<PAGE>
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 June 29, 1997
----------------
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 August 8, 1997
- ------------------------------------ -------------------------------
Common Stock, $.10 par value 67,469,296 shares
Class B Common Stock, $.10 par value 13,764,083 shares
<PAGE>
INDEX
-------
Page No.
---------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
June 29, 1997 (Unaudited) and December 29, 1996 2
Consolidated Statements of Income (Unaudited) -
Quarters and Six Months Ended June 29, 1997 and
June 30, 1996, respectively 3
Consolidated Statements of Cash Flows
(Unaudited) - Six Months Ended June 29, 1997
and June 30, 1996, respectively 4
Notes to Consolidated Financial Statements
(Unaudited) 5 - 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7 - 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements.
---------------------
Olsten Corporation
Consolidated Balance Sheets
(In thousands, except share amounts)
June 29, 1997 December 29, 1996
ASSETS ---------------- -----------------
(Unaudited)
CURRENT ASSETS:
Cash $ 23,691 $ 105,725
Receivables, net 824,249 661,806
Other current assets 101,095 110,904
---------- ----------
Total current assets 949,035 878,435
FIXED ASSETS, NET 166,592 130,021
INTANGIBLES, NET 506,525 413,549
OTHER ASSETS 10,724 17,235
---------- ----------
$1,632,876 $1,439,240
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued expenses $ 142,594 $ 111,325
Payroll and related taxes 87,217 57,059
Accounts payable 45,906 58,920
Insurance costs 35,882 35,538
--------- ----------
Total current liabilities 311,599 262,842
LONG-TERM DEBT 407,616 330,329
OTHER LIABILITIES 99,880 76,796
SHAREHOLDERS' EQUITY:
Common stock $.10 par value; authorized
110,000,000 shares; issued 67,455,411
and 66,652,997 shares, respectively 6,746 6,665
Class B common stock $.10 par value;
authorized 50,000,000 shares; issued
13,765,268 and 14,086,024 shares,
respectively 1,377 1,409
Additional paid-in capital 446,685 438,956
Retained earnings 353,630 320,496
Cumulative translation adjustment 5,343 1,747
---------- ----------
Total shareholders' equity 813,781 769,273
---------- ----------
$1,632,876 $1,439,240
========== ==========
See notes to consolidated financial statements.
2
<PAGE>
Olsten Corporation
Consolidated Statements of Income
(In thousands, except share amounts)
(Unaudited)
Second Quarter Ended Six Months Ended
-------------------- ----------------
June 29, June 30, June 29, June 30
1997 1996 1997 1996
--------- -------- -------- ---------
Service sales, franchise fees,
management fees and
other income $1,014,387 $804,343 $1,965,238 $1,570,386
Cost of services sold 744,832 566,382 1,441,367 1,101,404
---------- -------- ---------- ----------
Gross profit 269,555 237,961 523,871 468,982
Selling, general and
administrative expenses 221,129 183,587 439,457 369,677
Interest expense, net 5,201 3,500 9,349 6,260
Non-recurring charge -- -- -- 5,500
--------- -------- ---------- ----------
Income before income taxes
and minority interests 43,225 50,874 75,065 87,545
Income taxes 16,858 20,713 29,276 35,777
--------- -------- ---------- ----------
Income before minority
interests 26,367 30,161 45,789 51,768
Minority interests 1,038 396 1,293 578
--------- ------- ---------- ----------
Net income $ 25,329 $ 29,765 $ 44,496 $ 51,190
========= ======== ========= ==========
SHARE INFORMATION:
Primary:
Net income $ .31 $ .38 $ .55 $ .67
========= ======== ========== ==========
Average shares outstanding 81,476 77,687 81,420 76,337
========= ======== ========== ==========
Fully diluted:
Net income $ .31 $ .37 $ .55 $ .65
========= ======== ========== ==========
Average shares outstanding 81,476 82,384 81,420 82,200
========= ======== ========== ==========
See notes to consolidated financial statements.
