SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-22758
UNILAB CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 95-4415490
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
18448 Oxnard Street, Tarzana, California 91356
(Address of principal executive offices) (Zip Code)
(818) 996-7300
(Registrant's telephone number, including area code)
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
As of April 25, 1997, 40,249,692 shares of Registrant's Common Stock,
par value $.01 per share, were outstanding.
Page 1 of 11 pages
<PAGE>
UNILAB CORPORATION
Form 10-Q for the Quarterly Period Ended March 31, 1997
INDEX
Page
Part I - FINANCIAL INFORMATION:
Item 1. Financial Statements
Balance Sheets - March 31, 1997 and December 31, 1996 3
Statements of Operations -
Three month periods ended March 31, 1997 and March 31, 1996 4
Statements of Cash Flows -
Three month periods ended March 31, 1997 and March 31, 1997 5
Notes to Financial Statements. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Part II - OTHER INFORMATION:
Item 2. Changes in Securities 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
<PAGE>
<TABLE>
UNILAB CORPORATION
BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
(amounts in thousands, except per share data)
<CAPTION>
March 31, December 31,
1997 1996
Assets (Unaudited)
__________________________________________________________________________
<S> <C> <C>
Current Assets:
Cash and cash equivalents $12,385 $12,176
Restricted cash 904 904
Accounts receivable, net 39,916 37,279
Inventory of supplies 2,629 2,604
Prepaid expenses and other current assets 2,257 1,702
__________________________________________________________________________
Total current assets 58,091 54,665
Property and Equipment, net 16,910 17,264
Goodwill, net 44,092 44,401
Other Intangible Assets, net 3,374 3,637
Other Assets 6,076 5,952
__________________________________________________________________________
$128,543 $125,919
__________________________________________________________________________
Liabilities and Shareholders' Equity
__________________________________________________________________________
Current Liabilities:
Current portion of long-term debt $1,827 $1,752
Accounts payable and accrued liabilities 24,599 22,024
Accrued payroll and benefits 7,565 5,976
__________________________________________________________________________
Total current liabilities 33,991 29,752
__________________________________________________________________________
Long-Term Debt, net of current portion 125,582 126,120
Other Liabilities 3,966 4,735
Commitments and Contingencies
Shareholders' Equity (Deficit):
Convertible preferred stock, $.01 par value
Issued and Outstanding - 400 at March 31
and December 31 4 4
Common stock, $.01 par value
Issued and Outstanding - 39,190 at
March 31 and 37,285 at December 31 392 373
Additional paid-in capital 226,922 226,078
Accumulated deficit (262,314) (261,143)
__________________________________________________________________________
Total shareholders' deficit (34,996) (34,688)
__________________________________________________________________________
$128,543 $125,919
__________________________________________________________________________
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
UNILAB CORPORATION
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(amounts in thousands, except per share data)
(Unaudited)
<CAPTION>
Three months ended March 31,
1997 1996
____________________________________________________________________________
<S> <C> <C>
Revenue $53,033 $51,541
____________________________________________________________________________
Direct Laboratory and Field Expenses:
Salaries, wages and benefits 17,820 17,605
Supplies 7,551 6,600
Other operating expenses 13,982 13,033
____________________________________________________________________________
39,353 37,238
Amortization and depreciation 2,153 2,819
Selling, general and administrative expenses 9,155 10,984
____________________________________________________________________________
Total Operating Expenses 50,661 51,041
____________________________________________________________________________
Operating Income 2,372 500
Other Income (Expenses):
Third party interest, net (3,507) (2,765)
Related party interest - 375
____________________________________________________________________________
Total Other Income (Expenses) (3,507) (2,390)
____________________________________________________________________________
Loss Before Income Taxes and Extraordinary Item (1,135) (1,890)
Tax provision - -
____________________________________________________________________________
Loss Before Extraordinary Item (1,135) (1,890)
Extraordinary Item - loss on early
extinguishment of debt - 3,451
____________________________________________________________________________
Net Loss ($1,135) ($5,341)
____________________________________________________________________________
Preferred Stock Dividends $36 $36
Net Loss Available to Common Shareholders ($1,171) ($5,377)
Net Loss Per Share:
Loss Before Extraordinary Item ($0.03) ($0.05)
Extraordinary Item 0.00 (0.10)
Net Loss ($0.03) ($0.15)
Weighted Average Common Shares Outstanding 38,799 36,551
____________________________________________________________________________
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE
<TABLE>
