<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1996
Commission File Number 34-0-20400
UNIVERSAL STANDARD MEDICAL LABORATORIES, INC.
Michigan 38-2986640
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
26500 Northwestern Highway, Suite 400, Southfield, Michigan 48076
(Address of principal offices) (Zip Code)
Registrant's telephone number, including area code: (810) 353-1450
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(D) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Number of shares of common stock, no par value, outstanding as of April 30,
1996: 6,451,642.
<PAGE> 2
UNIVERSAL STANDARD MEDICAL LABORATORIES, INC.
INDEX
Page No.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
at March 31, 1996 and December 31, 1995
Condensed Consolidated Statements of 4
Income for the three months ended
March 31, 1996 and 1995
Condensed Consolidated Statements of 5
Cash Flows for the three months ended
March 31, 1996 and 1995
Notes to Condensed Consolidated Financial 6
Statements
Item 2. Management's Discussion and Analysis of 9
Financial Condition and Results of
Operations
Part II. OTHER INFORMATION 15
Item 6. Exhibits and Reports on Form 8-K
2
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
Item I. Financial Statements
UNIVERSAL STANDARD MEDICAL LABORATORIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,060 $ 999
Accounts receivable, net of allowance for contractual
adjustments and uncollectible accounts of $9,239
and $8,580 at March 31, 1996 and
December 31, 1995, respectively 12,327 12,405
Inventory 1,202 1,072
Prepaid expenses and other 3,530 3,660
------- -------
Total current assets 20,119 18,136
Property and equipment, net 10,043 9,062
Intangible assets, net 36,275 36,790
Other assets 1,473 578
------- -------
Total assets $67,910 $64,566
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 3,018 $ 4,412
Accounts payable 4,787 5,739
Accrued liabilities 3,342 4,855
------- -------
Total current liabilities 11,147 15,006
Long-term debt, net of current portion 19,843 12,443
Other liabilities 3,143 3,149
------- -------
Total liabilities 34,133 30,598
------- -------
Common stock, no par; 20,000,000 shares
authorized; 6,403,853 shares
issued and outstanding 32,371 32,242
Retained earnings 1,406 1,726
------- -------
Total stockholders' equity 33,777 33,968
------- -------
Total liabilities and
stockholders' equity $67,910 $64,566
======= =======
</TABLE>
The accompanying notes are an integral part of
the condensed consolidated financial statements.
3
<PAGE> 4
UNIVERSAL STANDARD MEDICAL LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
------- -------
<S> <C> <C>
Net laboratory service revenue:
Fee-for-service $10,886 $12,860
Managed care 4,668 4,251
------- -------
Total net revenue 15,554 17,111
Operating expenses:
Laboratory 10,297 10,744
Selling, general and administrative 3,272 3,829
Provision for doubtful accounts 914 801
Depreciation 573 518
Amortization 538 517
------- -------
Total operating expenses 15,594 16,409
------- -------
Operating income (loss) (40) 702
Interest expense 413 399
Other income, net (33) (40)
------- -------
Income (loss) before income taxes (420) 343
Income taxes (benefit) (100) 158
------- -------
Net income (loss) ($ 320) $ 185
======= =======
Net income per share ($ 0.05) $ 0.03
Average shares outstanding and
common equivalent shares 6,371 6,368
</TABLE>
The accompanying notes are an integral
part of the condensed consolidated financial statements.
4
<PAGE> 5
UNIVERSAL STANDARD MEDICAL LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
--------- ---------
<S> <C> <C>
Net cash provided by (used in) operating activities ($ 1,448) $ 380
------- -------
Cash flows from investing activities:
Purchase of property and equipment (984) (276)
Other investing activities (7) -
------- -------
Net cash used in investing activities (991) (276)
------- -------
Cash flows from financing activities:
Payments on long-term debt (7,723) (1,305)
Long-term/Short-term borrowings 1,000 600
Proceeds from issuance of Convertible Debenture 12,000 -
Payments of financing costs (907) -
Other financing activities 130 (31)
------- -------
Net cash provided by (used in)
financing activities 4,500 (736)
------- -------
Net increase (decrease) in cash and cash equivalents 2,061 (632)
Cash and cash equivalents, beginning of period 999 1,290
------- -------
Cash and cash equivalents, end of period $ 3,060 $ 658
======= =======
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
5
<PAGE> 6
UNIVERSAL STANDARD MEDICAL LABORATORIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
These condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1995.
