UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended March 31, 1999
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Commission file number 0-15975
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LabOne, Inc.
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10101 Renner Blvd
Lenexa, Kansas 66219
(913) 888-1770
Incorporated in Delaware
I.R.S. Employer Identification Number: 48-0952323
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 the only class of Registrant's common stock,
$.01 par value, as of May 1, 1999 - 13,311,450 shares net of 1,688,550 shares
held as treasury stock.
Page 1 of 13
<TABLE> PART I. FINANCIAL INFORMATION
ITEM 1 - Financial Statements
LabOne, Inc. and Subsidiaries
Consolidated Balance Sheets
<S> <C> <C>
March 31, December 31,
1999 1998
ASSETS --------- ---------
Current assets:
Cash and cash equivalents $6,918,256 10,177,740
Accounts receivable-trade, net of allowance for doubtful
accounts of $2,863,670 in 1999 and $2,326,716 in 1998 19,696,648 18,735,984
Income taxes receivable 177,799 282,229
Inventories 1,360,762 1,798,481
Real estate available for sale 1,793,207 3,515,000
Prepaid expenses and other current assets 2,488,127 2,504,768
Deferred income taxes 3,284,203 3,972,575
---------- ----------
Total current assets 35,719,002 40,986,777
Property, plant and equipment 76,360,991 72,915,797
Less accumulated depreciation 34,652,381 35,983,169
---------- ----------
Net property, plant and equipment 41,708,610 36,932,628
Other assets:
Intangible assets, net of accumulated amortization 8,294,770 8,469,322
Bond issue costs, net of accumulated amortization
of $10,190 in 1999 and $5,823 in 1998 181,957 186,324
Deposits and other assets 210,550 206,127
--------- ----------
Total assets $86,114,889 86,781,178
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,310,712 4,353,733
Retainage and construction payable 3,473,065 3,809,193
Current portion of long-term debt 1,862,602 1,860,168
Accrued payroll and benefits 3,083,031 4,148,593
Other accrued expenses 566,871 610,315
Other current liabilities 344,044 274,198
---------- ----------
Total current liabilities 14,640,325 15,056,200
Long-term debt 18,094,181 18,097,308
Deferred income taxes - noncurrent 633,021 446,745
---------- ----------
Total liabilities 33,367,527 33,600,253
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 14,099,066 14,099,066
Equity adjustment from foreign currency translation (833,623) (849,098)
Retained earnings 59,539,035 59,988,073
---------- ----------
72,954,478 73,388,041
Less treasury stock of 1,688,550 shares in
1999 and 1998 20,207,116 20,207,116
---------- ----------
Total stockholders' equity 52,747,362 53,180,925
---------- ----------
Total liabilities and stockholders' equity $86,114,889 $86,781,178
========== ==========
See accompanying notes to consolidated financial statements and management's discussion and
analysis of financial condition and results of operations.
