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 SEPTEMBER 30, 1995
-----------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
Commission file number 1-11353
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LABORATORY CORPORATION OF AMERICA HOLDINGS
- -----------------------------------------------------------------
(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)
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
122,908,722 shares as of November 3, 1995, of which 61,329,256
shares are 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 22,151,308 as of November 3, 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)
September 30, December 31,
1995 1994
------------ -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 25.0 $ 26.8
Accounts receivable, net 436.4 205.4
Inventories 54.3 20.1
Prepaid expenses and other 13.5 8.3
Deferred income taxes 61.9 29.4
Income taxes receivable -- 3.0
-------- --------
Total current assets 591.1 293.0
Property, plant and equipment, net 292.2 140.1
Intangible assets, net 925.1 551.9
Other assets, net 18.5 27.7
-------- --------
$1,826.9 $1,012.7
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 61.6 $ 44.3
Accrued expenses and other 176.8 92.8
Current portion of long-term debt 68.8 39.0
Accrued settlement expenses 4.6 26.7
-------- --------
Total current liabilities 311.8 202.8
Revolving credit facility 218.0 213.0
Long-term debt, less current portion 731.2 341.0
Capital lease obligation 9.8 9.8
Deferred income taxes -- 20.6
Other liabilities 144.5 59.5
Stockholders' equity:
Preferred stock, $0.10 par value;
10,000,000 shares authorized;
none issued and outstanding -- --
Common stock, $0.01 par value;
220,000,000 shares authorized;
122,908,722 shares and 84,761,817
shares issued and outstanding at
September 30, 1995 and December 31,
1994, respectively 1.2 0.8
Additional paid-in capital 411.4 153.5
Retained earnings (accumulated deficit) (1.0) 11.7
-------- --------
Total stockholders' equity 411.6 166.0
-------- --------
$1,826.9 $1,012.7
======== ========
See notes to unaudited consolidated condensed financial statements.
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in Millions, except per share data)
(Unaudited)
Nine Months Ended Three Months Ended
September 30, September 30,
------------------- -------------------
1995 1994 1995 1994
--------- ------- ------- ---------
Net sales $ 1,028.6 $ 637.6 $ 417.5 $ 248.7
Cost of sales 722.4 436.5 299.7 167.7
--------- ------- ------- -------
Gross profit 306.2 201.1 117.8 81.0
Selling, general and
administrative expenses 162.3 105.6 66.9 41.1
Amortization of intangibles
and other assets 19.2 11.9 7.7 5.4
Restructuring charges 65.0 -- -- --
Provision for settlements 10.0 -- -- --
--------- ------- ------- -------
Operating income 49.7 83.6 43.2 34.5
--------- ------- ------- -------
Other income (expense):
Litigation settlement and
related expenses -- (21.0) -- (21.0)
Investment income 1.1 0.7 0.4 0.2
Interest expense (48.5) (22.1) (17.4) (11.6)
--------- ------- ------- -------
Earnings before income
taxes and extra-
ordinary item 2.3 41.2 26.2 2.1
Provision for income taxes 6.7 18.8 11.8 1.9
--------- ------- ------- -------
Earnings (loss) before
extraordinary item (4.4) 22.4 14.4 0.2
Extraordinary item -
Loss on early extinguishment
of debt, net of income tax
benefit of $5.2 (8.3) -- -- --
--------- ------- ------- -------
Net earnings (loss) $ (12.7) $ 22.4 $ 14.4 $ 0.2
========= ======= ======= =======
Net earnings (loss) per
common share:
Earnings (loss) per common
share before extra-
ordinary loss $(0.04) $ 0.26 $ 0.12 $ --
Extraordinary loss per
common share $(0.08) $ -- $ -- $ --
------ ------ ------ ------
Net earnings (loss) per
common share $(0.12) $ 0.26 $ 0.12 $ --
====== ====== ====== ======
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)
Nine Months Ended
September 30,
--------------------
1995 1994
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (12.7) $ 22.4
-------- --------
Adjustments to reconcile net earnings
(loss) to net cash provided by
operating activities:
Depreciation and amortization 52.1 32.7
Restructuring charges 65.0 --
Provision for settlements 10.0 21.0
Extraordinary loss, net of
income tax benefits 8.3 --
Provision for doubtful accounts,
net 3.0 (1.2)
Change in assets and liabilities,
net of effects of acquisitions:
Increase in accounts receivable (60.0) (57.4)
Decrease (increase) in inventories 4.4 (1.1)
Decrease in prepaid expenses
and other 6.5 3.9
Decrease (increase) in deferred
income taxes, net (27.5) 9.1
Decrease in income taxes
receivable 5.4 6.8
Decrease in accounts payable,
accrued expenses and other (7.0) (9.2)
Payments for restructuring charges (6.7) --
Payments for settlement and
related expenses (32.1) (17.2)
Other, net (4.3) (3.7)
-------- --------
Net cash provided by operating
activities 4.4 6.1
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (44.3) (36.9)
Acquisitions of businesses (38.7) (252.6)
-------- --------
Net cash used for investing
activities (83.0) (289.5)
-------- --------
(continued)
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS, CONTINUED
(Dollars in Millions)
(Unaudited)
Nine Months Ended
September 30,
--------------------
1995 1994
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facilities $ 270.0 $ 283.0
Payments on revolving credit facilities (265.0) (368.0)
Proceeds from long-term debt 800.0 400.0
Payments on long-term debt (430.0) (5.0)
Dividends paid on common stock (474.8) (13.6)
Proceeds from issuance of
common stock 135.7 --
Proceeds from issuance of Roche Warrants 51.0 --
Deferred payments on acquisitions (10.3) (5.2)
Other 0.2 (0.5)
------- -------
Net cash provided by financing
activities 76.8 290.7
------- -------
Net increase (decrease) in cash and
cash equivalents (1.8) 7.3
Cash and cash equivalents at
beginning of year 26.8 12.3
------- --------
Cash and cash equivalents at
end of period $ 25.0 $ 19.6
======= ========
Supplemental schedule of cash
flow information:
Cash paid during the period for:
Interest $ 42.4 $ 21.4
Income taxes 22.0 9.5
Disclosure of non-cash financing
and investing activities:
Common stock issued in connection
with an acquisition $ 539.6 $ --
Common stock issued in connection
with the cancellation of employee
stock options $ 6.9 $ --
In connection with business acquisitions,
liabilities were assumed as follows:
Fair value of assets acquired $ 775.7 $ 395.3
Cash paid (38.7) (252.6)
Stock issued (539.6) --
-------- -------
Liabilities assumed $ 197.4 $ 142.7
======== =======
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
Prior to April 28, 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.
