NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
1. BASIS OF PRESENTATION
The condensed consolidated balance sheets and related condensed consolidated statements of comprehensive income and cash flows contained in this Quarterly Report on Form 10-Q (this “Quarterly Report”), which are unaudited, include the accounts of AMN Healthcare Services, Inc. and its wholly-owned subsidiaries (collectively, the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, all entries necessary for a fair presentation of such unaudited condensed consolidated financial statements have been included. These entries consisted of all normal recurring items. The results of operations for the interim period are not necessarily indicative of the results to be expected for any other interim period or for the entire fiscal year or for any future period.
The unaudited condensed consolidated financial statements do not include all information and notes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States. Please refer to the Company’s audited consolidated financial statements and the related notes for the fiscal year ended
December 31, 2016
, contained in the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2016
, filed with the Securities and Exchange Commission on February 17, 2017 (“
2016
Annual Report”).
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. On an ongoing basis, the Company evaluates its estimates, including those related to asset impairments, accruals for self-insurance, compensation and related benefits, accounts receivable, contingencies and litigation, earn-out liabilities, and income taxes. Actual results could differ from those estimates under different assumptions or conditions.
Recently Adopted Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, “Stock Compensation - Improvements to Employee Share-Based Payment Accounting.” The guidance attempts to simplify the accounting for share-based payment transactions in several areas, including the following: income tax consequences, classification of awards as either equity or liabilities, forfeitures, expected term, and statement of cash flows classification. The Company adopted this pronouncement prospectively beginning January 1, 2017. Accordingly, the prior period has not been adjusted and the primary effects of the adoption for the current period are as follows:
|
|
•
|
The Company recorded
$1,028
and
$5,325
of tax benefits within income tax expense for the three and
six months ended June 30, 2017
, respectively, related to the excess tax benefit on share-based compensation. Prior to adoption, this amount would have been recorded as additional paid-in capital;
|
|
|
•
|
The Company continued to estimate the number of awards expected to be forfeited in accordance with its existing accounting policy, which is to estimate forfeitures when recording share-based compensation expense;
|
|
|
•
|
The Company excluded the excess tax benefits from the assumed proceeds available to repurchase shares in the computation of its diluted earnings per share for the three and
six months ended June 30, 2017
. The effect of this change on its diluted earnings per share was not significant;
|
|
|
•
|
For the
six months ended June 30, 2017
, cash flows related to excess tax benefits were classified as an operating activity.
|
There were no other material impacts to the Company's consolidated financial statements as a result of adopting this updated standard.
2. BUSINESS COMBINATIONS
As set forth below, the Company completed
three
acquisitions during 2016. The Company accounted for each acquisition using the acquisition method of accounting. Accordingly, it recorded the tangible and intangible assets acquired and liabilities assumed at their estimated fair values as of the applicable date of acquisition. For each acquisition, the Company did not incur any material acquisition-related costs.
Peak Provider Solutions Acquisition
On June 3, 2016, the Company completed its acquisition of Peak Provider Solutions (“Peak”), which provides remote medical coding and consulting solutions to hospitals and physician medical groups nationwide. The addition of Peak has expanded the Company’s workforce solutions and enables the Company to offer services in coding diagnosis and procedure codes, which is critical to clinical quality reporting and the financial health of healthcare organizations. The initial purchase price of
$52,125
included (1)
$51,645
cash consideration paid upon acquisition, funded through cash-on-hand, net of cash received, and borrowings under the Company’s revolving credit facility, and (2) a contingent earn-out payment of up to
$3,000
with an estimated fair value of
$480
as of the acquisition date. The contingent earn-out payment was based on the operating results of Peak for the year ending December 31, 2016, which resulted in no earn-out payment. As the acquisition was not considered significant, pro forma information is not provided. The results of Peak have been included in the Company’s other workforce solutions segment since the date of acquisition. During the third quarter of 2016, an additional
$275
of cash consideration was paid to the selling shareholders for the final working capital settlement.
