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 September 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 November 1, 1996 - 13,083,970 net of 1,916,030 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>
September 30, December 31,
1996 1995
ASSETS --------- ---------
Current assets:
Cash and cash equivalents $ 2,790,173 2,993,128
Short-term investments 27,852,502 34,111,752
Accounts receivable-trade, net of allowance for doubtful
accounts of $571,285 in 1996 and $329,995 in 1995 9,271,522 7,727,286
Inventories 1,574,919 1,533,257
Prepaid expenses and other current assets 1,985,066 2,883,127
Deferred income taxes 167,586 167,586
---------- ----------
Total current assets 43,641,768 49,416,136
Investments with maturities of more than one year, at cost 2,508,034 506,441
Property, plant and equipment 52,523,818 52,973,647
Less accumulated depreciation 36,923,752 35,885,928
---------- ----------
Net property, plant and equipment 15,600,066 17,087,719
Other assets:
Intangible assets, net of accumulated amortization 2,285,304 2,844,257
Deferred income taxes - noncurrent 638,043 152,520
Deposits and other assets 28,366 40,761
---------- ----------
Total assets $64,701,581 70,047,834
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,008,195 2,108,376
Income taxes payable 10,523 50,560
Payable to Seafield Capital Corporation 85,629 75,223
Accrued payroll and benefits 1,994,531 1,972,475
Other accrued expenses 774,000 902,297
Other current liabilities 92,454 74,574
---------- ----------
Total liabilities 4,965,332 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 13,551,174 13,377,728
Equity adjustment from foreign currency translation (572,168) (545,818)
Retained earnings 68,801,401 74,040,870
---------- ----------
81,930,407 87,022,780
Less treasury stock of 1,916,171 shares in
1996 and 1,945,984 shares in 1995 22,194,158 22,158,451
---------- ----------
Total stockholders' equity 59,736,249 64,864,329
---------- ----------
Total liabilities and stockholders' equity $64,701,581 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 Nine months ended
September 30, September 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales $14,768,579 13,655,673 42,814,221 42,968,006
Cost of sales 8,303,992 7,438,625 23,665,043 22,449,025
---------- ---------- ---------- ----------
Gross profit 6,464,587 6,217,048 19,149,178 20,518,981
Selling, general and
administrative expenses 5,675,856 6,349,637 17,325,950 18,550,791
---------- ---------- ---------- ----------
Earnings (loss) from
operations 788,731 (132,589) 1,823,228 1,968,190
Other income 434,461 535,898 1,261,529 1,874,628
---------- ---------- ---------- ----------
Earnings before income taxes 1,223,192 403,309 3,084,757 3,842,818
Income taxes 407,897 132,972 1,265,044 1,401,371
---------- ---------- ---------- ----------
Net earnings $ 815,295 270,337 1,819,713 2,441,447
========== ========== ========== ==========
Earnings per common share $0.06 0.02 0.14 0.19
========== ========== ========== ==========
Dividends per common share $0.18 0.18 0.54 0.54
========== ========== ========== ==========
Weighted average common
shares outstanding 13,276,126 13,127,134 13,256,076 13,138,811
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements and management's
discussion and analysis of financial condition and results of operations.
Page 3
LabOne, Inc. and Subsidiary
Consolidated Statement of Stockholders' Equity
Nine Months Ended September 30, 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 1,819,713 1,819,713
Cash dividends
($0.54 per share) (7,059,182) (7,059,182)
Stock options
exercised, net
(25,886 shares) 147,430 (79,886) 67,544
Directors' stock
issued
(3,927 shares) 26,016 44,179 70,195
Equity adjustment
from foreign
currency
translation (26,350) (26,350)
-------- ---------- -------- ---------- ----------- ----------
Balance at
September 30, 1996 $150,000 13,551,174 (572,168) 68,801,401 (22,194,158) 59,736,249
======== ========== ======== ========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements and management's
discussion and analysis of financial condition and results of operations.
