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 quarterly period ended March 31, 1997
------------------
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
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(Address of principal executive offices) (Zip Code)
(913)-888-1770
--------------------------------
(Registrant's telephone number, including area code)
N/A
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(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 May 1, 1997 - 13,104,935 net of 1,895,065 shares
held as treasury stock.
Page 1 of 10
<TABLE> PART I. FINANCIAL INFORMATION
ITEM 1 - Financial Statements
LabOne, Inc. and Subsidiary
Consolidated Balance Sheets
<S> <C> <C>
March 31, December 31,
1997 1996
ASSETS --------- ---------
Current assets:
Cash and cash equivalents $ 4,121,920 3,613,454
Short-term investments 20,342,910 27,781,974
Accounts receivable-trade, net of allowance for doubtful
accounts of $795,368 in 1997 and $657,558 in 1996 11,919,220 9,598,707
Inventories 1,958,507 1,360,164
Prepaid expenses and other current assets 1,616,676 2,074,538
Deferred income taxes 682,206 682,206
---------- ----------
Total current assets 40,641,439 45,111,043
Investments with maturities of more than one year, at cost 503,755 504,292
Property, plant and equipment 53,442,902 52,642,497
Less accumulated depreciation 36,205,721 35,751,529
---------- ----------
Net property, plant and equipment 17,237,181 16,890,968
Other assets:
Intangible assets, net of accumulated amortization 5,987,747 2,098,987
Deferred income taxes - noncurrent 193,539 114,683
Deposits and other assets 23,198 23,202
---------- ----------
Total assets $64,586,859 64,743,175
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,122,045 2,971,376
Income taxes payable 800,302 -
Payable to Seafield Capital Corporation 35,106 26,217
Accrued payroll and benefits 2,587,041 2,802,566
Other accrued expenses 513,671 393,811
Other current liabilities 100,945 99,912
---------- ----------
Total liabilities 7,159,110 6,293,882
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 13,554,189 13,546,121
Equity adjustment from foreign currency translation (569,449) (543,959)
Retained earnings 66,498,631 67,494,437
---------- ----------
79,633,371 80,646,599
Less treasury stock of 1,915,065 shares in
1997 and 1,915,835 shares in 1996 22,205,622 22,197,306
---------- ----------
Total stockholders' equity 57,427,749 58,449,293
---------- ----------
Total liabilities and stockholders' equity $64,586,859 64,743,175
========== ==========
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
Three months ended March 31,
1997 1996
---------- ----------
Sales $ 17,739,985 13,277,845
Cost of sales 9,450,105 7,477,322
---------- ----------
Gross profit 8,289,880 5,800,523
Selling, general and administrative expenses 6,430,906 5,785,338
---------- ----------
Earnings from operations 1,858,974 15,185
Other income 428,301 371,462
---------- ----------
Earnings before income taxes 2,287,275 386,647
Income tax expense 927,793 167,302
---------- ----------
Net earnings $ 1,359,482 219,345
========== ==========
Earnings per common share $ 0.10 0.02
====== ======
Dividends per common share $ 0.18 0.18
====== ======
Weighted average common shares outstanding 13,344,967 13,189,724
========== ==========
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
Three Months Ended March 31, 1997
<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, 1996 $150,000 13,546,121 (543,959) 67,494,437 (22,197,306) 58,449,293
Net earnings 1,359,482 1,359,482
Cash dividends
($0.18 per share) (2,355,288) (2,355,288)
Stock options
exercised, net
(770 shares) 8,068 (8,316) (248)
Equity adjustment
from foreign
currency
translation (25,490) (25,490)
-------- ---------- -------- ---------- ----------- ----------
Balance at
March 31, 1997 $150,000 13,554,189 (569,449) 66,498,631 (22,205,622) 57,427,749
======== ========== ======== ========== =========== ==========
</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
Three months ended March 31,
1997 1996
--------- ---------
Cash provided by (used for) operations:
Net earnings $ 1,359,482 219,345
Adjustments to reconcile net earnings
to net cash provided by operations:
Depreciation and amortization 1,095,726 969,736
(Gain) loss on disposal of property
and equipment (103,047) 98,752
Provision for deferred taxes (81,412) (178,941)
Change in short term trading portfolio, net 14,470,751 (295,160)
Changes in:
Accounts receivable (2,320,513) (210,978)
Inventories (598,343) (220,577)
Prepaid expenses and other current assets 457,862 407,435
Accounts payable 150,669 (432,115)
Income taxes payable 800,302 241,742
Payable to Seafield Capital Corporation 8,889 (48,667)
Accrued payroll & benefits (215,525) (7,847)
Accrued expenses 119,860 (25,674)
Other current liabilities 1,033 19,882
---------- ----------
Net cash provided by operations 15,145,734 536,933
---------- ----------
Cash provided by (used for) investment transactions:
Purchases of investments held to maturity (7,713,555) (4,385,810)
Proceeds from maturities of investments held
to maturity 732,335 11,883,041
Property, plant and equipment, net (1,167,229) (317,565)