The allocation of the
$52,400
purchase price, which included the additional cash consideration paid for the final working capital settlement, consisted of (1)
$5,658
of fair value of tangible assets acquired, (2)
$9,346
of liabilities assumed, (3)
$19,220
of identified intangible assets, and (4)
$36,868
of goodwill, none of which is deductible for tax purposes. The fair value of intangible assets primarily includes
$7,600
of trademarks and
$11,500
of customer relationships with a weighted average useful life of approximately
thirteen
years.
HealthSource Global Staffing Acquisition
On January 11, 2016, the Company completed its acquisition of HealthSource Global Staffing (“HSG”), which provides labor disruption and rapid response staffing. The acquisition helps the Company expand its service lines and provide clients with rapid response staffing services. The initial purchase price of
$8,511
included (1)
$2,799
cash consideration paid upon acquisition, funded through cash-on-hand, net of cash received, and settlement of the pre-existing relationship between AMN and HSG, (2)
$2,122
cash holdback for potential indemnification claims, and (3) a tiered contingent earn-out payment of up to
$4,000
with an estimated fair value of
$3,590
as of the acquisition date. The contingent earn-out payment is comprised of (A) up to
$2,000
based on the operating results of HSG for the year ending December 31, 2016, of which,
$1,930
was paid in March 2017, and (B) up to
$2,000
based on the operating results of HSG for the year ending December 31, 2017. As the acquisition was not considered significant, pro forma information is not provided. The results of HSG have been included in the Company’s nurse and allied solutions segment since the date of acquisition. During the third quarter of 2016, the final working capital settlement resulted in
$292
due from the selling shareholders to the Company, which was settled through a reduction to a cash holdback.
The allocation of the
$8,219
purchase price, which was reduced by the final working capital settlement, consisted of (1)
$1,025
of fair value of tangible assets acquired, (2)
$3,698
of liabilities assumed, (3)
$3,944
of identified intangible assets, and (4)
$6,948
of goodwill, none of which is deductible for tax purposes. The intangible assets include the fair value of trademarks, customer relationships, staffing databases, and covenants not to compete with a weighted average useful life of approximately
eight
years.
B.E. Smith Acquisition
On January 4, 2016, the Company completed its acquisition of B.E. Smith (“BES”), a full-service healthcare interim leadership placement and executive search firm, for
$162,232
in cash, net of cash received, and settlement of the pre-existing relationship between AMN and BES. BES places interim leaders and executives across all healthcare settings, including acute care hospitals, academic medical and children’s hospitals, physician practices, and post-acute care providers. The acquisition provides the Company additional access to healthcare executives and enhances its integrated services to hospitals, health systems, and other healthcare facilities across the nation. To help finance the acquisition, the Company entered into the First Amendment to the Credit Agreement (the “First Amendment”), which provided
$125,000
of additional available borrowings to the Company. The First Amendment was more fully described in “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note (8), Notes Payable and Credit Agreement” of our
2016
Annual Report. The results of BES have been included in the Company’s other workforce solutions segment since the date of acquisition. During the second quarter of 2016,
$524
was returned to the Company for the final working capital settlement.
The allocation of the
$161,708
purchase price, which was reduced by the final working capital settlement, consisted of (1)
$11,953
of fair value of tangible assets acquired, (2)
$7,272
of liabilities assumed, (3)
$65,900
of identified intangible assets, and (4)
$91,127
of goodwill, most of which is deductible for tax purposes. The intangible assets acquired have a weighted average useful life of approximately
fifteen
years. The following table summarizes the fair value and useful life of each intangible asset acquired:
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Useful Life
|
|
|
|
|
|
(in years)
|
Identifiable intangible assets
|
|
|
|
|
Tradenames and Trademarks
|
|
$26,300
|
|
20
|
|
Customer Relationships
|
|
25,700
|
|
|
12
|
|
Staffing Database
|
|
13,000
|
|
|
10
|
|
Non-Compete Agreements
|
|
900
|
|
|
5
|
|
|
|
$65,900
|
|
|
3. REVENUE RECOGNITION
Revenue consists of fees earned from the temporary and permanent placement of healthcare professionals and executives as well as from the Company’s SaaS-based technology, including its vendor management systems and its scheduling software. Revenue from temporary staffing services is recognized as the services are rendered by the healthcare professional or executive. Under the Company’s managed services program arrangements, the Company manages all or a part of a customer’s supplemental workforce needs utilizing its own pool of healthcare professionals along with those of third-party subcontractors. When the Company uses subcontractors, revenue is recorded net of the related subcontractor’s expense. Payables to subcontractors of
$37,109
and
$51,973
were included in accounts payable and accrued expenses in the unaudited condensed consolidated balance sheet as of
June 30, 2017
and the consolidated balance sheet as of
December 31, 2016
, respectively. Revenue from recruitment and permanent placement services is recognized as the services are provided and upon successful placements. The Company’s SaaS-based revenue is recognized ratably over the applicable arrangement’s service period. Fees billed in advance of being earned are recorded as deferred revenue.
