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 March 31, 2002
Commission File No. 1-15669
Gentiva Health Services, Inc.
(Exact name of Registrant as specified in its charter)
DELAWARE 36-433-5801
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3 Huntington Quadrangle 2S, Melville, NY 11747-8943
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (631) 501-7000
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
The number of shares outstanding of the
Registrant's Common Stock, as of May 13,
2002 was 26,109,168.
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited) - March 31, 2002 and
December 30, 2001 3
Consolidated Statements of Operations (Unaudited) -
Three Months Ended March 31, 2002 and April 1, 2001 4
Consolidated Statements of Cash Flows (Unaudited) -
Three Months Ended March 31, 2002 and April 1, 2001 5
Notes to Consolidated Financial Statements (Unaudited) 6-13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14-20
Item 3. Quantitative and Qualitative Disclosures about Market Risk 20
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 21-23
Item 2. Changes in Securities and Use of Proceeds 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23-26
SIGNATURES 27
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Gentiva Health Services, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share amounts)
(Unaudited)
March 31, 2002 December 30, 2001
--------------------- ---------------------
ASSETS
Current assets:
Cash and cash equivalents $99,424 $71,999
Restricted cash 35,164 35,164
Receivables, less allowance for doubtful accounts of $88,920
and $88,155, respectively 360,965 368,196
Inventories 56,558 47,600
Prepaid expenses and other current assets 22,538 47,396
--------------------- ---------------------
Total current assets 574,649 570,355
Fixed assets, net 28,155 30,449
Goodwill, net 3,214 220,541
Other assets 17,733 16,989
--------------------- ---------------------
Total assets $623,751 $838,334
===================== =====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $83,306 $57,726
Accrued expenses 55,635 63,874
Payroll and related taxes 15,462 16,094
Insurance costs 35,048 31,460
--------------------- ---------------------
Total current liabilities 189,451 169,154
Other liabilities 18,444 47,473
Shareholders' equity:
Common stock, $.10 par value; authorized 100,000,000 shares; issued
and outstanding 26,022,847 and 25,638,794 shares, respectively 2,602 2,564
Additional paid-in capital 726,030 722,725
Accumulated deficit (312,776) (103,582)
--------------------- ---------------------
Total shareholders' equity 415,856 621,707
--------------------- ---------------------
Total liabilities and shareholders' equity $623,751 $838,334
===================== =====================
See notes to consolidated financial statements.
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Gentiva Health Services, Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
--------------------- --------------------
March 31, 2002 April 1, 2001
--------------------- --------------------
Net revenues $ 369,584 $ 357,178
Cost of services sold 252,874 240,748
--------------------- --------------------
Gross profit 116,710 116,430
Selling, general and administrative expenses 107,973 109,385
Interest expense (income), net (196) 433
--------------------- --------------------
Income before income taxes and cumulative
effect of accounting change 8,933 6,612
Income tax expense 800 500
--------------------- --------------------
Income before cumulative effect of accounting change $ 8,133 $ 6,112
Cumultive effect of accounting change (217,327) -
--------------------- --------------------
Net income (loss) $(209,194) $ 6,112
===================== ====================
Earnings per Share - Basic:
Income before cumulative effect of accounting change $ 0.31 $ 0.28
Cumulative effect of accounting change (8.41) -
--------------------- --------------------
Net income (loss) $(8.10) $ 0.28
===================== ====================
Earnings per Share - Diluted:
Income before cumulative effect of accounting change $ 0.30 $ 0.26
Cumulative effect of accounting change (8.02) -
--------------------- --------------------
Net income (loss) $(7.72) $ 0.26
===================== ====================
Average shares outstanding:
Basic 25,842 21,448
===================== ====================
Diluted 27,096 25,701
===================== ====================
See notes to consolidated financial statements.
-4-
Gentiva Health Services, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended
-----------------------------------------------------
March 31, 2002 April 1, 2001
-------------------------- ------------------------
OPERATING ACTIVITIES:
Net income (loss) $ (209,194) $ 6,112
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Cumulative effect of accounting change 217,327 -
Depreciation and amortization 3,578 6,990
Provision for doubtful accounts 8,275 9,200
Changes in assets and liabilities:
Accounts receivable (1,044) 2,612
Inventories (8,958) (150)
Prepaid expenses and other current assets (2,001) 1,416
Current liabilities 20,297 8,633
Other, net (2,955) (737)
-------------------------- ------------------------
Net cash provided by operating activities 25,325 34,076
-------------------------- ------------------------
INVESTING ACTIVITIES:
Purchase of fixed assets (1,243) (1,116)
-------------------------- ------------------------
Net cash used in investing activities (1,243) (1,116)
-------------------------- ------------------------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock 3,343 5,642
Decrease in book overdrafts - (10,379)
Advances from Medicare program - 20,878
-------------------------- ------------------------
Net cash provided by financing activities 3,343 16,141
-------------------------- ------------------------
Net increase in cash and cash equivalents 27,425 49,101
Cash and cash equivalents at beginning of period 71,999 452
-------------------------- ------------------------
Cash and cash equivalents at end of period $ 99,424 $ 49,553
========================== ========================
See notes to consolidated financial statements.
-5-
Gentiva Health Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
1. Accounting Policies
The accompanying interim consolidated financial statements are unaudited,
but have been prepared by Gentiva Health Services, Inc. (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 accounting principles generally accepted in the United States of
America.
2. Background and Basis of Presentation
On January 2, 2002, the Company entered into an asset purchase agreement
with Accredo Health, Incorporated ("Accredo") pursuant to which Accredo agreed
to acquire substantially all of the assets of the Company's Specialty
Pharmaceutical Services business for a purchase price of $415 million, subject
to adjustment in accordance with the asset purchase agreement. The consideration
is payable to the Company half in cash and half in shares of Accredo common
stock, provided that the average closing price of Accredo common stock for the
twenty days ending on the second day prior to the closing of this acquisition is
between $31 and $41 per share. If the average closing price of the Accredo
common stock is outside the range, the number of shares to be issued will be
fixed and the value of the stock consideration will fluctuate. The purchase
price is also subject to adjustment for changes in the net book value as of the
closing date. Based on the closing price of Accredo common stock as of May 13,
2002 ($55.98 per share) and assuming no adjustment for changes in net book
value, the consideration payable to the Company would approximate $491 million.
The sale of the Specialty Pharmaceutical Services business is conditioned
upon, among other things, regulatory approval, the approval of the shareholders
of each company and other customary conditions. Completion of the transaction is
expected in the second quarter of 2002. It is currently expected that following
the sale of the Specialty Pharmaceutical Services business, the Company will
distribute substantially all of the proceeds to its shareholders.
