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CROSS COUNTRY HEALTHCARE INC - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(Edgar Glimpses Via Acquire Media NewsEdge) The purpose of the following Management's Discussion and Analysis (MD&A) is to help facilitate the understanding of significant factors influencing the quarterly operating results, financial condition and cash flows of Cross Country Healthcare, Inc. Additionally, the MD&A also conveys our expectations of the potential impact of known trends, events or uncertainties that may impact future results. This discussion supplements the detailed information presented in the condensed consolidated financial statements and notes thereto which should be read in conjunction with the consolidated financial statements and related notes contained in the Company's Annual Report on Form 10-K, filed for the year ended December 31, 2013. Business Overview Cross Country Healthcare, Inc., is a national leader in providing healthcare recruiting, staffing and workforce management solutions. With more than 30 years of experience, we are dedicated to placing highly qualified nurses and physicians as well as allied health, advanced practice, clinical research, and case management professionals. We provide both retained and contingent placement services for physicians, as well as retained search services for healthcare executives. We have more than 4,300 active contracts with a broad range of clients, including acute care hospitals, physician practice groups, nursing facilities, rehabilitation and sports medicine clinics, government facilities, as well as nonclinical settings such as homecare and schools. Through our national staffing teams and network of more than 70 branch office locations, we are able to place clinicians for travel and per diem assignments, local short-term contracts and permanent positions. We are a market leader in providing flexible workforce management solutions, which include managed services provider, workforce assessments, internal resource pool consulting and development, electronic medical record transition staffing and recruitment process outsourcing. In addition, we provide education and training programs for healthcare professionals through seminars and e-learning tools. Our results are reported in three business segments: Nurse and Allied Staffing, Physician Staffing, and Other Human Capital Management Services. For the quarter ended June 30, 2014, our nurse and allied staffing business which is comprised of travel and per diem nurse and allied staffing represented approximately 67% of our total revenue. Travel nurse staffing, which is the largest part of the nurse and allied staffing business, represented approximately 49% of our total revenue and 72% of the segment revenue. Other nurse and allied staffing services include the placement of allied healthcare professionals, such as rehabilitation therapists, radiology technicians, and respiratory therapists. Our physician staffing business represented approximately 25% of our second quarter 2014 revenue and consists of temporary physician staffing services (locum tenens) in many specialties, certified registered nurse anesthetists (CRNAs), nurse practitioners (NPs) and physician assistants (PAs). Our other human capital management services business represented approximately 8% of our revenue and consists of healthcare professional education and training, as well as retained search services. Acquisitions Medical Staffing Network On June 30, 2014, we completed the acquisition of substantially all of the assets and certain liabilities of Medical Staffing Network (MSN) for an aggregate purchase price of $48.1 million, subject to certain post-closing net working capital adjustments. We paid $45.4 million at closing, net of cash acquired and an additional $2.5 million was deferred and is due to the seller in 21 months less any COBRA expenses incurred by us on behalf of former MSN employees over that period. At the time of the acquisition, MSN had 55 locations throughout the U.S. that provide per diem, local, contract, travel, and permanent hire staffing services. This acquisition increases our branch network and market share, diversifies our customer base and brings new service lines. We believe it positions us to serve our customers better and to increase earnings growth through improved fill rates, expansion of our managed service programs and per diem activities, and the recognition of cost synergies. The acquisition has been accounted for in accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 805, Business Combinations, using the purchase method. The Company expects the results of the MSN Acquisition to be substantially reported through its nurse and allied business segment. 25--------------------------------------------------------------------------------Allied Healthcare Business In December 2013, we acquired the operating assets of On Assignment, Inc.'s Allied Healthcare Staffing division (the acquired allied staffing business) for an aggregate purchase price of $28.7 million, subject to certain post-closing adjustments. Excluded from the transaction were the accounts receivable, accounts payable and accrued compensation of the business being acquired. The Company used $24.7 million in cash on hand and $4.5 million from borrowings under its current revolver facility with Bank of America, N.A. to pay the purchase price and approximately $0.5 million in transaction costs. Subsequent to December 31, 2013, an immaterial post-closing adjustment was made. We believe this acquisition complements our current operations by: (1) adding new skillsets to our traditional staffing offerings, (2) expanding our local branch network, which will allow us to expand our local market presence and our MSP business, (3) diversifying our customer base into the local ambulatory care and retail market, which provides more balance between our large volume based customers and our small local customers, and (4) better positioning us to take additional market share at our MSP accounts. At the time of the acquisition, the acquired allied staffing business had 84 branch-based employees and made placements in more than 125 specialties from 23 branch offices. The allied staffing business acquisition has been accounted for in accordance with ASC805, Business Combination, using the purchase method. The results of the acquisition's operations have been included in the consolidated statements of operations since December 2, 2013, the date of the acquisition. The acquired allied staffing business has been included with our nurse and allied staffing business segment. Dispositions The clinical trial services business provided clinical trial, drug safety, and regulatory professionals and services on a contract staffing and outsourced basis to companies in the pharmaceutical, biotechnology and medical device industries, as well as to contract research organizations, primarily in the United States, and also in Canada and Europe. On February 15, 2013, we completed the sale of our clinical trial services business to ICON Clinical Research, Inc. and ICON Clinical Research UK Limited (the "Buyer") for an aggregate $52.0 million in cash, subject to certain adjustments. The business segment has been classified as discontinued operations for all periods presented (see Note 4 - Discontinued Operations and see Note 10 - Fair Value Measurements, to our condensed consolidated financial statements for more information). Segment Information In accordance with ASC 280, Segment Reporting, the Company reports three business segments - nurse and allied staffing, physician staffing, and other human capital management services, described below: ? Nurse and allied staffing - The nurse and allied staffing segment provides