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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
- - ----- QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
| X | EXCHANGE ACT OF 1934
- - -----
For the quarterly period ended October 2, 1994
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Commission File No. 0-3532
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THE OLSTEN CORPORATION
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(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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 844-7800
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One Merrick Avenue, Westbury, New York 11590
- - --------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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
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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 9, 1994
- - ------------------------------------ --------------------------------
Common Stock, $ .10 par value 32,216,274 shares
Class B Common Stock, $.10 par value 9,268,705 shares
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INDEX
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Page No.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets -
October 2, 1994 (Unaudited) and January 2, 1994 2
Consolidated Statements of Income (Unaudited) -
Quarters and Nine Months Ended October 2, 1994 and
October 3, 1993, respectively 3
Consolidated Statements of Cash Flows
(Unaudited) - Nine Months Ended
October 2, 1994 and October 3, 1993 4
Notes to Consolidated Financial Statements
(Unaudited) 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 6-7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. 8
SIGNATURES 9
1
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PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements.
---------------------
The Olsten Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share amounts)
ASSETS October 2, 1994 January 2, 1994
--------------- ---------------
(Unaudited)
CURRENT ASSETS:
Cash $ 66,847 $ 24,709
Receivables, net 332,762 325,122
Other current assets 39,425 56,807
--------- --------
Total current assets 439,034 406,638
FIXED ASSETS, NET 70,291 60,185
INTANGIBLES, NET 198,994 204,670
OTHER ASSETS 13,331 18,601
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$721,650 $690,094
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued expenses $ 95,775 $ 74,251
Insurance costs 49,542 45,730
Payroll and related taxes 22,361 31,143
Accounts payable 7,886 12,597
Current portion of long-term debt (Note 3) -- 1,886
--------- --------
Total current liabilities 175,564 165,607
LONG-TERM DEBT (Note 3) 125,000 176,057
OTHER LIABILITIES 54,391 44,110
SHAREHOLDERS' EQUITY:
Common stock $.10 par value; authorized
110,000,000 shares; issued 32,257,535 and
29,976,240 shares, respectively 3,226 2,998
Class B common stock $.10 par value;
authorized 50,000,000 shares; issued
9,226,297 and 10,482,514 shares,
respectively 923 1,048
Additional paid-in capital 231,449 211,331
Retained earnings 131,809 90,280
Cumulative translation adjustment (712) (1,337)
--------- --------
Total shareholders' equity 366,695 304,320
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$721,650 $690,094
========= ========
See notes to consolidated financial statements.
2
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The Olsten Corporation and Subsidiaries
Consolidated Statements of Income
(In thousands, except share amounts)
(Unaudited)
Third Quarter Ended Nine Months Ended
-------------------- -------------------
October 2, October 3, October 2, October 3,
1994 1993 1994 1993
--------- --------- --------- ----------
Service sales, franchise fees
and other income $578,299 $556,675 $1,678,704 $1,610,994
Cost of services sold 407,760 387,878 1,182,608 1,113,082
-------- -------- ---------- ----------
Gross profit 170,539 168,797 496,096 497,912
Selling, general and
administrative expenses 138,325 140,562 406,232 423,287
Interest expense, net (Note 3) 1,024 5,037 5,288 14,171
Merger and integration costs -- 80,911 -- 80,911
-------- -------- ---------- ----------
Income (loss) before income
taxes and extraordinary charge 31,190 (57,713) 84,576 (20,457)
Income taxes (benefit) 13,006 (11,510) 35,641 4,614
-------- -------- ---------- ----------
Income/(loss) before
extraordinary charge 18,184 (46,203) 48,935 (25,071)
Extraordinary charge, net -- (14,668) -- (14,668)
-------- -------- ---------- ----------
Net income (loss) $ 18,184 $(60,871) $ 48,935 $ (39,739)
======== ======== ========== ==========
SHARE INFORMATION:
- - ------------------
Income (loss) before
extraordinary charge $ .43 $ (1.14) $ 1.17 $ (.63)
Extraordinary charge $ -- $ (.36) $ -- $ (.36)
-------- -------- ---------- ----------
Net income (loss) $ .43 $ (1.50) $ 1.17 $ (.99)
======== ======== ========== ==========
Weighted average shares 42,285 40,665 41,990 39,992
======== ======== ========== ==========
See notes to consolidated financial statements.
