UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 2
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
----- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
----- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-16946
LAB HOLDINGS, INC.
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(Exact name of registrant as specified in its charter)
Missouri 43-1039532
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 7568
5000 W. 95th Street, Suite 260
Shawnee Mission, KS 66207
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(Address of principal (Zipcode)
executive offices)
Registrant's telephone number, including area code (913) 648-3600
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- ----
Number of shares outstanding of only class of Registrant's common stock as of
May 6, 1999: $1 par value common - 6,489,103
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LAB HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
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(unaudited)
March 31, December 31,
1999 1998
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(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 11,745 15,223
Accounts receivable 19,692 18,730
Current income taxes 374 400
Inventories 1,361 1,798
Real estate available for sale 1,793 3,515
Prepaid expenses and other current assets 2,589 2,753
Deferred income taxes 3,284 3,973
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Total current assets 40,838 46,392
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Property, plant and equipment 76,365 72,919
Less accumulated depreciation 34,653 35,983
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Net property, plant and equipment 41,712 36,936
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Other assets:
Intangible assets 13,090 13,770
Deferred income taxes 342 485
Other assets 1,149 425
---------------------
Total Assets $ 97,131 98,008
=====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,962 4,393
Retainage and construction payable 3,473 3,809
Accrued payroll and benefits 3,083 4,149
Other accrued expenses 567 610
Other current liabilities 344 275
Current portion of long-term debt 1,863 1,860
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Total current liabilities 15,292 15,096
Long-term debt 18,094 18,097
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Total liabilities 33,386 33,193
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Minority interests 10,141 10,276
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Stockholders' equity:
Preferred stock of $1 par value.
Authorized 3,000,000 shares; none issued -- --
Common stock of $1 par value.
Authorized 24,000,000 shares;
issued 7,500,000 shares 7,500 7,500
Paid-in capital 2,921 2,921
Accumulated other comprehensive income (loss) (671) (683)
Retained earnings 73,998 74,945
---------------------
83,748 84,683
Less cost of 1,010,897 shares
of treasury stock 30,144 30,144
---------------------
Total stockholders' equity 53,604 54,539
---------------------
Total Liabilities and Stockholders' Equity $ 97,131 98,008
=====================
See accompanying notes to consolidated financial statements and
management's discussion and analysis of financial condition and
results of operations.
LAB HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements Of Earnings
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(unaudited)
Three months ended
March 31,
1999 1998
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(in thousands except share amounts)
Sales $ 27,328 23,333
Cost of sales 15,651 12,959
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Gross profit 11,677 10,374
Selling, general and administrative 9,188 7,997
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Earnings from operations 2,489 2,377
Investment income - net 147 367
Interest expense (290) --
Other income (expense) (6) (1)
---------------------
Earnings before income taxes 2,340 2,743
Income taxes 979 1,249
---------------------
Earnings before minority interests 1,361 1,494
Minority interests 362 354
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Net earnings $ 999 1,140
=====================
Basic earnings per share $ .15 .18
Diluted earnings per share $ .15 .17
Dividends per share $ .30 .30
Book value per share $ 8.26 8.57
Weighted average shares outstanding 6,489,103 6,489,103
Shares outstanding end of period 6,489,103 6,489,103
See accompanying notes to consolidated financial statements and management's
discussion and analysis of financial condition and results of operations.
LAB HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity and Comprehensive Income
Three Months Ended March 31, 1999(unaudited)
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Comprehensive Stockholders'
Income Equity
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(in thousands)
Common stock:
Balance, beginning and end of period $ 7,500
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Paid-in capital:
Balance, beginning and end of period 2,921
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Retained earnings:
Balance, beginning of period 74,945
Net earnings 999 999
Cash dividends paid (1,946)
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Balance, end of period 73,998
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Accumulated other comprehensive income (loss)
Balance, beginning of period (683)
Foreign currency translation 12 12
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Balance, end of period (671)
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Less:
Treasury stock:
Balance, beginning and end of period 30,144
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Totals $ 1,011 53,604
======== ========
See accompanying notes to consolidated financial statements and
management's discussion and analysis of financial condition and results of
operations.