Page 4
LabOne, Inc. and Subsidiary
Consolidated Statements of Cash Flows
Nine months ended September 30,
1996 1995
--------- ---------
Cash provided by (used for) operations:
Net earnings $1,819,713 2,441,447
Adjustments to reconcile net earnings
to net cash provided by operations:
Depreciation and amortization 2,861,100 3,352,095
Loss on disposal of property and equipment 98,381 160,708
Directors' stock compensation 70,195 79,458
Provision for deferred taxes (486,908) 131,396
Change in short term trading portfolio, net (902,783) (3,137,090)
Changes in:
Accounts receivable (1,544,236) 521,451
Inventories (41,662) (599,706)
Prepaid expenses and other current assets 898,061 245,373
Accounts payable (100,181) 123,090
Income taxes payable (40,037) 341,667
Payable to Seafield Capital Corporation 10,406 (27,637)
Accrued payroll and benefits 22,056 (207,639)
Accrued expenses (164,584) 142,723
Other current liabilities 17,880 (17,717)
---------- ----------
Net cash provided by operations 2,517,401 3,549,619
---------- ----------
Cash provided by (used for) investment transactions:
Purchases of investments held to maturity (15,752,895) (53,416,920)
Proceeds from maturities of investments held
to maturity 20,994,571 55,157,700
Acquisition of property, plant and equipment, net (981,408) (1,980,981)
Other 12,395 (855)
Net cash provided by (used for) ---------- ----------
investment transactions 4,272,663 (241,056)
---------- ----------
Cash provided by (used for) financing transactions:
Issuance of treasury stock, net of proceeds
from the exercise of stock options 67,544 7,158
Cash dividends (7,059,182) (7,045,816)
---------- ----------
Net cash used for financing transactions (6,991,638) (7,038,658)
---------- ----------
Effect of foreign currency translation (1,381) 32,590
---------- ----------
Net decrease in cash and cash equivalents (202,955) (3,697,505)
Cash and cash equivalents - beginning of period 2,993,128 6,888,806
---------- ----------
Cash and cash equivalents - end of period $2,790,173 3,191,301
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $1,659,898 1,392,576
========== ==========
See accompanying notes to consolidated financial statements and management's
discussion and analysis of financial condition and results of operations.
Page 5
LabOne, Inc. and Subsidiary
Notes to Consolidated Financial Statements
September 30, 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 September 30, 1996, and
December 31, 1995, and the results of its operations and cash flows for
the periods ended September 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 September 30, Nine months ended September 30,
1996 1995 %Increase/ 1996 1995 %Increase/
(Decrease) (Decrease)
---------- ---------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Sales $14,768,579 13,655,673 8% $42,814,221 42,968,006 0%
Net earnings 815,295 270,337 202% 1,819,713 2,441,447 (25%)
Earnings per
common share $0.06 0.02 $0.14 0.19
Cash dividends
per common share $0.18 0.18 $0.54 0.54
</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
Page 7
for an expansion of the life insurance testing market. 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 FDA also recently 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.
Several clients have indicated that they plan to test a higher percentage of
their applicants in 1997 because of these new HIV testing products. The net
impact of these potential changes can not be determined at this time.
THIRD QUARTER ANALYSIS
Net sales increased 8% in the third quarter 1996 to $14.8 million from $13.7
million in the third quarter 1995 primarily due to an increase in healthcare
(clinical and substance abuse testing) laboratory revenue. Healthcare revenue
increased from $1.3 million in the third quarter 1995 to $2.3 million in 1996
due to increases in clinical and substance abuse testing volumes. Insurance
revenue increased to $12.4 million during the third quarter 1996 as compared
to $12.3 million in the same quarter last year. Average revenue per applicant
declined 5% during the third quarter 1996 as compared to 1995. The total
number of insurance applicants tested in the third quarter 1996 increased by
2% as compared to the same quarter last year. Insurance kit and container
revenue increased due primarily to an increase in the number of oral fluid
and blood kits sold.
Cost of sales increased $0.9 million in the third quarter 1996 as compared
to the prior year, due primarily to increased insurance kit sales volumes
and the variable costs associated with increased healthcare testing volumes.
Healthcare cost of sales expenses were $2.7 million as compared to $2.3
million in the third quarter 1995.
As a result of the above factors, gross profit for the quarter increased from
$6.2 million in 1995 to $6.5 million in 1996.
Selling, general and administrative expenses decreased $0.7 million (11%) in
the third quarter 1996 as compared to the prior year due primarily to cost
reduction projects. These efforts resulted in a decrease in consulting,
travel and other overhead expenses.