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 nine months
ended September 30, 1995 of 122,908,722 shares and 106,424,055
shares, respectively, and the weighted average number of shares
outstanding during the three and nine months ended September 30,
1994 of 84,754,089 and 84,752,194 shares respectively. The
increase in the total number of shares outstanding for the three
and nine months ended September 30, 1995 resulted primarily from
the issuance of shares of common stock to HLR Holdings, Inc.
("HLR") and Roche Holdings, Inc. in connection with the merger
with Roche Biomedical Laboratories, Inc. described in note 3
herein.
3. MERGER WITH ROCHE BIOMEDICAL LABORATORIES, INC.
On April 28, 1995, the Company completed its 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").
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. The aggregate number of shares issued and
outstanding following the Share Conversion was 61,041,159. 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. 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 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) and a cash contribution described below.
The issuance of such shares of Common Stock constituted
approximately 49.9% of the total outstanding shares of Common
Stock outstanding immediately after the Merger.
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
13,826,308 Warrants were 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, 8,325,000 Warrants (the "Roche Warrants")
to purchase shares of Common Stock, which Warrants 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 exchange consideration of approximately $558.0 for the
purchase of RBL consisted of the value of the stock issued to HLR
and Roche Holdings, Inc., as well as other cash costs of the
Merger, net of cash received from HLR. The Merger has been
accounted for under the purchase method of accounting; as such
RBL's assets and liabilities were recorded at their estimated
fair values on the date of acquisition. The exchange
consideration exceeded the fair value of acquired net tangible
assets by approximately $380.3, which is estimated to consist of
goodwill of approximately $296.6 and customer lists of
approximately $83.7. These items are being amortized over
periods of 40 and 25 years, respectively. The allocation of the
purchase price will be finalized based on asset valuations which
are not yet completed.
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in Millions, except per share data)
3. MERGER WITH ROCHE BIOMEDICAL LABORATORIES, INC. - Continued
The following table provides unaudited pro forma operating
results as if the Merger and the acquisition of Allied Clinical
Laboratories, Inc., which was acquired on June 23, 1994, had been
completed at the beginning of each of the periods presented. The
pro forma information does not include the restructuring charges
and the extraordinary item related to the Merger. The pro forma
information has been prepared for comparative purposes only and
does not purport to be indicative of future operating results.
Nine Months Ended
September 30,
---------------------
1995 1994
-------- --------
Net sales $1,275.2 $1,278.2
Net earnings 49.5 49.0
Net earnings per common share $ 0.40 $ 0.40
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"), under which the Banks
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, for 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
outstanding Company common stock (the "HLR Group Interest")
remains at least 25%, the Revolving Credit Facility bears
interest, at the option of the
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in Millions)
3. MERGER WITH ROCHE BIOMEDICAL LABORATORIES, INC. - Continued
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.
During the quarter ended September 30, 1995, the Company
entered into interest rate swap agreements with certain major
financial institutions to manage its interest rate exposure with
respect to $600.0 of its floating rate debt under the Term Loan Facility.
The agreements effectively changed the interest rate exposure on $600.0
of floating rate debt to a weighted average fixed interest rate of 6.01%,
through requiring that the Company pay a fixed rate amount in exchange for
the financial institutions paying a floating rate amount. The notional
amounts of the agreements are used to measure the interest to be paid or
received and do not represent the amount of exposure to credit
loss. These agreements mature in September 1998.
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
(i) to pay the Company Cash Contribution; (ii) to 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) to repay approximately $50.0
of existing indebtedness of RBL; and (iv) for other transaction
costs in connection with the Merger and for use as working
capital and general corporate purposes of the Company and its
subsidiaries.
In connection with the repayment of existing revolving
credit and term loan facilities, the Company recorded an
extraordinary loss of approximately $13.5 ($8.3 net of tax),
consisting of the write-off of deferred financing costs, related
to the early extinguishment of debt.
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in Millions)
4. RESTRUCTURING CHARGES
Following the Merger, the Company determined that it would
be beneficial to close Company laboratory facilities in certain
geographic regions where duplicate Company and RBL facilities
existed at the time of the Merger. In addition, the Company
decided to downsize certain finance and administrative positions
in La Jolla, California in order to eliminate duplicative
functions.
Under the restructuring plan, the Company originally
estimated it would take a $76.0 charge in the second quarter of
1995 to cover the costs of the restructuring plan. In refining
the plan, the Company later estimated that the charge required
was $65.0 in the second quarter of 1995. The charge includes
approximately $24.2 to reduce the workforce by approximately
2,200 individuals. The plan includes a reduction of
approximately 1,520 laboratory operations personnel,
approximately 80 sales and marketing personnel and approximately
600 finance and administrative personnel both at laboratory
locations and in La Jolla, California.