4. NET INCOME PER COMMON SHARE
Basic net income per common share is calculated by dividing net income by the weighted average number of common shares outstanding during the reporting period. The following table sets forth the computation of basic and diluted net income per common share for the three months and
six months ended June 30, 2017
and
2016
, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net income
|
$
|
31,255
|
|
|
$
|
26,322
|
|
|
$
|
63,263
|
|
|
$
|
52,191
|
|
|
|
|
|
|
|
|
|
Net income per common share - basic
|
$
|
0.65
|
|
|
$
|
0.55
|
|
|
$
|
1.32
|
|
|
$
|
1.09
|
|
Net income per common share - diluted
|
$
|
0.63
|
|
|
$
|
0.53
|
|
|
$
|
1.28
|
|
|
$
|
1.06
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic
|
47,916
|
|
|
48,034
|
|
|
47,849
|
|
|
47,964
|
|
Plus dilutive effect of potential common shares
|
1,559
|
|
|
1,314
|
|
|
1,649
|
|
|
1,261
|
|
Weighted average common shares outstanding - diluted
|
49,475
|
|
|
49,348
|
|
|
49,498
|
|
|
49,225
|
|
Share-based awards to purchase
33
and
16
shares of common stock were not included in the above calculation of diluted net income per common share for the three and
six months ended June 30, 2017
, respectively, because the effect of these instruments was anti-dilutive. Share-based awards to purchase
22
shares of common stock were not included in the above calculation of diluted net income per common share for the
six months ended June 30, 2016
because the effect of these instruments was anti-dilutive.
5. SEGMENT INFORMATION
The Company has
three
reportable segments: nurse and allied solutions, locum tenens solutions, and other workforce solutions.
The Company’s chief operating decision maker relies on internal management reporting processes that provide revenue and operating income by reportable segment for making financial decisions and allocating resources. Segment operating income represents income before income taxes plus depreciation, amortization of intangible assets, share-based compensation, interest expense, net, and other, and unallocated corporate overhead. The Company’s management does not evaluate, manage or measure performance of segments using asset information; accordingly, asset information by segment is not prepared or disclosed.
