[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

[   ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________   Commission File No. 001-31299

Delaware		65-0865171
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

 

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of March 27, 2005 (Unaudited) and December 26, 2004	3
Condensed Consolidated Statements of Operations (Unaudited) for the three months ended March 27, 2005 and March 28, 2004	4
Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 27, 2005 and March 28, 2004	5
Notes to Condensed Consolidated Financial Statements (Unaudited)	6
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	24
ITEM 4. CONTROLS AND PROCEDURES	24
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS	25
ITEM 6. EXHIBITS	26
SIGNATURES	27
EXHIBIT INDEX	28

 

 

 

		March 27,			December 26,
			2005			2004
(in thousands, except per share amounts)			(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	501		$	345
Accounts receivable, net of allowance for doubtful accounts of $1,044 and $1,064 at March 27, 2005 and December 26, 2004, respectively			57,648			57,478
Prepaid expenses			6,810			6,406
Other current assets			5,081			4,758
Total current assets			70,040			68,987
Furniture and equipment, net of accumulated depreciation of $19,869 and $18,650 at March 27, 2005 and December 26, 2004, respectively			8,317			8,481
Goodwill, net of accumulated amortization of $8,545 at both March 27, 2005 and December 26, 2004			129,474			129,474
Intangible assets, net of accumulated amortization of $1,817 and $1,663 at March 27, 2005 and December 26, 2004, respectively			2,284			2,438
Other assets			1,461			1,523
Total assets		$	211,576		$	210,903
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses		$	12,342		$	12,072
Accrued payroll and related liabilities			8,164			6,597
Current portion of capital lease obligations			224			385
Total current liabilities			20,730			19,054
Long-term debt			30,967			31,760
Deferred income taxes			10,605			9,808
Capital lease obligations, net of current portion			10			33
Other liabilities			225			222
Total liabilities			62,537			60,877
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.01 par value, 75,000 shares authorized: 30,232 and 30,231 shares issued and outstanding at March 27, 2005 and December 26, 2004, respectively			302			302
Additional paid-in capital			284,414			284,411
Accumulated deficit			(135,677	)		(134,687	)
Total stockholders’ equity			149,039			150,026
Total liabilities and stockholders’ equity		$	211,576		$	210,903

 

 

 

 

		Three Months Ended
		March 27,			March 28,
			2005			2004
(in thousands, except per share amounts)
Service revenues		$	100,576		$	106,393
Cost of services rendered			79,132			84,224
Gross profit			21,444			22,169
Operating expenses:
Selling, general and administrative			17,082			17,262
Corporate and administrative			3,775			3,278
Depreciation and amortization			1,468			1,647
Loss from operations			(881	)		(18	)
Interest expense, net			797			960
Loss before benefit from income taxes			(1,678	)		(978	)
Benefit from income taxes			(688	)		(381	)
Net loss		$	(990	)	$	(597	)
Basic and diluted net loss per share		$	(0.03	)	$	(0.02	)
Weighted average number of common shares outstanding:
Basic and diluted			30,231			30,221

 

 

 

		Three Months Ended
(in thousands)		March 27, 2005			March 28, 2004
Operating activities
Net loss		$	(990	)	$	(597	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization			1,468			1,647
Amortization of debt issuance cost			176			160
Deferred income taxes			245			768
Provision for doubtful accounts			151			397
Changes in operating assets and liabilities:
Accounts receivable			(321	)		3,892
Prepaid expenses and other current assets			(177	)		(1,431	)
Other assets			(95	)		58
Accounts payable and accrued expenses			252			1,445
Accrued payroll and related liabilities			1,567			1,880
Other liabilities			3			(6	)
Cash provided by operating activities			2,279			8,213
Investing activities
Purchases of furniture and equipment			(631	)		(375	)
Capitalized internal software costs			(518	)		(293	)
Cash used in investing activities			(1,149	)		(668	)
Financing activities
Net repayments under revolving credit facility			(793	)		(7,344	)
Principal payments under capital lease obligations			(184	)		(284	)
Proceeds from exercise of stock options			3			47
Cash used in financing activities			(974	)		(7,581	)
Net increase (decrease) in cash and cash equivalents			156			(36	)
Cash and cash equivalents at beginning of period			345			825
Cash and cash equivalents at end of period		$	501		$	789
Supplemental disclosures of cash flow information:
Interest paid		$	6		$	23
Income taxes paid, net		$	52		$	44

