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, 2000
--------------
Commission file number: 0-16946
-------
LabOne, Inc.
------------
10101 Renner Blvd
Lenexa, Kansas 66219
(913) 888-1770
Incorporated in Missouri
I.R.S. Employer Identification Number: 43-1039532
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, 2000 - 10,730,862 net of 2,319,158 shares held
as treasury stock.
Page 1 of 12
PART I. FINANCIAL INFORMATION
<TABLE>
ITEM 1 - Financial Statements
LabOne, Inc. and Subsidiaries
Consolidated Balance Sheets
<S> <C> <C>
March 31, December 31,
2000 1999
ASSETS ------------ ------------
Current assets:
Cash and cash equivalents $2,171,418 $2,983,644
Accounts receivable-trade, net of allowance for doubtful
accounts of $2,782,834 in 2000 and $1,981,285 in 1999 28,336,804 26,331,960
Income taxes receivable 456,971 1,643,520
Inventories 2,315,989 3,186,853
Prepaid expenses and other current assets 2,459,577 1,772,884
Deferred income taxes 1,894,844 1,328,027
------------ ------------
Total current assets 37,635,603 37,246,888
Property, plant and equipment 82,455,884 80,910,886
Less accumulated depreciation 39,414,283 38,106,948
------------ ------------
Net property, plant and equipment 43,041,601 42,803,938
Other assets:
Intangible assets, net of accumulated amortization 36,851,134 37,868,921
Bond issue costs, net of accumulated amortization
of $27,658 in 2000 and $23,291 in 1999 164,489 168,856
Deferred income taxes - noncurrent -- 93,326
Deposits and other assets 245,911 260,795
------------ ------------
Total assets $117,938,738 $118,442,724
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $12,049,325 $11,852,403
Accrued payroll and benefits 4,011,129 2,793,721
Other accrued expenses 839,251 727,241
Other current liabilities 596,825 551,146
Current portion of long-term debt 1,874,081 1,873,577
------------- ------------
Total current liabilities 19,370,611 17,798,088
Deferred income taxes - noncurrent 176,568 --
Long-term payable 1,360,000 1,360,000
Long-term debt 31,251,192 28,255,139
------------ ------------
Total liabilities 52,158,371 47,413,227
Stockholders' equity:
Preferred stock, $.01 par value per share;
3,000,000 shares authorized, none issued -- --
Common stock, $.01 par value per share; 40,000,000 shares
authorized, 13,050,020 shares issued 130,500 130,500
Additional paid-in capital 32,075,290 32,035,445
Equity adjustment from foreign currency translation (714,665) (750,115)
Retained earnings 70,176,490 69,758,872
------------ ------------
101,667,615 101,174,702
Less treasury stock of 2,319,158 shares in
2000 and 1,516,527 share in 1999 35,887,248 30,145,205
------------ ------------
Total stockholders' equity 65,780,367 71,029,497
------------ ------------
Total liabilities and stockholders' equity $117,938,738 $118,442,724
============ ============
See accompanying notes to consolidated financial statements and management's discussion and
analysis of financial condition and results of operations.
</TABLE>
Page 2
LabOne, Inc. and Subsidiaries
Consolidated Statements of Earnings
Three months ended March 31,
2000 1999
---------- ----------
Sales $ 40,581,050 27,328,085
Cost of sales:
Cost of sales expenses 26,045,052 15,102,056
Depreciation expense 538,304 549,283
---------- ----------
Total cost of sales 26,583,356 15,651,339
---------- ----------
Gross profit 13,997,694 11,676,746
Selling, general and administrative:
Selling, general and administrative expenses 10,404,987 7,969,029
Depreciation expense 929,591 538,598
Amortization expense 1,036,359 680,260
---------- ----------
Total selling, general and administrative 12,370,937 9,187,887
---------- ----------
Earnings from operations 1,626,757 2,488,859
Interest expense (495,279) (289,676)
Interest income and other 25,176 141,677
---------- ----------
Earnings before income taxes 1,156,654 2,340,860
Income tax expense 739,036 978,952
---------- ----------
Earnings before minority interest 417,618 1,361,908
Minority interest -- 361,969
---------- ----------
Net earnings $ 417,618 999,939
========== ==========
Basic and diluted earnings per common share* $ 0.04 0.10
====== ======
Dividends per common share* -- 0.20
====== ======
Basic weighted average common shares outstanding* 11,321,449 9,733,655
========== ==========
Diluted weighted average common shares outstanding*11,324,748 9,733,655
========== ==========
* Includes stock split adjustment related to the 1999 merger
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, 2000
<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, 1999 $130,500 32,035,445 (750,115) 69,758,872 (30,145,205) 71,029,497
Comprehensive income:
Net earnings 417,618 417,618 417,618
Equity adjustment
from foreign
currency translation 35,450 35,450 35,450
---------
Comprehensive income 453,068
=========
