<PAGE> 1
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 September 29, 1996
-------------------
Commission File No. 0-3532
--------
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
-------------------
Not Applicable
- --------------------------------------------------------------------------
(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
------------- ------------
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 7, 1996
- ------------------------------------ -------------------------------
Common Stock, $ .10 par value 66,138,615 shares
Class B Common Stock, $.10 par value 13,775,841 shares
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INDEX
-------
Page No.
---------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
September 29, 1996 (Unaudited) and December 31, 1995 2
Consolidated Statements of Income (Unaudited) -
Quarters and Nine Months Ended September 29, 1996 and
October 1, 1995, respectively 3
Consolidated Statements of Cash Flows
(Unaudited) - Nine Months Ended September 29, 1996 and
October 1, 1995, respectively 4
Notes to Consolidated Financial Statements
(Unaudited) 5 - 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
1
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements.
---------------------
Olsten Corporation
Consolidated Balance Sheets
(In thousands, except share amounts)
September 29, 1996 December 31, 1995
ASSETS ------------------ -----------------
(Unaudited)
CURRENT ASSETS:
Cash $ 121,152 $ 107,418
Receivables, net 615,609 517,434
Other current assets 103,224 93,092
---------- ----------
Total current assets 839,985 717,944
FIXED ASSETS, NET 126,225 109,092
INTANGIBLES, NET 398,490 290,342
OTHER ASSETS 17,658 21,032
---------- ----------
$1,382,358 $1,138,410
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued expenses $ 110,224 $ 79,168
Payroll and related taxes 53,332 52,124
Accounts payable 50,265 57,323
Insurance costs 29,850 35,359
--------- ----------
Total current liabilities 243,671 223,974
LONG-TERM DEBT 332,052 267,030
OTHER LIABILITIES 68,525 61,017
SHAREHOLDERS' EQUITY:
Common stock $.10 par value; authorized
110,000,000 shares; issued 64,769,908
and 50,428,046 shares, respectively 6,477 5,043
Class B common stock $.10 par value;
authorized 50,000,000 shares; issued
14,617,580 and 23,059,502 shares,
respectively 1,462 2,306
Additional paid-in capital 421,463 294,758
Retained earnings 309,542 286,037
Cumulative translation adjustment (834) (1,755)
---------- ----------
Total shareholders' equity 738,110 586,389
---------- ----------
$1,382,358 $1,138,410
========== ==========
See notes to consolidated financial statements.
2
<PAGE> 4
Olsten Corporation
Consolidated Statements of Income
(In thousands, except share amounts)
(Unaudited)
Third Quarter Ended Nine Months Ended
-------------------- ------------------
Sept. 29, Oct. 1, Sept. 29, Oct. 1,
1996 1995 1996 1995
--------- -------- --------- ---------
Service sales, franchise fees,
management fees and
other income $876,369 $719,590 $2,446,755 $2,075,191
Cost of services sold 630,274 499,891 1,731,678 1,441,817
-------- -------- ---------- ----------
Gross profit 246,095 219,699 715,077 633,374
Selling, general and
administrative expenses 189,517 178,889 559,194 510,237
Interest expense, net 2,919 1,350 9,179 3,019
Merger, integration
and other non-recurring
charges 74,500 8,508 80,000 8,508
-------- -------- ---------- ----------
Income (loss) before income
taxes and minority interests (20,841) 30,952 66,704 111,610
Income tax charge (benefit) (8,162) 13,231 27,615 46,973
-------- -------- ---------- ----------
Income (loss) before
minority interests (12,679) 17,721 39,089 64,637
Minority interests 419 44 997 (323)
-------- -------- ---------- ----------
Net income (loss) $(13,098) $ 17,677 $ 38,092 $ 64,960
======== ======== ========== =========
SHARE INFORMATION:
Primary:
Net income (loss) $ (.16) $ .24 $ .49 $ .87
======== ======== ========== =========
Average shares outstanding 79,387 74,305 77,722 74,384
======== ======== ========== =========
Fully diluted:
Net income (loss) $ (.16) $ .24 $ .49 $ .85
======== ======== ========== =========
Average shares outstanding 79,387 81,483 77,722 81,645
======== ======== ========== =========
See notes to consolidated financial statements.