traditional staffing, including temporary and permanent placement of travel nurses and allied professionals, and branch-based local nurses and allied staffing. Its clients include: public and private acute-care and non-acute care hospitals, government facilities, schools, outpatient clinics, ambulatory care facilities, retailers, and many other healthcare providers throughout the U.S. The Company aggregates various brands that it markets to its customers in this business segment. ? Physician staffing - The physician staffing business segment provides physicians in many specialties, certified registered nurse anesthetists (CRNAs), nurse practitioners (NPs) and physician assistants (PAs) under the Company's Medical Doctor Associates (MDA) brand as independent contractors on temporary assignments throughout the U.S. at various healthcare facilities, such as acute and non-acute care facilities, medical group practices, government facilities, and managed care organizations. ? Other human capital management services - The other human capital management services business segment provides education and training programs to the healthcare industry and retained search services for physicians and healthcare executives within the U.S. Executive Summary of Operations We continue to execute on the elements of our strategy to grow revenue in our core businesses, expand margins and enhance the operating leverage of our infrastructure. The fundamentals of our strategy are to ensure we offer a full range of services and specialties necessary to meet the needs of our clients, to deliver creative and flexible workforce solutions, build a customer-centric strong sales capability with geographic access to all of our key markets, provide world class client service with a focus on fulfillment and retention, and continuously improve our operational effectiveness. 26 -------------------------------------------------------------------------------- For the quarter ended June 30, 2014, our revenue was $122.7 million, and we had a loss from continuing operations of $3.2 million, or $0.10 per diluted share. Cash flow used in operations for the six months ended was $5.5 million, partly due to acquisition and integration related expenses. We financed the purchase of MSN with $55.0 million in new subordinated debt consisting of a $30.0 million, 5-year term loan and $25.0 million of convertible notes having a 6-year maturity and a conversion price of $7.10. We ended the second quarter of 2014 with $9.3 million of cash and cash equivalents and total debt of $64.8 million, or a ratio of debt, net of cash to total capitalization of 25.0%. Nurse and Allied Staffing In the second quarter our nurse and allied staffing business grew both year-over year and sequentially as we experienced strong demand for our services, particularly in travel nursing. Our ratio of contract bookings for travel nursing as a percentage of working nurses (book-to-bill ratio) for the first quarter of 2014 was 104% which drove sequential revenue growth in this segment. For the second quarter of 2014 our book-to-bill ratio, excluding the impact of the MSN acquisition was 104% and we expect this to translate into continued growth in the third quarter. Physician Staffing Revenue from our physician staffing business was down 11% year-over-year but increased 6% sequentially. The year-over-years decline was primarily volume driven across most of our specialties which was partly offset by higher revenue per day invoiced. The sequential increase was evenly balanced between volume and price across our specialties and led by Emergency Medicine. Other Human Capital Management Services Revenue in our other human capital management services business segment decreased 11% compared to the prior year quarter primarily due to fewer executive search placements and a reduction in seminar attendance. Our education and training business has been impacted by the extension of the ICD-10 deadline, which resulted in a number of cancellations during the quarter. Business Metrics In general, we evaluate our financial condition and operating results by revenue, contribution income (see Segment Information), and net income (loss). We also use measurement of our cash flow generation and operating and leverage ratios to help us assess our financial condition. In addition to the metrics identified below, we monitor other volume and profitability indicators such as number of open orders, contract bookings, and price. Business Segment Business Measurement Nurse and Allied Staffing FTEs represent the average number of nurse and allied contract personnel on a full-time equivalent basis. Average Revenue per FTE per Day is calculated by dividing the nurse and allied staffing revenue by the number of days worked in the respective periods. Nurse and allied staffing revenue also includes revenue from the permanent placement of nurses. Physician Staffing Days filled is calculated by dividing the total hours filled during the period by 8 hours. Revenue per day filled is calculated by dividing the actual revenue invoiced (excluding permanent placement fees) by the Company's physician staffing segment by days filled for the period presented. 27-------------------------------------------------------------------------------- Other Financial Data (unaudited) Three Months Ended June 30, June 30, Percent 2014 2013 Change Change Nurse and allied staffing statistical data: FTEs 3,177 2,300 877 38.1 % Average nurse and allied staffing revenue per FTE per day $ 286 $ 314 (28 ) (8.9 )% Physician staffing statistical data: Days filled 21,147 24,462 (3,315 ) (13.6 )% Revenue per day filled $ 1,444 $ 1,405 39 2.8 % Results of Operations The following table summarizes, for the periods indicated, selected condensed consolidated statements of operations data expressed as a percentage of revenue: Three Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 Revenue from services 100.0 % 100.0 % 100.0 % 100.0 % Direct operating expenses 73.6 74.9 73.9 74.3 Selling, general and administrative expenses 23.8 24.0 24.4 24.3 Bad debt expense - 0.1 0.2 0.3 Depreciation and amortization 1.3 1.4 1.4 1.4 Acquisition and integration costs 2.2 - 1.3 - Restructuring costs 0.6 0.4 0.3 0.2 Legal settlement charge - 0.7 - 0.3 Loss from operations (1.5 ) (1.5 ) (1.5 ) (0.8 ) Foreign exchange loss (gain) - (0.1 ) - - Interest expense 0.3 0.1 0.2 0.2 Loss on early extinguishment and modification of debt - - - 0.6 Loss from continuing operations before income taxes (1.8 ) (1.5 ) (1.7 ) (1.6 ) Income tax expense (benefit) 0.8 (0.2 ) - (0.3 ) Loss from continuing operations (2.6 ) (1.3 ) (1.7 ) (1.3 ) (Loss) income from discontinued operations, net of income taxes - - - 1.1 Net loss (2.6 )% (1.3 )% (1.7 )% (0.2 )% Segment Information The Company's management evaluates performance of each segment primarily based on revenue and contribution income. The Company's management does not evaluate, manage or measure performance of segments using asset information; accordingly, asset information by segment is not prepared or disclosed. The information in the following table is derived from the segments' internal financial information as used for corporate management purposes. Certain corporate expenses are not allocated to and/or among the operating segments. 