Document/Exhibit Description Pages Size
1: 10-Q 10-Q for the Quarter Ended March 31, 1994 14 56K
2: EX-2 Exhibit 2 Agreement and Plan of Merger 63 236K
3: EX-10 Exhibit 10 Revolving Credit Agreement 37 92K
4: EX-20 Exhibit 20 Press Release Dated May 4, 1994 4 12K
5: EX-99 Exhibit 99(A) Stock Option Agreement 13 38K
6: EX-99 Exhibit 99(B) Stock Option Agreement 13 39K
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, 1994
-----------------------------------
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 1-10740
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NATIONAL HEALTH LABORATORIES INCORPORATED
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(Exact name of registrant as specified in its charter)
DELAWARE 84-0611484
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4225 EXECUTIVE SQUARE, SUITE 800, LA JOLLA, CALIFORNIA 92037
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(Address of principal executive offices) (Zip code)
619-550-0600
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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
84,750,692 shares as of April 30, 1994, of which 20,176,729
shares are held by an indirect wholly-owned subsidiary of Mafco
Holdings Inc.
[Download Table]
NATIONAL HEALTH LABORATORIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Millions, except per share data)
March 31, December 31,
1994 1993
----------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 29.4 $ 12.3
Accounts receivable, net 139.4 119.0
Prepaid expenses and other 26.5 21.7
Deferred income taxes 20.2 21.6
Income taxes receivable 0.9 8.7
------- -------
Total current assets 216.4 183.3
Property, plant and equipment, net 105.6 100.1
Intangible assets, net 294.1 281.5
Other assets, net 16.3 20.6
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$ 632.4 $ 585.5
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 38.4 $ 36.9
Dividend payable 6.8 6.8
Accrued expenses and other 62.0 55.6
Current portion of accrued
settlement expenses 16.8 21.6
------- -------
Total current liabilities 124.0 120.9
Revolving credit facility 324.0 278.0
Capital lease obligation 9.8 9.7
Accrued settlement expenses, less
current portion 7.4 11.5
Deferred income taxes 5.0 3.1
Other liabilities 20.1 21.5
Stockholders' equity:
Preferred stock, $0.10 par value;
10,000,000 shares authorized;
none issued -- --
Common stock, $0.01 par value;
220,000,000 shares authorized;
99,354,492 shares issued at
March 31, 1994 and
December 31, 1993, respectively 1.0 1.0
Additional paid-in capital 226.3 226.3
Retained earnings 203.3 202.0
Minimum pension liability adjustment (2.4) (2.4)
Treasury stock, at cost; 14,603,800
shares of common stock at
March 31, 1994 and December 31, 1993,
respectively (286.1) (286.1)
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Total stockholders' equity 142.1 140.8
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$ 632.4 $ 585.5
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<FN>
See notes to unaudited consolidated condensed financial statements.
[Download Table]
NATIONAL HEALTH LABORATORIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Dollars in Millions, except per share data)
(Unaudited)
Three Months Ended
March 31,
--------------------
1994 1993
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Net sales $ 185.0 $ 199.8
Cost of sales 132.3 109.1
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Gross profit 52.7 90.7
Selling, general and
administrative expenses 31.0 31.3
Amortization of intangibles
and other assets 3.1 2.1
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Operating income 18.6 57.3
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Other income (expenses):
Investment income 0.2 0.4
Interest expense (4.5) (1.6)
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(4.3) (1.2)
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Earnings before income taxes 14.3 56.1
Provision for income taxes 6.2 22.5
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Net earnings $ 8.1 $ 33.6
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Earnings per common share $ 0.10 $ 0.36
Dividends per common share $ 0.08 $ 0.08
<FN>
See notes to unaudited consolidated condensed financial statements.
