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 September 30, 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 October 27, 1998, 40,699,823 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 September 30, 1998
INDEX
Page
Part I - FINANCIAL INFORMATION:
Item 1. Financial Statements
Balance Sheets - September 30, 1998 3
and December 31, 1997.
Statements of Operations -
Three and nine month periods ended
September 30, 1998 and September 30, 1997. 4
Statements of Cash Flows -
Nine month periods ended September 30, 1998
and September 30, 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
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(amounts in thousands, except per share data)
<CAPTION>
September 30, December 31,
1998 1997
Assets (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $19,901 $11,652
Accounts receivable, net 40,395 36,583
Inventory of supplies 2,776 2,811
Prepaid expenses and other current assets 1,581 1,295
- ----------------------------------------------------------------------------------------------------------
Total current assets 64,653 52,341
Property and Equipment, net 11,510 13,160
Goodwill, net 42,750 43,699
Other Intangible Assets, net 2,284 2,731
Other Assets 6,446 6,769
- ----------------------------------------------------------------------------------------------------------
$127,643 $118,700
- ----------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current Liabilities:
Current portion of long-term debt $1,344 $1,811
Accounts payable and accrued liabilities 15,560 15,678
Accrued payroll and benefits 7,791 6,302
- ----------------------------------------------------------------------------------------------------------
Total current liabilities 24,695 23,791
- ----------------------------------------------------------------------------------------------------------
Long-Term Debt, net of current portion 123,450 124,285
Other Liabilities 2,043 2,907
Commitments and Contingencies
Shareholders' Equity (Deficit):
Convertible preferred stock, $.01 par value
Issued and Outstanding - 364 at September 30
and December 31 4 4
Common stock, $.01 par value
Issued and Outstanding - 40,674 at September 30
and 40,578 at December 31 407 406
Additional paid-in capital 228,308 228,052
Accumulated deficit (251,264) (260,745)
- -----------------------------------------------------------------------------------------------------------
Total shareholders' deficit (22,545) (32,283)
- -----------------------------------------------------------------------------------------------------------
$127,643 $118,700
- ----------------------------------------------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
UNILAB CORPORATION
STATEMENTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1997
(amounts in thousands, except per share data)
(Unaudited)
<CAPTION>
Three Months Ended Sept. 30, Nine Months Ended Sept 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenue $53,160 $54,238 $162,046 $161,298
- ----------------------------------------------------------------------------------------------------------------
Direct Laboratory and Field Expenses:
Salaries, wages and benefits 16,255 17,174 49,645 52,346
Supplies 7,480 7,488 22,585 22,655
Other operating expenses 13,075 14,649 39,404 43,224
--------------------------------------------------------
36,810 39,311 111,634 118,225
Amortization and depreciation 1,848 2,210 5,774 6,675
Selling, general and administrative expenses 8,132 8,491 24,990 26,185
- ----------------------------------------------------------------------------------------------------------------
Total Operating Expenses 46,790 50,012 142,398 151,085
- ----------------------------------------------------------------------------------------------------------------
Operating Income 6,370 4,226 19,648 10,213
Third party interest, net (3,308) (3,535) (10,068) (10,603)
- -----------------------------------------------------------------------------------------------------------------
Income (Loss) Before Income Taxes 3,062 691 9,580 (390)
Tax Provision - - - -
- ----------------------------------------------------------------------------------------------------------------
Net Income (Loss) $3,062 $691 $9,580 ($390)
- -----------------------------------------------------------------------------------------------------------------
Preferred Stock Dividends $33 $36 $99 $108
Net Income (Loss) Available to Common
Shareholders $3,029 $655 $9,481 ($498)
Basic and Diluted Earnings Per Share:
Net Income (Loss) $0.07 $0.02 $0.22 ($0.01)
- -----------------------------------------------------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
UNILAB CORPORATION
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(amounts in thousands)
(Unaudited)
<CAPTION>
Nine months ended Sept.30,
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $9,580 ($390)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Amortization and depreciation 5,774 6,675
Provision for doubtful accounts 11,697 11,875
Net changes in assets and liabilities affecting operations:
Increase in Accounts receivable (15,508) (14,257)
(Increase) decrease in Inventory of supplies 35 (43)
(Increase) decrease in Prepaid expenses and other current assets (286) 309
Increase in Other assets (147) (942)
Decrease in Accounts payable and accrued liabilities (820) (2,411)
Increase in Accrued payroll and benefits 1,946 1,698
Other 319 362
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 12,590 2,876
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of third party debt (1,303) (1,324)
Proceeds from the sale of stock - 581
Proceeds from exercise of options 15 -
Other (99) (108)
- ----------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (1,387) (851)
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,335) (1,577)
Payments for acquisitions (619) (1,467)
- ----------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (2,954) (3,044)
- ----------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 8,249 (1,019)
CASH AND CASH EQUIVALENTS - Beginning of Period 11,652 13,080
- ----------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - End of Period $19,901 $12,061
- ----------------------------------------------------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</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.
