View:
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, 1997
-------------------------------------
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
---------------------------------------------
LABORATORY CORPORATION OF AMERICA HOLDINGS
- ---------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3757370
- ---------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
358 SOUTH MAIN STREET, BURLINGTON, NORTH CAROLINA 27215
- ---------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(910) 229-1127
- ---------------------------------------------------------------------
(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 122,935,080
shares as of May 5, 1997, of which 61,329,256 shares are held by an indirect
wholly owned subsidiary 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 5, 1997, 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,
1997 1996
--------------- --------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 29.5 $ 29.3
Accounts receivable, net 519.2 505.6
Inventories 43.1 44.3
Prepaid expenses and other 22.5 21.8
Deferred income taxes 64.6 66.2
Income taxes receivable 53.1 54.3
------- -------
Total current assets 732.0 721.5
Property, plant and equipment, net 272.0 282.9
Intangible assets, net 882.1 891.1
Other assets, net 25.8 21.5
------- -------
$1,911.9 $1,917.0
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 64.1 $ 65.7
Accrued expenses and other 169.9 168.4
Current portion of long-term debt 131.3 18.7
Loan from affiliate 187.0 --
------- -------
Total current liabilities 552.3 252.8
Revolving credit facility 384.0 371.0
Long-term debt, less current portion 562.5 693.8
Loan from affiliate -- 187.0
Capital lease obligation 9.8 9.8
Other liabilities 142.8 144.5
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;
122,935,080 shares outstanding at
March 31, 1997 and December 31, 1996 1.2 1.2
Additional paid-in capital 411.0 411.0
Accumulated deficit (151.7) (154.1)
------- -------
Total stockholders' equity 260.5 258.1
------- -------
$1,911.9 $1,917.0
======= =======
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,
----------------------
1997 1996
--------- ---------
Net Sales $ 391.5 $ 403.9
Cost of Sales 277.2 303.3
------- -------
Gross profit 114.3 100.6
Selling, general and
administrative expenses 78.9 65.5
Amortization of intangibles
and other assets 7.6 7.3
------- -------
Operating income 27.8 27.8
Other income (expense):
Investment income 0.8 0.7
Interest expense (22.7) (16.7)
------- -------
Earnings before income taxes 5.9 11.8
Provision for income taxes 3.5 5.9
------- -------
Net earnings $ 2.4 $ 5.9
======= =======
Net earnings per common share $ 0.02 $ 0.05
======= =======
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,
-------------------------
1997 1996
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 2.4 $ 5.9
Adjustments to reconcile net earnings
to net cash provided by
operating activities:
Depreciation and amortization 21.9 20.8
Deferred income taxes, net 2.0 4.8
Provision for doubtful accounts,
net 4.1 (0.9)
Change in assets and liabilities,
net of effects of acquisitions:
Increase in accounts receivable (17.7) (20.8)
Decrease(increase)in inventories 1.2 (9.7)
Increase in prepaid expenses
and other (0.8) (0.7)
Change in income taxes
receivable/payable, net 1.2 18.7
Increase in accounts payable,
accrued expenses and other 7.1 9.5
Payments for restructuring and
non-recurring charges (4.4) (6.2)
Payments for settlements and
related expenses (1.3) (0.3)
Other, net (5.3) (1.9)
------ ------
Net cash provided by operating
activities 10.4 19.2
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3.1) (14.9)
Acquisitions of businesses -- (3.2)
------ ------
Net cash used for investing
activities (3.1) (18.1)
------ ------
(continued)
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS - (Continued)
(Dollars in Millions)
(Unaudited)
Three Months Ended
March 31,
-------------------------
1997 1996
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit
facilities $ 25.0 $ 87.0
Payments on revolving credit
facilities (12.0) (70.0)
Payments on long-term debt (18.7) (16.7)
Deferred payments on acquisitions (1.4) (2.1)
------ ------
Net cash used by financing
activities (7.1) (1.8)
------ ------
Net increase (decrease) in cash and
cash equivalents 0.2 (0.7)
Cash and cash equivalents at
beginning of year 29.3 16.4
------ ------
Cash and cash equivalents at
end of period $ 29.5 $ 15.7
====== ======
Supplemental schedule of cash
- ----------------------------
flow information:
-----------------
Cash paid (received)during the
period for:
Interest $ 19.3 $ 16.8
Income taxes (1.8) (16.7)
In connection with business
---------------------------
acquisitions, liabilities were
------------------------------
assumed as follows:
-------------------
Fair value of assets acquired $ -- $ 7.9
Cash paid -- (3.2)
Liabilities assumed $ -- $ 4.7
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)
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, 1997 and 1996 of
122,935,080 shares and 122,908,722 shares, respectively.