Results for the first quarter of fiscal 2002 included transaction related
costs of approximately $3 million relating to the pending sale of the Specialty
Pharmaceutical Services business, consisting primarily of professional services
fees, which were reflected in selling,
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general and administrative expenses in the accompanying consolidated statement
of operations.
The Specialty Pharmaceutical Services business will be treated as a
discontinued operation following the date on which shareholders approve the
transaction. Subsequent to the closing date of the transaction, the Company
intends to operate in the home health services business.
3. Earnings per Share
Basic net income (loss) per share for each period presented has been
computed by dividing net income (loss) by the weighted average number of shares
outstanding for each respective period. Diluted net income (loss) per share for
each period presented has been computed using the weighted average number of
common and dilutive common equivalent shares outstanding.
During the first quarter of fiscal 2002, the weighted average number of
shares outstanding was 25,842,000. Dilutive common equivalent shares included an
incremental 1,254,000 shares for the first quarter that would be issued upon the
assumed exercise of 1,948,000 stock options under the treasury stock method.
Basic net income per share for the first quarter of fiscal 2001 has been
computed using the weighted average number of shares outstanding (21,448,000).
Dilutive common equivalent shares represented (i) 2,107,000 shares that would be
issued upon the assumed exercise of approximately 3.8 million stock options
under the treasury stock method and (ii) 2,146,000 shares that would be issued
upon the assumed conversion of the 10 percent convertible preferred trust
securities at a conversion price of $9.32 per share.
4. Goodwill and Other Intangible Assets
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), which broadens the
criteria for recording intangible assets separate from goodwill. SFAS 142
requires the use of a nonamortization approach to account for purchased goodwill
and certain intangibles. Under a nonamortization approach, goodwill and certain
intangibles are not amortized into results of operations, but instead are
reviewed for impairment and an impairment charge is recorded in the periods in
which the recorded carrying value of goodwill and certain intangibles is more
than its estimated fair value. The Company adopted SFAS 142 as of the beginning
of fiscal 2002. The provisions of SFAS 142 require that a transitional
impairment test be performed as of the beginning of the year the statement is
adopted. The provisions of SFAS 142 also require that a goodwill impairment test
be performed annually or in the case of other events that indicate a potential
impairment. The new criteria for recording intangible assets separate from
goodwill did not require any reclassification in the Company's financial
statements.
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At December 30, 2001, the Company had goodwill of $220.5 million, of which
$217.3 million related to the Home Health Services business and $3.2 million
related to the Specialty Pharmaceutical Services business. The Company's
transitional impairment test indicated that there was an impairment of goodwill
relating to the Home Health Services business upon adoption of SFAS 142 as
further described below.
The impairment test is a two step process that begins with the estimation
of the fair value of each reporting unit. The first step screens for potential
impairment and the second step measures the amount of the impairment. The
estimate of fair value of the Home Health Services business as of the beginning
of fiscal 2002 considered publicly available information as well as financial
projections and estimates prepared by outside advisors, and was determined by
subtracting the agreed-upon purchase price for the Specialty Pharmaceutical
Services business from the market capitalization of the Company. As part of the
first step to assess potential impairment, management compared the estimate of
fair value for the Home Health Services business to the book value of the
business unit's net assets. Since the book value of Home Health Services' net
assets was greater than its estimated fair value, management proceeded to the
second step to measure the impairment. The second step compares the implied fair
value of goodwill with its carrying value. The implied fair value of goodwill is
determined by allocating the fair value of the reporting unit to all of the
assets and liabilities of that unit as if the reporting unit had been acquired
in a business combination and the fair value of the reporting unit was the
purchase price paid to acquire the reporting unit. The excess of the fair value
of the reporting unit over the amounts assigned to its assets and liabilities is
the implied fair value of goodwill. If the carrying amount of the reporting
unit's goodwill is greater than its implied fair value, an impairment loss will
be recognized in the amount of the excess.
Based on the results of the transitional impairment tests, the Company
determined that an impairment loss relating to goodwill had occurred and
recorded a non-cash charge of $217.3 million as cumulative effect of accounting
change in the accompanying consolidated statement of operations for the three
months ended March 31, 2002. The Company recorded a deferred tax benefit of
approximately $66 million resulting from this non-cash charge, however, because
of the uncertainty of the ultimate realization of the deferred tax asset, the
Company increased its valuation allowance by the same amount.
The table below presents a reconciliation of reported net income to
adjusted net income as if the SFAS 142 was adopted as of the beginning of fiscal
2001 (in 000's, except per share amounts).
Three Months Ended
--------------------------------------------------
April 2, 2001
--------------------------------------------------
Earnings per Share
--------------------------------
Net Income Basic Diluted
-------------- --------------- --------------
Reported net income $ 6,112 $ 0.28 $ 0.26
Add back: Goodwill amortization 2,653 0.13 0.10
-------------- --------------- --------------
Adjusted net income $ 8,765 $ 0.41 $ 0.36
============== =============== ==============
5. Current Liabilities
-8-
In early 2001, the Center for Medicare and Medicaid Services, formerly
known as the Health Care Financing Administration, issued cash advances to
certain Medicare providers in connection with the transition from the Interim
Payment System to the Prospective Payment System (PPS) for Medicare
reimbursement. Such advances are expected to be repaid during the second quarter
of fiscal 2002. In the first quarter of fiscal 2001, the Company received such
an advance, net of payments for estimated settlements relating to cost report
filings, of approximately $20.9 million, which is reflected in accrued expenses
in the accompanying consolidated balance sheets as of March 31, 2002 and
December 30, 2001.
6. Restricted Cash and Revolving Credit Facility
As of March 31, 2002, there were no outstanding borrowings, and total
outstanding letters of credit approximated $25.7 million under the Company's
$150 million amended revolving credit facility. The credit facility, which
expires in 2004, includes certain covenants requiring the Company to maintain a
minimum tangible net worth and minimum earnings before interest, taxes,
depreciation and amortization. Other covenants in the credit facility include
limitation on mergers, consolidation, acquisitions, indebtedness, liens, capital
expenditures and dispositions of assets and other limitation with respect to the
Company's operations. Certain of these covenants would be violated if the
Company does not negotiate a new credit facility or receive a consent from its
lenders in connection with the sale of the Specialty Pharmaceutical Services
business. The Company's obligations under the credit facility are collateralized
by all of the Company's tangible and intangible personal property, and other
equipment. The Company was in compliance with the financial covenants under the
credit facility at March 31, 2002.
