UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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, 1994
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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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NATIONAL HEALTH LABORATORIES HOLDINGS INC.
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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 (I.R.S. Employer
incorporation or organization) Identification No.)
4225 EXECUTIVE SQUARE, SUITE 805 LA JOLLA, CALIFORNIA 92037
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(Address of principal executive offices) (Zip code)
619-550-0600
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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
84,753,192 shares as of July 31, 1994, of which 20,176,729 shares
are held by an indirect wholly owned subsidiary of Mafco Holdings
Inc.
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Millions, except per share data)
June 30, December 31,
1994 1993
----------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 27.1 $ 12.3
Accounts receivable, net 198.2 119.0
Prepaid expenses and other 56.9 21.7
Deferred income taxes 22.1 21.6
Income taxes receivable 1.0 8.7
-------- --------
Total current assets 305.3 183.3
Property, plant and equipment, net 133.6 100.1
Intangible assets, net 552.3 281.5
Other assets, net 25.5 20.6
-------- --------
$1,016.7 $ 585.5
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 45.9 $ 36.9
Dividend payable -- 6.8
Accrued expenses and other 104.3 55.6
Current portion of long-term debt 30.0 --
Current portion of accrued
settlement expenses 16.3 21.6
-------- --------
Total current liabilities 196.5 120.9
Revolving credit facility 183.0 278.0
Long-term debt, less current portion 370.0 --
Capital lease obligation 9.8 9.7
Accrued settlement expenses, less
current portion 3.4 11.5
Deferred income taxes 15.5 3.1
Other liabilities 82.7 21.5
Stockholders' equity:
Preferred stock, $0.10 par value;
10,000,000 shares authorized;
none issued -- --
Common stock, $0.01 par value;
220,000,000 shares authorized;
84,753,192 and 99,354,492 shares
issued at June 30, 1994 and
December 31, 1993, respectively 0.8 1.0
Additional paid-in capital 153.6 226.3
Retained earnings 3.8 202.0
Minimum pension liability adjustment (2.4) (2.4)
Treasury stock, at cost; 14,603,800
shares of common stock at
December 31, 1993 -- (286.1)
-------- --------
Total stockholders' equity 155.8 140.8
-------- --------
$1,016.7 $ 585.5
======== ========
See notes to unaudited consolidated condensed financial statements.
/TABLE
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Dollars in Millions, except per share data)
(Unaudited)
Six Months Ended Three Months Ended
June 30, June 30,
------------------ -------------------
1994 1993 1994 1993
------ ------- ------- -------
Net sales $388.9 $ 396.8 $ 203.9 $ 197.0
Cost of sales 268.8 216.9 136.5 107.8
------ ------- ------- -------
Gross profit 120.1 179.9 67.4 89.2
Selling, general and
administrative
expenses 64.5 61.1 33.5 29.8
Amortization of
intangibles and
other assets 6.5 4.2 3.4 2.1
------ ------- ------- -------
Operating income 49.1 114.6 30.5 57.3
------ ------- ------- -------
Other income
(expenses):
Investment income 0.5 0.7 0.3 0.3
Interest expense (10.5) (4.0) (6.0) (2.4)
------ ------- ------- -------
(10.0) (3.3) (5.7) (2.1)
------ ------- ------- -------
Earnings before
income taxes 39.1 111.3 24.8 55.2
Provision for
income taxes 16.9 44.5 10.7 22.0
------ ------- ------- -------
Net earnings $ 22.2 $ 66.8 $ 14.1 $ 33.2
====== ======= ======= =======
Earnings per common
share $ 0.26 $ 0.73 $ 0.16 $ 0.37
Dividends per common
share $ 0.08 $ 0.16 $ -- $ 0.08
See notes to unaudited consolidated condensed financial statements.
