<PAGE>
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 October 3, 1999
---------------
Commission File No.1-8279
------
OLSTEN CORPORATION
------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-2610512
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
175 Broad Hollow Road, Melville, New York 11747-8905
- ----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (631) 844-7800
--------------
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 November 11, 1999
- ------------------------------------ --------------------------------
Common Stock, $.10 par value 68,244,357 shares
Class B Common Stock, $.10 par value 13,063,901 shares
<PAGE>
INDEX
-----
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - October 3, 1999
(Unaudited) and January 3, 1999 (Restated), respectively 2
Consolidated Statements of Income (Unaudited) -
Quarters and Nine Months Ended October 3, 1999 and
September 27, 1998 (Restated), respectively 3
Consolidated Statements of Cash Flows (Unaudited) -
Nine Months Ended October 3, 1999 and
September 27, 1998, respectively 4
Notes to Consolidated Financial Statements (Unaudited) 5-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-17
Item 3. Quantitative and Qualitative Disclosures about Market Risk 17-18
PART II- OTHER INFORMATION
Item 1. Legal Proceedings 19-20
Item 5. Other Information 20-22
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 23
1
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PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements.
Olsten Corporation
Consolidated Balance Sheets
(In thousands, except share amounts)
October 3, 1999 January 3, 1999
--------------- ---------------
(Unaudited) (Restated)
ASSETS
CURRENT ASSETS:
Cash $ 13,879 $ 53,831
Receivables, net 1,179,904 1,005,685
Other current assets 143,938 134,303
--------- ---------
Total current assets 1,337,721 1,193,819
FIXED ASSETS, NET 240,111 233,131
INTANGIBLES, NET 598,571 613,616
OTHER ASSETS 9,046 18,241
--------- ---------
$2,185,449 $2,058,807
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued expenses $ 166,617 $ 251,594
Payroll and related taxes 151,094 144,330
Accounts payable 168,550 142,547
Insurance costs 43,689 36,338
--------- ---------
Total current liabilities 529,950 574,809
LONG-TERM DEBT 774,128 606,107
OTHER LIABILITIES 96,360 95,271
SHAREHOLDERS' EQUITY:
Common stock $.10 par value;
authorized 110,000,000 shares;
issued 68,286,654 and 68,253,080
shares, respectively 6,829 6,825
Class B common stock $.10 par value;
authorized 50,000,000 shares;
issued 13,064,703 and 13,071,560
shares, respectively 1,306 1,307
Additional paid-in capital 447,704 447,488
Retained earnings 335,806 337,368
Accumulated other comprehensive loss (6,179) (9,913)
Less treasury stock, at cost;
45,700 Shares (455) (455)
--------- ---------
Total shareholders' equity 785,011 782,620
--------- ---------
$2,185,449 $2,058,807
========= =========
See notes to consolidated financial statements.
2
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<TABLE>
Olsten Corporation
Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
Third Quarter Ended Nine Months Ended
------------------- -----------------
October September October September
3, 1999 27, 1998 3, 1999 27, 1998
------- --------- ------- ---------
(Restated)
<S> <C> <C> <C> <C>
Service sales, franchise fees,
management fees and other income $1,267,379 $1,170,037 $3,713,965 $3,346,121
Cost of services sold 958,612 886,121 2,806,921 2,553,023
--------- --------- --------- ---------
Gross profit 308,767 283,916 907,044 793,098
Selling, general and administrative expenses 269,322 253,098 851,892 774,449
Interest expense, net 11,354 8,242 31,194 21,624
--------- --------- --------- ---------
Income (loss) before income taxes and
minority interests 28,091 22,576 23,958 (2,975)
Income tax expense (benefit) 10,891 8,747 11,218 (1,153)
--------- --------- --------- ---------
Income (loss) before minority interests 17,200 13,829 12,740 (1,822)
Minority interests 3,417 2,581 7,801 6,307
--------- --------- --------- ---------
Net income (loss) $ 13,783 $ 11,248 $ 4,939 $ (8,129)
========= ========= ========= =========
SHARE INFORMATION:
Basic earnings (loss) per share:
Net income (loss) $ .17 $ .14 $ .06 $ (.10)
========= ========= ========= =========
Average shares outstanding 81,305 81,289 81,288 81,307
========= ========= ========= =========
Diluted earnings (loss) per share:
Net income (loss) $ .17 $ .14 $ .06 $ (.10)
========= ========= ========= =========
Average shares outstanding 81,778 81,295 81,419 81,307
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
3
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<TABLE>
Olsten Corporation
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
-----------------
October 3, 1999 September 27, 1998
--------------- ------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 4,939 $ (8,129)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 59,667 49,895
Changes in assets and liabilities,
net of effect from acquisitions:
Accounts receivable and other current assets (189,727) (123,582)
Current liabilities (26,845) 87,965
Other, net 7,339 (11,817)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (144,627) (5,668)
-------- --------
INVESTING ACTIVITIES:
Purchases of fixed assets (55,348) (64,353)
Acquisitions of businesses, net of cash acquired (13,103) (73,164)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (68,451) (137,517)
-------- --------
FINANCING ACTIVITIES:
Net proceeds from (repayments of) line of credit agreements 193,511 (40,862)
Redemption of debentures (7,688) --
Repayment of notes payable (6,517) (6,202)
Cash dividends (6,501) (14,630)
Net proceeds from issuance of notes -- 133,806
Payment for purchase of treasury stock -- (455)
Issuances of common stock under stock plans 188 72
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 172,993 71,729
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 133 7,738
-------- --------
NET DECREASE IN CASH (39,952) (63,718)
CASH AT BEGINNING OF PERIOD 53,831 84,810
-------- --------
CASH AT END OF PERIOD $ 13,879 $ 21,092
======== ========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
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. Proposed Transactions
---------------------
On August 18, 1999, the Company announced it intends to merge its staffing
and information technology services businesses with Adecco S.A. On closing,
the Company's health services business will be split off to Olsten
shareholders as an independent publicly traded company.
