CROSS COUNTRY HEALTHCARE INC - FORM 8-K - EX-99.2 - February 21, 2013

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8-K - CURRENT REPORT - CROSS COUNTRY HEALTHCARE INCccrn_8k.htm
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EXHIBIT 99.2
 
Cross Country Healthcare, Inc.
Unaudited Pro Forma Condensed Consolidated Financial Information

The following unaudited pro forma condensed consolidated financial information is based upon the historical financial statements of Cross Country Healthcare, Inc. and its consolidated subsidiaries (“the Company”), adjusted to reflect the  disposition of its clinical trial services staffing business segment as described in Item 2.01.
 
The following unaudited pro forma condensed consolidated information of the Company should be read in conjunction with the accompanying notes and with the historical consolidated financial statements of the Company and the related notes thereto included in previous filings with the Securities and Exchange Commission.  The unaudited pro forma condensed consolidated statements of operations give effect to the disposition by removing the results from the clinical trial services business as if the disposition had occurred as of January 1, 2009 and the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed consolidated financial information.  The unaudited pro forma condensed consolidated balance sheet reflects the disposition of the clinical trial services segment as if it occurred on September 30, 2012. The pro forma adjustments are based on the best information available and assumptions that management believes are factually supportable.

The unaudited pro forma condensed consolidated information is presented for illustrative and informational purposes only and does not purport to represent the Company’s consolidated results of operations or financial position that actually would have taken place if the transaction had occurred on such dates.  In addition, future results may vary significantly from the results reflected in such statements.  For example, this financial information does not reflect any potential earnings or other impacts from the use of the proceeds from the disposition or cost reductions of previously allocated corporate costs and potential subsequent restructuring charges.
 
 
1
 
 
CROSS COUNTRY HEALTHCARE, INC.
Pro Forma Condensed Consolidated Balance Sheet as of
 September 30, 2012
(Unaudited, in thousands)
 
         
Pro Forma Adjustments
        
   
Historical as
Reported
(a)
    
Clinical Trial Services Business Disposition
(b)
    
Sale-Related Pro
Forma Adjustments 
(c)
    
Pro Forma
Totals
  
Assets
                        
Current assets:
                        
  Cash and cash equivalents
   $ 4,832     $ (1,037 )   $ 13,174     $ 16,969  
  Short-term cash investments
     2,693       -       -       2,693  
  Accounts receivable, less allowance for doubtful accounts
     76,186       (12,141 )     -       64,045  
  Deferred tax assets
     11,952       7,218 (f)     935 (e)     20,105  
  Income taxes receivable
     1,841       1       -       1,842  
  Prepaid expenses
     6,876       (570 )     -       6,306  
  Debt issuance costs, net of accumulated amortization
     1,604       -       (332 )     1,272  
  Other current assets
     731       (6 )     -       725  
Total current assets
     106,715       (6,535 )     13,777       113,957  
Property and equipment, net of accumulated depreciation and amortization
     9,399       (453 )     -       8,946  
Trademarks, net
     50,680       (1,979 )     -       48,701  
Goodwill, net
     102,788       (40,076 )     -       62,712  
Other identifiable intangible assets, net
     18,792       (3,734 )     -       15,058  
Non-current deferred tax assets
     12,500       87 (f)     -       12,587  
Other long-term assets
     464       (42 )     -       422  
Total assets
   $ 301,338     $ (52,732 )   $ 13,777     $ 262,383  
                                 
Liabilities and stockholders' equity
                                
Current liabilities:
                                
  Accounts payable and accrued expenses
   $ 10,381     $ (888 )   $ 757     $ 10,250  
  Accrued compensation and benefits
     17,839       (1,664 )     -       16,175  
  Current portion of long-term debt
     34,275       -       (34,063 )     212  
  Other current liabilities
     5,864       (1,171 )     -       4,693  
Total current liabilities
     68,359       (3,723 )     (33,306 )     31,330  
Long-term debt
     231       -       -       231  
Other long-term liabilities
     14,560       (16 )     -       14,544  
Total liabilities
     83,150       (3,739 )     (33,306 )     46,105  
Commitments and contingencies
                                
Stockholders' equity:
                                
  Common stock
     3       -       -       3  
  Additional paid-in-capital
     244,277       -       -       244,277  
  Accumulated other comprehensive loss
     (2,904 )     2,298 (e)     -       (606 )
  (Accumulated deficit) Retained earnings
     (23,188 )     (51,291 )(e)     47,083       (27,396 )
Total stockholders' equity
     218,188       (48,993 )     47,083       216,278  
Total liabilities and stockholders' equity
   $ 301,338     $ (52,732 )   $ 13,777     $ 262,383  
 
The accompanying notes are an integral part of the unaudited pro forma condensed consolidated balance sheet.
 
