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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 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
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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 123,541,076
shares as of August 1, 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 August 1, 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 BALANCE SHEETS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
JUNE 30, DECEMBER 31,
1997 1996
------------ ------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 30.8 $ 29.3
Accounts receivable, net 518.1 505.6
Inventories 40.9 44.3
Prepaid expenses and other 23.0 21.8
Deferred income taxes 60.9 66.2
Income taxes receivable -- 54.3
------- -------
Total current assets 673.7 721.5
Property, plant and equipment, net 260.4 282.9
Intangible assets, net 874.1 891.1
Other assets, net 25.8 21.5
------- -------
$ 1,834.0 $ 1,917.0
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 52.6 $ 65.7
Accrued expenses and other 159.7 168.4
Current portion of long-term debt -- 18.7
------- -------
Total current liabilities 212.3 252.8
Loan from affiliate -- 187.0
Revolving credit facility 75.0 371.0
Long-term debt, less current portion 643.8 693.8
Capital lease obligation 9.8 9.8
Other liabilities 140.3 144.5
Redeemable Preferred Stock, 30,000,000 shares
authorized:
Series A 8 1/2% Convertible Exchangeable
Preferred Stock, $0.10 par value, 4,363,202
shares issued and outstanding at June 30,
1997, none issued and outstanding at
December 31, 1996 (aggregate preference
value of $218.2) 212.5 --
Series B 8 1/2% Convertible Pay-in-Kind
Preferred Stock, $0.10 par value, 5,636,798
shares issued and outstanding at June 30,
1997, none issued and outstanding at
December 31, 1996(aggregate preference
value of $281.8) 275.3 --
Stockholders' equity:
Common stock, $0.01 par value; 520,000,000
shares authorized; 123,541,076 shares
and 122,935,080 shares issued and outstanding
at June 30, 1997 and December 31, 1996,
respectively 1.2 1.2
Additional paid-in capital 412.8 411.0
Accumulated deficit (149.0) (154.1)
------- -------
Total stockholders' equity 265.0 258.1
------- -------
$ 1,834.0 $ 1,917.0
======= =======
See notes to unaudited consolidated financial statements.
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
1997 1996 1997 1996
------- ------- ------- -------
Net sales $ 781.1 $ 813.9 $ 389.6 $ 410.0
Cost of sales 548.9 603.8 271.7 300.5
------ ------ ------ ------
Gross profit 232.2 210.1 117.9 109.5
Selling, general and
administrative expenses 158.2 147.4 79.3 81.9
Amortization of intangibles
and other assets 15.4 14.8 7.7 7.5
Restructuring and non-
recurring charges -- 23.0 -- 23.0
------ ------ ------ ------
Operating income (loss) 58.6 24.9 30.9 (2.9)
Other income (expense):
Investment income 1.4 0.9 0.6 0.2
Interest expense (43.9) (33.7) (21.3) (17.0)
------ ------ ------ ------
Earnings (loss) before income
taxes 16.1 (7.9) 10.2 (19.7)
Provision for income taxes 9.7 0.4 6.1 (5.5)
------ ------ ------ ------
Net earnings (loss) $ 6.4 $ (8.3) $ 4.1 $ (14.2)
====== ====== ====== ======
Preferred Stock dividends and
accretion of mandatorily
redeemable preferred stock 1.2 -- 1.2 --
------ ------ ------ ------
Net earnings(loss) attributable
to common stockholders $ 5.2 $ (8.3) $ 2.9 $ (14.2)
====== ====== ====== ======
Primary earnings (loss) per
common share $ 0.04 $ (0.07) $ 0.02 $ (0.12)
====== ====== ====== ======
Fully diluted earnings (loss)
per common share $ 0.04 $ (0.07) $ 0.02 $ (0.12)
====== ====== ====== ======
Dividends per common share $ -- $ -- $ -- $ --
====== ====== ====== ======
See notes to unaudited consolidated financial statements.
