SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
- ----- QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
| X | EXCHANGE ACT OF 1934
- -----
For the quarterly period ended March 29, 1998
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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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Not Applicable
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 8, 1998
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Common Stock, $.10 par value 68,164,160 shares
Class B Common Stock, $.10 par value 13,150,228 shares
INDEX
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Page No.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
March 29, 1998 (Unaudited) and December 28, 1997 2
Consolidated Statements of Income (Unaudited) -
Quarters Ended March 29, 1998 and March 30, 1997,
respectively 3
Consolidated Statements of Cash Flows
(Unaudited) - Three Months Ended March 29, 1998
and March 30, 1997, respectively 4
Notes to Consolidated Financial Statements
(Unaudited) 5 - 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7 - 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 5. Other Information 9 - 10
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements.
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Olsten Corporation
Consolidated Balance Sheets
(In thousands, except share amounts)
March 29, 1998 December 28, 1997
ASSETS -------------- -----------------
(Unaudited)
CURRENT ASSETS:
Cash $ 29,910 $ 84,810
Receivables, net 855,929 847,419
Other current assets 93,672 90,715
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Total current assets 979,511 1,022,944
FIXED ASSETS, NET 187,673 186,347
INTANGIBLES, NET 557,161 534,284
OTHER ASSETS 10,710 6,626
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$1,735,055 $1,750,201
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued expenses $ 180,992 $ 152,239
Payroll and related taxes 87,081 86,071
Accounts payable 44,407 55,851
Insurance costs 30,878 41,270
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Total current liabilities 343,358 335,431
LONG-TERM DEBT 447,333 461,178
OTHER LIABILITIES 96,513 111,815
SHAREHOLDERS' EQUITY:
Common stock $.10 par value; authorized
110,000,000 shares; issued 68,161,849
and 68,151,708 shares, respectively 6,816 6,815
Class B common stock $.10 par value;
authorized 50,000,000 shares; issued
13,151,760 and 13,157,617 shares,
respectively 1,315 1,316
Additional paid-in capital 447,292 447,297
Retained earnings 397,898 390,786
Accumulated other comprehensive income (5,470) (4,437)
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Total shareholders' equity 847,851 841,777
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$1,735,055 $1,750,201
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See notes to consolidated financial statements.
Olsten Corporation
Consolidated Statements of Income
(In thousands, except share amounts)
(Unaudited)
First Quarter Ended
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March 29, March 30,
1998 1997
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Service sales, franchise fees, management fees and
other income $1,049,942 $950,851
Cost of services sold 783,885 695,892
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Gross profit 266,057 254,959
Selling, general and administrative expenses 236,860 218,971
Interest expense, net 5,906 4,148
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Income before income taxes and minority interests 23,291 31,840
Income taxes 9,026 12,418
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Income before minority interests 14,265 19,422
Minority interests 1,464 255
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Net income $ 12,801 $ 19,167
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SHARE INFORMATION:
Basic earnings per share:
Net income $ .16 $ .24
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Average shares outstanding 81,312 81,161
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Diluted earnings per share:
Net income $ .16 $ .24
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Average shares outstanding 81,467 83,012
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See notes to consolidated financial statements.
Olsten Corporation
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended
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March 29, 1998 March 30, 1997
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OPERATING ACTIVITIES:
Net income $ 12,801 $ 19,167
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 14,541 12,097
Changes in assets and liabilities,
net of effects from acquisitions
and dispositions:
Accounts receivable and other
current assets (15,703) (45,514)
Current liabilities (17,307) (2,190)
Other, net (10,551) (2,833)
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NET CASH USED IN OPERATING ACTIVITIES (16,219) (19,273)
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INVESTING ACTIVITIES:
Purchases of fixed assets (13,048) (20,729)
Acquisitions of businesses including
franchises, net of cash acquired (2,306) (27,492)
Sale of investment securities -- 9,415
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NET CASH USED IN INVESTING ACTIVITIES (15,354) (38,806)
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FINANCING ACTIVITIES:
Net repayment of line of credit agreements (10,000) (4,786)
Repayment of notes payable (6,202) --
Cash dividends (5,689) (5,680)
Issuances of common stock under stock plans 54 377
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NET CASH USED IN FINANCING ACTIVITIES (21,837) (10,089)
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EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,490) --
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NET DECREASE IN CASH (54,900) (68,168)
CASH AT BEGINNING OF PERIOD 84,810 105,725
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CASH AT END OF PERIOD $ 29,910 $ 37,557
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NON-CASH TRANSACTIONS:
Assets acquired through the issuance
of a note $ -- $ 19,535
Issuance of restricted stock $ -- $ 6,437
See notes to consolidated financial statements.
