<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 March 30, 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 April 30, 1997
- ------------------------------------ -------------------------------
Common Stock, $.10 par value 67,433,351 shares
Class B Common Stock, $.10 par value 13,769,437 shares
<PAGE>
INDEX
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Page No.
---------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
March 30, 1997 (Unaudited) and December 29, 1996 2
Consolidated Statements of Income (Unaudited) -
Three Months Ended March 30, 1997 and March 31, 1996,
respectively 3
Consolidated Statements of Cash Flows
(Unaudited) - Three Months Ended March 30, 1997
and March 31, 1996, respectively 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 1. Legal Proceedings 8
Item 5. Other Information 8 - 9
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements.
---------------------
Olsten Corporation
Consolidated Balance Sheets
(In thousands, except share amounts)
March 30, 1997 December 29, 1996
ASSETS ---------------- -----------------
(Unaudited)
CURRENT ASSETS:
Cash $ 37,557 $ 105,725
Receivables, net 720,145 661,806
Other current assets 104,520 110,904
---------- ----------
Total current assets 862,222 878,435
FIXED ASSETS, NET 151,910 130,021
INTANGIBLES, NET 437,246 413,549
OTHER ASSETS 7,422 17,235
---------- ----------
$1,458,800 $1,439,240
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued expenses $ 124,760 $ 111,325
Payroll and related taxes 60,492 57,059
Accounts payable 42,968 58,920
Insurance costs 34,053 35,538
--------- ----------
Total current liabilities 262,273 262,842
LONG-TERM DEBT 327,118 330,329
OTHER LIABILITIES 78,909 76,796
SHAREHOLDERS' EQUITY:
Common stock $.10 par value; authorized
110,000,000 shares; issued 67,424,356
and 66,652,997 shares, respectively 6,742 6,665
Class B common stock $.10 par value;
authorized 50,000,000 shares; issued
13,775,827 and 14,086,024 shares,
respectively 1,378 1,409
Additional paid-in capital 445,684 438,956
Retained earnings 333,983 320,496
Cumulative translation adjustment 2,713 1,747
---------- ----------
Total shareholders' equity 790,500 769,273
---------- ----------
$1,458,800 $1,439,240
========== ==========
See notes to consolidated financial statements.
2
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Olsten Corporation
Consolidated Statements of Income
(In thousands, except share amounts)
(Unaudited)
First Quarter Ended
-------------------
March 30, March 31,
1997 1996
--------- --------
Service sales, franchise fees, management fees
and other income $950,851 $766,043
Cost of services sold 696,535 535,022
-------- --------
Gross profit 254,316 231,021
Selling, general and administrative expenses 218,328 186,090
Interest expense, net 4,148 2,760
Non-recurring charge -- 5,500
-------- --------
Income before income taxes and minority interests 31,840 36,671
Income taxes 12,418 15,064
-------- --------
Income before minority interests 19,422 21,607
Minority interests 255 182
-------- --------
Net income $ 19,167 $ 21,425
======== ========
SHARE INFORMATION:
Primary:
Net income $ .24 $ .29
======== =======
Average shares outstanding 81,362 74,855
======== =======
Fully diluted:
Net income $ .24 $ .28
======== =======
Average shares outstanding 81,362 82,076
======== =======
See notes to consolidated financial statements.
3
<PAGE>
Olsten Corporation
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended
--------------------
March 30, 1997 March 31, 1996
------------- --------------
OPERATING ACTIVITIES:
Net income $ 19,167 $ 21,425
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 12,097 10,198
Deferred income taxes - (757)
Changes in assets and liabilities,
net of effects from acquisitions
and dispositions:
Accounts receivable and other
current assets (45,514) (16,065)
Current liabilities (7,907) (42,009)
Other, net (2,459) (8,354)
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (24,616) (35,562)
--------- ---------
INVESTING ACTIVITIES:
Purchases of fixed assets (20,729) (8,043)
Acquisitions/dispositions of businesses and
reacquisitions of franchises (27,492) (75,536)
Sale of investment securities 9,415 9,225
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (38,806) (74,354)
--------- ---------
FINANCING ACTIVITIES:
Issuances of common stock under stock plans 5,720 2,202
Cash dividends (5,680) (4,510)
Net proceeds from issuance of Senior Notes - 197,672
Net (repayment of) proceeds from line of
credit agreements (4,786) 64,915
--------- ---------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (4,746) 260,279
--------- ---------
NET (DECREASE) INCREASE IN CASH (68,168) 150,363
CASH AT BEGINNING OF PERIOD 105,725 107,418
--------- ---------
CASH AT END OF PERIOD $ 37,557 $ 257,781
========= =========
NON-CASH TRANSACTIONS:
Assets acquired through the issuance
of a note $ 10,576 $ -
See notes to consolidated financial statements.
4
<PAGE>
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.
