SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 4, 1999
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Commission File No. 0-3532
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OLSTEN CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 13-2610512
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
175 Broad Hollow Road, Melville, New York 11747-8905
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 844-7800
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 13, 1999
- ------------------------------------ ---------------------------
Common Stock, $.10 par value 68,229,499 shares
Class B Common Stock, $.10 par value 13,066,976 shares
INDEX
Page No.
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PART I- FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited) -
April 4, 1999 and January 3, 1999, respectively 2
Consolidated Statements of Operations (Unaudited) -
Quarters Ended April 4, 1999 and March 29, 1998,
respectively 3
Consolidated Statements of Cash Flows (Unaudited) -
Quarters Ended April 4, 1999 and March 29, 1998,
respectively 4
Notes to Consolidated Financial Statements (Unaudited) 5-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 11
PART II- OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 5. Other Information 12-14
Item 6. Exhibits and Reports on Form 8-K 14-15
SIGNATURES 16
1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Olsten Corporation
Consolidated Balance Sheets
(In thousands, except share amounts)
(Unaudited)
April 4, 1999 January 3, 1999
------------- ---------------
ASSETS
CURRENT ASSETS:
Cash $ 31,876 $ 53,831
Receivables, net 1,048,287 1,005,685
Other current assets 131,925 134,303
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Total current assets 1,212,088 1,193,819
FIXED ASSETS, NET 233,670 233,131
INTANGIBLES, NET 606,314 613,616
OTHER ASSETS 16,337 18,241
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$2,068,409 $2,058,807
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued expenses $ 224,181 $ 195,594
Payroll and related taxes 146,333 144,330
Accounts payable 144,224 142,547
Insurance costs 40,555 36,338
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Total current liabilities 555,293 518,809
LONG-TERM DEBT 649,889 606,107
OTHER LIABILITIES 109,107 111,371
SHAREHOLDERS' EQUITY:
Common stock $.10 par value;
authorized 110,000,000 shares;
issued 68,255,667 and 68,253,080
shares, respectively 6,826 6,825
Class B common stock $.10 par value;
authorized 50,000,000 shares;
issued 13,068,973 and 13,071,560
shares, respectively 1,307 1,307
Additional paid-in capital 447,510 447,488
Retained earnings 311,766 377,268
Accumulated other comprehensive income (12,834) (9,913)
Less treasury stock, at cost;
45,700 shares (455) (455)
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Total shareholders' equity 754,120 822,520
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$2,068,409 $2,058,807
========= =========
See notes to consolidated financial statements.
2
Olsten Corporation
Consolidated Statements of Operations
(In thousands, except share amounts)
(Unaudited)
First Quarter Ended
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April 4, 1999 March 29, 1998
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Service sales, franchise fees,
management fees and other income $1,197,956 $1,049,942
Cost of services sold 903,476 783,885
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Gross profit 294,480 266,057
Selling, general and administrative expenses 372,038 236,860
Interest expense, net 8,998 5,906
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Income (loss) before income taxes
and minority interests (86,556) 23,291
Income tax expense (benefit) (26,015) 9,026
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Income (loss) before minority interests (60,541) 14,265
Minority interests 1,711 1,464
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Net income (loss) $ (62,252) $ 12,801
========= =========
SHARE INFORMATION:
Basic earnings (loss) per share:
Net income (loss) $ (.77) $ .16
========= =========
Average shares outstanding 81,279 81,312
========= =========
Diluted earnings (loss) per share:
Net income (loss) $ (.77) $ .16
========= =========
Average shares outstanding 81,279 81,467
========= =========
See notes to consolidated financial statements.
