Nichols Institute Launches Restructuring : Corporations: The San Juan Capistrano-based medical testing company will not comment on possible layoffs, but says it will take a ‘significant’ charge against current quarter’s earnings.
Nichols Institute said Tuesday that it is launching an aggressive restructuring program that will result in a “significant” charge against earnings for the current quarter.
The medical testing company, which is based in San Juan Capistrano and employs 4,000 nationwide, would not elaborate on its plans or say whether layoffs are likely. The company did say that it plans to make further consolidations in its troubled Texas operations.
Company spokeswoman Marilyn Hauge said no laboratories will be closed but that work will be shifted among the existing facilities. Also, plans to phase out certain programs will be accelerated, she said.
The charge against earnings will put Nichols in violation of its loan agreements. As a result, Nichols officials said, they will seek to renegotiate terms with lenders.
“It will be several weeks before the composition and magnitude of the restructuring and its financial impact can be determined, but it is likely that the charge will be material,” President George Bragg said in a statement.
The restructuring announcement took the stock market by surprise, said Joseph E. Millsap, an analyst who follows the company for the brokerage Morgan Keegan & Co. in Memphis, Tenn. Nichols’ Class A stock lost $1 a share to close at $6.12 in Tuesday’s trading on the American Stock Exchange.
Nichols, which specializes in medical tests beyond the capability of most laboratories, was one of Orange County’s most promising publicly traded companies during the 1980s. It was a leader in the field of so-called esoteric testing, which kept it above the struggle as competitors in the routine medical testing market fought for business.
Trying to capitalize on its success, the company launched an expansion campaign, buying routine testing labs across the nation and signing deals with hospitals to handle more medical tests.
The acquisition strategy failed because the company ran its regional labs as if they were independent businesses, failing to realize any cost savings from building a network, analysts say. And it also threw the company into the crowded routine testing market.
“They got their eye off the eight ball,” said analyst Richard Jabbour, who follows the company for the brokerage Edward D. Jones & Co. in Maryland Heights, Mo.
Forging alliances with hospitals didn’t work either, Morgan Keegan’s Millsap said, because the hospitals sent out to Nichols labs less work than the company had anticipated.
After posting a 1991 profit of $3.4 million, Nichols finished 1992 with a loss of $4.3 million.
Founder Albert L. Nichols resigned as president earlier this year--he remains chairman--and was replaced by Bragg, a noted turnaround specialist. Six of the company’s directors were replaced, and management consulting firm McKinsey & Co. and investment bank Peter J. Solomon Co. were hired to help draw up a recovery plan.
Because of those earlier moves and the restructuring announced Tuesday, Jabbour and Millsap said, they expect Nichols to recover.
“Nichols has an extraordinary array of viable options. Cleaning up Texas is the first,” Millsap said. If the proposed national health plan is passed, however, that might change the prognosis for Nichols, the analyst said, and new financial constraints might force it to merge with another company to survive.
Analyst Jabbour said Nichols could likely flourish by returning to its roots.
“I hope this restructuring signals them getting back to a basic operation,” he said. “They have lost some of their competitive position, and perhaps they can shore up their market share there and regain some of their competitive edge.”
Nichols Institute at a Glance
Business: Medical laboratory testing; also develops and markets medical laboratory test kits.
Headquarters: San Juan Capistrano
President and CEO: George Bragg
Employees: 3,894
In Orange County: 840
Earnings History
The company said it will post a fourth-quarter loss because of a major restructuring. Profit or loss, in millions:
1992:
1st quarter: $1.1
2nd quarter: -$7.7
3rd quarter: $0.4
4th quarter: $1.9 1993:
1st quarter: $2.1
2nd quarter: $2.2
3rd quarter: $1.4
4th quarter: NA Source: Nichols Institute, Bloomberg Business News; Researched by JANICE L. JONES / Los Angeles Times
