(Conformed Copy)
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 4, 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 (516) 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 August 12, 1999
- ------------------------------------ ------------------------------
Common Stock, $.10 par value 68,236,653 shares
Class B Common Stock, $.10 par value 13,065,764 shares
<PAGE>
INDEX
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Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited) - July 4, 1999
and January 3, 1999 (Restated), respectively 2
Consolidated Statements of Operations (Restated
and Unaudited) - Quarters and Six Months Ended
July 4, 1999 and June 28, 1998, respectively 3
Consolidated Statements of Cash Flows (Restated and
Unaudited) - Six Months Ended July 4, 1999 and
June 28, 1998, respectively 4
Notes to Consolidated Financial Statements
(Restated and Unaudited) 5-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-16
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 16-17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 19-20
Item 5. Other Information 21-22
SIGNATURES 23
1
<PAGE>
Part I - Financial Statements
Item 1. Financial Statements
--------------------
Olsten Corporation
Consolidated Balance Sheets
(In thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
July 4, 1999 January 3, 1999
------------ ---------------
(Restated)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 14,991 $ 53,831
Receivables, net 1,146,546 1,005,685
Other current assets 141,399 134,303
----------- -----------
Total current assets 1,302,936 1,193,819
FIXED ASSETS, NET 238,081 233,131
INTANGIBLES, NET 595,802 613,616
OTHER ASSETS 9,633 18,241
----------- -----------
$ 2,146,452 $ 2,058,807
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued expenses $ 197,756 $ 251,594
Payroll and related taxes 154,641 144,330
Accounts payable 134,559 142,547
Insurance costs 41,545 36,338
----------- -----------
Total current liabilities 528,501 574,809
LONG-TERM DEBT 745,915 606,107
OTHER LIABILITIES 105,225 95,271
SHAREHOLDERS' EQUITY:
Common stock $.10 par value; authorized 110,000,000 shares;
issued 68,276,817 and 68,253,080 shares, respectively 6,828 6,825
Class B common stock $.10 par value; authorized 50,000,000
shares; issued 13,066,003 and 13,071,560 shares, respectively 1,307 1,307
Additional paid-in capital 447,649 447,488
Retained earnings 322,023 337,368
Accumulated other comprehensive loss (10,541) (9,913)
Less treasury stock, at cost; 45,700 shares (455) (455)
----------- -----------
Total shareholders' equity 766,811 782,620
----------- -----------
$ 2,146,452 $ 2,058,807
=========== ===========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
Olsten Corporation
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Second Quarter Ended Six Months Ended
-------------------- ----------------
July 4, 1999 June 28, 1998 July 4, 1999 June 28, 1998
------------ ------------- ------------ -------------
(Restated) (Restated) (Restated)
<S> <C> <C> <C> <C>
Service sales, franchise fees,
management fees and other income $ 1,248,633 $ 1,126,142 $ 2,446,589 $ 2,176,084
Cost of services sold 944,833 883,017 1,848,309 1,666,902
----------- ----------- ----------- -----------
Gross profit 303,800 243,125 598,280 509,182
Selling, general and administrative expenses 266,538 284,491 582,576 521,351
Interest expense, net 10,840 7,476 19,838 13,382
----------- ----------- ----------- -----------
Income (loss) before income taxes and minority
interests 26,422 (48,842) (4,134) (25,551)
Income tax expense (benefit) 10,241 (18,926) 326 (9,900)
----------- ----------- ----------- -----------
Income (loss) before minority interests 16,181 (29,916) (4,460) (15,651)
Minority interests 2,673 2,262 4,384 3,726
----------- ----------- ----------- -----------
Net income (loss) $ 13,508 $ (32,178) $ (8,844) $ (19,377)
=========== =========== =========== ===========
SHARE INFORMATION:
Basic earnings (loss) per share:
Net income (loss) $ .17 $ (.40) $ (.11) $ (.24)
=========== =========== =========== ===========
Average shares outstanding 81,291 81,346 81,285 81,361
=========== =========== =========== ===========
Diluted earnings (loss) per share:
Net income (loss) $ .17 $ (.40) $ (.11) $ (.24)
=========== =========== =========== ===========
Average shares outstanding 81,352 81,346 81,285 81,361
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
