UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended September 28, 2008
OR
¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission file number 001-31299
MEDICAL STAFFING NETWORK HOLDINGS, INC.
(Exact Name of Registrant as
Specified in Its Charter)
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Delaware
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65-0865171
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(State or Other Jurisdiction of
Incorporation or Organization)
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(IRS Employer
Identification No.)
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901 Yamato Road, Suite 110
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Boca Raton, Florida
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33431
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(Address of Principal Executive Offices)
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(Zip Code)
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(561) 322-1300
(Registrants Telephone Number, Including Area Code)
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, and (2) has been subject to such filing requirements for the past 90
days. Yes
x
No
¨
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 larger accelerated filer, accelerated
filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
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¨
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Accelerated filer
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x
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Non-accelerated filer
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¨
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Smaller reporting company
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¨
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes
¨
No
x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date. 30,314,567 shares of common stock, par value $0.01 per share, were outstanding as of November 3, 2008.
MEDICAL STAFFING NETWORK HOLDINGS, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1.
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FINANCIAL STATEMENTS
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MEDICAL STAFFING NETWORK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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(in thousands, except per share amounts)
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Sept. 28,
2008
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Dec. 30,
2007
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(unaudited)
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ASSETS
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Current assets:
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|
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Cash and cash equivalents
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$
|
8,762
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|
|
$
|
1,898
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|
Accounts receivable, net of allowance for doubtful accounts of
$1,664
and $1,810 at
September 28, 2008
and
December 30, 2007, respectively
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|
83,989
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|
|
|
98,376
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|
Prepaid expenses
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|
2,316
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|
|
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2,642
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Other current assets
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3,142
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2,887
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|
|
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Total current assets
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98,209
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105,803
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Furniture and equipment, net of accumulated depreciation of
$27,179
and $26,822 at
September 28, 2008
and December 30,
2007, respectively
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11,973
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|
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|
9,944
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Goodwill
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126,775
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184,257
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Intangible assets, net of accumulated amortization of
$6,585
and $4,768 at
September 28, 2008
and December 30, 2007,
respectively
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9,720
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|
14,637
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Other assets, net of accumulated amortization of
$566
and $225 at
September 28, 2008
and December 30, 2007,
respectively
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4,933
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5,215
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|
|
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Total assets
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$
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251,610
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$
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319,856
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities:
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Accounts payable and accrued expenses
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$
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39,253
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$
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45,702
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Accrued payroll and related liabilities
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10,074
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11,938
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Current portion of long-term debt
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1,000
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1,000
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Current portion of capital lease obligations
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308
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307
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Total current liabilities
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50,635
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58,947
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Long-term debt
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123,000
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128,185
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Deferred income taxes
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|
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|
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8,334
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Capital lease obligations, net of current portion
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|
314
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|
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53
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Other liabilities
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6,688
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4,166
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Total liabilities
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180,637
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199,685
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|
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Minority interest
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|
402
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402
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Commitments and contingencies
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Stockholders equity:
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Common stock, $0.01 par value, 75,000 authorized:
30,315
and 30,286 issued and outstanding at
September 28, 2008
and
December 30, 2007, respectively
|
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303
|
|
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303
|
|
Additional paid-in capital
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285,118
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284,744
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Accumulated other comprehensive loss
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(1,887
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)
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(1,738
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)
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Accumulated deficit
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(212,963
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)
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(163,540
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)
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|
|
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Total stockholders equity
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70,571
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119,769
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Total liabilities and stockholders equity
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$
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251,610
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$
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319,856
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The accompanying notes are an integral part of these condensed consolidated financial statements.
1
MEDICAL STAFFING NETWORK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended
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Nine Months Ended
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(in thousands, except per share amounts)
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Sept. 28,
2008
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Sept. 30,
2007
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Sept. 28,
2008
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Sept. 30,
2007
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Service revenues
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$
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135,836
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$
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154,690
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$
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424,088
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$
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339,161
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Cost of services rendered
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101,525
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117,671
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319,053
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258,077
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Gross profit
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34,311
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37,019
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105,035
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81,084
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Operating expenses:
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Selling, general and administrative
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27,489
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28,671
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86,197
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67,810
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Depreciation and amortization
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1,536
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1,662
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4,582
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|
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3,453
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Restructuring and other charges
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33
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2,978
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|
509
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2,978
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Impairment of goodwill
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1,925
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59,817
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1,925
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Impairment of intangible assets
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|
|
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3,100
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|
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|
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Income (loss) from operations
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5,253
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|
1,783
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(49,170
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)
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4,918
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Minority interest in income of subsidiary
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|
83
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|
|
83
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|
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|
209
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|
83
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Loss on early extinguishment of debt
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|
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|
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|
278
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|
|
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|
278
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Interest expense, net
|
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2,643
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|
3,346
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8,378
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|
4,065
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|
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Income (loss) before provision for (benefit from) income taxes
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2,527
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(1,924
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)
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(57,757
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)
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|
492
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Provision for (benefit from) income taxes
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(180
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)
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|
|
(8,334
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)
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586
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|
|
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Net income (loss)
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|
$
|
2,527
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|
$
|
(1,744
|
)
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|
$
|
(49,423
|
)
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|
$
|
(94
|
)
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|
|
|
|
|
|
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|
|
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|
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Basic and diluted net income (loss) per share
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|
$
|
0.08
|
|
$
|
(0.06
|
)
|
|
$
|
(1.63
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
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|
|
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|
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Basic
|
|
|
30,315
|
|
|
30,262
|
|
|
|
30,314
|
|
|
|
30,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
30,321
|
|
|
30,262
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|
|
|
30,314
|
|
|
|
30,262
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|
|
|
|
|
|
|
|
|
|
|
|
|
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The accompanying notes are an integral part of these condensed consolidated financial statements.
2
MEDICAL STAFFING NETWORK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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|
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|
Nine Months Ended
|
|
(in thousands)
|
|
Sept. 28,
2008
|
|
|
Sept. 30,
2007
|
|
Operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(49,423
|
)
|
|
$
|
(94
|
)
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Goodwill impairment charge
|
|
|
59,817
|
|
|
|
1,925
|
|
Intangible assets impairment charge
|
|
|
3,100
|
|
|
|
|
|
Depreciation and amortization
|
|
|
4,582
|
|
|
|
3,453
|
|
Amortization of debt issuance cost
|
|
|
341
|
|
|
|
174
|
|
Deferred income taxes
|
|
|
(8,334
|
)
|
|
|
586
|
|
Provision for doubtful accounts
|
|
|
922
|
|
|
|
224
|
|
Loss on early extinguishment of debt
|
|
|
|
|
|
|
278
|
|
Stock-based compensation expense
|
|
|
374
|
|
|
|
75
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
13,465
|
|
|
|
(6,614
|
)
|
Prepaid expenses and other current assets
|
|
|
56
|
|
|
|
(1,470
|
)
|
Other assets
|
|
|
(59
|
)
|
|
|
(309
|
)
|
Accounts payable and accrued expenses
|
|
|
(7,433
|
)
|
|
|
2,919
|
|
Accrued payroll and related liabilities
|
|
|
(1,864
|
)
|
|
|
(3,565
|
)
|
Other liabilities
|
|
|
2,373
|
|
|
|
(148
|
)
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) operating activities
|
|
|
17,917
|
|
|
|
(2,566
|
)
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
Cash paid for acquisitions, net of cash acquired
|
|
|
(1,000
|
)
|
|
|
(104,483
|
)
|
Purchases of furniture and equipment, net
|
|
|
(2,650
|
)
|
|
|
(1,517
|
)
|
Capitalized internal software costs
|
|
|
(1,547
|
)
|
|
|
(1,080
|
)
|
|
|
|
|
|
|
|
|
|
Cash used in investing activities
|
|
|
(5,197
|
)
|
|
|
(107,080
|
)
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
Net repayments under revolving credit facility
|
|
|
(4,435
|
)
|
|
|
(12,441
|
)
|
Principal payments on term loan
|
|
|
(750
|
)
|
|
|
|
|
Proceeds from issuance of term loans
|
|
|
|
|
|
|
125,000
|
|
Payments of debt issuance costs
|
|
|
|
|
|
|
(2,803
|
)
|
Principal payments under capital lease obligations
|
|
|
(335
|
)
|
|
|
(216
|
)
|
Dividends paid to holders of minority interest in subsidiary
|
|
|
(336
|
)
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) financing activities
|
|
|
(5,856
|
)
|
|
|
109,570
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
6,864
|
|
|
|
(76
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
1,898
|
|
|
|
527
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
8,762
|
|
|
$
|
451
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
30
|
|
|
$
|
1,212
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid (refunded), net
|
|
$
|
|
|
|
$
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Non-cash payment of interest
|
|
$
|
7,112
|
|
|
$
|
711
|
|
|
|
|
|
|
|
|
|
|
Purchases of equipment through capital leases
|
|
$
|
596
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
MEDICAL STAFFING NETWORK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Medical Staffing Network
Holdings, Inc. (the Company), a Delaware corporation, is a provider of temporary staffing services, per diem, short term contracts and travel, in the United States (U.S.). The Companys per diem healthcare staffing assignments (less than two
weeks in duration), short term contract-based healthcare staffing assignments (more than two weeks in duration) and travel healthcare staffing assignments (typically thirteen weeks in duration) place professionals, predominately nurses, at hospitals
and other healthcare facilities in response to its clients temporary staffing needs. Short term contract-based assignments are typically staffed by the Companys per diem branches while longer length assignments are staffed by both its
centralized travel offices and per diem branches. The Company also provides temporary staffing of allied health professionals such as specialized radiology and diagnostic imaging specialists, clinical laboratory specialists, rehabilitation
specialists, pharmacists, respiratory therapists and other similar healthcare vocations. The Companys temporary healthcare staffing client base includes for-profit and not-for-profit hospitals, teaching hospitals, governmental facilities and
regional healthcare providers.
As of September 28, 2008, the Company provided its services through a network of over 100 branch
locations around the U.S. and considers each branch location to be a reporting unit. The Company has aggregated all branch operating results under one reportable segment as each branch, or reporting unit, has similar economic characteristics. Each
per diem branch provides the same type of service, temporary staffing, and utilizes similar distribution methods, common systems, databases, procedures, processes and similar methods of identifying and serving their customers. Pursuant to the
provisions of the Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 131,
Disclosures about Segments of an Enterprise and Related Information
, the Company considers the different services
described above to aggregate into one segment. Temporary staffing services represent more than 99% of the Companys consolidated revenue, with permanent placements representing less than 0.5%, for the three and nine months ended
September 28, 2008 and September 30, 2007.
In the third quarter of 2007, the Company acquired all of the interests of
InteliStaf Holdings, Inc. (InteliStaf) and certain assets of AMR ProNurse (AMR). Through its acquisition of InteliStaf, the Company acquired a 68% ownership in InteliStaf of Oklahoma, LLC through a joint venture with an independent third party. The
third party is a hospital system that is the largest client of the joint venture.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles
generally accepted in the U.S. for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles
generally accepted in the U.S. for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the
three and nine months ended September 28, 2008 are not necessarily indicative of the results that may be expected for the year ending December 28, 2008.
4
The condensed consolidated balance sheet as of December 30, 2007 has been derived from the audited
financial statements as of that date, but does not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements.
