UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 - For the fiscal year ended December 31, 1994
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
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LabOne, Inc.
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(Exact name of Registrant as specified in its charter)
Delaware 48-0952323
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
10310 West 84th Terrace
Lenexa, Kansas 66214
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(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code: 913-888-8397
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, $0.01 par value
(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 / /
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. /X/
Approximate aggregate market value of voting stock held by non-affiliates
of Registrant: $30,573,000 (based on closing price as of March 2, 1995, of
$13.50). The non-inclusion of shares held by directors, officers and
beneficial owners of more than 5% of the outstanding stock shall not be deemed
to constitute an admission that such persons are affiliates of the Registrant
within the meaning of the Securities and Exchange Act of 1934.
Number of shares outstanding of the only class of Registrant's common
stock as of March 2, 1995: $0.01 par value common - 13,043,872 shares net of
1,956,128 shares held as treasury stock.
DOCUMENTS INCORPORATED BY REFERENCE:
The information included under the captions entitled "Information
Concerning Nominees for Election as Directors," "Security Ownership of
Management," "Security Ownership of Certain Beneficial Owners," and "Executive
Compensation," in the Company's definitive proxy statement to be filed with
the Commission pursuant to Regulation 14A with respect to its annual meeting
of stockholders to be held May 11, 1995, is incorporated into Part III of this
Annual Report on Form 10-K.
The exhibit list for this Form 10-K begins on page 16. Page 1 of 60
PART I
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ITEM 1. BUSINESS
General
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LabOne, Inc., a Delaware corporation, is the successor to Home Office
Reference Laboratory, Inc., which was established in 1972 to provide
laboratory testing services for the insurance industry. The corporation
changed its name to LabOne, Inc. in February 1994. LabOne, Inc., together
with its wholly-owned subsidiary Head Office Reference Laboratory Limited
(hereinafter collectively referred to as either LabOne or the Company), is the
largest provider of such services in the United States and Canada. See Note 7
of Notes to Consolidated Financial Statements for financial information
regarding foreign operations.
The Company provides high-quality, low-cost laboratory and substance abuse
testing services to insurance companies, physicians and employers nationwide.
The Home Office Reference Laboratory division continues to operate as a
provider of risk-appraisal laboratory testing services to the insurance
industry. 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
policies.
LabOne's clinical testing services (formerly marketed under the Center for
Laboratory Services division) are provided to the health care industry to aid
in the diagnosing and treatment of patients. The Company has established a
network of Patient Service Centers (PSCs) and affiliations with other centers
in Northern California, Des Moines and the Kansas City area for the collection
of specimens for testing. This network became operational during the fourth
quarter of 1994. Additionally, the Company maintains its own courier fleet to
retrieve specimens for transport to the laboratory.
In May 1994, LabOne signed an agreement with PCS Health Systems (PCS), a
subsidiary of Eli Lilly, to market an integrated and fully managed system of
laboratory testing and administration services for payers and health plans
throughout the United States The result of this agreement is a new program
called Lab Card(TM), which became operational in December 1994. The Lab Card
Program will offer both payers and the covered population substantial cost
savings on high-quality laboratory testing services. The program will utilize
PCS' point of service, real-time eligibility verification system. The
laboratory testing will be performed at LabOne's centralized testing facility
in Kansas.
2
LabOne is certified by the Substance Abuse and Mental Health Services
Administration (SAMHSA, formerly NIDA) to perform substance abuse testing
services for federally regulated employers and is currently marketing these
services throughout the country to both regulated and nonregulated employers.
The Company's 24 to 48 hour turnaround and multiple testing options help
clients reduce down time for affected employees and meet mandated drug
screening guidelines.
Services Provided by the Company
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Insurance Applicant Testing:
In order to establish the appropriate level of premium payments or to
determine whether to issue a policy, an insurance company requires objective
means of evaluating the insurance risk posed by policy applicants. Because
decisions of this type are based on statistical probabilities of mortality and
morbidity, an insurance company generally requires quantitative data
reflecting the applicant's general health. Standardized laboratory testing,
tailored to the needs of the insurance industry and reported in a uniform
format, provides an insurance company with an efficient means of evaluating
the mortality and morbidity risks posed by policy applicants. The use of
standardized urinalysis and blood testing has proven a cost-effective
alternative to individualized physician examinations, which utilize varying
testing procedures and reports.
Standardized laboratory testing can also be used to verify responses on a
policy application to such questions as whether the applicant is a user of
tobacco products, certain controlled substances or certain prescription drugs.
Insurance companies generally offer a premium discount for nonsmokers and
often rely on testing to determine whether an applicant is a user of tobacco
products. Cocaine use has been associated with increased risk of
accidental death and cardiovascular disorders, and as a result of the
increasing abuse in the United States and Canada, insurance companies are
testing a greater number of policy applicants to detect its presence.
Therapeutic drug testing also detects the presence of certain prescription
drugs that are being used by an applicant to treat a life-threatening medical
condition that may not be revealed by a physical examination.
LabOne's insurance testing services consist of certain specimen profiles that
provide insurance companies with specific information that may indicate liver
or kidney disorders, diabetes, the risk of cardiovascular disease, bacterial
or viral infections and other health risks. The Company also offers tests to
detect the presence of antibodies to human immunodeficiency virus (HIV),
nicotine, cocaine and certain medications associated with life-threatening
medical conditions that may not be revealed by a routine physical examination.
Insurance specimens are normally collected from individual insurance
applicants by independent paramedical personnel using LabOne's custom-designed
collection kits and containers. These kits and containers are then delivered
to LabOne's laboratory via overnight delivery services or mail, coded for
identification and processed according to each client's specifications.
Results are then generally transmitted to the insurance company's underwriting
department that same evening.
3
Clinical Patient Testing:
Clinical laboratory tests are requested generally by physicians and other
health care providers to diagnose and monitor diseases and other medical
conditions through the detection of substances in blood and other specimens.
Laboratory testing is generally categorized as either clinical testing, which
is performed on bodily fluids including blood and urine, or anatomical
pathology testing, which is performed on tissue and other samples. Clinical
and anatomical pathology tests are frequently performed as part of regular
physical examinations and hospital admissions in connection with the diagnosis
and treatment of illnesses. The most frequently requested tests include blood
chemistry analyses, blood cholesterol level tests, urinalyses, blood cell
counts, PAP smears, AIDS tests and alcohol and other substance-abuse tests.
Clinical specimens are collected at LabOne's network of PSCs, at an affiliated
collection center or at the physician's office. The Company's couriers pick
up the specimens and deliver them to local airports for express transport to
the Kansas laboratory. Specimens are coded for identification and processed.
The Company has significantly expanded its testing menu to include the
majority of tests requested by its clients. Tests not performed in-house are
sent to reference laboratories for testing and results are entered into the
Company's computer system along with all other completed results. The Company
provides many of its clinical clients with the necessary equipment to directly
receive testing results via electronic transmission from LabOne. Results
which cannot be delivered electronically are delivered by the Company's
couriers beginning the morning after the tests are performed.
Substance Abuse Testing:
LabOne has provided quality substance abuse testing results to the insurance
industry for over 20 years. The recent certification by SAMHSA has enabled
the Company to begin offering these services to the entire market including
federally regulated industries.
Substance abuse testing specimens are typically collected by independent
agencies who use LabOne's forms and collection supplies. Specimens are sealed
with tamper-evident tape, bar-coded and shipped overnight to the Company.
Automated systems monitor the specimens throughout the screening and
confirmation process. Negative results are available immediately after
testing is completed. Initial positive specimens are verified by the gas
chromatography/mass spectrometry method and results are generally available
within 24 hours. Results are then transmitted electronically to the client's
secured computer, printer or fax machine. LabOne provides the necessary
hardware and phone connections for these electronic transfers to many of its
larger clients.
4
Operations
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The following table summarizes the Company's revenues from laboratory testing
and from other operations (primarily the sale of specimen collection kits):
Year ended December 31,
1994 1993 1992 1991 1990
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(in thousands)
Urinalyses tests $ 9,687 10,200 10,666 10,698 11,298
Controlled substance tests 10,326 12,702 14,359 13,649 13,685
Blood chemistry profiles 17,370 19,853 21,470 22,411 26,804
AIDS-related tests 12,407 14,766 16,280 17,840 18,690
Other 10,936 11,857 11,662 11,141 10,292
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$ 60,726 69,378 74,437 75,739 80,769
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The Company's operations are designed to facilitate the testing of a large
number of specimens and to report the results to our clients, generally
within 24 hours of receipt of specimens.
The Company has an internally developed, custom-designed laboratory processing
system (the MEGA System). The MEGA System enables each client company to
customize its own testing and reflex requirements by several parameters to
satisfy its particular needs. It is a centralized network system that
provides an automated link between LabOne's testing equipment, data processing
equipment and the clients' computer systems. This system offers LabOne's
clients the ability to customize their testing activities to best meet their
needs.
As a result of the number of tests it has performed over the past several
years, LabOne has compiled and maintains a large statistical data base of test
results. These summary statistics are useful to the actuarial and
underwriting departments of an insurance client in comparing that client's
test results to the results obtained by the Company's entire client base.
Company-specific and industry-wide reports are frequently distributed to
clients on subjects such as coronary risk analysis, cholesterol and drugs of
abuse.
The Company considers the confidentiality of its test results to be of primary
importance and has established procedures to ensure that results of tests
remain confidential as they are communicated to the client that requested the
tests.
Substantially all of the reagents and materials used by the Company in
conducting its testing are commercially purchased and are readily available
from multiple sources.
5
Quality Assurance
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The objective of the quality assurance department is to ensure that accurate
and reliable test results are released to our clients. This is accomplished
by incorporating both internal and external quality assurance programs in each
area of the laboratory. In addition, our quality assurance specialists share
the responsibility with all LabOne employees of an ongoing commitment to
quality and safety in all laboratory operations. Internal quality and
education programs are designed to identify opportunities for improvement in
laboratory services and to meet all required safety training and education
issues. These programs ensure reliable and confidential test results.
Procedure manuals in all areas of the laboratory help maintain uniformity and
accuracy and meet regulatory guidelines. Tests on control samples with known
results are performed frequently to maintain and verify accuracy in the
testing process. Complete documentation provides record keeping for employee
reference and meets regulatory requirements. All employees are thoroughly
trained to meet standards mandated by OSHA in order to maintain a safe work
environment. Superblind(TM) controls are used to challenge every aspect of
service at LabOne. Specimens requiring special handling are evaluated and
verified by control analysis personnel. A computer edit program is used to
review and verify clinically abnormal results and all positive HIV antibody
and drugs-of-abuse records.
As an external quality assurance program, LabOne participates in a number of
proficiency programs established by the College of American Pathologists, the
American Association of Bioanalysts and the Centers for Disease Control.
LabOne is also involved in monthly peer-group review programs for hematology,
flow cytometry and chemistry. These programs compare LabOne with laboratories
across the nation that use similar reagents and instrumentation.
LabOne is accredited by the College of American Pathologists and is licensed
under the Clinical Laboratory Improvement Amendments (CLIA) of 1988. LabOne
has additional licenses for HIV and substance abuse testing from the state of
Kansas and all other states where such licenses are required. The Company's
Drug Enforcement Agency license allows our laboratory to legally perform
analytical research pertaining to drugs of abuse. LabOne is certified by
SAMHSA to perform testing to detect drugs of abuse in federal employees and
in workers governed by federal regulations.
Technology Development
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Among its many responsibilities, the technology development department
evaluates many new commercially available tests and technologies and compares
them to competing products in order to select the most accurate laboratory
procedures. Total technology development expenditures are not considered
significant to the Company as a whole.
6
Sales and Marketing
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LabOne's client base currently consists primarily of insurance companies in
the United States and Canada. The Company believes that its ability to
provide prompt and accurate results on a cost-effective basis and its
responsiveness to customer needs have been important factors in maintaining
existing business.
All of the sales representatives for the Home Office Reference Laboratory
division have significant business experience in the insurance industry or
clinical laboratory-related fields. These representatives call on major
clients several times each year, usually meeting with a medical director or
vice president of underwriting. An important part of the Company's marketing
effort is directed toward providing its existing clients and prospects with
information pertaining to the actuarial benefits of, and trends in, laboratory
testing. The Company's sales representatives and its senior management also
attend underwriters' and medical directors' meetings sponsored by the
insurance industry.