Directors' stock issued
under consulting
agreement 39,845 39,845
Purchase of 802,631
common shares for
treasury stock (5,742,043) (5,742,043)
-------- ---------- --------- ---------- ---------- ----------
Balance at
March 31, 2000 $130,500 32,075,290 (714,665) 70,176,490 (35,887,248) 65,780,367
======== ========== ======= ========== ========== ==========
</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,
2000 1999
--------- ---------
Cash provided by (used for) operations:
Net earnings $ 417,618 999,939
Adjustments to reconcile net earnings
to net cash provided by operations:
Depreciation and amortization 2,510,894 1,775,090
Earnings applicable to minority interests -- 361,969
Provision for loss on accounts receivable 758,209 604,749
Loss (gain) on disposal of
property and equipment 1,911 (287,107)
Directors' stock compensation 39,845 --
Provision for deferred taxes (294,980) 831,498
Changes in:
Accounts receivable (2,763,053) (1,564,816)
Income taxes receivable 1,186,549 26,119
Inventories 870,864 437,719
Prepaid expenses and other current assets (686,693) 163,966
Prepaid merger expense -- (756,398)
Accounts payable 196,922 145,683
Accrued payroll & benefits 1,217,408 (1,065,562)
Other accrued expenses 112,010 1,041,712
Other current liabilities 45,679 69,846
---------- ----------
Net cash provided by operations 3,613,183 2,784,407
---------- ----------
Cash provided by (used for) investment transactions:
Property, plant and equipment, net (1,706,200) (3,854,833)
Acquisition of intangible assets, net (18,573) --
Other 14,884 (472,288)
---------- ----------
Net cash used for investment transactions (1,709,889) (4,327,121)
---------- ----------
Cash provided by (used for) financing transactions:
Purchase of treasury stock (5,742,043) --
Proceeds from long-term debt 5,000,000 --
Payments on long-term debt (2,005,716) (2,966)
Cash dividends -- (1,946,731)
---------- ----------
Net cash used for financing transactions (2,747,759) (1,949,697)
---------- ----------
Effect of foreign currency translation 32,239 14,510
---------- ----------
Net decrease in cash and cash equivalents (812,226) (3,477,901)
Cash and cash equivalents - beginning of period 2,983,644 15,223,336
---------- ----------
Cash and cash equivalents - end of period $ 2,171,418 11,745,435
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 478,193 326,590
Income Taxes $ 102,505 162,464
========== ==========
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, 2000 and 1999
The accompanying consolidated financial statements include the accounts of
LabOne, Inc. and its wholly- owned subsidiaries Lab One Canada Inc.,
Systematic Business Services, Inc. (SBSI) and ExamOne World Wide, Inc. All
significant intercompany transactions have been eliminated in consolidation.
The financial information furnished herein as of March 31, 2000 and for the
periods ended March 31, 2000 and 1999 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, 1999 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, 1999, for additional information not required by this
Quarterly Report on Form 10-Q.
Effective November 5, 1999, LabOne acquired World Wide Health Services, Inc.
and World Wide Health Services of New Jersey, a provider of specimen
collection and paramedical examination services to life and health insurers.
These subsidiaries are operated under the name ExamOne World Wide and are
included in the insurance services division of LabOne. This addition allows
LabOne to expand the services it offers to its insurance industry clients.
On February 11, 2000, the Company adopted a shareholder rights plan and a
dividend distribution of one Right for each outstanding share of Common Stock
of the Company. The rights plan replaces and modernizes a shareholder rights
plan which was adopted by the Company in 1988 and expired in 1998. These
rights represent the right to purchase one one-hundredth of a share of Series
A Preferred Stock at an exercise price of $50 subject to adjustments, of which
300,000 shares are reserved for issuance.
Forward Looking Statements
- --------------------------
This Quarterly report on Form 10-Q may contain "forward-looking statements,"
including, but not limited to: projections of revenues, income or loss,
capital expenditures, 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.
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, the extent of market acceptance of the Company's testing services in
the healthcare and substance abuse testing industries, intense competition,
the loss of one or more significant customers, general economic conditions and
other factors detailed from time to time in the Company's reports and
Page 6
LabOne, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2000 and 1999
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, 1999.
