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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10K
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| X | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
- ----- OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 28, 1997
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Commission File No. 0-3532
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OLSTEN CORPORATION
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(Exact name of Registrant as specified in its charter)
DELAWARE 13-2610512
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
175 Broad Hollow Road, Melville, New York 11747-8905
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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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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, $.10 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Class B Common Stock, $.10 par value
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(Title of class)
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
[Cover page 1 of 2 pages]
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The aggregate market value of Registrant's voting stock (Common Stock and
Class B Common Stock, assuming conversion of Class B Common Stock into Common
Stock on a share for share basis) held by nonaffiliates of Registrant, as of
February 25, 1998, was $1,069,454,624 based on the closing price of the Common
Stock on the New York Stock Exchange on such date.
The number of shares outstanding of Registrant's Common Stock and Class B
Common Stock, as of February 25, 1998, were 68,159,013 shares and 13,153,054
shares, respectively.
DOCUMENTS INCORPORATED BY REFERENCE
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Proxy Statement for 1998 Annual Meeting of Shareholders of Registrant.
Certain information to be included therein is incorporated by reference into
PART III hereof.
[Cover page 2 of 2 pages]
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INFORMATION CONTAINED IN THIS REPORT, OTHER THAN HISTORICAL
INFORMATION, SHOULD BE CONSIDERED FORWARD-LOOKING AND IS SUBJECT TO VARIOUS RISK
FACTORS AND UNCERTAINTIES. FOR INSTANCE, REGISTRANT'S STRATEGIES AND OPERATIONS
INVOLVE RISKS OF COMPETITION, CHANGING MARKET CONDITIONS, CHANGES IN LAWS AND
REGULATIONS AFFECTING ITS INDUSTRIES AND NUMEROUS OTHER FACTORS DISCUSSED IN
THIS REPORT AND IN REGISTRANT'S FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION. ACCORDINGLY, ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE IN ANY
FORWARD-LOOKING STATEMENTS.
PART I
Item 1. Business.
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Introduction
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Olsten Corporation (herein, together with its subsidiaries unless the
context otherwise requires, generally referred to as "Registrant") was
incorporated in Delaware in 1967 as the successor to a business founded in 1950.
Registrant operates through subsidiaries principally under the trade
names "Olsten Staffing Services" and "Olsten Health Services" in North America
and engages in and derives substantially all of its revenues from two industry
segments, Staffing Services and Health Services. Registrant's owned, licensed
and franchised operations conduct business through more than 1,400 offices in 50
states, the District of Columbia, Puerto Rico, Canada, Mexico, Argentina, Chile,
United Kingdom, Denmark, Finland, France, Germany, Norway, Spain and Sweden.
In Staffing Services, Registrant provides qualified assignment
employees to business, industry and government. Registrant's Information
Technology Services business provides services for the design, development and
maintenance of information systems, and Registrant's Financial Staffing Services
division provides a full spectrum of accounting and financial professionals and
support-level candidates to a wide array of clients. Further, Registrant
provides attorneys, paralegals and legal support staff to law firms, corporate
law departments and government.
In Health Services, Registrant provides both Network Services (which
encompass case management and care coordination for managed care organizations)
and health care personnel (caregivers) for home health care, hospitals and
industry and provides acute and chronic infusion therapy services and chronic
disease therapies. Further, Registrant provides management services to
hospital-based home health agencies.
Selected financial information relating to Registrant's industry
segments is contained herein in Note 12 of Notes to Consolidated Financial
Statements.
Systemwide Staffing Services and Health Services sales accounted for
approximately 61% and 39%, respectively, of Registrant's 1997 systemwide sales,
approximately 55% and 45%, respectively, of Registrant's 1996 systemwide sales
and approximately 51% and 49%, respectively, of Registrant's 1995 systemwide
sales. Systemwide sales represent all sales generated by Registrant's entire
network, including Registrant, licensed and franchised offices and
hospital-based home health agencies under management.
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Staffing Services
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In Staffing Services, Registrant provides assignment employees in a
full spectrum of skills, from entry level workers to seasoned professionals and
managers. Service areas include: supplemental staffing for office automation;
general office and administrative services; accounting and other financial
services; legal, scientific, engineering and technical services; 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 provision of
staffing services is not generally subject to extensive federal and state
regulation.
Registrant believes that utilization of assignment employees has become
a valuable and recognized management tool, allowing many companies to convert
fixed costs to variable costs, especially in view of corporate reengineering and
restructuring in a more competitive global environment. With the availability of
such services, a client can maintain on a cost-effective basis a nucleus of core
personnel that can be supplemented by skilled specialists for long- and
short-term assignments. The expense and inconvenience of hiring additional
employees for assignments of a limited duration, including recruiting,
interviewing, reference-checking and testing, are eliminated. Additionally,
Registrant believes that its comprehensive added-value services enable clients
to eliminate the record-keeping, payroll taxes, insurance and administrative
costs usually associated with regular, full-time personnel. A client pays only
for actual hours worked by Registrant's assignment employees; upon completion of
the assignment, services can be immediately terminated without the adverse
effects associated with employee layoffs.
By supplying a supplemental work force to its Staffing Services
clients, Registrant believes it affords them added efficiencies and economies,
as well as greater productivity and flexibility. Registrant's assignment
employees help meet clients' staffing requirements for peak periods caused by
such recurring factors as seasonal demands, inventories, month end requirements
and vacations and such unpredictable factors as special projects, marketing
promotions, illnesses and emergencies. Assignments of personnel may be for
hours, days, weeks, months or longer periods as the clients' needs dictate.
In Staffing Services, Registrant is pursuing with clients strategic
"partnering" relationships that have become increasingly important to
Registrant. Through its Partnership Program (R) services with major corporate
and other clients, Registrant acts as a master vendor responsible for the
recruitment, training and ongoing management of large groups of employees for
companies at a single site or at multiple sites, allowing clients to focus
better on growing their core businesses. Other clients have outsourced entire
functions whereby people, processes and technology are all managed by
Registrant. Registrant's services can also include multilocation coordination,
customized orientation and training, billing and electronic information exchange
programs for its clients. These arrangements can enable a client to better
manage overhead and personnel expenses and can help save a client time and money
by reducing its employee recruitment and training efforts, particularly if the
client is experiencing a high employee turnover rate.
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Information Technology Services
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In Information Technology Services, Registrant provides information
technology consultants on either a project management or staff supplementation
basis to assist clients in the design, development and maintenance of
information systems. The Information Technology Services division provides a
wide range of technology solutions in practice areas that include Help Desk,
Insourcing/Outsourcing, Testing, Visual Warehousing, Year 2000 and SAP
Implementation.
Health Services
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In Health Services, Registrant provides home health care through
Registrant's licensed health care personnel, such as registered nurses, offering
a broad range of services, including physician-prescribed skilled nursing,
patient and family education, case management and care coordination, pediatric
and perinatal care, physical, occupational, neurological and speech therapies,
administration of drugs, nutrients and other solutions intravenously and orally,
and disease management programs, as well as institutional, occupational and
alternate site staffing and marketing, distribution and staffing solutions for
pharmaceutical, biotechnology and medical device firms. Through its clinical
pharmacy network, Registrant has the ability to deliver nutrients and
medications utilized in certain of its home health care services. Home health
care provided by Registrant's unlicensed personnel, such as home health aides
and homemakers, may involve assistance with personal hygiene, feeding, dressing,
preparation of meals and light housekeeping.
Through five regional centers in the United States, Registrant provides
Network Services. These services involve case management and case coordination
for managed care customers desiring a single source for centralized intake and
billing, claims adjudication, quality assurance and data reporting and analysis.
In providing infusion therapy services, Registrant delivers, manages and
administers intravenous medications in the home setting, as well as performing
patient, family and home environmental assessments, evaluating equipment needs
and providing patient and family education. In furnishing hospital management
services, Registrant provides comprehensive management services to
hospital-based home health agencies, including clinical expertise, policies and
procedures, quality assurance programs and caregiver training, as well as
dedicated on-site and corporate personnel who provide certain back office
support functions. In carrying out supplemental institutional staffing,
Registrant's health care professionals perform services for hospitals, nursing
homes, clinics and other health care facilities and furnish business and
industry with specialized staffing. Health care institutions use supplemental
staffing for peak periods, illnesses and vacations, helping these facilities to
control employee costs.
Factors that Registrant believes have contributed to the development of
home health care in particular include institutional, governmental, managed care
organizational and third-party payor recognition that home health care is a
cost-effective alternative to lengthy, more expensive institutional care; an
aging population; increasing consumer awareness and interest in home health
care; the psychological benefits of recuperating from an illness or accident in
one's own home; and advanced technology that allows more health care procedures
to be provided at home.
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Registrant is actively pursuing relationships with managed care
organizations as a provider and as a manager of Network Services for home health
care delivery. Registrant believes that its nationwide office network, financial
resources and the quality, range and cost-effectiveness of its services are
important factors as it seeks opportunities in its managed care relationships in
a consolidating home health care industry. Registrant offers the direct and
managed provision of care as a single gatekeeper, thereby optimizing
utilization.
Of Registrant's Health Services revenues, approximately 22% are
attributable to Medicare reimbursement and approximately 20% are attributable to
Medicaid reimbursement and state and local government contracts.
Registrant'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. Registrant 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 Registrant's home health care
business, Registrant is subject to periodic audits, examinations and
investigations conducted by or at the direction of governmental investigatory
and oversight agencies. The frequency and scope of the audits, examinations and
investigations by federal and state regulators of the health care industry have
increased dramatically over the past few years. Various publications have
reported that federal authorities are using recent funding increases to expand
their investigations into alleged health care fraud and regulatory infractions
across the board, examining, among others, mainstream providers and academic
medical centers. (See Item 3, Legal Proceedings, below.)
Violation of the applicable federal and state health care regulations
can result in a health care provider's being excluded from participation in the
Medicare, Medicaid and/or CHAMPUS programs and subjected to substantial civil
and/or criminal penalties.
General
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In general, Registrant obtains clients through personal sales
presentations, telephone marketing calls, direct mail solicitation, referrals
from other clients and advertising in a variety of local and national media,
including the Yellow Pages, newspapers, magazines, trade publications and
television. Registrant's marketing efforts for Health Services also involve
personal contact with case managers for managed health care programs, such as
those involving health maintenance organizations (HMOs) and preferred provider
organizations (PPOs), physicians and their staffs, hospital management, hospital
discharge planners, nursing home supervisors, insurance company representatives
and employers with self-funded employee health benefit programs.
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Registrant believes that its success in furnishing assignment employees
and caregivers is based, among other factors, on its reputation for quality and
local market expertise, combined with the resources of its extensive office
network. Registrant also empowers its branch managers and branch directors with
a high level of responsibility, providing strong incentives to manage the
business effectively at the local level--one of the central ingredients in a
business where relationships are vital to success.
There is no one client that accounts for as much as 10% of Registrant's
revenues. In the opinion of Registrant, its business is not seasonal to any
material degree. There have not been any significant changes in the kinds of
services rendered or methods of distribution of Registrant since the end of the
last fiscal year. Registrant's capabilities as a provider of infusion therapies
substantially increased as a result of Registrant's acquisition of Quantum
Health Resources, Inc. in June 1996. Following its acquisition of IMI Systems
Inc. in August 1995, Registrant expanded its information technology services
business by its acquisition of ARMS, Inc. in March 1996, Systems Partners, Inc.
in June 1996 and Vistech, Inc. in January 1997. Registrant expanded into legal
staffing services through its acquisition of Co-Counsel, Inc. in August 1996 and
five smaller subsequent acquisitions and further expanded its financial staffing
services business through the acquisition of Accountants Overload in June 1997.
Registrant's assignment employees and caregivers, as well as the
employees of other firms providing similar services, are generally paid weekly
for their services while payments are generally received from customers within
five to thirteen weeks on average of the related billings for such services.
Consequently, as new offices are established or acquired, or as existing offices
expand, there is an ongoing requirement for cash resources to fund current
operations as well as to provide for the expansion of the business.
Registrant has grown and is pursuing expansion opportunities by
strengthening relationships with many clients, making strategic acquisitions
within and outside the United States, opening additional offices and developing
and extending specialized services, particularly in health care, information
technology, financial and accounting, and legal.
Franchise Operations
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At December 28, 1997, approximately 90 offices in the United States
were operated by eight franchisees under franchises granted by Registrant.
Franchisees, who provide services similar to Olsten Staffing Services, have the
exclusive right to market and furnish assignment employees within a designated
geographic area using certain of Registrant's trade names, service marks,
advertising materials, sales programs, manuals and forms. Franchisees receive
training from Registrant, attend seminars, participate in marketing programs and
utilize Registrant's sales literature. Registrant has established operating
procedures and standards to be followed by its franchisees. Registrant offers
franchisees billing, payroll and other data processing systems and services, as
well as accounts receivable financing. Registrant also assists its franchisees
in obtaining business from its corporate accounts and through its national and
cooperative local advertising.