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
--------------------
1997 1996
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 6.4 $ (8.3)
Adjustments to reconcile net earnings (loss)
to net cash provided by (used for)
operating activities:
Restructuring and non-recurring charges -- 23.0
Depreciation and amortization 43.8 42.4
Deferred income taxes, net 7.4 (6.0)
Provision for doubtful accounts, net (0.3) 11.4
Change in assets and liabilities,
net of effects of acquisitions:
Increase in accounts receivable (12.2) (56.1)
Decrease (increase) in inventories 3.3 (1.5)
Increase in prepaid expenses
and other (1.2) (1.5)
Change in income taxes
receivable/payable, net 59.4 22.5
Decrease in accounts payable
and other (18.1) (33.7)
Payments for restructuring charges (6.4) (9.3)
Payments for settlement and
related expenses (1.4) (0.3)
Other, net (6.3) (3.6)
------ ------
Net cash provided by (used for)operating
activities 74.4 (21.0)
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (7.8) (33.9)
Acquisitions of businesses -- (3.2)
------ ------
Net cash used for investing
activities (7.8) (37.1)
------ ------
(continued)
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(DOLLARS IN MILLIONS)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
--------------------
1997 1996
CASH FLOWS FROM FINANCING ACTIVITIES: ------- -------
Proceeds from revolving credit facilities $ 25.0 $ 185.0
Payments on revolving credit facilities (321.0) (80.0)
Payment on loan from affiliate (187.0) --
Payments on long-term debt (68.8) (33.3)
Deferred payments on acquisitions (1.8) (5.4)
Net proceeds from sale of redeemable
preferred stock 487.1 --
Net proceeds from issuance of stock to
employee stock plan 1.4 --
------ ------
Net cash provided by (used for) financing
activities (65.1) 66.3
Net increase in cash and
cash equivalents 1.5 8.2
Cash and cash equivalents at
beginning of year 29.3 16.4
------ ------
Cash and cash equivalents at
end of period $ 30.8 $ 24.6
====== ======
Supplemental schedule of cash
- -----------------------------
flow information:
----------------
Cash paid(received)during the period for:
Interest $ 46.1 $ 35.7
Income taxes (60.7) (16.2)
Disclosure of non-cash financing
- --------------------------------
and investing activities:
------------------------
Dividends declared and unpaid on
Series A Preferred Stock $ 0.5 $ --
Pay-in-Kind dividends declared and
unpaid on Series B Preferred Stock $ 0.7 $ --
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 financial statements.
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
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
Primary earnings per share are based upon the weighted average number of
shares outstanding during the three- and six-months ended June 30, 1997 of
122,935,080 shares and the weighted average number of shares outstanding during
the three- and six-months ended June 30, 1996 of 122,920,200 and 122,914,474
shares respectively.
Fully diluted earnings per share are based on the weighted average number
of shares outstanding during the three- and six-month periods ended June 30,
1997 of 142,915,080 shares and 132,980,273 shares, respectively and the
weighted average number of shares outstanding during the three- and six-month
periods ended June 30, 1996 of 122,920,200 and 122,914,474 shares,
respectively.
Supplementary primary earnings per share represents what primary earnings
per share would have been if the Company's issuance of redeemable preferred
stock and related retirement of debt had taken place at the beginning of the
period. Supplementary primary earnings per share are $(0.02) and $(0.05) for
the three- and six-month periods ending June 30, 1997, respectively.
Supplementary primary earnings per share was calculated for the three- and six-
month periods ended June 30, 1997, by adjusting net income attributable to
common shareholders by adding back interest, net of tax ($4.2 and $8.9,
respectively) and deducting additional dividends ($9.6 and $20.2,
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 and quarter earnings per
share calculations. The implementation of SFAS No. 128 would have had no
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
2. EARNINGS PER SHARE - CONTINUED
significant impact on the calculation of earnings per share for the three- and
six-month periods ended June 30, 1997 and 1996.
3. ISSUANCE OF REDEEMABLE PREFERRED STOCK
On May 19, 1997 the Board of Directors of the Company declared a dividend
of 10,000,000 transferable subscription rights which were then issued pro rata
to holders of its common stock on May 29, 1997 entitling them to purchase up to
an aggregate of $500.0 of convertible preferred stock issuable in two series at
a subscription price of $50 per share (the "Preferred Stock Offering"). The
subscription period ended on June 16, 1997. On that date, rights were
exercised to purchase 4,363,202 shares of 8 1/2% Series A Convertible
Exchangeable Preferred Stock ("Series A") and 5,636,798 shares of 8 1/2%
Series B Convertible Pay-in-Kind Preferred Stock ("Series B"), each at a
subscription price of $50 per share. Roche Holdings, Inc. ("Roche"), the owner
of approximately 49.9% of the Company's common stock, exercised its basic
subscription privilege in full for 4,988,751 of 8 1/2% Series B Convertible
Pay-in-Kind Preferred Stock and other rights holders purchased the remaining
5,011,249 shares.
