LabCorp 2009 Annual Report Download

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Deliver
We
Results
2009 ANNUAL REPORT
฀

Table of contents

  • Page 1
    2009 ANNUAL REPORT Deliver Results We

  • Page 2
    ... clinical trials testing through its Esoterix Clinical Trials Services division. LabCorp clients include physicians, government agencies, managed care organizations, hospitals, clinical labs and pharmaceutical companies. To learn more about our organization, visit our Web Site at: www.labcorp.com...

  • Page 3
    ... of every stage of health care delivery. We never forget that the laboratory test results that assist physicians in treating disease are the most important value we create. Today, a new era of precise and personalized diagnostic testing is evolving that will not only drive LabCorp's growth, but also...

  • Page 4
    R APID R EVENUE G ROWTH Esoteric testing continues to drive strong revenue growth for LabCorp. From 2002 to 2009, esoteric revenue increased from 27 to 36 percent of consolidated revenue. Our goal is to increase our mix of revenue associated with these profitable tests to 40 percent within the next ...

  • Page 5
    ..., and our BRAF Gene Mutation Detection test which identifies mutations that are common in melanomas and colo-rectal, lung and other cancers. LabCorp remains committed to capitalizing on its scientific leadership to commercialize tests that provide Results physicians with insights into treatment...

  • Page 6
    ... service starts with the patient. We continue to improve the patient experience with online scheduling, improvements in our patient service centers and our dedicated health care professionals who see patients every day. The timeliness of results reporting is critical, so we provide best-in-class...

  • Page 7
    ... Serving patients in all 50 states, LabCorp's highly efficient infrastructure enables us to maximize the profitability of both new acquisitions and organic volume growth. Our size, scale and efficiency yield operating margins that consistently lead the industry. Deliver Specialized Results...

  • Page 8
    ... the best outcomes. Similarly, our Trofile® test is the only clinically validated test to identify co-receptor tropism in HIV patients. The Trofile ® test helps guide physicians in their selection of the best antiviral treatments for individual patient needs. LabCorp continues to arm physicians...

  • Page 9
    ... diagnostics to make their health care spend more efficient. By enabling the physician to match the right treatment to the right patient, companion diagnostic tests are demonstrating their value by helping deliver more effective therapies. Deliver Individualized Results LABORATORY CORPORATION OF...

  • Page 10
    ... Nearly half of all Americans live with chronic disease. Treatment for these conditions consumes more than 75 percent of America's annual health care spending. Personalized outcome improvement programs - with laboratory testing as a central component - will improve quality of life for patients while...

  • Page 11
    ... diseases such as chronic kidney, cardiovascular and diabetes go undiagnosed or undertreated. LabCorp's outcome improvement programs provide a way to identify these conditions earlier and treat them more effectively and efficiently. Deliver Changing Results LABORATORY CORPORATION OF AMERICA 9 We

  • Page 12
    ... makes LabCorp's vision of the future so compelling? First, our business has a strong set of positives. Lab testing is the most cost-effective spending in health care, with our average transaction price at approximately $40. We account for some 3 percent of health care spending, yet lab results in...

  • Page 13
    ...will deliver greater value to patients and investors in the years ahead, as we focus on our strategy of leadership in transforming health care through personalized medicine. In addition, we shall continue to grow the market footprint of our core business. With more than 5,000 labs in operation today...

  • Page 14
    ...a pathology report documenting KRAS gene type to determine coverage for chemotherapy employing Erbitux® and Vectibix®. Other additions to our esoteric test suite similarly enable clinicians to tailor treatment to the individual patient. Our BRAF Gene Mutation Detection assay identifies mutations...

  • Page 15
    ... truly yours, For patients, our online appointment scheduling speeds patients through our draw centers. Our "Touch" collection and processing system improves the patient experience by guiding phlebotomists through the collection process Dave King Chairman and Chief Executive Officer LABORATORY...

  • Page 16
    ... need. Monogram Biosciences, which we acquired in 2009, is a good example of a company on the leading edge of molecular testing with a great clinical reputation. It has the proven proprietary Trofile® test and the innovative HERmark® test. As we continue to look at acquisitions in the esoteric...

  • Page 17
    ... of the market. We're well positioned to gain a larger share of that market. It's remarkable that administrative costs account for seven percent of total health care spending, while laboratory testing represents less than half that amount. So, we start out with a great value proposition. Payers...

  • Page 18
    ...science and cost-effective operations position us to gain market share in the future. Foremost In The Industry LabCorp has long enjoyed a reputation as the "lab partner of choice" for leading biotech companies and academic institutions. These partners recognize our scientific capabilities, as well...

  • Page 19
    ... health care costs - and improve thousands of lives as well. The Broadest Capabilities The scale and scope of our national infrastructure allow us to deliver a broad menu of tests and services throughout the United States. Today, our customer-facing operations include 1,500 patient service centers...

