2016 ANNUAL REPORT
5201 Congress Avenue, Boca Raton, FL 33487 | 800.347.2264 | crosscountryhealthcare.com
The next level is here.
2016 was a year of growth and innovation for Cross Country Healthcare.
We saw expansion, progression, and a new level of effi ciency in the delivery of our services.
We developed and leveraged our strengths to innovate our services and accommodate the
dynamic needs of healthcare organizations. Cross Country Healthcare increased the bench strength
of Workforce Solutions to include industry experts who are widely recognized leaders in their
respective fi elds. As a result, our Workforce Solutions team has added a record number of new
clients, making the total number the highest in company history.
With the acquisition of US Resources Healthcare, we have expanded our recruitment process
outsourcing off erings to assist our clients with their full-time vacancies. This new service rounds
out our suite of off erings that together deliver a holistic solution to labor challenges faced by
healthcare organizations.
By delivering fi nancial and operating effi ciencies through labor optimization services, while
enhancing the quality of care to patients, we secure our future as a trusted partner that understands
the new healthcare landscape. While we have accomplished great success in 2016, we look
forward to scaling new heights in the coming years.
Board of Directors
Board of Directors
Board of Directors
Board of Directors
Board of Directors
W. Larry Cash (a)(b)
Executives
Executives
Executives
William J. Grubbs
President, Financial Services and Chief Financial
President and Chief Executive Offi cer,
Offi cer, Community Health Systems
Cross Country Healthcare, Inc.
Thomas C. Dircks (c)
William J. Burns, MBA, CPA
Managing Director, Charterhouse Group, Inc.
Executive Vice President, Chief Financial Offi cer
Gale Fitzgerald (a)(d)
Retired Principal, TranSpend, Inc.
William J. Grubbs
President and Chief Executive Offi cer,
Cross Country Healthcare, Inc.
Richard M. Mastaler (a)(d)
Chairman, Managed Health Ventures, Inc.
Mark Perlberg (b)
President and Chief Executive Offi cer,
Oasis Outsourcing
Joseph A. Trunfi o, PhD (b)(d)
Retired President and Chief Executive Offi cer,
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
Corporate headquarters
Cross Country Healthcare, Inc.
5201 Congress Avenue
Boca Raton, FL 33487
Phone: 561.998.2232
crosscountryhealthcare.com
Corporate governance
Information concerning our corporate governance
practices, including our Code of Conduct, Code of
Ethics, Committee Charters, and Certifi cation of
Financial Statements, is available on our corporate
website at crosscountryhealthcare.com.
We also have established a toll-free phone number and an
email address for stockholders to communicate with our
Board of Directors. All such communications will be kept
confi dential and forwarded directly to the appropriate
party, as applicable.
Governance hotline: 800.354.7197
Governance email: governance@crosscountry.com
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, 2016, as well as in
quarterly and other reports to be fi led by us.
and Principal Financial/Accounting Offi cer,
Cross Country Healthcare, Inc.
Susan E. Ball, JD, MBA, RN
Executive Vice President, General Counsel and
Secretary, Cross Country Healthcare, Inc.
Daniele Addis
Senior Vice President, Business Services
Cross Country Healthcare, Inc.
Deborah Dean
Senior Vice President, Sales and Marketing
Cross Country Healthcare, Inc.
William G. Halnon
Chief Information Offi cer,
Cross Country Healthcare, Inc.
Vickie L. Anenberg
President, Cross Country Staffi ng
Dennis Ducham
President, Mediscan
Timothy Fischer
President, Medical Doctor Associates
John Gramer
President, Cejka Search
Robert Murphy
President, Workforce Solutions,
Cross Country Healthcare, Inc.
Buff y S. White
Senior Vice President, Recruiting Strategy
and Operations, Cross Country Healthcare, Inc.
Transfer agent
Computershare
P.O. Box 30170
College Station, TX 77842-3170
Phone: 877.219.7066
Independent registered
public accounting fi rm
Deloitte & Touche LLP
1800 North Military Trail, Suite 200
Boca Raton, FL 33431
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 October 25, 2001.
Stockholder inquiries
News releases, SEC fi lings, annual reports, corporate governance matters and additional information about Cross Country
Healthcare are available on our corporate website at no cost. Our Form 10-K, including all exhibits, is available 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 fi lings and other notices by email. Information
about the Company can also be obtained by writing or contacting:
William J. Grubbs, President and Chief Executive Offi cer
Phone: 561.237.6202 | 800.530.6152 | Email: ir@crosscountry.com
Contents
2 Letter to Our Shareholders
4 Financial Highlights
6 Financial Performance
8 Workforce Solutions
10 10K
A Letter to Our Shareholders
William J. Grubbs
President and Chief Executive Officer
2
This was another year of great progress for Cross
Country Healthcare as we continue executing our
turnaround strategy. Many of our improvement
initiatives are starting to bear fruit and are driving
an acceleration of organic revenue growth as well
as improved profitability. This success extends
beyond our traditional staffing operations to our
Workforce Solutions group where we experienced
an increase in the number of new customer wins
to record levels. As a result, we continue on our
path to achieving our goal of at least $100 million
of Adjusted EBITDA by 2020.
Revenue for the full year grew at 9 percent to
$834 million and we achieved $45 million of
Adjusted EBITDA, up 19 percent from the prior
year. Adjusted EPS was $0.69, up 28 percent. We
ended the year with very strong revenue growth
in the fourth quarter at 15 percent year-over-year,
with our Nurse and Allied segment leading the
way at 20 percent. Within that number, the
Mediscan acquisition that we made in the fourth
quarter of 2015 grew at 28 percent. We have
excellent momentum coming into 2017.
The market remains strong with continued high
demand for our services in a supply-constrained
environment. The economy remains stable with
signs that it could improve in 2017. Those demand
trends are very positive for Cross Country
Healthcare. We won a lot of new business in 2016
with projections of another good year in 2017. On
the supply side of the equation, the shortage of
healthcare professionals, especially nurses, is
becoming more pronounced. This has prompted
us to step up our candidate attraction and
retention investments with increases in digital
media, new technology innovation and additional
recruiters. I believe the necessary demand and
supply pieces are in place for us to produce
another year of strong revenue growth and
incremental shareholder value.
As I mentioned, Workforce Solutions had a very
good year with the outlook for 2017 looking strong
as well. After winning eight new Managed Service
Programs (MSPs) in both 2014 and 2015, we reached
a new record for wins in one year with twenty-four
n Physician staffing. Now that we have strong
management in this business and are seeing
new MSPs in 2016. MSPs are our largest Workforce
it start to stabilize, we would like to add
Solution and will be one of the major drivers of
additional capabilities and/or practice areas.
revenue growth going forward. In December,
we also acquired a small Recruitment Process
Outsourcing (RPO) company. Although we had
been growing our RPO capabilities organically,
we were not keeping up with the level of demand.
This acquisition gives us the infrastructure to take
advantage of that demand and grow this service
line at a faster pace. At the end of the year, I also
promoted the head of Workforce Solutions to a
president-level position reporting directly to me,
giving me direct engagement with this important
service line. Expanding Workforce Solutions is a
key part of our strategy to create differentiation,
add more value for our customers and grow
market share.
In June of 2016, we restructured our debt to reduce
our interest costs and to provide availability of
funds for additional acquisitions. We have a strong
balance sheet and are active in the market seeking
new opportunities. There are several key areas we
are exploring:
n Travel nursing. With the strong demand we
are seeing from existing and new customers,
adding recruitment capacity and delivery
capabilities should help us to continue to
grow above the market.
n Companies that supply healthcare professionals
to public and charter schools. With the success
of the Mediscan acquisition, we would like to
start expanding this service on a nationwide basis.
We believe this is an under-served market that
should produce superior margins.
n Local allied. Allied remains a fairly small business
for us and we would like additional market share
to make us more competitive. Historically, local
Allied had gross profit margins above 30 percent,
well above the total company average.
We have a strong management team that has
demonstrated its ability to negotiate, integrate
and grow acquisitions — this is a focus for us in 2017.
As always, I want to thank our team for their hard
work and dedication to the ongoing success of
Cross Country Healthcare. We start 2017 with a
company that has made and continues to make
significant improvements in our ability to win new
business and deliver our services. We are well on
our way to making this a best-in-class operation.
All of the hard work is paying off and we are now
starting to take market share.
It is an exciting time in our history. I am proud
to be part of such a successful organization.
And, as always, I close with our pledge to deliver
quality services to our customers, create more
opportunities for our candidates, provide a great
working environment for our employees, and
ultimately, better patient care.
Sincerely,
William J. Grubbs
President and Chief Executive Officer
Cross Country Healthcare, Inc.
3
Financial Highlights
Cross Country Healthcare, Inc.
($000s, except per share data)
2016
2015
2014
Reconciliation of Adjusted EPS
Diluted EPS, GAAP ....................................................................................................................
$
0.15
$
0.14
$
(1.02)
Revenue
Revenue from services ............................................................................................................ $ 833,537
$ 767,421
$ 617,825
Statements of Operations Data
Consolidated net income (loss) ......................................................................................... $ 8,731
Net income (loss) attributable to common shareholders .................................... $ 7,967
$
$
4,954
4,418
$ (31,534)
$
(31,783)
Per Share Data
Net income (loss) attributable to common shareholders — basic ................. $
Net income (loss) attributable to common shareholders — diluted ............. $
Adjusted EPS* .............................................................................................................................. $
0.25
0. 1 5
0.69
$
$
$
0. 1 4
0. 1 4
0.54
$
$
$
(1 .0 2)
(1 .0 2)
0.09
Gross Profit
Gross profit .................................................................................................................................... $ 221,735
26.6%
Percentage of revenue ............................................................................................................
$
197,365
$ 157,804
25.7%
25.5%
Adjusted EBITDA*
Adjusted EBITDA ....................................................................................................................... $ 44,701
Percentage of revenue ............................................................................................................
5.4%
$
37,551
$
17,157
4.9%
2.8%
Segment Revenue from Services
Nurse and Allied Staffing ....................................................................................................... $ 721,486
Physician Staffing ....................................................................................................................... $ 98,283
Other Human Capital Management ................................................................................. $ 13,768
$ 621,258
$
115,336
$ 30,827
$ 459,195
$
121,145
$ 37,485
Segment Contribution Income
Nurse and Allied Staffing ....................................................................................................... $ 71,992
Physician Staffing ....................................................................................................................... $ 8,265
Other Human Capital Management ................................................................................. $ (535)
$
$
$
55,718
10,213
1,863
$ 36,486
$
6,540
$
514
Nurse and Allied Staffing Data (actual)
FTEs** ................................................................................................................................................
Average revenue per FTE per day**.................................................................................. $
6,953
284
6,624
4,764
$
257
$
264
Physician Staffing Data (actual)
Physician Staffing days filled** .............................................................................................
Revenue per day filled** ........................................................................................................... $
62,482
1,549
77,601
82,473
$
1,463
$
1,457
Other Data
Cash flow from operations .................................................................................................... $ 30,145
Total debt at par ......................................................................................................................... $ 64,523
Total capitalization ratio .........................................................................................................
27.9%
$
18,235
$ 63,094
(4,072)
$
$ 58,702
37.8%
33.7%
YEAR ENDED DECEMBER 31,
2016
2015
2014
(Unaudited)
0.03
—
—
0.03
0.74
(0.18)
0.05
(0.22)
0.09
0.07
—
0.03
0.04
0.07
0.30
—
(0.11)
—
—
—
0.25
0.03
0.32
0.53
—
(0.03)
0.01
YEAR ENDED DECEMBER 31,
2016
2015
2014
(Unaudited, amounts in thousands)
9,182
6,106
—
814
78
753
24,311
(5,805)
1,568
(230)
3,379
764
8,066
6,810
2,184
—
902
1,274
2,100
9,901
—
(306)
2,460
536
7,441
4,160
216
—
—
7,957
840
—
19
1,387
249
10,000
16,671
Non-GAAP adjustments — pretax:
Loss on sale of business .....................................................................................................
Acquisition-related contingent consideration .........................................................
Acquisition and integration costs ...................................................................................
Restructuring costs ...............................................................................................................
Impairment charges ..............................................................................................................
Gain (loss) on derivative liability ....................................................................................
Loss on early extinguishment of debt ........................................................................
Tax impact of non-GAAP adjustments .........................................................................
Adjustment for change in dilutive shares ....................................................................
Adjusted EPS, non-GAAP .....................................................................................................
$
0.69
$ 0.54
$
0.09
Reconciliation of Adjusted EBITDA
Consolidated net income (loss) attributable to common shareholders ......
$
7,967
$
4,418
$ (31,783)
Depreciation and Amortization .......................................................................................
Interest expense .......................................................................................................................
Income tax (benefit) expense ...........................................................................................
(4,186)
(794)
Loss on sale of business .......................................................................................................
Acquisition-related contingent consideration .........................................................
Acquisition and integration costs ...................................................................................
Restructuring costs ................................................................................................................
Impairment charges ..............................................................................................................
(Gain) loss on derivative liability .....................................................................................
Loss on early extinguishment and modification of debt ..................................
Other (income) expense, net ............................................................................................
Equity compensation ............................................................................................................
Net income attributable to non-controlling interest in subsidiary ...............
Adjusted EBITDA ......................................................................................................................
$ 44,701
$ 37,551
$
17,157
*Adjusted EPS and Adjusted EBITDA are non-GAAP (Generally Accepted Accounting Principles) financial measures and should not be considered measures of financial
performance under GAAP. Management presents these measures because it believes that they are useful supplements to reported Diluted EPS and net income (loss)
attributable to common shareholders as indicators of future earnings capacity of the Company. Management uses these non-GAAP financial measures for planning
purposes and as performance measures in its annual cash incentive program for certain members of its management team. Adjusted EBITDA, as defined, closely matches
the operating measure typically used in the Company's credit facilities in calculating various ratios.
Adjusted EPS, a non-GAAP financial measure, is defined as net (loss) income attributable to common shareholders per diluted share (diluted EPS, GAAP) before the
diluted EPS impact of loss on sale of business, acquisition-related contingent consideration, acquisition and integration costs, restructuring costs, impairment charges,
gain (loss) on derivative liability, and loss on early extinguishment of debt.
Adjusted EBITDA, a non-GAAP financial measure, is defined as consolidated net income (loss) attributable to common shareholders before depreciation and amortization,
interest expense, income tax (benefit) expense, loss on sale of business, acquisition-related contingent consideration, acquisition and integration costs, restructuring
costs, impairment charges, (gain) loss on derivative liability, loss on early extinguishment of debt, other (income) expense, net, equity compensation, and includes net
income attributable to non-controlling interest in subsidiary.
** Represents a key operating metric as defined on page 24 of our Annual Report on Form 10-K.
4
5
Financial Highlights
Cross Country Healthcare, Inc.
($000s, except per share data)
2016
2015
2014
Reconciliation of Adjusted EPS
YEAR ENDED DECEMBER 31,
2016
2015
2014
(Unaudited)
Revenue
Revenue from services ............................................................................................................ $ 833,537
$ 767,421
$ 617,825
Statements of Operations Data
Consolidated net income (loss) ......................................................................................... $ 8,731
Net income (loss) attributable to common shareholders .................................... $ 7,967
$
$
4,954
4,418
$ (31,534)
$
(31,783)
Per Share Data
Net income (loss) attributable to common shareholders — basic ................. $
Net income (loss) attributable to common shareholders — diluted ............. $
Adjusted EPS* .............................................................................................................................. $
0.25
0. 1 5
0.69
$
$
$
0. 1 4
0. 1 4
0.54
$
$
$
(1 .0 2)
(1 .0 2)
0.09
Gross Profit
Gross profit .................................................................................................................................... $ 221,735
26.6%
Percentage of revenue ............................................................................................................
$
197,365
$ 157,804
25.7%
25.5%
Adjusted EBITDA*
Adjusted EBITDA ....................................................................................................................... $ 44,701
Percentage of revenue ............................................................................................................
5.4%
$
37,551
$
17,157
4.9%
2.8%
Segment Revenue from Services
Nurse and Allied Staffing ....................................................................................................... $ 721,486
Physician Staffing ....................................................................................................................... $ 98,283
Other Human Capital Management ................................................................................. $ 13,768
$ 621,258
$
115,336
$ 30,827
$ 459,195
$
121,145
$ 37,485
Segment Contribution Income
Nurse and Allied Staffing ....................................................................................................... $ 71,992
Physician Staffing ....................................................................................................................... $ 8,265
Other Human Capital Management ................................................................................. $ (535)
$
$
$
55,718
10,213
1,863
$ 36,486
$
6,540
$
514
Nurse and Allied Staffing Data (actual)
FTEs** ................................................................................................................................................
Average revenue per FTE per day**.................................................................................. $
6,953
284
6,624
4,764
$
257
$
264
Physician Staffing Data (actual)
Physician Staffing days filled** .............................................................................................
Revenue per day filled** ........................................................................................................... $
62,482
1,549
77,601
82,473
$
1,463
$
1,457
Other Data
Cash flow from operations .................................................................................................... $ 30,145
Total debt at par ......................................................................................................................... $ 64,523
Total capitalization ratio .........................................................................................................
27.9%
$
18,235
$ 63,094
(4,072)
$
$ 58,702
37.8%
33.7%
Diluted EPS, GAAP ....................................................................................................................
$
0.15
$
0.14
$
(1.02)
Non-GAAP adjustments — pretax:
Loss on sale of business .....................................................................................................
Acquisition-related contingent consideration .........................................................
Acquisition and integration costs ...................................................................................
Restructuring costs ...............................................................................................................
Impairment charges ..............................................................................................................
(Gain) loss on derivative liability .....................................................................................
Loss on early extinguishment of debt ........................................................................
Tax impact of non-GAAP adjustments .........................................................................
Adjustment for change in dilutive shares ....................................................................
—
0.03
—
0.03
0.74
(0.18)
0.05
(0.22)
0.09
0.07
—
0.03
0.04
0.07
0.30
—
(0.11)
—
—
—
0.25
0.03
0.32
0.53
—
(0.03)
0.01
Adjusted EPS, non-GAAP .....................................................................................................
$
0.69
$ 0.54
$
0.09
YEAR ENDED DECEMBER 31,
2016
2015
2014
(Unaudited, amounts in thousands)
Reconciliation of Adjusted EBITDA
Consolidated net income (loss) attributable to common shareholders ......
$
7,967
$
4,418
$ (31,783)
Depreciation and Amortization .......................................................................................
Interest expense .......................................................................................................................
9,182
6,106
8,066
6,810
Income tax (benefit) expense ...........................................................................................
(4,186)
(794)
Loss on sale of business .......................................................................................................
Acquisition-related contingent consideration .........................................................
Acquisition and integration costs ...................................................................................
Restructuring costs ................................................................................................................
Impairment charges ..............................................................................................................
(Gain) loss on derivative liability .....................................................................................
Loss on early extinguishment and modification of debt ..................................
Other (income) expense, net ............................................................................................
Equity compensation ............................................................................................................
Net income attributable to non-controlling interest in subsidiary ...............
—
814
78
753
24,311
(5,805)
1,568
(230)
3,379
764
2,184
—
902
1,274
2,100
9,901
—
(306)
2,460
536
7,441
4,160
216
—
—
7,957
840
10,000
16,671
—
19
1,387
249
Adjusted EBITDA ......................................................................................................................
$ 44,701
$ 37,551
$
17,157
*Adjusted EPS and Adjusted EBITDA are non-GAAP (Generally Accepted Accounting Principles) financial measures and should not be considered measures of financial
performance under GAAP. Management presents these measures because it believes that they are useful supplements to reported Diluted EPS and net income (loss)
attributable to common shareholders to help evaluate operating results of the Company. Management uses these non-GAAP financial measures for planning purposes
and as performance measures in its annual incentive programs for certain members of its management team. Adjusted EBITDA, as defined, closely matches the operating
measure typically used in the Company’s credit facilities in calculating various ratios.
Adjusted EPS, a non-GAAP financial measure, is defined as net (loss) income attributable to common shareholders per diluted share (diluted EPS, GAAP) before the
diluted EPS impact of loss on sale of business, acquisition-related contingent consideration, acquisition and integration costs, restructuring costs, impairment charges,
(gain) loss on derivative liability, and loss on early extinguishment of debt.
Adjusted EBITDA, a non-GAAP financial measure, is defined as consolidated net income (loss) attributable to common shareholders before depreciation and amortization,
interest expense, income tax (benefit) expense, loss on sale of business, acquisition-related contingent consideration, acquisition and integration costs, restructuring
costs, impairment charges, (gain) loss on derivative liability, loss on early extinguishment of debt, other (income) expense, net, equity compensation, and includes net
income attributable to non-controlling interest in subsidiary.
** Represents a key operating metric as defined on page 24 of our Annual Report on Form 10-K.
4
5
Financial Performance
C A G R: 24 %
$834M
$767M
C A G R: 78 %
$38M
5.0%
$45M
5.4%
C A G R: 105 %
$0.69
$0.54
$618M
$438M
$17M
2.8%
$8M
1.8%
$0.08 $0.09
2013
2014 2015
2016
2013
2014 2015
2016
2013
2014 2015
2016
REVENUE
ADJUSTED EBITDA
ADJUSTED EPS
National footprint
Ranked provider in
travel nurse staffing
Workforce Solutions
facilities
74 office locations
2nd largest
2,100+ facilities
Healthcare professionals
(HCPs) on assignment at
more than 6,700 facilities
Travel nurse
assignments filled
Per diem
shifts filled
27,500+ HCPs
15,500+ jobs filled
800,000+ shifts filled
6
7
Workforce Solutions
8
In a volatile healthcare market, you need more than a staffing
provider; you need a partner.
As more and more Americans are insured under
know we can place them in highly desired locations
healthcare reform legislation, pre-existing supply
across the country. Our competitive edge is simple —
constraints and the overall aging of the population
we are trustworthy and can offer a variety of work
further escalate the demand for healthcare services
assignments at market rates.
and professionals. Consequently, both permanent
and contingent labor costs continue to rise and
make up a significant portion of a healthcare
organization’s operating expenses. For many
healthcare organizations, this is not sustainable
and they are turning to Workforce Solutions
companies to provide efficient management of
their total labor spend.
Couple the increased labor costs with the financial
realities of healthcare reform initiatives that health
systems are beginning to see, and the current
spikes in labor costs become unsustainable.
Our team of Workforce Solutions experts utilize a
unique diagnostic approach to uncover key drivers
of labor cost inefficiencies and identify significant
savings opportunities. By understanding where
these opportunities exist, we can then collaborate
with key client stakeholders to design solutions
that match their needs.
Today’s dynamic healthcare environment requires
healthcare systems to have a Workforce Solutions
partner who understands their problems and can
deliver relevant solutions — not capitalize on them.
Cross Country Healthcare is positioned to be the
Cross Country Healthcare is a true partner to our
ideal partner for health systems as the healthcare
healthcare facilities, and not just a provider. We
delivery landscape continues to evolve.
offer solutions that play a critical role in our clients’
long-term labor strategy. By working together to
implement our suite of labor optimization services,
our clients rely more on our exclusive relationship
and less on outside vendors. While their total
labor spend may significantly decrease under
our program, our market share and relationship
strength continue to increase at our Workforce
Solutions clients.
While healthcare reform will continue to drive
higher patient volumes, the volatility of the
inpatient population creates unique staffing
challenges. Having a Workforce Solutions partner
with the scale and size of Cross Country Healthcare
ensures that regardless of fluctuating demand,
we can deliver as many or as few healthcare
professionals that are needed at any time.
The increasing demand for healthcare services
and professionals also creates significant
recruitment and retention challenges. These
highly sought-after nurses, physicians, and allied
health professionals have many options, but
choose Cross Country Healthcare because they
9
10
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, 2016
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.)
5201 Congress Avenue
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, 2016 of $13.92 as reported on the NASDAQ National Market, was $440,736,307. This calculation does not reflect a determination
that persons are affiliated for any other purpose.
As of February 28, 2017, 32,984,000 shares of Common Stock, $0.0001 par value per share, were outstanding.
Portions of the Registrant’s definitive proxy statement, for the 2017 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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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.
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[THIS PAGE INTENTIONALLY LEFT BLANK]
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 2017.
Although we believe that these statements are based upon reasonable assumptions, we cannot guarantee future results and
readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions
only as of the date of this filing. There can be no assurance that (i) we have correctly measured or identified all of the factors
affecting our business or the extent of these factors’ likely impact, (ii) the available information with respect to these factors on
which such analysis is based is complete or accurate, (iii) such analysis is correct or (iv) our strategy, which is based in part on
this analysis, will be successful. The Company undertakes no obligation to update or revise forward-looking statements.
Item 1. Business.
Overview of Our Company
PART I
Cross Country Healthcare, Inc. (NASDAQ: CCRN) is a national leader in providing healthcare staffing, recruiting and value-
added workforce solutions. Through a full suite of innovative workforce solutions and a national presence including 74 office
locations throughout the United States, we are able to meet the unique and dynamic needs of our clients. By utilizing our
various solutions, clients are able to better plan their personnel needs, outsource recruitment processes, strategically flex their
workforce, streamline their purchasing needs, access specialties not available in their local area, access quality healthcare
personnel and provide continuity of care for improved patient outcomes. Our solutions are geared towards assisting our clients
in solving their labor issues while maintaining high quality outcomes. During 2016, we had more than 27,500 healthcare
professionals on assignment at over 6,700 facilities. Our Managed Service Programs served more than 2,100 facilities.
Our workforce solutions include:
Managed Service Programs (MSPs);
Optimal Workforce Solutions (OWS);
Predictive Analytics;
Internal Resource Pool Consulting & Development (IRP);
Education Healthcare Services;
Recruitment Process Outsourcing (RPO); and
Electronic Medical Record Transition Staffing (EMR).
We are able to provide our services on a national level or through any one of our 63 local branches throughout the United States
or through a combination of both. We service a variety of clients, including public and private acute care hospitals, public and
charter schools, outpatient clinics, ambulatory care facilities, single and multi-specialty physician practices, rehabilitation
facilities, urgent care centers, correctional facilities, government facilities, retailers and many other healthcare providers. Our
business consists of three business segments: (i) Nurse and Allied Staffing, (ii) Physician Staffing and (iii) Other Human
Capital Management Services. Fees for our services are paid directly by our clients and in certain instances by vendor
managers, and as a result, we have no direct exposure to Medicare or Medicaid reimbursements.
