UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1993
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OR
_____ 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 1-10740
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NATIONAL HEALTH LABORATORIES INCORPORATED
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(Exact name of registrant as specified in its charter)
DELAWARE 84-0611484
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4225 EXECUTIVE SQUARE, SUITE 800, LA JOLLA, CALIFORNIA 92037
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(Address of principal executive offices) (Zip Code)
619-550-0600
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: Common
Stock, $0.01 par value
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports) and (2) has been subject
to such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
State the aggregate market value of the voting stock held by
non-affiliates of the registrant, by reference to the price at which the
stock was sold as of a specified date within 60 days prior to the date of
filing: $912,107,227 at March 22, 1994.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: 84,750,692
shares at March 22, 1994 of which 20,176,729 shares are held by an
indirect wholly owned subsidiary of Mafco Holdings Inc.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's definitive proxy statement for its 1994 annual
meeting of stockholders (which is to be filed pursuant to Regulation 14A
not later than April 30, 1994), is incorporated by reference into Part III
of this Form 10-K.
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PART I
Item 1. DESCRIPTION OF BUSINESS
National Health Laboratories Incorporated (the "Company")
was incorporated in Delaware on March 23, 1971 as DCL Health
Laboratories Incorporated and adopted its current name on June 3,
1974. The Company's principal executive offices are located at
4225 Executive Square, Suite 800, La Jolla, California 92037,
and its telephone number is (619) 550-0600.
Until the initial public offering of approximately 5% of
the Company's common stock in July 1988, the Company was an
indirect wholly owned subsidiary of Revlon Holdings, Inc.
("Revlon"), then known as Revlon, Inc., which, in turn, is an
indirect wholly owned subsidiary of Mafco Holdings Inc.
("MAFCO"), a corporation that is 100% owned by Ronald O.
Perelman. Following the completion of successive secondary
public offerings of the Company's common stock, a self tender
offer by the Company and the purchase by the Company of
outstanding shares of its common stock, MAFCO's indirect
ownership has been reduced to approximately 24%.
The Company is one of the leading clinical laboratory
companies in the United States. Through a national network of
laboratories, the Company offers a broad range of testing
services used by the medical profession in the diagnosis,
monitoring and treatment of disease. Office-based physicians
constitute approximately 90% of the Company's clients. The
remainder is comprised primarily of managed care providers,
hospitals, clinics, nursing homes and other clinical
laboratories.
Since its founding, the Company has grown into a network
of 17 major laboratories, including a national reference
laboratory which performs esoteric testing and tests for the
presence of drugs of abuse, 73 sales ports and 662 patient
service centers and STAT laboratories, serving customers in 44
states.
Recent Developments
On March 14, 1994, National Health Laboratories Holdings
Inc. ("NHL Holdings"), a newly formed, wholly owned subsidiary of
the Company filed a Registration Statement with the Securities
and Exchange Commission on Form S-4 under the Securities Act of
1933, as amended, covering the shares of NHL Holdings' common
stock to be issued in connection with a proposed corporate
reorganization that will create a holding company structure for
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the Company. Under such proposed corporate reorganization, NHL
Holdings, which was specifically formed to effect the
reorganization, will become the parent holding company of the
Company. All outstanding shares of common stock of the Company
will be converted on a share-for-share basis into shares of
common stock of NHL Holdings. As a result, the owners of common
stock of the Company will become the owners of common stock of
NHL Holdings. The Company believes the reorganization will
provide a greater ability to take advantage of future growth
opportunities and will broaden the alternatives available for
future financing. If the proposed corporate reorganization is
approved by an affirmative vote of a majority of the outstanding
shares of the Company's common stock at the Company's next annual
meeting of stockholders, such reorganization is expected to be
effected promptly after such approval.
The Clinical Laboratory Industry
Clinical laboratory tests are used by physicians to
diagnose, monitor and treat diseases and other clinical states
through the detection of substances in blood or tissue samples
and other specimens. Clinical laboratory tests are primarily
performed by hospitals in-house, by physicians in their offices
or in physician-owned laboratories and by independent laboratory
companies like the Company. The Company views the clinical
laboratory industry as highly fragmented with many local and
regional competitors, including numerous physician and
hospital-owned laboratories as well as several large independent
laboratory companies.
The clinical laboratory industry has experienced rapid
consolidation. The Company believes that this consolidation will
continue due to pricing pressures, overcapacity, cost burdens on
small labs as they strive to meet new regulatory requirements and
restrictions on Medicare and Medicaid reimbursement for tests
referred by physicians to laboratories in which they have a
financial interest.
Laboratory Testing Operations and Services
The Company has 17 major laboratories, 73 sales ports and
662 patient service centers and STAT laboratories. A "sales
port" is a central office which collects specimens in a region
for shipment to one of the Company's laboratories for testing.
Test results can be printed at a sales port and conveniently
delivered to the client. A sales port also is used as a base for
sales staff. A "patient service center" is a facility generally
maintained by the Company to serve the physicians in a medical
professional building. The patient service center collects the
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specimens as requested by the physician. The specimens are sent,
principally through the Company's in-house courier system (and,
to a lesser extent, through independent couriers), to one of the
Company's major laboratories for testing. Some of the Company's
patient service centers have "STAT labs", which are laboratories
that have the ability to perform certain routine tests quickly
and report results to the physician immediately.
The Company processes approximately 116,000 patient
specimens on an average day, representing approximately 327,000
separate laboratory tests. Patient specimens are delivered to
the Company accompanied by a test request form. These forms are
completed by the client, indicating the tests to be performed and
providing the necessary billing information.
Each specimen and related request form is checked for
completeness and then given a unique identification number. The
unique identification number assigned to each patient helps to
assure that the results are attributed to the correct patient.
The test request forms are sent to a data entry terminal where a
file is established for each specimen and the necessary testing
and billing information entered. Once this information is
entered into the system, the tests are performed and the results
are entered either manually or through computer interface,
depending upon the tests and the type of equipment involved.
Most of the Company's computer testing equipment is interfaced
with the Company's computer system. Most routine testing is
completed by early the next morning, and test results are printed
and prepared for distribution by service representatives that
day. Some clients have local printer capability and have reports
printed out directly in their offices. Clients who request that
they be called with a result are so notified in the morning. It
is Company procedure to notify the client immediately if at any
time in the course of the testing process a life-threatening
result is found.
The following discussion describes the different types of
tests performed by the Company:
Routine Clinical Testing. The Company believes that there
are approximately 1,300 tests available in the industry today, of
which the Company considers approximately 50% routine. The vast
majority of the number of tests actually performed by the Company
are considered by the Company to be routine. The Company
performs all of such routine tests in its own laboratories. A
routine test generally is a higher volume, simpler test capable
of being performed and reported within 24 hours. The Company
performs many routine clinical tests with sophisticated and
computerized laboratory testing equipment. These tests provide
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information used by physicians in determining the existence or
absence of disease or abnormalities. The Company performs this
core group of routine tests in each of its 17 major regional
laboratories for a total of approximately 81,500,000 routine
tests annually.
Esoteric Clinical Testing. Esoteric tests are specialized
laboratory tests performed in cases where information is needed
to confirm a diagnosis, or when the physician requires additional
information to develop a plan of therapy for a complicated
medical case. Esoteric tests are generally more complex tests,
requiring more sophisticated technology and more expensive
equipment and materials, as well as a higher degree of technical
skill to perform. The number of esoteric tests continually
increases as new medical discoveries are made. The Company
presently considers approximately 650 tests to be esoteric. In
March 1989, the Company opened a new, state-of-the-art national
reference laboratory in Nashville, Tennessee. This laboratory
provides a central location for esoteric testing for all of the
Company's major laboratories and their clients. The Company
performs approximately 90% of all types of tests considered by
the Company to be esoteric at its own facilities, representing
approximately 1,950,000 tests annually. With the opening of this
facility, the Company has reduced both the types and numbers of
esoteric tests that are referred to outside laboratories to be
performed.
Cytology. Cytology, which involves both routine and
esoteric clinical testing, is the examination of cells under a
microscope to detect abnormalities in composition, form or
structure which are associated with disease. The PAP smear is
the most common cytologic test, accounting for approximately 99%
of all of the Company's testing in this area. Additional
cytology tests are performed on fluid aspirations, bronchial
washings and breast fluid smears. The Company performs
approximately 3,800,000 PAP smears and other cytologic
examinations annually.
Anatomical Testing. Routine and esoteric anatomical tests
require the examination of a small piece of tissue which either
is cut from the body surgically or taken in a biopsy. These
tissue specimens are examined by a pathologist both visually and
microscopically to detect abnormalities in composition, form or
structure which are associated with disease. The Company
performs approximately 540,000 anatomical tests annually.
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Quality Assurance
The Company considers the quality of its tests to be of
critical importance to its growth and retention of accounts. It
has established a comprehensive quality assurance program for all
of its laboratories and other facilities designed to help assure
accurate and timely test results. All laboratories certified by
the Health Care Financing Administration ("HCFA") of the
Department of Health and Human Services ("HHS") for participation
in the Medicare program and licensed under the Clinical
Laboratory Improvement Act of 1967, as amended by the Clinical
Laboratory Improvement Amendments of 1988 ("CLIA") must
participate in basic quality assurance programs. In addition to
the compulsory external inspections and proficiency programs
demanded by the regulatory agencies, the Company has adopted a
substantial number of additional quality assurance programs. See
"-- Governmental and Industry Regulation".
Each laboratory is equipped with sophisticated testing
equipment which is checked daily in accordance with the Company's
preventive maintenance program. In addition, each laboratory is
supervised by a medical director who is a physician, assisted by
a technical director who meets certain regulatory requirements,
and is staffed with medical professionals. The primary role of
such professionals is to ensure the accuracy of the Company's
tests.
The Company employs inspectors with doctorate and masters
degrees in biological sciences who visit and inspect each of the
laboratories routinely on an unannounced basis. The Company
attempts to have such inspections conducted in the same manner as
the annual inspections conducted by federal and state government
officials. Any deficiencies which appear must be corrected
within 30 days.
In late 1990, the Company completed a state-of-the-art
Technology Center at its headquarters facility in La Jolla,
California. The center houses the Company's Quality Assurance
Group and enhances its ability to monitor the testing results of
the individual laboratories. A computerized network has been
established allowing virtual on-line examination of test results
and monitoring of the laboratories.
The Company also participates in a number of proficiency
testing programs which, generally, entail submitting pretested
samples to a laboratory to verify the laboratory test results
against the known proficiency test value. These proficiency
programs are conducted both by the Company on its own and in
conjunction with groups such as the College of American
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Pathologists ("CAP") and state and federal government regulatory
agencies. The CAP is an independent non-governmental
organization of board certified pathologists which offers an
accreditation program to which laboratories can voluntarily
subscribe. The CAP accreditation program involves both on-site
inspections of the laboratory and participation in the CAP's
proficiency testing program for all categories in which the
laboratory is accredited by the CAP. A laboratory's receipt of
accreditation by the CAP satisfies the Medicare requirement for
participation in proficiency testing programs administered by an
external source. See "--Governmental and Industry Regulation".
Sales, Marketing and Client Service
The Company's business strategy also emphasizes sales,
marketing and client service which the Company believes have been
important factors in its growth.
The Company's sales force was slightly reshaped during 1993
to reflect changes in the current marketplace. A new, totally
dedicated sales force of 20 people was assembled to better
address managed care, an emerging and increasingly important
segment of the clinical laboratory customer base. At the
beginning of 1993, the Company had contracts with over 300
managed care organizations and insurance companies. During the
year, the managed care sales group arranged new contracts with
more than 120 additional managed care providers across the
country. The Company's hospital sales force was also expanded
during 1993. New contracts were signed with over 100 group
purchasing or individual hospital organizations which are
expected to generate annualized revenues in excess of seven
million dollars.
The Company continued its support of the sales force's
efforts with a variety of marketing and informational brochures.
Patient information booklets on commonly ordered chemistry tests
and the PAP test were published in both English and Spanish and
given to clients for distribution to their patients. A new end
stage renal dialysis marketing program was introduced; components
included a marketing brochure and a sophisticated data processing
program for use in dialysis centers. To support the efforts of
the newly formed managed care sales force, the Company developed
a unique, proprietary utilization review program geared
specifically toward today's managed care client's needs. A
managed care capabilities brochure was also prepared to introduce
Company sales people to potential new managed care customers.
The Company considers it's quality assurance program to be a
leader in the industry. To convey this to new and existing
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clients, a quality assurance brochure was produced to give a
detailed explanation of the Company's 19 clinical laboratory and
18 cytology quality assurance programs. Lastly, the Company
started a quarterly newsletter called "Horizon" which is directed
at the hospital marketplace.
After an account is acquired, primary responsibility for
the account is turned over to the Company's Client Service
Program and its client service coordinators. This group expanded
by approximately 20% during 1993, increasing to over 200
individuals. Through these coordinators, the Company
continuously monitors and assesses service levels, maintains
client relationships and attempts to identify and respond to
client needs.
Potential New Markets
Both the hospital reference and managed care markets present
tremendous opportunities for future growth. The impact of health
care reform and the current industry consolidation will create
many unique situations in both these market segments. The
Company plans to continue to expand both sales forces that
service these two groups. In addition, the Company intends to
target certain niche markets for increased sales penetration
during 1994: Clinical Trials, End Stage Renal Dialysis and
Nursing Homes. Lastly, several of the acquisitions completed
during 1993 opened new geographic markets for the Company's
primary target market, office-based physicians.
Sales for the Company's national reference laboratory for
esoteric testing ("NRL I") increased in 1993 to approximately $65
million from approximately $60 million in 1992. The facility is
located in Nashville, Tennessee, and services both the hospital
reference and physician office market. Sales of the Company's
national reference laboratory for testing for the presence of
drugs of abuse ("NRL II") also grew from approximately $3 million
in 1992 to approximately $4.3 million in 1993. The Company
believes that both these organizations will exhibit continued
growth in 1994 and in future years.
Information Systems
The Company believes the requirement for timely, clearly
presented data is paramount to health care organizations' success
in the 1990s. A dedicated managed care data system and an
enhanced physician office system with field support were two of
the many new programs developed by the information systems group
in 1993. Plans for 1994 include completion of laboratory
hardware/software standardization, final computerization and
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installation of a cytology and histology data system and
developmental work on a new advanced large laboratory system. A
new, enhanced billing system to handle the needs of various third
party carriers and managed care clients will be installed in all
the regional laboratories during the first half of 1994.
Additionally, the Company will begin testing and installation of
its next generation comprehensive billing system. Further, to
improve customer service, a number of the laboratory telephone
systems will be replaced or upgraded during 1994.
Infectious Waste
Certain federal and state laws govern the handling and
disposal of infectious and hazardous wastes. Although the
Company believes that it is currently in compliance in all
material respects with such federal and state laws, failure to
comply could subject the Company to fines, criminal penalties
and/or other enforcement actions.
Customers
To date, the Company has focused its marketing efforts
primarily on office-based physicians, whose orders account for
approximately 90% of its net sales. The remaining 10% of net
sales is derived from managed care providers, hospital reference
testing, nursing homes, clinics, referrals from other clinical
laboratories and other clients. The largest client of the
Company accounts for approximately 1.2% of net sales. The
Company believes that the loss of any one client would not have a
material adverse effect on its financial condition. Payment for
the Company's services is made by the patients directly,
physicians who in turn bill their patients, or third party
payors, including public and private parties such as Medicare,
Medicaid and Blue Shield.
Employees
At December 31, 1993, the Company employed approximately
10,650 people. These include approximately 7,700 full-time
employees and approximately 2,950 part-time employees, which
represents the equivalent of approximately 8,360 persons full-
time. Of the approximately 8,360 full-time equivalent employees,
approximately 350 are sales personnel, approximately 7,140 are
laboratory and distribution personnel and approximately 870 are
administrative and data processing personnel. The Company has no
collective bargaining agreements with any unions and believes
that its overall relations with its employees are excellent.
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Governmental and Industry Regulation
The clinical laboratory industry is subject to government
regulation at the federal, state and local levels.
The Company's major laboratories are certified under the
federal Medicare program, state Medicaid programs and CLIA.
Where applicable, licensure is maintained under the laws of state
or local governments that have clinical laboratory regulation
programs. In addition, in facilities where radioimmunoassay
testing is performed, the facilities are licensed by the federal
Nuclear Regulatory Commission and, where applicable, by state
nuclear regulatory agencies. Sixteen of the Company's 17 major
laboratories are accredited by the CAP. The Chicago regional
laboratory, opened January 1, 1994, is currently applying for CAP
accreditation. In addition, the Company's STAT laboratories are
also certified or licensed, as necessary, under federal, state or
local programs.
The federal and state certification and licensure programs
establish standards for the day-to-day operation of a medical
laboratory, including, but not limited to, personnel and quality
control. Compliance with such standards is verified by periodic
inspections by inspectors employed by the appropriate federal or
state regulatory agency. In addition, regulatory authorities
require participation in a proficiency testing program provided
by an external source which involves actual testing of specimens
that have been specifically prepared by the regulatory authority
for testing by the laboratory.
In 1993, 1992 and 1991, approximately 41%, 42% and 42%,
respectively, of the Company's revenues were derived from tests
performed for beneficiaries of Medicare and Medicaid programs.
Furthermore, the conduct of the Company's other business depends
substantially on continued participation in these programs.
Under law and regulation, for most of the tests performed for
Medicare or Medicaid beneficiaries, the Company must accept
reimbursement from Medicare or Medicaid as payment in full. In
1984, Congress adopted legislation establishing a fee schedule
reimbursement methodology for testing for out-patients under
Medicare. The 1984 legislation reduced the laboratory
reimbursement rate by 40%. In 1986, Congress changed the fee
schedule reimbursement mechanism by creating national limitation
amounts which are the medians of the fee schedule rates for tests
subject to the fee schedules. Initially, laboratories were paid
115% of the national limitation amounts. Since 1986, Congress
has gradually reduced the percentage of the national limitation
amounts that Medicare will pay to 84%. The latest reduction in
the national limitation payment amounts (from 88% to 84%
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effective January 1, 1994) was made as part of the Omnibus Budget
Reconciliation Act of 1993 ("OBRA '93") that was enacted into law
during 1993. OBRA '93 contains provisions for a further
reduction in payments to 80% of the national limitation amounts
effective January 1, 1995, followed by an additional reduction to
76% on January 1, 1996. OBRA '93 also eliminated, for 1994 and
1995, the provision for annual fee schedule increases based upon
the consumer price index. In addition, state Medicaid programs
are prohibited from paying more than the Medicare fee schedule
amount for testing for Medicaid beneficiaries. Additional future
changes in federal, state or local regulations (or in the
interpretation of current regulations) affecting governmental
reimbursement for clinical laboratory testing or the methods for
choosing laboratories eligible to perform tests could have a
material adverse effect on the Company.