3
Olsten Corporation
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
First Quarter Ended
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April 4, 1999 March 29, 1998
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OPERATING ACTIVITIES:
Net income (loss) $(62,252) $ 12,801
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 19,444 14,541
Minority interests in results of operations
of consolidated subsidiaries 1,711 1,464
Changes in assets and liabilities,
net of effect from acquisitions:
Accounts receivable and other current assets (58,366) (15,703)
Current liabilities 57,867 (17,307)
Other, net 2,201 (12,015)
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NET CASH USED IN OPERATING ACTIVITIES (39,395) (16,219)
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INVESTING ACTIVITIES:
Purchases of fixed assets (23,519) (13,048)
Acquisitions of businesses, net of cash acquired (8,882) (2,306)
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NET CASH USED IN INVESTING ACTIVITIES (32,401) (15,354)
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FINANCING ACTIVITIES:
Net proceeds from (repayments of) line of credit agreements 68,636 (10,000)
Redemption of debentures (6,804) --
Repayment of notes payable (6,517) (6,202)
Cash dividends (3,252) (5,689)
Issuances of common stock under stock plans -- 54
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NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 52,063 (21,837)
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EFFECT OF EXCHANGE RATE CHANGES ON CASH (2,222) (1,490)
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NET DECREASE IN CASH (21,955) (54,900)
CASH AT BEGINNING OF PERIOD 53,831 84,810
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CASH AT END OF PERIOD $ 31,876 $ 29,910
======= =======
See notes to consolidated financial statements.
4
Olsten Corporation
Notes to Consolidated Financial Statements
(Unaudited)
1. Accounting Policies
-------------------
The unaudited consolidated financial statements have been prepared by Olsten
Corporation (the "Company") pursuant to the rules and regulations of the
Securities and Exchange Commission and, in the opinion of management, include
all adjustments necessary for a fair presentation of results of operations,
financial position and cash flows for each period presented. Results for
interim periods are not necessarily indicative of results for a full year.
The year-end balance sheet data was derived from audited financial
statements, but does not include all disclosures required by generally
accepted accounting principles.
2. Comprehensive Income (Loss)
---------------------------
Total comprehensive loss amounted to $65 million during the first quarter of
1999 and income of $12 million for the comparable period of 1998.
3. Acquisitions
------------
Under the terms of the 1997 purchase agreement for Olsten Travail Temporaire
(formerly Sogica S.A.), an additional payment of approximately $31 million
was paid in the second quarter of 1998. An additional purchase price payment
will be required in the year 2000, calculated based upon the average net
income for the three fiscal years ended 1999. Such additional payments relate
to the Company's original purchase of 70 percent of the Olsten Travail
Temporaire shares. The Company is also obligated in the year 2000 to purchase
the remaining 30 percent of the shares at a price to be determined by a
multiple ranging from an upper limit of 16 to a lower limit of 10, applied to
the average net income for the fiscal years ended 1998 and 1999.
During the first three months of 1999, the Company purchased additional
Staffing Services operations in France and Health Services operations in the
United States for approximately $9 million in cash. All acquisitions have
been accounted for by the purchase method of accounting.
4. Special Charge
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In the first quarter of 1999, the Company recorded a special charge of $102
million ($70 million, net of income tax benefit, or $.86 per diluted share)
which includes a provision for the proposed settlement of two government
investigations of $56 million, compensation and severance costs of $22
million, asset write-offs of $16 million and integration costs of $8 million.
The Health Services' division represented $73 million ($50 million, net of
income tax benefit, or $.61 per diluted share) of the total charge, inclusive
of a provision for proposed settlement of two government investigations of
$56 million, compensation and severance costs of $5 million, asset write-offs
of $7 million and integration costs of $5 million.
The charge for the Staffing Services' division totaled $16 million ($11
million, net of income tax benefit, or $.14 per diluted share) related to
business realignments, including $6 million for compensation and severance
costs, $8 million for asset write-offs and $2 million for integration costs.
5
The balance of the charge of $13 million ($9 million, net of income tax
benefit, or $.11 per diluted share) relates to Corporate and consists
primarily of compensation and severance costs.
As of the end of the first quarter of 1999, 30 percent of the closures and
consolidations of facilities have been completed and approximately 10 percent
of the 640 expected terminations have occurred. At April 4, 1999,
approximately $80 million of the special charge remains unpaid and was
included in accrued expenses.