The following table provides a reconciliation of revenue and operating income by reportable segment to consolidated results and was derived from each segment’s internal financial information as used for corporate management purposes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Revenue
|
|
|
|
|
|
|
|
Nurse and allied solutions
|
$
|
300,727
|
|
|
$
|
292,663
|
|
|
$
|
614,250
|
|
|
$
|
590,387
|
|
Locum tenens solutions
|
108,215
|
|
|
109,129
|
|
|
211,058
|
|
|
211,867
|
|
Other workforce solutions
|
80,861
|
|
|
71,937
|
|
|
159,664
|
|
|
139,477
|
|
|
$
|
489,803
|
|
|
$
|
473,729
|
|
|
$
|
984,972
|
|
|
$
|
941,731
|
|
Segment operating income
|
|
|
|
|
|
|
|
Nurse and allied solutions
|
$
|
47,851
|
|
|
$
|
39,503
|
|
|
$
|
93,831
|
|
|
$
|
81,121
|
|
Locum tenens solutions
|
12,371
|
|
|
16,317
|
|
|
24,590
|
|
|
29,608
|
|
Other workforce solutions
|
22,041
|
|
|
17,858
|
|
|
41,898
|
|
|
35,444
|
|
|
82,263
|
|
|
73,678
|
|
|
160,319
|
|
|
146,173
|
|
Unallocated corporate overhead
|
15,362
|
|
|
15,756
|
|
|
31,034
|
|
|
30,795
|
|
Depreciation and amortization
|
7,959
|
|
|
7,334
|
|
|
15,627
|
|
|
14,099
|
|
Share-based compensation
|
2,562
|
|
|
2,710
|
|
|
5,243
|
|
|
6,091
|
|
Interest expense, net, and other
|
4,928
|
|
|
2,800
|
|
|
10,058
|
|
|
6,049
|
|
Income before income taxes
|
$
|
51,452
|
|
|
$
|
45,078
|
|
|
$
|
98,357
|
|
|
$
|
89,139
|
|
The following table summarizes the activity related to the carrying value of goodwill by reportable segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nurse and Allied Solutions
|
|
Locum Tenens Solutions
|
|
Other Workforce Solutions
|
|
Total
|
Balance, January 1, 2017
|
$
|
104,306
|
|
|
$
|
19,743
|
|
|
$
|
217,705
|
|
|
$
|
341,754
|
|
Goodwill adjustment for HSG acquisition
|
(1,199
|
)
|
|
—
|
|
|
—
|
|
|
(1,199
|
)
|
Goodwill adjustment for Peak acquisition
|
—
|
|
|
—
|
|
|
41
|
|
|
41
|
|
Balance, June 30, 2017
|
$
|
103,107
|
|
|
$
|
19,743
|
|
|
$
|
217,746
|
|
|
$
|
340,596
|
|
Accumulated impairment loss as of December 31, 2016 and June 30, 2017
|
$
|
154,444
|
|
|
$
|
53,940
|
|
|
$
|
6,555
|
|
|
$
|
214,939
|
|
6. FAIR VALUE MEASUREMENT
The Company’s valuation techniques and inputs used to measure fair value and the definition of the three levels (Level 1, Level 2, and Level 3) of the fair value hierarchy are disclosed in Part II, Item 8, “Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 4—Fair Value Measurement” of the
2016
Annual Report. The Company has not changed the valuation techniques or inputs it uses for its fair value measurement during the
six months ended June 30, 2017
.
Assets and Liabilities Measured on a Recurring Basis
The Company’s restricted cash equivalents that serve as collateral for the Company’s outstanding letters of credit
typically consist of money market funds that are measured at fair value based on quoted prices, which are Level 1 inputs.
The Company’s restricted cash equivalents and investments that serve as collateral for the Company’s captive insurance company primarily consist of commercial paper that is measured at observable market prices for identical securities that are traded in less active markets, which are Level 2 inputs. Of the
$27,722
commercial paper issued and outstanding as of
June 30, 2017
,
$10,280
had original maturities greater than three months, which were considered available-for-sale securities. As of
December 31, 2016
, the Company had
$25,610
commercial paper issued and outstanding, of which
$11,152
had original maturities greater than three months and were considered available-for-sale securities.
The Company’s interest rate swap was measured at fair value using a discounted cash flow analysis that includes the contractual terms, including the period to maturity, and Level 2 observable market-based inputs, including interest rate curves. The fair value of the swap was determined by netting the discounted future fixed cash receipts payments and the discounted expected variable cash receipts. The variable cash receipts were based on an expectation of future interest rates (forward curves) derived from observable market interest rate yield curves. The valuation also considered credit risk adjustments that were necessary to reflect the probability of default by the counterparty or the Company, which were considered Level 3 inputs. On May 3, 2017, the Company terminated the remaining interest rate swap.
The Company’s contingent consideration liabilities are measured at fair value using probability-weighted discounted cash flow analysis for the acquired companies, which are Level 3 inputs.