For further information, refer to the audited consolidated financial statements and footnotes thereto included in the Companys Annual Report on
Form 10-K for the fiscal year ended December 30, 2007 (File No. 001-31299).
2. RECENT ACCOUNTING PRONOUNCEMENTS
Accounting for Business Combinations/Noncontrolling Interest
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations
(SFAS No. 141(R)), and SFAS No. 160,
Accounting and Reporting of Noncontrolling Interest in Consolidated Financial Statements, an amendment of
ARB No. 51
(SFAS No. 160). SFAS No. 141(R) expands the scope of acquisition accounting to all transactions and circumstances under which control of a business is obtained. The acquiring entity in a business combination will be
required to recognize all (and only) the assets acquired and liabilities assumed in the transaction using the acquisition-date fair value as the measurement objective for the assets acquired and liabilities assumed. SFAS No. 141(R) provides
specific guidance on the recognition of acquisition costs, restructuring costs, contingencies and goodwill related to an acquisition, replacing previous guidance found in SFAS No. 141,
Business Combinations
(SFAS No. 141).
Acquisition-related costs (i.e. due diligence costs, etc.) and restructuring costs (i.e. severance for acquirees terminated employees, lease termination costs, etc.) will now be required to be expensed in the period incurred as opposed to
current guidance whereby the costs are capitalized as a cost of the acquisition. Contingent consideration (payments made conditioned on the outcome of future events) is to be recognized at the acquisition date, measured at its fair value at that
date, rather than being recognized as an adjustment to the accounting for the business combination when the consideration is issued or becomes issuable. SFAS No. 160 requires all entities to report noncontrolling (minority) interests in
subsidiaries as equity in the consolidated financial statements and to account for transactions between an entity and noncontrolling interest as equity transactions. SFAS No. 141(R) and SFAS No. 160 are required to be adopted
simultaneously, are effective for fiscal years, inclusive of the interim periods within those fiscal years, beginning on or after December 15, 2008 and earlier adoption is prohibited. The Company will implement the provisions of SFAS
No. 141(R) and SFAS No. 160 in the fiscal year beginning December 29, 2008 and the future impact of adoption is not determinable at this time.
Fair Value of Assets and Liabilities
In February 2008, the FASB issued FASB Staff Position (FSP) FAS 157-2,
Effective
Date of FASB Statement No. 157
(FSP FAS 157-2), which provides a one-year deferral of the effective date of SFAS No. 157,
Fair Value Measurements
(SFAS No. 157) for non-financial assets and non-financial liabilities, except
for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually) (see Note 3). The purpose of this deferral is to allow the FASB time to consider the effects of the implementation issues
that have arisen. FSP FAS 157-2 is effective on issuance and postpones the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008 and to interim periods within those fiscal years. The Company will apply the
effective-date deferral to its non-financial assets and non-financial liabilities that are subject to the deferral and it does not believe adoption of FSP FAS 157-2 will have a material impact on its consolidated financial statements.
5
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and
Financial Liabilities Including an Amendment of SFAS No. 115
(SFAS No. 159), which permits entities to choose to measure many financial instruments and certain other items at fair value at specified election dates. SFAS No. 159 is
effective for fiscal years beginning after November 15, 2007. The Company has currently chosen not to elect the fair value option for any items that are not already required to be measured at fair value in accordance with U.S. generally
accepted accounting principles (GAAP).
Disclosures about Derivative Instruments and Hedging Activities
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging Activities an amendment of FASB Statement
No. 133
(SFAS No. 161). SFAS No. 161 requires enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities
, and its related interpretations, and how derivative instruments and related hedged items affect an entitys financial position, financial performance, and cash flows. SFAS
No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. SFAS No. 161 encourages, but does not require, comparative disclosures for
earlier periods at initial adoption. The Company will implement SFAS No. 161 in the fiscal year beginning December 29, 2008, and it does not believe adoption of SFAS No. 161 will have a material impact on its consolidated financial
statements.
Determination of the Useful Life of Intangible Assets
In April 2008, the FASB issued FSP FAS 142-3,
Determination of the Useful Life of Intangible Assets
(FSP FAS 142-3), which amends the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142,
Goodwill and Other Intangible Assets
(SFAS No. 142). The intent of FSP FAS 142-3 is to improve the consistency between the useful
life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141(R) and other GAAP. FSP FAS 142-3 is effective for fiscal years beginning after
December 15, 2008 and interim periods within those fiscal years and early adoption is prohibited. The Company will implement FSP FAS 142-3 in the fiscal year beginning December 29, 2008, and the Company does not believe adoption of FSP FAS
142-3 will have a material impact on its consolidated financial statements.
Hierarchy of Generally Accepted Accounting Principles
In May 2008, the FASB issued SFAS No. 162,
The Hierarchy of Generally Accepted Accounting Principles
(SFAS No. 162), which identifies the
sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP in the U.S. Any effect of applying the provisions
of SFAS No. 162 shall be reported as a change in accounting principle in accordance with SFAS No. 154,
Accounting Changes and Error Corrections
. The Company will implement SFAS No. 162 in accordance with the effective date,
which is 60 days following the Securities and Exchange Commissions (SECs) approval of the Public Company Accounting Oversight Board amendments to AU Section 411,
The Meaning of Present Fairly in Conformity With Generally Accepted
Accounting Principles.
The Company does not believe adoption of SFAS No. 162 will have a material impact on its consolidated financial statements.
6
3. FAIR VALUE OF ASSETS AND LIABILITIES
Effective with the fiscal year beginning December 31, 2007, the Company adopted SFAS No. 157 and FSP FAS 157-1,
Application of FASB Statement
No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13
(FSP FAS 157-1). SFAS No. 157 establishes a framework
for measuring fair value in GAAP, clarifies the definition of fair value within that framework, and expands disclosures about the use of fair value measurements. FSP FAS 157-1 amends SFAS No. 157 to exclude SFAS No. 13,
Accounting for
Leases
(SFAS No. 13), and other accounting pronouncements that address fair value measurements for purposes of lease classification or measurement under SFAS No. 13. However, this scope exception does not apply to assets acquired and
liabilities assumed in a business combination that are required to be measured at fair value under SFAS No. 141 and SFAS No. 141(R), regardless of whether those assets and liabilities are related to leases.
In accordance with FSP FAS 157-2, that was issued by the FASB in February 2008 and provides a one-year deferral of the effective date of SFAS
No. 157 for non-financial assets and non-financial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis, the Company will implement SFAS No. 157 for those non-financial assets and
non-financial liabilities effective with the fiscal year beginning December 29, 2008. Non-financial assets and non-financial liabilities that are subject to the deferral include:
|
|
Non-financial assets and non-financial liabilities measured at fair value in a business combination or other new basis event, but not remeasured to fair value in
subsequent periods;
|
|
|
Reporting units and indefinite-lived intangible assets measured at fair value for purposes of impairment testing, as these items are measured at fair value on a
recurring basis but are not necessarily recognized in the financial statements at fair value;
|
|
|
Non-financial assets and non-financial liabilities measured at fair value in the second step of a goodwill impairment test under SFAS No. 142, as these items
are measured at fair value on a nonrecurring basis to determine the amount of goodwill impairment, but are not necessarily recognized in the financial statements at fair value; and
|
|
|
Non-financial assets or non-financial liabilities subject to fair value measurement under SFAS No. 144,
Accounting for the Impairment or Disposal of
Long-Lived Assets
(SFAS No. 144), and SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal Activities
.
|
At September 28, 2008, the Company held one interest rate swap agreement with a financial institution, designated as a cash flow hedge, to reduce the exposure to adverse fluctuations in floating interest rates on
the underlying debt obligation (see Note 10). The swap agreement involves the receipt of floating interest rate payments based on the U.S. Dollar London Interbank Offered Rate (LIBOR), which is reset quarterly and therefore considered a Level 2
input.
7
The Company had no financial assets that were impacted by SFAS No. 157. The following table presents
the Companys financial liability that was accounted for at fair value on a recurring basis as of September 28, 2008 by level within the fair value hierarchy in accordance with SFAS No. 157 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at September 28, 2008 Using
|
|
|
|
|
|
Quoted Prices in
Active Markets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total Carrying
Value at
Sept. 28, 2008
|
|
Liability:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instrument
|
|
$
|
|
|
$
|
(1,887
|
)
|
|
$
|
|
|
$
|
(1,887
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4. REVENUE RECOGNITION
The Companys service revenues consist almost entirely of temporary staffing revenues. Revenues are recognized when services are rendered. Reimbursable expenses, including those related to travel and
out-of-pocket expenses, are recorded as service revenues with an equal amount in cost of services rendered.
The Company recognizes
revenues from staffing services on a gross basis, as services are performed and associated costs have been incurred using employees of the Company. In these circumstances, the Company assumes the risk of acceptability of its employees to its
customers. An element of the Companys staffing business (within vendor management services (VMS) agreements) is the use of unaffiliated companies (associate partners) and the use of their employees to fulfill a customers staffing
requirement. Under these arrangements, the associate partner serves as a subcontractor. The customer is typically responsible for assessing the work of the associate partner and has responsibility for the acceptability of its personnel. In most
instances, the customer and associate partner have agreed that the Company does not pay the associate partner until the customer pays the Company. Based upon the revenue recognition principles in Emerging Issues Task Force (EITF) No. 99-19,
Reporting Revenue Gross as a Principal versus Net as an Agent
, revenue for these services, where the customer and the associate partner have agreed that the Company is not at risk for payment, is recognized net of associated costs in the
period the services are rendered.
Gross revenues of associate partners and net revenues recognized in the condensed consolidated
statements of operations for the three and nine months ended September 28, 2008 and September 30, 2007 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
Sept. 28,
2008
|
|
Sept. 30,
2007
|
|
Sept. 28,
2008
|
|
Sept. 30,
2007
|
Gross revenues of associate partners
|
|
$
|
17,324
|
|
$
|
12,726
|
|
$
|
45,372
|
|
$
|
25,874
|
Net revenues recognized
|
|
|
676
|
|
|
531
|
|
|
1,604
|
|
|
822
|
5. ACQUISITONS
During the nine months ended September 28, 2008, the Company paid approximately $1.0 million of additional consideration related to AMR, a 2007 acquisition, regarding the achievement of certain financial results,
all of which has been allocated to goodwill.
During the nine months ended September 30, 2007, the Company paid approximately $0.7
million of additional consideration related to a 2005 acquisition regarding the achievement of certain financial results, all of which has been allocated to goodwill.
8
In September 2007, the Company acquired certain assets of AMR for approximately $11.0 million in cash
less a working capital adjustment of $0.2 million, of which approximately $0.3 million was held in escrow, with the potential for additional consideration contingent upon AMR achieving certain financial results for fiscal years 2007 through March
2013.
In July 2007, the Company acquired all of the interests of InteliStaf for approximately $92.0 million in cash plus a net working
capital adjustment of $1.2 million (of which $2.2 million was funded at the acquisitions close in July 2007 and $1.0 million was returned to the Company in 2008), of which approximately $4.6 million was held in escrow, with no potential for
additional consideration. In the beginning of the third quarter of 2008, the Company finalized the purchase accounting for the InteliStaf acquisition, resulting in an increase to goodwill of approximately $1.3 million.
