UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended September 30, 1997
----------------------
Commission file number: 0-15975
LabOne, Inc.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 48-0952323
---------- --------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
10310 West 84th Terrace
Lenexa, Kansas 66214
----------------------------- -------
(Address of principal executive offices) (Zip Code)
(913)-888-1770
--------------------------------
(Registrant's telephone number, including area code)
N/A
------------------------------------
(Former name, former address, former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
Number of shares outstanding of only class of Registrant's common stock,
$.01 par value, as of October 31, 1997 - 13,124,294 net of 1,875,706 shares
held as treasury stock.
Page 1 of 10
<TABLE> PART I. FINANCIAL INFORMATION
ITEM 1 - Financial Statements
LabOne, Inc. and Subsidiary
Consolidated Balance Sheets
<S> <C> <C>
September 30, December 31,
1997 1996
ASSETS ------------- -----------
Current assets:
Cash and cash equivalents $ 5,826,830 3,613,454
Short-term investments 16,213,004 27,781,974
Accounts receivable-trade, net of allowance for doubtful
accounts of $880,917 in 1997 and $657,558 in 1996 13,230,398 9,598,707
Inventories 2,180,972 1,360,164
Prepaid expenses and other current assets 1,862,366 2,074,538
Deferred income taxes 682,206 682,206
---------- ----------
Total current assets 39,995,776 45,111,043
Investments with maturities of more than one year, at cost 502,680 504,292
Property, plant and equipment 55,073,399 52,642,497
Less accumulated depreciation 37,618,939 35,751,529
---------- ----------
Net property, plant and equipment 17,454,460 16,890,968
Other assets:
Intangible assets, net of accumulated amortization 5,484,830 2,098,987
Deferred income taxes - noncurrent 314,365 114,683
Deposits and other assets 81,836 23,202
---------- ----------
Total assets $63,833,947 64,743,175
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,030,144 2,971,376
Income taxes payable 20,522 -
Payable to Seafield Capital Corporation - 26,217
Accrued payroll and benefits 3,761,936 2,802,566
Other accrued expenses 652,771 393,811
Other current liabilities 139,773 99,912
---------- ----------
Total liabilities 7,605,146 6,293,882
Stockholders' equity:
Preferred stock, $.01 par value per share;
1,000,000 shares authorized, none issued - -
Common stock, $.01 par value per share; 40,000,000 shares
authorized, 15,000,000 shares issued 150,000 150,000
Additional paid-in capital 13,672,694 13,546,121
Equity adjustment from foreign currency translation (598,057) (543,959)
Retained earnings 65,001,652 67,494,437
---------- ----------
78,226,289 80,646,599
Less treasury stock of 1,885,148 shares in
1997 and 1,915,835 shares in 1996 21,997,488 22,197,306
---------- ----------
Total stockholders' equity 56,228,801 58,449,293
---------- ----------
Total liabilities and stockholders' equity $63,833,947 64,743,175
========== ==========
See accompanying notes to consolidated financial statements and management's
discussion and analysis of financial condition and results of operations.
Page 2
</TABLE>
<TABLE>
LabOne, Inc. and Subsidiary
Consolidated Statements of Earnings
<S> <C> <C> <C> <C>
Three months ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---------- ---------- ---------- ----------
Sales $ 19,728,262 14,768,579 57,775,736 42,814,221
Cost of sales 10,664,417 8,303,992 30,750,771 23,665,043
---------- ---------- ---------- ----------
Gross profit 9,063,845 6,464,587 27,024,965 19,149,178
Selling, general and administrative expenses 6,749,261 5,675,856 20,279,650 17,325,950
---------- ---------- ---------- ----------
Earnings from operations 2,314,584 788,731 6,745,315 1,823,228
Other income 288,218 434,461 997,689 1,261,529
---------- ---------- ---------- ----------
Earnings before income taxes 2,602,802 1,223,192 7,743,004 3,084,757
Income tax expense 1,066,682 407,897 3,160,902 1,265,044
---------- ---------- ---------- ----------
Net earnings $ 1,536,120 815,295 4,582,102 1,819,713
========== ========== ========== ==========
Earnings per common share $ 0.12 0.06 0.34 0.14
====== ====== ===== =====
Dividends per common share $ 0.18 0.18 0.54 0.54
====== ====== ===== =====
Weighted average common shares outstanding 13,321,213 13,276,126 13,325,123 13,256,076
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements and management's
discussion and analysis of financial condition and results of operations.