In the opinion of management, the condensed consolidated financial statements
include all adjustments, consisting of normal recurring items, necessary for a
fair presentation of financial position and results of operations. The results
of operations are not necessarily indicative of the results which may be
expected for the full year.
Certain amounts included in the financial statements for the quarter ended
March 31, 1995 have been reclassified to conform with the presentation of the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
2. Income Taxes
The effective income tax rate of 23.8% for the three months ended March 31,
1996 is less than the statutory of 34% principally due to non-deductible
goodwill.
3. Earnings Per Share
Earnings per share has been computed using the weighted average number of
shares of common stock and common stock equivalents outstanding. Common stock
equivalents represent the assumed exercise of outstanding stock options and
warrants.
4. Long-term debt
On February 20, 1996, the Company completed an offering of $12,000,000
principal amount of 8.25% Convertible Subordinated Debentures (the
"Debentures") due February 1, 2006. Interest is payable semi-annually on each
February 1 and August 1, commencing August 1, 1996, with interest accruing from
the date of issuance. The Debentures are convertible, at
6
<PAGE> 7
any time prior to maturity, unless previously redeemed or repurchased, into
shares of common stock of the Company at a conversion price of $4.375 per
share, subject to adjustment in certain events. The net proceeds received by
the Company from the sale of the Debentures was approximately $11 million after
deducting offering fees and expenses. The Company used $2.5 million of the net
proceeds to repay a $2.5 million note payable to a wholly owned subsidiary,
pursuant to a repayment plan with the State of Michigan Insurance
Bureau. The Company used the remainder of the net proceeds as follows: $2.0
million was used to reduce the amount outstanding under the term loan, $0.5
million was used to repay the amounts outstanding under the supplement line of
credit and the remainder was used to reduce the amount outstanding on the
revolving line of credit and for general working capital purposes.
As of December 31, 1995, the Company had a credit facility which included a
$4.1 million term loan, an $8.0 million revolving line of credit and a $1.0
million supplemental revolving line of credit. Following the completion of the
Debenture Offering, the borrowing limit on the revolving line of credit was
reduced to $5.5 million and a $2.5 million acquisition line of credit was
included in the facility. Borrowing levels under the revolving line of credit
are based on accounts receivable balances. The credit facility requires the
maintenance of certain financial ratios. These ratios were amended in March
1996 to require the Company to maintain certain cash flow coverage ratios
from 1.25 to 1 to .75 to 1 through March 31, 1996, from 1.25 to 1 to 1.10 to 1
through June 30, 1996, which were revised and which will be 1.25 to 1 for
periods thereafter; funded debt (excluding the Debentures) to cash flow of not
greater than 3 to 1; and a working capital current ratio of 1.5 to 1. In
addition the Company is required to maintain a $1.0 million restricted account
with the lender, which can only be withdrawn by the lender to make payments to
the lender or interest payments on the Debenture. Borrowings under the
acquisition line are at the discretion of the bank, may be secured or unsecured
and may be requested by the Company only if it maintains a cash flow coverage
ratio of 1.25 to 1. The credit facility bears interest from 0.5% below to
1.25% above the prime rate, based on the Company's achievement of certain cash
flow ratios. At March 31, 1996, the interest rate under the facility was
8.50%.
5. Contingencies
The Company has from time to time experienced compliance reviews, including
reviews of its billing practices, by its third-party payors. The Company has
not yet received final determination notices or decision letters relating to
compliance reviews conducted by two of its largest third-party payors. The
ultimate effect, if any, of these compliance revenues cannot be determined at
this time and no liability has been accrued by the Company.
7
<PAGE> 8
The Internal Revenue Service ("IRS") is currently examining the Company's
federal income tax returns for 1991-1994. This period includes the acquisition
of the business of MML, Inc. ("MML") Although no deficiencies have been
asserted, the IRS may propose adjustments that could have a material adverse
effect on the consolidated financial position and results of operations of the
Company.
In connection with the acquisition of MML, the Company has agreed to indemnify
MML and its shareholders (including certain officers, directors and
shareholders of the Company) under certain circumstances for income tax
liabilities arising from such acquisition and indemnification. On July 13,
1995, MML and its shareholders received notices of deficiency from the IRS.
