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, 1996
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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
- -----------------------------------------------------------------
(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)
(910) 229-1127
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
The number of shares outstanding of the issuer's common stock is
122,919,805 shares as of May 7, 1996, 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 May 7, 1996, 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,
1996 1995
---------- -----------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 15.7 $ 16.4
Accounts receivable, net 447.4 425.6
Inventories 63.6 53.7
Prepaid expenses and other 19.6 19.0
Deferred income taxes 62.6 63.3
Income taxes receivable 3.2 21.9
------- -------
Total current assets 612.1 599.9
Property, plant and equipment, net 301.9 304.8
Intangible assets, net 906.4 916.7
Other assets, net 15.8 15.8
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$ 1,836.2 $ 1,837.2
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 109.0 $ 106.2
Accrued expenses and other 169.2 173.5
Current portion of long-term debt 72.9 70.8
------- -------
Total current liabilities 351.1 350.5
Revolving credit facility 235.0 218.0
Long-term debt, less current portion 693.8 712.5
Capital lease obligation 9.5 9.6
Other liabilities 129.3 135.0
Stockholders' equity:
Preferred stock, $0.10 par value;
10,000,000 shares authorized;
none issued and outstanding -- --
Common stock, $0.01 par value;
220,000,000 shares authorized;
122,908,722 shares outstanding at
March 31, 1996 and December 31,
1995, respectively 1.2 1.2
Additional paid-in capital 411.0 411.0
Retained earnings (accumulated deficit) 5.3 (0.6)
------- -------
Total stockholders' equity 417.5 411.6
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$ 1,836.2 $ 1,837.2
======= =======
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)
March 31, March 31,
1996 1995
-------- --------
Net Sales $ 403.9 $ 243.8
Cost of Sales 303.3 164.3
------ ------
Gross profit 100.6 79.5
Selling, general and
administrative expenses 65.5 38.0
Amortization of intangibles
and other assets 7.3 4.8
------ ------
Operating income 27.8 36.7
Other income (expense):
Investment income 0.7 0.4
Interest expense (16.7) (13.7)
------ ------
Earnings before income taxes 11.8 23.4
Provision for income taxes 5.9 10.6
------ ------
Net earnings $ 5.9 $ 12.8
====== ======
Earnings per common share $ 0.05 $ 0.15
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,
------------------------
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 5.9 $ 12.8
Adjustments to reconcile net earnings
to net cash provided by (used for)
operating activities:
Depreciation and amortization 20.8 14.2
Provision for doubtful accounts,
net (0.9) (0.8)
Change in assets and liabilities,
net of effects of acquisitions:
Increase in accounts receivable (20.8) (11.1)
Decrease(increase)in inventories (9.7) 0.3
Increase in prepaid expenses
and other (0.7) (16.0)
Decrease in deferred income
taxes, net 4.8 1.0
Decrease in income taxes
receivable 18.7 7.8
Increase(decrease)in accounts
payable, accrued expenses
and other 9.5 (14.0)
Payments for restructuring
charges (6.2) --
Payments for settlement and
related expenses (0.3) (19.3)
Other, net (1.9) (0.7)
------ ------
Net cash provided by (used for)
operating activities 19.2 (25.8)
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (14.9) (7.1)
Acquisitions of businesses (3.2) (1.8)
------ ------
Net cash used for investing
activities (18.1) (8.9)
------ ------
(continued)
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS - (Continued)
(Dollars in Millions)
(Unaudited)
Three Months Ended
March 31,
-----------------------
1996 1995
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit
facilities $ 87.0 $ 42.0
Payments on revolving credit
facilities (70.0) --
Payments on long-term debt (16.7) (9.7)
Deferred payments on acquisitions (2.1) (3.4)
Other -- 0.1
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Net cash provided by (used for)
financing activities (1.8) 29.0
------ ------
Net decrease in cash
and cash equivalents (0.7) (5.7)
Cash and cash equivalents at
beginning of year 16.4 26.8
------ ------
Cash and cash equivalents at
end of period $ 15.7 $ 21.1
====== ======
Supplemental schedule of cash
flow information:
Cash paid (received)during the
period for:
Interest $ 16.8 $ 13.7
Income taxes (16.7) (0.3)
In connection with business
acquisitions, liabilities were
assumed as follows:
Fair value of assets acquired $ 7.9 $ 2.7
Cash paid (3.2) (1.8)
------ ------
Liabilities assumed $ 4.7 $ 0.9
====== ======
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
The consolidated condensed 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 months ended March
31, 1996 and 1995 of 122,908,722 shares and 84,766,768 shares,
respectively. The increase in the total number of shares
outstanding for the three months ended March 31, 1996 resulted
primarily from the issuance of shares of common stock to HLR
Holdings, Inc. and Roche Holdings, Inc. in connection with merger
with Roche Biomedical Laboratories, Inc. ("RBL") in April 1995.