Page 3
LabOne, Inc. and Subsidiary
Consolidated Statement of Stockholders' Equity
Nine Months Ended September 30, 1997
<TABLE>
<CAPTION>
Additional Foreign Total
Common paid-in currency Retained Treasury stockholders'
stock capital translation earnings stock equity
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1996 $150,000 13,546,121 (543,959) 67,494,437 (22,197,306) 58,449,293
Net earnings 4,582,102 4,582,102
Cash dividends
($0.54 per share) (7,074,887) (7,074,887)
Stock options
exercised, net
(26,739 shares) 101,404 155,403 256,807
Directors' stock issued
(3,948 shares) 25,169 44,415 69,584
Equity adjustment
from foreign
currency
translation (54,098) (54,098)
-------- ---------- -------- ---------- ----------- ----------
Balance at
September 30, 1997 $150,000 13,672,694 (598,057) 65,001,652 (21,997,488) 56,228,801
======== ========== ======== ========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements and management's
discussion and analysis of financial condition and results of operations.
Page 4
LabOne, Inc. and Subsidiary
Consolidated Statements of Cash Flows
Nine months ended September 30,
1997 1996
--------- ---------
Cash provided by (used for) operations:
Net earnings $ 4,582,102 1,819,713
Adjustments to reconcile net earnings
to net cash provided by operations:
Depreciation and amortization 3,306,525 2,861,100
(Gain) loss on disposal of property
and equipment (118,771) 98,381
Directors' stock compensation 69,584 70,195
Provision for deferred taxes (204,568) (486,908)
Change in short term trading portfolio, net 14,192,108 (902,783)
Changes in:
Accounts receivable (3,631,691) (1,544,236)
Inventories (820,808) (41,662)
Prepaid expenses and other current assets 212,172 898,061
Accounts payable 58,768 (100,181)
Income taxes payable 20,522 (40,037)
Payable to Seafield Capital Corporation (26,217) 10,406
Accrued payroll & benefits 959,370 22,056
Accrued expenses 258,960 (164,584)
Other current liabilities 39,861 17,880
---------- ----------
Net cash provided by operations 18,897,917 2,517,401
---------- ----------
Cash provided by (used for) investment transactions:
Purchases of investments held to maturity (15,893,902) (15,752,895)
Proceeds from maturities of investments held
to maturity 13,485,062 20,994,571
Property, plant and equipment, net (3,242,256) (981,408)
Acquisition of intangible assets, net (4,128,275) -
Other (58,634) 12,395
---------- ----------
Net cash provided by (used for)
investment transactions (9,838,005) 4,272,663
---------- ----------
Cash provided by (used for) financing transactions:
Issuance of treasury stock, net of proceeds
from the exercise of stock options 256,807 67,544
Cash dividends (7,074,887) (7,059,182)
---------- ----------
Net cash used for financing transactions (6,818,080) (6,991,638)
---------- ----------
Effect of foreign currency translation (28,456) (1,381)
---------- ----------
Net increase (decrease) in cash and
cash equivalents 2,213,376 (202,955)
Cash and cash equivalents - beginning of period 3,613,454 2,993,128
---------- ----------
Cash and cash equivalents - end of period $ 5,826,830 2,790,173
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for income taxes $ 3,541,775 1,659,898
========== ==========
See accompanying notes to consolidated financial statements and management's
discussion and analysis of financial condition and results of operations.
Page 5
LabOne, Inc. and Subsidiary
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
The accompanying consolidated financial statements include the accounts of
LabOne, Inc. and its wholly-owned subsidiary Lab One Canada Inc. (a Canadian
corporation). All significant intercompany transactions have been eliminated
in consolidation.
The financial information furnished herein is unaudited; however, in the
opinion of management, it reflects all adjustments which are necessary to
fairly state the Company's financial position at September 30, 1997, and
December 31, 1996, and the results of its operations and cash flows for the
periods ended September 30, 1997 and 1996. The financial statements have been
prepared in conformity with generally accepted accounting principles
appropriate in the circumstances, and included in the financial statements are
certain amounts based on management's estimates and judgments.