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Franchisees operate their businesses autonomously within the framework
of Registrant's policies and standards, and recruit, employ and pay their own
regular, full-time employees and assignment employees. Registrant receives
royalty fees from each franchise based upon its gross franchise sales. Royalty
fees generally start at 5% of gross franchise sales and decrease based upon
volume. Sales by franchisees to their clients are not included in Registrant's
revenues but are included in Registrant's systemwide sales. Franchise agreements
are generally for a term of ten years and typically are renewable at the option
of the franchisee for five additional five-year terms. Registrant may terminate
a franchise if the franchisee fails to meet Registrant's standards or otherwise
breaches the franchise agreement. Registrant is not granting new franchises and
has not granted any since 1980.
Licensed Area Representative Operations
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At December 28, 1997, approximately 100 offices in North America were
operated by 53 licensed area representatives. A licensed area representative is
a person authorized by Registrant to operate Registrant's Staffing Services
business within an exclusive marketing area. The agreements governing licensed
area representative operations do not have a stated term. The licensed area
representative does not have an ownership interest in the business but receives
approximately 50% of the office's gross profit margin in the form of
commissions, which are reflected in Registrant's selling, general and
administrative expenses. Sales by licensed area representatives are included in
Registrant's revenues. The licensed area representative is responsible for the
office's operating expenses, such as rent, utilities and in-office staff
salaries, and Registrant is responsible for the assignment employee wages and
related payroll taxes and insurances. Registrant also provides national
advertising, shares in the costs of certain local advertising, conducts training
seminars and furnishes operating manuals, forms and sales materials to the
licensed area representatives.
Licensed area representatives are required to observe Registrant's
operating procedures and standards and act for Registrant in recruiting,
screening, evaluating and hiring assignment employees. The licensed area
representatives solicit orders for assignment employees from clients and assign
Registrant's assignment employees to clients in response to such orders.
Registrant's experience has shown that licensing is a more profitable method of
operation than franchising. The opening of licensed area representative offices
is one of the strategies by which Registrant is pursuing expansion
opportunities.
Source and Availability of Personnel
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To maximize the cost effectiveness and productivity benefits of its
assignment employees and caregivers, Registrant utilizes customized systems and
procedures that it has developed and refined over the years. These processes
include the recruitment and selection of applicants who fit the client's
individual parameters for skills, experience and other criteria. Personalized
matching is achieved through initial applicant profiles, personal interviews,
skill evaluations and background and reference checks. Assignment employees and
caregivers are generally employed by Registrant on an as-needed basis to meet
client demand. Specialized recruitment and retention programs are offered to
assignment employees and caregivers as incentives for them to remain in the
employ of Registrant.
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Assignment employees and caregivers are recruited through a variety of
sources, including advertising in local and national media, job fairs,
solicitations on web sites, direct mail and telephone solicitations, as well as
referrals obtained directly from clients and other assignment employees and
caregivers. Registrant's employees are generally paid by Registrant for time
actually worked, subject to a four-hour daily minimum on the days worked.
Although conditions may vary in different areas of the country and with respect
to different skill requirements, assignment employees and caregivers were
generally less available during 1997 than they were in the preceding year.
Importance and Effect of Trademarks Held
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Various trademarks are registered with the United States Patent and
Trademark Office protecting OLSTEN. Certain other marks that are registered or
in the process of being registered and are utilized in Registrant's business
include AMERICA IS COMING HOME WITH US (SM), CHRONICARE (R), CO-COUNSEL (R),
CUSTOMIZED ADDED-VALUE (R), EXCELLENCE THROUGH OLSTEN PEOPLE (SM), MAKE THE SURE
CALL (SM), OFISS 2000 (R), PARTNERSHIP PROGRAM (R), PRECISE (R), PROFILER (R),
PROLAW SYSTEM (SM), PROMETRICS (SM) and THE FUTURE IS WORKING WITH OLSTEN (SM).
Under current law, federal trademark registrations can be renewed indefinitely.
National advertising and usage have, in the belief of Registrant, given
significance to these marks.
Competitive Position
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The Staffing Services and Health Services provided by Registrant also
are provided by a number of companies which operate, as Registrant does,
nationally throughout the United States and by numerous regional and local firms
and are highly competitive. Unlike Registrant, such companies and firms usually
provide either staffing services or health services, but not both. Registrant
believes that, in terms of systemwide sales, it is North America's third-largest
provider of staffing services, as well as one of the world's largest providers
of staffing services, and North America's largest home health care provider and
third-largest home infusion therapy services provider.
The principal methods of competing are availability of personnel,
quality of services and the price of such services. Registrant believes that its
favorable competitive position is attributable to its early industry entry, to
its widespread office network and to the consistently high quality and targeted
services it has provided over the years to its clients, as well as to its
screening and evaluation procedures, its training programs and its employee
retention techniques.
Number of Persons Employed
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At December 28, 1997, Registrant employed approximately 11,700 regular,
full-time employees and during 1997 employed approximately 580,000 assignment
employees and caregivers. In addition, Registrant's franchisees employed
approximately 575 regular, full-time employees as well as approximately 79,000
assignment employees during 1997. Employees of franchisees are not Registrant's
employees.
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As the employer of its assignment employees and caregivers, Registrant
is responsible for and pays the employer's share of Social Security taxes,
federal and state unemployment taxes, workers' compensation insurance and other
similar costs. Wages are generally paid to assignment employees and caregivers
by Registrant on an hourly basis and may vary in different geographic areas to
reflect prevailing wages paid for particular skills in the community where the
services are performed. Registrant believes that its relationships with its
employees are generally good.
All assignment employees and caregivers of Registrant are covered by
general liability insurance and by a fidelity bond maintained by Registrant. In
addition, caregivers are covered by professional medical liability insurance.
Registrant believes that its insurance coverages are adequate for the purposes
of its business.
International Operations
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Through subsidiaries, Registrant for many years has provided Staffing
Services in Canada and since 1990 has provided Health Services there. Registrant
began providing temporary and permanent placement services outside North America
in 1993 with the acquisition of Office Angels in the United Kingdom. Expanding
the geographic scope of its Staffing Services, Registrant in 1995 purchased
majority interests in Norsk Personal A/S in Norway (now called Olsten Norsk
Personal A/S); Allegro Vikarservice Aps in Denmark (now called Olsten Personale
A/S); and Ready Office S.A. in Argentina (now called Olsten Ready Office S.A.).
In 1996 Registrant acquired, or purchased majority interests in, OFFiS
Unternehmen fur Zeitarbeit GmbH & Co. KG in Germany; Kontorsjouren AB in Sweden
(now called Olsten Personalkraft AB); Top Notch and Multiforce in Puerto Rico;
and Dataset OY in Finland (now called Olsten Dataset OY). In 1997 Registrant
purchased majority interests in Adyser, S.A. in Chile (now called Olsten Adyser,
S.A.); Sogica S.A. in France and Spain; Olsten Helsetjenester A/S in Norway
(home health care staffing); and Olsten BTV Aps in Denmark (home health care
staffing). Registrant expanded its information technology operations through the
acquisitions of Ward Associates Limited in Canada in 1995 and Harvey Consultants
Limited in the United Kingdom and Vikar Konsulent A/S (majority owned and now
called Olsten DataVikar A/S) in Norway in 1996.
Item 2. Properties.
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The international corporate headquarters of Registrant are located at
175 Broad Hollow Road, Melville, New York. The building in which the
headquarters are located contains approximately 175,000 square feet of office
space and is leased from Suffolk County Industrial Development Agency under a
lease terminating on April 13, 2007, at which time Registrant is obligated to
purchase the premises and building thereon for One Dollar. The industrial
development revenue bond issued in connection with the acquisition,
construction, renovation and equipping of the headquarters building is held by a
wholly-owned subsidiary of Registrant.
The leases for the operating offices utilized by Registrant's
subsidiaries expire at various dates. Registrant believes that such facilities
are adequate for its immediate needs. Registrant does not anticipate that it
will have any problem obtaining additional space if needed in the future.
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Item 3. Legal Proceedings.
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Government Investigations
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As previously reported in Registrant's Form 10-Q for the quarter ended
September 28, 1997, Registrant continues to cooperate with the various health
care investigations that are being conducted by certain governmental agencies.
Registrant continues to cooperate with the Office of Investigations
section of the Office of Inspector General (an agency within the U.S. Department
of Health & Human Services) and the U.S. Department of Justice in connection
with their investigation into the Registrant's preparation of Medicare cost
reports.
Registrant also continues to cooperate with the U.S. Department of
Justice and other federal agencies investigating the relationship between
Columbia/HCA Healthcare Corporation and Registrant in connection with the
purchase, sale and operation of certain home health agencies which are now 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.
Registrant continues to cooperate with various state and federal
agencies, including the U.S. Department of Justice, the Office of the Attorney
General of New Mexico and the New Mexico Health Care Anti-Fraud Task Force (Task
Force), in connection with their investigations into certain health care
practices of Quantum Health Resources (Quantum). Among the matters into which
those agencies are 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. Most of the time period which Registrant
understands to be at issue in the Task Force investigation (the period between
January 1992 and April 1997) predates Registrant's June 1996 acquisition of
Quantum.
Registrant believes that certain of the government investigations
referenced above may have been triggered by or given rise to lawsuits under
federal and/or state whistleblower statutes against Registrant and Quantum.
Notwithstanding Registrant's continuing cooperation with the government
investigations referenced above, the government may regard Registrant and/or
certain of its employees as subjects or targets of one or more of such
investigations. As noted in Item 1, above, if Registrant were to be found to
have violated the laws and regulations at issue in the government
investigations, Registrant could be subjected to a variety of sanctions,
including substantial monetary fines, civil and/or criminal penalties and
exclusion from participation in the Medicare, Medicaid and/or CHAMPUS programs.
While Registrant is unable at this time to predict the ultimate outcome of the
government investigations, any one of the foregoing sanctions could have a
material adverse effect upon Registrant's financial position and results of
operations.
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Shareholder Class Action Litigation
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On April 17, 1997, a purported class action captioned Gail Weichman v.
Olsten Corporation, et al., No. CV 97-1946, was filed in the United States
District Court for the Eastern District of New York against Registrant, Miriam
Olsten, Anthony Puglisi and Frank Liguori. On August 5, 1997, another proposed
class action lawsuit, captioned Esta S. Goldman v. Olsten Corporation, et al.,
No.CV 97-4501, was filed in the United States District Court for the Eastern
District of New York against the same defendants named in the Weichman lawsuit,
plus Stuart Olsten. On August 29, 1997, a third proposed class action lawsuit,
captioned Elliott Waldman v. Olsten Corporation, et al., No. CV 97-5056, was
filed in the United States District Court for the Eastern District of New York
against Registrant and each of the individual defendants listed above. On
September 19, 1997, a fourth proposed class action lawsuit, captioned Michael
Cannold v. Olsten Corporation, et al., No. CV 97-5408, was filed in the United
States District Court for the Eastern District of New York against Registrant
and each of the individuals listed above. (The Weichman, Goldman, Waldman and
Cannold lawsuits are referred to collectively herein as the "Class Actions".)
Each of the complaints in the Class Actions (collectively, the "Complaints")
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 Weichman Complaint also alleges violations of Sections
11 and 12 of the Securities Act of 1933. The Complaints allege that, as a result
of certain material misstatements and omissions by certain of the defendants
(relating, in part, to the matters at issue in the government investigations
referenced above), Registrant's common stock was artificially inflated during
the proposed Class Period, which is defined in the Weichman Complaint as the
period from May 31, 1996 through November 21, 1996, in the Waldman Complaint as
the period from March 6, 1996 through August 25, 1997, and in the Goldman and
Cannold Complaints as the period from March 6, 1996 through July 16, 1997.
Pending before the Court are the parties various motions relating to the (a)
potential consolidation of the Class Actions, (b) appointment of a lead
plaintiff and (c)selection of lead plaintiff's counsel. While Registrant is
unable at this time to assess the probable outcome of the Class Actions or the
materiality of the risk of loss in connection therewith (given the preliminary
stage of the Class Actions and the fact that the Complaints do not allege
damages with any particularity), Registrant believes that it acted responsibly
with respect to its shareholders and intends to vigorously defend the Class
Actions.
Item 4. Submission of Matters to a Vote of Security Holders.
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No matters were submitted to a vote of security holders during the
fourth quarter of Registrant's 1997 fiscal year.
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Item 4(a). Executive Officers of Registrant.
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The following table sets forth certain information regarding each of
the executive officers of Registrant:
Executive Expiration
Officer of Term Positions and Offices
Name Since Age of Office with Registrant
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Frank N. Liguori 1976 51 April 1998 Chairman of the Board and
Chief Executive Officer
Stuart Olsten 1987 45 April 1998 President and
Vice Chairman
Robert A. Fusco 1992 47 April 1998 Executive Vice President
and President, Olsten
Health Services
Gerald J. Kapalko 1993 51 April 1998 Executive Vice President
and President, Olsten
Latin America
Richard A. Piske, III 1993 49 April 1998 Executive Vice President
and President, Olsten
Staffing Services
William P. Costantini 1992 50 April 1998 Senior Vice President and
General Counsel
Maureen K. McGurl 1997 50 April 1998 Senior Vice President -
Human Resources
Anthony J. Puglisi 1993 48 April 1998 Senior Vice President and
Chief Financial Officer
Frank N. Liguori has been Chairman of the Board of Registrant since
February 1992 and its Chief Executive Officer since April 1990.