The consolidated financial statements of the Company have been restated for
the 1996 first quarter to reflect the 1996 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. Long-Term Debt
--------------
Interest expense, net, consists primarily of interest on long-term debt for
the quarter of $6 million in 1997 and $5 million in 1996 offset by interest
income from investments of $2 million for both 1997 and 1996, respectively.
3. Acquisitions
------------
During the first quarter of 1997, the Company purchased several businesses
for an aggregate purchase price of $25 million.
4. Non-recurring Charge
--------------------
The results of operations for the first quarter of 1996 include Quantum's
non-recurring charge of $5.5 million ($3.2 million, net of tax), or $.04
per share, related to settlement of shareholder litigation.
5. Newly Issued Accounting Standards
---------------------------------
In February 1997, the Financial Accounting Sandards 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.
5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
-----------------------------------------------------------------
Results of Operations.
-----------------------
Results of Operations
- ----------------------
Results for the first quarter 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.
Excluding the effects of the non-recurring charge, net income for the first
quarter decreased 22% to $19.2 million, or $.24 per share fully diluted,
compared to $24.6 million, or $.32 per share fully diluted for last year's
first quarter.
Revenues increased $185 million or 24% to $951 million for the first quarter,
as compared to $766 million for last year's first quarter. Staffing Services
reported increased revenues of 38% for the first quarter over last year's
first quarter. Acquisitions accounted for approximately 14% of the increase
with the balance primarily resulting from internal growth in our North
American operations. Our staffing businesses in Europe continued to report
good growth, except for Germany, where a sluggish economy has had an impact on
performance. Health Services' revenues increased 6% for the first quarter over
the prior year first quarter. This growth was primarily attributable to
increased Network services, which provides home care case management for the
managed care community and infusion services, offset by a reduction in
medicare business.
Cost of services sold increased $162 million, or 30.2%, to $697 million for
the first quarter of 1997 due primarily to the growth in revenues. Gross
profit margin, as a percentage of revenues, decreased to 26.7% for the first
quarter from 30.2% for last year's first quarter. 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.
Selling, general and administrative expenses increased $32 million or 17% to
$218 million for the first quarter. As a percentage of revenues, such
expenses decreased 1.3% to 23% for the quarter, resulting from our continued
commitment to control costs.
6
<PAGE>
Net interest expense was $4 million and $3 million for the first quarters of
1997 and 1996, respectively. 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 March 30, 1997, including $38 million in cash, was $600
million. For the first quarter, cash decreased $68 million. This decline
resulted from cash paid for acquisitions and capital expenditures aggregating
$48 million. Additionally, accounts receivable and other current assets
increased $46 million in the first quarter predominantly due to revenue growth
and consolidated billing requirements of large corporate accounts, impacting
the timing of the collection process. These declines were partially offset by
cash generated from operations.
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 March 30, 1997, there were $42 million in borrowings outstanding and $44
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.
7
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
On April 21, 1997, the Company was served with a Complaint in a
lawsuit captioned GAIL WEICHMAN v. OLSTEN CORPORATION, MIRIAM
OLSTEN, WILLIAM OLSTEN, ANTHONY J. PUGLISI and FRANK LIGUORI, No.
CV 97 1946, which was filed as a proposed class action 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 and Sections 11, 12 and 15 of the Securities
Act of 1933. The Complaint alleges that, as a result of certain
alleged misstatements and omissions by certain of the defendants,
the Company's common stock was artificially inflated during the
proposed Class Period, which is defined in the Complaint as the
period from May 31, 1996 through November 21, 1996. 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 communicated
responsibly with its shareholders and intends to vigorously defend
the Lawsuit.
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 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.
8
<PAGE>
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 is
cooperating with such requests for information.
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.
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.
9
<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: May 8, 1997 By: /s/ Frank N. Liguori
------------------------------
Frank N. Liguori
Chairman and Chief
Executive Officer
Date: May 8, 1997 By: /s/ Anthony J. Puglisi
-------------------------------
Anthony J. Puglisi
Senior Vice President and
Chief Financial Officer
10
<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 March 30, 1997
(unaudited) and Olsten Corporation and Subsidiaries Consolidated Statements of
Income for the three months ended March 30, 1997 (unaudited) and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-END> MAR-30-1997
<CASH> 37,557
<SECURITIES> 0
<RECEIVABLES> 742,256
<ALLOWANCES> 22,111
<INVENTORY> 0
<CURRENT-ASSETS> 862,222
<PP&E> 255,672
<DEPRECIATION> 103,762
<TOTAL-ASSETS> 1,458,800
<CURRENT-LIABILITIES> 262,273
<BONDS> 0
0
0
<COMMON> 8,120
<OTHER-SE> 782,380
<TOTAL-LIABILITY-AND-EQUITY> 1,458,800
<SALES> 950,851
<TOTAL-REVENUES> 950,851
<CGS> 696,535
<TOTAL-COSTS> 696,535
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,601
<INCOME-PRETAX> 31,840
<INCOME-TAX> 12,418
<INCOME-CONTINUING> 19,167
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,167
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