  • Page 20
    ... Carey School of Business, Arizona State University Arthur H. Rubenstein, MBBCh 1,3 Executive Vice President, University of Pennsylvania Health System and Dean of the School of Medicine M. Keith Weikel, Ph.D. 2,3 Former Senior Executive Vice President and Chief Operating Officer of HCR Manor Care...

  • Page 21
    ฀ Table of Contents 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 Consolidated Balance Sheets Consolidated ...

  • Page 22
    ...independent registered public accounting firm. This data should be read in conjunction with the accompanying notes, the Company's consolidated financial statements and the related notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations," all included...

  • Page 23
    ... while maintaining excellent customer service. The Company recorded $11.9 of costs associated with the execution of the integration plan. 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...

  • Page 24
    ... CORPORATION OF AMERICA Management's Discussion and Analysis of Financial Condition and Results of Operations (In millions) General During 2009, the Company continued to strengthen its financial performance through pricing discipline, continued growth of its esoteric testing, outcome improvement...

  • Page 25
    ... of Financial Condition and Results of Operations The increase in net sales for the three years ended December 31, 2009 has been driven primarily by growth in the Company's managed care business, increased revenue from third parties (Medicare and Medicaid), the Company's continued shift in test mix...

  • Page 26
    ... underutilized facilities. Of this amount, $24.8 related to employee severance benefits for 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...

  • Page 27
    ... Statements." Operating Activities In 2009, the Company's operations provided $862.4 of cash, net of $28.4 in transition payments to UnitedHeathcare and $54.8 in contributions to the Company's defined benefit retirement plan (the "Company Plan"), reflecting the Company's solid business results. The...

  • Page 28
    ... of Financial Condition and Results of Operations The Company has invested a total of $25.8 over the past three years in licensing new testing technologies (including approximately $24.3 estimated fair market value of technology acquired with the purchase of Monogram) and had $56.8 net book value of...

  • Page 29
    ...), bringing the Company's percentage interest owned to 85.6%. 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...

  • Page 30
    ...-term and long-term cash needs; however, the Company continually reassesses its liquidity position in light of market conditions and other relevant factors. New Accounting Pronouncements In June 2009, the FASB established authoritative United States generally accepted accounting principles ("GAAP...

  • Page 31
    ... an impact on the Company's consolidated financial statements as of and for the year ended December 31, 2009. Critical Accounting Policies The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that...

  • Page 32
    ...client list price, less any negotiated discount. Patient sales are recorded at the Company's patient fee schedule, net of any discounts negotiated with physicians on behalf of their patients. The Company bills third-party payers in two ways - fee-for-service and capitated agreements. Fee-for-service...

  • Page 33
    ... information on the Company's defined benefit retirement plan is provided in Note 16 to the consolidated financial statements. Accruals for Self-Insurance Reserves Accruals for self-insurance reserves (including workers' compensation, auto and employee medical) are determined based on a number...

  • Page 34
    ... existing laws or regulations or otherwise disregard compliance standards in the industry; 9. increased price competition, competitive bidding for laboratory tests and/or changes or reductions to fee schedules; 10. changes in payer mix, including an increase in capitated managed-cost health care or...

  • Page 35
    ...develop, perform, or market the Company's tests or operate its business; 24. failure in the Company's information technology systems resulting in an increase in testing turnaround time or billing processes or the failure to meet future regulatory or customer information technology, data security and...

  • Page 36
    ...internal control over financial reporting as of December 31, 2009 because its control over this operation was acquired by the Company in a purchase business combination during 2009. The total assets and total revenues of the Monogram operations represented 3.9% and 0.4%, respectively, of the related...

  • Page 37
    ... in the Report of Management on Internal Controls over Financial Reporting, management has excluded Monogram Biosciences, Inc. from its assessment of internal control over financial reporting as of December 31, 2009 because it was acquired by the Company in a purchase business combination during...

  • Page 38
    ..., net Goodwill, net Intangible assets, net Investments in joint venture partnerships Other assets, net Total assets Liabilities And Shareholders' Equity Current liabilities: Accounts payable Accrued expenses and other Noncontrolling interest Short-term borrowings and current portion of long-term...

  • Page 39
    ... 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): Interest expense Income from joint venture partnerships, net Investment income Other, net...

  • Page 40
    ...of common stock under employee stock plans - Surrender of restricted stock awards - Conversion of zero-coupon convertible debt 0.1 Stock compensation - Income tax benefit adjustments related to stock options exercised - Purchase of common stock (0.4) Balance at December 31, 2009 $ 12.5 - - - - - 24...

  • Page 41
    ...overdraft Payments on long-term debt Payment of debt issuance costs Noncontrolling interest distributions Excess tax benefits from stock based compensation Net proceeds from issuance of stock to employees Purchase of common stock Net cash used for financing activities Effect of exchange rate changes...