6. IMPAIRMENT OF GOODWILL AND INTANGIBLE ASSETS
In
accordance with SFAS No. 142, the Company reviews its reporting units for impairment indicators on a quarterly basis. During the second quarter of 2008, due in large part to a weak economy, tight credit market and challenging healthcare
staffing industry dynamics that affected the Companys second quarter results, the Company reassessed its forward-looking short, mid and long term growth rates, of its various reporting units. The Company believed an indicator of impairment
might be present, as based on information present in the second quarter of 2008, the Companys estimated future growth rates were now lower than what the Company had previously considered. Accordingly, the Company performed an interim period
goodwill impairment test using a discounted cash flow model and determined that goodwill at a number of its reporting units was impaired due to the reduced projected operating results in future periods. As such, in the quarter ended June 29,
2008, the Company recorded a non-cash charge of approximately $59.8 million to write off the associated goodwill. This amount is included in the line item Impairment of goodwill on the Companys condensed consolidated statements of
operations for the nine months ended September 28, 2008.
Pursuant to the provisions of SFAS No. 142 and SFAS No. 144, the
Company reviews all long-lived assets for impairment whenever events or changes in circumstances indicate the assets may be impaired. In the discounted cash flow model used in the second quarter of 2008 interim goodwill impairment testing, the
Company lowered its projected growth rates for each of its reporting units. As future estimated growth rates were reduced, the Company believed an indicator may be present for possible impairment of the intangible asset, trade names. As such, an
analysis of the trade name value was performed using the revised growth rates used in the interim period goodwill discounted cash flow model resulting in a non-cash impairment charge of $3.1 million to reduce the $5.6 million carrying value of the
intangible asset to the calculated $2.5 million fair value. This amount is included in the line item Impairment of intangible assets on the Companys condensed consolidated statements of operations for the nine months ended
September 28, 2008.
In the third quarter of 2007, coinciding with branch closures associated with the plan to restructure and
integrate the operations of InteliStaf (IS Plan), as discussed in Note 7, the Company concluded that the goodwill associated with four closed pre-acquisition branches was fully impaired. As a result, for the three and nine months ended
September 30, 2007, the Company recorded a non-cash charge of approximately $1.9 million to write-off the associated goodwill. This amount is included in the line item Impairment of goodwill on the Companys condensed
consolidated statements of operations for the three and nine months ended September 30, 2007.
9
7. RESTRUCTURING AND OTHER CHARGES
On August 7, 2007, the Company initiated the IS Plan. The objectives of the IS Plan were to eliminate redundant costs resulting from the acquisition of InteliStaf and to improve efficiencies in operations. As
part of the IS Plan, the Company reduced its pre-acquisition workforce by approximately 70 employees and closed four of its pre-acquisition branches. Additionally, the Company reduced InteliStafs pre-acquisition workforce by approximately 200
employees and closed three of InteliStafs branches. As a result, in the third quarter of 2007, the Company recorded a pre-tax charge of $3.0 million, which was comprised of $1.0 million related to severance costs and contract and lease
termination fees associated with the Companys pre-acquisition branches and $2.0 million related to integration expenses for the InteliStaf acquisition. The severance costs and contract and lease termination fees associated with the InteliStaf
branch closures was $10.4 million, with $9.3 million recorded in the third quarter of 2007 and $1.1 million recorded in the fourth quarter of 2007. In conjunction with the finalization of the purchase accounting for the InteliStaf acquisition (see
Note 5), in the third quarter of 2008, the Company recorded additional lease termination fees under the IS Plan of $0.4 million as a liability.
Of the total restructuring accrual of $11.8 million, $10.8 million was accounted for as part of the cost of the acquired business and was not recorded as a period expense, and the remaining $1.0 million was included within the
aforementioned third quarter of 2007 pre-tax charge of $3.0 million, which can be found in the line item Restructuring and other charges on the Companys statement of operations for the three and nine months ended September 30,
2007. A breakdown of the $11.8 million liability recorded for the IS Plan is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial
Liability
|
|
Q4 2007
Additions
|
|
Q3 2008
Additions
|
|
Cash Paid
Through
Sept. 28, 2008
|
|
|
Accrued at
Sept. 28, 2008
|
|
Lease termination costs
|
|
$
|
7,213
|
|
$
|
|
|
$
|
384
|
|
$
|
(3,327
|
)
|
|
$
|
4,270
|
|
Employee termination costs
|
|
|
3,104
|
|
|
1,136
|
|
|
|
|
|
(4,240
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,317
|
|
$
|
1,136
|
|
$
|
384
|
|
$
|
(7,567
|
)
|
|
$
|
4,270
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Included in accounts payable and accrued expenses in the Companys condensed consolidated balance sheet.
|
8. LONG-TERM DEBT
At January 1, 2007, the
Company was a party to a senior credit facility that, as amended, provided for a $40.0 million revolving credit facility that was due to expire on September 29, 2009.
On July 2, 2007, the Company repaid all amounts outstanding under its prior senior credit
facility and entered into a new $155.0 million senior credit facility (2007 Senior Credit Facility). The 2007 Senior Credit Facility is comprised of a six-year $30.0 million revolving senior credit facility (Revolver), a six-year $100.0 million
senior secured term loan (1
st
Term Loan) and a seven-year $25.0 million senior secured second term loan (2
nd
Term Loan). The proceeds of the 2007 Senior Credit Facility were used to finance the purchase price of the InteliStaf and AMR acquisitions, to repay outstanding borrowings under the
extinguished senior credit facility, to pay fees and expenses incurred in connection with the InteliStaf and AMR acquisitions and for general working capital purposes.
10
Pursuant to the terms of the 2007 Senior Credit Facility, the amount that can be borrowed at any given
time under the Revolver is based on a leverage covenant and the amount of outstanding letters of credit, which can result in borrowing availability of less than the full capacity of the Revolver. As of September 28, 2008, $7.7 million of the
Revolvers capacity was being used for standby letters of credit (of which $7.1 million related to InteliStafs workers compensation policy and $0.6 million related to operating leases). As there were no other borrowings outstanding under
the Revolver, $22.3 million was available for borrowing, of which $13.9 million is immediately available.
The Revolver bears interest at either prime rate or LIBOR plus an applicable margin (7.5% at September 28, 2008) with interest payable quarterly or as LIBOR interest rate contracts expire. Unused capacity under
the Revolver bears interest at 0.50% and is payable quarterly. The 1
st
Term Loan bears interest at either prime rate or LIBOR plus an applicable
margin (7.67% at September 28, 2008) with interest payable quarterly or as LIBOR interest rate contracts expire. The 2
nd
Term Loan bears
interest at either prime rate or LIBOR plus an applicable margin (9.29% at September 28, 2008) with interest payable quarterly or as LIBOR interest rate contracts expire. Pursuant to the terms of the 2007 Senior Credit Facility, the Company is
required to hedge at least 50% of the outstanding borrowings of the 1
st
and 2
nd
Term Loans. On September 6, 2007, the Company entered into a three-year hedging agreement using three month LIBOR rates, whereby it effectively locked in $62.5 million of the debt at a fixed rate of 4.975% (See
Note 10) plus the applicable margin.
The 2007 Senior Credit Facility is secured by substantially all of the Companys assets and
contains certain covenants that, among other things, limit the payment of dividends, restrict additional indebtedness and obligations, and require maintenance of certain financial ratios. As of September 28, 2008, the Company was in compliance
with all covenants.
9. INCOME TAXES
At September 28, 2008, the Company had gross deferred tax assets in excess of deferred tax liabilities. The Company has determined that it is more likely than not that the net deferred tax assets will not be fully realized in the near
term (deferred tax liabilities that are not expected to reverse in the net operating loss carryforward period are not considered in reviewing the realizability of the other temporary differences). Accordingly, the Company has a full valuation
allowance against such net current and noncurrent deferred tax assets. When applicable, a deferred tax liability and provision would be recorded relative to indefinite reversing temporary differences.
The tax effect resulting from the goodwill impairment charge the Company recorded in the second quarter of 2008 caused the deferred tax liability to
change to a deferred tax asset. As the Company is currently required to have a valuation allowance on its deferred tax assets, the Company established a full valuation allowance against the entire balance of its deferred tax asset, thereby causing
the Company to have no tax expense for the three months ended September 28, 2008. The Company will not record a tax expense until the goodwill amortization for income tax purposes causes the deferred tax asset to revert back to a deferred tax
liability.
11
The Company adopted the provisions of FASB Interpretation (FIN) No. 48,
Accounting for
Uncertainty in Income Taxes
(FIN No. 48), on January 1, 2007. Previously, the Company had accounted for tax contingencies in accordance with SFAS No. 5,
Accounting for Contingencies
. As required by FIN No. 48, which
clarifies SFAS No. 109,
Accounting for Income Taxes
, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position
following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the condensed consolidated financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon
ultimate settlement with the relevant tax authority. At the adoption date, the Company applied FIN No. 48 to all tax positions for which the statute of limitations remained open. Upon implementing FIN No. 48, the Company did not recognize
any additional liabilities for unrecognized tax benefits. Accordingly, the adoption of FIN No. 48 had no impact on the condensed consolidated financial statements.
The amount of unrecognized tax benefits at December 30, 2007, was $0.5 million, which, if ultimately recognized, will reduce the Companys annual effective tax rate. The Company has a full valuation
allowance against the $0.5 million unrecognized tax benefit. There has been no material change in unrecognized tax benefits since December 30, 2007.
The Company is subject to income taxes in the U.S. federal jurisdiction and various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and
regulations and require significant judgment to apply. The Company is no longer subject to U.S. federal income tax examinations by tax authorities for the years before 2004, and with few exceptions, the Company is no longer subject to state and
local income tax examinations by tax authorities pursuant to each states respective statute of limitations for the years before 2004. The Company is not currently under any material examination by the United States federal jurisdiction or any
state jurisdictions.
The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in
operating expenses. No interest or penalties have been accrued for all periods presented.
10. INTEREST RATE SWAP
As aforementioned in Note 8, the Companys 2007 Senior Credit Facility requires that the Company maintain an interest rate protection agreement to
manage the impact of interest rate changes on a portion of the Companys variable rate obligations. Effective September 6, 2007, the Company entered into a three-year interest rate swap agreement (2007 Swap Agreement) with a financial
institution. The 2007 Swap Agreement involves the receipt of floating interest rate payments based on the U.S. Dollar LIBOR, which is reset quarterly, and fixed interest rate payments of 4.975% over the life of the 2007 Swap Agreement without
an exchange of the underlying notional amount, which was set at $62.5 million. The 2007 Swap Agreement is scheduled to mature on September 6, 2010. The fair value of the 2007 Swap Agreement at September 28, 2008 was $1.9 million and was
recorded in the line items Other liabilities and Accumulated other comprehensive loss in the liabilities and stockholders equity sections of the condensed consolidated balance sheet. The Company deems the 2007 Swap
Agreement as a 100% effective derivative designated as a cash flow hedge.
The Company entered into the 2007 Swap Agreement to reduce the
exposure to adverse fluctuations in floating interest rates on the underlying debt obligation and not for trading purposes. Any differences paid or received under the terms of the 2007 Swap Agreement shall be recognized as adjustments to interest
expense over the life of the interest rate swap, thereby adjusting the effective interest rate on the underlying debt obligation.
