparison of Results for the Year Ended December 31, 2014 compared to the Year Ended December 31, 2013
Results of Recent Acquisitions
We are in the process of integrating the acquired businesses into our current operations, including the consolidation of branch
and corporate offices and as a result, it is impracticable to separate their results from the date of acquisition. We provide
information about the unaudited pro forma combined financial information as if the MSN and allied staffing business
acquisitions had occurred as of January 1, 2013 to provide context to the underlying growth of the businesses.
25
Revenue from services
Revenue from services increased $179.5 million, or 41.0%, to $617.8 million for the year ended December 31, 2014, as
compared to $438.3 million for the year ended December 31, 2013. The increase was entirely from Nurse and Allied Staffing
and partially offset by lower revenue from Physician Staffing and Other Human Capital Management Services.
Nurse and Allied Staffing
Revenue from Nurse and Allied Staffing business segment increased $185.5 million, or 68.3% to $457.0 million for the year
ended December 31, 2014, from $271.6 million for the year ended December 31, 2013. The year-over-year increase was a
result of growth in the segment as well as the impact from the acquired businesses. On a pro forma basis, including results of
the acquired businesses in both periods, revenue increased 8.7%, primarily related to higher demand for travel nurses.
The average number of Nurse and Allied Staffing FTEs on contract during the year ended December 31, 2014, nearly doubled
from the year ended December 31, 2013, primarily due to the acquired businesses along with increased demand. Average
Nurse and Allied Staffing revenue per FTE decreased approximately 15.7% in the year ended December 31, 2014 compared to
the year ended December 31, 2013 primarily due to lower average bill rates in the acquired businesses.
Physician Staffing
Revenue from Physician Staffing decreased $5.5 million, or 4.3% to $123.3 million for the year ended December 31, 2014,
compared to $128.8 million for the year ended December 31, 2013. The decrease in revenue reflects lower volume, partially
offset by higher revenue per day filled and the impact of the MSN acquisition.
Physician Staffing days filled decreased 6.0% to 85,457 in the year ended December 31, 2014, compared to 90,881 in the year
ended December 31, 2013. Revenue per day filled for the year ended December 31, 2014 was $1,436, a 2.2% increase from
the year ended December 31, 2013, reflecting higher average prices.
Other Human Capital Management Services
Revenue from Other Human Capital Management Services for the year ended December 31, 2014, decreased $0.5 million, or
1.3%, to $37.5 million from $38.0 million in the year ended December 31, 2013, reflecting lower seminar attendance in our
education and training business.
Direct operating expenses
Direct operating expenses are comprised primarily of field employee compensation and independent contractor expenses,
housing expenses, travel expenses and field insurance expenses. Direct operating expenses increased $135.2 million, or
41.6%, to $460.0 million for the year ended December 31, 2014, as compared to $324.9 million for year ended December 31,
2013.
As a percentage of total revenue, direct operating expenses represented 74.5% of revenue for the year ended December 31,
2014, and 74.1% for the year ended December 31, 2013. The increase was primarily due to higher professional liability
expenses in Physician Staffing, partially offset by expansion of our bill/pay spread in Nurse and Allied Staffing.
Selling, general and administrative expenses
Selling, general and administrative expenses increased $34.9 million, or 32.9%, to $141.0 million for the year ended
December 31, 2014, as compared to $106.1 million for the year ended December 31, 2013. As a percentage of total revenue,
selling, general and administrative expenses were 22.8% and 24.2% for the years ended December 31, 2014 and 2013,
respectively.
Included in selling, general and administrative expenses is unallocated corporate overhead of $27.8 million for the year ended
December 31, 2014, compared to $21.8 million for the year ended December 31, 2013. Included in unallocated corporate
overhead are $1.4 million and $2.1 million of share-based compensation expenses for the years ended December 31, 2014 and
2013, respectively. The year-over-year decline in share-based compensation was related to increased forfeitures. See Note 14 -
Stockholders' Equity to the consolidated financial statements. As a percentage of consolidated revenue, unallocated corporate
overhead was 4.5% for the year ended December 31, 2014, and 5.0% for the year ended December 31, 2013.
26
Contribution income
Nurse and Allied Staffing
Contribution income from Nurse and Allied Staffing for the year ended December 31, 2014, increased $17.9 million or 97.2%,
to $36.3 million from $18.4 million in year ended December 31, 2013. As a percentage of segment revenue, contribution
income was 7.9% for the year ended December 31, 2014, and 6.8% for the year ended December 31, 2013. The margin
improvement was primarily due to expansion of our bill/pay spread, improved operating leverage, and the impact of our
acquisitions, partially offset by investments in selling expenses.
Physician Staffing
Contribution income from Physician Staffing for the year ended December 31, 2014, decreased $2.2 million or 25.0% to $6.7
million compared to $8.9 million in the year ended December 31, 2013. As a percentage of segment revenue, contribution
income was 5.4% for the year ended December 31, 2014 and 6.9% for the year ended December 31, 2013. The margin decline
was primarily due to higher professional liability expense and lower revenue, partly offset by lower selling, general and
administrative expenses.
Other Human Capital Management Services
Contribution income from Other Human Capital Management Services for the year ended December 31, 2014, decreased by
$0.2 million, or 31.1%, to $0.5 million, from $0.7 million in the year ended December 31, 2013. Contribution income as
a percentage of segment revenue was 1.4% for the year ended December 31, 2014 and 2.0% for the year ended December 31,
2013. The decrease in contribution income margin was primarily due to lower average seminar attendance and a higher rate of
cancellations in our education and training business, partly offset by improved operating leverage in our retained search
business.
Depreciation and amortization expense
Depreciation and amortization expense in the year ended December 31, 2014, totaled $7.4 million as compared to $6.2 million
for the year ended December 31, 2013. As a percentage of revenue, depreciation and amortization expense was 1.2% for the
year ended December 31, 2014 and 1.4% for the year ended December 31, 2013.
Acquisition and integration costs
During the year ended December 31, 2014, and 2013, we incurred acquisition and integration costs of $8.0 million, and $0.5
million, respectively. Acquisition and integration costs for the year ended December 31, 2014 were primarily related to the
MSN acquisition and included costs such as professional and transaction advisory fees, as well as $1.6 million for employee
termination benefits and $1.1 million for exit costs associated with redundant facilities. Acquisition and integration costs for
the year ended December 31, 2013 were related to the integration of the acquired allied healthcare staffing business and
included transaction costs, transitional services as well as travel and training costs.
Restructuring costs
We recorded restructuring costs of $0.8 million and $0.5 million in the years ended December 31, 2014 and 2013, respectively,
primarily related to senior management severance pay.
Legal settlement charge
During the year ended December 31, 2013, we accrued $0.8 million to settle a wage and hour class action lawsuit in
California, for which the Court granted final approval of the settlement in September 2014 and during the fourth quarter of
2014, we paid $0.8 million to the Plaintiff. See Note 12 - Commitments and Contingencies to our consolidated financial
statements.
Impairment charges
For year ended December 31, 2014, we recorded an impairment charge of $10.0 million relating trade names of Physician
Staffing. In the fourth quarter of 2014, pursuant to the Intangibles - Goodwill and Other Topic of the FASB ASC, we
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conducted an assessment of our indefinite-lived intangible assets. Based upon the recent performance of Physician Staffing
during the year, we reduced our revenue forecast in the fourth quarter. We determined that based on our projected revenue
stream, our estimated fair value was less than the carrying amount of the trade names.
For year ended December 31, 2013, we recorded impairment charges of $6.4 million, representing impairment of trade names
of $6.2 million related to Physician Staffing and $0.2 million related to Nurse and Allied Staffing. In the fourth quarter of
2013, pursuant to the Intangibles - Goodwill and Other Topic of the FASB ASC, we conducted an assessment of our trade
names related to our physician staffing acquisition in 2008. Based upon the then recent performance of Physician Staffing, we
reduced our revenue forecast in the fourth quarter. We determined that based on our projected revenue stream, our estimated
fair value was less than the carrying amount of the trade names.
See Critical Accounting Principles and Estimates and Note 5 – Goodwill, Trade Names, and Other Identifiable Intangible
Assets to our consolidated financial statements.
Interest expense
Interest expense totaled $4.2 million for the year ended December 31, 2014 and $0.8 million for the year ended December 31,
2013. The increase in interest expense was due to a combination of higher average borrowings and higher interest rates on our
borrowings. The effective interest rate on our borrowings was 7.0% for the year ended December 31, 2014 compared to 2.4%
in the year ended December 31, 2013.
Change in fair value of derivative
Change in fair value of derivative of $16.7 million in the year ended December 31, 2014 relates to the fair value of embedded
features of our Convertible Notes. The Convertible Notes include terms that are considered to be embedded derivatives,
including conversion and redemption features that primarily protect the investors' investment with us (see Note 9 - Convertible
Notes Derivative Liability to our consolidated financial statements). Each reporting period we are required to record the
embedded derivative at fair value with the changes being recorded as a component of other expense (income) on our
consolidated statements of operations.
Loss on early extinguishment and modification of debt
Loss on early extinguishment and modification of debt was $1.4 million in the year ended December 31, 2013 and related to
the write-off of unamortized debt issuance costs related to our prior credit agreement. See Note 8 - Long-Term Debt to our
consolidated financial statements.
Income tax expense
Income tax expense totaled $0.2 million for the year ended December 31, 2014, as compared to $44.2 million for the year
ended December 31, 2013. Income tax expense for the years ended December 31, 2014 and 2013 included a valuation
allowance on the Company's deferred tax assets of $12.0 million and $48.6 million, respectively. See Note 13 - Income Taxes
to our consolidated financial statements. Excluding the expense related to this valuation allowance, the effective tax rate was
33.3% in the year ended December 31, 2014, compared to 43.3% in the year ended December 31, 2013. The lower effective
tax rate in the year ended December 31, 2014 was partly due to an increase in the nondeductible meals and incidentals
primarily related to the acquisitions. The greater effective tax rate in the year ended December 31, 2013 was partly due to a
benefit from the reversal of taxes accrued on our foreign earnings and effect of book tax differences on the tax benefit relating
to our stock compensation plans.
Income (loss) from discontinued operations, net of income taxes
Our clinical trial services business segment was reclassified as discontinued in our fourth quarter of 2012. Income from
discontinued operations, net of tax of $2.3 million included a $4.0 million gain ($1.7 million net of taxes) on the sale of our
clinical trial services business in the year ended December 31, 2013.
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Comparison of Results for the Year Ended December 31, 2013 compared to the Year Ended December 31, 2012
Revenue from services
Revenue from services decreased $4.3 million, or 1.0%, to $438.3 million for the year ended December 31, 2013, as compared
to $442.6 million for the year ended December 31, 2012. The decrease was due to lower revenue in all three business
segments.
Nurse and Allied Staffing
Revenue from Nurse and Allied Staffing decreased $0.6 million, or 0.2% to $271.6 million for the year ended December 31,
2013, from $272.1 million for the year ended December 31, 2012. Excluding the results of the acquired allied healthcare
staffing business, revenue in Nurse and Allied Staffing decreased $4.0 million, primarily due to lower staffing volume,
partially offset by higher average bill rates.
The average number of Nurse and Allied Staffing FTEs on contract during the year ended December 31, 2013, decreased 1.4%
from the year ended December 31, 2012. Average Nurse and Allied Staffing revenue per FTE increased approximately 1.6% in
the year ended December 31, 2013 compared to the year ended December 31, 2012.
Physician Staffing
Revenue from Physician Staffing decreased $0.4 million, or 0.3% to $128.8 million for the year ended December 31, 2013,
compared to $129.2 million for the year ended December 31, 2012. The decrease in revenue reflects lower volume, partially
offset by higher bill rates. Physician Staffing days filled decreased 1.7% to 90,881 in the year ended December 31, 2013,
compared to 92,483 in the year ended December 31, 2012. Revenue per day filled for the year ended December 31, 2013 was
$1,405, a 1.5% increase from the year ended December 31, 2012, reflecting higher average prices.
Other Human Capital Management Services
Revenue from Other Human Capital Management Services for the year ended December 31, 2013, decreased $3.4 million, or
8.2%, to $38.0 million from $41.3 million in the year ended December 31, 2012, reflecting less seminars and lower seminar
attendance in our education and training business and lower revenue from our retained search business.
Direct operating expenses
Direct operating expenses are comprised primarily of field employee compensation and independent contractor expenses,
housing expenses, travel expenses and field insurance expenses. Direct operating expenses decreased $6.2 million, or 1.9%, to
$324.9 million for the year ended December 31, 2013, as compared to $331.1 million for year ended December 31, 2012.
As a percentage of total revenue, direct operating expenses represented 74.1% of revenue for the year ended December 31,
2013, and 74.8% for the year ended December 31, 2012. The decrease was primarily due to lower housing costs and field
insurance expenses, partially offset by higher physician provider fees and expenses as a percentage of revenue.
Selling, general and administrative expenses
Selling, general and administrative expenses decreased $3.3 million, or 3.0%, to $106.1 million for the year ended
December 31, 2013, as compared to $109.4 million for the year ended December 31, 2012. As a percentage of total revenue,
selling, general and administrative expenses were 24.2% and 24.7% for the years ended December 31, 2013 and 2012,
respectively. The decrease is primarily due to lower health insurance, direct mail expenses, rent expense and compensation
expense, partially offset by an increase in legal expense. Selling, general and administrative expenses for the year ended
December 31, 2012 included $1.0 million of estimated state non-income taxes ($0.3 million related to our estimates for the
2005-2011 tax years as discussed in Note 12 - Commitments and Contingencies to our consolidated financial statements) and
$0.7 million expense for an immaterial correction in calculating deferred rent which primarily accumulated from 2002 to
2010.
Included in selling, general and administrative expenses is unallocated corporate overhead of $22.3 million for the year ended
December 31, 2013, compared to $22.6 million for the year ended December 31, 2012. Included in unallocated corporate
overhead are $2.1 million and $2.6 million of share-based compensation expenses for the years ended December 31, 2013 and
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2012, respectively. As a percentage of consolidated revenue, unallocated corporate overhead was 5.1% for the year ended
December 31, 2013, and 5.1% for the year ended December 31, 2012.
Contribution income
Nurse and Allied Staffing
Contribution income from Nurse and Allied Staffing for the year ended December 31, 2013, increased $8.1 million or 79.3%,
to $18.4 million from $10.3 million in year ended December 31, 2012. As a percentage of segment revenue, contribution
income was 6.8% for the year ended December 31, 2013, and 3.8% for the year ended December 31, 2012. This increase was
primarily due to a combination of lower insurance and housing costs for our field staff, and lower selling, general and
administrative expenses.
Physician Staffing
Contribution income from Physician Staffing for the year ended December 31, 2013, decreased $1.9 million or 17.7% to $8.9
million compared to $10.9 million in the year ended December 31, 2012. As a percentage of segment revenue, contribution
income was 6.9% for the year ended December 31, 2013 and 8.4% for the year ended December 31, 2012. The margin decline
was due to higher physician provider fees as a percentage of revenue and an increase in the Company's estimated accrual for
sales tax liabilities in the year ended December 31, 2013.
Other Human Capital Management Services
Contribution income from Other Human Capital Management Services for the year ended December 31, 2013, decreased by
$1.2 million, or 61.6%, to $0.7 million, from $1.9 million in the year ended December 31, 2012. Contribution income as
a percentage of segment revenue was 2.0% for the year ended December 31, 2013 and 4.7% for the year ended December 31,
2012. This decrease in margin was primarily due to negative operating leverage in our retained search business partially offset
by lower direct mail costs as a percentage of revenue in our education and training 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, 2013, totaled $6.2 million as compared to $7.2 million
for the year ended December 31, 2012. As a percentage of revenue, depreciation and amortization expense was 1.4% for the
year ended December 31, 2013 and 1.6% for the year ended December 31, 2012.
Acquisition and integration costs
Acquisition and Integration costs during the year ended December 31, 2013 consisted primarily of advisory services and
administrative expenses related to our acquisition of On Assignment's Allied Healthcare Staffing division. No similar
expenses were recorded during the year ended December 31, 2012.
Restructuring costs
During the year ended December 31, 2013, we recorded restructuring charges of $0.5 million primarily related to senior
management severance pay. No similar charges were recorded during the year ended December 31, 2012.
Impairment charges
In the year ended December 31, 2013, impairment charges of $6.4 million represent impairment of trade names of $6.2 million
related to Physician Staffing and $0.2 million related to Nurse and Allied Staffing. In the fourth quarter of 2013, pursuant to the
Intangibles - Goodwill and Other Topic of the FASB ASC, we conducted an assessment of the trade names related to our physician
staffing acquisition in 2008. Based upon the then recent performance of Physician Staffing, we reduced our revenue forecast for
this segment in the fourth quarter. We determined, that based on our projected revenue stream, our estimated fair value was less
than the carrying amount of the trade names.
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Impairment charges of $18.7 million in the year ended December 31, 2012 represented impairment of goodwill related to the
Nurse and Allied Staffing due to the results of an interim impairment analysis pursuant to the Intangibles – Goodwill and
Other Topic of the FASB ASC. We determined that the fair value of Nurse and Allied Staffing was lower than the respective
carrying value. The decrease in value was due to slower than expected booking momentum and reduced contribution income
in our second quarter of 2012 which lowered the anticipated growth trend used for goodwill impairment testing. Pursuant to
the second step of the interim impairment testing we were required to calculate an implied fair value of goodwill based on a
hypothetical purchase price allocation. Based on these results, we determined a pretax goodwill impairment charge of $18.7
million. See Critical Accounting Principles and Estimates and Note 5 – Goodwill and Other Identifiable Intangible Assets to
our consolidated financial statements.
Interest expense
Interest expense totaled $0.8 million for the year ended December 31, 2013 and $2.3 million for the year ended December 31,
2012. Lower interest expense was due to lower average borrowings in the year ended December 31, 2013 due to the
repayment of borrowings from proceeds of the sale of our clinical research trial services business in February 2013. The
effective interest rate on our borrowings was 2.4% and 2.3% for the years ended December 31, 2013 and 2012, respectively.
Interest expense in the year ended December 31, 2012 included debt financing costs of $0.3 million that were not capitalized.
Loss on early extinguishment and modification of debt
Loss on early extinguishment and modification of debt was $1.4 million in the year ended December 31, 2013 and related to
the write-off of unamortized debt issuance costs related to our prior credit agreement. See Note 8 - Long-Term Debt, to our
consolidated financial statements for more information. During the year ended December 31, 2012, loss on early
extinguishment or modification of debt was $0.1 million and related to a change in lenders' participations and modification of
the then existing July 2012 Credit Agreement.
Income tax expense (benefit)
Income tax expense totaled $44.2 million for the year ended December 31, 2013, as compared to an income tax benefit of $6.1
million for the year ended December 31, 2012. The income tax expense in the year ended December 31, 2013 included a $48.6
million valuation allowance on the Company's deferred tax assets. See Note 13 - Income Taxes to our consolidated financial
statements. Excluding the expense related to this valuation allowance, the effective tax rate was 43.3% in the year ended
December 31, 2013, compared to 22.9% in the year ended December 31, 2012. The greater effective tax rate in the year ended
December 31, 2013 was partly due to a benefit from the reversal of taxes accrued on our foreign earnings and effect of book
tax differences on the tax benefit relating to our stock compensation plans. The lower effective tax rate in the year ended
December 31, 2012 was partly due to an adjustment of $2.5 million to income tax expense in the fourth quarter of 2012 related
to the reversal of the Company’s permanent reinvestment of foreign earnings position and the effect of losses due to
impairment charges incurred in 2012. Excluding the adjustment relating to the foreign earning position, the effective tax rate
was 32.2% in the year ended December 31, 2012.
Income (loss) from discontinued operations, net of income taxes
Our clinical trial services business segment was reclassified as discontinued in our fourth quarter of 2012. Income from
discontinued operations, net of tax of $2.3 million included a $4.0 million gain ($1.7 million net of taxes) on the sale of our
clinical trial services business in the year ended December 31, 2013.
Loss from discontinued operations in the year ended December 31, 2012 included total impairment charges of $35.4 million
($24.2 million, net of income taxes) related to goodwill and other intangible assets. Excluding the impairment charges, the
clinical trial service business had income from operations before income taxes of $4.5 million in the year ended December 31,
2012 compared to $4.6 million in the year ended December 31, 2011. See Note 4 - Goodwill, Trade Names, and Other
Identifiable Intangible Asset to our consolidated financial statements.
Transactions with Related Parties
We provide services to hospitals which are affiliated with certain Board of Director members. In addition, MSN provided
staffing services to an entity that has a noncontrolling interest in InteliStaf of Oklahoma, LLC, a joint venture between MSN
(68% ownership) and an unrelated third party (with 32% ownership). See Note 16 - Related Party Transactions to our
consolidated financial statements.
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Liquidity and Capital Resources
At December 31, 2014, we had $5.0 million in cash and cash equivalents, and $57.4 million of total debt, excluding the full
year non-cash change in the fair value of convertible notes derivative liability of $16.7 million. Working capital increased by
$25.2 million to $64.2 million as of December 31, 2014, compared to $39.0 million as of December 31, 2013, primarily due to
the acquisitions as well as an increase in accounts receivable. Days’ sales outstanding increased by 4 days to 55 days as of
December 31, 2014, compared to 51 days at December 31, 2013, 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 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 cash on hand, operating cash flows and funds available through the
revolving loan portion of our First Lien Loan Agreement. We believe that operating cash flows and cash on hand, along with
amounts available under our First Lien Loan Agreement, will be sufficient to meet these needs during the next twelve months.
Our foreign cash balance of $4.4 million is available to us, and if we repatriated the total amount, we would incur $0.3 million
of withholding tax, which has been accrued for as of December 31, 2014. We continue to evaluate acquisition opportunities
that may require additional funding.
Debt
Senior Credit Facility
On January 9, 2013, we entered into a First Lien Loan, (the First Lien Loan Agreement or Senior Secured Asset-Based), by
and among the Company and certain of its subsidiaries, as borrowers, and Bank of America, N.A., as agent. The First Lien
Loan Agreement was subsequently amended to allow for the sale of our clinical trials services business in February 2013 and
for administrative matters.
On June 30, 2014, we entered into a third amendment (the Amendment) to the First Lien Loan Agreement dated as of January
9, 2013 with Bank of America, N.A., as agent, in order to, among other things, increase our borrowing capacity under the First
Lien Loan Agreement and to consent to the consummation of the MSN acquisition and the incurrence of the indebtedness
contemplated pursuant to the Second Lien Term Loan Agreement and the Note Purchase Agreement. The Amendment
provided for, among other things, increasing the revolving credit facility under the First Lien Loan Agreement from $65.0
million to $85.0 million and increasing the letter of credit subline under the First Lien Loan Agreement from $20.0 million to
$35.0 million. In addition, the termination date of the revolving credit facility under the First Lien Loan Agreement was
extended to June 30, 2017.
We used the increased availability under the letter of credit subline to collateralize certain insurance obligations related to the
MSN acquisition. The revolving credit facility and letter of credit subline will be used to provide ongoing working capital and
for other general corporate purposes.
As of December 31, 2014, the interest rate spreads and fees under the First Lien Loan Agreement are based on LIBOR plus
1.50% or Base Rate plus 0.50%. The LIBOR and Base Rate margins are subject to performance pricing adjustments, pursuant
to a pricing matrix based on excess availability under the revolving credit facility, and could increase by 200 basis points if an
event of default exists. We are required to pay a monthly commitment fee on the average daily unused portion of the revolving
loan facility, which, as of December 31, 2014, was 0.375%.