3
<PAGE> 5
Olsten Corporation
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended
--------------------
Sept. 29, 1996 Oct. 1, 1995
--------------- ------------
OPERATING ACTIVITIES:
Net income $ 38,092 $ 64,960
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 32,730 25,186
Deferred income taxes (1,023) 5,647
Changes in assets and liabilities,
net of effects from acquisitions
and dispositions:
Accounts receivable and other
current assets (79,339) (66,282)
Current liabilities (8,477) 7,443
Other, net (12,486) 8,740
--------- ---------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (30,503) 45,694
--------- ---------
INVESTING ACTIVITIES:
Acquisitions/dispositions of businesses and
reacquisitions of franchises (106,967) (65,319)
Purchases of fixed assets (32,462) (41,723)
Sale of investment securities 5,474 17,692
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (133,955) (89,350)
--------- ---------
FINANCING ACTIVITIES:
Net proceeds from issuance of Senior Notes 197,672 -
Cash dividends (14,587) (10,076)
Net repayments of line of credit agreements (8,947) -
Issuances of common stock under stock plans 4,054 6,040
Purchases of common stock for treasury - (12,510)
--------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 178,192 (16,546)
--------- ---------
NET INCREASE (DECREASE) IN CASH 13,734 (60,202)
CASH AT BEGINNING OF PERIOD 107,418 144,426
--------- ---------
CASH AT END OF PERIOD $ 121,152 $ 84,224
========= =========
See notes to consolidated financial statements.
4
<PAGE> 6
Olsten Corporation
Notes to Consolidated Financial Statements
(In thousands)
(Unaudited)
1. Accounting Policies
--------------------
The 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.
2. Long-Term Debt
---------------
In March 1996, the Company issued $200 million in 7% Senior Notes due 2006.
The proceeds were used partly to repay a portion of our revolving credit
facility, with the balance available to expand our existing office network
and the types of services provided to clients, both internally and through
acquisitions, and for general working capital purposes.
On August 9, 1996, the Company completed a revolving credit agreement of
$400 million with a consortium of eleven banks. This facility replaces
revolving credit agreements aggregating $211 million and will be used to
supplement working capital requirements and expansion through acquisitions.
The new agreement will expire in the year 2001.
Interest expense, net, consists primarily of interest on long-term debt
for the quarter of $5.3 million in 1996 and $3.3 million in 1995 offset
by interest income from investments of $2.4 and $1.9 million, respectively.
Interest expense, net, for the nine months was $16.2 million reduced
by interest income of $7.0 million in 1996 and $9.5 million reduced by
interest income of $6.5 million in 1995.
3. Shareholders' Equity
--------------------
On May 13, 1996, the Company called for redemption on May 28, 1996 all of
its outstanding 4 7/8% Convertible Subordinated Debentures due 2003.
Substantially all of the $125 million principal amount of the Debentures
was converted into Olsten Common Stock with approximately 5.4 million
shares being issued.
4. Acquisitions
------------
Acquisition of Quantum Health Resources, Inc.:
On June 28, 1996, the Company completed the acquisition of Quantum Health
Resources, Inc. ("Quantum"), a provider of alternate site therapies and
support services to individuals affected by certain chronic diseases and
other disorders. As a result, the Company issued approximately 8.8
million shares of Class B common stock in exchange for all the outstanding
Quantum capital stock. The acquisition was accounted for as a pooling of
interests and, accordingly, the consolidated financial statements of the
Company have been restated for all periods prior to the acquisition to
combine the accounts and operations of the Company and Quantum. Certain
reclassifications have been made to conform Quantum's results to the
Company's presentation. Operating results previously reported for the
separate companies, including Quantum's first quarter charge of $5.5
million ($3.2 million, net of tax) related to settlement of certain
shareholder litigation, for periods prior to the acquisition are as
follows: 5
<PAGE> 7
First Quarter Ended
-------------------
March 31, 1996 April 2, 1995
-------------- -------------
Service sales, franchise fees
management fees and
other income:
Olsten $ 683,214 $ 590,350
Quantum 80,032 71,313
--------- ---------
$ 763,246 $ 661,663
========= =========
Net income (loss):
Olsten $ 23,003 $ 19,092
Quantum (1,354) 3,922
--------- ---------
$ 21,649 $ 23,014
========= =========
Acquisition of Co-Counsel, Inc.:
On August 9, 1996, the Company completed the acquisition of Co-Counsel,
Inc. ("Co-Counsel"), a leading provider of temporary and full-time
attorneys and paralegals to law firms and corporate law departments. As a
result, the Company issued approximately 400 thousand shares of Class B
common stock in exchange for all the Co-Counsel capital stock. The
acquisition was accounted for as a pooling of interests and, accordingly,
the consolidated financial statements of the Company have been restated
for all periods prior to the acquisition to combine the accounts and
operations of the Company and Co-Counsel. Operating results previously
reported for the separate companies, for periods prior to the acquisition
are as follows:
Second Quarter Ended Six Months Ended
-------------------- ------------------
June 30, July 2, June 30, July 2,
1996 1995 1996 1995
-------- ------- -------- -------
Service sales, franchise
fees, management fees and
other income:
Olsten $ 801,328 $ 689,967 $1,564,574 $1,351,630
Co-Counsel 3,015 1,936 5,812 3,971
--------- --------- --------- ---------
$ 804,343 $ 691,903 $1,570,386 $1,355,601
========= ========= ========= =========
Net income (loss):
Olsten $ 30,035 $ 24,484 $ 51,684 $ 47,498
Co-Counsel (270) (91) (494) (215)
--------- --------- ---------- ---------
$ 29,765 $ 24,393 $ 51,190 $ 47,283
========= ========= ========= =========
Other Acquisitions of Businesses
--------------------------------
During the third quarter of 1996, the Company purchased several
businesses for an aggregate purchase price of $15.7 million.