LAB HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
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(unaudited)
Three Months Ended
March 31,
1999 1998
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(In thousands)
OPERATING ACTIVITIES
Net earnings $ 999 1,140
Adjustments to reconcile net earnings
to net cash provided by operations:
Depreciation and amortization 1,775 1,590
Earnings applicable to minority interests 362 354
Provision for loss on accounts receivable 605 226
Change in trading portfolio, net -- (109)
Change in accounts receivable (1,565) (3,042)
Change in accounts payable 146 972
Income taxes and other, net 461 (36)
-------------------
Net cash provided by operations 2,783 1,095
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INVESTING ACTIVITIES
Purchases of investments held to maturity -- (4,467)
Maturities of investments held to maturity -- 702
Additions to property, plant and equipment,net (3,855) (1,725)
Other, net (472) (367)
-------------------
Net cash used by investing activities (4,327) (5,857)
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FINANCING ACTIVITIES
Payment of principal on long-term debt (3) --
Regular quarterly dividends paid (1,946) (1,946)
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Net cash used by financing activities (1,949) (1,946)
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Effect of foreign currency translation 15 9
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Net decrease in cash and cash equivalents (3,478) (6,699)
Cash and cash equivalents at
beginning of period 15,223 22,129
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Cash and cash equivalents at end of period $ 11,745 15,430
===================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 327 --
===================
Income taxes, net $ 162 109
===================
See accompanying notes to consolidated financial statements and
management's discussion and analysis of financial condition and
results of operations.
LAB HOLDINGS, INC.
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
(1) The interim financial information furnished herein is unaudited while
the balance sheet at December 31, 1998 is derived from audited financial
statements. In the opinion of management, the financial information
reflects all adjustments which are necessary to fairly state Lab Holdings'
financial position at March 31, 1999 and December 31, 1998 and the results
of its operations and cash flows for the periods ended March 31, 1999 and
1998. All adjustments made in the interim period were of a normal
recurring nature. The financial statements have been prepared in
conformity with generally accepted accounting principles appropriate in the
circumstances, and therefore included in the financial statements are
certain amounts based on management's informed estimates and judgments.
The financial information herein is not necessarily representative of a
full year's operations because levels of sales, interest rates and other
factors fluctuate throughout the fiscal year. These same considerations
apply to all year to year comparisons. Certain 1998 amounts have been
reclassified for comparative purposes with no effect on net earnings. See
Lab Holdings' Annual Report pursuant to Section 13 to the Securities
Exchange Act of 1934 (Form 10-K) for additional information not required by
this Quarter's Report (Form 10-Q).
On July 1, 1999, Lab Holdings announced a restatement of earnings for the
years ended December 31, 1998 and 1997, and for the quarters ended March 31,
1999 and 1998. As requested by the staff of the Securities and Exchange
Commission, Lab Holdings' subsidiary, LabOne, Inc., has changed the
amortization schedule from fifteen years to five years on a customer list
acquired during the first quarter 1997. LabOne's original amortization
period was based on historical performance, however, the SEC has requested
the amortization period be reduced to five years. As a result of LabOne's
earnings restatements, Lab Holdings was required to restate its earnings.
This increased Lab Holdings 1997 net loss by $248,000, reduced the 1998 net
income by $271,000 and reduced the first quarter 1999 net earnings by
$76,000. This restatement is not the result of any changes in customer
relationships and has no effect on any present or future cash flows.
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 uncertainties. They are usually identified by or are
associated with such words such as "intend," " believe," "estimate,"
"expect," "anticipate," "hopeful," "should," "may" and similar expressions.
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 LabOne, competition, the extent of market acceptance of
LabOne'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 Company's
Current Report on Form 8-K dated October 23, 1998.