Business Segment Information
- ----------------------------
The company operates in three lines of business: insurance services,
healthcare and substance abuse testing. The following table presents selected
financial information for each segment:
Three Months Ended
March 31,
2000 1999
----------- -----------
Sales:
Insurance $28,199,778 $17,584,247
Healthcare 7,507,575 5,957,526
Substance abuse testing 4,873,697 3,786,312
--------- ---------
Total sales $40,581,050 $27,328,085
=========== ===========
Operating income (loss):
Insurance $3,174,954 $4,014,225
Healthcare (575,459) (958,778)
Substance abuse testing (211,792) (118,940)
General corporate expense (760,947) (447,649)
--------- ---------
Total earnings from operations 1,626,757 2,488,859
Other expense (470,103) (147,999)
--------- ---------
Earnings before income taxes $1,156,654 $2,340,860
========== ==========
The Company's new facility was completed in early 1999, and the portions of
the building identifiable to each segment have been allocated to those
segments. Effective the second quarter, 1999, the associated depreciation
expenses have been charged to the segments and are included in the operating
income or loss information stated above. The insurance segment operating
income includes intersegment charges of $1.0 million in the first quarter from
the healthcare segment primarily for hepatitis and other miscellaneous medical
testing and $0.3 million from the SAT segment for drug screening and
confirmations. Indirect expenses are allocated to the operational segments
based on the relative revenue of each segment on a monthly basis. General
corporate expense represents unallocated expenses, principally the
amortization of goodwill resulting from acquisitions. There were no other
material changes in assets or in the basis of segmentation or measurement of
segment operating income or loss.
Page 7
LabOne, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2000 and 1999
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. The Company has appealed this
assessment arguing that its services do not fit within the definition of
insurance services under the Texas code. The Tax Division of the Comptroller
of Public Accounts has moved to dismiss the case at the administrative level
and has agreed to amend the audit to reduce the assessment for sales of
services for applicants who were not residents of Texas and to waive the
associated penalty. The revised assessment, including interest, is estimated
at approximately $591,000. LabOne intends to continue its appeal in state
district court.
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, % Increase
2000 1999 (Decrease)
-------------------------------------------------
Sales $ 40,581,050 $ 27,328,085 48%
Net earnings 417,618 999,939 (58%)
Earnings per common share $0.04 $ 0.10
Cash dividends per common share $ -- $ 0.20
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 subsidiaries, SBSI and
ExamOne, the Company provides paramedical services, telephone inspections,
motor vehicle reports, attending physician statements, and claims
investigation services to life and health insurers nationwide.
LabOne's services to the healthcare industry involve clinical testing 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) and physicians. The
Company does this through exclusive arrangements with managed care
organizations and through Lab Card (R), a Laboratory Benefits Management (LBM)
program.
Page 8
LabOne, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2000 and 1999
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.
FIRST QUARTER ANALYSIS
Net sales increased 48% in the first quarter 2000 to $40.6 million from $27.3
million in the first quarter 1999. The increase of $13.3 million is due to
increases in insurance services revenue of $10.6 million, healthcare
laboratory revenue of $1.6 million and substance abuse testing (SAT) revenue
of $1.1 million.
The insurance services division revenue increased $10.6 million due to the
addition of ExamOne revenue and growth in laboratory, kit and information
services revenue. ExamOne revenue was $6.6 million for the quarter. SBSI
revenue increased $1.8 million or 95% over the first quarter 1999. Insurance
laboratory testing revenue increased $0.9 million or 8%, primarily due to an
increase in the total number of insurance applicants tested. Kit and
container revenue increased $1.1 million due to higher volumes of all kit
types sold.
Healthcare revenue increased from $6.0 million to $7.5 million for the quarter
due to increased testing volumes partially offset by a 6% decrease in average
revenue per patient. SAT revenue increased from $3.8 million in 1999 to $4.9
million in 2000 primarily due to a 31% increase in testing volumes as compared
to last year.
Cost of sales increased $10.9 million or 70% in the first quarter 2000 as
compared to the prior year, due to increases in outside services such as
paramed collections, attending physician statements and state MVR fees; and
increases in other items such as postage, payroll, lab supplies and kit
supplies. Paramedical services, primarily related to ExamOne, increased $5.8
million. Payroll increased $1.8 million or 33%, due to the additional
laboratory volume and the addition and expansion of ExamOne World Wide. Net
freight expense increased $0.9 million, due to the increase in testing volume
and an increase in the average freight cost per specimen received. Laboratory
and kit supplies increased primarily due to the increased specimen volume.
Healthcare cost of sales expenses were $4.9 million as compared to $3.9
million in the first quarter 1999. SAT cost of sales expenses were $3.5
million as compared to $2.8 million in the first quarter 1999. Insurance cost
of sales expenses, including the ExamOne increases noted above, were $18.1
million as compared to $9.0 million in the same quarter last year.