6
<PAGE> 8
5. Merger, Integration and Other Non-recurring Charges
---------------------------------------------------
In the third quarter of 1996, the Company recorded merger, integration and
other non-recurring charges of $74.5 million ($45 million, net of tax), or
$.56 per share, consisting of costs resulting from the Quantum acquisition
aggregating $44.5 million ($27 million, net of tax), including transaction
costs of $8.1 million, compensation and severance costs of $12.4 million,
asset writedowns of $8.2 million and integration costs of $15.8 million;
and certain allowances, which approximate $30 million ($18 million, net of
tax), for a change in the methodology used by Medicare for computing
reimbursements in prior years related to the Company's home health care
business. At September 29, 1996 $36.2 million and $30 million of these
costs remained unpaid and were included in accrued expenses and accounts
receivable, respectively.
In the first quarter of 1996, Quantum recorded a charge of $5.5 million
($3.2 million, net of tax), or $.04 per share related to settlement of
certain shareholder litigation.
In the third quarter of 1995, Quantum recorded charges totalling $8.5 million
($5.1 million, net of tax), or $.06 per share relating to a settlement
associated with a State of California billing dispute of $6.3 million
($3.8 million, net of tax), and a writeoff of Quantum's physician practice
management business of $2.2 million ($1.3 million, net of tax).
7
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial Condition and
-----------------------------------------------------------------
Results of Operations.
-----------------------
Results of Operations
- ----------------------
Results for the third quarter and nine months include the combined financial
results of Olsten, Quantum and Co-Counsel, pursuant to the acquistions
completed on June 28, 1996 and August 9, 1996, respectively, each of which
has been accounted for as a pooling of interests. Accordingly, comparisons
with prior year are based on restated combined results.
In the third quarter of 1996, the Company recorded merger, integration and
other non-recurring charges of $74.5 million ($45 million, net of tax), or
$.56 per share. These non-recurring charges consist of costs resulting from
the Quantum acquisition aggregating $44.5 million ($27 million, net of tax),
including transaction costs of $8.1 million, compensation and severance costs
of $12.4 million, asset writedowns of $8.2 million and integration costs of
$15.8 million; and certain allowances, which approximate $30 million ($18
million, net of tax), for a change in the methodology used by Medicare for
computing reimbursements in prior years related to the Company's home health
care business. Including the non-recurring charges, the Company reported a
net loss for the quarter of $13.1 million or $.16 per share and net income
for the nine months of $38.1 million or $.49 per share. Results for the nine
months of 1996 include Quantum's first quarter charge of $5.5 million ($3.2
million, net of tax), or $.04 per share related to settlement of certain
shareholder litigation.
In the third quarter of 1995, Quantum recorded charges totalling $8.5 million
($5.1 million, net of tax), or $.06 per share, relating to a settlement
associated with a State of California billing dispute of $6.3 million ($3.8
million, net of tax), and a writeoff of Quantum's physician practice
management business of $2.2 million ($1.3 million, net of tax).
Excluding the effects of these non-recurring charges, net income for the
third quarter increased 40% to $31.9 million or $.40 per share fully diluted,
compared to $22.8 million, or $.30 per share fully diluted for last year's
third quarter. Nine-month net income, excluding the non-recurring charges
for 1996 was $86.3 million, or $1.11 per share fully diluted, a 23% increase
over the $70.1 million or $.92 per share fully diluted reported in 1995.
Revenues increased $157 million or 22% to $876 million for the third quarter,
as compared to $720 million for last year's third quarter and $372 million
or 18% to $2.4 billion for the first nine months of 1996. Staffing Services
reported increased revenues of 41% for the third quarter and 36% for the nine
months of 1996. Acquisitions accounted for approximately half of the increase
with the balance resulting from unit growth, pricing and changes in the
business mix. Our staffing businesses in Europe continued to report good
growth, except for Germany, where the soft economy has had an impact on
performance. HealthCare Services revenues increased slightly for the third
quarter and nine months as compared to last year's comparable periods.