For the full year of 2016, our consolidated revenue was $833.5 million, reflecting a diversified revenue mix across healthcare
customers. Nurse and Allied Staffing was 86% of revenue, comprised of travel nurse, travel allied and branch-based local nurse
and allied staffing (including staffing of public and charter schools). Physician Staffing was 12% of our revenue and consists
primarily of physician staffing services with placements across multiple specialties. Other Human Capital Management
Services was 2% of our revenue which, since August 31, 2015 when we divested our education seminars business, consists of
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our retained and contingent search services primarily for physicians and healthcare executives. On a company-wide basis, we
have approximately 8,000 active contracts with healthcare clients, and we provide our staffing services and workforce solutions
in all 50 states. In 2016, 2015 and 2014 no client accounted for more than 10% of our revenue. For additional financial
information concerning our business segments, see Note 17 - Segment Data to the consolidated financial statements.
Acquisitions
Part of our strategy to grow revenue in our core business has been to make acquisitions that allow us to: (i) expand our
workforce solutions offerings to deepen our relationships with current customers and to attract new customers; (ii) expand our
local branch network to grow our local market presence and our MSP business; (iii) further diversify our customer base into the
public and charter school market; (iii) diversify 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; (iv) better position ourselves
to take additional market share in our MSP business; (v) access more candidates and candidates in different specialties; and (vi)
add new skillsets to our traditional staffing offerings.
In December 2016, we acquired an RPO business, US Resources Healthcare. This acquisition expands our workforce solutions
capabilities to deliver financial and operating efficiencies to our customers through labor optimization services while enhancing
the quality of care. By partnering with our customers to design and execute a tailored solution to meet their talent and business
goals, we are able to find the talent our customers need.
In October 2015, we acquired Mediscan, Inc. and certain of its affiliates (Mediscan). Mediscan currently employs healthcare
professionals in 70 specialties at more than 750 clients in 30 states - primarily California. This acquisition strengthened our
footprint in California, a large and growing market. It provides an opportunity to add new service lines, expand our market
share through its local presence and further diversify our customer base, as the Mediscan business is equally divided between
acute/ambulatory care and public and charter schools. Finally, it offers access to additional candidates through two well
established brands: Mediscan and DirectEd. For additional financial information concerning our acquisitions, see Note 3 -
Acquisitions to the consolidated financial statements.
In June 2014, we acquired substantially all of the assets and certain liabilities of Medical Staffing Network Healthcare, LLC
(MSN). At the time of the acquisition, MSN had 55 locations throughout the U.S. that provided per diem, local, contract, travel
and permanent hire staffing services. The acquisition increases our branch network and market share, diversifies our customer
base and brings new service lines.
Competition
The principal competitive factors in attracting, retaining and expanding business with healthcare clients nationally include: (i)
understanding the client’s work environment, (ii) offering a comprehensive suite of services to assist the client in assessing its
personnel needs and partnering with clients to design various customizable alternative solutions, (iii) the timely filling of
clients' needs, (iv) price, (v) customer service, (vi) quality assurance and screening capabilities, (vii) risk management policies,
(viii) insurance coverage, and (ix) general industry reputation. The principal competitive factors in attracting qualified
healthcare professionals for temporary employment include: (i) a large national pool of desirable assignments, (ii) pay and
benefits, (iii) speed of placements, (iv) customer service, (v) quality of accommodations, and (vi) overall industry reputation.
We focus on retaining healthcare professionals by providing high-quality customer service, long-term benefits (to employees),
and medical malpractice insurance.
We believe we are one of only two large full-service healthcare staffing providers with a national footprint; one of the top five
providers of physician staffing services in the United States; and one of the top providers of retained and contingent physician
and healthcare executive search services in the healthcare marketplace. Some of our competitors in the healthcare staffing,
workforce solutions, and search businesses include: AMN Healthcare Services, Inc., CHG Healthcare Services, Maxim
Healthcare, Jackson Healthcare, Team Health, HealthTrust Workforce Solutions, MedAssets, and Witt Kiefer.
We believe we benefit competitively from the following:
Breadth and Expertise of Value-Added Workforce Solutions Offered. As a long-time leader of MSP solutions, our additional
services include: OWS, RPO, Predictive Analytics, IRP, Education Healthcare Services, and EMR staffing. Our holistic
approach is to deploy cost effective labor optimization strategies with each customer, all while ensuring quality of care for
patients.
- MSP Capabilities. Rather than an acute care facility’s talent management team working with multiple staffing
agencies, our MSP model offers a single point of contact, access to a nationwide network of subcontractors, uniform
rates and terms, and accountability for the quality of healthcare professionals to our clients through the aggregation
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and standardization of total contract labor spend. This MSP model has become a desired practice of healthcare systems
seeking to drive financial and operating efficiencies, while ensuring quality of care.
Predictive Analytics. We offer predictive analytics to hospitals that need decision support for staffing in real time.
Generally, hospitals spend between 45-50% of their net patient revenue on labor, and typically half of that amount is
spent on clinical labor, the majority of which is nursing. By providing a solution that allows staffing managers and unit
directors the ability to forecast census based on historical trend data, they are better able to staff their units more
scientifically rather using anecdotal information.
- OWS. These services allow our clients to outsource certain non-core department staff that may be particularly
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challenging to recruit and retain. By outsourcing these departments to our OWS team, our clients can better control
their operating costs, gain access to our talent management expertise, free their internal resources for other purposes,
streamline or increase efficiency for certain functions and improve their overall focus.
IRP. We consult with our clients to structure groups of their staff professionals that can be called upon when shortages
exist or are expected. These professionals agree to fill positions when necessary and are available when called upon.
They have experience with the facilities where they will work, so they are immediately up to speed with how things
are done and what is expected from them the moment they arrive. This type of pool promotes quality of care and is
cost efficient for our clients.
- Education Healthcare Services. By providing consultative and staffing services to traditional public and charter school
clients, we help them achieve performance and cost savings goals while experiencing greater flexibility in their
operations.
- RPO. We offer business process outsourcing where a client transfers all or part of its talent management recruitment
processes to us and we can assume the design and management of the recruitment process and the responsibility for
the results. The structure of this solution differs greatly from client to client as there is a continuum of scope of the
services that may be provided (e.g. end to end services or hybrid solutions).
- EMR. Based on the government mandate for hospitals to convert to Electronic Medical Records to ensure payment for
services, we developed a sound transition and implementation process to help our clients backfill staffing needs while
they adopt a new or upgraded EMR platform. Staffing plans are created in collaboration with our clients so they have
adequate, planned, quality staffing to cover these peak vacancies.
Ability to Meet a National Shift Towards a More Integrated Delivery of Healthcare. With our national resources, as well as
local resources at our 63 branches, we are uniquely positioned to assist hospitals and health systems which continue to turn
to lower-cost, more accessible alternatives, such as outpatient or ambulatory care centers as a result of the Patient
Protection and Affordable Care Act (ACA) of 2010 and other market dynamics. By offering travel, per diem and
permanent placement of a variety of healthcare professionals, we are also able to offer many different types of personnel to
hospitals and health systems at their main campuses, as well as their ambulatory and outpatient care centers, in order to
meet their workforce needs.
Brand Recognition. We go to market with a variety of brands, which are well-recognized among leading hospitals and
healthcare facilities and many healthcare professionals. These 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 with approximately 8,000 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.
In addition, our joint venture with a large health system provides us with a unique insight into the challenges facing many
of our hospital clients generally and this provides us with the opportunity to better serve all of our clients by designing and
implementing workforce solutions to meet their needs. Our relationship with the largest member owned healthcare services
company in the United States should also serve to expand our relationships in the healthcare community.
Recruiting and Placement of Healthcare Professionals. Healthcare professionals apply with us through our differentiated
nursing, locum tenens and allied healthcare recruitment brands. Our local branch network provides us access to local
healthcare professionals who are uniquely qualified to provide care in ambulatory and outpatient settings. 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 in the current dynamic marketplace.
Certifications. The staffing businesses of our Cross Country Staffing, Medical Staffing Network and Mediscan 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 (MDA), is certified by the National
Committee of Quality Assurance (NCQA) -- one of only a handful of companies to achieve such certification.
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Experienced Management Team. On average, our management team has more than 18 years of staffing experience. Led by
our President and Chief Executive Officer, a 30-year staffing industry veteran who joined the Company in April 2013, the
Company has strengthened its leadership team by bringing in experienced executives.
Demand and Supply Drivers
Demand Drivers
Effect of ACA on Healthcare Utilization. The ACA has increased the number of insured patients over the past few
years, especially in states that have expanded Medicaid. While the outcome of the 2016 federal elections has cast
uncertainty on the future of the ACA, it has been reported that 20 million people have gained health insurance
coverage (U.S. Department of Health & Human Services, March 2016). We believe the demand for healthcare
professionals will continue as the number of insured has increased in the past few years under the ACA and with more
persons employed who have healthcare insurance.
Demand for Workforce Solutions. Despite the rise in the number of insured and Medicaid patients, hospitals still
face continued pressure to keep costs down to protect their margins from continued Medicare rate reductions and
fluctuations in demand for hospital care. In addition, there is a national shift away from volume-based pricing to
value-based pricing. The visibility of Hospital Consumer Assessment of Healthcare Providers and Systems survey
scores, a national, standardized, publicly reported survey of patients' perspectives of hospital care, has also put
pressure on hospitals to maintain a certain level of quality of care so hospitals do not incur financial penalties or risk
decreased patient volume due to low scores. We believe these dynamics continue to put pressure on hospitals to find
innovative solutions in order to better manage their workforce, which accounts for a large portion of their expenses.
Working with an MSP allows healthcare facilities to easily flex their workforce numbers up and down and to
streamline their talent acquisition process by having one point-of-contact (Modern Healthcare, November 7, 2015).
As a result, we believe hospitals are more willing to engage healthcare staffing companies, such as ours, that provide
both staffing and workforce solutions that can help them solve problems, such as assessing their workforce needs or
reducing readmission rates without negatively impacting the quality of care. Many hospitals are also making vertical
acquisitions by investing in outpatient facilities, ambulatory care centers and stand-alone emergency departments in
order to capture outpatient revenue, which will further drive demand for healthcare personnel.
Shift from Inpatient Services to Outpatient/Ambulatory Settings. We believe certain initiatives taken under the
ACA - such as Medicare reimbursement incentives for reduced readmissions, have a direct correlation to the shift from
inpatient services to outpatient/ambulatory settings. As reported by Staffing Industry Analysts in December 2016, from
March 2012 - October 2016, 334,000 net hospitals jobs were added, but 923,000 ambulatory care setting jobs were
added in the same period (U.S. Healthcare Staffing Growth Assessment, Staffing Industry Analysts, December 2016).
In addition, over the past three years, five large publicly traded health systems experienced higher growth in outpatient
admissions than inpatient (U.S. Healthcare Staffing Growth Assessment, Staffing Industry Analyst, December 2016).
Ambulatory surgery centers are “high-quality, lower-cost substitutes for hospitals as venues for outpatient
surgery” (Health Affairs, May 2014, study conducted by health economists Elizabeth Munnich of the University of
Louisville and Stephen Parente of the University of Minnesota). As hospital and health system leaders respond to the
dynamic changes in the healthcare industry by becoming more cost effective, streamlining their healthcare delivery
processes and making vertical acquisitions to control the quality of care (as opposed to horizontal acquisitions among
hospitals made in the past to increase volume), we believe the outpatient and ambulatory care markets will continue to
provide a robust area of growth for healthcare staffing agencies with a strong local market presence, and for those that
provide Advanced Practitioners, such as Nurse Practitioners (NPs) and Physicians Assistants, who frequently provide
oversight in ambulatory settings.
Growing and Aging U.S. Population. Two long-term macro drivers of our business are demographic in nature -- a
growing and aging U.S. population. The U.S. Census Bureau projects the U.S. population will increase approximately
31% (from 319 million in 2014 to 417 million in 2060) - crossing the 400 million mark in 2051. In addition, by 2030
one in five Americans is also projected to be 65 years old or more. The number of persons aged 65 and over is
expected to increase 112% (from 46,255,000 to 98,164,000) from 2014 to 2060 (U.S. Census Bureau, March, 2015).
This is important because the utilization of healthcare services is generally higher among older people. All Baby
Boomers are now over 50 years of age and account for nearly 25% of the population (U.S. Census Bureau, May 2014).
Older persons averaged more office visits with doctors in 2012. Among people 75 and over, 23% had 10 or more visits
to a doctor or other healthcare professional in the past 12 months compared to 14% among people age 45-64 (U.S.
Department of Health and Human Services, A Profile of Older Americans: 2014). People aged 65 and over averaged
more than five healthcare visits in 2013 (U.S. Centers for Disease Control and Prevention - National Ambulatory
Medical Care Survey, 2013). The American Hospital Association (AHA) has also projected the share of hospital
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admissions for the over-65 age group to rise from 38% in 2004 to 56% in 2030. With the increase in the proportion of
the population in older age groups reaching prime retirement age, healthcare occupations and industries are expected
to have the fastest employment growth and to add the most jobs between 2014 and 2024, increasing their employment
share from 12% in 2014 to 13.6% in 2024 (U.S. Bureau of Labor Statistics, Report Issued December 8, 2015).
Healthcare support occupations, and healthcare practitioners and technical occupations are projected to be the two
fastest growing occupational groups during the 2014 to 2024 decade, thereby contributing the most new jobs, with a
combined increase of 2,300,000 jobs, representing about 1 in 4 new jobs (U.S. Bureau of Labor Statistics, Report
Issued December 8, 2015).
Lower Unemployment and the Economy. In November 2016, the unemployment rate was 4.6% - the lowest rate
since August 2007, which should increase the number of people with employer-sponsored health insurance (U.S.
Bureau of Labor Statistics, 2017 Labor Force Statistics Database). Individuals with employer-sponsored health
insurance are more likely to seek medical care than the uninsured, which raises demand for healthcare services and
healthcare staff (U.S. Healthcare Staffing Growth Assessment, Staffing Industry Analysts, December 2016). The
creation of additional jobs in the healthcare market should also increase demand for our services as our temporary staff
are typically hired to replace healthcare workers taking vacation and leaves of absence.
Use of Temporary Workforce. The December 2016 penetration rate of temporary workers was 2.0% - (U.S. Bureau
of Labor Statistics, 2017 Labor Force Statistics Database). We believe contingent labor will continue to be used
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 current dynamic nature of
the healthcare industry, among other things, has 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.
Increased Need for Healthcare and Special Education Services in Schools. The Individuals with Disabilities
Education Act (IDEA), enacted in 1975, mandates that children and youth ages 3-21 with disabilities be provided a
free and appropriate public school education. According to the U.S. Department of Education, National Center for
Education Statistic Report titled “The Condition of Education 2016," by 2013-2014, the number of children and youth
ages 3-21 receiving special education services was 6.5 million, or about 13% of traditional public and charter school
enrollment. Of those students in school year 2013-14, 21% had a speech or language impairment, 13% had other
health impairments, 8% had autism, 5% had emotional disturbances, 2% had multiple disabilities, and 1% had
orthopedic impairments. The IDEA requires that these children and young adults receive care from speech language
pathologists, physical therapists, occupational therapists, nurses and other healthcare professionals while at school.
Based on the foregoing, we believe the demand for consulting and healthcare staffing services for public schools and
charter schools will continue to be strong for agencies that can provide consulting services, healthcare personnel,
technical assistance on policies, implementation, and training related to children and youth with special needs in
school settings.
Nursing Shortage. The Georgetown University Center on Education and the Workforce (CEW) predicts a shortage of
192,620 nurses in 2020, which differs from the surplus of nurses predicted for 2025 by the Health Resources and
Services Administration (HRSA) National Center for Health Workforce Analysis (Georgetown University Center on
Education and the Workforce, Forecasts of Nursing Demand 2015). With healthcare now representing almost 20% of
the U.S. economy, the aging of the U.S. population, and the expansion of healthcare coverage under the ACA, both the
CEW and HRSA agree that demand for healthcare services and healthcare workers will continue to grow. The CEW’s
analysis of the nursing shortage differs from that of the HRSA in that the CEW has made assumptions on the “active
supply” of nurses - noting there is a stark difference between the number of nursing professionals who are licensed
and the number of nursing professionals in the workforce. In 2013, there were 5.2 million licensed nursing
professionals, but only 3.6 million were employed in the nursing workforce - so one-third of licensed nurses do not
work in nursing (Georgetown CEW, Forecasts of Nursing Demand 2015). As further noted by CEW, “as the economy
improves, many more nurses will have the option to leave the nursing workforce for other types of jobs or to retire.”
In addition, even HRSA’s analysis notes that its national projection does 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 geographical shortage of RNs by 2025. In particular, 16 states are expected to see
shortages. HRSA’s national projection also does not take into account a projected shortfall of registered nurses in
particular specialties over the next ten years (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 continued aging of the baby
boomers, the changing landscape of the healthcare industry with emerging care delivery models focused on quality of
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care, 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 uncertain level of newly insured individuals in 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 during a better economy.
Physician Shortage. A shortfall of between 46,100 and 90,400 physicians is projected by 2025 as demand for
physicians continues to outpace supply, according to the Association of American Medical Colleges (AAMC Center
for Workforce Studies (March 2015)). 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
up to 20,500 primary care physicians by 2020 -- a number that will grow to up to 31,100 by 2025, according to
analysis by the AAMC (March 2015). The projected shortfall of non-primary care physicians is expected to be up to
63,700 by 2025. The AAMC also 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.
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. We continue to make investments in our online social and professional networks that have
also 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.
Nurse Retirements. During the last recession, we believe many registered nurses were hesitant to retire, especially if
their spouses were laid off or if they were secondary wage earners, as “they preferred the stability of a permanent job”
as a staff nurse (Staffing Industry Analysts: US Healthcare Staffing Growth Assessment, October 28, 2015).
However, new findings in the 2015 Survey of Registered Nurses/Viewpoints on Retirement, Education and Emerging
Roles “strongly indicate an impending surge in retirement among older nurses.” As the 2015 Survey reported, even if
the Baby Boomer nurses don’t retire, they could “cut back their hours to part time … which could result in a nursing
supply crisis.” Of note, 21% of the 8,828 nurses surveyed said they would “move to part-time work” now that the
economy has recovered (2015 Survey of Registered Nurses/Viewpoints on Retirement, Education and Emerging
Roles).
Higher Quit Rates with an Improved Economy. The Bureau of Labor and Statistics uses the quit rate as a measure
of workers’ willingness or ability to leave jobs. According to the 2016 Job Openings and Labor Turnover Survey
Database, quits rose from 1.3% in December 2009 to 2.2% in December 2015 and remained essentially unchanged at
2.1% through November 2016 (Bureau of Labor Statistics, Job Openings and Labor Turnover - November 2016). This
increased quit rate from 2009 through December 2015 reflected increased confidence among the workforce. The
number of job openings reported at the end of November 2016 also remained steady at 5,500,000 (Bureau of Labor
Statistics, Job Openings and Labor Turnover Survey, November 2016). During the last recession, registered nurses
were hesitant to quit or voluntarily leave their jobs. However, with an improved economy and the low national
unemployment rate, this trend appears to have reversed itself to some extent (Staffing Industry Analysts: US
Healthcare Staffing Growth Assessment, October 28, 2015). We believe with the increased volume of orders for
temporary healthcare workers and as wages increase, staff nurses are more confident to enter the temporary nurse
market and are improving the supply.
Access to Healthcare Insurance. We believe that employees have historically remained employed by their
employers, in part for healthcare coverage. The access to healthcare insurance provided by the ACA should 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 seek assignments with staffing agencies. It is still not clear what
flexibility the ACA or any new healthcare legislation will allow.
Nurse Licensure Compact Promoting Mobility for RNs. Currently, 25 states have implemented the Nurse Licensure
Compact (National Council of State Boards of Nursing 2016). The National Council of State Boards of Nursing
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created this mutual recognition plan to allow RNs and licensed practical nurses who reside in those 25 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 while avoiding 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 the vacation time of full-
time staff jobs in order to earn extra money and repay student loans; to lead a more flexible lifestyle; and to maintain
their autonomy while practicing medicine. 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
physicians close to retirement to work fewer hours, work-life balance for all 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. In the past few years, physicians have increasingly become
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 (including the Medicare Access and CHIP Reauthorization Act of 2015), 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. Joining a hospital's staff provides financial certainty and the
ability to focus more on practicing medicine. We believe this shift in employment will continue to increase supply for
our physician and executive search business as physicians look for permanent employment with hospitals or health
systems.
Our Business Strategy
Our long-term business strategy is to grow revenue, expand our margins and improve our operating effectiveness by:
Increasing our workforce solutions business by delivering value-added solutions and strengthening and expanding current
client relationships and developing new relationships with hospitals and healthcare facilities. While the effects of the
recent election are not known at this time and the shift to value-based payments could slow or reverse, we believe that
some iteration of the value-based payment models will remain in effect continuing to put financial pressure on our clients.
To assist clients in meeting their financial and healthcare quality goals in a more complex environment, we design and
execute workforce solutions customized to meet their unique needs. Our full suite of service offerings includes: MSP,
OWS, Predictive Analytics, IRP, Educational Healthcare Services, and RPO. Each of our businesses enjoys strong
customer relationships that may serve as a platform to sell new MSP services or expand our workforce solutions at current
clients. As a result, we continue to invest in sales and marketing to increase market share through cross-collaboration of
our businesses.
Growing our supply of healthcare professionals. 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 healthcare professionals. We also continue to invest in mobile and online technologies to increase our
ability to attract and retain healthcare professionals. We believe providing communication options to our healthcare
professionals will strengthen our relationships with them to improve supply and further enhance our delivery of high
quality customer service.
Improving our capture rate at current MSP accounts and expanding our national and local market presence to support the
shift to outpatient and ambulatory care centers. We believe our large national footprint will allow us to (i) increase our
market share at our current MSPs by improving our capture rate of per diem, local and allied healthcare staffing
professionals, (ii) sell our MSP services to clients of our local branch-based network, (iii) support our current hospital and
health system clients who are shifting care from inpatient to outpatient where possible and responding to market changes
by making vertical acquisitions to control quality across the care continuum, (iv) support smaller, local customers, (v)
support retail or commercial providers, such as national drugstore chains, (vi) broaden our customer base, and (vii) gain
access to additional healthcare professionals who are uniquely qualified to provide care in outpatient and ambulatory care
centers.
Expanding our gross profit margin and delivering a higher Adjusted EBITDA margin by (i) continuing to obtain pricing
increases from our customers, (ii) managing our mix of business with hospitals and local/retail customers, (iii) expanding
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our Workforce Solutions business, and (iv) making further investments in our higher margin businesses: retained,
contingent and permanent search, local allied, Healthcare Education Consulting, and RPO businesses.
Making strategic and disciplined acquisitions 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.
Business Overview
Services Provided
Nurse and Allied Staffing
The 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®, MSN, AHG, Mediscan and DirectEd brands. We provide flexible workforce solutions to the healthcare and
school markets through diversified offerings designed to meet the special needs of each client, including: MSP, OWS,
Predictive Analytics, IRP, Educational Healthcare Services, RPO and EMR. Our clients include: public and private acute
care hospitals, government-owned facilities, public schools, charter 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 Data to the consolidated financial statements.
A majority of our revenue is generated from staffing registered nurses 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 registered nurses, licensed practical nurses, certified nurse assistants, advanced practitioners,
pharmacists, and more than 100 specialties of allied professionals on local per diem and short-term assignments in a
variety of clinical and non-clinical settings through our national network of local branch offices. We also provide travel
allied professionals on long-term contract assignments to hospitals, public schools, charter schools and skilled nursing
facilities under the Cross Country Staffing®, Mediscan and DirectEd brands.
Physician Staffing
We provide physicians in many specialties, certified registered nurse anesthetists (CRNAs), NPs and physician assistants
(PAs) under our 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
Data to the consolidated financial statements.
Other Human Capital Management Services
We provide retained and contingent search services for physicians, healthcare executives, nurses, advanced practice and
allied health professionals. The revenue and operating income of our Other Human Capital Management Services Segment
is set forth in Note 17 - Segment Data to the consolidated financial statements.
Our Cejka Search® (Cejka) subsidiary has been a leading physician, executive, nurses, 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, managed care and other healthcare organizations.
Our Business Model
We have developed and will continue to focus our business model on increasing revenue and achieving greater profitability
through higher efficiencies, expanding current MSP services and adding new MSP accounts, and further diversifying our
customer base - all while continuing to offer the highest possible quality services.
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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 and non-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 service to them. In addition,
we believe nurses and allied professionals are confident we will have new assignments for them as they complete their
current assignment. Our benefits generally include professional liability insurance, a 401(k) plan, health insurance,
reimbursed travel, per diem allowances and housing. Each of our nurse and allied healthcare professionals is employed by
us is typically paid 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 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 and advanced practice professionals to provide medical services for MDA’s
healthcare customers. Each physician or advanced practice professional 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 and advanced practice professionals are engaged to provide
medical services for a healthcare customer ranging from a few days up to a year. We believe physicians are attracted to us
because we offer a wide variety of assignments, competitive fees, medical malpractice insurance and a high level of
service to them. 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, healthcare facility, school and other clients using our
Cross Country Staffing, Medical Staffing Network™, Allied Health Group, Mediscan and DirectEd brands. Cross Country
Staffing typically contracts with our nurse and allied healthcare clients on behalf of itself and our other brands. Mediscan
contracts with its hospitals, public schools and charter schools under the Mediscan and DirectEd 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 and school markets through diversified offerings meeting the
special needs of each client. 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 settings
and culture, submit candidate profiles to clients, and confirm offers and placements with them. In 2016, the market for
Nurse and Allied Staffing was estimated to be approximately $11.2 billion, of which $4.2 billion was travel nursing, $3.2
billion was per diem staffing and $3.8 billion was allied healthcare staffing (U.S. Staffing Industry Forecast September
2016 Update, U.S. Staffing Industry Analysts).
MDA markets its physician staffing operations to hospitals and other healthcare facilities on a national basis. 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 customers. MDA successfully operates a multi-site business model with employees at
several locations.
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.
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 required by our customers,
as well as the aptitude to meet the day-to-day requirements and challenges they would typically encounter on assignments
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where they are placed. The credentialing of our nurse and allied healthcare professionals is designed to align with the
guidelines of The Joint Commission, a national accrediting body, to ensure quality care. Our Cross Country University
division, accredited by the American Nurse Credentialing Center, provides training, assessment, and professional
development to further ensure the quality of the personnel we place on assignment. Our physician credentialing entity,
Credent, is also certified by the NCQA. 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 negotiate payment for services with our clients based on market conditions and needs. We generally 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.
Our shared service center processes hours worked by field employees in the time and attendance systems, which in turn
generate the billable transactions to the clients.
Hours worked by independent contractor physicians are reported to our MDA office. 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.
For our physician and executive search business, Cejka typically bills its clients a candidate acquisition fee and is
reimbursed for certain marketing expenses.
Operations
Our Nurse and Allied and Physician Staffing 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; Newtown Square, Pennsylvania; Woodland Hills, California; and
Berkeley Lake, Georgia. In addition to the key sales and recruitment activities, certain of 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. On December 31, 2016, we had 74 office locations.
