UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-11353
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LABORATORY CORPORATION OF AMERICA HOLDINGS
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3757370
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
358 SOUTH MAIN STREET, BURLINGTON, NORTH CAROLINA 27215
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(Address of principal executive offices) (Zip code)
(336) 229-1127
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(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 ___
The number of shares outstanding of the issuer's common stock is 34,369,515
shares as of July 31, 2000, of which 14,120,466 shares are held by indirect
wholly owned subsidiaries of Roche Holding Ltd.
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<TABLE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 59.2 $ 40.3
Accounts receivable, net 372.7 348.0
Inventories 30.6 29.1
Prepaid expenses and other 19.8 37.5
Deferred income taxes 46.7 44.6
-------- --------
Total current assets 529.0 499.5
Property, plant and equipment, net 272.4 273.2
Intangible assets, net 813.7 803.9
Other assets, net 18.2 13.6
-------- --------
$1,633.3 $1,590.2
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 51.0 $ 43.6
Accrued expenses and other 135.4 107.0
Current portion of long-term debt 110.0 95.0
-------- --------
Total current liabilities 296.4 245.6
Revolving credit facility -- --
Long-term debt, less current portion 412.5 478.4
Capital lease obligations 7.5 4.4
Other liabilities 127.5 127.6
Commitments and contingent liabilities -- --
Mandatorily redeemable preferred stock
(30,000,000 shares authorized):
Series A 8 1/2% Convertible
Exchangeable Preferred Stock, $0.10
par value, 1,884,476 and 4,363,178
shares issued and outstanding at
June 30, 2000 and December 31, 1999
respectively (aggregate preference
value of $94.2 and 218.2 at June 30,
2000 and December 31, 1999
respectively) 95.2 213.4
Series B 8 1/2% Convertible Pay-in-Kind
Preferred Stock, $0.10 par value,
6,901,238 and 6,971,970 shares issued
and outstanding at June 30, 2000 and
December 31, 1999 respectively
(aggregate preference value of $345.1
and $348.6, respectively) 350.8 345.3
Shareholders' equity:
Common stock, $0.10 par value;
52,000,000 shares authorized;
18,331,457 and 12,878,958 shares
issued and outstanding at June 30,
2000 and December 31, 1999,
respectively 1.8 1.3
Additional paid-in capital 570.8 423.9
Accumulated deficit (221.7) (245.5)
Unearned restricted stock compensation (7.2) (4.1)
Accumulated other comprehensive loss (0.3) (0.1)
-------- --------
Total shareholders' equity 343.4 175.5
-------- --------
$1,633.3 $1,590.2
======== ========
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
</TABLE>
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<TABLE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
----------------- ------------------
2000 1999 2000 1999
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $ 945.1 $ 847.4 $ 482.4 $ 429.5
Cost of sales 560.4 531.7 281.2 265.2
------- ------- ------- -------
Gross profit 384.7 315.7 201.2 164.3
Selling, general and
administrative expenses 240.5 223.5 122.1 114.4
Amortization of intangibles
and other assets 15.5 15.7 7.8 7.8
------- ------- ------- -------
Operating income 128.7 76.5 71.3 42.1
Other income (expenses):
Loss on sale of assets (0.8) (1.2) (0.5) --
Investment income (loss) 0.1 0.4 (0.9) 0.2
Interest expense (19.8) (20.9) (9.3) (10.3)
------- ------- ------- -------
Earnings before income taxes 108.2 54.8 60.6 32.0
Provision for income taxes 49.8 20.8 27.9 12.2
------- ------- ------- -------
Net earnings 58.4 34.0 32.7 19.8
Less preferred stock dividends 34.4 23.5 19.6 12.5
Less accretion of mandatorily
redeemable preferred stock 0.2 0.5 0.1 0.2
------- ------- ------- -------
Net earnings attributable to
common shareholders $ 23.8 $ 10.0 $ 13.0 $ 7.1
======= ======= ======= =======
Basic earnings per common
share $ 1.83 $ 0.79 $ 0.97 $ 0.56
======== ======== ======== ========
Diluted earnings per common
share $ 1.71 $ 0.79 $ 0.94 $ 0.56
======== ======== ======== ========
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 58.4 $ 34.0
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 43.4 42.6
Amortization of deferred compensation 1.0 --
Net losses on sale of assets 0.8 1.2
Deferred income taxes (0.6) (2.9)
Change in assets and liabilities:
Increase in accounts receivable, net (23.9) (1.1)