Approximately $21.3 of the restructuring charge consists of
the reduction of certain assets to their net realizable values
and primarily consists of the write-off of approximately $17.7 of
leasehold improvements on facilities to be closed or
significantly downsized.
Lease and other facility obligations accounted for
approximately $19.5 of the restructuring charge, including the
future minimum lease payments and expenses from the estimated
closing or downsizing date to the end of the contractual lease
term for facilities to be significantly downsized or closed.
The following represents the Company's restructuring
activities for the period indicated:
Asset Lease and
Severance revaluations other facility
Costs and write-offs obligations Total
---------- ------------- -------------- -------
Balance at
December 31, 1994 $ -- $ -- $ -- $ --
Restructuring charge 24.2 21.3 19.5 65.0
Non cash items (0.3) (0.9) -- (1.2)
Cash payments (6.6) -- -- (6.6)
------ ------- ------- ------
Balance at
September 30, 1995 $ 17.3 $ 20.4 $ 19.5 $ 57.2
====== ======= ======= ======
Current $ 39.2
Non-current 18.0
------
$ 57.2
======
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in Millions)
5. PROVISION FOR SETTLEMENTS
In the second quarter of 1995, the Company took a pre-tax
special charge of $10.0 in connection with the estimated costs of
settling various claims pending against the Company,
substantially all of which are billing disputes, in which the
Company believes it is probable that settlements will be made by
the Company. As of September 30, 1995, approximately $5.7 in
settlements and expenses have been paid.
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
- ---------------------
Nine Months Ended September 30, 1995 compared with Nine Months
Ended September 30, 1994.
Net sales for the nine months ended September 30, 1995 were
$1,028.6 an increase of 61.3% from $637.6 reported in the
comparable 1994 period. Net sales from the inclusion of Roche
Biomedical Laboratories, Inc. ("RBL"), which was acquired on
April 28, 1995, increased net sales by approximately $317.8 or
49.8%. Also, net sales from the inclusion of Allied Clinical
Laboratories, Inc. ("Allied"), which was acquired on June 23,
1994, increased net sales by approximately $56.6 or 8.9%. Growth
in new accounts and acquisitions of small clinical laboratory
companies increased net sales by approximately 8.5% and 2.8%,
respectively. A price increase of 2.5%, effective on January 1,
1995, was substantially discounted as the year progressed and as
a result increased net sales by approximately 1.0% for the nine
months ended September 30, 1995. Lower utilization of laboratory
testing and price erosion in the industry as a whole decreased
net sales by approximately 5.0%. 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 accounts terminated by management,
comprised the remaining reduction in net sales.
Cost of sales, which includes primarily laboratory and
distribution costs, increased to $722.4 for the nine months ended
September 30, 1995 from $436.5 in the corresponding 1994 period.
Of the $285.9 increase, approximately $232.9 was due to the
inclusion of the cost of sales of RBL and approximately $44.8 was
due to the inclusion of the cost of sales of Allied. Cost of
sales increased by approximately $22.6 due to higher testing
volume unrelated to the Merger or acquisition of Allied and
approximately $6.1 due to an increase in compensation expense.
Reductions in supplies of $5.0, insurance of $4.8, fringe
benefits of $4.8 and other expense categories of $5.9 decreased
cost of sales an aggregate of approximately $20.5. Cost of sales
as a percent of net sales was 70.2% for the nine months ended
September 30, 1995 and 68.5% in the corresponding 1994 period.
Selling, general and administrative expenses increased to
$162.3 for the nine months ended September 30, 1995 from $105.6
in the same period in 1994. Approximately $48.7 of the increase
was due to the inclusion of the selling, general and
administrative expenses of RBL
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
- ---------------------------------
Nine Months Ended September 30, 1995 compared with Nine Months
Ended September 30, 1994.
and approximately $7.7 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 unrelated to the
Merger or purchase of Allied and to improve customer service.
This increase was partially offset by decreases in other expense
categories, including reductions in selling expenses, as a result
of the Company's on-going cost-reduction program. As a percentage
of net sales, selling, general and administrative expenses was
15.8% and 16.6% for the nine months ended September 30, 1995 and
1994, respectively. The decrease in the selling, general and
administrative percentage primarily resulted from an increase in
net sales in the first quarter of 1995 compared to the first
quarter of 1994 and reductions in expenses due to the Company's
on-going cost-reduction program.
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. A reduction 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 expects that
price erosion and utilization declines will continue to
negatively impact net sales and the results of operations for the
foreseeable future. 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 timing or success of such
programs. Congress is also considering changes to the Medicare
fee schedules in conjunction with certain budgetary bills pending
in Congress. The ultimate outcome of these deliberations on
pending legislation cannot be predicted at this time and
management, therefore, cannot predict the impact, if any, such
proposals, if enacted, would have on the results of operations of
the Company.
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
- ---------------------------------
Nine Months Ended September 30, 1995 compared with Nine Months
Ended September 30, 1994.
The increase in amortization of intangibles and other assets
to $19.2 for the nine months ended September 30, 1995 from $11.9
in the corresponding period in 1994 primarily resulted from the
Merger in April 1995 and the acquisition of Allied in June 1994.
Following the Merger, the Company determined that it would
be beneficial to close Company laboratory facilities in certain
geographic regions where duplicate Company and RBL facilities
existed at the time of the Merger. In addition, the Company
decided to downsize certain finance and administrative positions
in La Jolla, California in order to eliminate duplicative
functions. Under the restructuring plan, the Company originally
estimated it would take a $76.0 charge to cover the costs of the
restructuring plan. In refining the plan, the Company later
estimated that the charge required was $65.0. This charge was
recorded in the second quarter of 1995. See note 4 of the Notes
to Unaudited Consolidated Condensed Financial Statements which
sets forth the Company's restructuring activities for the nine
months ended September 30, 1995.