The IRS deficiency assessments relating to the acquisition total approximately
$4.9 million, excluding interest and penalties which could be assessed. In
October 1995, the Company (pursuant to its rights under the related acquisition
agreement) filed petitions with the United States Tax Court contesting the
deficiency. The Company believes that the acquisition has been treated
properly for federal income tax purposes and intends to vigorously defend its
position. However, there can be no assurance that the Company will resolve
this dispute with the IRS in a manner favorable to the Company. The failure to
resolve the dispute with the IRS in a manner favorable to the Company would
result in a current period charge to earnings and would have a material adverse
effect on the business, financial condition, including working capital, and
results of operations of the Company. While management believes its
indemnification liability, if any, will not be material to the Company, the
ultimate effect, if any, cannot be determined at this time. The foregoing
statement may be a "forward looking statement" within the meaning of the
Securities Exchange Act of 1934. The outcome of MML's dispute with the IRS
involves a number of uncertainties, including those inherent in interpreting
and applying the Internal Revenue Code and other federal income tax authority
and precedent to actual transactions, those relating to the valuation of
various assets at the time of the acquisition and those inherent in pursuing
any legal action of the type instituted by the Company. The Company has not
accrued a liability relating to the deficiency assessments.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
Results of Operations
The following table sets forth, for the periods indicated, the percentage of
net revenue represented by items in the statements of income.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
------ ------
<S> <C> <C>
Fee-for-service 70.0% 75.2%
Managed care 30.0% 24.8%
------ ------
Total net revenue 100.0% 100.0%
Laboratory expenses 66.2% 62.8%
Selling, general and administrative expenses 21.0% 22.4%
Provision for doubtful accounts 5.9% 4.6%
Depreciation and amortization 7.1% 6.1%
------ ------
Operating income (loss) -0.2% 4.1%
Interest expense 2.7% 2.3%
Other income, net -0.2% -0.2%
Income taxes -0.6% 0.9%
------ ------
Net income (loss) -2.1% 1.1%
======================
EBITDA* 6.9% 10.2%
======================
Net cash provided by operating activities** -9.3% 2.2%
======================
</TABLE>
* EBITDA represents earnings before interest, taxes, depreciation, amortization
and other (income) expense. The Company and laboratory industry analysts use
EBITDA as a method of measuring and comparing the financial performance of
clinical laboratory companies, many of which were formed by combining with and
acquiring other clinical laboratory companies, because it eliminates
the effects of goodwill amortization and acquisition expenses on net income.
EBITDA should not be considered as an alternative to net income as an indicator
of the Company's operating performance or to cash flows as a measure of the
Company's liquidity.
9
<PAGE> 10
* * Net cash provided by operating activities is determined in accordance with
generally accepted accounting principles and is included in the Company's
Condensed Consolidated Statements of Cash Flows. The amount for each period is
determined by adjusting net income for the period for non-cash expense items,
including restructuring and special charge, depreciation and amortization,
extraordinary item and deferred income taxes, and for increases and decreases
in asset and liability items other than those relating to financing and
investing activities.
Net Revenue. The Company's net revenue is generated from managed care
laboratory programs with major employers, union and government benefit plans,
and from traditional laboratory fee-for-service business. In the Managed Care
Programs, for a fixed monthly payment, the Company is the designated provider
of substantially all non-hospital clinical laboratory testing which may be
ordered by a Covered Person's physician of choice and in some cases, certain
medical equipment and appliances. In the fee-for-service business, the Company
charges a fee based upon the type of test requested by the patient's
physician.
Total net revenue was $15.6 million in the first quarter of 1996, compared to
$17.1 million in the first quarter of 1995. Increases in managed care revenue
over the prior year quarter were offset principally by a reduction in
fee-for-service accessions resulting from the elimination of testing facilities
and the impact of the weather.
Managed care revenue increased to $4.7 million for the first quarter of 1996
from $4.3 million for the first quarter of 1995, an increase of $0.4 million, or
9.8%. This increase is due to new programs that commenced in 1995, partially
offset by the impact of fee reductions in an existing program upon renewal. As
a percentage of total net revenue, managed care revenue increased from 24.8% for
the first quarter of 1995 to 30.0% for the first quarter of 1996. This increase
is primarily due to declines in fee-for-service revenue as discussed below and,
to a lesser extent, new programs that commenced in 1995.