Operating income increased to $0.8 million in the third quarter 1996 from a
loss of $0.1 million in 1995. Operating income from the insurance segment
improved $0.7 million to $3.2 million in the third quarter 1996. The
healthcare segment improved $0.2 million to an operating loss of $2.4 million.
Nonoperating income decreased $0.1 million due to a decrease in investment
income.
The combined effect of the above factors resulted in net earnings of $0.8
million or $0.06 per share in the third quarter 1996 as compared to $0.3
million or $0.02 per share in the same period last year.
Page 8
YEAR-TO-DATE ANALYSIS
Total revenue in the first nine months of 1996 was $42.8 million as compared
to $43.0 million in the same period last year. The decrease of $0.2 million
can be attributed primarily to a decrease in insurance laboratory revenue of
$3.0 million, primarily offset by an increase in healthcare revenue of $2.8
million. Insurance laboratory revenue declined primarily due to a 4% decrease
in the number of applicants tested and a 6% decrease in the average revenue
per applicant. Healthcare revenue increased 91% due to substantial increases
in the volume of specimens tested.
Cost of sales increased $1.2 million (5%) year-to-date as compared to the
prior year. Healthcare cost of sales expenditures for the nine month period
in 1996 were $7.3 million as compared to $6.4 million in 1995, due to
increased testing volume.
As a result of the above factors, gross profit for the first nine months
decreased from $20.5 million in 1995 to $19.1 million in 1996.
Selling, general and administrative expenses decreased $1.2 million (7%) in
the nine month period ended September 30, 1996, as compared to the prior year
due to cost reduction efforts. These efforts resulted in a decrease in
payroll, travel, insurance and other overhead expenditures. Depreciation
expense declined due to certain assets becoming fully depreciated.
Operating income declined from $2.0 million in 1995 to $1.8 million in 1996.
The insurance segment operating income declined $0.7 million primarily due to
lower testing revenues, partially offset by a decrease in insurance operating
expenses. The healthcare segment improved $0.6 million in the first nine
months of 1996 to an operating loss of $6.8 million.
The effective income tax rate increased from 36.5% during the first nine
months of 1995 to 41.0% during the same period in 1996 primarily due to
taxes on an intercompany dividend from the Canadian subsidiary.
The combined effect of the above factors resulted in net earnings of $1.8
million or $0.14 per share in the nine month period ended September 30, 1996,
as compared to $2.4 million or $0.19 per share in the same period last year.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
LabOne's working capital position decreased by $5.5 million to $38.7 million
at September 30, 1996, from $44.2 million at December 31, 1995. This decrease
is primarily due to dividends paid exceeding net cash provided by operations.
In August 1996, LabOne's Board of Directors declared the regular quarterly
dividend of $0.18 per common share. This dividend was paid on August 30,
1996, to stockholders of record as of August 21, 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 $0.2 million in the third
quarter 1996 as compared to $0.7 million in 1995. There were 153 shares of
treasury stock issued for exercised options.
Page 9
The Company had no borrowings in the third quarter 1996. At September 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 September 30, 1996, LabOne had
total cash and investments of $33.2 million as compared to $37.6 million at
December 31, 1995.
PART II. OTHER INFORMATION
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule - as filed electronically by the
Registrant in conjunction with this third quarter 1996 Form 10-Q.
(b) Reports on Form 8-K
None
Page 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
LabOne, Inc.
Date: November 7, 1996 By /s/ Kurt E. Gruenbacher
---------------------------
Kurt E. Gruenbacher
V.P. Finance and CAO
Date: November 7, 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
third 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,790,173
<SECURITIES> 27,852,502
<RECEIVABLES> 9,842,807
<ALLOWANCES> 571,285
<INVENTORY> 1,574,919
<CURRENT-ASSETS> 43,641,768
<PP&E> 52,523,818
<DEPRECIATION> 36,923,752
<TOTAL-ASSETS> 64,701,581
<CURRENT-LIABILITIES> 4,965,332
<BONDS> 0
0
0
<COMMON> 150,000
<OTHER-SE> 59,586,249
<TOTAL-LIABILITY-AND-EQUITY> 64,701,581
<SALES> 0
<TOTAL-REVENUES> 42,814,221
<CGS> 0
<TOTAL-COSTS> 23,665,043
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,084,757
<INCOME-TAX> 1,265,044
<INCOME-CONTINUING> 1,819,713
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,819,713
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