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 and nine month periods ended September 30, 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 40.7 million and 40.3 million for the three months ended
September 30, 1998 and 1997, respectively and 40.7 million and 39.8
million for the nine months ended September 30, 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 nine
period ended September 30, 1997. For the three and nine month periods
ended September 30, 1998 and the three-month period ended September 30,
1997, the weighted average number of dilutive stock options were 1.3
million, 1.5 million and 1.0 million, respectively, 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) Nine months ended September 30,
1998 1997
Cash paid during the period for:
Interest $6,821 $7,335
Income taxes 2 1
Item 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Three and Nine Month Periods Ended September 30, 1998 Compared with the
Three and Nine Month Periods Ended September 30, 1997
Revenue was $53.2 million and $162.0 million for the three and nine month
periods ended September 30, 1998 versus $54.2 million and $161.3 million
for the comparable prior year periods. The decrease of $1.1 million and the
increase of $0.7 million in the three and nine month periods ended
September 30, 1998 were the result of a 2.4% and 4.0% increase in
reimbursement levels offset by a 4.3% and 3.4% 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. The decrease in volume was the effect of
Medicare requirements for new test panels which led to changes in ordering
patterns among physicians, the elimination of some under-performing
accounts and the exit from small geographical areas where the Company
couldn't achieve significant economies of scale.
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
were $8.2 million and $25.4 million for the three and nine month periods
ended September 30, 1998, an increase of over 28% and 51%, respectively,
compared to $6.4 million and $16.9 million for the comparable prior year
periods.
Salaries, wages and benefits decreased to $16.3 million and $49.6 million
for the three and nine month periods ended September 30, 1998 from $17.2
million and $52.3 million for the comparable prior year periods. As a
percentage of revenue, salaries, wages and benefits decreased to 30.6% for
both the three and nine month periods ended September 30, 1998 from 31.7%
and 32.5% for the comparable prior year periods. Such decreases primarily
reflect a reduction in headcount and tight control over the growth in wage
increases.
<PAGE>
Supplies expense remained consistent at approximately 14.0% of revenues for
the three and nine month periods ended September 30, 1998 and 1997.
However, supplies expense per specimen processed has increased slightly in
1998 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 and nine month periods ended September 30, 1998 from the comparable
prior year periods.
Other operating expenses decreased to $13.1 million and $39.4 million for
the three and nine month periods ended September 30, 1998 from $14.6
million and $43.2 million from the comparable prior year periods. As a
percentage of revenue, other operating expenses decreased to 24.6% and
24.3% for the three and nine month periods ended September 30, 1998 from
27.0% and 26.8% in the comparable prior year periods. Such decreases were
primarily due to reductions in lab subcontracting expenses (see explanation
in preceding paragraph) and reductions in outside courier, automobile,
telecommunication and insurance expenses, as the Company evaluated all
expense line items throughout 1997 and 1998 and streamlined and
rationalized expenses as necessary to achieve cost efficiencies.