Fee-for-service revenue was $10.9 million for the first quarter of 1996
compared to $12.9 million for the first quarter of 1995. Fee-for-service
revenue for the first quarter of 1996 was down 15.4% as compared to the same
quarter last year, primarily due to a 9.2% decline in fee-for-service
accessions. The decline in accessions is principally due to lost accessions
resulting from the elimination of testing facilities and, to a lesser extent,
the impact of the weather. Declines in fee-for-service revenue per accession,
principally due to changes in payor and test mix, also contributed to the
declines in fee-for-service revenue.
10
<PAGE> 11
The Company's fee-for-service net revenue continues to be negatively impacted
in 1996 by a number of factors, including customer attrition resulting from
recent cost reduction efforts as described above, the shift toward managed care
alternatives, reductions in reimbursement levels on certain of its laboratory
tests primarily due to reimbursement changes instituted by the Company's
third-party payors beginning in August 1993 and changes in payor and test mixes
being experienced by the Company and the clinical laboratory industry
generally.
The Company's clinical laboratory testing operations are partially affected by
seasonal trends common to the clinical laboratory industry. Testing volume is
lower during the summer months and the year-end holiday periods. These
seasonal effects are partially offset by Managed Care revenues which are not
affected by seasonal trends.
Laboratory Expenses. Laboratory expenses decreased from $10.7 million for the
first quarter of 1995 to $10.3 million for the first quarter of 1996, a
decrease of $.4 million, or 4.2%. This decrease is principally due to lower
accessions, as discussed above. As a percentage of net revenue, laboratory
expenses increased from approximately 62.8% for the first quarter of 1995 to
66.2% for the first quarter of 1996. The Company attributes this increase
principally to the decrease in net revenue per accession without a
corresponding decrease in laboratory expenses.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased from $3.8 million for the first quarter of
1995 to $3.3 million for the first quarter of 1996, a decrease of $.5 million,
or 14.6%. As a percentage of net revenue, selling, general and administrative
expenses decreased from 22.4% for the first quarter of 1995 to 21.0% for the
first quarter of 1996. These decreases are primarily due to the cost reduction
programs initiated during 1995 and 1996.
Provision for Doubtful Accounts. The provision for doubtful accounts
increased from $.8 million in the first quarter of 1995 to $.9 million in the
first quarter of 1996. The increase of $.1 million, or 14%, was mainly due to
increases in direct patient billings. As a percentage of net revenue, the
provision for doubtful accounts increased from 4.7% in the year earlier quarter
to 5.9% for the current quarter, mainly due to increases in direct patient
billings.
EBITDA. EBITDA was $1.0 million or 6.9% of net revenue for the first quarter
of 1996, compared to $1.7 million, or 10.2% of net revenue for the first
quarter of 1995. The Company attributes these decreases principally to the
fee-for-service revenue reductions discussed above.
Income Taxes. The effective income tax benefit of 23.8% for the three months
ended March 31, 1996 is less than the statutory rate of 34% principally due to
non-deductible goodwill.
Liquidity and Capital Resources
The Company's working capital ratio increased to 1.8 to 1 at March 31, 1996
from 1.2 to 1 at December 31, 1995. Working capital increased to $9.0 million
at March 31, 1996 from $3.1 million at December 31, 1995. These increases
resulted primarily from the completion of the
11
<PAGE> 12
Company's public offering of $12.0 million principal amount of its 8.25%
Convertible Subordinated Debentures due 2006 (the "Debentures"), described
below. Included in cash and cash equivalents at March 31, 1996 is $2.5 million
in cash deposits of one of the Company's wholly owned managed care
subsidiaries, which is generally permitted to make distributions to the Company
only out of the subsidiary's earned surplus and to the extent certain other
regulatory requirements are satisfied.
Net cash flow from operating activities was $(1.4) million for the first
quarter of 1996 compared to $.4 million for the year-earlier quarter,
principally due to the decrease in net revenue as described above. Days
outstanding in accounts receivable were 99 days at March 31, 1996, compared to
97 days at December 31, 1995. These levels remain high primarily as a result
of patient information not provided by the customer, causing unbilled accounts,
which represent 14 days of the days outstanding at March 31, 1996. The Company
is continuing its efforts to reduce days outstanding, principally by working
its aged and unbilled accounts receivable.