(Increase)decrease in inventories (0.9) 2.5
Decrease (increase) in prepaid
expenses and other 17.8 (2.8)
Increase (decrease) in accounts payable 7.1 (2.3)
Increase in accrued expenses and other 29.6 6.6
Other, net (2.8) (1.9)
------- -------
Net cash provided by operating activities 129.9 75.9
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (26.1) (36.9)
Proceeds from sale of assets 0.8 0.7
Acquisition of businesses (28.5) --
------- -------
Net cash used for investing activities (53.8) (36.2)
------- -------
(continued)
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</TABLE>
<TABLE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------
2000 1999
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<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facilities -- 30.0
Payments on revolving credit facilities -- (10.0)
Payments on long-term debt (51.0) (48.0)
Payments on long-term lease obligations (0.5) (0.6)
Deferred payments on acquisitions -- (8.7)
Payment of preferred stock dividends (9.5) (9.3)
Net proceeds from issuance of stock to
employees 4.0 1.3
------ ------
Net cash used for financing activities (57.0) (45.3)
------ ------
Effect of exchange rate changes on cash
and cash equivalents (0.2) (0.2)
Net increase (decrease) in cash and
cash equivalents 18.9 (5.8)
Cash and cash equivalents at
beginning of period 40.3 22.7
------ ------
Cash and cash equivalents at
end of period $ 59.2 $ 16.9
====== ======
Supplemental schedule of cash
flow information:
Cash paid during the period for:
Interest $ 22.3 $ 23.4
Income taxes, net of refunds 12.4 18.9
Disclosure of non-cash financing
and investing activities:
Preferred stock dividends 24.9 14.2
Accretion of mandatorily redeemable
preferred stock 0.2 0.5
Unrealized loss on securities available-
for-sale (net of tax) -- (0.4)
Conversion of preferred stock into
common stock 137.8 --
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
<PAGE>
<TABLE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<CAPTION>
Additional
Common Paid-in Accumulated
Stock Capital Deficit
------- ---------- -----------
<S> <C> <C> <C>
PERIOD ENDED JUNE 30, 1999
Balance at beginning of year $ 1.2 $ 415.7 $ (260.5)
Comprehensive income:
Net earnings -- -- 34.0
Other comprehensive income:
Foreign currency translation
adjustments -- -- --
Unrealized loss on securities,
net of tax -- -- --
------- -------- ---------
Comprehensive income -- -- 34.0
Issuance of common stock -- 1.3 --
Preferred stock dividends -- -- (23.5)
Accretion of mandatorily
redeemable preferred stock -- -- (0.5)
------- -------- ---------
BALANCE AT JUNE 30, 1999 $ 1.2 $ 417.0 $ (250.5)
======= ======== =========
PERIOD ENDED JUNE 30, 2000
Balance at beginning of year $ 1.3 $ 423.9 $ (245.5)
Comprehensive income:
Net earnings -- -- 58.4
Other comprehensive income:
Foreign currency translation
adjustments -- -- --
Change in valuation allowance
on securities, net of tax -- -- --
------- -------- ---------
Comprehensive income -- -- 58.4
Issuance of common stock -- 4.0 --
Issuance of restricted stock awards -- 4.1 --
Amortization of unearned
restricted stock compensation -- -- --
Income tax benefit from stock options
exercised -- 1.5 --
Conversion of preferred stock into
common stock 0.5 137.3 --
Preferred stock dividends -- -- (34.4)
Accretion of mandatorily
redeemable preferred stock -- -- (0.2)
------ ------- --------
BALANCE AT JUNE 30, 2000 $ 1.8 $ 570.8 $ (221.7)
====== ======= ========
</TABLE>
<PAGE>
<TABLE>
Unearned Accumulated
Restricted Other Total
Stock Comprehensive Shareholders'
Compensation Loss Equity
-------------- ------------- ------------
<S> <C> <C> <C>
PERIOD ENDED JUNE 30, 1999
Balance at beginning of year $ -- $ (2.0) $ 154.4
Comprehensive income:
Net earnings -- -- 34.0
Other comprehensive income:
Foreign currency translation
adjustments -- (0.2) (0.2)
Unrealized loss on securities,
net of tax -- (0.4) (0.4)
------ ------ ---------
Comprehensive income -- (0.6) 33.4
Issuance of common stock -- -- 1.3
Preferred stock dividends -- -- (23.5)
Accretion of mandatorily
redeemable preferred stock -- -- (0.5)
------ ------ ---------
BALANCE AT JUNE 30, 1999 $ -- $ (2.6) $ 165.1
====== ======= =========
PERIOD ENDED JUNE 30, 2000
Balance at beginning of year $ (4.1) $ (0.1) $ 175.5
Comprehensive income:
Net earnings -- -- 58.4
Other comprehensive income:
Foreign currency translation
adjustments -- (0.2) (0.2)
Change in valuation allowance