On January 1, 1993, numerous changes in the Physicians'
Current Procedural Terminology ("CPT") were published. The CPT
is a coding system that is published by the American Medical
Association. It lists descriptive terms and identifying codes
for reporting medical and medically related services. The
Medicare and Medicaid programs require suppliers, including
laboratories, to use the CPT codes when they bill the programs
for services performed. HCFA implemented these CPT changes for
Medicare and Medicaid on August 1, 1993. The CPT changes have
altered the way the Company bills Medicare and Medicaid for some
of its services, thereby reducing the reimbursement the Company
receives from those programs for some of its services. For
example, certain codes for calculations, such as LDL cholesterol
were deleted and are no longer a payable service under Medicare
and Medicaid.
In March 1992, HCFA published proposed regulations to
implement the Medicare statute's prohibition (with certain
exceptions) against compensation arrangements between physicians
and laboratories. The proposed regulations would define
remuneration that gives rise to a compensation arrangement as
including discounts. If that definition of remuneration were to
become effective, it could have an impact on the way the Company
prices its services to physicians. However, in August 1993, the
referenced Medicare statute was amended by OBRA '93. One of
these amendments makes it clear that day-to-day transactions
between laboratories and their customers, including but not
limited to discounts granted by laboratories to their customers,
are not affected by the compensation arrangement provisions of
the Medicare statute. Thus, the Company expects the definition
of remuneration in HCFA's proposed regulations will be changed to
reflect this amendment to the Medicare statute. Currently, these
proposed regulations have not been finalized.
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The Clinton Administration has announced its desire and
intention to reform health care in the United States. Some of
the proposals that have been discussed include managed
competition, global budgeting, price controls and freezes on
health care costs. Health care reform could have a material
effect on the Company. The Company is unable to predict,
however, whether and what type of health care reform legislation
will be enacted into law.
In November 1990, the Company became aware of a grand jury
inquiry relating to its pricing practices being conducted by the
United States Attorney for the San Diego area (the Southern
District of California) with the assistance of the Office of
Inspector General ("OIG") of HHS. On December 18, 1992, the
Company announced that it had entered into agreements that
concluded the investigation (the "Government Settlement"). The
settlement revolved around the government's contention that the
Company improperly included its tests for HDL cholesterol and
serum ferritin (a measure of iron in the blood) in its basic
Health Survey Profile, without clearly offering an alternative
profile that did not include these medical tests. The government
also contended that, in certain instances, physicians were told
that these additional tests would be included in the Health
Survey Profile at no extra charge. As a result, the government
contended, the Company's marketing activities denied physicians
the ability to exercise their judgment as to the medical
necessity of these tests.
Pursuant to the Government Settlement, the Company pleaded
guilty to the charge of presenting two false claims to the
Civilian Health and Medical Program of the Uniformed Services
("CHAMPUS") and paid a $1 million fine. In connection with
pending and threatened civil claims, the Company also agreed to
pay $100 million to the federal government, of which $73 million
has been paid and $27 million will be paid in quarterly
installments through September 30, 1995. Concurrently, the
Company settled related Medicaid claims with states that account
for over 99.5% of its Medicaid business, and has paid $10.4
million to the settling states.
As a result of these settlements, the Company took a one-
time pre-tax charge of $136.0 million in the fourth quarter of
1992, which reduced net earnings for the quarter and year ended
December 31, 1992 by $80.3 million. Earnings per share for the
fourth quarter and year were each reduced by $0.85. The charge
covers all estimated costs related to the investigation and the
settlement agreements. The Company will continue to receive
reimbursements from all government third party reimbursement
programs, including Medicare, Medicaid and CHAMPUS, under the
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settlement agreements. (The Company made changes to requisition
forms, pricing and compendia of tests following the settlement.
See "Managements' Discussion and Analysis of Financial Condition
and Results of Operations".)
In September 1993, the Company was served with a subpoena
issued by the OIG, which required the Company to provide
documents to the OIG concerning its regulatory compliance
procedures. The Company has provided documents to the OIG in
response to the subpoena.
Compliance Program
Because of evolving interpretations of regulations and the
national debate over health care, compliance with all Medicare,
Medicaid and other government-established rules and regulations
has become a significant factor throughout the clinical
laboratory industry. The Company began the implementation of a
new compliance program in late 1992 and early 1993. The
objective of the program is to develop aggressive and reliable
compliance safeguards. Emphasis is placed on developing training
programs for personnel to attempt to assure the strict
implementation of all rules and regulations. Further, in-depth
reviews of procedures, personnel and facilities are conducted to
assure regulatory compliance throughout the Company. Such
sharpened focus on regulatory standards and procedures will
continue to be an absolute priority for the Company in the
future.
Competition
The clinical laboratory testing business is characterized
by intense competition. The Company believes that there are many
clinical laboratory companies which provide a broad range of
laboratory testing services in the same markets serviced by the
Company. Among the Company's national competitors are Allied
Clinical Laboratories, Inc., MetPath Inc., Nichols Institute,
Roche Biomedical Laboratories, Inc. and SmithKline Beecham
Clinical Laboratories, Inc. According to HCFA, there are over
157,000 federally regulated clinical laboratories, of which
approximately 6,400 are independent laboratories. The number of
regulated clinical laboratories has increased dramatically as a
result of the enactment of the Clinical Laboratories Improvement
Amendments of 1988 which expanded the definition of laboratories
subject to federal regulation. Competition is based primarily on
quality, price and the time required to report results. In
addition to competition for customers, there is increasing
competition for qualified personnel.
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Item 2. PROPERTIES
The principal properties of the Company are its leased
corporate headquarters located in La Jolla, California and the
following major laboratory facilities:
Approximate
Area Nature of
Location (in square feet) Occupancy
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Phoenix, Arizona 43,024 Lease Expires 2001; 5 year
renewal option
San Diego, California 37,079 Lease Expires 2000
Denver, Colorado 19,982 Lease Expires 2001; two
5 year renewal options
Hollywood, Florida 46,500 Lease Expires 2002; three
5 year renewal options
Tampa, Florida 26,600 Lease Expires 2002; one
5 year renewal option
Chicago, Illinois 40,065 Lease Expires 2003; two
5 year renewal options
Louisville, Kentucky 60,000 Lease Expires 2002; three
5 year renewal options
Detroit, Michigan 12,800 Lease Expires 1994
Cranford, New Jersey 36,438 Lease Expires 1995; 5 year
renewal option
Uniondale, New York 108,000 Lease expires 2007; two 5
year renewal options
Winston-Salem,
North Carolina 42,500 Lease Expires 2004; one
5 year renewal option
NRL I-Nashville,
Tennessee 46,313 Lease Expires 2000; two
5 year renewal options
NRL II-Nashville,
Tennessee 25,640 Lease Expires 2000; two
5 year renewal options
Dallas, Texas 27,968 Lease Expires 1994
Houston, Texas 32,368 Lease Expires 1996
San Antonio, Texas 20,660 Lease Expires 1997; two
5 year renewal options
Herndon, Virginia 64,172 Lease Expires 2004; 5 year
renewal option
Seattle, Washington 34,900 Lease Expires 2000; two
5 year renewal options
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Construction of a new major laboratory facility in
Chicago, Illinois was completed in December 1993. The laboratory
opened January 1, 1994. Construction of two new laboratories to
replace the Company's Detroit, Michigan and Cranford, New Jersey
facilities will begin in the first quarter of 1994 and be
completed in the third and fourth quarters of 1994, respectively.
All of the major laboratory facilities have been built or
improved for the single purpose of providing clinical laboratory
testing services. The Company believes that these facilities are
suitable and adequate and have sufficient production capacity for
its currently foreseeable level of operations. The Company
believes that if it were to lose the lease on any of the
facilities it presently leases, it could find alternate space at
competitive market rates and readily relocate its operations to
such new locations without material disruption to its operations.
Item 3. LEGAL PROCEEDINGS
The Company is involved in certain claims and legal
actions arising in the ordinary course of business. In the
opinion of management, based upon the advice of counsel, the
ultimate disposition of these matters will not have a material
adverse effect on the financial position of the Company.
In December 1992, several class actions were filed against
the Company and certain of its officers and directors alleging
that certain public disclosures made by the Company since
February 1990 were false and misleading in that they failed to
disclose that a portion of the Company's income was derived from
allegedly fraudulent claims and that such non-disclosures
rendered the Company's financial statements misleading. These
various class actions are pending in the United States District
Court for the Southern District of California. The Company
believes that the allegations of the complaint that claim wrong
doing on behalf of the Company and its officers and directors
cannot be supported by the facts or the law and that the
Company's disclosures complied with all legal obligations. The
Company is defending these lawsuits vigorously.
In addition, certain lawsuits have been brought by
purported shareholders of the Company, allegedly on the Company's
behalf against the Company's directors and certain of its
officers, in the Superior Court for the County of San Diego,
California. These various claims allege that the Company was
damaged by actions of the defendant officers and directors in
connection with supervision and control of the practices that led
to the guilty plea and civil settlement associated with the
15
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<PAGE>
Government Settlement. These actions seek no damages against the
Company.
In November 1993, a class action was filed against the
Company and certain of its officers and directors alleging that
certain public disclosures made by the Company since December
1992 were false and misleading in that they stated that the
Company had taken steps to insure that the Company's sales and
marketing practices are compatible with the government's
interpretation of current regulations and that they failed to
disclose that a portion of the Company's income was derived from
allegedly fraudulent claims and that such non-disclosures
rendered the Company's financial statements misleading. This
class action is pending in the United States District Court for
the Southern District of California. The Company believes that
the allegations of the complaint that claim wrongdoing on behalf
of the Company and its officers and directors cannot be supported
by the facts or the law and that the Company's disclosures
complied with all legal obligations. On January 5, 1994, a
stipulation was entered into whereby the parties have agreed to
stay all further activity in this action pending the conclusion
of the class actions filed in December 1992.
On January 13, 1994, the individual who had commenced a
previously reported, purported antitrust class action against the
Company in federal district court alleging that he had been
billed for unordered tests voluntarily dismissed his action.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders
during the fourth quarter of the fiscal year covered by this
report.
16
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EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) of Form 10-K, the
following is included as an unnumbered Item in Part I of this
report in lieu of being included in the definitive proxy
statement for the 1994 annual meeting of stockholders.
The following table sets forth as of February 23, 1994 the
executive officers of the Company.
Name Position
-------------------------- ----------------------------------
Ronald O. Perelman Chairman of the Board and Director
James R. Maher President, Chief Executive Officer
and Director
David C. Flaugh Senior Executive Vice President and
Chief Operating Officer
Timothy J. Brodnik Executive Vice President
Michael L. Jeub Executive Vice President, Chief
Financial Officer and Treasurer
Larry L. Leonard, Ph.D. Executive Vice President
John F. Markus Executive Vice President and
Corporate Compliance Officer
James G. Richmond Executive Vice President and
General Counsel
W. David Slaunwhite, Ph.D. Executive Vice President
Bernard E. Statland, M.D., Ph.D Executive Vice President and
Chief Executive Officer of
National Reference Laboratory
Robert E. Whalen Executive Vice President
RONALD O. PERELMAN (51) has been Chairman of the Board and
Director of the Company since 1988. Mr Perelman has been
Chairman of the Board and Chief Executive Officer of MacAndrews &
Forbes Holdings Inc. ("M&F Holdings") and MAFCO, for more than
the past five years. Mr. Perelman also is Chairman of the Board
of Andrews Group Incorporated ("Andrews Group"), Consolidated
Cigar Corporation ("Consolidated Cigar"), New World
Communications Group, Inc. ("New World Communications"), Mafco
Worldwide Corporation ("Mafco Worldwide"), Marvel Entertainment
Group, Inc. ("Marvel"), Revlon Consumer Products Corporation
("Revlon Products") and SCI Television, Inc. Mr. Perelman is a
director of the following corporations which file reports
pursuant to the Securities Exchange Act of 1934: Andrews Group,
The Coleman Company, Inc. ("Coleman"), Coleman Holdings Inc.,
Coleman Worldwide Corporation, Consolidated Cigar, Mafco
Worldwide, Marvel, Marvel Holdings Inc. ("Marvel Holdings"),
Marvel (Parent) Holdings Inc. ("Marvel Parent"), Marvel III
17
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<PAGE>
Holdings Inc. ("Marvel III"), Revlon Products, Revlon Worldwide
Corporation and SCI Television, Inc.
JAMES R. MAHER (44) has been President, Chief Executive
Officer and a Director of the Company since December 1992. Mr.
Maher was Vice Chairman of The First Boston Corporation from 1990
to 1992 and Managing Director of The First Boston Corporation
since 1982. Mr. Maher also is a director of First Brands
Corporation.
DAVID C. FLAUGH (46) joined the Company in 1970. In 1992
Mr. Flaugh was appointed Chief Operating Officer and Senior
Executive Vice President. He was appointed Chief Financial
Officer and Treasurer in 1982 and 1988, respectively. From 1991
to 1992, Mr. Flaugh was Vice President-Managing Director.
TIMOTHY J. BRODNIK (46) joined the Company in 1971. He
was appointed Executive Vice President of the Company in 1993 and
was Senior Vice President from 1991 to 1993 and Vice President-
Division Manager commencing 1979. Mr. Brodnik oversees the
Company's sales operations.
MICHAEL L. JEUB (51) joined the Company in 1993 as
Executive Vice President, Chief Financial Officer and Treasurer.
Previously, Mr. Jeub was President, Chief Operating Officer and
Chief Financial Officer of Medical Imaging Centers of America
from 1991 to 1993. From 1988 to 1991, Mr. Jeub was a private
investor. Prior to 1988, Mr. Jeub held several positions with
International Clinical Laboratories, Inc., including Chief
Financial Officer and Eastern Division President.
LARRY L. LEONARD (52), who holds a Ph.D. degree in
microbiology, joined the Company in 1978. He was appointed
Executive Vice President of the Company in 1993 and was Senior
Vice President from 1991 to 1993 and Vice President-Division
Manager commencing 1979. Dr. Leonard oversees major regional
laboratories in Arizona, Florida, North Carolina, Texas and
Virginia.
JOHN F. MARKUS (42) joined the Company in 1990. He was
appointed Executive Vice President and Corporate Compliance
Officer in 1993 and was Vice President-Managing Director from
1990 to 1993. Previously, Mr. Markus was an attorney in the law
firm of Akin, Gump, Strauss, Hauer and Feld in Washington D.C.
for more than five years and was a partner in such firm since
1989.
JAMES G. RICHMOND (50) joined the Company in 1992 as
Executive Vice President and General Counsel. Previously, Mr.
18
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Richmond was Managing Partner of the law firm of Coffield,
Ungaretti & Harris in Chicago from 1991 to 1992. Prior thereto,
he was Special Counsel to the Deputy Attorney General of the
United States from 1990 to 1991 and from 1985 to 1991 was United
States Attorney for the Northern District of Indiana.
W. DAVID SLAUNWHITE, PH.D. (48) joined the Company in
1981. He was appointed Executive Vice President in 1993, was
Vice President - Managing Director from 1991 to 1993 and Vice
President - Division Manager from 1989 to 1991. Prior to that he
held positions of increasing importance with the Company. Dr.
Slaunwhite has operational responsibilities for major regional
laboratories in California, Colorado, Illinois, Kentucky,
Michigan, New Jersey, New York and Washington.
BERNARD E. STATLAND, M.D., PH.D. (52) joined the Company
in 1990. He was appointed Executive Vice President in 1993 and
was Vice President - Managing Director and Chief Executive
Officer of the national reference laboratory from 1990 to 1993.
Dr. Statland was named a Scientific Advisor on the Company's
Board of Consultants in 1989. Prior to joining the Company, he
was Director of Pathology and Laboratory Medicine at Methodist
Hospital of Indiana for four years and previously held a similar
position at Boston University Hospital.
ROBERT E. WHALEN (51) joined the Company in 1976. He was
named Executive Vice President of the Company in 1993 and was
Senior Vice President from 1991 to 1993 and Vice President -
Administration commencing 1985. From 1979 to 1985, he was Vice
President - Division Manager of the Company.
19
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<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
On April 24, 1991, the common stock commenced trading on
the New York Stock Exchange ("NYSE") under the symbol "NH".
Prior to such time, the common stock was quoted on the National
Market System of the National Association of Securities Dealers,
Inc. Automated Quotation System ("NASDAQ") under the symbol
"NHLI".
The following table sets forth for the calendar periods
indicated the high and low sales prices for the common stock
reported on the NYSE Composite Tape, and the cash dividends
declared per share of common stock.
Dividends
Declared
High Low Per Share
---------------------------------------------------------------
1992
First Quarter 29 1/4 24 1/4 0.07
Second Quarter 25 1/2 18 7/8 0.08
Third Quarter 24 3/8 18 0.08
Fourth Quarter 25 1/8 15 5/8 0.08
1993
First Quarter 18 1/4 12 7/8 0.08
Second Quarter 19 1/2 16 1/8 0.08
Third Quarter 18 1/2 14 1/2 0.08
Fourth Quarter 16 3/8 12 0.08
1994
First Quarter (through
February 11, 1994) 15 1/4 13 1/4
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<PAGE>
On February 16, 1994, there were approximately 625 holders
of record of the common stock.
The Company has a policy pursuant to which dividends equal
to approximately 30% of net earnings are paid quarterly. The
declaration and payment of dividends is at the discretion of the
Board of Directors of the Company and the amount thereof will be
dependent upon the Company's results of operations, financial
condition, cash requirements for its business, future prospects
and other factors deemed relevant by the Board of Directors. In
addition, the Company's five year revolving credit facility
entered into in August 1993 (the "Revolving Credit Facility")
contains, among other provisions, a covenant prohibiting the
declaration or payment of cash dividends to stockholders if,
after giving effect to such action, a default (as defined by the
terms of the Revolving Credit Facility) shall occur and be
continuing.
