UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For quarterly period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-15975
LabOne, Inc.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 48-0952323
---------- --------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
10310 West 84th Terrace
Lenexa, Kansas 66214
----------------------------- -------
(Address of principal executive offices) (Zip Code)
(913) 888-8397
--------------------------------
(Registrant's telephone number, including area code)
N/A
------------------------------------
(Former name, former address, 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 [ ]
Number of shares outstanding of only class of Registrant's common stock,
$.01 par value, as of November 1, 1995 - 13,053,934 net of 1,946,066 shares
held as treasury stock.
Page 1 of 11
PART I. FINANCIAL INFORMATION
ITEM 1 - Financial Statements
LabOne, Inc. and Subsidiary
Consolidated Balance Sheets
September 30, December 31,
1995 1994
ASSETS --------- ---------
Current assets:
Cash and cash equivalents $3,191,301 6,888,806
Short-term investments 35,806,334 34,106,026
Accounts receivable - trade, net of allowance
for doubtful accounts of $199,975 in 1995
and $81,426 in 1994 8,270,443 8,636,610
Inventories 1,387,045 787,339
Prepaid expenses and other current assets 2,170,706 3,007,526
Deferred income taxes 654,246 654,246
---------- ----------
Total current assets 51,480,075 54,080,553
Investments with maturities of more than one
year, at cost 508,978 508,590
Property, plant and equipment 52,846,614 52,498,807
Less accumulated depreciation 35,765,339 34,315,021
---------- ----------
Net property, plant and equipment 17,081,275 18,183,786
Other assets:
Intangible assets, net of accumulated
amortization 3,030,575 3,589,527
Deferred income taxes - noncurrent 234,728 347,264
Deposits and other assets 48,915 48,060
---------- ----------
Total assets $72,384,546 76,757,780
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,147,662 2,024,572
Income taxes payable 36,572 131,068
Payable to Seafield Capital Corporation 85,938 113,575
Accrued payroll and benefits 1,707,818 1,915,457
Other accrued expenses 1,413,060 1,270,337
Other current liabilities 48,421 66,138
---------- ----------
Total liabilities 5,439,471 5,521,147
Stockholders' equity:
Preferred stock, $.01 par value per share;
1,000,000 shares authorized, none issued - -
Common stock, $.01 par value per share;
40,000,000 shares authorized, 15,000,000
shares issued 150,000 150,000
Additional paid-in capital 13,379,906 13,347,455
Equity adjustment from foreign currency
translation (457,189) (683,383)
Retained earnings 76,034,971 80,639,340
---------- ----------
89,107,688 93,453,412
Less treasury stock of 1,946,800 shares in
1995 and 1,957,988 shares in 1994 22,162,613 22,216,779
---------- ----------
Total stockholders' equity 66,945,075 71,236,633
---------- ----------
Total liabilities and stockholders' equity $72,384,546 76,757,780
========== ==========
See accompanying notes to consolidated financial statements and management's
discussion and analysis of financial condition and results of operations.
Page 2
LabOne, Inc. and Subsidiary
Consolidated Statements of Earnings
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales $13,655,673 14,466,613 $42,968,006 45,314,131
Cost of sales 7,438,625 6,922,770 22,449,025 21,258,783
---------- ---------- ---------- ----------
Gross profit 6,217,048 7,543,843 20,518,981 24,055,348
Selling, general and
administrative expenses 6,349,637 7,649,615 18,550,791 18,979,900
---------- ---------- ---------- ----------
Earnings from operations (132,589) (105,772) 1,968,190 5,075,448
Other income 535,898 268,040 1,874,628 1,047,765
---------- ---------- ---------- ----------
Earnings before income taxes 403,309 162,268 3,842,818 6,123,213
Income taxes 132,972 (119,054) 1,401,371 1,968,987
---------- ---------- ---------- ----------
Net earnings $270,337 281,322 $2,441,447 4,154,226
========== ========== ========== ==========
Earnings per common share $0.02 0.02 $0.19 0.31
========== ========== ========== ==========
Dividends per common share $0.18 0.18 $0.54 0.54
========== ========== ========== ==========
Weighted average common
shares outstanding 13,127,134 13,272,618 13,138,811 13,307,952
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements and management's
discussion and analysis of financial condition and results of operations.
Page 3
LabOne, Inc. and Subsidiary
Consolidated Statement of Stockholders' Equity
Nine Months Ended September 30, 1995
<TABLE>
<CAPTION>
Additional Foreign Total
Common paid-in currency Retained Treasury stockholders'
stock capital translation earnings stock equity
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1994 $150,000 13,347,455 (683,383) 80,639,340 (22,216,779) 71,236,633
Net earnings 2,441,447 2,441,447
Cash dividends
($0.54 per share) (7,045,816) (7,045,816)
Stock options
exercised, net
(11,188 shares) 32,451 54,166 86,617
Equity adjustment
from foreign
currency
translation 226,194 226,194
-------- ---------- -------- ---------- ----------- ----------
Balance at
September 30, 1995 $150,000 13,379,906 (457,189) 76,034,971 (22,162,613) 66,945,075
======== ========== ======== ========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements and management's
discussion and analysis of financial condition and results of operations.