12
11. COMPREHENSIVE INCOME (LOSS)
SFAS No. 130,
Comprehensive Income
, requires that an enterprise (a) classify items of other comprehensive income by their nature in the financial statements, and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of the balance sheet. The items of other comprehensive income (loss) that are typically required to be displayed are foreign
currency items, minimum pension liability adjustments, unrealized gains and losses on certain investments in debt and equity securities and the effective portion of certain derivative instruments. There are no components of comprehensive income
(loss) other than the Companys net income (loss) and unrealized gain (loss) on the derivative instrument for the three and nine months ended September 28, 2008 and September 30, 2007. The following table sets forth the
computation of comprehensive income (loss) for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
(in thousands)
|
|
Sept. 28,
2008
|
|
Sept. 30,
2007
|
|
|
Sept. 28,
2008
|
|
|
Sept. 30,
2007
|
|
Net income (loss)
|
|
$
|
2,527
|
|
$
|
(1,744
|
)
|
|
$
|
(49,423
|
)
|
|
$
|
(94
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on derivative, net of taxes
|
|
|
80
|
|
|
545
|
|
|
|
(149
|
)
|
|
|
545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
$
|
2,607
|
|
$
|
(1,199
|
)
|
|
$
|
(49,572
|
)
|
|
$
|
451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12. NET INCOME (LOSS) PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
(in thousands, except per share information)
|
|
Sept. 28,
2008
|
|
Sept. 30,
2007
|
|
|
Sept. 28,
2008
|
|
|
Sept. 30,
2007
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for basic and diluted net income (loss) per share
|
|
$
|
2,527
|
|
$
|
(1,744
|
)
|
|
$
|
(49,423
|
)
|
|
$
|
(94
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic net income (loss) per share
|
|
|
30,315
|
|
|
30,262
|
|
|
|
30,314
|
|
|
|
30,262
|
|
Effect of dilutive shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted income (loss) per share-adjusted weighted average shares and assumed conversions
|
|
|
30,321
|
|
|
30,262
|
|
|
|
30,314
|
|
|
|
30,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net income (loss) per share
|
|
$
|
0.08
|
|
$
|
(0.06
|
)
|
|
$
|
(1.63
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended September 28, 2008, approximately 2.0 million shares
underlying options were excluded from the denominator for diluted net income per share as the impact of their conversion was anti-dilutive. For the nine months ended September 28, 2008, approximately 2.0 million shares underlying options
were excluded in the calculation of diluted shares as the impact of their conversion was anti-dilutive due to the net loss. For both the three and nine months ended September 30, 2007, approximately 1.8 million shares underlying options
were excluded from the denominator for diluted net income per share as the impact of their conversion was anti-dilutive.
13
13. RELATED PARTY TRANSACTIONS
The Company provides staffing services to a healthcare system of which one of the Companys directors, Philip A. Incarnati, is the President and Chief Executive Officer. During the three months ended
September 28, 2008 and September 30, 2007, the Company billed approximately $0.8 million and $0.7 million, respectively, for its services. During each of the nine months ended September 28, 2008 and September 30, 2007, the
Company billed approximately $2.2 million for its services. The Company had a receivable balance from the healthcare system of approximately $0.3 million at both September 28, 2008 and December 30, 2007.
The Company provides staffing services to a healthcare services company of which one of the Companys directors, David Wester, is the President.
During each of the three and nine months ended September 28, 2008 and September 30, 2007, the Company billed approximately $0.1 million for its services. The Company had a receivable balance from the healthcare system of less than $0.1
million at both September 28, 2008 and December 30, 2007.
The Company paid less than $0.1 million during each of the three and
nine months ended September 28, 2008 and September 30, 2007, to Florida Atlantic University (FAU) in connection with a continuing education program for the Companys nurses. One of the Companys directors, Dr. Anne Boykin,
is the Dean of the College of Nursing at FAU, located in Boca Raton, Florida.
14. CONTINGENCIES
The Department of Labor is currently conducting a wage and hour review regarding the Companys payment of certain on-call employees who
work from their homes after normal business hours and bonus payments made to certain per diem employees. The Company is cooperating fully with the review and believes that all employees were properly paid.
From time to time, the Company is subject to lawsuits and claims that arise out of its operations in the normal course of business. The Company is a
plaintiff or a defendant in various litigation matters in the ordinary course of business, some of which involve claims for damages that are substantial in amount. The Company believes that the disposition of any claims that arise out of operations
in the normal course of business will not have a material adverse effect on the Companys financial position or results of operations.
15.
SUBSEQUENT EVENTS
On October 9, 2008 the Company announced that it had been notified by the New York Stock Exchange (NYSE) that it
is no longer in compliance with the NYSEs continued listing standards. The Company is considered below criteria for the continued listing standards because over a 30 trading-day period, its total market capitalization was less than $75 million
and its most recently reported stockholders equity was less than $75 million. As of October 3, 2008, the Companys 30 trading-day average market capitalization was $67.4 million, and in its quarterly report on Form 10-Q for the
quarter ended June 29, 2008, the Company reported shareholders equity of $67.8 million. Under applicable NYSE procedures, the Company has 45 days from the receipt of the notice to submit a plan to the NYSE to demonstrate its ability to
achieve compliance with the continuing listing standards within 18 months. The Company intends to submit such a plan.
14
On October 28, 2008, the Company realigned its per diem branch network. Due to technological
advancements, recent VMS successes and an increased focus on local contract staffing (which the Company defines as assignments ranging two weeks or longer staffed by a local per diem branch), the Company consolidated its national branch footprint by
closing 20 per diem locations where VMS and local contract business opportunities were less evident. As a result of the realignment, the Company eliminated 150 branch, corporate and operations personnel. In the fourth quarter of 2008, the
Company will record a pre-tax charge of approximately $1.0 million related to severance costs and lease termination fees and a pre-tax non-cash charge of approximately $5.7 million to write-off the goodwill associated with these closed branches.
15
ITEM 2.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Introduction
Managements discussion and analysis of financial condition and results of
operations is provided as a supplement to our condensed consolidated financial statements and accompanying notes to help provide an understanding of our financial condition, changes in financial condition and results of operations. In addition,
reference should be made to our audited consolidated financial statements and accompanying notes thereto and related Managements Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form
10-K for the fiscal year ended December 30, 2007. The discussion and analysis is organized as follows:
|
|
Overview.
This section provides a general description of our business, trends in our industry, as well as significant transactions that have occurred that we
believe are important in understanding our financial condition and results of operations.
|
|
|
Recent accounting pronouncements.
This section provides an analysis of relevant recent accounting pronouncements issued by the Financial Accounting Standards
Board (FASB) and/or other standard-setting bodies, and the effect of those pronouncements.
|
|
|
Results of operations.
This section provides an analysis of our results of operations for the three and nine months ended September 28, 2008 relative to
the three and nine months ended September 30, 2007 presented in the accompanying condensed consolidated statements of operations.
|
|
|
Liquidity and capital resources.
This section provides an analysis of our cash flows, capital resources, off-balance sheet arrangements and our outstanding
debt and commitments as of September 28, 2008.
|
|
|
Critical accounting policies.
This section discusses those accounting policies that are both considered important to our financial condition and results of
operations, and require significant judgment and estimates on the part of management in their application.
|
|
|
Caution concerning forward-looking statements.
This section discusses how certain forward-looking statements made by us throughout this discussion and
analysis are based on managements present expectations about future events and are inherently susceptible to uncertainty and changes in circumstance.
|
Overview
Business Description
We are a leading temporary healthcare staffing company and the largest provider of per diem staffing services in the United States as measured by
revenues. More than two-thirds of our clients are acute care hospitals, clinics, surgical and ambulatory care centers, and governmental facilities. We serve both for-profit and not-for-profit organizations that range in scope from one facility to
national chains with dozens of facilities. Our clients typically pay us directly. We do not receive a material portion of our revenues from Medicare or Medicaid reimbursements or similar state reimbursement programs.
16
Our per diem staffing division currently operates in an integrated network of branches which serve as our
direct contact with our healthcare professionals and clients. The cost structure of a typical branch is substantially fixed, consisting of limited personnel, office space rent, information systems infrastructure and office supplies. We have been
able to develop a highly efficient branch management model that we believe is easily scalable.
Our per diem healthcare staffing
assignments (less than two weeks in duration), short term contract-based healthcare staffing assignments (more than two weeks in duration) and travel healthcare staffing assignments (typically thirteen weeks in duration) place professionals,
predominately nurses, at hospitals and other healthcare facilities in response to our clients temporary staffing needs. Short term contract-based assignments are typically staffed by our per diem branches while longer length assignments are
staffed by both the centralized travel offices and per diem branches. Our travel staffing offices coordinate travel and housing arrangements for our professionals who typically relocate to the area in which they are placed.
We are also a leading provider, as measured by revenues, of highly specialized radiology and diagnostic imaging specialists, clinical laboratory
specialists, rehabilitation specialists, pharmacists and respiratory therapists and other similar healthcare specialists, or allied health professionals. These professionals are staffed on both a per diem and travel basis, serving
hospitals, nursing homes, clinics and surgical ambulatory care centers and retail pharmacies.
Our centralized travel staffing and allied
health staffing offices are national in scope and serve as our direct contact with our healthcare professionals and clients.
Another
element of our staffing business is vendor management services (VMS) agreements, whereby we provide the facility a single point of contact that coordinates temporary staffing across all departments for the entire facility. We first attempt to fill
the needs of our VMS clients using our internal per diem or travel staff. When this is not possible, we subcontract staff from unaffiliated agencies (each, an Associate Partner). The facility is typically aware that we will be required to use
Associate Partners and the facility has the final authority as to the acceptability and use of a particular Associate Partner and its personnel. In most instances, we are not liable for payment to the Associate Partner until we are paid by the
facility.
Industry Trends
Service revenues have been under pressure due to a weak economy, tight credit market, and challenging healthcare staffing industry dynamics that have suppressed incremental demand for temporary nurses though we have seen modest increases in
bill rates over the last four quarters. Due to the worsening economic conditions, we believe that nurses in many households may become the primary wage earner, which could cause such nurses to potentially seek more traditional full-time employment.
Additionally, as hospitals are experiencing lower than projected admissions levels, they are placing greater reliance on existing full-time staff, resulting in increased overtime and nurse-patient loads.
We cannot predict when conditions will improve, but we remain confident in the long-term growth drivers of the industry. In a March 2004 report, the
United States (U.S.) Census Bureau projected that the number of Americans 65 years of age or older is expected to grow from 35.1 million in 2000 to 54.6 million in 2020. Among the trends noted in a March 2006 U.S. Census Bureau report, the
U.S. population age 65 and over, which is now the fastest growing segment of the U.S. population, is expected to double in size within the next 25 years and by 2030, almost 1 out of every 5 Americans (some 72 million people) will be 65 years or
older. In a November 2007 report, the U.S. Bureau of Labor Statistics stated that more than 1.0 million nurses will be needed by 2020, making nursing the nations top profession in terms of projected job growth. Additionally, there is
pressure to restrict mandatory healthcare
17
worker overtime requirements by employers and to establish regulated nurse-patient ratios. Several states have enacted legislation establishing nurse to
patient ratios and/or prohibiting mandatory overtime while other states have similar legislation pending. In conjunction with the aforementioned factors, the long-term prospects for the healthcare staffing industry should improve as hospitals
experience higher census levels, due in large part to an aging society and an increasing shortage of healthcare workers.
Acquisitions
We made no acquisitions in the first nine months of 2008.