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
Six Months Ended
June 30,
--------------------
1994 1993
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 22.2 $ 66.8
Adjustments to reconcile net earnings to
net cash flows provided by (used for)
operating activities:
Depreciation and amortization 19.4 17.7
Provision for doubtful accounts, net 0.2 0.9
Change in assets and liabilities,
net of effects of acquisitions:
Increase in accounts receivable (42.5) (20.3)
Increase in prepaid expenses
and other (1.0) (0.8)
Decrease in deferred income
taxes, net 6.3 12.7
Decrease in income taxes
receivable 7.5 6.7
(Decrease) increase in accounts
payable, accrued expenses
and other (1.1) 7.3
Payments for settlement
and related expenses (13.4) (36.7)
Other, net (2.5) (4.7)
-------- --------
(27.1) (17.2)
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Net cash (used for) provided by
operating activities (4.9) 49.6
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (24.7) (10.8)
Acquisitions of businesses (244.9) (13.3)
-------- --------
Net cash used for investing activities (269.6) (24.1)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facilities 273.0 90.0
Payments on revolving credit facilities (368.0) --
Proceeds from long-term debt 400.0 --
Deferred payments on acquisitions (1.7) (0.7)
Purchase of treasury stock -- (94.7)
Dividends paid on common stock (13.6) (15.0)
Other (0.4) (0.9)
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Net cash provided by (used for)
financing activities 289.3 (21.3)
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Net increase in cash and cash
equivalents 14.8 4.2
Cash and cash equivalents at
beginning of period 12.3 33.4
-------- --------
Cash and cash equivalents at
end of period $ 27.1 $ 37.6
======== ========
See notes to unaudited consolidated condensed financial statements.
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS, CONTINUED
(Dollars in Millions)
(Unaudited)
Six Months Ended
June 30,
--------------------
1994 1993
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Supplemental schedule of cash
flow information:
Cash paid during the period for:
Interest $ 11.1 $ 2.8
Income taxes 7.8 33.1
Disclosure of non-cash financing
and investing activities:
Dividends declared and unpaid on
common stock $ -- $ 7.1
In connection with business
acquisitions, liabilities were
assumed as follows:
Fair value of assets acquired $ 366.9 $ 16.0
Cash paid, net of cash acquired (244.9) (13.3)
-------- --------
Liabilities assumed $ 122.0 $ 2.7
======== ========
See notes to unaudited consolidated condensed financial statements.
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in Millions, except per share data)
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements include the accounts of
National Health Laboratories Holdings Inc. (the "Company") and its
wholly owned subsidiaries after elimination of all material
intercompany accounts and transactions. Approximately 24% of the
outstanding common stock of the Company is owned by National Health
Care Group, Inc. ("NHCG") which is an indirect wholly owned
subsidiary of Mafco Holdings Inc. ("Mafco").
The accompanying consolidated condensed financial statements
of the Company and its subsidiaries are unaudited. In the opinion
of management, all adjustments (which include only normal recurring
accruals) necessary for a fair statement of the results of
operations have been made.
2. EARNINGS PER SHARE
Earnings per share are based upon the weighted average number
of shares outstanding during the three and six months ended June 30,
1994 of 84,751,763 shares and 84,751,231 shares, respectively, and
the weighted average number of shares outstanding during the three
and six months ended June 30, 1993 of 90,568,622 shares and
92,038,732 shares, respectively. The change in the total number of
shares outstanding resulted from the purchase by the Company of its
outstanding shares of common stock, net of additional shares issued
upon the exercise of options pursuant to the Company's stock option
plans.
3. ACQUISITION OF ALLIED CLINICAL LABORATORIES, INC.
On May 3, 1994, the Company entered into a definitive
agreement to acquire Allied Clinical Laboratories, Inc. ("Allied").
Pursuant to the agreement, on May 9, 1994, a subsidiary of the
Company commenced a cash tender offer for all shares of Allied
common stock for $23 per share. The agreement provided that any
shares not tendered and purchased in the offer were to be exchanged
for $23 per share in cash in a second-step merger. On June 7,
1994, the Company entered into an agreement whereby the price
payable in such cash tender offer and such second-step merger was
reduced to $21.50 per share. A subsidiary of the Company acquired
Allied as a wholly owned subsidiary on June 23, 1994, for
approximately $191.5 in cash plus the assumption of $24.0 of Allied
indebtedness (the "Allied Acquisition"). The Allied Acquisition
was accounted for using the purchase method of accounting; as such,
Allied's assets and liabilities were recorded at their fair values
on the date of acquisition. The purchase price exceeded the fair
value of acquired net tangible assets by approximately $227.0,
which amount is being amortized over 40 years on a straight-line
basis. Allied's results of operations have been included in the
Company's results of operations beginning June 23, 1994.