The sales representatives for the health-care industry are experienced in that
market and currently work in field locations in the geographic areas which
they represent. Marketing efforts are directed at physicians, health
insurance companies and other payers of health benefits. Currently, efforts
are focused primarily in Northern California, Des Moines and the Kansas City
area.
Substance abuse marketing efforts are directed at regulated and nonregulated
employers. The Company's strategy is to offer the highest quality services at
low rates.
Legislation and Regulation
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In the past, legislation was introduced in several states that, if enacted,
may restrict or ban all AIDS-related testing for insurance purposes in those
states. The introduction of legislation to restrict or ban all AIDS-related
testing does not ensure its passage into law. There can be no assurance,
however, that such legislation will not be enacted in the future.
A few states have enacted legislation or regulations which have had the effect
of reducing or eliminating the volume of laboratory tests requested by medical
insurers in those states. It is likely that the trend will continue as more
states enact legislation relating to health care and medical insurance.
The Food and Drug Administration (FDA) may exert broader regulatory control
over LabOne's business and all testing laboratories. The areas of possible
increased control that could impact LabOne's business include (1) whether FDA
premarket approval or clearance may be required for LabOne's continued
commercial distribution and use of a blood and urine specimen collection kit,
and (2) a draft FDA compliance policy guide stating that certain products
routinely used by laboratories may require FDA approval or clearance. During
December 1994, the FDA approved Epitope, Inc. 's OraSure(Registered) specimen
collection device for oral fluid HIV-1 screening use by or on the orders of a
physician. See Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - TRENDS.
7
Competition
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The Company believes that the insurance laboratory testing market is
approximately a $100 million industry. LabOne currently controls over half
the market, with three other main competitors maintaining a majority of the
remaining market. The insurance laboratory testing industry continues to be
increasingly competitive. Most of the competition has come from privately or
insurance company-owned or controlled laboratories that are primarily focused
on the insurance industry. New competition has come from national or multi-
regional clinical laboratories that have historically focused their efforts on
servicing hospitals, physicians and other health care providers. The primary
focus of the competition has been on pricing and service. This continued
competition has resulted in a decrease in LabOne's average price per test. It
is anticipated that prices will continue to decline in 1995.
Although competition has dramatically increased in the past few years, LabOne
has maintained its position as the market leader. The Company believes its
leading position in the insurance laboratory testing market is due in part to
its focused commitment of resources to the life and health insurance industry.
LabOne has continued to maintain its market leadership through the client
relationships that it has developed over its 20-year history, its reputation
for providing quality products and services at competitive prices, and its
battery of tests which are tailored specifically to insurance companies'
needs.
The clinical laboratory testing market is a $40 billion industry which is
highly fragmented and very competitive. The Company faces competition from
numerous independent clinical laboratories and hospital- or physician-owned
laboratories. Many of the Company's competitors are significantly larger and
have substantially greater financial resources than the Company. LabOne is
currently working to establish a sound client base in this environment.
LabOne's business plan is to be the premier low-cost provider of high-quality
laboratory testing services to the clinical market. The Company feels that
its superior quality and centralized, low-cost operating structure should
enable it to compete effectively in this market.
Foreign Markets
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In 1977, LabOne opened Head Office Reference Laboratory Limited, a subsidiary,
in Toronto, Canada. During 1994, LabOne consolidated all Canadian laboratory
testing into the Kansas laboratory. Head Office will continue to market
insurance testing services to Canadian clients, with laboratory testing to be
performed in the United States.
In 1993, LabOne opened HORL(UK) Limited, a subsidiary, near London to provide
laboratory testing services to insurance companies in the United Kingdom.
This subsidiary ceased operations during 1994.
8
The following table summarizes the revenue, profit and assets applicable to
the Company's domestic operations and the Head Office subsidiary.
Year ended December 31,
1994* 1993 1992
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(in millions)
Sales:
United States $ 53.0 59.8 64.2
Canada 7.7 9.6 10.2
Operating Profit:
United States 5.8 14.1 17.8
Canada 1.1 2.6 2.2
Identifiable Assets:
United States 71.3 75.9 73.9
Canada 5.5 5.2 7.8
* 1994 data includes restructuring charges of $1.6 million. See Note 9 of
Notes to Consolidated Financial Statements.
Employees
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As of March 2, 1995, the Company had 558 full-time employees, representing an
increase of 50 employees from the same time in 1994. None of the Company's
employees are represented by a labor union. The Company believes its
relations with employees are good.
ITEM 2. PROPERTIES
The Company's corporate headquarters is located in Lenexa, Kansas,
approximately 12 miles from Kansas City, Missouri. This facility is owned by
the Company and occupied by the administration, information systems, insurance
client services and sales departments. There is no debt associated with this
building.
The Company's laboratory testing facility is in Overland Park, Kansas, less
than two miles from corporate headquarters. This building is also owned by
the Company and is occupied by laboratory operations, technology development
and clinical client services. There is no debt associated with this facility.
The testing laboratory has certain enhancements that improve the efficiency of
operations. All automated testing equipment requiring purified water is
linked directly to a centralized water-purification system. The laboratory is
also equipped with a sensor-detecting ventilation system which eliminates Ohot
spotsO caused by the high-temperature output of laboratory and computer
processing equipment. In addition, a full-time alternative power source is
on-line in the event of electrical power shortage. These back-up power
sources allow specimen testing and data processing to continue until full
power is restored, thus assuring LabOne's clients of our continuous laboratory
operation.
9
The Company leases a building in Lenexa, Kansas, approximately two miles from
corporate headquarters, for use as a secured warehouse and purchasing and
distribution center. The lease is for five years through August 1998. This
lease contains options to cancel at one or two years prior to the end of the
lease term.
The Company also leases 30 locations in Northern California and 12 in the
Midwest which serve as Patient Service Centers. These facilities, which
provide specimen collection services for patients, are typically located
in a medical office building and are leased for up to five years.
Head Office Reference Laboratory Limited leases a building in Toronto,
Ontario, Canada, which is used for administration, sales and client services.
This lease expires in November 1997. Part of the leased property is currently
unused due to the recent transfer of the laboratory operations to the Kansas
facility. The future expenses of the unused property have been accrued as a
portion of the restructuring charge incurred during 1994.
LabOne believes that all of the above facilities are suitable for their
intended use and that the space is adequate to handle certain increased
volumes that may occur in the foreseeable future.
ITEM 3. LITIGATION
In the normal course of business, LabOne had certain lawsuits pending at
December 31, 1994. In the opinion of management, after consultation with
legal counsel and based upon currently available information, none of these
lawsuits are expected to have a material impact on the financial condition or
results of operations of the Company.
No provisions for loss related to litigation are included in the accompanying
consolidated financial statements.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None
PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Registrant's common stock is traded in the national over-the-counter
market and is listed in the NASDAQ National Market System maintained by the
National Association of Securities Dealers. As of March 2, 1995, the
outstanding shares were held by approximately 525 shareholders of record.
The Company paid quarterly dividends of $0.18 per common share in 1994 and
1993. The Board of Directors reviews the dividend policy on a periodic basis.
There are currently no restrictions that would limit the Company's ability to
make future dividend payments.
10
The following are the high and low closing prices of the stock for each
quarter of 1994 and 1993:
1994 1993
High Low High Low
1st Quarter $ 23.50 17.00 15.50 13.00
2nd Quarter 24.25 17.75 14.88 12.88
3rd Quarter 20.75 17.75 20.00 14.25
4th Quarter 19.25 14.50 19.75 17.50
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes certain selected financial information and
operating data regarding the Company. This information should be read in
conjunction with ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS and ITEM 14. (a) (1) and (2),
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES. The balance sheet data as
of December 31, 1994, 1993, 1992, 1991 and 1990, and the statement of earnings
data for each of the years in the five-year period ended December 31, 1994,
have been derived from the Company's Consolidated Financial Statements, which
have been audited by KPMG Peat Marwick LLP, the Company's independent
certified public accountants.
Years Ended December 31,
(in thousands, except per share amounts)
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
Statement of Earnings Data:
Sales $ 60,726 69,378 74,437 75,739 80,769
Cost of sales 29,073 30,019 31,647 32,377 35,044
------ ------ ------ ------ ------
Gross profit 31,653 39,359 42,790 43,362 45,725
*Selling, general and
administrative expenses 24,761 22,695 22,776 22,345 23,643
------ ------ ------ ------ ------
Earnings from operations 6,893 16,664 20,014 21,017 22,082
Other income (expense) 1,640 870 1,666 724 (26)
------ ------ ------ ------ ------
Earnings before income taxes 8,533 17,534 21,680 21,741 22,056
Income taxes 2,846 6,968 8,347 8,452 8,595
------ ------ ------ ------ ------
Net earnings $ 5,687 10,566 13,333 13,289 13,461
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Earnings per common share $ 0.43 0.80 1.02 1.02 1.01
====== ====== ====== ====== ======
Dividends per common share $ 0.72 0.72 0.72 0.18 -
====== ====== ====== ====== ======
Balance Sheet Data:
Working capital $ 48,559 48,649 42,724 25,846 15,096
Total assets 76,758 81,130 81,661 78,890 66,504
Long term debt - - - - -
Stockholders' equity 71,237 74,764 72,851 69,355 58,391
*1994 data includes restructuring charge of $1.6 million. See Note 9 of
Notes to Consolidated Financial Statements.
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
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1994 Compared to 1993
Net sales decreased approximately 12% in 1994 to $60.7 million from $69.4
million in 1993, primarily due to a decrease in laboratory revenue.
Laboratory testing revenue decreased as the result of an 8% decrease in the
number of applicants tested and a 7% decrease in the average revenue per
applicant. Average revenue per applicant decreased primarily due to a
decrease in prices as a result of continued competitive pressures. The total
volume of applicants tested decreased primarily due to a decline in the number
of life insurance applications written in the industry. Clinical and
substance-abuse laboratory testing generated revenue of $0.5 million during
1994. Insurance kit revenue decreased $0.9 million due to lower sales
volumes.
Cost of sales decreased 3%, or $0.9 million in 1994 from the prior year. This
is primarily due to decreases in insurance kit expenses, depreciation and
amortization expense, and net postage expense. Insurance kit expenses
decreased due to the lower sales volumes. These decreases were partially
offset by increases in payroll expenses and clinical expansion expenses. Cost
of sales expenses related to the clinical expansion were $2.6 million in 1994.
Selling, general and administrative expenses (including information systems,
technology development, client services, personnel, finance, accounting,
sales, marketing and administration) increased $2.1 million (9%) in 1994 due
primarily to expenses related to the third quarter restructuring charge of
$1.6 million, which includes charges for consolidating Canadian laboratory
operations into the Kansas facility and for severance payments resulting from
elimination of several insurance testing administrative positions. Selling,
general and administrative expenses related to the clinical expansion were
$2.3 million in 1994.
Other income (expense), net increased $0.8 million primarily due to recovery
of a nonoperating expense from the prior year.
The effective income tax rate declined from 39.7% during 1993 to 33.4% in
1994, due primarily to tax adjustments related to the closure of the HORL(UK)
operations and certain U.S. tax adjustments.
1993 Compared to 1992
Net sales decreased approximately 7% in 1993, to $69.4 million from $74.4
million in 1992, due to a decrease in laboratory revenue. Laboratory testing
revenue decreased as the result of a 4% decrease in the number of applicants
tested and a 5% decrease in the average revenue per applicant. Average
revenue per applicant decreased primarily due to a decrease in prices as a
result of continued competitive pressures. The total volume of applicants
tested decreased primarily due to a decline in the number of medical insurance
applicants tested. The number of medical insurance applicants tested as a
percentage of total applicants tested declined from 9% in 1992 to 6% in 1993.
12
Cost of sales in 1993 decreased by $1.6 million, or 5%, from the prior year.
This is primarily due to decreases in depreciation expense of $0.7 million,
materials and supplies expenses of $0.7 million, and product licensing expense
of $0.5 million. Materials and supplies expenses decreased as a result of
fewer tests performed, lower costs of certain test supplies and fewer specimen
collection kits sold. These decreases were partially offset by an increase in
net postage expense.
Selling, general and administrative expenses (including information systems,
technology development, client services, personnel, finance, accounting,
sales, marketing and administration) decreased slightly from 1992.
Other income (expense), net decreased $0.8 million primarily due to an
increase in nonoperating expenses including losses on disposal of equipment,
foreign currency translation losses and certain other nonoperating expenses.
Federal, state and local income tax rates increased from 38.5% in 1992 to
39.7% in 1993, due primarily to an increase in the federal tax rate.
