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 MARCH 31, 1995
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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 (I.R.S. 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)
800-222-7566
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(Registrant's telephone number, including area code)
NATIONAL HEALTH LABORATORIES HOLDINGS INC.
4225 EXECUTIVE SQUARE, SUITE 805, LA JOLLA, CALIFORNIA 92037
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(Former name or former address, if changed since last report)
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
122,908,701 shares as of May 12, 1995, of which 61,329,256
sharesare held by indirect wholly-owned subsidiaries of Roche
Holding Ltd.
The number of warrants outstanding to purchase shares of the
issuer's common stock is 22,151,670 as of May 12, 1995, of which
8,325,000 are held by an indirect wholly-owned subsidiary of
Roche Holding Ltd.
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Millions, except per share data)
March 31, December 31,
1995 1994
----------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 21.1 $ 26.8
Accounts receivable, net 217.4 205.4
Inventories 20.1 20.1
Prepaid expenses and other 24.0 8.3
Deferred income taxes 29.2 29.4
Income taxes receivable -- 3.0
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Total current assets 311.8 293.0
Property, plant and equipment, net 138.6 140.1
Intangible assets, net 549.2 551.9
Other assets, net 27.6 27.7
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$1,027.2 $1,012.7
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 38.5 $ 44.3
Accrued expenses and other 89.8 92.8
Current portion of long-term debt 41.4 39.0
Accrued settlement expenses 7.4 26.7
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Total current liabilities 177.1 202.8
Revolving credit facility 255.0 213.0
Long-term debt, less current portion 328.9 341.0
Capital lease obligation 9.8 9.8
Deferred income taxes 21.2 20.6
Other liabilities 56.2 59.5
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;
84,782,359 shares and 84,761,817
shares issued at March 31, 1995
and December 31, 1994, respectively 0.8 0.8
Additional paid-in capital 153.7 153.5
Retained earnings 24.5 11.7
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Total stockholders' equity 179.0 166.0
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$1,027.2 $1,012.7
======== ========
See notes to unaudited consolidated condensed financial statements.
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Dollars in Millions, except per share data)
(Unaudited)
Three Months Ended
March 31,
--------------------
1995 1994
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Net sales $ 243.8 $ 185.0
Cost of sales 164.3 132.3
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Gross profit 79.5 52.7
Selling, general and
administrative expenses 38.0 31.0
Amortization of intangibles
and other assets 4.8 3.1
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Operating income 36.7 18.6
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Other income (expenses):
Investment income 0.4 0.2
Interest expense (13.7) (4.5)
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Earnings before income taxes 23.4 14.3
Provision for income taxes 10.6 6.2
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Net earnings $ 12.8 $ 8.1
======= =======
Earnings per common share $ 0.15 $ 0.10
Dividends per common share $ -- $ 0.08
See notes to unaudited consolidated condensed financial statements.
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
Three Months Ended
March 31,
--------------------
1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 12.8 $ 8.1
Adjustments to reconcile net earnings
to net cash provided by (used for)
operating activities:
Depreciation and amortization 14.2 9.4
Provision for doubtful accounts,
net (0.8) (0.9)
Change in assets and liabilities,
net of effects of acquisitions:
Increase in accounts receivable (11.1) (19.5)
Increase (decrease) in inventories 0.3 (1.6)
Increase in prepaid expenses
and other (16.0) (3.2)
Decrease in deferred income
taxes, net 1.0 3.3
Decrease in income taxes
receivable 7.8 7.8
(Decrease) increase in accounts
payable, accrued expenses and
other (14.0) 3.8
Payments for settlement and
related expenses (19.3) (8.9)
Other, net (0.7) 4.1
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Net cash provided by operating
activities (25.8) 2.4
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (7.1) (10.3)
Acquisitions of businesses (1.8) (13.5)
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Net cash used for investing
activities (8.9) (23.8)
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(continued)
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS, CONTINUED
(Dollars in Millions)
(Unaudited)
Three Months Ended
March 31,
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1995 1994
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit
facility $ 42.0 $ 46.0
Payments on long-term debt (9.7) --
Deferred payments on acquisitions (3.4) (0.7)
Dividends paid on common stock -- (6.8)
Other 0.1 --
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Net cash provided by (used for)
financing activities 29.0 38.5
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Net increase in cash and cash
equivalents (5.7) 17.1
Cash and cash equivalents at
beginning of year 26.8 12.3
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Cash and cash equivalents at
end of period $ 21.1 $ 29.4
======= =======
Supplemental schedule of cash
flow information:
Cash paid during the period for:
Interest $ 13.7 $ 3.6
Income taxes (0.3) 0.2
Disclosure of non-cash financing
and investing activities:
Dividends declared and unpaid
on common stock $ -- $ 6.8
In connection with business
acquisitions, liabilities were
assumed as follows:
Fair value of assets acquired $ 2.7 $ 15.0
Cash paid (1.8) (13.5)
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Liabilities assumed $ 0.9 $ 1.5
======= =======
See notes to unaudited consolidated condensed financial statements.
