UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended - December 31, 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)
Registrant's telephone number, including area code: 913-888-1770
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. / /
Approximate aggregate market value of voting stock held by non-affiliates
of Registrant: $43,500,000 (based on closing price as of March 1, 1997, of
$18.875). 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 1, 1997: $0.01 par value common - 13,084,935 shares net
of 1,915,065 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 8, 1997, 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 55
PART I
------
ITEM 1. BUSINESS
General
LabOne, Inc., a Delaware corporation, was established in 1972 to provide
laboratory services for the insurance industry. LabOne, Inc., together with
its wholly-owned subsidiary Lab One Canada Inc., 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.) In 1994, the Company expanded its testing offerings to include
the healthcare market. The Company provides high-quality laboratory services
to self-insured groups, insurance companies and physicians nationwide.
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.
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.
Services Provided by the Company
- --------------------------------
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
2
and morbidity, an insurance company generally requires quantitative data
reflecting the applicantOs 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 blood, urine and oral fluid testing has proven a cost-effective
alternative to individualized physician examinations, which utilize varying
testing procedures and reports.
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).
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.
Insurance specimens are normally collected from individual insurance
applicants by independent paramedical personnel using LabOneOs custom-designed
collection kits and containers. These kits and containers are delivered to
LabOneOs laboratory via overnight delivery services or mail, coded for
identification and processed according to each clientOs specifications.
Results are generally transmitted to the insurance companyOs underwriting
department that same evening.
Starting in 1996, LabOne introduced a one-day service guarantee on oral fluid
and urine HIV specimen results. LabOne also offers LabOne Net, a combination
network/software product that provides a connection for insurance underwriters
for ordering, delivery and management of risk assessment information such as
laboratory results, motor vehicle reports and other applicant information.
Patient Testing:
The Company began offering laboratory testing services to the healthcare
industry in 1994. Clinical laboratory tests are generally requested by
physicians and other healthcare 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.
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 and AIDS-related tests.
3
Clinical specimens are collected at the physician's office or other specified
sites. 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's testing menu includes 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 has established the Lab Card(TM) Program, as well as alliances with
major healthcare providers, as vehicles for delivering out-patient laboratory
services. The Lab Card Program is marketed to healthcare payers (self-insured
groups and insurance companies), allowing them to avoid price mark-ups and
cost shifting. With the Program, companies save substantially on their
outpatient laboratory testing, and patients pay no out-of-pocket fees when
they use their Lab Card.
Substance Abuse Testing:
LabOne markets substance abuse testing to Fortune 1000 companies, third party
administrators and occupational health providers. Certification by SAMHSA
enables the Company to offer substance abuse testing services to federally
regulated industries. There are presently 70 laboratories that are
SAMHSA certified.
Specimens for substance abuse testing are typically collected by independent
agencies who use LabOne's forms and collection supplies. Specimens are sealed
with bar-coded, tamper-evident seals 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 can be transmitted electronically to the client's
secured computer, printer or fax machine, or the client can use LabOne's
LabLink Dial-In software to retrieve, store, search and print its drug testing
results.
Segment Information
- -------------------
The following table summarizes the CompanyOs revenues from services provided
to the insurance and healthcare (clinical and substance abuse testing) markets
(dollars in thousands):
Year ended December 31,
1996 1995 1994
----------- ----------- -----------
Insurance $ 50,801 85% $ 52,544 92% $ 60,260 99%
Healthcare 8,631 15% 4,485 8% 466 1%
------ ------ ------
Total $ 59,432 $ 57,029 $ 60,726
====== ====== ======
(See Note 12 of Notes to Consolidated Financial Statements for operating
income and identifiable assets by segment.)
4
Operations
- ----------
The CompanyOs 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 internally developed,
custom-designed laboratory and business processing systems.
These systems enable 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
LabOneOs testing equipment, data processing equipment and the clientsO
computer systems. This system offers LabOneOs 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 clientOs test results to
the results obtained by the CompanyOs 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.
Regulatory Affairs/Quality Improvement
- --------------------------------------
The objective of the regulatory affairs/quality improvement 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 help ensure the reliability and
confidentiality of 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 from specimen arrival through final billing. Approximately
2,000 samples are prepared and submitted anonymously each month. These
samples are especially designed to challenge testing, handling and reporting
procedures. Specimens requiring special handling are evaluated and verified
5
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 (CAP), the American Association of Bioanalysts and the Centers
for Disease Control. Only three to five percent of accredited laboratories
receive no deficiencies for any one on-site inspection performed by CAP.
LabOne received no deficiencies on the last two CAP inspections.
LabOne 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. 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
- ----------------------
The technology development department evaluates new commercially available
tests and technologies or develops new assays and compares them to competing
products in order to select the most accurate laboratory procedures.
Additionally, LabOne's scientists present findings to LabOne's clients to aid
them in choosing the best tests available to meet their requirements. Total
technology development expenditures are not considered significant to the
Company as a whole.
Sales and Marketing
- -------------------
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 servicing
existing business.
All of the sales representatives for the insurance market 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 CompanyOs 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 CompanyOs sales
representatives and its senior management also attend underwritersO and
medical directorsO meetings sponsored by the insurance industry.
The sales representatives for the clinical industry are experienced in the
healthcare benefit market or clinical laboratory-related fields and currently
work in the geographic areas which they represent. Marketing efforts are
directed at insurance carriers, self-insured employers and trusts, and other
organizations nationwide.
Substance abuse marketing efforts are primarily directed at Fortune 1000
companies, occupational health clinics and third party administrators. The
Company's strategy is to offer quality service at competitive prices. The
sales force focuses on the ability of LabOne to offer multiple reporting
methods, next flight out options, dedicated client service representatives and
reporting of negative results before 8:00 A.M.
6
Competition
- -----------
The Company believes that the insurance laboratory testing market is
approximately a $100 million industry. LabOne currently controls over half
the market. LabOne has maintained its market leadership through the client
relationships that it has developed over its 25-year history, its reputation
for providing quality products and services at competitive prices, and its
battery of tests which are tailored specifically to an insurance companyOs
needs. LabOne has three other main competitors, Osborn Laboratories, Inc.,
Clinical Reference Laboratory and GIB Laboratories, Inc. 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.
The insurance testing industry continues to be highly competitive. The
primary focus of the competition has been on pricing. This continued
competition has resulted in a decrease in LabOneOs average price per test. It
is anticipated that prices may continue to decline in 1997.
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 LabOne. Through the use
of Lab Card, LabOne is working to establish a solid client base in this
environment.
LabOne's business plan is to be the premier low-cost provider of high-quality
laboratory services to self-insured employers and insurance companies in the
healthcare market. The Company feels that its superior quality and
centralized, low-cost operating structure enable it to compete effectively in
this market.
LabOne competes in the substance abuse testing market nationwide. The
Company's major competitors are the three major clinical chains, Laboratory
Corporation of America, Quest Diagnostics and Smith Kline Beecham
Laboratories, who collectively constitute approximately two-thirds of the
substance abuse testing market.
7
Foreign Markets
- ---------------
Lab One Canada Inc. markets insurance testing services to Canadian clients,
with laboratory testing performed in the United States. The following table
summarizes the revenue, profit and assets applicable to the Company's domestic
operations and its subsidiary, Lab One Canada Inc.
Year ended December 31,
1996 1995 1994*
------ ------ ------
(in millions)
Sales:
United States $53.1 $50.8 53.0
Canada 6.4 6.2 7.7
Operating Profit:
United States 2.5 2.1 5.8
Canada 0.7 0.3 1.1
Identifiable Assets:
United States 62.1 64.4 71.3
Canada 2.7 5.7 5.5
* 1994 data includes restructuring charges of $1.6 million. (See
Note 9 of Notes to Consolidated Financial Statements.)
Employees
- ---------
As of March 1, 1997, the Company had 566 full-time employees, representing an
increase of 57 employees from the same time in 1996. None of the CompanyOs
employees are represented by a labor union. The Company believes its
relations with employees are good.
ITEM 2. PROPERTIES
The CompanyOs 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 CompanyOs 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 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
LabOneOs clients of our continuous laboratory operation.