TRENDS
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The following is management's analysis of certain existing trends that have
been identified as potentially affecting the future financial results of the
Company. Due to the potential for a rapid rate of change in any number of
factors associated with the insurance and clinical laboratory testing
industries, it is difficult to quantify with any degree of certainty LabOne's
future volumes, sales or net earnings.
In the last several years there has been a decline in the number of life
insurance policies issued. Additionally, a few states have enacted
legislation or regulations which have had the effect of reducing or
eliminating the volume of laboratory tests requested by medical insurers in
those states. It is likely that the trend will continue as more states enact
legislation relating to health care and medical insurance. If these trends
continue, management anticipates a decline in the number of insurance
applicants tested by LabOne in 1995 as compared to 1994.
The insurance laboratory testing industry continues to be increasingly
competitive. The primary focus of the competition has been on pricing and
service. LabOne continues to maintain its market leadership by providing
quality products and services at competitive prices. During the fourth
quarter 1994, LabOne initiated a price stabilization plan. The initial result
of this action was a slight increase in the average revenue per applicant.
However, management expects that prices may continue to decline during 1995
due to competitive pressures.
During December 1994, the FDA gave premarket approval to Epitope, Inc., with
respect to its OraSure specimen collection kit for oral fluid HIV-1 antibody
testing, as to which device LabOne has a supply and distribution agreement
with Epitope. This approval enables LabOne to resume oral fluid HIV-1
antibody testing. Due to the lower collection expense associated with the
OraSure device, the potential exists for an expansion of the testing market.
Conversely, the device also has the potential to cannibalize part of the
existing blood and urine testing market. The net impact of the approval of
the OraSure device cannot be determined at this time.
13
LabOne entered the clinical and SAMHSA-certified substance-abuse testing
markets during 1994. The Company continues to add new customers in both
fields. A significant amount of resources has been committed to this
expansion. During 1994 LabOne opened 42 Patient Service Centers (PSCs),
which resulted in additional operating expenses of approximately $0.8 million.
Annual expenses for these PSCs are estimated to be approximately $2.5 million.
Expenditures related to these fields are expected to increase during 1995.
The expected increase in revenue to be generated from these PSCs cannot be
determined at this time.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
LabOne's working capital position remained steady at $48.6 million at December
31, 1994, and at December 31, 1993. Capital additions and dividends paid were
funded by cash provided by operations after changes in working capital and net
maturities of long-term investments. Net cash provided by operations
decreased by $7.9 million, primarily a result of the decrease in net earnings.
During 1994, LabOne paid quarterly dividends of $0.18 per common share. The
Board of Directors reviews this policy on a periodic basis. The total amount
of dividends paid during 1994 was $0.72 per share or $9.4 million. There are
currently no restrictions that would limit the Company's ability to make
future dividend payments.
In 1988, LabOne's Board authorized the Company to enter the market from
time to time for the purpose of acquiring shares of the Company's common
stock in an amount not to exceed $25.0 million. As of December 31, 1994,
the Company had acquired 2,099,235 shares of LabOne as treasury stock at
a total cost of $22.7 million, leaving $2.3 million for potential future stock
purchases. There were no shares purchased during 1994.
During 1994, the Company invested $3.4 million in additional property, plant
and equipment, as compared to $3.7 million in 1993 and $3.1 million in 1992.
Of the amounts spent in 1994 and 1993, approximately $1.8 million and $2.0
million, respectively, were for the diversification into the clinical testing
market. Additional investments in property, plant and equipment in 1995 for
general operating purposes and diversification into the clinical testing
market are not expected to exceed the amount spent in 1994. At December 31,
1994, the Company had no material commitments for capital expenditures.
The Company had no short-term borrowings during 1994. At December 31, 1994,
the Company had an unsecured line of credit of $1.0 million that may be used
for general corporate purposes, of which the full amount is currently
available. There are no debt restrictions related to this line of credit.
Management expects to be able to fund operations, capital asset additions,
treasury stock purchases, if any, and future dividend payments from a
combination of cash flow, cash reserves and short-term borrowings. Total cash
and investments at December 31, 1994 were $41.5 million, as compared to $43.9
million at December 31, 1993. Included in LabOne's investments at year-end
are $20.4 million of short-term investments classified as trading securities
and recorded at market value. All other short and long-term investments are
classified as held to maturity and recorded at amortized cost.
14
In February 1995, LabOne was advised by Seafield Capital Corporation
(Seafield) that Seafield has retained Alex. Brown & Sons Incorporated as
financial adviser to assist Seafield in considering strategic alternatives to
maximize Seafield shareholder value. Seafield is a holding company that owns
82% of LabOne, as well as a number of other investments and cash equivalents.
LabOne has been informed that one alternative Seafield expects to pursue is
a cash-option merger of Seafield into LabOne. In such a merger, Seafield
shareholders would have the option of receiving cash as well as shares of
LabOne. The merger would most likely be preceded by Seafield's distribution
to its shareholders, or other disposition by Seafield, of its other assets.
Seafield's Board has also announced that it will consider other business
combination proposals that are presented to it.
LabOne has appointed a special committee of independent directors to consider
any merger or other proposal that may be presented to it by Seafield. LabOne
has been advised by Seafield that if a definitive merger agreement is reached,
it is anticipated that such a merger would not occur until the early part of
1996 because of the time required to complete anticipated Seafield asset sales
as well as shareholder and other approvals. There can be no assurance that a
merger with Seafield will occur.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See ITEM 14.(a).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information included under the captions entitled "Information Concerning
Nominees for Election as Directors," "Security Ownership of Management,"
"Security Ownership of Certain Beneficial Owners," and "Executive
Compensation," in the Company's definitive proxy statement to be filed with
the Commission pursuant to Regulation 14A with respect to its annual meeting
of stockholders to be held May 11, 1995, is incorporated into Items 10, 11,
12 and 13 above by reference.
15
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (2) -- The following consolidated financial statements and
schedules are attached as a separate section of this report entitled
"Consolidated Financial Statements and Schedules":
INDEPENDENT AUDITORS' REPORT
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets, December 31, 1994, and 1993
Consolidated Statements of Earnings, Years Ended
December 31, 1994, 1993, and 1992
Consolidated Statements of Stockholders' Equity,
Years Ended December 31, 1994, 1993, and 1992
Consolidated Statements of Cash Flows, Years Ended
December 31, 1994, 1993, and 1992
Notes to Consolidated Financial Statements
SCHEDULES:
Schedule II - Valuation and qualifying accounts
All other schedules are omitted because they are not applicable, not
required or the information is included in the Consolidated Financial
Statements or the notes thereto.
(b) Reports on Form 8-K
A Form 8-K current report dated November 11, 1994, was filed with the
commission reporting under Other Events a news release regarding the
addition of Richard S. Schweiker and James R. Seward to the Board of
Directors.
A Form 8-K current report dated December 23, 1994, was filed with the
commission reporting under Other Events a news release regarding the
Company's announcement that it was notified by Epitope, Inc. that the FDA
had approved the OraSure oral specimen collection device for use in
detecting HIV-1 antibodies.
(c) Exhibits required by Item 601 of Regulation S-K
(Exhibits follow the Schedules):
Page
----
3.1* Articles of Incorporation - attached as Exhibit (3) to the
Registrant's Form 10-K Annual Report dated March 28, 1988.
3.2* Certificate of Amendment of Articles of Incorporation -
attached as Exhibit (3.2) to the Registrant's Form 10-K
Annual Report dated March 14, 1994.
16
Page
----
3.3* Bylaws - attached as Exhibit (3) to the Registrant's
Form 10-K Annual Report dated March 28, 1988.
10.1* Registrant's Long Term Incentive Plan as amended-
attached as Exhibit (10.1) to the Registrant's
Form 10-K Annual Report dated March 19, 1992. **
10.2* Amendment to paragraphs 6 (d) and 24 (d) of the
Registrant's Long Term Incentive Plan - attached
as Exhibit (10.2) to the Registrant's Form 10-K
Annual Report dated March 14, 1994. **
10.3* Amendment to paragraph 3 of the Registrant's Long
Term Incentive Plan - attached as Exhibit (10.3)
to the Registrant's Form 10-K Annual Report dated
March 14, 1994. **
10.4* Registrant's Stock Plan for non-employee directors -
attached as Exhibit (A) to the Registrant's Proxy
Statement dated April 10, 1992. ***
10.5 Registrant's Annual Incentive Plan. ** 43
10.6* Services Agreement, dated January 1, 1993, between
Seafield Capital Corporation and the Registrant -
attached as Exhibit (10.6) to the Registrant's Form
10-K Annual Report dated March 14, 1994.
10.7* Services Agreement, dated January 1, 1993, between
Business Men's Assurance Company of America and
the Registrant - attached as Exhibit (10.7) to the
Registrant's Form 10-K Annual Report dated March 14,
1994.
10.8* Form of Employment Agreement between the Registrant
and its executive officers and certain key employees -
attached as Exhibit (10) to the Registrant's Form 10-K
Annual Report dated March 28, 1988. **
10.9* Employment Agreement between the Registrant and Bert
H. Hood as amended - attached as Exhibit (10.9) to
the Registrant's Form 10-K Annual Report dated March
14, 1994. **
10.10* Employment Agreement between the Registrant and
Daniel J. Roberts as amended - attached as Exhibit
(10.10) to the Registrant's Form 10-K Annual Report
dated March 14, 1994. **
17
Page
----
10.11* Employment Agreement between the Registrant and
Robert D. Thompson as amended - attached as
Exhibit (10.11) to the Registrant's Form 10-K
Annual Report dated March 14, 1994. **
10.12* Employment Agreement between the Registrant and
Carl W. Ludvigsen, Jr. - attached as Exhibit (10.6)
to the Registrant's Form 10-K Annual Report dated
March 14, 1994. **
10.13* Severance Agreement between the Registrant and
Mark S. Patterson - attached as Exhibit (10.2)
to the Registrant's Form 10-Q Quarterly Report
dated November 10, 1994. **
10.14* Employment Agreement between the Registrant and
Gregg R. Sadler - attached as Exhibit (10.14)
to the Registrant's Form 10-K Annual Report dated
March 14, 1994. **
10.15* Severance Agreement between the Registrant and
Kenneth A. Stelzer - attached as Exhibit (10.1)
to the Registrant's Form 10-Q Quarterly Report
dated November 10, 1994. **
10.16* Promissory Note Agreement between the Registrant
and Bert H. Hood - attached as Exhibit (10.3) to
the Registrant's Form 10-Q Quarterly Report dated
November 10, 1994. **
10.17 Employment Agreement between the Registrant and 44
Robert F. Thompson dated February 11, 1994. **
10.18 Form of Amendments to Employment Agreements between 58
the Registrant and Bert H. Hood, Daniel J. Roberts,
Robert D. Thompson, Robert F. Thompson and Gregg R.
Sadler dated December 31, 1994. **
11. Statement regarding computation of per share
earnings - see Note 1 of Notes to Consolidated
Financial Statements, "Earnings Per Share."
21. Subsidiaries of Registrant - see Note 1 of Notes
to Consolidated Financial Statements, "Principles of
Consolidation and Basis of Presentation."
18
Page
----
23. Consents of experts and counsel - independent 59
accountants' consent.
24. Powers of Attorney. 60
27. Financial Data Schedule - as filed electronically by the
Registrant in conjunction with this 1994 Form 10-K.
99. Proxy Statement for Annual Shareholders Meeting to be
held May 11, 1995 - to be filed.
* Incorporated by reference pursuant to Rule 12b-23
** Management Compensatory Plan
*** Non-Management Director Compensatory Plan
These exhibits may be obtained by stockholders of Registrant upon written
request to LabOne, Inc., 10310 W. 84th Terrace, Lenexa , KS 66214.
(d) Not applicable
19
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LabOne, Inc.
By: /s/ Robert D. Thompson By: /s/ Kurt E. Gruenbacher
Robert D. Thompson Kurt E. Gruenbacher
Title: Executive V.P. Finance, Title: Corporate Controller
CFO and Treasurer
Date: March 23, 1995 Date: March 23, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the Registrant on March 23, 1995 in the capacities indicated.