Item 6. SELECTED FINANCIAL DATA
The selected financial data presented hereinafter as of
and for each of the years in the five year period ended December
31, 1993, are derived from consolidated financial statements of
the Company, which financial statements have been audited by KPMG
Peat Marwick, independent certified public accountants. This
data should be read in conjunction with the accompanying notes,
the Company's financial statements and the related notes thereto,
and "Management's Discussion and Analysis of Financial Condition
and Results of Operations", all included elsewhere herein.
21
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<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1993 1992 1991 1990 1989
---------------------------------------------------------------------------
(Dollars in millions, except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Earnings Data:
Net Sales . . . . . . . . . $760.5 $721.4 $603.9 $501.9 $402.4
Gross profit . . . . . . . . 316.0 326.3 271.4 222.6 177.8
Operating income (a) . . . . 185.5 64.1 165.8 133.1 107.0
Net earnings (a) . . . . . . 112.7 40.6 103.9 82.6 64.7
Earnings per common
share (a) (b) . . . . . . . $ 1.26 $ 0.43 $ 1.05 $ 0.83 $ 0.65
Dividends per common
share subsequent to
initial public
offering (c) . . . . . . . $ 0.32 $ 0.31 $ 0.27 $1.58 --
Weighted average
common shares
outstanding (000) (b) . . . 89,439 94,468 99,096 99,048 99,000
December 31,
--------------------------------------------
1993 1992 1991 1990 1989
----------------------------------------------------------------------------
Balance Sheet Data:
Cash and cash equivalents . $ 12.3 $ 33.4 $ 51.3 $ 45.8 $ 32.0
Intangible assets, net (e) . 281.5 188.3 193.1 192.7 198.6
Total assets (e) . . . . . . 585.5 477.4 411.3 374.2 368.2
Long-term obligations
(a)(b)(d)(f). . . . . . . 314.6 114.2 2.9 0.9 2.7
Due to affiliates (c) . . . 0.1 0.9 -- 66.4 0.1
Total stockholders'
equity (b) (c) . . . . . . 140.8 212.5 330.8 256.7 330.0
<FN> _________________
(a) In the fourth quarter of 1992, the Company took a one-time
charge against operating income of $136.0 million related to
the Government Settlement. At December 31, 1993 and 1992,
the long-term portion representing payments for settlement
and related expenses due in 1994 and 1995 aggregated $11.5
and $28.0 million, respectively.
(b) On January 16, 1992, the Company purchased 4,808,000 shares
of its outstanding common stock from its stockholders
pursuant to a tender offer (the "Tender Offer"). The
Company borrowed $100.0 million under a revolving credit
facility in existence at that time and used $25.8 million of
cash on hand to finance the Tender Offer. During 1993 and
1992, the Company made open market purchases of 9,485,800
and 310,000 of its outstanding shares of common stock,
22
<PAGE>
<PAGE>
respectively, for an aggregate amount of $154.2 million and
$6.1 million, respectively. Such purchases were financed
with cash on hand and borrowings under revolving credit
facilities in existence at such time. At December 31, 1993
and 1992, $278.0 million and $75.0 million, respectively,
was outstanding on the revolving credit facilities in
existence on those dates.
(c) In July 1990, the Company paid a special dividend of $150.6
million ($1.52 per share). Due to affiliates at December
31, 1990 principally represents borrowings from Revlon in
the original principal amount of $77.0 million incurred in
connection with the special dividend paid in 1990, net of an
$11.0 million principal payment made in 1990. All remaining
amounts due to affiliates were paid at a discount in
December 1991.
(d) In the fourth quarter of 1992, the Company relocated its
Long Island-based laboratory to a newly constructed
facility. The transaction is treated as a capital lease for
financial reporting purposes; as such, the associated long-
term lease obligation totalled $9.7 million and $9.6 million
at December 31, 1993 and 1992, respectively.
(e) During 1993, the Company acquired thirty-four clinical
laboratory companies for an aggregate amount of $78.2
million in cash plus $28.7 million of liabilities, comprised
primarily of future contractual and contingent payments.
The cash portion of such purchases was financed with cash on
hand and borrowings under revolving credit facilities in
existence at the time of the acquisitions. The excess of
cost over the fair value of net tangible assets acquired was
$100.1 million and is included under the caption "Intangible
assets, net".
(f) Long-term debt includes the expected value of long-term
future contractual and contingent amounts to be paid to the
principals of acquired clinical laboratory companies. Such
payments are primarily based on a percentage of future
revenues derived from the acquired customer lists or
specified amounts to be paid over a period of time. At
December 1993, 1992, 1991, 1990 and 1989, such amounts were
$15.4 million, $1.6 million, $2.9 million, $0.9 million and
$2.7 million, respectively.
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company derives approximately 41% of its net sales from
tests performed for beneficiaries of Medicare and Medicaid
23
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<PAGE>
programs. Several changes have been made which impact the
reimbursement the Company receives from such programs. On
January 1, 1993, numerous changes in the Physicians' Current
Procedural Terminology were published which became effective on
August 1, 1993. These changes impact the reimbursement the
Company receives on some of its services that are billed to the
Medicare and Medicaid programs. For example, certain codes for
calculations, such as LDL cholesterol were deleted and are no
longer a payable service under Medicare and Medicaid. Had such
changes been implemented as of January 1, 1993, the Company
estimates that 1993 net sales would have been reduced by
approximately $7 million.
During 1993, provisions were included in OBRA '93 which
reduced Medicare reimbursement schedules by lowering payments
under the fee schedule methodology from 88% to 84% of the
national limitation amounts, effective January 1, 1994. The
Company estimates that this change would have decreased 1993 net
sales by approximately $10 million had it been implemented as of
January 1, 1993. A further reduction in payments to 80% of the
national limitation amounts will become effective on January 1,
1995, followed by an additional reduction to 76% on January 1,
1996. OBRA '93 also eliminated, for 1994 and 1995, the provision
for annual fee schedule increases based upon the consumer price
index.
In the latter part of 1993, the Company held discussions with
HCFA concerning the reimbursement policy for serum ferritin and
HDL cholesterol tests. HCFA expressed concerns that the
incidence of orders of these tests by physicians remained too
high despite changes in the Company's requisition forms, pricing
and compendia of tests instituted after the Company's 1992
settlement. As a result of a HCFA directive to Medicare
carriers, the Company began to receive denials of claims
submitted in September 1993 for serum ferritin and HDL
cholesterol tests ordered by physicians and performed in
conjunction with automated chemistry panels. Such denials and
related suspended billings reduced the Company's 1993 net sales
by approximately $18.6 million. The Company continues to discuss
the status of these claims with HCFA.
The Company has undertaken actions with regard to HCFA's
concerns. The Company has removed the HDL cholesterol and serum
ferritin tests from all standard chemistry profiles offered on
its test requisition form. These tests may be ordered separately
or as part of a custom designed profile where specific
authorization is provided by the requesting physician. The
Company estimates that the annualized effect of these changes
would have been a reduction in net sales of approximately $60
24
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<PAGE>
million. A portion of such impact aggregating approximately
$18.6 million, as discussed above, was reflected in the Company's
1993 net sales.
In March 1992, HCFA published proposed regulations to
implement the Medicare statute's prohibition (with certain
exceptions) against compensation arrangements between physicians
and laboratories. The proposed regulations would define
remuneration that gives rise to a compensation arrangement as
including discounts. If that definition of remuneration were to
become effective, it could have an impact on the way the Company
prices its services to physicians. However, in August 1993, the
referenced Medicare statute was amended by OBRA '93. One of
these amendments makes it clear that day-to-day transactions
between laboratories and their customers, including, but not
limited to discounts granted by laboratories to their customers,
are not affected by the compensation arrangement provisions of
the Medicare statute. Thus, the Company expects the definition
of remuneration in HCFA's proposed regulations will be changed to
reflect this amendment to the Medicare statute. Currently, these
proposed regulations have not been finalized.
The Clinton Administration has announced its intention and
desire to reform health care in the United States. Some of the
proposals that have been discussed include managed competition,
global budgeting, price controls and freezes on health care
costs.
Health care reform as well as additional future changes in
federal, state or local regulations (or in the interpretation of
current regulations) affecting governmental reimbursement for
clinical laboratory testing could have a material adverse effect
on the Company. The Company is unable to predict, however,
whether and what type of legislation will be enacted into law.
Due to the effect of numerous changes which are reshaping the
clinical laboratory market, including aggressive pricing by many
competitors, reduced rates of government reimbursement, pricing
pressures generated by managed care providers and the demand for
increased service levels, coupled with the decline in utilization
of ferritin and HDL tests, the Company expects that its margins
will be significantly lower in 1994 than in 1993.
Year Ended December 31, 1993 compared with Year Ended December
----------------------------------------------------------------
31, 1992
--------
Net sales increased by $39.1 million to $760.5 million in
1993, an increase of 5.4% over 1992. Revenues generated by new
accounts increased net sales by approximately 12.0%. The
25
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<PAGE>
acquisition of thirty-four small clinical laboratory companies
increased the growth in net sales by approximately 3.5%. In
addition, net sales for 1993 increased approximately 2.7% because
of the Company's annual price increases (effective in January of
1993). Changes in Medicare's reimbursement policy for LDL tests,
coupled with changes in various state Medicaid fee schedules and
reimbursement methodologies partially offset the increase in net
sales by approximately 1.0%. Medicare's denial of claims for
ferritin and HDL tests, which began in September 1993 and
continued through December 20, 1993 when the Company introduced
new test forms and procedures, and related suspended billings
also offset the increase in net sales by approximately 2.6%.
Additionally, a decline in the utilization of laboratory
services, and, to a lesser extent, severe weather in the first
three months of the year further offset the increase in net sales
by approximately 7.3%. The Company believes that the decline in
utilization was due to fewer patient visits to physicians'
offices since the number of tests ordered per patient remained
relatively constant. Improved accuracy in estimating the
difference between amounts billed and amounts received for
services provided under third party payor programs, primarily due
to the wider use of specific fee schedules for individual third
party carriers, resulted in an increase in the growth in net
sales of 1.6%. The aggregate of various other impacts, including
discounts granted to meet competitive pressure and movement
between payor mix categories, reduced the growth in net sales by
approximately 3.5%. Revenues derived from tests performed for
beneficiaries of Medicare and Medicaid programs were
approximately 41% and 42% of net sales in 1993 and 1992,
respectively.
The Company actively pursued acquisitions of small clinical
laboratory companies during 1993. The laboratory industry is
consolidating rapidly as smaller, less efficient organizations
are experiencing decreasing profitability in the current health
care environment. The purchase of thirty-four small
laboratories, primarily in the second half of 1993, increased net
sales for the year by approximately $25 million. Had all such
acquisitions occurred as of the beginning of 1993, the aggregate
contribution to net sales would have been approximately $80.6
million. The Company intends to continue its acquisition
program.
Cost of sales primarily includes laboratory and distribution
costs, a substantial portion of which varies directly with sales.
Cost of sales increased to $444.5 million in 1993 from $395.1
million in 1992. As a percentage of net sales, cost of sales
increased to 58.4% in 1993 from 54.8% in 1992. Labor costs
increased approximately 2.7% of net sales, primarily as a result
26
<PAGE>
<PAGE>
of an increase in phlebotomy staffing to improve client service
and meet competitive demands. Rental of premises also grew
approximately 0.3% of net sales due to expanding the number of
patient service centers by 50% during 1993. Higher capital
spending led to increased depreciation expenses of approximately
0.3% of net sales. Also, several expense categories increased
slightly, aggregating approximately 0.3% of net sales. The
Company continues to focus on cost savings as part of an ongoing
program to improve its cost structure. Internal operating
reviews were completed in 15 of the Company's 16 laboratories
which were in operation during 1993. In 1994, operating reviews
will once again be conducted in all laboratories. The Company
believes that the relationship of its expense base to net sales
is affected by volume growth, cost control efforts and changing
emphasis in various functional areas; therefore, a decrease or
increase in any cost as a percentage of net sales in a particular
period is not necessarily indicative of a trend.
Selling, general and administrative expenses increased to
$121.4 million in 1993 from $117.9 million in 1992, an increase
of $3.5 million. As a percentage of net sales, selling, general
and administrative expenses decreased slightly to 16.0% in 1993
compared with 16.3% in 1992. This was primarily due to a
reduction in the provision for doubtful accounts, reflecting
improvements in the collection of delinquent accounts, and also a
result of reduced spending for the relocation of Company
employees and for legal services. These changes more than offset
an increase in labor costs related to staffing added during 1993
to improve billing customer service and expand the Company's
information systems group.
The increase in amortization of intangibles and other assets
to $9.1 million in 1993 from $8.3 million in 1992 primarily
resulted from the acquisition of several small clinical
laboratory companies during 1993.
Other gains and expenses include expense reimbursement and
termination fees of $21.6 million received in connection with the
Company's attempt to purchase Damon Corporation, less related
expenses and the write-off of certain bank financing costs
aggregating $6.3 million, resulting in a one-time pre-tax gain of
$15.3 million.
Investment income decreased to $1.2 million in 1993 from $2.2
million in 1992 and interest expense increased to $10.9 million
in 1993 from $4.2 million in 1992. During 1993, cash in excess
of operating requirements and increased borrowings were used to
finance acquisitions of numerous small clinical laboratory
27
<PAGE>
<PAGE>
companies and to finance purchases by the Company of its common
stock.
The provision for income taxes as a percentage of earnings
before income taxes increased to 41.0% in 1993 from 34.6% in
1992, primarily due to the increase in the U.S. corporate tax
rates and a result of a higher effective rate for state income
taxes.
Year Ended December 31, 1992 compared with Year Ended December
--------------------------------------------------------------
31, 1991
--------
Net sales increased by $117.5 million to $721.4 million in
1992, an increase of 19.5% over 1991. Approximately 15.3% of the
increase was due to revenues generated by new accounts. In
addition, net sales for 1992 increased approximately 4.2% because
of the Company's annual price increases (effective in January of
1992). A net increase in Medicare fee schedules contributed
approximately 0.6% to the increase in net sales, whereas changes
in various state Medicaid fee schedules and reimbursement
methodologies reduced the growth in net sales by approximately
0.6%. Revenues derived from tests performed for beneficiaries of
Medicare and Medicaid programs were approximately 42% of net
sales in both 1992 and 1991.
Cost of sales primarily includes laboratory and distribution
costs, a substantial portion of which varies directly with sales.
Cost of sales increased to $395.1 million in 1992 from $332.5
million in 1991, although as a percentage of net sales, cost of
sales decreased slightly to 54.8% in 1992 from 55.1% in 1991.
This improvement was primarily attributable to laboratory supply
cost decreases of approximately 0.2% of net sales due to cost
control efforts, negotiation of favorable national supply
contracts and implementation of the initial phase of a new
inventory control system. Distribution expenses (which are
incurred to deliver specimens from the physician's office to the
laboratory) decreased approximately 0.5% of net sales, primarily
due to favorable automobile lease rates. Additionally, labor
costs increased approximately 0.5% of net sales, mainly as a
result of higher employee benefit costs. Also, cost reduction
efforts and operational efficiencies resulted in a slight
decrease in several expense categories aggregating approximately
0.1% of net sales.
Selling, general and administrative expenses increased to
$117.9 million in 1992 from $97.9 million in 1991, an increase of
$20.0 million. As a percentage of net sales, selling, general
and administrative expenses increased slightly to 16.3% in 1992
compared with 16.2% in 1991. This was primarily due to a
28
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<PAGE>
moderately higher provision for doubtful accounts as a percent of
net sales due to the uncertain national economy.
Amortization of intangibles and other assets increased $0.6
million to $8.3 million in 1992, primarily due to amortization of
debt issuance costs associated with the revolving credit facility
in existence during the year.
In the fourth quarter of 1992, the Company took a one-time
charge of $136.0 million to cover all estimated costs related to
agreements that concluded a government investigation that
primarily revolved around the government's contention that the
Company improperly received reimbursement for tests for HDL
cholesterol and serum ferritin (a measure of iron in the blood)
included in its basic Health Survey Profile. The one-time charge
reduced net earnings and earnings per share for the quarter and
year ended December 31, 1992 by $80.3 million and $0.85,
respectively. The Company will continue to receive
reimbursements from all government third party reimbursement
programs, including Medicare, Medicaid and CHAMPUS, under the
settlement agreements.
Investment income decreased to $2.2 million in 1992 from $3.6
million in 1991 and interest expense increased to $4.2 million in
1992 from $0.1 million in 1991. Both of these changes are
directly related to the purchase of 4,808,000 shares of the
Company's outstanding common stock in January 1992 pursuant to a
tender offer. Such purchase was financed by approximately $25.8
million in cash on hand and $100.0 million borrowed under a
revolving credit facility in existence at that time. Also, in
April and October 1992, the Company prepaid $15.0 million and
$10.0 million, respectively, of the outstanding balance of such
revolving credit facility.
The provision for income taxes as a percentage of earnings
before income taxes decreased to 34.6% in 1992 from 38.6% in
1991, primarily due to a lower effective rate for state income
taxes.
Liquidity and Capital Resources
The Company has generated cash flow in excess of its
operating requirements in each of the three past fiscal years.
Cash from operations was $57.2 million, $102.4 million and $135.3
million for the years ended December 31, 1993, 1992 and 1991,
respectively. Of these amounts, cash used for capital
expenditures was $33.6 million, $34.9 million and $25.4 million
for the years ended December 31, 1993, 1992 and 1991,
respectively. The Company expects capital expenditures to be
29
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<PAGE>
approximately $30.0 million to $40.0 million in 1994 to
accommodate expected growth, to further automate laboratory
processes and improve efficiency.
During 1993, the Company acquired thirty-four clinical
laboratory companies in various locations of the United States
for an aggregate amount of $78.2 million in cash plus $28.7
million of liabilities, comprised primarily of future contractual
and contingent payments. Such future payments are expected to be
funded with cash generated from operations. These laboratories,
on an annual basis, are expected to generate approximately $80.6
million in net sales. During 1992, the Company acquired five
clinical laboratories for a total of $2.3 million in cash plus
$0.7 million of liabilities were assumed. In 1991, three
laboratory companies were purchased for $1.2 million in cash plus
$5.3 million of liabilities were assumed. It is the Company's
intention to continue its acquisition program, although there can
be no assurance that the Company will be able to acquire
additional laboratories on terms the Company believes to be
competitively advantageous.