In June 2001, the Company's credit facility was amended to increase the
portion of the facility available for letters of credit from $30 million to
either (i) $40 million or (ii) $70 million in the event that the Company elects
to post a letter of credit in lieu of an appellate bond for all or a part of the
total amount of the judgment (including interest) in the Fredrickson v. Olsten
Health Services Corp. and Olsten Corporation case while the Company pursues its
appeal of the judgment as further discussed in Note 8. A supersedeas bond in the
amount of $35.2 million was posted to satisfy the judgment plus interest. Under
the terms of the bond, cash equal to the amount of the bond is held in a
segregated account and is reported as restricted cash in the accompanying
consolidated balance sheets as of March 31, 2002 and December 30, 2001.
7. Shareholders' Equity
Changes in shareholders' equity during the three months ended March 31,
2002 were as follows (in thousands):
-9-
Common Additional Paid- Accumulated
Stock in Capital Deficit Total
--------------- ---------------- ----------------- -----------------
Balance at December 30, 2001 $ 2,564 $ 722,725 $ (103,582) $ 621,707
Comprehensive loss:
Net loss (209,194) (209,194)
Issuance of stock upon exercise of
stock options and under stock plans
for employees and directors 38 3,305 - 3,343
------------ ------------ --------------- -------------
Balance at March 31, 2002 $ 2,602 $ 726,030 $ (312,776) $ $415,856
============ ============ =============== =============
Comprehensive loss amounted to $209.2 million during the first quarter of fiscal
2002 and comprehensive income was $5.5 million for the first quarter of fiscal
2001.
8. Legal Matters
Litigation
In addition to the matters referenced below, the Company is party to
certain legal actions arising in the ordinary course of business including legal
actions arising out of services rendered by its various operations, personal
injury and employment disputes.
Fredrickson v. Olsten Health Services Corp. and Olsten Corporation, Case
No. 01C.A.116, Court of Appeals, Seventh Appellate District, Mahoning County,
Ohio. In November, 2000, the jury in this age-discrimination lawsuit returned a
verdict in favor of the plaintiff against Olsten consisting of $675,000 in
compensatory damages, $30 million in punitive damages and an undetermined amount
of attorneys' fees. The jury found that, although Olsten had lawfully terminated
the plaintiff's employment, its failure to transfer or rehire the plaintiff
rendered Olsten liable to the plaintiff. Following post-trial motion practice by
both parties, the trial court, in May 2001, denied all post-trial motions, and
entered judgment for the plaintiff for the full amount of compensatory and
punitive damages, and awarded the plaintiff reduced attorney's fees of $247,938.
In June 2001, defendants timely filed a Notice of Appeal with the Court of
Appeals, and the Company posted a supersedeas bond for the full amount of the
judgment, plus interest. The parties to the appeal have filed all briefs and the
briefing period is completed. Oral arguments have not been scheduled. The
Company continues to defend itself in this matter vigorously. At this stage of
the proceedings, the Company is unable to assess the probable outcome of the
appeal.
Cooper v. Gentiva CareCentrix, Inc., t/a/d/b/a Gentiva Health Services,
U.S. District Court (W.D. Penn), Civil Action No. 01-0508. On January 2, 2002,
this Amended Complaint was served on the Company alleging that the defendant
submitted false claims to the government for payment in violation of the Federal
False Claims Act, 31 U.S.C. 3729 et seq, and that the defendant had wrongfully
terminated Plaintiff. Plaintiff claims that infusion pumps delivered to patients
did not supply the full amount of medication, allegedly resulting in substandard
care. Based on a review of the court's docket sheet, plaintiff filed a complaint
under seal in March 2001. In October 2001, the United States Government filed a
Notice with the
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court declining to intervene in this matter, and on October 24, 2001, the court
ordered that the seal be lifted. The Company filed its responsive pleading on
February 25, 2002 and discovery has now commenced. The Company has denied the
allegations of wrongdoing in the complaint and intends to defend itself
vigorously in this matter. Given the preliminary stage of the proceedings, the
Company is unable to assess the probable outcome or potential liability, if any,
arising from this matter; therefore, a range of damages, if any, cannot be
determined.
United States of America ex rel. Lee Einer v. Olsten Corporation, No.
CIV-S-99-0860 DFL/DAD, U.S. District Court for the Eastern District of
California. On November 1, 2001, the Company received notice of the entry of an
Order dated October 25, 2001, unsealing the referenced complaint. As recited in
the Order unsealing the complaint, the United States gave notice to the District
Court that the United States was declining to intervene in the action. The
Company believes that it was this complaint that gave rise to a document
subpoena served on the Company in December 1999 from the Department of Health
and Human Services, Office of Inspector General, and Office of Investigations.
The Company acknowledged service of the complaint on November 29, 2001 and
timely filed responsive pleadings to the Complaint. The Company is engaged in
discovery and intends to defend itself vigorously in this matter. Given the
preliminary stage of the proceedings, the Company is unable to assess the
probable outcome or potential liability, if any, arising from this matter;
therefore, a range of damages, if any, cannot be determined.
In 1999, Kimberly Home Health Care, Inc. ("Kimberly"), one of the Company's
subsidiaries, initiated three arbitration proceedings against hospitals owned by
Columbia/HCA Healthcare Corp. ("Columbia/HCA") with which Kimberly had
management services agreements to provide services to the hospitals' home health
agencies. The basis for each of the arbitrations is that Columbia/ HCA sold the
home health agencies without assigning the management services agreements and,
as a result, Columbia/HCA has breached the management services agreements. In
response to the arbitrations, Columbia/HCA has asserted that the arbitrations be
consolidated and stayed, in part based upon its alleged claims against Kimberly
for breach of contract, and requested indemnity and possibly return of
management fees. Columbia/HCA has not yet formally presented these claims in the
arbitrations or other legal proceedings and has not yet quantified the claims.
Still pending before the arbitrators is Columbia/HCA's request to consolidate
the proceedings, which Kimberly has opposed. The proceedings are currently in
abeyance pending ruling on Columbia/HCA's motion to consolidate. The Company is
the claimant in this matter and the defendant has not formally asserted any
counterclaims against the Company in the arbitration, nor has the defendant made
any formal demand on the Company. The Company is unable to assess the liability
or losses, if any, attributable to the threatened counterclaims.
Furthermore, in connection with the Company's split off from Olsten
Corporation on March 15, 2000 (the "Split-Off"), the Company agreed to assume,
to the extent permitted by law, the liabilities, if any, arising out of (and to
indemnify Olsten for) the above proceedings and other liabilities arising out of
the health services business, including any such liabilities arising after the
Split-Off in connection with the government investigations described below. In
addition, in connection with the sale of the Specialty Pharmaceutical Services
business, the
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Company has agreed to retain and indemnify Accredo for the specified liabilities
including the litigation described above and the government investigation
described below.