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in Millions, except per share data)
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
During the three months ended March 31, 1995, the Company's
name was National Health Laboratories Holdings Inc. ("NHL"). On
April 28, 1995, following approval at a special meeting of the
stockholders of the Company, the name of the Company was changed
to Laboratory Corporation of America Holdings.
The 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 and prior to
giving effect to the merger with Roche Biomedical Laboratories,
Inc. described in Footnote 3 herein.
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 months ended March
31, 1995 and 1994 of 84,766,768 shares and 84,750,692 shares,
respectively.
3. SUBSEQUENT EVENT - MERGER WITH ROCHE BIOMEDICAL
LABORATORIES, INC.
On April 28, 1995, the Company completed the merger with
Roche Biomedical Laboratories, Inc. ("RBL") pursuant to an
Agreement and Plan of Merger (the "Merger Agreement") dated as of
December 13, 1994 (the "Merger"). The Merger will be accounted
for under the purchase method of accounting.
Pursuant to the Merger Agreement, each outstanding share of
common stock, par value $0.01 per share of the Company ("Common
Stock") (other than as provided in the Merger Agreement), was
converted (the "Share Conversion") into (i) 0.72 of a share of
Common Stock of the Company and (ii) $5.60 in cash per share,
without interest. Based upon the number of shares of Common
Stock outstanding immediately prior to the Merger and converted
pursuant to the Share Conversion in the Merger, as provided in
the Merger Agreement, the Company estimates that the aggregate
number of shares issued and outstanding following the Share
Conversion was 61,041,138. Also, an aggregate of 538,307 shares
of Common Stock were issued in connection with the cancellation
of certain employee stock options.
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in Millions, except per share data)
3. SUBSEQUENT EVENT - MERGER WITH ROCHE BIOMEDICAL
LABORATORIES, INC. - Continued
In addition, pursuant to the Merger Agreement, an aggregate
of 61,329,256 shares of Common Stock were issued to HLR Holdings
Inc. ("HLR") and its designee, Roche Holdings, Inc. in exchange
for all shares of common stock, no par value, of RBL outstanding
immediately prior to the effective date of the Merger (other than
treasury shares, which were canceled). The issuance of such
shares of Common Stock was based upon the Company's estimate, as
of immediately after the Merger, of the total outstanding shares
immediately after the Share Conversion and, based on such
estimate, equals approximately 49.9% of the total outstanding
shares of Common Stock.
The Company also made a distribution (the "Warrant
Distribution") to holders of record as of April 21, 1995, of
0.16308 of a warrant per outstanding share of Common Stock, each
such warrant representing the right to purchase one newly issued
share of Common Stock for $22.00 (subject to adjustment) on April
28, 2000 (each such warrant, a "Warrant"). Approximately
13,826,670 Warrants have been issued to stockholders entitled to
receive Warrants in the Warrant Distribution, (including
fractional Warrants, which were not distributed, but were
liquidated in sales on the New York Stock Exchange and the
proceeds thereof distributed to such stockholders). In addition,
pursuant to the Merger Agreement on April 28, 1995 the Company
issued to Hoffmann-La Roche Inc. ("Roche"), for a purchase price
of approximately $51.0, of 8,325,000 Warrants (the Roche
Warrants ) to purchase shares of Common Stock, which Warrants
will have the terms described above.
The aggregate cash consideration of approximately $474.8
paid to stockholders of the Company in the Merger was financed
from three sources: a cash contribution (the "Company Cash
Contribution") of approximately $288.1 out of the proceeds of
borrowings under the Bank Facility (as described below), a cash
contribution made by HLR to the Company in the amount of
approximately $135.7 and the proceeds from the sale and issuance
of the Roche Warrants.