On August 27, 1993, the Company entered into the unsecured
Revolving Credit Facility with Citicorp USA, Inc. as agent for a
group of banks. The Revolving Credit Facility provides that the
Company may borrow up to $350.0 million in order to refinance
existing indebtedness; to finance repurchases from time to time
by the Company of its common stock; to finance certain
acquisitions; and to provide for the general corporate purposes
of the Company. The Revolving Credit Facility matures on
September 1, 1998, with commitment reductions of $50.0 million on
September 1, 1996 and September 1, 1997. The terms and
conditions of the Revolving Credit Facility contain, among other
provisions, requirements for maintaining a defined level of
stockholders' equity, various financial ratios, certain
restrictions on repurchases by the Company of its common stock
and certain restrictions on acquisitions made outside the
Company's ordinary course of business. Interest rates are
determined at the time of borrowing and are based on London
Interbank Offered Rates plus 1% per annum, or other alternative
rates.
On September 1, 1993, the Company borrowed $139.0 million
under the Revolving Credit Facility to permanently repay all
amounts outstanding under revolving credit facilities in
existence on such date. Net additional borrowings during 1993
aggregated $139.0 million and were used to finance acquisitions
of several clinical laboratory companies and to finance
repurchases by the Company of its common stock.
30
<PAGE>
<PAGE>
In March 1993 and in June 1992, the Company announced plans
to purchase from time to time up to 10 million and 2 million
shares of its outstanding common stock, respectively, in the open
market. Pursuant to these plans, during 1993 and 1992, the
Company purchased 9,485,800 and 310,000 such shares,
respectively, for an aggregate amount of $154.2 million and $6.1
million, respectively. In January 1992, pursuant to a self
tender offer, the Company purchased 4,808,000 of its outstanding
shares of common stock for $26 per share in cash, or $125.8
million. The purchase was financed by $25.8 million of cash on
hand and $100.0 million borrowed under a revolving credit
facility in existence at that time.
Pursuant to the Government Settlement, a total of $55.8
million was paid for settlement and other expenses during 1993,
including aggregate cash payments of $38.0 million made to the
federal government. The remaining amount due the federal
government, $27.0 million, is being paid in quarterly
installments through September 1995, which installments are
expected to be paid with cash generated from operations. During
1992, the Company paid $47.1 million for settlement and related
expenses, including $35.0 million to the federal government and
$10.4 million to state Medicaid programs.
During 1991, the Company guaranteed a $9.0 million, 5 year
loan to a third party for construction of a new laboratory to
replace one of the Company's existing facilities. Following its
completion in November 1992, the building was leased to the
Company by this third party. Under the terms of this guarantee,
as modified, the Company is required to maintain 105% of the
outstanding loan balance including any overdue interest as
collateral in a custody account established and maintained at the
lending institution. As of December 31, 1993, 1992 and 1991, the
Company had placed $9.5 million, $10.3 million and $11.3 million,
respectively, of investments in the custody account.
Impact of Statement of Financial Accounting Standards No. 115 --
Accounting for Certain Investments in Debt and Equity Securities
SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities", was issued in May 1993 and addresses the
accounting and reporting for investments in equity securities
that have readily determinable fair values and for all
investments in debt securities. SFAS No. 115 requires the
Company to adopt this statement in 1994. The Company does not
anticipate that the adoption of SFAS No. 115 will have a material
impact on its financial position or results of operations as the
Company's investments in such securities are expected to be
classified as trading securities, and, as such, their carrying
values are considered representative of their fair values.
31
<PAGE>
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Index on Page F-1 of the Financial
Report included herein.
32
<PAGE>
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
33
<PAGE>
<PAGE>
PART III
The information required by Part III, Items 10 through 13, of
Form 10-K is incorporated by reference from the registrant's
definitive proxy statement for its 1994 annual meeting of
stockholders, which is to be filed pursuant to Regulation 14A not
later than April 30, 1994.
34
<PAGE>
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
List of documents filed as part of this Report:
(1) Consolidated Financial Statements and Independent Auditors'
Report included herein:
See Index on page F-1
(2) Financial Statement Schedules:
See Index on page F-1
All other schedules are omitted as they are inapplicable or
the required information is furnished in the Consolidated
Financial Statements or notes thereto.
(3) Index to and List of Exhibits
(a) Exhibits:*
Exhibits 10.6 through 10.43 are management contracts.
3.1 - Restated Certificate of Incorporation of the
Company (incorporated herein by reference to the
Company's Annual Report on Form 10-K for the
year ended December 31, 1988 filed with the
Commission on March 31, 1989, File No. 1-10740**
(the "1988 10-K")).
3.2 - By-laws of the Company (incorporated herein by
reference to the Company's 1988 10-K).
10.1 - Laboratory Agreement dated February 4, 1983
between the Company and Humana of Texas, Inc.
d/b/a/ Medical City Dallas Hospital
(incorporated herein by reference to the
Company's Registration Statement on Form S-1
filed with the Commission on May 5, 1988, File
No. 33-21708 (the "1988 S-1")).
10.2 - National Health Laboratories Incorporated
Employees' Savings and Investment Plan
(incorporated herein by reference to the
Company's Annual Report on Form 10-K for the
year ended December 31, 1991 filed with the
35
<PAGE>
<PAGE>
Commission on February 13, 1992, File No. 1-
10740** (the "1991 10-K")).
10.3 - National Health Laboratories Incorporated
Employees' Retirement Plan (incorporated herein
by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992
filed with the Commission on March 26, 1993,
File No. 1-10740 (the "1992 10-K")).
10.4 - National Health Laboratories Incorporated
Pension Equalization Plan (incorporated herein
by reference to the 1992 10-K).
10.5 - Settlement Agreement dated December 18, 1992 be-
tween the Company and the United States of
America (incorporated herein by reference to the
1992 10-K).
10.6 - Employment Agreement dated December 21, 1992 be-
tween the Company and James R. Maher
(incorporated herein by reference to the 1992
10-K).
10.7 - Employment Agreement dated May 1, 1991 between
the Company and Robert Whalen (incorporated
herein by reference to the 1991 10-K).
10.8 - Amendment to Employment Agreement dated June 6,
1991 between the Company and Robert Whalen
(incorporated herein by reference to the 1991
10-K).
10.9 - Amendment to Employment Agreement dated January
1, 1993 between the Company and Robert Whalen
(incorporated herein by reference to the 1992
10-K).
10.10* - Amendment to Employment Agreement dated January
1, 1994 between the Company and Robert Whalen.
10.11* - Amendment to Employment Agreement dated March 1,
1994 between the Company and Robert Whalen.
10.12 - Employment Agreement dated May 1, 1991 between
the Company and Larry L. Leonard (incorporated
herein by reference to the 1991 10-K).
10.13 - Amendment to Employment Agreement dated June 6,
1991 between the Company and Larry L. Leonard
(incorporated herein by reference to the 1991
10-K).
10.14 - Amendment to Employment Agreement dated January
1, 1993 between the Company and Larry L. Leonard
(incorporated herein by reference to the 1992
10-K).
10.15* - Amendment to Employment Agreement dated January
1, 1994 between the Company and Larry L.
Leonard.
36
<PAGE>
<PAGE>
10.16* - Amendment to Employment Agreement dated March 1,
1994 between the Company and Larry L. Leonard.
10.17 - Employment Agreement dated May 1, 1991 between
the Company and Timothy Brodnik (incorporated
herein by reference to the 1991 10-K).
10.18 - Amendment to Employment Agreement dated June 6,
1991 between the Company and Timothy Brodnik
(incorporated herein by reference to the 1991
10-K).
10.19 - Amendment to Employment Agreement dated January
1, 1993 between the Company and Timothy Brodnik
(incorporated herein by reference to the 1992
10-K).
10.20* - Amendment to Employment Agreement dated January
1, 1994 between the Company and Timothy Brodnik.
10.21* - Amendment to Employment Agreement dated March 1,
1994 between the Company and Timothy Brodnik.
10.22 - Employment Agreement dated December 31, 1990
between the Company and Bernard E. Statland
(incorporated herein by reference to the
Company's Annual Report on Form 10-K for the
year ended December 31, 1990 filed with the
Commission on March 14, 1991, File No. 1-10740**
(the "1990 10-K")).
10.23 - Amendment to Employment Agreement dated April 1,
1991 between the Company and Bernard E. Statland
(incorporated herein by reference to the 1991
10-K).
10.24 - Amendment to Employment Agreement dated June 6,
1991 between the Company and Bernard E. Statland
(incorporated herein by reference to the 1991
10-K).
10.25 - Amendment to Employment Agreement dated January
1, 1993 between the Company and Bernard E.
Statland (incorporated herein by reference to
the 1992 10-K).
10.26 - Employment Agreement dated January 1, 1991
between the Company and David C. Flaugh
(incorporated herein by reference to the 1990
10-K).
10.27 - Amendment to Employment Agreement dated April 1,
1991 between the Company and David C. Flaugh
(incorporated herein by reference to the 1991
10-K).
10.28 - Amendment to Employment Agreement dated June 6,
1991 between the Company and David C. Flaugh
(incorporated herein by reference to the 1991
10-K).
37
<PAGE>
<PAGE>
10.29 - Amendment to Employment Agreement dated January
1, 1993 between the Company and David C. Flaugh
(incorporated herein by reference to the 1992
10-K).
10.30 - Employment Agreement dated January 1, 1991
between the Company and W. David Slaunwhite
(incorporated herein by reference to the 1990 -
10-K).
10.31 - Amendment to Employment Agreement dated April 1,
1991 between the Company and David Slaunwhite
(incorporated herein by reference to the 1991
10-K).
10.32 - Amendment to Employment Agreement dated June 6,
1991 between the Company and David Slaunwhite
(incorporated herein by reference to the 1991
10-K).
10.33 - Amendment to Employment Agreement dated January
1, 1993 between the Company and W. David
Slaunwhite (incorporated herein by reference to
the 1992 10-K).
10.34* - Amendment to Employment Agreement dated January
1, 1994 between the Company and W. David
Slaunwhite.
10.35* - Amendment to Employment Agreement dated March 1,
1994 between the Company and W. David
Slaunwhite.
10.36 - Employment Agreement dated January 1, 1991
between the Company and John Markus
(incorporated herein by reference to the 1990
10-K).
10.37 - Amendment to Employment Agreement dated April 1,
1991 between the Company and John Markus
(incorporated herein by reference to the 1991
10-K).
10.38 - Amendment to Employment Agreement dated June 6,
1991 between the Company and John Markus
(incorporated herein by reference to the 1991
10-K).
10.39 - Amendment to Employment Agreement dated January
1, 1993 between the Company and John F. Markus
(incorporated herein by reference to the 1992
10-K).
10.40* - Amendment to Employment Agreement dated January
1, 1994 between the Company and John F. Markus.
10.41* - Amendment to Employment Agreement dated March 1,
1994 between the Company and John F. Markus.
38
<PAGE>
<PAGE>
10.42 - Employment Agreement dated October 1, 1992
between the Company and James G. Richmond
(incorporated herein by reference to the 1992
10-K).
10.43 - Employment Agreement dated July 6, 1993 between
the Company and Michael L. Jeub (incorporated by
reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993
filed with the Commission on August 9, 1993,
File No. 1-10740 (the "1993 Second Quarter
10-Q")).
10.44 - Services Agreement (incorporated herein by
reference to Amendment No. 1 to the 1988 S-1).
10.45 - Tax Allocation Agreement dated as of June 26,
1990 between MacAndrews & Forbes Holdings Inc.,
Revlon Group Incorporated, New Revlon Holdings
Inc. and the subsidiaries of Revlon set forth on
Schedule A thereto (incorporated herein by
reference to the Company's Registration
Statement on Form S-1 (No. 33-35782) filed with
the Commission on July 9, 1990 (the "1990 S-
1")).
10.46 - National Health Laboratories 1988 Stock Option
Plan, as amended (incorporated herein by
reference to the 1990 S-1).
10.47 - Revolving Credit Agreement dated as of August
27, 1993 among National Health Laboratories
Incorporated, Citicorp USA, Inc., as agent and
arranger, and the group of lenders specified
therein (incorporated herein by reference to the
Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993 filed with the
Commission on November 15, 1993, File No. 1-
10740 (the "1993 Third Quarter 10-Q")).
10.48 - Loan Agreement dated August 1, 1991 among
National Health Laboratories Incorporated,
Frequency Property Corp. and Swiss Bank
Corporation, New York Branch (incorporated
herein by reference to the 1991 10-K).
24.1* - Consent of KPMG Peat Marwick.
25.1* - Power of Attorney of Ronald O. Perelman.
25.2* - Power of Attorney of James R. Maher.
25.3* - Power of Attorney of Saul J. Farber, M.D.
25.4* - Power of Attorney of Howard Gittis.
25.5* - Power of Attorney of Ann Dibble Jordan.
25.6* - Power of Attorney of David J. Mahoney.
25.7* - Power of Attorney of Paul A. Marks, M.D.
39
<PAGE>
<PAGE>
25.8* - Power of Attorney of Linda Gosden Robinson.
25.9* - Power of Attorney of Samuel O. Thier, M.D.
25.10* - Power of Attorney of David C. Flaugh.
28.1 - Form of Collateral Agency Agreement (Bank
Obligations) (incorporated herein by reference
to Amendment No. 1 to the 1990 S-1 filed with
the Commission on July 27, 1990, File No.
33-35785).
______________
* Filed herewith.
** Previously filed under File No. 0-17031 which has been
corrected to File No. 1-10740.
40
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
NATIONAL HEALTH LABORATORIES INCORPORATED
Registrant
By:/s/ JAMES R. MAHER
------------------------------------
James R. Maher
President and Chief Executive Officer
By:/s/ MICHAEL L. JEUB
------------------------------------
Michael L. Jeub
Executive Vice President, Chief
Financial Officer and Treasurer
(Principal Accounting Officer)
Dated: March 25, 1994
41
<PAGE>
<PAGE>
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed by the
following persons on March 25, 1994 in the capacities indicated.
Signature Title
------------------------ --------
/s/ RONALD O. PERELMAN* Director
------------------------
(Ronald O. Perelman)
/s/ JAMES R. MAHER* Director
------------------------
(James R. Maher)
/s/ SAUL J. FARBER, M.D.* Director
------------------------
(Saul J. Farber, M.D.)
/s/ HOWARD GITTIS* Director
------------------------
(Howard Gittis)
/s/ ANN DIBBLE JORDAN* Director
------------------------
(Ann Dibble Jordan)
/s/ DAVID J. MAHONEY* Director
------------------------
(David J. Mahoney)
/s/ PAUL A. MARKS, M.D.* Director
------------------------
(Paul A. Marks, M.D.)
/s/ LINDA GOSDEN ROBINSON* Director
------------------------
(Linda Gosden Robinson)
/s/ SAMUEL O. THIER, M.D.* Director
-------------------------
(Samuel O. Thier, M.D.)
42
<PAGE>
<PAGE>
______________________
* David C. Flaugh, by his signing his name hereto, does hereby
sign this report on behalf of the directors of the Registrant
after whose typed names asterisks appear, pursuant to powers of
attorney duly executed by such directors and filed with the
Securities and Exchange Commission.
By:/s/ DAVID C. FLAUGH
--------------------
David C. Flaugh
Attorney-in-fact
43
<PAGE>
<PAGE>
NATIONAL HEALTH LABORATORIES INCORPORATED AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
AND SCHEDULES
---------------------------------------------------------------
Page
----
Independent Auditors' Report . . . . . . . . . . . . . . F-2
Financial Statements:
Consolidated Balance Sheets as of
December 31, 1993 and 1992 . . . . . . . . . . . . . F-3
Consolidated Statements of Earnings for
each of the years in the three-year
period ended December 31, 1993. . . . . . . . . . . F-4
Consolidated Statements of Stockholders'
Equity for each of the years in the
three-year period ended December 31, 1993 . . . . . . F-5
Consolidated Statements of Cash Flows for
each of the years in the three-year
period ended December 31, 1993. . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . F-8
Financial Statement Schedule:
VIII - Valuation and Qualifying Accounts . . . . . . . F-24
F-1
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
National Health Laboratories Incorporated:
We have audited the consolidated financial statements
of National Health Laboratories Incorporated and subsidiaries as
listed in the accompanying index. In connection with our audits
of the consolidated financial statements, we have also audited
the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of National Health Laboratories Incorporated
and subsidiaries as of December 31, 1993 and 1992, and the
results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1993, in
conformity with generally accepted accounting principles. Also
in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG PEAT MARWICK
San Diego, California
February 10, 1994
F-2
<PAGE>
<PAGE>
<TABLE>
NATIONAL HEALTH LABORATORIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Millions, except per share data)
<CAPTION>
December 31,
1993 1992
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 12.3 $ 33.4
Accounts receivable, net 119.0 82.9
Prepaid expenses and other 21.7 17.0
Deferred income taxes 21.6 31.1
Income taxes receivable 8.7 15.2
--------- --------
Total current assets 183.3 179.6
Property, plant and equipment, net 100.1 84.5
Intangible assets, net 281.5 188.3
Deferred income taxes -- 6.4
Other assets, net 20.6 18.6
-------- -------
$ 585.5 $ 477.4
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 36.9 $ 38.5
Dividends payable 6.8 7.6
Accrued expenses and other 55.6 40.6
Current portion of accrued
settlement expenses 21.6 60.9
------- ------
Total current liabilities 120.9 147.6
Revolving credit facility 278.0 75.0
Capital lease obligation 9.7 9.6
Accrued settlement expenses, less
current portion 11.5 28.0
Deferred income taxes 3.1 --
Other liabilities 21.5 4.7
Stockholders' equity:
Preferred stock, $0.10 par value;
10,000,000 shares authorized; none
issued -- --
Common stock, $0.01 par value; 220,000,000
shares authorized; 99,354,492 and
99,221,092 shares issued
at December 31, 1993 and 1992,
respectively 1.0 1.0
Additional paid-in capital 226.3 225.9
Retained earnings 202.0 117.5
Minimum pension liability adjustment (2.4) --
Treasury stock, at cost; 14,603,800
and 5,118,000 shares of common
stock at December 31, 1993, and
December 31, 1992, respectively (286.1) (131.9)
-------- -------
Total stockholders' equity 140.8 212.5
-------- -------
$ 585.5 $ 477.4
======== =======
<FN>
See notes to consolidated financial statements.