Government Investigations
In early February 2000, the Company received a document subpoena from the
Department of Health and Human Services, Office of Inspector General, and Office
of Investigations. The Company believes the subpoena relates to its agencies'
cost reporting procedures concerning contracted nursing and home health aide
costs. To the Company's knowledge, the government has not filed a complaint
against the Company, nor has the government quantified the amount of alleged
damages relating to this matter. Recently, the government has asserted that this
matter could fall under the Federal False Claims Act (the "Act"), and if
liability is found under the Act, the government would be able to assess double
or treble damages against the Company. The Company disputes the government's
assertions, but continues to cooperate with the government in its investigation
of this matter and to provide the government with the requested documents. At
this time, the Company is unable to assess the probable outcome or potential
liability, if any, arising from this subpoena.
9. Business Segment Information
The Company operates in the United States servicing patients and customers
through the following business segments: Specialty Pharmaceutical Services and
Home Health Services. These segments are briefly described below.
Specialty Pharmaceutical Services includes (i) the distribution of drugs
and other biological and pharmaceutical products and professional support
services for individuals with chronic diseases, such as hemophilia, primary
pulmonary hypertension, autoimmune deficiencies and growth disorders, (ii) the
administration of antibiotics, chemotherapy, nutrients and other medications for
patients with acute or episodic disease states, (iii) distribution services for
pharmaceutical, biotechnology and medical service firms and (iv) clinical
support services for pharmaceutical and biotechnology firms.
Home Health Services includes (i) professional and paraprofessional
services, including skilled nursing, rehabilitation and other therapies, home
health aide and personal care services to individuals with acute illnesses,
long-term chronic health conditions, permanent disabilities, terminal illnesses
or post-procedural needs and (ii) care management and coordination for managed
care organizations and self-insured employees.
The Company and its chief decision makers evaluate performance and allocate
resources based on operating contributions of the reportable segments, which
exclude corporate expenses, depreciation, amortization and interest expense, but
include revenues and all other costs directly attributable to the specific
segment. Intersegment revenues represent Specialty Pharmaceutical Services
segment revenues generated from services provided to the Home Health Services
segment. Identifiable assets of the segments reflect net accounts receivable and
inventories associated with segment activities. All other assets are assigned to
the Company for the benefit of all segments.
-12-
Information about the Company's operations is as follows (in thousands):
Specialty
Pharmaceutical Home Health
Services Services Total
------------------------------------------------------
Three months ended March 31, 2002
Net revenues - segments $ 200,468 $ 192,799 $ 393,267
===================== ===============
Intersegment revenues (23,683)
---------------
Net revenues $ 369,584
===============
Operating contribution $ 17,467 $ 15,481 $ 32,948
===================== ===============
Corporate expenses (20,633)
---------------
Earnings before interest expense, taxes,
depreciation and amortization 12,315
Depreciation and amortization (3,578)
Interest income, net 196
---------------
Income before income taxes and
cumulative effect of accounting change $ 8,933
===============
Segment assets $ 294,712 $ 133,642 $ 428,354
===================== ===============
Intersegment assets (10,831)
---------------
Segment assets, net 417,523
Corporate assets 206,228
---------------
Total assets $ 623,751
===============
Three months ended April 1, 2001
Net revenues - segments $ 195,887 $ 185,617 $ 381,504
===================== ===============
Intersegment revenues (24,326)
---------------
Net revenues $ 357,178
===============
Operating contribution $ 16,847 $ 14,780 $ 31,627
===================== ===============
Corporate expenses (17,592)
---------------
Earnings before interest expense, taxes,
depreciation and amortization 14,035
Depreciation and amortization (6,990)
Interest expense, net (433)
---------------
Income before income taxes $ 6,612
===============
Segment assets $ 302,364 $ 173,877 $ 476,241
===================== ===============
Intersegment assets (17,614)
---------------
Segment assets, net 458,627
Corporate assets 376,215
---------------
Total assets $ 834,842
===============
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
The Company's results of operations are impacted by various regulations and
other matters that are implemented from time to time in its industry, some of
which are described in the Company's Annual Report on Form 10-K, as amended, for
the fiscal year ended December 30, 2001.
Significant Developments
On January 2, 2002, the Company entered into an asset purchase agreement
with Accredo Health, Incorporated ("Accredo") pursuant to which Accredo agreed
to acquire substantially all of the assets of the Company's Specialty
Pharmaceutical Services business for a purchase price of $415 million, subject
to adjustment in accordance with the asset purchase agreement. The consideration
is payable to the Company half in cash and half in shares of Accredo common
stock, provided that the average closing price of Accredo common stock for the
twenty days ending on the second day prior to the closing of this acquisition is
between $31 and $41 per share. If the average closing price of the Accredo
common stock is outside the range, the number of shares to be issued will be
fixed and the value of the stock consideration will fluctuate. The purchase
price is also subject to adjustment for changes in the net book value as of the
closing date. Based on the closing price of Accredo common stock as of May 13,
2002 ($55.98 per share) and assuming no adjustment for changes in net book
value, the consideration payable to the Company would approximate $491 million.
The sale of the Specialty Pharmaceutical Services business is conditioned
upon, among other things, regulatory approval, the approval of the shareholders
of each company and other customary conditions. Completion of the transaction is
expected in the second quarter of 2002. It is currently expected that following
the sale of the Specialty Pharmaceutical Services business, the Company will
distribute substantially all of the proceeds to its shareholders.
Results for the first quarter of fiscal 2002 included transaction related
costs of approximately $3 million relating to the pending sale of the Specialty
Pharmaceutical Services business, consisting primarily of professional services
fees, which were reflected in selling, general and administrative expenses in
the accompanying consolidated statement of operations.
The Specialty Pharmaceutical Services business will be treated as a
discontinued operation following the date on which shareholders approve the
transaction. Subsequent to the closing date of the transaction, the Company
intends to operate in the home health services business.
-14-
Critical Accounting Policies
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions and select accounting policies that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
These accounting policies have been described in our 2001 Annual Report on
Form 10-K, as amended, with the following accounting policy adopted effective
December 31, 2001.
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), which broadens the
criteria for recording intangible assets separate from goodwill. SFAS 142
requires the use of a nonamortization approach to account for purchased goodwill
and certain intangibles. Under a nonamortization approach, goodwill and certain
intangibles are not amortized into results of operations, but instead are
reviewed for impairment and an impairment charge is recorded in the periods in
which the recorded carrying value of goodwill and certain intangibles is more
than its estimated fair value. The Company adopted SFAS 142 as of the beginning
of fiscal 2002. The provisions of SFAS 142 require that a transitional
impairment test be performed as of the beginning of the year the statement is
adopted. The provisions of SFAS 142 also require that a goodwill impairment test
be performed annually or in the case of other events that indicate a potential
impairment. The new criteria for recording intangible assets separate from
goodwill did not require any reclassification in the Company's financial
statements.