on securities, net of tax -- -- --
------ ------ ------
Comprehensive income -- (0.2) 58.2
Issuance of common stock -- -- 4.0
Issuance of restricted stock awards (4.1) -- --
Amortization of unearned
restricted stock compensation 1.0 -- 1.0
Income tax benefit from stock options
exercised -- -- 1.5
Conversion of preferred stock into
common stock -- -- 137.8
Preferred stock dividends -- -- (34.4)
Accretion of mandatorily
redeemable preferred stock -- -- (0.2)
------ ------ -------
BALANCE AT JUNE 30, 2000 $ (7.2) $ (0.3) $ 343.4
====== ====== =======
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
The condensed consolidated financial statements include the accounts of
Laboratory Corporation of America Holdings and its wholly owned subsidiaries
(the "Company") after elimination of all material intercompany accounts and
transactions.
The financial statements of the Company's foreign subsidiary are measured
using the local currency as the functional currency. Assets and liabilities
are translated at exchange rates as of the balance sheet date. Revenues and
expenses are translated at average monthly exchange rates prevailing during
the year. Resulting translation adjustments are included in "Accumulated
other comprehensive loss."
The accompanying condensed consolidated financial statements of the
Company are unaudited. In the opinion of management, all adjustments (which
include only normal recurring accruals) necessary for a fair presentation of
such financial statements have been included. Interim results are not
necessarily indicative of results for a full year.
The financial statements and notes are presented in accordance with the
rules and regulations of the Securities and Exchange Commission and do not
contain certain information included in the Company's annual report.
Therefore, the interim statements should be read in conjunction with the
consolidated financial statements and notes thereto contained in the Company's
annual report.
2. MANDATORILY REDEEMABLE PREFERRED STOCK
In May 1997, the Company's Board of Directors declared a dividend of
10,000,000 transferable subscription rights which were then issued pro rata to
holders of its common stock entitling them to purchase up to an aggregate of
$500.0 of redeemable preferred stock issuable in two series at a subscription
price of $50 per share. The subscription period ended in June 1997 and at
that time, rights were exercised to purchase 4,363,202 shares of Series A 8
1/2% Convertible Exchangeable Preferred Stock and 5,636,798 shares of Series B
8 1/2% Convertible Pay-in-Kind Preferred Stock, each at a subscription price
of $50 per share. On June 6, 2000, the Company called for redemption all of
its outstanding Series A and Series B preferred stock at $52.83 per share, in
accordance with the terms of the Preferred Stock Offering, by July 6, 2000.
Substantially all of the holders of the Series A and Series B preferred stock
elected to convert their shares into common stock. As of July 31, 2000, the
Series A preferred stock was converted into 7,930,174 shares of common stock
and the Series B preferred stock was converted into 13,241,576 shares of
common stock, increasing shareholders' equity by approximately $446 from the
balance at June 30, 2000.
3. BUSINESS ACQUISITIONS
During June, the Company completed the acquisition of the laboratory
testing business of San Diego-based Pathology Medical Laboratories for
approximately $14.5 in cash.
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
At the end of July 2000, the Company completed the acquisition of all of
the stock of National Genetics Institute, Inc. (NGI), which is based in Los
Angeles, California, for approximately $56.0 in cash. The purchase agreement
provides for additional payments of up to $16.0, contingent upon realization
of certain specified revenue targets by NGI. NGI revenues for the past twelve
months approximated $28.0.
4. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income, less
preferred stock dividends, by the weighted average number of common shares
outstanding. Dilutive earnings per share is computed by dividing net income,
by the weighted average number of common shares outstanding plus potentially
dilutive shares, as if they had been issued at the beginning of the period
presented. Potentially dilutive common shares result primarily from the
Company's mandatorily redeemable preferred stock, restricted stock awards and
outstanding stock options.