3
<PAGE>
Olsten Corporation
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Six Months Ended
------------------
June 29, 1997 June 30, 1996
------------- -------------
OPERATING ACTIVITIES:
Net income $ 44,496 $ 51,190
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 25,161 21,197
Deferred income taxes - (1,013)
Changes in assets and liabilities,
net of effects from acquisitions
and dispositions:
Accounts receivable and other
current assets (95,579) (59,221)
Current liabilities 5,221 (44,283)
Other, net 4,871 8,026
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (15,830) (24,104)
--------- ---------
INVESTING ACTIVITIES:
Acquisitions/dispositions of businesses and
reacquisitions of franchises (106,492) (105,284)
Purchases of fixed assets (38,192) (24,720)
Sale of investment securities 9,415 9,205
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (135,269) (120,799)
--------- ---------
FINANCING ACTIVITIES:
Net proceeds from (repayment of) line of
credit agreements 79,746 (8,947)
Cash dividends (11,362) (9,038)
Issuances of common stock under stock plans 681 3,060
Net proceeds from issuance of Senior Notes - 197,284
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 69,065 182,359
--------- ---------
NET (DECREASE) INCREASE IN CASH (82,034) 37,456
CASH AT BEGINNING OF PERIOD 105,725 107,418
--------- ---------
CASH AT END OF PERIOD $ 23,691 $ 144,874
========= =========
NON-CASH TRANSACTIONS:
Assets acquired through the issuance
of a note $ 12,719 $ -
Issuance of restricted stock $ 5,718 $ -
See notes to consolidated financial statements.
4
<PAGE>
Olsten Corporation
Notes to Consolidated Financial Statements
(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.
The consolidated financial statements of the Company have been restated for
the second quarter and six months of 1996 to reflect the acquisitions of
Quantum Health Resources, Inc. ("Quantum") and Co-Counsel, Inc. ("Co-
Counsel"). Certain reclassifications have been made to conform Quantum's
and Co-Counsel's results to the Company's presentation.
2. Interest Expense, Net
---------------------
Interest expense, net, for the quarter was $5.9 million in 1997 and $6.2
million in 1996, consisting primarily of interest on long-term debt, offset
by interest income from investments of $729 thousand and $2.7 million,
respectively. Interest expense, net, for the six months, was $11.5 million,
reduced by interest income of $2.2 million in 1997 and $10.9 million
reduced by interest income of $4.6 million in 1996.
3. Acquisitions
------------
During the first six months of 1997, the Company purchased various
businesses which were accounted for by the purchase method of accounting.
The aggregate cash outlay for these acquisitions was $110 million.
Additionally, contingent payments may be made relating to one of the
acquisitions if certain earnings criteria are achieved for 1997, 1998 and
1999.
4. Non-recurring Charge
--------------------
The results of operations for the first six months of 1996 include
Quantum's non-recurring charge of $5.5 million ($3.2 million, net of tax),
or $.04 per share, related to the settlement of shareholder litigation.
5
<PAGE>
5. Newly Issued Accounting Standards
---------------------------------
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 128, "Earnings per Share" (SFAS No.
128), which establishes standards for computing and presenting earnings per
share. SFAS No. 128 will be effective for financial statements issued for
periods ending after December 15, 1997. Earlier application is not
permitted. Management has not yet evaluated the effects of this change on
the Company's financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"), which requires that changes in comprehensive income be shown
in a financial statement that is displayed with the same prominence as
other financial statements. SFAS No. 130 becomes effective in fiscal
1998. Management has not yet evaluated the effects of this change on the
Company's financial statements.
In June 1997, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 131, "Disclosures About Segments of an Enterprise
and Related Information" ("SFAS 131"), which changes the way public
companies report information about segments. SFAS 131, which is based on
the management approach to segment reporting, includes requirements to
report selected segment information quarterly and entity-wide disclosures
about products and services, major customers, and the material countries in
which the entity holds and reports revenues. SFAS 131 becomes effective in
fiscal 1998. Management has not yet evaluated the effect of this change on
the Company's financial statements.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
-----------------------------------------------------------------
Results of Operations.
-----------------------
Results of Operations
- ----------------------
Results for the second quarter and six months include the combined financial
results of Olsten, Quantum Health Resources, Inc. and Co-Counsel, Inc.,
pursuant to the acquisitions 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 the prior year have been restated to reflect the
combined operations.
In the first quarter of 1996, Quantum recorded a non-recurring charge of $5.5
million ($3.2 million, net of tax), or $.04 per share, related to settlement
of shareholder litigation.
Net income for the second quarter decreased 15% to $25.3 million, or $.31 per
share fully diluted, compared to $29.8 million, or $.37 per share fully
diluted for last year's second quarter. Net income for the first six months
was $44.5 million, or $.55 per share fully diluted, an 18% decrease, excluding
the effect of the 1996 non-recurring charge, compared to $54.4 million, or
$.69 per share fully diluted, reported in 1996.