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

		Three Months Ended
		March 27,			March 28,
			2005			2004
Net loss as reported		$	(990	)	$	(597	)
Fair value method of stock based compensation, net of tax			(155	)		(354	)
Pro forma net loss		$	(1,145	)	$	(951	)
As reported:
Basic and diluted loss per share		$	(0.03	)	$	(0.02	)
Pro forma:
Basic and diluted loss per share		$	(0.04	)	$	(0.03	)

 

 

		Three Months Ended
		March 27,			March 28,
			2005			2004
Expected life			3 - 8			3 - 8
Risk-free interest rate			4.05%			3.25% - 4.19%
Volatility			63%			70%
Dividend yield			0%			0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

		Three Months Ended
		March 27,			March 28,
(in thousands, except per share amounts)			2005			2004
Numerator:
Numerator for basic and diluted loss per share		$	(990	)	$	(597	)
Denominator:
Denominator for basic and diluted loss per share			30,231			30,221
Effect of dilutive shares:
Employee stock options			-			-
Denominator for diluted loss per share-adjusted weighted average shares and assumed conversions			30,231			30,221
Basic and diluted loss per share		$	(0.03	)	$	(0.02	)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

·	Overview. This section provides a general description of our business, trends in our industry, as well as significant transactions that have occurred that we believe are important in understanding our financial condition and results of operations.

 

·	Recent accounting pronouncements. This section provides an analysis of relevant recent accounting pronouncements issued by the Financial Accounting Standards Board (FASB) and the effect of those pronouncements.

 

·	Results of operations. This section provides an analysis of our results of operations for the three months ended March 27, 2005 relative to the three months ended March 28, 2004 presented in the accompanying condensed consolidated statements of operations.

 

·	Liquidity and capital resources. This section provides an analysis of our cash flows, capital resources, off-balance sheet arrangements and our outstanding debt and commitments as of March 27, 2005.

 

·	Critical accounting policies. This section discusses those accounting policies that are both considered important to our financial condition and results of operations, and require significant judgment and estimates on the part of management in their application.

 

·

Caution concerning forward-looking statements. This section discusses how certain forward-looking statements made by us throughout this discussion and analysis are based on management’s present expectations about future events and are inherently susceptible to uncertainty and changes in circumstance.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

		Three Months Ended
		March 27,			March 28,
			2005			2004
Service revenues			100.0	%		100.0	%
Cost of services rendered			78.7			79.2
Gross profit			21.3			20.8
Selling, general and administrative			17.0			16.2
Corporate and administrative			3.8			3.1
Depreciation and amortization			1.4			1.5
Loss from operations			(0.9	)		(0.0	)
Interest expense, net			0.8			0.9
Loss before benefit from income taxes			(1.7	)		(0.9	)
Benefit from income taxes			(0.7	)		(0.3	)
Net loss			(1.0	)		(0.6	)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

		Payments due by period
					Less than			2-3			4-5			After
		Total			1 year			years			years			5 years
Long-term debt obligations		$	31,760		$	-		$	31,760		$	-		$	-
Operating leases			17,377			4,753			5,432			2,591			4,601
Capital lease obligations			418			385			33			-			-
Total		$	49,555		$	5,138		$	37,225		$	2,591		$	4,601

 

 

 

 

 

 

 

 

·

We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments, which results in a provision for bad debt expense. The adequacy of this allowance is determined by continually evaluating customer receivables, considering the customers’ financial condition, credit history and current economic conditions. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances would be required.

