SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
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, 1999
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 23, 1999, 40,819,653 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, 1999
INDEX
Page
Part I - FINANCIAL INFORMATION:
Item 1. Financial Statements
Balance Sheets - March 31, 1999 3
and December 31, 1998.
Statements of Operations -
Three-month periods ended March 31, 1999
and March 31, 1998. 4
Statements of Cash Flows -
Three-month periods ended March 31, 1999
and March 31, 1998. 5
Notes to Financial Statements. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8
Part II - OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
<PAGE>
<TABLE>
UNILAB CORPORATION
BALANCE SHEETS
MARCH 31, 1999 AND DECEMBER 31, 1998
(amounts in thousands, except per share data)
<CAPTION>
March 31, December 31,
1999 1998
Assets (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $27,470 $20,137
Accounts receivable, net 43,471 41,326
Inventory of supplies 3,232 3,055
Prepaid expenses and other current assets 1,575 1,045
- -------------------------------------------------------------------------------------------
Total current assets 75,748 65,563
Property and Equipment, net 11,274 11,277
Goodwill, net 56,447 56,949
Other Intangible Assets, net 2,221 2,370
Other Assets 5,565 6,301
- -------------------------------------------------------------------------------------------
$151,255 $142,460
- -------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
- -------------------------------------------------------------------------------------------
Current Liabilities:
Current portion of long-term debt $1,176 $1,206
Accounts payable and accrued liabilities 16,466 14,533
Accrued payroll and benefits 7,762 6,892
- -------------------------------------------------------------------------------------------
Total current liabilities 25,404 22,631
- -------------------------------------------------------------------------------------------
Long-Term Debt, net of current portion 136,882 137,170
Other Liabilities 4,163 4,026
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 - 40,728 at March 31
and 40,708 at December 31 407 407
Additional paid-in capital 228,435 228,395
Accumulated deficit (244,040) (250,173)
- -------------------------------------------------------------------------------------------
Total shareholders' deficit (15,194) (21,367)
- -------------------------------------------------------------------------------------------
$151,255 $142,460
- -------------------------------------------------------------------------------------------
<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, 1999 AND 1998
(amounts in thousands, except per share data)
(Unaudited)
<CAPTION>
Three Months Ended March 31,
1999 1998
<S> <C> <C>
Revenue $63,559 $54,530
- -----------------------------------------------------------------------------
Direct Laboratory and Field Expenses:
Salaries, wages and benefits 18,455 16,823
Supplies 8,827 7,613
Other operating expenses 15,416 13,129
- -----------------------------------------------------------------------------
42,698 37,565
Amortization and depreciation 1,897 1,985
Selling, general and administrative expenses 9,312 8,534
- -----------------------------------------------------------------------------
Total Operating Expenses 53,907 48,084
- -----------------------------------------------------------------------------
Operating Income 9,652 6,446
Third party interest, net (3,486) (3,374)
- -----------------------------------------------------------------------------
Income Before Income Taxes 6,166 3,072
Tax Provision - -
- -----------------------------------------------------------------------------
Net Income $6,166 $3,072
- -----------------------------------------------------------------------------
Preferred Stock Dividends $33 $33
Net Income Available to Common Shareholders $6,133 $3,039
Earnings Per Share:
Basic $0.15 $0.07
Diluted $0.14 $0.07
- -----------------------------------------------------------------------------
<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, 1999 AND 1998
(amounts in thousands)
(Unaudited)
<CAPTION>
Three months ended March 31,
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $6,166 $3,072
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization and depreciation 1,897 1,985
Provision for doubtful accounts 4,572 3,907
Net changes in assets and liabilities affecting operations:
Increase in Accounts receivable (6,717) (5,391)
(Increase) decrease in Inventory of supplies (177) 52
Increase in Prepaid expenses and other current assets (530) (169)
Decrease in Other assets 579 5
Increase in Accounts payable and accrued liabilities 1,850 1,863
Increase in Accrued payroll and benefits 1,092 1,249
Other 38 83
- ---------------------------------------------------------------------------------------------
Net cash provided by operating activities 8,770 6,656
- ---------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of third party debt (318) (429)
Other (33) (33)
- ---------------------------------------------------------------------------------------------
Net cash used by financing activities (351) (462)
- ---------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,086) (631)
Payments for acquisitions, net of cash acquired - (309)
- ---------------------------------------------------------------------------------------------
Net cash used by investing activities (1,086) (940)
- ---------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 7,333 5,254
CASH AND CASH EQUIVALENTS - Beginning of Period 20,137 11,652
- ---------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - End of Period $27,470 $16,906
- ---------------------------------------------------------------------------------------------
<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, 1998.