On March 3, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share," replacing Accounting Principles Board ("APB") Opinion No. 15,
"Earnings Per Share." SFAS No. 128 replaces "primary" and "fully diluted"
earnings per share ("EPS") under APB Opinion No. 15 with "basic" and
"diluted" EPS. Unlike primary EPS, basic EPS excludes the dilutive effects
of options, warrants and other convertible securities. Dilutive EPS
reflects the potential dilution of securities that could share in the
earnings of an entity, similar to fully diluted EPS. SFAS No. 128 is
effective for years ending after December 15, 1997 and will require the
restatement of prior year earnings per share calculations. The
implementation of SFAS No. 128 would have had no significant impact on the
calculation of earnings per share for the quarters ended March 31, 1997 and
1996.
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in Millions)
3. RESTRUCTURING CHARGES
Following a merger in 1995 with Roche Biomedical Laboratories, Inc.
("RBL"), 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, in 1996
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, 1996 $ 8.3 $ 9.4 $ 16.9 $ 34.6
Non cash items -- -- -- --
Cash payments (3.4) (0.1) (0.5) (4.0)
------ ------ ------ ------
Balance at
March 31, 1997 $ 4.9 $ 9.3 $ 16.4 $ 30.6
====== ====== ====== ======
Current $ 21.5
Non-current 9.1
------
$ 30.6
======
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Millions)
OVERVIEW
- --------
This quarterly report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. In
addition, from time to time, the Company or its representatives have made or
may make forward-looking statements, orally or in writing. Such forward-
looking statements may be included in, but are not limited to, various
filings made by the Company with the Securities and Exchange Commission,
press releases or oral statements made by or with the approval of an
authorized executive officer of the Company. Actual results could differ
materially from those projected or suggested in any forward-looking
statements as a result of a wide variety of factors and conditions, which
have been described in the section of the Company's Annual Report on Form 10-
K for the year ended December 31, 1996, entitled, "Cautionary Statement for
Purposes of the `Safe Harbor' Provisions of the Private Securities
Litigation Reform Act of 1995" and other documents the Company files from
time to time with the Securities and Exchange Commission including the
Company's quarterly reports on Form 10-Q and current reports on Form 8-K,
and shareholders are specifically referred to these documents with regard to
factors and conditions that may affect future results.
In the last several years, the Company's business has been affected by
significant government regulation, price competition and increased influence
of managed care organizations resulting from payors' efforts to control the
cost, utilization and delivery of health care services. As a result of
these factors, the Company's profitability has been impacted by changes in
the volume of testing, the prices and costs of its services, the mix of
payors and the level of bad debt expense.
Management expects that price erosion and utilization declines will
continue to negatively impact net sales and results of operations for the
foreseeable future, particularly as a result of anticipated growth in
managed care. Since the third quarter of 1996, the Company has expanded its
efforts to improve the profitability of new and existing business in an
attempt to counter the effects of such price erosion. To date this effort
has focused primarily on reviewing existing contracts, including those with
managed care organizations, and selectively repricing or discontinuing
business with existing accounts which perform below Company expectations.
The Company believes that as a result of this effort, the first quarter of
1997 was the first quarter in two years that the Company's price per
accession increased versus the comparable prior year quarter. The Company
is also targeting price increases in certain areas, such as specialty and
niche testing, which have not seen price increases since 1995. While such
increases have adversely affected volumes,
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Millions)
the Company believes that such measures along with other cost reduction
programs, will improve its overall profitability. There can be no
assurance, however, of the timing or success of such measures or that the
Company will not lose market share as a result of these measures. Also, the
Company is reviewing its sales organization and expects to modify its
commission structure so that compensation is tied more directly to the
profitability of retained and new business instead of the current practice
of basing commissions primarily on revenue generated. Finally, it is the
objective of management to partially offset any increases in cost of sales
as a percentage of net sales and selling, general and administrative
expenses as a percentage of net sales through cost savings the Company
expects to realize through comprehensive cost reduction programs. The
Company is reviewing alternatives relating to regions of the country and
certain businesses where profitability is not reaching internal goals and
may consolidate operations or enter into joint ventures, alliances, or asset
swaps with interested parties in order to maximize regional operating
efficiencies.