The revolving credit facility can be used to provide ongoing working capital and for other general corporate purposes of the
Company and its subsidiaries. As of December 31, 2014, the Gross Availability, as defined in the First Lien Loan Agreement,
was approximately $69.7 million based on the our November accounts receivable balance. We had $26.5 million letters of
credit outstanding and $3.5 million drawn under the revolving credit facility, leaving $39.7 million available as of
December 31, 2014. The letters of credit relate to our workers’ compensation and professional liability insurance policies. See
Note 8 - Long-Term Debt to our consolidated financial statements.
Second Lien Term Loan
On June 30, 2014, we entered into a second lien loan and security agreement (the Second Lien Term Loan Agreement), by and
among the Company, as borrower, certain of its domestic subsidiaries, as guarantors, and BSP Agency, LLC, as agent.
32
The Second Lien Term Loan Agreement provides for a five-year senior secured term loan facility in an aggregate principal
amount of $30.0 million (the loans thereunder, the Second Lien Term Loans). The proceeds from the Second Lien Term Loan
Facility were used to pay a portion of the consideration for the MSN acquisition and related fees and expenses.
Amounts borrowed under the Second Lien Term Loan Facility that are repaid or prepaid may not be re-borrowed. The Second
Lien Term Loans bear interest at a rate equal to adjusted LIBOR (defined as the 3-month London interbank offered rate for
U.S. dollars, adjusted for customary Eurodollar reserve requirements, if any, and subject to a floor of 1.00% plus 6.50%. The
interest rate could increase by 200 basis points if an event of default exists under the Second Lien Term Loan Agreement.
At our option we may elect to prepay the Second Lien Term Loans on or before June 30, 2015, subject to a prepayment
premium in an amount equal to (i) the amount of the principal amount of the Second Lien Term Loans being repaid, plus (ii)
the accrued but unpaid interest on the principal amount so prepaid, if any, to the date of the prepayment, plus (iii) any
associated administrative amounts or charges owed to the lenders as a result of the redeployment of funds or fees payable to
terminate matching deposits, plus (iv) a “make whole” amount equal to the excess, if any, of (a) the present value at the
prepayment date of (1) 103% of the aggregate principal amount of the Second Lien Term Loans then being prepaid, plus (2)
all remaining scheduled interest payments due on the principal amount of such Second Lien Term Loans being prepaid
through June 30, 2015 (excluding accrued but unpaid interest to the date of such prepayment), computed using a discount rate
equal to the Treasury rate as of such prepayment date plus 50 basis points over (b) the outstanding principal amount of such
Second Lien Term Loans being prepaid. The Company may, at its option at any time after June 30, 2015, prepay the Second
Lien Term Loans in whole or in part at the redemption prices set forth therein, which range from 103% of the principal amount
thereof for prepayments during the period July 1, 2015 through June 30, 2016, 102% of the principal amount thereof for
prepayments during the period July 1, 2016 through June 30, 2017, and 100% of the principal amount thereof for prepayments
after such date.
Subject to certain exceptions, the Second Lien Term Loans are required to be prepaid with: (a) 50% of excess cash flow (as
defined in the Second Lien Term Loan Agreement) above $5.0 million for each fiscal year of the Company (commencing with
the fiscal year ending December 31, 2015), provided that voluntary prepayments of the Second Lien Term Loans made during
such fiscal year will reduce the amount of excess cash flow prepayments required for such fiscal year on a dollar-for-dollar
basis; (b) 100% of the net cash proceeds of all asset sales or other dispositions of property by us, as set forth in the agreement,
in excess of a defined threshold and subject to our right to reinvest such proceeds within 12 months; (c) 100% of the net cash
proceeds of issuances of debt offerings by us (except the net cash proceeds of any permitted debt); and (d) 50% of the net cash
proceeds of equity offerings of the Company.
Private Placement of Convertible Notes
On June 30, 2014, we entered into a Convertible Note Purchase Agreement (the Note Purchase Agreement), with certain note
holders (collectively, the Noteholders). Pursuant to the Note Purchase Agreement, we sold to the Noteholders an aggregate of
$25.0 million of convertible senior notes (the Convertible Notes). The proceeds from the Note Purchase Agreement were used
to pay a portion of the consideration paid in the MSN Acquisition and related fees and expenses.
The Convertible Notes are convertible at the option of the holders thereof at any time into shares of our Common Stock, at an
initial conversion price of $7.10 per share, or 3,521,126 shares of Common Stock. After three years, we have the right to force
a conversion of the Convertible Notes if the volume-weighted average price (VWAP) per share of its Common Stock exceeds
125% of the then conversion price for 20 days of a 30 day trading period. The conversion price is subject to adjustment
pursuant to customary weighted average anti-dilution provisions including adjustments for the following: Common Stock
dividends or distributions; issuance of any rights, warrants of options to acquire Common Stock; distributions of property;
tender offer or exchange offer payments; cash dividends; or certain issuances of Common Stock at less than the conversion
price. Upon conversion of the Convertible Notes, we will exchange, for the applicable conversion amount thereof a number of
shares of Common Stock equal to the amount determined by dividing (i) such conversion amount by (ii) the conversion price
in effect at the time of conversion. No fractional shares of Common Stock will be issued upon conversion of the Conversion
Notes. In lieu of fractional shares, the Company shall pay cash in respect of each fractional share equal to such fractional
amount multiplied by the Thirty Day VWAP as of the closing of business on the Business Day immediately preceding the
conversion date as well as any unpaid accrued interest.
The Convertible Notes bear interest at a rate of 8.00% per annum, payable in quarterly cash installments; provided, however,
that, at our option, up to 4.00% of the interest payable may be “paid-in-kind” through a quarterly addition of such “paid-in-
kind” interest amount to the principal amount of the Convertible Notes. The Convertible Notes will mature on June 30, 2020,
unless earlier repurchased, redeemed or converted. Subject to certain exceptions, we are not permitted to redeem the
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Convertible Notes until June 30, 2017. If we redeem the Convertible Notes on or after June 30, 2017, we are required to pay a
premium of 15% of the amount of principal of the Convertible Notes redeemed.
If the Convertible Notes are redeemed prior to June 30, 2017, pursuant to a Prohibited Transaction, as defined by the
agreement, we are required to pay a premium equal to the greater of (i) the sum of (a) the amount of principal of the
Convertible Notes redeemed, plus (b) the accrued but unpaid interests on the principal amount so redeemed to the date of the
redemption, plus (c) a “make whole” amount (described below) and (ii) the sum of (x) the average thirty day volume-weighted
average price per share of Common Stock multiplied by the number of shares of Common Stock that the redeemed
Convertible Notes are then convertible into and (y) the accrued but unpaid interest on the Convertible Notes. The “make
whole” amount is equal to the excess, if any, of (1) the present value at the date of redemption of (A) 115% of the principal
amount of the Convertible Notes redeemed, plus (B) all remaining scheduled interest due on the principal amount of the notes
being redeemed through June 30, 2017 computed using a discount rate equal to the Treasury rate as of the date of redemption
plus 50 basis points over (2) the outstanding principal amount of the Convertible Notes then redeemed.
In conjunction with ASC 815, Accounting for Derivative Financial Instruments and Hedging Activities, we have bifurcated
and accounted for an embedded derivative related to specific features of these Convertible Notes. As required by ASC 815,
the embedded derivative is required to be accounted for as a derivative liability at fair value in our condensed consolidated
financial statements. See Note 9 - Convertible Notes Derivative Liability to our consolidated financial statements.
We have granted the Noteholders preemptive rights with respect to future equity issuances by us, subject to customary
exceptions.
In connection with the placement of the Convertible Notes, on June 30, 2014, we entered into a registration rights agreement
(the Registration Rights Agreement) with the Noteholders, which sets forth the rights of the Noteholders to have the shares of
Common Stock issuable upon conversion of the Convertible Notes registered with the Securities and Exchange Commission
(the SEC) for public resale under the Securities Act of 1933, as amended. Pursuant to the Registration Rights Agreement, we
were required to file a registration statement with the SEC (the Initial Registration Statement) registering the shares of
Common Stock issuable upon conversion of the Convertible Notes. The Initial Registration Statement was filed with the SEC
and became effective in the fourth quarter of 2014. In addition, the agreement gives the Noteholders the ability to exercise
certain piggyback registration rights in connection with registered offerings by the Company.
Stock Repurchase Programs
At December 31, 2014, we had 942,443 shares of common stock left remaining to repurchase under our February 2008
authorization, subject to the limitations of the Loan Agreement. Subject to certain conditions as described in its Loan
Agreement entered into on January 9, 2013, the Company may repurchase up to an aggregate amount of $5.0 million of its
Equity Interests. See Note 8 - Long-Term Debt and Note 14 - Stockholders' Equity to our consolidated financial statements.
Cash Flow Comparisons
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
Net cash used in operating activities during the year ended December 31, 2014 was $4.1 million compared to net cash
provided by operating activities of $8.7 million during the year ended December 31, 2013. During the year ended December
31, 2013, net cash provided by operating activities included $0.4 million of cash provided by discontinued operations. The
increased usage in cash in 2014 was primarily due to an increase in accounts receivable coupled with acquisition and
integration costs related to MSN and the allied health staffing business acquired in December of 2013. Cash flow from
operations in the year ended December 31, 2013 was also reduced by $2.5 million due to the acquisition in early December of
On Assignment's Allied Healthcare Staffing division, as the Company did not buy their receivables.
Investing activities used a net of $45.5 million in the year ended December 31, 2014 compared to cash provided by $15.2
million in the year ended December 31, 2013. In 2014, we used $44.6 million, net of cash acquired for the MSN acquisition.
This was partially offset by the release of $3.8 million to us of an indemnity escrow related to the sale of our discontinued
clinical trials staffing business. During the year ended December 31, 2013, we sold the clinical trial service business for net
proceeds of $45.7 million. In addition, we used $28.7 million during the year ended December 31, 2013 to acquire the Allied
Health business of On Assignment. We also used $4.6 million and $1.8 million, respectively for capital expenditures during
the years ended December 31, 2014 and 2013.
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Net cash provided by financing activities during the year ended December 31, 2014, was $46.5 million, compared to net cash
used in financing activities of $26.1 million during the year ended December 31, 2013. During the year ended December 31,
2014, excluding non-cash changes, we increased our debt by $48.8 million primarily to fund the acquisition of MSN,
including acquisition-related expenses, and to fund integration efforts related to our allied healthcare staffing acquisition. See
Note 8 - Long-Term Debt, and Note 3 - Acquisitions, to our consolidated financial statements. In addition, we used $1.1
million and $0.5 million during the years ended December 31, 2014 and 2013, respectively, for debt issuance costs related to
the financing of the MSN acquisition in 2014 and refinancing in 2013. In addition, we used $0.2 million and $0.3 million to
repurchase shares of common stock to cover withholding liabilities related to the vesting of restricted stock in 2014 and 2013,
respectively.
Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
Net cash provided by operating activities during the year ended December 31, 2013 was $8.7 million compared to $10.1
million during the year ended December 31, 2012. During the years ended December 31, 2013 and 2012, net cash provided by
operating activities included $0.4 million and $3.8 million, respectively, of cash provided by discontinued operations. The
decrease in cash flow from operations is primarily due to timing of payments and receipts in the year ended December 31,
2013. Cash flow from operations in the year ended December 31, 2013 was reduced somewhat due to the acquisition in early
December of On Assignment's Allied Healthcare Staffing division, as the Company did not buy their receivables.
Investing activities provided a net of $15.2 million in the year ended December 31, 2013 compared to $0.2 million used in the
year ended December 31, 2012. During the year ended December 31, 2013, we sold the clinical trial service business for net
proceeds of $45.7 million. In addition, we used $28.7 million during the year ended December 31, 2013 to acquire the Allied
Health business of On Assignment. We used $1.8 million and $2.2 million, respectively for capital expenditures during the
years ended December 31, 2013 and 2012. In addition, other investing activities provided $2.7 million in year ended
December 31, 2012 related to the liquidation of our foreign long-term and short-term cash investments.
Net cash used in financing activities during the year ended December 31, 2013, was $26.1 million, compared to $10.6 million
during the year ended December 31, 2012. We repaid total debt, net of borrowings, in the amounts of $25.3 million and $8.7
million during the years ended December 31, 2013 and 2012, respectively. During the years ended December 31, 2013 and
2012, we paid $0.5 million and $1.4 million, respectively, for debt issuance costs related our refinancing. We used $0.3
million and $0.2 million to repurchase shares of common stock to cover withholding liabilities related to the vesting of
restricted stock in 2013 and 2012, respectively.
Commitments and Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
The following table reflects our contractual obligations and other commitments as of December 31, 2014:
Commitments
Total
2015
2016
2017
(Unaudited, amounts in thousands)
2018
2019
Thereafter
Senior Secured Asset Based Loan (a)
Second Lien Term Loan
Convertible Notes
Capital lease obligations
Operating lease obligations (b)
$
3,500
30,000
25,000
202
20,912
$ 79,614
$
3,500
—
—
107
7,202
$ 10,809
$
$
— $
—
—
72
5,581
5,653
$
— $
—
—
13
3,884
3,897
$
_______________
— $
— $
—
—
8
1,613
1,621
30,000
—
2
486
$ 30,488
$
—
—
25,000
—
2,146
27,146
(a) Under our Senior Secured Asset-Based Loan and Second Lien Term Loan, 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. See Note 12 - Commitments and Contingencies to our consolidated financial statements.
35
In addition to the above disclosed contractual obligations, we have accrued uncertain tax positions, pursuant to the Income
Taxes Topic of the FASB ASC of $3.8 million at December 31, 2014. 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.
Critical Accounting Policies 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 for the year ended December 31, 2014,
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:
Goodwill, trade names, and other identifiable intangible assets
Our business acquisitions typically result in the recording of goodwill and other intangible assets, and the recorded values of
those assets may become impaired in the future. The determination of the value of such intangible assets requires management
to make estimates and assumptions that affect our consolidated financial statements. For intangible assets purchased in a
business combination, the estimated fair values of the assets received are used to establish their recorded values. In accordance
with the Intangibles – Goodwill and Other Topic of the FASB ASC and the Property, Plant and Equipment/Impairment of
Disposal of Long-Lived Assets Topic of the FASB ASC, we perform annual impairment analysis to assess the recoverability of
the goodwill and indefinite-lived intangible assets.
We assess the impairment of goodwill of our reporting units and indefinite-lived intangible assets annually, or more often if
events or changes in circumstances indicate that the carrying value may not be recoverable. We may first assess qualitative
factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If,
after assessing the totality of events and circumstances, we determine that it is more likely than not that the fair value of the
reporting unit is greater than its carrying amount, the quantitative impairment test is unnecessary. If the reporting unit does not
pass the qualitative assessment, then the reporting unit’s carrying value is compared to its fair value. The fair values of the
reporting units are estimated using market and discounted cash flow approaches. Goodwill is considered impaired if the
carrying value of the reporting unit exceeds its fair value. Application of the goodwill impairment test requires judgment,
including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to
reporting units, and determination of the fair value of each reporting unit. Valuation techniques consistent with the market
approach and income approach are used to measure the fair value of each reporting unit. Significant judgments are required to
estimate the fair value of reporting units including estimating future cash flows, and determining appropriate discount rates,
growth rates, company control premium and other assumptions. Changes in these estimates and assumptions could materially
affect the determination of fair value for each reporting unit.
Second quarter 2012 goodwill interim impairment testing results
During the second quarter of 2012, our stock price continued to decline from December 31, 2011. In addition, slower than
expected booking momentum and reduced contribution income Nurse and Allied Staffing resulted in a downward revision to
this segment’s forecast. Additionally, we were closely monitoring the performance of the clinical trial services and physician
staffing businesses due to a small margin between the carrying amount and fair value of those respective reporting units as of
the December 31, 2011 annual impairment testing and the small margin between the carrying amount and fair value of the
Nurse and Allied Staffing reporting unit as of the March 31, 2012 interim impairment testing. These factors warranted
impairment testing in the second quarter of 2012.
As a result of the June 30, 2012 interim impairment testing, we determined that the fair value of Nurse and Allied Staffing was
lower than the respective carrying value. The decrease in value was due to slower than expected booking momentum and
reduced contribution income in the second quarter of 2012 which lowered the anticipated growth trend used for goodwill
36
impairment testing. Pursuant to the second step of the interim impairment testing we were required to calculate an implied fair
value of goodwill based on a hypothetical purchase price allocation. Based on these results, we wrote-off the remaining
goodwill which resulted in a pretax goodwill impairment charge of $18.7 million as of June 30, 2012.
Third quarter 2012 goodwill interim impairment testing results
During the third quarter of 2012, we continued to experience a sustained decrease in stock price compared to December 31,
2011. We continued to monitor the performance of the clinical trial services and physician staffing businesses due to the thin
margin between the carrying amount and fair value as of the December 31, 2011 annual impairment testing and subsequent
interim impairment tests.
Upon completion of the third quarter 2012 interim impairment testing, we determined that the estimated fair value of our
reporting units, with the exception of clinical trial services, exceeded their respective carrying values. See Note 4 –
Discontinued Operations to our consolidated financial statements.
Fourth quarters 2014, 2013 and 2012, annual goodwill impairment testing results
During the fourth quarters of 2014, 2013, and 2012, the Company determined that no goodwill impairment charges were
warranted.
There can be no assurance that the estimates and assumptions made for purposes of the annual goodwill impairment test will
prove to be accurate predictions of the future. Although management believes the assumptions and estimates made are
reasonable and appropriate, different assumptions and estimates could materially impact the reported financial results.
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.
Fourth quarter 2014 other indefinite lived intangibles
In the fourth quarter of 2014, in conjunction with our annual testing of indefinite-lived intangible assets not subject to
amortization, we recorded a pretax non-cash impairment charge of approximately $10.0 million related to Physician Staffing.
We reduced our long-term revenue forecast in our fourth quarter for these businesses and as a result, our calculation of
estimated fair value was less than the carrying amount of the trade names, resulting in an impairment charge. See Note 5 -
Goodwill, Trade Names, and Other Identifiable Intangible Assets to our consolidated financial statements.
Fourth quarter 2013 other indefinite lived intangibles
In the fourth quarter of 2013, in conjunction with our annual testing of indefinite-lived intangible assets not subject to
amortization, we recorded a pretax non-cash impairment charge of approximately $6.4 million of which $6.2 million related to
the Physician Staffing segment and $0.2 million related to the Nurse and Allied Staffing segment. We reduced our long-term
revenue forecast in our fourth quarter for these businesses and as a result, our calculation of estimated fair value was less than
the carrying amount of the trade names, resulting in an impairment charge.
As of December 31, 2014, other indefinite-lived intangible assets not subject to amortization on our consolidated balance
sheets totaled $38.2 million.
Goodwill and other identifiable intangible assets related to discontinued operations
We used a consistent income approach and market approach to evaluate the potential impairment of goodwill related to the
clinical trial services staffing reporting unit. Discounted cash flows served as the primary basis for the income approach.
Pricing multiples derived from publicly-traded guideline companies that are comparable served as the basis for the market
approach. Pursuant to the second step of our third quarter interim impairment testing, we were required to calculate an implied
fair value of goodwill based on a hypothetical purchase price allocation. As of the date of its third quarter filing, we had not
finalized its second step of impairment testing due to the limited time period from the first indication of potential impairment
to the date of filing and the complexities involved in estimating the fair value. We recorded a pretax goodwill impairment
charge of approximately $22.1 million as of September 30, 2012. This impairment analysis was finalized in the fourth quarter
37
and did not result in any adjustment. In addition, in the fourth quarter of 2012, in conjunction with our evaluation of our
assets held for sale, an additional impairment charge was recorded of approximately $11.9 million. The Company considered
the sale price from the buyer as its best indication of fair value as of December 31, 2012 (See Note 4 - Discontinued
Operations).
Risk and uncertainties
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. See Note 10 - Fair Value. 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, 2014, we had total goodwill and intangible assets not subject to amortization of $128.8 million
or 39.6%of our total assets.
Health, workers' compensation and professional liability expense
We maintain accruals for our health, workers’ compensation and professional liability claims 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, 2014 and 2013, we had $2.2 million and $1.4 million accrued, respectively, for incurred but not reported health
insurance claims. Corporate and field employees are covered through a partially self-insured health plan. 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, 2014, and 2013, we had $12.2 million and $2.8 million
accrued for case reserves and for incurred but not reported workers’ compensation claims, net of insurance receivables,
respectively. The accrual for workers’ compensation is based on an actuarial model which is prepared or reviewed by an
independent actuary. As of December 31, 2014, and 2013, we had $9.0 million and $7.9 million accrued, respectively, for case
reserves and for incurred but not reported professional liability claims, net of insurance receivables. The accrual for
professional liability is based on actuarial models which are prepared or reviewed by an independent actuary annually.
Revenue recognition
Revenue from services consists primarily of temporary staffing revenue. Revenue is recognized when services are rendered
and all of the following criteria are met: persuasive evidence of the arrangement exists; service has been provided; and the
Company has no remaining obligations; the fee is fixed and determinable; and collectability is reasonably assured. Accounts
receivable includes an accrual for employees’ and independent contractors’ estimated time worked but not yet invoiced.
We record revenue on a gross basis as a principal or on a net basis as an agent depending on the arrangement, as follows:
• We have also entered into certain contracts with acute care facilities to provide comprehensive managed service
programs (MSP) solutions. 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, we invoice our customer for these services,
but 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 MSP services.
• Revenue from our physician staffing and education and training businesses is recognized on a gross basis as we
believe we are the principal in the arrangements.
38
Allowance for doubtful accounts
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 collectability as well as our past experience with the customer. Historically, losses on uncollectible accounts have not
exceeded our allowances. As of December 31, 2014, our allowance for doubtful accounts was $1.4 million.
Contingent liabilities
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.
Income taxes
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, 2014, we have deferred tax assets related to certain
federal, state and foreign net operating loss carryforwards of $38.1 million. The state carryforwards will expire between 2014
and 2034. The federal carryforwards expire between 2031 and 2034. The majority of the foreign carryforwards are in a
jurisdiction with no expiration.
We determine the need for a valuation allowance under Income Taxes topic of the FASB ASC by assessing the probability of
realizing deferred tax assets, taking into consideration all available positive and negative evidence, including historical
operating results, expectations of future taxable income, carryforward periods available to us for tax reporting purposes, the
evaluation of various income tax planning strategies and other relevant factors. We maintain a valuation allowance when it is
more likely than not that all or a portion of a deferred tax asset will not be realized based on consideration of all available
evidence. Adjustments to the deferred tax valuation allowances are made to earnings in the period when such assessments are
made. Significant judgment is required in making this assessment and to the extent future expectations change, we would have
to assess the recoverability of our deferred tax assets at that time. Our cumulative loss position was significant negative
evidence in assessing the need for a valuation allowance. As of December 31, 2014, we determined that we could not sustain a
conclusion that it was more likely than not that we would realize any of our deferred tax assets resulting from recent losses,
because of the cumulative loss, the difficulty of forecasting future taxable income, and other factors. We intend to maintain a
valuation allowance until sufficient positive evidence exists to support its reversal. As of December 31, 2014 and 2013, the
Company recorded valuation allowances of $63.6 million and $52.0 million, respectively. The December 31, 2013 valuation
allowance applied to all our deferred tax assets.
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 other current liabilities, and the non-current portion is included within other long-term liabilities
on the consolidated balance sheets. As of December 31, 2014, total unrecognized tax benefits recorded was $3.8 million. 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.
39
Embedded derivative
In accordance with ASC 815, Accounting for Derivative Financial Instruments and Hedging Activities, we have bifurcated and
accounted for an embedded derivative related to specific features of the Convertible Notes. The Convertible Notes derivative
liability has been measured at fair value using a trinomial lattice model. Since the Conversion Price contains an anti-dilution
adjustment, the probability that the Conversion Price of the Notes would decrease as the share price decreased was
incorporated into the valuation calculation.
