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, 1998
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 24, 1998, 40,645,398 shares of Registrant's Common Stock, par value
$.01 per share, were outstanding.
Page 1 of 10 pages
<PAGE>
UNILAB CORPORATION
Form 10-Q for the Quarterly Period Ended March 31, 1998
INDEX
Page
Part I - FINANCIAL INFORMATION:
Item 1. Financial Statements
Balance Sheets - March 31, 1998 3
and December 31, 1997.
Statements of Operations -
Three month periods ended March 31, 1998
and March 31, 1997. 4
Statements of Cash Flows -
Three month periods ended March 31, 1998
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 6. Exhibits and Reports on Form 8-K 9
Signatures 10
<PAGE>
<TABLE>
UNILAB CORPORATION
BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
(amounts in thousands, except per share data)
<CAPTION>
March 31, December 31,
1998 1997
Assets (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $16,906 $11,652
Accounts receivable, net 38,067 36,583
Inventory of supplies 2,759 2,811
Prepaid expenses and other current assets 1,464 1,295
- ----------------------------------------------------------------------------------------------------------
Total current assets 59,196 52,341
Property and Equipment, net 12,428 13,160
Goodwill, net 43,383 43,699
Other Intangible Assets, net 2,582 2,731
Other Assets 6,607 6,769
- ----------------------------------------------------------------------------------------------------------
$124,196 $118,700
- ----------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current Liabilities:
Current portion of long-term debt $1,700 $1,811
Accounts payable and accrued liabilities 17,770 15,678
Accrued payroll and benefits 7,391 6,302
- ----------------------------------------------------------------------------------------------------------
Total current liabilities 26,861 23,791
- ----------------------------------------------------------------------------------------------------------
Long-Term Debt, net of current portion 123,967 124,285
Other Liabilities 2,529 2,907
Commitments and Contingencies
Shareholders' Equity (Deficit):
Convertible preferred stock, $.01 par value
Issued and Outstanding - 364 at March 31
and December 31 4 4
Common stock, $.01 par value
Issued and Outstanding - 40,614 at March 31
and 40,578 at December 31 406 406
Additional paid-in capital 228,135 228,052
Accumulated deficit (257,706) (260,745)
- ----------------------------------------------------------------------------------------------------------
Total shareholders' deficit (29,161) (32,283)
- ----------------------------------------------------------------------------------------------------------
$124,196 $118,700
- ----------------------------------------------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these
financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
UNILAB CORPORATION
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(amounts in thousands, except per share data)
(Unaudited)
<CAPTION>
Three Months Ended March 31,
1998 1997
<S> <C> <C>
Revenue $54,530 $53,033
- ---------------------------------------------------------------------------------------------------------
Direct Laboratory and Field Expenses:
Salaries, wages and benefits 16,823 17,820
Supplies 7,613 7,551
Other operating expenses 13,129 13,982
- ---------------------------------------------------------------------------------------------------------
37,565 39,353
Amortization and depreciation 1,985 2,153
Selling, general and administrative expenses 8,534 9,155
- ---------------------------------------------------------------------------------------------------------
Total Operating Expenses 48,084 50,661
- ---------------------------------------------------------------------------------------------------------
Operating Income 6,446 2,372
Third party interest, net (3,374) (3,507)
- ---------------------------------------------------------------------------------------------------------
Income (Loss) Before Income Taxes 3,072 (1,135)
Tax Provision - -
- ---------------------------------------------------------------------------------------------------------
Net Income (Loss) $3,072 ($1,135)
- ---------------------------------------------------------------------------------------------------------
Preferred Stock Dividends $33 $36
Net Income (Loss) Available to Common
Shareholders $3,039 ($1,171)
Basic and Diluted Earnings Per Share:
Net Income (Loss) $0.07 ($0.03)
- --------------------------------------------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
UNILAB CORPORATION
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(amounts in thousands)
(Unaudited)
<CAPTION>
Three months ended March 31,
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $3,072 ($1,135)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Amortization and depreciation 1,985 2,153
Provision for doubtful accounts 3,907 3,801
Net changes in assets and liabilities affecting operations:
Increase in Accounts receivable (5,391) (6,438)
(Increase) decrease in Inventory of supplies 52 (25)
Increase in Prepaid expenses and other current assets (169) (230)
(Increase) decrease in Other assets 5 (22)
Increase in Accounts payable and accrued liabilities 1,863 2,538
Increase in Accrued payroll and benefits 1,249 1,530
Other 83 69
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 6,656 2,241
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of third party debt (429) (463)
Other (33) -
- ----------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (462) (463)
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (631) (1,079)
Payments for acquisitions, net of cash acquired (309) (490)
- ----------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (940) (1,569)
- ----------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,254 209
CASH AND CASH EQUIVALENTS - Beginning of Period 11,652 13,080
- ----------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - End of Period $16,906 $13,289
- ----------------------------------------------------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
<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.