Stuart Olsten has been Vice Chairman of Registrant since August 1994
and President of Registrant since April 1990. He was Chief Operating Officer of
Registrant from April 1990 through July 1993.
Robert A. Fusco has been Executive Vice President of Registrant since
January 1992 and President, Olsten Health Services, since July 1993. He was
General Manager, Olsten HealthCare, from January 1992 to July 1993.
Gerald J. Kapalko has been Executive Vice President of Registrant since
July 1993, and President, Olsten Latin America since January 1997. From August
1987 to July 1993, he was Senior Vice President - Corporate Development of
Registrant.
Richard A. Piske, III has been Executive Vice President of Registrant
and President, Olsten Staffing Services, since September 1993. From March 1990
to September 1993, he was Senior Vice President - Southeast Division of
Registrant.
-13-
<PAGE>
William P. Costantini has been Senior Vice President and General
Counsel of Registrant since June 1992.
Maureen K. McGurl has been Senior Vice President - Human Resources of
Registrant since December 1996. From 1984 to December 1996, she was Corporate
Vice President of Human Resources and Organizational Planning of Supermarkets
General, a supermarket company.
Anthony J. Puglisi has been Senior Vice President and Chief Financial
Officer of Registrant since April 1993. From December 1988 to April 1993, he was
Chief Financial Officer of NMB (USA) Inc., a high technology manufacturer, and
was President of IMC Magnetics Corp. from July 1988 to April 1993.
PART II
Item 5. Market for the Registrant's Common Equity
- ------ -----------------------------------------
and Related Stockholder Matters.
-------------------------------
Market Information
- ------------------
Registrant has outstanding two classes of common equity securities:
Common Stock and Class B Common Stock. Registrant's Common Stock (symbol OLS) is
listed on the New York Stock Exchange. The following table sets forth the high
and low prices of the Common Stock for each quarter during fiscal 1997 and 1996:
-----------------------------------------
1997 1996
-----------------------------------------
High Low High Low
---- --- ---- ---
$ $ $ $
1st Quarter 19-1/4 14-3/8 33 24-5/8
2nd Quarter 21-1/8 15-3/4 32-3/8 28-1/2
3rd Quarter 23 16-11/16 29-5/8 22-7/8
4th Quarter 20 13-11/16 24-7/8 13-1/2
There is no established public trading market for Registrant's Class B
Common Stock, which is subject to significant restrictions on sale. Registrant's
Class B Common Stock, which has ten votes per share, is convertible at any time
on a share for share basis into Registrant's Common Stock, which has one vote
per share.
Holders
- -------
On February 25, 1998 there were approximately 1,750 holders of record
of Registrant's Common Stock (including brokerage firms holding Registrant's
Common Stock in "street name" and other nominees) and 675 holders of record of
Registrant's Class B Common Stock.
-14-
<PAGE>
Dividends per share Fiscal Year
------------------- ---------------------
1997 1996
---------------------
Cash dividends* $ $
Common Stock .28 .28
Class B Common Stock .28 .28
* Registrant paid quarterly dividends in its two most recent fiscal years.
Item 6. Selected Financial Data.
- ------ -----------------------
<TABLE>
OLSTEN CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(In thousands, except share amounts)
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
$ $ $ $ $
<S> <C> <C> <C> <C> <C>
Service sales, franchise fees,
management fees and other
income 4,113,014 3,377,729 2,813,768 2,588,697 2,402,145
Income before extraordinary
charge 93,028 54,642 90,290 92,240 5,043
Net income (loss) 93,028 54,642 90,290 92,240 (9,625)
Working capital 687,513 615,593 493,970 438,432 401,720
Total assets 1,750,201 1,439,240 1,138,410 979,714 915,086
Long-term debt 461,178 330,329 267,030 211,250 262,307
Shareholders' equity 841,777 769,273 586,389 515,986 404,342
SHARE INFORMATION:
Basic earnings (loss) per share:
Income before extraordinary
charge 1.15 .71 1.23 1.27 .07
Net income (loss) 1.15 .71 1.23 1.27 (.14)
Diluted earnings (loss) per share:
Income before extraordinary
charge 1.15 .71 1.19 1.21 .07
Net income (loss) 1.15 .71 1.19 1.21 (.14)
Cash dividends .28 .28 .21 .16 .16
Book value 10.35 9.53 7.98 7.06 5.68
SYSTEMWIDE SALES:
Staffing Services 2,946,529 2,246,803 1,693,407 1,397,393 1,129,632
Health Services 1,891,132 1,849,396 1,607,595 1,489,522 1,490,599
--------- --------- --------- --------- ---------
4,837,661 4,096,199 3,301,002 2,886,915 2,620,231
========= ========= ========= ========= =========
</TABLE>
-15-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
- ------ -------------------------------------------------
Condition and Results of Operations.
-----------------------------------
OLSTEN CORPORATION & SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Results of Operations
- ---------------------
Operating results reflect the combined operations of Olsten Corporation (the
"Company"), Quantum Health Resources, Inc. ("Quantum") acquired on June 28,
1996, Co-Counsel, Inc. ("Co-Counsel") acquired on August 9, 1996, and IMI
Systems Inc. ("IMI") acquired on August 2, 1995. Each of these transactions has
been accounted for as a pooling of interests. Comparisons with prior years are
based on restated combined results.
In 1996, the Company recorded merger, integration and other non-recurring
charges totalling $80 million ($48 million, net of tax), or $.59 per diluted
share. These non-recurring charges before taxes consist of merger and
integration charges resulting from the Quantum and Co-Counsel acquisitions of
$45 million ($27 million, net of tax); $30 million ($18 million, net of tax)
pertaining to certain allowances for a change in the methodology used by
Medicare for computing reimbursements in prior years related to the Company's
home health care business and Quantum's charge of $5.5 million ($3.2 million,
net of tax) related to settlement of shareholder litigation.
Quantum recorded non-recurring charges in 1995 totalling $12 million ($7.4
million, net of tax), or $.09 per diluted share, consisting of a settlement
associated with a State of California billing dispute of $6.3 million ($3.8
million, net of tax); a writeoff of Quantum's physician practice management
business of $2.2 million ($1.3 million, net of tax); and a charge of $3.8
million ($2.3 million, net of tax) representing costs of relocating Quantum's
corporate headquarters.
Excluding the effects of these non-recurring charges, net income decreased 10
percent to $93 million, or $1.15 per diluted share, in 1997 versus $102.8
million, or $1.30 per diluted share, in 1996. Net income in 1996 increased 5
percent from $97.7 million, or $1.28 per diluted share, in 1995.
Systemwide sales for the Company's two segments increased 18 percent, to $4.8
billion in 1997; 24 percent, to $4.1 billion in 1996; and 14 percent, to $3.3
billion in 1995. Staffing Services' systemwide sales increased 31 percent, 33
percent and 21 percent, while Health Services' systemwide sales increased 2
percent, 15 percent and 8 percent for 1997, 1996 and 1995, respectively.
Systemwide sales represent sales generated by Company, licensed and franchised
offices, and hospital-based home health agencies under management.
Revenues increased 22 percent in 1997 to $4.1 billion compared to $3.4 billion
in 1996. This increase reflected the continued strong demand for the Company's
services along with additional growth through acquisitions. Revenues in 1996
rose 20 percent from $2.8 billion in 1995.
-16-
<PAGE>
OLSTEN CORPORATION & SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Staffing Services' revenues grew 34 percent in 1997 and 39 percent in 1996.
Acquisitions accounted for 16 percent of the growth in 1997 and 22 percent in
1996, with the balance resulting from increases in volume and pricing. Our
Information Technology Services business revenues grew to $287 million in 1997
from $163 million in 1996, through acquisitions of 36 percent and internal
growth of 40 percent, representing 11 percent and 8 percent of total Staffing
Services' revenues in 1997 and 1996, respectively. Our European revenues,
excluding the Information Technology Services business, increased to $582
million in 1997 from $346 million in 1996, contributing 22 percent of total
Staffing Services' revenues in 1997 and 17 percent in 1996.
Health Services' revenues increased 4 percent in 1997 versus 1996 and were
essentially flat in 1996 compared to 1995. Increases in Infusion, Institutional
Staffing and Network business were offset by a reduction in Medicare visits
stemming from the current regulatory climate, as well as competition for
Medicare patients from hospital-based home health agencies and the continued
shift of Medicare beneficiaries into HMOs.
Cost of services sold increased 25 percent to $3 billion in 1997; 24 percent, to
$2.4 billion in 1996; and 9 percent, to $2 billion in 1995, due primarily to the
growth of revenues. Gross margins as a percentage of revenues were 26.7 percent
in 1997, 28.3 percent in 1996 and 30.5 percent in 1995. Gross profit margin on a
consolidated basis 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 the total revenues in 1997 as compared to 1996.
A decline in markups related to growth in large volume corporate and partnership
accounts negatively impacted Staffing Services gross profit margins for the
year. International margins were reduced due to competitive pricing, pressure on
wages related to low unemployment rates in some countries as well as the impact
of increased high volume accounts that carry lower margins. Health Services'
gross profit margin, as a percentage of revenue, was negatively impacted by the
change in business mix reflecting growth in lower margin Network and
Institutional Staffing business and revenue declines in our Medicare business
serviced both by our Home Care-Nursing and the visits managed under our Health
Management business. The negative influences on Health Services' gross profit
margin were partially offset by the strong performance in the Infusion business.
Selling, general and administrative expenses as a percentage of revenues were
22.2 percent, or $914.6 million; 22.8 percent, or $768.4 million; and 24.3
percent, or $684.9 million; in 1997, 1996 and 1995, respectively. Results for
1997 include professional fees associated with the ongoing investigations
involving the Company's health care operations representing approximately $3.4
million, net, or $.03 per diluted share. Excluding these fees, selling, general
and administrative expenses would have been 22.1 percent of sales for 1997. The
overall decline in expenses as a percentage of revenues from 1997 to 1996, and
1996 to 1995 resulted from management's aggressive control of discretionary
costs, economies of scale associated with an increasing revenue base, and the
reduction of expenses by integrating acquired companies.
Net interest expense of $21.1 million, $12.3 million and $4.9 million, in 1997,
1996 and 1995, respectively, 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.
-17-
<PAGE>
OLSTEN CORPORATION & SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The combination of the factors previously described decreased pretax income from
operations, excluding merger, integration and other non-recurring charges, to
$160.5 million in 1997, compared to $174.9 million in 1996. Pretax income
increased in 1996 from $167.7 million in 1995.
The 1997 effective income tax rate was 39 percent, compared to 40.7 percent in
1996 and 42 percent in 1995. The Company's effective rate has exceeded the
Federal statutory rate primarily because of non-deductible goodwill amortization
and state income taxes, which vary from year to year in relation to the mix of
taxable income by state.
Year 2000
- ---------
The Company is conducting a review of its computer systems to identify those
areas that could be affected by the "Year 2000" issue and is developing an
implementation plan to ensure compliance. The Company presently believes that,
with modification to existing software and investment in new software, the Year
2000 problem will not pose significant operational concerns nor have a material
impact on the financial position or results of operations in any given year.
Liquidity and Capital Resources
- -------------------------------
Working capital at December 28, 1997, including $84.8 million in cash, was
$687.5 million, an increase of 12 percent over the prior year. Receivables, net,
increased $185.6 million, or 28 percent, predominantly due to revenue growth and
acquisitions. Fixed assets, net, increased $56.3 million, or 43 percent,
primarily relating to investments in new information systems. Intangibles,
principally goodwill, net, increased $120.7 million, or 29 percent, resulting
from acquisitions.
The Company has a revolving credit agreement with a consortium of 11 banks for
up to $400 million in borrowings and letters of credit. As of December 28, 1997,
there were $176 million in borrowings and $47 million in standby letters of
credit outstanding. 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 the scope of its services.
The Company's annual dividend on common stock and Class B common stock was $.28
per share.
Legal Matters
- -------------
Government Investigations
As previously reported in the Company's Form 10-Q for the quarter ended
September 28, 1997, the Company continues to cooperate with the various health
care investigations that are being conducted by certain governmental agencies.
-18-
<PAGE>
OLSTEN CORPORATION & SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The Company continues to cooperate with the Office of Investigations section of
the Office of Inspector General (an agency within the U.S. Department of Health
& Human Services) and the U.S. Department of Justice in connection with their
investigation into the Company's preparation of Medicare cost reports.
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 the Company in connection with the purchase, sale and
operation of certain home health agencies which are now 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 Company continues to cooperate with various state and federal agencies,
including the U.S. Department of Justice, the Office of the Attorney General of
New Mexico and the New Mexico Health Care Anti-Fraud Task Force ("Task Force"),
in connection with their investigations into certain health care practices of
Quantum Health Resources ("Quantum"). Among the matters into which those
agencies are 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. Most of the time 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 June 1996 acquisition of Quantum.
The Company believes that certain of the government investigations referenced
above may have been triggered by or given rise to lawsuits filed under federal
and/or state whistleblower statutes against the Company and Quantum.