 
2
 
 
CROSS COUNTRY HEALTHCARE, INC.
Pro Forma Condensed Consolidated Statement of Operations For The Nine Months Ended
 September 30, 2012
(Unaudited, in thousands except per share data)
 
   
Historical as
Reported
(a)
    
Clinical Trial Services Business Disposition
(d)
    
Pro Forma
Totals
  
                   
Revenue from services
   $ 382,067     $ (51,163 )   $ 330,904  
Operating expenses:
                        
  Direct operating expenses
     284,825       (37,562 )     247,263  
  Selling, general and administrative expenses
     91,448       (9,087 )     82,361  
  Bad debt expense
     648       (56 )     592  
  Depreciation
     4,372       (574 )     3,798  
  Amortization
     2,440       (742 )     1,698  
  Impairment charges
     42,232       (23,500 )     18,732  
    Total operating expenses
     425,965       (71,521 )     354,444  
(Loss) income  from operations
     (43,898 )     20,358       (23,540 )
Other (income) expenses:
                        
  Foreign exchange loss (gain)
     32       (29 )     3  
  Interest expense
     1,634       -       1,634  
  Debt financing costs
     273       -       273  
  Loss on modification of debt
     82       -       82  
  Other (income) expense, net
     79       (40 )     39  
(Loss) income from continuing operations before income taxes
     (45,998 )     20,427       (25,571 )
Income tax (benefit) expense
     (13,310 )     5,245       (8,065 )
Net (loss) income from continuing operations
   $ (32,688 )   $ 15,182     $ (17,506 )
                         
Net (loss) income from continuing operations per common share - basic
   $ (1.06 )           $ (0.57 )
                         
Net (loss) income from continuing operations per common share - diluted
   $ (1.06 )           $ (0.57 )
                         
Weighted average shares outstanding - basic
     30,823               30,823  
                         
Weighted average shares outstanding - diluted
     30,823               30,823  
 
The accompanying notes are an integral part of the unaudited pro forma condensed consolidated statement of operations.
 
 
3
 
 
CROSS COUNTRY HEALTHCARE, INC.
Pro Forma Condensed Consolidated Statement of Operations For The Nine Months Ended
September 30, 2011
(Unaudited, in thousands except per share data)
 
   
Historical as
Reported
(a)
    
Clinical Trial Services Business Disposition
(d)
    
Pro Forma
Totals
  
                         
Revenue from services
   $ 379,257     $ (48,870 )   $ 330,387  
Operating expenses:
                        
  Direct operating expenses
     275,929       (34,780 )     241,149  
  Selling, general and administrative expenses
     87,407       (9,018 )     78,389  
  Bad debt expense
     235       10       245  
  Depreciation
     5,193       (623 )     4,570  
  Amortization
     2,675       (847 )     1,828  
  Impairment charges
     -       -       -  
    Total operating expenses
     371,439       (45,258 )     326,181  
Income (loss) from operations
     7,818       (3,612 )     4,206  
Other (income) expenses:
                        
  Foreign exchange (gain) loss
     (125 )     (15 )     (140 )
  Interest expense
     2,180       -       2,180  
  Debt financing costs
     -       -       -  
  Loss on modification of debt
     -       -       -  
  Other (income) expense, net
     (228 )     -       (228 )
Income (loss) from continuing operations before income taxes
     5,991       (3,597 )     2,394  
Income tax expense (benefit)
     2,425       (1,833 )     592  
Net income (loss) from continuing operations
   $ 3,566     $ (1,764 )   $ 1,802  
                         
Net income (loss) from continuing operations per common share - basic
   $ 0.11             $ 0.06  
                         
Net income (loss) from continuing operations per common share - diluted
   $ 0.11             $ 0.06  
                         
Weighted average shares outstanding - basic
     31,159               31,159  
Incremental common stock for stock-based compensation
     58               58  
Weighted average shares outstanding - diluted
     31,217               31,217  
 
The accompanying notes are an integral part of the unaudited pro forma condensed consolidated statement of operations.
 