</TABLE>
F-3
<PAGE>
<PAGE>
<TABLE>
NATIONAL HEALTH LABORATORIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in Millions, except per share data)
<CAPTION>
Years Ended December 31,
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Net Sales $ 760.5 $ 721.4 $ 603.9
Cost of sales 444.5 395.1 332.5
------- ------- -------
Gross profit 316.0 326.3 271.4
Selling, general and
administrative expenses 121.4 117.9 97.9
Amortization of intangibles
and other assets 9.1 8.3 7.7
Settlement and related expenses -- 136.0 --
------- ------- ------
Operating income 185.5 64.1 165.8
------- ------- ------
Other income (expenses):
Other gains and expenses,
net 15.3 -- --
Investment income 1.2 2.2 3.6
Interest expense (10.9) (4.2) (0.1)
-------- ------- ------
5.6 (2.0) 3.5
-------- ------- ------
Earnings before income taxes 191.1 62.1 169.3
Provision for income taxes 78.4 21.5 65.4
------- ------- -------
Net earnings $ 112.7 $ 40.6 $ 103.9
======= ======= =======
Earnings per common share $ 1.26 $ 0.43 $ 1.05
Dividends per common share $ 0.32 $ 0.31 $ 0.27
<FN>
See notes to consolidated financial statements.
</TABLE>
F-4
<PAGE>
<PAGE>
<TABLE>
NATIONAL HEALTH LABORATORIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Millions, except per share data)
<CAPTION>
Common
Stock Minimum
$0.01 Additional Pension
Par Paid-in Retained Liability Treasury
Value Capital Earnings Adjustment Stock
------- ---------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1991 1.0 222.4 33.3 -- --
Net earnings -- -- 103.9 -- --
Dividends to stockholders -- -- (26.7) -- --
Exercise of stock options -- 1.7 -- -- --
Assumption of deferred
tax liability as a
result of transition
to separate tax return
status -- -- (4.4) -- --
Other -- (0.4) -- -- --
----- ------ ----- ----- ------
Balance, December 31, 1991 1.0 223.7 106.1 -- --
Net earnings -- -- 40.6 -- --
Dividends to stockholders -- -- (29.2) -- --
Exercise of stock options -- 0.5 -- -- --
Acquisition of treasury
stock -- -- -- -- (131.9)
Other -- 1.7 -- -- --
------ ------ ----- ----- ------
Balance, December 31, 1992 1.0 225.9 117.5 -- (131.9)
Net earnings -- -- 112.7 -- --
Dividends to stockholders -- -- (28.2) -- --
Exercise of stock options -- 0.4 -- -- --
Acquisition of treasury
stock -- -- -- -- (154.2)
Adjustment for minimum
pension liability -- -- -- (2.4) --
Other -- -- -- -- --
------ ------ ------ ------- ------
Balance, December 31, 1993 $ 1.0 $226.3 $202.0 ($ 2.4) ($286.1)
====== ====== ====== ======= ======
<FN>
See notes to consolidated financial statements.
</TABLE>
F-5
<PAGE>
<PAGE>
<TABLE>
NATIONAL HEALTH LABORATORIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
<CAPTION>
Years Ended December 31,
1993 1992 1991
-------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 112.7 $ 40.6 $ 103.9
Adjustments to reconcile net earnings
to net cash provided by (used for)
operating activities:
Depreciation and amortization 32.2 26.9 22.0
Provision for doubtful accounts,
net 0.2 4.5 1.9
Other gains and expenses, net (15.3) -- --
Settlement and related expenses -- 136.0 --
Change in assets and liabilities,
net of effects of acquisitions:
Increase in accounts receivable (35.8) (22.5) (3.4)
Increase in prepaid expenses
and other (3.4) (2.2) (0.5)
Decrease (increase) in deferred
income taxes, net 19.1 (39.8) (2.0)
Decrease (increase) in income
taxes receivable 6.5 (15.2) --
Increase in accounts payable,
accrued expenses and other 1.5 15.7 17.8
Payments for settlement and
related expenses (55.8) (47.1) --
Other, net (4.7) 5.5 (4.4)
------- ------ -----
Net cash provided by operating
activities 57.2 102.4 135.3
------- ------ -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (33.6) (34.9) (25.4)
Acquisitions of businesses (78.2) (2.3) (1.2)
Restricted investments 0.8 0.9 (11.2)
Other gains and expenses, net 15.3 -- --
------- ------ ------
Net cash used for investing
activities (95.7) (36.3) (37.8)
------- ------ ------
(continued)
F-6
<PAGE>
<PAGE>
NATIONAL HEALTH LABORATORIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(Dollars in Millions)
<CAPTION>
Years Ended December 31,
1993 1992 1991
--------- ------- ------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit
facilities 342.0 100.0 --
Payments on revolving credit
facilities (139.0) (25.0) --
Deferred payments on acquisitions (1.9) (1.6) (1.3)
Purchase of treasury stock (154.2) (131.9) --
Dividends paid on common stock (29.0) (28.6) (25.6)
Proceeds from exercise of stock
options 0.4 0.5 1.7
Repayments of borrowings from
affiliates -- -- (66.0)
Other (0.9) 2.6 (0.8)
-------- ------- ------
Net cash provided by (used for)
financing activities 17.4 (84.0) (92.0)
-------- ------- ------
Net increase (decrease) in cash
and cash equivalents (21.1) (17.9) 5.5
Cash and cash equivalents at
beginning of year 33.4 51.3 45.8
-------- ------- ------
Cash and cash equivalents at
end of year $ 12.3 $ 33.4 $ 51.3
======== ======== =======
Supplemental schedule of cash
flow information:
Cash paid during the period for:
Interest $ 8.4 $ 3.6 $ 0.1
Income taxes 59.6 82.0 62.7
Disclosure of non-cash financing
and investing activities:
Dividends declared and unpaid
on common stock $ 6.8 $ 7.6 $ 7.0
Fixed assets acquired under
capital leases -- 9.6 --
In connection with business
acquisitions, liabilities were
assumed as follows:
Fair value of assets acquired $ 106.9 $ 3.0 $ 6.5
Cash paid (78.2) (2.3) (1.2)
-------- ------ -------
Liabilities assumed $ 28.7 $ 0.7 $ 5.3
======== ====== =======
<FN>
See notes to consolidated financial statements.
</TABLE>
F-7
<PAGE>
<PAGE>
NATIONAL HEALTH LABORATORIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation:
The consolidated financial statements include the accounts
of National Health Laboratories Incorporated (the "Company") and
its subsidiaries after elimination of all material intercompany
accounts and transactions. Until May 7, 1991, the Company was a
direct majority-owned subsidiary of National Health Care Group,
Inc. ("NHCG") which is a wholly-owned subsidiary of Revlon
Holdings, Inc. ("Revlon"), then known as Revlon, Inc., and
MacAndrews & Forbes Holdings Inc. ("MacAndrews & Forbes").
MacAndrews & Forbes is wholly-owned by Mafco Holdings Inc.
("MAFCO").
As a result of an initial public offering in July 1988
(the "Public Offering") and subsequent secondary public offerings
in August 1990, May 1991 and February 1992, the Company's self
tender offer in January 1992 and the purchase by the Company of
outstanding shares of its common stock, MAFCO's indirect
ownership has been reduced to approximately 24%.
Cash Equivalents:
Cash equivalents (primarily investments in money market
funds, time deposits and commercial paper which have maturities
of three months or less at the date of purchase) are carried at
cost which approximates market.
Property, Plant and Equipment:
Property, plant and equipment is recorded at cost. The
cost of properties held under capital leases is equal to the
lower of the net present value of the minimum lease payments or
the fair value of the leased property at the inception of the
lease. Depreciation and amortization expense is computed on all
classes of assets based on their estimated useful lives, as
indicated below, using principally the straight-line method.
Years
-----
Buildings and building improvements 40
Machinery and equipment 3-10
Furniture and fixtures 8
Leasehold improvements and assets held under capital
leases are amortized over the shorter of their estimated lives or
the period of the related leases. Expenditures for repairs and
maintenance charged against earnings in 1993, 1992 and 1991 were
$10.8, $10.7 and $10.6, respectively.
F-8
<PAGE>
<PAGE>
NATIONAL HEALTH LABORATORIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in Millions)
Intangibles:
Intangibles, consisting of goodwill, net of amortization,
of $203.4 and $168.9 at December 31, 1993 and 1992, respectively,
and other intangibles (i.e., customer lists, non-compete
agreements and rights to names), net of amortization, of $78.1
and $19.4 at December 31, 1993 and 1992, respectively, are being
amortized on a straight-line basis over a period of 40 years and
3-40 years, respectively. Total accumulated amortization for
goodwill and other intangibles aggregated $46.4 and $39.2 at
December 31, 1993 and 1992, respectively. The Company assesses
the recoverability of intangible assets by determining whether
the amortization of the intangibles' balance over its remaining
life can be recovered through undiscounted future operating cash
flows of the acquired operations. The amount of goodwill
impairment, if any, is measured based on projected undiscounted
future operating cash flows.
Fair Value of Financial Instruments:
Statement of Financial Accounting Standards No. 107,
"Disclosures About Fair Value of Financial Instruments", requires
that fair values be disclosed for most of the Company's financial
instruments. The carrying amount of cash and cash equivalents,
accounts receivable, accounts payable, accrued expenses and the
revolving credit facility are considered to be representative of
their respective fair values.
Concentration of Credit Risk:
Concentrations of credit risk with respect to accounts
receivable are limited due to the diversity of the Company's
clients as well as their dispersion across many different
geographic regions.
Revenue Recognition:
Sales are recognized on the accrual basis at the time test
results are reported, which approximates when services are
provided. Services are provided to certain patients covered by
various third-party payor programs including the Medicare and
Medicaid programs. Billings for services under third-party payor
programs are included in sales net of allowances for differences
between the amounts billed and estimated program payment amounts.
Adjustments to the estimated payment amounts based on final
settlement with the programs are recorded upon settlement.
F-9
<PAGE>
<PAGE>
NATIONAL HEALTH LABORATORIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in Millions)
Income Taxes:
In conjunction with the Public Offering, the Company
became a party to a tax allocation agreement with Revlon
effective July 14, 1988. Pursuant thereto, the Company made
payments to Revlon in amounts equal to the amounts the Company
would have paid had it filed a separate federal income tax
return.
Effective January 1, 1990, Revlon and Revlon's domestic
subsidiaries entered into a new tax allocation arrangement under
which the federal income tax provision and related liability of
the Company was computed as if it filed its own separate return,
except that the following items were not taken into account: (i)
the effect of timing differences and (ii) any gain recognized on
the sale of any asset not in the ordinary course of business.
As a result of the reduction of NHCG's ownership interest
in the Company on May 7, 1991, the Company is no longer a member
of the MAFCO consolidated tax group. For periods subsequent to
May 7, 1991, the Company has filed its own separate federal,
state and local income tax returns.
Pursuant to the deferred method under APB Opinion 11,
which was applied in 1991 and prior years, deferred income taxes
are recognized for income and expense items that are reported in
different years for financial reporting purposes and income tax
purposes using the tax rate applicable for the year in which the
item originated. Under the deferred method, deferred taxes are
not adjusted for subsequent changes in tax rates.
In February 1992, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("Statement 109"). Statement 109
required a change from the deferred method of accounting for
income taxes of APB Opinion 11 to the asset and liability method
of accounting for income taxes. Under the asset and liability
method of Statement 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. Under Statement 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
Effective January 1, 1992, the Company adopted Statement
109. The cumulative effect of the change in the method of
accounting for income taxes was not material and is therefore not
presented separately in the accompanying consolidated statements
of earnings.
F-10
<PAGE>
<PAGE>
NATIONAL HEALTH LABORATORIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in Millions)
Earnings per Common Share:
For the years ended December 31, 1993, 1992 and 1991,
earnings per common share is calculated based on the weighted
average number of shares outstanding during each year
(89,438,764, 94,468,022 and 99,095,524 shares, respectively).
Reclassifications:
Certain amounts in the prior years' financial statements
have been reclassified to conform with the 1993 presentation.
F-11
<PAGE>
<PAGE>
NATIONAL HEALTH LABORATORIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in Millions)
2. ACCOUNTS RECEIVABLE, NET
December 31, December 31,
1993 1992
----------- -----------
Gross accounts receivable $ 170.0 $ 155.8
Less contractual allowances and
allowance for doubtful accounts (51.0) (72.9)
------- -------
$ 119.0 $ 82.9
======= =======
3. PROPERTY, PLANT AND EQUIPMENT, NET
December 31, December 31,
1993 1992
----------- -----------
Land $ 0.4 $ 0.2
Buildings and building improvements 1.9 1.7
Machinery and equipment 117.9 90.8
Leasehold improvements 27.2 23.3
Furniture and fixtures 14.5 10.4
Buildings under capital leases 9.6 9.6
------- -------
171.5 136.0
Less accumulated depreciation
and amortization (71.4) (51.5)
------- -------
$ 100.1 $ 84.5
======= =======
4. ACCRUED EXPENSES AND OTHER
December 31, December 31,
1993 1992
----------- -----------
Employee compensation and benefits $ 27.9 $ 29.2
Taxes other than federal taxes
on income 7.5 3.0
Deferred acquisition related
payments 11.4 3.0
Other 8.8 5.4
------- -------
$ 55.6 $ 40.6
======= =======
5. OTHER LIABILITIES
December 31, December 31,
1993 1992
----------- -----------
Deferred acquisition related
payments $ 15.4 $ 1.6
Other 6.1 3.1
------- -------
$ 21.5 $ 4.7
======= =======
F-12
<PAGE>
<PAGE>
NATIONAL HEALTH LABORATORIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in Millions)
6. GOVERNMENT SETTLEMENT
In November 1990, the Company became aware of a grand jury
inquiry relating to its pricing practices being conducted by the
United States Attorney for the San Diego area (the Southern
District of California) with the assistance of the Office of
Inspector General. On December 18, 1992, the Company announced
that it had entered into agreements that concluded the
investigation (the "Government Settlement"). As a result of this
settlement, the Company took a one-time pre-tax charge of $136.0
in the fourth quarter of 1992. The charge covered all estimated
costs related to the investigation and the settlement agreements.
At December 31, 1993 and 1992, the remaining liability for
settlement and related expenses totalled $33.1 and $88.9,
respectively, and is reflected in the accompanying consolidated
balance sheets under the captions "Accrued Settlement Expenses".
7. REVOLVING CREDIT FACILITY
On August 27, 1993, the Company entered into an unsecured
revolving credit facility (the "Revolving Credit Facility") with
Citicorp USA, Inc. as agent for a group of banks. The Revolving
Credit Facility provides that the Company may borrow up to $350.0
in order to refinance existing indebtedness; to finance
repurchases from time to time by the Company of its common stock;
to finance certain acquisitions; and to provide for the general
corporate purposes of the Company. The Revolving Credit Facility
matures on September 1, 1998, with commitment reductions of $50.0
on September 1, 1996 and September 1, 1997. The terms and
conditions of the Revolving Credit Facility contain, among other
provisions, requirements for maintaining a defined level of
stockholders' equity, various financial ratios, certain
restrictions on repurchases by the Company of its common stock
and certain restrictions on acquisitions made outside the
Company's ordinary course of business. Interest rates are
determined at the time of borrowing and are based on London
Interbank Offered Rates plus 1% per annum, or other alternative
rates.
On September 1, 1993, the Company borrowed $139.0 under
the Revolving Credit Facility to permanently repay all amounts
outstanding under revolving credit facilities in existence on
such date. Net additional borrowings during 1993 aggregated
$139.0 and were used to finance acquisitions of several clinical
laboratory companies and to finance repurchases by the Company of
its common stock.
F-13
<PAGE>
<PAGE>
NATIONAL HEALTH LABORATORIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in Millions, except per share data)
8. STOCKHOLDERS' EQUITY
In March 1993 and in June 1992, the Company announced
plans to purchase from time to time up to 10 million and 2
million shares of its outstanding common stock, respectively, in
the open market. Pursuant to these plans, during 1993 and 1992,
the Company purchased 9,485,800 and 310,000 such shares,
respectively, for an aggregate amount of $154.2 million and $6.1
million, respectively.
In January 1992, pursuant to a self tender offer, the
Company purchased 4,808,000 of its outstanding shares of common
stock for $26 per share in cash, or $125.8 million. The purchase
was financed by $25.8 million of cash on hand and $100.0 million
borrowed under a revolving credit facility in existence at that
time.
9. INCOME TAXES
As discussed in Note 1, the Company adopted Statement 109
effective January 1, 1992. The cumulative effect of the change
in the method of accounting for income taxes was not material and
is therefore not presented separately in the accompanying
consolidated statements of earnings.
The provisions for income taxes in the accompanying
consolidated statements of earnings consist of the following:
Years ended December 31,
1993 1992 1991
------ ------ -------
Current:
Federal $48.9 $52.3 $57.3
State and local 10.4 9.0 10.9
------ ----- ------
59.3 61.3 68.2
------ ----- ------
Deferred:
Federal 14.9 (32.3) (2.8)
State and local 4.2 (7.5) --
------ ------ ------
19.1 (39.8) (2.8)
------ ------ ------
$78.4 $21.5 $65.4
====== ====== =====
The effective tax rates on earnings before income taxes is
reconciled to statutory federal income tax rates as follows:
Years ended December 31,
1993 1992 1991
----- ----- -----
Statutory federal rate 35.0% 34.0% 34.0%
State and local income taxes,
net of federal income tax benefit 4.9 1.5 4.3
Other 1.1 (0.9) 0.3
----- ------ -----
Effective rate 41.0% 34.6% 38.6%
===== ====== =====
F-14
<PAGE>
<PAGE>
NATIONAL HEALTH LABORATORIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in Millions)
The significant components of deferred income tax expense
are as follows:
Years ended December 31,
1993 1992 1991
------ ------ ------
Settlement and related expense $22.2 $(34.8) $ --
Reserve for doubtful accounts 0.4 (2.1) 1.1
Other (3.5) (2.9) (3.9)
------ ------ ------
$19.1 ($39.8) ($2.8)
====== ====== ======
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 1993 and 1992 are as follows:
December 31,
1993 1992
----- -----
Deferred tax assets:
Settlement and related expenses, principally
due to accrual for financial reporting
purposes $13.2 $34.9
Accounts receivable, principally due to
allowance for doubtful accounts 5.5 5.9
Self insurance reserves, principally due
to accrual for financial reporting purposes 0.9 1.7
Compensated absences, principally due to
accrual for financial reporting purposes 2.0 1.4
Other 6.6 1.8
----- -----
Total gross deferred tax assets 28.2 45.7
----- -----
Deferred tax liabilities:
Intangible assets, principally due to
differences in amortization (3.7) (3.7)
Property, plant and equipment, principally
due to differences in depreciation (4.3) (3.9)
Other (1.7) (0.6)
----- ------
Total gross deferred tax liabilities (9.7) (8.2)
----- ------
Net deferred tax asset $18.5 $37.5
===== ======
No valuation allowance for deferred tax assets was
established as of January 1, 1992; similarly, a valuation
allowance was also deemed unnecessary at December 31, 1993 and
1992.