The inputs into the valuation model are as follows:
Closing share price
Conversion price
Risk free rate
Expected volatility
Dividend yield
Expected life
December 31, 2014
$12.48
$7.10
1.86%
40%
—%
5.5 years
The fair value of the convertible note payable derivative liability was $23.4 million, 12.0% of total liabilities at December 31,
2014. The calculation of fair value included a number of estimates and assumptions that required significant judgments,
including the probability and timing of certain triggering events, as well as estimating a reasonable default intensity and
recovery rate. See Note 10 - Fair Value. Changes in these assumptions could materially affect the determination of fair value
for each reporting unit.
Recent Accounting Pronouncements
In April 2014, the FASB issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of
Components of an Entity to reduce diversity in practice for reporting discontinued operations. Under the previous guidance,
any component of an entity that was a reportable segment, an operating segment, a reporting unit, a subsidiary, or an asset
group was eligible for discontinued operations presentation. The revised guidance only allows disposals of components of an
entity that represent a strategic shift (e.g., disposal of a major geographical area, a major line of business, a major equity
method investment, or other major parts of an entity) and that have a major effect on a reporting entity’s operations and
financial results to be reported as discontinued operations. The revised guidance also requires expanded disclosure in the
financial statements for discontinued operations as well as for disposals of significant components of an entity that do not
qualify for discontinued operations presentation. The updated guidance is effective for periods beginning after December 15,
2014. We had operations that were reported as discontinued operations for the years ended December 31, 2013 and 2012. We
did not adopt this guidance.
In May 2014, the FASB and the International Accounting Standards Board (IASB) jointly issued Accounting Standards
Update (ASU) No. 2014-9, Revenue from Contracts with Customers (Topic 606), which clarifies the principles for recognizing
revenue and develops a common revenue standard for GAAP and International Financial Reporting Standards (IFRS). The
core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods
and services. The ASU is effective for public entities for annual and interim periods beginning after December 15, 2016. Early
adoption is not permitted under GAAP and retrospective application is permitted, but not required. We are currently evaluating
the impact of adopting this guidance on our financial position and results of operations.
Seasonality
The number of healthcare 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
40
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
We do not believe that inflation had a significant impact on our results of operations for the periods presented. On an ongoing
basis, we attempt to minimize any effects of inflation on our operating results by controlling operating costs and, whenever
possible, seek to ensure that billing rates reflect increases in costs due to inflation.
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk.
Interest Rate Risk
We are exposed to the risk of fluctuation in interest rates relating to our variable rate debt related to our Senior Credit Facility
and Second Lien Loan Agreement entered. See Note 8 - Long-Term Debt to our consolidated financial statements. During the
year ended December 31, 2014 or 2013, we did not use interest rate swaps or other types of derivative financial instruments to
hedge our interest rate risk. Our current and prior credit agreements charge us 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
asset-based Loan Agreement and our prior credit agreements.
We have been exposed to interest rate risk associated with our debt instruments which have had interest based on floating rates.
A 1% change in interest rates on variable rate debt would have resulted in interest expense fluctuating approximately by $0.3
million in the year ended December 31, 2014, and an immaterial amount in the year ended December 31, 2013.
Derivative Liability Risk
As of December 31, 2014, in conjunction with the MSN acquisition, we had $25.0 million of 8.0% fixed rate Convertible Notes
outstanding due June 30, 2020. The Convertible Notes include terms that are considered to be embedded derivatives, including
conversion and redemption features that primarily protect the investors' investment with us. See Note 9 - Convertible Notes
Derivative Liability to our consolidated financial statements. Each reporting period, we are required to record this embedded
derivative at fair value with the changes being recorded as a component of other expense (income) on our statements of
operations. Accordingly, our results of operations are subject to exposure associated with increases or decreases in the
estimated fair value of our embedded derivative.
The fair value of this derivative liability is primarily determined by fluctuations in our stock price. As our stock price increases
or decreases, the fair value of this derivative liability increases or decreases, resulting in a corresponding current period loss or
gain to be recognized. As of December 31, 2014, a $1 decrease or increase in our stock price would have resulted in a change in
the valuation of the embedded derivative by approximately $3.1 million and a 1% decrease or increase in interest rates would
have resulted in a change in the valuation of the derivative of approximately $0.7 million.
Foreign Currency Risk
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. Approximately 1% of selling, general and administrative expenses are related to certain
software development and information technology support provided by our employees in Pune, India. 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. 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
41
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.
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation
of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design
and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and 15d-15(e) of the
Securities Exchange Act of 1934, as amended, or the Exchange Act. Based on such evaluation, our management, including our
Chief Executive Officer and our Chief Financial Officer, had identified a material weakness in our internal control over 2013
financial reporting. In 2014, we have implemented a variety of changes described below. As a result of this evaluation, and of
the remediation of last year's material weakness, management has concluded that, as of the end of the period covered by this
Annual Report on Form 10-K, our internal control over financial reporting was effective.
Changes in Internal Control Over Financial Reporting
The Company acquired substantially all of the assets and certain liabilities of Medical Staffing Network Healthcare, LLC
("MSN") in June 2014. Due to the timing of the acquisition and as allowed under SEC guidance, management’s assessment of
and conclusion regarding the design and effectiveness of internal control over financial reporting excluded the internal control
over financial reporting of the acquired business, which is relevant to the Company’s 2014 consolidated financial statements as
of and for the year ended December 31, 2014.
Steps Taken During 2014 to Remediate the Material Weakness
During fiscal year 2014 and through the date of this report, the following actions were taken by management, with the
oversight of our Audit Committee, in order to remediate our material weakness in internal control over financial reporting
related to an ineffective control around the Company’s review of non-routine accounting matters identified as of December 31,
2013, as follows:
1. We have expanded the Company’s complement of qualified finance, accounting and tax personnel. Specific personnel
changes made within the leadership team within these areas included the appointment of the following positions:
• New Chief Financial Officer in April 2014,
• New Vice President, Corporate Controller in December 2014, and
• New Vice President, Tax in December 2014
2. We have increased our reliance on third party experts for the review of significant non-routine accounting transactions
or matters, such as:
• Goodwill and other indefinite-lived intangible assets - Valuation experts were engaged to review the
Company’s impairment models, to challenge the assumptions utilized, and to perform the impairment test if
there was an indicator of impairment.
•
Income taxes - Tax experts were engaged to assist management in its review of the income tax provision
workpapers, review the tax treatment of the MSN acquisition, and review several key income tax returns.
• Other significant non-routine accounting matters - Accounting experts were engaged to assist management in
reviewing and evaluating the accounting implications of technical accounting matters including the
42
accounting for new debt arrangements related to the MSN acquisition. We also engaged valuation experts to
assist management with our valuation of the embedded derivative in our Convertible Notes.
3. We have implemented process improvements that permit more effective and efficient management of the accounting
and financial reporting processes, including those related to non-routine transactions, such as:
• Annual impairment testing - We changed our annual impairment test date to October 1st, which allows
adequate time for management review as well as better alignment with the annual budget process. We
improved the overall quality of the documentation surrounding managements’ assumptions utilized within the
impairment models. Finally, we shifted the responsibility for the preparation of the analysis away from the
Chief Financial Officer so that it could be reviewed initially by the Vice President, Corporate Controller and
then by the Chief Financial Officer as the Company’s final reviewer.
• Tax account reconciliations - We undertook steps to improve the overall quality of our deferred tax accounts
analysis. Additional procedures were implemented in which we employed a more granular approach to
calculate our deferred taxes that considered the location, timing, legal entities, jurisdictions, and the nature of
the taxes. These steps improved the quality of the current deferred and long-term deferred tax and provided a
reliable base of calculation for the deferred tax asset valuation allowance.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined
in Rule 13a-15(f) under the Exchange Act). Our internal control system is 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. Because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that
controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or
procedures may deteriorate.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31,
2014. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission, or COSO, in the Internal Control-Integrated Framework (1992 framework). As permitted, our
management’s assessment of and conclusion on the effectiveness of our internal controls did not include the internal controls of
Medical Staffing Network Healthcare, LLC ("MSN"), because it was acquired by us at the end of the second quarter of 2014.
The assets of the acquisition constituted $86.6 million and $51.1 million of total and net assets, respectively, as of December
31, 2014, and $128.2 million and $0.8 million of revenue from services and net loss attributable to common shareholders,
respectively.
Based on its evaluation, management concluded that, as of December 31, 2014, the Company's internal control over financial
reporting is effective based on the specific criteria.
The effectiveness of our internal control over financial reporting as of December 31, 2014, has been audited by Ernst & Young
LLP, an independent registered certified public accounting firm, as stated in their attestation report included in this Annual
Report on Form 10-K.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Cross Country Healthcare, Inc. and subsidiaries
We have audited Cross Country Healthcare, Inc. and subsidiaries’ internal control over financial reporting as of December 31,
2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (1992 framework) (the COSO criteria). Cross Country Healthcare, Inc. and
subsidiaries’ 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
43
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.
As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s
assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal
controls of Medical Staffing Network Healthcare, LLC ("MSN"), which is included in the December 31, 2014 consolidated
financial statements of Cross Country Healthcare, Inc. and subsidiaries and constituted $86.6 million and $51.1 million of total
and net assets, respectively, as of December 31, 2014 and $128.2 million and $0.8 million of revenue from services and net loss
attributable to common shareholders, respectively, for the year then ended. Our audit of internal control over financial reporting
of Cross Country Healthcare, Inc. and subsidiaries also did not include an evaluation of the internal control over financial
reporting of MSN.
In our opinion, Cross Country Healthcare, Inc. and subsidiaries maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2014, based on the COSO criteria.
/s/ Ernst & Young LLP
Certified Public Accountants
Boca Raton, Florida
March 6, 2015
Item 9B.
Other Information.
None.
44
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
2015 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, 2014, see table below:
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)
Number of
securities
remaining
available for
future issuance
under
equity
compensation
plans (excluding
securities
reflected in
column (a)) (c)
935,095
$
None
935,095
$
8.27
N/A
8.27
1,205,908
N/A
1,205,908
Plan Category
Equity compensation plans approved by
security holders
Equity compensation plans not approved by
security holders
Total
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.
45
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, 2014 and 2013
Consolidated Statements of Operations for the Years Ended December 31, 2014, 2013 and 2012
Consolidated Statements of Comprehensive (Loss) Income for the Years Ended December 31, 2014,
2013 and 2012
Consolidated Statement of Stockholders’ Equity for the Years Ended December 31, 2014, 2013 and
2012
Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, 2013 and 2012
Notes to Consolidated Financial Statements
(2) Financial Statements Schedule
Schedule II – Valuation and Qualifying Accounts for the Years Ended December 31, 2014, 2013 and
2012
(3) Exhibits
See Exhibit Index immediately following signatures.
46
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/ William J. Grubbs
Name: William J. Grubbs
Title: Chief Executive Officer and President
Date: March 6, 2015
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
/s/ William J. Grubbs
William J. Grubbs
President, Chief Executive Officer,
Director (Principal Executive Officer)
/s/ William J. Burns
William J. Burns
Chief Financial Officer
(Principal Accounting and Financial Officer)
/s/ Thomas C. Dircks
Thomas C. Dircks
/s/ W. Larry Cash
W. Larry Cash
/s/ Richard M. Mastaler
Richard M. Mastaler
/s/ Gale Fitzgerald
Gale Fitzgerald
/s/ Joseph A. Trunfio
Joseph A. Trunfio
Director
Director
Director
Director
Director
Date
March 6, 2015
March 6, 2015
March 6, 2015
March 6, 2015
March 6, 2015
March 6, 2015
March 6, 2015
47
No.
3.1
3.2
4.1
4.2 #
4.3 #
4.4
10.1 #
10.2 #
10.3 #
10.4
10.5
10.6
10.7
10.8 #
10.9 #
EXHIBIT INDEX
Description
Amended and Restated Certificate of Incorporation of the Registrant (Previously filed as an exhibit to the
Company’s Registration Statement on Form S-1/A, Commission File No. 333-64914, and incorporated by reference
herein.)
Amended and Restated By-laws of the Registrant (Previously filed as an exhibit to the Company’s Registration
Statement on Form S-1/A, Commission File No. 333-64914, and incorporated by reference herein.)
Form of specimen common stock certificate (Previously filed as an exhibit to the Company’s Registration
Statement on Form S-1/A, Commission File No. 333-64914, and incorporated by reference herein.)
2014 Omnibus Incentive Plan - Restricted Stock Agreement Form (Previously filed as an exhibit to the Company’s
Form 10-Q for the quarter ended June 30, 2014 and incorporated by reference herein.)
2014 Omnibus Incentive Plan - Performance Share and Restricted Stock Agreement Form (Previously filed as an
exhibit to the Company’s Form 10-Q for the quarter ended June 30, 2014 and incorporated by reference herein.)
Registration Rights Agreement, dated June 30, 2014, by and among Cross Country Healthcare, Inc. and the
noteholders party thereto (Previously filed as an exhibit to the Company’s Form 8-K dated July 2, 2014 and
incorporated by reference herein.)
Employment Agreement, dated as of March 20, 2013, between William J. Grubbs and the Registrant (Previously
filed as an exhibit to the Company’s Form 8-K dated March 22, 2013 and incorporated by reference herein.)
Cross Country, Inc. Deferred Compensation Plan (Previously filed as an exhibit to the Company’s Form 10-K for
the year ended December 31, 2002, and incorporated by reference herein.)
Form of Incentive Stock Option Agreement (Previously filed as an exhibit to the Company’s Registration Statement
on Form S-1, Commission File No. 333-74403, and incorporated by reference herein.)
Lease Agreement between Cornerstone Opportunity Ventures, LLC and Cejka Search, Inc., dated February 2, 2007
(Previously filed as an exhibit to the Company’s Form 10-K for the year ended December 31, 2006 and
incorporated by reference herein.)
Lease Agreement between Self Service Mini Storage, L.P. and Cross Country Education, LLC, dated February 2,
2007 (Previously filed as an exhibit to the Company’s Form 10-K for the year ended December 31, 2006 and
incorporated by reference herein.)
Second Amendment to Lease Agreement by and between Meridian Commercial Properties Limited Partnership and
Cross Country Healthcare, Inc., dated February 17, 2007 (Previously filed as an exhibit to the Company’s Form 10-
K for the year ended December 31, 2006 and incorporated by reference herein.)
First Amendment to Lease Agreement dated as of September 1, 2007, by and between Cornerstone Opportunity
Ventures, LLC and Cejka Search, Inc. (Previously filed as an exhibit to the Company’s Form 10-Q for the quarter
ended September 30, 2008 and incorporated by reference herein.)
Form of Non-Employee Directors’ Restricted Stock Agreement under Cross Country Healthcare, Inc. 2007 Stock
Incentive Plan (Previously filed as an exhibit to the Company’s 8-K dated May 15, 2007 and incorporated by
reference herein.)
Form of Stock Appreciation Rights Agreement under Cross Country Healthcare, Inc. 2007 Stock Incentive Plan
(Previously filed as an exhibit to the Company’s Form 8-K dated October 15, 2007 and incorporated by reference
herein.)
10.11
10.10 # Amended and Restated Executive Severance Policy of Cross Country Healthcare, Inc. dated as of January 1, 2008
(Previously filed as an exhibit to the Company’s Form 10-K for the year ended December 31, 2008 and
incorporated by reference herein.)
Lease Agreement, dated July 1, 2010, between Goldberg Brothers Real Estate LLC and MCVT, Inc. (Previously
filed as an incorporated by reference herein.)
Leave and License Agreement dated October 15, 2010 between Cross Country InfoTech, Ltd. and Shri Subhash
Dattatraya Angal (Previously filed as an exhibit to the Company’s Form 10-Q for the quarter ended September 30,
2010 and incorporated by reference herein.)
Lease Agreement, dated July 18, 2013, between Peachtree II and III, LLC and MDA Holdings, Inc. (Previously
filed as an exhibit to the Company’s Form 10-Q for the quarter ended June 30, 2013 and incorporated by reference
herein.)
10.13
10.12
10.14 # Amended and Restated Executive Severance Plan of Cross Country Healthcare, Inc. (Previously filed as an exhibit
to the Company’s Form 8-K dated May 28, 2010 and incorporated by reference herein.)
48
No.
10.15
10.16
10.17
10.18
10.19
EXHIBIT INDEX (CONTINUED)
Description
First Amendment to Lease Agreement, dated April 22, 2011, between Self Service Mini Storage, L.P. and Cross
Country Education, LLC, dated February 2, 2007 (Previously filed as an exhibit to the Company’s Form 10-Q for
the quarter ended June 30, 2011 and incorporated by reference herein.)
Loan and Security Agreement, dated January 9, 2013, by and among Cross Country Healthcare, Inc. and certain of
its subsidiaries, as Borrowers, the Lenders referenced therein, and Bank of America, N.A., as Agent (Previously
filed as an exhibit to the Company’s Form 8-K dated January 11, 2013 and incorporated by reference herein.)
Consent, Waiver and Third Amendment, dated as of June 30, 2014, to Loan and Security Agreement dated January
9, 2013, by and among Cross Country Healthcare, Inc. and certain of its subsidiaries, as Borrowers, the Lenders
referenced therein, and Bank of America, N.A., as Agent (Previously filed as an exhibit to the Company’s Form 8-
K dated July 2, 2014 and incorporated by reference herein.)
Stock Purchase Agreement, dated February 2, 2013, by and among ICON Clinical Research, Inc. and ICON
Clinical Research UK Limited, as Buyers, and Cross Country Healthcare, Inc., Local Staff, LLC and Cross Country
Healthcare UK Holdco Ltd., as Sellers (Previously filed as an exhibit to the Company’s Form 8-K dated February
5, 2013 and incorporated by reference herein.)
Asset Purchase Agreement, dated December 2, 2013, between Local Staff, LLC, as Buyer, Cross Country
Healthcare, Inc., as Parent and On Assignment Staffing Services, Inc., Assignment Ready, Inc., and On Assignment,
Inc., collectively as Seller (Previously filed as an exhibit to the Company’s Form 8-K dated December 3, 2013 and
incorporated by reference herein.)
10.20 # Employment Agreement, dated March 3, 2014, between William Burns and Cross Country Healthcare, Inc.
10.21
10.22
10.23
10.24
(Previously filed as an exhibit to the Company’s Form 10-K for the year ended December 31, 2013 and
incorporated by reference herein.)
Asset Purchase Agreement, dated June 2, 2014, by and among Cross Country Healthcare, Inc., as Purchaser, and
MSN Holdco, LLC, MSN Holding Company Inc., Medical Staffing Network Healthcare, LLC and Optimal
Workforce Solutions, LLC, as Seller (Previously filed as an exhibit to the Company’s Form 8-K dated June 3, 2014
and incorporated by reference herein.)
Second Lien Loan and Security Agreement, dated June 30, 2014, by and among Cross Country Healthcare, Inc., as
borrower, certain of its domestic subsidiaries, as guarantors, and BSP Agency, LLC, as agent (Previously filed as an
exhibit to the Company’s Form 8-K dated July 2, 2014 and incorporated by reference herein.)
Convertible Note Purchase Agreement, dated as of June 30, 2014, by and among Cross Country Healthcare, Inc.
and certain of its domestic subsidiaries and Benefit Street Partners SMA LM L.P., PECM Strategic Funding L.P.
and Providence Debt Fund III L.P. and other noteholders defined therein (Previously filed as an exhibit to the
Company’s Form 8-K dated July 2, 2014 and incorporated by reference herein.)
Fourth Amendment, dated as of October 20, 2014, to Loan and Security Agreement dated January 9, 2013, by and
among Cross Country Healthcare, Inc. and certain of its subsidiaries, as Borrowers, the Lenders referenced therein,
and Bank of America, N.A., as Agent (Previously filed as an exhibit to the Company’s Form 10-Q for the quarter
ended September 30, 2014 and incorporated by reference herein.)
10.25 # Transition Agreement, dated March 3, 2014, between Emil Hensel and the Registrant (Previously filed as an exhibit
to the Company’s Form 10-K for the year ended December 31, 2013 and incorporated by reference herein.)
Lease Agreement, dated November 22, 1999, by and between Fairfax Boca 92, L.P. and Medical Staffing Network,
Inc.
*10.26
*10.27
*10.28
*10.29
*10.30
*10.31
*10.32
*10.33
First Amendment to Lease Agreement by and between Fairfax Boca 92 L.P. and Medical Staffing Network, Inc.,
dated July 31, 2001
Second Amendment to Lease Agreement by and between Fairfax Boca 92 L.P. and Medical Staffing Network, Inc.,
dated March 20, 2002
Third Amendment to Lease Agreement by and between Fairfax Boca 92 L.P. and Medical Staffing Network, Inc.,
dated May 14, 2002
Fourth Amendment to Lease Agreement by and between Fairfax Boca 92 L.P. and Medical Staffing Network, Inc.,
dated December 13, 2002
Fifth Amendment to Lease Agreement by and between Fairfax Boca 92 L.P. and Medical Staffing Network, Inc.,
dated February 11, 2003
Sixth Amendment to Lease Agreement by and between Teachers Insurance and Annuity Association of America and
Medical Staffing Network, LLC, dated January 3, 2011
Seventh Amendment to Lease Agreement by and between Teachers Insurance and Annuity Association of America
and Medical Staffing Network, LLC, dated March 1, 2011
49
EXHIBIT INDEX (CONTINUED)
No.
*10.34
14.1
18.1
*21.1
*23.1
*31.1
*31.2
*32.1
*32.2
Description
Eighth Amendment to Lease Agreement by and between Teachers Insurance and Annuity Association of America,
and Medical Staffing Network, LLC, dated November 22, 2011
Code of Ethics (Previously filed as exhibits in the Company’s Form 10-K for the year ended December 31, 2004
and incorporated by reference herein.)
Letter re Change in Accounting Principles (Previously filed as exhibit to the Company's Form 10-Q for the quarter
ended September 30, 2014 and incorporated by reference herein.)
List of subsidiaries of the Registrant
Consent of Ernst & Young LLP, 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 William J. Grubbs, 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 William J. Burns, 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 William J. Grubbs, 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 William J. Burns, Chief Financial Officer
**101.INS
**101.SCH
**101.DEF
**101.LAB
**101.CAL
**101.PRE
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Calculation Linkbase Document
PRE XBRL Taxonomy Extension Presentation Linkbase Document
________________
* Filed herewith
** Furnished herewith
50
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Cross Country Healthcare, Inc.
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2014 and 2013
Consolidated Statements of Operations for the Years Ended December 31, 2014, 2013 and 2012
Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2014, 2013 and 2012
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2014, 2013 and 2012
Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, 2013 and 2012
Notes to Consolidated Financial Statements
Financial Statement Schedule
Page
F- 2
F- 3
F- 4
F- 5
F- 6
F- 7
F- 8
Schedule II – Valuation and Qualifying Accounts for the Years Ended December 31, 2014, 2013 and 2012
II- 1
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.
F- 1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of Cross Country Healthcare, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Cross Country Healthcare, Inc. and subsidiaries as of
December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive loss, stockholders' equity
and cash flows for each of the three years in the period ended December 31, 2014. Our audits also included the financial
statement schedule listed in the Index at Item 15(a). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial statements 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. and subsidiaries at December 31, 2014 and 2013, and the consolidated results of
their operations and their cash flows for each of the three years in the period ended December 31, 2014, 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. and subsidiaries' internal control over financial reporting as of December 31, 2014, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (1992 framework) and our report dated March 6, 2015 expressed an unqualified opinion thereon.