 

·

We have recorded goodwill and other intangibles resulting from our acquisitions through December 26, 2004. Through December 30, 2001, goodwill and other intangibles were amortized on a straight-line basis over their lives of 6 to 20 years. Pursuant to the provisions of SFAS No. 142, Goodwill and Other Intangible Assets, which we adopted in 2002, goodwill and intangible assets deemed to have an indefinite life are no longer amortized. We evaluate the recovery of the carrying amount of costs in excess of net tangible assets acquired by determining if an impairment has occurred. This evaluation is done annually or more frequently if indicators of an impairment arise. Indicators of an impairment include duplication of resources resulting from acquisitions, instances in which the estimated undiscounted cash flows of the entity are less than the remaining unamortized balance of the underlying intangible assets and other factors. At such time that impairment is determined, the intangible assets are written off during that period. We are currently evaluating our determination of operating segments, which could change the reporting unit level at which we test for goodwill impairment. Any change in the reporting unit level would occur in the future when we complete the evaluation and could result in a noncash impairment charge to earnings, based on the results of the testing performed. If we are required to record an impairment charge in the future, it would have an adverse impact on results of operations.

 

·

We maintain an accrual for our health, workers compensation and professional liability that are either self-insured or partially self-insured and are classified in accounts payable and accrued expenses. The adequacy of these accruals is determined by periodically evaluating our historical experience and trends related to health, workers compensation, and professional liability claims and payments, based on company-specific actuarial computations and industry experience and trends. If such information indicates that the accruals are overstated or understated, we will adjust the assumptions utilized in the methodologies and reduce or provide for additional accruals as appropriate.

 

 

 

·

We are subject to various claims and legal actions in the ordinary course of our business. Some of these matters include professional liability and employee-related matters. Hospital and healthcare facility clients may also become subject to claims, governmental inquiries and investigations and legal actions to which we may become a party relating to services provided by our professionals. From time to time, and depending upon the particular facts and circumstances, we may be subject to indemnification obligations under our contracts with hospital and healthcare facility clients relating to these matters. Although we are currently not aware of any such pending or threatened litigation that we believe is reasonably likely to have a material adverse effect on our financial condition or results of operations, if we become aware of such claims against us, we will evaluate the probability of an adverse outcome and provide accruals for such contingencies as necessary.

 

 

 

·	Our ability to attract and retain qualified nurses and other healthcare personnel;

 

·	The overall level of demand for services provided by temporary nurses;

 

·	Our ability to enter into contracts with hospital and healthcare facility clients on terms attractive to us;

 

·	The willingness of hospital and healthcare facility clients to utilize temporary healthcare staffing services;

 

·	The general level of patient occupancy at hospital and healthcare facility clients;

 

·	The functioning of our information systems;

 

·	The effect of existing or future government regulation and federal and state legislative and enforcement initiatives on our business;

 

·	Our clients’ ability to pay for services;

 

·	Our ability to successfully implement our acquisition and integration strategies;

 

 

 

·	The effect of liabilities and other claims asserted against us;

 

·	The effect of competition in the markets we serve; and

 

·	Our ability to carry out our business strategy.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MEDICAL STAFFING NETWORK HOLDINGS, INC.

 

Dated: May 5, 2005	By:/s/ Robert J. Adamson
	Robert J. Adamson
	Chairman of the Board of Directors and Chief Executive Officer

 

Dated: May 5, 2005	By:/s/ N. Larry McPherson
	N. Larry McPherson
	Chief Financial Officer

 

 

 

Exhibit No.	Description
31.1	Certification of Robert J. Adamson, Chief Executive Officer of Medical Staffing Network Holdings, Inc., as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of N. Larry McPherson, Chief Financial Officer of Medical Staffing Network Holdings, Inc., as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Robert J. Adamson, Chief Executive Officer of Medical Staffing Network Holdings, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of N. Larry McPherson, Chief Financial Officer of Medical Staffing Network Holdings, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.