UNILAB CORPORATION
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(amounts in thousands)
(Unaudited)
<CAPTION>
Three months ended March 31,
1997 1996
____________________________________________________________________________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($1,135) ($5,341)
Adjustments to reconcile net loss to net
cash provided (used by operating activities:
Amortization and depreciation 2,153 2,819
Provision for doubtful accounts 3,801 3,376
Extraordinary item - loss on early
extinguishment of debt - 3,451
Net changes in assets and liabilities affecting
operations, net of acquisitions:
Increase in Accounts receivable (6,438) (6,790)
Increase in Inventory of supplies (25) (77)
Increase in Prepaid expenses and other
current assets (230) (591)
(Increase) decrease in Other assets (22) 91
Increase (decrease) in Accounts payable and
accrued liabilities 2,538 (3,875)
Increase in Accrued payroll and benefits 1,530 2,364
Other 69 64
____________________________________________________________________________
Net cash provided (used) by operating
activities 2,241 (4,509)
____________________________________________________________________________
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under third party debt - 123,490
Payments of third party debt (463) (103,564)
Financing costs under the Senior Notes - (4,173)
____________________________________________________________________________
Net cash provided (used) by financing
activities (463) 15,753
____________________________________________________________________________
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,079) (1,021)
Payments for acquisitions, net of cash acquired (490) (498)
____________________________________________________________________________
Net cash used by investing activities (1,569) (1,519)
____________________________________________________________________________
NET INCREASE IN CASH, RESTRICTED CASH AND
CASH EQUIVALENTS 209 9,725
CASH, RESTRICTED CASH AND CASH EQUIVALENTS -
Beginning of Period 13,080 70
____________________________________________________________________________
CASH, RESTRICTED CASH AND CASH EQUIVALENTS -
End of Period $13,289 $9,795
____________________________________________________________________________
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
UNILAB CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. Management Opinion
In the opinion of management, the accompanying unaudited interim financial
statements reflect all adjustments which are necessary to present fairly
the financial position, results of operations and cash flows for the
interim periods reported. All such adjustments made were of a normal
recurring nature, except for the extraordinary charge of $3.5 million
recorded in the first quarter of 1996 for the write-off of deferred
financing costs related to a previous credit facility.
The accompanying interim financial statements and related notes should be
read in conjunction with the financial statements of Unilab Corporation
("Unilab" or the "Company") and related notes as contained in
the Annual Report on Form 10-K for the year ended December 31, 1996.
2. Net Loss Per Share
Net loss per share is computed by dividing net loss less preferred stock
dividends by the weighted average number of common shares outstanding for
each period presented. Common stock equivalents, which include
options and warrants, are included in the income (loss) per common share
calculation when the effect is dilutive. The assumed conversion of the
convertible preferred stock is excluded from the calculation since its
effect would be immaterial.
3. Long-Term Debt
In the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, the Company noted that it was unlikely that the
Company would remain in compliance at March 31, 1997 with the debt service
coverage ratio contained in an agreement with a financial institution to sell
up to $20.0 million of accounts receivable (the "Receivables Agreement").
Due to improvement in the Company's results of operations in the first
quarter of 1997 over prior quarterly periods, the Company was in
compliance with all covenants contained in the Receivables Agreement at
March 31, 1997 and therefore the Company may sell up to $20.0 million of
accounts receivables under the Receivables Agreement.
While the full amount of the facility is currently available to the
Company, the Company had not sold any receivables under the Receivables
Agreement as of April 25, 1997.
<PAGE>
4. Supplemental Disclosure of Cash Flow Information
(amounts in thousands) Three months ended March 31,
1997 1996
Cash paid during the period for:
Interest $246 $2,961
Income taxes 1 8
Item 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Quarter Ended March 31, 1997 Compared with
Quarter Ended March 31, 1996
Revenue increased to $53.0 million for the three months ended March 31,
1997 from $51.5 million for the comparable prior year period, representing
an increase of $1.5 million or 2.9%. The increase was the result of
additional specimen volume generating approximately $7.6 million offset
by changes in payor mix and decreases in reimbursement levels of
approximately $6.1 million. The $7.6 million increase was due to a 14.7%
increase in the actual number of specimens processed and was primarily
attributable to growth in the Company's core business.
