BP52717 Cross Country-8K


SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________


FORM 8-K/A




CURRENT REPORT


Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


Date of Report (Date of earliest event reported)  June 5, 2003


[http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=2267252&doc=3]


Cross Country Healthcare, Inc.

(Exact name of registrant as specified in its charter)



         

Delaware

                                  

0-33169

                                  

13-4066229

 

(State or other jurisdiction

of incorporation)

 

(Commission

File Number

 

(I.R.S. Employer

Identification No.)


6551 Park of Commerce Blvd., N.W., Boca Raton, FL 33487

(Address of Principal Executive Office (Zip Code)



(561) 998-2232

(Registrant's telephone number, including area code)



Not Applicable

(Former Name or Former Address, If Changed Since Last Report)











This Amendment 1 is being filed to furnish pro forma financial information as required by Article 11 of Regulation S-X in connection with the transaction described in Item 2 of this Current Report on Form 8-K, originally filed on June 5, 2003.


Item 7.  Financial Statements, Pro Forma Financial Information and Exhibits.


(a)  Financial Statements


Combined Financial Statements of Med-Staff, Inc. and Medical Professional Contractors for the years ended December 31, 2002 and 2001 with Report of Independent Auditors are filed as Exhibit 99.1 to this Current Report and incorporated into this Amendment No. 1 to Current Report on Form 8-K.


Financial Statements of Med-Staff, Inc. for the period from January 1, 2003 to June 4, 2003, together with Report of Independent Auditors are filed as Exhibit 99.2 to this Current Report and incorporated into this Amendment No. 1 to Current Report on Form 8-K.


(b)  Pro Forma Financial Information


The Unaudited Pro Forma Consolidated Financial Information of Cross Country Healthcare, Inc. and Med-Staff, Inc. for the three months ended March 31, 2003, as of March 31, 2003 and for the year ended December 31, 2002 are filed as exhibit 99.3 to this Current Report and incorporated into this Amendment No. 1 to Current Report on Form 8-K.


(c)  Exhibits.


Exhibit

Description


99.1

Combined Financial Statements of Med-Staff, Inc. and Medical Professional Contractors for the years ended December 31, 2002 and 2001 with Report of Independent Auditors.


99.2

Financial Statements of Med-Staff, Inc. for the period from January 1, 2003 to June 4, 2003, together with Report of Independent Auditors.


99.3

The Unaudited Pro Forma Consolidated Financial Information of Cross Country Healthcare, Inc. and Med-Staff, Inc. for the three months ended March 31, 2003, as of March 31, 2003 and for the year ended December 31, 2002.









2







SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.



CROSS COUNTRY HEALTHCARE, INC.





By:

/s/  Emil Hensel                                 

Name:

Emil Hensel

Dated:  August 4, 2003

Title:

Chief Financial Officer









3





Links



Item 7.  Financial Statements, Pro Forma Financial Information and Exhibits.







BP-52717 Cross Country Exhibit 99.1

Exhibit 99.1



MED-STAFF, INC. AND MEDICAL PROFESSIONAL CONTRACTORS


Combined Financial Statements


Years ended December 31, 2002 and 2001 with Report of Independent Auditors











Med-Staff, Inc. and Medical Professional Contractors

  

Combined Financial Statements

  

Years ended December 31, 2002 and 2001

  

Contents

  

Report of Independent Auditors

1

  

Audited Combined Financial Statements

 
  

Combined Balance Sheets

2

Combined Statements of Income and Comprehensive Income                                                     

4

Combined Statements of Stockholders’ Equity

5

Combined Statements of Cash Flows

6

Notes to Combined Financial Statements

7











Report of Independent Auditors


To the Stockholders

Med-Staff, Inc. and

Medical Professional Contractors


We have audited the accompanying combined balance sheets of Med-Staff, Inc. and Medical Professional Contractors as of December 31, 2002 and 2001, and the related combined statements of income and comprehensive income, stockholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Companies’ management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of Med-Staff, Inc. and Medical Professional Contractors at December 31, 2002 and 2001, and the results of their combined operations and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.

Philadelphia, Pennsylvania

/s/ Ernst & Young LLP

February 27, 2003




1






Med-Staff, Inc. and Medical Professional Contractors

       

Combined Balance Sheets

       
       
  

December 31

 

         

2002

    

2001

Assets

      

Current assets:

      

Cash and cash equivalents

 

$

12,240,718

 

$

222,852

Investments, at market value

  

101,281

  

148,714

Accounts receivable, net of allowance for doubtful

   accounts of $764,000 in 2002 and $614,000 in 2001

  

28,172,685

  

28,550,126

Prepaid expenses

  

1,308,264

  

844,352

Receivable – employees

  

65,778

  

18,694

Receivable – related company

  

214,146

  

Prepaid rents and deposits

  

1,097,725

  

805,417

Total current assets

  

43,200,597

  

30,590,155

       

Furniture, fixtures and equipment, net

  

511,769

  

380,303

       

Other:

      

Goodwill

  

272,636

  

272,636

Other

  

9,712

  

9,712

Total other assets

  

282,348

  

282,348

       
       
       

                                                                                                     

      

Total assets

 

$

43,994,714

 

$

31,252,806





2






Med-Staff, Inc. and Medical Professional Contractors

    

Combined Balance Sheets (continued)

    
    
  

December 31

 
 

         

2002

    

2001

 

Liabilities and stockholders’ equity

       

Current liabilities:

       

Line of credit – bank

 

$

 

$

2,200,000

 

Line of credit – stockholders

  

3,000,000

  

3,000,000

 

Advance from related company

  

  

536,228

 

Accounts payable

  

219,226

  

327,139

 

Accrued expenses

  

1,180,913

  

865,527

 

Accrued payroll and payroll taxes

  

2,891,855

  

2,374,723

 

Total current liabilities

  

7,291,994

  

9,303,617

 
        

Long-term liabilities:

       

Deferred compensation

  

5,896,079

  

4,896,082

 

Total liabilities

  

13,188,073

  

14,199,699

 

                                                                                                     

       

Stockholders’ equity:

       

Common stock

  

200

  

200

 

Additional paid-in capital

  

66,220

  

66,220

 

Retained earnings

  

30,942,963

  

17,141,996

 

Accumulated other comprehensive loss

  

(53,075

)

 

(5,642

)

   

30,956,308

  

17,202,774

 

Less: treasury stock, 70 shares at cost

  

(149,667

)

 

(149,667

)

Total stockholders’ equity

  

30,806,641

  

17,053,107

 

Total liabilities and stockholders’ equity

 

$

43,994,714

 

$

31,252,806

 


See accompanying notes.