Cejka Search primarily operates its business from its headquarters located in Creve Coeur, Missouri. This business
operates relatively independently, other than certain ancillary services that are provided from our Boca Raton, Florida
headquarters, such as payroll, legal and information systems support.
Information Systems
Various information systems are utilized to run our customer relationship management, recruitment, and placement functions
based on the different brands that we operate. Some of these sophisticated applications are proprietary and are hosted in Tier 1
hosting facilities. Other systems are Software as a Service (SaaS) based and hosted by our vendor partners. All of these systems
were built/bought to handle considerable growth of all of our businesses. With capability to provide support to all of our facility
clients, field employees and independent contractors, our systems maintain detailed information about our client skillsets and
status which assist us in enabling fulfillment and assignment renewal. Our databases are also an extensive pool of existing and
potential customers and all related recruitment and sales activity. We constantly evaluate our systems, and the legacy systems
for MDA and Cejka Search were recently replaced by an industry leading SaaS product.
Our financial and human resource systems are managed on leading enterprise resource planning software suites that manage
certain aspects of accounts payable, accounts receivable, general ledger, billing, and human capital management. These systems
have the ability to scale to accommodate revenue growth and/or employee growth. All of our systems are managed by our
onshore and offshore Information Technology team.
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. While we cannot predict the future, 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
10
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 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 healthcare 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 healthcare 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 for those
claims.
The Company maintains a number of insurance policies including general liability, workers’ compensation, fidelity, fiduciary,
directors and officers, cyber, property 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. 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 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, 2016, we had approximately 1,737 corporate employees. During 2016, we employed an average of 6,953
full-time equivalent field employees in Nurse and Allied Staffing. This does not include our Physician Staffing independent
contractors, all of whom are not employees. Throughout 2016 we were not subject to any collective bargaining agreements.
However, in October 2015, the employees we have outsourced to a customer in New York under our OWS model, mainly
paraprofessionals, voted to be represented by Local 1199 of the Service Employees International Union. We began negotiating
with Local 1199 for an initial collective bargaining agreement in 2016 to cover the terms and conditions of employment for
these employees (approximately 450 employees) and expect those negotiations to continue in 2017. 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.
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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 or changes to 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 also affect our ability to provide attractive assignments
to our healthcare professionals.
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
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. We rely on
word-of-mouth referrals, as well as social media to attract qualified healthcare professionals. If our social media strategy is not
successful, our ability to attract qualified healthcare professionals could be negatively impacted.
In addition, 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 continue to see 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 or VMS 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 and other workforce
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.
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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 more quickly than we are able to renegotiate bill rates in our active contracts and
pay rates with our thousands of healthcare professionals. For example, we offer housing subsidies to our healthcare
professionals or provide actual housing to our healthcare professionals. 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 subsidizing housing or renting apartments and furniture for these healthcare professionals may
increase faster than we are able to renegotiate our rates with our customers, and this may have a negative impact on our
profitability. In addition, an increase in other incremental costs beyond our control, such as insurance and unemployment rates
could negatively affect our financial results. The costs related to obtaining and maintaining professional and general liability
insurance, health insurance and workers’ compensation 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.
Our labor costs could be adversely affected by a shortage of experienced healthcare professionals and labor union activity.
Our operations are dependent on our ability to recruit and staff quality healthcare professionals. We compete with other
healthcare staffing companies in recruiting and retaining qualified personnel. We may be required to enhance wages and
benefits to our employees, which could negatively impact our profitability. Labor union activity is another factor that could
adversely affect our labor costs or otherwise adversely impact us. To the extent a significant portion of our employee base
unionizes, our labor costs could increase significantly.
If our labor costs increase, we may not be able to raise rates to offset these increased costs. Because a significant percentage of
our revenues consists of fixed, prospective payments, our ability to pass along increased labor costs is constrained. In the event
we are not entirely effective at recruiting and retaining qualified management, nurses and other medical support personnel, or in
controlling labor costs, this could have an adverse effect on our results of operations.
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
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. In addition, if government regulations were
implemented that limited the amount we could charge for our services, our profitability could be adversely affected.
The healthcare industry is highly regulated. Any material changes in the political, economic or regulatory environment that
affect the purchasing policies, practices and operations of healthcare organizations, or that lead to consolidation in the
healthcare industry, could reduce the funds available to purchase our services or otherwise require us to modify our
offerings.
We provide our services to hospitals and health systems who pay us directly. Accordingly, Medicare, Medicaid and insurance
reimbursement policy changes generally do not directly impact us. However, indirectly, our business, financial condition and
results of operations depend upon conditions affecting the healthcare industry generally and hospitals and health systems
particularly. The healthcare industry is highly regulated by federal and state authorities and is subject to changing political,
economic and regulatory influences. Factors such as changes in reimbursement policies for healthcare expenses, consolidation
in the healthcare industry, regulation, litigation and general economic conditions affect the purchasing practices, operations and
13
the financial health of our customers. Reimbursement changes in government programs, particularly Medicare and Medicaid,
can and do indirectly affect the demand and the prices paid for our services.
In March 2010, President Obama signed into law the ACA, a measure designed to expand access to affordable health insurance,
control healthcare spending and improve healthcare quality. In addition, many states have adopted or are considering changes
in healthcare laws or policies in part due to state budgetary shortfalls. We do not know what effect any change to the ACA,
federal healthcare legislation generally or any state law proposals may have on our business. We believe that we are well-
positioned to help our customers in a value-based care environment, which we expect will remain a key feature of government
policy under any modified or replacement legislation. Nonetheless, the impact of a repeal or any amendment or replacement of
the ACA is uncertain and could adversely affect our business, cash flow and financial performance.
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 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, 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.
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 or
related to one of our subcontractors or its employees. 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 that we place on assignment. 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 professional to observe our policies and guidelines, 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 with terms and in amounts 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 for our locum tenens providers. If we become subject to substantial uninsured workers' compensation, medical
coverage or medical malpractice liabilities, whether directly or indirectly, 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, 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.
14
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 plan, 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. We plan to ask shareholders to approve an amendment and
restatement to the Plan in 2017 at our annual meeting to increase the number of shares of common stock for issuance. Fully
vested options to purchase 900 shares of common stock were issued and outstanding as of February 28, 2017. In addition,
180,688 stock appreciation rights were issued and outstanding as of February 28, 2017, 135,187 of which were vested. Shares
of restricted stock outstanding as of February 28, 2017, were 509,355. 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 and applications hosted by our vendors.
We are dependent on the proper functioning of our information systems in operating our business, including those applications
hosted by our vendors. 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. We are currently evaluating the technology platforms of our businesses. If our proprietary systems of Software as
a Service applications fail or are otherwise unable to function in a manner that properly supports our business operations, or if
these systems require significant costs to repair, maintain or further develop or update, 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.
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, transmit 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
15
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. We have implemented systems and processes to focus
on identification, prevention, mitigation and resolution. However, these measures cannot provide absolute security, and our
systems may be vulnerable to cyber-security breaches such as viruses, hacking, and similar disruptions from unauthorized
intrusions. In addition, we rely on third party service providers to perform certain services, such as payroll and tax services.
Any failure of our systems or third party systems may compromise our sensitive information and/or personally identifiable
information of our employees. While we have secured cyber insurance to potentially cover certain risks associated with cyber
incidents, 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 debt at par
Total Cross Country Healthcare, Inc. stockholders' equity
December 31, 2016
(amounts in thousands)
$
$
64,523
151,243
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 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;
16
- 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 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. If, however, 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 (pertaining to, among other
things, compensation and benefits, vacation, and the termination of employment). Our inability to effectively manage our
international operations or to violate a regulation could result in increased costs and adversely affect our results of operations.
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
17
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 or other intangible
assets become impaired, there could be an adverse effect on us. At December 31, 2016, goodwill, trade names not subject to
amortization, and other intangible assets represented 39% of our total assets. In 2016 and 2015, we recorded impairment
charges of $24.3 million and $2.1 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,
but not limited to, the our use of NOLs, expense reimbursements 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
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, CRNAs and other independent contractors 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.
If the method for paying locum tenens physicians changes, it could negatively impact our profitability.
The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) creates a new framework for rewarding physicians for
providing higher quality care by establishing two tracks of payment: a merit-based incentive payment system (MIPS), and
Advanced Alternative Payment Models (AAPMs). If hospitals change the method for paying locum tenens physicians to meet
their performance goals or other criteria for Medicaid or Medicare reimbursements, the profitability of our business could be
adversely impacted.
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
18
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, 2017 are listed below.
Location
Boca Raton, Florida
Berkeley Lake, Georgia
Boca Raton, Florida
Creve Coeur, Missouri
Malden, Massachusetts
Function
Nurse and Allied Staffing administration
and general office use
Physician Staffing office
Corporate headquarters
Retained search headquarters
Nurse and Allied Staffing administration
and general office use
Square
Feet
70,406
Lease Expiration
December 31, 2025
41,607
October 31, 2024
36,919
27,051
22,767
November 30, 2025
August 31, 2024
June 30, 2017
Newtown Square, Pennsylvania
Nurse and Allied Staffing administration
16,304
December 31, 2018
and general office use
Item 3. Legal Proceedings.
We are subject to legal proceedings and claims that arise in the ordinary course of our business. We do not believe the outcome
of these matters will have a material adverse effect on our business, financial condition or results of operations.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
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.
19
Calendar Period
2016
Quarter Ended March 31, 2016
Quarter Ended June 30, 2016
Quarter Ended September 30, 2016
Quarter Ended December 31, 2016
2015
Quarter Ended March 31, 2015
Quarter Ended June 30, 2015
Quarter Ended September 30, 2015
Quarter Ended December 31, 2015
Sale Prices
High
Low
$
$
$
$
$
$
$
$
13.10
13.48
13.40
13.93
11.72
11.52
13.85
16.31
$
$
$
$
$
$
$
$
12.31
12.93
12.94
13.45
11.16
11.14
13.33
15.49
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 December 31, 2011 and tracks it through December 31, 2016.
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
As of February 22, 2017, there were 133 stockholders of record of our common stock. In addition, there were 4,852 beneficial
owners of our common stock held by brokers or other institutions on behalf of stockholders.
20
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, 2016, we had 942,443
shares of common stock left remaining to repurchase under this authorization, subject to the limitations of our credit agreement
as described in Note 14 - Stockholders' Equity to our consolidated financial statements.
Item 6. Selected Financial Data.
The selected consolidated financial data as of December 31, 2016 and 2015 and for the years ended December 31, 2016, 2015,
and 2014 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, 2014, 2013 and 2012 and for the years ended
December 31, 2013 and 2012 are derived from the consolidated financial statements of Cross Country Healthcare, Inc., that
have been audited but not included in this Report on Form 10-K.
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,
2016
2015
2014
2013
2012
(Amounts in thousands, except per share data)
Consolidated Statements of Operations Data:
Revenue from services
Consolidated net income (loss)
Net income (loss) attributable to common shareholders
$
833,537
$
767,421
$
617,825
$
438,311
$
442,635
8,731
7,967
4,954
4,418
(31,534)
(31,783)
(54,250)
(51,969)
(20,745)
(42,221)
Per Share Data:
Net income (loss) per share attributable to common shareholders
- Basic
Net income (loss) per share attributable to common shareholders
- Diluted
$
$
Weighted Average Common Shares Outstanding:
Basic
Diluted
Other Operating Data:
Cash and cash equivalents
Total assets
Total debt at par
Stockholders’ equity
Net cash provided by (used in) operating activities
0.25
$
0.14
$
(1.02) $
(1.75) $
(0.67)
0.15
$
0.14
$
(1.02) $
(1.75) $
(0.67)
32,132
36,246
31,514
32,162
31,190
31,190
31,009
31,009
30,843
30,843
$
20,630
$
2,453
$
4,995
$
8,055
$
10,463
388,378
64,523
151,802
30,145
365,595
63,094
141,344
18,235
324,502
58,702
130,332
(4,072)
248,245
8,576
160,667
8,659
305,626
33,859
209,123
10,146
21
_______________
The following items impact the comparability and presentation of our consolidated data:
•
•
•
•
•
•
•
•
•
Consolidated net income (loss) for the years ended December 31, 2016, 2015, and 2014, respectively, includes
amounts attributable to noncontrolling interest of $0.8 million, $0.5 million, and $0.2 million.
We acquired all of the membership interests of Mediscan on October 30, 2015, substantially all of the assets and
certain liabilities of MSN on June 30, 2014, and the operating assets of On Assignment, Inc.’s Allied Healthcare
Staffing division on December 2, 2013. The results of these acquisition's operations have been included in our
consolidated statements of operations since their respective dates of acquisition. For the years ended December 31,
2016, 2015, 2014 and 2013, we recognized $0.1 million, $0.9 million, $8.0 million, and $0.5 million of acquisition
and integration costs, respectively. See Note 3 - Acquisitions to our consolidated financial statements.
The year ended December 31, 2016 includes $0.8 million of acquisition-related contingent consideration expense
primarily related to the Mediscan acquisition. See Note 3 - Acquisitions and Note 10 - Fair Value Measurements to
our consolidated financial statements.
The years ended December 31, 2016, 2015, 2014, and 2013 include $0.8 million, $1.3 million, $0.8 million, and
$0.5 million, respectively, of restructuring costs primarily related to the centralization of corporate functions in
2016, our cost optimization project in 2015, and senior management employee severance pay in 2014 and 2013.
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.
The years ended December 31, 2016, 2015, 2014, 2013, and 2012 include non-cash impairment charges of
approximately $24.3 million, $2.1 million, $10.0 million, $6.4 million, and $18.7 million, respectively. See Note 5
- Goodwill, Trade Names, and Other Intangible Assets to our consolidated financial statements.
The year ended December 31, 2016 includes the impact of a gain on derivative liability of approximately $5.8
million, while the years ended December 31, 2015 and 2014 include the impact of a loss on derivative liability of
$9.9 million and $16.7 million, respectively. The 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.
The year ended December 31, 2015 includes a loss on sale of business of $2.2 million (an after-tax gain of $1.3
million) related to the sale of our education seminars business, Cross Country Education, LLC (CCE) on August
31, 2015. See Note 4 - Disposal and Discontinued Operations to our consolidated financial statements.
The years ended December 31, 2016 and 2013 include a loss on early extinguishment of debt of $1.6 million and
$1.4 million, respectively, related to extinguishment fees and the write-off of unamortized net debt discount and
issuance costs related to prior credit agreements. See Note 8 - Debt to our consolidated financial statements.
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 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.
Business Overview
We provide healthcare staffing, recruiting and workforce solutions to our customers through our vast network of 74 office
locations throughout the U.S. Our services include placing clinicians on travel and per diem assignments, local short-term
contracts and permanent positions. In addition, we offer flexible workforce management solutions to our customers including:
MSP, education healthcare, RPO and other outsourcing and value-added services as described in Item 1. Business. In addition,
we provide both retained and contingent placement services for healthcare executives, physicians, and other healthcare
professionals.
22
We manage and segment our business based on the nature of our services we offer to our customers. As a result, in accordance
with the Segment Reporting Topic of the FASB ASC, we report three business segments – Nurse and Allied Staffing,
Physician Staffing, and Other Human Capital Management Services.
Nurse and Allied Staffing – Nurse and Allied Staffing represented approximately 86% of our total revenue. Nurse
and Allied Staffing provides traditional staffing, recruiting, and value-added workforce solutions including:
temporary and permanent placement of travel and local branch-based nurse and allied professionals, MSP services,
education healthcare services, and outsourcing services. The results of our MSN, Mediscan and USR acquisitions
have been aggregated with our Nurse and Allied Staffing business segment. See Note 3 - Acquisitions to our
consolidated financial statements.
Physician Staffing – Physician Staffing represented approximately 12% of our total revenue. Physician Staffing
provides physicians in many specialties, certified registered nurse anesthetists, nurse practitioners and physician
assistants under our Medical Doctor Associates (MDA) brand as independent contractors on temporary assignments
throughout the U.S.
Other Human Capital Management Services – Other Human Capital Management Services (OHCMS) represented
approximately 2% of our total revenue. Subsequent to the sale of our education seminars business, CCE, on August
31, 2015, OHCMS is comprised of retained and contingent search services for physicians, healthcare executives, and
other healthcare professionals within the U.S.
Summary of Operations
For the year ended December 31, 2016, consolidated revenue from services grew 8.6% to $833.5 million, entirely from our
Nurse and Allied Staffing business that experienced strong demand, increased pricing, and benefited from the acquisition of
Mediscan. Revenue growth of 16.1% in Nurse and Allied Staffing was partially offset by lower revenue from our Physician
Staffing business. Net income attributable to common shareholders was $8.0 million, or $0.15 per diluted share.
During 2016, we experienced high demand for our Nurse and Allied Staffing services including MSP, and as a result, we made
investments in revenue producing headcount and marketing spend on candidate attraction which we expect to continue into
2017 to support recent contract wins. We also acquired an RPO business to fuel growth for this offering to our customers.
For the year ended December 31, 2016, we generated cash flow from operating activities of $30.1 million, and in June 2016,
we refinanced our debt and entered into a new senior credit agreement. This resulted in a reduced interest rate effective for the
second half of 2016. As of December 31, 2016, we had $20.6 million of cash and cash equivalents, $39.5 million of term loan
and $25.0 million of convertible notes at par. There were no borrowings drawn on our $100.0 million revolving credit facility,
and $22.2 million of letters of credit outstanding, leaving $77.8 million available for borrowing. See Note 8 - Debt to our
consolidated financial statements.
See Results from Operations, Segments Results and Liquidity and Capital Resources sections that follow for further
information.
Operating Metrics
We evaluate our financial condition by tracking operating metrics and financial results specific to each of our segments. Key
operating metrics include hours worked, days filled, number of FTEs, revenue per FTE, and revenue per day filled. Other
operating metrics include number of open orders, candidate applications, contract bookings, length of assignment, bill and pay
rates, and renewal and fill rates, number of active searches, and number of placements. These operating metrics are
representative of trends that assist management in evaluating business performance. Due to the timing of our business
processes and other factors, certain of these operating metrics may not necessarily correlate to the reported GAAP results for
the periods presented. Some of the segment financial results analyzed include revenue, gross profit margins, operating
expenses, and contribution income. In addition, we monitor cash flow as well as operating and leverage ratios to help us assess
our liquidity needs.
23
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 invoiced during
the period by 8 hours.
Revenue per day filled is calculated by dividing revenue invoiced by
days filled for the period presented. Invoiced revenue excludes
revenue from permanent placement and accrued revenue.
Results of Operations
The following table summarizes, for the periods indicated, selected consolidated statements of operations data expressed as
a percentage of revenue. Our historical results of operations are not necessarily indicative of future operating results.
Revenue from services
Direct operating expenses
Selling, general, and administrative expenses
Bad debt expense
Depreciation and amortization
Loss on sale of business
Acquisition and integration costs
Acquisition-related contingent consideration
Restructuring costs
Impairment charges
Income (loss) from operations
Interest expense
(Gain) loss on derivative liability
Loss on early extinguishment of debt
Income (loss) before income taxes
Income tax (benefit) expense
Consolidated net income (loss)
Less: Net income attributable to noncontrolling interest in
subsidiary
Net income (loss) attributable to common shareholders
Year Ended December 31,
2015
2014
2016
100.0%
73.4
21.5
0.1
1.1
—
—
0.1
0.1
2.9
0.8
0.7
(0.7)
0.2
0.6
(0.5)
1.1
0.1
1.0%
100.0%
74.3
21.0
0.1
1.0
0.3
0.1
—
0.2
0.3
2.7
0.9
1.3
—
0.5
(0.1)
0.6
—
0.6%
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)%
24
Comparison of Results for the Year Ended December 31, 2016 compared to the Year Ended December 31, 2015
Year Ended December 31,
Increase
(Decrease)
Increase
(Decrease)
2016
2015
$
%
Revenue from services
Direct operating expenses
Selling, general, and administrative expenses
Bad debt expense
Depreciation and amortization
Loss on sale of business
Acquisition-related contingent consideration
Acquisition and integration costs
Restructuring costs
Impairment charges
Income from operations
Interest expense
(Gain) loss on derivative liability
Loss on early extinguishment of debt
Other income, net
Income before income taxes
Income tax benefit
Consolidated net income
Less: Net income attributable to noncontrolling
interest in subsidiary
Net income attributable to common
shareholders
$
833,537
$
(Dollars in thousands)
767,421
$
66,116
611,802
179,820
593
9,182
—
814
78
753
24,311
6,184
6,106
(5,805)
1,568
(230)
4,545
(4,186)
8,731
570,056
161,275
999
8,066
2,184
—
902
1,274
2,100
20,565
6,810
9,901
—
(306)
4,160
(794)
4,954
41,746
18,545
(406)
1,116
(2,184)
814
(824)
(521)
22,211
(14,381)
(704)
(15,706)
1,568
76
385
(3,392)
3,777
8.6 %
7.3 %
11.5 %
(40.6)%
13.8 %
(100.0)%
100.0 %
(91.4)%
(40.9)%
1,057.7 %
(69.9)%
(10.3)%
(158.6)%
100.0 %
24.8 %
9.3 %
(427.2)%
76.2 %
764
536
228
42.5 %
$
7,967
$
4,418
$
3,549
80.3 %
Revenue from services
Revenue from services increased $66.1 million, or 8.6%, to $833.5 million for the year ended December 31, 2016, as
compared to $767.4 million for the year ended December 31, 2015. The increase was entirely from Nurse and Allied Staffing,
including the impact from the Mediscan acquisition, and partially offset by lower revenue from Physician Staffing and Other
Human Capital Management Services, partly due to the divestiture of CCE. See further discussion in Segment Results.
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 $41.7 million, or 7.3%,
to $611.8 million for the year ended December 31, 2016, as compared to $570.1 million for year ended December 31, 2015.
The increase was due to both higher volume of business driven by organic growth and the result of the Mediscan acquisition,
as well as increases in certain costs such as compensation for healthcare professionals and related benefits. These increases
were partly offset by the impact of the divestiture of CCE.
As a percentage of total revenue, direct operating expenses represented 73.4% of revenue for the year ended December 31,
2016, and 74.3% for the year ended December 31, 2015 primarily due to improved pricing.
25
Selling, general, and administrative expenses
Selling, general, and administrative expenses increased $18.5 million, or 11.5%, to $179.8 million for the year ended
December 31, 2016, as compared to $161.3 million for the year ended December 31, 2015. The increase was primarily due to
investments in our IT infrastructure, growth in revenue producing headcount such as recruiters and workforce solutions
specialists, higher marketing costs for candidate attraction, and the impact of the acquisition of Mediscan. These were partially
offset by a reduction in expenses related to the CCE divestiture. As a percentage of total revenue, selling, general, and
administrative expenses were 21.5% and 21.0% for the year ended December 31, 2016 and December 31, 2015, respectively.
Depreciation and amortization expense
Depreciation and amortization expense in the year ended December 31, 2016 increased to $9.2 million as compared to $8.1
million for the year ended December 31, 2015, as a result of the Mediscan acquisition. As a percentage of revenue,
depreciation and amortization expense was 1.1% for the year ended December 31, 2016 and 1.0% for the year ended
December 31, 2015.
Loss on sale of business
During the year ended December 31, 2015, we sold our education seminars business and recognized a pre-tax loss of $2.2
million related to the divestiture of the business. There were no such transactions during the year ended December 31, 2016.
Acquisition-related contingent consideration
Acquisition-related contingent consideration totaled $0.8 million for the year ended December 31, 2016, primarily related to
the Mediscan acquisition. There were no such costs for the year ended December 31, 2015. See Note 3 - Acquisitions to our
consolidated financial statements.
Acquisition and integration costs
During the years ended December 31, 2016 and 2015, we incurred acquisition and integration costs of $0.1 million and $0.9
million, respectively. The 2016 costs related to the acquisition of USR, while the 2015 costs related to the acquisition of
Mediscan. See Note 3 - Acquisitions to our consolidated financial statements.
Restructuring costs
Restructuring costs include severance and lease consolidations as part of our specific cost savings initiatives. We recorded
restructuring costs of $0.8 million for the year ended December 31, 2016, related to the centralization of corporate functions
and optimizing our branch footprint. We recorded restructuring costs of $1.3 million for the year ended December 31, 2015,
related to severance and office consolidations.
Impairment charges
In the second quarter of 2016, we recorded impairment charges of $24.3 million relating to the Physician Staffing reporting
unit. Based on its under-performance to plan through the six months ended June 30, 2016, we revised our growth assumptions
for the Physician Staffing reporting unit which triggered our evaluation. In the fourth quarter of 2016, we determined that no
additional impairment of goodwill or other intangible assets was warranted. In the fourth quarter of 2015, we conducted an
assessment of our indefinite-lived intangible assets and recorded impairment charges of $2.1 million relating to the Physician
Staffing trade names. 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 Intangible Assets to our consolidated financial statements.
Interest expense
Interest expense totaled $6.1 million for the year ended December 31, 2016 and $6.8 million for the year ended December 31,
2015. We refinanced our debt structure late in the second quarter of 2016, which resulted in lower overall borrowing costs.
The effective interest rate on our borrowings was 8.4% for the year ended December 31, 2016 compared to 10.1% in the year
ended December 31, 2015. Our $25.0 million in Convertible Notes which bear an interest rate of 8.00% will become callable
by us in July 2017.
26
(Gain) loss on derivative liability
Gain on derivative liability of $5.8 million and loss on derivative liability of $9.9 million for the years ended December 31,
2016 and December 31, 2015, respectively, relate to the change in the fair value of embedded features of our Convertible
Notes from the end of the respective prior year. The gain and loss were primarily a result of a corresponding decrease and
increase, respectively, in our share price in the respective periods. 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. Each reporting period we are required to fair value the embedded derivative with the changes being recorded as a
component of other expense (income) on our consolidated statements of operations. See Note 9 - Convertible Notes Derivative
Liability to our consolidated financial statements.
Loss on early extinguishment of debt
Loss on early extinguishment of debt was $1.6 million for the year ended December 31, 2016 and related to the write-off of
unamortized net debt discount and issuance costs, including a redemption premium of $0.6 million, related to our Second Lien
Term Loan. See Note 8 - Debt to our consolidated financial statements.
Income tax benefit
Income tax benefit from continuing operations totaled $4.2 million for the year ended December 31, 2016, compared to $0.8
million for the year ended December 31, 2015. The effective tax rate was negative 92.1% and negative 19.1%, including the
impact of discrete items, for the years ended December 31, 2016 and 2015, respectively. Excluding discrete items, our
effective tax rate for these years was negative 89.8% and 41.1%, respectively. The effective tax rates are different than the
statutory rates primarily due to the impact from amortization of indefinite-lived intangible assets for tax purposes, the partial
non-deductibility of certain per diem expenses, and international and state minimum taxes.