The financial information herein is not necessarily representative of a full
year's operations because levels of sales, capital additions and other factors
fluctuate throughout the year. These same considerations apply to all year-
to-year comparisons. See the Company's Annual Report on Form 10-K for the
year ended December 31, 1996, for additional information not required by this
report Form 10-Q.
The weighted average shares includes the common stock equivalents of stock
options.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share" which revises the calculation and presentation
provisions of Accounting Principles Board Opinion 15 and related
interpretations. Statement No. 128 is effective for the Company's fiscal year
ending December 31, 1997. Retroactive application will be required. The
Company believes the adoption of Statement No. 128 will not have a significant
effect on its reported earnings per share. In February 1997, the Financial
Accounting Standards Board issued Statement No. 129, "Disclosure of
Information About Capital Structure" effective for the Company's fiscal year
ending December 31, 1997. The Company believes the adoption of Statement No.
129 will not have any significant impact.
Effective January 30, 1997, LabOne acquired certain assets, inventory and
customer lists, of GIB Laboratories, Inc., a subsidiary of Prudential
Insurance Company of America, for $4.6 million. Concurrently, Prudential's
Individual Insurance Group made a multi-year commitment to use LabOne as its
exclusive provider of risk assessment testing services. The acquisition was
accounted for using the purchase method. Accordingly, the purchase price was
allocated to assets acquired based on their fair values. The total cost in
excess of tangible net assets acquired was $4.1 million and is being amortized
on a straight-line basis over 15 years.
Page 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Selected Financial Data:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Three Months Ended % Increase Nine Months Ended % Increase
September 30, September 30,
1997 1996 1997 1996
----------- ----------- -------- ----------- ----------- --------
Sales $ 19,728,262 14,768,579 34% $ 57,775,736 42,814,221 35%
Net earnings 1,536,120 815,295 88% 4,582,102 1,819,713 152%
Earnings per common share $0.12 0.06 $0.34 0.14
Cash dividends per common share $0.18 0.18 $0.54 0.54
</TABLE>
The Company provides high-quality laboratory services to insurance companies,
managed care companies, physicians and employers.
LabOne provides risk-appraisal laboratory services to the insurance industry.
The tests performed by the Company are specifically designed to assist an
insurance company in objectively evaluating the mortality and morbidity risks
posed by policy applicants. The majority of the testing is performed on
specimens of individual life insurance policy applicants. The Company also
provides testing services on specimens of individuals applying for individual
and group medical and disability policies.
LabOne's clinical testing services are provided to the healthcare industry to
aid in the diagnosis and treatment of patients. LabOne operates only one
highly automated and centralized laboratory, which the Company believes has
significant economic advantages over other conventional laboratory
competitors. LabOne markets its clinical testing services to healthcare
payers, such as PPO's and HMO's, through the Lab Card(TM) Program.
The Lab Card Program, a Laboratory Benefits Management (LBM) program, provides
laboratory testing to insurance companies and self-insured groups 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
payer receives substantial savings on its laboratory charges.
The Company's Lab Card Program covered approximately 1.4 million lives as of
September 30, 1997. Additionally, LabOne had a signed backlog of
approximately 400,000 additional lives to be covered by the Program.
LabOne is certified by the Substance Abuse and Mental Health Services
Administration (SAMHSA) to perform substance abuse testing services for
federally regulated employers and is currently marketing these services
throughout the country to both regulated and nonregulated employers. The
Company's rapid turnaround times and multiple testing options help clients
reduce downtime for affected employees and meet mandated drug screening
guidelines.
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.
Page 7
THIRD QUARTER ANALYSIS
Net sales increased 34% to $19.7 million in the third quarter 1997 from $14.8
million in the third quarter 1996 due to increases in all business segments.
Insurance segment revenue increased to $15.2 million during the third quarter
1997 as compared to $12.4 million in the same quarter last year. The increase
was due to an increase in market share and an increase in oral fluid testing
on applicants applying for smaller face-amount policies. The total number of
insurance applicants tested in the third quarter 1997 increased by 22% as
compared to the same quarter last year. Average revenue per applicant
decreased less than 1%. Insurance kit and container revenue increased, due
primarily to an increase in the number of blood and oral fluid kits sold.