3






Med-Staff, Inc. and Medical Professional Contractors

        

Combined Statements of Income and Comprehensive Income

        
  

Year ended December 31

 
 

         

2002

    

2001

 
        

Revenues

 

$

162,249,550

 

$

116,416,716

 

Cost of services

  

122,132,316

  

86,619,767

 

Gross profit

  

40,117,234

  

29,796,949

 

General and administrative expenses

  

21,014,988

  

20,080,928

 

Income from operations

  

19,102,246

  

9,716,021

 

                                                                                                     

       

Other income (expenses):

       

Interest, net

  

71,494

  

(153,684

)

Amortization

  

  

(19,522

)

Loss on investments

  

  

(61,285

)

Other

  

(6,655

)

 

 

Total other expenses

  

64,839

  

(234,491

)

Income before provision for state income taxes

  

19,167,085

  

9,481,530

 
        

Provision for state income taxes

  

791,000

  

237,038

 

Net income

  

18,376,085

  

9,244,492

 
        

Change in unrealized loss on investments

  

(47,433

)

 

41,084

 

Comprehensive income

 

$

18,328,652

 

$

9,285,576

 


See accompanying notes.




4






Med-Staff, Inc. and Medical Professional Contractors

                   

Combined Statements of Stockholders’ Equity

                   
                   
 

Common

Stock

  

Additional

Paid-in

Capital

  

Retained

Earnings

  

Accumulated

Other

Comprehensive

Loss

  

Treasury

Stock

  

Total

 
                   

Balance at January 1, 2001

$

200

 

$

66,220

 

$

7,897,504

 

$

(46,726

)

$

(149,667

)

$

7,767,531

 

Net income

 

  

  

9,244,492

  

  

  

9,244,492

 

Decrease in unrealized loss   

  on investments  

 


  


  


  


41,084

  


  


41,084

 

Balance at December 31, 2001

 

200

  

66,220

  

17,141,996

  

(5,642)

  

(149,667

)

 

17,053,107

 

Net income

 

  

  

18,376,085

  

  

  

18,376,085

 

Distribution to shareholders

 

  

  

(4,575,118

)

 

  

  

(4,575,118

)

Increase in unrealized loss

  on investments

 


  


  


  


(47,433


)

 


  


(47,433


)

Balance at December 31, 2002  

$

200

 

$

66,220

 

$

30,942,963

 

$

(53,075

$

(149,667

$

30,806,641

 


See accompanying notes.




5





Med-Staff, Inc. and Medical Professional Contractors

   

Combined Statements of Cash Flows

   

  

Year ended December 31

 
 

      

2002

 

2001

 

Cash flows from operating activities

       

Net income

 

$

18,376,085

    

$

9,244,492

 

Adjustments to reconcile net income to net cash

  provided by (used in) operating activities:

       

Depreciation

  

210,020

  

155,065

 

Amortization

  

  

19,522

 

Provision for bad debt

  

471,996

  

180,000

 

Loss on investments

  

  

61,285

 

Changes in operating assets and liabilities:

       

Accounts receivable

  

(94,555

)

 

(14,261,671

)

Receivable – employees

  

(47,084

)

 

(5,312

)

Prepaid expenses

  

(463,912

)

 

(773,773

)

Prepaid rents and deposits

  

(292,308

)

 

(336,438

)

Accounts payable

  

(107,913

)

 

(985,998

)

Accrued expenses

  

315,386

  

285,688

 

Accrued payroll and payroll taxes

  

517,132

  

636,193

 

Advance from related company

  

(750,374

)

 

525,383

 

Deferred compensation

  

999,997

  

3,699,576

 

Net cash provided by (used in) operating activities

  

19,134,470

  

(1,555,988

)

  

Cash flows from investing activities

       

Purchase of furniture, fixtures and equipment

  

(341,486

)

 

(303,902

)

Payment for acquisition of business

  

  

(55,325

)

Proceeds from sale of investment

  

  

20,000

 

Purchase of investments

  

  

(24,497

)

Net cash used in investing activities

  

(341,486

)

 

(363,724

)

  

Cash flows from financing activities

       

Net borrowings (repayments) of bank line of credit

  

(2,200,000

)

 

1,200,000

 

Net borrowings on stockholders’ line of credit

  

  

1,000,000

 

Principal payments of long-term debt

  

  

(60,000

)

Distribution to shareholders

  

(4,575,118

)

 

 

Net cash (used in) provided by financing activities

  

(6,775,118

)

 

2,140,000

 

Net increase in cash and cash equivalents

  

12,017,866

  

220,288

 

  

Cash and cash equivalents at beginning of year

  

222,852

  

2,564

 

Cash and cash equivalents at end of year

 

$

12,240,718

 

$

222,852

 

  

Supplemental disclosure of cash flow information                             

       

Cash paid during the year for:

       

State income taxes

 

$

549,600

 

$

58,465

 

Interest

 

$

71,866

 

$

166,656

 


See accompanying notes.

6






Med-Staff, Inc. and Medical Professional Contractors

Notes to Combined Financial Statements

December 31, 2002

1.   Business Activity

Med-Staff, Inc. (“Med-Staff”) and Medical Professional Contractors (“MPC”) (“collectively, the Companies”) are Pennsylvania companies that provide healthcare staffing services to hospitals and long-term care facilities in the United States on a contractual basis.

2.   Summary of Significant Accounting Policies

Combination Policy

The accompanying combined financial statements include the accounts of Med-Staff and MPC, which are under common ownership. All intercompany balances have been eliminated in the combination.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Companies include all cash amounts, which are not subject to withdrawal restrictions or penalties, and all highly liquid debt instruments with maturities of three months or less at the time of purchase to be cash equivalents.

Concentration of Credit Risk

The Companies maintain cash balances primarily at one financial institution. Accounts are insured by the Federal Deposit Insurance Corporation up to $100,000. In the normal course of business, the Companies may have deposits that exceed the insured balance.





7






Med-Staff, Inc. and Medical Professional Contractors

Notes to Combined Financial Statements (continued)

2.   Summary of Significant Accounting Policies (continued)

Accounts Receivable

Accounts receivable consists primarily of amounts owed from health care providers including hospitals and nursing homes. The Companies perform ongoing credit evaluations of their customers’ financial conditions and, generally, do not require collateral. The Companies provide an allowance for bad debts based on experience and specifically identified risks.  Accounts receivable are charged off against allowance for bad debts when management determines that recovery is unlikely and the Companies cease their collection efforts. Overall, based on the large number of customers in differing geographic areas throughout the United States, the Companies believe the concentration of credit risk is limited. Accounts receivable is recorded net of an allowance for doubtful accounts.

Investments

The Companies account for their investments in equity securities in accordance with Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. This statement requires securities which are available-for-sale to be carried at fair value, with changes in fair value recognized in accumulated other comprehensive income or loss, a separate component of stockholders’ equity. Realized gains and losses and declines in value judged to be other than temporary are included in net income.

Prepaid Rent and Deposits

The Companies lease a number of apartments for their employees under short-term agreements, which coincide with each employee’s staffing contract. As a condition of these agreements, the Companies prepay rent and place security deposits on the leased apartments. Prepaid rent and deposits relate to these short-term lease agreements.

Furniture, Fixtures and Equipment

Furniture, fixtures and equipment are recorded at cost. Depreciation is determined on an accelerated method over the estimated useful lives of the assets, which range from five to seven years. Maintenance and minor repairs are charged to operations as incurred.