The following represents a reconciliation of the weighted average shares
used in the calculation of basic and diluted earnings per share:
Three months Six months
Ended June 30, Ended June 30,
---------------- ----------------
2000 1999 2000 1999
------- ------ ------ ------
Basic 13,331 12,626 13,043 12,620
Assumed conversion/exercise
of:
Stock options 302 -- 259 --
Restricted stock awards 166 -- 165 --
Series A preferred stock 7,933 -- 7,933 --
Series B preferred Stock 12,949 -- 12,813 --
------ ------ ------ ------
Diluted 34,681 12,626 34,213 12,620
The effect of conversion of the Company's redeemable preferred stock, or
exercise of the Company's stock options or restricted stock awards was not
included in the computation of diluted earnings per common share for the three-
and six-months ended June 30, 1999, as it would have been antidilutive.
The following table summarizes the potential common shares not included
in the computation of diluted earnings per share, because their impact would
have been antidilutive:
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
JUNE 30, JUNE 30,
-----------------------
2000 1999
--------- ---------
Stock options 236,041 1,058,209
Series A convertible exchangeable
preferred stock -- 7,933,043
Series B convertible pay-in-kind
preferred stock -- 12,154,257
5. RESTRUCTURING CHARGES
The following represents the Company's restructuring activities for the
period indicated:
Total
-----
Balance at December 31, 1999 $ 26.8
Cash payments (2.2)
Reclassifications and
non-cash items (3.7)
------
Balance at June 30, 2000 $ 20.9
======
Current $ 11.0
Non-current 9.9
------
$ 20.9
======
Reclassifications and non-cash items relate to changes in certain long-
term capital lease obligations.
6. INTEREST RATE SWAP
The existing rate collar transaction and swap have effectively changed
the interest exposure on $500.0 of floating rate debt to a weighted-average
fixed interest rate of 6.17%. The notional amounts of the agreements are used
to measure interest to be paid or received and do not represent the amount of
exposure to credit loss.
7. LONG-TERM DEBT
On June 30, 2000, the Company made a scheduled payment of approximately
$22.0 on its term loan facility.
The Fourth Amendment to the Amended and Restated Credit Agreement became
effective on June 7, 2000. This amendment permitted the Company to redeem
preferred stock in cash (if necessary) and increased the amount allowed for
acquisitions from $75.0 to $200.0 on a rolling twelve-month basis.
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
8. INCOME TAXES
As discussed in the Company's 1999 Annual Report, footnote 10, the
Company had recorded a $17.4 net income tax refund receivable, along with
related interest receivable, in prepaid expenses and other. The refund was
based upon receipt of two Revenue Agents Reports, which concluded the audits
of the tax years ended 1993 through 1997. While the refund was being reviewed
by Joint Committee, the IRS reversed its position on certain aspects of the
amended returns for the years in question. The Company has decided not to
contest the IRS' position and has reclassified the $17.4 receivable to
deferred income taxes as a net operating loss carryforward ("NOL") in the
second quarter. As of June 30, 2000, the NOL has been fully-utilized to
reduce the Company's income tax liability for 1999 and 2000.
9. STOCK COMPENSATION PLANS
During June 2000, the Company adopted the 2000 Stock Incentive Plan,
reserving 1,700,000 shares of common stock (plus any shares remaining
available for grant under the Amended and Restated 1999 Stock Incentive Plan
and the 1994 Stock Option Plan) for issuance pursuant to options, rights,
restricted shares and performance awards.
Effective June 16, 1999, the Company's shareholders approved the issuance
of shares of Common Stock to key employees under a restricted stock plan.
During 2000 and 1999, 82,550 and 162,000 shares have been issued under this
plan, respectively. Restrictions limit the sale or transfer of these shares
during a six-year period when the restrictions lapse. Upon issuance of stock
under the plan, unearned compensation equivalent to the market value at the
date of grant is charged to shareholders' equity as unearned restricted stock
compensation and subsequently amortized to expense over the six-year vesting
period. The plan provides for accelerated vesting of outstanding shares in
percentages of 33.3%, 66.7% or 100%, if certain predefined profitability
targets are achieved as of December 31, 2001 for the shares issued in 1999 and
as of December 31, 2002 for the shares issued in 2000.
The tax benefits associated with the exercise of non-qualified stock
options reduces taxes currently payable by $1.5 for the six months ended June
30, 2000. Such benefits are credited to additional paid-in-capital.
