LabCorp 2006 Annual Report Download - page 53

Laboratory Corporation of America® Holdings 2006 51
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EBITDA represents earnings before interest, income taxes, deprecia-
tion, amortization, and nonrecurring charges, and includes the
Company’s proportional share of the underlying EBITDA of the
income from joint venture partnerships. The Company uses EBITDA
extensively as an internal management performance measure and
believes it is a useful, and commonly used measure of financial
performance in addition to earnings before taxes and other profit-
ability measurements under generally accepted accounting principles
(“GAAP”). EBITDA is not a measure of financial performance under
GAAP. It should not be considered as an alternative to earnings before
income taxes (or any other performance measure under GAAP) as a
measure of performance or to cash flows from operating, investing or
financing activities as an indicator of cash flows or as a measure of
liquidity. The following table reconciles earnings before income taxes,
representing the most comparable measure under GAAP, to EBITDA
for the years ended December 31, 2006 and 2005:
Earnings per diluted share excluding the impact of restructuring
charges and a non-recurring investment loss is not a measure recog-
nized under GAAP. The following table reconciles earnings per diluted
share, representing the most comparable measure under GAAP,
to earnings per diluted share excluding the impact of restructuring
charges and a non-recurring investment loss for the years ended
December 31, 2006 and 2005:
Years Ended December 31,
2006 2005
Earnings per diluted share $3.24 $2.71
Impact per diluted share:
Restructuring and other special charges 0.06 0.07
Non-recurring investment loss, net of tax – 0.02
Earnings per diluted share, excluding
the impact of restructuring
and other special charges $3.30 $2.80
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
Years Ended December 31,
2006 2005 2004 2003 2002
Earnings before income taxes $720.9 $640.7 $615.3 $540.4 $432.3
Add (subtract):
Interest expense 47.8 34.4 36.1 40.9 19.2
Investment income (7.7) (1.8) (3.5) (5.1) (3.7)
Other (income) expense, net 2.8 – 1.8 1.2 0.6
Depreciation 102.2 97.2 93.0 91.6 73.0
Amortization 52.2 51.4 42.7 37.6 23.8
Restructuring and other special charges (b), (c), (d), (e) 13.4 16.9 (0.9) 1.5 17.5
Joint venture partnerships’
depreciation and amortization 4.1 3.9 3.3 3.4 1.1
Non-recurring investment loss (c) – 3.1 – – –
Impact of adoption of SFAS 123(R) (a) 23.3 – – – –
EBITDA $959.0 $845.8 $787.8 $711.5 $563.8
(a) Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No.123 (revised 2004), “Share-Based Payment” (“SFAS 123(R)”), which requires the Company to measure
the cost of employee services received in exchange for all equity awards granted, based on the fair market value of the award as of the grant date. As a result of adopting SFAS 123(R), the Company
recorded approximately $23.3 in stock compensation expense relating to its stock option and employee stock purchase plans for the year ended December 31, 2006. Net earnings for the year ended
December 31, 2006, were reduced by $13.9, net of tax.
(b) During the second half of 2006, the Company recorded charges of approximately $12.3, primarily related to the acceleration of the recognition of stock compensation due to the announced retirement
of the Company’s Chief Executive Officer, effective December 31, 2006. The Company also recorded net restructuring charges of $1.0 in the third quarter of 2006, relating to certain expense-reduction
initiatives undertaken across the Company’s corporate and divisional operations. The after tax impact of all of these combined charges reduced net earnings for the year by $8.0 million and 2006 diluted
EPS by $0.06 ($8.0 million divided by 134.7 million shares).
(c) During the third and fourth quarters of 2005, the Company recorded restructuring and other special charges of $10.0 million and $6.9 million, respectively, in connection with the integration of US LABS
and Esoterix, as well as losses realized as a result of Hurricane Katrina. The after tax impact of these combined charges reduced net earnings by $10.2 million, and diluted EPS by $0.07 ($10.2 million
divided by 144.9 million shares).
During the second quarter of 2005, the Company wrote-off the recorded value of warrants to acquire shares of Exact Sciences of $3.1 million. The after tax impact of this non-recurring investment loss
reduced net earnings by $3.1 million and diluted EPS by $0.02 (3.1 million divided by 144.9 million shares).
(d) During the third quarter of 2003, the Company recorded net restructuring and other special charges of $1.5 for 2003 in connection with the integrations of its acquisition of Dianon Systems, Inc.
(e) During the third quarter of 2002, the Company recorded restructuring and other special charges totaling $17.5 related to the acquisition of Dynacare, Inc.