UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
---------------
Commission file number: 0-15975
LabOne, Inc.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 48-0952323
---------- --------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
10310 West 84th Terrace
Lenexa, Kansas 66214
----------------------------- -------
(Address of principal executive offices) (Zip Code)
(913) 888-1770
--------------------------------
(Registrant's telephone number, including area code)
N/A
------------------------------------
(Former name, former address, former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
Number of shares outstanding of only class of Registrant's common stock,
$.01 par value, as of August 1, 1996 - 13,083,676 net of 1,916,324 shares
held as treasury stock.
Page 1 of 11
<TABLE> PART I. FINANCIAL INFORMATION
ITEM 1 - Financial Statements
LabOne, Inc. and Subsidiary
Consolidated Balance Sheets
<S> <C> <C>
June 30, December 31,
1996 1995
ASSETS --------- ---------
Current assets:
Cash and cash equivalents $ 5,515,066 2,993,128
Short-term investments 27,524,793 34,111,752
Accounts receivable-trade, net of allowance for doubtful
accounts of $435,600 in 1996 and $329,995 in 1995 8,683,028 7,727,286
Inventories 1,915,364 1,533,257
Prepaid expenses and other current assets 1,394,812 2,883,127
Deferred income taxes 257,389 167,586
---------- ----------
Total current assets 45,290,452 49,416,136
Investments with maturities of more than one year, at cost 2,509,768 506,441
Property, plant and equipment 52,625,065 52,973,647
Less accumulated depreciation 36,438,930 35,885,928
---------- ----------
Net property, plant and equipment 16,186,135 17,087,719
Other assets:
Intangible assets, net of accumulated amortization 2,471,622 2,844,257
Deferred income taxes - noncurrent 470,759 152,520
Deposits and other assets 29,916 40,761
---------- ----------
Total assets $66,958,652 70,047,834
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,464,554 2,108,376
Income taxes payable 16,004 50,560
Payable to Seafield Capital Corporation 56,092 75,223
Accrued payroll and benefits 2,336,421 1,972,475
Other accrued expenses 712,548 902,297
Other current liabilities 94,044 74,574
---------- ----------
Total liabilities 5,679,663 5,183,505
Stockholders' equity:
Preferred stock, $.01 par value per share;
1,000,000 shares authorized, none issued - -
Common stock, $.01 par value per share; 40,000,000 shares
authorized, 15,000,000 shares issued 150,000 150,000
Additional paid-in capital 13,550,090 13,377,728
Equity adjustment from foreign currency translation (569,278) (545,818)
Retained earnings 70,341,182 74,040,870
---------- ----------
83,471,994 87,022,780
Less treasury stock of 1,916,324 shares in
1996 and 1,945,984 shares in 1995 22,193,005 22,158,451
---------- ----------
Total stockholders' equity 61,278,989 64,864,329
---------- ----------
Total liabilities and stockholders' equity $66,958,652 70,047,834
========== ==========
See accompanying notes to consolidated financial statements and management's
discussion and analysis of financial condition and results of operations.
Page 2
</TABLE>
LabOne, Inc. and Subsidiary
Consolidated Statements of Earnings
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales $14,767,797 14,622,874 28,045,642 29,312,333
Cost of sales 7,883,730 7,508,280 15,361,051 15,010,399
---------- ---------- ---------- ----------
Gross profit 6,884,067 7,114,594 12,684,591 14,301,934
Selling, general and
administrative expenses 5,864,755 5,986,157 11,650,094 12,201,154
---------- ---------- ---------- ----------
Earnings from operations 1,019,312 1,128,437 1,034,497 2,100,780
Other income 455,606 500,487 827,068 1,338,729
---------- ---------- ---------- ----------
Earnings before income taxes 1,474,918 1,628,924 1,861,565 3,439,509
Income taxes 689,845 628,415 857,147 1,268,399
---------- ---------- ---------- ----------
Net earnings $ 785,073 1,000,509 1,004,418 2,171,110
========== ========== ========== ==========
Earnings per common share $0.06 0.08 0.08 0.17
========== ========== ========== ==========
Dividends per common share $0.18 0.18 0.36 0.36
========== ========== ========== ==========
Weighted average common
shares outstanding 13,302,377 13,143,450 13,246,051 13,144,649
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements and management's
discussion and analysis of financial condition and results of operations.