Page 2
</TABLE>
LabOne, Inc. and Subsidiaries
Consolidated Statements of Earnings
Three months ended March 31,
1999 1998
---------- ----------
Sales $ 27,328,085 23,333,434
Cost of sales 15,651,339 12,958,948
---------- ----------
Gross profit 11,676,746 10,374,486
Selling, general and administrative expenses 8,426,476 7,310,802
---------- ----------
Earnings from operations 3,250,270 3,063,684
Interest expense (289,673) -
Interest income and other 87,675 232,899
---------- ----------
Earnings before income taxes 3,048,272 3,296,583
Income tax expense 1,101,249 1,296,520
---------- ----------
Net earnings $ 1,947,023 2,000,063
========== ==========
Basic and diluted earnings per common share $ 0.15 0.15
====== ======
Dividends per common share $ 0.18 0.18
====== ======
Basic weighted average common shares outstanding 13,311,450 13,134,883
========== ==========
Diluted weighted average common shares outstanding 13,339,471 13,318,945
========== ==========
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 Subsidiaries
Consolidated Statement of Stockholders' Equity
Three Months Ended March 31, 1999
<TABLE>
<CAPTION>
Accumulated
Additional other Total
Common paid-in comprehensive Retained Treasury stockholders' Comprehensive
stock capital income earnings stock equity income
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1998 $150,000 14,099,066 (849,098) 59,988,073 (20,207,116) 59,988,073
Comprehensive income:
Net earnings 1,947,023 1,947,023 1,947,023
Equity adjustment
from foreign
currency translation 15,475 15,475 15,475
---------
Comprehensive income 1,962,498
=========
Cash dividends
($0.18 per share) (2,396,061) (2,396,061)
-------- ---------- --------- ----------- ---------- -----------
Balance at
March 31, 1999 $150,000 14,099,066 (833,623) 59,539,035 (20,207,116) 52,747,362
======== ========== ========= ========== =========== ==========
</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 Subsidiaries
Consolidated Statements of Cash Flows
Three months ended
March 31,
1999 1998
--------- ---------
Cash provided by (used for) operations:
Net earnings $ 1,947,023 2,000,063
Adjustments to reconcile net earnings
to net cash provided by operations:
Depreciation and amortization 1,269,072 1,084,285
Loss (gain) on disposal of
Property and equipment (287,107) 127
Deferred Income taxes 875,484 25,187
Changes in:
Accounts receivable (960,664) (2,793,578)
Income taxes 104,430 1,113,197
Inventories 437,719 309,781
Prepaid expenses and other current assets 16,641 (8,219)
Accounts payable (464,305) 1,002,187
Accrued payroll & benefits (1,065,562) (1,551,064)
Other Accrued expenses 1,041,712 126,706
Other current liabilities 69,846 (8,364)
---------- ----------
Net cash provided by operations 2,984,289 1,300,308
---------- ----------
Cash provided by (used for) investment transactions:
Purchases of investments held to maturity - (4,467,421)
Proceeds from maturities of investments held
to maturity - 701,894
Property, plant and equipment, net (3,854,833) (1,724,596)
Other (4,423) 537
---------- ----------
Net cash used for investment transactions (3,859,256) (5,489,586)
---------- ----------
Cash provided by (used for) financing transactions:
Issuance of treasury stock, net of proceeds
from the exercise of stock options - 69,090
Payments on long term debt - capital lease (2,966) -
Cash dividends (2,396,061) (2,364,400)
---------- ----------
Net cash used for financing transactions (2,399,027) (2,295,310)
---------- ----------
Effect of foreign currency translation 14,510 9,338
---------- ----------
Net decrease in cash and cash equivalents (3,259,484) (6,475,250)
Cash and cash equivalents - beginning of period 10,177,740 18,284,672
---------- ----------
Cash and cash equivalents - end of period $ 6,918,256 11,809,422
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 326,590 -
Income Taxes $ 162,464 109,155
========== ==========
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 Subsidiaries
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
The accompanying consolidated financial statements include the accounts of
LabOne, Inc. and its wholly-owned subsidiaries Lab One Canada Inc. and
Systematic Business Services, Inc. (SBSI). All significant intercompany
transactions have been eliminated in consolidation.
The financial information furnished herein as of March 31, 1999 and for the
periods ended March 31, 1999 and 1998 is unaudited; however, in the opinion of
management, it reflects all adjustments, consisting of normal recurring
adjustments, which are necessary to fairly state the Company's financial
position, the results of its operations and cash flows. The balance sheet
information as of December 31, 1998 has been derived from the audited
financial statements as of that date. 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, 1998, for additional information not required by this
Quarterly Report on Form 10-Q.
Effective October 30, 1998, LabOne acquired SBSI, a Missouri corporation.
SBSI provides telephone inspections, motor vehicle reports, attending
physician statements and claims investigation services to life and health
insurers nationwide.