The Series A is convertible at the option of the holder after September
30, 1997 into common stock, will pay cash dividends and will be exchangeable on
or after June 30, 2000 at the Company's option for 8 1/2% Convertible
Subordinated Notes due June 30, 2012. The Series B will be convertible at the
option of the holder after June 30, 2000 into common stock, will pay dividends
in kind until June 30, 2003 and in cash thereafter and will not be exchangeable
for notes. The conversion rate for both series of preferred stock is 18.1818
shares of common stock per share of preferred stock. Each series of preferred
stock will be mandatorily redeemable after June 30, 2012 at $50 per share and
will be redeemable at the option of the Company after July 7, 2000 at prices
declining from $52.83 to $50.00 in 2006 and thereafter. Net proceeds from the
Preferred Stock Offering were $487.1 and were used to repay a loan from Roche
Holdings Ltd., including accrued interest, and to reduce amounts outstanding
under the Company's term loan and revolving credit facilities.
Offering costs of $12.9 were recorded against the aggregate preference
value of the preferred stock and will be accreted over fifteen years.
Accretion for the second quarter of 1997 was $0.023.
4. AMENDED AND RESTATED CREDIT AGREEMENT
In connection with a merger in April 1995 (the "Merger") with Roche
Biomedical Laboratories, Inc. ("RBL"), 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.
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
4. AMENDED AND RESTATED CREDIT AGREEMENT - CONTINUED
In March 1997, the Company entered into an amended credit agreement which
became effective upon completion of the Preferred Stock Offering discussed in
Note 3, following satisfaction of certain conditions precedent (the "Amended
and Restated Credit Agreement"). The Amended and Restated 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).
The senior unsecured credit facilities under the Amended and Restated
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 and Restated Credit Agreement
maturity dates are extended approximately three years for the Amended Term Loan
Facility to March 31, 2004 and approximately two years for the Amended
Revolving Credit Facility to March 31, 2002.
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 and Restated 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 and Restated 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. Future interest margins on borrowings outstanding under the
Amended and Restated Credit Agreement will be based upon the performance level
of the Company as defined therein.
Under the Amended and Restated Credit Agreement, maturities under the
Amended Term Loan Facility, after the payment of $50.0 from proceeds of the
Preferred Stock Offering, aggregate $46.4 in 1999, $92.8 in 2000, $139.2 in
2001 through 2003 and $87.0 in 2004.
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 prepayment
requirements. In the Amended and Restated Credit Agreement, required amounts
are first to 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 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 amount; and
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
4. AMENDED AND RESTATED CREDIT AGREEMENT - CONTINUED
(iv) under certain circumstances, a percentage of excess cash flow, as
calculated annually.
The Amended and Restated Credit Agreement contains financial covenants
with respect to a leverage ratio, an interest coverage ratio and minimum
stockholders' equity.
A portion of the proceeds of the Preferred Stock Offering were used to
repay approximately $50.0 under the Amended Term Loan Facility and $242.0 under
the Amended Revolving Credit Facility.
5. RESTRUCTURING CHARGES
Following the Merger in 1995, 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. In the second quarter of 1997 the Company determined
that approximately $12.6 of these reserves were excessive due largely to
expected proceeds from subleases and asset disposals. Also, in the second
quarter of 1997 the Company decided to downsize the Winston-Salem, North
Carolina laboratory and redirect specimen volumes to other company facilities
in order to realize operational efficiencies. Restructuring charges related to
the closing of the Winston-Salem laboratory totaled $12.6.
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 -- (2.5) -- (2.5)
Cash payments (4.8) (0.1) (1.0) (5.9)
Excess reserves (1.7) (5.6) (5.3) (12.6)
Winston-Salem
closure 2.7 2.6 7.3 12.6
----- ------ ------- -----
Balance at
June 30, 1997 $ 4.5 $ 3.8 $ 17.9 $ 26.2
===== ====== ======= =====
Current $ 17.1
Non-current 9.1
-----
$ 26.2
=====
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
6. NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130
Reporting Comprehensive Income and SFAS No. 131 Disclosures about Segments of
an Enterprise and Related Information. Both statements are effective for
fiscal years beginning after December 15, 1997. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its components
in financial statements. SFAS No. 131 establishes standards for the way that
public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. SFAS No 131 requires presentation of segment information under
the "management approach", which aligns segments disclosure with the way that
management organizes the segments within the enterprise for making operation
decisions and assessing performance. Management has not yet completed its
assessment of how these standards will impact existing disclosures. The
Company intends to comply with these standards in 1998.