Comparison of Results for the Year Ended December 31, 2015 compared to the Year Ended December 31, 2014
Year Ended December 31,
Increase
(Decrease)
Increase
(Decrease)
2015
2014
$
%
Revenue from services
Direct operating expenses
Selling, general, and administrative expenses
Bad debt expense
Depreciation and amortization
Loss on sale of business
Acquisition and integration costs
Restructuring costs
Impairment charges
Income (loss) from operations
Interest expense
Loss on derivative liability
Other (income) loss, net
Income (loss) before income taxes
Income tax (benefit) expense
Consolidated net income (loss)
$
767,421
$
(Dollars in thousands)
617,825
$
149,596
570,056
161,275
999
8,066
2,184
902
1,274
2,100
20,565
6,810
9,901
(306)
4,160
(794)
4,954
460,021
141,018
1,016
7,441
—
7,957
840
10,000
(10,468)
4,160
16,671
19
(31,318)
216
(31,534)
110,035
20,257
(17)
625
2,184
(7,055)
434
(7,900)
31,033
2,650
(6,770)
(325)
35,478
(1,010)
36,488
24.2 %
23.9 %
14.4 %
(1.7)%
8.4 %
100.0 %
(88.7)%
51.7 %
(79.0)%
296.5 %
63.7 %
(40.6)%
(1,710.5)%
113.3 %
(467.6)%
115.7 %
Less: Net income attributable to noncontrolling
interest in subsidiary
Net income (loss) attributable to common
shareholders
536
249
287
115.3 %
$
4,418
$
(31,783) $
36,201
113.9 %
27
Revenue from services
Revenue from services increased $149.6 million, or 24.2%, to $767.4 million for the year ended December 31, 2015, as
compared to $617.8 million for the year ended December 31, 2014. The increase was entirely from Nurse and Allied Staffing
and partially offset by lower revenue from Physician Staffing and Other Human Capital Management Services. See further
discussion in Segment Results.
Direct operating expenses
Direct operating expenses are comprised primarily of field employee compensation and independent contractor expenses, as
well as housing, travel and field insurance expenses. Direct operating expenses increased $110.0 million, or 23.9%, to $570.1
million for the year ended December 31, 2015, as compared to $460.0 million for year ended December 31, 2014, primarily
due to the growth in Nurse and Allied Staffing and the impact of the acquisitions.
As a percentage of total revenue, direct operating expenses represented 74.3% of revenue for the year ended December 31,
2015, and 74.5% for the year ended December 31, 2014.
Selling, general, and administrative expenses
Selling, general, and administrative expenses increased $20.3 million, or 14.4%, to $161.3 million for the year ended
December 31, 2015, as compared to $141.0 million for the year ended December 31, 2014. This increase is primarily due to
the MSN acquisition. As a percentage of total revenue, selling, general, and administrative expenses were 21.0% and 22.8%
for the years ended December 31, 2015 and 2013, respectively, reflecting improved operating leverage.
Depreciation and amortization expense
Depreciation and amortization expense in the year ended December 31, 2015 increased to $8.1 million as compared to $7.4
million for the year ended December 31, 2014, due to the impact of the recent acquisitions. As a percentage of revenue,
depreciation and amortization expense was 1.0% for the year ended December 31, 2015 and 1.2% for the year ended
December 31, 2014.
Loss on sale of business
During the year ended December 31, 2015, we sold our education seminars business and recognized a pre-tax loss of $2.2
million related to the divestiture of the business. In addition, we recorded a tax benefit of $3.5 million for the reversal of
valuation allowances associated with this business, resulting in an after-tax gain of $1.3 million.
Acquisition and integration costs
During the year ended December 31, 2015, we incurred acquisition and integration costs of $0.9 million which predominantly
were costs related to the Mediscan acquisition, which closed October 30, 2015. During the year ended December 31, 2014, we
incurred acquisition and integration costs of $8.0 million, primarily related to the MSN acquisition, and partly related to our
December 2013 allied staffing business acquisition.
Restructuring costs
We recorded restructuring costs of $1.3 million for the year ended December 31, 2015, related to severance and lease
consolidations. We recorded restructuring costs of $0.8 million for the year ended December 31, 2014, primarily related to
senior management severance pay.
Impairment charges
In the fourth quarter of 2015 and 2014, we conducted an assessment of our indefinite-lived intangible assets. For the years
ended December 31, 2015 and 2014, we recorded impairment charges of $2.1 million and $10.0 million, respectively, relating
to the Physician Staffing trade names. 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 Intangible Assets to our consolidated financial statements.
28
Interest expense
Interest expense totaled $6.8 million for the year ended December 31, 2015 and $4.2 million for the year ended December 31,
2014. The increase was primarily due to the additional interest associated with our subordinated debt used to fund the June
2014 MSN acquisition. The effective interest rate on our borrowings was 10.1% for the year ended December 31, 2015
compared to 7.0% in the year ended December 31, 2014.
Loss on derivative liability
Loss on derivative liability from Convertible Notes of $9.9 million and $16.7 million for the years ended December 31, 2015
and December 31, 2014 relate to the change in the fair value of embedded features of our Convertible Notes from the end of
the prior period. These losses were primarily a result of an increase in our share price in the respective periods. 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. Each reporting period we are required to fair value the
embedded derivative with the changes being recorded as a component of other expense (income) on our consolidated
statements of operations. See Note 9 - Convertible Notes Derivative Liability to our consolidated financial statements.
Income tax (benefit) expense
Income tax benefit from continuing operations totaled $0.8 million for the year ended December 31, 2015, compared to
income tax expense of $0.2 million for the year ended December 31, 2014. The effective tax rate was negative 19.1% and
negative 0.7%, including the impact of discrete items, for the years ended December 31, 2015 and 2014, respectively.
Excluding discrete items, our effective tax rate for these years was 41.1% and negative 8.7%, respectively. The effective tax
rates are different than the statutory rates primarily due to the impact from amortization of indefinite-lived intangible assets for
tax purposes and the partial non-deductibility of certain per diem expenses and international and state minimum taxes, which
are partly offset by the reduction in unrecognized tax benefits due to the settlement of certain state examinations. In addition,
the effective tax rate for 2015 was impacted by the reversal of a portion of the valuation allowance as a result of the sale of
CCE.
29
Segment Results
Information on operating segments and a reconciliation to income (loss) 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 (loss):
Nurse and Allied Staffing
Physician Staffing
Other Human Capital Management Services
Unallocated corporate overhead
Depreciation
Amortization
Loss on sale of business
Acquisition and integration costs
Acquisition-related contingent consideration
Restructuring costs
Impairment charges
Income (loss) from operations
Year Ended December 31,
2015
2014
2016
(amounts in thousands)
721,486
98,283
13,768
833,537
71,992
8,265
(535)
79,722
38,400
4,168
5,014
—
78
814
753
24,311
6,184
$
$
$
$
621,258
115,336
30,827
767,421
55,718
10,213
1,863
67,794
32,703
3,856
4,210
2,184
902
—
1,274
2,100
20,565
$
$
$
$
459,195
121,145
37,485
617,825
36,486
6,540
514
43,540
27,770
3,866
3,575
—
7,957
—
840
10,000
(10,468)
$
$
$
$
Certain statistical data for our business segments for the periods indicated are as follows:
Nurse and Allied Staffing statistical data: (a)
FTEs
Average Nurse and Allied Staffing revenue per FTE per day
Physician Staffing statistical data: (a)
Days filled
Revenue per day filled
See Note 17 - Segment Data.
Year Ended December 31,
2016
2015
Change
Percent
Change
6,953
284
62,482
1,549
$
$
$
$
6,624
257
77,601
1,463
$
$
329
27
5.0 %
10.5 %
(15,119)
86
(19.5)%
5.9 %
30
Year Ended December 31,
2015
2014
Change
Percent
Change
Nurse and Allied Staffing statistical data: (a)
FTEs
Average Nurse and Allied Staffing revenue per FTE per day
Physician Staffing statistical data: (a)
Days filled
Revenue per day filled
6,624
257
77,601
1,463
$
$
$
$
4,764
264
82,473
1,457
$
$
1,860
(7)
(4,872)
6
39.0 %
(2.7)%
(5.9)%
0.4 %
(a)
See definition of Business Measurements under the Operating Metrics section of our Management's Discussion and
Analysis.
Segment Comparison - Year Ended December 31, 2016 compared to the Year Ended December 31, 2015
Nurse and Allied Staffing
Revenue from the Nurse and Allied Staffing business segment increased $100.2 million, or 16.1% to $721.5 million for the
year ended December 31, 2016, from $621.3 million for the year ended December 31, 2015. The year-over-year increase was
primarily due to a combination of improved pricing and the impact of the Mediscan acquisition.
Contribution income from Nurse and Allied Staffing for the year ended December 31, 2016, increased $16.3 million or 29.2%,
to $72.0 million from $55.7 million in year ended December 31, 2015. As a percentage of segment revenue, contribution
income margin increased to 10.0% for the year ended December 31, 2016 from 9.0% for the year ended December 31, 2015,
reflecting improvements in bill/pay spread partially offset by an increase in our compensation packages.
Operating Metrics
The average number of Nurse and Allied Staffing FTEs on contract during the year ended December 31, 2016 increased 5.0%
over the year ended December 31, 2015, primarily due to increased demand and the impact of the Mediscan acquisition.
Average Nurse and Allied Staffing revenue per FTE per day increased approximately 10.5% in the year ended December 31,
2016 compared to the year ended December 31, 2015, primarily due to improved pricing.
Physician Staffing
Revenue from Physician Staffing decreased $17.1 million, or 14.8% to $98.3 million for the year ended December 31, 2016,
compared to $115.3 million for the year ended December 31, 2015. The decrease in revenue was due to lower volume of days
filled during the period, and was partially offset by favorable pricing.
Contribution income from Physician Staffing for the year ended December 31, 2016, decreased $1.9 million or 19.1% to $8.3
million compared to $10.2 million in the year ended December 31, 2015. As a percentage of segment revenue, contribution
income was 8.4% for the year ended December 31, 2016 and 8.9% for the year ended December 31, 2015. The margin decline
was primarily due to lower gross profit and reduced operating leverage on the lower revenue.
Operating Metrics
Physician Staffing days filled decreased 19.5% to 62,482 in the year ended December 31, 2016, compared to 77,601 in the
year ended December 31, 2015. Revenue per day filled for the year ended December 31, 2016 was $1,549, a 5.9% increase
from the year ended December 31, 2015, reflecting higher average prices.
Other Human Capital Management Services
Revenue from OHCMS for the year ended December 31, 2016, decreased $17.1 million, or 55.3%, to $13.8 million from
$30.8 million in the year ended December 31, 2015, as a result of the divestiture of our education seminars business in the
third quarter of 2015. In addition, revenue from our physician and executive search business decreased 15.2% on a lower level
of retained and executive searches.
Contribution income from OHCMS for the year ended December 31, 2016, decreased by $2.4 million, or 128.7%, to a loss of
$0.5 million, compared to income of $1.9 million in the year ended December 31, 2015. The decrease in contribution income
31
was primarily due to the revenue decrease in our physician and executive search business resulting in lower operating leverage
for the business. Contribution income as a percentage of segment revenue decreased to a negative 3.9% for the year ended
December 31, 2016 from a positive 6.0% for the year ended December 31, 2015.
Unallocated corporate overhead
Included in unallocated corporate overhead is corporate compensation and benefits, and general and administrative expenses
including rent and utilities, computer supplies and expenses, insurance, professional expenses, corporate-wide projects
(initiatives) and public company expenses. Unallocated corporate overhead was $38.4 million for the year ended
December 31, 2016, compared to $32.7 million for the year ended December 31, 2015. The increase is primarily due to higher
compensation and benefits and professional expenses as we have been centralizing administrative functions. In addition, we
made investments in company-wide projects and IT infrastructure. As a percentage of consolidated revenue, unallocated
corporate overhead was 4.6% for the year ended December 31, 2016, and 4.3% for the year ended December 31, 2015.
Segment Comparison - Year Ended December 31, 2015 compared to the Year Ended December 31, 2014
Nurse and Allied Staffing
Revenue from Nurse and Allied Staffing business segment increased $162.1 million, or 35.3%, to $621.3 million for the year
ended December 31, 2015, from $459.2 million for the year ended December 31, 2014. The year-over-year increase was
primarily due to a combination of organic growth and the impact of the Mediscan and MSN acquisitions.
Contribution income from Nurse and Allied Staffing for the year ended December 31, 2015, increased $19.2 million or 52.7%,
to $55.7 million from $36.5 million in year ended December 31, 2014. As a percentage of segment revenue, contribution
income was 9.0% for the year ended December 31, 2015, and 7.9% for the year ended December 31, 2014. The margin
improvement was primarily due to improved operating leverage.
Operating Metrics
The average number of Nurse and Allied Staffing FTEs on contract during the year ended December 31, 2015 increased
39.0% over the year ended December 31, 2014, primarily due to a combination of acquisitions and increased demand. Average
Nurse and Allied Staffing revenue per FTE decreased approximately 2.7% in the year ended December 31, 2015 compared to
the year ended December 31, 2014, primarily due to the impact of the lower average bill rates of MSN.
Physician Staffing
Revenue from Physician Staffing decreased $5.8 million, or 4.8% to $115.3 million for the year ended December 31, 2015,
compared to $121.1 million for the year ended December 31, 2014. The decrease in revenue was due to lower volume of days
filled across most specialties partially offset by higher revenue per day filled.
Contribution income from Physician Staffing for the year ended December 31, 2015 increased $3.7 million or 56.2% to $10.2
million compared to $6.5 million in the year ended December 31, 2014. As a percentage of segment revenue, contribution
income was 8.9% for the year ended December 31, 2015 and 5.4% for the year ended December 31, 2014. The margin
improvement was primarily due to improved pricing and lower operating costs.
Operating Metrics
Physician Staffing days filled decreased 5.9% to 77,601 in the year ended December 31, 2015, compared to 82,473 in the year
ended December 31, 2014. Revenue per day filled for the year ended December 31, 2015 was $1,463, a 0.4% increase from
the year ended December 31, 2014, reflecting higher average prices.
Other Human Capital Management Services
Revenue from OHCMS for the year ended December 31, 2015 decreased $6.7 million, or 17.8%, to $30.8 million from $37.5
million in the year ended December 31, 2014, primarily the result of the divestiture of our education seminars business in the
third quarter of 2015, but offset by growth in our physician and executive search business of 22.1%.
Contribution income from OHCMS for the year ended December 31, 2015 increased by $1.3 million, or 262.5%, to $1.9
million, from $0.5 million in the year ended December 31, 2014. The increase in contribution income was primarily due to
improved operating leverage in our physician and executive search business. Contribution income as a percentage of segment
revenue was 6.0% for the year ended December 31, 2015 and 1.4% for the year ended December 31, 2014.
32
Unallocated corporate overhead
Included in unallocated corporate overhead is corporate compensation and benefits, and general and administrative expenses
including rent and utilities, computer supplies and expenses, insurance, professional expenses, corporate-wide projects
(initiatives) and public company expenses. Unallocated corporate overhead was $32.7 million for the year ended
December 31, 2015, compared to $27.8 million for the year ended December 31, 2014, primarily due to an increase in
compensation expense as a result of continued efforts to centralize functions and higher share-based compensation expense
due to forfeitures in the prior year. As a percentage of consolidated revenue, unallocated corporate overhead was 4.3% for the
year ended December 31, 2015, and 4.5% for the year ended December 31, 2014.
Transactions with Related Parties
See Note 16 - Related Party Transactions to our consolidated financial statements.
Liquidity and Capital Resources
At December 31, 2016, we had $20.6 million in cash and cash equivalents, and $87.0 million of total debt, including the
Convertible Note derivative liability of $27.5 million and net of $5.0 million of unamortized discount and debt issuance costs.
Working capital increased by $35.8 million to $108.5 million as of December 31, 2016, compared to $72.7 million as of
December 31, 2015, primarily due to an increase in accounts receivable and an increase in cash and cash equivalents. Our net
days sales outstanding (DSO), which excludes amounts owed to subcontractors, decreased 2 days to 55 days as of December
31, 2016, compared to 57 days as of December 31, 2015. The improvement in DSO is largely due to the strength and timing of
collections.
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 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 new Credit Agreement. Operating cash flows and cash on hand, along with amounts available
under our revolving credit facility, should be sufficient to meet these needs during the next twelve months. Our foreign cash
balance of $0.5 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, 2016.
Cash Flow Comparisons
Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
Net cash provided by operating activities during the year ended December 31, 2016 was $30.1 million compared to $18.2
million during the year ended December 31, 2015, primarily due to higher revenue from services coupled with the 2 day
improvement in net DSO for the year ended December 31, 2016.
Investing activities used a net of $9.8 million in the year ended December 31, 2016 compared to $24.1 million in the year
ended December 31, 2015. Net cash used in investing activities in the year ended December 31, 2016 included $6.5 million
for capital expenditures in 2016 (of which $1.3 million has been reimbursed from our landlord for tenant improvements and is
reflected in operating activities), and $2.4 million for capital expenditures in 2015. During the year ended December 31, 2016,
we used $1.9 million for the acquisition of USR, and $1.9 million of acquisition-related settlements, which was partially offset
by the receipt of $0.5 million related to proceeds from the sale of CCE. See Note 4 - Disposal and Discontinued Operations to
our consolidated financial statements. This compares to a use of $28.7 million for the Mediscan acquisition and $0.1 million
of acquisition-related settlements related to MSN, partially offset by proceeds from the sale of our education seminars
business of $7.2 million, net of related costs for the year ended December 31, 2015.
Net cash used in financing activities during the year ended December 31, 2016 was $2.2 million, compared to net cash
provided by financing activities of $3.4 million during the year ended December 31, 2015. During the year ended
December 31, 2016, we used a total of $1.8 million for debt issuance costs and extinguishment fees related to refinancing our
debt and we increased the principal amount of our debt by $1.4 million. See Note 8 - Debt to our consolidated financial
statements. During 2016, we also paid $0.2 million for contingent consideration related to the Mediscan acquisition. During
the year ended December 31, 2015, we increased the principal amount of our debt by $4.5 million primarily to fund the
acquisition of Mediscan, including acquisition-related expenses. In addition, we used cash to pay $0.9 million and $0.5 million
33
for shares withheld for taxes, and $0.7 million and $0.5 million for noncontrolling shareholder payments, for the years ended
December 31, 2016 and 2015, respectively.
Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
Net cash provided by operating activities during the year ended December 31, 2015 was $18.2 million compared to net cash
used in operating activities of $4.1 million during the year ended December 31, 2014. Net cash provided by operating
activities in 2015 was primarily the result of our improved profitability. The 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.
Investing activities used a net of $24.1 million in the year ended December 31, 2015 compared to $45.5 million in the year
ended December 31, 2014. In 2015, we used $28.7 million, ($28.0 million plus working capital estimate) for the Mediscan
acquisition and $0.1 million for acquisition-related settlements related to MSN. During the year ended December 31, 2015, we
sold our education seminars business for net proceeds of $7.5 million, and incurred $0.3 million in transaction costs. 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. We also used $2.4 million and
$4.6 million, respectively, for capital expenditures during the years ended December 31, 2015 and 2014.
Net cash provided by financing activities during the year ended December 31, 2015, was $3.4 million, compared to $46.5
million during the year ended December 31, 2014. During the year ended December 31, 2015, excluding non-cash changes,
we increased our debt by $4.4 million primarily to fund the acquisition of Mediscan, including acquisition-related expenses.
During the year ended December 31, 2014, excluding non-cash changes, we increased our debt by $47.9 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 for debt issuance costs related to the financing of the MSN acquisition in 2014.
We also used $0.5 million and $0.1 million during the years ended December 31, 2015 and 2014, respectively, for distributions
to our noncontrolling shareholder, and $0.5 million and $0.2 million for shares withheld for taxes in 2015 and 2014,
respectively.
Debt
2016 Senior Credit Facilities
As more fully described in Note 8 - Debt to our consolidated financial statements, on June 22, 2016, we entered into a new
senior credit agreement (Credit Agreement), which provides a term loan of $40.0 million (Term Loan) and a revolving credit
facility of up to $100.0 million (Revolving Credit Facility) (together with the Term Loan, the Senior Credit Facilities) both of
which mature in five years. The Revolving Credit Facility includes a subfacility for swingline loans up to an amount not to
exceed $15.0 million, and a $35.0 million sublimit for the issuance of standby letters of credit.
Proceeds of the Senior Credit Facilities were used primarily to refinance our senior secured asset-based revolving credit
facility (First Lien Loan) and Second Lien Term Loan and to pay related transaction fees and expenses, including a
prepayment penalty of $0.6 million. In addition, as of June 22, 2016, $23.1 million of standby letters of credit issued under the
First Lien Loan had been rolled into and been deemed issued under the Revolving Credit Facility. The Revolving Credit
Facility can be used to provide ongoing working capital, fund permitted acquisitions and for other general corporate purposes.
The repayment of the Second Lien Term Loan was treated as extinguishment of debt and, as a result, we recognized a loss on
extinguishment of debt of approximately $1.6 million in the second quarter of 2016, related to the write-off of unamortized net
debt discount and issuance costs as well as transaction fees and expenses.
As of December 31, 2016, the Term Loan and Revolving Credit Facility bore interest at a rate equal to One Month LIBOR
plus 200 basis points and $77.8 million was available under the Revolving Credit Facility.
Convertible Notes
On June 30, 2014, we and certain of our 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 Agreement, we
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 for the MSN acquisition and related fees and
34
expenses. In connection with the financing, we incurred $0.3 million of debt issuance costs. As a result of the conversion and
redemption features, we recorded $6.8 million as additional discount for the fair value of these features.
As more fully described in Note 8 - Debt to the consolidated financial statements, the Convertible Notes are convertible at the
option of the holders thereof at any time into shares of our 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 from the issuance date, we
have the right to force a conversion of the Convertible Notes if the volume-weighted average price (VWAP) per share of our
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, 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, we shall pay cash in
respect of each fractional share multiplied by the 30-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
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 30-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.
Refer to Note 8 - Debt to our consolidated financial statements.
Stockholders' Equity
See Note 14 - Stockholders' Equity to our consolidated financial statements.
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, 2016:
Commitments
Total
2017
Term Loan (a)
Convertible Notes (b)
Interest on debt (c)
Contingent purchase price liability (d)
Capital lease obligations
Operating lease obligations (e)
$ 39,500
25,000
13,836
8,986
23
39,494
$ 126,839
$
2,250
—
3,797
303
13
7,249
$ 13,612
35
$
$
2018
2020
2019
(Unaudited, amounts in thousands)
3,500
$
—
3,621
1,070
2
4,826
$ 13,019
4,000
25,000
2,137
5,746
—
4,145
$ 41,028
3,750
—
3,946
1,867
8
6,240
$ 15,811
2021
Thereafter
$ 26,000
—
335
—
—
3,843
$ 30,178
$
$
—
—
—
—
—
13,191
13,191
_______________
(a) Under our senior credit agreement which provides our 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. In the event of any such default and our inability to obtain a waiver of the default, all amounts
outstanding under the Term Loan could be declared immediately due and payable.
(b) The Convertible Notes are convertible into shares of our common stock at the option of the holders thereof at any
time. After three years from the issuance date, we have the right to force a conversion of the Convertible Notes if
the volume-weighted average price per share of our Common Stock exceeds 125% of the then conversion price
for 20 days of a 30 day trading period, which could be as early as 2017. See Note 8 - Debt to our consolidated
financial statements.
(c) Interest on debt represents payments due through maturity for our Senior Credit Facilities and Convertible Notes.
Interest payments on our Senior Credit Facilities were calculated using a estimated forward LIBOR rate plus the
current margin rate of 2.00%. Interest on our Convertible Notes were calculated using the fixed interest rate of
8.0% and assuming no conversion. Amounts also include other fees related to our Senior Credit Facilities which
were based on amounts outstanding and pricing as of December 31, 2016.
(d) The contingent purchase price liability represents the estimated payments due to the sellers related to the
Mediscan and USR acquisitions, including accretion. While it is not certain if, or when, these contingent
payments will be made, we have included the payments in the table based on our best estimates of the amounts
and dates when the contingencies may be resolved.
(e) 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.
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 $5.2 million at December 31, 2016. 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 and sales allowances, 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, 2016, 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 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. As more fully
described in Note 2 - Summary of Significant Accounting Policies, 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.
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. Significant judgments are required to estimate the fair value of reporting units including estimating future cash
36
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.
2016 Impairment Charges
During an evaluation of goodwill and other identified intangible assets at June 30, 2016, the Company determined that
indicators were present in the Physician Staffing reporting unit which would suggest the fair value of the reporting unit may
have declined below the carrying value. As a result, an interim impairment test of goodwill and other intangible assets was
performed as of June 30, 2016. The evaluation resulted in the carrying value of goodwill and other intangible assets for
Physician Staffing to exceed the estimated fair value. As a result, the Company recorded pre-tax impairment charges totaling
$24.3 million - $17.7 million related to goodwill, $0.6 million related to trade names, and $6.0 million related to customer
relationships.
The Company performed its annual impairment test as of October 1, 2016. Upon completion of the impairment testing, the
Company determined that no additional impairment of goodwill or other intangible assets was warranted.
Fourth Quarters 2015 and 2014 Annual Goodwill Impairment Testing Results
During the fourth quarters of 2015 and 2014, we determined that no goodwill impairment charges were warranted since the
estimated fair value of our reporting units exceeded their respective carrying values.
As of December 31, 2015, the fair value of our Physician Staffing reporting unit exceeded its carrying value by less than 20%.
The rest of our reporting units had fair values that were substantially in excess of their carrying values.
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, we are required 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 2015 and 2014 Other Indefinite-lived Intangible Assets
In the fourth quarter of 2015 and 2014, in conjunction with our annual testing of indefinite-lived intangible assets not subject
to amortization, we recorded a non-cash impairment charge of approximately $2.1 million and $10.0 million, respectively,
related to Physician Staffing trade names. We reduced our long-term revenue forecast in the fourth quarter of each year 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 Intangible Assets to our consolidated
financial statements.
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 Measurements. 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, 2016, we had total goodwill and intangible assets not subject to amortization of $115.1
million or 30.0% of our total assets.
37
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, 2016 and 2015, we had $4.1 million and $3.0 million accrued, respectively, for incurred but not reported health
insurance claims. Corporate and field employees are covered through a partially self-insured health plan. 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, 2016, and 2015, we had $11.0 million and $11.5 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 semi-annually. As of December 31, 2016, and 2015, we had $6.6 million and $6.4 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 by an independent actuary semi-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
maintain a sales allowance for estimated future billing adjustments resulting from client concessions or resolutions of billing
disputes.
