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, 1997
Commission file number 0-15975
-------
LabOne, Inc.
------------
10310 West 84th Terrace
Lenexa, Kansas 66214
(913) 888-1770
Incorporated in Delaware
I.R.S. Employer Identification Number: 48-0952323
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. /X/
Approximate aggregate market value of voting stock held by non-affiliates
of Registrant: $39,400,000 (based on closing price as of March 2, 1998, of
$16.75). 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 2, 1998: $0.01 par value common - 13,135,552 shares net
of 1,864,448 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 14, 1998, 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 43
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.) The Company provides high-quality laboratory services to
self-insured groups, insurance companies, employers 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
exclusive arrangements with managed care organizations and through Lab
Card(Registered), 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.
In July 1997, LabOne announced that discussions between LabOne and Lab
Holdings, Inc. (formerly Seafield Capital Corporation), which owns 82 percent
of LabOne, regarding a possible merger between the two companies have been
terminated.
Services Provided by the Company
- --------------------------------
Insurance Applicant Testing:
In order to establish the appropriate level of premium payments or to determine
2
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
and morbidity, an insurance company generally requires quantitative data
reflecting the applicant's 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 LabOne's custom-designed collection
kits and containers. These kits and containers are delivered to LabOne's
laboratory via overnight delivery services or mail, coded for identification
and processed according to each client's specifications. Results are generally
transmitted to the insurance company's underwriting department that same
evening. LabOne provides a one-day service guarantee on oral fluid and urine
HIV specimen results.
LabOne offers LabOne NET, a combination network/software product that provides
a connection for insurance underwriters for ordering and delivery of risk
assessment information such as laboratory results, motor vehicle reports and
other applicant information. Additionally, LabOne will handle paramedical
examination paperwork and assist with administration of data for insurance
underwriting.
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
3
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.
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 transmitted into
the Company's computer system along with all other completed results.
The Company has established the Lab Card(Registered) Program, as well as
alliances with major healthcare providers, as vehicles for delivering
outpatient 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 71 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 Company's revenues from services provided to
the insurance, clinical and substance abuse testing markets (dollars in
thousands):
Year ended December 31,
1997 1996 1995
----------- ----------- -----------
Insurance $ 61,998 79% $ 50,801 85% $ 52,544 92%
Clinical 7,512 9% 3,942 7% 2,297 4%
Substance Abuse 9,416 12% 4,689 8% 2,188 4%
------ ------ ------
Total $ 78,926 $ 59,432 $ 57,029
====== ====== ======
(See Note 11 of Notes to Consolidated Financial Statements for operating
income and identifiable assets by segment.)
4
Operations
- ----------
The Company's 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. It is a
centralized network system that provides an automated link between LabOne's
testing equipment, data processing equipment and the clients' computer systems.
This system offers LabOne's clients the ability to customize their testing and
reflex requirements by several parameters 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 client's test results to
the results obtained by the Company's 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. Additionally, the
company's statistical engineering department is capable of creating customized
reports to aid managed care entities or employers in disease management and
utilization tracking to help manage healthcare costs.
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 Testing Service(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 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
5
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. LabOne is accredited by CAP.
The Office of Inspector General (OIG) of the Department of Health and Human
Services has developed a sample Model Compliance Plan. Laboratories are being
advised to create a similar program to ensure compliance with anti-fraud and
abuse laws and rules governing federally-financed reimbursement for lab testing
services. Even though only a small portion of LabOne's business encompasses
fee-for-service Medicare/Medicaid, a Chief Compliance Officer and nine
Co-Compliance Officers have been appointed. The Company is in the process of
developing the LabOne Compliance Plan.
LabOne is licensed under the Clinical Laboratory Improvement Amendments (CLIA)
of 1988. LabOne has additional licenses for 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.
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 Company's 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 Company's sales
representatives and its senior management also attend and sponsor insurance
industry underwriters' and medical directors' meetings.
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, third party
administrators 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 rapid reporting of results.
Competition
- -----------
The Company believes that the insurance laboratory testing market is
approximately a $100 million to $120 million industry. LabOne currently
services over half the market. LabOne has maintained its market leadership
through the development of long term client relationships, its reputation for
providing quality products and services at competitive prices, and its battery
of tests which are tailored specifically to an insurance company's needs.
6
LabOne has two other main competitors, Osborn Laboratories, Inc. and Clinical
Reference Laboratory. 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 LabOne's average price per test. It is anticipated
that prices may continue to decline in 1998.
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. The Company is
working to establish a solid client base in this environment through the use of
Lab Card and the establishment of exclusive arrangements with large groups and
managed care entities to provide laboratory services.
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.
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,
1997* 1996 1995
------ ------ ------
(in millions)
Sales:
United States $72.4 $53.1 $50.8
Canada 6.6 6.4 6.2
Operating Profit:
United States 2.0 2.4 1.9
Canada 0.6 0.7 0.3
Identifiable Assets:
United States 56.8 62.1 64.4
Canada 3.2 2.7 5.7
*1997 operating profit includes a one-time write-off of $6.6 million.
(See Note 1 of Notes to Consolidated Financial Statements.)
7
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.
Employees
- ---------
As of March 2, 1998, the Company had 665 full-time employees, representing an
increase of 99 employees from the same time in 1997. None of the Company's
employees are represented by a labor union. The Company believes its relations
with employees are good.
ITEM 2. PROPERTIES
The Company's 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, data entry and sales departments. There is no debt associated
with this building.
The Company's 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 "hot spots" 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
LabOne's clients of our continuous laboratory operation.