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 that
perform below Company expectations. The Company believes that as a result of
this effort, the first two quarters of 1997 were the first quarters in two
years that the Company's price per accession increased versus the comparable
prior year quarters. The Company is also targeting price increases in certain
areas, such as specialty and niche testing, which have not seen price increases
since 1995. Although such increases have adversely affected volumes, 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
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
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 continues to review 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),
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. In 1984, Congress established a Medicare fee schedule for
clinical laboratory services performed for patients covered under Part B of the
Medicare program. Subsequently, Congress imposed a national ceiling on the
amount that can be paid under the fee schedule. Since the 1984 establishment
of Medicare fee schedules, Congress has periodically reduced the ceilings on
Medicare reimbursement to clinical laboratories from previously authorized
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
levels. In early August, Congress passed and the President signed the Balanced
Budget Act of 1997 ("BBA"), which includes a provision that reduces, effective
January 1, 1998, the Medicare national limitations from 76% of the 1984
national median to 74% of the national median. An additional provision in the
BBA freezes the Consumer Price Index update for five years.
As part of an examination of industry wide clinical laboratory billing
practices begun in 1993 by the Office of the Inspector General of the
Department of Health and Human Services ("OIG"), the United States Department
of Justice ("DOJ"), and other federal and state investigators, certain billings
for tests performed by LabCorp predecessor companies Allied, NHL, and RBL were
also reviewed. These investigations were part of a broad based federal inquiry
into Medicare and related billings that have resulted in financial settlements
with a number of other clinical laboratories. On November 21, 1996, the
Company reached a settlement with OIG and the DOJ regarding the prior billing
practices of various of its predecessor companies. The Company settled this
matter without an admission of fault. Consistent with this overall settlement
the Company paid $187 to the Federal Government (the "Settlement Payment") in
December 1996 with proceeds from a loan from Roche Holdings, Inc. ("Roche").
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 COMPARED WITH THREE MONTHS ENDED JUNE 30,
1996.
Net sales for the three months ended June 30, 1997 were $389.6, a decrease
of approximately 5% from $410.0 reported in the comparable 1996 period. Sales
declined approximately 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 2% 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 that do not meet Company
profitability targets and other price increases.
Cost of sales, which includes primarily laboratory and distribution costs,
was $271.7 for the three months ended June 30, 1997 compared to $300.5 in the
corresponding 1996 period, a decrease of $28.8. Cost of sales decreased
approximately $20.8 due to the decrease in volume, approximately $0.9 due to a
decrease in salaries and benefits and approximately $10.0 primarily relating to
data processing supplies, request forms, freight and consulting fees 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
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
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 69.7% for the three months ended June 30, 1997 and 73.3% 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 decreased to $79.3 for the
three months ended June 30, 1997 from $81.9 in the same period in 1996. The
primary reason for the decrease is a decrease of $2.1 in the provision for
doubtful accounts. The Company recorded an additional $10.0 of provision for
doubtful accounts in the second quarter of 1996. This decrease was partially
offset by additional costs, primarily salaries and consulting fees incurred to
address billing issues. The provision for doubtful accounts, before the special
charge of $10.0 booked in the second quarter of 1996, increased approximately
$7.9 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 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
20.3% and 20.0% for the three months ended June 30, 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 $7.7 for
the three months ended June 30, 1997 from $7.5 in the corresponding period in
1996 primarily resulted from small acquisitions completed in 1996.
Net interest expense was $20.7 for the three months ended June 30, 1997
compared with $16.8 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., which was used to pay the
Settlement Payment. See "Overview". Roche holds approximately 49.9% of the
Company's outstanding common stock.
The provision for income taxes as a percentage of earnings before taxes
for the three months ended June 30, 1997 is not comparable to the three months
ended June 30, 1996 due to restructuring charges in 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.
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1996.
Net sales for the six months ended June 30, 1997 were $781.1, a decrease
of approximately 4% from $813.9 reported in the comparable 1996 period. Sales
declined approximately 6% 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 2% 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 that do not meet Company
profitability targets and other price increases.