[Download Table]
NATIONAL HEALTH LABORATORIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
Three Months Ended
March 31,
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1994 1993
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 8.1 $ 33.6
Adjustments to reconcile net earnings
to net cash provided by (used for)
operating activities:
Depreciation and amortization 9.4 8.8
Provision for doubtful accounts,
net (0.9) (0.5)
Change in assets and liabilities,
net of effects of acquisitions:
Increase in accounts receivable (19.5) (14.2)
Increase in prepaid expenses
and other (4.8) (0.7)
Decrease in deferred income
taxes, net 3.3 11.7
Decrease in income taxes
receivable 7.8 15.2
Increase in accounts payable,
accrued expenses and other 3.8 10.1
Payments for settlement and
related expenses (8.9) (30.9)
Other, net 4.1 0.1
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(5.7) (0.4)
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Net cash provided by operating
activities 2.4 33.2
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (10.3) (4.3)
Acquisitions of businesses (13.5) --
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Net cash used for investing
activities (23.8) (4.3)
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(continued)
NATIONAL HEALTH LABORATORIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS, CONTINUED
(Dollars in Millions)
(Unaudited)
Three Months Ended
March 31,
--------------------
1994 1993
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit
facilities $ 46.0 $ 25.0
Deferred payments on acquisitions (0.7) (0.4)
Purchase of treasury stock -- (26.0)
Dividends paid on common stock (6.8) (7.6)
Other -- (0.7)
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Net cash provided by (used for)
financing activities 38.5 (9.7)
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Net increase in cash
and cash equivalents 17.1 19.2
Cash and cash equivalents at
beginning of year 12.3 33.4
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Cash and cash equivalents at
end of period $ 29.4 $ 52.6
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Supplemental schedule of cash
flow information:
Cash paid during the period for:
Interest $ 3.6 $ 1.3
Income taxes 0.2 0.2
Disclosure of non-cash financing
and investing activities:
Dividends declared and unpaid
on common stock $ 6.8 $ 7.4
In connection with business
acquisitions, liabilities were
assumed as follows:
Fair value of assets acquired $ 15.0 $ --
Cash paid (13.5) --
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Liabilities assumed $ 1.5 $ --
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<FN>
See notes to unaudited consolidated condensed financial statements.
NATIONAL HEALTH LABORATORIES INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in Millions, except per share data)
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements include the accounts of
National Health Laboratories Incorporated (the "Company") and its
wholly-owned subsidiaries after elimination of all material
intercompany accounts and transactions. Approximately 24% of the
outstanding common stock of the Company is owned by National Health
Care Group, Inc. ("NHCG") which is an indirect wholly-owned
subsidiary of Mafco Holdings Inc. ("Mafco").
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, 1994
and 1993 of 84,750,692 shares and 93,525,174 shares, respectively.
The change in the total number of shares outstanding resulted from
the purchase by the Company of outstanding shares of its common
stock, net of additional shares issued upon the exercise of options
pursuant to the Company's stock option plan.
3. DIVIDEND DECLARATION
On March 11, 1994, the Company declared a quarterly dividend
in the aggregate amount of $6.8 ($0.08 per share), which was paid
on April 26, 1994 to holders of record of common stock at the close
of business on April 5, 1994. Such dividend was paid entirely with
cash on hand. In connection with the acquisition and stock
repurchase program described in Note 4, the Company announced it is
discontinuing dividend payments for the foreseeable future in order
to increase its flexibility with respect to both its acquisition
strategy and stock repurchase program.
4. SUBSEQUENT EVENTS
On May 3, 1994, the Company entered into a definitive
agreement to acquire Allied Clinical Laboratories, Inc. ("Allied").
Pursuant to the agreement, a subsidiary of the Company commenced on
May 9, 1994 a cash tender offer for all shares of Allied common
stock for $23 per share. Any shares not tendered and purchased in
the offer will be exchanged for $23 per share in cash in a second-
step merger.
The tender offer and the merger are subject, among other
things, to the purchase in the offer of 4,836,000 Allied common
shares and the expiration of all waiting periods under the Hart-
Scott-Rodino Antitrust Improvements Act.