Acquisition of intangible assets, net (4,120,605) -
Other - 8,600
---------- ----------
Net cash provided by (used for)
investment transactions (12,269,050) 7,188,266
---------- ----------
Cash provided by (used for) financing transactions:
Issuance of treasury stock, net of proceeds
from the exercise of stock options (248) 9,746
Cash dividends (2,355,288) (2,349,985)
---------- ----------
Net cash used for financing transactions (2,355,536) (2,340,239)
---------- ----------
Effect of foreign currency translation (12,678) (3,848)
---------- ----------
Net increase in cash and cash equivalents 508,466 5,381,112
Cash and cash equivalents - beginning of period 3,613,454 2,993,128
---------- ----------
Cash and cash equivalents - end of period $ 4,121,920 8,374,240
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income Taxes $ 221,022 83,781
========== ==========
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
March 31, 1997 and 1996
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 March 31, 1997, and
December 31, 1996, and the results of its operations and cash flows for
the periods ended March 31, 1997 and 1996. 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, 1996, for additional
information not required by this report Form 10-Q.
The weighted average shares includes the common stock equivalents of
stock options.
In February 1997, the Financial Accounting Standards Board issued Statement
No.128, "Earnings Per Share" which revises the calculation and presentation
provisions of Accounting Principles Board Opinion 15 and related
interpretations. Statement No. 128 is effective for the Company's fiscal year
ending December 31, 1997. Retroactive application will be required. The
Company believes the adoption of Statement No. 128 will not have a significant
effect on its reported earnings per share.
Effective January 30, 1997, LabOne acquired certain assets, inventory and
customer lists, of GIB Laboratories, Inc., a subsidiary of Prudential
Insurance Company of America, for $4.6 million. Concurrently, Prudential's
Individual Insurance Group made a multi-year commitment to use LabOne as its
exclusive provider of risk assessment testing services. The acquisition was
accounted for using the purchase method. Accordingly, the purchase price was
allocated to assets acquired based on their fair values. The total cost in
excess of tangible net assets acquired was $4.1 million and is being
amortized on a straight-line basis over 15 years.
Page 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
- ---------------------
Selected financial data:
Three months ended March 31, % Increase
1997 1996
----------- ----------- --------
Sales $ 17,739,985 13,277,845 34%
Net earnings 1,359,482 219,345 520%
Earnings per common share $0.10 0.02
Cash dividends per common share $0.18 0.18
The Company provides high-quality laboratory services to insurance companies,
physicians and employers.
LabOne provides risk-appraisal laboratory 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
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 the Company believes 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 reduced rates 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.
The Company's Lab Card program covered approximately 1.2 million lives as of
March 31, 1997, including The Guardian Life Insurance Company of America (The
Guardian) and Principal Healthcare of Kansas City (Principal). Additionally,
LabOne had a signed backlog of approximately 300,000 additional lives to be
covered by the program.
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 times and multiple testing options help clients
reduce downtime for affected employees and meet mandated drug screening
guidelines.
Page 7
Effective January 30, 1997, LabOne acquired certain assets, including customer
lists, of GIB Laboratories, Inc., a subsidiary of Prudential Insurance Company
of America. Concurrently, Prudential's Individual Insurance Group agreed to
use LabOne as its exclusive provider of risk assessment testing services. At
the time of the purchase, GIB served approximately 5% of the insurance
laboratory testing market.
FIRST QUARTER ANALYSIS
Net sales increased 34% in the first quarter 1997 to $17.7 million from $13.3
million in the first quarter 1996 due to increases in both the insurance and
healthcare segments. Insurance segment revenue increased to $14.4 million
during the first quarter 1997 as compared to $11.7 million in the same quarter
last year. The increase was due principally to the addition of GIB
Laboratories' client base, other market share gains, and an increase in oral
fluid testing on applicants applying for smaller face-amount policies. The
total number of insurance applicants tested in the first quarter 1997
increased by 22% as compared to the same quarter last year. Average revenue
per applicant declined 3% during the same periods. Insurance kit and
container revenue increased due primarily to an increase in the number
of blood and oral fluid kits sold. Healthcare revenue increased from $1.6
million in the first quarter 1996 to $3.3 million in 1997 due to increases in
substance abuse and diagnostic testing volumes.