As a result of the above factors, gross profit for the quarter increased $2.3
million, or 20%, from $11.7 million in 1999 to $14.0 million in 2000.
Healthcare gross profit increased $0.6 million on an increase in revenue of
$1.5 million. SAT gross profit increased $0.3 million on an increase in
revenue of $1.1 million. Insurance gross profit increased $1.4 million or
17%.
Page 9
LabOne, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2000 and 1999
Selling, general and administrative expenses increased $3.2 million (35%) in
the first quarter 2000 as compared to the prior year due primarily to
increases in payroll, depreciation and amortization expense. Payroll expense
increased $1.2 million, due to development efforts to improve client data
exchange and statistical reporting and the expansion of lines of business
necessary to accommodate future growth, including ExamOne services.
Depreciation expense increased $0.4 million primarily due to the Company's new
building. Amortization expense increased $0.4 million due to goodwill from
the merger with Lab Holdings and the acquisition of ExamOne. Healthcare
overhead expenditures were $3.2 million as compared to $3.0 million in 1999.
SAT expenditures were $1.6 million as compared to $1.1 million last year.
SBSI overhead expenditures increased to $1.3 million from $1.0 last year.
Selling, general and administrative expenses in 1999 include a book gain of
$0.3 million from the sale of the former laboratory facility.
Operating income decreased from $2.5 million in the first quarter 1999 to $1.6
million in 2000. The healthcare segment improved $0.4 million to an operating
loss of $0.5 million on an allocated basis. The SAT segment declined $0.1
million from an operating loss of $0.1 million in the first quarter 1999 to a
loss of $0.2 million in 2000, on an allocated basis. This includes startup
expenses related to oral fluid drug screening. The insurance segment
operating income, including SBSI and ExamOne, declined $0.8 million.
Unallocated corporate expenses increased $0.3 million due to merger
amortization.
Non operating expense increased $0.3 million primarily due to additional
interest expense resulting from additional debt incurred to complete the 1999
merger and to finance the stock repurchase program.
The combined effect of the above factors resulted in net earnings of $0.4
million or $0.04 per share in the first quarter 2000 as compared to $1.0
million or $0.10 per share in the same period last year. The weighted average
number of shares outstanding in the first quarter of 2000 and 1999 were
11,324,748 and 9,733,655, respectively. The August 1999 merger of LabOne,
Inc. and Lab Holdings, Inc. resulted in an increase of 1.8 million shares,
offset by the first quarter repurchase of 0.8 million shares.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
- ---------------------------------------------------
LabOne's working capital position decreased by $1.2 million to $18.3 million
at March 31, 2000 from $19.4 million at December 31, 1999. This decrease is
primarily due to purchases of treasury stock exceeding cash provided by
operations and net borrowings. Cash flow from operations increased by $0.8
million in the first quarter 2000 as compared to 1999 primarily due to changes
in current accounts.
Net additions to property, plant and equipment in the first quarter 2000 were
$1.7 million. Additions in 1999, net of the sale of the former laboratory
facility, were $3.9 million, primarily related to construction and fixtures
for the new facility. During the first quarter 2000, the Company repurchased
802,631 shares of common stock for $5.7 million, for an average price of
Page 10
LabOne, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2000 and 1999
$7.15. The Company borrowed $5 million to pay for the repurchases, increasing
the borrowings on the line of credit to $15 million. The current interest
rate, plus financing fees, on the line of credit is approximately 7.0% and is
based on a 30 day LIBOR rate.
The total number of shares of LabOne stock held in treasury at March 31, 2000
was approximately 2.3 million at a total cost of $35.9 million or $15.47 per
share. The Company expects to fund operations 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 7.0%. The Company
expects to repay the bond over 11 years at $1.85 million per year plus
interest. At March 31, 2000, LabOne had total cash and investments of $2.2
million as compared to $3.0 million at December 31, 1999.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
A foreign currency risk exposure exists due to billing Canadian subsidiary
revenue in Canadian dollars and the direct laboratory expenses associated with
this revenue being incurred in US dollars. This exposure is not considered to
be material. Any future material Canadian currency fluctuations against the
US$ 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 $18 million
in industrial revenue bonds and $15 million line of credit borrowings.
Interest expense incurred on these credit facilities is based on short-term
rates which may fluctuate in the future. The interest rate, including all
associated borrowing costs, is approximately 7.0% per annum as of May 1, 2000.
PART II. OTHER INFORMATION
Item 2. - Changes in Securities
The information required by this Item concerning the dividend distribution by
the Registrant on February 11, 2000, of one Right to purchase one
one-hundredth of a share of Series A Preferred Stock for each outstanding
share of Common Stock was reported in the Registrant's registration statement
on form 8-A, filed February 14, 2000 (File no. 000-16946).