10. COMMITMENTS AND CONTINGENCIES
The Company is involved in two litigations which purport to be class
actions brought on behalf of certain patients, private insurers and benefit
plans that paid for laboratory testing services during the time frame covered
by the 1996 Government Settlement. The Company has also received certain
similar claims brought on behalf of certain other insurance companies, some of
which have been resolved for immaterial amounts. These claims for private
reimbursement are similar to the government claims settled in 1996. However,
no amount of damages has been specified at this time and, with the exception
of the above, no material settlement agreements have been reached. The
Company is carefully evaluating these claims. However, due to the early stage
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
of the claims, the ultimate outcome of these claims cannot presently be
predicted.
The Company is also involved in certain claims and legal actions arising
in the ordinary course of business. These matters include, but are not
limited to, professional liability, employee-related matters, inquiries from
governmental agencies and Medicare or Medicaid carriers requesting comment on
allegations of billing irregularities that have been brought to their
attention through billing audits or third parties. In the opinion of
management, based upon the advice of counsel and consideration of all facts
available at this time, the ultimate disposition of these matters is not
expected to have a material adverse effect on the financial position, results
of operations or liquidity of the Company.
The Company believes that it is in compliance in all material respects
with all statutes, regulations and other requirements applicable to its
clinical laboratory operations. The clinical laboratory testing industry
is, however, subject to extensive regulation, and many of these statutes and
regulations have not been interpreted by the courts. There can be no
assurance therefore that applicable statutes and regulations might not be
interpreted or applied by a prosecutorial, regulatory or judicial authority in
a manner that would adversely affect the Company. Potential sanctions for
violation of these statutes and regulations included significant fines and the
loss of various licenses, certificates and authorizations.
11. NEW ACCOUNTING PRONOUNCEMENTS
In June 2000, Statement of Financial Accounting Standards (FAS) No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities," was issued. This Statement amends certain paragraphs of FAS No.
133 which standardized the accounting for derivative instruments by requiring
that an entity recognize those items as assets or liabilities and measure them
at fair value. Adoption is required for the quarter ending September 30,
2000, and is not expected to have a material impact on the Company's
financial position or results of operations.
In December 1999, the SEC issued its Staff Accounting Bulletin 101,
"Revenue Recognition in Financial Statements". This Bulletin, along with its
amendments (101A and 101B), establishes the SEC staff's specific criteria for
the recognition of revenue. Adoption is required no later than the fourth
fiscal quarter of fiscal years beginning after December 15, 1999, and is not
expected to have a material impact on the Company's financial position or
results of operations.
OVERVIEW
This quarterly report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. In
addition, from time to time, the Company or its representatives have made
or may make forward-looking statements, orally or in writing. Such forward-
looking statements may be included in, but are not limited to, various filings
made by the Company with the Securities and Exchange Commission, press
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
releases or oral statements made by or with the approval of an authorized
executive officer of the Company. Actual results could differ materially from
those projected or suggested in any forward-looking statements as a result of a
wide variety of factors and conditions, which have been described in the
section of the Company's Annual Report on Form 10-K for the year ended
December 31, 1999, entitled, "Cautionary Statement for Purposes of the `Safe
Harbor' Provisions of the Private Securities Litigation Reform Act of 1995"
and other documents the Company files from time to time with the Securities
and Exchange Commission including the Company's quarterly reports on Form
10-Q and current reports on Form 8-K, and shareholders are specifically
referred to these documents with regard to factors and conditions that may
affect future results.
RESULTS OF OPERATIONS
Three Months ended June 30, 2000 compared with Three Months ended June 30, 1999
Net sales for the three months ended June 30, 2000 were $482.4, an
increase of approximately 12.3% from $429.5 for the comparable 1999 period.
The sales increase is a result of a 9.2% increase in volume and a 3.1%
increase in price. The increase in sales for the second quarter of 2000
would have been approximately 11.5% after excluding the effect of the three
acquisitions made in 2000 (POISONLAB, Inc., Bio-Diagnostics Laboratories and
Pathology Medical Laboratories).
Cost of sales, which includes primarily laboratory and distribution
costs, was $281.2 for the three months ended June 30, 2000 compared to $265.2
in the corresponding 1999 period, an increase of $16.0. Cost of sales
increased $23.9 due to the increase in volume which was offset by margin
improvements totaling $8.7 in salaries and benefits, supplies and depreciation
expenses. Cost of sales as a percentage of net sales was 58.3% for the three
months ended June 30, 2000 and 61.7% in the corresponding 1999 period. The
decrease in the cost of sales percentage of net sales primarily resulted from
the Company's continued cost reduction efforts and cost efficiencies related
to increased volume.