28 --------------------------------------------------------------------------------Information on operating segments and the reconciliation to income (loss) from operations for the periods indicated are as follows: Three Months Ended Six Months Ended June 30, June 30, 2014 2013 (a) 2014 2013 (a) (amounts in thousands) Revenues: Nurse and allied staffing $ 82,616 $ 65,656 $ 162,809 $ 136,729 Physician staffing 30,849 34,837 59,985 64,580 Other human capital management services 9,191 10,275 17,953 19,775 $ 122,656 $ 110,768 $ 240,747 $ 221,084 Contribution income (b): Nurse and allied staffing (c) $ 6,652 $ 3,493 $ 12,621 $ 8,667 Physician staffing 1,874 2,562 2,625 4,788 Other human capital management services (232 ) 534 (66 ) 824 8,294 6,589 15,180 14,279 Unallocated corporate overhead (c) 5,057 5,486 11,380 11,787 Depreciation 817 1,040 1,791 2,062 Amortization 784 566 1,569 1,132 Acquisition and integration costs 2,747 - 3,042 - Restructuring costs 755 375 755 375 Legal settlement charge - 750 - 750 Loss from operations $ (1,866 ) $ (1,628 ) $ (3,357 ) $ (1,827 ) ___________________ (a) Prior year data has been reclassified to conform to the current year's presentation. Effective January 1, 2014, we merged our Allied Health Group, LLC subsidiary with Medical Doctor Associates, LLC subsidiary. The decision to merge these companies was based on a number of factors including the consolidation of back office processes and other operational efficiencies. Along with this merger, we evaluated the Allied Health Group trade name and determined that it would be more valuable to use it for our nurse and allied staffing business, and as a result, transferred the trade name effective January 1, 2014. The allied health staffing business of MDA has primarily consisted of higher-level allied professionals, such as physician assistants and nurse practitioners, whose job functions are becoming increasingly more similar to those of physicians than to other allied health professionals. The 2014 change in legal structure and processes, along with the current market dynamics has changed the our approach/conclusion to aggregate this business with its nurse and allied staffing business segment for 2014. We have revised our segments for 2014 reporting to include this business with its physician staffing business segment. (b) We define contribution income or loss from operations before depreciation, amortization, acquisition and integration costs, restructuring costs, legal settlement charges, impairment charges, and other corporate expenses not specifically identified to a reporting segment. Contribution income is a measure used by management to access operations and is provided in accordance with ASC 280, Segment Reporting. (c) In 2014, we refined our methodology for allocating certain corporate overhead expenses to our nurse and allied staffing segment to more accurately reflect this segment's profitability. Prior year information has been reclassified to conform to current year presentation. 29--------------------------------------------------------------------------------Comparison of Results for the Three Months Ended June 30, 2014 compared to the Three Months Ended June 30, 2013 Revenue from services Revenue from services increased 10.7%, to $122.7 million for the three months ended June 30, 2014, as compared to $110.8 million for the three months ended June 30, 2013. The revenue increase was entirely from our nurse and allied staffing business segment. Revenue declined year-over-year in both our physician staffing and other human capital management services business segments. Nurse and allied staffing Revenue from our nurse and allied staffing business segment increased 25.8%, to $82.6 million for the three months ended June 30, 2014, as compared to $65.7 million for the three months ended June 30, 2013. The year-over-year increase was a result of growth in the segment as well as the impact from the acquired allied health staffing business. Excluding the impact of the acquired allied health staffing business, revenue increased $7.3 million or 11.1%, primarily related to higher demand for travel nurses. The average number of nurse and allied staffing FTEs on contract during the three months ended June 30, 2014 increased 38.1% from the three months ended June 30, 2013, including 665 FTEs from the acquired allied health staffing business. The average nurse and allied staffing revenue per FTE per day decreased 8.9%, primarily due to lower bill rates in the acquired allied staffing business. Excluding the acquired allied staffing business, average nurse and allied staffing revenue per FTE per day was up 1.7%. Physician staffing Revenue from our physician staffing business decreased 11.4%, to $30.8 million for the three months ended June 30, 2014, as compared to $34.8 million for the three months ended June 30, 2013. The decrease in revenue was due to lower volume partially offset by higher average bill rates. Physician staffing days filled decreased 13.6%, to 21,147 days in the three months ended June 30, 2014, as compared to 24,462 days in the three months ended June 30, 2013. Revenue per day filled for the three months ended June 30, 2014 was $1,444, a 2.8% increase from the prior year quarter. Other human capital management services Revenue from other human capital management services decreased 10.5%, to $9.2 million for the three months ended June 30, 2014, as compared to $10.3 million for the three months ended June 30, 2013. The revenue decline was due to fewer executive and physician searches as well as a decline in seminar attendance. Direct operating expenses Direct operating expenses are comprised primarily of field employee compensation and independent contractor expenses, housing expenses, travel expenses and field insurance expenses. Direct operating expenses increased $7.3 million or 8.8%, to $90.2 million for the three months ended June 30, 2014, as compared to $82.9 million for three months ended June 30, 2013. As a percentage of total revenue, direct operating expenses decreased to 73.6% compared to 74.9% This decrease as a percentage of revenue is primarily due to improvement in our bill/pay spread as well as the impact from our acquisition of the allied health business. Selling, general and administrative expenses Selling, general and administrative expenses increased 9.6%, to $29.2 million for the three months ended June 30, 2014, as compared to $26.6 million for the three months ended June 30, 2013. This increase is primarily due to the acquired allied health staffing business. As a percentage of total revenue, selling, general and administrative expenses were 23.8% and 24.0%, for the three months ended June 30, 2014 and 2013, respectively. Included in selling, general and administrative expenses are unallocated corporate overhead of $5.1 million and $5.5 million for the three months ended June 30, 2014 and 2013, respectively. This decline was primarily related to a decrease in share-based compensation as a result of increased forfeitures. As a percentage of consolidated revenue, unallocated corporate overhead was 4.1% and 5.0% for the three months ended June 30, 2014 and 2013, respectively. Share-based compensation, 30 --------------------------------------------------------------------------------included in unallocated corporate overhead, was $0.1 million and $0.6 million in the three months ended June 30, 2014 and 2013, respectively. Contribution income Nurse and allied staffing Contribution income from our nurse and allied staffing segment increased $3.2 million or 90.4%, to $6.7 million for the three months ended June 30, 2014, as compared to $3.5 million for the three months ended June 30, 2013. As a percentage of segment revenue, contribution income was 8.1% for the three months ended June 30, 2014, and 5.3% for the three months ended June 30, 2013. This increase was primarily due to improved bill/pay spreads in our organic business as well as improved operating leverage. Physician staffing Contribution income from physician staffing decreased $0.7 million or 26.9%, to $1.9 million for the three months ended June 30, 2014, as compared to $2.6 million for the three months ended June 30, 2013. As a percentage of segment revenue, contribution income was 6.1% for the three months ended