Exhibit 99.4
Cross Country Healthcare, Inc.
Unaudited Pro Forma Condensed Combined Financial Information
On July 5, 2017, Cross Country Healthcare, Inc. (the “Company” or “CCH”) completed the acquisition of substantially all of the assets and business of Advantage RN, LLC and its subsidiaries (collectively, “Advantage”), effective July 1, 2017, pursuant to the terms of an Asset Purchase Agreement, dated as of June 13, 2017, among the Company, Advantage and certain of the members of Advantage (the “Acquisition”). The Company acquired Advantage for a purchase price of $88 million, subject to a final net working capital adjustment. At closing, the Company paid $86.8 million, net of cash acquired, using $19.9 million in available cash and $66.9 million in borrowings under its Credit Facility, including a $40 million incremental term loan. The amount paid at closing was subject to an initial net working capital adjustment of $0.6 million, and an additional $0.6 million was deferred and is due to the sellers within 20 months, less any COBRA and health care expenses incurred by the Company on behalf of the sellers. The Company expects to receive $0.8 million as a purchase price adjustment on its final net working capital settlement.
The acquisition has been accounted for in accordance with FASB ASC 805, Business Combinations, using the acquisition method. The results of Advantage’s operations will be included in the consolidated statements of operations from its date of acquisition.
The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2016 and for the six months ended June 30, 2017, gives effect to the acquisition as if the transaction had occurred at January 1, 2016. The unaudited pro forma condensed combined balance sheet as of June 30, 2017 gives effect to the acquisition as if it had occurred on June 30, 2017. The historical information has been adjusted in the unaudited pro forma condensed combined financial statements to give effect to pro forma events that are (1) directly attributable to the acquisition, (2) factually supportable, and (3) with respect to the statement of operations, expected to have a continuing impact on the combined results.
The unaudited pro forma combined financial information is based on the historical financial statements of Advantage and the Company, giving effect to the transaction using the acquisition method of accounting and the assumptions and adjustments described in the accompanying notes to the pro forma condensed combined financial information. A preliminary purchase price allocation has been used to prepare the pro forma balance sheet and income statements. Other identifiable intangible assets such as trade names, databases, customer relationships, and noncompete agreements were assigned useful lives ranging between 5-12 years for the purpose of estimating amortization expense used in the pro forma adjustments. The final purchase price allocation will be determined when the Company has completed its valuation analysis and may differ materially from the preliminary allocations used in the pro forma adjustments reflected herein. The final allocations may include (1) changes in the net realizable value of accounts receivable and the fair value of property and equipment, (2) changes in the allocations to intangible assets such as trade names, databases, customer relationships, and noncompete agreements, as well as goodwill, and (3) changes in the fair values of other assets and liabilities.
The unaudited 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. The unaudited pro forma information does not reflect any cost savings or operating synergies that the combined company may achieve as a result of the acquisition or the costs to integrate the operations of Advantage with the Company.
Cross Country Healthcare, Inc.
Pro Forma Condensed Statement of Operations
(unaudited, amounts in thousands)
| | Year Ended December 31, 2016 |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Revenue from services | $833,537 | $103,692 | $(2,325) | (b) | $934,904 |
| Operating expenses: | | | | | |
| Direct operating expenses | 611,802 | 80,239 | (2,378) | (b) | 689,663 |
| Selling, general and administrative expenses | 179,820 | 13,313 | (122) | (b) | 193,011 |
| Bad debt expense | 593 | - | 53 | (b) | 646 |
| Depreciation | 4,168 | - | 122 | (b) | 4,290 |
| Amortization | 5,014 | - | 2,745 | (c) | 7,759 |
| Acquistion-related contingent consideration | 814 | - | - | | 814 |
| Acquistion and integration costs | 78 | - | - | | 78 |
| Restructuring charges | 753 | - | 88 | (b) | 841 |
| Impairment charge | 24,311 | - | - | | 24,311 |
| Total operating expenses | 827,353 | 93,552 | 508 | | 921,413 |
| | | | | | |
| Income from operations | 6,184 | 10,140 | (2,833) | | 13,491 |
| | | | | | |
| Other expenses: | | | | | |
| Gain on derivative liability | (5,805) | - | - | | (5,805) |
| Interest expense | 6,106 | 192 | 1,914 | (d) | 8,212 |
| Loss on early extinguishment of debt | 1,568 | - | - | | 1,568 |
| Other (income) expense, net | (230) | 1,414 | (853) | (e) | 331 |
| Income (loss) before income taxes | 4,545 | 8,534 | (3,894) | | 9,185 |
| Income tax (benefit) expense | (4,186) | - | 1,216 | (f) | (2,970) |
| Consolidated net income (loss) | 8,731 | 8,534 | (5,110) | | 12,155 |
| Less: Net income attributable to noncontrolling interest in subsidiary | 764 | - | - | | 764 |
| Net income (loss) attributable to common shareholders | $7,967 | $8,534 | $(5,110) | | $11,391 |
| | | | | | |
| Net income per share attributable to common shareholders - Basic | $0.25 | | | | $0.35 |
| Net income per share attributable to common shareholders - Diluted | $0.15 | | | | $0.25 |
| | | | | | |
| Weighted average shares outstanding - Basic | 32,132 | | | | 32,132 |
| Weighted average shares outstanding - Diluted | 36,246 | | | | 36,246 |
Notes to the Unaudited Pro Forma Condensed Combined Financial Information
for the Year Ended December 31, 2016
(amounts in thousands)
(a)
Represents the audited historical results of Advantage for the period presented.