Amortization and depreciation expense decreased to $1.9 million and $5.8
million for the three and nine month periods ended September 30, 1998 from
$2.2 million and $6.7 million from the comparable prior year periods
primarily due to certain non-compete agreements and laboratory computer
equipment becoming fully amortized or depreciated in late 1997 and early
1998.
Selling, general and administrative expenses decreased to $8.1 million and
$25.0 million for the three and nine month periods ended September 30, 1998
from $8.5 million and $26.2 million from the comparable prior year periods.
As a percentage of revenue, selling, general and administrative expenses
decreased to 15.3 % and 15.4% for the three and nine month periods ended
September 30, 1998 from 15.7% and 16.2% for the comparable prior year
periods. Such decreases continued 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 $3.3 million and $10.1
million for the three and nine month periods ended September 30, 1998 from
$3.5 million and $10.6 million for the comparable prior year periods
primarily due to the repayment of capital lease obligations.
Liquidity and Capital Resources
Net cash provided by operating activities was $12.6 million for the nine
months ended September 30, 1998 and reflects an improvement of $9.7 million
over the comparable prior year period when net cash provided by operating
activities was $2.9 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 $1.4 million for the nine months
ended September 30, 1998, resulting primarily from scheduled principal
repayments under capital lease obligations.
Net cash used by investing activities was $3.0 million for the nine months
ended September 30, 1998, resulting from approximately $2.3 million of
capital expenditures and $0.6 million of payments made on acquisitions
completed in 1996 and 1995.
The Company had $19.9 million of cash and cash equivalents on hand at
September 30, 1998. Management believes that the amount of cash and cash
equivalents available at September 30, 1998 plus $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 November 2, 1998, announcing
third quarter earnings results.
(B) Reports on Form 8-K
Current Report on Form 8-K, dated September 17, 1998 with
respect to Items 5 and 7.
Current Report on Form 8-K, dated October 29, 1998 with respect
to Items 5 and 7.
<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: November 3, 1998 Brian D. Urban
Executive Vice President,
Chief Financial Officer and Treasurer
Exhibit 99.1
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
November 2, 1998
UNILAB CORPORATION ANNOUNCES THIRD QUARTER RESULTS
TARZANA, CA, November 2, 1998 -- UNILAB Corporation (AMEX: ULB) announced today
that net sales for the quarter ended September 30, 1998 were $53.2 million
versus $54.2 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
net income of $0.7 million, or $0.02 per common share in the same period last
year.
Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA") were
$8.2 million for the quarter, or 15.5% of sales, compared to $6.4 million, or
11.9% of sales, for the same period last year.
For the first nine months, sales were $162.0 million compared to $161.3 million
during the same period last year. Net income was $9.6 million, or $0.22 per
common share, compared to a net loss of ($0.4) million, or ($0.01) per common
share in the prior year. EBITDA was $25.4 million, or 15.7% of sales, compared
to $16.9 million, or 10.5% of sales in the same period last year.
"Our third quarter results evidence management's continued success in addressing
the Company's critical issues and objectives," said David Weavil, Unilab's
Chairman and CEO. "Additionally, I am pleased with our year-to-date operating
results which show a better than 50% EBITDA improvement and net income growth
from a slight loss last year to a $9.6 million profit. It is satisfying to see
the commitment and focus to our detailed operating plan translate into
meaningful financial results."
The Company's volume for the 3rd quarter was 4% below the same quarter last
year, and pricing increased by 2.5%. Year to date, pricing has increased 4%
compared to the same period in 1997. "We're encouraged by the pricing trends of
the last year, even in light of this year's HCFA chemistry profile changes,
which have now been incorporated into our test ordering and claims filing
processes," stated Mr. Weavil. "With increased confidence in our strengthened
operations, leaner expense base, and commitment to managing a more reasonable
pricing environment, we see exciting opportunities--including volume
growth--available to the Company. While we plan to use organic and transactional
growth as a means to leverage our infrastructure and earnings, we don't plan to
pursue growth at the expense of profit margins."