3
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The Olsten Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended
----------------------
October 2, 1994 October 3, 1993
--------------- ---------------
OPERATING ACTIVITIES:
Net income $ 48,935 $(39,739)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 18,281 19,339
Extraordinary charge, net -- 14,668
Deferred income taxes 3,634 (9,908)
Changes in assets and liabilities:
Accounts receivable and prepaid expenses 9,742 (41,441)
Current liabilities 9,957 53,612
Other, net 12,743 12,407
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NET CASH PROVIDED BY OPERATIONS 103,292 8,938
INVESTING ACTIVITIES:
Purchases of fixed assets (22,115) (25,409)
Acquisitions of businesses (2,199) (2,001)
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NET CASH USED IN INVESTING ACTIVITIES (24,314) (27,410)
FINANCING ACTIVITIES:
Net repayments of line of credit
agreements (34,000) (3,797)
Cash dividends (7,406) (5,586)
Issuances of common stock under stock plans 4,566 5,156
Net proceeds from issuance of convertible
debentures -- 122,114
Retirement of long-term debt -- (21,821)
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NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES (36,840) 96,066
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NET INCREASE IN CASH 42,138 77,594
CASH AT BEGINNING OF PERIOD 24,709 33,297
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CASH AT END OF PERIOD $ 66,847 $110,891
========= =========
See notes to consolidated financial statements.
4
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The Olsten Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands)
(Unaudited)
1. Accounting Policies
--------------------
The consolidated financial statements have been prepared by The 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.
2. Merger with Lifetime Corporation ("Lifetime")
---------------------------------------------
On July 30, 1993, Lifetime merged into the Company. The merger was
accounted for as a pooling of interests and, accordingly, the consolidated
financial statements of the Company were restated for all periods prior to
the merger to combine the accounts and operations of the Company and
Lifetime.
3. Long-Term Debt
---------------
On April 12, 1994, the Company called for redemption all $14 million of
its 11.2% convertible senior subordinated notes, representing the last
of the high coupon debt assumed in the Lifetime merger. At the option
of the note holders, all $14 million has been converted into 636,109
shares of Class B common stock.
As of October 2, 1994 the Company paid down the entire outstanding debt of
$34 million under its revolving credit agreement.
Interest expense, net, consists of interest on long-term debt for the
quarter of $1.9 million in 1994 and $5.9 million in 1993 offset by
interest income from investments of $830 thousand and $901 thousand,
respectively. Interest expense, net, for the nine months was $6.6 million
reduced by interest income of $1.4 million in 1994 and $16.5 million reduced
by interest income of $2.3 million in 1993.
5
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Item 2. Management's Discussion and Analysis of Financial Condition and
-----------------------------------------------------------------
Results of Operations.
-----------------------
Results of Operations
- - ----------------------
Third quarter and nine-month results reflect the combined results of Olsten
Corporation (the "Company") and Lifetime Corporation ("Lifetime"), pursuant
to the merger completed on July 30, 1993, which was accounted for as a pooling
of interests. Comparisons with prior year are based on restated combined
results. Results for the third quarter and nine months of 1993 reflect merger
related charges consisting of transaction costs, compensation and severance
costs, asset writedowns, and integration costs, as well as an extraordinary
charge for debt prepayment fees, net of taxes.
Net income comparisons are exclusive of the merger-related and extraordinary
charges incurred in both periods of 1993. Net income before merger-related
costs for the third quarter increased 46.1% to $18.2 million, or $.43 per
share, compared to $12.4 million or $.31 per share in the third quarter
of 1993. For the first nine months of 1994, operating income was $48.9
million, or $1.17 per share, a 45.7% increase over the $33.6 million or $.84
per share, reported in 1993. The increases over 1993 resulted from increased
revenues in Staffing Services as clients looked to Olsten for flexible staffing
alternatives along with operating efficiencies resulting from the integration
of the Olsten Kimberly QualityCare business.
Revenues increased $21.6 million or 3.9% to $578.3 million for the third
quarter and $67.7 million or 4.2% to $1.7 billion for the first nine months of
1994. Staffing Services revenues for the third quarter and the nine months
grew 23% due to an expanding role in providing staffing solutions to companies
that are restructuring and reengineering, and due to an improving economy that
is marked by rising demand for assignment employees. As anticipated, revenues
for HealthCare Services declined as a result of the sale and transfer of
certain health care businesses, the consolidation and closing of certain
offices, and the elimination of unprofitable business.