Olsten Corporation
Consolidated Statements of Cash Flows
(In thousands)
(Restated and Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
----------------
July 4, 1999 June 28, 1998
------------ -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (8,844) $ (19,377)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 39,507 32,512
Changes in assets and liabilities,
net of effect from acquisitions:
Accounts receivable and other current assets (181,393) (70,907)
Current liabilities (386) 40,517
Other, net 15,665 (8,775)
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (135,451) (26,030)
--------- ---------
INVESTING ACTIVITIES:
Purchases of fixed assets (39,557) (35,146)
Acquisitions of businesses, net of cash acquired (14,894) (60,408)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (54,451) (95,554)
--------- ---------
FINANCING ACTIVITIES:
Net proceeds from (repayments of) line of credit agreements 174,353 (60,862)
Redemption of debentures (7,688) --
Repayment of notes payable (6,517) (6,202)
Cash dividends (6,501) (11,378)
Net proceeds from issuance of notes -- 133,806
Issuances of common stock under stock plans -- 54
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 153,647 55,418
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (2,585) (278)
--------- ---------
NET DECREASE IN CASH (38,840) (66,444)
CASH AT BEGINNING OF PERIOD 53,831 84,810
--------- ---------
CASH AT END OF PERIOD $ 14,991 $ 18,366
========= =========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
Olsten Corporation
Notes to Consolidated Financial Statements
(Restated and 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.
See also Note 4 with regard to the restatements.
2. Comprehensive Income (Loss)
---------------------------
Total comprehensive income amounted to $16 million and comprehensive loss
was $36 million during the second quarters of 1999 and 1998, respectively.
During the six months, total comprehensive loss amounted to $9 million and
$24 million for 1999 and 1998, respectively.
See also Note 4 with regard to the restatements.
3. Acquisitions
------------
Under the terms of the 1997 purchase agreement for Olsten Travail
Temporaire (formerly Sogica S.A.), an additional payment of approximately
$31 million was paid in the second quarter of 1998. An additional purchase
price payment will be required in the year 2000, calculated based upon the
average net income for the three fiscal years ended 1999. Such additional
payments relate to the Company's original purchase of 70 percent of the
Olsten Travail Temporaire shares. The Company is also obligated in the year
2000 to purchase the remaining 30 percent of the shares at a price to be
determined by a multiple ranging from an upper limit of 16 to a lower limit
of 10, applied to the average net income for the fiscal years ended 1998
and 1999.
During the first six months of 1999, the Company purchased additional
Staffing Services operations in France and Health Services operations in
the United States for approximately $15 million in cash. All acquisitions
have been accounted for by the purchase method of accounting.
4. 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
financial statements for the year ended January 3, 1999. However, it has
been 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 have been restated.
5
<PAGE>
On March 30, 1999, the Company also announced plans to take a special
charge during the first quarter of 1999 aggregating $46 million for the
realignment of business units as part of a new restructuring plan which
includes 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 and integration costs of $8 million,
primarily related to obligations under lease agreements for offices and
other facilities being closed. Asset write-offs relate 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. 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.
As of the end of the first six months of 1999, 60 percent of closures
and consolidations of facilities have been completed and approximately
70 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.
6
<PAGE>
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, related to this charge, 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 on
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 quarter and six months
ended June 28, 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.