Many market-based changes in the clinical laboratory business have
occurred, most involving the shift away from traditional, fee-for-service
medicine to managed-cost health care. The growth of the managed care sector
presents various challenges to the Company and other independent clinical
laboratories. Managed care providers typically contract with a limited
number of clinical laboratories and negotiate discounts to the fees charged
by such laboratories in an effort to control costs. Such discounts have
resulted in price erosion and have negatively impacted the Company's
operating margins. In addition, managed care providers have used capitated
payment contracts in an attempt to promote more efficient use of laboratory
testing services. Under a capitated payment contract, the clinical
laboratory and the managed care provider agree to a per month payment to
cover all laboratory tests during the month, regardless of the number or
cost of the tests actually performed. Such contracts also shift the risks
of additional testing beyond that covered by the capitated payment to the
clinical laboratory. The increase in managed-cost health care has also
resulted in declines in the utilization of laboratory testing services.
In addition, Medicare (which principally serves patients 65 and older)
and Medicaid (which principally serves indigent patients) and insurers, have
increased their efforts to control the cost, utilization and delivery of
health care services. Measures to regulate health care delivery in general
and clinical laboratories in particular have resulted in reduced prices and
added costs and decreasing test utilization for the clinical laboratory
industry by increasing complexity and adding new regulatory and
administrative requirements. From time to time, Congress has also
considered changes to the Medicare fee schedules in conjunction with certain
budgetary bills. Any future changes to the Medicare fee schedules
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Millions)
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 or financial condition of the Company.
RESULTS OF OPERATIONS
- ---------------------
Net sales for the three months ended March 31, 1997 were $391.5, a
decrease of approximately 3.1% from $403.9 reported in the comparable 1996
period. Sales declined approximately 4.7% as a result of lower testing
volume which is a result of industry wide trends as well as the Company's
program of selectively eliminating unprofitable accounts and carefully
evaluating the acceptability of new business. The decline in sales
resulting from volume declines was partially offset by an increase in price
per accession of approximately 1.6% from the comparable 1996 period. The
increase in the price per accession was a direct result of the Company's
effort to negotiate better pricing on new contracts, raising prices on
existing contracts which do not meet Company profitability targets and other
price increases.
Cost of sales, which includes primarily laboratory and distribution
costs, was $277.2 for the three months ended March 31, 1997 compared to
$303.3 in the corresponding 1996 period, a decrease of $26.1. Cost of sales
decreased approximately $14.0 due to the decrease in volume, approximately
$15.1 due to a decrease in salaries and benefits and approximately $5.6 in
several other expense categories as a result of the Company's cost reduction
programs. These decreases were partially offset by an increase in salaries
due to scheduled salary increases and an increase in outside reference
testing expenses and supply costs resulting primarily from an increase in
volume in the Company's specialty and niche testing areas. Cost of sales as
a percentage of net sales was 70.8% for the three months ended March 31,
1997 and 75.1% in the corresponding 1996 period. The decrease in the cost
of sales percentage of net sales primarily resulted from the cost reduction
efforts mentioned above.
Selling, general and administrative expenses increased to $78.9 for the
three months ended March 31, 1997 from $65.5 in the same period in 1996.
The primary reason for the increase in these expenses is due to additional
costs, primarily salaries, consulting fees and the provision for doubtful
accounts, incurred to address billing issues. The provision for doubtful
accounts increased approximately $7.4 or 2% of net sales, from the
comparable 1996 period. The increase is primarily a result of the growth in
accounts receivable resulting from increased medical necessity and related
diagnosis code requirements of the Medicare program and various third party
payors and integration issues following the merger with Roche Biomedical
Laboratories, Inc. ("RBL") primarily resulting from maintaining and
consolidating multiple billing
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Millions)
systems. See "Liquidity and Capital Resources". These increases were
partially offset by decreases in selling expenses resulting from the
decrease in net sales. As a percentage of net sales, selling, general and
administrative expenses were 20.2% and 16.2% for the three months ended
March 31, 1997 and 1996, respectively. The increase in the selling, general
and administrative percentage primarily resulted from the factors noted
above.
The increase in amortization of intangibles and other assets to $7.6
for the three months ended March 31, 1997 from $7.3 in the corresponding
period in 1996 primarily resulted from small acquisitions completed in 1996.