The Company also entered into a credit agreement dated as of
April 28, 1995 (the "Credit Agreement"), with the banks named
therein (the "Banks") and Credit Suisse (New York Branch), as
administrative agent (the "Bank Agent"), which made available to
the Company a senior term loan facility of $800.0 (the "Term Loan
Facility") and a revolving credit facility of $450.0 (the
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in Millions)
3. SUBSEQUENT EVENT - MERGER WITH ROCHE BIOMEDICAL
LABORATORIES, INC. - Continued
"Revolving Credit Facility" and, together with the Term Loan
Facility, the "Bank Facility"). The Bank Facility provided
funds for the Company Cash Contribution for the refinancing of
certain existing debt of the Company and its subsidiaries and
RBL, to pay related fees and expenses of the Merger and for
general corporate purposes of the Company and its subsidiaries,
in each case subject to the terms and conditions set forth in the
Credit Agreement.
In connection with the Credit Agreement, the Company paid
the Banks and Bank Agent customary underwriting, closing and
participation fees, respectively. In addition, the Company will
pay a facility fee based on the total Revolving Credit Facility
commitment (regardless of usage) of 0.125% per annum.
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 April 2000. The
Term Loan Facility matures in December 2001, with repayments in
each quarter prior to maturity based on a specified amortization
schedule. For as long as HLR and its affiliates ownership of
Company common stock (the HLR Group Interest ) remains at least
25%, the Revolving Credit Facility bears interest, at the option
of the Company, at (i) Credit Suisse s Base Rate (as defined in
the Credit Agreement) or (ii) the Eurodollar Rate (as defined in
the Credit Agreement) plus a margin of 0.25% and the Term Loan
Facility bears interest, at the option of the Company, at (i)
Credit Suisse s Base Rate (as defined in the Credit Agreement) or
(ii) the Eurodollar Rate (as defined in the Credit Agreement)
plus a margin of 0.375%. In the event there is a reduction in
the HLR Group Interest to below 25%, applicable interest margins
will not be determined as set forth above, but instead will be
determined based upon the Company s financial performance as
described in the Credit Agreement.
The Bank Facility is unconditionally and irrevocably
guaranteed by certain of the Company s subsidiaries.
On April 28, 1995, the Company borrowed $800.0 under the
Term Loan Facility and $184.0 under the Revolving Credit Facility
to (i) pay the Company Cash Contribution; (ii) repay in full the
existing revolving credit and term loan facilities of a wholly-
owned subsidiary of the Company of approximately $640.0 including
interest and fees; (iii) repay approximately $50.0 of existing
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in Millions)
3. SUBSEQUENT EVENT - MERGER WITH ROCHE BIOMEDICAL
LABORATORIES, INC. - Continued
indebtedness of RBL; and (iv) for other costs in connection with
the Merger and for working capital and general corporate purposes
of the Company and its subsidiaries.
Restructuring costs of approximately $76.0 were recorded by
the Company upon consummation of the Merger. Also, in connection
with the repayment of existing revolving credit and term loan
facilities, the Company recorded an extraordinary loss of
approximately $14.0 ($7.7 net of tax), consisting of the write-
off of deferred financing costs, related to the early
extinguishment of debt. The restructuring costs reflect the
Company's estimate, at the time of the Merger, of reserves for
severance and benefit costs, costs for office and laboratory
facilities expected to be closed, including asset write-downs and
lease costs, and other restructuring expenses of the Company
associated with the Merger.
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Millions)
RESULTS OF OPERATIONS
---------------------
Net sales for the three months ended March 31, 1995 were
$243.8, an increase of 31.8% from $185.0 reported in the
comparable 1994 period. Net sales from the inclusion of Allied
Clinical Laboratories, Inc. ("Allied"), which was acquired on
June 23, 1994, increased net sales by approximately $40.7 or
22.0%. Growth in new accounts and acquisitions of small clinical
laboratory companies increased net sales by approximately 10.0%
and 6.4%, respectively. A price increase, effective on January
1, 1995, increased net sales by approximately 2.5% for the three
months ended March 31, 1995. However, a reduction in Medicare
fee schedules from 84% to 80% of the national limitation amounts
on January 1, 1995, plus changes in reimbursement policies of
various third party payors, reduced net sales by approximately
1.4%. Other factors, including lower utilization of laboratory
testing and price erosion in the industry as a whole, comprised
the remaining reduction in net sales.