(2) Lab Holdings' principal asset consists of its 80.5% ownership of
LabOne, Inc., a publicly-traded company. On March 8, 1999, Lab Holdings
and LabOne jointly announced that the Boards of Directors of both companies
have approved an agreement to merge the two companies. A Registration
Statement covering the proposed transaction was filed with the Securities
and Exchange Commission on April 13. Under the merger agreement, LabOne is
to be merged into Lab Holdings and the combined company's name will be
changed to LabOne, Inc. Stockholders of Lab Holdings will have each of
their Lab Holdings shares split immediately before the merger into 1.5
shares of the combined company. Stockholders of LabOne, other than Lab
Holdings, will be entitled to elect to have each of their existing LabOne
shares exchanged for one share of the combined company or $12.75 in cash or
a combination of cash and shares up to a limit of $16.6 million in cash
(approximately 50% of eligible shares). The combined company will use cash
from operations and additional borrowings, if necessary, to cover the
purchase of shares from LabOne stockholders that choose the cash election
option. The merger is subject to 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, and other
closing conditions.
(3) Cash and cash equivalents include demand deposits in banks, money
market investments and overnight investments that are stated at cost, which
approximates market value.
(4) 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.
Earnings available to common shareholders was adjusted to reflect the
Company's share of LabOne's earnings based on a diluted ownership after
taking into account LabOne's common stock equivalents. The following table
reconciles net earnings and weighted average shares used to computed basic
and diluted earnings per share.
March 31, 1999
-----------------------------------
Per Share
Net Earnings Shares Amount
-----------------------------------
Basic earnings per share $ 999,000 6,489,103 $ .15
Effect of dilutive securities:
Lab Holdings stock options -- --
LabOne stock options (3,000) --
-----------------------------------
Diluted earnings per share $ 996,000 6,489,103 $ .15
===================================
March 31, 1998
-----------------------------------
Earnings from
Continuing Per Share
Operations Shares Amount
-----------------------------------
Basic earnings per share $ 1,140,000 6,489,103 $ .18
Effect of dilutive securities:
Lab Holdings stock options -- --
LabOne stock options (21,000) --
-----------------------------------
Diluted earnings per share $ 1,119,000 6,489,103 $ .17
===================================
(5) The Company, through its subsidiary, LabOne, operates principally in
three lines of business: insurance, clinical testing and substance abuse
testing. The following table presents the Company's selected financial
information for each segment.
Three Months Ended
March 31,
1999 1998
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(in thousands)
Sales
Insurance risk appraisal testing $ 17,584 16,822
Clinical diagnostic testing 5,958 3,654
Substance abuse testing 3,786 2,857
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Total sales $ 27,328 23,333
==================
Operating Income
Insurance services $ 4,014 5,074
Clinical services (959) (1,935)
Substance abuse testing (119) (179)
General corporate expense (447) (583)
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Earnings from operations 2,489 2,377
Investment income - net 147 367
Interest expense (290) --
Other income (expense) (6) (1)
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Earnings before income taxes $ 2,340 2,743
==================
Company assets classified as corporate increased significantly due to bond
proceeds and construction of the new LabOne 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.
(6) Comprehensive income is defined as any change in equity from
transactions and other events originating from non-owner sources. For Lab
Holdings, those changes are composed of reported net income and changes in
unrealized foreign currency translation adjustments. The components of
comprehensive income are as follows.