Costs of services increased $19.9 million, or 5.1%, to $407.8 million for the
quarter and $69.5 million or 6.2% to $1.2 billion for the nine months of 1994
due primarily to the growth in revenues. As a percentage of revenues, such
expenses increased 0.8% to 70.5% for the quarter and 1.4% to 70.5% for the
nine months of 1994. Gross margins as a percentage of revenues decreased to
29.5% for the quarter from 30.3% for last year's third quarter and decreased
to 29.6% from 30.9% for last year's nine months. This resulted from the
faster rate of growth of Staffing Services which operates at lower gross
margins than HealthCare Services, the non-recurring revenue adjustments
recorded by Lifetime in 1993, and the sale of selected businesses in the
latter part of that year.
Selling, general and administrative expenses decreased $2.2 million, or 1.6%,
to $138.3 million for the third quarter and $17.1 million or 4% to $406.2
million for the nine months. As a percentage of revenues, such expenses
decreased 1.4% to 23.9% for the third quarter and 2.1% to 24.2% for the
nine months as a result of the Company's ability to effectively manage
operating costs and the operating efficiencies achieved in the integration of
Olsten Kimberly QualityCare.
6
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Net interest expense was $ 1 million and $5 million for the third quarters
of 1994 and 1993, respectively, and $5.3 million as compared to $14.2 million
for the nine month periods in 1994 and 1993, respectively. This primarily
reflects borrowing costs on long-term debt offset by interest income on
investments. The decrease resulted from repayment of Lifetime double-digit
coupon debt in the latter half of 1993 and in the second quarter of 1994.
Liquidity and Capital Resources
- - --------------------------------
Working capital at October 2, 1994, including $66.8 million in cash, was $263.5
million. The Company has temporarily invested available funds primarily in
short-term, interest-bearing investments.
The Company has revolving credit agreements including letters of credit
totaling $200 million with a consortium of banks. At October 2, 1994, there
were no outstanding borrowings against the revolver and $63 million in standby
letters of credit. The Company believes that its levels of working capital
and liquidity and its available sources of funds are sufficient to support
present operations and to continue to increase its scope of services.
7
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Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) The following exhibit is filed herewith:
Exhibit 27 - Financial Data Schedule
(b) The Company has not filed any report on Form 8-K during the
period for which this report is filed.
8
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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.
THE OLSTEN CORPORATION
(REGISTRANT)
Date: November 14, 1994 By: /s/ Frank N. Liguori
------------------------------
Frank N. Liguori
Chairman and Chief
Executive Officer
Date: November 14, 1994 By: /s/ Anthony J. Puglisi
-------------------------------
Anthony J. Puglisi
Senior Vice President - Finance
Chief Financial Officer
9
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EXHIBIT INDEX
Exhibit 27 - Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from The Olsten
Corporation and Subsidiaries Consolidated Balance Sheets at October 2, 1994
(unaudited) and The Olsten Corporation and Subsidiaries Consolidated Statements
of Income for the nine months ended October 2, 1994 (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-01-1995
<PERIOD-END> OCT-02-1994
<CASH> 66,847
<SECURITIES> 0
<RECEIVABLES> 346,015
<ALLOWANCES> 13,253
<INVENTORY> 0
<CURRENT-ASSETS> 439,034
<PP&E> 130,584
<DEPRECIATION> 60,293
<TOTAL-ASSETS> 721,650
<CURRENT-LIABILITIES> 175,564
<BONDS> 0
<COMMON> 4,149
0
0
<OTHER-SE> 362,546
<TOTAL-LIABILITY-AND-EQUITY> 721,650
<SALES> 1,678,704
<TOTAL-REVENUES> 1,678,704
<CGS> 1,182,608
<TOTAL-COSTS> 1,182,608
<OTHER-EXPENSES> 405,713
<LOSS-PROVISION> 519
<INTEREST-EXPENSE> 5,288
<INCOME-PRETAX> 84,576
<INCOME-TAX> 35,641
<INCOME-CONTINUING> 48,935
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48,935
<EPS-PRIMARY> $1.17
<EPS-DILUTED> 0
</TABLE>