Notwithstanding the Company's continuing cooperation with the government
investigations referenced above, the government may regard the Company and/or
certain of its employees as subjects or targets of one or more of such
investigations. If the Company were to be found to have violated the laws and
regulations at issue in the government investigations, the Company could be
subjected to a variety of sanctions, including substantial monetary fines, civil
and/or criminal penalties and exclusion from participation in the Medicare,
Medicaid and/or CHAMPUS programs. While the Company is unable at this time to
predict the ultimate outcome of the government investigations, any one of the
foregoing sanctions could have a material adverse effect upon the Company's
financial position and results of operations.
-19-
<PAGE>
OLSTEN CORPORATION & SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Shareholder Class Action Litigation
On April 17, 1997, a purported class action captioned Gail Weichman v. Olsten
Corporation, et al., No. CV 97-1946, was filed in the United States District
Court for the Eastern District of New York against the Company, Miriam Olsten,
Anthony Puglisi and Frank Liguori. On August 5, 1997, another proposed class
action lawsuit, captioned Esta S. Goldman v. Olsten Corporation, et al., No. CV
97-4501, was filed in the United States District Court for the Eastern District
of New York against the same defendants named in the Weichman lawsuit, plus
Stuart Olsten. On August 29, 1997, a third proposed class action lawsuit,
captioned Elliott Waldman v. Olsten Corporation, et al., No. CV 97-5056, was
filed in the United States District Court for the Eastern District of New York
against the Company and each of the individual defendants listed above. On
September 19, 1997, a fourth proposed class action lawsuit, captioned Michael
Cannold v. Olsten Corporation, et al., No. CV 97-5408, was filed in the United
States District Court for the Eastern District of New York against the Company
and each of the individual defendants listed above. (The Weichman, Goldman,
Waldman and Cannold lawsuits are referred to collectively herein as the "Class
Actions".) Each of the Complaints in the Class Actions 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
Weichman Complaint also alleges violations of Sections 11 and 12 of the
Securities Act of 1933. The Complaints allege that, as a result of certain
material misstatements and omissions by certain of the defendants (relating, in
part, to the matters at issue in the government investigations referenced
above), the Company's common stock was artificially inflated during the proposed
Class Period, which is defined in the Weichman Complaint as the period from May
31, 1996 through November 21, 1996, in the Waldman Complaint as the period from
March 6, 1996 through August 25, 1997, and in the Goldman and Cannold Complaints
as the period from March 6, 1996 through July 16, 1997. Pending before the Court
are the parties' various motions relating to the (a) potential consolidation of
the Class Actions, (b) appointment of a lead plaintiff and (c) selection of lead
plaintiff's counsel. While the Company is unable at this time to assess the
probable outcome of the Class Actions or the materiality of the risk of loss in
connection therewith (given the preliminary stage of the Class Actions and the
fact that the Complaints do not allege damages with any particularity), the
Company believes that it acted responsibly with respect to its shareholders and
intends to vigorously defend the Class Actions.
-20-
<PAGE>
Item 8. Financial Statements and Supplementary Data.
- ------ ----------------------------------------------
The following financial statements of Registrant are included in this
Report:
Page(s) in this Report
Consolidated Financial Statements: ----------------------
Balance Sheets as of December 28, 1997 and F-2
December 29, 1996
Statements of Income for the three years F-3
ended December 28, 1997
Statements of Changes in Shareholders' Equity F-4
for the three years ended December 28, 1997
Statements of Cash Flows for the three years F-5 - F-6
ended December 28, 1997
Notes to Consolidated Financial Statements F-7 - F-22
Report of Independent Accountants F-23
Item 9. Changes in and Disagreements with Accountants on
- ------ ------------------------------------------------
Accounting and Financial Disclosure.
-----------------------------------
There have been no such changes or disagreements.
PART III
Item 10. Directors and Executive Officers of the Registrant.
- ------- --------------------------------------------------
See the information under the captions "Election of Directors" and
"Section 16(a) Beneficial Ownership Reporting Compliance" in Registrant's
definitive Proxy Statement with respect to its 1998 Annual Meeting of
Shareholders to be filed with the Securities and Exchange Commission, which
information is incorporated herein by reference. See also the information with
respect to executive officers of Registrant under Item 4(a) of PART I hereof,
which information is incorporated herein by reference.
Item 11. Executive Compensation.
- ------- ----------------------
See the information under the captions "Election of Directors,"
"Summary Compensation Table," "Option Grants in Last Fiscal Year," "Aggregated
Option Exercises in Last Fiscal Year and Fiscal Year End Option Values,"
"Retirement Plan," "Employment Contracts, Termination of Employment and
Change-in-Control Arrangements" and "Compensation Committee Report on Executive
Compensation" in Registrant's definitive Proxy Statement with respect to its
1998 Annual Meeting of Shareholders to be filed with the Securities and Exchange
Commission, which information is incorporated herein by reference.
-21-
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- ------- --------------------------------------------------------------
See the information under the caption "Security Ownership of Certain
Beneficial Owners and Management" in Registrant's definitive Proxy Statement
with respect to its 1998 Annual Meeting of Shareholders to be filed with the
Securities and Exchange Commission, which information is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions.
- ------- ----------------------------------------------
See the information under the caption "Certain Business Relationships"
in Registrant's definitive Proxy Statement with respect to its 1998 Annual
Meeting of Shareholders to be filed with the Securities and Exchange Commission,
which information is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules,
- ------- ----------------------------------------
and Reports on Form 8K.
----------------------
(a)(1) Financial Statements
See Index to Financial Statements attached (Page F-1).
(a)(2) Financial Statement Schedules
Schedules have been omitted since they are either not required or are
not applicable or the required information is shown in the financial
statements or related notes.
(a)(3) Exhibits:
3(a) Restated Certificate of Incorporation of Registrant, as
amended, filed as Exhibit 4.1 to Registrant's
Registration Statement on Form S-8 (File No. 33-61761),
is incorporated herein by reference.
3(b) By-Laws of Registrant, filed as Exhibit 3(b) to
Registrant's Annual Report on Form 10-K for the year
ended January 2, 1994, are incorporated herein by
reference.
4(a) Restated Certificate of Incorporation of Registrant, as
amended, filed as Exhibit 3(a).
4(b) By-Laws of Registrant, filed as Exhibit 3(b).
4(c) Indenture dated as of March 15, 1996 between Registrant
and First Union National Bank, as Trustee, relating to
Registrant's 7% Senior Notes due 2006, filed as
Exhibit 4 to Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1996, is incorporated
herein by reference.
-22-
<PAGE>
4(d) Form of Indenture dated as of October 8, 1993 between
Quantum Health Resources, Inc. and First Trust National
Association, as Trustee, relating to 4% Convertible
Subordinated Debentures Due 2000 of Quantum Health
Resources, Inc., filed as Exhibit 4.1 to Registration
Statement on Form S-3 (Reg. No. 33-69088) of Quantum
Health Resources, Inc., is incorporated herein by
reference.
4(e) Supplemental Indenture dated as of June 28, 1996 between
Quantum Health Resources, Inc. and First Trust National
Association, as Trustee, filed as Exhibit 4(e) to
Registrant's Annual Report on Form 10-K for the year
ended December 29, 1996, is incorporated herein by
reference.
*10(a) Registrant's 1984 Incentive Stock Option Plan, as
amended, filed as Exhibit 10(a) to Registrant's Annual
Report on Form 10-K for the year ended January 2, 1994,
is incorporated herein by reference.
*10(b) Registrant's Incentive Restricted Stock Plan, as amended,
filed as Exhibit 10(e) to Registrant's Annual Report on
Form 10-K for the year ended January 2, 1994, is
incorporated herein by reference.
*10(c) Form of agreement under Registrant's Incentive
Restricted Stock Plan, filed as Exhibit 10(g) to
Registrant's Annual Report on Form 10-K for the year
ended December 30, 1990, is incorporated herein by
reference.
10(d) Credit Agreement dated as of August 9, 1996 among
Registrant, the Banks signatory thereto and The Chase
Manhattan Bank, as Agent, covering $400 million credit
facility, filed as Exhibit 10 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30,
1996, is incorporated herein by reference.
10(d)(1)Amendment No. 1 dated as of August 27, 1997 to Credit
Agreement dated as of August 9, 1996 among Registrant,
the Banks signatory thereto and The Chase Manhattan
Bank, as Agent, filed as Exhibit 10 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended
September 28, 1997, is incorporated herein by
reference.
*10(e) Registrant's 1990 Non-Qualified Stock Option Plan for
Non-Employee Directors and Consultants, as amended and
restated, is incorporated by reference to Exhibit B to
Registrant's definitive Proxy Statement with respect to
its 1998 Annual Meeting of Shareholders.
- -------------------
* Management contract or compensatory plan or arrangement.
-23-
<PAGE>
*10(f) Registrant's Supplemental Retirement Plan for Key
Executives filed as Exhibit 10(k) to Registrant's
Annual Report on Form 10-K for the year ended January 3,
1993, is incorporated herein by reference.
*10(g) Registrant's Executive Voluntary Deferred Compensation
Plan and Trust Agreement between Registrant and
Prudential Trust Company, filed as Exhibit 10(k) to
Registrant's Annual Report on Form 10-K for the year
ended January 2, 1994, is incorporated herein by
reference.
*10(h) Registrant's Retirement Plan for Outside Directors and
Consultants, filed as Exhibit 10(l) to Registrant's
Annual Report on Form 10-K for the year ended January 2,
1994, is incorporated herein by reference.
*10(i) Registrant's Deferred Compensation Plan for Outside
Directors, filed as Exhibit 10(m) to Registrant's Annual
Report on Form 10-K for the year ended January 2, 1994,
is incorporated herein by reference.
*10(j) Employment Agreement dated March 28, 1994 between
Registrant and Frank N. Liguori, filed as Exhibit 10(q)
to Registrant's Annual Report on Form 10-K for the year
ended January 2, 1994, is incorporated herein by
reference.
*10(k) Amendment dated March 27, 1996 to Employment Agreement
between Registrant and Frank N. Liguori, filed as Exhibit
10(k) to Registrants Annual Report on Form 10-K for the
year ended December 29, 1996, is incorporated herein
by reference.
*10(l) Agreement dated November 8, 1993 between Registrant and
Frank N. Liguori covering incentive award under Incentive
Restricted Stock Plan and amendment thereto dated March
27, 1994, filed as Exhibit 10(r) to Registrant's Annual
Report on Form 10-K for the year ended January 2, 1994,
is incorporated herein by reference.
*10(m) Form of change in control agreement between Registrant
and each of Robert A. Fusco, Richard A. Piske, III and
Anthony J. Puglisi, filed as Exhibit 10(o) to
Registrant's Annual Report on Form 10-K for the year
ended January 1, 1995, is incorporated herein by
reference.
*10(n) Registrant's 1994 Stock Incentive Plan, as amended and
restated, is incorporated by reference to Exhibit A to
Registrant's definitive Proxy Statement with respect to
its 1998 Annual Meeting of Shareholders.
- --------------
* Management contract or compensatory plan or arrangement.
-24-
<PAGE>
*10(o) Registrant's Executive Officer Bonus Plan is incorporated
by reference to Exhibit C to Registrant's definitive
Proxy Statement with respect to its 1994 Annual Meeting
of Shareholders.
*10(p) Registrant's Stock & Deferred Compensation Plan for
Non-Employee Directors is incorporated by reference to
Exhibit C to Registrant's definitive Proxy Statement with
respect to its 1998 Annual Meeting of Shareholders.
10(q) Lease Agreement dated as of April 1, 1995 between Suffolk
County Industrial Development Agency and OLS Holdings,
Inc. covering headquarters facility at 175 Broad Hollow
Road, Melville, New York, filed as Exhibit 10(t) to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995, is incorporated herein by
reference.
+21 Subsidiaries of Registrant.
+23 Consent of Coopers & Lybrand L.L.P., independent
accountants.
+27 Financial Data Schedule.
(b) Reports on Form 8K
No reports on Form 8-K have been filed during the last quarter of
the period covered by this Report.
- --------------
* Management contract or compensatory plan or arrangement.
+ Filed herewith.