8
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 an option to cancel one year prior to the end of the lease
term.
The Company also leases 11 locations in Northern California and 9 in the
Midwest which serve as LabOne Service Centers (LSCs). These facilities
provide specimen collection services for patients and are typically located in
medical office buildings.
Lab One Canada Inc. leases a building in Toronto, Ontario, Canada, which is
used for sales and client services. This lease expires in November 1997.
LabOne believes that all of the above facilities are suitable for their
intended use and that the space is adequate to handle certain increases in
volumes. LabOne may consider facility expansion possibilities during 1997 if
warranted.
ITEM 3. LITIGATION
In the normal course of business, LabOne had certain lawsuits pending at
December 31, 1996. 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
-------
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 1, 1997, the
outstanding shares were held by approximately 395 shareholders of record.
The Company paid quarterly dividends of $0.18 per common share in 1996 and
1995. 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.
9
The following are the high and low closing prices of the stock for each
quarter of 1996 and 1995:
1996 1995
-------------- --------------
High Low High Low
----- ----- ----- -----
1st Quarter $17.00 12.50 $16.00 13.00
2nd Quarter 18.75 15.75 15.50 12.75
3rd Quarter 18.75 13.00 15.00 11.50
4th Quarter 19.25 15.00 15.25 10.63
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, 1996, 1995, 1994, 1993, and 1992, and the statement of earnings
data for each of the years in the five-year period ended December 31, 1996,
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)
1996 1995 1994* 1993 1992
Statement of Earnings Data: -------- ------ ------ ------ ------
Sales $ 59,432 57,029 60,726 69,378 74,437
Cost of sales 32,717 29,934 29,073 30,019 31,647
-------- ------ ------ ------ ------
Gross profit 26,715 27,095 31,653 39,359 42,790
Selling, general and
administrative expenses 23,467 24,711 24,761 22,695 22,776
-------- ------ ------ ------ ------
Earnings from operations 3,248 2,385 6,893 16,664 20,014
Other income 1,629 2,365 1,640 870 1,666
-------- ------ ------ ------ ------
Earnings before income taxes 4,877 4,750 8,533 17,534 21,680
Income taxes 2,009 1,953 2,846 6,968 8,347
-------- ------ ------ ------ ------
Net earnings $ 2,868 2,797 5,687 10,566 13,333
======== ====== ====== ====== ======
Earnings per common share $ 0.22 0.21 0.43 0.80 1.02
======== ====== ====== ====== ======
Dividends per common share $ 0.72 0.72 0.72 0.72 0.72
======== ====== ====== ====== ======
Balance Sheet Data:
Working capital $38,817 44,233 48,559 48,649 42,724
Total assets 64,743 70,048 76,758 81,130 81,661
Long term debt - - - - -
Stockholders' equity 58,449 64,864 71,237 74,764 72,851
*1994 selling, general and administrative expenses include a restructuring
charge of $1.6 million. (See Note 9 of Notes to Consolidated Financial
Statements.)
10
ITEM 7. MANAGEMENTOS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1996 Compared to 1995
Revenue for the year ended December 31, 1996, was $59.4 million as compared to
$57.0 million in 1995. The increase of $2.4 million or 4% can be attributed
to an increase in healthcare (clinical and substance abuse testing) segment
revenue of $4.1 million, partially offset by a decrease in insurance segment
revenue of $1.7 million. Healthcare revenue increased from $4.5 million in
1995 to $8.6 million in 1996 due to continued expansion efforts. Insurance
segment revenue decreased, primarily due to a 6% reduction in revenue per
applicant, partially offset by an increase in insurance kit revenue. The
total number of applicants tested for the year was relatively the same as in
1995.
Cost of sales increased $2.8 million (9%) for the year as compared to the
prior year. This increase is due primarily to increases in inbound freight
expense, kit expense and outside laboratory services. These were partially
offset by a decrease in rent expense due to the closing of certain LabOne
Service Center (LSC) locations in 1995. Healthcare cost of sales expenditures
for the year were $10.2 million as compared to $8.6 million in 1995.
As a result of the above factors, gross profit for the year decreased 1% from
$27.1 million in 1995 to $26.7 million in 1996. Healthcare results improved
from a loss of $4.1 million in 1995 to a loss of $1.6 million in 1996.
Selling, general and administrative expenses decreased $1.2 million (5%) in
1996 as compared to the prior year due primarily to decreases in depreciation,
travel, insurance and legal expenses. Healthcare overhead expenditures
increased from $5.8 million in 1995 to $7.6 million in 1996, primarily due to
an increase in allocated overhead and growth in healthcare segment payroll.
Operating income increased from $2.4 million in 1995 to $3.2 million in 1996.
The increase is primarily attributable to a $0.2 million increase in the
insurance segment operating income and a $0.7 million decrease in the
healthcare segment operating loss.
Non operating income decreased $0.7 million primarily due to a decrease in
investment income.
The effective income tax rate remained steady at 41% during 1995 and 1996.
The combined effect of the above factors resulted in net earnings of $2.9
million or $0.22 per share for 1996 as compared to $2.8 million or $0.21 per
share last year.
1995 Compared to 1994
Revenue decreased approximately 6% in 1995 to $57.0 million from $60.7 million
in 1994 due to decreases in insurance laboratory and kit revenue, partially
offset by increases in healthcare laboratory revenue. Insurance laboratory
revenue declined due to decreases in the volume and price of tests performed.
The total number of insurance applicants tested by LabOne during 1995 decreased
11
10% as compared to 1994. This decline was due to market competition, a
reduction in the total number of life insurance applications written in the
industry, and regulations restricting the use of laboratory testing for
underwriting of medical insurance. Average revenue per applicant declined 5%,
primarily due to a decrease in prices as a result of continued competitive
pressures. During the fourth quarter 1994, LabOne initiated a price
stabilization plan. The purpose of the plan was to increase prices by
promoting service. The initial result of this action was a slight increase in
the average revenue per applicant. However, prices subsequently declined
during 1995. Healthcare revenues were $4.5 million during 1995, as compared to
$0.5 million in 1994.
Cost of sales increased $0.9 million (3%) in 1995 as compared to the prior
year. This increase is due to increases in payroll and outside lab services
related to clinical and substance abuse testing, and LSC expenses. LSC
expenses increased due to the LSC expansion as well as a write-off for closing
nonperforming locations. These were partially offset by decreases in Lab One
Canada expenses due to closing the laboratory in 1994. Lab One Canada
continues to market testing services with laboratory testing performed in the
United States. Healthcare costs of sales expenses were $8.6 million during
1995, as compared to $4.0 million in 1994.
In September 1995, LabOne reduced staff by 7% resulting in additional expenses
of $0.5 million. The work force reduction was considered necessary to improve
the cost structure of its insurance testing operations.
As a result of the above factors, gross profit decreased from $31.7 million in
1994 to $27.1 million in 1995.
Selling, general and administrative expenses decreased $0.1 million in 1995 as
compared to the prior year, primarily due to expenses related to the one-time
restructuring charge of $1.6 million incurred in 1994. Depreciation and
maintenance expenses also declined in 1995. These declines were partially
offset by increases in commission, bad debt and third party billing expenses.
Healthcare overhead expenses were $5.8 million during 1995, as compared to
$3.1 million in 1994.
Operating income fell from $6.9 million in 1994 to $2.4 million in 1995. The
$4.5 million reduction is primarily attributable to a $1.3 million decrease in
the insurance segment operating income and a $3.3 million increase in the
healthcare segment operating loss.
Non operating income increased $0.7 million due to an increase in investment
income, partially offset by an increase in other expenses.
The effective income tax rate increased from 33.4% during 1994 to 41.1% in
1995 due primarily to a 1994 tax adjustment related to the closure of the
HORL(UK) operations and a 1995 tax adjustment related to repatriation of
foreign-sourced income.
The combined effect of the above factors resulted in net earnings of $2.8
million, or $0.21 per share, in the year ended December 31, 1995, as compared
to $5.7 million, or $0.43 per share, in the previous year.