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 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 business is recognized on a gross basis as we believe we are the principal in the
arrangements.
Allowances
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. In addition, we maintain a sales allowance for customer
disputes which may arise in the ordinary course, which is recorded as contra-revenue. Historically, losses on uncollectible
accounts and sales allowances have not exceeded our allowances. As of December 31, 2016, our total allowances were $3.2
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.
38
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, 2016, we have deferred tax assets related to certain
federal, state and foreign net operating loss carryforwards of $17.2 million. The state carryforwards will expire between 2016
and 2034. The federal carryforwards expire between 2031 and 2034. The majority of the foreign carryforwards are in a
jurisdiction with no expiration.
As of December 31, 2016 and 2015, we had valuation allowances on our deferred tax assets of $46.5 million and $55.3
million, respectively. We intend to maintain a valuation allowance until sufficient positive evidence exists to support its
reversal. See Note 13 - Income Taxes to our consolidated financial statements.
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, 2016, total unrecognized tax benefits recorded was $5.2 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.
Embedded derivative
See Note 9 - Convertible Notes Derivative Liability to our consolidated financial statements.
Recent Accounting Pronouncements
See Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements.
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. We also expect our education and school business to experience lower demand in the summer months when public
and charter schools are closed. This historical seasonality of revenue and earnings may vary due to a variety of factors and the
results of any one quarter are not necessarily indicative of the results to be expected for any other quarter or for any year. In
addition, typically, our first quarter results are negatively impacted by the reset of payroll taxes.
Inflation
We do not believe that inflation had a significant impact on our results of operations for the periods presented. On an ongoing
basis, we seek to ensure that billing rates reflect increases in costs due to inflation. In addition, we attempt to minimize any
residual impact on our operating results by controlling operating costs.
39
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 Facilities.
During the year ended December 31, 2016 or 2015, we did not use interest rate swaps or other types of derivative financial
instruments to hedge our interest rate risk. Our current credit agreement charges us interest at a rate of LIBOR plus a leverage-
based margin. See Note 8 - Debt to our consolidated financial statements for further information.
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 $0.4
million in the years ended December 31, 2016 and 2015.
Derivative Liability Risk
As of December 31, 2016, 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. 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 consolidated
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 well as changes in our
credit profile. 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. See Note 9 - Convertible Notes Derivative Liability to
our consolidated financial statements.
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
translation adjustments are recorded in stockholders’ equity, as a component of accumulated other comprehensive loss,
included in other stockholders’ equity on our consolidated balance sheets.
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.
On April 15, 2015, the Company engaged Deloitte & Touche LLP (Deloitte) as its new independent registered public
accounting firm for the year ending December 31, 2015. The engagement was previously approved by the Audit Committee of
the Board of Directors of the Company. The Company requested stockholder ratification of its appointment of Deloitte at its
Annual Meeting of Stockholders held on May 12, 2015.
40
During the fiscal year ended December 31, 2014 and the subsequent interim periods through April 15, 2015, neither the
Company nor anyone on its behalf has consulted with Deloitte regarding (i) the application of accounting principles to a
specific transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s
financial statements, and neither a written report nor oral advice was provided to the Company that Deloitte concluded was an
important factor considered by the Company in reaching a decision as to any accounting, auditing, or financial reporting issue,
(ii) any matter that was the subject of a disagreement within the meaning of Item 304(a)(1)(iv) of Regulation S-K, or (iii) any
reportable event within the meaning of Item 304(a)(1)(v) of Regulation S-K.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our "disclosure controls and procedures" (as defined in
Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act), as of the end of the
period covered by this report. Based upon the evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures are effective. Disclosure controls and procedures are designed to ensure that
information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed,
summarized, communicated to management, including the Chief Executive Officer and the Chief Financial Officer, and
reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. The disclosure
controls and procedures are designed to ensure that information required to be disclosed by us in reports required under the
Exchange Act of 1934, as amended, is accumulated and communicated to our management, including the Chief Executive
Officer and Chief Financial Officer, in order to allow timely decisions regarding any required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31,
2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as 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,
2016. 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 (2013 framework).
Based on its evaluation, management concluded that, as of December 31, 2016, our 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, 2016, has been audited by Deloitte &
Touche LLP, an independent registered public accounting firm, as stated in their attestation report included in this Annual
Report on Form 10-K.
Item 9B. Other Information.
None.
41
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
2017 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, 2016, 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)
188,213
$
None
188,213
$
5.72
N/A
5.72
589,269
N/A
589,269
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.
42
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 Firms
Consolidated Balance Sheets as of December 31, 2016 and 2015
Consolidated Statements of Operations for the Years Ended December 31, 2016, 2015, and 2014
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2016,
2015, and 2014
Consolidated Statement of Stockholders’ Equity for the Years Ended December 31, 2016, 2015, and
2014
Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015, and 2014
Notes to Consolidated Financial Statements
(2) Financial Statements Schedule
Schedule II – Valuation and Qualifying Accounts for the Years Ended December 31, 2016, 2015, and
2014
(3) Exhibits
See Exhibit Index immediately following signatures.
43
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: President, Chief Executive Officer, Director
Principal Executive Officer
Date: March 3, 2017
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons in
the capacities indicated and on the dates indicated:
Signature
Title
Date
/s/ William J. Grubbs
William J. Grubbs
President, Chief Executive Officer, Director
(Principal Executive Officer)
/s/ William J. Burns
William J. Burns
EVP & Chief Financial Officer
(Principal Accounting and Financial Officer)
/s/ W. Larry Cash
W. Larry Cash
/s/ Thomas C. Dircks
Thomas C. Dircks
/s/ Gale Fitzgerald
Gale Fitzgerald
/s/ Richard M. Mastaler
Richard M. Mastaler
/s/ Mark Perlberg
Mark Perlberg
/s/ Joseph A. Trunfio
Joseph A. Trunfio
Director
Director
Director
Director
Director
Director
March 3, 2017
March 3, 2017
March 3, 2017
March 3, 2017
March 3, 2017
March 3, 2017
March 3, 2017
March 3, 2017
44
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
10.10
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 Form 10-K for
the year ended December 31, 2015 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.)
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.)
Lease Agreement, dated July 1, 2010, between Goldberg Brothers Real Estate LLC and MCVT, Inc. (Previously
filed as an exhibit to the Company’s Form 10-Q for the quarter ended June 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.)
10.11 # Amended and Restated Executive Severance Plan of Cross Country Healthcare, Inc. (Previously filed as an exhibit
10.12
10.13
10.14
to the Company’s Form 8-K dated May 28, 2010 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.)
45
No.
10.15
EXHIBIT INDEX (CONTINUED)
Description
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.)
10.16 # Employment Agreement, dated March 3, 2014, between William J. Burns and Cross Country Healthcare, Inc.
10.17
10.18
10.19
10.20
(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.)
10.21 # 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. (Previously filed as an exhibit to the Company's Form 10-K for the year ended December 31, 2014 and
incorporated by reference herein.)
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
First Amendment to Lease Agreement by and between Fairfax Boca 92 L.P. and Medical Staffing Network, Inc.,
dated July 31, 2001 (Previously filed as an exhibit to the Company's Form 10-K for the year ended December 31,
2014 and incorporated by reference herein.)
Second Amendment to Lease Agreement by and between Fairfax Boca 92 L.P. and Medical Staffing Network, Inc.,
dated March 20, 2002 (Previously filed as an exhibit to the Company's Form 10-K for the year ended December 31,
2014 and incorporated by reference herein.)
Third Amendment to Lease Agreement by and between Fairfax Boca 92 L.P. and Medical Staffing Network, Inc.,
dated May 14, 2002 (Previously filed as an exhibit to the Company's Form 10-K for the year ended December 31,
2014 and incorporated by reference herein.)
Fourth Amendment to Lease Agreement by and between Fairfax Boca 92 L.P. and Medical Staffing Network, Inc.,
dated December 13, 2002 (Previously filed as an exhibit to the Company's Form 10-K for the year ended December
31, 2014 and incorporated by reference herein.)
Fifth Amendment to Lease Agreement by and between Fairfax Boca 92 L.P. and Medical Staffing Network, Inc.,
dated February 11, 2003 (Previously filed as an exhibit to the Company's Form 10-K for the year ended December
31, 2014 and incorporated by reference herein.)
Sixth Amendment to Lease Agreement by and between Teachers Insurance and Annuity Association of America
and Medical Staffing Network, LLC, dated January 3, 2011 (Previously filed as an exhibit to the Company's Form
10-K for the year ended December 31, 2014 and incorporated by reference herein.)
Seventh Amendment to Lease Agreement by and between Teachers Insurance and Annuity Association of America
and Medical Staffing Network, LLC, dated March 1, 2011 (Previously filed as an exhibit to the Company's Form
10-K for the year ended December 31, 2014 and incorporated by reference herein.)
Eighth Amendment to Lease Agreement by and between Teachers Insurance and Annuity Association of America,
and Medical Staffing Network, LLC, dated November 22, 2011 (Previously filed as an exhibit to the Company's
Form 10-K for the year ended December 31, 2014 and incorporated by reference herein.)
Second Amendment to Second Lien Loan and Security Agreement, dated July 22, 2015, by and among Cross
Country Healthcare, Inc., as borrower, certain of its domestic subsidiaries, as guarantors, the lenders party thereto,
and BSP Agency, LLC, as agent (Previously filed as an exhibit to the Company’s Form 8-K dated July 23, 2015 and
incorporated by reference herein.)
46
No.
10.32
10.33
10.34
10.35
10.36
10.37
10.38 #
10.39 #
10.40 #
10.41
10.42
10.43
10.44 #
10.45
10.46
10.47
10.48
EXHIBIT INDEX (CONTINUED)
Description
Agreement and Plan of Merger, dated as of July 27, 2015, by and among Cross Country Education, LLC, Cross
Country Healthcare, Inc., CC Education, LLC and PES, Inc. (Previously filed as an exhibit to the Company's
Form 8-K dated July 30, 2015 and incorporated by reference herein)
Fourth Amendment to Lease Agreement by and between Granite Meridian LLC and Cross Country Healthcare,
Inc., dated September 29, 2015 (Previously filed as an exhibit to the Company’s Form 8-K dated October 2, 2015
and incorporated by reference herein.)
Ninth Amendment to Lease Agreement by and between Mainstreet CV North 40, LLC and Cross Country
Healthcare, Inc., dated September 29, 2015 (Previously filed as an exhibit to the Company’s Form 8-K dated
October 2, 2015 and incorporated by reference herein.)
Lease Agreement by and between Mainstreet CV North 40, LLC and Cross Country Healthcare, Inc., dated
September 29, 2015 (Previously filed as an exhibit to the Company’s Form 8-K dated October 2, 2015 and
incorporated by reference herein.)
Stock Purchase Agreement, dated October 19, 2015, by and among Cross Country Healthcare, Inc. and Dennis
Ducham, Emily Serebryany, Emily Serebryany Trust dated 4/16/14, Val Serebryany, and Val Serebryany Family
Trust dated 2/18/14 (Previously filed as an exhibit to the Company's Form 8-K dated October 20, 2015 and
incorporated by reference herein)
Asset Purchase Agreement between Mediscan, Inc. and Direct Ed Solutions, Inc. and Mihal Spiegel, dated August
19, 2014 (Previously filed as an exhibit to the Company's Form 8-K dated November 3, 2015 and incorporated by
reference herein.)
Employment Agreement between Cross Country Healthcare, Inc. and Dennis Ducham, dated October 30, 2015
(Previously filed as an exhibit to the Company's Form 8-K dated November 3, 2015 and incorporated by reference
herein.)
Employment Agreement between Cross Country Healthcare, Inc. and Val Serebryany, dated October 30, 2015
(Previously filed as an exhibit to the Company's Form 8-K dated November 3, 2015 and incorporated by reference
herein.)
Restricted Stock Agreement between Cross Country Healthcare, Inc. and New Mediscan Diagnostic Services,
Inc., dated October 30, 2015 (Previously filed as an exhibit to the Company's Form 8-K dated November 3, 2015
and incorporated by reference herein.)
Lease Agreement between Golden Egg, LLC and Mediscan Staffing Services, dba Mediscan Diagnostics,
Mediscan Therapy Inc., Direct Ed Solutions, and Direct Ed Specialized Services, dated August 4, 2015
(Previously filed as an exhibit to the Company's Form 8-K dated November 3, 2015 and incorporated by reference
herein.)
First Amendment to Lease Agreement between Golden Egg, LLC and Mediscan Diagnostic Services, Mediscan
Nursing Staffing, Direct Ed Solutions, and Direct Ed Specialized Services, dated October 30, 2015 (Previously
filed as an exhibit to the Company's Form 8-K dated November 3, 2015 and incorporated by reference herein.)
Third Amendment to Lease Agreement between RNSI City Place Owner, LLC and Cejka Search, Inc., dated
December 2, 2015 (Previously filed as an exhibit to the Company's Form 10-KA for the year ended December 31,
2015 and incorporated by reference herein.)
Employment Agreement, dated as of March 9, 2016, between William J. Grubbs and the Registrant (Previously
filed as an exhibit to the Company's Form 10-K for the year ended December 31, 2015 and incorporated by
reference herein.)
Credit Agreement, dated June 22, 2016, by and among Cross Country Healthcare, Inc., as borrower, certain of its
domestic subsidiaries, as guarantors, the Lenders referenced therein, and Suntrust Bank, as agent (previously filed
as an exhibit to the Company's Form 8-K dated June 22, 2016 and incorporated by reference herein.)
Tenth Amendment to Lease agreement between Mainstreet CV North 40, LLC and Cross Country Healthcare,
Inc., dated September 19, 2016 (Previously filed as an exhibit to the Company’s Form 10-Q for the quarter ended
September 30, 2016 and incorporated by reference herein.)
Amendment to Lease agreement between Mainstreet CV North 40, LLC and Cross Country Healthcare, Inc.,
dated September 19, 2016 (Previously filed as an exhibit to the Company’s Form 10-Q for the quarter ended
September 30, 2016 and incorporated by reference herein.)
Amendment No. 2, dated October 31, 2016 to Convertible Note Purchase Agreement, dated June 30, 2014,
among Cross Country Healthcare, Inc., the Guarantor subsidiaries of the Company named therein, and the
Noteholders named therein (Previously filed as an exhibit to the Company’s Form 10-Q for the quarter ended
September 30, 2016 and incorporated by reference herein.)
*10.49
Amendment No. 3, dated December 27, 2016 to Convertible Note Purchase Agreement, dated June 30, 2014,
among Cross Country Healthcare, Inc., the Guarantor subsidiaries of the Company named therein, and the
Noteholders named therein.
47
EXHIBIT INDEX (CONTINUED)
No.
14.1
16.1
18.1
*21.1
*23.1
*23.2
*31.1
*31.2
*32.1
*32.2
Description
Code of Ethics, revised February 2, 2016 (Previously filed as an exhibit to the Company's Form 10-K for the year
ended December 31, 2015 and incorporated by reference herein.)
Letter re Change in Certifying Accountant (Previously filed as exhibit to the Company's Form 8-K dated March
13, 2015 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 Deloitte & Touche LLP, Independent Registered Public Accounting Firm
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, Chief Executive Officer, Director (Principal 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, EVP & Chief Financial Officer (Principal Accounting and 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, President, Chief Executive Officer, Director (Principal 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, EVP & Chief Financial Officer (Principal Accounting and 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
________________
# Represents a management contract or compensatory plan or arrangement
* Filed herewith
** Furnished herewith
48
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Cross Country Healthcare, Inc.
Report of Independent Registered Public Accounting Firm 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F- 2
Report of Independent Registered Public Accounting Firm 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F- 4
Consolidated Balance Sheets as of December 31, 2016 and 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F- 5
Consolidated Statements of Operations for the Years Ended December 31, 2016, 2015, and 2014 . . . . . . . . . . . . . . . . . . . .
F- 6
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2016, 2015, and 2014 . . . .
F- 7
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2016, 2015, and 2014 . . . . . . . . . . . .
F- 8
Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015, and 2014 . . . . . . . . . . . . . . . . . . .
F- 9
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F- 10
Financial Statement Schedule
Schedule II – Valuation and Qualifying Accounts for the Years Ended December 31, 2016, 2015, and 2014 . . . . . . . . . . . .
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
To the Board of Directors and Stockholders of
Cross Country Healthcare, Inc.
Boca Raton, Florida
We have audited the accompanying consolidated balance sheets of Cross Country Healthcare, Inc. and subsidiaries (the
"Company") as of December 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive income
(loss), stockholders' equity, and cash flows for each of the two years in the period ended December 31, 2016. Our audits also
included the financial statement schedule listed in the Index at Item 15. We also have audited the Company's internal control
over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is
responsible for these financial statements and financial statement schedule, 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 these financial statements and financial statement schedule and an opinion on the Company's internal control over financial
reporting 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 and whether effective internal control over financial reporting was maintained in
all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's
principal executive and principal financial officers, or persons performing similar functions, and effected by the company's
board of directors, management, and other personnel 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 the inherent limitations of internal control over financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
F- 2
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Cross Country Healthcare, Inc. and subsidiaries as of December 31, 2016 and 2015, and the results of their
operations and their cash flows for each of the two years in the period ended December 31, 2016, in conformity with
accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein. Also, in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2016, based on the criteria established in Internal Control
- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
/s/ DELOITTE & TOUCHE LLP
Certified Public Accountants
Boca Raton, Florida
March 3, 2017
F- 3
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 statements of operations, comprehensive loss, stockholders’ equity and cash
flows of Cross Country Healthcare, Inc. and subsidiaries for the year ended December 31, 2014. Our audit 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 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 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of
operations and cash flows of Cross Country Healthcare, Inc. and subsidiaries for the year ended December 31, 2014, in
conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Certified Public Accountants
Boca Raton, Florida
March 6, 2015
F- 4
CROSS COUNTRY HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except for share data)
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowances of $3,245 in 2016 and $4,045 in 2015
Prepaid expenses
Insurance recovery receivable
Other current assets
Total current assets
Property and equipment
Trade names, indefinite-lived
Goodwill
Other intangible assets subject to amortization, net of accumulated amortization of $43,333 in 2016
and $38,419 in 2015
Debt issuance costs, net
Other non-current assets
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
Deferred purchase price
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
Contingent consideration
Other long-term liabilities
Total liabilities
Commitments and contingencies
Stockholders' equity:
Common stock—$0.0001 par value; 100,000,000 shares authorized; 32,339,285 and 31,951,960
shares issued and outstanding at December 31, 2016 and 2015, 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
December 31,
2016
2015
$
$
$
20,630
173,620
6,126
3,037
2,198
205,611
12,818
35,402
79,648
36,835
929
17,135
388,378
58,837
33,243
2,263
—
2,749
97,092
84,760
13,154
28,870
5,301
7,399
236,576
2,453
146,873
4,521
2,866
2,032
158,745
10,470
36,101
95,096
46,813
376
17,994
365,595
41,098
29,402
8,071
2,184
5,291
86,046
81,301
18,475
30,070
3,533
4,826
224,251
3
256,570
(1,241)
(104,089)
151,243
559
151,802
388,378
$
3
254,108
(1,207)
(112,056)
140,848
496
141,344
365,595
$
$
$
$
See accompanying notes.
F- 5
CROSS COUNTRY HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)
Year Ended December 31,
2015
2014
2016
Revenue from services
Operating expenses:
Direct operating expenses
Selling, general, and administrative expenses
Bad debt expense
Depreciation
Amortization
Loss on sale of business
Acquisition-related contingent consideration
Acquisition and integration costs
Restructuring costs
Impairment charges
Total operating expenses
$
833,537
$
767,421
$
617,825
611,802
179,820
593
4,168
5,014
—
814
78
753
24,311
827,353
570,056
161,275
999
3,856
4,210
2,184
—
902
1,274
2,100
746,856
460,021
141,018
1,016
3,866
3,575
—
—
7,957
840
10,000
628,293
Income (loss) from operations
6,184
20,565
(10,468)
Other expenses (income):
Interest expense
(Gain) loss on derivative liability
Loss on early extinguishment of debt
Other (income) expense, net
Income (loss) before income taxes
Income tax (benefit) expense
Consolidated net income (loss)
Less: Net income attributable to noncontrolling interest in subsidiary
Net income (loss) attributable to common shareholders
Net income (loss) per share attributable to common shareholders - Basic
Net income (loss) per share attributable to common shareholders - Diluted
Weighted average common shares outstanding:
Basic
Diluted
See accompanying notes.
6,106
(5,805)
1,568
(230)
4,545
(4,186)
8,731
764
7,967
0.25
0.15
$
$
$
$
$
$
6,810
9,901
—
(306)
4,160
(794)
4,954
536
4,418
0.14
0.14
$
$
$
4,160
16,671
—
19
(31,318)
216
(31,534)
249
(31,783)
(1.02)
(1.02)
32,132
36,246
31,514
32,162
31,190
31,190
F- 6
CROSS COUNTRY HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(amounts in thousands)
Year Ended December 31,
2016
2015
2014
Consolidated net income (loss)
$
8,731
$
4,954
$
(31,534)
Other comprehensive (loss) income, before income taxes:
Unrealized foreign currency translation (loss) gain
Other comprehensive (loss) income, before income taxes
Income tax expense related to items of other comprehensive (loss)
income
Other comprehensive loss, net of taxes
Comprehensive income (loss)
Less: Net income attributable to noncontrolling interest in subsidiary
(34)
(34)
—
(34)
8,697
764
(89)
(89)
—
(89)
14
14
162
(148)
4,865
536
(31,682)
249
Comprehensive income (loss) attributable to common shareholders
$
7,933
$
4,329
$
(31,931)
See accompanying notes.
F- 7
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
(84,691) $
—
— $
—
$ 246,325
$
(970) $
—
(245)
1,387
—
—
—
—
—
—
—
(148)
—
—
—
247,467
(1,118)
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
Exercise of stock options
Vesting of restricted stock
Equity compensation
Foreign currency translation
adjustment, net of deferred taxes
Acquisition of Mediscan
Distribution to noncontrolling
shareholder
Net income
119
191
—
—
350
—
—
Balances at December 31, 2015
31,952
Exercise of stock options
Vesting of restricted stock and
performance stock awards
Equity compensation
Foreign currency translation
adjustment, net of deferred taxes
Distribution to noncontrolling
shareholder
Net income
103
284
—
—
—
—
Balances at December 31, 2016
32,339
$
3
—
—
—
—
—
—
—
3
—
—
—
—
—
—
—
3
—
—
—
—
—
—
3
—
(543)
2,460
—
4,724
—
—
254,108
—
(917)
3,379
—
—
—
—
—
—
—
—
(31,783)
(116,474)
—
—
—
—
—
—
4,418
—
—
—
(89)
—
—
—
(1,207)
(112,056)
—
—
—
(34)
—
—
—
—
—
—
—
7,967
160,667
—
(245)
1,387
(148)
324
(119)
(31,534)
130,332
—
(543)
2,460
(89)
4,724
(494)
4,954
141,344
—
(917)
3,379
(34)
(701)
8,731
$
151,802
—
—
—
324
(119)
249
454
—
—
—
—
—
(494)
536
496
—
—
—
—
(701)
764
559
$ 256,570
$
(1,241) $
(104,089) $
See accompanying notes.
F- 8
CROSS COUNTRY HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
Cash flows from operating activities
Consolidated net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Year Ended December 31,
2015
2014
2016
$
8,731
$
4,954
$
(31,534)
Depreciation and amortization
Amortization of debt discount and debt issuance costs
Provision for allowances
Deferred income tax benefit
(Gain) loss on derivative liability
Acquisition-related contingent consideration
Impairment charges
Loss on early extinguishment of debt
Equity compensation
Other noncash costs, including loss on sale of business
Changes in operating assets and liabilities:
Accounts receivable
Prepaid expenses and other assets
Income taxes
Accounts payable and accrued expenses
Other liabilities
Net cash provided by (used in) operating activities
Cash flows from investing activities
Proceeds from sale of business
Acquisitions, net of cash acquired
Acquisition-related settlements - Medical Staffing Network
Acquisition-related settlements - Mediscan
Transaction costs related to sale of business
Purchases of property and equipment
Net cash used in investing activities
Cash flows from financing activities
Proceeds from borrowing on Senior Credit Facility
Debt issuance costs
Principal payment on Senior Credit Facility
Principal payments on Second Lien Term Loan
Extinguishment fees
Borrowings under Senior Secured Asset-Based revolving credit facility
Repayments on Senior Secured Asset-Based revolving credit facility
Proceeds from borrowing on Second Lien Term Loan
Proceeds from borrowing on Convertible Note
Repayments of capital lease obligations
Cash paid for shares withheld for taxes
Payment of contingent consideration
Cash payments to noncontrolling shareholder
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash
Change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosure of cash flow information:
Interest paid
Income taxes paid
$
$
$
See accompanying notes.
F- 9
9,182
1,728
4,034
(5,322)
(5,805)
769
24,311
1,568
3,379
6
(30,781)
(1,882)
(497)
20,370
354
30,145
500
(1,900)
(2,155)
297
—
(6,522)
(9,780)
40,000
(1,182)
(500)
(30,000)
(641)
59,800
(67,800)
—
—
(71)
(917)
(152)
(701)
(2,164)
(24)
18,177
2,453
20,630
3,893
1,773
$
$
$
8,066
1,886
1,779
(1,544)
9,901
—
2,100
—
2,460
2,204
(28,708)
2,663
375
11,213
886
18,235
7,500
(28,721)
(149)
—
(338)
(2,362)
(24,070)
—
—
—
—
—
64,100
(59,600)
—
—
(108)
(543)
—
(494)
3,355
(62)
(2,542)
4,995
2,453
5,052
1,035
$
$
$
7,441
1,064
1,016
(857)
16,671
—
10,000
—
1,387
114
(16,119)
1,371
58
5,654
(338)
(4,072)
3,750
(44,631)
—
—
—
(4,571)
(45,452)
—
(1,093)
—
—
—
61,205
(66,105)
28,875
24,063
(122)
(245)
—
(119)
46,459
5
(3,060)
8,055
4,995
2,512
1,374
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
1. Organization and Basis of Presentation
Cross Country Healthcare, Inc. (the Company) was incorporated in Delaware on July 29, 1999 as a business providing travel
nurse and allied health staffing services. As of December 31, 2016, the Company is a leading national provider of nurse and
allied staffing, recruiting, and value-added workforce solution services, multi-specialty locum tenens (temporary physician
staffing) services, as well as a provider of other human capital management services focused on healthcare.
The consolidated financial statements include the accounts of the Company and its direct and indirect wholly-owned
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. All intercompany transactions and balances have been
eliminated in consolidation.