-25-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Date: February 27, 1998 By:/s/ Frank N. Liguori
--------------------
Frank N. Liguori
Chairman and Chief
Executive Officer
Pursuant to the requirements of the Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Date: February 27, 1998 By: /s/ Frank N. Liguori
----------------------
Frank N. Liguori
Chairman and Chief
Executive Officer and Director
(Principal Executive Officer)
Date: February 27, 1998 By: /s/ Anthony J. Puglisi
----------------------
Anthony J. Puglisi
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: February 27, 1998 By: /s/ Stuart R. Levine
----------------------
Stuart R. Levine
Director
Date: February 27, 1998 By: /s/ John M. May
----------------------
John M. May
Director
Date: February 27, 1998 By: /s/ Miriam Olsten
----------------------
Miriam Olsten
Director
Date: February 27, 1998 By: /s/ Stuart Olsten
----------------------
Stuart Olsten
Director
Date: February 27, 1998 By: /s/ Richard J. Sharoff
----------------------
Richard Sharoff
Director
-26-
<PAGE>
Date: February 27, 1998 By: /s/ Raymond S. Troubh
----------------------
Raymond S. Troubh
Director
Date: February 27, 1998 By: /s/ Josh S. Weston
----------------------
Josh S. Weston
Director
-27-
<PAGE>
OLSTEN CORPORATION and SUBSIDIARIES
INDEX to FINANCIAL STATEMENTS
----------
Pages
-----
Consolidated Financial Statements:
Balance Sheets as of December 28, 1997 and F-2
December 29, 1996
Statements of Income for the three years F-3
ended December 28, 1997
Statements of Changes in Shareholders' Equity F-4
for the three years ended December 28, 1997
Statements of Cash Flows for the three F-5 - F-6
years ended December 28, 1997
Notes to Consolidated Financial Statements F-7 - F-22
Report of Independent Accountants F-23
F-1
<PAGE>
<TABLE>
OLSTEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
(In thousands, except share amounts) December 28, 1997 December 29, 1996
----------------- -----------------
<S> <C> <C>
ASSETS
Current assets
Cash $ 84,810 $ 105,725
Receivables, less allowance for
doubtful accounts of $25,326
and $26,299, respectively 847,419 661,806
Inventories 56,893 52,440
Prepaid expenses and other current assets 33,822 58,464
--------- -------
Total current assets 1,022,944 878,435
Fixed assets, net 186,347 130,021
Intangibles, principally goodwill, net of
accumulated amortization of $102,998
and $84,534, respectively 534,284 413,549
Other assets 6,626 17,235
--------- ---------
$ 1,750,201 $ 1,439,240
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accrued expenses $ 152,239 $ 111,325
Payroll and related taxes 86,071 57,059
Accounts payable 55,851 58,920
Insurance costs 41,270 35,538
------- -------
Total current liabilities 335,431 262,842
Long-term debt 461,178 330,329
Other liabilities 111,815 76,796
Commitments -- --
Shareholders' equity
Common stock $.10 par value; authorized 110,000,000
shares; issued 68,151,708 shares and 66,652,997 shares,
respectively 6,815 6,665
Class B common stock $.10 par value; authorized
50,000,000 shares; issued 13,157,617 shares and
14,086,024 shares, respectively 1,316 1,409
Additional paid-in capital 447,297 438,956
Retained earnings 390,786 320,496
Cumulative translation adjustment (4,437) 1,747
--------- ---------
Total shareholders' equity 841,777 769,273
--------- ---------
$ 1,750,201 $ 1,439,240
See notes to consolidated financial statements. ========= =========
</TABLE>
F-2
<PAGE>
<TABLE>
OLSTEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Three Years Ended December 28, 1997
<CAPTION>
(In thousands, except share amounts) December 28, 1997 December 29, 1996 December 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Service sales, franchise
fees, management fees and
other income $4,113,014 $3,377,729 $2,813,768
Cost of services sold 3,016,802 2,422,160 1,956,308
--------- --------- ---------
Gross profit 1,096,212 955,569 857,460
Selling, general and administrative
expenses 914,632 768,448 684,848
Interest expense, net 21,101 12,260 4,870
Merger, integration and other
non-recurring charges -- 80,000 12,308
-------- -------- --------
Income before income taxes and
minority interests 160,479 94,861 155,434
Income taxes 62,587 38,627 65,231
-------- -------- --------
Income before minority interests 97,892 56,234 90,203
Minority interests 4,864 1,592 (87)
-------- -------- --------
Net income $ 93,028 $ 54,642 $ 90,290
======== ======== ========
SHARE INFORMATION:
Basic earnings per share:
Net income $ 1.15 $ .71 $ 1.23
======== ======= ========
Average shares outstanding 81,237 77,362 73,327
======== ======= ========
Diluted earnings per share:
Net income $ 1.15 $ .71 $ 1.19
======== ======= ========
Average shares outstanding 83,115 82,025 81,476
======== ======= ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
OLSTEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
For the Three Years Ended December 28, 1997
<CAPTION>
Common Stock Additional Cumulative
------------ paid-in Retained translation
(In thousands, except share amounts) Shares Amount capital earnings adjustment Total
-------- -------- --------- ---------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 51,862,106 $5,187 $302,989 $209,304 $(1,494) $515,986
Net income -- -- -- 90,290 -- 90,290
Cash dividends -- -- -- (13,557) -- (13,557)
Translation adjustment -- -- -- -- (261) (261)
Exercise of stock options and
employee stock purchases 568,483 57 5,682 -- -- 5,739
Amortization of restricted stock -- -- 702 -- -- 702
Repurchase and retirement of
common stock (388,020) (39) (12,471) -- -- (12,510)
Three-for-two stock split 21,444,979 2,144 (2,144) -- -- --
---------- ----- ------- ------- ------ -------
Balance at December 31, 1995 73,487,548 7,349 294,758 286,037 (1,755) 586,389
Net income -- -- -- 54,642 -- 54,642
Cash dividends -- -- -- (20,183) -- (20,183)
Translation adjustment -- -- -- -- 3,502 3,502
Exercise of stock options,
warrants and employee stock
purchases 1,870,185 187 20,916 -- -- 21,103
Amortization of restricted stock -- -- 952 -- -- 952
Conversion of debentures 5,381,288 538 122,330 -- -- 122,868
---------- ----- ------- ------- ----- -------
Balance at December 29, 1996 80,739,021 8,074 438,956 320,496 1,747 769,273
Net income -- -- -- 93,028 -- 93,028
Cash dividends -- -- -- (22,738) -- (22,738)
Translation adjustment -- -- -- -- (6,184) (6,184)
Exercise of stock options 133,924 13 1,948 -- -- 1,961
Issuance of restricted stock 436,380 44 5,674 -- -- 5,718
Amortization of restricted stock -- -- 719 -- -- 719
---------- ------ -------- -------- ------- --------
Balance at December 28, 1997 81,309,325 $8,131 $447,297 $390,786 $(4,437) $841,777
========== ====== ======== ======== ======= ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
OLSTEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Years Ended December 28, 1997
<CAPTION>
(In thousands) December 28, 1997 December 29, 1996 December 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 93,028 $ 54,642 $ 90,290
Adjustments to reconcile net
income to net cash provided by (used in)
operating activities:
Depreciation and amortization 55,506 43,897 35,645
Provision for doubtful accounts 28,605 20,342 18,193
Deferred income taxes 14,102 (446) 5,009
Changes in assets and liabilities,
net of effects from acquisitions
and dispositions:
Accounts receivable (151,140) (127,071) (86,904)
Inventories, prepaid expenses
and other current assets 11,806 (15,679) (7,514)
Current liabilities 43,272 14,426 (5,210)
Other, net (9,804) (10,631) (17,713)
Net cash provided by (used in) ------ -------- ------
operating activities 85,375 (20,520) 31,796
------ -------- ------
INVESTING ACTIVITIES:
Acquisitions of businesses including
franchises, net of cash acquired (149,603) (136,218) (90,249)
Purchases of fixed assets (72,795) (47,375) (52,865)
Disposition of fixed assets and
businesses 1,834 12,381 16,141
Proceeds from sale of investment
securities 9,415 842 22,292
--------- --------- ---------
Net cash used in investing activities (211,149) (170,370) (104,681)
--------- --------- ---------
FINANCING ACTIVITIES:
Net proceeds from (repayment of)
line of credit agreements 135,437 (8,947) 56,205
Cash dividends (22,738) (20,183) (13,557)
Repayment of notes payable (6,816) -- --
Issuances of common stock under
stock plans 1,961 21,103 5,739
Net proceeds from issuance of
senior notes -- 197,224 --
Repurchase and retirement of
common stock -- -- (12,510)
Net cash provided by ------- ------- ------
financing activities 107,844 189,197 35,877
------- ------- ------
Effect of exchange rate changes on cash (2,985) -- --
------- ------- ------
Net decrease in cash (20,915) (1,693) (37,008)
Cash at beginning of year 105,725 107,418 144,426
------- ------- -------
Cash at end of year $ 84,810 $105,725 $107,418
======= ======= =======
</TABLE>
F-5
<PAGE>
<TABLE>
OLSTEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Years Ended December 28, 1997
<CAPTION>
(In thousands) December 28, 1997 December 29, 1996 December 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments for interest $ 24,415 $ 15,260 $ 11,695
Cash payments for income taxes $ 20,702 $ 64,073 $ 33,302
NON-CASH TRANSACTIONS:
Assets acquired through the
issuance of a note $ 19,535 $ -- $ --
Issuance of restricted stock $ 6,437 $ -- $ --
Conversion of debt to equity $ -- $124,846 $ --
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share amounts)
Note 1. Summary of Significant Accounting Policies
Consolidation
- -------------
The consolidated financial statements include the accounts of the Company and
its wholly-owned and majority-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated. The Company's fiscal year ends
on the Sunday nearest to December 31st. Certain prior period amounts have been
reclassified to conform with the current year presentation.
Revenue Recognition
- -------------------
Service sales and the related labor costs and payroll taxes are recorded in the
period in which the services are performed. Franchise fees, which are based upon
contractual percentages of franchise sales, and management fees generated from
management services provided to hospital-based home health agencies, are
included with Company service sales and recorded in the period in which the
services are provided.
Estimates
- ---------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash
- ----
Cash includes equivalents which are highly liquid investments with original
maturities of three months or less.
Inventories
- -----------
Inventories consist primarily of biological and pharmaceutical products and
supplies held for sale or distribution to patients through prescription. The
Company records inventories at the lower of cost (weighted average cost) or
market.
Fixed Assets
- ------------
Fixed assets are stated at cost and depreciated over the estimated useful lives
of the assets using the straight-line method. Leasehold improvements are
amortized over the shorter of the life of the lease or the life of the
improvement.
F-7
<PAGE>
Intangibles
- -----------
Intangibles, principally goodwill, associated with acquired businesses and the
unexpired terms of acquired franchise contracts are being amortized on a
straight-line basis primarily over 40 years. When events and circumstances so
indicate, all long-term assets, including intangibles, are assessed for
recoverability based upon undiscounted operating cash flow forecasts. No
impairment losses have been recognized in any of the periods presented.
Foreign Currency Translation
- ----------------------------
Financial statements of international subsidiaries are translated into U.S.
dollars using the exchange rate at each balance sheet date for assets and
liabilities and a weighted average exchange rate for each period for revenues,
expenses, gains and losses and cash flows. Where the local currency is the
functional currency, translation adjustments are recorded as a separate
component of shareholders' equity.
Income Taxes
- ------------
The Company provides for taxes based on current taxable income and the future
tax consequences of temporary differences between the financial reporting and
income tax carrying values of its assets and liabilities. Under SFAS No. 109,
assets and liabilities acquired in purchase business combinations are assigned
their fair values, and deferred taxes are provided for lower or higher tax
bases.
Earnings Per Share
- ------------------
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings per Share" ("SFAS No. 128"). SFAS No. 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings per
share. Earnings per share amounts for all periods have been restated to conform
to the SFAS No. 128 requirements.
Newly Issued Accounting Standards
- ---------------------------------
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
No. 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
statement disclosures.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS No. 131"), which establishes
standards for reporting information about operating segments. It also
establishes standards for disclosures regarding products and services,
geographic areas and major customers. SFAS No. 131 becomes effective in fiscal
1998. Management has not yet evaluated the effect of this change on the
Company's financial statement disclosures.
F-8
<PAGE>
Note 2. Acquisitions
The Company acquired a 70 percent interest in Sogica S.A., a staffing services
firm with offices in France and Spain, for a purchase price based upon a
multiple of 1997 net income. In May 1997, the Company made an initial payment
aggregating $77 million in cash. The Company anticipates an additional payment
in the second quarter of 1998 approximating $25 million. 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 December 31, 1999. The
Company is obligated in the year 2000 to purchase the remaining Sogica S.A.
shares at a price to be determined by a multiple, ranging from an upper limit of
16 and a lower limit of 10, applied to average net income for the two fiscal
years ended 1998 and 1999.
The Company's presence in France increased with Sogica's acquisition of five
companies in the second half of 1997 for an aggregate purchase price of $9.8
million.
In January 1997, the Company completed the purchase of Vistech, Inc., an
information technology staffing services company, for $17.5 million in cash. In
March 1997, the Company expanded its presence in Latin America with a 51 percent
purchase of Adyser, Ltda., a Chilean staffing services company, for $1.8 million
in cash. The Company's financial staffing services division purchased
Accountants Overload in June 1997 for $16 million in cash. During 1997, the
Company acquired several other Staffing Services businesses for a total purchase
price of $11 million.
During 1997, the Company acquired several traditional home care operations,
providing skilled nursing services, for an aggregate purchase price of $4.8
million in cash.
During 1997, the Company's Information Technology Services' subsidiary made an
additional payment of $18 million in cash pertaining to the 1996 acquisition of
Systems Partners, Inc. The payment was based upon 1996 pretax income and has
been recorded as goodwill.
Assets acquired and liabilities assumed for the purchase acquisitions were $237
million and $87 million, respectively. Substantially all of the purchase price
of acquisitions in excess of net assets acquired was recorded as goodwill
(approximately $137 million) and will be amortized over 40 years. The results of
operations of the acquired companies are included in the Company's 1997
consolidated Statement of Income from the dates of acquisition. Pro forma
results of operations are not presented as the pro forma impact of the purchased
acquisitions, which were accounted for by the purchase method of accounting, was
not significant to the Company's Financial Statements.