12
TRENDS
- ------
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 healthcare 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 applications written in the industry. In addition, the insurance
laboratory testing industry continues to be highly competitive. The primary
focus of the competition has been on pricing. LabOne continues to maintain its
market leadership by providing quality products and services at competitive
prices. Management expects that prices will continue to decline during 1997 due
to competitive pressures. This trend may have a continuing material impact on
earnings from operations.
During June 1996, the FDA approved an oral fluid Western blot test as a
confirmation for the oral fluid HIV-1 antibody test. This allows for the
initial screen and the Western blot confirmation test to be performed on the
same specimen. Due to the lower collection expense associated with oral fluid
collection devices, the potential exists for an expansion of the testing
market. Currently, there are approximately 13.5 million individual life
insurance policies sold in the United States annually. However, laboratory
services are provided on only approximately 4.5 million of these policy
applicants. The noninvasive nature of oral specimen collection allows for
lower cost collection, making testing much more affordable on smaller face
value insurance policies. Conversely, the device also has the potential to
cannibalize part of the existing blood and urine testing market. The net
impact of oral fluid testing cannot be determined at this time.
During 1996, the FDA approved two home-based collection kits for HIV-1
testing. These products allow individuals to confidentially determine their
HIV status prior to applying for insurance. To avoid insuring these high-risk
applicants, the insurance companies may elect to lower the threshold at which
laboratory tests are requested to prevent writing policies on HIV-positive
applicants. Most insurance laboratory testing is performed on policies of
$100,000 or greater, representing about one-third of all policy applicants.
The $25,000 to $99,999 range represents approximately one-quarter of current
insurance policy applicants. The potential exists for a significant expansion
of laboratory testing for lower policy amounts. 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 cannot be determined at this time.
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.
LabOne entered the clinical and SAMHSA-certified substance abuse testing
markets during 1994. The Company continues to add new customers in both
fields. The Company's Lab Card Program covered approximately 1.1 million
lives as of January 1, 1997, including The Guardian Life Insurance Company
13
of America (The Guardian) and Principal Healthcare of Kansas City (Principal).
Additionally, LabOne had a signed backlog of more than 300,000 additional lives
to be covered by the Program.
LIQUIDITY AND CAPITAL RESOURCES
LabOneOs working capital position declined from $44.2 million at December 31,
1995, to $38.8 million at December 31, 1996. This decrease is the result of
dividends paid and capital additions exceeding net cash provided by
operations. Net cash provided by operations during 1996 increased by $1.1
million as compared to 1995, due to the conversion of investments held to
maturity.
During 1996, 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 1996 was $0.72 per share, or $9.4 million. Although
cash dividends paid currently exceed net cash provided by operations, there
are no immediate restrictions that would limit the CompanyOs ability to make
future dividend payments.
During 1996, the Company invested $3.2 million in additional property, plant
and equipment, as compared to $2.9 million in 1995 and $3.4 million in 1994.
Of the amounts spent in 1996, 1995 and 1994, approximately $0.7 million, $1.4
million and $1.8 million, respectively, were for the diversification into the
clinical and substance abuse testing markets. Additional investments in
property, plant and equipment in 1997 are expected to be consistent with the
amount spent in prior years. At December 31, 1996, the Company had a
commitment to purchase certain assets and customer lists of GIB Laboratories,
Inc. (see Note 14 of Notes to Consolidated Financial Statements).
The Company had no short-term borrowings during 1996. 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 and cash
reserves. Total cash and investments at December 31, 1996, were $31.9
million, as compared to $37.6 million at December 31, 1995. Included in
LabOne's investments at year-end are $25.0 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.
In 1995, LabOne was advised by Seafield Capital Corporation (Seafield) that
Seafield had 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 is considering is a merger into LabOne.
Seafield's Board of Directors has also announced that it will consider other
business combination proposals that are presented. LabOne has appointed
a special committee of directors who are not affiliated with Seafield to
consider any merger or other proposal that may be presented to it by Seafield.
There can be no assurance that a merger with Seafield will occur.
14
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 8, 1997, 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, 1996, and 1995
Consolidated Statements of Earnings, Years Ended
December 31, 1996, 1995, and 1994
Consolidated Statements of Stockholders' Equity,
Years Ended December 31, 1996, 1995, and 1994
Consolidated Statements of Cash Flows, Years Ended
December 31, 1996, 1995, and 1994
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 December 5, 1996, was filed with the
commission reporting under Other Events the agreement with GIB Laboratories,
Inc., a subsidiary of Prudential Insurance Company of America, to acquire
selected assets, including customer lists. Concurrently, Prudential's
Individual Insurance Group agreed to use LabOne as its exclusive provider of
risk assessment testing services.
16
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.
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 Amendment to paragraph 3 of the Registrant's Long
Term Incentive Plan - attached as Exhibit (10.4) to
the Registrant's Form 10-K Annual Report dated
March 21, 1996.**
10.5* Registrant's Stock Plan for nonemployee directors -
attached as Exhibit (A) to the Registrant's Proxy
Statement dated April 10, 1992. ***
10.6 Registrant's Annual Incentive Plan. ** 42
10.7* 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.
10.8* 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.
10.9 Amendment to Services Agreement, dated September 15, 1995,
between the Registrant and Business Men's Assurance
Company of America attached as Exhibit (10.9) to the
Registrant's Form 10-K Annual Report dated March 21, 1996
17
Page
----
10.10* 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. **
10.11 Amended Employment Agreement between the Registrant
and Robert D. Thompson - attached as Exhibit (10.11) to
the Registrant's Form 10-K Annual Report dated
March 21,1996. **
10.12* 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. **
10.13 Amendment to Employment Agreement between the
Registrant and Gregg R. Sadler - attached as
Exhibit (10.13) to the Registrant's Form 10-K
Annual Report dated March 21, 1996. **
10.14 Employment Agreement between the Registrant and
Thomas J. Hespe - attached as Exhibit (10.14) to
the Registrant's Form 10-K Annual Report dated
March 21, 1996. **
10.15* Amended Employment Agreement between the Registrant 43
and Carl W. Ludvigsen, Jr. dated November 15,1996. **
10.16* Employment Agreement between the Registrant and
Robert F. Thompson - attached as Exhibit (10.17)
to the Registrant's Form 10-K Annual Report dated
March 23, 1995. **
10.17* Form of Amendment to Employment Agreement between
the Registrant and Robert F. Thompson - attached as
Exhibit (10.18) to the Registrant's Form 10-K Annual
Report dated March 23, 1995. **
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 54
accountants' consent.
24. Powers of Attorney. 55
27. Financial Data Schedule - as submitted electronically by
the Registrant in conjunction with this 1996 Form 10-K.
99. Proxy Statement for Annual Shareholders Meeting to be
held May 9, 1997 - 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, CFO Title: V.P. Finance and CAO
and Treasurer
Date: March 7, 1997 Date: March 7, 1997
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 7, 1997 in the capacities indicated.
By: /s/ W. Thomas Grant II By: /s/ Robert D. Thompson
---------------------- ----------------------
W. Thomas Grant II Robert D. Thompson
Title: Chairman of the Board, Title: Executive V.P. Finance,
President and Chief Executive CFO and Treasurer
Officer
By: /s/ Gregg R. Sadler By: /s/ Thomas J. Hespe
------------------- -------------------
Gregg R. Sadler Thomas J. Hespe
Title: Executive V.P. Administration, Title: Executive V.P. Sales and
Secretary and Director Marketing and Director
By: /s/ Kurt E. Gruenbacher By: */s/ William D. Grant
----------------------- ---------------------
Kurt E. Gruenbacher William D. Grant
Title: V.P. Finance and CAO Title: Director
By: */s/ P. Anthony Jacobs By: */s/ John E. Walker
---------------------- -------------------
P. Anthony Jacobs John E. Walker
Title: Director Title: Director
By: */s/ James R. Seward By: */s/ R. Dennis Wright
-------------------- ---------------------
James R. Seward R. Dennis Wright
Title: Director Title: Director
By: */s/ Richard S. Schweiker By: */s/ Joseph H. Brewer
------------------------- ---------------------
Richard S. Schweiker Joseph H. Brewer
Title: Director Title: Director
By: */s/ Richard A. Rifkind *By: /s/ Gregg R. Sadler
----------------------- -------------------
Richard A. Rifkind Gregg R. Sadler
Title: Director Attorney-in-fact
20
LABONE, INC. AND SUBSIDIARIES
Consolidated Financial Statements and Schedules
December 31, 1996, 1995 and 1994
(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, 1996 and 1995 24
Consolidated Statements of Earnings, Years ended
December 31, 1996, 1993 and 1994 26
Consolidated Statements of Stockholders' Equity,
Years ended December 31, 1996, 1995 and 1994 27
Consolidated Statements of Cash Flows, Years ended
December 31, 1996, 1995 and 1994 28
Notes to Consolidated Financial Statements 29
SCHEDULE:
Schedule II - Valuation and Qualifying Accounts 41
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, 1996 and 1995 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, 1996.