2. Net Income Per Share
Basic earnings per common share has been computed by dividing the net
income 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 40.6 million for the three months ended March 31, 1999
and 1998, 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 plus a reduction of interest expense assuming
conversion of the convertible debt. 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. For the three months ended March 31, 1999, the weighted
average number of dilutive stock options were 1.7 million and the
incremental shares from the assumed conversion of the $14.0 million
subordinated convertible note were 4.7 million, which reduced the
earnings per share calculation by $0.01. The assumed conversion of the
convertible preferred stock is excluded from the calculation since its
effect would be immaterial.
3. Acquisition
On September 16, 1998, the Company and Meris Laboratories, Inc. ("Meris")
signed an asset purchase agreement whereby Unilab acquired substantially
all of the assets of Meris. The agreement was approved on October 28,
1998 by the United States Bankruptcy Court in Los Angeles, California and
Unilab took possession of the acquired net assets on November 5, 1998.
The purchase price consisted of the issuance of a $14.0 million
convertible subordinated note, $2.5 million in cash payable in
seventy-two equal monthly installments and the assumption of net assets
of $3.5 million, consisting primarily of accounts receivable. The
acquisition was accounted for under the purchase method of accounting and
the statements of operations include the results of Meris since November
5, 1998.
The purchase price was allocated to the assets acquired based on their
fair value at the date of acquisition and the difference between the cost
of acquiring Meris and the fair value of the net assets acquired of
approximately $14.9 million was treated as goodwill for accounting
purposes. In connection with the integration of the acquired Meris
operations with those of Unilab, the Company recorded liabilities of $1.4
million, primarily related to severance (for the reduction in headcount
of approximately 230 employees) and other employee related liabilities.
At March 31, 1999, approximately $0.3 million of liabilities, expected to
be paid in the next three months of 1999, were outstanding.
On April 5, 1999, the Company and Physicians Clinical Laboratory, Inc.
(doing business as Bio-Cypher Laboratories) ("BCL") signed an asset
purchase agreement whereby Unilab will acquire substantially all of the
assets of BCL. The purchase price consists of a $25.0 million convertible
note, the issuance of 1.0 million shares of Unilab common stock and
approximately $8.0 million of cash. In addition, Unilab will acquire
$12.0 million of assets, the majority of which are trade accounts
receivable, and assume liabilities of approximately $4.0 million.
Completion of the transaction is conditioned upon the receipt of
Hart-Scott-Rodino approval and other customary closing conditions.
The acquisition will be accounted for under the purchase method of
accounting and the statements of operations will include the results of
BCL from the completion of the transaction (expected to be around May 15,
1999). The purchase price will be allocated to the assets acquired based
on their fair value at the date of acquisition and the difference between
the cost of acquiring BCL and the fair value of the net assets acquired,
estimated to approximate $30-$32 million, will be treated as goodwill for
accounting purposes.
4. Supplemental Disclosure of Cash Flow Information
(amounts in thousands) Three months ended March 31,
1999 1998
Cash paid during the period for:
Interest, net ($59) $123
Income taxes - 2
Item 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Quarter Ended March 31, 1999 Compared with
Quarter Ended March 31, 1998
Revenue increased to $63.6 million for the three months ended March 31,
1999 ("first quarter 1999") from $54.5 million for the three months ended
March 31, 1998 ("first quarter 1998"), representing an increase of $9.0
million or 16.6%. Approximately $6.1 million of the increase was
attributable to revenue generated from the acquisition of Meris, which was
effective as of November 5, 1998. Exclusive of the acquired Meris business,
revenue increased $2.9 million, primarily the result of increases in
reimbursement levels of $1.5 million and additional specimen volume
generating $1.4 million.
The Company experienced a 2.7% increase, exclusive of the acquired Meris
business, in the average reimbursement received for each specimen processed
during the first quarter 1999 versus the comparable prior year period. The
increase in reimbursement levels is primarily due to increases in rates
charged to managed care clients, replacement of the Company's most
unprofitable accounts with other reasonably priced business and changes in
test mix to more sophisticated testing procedures for HIV and sexually
transmitted diseases. Exclusive of the acquired Meris business, the Company
experienced a 2.6% increase in the number of specimens processed during the
first quarter 1999 versus the first quarter 1998. The increase was due to
core volume growth.