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 through February 1999. The Company also
leases 10 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 office space in Canada, which is used for sales and
client services. This lease expires in October 2000.
LabOne is building a new 262,000 square foot facility in Lenexa, Kansas to
consolidate the functions of the three main current locations, as well
provide a significant increase in space. The three main buildings currently
are approximately 150,000 square feet. The building is being designed and
built with the capability for further laboratory and warehouse expansion if
necessary. The administration and laboratory buildings are available for sale,
and the lease for the warehouse will be allowed to expire in early 1999.
8
ITEM 3. LITIGATION
In the normal course of business, LabOne had certain lawsuits pending at
December 31, 1997. 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 2, 1998, the outstanding shares
were held by approximately 406 shareholders of record.
The Company paid quarterly dividends of $0.18 per common share in both 1997 and
1996. 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.
The following are the high and low closing prices of the stock for each quarter
of 1997 and 1996:
1997 1996
-------------- --------------
High Low High Low
----- ----- ----- -----
1st Quarter $20.00 16.50 $17.00 12.50
2nd Quarter 18.38 15.38 18.75 15.75
3rd Quarter 18.50 15.50 18.75 13.00
4th Quarter 18.06 15.50 19.25 15.00
9
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 SCHEDULE. The balance sheet data as of December 31,
1997, 1996, 1995, 1994 and 1993, and the statement of earnings data for each of
the years in the five-year period ended December 31, 1997, 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)
1997 1996 1995 1994 1993
Statement of Earnings Data: -------- ------ ------ ------ ------
Sales $ 78,926 59,432 57,029 60,726 69,378
Cost of sales 42,017 32,717 29,934 29,073 30,019
-------- ------ ------ ------ ------
Gross profit 36,909 26,715 27,095 31,653 39,359
Selling, general and
administrative expenses 27,707 23,623 24,908 24,821 22,639
Loss provision* 6,553 - - - -
-------- ------ ------ ------ ------
Earnings from operations 2,649 3,092 2,188 6,833 16,720
Other income 1,122 1,784 2,562 1,700 813
-------- ------ ------ ------ ------
Earnings before income taxes 3,771 4,877 4,750 8,533 17,534
Income taxes 1,568 2,009 1,953 2,846 6,968
-------- ------ ------ ------ ------
Net earnings $ 2,202 2,868 2,797 5,687 10,566
======== ====== ====== ====== ======
Basic and diluted earnings
per common share $ 0.17 0.22 0.21 0.43 0.80
======== ====== ====== ====== ======
Dividends per common share $ 0.72 0.72 0.72 0.72 0.72
======== ====== ====== ====== ======
Balance Sheet Data:
Working capital $35,426 38,817 44,233 48,559 48,649
Total assets 59,973 64,743 70,048 76,758 81,130
Long term debt - - - - -
Stockholders' equity 51,499 58,449 64,864 71,237 74,764
*The 1997 loss provision represents the one-time write-down on the value of
the Company's facilities which are available for sale.
(See Note 1 of the Notes to Consolidated Financial Statements.)
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
1997 Compared to 1996
Revenue for the year ended December 31, 1997 was $78.9 million as compared to
$59.4 million in 1996. The increase of $19.5 million, or 33%, is due to
increases in insurance segment revenue of $11.2 million, SAT revenue of $4.7
million and clinical laboratory revenue of $3.6 million. The insurance segment
increased 22% due to an increase in the total number of insurance applicants
tested and an increase in kit revenue, partially offset by a 1% decrease in the
average revenue per applicant. The increase in insurance segment revenue is
primarily due to an increase in market share and changes to testing thresholds.
SAT revenue increased from $4.7 million in 1996 to $9.4 million in 1997 due to
a doubling in testing volumes. Clinical laboratory revenue increased from $3.9
million in 1996 to $7.5 million in 1997 due to increased testing volumes and
higher revenue per patient.
Cost of sales increased $9.3 million (28%) for the year as compared to the
prior year. This increase is due primarily to increases in payroll, laboratory
supplies and kit expenses due to the larger specimen volume for all three
business segments. Direct and allocated clinical cost of sales expenses were
$8.3 million as compared to $6.5 million during 1996. Direct and allocated SAT
cost of sales expenses were $7.0 million as compared to $3.7 million during
1996. These increases are due to increased testing volumes.
As a result of the above factors, gross profit increased $10.2 million (38%)
from $26.7 million in 1996 to $36.9 million in 1997. Insurance gross profit
increased $7.0 million, or 25%, in 1997 as compared to 1996. Clinical gross
profit improved $1.8 million from a loss of $2.6 million in 1996 to a loss of
$0.8 million in 1997. SAT gross profit increased from $1.0 million in 1996 to
$2.4 million in 1997.
Selling, general and administrative expenses increased $4.1 million (17%) in
1997 as compared to 1996 due primarily to increases in payroll expenses, travel
and amortization expenses. Clinical overhead expenditures were $7.5 million as
compared to $5.4 million in 1996. SAT overhead increased from $2.2 million in
1996 to $3.3 million in 1997. These increases are due to the growth in each
segment.
In 1997, the Company recorded a one-time write-down of $6.6 million on the
value of the laboratory and administrative buildings in anticipation of their
sale. (See Note 1 of Notes to Consolidated Financial Statements.)
Operating income decreased from $3.1 million in 1996 to $2.6 million in 1997,
primarily due to the $6.6 million write down, partially offset by an increase
in the insurance segment operating income of $5.9 million. The clinical
segment had an operating loss of $8.3 million for 1997 as compared to a loss of
$8.0 million in 1996, due to a $0.6 million increase in corporate overhead
allocation over 1996. The SAT segment improved from an operating loss of $1.2
million in 1996 to a loss of $0.9 million in 1997, including a $0.9 million
increase in corporate overhead allocation over last year.