March 31,
1999 1998
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(in thousands)
Net earnings (loss) $ 999 1,140
Other comprehensive income
Foreign currency translation 12 8
------------------
Total Comprehensive Income $ 1,011 1,148
==================
(7) Contingencies
The Comptroller of the State of Texas has conducted an audit of LabOne for
sales and use tax compliance for the years 1991 through 1997 and contends
that LabOne's insurance laboratory services are taxable under the Texas tax
code. The Texas Comptroller has issued a tax audit assessment, including
interest and penalties, of approximately $1.9 million. LabOne 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, LabOne is unable to
estimate the possible liability, if any, that may be incurred as a result
of this assessment.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Selected Financial Data
Three months ended
March 31,
----------------------
1999 1998
---------- ----------
Sales $27,328,000 23,333,000
Earnings from operations $ 2,489,000 2,377,000
Investment income - net $ 147,000 367,000
Net earnings $ 999,000 1,140,000
Basic earnings per share $ .15 .18
Diluted earnings per share $ .15 .17
Dividends per share $ .30 .30
Book value per share $ 8.26 8.57
Introductory remarks about results of operations
Lab Holdings, Inc.'s (Lab Holdings or Registrant) principal asset consists
of a majority ownership of LabOne, Inc. (LabOne), together with $6 million
of related goodwill. Additionally, Lab Holdings has approximately $5.7
million of other net assets, consisting primarily of cash, short-term
investments and income tax receivables. Prior to October 20, 1997, Lab
Holdings was named Seafield Capital Corporation (Seafield). Seafield
changed its name to Lab Holdings for better identification with its primary
asset, the approximate 80.5% ownership of LabOne.
On July 1, 1999, Lab Holdings announced a restatement of earnings for the
years ended December 31, 1998 and 1997, and for the quarters ended March 31,
1999 and 1998. As requested by the staff of the Securities and Exchange
Commission, Lab Holdings' subsidiary, LabOne, Inc., has changed the
amortization schedule from fifteen years to five years on a customer list
acquired during the first quarter 1997. LabOne's original amortization
period was based on historical performance, however, the SEC has requested
the amortization period be reduced to five years. As a result of LabOne's
earnings restatements, Lab Holdings was required to restate its earnings.
This increased Lab Holdings 1997 net loss by $248,000, reduced the 1998 net
income by $271,000 and reduced the first quarter 1999 net earnings by
$76,000. This restatement is not the result of any changes in customer
relationships and has no effect on any present or future cash flows.
On March 8, 1999, Lab Holdings and its subsidiary, LabOne, announced that
the boards of directors of both companies had approved a definitive
agreement to merge the two companies. Under the merger agreement, LabOne
is to be merged into Lab Holdings, but the survivor's name will be changed
to "LabOne, Inc." Stockholders of Lab Holdings will have each of their Lab
Holdings shares split immediately before the merger into 1.5 shares of the
survivor. Stockholders of LabOne, other than Lab Holdings, will be
entitled to elect to have each of their existing LabOne shares exchanged
for one share of the survivor or $12.75 in cash or a combination of cash
and shares. If the cash election shares exceed a cash limit of $16.6
million, then the cash will be allocated on a pro rata basis among the cash
election shares. The offering of Lab Holdings common stock in the merger
will only be made by means of the Joint Proxy Statement/Prospectus.
LabOne provides high-quality laboratory testing services to insurance
companies, physicians and employers.
LabOne provides risk-appraisal laboratory testing services to the insurance
industry. The tests performed 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. LabOne also
provides testing services on specimens of individuals applying for
individual and group medical and disability policies. Through its
subsidiary, SBSI, LabOne 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 LabOne 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. LabOne does this
through Lab Card(trademark), 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'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 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.
LabOne's rapid turnaround times and multiple testing options help clients
reduce downtime for affected employees and meet mandated drug screening
guidelines.
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 million is due
to increases in clinical laboratory revenue of $2.3 million, substance
abuse testing (SAT) revenue of $929,000 and insurance services revenue of
$762,000.
Clinical diagnostic testing revenue increased from $3.7 million to $6
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 $762,000 due to the
addition of SBSI revenue and growth in non laboratory services revenue,
partially offset by lower laboratory and kit revenue. SBSI was acquired in
October 1998 and contributed $1.9 million in the first quarter 1999, and non
laboratory services revenue increased $300,000 over last year. Insurance
laboratory testing revenue decreased $800,000 as a result of reductions in
volume and price. The total number of insurance applicants tested in the
first quarter 1999 decreased by 4% as compared to the same quarter last year
due to competitive pressures. Average revenue per applicant decreased 2.5%
primarily due to price reductions and a shift in product mix to lower priced
products. 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 LabOne's 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
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 $200,000 on an increase in
revenue of $929,000. Insurance gross profit decreased $700,000 or 7%.