Page 4
LabOne, Inc. and Subsidiary
Consolidated Statements of Cash Flows
Nine months ended September 30,
1995 1994
Cash provided by operations:
Net earnings $2,441,447 4,154,226
Adjustments to reconcile net earnings
to net cash provided by operations:
Depreciation and amortization 3,352,095 5,275,318
Loss (gain) on disposal of equipment 160,708 (73,930)
Directors' stock compensation 79,458 77,321
Provision for deferred taxes 131,396 (991,306)
Change in short term trading portfolio, net (3,137,090) (10,575,868)
Changes in:
Accounts receivable 521,451 415,403
Inventories (599,706) (227,705)
Prepaid expenses and other current assets 245,373 524,199
Accounts payable 123,090 (699,326)
Income taxes payable 341,667 (1,197,663)
Payable to Seafield Capital Corporation (27,637) 90,604
Accrued payroll and benefits (207,639) (790,147)
Accrued expenses 142,723 1,767,505
Other current liabilities (17,717) 34,261
---------- ----------
Net cash provided by (used for) operations 3,549,619 (2,217,108)
---------- ----------
Cash provided by (used for) investment transactions:
Purchases of investments with
maturities of less than one year (47,408,230) (71,621,903)
Proceeds from maturities of investments with
maturities of less than one year 49,151,011 75,753,637
Purchases of investments with
maturities of more than one year (2,000) (2,114,019)
Proceeds from maturities of investments with
maturities of more than one year - 1,300,000
Property, plant and equipment, net (1,980,981) (2,574,866)
Other (855) 14,056
Net cash provided by (used for) ---------- ----------
investment transactions (241,055) 756,905
---------- ----------
Cash provided by (used for) financing transactions:
Issuance of treasury stock, net of proceeds
from the exercise of stock options 7,158 324,447
Cash dividends (7,045,816) (7,005,428)
---------- ----------
Net cash used for financing transactions (7,038,658) (6,680,981)
---------- ----------
Effect of foreign currency translation 32,589 (16,598)
---------- ----------
Net decrease in cash and cash equivalents (3,697,505) (8,157,782)
Cash and cash equivalents - beginning of period 6,888,806 11,514,400
---------- ----------
Cash and cash equivalents - end of period $3,191,301 3,356,618
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for: Income Taxes $1,392,576 3,363,959
========== ==========
See accompanying notes to consolidated financial statements and management's
discussion and analysis of financial condition and results of operations.
Page 5
LabOne, Inc. and Subsidiary
Notes to Consolidated Financial Statements
September 30, 1995 and 1994
The accompanying consolidated financial statements include the accounts
of LabOne, Inc. and its wholly-owned subsidiary Head Office Reference
Laboratory Limited (a Canadian corporation). All significant intercompany
transactions have been eliminated in consolidation.
The financial information furnished herein is unaudited; however, in the
opinion of management, it reflects all adjustments, consisting of normal
recurring adjustments, which are necessary to fairly state the Company's
financial position at September 30, 1995, and December 31, 1994, and the
results of its operations and cash flows for the periods ended September 30,
1995 and 1994. The financial statements have been prepared in conformity with
generally accepted accounting principles appropriate in the circumstances, and
included in the financial statements are certain amounts based on management's
estimates and judgments.
The financial information herein is not necessarily representative of a
full year's operations because levels of sales, capital additions and
other factors fluctuate throughout the year. These same considerations
apply to all year-to-year comparisons. See the Company's Annual Report
on Form 10-K for the year ended December 31, 1994, for additional
information not required by this report Form 10-Q.
The weighted average shares includes the common stock equivalents of
stock options.
Page 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
<TABLE>
RESULTS OF OPERATIONS
- ---------------------
<CAPTION>
Selected financial data:
Three months ended September 30, Nine months ended September 30,
1995 1994 %Decrease 1995 1994 %Decrease
---------- ---------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Sales $13,655,673 14,466,613 6% $42,968,006 45,314,131 5%
Net earnings 270,337 281,322 4% 2,441,447 4,154,226 41%
Earnings per
common share $0.02 0.02 $0.19 0.31
Cash dividends
per common share $0.18 0.18 $0.54 0.54
</TABLE>
The Company provides risk appraisal, clinical and substance-abuse
laboratory services to insurance companies, physicians and employers.