8






Med-Staff, Inc. and Medical Professional Contractors

Notes to Combined Financial Statements (continued)

2.   Summary of Significant Accounting Policies (continued)

Goodwill

Goodwill represents the excess of purchase price over the fair value of net assets acquired. Goodwill was being amortized over 15 years on a straight-line basis through December 31, 2001.

Effective January 1, 2002, the Companies adopted Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142). As a result of adopting SFAS 142, the Companies no longer amortize goodwill. Goodwill must be tested at least annually for impairment, including an initial test that was completed in connection with the adoption of SFAS 142. The test for impairment uses a fair-value based approach, whereby if the implied fair value of a reporting unit’s goodwill is less than its carrying amount, goodwill would be considered impaired. Fair value estimates are based upon the discounted value of estimated future cash flows. The Companies did not incur any impairment charges in connection with the adoption of SFAS 142 or the required annual impairment test which the Companies complete in the fourth quarter of each year.

A reconciliation of previously reported net income to the amounts adjusted for the exclusion of goodwill amortization, net of related income tax effect, is as follows for the year ended December 31, 2001:

Reported net income

$

9,244,492

Add back goodwill amortization,

  net of tax of $488

 

19,034

Adjusted net income                                                                                                        

$

9,263,526


Income Taxes

The Companies have elected to be treated as subchapter “S” corporations as defined in the Internal Revenue Code. Therefore, the Companies will not be liable for corporate income taxes on their taxable income. Instead, the stockholders are liable for individual income taxes on the Companies’ taxable income.

The Companies incur state income taxes in states that do not recognize the Subchapter S status and the financial statements include a provision for the state income tax effect of transactions reported in the financial statements.





9






Med-Staff, Inc. and Medical Professional Contractors

Notes to Combined Financial Statements (continued)

2.   Summary of Significant Accounting Policies (continued)

Revenue Recognition

Revenue from services consists primarily of temporary staffing revenues. The Companies recognize revenue when services are rendered. Accordingly, accounts receivable includes an accrual for employees’ time worked but not yet invoiced. At December 31, 2002 and 2001, amounts accrued are approximately $1,745,000 and $959,000, respectively. The Companies are compensated for the services provided at predetermined hourly rates negotiated with their customers, without regard to the Companies’ cost of providing these services.

Cost of Services

Each of the Companies’ healthcare professional employees works under a contract. Contract employees are hourly employees whose contract specifies the hourly rate they will be paid, including applicable overtime, and any other benefits they are entitled to receive during the contract period. The Companies assume all employee costs including payroll, payroll taxes, benefits, professional liability insurance and Occupational Safety and Health Administration, or OSHA, requirements, as well as any travel and housing arrangements.

The Companies provide housing in apartments leased by the Companies and pay for travel for their contract employees. The Companies’ contract with the healthcare professional obligates them to provide these services to the healthcare professional.

Reserves for Workers’ Compensation Claims

Workers’ compensation is provided under partially self-insured plans. The Companies record their estimate of the ultimate cost of and reserves for, workers’ compensation based on actuarial computations using the loss history as well as industry statistics. Furthermore, in determining their reserves, the Companies include reserves for estimated claims incurred but not reported. The ultimate cost of workers’ compensation will depend on actual costs incurred to resolve the claims and may differ from the amounts reserved by the Companies for those claims.

Advertising

Advertising costs are expensed as incurred. Advertising costs for the years ended December 31, 2002 and 2001 were approximately $943,000 and $875,000, respectively.





10






Med-Staff, Inc. and Medical Professional Contractors

Notes to Combined Financial Statements (continued)

2.   Summary of Significant Accounting Policies (continued)

Estimated Fair Value of Financial Instruments

The carrying amounts reported in the combined balance sheets for cash, accounts receivable, accounts payable, accrued expenses and accrued payroll and related taxes approximate fair value because of their short maturity. The carrying amount of the amount outstanding under the lines of credit approximates fair value because the interest rate is tied to a quoted variable market rate index. The carrying amount of the deferred compensation is based on the estimate of the fair value of the underlying common stock.

3.   Investments

At December 31, 2002 and 2001, the Companies owned available-for-sale equity investments with a fair value of $101,281 and $148,714, respectively. The cost basis of the available-for-sale equity investments is $154,356 at December 31, 2002 and 2001, which resulted in unrealized losses of $53,075 and $5,642, respectively. The (increase) decrease in net unrealized loss of available-for-sale equity investments is charged to other comprehensive income and was ($47,433) and $41,084 for the years ended December 31, 2002 and 2001, respectively.

4.   Furniture, Fixtures and Equipment

Furniture, fixtures and equipment consist of the following:

 

December 31

 

2002

  

2001

      

Furniture and fixtures

$

252,639

 

$

178,699

Equipment

 

982,608

  

715,062

Total furniture, fixtures and equipment

 

1,235,247

  

893,761

Less accumulated depreciation

 

723,478

  

513,458

Net furniture, fixtures and equipment                                                      

$

511,769

 

$

380,303





11






Med-Staff, Inc. and Medical Professional Contractors

Notes to Combined Financial Statements (continued)

5.   Lines of Credit

Line of Credit – Bank

At December 31, 2002 and 2001, the Companies maintain a $2,200,000 line of credit with a bank. Outstanding borrowings accrue interest at the bank’s prime rate, as defined, less one percent (3.25% at December 31, 2002). The line of credit renews annually and matures on June 30, 2003. Outstanding borrowings are secured by substantially all of the Companies’ assets and the stockholders guarantee the facility. At December 31, 2001, there was $2,200,000 of outstanding borrowings on the line of credit. There were no outstanding borrowings at December 31, 2002.

Line of Credit – Stockholders

The Companies have available a line of credit of $3,000,000 from stockholders as of December 31, 2002 and 2001, all of which was outstanding at each year end. Interest is payable monthly at the prime rate of the bank, as defined, providing the line of credit less one percent (3.25% at December 31, 2002). The line of credit, which is subordinate to the bank line of credit, matures on June 30, 2003, is renewable annually, and is secured by substantially all the Companies’ assets.

6.   Phantom Stock Plan – Deferred Compensation

Med-Staff has a nonqualified deferred compensation agreement with certain key employees. Awards under the Phantom Stock Plan (the Plan) are granted in units. The maximum number of units that may be awarded under the Plan has been limited to an amount equivalent to 11% of the aggregate number of issued and outstanding shares of common stock (110,000 at December 31, 2002).

The units vest as follows:

                    

Number of Years Following Award

Percentage

Vested

                    

  
 

Upon Grant                                                                                

60%

 

3 years

75%

 

6 years

90%

 

10 years

100%





12






Med-Staff, Inc. and Medical Professional Contractors

Notes to Combined Financial Statements (continued)

6.   Phantom Stock Plan – Deferred Compensation (continued)

Units will be redeemed upon the occurrence of the first of the following events: termination, retirement, death, disability, sale or exchange of substantially all the stock or assets of the Companies, or liquidation of the Companies. The units will be redeemed at their fair market value, which is the value of a share of common stock. A minimum of 10% of the total amount will be paid in cash upon redemption with a note issued for the remaining amount. The note shall be payable over a period of up to 4 years and bear interest at 6%.