June 30, 2014 and 7.4% for the three months ended June 30, 2013. This decrease was primarily due to negative operating leverage. Other human capital management services Contribution income from other human capital management services was a loss of $0.2 million for the three months ended June 30, 2014, as compared to income of $0.5 million for the three months ended June 30, 2013. Contribution income as a percentage of segment revenue was (2.5)% for the three months ended June 30, 2014 and 5.2% for the three months ended June 30, 2013. The decrease in contribution income margin was primarily due to the declines in revenue as noted above. Depreciation and amortization expense Depreciation and amortization expense totaled $1.6 million for both the three months ended June 30, 2014 and June 30, 2013. As a percentage of consolidated revenue, depreciation and amortization expense was 1.3% and 1.4% for the three months ended June 30, 2014 and 2013, respectively. Restructuring Costs Restructuring costs are primarily related to severance costs for senior management of $0.8 million and $0.4 million for the three months ended June 30, 2014 and June 30, 2013, respectively. We initiated restructuring efforts to reduce operating costs beginning in the second quarter of 2013. Legal Settlement Charge During the three months ended June 30, 2013, we accrued $0.8 million to settle a wage and hour class action lawsuit in California,, for which a final binding agreement is expected to be approved by the court later in the year. See Note 13 - Commitments and Contingencies to our condensed consolidated financial statements. Acquisition and Integration Costs During the three months ended June 30, 2014, we incurred acquisition and integration costs of $2.7 million. The acquisition and integration costs were primarily related to transaction costs for the MSN acquisition as well as integration costs of the acquired allied staffing business No similar charges were recorded in the three months ended June 30, 2013. Interest expense Interest expense totaled $0.3 million and $0.2 million for the three months ended June 30, 2014 and 2013, respectively. The increase was primarily due to a higher average borrowings in the three month ended June 30, 2014 compared to de minimis debt outstanding in the prior year quarter. The effective interest rate on our borrowings was 2.6% for the three month period ended June 30, 2014. Income tax expense (benefit) 31 -------------------------------------------------------------------------------- Income tax expense from continuing operations totaled $1.0 million for the three months ended June 30, 2014, as compared to a benefit of $0.3 million for the three months ended June 30, 2013. The effective tax rate was (46.3)% and 15.2% for the three months ended June 30, 2014 and June 30, 2013, respectively. The income tax expense for the three months ended June 30, 2014 was more than the statutory rate primarily due to changes in the valuation allowance resulting from the amortization of indefinite-lived intangibles for tax purposes, as well as the partial non-deductibility of certain per diem expenses and state minimum taxes. The effective tax rate for the three months ended June 30, 2013 was lower than the statutory rate due to the impact of the non-deductibility of certain per diem expenses, state taxes and foreign taxes. (Loss) Income from discontinued operations, net of income taxes Income (loss) from discontinued operations, net of income taxes included the results from the sale of the clinical trial services business which was classified as discontinued in the three months ended June 30, 2013. See Note 4 -Discontinued Operations, to our condensed consolidated financial statements for more information. Comparison of Results for the Six Months Ended June 30, 2014 compared to the Six Months Ended June 30, 2013 Revenue from services Revenue from services increased 8.9%, to $240.7 million for the six months ended June 30, 2014, as compared to $221.1 million for the six months ended June 30, 2013. The revenue increase was entirely from our nurse and allied staffing business segment and was offset by revenue declines in both our physician staffing and other human capital management services business segments. Nurse and allied staffing Revenue from our nurse and allied staffing business segment increased 19.1%, to $162.8 million for the six months ended June 30, 2014, as compared to $136.7 million for the six months ended June 30, 2013. The revenue increase was partly related to the acquired allied health staffing business. Excluding the acquired allied health staffing business, revenue increased $6.6 million or 4.9% due to higher volume and higher average bill rates in the six months ended June 30, 2014. The average number of nurse and allied staffing FTEs on contract during the six months ended June 30, 2014, increased 31.4% from the six months ended June 30, 2013. The average nurse and allied staffing revenue per FTE per day decreased 9.5%, primarily due to lower bill rates in the acquired allied staffing business. Excluding the acquired allied staffing business, average nurse and allied staffing revenue per FTE per day was up 1.1%. Physician staffing Revenue from our physician staffing business decreased 7.1%, to $60.0 million for the six months ended June 30, 2014, as compared to $64.6 million for the six months ended June 30, 2013. The decrease in revenue is primarily due to lower volume, which was partially offset by higher revenue per day filled. Physician staffing days filled decreased 8.5%, to 41,948 days in the six months ended June 30, 2014, as compared to 45,850 days in the six months ended June 30, 2013. Revenue per day filled for the six months ended June 30, 2014 was $1,433, a 2.7% increase from the six months ended June 30, 2013. Other human capital management services Revenue from other human capital management services decreased 9.2%, to $18.0 million for the six months ended June 30, 2014, as compared to $19.8 million for the six months ended June 30, 2013. The decrease is due to a combination of lower seminar attendance and lower revenue from our retained search business. Direct operating expenses Direct operating expenses are comprised primarily of field employee compensation and independent contractor expenses, housing expenses, travel expenses and field insurance expenses. Direct operating expenses increased $13.5 million or 8.2%, to $177.9 million for the six months ended June 30, 2014, as compared to $164.4 million for six months ended June 30, 2013. As a percentage of total revenue, direct operating expenses were 73.9% and 74.3% for the six months ended June 30, 2014 and 2013, respectively. 