Interest expense was $22.7 for the three months ended March 31, 1997
compared with $16.7 for the same period in 1996. The change resulted
primarily from increased borrowings resulting from lower collection rates on
accounts receivable and a loan from Roche Holdings Inc. ("Roche"), which was
used to pay a settlement in 1996 with the U.S. Government (the "Settlement
Payment"). See "Liquidity and Capital Resources". Roche holds approximately
49.9% of the Company's outstanding common stock.
The provision for income taxes as a percentage of earnings before taxes
was 59.3% for the three months ended March 31, 1997 compared to 50.0% for
the three months ended March 31, 1996. The Company's effective tax rate is
significantly impacted by non-deductible amortization of intangible assets.
As earnings before income taxes decreases, this non-deductible amortization
increases in proportion to such earnings resulting in an increase in the
effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash provided by operating activities (after payment of settlement
and related expenses of $1.3 and $0.3 in 1997 and 1996, respectively) was
$10.4 and $19.2, respectively. Capital expenditures were $3.1 and $14.9 for
1997 and 1996, respectively. The Company expects capital expenditures to be
approximately $70.0 in 1997 to further automate laboratory processes to
improve efficiency.
Increased medical necessity and related diagnosis code requirements of
the Medicare program were placed on the Company by certain third party
carriers in late 1995 and additional requirements were placed on the Company
at the beginning of 1996. The Company has experienced lower collection
rates as a result of these more stringent requirements. In addition,
increased difficulty in collecting amounts due from private insurance
carriers, including certain managed care plans, has negatively impacted cash
flow from operations. Finally, integration issues following the merger in
1995 with RBL have also resulted in increased accounts receivable balances
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Millions)
as a result of the Company maintaining and consolidating multiple billing
information systems. The Company currently has plans in place to stabilize
collection rates and improve the collection of accounts receivable. To date,
however, collection rates have continued to decline and additional changes
in requirements of third-party payors could increase the difficulty in
collections. There can be no assurance of the success of the Company's
plans to improve collections and, due to changes in medical necessity
requirements, the Company expects accounts receivable balances to continue
to exceed 1995 levels.
In connection with a merger in April 1995 with RBL (the "Merger"), the
Company entered into a credit agreement with the banks named therein and an
administrative agent (the "Existing Credit Agreement"), which made available
to the Company a term loan facility (the "Term Loan Facility") of $800.0 and
a revolving credit facility (the "Revolving Credit Facility") of $450.0.
Availability of funds under the Existing Credit Agreement is conditioned on
certain customary conditions, and the Existing Credit Agreement, as amended,
contains customary representations, warranties, covenants and events of
default.
In March 1997, the Company entered into an amendment and waiver to the
Existing Credit Agreement (the "Sixth Amendment") which eliminates
amortization payments on the Term Loan Facility for 1997 and modifies the
interest coverage and leverage ratios for the quarterly periods through
December 31, 1997. Pursuant to this amendment, the Company paid an
amendment fee of 37.5 basis points on commitments and will pay an additional
fee of 62.5 basis points if the Rights Offering, discussed below, is not
completed by June 30, 1997. Under the Sixth Amendment, maturities under the
Term Loan Facility aggregate $243.8, $162.5, $187.5 and $100.0 in 1998
through 2001, respectively.
In March 1997, the Company also entered into an amended credit
agreement which will become effective upon completion of the Rights
Offering, discussed below, following satisfaction of certain conditions
precedent (the "Amended Credit Agreement"). The Amended Credit Agreement
makes available to the Company an amended term loan Facility of $693.8 and
an amended revolving credit facility of $450.0 (the "Amended Term Loan
Facility" and "Amended Revolving Credit Facility," respectively).
As in the Existing Credit Agreement, the senior unsecured credit
facilities under the Amended Credit Agreement are composed of the Amended
Term Loan Facility and the Amended Revolving Credit Facility. The Amended
Revolving Credit Facility includes a $50.0 letter of credit sublimit. The
Amended Credit Agreement maturity dates are extended approximately three
years for the Amended Term Loan Facility
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Millions)
to March 31, 2004 and approximately two years for the Amended Revolving
Credit Facility to March 31, 2002.
