LabCorp 2007 Annual Report Download

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฀
2007 Annual Report
to the
Put Us
Test

Table of contents

  • Page 1
    2007 Annual Report Put Us Test to the

  • Page 2
    ...its Centers of Excellence: The Center for Molecular Biology and Pathology, National Genetics Institute, Inc., ViroMed Laboratories, Inc., The Center for Esoteric Testing, DIANON Systems, Inc., LabCorp conducts US LABS, and Esoterix. LabCorp conducts trial testing its Esoterix clinical clinical trial...

  • Page 3
    ... to strong operational cash ï¬,performance ows. and effi and effi cient performance cient use ofuse freeof free cash ï¬,cash ows. ï¬,ows. Laboratory Corporation of America Holdings 2007 1 Laboratory Corporation of America Holdings 1 Laboratory Corporation of America Holdings 2007 2007 1 ® ® ®

  • Page 4
    Letter to Shareholders Is it possible to quantify the value of our health in monetary terms? Absolutely not. Dave King President and Chief Executive Officer 2 Laboratory Corporation of America Holdings 2007 ®

  • Page 5
    ...ï¬,uence policy. I urge you to read about this effort, Results for Life, on page 15 of this Annual Report. I also urge you to join us in advocating the use of lab testing as a tool to guide therapy and optimize health care spend. From an investment perspective, clinical laboratory testing has never...

  • Page 6
    ... for improving patient care and growing revenue. Our recent acquisition of Tandem Labs, a leading bioanalytical and immunoanalytical laboratory that supports pharmaceutical and biotechnology companies with discovery, preclinical and clinical drug development programs is a further sign of our...

  • Page 7
    ... process, using robotics in the laboratory, optimizing logistics and maximizing the supply chain. Specific LabCorp 2010 activities will begin rolling out in 2008, and we are confident that this program will help ensure excellent customer service and continued industry-leading operating...

  • Page 8
    ... screening tests for Down Syndrome. These tests provide more sensitive technology to achieve higher detection rates and fewer false positive results. A monumental contract presents a monumental test of operational execution. Our historic, 10-year agreement to be the sole national laboratory...

  • Page 9
    ... strategic benefit our A significant strategic benefit of of our relationship with United has been relationship with United has been ability expand our geographic thethe ability to to expand our geographic footprint in major markets, such footprint in major markets, such as as thethe New York...

  • Page 10
    ... Positive Customer satisfaction levels reached 92 percent in the fourth quarter of 2007, reflecting the success of increased investments in automation, combined with a customercentric workforce that imparts a deep sense of personal commitment to patient care. 8 Laboratory Corporation of America...

  • Page 11
    ... patient by $2,000. Litholink is a model for kidney stone treatment, as well as for how clinical laboratory testing can solve health care issues. We anticipate expanding this model to Chronic Kidney Disease in mid-2008 and additional programs over the coming years. Laboratory Corporation of America...

  • Page 12
    ... in turn, is leading to a vastly more personalized level of health care. A strategic agreement with Medco Health Solutions, for instance, is centered on tamoxifen, a drug commonly used to treat and prevent certain forms of breast cancer. Approximately 10 percent of women using tamoxifen do not fully...

  • Page 13
    ... new testing capabilities in areas where there is an unmet need, LabCorp expands its portfolio of high-margin, gene-based and esoteric tests and helps to make groundbreaking technologies widely available to patients throughout the United States. Laboratory Corporation of America Holdings 2007...

  • Page 14
    ..., EVP, Chief Scientific Officer and Medical Director; Brad Hayes, EVP, Chief Financial Officer; Scott Walton, EVP, Chief Information Officer; Bill Haas, EVP, Esoteric Business; Brad Smith, EVP Corporate Affairs and Secretary. Put Us 12 Laboratory Corporation of America Holdings 2007 ® Test to...