LabOne is currently 80.5% owned by Lab Holdings, Inc. On March 8, 1999,
LabOne and Lab Holdings jointly announced that the Boards of Directors of both
companies had approved an agreement to merge the two companies. If
consummated, the proposed merger will have several effects which are fully
discussed in the Registration Statement on Form S-4 filed by Lab Holdings with
the United States Securities and Exchange Commission on April 13, 1999 (File
No. 333-76131), which may be amended from time to time. Representatives of
Lab Holdings negotiated the merger with a Special Committee of independent
directors of LabOne that was established to represent the interests of the
holders of the 19.5% of common stock of LabOne not owned by Lab Holdings. The
Special Committee, which had the assistance of independent legal and financial
advisors, also approved the merger agreement and recommended its approval by
the LabOne board and stockholders. The merger is expected to close in July
following the satisfaction of a number of closing conditions. These include
approval by the holders of two-thirds of the outstanding Lab Holdings shares
and a majority of the shares voted by LabOne stockholders other than Lab
Holdings and its affiliates. Financing must also be obtained sufficient to
satisfy cash elections after the use of available cash of LabOne and Lab
Holdings
Forward Looking Statements
- --------------------------
This Quarterly report on Form 10-Q may contain "forward-looking statements,"
including projections, statements of plans and objectives, statements of
future economic performance and statements of assumptions underlying such
statements. Forward-looking statements involve known and unknown risks and
Page 6
uncertainties. Many factors could cause actual results to differ materially
from those that may be expressed or implied in such forward-looking
statements, including, but not limited to, the volume and pricing of
laboratory tests performed by the Company, competition, the extent of market
acceptance of the Company's testing services in the healthcare and substance
abuse testing industries, general economic conditions and other factors
detailed from time to time in the Company's reports and registration
statements filed with the Securities and Exchange Commission, including the
Cautionary Statement filed as exhibit 99 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1998.
Business Segment Information
- ----------------------------
The company operates in three lines of business: insurance risk appraisal
testing, clinical diagnostic testing and substance abuse testing. The
following table presents selected financial information for each segment:
Three Months Ended March 31,
1999 1998
---- ----
Sales:
Insurance $ 17,584,247 16,822,452
Clinical 5,957,526 3,654,043
Substance abuse testing 3,786,312 2,856,939
---------- ----------
Total sales $ 27,328,085 23,333,434
========== ==========
Operating income (loss):
Insurance $ 4,151,834 5,212,264
Clinical (958,778) (1,935,046)
Substance abuse testing (118,940) (178,786)
General corporate income (expense) 176,154 (34,748)
--------- ---------
Total earnings from operations 3,250,270 3,063,684
Other income (expense) (201,998) 232,899
--------- ---------
Earnings before income taxes $ 3,048,272 3,296,583
========= =========
Company assets classified as corporate increased significantly due to bond
proceeds and construction of the new facility. There were no material changes
in assets in the other segments, or in the basis of segmentation or
measurement of segment operating income or loss.
Contingencies Tax Assessment
- -------------
The Comptroller of the State of Texas has conducted an audit of LabOne for
sales tax compliance and contends that LabOne's insurance laboratory testing
services are taxable under the Texas tax code and has issued an audit
assessment, including interest and penalties, of approximately $1.9 million.
The Company has appealed this assessment arguing that its services do not fit
within the definition of insurance services under the Texas code. The
assessment is under review by the Texas State Hearing Attorney. At this time,
the Company is unable to estimate the possible liability, if any, that may be
incurred as a result of this assessment.
Page 7
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>
Three Months Ended % Increase
March 31, (Decrease)
1999 1998
----------- ----------- ----------
Sales $ 27,328,085 23,333,434 17%
Net earnings 1,947,023 2,000,063 (3%)
Earnings per common share $0.15 0.15
Cash dividends per common share $0.18 0.18
</TABLE>
The Company provides high-quality laboratory testing services to insurance
companies, physicians and employers.