Boca Raton, Florida
March 6, 2015
/s/ Ernst & Young LLP
Certified Public Accountants
F- 2
CROSS COUNTRY HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except for share data)
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts
of $1,425 and $1,651 at December 31, 2014 and 2013, respectively
Income taxes receivable
Prepaid expenses
Insurance recovery receivable
Indemnity escrow receivable
Other current assets
Total current assets
Property and equipment, net of accumulated depreciation
Trade Names, net
Goodwill
Other identifiable intangible assets, net
Debt issuance costs, net of accumulated amortization of $522 and $222 at December 31, 2014 and
2013, respectively
Non-current insurance recovery receivable
Non-current security deposits
Total assets
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses
Accrued compensation and benefits
Current portion of long-term debt and capital lease obligations
Sales tax payable
Deferred tax liabilities
Other current liabilities
Total current liabilities
Long-term debt and capital lease obligations, less current portion
Non-current deferred tax liabilities
Long-term accrued claims
Long-term deferred purchase price
Long-term unrecognized tax benefits
Other long-term liabilities
Total liabilities
Commitments and contingencies
Stockholders' equity:
Common stock—$0.0001 par value; 100,000,000 shares authorized; 31,292,596 and 31,085,289
shares issued and outstanding at December 31, 2014 and 2013, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total Cross Country Healthcare, Inc. stockholders' equity
Noncontrolling interest
Total stockholders' equity
Total liabilities and stockholders' equity
See accompanying notes.
F- 3
December 31,
2014
2013
$
4,995
$
8,055
113,129
307
6,073
5,624
—
1,055
131,183
12,133
38,201
90,647
33,823
1,257
16,825
1,064
325,133
27,314
28,731
3,607
2,573
1,981
2,790
66,996
70,467
18,038
32,068
2,333
889
4,010
194,801
$
$
60,750
538
6,163
3,886
3,750
793
83,935
6,170
42,301
77,266
26,198
464
10,914
997
248,245
10,272
19,148
8,483
2,404
535
4,063
44,905
93
16,849
18,303
—
4,013
3,415
87,578
3
247,467
(1,118)
(116,474)
129,878
454
130,332
325,133
$
3
246,325
(970)
(84,691)
160,667
—
160,667
248,245
$
$
$
CROSS COUNTRY HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)
Revenue from services
Operating expenses:
Direct operating expenses
Selling, general and administrative expenses
Bad debt expense
Depreciation
Amortization
Acquisition and integration costs
Restructuring costs
Legal settlement charge
Impairment charges
Total operating expenses
Loss from operations
Other expenses (income):
Foreign exchange loss (gain)
Interest expense
Change in fair value of convertible notes derivative liability
Loss on early extinguishment and modification of debt
Other (income) expense, net
Loss from continuing operations before income taxes
Income tax expense (benefit)
Loss from continuing operations
Income (loss) from discontinued operations, net of income taxes
Consolidated net loss
Less: Net income attributable to noncontrolling interest in subsidiary
Net loss attributable to common shareholders
Basic (loss) income per share attributable to common shareholders
Continuing operations
Discontinued operations
Net loss
Diluted (loss) income per share attributable to common shareholders
Continuing operations
Discontinued operations
Net loss
$
$
$
$
$
Year Ended December 31,
2013
2012
2014
$
617,825
$
438,311
$
442,635
460,021
141,018
1,016
3,866
3,575
7,957
840
—
10,000
628,293
324,851
106,117
1,078
3,886
2,294
473
484
750
6,400
446,333
331,050
109,417
786
4,905
2,263
—
—
—
18,732
467,153
(10,468)
(8,022)
(24,518)
49
4,160
16,671
—
(30)
(31,318)
216
(31,534)
—
(31,534)
249
(31,783) $
(1.02) $
—
(1.02) $
(1.02) $
—
(1.02) $
(132)
849
—
1,419
(119)
(10,039)
44,211
(54,250)
2,281
(51,969)
—
(51,969) $
(1.75) $
0.07
(1.68) $
(1.75) $
0.07
(1.68) $
(62)
2,341
—
82
16
(26,895)
(6,150)
(20,745)
(21,476)
(42,221)
—
(42,221)
(0.67)
(0.70)
(1.37)
(0.67)
(0.70)
(1.37)
Weighted average common shares outstanding—basic
Weighted average common shares outstanding—diluted
31,190
31,190
31,009
31,009
30,843
30,843
See accompanying notes.
F- 4
CROSS COUNTRY HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(amounts in thousands)
Year Ended December 31,
2014
2013
2012
Consolidated net loss
$
(31,534) $
(51,969) $
(42,221)
Other comprehensive income, before income taxes:
Unrealized foreign currency translation gain (loss)
Reclassification of currency translation adjustments
related to sale of clinical trial services business (See Note 2 - Summary
of Significant Accounting Policies)
Write-down of marketable securities
Net change in fair value of marketable securities
Other comprehensive income, before income taxes
Income tax expense (benefit) related to
items of other comprehensive income
Other comprehensive (loss) income, net of tax
Consolidated comprehensive loss
Less: Net income attributable to noncontrolling interest in subsidiary
14
—
—
—
14
(386)
268
2,336
—
—
1,950
—
38
(1)
305
162
(162)
15
(148)
(31,682)
249
2,112
(49,857)
—
290
(41,931)
—
Comprehensive loss attributable to common shareholders
$
(31,931) $
(49,857) $
(41,931)
See accompanying notes.
F- 5
CROSS COUNTRY HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(amounts in thousands)
Common Stock
Shares
Dollars
Additional
Paid-In
Capital
Accumulated
Other Total
Comprehensive
Loss, net
(Accumulated
Deficit)
Retained
Earnings
Noncontrolling
Interest in
Subsidiary
Stockholders’
Equity
Balances at December 31, 2011
30,812
$
Vesting of restricted stock
Tax deficit of share-based
compensation
Equity compensation
Stock repurchase and retirement
Foreign currency translation
adjustment
Net change in fair value of
marketable securities
Net loss
162
—
—
(72)
—
—
—
Balances at December 31, 2012
30,902
Exercise of stock options
Vesting of restricted stock
Tax deficit of share-based
compensation
Equity compensation
Foreign currency translation
adjustment, net of deferred taxes
Reclassification of currency
translation adjustments related to
sale of clinical trial services
business
Net loss
2
181
—
—
—
—
—
Balances at December 31, 2013
31,085
Exercise of stock options
Vesting of restricted stock
Equity compensation
Foreign currency translation
adjustment, net of deferred taxes
Acquisition of InteliStaf of
Oklahoma, LLC
Distribution to noncontrolling
shareholder
Net (loss) income
66
141
—
—
—
—
—
Balances at December 31, 2014
31,292
$
3
—
—
—
—
—
—
—
3
—
—
—
—
—
—
—
3
—
—
—
—
—
—
—
3
$ 243,171
$
(3,373) $
9,499
(153)
(314)
2,594
(374)
—
—
—
—
—
—
—
268
23
—
244,924
(3,082)
—
(300)
(399)
2,100
—
—
—
246,325
—
(245)
1,387
—
—
—
—
—
—
—
—
(224)
2,336
—
(970)
—
—
—
(148)
—
—
—
—
—
—
—
—
—
(42,221)
(32,722)
—
—
—
—
—
—
(51,969)
(84,691)
—
—
—
—
—
—
(31,783)
$ 247,467
$
(1,118) $
(116,474) $
See accompanying notes.
— $
—
249,300
(153)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
324
(119)
249
454
(314)
2,594
(374)
268
23
(42,221)
209,123
—
(300)
(399)
2,100
(224)
2,336
(51,969)
160,667
—
(245)
1,387
(148)
324
(119)
(31,534)
$
130,332
F- 6
ROSS COUNTRY HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
Year Ended December 31,
2013
2012
2014
$
(31,534) $
(51,969) $
(42,221)
Cash flows from operating activities
Consolidated net loss
Adjustments to reconcile net loss to net cash (used in) provided by operating
activities:
Bad debt expense
Depreciation
Amortization
Amortization of debt discount and debt issuance costs
Impairment charges
Loss on early extinguishment and modification of debt
Deferred income tax (benefit) expense
Change in fair value of convertible note derivatives liability
Equity compensation
Gain on sale of clinical trial services business
Other noncash costs
Changes in operating assets and liabilities:
Accounts receivable
Prepaid expenses and other assets
Income taxes
Accounts payable and accrued expenses
Other liabilities
Net cash (used in) provided by operating activities
Cash flows from investing activities
Proceeds from sale of business segment, net of cash sold and transaction costs
Acquisition of assets of Medical Staffing Network, net of cash acquired
Acquisition of assets of On Assignment, Inc.
Purchases of property and equipment
Liquidation of foreign cash investments
Other investing activities
Net cash (used in) provided by investing activities
Cash flows from financing activities
Debt issuance costs
Repurchase of stock for tax withholdings
Stock repurchase and retirement
Cash payment to noncontrolling shareholder
Proceeds from borrowing on Second Lien Term Loan
Principal payments on term loan
Proceeds from borrowing on Convertible Notes
Borrowings under revolving credit facility
Repayments on revolving credit facility
Borrowings under Senior Secured Asset-Based revolving credit facility
Repayments on Senior Secured Asset-Based revolving credit facility
Repayments of capital lease obligations and note payable
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosure of noncash investing and financing activities:
Equipment purchased through capital lease obligations
Insurance premium financing
Supplemental disclosure of cash flow information:
Interest paid
Income taxes paid
Income tax refunds
$
$
$
$
$
$
See accompanying notes.
F- 7
1,016
3,866
3,575
1,064
10,000
—
(857)
16,671
1,387
—
114
(16,119)
1,371
58
5,654
(338)
(4,072)
3,750
(44,631)
—
(4,571)
—
—
(45,452)
(1,093)
(245)
—
(119)
28,875
—
24,063
—
—
61,205
(66,105)
(122)
46,459
5
(3,060)
8,055
4,995
$
1,083
3,886
2,294
233
6,400
1,419
45,900
—
2,100
(3,969)
12
2,036
(1,848)
(138)
(320)
1,540
8,659
45,655
—
(28,700)
(1,750)
—
—
15,205
(506)
(300)
—
—
—
(23,125)
—
—
(10,000)
63,444
(55,044)
(530)
(26,061)
(211)
(2,408)
10,463
8,055
$
— $
— $
2,512
1,374
$
$
(61) $
— $
— $
$
622
1,164
$
(323) $
871
5,566
3,382
606
54,132
82
(18,520)
—
2,594
—
822
(4,256)
(444)
1,748
4,128
1,656
10,146
—
—
—
(2,219)
2,652
(258)
175
(1,377)
(153)
(374)
—
25,000
(43,326)
—
26,900
(16,900)
—
—
(353)
(10,583)
77
(185)
10,648
10,463
302
190
1,467
1,682
(564)
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
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 Partnership was
engaged in the business of providing travel nurse and allied health staffing services to healthcare providers primarily on a
contract basis. Subsequent acquisitions and dispositions were made and, as of December 31, 2014, Cross Country Healthcare,
Inc. (the "Company") has become 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, as well as a provider of other human capital
management services focused on healthcare.
On June 30, 2014, the Company acquired substantially all of the assets and certain liabilities of Medical Staffing Network
Healthcare, LLC (MSN), which results have been substantially reported through the Company's Nurse and Allied Staffing
business segment. See Note 3 - Acquisitions.
During the first quarter of 2013, the Company completed the sale of its clinical trial services business segment as a result of an
extensive review of its business and the changing competitive landscape in the pharmaceutical outsourcing industry. As of
December 31, 2012, this segment was classified as a disposal group held for sale, and the results of its operations have been
classified as discontinued operations for all periods presented. See Note 4 - Discontinued Operations. In the fourth quarter of
2013, the Company acquired the operating assets of On Assignment, Inc.’s Allied Healthcare Staffing division, which results
have been included with the Company's Nurse and Allied Staffing business segment. See Note 3 - Acquisitions.
The consolidated financial statements include the accounts of the Company and its wholly-owned direct and indirect
subsidiaries. The consolidated financial statements include all assets, liabilities, revenue, and expenses of InteliStaf of
Oklahoma, LLC, which is controlled by the Company but not wholly owned. The Company records the ownership interest of
the noncontrolling shareholder as noncontrolling interest in subsidiary. See Note 3 - Acquisitions for further information. All
material intercompany transactions and balances have been eliminated in consolidation.
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. Estimates are used for, but not limited to, the valuation of accounts receivable, goodwill
and intangible assets, other long-lived assets, share-based compensation, accruals for health, workers’ compensation and
professional liability claims, valuation of deferred tax assets and the purchase price allocation, derivative liability, legal
contingencies, future contingent considerations, income taxes, and sales and other non-income tax liabilities. Accrued insurance
claims and reserves include estimated settlements from known claims and actuarial estimates for claims incurred but not
reported. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all investments with original maturities of three months or less to be cash and cash equivalents. The
Company invests its excess cash in highly rated overnight funds and other highly rated liquid accounts. The Company is
exposed to credit risk associated with these investments. The Company minimizes its credit risk relating to these positions by
monitoring the financial condition of the financial institutions involved and by primarily conducting business with large, well
established financial institutions, and diversifying its counterparties. The Company does not currently anticipate
nonperformance by any of its significant counterparties.
Interest income on cash and cash equivalents is included in other (income) expense, net, on the Company’s consolidated
statements of operations.
Accounts Receivable, Allowance for Doubtful Accounts, 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 accounts receivable represent amounts due from them. The Company generally does not require
collateral and mitigates its credit risk by performing credit evaluations and monitoring at-risk accounts. The allowance for
F- 8
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
2. Summary of Significant Accounting Policies (continued)
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
collectability as well as past experience with the customer. The Company’s contract terms typically require payment between 15
to 60 days from the date services are provided and are considered past due based on the particular negotiated contract terms.
The majority of the Company's business activity is with hospitals located throughout the United States. No single customer
accounted for more than 10% of the Company’s accounts receivable balance as of December 31, 2014 and 2013, or revenue for
the years ended December 31, 2014, 2013 and 2012.
Prepaid Rent and Deposits
The Company leases apartments for eligible field employees under short-term 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 may
place security deposits on the leased apartments. Deposits on field employees’ apartments related to these short-term
agreements are included in other current assets on the accompanying consolidated balance sheets.
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 estimated 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.
Business Combinations
In accordance with ASC 805, Topic 805-Business Combinations, assets acquired and liabilities assumed are recorded at their
fair values on the date of a business combination. Our consolidated financial statements and results of operations reflect an
acquired business from the completion date of an acquisition.
Goodwill, Trade Names, 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 5 to 16 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 at the beginning of the fourth quarter, and whenever
circumstances occur indicating potential impairment, with any related losses recognized in earnings and included in the caption
impairment charges on the consolidated statement of operations.
Historically, the Company completed the annual goodwill impairment test as of December 31 of each fiscal year. During the
quarter ended September 30, 2014, the Company voluntarily changed the date of its goodwill and other indefinite-lived
intangible assets impairment testing from December 31 to the first day of its fourth quarter. This voluntary change is preferable
under the circumstances as it provides the Company with additional time to complete its annual goodwill and indefinite-lived
intangible asset impairment testing in advance of its year-end reporting. The voluntary change in accounting principle related to
the annual testing date will not delay, accelerate, or avoid an impairment charge. This change is not applied retrospectively as it
is impracticable to do so because retrospective application would require application of significant estimates and assumptions
with the use of hindsight. Accordingly, the change will be applied prospectively.
F- 9
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
2. Summary of Significant Accounting Policies (continued)
If, after assessing the totality of events and circumstances, the Company determines that it is more likely than not that the fair
value of the reporting unit is greater than its carrying amount, the quantitative impairment test is unnecessary. The performance
of the quantitative impairment test involves a two-step process. 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.
The Company has four reporting units that it reviews for impairment: 1) Nurse and Allied Staffing, 2) Physician Staffing, 3)
Retained Search, and 4) Education and Training.
In its impairment analysis, the Company determines the fair value of its reporting units based on a combination of inputs
including Level 3 inputs such as discounted cash flows which are not observable from the market, directly or indirectly, as well
as inputs such as pricing multiples from publicly traded guideline companies and the market capitalization of the Company,
including an estimated premium an investor would pay for a controlling interest. 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 potential 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 and definite lived
intangible 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 that is 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.
See Note 5 – Goodwill, Trade Names, and Other Identifiable Intangible Assets for further information.
Debt Discount and Debt Issuance Costs
Stated discounts on proceeds, and other fees reimbursed to lender, as well as the initial value of any embedded derivative
features of the Convertible Notes and Term Loans, as defined in Note 8 - Long-Term Debt, are treated as a discount associated
with the respective debt instrument and presented in the balance sheet as an offset to the carrying amount of the debt. Discounts
are amortized to interest expense using the effective interest rate method, or a method that approximates the effective interest
rate method, over the expected life of the debt.
Deferred costs related to the issuance of Convertible Notes and Term Loans, as defined in Note 8 - Long-Term Debt, are
capitalized and amortized using the effective interest method. Deferred costs related to the issuance of the Company’s Senior
Secured Asset-based Loan, as defined in Note 8 – Long-Term Debt, have been capitalized and amortized using the straight line
method, over the term of the related credit agreement.
Derivative Financial Instruments
The Company evaluates embedded conversion features within convertible debt under FASB ASC 815, Derivatives and
Hedging, to determine whether the embedded conversion feature should be bifurcated from the host instrument and accounted
for as a derivative at fair value with changes in fair value recorded within other expenses (income) on our consolidated
statements of operations. The Company uses a trinomial lattice model to estimate the fair value of embedded conversion and
redemption features in its convertible debt at the end of each applicable reporting period. Changes in the fair value of these
derivatives during each reporting period are reported in the consolidated statement of operations. The fair value at inception has
been recorded as debt discount and is being amortized to interest expense over the term of the note using the effective interest
method or another method that approximates the effective interest method.
F- 10
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
2. Summary of Significant Accounting Policies (continued)
Sales and Other State Non-income Tax Liabilities
The Company accrues sales and other state non-income tax liabilities based on the Company’s best estimate of its probable
liability utilizing currently available information and interpretation of relevant tax regulations. Given the nature of the
Company’s business, significant subjectivity exists as to both whether sales and other state non-income taxes can be assessed on
its activity and how the sales tax will ultimately be measured by the relevant jurisdictions. The Company makes a determination
for each reporting period whether the estimates for sales and other non-income taxes in certain states should be revised.
Reserves for Claims
The Company provides workers’ compensation insurance coverage, professional liability coverage, and health care benefits for
eligible employees. 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. 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. Furthermore, in determining its reserves,
the Company includes reserves for estimated claims incurred but not reported as well as unfavorable claims development
(IBNR).
The Other Expenses/Insurance Costs Topic of FASB ASC 720, previously issued authoritative accounting guidance in the area
of insurance contracts and related activity thereto. ASC 720 concluded that, under circumstances such as in the Company’s
insured professional liability and workers' compensation policies, since a right of legal offset does not exist due to the fact that
there are three parties to an incurred claim, the insured, the insurer, and the claimant, the related liability to the claimant should
be classified separately on a gross basis with a separate related receivable from the insurer recognized as being due from
insurance carriers. Accordingly, the Company’s consolidated balance sheets as of December 31, 2014 and 2013 reflect the
related short-term liabilities in accrued compensation and benefits and the related long-term liabilities as long-term accrued
claims, and the short-term receivable portion as insurance recovery receivable and the long-term portion as non-current
insurance recovery receivable. See Note 7 – Balance Sheet Details. 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. The Company has letters of credit to guarantee
payments of claims. At December 31, 2014 and 2013, respectively, the Company had outstanding approximately $21.5 million
and $6.4 million standby letters of credit as collateral to secure the self-insured portion of this plan.
The Company has occurrence-based primary professional liability policies that provide each working professional in its nurse
and allied healthcare business with coverage. In addition, the Company has an occurrence-based professional liability policy for
its independent contractor physicians and advance practitioners which is insured by a wholly-owned subsidiary (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. As of December 31, 2014 and 2013, the value of the
letter of credit was $5.0 million.
Subject to certain limitations, the Company also has umbrella liability coverage for its working nurses and allied healthcare
professionals. While this umbrella coverage does not extend to professional liability claims against its independent contractor
physicians and advance practitioners, it does cover claims brought against all of the Company’s subsidiaries for non-patient
general liability.
Revenue Recognition
The Company recognizes revenue when it is earned and when all of the following criteria are met: persuasive evidence of the
arrangement exists; delivery has occurred or the service has been provided and the Company has no remaining obligations; the
fee is fixed or determinable; and collectability is reasonably assured. The Company includes reimbursed expenses in revenues,
and the associated amounts of reimbursable expenses in cost of services.
F- 11
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
2. Summary of Significant Accounting Policies (continued)
Temporary Staffing Revenue
Revenue from services consists primarily of temporary staffing revenue. Revenues from temporary staffing, net of sales
adjustments and discounts, are recognized when earned, based on hours worked by the Company’s healthcare professionals.
Accordingly, accounts receivable includes estimated revenue for employees’ and independent contractors’ time worked but not
yet invoiced. At December 31, 2014 and 2013, such estimated accrued revenue is approximately $21.9 million and $11.0
million, respectively.
Permanent Placement
Revenue on permanent placements is recognized when services provided are substantially completed. The Company does not,
in the ordinary course of business, provide 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.
Gross Versus Net Policies
The Company records revenue on a gross basis as a principal or on a net basis as an agent depending on the arrangement, as
follows:
Managed Service Programs Arrangements
The Company has entered into certain contracts with acute care facilities to provide comprehensive managed service programs
(MSP) services. Under these contract arrangements, the Company uses its healthcare professionals along with those of third-
party subcontractors to fulfill customer orders. If its healthcare professional is used, revenue is recorded on a gross basis. If a
subcontractor is used, the customer is invoiced for their services and, a subcontractor liability is recorded in accrued expenses,
but only the resulting administrative fee is recognized as revenue. The subcontractor is paid after the Company has received
payment from the acute care facility. The Company determined that it acts as an agent in these arrangements based on the
following factors:
• The subcontractor is the primary obligor in the arrangement and is responsible for fulfillment.
• The amount the Company earns is fixed, typically a stated percentage of the amount billed to the customer.
• The subcontractor bears the credit risk, not the Company.
Physician Staffing
In the Company’s Physician Staffing business, revenue is recorded on a gross basis as a principal versus on a net basis as an
agent in the consolidated statement of operations. The Company has determined that gross reporting as a principal is the
appropriate accounting treatment based upon the following factors:
• The Company maintains the direct contractual relationship with the customer.
• The Company performs part of the service by credentialing all of the providers and providing them with professional
liability insurance.
• The Company establishes the price for its services.
• The Company bears the risk and rewards of the transaction including credit risk if the customer fails to pay for
services performed.
Education and Training
Revenue from the Company’s Education and Training services is recognized as the independent contractor-led seminars are
performed. In the Company’s Education and Training business, revenue is recorded in the consolidated statement of operations
on a gross basis as a principal versus on a net basis as an agent. The Company has determined that gross reporting as a principal
is the appropriate accounting treatment based upon the following factors:
• The Company bears the risk and rewards of the transaction including credit risk if the customer fails to pay for
services performed.
F- 12
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
2. Summary of Significant Accounting Policies (continued)
• The Company performs part of the service by being involved with the program development and handling
accreditation of the courses.
• The Company establishes the price for its service.
Deferred Revenue
Amounts collected in advance of the services being substantially complete are recorded as deferred revenue in other current
liabilities on the consolidated balance sheets. At December 31, 2014 and 2013, the Company had $1.2 million and $1.3 million,
respectively, recorded as deferred revenue included in other current liabilities on the accompanying consolidated balance sheets.