When the transactions become effective, each holder of Olsten stock will
receive for each share of Olsten common stock and Olsten Class B common stock
(a) $8.75 in cash, or 0.12472 of an Adecco American Depository Receipt (ADR)
(one ADR represents one-eighth of one share of Adecco common stock), or a
mixture of cash and Adecco ADRs valued in the aggregate at approximately
$8.75 per Olsten share, subject to proration in order that the aggregate
consideration received by all holders will be half cash and half Adecco ADR
shares and (b) .25 of a share of Olsten Health Services. The value of the
stock received by shareholders in the health services company will be
determined upon commencement of trading in the new security.
The transactions intended by the merger agreement require the affirmative
vote of holders of a majority of Olsten's common stock and Class B common
stock, voting as a single class, as well as customary regulatory and other
conditions. Olsten and Adecco have been advised of early termination of the
Hart-Scott-Rodino waiting period in the United States and have received
antitrust clearance from the Commission of the European Communities. Stuart
Olsten, Chairman of the Company, and certain other holders of the Company's
Class B common stock, constituting a majority of the voting power of the
Company's combined classes of stock, have committed to vote in favor of the
transactions.
3. Comprehensive Income (Loss)
---------------------------
Total comprehensive income amounted to $18 million and $16 million during the
third quarters of 1999 and 1998, respectively. During the nine months, total
comprehensive income (loss) amounted to $9 million and $(8) million for 1999
and 1998, respectively.
4. 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
5
<PAGE>
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 nine months of 1999, the Company purchased additional
Staffing Services operations in France and Health Services operations in the
United States for approximately $13 million in cash. All acquisitions have
been accounted for by the purchase method of accounting.
5. Special Charges, Adjustments and Restatements
---------------------------------------------
On March 30, 1999, the Company's Health Services division announced plans to
record a $56 million special charge for the settlement of two federal
investigations focusing on the Company's Medicare home office cost reports
and certain transactions with Columbia/HCA Healthcare Corporation. The civil,
administrative and criminal agreements were finalized and signed on July 19,
1999 and the settlement amount was paid on August 11, 1999. The payment was
funded by the Company's revolving credit agreement in the amount of $45
million with the remainder coming from operating cash flows. The settlement
had originally been disclosed as a subsequent event to the financial
statements for the year ended January 3, 1999. However, it was determined
that it was more appropriate to accrue such amount in the financial
statements for the year ended January 3, 1999 and accordingly, the financial
statements for the year ended January 3, 1999 and for the six months ended
July 4, 1999 were restated.
In the quarter ended April 4, 1999, the Company recorded a special charge
aggregating $46 million. The charge is for the realignment of business units
as part of a new restructuring plan including compensation and severance
costs of $22 million to be paid to operational support staff, branch
administrative personnel and management, asset write-offs of $16 million
related primarily to fixed assets being disposed of in offices being closed
and facilities being consolidated as well as fixed assets and goodwill
attributable to the Company's exit from certain businesses previously
acquired but not within the Company's strategic objectives, and integration
costs of $8 million, primarily related to obligations under lease agreements
for offices and other facilities being closed. The Company expects that the
realignment of the business units will achieve a reduction of expenses of
approximately $14 million for the last three quarters of 1999, due to reduced
employee, lease and depreciation expenses.
The Health Services' division represented $17 million of the total
charge, inclusive of 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 and
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 relates to corporate
operations and consists primarily of compensation and severance costs,
including an $11 million severance payment to the Company's former
Chief Executive Officer.
6
<PAGE>
As of October 3, 1999, 70 percent of closures and consolidations of
facilities have been completed and approximately 80 percent of the 640
expected terminations have occurred.