F-15
<PAGE>
<PAGE>
NATIONAL HEALTH LABORATORIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in Millions, except per share data)
10. STOCK OPTIONS
In 1988, the Company adopted the 1988 Stock Option Plan,
reserving 2,000,000 shares of common stock for issuance pursuant
to options and stock appreciation rights that may be granted
under the plan. The Stock Option Plan was amended in 1990 to
limit the number of options to be issued under the Stock Option
Plan to 550,000 in the aggregate (including all options
previously granted). In 1991, the number of shares authorized
for issuance under the Stock Option Plan was increased to an
aggregate of 2,550,000.
The following table summarizes grants of non-qualified
options made by the Company to officers and key employees. For
each grant, the exercise price was equivalent to the fair market
price per share on the date of grant. Also, for each grant,
one-third of the shares of common stock subject to such options
vested on the date of grant and one-third vests on each of the
first and second anniversaries of such date, subject to their
earlier expiration or termination.
Exercise
Date Options Price Date of
of Grant Granted per Share Expiration
------------- ------- --------- ----------------
February 1989 240,000 $ 7.750 February 8, 1999
July 1990 100,000 13.500 July 9, 2000
October 1991 500,000 20.250 October 8, 2001
October 1992 25,000 20.000 October 2, 2002
December 1992 300,000 16.625 December 21, 2002
January 1993 775,000 16.625 January 18, 2003
July 1993 43,500 17.875 July 6, 2003
F-16
<PAGE>
<PAGE>
NATIONAL HEALTH LABORATORIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in Millions, except per share data)
Changes during 1991, 1992 and 1993 in options outstanding
under the plan were as follows:
Number Exercise Price
of Options per Option
---------- -----------------
Outstanding at January 1, 1991 263,400 $ 7.750 - $13.500
Granted 500,000 $20.250
Exercised (123,830) $ 7.750 - $20.250
Canceled or expired (1,670) $ 7.750
---------
Outstanding at December 31, 1991 637,900 $ 7.750 - $20.250
Granted 325,000 $16.625 - $20.000
Exercised (30,662) $ 7.750 - $20.250
Canceled or expired (39,334) $13.500 - $20.250
---------
Outstanding at December 31, 1992 892,904 $ 7.750 - $20.250
Granted 818,500 $16.625 - $17.875
Exercised (33,400) $ 7.750
Canceled or expired (111,170) $ 7.750 - $20.250
---------
Outstanding at December 31, 1993 1,566,834 $ 7.750 - $20.250
=========
Exercisable at December 31, 1993 920,501 $ 7.750 - $20.250
=========
11. INTERCOMPANY TRANSACTIONS
Pursuant to a services agreement between Revlon and the
Company, Revlon provided, in years prior to 1992, the Company
with certain finance, insurance, legal, employee benefit and
administrative services. Revlon charged the Company $0.5 in 1991
for such services, based on the estimated actual cost incurred by
Revlon in providing such services. In addition, the services
agreement provided that the Company would pay Revlon all costs
associated with the participation of Company employees in any
pension (see Note 13), health, savings or other employee benefit
plans of Revlon. These costs were $9.6 in 1991.
Also, Revlon charged the Company $0.2 in 1991 for direct
computer services provided to certain of the Company's
laboratories. In addition, Revlon passed through to the Company
certain direct costs for (i) self-insured retentions, deductibles
and co-insurance under insurance policies maintained by Revlon
for the Company totalling $2.6 in 1991; (ii) rental of vehicles
owned by third parties used by the Company in its business
totalling $4.1 in 1991; and (iii) other direct costs, such as
bank service fees, totalling $0.7 for 1991.
F-17
<PAGE>
<PAGE>
NATIONAL HEALTH LABORATORIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in Millions)
From July 1990 to July 1991, Revlon invested the Company's
excess cash in a segregated account in the Company's name.
Commencing July 1991, the Company established a separate in-house
cash management function. Interest income earned on excess cash
invested for the Company by Revlon was $1.6 in 1991.
12. COMMITMENTS AND CONTINGENCIES
The Company is involved in certain claims and legal actions
arising in the ordinary course of business. In the opinion of
management, based upon the advice of counsel, the ultimate
disposition of these matters will not have a material adverse
effect on the financial position of the Company.
In December 1992, several class actions were filed against
the Company and certain of its officers and directors alleging
that certain public disclosures made by the Company since
February 1990 were false and misleading in that they failed to
disclose that a portion of the Company's income was derived from
allegedly fraudulent claims and that such non-disclosures
rendered the Company's financial statements misleading. These
various class actions are pending in the United States District
Court for the Southern District of California. The Company
believes that the allegations of the complaint that claim
wrongdoing on behalf of the Company and its officers and
directors cannot be supported by the facts or the law and that
the Company's disclosures complied with all legal obligations.
The Company is defending these lawsuits vigorously.
In addition, certain lawsuits have been brought by purported
shareholders of the Company, allegedly on the Company's behalf
against the Company's directors and certain of its officers, in
the Superior Court for the County of San Diego, California.
These various claims allege that the Company was damaged by
actions of the defendant officers and directors in connection
with supervision and control of the practices that led to the
guilty plea and civil settlement associated with the Government
Settlement. These actions seek no damages against the Company.
In November 1993, a class action was filed against the
Company and certain of its officers and directors alleging that
certain public disclosures made by the Company since December
1992 were false and misleading in that they stated that the
Company had taken steps to insure that the Company's sales and
marketing practices are compatible with the government's
interpretation of current regulations and that they failed to
disclose that a portion of the Company's income was derived from
allegedly fraudulent claims and that such non-disclosures
rendered the Company's financial statements misleading. This
class action is pending in the United States District Court for
the Southern District of California. The Company believes that
the allegations of the complaint that claim wrongdoing on behalf
of the Company and its officers and directors
F-18
<PAGE>
<PAGE>
NATIONAL HEALTH LABORATORIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in Millions)
cannot be supported by the facts or the law and that the
Company's disclosures complied with all legal obligations. On
January 5, 1994, a stipulation was entered into whereby the
parties have agreed to stay all further activity in this action
pending the conclusion of the class actions filed in December
1992.
During 1991, the Company guaranteed a $9.0, 5 year loan to a
third party for construction of a new laboratory to replace one
of the Company's existing facilities. Following its completion
in November of 1992, the building was leased to the Company by
this third party. Such transaction is treated as a capital lease
for financial reporting purposes. The associated lease term
continues for a period of 15 years, expiring in 2007. Under the
terms of this guarantee, as modified, the Company is required to
maintain 105% of the outstanding loan balance including any
overdue interest as collateral in a custody account established
and maintained at the lending institution. As of December 31,
1993 and 1992, the Company had placed $9.5 and $10.3,
respectively, of investments in the custody account. Such
investments are included under the caption "Other assets, net" in
the accompanying consolidated balance sheets.
The Company does not anticipate incurring any loss as a
result of this loan guarantee due to protection provided by the
terms of the lease. Accordingly, the Company, if required to
repay the loan upon default of the borrower (and ultimate
lessor), is entitled to a rent abatement equivalent to the amount
of repayment made by the Company on the borrower's behalf, plus
interest thereon at a rate equal to 2% over the prime rate.
For all insurance coverages prior to May 7, 1991, the
Company paid Revlon a predetermined amount each year, based upon
the Company's historical loss experience and other relevant
factors, in respect of the Company's share of the self-insured
risks and risks insured by outside insurance carriers, in each
case applicable to Revlon and its subsidiaries. Regardless of
the Company's and Revlon's actual loss experience, the Company
will not be required to pay Revlon amounts in excess of the
Company's predetermined share of such liability for losses
incurred before May 7, 1991.
Under the Company's present insurance programs, coverage is
obtained for catastrophic exposures as well as those risks
required to be insured by law or contract. The Company is
responsible for the uninsured portion of losses occurring on or
after May 7, 1991 related primarily to general, product and
vehicle liability and workers' compensation. The self-insured
retentions are on a per occurrence basis without any aggregate
annual limit. Provisions for losses expected under these
programs are recorded based upon the Company's estimates of the
aggregated liability of claims incurred. At December 31, 1993
and 1992, the Company had provided letters of credit aggregating
approximately $3.7 and $3.3, respectively, in connection with
certain insurance programs.
F-19
<PAGE>
<PAGE>
NATIONAL HEALTH LABORATORIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in Millions)
Future minimum rental commitments for leases with
noncancelable terms of one year or more from December 31, 1993
are as follows:
Operating Capital
--------- -------
1994 $13.7 $ 1.2
1995 10.8 1.2
1996 8.6 1.3
1997 7.2 1.4
1998 5.3 1.5
Thereafter 13.9 18.4
----- -----
Total minimum lease payments 59.5 25.0
Less amount representing
interest -- 15.3
----- -----
Total minimum operating
lease payments and
present value of minimum
capital lease payments $59.5 $ 9.7
===== =====
Rental expense, which includes rent for real estate,
equipment and automobiles under operating leases, amounted to
$29.9, $27.0 and $25.6 for the years ended December 31, 1993,
1992 and 1991, respectively.
13. RETIREMENT PLANS
Effective January 1, 1992, the Company separated its
retirement plans from certain of Revlon's plans, in which the
Company had been participating. The Company's plans provide
benefits substantially identical to those provided under Revlon's
plans. Substantially all employees of the Company are covered by
a defined benefit retirement plan (the "Plan"). The benefits to
be paid under the Plan are based on years of credited service and
average final compensation.
For the years ended December 31, 1993 and 1992, pension
costs are determined actuarially. For the year ended December
31, 1991, the pension expense reflected in the accompanying
consolidated statements of earnings represented an allocation by
Revlon of $2.3. Such allocated amount was intended to
approximate the Company's pension expense for the year.
Under the requirements of Statement of Financial Accounting
Standards No. 87, "Employers Accounting for Pensions", the
Company has recorded an additional minimum pension liability
representing the excess accumulated benefit obligation over plan
assets at December 31, 1993. A corresponding amount was
recognized as an intangible asset to the extent of unrecognized
prior service cost, with the balance recorded as a separate
reduction of stockholders' equity. The Company recorded an
additional liability of $3.0, an
F-20
<PAGE>
<PAGE>
NATIONAL HEALTH LABORATORIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in Millions)
intangible asset of $0.6, and a reduction of stockholders' equity
of $2.4.
The components of net periodic pension cost are summarized
as follows:
Years ended
December 31,
--------------
1993 1992
----- -----
Service cost $ 3.7 $ 2.9
Interest cost 2.6 2.0
Actual return on plan assets (1.3) (1.0)
Net amortization and deferral 0.4 0.5
----- -----
Net periodic pension cost $ 5.4 $ 4.4
===== =====
The status of the Plan follows:
December 31,
-------------
1993 1992
----- -----
Actuarial present value of
benefit obligations:
Vested benefits $25.0 $17.0
Non-vested benefits 4.0 2.7
----- -----
Accumulated benefit obligation 29.0 19.7
Effect of projected future salary
increases 13.9 9.8
----- -----
Projected benefit obligation 42.9 29.5
Fair value of plan assets 24.2 15.8
----- -----
Unfunded projected benefit obligation (18.7) (13.7)
Unrecognized prior service cost 0.5 0.8
Unrecognized net loss 16.3 8.9
Unrecognized net transaction (asset)
obligation -- --
Additional minimum liability (3.0) --
----- -----
Accrued pension cost ($4.9) ($4.0)
===== =====
F-21
<PAGE>
<PAGE>
NATIONAL HEALTH LABORATORIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in Millions, except per share amounts)
Assumptions used in the accounting for the Plan were:
1993 1992
---- ----
Weighted average discount rate 7.0% 8.0%
Weighted average rate of increase
in future compensation levels 5.5% 5.5%
Weighted average expected long-term
rate of return 9.0% 9.0%
14. ACQUISITIONS
During 1993, the Company acquired thirty-four clinical
laboratory companies for an aggregate purchase price of $106.9.
During 1992 and 1991, the Company acquired five and three
laboratories, respectively, for an aggregate purchase price of
$3.0 and $6.5, respectively. The acquisitions were accounted for
as purchase transactions. The excess of cost over the fair value
of net tangible assets acquired during 1993, 1992 and 1991 was
$100.1, $3.0 and $6.4, respectively, which is included under the
caption "Intangible assets, net" in the accompanying consolidated
balance sheets. The consolidated statements of earnings reflect
the results of operations of these purchased businesses from
their dates of acquisition.
15. DIVIDENDS
On December 21, 1992, the Company declared a quarterly
dividend in the aggregate amount of approximately $7.6 ($0.08 per
share), which was paid on January 26, 1993 to holders of record
of common stock at the close of business on January 5, 1993. Such
dividend was paid entirely with cash on hand.
On December 15, 1993, the Company declared a quarterly
dividend in the aggregate amount of approximately $6.8 ($0.08 per
share), which was paid on January 25, 1994 to holders of record
of common stock at the close of business on January 4, 1994.
Such dividend was paid entirely with cash on hand.
F-22
<PAGE>
<PAGE>
NATIONAL HEALTH LABORATORIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in Millions, except per share amounts)
16. QUARTERLY DATA (UNAUDITED)
The following is a summary of unaudited quarterly data:
Year ended December 31, 1993
------------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
------------------------------------------
Net sales $199.8 $197.0 $194.8 $168.9 $760.5
Gross profit 90.7 89.2 85.2 50.9 316.0
Net earnings 33.6 33.2 38.2 7.7 112.7
Earnings per
common share 0.36 0.37 0.43 0.10 1.26
Year ended December 31, 1992
------------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
------------------------------------------
Net sales $176.4 $181.1 $183.6 $180.3 $721.4
Gross profit 79.9 83.5 82.6 80.3 326.3
Net earnings 29.7 31.4 30.1 (50.6) 40.6
Earnings per
common share 0.31 0.33 0.32 (0.53) 0.43
Expense reimbursement and termination fees received in
connection with the Company's attempt to purchase Damon
Corporation, less related expenses and the write-off of certain
bank financing costs, resulted in a one-time pre-tax gain of
$15.3 in the third quarter of 1993.
Medicare's denial of claims for ferritin and HDL tests,
which began in September 1993 and continued through December 20,
1993 when the Company introduced new test forms and procedures,
and related suspended billings reduced net sales and gross profit
by $18.6 in the fourth quarter of 1993.
The Company took a one-time pre-tax charge of $136.0 in the
fourth quarter of 1992 as a result of the Government Settlement.
The charge covered all estimated costs related to the
investigation and the settlement agreements.
F-23
<PAGE>
<PAGE>
<TABLE>
Schedule VIII
NATIONAL HEALTH LABORATORIES INCORPORATED AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Years Ended December 31, 1993, 1992 and 1991
(Dollars in Millions)
<CAPTION>
- ---------------------------------------------------------------------------
Charged
Balance at to costs Other Balance
beginning and (Deductions) at end
of year expenses Additions of year
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended December 31, 1993:
Applied against asset
accounts:
Contractual allowances
and allowance for
doubtful accounts $72.9 $55.1 ($77.0) $51.0
===== ===== ====== =====
Year ended December 31, 1992
Applied against asset
accounts:
Contractual allowances
and allowance for
doubtful accounts $63.0 $75.2 ($65.3) $72.9
===== ===== ====== =====
Year ended December 31, 1991:
Applied against asset
accounts:
Contractual allowances
and allowance for
doubtful accounts $64.0 $83.9 ($84.9) $63.0
===== ===== ====== =====
</TABLE>
F-24
<PAGE>
<PAGE>
INDEX TO EXHIBITS
Exhibit No.
-----------
Exhibits 10.6 through 10.43 are management
contracts.
3.1 Restated Certificate of Incorporation of the Company
(incorporated herein by reference to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1988 filed with the Commission on March
31, 1989, File No. 1-10740** (the "1988 10-K")).
3.2 By-laws of the Company (incorporated herein by
reference to the Company's 1988 10-K).
10.1 Laboratory Agreement dated February 4, 1983 between
the Company and Humana of Texas, Inc. d/b/a/ Medical
City Dallas Hospital (incorporated herein by
reference to the Company's Registration Statement on
Form S-1 filed with the Commission on May 5, 1988,
File No. 33-21708 (the "1988 S-1")).
10.2 National Health Laboratories Incorporated Employees'
Savings and Investment Plan (incorporated herein by
reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1991 filed with the
Commission on February 13, 1992, File No.
1-10740** (the "1991 10-K")).
10.3 National Health Laboratories Incorporated Employees'
Retirement Plan (incorporated herein by reference to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1992 filed with the Commission on
March 26, 1993, File No. 1-10740 (the "1992 10-K")).
10.4 National Health Laboratories Incorporated Pension
Equalization Plan (incorporated herein by reference
to the 1992 10-K).
10.5 Settlement Agreement dated December 18, 1992 between
the Company and the United States of America
(incorporated herein by reference to the 1992 10-K).
10.6 Employment Agreement dated December 21, 1992 between
the Company and James R. Maher (incorporated herein
by reference to the 1992 10-K).
<PAGE>
<PAGE>
INDEX TO EXHIBITS
Exhibit No.
----------
10.7 Employment Agreement dated May 1, 1991 between the Company
and Robert Whalen (incorporated herein by reference to the
1991 10-K).
10.8 Amendment to Employment Agreement dated June 6, 1991
between the Company and Robert Whalen (incorporated
herein by reference to the 1991 10-K).