We made two acquisitions in the first nine months of 2007. In September 2007, the Company acquired certain assets of AMR ProNurse (AMR) for approximately
$11.0 million in cash less a working capital adjustment of $0.2 million, of which approximately $0.3 million was held in escrow, with the potential for additional consideration contingent upon AMR achieving certain financial results for fiscal years
2007 through March 2013. In July 2007, the Company acquired all of the interests of InteliStaf Holdings, Inc. (InteliStaf) for approximately $92.0 million in cash plus a net working capital adjustment of $1.2 million (of which $2.2 million was
funded at the acquisitions close in July 2007 and $1.0 million was returned to us in 2008), of which approximately $4.6 million was held in escrow, with no potential for additional consideration. In the beginning of the third quarter, we
finalized the purchase accounting for the InteliStaf acquisition, resulting in an increase to goodwill of approximately $1.3 million.
Service
Revenues
For the three and nine months ended September 28, 2008 and September 30, 2007, temporary staffing services
represented more than 99% of our consolidated revenues, with permanent placements representing less than 0.5%. For the three months ended September 28, 2008 and September 30, 2007, approximately 68% and 65%, respectively, of our revenues
were derived from per diem nurse staffing, 17% and 21%, respectively, from travel nurse staffing and 15% and 14%, respectively, from the staffing of various allied health professionals, such as radiology and diagnostic imaging specialists, clinical
laboratory specialists, rehabilitation specialists, pharmacists and respiratory therapists and other similar healthcare vocations. An increasing portion of our per diem divisions revenue is from local contracts (assignments more than 2 weeks).
Approximately 25% of third quarter of 2008 per diem revenue was from local contracts.
For the three months ended September 28,
2008 and September 30, 2007, approximately 70% and 67%, respectively, of our revenues were generated through our per diem branch network (nurse staffing and local allied health staffing), 17% and 21%, respectively, from travel staffing and 13%
and 12%, respectively, from allied health staffing.
For the nine months ended September 28, 2008 and September 30, 2007,
approximately 68% and 71%, respectively, of our revenues were derived from per diem nurse staffing, 17% and 12%, respectively, from travel nurse staffing and 15% and 17%, respectively, from allied health staffing.
For the nine months ended September 28, 2008 and September 30, 2007, approximately 70% and 74%, respectively, of our revenues were generated
through our per diem branch network (nurse staffing and local allied health staffing), 18% and 11%, respectively, from travel staffing and 12% and 15%, respectively, from allied health staffing.
18
Impairment of Goodwill and Intangible Assets
In accordance with Statement of Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets,
(SFAS No. 142), we
review our reporting units for impairment indicators on a quarterly basis. During the second quarter of 2008, due in large part to a weak economy, tight credit market and challenging healthcare staffing industry dynamics that affected our second
quarter results, we reassessed our forward-looking short, mid and long term growth rates for our various reporting units. We believed an indicator of impairment might be present, as based on information available at the second quarter of 2008, our
estimated future growth rates were now lower than what we had previously considered. Accordingly, we performed an interim period goodwill impairment test using a discounted cash flow model and determined that goodwill at a number of our reporting
units was impaired due to the reduced projected operating results in future periods. As such, in the quarter ended June 29, 2008, we recorded a non-cash charge of approximately $59.8 million to write off the associated goodwill. This amount is
included in the line item Impairment of goodwill on our condensed consolidated statements of operations for the nine months ended September 28, 2008.
Pursuant to the provisions of SFAS No. 142 and SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets
(SFAS No. 144), we review all long-lived assets for impairment whenever
events or changes in circumstances indicate the assets may be impaired. In the discounted cash flow model used in our second quarter of 2008 interim goodwill impairment testing, we lowered our projected growth rates for each of our reporting units.
As future estimated growth rates were reduced, we believed an indicator may be present for possible impairment of the intangible asset, trade names. As such, an analysis of the trade name value was performed using the revised growth rates used in
the interim period goodwill discounted cash flow model resulting in a non-cash impairment charge of $3.1 million to reduce the $5.6 million carrying value of the intangible asset, to the calculated $2.5 million fair value. This amount is included in
the line item Impairment of intangible assets on our condensed consolidated statements of operations for the nine months ended September 28, 2008.
Coinciding with the third quarter of 2007 branch closures associated with the plan to restructure and integrate the operations of InteliStaf (IS Plan), we concluded that the goodwill associated with four closed
pre-acquisition branches was fully impaired. As a result, for the three and nine months ended September 30, 2007, we recorded a non-cash charge of approximately $1.9 million to write-off the associated goodwill. This amount is included in
the line item Impairment of goodwill on our condensed consolidated statements of operations for the three and nine months ended September 30, 2007.
Restructuring and Other Charges
On August 7, 2007, we initiated the IS Plan. The
objectives of the IS Plan were to eliminate redundant costs resulting from the acquisition of InteliStaf and to improve efficiencies in operations. As part of the IS Plan, we reduced our pre-acquisition workforce by approximately 70 employees and
closed four of our pre-acquisition branches. Additionally, we reduced InteliStafs pre-acquisition workforce by approximately 200 employees and closed three of InteliStafs branches. As a result, in the third quarter of 2007, we recorded a
pre-tax charge of $3.0 million, which was comprised of $1.0 million related to severance costs and contract and lease termination fees associated with our pre-acquisition branches and $2.0 million related to integration expenses for the InteliStaf
acquisition. The severance costs and contract and lease termination fees associated with the InteliStaf branch closures was $10.4 million, with $9.3 million recorded in the third quarter of 2007 and $1.1 million recorded in the fourth quarter of
2007. In conjunction with the finalization of the purchase accounting for the InteliStaf acquisition, in the third quarter of 2008, we recorded additional lease termination fees under the IS Plan of $0.4 million as a liability.
19
Of the total restructuring accrual of $11.8 million, $10.8 million was accounted for as part of the cost
of the acquired business and was not recorded as a period expense, and the remaining $1.0 million was included within the aforementioned third quarter of 2007 pre-tax charge of $3.0 million, which can be found in the line item Restructuring
and other charges on our statement of operations for the three and nine months ended September 30, 2007.
Recent Accounting Pronouncements
Accounting for Business Combinations/Noncontrolling Interest
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations
(SFAS No. 141(R)), and SFAS No. 160,
Accounting and
Reporting of Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB No. 51
(SFAS No. 160). SFAS No. 141(R) expands the scope of acquisition accounting to all transactions and circumstances under which
control of a business is obtained. The acquiring entity in a business combination will be required to recognize all (and only) the assets acquired and liabilities assumed in the transaction using the acquisition-date fair value as the measurement
objective for the assets acquired and liabilities assumed. SFAS No. 141(R) provides specific guidance on the recognition of acquisition costs, restructuring costs, contingencies and goodwill related to an acquisition, replacing previous
guidance found in SFAS No. 141,
Business Combinations
(SFAS No. 141). Acquisition-related costs (i.e. due diligence costs, etc.) and restructuring costs (i.e. severance for acquirees terminated employees, lease termination
costs, etc.) will now be required to be expensed in the period incurred as opposed to current guidance whereby the costs are capitalized as a cost of the acquisition. Contingent consideration (payments made conditioned on the outcome of future
events) is to be recognized at the acquisition date, measured at its fair value at that date, rather than being recognized as an adjustment to the accounting for the business combination when the consideration is issued or becomes issuable. SFAS
No. 160 requires all entities to report noncontrolling (minority) interests in subsidiaries as equity in the consolidated financial statements and to account for transactions between an entity and noncontrolling interest as equity transactions.
SFAS No. 141(R) and SFAS No. 160 are required to be adopted simultaneously, are effective for fiscal years, inclusive of the interim periods within those fiscal years, beginning on or after December 15, 2008 and earlier adoption is
prohibited. We will implement the provisions of SFAS No. 141(R) and SFAS No. 160 in the fiscal year beginning December 29, 2008 and the future impact of adoption is not determinable at this time.
Fair Value of Assets and Liabilities
In
February 2008, the FASB issued FASB Staff Position (FSP) FAS 157-2,
Effective Date of FASB Statement No. 157
(FSP FAS 157-2), which provides a one-year deferral of the effective date of SFAS No. 157,
Fair Value Measurements
(SFAS No. 157) for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The purpose of this deferral is to
allow the FASB time to consider the effects of the implementation issues that have arisen. FSP FAS 157-2 is effective on issuance and postpones the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008 and to
interim periods within those fiscal years. We will apply the effective-date deferral to our non-financial assets and non-financial liabilities subject to the deferral and we do not believe adoption of FSP FAS 157-2 will have a material impact on our
consolidated financial statements.
20
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and
Financial Liabilities Including an Amendment of SFAS No. 115
(SFAS No. 159), which permits entities to choose to measure many financial instruments and certain other items at fair value at specified election dates. SFAS No. 159 is
effective for fiscal years beginning after November 15, 2007. We have currently chosen not to elect the fair value option for any items that are not already required to be measured at fair value in accordance with U.S. generally accepted
accounting principles (GAAP).
Disclosures about Derivative Instruments and Hedging Activities
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging Activities an amendment of FASB Statement
No. 133
, (SFAS No. 161). SFAS No. 161 requires enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities
, and its related interpretations, and how derivative instruments and related hedged items affect an entitys financial position, financial performance, and cash flows. SFAS
No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. SFAS No. 161 encourages, but does not require, comparative disclosures for
earlier periods at initial adoption. We will implement SFAS No. 161 in the fiscal year beginning December 29, 2008 and we do not believe adoption of SFAS No. 161 will have a material impact on our consolidated financial statements.
Determination of the Useful Life of Intangible Assets
In April 2008, the FASB issued FSP FAS 142-3,
Determination of the Useful Life of Intangible Assets
(FSP FAS 142-3), which amends the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142. The intent of FSP FAS 142-3 is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and
the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141(R) and other GAAP. FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years
and early adoption is prohibited. We will implement FSP FAS 142-3 in the fiscal year beginning December 29, 2008 and we do not believe adoption of FSP FAS 142-3 will have a material impact on our consolidated financial statements.
Hierarchy of Generally Accepted Accounting Principles
In May 2008, the FASB issued SFAS No. 162,
The Hierarchy of Generally Accepted Accounting Principles
(SFAS No. 162), which identifies the sources of accounting principles and the framework for
selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP in the U.S. Any effect of applying the provisions of SFAS No. 162 shall be reported as a change in
accounting principle in accordance with SFAS No. 154,
Accounting Changes and Error Corrections
. We will implement SFAS No. 162 in accordance with the effective date, which is 60 days following the Securities and Exchange
Commissions (SECs) approval of the Public Company Accounting Oversight Board amendments to AU Section 411,
The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles
. We do not believe adoption
of SFAS No. 162 will have a material impact on our consolidated financial statements.