5. Long-Term Debt
--------------
In February 1999, the Company's revolving credit agreement, which expires in
2001, was amended, to revise the provision related to the maintenance of
various financial ratios and covenants, including granting the Company
approval to repurchase up to $40 million of the convertible subordinated
debentures. The Company retired $7.7 million of the convertible subordinated
debentures at 88.5 percent of the principal amount, resulting in a gain of
approximately $900 in January 1999. In May 1999, the Company's revolving
credit agreement was further amended to revise the provision related to the
maintenance of various financial ratios and covenants and to restrict further
repurchase of the convertible subordinated debentures, as well as, the
Company's common shares.
Interest expense, net, consists primarily of interest on long-term debt for
the quarter of $10 million in 1999 and $7 million in 1998, offset by interest
income from investments of $1 million for both 1999 and 1998.
6. Business Segment Information
----------------------------
The Company operates in three business segments:
STAFFING SERVICES
The Company operates Olsten Staffing Services in the United States and
Canada, and staffing companies in 12 countries of Europe and Latin America,
providing supplemental staffing, evaluation and training for office
technology; general office and administrative services; accounting and other
financial services; legal, scientific, engineering and technical services,
including production technical training; call centers;
production/distribution/assembly services; training and pre-employment
services; retail services; marketing support and teleservices; manufacturing,
construction and industrial services; and managed services for corporations.
The Company's services meet the full range of business needs, including
traditional temporary help, project staffing, professional-level staffing,
strategic partnerships, regular full-time hires and outsourcing. The
Company's Financial Staffing Services operations provide temporary,
"temp-to-hire" and full-time placement of accounting and financial
professionals. The Company's Legal Staffing Services operations provide
temporary and full-time attorneys, paralegals and legal support staff to law
firms, corporate law departments and government, as well as computerized
litigation support.
6
INFORMATION TECHNOLOGY SERVICES
The Company operates IMI Systems Inc. in the United States and related
companies in Canada and the United Kingdom providing design, programming and
maintenance of computer systems, on either a project or consulting basis;
focused solutions, comprising both horizontal practices and vertical
industry offerings; applications management, encompassing applications
outsourcing, and the support and development of legacy systems and
enterprise resource planning systems; quality assurance services, including
testing environment assessment and/or creation, test planning and execution,
and use of IMI's proprietary methodology, RadSTAR(TM); and enterprise
support services, including help desk support, technology and software
deployment, infrastructure operability/testing and Web/Internet support.
HEALTH SERVICES
The Company operates Olsten Health Services in the United States and Canada,
delivering home health-related services, including Network Services
providing care management and coordination for managed care organizations
and self-insured employers; skilled nursing, home health aide and personal
services; acute and chronic infusion therapy;
physical/occupational/neurological/speech therapies; pediatric and perinatal
care; disease management; marketing and distribution services for
pharmaceutical, biotechnology and medical device firms; and institutional,
occupational and alternate site health care staffing.
The Company evaluates performance and allocates resources based on income or
loss from operations before income taxes and minority interests. Segment
data includes charges for allocating corporate costs to each of the
operating segments. Prior period segment data has been restated to conform
with the current period presentation. Information about the Company's
operations, net of a special charge of $102 million, before taxes in the
first quarter of 1999 ($16 million related to Staffing Services, $73 million
related to Health Services, and $13 million related to Corporate and other),
is as follows:
Services sales,
franchise fees, Income(loss) before
management fees income taxes and
and other income minority interests
---------------- -------------------
First quarter ended April 4, 1999
---------------------------------
Staffing Services $ 722,318 $ (4,773)
Information Technology Services 108,362 3,775
Health Services 367,276 (72,458)
Corporate and other -- (13,100)
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$1,197,956 $(86,556)
========= ========
First quarter ended March 29, 1998
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Staffing Services $ 625,484 $ 23,305
Information Technology Services 92,491 2,467
Health Services 331,967 (2,481)
Corporate and other -- --
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$1,049,942 $ 23,291
========= =======
7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Results of Operations
- ---------------------
Revenues increased $148 million, or 14 percent, with 8 percent attributable to
acquisitions, to $1.2 billion for the first quarter. Staffing Services' revenues
increased 16 percent, with 9 percent attributable to acquisitions, to $720
million for the first quarter over last year's first quarter of $624 million.