At December 30, 2001, the Company had goodwill, of $220.5 million, of which
$217.3 million related to the Home Health Services business and $3.2 million
related to the Specialty Pharmaceutical Services business. The Company's
transitional impairment test indicated that there was an impairment of goodwill
relating to the Home Health Services business upon adoption of SFAS 142 as
further described below.
The impairment test is a two step process that begins with the estimation
of the fair value of each reporting unit. The first step screens for potential
impairment and the second step measures the amount of the impairment. The
estimate of fair value of the Home Health Services business as of the beginning
of fiscal 2002 considered publicly available information as well as financial
projections and estimates prepared by outside advisors, and was determined by
subtracting the agreed-upon purchase price for the Specialty Pharmaceutical
Services business from the market capitalization of the Company. As part of the
first step to assess potential impairment, management compared the estimate of
fair value for the Home Health Services business to the book value of the
business unit's net assets. Since the book value of Home Health Services' net
assets was greater than its estimated fair value, management proceeded to the
second step to measure the impairment. The second step compares the implied fair
value of goodwill with its carrying value. The implied fair value of goodwill is
-15-
determined by allocating the fair value of the reporting unit to all of the
assets and liabilities of that unit as if the reporting unit had been acquired
in a business combination and the fair value of the reporting unit was the
purchase price paid to acquire the reporting unit. The excess of the fair value
of the reporting unit over the amounts assigned to its assets and liabilities is
the implied fair value of goodwill. If the carrying amount of the reporting
unit's goodwill is greater than its implied fair value, an impairment loss will
be recognized in the amount of the excess.
Based on the results of the transitional impairment tests, the Company
determined that an impairment loss relating to goodwill had occurred and
recorded a non-cash charge of $217.3 million as cumulative effect of accounting
change in the accompanying consolidated statement of operations for the three
months ended March 31, 2002. The Company recorded a deferred tax benefit of
approximately $66 million resulting from this non-cash charge, however, because
of the uncertainty of the ultimate realization of the deferred tax asset, the
Company increased its tax valuation allowance by the same amount.
The table below presents a reconciliation of reported net income to
adjusted net income as if the SFAS 142 was adopted as of the beginning of fiscal
2001 (in 000's, except per share amounts).
Three Months Ended
--------------------------------------------------
April 2, 2001
--------------------------------------------------
Earnings per Share
--------------------------------
Net Income Basic Diluted
-------------- --------------- --------------
Reported net income $ 6,112 $ 0.28 $ 0.26
Add back: Goodwill amortization 2,653 0.13 0.10
-------------- --------------- --------------
Adjusted net income $ 8,765 $ 0.41 $ 0.36
============== =============== ==============
Results of Operations
Quarter Ended March 31, 2002 Compared to Quarter Ended April 1, 2001
Revenues
Net revenues increased by $12 million or 3.5 percent to $370 million during
the first quarter of fiscal 2002 as compared to the first quarter of fiscal
2001, primarily due to a $7 million or 3.9 percent increase in Home Health
Services revenue and a $5 million or 2.3 percent increase in the Specialty
Pharmaceutical Services revenue.
The increase in Home Health Services revenue during the first quarter of
fiscal 2002 was attributable to a combination of increased rates to commercial
and government payors and an increase in the number of Preferred Provider
Organization enrollees served by the Company's CareCentrix unit offset by a
decrease in revenue of approximately $1 million relating to estimated third
party settlements.
During the first quarter of fiscal 2002, the Company experienced unit
volume increases in several core chronic therapies in the Specialty
Pharmaceutical Services segment.
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These therapies included (i) coagulation therapy, used in the treatment of
hemophilia, which increased by 3.5 percent, (ii) Flolan, an intravenous therapy,
and Tracleer, an oral medication, both used in the treatment of pulmonary
arterial hypertension, which increased by a combined 10.0 percent, (iii)
intravenous immune globulin (IVIG), used in the treatment of primary immune
deficiency and other diagnoses which increased by 36.7 percent and, (iv) growth
hormone, used in the treatment of growth hormone disorder, which increased by
17.0 percent. Revenue relating to acute infusion products decreased by 6.8
percent due to management's decision to terminate certain contracts in an effort
to improve revenue quality and cash flow. Due to significant purchases by
wholesale customers early in 2001 revenue relating to Oxandrin, an oral
pharmaceutical for involuntary weight loss, decreased by 30.2 percent during the
first quarter of fiscal 2002 as compared to the corresponding period of fiscal
2001.
Gross Profit
Gross Profit was approximately $117 million in the first quarter of fiscal
2002 and $116 million in the first quarter of fiscal 2001. As a percentage of
net revenue, gross profit margins decreased from 32.6 percent in the fiscal 2001
first quarter to 31.6 percent in the first quarter of fiscal 2002. The decrease
in margin was primarily related to the home health services business and was
attributable to revenue adjustments relating to estimated third party
settlements (0.3 percent of net revenues) as well as various other factors,
including increased insurance and labor costs, training costs associated with
the orientation of additional full-time caregivers and changes in business mix
resulting from revenue growth in lower margin product lines.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased to $108 million
during the first quarter of fiscal 2002 as compared to $109 million during the
first quarter of fiscal 2001 due to decreases resulting from the elimination of
goodwill amortization expense of $3 million and a reduction in field
administration costs relating to the Home Health Services business of $1
million, offset by an increase of $3 million, representing transaction related
costs, primarily consisting of professional fees, relating to the pending sale
of the Specialty Pharmaceutical Services business to Accredo.
Interest Income (Expense), Net
Net interest income was approximately $0.2 million in the first quarter of
fiscal 2002 and net interest expense was approximately $0.4 million in the first
quarter of fiscal 2001. Net interest income for the first quarter of fiscal 2002
represented interest income of approximately $0.6 million, offset by fees
relating to the revolving credit facility and outstanding letters of credit.
Income Taxes
Income tax expense for the first quarter of fiscal 2002 consisted primarily
of taxes relating to certain state jurisdictions. The Company had estimated net
operating loss carryforwards (NOLs) of approximately $90 million as of December
30, 2001. Because of the uncer-
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tainty of ultimate realization of the net deferred tax asset, the Company has
established a valuation allowance for the deferred tax asset that is not
otherwise used to offset deferred tax liabilities. The Company expects to fully
utilize its NOLs to offset a portion of the gain expected to be recorded in
connection with the sale of the Specialty Pharmaceutical Services business.