Note 3. Merger, Integration and Other Non-Recurring Charges
In 1996, the Company recorded merger, integration and other non-recurring
charges totalling $80 million ($48 million, net of tax), or $.59 per diluted
share. These non-recurring charges before taxes consist of merger and
integration charges resulting from the Quantum and Co-Counsel acquisitions of
$45 million ($27 million, net of tax), and include transaction costs of $8.1
million; compensation and severance costs of $12 million; asset writedowns of
$8.2 million; and integration costs of $16 million. The remaining non-recurring
charges, which approximate $30 million ($18 million, net of tax), pertain to
certain allowances for a change in the methodology used by Medicare for
F-9
<PAGE>
computing reimbursements in prior years related to the Company's home health
care business, and Quantum's charge of $5.5 million ($3.2 million, net of tax)
related to settlement of shareholder litigation. At December 28, 1997, $10
million of the allowances remained unpaid and were included in accounts
receivable.
In 1995, Quantum recorded charges totalling $12 million ($7.4 million, net of
tax), or $.09 per diluted share relating to a settlement associated with a State
of California billing dispute of $6.3 million ($3.8 million, net of tax); a
writeoff of Quantum's physician practice management business of $2.2 million
($1.3 million, net of tax); and a charge of $3.8 million ($2.3 million, net of
tax) representing costs of relocating Quantum's corporate headquarters.
Note 4. Fixed Assets, Net
December 28, 1997 December 29, 1996
----------------- -----------------
Computer equipment and software $ 160,936 $ 94,004
Furniture and fixtures 73,082 68,613
Buildings and improvements 60,162 48,792
Machinery and equipment 23,234 17,083
--------- ---------
317,414 228,492
Less accumulated depreciation and amortization 131,067 98,471
--------- ---------
$ 186,347 $ 130,021
========= =========
Depreciation expense was approximately $35.6 million in 1997, $27.6 million in
1996 and $23.3 million in 1995.
Note 5. Long-Term Debt
December 28, 1997 December 29, 1996
----------------- -----------------
7% Senior Notes due 2006, net of
unamortized discount $ 199,154 $ 199,051
4 3/4% Convertible Subordinated Debentures
due 2000 86,250 86,250
Revolving credit agreement 175,774 45,028
--------- ---------
$ 461,178 $ 330,329
========= =========
In March 1996, the Company issued $200 million in 7% Senior Notes due 2006. The
proceeds were used to repay a portion of its revolving credit facility; to
expand the Company's existing office network and the types of services provided
to clients, both internally and through acquisitions; and for general working
capital purposes. In 1993, Quantum issued $86.3 million of 4 3/4% Convertible
Subordinated Debentures maturing in 2000. The debentures are convertible into
the Company's Class B common stock at $52.26 per share.
F-10
<PAGE>
The Company has a revolving credit agreement with 11 banks, providing for up to
$400 million in borrowings and letters of credit with interest rates based on
the London Interbank Offered Rate (LIBOR), the United States prime rate, or the
Eurocurrency rate. The agreement expires in 2001. The agreement provides for the
maintenance of various financial ratios and covenants. As of December 28, 1997,
there were $176 million in borrowings and $47 million in standby letters of
credit outstanding.
Interest expense is net of interest income of $4.3 million in 1997, $9.1 million
in 1996 and $8.2 million in 1995.
Note 6. Legal Matters
Government Investigations
As previously reported in the Company's Form 10-Q for the quarter ended
September 28, 1997, the Company continues to cooperate with the various health
care investigations that are being conducted by certain governmental agencies.
The Company continues to cooperate with the Office of Investigations section of
the Office of Inspector General (an agency within the U.S. Department of Health
& Human Services) and the U.S. Department of Justice in connection with their
investigation into the Company's preparation Medicare cost reports.
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 the Company in connection with the purchase, sale and
operation of certain home health agencies which are now 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 Company continues to cooperate with various state and federal agencies,
including the U.S. Department of Justice, the Office of the Attorney General of
New Mexico and the New Mexico Health Care Anti-Fraud Task Force ("Task Force"),
in connection with their investigations into certain health care practices of
Quantum Health Resources ("Quantum"). Among the matters into which those
agencies are 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. Most of the time 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 June 1996 acquisition of Quantum.
The Company believes that certain of the government investigations referenced
above may have been triggered by or given rise to lawsuits filed under federal
and/or state whistleblower statutes against the Company and Quantum.
Notwithstanding the Company's continuing cooperation with the government
investigations referenced above, the government may regard the Company and/or
certain of its employees as subjects or targets of one or more of such
investigations. If the Company were to be found to have violated the laws and
regulations at issue in the government investigations, the Company could be
subjected to a variety of sanctions, including substantial monetary fines, civil
and/or criminal penalties and exclusion from participation in the Medicare,
F-11
<PAGE>
Medicaid and/or CHAMPUS programs. While the Company is unable at this time to
predict the ultimate outcome of the governmental investigations, any one of the
foregoing sanctions could have a material adverse effect upon the Company's
financial position and results of operations.
Shareholder Class Action Litigation
On April 17, 1997, a purported class action captioned Gail Weichman v. Olsten
Corporation, et al., No. CV 97-1946, was filed in the United States District
Court for the Eastern District of New York against the Company, Miriam Olsten,
Anthony Puglisi and Frank Liguori. On August 5, 1997, another proposed class
action lawsuit, captioned Esta S. Goldman v. Olsten Corporation, et al., No. CV
97-4501, was filed in the United States District Court for the Eastern District
of New York against the same defendants named in the Weichman lawsuit, plus
Stuart Olsten. On August 29, 1997, a third proposed class action lawsuit,
captioned Elliott Waldman v. Olsten Corporation, et al., No. CV 97-5056, was
filed in the United States District Court for the Eastern District of New York
against the Company and each of the individual defendants listed above. On
September 19, 1997, a fourth proposed class action lawsuit, captioned Michael
Cannold v. Olsten Corporation, et al., No. CV 97-5408, was filed in the United
States District Court for the Eastern District of New York against the Company
and each of the individual defendants listed above. (The Weichman, Goldman,
Waldman and Cannold lawsuits are referred to collectively herein as the "Class
Actions".) Each of the Complaints in the Class Actions 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
Weichman Complaint also alleges violations of Sections 11 and 12 of the
Securities Act of 1933. The Complaints allege that, as a result of certain
material misstatements and omissions by certain of the defendants (relating, in
part, to the matters at issue in the government investigations referenced
above), the Company's common stock was artificially inflated during the proposed
Class Period, which is defined in the Weichman Complaint as the period from May
31, 1996 through November 21, 1996, in the Waldman Complaint as the period from
March 6, 1996 through August 25, 1997, and in the Goldman and Cannold Complaints
as the period from March 6, 1996 through July 16, 1997. Pending before the Court
are the parties' various motions relating to the (a) potential consolidation of
the Class Actions, (b) appointment of a lead plaintiff and (c) selection of lead
plaintiff's counsel. While the Company is unable at this time to assess the
probable outcome of the Class Actions or the materiality of the risk of loss in
connection therewith (given the preliminary stage of the Class Actions and the
fact that the Complaints do not allege damages with any particularity), the
Company believes that it acted responsibly with respect to its shareholders and
intends to vigorously defend the Class Actions.
Note 7. Lease Commitments
The Company rents certain properties under noncancellable, long-term operating
leases which expire at various dates. Certain of these leases require additional
payments for taxes, insurance and maintenance and, in many cases, provide for
renewal options. Rent expense under all leases was $51,190 in 1997, $44,364 in
1996 and $38,338 in 1995.
F-12
<PAGE>
Future minimum rental commitments for all noncancellable leases having a
remaining term in excess of one year at December 28, 1997 are as follows:
1998 $ 42,705
1999 34,714
2000 25,504
2001 16,368
2002 10,637
Thereafter 33,773
Note 8. Shareholders' Equity
Common stock consists of shares of common stock and Class B common stock as
follows:
December 28, 1997 December 29, 1996 December 31,1995
----------------- ----------------- ----------------
Common stock 68,151,708 66,652,997 50,428,046
Class B common stock 13,157,617 14,086,024 23,059,502
---------- ---------- ----------
81,309,325 80,739,021 73,487,548
========== ========== ==========
Each share of Class B common stock is convertible into one share of common
stock, has a par value of $.10 and is entitled to 10 votes. The Company is also
authorized to issue 250,000 shares of preferred stock; no shares have been
issued.
Note 9. Stock Plans
In 1994, shareholders of the Company approved the adoption of the 1994 Stock
Incentive Plan ("1994 Plan") under which an aggregate of 3 million shares of
common stock were reserved for issuance upon exercise of options thereunder.
These options may be awarded in the form of incentive stock options ("ISOs") or
non-qualified stock options ("NQSOs"). The option price of an ISO cannot be less
than 100 percent, and the option price of the NQSO cannot be less than 85
percent, of the fair market value at the date of the grant. This plan replaced
the 1984 Incentive Stock Option Plan ("1984 ISO Plan") and the 1984
Non-Qualified Stock Option Plan ("1984 NQSO Plan"), which terminated in February
1994, except as to options then outstanding. In 1995, shareholders of the
Company approved amendments to the 1994 Plan which increased the maximum term of
stock options granted under the 1994 Plan from five years to ten years and
extended eligibility under the 1994 Plan to the Company's franchisees and
licensees. Options generally become cumulatively exercisable commencing one year
after grant in four equal annual installments. At December 28, 1997, there were
options outstanding of 2,511,253 and 208,151 for the 1994 Plan and 1984 ISO
Plan, respectively.
In 1991, shareholders of the Company approved the adoption of the Non-Qualified
Stock Option Plan for Non-Employee Directors and Consultants ("Non-Employee
Plan") authorizing the grant of options to outside directors and consultants to
purchase up to an aggregate of 225,000 shares of common stock. In 1995,
shareholders of the Company approved an amendment to the Non-Employee Plan to
increase the maximum term of stock options thereafter granted under the
Non-Employee Plan from five years to ten years. Under the Non-Employee Plan,
options may be granted at prices not less than the fair market value at the date
F-13
<PAGE>
of grant and become exercisable no earlier than six months from the date of
grant. At December 28, 1997, 141,000 options were outstanding under this plan.
Lifetime Corporation ("Lifetime"), which was merged into the Company in 1993,
maintained four stock option plans, including a Non-Employee Director Stock
Option Plan. Options were granted under all plans at not less than the fair
market value at the date of grant. At the merger date, all of the currently
vested options under these plans were exchanged for Olsten Class B common stock
equal to their net economic value. Remaining outstanding options were converted
to options for Olsten Class B shares and are exercisable over various periods,
generally not exceeding five years from the date of grant. At December 28, 1997,
77,096 options were outstanding under the plans.
IMI Systems Inc. ("IMI"), which was acquired by the Company in 1995, maintained
three stock option plans, which authorized the grant of options at not less than
the fair market value at the date of grant. At the acquisition date, all
outstanding options were converted to options for Olsten Class B shares and are
exercisable over various periods not exceeding ten years from their date of
grant. At December 28, 1997, 12,554 options were outstanding under these plans.
Quantum maintained three stock option plans. Options were granted for all plans
at not less than the fair market value at the date of grant. At the acquisition
date, all outstanding options were converted to options for Olsten Class B
shares and became immediately exercisable. At December 28, 1997, 224,552 options
were outstanding under these plans.
Co-Counsel maintained two stock option plans, including a Stock Option Plan for
Non-Employee Directors. Options were granted for both plans at not less than the
fair market value at the date of grant. At the acquisition date, all outstanding
options were converted to options for Olsten Class B shares and became
immediately exercisable. At December 28, 1997, 11,971 options were outstanding
under these plans.
F-14
<PAGE>
A summary of the Company's stock options for 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------------ -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ -------- ------ -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of year 2,552,403 $19.31 2,290,100 $21.80 2,342,669 $17.54
Granted 1,122,650 19.47 878,142 14.67 900,424 24.19
Exercised (134,478) 13.98 (287,071) 13.04 (698,687) 7.32
Cancelled (353,998) 22.11 (328,768) 29.76 (254,306) 30.66
Options outstanding, ----------- ------- ----------- ------- ---------- -------
end of year 3,186,577 $19.27 2,552,403 $19.31 2,290,100 $21.80
=========== ======= =========== ======= ========== =======
Options exercisable,
end of year 1,273,757 $19.93 1,067,768 $20.73 645,113 $19.30
=========== ======= =========== ======= ========== =======
Options available for
grant, end of year 482,733 1,345,616 2,335,627
=========== =========== ===========
Weighted-average fair
value of options
granted during the year $8.13 $5.87 $9.41
======= ======= =======
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in December 1997, August 1997, 1996 and 1995,
respectively: risk-free interest rates of 6, 6.3, 6.5 and 6.5 percent; dividend
yield of 1 percent for all years; expected lives of six years for all; and
volatility of 36, 36, 33 and 33 percent.