European operations contributed 7 percent, reflecting industry growth and
favorable economic conditions, while traditional North American Staffing
operations remained essentially flat compared to the first quarter of 1998.
Information Technology Services grew 17 percent to $108 million compared to $92
million for the first quarter of 1998 primarily from internal growth. Health
Services' revenues increased 11 percent to $367 million for the first quarter
compared to $332 million in 1998, with 7 percent attributable to acquisitions.
Health Services' revenues for the quarter reflects internal growth of 4 percent
attributable to the Infusion, Staffing and Network businesses, partially offset
by a decline in the Nursing business due to a decreased number of Medicare
visits.
Gross profit margins, as a percentage of revenues, decreased to 24.6 percent for
the first quarter from 25.3 percent for last year's first quarter. Staffing
Services' gross profit margins declined for the quarter as a result of decreased
markups, increased subcontractor utilization, and growth in low margin Corporate
Accounts and Partnership business in North America. Additionally, increased
international competition, a changing business mix and increased social costs in
Europe reduced margins. Information Technology's gross profit margins remained
essentially flat in comparison to the first quarter of 1998. Health Services'
gross profit margins also declined, reflecting a change in the business mix,
specifically, a decline in higher margin health management operations and
Medicare business and growth in lower margin staffing business. These margin
decreases were slightly offset by productivity enhancements and price increases
in Nursing.
In the first quarter of 1999, the Company recorded a special charge of $102
million ($70 million, net of income tax benefit, or $.86 per diluted share)
which includes a provision for the proposed settlement of two government
investigations of $56 million, compensation and severance costs of $22 million,
asset write-offs of $16 million and integration costs of $8 million.
The Health Services' division represented $73 million ($50 million, net of
income tax benefit, or $.61 per diluted share) of the total charge, inclusive of
a provision for proposed settlement of two government investigations of $56
million, compensation and severance costs of $5 million, asset write-offs of $7
million and integration costs of $5 million.
The charge for the Staffing Services' division totaled $16 million ($11 million,
net of income tax benefit, or $.14 per diluted share) related to business
realignments, including $6 million for compensation and severance costs, $8
million for asset write-offs and $2 million for integration costs.
The balance of the charge of $13 million ($9 million, net of income tax benefit,
or $.11 per diluted share) relates to Corporate and consists primarily of
compensation and severance costs.
8
As of the end of the first quarter of 1999, 30 percent of the closures and
consolidations of facilities have been completed and approximately 10 percent of
the expected 640 terminations have occurred. At April 4, 1999, approximately $80
million of the special charge remains unpaid and was included in accrued
expenses.
Selling, general and administrative expenses, increased to $372 million for the
first quarter from $237 million for the first quarter in 1998 primarily as a
result of the special charge of $102 million. As a percentage of revenues, such
expenses remained unchanged for the quarter at 22.5 percent excluding the impact
of the $102 million special charge. The remaining increase in expenses for the
quarter period resulted primarily from increased sales salaries in North America
Staffing Services and Information Technology Services as well as additional
branch openings in European Staffing Services.
Net interest expense was $9 million and $6 million for the first quarters of
1999 and 1998, respectively. Net interest primarily reflected borrowing costs on
long-term debt offset by interest income on investments. The increase resulted
from interest expense incurred as the Company continued to fund both its
acquisition program and working capital requirements, particularly accounts
receivable, necessary to support growth in its Staffing Services' business and
Infusion business.