Cost of sales, which includes primarily laboratory and distribution costs,
was $548.9 for the six months ended June 30, 1997 compared to $603.8 in the
corresponding 1996 period, a decrease of $54.9. Cost of sales decreased
approximately $34.8 due to the decrease in volume, approximately $16.0 due to a
decrease in salaries and benefits and approximately $15.9 primarily relating to
data processing supplies, request forms and freight 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 70.3% for
the six months ended June 30, 1997 and 74.2% 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 $158.2 for the
six months ended June 30, 1997 from $147.4 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 $5.3 or 1% 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 RBL primarily resulting from
maintaining and consolidating multiple billing 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 20.3% and 18.1%
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)
for the six months ended June 30, 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 $15.4 for
the six months ended June 30, 1997 from $14.8 in the corresponding period in
1996 primarily resulted from small acquisitions completed in 1996.
Net interest expense was $42.5 for the six months ended June 30, 1997
compared with $32.8 for the same period in 1996. The change resulted primarily
from increased borrowings resulting from lower collection rates on accounts
receivable and the loan from Roche Holdings, Inc., which was used to pay the
Settlement Payment. See "Overview".
The provision for income taxes as a percentage of earnings before taxes
for the six months ended June 30, 1997 is not comparable to the six months
ended June 30, 1996 due to restructuring charges in 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 $1.4 and $0.3 for the three months ended June 30, 1997 and
1996, respectively) was $74.4 and $(21.0) for the three months ended June 30,
1997 and June 30, 1996, respectively. The increase in cash flow from
operations primarily resulted from an income tax refund. Capital expenditures
were $7.8 and $33.9 for 1997 and 1996, respectively. The Company expects
capital expenditures to be approximately $50.0 in 1997 to further automate
laboratory processes to improve efficiency. Such expenditures are expected to
be funded by cash flow from operations as well as borrowings under the
Company's credit facilities.
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 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 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
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)
the collection of accounts receivable. In the second quarter of 1997, the
Company's collection rate, as measured by the number of days sales outstanding,
remained flat with the first quarter of 1997. However, 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.
On May 19, 1997 the Board of Directors of the Company declared a dividend
of 10,000,000 transferable subscription rights, which were then issued pro rata
to holders of its common stock on May 29, 1997 entitling them to purchase up to
an aggregate of $500.0 of convertible preferred stock issuable in two series at
a subscription price of $50 per share (the "Preferred Stock Offering"). The
subscription period ended on June 16, 1997. On that date, rights were
exercised to purchase 4,363,202 shares of 8 1/2% Series A Convertible
Exchangeable Preferred Stock ("Series A") and 5,636,798 shares of 8 1/2% Series
B Convertible Pay-in-Kind Preferred Stock ("Series B"), each at a subscription
price of $50 per share. Roche Holdings, Inc., the owner of approximately 49.9%
of the Company's common stock, exercised its basic subscription privilege in
full for 4,988,751 of Series B and other rights holders purchased the remaining
5,011,249 shares.
The Series A is convertible at the option of the holder after September
30, 1997 into common stock, will pay cash dividends and will be exchangeable on
or after June 30, 2000 at the Company's option for 8 1/2% Convertible
Subordinated Notes due 2012 at a rate of $50 principal amount of notes for each
share of the Series A. The Series B will be convertible at the option of the
holder after June 30, 2000 into common stock, will pay dividends in kind until
June 30, 2003 and in cash thereafter and will not be exchangeable for notes.
The conversion rate for both series of preferred stock will be 18.1818 shares
of common stock per share of preferred stock. Each series of preferred stock
will be mandatorily redeemable in 2012 at $50 per share and will be redeemable
at the option of the Company after July 7, 2000 at prices declining from $52.83
to $50.00 in 2006 and thereafter. Net proceeds from the Preferred Stock
Offering were $487.1 and were used to repay a loan from Roche Holdings, Inc.
including accrued interest and to reduce amounts outstanding under the
Company's term loan and revolving credit facilities.
In connection with a merger in April 1995 with RBL, 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.
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
In March 1997, the Company entered into an amended credit agreement which
became effective upon completion of the Preferred Stock Offering, following
satisfaction of certain conditions precedent (the "Amended and Restated Credit
Agreement"). The Amended and Restated Credit Agreement made 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).
The senior unsecured credit facilities under the Amended and Restated
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 and Restated Credit Agreement maturity dates are extended
approximately three years for the Amended Term Loan Facility to March 31, 2004
and approximately two years for the Amended Revolving Credit Facility to March
31, 2002.
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 and Restated 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 and Restated 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. Future interest margins on borrowings outstanding under the
Amended and Restated Credit Agreement will be based upon the performance level
of the Company as defined therein.