In 1998, as a part of the Balanced Budget Act, the government enacted the
Interim Payment System ("IPS") for reimbursement of home care services
provided under Medicare, effective October 1, 1997. Prior to enactment of the
IPS, home care services were reimbursed based on cost subject to a cap
determined by the Health Care Financing Administration. The IPS reimburses
home care services based on costs, subject to both a per-beneficiary limit
and a per-visit limit. Further, the IPS reduced the per-visit limit to 1994
levels. As a result of these cuts in reimbursement, provider margins have
been reduced. In order to operate at the lowered reimbursement rates, home
health care companies reduced the services provided to patients by providing
fewer patient visits. In addition, the regulatory climate that ensued in home
health care caused a lower level of physician referrals.
As a consequence of these circumstances, in 1998 the Company recorded
non-recurring charges and other adjustments of $66 million related to the
restructuring of the Company's Health Services division. These charges, which
were primarily for 60 office closings and consolidations in the United
States, were taken to help position the Company to operate more efficiently
under the new IPS. In addition, the Company has also made significant
technological investments in order to improve operational efficiencies and
employee retention levels. The benefit of the restructuring began to be
realized in the second quarter of 1998.
Included in this provision was $24 million charged to selling, general
and administrative expenses, which included lease payments of $3
million, employee severance of $4 million, fixed asset and software
write-offs of $5 million to reflect the loss incurred upon the
Company's decision to dispose of the assets in certain closed offices,
and an increase in the allowance for doubtful accounts of $12 million.
All closures and consolidations of facilities and employee terminations
have been completed. The allowance for doubtful accounts was increased
because the collection of receivables is highly dependent on the
service provider's ability to provide certain evidence of service and
authorization documentation to a variety of third-party payors. The
office closings, consolidation of certain business service centers and
the termination of employees are all events that, in the Company's past
experience, impair the ability to provide the aforementioned
documentation and to collect receivables.
The Company also recorded other adjustments to selling, general and
administrative expenses of $13 million which included professional fees
and related incurred costs resulting from the settlement with several
government agencies regarding certain past business practices of
Quantum, the level of effort required to respond to the significant
inquiries conducted by the government, and costs incurred to redesign
the credit and collection process of the home health business. The
costs incurred to redesign the credit and collection process had
originally been recorded within the $66 million charge described above.
However, it has been determined that approximately $2 million of these
costs relate to services rendered in the third quarter of 1998 and
accordingly, the financial statements for the quarters ended June 28,
1998 and September 27, 1998 have been restated.
7
<PAGE>
In addition, upon final announcement of the per-beneficiary limits by
the government, the Company recorded a reduction in revenues of $14
million in the second quarter of 1998 for the six month period ended
June 28, 1998 in anticipation of lower Medicare reimbursements
resulting from the new per-visit and per-beneficiary limits that have
been imposed by Medicare under the Interim Payment System.
The Company recorded a charge to cost of sales of $15 million to
reflect the estimated increase in costs that have been incurred, but
not yet reported, based upon a change in the actuarial estimates
utilized to determine the level of service to patients covered under
the Company's capitated contracts.
The major components, as well as the activity during the nine months ended
October 3, 1999, of the charges were as follows:
<TABLE>
<CAPTION>
Accounts Compensation
Dollars in Receivable and and Severance Integration
Thousands Settlements Other Assets(1) Costs Costs Other Total
--------- ----------- --------------- ------------- ----------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
1996 charge balance
at January 3, 1999 $ 5,200 -- $ 1,123 $ 94 -- $ 6,417
Cash expenditures (5,200) -- (1,123) (94) -- (6,417)
Non-cash write-offs -- -- -- -- -- --
------- ------- ------- ------- ------- -------
Balance at October 3, 1999 -- -- -- -- -- --
------- ------- ------- ------- ------- -------
1998 charge balance
at January 3, 1999 56,000 $ 98 260 802 $ 476 57,636
Cash expenditures (56,000) -- (260) (457) (476) (57,193)
Non-cash write-offs -- (98) -- -- -- (98)
------- ------- ------- ------- ------- -------
Balance at Ooctober 3, 1999 -- -- -- 345 -- 345
------- ------- ------- ------- ------- -------
Charge - 1999 -- 16,060 22,245 7,695 -- 46,000
Cash expenditures -- -- (15,647) (3,775) -- (19,422)
Non-cash write-offs -- (11,889) -- -- -- (11,889)
------- ------- ------- ------- ------- -------
Balance at October 3, 1999 -- 4,171 6,598 3,920 -- 14,689
------- ------- ------- ------- ------- -------
Balance of all charges
Combined at October 3, 1999 $ -- $ 4,171 $ 6,598 $ 4,265 $ -- $ 15,034
======= ======= ======= ======= ======= =======
</TABLE>
(1) Amounts represent contra assets.