By: /s/ Bert H. Hood By: /s/ Robert D. Thompson
Bert H. Hood Robert D. Thompson
Title: Chairman of the Board, Title: Executive V.P. Finance,
Director, President and CFO and Treasurer
Chief Executive Officer
By: /s/ Gregg R. Sadler By: /s/ Kurt E. Gruenbacher
Gregg R. Sadler Kurt E. Gruenbacher
Title: Director and Secretary Title: Corporate Controller
By: */s/ William D. Grant By: */s/ W. Thomas Grant II
William D. Grant W. Thomas Grant II
Title: Director Title: Director
By: */s/ P. Anthony Jacobs By: */s/ John E. Walker
P. Anthony Jacobs John E. Walker
Title: Director Title: Director
By: */s/ Richard A. Rifkind By: */s/ Joseph H. Brewer
Richard A. Rifkind Joseph H. Brewer
Title: Director Title: Director
By: */s/ Neal L. Patterson By: */s/ Giorgio Balzer
Neal L. Patterson Giorgio Balzer
Title: Director Title: Director
By: */s/ R. Dennis Wright By: */s/ James R. Seward
R. Dennis Wright James R. Seward
Title: Director Title: Director
By: */s/ Michael E. Herman *By: /s/ Gregg R. Sadler
Michael E. Herman Gregg R. Sadler
Title: Director Attorney-in-fact
20
LABONE, INC. AND SUBSIDIARIES
Consolidated Financial Statements and Schedules
December 31, 1994, 1993 and 1992
(With Independent Auditors' Report Thereon)
21
LABONE, INC. AND SUBSIDIARIES
Consolidated Financial Statements and Schedules
Index
-----
Page
INDEPENDENT AUDITORS' REPORT 23
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets, December 31, 1994 and 1993 24
Consolidated Statements of Earnings, Years ended
December 31, 1994, 1993 and 1992 26
Consolidated Statements of Stockholders' Equity,
Years ended December 31, 1994, 1993 and 1992 27
Consolidated Statements of Cash Flows, Years ended
December 31, 1994, 1993 and 1992 28
Notes to Consolidated Financial Statements 29
SCHEDULES:
Schedule II - Valuation and Qualifying Accounts 42
22
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
LabOne, Inc.:
We have audited the accompanying consolidated balance sheets of LabOne, Inc.
and subsidiaries as of December 31, 1994 and 1993 and the related consolidated
statements of earnings, stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1994. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of LabOne,
Inc. and subsidiaries as of December 31, 1994 and 1993, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1994, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Kansas City, Missouri
February 3, 1995, except as to footnote 13,
which is as of February 10, 1995
23
LABONE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1994 and 1993
Assets 1994 1993
------ ---------- ----------
Current assets:
Cash and cash equivalents $ 6,888,806 11,514,400
Short-term investments (note 11) 34,106,026 30,837,360
Accounts receivable-trade, net of allowance
for doubtful accounts of $81,426 in 1994
and $81,700 in 1993 8,636,610 8,058,819
Inventories 787,339 784,068
Prepaid expenses and other current assets 3,007,526 3,028,725
Deferred income taxes 654,246 306,985
---------- ----------
Total current assets 54,080,553 54,530,357
---------- ----------
Investments with maturities of more than one
year, at cost (note 11) 508,590 1,515,004
---------- ----------
Property, plant and equipment:
Land 1,495,833 1,498,833
Building 11,836,420 11,544,332
Laboratory equipment 17,569,024 19,021,075
Data processing equipment and software 15,724,026 14,734,342
Office and transportation equipment 4,900,395 4,314,790
Leasehold improvements 973,109 1,243,823
---------- ----------
52,498,807 52,357,195
Less accumulated depreciation 34,315,021 31,909,372
---------- ----------
Net property, plant and equipment 18,183,786 20,447,823
---------- ----------
Other assets:
Intangible assets, net of accumulated
amortization (note 2) 3,589,527 4,336,278
Deferred income taxes-noncurrent (note 3) 347,264 -
Deposits and other assets 48,060 300,490
---------- ----------
$ 76,757,780 81,129,952
========== ==========
(Continued)
24
LABONE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
Liabilities and Stockholders' Equity 1994 1993
------------------------------------ ---------- ----------
Current liabilities:
Accounts payable $ 2,024,572 2,074,722
Income taxes payable 131,068 93,125
Payable to Seafield Capital Corporation (note 8) 113,575 -
Accrued payroll and benefits 1,915,457 2,314,549
Other accrued expenses 1,270,337 700,628
Other current liabilities 66,138 698,519
---------- ----------
Total current liabilities 5,521,147 5,881,543
Deferred income taxes-noncurrent (note 3) - 484,479
---------- ----------
Total liabilities 5,521,147 6,366,022
---------- ----------
Stockholders' equity:
Preferred stock, $0.01 par value per share;
1,000,000 shares authorized, none issued - -
Common stock, $0.01 par value per share;
40,000,000 shares authorized, 15,000,000
shares issued (note 5) 150,000 150,000
Additional paid-in capital 13,347,455 12,739,088
Equity adjustment from foreign currency
translation (683,383) (424,698)
Retained earnings 80,639,340 84,305,203
---------- ----------
93,453,412 96,769,593
Less treasury stock of 1,957,988 shares in
1994 and 2,039,578 shares in 1993, at cost 22,216,779 22,005,663
---------- ----------
Total stockholders' equity 71,236,633 74,763,930
---------- ----------
$ 76,757,780 81,129,952
========== ==========
See accompanying notes to consolidated financial statements.
25
LABONE, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
Years ended December 31, 1994, 1993 and 1992
1994 1993 1992
---------- ---------- ----------
Sales $ 60,725,982 69,377,511 74,436,768
Cost of sales 29,072,508 30,018,455 31,647,037
---------- ---------- ----------
Gross profit 31,653,474 39,359,056 42,789,731
Selling, general and administrative
expenses (notes 8 and 9) 24,760,918 22,694,920 22,775,364
---------- ---------- ----------
Earnings from operations 6,892,556 16,664,136 20,014,367
---------- ---------- ----------
Other income (expenses):
Investment income 1,328,493 1,545,713 1,670,850
Other income (expense), net 371,749 (732,320) 25,608
Gain (loss) on disposal of equipment (59,778) 56,213 (30,591)
---------- ---------- ----------
Total other income (expenses) 1,640,464 869,606 1,665,867
---------- ---------- ----------
Earnings before income taxes 8,533,020 17,533,742 21,680,234
---------- ---------- ----------
Income taxes (note 3):
Current 4,043,568 7,689,582 9,459,695
Deferred (1,197,676) (721,776) (1,112,054)
---------- ---------- ----------
Total income taxes 2,845,892 6,967,806 8,347,641
---------- ---------- ----------
Net earnings $ 5,687,128 10,565,936 13,332,593
========== ========== ==========
Earnings per common share $ .43 .80 1.02
==== ==== ====
Weighted average common shares
and common share equivalents
outstanding 13,276,590 13,154,070 13,094,599
========== ========== ==========
See accompanying notes to consolidated financial statements.
26
<TABLE>
LABONE, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1994, 1993 and 1992
<CAPTION>
Foreign Total
Additional currency stock-
Common paid-in transla- Retained Treasury holders'
stock capital tion earnings stock equity
-------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1991 $150,000 12,661,202 210,433 79,019,870 (22,686,483) 69,355,022
Net earnings - - - 13,332,593 - 13,332,593
Cash dividends ($.72 per share) - - - (9,297,195) - (9,297,195)
Adjustment from foreign
currency translation - - (746,226) - - (746,226)
Net issuance of 15,811 shares
of treasury stock - 26,784 - - 179,850 206,634
-------- ---------- --------- ---------- ---------- ----------
Balance at December 31, 1992 150,000 12,687,986 (535,793) 83,055,268 (22,506,633) 72,850,828
Net earnings - - - 10,565,936 - 10,565,936
Cash dividends ($.72 per share) - - - (9,316,001) - (9,316,001)
Adjustment from foreign
currency translation - - 111,095 - - 111,095
Net issuance of 43,846 shares
of treasury stock - 51,102 - - 500,970 552,072
-------- ---------- --------- ---------- ---------- ----------
Balance at December 31, 1993 150,000 12,739,088 (424,698) 84,305,203 (22,005,663) 74,763,930
Net earnings - - - 5,687,128 - 5,687,128
Cash dividends ($.72 per share) - - - (9,352,991) - (9,352,991)
Adjustment from foreign
currency translation - - (258,685) - - (258,685)
Net issuance of 81,590 shares
of treasury stock - 608,367 - - (211,116) 397,251
-------- ---------- --------- ---------- ---------- ----------
Balance at December 31, 1994 $150,000 13,347,455 (683,383) 80,639,340 (22,216,779) 71,236,633
======== ========== ========= ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
27
<TABLE> <CAPTION> LABONE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1994, 1993 and 1992
<S> <C> <C> <C>
1994 1993 1992
Cash provided by operations: ---------- ---------- ----------
Net earnings $ 5,687,128 10,565,936 13,332,593
Adjustments to reconcile net earnings to net
cash provided by operations:
Depreciation and amortization 6,620,930 9,019,582 9,732,290
Deferred income taxes (1,197,676) (721,776) (1,112,054)
(Gain) loss on disposal of equipment 59,778 (56,213) 30,591
Directors' stock compensation 72,807 107,548 73,943
Changes in:
Accounts receivable (577,791) 755,253 1,030,158
Inventories (3,271) 788,938 57,837
Prepaid expenses and other current assets 21,199 (268,526) 87,816
Accounts payable (50,150) (573,223) 354,209
Income taxes payable 37,943 (948,976) (124,813)
Payable to Seafield Capital Corporation 113,575 (230,545) (12,075)
Accrued payroll and benefits (399,092) (275,834) 119,046
Accrued expenses 569,709 (8,919) (19,245)
Other current liabilities (632,381) 66,293 (23,416)
---------- ---------- ----------
Net cash provided by operations 10,322,708 18,219,538 23,526,880
---------- ---------- ----------
Cash provided by (used for) investment transactions:
Short-term investments, net (4,992,695) 4,751,259 (11,348,686)
Purchases of investments with maturities of more
than one year (2,114,020) (6,451,378) -
Proceeds from maturities of investments with
maturities of more than one year 4,520,000 5,750,000 -
Property, plant and equipment additions, net (3,399,579) (3,733,867) (3,054,328)
other 252,430 178,181 120,477
Net cash provided by (used for) ---------- ---------- ----------
investment transactions (5,733,864) 494,195 (14,282,537)
---------- ---------- ----------
Cash provided by (used for) financing transactions:
Proceeds from exercise of stock options 324,444 444,524 132,691
Cash dividends (9,352,991) (9,316,001) (9,297,195)
---------- ---------- ----------
Net cash used for financing activities (9,028,547) (8,871,477) (9,164,504)
---------- ---------- ----------
Effect of foreign currency translation (185,891) 165,163 (570,360)
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents (4,625,594) 10,007,419 (490,521)
Cash and cash equivalents at beginning of year 11,514,400 1,506,981 1,997,502
---------- ---------- ----------
Cash and cash equivalents at end of year $ 6,888,806 11,514,400 1,506,981
========== ========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 685 - 27
========== ========== ==========
Income taxes $ 3,660,955 8,703,323 9,450,514
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
28
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1994, 1993 and 1992
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Principles of Consolidation and Basis of Presentation
- -----------------------------------------------------
The accompanying consolidated financial statements include the accounts of
LabOne, Inc. (LabOne or the Company), its wholly-owned Canadian subsidiary,
Head Office Reference Laboratory Limited, and its wholly-owned United Kingdom
subsidiary, HORL(UK) Limited. During 1994, the Company disposed of the UK
subsidiary. All significant intercompany transactions have been eliminated in
consolidation. LabOne was 82%-owned by Seafield Capital Corporation
(Seafield) at December 31, 1994. Prior to 1994, LabOne and its wholly-owned
subsidiaries were engaged primarily in laboratory testing for insurance
companies. During 1994 LabOne began marketing laboratory testing services to
the health-care and substance abuse industries.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents include demand deposits, overnight repurchase
agreements and marketable securities with original maturities of three
months or less.
Investment Securities
- ---------------------
LabOne determines the appropriate classification of debt and equity securities
at the time of purchase and re-evaluates such designation as of each balance
sheet date.
Securities are classified as held-to-maturity when LabOne has the intent and
ability to hold the securities to maturity. Held-to-maturity securities
are stated at cost and investment income is included in earnings.
LabOne classifies certain highly liquid securities as trading securities.
Trading securities are stated at fair value and unrealized holding gains and
losses are included in income.
Inventories
- -----------
Inventories consist of completed specimen collection kits, various materials
used in the assembly of specimen collection kits for sale to clients, and
supplies used in the laboratory testing process. Inventory is valued at the
lower of cost (first-in, first-out) or market.