Clinical (diagnostic) laboratory revenue increased 81% from $1.0 million in
the third quarter 1996 to $1.8 million in 1997 due to a 79% increase in
testing volumes. Substance abuse testing (SAT) revenue increased 106% from
$1.3 million in the third quarter 1996 to $2.7 million in 1997, primarily due
to increased testing volumes.
Cost of sales increased 28% or $2.4 million in the third quarter 1997 as
compared to the prior year, due primarily to increases in supplies and
payroll resulting from higher testing volumes. Insurance kit supplies
increased due to the higher volume of kits sold and the increase in cost of
oral fluid kits for HIV testing. Payroll and lab supplies increased due to
the increased specimen volumes tested in each segment. Clinical cost of sales
expenses were $2.2 million as compared to $1.7 million in the third quarter
1996. SAT cost of sales expenses were $2.0 million as compared to $1.0
million in the third quarter 1996.
As a result of the above factors, gross profit for the quarter increased $2.6
million (40%) from $6.5 million in 1996 to $9.1 million in 1997. Clinical
gross profit increased $0.3 million in the third quarter to a loss of $0.4
million in 1997 from a loss of $0.7 million in the third quarter 1996. SAT
gross profit increased to $0.8 million in the third quarter 1997 from $0.3
million last year.
Selling, general and administrative expenses increased $1.1 million (19%) in
the third quarter 1997 as compared to the prior year, due primarily to
increases in payroll expenses, travel and printing expenses. These were
partially offset by a decrease in consulting and severance expenses. Clinical
expenses, including allocated overhead, were $1.8 million as compared to $1.3
million in 1996. SAT expenditures, including allocations, were $0.9 million
as compared to $0.6 million last year.
Operating income increased from $0.8 million in the third quarter 1996 to $2.3
million in 1997. The insurance segment increased $1.5 million to 4.6 million.
The clinical segment declined $0.1 million to an operating loss of $2.2
million. The SAT segment improved $0.2 million from an operating loss of $0.3
million in the third quarter 1996 to a loss of $0.1 million in 1997.
The effective income tax rate increased from 33% in 1996 to 41% in 1997 due
primarily to foreign tax adjustments in 1996.
The combined effect of the above factors resulted in net earnings of $1.5
million, or $0.12 per share, in the third quarter 1997 as compared to $0.8
million, or $0.06 per share, in the same period last year.
Page 8
YEAR-TO-DATE ANALYSIS
Revenue in the nine month period ended September 30, 1997 was $57.8 million as
compared to $42.8 million in the same period last year. The increase of $15.0
million is due to increases in insurance segment revenue of $8.6 million, SAT
revenue of $3.6 million and clinical laboratory revenue of $2.8 million.
The total number of insurance applicants tested in the nine month period
increased by 21% as compared to last year, while average revenue per applicant
declined less than 1%. Kit and container revenue increased $2.7 million due
primarily to an increase in the number of full blood and oral fluid kits sold
and the increased price of oral fluid kits for HIV testing.
Clinical laboratory revenue increased from $2.7 million during the first nine
months of 1996 to $5.5 million for the same period in 1997 due to increased
testing volumes and higher revenue per patient. SAT revenue increased from
$3.2 million in 1996 to $6.8 million in 1997 due to a 117% increase in testing
volumes.
Cost of sales increased $7.1 million year to date as compared to the prior
year. This increase is due primarily to increases in payroll, laboratory
supplies and kit expenses. Payroll increased 21%, and lab supplies increased
32% due to the larger volume of all specimen types processed. Insurance kit
expense increased due to the higher volume of kits sold and the increase in
cost of oral fluid kits for HIV testing. Clinical cost of sales expenses were
$6.1 million as compared to $4.7 million during the first nine months of 1996.
SAT cost of sales expenses were $5.1 million as compared to $2.5 million
during 1996.
As a result of the above factors, gross profit for the first nine months
increased from $19.1 million in 1996 to $27.0 million in 1997. Clinical gross
profit improved from a loss of $2.1 million in 1996 to a loss of $0.7 million
in 1997. SAT gross profit increased to $1.7 million in the first nine months
of 1997 from $0.7 million last year.
Selling, general and administrative expenses increased $3.0 million (17%) in
the nine month period ended September 30, 1997 as compared to the prior year,
due primarily to increases in payroll expenses, travel and printing expenses.