  • Page 15
    ... UnitedHealthcare during the first three years of the contract for the cost differential when a United patient, in certain markets, uses a national lab provider other than LabCorp. Our total obligation is capped at $200 million. In 2007, we were billed $38 million and, based on trends, we believe...

  • Page 16
    ... genetic test in parallel with the drug approval process is an innovative new model for the drug development industry and one that we look to replicate with other partners. How are you working with your managed care partners to help them better manage health care costs for their patient populations...

  • Page 17
    ... that needs to be told to lawmakers, the news media and the American public. And this story is being told today through the efforts of Results for Life, a national campaign launched in 2007 by the American Clinical Laboratory Association, of which LabCorp is a member. Results for Life is educating...

  • Page 18
    Laboratory Corporation of America Board of Directors Thomas P. Mac Mahon Chairman Bradford T. Smith Vice Chairman Executive Vice President, Corporate Affairs and Secretary David P. King President and Chief Executive Officer Kerrii B. Anderson 1, 2 Chief Executive Officer and President of Wendy's ...

  • Page 19
    Laboratory Corporation of America Table of Contents Five-Year Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations Report of Management on Internal Control Over Financial Reporting Report of Independent Registered Public Accounting Firm ...

  • Page 20
    ...Statement of Operations Data" and "Balance Sheet Data" as of and for the five-year period ended December 31, 2007 are derived from consolidated financial statements of the Company, which have been audited by an independent registered public accounting firm. This data should be read in conjunction...

  • Page 21
    ... implement its plan related to the integration of Esoterix and US LABS operations into the Company's service delivery network. The plan was directed at reducing redundant facilities while maintaining excellent customer service. The Company recorded $11.9 of costs associated with the execution of the...

  • Page 22
    ... to work with Wellpoint on ways to expand the parties' national strategic relationship, including the Company's commitment to maximize the value of Wellpoint's laboratory testing spend. Effective January 1, 2008 the Company acquired additional partnership units in its Ontario, Canada joint venture...

  • Page 23
    ...total net sales, Managed Care revenue has increased during the three year period ended December 31, 2007 from 40.2% in 2005 to 46.1% in 2007. The acquisitions of US Labs and Esoterix in 2005 have helped to build on the Company's leadership position in the genomic and esoteric market, which accounted...

  • Page 24
    ... across the Company's corporate and divisional operations. This net charge was the result of a charge of $2.4 related to employee severance benefits for approximately 180 employees primarily in administrative and support functions, and a credit of $1.4 related to occupying a testing facility that...

  • Page 25
    ...exibility in meeting operating, investing and financing needs. In addition, the Company has new senior unsecured credit facilities that are further discussed in "Note 12 to Consolidated Financial Statements." Operating Activities In 2007, the Company's operations provided $709.7 of cash, net of $32...

  • Page 26
    Laboratory Corporation of America Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions) On September 22, 2006, the Company announced that it had commenced an exchange offer related to its zero-coupon subordinated notes due 2021. In the exchange ...

  • Page 27
    ...term of approximately four years. Based on current and projected levels of operations, coupled with availability under its senior credit facilities, the Company believes it has sufficient liquidity to meet both its short-term and long-term cash needs; however, the Company continually reassesses its...

  • Page 28
    ... Accounts Revenue is recognized for services rendered when the testing process is complete and test results are reported to the ordering physician. The Company's sales are generally billed to three types of payers - clients, patients and third parties, such as managed care companies, Medicare...

  • Page 29
    ... used to value the benefit obligations of its retirement plans. The Company follows paragraph 186 of Financial Accounting Standard 106 in developing this rate. The Company obtains information on high-quality corporate (AA rating or higher) bonds from a nationally recognized credit rating agency...

  • Page 30
    ... price competition, competitive bidding for laboratory tests and/or changes or reductions to fee schedules; 9) changes in payer mix, including an increase in capitated managedcost health care or the impact of a shift to consumer-driven health plans; 10) failure to obtain and retain new customers...