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in Millions, except per share data)
3. ACQUISITION OF ALLIED CLINICAL LABORATORIES, INC. - Continued
The following table provides unaudited pro forma operating
results as if the Allied Acquisition had been completed at the
beginning of the periods presented. The pro forma information has
been prepared for comparative purposes only and does not purport to
be indicative of future operating results.
Six Months Ended
June 30,
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1994 1993
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Net sales $479.2 $471.4
Net earnings 20.3 62.8
Earnings per common share $ 0.24 $ 0.68
4. CORPORATE REORGANIZATION
On June 7, 1994, the stockholders of National Health
Laboratories Incorporated ("NHLI") approved a proposed corporate
reorganization of NHLI, as a result of which National Health
Laboratories Holdings Inc., a Delaware corporation, now owns,
through NHL Intermediate Holdings Corp. I, a Delaware corporation
and a wholly owned subsidiary of the Company ("Intermediate
Holdings I"), and NHL Intermediate Holdings Corp. II, a Delaware
corporation and a wholly owned subsidiary of Intermediate Holdings
I ("Intermediate Holdings II"), all the outstanding capital stock
of NHLI.
In connection with the corporate reorganization on June 7,
1994, all of the 14,603,800 treasury shares held by NHLI were
cancelled. As a result, the $286.1 value assigned to such treasury
shares was eliminated with corresponding decreases in the par
value, additional paid-in capital and retained earnings accounts of
$0.2, $72.3 and $213.6, respectively.
5. LONG-TERM DEBT
On June 21, 1994, Intermediate Holdings II entered into a
credit agreement dated as of such date (the "Credit Agreement"),
with the banks named therein (the "Banks"), Citicorp USA, Inc., as
administrative agent (the "Bank Agent"), and certain co-agents
named therein, which made available to Intermediate Holdings II a
term loan facility of $400.0 (the "Term Facility") and a revolving
credit facility of $350.0 (the "Revolving Credit Facility" and,
together with the Term Facility, the "Bank Facility"). The Bank
Facility provided funds for the acquisition of Allied, for the
refinancing of certain existing debt of Allied and NHLI, to pay
related fees and expenses and for general corporate purposes of
Intermediate Holdings II and its subsidiaries, in each case subject
to the terms and conditions set forth therein.
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in Millions)
5. LONG-TERM DEBT - Continued
The Credit Agreement provides that the Banks and the Bank
Agent will receive from Intermediate Holdings II customary facility
and administrative agent fees, respectively. Intermediate Holdings
II will pay a commitment fee on the average daily unused portion of
the Bank Facility of 0.5% per annum, subject to a reduction to
0.375% per annum if certain financial tests are met. Availability
of funds under the Bank Facility is conditioned on certain
customary conditions, and the Credit Agreement contains customary
representations, warranties, covenants and events of default.
The Revolving Credit Facility matures in June 1999, with semi-
annual reductions of availability of $50.0, commencing in December
1997. The Term Facility matures in December 2000, with repayments
in each quarter prior to maturity based on a specified amortization
schedule. The Bank Facility bears interest, at the option of
Intermediate Holdings II, at (i) Citibank, N.A.'s Base Rate (as
defined in the Credit Agreement), plus a margin of up to 0.75% per
annum, based upon the Company's financial performance or (ii) the
Eurodollar rate for one, two, three or six month interest periods
(as selected by Intermediate Holdings II), plus a margin varying
between 1.25% and 2.00% per annum based upon the Company's
financial performance.
The Bank Facility is guaranteed by Intermediate Holdings I and
certain subsidiaries of Intermediate Holdings II and is secured by
pledges of stock and other assets of Intermediate Holdings II and
its subsidiaries.