LabOne provides risk-appraisal laboratory services to the insurance industry.
The tests performed by the Company are specifically designed to assist an
insurance company in objectively evaluating the mortality and morbidity risks
posed by policy applicants. The majority of the testing is performed on
specimens of individual life insurance policy applicants. The Company also
provides testing services on specimens of individuals applying for individual
and group medical and disability policies. Through its subsidiary, SBSI, the
Company provides telephone inspections, motor vehicle reports, attending
physician statements, and claims investigation services to life and health
insurers nationwide.
LabOne's clinical testing services are provided to the healthcare industry to
aid in the diagnosis and treatment of patients. LabOne operates only one
highly automated and centralized laboratory, which the Company believes has
significant economic advantages over other conventional laboratory
competitors. LabOne markets its clinical testing services to the payers of
healthcare--insurance companies and self-insured groups. The Company does
this through Lab Card(, a Laboratory Benefits Management (LBM) program.
The Lab Card Program provides laboratory testing at reduced rates as compared
to traditional laboratories. It uses a unique benefit design that shares the
cost savings with the patient, creating an incentive for the patient to help
direct laboratory work to LabOne. Under the Program, the patient incurs no
out-of-pocket expense when the Lab Card is used, and the insurance company or
self-insured group receives substantial savings on its laboratory charges.
The Company's LBM programs, including BlueCross BlueShield of Tennessee and
the Lab Card program, have more than 2.3 million lives enrolled.
LabOne is certified by the Substance Abuse and Mental Health Services
Administration (SAMHSA) to perform substance abuse testing services for
federally regulated employers and is currently marketing these services
throughout the country to both regulated and nonregulated employers. The
Company's rapid turnaround times and multiple testing options help clients
reduce downtime for affected employees and meet mandated drug screening
guidelines.
Page 8
FIRST QUARTER ANALYSIS
Net sales increased 17% in the first quarter 1999 to $27.3 million from $23.3
million in the first quarter 1998. The increase of $4.0 million is due to
increases in clinical laboratory revenue of $2.3 million, substance abuse
testing (SAT) revenue of $0.9 million and insurance services revenue of $0.8
million.
Clinical diagnostic testing revenue increased from $3.7 million to $6.0
million for the quarter due to increased testing volumes partially offset by a
6% decrease in average revenue per patient. SAT revenue increased from $2.9
million in 1998 to $3.8 million in 1999 due to a 35% increase in testing
volumes as compared to last year.
The insurance services division revenue increased $0.8 million due to the
addition of SBSI revenue and growth in non laboratory services revenue,
partially offset by lower laboratory and kit revenue. SBSI contributed $1.9
million, and non laboratory services revenue increased $0.3 million over last
year. Insurance laboratory testing revenue decreased $0.8 million as a result
of competitive pressures. The total number of insurance applicants tested in
the first quarter 1999 decreased by 4% as compared to the same quarter last
year. Average revenue per applicant decreased 2.5%. Kit and container
revenue declined due to a decrease in the number of kits sold.
Cost of sales increased $2.7 million or 21% in the first quarter 1999 as
compared to the prior year, due to increases in payroll, outside services such
as paramed collections and state motor vehicle report fees, and postage
expense. A significant portion of these increases are related to the addition
of SBSI. Laboratory overtime and regular labor expense increased related to
the move to the new facility. These increases were partially offset by a
decrease in insurance kit expenses due to lower sales volumes. Clinical cost
of sales expenses were $3.9 million as compared to $3.4 million in the first
quarter 1998. SAT cost of sales expenses were $2.8 million as compared to
$2.1 million in the first quarter 1998. Insurance cost of sales expenses
increased from $7.5 million to $9.0 million primarily due to the addition of
SBSI.
As a result of the above factors, gross profit for the quarter increased $1.3
million or 13% from $10.4 million in 1998 to $11.7 million in 1999. Clinical
gross profit increased $1.7 million on an increase in revenue of $2.3 million.