Cost of sales, which primarily includes laboratory and
distribution costs, increased to $164.3 for the three months
ended March 31, 1995 from $132.3 in the corresponding 1994
period. Cost of sales increased by approximately $32.2 due to
the inclusion of the cost of sales of Allied. This increase was
partially offset by reductions in various cost categories as a
result of the Company's on-going cost-reduction program. Cost of
sales as a percent of net sales was 67.4% for the three months
ended March 31, 1995 and 71.5% in the corresponding 1994 period.
The decrease in the cost of sales percentage primarily resulted
from the Company's cost reduction efforts and from an increase in
net sales in the three months ended March 31, 1995 compared to
the corresponding period in 1994. This decrease was partially
offset by 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
$38.0 for the three months ended March 31, 1995 from $31.0 in the
same period in 1994. Approximately $5.5 of the increase was due
to the inclusion of the selling, general and administrative
expenses of Allied. The remaining increase was primarily due to
expansion of the 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 15.6% and 16.8% for the three months ended March 31,
1995 and 1994, respectively. The decrease in the selling,
general and administrative percentage primarily resulted from an
increase in net sales as discussed above.
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Millions)
RESULTS OF OPERATIONS - Continued
---------------------
Management expects net sales to continue to grow through
strategic acquisitions and the addition of new accounts, although
there can be no assurance that the Company will experience such
growth. Reductions in Medicare fee schedules, pursuant to the
Omnibus Budget Reconciliation Act of 1993 ("OBRA '93"), to 76% of
the median fee amounts, effective January 1, 1996 is expected to
negatively impact net sales, cost of sales as a percentage of net
sales and selling, general and administrative expenses as a
percentage of net sales in the future. Management cannot predict
if price erosion or utilization declines will continue to occur
or the ultimate effect of such declines on net sales or results
of operations. It is the objective of management to partially
offset the increases in cost of sales as a percentage of net
sales and selling, general and administrative expenses as a
percentage of net sales through comprehensive cost reduction
programs at each of the Company's regional laboratories, although
there can be no assurance of the success of such programs.
The increase in amortization of intangibles and other assets
to $4.8 for the three months ended March 31, 1995 from $3.1 in
the corresponding period in 1994 primarily resulted from the
acquisition of Allied in June 1994 and other small laboratory
companies during both 1995 and 1994.
Interest expense was $13.7 for the three months ended March
31, 1995 compared with $4.5 for the same period in 1994. The
change resulted primarily from increased borrowings used to
finance the acquisition of Allied in June 1994 and other small
laboratory companies during both 1995 and 1994. Higher average
interest rates also contributed to the increase in interest
expense.
The provision for income taxes as a percentage of earnings
before income taxes was 45.3% and 43.4% for the three months
ended March 31, 1995 and 1994, respectively. The change was
mainly due to a higher effective tax rate for both federal and
state income taxes.
The health care industry is undergoing significant change as
third party payers, such as Medicare and Medicaid and insurers,
increase their efforts to control the cost, utilization and
delivery of health care services. In an effort to address this
problem of increasing health care costs, legislation has been
proposed or enacted at both the Federal and state levels to
regulate health care delivery in general and clinical
laboratories in particular. Some of the proposals include
managed competition,
LABORATORY CORPORATION OF AMERICA HOLDINGS 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
---------------------
global budgeting and price controls. Although the Clinton
Administration's health care reform proposal was not enacted by
the 103rd Congress, such proposal or other proposals may be
considered in the future. In particular, the Company believes
that reductions in reimbursement for Medicare services will
continue to be implemented from time to time. Reductions in the
reimbursement rates of other third party payers may occur as
well. The Company cannot predict the effect health care reform,
if enacted, would have on its business, and there can be no
assurance that such reforms, if enacted, would not have a
material adverse effect on the Company's business and operations.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
----------------------------------------------------
For the three months ended March 31, 1995 and 1994, net cash
(used in) provided by operating activities (after payment of
settlement and related expenses of $19.3 and $8.9 in 1995 and
1994, respectively) was ($25.8) and $2.4, respectively. Cash
used for capital expenditures was $7.1 and $10.3 for the three
months ended March 31, 1995 and 1994, respectively. The Company
expects capital expenditures to be approximately $100.0 to $125.0
in 1995 to integrate the Company, RBL and Allied, to accommodate
expected growth, to further automate laboratory processes and
improve efficiency.