As of December 31, 2002 and 2001, 86,755 and 85,984 units, respectively, were granted and 57,173 and 54,640 units, respectively, were vested.

The amount accrued under the Plan for the years ended December 31, 2002 and 2001 was $5,896,079 and $4,896,082, respectively. The December 31, 2002 and 2001 accrual is based on units earned, of 64,958 and 60,445, which reflects an accrual for units which are vested and a portion of the units to be vested at the next vesting date. Deferred compensation expense associated with the pro rata vesting of units was $999,997 and $3,699,576 for the years ended December 31, 2002 and 2001, respectively.

7.   Common Stock

Common stock at December 31, 2002 and 2001 consists of the following:

Company

 

Par

Value

 

Shares

Authorized

 

Shares

Issued and

Outstanding

 

Total

 

Additional

Paid-in

Capital

                                                                                   

             

Med-Staff, Inc. (including 70 shares           

  of treasury stock)        

 

$

0.0001

 

1,000,000

 

1,000,000

 

$

100

 

$

66,220

Medical Professional Contractors

 

$

1.00

 

100

 

100

  

100

  

         

$

200

 

$

66,220





13






Med-Staff, Inc. and Medical Professional Contractors

Notes to Combined Financial Statements (continued)

8.   Related Party Transactions

The Companies sublet a portion of their office space to a related party. The rent was allocated based on the percentage of space used but is not subject to a formal lease. The amount of rent charged to the related party for the years ended December 31, 2002 and 2001 was approximately $84,000 and $46,000, respectively, and is included in the amount due from/to its related company and netted against rent expense.

The Companies accrue interest on amount due from related party. The Companies recorded interest income of $ 25,631 on the amount due from the related party for the year ended December 31, 2002.

The Companies are guarantor for borrowings under $6,100,000 of credit facilities maintained by an affiliate and stockholders. At December 31, 2002, outstanding borrowings under the credit facilities were $400,000. Each facility accrues interest at the Companies’ bank’s prime rate, as defined, less one percent (3.25% at December 31, 2002).

9.   Leases

The Companies lease office space under various noncancelable operating leases. Rent expense paid under these leases (net of sublease revenue) amounted to approximately $912,000 and $720,000 for the years ended December 31, 2002 and 2001, respectively.

The following is a summary of future minimum payments for the noncancelable operating leases described above, assuming no sublease revenue, for the years ending December 31:

 

Gross

  

Related Party

Allocation

  

Net

         

2003                                                                                    

$

943,037

 

$

86,000

 

$

857,037

2004

 

828,445

  

89,000

  

739,445

2005

 

732,455

  

91,000

  

641,455

2006

 

395,000

  

54,000

  

341,000

2007

 

  

  

Total

$

2,898,937

 

$

320,000

 

$

2,578,937





14






Med-Staff, Inc. and Medical Professional Contractors

Notes to Combined Financial Statements (continued)

10.  401(k) Plan

The Companies maintain a 401(k) retirement plan for substantially all of their employees. The plan allows eligible employees to defer a portion of their annual compensation pursuant to Section 401(k) of the Internal Revenue Code. The Companies match 25% of the employees’ contributions up to 5%. The Companies’ 401(k) expense was $143,651 and $105,851 for the years ended December 31, 2002 and 2001, respectively.

11.  Litigation

The Companies are from time to time, involved in various legal proceedings. Management is currently aware of two proceedings which they believe are without merit and believe the outcome would not materially affect the Companies’ combined financial position or combined results of operations.

12.  Acquisition of Business

On August 19, 2001, Med-Staff acquired the operating assets of a corporation. The corporation provided medical staffing to hospitals and long-term care facilities on a contractual basis. The purchase price of the operating assets was $49,325 and was accounted for using the purchase method of accounting. The final purchase price was allocated to goodwill.




15


BP-52717 Cross Country Exhibit 99.2

Exhibit 99.2



MED-STAFF, INC.


Financial Statements


Period from January 1, 2003 to June 4, 2003 with Report of Independent Auditors











Med-Staff, Inc.

  

Financial Statements

  

Period from January 1, 2003 to June 4, 2003

  

Contents

  

Report of Independent Auditors

1

  

Audited Financial Statements

 
  

Balance Sheet

2

Statement of Income and Comprehensive Income                                                                  

4

Statement of Stockholders’ Equity

5

Statement of Cash Flows

6

Notes to Financial Statements

7











Report of Independent Auditors


To the Stockholders

Med-Staff, Inc.


We have audited the accompanying balance sheet of Med-Staff, Inc. as of June 4, 2003, and the related statements of income and comprehensive income, stockholders’ equity, and cash flows for the period from January 1, 2003 to June 4, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.


We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.


In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Med-Staff, Inc. at June 4, 2003, and the results of its operations and its cash flows for the period from January 1, 2003 to June 4, 2003, in conformity with accounting principles generally accepted in the United States.


Philadelphia, Pennsylvania

/s/ Ernst & Young LLP


July 2, 2003




1






Med-Staff, Inc.

 
     

Balance Sheet

 
     

June 4, 2003

 
     

Assets

    

Current assets:

    

Cash and cash equivalents

 

$

6,048,863

 

Investments, at market value

  

126,495

 

Accounts receivable, net of allowance for doubtful

   accounts of $667,292

  

23,120,479

 

Prepaid expenses

  

864,794

 

Receivable – employees

  

99,778

 

Prepaid rents and deposits

  

719,953

 

Total current assets

  

30,980,362

 
     

Furniture, fixtures and equipment, net

  

546,752

 
     

Other:

    

Goodwill

  

272,636

 

Other

  

9,712

 

Total other assets

  

282,348

 

                                                                                                                                       

    

Total assets

 

$

31,809,462

 





2






Med-Staff, Inc.

  
      

Balance Sheet (continued)

  
      

June 4, 2003

  
      

Liabilities and stockholders’ equity

     

Current liabilities:

     

Accounts payable and accrued expenses

 

$

4,500,567

  

Accrued payroll and payroll taxes

  

3,523,030

  

Payable-related party

  

2,594

  

Deferred compensation

  

8,721,989

  

Total liabilities

  

16,748,180

  

                                                                                                                                     

     
      

Stockholders’ equity:

     

Common stock; $1.00 par value; 10,000 shares authorized and issued

  

10,000

  

Additional paid-in capital

  

56,320

  

Retained earnings

  

15,180,810

  

Accumulated other comprehensive loss

  

(36,181

)

 
   

15,210,949

  

Less: treasury stock, 70 shares at cost

  

(149,667

)

 

Total stockholders’ equity

  

15,061,282

  

Total liabilities and stockholders’ equity

 

$

31,809,462

  


See accompanying notes.




3






Med-Staff Inc.

