AMN

Business Context and Reporting Period

Company: AMN Healthcare Services, Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2009
Business Overview: AMN Healthcare is a leading provider of healthcare staffing and management services in the United States. The company operates through three reportable segments: Nurse and Allied Healthcare Staffing, Locum Tenens Staffing (temporary physician staffing), and Physician Permanent Placement Services. The company recruits and places healthcare professionals with clients ranging from acute-care hospitals to physician practice groups.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Revenue decreased 38% to $759.8 million, primarily driven by a 49% drop in the Nurse and Allied Healthcare Staffing segment due to reduced demand from the economic downturn and lower volume from international operations due to visa restrictions.
• Significant Impairment Charges: The company recorded a pre-tax goodwill impairment charge of $173.0 million and an indefinite-lived intangible asset impairment of $2.7 million in the first quarter of 2009, totaling $175.7 million. This was driven by depressed equity market values and lower projected growth rates.
• Restructuring Costs: The company incurred $11.3 million in pre-tax restructuring charges related to office consolidations, brand strategy changes, and employee terminations.
• Profitability Shift: The company swung from a net income of $34.4 million in 2008 to a net loss of $122.2 million in 2009. Excluding impairment and restructuring charges, the company would have reported a net loss of approximately $12.3 million.
• Debt Refinancing: On December 23, 2009, the company entered a new $150 million credit agreement ($40 million revolver, $110 million term loan) to replace prior indebtedness.

Guidance, Outlook, and Risks

Management Commentary & Outlook: Management noted that while demand for services stabilized in the latter part of the third quarter of 2009, it remained below historical levels. The company anticipates moderate growth in most businesses throughout 2010. Cost-reduction actions taken in 2009 are expected to keep selling, general, and administrative expenses slightly lower in 2010, though unallocated corporate overhead may increase as the company positions for growth.

Key Risks and Contingencies:

• Economic Sensitivity: Demand is highly sensitive to economic conditions; high unemployment reduces hospital attrition and the need for temporary staff.
• Goodwill Impairment: Due to the economic environment, there is a risk of further impairment charges if stock prices decline or cash flow projections worsen.
• Legal Proceedings: The company is subject to an assessment by the California Employment Development Department (EDD) regarding payroll taxes for the period 2001–2007. While a settlement was reached with prior shareholders for a portion of the liability, the company remains liable for future costs related to the assessment.
• Independent Contractor Classification: Reclassification of healthcare professionals as employees could result in significant tax and wage liabilities.

Investor Verification Checklist

• Impairment Methodology: Verify the assumptions used in the goodwill impairment test (discount rates, growth rates) given the significant $175.7 million charge.
• EDD Litigation Status: Monitor the status of the California EDD assessment and potential additional liabilities beyond the settled amount.
• Debt Covenants: Review compliance with the new credit agreement's financial covenants (leverage ratio, fixed charge coverage) given the recent loss.
• Segment Mix: Analyze the shift in revenue mix toward higher-margin Locum Tenens services as a buffer against the decline in travel nursing.
• Visa Restrictions: Assess the long-term impact of U.S. visa quotas on the supply of international nurses and the company's ability to fill assignments.