Olsten Corporation
Notes to Consolidated Financial Statements
(Unaudited)
1. Accounting Policies
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The consolidated financial statements have been prepared by Olsten
Corporation (the "Company") pursuant to the rules and regulations of the
Securities and Exchange Commission and, in the opinion of management, include
all adjustments necessary for a fair presentation of results of operations,
financial position and cash flows for each period presented.
2. Interest Expense, Net
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Interest expense, net, consists primarily of interest on long-term debt for
the quarter of $6.8 million in 1998 and $6 million in 1997, offset by
interest income from investments of $900 thousand and $2 million for 1998 and
1997, respectively.
3. Acquisitions
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Under the terms of the 1997 purchase agreement for Sogica S.A., an additional
payment of $31 million related to their 1997 results of operations was paid
in the second quarter of 1998 and is included in accrued expenses as of March
29, 1998.
During the first three months of 1998, the Company purchased various
businesses which were accounted for by the purchase method of accounting. The
aggregate cash outlay for these acquisitions was $2.3 million.
4. Adoption of SFAS 130, "Reporting Comprehensive Income"
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As of December 29, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130").
SFAS 130 establishes new rules for the reporting and display of comprehensive
income and its components; however, the adoption of this Statement had no
impact on the Company's net income or shareholders' equity. SFAS 130 requires
unrealized gains or losses on the Company's foreign currency translation
adjustments, which prior to adoption were reported separately in
shareholders' equity to be included in other comprehensive income. Prior year
financial statements have been reclassified to conform to the requirements of
SFAS 130.
During the first quarter of 1998 and 1997, total comprehensive income
amounted to $11.8 million and $20.1 million, respectively.
5. Subsequent Event
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In May 1998, the Company's wholly-owned Dutch subsidiary, Olsten International
B.V., was the issuer in a public offering of 800 million French franc
(approximately U.S. $133 million) 6 percent Euronotes due 2008, which are fully
guaranteed by the Company. The net proceeds of the debt offering will be used to
repay existing indebtedness and for general financing purposes of the issuer and
its related companies.
Item 2. Management's Discussion and Analysis of Financial Condition and
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Results of Operations.
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Results of Operations
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Net income for the first quarter of 1998 decreased 33 percent to $12.8 million,
or $.16 per share, compared to $19.2 million, or $.24 per share for last year's
first quarter.
Revenues increased $99 million or 10 percent to $1.05 billion for the first
quarter, as compared to $951 million for last year's first quarter.
Staffing Services reported increased revenues of 22 percent to $716 million for
the first quarter over last year's first quarter of $587 million. Acquisitions
accounted for approximately 13 percent of the first quarter revenue growth,
European operations contributed 4 percent, with the remaining 5 percent
primarily attributable to internal growth in North American information
technology and professional services operations, while traditional services were
relatively flat.
Health Services' revenues declined 8 percent to $332 million for the first
quarter compared to $359 million for the same period in 1997. The decline in
Health Services' revenues was due to decreases in both Medicare nursing visits
and in management fees generated by hospital-based home health agencies. The
recently enacted Medicare Interim Payment System, continued Federal Government
focus on the home care industry and the reluctance of physicians to refer
patients to home care have negatively impacted the Medicare segment of both
businesses. An overall increase in Network Services, Infusion Services and other
Health Services' business lines partly offset the above.