F-15
<PAGE>
The following table summarizes information about stock options outstanding at
December 28, 1997:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
---------------------------------------- ----------------------------
Weighted
average Weighted Weighted
Number remaining average Number average
Range of outstanding at contractual exercise exercisable at exercise
exercise prices December 28, 1997 life price December 28, 1997 price
- --------------- ----------------- ----------- --------- ----------------- --------
<S> <C> <C> <C> <C> <C>
$ .86 to 1.08 5,365 1.68 $ 1.05 5,365 $ 1.05
1.72 to 2.59 3,588 2.43 2.12 3,588 2.12
4.99 to 7.49 9,240 5.16 5.83 7,757 5.86
7.60 to 10.35 59,805 3.41 9.44 56,898 9.41
12.07 to 17.67 1,071,309 6.84 15.02 547,382 15.72
18.53 to 26.25 1,951,068 8.63 21.22 566,565 22.74
27.80 to 41.38 57,671 6.47 31.75 57,671 31.75
42.24 to 60.35 28,531 6.29 51.78 28,531 51.78
----------------- ----------- --------- ----------------- --------
$ .86 to 60.35 3,186,577 7.84 $19.27 1,273,757 $19.93
================= =========== ========= ================= ========
</TABLE>
Under an Incentive Restricted Stock Plan amended in 1993 and in 1996, up to
2,062,500 shares of common stock may be granted or sold at prices less than the
prevailing market price to officers, key employees and others subject to
restrictions as to transfer or sale. Shares under the plan are generally subject
to restrictions as to transfer which lapse ratably in three and five equal
annual installments commencing one year from the date of grant, provided that
recipients are continuously employed by the Company. At December 28, 1997,
758,970 shares were available for future grants.
Under an Incentive Restricted Stock Plan, the Company issued 436,380 shares of
common stock to an officer pursuant to a performance award. At December 28,
1997, 286,380 shares had vested and were not subject to any restrictions. An
additional 75,000 shares vested on January 4, 1998, and the remaining 75,000
shares will vest on January 4, 1999. The Company charged compensation expense
over the performance award's measurement and vesting period.
Options to purchase 2,217,663, 322,952 and 1,077,988 shares of common stock at
exercise prices of $18.53-$60.35, $27.80-$60.35 and $24.83-$60.35 per share were
outstanding for the years ended 1997, 1996 and 1995, respectively, but were not
included in the computation of diluted earnings per share because the options'
exercise price was greater than the average market price of the common shares.
F-16
<PAGE>
In 1996, the Company adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for
Stock-Based Compensation." Accordingly, no compensation cost has been recognized
under the stock option plans. Had compensation cost for the Company's stock
option plans been determined based on the fair value at the grant date for
awards in 1997, 1996 and 1995 consistent with the provisions of SFAS No. 123,
the Company's net income and earnings per share would have been reduced to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
December 28, 1997 December 29, 1996 December 31, 1995
----------------- ----------------- -----------------
$ $ $
<S> <C> <C> <C>
Net income - as reported 93,028 54,642 90,290
Net income - pro forma 90,651 52,585 89,381
Basic earnings per share - as reported 1.15 .71 1.23
Basic earnings per share - pro forma 1.12 .68 1.22
Diluted earnings per share - as reported 1.15 .71 1.19
Diluted earnings per share - pro forma 1.12 .69 1.18
</TABLE>
The statement provides for pro forma amounts for options granted beginning in
1995; therefore, the pro forma expense will likely increase in future years as
the new option grants become subject to the pricing model.
Note 10. Income Taxes
Comparative analysis of the provisions for income taxes follows:
December 28, 1997 December 29, 1996 December 31, 1995
----------------- ----------------- -----------------
Current
Federal $34,230 $28,911 $48,687
State and local 1,230 2,282 7,119
Foreign 13,025 7,880 4,416
------- ------- -------
48,485 39,073 60,222
------- ------- -------
Deferred
Federal 10,142 (375) 4,226
State and local 2,403 (71) 783
Foreign 1,557 -- --
------- ------- -------
14,102 (446) 5,009
------- ------- -------
$62,587 $38,627 $65,231
======= ======= =======
F-17
<PAGE>
Reconciliations of the differences between income taxes computed at the Federal
statutory rate and provisions for income taxes are as follows:
<TABLE>
<CAPTION>
December 28, 1997 December 29, 1996 December 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Income taxes computed at
Federal statutory tax rate $56,168 $33,201 $54,402
State income taxes, net of
Federal benefit 2,361 1,437 5,136
Amortization of intangibles 2,843 2,680 2,365
Other, net 1,215 1,309 3,328
-------- -------- --------
$62,587 $38,627 $65,231
======== ======== ========
</TABLE>
Deferred tax assets and liabilities are as follows:
December 28, 1997 December 29, 1996
----------------- -----------------
Deferred tax assets
Reserves and allowances $22,578 $26,244
Other 817 249
-------- --------
23,395 26,493
-------- --------
Deferred tax liabilities
Capitalized software (14,164) (8,236)
Intangible assets (6,684) (904)
Other (1,299) (1,438)
-------- --------
(22,147) (10,578)
-------- --------
Net deferred tax asset $ 1,248 $15,915
======== ========
Note 11. Benefit Plans for Permanent Employees
The Company and its subsidiaries maintain qualified and non-qualified defined
contribution retirement plans for its salaried employees which provide for a
partial match of employee savings under the plans and for discretionary profit
sharing contributions based on employee compensation. The Company also maintains
a non-qualified defined benefit retirement program for key employees and
officers which provides supplemental retirement benefits funded in part by
profit sharing contributions.
Company contributions under the defined contribution plans were approximately
$6.9 million in 1997, $5.9 million in 1996 and $5.1 million in 1995.
F-18
<PAGE>
Note 12. Business Segment Information
The Company operates in two business segments:
Staffing Services
- -----------------
The Company operates Olsten Staffing Services in North America, and staffing
companies in 11 countries of Europe and Latin America, providing supplemental
staffing for office technology; general office and administrative services;
accounting and other financial services; legal, scientific, engineering and
technical services; 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 Information Technology Services operations provide
services for the design, development and maintenance of information systems. 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.
Health Services
- ---------------
The Company operates Olsten Health Services in North America, providing home
health-related services, including Network Services providing case management
and care 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; and institutional, occupational and
alternate site staffing, as well as marketing, distribution and staffing
solutions for pharmaceutical, biotechnology and medical device firms. The
Company also operates Olsten Health Management, providing management services to
hospital-based home health agencies, including clinical expertise, policies and
procedures, information systems, quality assurance programs and caregiver
training, as well as dedicated on-site and corporate personnel.
F-19
<PAGE>
<TABLE>
<CAPTION>
Information about the Company's operations, net of merger, integration and other non-recurring charges of
$80 million ($1 million related to Staffing Services, $67 million related to Health Services, and $12 million
related to Corporate and other) in 1996 and $12 million related to the Health Services segment in 1995, is as follows:
Service sales,
Franchise fees,
management fees Income before Depreciation
and other income taxes and Identifiable and Capital
income minority interests assets amortization expenditures
--------------- ------------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Year ended December 28, 1997
- ----------------------------
Staffing Services $ 2,668,799 $ 100,644 $ 704,723 $ 16,190 $ 61,748
Health Services 1,433,854 45,003 737,329 29,097 23,072
Corporate and other 10,361 14,832 308,149 10,219 7,453
----------- --------- ----------- -------- --------
$ 4,113,014 $ 160,479 $ 1,750,201 $ 55,506 $ 92,273
=========== ========= =========== ======== ========
Year ended December 29, 1996
- ----------------------------
Staffing Services $ 1,995,904 $ 80,912 $ 470,342 $ 8,549 $ 13,326
Health Services 1,374,353 12,420 749,893 26,612 24,727
Corporate and other 7,472 1,529 219,005 8,736 9,322
----------- -------- ----------- -------- --------
$ 3,377,729 $ 94,861 $ 1,439,240 $ 43,897 $ 47,375
=========== ======== =========== ======== ========
Year ended December 31, 1995
- ----------------------------
Staffing Services $ 1,434,042 $ 67,932 $ 277,120 $ 5,767 $ 13,725
Health Services 1,369,382 76,368 712,050 24,883 21,523
Corporate and other 10,344 11,134 149,240 4,995 17,617
----------- -------- ----------- -------- --------
$ 2,813,768 $155,434 $ 1,138,410 $ 35,645 $ 52,865
=========== ======== =========== ======== ========
</TABLE>
F-20
<PAGE>
Financial information, summarized by geographic area, net of merger, integration
and other non-recurring charges of $80 million in 1996 and $12 million in 1995,
both reflected in the United States results, is as follows:
<TABLE>
<CAPTION>
Service sales,
franchise fees, Income before
management fees, income taxes and Identifiable
and other income minority interests assets
---------------- ------------------ ------------
<S> <C> <C> <C>
Year ended December 28, 1997
- ----------------------------
United States $3,265,029 $ 123,609 $1,332,923
Europe 627,852 29,165 352,176
Canada 141,192 7,099 36,772
Latin America 78,941 606 28,330
---------- --------- ----------
$4,113,014 $ 160,479 $1,750,201
========== ========= ==========
Year ended December 29, 1996
- ----------------------------
United States $2,845,983 $ 67,473 $1,209,844
Europe 366,501 22,295 181,375
Canada 115,314 4,586 28,942
Latin America 49,931 507 19,079
---------- --------- ----------
$3,377,729 $ 94,861 $1,439,240
========== ========= ==========
Year ended December 31, 1995
- ----------------------------
United States $2,556,625 $ 142,682 $1,034,532
Europe 171,360 12,883 80,892
Canada 77,330 355 17,226
Latin America 8,453 (486) 5,760
---------- --------- ----------
$2,813,768 $ 155,434 $1,138,410
========== ========= ==========
</TABLE>
F-21
<PAGE>
Note 13. Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Year ended December 28, 1997
$ $ $ $
Service sales, franchise fees,
management fees and other income 950,851 1,014,387 1,063,281 1,084,495
Gross profit 254,959 270,182 283,335 287,736
Net income 19,167 25,329 25,257 23,275
SHARE INFORMATION:
Basic earnings per share .24 .31 .31 .29
Diluted earnings per share .24 .31 .31 .29
Year ended December 29, 1996
Service sales, franchise fees,
management fees and other income 766,043 804,343 876,369 930,974
Gross profit 231,248 238,224 246,406 239,691
Net income (loss) 21,425 29,765 (13,098) 16,550
SHARE INFORMATION:
Basic earnings (loss) per share .29 .39 (.17) .21
Diluted earnings (loss) per share .28 .37 (.17) .21
</TABLE>
The 1996 and first three quarters of 1997 earnings per share amounts have been
restated to comply with SFAS No. 128.
F-22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Olsten Corporation:
We have audited the accompanying consolidated balance sheets of Olsten
Corporation and Subsidiaries as of December 28, 1997 and December 29, 1996 and
the related consolidated statements of income, changes in shareholders' equity
and cash flows for each of the three years in the period ended December 28,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Olsten Corporation
and Subsidiaries as of December 28, 1997 and December 29, 1996 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 28, 1997, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
New York, New York
February 4, 1998
F-23
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description How Filed
- ----------- ----------- ---------
3(a) Restated Certificate of Incorporation of Incorporated by
Registrant, as amended, filed as Exhibit reference
4.1 to Registrant's Registration Statement
on Form S-8 (File No. 33-61761), is
incorporated herein by reference.
3(b) By-Laws of Registrant, filed as Exhibit 3(b) Incorporated by
to Registrant's Annual Report on Form 10-K reference
for the year ended January 2, 1994, are
incorporated herein by reference.
4(a) Restated Certificate of Incorporation of Incorporated by
Registrant, as amended, filed as Exhibit 3(a). reference
4(b) By-Laws of Registrant, filed as Exhibit 3(b). Incorporated by
reference
4(c) Indenture dated as of March 15, 1996 between Incorporated by
Registrant and First Union National Bank, as reference
Trustee, relating to Registrant's 7% Senior
Notes due 2006, filed as Exhibit 4 to
Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1996, is
incorporated herein by reference.
4(d) Form of Indenture dated as of October 8, 1993 Incorporated by
between Quantum Health Resources, Inc. and reference
First Trust National Association, as Trustee,
relating to 4% Convertible Subordinated
Debentures Due 2000 of Quantum Health
Resources, Inc., filed as Exhibit 4.1 to
Registration Statement on Form S-3
(Reg. No. 33-69088) of Quantum Health
Resources, Inc., is incorporated herein by
reference.
4(e) Supplemental Indenture dated as of June 28, Incorporated by
1996 between Quantum Health Resources, Inc. reference
and First Trust National Association, as
Trustee, filed as Exhibit 4(e) to Registrant's
Annual Report on Form 10-K for the year ended
December 29, 1996, is incorporated herein by
reference.
*10(a) Registrant's 1984 Incentive Stock Option Plan, Incorporated by
as amended, filed as Exhibit 10(a) to reference
Registrant's Annual Report on Form 10-K for
the year ended January 2, 1994, is incorporated
herein by reference.
- -------------------
* Management contract or compensatory plan or arrangement.
-i-
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description How Filed
- ----------- ----------- ---------
*10(b) Registrant's Incentive Restricted Stock Plan, Incorporated by
as amended, filed as Exhibit 10(e) to reference
Registrant's Annual Report on Form 10-K for
the year ended January 2, 1994, is incorporated
herein by reference.