On February 20, 1996, the Company completed the public offering of $12.0
million principal amount of Convertible Subordinated Debentures (the "Debenture
Offering"). The Debentures bear interest at a rate of 8.25% per annum, payable
semi-annually beginning August 1, 1996, and the principal amount of the
Debentures is payable in full on February 1, 2006. The Debentures
are redeemable by the Company during their term, but may be redeemed by the
Company prior to February 1, 1999 only under certain circumstances. In
addition, under certain circumstances (generally involving a change in control
of the Company or a sale of the Company's managed care business), the Company
may be required to redeem the Debentures. The Debentures are convertible into
shares of Common Stock at a price of $4.375 per share.
The Company realized net proceeds of approximately $11.0 million from the
Debenture Offering, which was used as follows: $2.5 million was used to repay
an intercompany note to one of its wholly owned subsidiaries pursuant to a
repayment plan with the State of Michigan Insurance Bureau, $2.0 million was
used to reduce the amount outstanding under the term loan, $0.5 million was
used to repay the amount outstanding under the supplemental line of credit and
the remainder was used to reduce the amount outstanding on the revolving line
of credit and for general working capital purposes. All available borrowings
under the revolving line of credit were utilized at March 31, 1996.
The ratio of debt to capital was 40.4% at March 31, 1996, compared to 33.2% at
December 31, 1995. This increase is principally due to the issuance of the
Debentures.
The Company expects to incur capital expenditures of approximately $2.0 million
during the remainder of 1996 for new data processing and laboratory equipment.
The Company expects to fund its working capital needs, capital expenditures
required for the of operation of its business and debt service requirements
from future operating cash flow. The Company is attempting to generate
increased levels of operating cash flow in future periods through increased
collection of unbilled and billed accounts receivable, primarily as a result of
12
<PAGE> 13
the development and implementation of new computer programs designed to improve
the efficiency of the Company's collection process. The foregoing statement may
be a "forward looking statement" within the meaning of the Securities Exchange
Act of 1934. The Company's ability to generate increased levels of operating
cash flow involves a number of uncertainties. For example, any such increases
in operating cash flow generated from improvements in the collection process
may be more than offset by decreases in revenues, particularly if third-party
reimbursement levels continue to decrease or the Company continues to
experience declines in accessions or fee-for-service revenue per accession as
described above under " - Results of Operations - Net Revenue". In addition,
the Company may not be able to develop and implement the new computer programs
needed to improve the efficiency of the Company's collection process in a
timely fashion or at all. In the event that the Company is not able to generate
increased levels of operating cash flow as anticipated, the Company may need to
seek additional financing to meet its operating cash needs.
The Company has from time to time experienced compliance reviews, including
reviews of its billing practices, by its third-party payors. The Company has
not yet received final determination notices or decision letters relating to
compliance reviews conducted by two of its largest third-party payors. The
ultimate affect, if any, of these compliance reviews can not be determined at
this time and no liability has been accrued by the Company.
The Internal Revenue Service ("IRS") is currently examining the Company's
federal income tax returns for 1991 - 1994. This period includes the
acquisition of the business of MML, Inc. ("MML"). Although no deficiencies
have been asserted, the IRS may propose adjustments that could have a material
adverse effect on the consolidated financial position and results of operations
of the Company.