As in the Existing Credit Agreement, both the Amended Term Loan
Facility and the Amended Revolving Credit Facility bear interest, at the
option of the Company, at (i) the base rate plus the applicable base rate
margin or (ii) the eurodollar rate plus the applicable eurodollar rate
margin. The Amended Credit Agreement provides that in the event of a
reduction of the percentage of Common Stock held by Roche and its affiliates
(other than the Company and its subsidiaries) below 25%, the applicable
interest margins and facility fees on borrowings outstanding under the
Amended Credit Agreement will increase. The amount of the increase will
depend, in part, on the leverage ratio of the Company at the time of such
reduction. In addition, pursuant to the Amended Credit Agreement, the
applicable interest margins on borrowings outstanding thereunder will be
based upon the leverage ratio.
Any lender that is party to the Amended Credit Agreement may serve as a
letter of credit issuer under the Amended Credit Agreement, as agreed
between the Company and such lender. The fronting fee payable to each
letter of credit issuer will be as negotiated between the Company and such
issuer, but will not exceed 0.125% per annum of the outstanding amount of
such issuer's letter of credit. Each lender will be deemed to have
purchased a participating interest in each letter of credit, and in addition
to the fronting fee the Company will pay a letters of credit fee for the
account of all the lenders equal to the applicable Amended Revolving Credit
Facility Eurodollar Rate Margin, as defined, minus 0.125% per annum.
Total amortization of the Amended Term Loan Facility for each twelve-
month period following the consummation of the Rights Offering will be
reduced significantly for the first three years, and will be made (in
quarterly installments) in accordance with the following table:
Year Amount
---- ------
1997 $ --
1998 --
1999 50.0
2000 100.0
2001 150.0
2002 150.0
2003 150.0
2004 93.8
As in the Existing Credit Agreement, the amounts available under the
Amended Revolving Credit Facility are subject to certain mandatory permanent
reduction and prepayment requirements and the Amended Term Loan Facility is
subject to specified mandatory
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Millions)
prepayment requirements. In the Amended Credit Agreement, required amounts
will first be applied to repay scheduled Amended Term Loan Facility payments
until the Amended Term Loan Facility is repaid in full and then to reduce
the commitments and advances under the Amended Revolving Credit Facility.
Required payments and reductions will include (i) the proceeds of debt
issuances, subject to certain exceptions; (ii) the proceeds of certain asset
sales, unless reinvested within one year of the applicable asset sale in
productive assets of a kind then used or usable in the business of the
Company and its subsidiaries; (iii) the proceeds of sales of equity
securities in excess of certain amounts; and (iv) under certain
circumstances, a percentage of excess cash flow, as calculated annually.
The Amended Credit Agreement contains representations and warranties
substantially similar to those set forth in the Existing Credit Agreement.
Conditions precedent to effectiveness of the Amended Credit Agreement
include, without limitation, gross cash proceeds from the Rights Offering,
discussed below, in an aggregate amount equal to at least $250.0, receipt of
appropriate certificates and legal opinions, accuracy in all material
respects of representations and warranties, including absence of material
adverse change in the Company and its subsidiaries (taken as a whole) since
December 31, 1996, absence of defaults, evidence of authority, and payment
of transaction fees.
The Amended Credit Agreement contains customary covenants similar to,
and in the case of limitations on acquisitions and incurrence of additional
debt, more restrictive than the covenants set forth in the Existing Credit
Agreement.
Like the Existing Credit Agreement, the Amended Credit Agreement
contains financial covenants with respect to a leverage ratio, an interest
coverage ratio and minimum stockholders' equity. The covenant levels are
less restrictive than under the Existing Credit Agreement, and will be
tested quarterly.
The Amended Credit Agreement contains events of default substantially
similar to those set forth in the Existing Credit Agreement.
Borrowings under the Revolving Credit Facility were $384.0 as of March
31, 1997. In addition, in December 1996, the Company received a loan of
$187.0 from Roche to fund the Settlement Payment in the form of a promissory
note which bears interest at 6.625% per annum and originally matured on
March 31, 1997. In late March 1997, the Company obtained an extension of
the Roche Loan to March 31, 1998. The Company subsequently made the
Settlement Payment in December 1996.
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Millions)
The Roche Loan is expected to be repaid with a portion of the proceeds from
the Rights Offering, discussed below.
In February 1997, the Company filed a registration statement with the
Securities and Exchange Commission (the "Commission") relating to the
proposed offering of an aggregate of $500.0 million of convertible preferred
stock issuable in two series pursuant to transferable subscription rights to
be granted on a pro rata basis to each stockholder of the Company (the
"Rights Offering"). Rights holders who exercise their rights in full will
also be entitled to subscribe for additional shares of preferred stock
issuable pursuant to any unexercised rights.