The Company experienced a 10.3% decline in the average reimbursement
received for each specimen processed in the first quarter of 1997
over the comparable prior year period. Such decrease was primarily due
to an increase in managed care business and a general softening
in reimbursement levels across most payor groups, most notably from
insurance carriers. The Company has continued to experience a
slight decline in the average reimbursement rate in the first quarter
of 1997 from the fourth quarter of 1996. Such decrease, which
approximated 1.3% (the smallest quarter-to-quarter decline in over a
year), was primarily due to a shift in payor mix and reduced
reimbursements from Medicare as the Company complies with difficult and
challenging medical necessity and other documentation requirements
imposed by Medicare.
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
were $4.5 million for the three months ended March 31, 1997, compared
to $3.3 million for the comparable prior year period (excluding that
quarter's extraordinary charge).
Salaries, wages and benefits increased to $17.8 million for the three
months ended March 31, 1997 from $17.6 million for the comparable
prior year period. As a percentage of revenue, salaries, wages
and benefits decreased to 33.6% in 1997 from 34.2% in 1996. The
decrease primarily reflects economies of scale and control over the
absolute growth in headcount and wage increases as approximately the same
number of employees were able to process a significantly higher
specimen volume.
<PAGE>
Supplies expense increased to $7.6 million for the three months ended
March 31, 1997 from $6.6 million from the comparable prior year
period. As a percentage of revenue, supplies expense increased to
14.2% in 1997 from 12.8% in 1996. Such increase was the result of
increased specimen volume, as the cost of supplies for each specimen
processed has remained relatively consistent during the
respective periods.
Other operating expenses increased to $14.0 million for the three months
ended March 31, 1997 from $13.0 million from the comparable
prior year period. As a percentage of revenue, other operating expenses
increased to 26.4% in 1997 from 25.3% in 1996. Such increase was
primarily due to an increase in lab subcontracting expenses due to
increases in fees charged by, and volume sent to, outside
reference laboratories and an increase in bad debt expenses, both
being consistent with the higher trends recognized by the Company
throughout 1996.
Amortization and depreciation expense decreased to $2.2 million for
the three months ended March 31, 1997 from $2.8 million from the
comparable prior year period primarily due to the reduction in
amortization expense from the write-off of goodwill and customer lists of
$61.7 million in the fourth quarter of 1996 offset by increased
depreciation expense from approximately $4.1 million of laboratory
computer equipment and software placed into service at one of the
Company's laboratory locations in the first quarter of 1997.
Selling, general and administrative expenses decreased to $9.2 million
for the three months ended March 31, 1997 from $11.0 million from
the comparable prior year period. As a percentage of revenue, selling,
general and administrative expenses decreased to 17.3% in
1997 from 21.3% in 1996. Such decrease continues the trend
realized by the Company in the latter half of 1996 and relates to a
reduction in the level of expenditures incurred in the sales
and marketing area, including revisions in incentive programs and
reduction in staffing levels and organizational and support services,
and reduction in corporate managerial and administrative positions.
Third party interest expense, net increased to $3.5 million for the
three months ended March 31, 1997 from $2.8 million for the comparable
prior year period primarily due to increased indebtedness incurred
by the Company under an offering of $120.0 million of senior notes (the
"Senior Notes") in March 1996.
Related party interest income of $0.4 million for the three months
ended March 31, 1996 reflects interest income on the $15.0 million
promissory note the Company received upon the sale of its equity
investment in UGL. The sale was effective June 30, 1995.
In November 1996, the Company sold a 100% participation interest in
its rights under the $15.0 million promissory note to a third party.
Upon completion of the Senior Notes offering, the Company wrote off
$3.5 million of deferred financing costs related to the Company's
previous credit agreements.
<PAGE>
Liquidity and Capital Resources
Net cash provided by operating activities was $2.2 million for the
three months ended March 31, 1997 and reflects an improvement of $6.7
million over the comparable prior year period when net cash used by
operating activities was $4.5 million. The improvement in 1997 was
primarily due to the timing of interest payments due on the Senior Notes
($6.6 million accrued at March 31, 1997 versus $0.6 million accrued at
March 31, 1996) and an improvement in operating results.
Net cash used by financing activities was $0.5 million for the three
months ended March 31, 1997, resulting from scheduled principal
repayments under capital lease obligations.