Revenues increased $210 million or 26% to $1 billion for the second quarter,
as compared to $804 million for last year's second quarter and $395 million or
25% to $2 billion for the first six months of 1997. Staffing Services
reported increased revenues of 41% for the second quarter and 40% for the six
months over last year's second quarter and six month periods. Acquisitions
accounted for approximately 15% of the increase, European operations
contributed 4%, with the balance primarily resulting from internal growth in
our North American operations. Health Services' revenues for both the quarter
and six month periods grew 6% compared to the same periods in 1996. This
growth was primarily attributable to increased volume from Network and
infusion services, partially offset by a reduction in Medicare visits due to
increased competition from both hospital based agencies and managed care.
Cost of services sold increased $178 million, or 31.5%, to $745 million for
the second quarter and 30.9% to $1.4 billion for the six months of 1997 due
primarily to the growth in revenues. Gross profit margins, as a percentage of
revenues, decreased to 26.6% for the second quarter and 26.7% for the six
months from 29.6% and 29.9% for last year's second quarter and six months.
Gross profit margin was negatively impacted by the change in the
Staffing/Health Services business mix. Staffing Services, which operates at
lower margins, comprised a larger percentage of total revenues as compared to
the same period last year. In addition, Staffing Services' gross profit
margin declined due to the significant growth of longer-term, higher-volume,
lower-margin corporate account contracts and large regional "partnerships"
with major companies. Health Services' gross margin declined as a result of
growth in Network revenue which contributed a lower gross profit margin than
Nursing and Infusion business and a reduction in Medicare visits caused by the
migration of Medicare patients to health maintenance organizations and
competing home health agencies created by hospitals.
7
<PAGE>
Selling, general and administrative expenses increased $38 million or 20.4% to
$221 million for the second quarter and $70 million, or 18.9% to $439 million
for the six months. As a percentage of revenues, such expenses decreased 1%
to 21.8% for the quarter and 1.1% to 22.4% for the six months, resulting from
our continued commitment to control costs, combined with the operating
efficiencies inherent in an expanding revenue base.
Net interest expense was $5.2 million and $3.5 million for the second quarters
of 1997 and 1996, respectively, and $9.3 million and $6.3 million for the six
month periods of 1997 and 1996. 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 increased from $616 million at December 31, 1996 to $637
million at June 29, 1997. For the six month period, cash decreased $82
million primarily as a result of the acquisitions of businesses which amounted
to $26 million, net of $84 million borrowed from line of credit agreements;
$38 million from capital expenditures; and a $16 million decline in cash from
operations. Accounts receivable and other current assets increased $96
million for the six months. This increase is attributed to revenue growth, as
well as consolidated billing requirements of large corporate accounts and of
managed care and infusion therapy accounts, which impacted the timing of the
collection process.
In 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. As
of June 29, 1997, there were $122 million in borrowings outstanding and $48
million in standby letters of credit. The Company has invested available
funds in 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.
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. ACCORDINGLY, ACTUAL RESULTS MAY DIFFER MATERIALLY
FROM THOSE PROJECTED IN ANY FORWARD-LOOKING STATEMENTS CONTAINED HEREIN.
8
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
On August 5, 1997, a proposed class action lawsuit, captioned ESTA
S. GOLDMAN v. OLSTEN CORPORATION, FRANK N. LIGUORI, MIRIAM OLSTEN,
WILLIAM OLSTEN, STUART OLSTEN and ANTHONY PUGLISI, was filed in
the United States District Court for the Eastern District of New
York (the "Lawsuit"). The Complaint seeks unspecified damages in
connection with alleged violations of Sections 10(b) (and Rule 10b-
5 promulgated thereunder) and 20(a) of the Securities Exchange Act
of 1934. The Complaint alleges that, as a result of certain
material misstatements and omissions in connection with the
Company's Medicare-reimbursed health care business, the Company's
common stock was artificially inflated during the proposed Class
Period, which is defined in the Complaint as the period from March
6, 1996 through July 16, 1997. Although the Company is unable at
this time to assess the probable outcome of the Lawsuit or the
materiality of the risk of loss in connection therewith (given
that the Complaint does not allege damages with any
particularity), the Company believes that it has acted responsibly
and intends to vigorously defend the Lawsuit.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) The Annual Meeting of Shareholders of the Company was held
on April 25, 1997.