11
Other income decreased $0.7 million in 1997 as compared to 1996, due to lower
investment income. Average income tax expense was 41.6% of pretax income in
1997 as compared to 41.2% in 1996.
The combined effect of the above factors resulted in net earnings of $2.2
million, or $0.17 per share, in 1997 as compared to $2.9 million, or $0.22 per
share, last year. Excluding the impact of the write-down, net income would
have been $6.1 million, or $0.46 per share, in 1997.
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 $1.3 million (5%) in
1996 as compared to 1995 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 $2.2 million in 1995 to $3.1 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.
Nonoperating income decreased $0.8 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.
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.
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 may continue to decline
during 1998 due to competitive pressures. This trend may have a material
impact on earnings from operations.
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 5 million of these policy applicants. During
1996, the FDA approved an oral fluid Western blot test as a confirmation for
the oral fluid HIV-1 antibody test. The noninvasive nature of oral specimen
collection allows for lower cost collection, making testing much more
affordable on smaller face value insurance policies. Due to the lower
collection expense associated with oral fluid collection devices, the potential
exists for an expansion of the testing market. The total number of insurance
applicants tested by LabOne increased 22% in 1997 from the prior year.
Approximately one-half of the increase represented oral fluid HIV tested
applicants. Oral fluid tested applicants are expected to further increase in
1998.
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.
In the clinical division, BlueCross BlueShield of Tennessee has selected LabOne
to provide routine outpatient laboratory testing services for BlueCare members
throughout Tennessee effective February 1, 1998. BlueCare is BlueCross
BlueShield of Tennessee's plan for Tenncare participants. Approximately
350,000 BlueCare members are covered by the program. (LabOne originally
announced that the BlueCare program covered approximately 425,000 lives.) To
date, our Laboratory Benefit Management programs, including BlueCare and the
Lab Card Program, have more than 1.8 million lives enrolled with more than
300,000 additional lives awaiting implementation.
LabOne is actively addressing Year 2000 computer concerns. The company has
established an oversight committee which includes management from all parts of
the Company and meets periodically to review progress. The Company expects to
complete all internal Year 2000 objectives by the end of 1998 and is assessing
the Year 2000 preparation and contingency plans of its clients and vendors.
Total expenses related to this project are not expected to be material to the
Company.
13
In June, 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income," and Statement No. 131, "Disclosures
About Segments of an Enterprise and Related Information." Both are effective
for the Company's fiscal year ending December 31, 1998, and retroactive
application will be required. The Company does not expect these statements to
have a significant effect on reported earning or segment disclosures.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
LabOne's working capital position declined from $38.8 million at December 31,
1996, to $35.4 million at December 31, 1997. This decrease is the result of
dividends paid, capital additions and the purchase of GIB assets exceeding net
cash provided by operations. Net cash provided by operations during 1997
increased from $6.7 million in 1996 to $8.0 million in 1997.
During 1997, 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 1997 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 Company's ability to make future
dividend payments.
During 1997, the Company invested $11.4 million in additional property, plant
and equipment and the purchase of certain assets and customer lists of GIB
Laboratories, Inc., as compared to $3.2 million in 1996 and $2.9 million in
1995. Of the amount spent in 1997, approximately $4.8 million was for the GIB
purchase, and approximately $2.8 million was for land acquisition and initial
development costs to construct the Company's new facility. The new facility
project is expected to cost approximately $27.5 million and is expected to be
primarily financed with an industrial revenue bond approved by the City of
Lenexa (Kansas) in August 1997. The IRB is expected to be in place during the
second quarter 1998. Other capital asset purchases are expected to be
consistent with prior years.
The Company had no short-term borrowings during 1997. Management expects to be
able to fund operations and future dividend payments from a combination of cash
flow from operations and cash reserves. Proceeds from the industrial revenue
bond will be used to finance the construction of the Company's new facility.
Interest on the bond will be based on a taxable seven day variable rate which
would have been less than seven percent as of March 2, 1998. The Company
expects to repay the bond over 11 years at $2.5 million per year plus interest.
Total cash and investments at December 31, 1997, were $19.5 million, as
compared to $31.9 million at December 31, 1996.
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," "Executive Compensation,"
and "Relationships with Lab Holdings," 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 14, 1998, is
incorporated into Items 10, 11, 12 and 13 above by reference.
15
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) (1) and (2) -- The following consolidated financial statements and
schedule are attached as a separate section of this report entitled
"Consolidated Financial Statements and Schedule":
INDEPENDENT AUDITORS' REPORT
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets, December 31, 1997, and 1996
Consolidated Statements of Earnings, Years Ended
December 31, 1997, 1996, and 1995
Consolidated Statements of Stockholders' Equity,
Years Ended December 31, 1997, 1996, and 1995
Consolidated Statements of Cash Flows, Years Ended
December 31, 1997, 1996, and 1995
Notes to Consolidated Financial Statements
SCHEDULE:
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 January 26, 1998, was filed with the commission
reporting under Other Events the results of operations for the year, including
a one-time write-down of $6.6 million on the value of the Company's buildings
in anticipation of their sale. Additionally, it was reported that BlueCross
BlueShield of Tennessee has selected LabOne to provide routine outpatient
laboratory testing services for BlueCare members throughout Tennessee.