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, 1996 and 1995, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/KPMG Peat Marwick LLP
Kansas City, Missouri
January 31, 1997
23
LABONE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
Assets 1996 1995
------ ---------- ----------
Current assets:
Cash and cash equivalents $ 3,613,454 2,993,128
Short-term investments (note 11) 27,781,974 34,111,752
Accounts receivable-trade, net of allowance
for doubtful accounts of $657,558 in 1996
and $329,995 in 1995 9,598,707 7,727,286
Inventories 1,360,164 1,533,257
Prepaid expenses and other current assets 2,074,538 2,883,127
Deferred income taxes 682,206 167,586
---------- ----------
Total current assets 45,111,043 49,416,136
---------- ----------
Investments with maturities of more than one
year, at cost (note 11) 504,292 506,441
---------- ----------
Property, plant and equipment:
Land 1,495,833 1,540,807
Building 11,978,641 11,940,493
Laboratory equipment 17,092,316 17,134,151
Data processing equipment and software 16,966,467 16,347,813
Office and transportation equipment 4,110,435 4,992,257
Leasehold improvements 998,805 1,018,126
---------- ----------
52,642,497 52,973,647
Less accumulated depreciation 35,751,529 35,885,928
---------- ----------
Net property, plant and equipment 16,890,968 17,087,719
---------- ----------
Other assets:
Intangible assets, net of accumulated
amortization (note 2) 2,098,987 2,844,257
Deferred income taxes-noncurrent (note 3) 114,683 152,520
Deposits and other assets 23,202 40,761
---------- ----------
$ 64,743,175 70,047,834
========== ==========
24
LABONE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
Liabilities and Stockholders' Equity 1996 1995
------------------------------------ ---------- ----------
Current liabilities:
Accounts payable $ 2,971,376 2,108,376
Income taxes payable - 50,560
Payable to Seafield Capital Corporation (note 8) 26,217 75,223
Accrued payroll and benefits 2,802,566 1,972,475
Other accrued expenses 393,811 902,297
Other current liabilities 99,912 74,574
---------- ----------
Total current liabilities 6,293,882 5,183,505
---------- ----------
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 13,546,121 13,377,728
Equity adjustment from foreign currency
translation (543,959) (545,818)
Retained earnings 67,494,437 74,040,870
---------- ----------
80,646,599 87,022,780
Less treasury stock of 1,915,835 shares in
1996 and 1,945,984 shares in 1995, at cost 22,197,306 22,158,451
---------- ----------
Total stockholders' equity 58,449,293 64,864,329
---------- ----------
$ 64,743,175 70,047,834
Total Liabilities and Stockholders' Equity ========== ==========
See accompanying notes to consolidated financial statements.
25
LABONE, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
---------- ---------- ----------
Sales $ 59,431,855 57,029,424 60,725,982
Cost of sales 32,716,833 29,934,033 29,072,508
---------- ---------- ----------
Gross profit 26,715,022 27,095,391 31,653,474
Selling, general and administrative
expenses (notes 8 and 9) 23,466,958 24,710,709 24,760,918
---------- ---------- ----------
Earnings from operations 3,248,064 2,384,682 6,892,556
---------- ---------- ----------
Other income (expenses):
Investment income 1,769,182 2,565,463 1,328,493
Other income (expense), net 14,930 (3,144) 371,749
Gain (loss) on disposal of equipment (155,587) (196,827) (59,778)
---------- ---------- ----------
Total other income (expenses) 1,628,525 2,365,492 1,640,464
---------- ---------- ----------
Earnings before income taxes 4,876,589 4,750,174 8,533,020
---------- ---------- ----------
Income taxes (note 3):
Current 2,485,473 1,259,416 4,043,568
Deferred (476,783) 693,703 (1,197,676)
---------- ---------- ----------
Total income taxes 2,008,690 1,953,119 2,845,892
---------- ---------- ----------
Net earnings $ 2,867,899 2,797,055 5,687,128
========== ========== ==========
Earnings per common share $ .22 .21 .43
==== ==== ====
Weighted average common shares
and common share equivalents
outstanding 13,266,116 13,133,861 13,276,590
========== ========== ==========
See accompanying notes to consolidated financial statements.
26
<TABLE>
LABONE, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1996, 1995 and 1994
<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, 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 ($.72 per share) - - - (9,352,991) - (9,352,991)
Adjustment from foreign
currency translation - - (258,685) - - (258,685)
Net issuance of 81,590 shares
of treasury stock - 608,367 - - (211,116) 397,251
-------- ---------- --------- ---------- ---------- ----------
Balance at December 31, 1994 150,000 13,347,455 (683,383) 80,639,340 (22,216,779) 71,236,633
Net earnings - - - 2,797,055 - 2,797,055
Cash dividends ($.72 per share) - - - (9,395,525) - (9,395,525)
Adjustment from foreign
currency translation - - 137,565 - - 137,565
Net issuance of 12,004 shares
of treasury stock - 30,273 - - 58,328 88,601
-------- ---------- --------- ---------- ---------- ----------
Balance at December 31, 1995 $150,000 13,377,728 (545,818) 74,040,870 (22,158,451) 64,864,329
Net earnings - - - 2,867,899 - 2,867,899
Cash dividends ($.72 per share) - - - (9,414,332) - (9,414,332)
Adjustment from foreign
currency translation - - 1,859 - - 1,859
Net issuance of 30,149 shares
of treasury stock - 168,393 - - (38,855) 129,538
-------- ---------- --------- ---------- ---------- ----------
Balance at December 31, 1996 $150,000 13,546,121 (543,959) 67,494,437 (22,197,306) 58,449,293
======== ========== ========= ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
27
<TABLE> <CAPTION> LABONE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
<S> <C> <C> <C>
1996 1995 1994
Cash provided by operations: ---------- ---------- ----------
Net earnings $ 2,867,899 2,797,055 5,687,128
Adjustments to reconcile net earnings to net
cash provided by operations:
Depreciation and amortization 3,911,157 4,191,435 6,620,930
Deferred income taxes (476,783) 693,703 (1,197,676)
(Gain) loss on disposal of equipment 155,587 196,827 59,778
Directors' stock compensation 62,096 77,890 72,807
Change in short term trading securities, net (1,218,633) (3,446,170) (13,686,663)
Changes in:
Accounts receivable (1,871,421) 909,324 (577,791)
Inventories 173,093 (745,918) (3,271)
Prepaid expenses and other current assets 808,589 124,399 21,199
Accounts payable 863,000 83,804 (50,150)
Income taxes payable (50,560) (80,508) 37,943
Payable to Seafield Capital Corporation (49,006) (38,352) 113,575
Accrued payroll and benefits 830,091 57,018 (399,092)
Accrued expenses (508,486) (398,040) 569,709
Other current liabilities 25,338 8,436 (632,381)
---------- ---------- ----------
Net cash provided by (used for) operations 5,521,961 4,430,903 (3,363,955)
---------- ---------- ----------
Cash provided by (used for) investment transactions:
Purchases of investments held to maturity (15,752,895) (65,568,743) (79,501,640)
Proceeds from maturities of investments held to maturity 23,394,571 69,459,252 90,601,588
Property, plant and equipment additions, net (3,225,956) (2,860,612) (3,399,579)
other 17,559 7,299 252,430
---------- ---------- ----------
Net cash provided by investment transactions 4,433,279 1,037,196 7,952,799
---------- ---------- ----------
Cash provided by (used for) financing transactions:
Proceeds from exercise of stock options 67,442 10,711 324,444
Cash dividends (9,414,332) (9,395,525) (9,352,991)
---------- ---------- ----------
Net cash used for financing activities (9,346,890) (9,384,814) (9,028,547)
---------- ---------- ----------
Effect of foreign currency translation 11,976 21,037 (185,891)
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 620,326 (3,895,678) (4,625,594)
Cash and cash equivalents at beginning of year 2,993,128 6,888,806 11,514,400
---------- ---------- ----------
Cash and cash equivalents at end of year $ 3,613,454 2,993,128 6,888,806
========== ========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ - - 685
========== ========== ==========
Income taxes $ 2,251,320 1,570,574 3,660,955
========== ========== ==========
See accompanying notes to consolidated financial statements.