The Company acquired one small laboratory company during the
three months ended March 31, 1995 for an aggregate amount of $1.8
in cash and the recognition of $0.9 of liabilities. During the
corresponding period in 1994, the Company acquired four
laboratory companies for a total of $13.5 in cash and the
recognition of $1.5 of liabilities.
On April 28, 1995, the Company completed the merger with
Roche Biomedical Laboratories, Inc. ("RBL") pursuant to an
Agreement and Plan of Merger (the "Merger Agreement") dated as of
December 13, 1994 (the "Merger"). The Merger will be accounted
for under the purchase method of accounting.
Pursuant to the Merger Agreement, each outstanding share of
common stock, par value $0.01 per share of the Company ("Common
Stock") (other than as provided in the Merger Agreement), was
converted (the "Share Conversion") into (i) 0.72 of a share of
Common Stock of the Company and (ii) $5.60 in cash per share,
without interest. Based upon the number of shares of Common Stock
outstanding immediately prior to the Merger and converted pursuant
LABORATORY CORPORATION OF AMERICA HOLDINGS 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
----------------------------------------------------
to the Share Conversion in the Merger, as provided in the Merger
Agreement, the Company estimates that the aggregate number of
shares issued and outstanding following the Share Conversion was
61,041,138. Also, an aggregate of 538,307 shares of Common Stock
were issued in connection with the cancellation of certain
employee stock options.
In addition, pursuant to the Merger Agreement, an aggregate
of 61,329,256 shares of Common Stock were issued to HLR Holdings
Inc. ("HLR") and its designee, Roche Holdings, Inc. in exchange
for all shares of common stock, no par value, of RBL outstanding
immediately prior to the effective date of the Merger (other than
treasury shares, which were canceled). The issuance of such
shares of Common Stock was based upon the Company's estimate, as
of immediately after the Merger, of the total outstanding shares
immediately after the Share Conversion and, based on such
estimate, equals approximately 49.9% of the total outstanding
shares of Common Stock.
The Company also made a distribution (the "Warrant
Distribution") to holders of record as of April 21, 1995, of
0.16308 of a warrant per outstanding share of Common Stock, each
such warrant representing the right to purchase one newly issued
share of Common Stock for $22.00 (subject to adjustment) on April
28, 2000 (each such warrant, a "Warrant"). Approximately
13,826,670 Warrants have been issued to stockholders entitled to
receive Warrants in the Warrant Distribution, (including
fractional Warrants, which were not distributed, but were
liquidated in sales on the New York Stock Exchange and the
proceeds thereof distributed to such stockholders). In addition,
pursuant to the Merger Agreement on April 28, 1995 the Company
issued to Hoffmann-La Roche Inc. ("Roche"), for a purchase price
of approximately $51.0, of 8,325,000 Warrants (the Roche
Warrants ) to purchase shares of Common Stock, which Warrants
will have the terms described above.
The aggregate cash consideration of approximately $474.8
paid to stockholders of the Company in the Merger was financed
from three sources: a cash contribution (the "Company Cash
Contribution") of approximately $288.1 out of the proceeds of
borrowings under the Bank Facility (as described below), a cash
contribution made by HLR to the Company in the amount of
approximately $135.7 and the proceeds from the sale and issuance
of the Roche Warrants.
The Company also entered into a credit agreement dated as of
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Millions)
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES - Continued
----------------------------------------------------
April 28, 1995 (the "Credit Agreement"), with the banks named
therein (the "Banks") and Credit Suisse (New York Branch), as
administrative agent (the "Bank Agent"), which made available to
the Company a senior term loan facility of $800.0 (the "Term Loan
Facility") and a revolving credit facility of $450.0 (the
"Revolving Credit Facility" and, together with the Term Loan
Facility, the "Bank Facility"). The Bank Facility provided funds
for the Company Cash Contribution for the refinancing of certain
existing debt of the Company and its subsidiaries and RBL, to pay
related fees and expenses of the Merger and for general corporate
purposes of the Company and its subsidiaries, in each case
subject to the terms and conditions set forth in the Credit
Agreement.