The proceeds of the Rights Offering will be used to reduce amounts
outstanding under the Company's Existing Credit Agreement, repay the Roche
Loan, and pay fees and expenses related to the Rights Offering.
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 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 $1.9 at April 30, 1997.
For a discussion of legal proceedings which may impact the Company's
liquidity and capital resources see "Part II - Other Information -- Item 1:
Legal Proceedings."
Cash and cash equivalents on hand, cash flow from operations and
additional borrowing capabilities of $66.0 under the Revolving Credit
Facility as of March 31, 1997 are expected to be sufficient to meet
anticipated operating requirements and provide funds for capital
expenditures and working capital through 1997. The Company's ability to
meet anticipated operating requirements, debt repayments, including the
Roche Loan, and other anticipated cash outlays beyond 1997 is substantially
dependent upon the completion of the Rights Offering. Failure to complete
the Rights Offering by the end of February 1998 will require additional
waivers or amendments to the Existing Credit Agreement and an extension of
the Roche Loan. There can be no assurance that such waivers, amendments or
an extension can
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Millions)
be obtained. Therefore, the failure to complete the Rights Offering by the
end of February 1998 could have a material adverse effect on the Company's
financial condition and liquidity.
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in certain claims and legal actions
arising in the ordinary course of business. In the opinion of
management, based upon the advice of counsel, the ultimate
disposition of these matters will not have a material adverse
effect on the financial position or results of operations of the
Company. In addition, the Company has recently been contacted by
representatives of certain insurance companies, and individuals in
a purported class action, who have asserted claims for private
reimbursement which are similar to the Government claims recently
settled. The Company is carefully evaluating these claims, and
although there can be no assurance, based upon the information
currently available to it, management does not believe that the
ultimate outcome of these claims will have a material adverse
effect on its financial condition. However, due to the early
stage of such claims, management cannot make an estimate of loss
or predict whether or not such claims will have a material adverse
effect on the Company's results of operations in any particular
period.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
20 Press release of the Registrant dated April 25, 1997.*
27 Financial Data Schedule (electronically filed version
only).
(b) Reports on Form 8-K
(1) A current report on Form 8-K dated December 30,
1996 was filed on January 6, 1997 in connection
with promissory note between the Company and
Roche Holdings Inc. and an amendment to the
Company's credit agreement.
(2) A current report on Form 8-K dated January 6,
1997 was filed on January 8, 1997 in connection
with the resignation of the Company's President
and Chief Executive Officer.
(3) A current report on Form 8-K and a current
report on Form 8-K/A, both dated February 20,
1997, were filed on February 26, 1997 in
connection with the press release dated
February 20, 1997 announcing operating results
of the Company for the three and twelve month
periods ended December 31, 1996 as well as
certain other information.
(4) A current report on Form 8-K dated February
27, 1997 was filed on February 27, 1997 in
connection with the filing by the Company of a
registration statement on Form S-3 (the
"Registration Statement") (Registration No.
333-22427).
(5) A current report on Form 8-K dated March 3,
1997 was filed on March 3, 1997 in connection
with an update to the Company's Forms S-3/S-4
dated April 25, 1995 (Registration No. 33-
58775).
(6) A current report on Form 8-K dated April 11,
1997 was filed on April 11, 1997 in connection
with the filing of Amendment No. 1 to its
Registration Statement on Form S-3 originally
filed with the Securities and Exchange
Commission on February 27, 1997 (Registration
No. 333-22427).
(7) A current report on Form 8-K dated April 21,
1997 was filed on April 24, 1997 in connection
with the Company engaging Price Waterhouse LLP
as its independent accountants for the year
ending December 31, 1997.
(8) A current report on Form 8-K dated April 25,
1997 was filed on April 30, 1997 in connection
with the press release dated April 25, 1997
announcing operating results of the Registrant
for the three month period ended March 31,
1997 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 April 30, 1997.
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LABORATORY CORPORATION OF AMERICA HOLDINGS
Registrant
By:/s/ THOMAS P. MAC MAHON
-----------------------------------
Thomas P. Mac Mahon
Chairman of the Board, President
and Chief Executive Officer
By:/s/ WESLEY R. ELINGBURG
-----------------------------------
Wesley R. Elingburg
Executive Vice President,
Chief Financial Officer and
Treasurer (Principal
Financial Officer and
Principal Accounting Officer
Date: May 14, 1997