Net cash used by investing activities was $1.6 million for the three
months ended March 31, 1997, resulting from $1.1 million of capital
expenditures and $0.5 million of payments made on acquisitions
completed in 1996 and 1995.
The Company had $12.4 million of unrestricted cash and cash equivalents
on hand at March 31, 1997. On April 1, 1997, $6.6 million for
interest on the Senior Notes was due, and such amount was paid from
the $12.4 million of unrestricted cash and cash equivalents on hand.
In the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, the Company noted that it was unlikely that the
Company would remain in compliance at March 31, 1997 with the debt
service coverage ratio contained in the Receivables Agreement.
Due to improvement in the Company's results of operations in the
first quarter of 1997 over prior quarterly periods, the Company was in
compliance with all covenants contained in the Receivables Agreement
at March 31, 1997 and therefore the Company may sell up to $20.0
million of accounts receivables under the Receivables Agreement.
While the full amount of the facility is currently available to
the Company, the Company had not sold any receivables under the
Receivables Agreement as of April 25, 1997.
While the Company has had some success in implementing the actions to
improve its operating results, and in turn, its operating cash
flows as described in its Annual Report on Form 10-K for the year
ended December 31, 1996, the Company is continuing to implement those and
other opportunities to further improve its operating performance.
Company efforts include renegotiation of capitated contracts, reductions
in field infrastructure expenses, increased collection efforts,
centralization of most accounting functions, consolidation or
downsizing of field and/or laboratory facilities and targeted
reductions in overhead and other operating expenses. While the Company
believes that the amount of unrestricted cash and cash equivalents and
borrowing capabilities of $20.0 million under the Receivables Agreement
will be sufficient for the Company to meet anticipated requirements
for working capital, interest payments, capital expenditures and
scheduled principal payments under capital lease obligations for the
remainder of the year, the Company must continue to show improvement
in its operating results in order to both maintain compliance with the
covenants contained in the Receivables Agreement and meet anticipated
operating requirements, debt repayments and provide funds for capital
expenditures and working capital for future years.
<PAGE>
PART II - OTHER INFORMATION
Item 2. Changes in Securities
The following shares of Unilab common stock were sold by the Company
during the quarterly period ended March 31, 1997 that were not
registered under the Securities Act of 1933, as amended:
Date Number of Shares Price Purchase
January 20, 1997 1,142,857 $0.4375 David C. Weavil
Such shares were sold to Mr. Weavil pursuant to the employment
agreement, dated as of January 20, 1997 between Mr. Weavil and the
Company in connection with Mr. Weavil's employment as Chairman,
President and Chief Executive Officer of the Company. Such shares were
issued in reliance upon the private placement exemption under Regulation
D of the Securities Act. Mr. Weavil was granted demand registration rights
with respect to such shares.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
Exhibit 99.1 - Press Release, dated May 5, 1997, announcing
first quarter earnings results.
(B) Reports on Form 8-K
None.
<PAGE>
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.
UNILAB CORPORATION
By: Richard A. Michaelson
Date: May 5, 1997 Richard A. Michaelson
Senior Vice President - Finance,
Treasurer and Chief Financial Officer
Exhibit 99.1
PRESS RELEASE UNILAB CORPORATION
(AMEX:ULB)
18448 Oxnard Street
Tarzana, CA 91356
For Further Information:
Richard A. Michaelson
Phone: (818) 758-6607
IMMEDIATE RELEASE
May 5, 1997
UNILAB CORPORATION ANNOUNCES FIRST QUARTER RESULTS
TARZANA, CA, May 5, 1997 -- UNILAB Corporation (AMEX:ULB) announced
today that net sales for the quarter ended March 31, 1997 increased to
$53.0 million from $51.5 million in the same period last year. The
Company reported a net loss for the first quarter of 1997 of $1.1
million, or ($0.03) per common share, compared to a net loss of $1.9
million, or ($0.05) per common share (excluding an extraordinary charge
of $3.5 million, or ($0.10) per share) in the same period last year.
"Our first quarter results, with earnings ahead of prior year for the
first time in five quarters, are a great encouragement to a company
that is taking hard, decisive actions to overcome a challenging
industry environment", said David Weavil, Chairman and Chief
Executive Officer of Unilab. "This quarter's record sales, record
specimen volume, and improving margins support our conviction
that the market values a high quality provider of laboratory testing
services as an important component in the health care delivery
system."