Page 3
LabOne, Inc. and Subsidiary
Consolidated Statement of Stockholders' Equity
Six Months Ended June 30, 1996
<TABLE>
<CAPTION>
Additional Foreign Total
Common paid-in currency Retained Treasury stockholders'
stock capital translation earnings stock equity
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1995 $150,000 13,377,728 (545,818) 74,040,870 (22,158,451) 64,864,329
Net earnings 1,004,418 1,004,418
Cash dividends
($0.36 per share) (4,704,106) (4,704,106)
Stock options
exercised, net
(25,733 shares) 146,346 (78,733) 67,613
Directors' stock
issued
(3,927 shares) 26,016 44,179 70,195
Equity adjustment
from foreign
currency
translation (23,460) (23,460)
-------- ---------- -------- ---------- ----------- ----------
Balance at
June 30, 1996 $150,000 13,550,090 (569,278) 70,341,182 (22,193,005) 61,278,989
======== ========== ======== ========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements and management's
discussion and analysis of financial condition and results of operations.
Page 4
LabOne, Inc. and Subsidiary
Consolidated Statements of Cash Flows
Six months ended June 30,
1996 1995
--------- ---------
Cash provided by operations:
Net earnings $1,004,418 2,171,110
Adjustments to reconcile net earnings
to net cash provided by operations:
Depreciation and amortization 1,914,359 2,339,006
Loss on disposal of property and equipment 96,468 127,525
Directors' stock compensation 70,195 79,458
Provision for deferred taxes (319,189) 92,882
Change in short term trading portfolio, net (590,819) (2,839,015)
Changes in:
Accounts receivable (955,742) 525,573
Inventories (382,107) (386,909)
Prepaid expenses and other current assets 1,398,512 849,384
Accounts payable 356,178 (284,442)
Income taxes payable (34,556) (7,538)
Payable to Seafield Capital Corporation (19,131) (54,950)
Accrued payroll and benefits 363,946 292,682
Accrued expenses (226,036) (322,921)
Other current liabilities 19,470 (56,698)
---------- ----------
Net cash provided by operations 2,695,966 2,525,147
---------- ----------
Cash provided by (used for) investment transactions:
Purchases of investments held to maturity (13,355,031) (35,666,636)
Proceeds from maturities of investments held
to maturity 18,594,571 34,283,999
Property, plant and equipment, net (787,628) (1,256,344)
Other 10,845 1,715
Net cash provided by (used for) ---------- ----------
investment transactions 4,462,757 (2,637,266)
---------- ----------
Cash provided by (used for) financing transactions:
Issuance of treasury stock, net of proceeds
from the exercise of stock options 67,613 377
Cash dividends (4,704,106) (4,696,240)
---------- ----------
Net cash used for financing transactions (4,636,493) (4,695,863)
---------- ----------
Effect of foreign currency translation (292) 17,738
Net increase (decrease) in cash ---------- ----------
and cash equivalents 2,521,938 (4,790,244)
Cash and cash equivalents - beginning of period 2,993,128 6,888,806
---------- ----------
Cash and cash equivalents - end of period $5,515,066 2,098,562
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income Taxes $ 913,605 1,368,775
========== ==========
See accompanying notes to consolidated financial statements and management's
discussion and analysis of financial condition and results of operations.
Page 5
LabOne, Inc. and Subsidiary
Notes to Consolidated Financial Statements
June 30, 1996 and 1995
The accompanying consolidated financial statements include the accounts
of LabOne, Inc. and its wholly-owned subsidiary Lab One Canada Inc. (a
Canadian corporation). All significant intercompany transactions have
been eliminated in consolidation.