21
Results of Operations
The following table sets forth, for the periods indicated, certain selected financial data expressed as a percentage of service revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
Sept. 28,
2008
|
|
|
Sept. 30,
2007
|
|
|
Sept. 28,
2008
|
|
|
Sept. 30,
2007
|
|
Service revenues
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
Cost of services rendered
|
|
74.7
|
|
|
76.1
|
|
|
75.2
|
|
|
76.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
25.3
|
|
|
23.9
|
|
|
24.8
|
|
|
23.9
|
|
Selling, general and administrative expenses
|
|
20.2
|
|
|
18.5
|
|
|
20.3
|
|
|
20.0
|
|
Depreciation and amortization expenses
|
|
1.2
|
|
|
1.1
|
|
|
1.1
|
|
|
1.0
|
|
Restructuring and other charges
|
|
|
|
|
1.9
|
|
|
0.1
|
|
|
0.9
|
|
Impairment of goodwill
|
|
|
|
|
1.2
|
|
|
14.1
|
|
|
0.5
|
|
Impairment of intangible assets
|
|
|
|
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
3.9
|
|
|
1.2
|
|
|
(11.6
|
)
|
|
1.5
|
|
Minority interest in income of subsidiary
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
Loss on early extinguishment of debt
|
|
|
|
|
0.2
|
|
|
|
|
|
0.1
|
|
Interest expense, net
|
|
1.9
|
|
|
2.2
|
|
|
2.0
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for (benefit from) income taxes
|
|
1.9
|
|
|
(1.2
|
)
|
|
(13.6
|
)
|
|
0.1
|
|
Provision for (benefit from) income taxes
|
|
|
|
|
(0.1
|
)
|
|
(1.9
|
)
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
1.9
|
|
|
(1.1
|
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(11.7
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Comparison of Three Months Ended September 28, 2008 to Three Months Ended September 30, 2007
Service Revenues.
Service revenues decreased $18.9 million, or 12.2%, to $135.8 million for the three
months ended September 28, 2008 as compared to $154.7 million for the comparable prior year period. The decrease was primarily due to a lower number of hours worked by professionals due to the challenging healthcare staffing industry
dynamics we are currently experiencing.
Branch-based (local per diem nurse and allied health) staffing revenues decreased $8.9 million, or
8.6%, to $95.3 million for the three months ended September 28, 2008 as compared to $104.2 million for the comparable prior year period. The decrease was primarily due to a lower number of hours worked by professionals.
Revenues from our travel nurse staffing division decreased $9.0 million, or 28.2%, to $23.0 million for the three months ended September 28, 2008 as
compared to $32.0 million for the comparable prior year period. The decrease was primarily due to fewer travel nurses on assignment in 2008.
Revenues from our allied health staffing division decreased $1.0 million, or 4.9%, to $17.5 million for the three months ended September 28, 2008 as compared to $18.5 million for the comparable prior year period. The decrease was
primarily due to a lower number of hours worked by clinical research and rehabilitation professionals partially offset by a higher number of hours worked by laboratory, pharmacy and ambulatory professionals.
Cost of Services Rendered.
Cost of services rendered decreased $16.2 million, or 13.7%, to $101.5 million for the three months
ended September 28, 2008 as compared to $117.7 million for the comparable prior year period. The decrease was primarily due to a lower number of hours worked by professionals due to the challenging healthcare staffing industry dynamics we
are currently experiencing.
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Gross Profit.
Gross profit decreased $2.7 million, or 7.3%, to $34.3 million for
the three months ended September 28, 2008 as compared to $37.0 million for the comparable prior year period. The decrease was primarily due to the lower revenue base in the third quarter of 2008, partially offset by the decrease in the
number of hours worked by professionals. Gross margin for the three months ended September 28, 2008 was 25.3% as compared to 23.9% for the comparable prior year period, an increase of 140 basis points primarily attributable to our continued
focus on gross margin expansion.
Selling, General and Administrative.
Selling, general and administrative expenses decreased
to $27.5 million, or 20.2% of revenues, for the three months ended September 28, 2008, compared to $28.7 million, or 18.5% of revenues, for the comparable prior year period. The dollar decrease was primarily due to the cost reduction
plan implemented at the end of the second quarter of 2008.
Depreciation and Amortization.
Depreciation and amortization for
the three months ended September 28, 2008 was $1.5 million as compared to $1.7 million for the comparable prior year period. The decrease was primarily attributable to more assets becoming fully depreciated during 2008.
Restructuring and Other Charges.
Restructuring and other charges for the three months ended September 28, 2008 was less than $0.1
million as compared to $3.0 million for the comparable prior year period. The amount represents the charges incurred with the IS Plan initiated on August 7, 2007 related to severance costs and contract and lease termination fees.
Impairment of Goodwill.
Impairment of goodwill for the three months ended September 30, 2007 was $1.9 million. Coinciding with
the IS Plan, we concluded that the goodwill associated with four closed pre-acquisition per diem branches was fully impaired.
Minority Interest in Income of Subsidiary.
Minority interest in income of subsidiary was less than $0.1 million for the three months ended September 28, 2008 and September 30, 2007. This amount represents the 32%
minority interest in the income of InteliStaf of Oklahoma, LLC.
Loss on Early Extinguishment of Debt.
Loss on early
extinguishment of debt was $0.3 million for the three months ended September 30, 2007. The non-cash charge was due to the writeoff of certain unamortized debt issuance costs in association with the July 2007 repayment of our previous senior
credit facility.
Interest Expense, Net.
Interest expense, net, for the three months ended September 28, 2008 decreased
to $2.6 million from $3.3 million for the three months ended September 30, 2007. The decrease was attributable to lower average outstanding borrowings as a result of the repayment of all borrowings outstanding under our revolving senior credit
facility and a lower weighted average interest rate on the senior credit facility.
Provision for (Benefit from) Income
Taxes.
The tax effect resulting from the goodwill impairment charge we recorded in the second quarter of 2008 caused the deferred tax liability to change to a deferred tax asset. As we are currently required to have a valuation allowance on
our deferred tax assets, we established a full valuation allowance against the entire balance of the deferred tax asset, thereby causing us to have no tax expense for the three months ended September 28, 2008. We will not record a tax expense
until the goodwill amortization for income tax purposes causes the deferred tax asset to revert back to a deferred tax liability. Our effective income tax benefit rate was 9.4% for the comparable prior year period.
Net Income (Loss).
As a result of the above, we had net income of $2.5 million for the three months ended September 28, 2008 as
compared to a net loss of $1.7 million for the comparable prior year period.
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Comparison of Nine Months Ended September 28, 2008 to Nine Months Ended September 30, 2007
Service Revenues.
Service revenues increased $84.9 million, or 25.0%, to $424.1 million for the nine months
ended September 28, 2008 as compared to $339.2 million for the comparable prior year period. The increase was due to a higher number of hours worked by professionals due in large part to the third quarter 2007 acquisitions of InteliStaf
and AMR as well as organic growth in our allied health staffing division.
Branch-based (local per diem nurse and allied health) staffing
revenues increased $46.0 million, or 18.3%, to $297.2 million for the nine months ended September 28, 2008 as compared to $251.2 million for the comparable prior year period. The increase was primarily attributable to an increase in the
number of hours worked by professionals due in large part to the acquisitions of InteliStaf and AMR.
Revenues from our travel nurse
staffing division increased $35.2 million, or 90.4%, to $74.1 million for the nine months ended September 28, 2008 as compared to $38.9 million for the comparable prior year period. The increase was primarily due to an increase in the number of
working travel nurses due to the acquisition of InteliStaf.
Revenues from our allied health staffing division increased $3.7 million, or
7.7%, to $52.8 million for the nine months ended September 28, 2008 as compared to $49.1 million for the comparable prior year period. The increase was primarily due to a higher number of hours worked by pharmacy, ambulatory, respiratory and
laboratory professionals partially offset by a lower number of hours worked by clinical research and rehabilitation professionals.
Cost of Services Rendered.
Cost of services rendered increased $61.0 million, or 23.6%, to $319.1 million for the nine months ended September 28, 2008 as compared to $258.1 million for the comparable prior
year period. The increase was primarily due to the increased volume due to the InteliStaf and AMR acquisitions and organic growth in our allied health staffing division.
Gross Profit.
Gross profit increased $23.9 million, or 29.5%, to $105.0 million for the nine months ended September 28, 2008 as compared to $81.1 million for the comparable prior year
period. The increase was primarily due to the increased volume resulting from the InteliStaf and AMR acquisitions and organic growth in our allied health staffing division. Gross margin for the nine months ended September 28, 2008 was 24.8% as
compared to 23.9% for the comparable prior year period, an increase of 90 basis points primarily attributable to a continued focus on gross margin expansion.
Selling, General and Administrative.
Selling, general and administrative expenses increased to $86.2 million, or 20.3% of revenues, for the nine months ended September 28, 2008, compared to
$67.8 million, or 20.0% of revenues, for the comparable prior year period. The dollar increase was primarily due to increased overhead costs associated with the larger per diem branch network and scale travel nurse division resulting from the
acquisition of InteliStaf.
Depreciation and Amortization.
Depreciation and amortization for the nine months ended
September 28, 2008 was $4.6 million as compared to $3.5 million for the comparable prior year period. The increase was primarily attributable to the intangible assets subject to amortization acquired in the InteliStaf and AMR acquisitions
and the depreciation of furniture and equipment acquired in the InteliStaf acquisition.
Restructuring and Other Charges.
Restructuring and other charges for the nine months ended September 28, 2008 was $0.5 million as compared to $3.0 million for the comparable prior year period. The fiscal year 2008 amount was comprised of $0.3 million related to costs
incurred with the termination of an outsourcing program and $0.2 million of severance payments related to a second quarter initiative. The fiscal year 2007 amount represents the charges incurred with the IS Plan initiated on August 7, 2007 related
to severance costs and contract and lease termination fees.
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Impairment of Goodwill
.
Impairment of goodwill was $59.8 million for the nine months
ended September 28, 2008. During our second quarter of 2008, we assessed that there were indicators of potential impairment at our reporting units. An analysis was performed and we determined that goodwill at a number of our reporting units was
impaired due to reduced projected operating results. As a result, we recorded a non-cash charge of approximately $59.8 million to write off the associated goodwill. Impairment of goodwill for the nine months ended September 30, 2007 was $1.9
million. Coinciding with the IS Plan, we concluded that the goodwill associated with the closed per diem branches was fully impaired.
Impairment of Intangible Assets
.
Impairment of intangible assets was $3.1 million for the nine months ended September 28, 2008. Based on the results of our second quarter interim goodwill testing, we noted that an
indicator was present for potential impairment of an intangible asset, trade names. We updated our analysis of the value of our trade name and noted the current fair value was less than the carrying value. As a result, we recorded a non-cash charge
of $3.1 million to recognize the impairment.
Minority Interest in Income of Subsidiary.
Minority interest in income of
subsidiary was $0.2 million for the nine months ended September 28, 2008 and less than $0.1 million for the nine months ended September 30, 2007. This amount represents the 32% minority interest in the income of InteliStaf of Oklahoma,
LLC.
Loss on Early Extinguishment of Debt.
Loss on early extinguishment of debt was $0.3 million for the nine months ended
September 30, 2007. The non-cash charge was due to the writeoff of certain unamortized debt issuance costs in association with the July 2007 repayment of our previous senior credit facility.
Interest Expense, Net.
Interest expense, net, for the nine months ended September 28, 2008 increased to $8.4 million from $4.1 million
for the nine months ended September 30, 2007. The increase was attributable to higher average outstanding borrowings, the proceeds of which were primarily used to finance the acquisitions of InteliStaf and AMR, partially offset by a lower
weighted average interest rate.
Provision for (Benefit From) Income Taxes.