Liquidity and Capital Resources
Working capital at March 31, 2002, was $385 million, a decrease of $16
million as compared to $401 million at December 30, 2001, primarily due to the
$25 million decrease in prepaid expenses and other assets relating to an
increase in valuation allowance for deferred tax assets as further described in
Note 4, offset by a $9 million increase in inventory related to increased
purchases to take advantage of favorable pricing. Net receivables decreased by
$7 million in the first quarter of fiscal 2002 as a result of improved cash
collections in both the Specialty Pharmaceutical Services and Home Health
Services business. Days Sales Outstanding ("DSO") was 94 days at December 30,
2001. DSO was reduced by 5 days to 89 days at March 31, 2002, as a result of
continued improved cash collections.
Cash and cash equivalents increased by approximately $27 million as of
March 31, 2002, as compared to December 30, 2001, as a result of (i) cash flow
from operations of approximately $25 million, (ii) proceeds from the exercise of
stock options of approximately $3 million, offset somewhat by capital
expenditures of approximately $1 million. In early 2001, the Center for Medicare
and Medicaid Services, formerly known as the Health Care Financing
Administration, issued cash advances to certain Medicare providers in connection
with the transition from the IPS to the PPS for Medicare reimbursement. Such
advances are expected to be repaid during the second quarter of fiscal 2002. In
the first quarter of fiscal 2001, the Company received a cash advance relating
to the transition to PPS, net of payments for estimated settlements relating to
cost report filings, of approximately $21 million, which was reflected in
accrued expenses in the accompanying consolidated balance sheet as of March 31,
2002.
The Company maintains a credit facility, which provides for up to $150
million in borrowings. The Company may borrow up to a maximum of 80 percent of
eligible accounts receivable, as defined. At the Company's option, the interest
rate on borrowings under the credit facility is based on the London Interbank
Offered Rate (LIBOR) plus 2.5 percent or the lender's prime rate plus 0.25
percent. As of March 31, 2002, there were no borrowings outstanding under the
credit facility and total outstanding letters of credit approximated $25.7
million. The Company is subject to an unused line fee equal to 0.375 percent per
annum of the average daily difference between $150 million and the total
outstanding borrowings and letters of credit. In addition, the Company must pay
a fee equal to 2.25 percent per annum of the aggregate face amount of
outstanding standby letters of credit.
The credit facility, which expires in 2004, includes certain covenants
requiring the Company to maintain a minimum tangible net worth and minimum
earnings before interest, taxes, depreciation and amortization. Other covenants
in the credit facility include limitation on mergers, consolidations,
acquisitions, indebtedness, liens, capital expenditures and dispositions of
assets and other limitations with respect to the Company's operations. Certain
of
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these covenants would be violated if the Company does not negotiate a new credit
facility or receive a consent from its lenders in connection with the sale of
the Specialty Pharmaceutical Services business. The Company's obligations under
the credit facility are collateralized by all of the Company's tangible and
intangible personal property, and other equipment. As of March 31, 2002, the
Company was in compliance with its financial covenants and had borrowing
capacity under the credit facility, after adjusting for outstanding letters of
credit, of approximately $124 million.
In June 2001, the Company's credit facility was amended to increase the
portion of the facility available for letters of credit from $30 million to
either (i) $40 million or (ii) $70 million in the event that the Company elects
to post a letter of credit in lieu of an appellate bond for all or a part of the
total amount of the judgment plus interest in the Fredrickson v. Olsten Health
Services Corp. and Olsten Corporation case while the Company pursues its appeal
of the judgment as further discussed in Note 8. A supersedeas bond in the amount
of $35 million was posted to satisfy the judgment (including interest). Under
the terms of the bond, cash equal to the amount of the bond is held in a
segregated account and is reported as restricted cash in the accompanying
consolidated balance sheets.
As described in Note 8 to the Company's Consolidated Financial Statements,
the Company has pending litigation and a government investigation. At this time,
the Company is unable to assess the probable outcome of some of these matters
and an unfavorable resolution of any of these matters could have a material
adverse affect on the Company. In particular, in connection with the Fredrickson
case, if a final non-appealable offer is rendered against the Company consistent
with the lower court's ruling, the Company could be required to pay a full $35
million judgment plus additional accrued interest. Any resolution of this matter
(by settlement or final non-appealable court order) could have a material
adverse effect on the Company's results of operations, cash flows and financial
condition.
As a result of the pending sale of the Specialty Pharmaceutical Services
business, the Company commenced discussions with its existing administrative
agent for an underwriting of a new credit facility which would provide for
borrowing capacity of a minimum of $55 million and a new four year term with,
conditions and covenants substantially similar to its existing facility. In
April 2002, the Company received a commitment letter from the administration
agent to underwrite the new revolving credit agreement. The Company expects the
new credit facility to be established at or prior to the consummation date of
the sale of the Specialty Pharmaceutical Services business.
Although the Company had cash and cash equivalents, including restricted
cash, of $134.6 million at March 31, 2002, $20.9 million represented cash
advances from the Medicare program which are expected to be repaid by the
Company during second quarter of 2002, approximately $14 million is expected to
be paid upon closing of the sale of the Specialty Pharmaceutical Services
business as transaction costs (including advisor fees and payments under change
in control agreements and severance arrangements), approximately $9 million may
be required to cover a portion of the corporate taxes resulting from the receipt
of consideration from the sale of the Specialty Pharmaceutical Services business
and up to $25 million is intended to be used in connection with a cash tender
offer to purchase and cancel all of the Company's vested stock options which
will commence prior to the closing of the sale of the
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Specialty Pharmaceutical Services business. These cash outflows could be offset
somewhat by cash flow generated from operations during the year. The Company
expects to have a balance of cash and cash equivalents, including restricted
cash, in excess of $70 million following the distribution to stockholders of the
consideration to be received from Accredo Health, Incorporated upon the sale of
the Specialty Pharmaceutical Services business.
Management believes cash flows from operations, existing cash and cash
equivalent balances, borrowings available under the credit facility and other
financing options will be adequate to support the Company's operating
requirements both before and after the disposition of the Specialty
Pharmaceutical Services business. In this connection, income before the
cumulative effect of accounting change would have been significantly less in the
first quarter of 2002 if the results of operations for the Specialty
Pharmaceutical Services business were excluded and prior to any change in
corporate and other administrative expenses. The Company is currently evaluating
alternative realignment and consolidation initiatives in an effort to achieve
cost savings and increased profitability following the sale of the Specialty
Pharmaceutical Services business. However, there can be no assurance that such
cost savings and increased profitability will be achieved.