NATIONAL HEALTH LABORATORIES INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in Millions)
4. SUBSEQUENT EVENTS - Continued
Pursuant to a commitment letter dated May 3, 1994 between the
Company and Citibank, N.A. ("Citibank"), Citibank has committed to
provide (i) a secured revolving credit facility of up to $350.0
(the "Revolving Credit Facility") and (ii) a secured term loan
facility of $400.0 (the "Term Facility") to finance the acquisition
and merger of Allied, to refinance certain existing debt of Allied,
to refinance certain existing debt of the Company, to pay related
fees and expenses and for general corporate purposes of the Company
and its subsidiaries, in each case subject to the terms and
conditions set forth therein.
The Revolving Credit Facility will mature on the fifth
anniversary of the closing date with semi-annual reductions in the
availability of $50.0 each commencing three and one-half years
after the closing date. The Term Facility will mature six and one-
half years after the closing date, with repayments in each quarter
prior to maturity based on a specified amortization schedule. It
is expected that the terms and conditions of the Revolving Credit
Facility and the Term Facility will contain, among other
provisions, requirements for maintaining a defined level of
stockholders' equity, various financial ratios and certain
restrictions on investments and acquisitions of assets.
Additionally, the Company announced, in connection with the
acquisition of Allied, that the Company will terminate its current
10 million share repurchase program, under which 7,795,800 common
shares have been repurchased, and will establish a new $50.0 stock
repurchase program through which the Company will acquire
additional shares of the Company's common stock from time to time
in the open market.
On April 7, 1994, the Company entered into an additional
revolving credit facility (the "Additional Credit Facility") with
Citicorp USA, Inc. as agent for a group of banks. The Additional
Credit Facility provides that the Company may borrow up to $50.0 in
addition to the amount available under the existing revolving
credit facility. The Additional Credit Facility matures on August
1, 1994 and is unsecured. The terms and conditions of the
Additional Credit Facility are substantially the same as the terms
and conditions of the existing revolving credit facility. On April
30, 1994, no amounts had been drawn down on the Additional Credit
Facility.
NATIONAL HEALTH LABORATORIES INCORPORATED 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, 1994 were
$185.0, a decrease of 7.4% from $199.8 reported in the comparable
1993 period. Net sales increased by approximately 10% and 11% from
growth in new accounts and numerous acquisitions of small clinical
laboratory companies, respectively. A reduction in Medicare fee
schedules from 88% to 84% of the national limitation amounts on
January 1, 1994, plus changes in reimbursement policies of various
third party payors, reduced net sales by approximately 4%. The
impact of severe weather further decreased net sales by
approximately 3.5% to 5%. Other factors, including declines in the
level of HDL and ferritin testing, price erosion in the industry as
a whole, a changing test mix and lower utilization of laboratory
testing, comprised the remaining reduction in net sales.
Cost of sales primarily includes laboratory and distribution
costs, a substantial portion of which vary directly with volume.
Cost of sales increased to $132.3 in the first quarter of 1994 from
$109.1 in the same quarter of 1993. Of the $23.2 increase,
approximately $14.1 was the result of higher testing volume and
approximately $2.9 was due to an increase in phlebotomy staffing to
improve client service and meet competitive demand. The remaining
increase resulted mainly from higher compensation and insurance
expenses. Cost of sales as a percent of net sales was 71.5% for
the three months ended March 31, 1994 and 54.6% in the
corresponding 1993 period. The increase in the cost of sales
percentage primarily results from a reduction in net sales due to
pricing pressures which provides no corresponding reduction in
operating costs.
Selling, general and administrative expenses decreased to
$31.0 for the three months ended March 31, 1994 from $31.3 in the
corresponding period in 1993. This reduction was achieved despite
higher labor costs, primarily through decreased spending for legal
and other professional services and lower expenses related to the
relocation of Company personnel.
The increase in amortization of intangibles and other assets
to $3.1 in the first quarter of 1994 from $2.1 in the same quarter
of 1993 primarily resulted from the acquisition of numerous small
clinical laboratory companies during the second half of 1993 and
the beginning of 1994.
Interest expense was $4.5 for the three months ended March 31,
1994 compared with $1.6 for the corresponding period in 1993. The
change resulted from increased borrowings used primarily to finance
repurchases by the Company of its common stock during 1993 and to
finance the acquisition of numerous laboratories during both 1993
and 1994.