28
</TABLE>
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(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,
Lab One Canada Inc., and, prior to its disposal in 1994, its wholly-owned United
Kingdom subsidiary, HORL(UK) Limited. All significant intercompany
transactions have been eliminated in consolidation. LabOne was 82%-owned by
Seafield Capital Corporation (Seafield) at December 31, 1996.
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 healthcare (clinical and substance
abuse)industry.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents include demand deposits in banks, marketable
securities with original maturities of three months or less and overnight
investments that are stated at cost, which approximates market value.
Investment Securities
- ---------------------
LabOne determines the appropriate classification of debt and equity securities
at the time of purchase. 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 amortized 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 and various
materials used in the assembly of specimen collection kits for sale to
clients. 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 3-5 years
Data processing equipment 3-5 years
Office equipment 5 years
Leasehold improvements 30 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).
The excess of cost over fair value of assets acquired is being amortized
on a straight-line basis over a period of twenty years.
Impairment of Long-lived Assets
- -------------------------------
When facts and circumstances indicate potential impairment, LabOne evaluates
the recoverability of asset carrying values of long-lived assets, including
intangibles, using estimates of undiscounted future cash flows over remaining
asset lives. When impairment is indicated, any impairment loss is measured by
the excess of carrying values over fair values.
Use of Estimates in the Preparation of Financial Statements
- -----------------------------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Income Taxes
- ------------
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.
30
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
(2) INTANGIBLE ASSETS
-----------------
The cost and accumulated amortization of intangible assets at December 31,
1996 and 1995 are as follows:
1996 1995
--------- ---------
Patent $ 8,000,000 8,000,000
Accumulated amortization 7,260,838 6,739,102
--------- ---------
739,162 1,260,898
--------- ---------
Excess of cost over fair value of assets acquired 4,470,684 4,470,684
Accumulated amortization 3,110,859 2,887,325
--------- ---------
1,359,825 1,583,359
--------- ---------
Intangible assets, net of accumulated
amortization $ 2,098,987 2,844,257
========= =========
(3) INCOME TAXES
------------
The components of income taxes and deferred taxes applicable to temporary
differences are as follows (for the years ended December 31):
1996 1995 1994
---------- --------- ---------
Current:
Federal $ 1,878,022 1,007,007 2,728,116
State 347,809 66,852 546,264
Foreign 259,642 185,557 769,188
---------- --------- ---------
2,485,473 1,259,416 4,043,568
---------- --------- ---------
Deferred:
Federal (490,408) 475,021 (846,527)
State (118,293) 124,499 (146,539)
Foreign 131,918 94,183 (204,610)
---------- --------- ---------
(476,783) 693,703 (1,197,676)
---------- --------- ---------
$ 2,008,690 1,953,119 2,845,892
========== ========= =========
31
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Total income taxes differ from the amounts computed by applying the statutory
income tax rate of 34% to earnings before income taxes for the following reasons
(for the years ended December 31):
1996 1995 1994
---------- --------- ---------
Application of statutory income
tax rate $ 1,658,040 1,615,059 2,901,227
Foreign taxes, net 113,803 84,472 189,456
Write-off of investment in
UK subsidiary - - (193,229)
State income taxes, net 151,481 126,292 263,819
Repatriation of foreign source
income - 193,229
Tax-exempt interest (44,708) (137,099) (245,069)
Other, net 130,074 71,166 (70,312)
---------- --------- ---------
$ 2,008,690 1,953,119 2,845,892
========== ========= =========
The tax effects of temporary differences that create significant portions of
the deferred tax assets and deferred tax liabilities at December 31, 1996
and 1995 are presented below:
1996 1995
--------- ---------
Current income tax assets:
Repatriation of foreign source income $ - (220,798)
Accrued vacation 301,631 272,210
Accrued medical claims 63,643 62,162
Bad debts 260,968 31,081
Other accruals 656 2,738
Inventory adjustment 20,183 12,685
Other items 35,125 7,508
--------- ---------
Total current income tax assets $ 682,206 167,586
========= =========
Deferred noncurrent tax assets
(liabilities):
Depreciation and amortization $ 111,405 262,515
Other items 3,278 (109,995)
--------- ---------
Total deferred tax assets $ 114,683 152,520
========= =========
A valuation allowance for deferred tax assets was not necessary at December
31, 1996 or 1995.
32
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(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 plus an additional 5.7% of the amounts in excess of the annual
maximum wage base. Participants become 100% vested after five plan 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. LabOne's contributions to the plan were $1,260,000, $1,187,000
and $1,008,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
LabOne has a profit sharing plan for all employees who have completed six
months of service and a minimum of 500 hours of service and have attained the
age of twenty and one-half years. 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 plan 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 LabOne common stock or
various investment instruments. LabOne contributions are invested in LabOne
common stock. LabOne's contributions to the plan for the years ended December
31, 1996, 1995 and 1994 were $509,000, $488,000 and $446,000, respectively.
(5) STOCK OPTIONS
-------------
LabOne has a long-term incentive plan which provides for granting awards,
including stock options, for not more than 2,150,000 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.
33
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company accounts for stock options in accordance with the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations (APB 25). As such, compensation
expense is recorded on the date of grant only if the current market price of
the underlying stock exceeds the exercise price. On December 31, 1995, the
Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation," (FAS 123) which permits entities to
recognize as expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternately, FAS 123 allows entities to continue
to apply the provisions of APB 25 and provide pro forma net earnings and pro
forma earnings per share disclosures for employee stock option grants made in
1995 and future years as if the fair-value-based method defined in FAS 123 had
been applied. The Company has elected to continue to apply the provisions of
APB 25 and provide the pro forma disclosure provisions of FAS 123.
<TABLE>
A summary of the status of the Company's stock option plan as of December 31,
1996, 1995, and 1994 and changes during the years then ended is presented
below:
<CAPTION> 1996 1995 1994
--------------------- --------------------- ---------------------
Weighted- Weighted- Weighted-
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
Fixed Options Shares Price Shares Price Shares Price
------------- --------- ---------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 1,572,167 $13.07 1,317,068 $13.74 1,370,606 $12.07
Granted 314,297 16.39 497,000 12.44 292,259 20.52
Exercised (120,305) 10.67 (43,511) 10.82 (220,055) 10.54
Forfeited (306,600) 14.74 (198,390) 16.41 (125,742) 13.51
-------- --------- ---------
Outstanding at end of year 1,459,559 13.63 1,572,167 13.07 1,317,068 13.74
========= ========= =========
Options exerciseable at
year-end 718,705 881,696 715,553
The following table summarizes information about stock options at December 31,1996.
<CAPTION> Options Outstanding Options Exercisable
---------------------------- -------------------------
Weighted-
average Weighted- Weighted-
remaining average average
Range of Number contractual exercise Number exercise
exercise prices outstanding life (years) price Exercisable price
--------------- ----------- ------------ ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 9.87- 9.87 249,223 4.0 $ 9.87 249,223 $ 9.87
11.12-11.62 471,180 6.9 11.43 248,380 11.25
13.37-14.12 167,797 8.3 13.93 29,100 14.02
14.37-15.87 180,000 7.0 14.70 139,200 14.45
16.62-16.62 235,000 9.9 16.62 - -
17.12-23.87 156,359 7.8 20.20 52,802 20.87
----------- --- ----- ------ -----
9.87-23.87 1,459,559 7.2 13.63 718,705 12.21
=========== === =======
</TABLE>
34
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The weighted-average per share fair value of stock options granted during 1996
and 1995 was $4.77 and $3.18 on the date of grant using the Black Scholes
option-pricing model with the following weighted average assumptions: 1996-
expected dividend yield of 4.4%, risk-free interest rate of 6.0%, expected
volatility factor of 36.6% and an expected life of six years; 1995-expected
dividend yield of 5.8%, risk-free interest rate of 6.3%, expected volatility
factor of 36.6% and an expected life of six years.