 

Statement of Income and Comprehensive Income

 

Period from January 1, 2003 to June 4, 2003

 
     

Revenues

 

$

71,118,401

 

Cost of services

  

54,649,657

 

Gross profit

  

16,468,744

 

General and administrative expenses

  

13,620,965

 

Income from operations

  

2,847,779

 

                                                                                                                                          

    

Other income (expenses):

    

Interest, net

  

7,498

 

Gain on sale of investments

  

7,475

 

Total other income

  

14,973

 

Income before provision for state income taxes

  

2,862,752

 
     

Provision for state income taxes

  

1,299,000

 

Net income

  

1,563,752

 
     

Change in unrealized loss on investments

  

16,894

 

Comprehensive income

 

$

1,580,646

 


See accompanying notes.




4






Med-Staff, Inc.

                   

Statement of Stockholders’ Equity

                   
                   
 

Common

Stock

  

Additional

Paid-in

Capital

  

Retained

Earnings

  

Accumulated

Other

Comprehensive

Loss

  

Treasury

Stock

  

Total

 
                   

Balance at January 1, 2003

$

100

 

$

66,220

 

$

30,943,063

 

$

(53,075

)

$

(149,667

)

$

30,806,641

 

Net income

 

  

  

1,563,752

  

  

  

1,563,752

 

Distributions to shareholders

 

  

  

(17,326,005

)

 

  

  

(17,326,005

)

Decrease in unrealized loss

  on investments

 


  


  


  


16,894

  


  


16,894

 

 Recapitalization adjustment

 

9,900

  

(9,900

)

 

  

  

  

 

Balance at June 4, 2003           

$

10,000

 

$

56,320

 

$

15,180,810

 

$

(36,181

$

(149,667

$

15,061,282

 


See accompanying notes.




5





Med-Staff, Inc.

 

Statement of Cash Flows

 

Period from January 1, 2003 to June 4, 2003

 

Cash flows from operating activities

    

Net income

 

$

1,563,752

    

Adjustments to reconcile net income to net cash

  provided by operating activities:

    

Depreciation

  

93,215

 

Provision for bad debt

  

182,109

 

Gain on sale of investments

  

(7,475

)

Changes in operating assets and liabilities:

    

Accounts receivable

  

4,870,097

 

Receivable – employees

  

(34,000

)

Prepaid expenses

  

443,470

 

Prepaid rents and deposits

  

377,772

 

Accounts payable and accrued expenses

  

3,100,428

 

Accrued payroll and payroll taxes

  

456,175

 

Advance from related company

  

216,740

 

Deferred compensation

  

3,000,910

 

Net cash provided by operating activities

  

14,263,193

 

  

Cash flows from investing activities

    

Purchase of furniture, fixtures and equipment

  

(128,198

)

Purchases of investments

  

(28,198

)

Proceeds from sales of invesments

  

27,353

 

Net cash used in investing activities

  

(129,043

)

  

Cash flows from financing activities

    

Net repayment on stockholders’ line of credit

  

(3,000,000

)

Distributions to shareholders

  

(17,326,005

)

Net cash used in financing activities

  

(20,326,005

)

     

Net decrease in cash and cash equivalents

  

(6,191,855

)

     

  

Cash and cash equivalents at beginning of period

  

12,240,718

 
     

Cash and cash equivalents at end of period

 

$

6,048,863

 

  

Supplemental disclosure of cash flow information                                                       

    

Cash paid during the year for:

    

State income taxes

 

$

17,401

 

Interest

 

$

13,542

 


See accompanying notes.

6





Med-Staff, Inc.

Notes to Financial Statements

June 4, 2003

1.   Organization and Basis of Presentation


Med-Staff, Inc. (“Med-Staff” or the “Company”) is a privately-held Pennsylvania company that provides healthcare staffing services to hospitals and long-term care facilities in the United States on a contractual basis. Med-Staff was founded in 1988 as a local per diem nurse-staffing agency to serve the Philadelphia nursing home market. During the 1990s, it expanded into travel nurse staffing for acute care facilities and by the end of 2000, Med-Staff was predominantly a travel nurse staffing business with substantially all of its revenue derived from hospitals. Recently, Med-Staff has also expanded its per diem business by establishing per diem offices in select regions.


Effective May 7, 2003, the Company, with the consent of its sole director and shareholders (“the Consent”), changed its authorized and issued common stock to 10,000 shares with a $1.00 par value per share. Concurrent with the Consent, the Phantom Stock units (Note 6), available and outstanding, were adjusted to reflect the appropriate capitalization of the Company.


On May 8, 2003, Med-Staff entered into an agreement to sell substantially all of its assets to Cross Country Nurses Inc. (Cross Country) for $104,000,000 plus an earn-out provision up to a maximum of $37,500,000 based on 2003 calendar year performance. The transaction was consummated on June 5, 2003, at which time, substantially all of the Company’s assets, liabilities and operations were sold to Cross Country. In connection with the sale, certain operating items were terminated and/or modified, including the lines of credit, phantom stock plan, Company and shareholder guarantees, and certain leases that are more fully discussed in Notes 5 and 7.


2.   Summary of Significant Accounting Policies


Use of Estimates


The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.


Cash and Cash Equivalents


The Company includes all cash amounts, which are not subject to withdrawal restrictions or penalties, and all highly liquid debt instruments with maturities of three months or less at the time of purchase to be cash equivalents.


Concentration of Credit Risk


The Company maintains cash balances primarily at one financial institution. Accounts are insured by the Federal Deposit Insurance Corporation up to $100,000. In the normal course of business, the Company may have deposits that exceed the insured balance.





7





Med-Staff, Inc.


Notes to Financial Statements (continued)


2.   Summary of Significant Accounting Policies (continued)


Accounts Receivable


Accounts receivable consist primarily of amounts owed from healthcare providers including hospitals and nursing homes. The Company performs ongoing credit evaluations of their customers’ financial conditions and, generally, does not require collateral. The Company provides an allowance for bad debts based on experience and specifically identified risks. Accounts receivable are charged off against allowance for bad debts when management determines that recovery is unlikely and the Company ceases collection efforts. Overall, based on the large number of customers in differing geographic areas throughout the United States, the Company believes the concentration of credit risk is limited. Accounts receivable is recorded net of an allowance for doubtful accounts.


Investments


The Company accounts for their investments in equity securities in accordance with Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. This statement requires securities which are available-for-sale to be carried at fair value, with changes in fair value recognized in accumulated other comprehensive income or loss, a separate component of stockholders’ equity. Realized gains and losses and declines in value judged to be other than temporary are included in net income.


Prepaid Rent and Deposits


The Company leases a number of apartments for their employees under short-term agreements, which coincide with each employee’s staffing contract. As a condition of these agreements, the Company prepays rent and places security deposits on the leased apartments. Prepaid rent and deposits relate to these short-term lease agreements.


Furniture, Fixtures and Equipment


Furniture, fixtures, and equipment are recorded at cost. Depreciation is determined on an accelerated method over the estimated useful lives of the assets, which range from five to seven years. Maintenance and minor repairs are charged to operations as incurred.





8





Med-Staff, Inc.