LabOne's 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. Bad debt expense increased primarily due to the revenue
growth in clinical and SAT segments which have inherently higher bad debt
experience than the insurance testing segment. Insurance expenditures
increased to $4.6 million for the quarter as compared to $4.2 million in 1998
primarily due to the addition of SBSI. Total clinical expenditures increased
$800,000 to $3 million in 1999 due to an increase in corporate overhead
allocations to $900,000 from $600,000 in 1998 and an increase in bad debt
expense. SAT expenditures were $1.1 million as compared to $1 million last
year. On March 25, 1999, LabOne closed on the sale of its former laboratory
facility, resulting in a net gain of $300,000. The gain resulted from the
sales price of $2 million being greater than originally anticipated. The
$2.5 million sale of the former administration building is scheduled to be
closed on June 1, 1999. Depreciation expense on the new facility is expected
to be less than $300,000 per quarter.
Lab Holding's selling, general and administrative expenses increased to
$256,000 in the first quarter 1999 from $181,000 in the first quarter of
1998. Prior to August 7, 1998, Lab Holdings received administrative
services which were provided by SLH Corporation. As a result of SLH's
merger with Syntroleum Corporation on August 7, 1998, the previous services
agreement with SLH was terminated and Lab Holdings' personnel are employed
directly by Lab Holdings resulting in increased administration expenses
during 1999's first quarter. Goodwill amortization of $368,000 associated
with Lab Holdings' investment in LabOne was included in the first quarter
operating results of both 1999 and 1998.
Consolidated earnings from operations increased slightly to $2.5 million in
1999's first quarter from $2.4 million in the first quarter of 1998.
LabOne's clinical segment improved $1 million to an operating loss of $1
million. The SAT segment improved $100,000 from an operating loss of
$200,000 in the first quarter 1998 to a loss of $100,000 in 1999. The
insurance segment declined $1.1 million to an operating profit of $4 million.
Other investments include liquidity investments. The return on short-term
investments is included in the investment income line in the consolidated
statements of operations. Investment income decreased to $147,000 in
1999's first quarter from $367,000 in 1998's first quarter primarily
reflecting a reduction in capital available for investments.
Interest expense increased to $290,000 in 1999 first quarter as a result of
LabOne's new facility being placed in service. Previously, the interest
had been capitalized during construction in 1998. Miscellaneous items
produced a $6,000 loss in 1999's first quarter as compared to a loss of
$1,000 in 1998's first quarter.
Tax expense decreased to $1 million in 1999's first quarter from $1.3
million in 1998's first quarter. The effective tax rate decreased to 42%
from 45% due primarily to LabOne's state income tax incentives.
The combined effect of the above factors resulted in net earnings of $1
million or $0.15 diluted earnings per share in the first quarter of 1999,
compared to net earnings of $1.1 million or $0.17 diluted earnings per
share in the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
On March 31, 1999, at the holding company level, Lab Holdings had available
for operations approximately $4.8 million in cash and cash equivalents.
Lab Holdings' working capital at March 31, 1999 decreased to $4.5 million
from $5.4 million at December 31, 1998, reflecting costs associated with
the proposed merger with LabOne.
On a consolidated basis, Lab Holdings had $11.7 million in cash and short-
term investments at March 31, 1999. Current assets totaled approximately
$40.8 million while current liabilities totaled $15.3 million.
Net cash provided by operations increased by $1.7 million to $2.8 million
in 1999's first quarter compared with $1.1 million in 1998's first quarter,
primarily attributable to LabOne's slower increase in accounts receivables.
Net cash used by investing activities in 1999's first quarter totaled $4.3
million, as compared with $5.9 million in 1998's first quarter. The net
cash used in 1999 primarily reflects LabOne's $3.9 million net additions to
property plant and equipment related to construction and fixtures for the
new facility. Net cash used by investing activities in 1998's first
quarter included a net increase in long-term investments of $3.8 million
and $1.7 million of net additions to property, plant and equipment.