In the second quarter of 1995, the Company took a pre-tax
special charge of $10.0 in connection with the estimated costs of
settling various claims pending against the Company,
substantially all of which are billing disputes, in which the
Company believes it is probable that settlements will be made by
the Company. As of September 30, 1995, approximately $5.7 in
settlements and expenses have been paid related to these claims.
Interest expense was $48.5 for the nine months ended
September 30, 1995 compared with $22.1 for the same period in
1994. The change resulted primarily from increased borrowings
used to finance the Company Cash Contribution, the repayment of
existing indebtedness of RBL and certain other costs of the
Merger and the acquisition of Allied and, to a lesser extent, due
to a higher effective borrowing rate in the first four months of
1995.
In connection with the repayment of the Company's existing
revolving credit and term loan facilities at the time of the
Merger, the Company recorded an extraordinary loss from the early
extinguishment of debt of approximately $13.5 ($8.3 net of tax)
consisting of the write-off of deferred financing costs.
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
- ---------------------------------
Nine Months Ended September 30, 1995 compared with Nine Months
Ended September 30, 1994.
As a result of the restructuring charges and extraordinary
loss, the provision for income taxes as percentage of earnings
before income taxes for the nine months ended September 30, 1995
is not comparable to prior periods.
Three Months Ended September 30, 1995 compared with Three Months
Ended September 30, 1994.
Net sales for the three months ended September 30, 1995 were
$417.5, an increase of 67.9% from $248.7 reported in the
comparable 1994 period. Net sales from the inclusion of RBL
increased net sales by approximately $188.3 or 75.7%. Growth in
new accounts and acquisitions of small clinical laboratory
companies increased net sales by approximately 7.4% and 1.3%,
respectively. Lower utilization of laboratory testing and price
erosion in the industry as a whole, decreased net sales by
approximately 9.0%. 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 accounts terminated by management, comprised the remaining
reduction in net sales.
Cost of sales, which includes primarily laboratory and
distribution costs, was $299.7 for the three months ended
September 30, 1995 compared to $167.7 in the corresponding 1994
period, an increase of $132.0. Cost of sales increased
approximately $139.7 due to the inclusion of the cost of sales of
RBL, approximately $3.5 due to higher testing volume and
approximately $2.2 due to an increase in compensation expense.
These increases were partially offset by decreases in supplies of
$1.9 and insurance of $2.2, as well as other cost categories
totaling an aggregate of $9.3, in connection with the Company's
on-going cost-reduction program. Cost of sales as a percentage
of net sales was 71.8% for the three months ended September 30,
1995 and 67.4% in the corresponding 1994 period. The increase in
the cost of sales percentage of net sales primarily resulted from
inclusion of RBL's cost of sales in 1995 and a reduction in net sales
due to a reduction in Medicare fee schedules, price erosion and
utilization declines, each of which provided little corresponding
reduction in costs.
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
- ---------------------------------
Three Months Ended September 30, 1995 compared with Three Months
Ended September 30, 1994.
Selling, general and administrative expenses increased to
$66.9 for the three months ended September 30, 1995 from $41.1 in
the same period in 1994. The inclusion of the selling, general
and administrative expenses of RBL since April 28, 1995 increased
expenses by approximately $29.4. This increase was partially
offset by decreases in several expense categories, including
selling expenses, as a result of the Company's on-going cost-
reduction program. As a percentage of net sales, selling,
general and administrative expenses was 16.0% and 16.5% for the
three months ended September 30, 1995 and 1994, respectively. The
decrease in the selling, general and administrative percentage
primarily resulted from the Company's on-going cost-reduction
program.
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. A reduction 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 expects that
price erosion and utilization declines will continue to
negatively impact net sales and the results of operations for the
foreseeable future. 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 timing or success of such
programs. Congress is also considering changes to the Medicare
fee schedules in conjunction with certain budgetary bills pending
in Congress. The ultimate outcome of these deliberations on
pending legislation cannot be predicted at this time and
management, therefore, cannot predict the impact, if any, such
proposals, if enacted, would have on the results of operations of
the Company.
The increase in amortization of intangibles and other assets
to $7.7 for the three months ended September 30, 1995 from $5.4
in the corresponding period in 1994 primarily resulted from the
Merger in April 1995.
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
- ---------------------------------
Three Months Ended September 30, 1995 compared with Three Months
Ended September 30, 1994.
Interest expense was $17.4 for the three months ended
September 30, 1995 compared with $11.6 for the same period in
1994. The change resulted primarily from increased borrowings
used to finance the Company Cash Contribution, the repayment of
existing indebtedness of RBL and certain other costs of the
Merger.
In connection with the repayment of the Company's existing
revolving credit and term loan facilities at the time of the
Merger, the Company recorded an extraordinary loss from the early
extinguishment of debt of approximately $13.5 ($8.3 net of tax)
consisting of the write-off of deferred financing costs.
The provision for income taxes as a percentage of earnings
before taxes was 45.0% for the three months ended September 30,
1995 This percentage is not comparable to the three months ended
September 30, 1994 as a result of the litigation settlement and
related expenses in the third quarter of 1994.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
- ----------------------------------------------------
For the nine months ended September 30, 1995 and 1994, net
cash provided by operating activities (after payment of
settlement and related expenses of $32.1 and $17.2 in 1995 and
1994, respectively) was $4.4 and 6.1, respectively. Capital
expenditures were $44.3 and $36.9 for the nine months ended
September 30, 1995 and 1994, respectively. The Company expects
capital expenditures to be approximately $75.0 in 1995 and
approximately $90.0 in 1996 to integrate the Company and RBL, to
accommodate expected growth, to further automate laboratory
processes and improve efficiency.