8
<PAGE>
The following information presents the impact of the restatements on the
Consolidated Statement of Income for the quarter ended September 27, 1998:
Third Quarter Ended
September 27, 1998
---------------------------
As Reported As Restated
Service sales, franchise fees,
management fees and other income $1,170,037 $1,170,037
Cost of services sold 886,121 886,121
--------- ---------
Gross profit 283,916 283,916
Selling, general and administrative expenses 250,998 253,098
Interest expense, net 8,242 8,242
--------- ---------
Income before income taxes and
minority interests 24,676 22,576
Income tax expense 9,561 8,747
--------- ---------
Income before minority interests 15,115 13,829
Minority interests 2,581 2,581
--------- ---------
Net income $ 12,534 $ 11,248
========= =========
Share information
Basic earnings per share $ .15 $ .14
========= =========
Diluted earnings per share $ .15 $ .14
========= =========
The effect of the restatement on the January 3, 1999 balance sheet was an
increase to accrued expenses of $56 million, a decrease to deferred income
taxes included in other liabilities of $16 million and a decrease to retained
earnings of $40 million.
6. 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 $.9 million in January 1999. In May 1999, the Company's
revolving credit agreement was further amended to revise 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 $12 million in 1999 and $9 million in 1998, offset by interest
income from investments of $1 million for 1999 and 1998. Interest expense for
the nine months was $34 million, offset by interest income of $2 million, in
1999 and $24 million, offset by interest income of $2 million, in 1998.
9
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7. 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.
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 $46 million, before taxes, in the first quarter of
1999 ($16 million related to Staffing Services, $17 million related to Health
Services, and $13 million related to Corporate and other), and $64 million
and $2 million, before taxes, in the second and third quarters of 1998,
respectively, related to Health Services, is as follows:
10
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<TABLE>
<CAPTION>
Services sales, franchise Income (loss) before
Dollars in fees, management fees income taxes and
Thousands and other income minority interests
---------- ------------------------- --------------------
<S> <C> <C>
Third quarter ended October 3, 1999
-----------------------------------
Staffing Services $ 791,660 $27,451
Information Technology Services 98,406 2,492
Health Services 377,313 (1,852)
--------- ------
$1,267,379 $28,091
========= ======
Third quarter ended September 27, 1998
--------------------------------------
Staffing Services $ 742,009 $34,158
Information Technology Services 106,910 4,912
Health Services 321,118 (16,494)
--------- ------
$1,170,037 $22,576
========= ======
Nine months ended October 3, 1999
---------------------------------
Staffing Services $2,281,929 $42,305
Information Technology Services 314,875 9,457
Health Services 1,117,161 (14,704)
Corporate and other -- (13,100)
--------- ------
$3,713,965 $23,958
========= ======
Nine months ended September 27, 1998
------------------------------------
Staffing Services $2,070,079 $71,479
Information Technology Services 307,757 12,701
Health Services 968,285 (87,155)
--------- ------
$3,346,121 $(2,975)
========= ======
</TABLE>
See also Note 5 with regard to the restatements.
8. Contingency
-----------
In September 1999, the Company received a Notice of Amount of Program
Reimbursement relating to its 1997 Medicare cost reports indicating that the
Medicare fiscal intermediary disagrees with the Company's methodology of
allocating a portion of its overhead. The Health Care Financing
Administration has indicated that it agrees with the fiscal intermediary.
Since the Company used a similar methodology for allocating overhead costs in
1998 and 1999, a comparable disallowance could result. The Company believes
its cost reports are accurate and consistent with past practice accepted by
the fiscal intermediary, and will appeal the notice to the Provider
Reimbursement Review Board. While management believes that adequate
provisions have been made for revenue adjustments, the Company is unable to
predict the outcome of this appeal and the final determination of revenue
ultimately recognized under the Medicare program.
11
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Results of Operations
- ---------------------
Revenues increased 8 percent, or $97 million, during the third quarter and 11
percent, or $368 million, for the first nine months of 1999, with 7 percent
attributable to acquisitions during each of the respective periods.
Staffing Services' revenues increased 7 percent, or $50 million, for the third
quarter of 1999 and 10 percent, or $212 million, for the nine months of 1999. In
Europe, Staffing Services' third quarter revenues grew by 21 percent,
principally as a result of acquisitions. North American revenues declined 3
percent due to decreased demand from large Corporate Accounts coupled with the
low availability of assignment employees resulting from the historically low
level of unemployment, partially offset by increases in the Canadian staffing
business and the Company's accounting and financial services specialty division.
Staffing Services' revenues were unfavorably impacted by changes in currency
exchange rates during the third quarter of 1999 due to the strengthening of the
U.S. dollar relative to currencies in Europe. At constant exchange rates,
Staffing Services' revenues would have been $806 million and $2.3 billion,
increases of 9 and 11 percent for the quarter and nine months, respectively.