LabOne's capital additions are expected to be approximately $5 million
annually.
Net cash used by financing activities totaled $1.9 million in both 1999 and
1998's first quarters primarily consisting of regular cash dividends.
Lab Holdings is currently a holding company. Sources of cash are
investments and subsidiary dividends. The primary uses of cash for Lab
Holdings are investments, operating expenses and dividends to shareholders.
LabOne paid regular quarterly dividends in 1999 and 1998. As an
approximate 80.5% owner, Lab Holdings received $1.9 million of cash
dividends from LabOne in the first quarter 1999. 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
dividends paid and capital additions exceeding cash provided by operations.
LabOne had no short-term borrowings in the first quarter of 1999. LabOne
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 LabOne's new facility project. Interest on the bond is
based on a taxable seven day variable rate and is currently approximately
5.7%. LabOne expects to repay the bond over 11 years at $1.85 million per
year plus interest.
YEAR 2000
LabOne is actively addressing Year 2000 computer concerns. LabOne has
established an oversight committee which includes management from all parts
of the Company and meets periodically to review progress. LabOne'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. LabOne 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
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, LabOne 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. LabOne currently
maintains approximately 8 weeks supply of most laboratory supplies, and
does not expect significant problems in obtaining supplies. LabOne
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 LabOne's computer systems.
Resources dedicated to the remaining effort are expected to cost less than
$200,000 and are not considered a material expense to LabOne. These
efforts have not caused delay to LabOne'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 LabOne'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
LabOne's business, financial condition and results of operations.
Lab Holdings has completed its Year 2000 internal compliance program and
believes that its limited computer systems are now Year 2000 compliant.
RECENTLY ISSUED ACCOUNTING STANDARDS
No recently issued accounting standards presently exist which will require
adoption in future periods.
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 dollar 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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
(a) Changes in Securities: None
(b) Under the Missouri General Corporation Law, no dividends to
stockholders may be declared or paid at a time when the net assets of the
corporation are less than its stated capital or when the payment thereof
would reduce the net assets of the corporation below its stated capital.
At March 31, 1999, the net assets of Lab Holdings, Inc. exceeded its stated
capital by $46,699,000.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Securities Holders
None.
Item 5. Other Information
None.
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 as of March
7, 1999 (incorporated by reference to Exhibit 2.3 to the Registrant's
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 Form 10-Q.
(b) Reports on Form 8-K:
A current report on Form 8-K was filed on March 8, 1999 to
report that the Boards of Directors of Lab Holdings' and its 80.5% owned
subsidiary, LabOne, Inc., had approved 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.
Lab Holdings, Inc.
Date June 30, 1999 By /s/ Steven K. Fitzwater
----------------------------
Steven K. Fitzwater
Executive Vice President, Chief
Operating and Financial Officer
Date June 30, 1999 By /s/ Linda K. McCoy
----------------------------
Linda K. McCoy
Vice President and
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Form 10Q for the period ending March 31, 1999 and is qualified in its
entirety by reference to such 10Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 11,745
<SECURITIES> 0
<RECEIVABLES> 0<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 1,361
<CURRENT-ASSETS> 40,838
<PP&E> 76,365
<DEPRECIATION> 34,653
<TOTAL-ASSETS> 97,131
<CURRENT-LIABILITIES> 15,292
<BONDS> 0
0
0
<COMMON> 7,500
<OTHER-SE> 46,104
<TOTAL-LIABILITY-AND-EQUITY> 97,131
<SALES> 0
<TOTAL-REVENUES> 27,328
<CGS> 0
<TOTAL-COSTS> 24,839
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 290
<INCOME-PRETAX> 2,340
<INCOME-TAX> 979
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 999
<EPS-BASIC> .15
<EPS-DILUTED> .15
<FN>
<F1>Disclosure not required on interim financial statements.
</FN>
</TABLE>