The following tables present information about the above-referenced assets and liabilities and indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of June 30, 2017
|
|
Total
|
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs (Level 3)
|
Money market funds
|
$
|
4,633
|
|
|
$
|
4,633
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commercial paper
|
27,722
|
|
|
—
|
|
|
27,722
|
|
|
—
|
|
Acquisition contingent consideration earn-out liabilities
|
(1,932
|
)
|
|
—
|
|
|
—
|
|
|
(1,932
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of December 31, 2016
|
|
Total
|
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs (Level 3)
|
Money market funds
|
$
|
4,627
|
|
|
$
|
4,627
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commercial paper
|
25,610
|
|
|
—
|
|
|
25,610
|
|
|
—
|
|
Interest rate swap asset
|
24
|
|
|
—
|
|
|
24
|
|
|
—
|
|
Acquisition contingent consideration earn-out liabilities
|
(6,816
|
)
|
|
—
|
|
|
—
|
|
|
(6,816
|
)
|
Level 3 Information
The following table sets forth a reconciliation of changes in the fair value of contingent consideration liabilities classified as Level 3 in the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
2017
|
|
2016
|
Balance as of April 1,
|
$
|
(1,909
|
)
|
|
$
|
(6,459
|
)
|
Contingent consideration earn-out liability from Peak acquisition on June 3, 2016
|
—
|
|
|
(480
|
)
|
Change in fair value of contingent consideration earn-out liability from TFS acquisition
|
—
|
|
|
(68
|
)
|
Change in fair value of contingent consideration earn-out liability from HSG acquisition
|
(23
|
)
|
|
(47
|
)
|
Balance as of June 30,
|
$
|
(1,932
|
)
|
|
$
|
(7,054
|
)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
2017
|
|
2016
|
Balance as of January 1,
|
$
|
(6,816
|
)
|
|
$
|
(3,770
|
)
|
Settlement of TFS earn-out for year ended December 31, 2015
|
—
|
|
|
1,000
|
|
Contingent consideration earn-out liability from HSG acquisition on January 11, 2016
|
—
|
|
|
(3,590
|
)
|
Contingent consideration earn-out liability from Peak acquisition on June 3, 2016
|
—
|
|
|
(480
|
)
|
Change in fair value of contingent consideration earn-out liability from Avantas acquisition
|
—
|
|
|
660
|
|
Change in fair value of contingent consideration earn-out liability from TFS acquisition
|
—
|
|
|
(765
|
)
|
Change in fair value of contingent consideration earn-out liability from HSG acquisition
|
(46
|
)
|
|
(109
|
)
|
Settlement of TFS earn-out for year ended December 31, 2016
|
3,000
|
|
|
—
|
|
Settlement of HSG earn-out for year ended December 31, 2016
|
1,930
|
|
|
—
|
|
Balance as of June 30,
|
$
|
(1,932
|
)
|
|
$
|
(7,054
|
)
|
Assets Measured on a Non-Recurring Basis
The Company applies fair value techniques on a non-recurring basis associated with valuing potential impairment losses related to its goodwill, indefinite-lived intangible assets, long-lived assets, and equity investments.
The Company evaluates goodwill and indefinite-lived intangible assets annually for impairment and whenever circumstances occur indicating that goodwill might be impaired. The Company determines the fair value of its reporting units based on a combination of inputs, including the market capitalization of the Company, as well as Level 3 inputs such as discounted cash flows, which are not observable from the market, directly or indirectly. The Company determines the fair value of its indefinite-lived intangible assets using the income approach (relief-from-royalty method) based on Level 3 inputs.
There were no triggering events identified and no indication of impairment of the Company’s goodwill, indefinite-lived intangible assets, long-lived assets, or equity investments during the
six months ended June 30, 2017
and
2016
.
Fair Value of Financial Instruments
The carrying amount of the Company’s senior notes and term loan approximate their fair values. As it relates to the term loan, the Company amended its credit facilities in January and September 2016 to increase the capacity of the revolver and to incur an additional term loan, and the variable interest rate under the revolver and the term loans (LIBOR plus a spread of between
1.50%
and
2.25%
or a base rate plus a spread of between
0.50%
and
1.25%
, at the Company’s option) has remained unchanged since the amendments. As it relates to the senior notes issued in October 2016, they have a fixed rate of
5.125%
and there have been no changes in available rates for similar debt since the date of issuance. See additional information in “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note (8), Notes Payable and Credit Agreement” of our
2016
Annual Report.