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits
10. Employment agreement between the Registrant and John W. McCarty, dated
February 28, 2000.
27. Financial Data Schedule - as filed electronically by the
Registrant in conjunction with this first quarter 2000 Form 10-Q.
Page 11
LabOne, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2000 and 1999
(b) Reports on Form 8-K
A Form 8-K current report dated January 6, 2000 was filed with the
Commission reporting under Other Events that Robert D. Thompson,
executive vice president, chief operating officer and chief financial
officer had resigned from the company.
A Form 8-K current report dated February 11, 2000 was filed with the
Commission reporting under Other Events the Company's adoption of a
shareholder rights plan and a dividend distribution of one Right for
each outstanding share of Common Stock of the Company. The rights
plan replaces and modernizes a shareholder rights plan which was
adopted by the Company in 1988 and expired in 1998.
A Form 8-K current report dated March 2, 2000 was filed with the
Commission reporting under Other Events that John McCarty had been
hired as executive vice president and chief financial officer
effective April 1, 2000.
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 5, 2000 By /s/ Kurt E. Gruenbacher
----------------------------------
Kurt E. Gruenbacher, V.P. Finance,
CAO and Treasurer
Date: May 5, 2000 By /s/ John W. McCarty
----------------------------------
John W. McCarty, Executive V.P. and
Chief Financial Officer
Page 12
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT ("Agreement"), made and entered into
this 28th day of February, 2000, by and between LABONE, INC., a Missouri
corporation ("LabOne"),and John W. McCarty("Employee").
WITNESSETH:
WHEREAS, LabOne is a laboratory specializing in clinical and insurance
testing and related services ("Lab Business"); and
WHEREAS, Employee is knowledgeable and has substantial experience in
the clinical laboratory testing business; and
WHEREAS, in accordance with the terms and provisions of this
Agreement, LabOne desires to employ Employee to obtain the benefit of his
knowledge and experience, and Employee desires to be employed by LabOne;
and
WHEREAS, LabOne and Employee agree that the restrictive covenants and
confidentiality agreements contained in this Agreement are essential to the
growth and stability of the Lab Business of LabOne and to the continuing
viability of the Lab Business in the event the employment of Employee is
terminated;
NOW, THEREFORE, in consideration of LabOne's agreement to employ
Employee and the mutual promises herein contained, the parties hereto agree
as follows:
1. Employment. LabOne hereby agrees to employ Employee, and Employee
hereby agrees to accept such employment and to perform his duties and
obligations hereunder, in accordance with the terms and conditions
hereinafter set forth.
2. Term. The term of Employee's employment pursuant to this
Agreement shall commence on April 1, 2000 and shall continue until
terminated in accordance with the provisions of Paragraph 13 hereof.
3. Duties and Responsibilities. Employee shall serve as Chief
Financial Officer of LabOne, shall serve in such other capacities as the
Officers or Board of Directors of LabOne may from time to time prescribe,
shall perform all duties and responsibilities incidental to such positions
and shall cooperate fully with the Board of Directors and Officers of
LabOne. Employee shall devote all of his business time, attention and
energy to the performance of such duties and responsibilities.
4. Compensation. During the term of Employee's employment
pursuant to this Agreement, Employee shall be paid a salary of $14,583
per calendar month, or such other amount, which shall not be less than
said base salary, as may from time to time be determined by LabOne,
payable in arrears. Employee shall also be entitled to a car allowance
of $400 per calendar month.
5. Relocation Expenses. LabOne will reimburse Employee in an
amount up to $50,000 for his expenses of relocating his residence from
Scottsdale, Arizona to the Greater Kansas City Area. Relocation Expense
shall include: costs associated with the sale of Employee's residence
in Phoenix, Arizona; moving of contents; and up to three house-hunting
trips in Kansas City.
6. Stock Option. Employee shall be entitled to a grant of a Non-
Qualified Stock Option under the LabOne, Inc. 1997 Long-Term Incentive
Plan for Seventy Thousand (70,000) shares of the common stock of LabOne,
at an option price equal to the fair market value per share of the
common stock of LabOne on earlier of the date of grant or date of first
employment, as determined by the Long-Term Incentive Plan Committee,
such Stock Option Agreement to be in the form attached hereto as
Exhibit A.