(b)
Reclassifications to conform to the Company’s statement of operations presentation.
(c)
Pro forma adjustment to record the estimated intangibles amortization expense.
(d)
Represents adjustment to: 1) exclude interest expense on debt of Advantage not assumed - $(192); and 2) include the estimated interest expense including amortization of fees for the incremental borrowings - $2,106.
(e)
Pro forma adjustment to exclude: 1) transaction-related costs - $137; 2) legal fees related to an excluded liability-$462; 3) other nonrecurring costs that will not continue post-acquisition such as stock purchase distributions and board expenses - $166; and 4) restructuring charges reclassified - $88.
(f)
Tax benefit was adjusted for the impact of amortization of indefinite-lived intangible assets and state income taxes.
Cross Country Healthcare, Inc.
Pro Forma Condensed Statement of Operations
(unaudited, amounts in thousands)
| | Six Months Ended June 30, 2017 |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Revenue from services | $416,886 | $52,526 | $(1,425) | (b) | $467,987 |
| Operating expenses: | | | | | |
| Direct operating expenses | 307,083 | 41,102 | (1,467) | (b) | 346,718 |
| Selling, general and administrative expenses | 93,836 | 6,855 | (58) | (b) | 100,633 |
| Bad debt expense | 649 | - | 42 | (b) | 691 |
| Depreciation | 2,331 | - | 58 | (b) | 2,389 |
| Amortization | 2,145 | - | 1,373 | (c) | 3,518 |
| Acquistion-related contingent consideration | 551 | - | - | | 551 |
| Acquistion and integration costs | 587 | - | (587) | (d) | - |
| Restructuring charges | - | - | 9 | (b) | 9 |
| Total operating expenses | 407,182 | 47,957 | (630) | | 454,509 |
| | | | | | |
| Income from operations | 9,704 | 4,569 | (795) | | 13,478
|
| | | | | | |
| Other expenses: | | | | | |
| Gain on derivative liability | (1,581) | - | - | | (1,581) |
| Interest expense | 1,754 | 90 | 950 | (e) | 2,794 |
| Loss on early extinguishment of debt | 4,969 | - | - | | 4,969 |
| Other (income) expense, net | (59) | 991 | (438) | (f) | 494 |
| Income (loss) before income taxes | 4,621 | 3,488 | (1,307) | | 6,802 |
| Income tax expense | 1,119 | - | 603 | (g) | 1,722 |
| Consolidated net income (loss) | 3,502 | 3,488 | (1,910) | | 5,080 |
| Less: Net income attributable to noncontrolling interest in subsidiary | 662 | - | - | | 662 |
| Net income (loss) attributable to common shareholders | $2,840 | $3,488 | $(1,910) | | $4,418 |
| | | | | | |
| Net income per share attributable to common shareholders - Basic | $0.08 | | | | $0.13 |
| Net income per share attributable to common shareholders - Diluted | $0.05 | | | | $0.10 |
| | | | | | |
| Weighted average shares outstanding - Basic | 34,269 | | | | 34,269 |
| Weighted average shares outstanding - Diluted | 36,250 | | | | 36,250 |
Notes to the Unaudited Pro Forma Condensed Combined Statement of Operations
for the Six Months Ended June 30, 2017
(amounts in thousands)
(a)
Represents the unaudited historical results of Advantage for the period presented.
(b)
Reclassifications to conform to the Company’s statement of operations presentation.
(c)
Pro forma adjustment to record the estimated intangibles amortization expense.
(d)
Pro forma adjustment to exclude acquisition costs of the Company directly attributable to the transaction.