In connection with the Credit Agreement, the Company paid
the Banks and Bank Agent customary underwriting, closing and
participation fees, respectively. In addition, the Company will
pay a facility fee based on the total Revolving Credit Facility
commitment (regardless of usage) of 0.125% per annum.
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 April 2000. The
Term Loan Facility matures in December 2001, with repayments in
each quarter prior to maturity based on a specified amortization
schedule. For as long as HLR and its affiliates ownership of
Company common stock (the HLR Group Interest ) remains at least
25%, the Revolving Credit Facility bears interest, at the option
of the Company, at (i) Credit Suisse s Base Rate (as defined in
the Credit Agreement) or (ii) the Eurodollar Rate (as defined in
the Credit Agreement) plus a margin of 0.25% and the Term Loan
Facility bears interest, at the option of the Company, at (i)
Credit Suisse s Base Rate (as defined in the Credit Agreement) or
(ii) the Eurodollar Rate (as defined in the Credit Agreement)
plus a margin of 0.375%. In the event there is a reduction in
the HLR Group Interest to below 25%, applicable interest margins
will not be determined as set forth above, but instead will be
determined based upon the Company s financial performance as
described in the Credit Agreement.
The Bank Facility is unconditionally and irrevocably
guaranteed by certain of the Company s subsidiaries.
On April 28, 1995, the Company borrowed $800.0 under the Term
Loan Facility and $184.0 under the Revolving Credit Facility to (i)
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Millions)
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES - Continued
----------------------------------------------------
pay the Company Cash Contribution; (ii) repay in full the
existing revolving credit and term loan facilities of a wholly-
owned subsidiary of the Company of approximately $640.0 including
interest and fees; (iii) repay approximately $50.0 of existing
indebtedness of RBL; and (iv) for other costs in connection with
the Merger and for working capital and general corporate purposes
of the Company and its subsidiaries.
Restructuring costs of approximately $76.0 were recorded by
the Company upon consummation of the Merger. Also, in connection
with the repayment of existing revolving credit and term loan
facilities, the Company recorded an extraordinary loss of
approximately $14.0 ($7.7 net of tax), consisting of the write-
off of deferred financing costs, related to the early
extinguishment of debt. The restructuring costs reflect the
Company's estimate, at the time of the Merger, of reserves for
severance and benefit costs, costs for office and laboratory
facilities expected to be closed, including asset write-downs and
lease costs, and other restructuring expenses of the Company
associated with the Merger.
The Company expects that its cash needs for working capital,
capital expenditures and the cash costs of the restructuring and
operations of the Company after the Merger will be met by its
cash flow from operations and borrowings under the Revolving
Credit Facility.
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
As discussed in Part I, Item 3 "Legal Proceedings" of
the Company's December 31, 1994 Annual Report on Form
10-K, Allied Clinical Laboratories, Inc. ("Allied"),
which was purchased by the Company in June 1994,
received in April 1994 a subpoena from the Office of
Inspector General ("OIG") of the Department of Health
and Human Services ("HHS") requesting documents and
certain information regarding the Medicare billing
practices of its Cincinnati, Ohio clinical laboratory
with respect to certain cancer screening tests. In
March 1995, Allied resolved the issues raised by the
April 1994 subpoena and a related qui tam action
commenced in a Cincinnati, Ohio Federal court by
entering into agreements with, among others, HHS, the
United States Department of Justice and the relators in
the qui tam action pursuant to which it agreed to pay
$4.9 million to settle all pending claims and inquiries
regarding these billing practices and certain others.
The Company had previously established reserves that
were adequate to cover such settlement payment. In
connection with the settlement, Allied agreed with HHS,
among other things, to implement a corporate integrity
program to ensure that Allied and its representatives
remain in compliance with applicable laws and
regulations and to provide certain reports and
information to HHS regarding such compliance efforts.
Item 2. Changes in Securities
(a) In connection with the Merger, the Company, HLR,
Roche and Roche Holdings, Inc. ("Holdings")
entered into a stockholder agreement dated as of
April 28, 1995 (the "Stockholder Agreement") which
sets forth, among other things, certain agreements
and understandings regarding the governance of the
Company following the Merger, including but not
limited to the composition of the Board of
Directors. The Stockholder Agreement was filed as
an exhibit to the Company's report on Form 8-K
dated April 28, 1995 which was filed on May 12,
1995 in connection with the merger and is
incorporated herein by reference.