Since the Company applies APB 25 in accounting for its plans, no compensation
cost has been recognized for its stock options in the financial statements.
Had the Company recorded compensation cost based on the fair value at the grant
date for its stock options under FAS 123, the Company's net earnings and
earnings per share would have been reduce by approximately $199,000 or $.02 per
share in 1996 and approximately $73,000 or $.01 per share in 1995.
Pro forma net earnings reflect only options granted in 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock options
under FAS 123 is not reflected in the pro forma net earnings amounts presented
above because compensation costs are reflected over the options' vesting period
of five years for the 1996 and 1995 options. Compensation cost for options
granted prior to January 1, 1995 is not considered.
(6) OTHER COMMITMENTS
-----------------
LabOne has several noncancelable operating leases, primarily for land and
buildings, and other commitments that expire through 2000. Rental expense for
these operating leases during 1996, 1995 and 1994 amounted to $813,000,
$861,000 and $803,000, respectively.
Future minimum lease payments and other commitments under these agreements as
of December 31, 1996, are:
Year Amount
---- ---------
1997 $ 529,094
1998 220,868
1999 58,968
2000 4,070
35
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) FOREIGN OPERATIONS
------------------
The following summarizes financial information for LabOne's wholly-owned
Canadian subsidiary, Lab One Canada Inc., for the years ended December 31:
1996 1995 1994
---------- ---------- ----------
Revenues $ 6,379,505 6,223,939 7,676,929
Operating earnings 718,567 289,223 1,118,895
Total assets 2,668,434 5,747,329 5,494,958
(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:
Under a Services Agreement among Seafield, LabOne, BMA and Generali, which
became effective July 31, 1990, and later replaced with service agreements
dated January 1, 1993, 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 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 a percentage of LabOne's sales equal to 0.20% 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 $50,000 for the years ended December 31,
1994 and 1993, and $25,000 per year thereafter.
The agreements were effective until December 31, 1993 and are being renewed
automatically for successive one-year terms until terminated.
Allocated expenses from Seafield, including charges under the Services
Agreement, for the years ended and the amounts payable at December 31 are as
follows:
1996 1995 1994
------- ------- -------
Allocated expenses for the year $ 111,846 108,787 113,575
======= ======= =======
Amount payable at December 31 $ 26,217 108,787 113,575
======= ======= =======
36
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(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, 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, 1996. 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.
(11) INVESTMENT SECURITIES
---------------------
<TABLE>
A summary of investment securities information relating to quoted market values and unrealized
holding gains and losses at December 31, 1996 and 1995, is as follows:
<CAPTION>
1996
------------------------------------------------------------------
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>
Trading Securities:
Vanguard Short-term U.S.
Treasury Portfolio $ 23,880,194 23,880,194 23,880,194 - -
Vanguard Municipal Bond
Fund-Money Market 1,153,730 1,153,730 1,153,730 - -
---------- ---------- ---------- -------- ---------
Total Trading Securities 25,033,924 25,033,924 25,033,924 - -
Held-to-Maturity investments:
Canadian government notes 746,042 746,042 746,042 - -
Obligations of states and
political subdivisions 2,002,008 1,996,713 2,002,008 - 5,295
---------- ---------- ---------- -------- ---------
Total Held-to-Maturity
investments 2,748,050 2,742,755 2,748,050 - 5,295
---------- ---------- ---------- -------- ---------
Total short-term
investments $ 27,781,974 27,776,679 27,781,974 - 5,295
========== ========== ========== ======== =========
Maturities more
than one year
------------------
Held-to-maturity investments:
Obligations of states and
political subdivisions $ 504,292 503,500 504,292 - 792
========== ========== ========== ======== =========
37
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<CAPTION> 1995
------------------------------------------------------------------
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>
Trading securities:
Vanguard Admiral Money
Market $ 21,220,587 21,220,587 21,220,587 - -
Vanguard Municipal Bond
Fund-Money Market 2,594,704 2,594,704 2,594,704 - -
---------- ---------- ---------- -------- ---------
Total trading securities 23,815,291 23,815,291 23,815,291 - -
Held-to-maturity investments:
Canadian government notes 3,954,460 3,954,460 3,954,460 - -
Obligations of states and
political subdivisions 6,342,001 6,331,046 6,342,001 - 10,955
---------- ---------- ---------- -------- ---------
Total held-to-maturity
investments 10,296,461 10,285,506 10,296,461 - 10,955
---------- ---------- ---------- -------- ---------
Total short-term
investments $ 34,111,752 34,100,797 34,111,752 - 10,955
========== ========== ========== ======== =========
Maturities more
than one year
------------------
Held-to-maturity investments:
Obligations of states and
political subdivisions $ 506,441 508,750 506,441 2,309 -
========== ========== ========== ======== =========
</TABLE>
(12) Business Segment Information
----------------------------
The company operates principally in two lines of business, insurance and,
since 1994, healthcare. The insurance line of business involves 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 healthcare line of business involves clinical and substance
abuse testing services. Clinical testing services are provided to the
healthcare industry to aid in the diagnosis and treatment of patients.
Substance abuse testing services are provided to both regulated and
nonregulated employers who employ drug screening guidelines.
38
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Operating income (loss) of each line of business is computed as sales less
identifiable and allocated expenses. In computing operating income (loss)
of lines of business, none of the following items have been added or deducted:
general corporate expenses, investment income or other income (expenses).
Identifiable assets by line of business are those assets that are used in
the Company's operations in each line of business. General corporate assets
are principally cash and investment securities.
Following is a summary of line of business information as of and for the
years ended December 31, 1996, 1995 and 1994:
1996 1995 1994
---------- ---------- ----------
Sales:
Insurance $ 50,800,650 52,544,434 60,259,528
Healthcare 8,631,205 4,484,990 466,454
---------- ---------- ----------
Total sales $ 59,431,855 57,029,424 60,725,982
========== ========== ==========
Operating income (loss):
Insurance $ 12,610,224 12,412,226 13,697,382
Healthcare (9,203,330) (9,858,308) (6,631,257)
General corporate expenses (158,830) (169,236) (173,569)
Investment income 1,769,182 2,565,463 1,328,493
Other income (expense) (140,657) (199,971) 311,971
---------- ---------- ----------
Earning before income taxes 4,876,589 4,750,174 8,533,020
Income taxes 2,008,690 1,953,119 2,845,892
---------- ---------- ----------
Net earnings $ 2,867,899 2,797,055 5,687,128
========== ========== ==========
Identifiable assets:
Insurance $ 24,327,970 25,028,933 28,991,339
Healthcare 7,345,504 6,598,266 4,226,000
General corporate assets 33,069,701 38,420,635 43,540,441
---------- ---------- ----------
Total assets $ 64,743,175 70,047,834 76,757,780
========== ========== ==========
Capital expenditures:
Insurance $ 2,558,275 1,416,044 1,597,367
========== ========== =========
Healthcare $ 667,681 1,444,568 1,802,212
========== ========== =========
Depreciation and amortization:
Insurance $ 2,401,325 3,152,595 5,650,001
========== ========== =========
Healthcare $ 1,509,832 1,392,738 653,660
========== ========== =========
39
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(13) QUARTERLY FINANCIAL DATA (UNAUDITED)
------------------------------------
A summary of unaudited quarterly results of operations for 1996 and 1995 is as
follows (in thousands except per share data):
Three months ended
March 31 June 30 September 30 December 31
1996: ------- ------- ------- -------
Sales $ 13,278 14,768 14,769 16,617
====== ====== ====== ======
Gross profit $ 5,801 6,884 6,465 7,565
====== ====== ====== ======
Earnings before income taxes $ 387 1,475 1,223 1,792
====== ====== ====== ======
Net earnings $ 219 785 815 1,049
====== ====== ====== ======
Earnings per share $ 0.02 0.06 0.06 0.08
====== ====== ====== ======
Dividends per share $ 0.18 0.18 0.18 0.18
====== ====== ====== ======
1995:
Sales $ 14,689 14,623 13,656 14,061
====== ====== ====== ======
Gross profit $ 7,187 7,115 6,217 6,576
====== ====== ====== ======
Earnings before income taxes $ 1,811 1,629 403 907
====== ====== ====== ======
Net earnings $ 1,171 1,001 270 356
====== ====== ====== ======
Earnings per share $ 0.09 0.08 0.02 0.03
====== ====== ====== ======
Dividends per share $ 0.18 0.18 0.18 0.18
====== ====== ====== ======
(14) Subsequent Event
----------------
On January 30, 1997, LabOne completed its acquisition of certain asset,
including customer lists, of Gib Laboratories, Inc., a subsidiary of Prudential
Insurance Company of America, for $4.6 million. Concurrently, Prudential's
Individual Insurance Group has made a multi-year commitment to use LabOne as
its exclusive provider of risk assessment testing services.