Notes to Financial Statements (continued)


2.   Summary of Significant Accounting Policies (continued)


Goodwill


Goodwill represents the excess of purchase price over the fair value of net assets acquired. The Company follows the provision of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142), to account for goodwill. Goodwill is tested at least annually for impairment. The test for impairment uses a fair-value based approach, whereby if the implied fair value of a reporting unit’s goodwill is less than its carrying amount, goodwill would be considered impaired. Fair value estimates are based upon the discounted value of estimated future cash flows. The test for impairment was not performed during the period from January 1, 2003 to June 4, 2003, however, management believes the sale price of the Company’s assets supports the recorded amount of goodwill; accordingly, the Company did not incur an impairment charge for the period from January 1, 2003 to June 4, 2003.


Income Taxes


The Company has elected to be treated as a subchapter “S” corporation as defined in the Internal Revenue Code. Therefore, the Company will not be liable for corporate income taxes on their taxable income. Instead, the stockholders are liable for individual income taxes on the Company’s taxable income.


The Company incurs state income taxes in states that do not recognize the subchapter “S” status and the financial statements include a provision for the state income tax effect of transactions reported in the financial statements. In addition, the provision includes an estimate for state taxes relating to built-in gains resulting from the Company’s conversion from “C” to “S” status.


Revenue Recognition


Revenue from services consists primarily of temporary staffing revenues. The Company recognizes revenue when services are rendered. Accordingly, accounts receivable includes an accrual for employees’ time worked but not yet invoiced. At June 4, 2003, the amount accrued is approximately $2,273,000, all of which was billed subsequent to the period end. The Company is compensated for the services provided at predetermined hourly rates negotiated with their customers, without regard to the Company’s cost of providing these services.





9





Med-Staff, Inc.


Notes to Financial Statements (continued)


2.   Summary of Significant Accounting Policies (continued)


Cost of Services


The Company’s healthcare professional employees work under a contract. Contract employees are hourly employees whose contract specifies the hourly rate they will be paid, including applicable overtime, and any other benefits they are entitled to receive during the contract period. The Company assumes all employee costs including payroll, payroll taxes, benefits, professional liability insurance, and Occupational Safety and Health Administration, or OSHA, requirements, as well as any travel and housing arrangements.


The Company provides housing in apartments leased by the Company and pay for travel for their contract employees. The Company’s contract with the healthcare professional obligates them to provide these services to the healthcare professional.


Reserves for Professional Liability Claims


Professional liability insurance coverage is provided under a “claims made” policy. Under a “claims made” policy, annual premiums afford a company insurance coverage for those claims that both occur and are filed during the policy year. The Company records its estimate of claims incurred but not reported based on comparative company loss histories and normative industry statistics. The ultimate cost of professional liability claims will depend on actual costs incurred to resolve the claims and may differ from the amounts reserved by the Company for those claims.


Advertising


Advertising costs are expensed as incurred. Advertising costs for the period from January 1, 2003 to June 4, 2003 were approximately $439,000.


Estimated Fair Value of Financial Instruments


The carrying amounts reported in the balance sheet for cash, accounts receivable, accounts payable, accrued expenses, and accrued payroll and related taxes approximate fair value because of their short maturity. The carrying amount of the amount outstanding under the lines of credit approximates fair value because the interest rate is tied to a quoted variable market rate index. The carrying amount of the deferred compensation is based on the estimate of the fair value of the underlying common stock.





10





Med-Staff, Inc.


Notes to Financial Statements (continued)


3.   Investments


At June 4, 2003, the Company owned available-for-sale equity investments with a fair value of $126,495 and a cost basis of $162,676, which resulted in unrealized losses of $36,181. The decrease in net unrealized loss on available-for-sale equity investments is charged to other comprehensive income and was $16,894 for the period from January 1, 2003 to June 4, 2003.


4.   Furniture, Fixtures and Equipment


Furniture, fixtures and equipment consist of the following at June 4, 2003:


    

Furniture and fixtures

$

271,334

 

Equipment

 

1,092,111

 

Total furniture, fixtures and equipment

 

1,363,445

 

Less accumulated depreciation

 

816,693

 

Net furniture, fixtures and equipment                                                                          

$

546,752

 


5.   Lines of Credit


Line of Credit – Bank


At June 4, 2003, the Company maintains a $2,200,000 line of credit with a bank. Outstanding borrowings accrue interest at the bank’s prime rate, as defined, less one percent (3.25% at June 4, 2003). The line of credit matured on June 30, 2003, and was not renewed. Outstanding borrowings are secured by substantially all of the Company’s assets and the stockholders’ guarantee of the facility. At June 4, 2003, there were no outstanding borrowings on the line of credit.


Line of Credit – Stockholders


Through June 4, 2003, the Company had available a line of credit of $3,000,000 from stockholders. Interest was payable monthly at the prime rate of the bank, as defined, providing the line of credit less one percent (3.25% at June 4, 2003). The line of credit was subordinate to the bank line of credit. There were no outstanding borrowings on this line of credit at June 4, 2003.





11





Med-Staff, Inc.


Notes to Financial Statements (continued)


6.   Phantom Stock Plan – Deferred Compensation


Med-Staff has a nonqualified deferred compensation agreement with certain key employees. Awards under the Phantom Stock Plan (the Plan) are granted in units. The maximum number of units that may be awarded under the Plan has been limited to an amount equivalent to 11% of the aggregate number of issued and outstanding shares of common stock (1,100 at June 4, 2003).


Units became 100% vested commensurate with the sale of substantially all Company assets to Cross Country. The units will be redeemed subsequent to June 4, 2003 at their fair market value, which is the value of a share of common stock, and the Plan will terminate.


As of June 4, 2003, 872.2 units were granted and fully vested. The amount accrued under the Plan at June 4, 2003 was $8,721,989. Deferred compensation expense associated with the pro rata vesting of units was $3,000,910 for the period ended June 4, 2003.


7.   Related Party Transactions


The Company sublets a portion of its office space to a related party. The rent was allocated based on the percentage of space used but is not subject to a formal lease. The amount of rent charged to the related party for the period from January 1, 2003 to June 4, 2003 was approximately $46,000, and is included in the amount due from/to its related company and netted against rent expense.


The Company accrues interest on amount due from a related party. The Company recorded interest income of $2,018 on the amount due from the related party for the period from January 1, 2003 to June 4, 2003.


The Company is guarantor for borrowings under $6,100,000 of credit facilities maintained by an affiliate and stockholders. At June 4, 2003, there were no outstanding borrowings under the credit facilities. Each facility accrues interest at the Company’s bank’s prime rate, as defined, less one percent (3.25% at June 4, 2003).


8.   Leases


The Company leases office space under various noncancelable operating leases. Rent expense paid under these leases (net of sublease revenue) amounted to approximately $427,000 for the period from January 1, 2003 to June 4, 2003.






12





Med-Staff, Inc.