Excluding the effect of the special charge, net income for the first quarter of
1999 decreased 39 percent to $8 million, or $.10 per diluted share, compared to
$13 million, or $.16 per share for last year's first quarter.
Liquidity and Capital Resources
- -------------------------------
Working capital at April 4, 1999, including $32 million in cash, was $657
million, a decrease of 3 percent versus $675 million at January 3, 1999.
Receivables, net, increased $43 million, or 4 percent, predominantly due to
revenue growth and acquisitions in the Staffing Services' business as well as
growth in Health Services' Infusion business, which requires additional working
capital.
The Company has a revolving credit agreement with a consortium of 11 banks for
up to $400 million in borrowings and letters of credit. In February 1999, the
Company's revolving credit agreement, which expires in 2001, was amended, to
revise the provision related to the maintenance of various financial ratios and
covenants, including granting the Company approval to repurchase up to $40
million of the convertible subordinated debentures. The Company retired $7.7
million of the convertible subordinated debentures at 88.5 percent of the
principal amount, resulting in a gain of approximately $900 in January 1999. In
May 1999, the Company's revolving credit agreement was further amended to revise
the provision related to the maintenance of various financial ratios and
covenants and to restrict further repurchase of the convertible subordinated
debentures, as well as, the Company's common shares. As of April 4, 1999, there
were $241 million in borrowings and $14 million in standby letters of credit
outstanding. The Company has invested available funds in secure, short-term,
interest-bearing investments.
9
The Company anticipates that, in addition to its projected cash flow from
operations, new borrowings may be required to meet the Company's projected
working capital requirements to fund capital expenditures currently anticipated
by the Company, and to satisfy potential obligations arising from resolution of
current investigations. Although no assurance can be given, the Company
currently believes that cash flows from operations, borrowings available to the
Company under existing financing agreements, and additional borrowings that the
Company believes it will be able to obtain should be adequate to meet its
projected requirements during 1999 and thereafter. If cash flows from operations
or availability under existing and new financing agreements fall below
expectations, the Company may be forced to delay planned capital expenditures,
reduce operating expenses, or consider other alternatives designed to enhance
the Company's liquidity.
The Company's 1999 first quarter dividend on common stock and Class B common
stock was $.04 per share.
Year 2000
- ---------
The Year 2000 issue concerns the inability of information systems to properly
recognize and process date-sensitive information beyond January 1, 2000.
The Company's technical infrastructure, encompassing all business applications,
is planned to be Year 2000 ready. Systems not directly related to the financial
operations of the business, primarily voice communications, are also being
upgraded to help ensure readiness. In addition, the Company has, through
questionnaires, interviews and written confirmations, contacted significant
suppliers and vendors to ascertain their stage of Year 2000 readiness.
The North American Staffing Services business is achieving Year 2000 readiness
by replacing all business applications and related infrastructure with compliant
technology. This project, referred to as Project REach, is being implemented to
increase efficiencies and improve the Company's ability to provide services to
customers. The selected systems are Year 2000 compliant and, therefore, no
remediation of current applications is necessary. Project REach is approximately
75 percent completed and is on schedule to be fully implemented by July 1999.
The Company's European and Latin American staffing operations are achieving
readiness primarily through remediation of existing systems which is anticipated
to be completed in 1999.
The Information Technology Services business requires minimal remediation to
achieve Year 2000 compliance, which is expected to be completed in 1999.
In the Health Services segment, systems critical to the business, which have
been identified as non-year 2000 compliant, are being replaced as part of a
project, referred to as Project REO, which is also being implemented to increase
efficiencies and improve the Company's ability to provide services to customers.
The new infrastructure, which is Year 2000 compliant, is currently being
implemented in field offices and is scheduled for completion during 1999. Other
Health Services' systems, which require remediation, are also expected to be
compliant in 1999.
The total cost of the Company's remediation plan (exclusive of Project REach and
Project REO costs) is estimated to be approximately $3 million.