Our effective income tax benefit rate for the
nine months ended September 28, 2008 was 14.4%, as compared to an effective income tax rate of 119.0% for the comparable prior year period. The change in the tax rate in 2008 was the result of the recording of the tax effect from the goodwill
impairment charge which caused the deferred tax liability to change to a deferred tax asset, resulting in an $8.3 million tax benefit as we have a full valuation allowance on our deferred tax assets.
Net Loss.
As a result of the above, we had a net loss of $49.4 million for the nine months ended September 28, 2008 as compared to a
net loss of $0.1 million for the comparable prior year period.
Seasonality
Due to the regional and seasonal fluctuations in the hospital patient census of our hospital and healthcare facility clients and due to the seasonal
preferences for destinations by our temporary healthcare professionals, the number of healthcare professionals on assignment, revenue and earnings are subject to moderate seasonal fluctuations. 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.
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Historically, the number of temporary healthcare professionals on assignment typically increases from
January through March followed by declines or minimal growth from April through December; however, in 2008 the anticipated increase in our travel division occurred later in the first quarter than expected. This pattern may or may not continue in the
future. As a result of all of these factors, results of any one quarter are not necessarily indicative of the results to be expected for any other quarter or for any year. Additionally, volume for our travel nurse staffing and allied health
divisions are typically negatively impacted in December and January due to vacations taken during the year-end holidays.
Liquidity and Capital
Resources
Discussion on Liquidity and Capital Resources
Our historical capital resource requirements have been the funding of working capital, debt service, capital expenditures and acquisitions. We have historically funded these requirements from a combination of cash
flow from operations, equity issuances and borrowings under our senior credit facilities.
Cash flow provided by operations was
$17.9 million for the nine months ended September 28, 2008 as compared to cash used in operating activities of $2.6 million for the nine months ended September 30, 2007.
During the nine months ended September 28, 2008, we used cash generated from operations to: fund investing activities of $5.2 million including cash
capital expenditures of $4.2 million, fund financing activities of $5.8 million including repayment of $5.2 million of outstanding borrowings under the 2007 Senior Credit Facility and increase cash on hand by $6.9 million from $1.9 million at
December 30, 2007 to $8.8 million at September 28, 2008.
As of September 28, 2008, we had net working capital of $47.6
million as compared to $46.9 million as of December 30, 2007. The increase was primarily due to an increase in cash and cash equivalents of $6.9 million and a decrease in accounts payable and accrued expenses of $8.3 million, partially
offset by a decrease in accounts receivable of $14.4 million. Available borrowings under our 2007 Senior Credit Facility are an important component of our liquidity.
At January 1, 2007, we were a party to a senior credit facility that, as amended, provided for a $40.0 million revolving credit facility that was due to expire on September 29, 2009.
On July 2, 2007, we repaid all amounts outstanding under our prior senior credit facility and
entered into a $155.0 million senior credit facility. The 2007 Senior Credit Facility is comprised of a six-year $30.0 million revolving senior credit facility (Revolver), a six-year $100.0 million senior secured term loan (1
st
Term Loan) and a seven-year $25.0 million senior secured second term loan (2
nd
Term Loan). The proceeds of the 2007 Senior Credit Facility were used to finance the purchase price of the InteliStaf and AMR acquisitions, to repay outstanding borrowings under the extinguished senior credit
facility, to pay fees and expenses incurred in connection with the InteliStaf and AMR acquisitions and for general working capital purposes.
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Pursuant to the terms of the 2007 Senior Credit Facility, the amount that can be borrowed at any given
time under the Revolver is based on a leverage covenant and the amount of outstanding letters of credit, which can result in borrowing availability of less than the full capacity of the Revolver. As of September 28, 2008, $7.7 million of the
Revolvers capacity was being used for standby letters of credit (of which $7.1 million related to InteliStafs workers compensation policy and $0.6 million related to operating leases). As there were no other borrowings outstanding under
the Revolver, $22.3 million was available for borrowing, of which $13.9 million is immediately available.
The Revolver bears interest at either prime rate or London Interbank Offered Rate (LIBOR) plus an applicable margin (7.5% at September 28, 2008) with interest payable quarterly or as LIBOR interest rate contracts
expire. Unused capacity under the Revolver bears interest at 0.50% and is payable quarterly. The 1
st
Term Loan bears interest at either prime rate
or LIBOR plus an applicable margin (the variable portion is 6.29% and the fixed (hedged) portion is 8.48% at September 28, 2008) with interest payable quarterly or as LIBOR interest rate contracts expire. The 2
nd
Term Loan bears interest at either prime rate or LIBOR plus an applicable margin (9.29% at September 28, 2008) with interest payable quarterly or as
LIBOR interest rate contracts expire. Pursuant to the terms of the 2007 Senior Credit Facility, we are required to hedge at least 50% of the outstanding borrowings of the 1
st
and 2
nd
Term Loans. On September 6, 2007, we entered into a three year hedging agreement using three month
LIBOR rates, whereby we hedged $62.5 million of variable rate debt at 4.975%. For the nine months ended September 28, 2008, the weighted average interest rate for loans under our 2007 Senior Credit Facility was 7.41%. As of September 28,
2008, the blended rate for loans outstanding under the 2007 Senior Credit Facility was 8.00%.
As the borrower under the 2007 Senior Credit
Facility, our subsidiary, Medical Staffing Network, Inc., may only pay dividends or make other distributions to us in the amount of $2,000,000 in any fiscal year to pay our operating expenses. This limitation on our subsidiarys ability to
distribute cash to us will limit our ability to obtain and service any additional debt. In addition, our subsidiaries are subject to restrictions under the 2007 Senior Credit Facility against incurring additional indebtedness.
Total capital expenditures were $4.2 million (of which $3.6 million was purchased via cash and $0.6 million was purchased via a capital lease) for the
nine months ended September 28, 2008 and $2.6 million for the comparable prior year period. The expenditures primarily related to the refurbishment of the corporate office and the upgrade or replacement of various computer systems
including hardware and purchased and/or internally developed software.
Because we rely on cash flow from operating activities as a source
of liquidity, we are subject to the risk that a decrease in the demand for our staffing services could have an adverse impact on our liquidity. Decreased demand for our staffing services could result from our inability to attract qualified
healthcare professionals, fluctuations in patient occupancy at our hospital and healthcare facility clients and changes in state and federal regulations relating to our business.
We believe that our current cash balances, together with our 2007 Senior Credit Facility, our ability to secure funds under a credit facility and other
available sources of liquidity, will be sufficient for us to meet our current and future financial obligations, as well as to provide us with funds for working capital, anticipated capital expenditures and other needs for at least the next twelve
months. No assurance can be given, however, that this will be the case. In the longer term, we may require additional equity and debt financing to meet our working capital needs, or to fund our acquisition activities, if any. There can be no
assurance that additional financing will be available when required or, if available, will be available on satisfactory terms.
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Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our investors.
Contractual Obligations
In addition to the significant contractual obligations and other commitments described in
our Annual Report on Form 10-K for the year ended December 30, 2007, we entered into two new capital lease obligations of approximately $0.7 million during the nine months ended September 28, 2008. The capital leases require remaining
future payments of $54,000 in 2008, $0.2 million in 2009 and 2010 and $0.1 million in 2011. Additionally, during the nine months ended September 28, 2008, we repaid $5.2 million of our long-term debt obligations under the 2007 Senior Credit
Facility. There have been no other material changes in our significant contractual obligations and other commitments as described in our Annual Report on Form 10-K for the year ended December 30, 2007.
Critical Accounting Policies
In response to the SEC
Release Number 33-8040 Cautionary Advice Regarding Disclosure About Critical Accounting Policies and SEC Release Number 33-8056, Commission Statement about Managements Discussion and Analysis of Financial Condition and
Results of Operations, we have identified the following critical accounting policies that affect the more significant judgments and estimates used in the preparation of the condensed consolidated financial statements. The preparation of the
condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires that we make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and
expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we will evaluate our estimates, including those related to asset impairment, accruals for self-insurance and compensation and related benefits, allowance
for doubtful accounts, and contingencies and litigation. These estimates are based on the information that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could
vary from those estimates under different assumptions or conditions. For a summary of all our significant accounting policies, including the critical accounting policies discussed below, see Note 1 to the audited consolidated financial statements
included in our Annual Report on Form 10-K for the fiscal year ended December 30, 2007.
We believe that the following critical
accounting policies affect the more significant judgments and estimates used in the preparation of our condensed consolidated financial statements:
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We maintain an allowance for estimated losses resulting from the inability of our customers to make required payments, which results in a provision for doubtful
accounts. The adequacy of this allowance is determined by continually evaluating customer receivables, considering the customers 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 would be required.
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We have recorded goodwill and other intangibles resulting from our acquisitions through December 30, 2007. Through December 30, 2001, goodwill and other
intangibles were amortized on a straight-line basis over their lives of 6 to 20 years. Pursuant to the provisions of SFAS No. 142, which we adopted in 2002, goodwill and intangible assets deemed to have an indefinite life are no longer
amortized and our intangibles subject to amortization continue to be amortized on a straight line
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basis over their lives ranging from 2 to 7.5 years. SFAS No. 142 requires that goodwill be separately disclosed from other intangible assets on the
balance sheet and tested for impairment on an annual basis, or more frequently if certain indicators arise. We have determined that each branch location represents a reporting unit. In accordance with SFAS No. 142, we perform an annual review
for impairment during the fourth quarter of our fiscal year by performing a fair value analysis of each reporting unit. On a quarterly basis, we review our reporting units for impairment indicators. Should we decide to close one or more of our
reporting units, the associated goodwill will be written off as a non-cash charge to the condensed consolidated statement of operations.
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During the second quarter of 2008, we determined that goodwill at a number of our reporting units was impaired due to reduced discounted cash flow projections. As a result, we recorded a non-cash charge of
approximately $59.8 million to write off the associated goodwill. This amount is included in the line item Impairment of goodwill on our condensed consolidated statements of operations for the nine months ended September 28, 2008.
Pursuant to the provisions of SFAS No. 142 and SFAS No. 144, we review all long-lived assets for impairment whenever events or
changes in circumstances indicate the assets may be impaired. In the discounted cash flow model used in our second quarter of 2008 goodwill impairment testing, we lowered our projected growth rates for each of our reporting units. As future
estimated growth rates were decreased, we believed an indicator may be present for possible impairment of the intangible asset, trade names. As such, an analysis of the trade name value was performed using the revised growth rates used in the
interim period goodwill discounted cash flow model resulting in a non-cash impairment charge of $3.1 million to reduce the $5.6 million carrying value of the intangible asset to the calculated $2.5 million fair value. This amount is included in the
line item Impairment of intangible assets on our condensed consolidated statements of operations for the nine months ended September 28, 2008.
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For all acquisitions, we record the assets acquired and liabilities assumed at fair value. We utilize an independent third party accounting firm to determine if
there were any intangible assets acquired in the acquisition, and if there were, they provide us with their respective fair values and useful lives. We record the fair values of the intangible assets separately identifiable from goodwill on our
condensed consolidated balance sheet and amortize them over their estimated useful lives.