Cost of sales increased $2.0 million (26%) in the first quarter 1997 as
compared to the prior year, primarily due to increases in supplies and
payroll. Insurance kit supplies increased due to the increased volume of kits
sold. Laboratory supplies and payroll expenses increased due primarily to the
increase in specimen volumes tested. Healthcare cost of sales expenses were
$3.3 million as compared to $2.2 million in the first quarter 1996.
As a result of the above factors, gross profit for the quarter increased from
$5.8 million in 1996 to $8.3 million in 1997. Healthcare gross profit
increased to $36,000 in the first quarter 1997 from a loss of $0.6 million in
the first quarter 1996.
Selling, general and administrative expenses increased $0.6 million (11%) in
the first quarter 1997 as compared to the prior year due primarily to
increases in payroll expenses, bad debt accruals and use taxes due to a refund
recorded in 1996. These were partially offset by a decrease in consulting and
severance expenses. Healthcare overhead expenditures during the first quarter
1997 were $2.4 million as compared to $1.7 million in 1996, primarily due to
an increase in allocated overhead and growth in the healthcare segment
payroll.
Operating income increased from $15,000 in the first quarter 1996 to $1.9
million in 1997. The insurance segment operating income increased $2.0
million. The healthcare segment operating loss increased from $2.3 million in
the first quarter 1996 to a loss of $2.4 million in 1997 due in part to a $0.3
million increase in corporate overhead allocations. Corporate overhead
allocations to the healthcare segment increased due to the significant rate of
growth in healthcare segment revenue.
Non operating income increased $0.1 million due primarily to gains on
equipment disposals, partially offset by lower investment income.
The effective income tax rate declined from 43% in 1996 to 41% in 1997 due to
exit taxes on the intercompany dividend from the Canadian subsidiary in 1996.
Page 8
The combined effect of the above factors resulted in net earnings of $1.4
million or $0.10 per share in the first quarter 1997 as compared to $0.2
million or $0.02 per share in the same period last year.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
LabOne's working capital position decreased by $5.3 million to $33.5 million
at March 31, 1997, from $38.8 million at December 31, 1996. This decrease is
primarily due to dividends paid, and the purchase of GIB laboratory assets and
customer lists. Net trade accounts receivable increased 24% over the balance
at December 31, 1996 primarily due to increasing sales in February and March,
1997.
Net additions to property, plant and equipment and intangibles were $5.3
million in the first quarter 1997 as compared to $0.3 million in 1996. The
increase is primarily due to the purchase of the assets and customer lists of
GIB Laboratories. The total number of shares of stock held in treasury at
March 31, 1997, was approximately 1.9 million shares at a total cost of $22.2
million, or $11.60 per share.
In February 1997, LabOne's Board of Directors declared the regular quarterly
dividend of $0.18 per common share. This dividend was paid on March 4, 1997,
to stockholders of record as of February 25, 1997, 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.
The Company had no borrowings in the first quarter 1997. The Company expects
to fund operations, capital additions and future dividend payments from a
combination of cash reserves and cash flow from operations. At March 31,
1997, LabOne had total cash and investments of $25.0 million as compared to
$31.9 million at December 31, 1996.
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 first quarter 1997 Form 10-Q.
(b) Reports on Form 8-K
A Form 8-K current report dated January 30, 1997, was filed with the
Commission reporting under Other Events the acquisition by LabOne of certain
assets, including customer lists of GIB Laboratories, and the agreement by
Prudential Insurance Company of America to use LabOne as its exclusive
provider of risk assessment testing services for its Individual Insurance
Group.
Page 9
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: May 13, 1997 By /s/ Kurt E. Gruenbacher
Kurt E. Gruenbacher, V.P. Finance and CAO
Date: May 13, 1997 By /s/ Robert D. Thompson
Robert D. Thompson, Executive V.P. Finance,
CFO and Treasurer
Page 10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
first quarter 1997 Form 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 4,121,920
<SECURITIES> 20,342,910
<RECEIVABLES> 12,714,588
<ALLOWANCES> 795,368
<INVENTORY> 1,958,507
<CURRENT-ASSETS> 40,641,439
<PP&E> 53,442,902
<DEPRECIATION> 36,205,721
<TOTAL-ASSETS> 64,586,859
<CURRENT-LIABILITIES> 7,159,110
<BONDS> 0
0
0
<COMMON> 150,000
<OTHER-SE> 57,277,749
<TOTAL-LIABILITY-AND-EQUITY> 64,586,859
<SALES> 0
<TOTAL-REVENUES> 17,739,985
<CGS> 0
<TOTAL-COSTS> 9,450,105
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,287,275
<INCOME-TAX> 927,793
<INCOME-CONTINUING> 1,359,482
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,359,482
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