40
Schedule II
-----------
LABONE, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1996, 1995 and 1994
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, 1996 $329,995 493,760 166,197 657,558
======= ======= ======= =======
Year ended
December 31, 1995 $ 81,426 432,911 184,342 329,995
======= ======= ======= =======
Year ended
December 31, 1994 $ 81,700 22,403 22,677 81,426
======= ======= ======= =======
41
Exhibit 10.6
------------
LabOne Annual Incentive Plan
----------------------------
The Annual Incentive Plan is designed to motivate and reward the
accomplishment of targeted operating results. Prior to the beginning of
each fiscal year, the Committee establishes an earnings per share goal
under the Plan based upon the Committee's judgment of reasonable earnings
per share growth over the previous fiscal year. The size of the
incentive pool increases pursuant to a formula established by the Committee
as net earnings increase over the minimum threshold. The incentive pool is
distributed in cash ratably to designated officers and managers at year end
according to a pre-established weighting. The weighting is based upon
senior management's subjective evaluations of each individual's potential
contribution to the Company's financial and strategic goals for the year,
and is reviewed and approved by the Committee.
42
Exhibit 10.15
-------------
AMENDED EMPLOYMENT AGREEMENT
----------------------------
THIS AMENDED EMPLOYMENT AGREEMENT ("Agreement"), made and entered into
as of November 15, 1996, by and between LabOne, Inc., with offices in Lenexa,
Kansas (hereinafter referred to as "LabOne"), and Carl W. Ludvigsen, Jr.,
a resident of the State of Kansas (hereinafter referred to as "Officer");
WITNESSETH:
WHEREAS, Officer and LabOne are presently parties to an Employment
Agreement, dated August 15, 1993 ("Employment Agreement"); and
WHEREAS, the parties desire to amend and restate said Employment
Agreement in its entirety;
NOW, THEREFORE, in consideration of the employment of Officer by
LabOne for the term of this Agreement 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 Employment Agreement is hereby amended
and restated in its entirety to read as follows:
SECTION I
EMPLOYMENT AND TERM
1.1 Employment. LabOne hereby employs Officer and Officer hereby
accepts such employment and agrees to perform the duties described in
Section 2 of this Agreement.
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 of Control.
Notwithstanding any other provision of this Agreement to the contrary, in
the event that (i) a Change of Control of LabOne, as defined below, shall
occur at any time during which Officer is in the full-time employment of
LabOne or its successor and (ii) within one (1) year after such a Change
of Control, Officer's employment with LabOne or its successor is terminated
by LabOne 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, LabOne will promptly pay to Officer
(A) the installments of his base salary through the date of termination
of employment, (B) any annual incentive bonus for the previous year if such
has been approved but not paid, and (C) a lump sum severance payment equal
to three (3) times the sum of (x) Officer's Average Annual Base Salary, as
defined below, and (y) Officer's Average Annual Incentive Bonus, as defined
below, and upon such payment any remaining term of this Agreement shall be
-43-
cancelled. 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):
(i) A "Change of Control" shall be deemed to have taken place
if there shall have occurred (A) a sale of 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 LabOne 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 LabOne, (B) a merger
or consolidation of LabOne with or into any entity other than Seafield
Capital Corporation or its affiliates, or (C) a sale or other transfer of
substantially all of the assets of LabOne to any person or entity other
than Seafield Capital Corporation or its affiliates;
(ii) "Officer's Average Annual Base Salary" shall equal the
average annual base salary paid to Officer by LabOne during the five
fiscal years immediately prior to the fiscal year in which the Change of
Control occurs, or if Officer was not an employee of LabOne for the full
five year period, during such portion of the five year period that Officer
was employed by LabOne; and
(iii) "Officer's Average Annual Incentive Bonus" shall equal
the average annual incentive bonus paid to Officer by LabOne with respect
to the five fiscal years immediately prior to the fiscal year in which
the Change of Control occurs, or if Officer was not an employee of LabOne
for the full five year period, during such portion of the five year period
that Officer was employed by LabOne.
The payments to Officer under this Section and the arrangements
provided for by any stock option or other agreement between LabOne and
Officer in effect at the time and by any other applicable plan of LabOne
will constitute the entire obligation of LabOne 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 LabOne
or any of its employees on account of such termination.
(c) Annual Extension. Commencing on the first anniversary
of this Agreement and on each succeeding anniversary thereafter, unless
LabOne 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 an additional
twelve (12) months to a date two (2) years from such anniversary, on the
same terms and conditions as are set forth herein. If LabOne elects not
to extend Officer's employment under this Agreement as provided in the
-44-
preceding sentence, it shall do so by notifying Officer in writing within
six (6) months prior to the applicable anniversary date of this Agreement.
If LabOne 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 LabOne 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 LabOne in the capacities
of Executive Vice President-New Business Development and Chief Pathologist.
Officer shall be responsible for performing the duties generally required
of such positions and such other duties in relation to LabOne 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.
2.4 Indemnification and D & 0 Insurance. LabOne shall provide
to Officer coverage under LabOne, Inc.'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 LabOne.
SECTION 3
BASE SALARY
3.1 Annual Base Salary. LabOne shall pay Officer, and Officer
shall accept from LabOne in full payment for Officer's full time services
hereunder, compensation at the rate of Two Hundred Thirty Two Thousand
Nine Hundred Dollars ($232,900) per annum, 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 LabOne and will be subject to such increases, but not decreases, as the
Board of Directors of LabOne may determine, having due regard for the
efforts of Officer and the results, both financial and otherwise, of
LabOne's operations during Officer's tenure.
-45-
3.2 Reimbursement of Expenses. LabOne 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. LabOne 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 LabOne in relation to pre-determined financial goals established by the
compensation Committee of the Board of Directors of LabOne. Bonuses for
less than a full year of service may be granted at the discretion of the
Compensation Committee.
4.2 Other Fringe Benefits. Officer shall be entitled to an
annual vacation consistent with LabOne's vacation policies for similar
executive officers and to participate in such fringe benefit programs as
LabOne 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
LabOne.
SECTION 5
NON-COMPETITION
5.1 Restrictive Covenants. In consideration for Officer's
employment with LabOne and in further consideration for the compensation
provided for in Sections 1, 3 and 4 hereof and the post-termination
payment, if any, provided for in Section 9(e) hereof, Officer agrees
that during the term of employment pursuant to this Agreement, and for
a period of two (2) years after the termination for any reason of employment
pursuant to this Agreement, Officer will not, without the prior written
consent of LabOne, 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, partner, member or otherwise:
(a) solicit, accept, divert or service, or attempt to
solicit, accept, divert or service, any business similar to the type
and character or business then engaged in by LabOne from any person,
corporation or other entity who was as of the date of the termination
of Officer's employment a customer of LabOne,
-46-
(b) solicit, induce or encourage any employee, contractor or
agent of LabOne to terminate employment or other relationship with
LabOne or to compete with LabOne in any manner, or
(c) compete with LabOne in the clinical or insurance laboratory
testing businesses or any other businesses of LabOne at the date of
termination of Officer's employment.