The financial information furnished herein is unaudited; however, in the
opinion of management, it reflects all adjustments which are necessary to
fairly state the Company's financial position at June 30, 1996, and
December 31, 1995, and the results of its operations and cash flows for
the periods ended June 30, 1996 and 1995. The financial statements have
been prepared in conformity with generally accepted accounting principles
appropriate in the circumstances, and included in the financial statements
are certain amounts based on management's estimates and judgments.
The financial information herein is not necessarily representative of a
full year's operations because levels of sales, capital additions and
other factors fluctuate throughout the year. These same considerations
apply to all year-to-year comparisons. See the Company's Annual Report
on Form 10-K for the year ended December 31, 1995, for additional
information not required by this report Form 10-Q.
The weighted average shares includes the common stock equivalents of
stock options.
Page 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
<TABLE>
RESULTS OF OPERATIONS
- ---------------------
<CAPTION>
Selected financial data:
Three months ended June 30, %Inc. Six months ended June 30, %Inc.
1996 1995 (Dec.) 1996 1995 (Dec.)
---------- ---------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Sales $14,767,797 14,622,874 1% $28,045,642 29,312,333 (4%)
Net earnings 785,073 1,000,509 (22%) 1,004,418 2,171,110 (54%)
Earnings per
common share $0.06 0.08 $0.08 0.17
Cash dividends
per common share $0.18 0.18 $0.36 0.36
</TABLE>
The Company provides high-quality laboratory services to insurance companies,
physicians and self-insured groups.
LabOne provides risk-appraisal laboratory services to the insurance industries
in the United States and Canada. The tests performed by the Company are
specifically designed to assist an insurance company in objectively evaluating
the mortality and morbidity risks posed by policy applicants. The majority of
the testing is performed on specimens of individual life insurance policy
applicants. The Company also provides testing services on specimens of
individuals applying for individual and group medical and disability policies.
LabOne's clinical testing services are provided to the healthcare industry to
aid in the diagnosis and treatment of patients. LabOne operates only one
highly automated and centralized laboratory, which has significant economic
advantages over other conventional laboratory competitors. LabOne markets its
clinical testing services to the payers of healthcare--insurance companies and
self-insured groups. The Company does this through Lab Card(TM), a Laboratory
Benefits Management (LBM) program.
The Lab Card Program provides laboratory testing at a reduced rate as compared
to traditional laboratories. It uses a unique benefit design that shares the
cost savings with the patient, creating an incentive for the patient to help
direct laboratory work to LabOne. Under the Program, the patient incurs no
out-of-pocket expense when the Lab Card is used, and the insurance company or
self-insured group receives substantial savings on its laboratory charges.
LabOne is certified by the Substance Abuse and Mental Health Services
Administration (SAMHSA) 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 rapid turnaround and multiple testing options help clients reduce
downtime for affected employees and meet mandated drug screening guidelines.
In June 1996, Epitope, Inc. notified LabOne that the United States Food and
Drug Administration (FDA) had approved the OraSure(Registered) HIV-1 Western
Blot test as a confirmation for oral fluid HIV testing. Due to the lower
collection expense associated with oral fluid specimens, the potential exists
for an expansion of the life insurance testing market. Currently, there are
Page 7
approximately 13.5 million individual life insurance policies sold in the
United States annually. However, laboratory services are provided on only
approximately four to five million of these policy applicants. The
noninvasive nature of oral fluid specimen collection allows for low-cost
agent collection, making testing much more affordable on smaller face value
insurance policies. Conversely, the availability of the test also has the
potential to cannibalize part of the existing blood testing market. The
net impact of OraSure HIV-1 testing cannot be determined at this time.
Recently, the FDA approved two home-based collection kits for HIV-1 testing.
These kits are available for sale to the general public to provide a
confidential alternative in determining whether an individual has HIV. The
availability of these products may influence insurance companies to lower
testing thresholds for life insurance applicants.
SECOND QUARTER ANALYSIS
Net sales increased 1% in the second quarter 1996 to $14.8 million from $14.6
million in the second quarter 1995 due to an increase in healthcare (clinical
and substance abuse testing) laboratory revenue, partially offset by a
decrease in insurance laboratory revenue. Healthcare revenue increased
from $1.1 million in the second quarter 1995 to $1.9 million in 1996 due to
increases in clinical and substance abuse testing volumes. Insurance revenue
declined to $12.8 million during the second quarter 1996 as compared to $13.5
million in the same quarter last year due primarily to competitive pressures.