  • Page 31
    ...'s joint venture partnerships operate in Canada and remit the Company's share of partnership income in Canadian Dollars. Accordingly, the cash ï¬,ow received from these affiliates is subject to a certain amount of foreign currency exchange risk. Laboratory Corporation of America Holdings 2007 29...

  • Page 32
    ... accepted in the United States of America; • provide reasonable assurance that receipts and expenditures of the Company are being made only in accordance with authorization of management and directors of the Company; and • provide reasonable assurance regarding prevention or timely detection...

  • Page 33
    ... of Laboratory Corporation of America Holdings and its subsidiaries at December 31, 2007 and 2006, and the results of their operations and their cash ï¬,ows for each of the three years in the period ended December 31, 2007 in conformity with accounting principles generally accepted in the United...

  • Page 34
    Laboratory Corporation of America Consolidated Balance Sheets December 31, (in millions) 2007 2006 ASSETS Current assets: Cash and cash equivalents Short-term investments Accounts receivable, net Supplies inventories Prepaid expenses and other Deferred income taxes Total current assets Property,...

  • Page 35
    ... share data) Net sales Cost of sales Gross profit Selling, general and administrative expenses Amortization of intangibles and other assets Restructuring and other special charges Operating income Other income (expenses): Investment loss Interest expense Income from joint venture partnerships, net...

  • Page 36
    ... stock under employee stock plans 0.2 Issuance of restricted stock awards - Surrender of restricted stock awards - Cancellation of restricted stock awards - Stock compensation - Income tax benefit from stock options exercised - Retirement of common stock (0.5) Purchase of common stock - BALANCE...

  • Page 37
    ... and other Increase (decrease) in accounts payable Increase (decrease) in accrued expenses and other Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures Proceeds from sale of assets Deferred payments on acquisitions Purchases of short-term investments...

  • Page 38
    ... directly from the Medicare and Medicaid programs. The Company has capitated agreements with certain managed care customers and recognizes related revenue based on a predetermined monthly contractual rate for each member of the managed care plan regardless of the number or cost of services provided...

  • Page 39
    ... accounted for stock-based compensation in accordance with APB 25 using the intrinsic value method, which did not require that compensation cost be recognized for the Company's stock option and stock purchase plans provided the option exercise price was established at the common stock fair market...

  • Page 40
    ... the retirement of the Company's Chief Executive Officer, effective December 31, 2006. The following tables summarize the components of the Company's stock-based compensation programs recorded as expense for the years ended December 31, 2007, 2006, and 2005: Pre-Tax Expense Stock option and stock...

  • Page 41
    ... expense using the effective interest method over the terms of the related debt. Professional Liability The Company is self-insured for professional liability claims arising in the normal course of business, generally related to the testing and reporting of laboratory test results. The Company...

  • Page 42
    ... $150 in cash. Esoterix, based in Austin, Texas, is a leading provider of specialty reference testing. During the year ended December 31, 2007, the Company acquired various medical reference laboratories and related assets for approximately $222.3 in cash. These acquisitions were primarily done...

  • Page 43
    ... LABS operations into the Company's service delivery network. The plan is directed at reducing redundant facilities while maintaining excellent customer service. The Company recorded $11.9 of costs associated with the execution of the integration plan. The majority of these integration costs related...

  • Page 44
    ....6%. Concurrent with this acquisition, the terms of the joint venture's partnership agreement were amended. Based upon the amended terms of this agreement, the Company began including the consolidated operating results, financial position and cash ï¬,ows of the Ontario, Canada joint venture in the...

  • Page 45
    ... new senior credit facilities are available for general corporate purposes, including working capital, capital expenditures, acquisitions, funding of share repurchases and other payments, and repayment of all amounts outstanding under the Company's previous revolving credit facility. The agreement...

  • Page 46
    ... cash interest at a rate of no less than 0.125% of the average market price of a zero-coupon subordinated note for the five trading days ended September 7, 2007, in addition to the continued accrual of the original issue discount. On October 3, 2007, the Company announced that its zero-coupon...