Mr. Weavil added, "Unilab is excited about our recently announced purchase of
substantially all of the assets of Meris Laboratories, Inc., and we expect the
transaction to close within a week. We are enthusiastic about this opportunity
to enhance shareholder value, as well as expand our presence in the California
marketplace to better serve our clients throughout the state."
The statements in this press release that are not historical facts 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
(amounts in thousands, except per share data)
<CAPTION>
Three months ended Sept. 30, Nine months ended Sept. 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenue $53,160 $54,238 $162,046 $161,298
Direct Laboratory and Field Expenses:
Salaries, Wages and Benefits 16,255 17,174 49,645 52,346
Supplies 7,480 7,488 22,585 22,655
Other Operating Expenses 13,075 14,649 39,404 43,224
------ ------ ------ ------
36,810 39,311 111,634 118,225
------ ------ ------- -------
Amortization and Depreciation 1,848 2,210 5,774 6,675
Selling, General and Administrative Expenses 8,132 8,491 24,990 26,185
----- ----- ------ ------
Total Operating Expenses 46,790 50,012 142,398 151,085
Operating Income 6,370 4,226 19,648 10,213
Other Income (Expenses)
Interest Expense, net (3,308) (3,535) (10,068) (10,603)
------- ------- -------- --------
Income (Loss) Before Income Taxes 3,062 691 9,580 (390)
Net Income (Loss) 3,062 691 9,580 (390)
Preferred Stock Dividends 33 36 99 108
-- -- -- ---
Net Income (Loss) Available to Common
Stockholders $3,029 $655 $9,481 ($498)
------ ---- ------ ------
Basic and Diluted Earnings per Share:
Net Income (Loss) $0.07 $0.02 $0.22 ($0.01)
EBITDA $8,218 $6,436 $25,422 $16,888
</TABLE>
<PAGE>
<TABLE>
Unilab Corporation
Balance Sheet
(amounts in thousands)
<CAPTION>
September 30 December 31,
1998 1997
<S> <C> <C>
Cash and Cash Equivalents $19,901 $11,652
Accounts Receivable, net 40,395 36,583
Other Current Assets 4,357 4,106
----- -----
Total Current Assets 64,653 52,341
Fixed Assets, net 11,510 13,160
Goodwill and Other Intangible Assets 45,034 46,430
Other Assets 6,446 6,769
----- -----
Total Assets $127,643 $118,700
-------- --------
Total Current Liabilities 24,695 23,791
Long-Term Debt, net of current portion 123,450 124,285
Other Liabilities 2,043 2,907
Total Shareholders' Deficit (22,545) (32,283)
-------- --------
Total Liabilities and Shareholders' Deficit $127,643 $118,700
-------- --------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000899714
<NAME> UNILAB CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 19,901
<SECURITIES> 0
<RECEIVABLES> 49,685
<ALLOWANCES> (9,290)
<INVENTORY> 2,776
<CURRENT-ASSETS> 64,653
<PP&E> 41,768
<DEPRECIATION> (30,258)
<TOTAL-ASSETS> 127,643
<CURRENT-LIABILITIES> 24,695
<BONDS> 119,322
0
4
<COMMON> 407
<OTHER-SE> (22,956)
<TOTAL-LIABILITY-AND-EQUITY> 127,643
<SALES> 162,046
<TOTAL-REVENUES> 162,046
<CGS> 0
<TOTAL-COSTS> 99,937
<OTHER-EXPENSES> 30,764
<LOSS-PROVISION> 11,697
<INTEREST-EXPENSE> 10,068
<INCOME-PRETAX> 9,580
<INCOME-TAX> 0
<INCOME-CONTINUING> 9,580
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,580
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
</TABLE>