Average revenue per applicant declined 5% during the second quarter 1996 as
compared to 1995. The total number of insurance applicants tested in the
second quarter 1996 decreased by 1% as compared to the same quarter last year.
Insurance kit and container revenue decreased due primarily to a decrease in
the number of blood and urine kits sold.
Cost of sales increased $0.4 million in the second quarter 1996 as compared
to the prior year, primarily due to the variable costs associated with
increased healthcare testing volumes. Healthcare cost of sales expenses were
$2.4 million as compared to $2.0 million in the second quarter 1995.
As a result of the above factors, gross profit for the quarter decreased from
$7.1 million in 1995 to $6.9 million in 1996.
Selling, general and administrative expenses decreased $0.1 million (2%) in
the second quarter 1996 as compared to the prior year. Healthcare overhead
expenditures during the second quarter 1996 were $1.7 million as compared
to $1.3 million in 1995. Insurance overhead expenses declined by $0.6 million
due to ongoing cost reduction projects.
Operating income declined from $1.1 million in the second quarter 1995 to $1.0
million in 1996. Operating income from the insurance segment declined $0.1
million. The healthcare segment improved $57,000 with an operating loss of
$2.2 million in the second quarter 1996.
Nonoperating income decreased $45,000 due to a decrease in investment income,
partially offset by a decrease in other expenses.
The effective income tax rate increased from 39% in 1995 to 47% in 1996 due
primarily to taxes on an intercompany dividend from the Canadian subsidiary.
The combined effect of the above factors resulted in net earnings of $0.8
million or $0.06 per share in the second quarter 1996 as compared to $1.0
million or $0.08 per share in the same period last year.
Page 8
YEAR-TO-DATE ANALYSIS
Total revenue in the first six months of 1996 was $28.0 million as compared to
$29.3 million in the same period last year. The decrease of $1.3 million or
4% can be attributed primarily to a decrease in insurance laboratory revenue
of $3.1 million, partially offset by an increase in healthcare revenue of $1.8
million. Insurance laboratory revenue declined primarily due to a 6% decrease
in the number of applicants tested and a 6% decrease in the average revenue
per applicant. Healthcare revenue increased 103% due to substantial increases
in the volume of specimens tested.
Cost of sales increased $0.4 million (2%) year-to-date as compared to the
prior year. Healthcare cost of sales expenditures for the six month period
in 1996 were $4.5 million as compared to $4.1 million in 1995, due to
increased testing volume.
As a result of the above factors, gross profit for the first six months
decreased from $14.3 million in 1995 to $12.7 million in 1996.
Selling, general and administrative expenses decreased $0.6 million (5%) in
the six month period ended June 30, 1996, as compared to the prior year.
Healthcare overhead expenditures during the six month period increased to $3.4
million as compared to $2.4 million in 1995. Insurance overhead expenses
declined by $1.6 million due to cost reduction efforts.
Operating income declined from $2.1 million in 1995 to $1.0 million in 1996.
The insurance segment operating income declined $1.4 million primarily due to
lower testing revenues, partially offset by a decrease in insurance operating
expenses. The healthcare segment improved from an operating loss of $4.8
million in the first six months of 1995 to a $4.4 million loss in 1996.
The effective income tax rate increased from 37% during the first six months
of 1995 to 46% during the same period in 1996 primarily due to exit taxes on
the Canadian dividend.
The combined effect of the above factors resulted in net earnings of $1.0
million or $0.8 per share in the six month period ended June 30, 1996, as
compared to $2.2 million or $0.17 per share in the same period last year.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
LabOne's working capital position decreased by $4.6 million to $39.6 million
at June 30, 1996, from $44.2 million at December 31, 1995. This decrease is
primarily due to dividends paid and increases in long term investments
exceeding net cash provided by operations.