*10(c) Form of agreement under Registrant's Incentive Incorporated by
Restricted Stock Plan, filed as Exhibit 10(g) reference
to Registrant's Annual Report on Form 10-K for
the year ended December 30, 1990, is
incorporated herein by reference.
10(d) Credit Agreement dated as of August 9, 1996 Incorporated by
among Registrant, the Banks signatory thereto reference
and The Chase Manhattan Bank, as Agent,
covering $400 million credit facility, filed
as Exhibit 10 to Registrant's Quarterly Report
on Form 10-Q for the quarter ended June 30,
1996, is incorporated herein by reference.
10(d)(1) Amendment No. 1 dated as of August 27, 1997 to Incorporated by
Credit Agreement dated as of August 9, 1996 reference
among Registrant, the Banks signatory thereto
and The Chase Manhattan Bank, as Agent, filed
as Exhibit 10 to Registrant's Quarterly Report
on Form 10-Q for the quarter ended September
28, 1997, is incorporated herein by reference.
*10(e) Registrant's 1990 Non-Qualified Stock Option Incorporated by
Plan for Non-Employee Directors and reference
Consultants, as amended and restated, is
incorporated by reference to Exhibit B to
Registrant's definitive Proxy Statement with
respect to its 1998 Annual Meeting of
Shareholders.
*10(f) Registrant's Supplemental Retirement Plan for Incorporated by
Key Executives filed as Exhibit 10(k) to reference
Registrant's Annual Report on Form 10-K for
the year ended January 3, 1993, is incorporated
herein by reference.
*10(g) Registrant's Executive Voluntary Deferred Incorporated by
Compensation Plan and Trust Agreement between reference
Registrant and Prudential Trust Company, filed
as Exhibit 10(k) to Registrant's Annual Report
on Form 10-K for the year ended January 2,
1994, is incorporated herein by reference.
- -------------------
* Management contract or compensatory plan or arrangement.
-ii-
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description How Filed
- ----------- ----------- ---------
*10(h) Registrant's Retirement Plan for Outside Incorporated by
Directors and Consultants, filed as Exhibit reference
10(l) to Registrant's Annual Report on Form
10-K for the year ended January 2, 1994, is
incorporated herein by reference.
*10(i) Registrant's Deferred Compensation Plan for Incorporated by
Outside Directors, filed as Exhibit 10(m) to reference
Registrant's Annual Report on Form 10-K for
the year ended January 2, 1994, is
incorporated herein by reference.
*10(j) Employment Agreement dated March 28, 1994 Incorporated by
between Registrant and Frank N. Liguori, reference
filed as Exhibit 10(q) to Registrant's Annual
Report on Form 10-K for the year ended January
2, 1994, is incorporated herein by reference.
*10(k) Amendment dated March 27, 1996 to Employment Incorporated by
Agreement between Registrant and Frank N. reference
Liguori, filed as Exhibit 10(k) to Registrant's
Annual Report on Form 10-K for the year ended
December 29, 1996, is incorporated herein by
reference.
*10(l) Agreement dated November 8, 1993 between Incorporated by
Registrant and Frank N. Liguori covering reference
incentive award under Incentive Restricted
Stock Plan and amendment thereto dated March
27, 1994, filed as Exhibit 10(r) to
Registrant's Annual Report on Form 10-K for
the year ended January 2, 1994, incorporated
herein by reference.
*10(m) Form of change in control agreement between Incorporated by
Registrant and each of Robert A. Fusco, reference
Richard A. Piske, III and Anthony J. Puglisi,
filed as Exhibit 10(o) to Registrant's Annual
Report on Form 10-K for the year ended January
1, 1995, is incorporated herein by reference.
*10(n) Registrant's 1994 Stock Incentive Plan, as Incorporated by
amended and restated, is incorporated by reference
reference to Exhibit A to Registrant's
definitive Proxy Statement with respect to its
1998 Annual Meeting of Shareholders.
- -------------------
* Management contract or compensatory plan or arrangement.
-iii-
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description How Filed
- ----------- ----------- ---------
*10(o) Registrant's Executive Officer Bonus Plan is Incorporated by
incorporated by reference to Exhibit C to reference
Registrant's definitive Proxy Statement with
respect to its 1994 Annual Meeting of
Shareholders.
*10(p) Registrant's Stock & Deferred Compensation Incorporated by
Plan for Non-Employee Directors is incorporated reference
by reference to Exhibit C to Registrant's
definitive Proxy Statement with respect to its
1998 Annual Meeting of Shareholders.
10(q) Lease Agreement dated as of April 1, 1995 Incorporated by
between Suffolk County Industrial Development reference
Agency and OLS Holdings, Inc. covering
headquarters facility at 175 Broad Hollow Road,
Melville, New York, filed as Exhibit 10(t) to
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995, is incorporated
herein by reference.
21 Subsidiaries of Registrant. Filed herewith
23 Consent of Coopers & Lybrand L.L.P., Filed herewith
independent accountants.
27 Financial Data Schedule. Filed herewith
- -------------------
* Management contract or compensatory plan or arrangement.
-iv-
<PAGE>
EXHIBIT 21
<TABLE>
SUBSIDIARIES OF OLSTEN CORPORATION
----------------------------------
<CAPTION>
JURISDICTION
OF
SUBSIDIARY INCORPORATION BUSINESS NAME
---------- ------------- -------------
<S> <C> <C>
The Accounts Team Limited England/Wales The Accountants Team
ABC SARL France
Administracion, Servisios y Asesorias S.A. Chile
Administracion y Servisios S.A. Chile
Adyser Consultores S.A. Chile
Adyser S.A. Chile
Amitec S.A. France
Archangel Executive Appointments Limited England/Wales
Broad Pines Development Corp. Delaware
B.W.Interim S.A. France
Care One Health Alternatives, Inc. Alabama Olsten Health Services
Care One Health Alternatives, Inc. North Carolina Olsten Health Services
CCI-ASDS, Inc. Delaware Olsten Health Services
Children's Home Care LLC Arizona
Chronic Health Management of California California Olsten Health Services
CLD Personnel Services Limited Nova Scotia Olsten Staffing Services
Co-Counsel, Inc. Texas
Commonwealth Home Care, Inc. Massachusetts Olsten Health Services
Compagnie Financiere Sogica S.A. France
C.P.S., SARL France
DataVikar AS Norway
Deleg Interim France
Deletec S.A. France
Dirka Co. Delaware
Exel Interim S.A. France
Generale Financiere de Participation S.A. France
Generale Industrielle S.A. France
GMS, Inc. Ohio Olsten Staffing Services
Harvey Consultants Limited England/Wales
Health Care Services Olsten Limited Delaware
IMI Systems Inc. New York
Integrated Computer Technologies Limited England/Wales
Interim Pyrenees Services SARL France
Interior Health Care Services Limited British Columbia Olsten Health Services
Kimberly Home Health Care, Inc. Missouri Olsten Health Services
L.B.P. S.A. France
Legal Staffing, Inc. Louisiana
Lifetime Corporation (UK) Limited England/Wales
National Health Management Services Corp. Delaware
New York HealthCare Services, Inc. New York Olsten Health Service
Norsk Personal Bemanning AS Norway
Norsk Personal Rekruttering AS Norway
</TABLE>
<PAGE>
EXHIBIT 21
<TABLE>
SUBSIDIARIES OF OLSTEN CORPORATION
----------------------------------
<CAPTION>
JURISDICTION
OF
SUBSIDIARY INCORPORATION BUSINESS NAME
---------- ------------- -------------
<S> <C> <C>
Norsk Prosjekt Konsult AS Norway
Office Angels Limited England/Wales
Office Angels (Properties) Limited England/Wales
Office Angels (Recruitment) Limited England/Wales
Office Legals Limited England/Wales
OFFiS Personaldienstleistungen GmbH u. Co. KG Germany
OLS Holdings, Inc. New York
Olsten BTV Aps Denmark
Olsten Certified HealthCare Corp. Delaware Olsten Health Services
Olsten Chile S.A. Chile
Olsten Dataset OY Finland
Olsten de Argentina S.A. Argentina
Olsten de France SARL France
Olsten de Mexico, S.A. de C.V. Mexico
Olsten de Puerto Rico, Inc. Puerto Rico
Olsten Flying Nurses Corp. Delaware
Olsten Helsetjenester AS Norway
Olsten Integrated Management Services, Inc. Delaware
Olsten International B.V. Netherlands
Olsten Kimberly QualityCare Foundation, Inc. Florida
Olsten Kimberly QualityCare, Inc. Delaware Olsten Health Services
Olsten Latin America, Inc. Delaware
Olsten Norsk Personal AS Norway
Olsten Norway AS Norway
Olsten of Georgia, Inc. Georgia Olsten Staffing Services
Olsten of Westchester, Inc. New York Covertemp
Olsten Personale AS Denmark
Olsten Personalkraft AB Sweden
Olsten Ready Office S.A. Argentina
Olsten Service Corp. Delaware
Olsten Services Limited Ontario Olsten Health Services/Olsten Staffing Services
Olsten Services of New York, Inc. New York Olsten Health Services
Olsten Services S.A. Argentina
Olsten Staffing Services (Area One), Inc. Delaware
Olsten Staffing Services VI, Inc. Delaware
Olsten Staffing Services VII, Inc. Delaware
Olsten Staff, S.A. de C.V. Mexico
Olsten Trabajo Temporal ETT S.A. Spain
Olsten (UK) Holdings Limited England/Wales
Olsten UK Limited England/Wales
Outside Counsel, Inc. District of Columbia
Partnersfirst Management, Inc. Florida Olsten Health Services
Personal Eventual de Occidente, S.A. de C.V. Mexico
Professional Staffing, Inc. Louisiana
Projobs, S.A. de C.V. Mexico
Prospective Health Network, Inc. Delaware Olsten Health Services
QC Medi - New York, Inc. New York Olsten Health Services
</TABLE>
<PAGE>
EXHIBIT 21
<TABLE>
SUBSIDIARIES OF OLSTEN CORPORATION
----------------------------------
<CAPTION>
JURISDICTION
OF
SUBSIDIARY INCORPORATION BUSINESS NAME
---------- ------------- -------------
<S> <C> <C>
QHR Southwest Business Trust Pennsylvania Olsten Health Services
QHR Southwest Holdings Corp. California Olsten Health Services
Quality Care - USA., Inc. New York Olsten Health Services
Quality Managed Care, Inc. Delaware Olsten Health Services
Quantum Care Network, Inc. Massachusetts Olsten Health Services
Quantum Disease Management, Inc. Indiana Olsten Health Services
Quantum Express, Inc. Delaware Olsten Health Services
Quantum Health Resources, Inc. Delaware Olsten Health Services
Quantum Health Resources Inc. (New York) New York Olsten Health Services
Quantum Health Resources Southwest, L.P. Texas Olsten Health Services
Resource Corporation Louisiana
Skilled Nursing Services, Inc. Michigan Olsten Health Services
Sogica TT Ile de France S.A. France
Sogica TT Nord S.A. France
Sogica TT S.A. France
Sogica TT Sud S.A. France
Stafco, Inc. Louisiana
Staffing Services America, Inc. Delaware Olsten Staffing Services
Systems Partners, Inc. California
Tesco S.A. France
The IV Clinic, Inc. Texas Olsten Health Services
The IV Clinic II, Inc. Texas Olsten Health Services
The IV Clinic III, Inc. Texas Olsten Health Services
Top Level, S.A. de C.V. Mexico
Vikar Konsulent AS Norway
Vistech, Inc. Virginia
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
----------
We consent to the incorporation by reference in the Registration
Statements of Olsten Corporation on Form S-8 (Registration Nos. 33-9804,
33-41603, 33-61763, 33-64539, 33-66782 and 33-66784) and on Form S-3
(Registration Nos. 33-54463, 33-64267, 333-4743 and 333-7867) of our report
dated February 4, 1998, on our audits of the consolidated financial statements
of Olsten Corporation and Subsidiaries as of December 28, 1997 and December 29,
1996, and for each of the three years in the period ended December 28, 1997,
which report is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
New York, New York
February 27, 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Olsten
Corporation and Subsidiaries Consolidated Balance Sheets at December 28, 1997
and Olsten Corporation and Subsidiaries Consolidated Statements of Income for
the year ended December 28, 1997 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-END> DEC-28-1997
<CASH> 84,810
<SECURITIES> 0
<RECEIVABLES> 872,745
<ALLOWANCES> 25,326
<INVENTORY> 56,893
<CURRENT-ASSETS> 1,022,944
<PP&E> 317,414
<DEPRECIATION> 131,067
<TOTAL-ASSETS> 1,750,201
<CURRENT-LIABILITIES> 335,431
<BONDS> 0
0
0
<COMMON> 8,131
<OTHER-SE> 833,646
<TOTAL-LIABILITY-AND-EQUITY> 1,750,201
<SALES> 4,113,014
<TOTAL-REVENUES> 4,113,014
<CGS> 3,016,802
<TOTAL-COSTS> 3,016,802
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 28,605
<INTEREST-EXPENSE> 25,362
<INCOME-PRETAX> 160,479
<INCOME-TAX> 62,587
<INCOME-CONTINUING> 93,028
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 93,028
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 1.15
</TABLE>