LabOne provides risk appraisal laboratory services to the insurance
industries in the United States and Canada. The tests performed by the
Company are specifically designed to assist an insurance company in
objectively evaluating the mortality and morbidity risks posed by policy
applicants. The majority of the testing is performed on individual life
insurance policy applicants. The Company also provides testing services
on individual and group medical and disability policy applicants. LabOne
currently serves over half this market, with Osborn Laboratories, Inc.,
Clinical Reference Laboratory and GIB Laboratories maintaining a majority
of the remaining market.
LabOne has offered clinical laboratory services to the health care industry
since May 1994 to aid in the diagnosis and treatment of patients. The Company
has entered into contracts with several professional organizations nationwide
to serve as LabOne approved service centers for the collection of specimens
for testing. LabOne became accredited in June 1994 by the Substance Abuse and
Mental Health Services Administration (SAMHSA) to perform substance-abuse
testing (SAT) services for federally regulated employers. The Company markets
SAT services throughout the country to both regulated and nonregulated
employers.
Through its laboratory benefit management (LBM) program, LabOne has developed
Lab Card(TM) to reduce the total cost of outpatient laboratory testing by as
much as 50 percent. By using Lab Card, patients incur no out-of-pocket
expenses for outpatient lab work, and their employers save substantially
against their current lab expenditures. The Lab Card Program is being marketed
to insurance carriers, as well as to self-insured and partially-insured
companies and other organizations.
The insurance testing division continues to work with client companies to
develop the OraSure(R) saliva testing product to accommodate the needs of the
insurance industry. As insurers work through the regulatory requirements for
saliva-based testing, the potential for expansion in this area exists.
Page 7
THIRD QUARTER ANALYSIS
Revenue in the third quarter 1995 was $13.7 million as compared to $14.5
million in the same period last year. The decrease of $0.8 million (6%) can
be attributed primarily to decreases in insurance laboratory revenue of $1.8
million and insurance kit revenue of $0.2 million. This decrease was
partially offset by an increase in clinical and substance-abuse laboratory
testing revenues of $1.2 million. The total number of insurance applicants
tested in the third quarter 1995 decreased by 10% as compared to the same
quarter last year, primarily due to a national decline in the number of life
insurance policies written and a slight decline in market share.
Average revenue per insurance applicant declined 6% during the third quarter
1995 as compared to the same quarter last year. At the end of 1994, LabOne
initiated a price stabilization plan. The purpose of this plan was to
increase prices based on the emphasis of LabOne's quick turn-around time and
quality of testing. The initial result of this action was a slight increase
in the average revenue per applicant, however prices have subsequently
declined due to continued competitive pressures.
In September 1995, LabOne reduced staff by 7%. This work force reduction was
considered a necessary element in the Company's efforts to improve the cost
structure of its insurance testing operations and meet clients' requirements
for lower cost, high quality laboratory services. Additionally, the Company
closed several LabOne Service Center (LSC) locations to improve the
flexibility of the Company's specimen collection operations. The total cost
of these actions was a $0.5 million charge to third quarter earnings from
operations.
Cost of sales increased $0.5 million (7%) in the third quarter 1995 as
compared to the third quarter 1994. This increase includes the LSC lease
write-off for closed locations. Payroll and outside lab services also
increased; however, they were partially offset by a reduction in depreciation
expense and royalty fees. Clinical and SAT cost of sales expenses during
the third quarter 1995 were $2.2 million, as compared to $0.6 million in the
same quarter 1994.
Gross profit declined 18% from $7.5 million in the third quarter 1994 to $6.2
million in 1995. This decline of $1.3 million is primarily attributable to
the reduction in total revenue of $0.8 million and the increase expenses
associated with the clinical expansion.
Selling, general and administrative expenses decreased $1.3 million (17%) in
the third quarter 1995 as compared to the prior year, due primarily to prior
year expenses related to the closing of the Canadian laboratory. The Company
consolidated its Canadian laboratory testing with the Kansas operations during
the third quarter 1994 which resulted in a restructuring charge of $1.6
million. Other variances include increases in third party billing expenses
and bad debt accruals due to the increase in clinical and SAT revenue, which
were partially offset by a decrease in depreciation expense. Clinical and SAT
overhead expenses during the third quarter 1995 were $1.2 million, as compared
to $0.8 million in the third quarter 1994.
Nonoperating income increased $0.3 million due to an increase in investment
income and a decrease in other nonoperating expenses.
Page 8
The effective income tax rate for the third quarter 1995 was 33.0% which was
reduced as a result of certain tax adjustments. During 1994, the tax rate was
impacted by certain tax adjustments resulting in a tax benefit of $119,000 for
the quarter.
The combined effect of the above factors resulted in net earnings of $0.3
million or $0.02 per share in the third quarter 1995 as compared to $0.3
million or $0.02 per share in the same period last year.