3. MERGER WITH ROCHE BIOMEDICAL LABORATORIES, INC.
On April 28, 1995, the Company completed its merger (the
"Merger") with RBL.
The following table provides unaudited pro forma operating
results as if the Merger had been completed at the beginning
1995. The pro forma information does not include the
restructuring charges and extraordinary item related to the
Merger. The pro forma information has been prepared for
comparative purposes only and does not puport to be indicative of
future operating results.
Three Months Ended
March 31, 1995
------------------
Net sales $ 429.3
Net earnings 21.6
Net earnings per common share 0.18
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.
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, 1995 $ 12.8 $ 18.6 $ 18.9 $ 50.3
Non cash items -- (4.7) -- (4.7)
Cash payments (5.8) -- (0.4) (6.2)
----- ----- ----- -----
Balance at
March 31, 1996 $ 7.0 $ 13.9 $ 18.5 $ 39.4
===== ===== ===== =====
Current $ 22.9
Non-current 16.5
-----
$ 39.4
=====
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, 1996 were
$403.9, an increase of 65.7% from $243.8 reported in the
comparable 1995 period. Net sales from the inclusion of RBL
increased net sales by approximately $179.9 or 73.8%.
Acquisitions of small clinical laboratory companies increased net
sales by approximately 3.6%. Severe weather in January and
February of 1996 decreased net sales by approximately $11.5 or
4.7%. A reduction in Medicare fee schedules from 80% to 76% of
the national limitation amounts on January 1, 1996, reduced net
sales by approximately 1.8%. Price erosion in the industry as a
whole, lower utilization of laboratory testing and lost accounts,
net of growth in new accounts, comprised the remaining reduction
in net sales. Lower utilization of laboratory testing and price
erosion primarily resulted from continued changes in payor mix
brought on by the increase in managed care.
Cost of sales, which includes primarily laboratory and
distribution costs, was $303.3 for the three months ended March
31, 1996 compared to $164.3 in the corresponding 1995 period, an
increase of $139.0. Cost of sales increased approximately $138.9
due to the inclusion of the cost of sales of RBL, approximately
$2.5 due to an increase in overtime and temporary employee
expenses related to acceleration of the Company's synergy plan
and other operational factors and approximately $5.0 in several
other expense categories. These increases were partially offset
by decreases in volume related expenses, primarily related to
weather, of $2.3, supplies of $3.6 and insurance of $1.5. Cost
of sales as a percentage of net sales was 75.1% for the three
months ended March 31, 1996 and 67.4% in the corresponding 1995
period. The increase in the cost of sales percentage of net
sales primarily resulted from a reduction in net sales due to
severe weather in January and February of 1996, a reduction in
Medicare fee schedules, price erosion and utilization declines,
each of which provided little corresponding reduction in costs.
Selling, general and administrative expenses increased to
$65.5 for the three months ended March 31, 1996 from $38.0 in the
same period in 1995. The inclusion of the selling, general and
administrative expenses of RBL since April 28, 1995 increased
expenses by approximately $27.0. Increases in other expenses,
primarily overtime and temporary employee expenses related to
customer service issues, aggregated $3.8. These increases were
partially offset by decreases in several expense categories,
including selling expenses, as a result of the Company's on-going
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Millions)
synergy and cost-reduction programs. As a percentage of net
sales, selling, general and administrative expenses were 16.2%
and 15.6% for the three months ended March 31, 1996 and 1995,
respectively. The increase in the selling, general and
administrative percentage primarily resulted from the factors
noted in the preceding paragraph.