It is understood and agreed that Section 5.1(c) shall apply only with
respect to the following geographic area: All territory in which LabOne
or its representatives or agents, as of the date of the termination of
Officer's employment pursuant hereto, sells or offers for sale LabOne's
products or services.
5.2 Injunctive Relief. LabOne 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 LabOne 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 LabOne 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
LabOne.
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, proprietary information and confidential information
heretofore or hereafter acquired by Officer concerning LabOne, 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,
-47-
(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 LabOne
to Officer is in the public domain; or
(ii) information which at the time of disclosure by LabOne
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
INVENTIONS
7.1 All inventions, products, discoveries, improvements, processes,
manufacturing, marketing and service methods and techniques, formulae,
design, styles, specifications, data bases, computer programs (whether
in source code or object code), know-how, strategies and data, whether
or not patentable or registerable under copyright or similar statutes,
made, developed or created by Officer (whether or not at the request or
suggestion of LabOne, alone or in conjunction with others, and whether
during regular hours at work or otherwise) during Officer's period of
employment with LabOne (collectively, "Inventions") , shall be promptly
and fully disclosed by Officer to an appropriate executive officer of
LabOne. Officer hereby assigns, transfers and conveys to LabOne all
rights in and to all Inventions as its exclusive property. Officer
shall give evidence and promptly execute and/or deliver to an
appropriate executive officer of LabOne, without any additional
compensation therefor, all papers, drawings, models, programs, data,
documents and other material:
(a) pertaining to or in any way relating to or evidencing
any Inventions, or
(b) necessary or desirable to document such transfer, or to
enable LabOne 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 Inventions, or to obtain any
extension, validation, reissue continuance or renewal of any such
patent, trademark or copyright.
LabOne 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
Officer in compliance with the provisions of this Section. OFFICER IS
HEREBY NOTIFIED THAT the provisions of this Section 7.1 shall not apply
-48-
to an Invention for which no equipment, supplies, facility or trade
secret information of LabOne was used and which was developed entirely
on Officer's own time, unless:
(i) the Invention relates directly to the business of
LabOne or to its actual or demonstratively anticipated research or
development, or
(ii) the Invention results from any work performed by
Officer for LabOne.
SECTION 8
PROPERTY OF LABONE
8.1 All correspondence, notes, recordings, documents and other
materials and reproductions thereof pertaining to any aspect of the
business of LabOne shall be the property of and shall be delivered to
and retained by LabOne 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:
(a) Death. In the event that Officer dies during the term of
this Agreement, LabOne 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
LabOne and Officer in effect at the time and by any other applicable plan
of LabOne will constitute the entire obligation of LabOne 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 LabOne 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 LabOne, and such payments, together with the arrangements provided
for by and stock option or other agreement between LabOne and Officer in
effect at the time and by any other applicable plan of LabOne will
constitute the entire obligation of LabOne to Officer and will also
-49-
constitute full settlement of any claim under law or in equity that
Officer might otherwise assert against LabOne, 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 LabOne and to accept
LabOne'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 LabOne. In the event Officer voluntarily terminates
his employment, LabOne 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 LabOne and Officer in
effect at the time and by any other applicable plan of LabOne will
constitute the entire obligation of LabOne to Officer and will also
constitute full settlement of any claim under law or in equity that
Officer might otherwise assert against LabOne or any of its employees
on account of his termination.
(d) Termination for Cause. Officer's employment may be
terminated by LabOne at any time for cause. In the event that Officer
is terminated by LabOne for cause, LabOne 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 LabOne and Officer in effect
at the time and by any other applicable plan of LabOne will constitute
the entire obligation of LabOne to Officer and will also constitute full
settlement of any claim under law or in equity that Officer might
otherwise assert against LabOne 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 LabOne (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 LabOne
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
LabOne; or (iii) Officer's conviction of having committed a felony.
Notwithstanding the foregoing, Officer shall not be deemed to have been
terminated by LabOne 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 LabOne finding that, in the -good faith opinion of the
Board of Directors, LabOne has cause for the termination of employment
of Officer, as set forth in any of clauses (i) through (iii) 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 finds of fact in connection with any litigation or dispute arising
out of this Agreement.
-50-
(e) Termination Without Cause. In the event that LabOne,
Inc. terminates Officer's employment for reasons other than death,
disability, or cause as listed in subsection (d) above, LabOne shall
pay Officer, on or before the last day of employment, his base salary
which may have accrued to the date of termination, any annual incentive
bonus for the previous year if such has been approved but not paid, and
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 LabOne immediately prior to termination of employment,
which payments, together with the arrangements provided for by any
stock option or other agreement between LabOne and Officer in effect
at the time and by any other applicable plan of LabOne, will constitute
the entire obligation of LabOne to Officer and will also constitute
full settlement of any claim under law or in equity that Officer might
otherwise assert against LabOne 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 LabOne or the
Board of Directors of LabOne by the terms of this Agreement shall
inure to the benefit of and be binding upon any person or entity into
which LabOne 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 LabOne as may reasonably be required
by LabOne, Inc. in connection with any litigation in which LabOne 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
-51-
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.
12.2 Injunctive Relief. Notwithstanding Section 12.1 above,
LabOne shall be entitled to seek judicial injunctive relief to
enforce its rights under Section 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 LabOne except in connection with a merger,
consolidation or sale of all or substantially all of the assets of
LabOne and then only to the successor to LabOne'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 of 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.
-52-
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 party for whom it is intended, or three (3)
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: Carl W. Ludvigsen, Jr.
177 Hillcrest
Lake Quivira, Kansas 66106
LabOne: LabOne, Inc.
10310 W. 84th Terrace
Lenexa, Kansas 66214
Attn: W. Thomas Grant II, President
and Chief Executive Officer
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.
LABONE, INC.
By: /s/ W. Thomas Grant II
-----------------------
W. Thomas Grant II
President and Chief Executive
Officer
/s/ Carl W. Ludvigsen Jr.
----------------------
CARL W. LUDVIGSEN, JR.
BY EXECUTING THIS AGREEMENT, OFFICER ACKNOWLEDGES RECEIPT OF THE
NOTIFICATION TO OFFICER SET FORTH IN THE LAST SENTENCE OF SECTION
7.1 HEREOF.
-53-
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 January 31, 1997 relating to the consolidated balance sheets of
LabOne, Inc. and subsidiaries as of December 31, 1996 and 1995, 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, 1996, which report appears in the December 31, 1996,
annual report on Form 10-K of LabOne, Inc.
/s/KPMG Peat Marwick LLP
Kansas City, Missouri
March 7, 1997
54
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, 1996.
Dated: February 14, 1997
/s/ Joseph H. Brewer
------------------------------
Joseph H. Brewer, MD, Director
/s/ William D. Grant
------------------------------
William D. Grant, Director
/s/ P. Anthony Jacobs
------------------------------
P. Anthony Jacobs, Director
/s/ Richard A. Rifkind
------------------------------
Richard A. Rifkind, MD, Director
/s/ Richard S. Schweiker
------------------------------
Richard S. Schweiker, Director
/s/ James R. Seward
------------------------------
James R. Seward, Director
/s/ John E. Walker
------------------------------
John E. Walker, Director
/s/ R. Dennis Wright
------------------------------
R. Dennis Wright, Director
55
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from
the 1996 10-K annual report 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-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,613,454
<SECURITIES> 27,781,974
<RECEIVABLES> 10,256,265
<ALLOWANCES> 657,558
<INVENTORY> 1,360,164
<CURRENT-ASSETS> 45,111,043
<PP&E> 52,642,497
<DEPRECIATION> 35,751,529
<TOTAL-ASSETS> 64,743,175
<CURRENT-LIABILITIES> 6,293,882
<BONDS> 0
0
0
<COMMON> 150,000
<OTHER-SE> 58,299,293
<TOTAL-LIABILITY-AND-EQUITY> 64,743,175
<SALES> 0
<TOTAL-REVENUES> 59,431,855
<CGS> 0
<TOTAL-COSTS> 32,716,833
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,876,589
<INCOME-TAX> 2,008,690
<INCOME-CONTINUING> 2,867,899
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,867,899
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
</TABLE>