Share-Based Compensation
The Company has, from time to time, granted stock options, stock appreciation rights, performance-based share awards, 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 has elected to recognize compensation expense on a
straight-line basis over the requisite service period of the entire award. The Company values its restricted stock awards and the
fair value of its performance-based share awards by reference to the Company’s stock price on the date of grant.
The Company granted performance-based share awards to certain key personnel pursuant to its 2014 Omnibus Incentive Plan as
described in Note 14- Stockholders' Equity. Pursuant to the Plan, the number of target shares that will vest are determined based
on the level of attainment of the targets. If the minimum level of performance is attained, and restricted stock issued, they will
vest on December 31, 2016. The Company recognizes performance-based restricted stock as compensation expense based on
the most likely probability of attaining the prescribed performance and over the requisite service period beginning at its grant
date and through the date the restricted stock vests.
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
$1.4 million; $2.1 million and $2.6 million, during the years ended December 31, 2014, 2013 and 2012, respectively. Because
the Company has a full valuation allowance on its deferred tax assets, the granting and exercise of share-based payments during
the years ended December 31, 2014 and 2013 had no impact on the income tax provision. For the year ended December 31,
2012, related deferred tax benefits of approximately $1.0 million were recorded. See Note 14 – Stockholders’ Equity for further
information about the Company’s current share-based compensation programs.
Advertising
The Company’s advertising expense consists primarily of direct mail marketing, online advertising, print media, and
promotional material. Advertising costs are expensed as incurred and were approximately $4.1 million for the year ended
December 31, 2014 and $3.2 million for the years ended December 31, 2013 and 2012. Direct response advertising costs
associated with the Company’s education and training services are capitalized when the Company determines that there is a
reasonable expectation that the cost of the incurred advertising will be recovered from the gross profit generated by the
advertised event and expensed when the related event takes place. At December 31, 2014 and 2013, approximately $1.0 million
and $1.3 million, respectively, of these costs are included in prepaid expenses on the consolidated balance sheets.
Restructuring Costs
Restructuring costs included in the consolidated statements of operations are primarily related to senior management employee
severance pay.
Acquisition and Integration Costs
During the years ended December 31, 2014 and 2013, the Company incurred acquisition and integration related costs of $8.0
million and $0.5 million, respectively. Acquisition costs totaled $2.2 million and $0.5 million for the periods ending December
31, 2014 and 2013, respectively, and included transaction advisory fees, as well as other costs directly attributable to the
F- 13
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
2. Summary of Significant Accounting Policies (continued)
transaction. Integration costs for the year ended December 31, 2014 included $1.6 million for ongoing post-employment
benefits and $1.1 million for exit costs associated with redundant facilities. As of December 31, 2014, the Company had
accrued integration liabilities of $1.9 million, which included $0.9 million for exit costs and $0.8 million for ongoing post-
employment benefits. There were no similar amounts accrued as of December 31, 2013.
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 also recognized on a straight-line basis
over the term of the lease.
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. The Company recognizes interest and penalties related to
unrecognized tax benefits in the provision for income taxes. See Note 13 - Income Taxes for further information.
The Company records valuation allowances to reduce deferred tax assets when it is more likely than not that a tax benefit will
not be realized. The assessment of whether or not a valuation allowance is required often requires significant judgment,
including the long-range forecast of future taxable income and the evaluation of tax planning initiatives. Adjustments to the
deferred tax valuation allowances are made to earnings in the period when such assessments are made. Due to the historical
losses from the Company's operations, it has recorded a full valuation allowance on its deferred tax assets.
Comprehensive Loss
Total comprehensive loss includes net income or loss, foreign currency translation adjustments, reclassification of foreign
currency adjustments, write-down of marketable securities, 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 subsidiaries 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 in the accompanying consolidated balance sheets and was approximately $1.1 million at December 31,
2014 and 2013.
The Company adopted FASB issued ASU 2013-2, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out
of Accumulated Other Comprehensive Income (ASU 2013-2) for its consolidated financial statements in the first quarter of
2013. ASU 2013-2 adds new disclosure requirements for items reclassified out of accumulated other comprehensive income
(AOCI), including (1) disaggregating and separately presenting changes in AOCI balances by component and (2) presenting
significant items reclassified out of AOCI either on the face of the statement where net income is presented or as a separate
disclosure in the notes to the financial statements. It does not amend any existing requirements for reporting net income or other
comprehensive income in the financial statements.
In March 2013, the FASB issued ASU 2013-5, Foreign Currency Matters (Topic 830), Parent’s Accounting for the Cumulative
Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an
Investment in a Foreign Entity (a consensus of the FASB Emerging Issues Task Force (ASU 2013-5). The objective of ASU
2013-5 is to resolve the diversity in practice as to the release of the cumulative translation adjustment into net income when a
parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a
subsidiary or group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance
of oil and gas mineral rights) within a foreign entity.
F- 14
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
2. Summary of Significant Accounting Policies (continued)
ASU 2013-5 clarifies that a cumulative translation adjustment (CTA) should be released into earnings when an entity ceases to
have a controlling financial interest in a subsidiary or group of assets within a consolidated foreign entity and the sale or
transfer results in the complete or substantially complete liquidation of the foreign entity. For sales of an equity method
investment that is a foreign entity, a pro rata portion of CTA attributable to the investment would be recognized in earnings
when the investment is sold. When an entity sells either a part or all of its investment in a consolidated foreign entity, CTA
would be recognized in earnings only if the sale results in the parent no longer having a controlling financial interest in the
foreign entity. In addition, CTA should be recognized in earnings in a business combination achieved in stages (i.e., a step
acquisition). The Company adopted this guidance and released into earnings $2.3 million of its cumulative currency translation
losses related to the sale of clinical trial services business in the first quarter of 2013, which was included in the income (loss)
from discontinued operations, net of income taxes on the consolidated statements of operations.
During the periods ended December 31, 2014 and 2013, $0.2 million of income tax expense and $0.2 million of income tax
benefit, respectively, related to foreign currency translation adjustments were included on the Company's consolidated
statements of comprehensive loss. During December 31, 2012 an immaterial amount of income tax expense related to the
Company's marketable securities was included on the Company's consolidated statements of comprehensive loss.
Fair Value Measurements
The Company complies with 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. As of December 31, 2014 and 2013, the Company’s financial assets and
liabilities required to be measured on a recurring basis were its indemnity escrow receivable, its deferred compensation liability,
its convertible notes derivative liability and its contingent consideration receivable. See Note 10 – Fair Value Measurements for
relevant disclosures.
Recent Accounting Pronouncements
In April 2014, the FASB issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of
Components of an Entity to reduce diversity in practice for reporting discontinued operations. Under the previous guidance, any
component of an entity that was a reportable segment, an operating segment, a reporting unit, a subsidiary, or an asset group
was eligible for discontinued operations presentation. The revised guidance only allows disposals of components of an entity
that represent a strategic shift (e.g., disposal of a major geographical area, a major line of business, a major equity method
investment, or other major parts of an entity) and that have a major effect on a reporting entity’s operations and financial results
to be reported as discontinued operations. The revised guidance also requires expanded disclosure in the financial statements for
discontinued operations as well as for disposals of significant components of an entity that do not qualify for discontinued
operations presentation. The updated guidance is effective for periods beginning after December 15, 2014. The Company had
operations that were reported as discontinued operations for the years ended December 31, 2013 and 2012. The Company did
not adopt this guidance.
In May 2014, the FASB and the International Accounting Standards Board (IASB) jointly issued ASU No. 2014-9, Revenue
from Contracts with Customers (Topic 606), which clarifies the principles for recognizing revenue and develops a common
revenue standard for GAAP and International Financial Reporting Standards (IFRS). The core principle of the guidance is that
an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in exchange for those goods and services. The ASU is effective for
public entities for annual and interim periods beginning after December 15, 2016. Early adoption is not permitted under GAAP
and retrospective application is permitted, but not required. The Company is currently evaluating the impact of adopting this
guidance on its financial position and results of operations.
F- 15
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
3. Acquisitions
Medical Staffing Network
On June 30, 2014, the Company acquired substantially all of the assets and certain liabilities of MSN for an aggregate purchase
price of $48.1 million, subject to certain post-closing net working capital adjustments. The Company paid $44.6 million, net of
cash acquired, of which $1.0 million was funded to an escrow account for the net working capital adjustment. An additional
$2.5 million was deferred and is due to the seller in 21 months, less any COBRA expenses incurred by the Company on behalf
of former MSN employees over that period. During the fourth quarter of 2014, the Company received $0.2 million from the
escrow account to finalize the net working capital adjustment and the remaining balance in the escrow account was released to
the seller.
The Company financed the purchase price using $55.0 million in new subordinated debt consisting of a $30.0 million, 5-year
term loan and $25.0 million of convertible notes having a 6-year maturity and a conversion price of $7.10. The Company also
amended its loan agreement with Bank of America. N.A. to increase its borrowing capacity under its senior secured asset-based
revolving credit facility from $65.0 million to $85.0 million. See Note 8 - Long-Term Debt for further information.
At the time of the acquisition, MSN had 55 locations throughout the U.S. that provide per diem, local, contract, travel, and
permanent hire staffing services. This acquisition increases the Company's branch network and market share, diversifies its
customer base and brings new service lines. Management believes it positions the Company to serve its customers better and to
increase earnings growth through improved fill rates, expansion of its managed service programs and per diem activities, and
the recognition of cost synergies.
The acquisition has been accounted for in accordance with FASB ASC 805, Business Combinations, using the acquisition
method of accounting. The results of the acquisition's operations have been included in the consolidated statements of
operations from July 1, 2014. The acquisition results have been substantially reported through the Company's Nurse and Allied
Staffing business segment. As such, the associated goodwill related to the acquisition of MSN has been fully allocated to Nurse
and Allied Staffing.
The following table is an estimate of the fair value of the assets acquired and liabilities assumed.
(amounts in thousands)
Cash acquired
Accounts receivable, net
Other current assets
Property and equipment
Goodwill
Other intangible assets
Other assets
Total assets acquired
Accounts payable
Accrued employee compensation and benefits
Other liabilities
Total liabilities assumed
Noncontrolling interest
Net assets acquired
F- 16
$
989
37,275
3,378
5,329
13,381
17,100
2,325
79,777
6,736
14,731
9,867
31,334
324
$
48,119
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
3. Acquisitions (continued)
The Company used a third-party appraiser to determine the fair value and estimated useful lives of certain acquired assets and
liabilities. The gross contractual accounts receivable of the business were $38.1 million and were recorded net of the
Company's best estimate of receivables not expected to be collected of $0.8 million.
The self-insurance accruals and liabilities for workers' compensation and professional liability were based on third-party
appraisals. The Company provides workers’ compensation insurance coverage and professional liability coverage for our
eligible temporary healthcare professionals. As part of the MSN acquisition, the Company assumed MSN’s workers'
compensation and professional liability claims (both known claims and those incurred but not reported or IBNR). The MSN
workers’ compensation benefits are provided under a partially self-insured plan. The workers' compensation insurer requires
that the Company provide a letter of credit to guarantee payments of those workers' compensation claims. The Company also
purchased an aggregate stop loss policy that attaches at $2.3 million for known MSN professional liability claims with a policy
limit of $5.0 million. At the date of acquisition. the estimated fair value of the related liability was $5.6 million and the
estimated recovery receivable was $0.4 million. For IBNR professional liability claims of MSN, the Company purchased a
primary policy that provides each temporary healthcare professional with coverage of $1.0 million per occurrence and $5.0
million in the aggregate. This policy does not have a deductible. The Company also purchased an excess layer of insurance for
MSN IBNR professional liability claims having limits of $1.0 million per occurrence and $6.0 million in the aggregate.
Based on a final independent third-party appraisal, the Company assigned the following values to other identifiable intangible
assets: $5.9 million to trade names with an indefinite life, $4.7 million to customer relations with a weighted average estimated
useful life of 13 years, and $6.5 million to a database with an estimated useful life of 10 years, for a total of $11.2 million in
definite life intangible assets with a weighted average estimated useful life of 11 years. The Company also assigned an
estimated fair value of $0.3 million to the noncontrolling interest in InteliStaf of Oklahoma, LLC, a joint venture between MSN
and a third party. The fair value assessment was determined based on a combination of the discounted cash flow method, the
guideline public company method, and the merger and acquisition method, utilized at 80%, 10%, and 10%, respectively,
discounted to reflect that the interest is noncontrolling, and that there is no ready public market for the interest.
The remaining excess purchase price over the fair value of net assets acquired of $13.4 million was recorded as goodwill, which
is expected to be deductible for tax purposes. Additional acquisition and integration-related costs of approximately $7.3 million
were incurred and are reflected as acquisition and integration costs on the Company's consolidated statement of operations for
the year ended December 31, 2014.
Allied Healthcare Staffing
In December 2013, the Company acquired the operating assets of On Assignment, Inc.’s Allied Healthcare Staffing division for
an aggregate purchase price of $28.7 million, subject to certain post-closing adjustments. Excluded from the transaction were
the accounts receivable, accounts payable and accrued compensation of the business being acquired. The Company used $24.7
million in cash on hand and $4.5 million from borrowings under its current revolver facility with Bank of America, N.A. to pay
the purchase price and approximately $0.5 million in transaction costs.
The Company believes the acquisition complements its current Nurse and Allied Staffing business segment by: (1) adding new
skillsets to its traditional staffing offerings, (2) expanding its local branch network, which will allow it to expand its local
market presence and its MSP business, and (3) diversifying its customer base into the local ambulatory care and smaller local
healthcare facilities, which the Company believes will provide more balance between its large volume based customers and its
local retail market. At the time of the acquisition, the acquired allied staffing business had 84 branch-based employees and
made placements in more than 125 specialties from 23 branch offices.
The acquisition has been accounted for in accordance with FASB ASC Topic 805-Business Combination, using the acquisition
method of accounting. The results of the acquisition's operations have been included in the consolidated statements of
operations since December 2, 2013, the date of the acquisition. The acquired allied staffing business has been included with the
Company's Nurse and Allied Staffing business segment.
F- 17
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
3. Acquisitions (continued)
The following table summarizes the fair value of the assets acquired and liabilities assumed. The Company used a third-party
appraiser to determine the fair value and estimated useful lives of acquired assets and liabilities assumed.
Other current assets
Property and equipment
Goodwill
Other intangible assets
Other assets
Total assets acquired
Accrued employee compensation and benefits
Total liabilities assumed
$
(amounts in thousands)
62
161
14,554
14,000
52
28,829
112
112
Net assets acquired
$
28,717
Based on the final independent third-party appraisal, the Company assigned the following values to other identifiable intangible
assets: $10.4 million to customer relations with an estimated useful life of 16 years, $3.4 million to database with an estimated
useful life of 10 years, and $0.2 million to non-compete agreements with a useful life of 5 years, in a total $14.0 million in
definite life intangible assets with a weighted average estimated useful life of 14 years. The remaining excess of purchase price
over the fair value of net assets acquired $14.6 million and was recorded as goodwill, which is expected to be deductible for tax
purposes. Additional acquisition and integration-related costs of approximately $0.7 million and $0.5 million were incurred and
are reflected as acquisition and integration costs on the Company's consolidated statement of operations for the years ended
December 31, 2014 and 2013, respectively.
Results of Recent Acquisitions
The Company is integrating the acquired businesses into its current operations, including the consolidation of branch and
corporate offices and therefore, it is impracticable to separate their results from their respective dates of acquisition. The
following unaudited pro forma financial information approximates the consolidated results of operations of the Company as if
the MSN and allied staffing business acquisitions had occurred as of January 1, 2013, after giving effect to certain adjustments,
including additional interest expense on the amount the Company borrowed on the date of the transaction, the amortization of
acquired intangible assets, and the elimination of certain expenses that will not be recurring in post-acquisition periods, net of
an estimated income tax impact. These adjustments include removing transaction-related expenses of approximately $6.2
million for the year ended December 31, 2014, related to the MSN acquisition. These results are not necessarily indicative of
future results as they do not include incremental investments in support functions, elimination of costs for integration or
operating synergies, estimates of the changes in the fair value of the embedded derivative in our Convertible Notes or an
estimate of any impact on interest expense resulting from the operating cash flow of the acquired business, among other
adjustments that could be made in the future but are not factually supportable on the date of the transaction.
F- 18
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
3. Acquisitions (continued)
Year Ended December 31,
2014
2013
(unaudited, amounts in thousands except per share data)
Revenue from services
Net loss attributable to common shareholders
Net loss per common share attributable to common shareholders - basic
$
$
$
Net loss per common share attributable to common shareholders - diluted $
MDA Holdings, Inc.
739,895
(29,797)
(0.96)
(0.96)
$
$
$
$
705,477
(66,232)
(2.14)
(2.14)
In September 2008, the Company completed 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). Part of the
cash paid at closing was held in escrow to cover any post-closing liabilities (Indemnification Escrow). As of December 31,
2014 and 2013, the Indemnification Escrow balance was $3.6 million. The escrow will be released upon full satisfaction of
certain tax matters and the resolution of indemnity claims.
4. Discontinued Operations
The Clinical Trial Services business provided clinical trial, drug safety, and regulatory professionals and services 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, and also in Canada and Europe.
On February 15, 2013, the Company completed the sale of its clinical trial services business to ICON Clinical Research, Inc.
and ICON Clinical Research UK Limited (Buyer) for an aggregate $52.0 million in cash, subject to certain adjustments. At
closing, the total amount paid was reduced by approximately $0.1 million for the amount the Targeted Net Working Capital
exceeded the Estimated Net Working Capital. During the fourth quarter of 2013, the Company paid an additional $0.2 million
to the Buyer to finalize the Net Working Capital adjustment, pursuant to the assets purchase agreement.
The agreement included a provision for an earn-out of up to $3.8 million related to certain performance-based milestones. The
maximum earn-out amount of $3.8 million was deposited in escrow by Buyer as security for the earn-out payment, if any. The
$3.8 million earn-out related to certain performance-based milestones was treated as contingent consideration and the Company
assigned no fair value to this earn-out as of December 31, 2013 based on the information available to the Company. See Note
10 - Fair Value Measurements. The performance-based milestones were not earned, and as a result $1.5 million of the original
escrow was released to the Buyer in the second quarter of 2013 and $2.3 million was released in July 2014.
Of the $52.0 million purchase price paid at closing, $3.8 million was also placed in escrow for a period of 18 months following
the closing to provide partial security to the Buyer in the event of any breach of the representations, warranties and covenants of
the Company. The Company recorded the $3.8 million indemnity escrow funds as an escrow receivable, and adjusted the
amount, each reporting period, based on any known information that would be reasonable and estimable. See Note 10 - Fair
Value Measurements. The total escrow amount was released to the Company in August 2014 and reported as additional
proceeds from the sale in the investing activities on its consolidated statement of cash flows.
As a result of the disposal, the underlying operations and cash flows of the Clinical Trial Services business have been
eliminated from the Company’s continuing operations and the Company no longer has the ability to influence the operating
and/or financial policies of the disposal group. The historical financial results of operations, except for disclosures related to
cash flows, have been presented as discontinued operations for the years ended December 31, 2013 and 2012.
F- 19
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
4. Discontinued Operations (continued)
The following table presents the revenues and the components of discontinued operations, net of tax:
Revenue
Income (loss) from discontinued operations before gain on sale and income taxes
Gain on sale of discontinued operations
Income tax (expense) benefit
Income (loss) from discontinued operations, net of income taxes
Years Ended December 31,
2013
2012
(amounts in thousands)
$
$
7,939
$
67,627
434
3,969
(2,122)
2,281
$
(30,973)
—
9,497
(21,476)
For the year ended December 31, 2012, the loss before income taxes is comprised of $34.0 million of goodwill impairment
charges, $1.4 million of a trade name impairment charge, and results from operations of approximately $4.4 million.
5. Goodwill, Trade Names, and Other Identifiable Intangible Assets
As of December 31, 2014 and 2013, the Company had the following acquired intangible assets:
December 31, 2014
December 31, 2013
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
(amounts in thousands)
Accumulated
Amortization
Net
Carrying
Amount
$
$
22,425
$
12,893
$
9,532
$
15,925
$
12,103
$
42,004
3,603
17,870
3,446
24,134
157
37,304
3,603
15,125
3,406
3,822
22,179
197
68,032
$
34,209
$
33,823
$
56,832
$
30,634
$
26,198
$
90,647
38,201
$
128,848
$
77,266
42,301
$
119,567
Intangible assets subject to
amortization:
Databases
Customer relationships
Non-compete agreements
Intangible assets not subject
to amortization:
Goodwill
Trade names
Additions to these intangible assets are related to the MSN acquisition. See Note 3 - Acquisitions.
F- 20
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
5. Goodwill, Trade Names, and Other Identifiable Intangible Assets (continued)
As of December 31, 2014, estimated annual amortization expense for continuing operations is as follows:
Years Ending December 31:
2015
2016
2017
2018
2019
Thereafter
(amounts in thousands)
$
$
3,929
3,929
3,885
3,800
3,763
14,517
33,823
The changes in the carrying amount of goodwill by segment are as follows:
Nurse and
Allied Staffing
Segment
Physician
Staffing
Segment
Other Human
Capital
Management
Services
Segment
Total
(amounts in thousands)
$
$
274,286
(259,732)
14,554
$
43,405
$
19,307
$
—
43,405
—
19,307
336,998
(259,732)
77,266
13,381
—
—
13,381
287,667
(259,732)
27,935
43,405
—
19,307
—
$
43,405
$
19,307
$
350,379
(259,732)
90,647
Balances as of December 31, 2013
Aggregate goodwill acquired
Accumulated impairment loss (a)
Goodwill, net of impairment loss
Changes to aggregate goodwill in 2014
Goodwill acquired (b)
Balances as of December 31, 2014
Aggregate goodwill acquired
Accumulated impairment loss
Goodwill, net of impairment loss
_______________
(a) A non-cash pretax impairment charge of approximately $241.0 million was recorded to reduce the carrying value of
goodwill to its estimated fair value in the fourth quarter of 2008 for its Nurse and Allied Staffing reporting unit. The
majority of the goodwill impairment was 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 and
Allied Staffing acquisitions made through 2003. In addition, in the second quarter of 2012, a non-cash pretax impairment
charge of approximately $18.7 million was recorded for the Company’s Nurse and Allied Staffing reporting unit. See
impairment review disclosures that follow.
(b) Goodwill acquired from the acquisition of Medical Staffing Network. See Note 3 - Acquisitions.
2014 annual impairment testing results
The Company performed its annual impairment test as of October 1, 2014. Upon completion of the impairment testing, the
Company determined that the estimated fair value of its reporting units exceeded their respective carrying values. Accordingly,
no goodwill impairment charges were warranted for these reporting units as of December 31, 2014.
Also, in conjunction with the annual impairment testing of trade names in the fourth quarter of 2014, the Company recorded a
pretax non-cash impairment charge of $10.0 million related to the Physician Staffing segment. The Company reduced its long-
term revenue forecast for the business segment in the fourth quarter and as a result, the calculation of estimated fair value was
less than the carrying amount of the trade names, resulting in an impairment charge. The reduced long-term revenue forecast
F- 21
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
5. Goodwill, Trade Names, and Other Identifiable Intangible Assets (continued)
was impacted by lower projected volume resulting from a delay in changing to a more scalable business model. The Company
valued the trade name based on a discounted cash flow using projected cash flows of an estimated royalty fee. The royalty rate
was determined by a blended rate using the Market Royalty Rate Method and the Apportionment of Profit Method and has been
applied consistently since the date of acquisition. No additional impairments of indefinite-lived intangible assets were
identified.
2013 annual impairment testing results
The Company performed its annual impairment test as of December 31, 2013. Upon completion of the impairment testing, the
Company determined that the estimated fair value of its reporting units exceeded their respective carrying values. Accordingly,
no goodwill impairment charges were warranted for these reporting units as of December 31, 2013.