In connection with the acquisition of MML, the Company has agreed to indemnify
MML and its shareholders (including certain officers, directors and
shareholders of the Company) under certain circumstances for income tax
liabilities arising from such acquisition and indemnification. On July 13,
1995, MML and its shareholders received notices of deficiency from the IRS. The
IRS deficiency assessments relating to the acquisition total approximately $4.9
million, excluding interest and penalties which could be assessed. In October
1995, the Company (pursuant to its rights under the related acquisition
agreement) filed petitions with the United States Tax Court contesting the
deficiency. The Company believes that the acquisition has been treated
properly for federal income tax purposes and intends to vigorously defend its
position. However, there can be no assurance that the Company will resolve
this dispute with the IRS in a manner favorable to the Company. The failure to
resolve the dispute with the IRS in a manner favorable to the Company would
result in a current period charge to earnings and would have a material adverse
effect on the business, financial condition, including working capital, and
results of operations of the Company. While management believes its
indemnification liability, if any, will not be material to the Company, the
ultimate effect, if any, cannot be determined at this time. The foregoing
statement may be a "forward looking statement" within the meaning of the
Securities Exchange Act of 1934. The outcome of MML's dispute with the IRS
involves a number of uncertainties, including those inherent in interpreting
and applying the Internal
13
<PAGE> 14
Revenue Code and other federal income tax authority and precedent to actual
transactions, those relating to the valuation of various assets at the time of
the acquisition and those inherent in pursuing any legal action of the type
instituted by the Company. The Company has not accrued a liability relating to
the deficiency assessments.
14
<PAGE> 15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Fourth Amendment to the 1992
Stock Option Plan
27 Financial Data Schedule
(b) Reports on Form 8-K.
On each of January 4, 1996 and January 16, 1996, the Company
filed a Current Report on Form 8-K which disclosed
information under Item 5 and contained no financial
statements.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNIVERSAL STANDARD MEDICAL LABORATORIES, INC.
---------------------------------------------
(Registrant)
Date: May 6, 1996 By: /s/Eugene E. Jennings
---------------------------
Eugene E. Jennings
Chairman of the Board, President and
Chief Executive Officer
Date: May 6, 1996 By: /s/ Alan S. Ker
---------------------------
Alan S. Ker
Vice President, Finance,
Chief Financial Officer, Treasurer
and Assistant Secretary
16
<PAGE> 17
EXHIBIT INDEX
Exhibit
No. Description Page
- - ------- ----------- ----
10.1 Fourth Amendment to the 1992
Stock Option Plan
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.1
V8559
FOURTH AMENDMENT TO THE
UNIVERSAL STANDARD MEDICAL LABORATORIES, INC.
1992 STOCK OPTION PLAN
Pursuant to the amendment provisions in Section 9.1 of the Universal
Standard Medical Laboratories, Inc. 1992 Stock Option Plan ("Plan") and the
approval of the Board of Directors of Universal Standard Medical Laboratories,
Inc. ("Company"), the Plan is hereby amended as set forth below.
1. Subject to shareholder approval at the Company's next Annual Meeting,
Section 4.1 of the Plan (Power to Grant Options) shall be amended and restated
in its entirety to read as follows:
4.1 Power to Grant Options. The Committee shall have the right
and the power to grant at any time to any Participant an option
entitling such person to purchase Common Stock from the Company in such
quantity, at such price, on such terms and subject to such conditions
consistent with the provisions of this Plan as may be established by
the Committee on or prior to the Granting Date for such option;
provided that, effective on and after May 2, 1996, no Participant who
is a salaried employee shall be eligible to receive aggregate option
grants under this Plan, in any two consecutive fiscal years of the
Company, to purchase more than 375,000 shares of the Common Stock.
THIS FOURTH AMENDMENT is hereby adopted as of May 2, 1996.
UNIVERSAL STANDARD MEDICAL
LABORATORIES, INC.
By:/s/ Eugene Jennings
------------------------------
Eugene Jennings
Chairman of the Board,
President and Chief
Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000889187
<NAME> UNIVERSAL STANDARD MEDICAL LABORATORIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,060
<SECURITIES> 0
<RECEIVABLES> 20,907
<ALLOWANCES> 8,580
<INVENTORY> 1,202
<CURRENT-ASSETS> 20,119
<PP&E> 16,079
<DEPRECIATION> 6,036
<TOTAL-ASSETS> 67,910
<CURRENT-LIABILITIES> 11,147
<BONDS> 12,000
0
0
<COMMON> 32,371
<OTHER-SE> 1,406
<TOTAL-LIABILITY-AND-EQUITY> 67,910
<SALES> 15,554
<TOTAL-REVENUES> 15,554
<CGS> 10,297
<TOTAL-COSTS> 10,297
<OTHER-EXPENSES> 3,272
<LOSS-PROVISION> 914
<INTEREST-EXPENSE> 413
<INCOME-PRETAX> (420)
<INCOME-TAX> (100)
<INCOME-CONTINUING> (320)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (320)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