SAT gross profit increased $0.2 million on an increase in revenue of $0.9
million. Insurance gross profit decreased $0.7 million or 7%.
Selling, general and administrative expenses increased $1.1 million or 15% in
the first quarter 1999 as compared to the prior year due primarily to the
inclusion of SBSI and increases in bad debt, depreciation and moving expenses.
Insurance expenditures increased to $4.5 million for the quarter as compared
to $4.1 million in 1998 primarily due to the addition of SBSI. Total clinical
expenditures increased $0.8 million to $3.0 million in 1999 primarily due to
an increase in corporate overhead allocations to $0.9 million in 1999 from
$0.6 million in 1998 and an increase in bad debt expense. SAT expenditures
were $1.1 million as compared to $1.0 million last year. Closure on the sale
of the former laboratory facility resulted in a gain of $0.3 million.
Depreciation expense on the new facility is expected to be less than $0.3
million per quarter.
Earnings from operations increased from $3.1 million in the first quarter 1998
to $3.3 million in 1999. The clinical segment improved $1.0 million to an
Page 9
operating loss of $1.0 million. The SAT segment improved $0.1 million from an
operating loss of $0.2 million in the first quarter 1998 to a loss of $0.1
million in 1999. The insurance segment declined $1.1 million to an operating
profit of $4.2 million.
Non operating expense increased $0.4 million primarily due to interest expense
on the industrial revenue bonds and a reduction in capital available for
investment. The effective income tax rate declined from 39% in 1998 to 36% in
1999 due to state income tax incentives.
The combined effect of the above factors resulted in net earnings of $1.9
million or $0.15 per share in the first quarter 1999 as compared to $2.0
million or $0.15 per share in the same period last year.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
- ---------------------------------------------------
LabOne's working capital position decreased by $4.8 million to $21.1 million
at March 31, 1999 from $25.9 million at December 31, 1998. This decrease is
primarily due to dividends paid and capital additions exceeding cash provided
by operations. Cash flow from operations increased by $1.7 million in the
first quarter 1999 as compared to 1998. The increase is primarily
attributable to slower growth in accounts receivable.
Additions to property, plant and equipment, net of the sale of the former
laboratory facility, were $3.9 million in the first quarter 1999, primarily
related to construction and fixtures for the new facility. Net additions in
the first quarter 1998 were $1.7 million. Capital additions are expected to
be approximately $5.0 million annually.
In February 1999, LabOne's Board of Directors declared a dividend of $0.18 per
common share. This dividend was paid on March 2, 1999, to stockholders of
record as of February 23, 1999, and totaled approximately $2.4 million. The
board reviews 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.
If the proposed merger between LabOne and Lab Holdings is consummated, the
future dividend policy of the combined company in the merger will be
determined by its new Board of Directors, a majority of whom will be
independent non-management directors. Although nine of the eleven current
LabOne directors are expected to continue as directors of the combined
company, there can be no assurance as to any dividend determinations by that
board in the future. That determination will be subject to the financial
condition, operating results, and liquidity of the combined company and
numerous other factors. In addition, the pursuit by the combined company of
LabOne's growth and diversification strategy, the increased financial leverage
that is expected to result from the merger, changes in the market for LabOne's
products and services, negative impacts caused by other risks described in the
Registration Statement on Form S-4 filed by Lab Holdings with the United
States Securities and Exchange Commission on April 13, 1999 (File No. 333-
76131), which may be amended from time to time, or any of them singly or
together with other factors could influence the board of the combined company
to reduce or eliminate the quarterly dividend.