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As part of the process of preparing our condensed consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in
which we operate. This process involves estimating our current tax exposures in each jurisdiction including the impact, if any, of additional taxes resulting from tax examinations. A deferred tax asset or liability is recognized whenever there are
future tax effects from existing temporary differences and operating loss and tax credit carryforwards. Such deferred income tax asset and liability computations are based on enacted tax laws and rates applicable to periods in which the differences
are expected to reverse. If necessary, a valuation allowance is established to reduce deferred income tax assets in accordance with SFAS No. 109,
Accounting for Income Taxes
(SFAS No. 109). Tax exposures can involve complex issues
and may require an extended period to resolve. The estimated effective tax rate is adjusted for the tax related to significant unusual items. Changes in the geographic mix or estimated level of annual pre-tax income can affect the overall effective
tax rate. We adopted the provisions of FASB Interpretation (FIN) No. 48,
Accounting for Uncertainty in Income Taxes
(FIN No. 48) on January 1, 2007. We recognize the financial statement benefit of a tax position only after
determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more
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likely than not threshold, the amount recognized in the condensed consolidated financial statements is the largest benefit that has a greater than 50 percent
likelihood of being realized upon ultimate settlement with the relevant tax authority. Upon implementing FIN No. 48, we did not recognize any liabilities for unrecognized tax benefits.
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At September 28, 2008, we had gross deferred tax assets in excess of deferred tax liabilities. We have determined that it is more likely than not
that the net deferred tax assets will not be fully realized in the near term (deferred tax liabilities that are not expected to reverse in the net operating loss carryforward period would not be considered in reviewing the realizability of the other
temporary differences). Due to the recording of the tax effect from the second quarter of 2008 non-cash goodwill impairment charge, our deferred tax liability as of the end of the first quarter changed to a deferred tax asset as of the end of the
second quarter. As we have a valuation allowance on our deferred tax assets, we are required to establish a full valuation allowance against the entire balance of our deferred tax assets. When, due to the amortization of our goodwill for tax
purposes, the deferred tax asset changes back to a deferred tax liability, we would then begin to record income tax expense relative to indefinite reversing temporary differences. SFAS No. 109 requires that a valuation allowance be established
when it is more likely than not that all or a portion of a deferred tax asset will not be realized. A review of all evidence, both positive and negative needs to be considered. Such evidence includes the existence of deferred tax liabilities that
will turn around within a carryforward period, a companys past and projected future performance, the market environment in which the company operates, the utilization of past tax credits, the length of carryback and carryforward periods of net
operating losses and allowable tax planning strategies. As we had cumulative losses for the three-year period ended December 30, 2007, we were only able to give minimal consideration to projected future performance in measuring the need for a
valuation allowance. We evaluate our ability to realize our deferred tax assets on a quarterly basis and will continue to maintain the allowance until an appropriate amount of positive evidence would substantiate any reversal. Such positive evidence
could include actual utilization of the deferred tax asset and/or projections of potential utilization.
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We maintain an accrual for our health, workers compensation and professional liability exposures that are either self-insured or partially self-insured and are
classified in accounts payable and accrued expenses. The adequacy of these accruals is determined by periodically evaluating our historical experience and trends related to health, workers compensation, and professional liability claims and
payments, based on company-specific actuarial computations and industry experience and trends. If such information indicates that the accruals are overstated or understated, we will adjust the assumptions utilized in the methodologies and reduce or
provide for additional accruals as appropriate.
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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. Hospital and 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 hospital and healthcare facility clients relating to these matters. Although we are currently not aware of any such
pending or threatened litigation that we believe is reasonably likely to have a material adverse effect on our financial condition or results of operations, we will evaluate the probability of an adverse outcome and provide accruals for such
estimatable contingencies as necessary, if we become aware of such claims against us.
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Caution Concerning Forward-Looking Statements
Some of the statements in this Quarterly Report on Form 10-Q are forward-looking statements, as that term is defined in the Private Securities
Litigation Reform Act of 1995. Forward-looking statements do not relate strictly to historical or current matters. Rather, forward-looking statements are predictive in nature and may depend upon or refer to future events, activities or conditions.
Although we believe that these statements are based upon reasonable assumptions, we cannot provide any assurances regarding future results. We undertake no obligation to revise or update any forward-looking statements, or to make any other
forward-looking statements, whether as a result of new information, future events or otherwise. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties. Many
factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements.
These factors include the following:
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If we are unable to attract qualified nurses and allied health professionals for our healthcare staffing business, our business could be negatively impacted;
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Contraction of demand for our temporary nurses may continue if hospital admissions levels remain lower than expected;
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Higher unemployment rates could have a negative impact on our ability to successfully recruit additional healthcare professionals;
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Demand for healthcare staffing services could be significantly affected by the general level of economic activity as such activity is impacted by factors beyond our
control (i.e.; inflation, recession, hurricanes, weather conditions, acts of war, etc.) and unemployment in the United States;
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Our ability to borrow under our credit facility may be limited;
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We have a substantial amount of goodwill on our balance sheet and should we record an impairment charge to our goodwill, it would have the effect of decreasing our
earnings or increasing our losses, on a non-cash basis;
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We operate in a highly competitive market and our success depends on our ability to remain competitive in obtaining and retaining hospital and healthcare facility
clients and temporary healthcare professionals;
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Our business depends upon our continued ability to secure and fill new orders from our hospital and healthcare facility clients, because we do not have long-term
agreements or exclusive contracts with them;
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Fluctuations in patient occupancy at our hospital and healthcare facility clients may adversely affect the demand for our services and therefore the profitability
of our business;
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Our clients inability to pay for services could have an adverse impact on our net income and results of operations,
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We are exposed to increased costs and risks associated with complying with increasing and new regulation of corporate governance and disclosure standards;
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Healthcare reform could negatively impact our business opportunities, revenues and margins;
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We operate in a regulated industry and changes in regulations or violations of regulations may result in increased costs or sanctions that could reduce our revenues
and profitability;
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We are dependent on the proper functioning of our information systems;
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Competition for acquisition opportunities may restrict our future growth by limiting our ability to make acquisitions at reasonable valuations;
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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;
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Our profitability may be impacted by our ability to leverage our cost structure;
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Our ability to recognize the benefits of the realignment of our per diem branch network, and the amount of costs, expenses, and charges related to the realignment
of our per diem branch network;
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Significant legal actions could subject us to substantial uninsured liabilities;
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We may be legally liable for damages resulting from our hospital and healthcare facility clients mistreatment of our temporary healthcare professionals;
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If we become subject to material liabilities under our self-insured programs, our financial results may be adversely affected;
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Our operations may deteriorate if we are unable to continue to attract, develop and retain our sales and recruitment personnel;
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The loss of key senior management personnel could adversely affect our ability to remain competitive;
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Our costs of providing housing for temporary healthcare professionals in our travel business may be higher than we anticipate and, as a result, our margins could
decline;
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Our executive officers, directors and significant stockholders will be able to influence matters requiring stockholder approval and could discourage the purchase of
our outstanding shares at a premium;
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We may fail to maintain our listing on the New York Stock Exchange (NYSE);
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If provisions in our corporate documents and Delaware law delay or prevent a change in control of our company, we may be unable to consummate a transaction that our
stockholders consider favorable; and
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Our stock price may be volatile and your investment in our common stock could suffer a decline in value.
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Additional information concerning these factors can be found in our filings with the SEC. Forward-looking statements in this Quarterly Report on Form
10-Q should be evaluated in light of these important factors.
32
ITEM 3.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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Interest Rate Risk
Our exposure to interest rate risk arises principally from the variable rates associated with the 2007
Senior Credit Facility. As of September 28, 2008, we had borrowings of $61.5 million under the 2007 Senior Credit Facility that were subject to variable rates, with a blended rate of 7.52%. As of September 28, 2008, an adverse change of
1.0% in the interest rate of all such borrowings outstanding would have caused us to incur an increase in interest expense of approximately $0.6 million on an annual basis.
Foreign Currency Risk
We have no foreign currency risk as we have no revenue outside the United
States and all of our revenues are billed and collected in U.S. dollars.
Inflation
We do not believe that inflation has had a material effect on our results of operations in recent years and periods. There can be no assurance, however,
that we will not be adversely affected by inflation in the future.
ITEM 4.
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CONTROLS AND PROCEDURES
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We carried out an
evaluation, under the supervision and with the participation of our management, including the Chairman of the Board of Directors and Chief Executive Officer, Robert J. Adamson, and the President and Chief Financial Officer, Kevin S. Little, of the
effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive
Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e)), as of the end of the period covered by this Quarterly Report on Form 10-Q, were effective.
There were no changes in our internal control over financial reporting or in other factors that occurred during the last fiscal quarter that have
materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
33
PART II - OTHER INFORMATION
ITEM 1.
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LEGAL PROCEEDINGS
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From time to time, we are
subject to lawsuits and claims that arise out of our operations in the normal course of business. We are either a plaintiff or defendant in various litigation matters in the ordinary course of business, some of which involve claims for damages that
are substantial in amount. We believe that the disposition of any claims that arise out of operations in the normal course of business will not have a material adverse effect on our financial position or results of operations.
In addition to other information set
forth in this report, you should carefully consider the risk factors discussed in Part I.
Item 1A. Risk Factors
in our Annual Report on Form 10-K for the fiscal year ended December 30, 2007, which could materially affect our
business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial
also may adversely affect our business, financial condition and/or operating results. The following sets forth material changes to the risk factors discussed in our Annual Report on Form 10-K for the fiscal year ended December 30, 2007:
We may fail to maintain our listing on the NYSE.
On October 6, 2008, we were notified by the NYSE that we are no longer in compliance with their continued listing standards. We are considered below
criteria for the continued listing standards because over a 30 trading-day period, our total market capitalization was less than $75 million and our most recently reported stockholders equity was less than $75 million. Under applicable NYSE
procedures, we have 45 days from the receipt of the notice to submit a plan to the NYSE to demonstrate our ability to achieve compliance with the continuing listing standards within 18 months. If we are unable to prepare a plan to achieve compliance
that is acceptable to the NYSE, reasonably maintain the goals of the plan or achieve compliance with the continuing listing standards within 18 months, we will fail to maintain our listing on the NYSE. We cannot provide you assurance that we will be
able to regain compliance with the NYSE continued listing standards.
The following exhibits are included herewith:
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31.1
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Certification of Robert J. Adamson, Chief Executive Officer of Medical Staffing Network Holdings, Inc., as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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31.2
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Certification of Kevin S. Little, Chief Financial Officer of Medical Staffing Network Holdings, Inc., as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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32.1
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Certification of Robert J. Adamson, Chief Executive Officer of Medical Staffing Network Holdings, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
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32.2
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Certification of Kevin S. Little, Chief Financial Officer of Medical Staffing Network Holdings, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
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34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
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MEDICAL STAFFING NETWORK HOLDINGS, INC.
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Dated: November 7, 2008
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By:
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/s/ Robert J. Adamson
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Robert J. Adamson
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Chairman of the Board of Directors and
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Chief Executive Officer
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Dated: November 7, 2008
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By:
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/s/ Kevin S. Little
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Kevin S. Little
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President and Chief Financial Officer
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35
EXHIBIT INDEX
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Exhibit No.
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Description
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31.1
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Certification of Robert J. Adamson, Chief Executive Officer of Medical Staffing Network Holdings, Inc., as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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31.2
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Certification of Kevin S. Little, Chief Financial Officer of Medical Staffing Network Holdings, Inc., as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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32.1
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Certification of Robert J. Adamson, Chief Executive Officer of Medical Staffing Network Holdings, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
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32.2
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Certification of Kevin S. Little, Chief Financial Officer of Medical Staffing Network Holdings, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
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36
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