16
c) Exhibits required by Item 601 of Regulation S-K
(Exhibits follow the Schedule):
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 Amendment to paragraph 2(a) of the Registrant's Long
Term Incentive Plan - dated May 9, 1997.** 41
10.6 Registrant's Annual Incentive Plan. ** 42
10.7* Registrant's Stock Plan for nonemployee directors -
attached as Exhibit (A) to the Registrant's Proxy
Statement dated April 10, 1992. ***
10.8* 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.
10.9* 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.
10.10* 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
----
10.11* 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. **
10.12* 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. **
10.13* 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. **
10.14* 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. **
10.15* 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. **
10.16* Amended Employment Agreement between the Registrant
and Carl W. Ludvigsen, Jr. - attached as Exhibit
(10.15) to the Registrant's form 10-K Annual Report
dated March 7, 1997. **
10.17* 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. **
10.18* 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
----
24. Powers of Attorney. 43
27. Financial Data Schedule - as submitted electronically by
the Registrant in conjunction with this 1997 Form 10-K.
99. Proxy Statement for Annual Shareholders Meeting to be
held May 14, 1998 - 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., Chief Title: V.P. Finance and CAO
Operating Office and and Treasurer
Chief Financial Officer
Date: March 23, 1998 Date: March 23, 1998
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 23, 1998 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., Chief
President and Chief Executive Operating Officer and
Officer Chief Financial 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 and Director
By: /s/ Kurt E. Gruenbacher By: */s/ Joseph H. Brewer
----------------------- ---------------------
Kurt E. Gruenbacher Joseph H. Brewer
Title: V.P. Finance, CAO and Title: Director
Treasurer
By: */s/ William D. Grant By: */s/ Richard A. Rifkind
--------------------- -----------------------
William D. Grant Richard A. Rifkind
Title: Director Title: Director
By: */s/ Richard S. Schweiker By: */s/ James R. Seward
------------------------- --------------------
Richard S. Schweiker James R. Seward
Title: Director Title: Director
By: */s/ John E. Walker By: */s/ R. Dennis Wright
------------------- ---------------------
John E. Walker R. Dennis Wright
Title: Director Title: Director
*By: /s/ Gregg R. Sadler
-------------------
Gregg R. Sadler
Attorney-in-fact
20
LABONE, INC. AND SUBSIDIARY
Consolidated Financial Statements and Schedule
December 31, 1997, 1996 and 1995
(With Independent Auditors' Report Thereon)
21
LABONE, INC. AND SUBSIDIARY
Consolidated Financial Statements and Schedule
Index
-----
INDEPENDENT AUDITORS' REPORT 23
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets, December 31, 1997 and 1996 24
Consolidated Statements of Earnings, Years ended
December 31, 1997, 1996 and 1995 26
Consolidated Statements of Stockholders' Equity,
Years ended December 31, 1997, 1996 and 1995 27
Consolidated Statements of Cash Flows, Years ended
December 31, 1997, 1996 and 1995 28
Notes to Consolidated Financial Statements 29
SCHEDULE:
Schedule II - Valuation and Qualifying Accounts 40
22
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
LabOne, Inc.:
We have audited the accompanying consolidated balance sheets of LabOne, Inc.
and subsidiary as of December 31, 1997 and 1996 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, 1997. In
connection with our audits of the consolidated financial statements, we have
also audited the financial statement schedule. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule 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 subsidiary as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997, in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set fourth therein.
/s/KPMG Peat Marwick LLP
Kansas City, Missouri
January 30, 1998
23
LABONE, INC. AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1997 and 1996
Assets 1997 1996
------ ---------- ----------
Current assets:
Cash and cash equivalents $ 18,284,672 28,647,378
Short-term investments (note 10) 1,204,638 2,748,050
Accounts receivable, net of allowance
for doubtful accounts of $968,295 in 1997
and $657,558 in 1996 12,604,687 9,598,707
Income taxes receivable 508,704 237,373
Inventories 2,203,471 1,360,164
Real estate available-for-sale (note 1) 3,515,000 -
Prepaid expenses and other current assets 2,279,619 1,837,165
Deferred income taxes (note 3) 3,299,387 682,206
---------- ----------
Total current assets 43,900,178 45,111,043
---------- ----------
Investments with maturities of more than one
year, at cost (note 10) - 504,292
---------- ----------
Property, plant and equipment:
Land 2,379,334 1,495,833
Building (note 1) - 11,978,641
Laboratory equipment 19,044,329 17,092,316
Data processing equipment and software 17,130,254 16,966,467
Office and transportation equipment 4,909,970 4,110,435
Leasehold improvements 492,684 998,805
---------- ----------
43,956,571 52,642,497
Less accumulated depreciation 33,515,280 35,751,529
---------- ----------
Net property, plant and equipment 10,441,291 16,890,968
---------- ----------
Other assets:
Intangible assets, net of accumulated
amortization (notes 1 and 2) 5,229,708 2,098,987
Deferred income taxes-noncurrent (note 3) 321,799 114,683
Deposits and other miscellaneous 80,497 23,202
---------- ----------
Total Assets $ 59,973,473 64,743,175
========== ==========
See accompanying notes to consolidated financial statements.