The Company acquired seven small laboratory companies during
the nine months ended September 30, 1995 for an aggregate amount
of $31.5 in cash and the recognition of $7.2 of liabilities.
During the corresponding period in 1994, the Company acquired
nine small laboratory companies for a total of $44.2 in cash and
the recognition of $26.9 of liabilities.
On April 28, 1995, the Company completed its merger with
Roche Biomedical Laboratories, Inc. ("RBL") pursuant to an
Agreement and Plan of Merger (the "Merger Agreement") dated as of
December 13, 1994
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
- ----------------------------------------------------------------
(the "Merger"). The Merger was 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. The aggregate number of shares issued and
outstanding following the Share Conversion was 61,041,159. 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) and a cash contribution
described below. The issuance of such shares of Common Stock
constituted approximately 49.9% of the total outstanding shares
of Common Stock outstanding immediately after the Merger.
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
13,826,308 Warrants were 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, 8,325,000 Warrants (the
"Roche Warrants") to purchase shares of Common Stock, which
Warrants 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
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
- ----------------------------------------------------------------
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
"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, for
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.
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
- -----------------------------------------------------------------
During the quarter ended September 30, 1995, the Company
entered into interest rate swap agreements with certain major
financial institutions to manage its interest rate exposure with
respect to $600.0 of its floating rate debt under the Term Loan
Facility. The agreements effectively changed the interest rate exposure
on $600.0 of floating rate debt to a weighted average fixed interest
rate of 6.01%, through requiring that the company pay a fixed rate
amount in exchange for the financial institutions paying a floating
rate amount. The notional amounts of the agreements are used to measure
the interest to be paid or received and do not represent the amount of
exposure to credit loss. These agreements mature in September 1998.
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
(i) to pay the Company Cash Contribution; (ii) to 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) to repay approximately $50.0
of existing indebtedness of RBL; and (iv) for other transaction
costs in connection with the Merger and for use as working
capital and general corporate purposes of the Company and its
subsidiaries.
Following the Merger, the Company determined that it would
be beneficial to close Company laboratory facilities in certain
geographic regions where duplicate Company and RBL facilities
existed at the time of the Merger. In addition, the Company
decided to downsize certain finance and administrative positions
in La Jolla, California in order to eliminate duplicative
functions. Under the restructuring plan, the Company originally
estimated it would take a $76.0 charge to cover the costs of the
restructuring plan. In refining the plan, the Company later
estimated that the charge required was $65.0. This charge was
recorded in the second quarter of 1995. See note 4 of the Notes
to Unaudited Consolidated Condensed Financial Statements which
sets forth the Company's restructuring activities for the nine
months ended September 30, 1995. Future cash payments under the
restructuring plan are expected to be $18.8 over the next year
and $18.0 thereafter.
In the second quarter of 1995, the Company took a pre-tax
special charge of $10.0 in connection with the estimated costs of
settling various claims pending against the Company,
substantially all of which are billing disputes, in which the
Company believes it
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
- ----------------------------------------------------------------
is probable that settlements will be made by the Company. As of
September 30, 1995, approximately $5.7 in settlements and
expenses have been paid related to these claims.
As a result of the Merger, the Company is expected to
achieve substantial savings in operating costs through the
consolidation of certain operations and the elimination of
redundant expenses. Such savings are expected to be realized
over time as the consolidation process is completed. The Company
expects to realize approximate annualized net savings of between
$100.0 to $110.0 within three years following the Merger. The
synergies expected to be realized by the Company will be derived
from several sources, including corporate, general and
administrative expenses, including the consolidation of
administrative staff. Other reductions in sales staff where
duplicate territories exist, operational savings, including the
closing of overlapping laboratories and other facilities, and
savings to be realized from the additional buying power of the
larger Company, are expected to generate significant savings. It
is also expected that savings will be realized from certain
changes in employee benefits. These estimated savings are
anticipated to be partially offset by a loss of existing business
during the conversion process. Realization of improvements in
profitability is dependent, in part, on the extent to which the
revenues of the combined companies are maintained and will be
influenced by many factors, including factors outside the control
of the Company. There can be no assurance that the estimated
cost savings described above will be realized or achieved in a
timely manner or that improvements, if any, in profitability will
be achieved or that such savings will not be offset be increases
in other expenses.
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 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of the Stockholders of
the Company was held on September 20, 1995.
(b) The following individuals were elected
to the board of directors:
James R. Maher
Thomas P. MacMahon
James B. Powell, M.D.
Jean-Luc Belingard
Linda Gosden Robinson
David B. Skinner, M.D.
Andrew G. Wallace, M.D.
(c) The matters voted upon were the election of
directors, approval and adoption of the 1995 Stock
Plan for Non-Employee Directors, approval and
adoption of the Performance Unit Plan, approval and
adoption of the Annual Bonus Incentive Plan and the
ratification of the appointment of KPMG Peat Marwick
LLP as the Company's independent auditors for the
fiscal year ending December 31, 1995. Each of such
matters was described in the proxy statement dated
August 17, 1995 which was distributed to
stockholders in connection with the annual meeting
of the stockholders of the Company. The results of
the vote were as follows:
Votes Votes Votes
Topic For Against Abstained Unvoted
- ----------------------- ---------- ------------ ---------- --------
Election of the members
of the board of directors:
James R. Maher 106,546,487 297,098 - -
Thomas P. MacMahon 106,546,919 296,666 - -
James B. Powell, M.D. 106,546,415 297,170 - -
Jean-Luc Belingard 106,546,415 297,170 - -
Linda Gosden Robinson 106,546,415 297,170 - -
David B. Skinner, M.D. 106,546,919 296,666 - -
Andrew G. Wallace, M.D. 106,546,415 297,170 - -
Approval and adoption of
the 1995 Stock Plan for
Non-Employee Directors: 102,164,945 4,632,472 46,118 -
Approval and adoption of
the Performance Unit Plan:106,562,559 219,063 61,963 -
Approval and adoption of
the Annual Bonus Incentive
Plan: 105,370,276 1,424,477 48,822 10
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
PART II - OTHER INFORMATION - Continued
Votes Votes Votes
Topic For Against Abstained Unvoted
- --------------------- --------- ----------- ----------- -----------
Ratification of the appoint-
ment of KPMG Peat Marwick
LLP as the Company's
independent auditors for
the fiscal year 1995: 106,759,120 53,117 31,068 280
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Amendment dated as of September
19, 1995 to the Employment Agreement dated
as of January 1, 1991, as amended on April
1, 1991, June 6, 1991, January 1, 1993,
April 1, 1994 and April 28, 1995, between
La Jolla Management Corp., a Delaware
corporation and a wholly-owned subsidiary
of the Company, and David C. Flaugh.(1)
10.2 First Amendment to Credit
Agreement dated as of September 8, 1995
among the Company, the banks named therein,
and Credit Suisse (New York Branch), as
Administrative Agent.