7. Annual Incentive Bonus and Other Fringe Benefits. During the
term hereof, Employee shall be eligible to receive an annual incentive
bonus based upon the performance of LabOne in relation to pre-determined
financial goals established by the Compensation Committee of the Board
of Directors of LabOne, after consultation with Employee. Employee
shall be eligible for a bonus for three-fourths (3/4) of a year of
service for the year 2000. Employee shall also be entitled to
participate in such fringe benefit programs as LabOne may make available
from time to time to its executive officers, which shall include
reasonable hospital and major medical insurance coverage, long-term
disability and life insurance, in amounts and on terms no less favorable
than those provided to other executive officers of LabOne.
8. Inventions. All inventions, products, discoveries, improvements,
processes, manufacturing, marketing and service methods and techniques,
formulae, design, styles, specifications, databases, computer programs
(whether in source code or object code), know-how, strategies and data,
whether or not patentable or registrable under copyright or similar
statutes, made, developed or created by Employee (whether or not at the
request or suggestion of LabOne, alone or in conjunction with others, and
whether during regular hours at work or otherwise) during Employee's period
of employment with LabOne (collectively, "Inventions"), shall be promptly
and fully disclosed by Employee to an appropriate executive of LabOne.
Employee hereby assigns, transfers and conveys to LabOne all rights in and
to all Inventions as its exclusive property. Employee shall give evidence
and promptly execute and/or deliver to an appropriate executive of LabOne,
without any additional compensation therefor, all papers, drawings, models,
programs, data, documents and other material:
(a) pertaining to or in any way relating to or evidencing any
Inventions, or
(b) necessary or desirable to document such transfer, or to
enable LabOne to file and process applications for and to
acquire, maintain and enforce any and all patents,
trademarks, registrations or copyrights with respect to any
such Inventions, or to obtain any extension, validation,
reissue, continuance or renewal of any such patent, trademark
or copyright.
LabOne will be responsible for the preparation of any such
instruments, documents and papers and for the implementation of any such
proceedings and will reimburse Employee for all reasonable expenses
incurred by Employee in complying with the provisions of this Section.
EMPLOYEE IS HEREBY NOTIFIED THAT the provisions of this Paragraph 8 shall
not apply to an Invention for which no equipment, supplies, facility or
trade secret information of LabOne was used and which was developed
entirely on Employee's own time, unless:
(i) the Invention relates directly to the business of LabOne or
to its actual or demonstratively anticipated research or
development, or
(ii) the Invention results from any work performed by Employee
for LabOne.
9. Property of LabOne. All correspondence, notes, recordings,
documents, customer lists and other materials and reproductions thereof
pertaining to any aspect of the business of LabOne shall be the property of
and shall be delivered to and retained by LabOne upon termination of his
employment pursuant to this Agreement.
10. Confidentiality. During the term of and at any time after the
termination of his employment pursuant to this Agreement, Employee will
hold in trust and confidence and will not divulge, disclose or convey to
any person, firm, corporation or other entity and will keep secret and
confidential all trade secrets, proprietary information and confidential
information heretofore or hereafter acquired by him concerning LabOne or
its subsidiaries, and will not use the same for himself or others in any
manner, except to the extent that such information should become no longer
a trade secret, proprietary or confidential. Such trade secrets,
proprietary information and confidential information shall be deemed to
include, but shall not be limited to, information, whether written or not
and not approved for disclosure by the Board of Directors for LabOne:
(a) of a technical nature, such as but not limited to,
technology, inventions, discoveries, improvements,
processes, formulae, ideas, know-how, methods,
compositions, computer software programs or research
projects, including the identity of research organizations
and researchers,
(b) of a business nature, such as but not limited to
information concerning costs, profits, supplies, suppliers,
marketing, sales or lists of customers, and
(c) pertaining to future developments, such as but not limited
to information concerning research and development or
future marketing methods.
11. Restrictive Covenants. In consideration of Employee's employment
with LabOne and in further consideration of the compensation provided to
Employee hereunder and the post-termination payments, if any, provided for
in Paragraph 13 hereof, Employee agrees that during the term of his
employment pursuant to this Agreement, and for a period of two (2) years
after the termination for any reason of his employment pursuant to this
Agreement, Employee will not, without the prior written consent of LabOne,
directly or indirectly, individually or in concert with other, or through
the medium of any other corporation, partnership, syndicate, association,
joint venture, or other entity or as an employee, officer, director, agent,
consultant, partner, member or otherwise:
(a) solicit, accept, divert or service, or attempt to solicit,
accept, divert or service, any business similar to the type
and character of business then engaged in by LabOne from
any person, corporation or other entity who was as of the
date of the termination of Employee's employment a customer
of LabOne,
(b) solicit, induce or encourage any employee, contractor or
agent of LabOne to terminate employment or any other
relationship with LabOne or to compete with LabOne in any
manner, or
(c) compete with LabOne in the Lab Business or in any other
business conducted by LabOne as of the date of termination
of Employer's employment.