In the fourth quarter of 2013, in conjunction with the annual testing of trade names, the Company recorded a pretax non-cash
impairment charge of approximately $6.4 million of which $6.2 million related to the Physician Staffing reporting unit and $0.2
million related to the Nurse and Allied Staffing reporting unit. The Company reduced its long-term revenue forecast for these
businesses in the fourth quarter and as a result, the calculation of estimated fair value was less than the carrying amount of the
trade names, resulting in an impairment charge. The Company valued the trade name based on a discounted cash flow using
projected cash flows of an estimated royalty fee. The royalty rate was determined by a blended rate using the Market Royalty
Rate Method and the Apportionment of Profit Method and has been applied consistently since the date of acquisition.
The assessment was impacted by a then recent reduction in locum tenens usage and the overall physician staffing needs of the
Company's customers. Based on the impact those trends had on the long-term revenue forecast, the calculation of estimated fair
value using the projected revenue stream indicated the carrying amount of the trade names may not have been fully recoverable.
2012 annual impairment testing results
During the second quarter of 2012, the Company’s stock price declined further from December 31, 2011. In addition, slower
than expected booking momentum and reduced contribution income in Nurse and Allied Staffing resulted in a downward
revision to this segment’s forecast. Additionally, the Company was closely monitoring the performance of the Clinical Trial
Services and Physician Staffing reporting units due to a small margin between the carrying amount and fair value of those
respective reporting units as of the December 31, 2011 annual impairment testing and the small margin between the carrying
amount and fair value of the Nurse and Allied Staffing reporting unit as of the March 31, 2012 interim impairment testing.
These factors warranted impairment testing in the second quarter of 2012.
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 the Company 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 revenue, margins, operating cash flows, 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 of the reporting unit’s weighted average cost of capital, ranging from 11% to 18.7%.
The market approach generally applied pricing multiples derived from publicly-traded guideline companies that are comparable
to the Company’s respective reporting units, and other specific data points, to determine their value. The Company utilized total
enterprise value/revenue multiples ranging from 0.43 to 1.00, and total enterprise value/Earnings Before Interest Taxes
Depreciation and Amortization (EBITDA) multiples ranging from 4.17 to 10.00.
The reporting units’ values based on the market approach were determined assuming a 50% weighting to revenue multiples and
a 50% weighting to EBITDA multiples for its Physician Staffing, Clinical Trial Services, and Retained Search reporting units;
and a 100% weighting to the EBITDA multiples for the Education and Training reporting unit.
The total fair value of the Company’s reporting units was reconciled to its June 30, 2012 market capitalization. The
reasonableness of the resulting control premium was assessed based on a review of comparative market transactions and other
qualitative factors that might have influenced the Company’s stock price. The Company’s market capitalization was also
considered in assessing the reasonableness of the fair values of the reporting units. In performing the reconciliation of the
Company’s market capitalization to fair value, the Company considered both quantitative and qualitative factors which
F- 22
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
5. Goodwill, Trade Names, and Other Identifiable Intangible Assets (continued)
supported the implied control premium. The Company believes that a reasonable buyer would offer a control premium for the
business that would adequately cover the difference between its market price at June 30, 2012 and its book value.
Upon completion of the second quarter 2012 interim impairment testing, the Company determined that the estimated fair value
of the Company’s reporting units, with the exception of Nurse and Allied Staffing, exceeded their respective carrying values. As
a result of the June 30, 2012 interim impairment testing, the Company determined that the fair value of the Nurse and Allied
Staffing reporting unit was lower than the respective carrying value. The decrease in value was due to slower than expected
booking momentum and reduced contribution income in the Company’s second quarter of 2012 which lowered the anticipated
growth trend used for goodwill impairment testing. Pursuant to the second step of the interim impairment testing the Company
was required to calculate an implied fair value of goodwill based on a hypothetical purchase price allocation. Based on these
results, the Company wrote-off the remaining goodwill which resulted in a pretax goodwill impairment charge of
approximately $18.7 million as of June 30, 2012.
In conjunction with the 2012 annual testing of indefinite-lived intangible assets, no additional impairments of indefinite-lived
intangible assets were identified.
6. Property and Equipment
At December 31, 2014 and 2013, property and equipment consist of the following:
Computer equipment
Computer software
Office equipment
Furniture and fixtures
Leasehold improvements
Less accumulated depreciation and amortization
_______________
(a) See Note 2 – Summary of Significant Accounting Policies.
December 31,
Useful Lives
2014
2013
(amounts in thousands)
3-5 years
3-5 years
5-7 years
5-7 years
(a)
$
13,572
$
34,100
3,846
3,562
4,643
59,723
(47,590)
12,133
$
$
12,115
30,059
3,307
1,752
3,716
50,949
(44,779)
6,170
F- 23
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
7. Balance Sheet Details
Insurance recovery receivable:
Insurance recovery for workers’ compensation
Insurance recovery for professional liability
Non-current insurance recovery receivable:
Insurance recovery for workers’ compensation – long-term
Insurance recovery for professional liability – long-term
Accrued compensation and benefits:
Salaries and payroll taxes
Bonuses
Accrual for workers’ compensation claims
Accrual for health care benefits
Accrual for professional liability insurance
Accrual for vacation
Long-term accrued claims:
Accrual for workers’ compensation claims
Accrual for professional liability insurance
Other long-term liabilities:
Deferred compensation
Deferred rent
Other
December 31,
2014
2013
(amounts in thousands)
3,316
2,308
5,624
5,677
11,148
16,825
$
$
$
$
8,406
$
4,050
6,996
2,206
4,652
2,421
2,093
1,793
3,886
3,336
7,578
10,914
6,875
2,200
3,236
1,385
4,091
1,361
28,731
$
19,148
14,221
17,847
32,068
$
$
1,510
$
2,453
47
4,010
$
5,076
13,227
18,303
1,638
1,777
—
3,415
$
$
$
$
$
$
$
$
$
$
F- 24
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
8. Long-Term Debt
At December 31, 2014 and 2013, long-term debt consists of the following:
Senior Secured Asset-Based, interest 2.61% and 3.27% at December 31, 2014 and
December 31, 2013, respectively
Second Lien Term Loan, net of unamortized discount of $1,011, interest 7.50% at
December 31, 2014
Convertible Notes, net of unamortized discount of $7,053, interest 8.00% at December
31, 2014
Convertible Notes derivative liability
Capital lease obligations
Total debt
Less current portion
Long-term debt
As of December 31, 2014, the aggregate scheduled maturities of debt are as follows:
December 31,
2014
2013
(amounts in thousands)
$
3,500
$
8,400
28,989
17,947
23,436
202
74,074
(3,607)
70,467
$
—
—
—
176
8,576
(8,483)
93
$
Term Debt
Convertible
Notes
Revolver
(amounts in thousands)
Capital Leases
and
Note Payable
$
— $
—
—
—
30,000
—
—
—
—
—
—
25,000
$
3,500
$
—
—
—
—
—
$
30,000
$
25,000
$
3,500
$
107
72
13
8
2
—
202
Through Years Ending December 31:
2015
2016
2017
2018
2019
Thereafter
Total
Senior Credit Facility
On January 9, 2013, the Company entered into a First Lien Loan Agreement, (the First Lien Loan Agreement or Senior Secured
Asset-Based Loan), by and among the Company and certain of its subsidiaries, as borrowers, and Bank of America, N.A., as
agent. The First Lien Loan Agreement was subsequently amended to allow for the sale of the Company's Clinical Trials
Services business in February 2013 and for administrative matters.
The initial proceeds from the revolving credit facility were used to finance the repayment of existing indebtedness of the
Company under its prior senior secured credit agreement and the payment of fees and expenses. The repayment of the term loan
portion of the senior secured agreement was treated as extinguishment of debt, and, as a result, the Company recognized a loss
on extinguishment in the first quarter of 2013, related to the write-off of unamortized net debt issuance costs of approximately
$0.3 million. The repayment of the revolver portion of the senior secured credit agreement was treated partially as
extinguishment and partially as a modification. The fees related to the modified portion of $0.1 million relate to the
continuation of credit provided by Bank of America, N.A. in its First Lien Loan Agreement. The Company wrote-off the
remaining unamortized net debt issuance costs of approximately $1.1 million in the first quarter of 2013.
F- 25
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
8. Long-Term Debt (continued)
On June 30, 2014, the Company and certain of its subsidiaries, as borrowers, entered into a third amendment (the Amendment)
to the Company’s First Lien Loan Agreement with Bank of America, N.A., as agent, in order to, among other things, increase
the Company’s borrowing capacity under the First Lien Loan Agreement and to consent to the consummation of the MSN
acquisition and the incurrence by the Company of the indebtedness contemplated pursuant to the Second Lien Term Loan
Agreement and the Note Purchase Agreement. The Amendment provided for, among other things, increasing the revolving
credit facility under the First Lien Loan Agreement from $65.0 million to $85.0 million and increasing the letter of credit
subline under the First Lien Loan Agreement from $20.0 million to $35.0 million. In addition, the termination date of the
revolving credit facility under the First Lien Loan Agreement was extended to June 30, 2017.
The Company used the increased availability under the letter of credit subline to collateralize certain insurance obligations
related to the MSN acquisition. The revolving credit facility and letter of credit subline will be used to provide ongoing working
capital and for other general corporate purposes of the Company and its subsidiaries.
As of the June 30, 2014 amendment, the First Lien Loan Agreement provides for: a three-year senior secured asset-based
revolving credit facility in the aggregate principal amount of up to $85.0 million, which includes a subfacility for swingline
loans up to an amount equal to 10% of the aggregate Revolver Commitments, as defined in the agreement, and a $35.0 million
subfacility for standby letters of credit. Swingline loans and letters of credit issued under the First Lien Loan Agreement reduce
available revolving credit commitments on a dollar-for-dollar basis. Pursuant to the First Lien Loan Agreement, the aggregate
amount of advances under the revolving credit facility (Borrowing Base) cannot exceed the lesser of (a) (i) $85.0 million, or (ii)
85% of eligible billed accounts receivable as defined in the First Lien Loan Agreement; plus (b) the lesser of (i) 85% of eligible
unbilled accounts receivable and (ii) $18.0 million; minus (c) reserves as defined by the First Lien Loan Agreement, which
include one week’s worth of W-2 payroll and fees payable to independent contractors.
The revolving credit facility can be used to provide ongoing working capital and for other general corporate purposes of the
Company and its subsidiaries. As of December 31, 2014, the interest rate spreads and fees under the First Lien Loan Agreement
are based on LIBOR plus 1.50% or Base Rate plus 0.50%. The LIBOR and Base Rate margins are subject to performance
pricing adjustments, pursuant to a pricing matrix based on the Company’s excess availability under the revolving credit facility,
and could increase by 200 basis points if an event of default exists. The Company is required to pay a monthly commitment fee
on the average daily unused portion of the revolving loan facility, which, as of December 31, 2014, was 0.375%.
The First Lien Loan Agreement contains customary representations, warranties, and affirmative covenants. The First Lien Loan
Agreement also contains customary negative covenants, including covenants with respect to, among other things: (i)
indebtedness, (ii) liens, (iii) investments, (iv) significant corporate changes, including mergers and acquisitions, (v)
dispositions, (vi) dividend, distributions and other restricted payments, (vii) transactions with affiliates, and (viii) restrictive
agreements. In addition, if the Company’s availability under the revolving credit facility is less than the greater of (i) 12.5% of
the Loan Cap, as defined, and (ii) $8.3 million, or availability is less than $4.0 million, the Company is required to meet a
minimum fixed charge coverage ratio of 1.0, as defined in the First Lien Loan Agreement. The First Lien Loan Agreement also
contains customary events of default, such as payment defaults, cross-defaults to other material indebtedness, bankruptcy, and
insolvency, the occurrence of a defined change in control and the failure to observe covenants or conditions under the credit
facility documents.
The Company’s obligations under the First Lien Loan Agreement are guaranteed by all material domestic subsidiaries of the
Company that are not co-borrowers (Subsidiary Guarantors). As collateral security for their obligations under the First Lien
Loan Agreement and guarantees thereof, the Company and the Subsidiary Guarantors have granted to Bank of America, N.A. a
security interest in substantially all of their tangible and intangible assets.
As of December 31, 2014, the Gross Availability, as defined in the First Lien Loan Agreement, was approximately $69.7
million based on the Company's November accounts receivable balance. The Company had $26.5 million letters of credit
outstanding and $3.5 million drawn under its revolving credit facility, leaving $39.7 million available as of December 31, 2014.
The letters of credit relate to the Company’s workers’ compensation and professional liability insurance policies.
Second Lien Term Loan
On June 30, 2014, the Company entered into a second lien loan and security agreement (the Second Lien Term Loan
Agreement), by and among the Company, as borrower, certain of its domestic subsidiaries, as guarantors, and BSP Agency,
LLC, as agent.
F- 26
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
8. Long-Term Debt (continued)
The Second Lien Term Loan Agreement provides for a five-year senior secured term loan facility in an aggregate principal
amount of $30.0 million (the loans thereunder, the Second Lien Term Loans). After deducting a debt discount of $1.1 million,
the net proceeds of $28.9 million from the Second Lien Term Loan facility were used by the Company to pay a portion of the
consideration for the MSN Acquisition and related fees and expenses. In connection with the financing, the Company incurred
$0.4 million of debt issuance costs.
Amounts borrowed under the Second Lien Term Loan facility that are repaid or prepaid may not be re-borrowed. The Second
Lien Term Loans bear interest at a rate equal to adjusted LIBOR (defined as the 3-month London interbank offered rate for U.S.
dollars, adjusted for customary Eurodollar reserve requirements, if any, and subject to a floor of 1.00%) plus 6.50%. The
interest rate would increase by 200 basis points if an event of default exists under the Second Lien Term Loan Agreement.
The Company may, at its option, elect to prepay the Second Lien Term Loans on or before June 30, 2015, subject to a
prepayment premium in an amount equal to (i) the amount of the principal amount of the Second Lien Term Loans being
repaid, plus (ii) the accrued but unpaid interest on the principal amount so prepaid, if any, to the date of the prepayment, plus
(iii) any associated administrative amounts or charges owed to the lenders as a result of the redeployment of funds or fees
payable to terminate matching deposits, plus (iv) a “make whole” amount equal to the excess, if any, of (a) the present value at
the prepayment date of (1) 103% of the aggregate principal amount of the Second Lien Term Loans then being prepaid, plus (2)
all remaining scheduled interest payments due on the principal amount of such Second Lien Term Loans being prepaid through
June 30, 2015 (excluding accrued but unpaid interest to the date of such prepayment), computed using a discount rate equal to
the Treasury rate as of such prepayment date plus 50 basis points over (b) the outstanding principal amount of such Second Lien
Term Loans being prepaid. The Company may, at its option at any time after June 30, 2015, prepay the Second Lien Term
Loans in whole or in part at the redemption prices set forth therein, which range from 103% of the principal amount thereof for
prepayments during the period July 1, 2015 through June 30, 2016, 102% of the principal amount thereof for prepayments
during the period July 1, 2016 through June 30, 2017, and 100% of the principal amount thereof for prepayments after such
date.
Subject to certain exceptions, the Second Lien Term Loans are required to be prepaid with: (a) 50% of excess cash flow (as
defined in the Second Lien Term Loan Agreement) above $5.0 million for each fiscal year of the Company (commencing with
the fiscal year ending December 31, 2015), provided that voluntary prepayments of the Second Lien Term Loans made during
such fiscal year will reduce the amount of excess cash flow prepayments required for such fiscal year on a dollar-for-dollar
basis; (b) 100% of the net cash proceeds of all asset sales or other dispositions of property by the Company and its subsidiaries,
as set forth in the agreement, in excess of a defined threshold and subject to the right of the Company to reinvest such proceeds
within 12 months; (c) 100% of the net cash proceeds of issuances of debt offerings of the Company and its subsidiaries (except
the net cash proceeds of any permitted debt); and (d) 50% of the net cash proceeds of equity offerings of the Company.
The Second Lien Term Loan Agreement contains customary representations, warranties, and affirmative covenants. Among
other things, the agreement also includes a financial covenant limiting the Company’s maximum “debt” to “EBITDA” (each, as
defined therein) ratio to no greater than 4.50:1.00, subject to customary equity cure rights. The financial covenant will be tested
quarterly, commencing with the quarter ended June 30, 2015 and each quarter thereafter for so long as any Second Lien Term
Loans are outstanding. The agreement also contains customary negative covenants; including covenants with respect to, among
other things, (i) indebtedness, (ii) liens, (iii) investments, (iv) fundamental corporate changes, (v) dispositions, (vi) dividends,
distributions and other restricted payments, (vii) transactions with affiliates, and (viii) restrictive agreements. The agreement
contains customary events of default, such as payment defaults, cross-defaults to other material indebtedness, bankruptcy, and
insolvency, the occurrence of a defined change in control and the failure to observe covenants or conditions under the Second
Lien Term Loan Facility documents.
The Company’s obligations under the Second Lien Term Loan Agreement are guaranteed by all material domestic subsidiaries
of the Company (Subsidiary Guarantors). As collateral security for their obligations under the Second Lien Term Loan
Agreement and guarantees thereof, the Company and the Subsidiary Guarantors have granted a second-priority security interest
in substantially all their tangible and intangible assets.
Private Placement of Convertible Notes
On June 30, 2014, the Company and certain of its domestic subsidiaries entered into a Convertible Note Purchase Agreement
(the Note Purchase Agreement), with certain note holders (collectively, the Noteholders). Pursuant to the Note Purchase
F- 27
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
8. Long-Term Debt (continued)
Agreement, the Company sold to the Noteholders an aggregate of $25.0 million of convertible senior notes (the Convertible
Notes). After deducting a debt discount of $0.9 million, the net proceeds of $24.1 million were used by the Company for the
MSN Acquisition and related fees and expenses. In connection with the financing, the Company incurred $0.3 million of debt
issuance costs. As a result of the conversion and redemption features, the Company recorded $6.8 million as additional discount
for the fair value of these features.
The Convertible Notes are convertible at the option of the holders thereof at any time into shares of the Company’s common
stock, par value $0.0001 per share (Common Stock), at an initial conversion price of $7.10 per share, or 3,521,126 shares of
Common Stock. After three years, the Company has the right to force a conversion of the Convertible Notes if the volume-
weighted average price (VWAP) per share of its Common Stock exceeds 125% of the then conversion price for 20 days of a 30
day trading period. The conversion price is subject to adjustment pursuant to customary weighted average anti-dilution
provisions including adjustments for the following: Common Stock dividends or distributions; issuance of any rights, warrants
of options to acquire Common Stock; distributions of property; tender offer or exchange offer payments; cash dividends; or
certain issuances of Common Stock at less than the conversion price. Upon conversion of the Convertible Notes, the Company
will exchange, for the applicable conversion amount thereof a number of shares of Common Stock, with no maximum, on
amount, equal to the amount determined by dividing (i) such conversion amount by (ii) the conversion price in effect at the time
of conversion. No fractional shares of Common Stock will be issued upon conversion of the Conversion Notes. In lieu of
fractional shares, the Company shall pay cash in respect of each fractional share equal to such fractional amount multiplied by
the Thirty Day VWAP as of the closing of business on the Business Day immediately preceding the conversion date as well as
any unpaid accrued interest.
The Convertible Notes bear interest at a rate of 8.00% per annum, payable in quarterly cash installments; provided, however,
that, at the Company’s option, up to 4.00% of the interest payable may be “paid-in-kind” through a quarterly addition of such
“paid-in-kind” interest amount to the principal amount of the Convertible Notes. The Convertible Notes will mature on June 30,
2020, unless earlier repurchased, redeemed or converted. Subject to certain exceptions, the Company is not permitted to redeem
the Convertible Notes until June 30, 2017. If the Company redeems the Convertible Notes on or after June 30, 2017, the
Company is required to pay a premium of 15% of the amount of principal of the Convertible Notes redeemed.
If the Convertible Notes are redeemed prior to June 30, 2017, pursuant to a Prohibited Transaction, as defined by the
agreement, the Company is required to pay a premium equal to the greater of (i) the sum of (a) the amount of principal of the
Convertible Notes redeemed, plus (b) the accrued but unpaid interests on the principal amount so redeemed to the date of the
redemption, plus (c) a “make whole” amount (described below) and (ii) the sum of (x) the average thirty day VWAP per share
of Common Stock multiplied by the number of shares of Common Stock that the redeemed Convertible Notes are then
convertible into, with no maximum, and (y) the accrued but unpaid interest on the Convertible Notes. The “make whole”
amount is equal to the excess, if any, of (1) the present value at the date of redemption of (A) 115% of the principal amount of
the Convertible Notes redeemed, plus (B) all remaining scheduled interest due on the principal amount of the notes being
redeemed through June 30, 2017 computed using a discount rate equal to the Treasury rate as of the date of redemption plus 50
basis points over (2) the outstanding principal amount of the Convertible Notes then redeemed.
The Company granted the Noteholders preemptive rights with respect to future equity issuances by the Company, subject to
customary exceptions.
In connection with the placement of the Convertible Notes, on June 30, 2014, the Company entered into a registration rights
agreement (the Registration Rights Agreement) with the Noteholders, which sets forth the rights of the Noteholders to have the
shares of Common Stock issuable upon conversion of the Convertible Notes registered with the Securities and Exchange
Commission (the SEC) for public resale under the Securities Act of 1933, as amended. Pursuant to the Registration Rights
Agreement, the Company was required to file a registration statement with the SEC (the Initial Registration Statement)
registering the shares of Common Stock issuable upon conversion of the Convertible Notes. The Initial Registration Statement
was filed with the SEC and became effective in the fourth quarter of 2014. In addition, the agreement gives the Noteholders the
ability to exercise certain piggyback registration rights in connection with registered offerings by the Company.
F- 28
9. Convertible Notes Derivative Liability
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
Derivative financial instruments, as defined in ASC 815, Accounting for Derivative Financial Instruments and Hedging
Activities, consist of financial instruments or other contracts that contain a notional amount and one or more underlyings (e.g.
interest rate, security price or other variable), require no initial net investment and permit net settlement. Derivative financial
instruments may be free-standing or embedded in other financial instruments. Further, derivative financial instruments are
initially, and subsequently, measured at fair value and recorded as liabilities or, in rare instances, assets.
The Company does not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks.
However, the Company has issued Convertible Notes with features that are either (i) not afforded equity classification, (ii)
embody risks not clearly and closely related to host contracts, or (iii) may be net-cash settled by the counterparty. As required
by ASC 815, in certain instances, these instruments are required to be carried as derivative liabilities, at fair value, in our
financial statements.
The Convertible Notes issued in conjunction with the MSN acquisition are subject to anti-dilution adjustments that allow for
the reduction in the Conversion Price, as defined in the agreement, in the event the Company subsequently issues equity
securities including Common Stock or any security convertible or exchangeable for shares of Common Stock for a price less
than the current conversion price. In addition, the Convertible Notes allow the issuer to exercise optional redemption features
and the holder to exercise an offer to purchase feature, under certain conditions. The Company accounted for the conversion
option in accordance with ASC 815. Since this conversion feature is not considered to be solely indexed to the Company’s own
stock the derivative was recorded as a liability.
The Company’s Convertible Notes derivative liability has been measured at fair value at December 31, 2014 using a
trinomial lattice model. The optional redemption features, along with the offer to purchase features are incorporated into the
valuation model. Inputs into the model require estimates, including such items as estimated volatility of the Company’s stock,
estimated probabilities of change of control and issuance of additional financing, risk-free interest rate, and the estimated life of
the financial instruments being fair valued. In addition, since the conversion price contains an anti-dilution adjustment, the
probability that the Conversion Price of the Notes would decrease as the share price decreased was also incorporated into the
valuation calculation.