Notes to Financial Statements (continued)


8.   Leases (continued)


The following is a summary of future minimum payments for the noncancelable operating leases described above for the periods ending December 31:


 

Gross

 

Sublease

Revenue

 

Net

         

June 5, to December 31, 2003                                               

$

575,398

 

$

53,059

 

$

522,339

2004

 

892,135

  

89,000

  

803,135

2005

 

805,552

  

91,000

  

714,552

2006

 

407,894

  

54,000

  

353,894

Total

$

2,680,979

 

$

287,059

 

$

2,393,920


9.   401(k) Plan


The Company maintains a 401(k) retirement plan for substantially all of its employees. The plan allows eligible employees to defer a portion of their annual compensation pursuant to Section 401(k) of the Internal Revenue Code. The Company matches approximately 25% of the employees’ contributions up to 5%. The Company’s 401(k) expense was $47,327 for the period from January 1, 2003 to June 4, 2003.


10.  Litigation


The Company is, from time to time, involved in various legal proceedings. Management is currently aware of two proceedings, which they believe are without merit and believe the outcome would not materially affect the Company’s financial position or results of operations.






13


BP52717 Cross Country Exhibit 99.3

Exhibit 99.3



Cross Country Healthcare, Inc.

Unaudited Pro Forma Financial Statements


Links


Unaudited Pro Forma Consolidated Financial Information


Pro Forma Condensed Consolidated Statement of Operations – Three Months Ended March 31, 2003


Pro Forma Condensed Consolidated Balance Sheet as of March 31, 2003


Notes to the Unaudited Pro Forma Condensed Consolidated Statement of Operations Three Months Ended March 31, 2003 and Unaudited Pro Forma Condensed Consolidated  Balance Sheet as of March 31, 2003


Unaudited Pro Forma Condensed Consolidated Statement of Operations - Year Ended December 31, 2002


Notes to the Unaudited Pro Forma Condensed Consolidated Statement of Operations Year Ended December 31, 2002



Cross Country Healthcare, Inc.

Unaudited Pro Forma Consolidated Financial Information


Cross Country Nurses, Inc., a wholly-owned subsidiary of Cross Country Healthcare, Inc. acquired substantially all of the assets of Med-Staff, Inc. (Med-Staff) on June 5, 2003. Subsequent to the acquistion, Cross Country Nurses, Inc. changed its name to Med-Staff, Inc., a Delaware corporation. In accordance with Article 11 of Regulation S-X, presented below is the required pro forma financial information.


The pro forma condensed consolidated statement of operations for the year ended December 31, 2002 and the three months ended March 31, 2003 give effect to the acquisition as if the transaction had occurred on January 1, 2002. The pro forma condensed consolidated balance sheet as of March 31, 2003 gives effect to the acquisition as if the transaction occurred on the balance sheet date.


The pro forma information is based on the historical statements of the acquired business giving effect to the transaction under the purchase method of accounting and the assumptions and adjustments described in the accompanying notes to the pro forma condensed consolidated statements of operations.


The pro forma information does not purport to be indicative of the combined results of operations that actually would have taken place if transactions had occurred on such dates.



Cross Country Healthcare, Inc.

               

Pro Forma Condensed Consolidated Statement of Operations - Three Months Ended March 31, 2003

(unaudited, amounts in thousands)

     

                   

         
 

As reported

Cross Country

 

Med-Staff (a)

 

Pro Forma

Acquisition

Adjustments

   

Pro Forma

Consolidated

 
               

Revenue from services

$

161,003

 

$

42,642

 

$

(133

)

(b)

 

$

203,512

 

Operating expenses:

              

  Direct operating expenses

 

121,481

  

33,007

  

(175

)

(b)

  

154,313

 

  Selling, general and administrative expenses

 

25,013

  

5,442

  

316

 

(c)

  

30,771

 

  Bad debt expense

 

-

  

100

  

-

    

100

 

  Depreciation

 

1,068

  

60

  

(8

)

(d)

  

1,120

 

  Amortization

 

747

  

-

  

254

 

(e)

  

1,001

 

  Loss on early extinguishment of debt

 

-

  

-

  

1,105

 

(f)

  

1,105

 

    Total operating expenses

 

148,309

  

38,609

  

1,492

    

188,410

 
               

Income from operations

 

12,694

  

4,033

  

(1,625

)

   

15,102

 

Other expenses:

              

  Interest expense (income), net

 

586

  

(4

)

 

1,363

 

(g)

  

1,945

 
               

Income before income taxes

 

12,108

  

4,037

  

(2,988

)

   

13,157

 

Income tax expense

 

4,686

  

38

  

368

 

(h)

  

5,092

 
               

Income from continuing operations

$

7,422

 

$

3,999

 

$

(3,356

)

  

$

8,065

 
               

Basic income from continuing operations

  per common share

$

0.23

         

$

0.25

 
               

Diluted income from continuing operations

  per common share

$

0.23

         

$

0.25

 

                                                                             

              

Weighted average shares outstanding - basic

 

32,247

          

32,247

 

Weighted average shares outstanding - diluted

 

32,607

          

32,607

 



Cross Country Healthcare, Inc.

               

Pro Forma Condensed Consolidated Balance Sheet as of March 31, 2003

(unaudited, amounts in thousands)

     

                   

         
 

As reported

Cross Country

 

Med-Staff (a)

 

Pro Forma

Acquisition

Adjustments

   

Pro Forma

Consolidated

 
               

Current assets:

              

  Cash and cash equivalents

$

14,221

 

$

7,069

 

$

(16,466

)

(i)

 

$

4,824

 

  Accounts receivable, net

 

96,498

  

25,107

  

(213

)

(i)

  

121,392

 

  Assets from discontinued operations, net

 

10

  

-

  

-

    

10

 

  Other current assets

 

11,160

  

2,465

  

(631

)

(i)

  

12,994

 

Total current assets

 

121,889

  

34,641

  

(17,310

)

   

139,220

 

Property and equipment, net

 

11,900

  

527

  

163

 

(j)

  

12,590

 

Goodwill, net

 

229,310

  

273

  

77,849

 

(j)

  

307,432

 

Trademark, net

 

15,749

  

-

  

-

    

15,749

 

Other identifiable intangible assets, net

 

6,449

  

-

  

4,554

 

(j)

  

11,003

 

Other assets

 

1,114

  

-

  

2,276

 

(k)

  

3,390

 

Total assets

$

386,411

 

$

35,441

 

$

67,532

   

$

489,384

 

                                                                              

              

Current liabilities:

              

  Accounts payable and accrued expenses

$

2,195

 

$

1,696

 

$

514

 

(l)

 

$

4,405

 

  Accrued employee compensation and benefits

 

31,242

  

4,075

  

-

    

35,317

 

  Current portion of long-term debt

 

9,532

  

-

  

(3,239

)

(m)

  

6,293

 

  Net liabilities from discontinued operations

 

25

  

-

  

-

    

25

 

  Other current liabilities

 

5,885

  

469

  

(469

)

(i)

  

5,885

 

Total current liabilities

 

48,879

  

6,240

  

(3,194

)

   

51,925

 

Deferred income taxes

 

11,014

  

-

  

-

    

11,014

 

Deferred compensation

 

-

  

5,896

  

(5,896

)

(i)

  

-

 

Long term debt

 

17,963

  

-

  

100,953

 

(m)

  

118,916

 

Total liabilities

 

77,856

  

12,136

  

91,863

    

181,855

 

Commitments and contingencies

              

Stockholders' equity

              

  Common stock, Class A

 

3

  

0

  

(0

)

(n)

  

3

 

  Additional paid-in-capital

 

258,790

  

66

  

(66

)

(n)

  

258,790

 

  Other stockholders' equity

 

49,762

  

23,239

  

(24,265

)

(n)

  

48,736

 

Total stockholders' equity

 

308,555

  

23,305

  

(24,331

)

   

307,529

 
               

Total liabilities and stockholders' equity

$

386,411

 

$

35,441

 

$

67,532

   

$

489,384

 




Cross Country Healthcare, Inc.