  • Page 47
    ... the close of business at 5:00 p.m., New York City time, on Monday, March 31, 2008. Senior Notes Due 2013 On January 17, 2003, in conjunction with the acquisition of DIANON, the Company borrowed $350.0 under a bridge loan agreement with Credit Suisse First Boston, acting as Administrative Agent. On...

  • Page 48
    ... credit facility. Pursuant to the agreement with the bank, the bank purchased 4.8 shares in the open market over the period ended June 13, 2006. At the end of the purchase period, the Company made a cash payment of $22.9 to the bank to settle its obligation for the purchase price adjustment based...

  • Page 49
    ... local, and foreign income tax matters have been concluded through 2001. Management believes adequate provisions have been recorded related to all open tax years. The Company provided for taxes on undistributed earnings of foreign subsidiaries. Laboratory Corporation of America Holdings 2007 47 ®

  • Page 50
    ... by the Company to officers, key employees, and non-employee directors under all plans. Stock options are generally granted at an exercise price equal to or greater than the fair market price per share on the date of grant. Also, for each grant, options vest ratably over a period of three years on...

  • Page 51
    ... shares of common stock authorized for issuance. The plan permits substantially all employees to purchase a limited number of shares of Company stock at 85% of market value. The Company issues shares to participating employees semi-annually in January and July of each year. Approximately 174, 207...

  • Page 52
    ... Revolving Facility is reduced by the amount of these letters of credit. Effective January 1, 2007, the Company commenced its successful implementation of its ten-year agreement with United Healthcare Insurance Company (UnitedHealthcare) and became its exclusive national laboratory provider. During...

  • Page 53
    ... cost of this plan was $14.8, $13.8 and $12.8 in 2007, 2006 and 2005, respectively. In addition, substantially all employees of the Company are covered by a defined benefit retirement plan (the "Company Plan"). The benefits to be paid under the Company Plan are based on years of credited service...

  • Page 54
    ...supplemental retirement plans, which reï¬,ect expected future service, and were used in the calculation of projected benefit obligations, are expected to be paid as follows: 2008 2009 2010 2011 2012 Years 2013-2017 $ 19.3 20.5 21.7 23.3 26.7 155.2 52 Laboratory Corporation of America Holdings 2007...

  • Page 55
    ... to a limited number of existing employees of the subsidiary. This plan is unfunded and the Company's policy is to fund benefits as claims are incurred. The effect on operations of the postretirement medical plan is shown in the following table: Years Ended December 31, 2007 Service cost for bene...

  • Page 56
    Laboratory Corporation of America Notes to Consolidated Financial Statements (Dollars and shares in millions, except per share data) QUARTERLY DATA (UNAUDITED) The following is a summary of unaudited quarterly data: 1st Quarter Net sales Gross profit Net earnings Basic earnings per common share ...

  • Page 57
    ...apply it before that date. The new standard also converges financial reporting under U.S. GAAP with international accounting rules. The Company is currently assessing the impact, if any, of SFAS 141(R) on its consolidated financial statements. Laboratory Corporation of America Holdings 2007 55 ®

  • Page 58
    ... Laboratory Services Services 888-244-4102 888-244-4102 Web Web Site Site www.LabCorp.com www.LabCorp.com Shareholder Shareholder Direct Direct Service Service 800-LAB-0401 800-LAB-0401 (800-522-0401) (800-522-0401) Call this Callnumber this number 24 hours 24 hours a dayaand daylearn and learn...

  • Page 59
    Laboratory Corporation of America Management Team David P. King President and Chief Executive Officer William B. Haas Executive Vice President, Esoteric Business Don Hardison Executive Vice President, Chief Operating Officer William B. Hayes Executive Vice President, Chief Financial Officer and ...

  • Page 60
    ฀ Laboratory Corporation of America Holdings ® 358 South Main Street Burlington, NC 27215 336-584-5171 Keep current with us at www.labcorp.com