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
were $11.5 million for the first quarter 1999, an increase of 37% compared
to the $8.4 million EBITDA for the first quarter 1998.
Salaries, wages and benefits increased to $18.5 million for the first
quarter 1999 from $16.8 million for the first quarter 1998. As a percentage
of revenue, salaries, wages and benefits decreased to 29.0% in the first
quarter 1999 from 30.9% in the first quarter 1998. The decrease primarily
reflects the economies of scale associated with processing a significantly
higher specimen volume (11.8% volume increase including the effect of the
Meris acquisition) without the same corresponding increase in headcount.
Supplies expense increased to $8.8 million for the first quarter 1999 from
$7.6 million for the first quarter 1998. As a percentage of revenue,
supplies expense were consistent at approximately 14.0%. In addition, other
operating expenses increased to $15.4 million for the first quarter 1999
from $13.1 million for the first quarter 1998. As a percentage of revenue,
other operating expenses were consistent at approximately 24.2%.
Amortization and depreciation expense decreased to $1.9 million for the
first quarter 1999 from $2.0 million from the first quarter 1998 primarily
due to the expiration of certain non-compete agreements and laboratory
computer equipment becoming fully depreciated in early 1998.
Selling, general and administrative expenses increased to $9.3 million for
the first quarter 1999 from $8.5 million for the first quarter 1998. As a
percentage of revenue, selling, general and administrative expenses
decreased to 14.7% in the first quarter 1999 from 15.7% in the first
quarter 1998. Such decrease continues the trend realized by the Company
throughout 1998 and 1997 and also reflects the economies of scale and
efficiencies gained from the Meris acquisition.
Third party interest expense, net increased to $3.5 million for the first
quarter 1999 from $3.4 million for the first quarter 1998 primarily due to
the additional interest expense incurred on the $14.0 million convertible
subordinated note issued in connection with the Meris acquisition.
Year 2000 Update
As stated in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998, the Company expected to have modifications to all major
systems completed by the end of the first quarter 1999. All modifications
to laboratory and accounting systems in order for such systems to recognize
and perform date calculations in the year 2000 have been completed.
Modifications to billing systems are primarily complete, with some minor
adjustments, expected to be completed by the middle of June, needed to make
such billing systems fully compliant.
Liquidity and Capital Resources
Net cash provided by operating activities was $8.8 million for the first
quarter 1999 and reflects an improvement of $2.1 million over the first
quarter 1998 when net cash provided by operating activities was $6.7
million. The improvement in 1999 was primarily due to an improvement in the
Company's operating performance.
Net cash used by financing activities was $0.4 million for the first
quarter 1999, resulting primarily from scheduled principal repayments under
capital lease obligations.
Net cash used by investing activities was $1.1 million for the first
quarter 1999, resulting from fixed asset additions.
The Company had $27.5 million of cash and cash equivalents at March 31,
1999. On April 1, 1999, $6.6 million for interest on $120.0 million of
senior notes was due, and such amount was paid from the $27.5 million of
cash and cash equivalents on hand. Management believes that the amount of
cash and cash equivalents available at March 31, 1999 and the cash flow
expected from operations will be sufficient for the Company to meet
anticipated requirements for working capital, interest payments, capital
expenditures and scheduled principal payments under capital lease and debt
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 May 4, 1999, announcing
first quarter earnings results.
(B) Reports on Form 8-K
Amendment to Current Report on form 8-K(A), dated January 18,
1999 with respect to Items 2 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: May 5, 1999 Brian D. Urban
Executive Vice President,
Chief Financial Officer and Treasurer
<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-31-1999
<CASH> 27,470
<SECURITIES> 0
<RECEIVABLES> 54,514
<ALLOWANCES> (11,043)
<INVENTORY> 3,232
<CURRENT-ASSETS> 75,748
<PP&E> 43,329
<DEPRECIATION> (32,054)
<TOTAL-ASSETS> 151,255
<CURRENT-LIABILITIES> 25,404
<BONDS> 119,367
0
4
<COMMON> 407
<OTHER-SE> (14,783)
<TOTAL-LIABILITY-AND-EQUITY> 151,255
<SALES> 63,559
<TOTAL-REVENUES> 63,559
<CGS> 0
<TOTAL-COSTS> 38,126
<OTHER-EXPENSES> 11,209
<LOSS-PROVISION> 4,572
<INTEREST-EXPENSE> 3,486
<INCOME-PRETAX> 6,166
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,166
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,166
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.14
</TABLE>
Exhibit 99.1
PRESS RELEASE UNILAB CORPORATION
(AMEX:ULB)
18448 Oxnard Street
Tarzana, CA 91356
www.Unilab.com
For Further Information:
Melissa Mahoney
Phone: (818) 758-6607
e-mail: [email protected]
IMMEDIATE RELEASE
May 4th, 1999
UNILAB CORPORATION ANNOUNCES FIRST QUARTER RESULTS
TARZANA, CA, May 4, 1999 -- UNILAB Corporation (AMEX: ULB) reported today that
net income for the quarter ended March 31, 1999 was $6.2 million, or $0.14 per
common share, compared to net income of $3.1 million, or $0.07 per common share
in the same period last year, and $0.25 per common share earned during full year
1998. The Company reported net sales of $63.6 million for the quarter, an
increase of 16.6% from $54.5 million in the same period last year.
Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA") were
$11.5 million for the quarter, or 18.2% of sales, compared to $8.4 million, or
15.5% of sales, for the same period last year.
"Our first quarter results reflect the strength of our underlying base business
plus the integrated benefits of the Meris acquisition made during the fourth
quarter of 1998" said David Weavil, Unilab's Chairman and CEO. "We have
successfully continued with our proven strategies for managing the core
business, while at the same time proceeding with our growth plans."
Test volume increased by almost 12% this quarter compared to the first quarter
of last year, with a significant portion of the increase due to the additional
volumes associated with the Meris acquisition. Overall pricing improved by more
than 4%. Weavil added, "these increases in the fundamental measures of our
business are a direct result of the efforts of a dedicated management team
staying focused on improving operating performance and increasing shareholder
value."
Weavil continued by stating, "We continue to maintain a keen focus on managing
our operating expense base, achieving the consolidation benefits from
acquisitions, seeking profitable organic growth and increasing prices." Staffing
expense decreased by 2% on a percent of sales basis, reflecting volume driven
economies of scale, compared to the same quarter last year.
Unilab's cash position at the end of the first quarter was $27.5 million,
reflecting strong receivables collections that decreased the number of days
sales outstanding ("DSO")--a measure of billing and collection efficiency--to 62
days from 67 days at the end of 1998.
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 1998 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 300 regional service and testing facilities
located throughout the state.
- tables to follow -
<PAGE>
Unilab Corporation
Statements of Operations
(amounts in thousands, except per share data)
(Unaudited)
Three months ended March 31,
1999 1998
---- ----
1998
Revenue $63,559 $54,530
------- -------
Direct Laboratory and Field Expenses:
Salaries, Wages and Benefits 18,455 16,823
Supplies 8,827 7,613
Other Operating Expenses 15,416 13,129
------ ------
42,698 37,565
Amortization and Depreciation 1,897 1,985
Selling, General and Administrative Expenses 9,312 8,534
----- -----
Total Operating Expenses 53,907 48,084
------ ------
Operating Income 9,652 6,446
Third Party Interest, net (3,486) (3,374)
------- -------
Income Before Income Taxes 6,166 3,072
Tax Provision - -
-------- ---------
Net Income $6,166 $3,072
Preferred Stock Dividends 33 33
-- --
Net Income Available to Common Shareholders $6,133 $3,039
Earnings per Share:
Basic $0.15 $0.07
Diluted $0.14 $0.07
EBITDA $11,549 $8,431
<PAGE>
Unilab Corporation
Balance Sheets
(amounts in thousands)
March 31,
1999 December 31,
(Unaudited) 1998
Cash and Cash Equivalents $27,470 $20,137
Accounts Receivable, net 43,471 41,326
Inventory of Supplies 3,232 3,055
Prepaid Expenses and Other Current Assets 1,575 1,045
-------- -----
Total Current Assets 75,748 65,563
Property and Equipment, net 11,274 11,277
Goodwill, net 56,447 56,949
Other Intangible Assets, net 2,221 2,370
Other Assets 5,565 6,301
----- -----
Total Assets $151,255 $142,460
-------- --------
Total Current Liabilities $25,404 $22,631
Long-Term Debt, net of current portion 136,882 137,170
Other Liabilities 4,163 4,026
Total Shareholders' Deficit (15,194) (21,367)
-------- --------
Total Liabilities and Shareholders' Deficit $151,255 $142,460
-------- --------