Notes to the Unaudited Pro Forma Condensed Consolidated Statement of Operations Three Months Ended March 31, 2003

and

Unaudited Pro Forma Condensed Consolidated Balance Sheet as of March 31, 2003

(amounts in thousands)


(a)

Represents the historical results of Med-Staff for the three months ended March 31, 2003 and as of March 31, 2003. The historical results for the three months ended March 31, 2003 have been derived from the unaudited financial statements of Med-Staff.  

(b)

Pro forma adjustment to eliminate intercompany sales. Direct costs adjustment also includes an adjustment for certain costs that Cross Country Healthcare classifies as selling, general and administrative-$42.

(c)

Pro forma adjustments to reflect: 1) certain incremental administrative expenses that have been identified to integrate Med-Staff with Cross Country Healthcare on an ongoing basis - $484; and 2) a reclassification of direct costs as explained in footnote (b) and 3) the removal of nonrecurring costs related to the acquisition - $210.

(d)

Pro forma adjustment to reflect a change in depreciation method on Med-Staff’s property and equipment from an accelerated method to straight-line and additional depreciation of proprietary software recorded as a result of the purchase accounting adjustment described in footnote (j).

(e)

Pro forma adjustment to record the amortization of specifically identifiable assets acquired with definite lives of 5-8 years, amortization of loan fees over 5.6 years relating to the new debt as a result of the Med-Staff acquisition, and the removal of the amortization related to the old credit facility.

(f)

Pro forma adjustment to write-off loan fees on refinanced debt as a result of the acquisition.

(g)

Pro forma increase in interest expense from: 1) additional borrowings utilized to fund the Med-Staff acquisition; and 2) an increase in the interest rate on borrowings relating to the refinanced debt.

(h)

Effect of the pro forma adjustments on the provision for income taxes.

(i)

Pro forma adjustment to eliminate assets and liabilities not acquired. Cash adjustment includes assumption that $9,398 in cash was used to purchase Med-Staff.

(j)

Represents purchase accounting adjustment to record the estimated fair value of tangible and intangible assets per appraisal analysis.

(k)

Pro forma adjustment to reflect incremental costs incurred in connection with obtaining a new credit facility to finance the acquisition after writing off loan fees from the previous facility.  

(l)

Pro forma adjustment to accrue remaining fees related to the acquisition and financing.

(m)

Represents the incremental borrowings and revised amortization of debt as a result of the acquisition financing.

(n)

Represents the elimination of Med-Staff’s equity and the write-off of loan fees - $1,026.


Cross Country Healthcare, Inc.

               

Unaudited Pro Forma Condensed Consolidated Statement of Operations - Year Ended December 31, 2002

(unaudited, amounts in thousands)

     

                   

         
 

As reported

Cross Country

 

Med-Staff (a)

 

Pro Forma

Acquisition

Adjustments

   

Pro Forma

Consolidated

 
               

Revenue from services

$

639,953

 

$

162,250

 

$

(885

)

(b)

 

$

801,318

 

Operating expenses:

              

  Direct operating expenses

 

478,550

  

122,132

  

(944

)

(b)

  

599,738

 

  Selling, general and administrative expenses

 

94,930

  

20,814

  

1,704

 

(c)

  

117,448

 

  Bad debt expense

 

242

  

-

  

-

    

242

 

  Depreciation

 

3,524

  

210

  

(51)

 

(d)

  

3,683

 

  Amortization

 

3,148

  

-

  

890

 

(e)

  

4,038

 

  Non-recurring transaction costs

 

886

  

-

  

-

    

886

 

  Loss on early extinguishment of debt

 

-

  

-

  

1,544

 

(f)

  

1,544

 

    Total operating expenses

 

581,280

  

143,156

  

3,143

    

727,579

 
               
               

Income from operations

 

58,673

  

19,094

  

(4,028

)

   

73,739

 

Other expenses:

              

  Interest expense (income), net

 

3,753

  

(84

)

 

6,339

 

(g)

  

10,008

 
               

Income before income taxes

 

54,920

  

19,178

  

(10,367

)

   

63,731

 

Income tax expense

 

21,254

  

791

  

2,619

 

(h)

  

24,664

 
               

Income from continuing operations

$

33,666

 

$

18,387

 

$

(12,986

)

  

$

39,067

 
               

Basic income from continuing operations

per common share

$

1.04

         

$

1.20

 

                                                                                

              

Diluted income from continuing operations

per common share

$

1.00

         

$

1.16

 
               

Weighted average shares outstanding - basic

 

32,432

          

32,432

 

Weighted average shares outstanding - diluted

 

33,653

          

33,653

 


Cross Country Healthcare, Inc.


Notes to the Unaudited Pro Forma Condensed Consolidated Statement of Operations Year Ended December 31, 2002

(amounts in thousands)


a)

Represents the historical results of Med-Staff for the year ended December 31, 2002. The historical results for the year ended December 31, 2002 have been derived from the combined audited financial statements of Med-Staff, Inc. and Medical Professional Contractors attached as an exhibit to this Form 8-K filing.

b)

Pro forma adjustment to eliminate intercompany sales. Direct costs adjustment also includes and adjustment for certain costs that Cross Country Healthcare classifies as selling, general and administrative -$57.

c)

Pro forma adjustments to: 1) reflect certain incremental administrative expense that have been identified to integrate Med-Staff with Cross Country Healthcare on an ongoing basis - $1,936; 2) reflect change in professional liability insurance from an occurrence based to a claims made policy - $938; and 3) a reclassification of direct costs as explained in footnote (b) above - $57; partially offset by 4) the removal of transaction costs that are nonrecurring - $227 and deferred compensation plan expenses - $1,000.

d)

Pro forma adjustment to reflect a change in depreciation method on Med-Staff’s property and equipment from an accelerated method to straight-line and additional depreciation of proprietary software recorded as a result of the purchase accounting adjustment.

e)

Pro forma adjustment to record the amortization of specifically identifiable assets acquired with definite lives of 5-8 years, amortization of loan fees over 5.6 years relating to the new debt as a result of the Med-Staff acquisition, and the removal of the amortization related to the old credit facility.

f)

Pro forma adjustment to write-off loan fees on refinanced debt as a result of the acquisition.

g)

Pro forma increase in interest expense from: 1) additional borrowings utilized to fund the Med-Staff acquisition; and 2) an increase in the interest rate on borrowings relating to the refinanced debt.

h)

Effect of the pro forma adjustments on the provision for income taxes.