The major components, as well as the activity during the six months ended
July 4, 1999, of the previous years' charges, as well as the 1999 special
charge, were as follows:
7
<PAGE>
<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 -- -- (1,007) (94) -- (1,101)
Non-cash write-offs -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Balance at July 4, 1999 5,200 -- 116 -- -- 5,316
-------- -------- -------- -------- -------- --------
1998 charge balance
at January 3, 1999 56,000 $ 98 260 802 $ 476 57,636
Cash expenditures (330) -- (149) (450) (476) (1,405)
Non-cash write-offs -- (83) -- -- -- (83)
-------- -------- -------- -------- -------- --------
Balance at July 4, 1999 55,670 15 111 352 -- 56,148
-------- -------- -------- -------- -------- --------
Charge - 1999 -- 16,060 22,245 7,695 -- 46,000
Cash expenditures -- -- (14,728) (2,844) -- (17,572)
Non-cash write-offs -- (11,488) -- -- -- (11,488)
-------- -------- -------- -------- -------- --------
Balance at July 4, 1999 -- 4,572 7,517 4,851 -- 16,940
-------- -------- -------- -------- -------- --------
Balance of all charges
combined at July 4, 1999 $ 60,870 $ 4,587 $ 7,744 $ 5,203 $ -- $ 78,404
======== ======== ======== ======== ======== ========
</TABLE>
(1) Amounts represent contra assets.
The following information presents the impact of the restatements on the
consolidated statements of operations for the quarter ended June 28, 1998
and for the six months ended June 28, 1998 and July 4,1999:
<TABLE>
<CAPTION>
Six Months Ended Second Quarter Ended Six Months Ended
July 4, 1999 June 28, 1998 June 28, 1998
-------------------------- ------------------------- --------------------------
As Reported As Restated As Reported As Restated As Reported As Restated
<S> <C> <C> <C> <C> <C> <C>
Service sales, franchise fees,
management fees and other income $ 2,446,589 $ 2,446,589 $ 1,126,142 $ 1,126,142 $ 2,176,084 $ 2,176,084
Cost of services sold 1,848,309 1,848,309 883,017 883,017 1,666,902 1,666,902
----------- ----------- ----------- ----------- ----------- -----------
Gross profit 598,280 598,280 243,125 243,125 509,182 509,182
Selling, general and administrative expenses 638,576 582,576 286,591 284,491 523,451 521,351
Interest expense, net 19,838 19,838 7,476 7,476 13,382 13,382
----------- ----------- ----------- ----------- ----------- -----------
Loss before income taxes and
minority interests (60,134) (4,134) (50,942) (48,842) (27,651) (25,551)
Income tax benefit (15,774) (326) (19,740) (18,926) (10,714) (9,900)
----------- ----------- ----------- ----------- ----------- -----------
Loss before minority interests (44,360) (4,460) (31,202) (29,916) (16,937) (15,651)
Minority interests 4,384 4,384 2,262 2,262 3,726 3,726
----------- ----------- ----------- ----------- ----------- -----------
Net loss $ (48,744) $ (8,844) $ (33,464) $ (32,178) $ (20,663) $ (19,377)
=========== =========== =========== =========== =========== ===========
Share Information
Basic loss per share $ (.60) $ (.11) $ (.41) $ (.40) $ (.25) $ (.24)
=========== =========== =========== =========== =========== ===========
Diluted loss per share $ (.60) $ (.11) $ (.41) $ (.40) $ (.25) $ (.24)
=========== =========== =========== =========== =========== ===========
</TABLE>
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 $16.1 million and a decrease to
retained earnings of $39.9 million.
8
<PAGE>
5. Long-Term Debt
--------------
In February 1999, the Company's revolving credit agreement, which expires
in 2001, was amended, to revise the provision related to the maintenance of
various financial ratios and covenants, including granting the Company
approval to repurchase up to $40 million of the convertible subordinated
debentures. The Company had retired $7.7 million of the convertible
subordinated debentures in January 1999 at 88.5 percent of the principal
amount, resulting in a gain of approximately $.9 million. 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 $11 million in 1999 and $8 million in 1998, offset by
interest income from investments of $.6 million for 1999 and $1 million for
1998. Interest expense for the six months was $21 million, net of interest
income of $1 million in 1999 and $15 million, net of interest income of $2
million in 1998.