On June 21, 1994, $400.0 available under the Term Facility was
borrowed by Intermediate Holdings II and loaned to NHLI and was
used by NHLI to repay in full its existing revolving credit
facilities and for working capital and general corporate purposes.
On June 23, 1994, Intermediate Holdings II borrowed $185.0 of the
amount available under the Revolving Credit Facility to consummate
the Allied Acquisition.
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Millions)
RESULTS OF OPERATIONS
Six Months Ended June 30, 1994 compared with Six Months Ended June
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30, 1993.
---------
Net sales for the six months ended June 30, 1994 were $388.9,
a decrease of 2.0% from $396.8 reported in the comparable 1993
period. Net sales from the inclusion of Allied since June 23, 1994
increased net sales by approximately $4.4 or 1.1%. Growth in new
accounts and numerous acquisitions of small clinical laboratory
companies increased net sales by approximately 10.0% and 11.8%,
respectively. A price increase, effective on April 1, 1994,
increased net sales by approximately 1.2% for the six months ended
June 30, 1994. A reduction in Medicare fee schedules from 88% to
84% of the national limitation amounts on January 1, 1994, plus
changes in reimbursement policies of various third party payors,
reduced net sales by approximately 4.3%. The impact of severe
weather during the first three months of 1994 further decreased net
sales by approximately 2.0% to 2.5%. Other factors, including
declines in the level of HDL and ferritin testing, price erosion in
the industry as a whole and lower utilization of laboratory testing
during the first part of 1994 comprised the remaining reduction in
net sales.
Cost of sales, which primarily includes laboratory and
distribution costs, increased to $268.8 for the six months ended
June 30, 1994 from $216.9 in the corresponding 1993 period. Of the
$51.9 increase, approximately $32.9 was the result of higher
testing volume, approximately $5.3 was due to an increase in
phlebotomy staffing to improve client service and meet competitive
demand and approximately $2.7 was due to the inclusion of the cost
of sales of Allied. The remaining increase resulted mainly from
higher compensation and insurance expenses. Cost of sales as a
percent of net sales was 69.1% for the six months ended June 30,
1994 and 54.7% in the corresponding 1993 period. The increase in
the cost of sales percentage primarily resulted from a reduction in
net sales due to a reduction in Medicare fee schedules, pricing
pressures and utilization declines, each of which provided little
corresponding reduction in costs.
Selling, general and administrative expenses increased to
$64.5 for the six months ended June 30, 1994 from $61.1 in the same
period in 1993. This was primarily due to expansion of data
processing and billing departments due to increased volume and to
improve customer service. As a percentage of net sales, selling,
general and administrative expenses was 16.6% and 15.4% for the six
months ended June 30, 1994 and 1993, respectively. The increase in
the selling, general and administrative percentage primarily
resulted from a reduction in net sales due to a reduction in
Medicare fee schedules, pricing pressures and utilization declines,
each of which provided little corresponding reduction in costs.
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Millions)
RESULTS OF OPERATIONS - Continued
Six Months Ended June 30, 1994 compared with Six Months Ended June
--------------------------------------------------------------------
30, 1993.
---------
The increase in amortization of intangibles and other assets
to $6.5 for the six months ended June 30, 1994 from $4.2 in the
corresponding period in 1993 primarily resulted from the
acquisition of numerous small laboratory companies during the
second half of 1993 and 1994.
Interest expense was $10.5 for the six months ended June 30,
1994 compared with $4.0 for the same period in 1993. The change
resulted from increased borrowings used primarily to finance
repurchases by the Company of its common stock during 1993 and to
finance the acquisition of numerous small laboratory companies
during both 1993 and 1994.
The provision for income taxes as percentage of earnings
before income taxes was 43.2% and 40.0% for the six months ended
June 30, 1994 and 1993, respectively. The change was mainly due to
the increase in the U.S. corporate tax rate during 1993 and also
was the result of a higher effective rate for both federal and
state income taxes.