27 Financial Data Schedule
(electronically filed version only).
(1) Incorporated by reference herein to the current report on
Form 8-K filed with the Securities and Exchange Commission
on September 21, 1995.
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
PART II - OTHER INFORMATION - Continued
(b) Reports on Form 8-K
A current report on Form 8-K dated
September 19, 1995 was filed on September
21, 1995 in connection with the Company's
press release dated September 19, 1995
containing certain financial and other
information relating to the Company,
announcing the resignation of David C.
Flaugh, the then Executive Vice President
and Chief Operating Officer of the Company,
effective September 19, 1995, the results
of the annual meeting of the stockholders
held on September 20, 1995, and certain
other actions of the Board of Directors.
A current report on Form 8-K
dated October 25, 1995 was filed on October
30, 1995 in connection with the Company's
press release dated October 25, 1995
announcing operating results of the
Registrant for the three and nine month
periods ended September 30, 1995 as well as
certain other information.
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/ WESLEY R. ELINGBURG
--------------------------
Wesley R. Elingburg
Senior Vice President, Finance
(Principal Accounting Officer)
Date: November 14, 1995
FIRST AMENDMENT TO CREDIT AGREEMENT
Dated as of September 8, 1995
Among
LABORATORY CORPORATION OF AMERICA HOLDINGS
(formerly known as NATIONAL HEALTH LABORATORIES HOLDINGS INC.),
as Borrower,
THE BANKS NAMED HEREIN,
as Banks, and
CREDIT SUISSE (NEW YORK BRANCH),
as Administrative Agent
FIRST AMENDMENT TO CREDIT AGREEMENT dated as of
September 8, 1995 among LABORATORY CORPORATION OF AMERICA
HOLDINGS (formerly known as NATIONAL HEALTH LABORATORIES
HOLDINGS INC.), a Delaware corporation (the "Borrower"), the
banks, financial institutions and other institutional
lenders (the "Banks") listed on the signature pages hereof,
and CREDIT SUISSE (NEW YORK BRANCH) ("CS"), as
administrative agent (the "Administrative Agent") for the
Lenders hereunder.
PRELIMINARY STATEMENT
The parties hereto (i) have entered into a Credit
Agreement dated as of April 28, 1995 (the "Credit
Agreement") providing for, among other things, the Lenders
to lend to the Borrower up to $1,250,000,000 on the terms
and subject to the conditions set forth therein and (ii)
desire to amend the Credit Agreement in the manner set forth
herein. Each capitalized term used but not defined herein
shall have the meaning ascribed thereto in the Credit
Agreement.
NOW, THEREFORE, in consideration of the premises
and the mutual covenants and agreements contained herein,
the parties hereto hereby agree as follows:
ARTICLE I
AMENDMENTS
SECTION 1.01. Amendment of Definitions. Article
I, Section 1.01 of the Credit Agreement is hereby amended:
(a) by deleting the definition of "Interest
Coverage Ratio" set forth therein in its entirety and
inserting the following definition in lieu thereof:
" 'Interest Coverage Ratio' means (a) with
respect to (i) each of the periods commencing on
the Closing Date and ending on (A) June 30, 1995,
(B) September 30, 1995, (C) December 31, 1995 and
(D) March 31, 1996, and (ii) the four fiscal
quarter periods ending on June 30, 1996, September
30, 1996 and December 31, 1996, the ratio of (x)
Consolidated Adjusted EBITDA of the Borrower and
its Subsidiaries for such period to (y)
Consolidated Interest Expense of the Borrower and
its Subsidiaries for such period, (b) with respect
to each of the four fiscal quarter periods ending
on March 31, 1997, June 30, 1997 and September 30,
1997, the ratio of (x) the sum of (1) Consolidated
Adjusted EBITDA of the Borrower and its
Subsidiaries for each fiscal quarter ending prior
to March 31, 1997 included in such period plus (2)
Consolidated EBITDA of the Borrower and its
Subsidiaries for each fiscal quarter ending on or
after March 31, 1997 included in such period to
(y) Consolidated Interest Expense of the Borrower
and its Subsidiaries for such period and (c) with
respect to each subsequent four fiscal quarter
period, commencing with the four fiscal quarter
period ending on December 31, 1997, the ratio of
(x) Consolidated EBITDA of the Borrower and its
Subsidiaries for such period to (y) Consolidated
Interest Expense of the Borrower and its
Subsidiaries for such period."; and
(b) by deleting the definition of "Leverage
Ratio" set forth therein in its entirety and inserting
the following definition in lieu thereof:
" 'Leverage Ratio' means (a) with respect to
each of the periods commencing on the Closing Date
and ending on (i) June 30, 1995, (ii) September
30, 1995, (iii) December 31, 1995 and (iv) March
31, 1996, the ratio of (x) the total Consolidated
Debt of the Borrower and its Subsidiaries as of
the last day of such period to (y) Consolidated
Annualized Adjusted EBITDA of the Borrower and its
Subsidiaries for such period, (b) with respect to
each of the four fiscal quarter periods ending on
June 30, 1996, September 30, 1996 and December 31,
1996, the ratio of (x) the total Consolidated Debt
of the Borrower and its Subsidiaries as of the
last day of such period to (y) Consolidated
Adjusted EBITDA of the Borrower and its
Subsidiaries for such period, (c) with respect to
each of the four fiscal quarter periods ending on