 
4
 
 
CROSS COUNTRY HEALTHCARE, INC.
Pro Forma Consolidated Statement of Operations For The Year Ended
December 31, 2011
(Unaudited)
 
   
Historical as
Reported
(a)
    
Clinical Trial Services Business Disposition
(d)
    
Pro Forma
Totals
  
                   
Revenue from services
   $ 503,986,224     $ (64,608,764 )   $ 439,377,460  
Operating expenses:
                        
  Direct operating expenses
     366,044,323       (46,055,594 )     319,988,729  
  Selling, general and administrative expenses
     116,538,077       (11,993,961 )     104,544,116  
  Bad debt expense
     578,805       (4,348 )     574,457  
  Depreciation
     6,790,677       (825,675 )     5,965,002  
  Amortization
     3,493,408       (1,099,686 )     2,393,722  
    Total operating expenses
     493,445,290       (59,979,264 )     433,466,026  
Income (loss) from operations
     10,540,934       (4,629,500 )     5,911,434  
Other (income) expenses:
                        
  Foreign exchange (gain) loss
     (247,155 )     (16,812 )     (263,967 )
  Interest expense
     2,856,109       (66 )     2,856,043  
  Other (income) expense, net
     (298,366 )     638       (297,728 )
Income (loss) from continuing operations before income taxes
     8,230,346       (4,613,260 )     3,617,086  
Income tax expense (benefit)
     4,132,497       (2,100,879 )     2,031,618  
Net income (loss) from continuing operations
   $ 4,097,849     $ (2,512,381 )   $ 1,585,468  
                         
Net income (loss) from continuing operations per common share - basic
   $ 0.13             $ 0.05  
                         
Net income (loss) from continuing operations per common share - diluted
   $ 0.13             $ 0.05  
                         
Weighted average shares outstanding - basic
     31,146,165               31,146,165  
Incremental common stock for stock-based compensation
     45,851               45,851  
Weighted average shares outstanding - diluted
     31,192,016               31,192,016  

The accompanying notes are an integral part of the unaudited pro forma consolidated statement of operations.
 
 
5
 
 
CROSS COUNTRY HEALTHCARE, INC.
Pro Forma Consolidated Statement of Operations For The Year Ended December 31, 2010
(Unaudited)
 
   
Historical as
Reported
(a)
    
Clinical Trial Services Business Disposition
(d)
    
Pro Forma
Totals
  
                   
Revenue from services
   $ 468,561,524     $ (61,957,285 )   $ 406,604,239  
Operating expenses:
                        
  Direct operating expenses
     336,250,100       (43,916,591 )     292,333,509  
  Selling, general and administrative expenses
     108,983,689       (11,604,709 )     97,378,980  
  Bad debt expense
     293,795       (45,669 )     248,126  
  Depreciation
     8,043,548       (921,836 )     7,121,712  
  Amortization
     3,850,867       (1,283,063 )     2,567,804  
  Impairment charges
     10,764,000       -       10,764,000  
    Total operating expenses
     468,185,999       (57,771,868 )     410,414,131  
Income (loss) from operations
     375,525       (4,185,417 )     (3,809,892 )
Other (income) expenses:
                        
  Foreign exchange loss (gain)
     75,543       (7,680 )     67,863  
  Interest expense
     4,244,698       (774 )     4,243,924  
  Other (income) expense, net
     (173,116 )     1,171       (171,945 )
Loss from continuing operations before income taxes
     (3,771,600 )     (4,178,134 )     (7,949,734 )
Income tax (benefit)
     (996,737 )     (1,637,411 )     (2,634,148 )
Net loss from continuing operations
   $ (2,774,863 )   $ (2,540,723 )   $ (5,315,586 )
                         
Net loss from continuing operations per common share - basic
   $ (0.09 )           $ (0.17 )
                         
Net loss from continuing operations per common share - diluted
   $ (0.09 )           $ (0.17 )
                         
Weighted average shares outstanding - basic
     31,060,426               31,060,426  
                         
Weighted average shares outstanding - diluted
     31,060,426               31,060,426  
 
The accompanying notes are an integral part of the unaudited pro forma consolidated statement of operations.
 
 
6
 
 
CROSS COUNTRY HEALTHCARE, INC.
Pro Forma Consolidated Statement of Operations For The Year Ended December 31, 2009
(Unaudited)
 
   
Historical as
Reported
(a)
    
Clinical Trial Services Business Disposition
(d)
    
Pro Forma
Totals
  
                   
Revenue from services
   $ 578,237,482     $ (71,678,635 )   $ 506,558,847  
Operating expenses:
                        
  Direct operating expenses
     424,983,996       (50,941,206 )     374,042,790  
  Selling, general and administrative expenses
     120,689,867       (13,815,399 )     106,874,468  
  Bad debt expense
     -       107,251       107,251  
  Depreciation
     8,773,088       (1,059,865 )     7,713,223  
  Amortization
     4,017,968       (1,316,831 )     2,701,137  
  Impairment charges
     1,725,926       (1,725,926 )     -  
  Legal settlement charge
     345,000       -       345,000  
    Total operating expenses
     560,535,845       (68,751,976 )     491,783,869  
Income (loss) from operations
     17,701,637       (2,926,659 )     14,774,978  
Other (income) expenses:
                        