The inputs into the valuation model are as follows:
Closing share price
Conversion price
Risk free rate
Expected volatility
Dividend yield
Expected life
December 31, 2014
$12.48
$7.10
1.86%
40%
—%
5.5 years
The fair value of this derivative liability is primarily determined by fluctuations in our stock price. As our stock price increases
or decreases, the fair value of this derivative liability increases or decreases, resulting in a corresponding current period loss or
gain to be recognized. As of December 31, 2014, a $1 decrease or increase in our stock price would have resulted in a change in
the valuation of the embedded derivative by approximately $3.1 million and a 1% decrease or increase in interest rates would
have resulted in a change in the valuation of the derivative of approximately $0.7 million.
10. 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.
F- 29
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
10. Fair Value Measurements (continued)
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.
Items Measured at Fair Value on a Recurring Basis:
At December 31, 2014 and 2013, the Company’s financial assets/liabilities required to be measured on a recurring basis were its
indemnity escrow receivable, deferred compensation liability included in other long-term liabilities, Convertible Notes
derivative liability and contingent consideration receivable related to the sale of its Clinical Trial Services business.
Escrow receivable —The Company recorded the $3.8 million indemnity escrow funds related to the sale of its Clinical Trial
Services business as an escrow receivable and adjusted the amount to the estimated fair value each reporting period based on
any known information. The total escrow amount was released to the Company in August 2014 relieving the escrow receivable
balance. See Note 4 - Discontinued Operations.
Contingent consideration receivable, performance earnout —The earn out related to the Company’s sale of its Clinical Trial
Services business was treated as a contingent consideration receivable for accounting purposes. The Company utilized Level 3
inputs to value the contingent consideration receivable as significant unobservable inputs were used in the calculation of its fair
value and related to the future performance of the disposed business. The fair value of the contingent consideration receivable
was adjusted to its fair value on a quarterly basis with any adjustment to the related receivable and the gain/loss on the sale of
assets (included in discontinued operations). The future performance of the disposed business directly impacted the contingent
consideration that could have been paid to the Company. The contingency was resolved during the third quarter of 2014
resulting in no additional consideration. See Note 4 - Discontinued Operations for further information.
Deferred compensation —The Company utilizes Level 1 inputs to value its deferred compensation liability. The Company’s
deferred compensation liability is measured using publicly available indices that define the liability amounts, as per the plan
documents.
Convertible Notes derivative liability —The Company utilizes Level 3 inputs to value its Convertible Notes derivative liability.
See Note 9 - Convertible Notes Derivative Liability and Note 2 - Summary of Significant Accounting Policies.
The table which follows summarizes the estimated fair value of the Company’s financial assets and liabilities measured on a
recurring basis as of December 31, 2014 and 2013:
Fair Value Measurements
Financial Assets:
(Level 3)
Escrow receivable
Financial Liabilities:
(Level 1)
Deferred compensation
(Level 3)
Convertible Notes derivative liability
December 31, 2014
December 31, 2013
(amounts in thousands)
— $
3,750
1,510
23,436
$
$
1,638
—
$
$
$
F- 30
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
10. Fair Value Measurements (continued)
The table which follows reconciles the opening balances to the closing balances for fair value measurements categorized within
Level 3 of the fair value hierarchy:
December 31, 2012
Additions
December 31, 2013
Additions
Settlements
Valuation loss for the period
December 31, 2014
_______________
Escrow
Convertible Notes
Receivable
Derivative Liability (a)
(amounts in thousands)
— $
3,750
3,750
—
(3,750)
—
— $
—
—
—
6,765
—
16,671
23,436
$
$
(a) Embedded derivative included in long-term debt on consolidated balance sheets. Embedded derivative of $6.8
million added as of June 30, 2014. Change in valuation of derivative for the year ended December 31, 2014 was
$16.7 million and is included in other expenses (income) on the consolidated statement of operations. See Note 9 -
Convertible Notes Derivative Liability and Note 2 - Summary of Significant Accounting Policies for further
information.
Items Measured at Fair Value on a Nonrecurring Basis:
Goodwill and other identifiable intangible assets with indefinite lives are reviewed for impairment annually, and whenever
events or changes in circumstances indicate that the carrying value may not be recoverable. 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, the Company records a noncash impairment
charge for the difference between the carrying amount 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.
As of October 1, 2014, in conjunction with the annual testing of indefinite-lived intangible assets not subject to amortization,
the Company recorded a pretax non-cash impairment charge of approximately $10.0 million related to its MDA trade name. See
Note 5 – Goodwill, Trade Names, and Other Identifiable Intangible Assets. The Company reduced its long-term revenue
forecast for these businesses as part of its forecasting process in the fourth quarter and as a result, the calculation of estimated
fair value was less than the carrying amount of the trade names, resulting in an impairment charge.
In the fourth quarter of 2013, in conjunction with the annual testing of indefinite-lived intangible assets not subject to
amortization, the Company recorded a pretax non-cash impairment charge of approximately $6.4 million related to its MDA
acquisition (see Note 5 – Goodwill, Trade Names, and Other Identifiable Intangible Assets). The Company reduced its long-
term revenue forecast for these businesses in the fourth quarter and as a result, the calculation of estimated fair value was less
than the carrying amount of the trade names, resulting in an impairment charge.
The table below presents the fair value of the MDA trade names as of December 31, 2014 and 2013.
(Level 3)
MDA trade names
Fair Value Measurements
December 31, 2014
December 31, 2013
(amounts in thousands)
$
17,699
$
28,836
F- 31
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
10. Fair Value Measurements (continued)
Other Fair Value Disclosures:
Financial instruments not measured or recorded at fair value in the accompanying consolidated balance sheets consist of cash
and cash equivalents, accounts receivable, accounts payable and accrued expenses, and short and long-term debt. The estimated
fair value of accounts receivable, accounts payable and accrued expenses approximate their carrying amount due to the short-
term nature of these instruments. The fair value of the Company’s term loan and revolver credit facility included in the current
portion of long-term debt on its consolidated balance sheet is estimated using Level 2 inputs utilizing interest rates that were
indirectly observable in markets for similar liabilities. The estimated fair value of the Company’s debt was calculated using
discounted cash flow analysis and appropriate valuation methodologies using Level 2 inputs available market information.
The following table represents the carrying amounts and estimated fair value of the Company’s significant financial instruments
that were not measured at fair value:
December 31, 2014
December 31, 2013
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
(amounts in thousands)
Financial Liabilities:
(Level 2)
Second Lien Term Loan, net (a)
Convertible Notes, net (a)
Senior Secured Asset-Based Loan (b)
$
$
$
28,989
17,948
3,500
$
$
$
29,900
19,200
3,500
$
$
$
— $
— $
—
—
8,400
$
8,400
_______________
(a) The Second Lien Term Loan and Convertible Notes are reported at their carrying value in the accompanying
consolidated balance sheets. The Company determined their fair value, as presented in the table using an income
approach, utilizing a discounted cash flow analysis based on current market interest rates for debt issuances with
similar remaining years to maturity, adjusted for credit risk.
(b) Carrying value of the Senior Secured Asset-Based Loan approximates estimated fair value based on the short-term
nature and the pricing at varying interest rates.
Concentration of Risk:
The Company has invested its excess cash in highly rated overnight funds and other highly rated liquid accounts. The Company
has been exposed to credit risk associated with these investments. The Company minimizes its credit risk relating to these
positions by monitoring the financial condition of the financial institutions involved and by primarily conducting business with
large, well established financial institutions and diversifying its counterparties.
The Company generally does not require collateral and mitigates its credit risk by performing credit evaluations and monitoring
at-risk accounts. 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 collectability as well as past experience with the customer. The Company’s contract terms
typically require payment between 15 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.
11. 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. 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.
F- 32
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
11. Employee Benefit Plans (continued)
Contributions by the Company, net of forfeitures, under this plan amounted to $0.6 million the years ended December 31, 2014,
2013 and 2012, respectively. Eligible employees who elect to participate in the plan are generally vested in any existing
matching contribution after three years of service with the Company.
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 amounted $1.5 million and $1.6 million at December 31, 2014
and 2013, respectively.
12. Commitments and Contingencies
Commitments:
Operating Leases
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 table
below.
Future minimum lease payments, as of December 31, 2014, associated with these agreements with terms of one year or more
are as follows:
Through Year Ending December 31:
(amounts in thousands)
2015
2016
2017
2018
2019
Thereafter
$
$
7,202
5,581
3,884
1,613
486
2,146
20,912
Total operating lease expense included in selling, general and administrative expenses was approximately $7.7 million, $5.5
million and $5.8 million for the years ending December 31, 2014, 2013 and 2012, respectively.
Contingencies:
Sales and Other State Non-income Tax Liabilities
The Company's sales and other state non-income tax filings are subject to routine audits by authorities in the jurisdictions where
it conducts business in the United States which may result in assessments of additional taxes. The Company accrues sales and
other non-income tax liabilities based on the Company's best estimate of its probable liability utilizing currently available
information and interpretation of relevant tax regulations. Given the nature of the Company's business, significant subjectivity
exists as to both whether sales and other state non-income taxes can be assessed on its activity and how the sales tax will
ultimately be measured by the relevant jurisdictions. The Company makes a determination for each reporting period whether
the estimates for sales and other non-income taxes in certain states should be revised. The expense is included in selling,
general and administrative expenses on its consolidated statements of operations and the liability is reflected in sales tax
payable as of December 31, 2014 and 2013, on its consolidated balance sheets.
During 2011, a state administrative ruling related to certain service tax matters was released which indicated that services
performed in that particular state are subject to a tax not previously paid by the Company. As a result, the Company conducted
F- 33
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
12. Commitments and Contingencies (continued)
an initial review of certain other states to determine if any additional exposures may exist and determined that it was probable
that some of its previous tax positions would be challenged. As a result, the Company changed its assessment of certain non-
income tax positions and estimated a liability related to these matters. Based on its best estimate of probable settlement, the
Company accrued a pretax liability related to the non-income tax matters of approximately $0.5 million in the year ended
December 31, 2011, of which approximately $0.4 million related to the 2008-2010 tax years. The Company accrued an
additional pretax liability related to the non-income tax matters of approximately $1.0 million in the year ended December 31,
2012, of which approximately $0.3 million related to the 2005-2011 tax years. For the year ended December 31, 2013, the
Company accrued an additional pretax liability related to the non-income tax matters of approximately $0.8 million, of which
approximately $0.4 million related to the 2007-2012 tax years, and paid approximately $0.3 million to settle with certain states.
For the year ended December 31, 2014, the Company accrued an additional pretax liability related to the non-income tax
matters of approximately $0.2 million, and paid approximately $0.1 million to settle with certain states. The expenses are
included in selling, general and administrative expenses on its consolidated statements of operations for the years ended
December 31, 2014, 2013, and 2012 and the liability is reflected as sales tax payable as of December 31, 2014 and 2013, on its
consolidated balance sheets. The Company is continuing to work with professional tax advisors and state authorities to resolve
the remaining matters.
Legal Proceedings
On December 4, 2012, the Company’s subsidiary, CC Staffing, Inc. (now known as Travel Staff, LLC) became the subject of a
purported class action lawsuit (Alice Ogues, on behalf of herself and all others similarly situated, Plaintiffs, vs. CC Staffing,
Inc., a Delaware corporation; and DOES 1-50, inclusive, Defendants) filed in the United States District Court, Northern District
of California. Plaintiff alleged that traveling employees were denied meal periods and rest breaks, that they should have been
paid overtime on reimbursement amounts, various other wage and hour claims, and that they are entitled to associated
penalties. In 2013, the parties agreed to settle this lawsuit for $0.8 million with the understanding that such settlement is not an
admission by the Company of any liability, negligence or wrong doing. The Court granted final approval of the settlement in
September 2014 and during the fourth quarter of 2014 the Company paid $0.8 million to the plaintiff.
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.
13. Income Taxes
The components of the Company’s loss before income taxes are as follows:
United States
Foreign
Year Ended December 31,
2014
2013
2012
(amounts in thousands)
(11,216) $
1,177
(10,039) $
(33,574) $
2,256
(31,318) $
$
$
(28,599)
1,704
(26,895)
F- 34
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
13. Income Taxes (continued)
The components of the Company’s income tax expense (benefit) are as follows:
Year Ended December 31,
2014
2013
2012
(amounts in thousands)
Continuing operations:
Current
Federal
State
Foreign
Total
Deferred
Federal
State
Foreign
Total
Total income tax expense (benefit) for continuing operations
The total income tax provision is summarized as follows:
Continuing operations
Discontinued operations
$
— $
— $
811
262
1,073
(1,320)
68
395
(857)
216
216
—
216
$
$
$
$
$
$
540
416
956
37,822
5,134
299
43,255
44,211
$
412
812
1,561
2,785
(4,048)
(5,251)
364
(8,935)
(6,150)
44,211
2,122
46,333
$
$
(6,150)
(9,497)
(15,647)
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.
F- 35
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
13. Income Taxes (continued)
Significant components of the Company’s deferred tax assets and liabilities are as follows:
Current deferred tax assets (liabilities):
Accrued other and prepaid expenses
Accrued settlement charge
Allowance for doubtful accounts
Other
Gross deferred tax assets
Valuation allowance
Deferred tax liabilities
Non-current deferred tax (liabilities) and assets:
Amortization
Depreciation
Identifiable intangibles
Net operating loss carryforwards
Derivative interest
Accrued professional liability
Accrued workers’ compensation
Tax on unrepatriated earnings
Share-based compensation
Other
Gross deferred tax assets
Valuation allowance
Deferred tax liabilities
Net deferred taxes
December 31,
2014
2013
(amounts in thousands)
$
2,823
$
2,592
—
589
822
4,234
(6,215)
(1,981)
(5,967)
105
—
38,144
6,370
(92)
1,356
(336)
959
(1,176)
39,363
(57,401)
(18,038)
(20,019) $
283
650
468
3,993
(4,528)
(535)
(1,314)
(384)
(2,237)
32,531
—
(118)
675
(453)
1,610
314
30,624
(47,473)
(16,849)
(17,384)
$
The Company determines the need for a valuation allowance under Income Taxes topic of the FASB ASC by assessing the
probability of realizing deferred tax assets, taking into consideration all available positive and negative evidence, including
historical operating results, expectations of future taxable income, carryforward periods available to the Company for tax
reporting purposes, the evaluation of various income tax planning strategies, and other relevant factors. The Company
maintains a valuation allowance when it is more likely than not that all or a portion of a deferred tax asset will not be realized
based on consideration of all available evidence. Adjustments to the deferred tax valuation allowances are made to earnings in
the period when such assessments are made. Significant judgment is required in making this assessment and to the extent future
expectations change, the Company would have to assess the recoverability of its deferred tax assets at that time. The Company's
cumulative loss position was significant negative evidence in assessing the need for a valuation allowance. As of December 31,
2013, the Company determined that it could not sustain a conclusion that it was more likely than not that it would realize any of
its deferred tax assets resulting from recent losses, the difficulty of forecasting future taxable income, and other factors. The
Company intends to maintain a valuation allowance until sufficient positive evidence exists to support its reversal. To be
considered a source of future taxable income to support realizability of a deferred tax asset, a taxable temporary difference must
reverse in a period such that it would result in the realization of the deferred tax asset. Taxable temporary differences related to
indefinite-lived intangibles, such as goodwill, are by their nature not predicted to reverse and therefore not considered a source
of future taxable income in accordance with ASC 740. The Company had $19.7 million and $17.4 million of deferred tax
liabilities relating to indefinite lived intangible assets that it was not able to offset against deferred tax assets as of December 31,
2014 and 2013, respectively. As of December 31, 2014 and 2013, the Company recorded valuation allowances of $63.6 million
and $52.0 million, respectively. The December 31, 2014 and 2013 valuation allowances applied to all its deferred tax assets.
F- 36
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
13. Income Taxes (continued)
The December 31, 2012 valuation allowance related to the uncertainty of the realization of a particular subsidiary’s state portion
of its deferred tax asset that arose from the goodwill impairment and certain separate state net operating losses.
As of December 31, 2014 and 2013, respectively, the Company had approximately $97.5 million and $78.1 million of federal,
state, and foreign net operating loss carryforwards. The federal carryforwards expire between 2031 and 2034. The state
carryforwards expire between 2014 and 2034. The majority of the foreign carryforwards are in a jurisdiction with no expiration.
A valuation allowance for the net operating losses has been recorded at December 31, 2014 and 2013, to reduce the Company’s
deferred tax asset to an amount that is more likely than not to be realized. In the first quarter of 2014, the Company recorded a
non-cash adjustment of $1.7 million primarily related to an overstatement of the valuation allowance established as of
December 31, 2013. The out-of-period adjustment also decreased the net loss by the same amount or $0.06 per diluted share for
the three months ended March 31, 2014 and the year ended December 31, 2014. Management concluded that the adjustment
was not material to its prior period financial statements and is not expected to be material to the full year results for 2014.
The reconciliation of income tax computed at the U. S. federal statutory rate to income tax expense (benefit) is as follows:
Year Ended December 31,
2014
2013
2012
Tax at U.S. statutory rate
State taxes, net of federal benefit
Non-deductible meals and entertainment
$
Foreign tax expense
Valuation allowances
Uncertain tax positions
Deferred tax rate differential
Deferred tax write-offs (a)
Audit settlements
Tax on unrepatriated earnings
Tax on repatriated earnings
Tax true ups and other
Total income tax expense (benefit) for continuing operations
$
(10,961) $
219
(amounts in thousands)
(3,514) $
(190)
450
1,425
44
12,038
(996)
—
—
—
—
—
(1,553)
216
$
554
48,556
(257)
—
221
160
(1,465)
—
(304)
44,211
$
(9,413)
(1,226)
962
(222)
(44)
648
150
—
—
2,005
519
471
(6,150)
The tax years of 2004, 2005, and 2008 through 2013 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. In mid-July of
2013, the Company received a notice of proposed audit adjustments from the State of New York relating to the examination of
its tax years ending December 31, 2006 through 2009.
In the fourth quarter of 2012, the Company changed its position regarding permanent reinvestment and accrued approximately
$1.4 million of U.S. tax and $0.6 million of India tax on earnings of approximately $9.5 million. During the fourth quarter of
2012, the company repatriated approximately $3.3 million of foreign earnings from its Indian subsidiary. U.S. income taxes on
those repatriated earnings have been offset by its U.S. losses. The sale of the Company’s clinical trial services unit located
outside the U.S. in the UK during 2013 resulted in write-offs of the investment in those subsidiaries and offset the amount of
U.S. taxes that would need to be accrued on the India earnings to zero. During 2014, the Company accrued $0.2 million of India
tax on earnings of approximately $0.6 million. India withholding taxes on a dividend of India earnings are not affected by the
calculation of U.S. taxes due and continue to be accrued.
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.
F- 37
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
13. Income Taxes (continued)
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is approximately as follows:
Balance at January 1
Additions based on tax positions related to the current year
Additions based on tax positions related to prior years
Reductions based on settlements of tax positions related to the prior year
Reductions for tax positions as a result of a lapse of the applicable statute of limitations
Other
Balance at December 31
2014
2013
(amounts in thousands)
$
$
4,986
$
709
91
(344)
(1,578)
(87)
3,777
$
5,204
496
681
(292)
(1,076)
(27)
4,986
Short-term unrecognized tax benefits are included in other current liabilities on the consolidated balance sheets and were
approximately $0.6 million and $1.0 million as of December 31, 2014 and 2013, respectively. As of December 31, 2014 and
2013, the Company had unrecognized tax benefits, which would affect the effective tax rate if recognized of approximately
$3.3 million and $4.4 million, respectively. During 2014, the Company had gross increases of $0.8 million to its current year
unrecognized tax benefits, related to federal and state tax issues. In addition, the Company had gross decreases of $2.0 million
to its unrecognized tax benefits related to settlement refunds 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 year ended December 31, 2014, the Company recognized a reduction on interest and penalties of $0.2 million. During the
years ended December 31, 2013 and 2012, the Company recognized interest and penalties of $0.1 million. The Company had
accrued approximately $0.8 million and $1.0 million for the payment of interest and penalties at December 31, 2014 and 2013,
respectively.
14. Stockholders’ Equity
Stock Repurchase Programs
In February 2008, the Company’s Board of Directors authorized its most recent stock repurchase program whereby the
Company may purchase up to 1,500,000 shares of its common stock, subject to terms of the Company’s 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 the years ended December 31, 2014 and 2013, the Company did not repurchase any shares of its Common Stock under
its February 2008 Board authorization.
During the year ended December 31, 2012, the Company repurchased, under this program, a total of 71,653 shares at an
average price of $5.22. The cost of such purchases was $0.4 million. All of the common stock was retired.
At December 31, 2014, the Company may purchase up to an additional 942,443 shares of Common Stock under the February
2008 Board authorization, subject to certain conditions in the Company's First Lien Loan Agreement and Second Lien Term
Loan Agreement. Subject to certain conditions as described in its Loan Agreement entered into on January 9, 2013, the
Company may repurchase up to an aggregate amount of $5,000,000 of its Equity Interests. See Note 8 - Long-Term Debt for
further information.
F- 38
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
14. Stockholders’ Equity (continued)
Share-Based Payments
2014 Omnibus Incentive Plan
On March 11, 2014, the Board of Directors approved an amendment and restatement of the Company's 2007 Stock Incentive
Plan (amended and restated effective March 20, 2013), which was renamed the 2014 Omnibus Incentive Plan. The term of the
Amended Plan was extended until March 10, 2024 (the 2007 Stock Incentive Plan was scheduled to expire on April 5, 2017).
The 2014 Omnibus Plan approval was subject to, and became effective upon, stockholder approval at the Annual Meeting held
on May 13, 2014. The 2014 Omnibus Plan provides for the issuance of stock options, stock appreciation rights, restricted stock,
performance shares, performance-based cash awards that may be granted with the intent to comply with the “performance-
based compensation” exception under Section 162(m) of the Internal Revenue Code, and other stock-based awards, all as
defined by The 2014 Omnibus 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 4,100,000 shares, which may be either authorized and unissued common stock or
common stock held in or acquired for the treasury of the Company.
Under The 2014 Omnibus 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 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 stockholder). In the case of restricted
stock, the purchase price may be zero to the extent permitted by applicable law.
Restricted stock awards granted under the Company’s 2014 Omnibus 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. The shares vest ratably over a three to four year period ending on the
anniversary date of the grant. There is no partial vesting and any unvested portion is forfeited.
Pursuant to the 2014 Omnibus Plan the number of target shares that are issued for performance-based stock awards are
determined based on the level of attainment of the targets. Pursuant to the 2014 grants, if the minimum level of performance is
attained, restricted stock will be issued with a vesting date of December 31, 2016, subject to the employee’s continuing
employment. Subject to Board of Director approval, as of December 31, 2014, the Company estimated it achieved a minimum
level of performance and accordingly, share-based compensation was recognized during the year ended December 31, 2014
relating to the performance stock awards.
The following table summarizes restricted stock awards and performance-based stock awards activity issued under the 2014
Omnibus Plan (including awards issued prior to the restatement and amendment) for the year ended December 31, 2014:
Unvested restricted stock awards, January 1, 2014
Granted
Vested
Forfeited
Unvested restricted stock awards, December 31, 2014
Restricted Stock Awards
Performance Stock Awards
Number of
Shares
Weighted
Average
Grant Date
Fair Value
Number of
Target
Shares
Weighted
Average
Grant Date
Fair Value
552,231
$
377,308
$
(181,354) $
(88,535) $
$
659,650
5.37
6.18
5.77
5.39
5.72
— $
239,585
$
— $
(21,410) $
$
218,175
—
5.81
—
5.77
5.82
As of December 31, 2014, the Company had approximately$2.4 million pretax of total unrecognized compensation cost related
to non-vested restricted stock awards which may be adjusted for future changes in forfeitures. The Company expects to
F- 39
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
14. Stockholders’ Equity (continued)
recognize such cost over a weighted average period of 2.22 years. The fair value of shares vested was approximately $2.3
million, $2.4 million, and $0.9 million for the years ended December 31, 2014, 2013, and 2012, respectively.