Earnings before interest, taxes, depreciation and amortization
(EBITDA) were $4.5 million for the first quarter, compared to $3.3
million for the first quarter 1996, excluding that prior quarter's
non-recurring charge.
Revenues increased 3%, reflecting almost 15% growth in the number of
patients tested in the quarter, offset by price erosion of approximately
10% from prior year. The average price per accession declined 1.3% from
the fourth quarter of 1996, representing the smallest quarter to quarter
price decline in over a year.
"We are pleased that the Company is making solid progress in reducing
expenses in absolute terms", added Mr. Weavil, "which is particularly
challenging in view of our strong volume growth. Operating expenses,
particularly staffing, have steadily been reduced over the past two
quarters. Selling, general and administrative expense is the lowest
it's been in almost two years, having dropped to just over 17% of sales
from the 20+% it ran for most of 1996. Most importantly, I am confident
that these reductions are being made with careful attention to assure
that we remain a leading provider of the highest quality lab testing
services in California."
In addition, the Company announced its proposed slate of directors for
election at the June 17, 1997 Annual Meeting of Stockholders. Current
directors Kirby Cramer, Michael Hoffman, Gabriel Thomas and David Weavil
would continue on the Board. Haywood D. Cochrane, Jr., a long-time
leading executive in the lab industry, has also been nominated.
Thomas Pyle and Walker Lewis, who have been serving as directors, will
not run for reelection. Mr. Pyle will retire from the Board at the Annual
Meeting, and Mr. Lewis resigned from the Board effective April 28, 1997.
Unilab Corporation is the largest provider of clinical laboratory
testing services in California through its primary testing facilities
in Los Angeles, San Jose and Sacramento and over 200 regional
service and testing facilities located throughout the state.
- tables to follow -
<PAGE>
Unilab Corporation
Consolidated Statement of Operations
(amounts in thousands, except per share data
Three months ended March 31,
1997 1996
Revenue $53,033 $51,541
Direct Laboratory and Field Expenses:
Salaries, Wages and Benefits 17,820 17,605
Supplies 7,551 6,600
Other Operating Expenses 13,982 13,033
______ _______
39,353 37,238
Amortization and Depreciation 2,153 2,819
Selling, General and Administrative Expenses 9,155 10,984
Total Operating Expenses 50,661 51,041
Operating Income 2,372 500
Other Income (Expenses)
Interest Expense, net (3,507) (2,390)
Loss Before Income Taxes and
Extraordinary Item (1,135) (1,890)
Extraordinary Item - Loss on Early
Extinguishment of Debt - 3,451
_______ _______
Net Loss (1,135) (5,341)
Preferred Stock Dividends 36 36
Net Loss Available to Common Stockholders ($1,171) ($5,377)
________ ________
Net Loss per Share:
Loss Before Extraordinary Item ($0.03) ($0.05)
Extraordinary Item - ($0.10)
Net Loss ($0.03) ($0.15)
Weighted Average Common
Shares Outstanding 38,799 36,551
EBITDA, excluding non-recurring items $4,525 $3,319
<PAGE>
Unilab Corporation
Consolidated Balance Sheet
March 31, December 31,
(amounts in thousands) 1997 1996
Cash, Restricted Cash and Cash Equivalents $13,289 $13,080
Accounts Receivable, net 39,916 37,279
Other Current Assets 4,886 4,306
______ _______
Total Current Assets 58,091 54,665
Fixed Assets, net 16,910 17,264
Goodwill and Other Intangible Assets 47,466 48,038
Other Assets 6,076 5,952
Total Assets $128,543 $125,919
________ ________
Total Current Liabilities 33,991 29,752
Long-Term Debt, net of current portion 125,582 126,120
Other Liabilities 3,966 4,735
Total Shareholders' Deficit (34,996) (34,688)
________ ________
Total Liabilities and Shareholders' Deficit $128,543 $125,919
________ ________
<TABLE> <S> <C>
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<CIK> 0000899714
<NAME> UNILAB CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 13,289
<SECURITIES> 0
<RECEIVABLES> 48,850
<ALLOWANCES> (8,934)
<INVENTORY> 2,629
<CURRENT-ASSETS> 58,091
<PP&E> 40,796
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