10
Due to the general uncertainty inherent in the Year 2000 issue resulting, in
part, from the uncertainty of the Year 2000 readiness of third-party suppliers
and customers, and government agencies, the Company is unable to determine at
this time whether the consequences of Year 2000 failures will have a material
impact on the Company's results of operations, liquidity or financial condition.
The continuing Year 2000 effort is expected to help reduce the Company's level
of uncertainty about the Year 2000 issue and, in particular, about the Year 2000
readiness. The Company believes that the implementation of new business systems
and the completion of its Year 2000 plan as scheduled should help reduce the
likelihood of significant interruptions of normal operations.
The Company's plan is to address its significant Year 2000 issues prior to being
affected by them. Should the Company identify significant risks related to its
Year 2000 readiness or its progress deviates from the anticipated timeline, the
Company will develop contingency plans as deemed necessary at that time.
The failure to correct a material Year 2000 problem could result in an
interruption or a failure of certain normal business activities or operations.
Such failures could materially and adversely affect the Company's results of
operations, liquidity and financial condition.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company's exposure to market risk for changes in interest rates relates to
the fair value of long-term fixed rate debt and the variability of interest
expense on variable rate debt. Generally, the fair market value of
fixed-interest rate debt will increase as interest rates fall and decrease as
interest rates rise. Based on the Company's overall interest rate exposure at
April 4, 1999, a 10 percent change in market interest rates would not have a
material effect on the fair value of the Company's long-term debt or results of
operations.
OTHER
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INFORMATION CONTAINED HEREIN, OTHER THAN HISTORICAL INFORMATION, SHOULD BE
CONSIDERED FORWARD-LOOKING AND IS SUBJECT TO VARIOUS RISK FACTORS AND
UNCERTAINTIES. FOR INSTANCE, THE COMPANY'S STRATEGIES AND OPERATIONS INVOLVE
RISKS OF COMPETITION, CHANGING MARKET CONDITIONS, CHANGES IN LAWS AND
REGULATIONS AFFECTING THE COMPANY'S INDUSTRIES AND NUMEROUS OTHER FACTORS
DISCUSSED IN THIS DOCUMENT AND IN OTHER COMPANY FILINGS WITH THE SECURITIES AND
EXCHANGE COMMISSION. ACCORDINGLY, ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
THOSE PROJECTED IN ANY FORWARD-LOOKING STATEMENTS CONTAINED HEREIN.
11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
------------------
On September 8, 1998, a Consolidated Amended Class Action Complaint
(the "Amended Complaint") was filed by the plaintiffs in the four
previously disclosed purported class action lawsuits (Weichman,
Goldman, Waldman and Cannold) pending against Olsten and certain of
its officers and directors (collectively, the "Class Action"). The
Amended Complaint asserts claims under Sections 10(b) (including
Rule 10b-5 promulgated thereunder), 14(a) and 20(a) of the
Securities Exchange Act of 1934 and Sections 11, 12(a)(2) and 15 of
the Securities Act of 1933. On October 19, 1998, the Company and the
individual defendants served a motion seeking an Order dismissing
the Amended Complaint; that motion was fully briefed on December 23,
1998. While the Company is unable at this time to assess the
probable outcome of the Class Action or the materiality of the risk
of loss in connection therewith (given the preliminary stage of the
Class Action and the fact that the Amended Complaint does not allege
damages with any specificity), the Company believes that it acted
responsibly with respect to its shareholders and has vigorously
defended the Class Action.
On or about May 11, 1999, a Complaint was served in a derivative
lawsuit, captioned Robert Rubin, et al. v. John M. May, et al., No.
17135-NC (Delaware Chancery Court), which was filed against the
following current and former directors of the Company: John M. May,
Raymond S. Troubh, Jo[sh] S. Weston, Victor F. Ganzi, Stuart R.