It is understood and agreed that Paragraph 11(c) shall apply only with
respect to the following geographic area: All territory in which LabOne or
its representatives or agents, as of the date of the termination of
Employee's employment pursuant hereto, sells or offers for sale LabOne's
products or services.
12. Judicial Relief. LabOne and Employee agree that in the event
that any court shall finally hold that any provision of Paragraph 11 of
this Agreement is void or constitutes an unreasonable restriction against
Employee, the provisions of Paragraph 11 shall not be rendered void, but
shall apply with respect to such time or territory or to such other extent
as such court may judicially determine or indicate constitutes a reasonable
restriction under the circumstances. LabOne shall be entitled to
appropriate injunctive relief in any court of competent jurisdiction to
enforce its rights under Paragraphs 8, 9, 10 and 11 of this Agreement, in
addition to any other rights and remedies available to LabOne at law or in
equity, it being agreed that any violation of Paragraphs 8, 9, 10 or 11 of
this Agreement by Employee is reasonably likely to cause irreparable damage
to LabOne which will be difficult or impossible to value in monetary
damages.
13. Termination. Employee's employment pursuant to this Agreement
shall terminate upon the occurrence of any of the following events:
(a) Death. In the event that Employee dies during the term of
this Agreement, LabOne shall pay to his executors or
administrators an amount equal to the installments of his
salary payable for the month in which he dies, and
thereafter, LabOne shall have no further liability or
obligation hereunder to his executors, heirs or assigns or
any other person claiming under or through him.
(b) Disability. In the event that Employee continues to be
unable to fully perform his duties and responsibilities
hereunder by reason of illness, injury or mental or
physical disability or incapacity for ninety (90)
consecutive days, during which time he shall continue to be
compensated for monthly installments of salary as provided
in Paragraph 4 hereof, Employee's employment pursuant to
this Agreement may be terminated by LabOne, and LabOne
shall thereafter have no further liability or obligation
hereunder to Employee. Employee agrees in the event of any
dispute under this paragraph to submit to a physical
examination by a licensed physician selected by LabOne and
to accept LabOne's decision based on the results thereof.
(c) Voluntary Termination. Employee's employment may be
voluntarily terminated by Employee giving thirty (30) days'
prior written notice to LabOne. In the event Employee
voluntarily terminates employment, LabOne shall have no
further liability or obligation hereunder to Employee.
(d) Termination for Cause. Employee's employment may be
involuntarily terminated by LabOne at any time for cause.
In the event that Employee is involuntarily terminated by
LabOne for cause, LabOne shall thereafter have no further
liability or obligation hereunder to Employee.
(e) Termination Without Cause. Employee's employment may be
involuntarily terminated by LabOne at any time without
cause by LabOne giving thirty (30) days' prior written
notice to Employee. In the event that Employee is
involuntarily terminated without cause by LabOne, LabOne
shall pay to Employee in a lump sum an amount equal to
twelve (12) months' base salary. Said amount shall be paid
to Employee within thirty (30) days of LabOne's giving
notice of termination to Employee and shall be determined
by the aggregate of the last twelve (12) months' base
salary of Employee preceding the month LabOne transmits
such notice of termination. Upon such payment, LabOne
shall have no further liability or obligation hereunder to
Employee.
(f) Termination Subsequent to Change in Control.
Notwithstanding any other provision of this Agreement to
the contrary, in the event that (i) a change of control of
LabOne shall occur at any time during which Employee is in
the full-time employment of LabOne or its successor and
(ii) within one (1) year after such a change in control,
Employee's employment with LabOne or its successor is
terminated by LabOne or its successor for any reason other
than permanent disability, death or normal retirement, or
is voluntarily terminated by Employee for any reason at his
sole discretion, LabOne will promptly pay to Employee as
termination compensation the lump sum amount described
below.
The lump sum compensation payable to Employee shall be
equal to three (3) times the average annual compensation
includible in Employee's gross income for the most recent
five (5) taxable years ending before the date of the change
in control. If Employee has been an employee of LabOne for
less than 5 years, Employee's lump sum payment shall be
equal to 3 times the average annual compensation includible
in Employee's gross income based on the portion of the 5
year period during which officer performed services for
LabOne. To the extent that any amount required to be paid
hereunder would constitute an "excess parachute payment"
within the meaning of Section 28OG(b) of the Internal
Revenue Code of 1986, that excess amount need not be paid.