Information Technology Services' revenues declined 8 percent, or $8.5 million,
in the third quarter of 1999 due to the industry-wide Year 2000 slowdown and
grew 2 percent, or $7 million, for the nine months of 1999.
Health Services' revenues increased 17 percent, or $56 million, for the third
quarter, and 15 percent, or $149 million, for the nine months, driven by growth
in all lines of business. The Company's Nursing business increased for both the
third quarter and nine months attributable to the acquisition of Columbia/HCA
Healthcare Corporation's home health care operations in the state of Florida,
which was partially offset by declines in Medicare-related home care visits and
reimbursement due to the implementation of the Interim Payment System (IPS).
Gross profit margins, as a percentage of revenues, increased to 24.4 percent for
the third quarter and nine months from 24.3 percent and 23.7 percent for last
year's third quarter and nine months, respectively. Excluding the impact of the
non-recurring charge in 1998, gross profit margins remained essentially flat for
last year's nine months.
Staffing Services' gross profit margins declined for the quarter and nine months
as a result of decreased markups, increased subcontractor utilization, and
strong price competition in 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 decreased from 23 percent in the third quarter
of 1998 to 21 percent in the third quarter of 1999 due to an increase in low
margin Corporate Accounts and an increase in unassigned labor resulting from the
Year 2000 slowdown and remained essentially flat in comparison to the nine
months of 1998. Health Services' gross profit margins increased slightly in the
quarter, and excluding the effect of the non-recurring charge and other
adjustments in 1998, increased from 33.2 percent to 33.8 percent in the nine
months reflecting increased volume in the high margin Infusion business, rate
increases and a change in payor mix and an increase in Nursing margins due to
productivity enhancements.
12
<PAGE>
On March 30, 1999, the Company's Health Services division announced plans to
record a $56 million special charge for the settlement of two federal
investigations focusing on the Company's Medicare home office cost reports and
certain transactions with Columbia/HCA Healthcare Corporation. The civil,
administrative and criminal agreements were finalized and signed on July 19,
1999 and the settlement amount was paid on August 11, 1999. The payment was
funded by the Company's revolving credit agreement in the amount of $45 million
with the remainder coming from operating cash flows. The settlement had
originally been disclosed as a subsequent event to the financial statements for
the year ended January 3, 1999. However, it was determined that it was more
appropriate to accrue such amount in the financial statements for the year ended
January 3, 1999 and accordingly, the financial statements for the year ended
January 3, 1999 and for the six months ended July 4, 1999 were restated.
In the quarter ended April 4, 1999, the Company recorded a special charge
aggregating $46 million. The charge is for the realignment of business units as
part of a new restructuring plan including compensation and severance costs of
$22 million to be paid to operational support staff, branch administrative
personnel and management, asset write-offs of $16 million related primarily to
fixed assets being disposed of in offices being closed and facilities being
consolidated as well as fixed assets and goodwill attributable to the Company's
exit from certain businesses previously acquired but not within the Company's
strategic objectives, and integration costs of $8 million, primarily related to
obligations under lease agreements for offices and other facilities being
closed. The Company expects that the realignment of the business units will
achieve a reduction of expenses of approximately $14 million for the last three
quarters of 1999, due to reduced employee, lease and depreciation expenses.
The Health Services' division represented $17 million of the total
charge, inclusive of 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 and
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 relates to corporate
operations and consists primarily of compensation and severance costs,
including an $11 million severance payment to the Company's former
Chief Executive Officer.
As of October 3, 1999, 80 percent of closures and consolidations of
facilities have been completed and approximately 80 percent of the 640
expected terminations have occurred.
In 1998, as a part of the Balanced Budget Act, the government enacted the IPS
for reimbursement of home care services provided under Medicare, effective
October 1, 1997. Prior to enactment of the IPS, home care services were
reimbursed based on cost subject to a cap determined by the Health Care
Financing Administration. The IPS reimburses home care services based on costs,
subject to both a per-beneficiary limit and a per-visit limit. Further, the IPS
reduced the per-visit limit to 1994 levels. As a result of these cuts in
reimbursement, provider margins have been reduced. In order to operate at the
lowered reimbursement rates, home health care companies reduced the services
provided to patients by providing fewer patient visits. In addition, the
regulatory climate that ensued in home health care caused a lower level of
physician referrals.
13
<PAGE>
As a consequence of these circumstances, in 1998 the Company recorded
non-recurring charges and other adjustments of $66 million related to the
restructuring of the Company's Health Services division. These charges, which
were primarily for 60 office closings and consolidations in the United States,
were taken to help position the Company to operate more efficiently under the
new IPS. In addition, the Company has also made significant technological
investments in order to improve operational efficiencies and employee retention
levels. The benefit of the restructuring began to be realized in the second
quarter of 1998.