Selling, general and administrative expenses increased to $122.1 for the
three months ended June 30, 2000 from $114.4 in the same period in 1999. The
primary reason for the increase is due to an increase in personnel costs,
primarily in the area of incentive-based compensation. As a percentage of net
sales, selling, general and administrative expenses were 25.3% and 26.6% for
the three months ended June 30, 2000 and 1999, respectively.
The amortization of intangibles and other assets was $7.8 for the three
months ended June 30, 2000 and 1999.
Interest expense was $9.3 for the three months ended June 30, 2000
compared with $10.3 for the same period in 1999. The decline in interest
expense is a result of the Company's reduction in long-term debt and lower
interest rates.
The provision for income taxes as a percentage of earnings before taxes
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
was 46.0% for the tree months ended June 30, 2000 compared to 38.0% for the
three months ended June 30, 1999. During the three months ended June 30, 1999,
the Company reduced its valuation allowance applied against its deferred tax
assets by $2.5, thereby reducing its provision for income taxes as a
percentage of earnings before taxes by approximately 8 percentage points.
The reduction in the effective rate, before consideration of the 1999
valuation allowance reduction, is related to increased earnings before taxes
and the reduced impact that non deductible goodwill has on the effective tax
rate.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1999
Net sales for the six months ended June 30, 2000 were $945.1, an increase
of approximately 11.5% from $847.4 reported in the comparable 1999 period. The
sales increase is a result of an 8.6% increase in volume and a 2.9% increase
in price. The increase in sales for the for the six months ended June 30,
2000 would have been approximately 11.0% after excluding the effect of the
three acquisitions made in 2000 (POISONLAB, Inc., Bio-Diagnostics Laboratories
and Pathology Medical Laboratories).
Cost of sales, which includes primarily laboratory and distribution
costs, was $560.4 for the six months ended June 30, 2000 compared to $531.7
in the corresponding 1999 period, an increase of $28.7. Cost of sales
increased approximately $45.2 due to the increase in volume which was offset
by margin improvements totaling $19.4 in salaries and benefits and supplies.
Cost of sales as a percentage of net sales was 59.3% for the six months ended
June 30, 2000 and 62.7% in the corresponding 1999 period. The decrease in the
cost of sales percentage of net sales primarily resulted from the Company's
continued cost reduction efforts and cost efficiencies related to increased
volume.
Selling, general and administrative expenses increased to $240.5 for the
six months ended June 30, 2000 from $223.5 in the same period in 1999. The
primary reason for the increase is due to an increase in personnel costs,
primarily in the area of incentive-based compensation. As a percentage of net
sales, selling, general and administrative expenses were 25.5% and 26.4% for
the six months ended June 30, 2000 and 1999, respectively.
The amortization of intangibles and other assets was $15.5 and $15.7 for
the six months ended June 30, 2000 and 1999, respectively.
Net interest expense was $19.8 for the six months ended June 30, 2000
compared with $20.9 for the same period in 1999.
The provision for income taxes as a percentage of earnings before taxes
was 46.0% for the six months ended June 30, 2000 compared to 38.0% for the six
months ended June 30, 1999. During the six months ended June 30, 1999, the
Company reduced its valuation allowance applied against its deferred tax
assets by $5.0, thereby reducing its provision for income taxes as a
percentage of earnings before taxes by approximately 9 percentage points. The
reduction in the effective rate, before consideration of the 1999 valuation
allowance reduction, is related to increased earnings before taxes and the
reduced impact that non deductible goodwill has on the effective tax rate.
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $129.9 and $75.9 for the
six months ended June 30, 2000 and June 30, 1999, respectively. The increase
in cash flow from operations primarily resulted from improved earnings and
increases in accounts payable and accrued expenses offset by increases in
accounts receivable. Capital expenditures were $26.1 and $36.9 for the first
six months of 2000 and 1999, respectively.
The Company's days sales outstanding (DSO) at June 30, 2000 was 70 days,
compared to 72 days at the end of the first quarter. Since June 1999, the
Company has reduced its DSO by a total of 9 days and as of June 30, 2000, 70%
of total revenues are currently being processed on the Company's centralized
billing system.