Under the merger agreement, LabOne shareholders (other than Lab Holdings) may
elect to exchange each LabOne share for either one share of the combined
company, $12.75 in cash, or a combination of shares and cash. Cash elections
Page 10
are subject to an aggregate cash limit of $16.6 million. It is expected that
the combined company will need to borrow up to $13.6 million to satisfy cash
elections in excess of $3 million. Additional cash could be needed if any Lab
Holdings shareholders perfect dissenters' rights. These additional borrowings
will increase annual interest expense and subject the combined company to the
normal risks associated with debt financing. However, the amount of these
borrowings is not expected to have a negative impact on earnings per share
because the increased borrowing expense would be offset by the reduction in
the number of shares of the combined company issued in the merger as a result
of cash elections by LabOne stockholders. The additional financial leverage
could also impair the ability of the combined company to pursue acquisition
and growth strategies that would otherwise be available or impact future
operating results due to higher debt service in the event that future
acquisitions are completed. Existing loan agreements do not contain covenants
that will directly prohibit the board of directors of the combined company
from continuing Holdings' quarterly dividends at the current amount. However,
the increased debt combined with other circumstances could cause the board of
the combined company to reduce or discontinue the quarterly dividend. Other
circumstances include negative operating results, acquisition or other
expenditures or commitments incurred to continue LabOne's diversification and
growth strategy, or the effect of general financial covenants contained in the
loan agreements.
One effect of the merger will be to add transaction goodwill to the balance
sheet of the combined company in an estimated amount ranging from about $22.2
million to $24.9 million. This transaction goodwill reflects the expected
difference between the cost of LabOne shares that Lab Holdings will be treated
as acquiring in the merger and the fair value of the LabOne net assets
allocated to these acquired shares. If the merger is consummated, the
combined company's balance sheet will also include about $6.0 million in
existing historical goodwill that currently is a Lab Holdings asset that
resulted from Holding's prior acquisitions of LabOne stock. Following the
merger, this historical and transaction goodwill is expected to negatively
impact reported earnings of the combined company at an estimated annual rate
from about $2.6 million to $2.8 million until the historical goodwill is fully
amortized in April 2003, and thereafter at an estimated annual rate from about
$1.1 million to $1.3 million until the 20th anniversary of the merger. The
amounts in this paragraph are hypothetical assuming that the merger had
occurred as shown on the pro forma financial statements included in the above
Registration Statement. The actual amount of goodwill incurred in the merger
will depend on the number of combined company shares issued in the merger, the
actual amount of transaction costs and the fair value of the LabOne net assets
at the time of the merger.
The total number of shares of LabOne stock held in treasury at March 31, 1999
was approximately 1.7 million at a total cost of $20.2 million or $11.97 per
share. The Company had no short-term borrowings in the first quarter 1999.
The Company expects to fund operations and future dividend payments from a
combination of cash flows from operations, cash reserves and short term
borrowings. Proceeds from the industrial revenue bond have been used to
finance the construction of the Company's new facility project. Interest on
the bond is based on a taxable seven day variable rate and is currently
approximately 5.7%. The Company expects to repay the bond over 11 years at
$1.85 million per year plus interest. At March 31, 1999, LabOne had total
cash and investments of $6.9 million as compared to $10.2 million at December
31, 1998.
Page 11
YEAR 2000
- ---------
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's
laboratory operating systems and its business processing systems were
completely rewritten in the past ten years and were brought into compliance
with Year 2000 date standards at that time. As part of construction of the
new facility, certified compliant security systems, time clocks and heating
and cooling systems (non-IT systems) were installed. The Company expects to
complete all remaining internal Year 2000 objectives by the end of the second
quarter, 1999.
LabOne is assessing the Year 2000 preparation and contingency plans of the
Company's clients and vendors. LabOne has material relationships and
dependencies with its primary telecommunications provider, Sprint Corp., its
inbound shipping provider, Airborne Express, and municipal services providers.