NATIONAL HEALTH LABORATORIES INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Millions, except per share data)
RESULTS OF OPERATIONS - Continued
The provision for income taxes as a percentage of earnings
before income taxes was 43.4% and 40.1% for the three months ended
March 31, 1994 and 1993, respectively. The change was mainly due
to the increase in U.S. corporate tax rates during 1993 and also
was the result of a higher effective rate for both federal and
state income taxes.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 1994 and 1993, net cash
provided by operating activities (after payment of settlement and
related expenses of $8.9 and $30.9 in 1994 and 1993, respectively)
was $2.4 and $33.2, respectively. Cash used for capital
expenditures and acquisitions of companies was $23.8 and $4.3 for
the three months ended March 31, 1994 and 1993, respectively. The
Company expects total capital expenditures to be approximately
$30.0 in 1994 to accommodate expected growth, to further automate
laboratory processes and improve efficiency.
Net cash provided by operations has historically been adequate
to fund capital expenditures and to provide the working capital
necessary for the Company's ongoing operations and internal growth.
During the three months ended March 31, 1994, capital expenditures
exceeded net cash provided by operations which required the use of
a portion of the Company's existing revolving credit facility to
finance its growth activities. However, the Company anticipates
that the aggregate net cash provided by operations for 1994 will be
sufficient to satisfy the projected 1994 capital expenditures.
The Company acquired four clinical laboratories during the
three months ended March 31, 1994 for an aggregate amount of $13.5
in cash and the recognition of $1.5 of liabilities. These
laboratories, on an annual basis, are expected to generate
approximately $11.4 in net sales.
On May 3, 1994, the Company entered into a definitive
agreement to acquire Allied. Pursuant to the agreement, a
subsidiary of the Company commenced on May 9, 1994 a cash tender
offer for all shares of Allied common stock for $23 per share. Any
shares not tendered and purchased in the offer will be exchanged
for $23 per share in cash in a second-step merger.
The tender offer and the merger are subject, among other
things, to the purchase in the offer of 4,836,000 Allied common
shares and the expiration of all waiting periods under the Hart-
Scott-Rodino Antitrust Improvements Act.
NATIONAL HEALTH LABORATORIES INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Millions, except per share data)
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES - Continued
Pursuant to a commitment letter dated May 3, 1994 between the
Company and Citibank, Citibank has committed to provide (i) a
secured Revolving Credit Facility of up to $350.0 and (ii) a
secured Term Facility of $400.0 to finance the acquisition and
merger of Allied, to refinance certain existing debt of Allied, to
refinance certain existing debt of the Company, to pay related fees
and expenses and for general corporate purposes of the Company and
its subsidiaries, in each case subject to the terms and conditions
set forth therein.
The Revolving Credit Facility will mature on the fifth
anniversary of the closing date with semi-annual reductions in the
availability of $50.0 each commencing three and one-half years
after the closing date. The Term Facility will mature six and one-
half years after the closing date, with repayments in each quarter
prior to maturity based on a specified amortization schedule. It
is expected that the terms and conditions of the Revolving Credit
Facility and the Term Facility will contain, among other
provisions, requirements for maintaining a defined level of
stockholders' equity, various financial ratios and certain
restrictions on investments and acquisitions of assets.
Additionally, the Company announced, in connection with the
acquisition of Allied, that the Company will terminate its current
10 million share repurchase program, under which 7,795,800 common
shares have been repurchased, and will establish a new $50.0 stock
repurchase program through which the Company will acquire
additional shares of the Company's common stock from time to time
in the open market.
On April 7, 1994, the Company entered into an Additional
Credit Facility with Citicorp USA, Inc. as agent for a group of
banks. The Additional Credit Facility provides that the Company
may borrow up to $50.0 in addition to the amount available under
the existing revolving credit facility. The Additional Credit
Facility matures on August 1, 1994 and is unsecured. The terms and
conditions of the Additional Credit Facility are substantially the
same as the terms and conditions of the existing revolving credit
facility. On April 30, 1994, no amounts had been drawn down on the
Additional Credit Facility.