32--------------------------------------------------------------------------------Selling, general and administrative expenses Selling, general and administrative expenses increased $5.0 million or 9.2%, to $58.6 million for the six months ended June 30, 2014, as compared to $53.7 million for the six months ended June 30, 2013. The increase was primarily related to the allied health staffing business acquisition. As a percentage of total revenue, selling, general and administrative expenses were 24.4% and 24.3%, for the six months ended June 30, 2014 and 2013, respectively. Included in selling, general and administrative expenses is unallocated corporate overhead of $11.4 million for six months ended June 30, 2014, compared to $11.8 million for the six months ended June 30, 2013. As a percentage of consolidated revenue, unallocated corporate overhead was 4.7% and 5.3% for the six months ended June 30, 2014 and 2013, respectively. Share-based compensation, included in unallocated corporate overhead, was $0.5 million and $1.2 million in the six months ended June 30, 2014 and 2013, respectively. The year-over-year decline was related to increased forfeitures. Contribution income Nurse and allied staffing Contribution income from our nurse and allied staffing segment increased 45.6%, to $12.6 million for the six months ended June 30, 2014, as compared to $8.7 million for the six months ended June 30, 2013. As a percentage of segment revenue, contribution income was 7.8% for the six months ended June 30, 2014, and 6.3% for the six months ended June 30, 2013. The margin improvement was primarily due to a combination of an improvement in our bill/pay spread in our organic business along with higher margins from the acquired allied health staffing business. Physician staffing Contribution income from physician staffing decreased 45.2%, to $2.6 million for the six months ended June 30, 2014, as compared to $4.8 million for the six months ended June 30, 2013. As a percentage of segment revenue, contribution income was 4.4% for the six months ended June 30, 2014 and 7.4% for the six months ended June 30, 2013. This decrease was primarily due to a combination of higher physician compensation and negative operating leverage . Other human capital management services Contribution income from other human capital management services decreased 108.0%, to a $0.1 million loss for the six months ended June 30, 2014, as compared to $0.8 million for the six months ended June 30, 2013. Contribution income as a percentage of segment revenue was (0.4)% for the six months ended June 30, 2014 and 4.2% for the six months ended June 30, 2013. The decrease in contribution income margin was primarily due to lower revenue noted above. Depreciation and amortization expense Depreciation and amortization expense totaled $3.4 million for the six months ended June 30, 2014, as compared to $3.2 million for the six months ended June 30, 2013. As a percentage of consolidated revenue, depreciation and amortization expense was 1.4% and 1.4% for the six months ended June 30, 2014 and 2013, respectively. Restructuring Costs During the six months ended June 30, 2013, we initiated a restructuring plan to reduce operating costs. We recorded restructuring costs of $0.8 million and $0.4 million, in the three months ended June 30, 2014 and 2013, respectively, primarily related to senior management severance pay. Legal Settlement Charge During the six months ended June 30, 2013, we accrued $0.8 million to settle a wage and hour class action lawsuit in California, for which a final binding agreement is expected to be approved by the court later this year. See Note 13 - Commitments and Contingencies to our condensed consolidated financial statements. Acquisition and Integration Costs During the six months ended June 30, 2014, we incurred acquisition and integration costs of $3.0 million, pretax. The acquisition and integration costs were primarily related to the MSN acquisition and the integration of the acquired allied 33 --------------------------------------------------------------------------------staffing business and included transitional services as well as travel and training costs. No similar charges were recorded in the six months ended June 30, 2013. Loss on early extinguishment and modification of debt In the six months ended June 30, 2013, loss on early extinguishment or modification of debt was $1.4 million and related to a change in lenders' participations and modification of the then existing July 2012 Credit Agreement. See Note 8- Debt, to our condensed consolidated financial statements for more information. Interest expense Interest expense totaled $0.5 million for the six months ended June 30, 2014 compared to $0.4 million for the six months ended June 30, 2013. The increase in interest expense was due to a combination of higher average borrowings and higher interest rates on our borrowings. The effective interest rate on our borrowings was 2.7% for the six month period ended June 30, 2014 compared to 2.1% in the six month period ended June 30, 2013. Income tax expense (benefit) Income tax benefit from continuing operations totaled $0.1 million for the six months ended June 30, 2014, as compared to $0.8 million for the six months ended June 30, 2013. The effective tax rate was 1.6% and 21.4% in the six months ended June 30, 2014 and 2013, respectively. The income tax benefit in the six months ended June 30, 2014 included a benefit of $1.7 million from discrete items, the most significant of which related to corrections to the valuation allowance recorded at December 31, 2013. Excluding those discrete items, income tax expense was $1.6 million reflecting the impact of changes in the valuation allowance resulting from amortization of indefinite lived intangibles for tax purposes, as well as partial non-deductibility for certain per diem expenses and to a lesser extent state and foreign taxes, offsetting the tax benefit arising from the continuing loss. The effective tax rate for the six months ended June 30, 2013 was lower than the statutory rate due to the impact of the non-deductibility of certain per diem expenses, state taxes and foreign taxes. Income (loss) from discontinued operations, net of income taxes Income (loss) from discontinued operations, net of income taxes includes the results from the sale of the clinical trial services business which was classified as discontinued in the six months ended June 30, 2013. Income from discontinued operations, net of tax of $2.5 million included a $4.1 million gain ($2.2 million net of taxes) on the sale of our clinical trial services business in the six months ended June 30, 2013. See Note 4 -Discontinued Operations, to our condensed consolidated financial statements for more information. Transactions with Related Parties We provided services to hospitals which are affiliated with certain members of our Board of Directors. We believe the pricing for these services is consistent with our other hospital customers. Revenue related to these transactions amounted approximately $3.2 million and $5.5 million for the three and six months ended June 30, 2014, respectively. Revenue related to these transactions amounted approximately $1.2 million and $2.3 million for the three and six months ended June 30, 2013, respectively. Accounts receivable due from these hospitals at June 30, 2014 and December 31, 2013 were approximately $1.7 million and $0.7 million, respectively. MSN provided staffing services to an entity that has a non-controlling interest in InteliStaf of Oklahoma, LLC, a joint venture between MSN (68% ownership) and an unrelated third party (with 32% ownership). At June 30, 2014, we had a receivable balance of approximately $0.9 million and a payable balance of $0.1 million relating to these staffing services. Liquidity and Capital Resources As of June 30, 2014, we had a current ratio, defined as the amount of current assets divided by current liabilities, of 2 to 1. Working capital increased to $60.4 million as of June 30, 2014 from $39.0 million as of December 31, 2013 primarily due to the MSN acquisition. We financed the purchase price of MSN using $55.0 million in new subordinated debt consisting of a $30.0 million, 5-year term loan and $25.0 million of convertible notes having a 6-year maturity and a conversion price of $7.10. We also amended our loan agreement with Bank of America. N.A. to increase our borrowing capacity under our senior secured asset-based 34 --------------------------------------------------------------------------------revolving credit facility from $65.0 million to $85.0 million. See Note 8 - Debt and Note 9 - Derivative Liability for further information. Our operating cash flows constitute our primary source of liquidity, and historically, have been sufficient to fund our working capital, capital expenditures, internal business expansion