YEAR TO DATE ANALYSIS
Total revenue in the first nine months of 1995 was $43.0 million as compared to
$45.3 million in the same period last year. The decrease of $2.3 million or 5%
can be attributed primarily to an 8% decrease in the total number of insurance
applicants tested in the nine month period and a 5% decrease in the average
revenue per applicant. These decreases were partially offset by an increase
in clinical and substance-abuse testing revenue of $2.9 million.
Cost of sales increased $1.2 million (6%) year to date as compared to the prior
year. This increase is due primarily to increases in payroll, rent expense
and outside lab services, all related to the clinical expansion. These were
partially offset by decreases in Canadian expenses, depreciation expense and
net postage. Clinical and SAT cost of sales expenses for the nine month
period were $6.3 million.
Gross profit declined 15% from $24.1 million in 1994 to $20.5 million in
1995. This decline of $3.6 million is primarily attributable to the
reduction in total revenue of $2.3 million and the additional expenses
associated with the clinical expansion.
Selling, general and administrative expenses decreased $0.4 million (2%) in
the nine month period ended September 30, 1995, as compared to the prior
year primarily due to the closure of the Canadian laboratory in 1994.
Additional declines included depreciation and maintenance expense. These
were partially offset by increases in commission expense, payroll, bad
debt accruals and travel and entertainment expenses. Clinical and SAT
overhead expenses during the nine month period were $3.2 million.
The effective income tax rate increased from $32.2% during the first nine
months of 1994 to 36.5% during the same period in 1995. The prior year was
impacted by tax adjustments related to the closure and liquidation of the
HORL (UK) operations and certain U. S. tax adjustments.
The combined effect of the above factors resulted in net earnings of $2.4
million or $0.19 per share in the nine month period ended September 30, 1995,
as compared to $4.2 million or $0.31 per share in the same period last year.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
LabOne's working capital position decreased by $2.6 million to $46.0 million
at September 30, 1995, from $48.6 million at December 31, 1994. This decrease
is primarily due to dividends paid and capital additions exceeding cash
provided by operations. The dividend paid during the third quarter 1995 was
$2.3 million or $0.18 per share.
Page 9
Net cash provided by operations increased from a deficit of $2.2 million for
the nine months ended September 30, 1994 to a surplus of $3.5 million for the
same period in 1995. This increase of $5.7 million is primarily attributable
to the net change in short term trading portfolio.
Net additions to property, plant and equipment were $0.7 million in the third
quarter 1995 as compared to $0.8 million in 1994. There were no treasury
stock purchases in the third quarter, however 1,275 shares of treasury stock
were issued for exercised options. The total number of shares held in
treasury at September 30, 1995, was approximately 1.9 million at a total cost
of $22.2 million or $11.38 per share.
In August 1995, LabOne's Board of Directors declared a third quarter 1995
dividend of $0.18 per common share. This dividend was paid on September 1,
1995, to stockholders of record as of August 15, 1995. The Board reviews
the dividend payment policy on a periodic basis. There are currently no
restrictions that would limit the Company's ability to make future dividend
payments.
The Company had no borrowings in the third quarter 1995. At September 30,
1995, LabOne had a total unsecured line of credit at prime rate of $1.0
million that may be used for general corporate purposes. The Company expects
to fund operations, capital additions and future dividend payments from a
combination of cash reserves and cash flow from operations. At September 30,
1995, LabOne had total cash and investments of $39.5 million as compared to
$41.5 million at December 31, 1994.
PART II. OTHER INFORMATION
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule - as filed electronically by the
Registrant in conjunction with this third quarter 1995 Form 10-Q.
Page 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
LabOne, Inc.
Date: November 13, 1995 By /s/ Kurt E. Gruenbacher
---------------------------
Kurt E. Gruenbacher
V.P. Finance and CAO
Date: November 13, 1995 By /s/ Robert D. Thompson
---------------------------
Robert D. Thompson
Executive V.P. Finance,
CFO and Treasurer
Page 11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
third quarter 1995 10-Q for LabOne, Inc. and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<CIK> 0000816151
<NAME> LABONE, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 3,191,301
<SECURITIES> 35,806,334
<RECEIVABLES> 8,470,418
<ALLOWANCES> 199,975
<INVENTORY> 1,387,045
<CURRENT-ASSETS> 51,480,075
<PP&E> 52,846,614
<DEPRECIATION> 35,765,339
<TOTAL-ASSETS> 72,384,546
<CURRENT-LIABILITIES> 5,439,471
<BONDS> 0
<COMMON> 150,000
0
0
<OTHER-SE> 66,795,075
<TOTAL-LIABILITY-AND-EQUITY> 72,384,546
<SALES> 0
<TOTAL-REVENUES> 42,968,006
<CGS> 0
<TOTAL-COSTS> 22,449,025
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,842,818
<INCOME-TAX> 1,401,371
<INCOME-CONTINUING> 2,441,447
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,441,447
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
</TABLE>