Levine, Frank N. Liguori, Miriam Olsten, Stuart Olsten and Richard
J. Sharoff. The Complaint, which names Olsten as a nominal
defendant, alleges a claim for breach of fiduciary duties arising
out of the Class Action referenced above and the Healthcare
Investigations defined and referenced in Item 5, below. Plaintiffs
seek a judgment (1) requiring the defendants to account to the
Company for unspecified alleged damages resulting from the
defendants' alleged conduct; (2) directing the defendants to
establish and maintain effective compliance programs; and (3)
awarding plaintiffs the costs and expenses of the lawsuit, including
reasonable attorneys' fees.
Item 5. Other Information.
------------------
GOVERNMENT INVESTIGATIONS. The Company's home health care business
is subject to extensive federal and state regulations which govern,
among other things, Medicare, Medicaid, CHAMPUS and other
government-funded reimbursement programs, reporting requirements,
certification and licensure standards for certain home health
agencies and, in some cases, certificate-of-need and
pharmacy-licensing requirements. The Company is also subject to a
variety of federal and state regulations which prohibit fraud and
abuse in the delivery of health care services, including, but not
limited to, prohibitions against the offering or making of direct or
indirect payments for the referral of patients. As part of the
extensive federal and state regulation of the Company's home health
care business, the Company is subject to periodic audits,
examinations and investigations conducted by or at the direction of
governmental investigatory and oversight agencies. Violation of the
applicable federal and state health care regulations can result in a
12
health care provider being excluded from participation in the
Medicare, Medicaid and/or CHAMPUS programs, and can subject the
provider to civil and/or criminal penalties.
The Company continues to cooperate with the previously disclosed
health care industry investigations being conducted by certain
governmental agencies (collectively, the "Healthcare
Investigations").
Among the Healthcare Investigations with which the Company continues
to cooperate is that being conducted into the Company's preparation
of Medicare cost reports by the Office of Investigations section of
the Office of Inspector General (an agency within the U.S.
Department of Health and Human Services) and the U.S. Department of
Justice (the "Cost Reports Investigation").
The Company also continues to cooperate with the U.S. Department of
Justice and other federal agencies investigating the relationship
between Columbia/HCA Healthcare Corporation and Olsten in connection
with the purchase, sale and operation of certain home health
agencies which had been owned by Columbia/HCA and managed under
contract by Olsten Health Management, a unit of Olsten Health
Services that provides management services to hospital-based home
health agencies (the "Columbia/HCA Investigation").
The Company continues to cooperate with various state and federal
agencies, including the U.S. Department of Justice, the Office of
the Attorney General of New Mexico and the New Mexico Health Care
Anti-Fraud Task Force in connection with their investigations into
certain healthcare practices of Quantum Health Resources
("Quantum"). Among the matters into which the federal agencies are
or were inquiring are allegations of improper billing and fraud
against various federally-funded medical assistance programs on the
part of Quantum and its post-acquisition successor, the Infusion
Therapy Services division of Olsten Health Services (the "Quantum
New Mexico Investigation"). Most of the time period that the Company
understands to be at issue in the Quantum New Mexico Investigation
predates the Company's June 1996 acquisition of Quantum.
In late March 1999, the Company reached an understanding with the
U.S. Department of Justice to settle the civil and criminal aspects
of the Cost Reports Investigation and the Columbia/HCA
Investigation. Pursuant to the proposed settlement, the consummation
of which is subject to the satisfaction of certain conditions,
including, among other things, the execution of formal settlement
documents, the Company has agreed to pay to the U.S. Department of
Justice the sum of $61 million, including approximately $10 million
in fines and penalties, and a subsidiary of the Company, Kimberly
Home Health Care, Inc., a Missouri corporation, has agreed, in
connection with the Columbia/HCA Investigation, to plead guilty to a
criminal violation of the federal mail fraud, conspiracy and
kickback statutes.