6. Business Segment Information
----------------------------
The Company operates in three business segments:
Staffing Services
The Company operates Olsten Staffing Services in the United States and
Canada, and staffing companies in 12 countries of Europe and Latin America,
providing supplemental staffing, evaluation and training for office
technology; general office and administrative services; accounting and
other financial services; legal, scientific, engineering and technical
services, including production technical training; call centers;
production/distribution/assembly services; training and pre-employment
services; retail services; marketing support and teleservices;
manufacturing, construction and industrial services; and managed services
for corporations. The Company's services meet the full range of business
needs, including traditional temporary help, project staffing,
professional-level staffing, strategic partnerships, regular full-time
hires and outsourcing. The Company's Financial Staffing Services operations
provide temporary, "temp-to-hire" and full-time placement of accounting and
financial professionals. The Company's Legal Staffing Services operations
provide temporary and full-time attorneys, paralegals and legal support
staff to law firms, corporate law departments and government, as well as
computerized litigation support.
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.
9
<PAGE>
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, before taxes, in the second quarter of 1998
related to Health Services, is as follows:
<TABLE>
<CAPTION>
Services sales, franchise Income (loss) before
Dollars in fees, management fees income taxes and
Thousands and other income minority interests
--------- ------------------------- --------------------
(Restated)
Second quarter ended July 4, 1999
---------------------------------
<S> <C> <C>
Staffing Services $ 767,953 $ 19,627
Information Technology Services 108,107 3,189
Health Services 372,573 3,606
----------- -----------
$ 1,248,633 $ 26,422
=========== ===========
Second quarter ended June 28, 1998
----------------------------------
Staffing Services $ 702,585 $ 20,769
Information Technology Services 108,356 4,049
Health Services 315,201 (73,660)
----------- -----------
$ 1,126,142 $ (48,842)
=========== ===========
Six months ended July 4, 1999
-----------------------------
Staffing Services $ 1,490,271 $ 14,854
Information Technology Services 216,469 6,964
Health Services 739,849 (12,852)
Corporate and other -- (13,100)
----------- -----------
$ 2,446,589 $ (4,134)
=========== ===========
Six months ended June 28, 1998
------------------------------
Staffing Services $ 1,328,070 $ 44,074
Information Technology Services 200,847 6,516
Health Services 647,167 (76,141)
----------- -----------
$ 2,176,084 $ (25,551)
=========== ===========
</TABLE>
10
<PAGE>
See also Note 4 with regard to the restatements.
7. Subsequent Event
----------------
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 health services 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) .25 of a share of Olsten Health Services and (b), $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 pursuant to this clause (b) will be
half cash and half Adecco ADR shares. 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 required by the merger agreement require the affirmative
vote of holders of a majority of Olsten's common stock and Class B stock,
voting as a single class, as well as customary regulatory and other
conditions. Stuart Olsten, Chairman of the Company, and certain other
holders of the Company's Class B 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.
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.
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations.
-----------------------
Results of Operations
- ---------------------
Revenues increased 11 percent, or $123 million, during the second
quarter and 12 percent, or $271 million, for the first six months of 1999, with
7 percent and 11 percent attributable to acquisitions, respectively. Staffing
Services' revenues increased 9 percent, or $65 million, for the second quarter
of 1999 and 12 percent, or $162 million, for the six months of 1999. In Europe,
Staffing Services' second quarter of 1999 revenue grew by 36 percent,
principally in France and Scandinavia, reflecting industry growth and favorable
economic conditions, while North American second quarter of 1999 revenues
declined 3 percent due, in part, to the historically low level of unemployment
in the United States. Partially offsetting this decrease was a 37 percent
increase in the Canadian staffing business' second quarter of 1999 revenues and
a 31 percent increase in the Company's accounting and financial services
specialty division. Staffing Services' revenues were unfavorably impacted by
changes in currency exchange rates during the second quarter of 1999 due to the
strengthening of the U.S. dollar relative to currencies in Europe, particularly
in France, Norway and the United Kingdom. At constant exchange rates, the
increase in Staffing Services' revenues would be 11 percent, or $77 million. For
the six months of 1999, Staffing Services' revenues would have been $1.5
billion, an increase of 13 percent, had exchange rates remained unchanged.