and debt service. We believe that our capital resources are sufficient to meet our working capital needs for the next twelve months. We expect to meet our future needs for working capital, capital expenditures, internal business expansion and debt service from a combination of cash on hand, operating cash flows and funds available through the revolving loan portion of our First Lien Loan Agreement. We believe that operating cash flows and cash on hand, along with amounts available under our First Lien Loan Agreement, will be sufficient to meet these needs during the next twelve months. Net cash used in operating activities was $5.5 million in the six months ended June 30, 2014, compared to $4.4 million provided by operating activities in the six months ended June 30, 2013. Net cash flow provided by discontinued operations was approximately $0.5 million in the six months ended June 30, 2013. The increased usage in cash was primarily due to acquisition and integration costs related to the MSN acquisition and the integration of the allied health staffing business acquired in December of 2013 The number of days' sales outstanding was 52 days at June 30, 2014 compared to 52 days and 51 days at June 30, 2013 and December 31, 2013, respectively. Investing activities used $48.2 million in the six months ended June 30, 2014, compared to $45.5 million provided by investing activities in the six months ended June 30, 2013. As previously noted, we acquired substantially all of the assets and certain liabilities of MSN in the second quarter of 2014 for a purchase price of $48.1 million, net of cash acquired. During the six months ended June 30, 2013, we sold the clinical trial services business with net proceeds from the sale of $45.9 million. We used $2.8 million for capital expenditures in the six months ended June 30, 2014 compared to $0.4 million in the six months ended June 30, 2013. The capital expenditures in the six months ended June 30, 2014 primarily related to the relocation of our physician staffing headquarters and included $0.9 million of tenant improvements funded by our landlord. Net cash provided by financing activities during the six months ended June 30, 2014, was $54.9 million compared to net cash used in financing activities of $34.3 million during the six months ended June 30, 2013. During the six months ended June 30, 2014, we increased our debt by $56.1 million primarily to fund the acquisition of MSN, including acquisition related expenses, fund integration efforts from our allied health acquisition as well as capital expenditures. In addition, we used $0.9 million for debt issuance costs related to the financing of the MSN acquisition. In the six months ended June 30, 2013, we repaid total debt, net of borrowings, of $33.5 million using the proceeds from the sale of clinical trial services business. In addition, we used $0.5 million to pay debt issuance costs related to our First Lien Loan Agreement. Stockholders' Equity Stock Repurchase Program As of June 30, 2014, we may purchase up to an additional 942,443 shares of Common Stock under the February 2008 Board authorization, subject to certain conditions in the our First Lien Loan Agreement and Second Lien Term Loan Agreement. Subject to certain conditions as described in the First Lien Loan Agreement, we may repurchase up to an aggregate amount of $5.0 million of our Equity Interests (as defined in the Loan Agreement). During the six months ended June 30, 2014 and the six months ended June 30, 2013, we did not repurchase any shares under our February 2008 Board of Directors' authorization. Share-based Payments On March 11, 2014, the Board of Directors approved an amendment and restatement of the 2007 Stock Incentive Plan (amended and restated effective March 20, 2013) (the "Stock Incentive Plan"), which was renamed the 2014 Omnibus Incentive Plan. The Stock Incentive Plan as amended and restated is referred to below as the Omnibus Plan. The Omnibus Plan approval was subject to, and became effective upon, stockholder approval at the Annual Meeting held on May 13, 2014. The Omnibus Plan generally incorporates the provisions of the Stock Incentive Plan as currently in effect and includes the following key modifications: • Increase of the Aggregate Share Reserve. The aggregate share reserve was increased by an additional 600,000 shares for a total share reserve of 4,100,000 shares under the Omnibus Plan. 35--------------------------------------------------------------------------------• Removal of Non-Appreciation Award Limit. In connection with the increase in the aggregate share reserve, the limit on the number of awards that are not "appreciation awards" (i.e., restricted stock and restricted stock units) that may be granted under the Omnibus Plan was removed. • Performance-Based Cash Awards. The Omnibus Plan includes performance-based cash awards that may be granted with the intent to comply with the "performance-based compensation" exception under Section 162(m) of the Code. • Term Extension. The term of the Amended Plan was extended until March 10, 2024 (the 2007 Stock Incentive Plan was scheduled to expire on April 5, 2017). • Added pre-tax income as a metric to measure performance based equity awards. During the six months ended June 30, 2014, 351,240 restricted stock awards and 239,585 performance stock awards were granted under the Omnibus Plan to the Company's non-employee Directors and management team. Pursuant to the Omnibus Plan the number of target shares that are issued for performance stock awards are determined based on the level of attainment of the targets. If the minimum level of performance is attained, restricted stock will be issued and with a vesting date of December 31, 2016, subject to the employee's continuing employment. Debt Senior Credit Facility On January 9, 2013, we entered into a First Lien Loan and Security Agreement, (the First Lien Loan Agreement), by and among the Company and certain of its subsidiaries, as borrowers, and Bank of America, N.A., as agent. The First Lien Loan Agreement was subsequently amended to allow for the sale of our clinical trials services business in February 2014 and for administrative matters. On June 30, 2014, we entered into a third amendment (the Amendment) to the First Lien Loan Agreement dated as of January 9, 2013 with Bank of America, N.A., as agent, in order to, among other things, increase the Company's borrowing capacity under the First Lien Loan Agreement and to consent to the consummation of the MSN acquisition and the incurrence of the indebtedness contemplated pursuant to the Second Lien Term Loan Agreement and the Note Purchase Agreement. The Amendment provides for, among other things, increasing the revolving credit facility under the First Lien Loan Agreement from $65.0 million to $85.0 million and increasing the letter of credit subline under the First Lien Loan Agreement from $20.0 million to $35.0 million. In addition, the termination date of the revolving credit facility under the First Lien Loan Agreement has been extended to June 30, 2017. We used the increased availability under the letter of credit subline to collateralize certain insurance obligations related to the MSN acquisition. The revolving credit facility and letter of credit subline will be used to provide ongoing working capital and for other general corporate purposes. As of June 30, 2014, the interest rate spreads and fees under the First Lien Loan Agreement are based on LIBOR plus 1.50% or Base Rate plus 0.50%. The LIBOR and Base Rate margins are subject to performance pricing adjustments, pursuant to a pricing matrix based on excess availability under the revolving credit facility, and could increase by 200 basis points if an event of default exists. We are required to pay a monthly