10.9 Amendment to Employment Agreement dated January 1,
1993 between the Company and Robert Whalen
(incorporated herein by reference to the 1992 10-K).
10.10* Amendment to Employment Agreement dated January 1,
1994 between the Company and Robert Whalen.
10.11* Amendment to Employment Agreement dated March 1, 1994
between the Company and Robert Whalen.
10.12 Employment Agreement dated May 1, 1991 between the
Company and Larry L. Leonard (incorporated herein by
reference to the 1991 10-K).
10.13 Amendment to Employment Agreement dated
June 6, 1991 between the Company and
Larry L. Leonard (incorporated herein by
reference to the 1991 10-K).
10.14 Amendment to Employment Agreement dated January 1,
1993 between the Company and Larry L. Leonard
(incorporated herein by reference to the 1992 10-K).
10.15* Amendment to Employment Agreement dated
January 1, 1994 between the Company and
Larry L. Leonard.
10.16* Amendment to Employment Agreement dated
March 1, 1994 between the Company and
Larry L. Leonard.
10.17 Employment Agreement dated May 1, 1991 between the
Company and Timothy Brodnik (incorporated herein by
reference to the 1991 10-K).
10.18 Amendment to Employment Agreement dated
June 6, 1991 between the Company and
Timothy Brodnik (incorporated herein by
reference to the 1991 10-K).
<PAGE>
<PAGE>
INDEX TO EXHIBITS
Exhibit No.
-----------
10.19 Amendment to Employment Agreement dated January 1,
1993 between the Company and Timothy Brodnik
(incorporated herein by reference to the 1992 10-K).
10.20* Amendment to Employment Agreement dated January 1,
1994 between the Company and Timothy Brodnik.
10.21* Amendment to Employment Agreement dated March 1, 1994
between the Company and Timothy Brodnik.
10.22 Employment Agreement dated December 31, 1990 between
the Company and Bernard E. Statland (incorporated
herein by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1990 filed
with the Commission on March 14, 1991, File No. 1-
10740** (the "1990 10-K")).
10.23 Amendment to Employment Agreement dated April 1, 1991
between the Company and Bernard E. Statland
(incorporated herein by reference to the 1991 10-K).
10.24 Amendment to Employment Agreement dated June 6, 1991
between the Company and Bernard E. Statland
(incorporated herein by reference to the 1991 10-K).
10.25 Amendment to Employment Agreement dated January 1,
1993 between the Company and Bernard E. Statland
(incorporated herein by reference to the 1992 10-K).
10.26 Employment Agreement dated January 1, 1991 between
the Company and David C. Flaugh (incorporated herein
by reference to the 1990 10-K).
10.27 Amendment to Employment Agreement dated April 1, 1991
between the Company and David C. Flaugh (incorporated
herein by reference to the 1991 10-K).
10.28 Amendment to Employment Agreement dated June 6, 1991
between the Company and David C. Flaugh (incorporated
herein by reference to the 1991 10-K).
10.29 Amendment to Employment Agreement dated January 1,
1993 between the Company and David C. Flaugh
(incorporated herein by reference to the 1992 10-K).
<PAGE>
<PAGE>
INDEX TO EXHIBITS
Exhibit No.
-----------
10.30 Employment Agreement dated January 1, 1991 between
the Company and W. David Slaunwhite (incorporated
herein by reference to the 1990 10-K).
10.31 Amendment to Employment Agreement dated April 1, 1991
between the Company and David Slaunwhite
(incorporated herein by reference to the 1991 10-K).
10.32 Amendment to Employment Agreement dated June 6, 1991
between the Company and David Slaunwhite
(incorporated herein by reference to the 1991 10-K).
10.33 Amendment to Employment Agreement dated January 1,
1993 between the Company and W. David Slaunwhite
(incorporated herein by reference to the 1992 10-K).
10.34* Amendment to Employment Agreement dated January 1,
1994 between the Company and W. David Slaunwhite.
10.35* Amendment to Employment Agreement dated March 1, 1994
between the Company and W. David Slaunwhite.
10.36 Employment Agreement dated January 1, 1991 between
the Company and John Markus (incorporated herein by
reference to the 1990 10-K).
10.37 Amendment to Employment Agreement dated April 1, 1991
between the Company and John Markus (incorporated
herein by reference to the 1991 10-K).
10.38 Amendment to Employment Agreement dated June 6, 1991
between the Company and John Markus (incorporated
herein by reference to the 1991 10-K).
10.39 Amendment to Employment Agreement dated January 1,
1993 between the Company and John F. Markus
(incorporated herein by reference to the 1992 10-K).
10.40* Amendment to Employment Agreement dated January 1,
1994 between the Company and John F. Markus.
10.41* Amendment to Employment Agreement dated March 1, 1994
between the Company and John F. Markus.
<PAGE>
<PAGE>
INDEX TO EXHIBITS
Exhibit No.
----------
10.42 Employment Agreement dated October 1, 1992 between
the Company and James G. Richmond (incorporated
herein by reference to the 1992 10-K).
10.43 Employment Agreement dated July 6, 1993 between the
Company and Michael L. Jeub (incorporated by
reference to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1993 filed with
the Commission on August 9, 1993, File No. 1-10740
(the "1993 Second Quarter 10-Q")).
10.44 Services Agreement (incorporated herein by reference
to Amendment No. 1 to the 1988 S-1).
10.45 Tax Allocation Agreement dated as of June 26, 1990
between MacAndrews & Forbes Holdings Inc., Revlon
Group Incorporated, New Revlon Holdings Inc. and the
subsidiaries of Revlon set forth on Schedule A
thereto (incorporated herein by reference to the
Company's Registration Statement on Form S-1 (No. 33-
35782) filed with the Commission on July 9, 1990 (the
"1990 S-1")).
10.46 National Health Laboratories 1988 Stock Option Plan,
as amended (incorporated herein by reference to the
1990 S-1).
10.47 Revolving Credit Agreement dated as of August 27,
1993 among National Health Laboratories Incorporated,
Citicorp USA, Inc. as agent and arranger, and the
group of lenders specified therein (incorporated
herein by reference to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1993
filed with the Commission on November 15, 1993, File
No. 1-10740 (the "1993 Third Quarter 10-Q")).
10.48 Loan Agreement dated August 1, 1991 among National
Health Laboratories Incorporated, Frequency Property
Corp. and Swiss Bank Corporation, New York Branch
(incorporated herein by reference to the 1991 10-K).
<PAGE>
<PAGE>
INDEX TO EXHIBITS
Exhibit No.
-----------
24.1* Consent of KPMG Peat Marwick.
25.1* Power of Attorney of Ronald O. Perelman.
25.2* Power of Attorney of James R. Maher.
25.3* Power of Attorney of Saul J. Farber, M.D.
25.4* Power of Attorney of Howard Gittis.
25.5* Power of Attorney of Ann Dibble Jordan.
25.6* Power of Attorney of David J. Mahoney.
25.7* Power of Attorney of Paul A. Marks, M.D.
25.8* Power of Attorney of Linda Gosden Robinson.
25.9* Power of Attorney of Samuel O. Thier, M.D.
25.10* Power of Attorney of David C. Flaugh.
28.1 Form of Collateral Agency Agreement (Bank
Obligations) (incorporated herein by reference to
Amendment No. 1 to the 1990 S-1 filed with the
Commission on July 27, 1990, File No. 33-35785).
______________
* Filed herewith.
** Previously filed under File No. 0-17031 which has been
corrected to File No. 1-10740.
EXHIBIT 10.10
AMENDMENT TO EMPLOYMENT AGREEMENT
Amendment dated as of January 1, 1994, to Employment
Agreement as heretofore amended (the "Agreement"), dated May 1,
1991 between La Jolla Management Corp., a Delaware corporation (the
"Company"), and Robert E. Whalen (the "Executive").
The Agreement is hereby amended as follows:
1. Section 1 is amended to provide that the term of the
Agreement shall extend through December 31, 1996 or such later date
to which the Executive's employment may be extended as provided in
Section 5 of the Agreement.
2. Section 2 is amended by adding the following
sentence to the end thereof:
The duties to be performed by the Executive shall be
performed primarily at the offices of the Company in the
San Diego County California metropolitan area, subject to
reasonable travel requirements on behalf of the Company.
3. Section 6(b) is amended in its entirety to read as
follows:
(b) The Executive may terminate his employment hereunder
for "Good Reason" within thirty (30) days after the occurrence,
without written consent of the Executive, of one of the following
events that has not been cured within ten (10) days after written
notice thereof has been given by Executive to the Company:
(i) the assignment to Executive of duties
materially inconsistent with his status as Executive Vice
President of the Company or an adverse alteration in the
nature of Executive's responsibilities as Executive Vice
President;
(ii) a reduction by the Company in the Executive's
Base Salary or Annual Bonus or a failure by the Company
to pay any such amounts when due;
(iii) the Company's material breach of the terms of
this Agreement.
IN WITNESS WHEREOF, the parties have executed this
Amendment to the Agreement as of the date first above written.
LA JOLLA MANAGEMENT CORP.
By:/s/ ROBERT E. WHALEN By:/s/ DAVID C. FLAUGH
-------------------- -------------------
Robert E. Whalen David C. Flaugh
Executive Chief Operating Officer
<PAGE>
<PAGE>
EXHIBIT 10.11
AMENDMENT TO EMPLOYMENT AGREEMENT
Amendment, dated as of March 1, 1994 to Employment Agreement
as heretofore amended (the "Agreement") dated May 1, 1991 between
La Jolla Management Corp., a Delaware corporation (the "Company")
and Robert E. Whalen (the "Executive").
Section 7(b) of the Agreement is hereby amended in its
entirety to read as follows:
(b) In the event that the Company shall terminate the
Term otherwise than pursuant to Sections 5 or 6(a) hereof or the
Executive shall terminate the Term pursuant to Section 6(b) hereof,
then except as provided in Section 8 hereof, the Company's sole
obligations under this Agreement and the severance policies and
procedures of the Company in effect from time to time shall be:
(i) to continue to pay the Executive, in monthly
installments, the Executive's salary and any guaranteed
bonus at the rate in effect pursuant to Section 3 (a)
hereof on the date of termination, through the date on
which the Term should expire pursuant to Sections 1 or 5
hereof, as if the Company had given notice of termination
pursuant to Section 5 on the date of termination, and
(ii) to pay the compensation set forth in Section
11(a) and 18 hereof (unless the Executive has died).
IN WITNESS WHEREOF, the parties have executed this Amendment
of the Agreement as of the date first written above.
LA JOLLA MANAGEMENT CORP.
By:/s/ ROBERT E. WHALEN By:/s/ DAVID C. FLAUGH
-------------------- -------------------
Robert E. Whalen David C. Flaugh
<PAGE>
<PAGE>
EXHIBIT 10.15
AMENDMENT TO EMPLOYMENT AGREEMENT
Amendment dated as of January 1, 1994, to Employment
Agreement as heretofore amended (the "Agreement"), dated May 1,
1991 between National Health Laboratories Incorporated, a Delaware
corporation (the "Company"), and Larry L. Leonard (the
"Executive").
The Agreement is hereby amended as follows:
1. Section 1 is amended to provide that the term of the
Agreement shall extend through December 31, 1996 or such later date
to which the Executive's employment may be extended as provided in
Section 5 of the Agreement.
2. Section 6(b) is amended in its entirety to read as
follows:
(b) The Executive may terminate his employment hereunder
for "Good Reason" within thirty (30) days after the occurrence,
without written consent of the Executive, of one of the following
events that has not been cured within ten (10) days after written
notice thereof has been given by Executive to the Company:
(i) the assignment to Executive of duties
materially inconsistent with his status as Executive Vice
President of the Company or an adverse alteration in the
nature of Executive's responsibilities as Executive Vice
President;
(ii) a reduction by the Company in the Executive's
Base Salary or Annual Bonus or a failure by the Company
to pay any such amounts when due;
(iii) the Company's material breach of the terms of
this Agreement.
IN WITNESS WHEREOF, the parties have executed this
Amendment to the Agreement as of the date first above written.
NATIONAL HEALTH LABORATORIES
INCORPORATED
By:/s/ LARRY L. LEONARD By:/s/ DAVID C. FLAUGH
-------------------- -------------------
Larry L. Leonard David C. Flaugh
Executive Chief Operating Officer
<PAGE>
<PAGE>
EXHIBIT 10.16
AMENDMENT TO EMPLOYMENT AGREEMENT
Amendment, dated as of March 1, 1994 to Employment Agreement
as heretofore amended (the "Agreement") dated January 1, 1991
between National Health Laboratories Incorporated, a Delaware
corporation (the "Company") and Larry Leonard (the "Executive").
Section 7(b) of the Agreement is hereby amended in its
entirety to read as follows:
(b) In the event that the Company shall terminate the
Term otherwise than pursuant to Sections 5 or 6(a) hereof or the
Executive shall terminate the Term pursuant to Section 6(b) hereof,
then except as provided in Section 8 hereof, the Company's sole
obligations under this Agreement and the severance policies and
procedures of the Company in effect from time to time shall be:
(i) to continue to pay the Executive, in monthly
installments, the Executive's salary and any guaranteed
bonus at the rate in effect pursuant to Section 3 (a)
hereof on the date of termination, through the date on
which the Term should expire pursuant to Sections 1 or 5
hereof, as if the Company had given notice of termination
pursuant to Section 5 on the date of termination, and
(ii) to pay the compensation set forth in Section
11(a) and 18 hereof (unless the Executive has died).
IN WITNESS WHEREOF, the parties have executed this Amendment
of the Agreement as of the date first written above.
NATIONAL HEALTH LABORATORIES
INCORPORATED
By:/s/ LARRY L. LEONARD By:/s/ DAVID C. FLAUGH
-------------------- -------------------
Larry L. Leonard David C. Flaugh
<PAGE>
<PAGE>
EXHIBIT 10.20
AMENDMENT TO EMPLOYMENT AGREEMENT
Amendment dated as of January 1, 1994, to Employment
Agreement as heretofore amended (the "Agreement"), dated May 1,
1991 between National Health Laboratories Incorporated, a Delaware
corporation (the "Company"), and Timothy J. Brodnik (the
"Executive").
The Agreement is hereby amended as follows:
1. Section 1 is amended to provide that the term of the
Agreement shall extend through December 31, 1996 or such later date
to which the Executive's employment may be extended as provided in
Section 5 of the Agreement.
2. Section 2 is amended by adding the following
sentence to the end thereof:
The duties to be performed by the Executive shall be
performed primarily at the offices of the Company in the
Fairfax County Virginia metropolitan area, subject to
reasonable travel requirements on behalf of the Company.
3. Section 6(b) is amended in its entirety to read as
follows:
(b) The Executive may terminate his employment hereunder
for "Good Reason" within thirty (30) days after the occurrence,
without written consent of the Executive, of one of the following
events that has not been cured within ten (10) days after written
notice thereof has been given by Executive to the Company:
(i) the assignment to Executive of duties
materially inconsistent with his status as Executive Vice
President of the Company or an adverse alteration in the
nature of Executive's responsibilities as Executive Vice
President;
(ii) a reduction by the Company in the Executive's
Base Salary or Annual Bonus or a failure by the Company
to pay any such amounts when due;
(iii) the Company's material breach of the terms of
this Agreement.
IN WITNESS WHEREOF, the parties have executed this
Amendment to the Agreement as of the date first above written.
NATIONAL HEALTH LABORATORIES
INCORPORATED
By:/s/ TIMOTHY J. BRODNIK By:/s/ DAVID C. FLAUGH
---------------------- -------------------
Timothy J. Brodnik David C. Flaugh
Executive Chief Operating Officer
<PAGE>
<PAGE>
EXHIBIT 10.21
AMENDMENT TO EMPLOYMENT AGREEMENT
Amendment, dated as of March 1, 1994 to Employment Agreement
as heretofore amended (the "Agreement") dated January 1, 1991
between National Health Laboratories Incorporated, a Delaware
corporation (the "Company") and Timothy Brodnik (the "Executive").
Section 7(b) of the Agreement is hereby amended in its
entirety to read as follows:
(b) In the event that the Company shall terminate the
Term otherwise than pursuant to Sections 5 or 6(a) hereof or the
Executive shall terminate the Term pursuant to Section 6(b) hereof,
then except as provided in Section 8 hereof, the Company's sole
obligations under this Agreement and the severance policies and
procedures of the Company in effect from time to time shall be:
(i) to continue to pay the Executive, in monthly
installments, the Executive's salary and any guaranteed
bonus at the rate in effect pursuant to Section 3 (a)
hereof on the date of termination, through the date on
which the Term should expire pursuant to Sections 1 or 5
hereof, as if the Company had given notice of termination
pursuant to Section 5 on the date of termination, and
(ii) to pay the compensation set forth in Section
11(a) and 18 hereof (unless the Executive has died).
IN WITNESS WHEREOF, the parties have executed this Amendment
of the Agreement as of the date first written above.
NATIONAL HEALTH LABORATORIES
INCORPORATED
By:/s/ TIMOTHY J. BRODNIK By:/s/ DAVID C. FLAUGH
---------------------- -------------------
Timothy J. Brodnik David C. Flaugh
<PAGE>
<PAGE>
EXHIBIT 10.34
AMENDMENT TO EMPLOYMENT AGREEMENT
Amendment dated as of January 1, 1994, to Employment
Agreement as heretofore amended (the "Agreement"), dated May 1,
1991 between La Jolla Management Corp., a Delaware corporation (the
"Company"), and W. David Slaunwhite (the "Executive").
The Agreement is hereby amended as follows:
1. Section 1 is amended to provide that the term of the
Agreement shall extend through December 31, 1996 or such later date
to which the Executive's employment may be extended as provided in
Section 5 of the Agreement.
2. Section 6(b) is amended in its entirety to read as
follows:
(b) The Executive may terminate his employment hereunder
for "Good Reason" within thirty (30) days after the occurrence,
without written consent of the Executive, of one of the following
events that has not been cured within ten (10) days after written
notice thereof has been given by Executive to the Company:
(i) the assignment to Executive of duties
materially inconsistent with his status as Executive Vice
President of the Company or an adverse alteration in the
nature of Executive's responsibilities as Executive Vice
President;
(ii) a reduction by the Company in the Executive's
Base Salary or Annual Bonus or a failure by the Company
to pay any such amounts when due;
(iii) the Company's material breach of the terms of
this Agreement.