Information Technology Services' revenues were essentially flat in both North
America and Europe for the second quarter of 1999 and grew 8 percent, or $16
million, for the six months of 1999. Health Services' revenues increased 18
percent, or $57 million, for the second quarter, and 14 percent, or $93 million,
for the six months, driven by growth in the Infusion, Network and Staffing
business, while the Nursing business was flat due, in part, to the impact of the
1998 change to Medicare's Interim Payment System discussed below.
11
<PAGE>
Gross profit margins, as a percentage of revenues, increased to 24.3 percent and
24.5 percent for the second quarter and six months from 21.6 percent and 23.4
percent for last year's second quarter and six months, respectively. Excluding
the impact of the non-recurring charge in the second quarter of 1998, gross
profit margins increased from 23.9 percent and remained essentially flat for
last year's second quarter and six months, respectively. Staffing Services'
gross profit margins declined for the quarter and six months as a result of
decreased markups, increased subcontractor utilization, and growth in low margin
Corporate Accounts and Partnership business in North America. Additionally,
increased international competition, a changing business mix and increased
social costs in Europe reduced margins. Information Technology's gross profit
margins remained essentially flat in comparison to the second quarter and six
months of 1998. Health Services' gross profit margins increased slightly,
excluding the effect of the non-recurring charge and other adjustments in the
second quarter of 1998, from 32.3 percent to 34.2 percent in the quarter and
33.3 percent to 34.1 percent in the six months.
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. The civil, administrative and criminal
agreements were finalized and signed on July 19, 1999. The settlement had
originally been disclosed as a subsequent event to the financial statements for
the year ended January 3, 1999. However, it has been 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 have been restated.
On March 30, 1999, the Company also announced plans to take a special charge
during the first quarter of 1999 aggregating $46 million for the realignment of
business units as part of a new restructuring plan which includes 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
and integration costs of $8 million, primarily related to obligations under
lease agreements for offices and other facilities being closed. Asset write-offs
relate 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. 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.
As of the end of the first six months of 1999, 60 percent of closures
and consolidations of facilities have been completed and approximately
70 percent of the 640 expected terminations have occurred.
12
<PAGE>
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, related to this charge, 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 quarter and six months
ended June 28, 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.
13
<PAGE>
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.
Selling, general and administrative expenses decreased to $267 million in the
second quarter of 1999 from $284 million in the second quarter of 1998 due to
the non-recurring charges and other adjustments recorded in the second quarter
of 1998. Excluding the charge, such expenses, at 21.3% and 21.9% as a percentage
of revenue for the second quarter of 1999 and 1998, respectively, have remained
flat for the quarter. Conversely, selling, general and administrative expenses
increased to $583 million from $521 million in the six months due to the special
charge recorded in the first quarter of 1999. Excluding both charges, selling,
general and administrative expenses for the six months have been essentially
flat as a percentage of revenue at 22.2% in 1998 and 21.9% in 1999.
Net interest expense was $10.8 million and $7.5 million for the second quarters
of 1999 and 1998, respectively, and $20 million and $13 million for the six
months of 1999 and 1998. Net interest primarily reflected borrowing costs on
long-term debt offset by interest income on investments. The increase resulted
from interest expense incurred as the Company continued to fund both its
acquisition program and working capital requirements, particularly accounts
receivable, necessary to support growth in its Staffing Services' business and
Infusion business.
Liquidity and Capital Resources
- -------------------------------
Working capital at July 4, 1999, including $15 million in cash, was $774
million, an increase of 25 percent versus $619 million at January 3, 1999.
Receivables, net, increased $141 million, or 14 percent, predominantly due to
revenue growth and acquisitions in the Staffing Services' business as well as
growth in Health Services' Infusion business, which requires additional working
capital.
The Company has a revolving credit agreement 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 had retired $7.7 million of the convertible
subordinated debentures in January 1999 at 88.5 percent of the principal amount,
resulting in a gain of approximately $.9 million . 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 July 4, 1999, there were $344 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. 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.