commitment fee on the average daily unused portion of the revolving loan facility, which, as of June 30, 2014, was 0.375%. The revolving credit facility can be used to provide ongoing working capital and for other general corporate purposes of the Company and its subsidiaries. As of June 30, 2014, the gross availability under the First Lien Loan Agreement was approximately $73.0 million based on the Company's May accounts receivable balance pro forma to include MSN accounts receivable. We had $31.5 million letters of credit outstanding and $11.6 million drawn under its revolving credit facility, leaving $29.9 million available as of June 30, 2014. The letters of credit relate to our workers' compensation and professional liability insurance policies and included a backstop letter of credit of $8.0 million related to the acquisition of MSN which was subsequently released in July 2014. For additional information refer to Note 8- Debt to our condensed consolidated financial statements. Second Lien Term Loan 36-------------------------------------------------------------------------------- On June 30, 2014, we entered into a second lien loan and security agreement (the Second Lien Term Loan Agreement), by and among the Company, as borrower, certain of its domestic subsidiaries, as guarantors, and BSP Agency, LLC, as agent. The Second Lien Term Loan Agreement provides for a five-year senior secured term loan facility in an aggregate principal amount of $30.0 million (the Second Lien Term Loan Facility, and the loans thereunder, the Second Lien Term Loans). The proceeds from the Second Lien Term Loan Facility were used to pay a portion of the consideration for the MSN acquisition and related fees and expenses. Amounts borrowed under the Second Lien Term Loan Facility that are repaid or prepaid may not be re-borrowed. The Second Lien Term Loans bear interest at a rate equal to adjusted LIBOR (defined as the 3-month London interbank offered rate for U.S. dollars, adjusted for customary Eurodollar reserve requirements, if any, and subject to a floor of 1.00%) plus 6.50%. The interest rate would increase by 200 basis points if an event of default exists under the Second Lien Term Loan Agreement. At our option we may elect to prepay the Second Lien Term Loans on or before June 30, 2015, subject to a prepayment premium in an amount equal to (i) the amount of the principal amount of the Second Lien Term Loans being repaid, plus (ii) the accrued but unpaid interest on the principal amount so prepaid, if any, to the date of the prepayment, plus (iii) any associated administrative amounts or charges owed to the lenders as a result of the redeployment of funds or fees payable to terminate matching deposits, plus (iv) a "make whole" amount equal to the excess, if any, of (a) the present value at the prepayment date of (1) 103% of the aggregate principal amount of the Second Lien Term Loans then being prepaid, plus (2) all remaining scheduled interest payments due on the principal amount of such Second Lien Term Loans being prepaid through June 30, 2015 (excluding accrued but unpaid interest to the date of such prepayment), computed using a discount rate equal to the Treasury rate as of such prepayment date plus 50 basis points over (b) the outstanding principal amount of such Second Lien Term Loans being prepaid. The Company may, at its option at any time after June 30, 2015, prepay the Second Lien Term Loans in whole or in part at the redemption prices set forth therein, which range from 103% of the principal amount thereof for prepayments during the period July 1, 2015 through June 30, 2016, 102% of the principal amount thereof for prepayments during the period July 1, 2016 through June 30, 2017, and 100% of the principal amount thereof for prepayments after such date. If we complete a public offering on or prior to November 27, 2014, however, we may apply the proceeds of such public offering to prepay the Second Lien Term Loans (plus accrued and unpaid interest thereon), in whole but not in part, without premium or penalty. Subject to certain exceptions, the Second Lien Term Loans are required to be prepaid with: (a) 50% of excess cash flow (as defined in the Second Lien Term Loan Agreement) above $5.0 million for each fiscal year of the Company (commencing with the fiscal year ending December 31, 2015), provided that voluntary prepayments of the Second Lien Term Loans made during such fiscal year will reduce the amount of excess cash flow prepayments required for such fiscal year on a dollar-for-dollar basis; (b) 100% of the net cash proceeds of all asset sales or other dispositions of property by us, as set forth in the agreement, in excess of a defined threshold and subject to our right to reinvest such proceeds within 12 months; (c) 100% of the net cash proceeds of issuances of debt offerings by us (except the net cash proceeds of any permitted debt); and (d) 50% of the net cash proceeds of equity offerings of the Company. Private Placement of Convertible Notes On June 30, 2014, we entered into a Convertible Note Purchase Agreement (the Note Purchase Agreement), with certain note holders (collectively, the Noteholders). Pursuant to the Note Purchase Agreement, we sold to the Noteholders an aggregate of $25.0 million of convertible senior notes (the Convertible Notes). The proceeds from the Note Purchase Agreement were used to pay a portion of the consideration paid in the MSN Acquisition and related fees and expenses. The Convertible Notes are convertible at the option of the holders thereof at any time into shares of the our common stock, par value $0.0001 per share (Common Stock), at an initial conversion price of $7.10 per share, or 3,521,126 shares of Common Stock. After three years, we have the right to force a conversion of the Convertible Notes if the volume-weighted average price (VWAP) per share of its Common Stock exceeds 125% of the then conversion price for 20 days of a 30 day trading period. The conversion price is subject to adjustment pursuant to customary weighted average anti-dilution provisions including adjustments for the following: Common Stock dividends or distributions; issuance of any rights, warrants of options to acquire Common Stock; distributions of property; tender offer or exchange offer payments; cash dividends; or certain issuances of Common Stock at less than the conversion price. Upon conversion of the Convertible Notes, we will exchange, for the applicable conversion amount thereof a number of shares of Common Stock equal to the amount determined by dividing (i) such conversion amount by (ii) the conversion price in effect at the time of conversion. No fractional shares of Common Stock will be issued upon conversion of the Conversion Notes. In lieu of fractional shares, the Company shall pay cash in respect of each fractional share equal to such fractional amount multiplied by the Thirty Day VWAP as of the closing of business on the Business Day immediately preceding the conversion date as well as any unpaid accrued interest. 