29
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment is stated at cost. Depreciation is being
provided on a straight-line basis over the estimated useful lives of the
assets as follows:
Buildings 30 years
Laboratory equipment 3-10 years
Data processing equipment 3- 8 years
Office equipment 5-10 years
Leasehold improvements 30 years
Equipment acquired after December 31, 1987 is being depreciated on a straight-
line basis over three to five years.
Intangible Assets
- -----------------
Intangible assets are recorded at their acquisition cost and are being
amortized as follows:
The patent process utilized in coating the plates on which blood and urine
testing is performed is being amortized on a straight-line basis over the
remaining life of the patent (184 months at date of acquisition).
Antibodies and antigens used in the detection of therapeutic drugs
prescribed for hypertension, diabetes and heart disease were amortized on
a straight-line basis over their estimated lives through 1993.
The process for screening nicotine in urine samples was amortized on a
straight-line basis over the estimated life through 1993.
The excess of cost over fair value of assets acquired is being amortized
on a straight-line basis over a period of twenty years.
Other intangible assets are being amortized on a straight-line basis over
a period of three years.
30
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Income Taxes
- ------------
Income taxes are accounted for in accordance with Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (Statement 109). Under Statement 109, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
Earnings Per Share
- ------------------
Earnings per share is computed using the weighted average number of common
shares issued and the common share equivalents of dilutive stock options, less
treasury stock.
Line of Credit
- --------------
The Company maintained a $1,000,000 line of credit as of December 31, 1994
and 1993. The line of credit was not used in 1994 or 1993.
31
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) INTANGIBLE ASSETS
-----------------
The cost and accumulated amortization of intangible assets at December 31,
1994 and 1993 are as follows:
1994 1993
--------- ---------
Patent $ 8,000,000 8,000,000
Accumulated amortization 6,217,366 5,695,630
--------- ---------
1,782,634 2,304,370
--------- ---------
Antibodies and antigens 2,845,000 2,845,000
Accumulated amortization 2,845,000 2,845,000
--------- ---------
- -
--------- ---------
Nicotine screen 1,000,000 1,000,000
Accumulated amortization 1,000,000 1,000,000
--------- ---------
- -
--------- ---------
Excess of cost over fair value of assets acquired 4,470,684 4,470,684
Accumulated amortization 2,663,791 2,440,256
--------- ---------
1,806,893 2,030,428
--------- ---------
Other intangible assets 587,580 587,580
Accumulated amortization 587,580 586,100
--------- ---------
- 1,480
--------- ---------
Intangible assets, net of accumulated
amortization $ 3,589,527 4,336,278
========= =========
32
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) INCOME TAXES
------------
The components of income taxes and deferred taxes applicable to temporary
differences are as follows:
1994 1993 1992
---------- --------- ---------
Current:
Federal $ 2,728,116 5,477,239 6,904,136
State 546,264 900,778 1,585,266
Foreign 769,188 1,311,565 970,293
---------- --------- ---------
4,043,568 7,689,582 9,459,695
---------- --------- ---------
Deferred:
Federal (846,527) (479,719) (834,358)
State (146,539) (153,312) (184,178)
Foreign (204,610) (88,745) (93,518)
---------- --------- ---------
(1,197,676) (721,776) (1,112,054)
---------- --------- ---------
$ 2,845,892 6,967,806 8,347,641
========== ========= =========
Total income taxes differ from the amounts computed by applying the statutory
income tax rate to earnings before income taxes for the following reasons:
1994 1993 1992
---------- --------- ---------
Application of statutory income
tax rate (34% for 1994, 35%
for 1993 and 34% for 1992) $ 2,901,227 6,136,810 7,371,280
Foreign taxes, net 189,456 426,429 152,544
Write-off of investment in UK (193,229) - -
State income taxes, net 263,819 485,853 924,718
Tax-exempt interest (245,069) (206,242) (237,204)
Other, net (70,312) 124,956 136,303
---------- --------- ---------
$ 2,845,892 6,967,806 8,347,641
---------- --------- ---------
33
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The tax effects of temporary differences that create significant portions of
the deferred tax assets and deferred tax liabilities at December 31, 1994
and 1993 are presented below:
1994 1993
--------- ---------
Current income tax assets:
Accrued vacation $ 261,687 206,129
Severance pay accrual 211,495 -
Unrealized loss on trading securities 80,883 -
Accrued medical claims 63,645 63,645
Bad debts 31,822 28,595
Other accruals 4,302 4,388
Other items 412 4,228
--------- ---------
Total current income tax assets $ 654,246 306,985
========= =========
Deferred noncurrent tax assets
(liabilities):
Depreciation and amortization $ 249,149 (624,731)
Other items 98,115 140,252
--------- ---------
Total deferred tax assets
(liabilities) $ 347,264 (484,479)
========= =========
A valuation allowance for deferred tax assets was not necessary at December
31, 1994 or 1993.
(4) BENEFIT PLANS
-------------
LabOne maintains a money purchase pension plan for all employees who have
completed one-half year of service and have attained age twenty and one-half
years. The plan is a defined contribution plan under which LabOne contributes
a percentage of a participant's annual compensation. LabOne has contributed
7% of a participant's annual compensation up to the maximum social security
wage base of $60,600 in 1994, $57,600 in 1993 and $55,500 in 1992 plus an
additional 5.7% of the amounts in excess of the annual maximum wage base.
Participants become 100% vested after five years of service. Each
participant's account is 100% vested in the event of disability or death
while employed by LabOne. Normal retirement age under the plan is sixty-five.
Early retirement is permitted upon reaching age fifty-five and completion of
fifteen years of service. LabOne's contributions to the plan were $1,008,000,
$1,065,000 and $1,051,000 for the years ended December 31, 1994, 1993 and
1992, respectively.
34
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In 1987, LabOne adopted a profit sharing plan for all employees who have
completed three months of service and have attained the age of twenty and
one-half years. Effective January 1, 1991, the plan was amended to include
employees who have completed six months of service and a minimum of 500 hours
of service. The plan is intended to include a qualified cash or deferred
arrangement under Section 401(k) of the Internal Revenue Code of 1986.
Subject to certain limits imposed by law, each participant may generally
make tax deferred contributions to the plan not in excess of 10% of annual
compensation. LabOne contributes on behalf of each participant an amount
equal to 50% of the participant's annual contributions, but not in excess of
5% of the participant's annual compensation. A participant is fully vested at
all times with respect to the portion of the account attributable to the
participant's own contributions. The plan provides for the vesting of 100% of
a participant's account attributable to LabOne contributions upon completion
of five years of service. Each participant's account is 100% vested upon
disability, death or the attainment of age sixty-five while employed by
LabOne. The normal retirement age under the plan is age sixty-five. Plan
assets contributed by employees can be invested in (1) LabOne common stock,
(2) a government securities investment fund, (3) an equity investment fund, or
(4) a capital preservation fund. LabOne contributions are invested in LabOne
common stock. LabOne's contributions to the plan for the years ended December
31, 1994, 1993 and 1992 were $446,000, $408,000 and $366,000, respectively.
(5) STOCK OPTIONS
-------------
In 1987, the Board of Directors of LabOne approved a long-term incentive plan
which provided for granting awards, including stock options, for not more than
1,000,000 shares of LabOne common stock. LabOne has granted certain stock
options which entitle the grantee to purchase shares for a price equal to the
fair market value at date of grant with option periods up to ten years.
In January 1991, the LabOne Board of Directors approved a stock option
exchange plan that was ratified by the stockholders at the May 1991 LabOne
stockholders meeting. The new plan reduced the number of shares outstanding
under the long-term incentive plan, set exercise dates beginning in January
1992 and reduced the option prices to $9.875 per share, which was the quoted
market value on January 2, 1991.
In May 1991, the stockholders of LabOne approved a 300,000 share increase in
the number of shares that may be issued under the long-term incentive plan.
The plan thus provides for granting awards, including stock options, for not
more than 1,300,000 shares of LabOne common stock.
35
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In February 1993, the stockholders of LabOne approved a 500,000 share increase
in the number of shares that may be issued under the long-term incentive plan.
The plan thus provides for granting awards, including stock options, for not
more than 1,800,000 shares of LabOne common stock.
A summary of the stock option activity for the three years ended December 31,
1994 is as follows:
Number
of shares Option price
---------- ------------
Outstanding at December 31, 1991 986,886 $ 9.88 - 18.00
Granted -
Exercised (10,907) 9.88 - 11.13
Terminated or forfeited (4,696) 9.88 - 18.00
---------
Outstanding at December 31, 1992 971,283 9.88 - 18.00
Granted 460,000 14.38 - 14.75
Exercised (43,055) 9.88 - 11.13
Terminated or forfeited (17,622) 9.88 - 11.13
---------
Outstanding at December 31, 1993 1,370,606 9.88 - 18.00
Granted 292,259 18.50 - 23.88
Exercised (220,055) 9.88 - 14.75
Terminated or forfeited (125,742) 9.88 - 23.88
---------
Outstanding at December 31, 1994 1,317,068 9.88 - 23.88
=========
Options for 715,553 shares ranging from $9.88 to $19.13 per share were
exercisable at December 31, 1994.
(6) OTHER COMMITMENTS
-----------------
LabOne has several noncancelable operating leases, primarily for land and
buildings, and other commitments that expire over the next several years.
Rental expense for these operating leases during 1994, 1993 and 1992 amounted
to $803,000, $417,000 and $390,000, respectively.
36
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Future minimum lease payments and other commitments under these agreements as
of December 31, 1994, are:
Year Amount
---- ---------
1995 $ 926,176
1996 915,526
1997 680,948
1998 255,993
1999 97,295
(7) FOREIGN OPERATIONS
------------------
The following summarizes financial information for LabOne's wholly-owned
Canadian subsidiary, Head Office Reference Laboratory Limited, for the years
ended December 31:
1994 1993 1992
---------- ---------- ----------
Revenues $ 7,677,000 9,566,000 10,186,000
Operating earnings 1,119,000 2,641,000 2,239,000
Total assets 5,495,000 5,242,000 7,816,000
(8) RELATED PARTY TRANSACTIONS
--------------------------
LabOne has entered into certain transactions with Seafield Capital Corporation
(Seafield). Seafield, which was formerly BMA Corporation, sold Business Men's
Assurance Company of America (BMA) to Generali-Assicurazioni Generali S.p.A.
(Generali) in July 1990. The following is a summary of the transactions with
related parties:
37
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Under a Services Agreement among Seafield, LabOne, BMA and Generali (the
"Services Agreement"), which became effective July 31, 1990, Seafield and BMA
agreed to make available, and LabOne agreed to purchase, certain services from
Seafield and BMA. LabOne agreed to retain the services of certain of
Seafield's and BMA's senior management to provide policy advice to LabOne and
to attend certain functions on behalf of LabOne. LabOne also agreed to retain
the services of BMA's reinsurance sales representatives to promote LabOne's
laboratory testing services as part of their regular sales activities. In
consideration for these services, LabOne agreed to pay Seafield and BMA an
annual fee of $75,000 each. LabOne agreed to pay Seafield a percentage of
LabOne's sales equal to 0.25% of annual sales up to $50 million, plus 0.125%
of annual sales of $50 million or more, but less than $100 million, plus
.0625% of annual sales of $100 million or more. LabOne has agreed to pay BMA
a percentage of LabOne's sales equal to 0.15% of annual sales up to $50
million, plus .075% of annual sales of $50 million or more, but less than $100
million, plus .0375% of annual sales of $100 million or more. LabOne's
liability to BMA under this agreement was zero in 1994 and 1993 and $168,000
in 1992. LabOne also reimbursed Seafield and BMA for all direct travel
expenses reasonably incurred in providing these services.
Seafield also agreed to make certain other services available to LabOne,
including tax advice, financial and investment advice, and the advice and
assistance of Seafield's corporate secretary and public relations staffs.
LabOne was under no obligation to rely on Seafield for these services and was
free to obtain the services from any other source. To the extent that LabOne
utilized these services, LabOne reimbursed Seafield for costs incurred in
providing the services. The initial term of the Services Agreement was
extended through December 31, 1992.
Effective January 1, 1993, the aforementioned agreement was terminated and
replaced with service agreements dated January 1, 1993.
Consistent with the former agreement, Seafield and BMA have agreed to make
available and LabOne has agreed to purchase, certain services from Seafield
and BMA. In consideration for these services, LabOne has agreed to pay
Seafield a percentage of LabOne's sales equal to .20% of annual sales up to
$50 million, plus .125% of sales of $50 million or more, but less than $100
million plus .0625 of sales of $100 million or more. LabOne has agreed to pay
BMA $50,000 per year.