On March 11, 1994, the Company declared a quarterly dividend
in the aggregate amount of $6.8 ($0.08 per share), which was paid
on April 26, 1994 to holders of record of common stock at the close
of business on April 5, 1994. Such dividend was paid entirely with
cash on hand. In connection with the acquisition and stock
repurchase program described in Note 4, the Company announced that
it is discontinuing dividend payments for the foreseeable future in
order to increase its flexibility with respect to both its
acquisition strategy and stock repurchase program.
NATIONAL HEALTH LABORATORIES INCORPORATED AND SUBSIDIARIES
(Dollars in Millions, except per share data)
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In September 1993, as discussed in the Company's most
recent annual report on Form 10-K, the Company was served with
a subpoena issued by the Office of Inspector General of the
United States Department of Health and Human Services (the
"OIG") concerning the Company's regulatory compliance
procedures. The Company has provided documents to the OIG in
response to the subpoena and continues to be in contact with
the OIG through its outside attorneys.
Item 5. Other Events
On May 3, 1994, the Company entered into a definitive
agreement to acquire Allied. Pursuant to the agreement, a
subsidiary of the Company commenced on May 9, 1994 a cash
tender offer for all shares of Allied common stock for $23 per
share. Any shares not tendered and purchased in the offer
will be exchanged for $23 per share in cash in a second-step
merger.
The tender offer and the merger are subject, among other
things, to the purchase in the offer of 4,836,000 Allied
common shares and the expiration of all waiting periods under
the Hart-Scott-Rodino Antitrust Improvement Act.
In furtherance of the transaction, the Company announced
that it had entered into stock option agreements with Haywood
D. Cochrane, Jr., Allied's President and Chief Executive
Officer, and Warburg, Pincus Capital Company, L.P., pursuant
to which the Company has the option to purchase from such
stockholders an aggregate amount of 2,768,815 shares of Allied
common stock at $23 per share.
The Company also announced it is discontinuing dividend
payments for the foreseeable future in order to increase its
flexibility with respect to both its acquisition strategy and
the Company's new $50.0 stock repurchase program through which
the Company will acquire, from time to time, additional shares
of its common stock on the open market.
NATIONAL HEALTH LABORATORIES INCORPORATED AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2 - Agreement and Plan of Merger dated as of
May 3, 1994.
10 - Revolving Credit Agreement dated as of
April 7, 1994 among National Health
Laboratories Incorporated and Citicorp
USA, Inc.
20 - Press Release dated May 4, 1994
99(a) - Stock Option Agreement dated as of May
3, 1994, among NHL, N Acquisition Corp.
and Warburg, Pincus Capital Company.
L.P.
99(b) - Stock Option Agreement dated as of May
3, 1994, among NHL, N Acquisition Corp.
and Haywood D. Cochrane, Jr.
(b) Reports on Form 8-K
National Health Laboratories Incorporated
filed no reports on Form 8-K during the
fiscal quarter ended March 31, 1994.
S I G N A T U R E
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
NATIONAL HEALTH LABORATORIES INCORPORATED
Registrant
By:/s/ MICHAEL L. JEUB
Michael L. Jeub
Executive Vice President, Chief
Financial Officer and Treasurer
(Principal Accounting Officer)
Date: May 10, 1994
INDEX TO EXHIBITS
Exhibit No.
2 Agreement and Plan of Merger dated
as of May 3, 1994.
10 Revolving Credit Agreement dated as of
April 7, 1994 among National Health
Laboratories Incorporated and Citicorp
USA, Inc.
20 Press Release dated May 4, 1994.
99(a) Stock Option Agreement dated as of
May 3, 1994, among NHL, N Acquisition
Corp. and Warburg, Pincus Capital
Company. L.P.
99(b) Stock Option Agreement dated as of
May 3, 1994, among NHL, N Acquisition
Corp. and Haywood D. Cochrane, Jr.
Dates Referenced Herein and Documents Incorporated by Reference
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