24
LABONE, INC. AND SUBSIDIARY
Consolidated Balance Sheets, Continued
Liabilities and Stockholders' Equity 1997 1996
------------------------------------ ---------- ----------
Current liabilities:
Accounts payable $ 3,326,451 2,971,376
Accrued payroll and benefits 4,530,235 2,802,566
Other accrued expenses 423,396 393,811
Other current liabilities 194,148 126,129
---------- ----------
Total current liabilities 8,474,230 6,293,882
---------- ----------
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 13,723,250 13,546,121
Equity adjustment from foreign currency
translation (666,927) (543,959)
Retained earnings 60,259,272 67,494,437
---------- ----------
73,465,595 80,646,599
Less treasury stock of 1,874,706 shares in
1997 and 1,915,835 shares in 1996, at cost 21,966,352 22,197,306
---------- ----------
Total stockholders' equity 51,499,243 58,449,293
---------- ----------
Total Liabilities and Stockholders' Equity $ 59,973,473 64,743,175
========== ==========
See accompanying notes to consolidated financial statements.
25
LABONE, INC. AND SUBSIDIARY
Consolidated Statements of Earnings
Years ended December 31, 1997, 1996 and 1995
1997 1996 1995
---------- ---------- ----------
Sales $ 78,926,119 59,431,855 57,029,424
Cost of sales 42,017,179 32,716,833 29,934,033
---------- ---------- ----------
Gross profit 36,908,940 26,715,022 27,095,391
---------- ---------- ----------
Selling, general and administrative
expenses 27,706,822 23,622,545 24,907,536
Provision for loss on disposal of
assets 6,553,279 - -
---------- ---------- ----------
Earnings from operations 2,648,839 3,092,477 2,187,855
---------- ---------- ----------
Other income (expenses):
Investment income 1,179,947 1,769,182 2,565,463
Other , net (58,245) 14,930 (3,144)
---------- ---------- ----------
Total other income 1,121,702 1,784,112 2,562,319
---------- ---------- ----------
Earnings before income taxes 3,770,541 4,876,589 4,750,174
---------- ---------- ----------
Income taxes (benefit)(note 3):
Current 4,392,742 2,485,473 1,259,416
Deferred (2,824,296) (476,783) 693,703
---------- ---------- ----------
Total income taxes 1,568,446 2,008,690 1,953,119
---------- ---------- ----------
Net earnings $ 2,202,095 2,867,899 2,797,055
========== ========== ==========
Basic and diluted earnings per share $ 0.17 0.22 0.21
==== ==== ====
Weighted average common shares
outstanding 13,106,383 13,076,103 13,049,537
========== ========== ==========
See accompanying notes to consolidated financial statements.
26
<TABLE>
LABONE, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1997, 1996 and 1995
<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, 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 ($.72 per share) - - - (9,414,332) - (9,414,332)
Adjustment from foreign
currency translation - - 1,859 - - 1,859
Net issuance of 30,149 shares
of treasury stock - 168,393 - - (38,855) 129,538
-------- ---------- --------- ---------- ---------- ----------
Balance at December 31, 1996 150,000 13,546,121 (543,959) 67,494,437 (22,197,306) 58,449,293
Net earnings - - - 2,202,095 - 2,202,095
Cash dividends ($.72 per share) - - - (9,437,260) - (9,437,260)
Adjustment from foreign
currency translation - - (122,968) - - (122,968)
Net issuance of 41,129 shares
of treasury stock - 177,129 - - 230,954 408,083
-------- ---------- --------- ---------- ---------- ----------
Balance at December 31, 1997 $150,000 13,723,250 (666,927) 60,259,272 (21,966,352) 51,499,243
======== ========== ========= ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
27
<TABLE>
<CAPTION>
LABONE, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
<S> <C> <C> <C>
1997 1996 1995
Cash provided by (used for) operations: ---------- ---------- ----------
Net earnings $ 2,202,095 2,867,899 2,797,055
Adjustments to reconcile net earnings to net
cash provided by operations:
Depreciation and intangibles amortization 4,770,415 4,014,304 4,543,793
Amortization of investment premium (251,233) (103,146) (352,358)
Deferred income taxes (2,832,976) (476,783) 693,703
(Gain) loss on disposal of equipment (120,087) 155,587 196,827
Provision for loss on disposal of assets 6,553,279 - -
Directors' stock compensation 66,834 62,096 77,890
Changes in:
Accounts receivable (3,005,980) (1,871,421) 909,324
Income tax receivable (271,331) - -
Inventories (755,422) 173,093 (745,918)
Prepaid expenses and other current assets (442,454) 808,589 124,399
Accounts payable 355,075 863,000 83,804
Income taxes payable - (50,560) (80,508)
Accrued payroll and benefits 1,727,669 830,091 57,018
Other accrued expenses 29,585 (508,486) (398,040)
Other current liabilities 68,019 (23,668) (29,916)
---------- ---------- ----------
Net cash provided by operations 8,093,488 6,740,595 7,877,073
---------- ---------- ----------
Cash provided by (used for) investment transactions:
Purchases of investments held to maturity (15,893,902) (15,752,895) (65,568,743)
Proceeds from maturities of investments held to maturity 18,155,062 23,394,571 69,459,252
Property, plant and equipment additions, net (6,676,615) (3,225,956) (2,860,612)
Acquisition of assets (note 2) (4,815,889) - -
Other (57,295) 17,559 7,299
---------- ---------- ----------
Net cash provided by (used for) investment transaction (9,288,639) 4,433,279 1,037,196
---------- ---------- ----------
Cash provided by (used for) financing transactions:
Issuance of treasury stock, net of proceeds from
exercise of stock options 341,249 67,442 10,711
Cash dividends (9,437,260) (9,414,332) (9,395,525)
---------- ---------- ----------
Net cash used for financing activities (9,096,011) (9,346,890) (9,384,814)
---------- ---------- ----------
Effect of foreign currency translation (71,544) 11,976 21,037
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents (10,362,706) 1,838,960 (449,508)
Cash and cash equivalents at beginning of year 28,647,378 26,808,419 27,257,927
---------- ---------- ----------
Cash and cash equivalents at end of year $ 18,284,672 28,647,379 26,808,419
========== ========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for income taxes $ 4,586,078 2,251,320 1,570,574
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
28
LABONE, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
(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. All significant intercompany transactions have been
eliminated in consolidation. LabOne was 82%-owned by Lab Holdings, Inc. (Lab
Holdings), formerly Seafield Capital Corporation, at December 31, 1997.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents include demand deposits in banks, marketable
securities with original maturities of three months or less, money market
investments 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. Debt 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.