March 31, 1997, June 30, 1997 and September 30,
1997 the ratio of (x) the total Consolidated Debt
of the Borrower and its Subsidiaries as of the
last day of such period to (y) the sum of (1)
Consolidated Adjusted EBITDA of the Borrower and
its Subsidiaries for each fiscal quarter ending on
or before December 31, 1996 included in such
period plus (2) Consolidated EBITDA of the
Borrower and its Subsidiaries for each fiscal
quarter ending on or after March 31, 1997 included
in such period and (d) with respect to each
subsequent four fiscal quarter period, commencing
with the four fiscal quarter period ending
December 31, 1997, the ratio of (x) the total
Consolidated Debt of the Borrower and its
Subsidiaries as of the last day of such fiscal
quarter to (y) Consolidated EBITDA of the Borrower
and its Subsidiaries for the four fiscal quarter
period ended at the end of such fiscal quarter.";
and
(c) by deleting the definition of "Restructuring
Costs" set forth therein in its entirety and inserting
the following definition in lieu thereof:
" 'Restructuring Costs' means a maximum of up
to (a) to the extent actually incurred,
$80,000,000 in the aggregate charged in respect of
the five fiscal quarters ended June 30, 1996, for
restructuring costs and deferred financing costs
(of which not more than $14,000,000 may constitute
deferred financing costs) of the Borrower of the
kind described in footnote 5 to the Pro Forma
Condensed Combined Consolidated Balance Sheet for
the year ended December 31, 1994 set forth in the
NHL Proxy Statement, plus (b) to the extent
actually incurred, $9,000,000 in the aggregate
charged in respect of the six fiscal quarters
ended December 31, 1996 for restructuring costs
incurred in connection with the Designated
Acquisitions for which estimated restructuring
costs in such amount are specified in the written
agreement of the Borrower and the Administrative
Agent with respect to Designated Acquisitions, and
plus (c) to the extent actually incurred or
reserved for on the financial statements required
to be delivered pursuant to Section 5.01(l)(i) and
(ii), $10,000,000 in the aggregate charged in
respect of the five fiscal quarters ended June 30,
1996 for Settlement Costs."; and
(d) by adding alphabetically the following new
definition:
"'Settlement Costs' means amounts paid or
reserved for payment by the Borrower to third
party payor claimants to settle claims made
regarding billing disputes to which the Borrower
or any of its Subsidiaries is a party."
SECTION 1.02. Amendment of Affirmative Covenants.
Article V, Section 5.01(k) of the Credit Agreement is hereby
amended by deleting the same in its entirety and inserting
the following in lieu thereof:
"(k) Minimum Stockholders' Equity. Maintain
Stockholders' Equity, after giving effect to the
Merger, of not less than (i) on the Closing Date,
$405,000,000, (ii) on June 30, 1995, a dollar amount
equal to (A) the greater of (1) $324,000,000 and (2)
80% of actual Stockholders' Equity on the Closing Date,
minus (B) After-Tax Restructuring Costs for the period
commencing on the Closing Date and ending on June 30,
1995 plus (C) if positive, 75% of Adjusted Net Income
for such period, (iii) on September 30, 1995, December
31, 1995, March 31, 1996, June 30, 1996, September 30,
1996 and December 31, 1996, a dollar amount equal to
(A) the minimum amount of Stockholders' Equity required
on the last day of the immediately preceding fiscal
quarter, minus (B) After-Tax Restructuring Costs for
the fiscal quarter ending on such date plus (C) if
positive, 75% of Adjusted Net Income for the fiscal
quarter ending on such date and (iv) on the last day of
each subsequent fiscal quarter, commencing with the
fiscal quarter ending in March 1997, a dollar amount
equal to (A) if positive, 75% of Adjusted Net Income
for such fiscal quarter plus (B) the minimum amount of
Stockholders' Equity required on the last day of the
immediately preceding fiscal quarter."
ARTICLE II
REPRESENTATIONS AND WARRANTIES
SECTION 2.01. Representations and Warranties of
the Borrower. The Borrower represents and warrants as
follows:
(a) The Borrower is a corporation duly organized,
validly existing and in good standing under the laws of
the State of Delaware.
(b) The execution, delivery and performance by
the Borrower of this Amendment are within its corporate
powers, have been duly authorized by all necessary
corporate action, and do not contravene the Borrower's
charter or by-laws.
(c) No authorization or approval or other action
by, and no notice to or filing with, any governmental
authority or regulatory body is required for the due
execution, delivery and performance by the Borrower of
this Amendment.
(d) This Amendment has been duly executed and
delivered by the Borrower. This Amendment is the
legal, valid and binding obligation of the Borrower,
enforceable against the Borrower, in accordance with
its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws
affecting the enforceability of creditors' rights
generally and by general principles of equity.
(e) The representations and warranties contained
in Section 4.01 of the Credit Agreement are correct in
all material respects on and as of the date hereof, as
though made on and as of the date hereof.
(f) No event has occurred and is continuing which
constitutes a Default.