  Foreign exchange loss (gain)
     66,433       (5,481 )     60,952  
  Interest expense
     6,244,831       (2,337 )     6,242,494  
  Other (income) expense, net
     (264,311 )     195,476       (68,835 )
Income (loss) from continuing operations before income taxes
     11,654,684       (3,114,317 )     8,540,367  
Income tax expense (benefit)
     4,960,376       (1,279,360 )     3,681,016  
Net income (loss) from continuing operations
   $ 6,694,308     $ (1,834,957 )   $ 4,859,351  
                         
Net income (loss) from continuing operations per common share - basic
   $ 0.22             $ 0.16  
                         
Net income (loss) from continuing operations per common share - diluted
   $ 0.22             $ 0.16  
                         
Weighted average shares outstanding - basic
     30,824,660               30,824,660  
Incremental common stock for stock-based compensation
     174,786               174,786  
Weighted average shares outstanding - diluted
     30,999,446               30,999,446  
 
The accompanying notes are an integral part of the unaudited pro forma consolidated statement of operations.
 
 
7
 
 
Notes to the Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30, 2012, Unaudited Pro Forma Condensed Consolidated Statements of Operations for the Nine Months Ended September 30, 2012 and 2011, and Unaudited Pro Forma Consolidated Statements of Operations for the Years Ended December 31, 2011, 2010 and 2009

(a)   
Represents the unaudited historical financial information as reported in the Company's Quarterly Report on Form 10-Q for the nine months ended September 30, 2012 and historical consolidated financial information which was derived from the Company's Annual Report on Form 10-K for the year ended December 31, 2011.
 
(b)   
Represents material adjustments to reflect the sale of the clinical trial services business completed subsequent to September 30, 2012, represented in the balance sheet as of September 30, 2012, as if the transaction had occurred as of September 30, 2012.
 
(c)   
The sale price of the clinical trial services business was an aggregate of $52,000,000 in cash, subject to certain adjustments for which a $3,750,000 indemnification escrow has been established from the cash proceeds, plus an earn-out of up to $3,750,000 related to certain performance-based milestones.  Represents net up-front proceeds from the sale of the clinical trial services business, less estimated cost to sell as well as the debt repayment including debt issuance cost write-off as required under the then-existing credit agreement, are as follows.
 
Up-front proceeds
   $ 52,000,000  
Less indemnification escrow
     (3,750,000 )
Less adjustment to net working capital
     (387,757 )
Less completion bonuses paid
     (626,085 )
    $ 47,236,158  
Less debt payoff
     (34,062,500 )
Net up-front proceeds
   $ 13,173,658  
 
(d)   
Represents material adjustments to remove the historical operations of the clinical trial services business represented in the statements of operations for the nine months ended September 30, 2012 and 2011 and for the years ended December 31, 2011, 2010 and 2009, as applicable, as if the transaction had occurred as of January 1, 2009.
 
(e)   
The pro forma loss on the sale of the clinical trial services business as of September 30, 2012 was calculated as follows:
 
Net proceeds
   $ 47,236,158  
Less accrued estimated cost to sell
     (756,592 )
Less net book value including cumulative translation loss
     (48,992,407 )
Pretax Loss on sale   $ (2,512,841 )
Tax benefit on loss
     935,746  
Loss on sale
   $ (1,577,096 )
 
This loss does not include any potential impairment that may arise as a result of our annual impairment testing as of December 31, 2012. The actual gain (loss) will be determined as of the closing date, February 15, 2013, and could be materially different from this hypothetical loss.
 
 
 
8
 
 
(f)  
We calculated the pro forma effective tax rate by excluding the clinical trial services business’ activity from the historical tax provision calculations. The tax rate used for the clinical trial services business disposition adjustment was the difference between the pro forma calculated rate and the historical rate. Overhead charges originally allocated to discontinued operations were reallocated to continuing operations.  The applicable effective federal, state and international tax rates were then applied to the resulting income (loss) from continuing operations to determine the tax on continuing operations.  The tax rate applied to the hypothetical loss on the sale represents the statutory rate applied to the gain or loss at the selling entity level. The effective tax rates for the clinical trial services business were as follows:
 
Year ended December 31, 2009
     41.08 %
Year ended December 31, 2010
     39.19 %
Nine months ended September 30, 2011
     50.97 %
Year ended December 31, 2011
     45.54 %
Nine months ended September 30, 2012
     25.68 %
 
 
9

CROSS COUNTRY HEALTHCARE INC Reports