The agreements were effective until December 31, 1993 and are being renewed
automatically for successive one-year terms until terminated.
38
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Allocated expenses from Seafield, including charges under the Services
Agreement, for the years ended and the amounts payable at December 31 are as
follows:
1994 1993 1992
------- ------- -------
Allocated expenses for the year $ 113,575 124,218 230,545
======= ======= =======
Amount payable at December 31 $ 113,575 - 230,545
======= ======= =======
(9) RESTRUCTURING CHARGES
---------------------
Selling, general and administrative expenses in the year ended December 31,
1994, include a restructuring charge of $1,562,000. The charge includes
severance payments to executives and a write-off of fixed assets, provision
for loss on lease commitments, and severance payments related to closing the
Canadian laboratory testing facility. The restructuring charge reduced 1994
net income by $1,041,000 or $0.08 per share
(10) LITIGATION
----------
In the normal course of business, LabOne had certain lawsuits pending at
December 31, 1994. In the opinion of management, after consultation with
legal counsel and based upon current available information, none of these
lawsuits are expected to have a material impact on the Company and financial
position or results of operations.
39
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) INVESTMENT SECURITIES
---------------------
<TABLE>
A summary of investment securities information relating to quoted market values and unrealized
holding gains and losses at December 31, 1994 and 1993 is as follows:
<CAPTION> 1994
------------------------------------------------------------------
Amount at
which carried Unrealized Unrealized
Maturities less Amortized in the balance holding holding
than one year cost Market sheet gains losses
------------------ ---------- ---------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
Vanguard Short-term U. S.
Treasury Portfolio $ 10,313,685 10,188,338 10,188,338 - 125,347
Vanguard Municipal Bond Fund 10,258,776 10,180,783 10,180,783 - 77,993
U.S. Treasury securities 3,030,938 3,069,375 3,030,938 38,437 -
Canadian government notes 3,325,790 3,325,790 3,325,790 - -
Obligations of states and
political subdivisions 7,380,117 7,404,768 7,380,177 32,170 7,579
Total short-term ---------- ---------- ---------- -------- ---------
investments $ 34,309,366 34,169,054 34,106,026 70,607 210,919
========== ========== ========== ======== =========
Maturities more
than one year
------------------
Obligations of states and
political subdivisions $ 508,590 512,165 508,590 3,575 -
========== ========== ========== ======== =========
The Vanguard Short-term U. S. Treasury Portfolio and the Vanguard Municipal Bond Fund are
classified as trading securities and recorded at market value. All other investments are
classified as held-to-maturity and recorded at amortized cost.
<CAPTION> 1993
------------------------------------------------------------------
Amount at
which carried Unrealized Unrealized
Maturities less Amortized in the balance holding holding
than one year cost Market sheet gains losses
------------------ ---------- ---------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
U. S. Treasury securities $ 5,451,283 5,449,125 5,451,283 - 2,158
U. S. government agencies 10,785,005 10,784,626 10,785,005 - 379
Canadian government notes 2,230,013 2,230,013 2,230,013 - -
Obligations of states and
political subdivisions 12,371,059 12,036,605 12,371,059 - 334,454
Total short-term ---------- ---------- ---------- -------- ---------
investments $ 30,837,360 30,500,369 30,837,360 - 336,991
========== ========== ========== ======== =========
Maturities more
than one year
-----------------
Obligations of states and
political subdivisions $ 1,515,004 1,520,115 1,515,004 5,115 -
========== ========== ========== ======== =========
</TABLE>
40
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
All investments held at December 3l, 1993, were classified as held-to-maturity
and recorded at amortized cost.
(12) QUARTERLY FINANCIAL DATA (UNAUDITED)
------------------------------------
A summary of unaudited quarterly results of operations for 1994 and 1993 is as
follows (in thousands except per share data):
Three months ended
March 31 June 30 September 30 December 31
1994: ------- ------- ------- -------
Sales $ 15,267 15,581 14,467 15,412
====== ====== ====== ======
Gross profit $ 8,340 8,172 7,543 7,598
====== ====== ====== ======
Earnings before income taxes $ 3,373 2,588 162 2,410
====== ====== ====== ======
Net earnings $ 2,006 1,867 281 1,533
====== ====== ====== ======
Earnings per share $ .15 .14 .02 .12
====== ====== ====== ======
Dividends per share $ .18 .18 .18 .18
====== ====== ====== ======
1993:
Sales $ 17,951 18,215 16,357 16,855
====== ====== ====== ======
Gross profit $ 10,477 10,560 9,130 9,192
====== ====== ====== ======
Earnings before income taxes $ 5,058 4,991 3,937 3,548
====== ====== ====== ======
Net earnings $ 3,051 2,981 2,247 2,287
====== ====== ====== ======
Earnings per share $ .23 .23 .17 .17
====== ====== ====== ======
Dividends per share $ .18 .18 .18 .18
====== ====== ====== ======
(13) SUBSEQUENT EVENT
----------------
On February 10, 1995, LabOne announced that it has been advised by Seafield
that Seafield has retained a financial adviser to assist Seafield in
considering strategic alternatives to maximize Seafield shareholder value.
LabOne has been informed that one alternative that Seafield expects to pursue
is a cash-option merger of Seafield into LabOne. In such a merger, Seafield
shareholders would have the option of receiving cash as well as shares of
LabOne.
41
Schedule II
-----------
LABONE, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1994, 1993 and 1992
Additions-
charged to
Balance selling,
at general and Deductions- Balance
beginning administrative uncollectible at end
Description of year expenses accounts of year
----------- ------- ------- ------ ------
Allowance for doubtful accounts:
Year ended
December 31, 1994 $ 81,700 22,403 22,677 81,426
====== ====== ====== ======
Year ended
December 31, 1993 $ 88,783 162 7,245 81,700
====== ====== ====== ======
Year ended
December 31, 1992 $ 81,947 7,303 17 88,783
====== ====== ====== ======
42
Exhibit 10.5
------------
LabOne Annual Incentive Plan
----------------------------
The Annual Incentive Plan was revised in 1994 to meet the objective of
motivating and rewarding the accomplishment of strong operating results. An
after-tax return on equity minimum is established at the beginning of the
fiscal year by the Compensation Committee, which minimum is then expressed as
a net income threshold. No incentive payments are made if the minimum net
income threshold is not met. This net income threshold emphasizes the areas
on which management can have the greatest impact: revenue and expenses. The
incentive pool is established as an increase in percentage of net income
earned by LabOne, Inc. over the minimum threshold. Approximately ninety
percent of the incentive pool generated by reaching the target is distributed
in cash ratably to designated officers and managers at year end based on a
weighting of positions and base salaries. The remaining ten percent is
distributed to outstanding performers within the eligible group based on the
recommendation of the CEO to the Compensation Committee.
43
Exhibit 10.17
-------------
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into as of February 11, 1994, by and
between Home Office Reference Laboratory, Inc., with offices in Lenexa, Kansas
(hereinafter referred to as "HORL") and Robert F. Thompson, a resident of the
State of Kansas (hereinafter referred to as "Officer");
WITNESSETH:
WHEREAS, Officer and HORL are presently parties to an Employment Agreement,
dated August 3, 1983; and
WHEREAS, HORL wishes to offer additional consideration to Officer to induce
Officer to continue in the employment of HORL; and
WHEREAS, it is the intention and desire of the parties to enter into a formal
agreement whereby three principal purposes will be served, to wit:
A. The present Employment Agreement between the parties will be cancelled
in its entirety and this Employment Agreement will be substituted in its place
and stead; and
B. HORL will have the benefit of the substantial expertise of Officer for
at least the period covered by this Agreement; and
C. Officer will serve HORL during the term hereinafter defined and will be
motivated by the additional consideration set forth herein;
NOW, THEREFORE, in consideration of the employment of Officer by HORL and of
the mutual promises, covenants, representations and warranties contained
herein, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound, agree that the present
Employment Agreement between the parties is hereby cancelled in its entirety
and the following Employment Agreement (the "Agreement") is hereby substituted
in its place and stead:
SECTION I
EMPLOYMENT AND TERM
1.1 EMPLOYMENT. HORL hereby employs Officer and Officer hereby accepts
such employment and agrees to perform the duties described in Section 2 of
this Agreement.
44
1.2 TERM
(a) BASE TERM. The term of employment shall commence on the date hereof
and shall continue for a period of two (2) years therefrom (the "Base Term"),
or until terminated as otherwise provided herein.
(b) TERMINATION SUBSEQUENT TO CHANGE IN CONTROL. Notwithstanding any
other provision of this Agreement to the contrary, in the event that (i) a
change of control of HORL shall occur at any time during which Officer is in
the full-time employment of HORL or its successor and (ii) within one (1)
year after such a change in control, Officer's employment with HORL or its
successor is terminated by HORL or its successor for any reason other than
permanent disability, death or normal retirement, or is voluntarily terminated
by Officer for any reason at his sole discretion, HORL will promptly pay to
Officer as termination compensation the lump sum amount described below.
The lump sum compensation payable shall be equal to three (3) times the
average annual compensation includable in Officer's gross income for the most
recent five (5) taxable years ending before the date of the change in control.
If Officer has been an employee of HORL for less than 5 years, Officer's lump
sum payment shall be equal to 3 times the average annual compensation
includable in Officer's gross income based on the portion of the 5 year period
during which Officer performed services for HORL. To the extent that any
amount required to be paid hereunder would constitute an "excess parachute
payment" within the meaning of Section 280G(b) of the Internal Revenue Code
of 1986, that excess amount need not be paid.
For purposes of this Section 1.2(b), a "change of control" shall be deemed
to have taken place if there shall have occurred (i) the sale or other
disposition resulting in the transfer of legal or beneficial ownership of,
or the right to vote, more than fifty percent (50%) of the outstanding
capital stock of HORL to one or more third-party purchasers unaffiliated
with Seafield Capital Corporation, its shareholders or affiliates (as the
term "affiliate" is defined in Rule 12b-2 promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934), except in
connection with an underwritten public offering of the common stock of HORL,
(ii) a merger or consolidation of HORL with or into any entity other than
Seafield Capital Corporation or its affiliates, or (iii) a sale or other
transfer of substantially all of the assets of HORL to any person or entity
other than Seafield Capital Corporation or its affiliates.
In the event of termination of employment under the circumstances described
above, HORL shall pay to Officer the installments of his base salary through
the date of termination of employment, any annual incentive bonus for the
45
previous year if such has been approved but not paid and the lump sum
amount as termination compensation described above, and any remaining
term of this Agreement shall be cancelled. Such payments to Officer and
the arrangements provided for by any stock option or other agreement
between HORL and Officer in effect at the time and by any other applicable
plan of HORL will constitute the entire obligation of HORL to Officer with
respect to such termination, and will also constitute full settlement of
any claim under law or in equity that Officer might otherwise assert
against HORL or any of its employees on account of such termination.
(c) ANNUAL EXTENSION. Commencing on the second anniversary of this
Agreement and on each succeeding anniversary thereafter, unless HORL
notifies Officer in accordance with the immediately following sentence
that Officer's employment under this Agreement will not be extended,
this Agreement and Officer's employment under this Agreement shall
automatically and without further action be extended for one (1) year
from such anniversary on the same terms and conditions as are set forth
herein. If HORL elects not to extend Officer's employment under this
Agreement as provided in the preceding sentence, it shall do so by
notifying Officer in writing at least sixty (60) days prior to the
applicable anniversary date of this Agreement. If HORL elects not to
extend Officer's employment under this Agreement as provided above, such
election shall be treated as a termination of Officer without cause within
the meaning of Section 9.1(e) of this Agreement and HORL shall pay to
Officer, in addition to any other sums which may be due to Officer, the
lump sum severance payment provided for in Section 9.1(e).
SECTION 2
DUTIES
2.1 GENERAL DUTIES. Officer shall serve HORL in the capacity of
President and Chief Executive Officer of Head Office Reference Laboratory,
Limited. Officer shall be responsible for performing the duties generally
required of such position and such other duties in relation to HORL as
shall from time to time be assigned to Officer by the Board of Directors
or the Chairman of the Board of Directors.
2.2 FULL TIME. During the term hereof, Officer agrees to devote
his full time, attention and skill to the performance of the foregoing
duties.
2.3 BEST EFFORTS. Officer agrees that he will at all times faithfully,
industriously and to the best of his ability, experience and talents,
perform all of the duties that may be required of him as described above.