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, 1997.
2. Net Income (Loss) Per Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("FAS 128"),
"Earnings Per Share," which requires the disclosure of a basic and
diluted earnings per share. The implementation of FAS 128 had no impact
on the calculation of earnings per share previously reported for the
three months ended March 31, 1997.
Basic earnings per common share has been computed by dividing the net
income (loss) less preferred dividends by the weighted average number of
common shares outstanding for each period presented. The weighted average
number of common shares used in the calculation of basic earnings per
share was 40.6 million and 38.8 million for the three months ended March
31, 1998 and 1997, respectively.
Diluted earnings per share includes the effect of additional common
shares that would have been outstanding if dilutive potential common
shares had been issued. No dilutive securities existed for the three
months ended March 31, 1997. For the three months ended March 31, 1998,
the weighted average number of dilutive stock options were 1.5 million,
which would have had no effect on the basic earnings per share
calculation. The assumed conversion of the convertible preferred stock is
excluded from the calculation since its effect would be immaterial.
<PAGE>
3. Supplemental Disclosure of Cash Flow Information
(amounts in thousands) Three months ended March 31,
1998 1997
Cash paid during the period for:
Interest $123 $246
Income taxes 2 1
Item 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Quarter Ended March 31, 1998 Compared with Quarter Ended March 31, 1997
Revenue increased to $54.5 million for the three months ended March 31,
1998 from $53.0 million for the comparable prior year period, representing
an increase of $1.5 million or 2.8%. The increase was the result of a 4.6%
increase in reimbursement levels offset by a 1.8% decrease in specimens
processed. The increase in reimbursement levels is primarily due to
increases in rates charged to managed care clients as the Company continues
its strategy to work only with managed care clients who are willing to
adequately pay for the levels of service they request and the elimination
and replacement of the Company's most unprofitable accounts with other
reasonably priced business. Volume for the three months ended March 31,
1998 was approximately the same on a per day basis as the specimen levels
experienced by the Company in the third and fourth quarters of 1997. The
decrease from the first quarter of 1997 was the effect of eliminating some
under-performing accounts and exiting small geographical areas where the
Company couldn't achieve significant economies of scale.
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
were $8.4 million for the three months ended March 31, 1998, an increase of
over 85% compared to the $4.5 million EBITDA for the comparable prior year
period.
Salaries, wages and benefits decreased to $16.8 million for the three
months ended March 31, 1998 from $17.8 million for the comparable prior
year period. As a percentage of revenue, salaries, wages and benefits
decreased to 30.9% in 1998 from 33.6% in 1997. The decrease primarily
reflects a reduction in headcount and tight control over the growth in wage
increases.
<PAGE>
Supplies expense remained consistent at $7.6 million and approximately
14.0% of revenues for the three-month periods ended March 31, 1998 and
1997. The number of specimens processed and the supplies cost for each of
these specimens remained consistent between the respective periods.
However, supplies expense has increased slightly from the amount recorded
in the third and fourth quarter of 1997 as the Company started to perform
certain more costly tests in-house in late 1997 that were previously sent
to outside reference laboratories. Although the Company experienced a
slight increase in supplies expense related to bringing this testing
in-house, the Company had a positive net benefit as lab subcontracting
expenses decreased by more than 10% in the three month period ended March
31, 1998 from the comparable prior year period.