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Millions)
RESULTS OF OPERATIONS - Continued
Three Months Ended June 30, 1994 compared with Three Months Ended
--------------------------------------------------------------------
June 30, 1993
-------------
Net sales for the three months ended June 30, 1994 were
$203.9, an increase of 3.5% from $197.0 reported in the comparable
1993 period. Net sales from the inclusion of Allied since June 23,
1994 increased net sales by approximately $4.4 or 2.2%. Growth in
new accounts and numerous acquisitions of small clinical laboratory
companies increased net sales by approximately 8.0% and 12.7%,
respectively. A price increase, effective on April 1, 1994,
increased net sales by approximately 2.5% for the three months
ended June 30, 1994. A reduction in Medicare fee schedules from
88% to 84% of the national limitation amounts on January 1, 1994,
plus changes in reimbursement policies of various third party
payors, reduced net sales by approximately 4.4%. Other factors,
including declines in the level of HDL and ferritin testing, price
erosion in the industry as a whole and lower utilization of
laboratory testing during the first part of 1994 comprised the
remaining reduction in net sales.
Cost of sales, which primarily includes laboratory and
distribution costs, increased to $136.5 for the three months ended
June 30, 1994 from $107.8 in the corresponding 1993 period. Of the
$28.7 increase, approximately $18.7 was the result of higher
testing volume, approximately $2.4 was due to an increase in
phlebotomy staffing to improve client service and meet competitive
demand and approximately $2.7 was due to the inclusion of the cost
of sales of Allied. The remaining increase resulted mainly from
higher compensation and insurance expenses. Cost of sales as a
percent of net sales was 66.9% for the three months ended June 30,
1994 and 54.7% in the corresponding 1993 period. The increase in
the cost of sales percentage primarily resulted from a reduction in
net sales due to a reduction in Medicare fee schedules, pricing
pressures and utilization declines, each of which provided little
corresponding reduction in costs.
Selling, general and administrative expenses increased to
$33.5 for the three months ended June 30, 1994 from $29.8 in the
same period in 1993. This was primarily due to expansion of data
processing and billing departments due to increased volume and to
improve customer service. As a percentage of net sales, selling,
general and administrative expenses was 16.4% and 15.1% for the
three months ended June 30, 1994 and 1993, respectively. The
increase in the selling, general and administrative percentage
primarily resulted from a reduction in net sales due to a reduction
in Medicare fee schedules, pricing pressures and utilization
declines, each of which provided little corresponding reduction in
costs.
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Millions, except per share data)
RESULTS OF OPERATIONS - Continued
Three Months Ended June 30, 1994 compared with Three Months Ended
--------------------------------------------------------------------
June 30, 1993
-------------
The increase in amortization of intangibles and other assets
to $3.4 for the three months ended June 30, 1994 from $2.1 in the
corresponding period in 1993 primarily resulted from the
acquisition of numerous small laboratory companies during the
second half of 1993 and 1994.
Interest expense was $6.0 for the three months ended June 30,
1994 compared with $2.4 for the same period in 1993. The change
resulted from increased borrowings used primarily to finance
repurchases by the Company of its common stock during 1993 and to
finance the acquisition of numerous small laboratory companies
during both 1993 and 1994.
The provision for income taxes as percentage of earnings
before income taxes was 43.1% and 39.9% for the three months ended
June 30, 1994 and 1993, respectively. The change was mainly due to
the increase in the U.S. corporate tax rate during 1993 and also
was the result of a higher effective rate for both federal and
state income taxes.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 1994, net cash used for
operating activities (after payment of settlement and related
expenses of $13.4) was $4.9. For the corresponding period in 1993,
net cash provided by operating activities (after payment of
settlement and related expenses of $36.7) was $49.6. Net cash
provided by operations has historically been adequate to provide
the working capital necessary for the Company's ongoing operations;
however, during the six months ended June 30, 1994, a portion of
the Company's existing revolving credit facilities was used to
finance its operating activities.
Cash used for capital expenditures was $24.7 and $10.8 for the
six months ended June 30, 1994 and 1993, respectively. The Company
expects capital expenditures to be approximately $30.0 to $40.0 in
1994 to accommodate expected growth, to further automate laboratory
processes, improve efficiency and integrate the Company and Allied.