(c)(i) At the Annual Meeting, shareholders elected directors of
the Company by votes as follows:
Name of Director Votes For Votes Withheld
---------------- --------- --------------
Andrew N. Heine 119,009,544 18,260
Stuart R. Levine 119,011,024 18,440
Frank N. Liguori 119,011,104 18,360
John M. May 58,693,194 807,810
Miriam Olsten 119,001,684 27,780
Stuart Olsten 119,009,444 20,020
Richard J. Sharoff 119,011,204 18,260
Raymond S. Troubh 58,641,789 859,215
Josh S. Weston 58,620,167 880,837
(ii) At the Annual Meeting, shareholders voted upon a proposal
to ratify and approve the appointment by the Board of
Directors of Coopers & Lybrand L.L.P. as independent
auditors for the Company for its 1997 fiscal year. The
votes were as follows:
Votes For Votes Against Abstentions Broker Non-Votes
--------- ------------- ----------- ----------------
178,183,136 182,781 147,134 -0-
9
<PAGE>
Item 5. Other Information.
-----------------
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 regulations can result in a health care
provider's being excluded from participation in the Medicare,
Medicaid and/or CHAMPUS programs, and can subject the provider to
civil or criminal penalties.
The frequency and scope of the audits, examinations and
investigations by federal and state regulators of the health care
industry have increased dramatically during the past year or so.
The May 6, 1997 edition of THE WALL STREET JOURNAL, as well as
various subsequent published articles around the country, reported
that federal authorities are using recent funding increases to
widen their investigations into potential health care fraud and
regulatory infractions across the board, examining, among others,
mainstream providers and academic medical centers.
Recently, the Office of Investigations section of the Office of
Inspector General (an agency established at the U.S. Department of
Health & Human Services) requested information regarding the
Company's preparation of Medicare cost reports. The Company has
been advised that the U.S. Department of Justice has become
involved in this inquiry. The Company is cooperating with this
inquiry.
The Company is also cooperating with federal agents investigating
certain Columbia/HCA-owned home health care operations that are
managed under contract by Olsten Health Management, which is a
unit of Olsten Health Services that provides management services
to hospital-based home health agencies.
In connection with Quantum Health Resources ("Quantum"), which was
acquired by the Company in June 1996, the Company has provided
information to various agencies, including the U.S. Department of
Justice and the Office of the Attorney General of New Mexico,
inquiring into certain health care practices of Quantum. The
Company has also learned that the New Mexico Health Care Anti-
Fraud Task Force is looking into allegations of improper billing
and fraud against various federally-funded medical assistance
programs on the part of Quantum and its post-acquisition
successor, Olsten Health Services' Infusion Therapy division. Most
of the period which the Company understands to be at issue in the
Task Force investigation (the period between January 1992 and
April 1997) predates the Company's acquisition of Quantum.
10
<PAGE>
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.
11
<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: August 13, 1997 Frank N. Liguori
------------------------------
Frank N. Liguori
Chairman and Chief
Executive Officer
Date: August 13, 1997 Anthony J. Puglisi
-------------------------------
Anthony J. Puglisi
Senior Vice President and
Chief Financial Officer
12
<PAGE>
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 June 29, 1997
(unaudited) and Olsten Corporation and Subsidiaries Consolidated Statements of
Income for the six months ended June 29, 1997 (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> DEC-28-1997
<PERIOD-END> JUN-29-1997
<CASH> 23,691
<SECURITIES> 0
<RECEIVABLES> 851,950
<ALLOWANCES> 27,701
<INVENTORY> 0
<CURRENT-ASSETS> 949,035
<PP&E> 282,277
<DEPRECIATION> 115,685
<TOTAL-ASSETS> 1,632,876
<CURRENT-LIABILITIES> 311,599
<BONDS> 0
0
0
<COMMON> 8,123
<OTHER-SE> 805,658
<TOTAL-LIABILITY-AND-EQUITY> 1,632,876
<SALES> 1,965,238
<TOTAL-REVENUES> 1,965,238
<CGS> 1,441,367
<TOTAL-COSTS> 1,441,367
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,531
<INCOME-PRETAX> 75,065
<INCOME-TAX> 29,276
<INCOME-CONTINUING> 44,496
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,496
<EPS-PRIMARY> .55
<EPS-DILUTED> .55
</TABLE>