Other operating expenses decreased to $13.1 million for the three months
ended March 31, 1998 from $14.0 million from the comparable prior year
period. As a percentage of revenue, other operating expenses decreased to
24.1% in 1998 from 26.4% in 1997. Such decrease was primarily due to
reductions in lab subcontracting expenses (see explanation in preceding
paragraph) and reductions in outside courier, automobile, travel and
entertainment, telecommunication and insurance expenses, as the Company
evaluated all expense line items throughout 1997 and streamlined and
rationalized expenses as necessary to achieve cost efficiencies.
Amortization and depreciation expense decreased to $2.0 million for the
three months ended March 31, 1998 from $2.2 million from the comparable
prior year period primarily due to certain non-compete agreements and
laboratory computer equipment becoming fully depreciated in late 1997 and
early 1998.
Selling, general and administrative expenses decreased to $8.5 million for
the three months ended March 31, 1998 from $9.2 million from the comparable
prior year period. As a percentage of revenue, selling, general and
administrative expenses decreased to 15.7% in 1998 from 17.3% in 1997. Such
decrease continues the trend realized by the Company throughout 1997 and
relates to a reduction in corporate managerial and administrative positions
and streamlining and rationalization of all operating support services.
Third party interest expense, net decreased to $3.4 million for the three
months ended March 31, 1998 from $3.5 million for the comparable prior year
period primarily due to the repayment of capital lease obligations.
Liquidity and Capital Resources
Net cash provided by operating activities was $6.7 million for the three
months ended March 31, 1998 and reflects an improvement of $4.4 million
over the comparable prior year period when net cash provided by operating
activities was $2.2 million. The improvement in 1998 was primarily due to
an improvement in the Company's operating performance.
<PAGE>
Net cash used by financing activities was $0.5 million for the three months
ended March 31, 1998, resulting primarily from scheduled principal
repayments under capital lease obligations.
Net cash used by investing activities was $0.9 million for the three months
ended March 31, 1998, resulting from approximately $0.6 million of capital
expenditures and $0.3 million of payments made on acquisitions completed in
1996 and 1995.
The Company had $16.9 million of cash and cash equivalents on hand at March
31, 1998. On April 1, 1998, $6.6 million for interest on $120.0 million of
senior notes was due, and such amount was paid from the $16.9 million of
cash and cash equivalents on hand. Management believes that the amount of
cash and cash equivalents available at March 31, 1998 and $20.0 million
available under an agreement with a financial institution whereby the
Company can sell accounts receivables 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 foreseeable future.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
Exhibit 99.1 - Press Release, dated April 30, 1998, announcing
first quarter earnings results.
(B) Reports on Form 8-K
Current Report on form 8-K, dated January 27, 1998 with respect
to Item 5.
<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: /s/ Brian D. Urban
Date: April 30, 1998 Brian D. Urban
Executive Vice President,
Chief Financial Officer and Treasurer
<PAGE>
</TABLE>
PRESS RELEASE UNILAB CORPORATION
(AMEX:ULB)
18448 Oxnard Street
Tarzana, CA 91356
www.Unilab.com
For Further Information:
Charles Kim
Phone: (818) 758-6607
e-mail: [email protected]
IMMEDIATE RELEASE
April 30, 1998
UNILAB CORPORATION ANNOUNCES FIRST QUARTER RESULTS
TARZANA, CA, April 30, 1998 -- UNILAB Corporation (AMEX: ULB) announced today
that net sales for the quarter ended March 31, 1998 were $54.5 million, an
increase of 2.8% from $53.0 million in the same period last year. The Company
reported net income for the quarter of $3.1 million, or $0.07 per common share,
compared to a net loss of $1.1 million, or ($0.03) per common share in the same
period last year.
Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA") were
$8.4 million for the quarter, or 15.5% of sales, compared to $4.5 million, or
8.5% of sales, for the same period last year.
"Our first quarter results represent a record performance for Unilab, and are
consistent with the improving results we have reported over the last year" said
David Weavil, Unilab's Chairman and CEO. "These results should reassure Unilab's
shareholders that management continues to be focused on improving the Company's
financial performance."