Payroll expense increased due to bonus accruals and a 20% increase in
employees. Clinical expenditures were $5.5 million as compared to $3.8
million in 1996. SAT expenses increased from $1.6 million in 1996 to $2.3
million in 1997.
Operating income increased from $1.8 million in the first nine months of 1996
to $6.7 million in 1997, primarily due to an increase in the insurance segment
operating income of $4.9 million. The clinical segment had an operating loss
of $6.2 million for the nine month period ended September 30, 1997 due to
increased corporate overhead allocations offsetting operating improvements
over 1996. The SAT segment improved from an operating loss of $0.9 million in
1996 to a loss of $0.6 million in 1997.
Investment income decreased $0.4 million primarily due to less funds available
for investment. Other nonoperating income increased $0.2 million.
The combined effect of the above factors resulted in net earnings of $4.6
million, or $0.34 per share, in the nine month period ended September 30, 1997
as compared to $1.8 million, or $0.14 per share, in the same period last year.
Page 9
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
LabOne's working capital position decreased by $6.4 million to $32.4 million
at September 30, 1997, from $38.8 million at December 31, 1996. This decrease
is primarily due to dividends paid, the purchase of GIB laboratory assets
and customer lists, and equipment purchases exceeding operating cash flow.
Net trade accounts receivable increased 38% over the balance at December 31,
1996, primarily due to a 35% increase in sales in 1997.
Net additions to property, plant and equipment and intangibles were $7.4
million in the nine month period as compared to $1.0 million in 1996. The
increase is primarily due to the purchase of the assets and customer lists of
GIB Laboratories and purchases supporting expanded laboratory capacity. The
Company held approximately 1.9 million shares of stock in treasury at
September 30, 1997, at a total cost of $22.0 million, or $11.67 per share.
In August 1997, LabOne's Board of Directors declared the regular quarterly
dividend of $0.18 per common share. This dividend was paid on September 3,
1997, to stockholders of record as of August 26, 1997, and totaled
approximately $2.4 million. The board will review the dividend payment policy
on a periodic basis. There are currently no restrictions that would limit the
Company's ability to make future dividend payments.
The Company had no borrowings during 1997. The Company expects to fund
operations and future dividend payments from a combination of cash reserves
and cash flow from operations. At September 30, 1997, LabOne had total cash
and investments of $22.5 million as compared to $31.9 million at December 31,
1996.
In October 1997, LabOne announced that it had purchased approximately 54 acres
of land at Renner Ridge Corporate Park in Lenexa, Kansas. LabOne is planning
to construct a 280,000 square foot facility to house all of its corporate,
laboratory and warehouse operations. This project is expected to cost
approximately $27.5 million and will be financed with an industrial revenue
bond.
PART II. OTHER INFORMATION
Item 5. - Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule - as filed electronically by the
Registrant in conjunction with this third quarter 1997 Form 10-Q.
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LabOne, Inc.
Date: November 7, 1997 By /s/ Kurt E. Gruenbacher
Kurt E. Gruenbacher, V.P. Finance and CAO
Date: November 7, 1997 By /s/ Robert D. Thompson
Robert D. Thompson, Executive V.P., COO,
CFO and Treasurer
Page 10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
third quarter 1997 Form 10-Q for LabOne, Inc. and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000816151
<NAME> LABONE, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,826,830
<SECURITIES> 16,213,004
<RECEIVABLES> 14,111,315
<ALLOWANCES> 880,917
<INVENTORY> 2,180,972
<CURRENT-ASSETS> 39,995,776
<PP&E> 55,073,399
<DEPRECIATION> 37,618,939
<TOTAL-ASSETS> 63,833,947
<CURRENT-LIABILITIES> 7,605,146
<BONDS> 0
0
0
<COMMON> 150,000
<OTHER-SE> 56,078,801
<TOTAL-LIABILITY-AND-EQUITY> 63,833,947
<SALES> 0
<TOTAL-REVENUES> 57,775,736
<CGS> 0
<TOTAL-COSTS> 30,750,771
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,743,004
<INCOME-TAX> 3,160,902
<INCOME-CONTINUING> 4,582,102
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,582,102
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.34
</TABLE>