Certain prior year amounts have been reclassified to conform to the current year presentation. See consolidated balance sheets,
Note 13 - Income Taxes and Note 17 - Segment Data.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (U.S.
GAAP), requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial
statements and accompanying notes. Significant estimates and assumptions are used for, but not limited to: (1) the valuation of
accounts receivable; (2) goodwill, trade names, and other intangible assets; (3) other long-lived assets; (4) share-based
compensation; (5) accruals for health, workers’ compensation and professional liability claims; (6) valuation of deferred tax assets;
(7) purchase price allocation; (8) derivative liability; (9) legal contingencies; (10) contingent considerations; (11) income taxes;
and (12) 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 significantly 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 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. In addition, the Company maintains a sales allowance for customer disputes which may arise
in the ordinary course, which is recorded as contra-revenue. 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, 2016 and 2015, or revenue for the years
ended December 31, 2016, 2015 and 2014.
F- 10
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
2. Summary of Significant Accounting Policies (continued)
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
The Company applies accounting in accordance with the Business Combinations Topic of the FASB ASC when it acquires control
over a business. Business combinations are accounted for at fair value. The associated acquisition costs are expensed as incurred
and recorded as acquisition and integration costs; noncontrolling interests, if any, are reflected at fair value at the acquisition date;
restructuring costs associated with a business combination are expensed; contingent consideration is measured at fair value at the
acquisition date, with changes in the fair value after the acquisition date affecting earnings; and goodwill is determined as the
excess of the fair value of the consideration conveyed in the acquisition over the fair value of the net assets acquired. The
accounting for business combinations requires estimates and judgments as to expectations for future cash flows of the acquired
business, and the allocation of those cash flows to identifiable intangible assets, in determining the estimated fair value for assets
and liabilities acquired. The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based on
management's estimates and assumptions, including valuations that utilize customary valuation procedures and techniques. If the
actual results differ from the estimates and judgments used in these estimates, the amounts recorded in the financial statements
could result in a possible impairment of the intangible assets and goodwill, or require acceleration of the amortization expense of
finite-lived intangible assets. The results of the acquired businesses' operations are included in the consolidated statements of
operations of the combined entity beginning on the date of acquisition. See Note 3 - Acquisitions.
Goodwill, Trade Names, and Other 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 1 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 statements 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 annual 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 did not delay, accelerate, or avoid an impairment charge. This change is not applied retrospectively as it is
F- 11
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
2. Summary of Significant Accounting Policies (continued)
impracticable to do so because retrospective application would require application of significant estimates and assumptions with
the use of hindsight. Accordingly, the change was applied prospectively.
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
had four reporting units that it reviewed for impairment: 1) Nurse and Allied Staffing, 2) Physician Staffing, 3) Search, and 4)
Education Seminars. The fourth reporting unit, Education Seminars, was divested August 31, 2015. See Note 4 - Disposal and
Discontinued Operations.
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. 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 amount of the assets exceeds the fair value of the assets. See
Note 5 – Goodwill, Trade Names, and Other Intangible Assets.
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 - 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 are capitalized and presented in the balance sheet as a
direct deduction from the carrying amount of the debt liability. See Recently Adopted Accounting Pronouncements section. The
deferred costs are amortized using the effective interest method. Deferred costs related to the issuance of the Company’s Revolving
Credit Facility and Senior Secured Asset-Based Loan, as defined in Note 8 - 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 in accordance with the Derivatives and Hedging
Topic of the FASB ASC 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 statements 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- 12
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
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.
Insurance Claims
The Company provides workers’ compensation insurance coverage, professional liability coverage, and healthcare 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 healthcare 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.
The Other Expenses/Insurance Costs Topic of the FASB ASC previously issued authoritative accounting guidance in the area of
insurance contracts and related activity thereto. The Other Expenses/Insurance Costs Topic 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, 2016 and 2015 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, 2016 and 2015, the Company had outstanding approximately $20.2 million and $21.5
million, respectively, of 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 the Company and each working
professional in its nurse and allied healthcare business with coverage. Until January 1, 2016, the Company had an occurrence-
based professional liability policy for its independent contractor physicians and advanced practitioners which was insured by a
wholly-owned subsidiary, Jamestown Indemnity, Ltd., a wholly-owned Cayman Island captive company (the Captive), until its
voluntary liquidation in the third quarter of 2015. Beginning in March 2015, the Company's Physician subsidiary self-insured $0.5
million for each of its professional liability claims. Under the terms of the Captive’s reinsurance policy there was a requirement to
guarantee the payment of claims to its insured party’s primary medical malpractice insurance carrier via a letter of credit. As a
result of the Captive's liquidation, the letter of credit was reduced. As of both December 31, 2016 and 2015, the value of the letter
of credit was $2.0 million. Effective January 1, 2016, the Company has a claims-made professional liability policy for its
physicians and advanced practitioners.
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 advanced 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 reimbursable expenses in revenues, and
the associated amounts of reimbursable expenses in cost of services.
F- 13
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
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.
Billings to customers are based on specific contract provisions which may include approval of submitted time by our customers.
Accordingly, accounts receivable includes estimated revenue for employees’ and independent contractors’ time worked but not yet
invoiced. At December 31, 2016 and 2015, the Company's estimate of amounts that had not been billed totaled $41.2 million and
$18.4 million, respectively, and are included in accounts receivable on the consolidated balance sheets.
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.
Physician Staffing
The Physician Staffing business enters into contracts with its healthcare customers to provide temporary staffing services. The
Company uses independent contractors for these services. The Company determined that it acts as a principal in this arrangement
and, therefore, revenue is reported on a gross basis in the consolidated statements of operations.
Education Seminars
During the third quarter of 2015, the Company completed the sale of its education seminars business, Cross Country Education,
LLC (CCE). See Note 4 - Disposal and Discontinued Operations. Prior to the sale of CCE, revenue from the Company’s Education
Seminars services was recognized as the independent contractor-led seminars were performed. In the Company’s Education
Seminars business, revenue was recorded in the consolidated statements of operations on a gross basis as a principal versus on a
net basis as an agent.
Deferred Revenue
Amounts collected in advance of the services being substantially complete, related to our physician and executive search business,
are recorded as deferred revenue in other current liabilities on the consolidated balance sheets. At December 31, 2016 and 2015,
the Company had $0.9 million and $1.1 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 stock 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 used the Black-Scholes method
of valuing its options and stock appreciation rights. The Company has elected to recognize compensation expense on a straight-line
F- 14
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
2. Summary of Significant Accounting Policies (continued)
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 stock awards by reference to its stock price on the date of grant.
The Company granted performance-based stock 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 vest are determined based on the
level of attainment of the targets. If a minimum level of performance is attained for the awards, restricted stock is issued with a
vesting date in the future, subject to the employee's continuing employment. 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 used historical data of options with similar characteristics to estimate pre-vesting option forfeitures, as it believed
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 $3.4
million, $2.5 million, and $1.4 million during the years ended December 31, 2016, 2015 and 2014, respectively. Because the
Company had a full valuation allowance on its deferred tax assets, the granting and exercise of share-based payments during the
years ended December 31, 2016, 2015 and 2014 had no impact on the income tax provision. See Note 14 - Stockholders’ Equity.
Advertising
The Company’s advertising expense consists primarily of online advertising, internet direct marketing, print media, promotional
material and, prior to the sale of CCE, direct mail marketing. Advertising costs that were expensed as incurred totaled $10.2
million, $4.9 million, and $4.1 million for the years ended December 31, 2016, 2015 and 2014, respectively. Prior to the sale of
CCE, direct mail marketing costs associated with the Company’s education seminars services were capitalized when the Company
determined that there was a reasonable expectation that the cost of the incurred advertising would be recovered from the gross
profit generated by the advertised event and expensed when the related event took place. There are no such costs included in
prepaid expenses on the December 31, 2016 and 2015 consolidated balance sheets.
Restructuring Costs
The Company considers restructuring activities to be programs whereby it fundamentally changes its operations, such as closing
and consolidating facilities, reducing headcount and realigning operations in response to changing market conditions. As a result,
restructuring costs on the consolidated statements of operations include on-going benefit costs for its employees and exit costs.
Reconciliations of the beginning and ending total restructuring liability balances are presented below:
Year Ended December 31,
2016
2015
(amounts in thousands)
Balance at beginning of period
Charged to restructuring costs
Payments
Balance at end of period
$
On-Going
Benefit Costs
$
44 $
Exit Costs
338
190
(255)
273
On-Going
Benefit Costs
$
— $
633
(589)
44 $
$
Exit Costs
—
641
(303)
338
563
(282)
325 $
During the year ended December 31, 2014, restructuring costs included in the consolidated statements of operations were primarily
related to senior management employee severance pay.
Deferred Rent
Deferred rent consists of free rent, rent escalation, tenant improvement allowances, and other incentives received from landlords
related to the operating leases for our facilities. Rent escalation represents the difference between actual operating lease payments
due and straight-line rent expense, which we record over the term of the lease. The excess is recorded as a deferred credit in the
early periods of the lease, when cash payments are generally lower than straight-line rent expense, and is reduced in the later
periods of the lease when payments begin to exceed the straight-line expense. Tenant allowances from landlords for tenant
F- 15
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
2. Summary of Significant Accounting Policies (continued)
improvements are generally comprised of cash received from the landlord or paid on our behalf as part of the negotiated terms of
the lease. These tenant improvement allowances and other leasehold incentives are recorded when realizable as deferred rent and
are amortized as a reduction of periodic rent expense, over the term of the applicable lease. See Note 12 - Commitments and
Contingencies.
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.
The Company determines the need for a valuation allowance 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. See Note 13 - Income Taxes.
Comprehensive Income (Loss)
Total comprehensive income (loss) includes net income or loss and foreign currency translation adjustments, 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 $1.2 million at both
December 31, 2016 and 2015.
There was no income tax impact related to foreign currency translation adjustments for the periods ended December 31, 2016
and 2015. During the period ended December 31, 2014, $0.2 million of income tax expense related to foreign currency
translation adjustments was included on the Company's consolidated statements of comprehensive income (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. GAAP and expands disclosures about fair value
measurements. As of December 31, 2016 and 2015, the Company’s financial assets and liabilities required to be measured on a
recurring basis were its contingent consideration receivable, its deferred compensation liability, its convertible notes derivative
liability, and its contingent purchase price liabilities. See Note 10 - Fair Value Measurements.
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 available to common shareholders (numerator) by the weighted average number of vested unrestricted
common shares outstanding during the period (denominator). Diluted earnings per share gives effect to all dilutive potential
common shares outstanding during the period including stock appreciation rights and options and unvested restricted stock, as
calculated utilizing the treasury stock method, and Convertible Notes using the if-converted method.
F- 16
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
2. Summary of Significant Accounting Policies (continued)
Recently Adopted Accounting Pronouncements
In September 2015, the FASB issued Accounting Standards Update (ASU) No. 2015-16, Business Combinations (Topic 805),
Simplifying the Accounting for Measurement-Period Adjustments. This ASU requires that an acquirer recognize adjustments to
provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts
are determined. Prior to the issuance of the ASU, entities were required to retrospectively apply adjustments made to
provisional amounts recognized in a business combination. The Company adopted this guidance in the first quarter of 2016,
with no impact on its financial position and results of operations upon adoption. This new guidance may impact the Company
for potential measurement adjustments related to its acquisitions.
In April 2015, the FASB issued ASU No. 2015-05, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40),
Customers Accounting for Fees Paid in a Cloud Computing Arrangement, to help entities evaluate the accounting for fees paid
by a customer in a cloud computing arrangement. The amendment provides guidance to customers about whether a cloud
computing arrangement includes a software license. If a cloud computing arrangement includes a software license element, then
the customer should account for the software license element arrangement consistent with the acquisition of other software
licenses. If a cloud computing arrangement does not include a software license, the customer should account for the
arrangement as a service contract. The Company prospectively adopted this guidance in the first quarter of 2016, with no
impact on its consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-03, Interest-Imputation of Interest (Subtopic 835-30), Simplifying the
Presentation of Debt Issuance Costs. This guidance requires that debt issuance costs related to a recognized debt liability be
presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The Company adopted this
guidance in the first quarter of 2016, and reclassified $0.5 million of the Company's net debt issuance costs to long-term debt
and capital lease obligations in its consolidated balance sheets as of December 31, 2015.
Recent Accounting Pronouncements
In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for
Goodwill Impairment, to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the
goodwill impairment test. Under this guidance, an entity would perform its annual, or interim goodwill impairment test by
comparing the fair value of a reporting unit with its carrying amount. An impairment charge would be recognized for the
amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed
the total amount of goodwill allocated to that reporting unit. Additionally, an entity would consider income tax effects from any
tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if
applicable. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the
quantitative impairment test is necessary. ASU 2017-04 is effective for annual or any interim goodwill impairment tests in fiscal
years beginning after December 15, 2019 and is to be applied prospectively. Early adoption is permitted for interim or annual
goodwill impairment tests performed on testing dates after January 1, 2017. The Company expects to early adopt this standard
in its first quarter of 2017, and does not expect this guidance to have a material impact on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a
Business, which clarifies the definition of a business, with the objective of adding guidance to assist entities with evaluating
whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This update provides a
framework to assist entities in evaluating whether both an input and a substantive process are present, and narrows the
definition of the term output so that the term is consistent with how outputs are described in the new revenue recognition
standard. ASU 2017-01 is effective for annual periods beginning after December 15, 2017, and interim periods within those
annual periods. Early adoption is permitted depending upon the date of the transaction. Entities should apply the guidance
prospectively on or after the effective date. No disclosures are required at transition. The Company expects to adopt this
standard in its first quarter of 2018, and does not expect this guidance to have a material impact on its consolidated financial
statements.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash
Receipts and Cash Payments, which amends the guidance in ASC 230 on the classification of certain cash receipts and
payments in the statement of cash flows. This update intends to reduce the diversity that has resulted from the lack of consistent
principles on this topic by adding or clarifying guidance on eight cash flow issues, including: debt prepayment or debt
F- 17
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
2. Summary of Significant Accounting Policies (continued)
extinguishment costs, contingent consideration payments made after a business combination, and separately identifiable cash
flows and application of the predominance principle. ASU 2016-15 is effective for annual periods beginning after December 15,
2017, and interim periods within those annual periods. Early adoption is permitted. Entities must apply the guidance
retrospectively to all periods presented but may apply it prospectively from the earliest date practicable if retrospective
application would be impracticable. The Company expects to adopt this standard in its first quarter of 2018, and does not expect
this guidance to have a material impact on its consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718), Improvements to
Employee Share-Based Payment Accounting. The areas for simplification in this update involve several aspects of the
accounting for share-based payment transactions, including the income tax consequences, classification of awards as either
equity or liabilities, and classification on the statement of cash flows. This update revises the threshold to qualify for equity
classification to permit withholding up to the employer's maximum statutory tax rates in the applicable jurisdictions. ASU
2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods,
and early adoption is permitted. There are various methods of adoption for each aspect. Upon adoption, the Company will
recognize its previously unrecognized excess tax benefits using the modified retrospective transition method, which will result
in a cumulative-effect adjustment to retained earnings and deferred tax assets. In addition, upon adoption, the Company no
longer intends to calculate an estimate of expected forfeitures and will begin to recognize forfeitures as they occur, which will
result in a cumulative-effect decrease to retained earnings and a corresponding increase to additional paid-in capital. The
Company expects to adopt this standard in its first quarter of 2017.
In March 2016, the FASB issued ASU No. 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in
Debt Instruments, to clarify the steps required to assess whether a call or put option meets the criteria for bifurcation as an
embedded derivative. ASU 2016-06 is effective for interim and annual periods beginning after December 15, 2016, and requires
a modified retrospective approach to adoption. Early adoption is permitted. The Company expects to adopt this standard in its
first quarter of 2017, and does not expect this guidance to have an impact on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which will require, among other items, lessees to
recognize most leases as assets and liabilities on the balance sheet. Qualitative and quantitative disclosures will be enhanced to
better understand the amount, timing and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for fiscal
years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. Entities
are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest
comparative period in the financial statements. Full retrospective application is prohibited. The Company expects the valuation
of right of use assets and lease liabilities, previously described as operating leases, to be the present value of our forecasted
future lease commitments. The Company is continuing to assess the overall impacts of the new standard, including the discount
rate to be applied in these valuations. See Note 12 - Commitments and Contingencies.
In May 2014, the FASB and the International Accounting Standards Board jointly issued ASU No. 2014-09, Revenue from
Contracts with Customers (Topic 606), that introduces a new five-step revenue recognition model in which 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 or services. This ASU also requires disclosures sufficient
to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with
customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes
in judgments, and assets recognized from the costs to obtain or fulfill a contract. In March 2016, the FASB issued ASU 2016-08
which further clarifies the guidance on the principal versus agent considerations within ASU 2014-09. In April 2016, the FASB
issued ASU 2016-10 to expand the guidance on identifying performance obligations and licensing within ASU 2014-09. In May
2016, the FASB issued ASU 2016-12 to improve revenue recognition in the areas of collectability, presentation of sales tax and
other similar taxes collected from customers, non-cash consideration, contract modifications and completed contracts at
transition. This update also amends the disclosure requirements within ASU 2014-09 for entities that retrospectively apply the
guidance. The latest amendments are intended to address implementation issues that were raised by stakeholders and discussed
by the Revenue Recognition Transition Resource Group, and provide additional practical expedients. These updates are
effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. The
Company established a cross-functional implementation team consisting of representatives from across all of its business
segments. Management is in the process of reviewing its contract portfolio and its existing accounting policies and practices to
identify potential differences that would result from applying the requirements of the new standard to its contracts. Management
expects this assessment will continue throughout the first half of 2017. Once this phase has been completed, if applicable,
F- 18
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
2. Summary of Significant Accounting Policies (continued)
management intends to implement appropriate changes to its business processes, systems and controls to support the
recognition and disclosure under the new standard. The Company is continuing to assess which transition method it will use to
adopt this accounting standard and expects a full assessment by the fourth quarter of 2017.
3. Acquisitions
US Resources Healthcare
On December 1, 2016, the Company completed the acquisition of a recruitment process outsourcing business, US Resources
Healthcare, LLC (USR). This acquisition expands the Company's workforce solutions offerings to deliver financial and
operating efficiencies through labor optimization services while enhancing the quality of care.
The acquisition was deemed immaterial and has been accounted for in accordance with the Business Combinations Topic of the
FASB ASC, using the acquisition method of accounting. Acquisition-related expenses are included in the consolidated
statements of operations. USR's results of operations are included in the consolidated statements of operations from December
1, 2016 and have been included in the Company's Nurse and Allied Staffing business segment. See Note 5 - Goodwill, Trade
Names, and Other Intangible Assets and Note 10 - Fair Value Measurements.
Mediscan
On October 30, 2015, the Company completed the acquisition of all of the membership interests of New Mediscan II, LLC,
Mediscan Diagnostic Services, LLC, and Mediscan Nursing Staffing, LLC (collectively Mediscan) for a purchase price of
$29.9 million in cash ($28.0 million plus working capital estimate) and $4.7 million in shares (or 349,871 shares) of the
Company's Common Stock, subject to a net working capital adjustment. The shares of Common Stock issued in connection
with the acquisition were subject to a lockup period, which ended April 30, 2016. The Company financed the purchase price
through a combination of cash-on-hand and borrowings under the Company's senior credit facility. The transaction has been
treated as a purchase of assets for income tax purposes. In the first quarter of 2016, the net working capital adjustment was
settled consistent with the receivable balance as of December 31, 2015.
The agreement also specified that the sellers were eligible to receive additional purchase price consideration of $7.0 million,
with $3.5 million per year based on attainment of specific performance criteria in 2016 and 2017. As of December 31, 2016, the
Company determined that the first year earnout was not achieved for 2016 and as a result, only $3.5 million remains as a
potential earnout for 2017. As of December 31, 2016, the fair value of the remaining obligation was estimated at $0.7 million.
In connection with the Mediscan acquisition, the Company also assumed additional contingent purchase price liabilities for a
previously acquired business that are payable annually based on specific performance criteria for the 2016 through 2019 years.
Payments related to the 2016 through 2018 years are limited to $0.3 million per year and 2019 is uncapped. As of December 31,
2016, the fair value of the remaining obligations on an undiscounted basis was estimated at $3.6 million.
As of December 31, 2016, a total of $4.3 million was estimated as the fair value of these contingent consideration payments and
is included in other current liabilities and contingent consideration on the condensed consolidated balance sheets. See Note 10 -
Fair Value Measurements.
Mediscan provides temporary healthcare staffing and workforce solutions to both the healthcare and education markets - both
public and charter schools. While largely concentrated in California, Mediscan provides services across 11 states to more than 300
clients through more than 70 specialties. The Mediscan acquisition provides the Company a new customer base in the healthcare
staffing market for public schools and the workforce solutions arena for charter schools.
The acquisition has been accounted for in accordance with FASB ASC 805, Business Combinations, using the acquisition
method of accounting. Mediscan's results of operations are included in the consolidated statements of operations from October
30, 2015 and have been included in the Company's Nurse and Allied Staffing business segment. As such, the associated
goodwill related to the acquisition is fully allocated to Nurse and Allied Staffing.
The amounts of revenue and net income included in the Company's consolidated income statement from the acquisition date to
the period ended December 31, 2015 were $6.7 million and $0.3 million, respectively.
F- 19
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
3. Acquisitions (continued)
The following is the estimated fair value of the purchase price for Mediscan on October 30, 2015:
Cash purchase price paid at closing
Fair value of shares
Fair value of contingent consideration
Net working capital adjustment, including receivable
Total consideration
(amounts in thousands)
$
$
28,000
4,723
3,686
503
36,912
The purchase price was allocated to the assets acquired and the liabilities assumed based on the estimated fair value at the date
of acquisition. The following is the estimated fair value of the assets acquired and liabilities assumed on October 30, 2015.
Cash acquired
Accounts receivable
Other current assets
Property and equipment
Goodwill
Other intangible assets
Total assets acquired
Accounts payable and accrued expenses
Accrued employee compensation and benefits
Total liabilities assumed
Net assets acquired
(amounts in thousands)
$
$
79
6,851
140
20
14,338
17,200
38,628
306
1,410
1,716
36,912
The Company assigned the following values to other intangible assets: $3.2 million to trade names with a weighted average
estimated useful life of 11 years, $5.2 million to customer relations with an estimated useful life of 10 years, and $8.8 million to
a database with an estimated useful life of 10 years, for a total of $17.2 million in definite life intangible assets with a weighted
average estimated useful life of 10 years.
The remaining excess purchase price over the fair value of net assets acquired of $14.3 million was recorded as goodwill, which
is expected to be deductible for tax purposes. Associated acquisition costs incurred were $0.7 million and have been included in
acquisition and integration costs on the Company's consolidated statement of operations for the year ended December 31, 2015.
Medical Staffing Network
On June 30, 2014, the Company acquired substantially all of the assets and certain liabilities of Medical Staffing Network
Healthcare, LLC (MSN) for an aggregate purchase price of $47.1 million, net of $1.0 million cash acquired. 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. 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. An additional $2.5
million was deferred and due to the seller 21 months from the acquisition date, less any COBRA expenses incurred by the
Company on behalf of former MSN employees over that period. The Company incurred $0.4 million in COBRA expenses since
the MSN acquisition and, on April 1, 2016, released to the seller the remaining liability of $2.1 million.
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.
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
F- 20
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
3. Acquisitions (continued)
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 are included in the consolidated statements of operations from
July 1, 2014. The acquisition results are substantially reported through the Company's Nurse and Allied Staffing business
segment. As such, the associated goodwill related to the acquisition of MSN is fully allocated to Nurse and Allied Staffing.
The following table summarizes the fair value of the assets acquired and liabilities assumed. The Company used a third-party
appraiser to assist with the determination of the fair value and estimated useful lives of acquired assets and liabilities assumed
on June 30, 2014:
(amounts in thousands)
Cash acquired
Accounts receivable
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
$
$
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
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.
The Company assigned the following values to other 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
F- 21
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
3. Acquisitions (continued)
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,
including $2.2 million of costs directly attributable to the transaction (such as transaction and advisory fees) 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.
The Company has integrated the acquired businesses into its current operations. The MSN acquisition included the
consolidation of branch and corporate offices and therefore, it is impracticable to separate their results. Integration costs for the
years ended December 31, 2015 and 2014 include exit costs associated with redundant facilities and ongoing post-employment
termination costs.
Total Acquisition and Integration Liabilities
Reconciliations of the beginning and ending total acquisition and integration liability balances are presented below:
Year Ended December 31,
2016
2015
(amounts in thousands)
On-Going
Benefit
Costs
Exit Costs
On-Going
Benefit
Costs
Exit Costs
Balance at beginning of period
Charged to acquisition and integration costs
Reclassifications (a)
Payments
Balance at end of period
$
$
47 $
—
—
(47)
— $
46
—
—
(46)
— $
$
762 $
17
—
(732)
47 $
868
88
(255)
(655)
46
(a) Exit liability has been reduced as a result of a lease amendment and has been reclassified to deferred rent, which will be
amortized over the remaining lease term.
Pro Forma Financial Information
The following unaudited pro forma financial information approximates the consolidated results of operations of the Company
as if the Mediscan and MSN acquisitions had occurred as of January 1, 2014, 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 $0.8
million for the year ended December 31, 2015 related to the Mediscan acquisition and $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 or an estimate
of any impact on interest expense resulting from the operating cash flow of the acquired businesses, among other adjustments
that could be made in the future but are not factually supportable on the date of the transaction.
F- 22
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
3. Acquisitions (continued)
Year Ended December 31,
2015
2014
(unaudited, amounts in thousands except per share data)
$
$
$
800,353
5,436
0.17
$
$
$
771,955
(30,104)
(0.97)
Revenue from services
Net income (loss) attributable to common shareholders
Net income (loss) per common share attributable to common shareholders
- basic and diluted
4. Disposal and Discontinued Operations
Cross Country Education
On July 21, 2015, the Company's Board of Directors approved an agreement to sell the Company's education seminars
business, CCE, which provided in-person seminars to healthcare professionals and was non-core to the Company’s business.
The Company used the net proceeds from the transaction to finance, in part, the Mediscan acquisition in the fourth quarter of
2015. See Note 3 - Acquisitions. Since the disposal of the education seminars business did not represent a strategic shift that
would have a major effect on the Company’s operations and financial results, it was not reflected as discontinued operations.
On July 27, 2015, the Company entered into an Agreement and Plan of Merger to sell its wholly-owned subsidiary, CCE, to a
third party (Buyer). On August 31, 2015, the Company completed the sale of CCE to the Buyer. The Company received $8.0
million in cash, subject to a net working capital adjustment, of which $0.5 million was held in escrow for a period of 12 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. In September 2016, the full amount of escrow, which had been reflected as an escrow receivable,
was released to the Company.