14
<PAGE>
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
under existing financing agreements, and additional borrowings that the Company
believes it will be able to obtain should be adequate to meet its projected
requirements during 1999 and thereafter. If cash flows from operations or
availability under existing and new financing agreements fall below
expectations, the Company may be forced to delay planned capital expenditures,
reduce operating expenses, or consider other alternatives designed to enhance
the Company's liquidity.
The Company's 1999 second quarter dividend on common stock and Class B common
stock was $.04 per share.
Year 2000
- ---------
The Year 2000 issue concerns the inability of information systems to properly
recognize and process date-sensitive information beyond January 1, 2000.
The Company's technical infrastructure, encompassing all business applications,
is planned to be Year 2000 ready. Systems not directly related to the financial
operations of the business, primarily voice communications, are also being
upgraded to help ensure readiness.
The North American Staffing Services business is achieving Year 2000 readiness
by replacing all business applications and related infrastructure with compliant
technology. This project, referred to as Project REach, is being implemented to
increase efficiencies and improve the Company's ability to provide services to
customers. The selected systems are Year 2000 compliant and, therefore, no
remediation of current applications is necessary. Project REach is approximately
95 percent completed and is scheduled to be fully implemented by September 1999.
The Company's European and Latin American staffing operations are achieving
readiness primarily through remediation of existing systems and both are
expected to be completed by October 31, 1999.
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 October 31,
1999. Other Health Services' systems, which require remediation, are expected to
be completed by October 31, 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.
15
<PAGE>
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.
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 July 4, 1999, a 10 percent change in market interest rates would
not have a material effect on the fair value of the Company's long-term debt.
Based on variable rate debt levels, a 10 percent change in market interest rates
(54 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.
16
<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
Operations 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 July 4, 1999.
17
<PAGE>
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. 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 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.
19
<PAGE>
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.
20
<PAGE>
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").
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.
21
<PAGE>
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.
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
has referred the Quantum matter to its Affirmative Civil
Enforcement ("ACE") Section. As it had done with the Criminal
Division of the New Mexico U.S. Attorney's Office, the Company
intends to cooperate fully with that Office's ACE Section in
connection with its civil inquiry into the Quantum matter that
has been referred to it. Although, at this time, the Company
is unable to predict what 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 settlement
agreement with several government agencies investigating
certain past practices of Quantum. The agreement was entered
into with the U.S. Department of Justice, the Office of 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 Attorneys General for the
States of New York and Oklahoma. Pursuant to the settlement,
Olsten reimbursed the government approximatley $4.5 million
for certain disputed claims under the Medicaid and CHAMPUS
programs for reimbursement for the provision of
anti-hemophilia factor products to patients covered by
certain federal health care programs and entered into a
corporate integrity agreement.
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: Oct. 1 , 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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Olsten
Corporation and Subsidiaries Consolidated Balance Sheets at July 4, 1999
(unaudited) and Olsten Corporation and Subsidiaries Consolidated Statements of
Income for the six months ended July 4, 1999 (restated and unaudited) and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-02-2000
<PERIOD-END> JUL-04-1999
<CASH> 14,991
<SECURITIES> 0
<RECEIVABLES> 1,186,747
<ALLOWANCES> (40,201)
<INVENTORY> 0
<CURRENT-ASSETS> 1,302,936
<PP&E> 400,554
<DEPRECIATION> (162,473)
<TOTAL-ASSETS> 2,146,452
<CURRENT-LIABILITIES> 528,501
<BONDS> 0
0
0
<COMMON> 8,135
<OTHER-SE> 758,676
<TOTAL-LIABILITY-AND-EQUITY> 2,146,452
<SALES> 2,446,589
<TOTAL-REVENUES> 2,446,589
<CGS> 1,848,309
<TOTAL-COSTS> 1,848,309
<OTHER-EXPENSES> 46,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,117
<INCOME-PRETAX> (4,134)
<INCOME-TAX> 326
<INCOME-CONTINUING> (8,844)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,844)
<EPS-BASIC> (.11)
<EPS-DILUTED> (.11)
</TABLE>