46
2.4 INDEMNIFICATION AND D & O INSURANCE. HORL shall provide to
Officer coverage under HORL's director and Officer liability insurance
and indemnification By-laws, as fully and to the same extent as the
same are provided to similar executive officers of HORL.
SECTION 3
BASE SALARY
3.1 ANNUAL BASE SALARY. HORL shall pay Officer, and Officer shall
accept from HORL in full payment for Officer's full time services
hereunder, compensation at the rate of One Hundred Twenty Thousand
Dollars ($120,000) per annum, U.S. funds, payable monthly in periodic
equal installments during the year. Such salary shall be reviewed from
time to time, but not less often than annually, by the Board of Directors
of HORL and will be subject to such increases, but not decreases, as the
Board of Directors of HORL may determine, having due regard for the
efforts of Officer and the results, both financial and otherwise, of
HORL's operations during Officer's tenure.
3.2 REIMBURSEMENT OF EXPENSES. HORL shall reimburse Officer for such
reasonable out-of-pocket expenses as are incurred by Officer in order to
render the services contemplated hereunder.
3.3 TAX WITHHOLDINGS. HORL shall deduct from the compensation payable
to Officer all federal, state, and local income tax, social security, FICA,
FUTA and other withholdings as required by law.
SECTION 4
BONUSES AND FRINGE BENEFITS
4.1 ANNUAL INCENTIVE BONUS. During the term hereof, Officer shall be
eligible to receive an annual incentive bonus based upon the performance
of HORL in relation to pre-determined financial goals established by the
Compensation Committee of the Board of Directors of HORL. Bonuses for
less than a full year of service may be granted at the discretion of the
Compensation Committee.
4.2 EXISTING STOCK OPTIONS. Officer and HORL are parties to existing
Stock Option Agreements entered into prior to the date hereof ("Existing
Stock Option Agreements") which provide in section 3(b) thereof that the
stock options granted thereby are immediately exercisable upon the occurrence
of a Change of Control of Seafield Capital Corporation, BMA corporation or
an affiliate thereof. By executing this Agreement, Officer and HORL agree
that the provisions of Section 3(b) of said Existing Stock Option Agreements
47
are hereby cancelled and shall be of no further force or effect and that
the following Sections 3(b), (c) and (d) shall be substituted in lieu
thereof in said Existing Stock Option Agreements:
"(b) Notwithstanding the provisions of Section 3(a) above,
the Option may be immediately exercised with respect to all
of the Shares specified in Section 1, above, (i) upon the
occurrence of a Change of Control, or (ii) upon the termination
of Optionee's employment by HORL without cause.
(c) A "Change of Control" means the occurrence of any of
the following events:
(i) the sale or other disposition resulting in the transfer
of legal or beneficial ownership of, or the right to vote,
more than fifty percent (50%) of the outstanding capital stock
of HORL to one or more third-party purchasers unaffiliated with
Seafield Capital Corporation, its shareholders or affiliates (as
the term "affiliate" is defined in Rule 12b-2 promulgated by the
Securities and Exchange Commission under the Securities Exchange
Act of 1934), except in connection with an underwritten public
offering of the common stock of HORL;
(ii) a merger or consolidation of HORL with or into any entity
other than Seafield Capital Corporation or its affiliates; or
(iii) a sale or other transfer of substantially all of the
assets of HORL to any person or entity other than Seafield
Capital Corporation or its affiliates.
(d) A "termination of Optionee's employment by HORL without cause"
shall occur in the event that Optionee's employment is terminated
by HORL for any reason other than the following actions, failures
or events by or affecting Optionee which shall constitute "cause"
for termination of Optionee by HORL:
(i) willful and continued failure by Optionee to substantially
perform his duties provided in the Employment Agreement between
Optionee and HORL, dated February 11, 1994, after a written demand
for substantial performance is delivered to Optionee by the Board
of Directors of HORL, which demand identifies with reasonable
specificity the manner in which Optionee has not substantially
performed his duties, and Optionee fails to comply with such demand
within a reasonable time;
48
(ii) the engaging by Optionee of gross misconduct or gross
negligence materially injurious to HORL;
(iii) Optionee's conviction of having committed a felony;
or
(iv) HORL's fiscal year earnings from operations (excluding
investment income and provision for income taxes) determined
in accordance with generally accepted accounting principles
(excluding extraordinary, unusual or nonrecurring gains or
losses), shall be less than $14,000,000.
Notwithstanding the foregoing, Optionee shall not be deemed
to have been terminated by HORL for cause unless and until
there shall have been delivered to him a copy of a resolution
duly adopted by the affirmative vote of not less than a majority
of the entire membership of the Board of Directors of HORL
finding that, in the good faith opinion of the Board of Directors,
HORL has cause for the termination of employment of Optionee as
set forth in any of clauses (i) through (iv) above and specifying
the particulars thereof in reasonable detail. The findings of
the Board of Directors shall not be binding on the arbitrators
or other finders of fact in connection with any litigation or
dispute arising out of this Agreement."
4.3 OTHER FRINGE BENEFITS. Officer shall be entitled to an annual
vacation consistent with HORL's vacation policies for similar executive
officers and to participate in such fringe benefit programs as HORL may
make available from time to time to similar executive officers, which
shall include reasonable hospital and major medical insurance coverage,
long term disability and life insurance in amounts and on terms no less
favorable than those provided to similar executive officers of HORL.
SECTION 5
NON-COMPETITION
5.1 RESTRICTIVE COVENANTS. In consideration for Officer's employment
with HORL and in further consideration for the compensation provided to
Officer in Sections 3 and 4 hereof, Officer agrees that during the term
of his employment pursuant to this Agreement, and for a period of two (2)
years after the termination for any reason of his employment pursuant to
this Agreement, he will not, without the prior written consent of HORL,
directly or indirectly, individually or in concert with others, or
through the medium of any other corporation, partnership, syndicate,
association, joint venture, or other entity or as an employee, Officer,
director, agent, consultant or affiliate, compete with HORL, within the
hereinafter described region, in (i) the urine or blood chemistry testing
49
or analysis business for the insurance industry, or (ii) the urine or blood
chemistry container or other supply business for the insurance industry, or
(iii) any other business engaged in by HORL as of the date of the termination
of Officer's employment with HORL, and Officer will not solicit or accept
any such business described in any of subparts (i) through (iii) above and
which competes with HORL from any customer who is served by HORL as of the
date of the termination of Officer's employment pursuant hereto, or cause
or induce any present or future employee of HORL to leave the employ of HORL
to accept employment with Officer or with any such entity or person. The
region referred to above shall consist of any territory in which HORL or
any of its representatives or agents, as of the date of the termination of
Officer's employment pursuant hereto, provides, sells, offers for sale or
solicits the sale of urine or blood chemistry testing or analysis, or urine
or blood chemistry containers or other supplies related thereto, or other
services or products. HORL and Officer agree that in the event that any
provision of this Section 5.1 is void or constitutes an unreasonable
restriction against Officer, such provision shall not be rendered void,
but shall apply with respect to such time or territory or to such other
extent as may constitute a reasonable restriction under the circumstances.
The foregoing provisions shall not prohibit Officer from owning not more
than 3% of the total shares of all classes of stock outstanding of any
publicly held company.
5.2 INJUNCTIVE RELIEF. HORL shall be entitled to appropriate
injunctive relief in any court of competent jurisdiction to enforce
its rights under Sections 5, 6, 7 and 8 of this Agreement, in addition
to any other rights and remedies available to HORL at law or in equity,
it being agreed that any violation of Sections 5, 6, 7 or 8 of this
Agreement by Officer is reasonably likely to cause irreparable damage
to HORL which will be difficult or impossible to value in monetary
damages.
5.3 CHARITABLE ACTIVITIES. Nothing in this section 5 shall be
construed as preventing Officer from engaging in charitable, professional,
religious or civic activities such as serving on a school board, or
as a member of or Officer of a professional organization, provided
such activity or organization does not compete directly with HORL.
SECTION 6
CONFIDENTIAL INFORMATION
6.1 CONFIDENTIALITY. During the term of and at any time after the
termination of this Agreement, Officer will hold in trust and confidence
and will not divulge, disclose or convey to any person, firm, corporation
or other entity and will keep secret and confidential all trade secrets,
50
proprietary information and confidential information heretofore or
hereafter acquired by him concerning HORL, Head Office Reference
Laboratory Ltd., or Seafield Capital Corporation, and will not use for
himself or others the same in any manner, except to the extent that such
information should become no longer a trade secret, proprietary or
confidential. Such trade secrets, proprietary information and
confidential information shall be deemed to include, but shall not
be limited to, information, whether written or not:
(a) of a technical nature, such as but not limited to,
technology, inventions, discoveries, improvements, processes,
formulae, ideas, know-how, methods, compositions, computer
software programs or research projects, including the identity
of research organizations and researchers,
(b) of a business nature, such as but not limited to
information concerning costs, profits, supplies, suppliers,
marketing, sales or lists of customers, and
(c) pertaining to future developments, such as but not
limited to information concerning research and development
or future marketing methods.
The restrictions contained above shall not apply to:
(i) information which at the time of disclosure by HORL to
Officer is in the public domain; or
(ii) information which at the time of disclosure by HORL to
Officer constituted confidential information hereunder, but
which thereafter becomes part of the public domain by
publication or otherwise through no fault of Officer.
SECTION 7
DEVELOPMENTS
7.1 Developments. Officer will promptly disclose to HORL (in form
satisfactory to HORL) all information, technology, inventions, discoveries,
improvements, processes, formulae, ideas, know-how, methods, compositions,
research projects, computer software programs and developments, whether or
not patentable or copyrightable (collectively "Information"), that Officer
by himself or in conjunction with any other person or entity conceives,
makes, develops or acquires during the term of this Agreement, and that:
(a) are or relate or pertain to the assets, properties, or
existing or contemplated business or research activities or HORL,
or
51
(b) are suggested by, arise out of or result from, directly
or indirectly, Officer's association with HORL, or
(c) arise out of or result, directly or indirectly, in part or
fully, from the use of HORL's time, labor, materials facilities
or other resources (collectively "Developments").
Any Information fitting within any of the descriptions contained in
subsections (a), (b) or (c) of this Section 7.1 that is disclosed to any
other person, firm or other entity by Officer or used in any manner by
Officer within one (1) year following the termination of this Agreement
shall be presumed to have been conceived, made, developed or acquired
during the term of this Agreement and, thus, to constitute a Development.
7.2 ASSIGNMENT TO HORL. Officer hereby assigns, transfers and conveys
to HORL all of his right, title and interest in and to any and all such
Developments, which Developments shall become and remain the sole and
exclusive property of HORL. At any time and from time to time, upon the
request of HORL, Officer will execute and deliver any and all instruments,
documents and papers, give evidence and do any and all other acts which,
in the reasonable opinion of counsel for HORL, are or may be necessary
or desirable to document such transfer, or to enable HORL to file and
process applications for and to acquire, maintain and enforce any and
all patents, trademarks, registrations or copyrights with respect to any
such Developments, or to obtain any extension, validation, re-issue,
continuance or renewal of any such patent, trademark or copyright. HORL
will be responsible for the preparation of any such instruments, documents
and papers and for the implementation of any such proceedings and will
reimburse Officer for all reasonable expenses incurred by him in compliance
with the provisions of this paragraph.
SECTION 8
PROPERTY OF HORL
8.1 All correspondence, notes, recordings, documents and other
materials and reproductions thereof pertaining to any aspect of the
business of HORL shall be the property of and shall be delivered to
and retained by HORL upon termination of this Agreement.
SECTION 9
TERMINATION
9.1 TERMINATION. Officer's employment pursuant to this Agreement shall
terminate upon the occurrence of any of the following events:
52
(a) DEATH. In the event that Officer dies during the term of this
Agreement, HORL shall pay to his executors or administrators an amount
equal to the installments of his base salary payable for the month in
which he dies and any annual incentive bonus for the previous year if
such has been approved but not paid, and such payments, together with
the arrangements provided for by any stock option or other agreement
between HORL and Officer in effect at the time and by any other applicable
plan of HORL will constitute the entire obligation of HORL to Officer and
will also constitute full settlement of any claim under law or in equity
that Officer's executors, heirs or assigns or any other person claiming
under or through him might otherwise assert against HORL or any of its
employees on account of his death.
