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 June 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 July 24, 1998, 40,674,018 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 June 30, 1998
INDEX
Page
Part I - FINANCIAL INFORMATION:
Item 1. Financial Statements
Balance Sheets - June 30, 1998 3
and December 31, 1997.
Statements of Operations -
Three and six month periods ended
June 30, 1998 and June 30, 1997. 4
Statements of Cash Flows -
Six month periods ended June 30, 1998
and June 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 4. Submission of Matters to a Vote of
Security Holders 9
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
<PAGE>
<TABLE>
UNILAB CORPORATION
BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
(amounts in thousands, except per share data)
<CAPTION>
June 30, December 31,
1998 1997
Assets (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $12,696 $11,652
Accounts receivable, net 39,545 36,583
Inventory of supplies 2,773 2,811
Prepaid expenses and other current assets 1,828 1,295
- ----------------------------------------------------------------------------------------------------------
Total current assets 56,842 52,341
Property and Equipment, net 11,652 13,160
Goodwill, net 43,066 43,699
Other Intangible Assets, net 2,433 2,731
Other Assets 6,602 6,769
- ----------------------------------------------------------------------------------------------------------
$120,595 $118,700
- ----------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current Liabilities:
Current portion of long-term debt $1,515 $1,811
Accounts payable and accrued liabilities 12,868 15,678
Accrued payroll and benefits 5,764 6,302
- ----------------------------------------------------------------------------------------------------------
Total current liabilities 20,147 23,791
- ----------------------------------------------------------------------------------------------------------
Long-Term Debt, net of current portion 123,714 124,285
Other Liabilities 2,377 2,907
Commitments and Contingencies
Shareholders' Equity (Deficit):
Convertible preferred stock, $.01 par value
Issued and Outstanding - 364 at June 30
and December 31 4 4
Common stock, $.01 par value
Issued and Outstanding - 40,645 at June 30
and 40,578 at December 31 406 406
Additional paid-in capital 228,240 228,052
Accumulated deficit (254,293) (260,745)
- -----------------------------------------------------------------------------------------------------------
Total shareholders' deficit (25,643) (32,283)
- -----------------------------------------------------------------------------------------------------------
$120,595 $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 SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997
(amounts in thousands, except per share data)
(Unaudited)
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenue $54,356 $54,027 $108,886 $107,060
- ----------------------------------------------------------------------------------------------------------------
Direct Laboratory and Field Expenses:
Salaries, wages and benefits 16,567 17,352 33,390 35,172
Supplies 7,492 7,616 15,105 15,167
Other operating expenses 13,200 14,593 26,329 28,575
--------------------------------------------------------
37,259 39,561 74,824 78,914
Amortization and depreciation 1,941 2,312 3,926 4,465
Selling, general and administrative expenses 8,324 8,539 16,858 17,694
- ----------------------------------------------------------------------------------------------------------------
Total Operating Expenses 47,524 50,412 95,608 101,073
- ----------------------------------------------------------------------------------------------------------------
Operating Income 6,832 3,615 13,278 5,987
Third party interest, net (3,386) (3,561) (6,760) (7,068)
- -----------------------------------------------------------------------------------------------------------------
Income (Loss) Before Income Taxes 3,446 54 6,518 (1,081)
Tax Provision - - - -
- ----------------------------------------------------------------------------------------------------------------
Net Income (Loss) $3,446 $54 $6,518 ($1,081)
- -----------------------------------------------------------------------------------------------------------------
Preferred Stock Dividends $33 $36 $66 $72
Net Income (Loss) Available to Common
Shareholders $3,413 $18 $6,452 ($1,153)
Basic and Diluted Earnings Per Share:
Net Income (Loss) $0.08 $0.00 $0.15 ($0.03)
- -----------------------------------------------------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
UNILAB CORPORATION
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(amounts in thousands)
(Unaudited)
<CAPTION>
Six months ended June 30,
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $6,518 ($1,081)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Amortization and depreciation 3,926 4,465
Provision for doubtful accounts 7,835 7,811
Net changes in assets and liabilities affecting operations:
Increase in Accounts receivable (10,797) (10,844)
(Increase) decrease in Inventory of supplies 38 (84)
(Increase) decrease in Prepaid expenses and other current assets (533) 277
Increase in Other assets (146) (682)
Decrease in Accounts payable and accrued liabilities (3,235) (1,613)
Decrease in Accrued payroll and benefits (178) (88)
Other 181 (31)
- ---------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 3,609 (1,870)
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of third party debt (867) (879)
Proceeds from the sale of stock - 581
Proceeds from exercise of options 7 -
Other (66) -
- ----------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (926) (298)
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,174) (1,318)
Payments for acquisitions (465) (1,128)
- ----------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (1,639) (2,446)
- ----------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,044 (4,614)
CASH AND CASH EQUIVALENTS - Beginning of Period 11,652 13,080
- ----------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - End of Period $12,696 $8,466
- ----------------------------------------------------------------------------------------------------------------
<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 six month periods ended June 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 40.6 million and 40.2 million for the three months ended June
30, 1998 and 1997, respectively and 40.6 million and 39.5 million for the
six months ended June 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 three and
six month periods ended June 30, 1997. For the three and six month
periods ended June 30, 1998, the weighted average number of dilutive
stock options were 1.7 million and 1.6 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) Six months ended June 30,
1998 1997
Cash paid during the period for:
Interest $6,791 $7,067
Income taxes 2 1
Item 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Three and Six Month Periods Ended June 30, 1998 Compared with the
Three and Six Month Periods Ended June 30, 1997
Revenue increased to $54.4 million and $108.9 million for the three and six
month periods ended June 30, 1998 from $54.0 million and $107.1 million for
the comparable prior year periods. The increases of $0.4 million and $1.8
million in the three and six month periods ended June 30, 1998 were the
result of a 4.9% and 4.8% increase in reimbursement levels offset by a 4.1%
and 3.0% 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 $8.8 million and $17.2 million for the three and six month periods
ended June 30, 1998, an increase of over 48% and 64%, respectively,
compared to $5.9 million and $10.5 million for the comparable prior year
periods.