The purchase price also included an earnout of up to $0.5 million related to the performance of CCE for the year ended
December 31, 2015, which was treated as contingent consideration. The Company assigned no fair value to this earnout as of
December 31, 2015 as the performance-based milestones were not met. See Note 10 - Fair Value Measurements. The original
escrow amount was released to the Buyer in the first quarter of 2016.
The operating results of CCE were included in the Other Human Capital Management Services segment. See Note 17 -
Segment Data for further information.
The Company recognized a pre-tax loss of $2.2 million related to the sale of the business, which is included in income (loss)
from operations in its consolidated statements of operations for the year ended December 31, 2015. In addition, the Company
recorded a tax benefit of $3.5 million from the reversal of valuation allowances associated with this business, resulting in an
after-tax gain on the sale of CCE of $1.3 million.
Clinical Trial Services
On February 15, 2013, the Company completed the sale of its clinical trial services business to a third party (Buyer) for an
aggregate $52.0 million in cash, subject to certain adjustments. Of the $52.0 million purchase price paid at closing, $3.8 million
was 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 total amount of the escrow was released to the
Company in August 2014 and reported as additional proceeds from the sale in the investing activities on its consolidated
statements of cash flows. The disposal of this business was previously presented as discontinued operations.
F- 23
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
5. Goodwill, Trade Names, and Other Intangible Assets
As of December 31, 2016 and 2015, the Company had the following acquired intangible assets:
December 31, 2016
December 31, 2015
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
(amounts in thousands)
Accumulated
Amortization
Net
Carrying
Amount
$
31,609
$
16,147
$
15,462
$
31,225
$
14,150
$
41,724
3,619
3,216
23,316
3,527
18,408
92
47,204
3,603
343
2,873
3,200
20,734
3,486
49
$
80,168
$
43,333
$
36,835
$
85,232
$
38,419
$
35,402
72,237
$
$
17,075
26,470
117
3,151
46,813
36,101
82,914
Intangible assets subject to
amortization:
Databases
Customer relationships
Non-compete agreements
Trade names, definite-
lived
Intangible assets not subject
to amortization:
Trade names
As of December 31, 2016, estimated annual amortization expense is as follows:
Years Ending December 31:
(amounts in thousands)
2017
2018
2019
2020
2021
Thereafter
$
$
4,248
4,148
4,111
4,007
3,799
16,522
36,835
F- 24
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
5. Goodwill, Trade Names, and Other Intangible Assets (continued)
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)
Balances as of December 31, 2015
Aggregate goodwill acquired
$
302,005
$
43,405
$
Sale of CCE (a)
Accumulated impairment loss
Goodwill, net of impairment loss
Changes to aggregate goodwill in 2016
Goodwill acquired (b)
Impairment charges
Balances as of December 31, 2016
Aggregate goodwill acquired
Sale of CCE (a)
Accumulated impairment loss
Goodwill, net of impairment loss
$
_______________
—
(259,732)
42,273
2,272
—
304,277
—
(259,732)
44,545
$
—
—
43,405
—
(17,720)
43,405
—
(17,720)
25,685
(a) See Note 4 - Disposal and Discontinued Operations.
(b) Goodwill acquired from the acquisition of USR. See Note 3 - Acquisitions.
2016 Impairment Charges
$
19,307
(9,889)
—
9,418
364,717
(9,889)
(259,732)
95,096
—
—
2,272
(17,720)
19,307
(9,889)
—
$
9,418
$
366,989
(9,889)
(277,452)
79,648
During an evaluation of goodwill, trade names, and other intangible assets at June 30, 2016, the Company determined that
indicators were present in the Physician Staffing reporting unit which would suggest the fair value of the reporting unit may
have declined below the carrying value. The Physician Staffing reporting unit continued to under-perform relative to
management’s expectations. The lower than expected revenue was driven by lower booking volumes partly due to the loss of
customers, and margins that were negatively impacted from continued investments in the business all through the first half of
2016. The Company considered these factors to be impairment indicators that warranted impairment testing of goodwill, trade
names, and other intangible assets.
As a result, an interim impairment test of goodwill, trade names, and other intangible assets was performed as of June 30, 2016
in accordance with the Intangibles-Goodwill and Other and Property, Plant, and Equipment Topics of the FASB ASC. The
evaluation resulted in the carrying value of goodwill, trade names, and other intangible assets for Physician Staffing to exceed
the estimated fair value. As a result, the Company recorded pre-tax impairment charges totaling $24.3 million: $17.7 million
related to goodwill, $0.6 million related to trade names, and $6.0 million related to customer relationships.
Goodwill
In order to determine the fair value of the Physician Staffing reporting unit, the Company used a combination of an income and
a market approach to calculate the fair value of the Physician Staffing reporting unit. The discounted cash flow that served as
the primary basis for the income approach was based on the Company’s discrete financial forecast of revenue, gross profit
margins, operating costs and cash flows. It also considered historical and estimated future results, general economic and market
conditions, as well as the impact of planned business and operational strategies. The assumptions used in the income approach
included a discount rate of 13.5% and a terminal value growth rate of 3.0% for cash flows beyond the discrete forecast period
of ten years. Assumptions used in the market approach included valuation multiples based on an analysis of multiples for
comparable public companies. The Company utilized total enterprise value/Earnings before Interest, Taxes, Depreciation, and
F- 25
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
5. Goodwill, Trade Names, and Other Intangible Assets (continued)
Amortization (EBITDA) multiples ranging from 7.5 to 8.5. A 50% weighting was applied to the components of each approach
to estimate the total fair value of goodwill. This weight is an estimate by management and was developed based on the specific
characteristics, risks and uncertainties of the Physician Staffing reporting unit. As a result of the testing, the Company compared
the implied fair value of goodwill to its carrying amount and recorded a non-cash pre-tax goodwill impairment charge of $17.7
million at June 30, 2016.
Trade Names
The Company valued the Physician Staffing trade names based on a Relief From Royalty methodology 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. The calculated value of the trade names was compared to its carrying amount and, as a
result, the Company recorded a non-cash pre-tax impairment charge of $0.6 million at June 30, 2016.
Customer Relationships
The Company valued the Physician Staffing customer relationships based on the Multi-Period Excess Earnings Method
(MPEEM). The MPEEM estimates the fair value based on the present value of the allocated future economic benefits. The
inputs include the projected revenue and associated expenses from the customers, an estimated attrition rate, and a discount rate
of 13.5%. The Company performed a recoverability test on the asset group which customers are a part of and deemed customer
relationships to be impaired. As a result, the calculated value of customer relationships was compared to its carrying amount
and the Company recorded a non-cash pre-tax impairment charge of $6.0 million at June 30, 2016.
2016 Annual Impairment Testing
The Company performed its annual impairment test as of October 1, 2016. Upon completion of the impairment testing, the
Company determined that no additional impairment of goodwill, trade names, or other intangible assets was warranted.
2015 and 2014 Impairment Charges
The Company performed its annual impairment test as of October 1, 2015 and 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, 2015 and 2014.
However, in conjunction with the annual impairment testing of trade names in the fourth quarter of 2015 and 2014, the
Company reduced its long-term revenue forecast for the business segment in the fourth quarter of each year and as a result, the
calculation of estimated fair value was less than the carrying amount of the trade names. As a result, the Company recorded pre-
tax non-cash impairment charges of $2.1 million and $10.0 million, respectively, related to the Physician Staffing segment.
The reduced long-term revenue forecast for 2015 was impacted by lower projected volume resulting from an under-investment
in new revenue producers to keep pace with attrition. The reduced long-term revenue forecast for 2014 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 discounted cash flows 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.
The Company based its fair value estimates on assumptions it believed to be reasonable, but such assumptions are subject to
inherent uncertainty. Actual results may differ from those estimates.
F- 26
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
6. Property and Equipment
At December 31, 2016 and 2015, 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.
Useful Lives
2016
2015
December 31,
3-5 years
3-5 years
5-7 years
5-7 years
(a)
(amounts in thousands)
$
13,584
$
28,752
2,397
3,969
7,257
55,959
(43,141)
12,818
$
$
12,335
27,565
2,241
3,411
4,286
49,838
(39,368)
10,470
F- 27
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
7. Balance Sheet Details
Insurance recovery receivable:
Insurance recovery for health
Insurance recovery for workers’ compensation
Insurance recovery for professional liability
Other non-current assets:
Insurance recovery for workers’ compensation – long-term
Insurance recovery for professional liability – long-term
Non-current security deposits
Accrued compensation and benefits:
Salaries and payroll taxes
Bonuses
Accrual for workers’ compensation claims
Accrual for professional liability insurance
Accrual for health care benefits
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
Long-term unrecognized tax benefits
Other
F- 28
December 31,
2016
2015
(amounts in thousands)
279
$
1,271
1,487
3,037
$
5,857
$
10,353
925
17,135
$
—
1,403
1,463
2,866
6,281
10,722
991
17,994
15,480
$
11,976
3,915
5,266
2,433
4,053
2,096
4,584
5,151
2,516
3,009
2,166
33,243
$
29,402
12,817
16,053
28,870
$
$
1,472
$
5,011
874
42
7,399
$
14,014
16,056
30,070
1,412
2,473
819
122
4,826
$
$
$
$
$
$
$
$
$
$
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
8. Debt
At December 31, 2016 and 2015, long-term debt consists of the following:
December 31, 2016
December 31, 2015
Unamortized
Discount and
Debt
Issuance
Costs
Principal
Unamortized
Discount and
Debt
Issuance
Costs
Principal
(amounts in thousands)
$
39,500
$
(363)
$
— $
—
—
—
25,000
27,532
23
92,055
(2,263)
89,792
$
$
—
—
(4,669)
—
—
(5,032)
—
(5,032)
$
8,000
30,000
25,000
33,337
94
96,431
(8,071)
88,360
$
—
(1,052)
(6,007)
—
—
(7,059)
—
(7,059)
Term Loan, interest 2.62%
Senior Secured Asset-Based, weighted average interest
2.41%
Second Lien Term Loan, interest 5.75%
Convertible Notes, fixed rate interest of 8.00%
Convertible Notes derivative liability
Capital lease obligations
Total debt
Less current portion
Long-term debt
As of December 31, 2016, the aggregate scheduled maturities of debt are as follows:
Through Years Ending December 31:
2017
2018
2019
2020
2021
Thereafter
Total
Term Loan
Convertible
Notes
Capital Leases
(amounts in thousands)
$
2,250
$
— $
3,750
3,500
4,000
26,000
—
—
—
25,000
—
—
$
39,500
$
25,000
$
13
8
2
—
—
—
23
At December 31, 2015, the Company had a senior secured asset-based revolving credit facility (First Lien Loan), with a
termination date of June 30, 2017, in the aggregate principal amount of up to $85.0 million, which included 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. The Company also had a five-year second lien term loan facility (Second
Lien Term Loan) in an aggregate principal amount of $30.0 million. The Company had the ability, at its option at any time, to
prepay the Second Lien Term Loan in whole or in part at the redemption prices set forth therein, which ranged 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 June 30, 2017.
F- 29
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
8. Debt (continued)
2016 Senior Credit Facilities
On June 22, 2016, the Company entered into a senior credit agreement (Credit Agreement), which provides a term loan of $40.0
million (Term Loan) and a revolving credit facility of up to $100.0 million (Revolving Credit Facility) (together with the Term
Loan, the Senior Credit Facilities) both of which mature in five years. The Revolving Credit Facility includes a subfacility for
swingline loans up to an amount not to exceed $15.0 million, and a $35.0 million sublimit for the issuance of standby letters of
credit. The Credit Agreement also includes a provision permitting the Company, subject to certain conditions, to increase the
aggregate amount of the commitments under the Revolving Credit Facility or establish one or more additional term loans in an
aggregate amount of up to $50.0 million with optional additional commitments from existing lenders or new commitments from
additional lenders. The Term Loan is payable in quarterly installments, with the first payment made September 30, 2016, and
each such installment being in the aggregate principal amount (subject to adjustment as a result of prepayments) equal to 1.25%
of the principal amount for the first four installments, 1.875% for the next eight installments and 2.50% of the principal amount
for the remaining installments.
Proceeds of the Senior Credit Facilities were used primarily to refinance the Company’s First Lien Loan and Second Lien Term
Loan and to pay related transaction fees and expenses, including a prepayment penalty of $0.6 million. In addition, as of June
22, 2016, $23.1 million of standby letters of credit issued under the First Lien Loan have been rolled into and been deemed
issued under the Revolving Credit Facility. The Revolving Credit Facility can be used to provide ongoing working capital, fund
permitted acquisitions and for other general corporate purposes of the Company and its subsidiaries.
The repayment of the Second Lien Term Loan was treated as extinguishment of debt and, as a result, the Company recognized a
loss on extinguishment of debt of approximately $1.6 million in the second quarter of 2016, related to the write-off of
unamortized net debt discount and issuance costs as well as transaction fees and expenses.
Subject to the Credit Agreement, the Company pays interest on (i) each Base Rate Loan at the Base Rate (as defined therein)
plus the Applicable Margin in effect from time to time, (ii) each LIBOR Index Rate Loan at the One Month LIBOR Index Rate
(as defined therein) plus the Applicable Margin in effect from time to time and (iii) each Eurodollar Loan at the Adjusted
LIBOR for the applicable Interest Period (as defined therein) in effect for such Loan plus the Applicable Margin in effect from
time to time. The Applicable Margin, as of any date, is a percentage per annum determined by reference to the applicable
Consolidated Net Leverage Ratio (as defined by the agreement) in effect on such date as set forth in the table below.
Level
Consolidated Net Leverage Ratio
I
II
III
IV
V
Less than 1.50:1.00
Greater than or equal to 1.50:1.00
but less than 2.00:1.00
Greater than or equal to 2.00:1.00
but less than 2.50:1.00
Greater than or equal to 2.50:1.00
but less than 3.00:1.00
Greater than or equal to 3.00:1.00
Eurodollar Loans,
LIBOR Index Rate
Loans and Letter of
Credit Fee
1.75%
2.00%
2.25%
2.50%
2.75%
Base Rate Loans
Commitment Fee
0.75%
1.00%
1.25%
1.50%
1.75%
0.25%
0.30%
0.30%
0.35%
0.40%
As of December 31, 2016, the Term Loan and Revolving Credit Facility bore interest at a rate equal to One Month LIBOR plus
200 basis points. The interest rate is subject to an increase of 200 basis points if an event of default exists under the Credit
Agreement. The Company is required to pay a commitment fee on the average daily unused portion of the Revolving Credit
Facility, based on the Applicable Margin which was 0.30% as of December 31, 2016.
The Company has the right at any time and from time to time to prepay any borrowing, in whole or in part, without premium or
penalty, by giving irrevocable written notice (or telephonic notice promptly confirmed in writing) except that such notice shall
be revocable if a prepayment is being made in anticipation of concluding a financing arrangement, and the Company is
ultimately unable to secure such financing arrangement. The Company is required to prepay the Senior Credit Facilities under
F- 30
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
8. Debt (continued)
certain circumstances including from net cash proceeds from asset sales or dispositions in excess of certain thresholds, as well
as from net cash proceeds from the issuance of certain debt by the Company.
The Credit Agreement contains customary representations, warranties, and affirmative covenants. The Credit Agreement also
contains customary negative covenants, subject to some exceptions, on (i) indebtedness and preferred equity, (ii) liens, (iii)
fundamental changes, (iv) investments, (v) restricted payments, and (vi) sale of assets and certain other restrictive agreements.
The Credit 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 the negative
covenants and other covenants related to the operation of the Company’s business. See Note 14 - Stockholders' Equity.
The Credit Agreement also includes two financial covenants, commencing with the fiscal quarter ending September 30, 2016:
(i) limiting a maximum Consolidated Total Leverage ratio (as defined therein) to be no greater than 3.50:1.00 for the fiscal
quarters ending September 30, 2016 through June 30, 2017, 3.25:1.00 for the fiscal quarters ending September 30, 2017
through June 30, 2018, and 3.00:1.00 for each fiscal quarter ending thereafter and as adjusted pursuant to a Qualified Permitted
Acquisition (as defined therein); and (ii) requiring a minimum Consolidated Fixed Charge Coverage ratio (as defined therein)
as of the end of each fiscal quarter of 1.50:1.00. As of December 31, 2016, the Company was in compliance with the financial
covenants and other covenants contained in the Credit Agreement.
The obligations under the Credit Agreement are guaranteed by all of the Company’s domestic wholly-owned subsidiaries. The
obligations under the Credit Agreement are secured by a first-priority security interest in the Collateral (as defined therein).
As of December 31, 2016, the Company had $22.2 million letters of credit outstanding and $77.8 million available under the
Revolving Credit Facility. The letters of credit relate to the Company’s workers’ compensation and professional liability
insurance policies.
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
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.
As of December 31, 2016, 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 from the issuance date, 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 equal to the amount determined by dividing (i) such conversion amount by (ii) the
conversion price in effect at the time of conversion provided that the number of shares of Common Stock issued upon
conversion, when aggregated with the aggregate number of shares of Common Stock previously issued upon conversion cannot
exceed 6,244,650 shares of Common Stock. If this share cap results in the issuance of fewer shares of Common Stock, the
Company will pay to the holders of the Convertible Notes an amount in cash equal to the product of (i) the number of shares
not delivered as a result of the cap and (ii) the 30-day VWAP as of the close of business on the Business Day immediately
preceding the conversion date. 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 multiplied by the 30-day VWAP as of
the closing of business on the Business Day immediately preceding the conversion date as well as any unpaid accrued interest.
F- 31
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
8. Debt (continued)
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 30-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.
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.
First Lien Loan Agreement (Terminated June 22, 2016)
The First Lien Loan was used to provide ongoing working capital and for other general corporate purposes of the Company and
its subsidiaries. As of December 31, 2015, the interest rate spreads and fees under the First Lien Loan Agreement were based on
LIBOR plus 1.50% or Base Rate plus 0.50%. The LIBOR and Base Rate margins were subject to performance pricing adjustments,
pursuant to a pricing matrix based on the Company’s excess availability under the revolving credit facility. The Company was
required to pay a monthly commitment fee on the average daily unused portion of the revolving loan facility, which, as of
December 31, 2015, was 0.375%.
As of December 31, 2015, the Gross Availability, as defined in the First Lien Loan Agreement, was approximately $71.6 million
based on the Company's accounts receivable balance as of November 30, 2015. The Company had $23.5 million letters of credit
outstanding and $8.0 million drawn under its revolving credit facility, leaving $40.1 million available as of December 31, 2015.
The letters of credit related to the Company’s workers’ compensation and professional liability insurance policies.
Second Lien Term Loan (Terminated June 22, 2016)
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.
The Second Lien Term Loan Agreement provided 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 Loan). 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.
F- 32
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
8. Debt (continued)
On July 22, 2015, the Company entered into an amendment to its Second Lien Term Loan. Under the terms of the amendment,
the interest rate on the Second Lien Term Loan was modified at no cost from 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 1% floor) plus
6.50% to LIBOR (1% floor) plus a rate based on the Company's total net leverage ratio. As of December 31, 2015, the Second
Lien Term Loan bore interest at a rate equal to adjusted LIBOR (1% floor) plus 4.75%. The interest rate was subject to an
increase by 200 basis points if an event of default exists under the Second Lien Term Loan Agreement. As of December 31,
2015, the Company was in compliance with the financial covenants and other covenants contained in the agreement.
9. Convertible Notes Derivative Liability
Derivative financial instruments, as defined in the Accounting for Derivative Financial Instruments and Hedging Activities
Topic of the FASB ASC, 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 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 the
Accounting for Derivative Financial Instruments and Hedging Activities Topic, in certain instances, these instruments are
required to be carried as derivative liabilities, at fair value, in our financial statements.
The Convertible Notes 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 the Accounting for
Derivative Financial Instruments and Hedging Activities Topic. Since this conversion feature is not considered to be solely
indexed to the Company’s own stock the derivative was recorded as a liability in the line item long-term debt on the Company's
consolidated balance sheets. See Note 8 - Debt.
The Company’s Convertible Notes derivative liability is measured at fair value 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 credit risk of the Company,
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 is 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, 2016
$15.61
$7.10
1.76%
40%
—%
3.5 years
The fair value of this derivative liability is primarily determined by fluctuations in our stock price. In addition, changes in our
credit risk profile impact the fair value determination. As of December 31, 2016, a $1 increase or decrease in our stock price
would result in a corresponding increase or decrease of approximately $3.5 million in the fair value of the derivative liability,
and a 1% increase or decrease in interest rates would result in a corresponding increase or decrease of approximately $0.8
F- 33
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
9. Convertible Notes Derivative Liability (continued)
million in the fair value of the derivative liability. These fluctuations result in a current period gain or loss that is presented on
the consolidated statements of operations as (gain) loss on derivative liability.
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.
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, 2016 and 2015, the Company’s financial assets/liabilities required to be measured on a recurring basis were:
contingent consideration receivable, deferred compensation liability included in other long-term liabilities, convertible notes
derivative liability included in long-term debt and capital lease obligations, and contingent purchase price liabilities included in
other current liabilities and contingent consideration on the consolidated balance sheets.
Contingent consideration receivable—In connection with the sale of CCE, the Company treated the related performance-based
earnout as a contingent consideration receivable for accounting purposes. The Company assigned no fair value to this earnout
as of December 31, 2015 as the performance milestones were not met. The amount escrowed for this earnout was released to
the buyer in the first quarter of 2016.
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.
Contingent purchase price liabilities—Potential earnout payments related to the acquisition of Mediscan and USR are
contingent upon meeting certain performance requirements through 2019. See Note 3 - Acquisitions. The long-term portion of
these liabilities is included in contingent consideration, and the short-term portion is included in other current liabilities on the
consolidated balance sheets. The Company utilized Level 3 inputs to value these contingent purchase price liabilities as
significant unobservable inputs were used in the calculation of their fair value. The Mediscan contingent consideration is
recorded as a liability and measured at fair value using a discounted cash flow model in a Monte Carlo simulation setting,
utilizing significant unobservable inputs, including the expected volatility of the acquisitions' gross profits and an estimated
discount rate commensurate with the risks of the expected gross profit stream. The USR contingent consideration is recorded as
a liability and measured at fair value using a discounted cash flow model utilizing significant unobservable inputs, including the
probability of achieving each of the potential milestones and an estimated discount rate commensurate with the risks of the
expected cash flows attributable to the milestones.
The fair value of contingent consideration and the associated liabilities will be adjusted to fair value at each reporting date until
actual settlement occurs, with the changes in fair value and related accretion reflected as acquisition-related contingent
consideration on the consolidated statements of operations. Significant increases (decreases) in the volatility or in any of the
F- 34
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
10. Fair Value Measurements (continued)
probabilities of success, or decreases (increases) in the discount rate would result in a significantly higher (lower) fair value,
respectively, and commensurate changes to these liabilities.
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, 2016 and 2015:
Fair Value Measurements
Financial Liabilities:
(Level 1)
Deferred compensation
(Level 3)
Convertible Notes derivative liability
Contingent purchase price liabilities
December 31, 2016
December 31, 2015
(amounts in thousands)
$
$
$
1,472
27,532
5,603
$
$
$
1,412
33,337
3,686
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, 2014
Additions
Valuation loss for the period
December 31, 2015
Additions
Payments
Accretion expense
Valuation gain for the period
December 31, 2016
_______________
Contingent Purchase
Convertible Notes
Price Liabilities (a)
Derivative Liability
(amounts in thousands)
— $
3,686
—
3,686
1,300
(152)
887
(118)
5,603
$
23,436
—
9,901
33,337
—
—
—
(5,805)
27,532
$
$
(a) Related to the Mediscan acquisition on October 30, 2015 and the USR acquisition on December 1, 2016. See Note 3 -
Acquisitions. Valuation gain and accretion expense is included as acquisition-related contingent consideration on the
consolidated statements of operations.
Items Measured at Fair Value on a Non-recurring Basis:
The Company's non-financial assets, such as goodwill, trade names, other intangible assets and property and equipment, are
measured at fair value when there is an indicator of impairment and are recorded at fair value only when an impairment charge
is recognized. During an evaluation of goodwill, trade names, and other intangible assets during the years ended December 31,
2016, 2015, and 2014, the carrying value of goodwill, trade names, and other intangible assets in the Physician Staffing
reporting unit exceeded their fair values. As a result, the Company recorded impairment charges that incorporates fair value
measurements based on Level 3 inputs. For further discussion on measuring the Company's non-financial assets, specifically
goodwill and trade names, and customer relationships. See Note 5 - Goodwill, Trade Names, and Other Intangible Assets.
F- 35
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
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 estimated fair value of the Company’s debt was calculated using a discounted cash flow
analysis and appropriate valuation methodologies using Level 2 inputs from 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, 2016
December 31, 2015
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
(amounts in thousands)
Financial Liabilities:
(Level 2)
Second Lien Term Loan, net
Term Loan, net
Convertible Notes, net
Senior Secured Asset-Based Loan
$
$
$
$
— $
39,137
20,331
$
$
— $
— $
28,948
$
41,500
27,250
$
$
— $
— $
18,993
8,000
$
$
30,600
—
23,250
8,000
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.
Contributions by the Company, net of forfeitures, under this plan amounted to $0.8 million, $0.7 million, and $0.6 million for
the years ended December 31, 2016, 2015, and 2014, 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 to $1.5 million and $1.4 million at December 31,
2016 and 2015, respectively.
F- 36
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
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 premises reductions, 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, 2016, associated with these agreements with terms of one year or more
are as follows:
Years Ending December 31:
(amounts in thousands)
2017
2018
2019
2020
2021
Thereafter
$
$
7,249
6,240
4,826
4,145
3,843
13,191
39,494
Total operating lease expense included in selling, general, and administrative expenses was approximately $8.4 million, $8.1
million, and $7.7 million for the years ending December 31, 2016, 2015, and 2014, 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 within other current liabilities as of December 31, 2016 and 2015, 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
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. For the year ended December 31, 2014, the Company
accrued an additional pre-tax liability related to the non-income tax matters of approximately $0.2 million, and paid
approximately $0.1 million to settle with certain states. In 2016, the Company paid approximately $1.4 million to settle with
certain states, which was fully reserved for at December 31, 2015. For the year ended December 31, 2016, the Company
recognized a pre-tax benefit of $0.8 million related to non-income tax matters. The expenses are included in selling, general,
and administrative expenses on the consolidated statements of operations for the years ended December 31, 2016, 2015, and
2014 and the liability is included in other current liabilities on the consolidated balance sheets as of December 31, 2016 and
2015.