Included in this provision was $24 million charged to selling, general
and administrative expenses, which included lease payments of $3
million, employee severance of $4 million, fixed asset and software
write-offs of $5 million to reflect the loss incurred upon the
Company's decision to dispose of the assets in certain closed offices,
and an increase in the allowance for doubtful accounts of $12 million.
All closures and consolidations of facilities and employee
terminations have been completed. The allowance for doubtful accounts
was increased because the collection of receivables is highly
dependent on the service provider's ability to provide certain
evidence of service and authorization documentation to a variety of
third-party payors. The office closings, consolidation of certain
business service centers and the termination of employees are all
events that, in the Company's past experience, impair the ability to
provide the aforementioned documentation and to collect receivables.
The Company also recorded other adjustments to selling, general and
administrative expenses of $13 million which included professional
fees and related incurred costs resulting from the settlement with
several government agencies regarding certain past business practices
of Quantum, the level of effort required to respond to the significant
inquiries conducted by the government, and costs incurred to redesign
the credit and collection process of the home health business. The
costs incurred to redesign the credit and collection process had
originally been recorded within the $66 million charge described
above. However, it has been determined that approximately $2 million
of these costs relate to services rendered in the third quarter of
1998 and accordingly, the financial statements for the quarters ended
June 28, 1998 and September 27, 1998 have been restated.
In addition, upon final announcement of the per-beneficiary limits by
the government, the Company recorded a reduction in revenues of $14
million in the second quarter of 1998 for the six month period ended
June 28, 1998 in anticipation of lower Medicare reimbursements
resulting from the new per-visit and per-beneficiary limits that have
been imposed by Medicare under the Interim Payment System.
The Company recorded a charge to cost of sales of $15 million to
reflect the estimated increase in costs that have been incurred, but
not yet reported, based upon a change in the actuarial estimates
utilized to determine the level of service to patients covered under
the Company's capitated contracts.
14
<PAGE>
Selling, general and administrative expenses increased to $269 million in the
third quarter of 1999 from $251 million in the third quarter of 1998, excluding
the $2 million non-recurring charge and other adjustment recorded in the third
quarter of 1998. Such expenses, at 21.3 percent and 21.5 percent as a percentage
of revenue for the third quarter of 1999 and 1998, respectively, reflect the
benefits of the restructurings of the Health Services and Staffing Services
businesses partially offset by non-recurring expenditures of $1.5 million for
the proposed merger of the Company's Staffing Services and Information
Technology businesses with Adecco and the split-off of the Company's Health
Services business. Selling, general and administrative expenses increased to
$852 million from $774 million in the nine months. Excluding the non-recurring
charges and other adjustments recorded in 1999 and 1998, selling, general and
administrative expenses were $806 million and $737 million for the nine months
of 1999 and 1998, respectively, or 21.7 percent and 22 percent of revenue,
respectively.
Net interest expense was $11 million and $8 million for the third quarters of
1999 and 1998, respectively, and $31 million and $22 million for the nine months
of 1999 and 1998. Net interest expense primarily reflected borrowing costs on
long-term debt offset by interest income on investments. The increase resulted
from working capital requirements, particularly accounts receivable, necessary
to support growth in its Staffing Services' business and Infusion business.
Liquidity and Capital Resources
- -------------------------------
Working capital at October 3, 1999, including $14 million in cash, was $824
million, an increase of 33 percent versus $619 million at January 3, 1999.
Receivables, net, increased $174 million, or 17 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. On August 11, 1999, the Company paid $61 million in settlement of the
U.S. Department of Justice home office cost reports and Columbia/HCA
investigation of which $45 million was funded by the Company's revolving credit
agreement with the remainder coming from operating cash flows.
The Company has a revolving credit agreement 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 $.9 million 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 October 3, 1999, there were $366 million in
borrowings and $15 million in standby letters of credit outstanding under the
revolving credit agreement. The Company has invested available funds in secure,
short-term, interest-bearing investments.
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. Although no assurance can be given, the Company currently
believes that cash flows from operations, borrowings available to the Company
15
<PAGE>
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, or if the proposed transaction with Adecco and split-off of the
Health Services division are not completed, the Company may be forced to delay
planned capital expenditures, reduce operating expenses, or consider other
alternatives designed to enhance the Company's liquidity.
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.
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 has been
completed. The Company's European and Latin American staffing operations are
achieving readiness primarily through remediation of existing systems, of which
all critical systems have been completed.
The Information Technology Services business required minimal remediation to
achieve Year 2000 compliance, and was completed June 30, 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 by November 30,
1999. Other Health Services' systems, which require remediation, are expected to
be completed by November 30, 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.
As part of its Year 2000 readiness activities, the Company has contacted its
significant vendors and third parties to determine the extent to which the
Company is vulnerable to their potential failure to remediate their own systems
to address the Year 2000 issues. Approximately 93% of those inquired have
responded in writing and indicated their current compliance or that they will be
compliant by the end of 1999.