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.
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
Intangible Assets
- -----------------
Intangible assets are recorded at their acquisition cost, net of amortization.
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 fifteen to twenty years.
29
LABONE, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
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. During the fourth quarter of
1997, LabOne decided to dispose of its office and headquarters building and lab
facility, which, net of accumulated depreciation, has been classified as real
estate available-for-sale (note 9). An impairment loss of $6,553,279 related
to the anticipated sale was recorded.
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.
Fair Value of Financial Instruments
- -----------------------------------
Estimates of fair values are subjective in nature and involve uncertainties and
matters of significant judgment and, therefore, cannot be determined with
precision. Changes in assumptions could affect the estimates. The fair market
value of LabOne's financial instruments at December 31, 1997 and 1996
approximates their carrying values.
Reclassifications
- -----------------
Certain highly liquid short-term investments previously designated as trading
securities have been reclassified to cash equivalents to more accurately reflect
the nature of the investments and to conform with the current year presentation.
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.
Earnings Per Share
- ------------------
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share,
which revised the calculation and presentation provisions of Accounting
Principles Board Opinion 15 and related interpretations. SFAS No. 128 became
effective for the year ended December 31, 1997. Basic earnings per share is
computed using the weighted average number of common shares and diluted
earnings per share is computed using the weighted average number of common
shares and dilutive stock options. The effect of stock options in 1997, 1996
and 1995 was immaterial.
30
LABONE, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Financial Statement Presentation
- --------------------------------
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
effective for LabOne's fiscal year ending December 31, 1998. Retroactive
application will be required.
(2) INTANGIBLE ASSETS
-----------------
The cost and accumulated amortization of intangible assets at December 31, 1997
and 1996 are as follows:
1997 1996
--------- ---------
Patent $ 8,000,000 8,000,000
Accumulated amortization 7,782,574 7,260,838
--------- ---------
217,426 739,162
--------- ---------
Excess of cost over fair value of assets acquired 8,598,959 4,470,684
Accumulated amortization 3,586,677 3,110,859
--------- ---------
5,012,282 1,359,825
--------- ---------
Intangible assets, net of accumulated
amortization $ 5,229,708 2,098,987
========= =========
Effective January 30, 1997, LabOne acquired certain assets, including customer
lists, of GIB Laboratories, Inc., a subsidiary of Prudential Insurance Company
of America, for $4,815,889. Concurrently, Prudential's Individual Insurance
Group agreed to use LabOne as its exclusive provider of risk assessment testing
services. The excess costs over fair value of GIB Laboratories, Inc. assets
acquired was $4,128,275.
(3) INCOME TAXES
------------
The components of income taxes and deferred taxes (benefit) applicable to
temporary differences are as follows (for the years ended December 31):
1997 1996 1995
---------- --------- ---------
Current:
Federal $ 3,452,979 1,878,022 1,007,007
State 633,839 347,809 66,852
Foreign 305,924 259,642 185,557
---------- --------- ---------
Total Current 4,392,742 2,485,473 1,259,416
---------- --------- ---------
Deferred:
Federal (2,339,175) (490,408) 475,021
State (487,993) (118,293) 124,499
Foreign 2,872 131,918 94,183
---------- --------- ---------
Total Deferred (2,824,296) (476,783) 693,703
---------- --------- ---------
$ 1,568,446 2,008,690 1,953,119
========== ========= =========
31
LABONE, INC. AND SUBSIDIARY
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):
1997 1996 1995
---------- --------- ---------
Application of statutory income
tax rate $ 1,281,984 1,658,040 1,615,059
Foreign taxes, net 72,062 113,803 84,472
State income taxes, net 99,649 151,481 126,292
Repatriation of foreign source
income - - 193,229
Tax-exempt interest (18,730) (44,708) (137,099)
Other, net 133,481 130,074 71,166
---------- --------- ---------
$ 1,568,446 2,008,690 1,953,119
========== ========= =========
The tax effects of temporary differences that create significant portions of
the deferred tax assets and deferred tax liabilities at December 31, 1997
and 1996 are presented below:
1997 1996
--------- ---------
Deferred current income tax assets (liabilities):
Unrealized loss on real estate
available-for sale $ 2,606,698 -
Accrued vacation 253,832 301,631
Accrued medical claims 79,554 63,643
Bad debts 384,600 260,968
Inventory adjustment 26,673 20,183
Other items (51,970) 35,781
--------- ---------
Total deferred current income tax
assets, net $ 3,299,387 682,206
========= =========
Deferred noncurrent tax assets:
Depreciation and amortization $ 321,799 111,405
Other items - 3,278
--------- ---------
Total deferred noncurrent tax assets $ 321,799 114,683
========= =========
A valuation allowance for deferred tax assets was not necessary at
December 31, 1997 or 1996.
32
LABONE, INC. AND SUBSIDIARY
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 $1,422,000, $1,260,000 and
$1,187,000 and for the years ended December 31, 1997, 1996 and 1995,
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,
1997, 1996 and 1995 were $558,000, $509,000 and $488,000, respectively.