The Company intends to make investments and other expenditures to, among
other things, upgrade its computer technology and system infrastructure and
comply with regulatory changes in the industry. If cash flows from operations or
availability under the credit facility fall below expectations, the Company may
be forced to delay planned capital expenditures, reduce operating expenses, seek
additional financing or consider alternatives designed to enhance liquidity.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Generally, the fair market value of fixed rate debt will increase as
interest rates fall and decrease as interest rates rise. The Company had no
interest rate exposure on fixed rate debt at March 31, 2002.
OTHER:
INFORMATION CONTAINED HEREIN, OTHER THAN HISTORICAL INFORMATION, SHOULD BE
CONSIDERED FORWARD-LOOKING AND IS SUBJECT TO VARIOUS RISKS 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
EXPRESSED IN ANY FORWARD-LOOKING STATEMENTS CONTAINED HEREIN.
-20-
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Litigation
In addition to the matters referenced below, the Company is party to
certain legal actions arising in the ordinary course of business including legal
actions arising out of services rendered by its various operations, personal
injury and employment disputes.
Fredrickson v. Olsten Health Services Corp. and Olsten Corporation, Case
No. 01C.A.116, Court of Appeals, Seventh Appellate District, Mahoning County,
Ohio. In November, 2000, the jury in this age-discrimination lawsuit returned a
verdict in favor of the plaintiff against Olsten consisting of $675,000 in
compensatory damages, $30 million in punitive damages and an undetermined amount
of attorneys' fees. The jury found that, although Olsten had lawfully terminated
the plaintiff's employment, its failure to transfer or rehire the plaintiff
rendered Olsten liable to the plaintiff. Following post-trial motion practice by
both parties, the trial court, in May 2001, denied all post-trial motions, and
entered judgment for the plaintiff for the full amount of compensatory and
punitive damages, and awarded the plaintiff reduced attorney's fees of $247,938.
In June 2001, defendants timely filed a Notice of Appeal with the Court of
Appeals, and the Company posted a supersedeas bond for the full amount of the
judgment, plus interest. The parties to the appeal have filed all briefs and the
briefing period is completed. Oral arguments have not been scheduled. The
Company continues to defend itself in this matter vigorously. At this stage of
the proceedings, the Company is unable to assess the probable outcome of the
appeal.
Cooper v. Gentiva CareCentrix, Inc., t/a/d/b/a Gentiva Health Services,
U.S. District Court (W.D. Penn), Civil Action No. 01-0508. On January 2, 2002,
this Amended Complaint was served on the Company alleging that the defendant
submitted false claims to the government for payment in violation of the Federal
False Claims Act, 31 U.S.C. 3729 et seq, and that the defendant had wrongfully
terminated Plaintiff. Plaintiff claims that infusion pumps delivered to patients
did not supply the full amount of medication, allegedly resulting in substandard
care. Based on a review of the court's docket sheet, plaintiff filed a complaint
under seal in March 2001. In October 2001, the United States Government filed a
Notice with the court declining to intervene in this matter, and on October 24,
2001, the court ordered that the seal be lifted. The Company filed its
responsive pleading on February 25, 2002 and discovery has now commenced. The
Company has denied the allegations of wrongdoing in the complaint and intends to
defend itself vigorously in this matter. Given the preliminary stage of the
proceedings, the Company is unable to assess the probable outcome or potential
liability, if any, arising from this matter; therefore, a range of damages, if
any, cannot be determined.
United States of America ex rel. Lee Einer v. Olsten Corporation, No.
CIV-S-99-0860 DFL/DAD, U.S. District Court for the Eastern District of
California. On November 1, 2001, the Company received notice of the entry of an
Order dated October 25, 2001, unsealing the referenced complaint. As recited in
the Order unsealing the complaint, the United States
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gave notice to the District Court that the United States was declining to
intervene in the action. The Company believes that it was this complaint that
gave rise to a document subpoena served on the Company in December 1999 from the
Department of Health and Human Services, Office of Inspector General, and Office
of Investigations. The Company acknowledged service of the complaint on November
29, 2001 and timely filed responsive pleadings to the Complaint. The Company is
engaged in discovery and intends to defend itself vigorously in this matter.
Given the preliminary stage of the proceedings, the Company is unable to assess
the probable outcome or potential liability, if any, arising from this matter;
therefore, a range of damages, if any, cannot be determined.
In 1999, Kimberly Home Health Care, Inc. ("Kimberly"), one of the Company's
subsidiaries, initiated three arbitration proceedings against hospitals owned by
Columbia/HCA Healthcare Corp. ("Columbia/HCA") with which Kimberly had
management services agreements to provide services to the hospitals' home health
agencies. The basis for each of the arbitrations is that Columbia/ HCA sold the
home health agencies without assigning the management services agreements and,
as a result, Columbia/HCA has breached the management services agreements. In
response to the arbitrations, Columbia/HCA has asserted that the arbitrations be
consolidated and stayed, in part based upon its alleged claims against Kimberly
for breach of contract, and requested indemnity and possibly return of
management fees. Columbia/HCA has not yet formally presented these claims in the
arbitrations or other legal proceedings and has not yet quantified the claims.
Still pending before the arbitrators is Columbia/HCA's request to consolidate
the proceedings, which Kimberly has opposed. The proceedings are currently in
abeyance pending ruling on Columbia/HCA's motion to consolidate. The Company is
the claimant in this matter and the defendant has not formally asserted any
counterclaims against the Company in the arbitration, nor has the defendant made
any formal demand on the Company. The Company is unable to assess the liability
or losses, if any, attributable to the threatened counterclaim.
Furthermore, in connection with the Split-Off, the Company agreed to
assume, to the extent permitted by law, the liabilities, if any, arising out of
(and to indemnify Olsten for) the above proceedings and other liabilities
arising out of the health services business, including any such liabilities
arising after the Split-Off in connection with the government investigations
described below. In addition, in connection with the sale of the specialty
pharmaceutical services business, the Company has agreed to retain and indemnify
Accredo Health, Incorporated for the specified liabilities including the
litigation described above and the government investigation described below.
Government Investigations
In early February 2000, the Company received a document subpoena from the
Department of Health and Human Services, Office of Inspector General, and Office
of Investigations. The Company believes the subpoena relates to its agencies'
cost reporting procedures concerning contracted nursing and home health aide
costs. To the Company's knowledge, the government has not filed a complaint
against the Company, nor has the government quantified the amount of alleged
damages relating to this matter. Recently, the government has asserted that this
matter could fall under the Federal False Claims Act (the "Act"), and if
liability is found under the Act, the government would be able to assess double
or treble damages against
-22-
the Company. The Company disputes the government's assertions, but continues to
cooperate with the government in its investigation of this matter and to provide
the government with the requested documents. At this time, the Company is unable
to assess the probable outcome or potential liability, if any, arising from this
subpoena.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
(a) None.