For a discussion of legal proceedings which may impact the Company's
liquidity and capital resources see "Note 10 to the Company's Unaudited
Condensed Consolidated Financial Statements".
Cash and cash equivalents on hand, cash flows from operations and
additional borrowing capabilities under the Amended Revolving Credit Facility
are expected to be sufficient to meet anticipated operating requirements and
provide funds for capital expenditures, potential acquisitions and working
capital for the foreseeable future.
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See "Note 10 to the Company's Unaudited Condensed
Consolidated Financial Statements" for the six months ended June 30,
2000
Item 4. REPORT OF THE INSPECTOR OF ELECTION
On May 2, 2000 the Company held its 2000 annual meeting. The
final tabulation of the votes cast at the meeting was as follows:
FOR WITHHELD
---------- --------
ELECTION OF THE MEMBERS
OF THE BOARD OF DIRECTORS:
Thomas P. Mac Mahon 81,734,419 123,635
James B. Powell, MD 81,732,562 125,492
Jean-Luc Belingard 81,734,419 123,635
Wendy E. Lane 81,734,419 123,635
Robert E. Mittelstaedt, Jr 81,734,419 123,635
David B. Skinner, MD 81,734,419 123,635
Andrew G. Wallace, MD 81,734,419 123,635
VOTES VOTES VOTES
FOR AGAINST ABSTAINED
---------- ---------- ---------
APPROVAL OF THE LABORATORY CORPORATION
OF AMERICA HOLDINGS 2000 STOCK INCENTIVE
PLAN 80,475,144 1,343,219 39,691
APPROVAL OF AMENDMENTS TO THE LABORATORY
CORPORATION OF AMERICA HOLDINGS
CERTIFICATE OF INCORPORATION
(the reverse stock split): 80,697,083 1,143,382 17,589
RATIFICATION OF THE APPOINTMENT OF
PRICEWATERHOUSECOOPERS LLP AS THE
COMPANY'S INDEPENDENT AUDITORS FOR THE
FISCAL YEAR ENDING DECEMBER 31, 2000 81,743,410 83,608 31,036
In addition, certain shares of National Health Laboratories
Holdings, Inc. which have not been converted to Company shares were
eligible to vote at the annual meeting and were voted as follows:
<PAGE>
Item 4. REPORT OF THE INSPECTOR OF ELECTION - Continued
FOR WITHHELD
--- --------
ELECTION OF THE MEMBERS
OF THE BOARD OF DIRECTORS:
Thomas P. Mac Mahon 0 155
James B. Powell, MD 0 155
Jean-Luc Belingard 0 155
Wendy E. Lane 0 155
Robert E. Mittelstaedt, Jr. 0 155
David B. Skinner, MD 0 155
Andrew G. Wallace, MD 0 155
VOTES VOTES VOTES
FOR AGAINST ABSTAINED
----- ------- ---------
APPROVAL OF THE LABORATORY CORPORATION
OF AMERICA HOLDINGS 2000 STOCK INCENTIVE
PLAN 5 150 0
APPROVAL OF AMENDMENTS TO THE LABORATORY
CORPORATION OF AMERICA HOLDINGS CERTIFICATE
OF INCORPORATION (the reverse stock split) 5 150 0
RATIFICATION OF THE APPOINTMENT OF
PRICEWATERHOUSECOOPERS LLP AS THE
COMPANY'S INDEPENDENT AUDITORS FOR THE
FISCAL YEAR ENDING DECEMBER 31, 2000 155 0 0
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Proposed Certificate of Amendment to the Certificate of
Incorporation of Laboratory Corporation of America
Holdings (incorporated by reference herein to Annex II
of the Company's 2000 Annual Proxy Statement filed with
the Commission on April 7, 2000).
10.1 Fourth Amendment to the Amended and Restated Credit
Agreement dated as ofJune 7, 2000 among the Company, the
banks named therein and Credit Suisse First Boston as
Administrative Agent.
10.2 Laboratory Corporation of America Holdings 2000
Stock Incentive Plan (incorporated by reference herein
to Annex I of the Company's 2000 Annual Proxy Statement
filed with the Commission on April 7, 2000).
27 Financial Data Schedule (electronically filed
version only).