As of December 31, 2014, the Company had approximately $0.3 million pretax of total unrecognized compensation cost related
to performance stock awards which may be adjusted for future changes in forfeitures. The Company expects to recognize such
cost over a weighted average period of 2 years, the remaining service period.
The following table represents information about stock options and stock appreciation rights granted and exercised in each year.
During the years ended December 31, 2014, 2013 and 2012, the Company issued options and stock appreciation rights at
market price.
Year Ended December 31,
2014
2013
2012
Share option grants
Weighted average grant date fair value of options granted during the period
—
— $
Total intrinsic value of options exercised
$
695,286
$
324,000
344,500
1.77
12,465
$
$
1.65
—
The stock appreciation rights can only be settled with stock or cash, at the discretion of the Committee. The stock appreciation
rights vest 25% per year over a 4 year period and expire after 7 years. The restricted stock awards vest equally over a 3 to 4
year period on each anniversary date of the grant. 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 if stock appreciation rights are
settled with stock.
The Company records compensation expense for stock options based on the estimated fair value of the options on the date of
grant using the Black-Scholes option-pricing model with the assumptions included in the table below. The Company computes
expected volatility using the historical volatility of the market price of the Company’s common stock. Historical data is used to
estimate the expected option life and the expected forfeiture rate. The risk-free rate is based on the U.S. Treasury yield curve in
effect at the time of grant for the estimated life of the option. During the year ended December 31, 2014, no stock options were
granted. The following assumptions were used to estimate the fair value of options granted using the Black-Scholes option-
pricing model:
Expected dividend yield
Expected volatility
Risk-free interest rate
Expected life
Year Ended December 31,
2012
2013
—%
48.00%
0.79%
4.2 years
—%
47.00%
0.58%
4.3 years
Due to the adoption of the 2007 Stock Incentive Plan, no further grants have been issued under the Company’s 1999 Plans
referred to below.
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.
F- 40
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
14. Stockholders’ Equity (continued)
The following table summarizes the Company’s activities with respect to all of its share option plans for the year ended
December 31, 2014:
Share options outstanding at beginning of year
Granted
Exercised
Forfeited/expired
Share options outstanding at end of year
Share options exercisable at end of year
Share options unvested at end of year
Shares
1,546,299
Option Price
$4.16-$22.50
—
—
(228,500)
$4.35-$8.56
(382,704) $4.35-$22.50
$4.16-$22.50
935,095
655,468
279,627
$4.16-$22.50
$4.16-$7.44
Weighted-
Average
Remaining
Contractual
Life (in
years)
Aggregate
Intrinsic
Value
2.94
2.07
4.96
$ 4,464,160
$ 2,430,566
$ 2,033,594
Weighted
Average
Exercise
Price
$8.93
—
$7.47
$11.41
$8.27
$9.58
$5.21
As of December 31, 2014, the Company had 935,095 share options outstanding of which 864,671 were vested or expected to
vest at a weighted average exercise price of $8.52, intrinsic value of $4.0 million and a weighted average contractual life of
2.78 years. As of December 31, 2014, the Company had approximately $0.3 million pretax of total unrecognized compensation
cost related to share options which may be adjusted for future changes in forfeitures. The Company expects to recognize such
cost over a period of 2.08 years.
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. Prior to 2013, 8,172,868 shares were sold in a public offering with net
proceeds from the sale going to the selling stockholders. During 2013, the remaining shares were sold by the existing
shareholders and as a result, the registration statement is no longer active.
15. 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 unvested restricted stock) and diluted
earnings per share reflects the dilutive effects of unvested 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 2014, 2013 and 2012 per share calculations because their effect would have been anti-dilutive.
Such shares amounted to 559,064; 1,547,814 and 2,033,632, during the years ended December 31, 2014, 2013 and 2012,
respectively. For purposes of calculating net income (loss) per common share - diluted for the years ending December 31, 2014
and 2013, the Company excluded potentially dilutive shares of 334,828, and 149,453, respectively, as their effect would have
been anti-dilutive, due to the Company’s net loss from continuing operations in the respective years.
Contingently issuable shares of 3,521,126 as of December 31, 2014, related to Convertible Notes, as defined in Note 8 - Long-
Term Debt, if converted, would have had an anti-dilutive effect, and as such, have been excluded from the per share
calculations for the year ended December 31, 2014.
F- 41
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
15. Earnings Per Share (continued)
The following table sets forth the components of the numerator and denominator for the computation of basic and diluted
earnings per share:
Loss from continuing operations
Less: Income attributable to noncontrolling interest in subsidiary
Loss from continuing operations attributable to common shareholders
Income (loss) from discontinued operations, net of income taxes
Net loss attributable to common shareholders
Basic (loss) income per share attributable to common shareholders
Continuing operations
Discontinued operations
Net loss
Diluted (loss) income per share attributable to common shareholders
Continuing operations
Discontinued operations
Net loss
$
$
$
$
$
$
Weighted-average number of shares outstanding-basic
Plus dilutive equity awards
Weighted-average number of shares outstanding-diluted
16. Related Party Transactions
Year Ended December 31,
2014
2013
2012
(amounts in thousands, except per share data)
(31,534) $
249
(31,783)
—
(31,783) $
(54,250) $
—
(54,250)
2,281
(51,969) $
(20,745)
—
(20,745)
(21,476)
(42,221)
(1.02) $
—
(1.02) $
(1.75) $
0.07
(1.68) $
(0.67)
(0.70)
(1.37)
(1.02) $
—
(1.02) $
(1.75) $
0.07
(1.68) $
31,190
—
31,190
31,009
—
31,009
(0.67)
(0.70)
(1.37)
30,843
—
30,843
The Company provides services to hospitals which are affiliated with certain members of the Company’s Board of Directors.
Management believes the pricing for the Company’s services is consistent with its other hospital customers. Revenue related to
these transactions was $17.8 million, $3.9 million and $3.8 million in 2014, 2013 and 2012, respectively. Accounts receivable
due from these hospitals at December 31, 2014 and 2013 were $2.0 million and $0.8 million, respectively.
In connection with the acquisition of MSN, the Company acquired a 68% ownership interest in InteliStaf of Oklahoma, LLC, a
joint venture between the Company and a hospital system. The Company provides staffing services to the hospital system.
Revenue related to these services was $4.7 million during the period of July 1, 2014 through December 31, 2014. At
December 31, 2014, the Company had a receivable balance of $0.9 million and a payable balance of $0.1 million relating to
these staffing services.
17. Segment Information
In accordance with the Segment Reporting Topic of the FASB ASC, the Company reports three business segments – Nurse and
Allied Staffing, Physician Staffing, and Other Human Capital Management Services. The Company manages and segments its
business based on the services it offers to its customers as described below:
• Nurse and Allied Staffing - Nurse and Allied Staffing provides traditional staffing, including temporary and permanent
placement of travel nurses and allied professionals, and branch-based local nurses and allied staffing. Its clients
include: public and private acute-care and non-acute care hospitals, government facilities, schools, outpatient clinics,
F- 42
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
17. Segment Information (continued)
ambulatory care facilities, retailers, and many other healthcare providers throughout the U.S. The Company aggregates
its various brands that it markets to its customers in this business segment.
• Physician Staffing – Physician Staffing provides physicians in many specialties, certified registered nurse anesthetists
(CRNAs), nurse practitioners (NPs), and physician assistants (PAs) under the Company's Medical Doctor Associates
(MDA) and Saber-Salisbury brands as independent contractors on temporary assignments throughout the U.S. at
various healthcare facilities, such as acute and non-acute care facilities, medical group practices, government facilities,
and managed care organizations. The Physician Staffing business also provides certain other employees on a
temporary basis to its customers.
• Other Human Capital Management Services - Other Human Capital Management Services provides education and
training programs to the healthcare industry and retained and contingent search services for physicians and healthcare
executives, within the U.S.
The Company’s management evaluates performance of each segment primarily based on revenue and contribution income. The
Company’s management does not evaluate, manage or measure performance of segments using asset information; accordingly,
total asset information by segment is not prepared or disclosed. 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.
Information on operating segments and a reconciliation of such information to loss from continuing operations for the periods
indicated are as follows:
Revenue from unaffiliated customers:
Nurse and Allied Staffing
Physician Staffing
Other Human Capital Management Services
Contribution income: (b)
Nurse and Allied Staffing
Physician Staffing
Other Human Capital Management Services
Unallocated corporate overhead
Depreciation
Amortization
Acquisition and integration costs
Restructuring costs
Legal settlement charge
Impairment charges (c)
Loss from operations
_______________
Year Ended December 31,
2014
2013 (a)
2012 (a)
(amounts in thousands)
457,034
$
271,563
$
$
$
123,306
37,485
617,825
36,326
6,700
514
43,540
27,770
3,866
3,575
7,957
840
—
$
$
128,781
37,967
438,311
18,424
8,939
746
28,109
21,844
3,886
2,294
473
484
750
272,136
129,162
41,337
442,635
10,277
10,863
1,943
23,083
21,701
4,905
2,263
—
—
—
10,000
(10,468) $
6,400
(8,022) $
18,732
(24,518)
$
$
$
$
(a) In 2014, the Company reclassified the revenue and contribution income of certain higher level staffing professionals
previously included with Nurse and Allied Staffing to Physician Staffing. In addition, in 2014, the Company refined its
methodology for allocating certain corporate overhead expenses to its Nurse and Allied Staffing segment to more
F- 43
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
17. Segment Information (continued)
accurately reflect the segment’s profitability. Prior year information has been reclassified to conform to current year
presentation.
(b) The Company defines contribution income as loss from operations before depreciation, amortization, acquisition and
integration costs, restructuring costs, legal settlement charges, 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 and is provided in accordance with ASC 280, Segment Reporting Topic of the FASB
ASC.
(c) During the years ended December 31, 2014 and 2013, the Company recorded trade names impairment charges of $10.0
million and $6.4 million, respectively. During the year ended December 31, 2012, the Company recorded pretax
impairment charges in its continuing operations of $18.7 million. See Note 5 - Goodwill, Trade Names, and Other
Identifiable Intangible Assets for further information.
F- 44
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
18. Quarterly Financial Data (Unaudited)
2014
Revenue from services
Gross profit
Loss from continuing operations, net of tax
Income (loss) from discontinued operations, net of tax
Consolidated net loss
Less: Net income attributable to noncontrolling interest in
subsidiary
Net loss attributable to common shareholders
Basic (loss) income per share attributable to common
shareholders
Continuing operations
Discontinuing operations
Net loss
Diluted (loss) income per share attributable to common
shareholders
Continuing operations
Discontinuing operations
Net loss
2013
Revenue from services
Gross profit
(Loss) income from continuing operations, net of tax
Income (loss) from discontinued operations, net of tax
Consolidated net income (loss)
Less: Net income attributable to noncontrolling interest in
subsidiary
Net income (loss) attributable to common shareholders
Basic (loss) income per share attributable to common
shareholders
Continuing operations
Discontinuing operations
Net income (loss)
Diluted (loss) income per share attributable to common
shareholders
Continuing operations
Discontinuing operations
Net income (loss)
________________
$
$
$
$
$
$
$
$
$
$
First
Quarter (a)
Second
Quarter (b)
Third
Quarter (c)
Fourth
Quarter (d)
(amounts in thousands)
118,091
30,450
$
122,656
32,436
$
188,944
47,277
$
188,134
47,641
(782)
—
(782)
—
(782)
(0.03) $
—
(0.03) $
(0.03) $
—
(0.03) $
(3,181)
—
(3,181)
—
(3,181)
(0.10) $
—
(0.10) $
(0.10) $
—
(0.10) $
(7,484)
—
(7,484)
118
(7,602)
(0.24) $
—
(0.24) $
(0.24) $
—
(0.24) $
(20,087)
—
(20,087)
131
(20,218)
(0.65)
—
(0.65)
(0.65)
—
(0.65)
First
Quarter (e)
Second
Quarter
Third
Quarter
Fourth
Quarter (f)
(amounts in thousands)
110,316
28,876
$
110,768
27,838
$
108,048
28,184
$
109,179
28,562
(1,435)
(22)
(1,457)
—
(1,457)
(0.05) $
—
(0.05) $
(0.05) $
—
(0.05) $
1,453
(539)
914
—
914
0.05
(0.02)
0.03
0.05
(0.02)
0.03
$
$
$
$
(52,922)
338
(52,584)
—
(52,584)
(1.70)
0.01
(1.69)
(1.70)
0.01
(1.69)
(1,346)
2,504
1,158
—
1,158
(0.04) $
0.08
0.04
$
(0.04) $
0.08
0.04
$
F- 45
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
18. Quarterly Financial Data (Unaudited) (continued)
(a) During the first quarter of 2014, the Company recorded acquisition and integration costs of 0.3 million. See Note 3 -
Acquisitions.
(b) During the second quarter of 2014, the Company recorded acquisition and integration costs of $2.7 million. See
Note 3 - Acquisitions.
(c) On June 30, 2014, the Company acquired substantially all of the assets and certain liabilities of Medical Staffing
Network Healthcare, LLC. The acquisition has been accounted for in accordance with FASB ASC 805, Business
Combinations, using the acquisition method. The results of the acquisition's operations have been included in the
consolidated statements of operations from July 1, 2014 due to their immaterial impact on June 30, 2014, the date of
the acquisition. See Note 3 - Acquisitions. During the third quarter of 2014, the Company recorded acquisition and
integration costs of $2.4 million and a change in fair value of convertible notes derivative liability of $7.3 million.
See Note 3 - Acquisitions and Note 9 - Convertible Notes Derivative Liability.
(d) During the fourth quarter of 2014, the Company recorded acquisition and integration costs of $2.5 million, a trade
name impairment charge of $10.0 million, and a change in fair value of convertible notes derivative liability of $9.4
million. See Note 3 - Acquisitions, Note 5 - Goodwill, Trade Names, and Other Identifiable Intangible Assets, and
Note 9 - Convertible Notes Derivative Liability.
(e) The Company sold its Clinical Trial Services business on February 15, 2013. The Clinical Trial Services business
has been classified as discontinued operations. The transaction resulted in a gain on sale of $4.0 million pretax, or
$2.1 million after tax. See Note 4 – Discontinued Operations.
(f) On December 2, 2013, the Company acquired the operating assets of On Assignment, Inc.’s Allied Healthcare
Staffing division. The acquisition has been accounted for in accordance with FASB ASC Topic 805, Business
Combinations, using the acquisition method. The results of these allied healthcare staffing operations have been
included in the Company's consolidated statements of operations since December 2, 2013, the date of the
acquisition. See Note 3 - Acquisitions. During the fourth quarter of 2013, the Company recorded a deferred tax
assets valuation allowance of approximately $48.4 million and a trade names impairment charge of $6.4 million.
See Note 13 - Income Taxes and Note 5 - Goodwill, Trade Names, and Other Identifiable Intangible Assets.
F- 46
CROSS COUNTRY HEALTHCARE, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2014, 2013, AND 2012
Schedule II
Balance at
Beginning
of Period
Charged to
Costs and
Expenses
Write-offs
Recoveries
(amounts in thousands)
Other
Changes
Balance at
End
of Period
Allowance for Doubtful Accounts
Year ended December 31, 2014
Year ended December 31, 2013
Year ended December 31, 2012
Valuation Allowance for Deferred Tax
Assets
Year ended December 31, 2014
Year ended December 31, 2013
Year ended December 31, 2012
________________
$
$
$
$
$
$
1,651
1,841
2,180
52,001
4,033
3,678
$
$
$
$
$
$
1,016
1,078
786
$
$
$
(1,257) $
(1,324) $
(913) $
15
56
16
$
$
$
—
—
$
$
(228) (a) $
1,425
1,651
1,841
12,038 (b) $
— $
48,406 (d) $
(438) $
355 (e) $
— $
— $
— $
— $
(423) (c) $
63,616
—
—
$
$
52,001
4,033
(a) Represents the reclassification of the allowance for doubtful accounts related to Assets Held for Sale. See Note 4 –
Discontinued Operations.
(b) Related to deferred tax assets.
(c) Related to foreign valuation allowance adjustment.
(d) Related to deferred tax assets, Cyprus NOL's, and reversal of deferred tax assets related to the Clinical Trial
Services business.
(e) Related to deferred tax assets on state net operating losses and a particular subsidiary’s state portion of its deferred
tax asset that arose from goodwill impairment.
II- 1
LIST OF SUBSIDIARIES
Exhibit 21.1
Subsidiary
Assignment America, LLC
Cejka Search, Inc.
Credent Verification and Licensing Services, LLC
Cross Country Healthcare UK Holdco Limited *
Cross Country Holdco (Cyprus) Limited
Cross Country Infotech, Pvt. Ltd.
Cross Country Education, LLC
Cross Country Publishing, LLC
Cross Country Staffing, Inc.
Intelistaf of Oklahoma LLC**
Jamestown Indemnity, Ltd.
Local Staff, LLC
MDA Holdings, Inc.
Medical Doctor Associates, LLC
OWS, LLC
Travel Staff, LLC
* Currently being liquidated or dissolved.
** Majority-owned joint venture
Place of Incorporation
Delaware
Delaware
Delaware
United Kingdom
Cyprus
India
Delaware
Delaware
Delaware
Delaware
Cayman Islands
Delaware
Delaware
Delaware
Delaware
Delaware
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23.1
We consent to the incorporation by reference in the following Registration Statements:
(1)
(2)
(3)
Registration Statement (Form S-8 No. 333-74862) pertaining to Cross Country Healthcare, Inc. and subsidiaries
Amended and Restated 1999 Stock Option Plan and Cross Country Healthcare, Inc. and subsidiaries Amended
and Restated Equity Participation Plan,
Registration Statement (Form S-8 No. 333-145484) pertaining to Cross Country Healthcare, Inc. and subsidiaries
2007 Stock Incentive Plan, and
Registration Statement (Form S-1 No. 333-200827) of Cross Country Healthcare, Inc. and Subsidiaries;
of our reports dated March 6, 2015, with respect to the consolidated financial statements and schedule of Cross Country
Healthcare, Inc. and subsidiaries and the effectiveness of internal control over financial reporting of Cross Country Healthcare,
Inc. and subsidiaries included in this Annual Report (Form 10-K) of Cross Country Healthcare, Inc. and subsidiaries for the
year ended December 31, 2014.
/s/ Ernst & Young LLP
Certified Public Accountants
Boca Raton, Florida
March 6, 2015
I, William J. Grubbs, certify that:
CERTIFICATION
Exhibit 31.1
1.
I have reviewed this annual report on Form 10-K of Cross Country Healthcare, Inc.;
2. 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;
3. 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;
4. The registrant’s other certifying officer 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. 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;
b. 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;
c. 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 the end of the period
covered by this report based on such evaluation; and
d. 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 functions):
a. 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
b. 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 6, 2015
/s/ William J. Grubbs
William J. Grubbs
President and Chief Executive Officer
I, William J. Burns, certify that:
CERTIFICATION
Exhibit 31.2
1.
I have reviewed this annual report on Form 10-K of Cross Country Healthcare, Inc.;
2. 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;
3. 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;
4. The registrant’s other certifying officer 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. 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;
b. 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;
c. 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 the end of the period
covered by this report based on such evaluation; and
d. 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 functions):
a. 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
b. 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 6, 2015
/s/ William J. Burns
William J. Burns
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, 2014, (the "Periodic Report"), I, William J. Grubbs, 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.
Exhibit 32.1
Date: March 6, 2015
/s/ William J. Grubbs
William J. Grubbs
Chief Executive Officer
The foregoing certification is provided solely for purposes of complying with the provisions of Section 906 of the
Sarbanes-Oxley Act of 2002.
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, 2014, (the "Periodic Report"), I, William J. Burns, 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.
Exhibit 32.2
Date: March 6, 2015
/s/ William J. Burns
William J. Burns
Chief Financial Officer
The foregoing certification is provided solely for purposes of complying with the provisions of Section 906 of the
Sarbanes-Oxley Act of 2002.
[THIS PAGE INTENTIONALLY LEFT BLANK]
INFORMATION
BOARD OF DIRECTORS
EXECUTIVES
CORPORATE HEADQUARTERS
William J. Grubbs
President & Chief Executive Officer,
Cross Country Healthcare, Inc.
6551 Park of Commerce Blvd.
Cross Country Healthcare, Inc.
Boca Raton, Florida 33487
W. Larry Cash (a)(b)
President, Financial Services
& Chief Financial Officer,
Community Health Systems
Thomas C. Dircks (c)
Managing Director,
Charterhouse Group, Inc.
Gale Fitzgerald (a)(d)
Retired Principal,
TranSpend, Inc.
William J. Grubbs
President & Chief Executive Officer,
Cross Country Healthcare, Inc.
Richard M. Mastaler (a)(d)
Chairman, Managed Health Ventures, Inc.
Joseph A. Trunfio, PhD (b)(d)
President & Chief Executive Officer,
Atlantic Health System
(a) Member of the Audit Committee
(b) Member of the Compensation
Committee
(c) Chairman of the Board
(d) Member of the Governance
and Nominating Committee
William J. Burns, CPA
Chief Financial Officer &
Principal Financial Officer,
Cross Country Healthcare, Inc.
Susan E. Ball, JD, MBA, RN
General Counsel & Secretary,
Cross Country Healthcare, Inc.
Daniele Addis, MBA
Senior Vice President,
Business Services
Cross Country Healthcare, Inc.
Patrick M. Ahern
Senior Vice President,
Human Resources
Cross Country Healthcare, Inc.
Deborah Dean
Senior Vice President,
Sales & Marketing
Cross Country Healthcare, Inc.
Paul Tymchuk
Chief Information Officer,
Cross Country Healthcare, Inc.
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,
2014, as well as in quarterly and other
reports to be filed by us during 2015.
Vickie L. Anenberg
President, Cross Country Staffing
B. Franklin Phillips
President, Medical Doctor Associates
Gregory Greene
President, Cross Country Education
John Gramer
President, Cejka Search
STOCKHOLDER INQUIRES
Phone: 561.998.2232
crosscountryhealthcare.com
TRANSFER AGENT
Computershare
P.O. Box 30170
College Station, TX 77842-3170
Phone: 877.219.7066
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
5100 Town Center Circle, Suite 500
Boca Raton, Florida 33486
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 crosscountryhealthcare.com.
We also have established a toll-free
News releases, SEC filings, annual reports, corporate governance matters and
phone number and an email address
additional information about Cross Country Healthcare are available on our
for stockholders to communicate
corporate website at no cost. Our Form 10-K, including all exhibits, is available
with our Board of Directors. All such
on our corporate website or on the U.S. Securities and Exchange Commission’s
website at sec.gov. Current and prospective investors can also register to
automatically receive our press releases, SEC filings and other notices by email.
Information about the Company can also be obtained by writing or contacting:
communications will be kept confidential
and forwarded directly to the appropriate
party, as applicable.
William J. Grubbs
President & Chief Executive Officer
Governance Hotline: 800.354.7197
Governance Email:
Phone: 561.237.6202 • Toll-Free: 800.530.6152 • Email: ir@crosscountry.com
governance@crosscountry.com
6551 Park of Commerce Blvd. Boca Raton, Florida 33487
561.998.2232 | crosscountryhealthcare.com