Item 5. Other Information
In connection with a July 19, 1999 settlement with various government
agencies, Olsten executed a corporate integrity agreement with the Office of
Inspector General of the Department of Health and Human Services which will
remain in effect until August 18, 2004. The July 1999 corporate integrity
agreement applies to the Company's businesses that bill the federal government
health programs directly for services, such as its Home Health Services business
(but excluding the Specialty Pharmaceutical Services business). This corporate
integrity agreement focuses on issues and training related to cost report
preparation, contracting, medical necessity and billing of claims.
Under the corporate integrity agreement, the Company is required, for
example, to maintain a corporate compliance officer to develop and implement
compliance programs, to retain an independent review organization to perform
annual reviews and to maintain a compliance program and reporting systems, as
well as provide certain training to employees.
The Company's compliance program will be implemented for all newly
established or acquired business units if their type of business is covered by
the corporate integrity agreement. Reports under the integrity agreement are to
be filed annually with the Department of Health and Human Services, Office of
Inspector General. After the corporate integrity agreement expires, the Company
is to file a final annual report with the government. The Company is in
compliance with the corporate integrity agreement and has timely filed all
required reports. If the Company fails to comply with the terms of its corporate
integrity agreement, the Company will be subject to penalties.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Number Description
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3.1 Restated Certificate of Incorporation of Company. (1)
3.2 Restated By-Laws of Company. (1)
4.1 Specimen of common stock. (3)
4.2 Form of Certificate of Designation of Series A Junior
Participating Preferred Stock. (1)
4.3 Form of Certificate of Designation of Series A Cumulative
Non-Voting Redeemable Preferred Stock. (2)
10.1 Separation Agreement dated August 17, 1999, among Olsten
Corporation, Aaronco Corp. and Adecco SA. (1)*
10.2 Omnibus Amendment No. 1 dated October 7, 1999, by and among
Olsten Corporation, Aaronco Corp., Adecco SA and Olsten Health
Services Holding Corp. (1)
10.3 Form of Rights Agreement dated March 2, 2000 between the
Registrant and Equiserve Limited Partnership, as rights agent.
(1)
10.4 Company's Executive Officers Bonus Plan. (1)*
10.5 Company's 1999 Stock Incentive Plan. (4)*
10.6 Company's Stock & Deferred Compensation Plan for Non-Employee
Directors. (4)*
10.7 Company's Employee Stock Purchase Plan. (1)*
10.8 Omnibus Amendment No. 2 dated January 18, 2000, by and among
Olsten Corporation, Adecco SA, Olsten Health Services Holding
Corp., the Company and Staffing Acquisition Corporation. (1)
10.9 Loan and Security Agreement by and between Fleet Capital Corp.,
on behalf of the lenders named therein, the Company, Olsten
Health Services Holding Corp. and the subsidiaries named therein,
dated March 13, 2000. (4)
10.10 Form of Employment Agreement with Edward A. Blechschmidt. (2)*
10.11 Form of Change of Control Agreement with Executive Officers of
Company. (4)*
-24-
10.12 Form of Change in Control Agreement with Edward A. Blechschmidt.
(4)*
10.13 Form of Severance Agreement with Executive Officers of Company.
(2)*
10.14 First Amendment and Consent Agreement dated September 15, 2000
to the Loan Agreement by and among the lending institutions named
therein, Fleet Capital Corporation, the Company, Olsten Health
Services Holding Corp. and the subsidiaries named therein. (6)
10.15 Purchase and Sale Agreement dated August 25, 2000 by and between
the Company and Intelistaf Group, Inc. (formerly known as GS
Acquisition Co.) (6)
10.16 Second Amendment and Consent Agreement dated as of November 20,
2000 to the Loan Agreement by and among the lending institutions
named therein, Fleet Capital Corporation, the Company, Olsten
Health Services Holding Corp. and the subsidiaries named therein.
(7)
10.17 Third Amendment to Loan and Security Agreement dated as of June
1, 2001 to the Loan Agreement by and among the lending
institutions named therein, Fleet Capital Corporation, the
Company, Olsten Health Services Holding Corp. and the
subsidiaries named therein. (8)
10.18 Fourth Amendment and Consent Agreement dated as of August 22,
2001 to the Loan Amendment by and among the lending institutions
named therein, Fleet Capital Corporation, the Company, Olsten
Health Services Holding Corp. and the subsidiaries named therein.
(10)
10.19 Asset Purchase Agreement dated as of January 2, 2002, by and
between Accredo Health Incorporated, the Company and the Sellers
named therein. (9)
21.1 List of Subsidiaries of Company. (10)
-----------------------------------------------------------------
(1) Incorporated herein by reference to Amendment No. 2 to the
Registration Statement on Form S-4, dated January 20, 2000 (File
No. 333-88663).
(2) Incorporated herein by reference to Amendment No. 3 to the
Registration Statement on Form S-4, dated February 4, 2000 (File
No. 333-88663).
-25-
(3) Incorporated herein by reference to Amendment No. 4 to the
Registration Statement on Form S-4, dated February 9, 2000 (File
No. 333-88663).
(4) Incorporated herein by reference to Form 10-K for the Registrant
for the fiscal year ended January 2, 2000.
(5) Incorporated herein by reference to Form 10-Q for the Registrant
for the period ended July 2, 2000.
(6) Incorporated herein by reference to Form 10-Q for the Registrant
for the period ended October 1, 2000.
(7) Incorporated herein by reference to Form 10-K for the Registrant
for the fiscal year ended December 31, 2000.
(8) Incorporated herein by reference to Form 10-Q for the Registrant
for the period ended September 30, 2001.
(9) Incorporated herein by reference to Registration Statement on
Form S-4, dated February 8, 2002 (File No. 333-82396), of Accredo
Health, Incorporated.
(10) Incorporated by reference to Form 10-K for the Registrant for the
fiscal year ended December 30, 2001.
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
On January 7, 2002, the Company filed a report on Form 8-K (Item 5) in
connection with the execution of the Asset Purchase Agreement with Accredo
Health, Incorporated.
-26-
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.
Date: May 15, 2002 /S/ Edward A. Blechschmidt
------------------------------------
Edward A. Blechschmidt
President and Chief Executive
Officer
Date: May 15, 2002 /S/ John J. Collura
------------------------------------
John J. Collura
Executive Vice President,
Chief Financial Officer and
Treasurer
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