On May 3, 1994, the Company entered into a definitive
agreement to acquire Allied. Pursuant to the agreement, on May 9,
1994, a subsidiary of the Company commenced a cash tender offer for
all shares of Allied common stock for $23 per share. The agreement
provided that any shares not tendered and purchased in the offer
were to be exchanged for $23 per share in cash in a second-step
merger. On June 7, 1994, the Company entered into an agreement
whereby the price
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Millions, except per share data)
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES - Continued
payable in such cash tender offer and such second-step merger was
reduced to $21.50 per share. A subsidiary of the Company acquired
Allied as a wholly owned subsidiary on June 23, 1994, for
approximately $191.5 in cash plus the assumption of $24.0 of Allied
indebtedness.
The Company acquired seven small laboratory companies during
the six months ended June 30, 1994 for an aggregate amount of $36.5
in cash and the recognition of $14.7 of liabilities. During the
corresponding period in 1993, the Company acquired five laboratory
companies for a total of $13.3 in cash and the recognition of $2.7
of liabilities.
On June 21, 1994, Intermediate Holdings II entered into the
Credit Agreement dated as of such date, with the banks named
therein, Citicorp USA, Inc., as administrative agent, and certain
co-agents named therein, which made available to Intermediate
Holdings II the Term Facility of $400.0 and the Revolving Credit
Facility of $350.0. The Bank Facility provided funds for the
acquisition of Allied, for the refinancing of certain existing debt
of Allied and NHLI, to pay related fees and expenses and for
general corporate purposes of Intermediate Holdings II and its
subsidiaries, in each case subject to the terms and conditions set
forth therein.
The Credit Agreement provides that the Banks and the Bank
Agent will receive from Intermediate Holdings II customary facility
and administrative agent fees, respectively. Intermediate Holdings
II will pay a commitment fee on the average daily unused portion of
the Bank Facility of 0.5% per annum, subject to a reduction to
0.375% per annum if certain financial tests are met. Availability
of funds under the Bank Facility is conditioned on certain
customary conditions, and the Credit Agreement contains customary
representations, warranties, covenants and events of default.
The Revolving Credit Facility matures in June 1999, with semi-
annual reductions of availability of $50.0, commencing in December
1997. The Term Facility matures in December 2000, with repayments
in each quarter prior to maturity based on a specified amortization
schedule. The Bank Facility bears interest, at the option of
Intermediate Holdings II, at (i) Citibank, N.A.'s Base Rate (as
defined in the Credit Agreement), plus a margin of up to 0.75% per
annum, based upon variations in certain financial tests or (ii) the
Eurodollar rate for one, two, three or six month interest periods
(as selected by Intermediate Holdings II), plus a margin varying
between 1.25% and 2.00% per annum based upon the Company's
financial performance.
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Millions)
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES - Continued
The Bank Facility is guaranteed by Intermediate Holdings I and
certain subsidiaries of Intermediate Holdings II and is secured by
pledges of stock and other assets of Intermediate Holdings II and
its subsidiaries.
On June 21, 1994, $400.0 available under the Term Facility was
borrowed by Intermediate Holdings II and loaned to NHLI and was
used by NHLI to repay in full its existing revolving credit
facilities and for working capital and general corporate purposes.
On June 23, 1994, Intermediate Holdings II borrowed $185.0 of the
amount available under the Revolving Credit Facility to consummate
the Allied acquisition.
In connection with the Allied Acquisition, the Company
announced that it will terminate its current 10 million share
repurchase program, under which 7,795,800 common shares have been
repurchased, and will establish a new $50.0 stock repurchase
program through which the Company will acquire additional shares of
the Company's common stock from time to time in the open market.
During the six months ended June 30, 1993, the Company
purchased 5,538,800 of its outstanding shares of common stock for
an aggregate amount of $94.7. The purchase was financed by
borrowings under the revolving credit facilities in existence at
such time and cash on hand. In connection with the corporate
reorganization on June 7, 1994, all of the 14,603,800 treasury
shares held by NHLI were cancelled. As a result, the $286.1 value
assigned to such treasury shares was eliminated with corresponding
decreases in the par value, additional paid-in capital and retained
earnings accounts of $0.2, $72.3 and $213.6, respectively.