With respect to the risks associated with its systems, the Company believes that
the most reasonably likely worst case scenario is that the Company may
experience minor system malfunctions and errors in the early days and weeks of
the Year 2000. The Company does not expect these problems to have a material
impact on the Company's ability to place and pay workers or invoice customers.
16
<PAGE>
The Company is not heavily reliant on electronic transmissions from third
parties. With respect to the risks associated with the third parties, the
Company believes that the most reasonably likely worst case scenario is that
some of the Company's vendors and customers will not be compliant. The Company
believes that the number of such third parties will have been minimized by the
Company's program of contacting significant vendors and large customers. Despite
the Company's diligence, there can be no guarantee that significant vendors and
third parties that the Company relies upon to conduct day to day business will
be compliant. Failure by these companies, or any governmental entities, to
remediate their systems on a timely basis could impact cash flow from
operations.
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
primarily to the fair value of long-term fixed-rate debt. The Company has
historically managed interest rates through the use of a combination of fixed
and variable rate borrowings. Generally, the fair market value of fixed rate
debt will increase as interest rates fall and decrease as interest rates rise.
The Company's long-term debt is primarily composed of fixed rate obligations.
Based on the overall interest rate exposure on the Company's fixed rate
borrowings at October 3, 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.
Based on variable rate debt levels, a 10 percent change in market interest rates
(62 basis points on a weighted average) would have less than a 3 percent impact
on the Company's interest expense, net.
Other than intercompany transactions between the United States and the Company's
foreign entities, the Company generally does not have significant transactions
that are denominated in a currency other than the functional currency applicable
to each entity.
17
<PAGE>
Fluctuations in currency exchange rates may also impact the shareholders' equity
of the Company. The assets and liabilities of the Company's non-U.S.
subsidiaries are translated into U.S. dollars at the exchange rates in effect at
the balance sheet date. Revenues and expenses are translated into U.S. dollars
at the weighted average exchange rate for the quarter. The resulting translation
adjustments are recorded in shareholders' equity as accumulated other
comprehensive income (loss).
Although currency fluctuations impact the Company's reported results of
operations, such fluctuations generally do not affect the Company's cash flow or
result in actual economic gains or losses. Each of the Company's subsidiaries
derives revenues and incurs expenses primarily within a single country, and
consequently, does not generally incur currency risks in connection with the
conduct of normal business operations. The Company generally has few cross
border transfers of funds, except for transfers from or to the United States as
working capital loans. To reduce the currency risk related to the loans, the
Company may borrow funds under the existing Revolving Credit Agreement in the
foreign currency to lend to the subsidiary.
Foreign exchange gains and losses are included in the Consolidated Statements of
Income and historically have not been significant. The Company generally does
not engage in hedging activities, except as discussed above. The Company did not
hold any derivative instruments at October 3, 1999.
OTHER
- -----
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.
18
<PAGE>
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. Although defendants' dismissal motion was fully briefed on
December 23, 1998, plaintiffs filed a submission in connection
therewith on October 12, 1999. Defendants filed a response to
plaintiffs' submission on October 14, 1999, plaintiffs responded
thereto with a submission dated October 21, 1999 and defendants
filed a reply on October 22, 1999. The Amended Complaint seeks
certification of the proposed class, a judgment declaring the
conduct of the defendants to be in violation of the law, unspecified
compensatory damages and unspecified costs and expenses, including
attorneys' fees and experts' fees. 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. On September 10, 1999, the defendants in
the Derivative Lawsuit filed a motion to dismiss or, in the
alternative, stay the lawsuit.
On January 14, 1999, Kimberly Home Health Care, Inc. ("KHHC")
initiated three arbitration proceedings against hospitals owned by
Columbia/HCA with which one of the Company's subsidiaries had
management services agreements to provide services to the hospital's
19
<PAGE>
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, while the management services
agreements had periods ranging from 18 to 42 months prior to
expiration and that Columbia/HCA has breached the management
services agreements. In response to the arbitrations, Columbia/HCA
has asserted that the arbitration be consolidated and stayed, in
part based upon its alleged claim against KHHC for breach of
contract and requests indemnity and possibly return of management
fees paid under the disallowance provision of the management
services agreements. Columbia/HCA has not yet formally presented
these claims in the arbitrations or other legal proceedings, and has
not yet quantified the claims. The parties have agreed to suspend
the proceedings until the end of 1999.
In July 1999, the Company received notification that the Indiana
Attorney General's Office filed a civil complaint against Olsten
requesting the court to determine if Quantum violated Indiana law
with respect to Medicaid claims. The complaint alleges that (1)
overpayment was made to Quantum due largely to advances paid by
Medicaid that were not properly credited by Quantum; (2) Quantum
supplied the Indiana Attorney General's Office with insufficient
documentation regarding services provided by one of our pharmacies;
and (3) deliveries exceeded the amounts of physicians' orders. The
alleged violations predate Olsten's acquisition of Quantum in June
1996. The complaint filed with the Indiana Attorney General's Office
seeks an unspecified amount of monetary damages, double or treble
damages, penalties and investigative costs.