(5) STOCK OPTIONS
-------------
LabOne has a long-term incentive plan which provides for granting awards,
including stock options, for not more than 3,150,000 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.
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," (SFAS 123) which permits entities to
33
LABONE, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
recognize as expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternately, SFAS 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 SFAS 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 SFAS 123.
<TABLE>
A summary of the status of the Company's stock option plan as of December 31,
1997, 1996, and 1995 and changes during the years then ended is presented below:
<CAPTION>
1997 1996 1995
--------------------- --------------------- ---------------------
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 1,459,559 $13.63 1,572,167 $13.07 1,317,068 $13.74
Granted 253,316 17.36 314,297 16.39 497,000 12.44
Exercised (71,907) 10.84 (120,305) 10.67 (43,511) 10.82
Forfeited (26,900) 15.95 (306,600) 14.74 (198,390) 16.41
-------- --------- ---------
Outstanding at end of year 1,614,068 14.30 1,459,559 13.63 1,572,167 13.07
========= ========= =========
Options exercisable at
year-end 820,609 12.94 718,705 12.21 881,696 12.34
========= ======= =======
</TABLE>
<TABLE>
The following table summarizes information about stock options at December 31,1997:
<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- 9.87 216,779 3.0 $ 9.87 216,779 $ 9.87
11.12-11.62 428,317 6.1 11.43 267,817 11.32
13.37-14.12 163,397 7.3 13.92 58,259 13.95
14.37-15.87 226,885 6.8 14.92 150,200 14.51
16.62-16.62 234,000 8.9 16.62 46,800 16.62
16.75-23.87 344,690 8.2 18.82 80,754 20.71
----------- --- ----- ------ -----
9.87-23.87 1,614,068 6.7 14.30 820,609 12.94
=========== =======
</TABLE>
The weighted-average per share fair value of stock options granted during 1997
1996 and 1995 was $5.08, $4.77 and $3.18, respectively, on the date of grant
using the Black Scholes option-pricing model with the following weighted
34
LABONE, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
average assumptions: 1997-expected dividend yield of 4.2%, risk-free interest
rate of 6.3%, expected volatility factor of 35.4% and an expected life of six
years; 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 SFAS 123, the Company's net earnings and
earnings per share would have been reduce by approximately the following:
$416,000, or $.03 per share, in 1997; $199,000, or $.02 per share, in 1996; and
$73,000, or $.01 per share, in 1995.
Pro forma net earnings reflect only options granted in 1997, 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS 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 1997, 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 1997, 1996 and 1995 amounted to $486,000,
$626,000 and $681,000, respectively. Because of the relocation of the
Company's facilities, the warehouse lease, with scheduled lease payments of
$125,408 in 1998, has been renewed through February 1999 and is not expected to
be renewed thereafter.
Future minimum lease payments and other commitments under these agreements as
of December 31, 1997, are:
Year Amount
---- ---------
1998 $ 425,462
1999 221,848
2000 119,908
(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:
1997 1996 1995
---------- ---------- ----------
Revenues $ 6,564,786 6,379,505 6,223,939
Operating earnings 644,842 718,567 289,223
Total assets 3,192,854 2,668,434 5,747,329
35
LABONE, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(8) EARNINGS PER SHARE
------------------
There were no adjustments to the income available to common stockholders amount
used in the computation of basic and diluted earnings per share calculations
for all years presented. The following table reconciles the weighted average
common shares used in the basic earnings per share calculation and the weighted
average common shares and common share equivalents used in the diluted per
share calculation:
1997 1996 1995
---------- ---------- ----------
Weighted average common shares
(basic) 13,106,383 13,076,103 13,049,537
Employee stock options 215,655 190,013 84,324
Weighted average common shares
and common shares equivalents
(diluted) 13,322,038 13,266,116 13,133,861
(9) COMMITMENTS
-----------
In October 1997, LabOne purchased approximately 54 acres of land at Renner
Ridge Corporate Park in Lenexa, Kansas. LabOne is planning to construct a
262,000 square foot facility to house all of its corporate, laboratory and
warehouse operations. Construction is expected to be completed in the early
part of 1999. This project is expected to cost approximately $27.5 million
and is expected to be primarily financed with and industrial revenue bond.
(10) INVESTMENT SECURITIES
---------------------
<TABLE>
A summary of investment securities information relating to quoted market values and unrealized
holding gains and losses at December 31, 1997 and 1996, is as follows:
<CAPTION>
1997
------------------------------------------------------------------
Amount at
which carried Unrealized Unrealized
Amortized Approximate in the balance holding holding
cost market sheet gains losses
------------------ ---------- ---------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
Held-to-maturity investments,
all with maturities less
than one year:
Canadian government notes 702,495 702,495 702,495 - -
Obligations of states and
political subdivisions 502,143 501,541 502,143 - 602
---------- ---------- ---------- -------- ---------
Total short-term
investments $ 1,204,638 1,204,036 1,204,638 - 602
========== ========== ========== ======== =========
</TABLE>
36
LABONE, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
<TABLE>
<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>
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 short-term
investments $ 2,748,050 2,742,755 2,748,050 - 5,295
========== ========== ========== ======== =========
Maturities more
than one year
------------------
Held-to-maturity investments:
Obligations of states and
political subdivisions $ 504,292 503,500 504,292 - 792
========== ========== ========== ======== =========
</TABLE>
(11) Business Segment Information
----------------------------
The company operates principally in three lines of business: insurance and,
since 1994, clinical and substance abuse testing. 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. 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.