The Company announced, also in connection with the Allied
Acquisition, that it is discontinuing its dividend payments for the
foreseeable future in order to increase its flexibility with
respect to both its acquisition strategy and stock repurchase plan.
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In September 1993, as discussed in the Company's most
recent Annual Report on Form 10-K, the Company was served
with a subpoena issued by the Office of Inspector General
of the United States Department of Health and Human
Services (the "OIG") concerning the Company's regulatory
compliance procedures. The Company has provided documents
to the OIG in response to the subpoena and continues to be
in contact with the OIG through its outside attorneys.
The Company has learned of the existence of a qui tam
suit which was recently unsealed regarding Allied's
facility in Cincinnati. As previously disclosed, Allied
was contacted in April 1994 by the federal government in
connection with Medicare claims administration at its Ohio
laboratory prior to the acquisition of Allied by the
Company.
The Company has been cooperating fully with the
government to resolve its concerns and will continue to do
so.
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION, Continued
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders was held on June
7, 1994.
(b) The matters voted upon were the election of
directors, the approval and adoption of the 1994
Stock Option Plan, the proposed corporate
reorganization (see "Note 4"), and the ratification
of the selection of KPMG Peat Marwick as the
Company's independent auditors for 1994.
All of the current and nominated directors of the
Company were reelected, the corporate reorganization
was approved, the 1994 Stock Option Plan was approved
and adopted, and the selection of KPMG Peat Marwick
was ratified. The results of the vote were as
follows:
Votes Votes Votes
Topic For Against Abstained Unvoted
- - -------------------------- ---------- ----------- --------- ----------
Corporate reorganization: 71,888,434 139,985 105,102 1
Election of the members
of the board of directors:
Ronald O. Perelman 71,998,257 135,265 0 0
Saul J. Farber, M.D. 71,997,457 136,065 0 0
Howard Gittis 71,998,357 135,165 0 0
Ann Dibble Jordan 71,997,757 135,765 0 0
James R. Maher 71,998,357 135,165 0 0
David J. Mahoney 71,997,557 135,965 0 0
Paul A. Marks, M.D. 71,998,357 135,165 0 0
Linda Gosden Robinson 71,997,757 135,765 0 0
Samuel O. Thier, M.D. 71,997,757 135,765 0 0
Approval of the selection
of KPMG Peat Marwick as
the Company's independent
auditors for the fiscal
year 1994: 71,763,187 288,032 82,303 0
Approval and adoption
of the 1994 Stock Option
Plan: 68,779,312 2,784,201 399,932 170,077
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION, Continued
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule (electronically
filed version only)
(b) Reports on Form 8-K
A report on Form 8-K dated June 23, 1994 was
filed on July 7, 1994 in connection with the
Allied Acquisition. The Form 8-K incorporated by
reference the historical financial statements
included in Allied's Annual Report on Form 10-K
for the year ended December 31, 1993 and Allied's
Quarterly Report on Form 10-Q for the quarter
ended March 31, 1994. The Form 8-K also included
unaudited pro forma financial data of the
Company.
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.
NATIONAL HEALTH LABORATORIES HOLDINGS INC.
Registrant
By:/s/ David C. Flaugh
---------------
David C. Flaugh
Senior Executive Vice President
and Chief Operating Officer
(Acting Principal Financial and
Accounting Officer)
Date: August 15, 1994
INDEX TO EXHIBITS
Exhibit No.
-----------
27 Financial Data Schedule (electronically
filed version only)
5
0000920148
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
1,000
6-MOS
DEC-31-1994
JUN-30-1994
27,100
0
215,700
17,500
0
305,300
217,600
84,000
1,016,700
196,500
0
800
0
0
155,000
1,016,700
388,900
388,900
268,800
268,800
71,000
0
10,500
39,100
16,900
22,200
0
0
0
22,200
.26
.26