Salaries, wages and benefits decreased to $16.6 million and $33.4 million
for the three and six month periods ended June 30, 1998 from $17.4 million
and $35.2 million for the comparable prior year periods. As a percentage of
revenue, salaries, wages and benefits decreased to 30.5% and 30.7% for the
three and six month periods ended June 30, 1998 from 32.1% and 32.9% 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 six month periods ended June 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 six
month periods ended June 30, 1998 from the comparable prior year periods.
Other operating expenses decreased to $13.2 million and $26.3 million for
the three and six month periods ended June 30, 1998 from $14.6 million and
$28.6 million from the comparable prior year periods. As a percentage of
revenue, other operating expenses decreased to 24.3% and 24.2% for the
three and six month periods ended June 30, 1998 from 27.0% and 26.7% 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, travel and
entertainment, 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 $3.9
million for the three and six month periods ended June 30, 1998 from $2.3
million and $4.5 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 $8.3 million and
$16.9 million for the three and six month periods ended June 30, 1998 from
$8.5 million and $17.7 million from the comparable prior year periods. As a
percentage of revenue, selling, general and administrative expenses
decreased to 15.3 % and 15.5% for the three and six month periods ended
June 30, 1998 from 15.8% and 16.5% 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 $3.4 million and $6.8
million for the three and six month periods ended June 30, 1998 from $3.6
million and $7.1 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 $3.6 million for the six
months ended June 30, 1998 and reflects an improvement of $5.5 million over
the comparable prior year period when net cash used by operating activities
was $1.9 million. The improvement in 1998 was primarily due to an
improvement in the Company's operating performance. Net cash used by
financing activities was $0.9 million for the six months ended June 30,
1998, resulting primarily from scheduled principal repayments under capital
lease obligations.
<PAGE>
Net cash used by investing activities was $1.6 million for the six months
ended June 30, 1998, resulting from approximately $1.2 million of capital
expenditures and $0.4 million of payments made on acquisitions completed in
1996 and 1995.
The Company had $12.7 million of cash and cash equivalents on hand at June
30, 1998. Management believes that the amount of cash and cash equivalents
available at June 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 4. Submission of Matters to a Vote of Security Holders
At the Company's 1997 Annual Meeting of Stockholders held on May
19, 1998, stockholders voted upon (i) election of directors and
(ii) ratification and approval of Arthur Andersen LLP as the
Company's independent auditors for the fiscal year ending
December 31, 1998. Shares were voted on each such matter as
follows:
Election of Directors
Name For Withheld
Haywood D. Cochrane, Jr. 33,717,412 157,099
Kirby L. Cramer 33,733,212 141,299
William Gedale 33,727,712 146,799
Richard A. Michaelson 33,730,232 144,279
Gabriel B. Thomas 33,721,742 152,769
David C. Weavil 33,738,042 136,469
Ratification and Approval of Arthur Andersen LLP
For: 33,745,654 Against: 31,260 Abstain: 97,597
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
Exhibit 99.1 - Press Release, dated August 3,1998, announcing
second 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: /s/ Brian D. Urban
Date: July 31, 1998 Brian D. Urban
Executive Vice President,
Chief Financial Officer and Treasurer
PRESS RELEASE UNILAB CORPORATION
(AMEX:ULB)
18448 Oxnard Street
Tarzana, CA 91356
www.Unilab.com
For Further Information:
Charles Kim
Phone: (818) 758-6607
email: [email protected]
IMMEDIATE RELEASE
August 3, 1998
UNILAB CORPORATION ANNOUNCES SECOND QUARTER RESULTS
TARZANA, CA, August 3, 1998 -- UNILAB Corporation (AMEX: ULB) announced today
that net sales for the quarter ended June 30, 1998 were $54.4 million versus
$54.0 million in the same period last year. The Company reported net income for
the quarter of $3.4 million, or $0.08 per common share, compared to net income
of $50 thousand, or $0.00 per common share in the same period last year.
Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA") were
$8.8 million for the quarter, or 16.1% of sales, compared to $5.9 million, or
11.0% of sales, for the same period last year.
For the first six months, sales were $108.9 million, an increase of 1.7% from
$107.1 million in the first half of 1997. Net income was $6.5 million, or $0.15
per common share, compared to a net loss of ($1.1) million, or ($0.03) per
common share in the prior year. EBITDA was $17.2 million for the first half of
1998, an increase of 64.6% from the $10.5 million earned in the same period in
the prior year.
"Our second quarter results represent the sixth consecutive quarter of earnings
and EBITDA improvement for Unilab" said David Weavil, Unilab's Chairman and CEO.
"I am pleased with our management team's continued focus on improving the
Company's financial performance."
Compared to the same quarter last year, the Company experienced a volume decline
of approximately 4% and increased pricing by approximately 5%. Weavil added,
"During the first half of this year, I am proud of the way Unilab's management
team has successfully implemented a major Company-wide initiative to integrate
new HCFA mandates into our test ordering and claims filing processes.
Implementing these changes however, has consumed much of our field sales and
service personnel resources and has had a contributory impact on volume." Weavil
continued by stating, "We have once again been successful in reducing total
expenses for the quarter in both absolute dollars and on a percent of sales
basis compared to the same quarter last year, thus allowing us to continue
profit margin improvement. We believe we have achieved these savings while
maintaining or improving service to existing customers. While Unilab's
management team will continue its efforts to improve operating efficiencies and
processes, we are placing increased emphasis on seeking out profitable growth
for the Company."
Unilab's receivables collections remained strong this quarter as has been the
Company's experience over the past year. The number of days sales outstanding
("DSO")--a measure of billing and collection efficiency--was 66 days.
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 June 30, Six months ended June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenue $54,356 $54,027 $108,886 $107,060
Direct Laboratory and Field Expenses:
Salaries, Wages and Benefits 16,567 17,352 33,390 35,172
Supplies 7,492 7,616 15,105 15,167
Other Operating Expenses 13,200 14,593 26,329 28,575
------ ------ ------ ------
37,259 39,561 74,824 78,914
------ ------ ------ ------
Amortization and Depreciation 1,941 2,312 3,926 4,465
Selling, General and Administrative Expenses 8,324 8,539 16,858 17,694
----- ----- ------ ------
Total Operating Expenses 47,524 50,412 95,608 101,073
Operating Income 6,832 3,615 13,278 5,987
Other Income (Expenses)
Interest Expense, net (3,386) (3,561) (6,760) (7,068)
------- ------- ------- -------
Income (Loss) Before Income Taxes 3,446 54 6,518 (1,081)
Net Income (Loss) 3,446 54 6,518 (1,081)
Preferred Stock Dividends 33 36 66 72
-- -- -- --
Net Income (Loss) Available to Common
Stockholders $3,413 $18 $6,452 ($1,153)
------ --- ------ --------
Basic and Diluted Earnings per Share:
Net Income (Loss) $0.08 $0.00 $0.15 ($0.03)
EBITDA $8,773 $5,927 $17,204 $10,452
</TABLE>
<PAGE>
<TABLE>
Unilab Corporation
Balance Sheet
(amounts in thousands)
<CAPTION>
June 30 December 31,
1998 1997
<S> <C> <C>
Cash and Cash Equivalents $12,696 $11,652
Accounts Receivable, net 39,545 36,583
Other Current Assets 4,601 4,106
----- -----
Total Current Assets 56,842 52,341
Fixed Assets, net 11,652 13,160
Goodwill and Other Intangible Assets 45,499 46,430
Other Assets 6,602 6,769
----- -----
Total Assets $120,595 $118,700
-------- --------
Total Current Liabilities 20,147 23,791
Long-Term Debt, net of current portion 123,714 124,285
Other Liabilities 2,377 2,907
Total Shareholders' Deficit (25,643) (32,283)
-------- --------
Total Liabilities and Shareholders' Deficit $120,595 $118,700
-------- --------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000899714
<NAME> UNILAB CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 12,696
<SECURITIES> 0
<RECEIVABLES> 48,360
<ALLOWANCES> (8,815)
<INVENTORY> 2,773
<CURRENT-ASSETS> 56,842
<PP&E> 41,707
<DEPRECIATION> (30,056)
<TOTAL-ASSETS> 120,595
<CURRENT-LIABILITIES> 20,147
<BONDS> 119,299
0
4
<COMMON> 406
<OTHER-SE> (26,053)
<TOTAL-LIABILITY-AND-EQUITY> 120,595
<SALES> 108,886
<TOTAL-REVENUES> 108,886
<CGS> 0
<TOTAL-COSTS> 66,989
<OTHER-EXPENSES> 20,784
<LOSS-PROVISION> 7,835
<INTEREST-EXPENSE> 6,760
<INCOME-PRETAX> 6,518
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,518
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,518
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
</TABLE>