(e)
Represents adjustment to: 1) exclude interest expense on debt of Advantage not assumed - $(90); and 2) include the estimated interest expense including amortization of fees for the incremental borrowings - $1,040.
(f)
Pro forma adjustment to exclude: 1) transaction-related costs - $50; 2) legal fees related to an excluded liability-$333; 3) other nonrecurring costs that will not continue post-acquisition such as board expenses - $46; and 4) restructuring charges reclassified - $9.
(g)
Tax benefit was adjusted for the impact of amortization of indefinite-lived intangible assets and state income taxes.
Cross Country Healthcare, Inc.
Pro Forma Combined Balance Sheets as of June 30, 2017
(unaudited, amounts in thousands)
| | | | | | |
| Current assets: | | | | | |
| Cash and cash equivalents | $33,936 | $3,845 | $(23,897) | (b) | $13,884 |
| Accounts receivable, net | 155,903 | 14,633 | (367) | (c) | 170,169 |
| Prepaid expenses | 6,230 | 266 | (129) | (c) | 6,367 |
| Insurance recovery recceivable | 3,197 | - | -
| | 3,197 |
| Other current assets | 1,249 | 189 | 882
| (c) | 2,320
|
| Total current assets | 200,515 | 18,933 | (23,511) | | 195,937
|
| Property and equipment, net | 13,862 | 331 | 2
| (c) | 14,195 |
| Trade names, net | 35,402 | - | 4,500 | (d) | 39,902 |
| Goodwill, net | 79,648 | - | 44,889
| (d) | 124,537
|
| Other Intangible assets, net | 34,690 | - | 24,100 | (d) | 58,790 |
| Debt issuance costs, net | - | - | - | | - |
| Other assets | 18,373 | - | - | | 18,373 |
| Total assets | $382,490 | $19,264 | $49,980
| | $451,734
|
| | | | | | |
| Current liabilities: | | | | | |
| Accounts payable and accrued expenses | $52,435 | $462 | $399 | (e) | $53,296 |
| Accrued employee compensation and benefits | 31,073 | 1,903 | (505) | (e) | 32,471 |
| Current portion of long-term debt, capital lease, and revolver | 2,258 | 6,074 | 24,426 | (f) | 32,758 |
| Other current liabilities | 3,839 | - | 707
| (e) | 4,546
|
| Total current liabilities | 89,605 | 8,439 | 25,027
| | 123,071
|
| Noncurrent deferred tax liabilities | 14,353 | - | - | | 14,353 |
| Long-term accrued claims | 29,066 | - | - | | 29,066 |
| Long-term debt | 35,344 | 1,817 | 34,548 | (f) | 71,709 |
| Contingent consideration | 4,390 | - | - | | 4,390 |
| Convertible notes | - | - | - | | - |
| Other long-term liabiltities | 8,084 | - | - | | 8,084 |
| Total liabilities | 180,842 | 10,256 | 59,575
| | 250,673
|
| Commitments and contingencies | | | | | |
| Stockholders' equity | | | | | |
| Common stock | 4 | - | - | | 4 |
| Additional paid-in-capital | 303,917 | - | - | | 303,917 |
| Retained earnings -Expense | (101,784) | - | (587) | (g) | (102,371) |
| Other stockholders' equity | (1,183) | 9,008 | (9,008) | (h) | (1,183) |
| Total Cross Country Healthcare, Inc. stockholders' equity | 200,954 | 9,008 | (9,595) | | 200,367 |
| Noncontrolling interest | 694 | - | - | | 694 |
| Total stockholders' equity | 201,648 | 9,008 | (9,595) | | 201,061 |
| Total liabilities and stockholders' equity | $382,490 | $19,264 | $49,980
| | $451,734
|
Notes to the Unaudited Pro Forma Condensed Combined Balance Sheet
As of June 30, 2017
(amounts in thousands)
(a)
Represents the unaudited historical balance sheet of Advantage as of June 30, 2017.
(b)
Pro forma adjustment to exclude cash not acquired and reflect cash used in the transaction including fees for the incremental term loan.
(c)
Pro forma adjustment to remove and revalue assets and reflect estimated receivable for net working capital adjustment.
(d)
Pro forma adjustment to record the estimated fair values of intangible assets.
(e)
Pro forma adjustment to reflect: 1) excluded liabilities and holdback liabilities pursuant to the asset purchase agreement; and 2) accrued transaction expenses.
(f)
Pro forma adjustment to remove Advantage debt, which was not assumed - $(7,891), and to add the incremental borrowings, net of fees - $66,865 to fund the acquisition.
(g)
Pro forma adjustment to reflect acquisition and integration expenses.
(h)
Represents the elimination of Advantage's equity.