While the Company performed testing for almost the same number of patients this
quarter compared to the first quarter of last year, pricing increased by more
than 4.0%. Weavil added, "we are satisfied that these trends represent our
commitment to actively manage the profitability of our business and selectively
withdraw from businesses where warranted."
Weavil continued by stating, "Unilab's management team will continue efforts to
improve operating efficiencies and processes. We have continued to make progress
in reducing our operating expense base, while at the same time, seeking to
improve service to existing customers. Additionally, we are selectively
prospecting growth opportunities."
Unilab's cash position at the end of the first quarter was $16.9 million,
reflecting strong receivables collections that maintained the number of days
sales outstanding ("DSO")--a measure of billing and collection efficiency--at 64
days. This DSO is the same as the last quarter in 1997, and ahead of the 68 days
in the same quarter last year.
The statements in this press release that are not historical facts or
information may be deemed to be forward-looking statements. Each of the above
forward-looking statements is subject to change based on various risks and
uncertainties, including without limitation, legislative and regulatory
developments and competitive actions in the marketplace that could cause the
outcome to be materially different from stated. Certain of these risks and
uncertainties are listed in the Company's 1997 Form 10-K.
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>
<TABLE>
Unilab Corporation
Statement of Operations
<CAPTION>
(amounts in thousands, except per share data) Three months ended March 31,
1998 1997
<S> <C> <C>
Revenue $54,530 $53,033
Direct Laboratory and Field Expenses:
Salaries, Wages and Benefits 16,823 17,820
Supplies 7,613 7,551
Other Operating Expenses 13,129 13,982
------ ------
37,565 39,353
------ ------
Amortization and Depreciation 1,985 2,153
Selling, General and Administrative Expenses 8,534 9,155
----- -----
Total Operating Expenses 48,084 50,661
Operating Income 6,446 2,372
Other Income (Expenses)
Interest Expense, net (3,374) (3,507)
Income (Loss) Before Income Taxes 3,072 (1,135)
Net Income (Loss) 3,072 (1,135)
Preferred Stock Dividends 33 36
-- --
Net Income (Loss) Available to Common
Stockholders 3,039 ($1,171)
===== ========
Basic and Diluted Earnings per Share:
Net Income (Loss) $0.07 ($0.03)
EBITDA $8,431 $4,525
</TABLE>
<PAGE>
<TABLE>
Unilab Corporation
Balance Sheet
<CAPTION>
March 31, December 31,
(amounts in thousands) 1998 1997
---- ----
<S> <C> <C>
Cash and Cash Equivalents $16,906 $11,652
Accounts Receivable, net 38,067 36,583
Other Current Assets 4,223 4,106
----- -----
Total Current Assets 59,196 52,341
Fixed Assets, net 12,428 13,160
Goodwill and Other Intangible Assets 45,965 46,430
Other Assets 6,607 6,769
----- -----
Total Assets $124,196 $118,700
-------- --------
Total Current Liabilities 26,861 23,791
Long-Term Debt, net of current portion 123,967 124,285
Other Liabilities 2,529 2,907
Total Shareholders' Deficit (29,161) (32,283)
-------- --------
Total Liabilities and Shareholders' Deficit $124,196 $118,700
-------- --------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000899714
<NAME> UNILAB CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 16,906
<SECURITIES> 0
<RECEIVABLES> 47,569
<ALLOWANCES> (9,502)
<INVENTORY> 2,759
<CURRENT-ASSETS> 59,196
<PP&E> 41,969
<DEPRECIATION> (29,541)
<TOTAL-ASSETS> 124,196
<CURRENT-LIABILITIES> 26,861
<BONDS> 119,276
0
4
<COMMON> 406
<OTHER-SE> (29,571)
<TOTAL-LIABILITY-AND-EQUITY> 124,196
<SALES> 54,530
<TOTAL-REVENUES> 54,530
<CGS> 0
<TOTAL-COSTS> 33,658
<OTHER-EXPENSES> 10,519
<LOSS-PROVISION> 3,907
<INTEREST-EXPENSE> 3,374
<INCOME-PRETAX> 3,072
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,072
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,072
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