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.
37
LABONE, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Following is a summary of line of business information as of and for the
years ended December 31, 1997, 1996 and 1995:
1997 1996 1995
---------- ---------- ----------
Sales:
Insurance $ 61,997,817 50,800,650 52,544,434
Clinical 7,511,889 3,941,704 2,297,089
Substance abuse testing 9,416,413 4,689,501 2,187,901
---------- ---------- ----------
Total sales $ 78,926,119 59,431,855 57,029,424
========== ========== ==========
Operating income (loss):
Insurance $ 18,507,849 12,610,224 12,412,226
Clinical (8,303,741) (7,967,348) (8,761,819)
Substance abuse testing (933,832) (1,235,982) (1,096,489)
General corporate expenses (188,245) (158,830) (169,236)
Investment income 1,179,947 1,769,182 2,565,463
Other income (expense) (6,491,437) (140,657) (199,971)
---------- ---------- ----------
Earning before income taxes 3,770,541 4,876,589 4,750,174
Income tax expense 1,568,446 2,008,690 1,953,119
---------- ---------- ----------
Net earnings $ 2,202,095 2,867,899 2,797,055
========== ========== ==========
Identifiable assets:
Insurance $ 25,020,052 24,327,970 25,028,933
Clinical 3,512,587 4,022,258 4,466,868
Substance abuse testing 4,994,104 3,323,245 2,131,398
General corporate assets 26,446,730 33,069,702 38,420,635
---------- ---------- ----------
Total assets $ 59,973,473 64,743,175 70,047,834
========== ========== ==========
Capital expenditures:
Insurance $ 3,308,320 2,558,275 1,334,677
========== ========== =========
Clinical $ 468,538 162,814 905,760
========== ========== =========
Substance abuse testing $ 946,268 504,867 620,175
========== ========== =========
General corporate $ 2,553,218 - -
========== ========== =========
Depreciation and amortization:
Insurance $ 3,185,661 2,504,472 3,151,055
========== ========== =========
Clinical $ 940,223 1,141,210 1,083,690
========== ========== =========
Substance abuse testing $ 644,531 368,622 309,048
========== ========== =========
In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, effective for the fiscal year ending
December 31, 1998. Retroactive application will be required. The Company does
not expect this statement to have a significant effect on segment disclosures.
38
LABONE, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(12) QUARTERLY FINANCIAL DATA (UNAUDITED)
------------------------------------
A summary of unaudited quarterly results of operations for 1997 and 1996 is as
follows (in thousands except per share data):
Three months ended
March 31 June 30 September 30 December 31
1997: ------- ------- ------- -------
Sales $ 17,740 20,307 19,728 21,151
====== ====== ====== ======
Gross profit 8,290 9,671 9,064 9,884
====== ====== ====== ======
Earnings before income taxes 2,287 2,853 2,603 (3,972)
====== ====== ====== ======
Net earnings 1,359 1,687 1,536 (2,380)
====== ====== ====== ======
Basic and diluted earnings
per share 0.10 0.13 0.12 (0.18)
====== ====== ====== ======
Dividends per share 0.18 0.18 0.18 0.18
====== ====== ====== ======
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
====== ====== ====== ======
Basic and diluted earnings
per share 0.02 0.06 0.06 0.08
====== ====== ====== ======
Dividends per share 0.18 0.18 0.18 0.18
====== ====== ====== ======
39
Schedule II
-----------
LABONE, INC. AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1997, 1996 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, 1997 $657,558 521,193 210,456 968,295
======= ======= ======= =======
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
======= ======= ======= =======
40
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, 1997.
Dated: February 13, 1998
/s/ Joseph H. Brewer MD
------------------------------
Joseph H. Brewer, MD, Director
/s/ William D. Grant
------------------------------
William D. Grant, 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
43
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
1997 Form 10-K 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-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 18,284,672
<SECURITIES> 1,204,638
<RECEIVABLES> 13,572,982
<ALLOWANCES> 968,295
<INVENTORY> 2,203,471
<CURRENT-ASSETS> 43,900,178
<PP&E> 43,956,571
<DEPRECIATION> 33,515,280
<TOTAL-ASSETS> 59,973,473
<CURRENT-LIABILITIES> 8,474,230
<BONDS> 0
0
0
<COMMON> 150,000
<OTHER-SE> 51,349,243
<TOTAL-LIABILITY-AND-EQUITY> 59,973,473
<SALES> 0
<TOTAL-REVENUES> 78,926,119
<CGS> 0
<TOTAL-COSTS> 42,017,179
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 571,192
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,770,541
<INCOME-TAX> 1,568,446
<INCOME-CONTINUING> 2,202,095
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,202,095
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
Exhibit 10.5
------------
Amendment to Paragraph 2(a) of LabOne, Inc. Long Term Incentive Plan
--------------------------------------------------------------------
(a) Committee: The Plan shall be administered by a Committee (the
Committee) consisting of two or more members of the Board of Directors
of LabOne (the Board of Directors), each of whom (i) shall be an
Outside Director of LabOne, (ii) shall be a "Non-Employee Director"
within the meaning of Rule 16b-3 under the Securities and Exchange
Act of 1934, as amended from time to time (the 1934 Act) or any
successor rule of similar import, and (iii) shall be selected from
time to time by the Board of Directors.
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
the fiscal year, the Committee establishes an operating earnings goal
under the Plan based upon the Committee's judgment of reasonable operating
earnings growth over the previous fiscal year. The size of the incentive
pool increases pursuant to a formula established by the Committee as operating
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