<PAGE>
Exhibits and Reports on Form 8-K (continued)
(b) Reports on Form 8-K
(1) A current report on Form 8-K dated May 4, 2000 was
filed on May 23 ,2000, by the registrant, in connection
with the press release dated May 4, 2000 announcing that
the Company entered into a definitive agreement with San
Diego-based Pathology Medical Laboratories (PML) to
acquire PML's laboratory testing business.
(2) A current report on Form 8-K/A dated June 6, 2000
was filed on June 7, 2000, by the registrant, in
connection with the press release dated June 6, 2000
amending Item 7 of its Current Report on Form 8-K (Date
of Report: May 2, 2000) to include five years of
selected financial data as affected by the 1-for-10
reverse stock split.
(3) A current report on Form 8-K dated June 6, 2000 was
filed on June 7, 2000, by the registrant, in connection
with the press release dated June 6, 2000 announcing
that the Company has called for redemption on July 7,
2000 all of its outstanding 8 1/2 percent Series A
Convertible Exchangeable Preferred Stock and 8 1/2
percent Series B Convertible Pay-in-Kind Preferred
Stock.
(4) A current report on Form 8-K dated June 8, 2000 was filed
on June 12, 2000, by the registrant,in connection with
the press release dated June 8, 2000 announcing that the
Company's Board of Directors has declared a dividend of
$0.08264 per share on its Series A Preferred Stock, payable
in cash. The Board also declared a dividend of $0.08264
per share on the Company's Series B Preferred Stock at the
rate of 0.001653 shares per share of Series B Preferred
Stock held. The dividends will cover the seven days to
July 7, 2000, the date set for redemption of the Series A
and B Preferred Stock and will be paid in addition to the
quarterly dividends payable on June 30, 2000.
(5) A current report on Form 8-K dated June 12, 2000
was filed on June 26, 2000, by the registrant, in
connection with the press release dated June 12, 2000
announcing that the Company can now support clinical
trials in Latin America with routine safety testing
through the Company's standardized laboratory in Miami.
<PAGE>
(b) Reports on Form 8-K (continued)
(6) A current report on Form 8-K dated June 12, 2000
was filed on June 26, 2000, by the registrant, in
connection with the press release dated June 12, 2000
announcing that the Company's clinical trials testing
division is expanding its established genetic testing
capabilities to offer pharmacogenomic services to
pharmaceutical and biotechnology companies.
(7) A current report on Form 8-K dated June 20, 2000
was filed on June 26, 2000, by the registrant, in
connection with the press release dated June 20, 2000
announcing that the Company has entered into a
definitive agreement with privately-held National
Genetics Institute, Inc. (NGI) to acquire all of the
stock of NGI. Established in 1991, Los Angeles-based
NGI is a leading national provider of hepatitis C
testing using innovative molecular diagnostic
technology.
(8) A current report on Form 8-K dated July 13, 2000
was filed on July 25, 2000, by the registrant, in
connection with the press release dated July 13, 2000
announcing that more than 99.97 percent of the shares of
its outstanding 8 1/2 percent Series A Convertible
Exchangeable Preferred Stock and 8 1/2 percent Series B
Convertible Pay-in-Kind Preferred Stock called for
redemption have been converted into the Company's common
stock at the request of the preferred shareholders.
(9) A current report on Form 8-K dated July 19, 2000
was filed on July 25, 2000, by the registrant, in
connection with the press release dated July 19, 2000
announcing the results for the quarter and six months
ended June 30, 2000.
(10) A current report on Form 8-K dated June 27, 2000
was filed on August 10, 2000, by the registrant, in
connection with the press release dated June 27, 2000
announcing that it has completed its acquisition of the
laboratory testing business of San Diego-based Pathology
Medical Laboratories. Terms of the acquisition were not
disclosed.
(11) A current report on Form 8-K dated August 1, 2000
was filed on August 10, 2000, by the registrant, in
connection with the press release dated August 1, 2000
announcing that it has completed its acquisition of Los
Angeles-based National Genetics Institute, Inc. Terms
of the stock purchase transaction were not disclosed.
<PAGE>
S I G N A T U R E S
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.
LABORATORY CORPORATION OF AMERICA HOLDINGS
Registrant
By:/s/THOMAS P. MAC MAHON
--------------------------------
Thomas P. Mac Mahon
Chairman, President and Chief
Executive Officer
By:/s/WESLEY R. ELINGBURG
---------------------------------
Wesley R. Elingburg
Executive Vice President, Chief
Financial Officer and Treasurer
August 14, 2000
<PAGE>
