LabCorp 2007 Annual Report Download - page 24

Management’s Discussion and Analysis of Financial
Condition and Results of Operations (Dollars in millions)
22 Laboratory Corporation of America® Holdings 2007
The increase in amortization of intangibles and other assets is
driven primarily by the impact of acquisitions and licensed technology.
Investment Loss
Years Ended December 31,
2007 2006 2005
Investment loss $ – $ – $(3.1)
During the second quarter of 2005, the Company recorded an
investment loss of $3.1, related to a write-off of the value of warrants
to purchase common stock of Exact Sciences Corporation (“Exact”),
which were obtained as part of the Company’s licensing agreement
for Exact’s PreGen Plus technology in 2002. The original term of the
warrants expired in June 2005.
Restructuring and Other Special Charges
Years Ended December 31,
2007 2006 2005
Restructuring and other special charges $50.6 $1.0 $16.9
During 2007, the Company recorded charges related to reductions
in work force and consolidation of redundant and underutilized facilities.
For 2007, the Company recorded net restructuring charges of $50.6. Of this
amount, $24.8 related to employee severance benefi ts for approximately
1,560 employees primarily in management, administrative, technical,
service and support functions and $19.4 related to contractual obligations
and other costs associated with the closure of facilities. The charges
also included a write-off of approximately $6.5 of accounts receivable
balances remaining on a subsidiary’s billing system that was aban-
doned during the year and $0.9 related to settlement of a preacquisi-
tion employment liability. The Company also recorded a credit of $1.0,
comprised of $0.7 of previously recorded facility costs and $0.3 of
employee severance benefi ts.
During the third quarter of 2006, the Company recorded net
restructuring charges of $1.0 relating to certain expense-reduction
initiatives undertaken across the Company’s corporate and divisional
operations. This net charge was the result of a charge of $2.4 related to
employee severance benefi ts for approximately 180 employees primar-
ily in administrative and support functions, and a credit of $1.4 related
to occupying a testing facility that had previously been shut down.
During the third and fourth quarters of 2005, the Company began
to implement its plan related to the integration of Esoterix and US 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 to employee severance and contractual obligations
associated with leased facilities and equipment. Of this amount, $10.1
related to employee severance benefi ts for approximately 700 employees,
with the remainder primarily related to contractual obligations associated
with leased facilities. Employee groups affected as a result of this plan
included those involved in the collection and testing of specimens, as
well as administrative and other support functions. The Company also
recorded a special charge of $5.0 related to forgiveness of amounts
owed by patients and clients as well as other costs associated with
the areas of the Gulf Coast severely impacted by hurricanes Katrina
and Rita.
Interest Expense
Years Ended December 31, % Change
2007 2006 2005 2007 2006
Interest expense $56.6 $47.8 $34.4 18.4% 39.0%
The increase in interest expense for the year ended December 31,
2007 as compared to the year ended December 31, 2006 was driven
primarily by borrowings under the fi ve-year, $500 Term Loan Facility
in October 2007. The increase in interest expense for the year ended
December 31, 2006 as compared to the year ended December 31,
2005 was driven by the issuance of the 55/8% senior notes due 2015
in December 2005.
Income from Joint Venture Partnerships
Years Ended December 31, % Change
2007 2006 2005 2007 2006
Income from joint
venture partnerships $77.9 $66.7 $58.3 16.8% 14.4%
Income from investments in joint venture partnerships represents
the Company’s ownership share in joint venture partnerships. The
increase in income from these investments was driven by improve-
ment in operational performance and favorable exchange rates.
A signifi cant portion of this income is derived from investments in
Ontario and Alberta, Canada, and is earned in Canadian dollars.
Income Tax Expense
Years Ended December 31,
2007 2006 2005
Income tax expense $325.5 $289.3 $254.5
Income tax expense as a %
of income before tax 40.6% 40.1% 39.7%
Laboratory Corporation of America