Increases in Quantum's revenues due to the introduction of new businesses and
an increase in the Company's managed care business were offset by a decrease
in Medicare visits and from the sale of certain operations.
8
<PAGE> 10
Costs of services increased $130 million, or 26.1%, to $630 million for the
third quarter and 20.1% to $1.7 billion for the nine months of 1996 due
primarily to the growth in revenues. Gross profit margins, as a percentage
of revenues, decreased to 28.1% for the third quarter and 29.2% for the nine
months from 30.5% for both last year's third quarter and nine month periods.
Gross profit margin was negatively impacted by the change in the Staffing/
HealthCare Services business mix. Staffing Services, which operates at lower
margins, comprised a larger percentage of total revenues as compared to the
comparable periods last year. In addition, Staffing Services gross profit
margin declined due to significant growth in lower margin national and
partnership accounts. The decline in HealthCare Services gross margins can
be attributed to more competitive pricing arrangements with managed care
organizations and the absence of non-recurring gains from the sales of
businesses which were recorded in the third quarter of 1995. The above
shortfall was partially offset by the effect of incremental management fees.
Selling, general and administrative expenses increased approximately $10.6
million or 5.9% to $189.5 million for the third quarter and $49 million or
9.6% to $559.2 million for the nine months. As a percentage of revenues, such
expenses decreased 3.3% to 21.6% for the quarter and 1.7% to 22.9% for the
nine months, resulting from our continued commitment to control costs.
Net interest expense was $2.9 million and $1.4 million for the third quarters
of 1996 and 1995, respectively, and $9.2 million and $3 million for the nine
month periods of 1996 and 1995. 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 its acquisition program.
Liquidity and Capital Resources
- --------------------------------
Working capital at September 29, 1996, including $121 million in cash, was
$596 million.
On August 9, 1996, the Company completed a revolving credit agreement with a
consortium of eleven banks for up to $400 million in borrowings and letters
of credit. This new agreement replaces revolving credit agreements with six
banks for up to $211 million in borrowings and letters of credit. As of
September 29, 1996, there were $46 million in borrowings outstanding and
another $46 million in standby letters of credit. The Company has invested
available funds in secure, short-term, interest-bearing investments. The
Company believes that its levels of working capital, liquidity and available
sources of funds are sufficient to support present operations and to continue
to fund future growth and business opportunities as the Company increases its
scope of services.
9
<PAGE> 11
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 11, 1996, reporting in Item 2, Acquisition or Disposition of
Assets, that the Company had effected its acquisition of Quantum
Health Resources, Inc.
(ii) The Company filed a report on Form 8-K, dated
August 8, 1996, reporting in Item 5, Other Events, that the
Company had released a press release dated August 8, 1996,
which was filed as an Exhibit.
10
<PAGE> 12
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 13, 1996 By: /s/ Frank N. Liguori
------------------------------
Frank N. Liguori
Chairman and Chief
Executive Officer
Date: November 13, 1996 By: /s/ Anthony J. Puglisi
-------------------------------
Anthony J. Puglisi
Senior Vice President - Finance
Chief Financial Officer
11
<PAGE> 13
EXHIBIT INDEX
Exhibit 27 - Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Olsten
Corporation and Subsidiaries Consolidated Balance Sheets at September 29,
1996 (unaudited) and Olsten Corporation and Subsidiaries Consolidated
Statements of Income for the nine months ended September 29, 1996
(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> DEC-29-1996
<PERIOD-END> SEP-29-1996
<CASH> 121,152
<SECURITIES> 0
<RECEIVABLES> 633,626
<ALLOWANCES> 18,017
<INVENTORY> 0
<CURRENT-ASSETS> 839,985
<PP&E> 220,511
<DEPRECIATION> 94,286
<TOTAL-ASSETS> 1,382,358
<CURRENT-LIABILITIES> 243,671
<BONDS> 0
0
0
<COMMON> 7,939
<OTHER-SE> 730,171
<TOTAL-LIABILITY-AND-EQUITY> 1,382,358
<SALES> 2,446,755
<TOTAL-REVENUES> 2,446,755
<CGS> 1,731,678
<TOTAL-COSTS> 1,731,678
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 14,913
<INTEREST-EXPENSE> 16,192
<INCOME-PRETAX> 66,704
<INCOME-TAX> 27,615
<INCOME-CONTINUING> 38,092
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,092
<EPS-PRIMARY> .49
<EPS-DILUTED> .49
</TABLE>