In the event of a service interruption, the Company has the ability to switch
telecommunications services to AT&T at any time, and maintains backup
electrical generators capable of meeting its electrical needs. LabOne
currently tracks and controls routing of its inbound specimens and can use
USPS, airlines and other common carriers or express delivery services in the
event of delivery problems with Airborne Express. The Company currently
maintains approximately 8 weeks supply of most laboratory supplies, and does
not expect significant problems in obtaining supplies. The Company continues
to review the Year 2000 plans of these providers, and does not currently
expect significant problems in these areas, however, there can be no assurance
that the systems of clients and vendors will be converted to address Year 2000
problems in a timely and effective manner or that such conversions will be
compatible with the Company's computer systems.
Resources dedicated to the remaining effort are expected to cost less than
$0.2 million and are not considered a material expense to the Company. These
efforts have not caused delay to the Company's other ongoing information
systems projects. LabOne has not hired any outside consultants or other
independent validation provider at this time, and does not expect to do so.
There can be no assurance that the Company's adjustments to its computer
systems will completely eliminate all Year 2000 problems. Failure to properly
address the Year 2000 problem could have a material adverse effect on the
Company's business, financial condition and results of operations.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
A foreign currency risk exposure exists due to billing Canadian subsidiary
revenue in Canadian dollars and the direct laboratory expenses associated with
this revenue being incurred in US dollars. This exposure is not considered to
be material. Any future material Canadian currency fluctuations against the
US$ could result in a decision to hedge future foreign currency cash flows, or
to increase Canadian prices.
An interest rate risk exposure exists due to LabOne's liability of $20 million
in industrial revenue bonds. The interest expense incurred on these bonds is
based on a taxable seven day variable rate, which including letter of credit
and remarketing fees, is approximately 5.7% as of May 1, 1999. This exposure
is not considered material. Any future increase in interest rates would
result in additional interest expense and could result in a decision to enter
into a long-term interest rate swap transaction.
Page 12
PART II. OTHER INFORMATION
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits
2. Form of Agreement and Plan of Merger, by and between Lab Holdings, Inc.
and LabOne, Inc., as amended and restated, dated March 7, 1999
(incorporated by reference to Exhibit 2.3 to Lab Holdings' Registration
Statement on Form S-4 filed April 13, 1999, file No. 333-76131).
27. Financial Data Schedule - as filed electronically by the
Registrant in conjunction with this first quarter 1999 Form 10-Q.
(b) Reports on Form 8-K
A Form 8-K current report dated March 8, 1999, was filed with the
Commission reporting under Other Events that LabOne and Lab Holdings, Inc. had
entered into an agreement to merge the two companies.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LabOne, Inc.
Date: May 13, 1999 By /s/ Kurt E. Gruenbacher
------------------------
Kurt E. Gruenbacher,
V.P. Finance, CAO
and Treasurer
Date: May 13, 1999 By /s/ Robert D. Thompson
------------------------
Robert D. Thompson,
Executive V.P., Chief
Operating Officer and
Chief Financial Officer
Page 13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
first quarter 1999 Report on Form 10-Q for LabOne, Inc. and is
qualified in its entirety by reference to such financials.
</LEGEND>
<CIK> 0000816151
<NAME> LABONE, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 6,918,256
<SECURITIES> 0
<RECEIVABLES> 22,560,318
<ALLOWANCES> 2,863,670
<INVENTORY> 1,360,762
<CURRENT-ASSETS> 35,719,002
<PP&E> 76,360,991
<DEPRECIATION> 34,652,381
<TOTAL-ASSETS> 86,114,889
<CURRENT-LIABILITIES> 14,640,325
<BONDS> 18,094,181
0
0
<COMMON> 150,000
<OTHER-SE> 52,597,362
<TOTAL-LIABILITY-AND-EQUITY> 86,114,889
<SALES> 0
<TOTAL-REVENUES> 27,328,085
<CGS> 0
<TOTAL-COSTS> 15,651,339
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 289,673
<INCOME-PRETAX> 3,048,272
<INCOME-TAX> 1,101,249
<INCOME-CONTINUING> 1,947,023
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,947,023
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
</TABLE>