(b) DISABILITY. In the event that Officer continues unable to fully
perform his duties and responsibilities hereunder by reason of illness,
injury or mental or physical disability or incapacity for ninety (90)
consecutive days, during which time he shall continue to be compensated
for monthly installments of base salary and any annual incentive bonus
for the previous year if such has been approved but not paid, Officer's
employment pursuant to this Agreement may be terminated by HORL, and such
payments, together with the arrangements provided for by any stock option
or other agreement between HORL and Officer in effect at the time and by
any other applicable plan of HORL will constitute the entire obligation
of HORL to Officer and will also constitute full settlement of any claim
under law or in equity that Officer might otherwise assert against HORL
or any of its employees on account of such termination. Officer agrees,
in the event of any dispute under this Section 9.1, to submit to a physical
examination by a reputable licensed physician selected by HORL and to
accept HORL's decision based on the results thereof.
(c) VOLUNTARY TERMINATION. Officer's employment may be voluntarily
terminated upon Officer giving sixty (60) days' prior written notice to
HORL. In the event Officer voluntarily terminates his employment, HORL
shall pay to Officer an amount equal to his base salary payable through
the date of termination of employment and any annual incentive bonus for
the previous year if such has been approved but not paid, and such payments,
together with the arrangements provided for by any stock option or other
agreement between HORL and Officer in effect at the time and by any other
applicable plan of HORL will constitute the entire obligation of HORL to
Officer and will also constitute full settlement of any claim under law
or in equity that Officer might otherwise assert against HORL or any of
its employees on account of his termination.
(d) TERMINATION FOR CAUSE. Officer's employment may be terminated
by HORL at any time for cause. In the event that Officer is terminated
53
by HORL for cause, HORL shall pay to Officer his base salary which may
have accrued to the date of termination and any annual incentive bonus
for the previous year if such has been approved but not paid, and such
payments, together with the arrangements provided for by any stock
option or other agreement between HORL and Officer in effect at the
time and by any other applicable plan of HORL will constitute the
entire obligation of HORL to Officer and will also constitute full
settlement of any claim under law or in equity that Officer might
otherwise assert against HORL or any of its employees on account of
his termination. Only the following actions, failures or events by
or affecting Officer shall constitute "cause" for termination of
Officer by HORL (i) willful and continued failure by Officer to
substantially perform his duties provided herein after a written
demand for substantial performance is delivered to Officer by the
Board of Directors of HORL, which demand identifies with reasonable
specificity the manner in which Officer has not substantially performed
his duties, and Officer fails to comply with such demand within a
reasonable time; (ii) the engaging by Officer of gross misconduct
or gross negligence materially injurious to HORL; (iii) Officer's
conviction of having committed a felony; or (iv) HORL's fiscal year
earnings from operations (excluding investment income and provision
for income taxes) determined in accordance with generally accepted
accounting principles (excluding extraordinary, unusual or nonrecurring
gains or losses), shall be less than $14,000,000. Notwithstanding
the foregoing, Officer shall not be deemed to have been terminated
by HORL for cause unless and until there shall have been delivered
to him a copy of a resolution duly adopted by the affirmative vote
of not less than a majority of the entire membership of the Board of
Directors of HORL finding that, in the good faith opinion of the Board
of Directors, HORL has cause for the termination of employment of Officer
as set forth in any of clauses (i) through (iv) above and specifying
the particulars thereof in reasonable detail. The findings of the
Board of Directors shall not be binding on the arbitrators or other
finders of fact in connection with any litigation or dispute arising
out of this Agreement.
(e) TERMINATION WITHOUT CAUSE. In the event that HORL terminates
Officer's employment for reasons other than death, disability, or cause
as listed in subsection (d) above, then in addition to any other sums
to which Officer may be entitled under this Agreement, HORL shall pay
to Officer, on or before the last day of employment, a lump sum severance
payment equal to (i) the installments of base salary due for the balance
of the then current term of this Agreement, plus (ii) fifty percent
(50%) of the annual base salary payable to Officer by HORL immediately
prior to termination of employment, which payments, together with the
arrangements provided for by any stock option or other agreement
between HORL and Officer in effect at the time and by any other
applicable plan of HORL will constitute the entire obligation
54
of HORL to Officer and will also constitute full settlement of any
claim under law or in equity that Officer might otherwise assert
against HORL or any of its employees on account of his termination.
SECTION 10
SURVIVAL
10.1 Notwithstanding the termination of Officer's employment
pursuant to the provisions of Section 9 hereof, or the expiration
of the term of this Agreement, Officer's obligations under Sections
5, 6, 7 and 8 hereof, the provisions for injunctive relief against
Officer in Sections 5.2 and 12.2 hereof and the provisions for
arbitration in Section 12.1 hereof shall continue in full force and
effect. Any right, power or obligation imposed or conferred upon HORL
or the Board of Directors of HORL by the terms of this Agreement shall
inure to the benefit of and be binding upon any person or entity into
which HORL is consolidated or merged and the Board of Directors or other
governing body of any such corporation or other entity.
SECTION 11
ASSISTANCE IN LITIGATION
11.1 Officer shall, upon reasonable notice, furnish such information
and assistance to HORL as may reasonably be required by HORL in
connection with any litigation in which HORL or any of its subsidiaries
or affiliates is or may become a party.
SECTION 12
ARBITRATION
12.1 METHODS. Except as provided in Section 12.2 below, any difference,
controversy, claim or dispute between the parties arising out of this
Agreement, or the breach thereof, shall be settled by binding arbitration
before a panel of three arbitrators selected as follows: each party shall
select one neutral arbitrator from the American Arbitration Association's
approved list of arbitrators. The two arbitrators so selected by the parties
shall select a third neutral arbitrator and the three so selected shall
settle the dispute under the duly promulgated Commercial Arbitration Rules
of the American Arbitration Association or its successor. The arbitration
shall be conducted in Lenexa, Kansas. The award of the arbitrators may be
entered as a judgment in any Court in the State of Kansas or in any court
having jurisdiction thereof.
55
12.2 INJUNCTIVE RELIEF. Notwithstanding Section 12.1 above, HORL shall
be entitled to seek judicial injunctive relief to enforce its rights under
Sections 5, 6, 7 and 8 of this Agreement as provided in Section 5.2 hereof.
SECTION 13
MISCELLANEOUS
13.1 ASSIGNMENT BY OFFICER. This is a personal Agreement on the part
of Officer and may not be sold, assigned, transferred or conveyed by
Officer. This Agreement may not be sold, assigned, transferred or
conveyed by HORL except in connection with a merger, consolidation or
sale of all or substantially all of the assets of HORL and then only
to the successor to HORL's operations.
13.2 ENTIRE AGREEMENT. This Agreement contains the entire agreement
among the parties hereto and there are no representations, inducements,
promises, agreements, arrangements, or undertakings, oral or written,
among the parties as to the subject matter covered.
13.3 SEVERABILITY. Should any part of this Agreement be declared
invalid for any reason, such invalidity shall not affect the validity
of any remaining portion hereof and such remaining portion shall continue
in full force and effect as if this Agreement had been originally executed
without including the invalid part.
13.4 GOVERNING LAW. This Agreement and its performance shall be
interpreted and construed in accordance with the laws of the State of Kansas.
13.5 TITLES. Titles and captions in no way define, limit, extend or
describe the scope of this Agreement or the intent of any provision hereof.
13.6 AMENDMENTS. No changes, alterations, modifications, additions,
or qualifications to the terms of this Agreement shall be made or be
binding unless made in writing and executed by the parties in the same
manner as the Agreement.
13.7 NO WAIVER. Failure by either party to enforce any right granted
by this Agreement shall not constitute a waiver of such right and waiver
of any provision of this Agreement shall not constitute a waiver of any
other provision.
13.8 NOTICES. Any notice, instrument or communication required or
permitted under this Agreement shall be deemed to have been effectively
given and made if in writing and when served by personal delivery to the
56
party for whom it is intended, or three business days after being
deposited, postage prepaid, registered or certified mail, return receipt
requested, in the United States mail, addressed to the party for whom
it is intended at the following addresses, or at such other addresses
as the party to be notified may have designated in writing to the other:
Officer: Robert F. Thompson
HORL: Home Office Reference Laboratory
10310 W. 84th Terrace
Lenexa, Kansas 66214
Attn.: Chairman of the Board of
Directors
13.9 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the day and year first above written.
HOME OFFICE REFERENCE LABORATORY, INC.
By: /s/ Bert H. Hood
--------------------------
President
/s/ Robert F. Thompson
---------------------------
Robert F. Thompson
57
Exhibit 10.18
-------------
FORM OF AMENDMENT TO EMPLOYMENT AGREEMENTS
------------------------------------------
THIS AMENDMENT ("Amendment"), made and entered into this __ day of
December, 1994, by and between LabOne, Inc. ("LabOne") and EMPLOYEE
("Officer");
WITNESSETH:
WHEREAS, LabOne and Officer are parties to an Employment Agreement,
(the "Agreement"); and
WHEREAS, the parties desire to amend the Agreement;
NOW, THEREFORE, in consideration of the mutual promises herein contained,
the sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Subsection (iv) of the third sentence of Section 9.1(d) of the
Agreement is hereby amended by deleting said Subsection (iv) as the
same now appears and substituting therefor the following:
"...(iv) HORL's (now LabOne's) earnings from operations (excluding
investment income and provision for income taxes) determined in
accordance with generally accepted accounting principles (excluding
extraordinary, unusual or non-recurring gains or losses), shall be
less than $9,200,000 for any fiscal year, or such higher amount as
the parties may agree to in writing."
2. This Amendment shall become effective upon approval of the
Amendment by LabOne's Board of Directors.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
day and year first above written.
LABONE, Inc.
By:
------------------------
COMPANY
By:
-----------------------
EMPLOYEE (OFFICER)
58
Exhibit 23
----------
INDEPENDENT AUDITORS' CONSENT
-----------------------------
The Board of Directors LabOne, Inc.:
We consent to incorporation by reference in the Registration Statement Nos.
33-22865, 33-41681, 33-49818 and 33-51484 on Forms S-8 of LabOne, Inc. of our
report dated February 3, 1995, except as to footnote 13, which is as of
February 10, 1995, relating to the consolidated balance sheets of LabOne,
Inc. and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of earnings, stockholders' equity and cash flows
and related schedule for each of the years in the three-year period ended
December 31, 1994, which report appears in the December 31, 1994, annual
report on Form 10-K of LabOne, Inc.
KPMG Peat Marwick LLP
Kansas City, Missouri
March 23, 1995
59
Exhibit 24
----------
Power of Attorney
The undersigned hereby appoint Gregg R. Sadler as attorney-in-fact, to execute
in name and on behalf of the undersigned the Form 10-K Annual Report of
LabOne, Inc., to be filed with the Securities and Exchange Commission for its
fiscal year ended December 31, 1994.
Dated: February 10, 1995
/s/ W. Thomas Grant, II
W. Thomas Grant, II, Director
/s/ Giorgio Balzer
Giorgio Balzer, Director
/s/ John E. Walker
John E. Walker, Director
/s/ Joseph H. Brewer
Joseph H. Brewer, MD, Director
/s/ William D. Grant
William D. Grant, Director
/s/ Michael E. Herman
Michael E. Herman, Director
/s/ P. Anthony Jacobs
P. Anthony Jacobs, Director
/s/ Neal L. Patterson
Neal L. Patterson, Director
/s/ Richard A. Rifkind, MD
Richard A. Rifkind, MD, Director
/s/ R. Dennis Wright
R. Dennis Wright, Director
/s/ James R. Seward
James R. Seward, Director
60
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
1994 FORM 10-K 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> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 6,888,806
<SECURITIES> 34,106,026
<RECEIVABLES> 8,718,036
<ALLOWANCES> 81,426
<INVENTORY> 787,339
<CURRENT-ASSETS> 54,080,553
<PP&E> 52,498,807
<DEPRECIATION> 34,315,021
<TOTAL-ASSETS> 76,757,780
<CURRENT-LIABILITIES> 5,521,147
<BONDS> 0
<COMMON> 150,000
0
0
<OTHER-SE> 71,086,633
<TOTAL-LIABILITY-AND-EQUITY> 76,757,780
<SALES> 60,725,982
<TOTAL-REVENUES> 60,725,982
<CGS> 29,072,508
<TOTAL-COSTS> 29,072,508
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 685
<INCOME-PRETAX> 8,533,020
<INCOME-TAX> 2,845,892
<INCOME-CONTINUING> 5,687,128
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,687,128
<EPS-PRIMARY> 0.43
<EPS-DILUTED> 0.43
</TABLE>