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 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 has cooperated with the previously disclosed health care
industry investigations being conducted by certain governmental
agencies (collectively, the "Healthcare Investigations").
20
<PAGE>
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 and the Office of
the Attorney General of New Mexico, in connection with their
investigations into certain healthcare practices of Quantum Health
Resources ("Quantum"). Among the matters into which the government
has been 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.
On July 19, 1999, the Company entered into written civil and
criminal agreements with the U.S. Department of Justice (and, as to
the civil agreement, the Office of Inspector General of the U.S.
Department of Health and Human Services) finalizing the
understanding that it announced on March 30, 1999 to settle the
civil and criminal aspects of the Cost Reports Investigation and the
Columbia /HCA investigation. Pursuant to the settlement, (a) the
Company paid on August 11, 1999 the sum of $61 million to the U.S.
Department of Justice, including approximately $10.1 million in
criminal fines and penalties; (b) in connection with the
Columbia/HCA Investigation, a subsidiary of the Company, Kimberly
Home Health Care, Inc., a Missouri corporation, pled guilty in the
United States District Courts for the Northern District of Georgia,
the Southern District of Florida and the Middle District of Florida,
respectively, to a criminal violation of the federal mail fraud,
conspiracy and kickback statutes; (c) Kimberly Home Health Care,
Inc. has been permanently excluded from participation in Medicare,
Medicaid and all other federal health care programs as defined in 42
U.S.C. ss.1320a-7b(f); and (d) the Company has executed a Corporate
Integrity Agreement with the Office of Inspector General of the U.S.
Department of Health and Human Services.
By letter dated June 30, 1999, the Medicare Fraud Control Unit of
the New Mexico Attorney General's Office notified the Company that
it has declined to criminally prosecute the so-called "J-Code issue"
relating to Quantum's past practices in seeking government health
care reimbursement.
21
<PAGE>
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
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 had referred the Quantum matter to its Affirmative Civil
Enforcement ("ACE") Section. The Company has been cooperating and
intends to continue 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. Although, at this time, the Company is
unable to predict the ultimate relief the ACE Section will seek in
connection with the civil Quantum New Mexico Investigation, such
relief could include money damages and/or civil penalties.
In October 1998, Olsten entered into a final 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 the 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 Attorney's General for the States
of New York and Oklahoma. Pursuant to the settlement, Olsten
reimbursed the government approximately $4.5 million for certain
disputed claims under the Medicaid and CHAMPUS programs for
reimbursement for the provisions of anti-hemophilia factor products
to patients covered by certain federal health care programs and
entered into a corporate integrity agreement.
ITEM 6. Exhibits and Reports On Form 8-K
(a) The following exhibit is filed herewith:
Exhibit 27 Financial Data Schedule.
(B) Reports On Form 8-K.
(I) The Company filed a report on form 8-K, dated July
26, 1999, reporting in Item 5, Other Events, that
the Company had released a press release dated July
19, 1999, which was filed as an Exhibit thereto.
22
<PAGE>
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: November 15, 1999 By: /s/Edward A. Blechschmidt
-------------------------------------
Edward A. Blechschmidt
President and Chief Executive Officer
Date: November 15, 1999 By: /s/Anthony J. Puglisi
-------------------------------------
Anthony J. Puglisi
Executive Vice President and
Chief Financial Officer
23
<PAGE>
EXHIBIT INDEX
Exhibit 27 - Financial Data Schedule
24
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Olsten
Corporation and Subsidiaries Consolidated Balance Sheets at October 3, 1999
(unaudited) and Olsten Corporation and Subsidiaries Consolidated Statements of
Income for the nine months ended October 3, 1999 (unaudited) and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-02-2000
<PERIOD-END> OCT-03-1999
<CASH> 13,879
<SECURITIES> 0
<RECEIVABLES> 1,219,380
<ALLOWANCES> 39,476
<INVENTORY> 0
<CURRENT-ASSETS> 1,337,721
<PP&E> 409,948
<DEPRECIATION> 169,837
<TOTAL-ASSETS> 2,185,449
<CURRENT-LIABILITIES> 513,850
<BONDS> 0
0
0
<COMMON> 8,135
<OTHER-SE> 776,876
<TOTAL-LIABILITY-AND-EQUITY> 2,185,449
<SALES> 3,713,965
<TOTAL-REVENUES> 3,713,965
<CGS> 2,806,921
<TOTAL-COSTS> 2,806,921
<OTHER-EXPENSES> 46,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,518
<INCOME-PRETAX> 23,958
<INCOME-TAX> 11,218
<INCOME-CONTINUING> 4,939
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,939
<EPS-BASIC> .06
<EPS-DILUTED> .06
</TABLE>