On January 28, 1999, the Company announced that it had been advised
by the United States Attorney's Office for the District of New
Mexico ("New Mexico U.S. Attorney's Office") that, in connection
with the Quantum New Mexico Investigation, it had dropped its
criminal investigation into certain past practices of Quantum. The
13
criminal aspect of the Quantum New Mexico Investigation had focused
on allegations of improper billing and fraud against various
federally funded medical assistance programs on the part of Quantum
during the period between January 1992 and April 1997. By letter
dated February 1, 1999, the New Mexico U.S. Attorney's Office
advised the Company that, having ended its criminal inquiry, the
Office has referred the Quantum matter to its Affirmative Civil
Enforcement ("ACE") Section. As it had done with the Criminal
Division of the New Mexico U.S. Attorney's Office, the Company
intends to cooperate fully with that Office's ACE Section in
connection with its civil inquiry into the Quantum matter that has
been referred to it. At this time, the Company is unable to predict
the ultimate outcome of the civil Quantum New Mexico Investigation.
On October 28, 1998, the Company announced that it had entered into
a final settlement agreement with several Government agencies
investigating certain past practices of Quantum. The agreement was
entered into with the U.S. Department of Justice; the Office of
Inspector General of the U.S. Department of Health and Human
Services; the U.S. Secretary of Defense (for the CHAMPUS/Tricare
program); and the Attorneys General for the States of New York and
Oklahoma. Pursuant to the settlement, the Company reimbursed the
government approximately $4.5 million for certain disputed claims
involving the provision of anti-hemophilia factor products to
patients covered by certain federal health care programs.
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed herewith:
Exhibit 10.1- Amendment No. 4, dated as of February 28, 1999, to
Credit Agreement, dated as of August 9, 1996, as
amended, among the Company, the Banks signatory
thereto and The Chase Manhattan Bank, as Agent,
covering $400 million credit facility.
Exhibit 10.2- Amendment No. 5, dated as of February 28, 1999, to
Credit Agreement, dated as of August 9, 1996, as
amended, among the Company, the Banks signatory
thereto and The Chase Manhattan Bank, as Agent,
covering $400 million credit facility.
Exhibit 10.3- Amendment No. 6, dated as of May 18, 1999, to
Credit Agreement, dated as of August 9, 1996, as
amended, among the Company, the Banks signatory
thereto and The Chase Manhattan Bank, as Agent,
covering $400 million credit facility.
Exhibit 10.4- Letter Agreement dated February 10, 1999 between
the Company and Edward A. Blechschmidt.
Exhibit 27 - Financial Data Schedule.
14
(b) Reports on Form 8-K.
(i) The Company filed a report on Form 8-K, dated March 30,
1999, reporting in Item 5, Other Events, that the Company
had released a press release dated March 30, 1999, which
was filed as an Exhibit thereto.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OLSTEN CORPORATION
(REGISTRANT)
Date: May 19, 1999 By: /s/ Edward A. Blechschmidt
-------------------------------------
Edward A. Blechschmidt
President and Chief Executive Officer
Date: May 19, 1999 By: /s/ Anthony J. Puglisi
-------------------------------------
Anthony J. Puglisi
Executive Vice President and
Chief Financial Officer
16
EXHIBIT INDEX
Exhibit 10.1- Amendment No. 4, dated as of February 28, 1999, to
Credit Agreement, dated as of August 9, 1996, as
amended, among the Company, the Banks signatory
thereto and The Chase Manhattan Bank, as Agent,
covering $400 million credit facility.
Exhibit 10.2- Amendment No. 5, dated as of February 28, 1999, to
Credit Agreement, dated as of August 9, 1996, as
amended, among the Company, the Banks signatory
thereto and The Chase Manhattan Bank, as Agent,
covering $400 million credit facility.
Exhibit 10.3- Amendment No. 6, dated as of May 18, 1999, to
Credit Agreement, dated as of August 9, 1996, as
amended, among the Company, the Banks signatory
thereto and The Chase Manhattan Bank, as Agent,
covering $400 million credit facility.
Exhibit 10.4- Letter Agreement dated February 10, 1999 between
the Company and Edward A. Blechschmidt.
Exhibit 27 - Financial Data Schedule.
17