Under the Amended and Restated Credit Agreement, maturities under the
Amended Term Loan Facility, after the payment of $50.0 from proceeds of the
Preferred Stock Offering, aggregate $46.4 in 1999, $92.8 in 2000, $139.2 in
2001 through 2003 and $87.0 in 2004.
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 prepayment
requirements. In the Amended and Restated Credit Agreement, required amounts
are first to 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 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)
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
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 and Restated Credit Agreement contains financial covenants
with respect to a leverage ratio, an interest coverage ratio and minimum
stockholders' equity.
A portion of the proceeds of the Preferred Stock Offering were used to
repay approximately $50.0 under the Amended Term Loan Facility and $242.0 under
the Amended Revolving Credit Facility.
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 under the Amended Revolving Credit Facility
are expected to be sufficient to meet anticipated operating requirements and
provide funds for capital expenditures and working capital for the foreseeable
future.
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 six months ended June 30, 1997 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 loss on such agreements was approximately $(1.0) at July 31, 1997.
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 4. REPORT OF THE INSPECTOR OF ELECTION
On June 25, 1997 the Company held its 1997 annual meeting. The final
tabulation of the votes cast at the meeting was as follows:
FOR WITHHELD
--- --------
ELECTION OF THE MEMBERS
OF THE BOARD OF DIRECTORS:
American Stock Transfer & Trust Company
Thomas P. Mac Mahon 70,445,440 512,726
James B. Powell, MD 70,439,637 518,529
Jean-Luc Belingard 70,445,440 512,726
Wendy E. Lane 70,445,440 512,726
Robert E. Mittelstaedt, Jr. 70,445,440 512,726
David B. Skinner, MD 70,335,440 512,726
Andrew G. Wallace, MD 69,734,728 1,223,438
Individual votes cast at the meeting
Thomas P. Mac Mahon 17,996 0
James B. Powell, MD 17,996 0
Jean-Luc Belingard 17,996 0
Wendy E. Lane 17,996 0
Robert E. Mittelstaedt, Jr. 17,996 0
David B. Skinner, MD 17,996 0
Andrew G. Wallace, MD 17,996 0
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
Item 4. REPORT OF THE INSPECTOR OF ELECTION - Continued
VOTES VOTES VOTES
----- ----- -----
FOR AGAINST ABSTAINED
--- ------- ---------
Approval to amend Article Fourth of the
Certificate of Incorporation to increase
the number of authorized shares to
520,000,000 shares of common stock and
30,000,000 shares of preferred stock:
American Stock Transfer & Trust Company 69,247,213 1,637,795 73,158
Individual votes cast at the meeting 17,996 0 0
Approval and adoption of an amendment to the
Laboratory Corporation of America Holdings
1995 Stock Plan for Non-Employee Directors to
increase the number of common shares issuable
by 300,000:
American Stock Transfer & Trust Company 70,107,833 600,377 249,956
Individual votes cast at the meeting 17,996 0 0
Approval and adoption of the Laboratory
Corporation of America Holdings 1997
Stock Option Plan:
American Stock Transfer & Trust Company 66,508,605 4,199,656 249,905
Individual votes cast at the meeting 17,996 0 0
Ratification of the appointment of Price
Waterhouse LLP as the Company's
independent auditors for the fiscal year
ending December 31, 1997:
American Stock Transfer & Trust Company 70,831,013 74,690 52,463
Individual votes cast at the meeting 17,996 0 0
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 Certificate of Designation of the 8 1/2% Series A
Convertible Exchangeable Preferred Stock.*
4.2 Certificate of Designation of the 8 1/2% Series B
Convertible Pay-in-Kind Preferred Stock.*
27 Financial Data Schedule (electronically filed version
only).
(b) Reports on Form 8-K
(1) A current report on Form 8-K dated May 20, 1997 was filed
on May 20, 1997, by the registrant, in connection with the
filing of Amendment No. 3 to its Registration Statement on
Form S-3 originally filed with the Securities and Exchange
Commission on February 27,1997 (Registration No.333-22427).
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
Item 6. Exhibits and Reports on Form 8-K - Continued
(2) A current report on Form 8-K dated June 19, 1997 was filed
on June 20, 1997, by the registrant, in connection with
the press release dated June 19, 1997 announcing the
successful completion of its rights offering.
- ------------------
* Filed on April 11, 1997 as part of Registration Statement on Form S-3/A
(File No. 333-22427) with the Securities and Exchange Commission and
incorporated herein by reference.
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, 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: August 14, 1997