F- 37
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
12. Commitments and Contingencies (continued)
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 filed in the United States District Court, Northern District of California. 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. The
Company does not believe the outcome of these other matters will have a material adverse effect on the Company’s business,
financial condition, results of operations or cash flows.
13. Income Taxes
The components of the Company’s income (loss) before income taxes are as follows:
United States
Foreign
Income (loss) before income taxes
Year Ended December 31,
2016
2015
2014
(amounts in thousands)
$
$
3,309
1,236
4,545
$
$
3,565
595
4,160
$
$
(33,574)
2,256
(31,318)
The components of the Company’s income tax (benefit) expense are as follows:
Current:
Federal
State
Foreign
Total
Deferred:
Federal
State
Foreign
Total
Total income tax (benefit) expense
Year Ended December 31,
2016
2015
2014
(amounts in thousands)
$
$
$
227
587
322
1,136
(4,114)
(866)
(342)
(5,322)
(4,186) $
$
551
(21)
220
750
(1,819)
8
267
(1,544)
(794) $
—
811
262
1,073
(1,320)
68
395
(857)
216
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- 38
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
13. Income Taxes (continued)
Significant components of the Company’s deferred tax assets and liabilities are as follows:
December 31,
2016
2015
(amounts in thousands)
Deferred Tax Assets:
Accrued other and prepaid expenses
Allowance for doubtful accounts
Intangible Assets
Net operating loss carryforwards
Derivative interest
Accrued professional liability
Accrued workers’ compensation
Share-based compensation
Credit carryforwards
Other
Gross deferred tax assets
Valuation allowance
Deferred Tax Liabilities:
Depreciation
Indefinite intangibles
Tax on unrepatriated earnings
Share-based compensation
$
3,494
$
704
10,725
17,228
7,940
2,632
3,439
—
1,055
584
47,801
(46,454)
1,347
(70)
(13,971)
(263)
(197)
(14,501)
(13,154) $
2,973
1,278
11,365
22,662
10,144
2,536
3,061
891
797
595
56,302
(55,336)
966
(123)
(18,714)
(604)
—
(19,441)
(18,475)
Net deferred taxes
$
The Company's cumulative loss position was significant negative evidence in assessing the need for a valuation allowance on
its deferred tax assets. 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. Due to the historical losses from the Company's operations, it has recorded a full
valuation allowance on its deferred tax assets. 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 the Income Taxes Topic of the FASB
ASC. The Company had $14.0 million and $18.7 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, 2016 and 2015, respectively. As of December 31,
2016 and 2015, the Company recorded valuation allowances of $46.5 million and $55.3 million, respectively.
The Company believes it is necessary to see further positive evidence, such as sustained achievement of cumulative profits,
before these valuation allowances can be released. If such positive evidence develops, the Company may release all or a portion
of the remaining valuation allowances, but at this point in time cannot determine in which period they would reverse. The
Company will continue to assess the realizability of its deferred tax assets.
As of December 31, 2016 and 2015, respectively, the Company had approximately $53.2 million and $65.2 million of federal,
state, and foreign net operating loss carryforwards. The federal carryforwards expire between 2031 and 2034. The state
carryforwards expire between 2016 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, 2016 and 2015, to reduce the Company’s
F- 39
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
13. Income Taxes (continued)
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.
The reconciliation of income tax computed at the U. S. federal statutory rate to income tax (benefit) expense is as follows:
Year Ended December 31,
2016
2015
2014
Tax at U.S. statutory rate
State taxes, net of federal benefit
Noncontrolling interest
Non-deductible meals and entertainment
Foreign tax expense
Valuation allowances
Uncertain tax positions
Audit settlements
Other
(amounts in thousands)
$
1,591
$
1,456
$
344
(260)
1,546
(5)
(8,379)
1,090
—
(113)
(4,186) $
611
—
1,510
(6)
(5,078)
917
(624)
420
(794) $
(10,961)
219
—
1,425
44
12,038
(996)
—
(1,553)
216
Total income tax (benefit) expense
$
The tax years of 2004, 2005, and 2008 through 2015 remain open to examination by certain taxing jurisdictions to which the
Company is subject to tax, other than certain states in which the statute of limitations has been extended.
During 2016, the Company accrued $0.2 million of India tax on earnings of approximately $0.5 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.
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 prior years
Other
Balance at December 31
2016
2015
(amounts in thousands)
4,071
$
1,054
55
—
—
5,180
$
3,777
861
62
(624)
(5)
4,071
$
$
Short-term unrecognized tax benefits are included in other current liabilities on the consolidated balance sheets and were
approximately $0.1 million as of December 31, 2016 and 2015. Long-term unrecognized tax benefits are included in other long-
term liabilities on the consolidated balance sheets and were approximately $0.9 million and $0.8 million as of December 31,
2016 and 2015, respectively. See Note 7 - Balance Sheet Details. As of December 31, 2016 and 2015, the Company had
unrecognized tax benefits, which would affect the effective tax rate if recognized, of approximately $4.9 million and $3.8
million, respectively. During 2016, the Company had gross increases of $1.1 million to its current year unrecognized tax
benefits, related to federal and state tax positions.
The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes. During
the year ended December 31, 2016, the Company recognized interest and penalties of $0.1 million. During the years ended
December 31, 2015 and 2014, the Company recognized a reduction on interest and penalties of $0.2 million. The Company had
F- 40
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
13. Income Taxes (continued)
accrued approximately $0.5 million and $0.4 million for the payment of interest and penalties at December 31, 2016 and 2015,
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, 2016, 2015 and 2014, the Company did not repurchase any shares of its Common Stock
under its February 2008 Board authorization.
As of December 31, 2016, 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 new Credit Agreement. The Company may
repurchase up to an aggregate amount not to exceed $2.5 million in any fiscal year, or an unlimited amount if the Company
meets certain conditions as described in its new Credit Agreement.
Share-Based Payments
2014 Omnibus Incentive Plan
The Company's 2014 Omnibus Incentive Plan (2014 Plan) provides for the issuance of stock options, stock appreciation rights,
restricted stock, performance shares, and 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 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 2014 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 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 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.
During the year ended December 31, 2016, 246,020 of restricted stock awards and 202,442 of performance stock awards were
granted under the 2014 Plan to the Company's non-employee Directors and management team. In 2015, the Company changed
the timing of its annual grants to management from June to March. Pursuant to the 2014 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. If the minimum
level of performance is attained for the 2016 awards, restricted stock will be issued with a vesting date of December 31, 2018,
subject to the employee’s continuing employment. During the first quarter of 2016, the Committee approved a 100% level of
attainment for the 2015 performance-based share awards, resulting in the issuance of 148,178 performance shares that will vest
on December 31, 2017.
F- 41
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
14. Stockholders' Equity (continued)
The following table summarizes restricted stock awards and performance stock awards activity issued under the 2014 Plan for
the year ended December 31, 2016:
Unvested restricted stock awards, January 1, 2016
Granted
Vested
Forfeited
Unvested restricted stock awards, December 31, 2016
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
586,488
$
246,020
$
(272,597) $
(27,617) $
$
532,294
7.82
12.01
7.06
11.11
9.98
234,138
$
202,442
$
(79,636) $
(24,852) $
$
332,092
9.81
11.63
5.82
11.75
11.73
As of December 31, 2016, the Company had approximately $3.0 million pre-tax 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
recognize such cost over a weighted average period of 1.82 years. The fair value of shares vested was approximately $4.3
million, $3.9 million, and $2.3 million for the years ended December 31, 2016, 2015, and 2014, respectively.
As of December 31, 2016, the Company had approximately $1.0 million pre-tax 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 1.54 years, the remaining service period. The fair value of shares vested was approximately
$1.2 million for the year ended December 31, 2016, the first year these awards began to vest.
During the years ended December 31, 2016, 2015, and 2014, the Company did not issue stock options or stock appreciation
rights. The following table represents information about stock options and stock appreciation rights exercised in each year.
Year Ended December 31,
2016
2015
2014
(amounts in thousands)
Total intrinsic value of options exercised
$
1,323
$
1,610
$
695
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 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 recorded 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. Due to the adoption of the 2014 Plan (previously titled 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- 42
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
14. Stockholders' Equity (continued)
The following table summarizes the Company’s activities with respect to all of its share option plans (issued under the 2014
Plan and the 1999 Plan) for the year ended December 31, 2016:
Number of
Shares
Option Price
Share options outstanding at beginning of year
395,625
$4.16-$22.50
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
—
—
(195,312)
$4.35-$8.56
(12,100) $5.21-$22.50
$4.16-$22.50
188,213
137,087
$4.16-$22.50
51,126
$4.92-$5.61
Weighted-
Average
Remaining
Contractual
Life (in
years)
Aggregate
Intrinsic
Value
(amounts
in
thousands)
2.62
2.33
3.40
$
$
$
1,870
1,341
529
Weighted
Average
Exercise
Price
$6.28
—
$6.08
$17.97
$5.72
$5.90
$5.26
As of December 31, 2016, the Company had 188,213 share options outstanding of which 173,457 were vested or expected to
vest at a weighted average exercise price of $5.76, intrinsic value of $1.7 million and a weighted average contractual life of
2.55 years. As of December 31, 2016, the Company had less than $0.1 million pre-tax 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 0.42 years.
F- 43
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
15. Earnings Per Share
The following table sets forth the components of the numerator and denominator for the computation of the basic and diluted
earnings per share:
Numerator:
Net income (loss) attributable to common shareholders - Basic
Interest on Convertible Notes
(Gain) loss on derivative liability
Net income (loss) attributable to common shareholders - Diluted
Denominator:
Weighted average common shares - Basic
Effective of diluted shares:
Share-based awards
Convertible Notes
Weighted average common shares - Diluted
Net income (loss) per share attributable to common shareholders -
Basic
Net income (loss) per share attributable to common shareholders -
Diluted
Year Ended December 31,
2016
2015
2014
(amounts in thousands, except per share data)
7,967
$
4,418
$
3,383
(5,805)
5,545
*
*
$
4,418
$
(31,783)
*
*
(31,783)
32,132
31,514
31,190
593
3,521
36,246
648
—
32,162
—
—
31,190
0.25
$
0.14
$
(1.02)
0.15
$
0.14
$
(1.02)
$
$
$
$
* For the years 2015 and 2014, the Convertible Notes would have been anti-dilutive if converted at the beginning of the
respective periods and therefore, amounts are not applicable.
For the periods presented, no tax benefits have been assumed in the weighted average share calculation due to a full valuation
allowance on the Company's deferred tax assets.
The following table represents the securities that could potentially dilute net income per share attributable to common
shareholders in the future that were not included in the computation of diluted net income per share attributable to common
shareholders because to do so would have been anti-dilutive for the periods presented.
Convertible notes and share-based awards
16. Related Party Transactions
Year Ended December 31,
2015
2014
2016
(amounts in thousands)
—
3,521
3,856
The Company provides services to hospitals which are affiliated with certain members of the Company’s Board of Directors.
Management believes services with related parties were conducted on terms equivalent to those prevailing in an arm's-length
transaction. Revenue related to these transactions was $5.0 million, $11.8 million, and $17.8 million in 2016, 2015, and 2014,
respectively. Accounts receivable due from these hospitals at December 31, 2016 and 2015 were approximately $1.0 million
and $0.6 million, respectively.
F- 44
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
16. Related Party Transactions (continued)
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 generated revenue providing staffing services to the
hospital system of $12.6 million and $10.0 million in 2016 and 2015, respectively, and $4.7 million for the six months ended
December 31, 2014. At December 31, 2016 and 2015, the Company had a receivable balance of $1.5 million and $1.4 million,
respectively, and a payable balance of $0.2 million.
Subsequent to the Company's acquisition of Mediscan on October 30, 2015, Mediscan continued to operate at premises owned,
in part, by the founding members of Mediscan. The Company paid $0.4 million for rent for these premises in 2016 and $0.1
million for the two months ended December 31, 2015.
17. Segment Data
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, recruiting, and value-added
workforce solutions including: temporary and permanent placement of travel and local branch-based nurse and allied
professionals, MSP services, education healthcare services, and outsourcing services. Its clients include: public and
private acute care and non-acute care hospitals, government facilities, public schools and charter schools, outpatient
clinics, ambulatory care facilities, physician practice groups, retailers, and many other healthcare providers throughout
the U.S. The results of the Mediscan acquisition have been aggregated with the Company's Nurse and Allied Staffing
business segment. See Note 3 - Acquisitions.
• Physician Staffing - Physician Staffing provides physicians in many specialties, certified registered nurse anesthetists
(CRNAs), nurse practitioners (NPs), and physician assistants (PAs) 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 - Subsequent to the sale of CCE on August 31, 2015, Other Human
Capital Management Services includes retained and contingent search services for physicians, healthcare executives
and other healthcare professionals within the U.S.
The Company’s management evaluates performance of each segment primarily based on revenue and contribution income. The
Company defines contribution income as income or loss from operations before depreciation, amortization, loss on sale of
business, acquisition and integration costs, acquisition-related contingent consideration, restructuring costs, 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 the Segment Reporting Topic of the
FASB ASC. 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.
F- 45
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
17. Segment Data (continued)
Information on operating segments and a reconciliation to income (loss) from operations for the periods indicated are as
follows:
Year Ended December 31,
2016
2015
2014
(amounts in thousands)
Revenue from services:
Nurse and Allied Staffing (a)
Physician Staffing
Other Human Capital Management Services
Contribution income (loss):
Nurse and Allied Staffing (a)
Physician Staffing
Other Human Capital Management Services
Unallocated corporate overhead (a)
Depreciation
Amortization
Loss on sale of business (b)
Acquisition and integration costs
Acquisition-related contingent consideration
Restructuring costs
Impairment charges (c)
Income (loss) from operations
_______________
$
$
$
721,486
$
621,258
$
$
$
98,283
13,768
833,537
71,992
8,265
(535)
79,722
38,400
4,168
5,014
—
78
814
753
24,311
$
$
115,336
30,827
767,421
55,718
10,213
1,863
67,794
3,856
4,210
2,184
902
—
1,274
2,100
$
6,184
$
20,565
$
459,195
121,145
37,485
617,825
36,486
6,540
514
43,540
3,866
3,575
—
7,957
—
840
10,000
(10,468)
32,703
27,770
(a) The Company has been centralizing administrative functions to gain efficiencies and, as a result, certain prior periods
have been restated for comparability purposes. For the year ended December 31, 2015, $1.2 million of expenses were
reclassified from Nurse and Allied Staffing to unallocated corporate overhead to conform to the current period
presentation. It was not practicable to reclassify these amounts for the year ended December 31, 2014.
(b) On August 31, 2015, the Company completed the sale of CCE, and recognized a pre-tax loss of $2.2 million related to
the divestiture of the business. See Note 4 - Disposal and Discontinued Operations.
(c) During the years ended December 31, 2016, 2015, and 2014, the Company recorded impairment charges of $24.3
million, $2.1 million, and $10.0 million, respectively. See Note 5 - Goodwill, Trade Names, and Other Intangible Assets.
F- 46
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
18. Quarterly Financial Data (Unaudited)
2016
Revenue from services
Gross profit
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
(amounts in thousands, except per share data)
$
196,583
$
199,443
$
214,988
$
222,523
51,046
54,846
58,210
57,633
Consolidated net income (loss)
19,186
(17,095)
14,289
(7,649)
Net income (loss) attributable to common shareholders
19,022
(17,237)
14,066
(7,884)
Net income (loss) per share attributable to common shareholders - Basic
Net income (loss) per share attributable to common shareholders - Diluted
2015
Revenue from services
Gross profit
$
$
0.60
0.09
$
$
(0.54) $
0.44
(0.54) $
0.22
$
$
(0.24)
(0.24)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
(amounts in thousands, except per share data)
$
185,964
$
192,617
$
195,692
$
193,148
47,037
48,363
51,486
50,479
Consolidated net income (loss)
3,050
2,680
5,151
(5,927)
Net income (loss) attributable to common shareholders
2,934
2,573
5,009
(6,098)
Net income (loss) per share attributable to common shareholders - Basic
Net income (loss) per share attributable to common shareholders - Diluted
________________
$
$
0.09
0.05
$
$
0.08
0.08
$
$
0.16
0.16
$
$
(0.19)
(0.19)
The following items impact the comparability and presentation of our consolidated data:
• The Company recorded changes in the fair value of convertible notes derivative liability, recording a gain in the first
and third quarters of 2016 of $16.4 million and $7.1 million, respectively, and a loss in the second and fourth
quarters of 2016 of $3.6 million and $14.2 million, respectively. The Company also recorded a gain in the first and
second quarters of 2015 of $2.1 million and $0.4 million, respectively, and a loss in the third and fourth quarters of
2015 of $2.9 million and $9.5 million, respectively. See Note 9 - Convertible Notes Derivative Liability.
• During the second quarter of 2016 and the fourth quarter of 2015, the Company recorded impairment charges of
$24.3 million and $2.1 million, respectively. See Note 5 - Goodwill, Trade Names, and Other Intangible Assets.
• During the second quarter of 2016, the Company repaid its Second Lien Term Loan and recognized a loss on
extinguishment of debt of $1.6 million. See Note 8 - Debt.
• On August 31, 2015, the Company completed the sale of its education seminars business, CCE. Since the disposal
did not represent a strategic shift that will have a major effect on the Company's operations and financial results, it
was not reflected as discontinued operations. The transaction resulted in a pre-tax loss of $2.2 million, and an after-
tax gain on the sale of CCE of $1.3 million. See Note 4 - Disposals and Discontinued Operations.
• On October 30, 2015, the Company acquired all of the membership interests of Mediscan. 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 its date of
acquisition. See Note 3 - Acquisitions.
F- 47
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
18. Quarterly Financial Data (Unaudited) (continued)
•
•
In 2016, the Company recorded acquisition-related contingent consideration expense primarily related to the
Mediscan acquisition, recording $0.3 million in the first quarter, $0.2 million in the second and third quarters, and
$0.1 million in the fourth quarter. There were no similar costs recorded in 2015. See Note 3 - Acquisitions and Note
10 - Fair Value Measurements.
In the third and fourth quarters of 2016, the Company recorded restructuring costs of $0.6 million and $0.2 million,
respectively, primarily related to the centralization of corporate functions. In the second, third, and fourth quarters of
2015, the Company recorded restructuring costs of $1.0 million, $0.2 million, and $0.1 million, respectively. See
Note 2 - Summary of Significant Accounting Policies.
F- 48
CROSS COUNTRY HEALTHCARE, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015, AND 2014
Schedule II
Balance at
Beginning
of Period
Charged to
Operations
Write-Offs Recoveries
(amounts in thousands)
Other
Changes
Balance at
End
of Period
Allowances for Accounts Receivable
Year Ended December 31, 2016
Year Ended December 31, 2015
Year Ended December 31, 2014
Valuation Allowance for Deferred Tax
Assets
Year Ended December 31, 2016
Year Ended December 31, 2015
Year Ended December 31, 2014
________________
$
$
$
$
$
$
4,045
1,425
1,651
55,336
63,616
52,001
$
$
$
$
$
$
4,034
2,414
1,016
$
$
$
(5,149) $
315
(923) $
1,129
(1,257) $
15
$
$
$
—
—
—
$
$
$
3,245
4,045
1,425
(8,894)
$
(7,518) (a) $
12,038
$
— $
— $
— $
— $
— $
— $
12
$
46,454
(762) (b) $
55,336
(423) (c) $
63,616
(a) Includes a reversal of valuation allowance related to CCE.
(b) Valuation allowance on deferred tax asset related to share-based compensation.
(c) Related to foreign valuation allowance adjustment.
II- 1
LIST OF SUBSIDIARIES
Subsidiary
Assignment America, LLC
Cejka Search, Inc.
Credent Verification and Licensing Services, LLC
Cross Country Holdco (Cyprus) Limited
Cross Country Infotech, Pvt. Ltd.
Cross Country Staffing, Inc.
Cross Country Support Services, LLC
Intelistaf of Oklahoma LLC*
Local Staff, LLC
MDA Holdings, Inc.
Medical Doctor Associates, LLC
Mediscan Diagnostic Services, LLC
Mediscan Nursing Services, LLC
New Mediscan II, LLC
OWS, LLC
Travel Staff, LLC
* Majority-owned joint venture
Exhibit 21.1
Place of Incorporation
Delaware
Delaware
Delaware
Cyprus
India
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
California
California
California
Delaware
Delaware
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23.1
We consent to the incorporation by reference in Registration Statement Nos. 333-74862, 333-145484, 333-188519 and
333-196639 on Form S-8 and 333-200827 on Form S-1 of our report dated March 3, 2017, relating to the consolidated financial
statements and financial statement schedule of Cross Country Healthcare, Inc., and the effectiveness of Cross Country
Healthcare, Inc.'s internal control over financial reporting, appearing in this Annual Report on Form 10-K of Cross Country
Healthcare, Inc. for the year ended December 31, 2016.
/s/ DELOITTE & TOUCHE LLP
Boca Raton, Florida
March 3, 2017
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23.2
We consent to the incorporation by reference in the following Registration Statements:
1. 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;
2. Registration Statement (Form S-8 No. 333-145484) pertaining to Cross Country Healthcare, Inc. and subsidiaries 2007
Stock Incentive Plan;
3. Registration Statement (Form S-8 No. 333-188519) pertaining to Cross Country Healthcare, Inc. and subsidiaries
registration of additional shares of common stock under the Amended and Restated 2007 Stock Incentive Plan; and
4. Registration Statement (Form S-8 No. 333-196639) pertaining to Cross Country Healthcare, Inc. and subsidiaries
registration of additional shares of common stock under the Amended and Restated 2007 Stock Incentive Plan; and
5. Registration Statement (Form S-1 No. 333-200827) of Cross Country Healthcare, Inc. and Subsidiaries
of our report dated March 6, 2015, with respect to the accompanying consolidated statements of operations, comprehensive
loss, stockholders’ equity and cash flows and schedule 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 3, 2017
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 the 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 3, 2017
/s/ William J. Grubbs
William J. Grubbs
President, Chief Executive Officer, Director
(Principal 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 the 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 3, 2017
/s/ William J. Burns
William J. Burns
EVP & Chief Financial Officer
(Principal Accounting and 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, 2016, (the "Periodic Report"), I, William J. Grubbs, President and 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 3, 2017
/s/ William J. Grubbs
William J. Grubbs
President, Chief Executive Officer, Director
(Principal 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, 2016, (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 3, 2017
/s/ William J. Burns
William J. Burns
EVP & Chief Financial Officer
(Principal Accounting and 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.
The next level is here.
2016 was a year of growth and innovation for Cross Country Healthcare.
We saw expansion, progression, and a new level of effi ciency in the delivery of our services.
We developed and leveraged our strengths to innovate our services and accommodate the
dynamic needs of healthcare organizations. Cross Country Healthcare increased the bench strength
of Workforce Solutions to include industry experts who are widely recognized leaders in their
respective fi elds. As a result, our Workforce Solutions team has added a record number of new
clients, making the total number the highest in company history.
With the acquisition of US Resources Healthcare, we have expanded our recruitment process
outsourcing off erings to assist our clients with their full-time vacancies. This new service rounds
out our suite of off erings that together deliver a holistic solution to labor challenges faced by
healthcare organizations.
By delivering fi nancial and operating effi ciencies through labor optimization services, while
enhancing the quality of care to patients, we secure our future as a trusted partner that understands
the new healthcare landscape. While we have accomplished great success in 2016, we look
forward to scaling new heights in the coming years.
Board of Directors
Board of Directors
Board of Directors
Board of Directors
Board of Directors
Executives
Executives
Executives
W. Larry Cash (a)(b)
President, Financial Services and Chief Financial
Offi cer, Community Health Systems
William J. Grubbs
President and Chief Executive Offi cer,
Cross Country Healthcare, Inc.
Thomas C. Dircks (c)
Managing Director, Charterhouse Group, Inc.
Gale Fitzgerald (a)(d)
Retired Principal, TranSpend, Inc.
William J. Grubbs
President and Chief Executive Offi cer,
Cross Country Healthcare, Inc.
Richard M. Mastaler (a)(d)
Chairman, Managed Health Ventures, Inc.
Mark Perlberg (b)
President and Chief Executive Offi cer,
Oasis Outsourcing
Joseph A. Trunfi o, PhD (b)(d)
Retired President and Chief Executive Offi cer,
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
Corporate headquarters
Cross Country Healthcare, Inc.
5201 Congress Avenue
Boca Raton, FL 33487
Phone: 561.998.2232
crosscountryhealthcare.com
Corporate governance
Information concerning our corporate governance
practices, including our Code of Conduct, Code of
Ethics, Committee Charters, and Certifi cation of
Financial Statements, is available on our corporate
website at crosscountryhealthcare.com.
We also have established a toll-free phone number and an
email address for stockholders to communicate with our
Board of Directors. All such communications will be kept
confi dential and forwarded directly to the appropriate
party, as applicable.
Governance hotline: 800.354.7197
Governance email: governance@crosscountry.com
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, 2016, as well as in
quarterly and other reports to be fi led by us.
William J. Burns, MBA, CPA
Executive Vice President, Chief Financial Offi cer
and Principal Financial/Accounting Offi cer,
Cross Country Healthcare, Inc.
Susan E. Ball, JD, MBA, RN
Executive Vice President, General Counsel and
Secretary, Cross Country Healthcare, Inc.
Daniele Addis
Senior Vice President, Business Services
Cross Country Healthcare, Inc.
Deborah Dean
Senior Vice President, Sales and Marketing
Cross Country Healthcare, Inc.
William G. Halnon
Chief Information Offi cer,
Cross Country Healthcare, Inc.
Vickie L. Anenberg
President, Cross Country Staffi ng
Dennis Ducham
President, Mediscan
Timothy Fischer
President, Medical Doctor Associates
John Gramer
President, Cejka Search
Robert Murphy
President, Workforce Solutions,
Cross Country Healthcare, Inc.
Buff y S. White
Senior Vice President, Recruiting Strategy
and Operations, Cross Country Healthcare, Inc.
Transfer agent
Computershare
P.O. Box 30170
College Station, TX 77842-3170
Phone: 877.219.7066
Independent registered
public accounting fi rm
Deloitte & Touche LLP
1800 North Military Trail, Suite 200
Boca Raton, FL 33431
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 October 25, 2001.
Stockholder inquiries
News releases, SEC fi lings, annual reports, corporate governance matters and additional information about Cross Country
Healthcare are available on our corporate website at no cost. Our Form 10-K, including all exhibits, is available 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 fi lings and other notices by email. Information
about the Company can also be obtained by writing or contacting:
William J. Grubbs, President and Chief Executive Offi cer
Phone: 561.237.6202 | 800.530.6152 | Email: ir@crosscountry.com
2016 ANNUAL REPORT
5201 Congress Avenue, Boca Raton, FL 33487 | 800.347.2264 | crosscountryhealthcare.com