The fair value of the Company’s long-term self-insurance accruals cannot be estimated as the Company cannot reasonably determine the timing of future payments.
7. INCOME TAXES
The Company is subject to taxation in the U.S. and various states and foreign jurisdictions. With few exceptions, as of
June 30, 2017
, the Company is no longer subject to state, local or foreign examinations by tax authorities for tax years before 2006, and the Company is no longer subject to U.S. federal income or payroll tax examinations for tax years before 2011. The Company’s tax years 2007, 2008, 2009 and 2010 had been under audit by the Internal Revenue Service (“IRS”) for several years and in 2014, the IRS issued the Company its Revenue Agent Report (“RAR”) and an Employment Tax Examination Report (“ETER”). The RAR proposed adjustments to the Company’s taxable income for 2007-2010 and net operating loss carryforwards for 2005 and 2006, resulting from the proposed disallowance of certain per diems paid to the Company’s healthcare professionals, and the ETER proposed assessments for additional payroll tax liabilities and penalties for tax years 2009 and 2010 related to the Company’s treatment of certain non-taxable per diem allowances and travel benefits. The positions in the RAR and ETER were mutually exclusive, and contained multiple tax positions, some of which were contrary to each other. The Company filed a Protest Letter for both the RAR and ETER positions in 2014 and the Company received a final determination from the IRS in July 2015 on both the RAR adjustments and ETER assessments, effectively settling these audits with the IRS for
$7,200
(including interest) during the third quarter of 2015. As a result of the settlement, the Company recorded federal income tax benefits of approximately
$12,200
during the quarter ended September 30, 2015, state income tax benefits (net of federal tax impact) of
$568
for the year ended December 31, 2016, and expects to record state income tax benefits (net of federal tax impact) of approximately
$1,200
by fiscal year 2019, when the various state statutes are projected to lapse.
The IRS conducted and completed a separate audit of the Company’s 2011 and 2012 tax years that focused on income and employment tax issues similar to those raised in the 2007 through 2010 examination. The IRS completed its audit during the quarter ended March 31, 2015, and issued its RAR and ETER to the Company with proposed adjustments to the Company’s taxable income for 2011 and 2012 and net operating loss carryforwards from 2010 and assessments for additional payroll tax liabilities and penalties for 2011 and 2012 related to the Company’s treatment of certain non-taxable per diem allowances and travel benefits. The positions in the RAR and ETER for the 2011 and 2012 years are mutually exclusive and contain multiple tax positions, some of which are contrary to each other. The Company filed a Protest Letter for both the RAR and ETER in April 2015 and the matter is currently at IRS Appeals. The Company has been meeting and working with the IRS Appeals office and anticipates a resolution within the next twelve months. The IRS began an audit of the Company’s 2013 tax year during the quarter ended June 30, 2015. The Company believes its reserve for unrecognized tax benefits and contingent tax issues is adequate with respect to all open years. Notwithstanding the foregoing, the Company could adjust its provision for income taxes and contingent tax liability based on future developments.
8. COMMITMENTS AND CONTINGENCIES: LEGAL
From time to time, the Company is involved in various lawsuits, claims, investigations, and proceedings that arise in the ordinary course of business. These matters typically relate to professional liability, tax, payroll, contract, competitor disputes and employee-related matters and include individual and collective lawsuits, as well as inquiries and investigations by governmental agencies regarding the Company’s employment practices. Additionally, some of the Company’s clients may also become subject to claims, governmental inquiries and investigations, and legal actions relating to services provided by the Company’s healthcare professionals. Depending upon the particular facts and circumstances, the Company may also be subject to indemnification obligations under its contracts with such clients relating to these matters. The Company records a liability when management believes an adverse outcome from a loss contingency is both probable and the amount, or a range, can be reasonably estimated. Significant judgment is required to determine both probability of loss and the estimated amount. The Company reviews its loss contingencies at least quarterly and adjusts its accruals and/or disclosures to reflect the impact of
negotiations, settlements, rulings, advice of legal counsel, or other new information, as deemed necessary. The most significant matters for which the Company has established loss contingencies are class actions related to wage and hour claims. Management currently believes the probable loss related to these wage and hour claims is not material and the amount accrued by the Company for such claims is not material as of
June 30, 2017
. However, losses ultimately incurred for such claims could materially differ from amounts already accrued by the Company.