In connection with the Merger, the Company made a
distribution to stockholders of record of shares
of Common Stock as of April 21, 1995 consisting of
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 2. Changes in Securities - Continued
0.16308 of a warrant per outstanding share of
Common Stock, each such warrant representing the
right to purchase one newly issued share of Common
Stock for $22.00 (subject to adjustment) pursuant
to a warrant agreement between the Company and
American Stock Transfer & Trust Company (the
"Warrant Agreement") dated as of April 10, 1995
which sets forth the terms of the warrants. The
Warrant Agremeent was filed as an exhibit to the
Company's report on Form 8-K dated April 28, 1995
which was filed on May 12, 1995 in connection with
the Merger and is incorporated herein by
reference.
(b) Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
(a) A Special Meeting of the Shareholders was held on
April 28, 1995.
(b) Not applicable.
(c) The matters voted upon were the approval and
adoption of the Merger Agreement and the approval
of a proposed amendment to Article I of the
Certificate of Incorporation of the Company to
change the name of the Company to "Laboratory
Corporation of America Holdings." The results of
the vote were as follows:
Votes Votes Votes
Topic For Against Abstained
------------------------ ---------- -------- ---------
Approval and adoption
of the Merger Agreement: 66,972,092 50,182 38,702
Approval of name change: 66,962,170 57,404 41,402
(d) Not applicable.
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Certificate of Incorporation of the Company
(amended pursuant to a Certificate of Merger
filed on April 28, 1995)*
3.2 Amended and Restated By-Laws of the
Company*
4.1 Warrant Agreement dated as of April 10,
1995 between the Company and American Stock
Transfer & Trust Company*
4.2 Specimen of the Company's Warrant
Certificate (included in the exhibit to the
Warrant Agreement included therein as
Exhibit 4.1 hereto)*
4.3 Specimen of the Company's Common Stock
Certificate*
10.1 Stockholder Agreement dated as of April 28,
1995 among the Company, HLR Holdings Inc.,
Hoffmann-La Roche Inc. and Roche Holdings,
Inc.*
10.2 Exchange Agent Agreement dated as of April
28, 1995 between the Company and American
Stock Transfer & Trust Company*
10.3 Credit Agreement dated as of April 28,
1995, among the Company, the banks named
therein, and Credit Suisse (New York
Branch), as Administrative Agent*
10.4 Amendment dated as of April 28, 1995 to the
Employment Agreement dated as of January 1,
1991, as amended on April 1, 1991, June 6,
1991, January 1, 1993 and April 1, 1994,
between La Jolla Management Corp., a
Delaware corporation and David C. Flaugh*
21 Subsidiaries of the Company*
22 Press Release dated April 28, 1995 by the
Company*
27 Financial Data Schedule (electronically
filed version only).
(b) Reports on Form 8-K
A report on Form 8-K dated April 28, 1995
was filed on May 12, 1995 in connection
with the Merger. The Form 8-K incorporated
by reference the Consolidated Financial
Statements of RBL and the proforma
financial information with respect to the Merger
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K - Continued
included on the proxy statement/prospectus
dated March 31, 1995 and filed by the
Company with the Commission as part of a
Registration Statement in Forms S-4/S-3 on
March 31, 1995.
* Incorporated by reference herein to the report on Form 8-K
dated April 28, 1995, filed with the Securities and Exchange
Commission on May 12, 1995 in connection with the Merger.
S I G N A T U R E
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/ DAVID C. FLAUGH
----------------------
David C. Flaugh
Executive Vice President and Chief
Operating Officer
By:/s/ WESLEY R. ELINGBURG
--------------------------
Wesley R. Elingburg
Senior Vice President, Finance
(Principal Accounting Officer)
Date: May 15, 1995
5
0000920148
LABORATORY CORPORATION OF AMERICA HOLDINGS
1000
3-MOS
DEC-31-1995
MAR-31-1995
21,100
0
232,500
15,100
20,100
311,800
240,000
101,400
1,027,200
177,100
593,700
800
0
0
178,200
1,027,200
243,800
243,800
164,300
164,300
42,800
0
13,700
23,400
10,600
12,800
0
0
0
12,800
.15
.15