In May 1996, LabOne's Board of Directors declared the regular quarterly
dividend of $0.18 per common share. This dividend was paid on May 30, 1996,
to stockholders of record as of May 22, 1996, and totaled approximately $2.4
million. The board will review the dividend payment policy on a periodic
basis. There are currently no restrictions that would limit the Company's
ability to make future dividend payments.
Net additions to property, plant and equipment were $0.5 million in the second
quarter 1996 as compared to $0.6 million in 1995. There were 11,986 shares of
treasury stock issued for exercised options, and 3,927 shares issued for
directors' stock compensation. The total number of shares held
Page 9
in treasury at June 30, 1996, was approximately 1.9 million shares at a
total cost of $22.2 million or $11.58 per share.
The Company had no borrowings in the second quarter 1996. At June 30, 1996,
LabOne had a total unsecured line of credit at the prime rate of 8.25% of $5.0
million that may be used for general corporate purposes, of which the full
amount is currently available. The Company expects to fund operations,
capital additions and future dividend payments from a combination of cash
reserves and cash flow from operations. At June 30, 1996, LabOne had total
cash and investments of $35.5 million as compared to $37.6 million at December
31, 1995.
PART II. OTHER INFORMATION
Item 4. - Submission of Matters to a Vote of Security Holders.
(a) The annual stockholders' meeting was held on May 9, 1996.
(c) Brief description of each matter voted:
(1)Election of directors. For Messrs. Balzer, Brewer, William D.
Grant, W. Thomas Grant II, Hespe, Jacobs, Patterson, Rifkind,
Schweiker, Seward, Thompson, Walker and Wright, there were
12,224,876 shares voted in favor thereof and 23,449 shares withheld.
For Mr. Sadler there were 12,224,476 shares voted in favor thereof
and 23,849 shares withheld. There were 0 abstentions and 0 broker
nonvotes for all directors.
(2)Election to ratify the appointment of KPMG Peat Marwick LLP as
independent certified public accountants of the corporation and its
subsidiary for the present fiscal year. Of the 12,248,327 shares
voted, 12,241,905 were voted in favor thereof and 5,095 were
opposed. There were 1,324 abstentions and 3 broker nonvotes.
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule - as filed electronically by the
Registrant in conjunction with this second quarter 1996 Form 10-Q.
(b) Reports on Form 8-K
A Form 8-K current report dated May 10, 1996, was filed with the
Commission reporting under Other Events that Giorgio Balzer decided
not to accept his re-election to the Board of Directors and resigned
effective immediately.
A Form 8-K current report dated June 3, 1996, was filed with the
Commission reporting under Other Events that LabOne, Inc. was notified
by Epitope, Inc. that the Food and Drug Administration (FDA) had approved
the OraSure HIV-1 Western Blot Test.
Page 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
LabOne, Inc.
Date: August 8, 1996 By /s/ Kurt E. Gruenbacher
---------------------------
Kurt E. Gruenbacher
V.P. Finance and CAO
Date: August 8, 1996 By /s/ Robert D. Thompson
---------------------------
Robert D. Thompson
Executive V.P. Finance,
CFO and Treasurer
Page 11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SECOND QUARTER 1996 10-Q FOR LabOne, Inc. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000816151
<NAME> LABONE, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 5,515,066
<SECURITIES> 27,524,793
<RECEIVABLES> 9,118,628
<ALLOWANCES> 435,600
<INVENTORY> 1,915,364
<CURRENT-ASSETS> 45,290,452
<PP&E> 52,625,065
<DEPRECIATION> 36,438,930
<TOTAL-ASSETS> 66,958,652
<CURRENT-LIABILITIES> 5,679,663
<BONDS> 0
0
0
<COMMON> 150,000
<OTHER-SE> 61,128,989
<TOTAL-LIABILITY-AND-EQUITY> 66,958,652
<SALES> 0
<TOTAL-REVENUES> 28,045,642
<CGS> 0
<TOTAL-COSTS> 15,361,051
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,861,565
<INCOME-TAX> 857,147
<INCOME-CONTINUING> 1,004,418
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,004,418
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