37-------------------------------------------------------------------------------- The Convertible Notes bear interest at a rate of 8.00% per annum, payable in quarterly cash installments; provided, however, that, at our option, up to 4.00% of the interest payable may be "paid-in-kind" through a quarterly addition of such "paid-in-kind" interest amount to the principal amount of the Convertible Notes. The Convertible Notes will mature on June 30, 2020, unless earlier repurchased, redeemed or converted. Subject to certain exceptions, we are not permitted to redeem the Convertible Notes until June 30, 2017. If we redeem the Convertible Notes on or after June 30, 2017, we are required to pay a premium equal to the greater of (i) the sum of (a) the amount of principal of the Convertible Notes redeemed, plus (b) the accrued but unpaid interests on the principal amount so redeemed to the date of the redemption, plus (c) 15% of the amount of principal of the Convertible Notes redeemed and (ii) the sum of (x) the average thirty day VWAP per share of Common Stock multiplied by the number of shares of Common Stock that the redeemed Convertible Notes are then convertible into and (y) the accrued but unpaid interest on the Convertible Notes. If the Convertible Notes are redeemed prior to June 30, 2017, we are required to pay a premium equal to the greater of (i) the sum of (a) the amount of principal of the Convertible Notes redeemed, plus (b) the accrued but unpaid interests on the principal amount so redeemed to the date of the redemption, plus (c) a "make whole" amount (described below) and (ii) the sum of (x) the average thirty day volume-weighted average price per share of Common Stock multiplied by the number of shares of Common Stock that the redeemed Convertible Notes are then convertible into and (y) the accrued but unpaid interest on the Convertible Notes. The "make whole" amount is equal to the excess, if any, of (1) the present value at the date of redemption of (A) 115% of the principal amount of the Convertible Notes redeemed, plus (B) all remaining scheduled interest due on the principal amount of the notes being redeemed through June 30, 2017 computed using a discount rate equal to the Treasury rate as of the date of redemption plus 50 basis points over (2) the outstanding principal amount of the Convertible Notes then redeemed. In conjunction with ASC 815, Accounting for Derivative Financial Instruments and Hedging Activities, we have bifurcated and accounted for an embedded derivative related to specific features of these Convertible Notes. As required by ASC 815, the embedded derivative is required to be accounted for as a derivative liability at fair value in our condensed consolidated financial statements. Refer to Note 9 - Derivative liability for further information. We have granted the Noteholders preemptive rights with respect to future equity issuances by us, subject to customary exceptions. In connection with the placement of the Convertible Notes, on June 30, 2014, we entered into a registration rights agreement (the Registration Rights Agreement) with the Noteholders, which sets forth the rights of the Noteholders to have the shares of Common Stock issuable upon conversion of the Convertible Notes registered with the Securities and Exchange Commission (the SEC) for public resale under the Securities Act of 1933, as amended. Pursuant to the Registration Rights Agreement, we are required to file a registration statement with the SEC (the Initial Registration Statement) on or prior to January 2, 2015, registering the shares of Common Stock issuable upon conversion of the Convertible Notes. We are required to use our reasonable best efforts to have the Initial Registration Statement declared effective as promptly as possible following the filing thereof and, in any event, by no later than by March 31, 2015. In addition, the agreement gives the Noteholders the ability to exercise certain piggyback registration rights in connection with registered offerings by the Company. Commitments and Off-Balance Sheet Arrangements We did not have any off-balance sheet arrangements as of June 30, 2014. The following table reflects our contractual obligations and other commitments as of June 30, 2014. Commitments Total 2014 2015 2016 2017 2018 Thereafter (amounts in thousands) Senior Secured Asset-Based (a) $ 11,605 $ 11,605 $ - $ - $ - $ - $ - Second Lien Term Loan (a) 30,000 - - - - - 30,000 Convertible Notes 25,000 - - - - - 25,000 Capital lease obligations 254 53 107 71 13 8 2 Operating leases obligations (b) 24,043 3,868 6,774 5,381 3,778 1,619 2,623 $ 90,902 $ 15,526 $ 6,881 $ 5,452 $ 3,791 $ 1,627 $ 57,625 _______________ 38-------------------------------------------------------------------------------- (a) Under our Senior Secured Asset-Based and Second Lien Term Loan, we are required to comply with certain financial covenants. Our inability to comply with the required covenants or other provisions could result in default under our credit facility. In the event of any such default and our inability to obtain a waiver of the default, all amounts outstanding could be declared immediately due and payable. (b) Represents future minimum lease payments associated with operating lease agreements with original terms of more than one year. Critical Accounting Principles and Estimates Derivative Liability In accordance with ASC 815, Accounting for Derivative Financial Instruments and Hedging Activities, we have bifurcated and accounted for an embedded derivative related to specific features of the Convertible Notes. The Company's Convertible Notes derivative liability has been measured at fair value at June 30, 2014 using a trinomial lattice model. Since the Conversion Price contains an anti-dilution adjustment, the probability that the Conversion Price of the Notes would decrease as the share price decreased was incorporated into the valuation calculation. The inputs into the valuation model are as follows: June 30, 2014 Closing share price $6.52 Conversion price $7.10 Risk free rate 1.94% Expected volatility 40% Dividend yield -% Expected life 6 years The fair value of the convertible note payable derivative liability was $6.8 million at June 30, 2014. Our other critical accounting principles and estimates remain consistent with those reported in our Annual Report on Form 10-K for the year ended December 31, 2013, filed with the SEC. Recent Accounting Pronouncements In April 2014, the FASB issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity to reduce diversity in practice for reporting discontinued operations. Under the previous guidance, any component of an entity that was a reportable segment, an operating segment, a reporting unit, a subsidiary, or an asset group was eligible for discontinued operations presentation. The revised guidance only allows disposals of components of an entity that represent a strategic shift (e.g., disposal of a major geographical area, a major line of business, a major equity method investment, or other major parts of an entity) and that have a major effect on a reporting entity's operations and financial results to be reported as discontinued operations. The revised guidance also requires expanded disclosure in the financial statements for discontinued operations as well as for disposals of significant components of an entity that do not qualify for discontinued operations presentation. The updated guidance is effective for periods beginning after December 15, 2014. We had operations that were reported as discontinued operations for the six months ended June 30, 2013 and we do not expect the adoption of this guidance to have a material effect on its financial position, results of operations, or cash flows. In May 2014, the FASB and the International Accounting Standards Board (IASB) jointly issued Accounting Standards Update (ASU) No. 2014-9, Revenue from Contracts with Customers (Topic 606), which clarifies the principles for recognizing revenue and develops a common revenue standard for GAAP and International Financial Reporting Standards (IFRS). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The ASU is effective for public entities for annual and interim periods beginning after December 15, 2016. Early adoption is not permitted under GAAP and retrospective application is permitted, but not required. We are currently evaluating the impact of adopting this guidance on our financial position and results of operations. 39-------------------------------------------------------------------------------- |