IN WITNESS WHEREOF, the parties have executed this
Amendment to the Agreement as of the date first above written.
LA JOLLA MANAGEMENT CORP.
By:/s/ W. DAVID SLAUNWHITE By:/s/ DAVID C. FLAUGH
----------------------- -------------------
W. David Slaunwhite David C. Flaugh
Executive Chief Operating Officer
<PAGE>
<PAGE>
EXHIBIT 10.35
AMENDMENT TO EMPLOYMENT AGREEMENT
Amendment, dated as of March 1, 1994 to Employment Agreement
as heretofore amended (the "Agreement") dated January 1, 1991
between La Jolla Management Corp., a Delaware corporation (the
"Company") and W. David Slaunwhite (the "Executive").
Section 7(b) of the Agreement is hereby amended in its
entirety to read as follows:
(b) In the event that the Company shall terminate the
Term otherwise than pursuant to Sections 5 or 6(a) hereof or the
Executive shall terminate the Term pursuant to Section 6(b) hereof,
then except as provided in Section 8 hereof, the Company's sole
obligations under this Agreement and the severance policies and
procedures of the Company in effect from time to time shall be:
(i) to continue to pay the Executive, in monthly
installments, the Executive's salary and any guaranteed
bonus at the rate in effect pursuant to Section 3 (a)
hereof on the date of termination, through the date on
which the Term should expire pursuant to Sections 1 or 5
hereof, as if the Company had given notice of termination
pursuant to Section 5 on the date of termination, and
(ii) to pay the compensation set forth in Section
11(a) and 18 hereof (unless the Executive has died).
IN WITNESS WHEREOF, the parties have executed this Amendment
of the Agreement as of the date first written above.
LA JOLLA MANAGEMENT CORP.
By:/s/ W. DAVID SLAUNWHITE By:/s/ DAVID C. FLAUGH
----------------------- -------------------
W. David Slaunwhite David C. Flaugh
<PAGE>
<PAGE>
EXHIBIT 10.40
AMENDMENT TO EMPLOYMENT AGREEMENT
Amendment dated as of January 1, 1994, to Employment
Agreement as heretofore amended (the "Agreement"), dated May 1,
1991 between La Jolla Management Corp., a Delaware corporation (the
"Company"), and John F. Markus (the "Executive").
The Agreement is hereby amended as follows:
1. Section 1 is amended to provide that the term of the
Agreement shall extend through December 31, 1996 or such later date
to which the Executive's employment may be extended as provided in
Section 5 of the Agreement.
2. Section 6(b) is amended in its entirety to read as
follows:
(b) The Executive may terminate his employment hereunder
for "Good Reason" within thirty (30) days after the occurrence,
without written consent of the Executive, of one of the following
events that has not been cured within ten (10) days after written
notice thereof has been given by Executive to the Company:
(i) the assignment to Executive of duties
materially inconsistent with his status as Executive Vice
President of the Company or an adverse alteration in the
nature of Executive's responsibilities as Executive Vice
President;
(ii) a reduction by the Company in the Executive's
Base Salary or Annual Bonus or a failure by the Company
to pay any such amounts when due;
(iii) the Company's material breach of the terms of
this Agreement.
IN WITNESS WHEREOF, the parties have executed this
Amendment to the Agreement as of the date first above written.
LA JOLLA MANAGEMENT CORP.
By:/s/ JOHN F. MARKUS By:/s/ DAVID C. FLAUGH
------------------ -------------------
John F. Markus David C. Flaugh
Executive Chief Operating Officer
<PAGE>
<PAGE>
EXHIBIT 10.41
AMENDMENT TO EMPLOYMENT AGREEMENT
Amendment, dated as of March 1, 1994 to Employment Agreement
as heretofore amended (the "Agreement") dated January 1, 1991
between La Jolla Management Corp., a Delaware corporation (the
"Company") and John Markus (the "Executive").
Section 7(b) of the Agreement is hereby amended in its
entirety to read as follows:
(b) In the event that the Company shall terminate the
Term otherwise than pursuant to Sections 5 or 6(a) hereof or the
Executive shall terminate the Term pursuant to Section 6(b) hereof,
then except as provided in Section 8 hereof, the Company's sole
obligations under this Agreement and the severance policies and
procedures of the Company in effect from time to time shall be:
(i) to continue to pay the Executive, in monthly
installments, the Executive's salary and any guaranteed
bonus at the rate in effect pursuant to Section 3 (a)
hereof on the date of termination, through the date on
which the Term should expire pursuant to Sections 1 or 5
hereof, as if the Company had given notice of termination
pursuant to Section 5 on the date of termination, and
(ii) to pay the compensation set forth in Section
11(a) and 18 hereof (unless the Executive has died).
IN WITNESS WHEREOF, the parties have executed this Amendment
of the Agreement as of the date first written above.
LA JOLLA MANAGEMENT CORP.
By:/s/ JOHN F. MARKUS By:/s/ DAVID C. FLAUGH
------------------ -------------------
John F. Markus David C. Flaugh
EXHIBIT 24.1
KPMG Peat Marwick
Certified Public Accountants
Independent Auditors' Consent
-----------------------------
The Board of Directors
National Health Laboratories Incorporated:
We consent to incorporation by reference in the registration
statements (No. 33-29182 and No. 33-43006) on Form S-8 of National
Health Laboratories Incorporated of our report dated February 10,
1994 relating to the consolidated balance sheets of National Health
Laboratories Incorporated and subsidiaries as of December 31, 1993
and 1992, and the related consolidated statements of earnings,
stockholders' equity, and cash flows and related schedules for each
of the years in the three-year period ended December 31, 1993,
which report appears in the December 31, 1993 annual report on Form
10-K of National Health Laboratories Incorporated.
KPMG Peat Marwick
San Diego, California
March 25, 1994
Member Firm of
Klynveld Peat Marwick Goerdeler
EXHIBIT 25.1
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the under-
signed hereby constitutes and appoints each of David C.
Flaugh, James G. Richmond and Joram C. Salig or any of
them, each acting alone, his true and lawful attorney-in-
fact and agent, with full power of substitution, for him
and in his name, place and stead, in any and all capaci-
ties, in connection with the National Health Laboratories
Incorporated Annual Report on Form 10-K for the year ended
December 31, 1993 under the Securities Exchange Act of
1934, as amended, including, without limiting the gener-
ality of the foregoing, to sign the Form 10-K in the name
and on behalf of the Corporation or on behalf of the under-
signed as a director or officer of the Corporation, and any
amendments to the Form 10-K and any instrument, contract,
document or other writing, of or in connection with the
Form 10-K or amendments thereto, and to file the same, with
all exhibits thereto, and other documents in connection
therewith, including this power of attorney, with the
Securities and Exchange Commission and any applicable secu-
rities exchange or securities self-regulatory body, grant-
ing unto said attorneys-in-fact and agents, each acting
alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purpos-
es as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each
acting alone, or his substitute or substitutes, may lawful-
ly do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed
these presents this 25th day of February, 1994.
By:/s/ RONALD O. PERELMAN
----------------------
Ronald O. Perelman
<PAGE>
<PAGE>
EXHIBIT 25.2
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the under-
signed hereby constitutes and appoints each of David C.
Flaugh, James G. Richmond and Joram C. Salig or any of
them, each acting alone, his true and lawful attorney-in-
fact and agent, with full power of substitution, for him
and in his name, place and stead, in any and all capaci-
ties, in connection with the National Health Laboratories
Incorporated Annual Report on Form 10-K for the year ended
December 31, 1993 under the Securities Exchange Act of
1934, as amended, including, without limiting the gener-
ality of the foregoing, to sign the Form 10-K in the name
and on behalf of the Corporation or on behalf of the under-
signed as a director or officer of the Corporation, and any
amendments to the Form 10-K and any instrument, contract,
document or other writing, of or in connection with the
Form 10-K or amendments thereto, and to file the same, with
all exhibits thereto, and other documents in connection
therewith, including this power of attorney, with the
Securities and Exchange Commission and any applicable secu-
rities exchange or securities self-regulatory body, grant-
ing unto said attorneys-in-fact and agents, each acting
alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purpos-
es as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each
acting alone, or his substitute or substitutes, may lawful-
ly do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed
these presents this 25th day of February, 1994.
By:/s/ JAMES R. MAHER
------------------
James R. Maher
<PAGE>
<PAGE>
EXHIBIT 25.3
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the under-
signed hereby constitutes and appoints each of David C.
Flaugh, James G. Richmond and Joram C. Salig or any of
them, each acting alone, his true and lawful attorney-in-
fact and agent, with full power of substitution, for him
and in his name, place and stead, in any and all capaci-
ties, in connection with the National Health Laboratories
Incorporated Annual Report on Form 10-K for the year ended
December 31, 1993 under the Securities Exchange Act of
1934, as amended, including, without limiting the gener-
ality of the foregoing, to sign the Form 10-K in the name
and on behalf of the Corporation or on behalf of the under-
signed as a director or officer of the Corporation, and any
amendments to the Form 10-K and any instrument, contract,
document or other writing, of or in connection with the
Form 10-K or amendments thereto, and to file the same, with
all exhibits thereto, and other documents in connection
therewith, including this power of attorney, with the
Securities and Exchange Commission and any applicable secu-
rities exchange or securities self-regulatory body, grant-
ing unto said attorneys-in-fact and agents, each acting
alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purpos-
es as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each
acting alone, or his substitute or substitutes, may lawful-
ly do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed
these presents this 24th day of January, 1994.
By:/s/ SAUL J. FARBER, M.D.
------------------------
Saul J. Farber, M.D.
<PAGE>
<PAGE>
EXHIBIT 25.4
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the under-
signed hereby constitutes and appoints each of David C.
Flaugh, James G. Richmond and Joram C. Salig or any of
them, each acting alone, his true and lawful attorney-in-
fact and agent, with full power of substitution, for him
and in his name, place and stead, in any and all capaci-
ties, in connection with the National Health Laboratories
Incorporated Annual Report on Form 10-K for the year ended
December 31, 1993 under the Securities Exchange Act of
1934, as amended, including, without limiting the gener-
ality of the foregoing, to sign the Form 10-K in the name
and on behalf of the Corporation or on behalf of the under-
signed as a director or officer of the Corporation, and any
amendments to the Form 10-K and any instrument, contract,
document or other writing, of or in connection with the
Form 10-K or amendments thereto, and to file the same, with
all exhibits thereto, and other documents in connection
therewith, including this power of attorney, with the
Securities and Exchange Commission and any applicable secu-
rities exchange or securities self-regulatory body, grant-
ing unto said attorneys-in-fact and agents, each acting
alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purpos-
es as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each
acting alone, or his substitute or substitutes, may lawful-
ly do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed
these presents this 25th day of February, 1994.
By:/s/ HOWARD GITTIS
-----------------
Howard Gittis
<PAGE>
<PAGE>
EXHIBIT 25.5
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the under-
signed hereby constitutes and appoints each of David C.
Flaugh, James G. Richmond and Joram C. Salig or any of
them, each acting alone, his true and lawful attorney-in-
fact and agent, with full power of substitution, for him
and in his name, place and stead, in any and all capaci-
ties, in connection with the National Health Laboratories
Incorporated Annual Report on Form 10-K for the year ended
December 31, 1993 under the Securities Exchange Act of
1934, as amended, including, without limiting the gener-
ality of the foregoing, to sign the Form 10-K in the name
and on behalf of the Corporation or on behalf of the under-
signed as a director or officer of the Corporation, and any
amendments to the Form 10-K and any instrument, contract,
document or other writing, of or in connection with the
Form 10-K or amendments thereto, and to file the same, with
all exhibits thereto, and other documents in connection
therewith, including this power of attorney, with the
Securities and Exchange Commission and any applicable secu-
rities exchange or securities self-regulatory body, grant-
ing unto said attorneys-in-fact and agents, each acting
alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purpos-
es as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each
acting alone, or his substitute or substitutes, may lawful-
ly do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed
these presents this 31st day of January, 1994.
By:/s/ ANN DIBBLE JORDAN
---------------------
Ann Dibble Jordan
<PAGE>
<PAGE>
EXHIBIT 25.6
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the under-
signed hereby constitutes and appoints each of David C.
Flaugh, James G. Richmond and Joram C. Salig or any of
them, each acting alone, his true and lawful attorney-in-
fact and agent, with full power of substitution, for him
and in his name, place and stead, in any and all capaci-
ties, in connection with the National Health Laboratories
Incorporated Annual Report on Form 10-K for the year ended
December 31, 1993 under the Securities Exchange Act of
1934, as amended, including, without limiting the gener-
ality of the foregoing, to sign the Form 10-K in the name
and on behalf of the Corporation or on behalf of the under-
signed as a director or officer of the Corporation, and any
amendments to the Form 10-K and any instrument, contract,
document or other writing, of or in connection with the
Form 10-K or amendments thereto, and to file the same, with
all exhibits thereto, and other documents in connection
therewith, including this power of attorney, with the
Securities and Exchange Commission and any applicable secu-
rities exchange or securities self-regulatory body, grant-
ing unto said attorneys-in-fact and agents, each acting
alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purpos-
es as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each
acting alone, or his substitute or substitutes, may lawful-
ly do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed
these presents this 3rd day of February, 1994.
By:/s/ DAVID J. MAHONEY
--------------------
David J. Mahoney
<PAGE>
<PAGE>
EXHIBIT 25.7
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the under-
signed hereby constitutes and appoints each of David C.
Flaugh, James G. Richmond and Joram C. Salig or any of
them, each acting alone, his true and lawful attorney-in-
fact and agent, with full power of substitution, for him
and in his name, place and stead, in any and all capaci-
ties, in connection with the National Health Laboratories
Incorporated Annual Report on Form 10-K for the year ended
December 31, 1993 under the Securities Exchange Act of
1934, as amended, including, without limiting the gener-
ality of the foregoing, to sign the Form 10-K in the name
and on behalf of the Corporation or on behalf of the under-
signed as a director or officer of the Corporation, and any
amendments to the Form 10-K and any instrument, contract,
document or other writing, of or in connection with the
Form 10-K or amendments thereto, and to file the same, with
all exhibits thereto, and other documents in connection
therewith, including this power of attorney, with the
Securities and Exchange Commission and any applicable secu-
rities exchange or securities self-regulatory body, grant-
ing unto said attorneys-in-fact and agents, each acting
alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purpos-
es as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each
acting alone, or his substitute or substitutes, may lawful-
ly do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed
these presents this 21st day of January, 1994.
By:/s/ PAUL A. MARKS, M.D.
-----------------------
Paul A. Marks, M.D.
<PAGE>
<PAGE>
EXHIBIT 25.8
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the under-
signed hereby constitutes and appoints each of David C.
Flaugh, James G. Richmond and Joram C. Salig or any of
them, each acting alone, his true and lawful attorney-in-
fact and agent, with full power of substitution, for him
and in his name, place and stead, in any and all capaci-
ties, in connection with the National Health Laboratories
Incorporated Annual Report on Form 10-K for the year ended
December 31, 1993 under the Securities Exchange Act of
1934, as amended, including, without limiting the gener-
ality of the foregoing, to sign the Form 10-K in the name
and on behalf of the Corporation or on behalf of the under-
signed as a director or officer of the Corporation, and any
amendments to the Form 10-K and any instrument, contract,
document or other writing, of or in connection with the
Form 10-K or amendments thereto, and to file the same, with
all exhibits thereto, and other documents in connection
therewith, including this power of attorney, with the
Securities and Exchange Commission and any applicable secu-
rities exchange or securities self-regulatory body, grant-
ing unto said attorneys-in-fact and agents, each acting
alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purpos-
es as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each
acting alone, or his substitute or substitutes, may lawful-
ly do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed
these presents this 2nd day of March, 1994.
By:/s/ LINDA GOSDEN ROBINSON
-------------------------
Linda Gosden Robinson
<PAGE>
<PAGE>
EXHIBIT 25.9
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the under-
signed hereby constitutes and appoints each of David C.
Flaugh, James G. Richmond and Joram C. Salig or any of
them, each acting alone, his true and lawful attorney-in-
fact and agent, with full power of substitution, for him
and in his name, place and stead, in any and all capaci-
ties, in connection with the National Health Laboratories
Incorporated Annual Report on Form 10-K for the year ended
December 31, 1993 under the Securities Exchange Act of
1934, as amended, including, without limiting the gener-
ality of the foregoing, to sign the Form 10-K in the name
and on behalf of the Corporation or on behalf of the under-
signed as a director or officer of the Corporation, and any
amendments to the Form 10-K and any instrument, contract,
document or other writing, of or in connection with the
Form 10-K or amendments thereto, and to file the same, with
all exhibits thereto, and other documents in connection
therewith, including this power of attorney, with the
Securities and Exchange Commission and any applicable secu-
rities exchange or securities self-regulatory body, grant-
ing unto said attorneys-in-fact and agents, each acting
alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purpos-
es as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each
acting alone, or his substitute or substitutes, may lawful-
ly do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed
these presents this 24th day of January, 1994.
By:/s/ SAMUEL O. THIER, M.D.
-------------------------
Samuel O. Thier, M.D.
<PAGE>
<PAGE>
EXHIBIT 25.10
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the under-
signed hereby constitutes and appoints each of David C.
Flaugh, James G. Richmond and Joram C. Salig or any of
them, each acting alone, his true and lawful attorney-in-
fact and agent, with full power of substitution, for him
and in his name, place and stead, in any and all capaci-
ties, in connection with the National Health Laboratories
Incorporated Annual Report on Form 10-K for the year ended
December 31, 1993 under the Securities Exchange Act of
1934, as amended, including, without limiting the gener-
ality of the foregoing, to sign the Form 10-K in the name
and on behalf of the Corporation or on behalf of the under-
signed as a director or officer of the Corporation, and any
amendments to the Form 10-K and any instrument, contract,
document or other writing, of or in connection with the
Form 10-K or amendments thereto, and to file the same, with
all exhibits thereto, and other documents in connection
therewith, including this power of attorney, with the
Securities and Exchange Commission and any applicable secu-
rities exchange or securities self-regulatory body, grant-
ing unto said attorneys-in-fact and agents, each acting
alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purpos-
es as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each
acting alone, or his substitute or substitutes, may lawful-
ly do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed
these presents this 16th day of March, 1994.
By:/s/ DAVID C. FLAUGH
-------------------
David C. Flaugh