For purposes of this Section (f), a "change of control"
shall be deemed to have taken place if there shall have
occurred (i) the sale or other disposition resulting in the
transfer of legal or beneficial ownership of, or the right
to vote, more than fifty percent (50%) of the outstanding
capital stock of LabOne to one or more third-party
purchasers, except in connection with an underwritten
public offering of the common stock of LabOne, (ii) a
merger or consolidation of LabOne with or into any entity,
or (iii) a sale or other transfer of substantially all of
the assets of LabOne to any person or entity.
In the event of termination of employment under the circumstances
described above, LabOne shall pay to Employee the installments of his base
salary through the date of termination of employment, any annual incentive
bonus for the previous year if such has been approved but not paid and the
lump sum amount as termination compensation described above. Such payments
to Employee and the arrangements provided for by any stock option or other
agreement between LabOne and Employee in effect at the time and by any
other applicable plan of LabOne will constitute the entire obligation of
LabOne to Employee with respect to such termination, and will also
constitute full settlement of any claim under law or in equity that
Employee might otherwise assert against LabOne or any of its employees on
account of such termination.
14. Survival. Notwithstanding the termination of Employee's
employment pursuant to the provisions of Paragraph 13 hereof, Employee's
obligations under Paragraphs 8, 9, 10 and 11 hereof and the provisions for
relief against Employee in Paragraph 12 hereof shall continue in full force
and effect. Any right or power conferred upon LabOne or the Board of
Directors of LabOne by the terms of this Agreement shall inure to the
benefit of any person(s) of entity(ies) into which LabOne is consolidated,
merged or liquidated, and the Board of Directors or other governing body of
any such corporation of other entity.
15. Law Governing. This Agreement shall be governed by and
interpreted under the laws of the State of Missouri.
16. Notices. All notices and other communications required or
permitted hereunder or necessary or convenient shall be deemed to have been
given when mailed by certified or registered mail, postage prepaid,
addressed as follows:
If to Employee, to: John W. McCarty,
12501 Sagamore
Leawood, Kansas
and if to LabOne, to: W. Thomas Grant II
President and Chief Executive Officer
LabOne, Inc.
10101 Renner Boulevard
Lenexa, Kansas 66219,
or such other persons and addresses as have been furnished by Employee or
LabOne to the other in writing. The failure of Employee or LabOne to
require strict performance of any provision of this Agreement by the other,
or the forbearance to exercise any right or remedy, shall not be construed
as a waiver by such party of any such right or remedy, nor shall any single
or partial exercise of any right or remedy preclude any other or further
exercise thereof or the exercise of any other right or remedy.
17. Contents of Agreement, Amendment and Assignment. This Agreement
sets forth the entire understanding between the parties with respect to the
subject matter hereof and cannot be changed, modified or terminated except
in writing. All of the terms and provisions of this Agreement shall be
binding upon and inure to the benefit of and be enforceable by the
respective heirs, representatives, successors and assigns of the parties
hereto, except that the duties and responsibilities of Employee hereunder
are of a personal nature and shall not be assignable in whole or in part by
Employee.
18. Severability. If any provision of this Agreement or the
application thereof under any circumstance is adjudicated to be invalid or
unenforceable, such invalidity or unenforceability shall not affect any
other provision or application of this Agreement which can be given effect
without the invalid or unenforceable provision or application.
19. Gender. Masculine pronouns used herein shall refer to the
masculine or feminine gender as appropriate.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
LABONE, INC.
By: /s/ W. Thomas Grant II
-----------------------------
W. THOMAS GRANT II, President
/s/ JOHN W. McCARTY
--------------------
JOHN W. McCARTY
??
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the first quarter 2000 report on Form 10-Q for LabOne, Inc. and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000830158
<NAME> LABONE, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 2,171,418
<SECURITIES> 0
<RECEIVABLES> 31,119,638
<ALLOWANCES> 2,782,834
<INVENTORY> 2,315,989
<CURRENT-ASSETS> 37,635,603
<PP&E> 82,635,603
<DEPRECIATION> 39,414,283
<TOTAL-ASSETS> 117,938,738
<CURRENT-LIABILITIES> 19,370,611
<BONDS> 31,251,192
0
0
<COMMON> 130,500
<OTHER-SE> 65,649,867
<TOTAL-LIABILITY-AND-EQUITY> 117,938,738
<SALES> 0
<TOTAL-REVENUES> 40,581,050
<CGS> 0
<TOTAL-COSTS> 26,583,356
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 758,209
<INTEREST-EXPENSE> 495,279
<INCOME-PRETAX> 1,156,654
<INCOME-TAX> 739,036
<INCOME-CONTINUING> 417,618
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 417,618
<EPS-BASIC> 0.04
<EPS-DILUTED> 0.04
</TABLE>