With regards to outstanding loss contingencies as of
June 30, 2017
, which are included in accounts payable and accrued expenses in the consolidated balance sheet, the Company believes that such matters will not, either individually or in the aggregate, have a material adverse effect on its business, consolidated financial position, results of operations, or cash flows.
9. BALANCE SHEET DETAILS
The consolidated balance sheets detail is as follows as of
June 30, 2017
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
Other current assets:
|
|
|
|
|
Restricted cash and cash equivalents
|
|
$
|
16,064
|
|
|
$
|
20,271
|
|
Other
|
|
13,721
|
|
|
14,336
|
|
Other current assets
|
|
$
|
29,785
|
|
|
$
|
34,607
|
|
|
|
|
|
|
Fixed assets:
|
|
|
|
|
Furniture and equipment
|
|
$
|
27,333
|
|
|
$
|
25,582
|
|
Software
|
|
120,389
|
|
|
112,405
|
|
Leasehold improvements
|
|
8,810
|
|
|
6,832
|
|
|
|
156,532
|
|
|
144,819
|
|
Accumulated depreciation
|
|
(91,164
|
)
|
|
(84,865
|
)
|
Fixed assets, net
|
|
$
|
65,368
|
|
|
$
|
59,954
|
|
|
|
|
|
|
Other assets:
|
|
|
|
|
Life insurance cash surrender value
|
|
$
|
41,562
|
|
|
$
|
32,190
|
|
Other
|
|
30,032
|
|
|
25,344
|
|
Other assets
|
|
$
|
71,594
|
|
|
$
|
57,534
|
|
|
|
|
|
|
Accounts payable and accrued expenses:
|
|
|
|
|
Trade accounts payable
|
|
$
|
27,268
|
|
|
$
|
33,392
|
|
Subcontractor payable
|
|
37,109
|
|
|
51,973
|
|
Accrued expenses
|
|
41,329
|
|
|
37,251
|
|
Professional liability reserve
|
|
6,559
|
|
|
10,254
|
|
Other
|
|
6,678
|
|
|
4,642
|
|
Accounts payable and accrued expenses
|
|
$
|
118,943
|
|
|
$
|
137,512
|
|
|
|
|
|
|
Accrued compensation and benefits:
|
|
|
|
|
Accrued payroll
|
|
$
|
31,457
|
|
|
$
|
30,917
|
|
Accrued bonuses
|
|
15,315
|
|
|
26,992
|
|
Accrued travel expense
|
|
3,205
|
|
|
2,972
|
|
Accrued health insurance reserve
|
|
3,369
|
|
|
3,189
|
|
Accrued workers compensation reserve
|
|
8,461
|
|
|
8,406
|
|
Deferred compensation
|
|
42,823
|
|
|
32,690
|
|
Other
|
|
2,653
|
|
|
2,827
|
|
Accrued compensation and benefits
|
|
$
|
107,283
|
|
|
$
|
107,993
|
|
|
|
|
|
|
Other current liabilities:
|
|
|
|
|
Acquisition related liabilities
|
|
$
|
5,164
|
|
|
$
|
6,921
|
|
Other
|
|
7,223
|
|
|
9,690
|
|
Other current liabilities
|
|
$
|
12,387
|
|
|
$
|
16,611
|
|
|
|
|
|
|
Other long-term liabilities:
|
|
|
|
|
Workers’ compensation reserve
|
|
$
|
18,755
|
|
|
$
|
18,708
|
|
Professional liability reserve
|
|
38,841
|
|
|
37,338
|
|
Deferred rent
|
|
14,199
|
|
|
13,274
|
|
Unrecognized tax benefits
|
|
8,693
|
|
|
8,464
|
|
Other
|
|
1,813
|
|
|
4,312
|
|
Other long-term liabilities
|
|
$
|
82,301
|
|
|
$
|
82,096
|
|