Cost of services sold increased $88 million, or 12.6 percent, to $784 million
for the first quarter of 1998 from $696 million for the same period in 1997 due
primarily to the growth in revenues. Gross profit margins, as a percentage of
revenues, decreased to 25.3 percent for the first quarter from 26.8 percent for
last year's first quarter. Staffing Services' gross profit margin increased
primarily as a result of profit improvements in Europe, with improved
utilization and bill rates, particularly in Germany, offset by a decline in the
U.S. Information Technology division related to an increased level of large
contracts which are at lower margins. Health Services' gross profit margin
decreased due to the decline in Medicare and health management volume and
increased costs related to the servicing of capitated contracts.
Selling, general and administrative expenses increased $18 million, or 8.2
percent, to $237 million for the first quarter from $219 million for the same
period in 1997. The increase in the quarter results from significant investments
in new systems, infrastructure, development of professional services divisions
and the inclusion in our first quarter of 1998 Sogica S.A. results, which was
acquired in the second quarter of 1997. As a percentage of revenues, such
expenses were essentially flat at 23 percent compared to last year's first
quarter
Net interest expense was $5.9 million and $4.1 million for the first quarters of
1998 and 1997, respectively. Net interest primarily reflected borrowing costs on
long-term debt offset by interest income on investments. The increase resulted
from interest expense incurred as the Company continued to fund its acquisition
program.
Liquidity and Capital Resources
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Working capital decreased from $688 million at December 28, 1997 to $636 million
at March 29, 1998. Cash decreased $55 million primarily as a result of a $10
million pay down of line of credit agreements; $13 million for capital
expenditures and a $16 million decrease in cash from operations. Accounts
receivable and other current assets increased $16 million for the three months.
This increase is primarily attributed to revenue growth, as well as consolidated
billing requirements of large corporate accounts in the staffing services
division, coupled with revenue growth of managed care and infusion therapy
accounts, which impacted the timing of the collection process.
In May 1998, the Company's wholly-owned Dutch subsidiary, Olsten International
B.V., was the issuer in a public offering of 800 million French franc
(approximately U.S. $133 million), 6 percent Euronotes due 2008, which are fully
guaranteed by the Company. The net proceeds of the debt offering will be used to
repay existing indebtedness and for general financing purposes of the issuer and
its related companies.
The Company has a revolving credit agreement with a consortium of eleven banks
for up to $400 million in borrowings and letters of credit. As of March 29,
1998, there were $162 million in borrowings outstanding and $47 million in
standby letters of credit. The Company has invested available funds in
short-term, interest-bearing investments. The Company believes that its levels
of working capital, liquidity and available sources of funds are sufficient to
support present operations and to continue to fund future growth and business
opportunities as the Company increases its scope of services.
OTHER
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INFORMATION CONTAINED HEREIN, OTHER THAN HISTORICAL INFORMATION, SHOULD BE
CONSIDERED FORWARD-LOOKING AND IS SUBJECT TO VARIOUS RISK FACTORS AND
UNCERTAINTIES. FOR INSTANCE, THE COMPANY'S STRATEGIES AND OPERATIONS INVOLVE
RISKS OF COMPETITION, CHANGING MARKET CONDITIONS, CHANGES IN LAWS AND
REGULATIONS AFFECTING THE COMPANY'S INDUSTRIES AND NUMEROUS OTHER FACTORS
DISCUSSED IN THIS DOCUMENT AND IN OTHER COMPANY FILINGS WITH THE SECURITIES AND
EXCHANGE COMMISSION. ACCORDINGLY, ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
THOSE PROJECTED IN ANY FORWARD-LOOKING STATEMENTS CONTAINED HEREIN.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
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By Order of the Magistrate Judge dated May 4, 1998 (the "Order"), the
United States District Court for the Eastern District of New York
consolidated the four previously disclosed purported class action
lawsuits pending against Olsten and certain of its officers and
directors, Weichman v. Olsten Corporation, et al., No. CV 97-1946;
Goldman v. Olsten Corporation, et al., No. CV 97-4501; Waldman v. Olsten
Corporation, et al., No. CV 97-5056; and Cannold v. Olsten Corporation,
et al., No. CV 97-5408. (The Weichman, Goldman, Waldman and Cannold
lawsuits are referred to collectively herein as the "Class Action.") The
Order also appointed a Lead Plaintiff, selected Plaintiffs' Lead Counsel
and directed the Lead Plaintiff to file a Consolidated Amended Complaint
within 21 days of the entry of the Order. It is possible that one or
more of the parties to the Class Action will object to part or all of
the Order and petition the United States District Judge to review the
Order. While the Company is unable at this time to assess the probable
outcome of the Class Action or the materiality of the risk of loss in
connection therewith (given the preliminary stage of the Class Action
and the fact that the Consolidated Amended Complaint has not yet been
served), the Company believes that it acted responsibly with respect to
its shareholders and intends to vigorously defend the Class Action.