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 the
synergy program, as discussed below, and 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 $7.3 for the three months ended March 31, 1996 from $4.8 in
the corresponding period in 1995 primarily resulted from the
Merger in April 1995.
Interest expense was $16.7 for the three months ended March
31, 1996 compared with $13.7 for the same period in 1995. The
change resulted primarily from increased borrowings used to
finance the Merger partially offset by a lower effective
borrowing rate.
The provision for income taxes as a percentage of earnings
before taxes was 50.0% for the three months ended March 31, 1996
compared to 45.3% for the three months ended March 31, 1995. The
increased effective rate primarily resulted from an increase in
non-deductible amortization resulting from the Merger and from
lower earnings before income taxes.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash provided by (used for) operating activities (after
payment of settlement and related expenses of $0.3 and $19.3 in
1996 and 1995, respectively) was $19.2 and ($25.8), respectively.
Capital expenditures were $14.9 and $7.1 for 1996 and 1995, respectively.
The Company expects capital expenditures to be approximately $65.0 in
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
(Dollars in Millions)
1996 to continue the Merger related integration, to accommodate
expected growth, to further automate laboratory processes and to
improve efficiency.
The Company is a party to interest rate swap agreements with
certain major financial institutions, rated A or better by
Moody's Investor Service, solely to manage its interest rate
exposure with respect to $600.0 million of its floating rate debt
under the Term Loan Facility. The agreements effectively change
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. Amounts
paid by the Company in the three months ended March 31, 1996 were
not significant. 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 estimated unrealized gain on such
agreements was approximately $2.7 at April 30, 1996.
See Note 4 of the Notes to Unaudited Consolidated Condensed
Financial Statements which sets forth the Company's restructuring
activities for 1996. Future cash payments under the restructuring
plan are expected to be $9.0 over the next twelve months and
$16.5 thereafter.
As a result of the Merger, the Company has realized and is
expected to continue to achieve substantial savings in operating
costs through the consolidation of certain operations and the
elimination of redundant expenses. Such savings are being
realized over time as the consolidation process is completed.
The Company expects to continue to realize incremental savings
from the synergy program in 1996 and expects to achieve
an annualized net savings run-rate of approximately $110.0 million
within two years following the Merger. The synergies expected to be
realized by the Company are being 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 generating significant savings.
In addition, savings have been 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. In addition, the acceleration of certain
portions of the Company's plans have resulted
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
(Dollars in Millions)
in increases in certain costs, primarily overtime and temporary
employee expenses, as consolidation continues. 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 by 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 a revolving credit
facility of $450.0.
Each of the above forward-looking statements are subject to
change based on various important factors, including without
limitation, competitive actions in the marketplace and adverse
actions of governmental and other third-party payors. Further
information on potential factors which could affect the Company's
financial results is included in the Company's Form 10-K for the
year ended December 31, 1995.
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
20 Press release of the Registrant
dated April 25, 1996.*
27 Financial Data Schedule
(electronically filed version only).
(b) Reports on Form 8-K
A report on Form 8-K dated April
25, 1996 was filed on May 8, 1996 in
connection with the press release dated
April 25, 1996 announcing operating results
of the Registrant for the three month
period ended March 31, 1996 as well as
certain other information.
- -----------------
* Incorporated by reference herein to the report on Form 8-K filed
with the Securities and Exchange Commission on May 8, 1996.
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
LABORATORY CORPORATION OF AMERICA HOLDINGS
Registrant
By:/s/ HAYWOOD D. COCHRANE, JR.
----------------------------------
Haywood D. Cochrane, Jr.
Executive Vice President, Chief
Financial Officer and Treasurer
By:/s/ WESLEY R. ELINGBURG
---------------------------------
Wesley R. Elingburg
Senior Vice President, Finance
(Principal Accounting Officer)
Date: May 14, 1996
5
0000920148
LABORATORY CORPORATION OF AMERICA HOLDINGS
1000
3-MOS
DEC-31-1996
MAR-31-1996
15,700
0
534,800
87,400
63,600
612,100
444,900
143,000
1,836,200
351,100
938,300
0
0
1,200
416,300
1,836,200
403,900
403,900
303,300
303,300
72,800
0
16,700
11,800
5,900
5,900
0
0
0
5,900
.05
.05