ARTICLE III
MISCELLANEOUS
SECTION 3.01. Governing Law. This Amendment
shall be governed by, and construed in accordance with, the
laws of the State of New York, without regard to the
conflicts of law principles thereof.
SECTION 3.02. Execution in Counterparts. This
Amendment may be executed in any number of counterparts and
by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the
same agreement. Delivery of an executed counterpart of a
signature page to this Amendment by telecopier shall be
effective as delivery of a manually executed counterpart of
this Amendment.
SECTION 3.03. Effect on the Credit Agreement.
Upon execution and delivery of this Amendment, each
reference in the Credit agreement to "this Agreement",
"hereunder", "hereof", "herein", or words of like import
shall mean and be a reference to the Credit agreement, as
amended hereby and each reference to the Credit Agreement in
any Loan Document (as defined in the Credit Agreement) shall
mean and be a reference to the Credit Agreement, as amended
hereby. Except as expressly modified hereby, all of the
terms and conditions of the Credit Agreement shall remain
unaltered and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused
this Amendment to be executed by their respective officers
thereunto duly authorized, as of the date first above
written.
BORROWER: LABORATORY CORPORATION OF AMERICA
HOLDINGS
By:/s/ HAYWOOD D. COCHRANE JR.
-----------------------------------
Name: Haywood D. Cochrane, Jr.
Title: Executive Vice President and
Chief Financial Officer
ADMINISTRATIVE CREDIT SUISSE (NEW YORK BRANCH),
AGENT: as Administrative Agent
By:/s/ HEATHER RIEKENBERG
--------------------------------
Name: Heather Riekenberg
Title: Associate
and
By:/s/ IRA LUBINSKY
--------------------------------
Name: Ira Lubinsky
Title: Associate
CREDIT SUISSE (NEW YORK BRANCH)
By:/s/ HEATHER RIEKENBERG
---------------------------
Name: Heather Riekenberg
Title: Associate
By:/s/ KARL STUDER
---------------------------
Name: Karl Studer
Title: Member of Senior Management
BANK OF AMERICA ILLINOIS
By:/s/ WENDY L. LORING
----------------------------
Name: Wendy L. Loring
Title: Vice President
BANQUE NATIONALE DE PARIS
By:/s/ RICHARD L. STED
-----------------------------
Name: Richard L. Sted
Title: Senior Vice President
By:/s/ BONNIE G. EISENSTAT
-----------------------------
Name: Bonnie G. Eisenstat
Title: Vice President
BAYERISCHE LANDESBANK
GIROZENTRALE
By:/s/ WILFRIED FREUDENBERGER
---------------------------
Name: Wilfried Freudenberger
Title: Executive Vice President
and General Manager
By:/s/ PETER OBERMANN
---------------------------
Name: Peter Obermann
Title: Senior Vice President
Manager Lending Division
CHASE MANHATTAN BANK
By:/s/ ROGER LIEBLICH
-------------------------
Name: Roger Lieblich
Title: Managing Director
CREDIT LYONNAIS
CAYMAN ISLAND BRANCH
By:/s/ FARBOUD TAVANGAR
--------------------------
Name: Farboud Tavanger
Title: Authorized Signature
DEUTSCHE BANK AG
NEW YORK BRANCH AND/OR
CAYMAN ISLANDS BRANCH
By:/s/ RICHARD A. W. MCCLARY
---------------------------------
Name: Richard A. W. McClary
Title: Assistant Vice President
By:/s/ GEORG L. PETERS
--------------------------
Name: Georg L. Peters
Title: Vice President
FIRST FIDELITY BANK, N.A.
By:/s/ GRACE VALLACCHI
------------------------------
Name: Grace Vallacchi
Title: Vice President
THE FUJI BANK, LTD.
(NEW YORK BRANCH)
By:/s/ GINA KEARNS
----------------------------
Name: Gina Kearns
Title: Vice President & Manager
NATIONSBANK, N.A. (CAROLINAS)
By:/s/ MICHAEL A. CRABB, III
---------------------------------
Name: Michael A. Crabb, III
Title: Assistant Vice President
SOCIETE GENERALE
By:/s/ KIRK BOGEL
----------------------------
Name: Kirk Bogel
Title: Vice President
THE SUMITOMO BANK, LIMITED
By:/s/ YOSHINORI KAWAMURA
----------------------------
Name: Yoshinori Kawamura
Title: Joint General Manager
SWISS BANK CORPORATION
By:/s/ HANNO HUBER
-----------------------------
Name: Hanno Huber
Title: Associate Director Corporate
Clients Switzerland
By:/s/ GUIDO W. SCHULER
-----------------------------
Name: Guido W. Schuler
Title: Executive Director Corporate
Clients Switzerland
WACHOVIA BANK OF GEORGIA, N.A.
By:/s/ JAMES C. RATCLIFF
------------------------------
Name: James C. Ratcliff
Title: Vice President
WESTDEUTSCHE LANDESBANK
By:/s/ C. RUTHLAND
-------------------------
Name: C. Ruthland
Title: Associate
By:/s/ D. WOLF
-------------------------
Name: D. Wolf
Title: Vice President
BANK BRUSSELS LAMBERT
(NEW YORK BRANCH)
By:/s/ JURGEN RIGTERINK
--------------------------------
Name: Jurgen Rigterink
Title: Vice President
5
0000920148
LABORATORY CORPORATION OF AMERICA HOLDINGS
1000
9-MOS
DEC-31-1995
SEP-30-1995
25,000
0
483,800
47,400
54,300
591,100
414,800
122,600
1,826,900
311,800
959,000
1,200
0
0
410,400
1,826,900
1,028,600
1,028,600
722,400
722,400
256,500
0
48,500
2,300
6,700
(4,400)
0
(8,300)
0
(12,700)
(.12)
(.12)