Item 5. Other Information.
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The Company's home health care business is subject to extensive federal
and state regulations which govern, among other things, Medicare,
Medicaid, CHAMPUS and other government-funded reimbursement programs,
reporting requirements, certification and licensure standards for
certain home health agencies and, in some cases, certificate-of-need and
pharmacy-licensing requirements. The Company is also subject to a
variety of federal and state regulations which prohibit fraud and abuse
in the delivery of health care services, including, but not limited to,
prohibitions against the offering or making of direct or indirect
payments for the referral of patients. As part of the extensive federal
and state regulation of the Company's home health care business, the
Company is subject to periodic audits, examinations and investigations
conducted by or at the direction of governmental investigatory and
oversight agencies. Violation of the applicable federal and state
regulations can result in a health care provider's being excluded from
participation in the Medicare, Medicaid and/or CHAMPUS programs, and can
subject the provider to civil and/or criminal penalties.
The Company continues to cooperate with the previously disclosed health
care industry investigations being conducted by certain governmental
agencies (collectively, the "Heathcare Investigations").
Among the Healthcare Investigations with which Olsten continues to
cooperate is that being conducted into the Company's preparation of
Medicare cost reports by 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.
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 Olsten 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.
Olsten 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 predates
Olsten's June 1996 acquisition of Quantum.
The Company believes that certain of the Healthcare Investigations may
have been triggered by or given rise to lawsuits under federal and/or
state whistleblower statutes against Olsten and/or Quantum.
Notwithstanding the Company's continuing cooperation with the Healthcare
Investigations, Olsten has been notified that it is a target of a
federal grand jury investigation by the U.S. Attorney's Office for the
Southern District of Florida, which investigation Olsten believes
focuses upon the Company's above-referenced relationship with
Columbia/HCA in connection with the purchase, sale and operation of
certain home health agencies. In addition to the U.S. Attorney's Office
for the Southern District of Florida, other agencies of the federal
and/or state governments may regard the Company and/or certain of its
employees as subjects or targets of one or more of the other Healthcare
Investigations. If Olsten were to be found to have violated the laws and
regulations at issue in the Healthcare 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 Healthcare
Investigations, any one of the foregoing sanctions could have a material
adverse effect upon the Company's financial position and results of
operations.
Item 6. Exhibits and Reports on Form 8-K.
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(a) The following exhibits are filed herewith:
Exhibit 10 - Amendment No. 2, dated as of February 24, 1998, to
Credit Agreement, dated as of August 9, 1996, as
amended, among the Company, the Banks signatory
thereto and The Chase Manhattan Bank, as Agent,
covering $400 million credit facility.
Exhibit 27 - Financial Data Schedule
(b) The Company has not filed any report on Form 8-K during the
period for which this report is filed.
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OLSTEN CORPORATION
(REGISTRANT)
Date: May 13, 1998 /s/ Frank N. Liguori
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Frank N. Liguori
Chairman and Chief
Executive Officer
Date: May 13, 1998 /s/ Anthony J. Puglisi
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Anthony J. Puglisi
Senior Vice President and
Chief Financial Officer