  • Page 42
    ... time test results are reported, which approximates when services are provided. Services are provided to certain patients covered by various thirdparty payer programs including various managed care organizations, as well as the Medicare and Medicaid programs. Billings for services under third-party...

  • Page 43
    ...money market funds, time deposits, municipal, treasury and government funds. Substantially all of the Company's accounts receivable are with companies in the health care industry and individuals. However, concentrations of credit risk are limited due to the number of the Company's clients as well as...

  • Page 44
    ...classes of assets based on their estimated useful lives, as indicated below, using principally the straight-line method. Years Capitalized Software Costs The Company capitalizes purchased software which is ready for service and capitalizes software development costs incurred on significant projects...

  • Page 45
    .... Professional Liability The Company is self-insured (up to certain limits) for professional liability claims arising in the normal course of business, generally related to the testing and reporting of laboratory test results. The Company estimates a liability that represents the ultimate exposure...

  • Page 46
    ... and $491.1, respectively, was estimated by calculating the net present value of related cash flows, discounted at current market rates. Effective January 1, 2008, the Company adopted authoritative guidance in connection with fair value measurements for financial assets and liabilities. The guidance...

  • Page 47
    ... the Company's consolidated financial statements and related disclosures in the notes thereto. In May 2009, the FASB issued authoritative guidance related to the accounting for and disclosure of subsequent events, which is effective for interim and annual periods ending after June 15, 2009. This new...

  • Page 48
    ... cash (net of cash acquired). The Monogram acquisition was made to enhance the Company's scientific differentiation and esoteric testing capabilities and advance the Company's personalized medicine strategy. The Monogram purchase consideration has been allocated to the estimated fair market value of...

  • Page 49
    ... 1, 2009 Net restructuring charges Cash payments and other adjustments Balance as of December 31, 2009 Current Non-current 5. Investments in Joint Venture Partnerships As disclosed in note 2 (Business Acquisitions), effective January 1, 2008 the Company acquired additional partnership units in...

  • Page 50
    ... Company's recorded investment in the Alberta joint venture partnership at December 31, 2009 includes $48.4 of value assigned to the partnership's Canadian licenses (with an indefinite life and deductible for tax) to conduct diagnostic testing services in the province. 6. Accounts Receivable, Net...

  • Page 51
    ... operation has $698.1 of value assigned to the partnership's indefinite lived Canadian licenses to conduct diagnostic testing services in the province. 9. Accrued Expenses and Other Employee compensation and benefits Self-insurance reserves Accrued taxes payable Royalty and license fees payable...

  • Page 52
    ...notes due 2013 Senior notes due 2015 Term loan, non-current Zero-coupon convertible subordinated notes Other long-term debt Total long-term debt Credit Facilities On October 26, 2007, the Company entered into senior unsecured credit facilities with Credit Suisse, acting as Administrative Agent, and...

  • Page 53
    ... the close of business on the last business day of the calendar quarter, which is 5:00 p.m., New York City time, on Wednesday, March 31, 2010. Senior Notes The Senior Notes due January 31, 2013 bear interest at the rate of 5½% per annum from February 1, 2003, payable semi-annually on February...

  • Page 54
    ... a share of a new series of participating preferred stock at an initial purchase price of four hundred dollars. These rights will become exercisable and will detach from the Company's common stock if any person becomes the beneficial owner of 15% or more of the Company's common stock. In that event...

  • Page 55
    ... are as follows: December 31, 2009 Deferred tax assets: Accounts receivable Employee compensation and benefits Self insurance reserves Postretirement benefit obligation Acquisition and restructuring reserves Tax loss carryforwards Other Less: valuation allowance Net deferred tax assets Deferred tax...

  • Page 56
    ... earlier expiration or termination. The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company's closing stock price on the last trading day of 2009 and the exercise price, multiplied by the number of in-the-money options) that...

  • Page 57
    ...the Company's stock. The Company uses historical data to calculate the expected life of the option. Groups of employees and non-employee directors that have similar exercise behavior with regard to option exercise timing and forfeiture rates are considered separately for valuation purposes. For 2009...

  • Page 58
    ... health care providers. The Company works cooperatively to respond to appropriate requests for information. As previously reported on May 22, 2006, the Company received a subpoena from the California Attorney General seeking documents related to billing to the state's Medicaid program. The Company...

  • Page 59
    ...final invoices for these payments will be processed over the first two quarters of 2010. The Company is amortizing the total estimated transition costs over the life of the contract. Under the Company's present insurance programs, coverage is obtained for catastrophic exposure as well as those risks...

  • Page 60
    ... The cost of this plan was $15.2, $15.5 and $14.8 in 2009, 2008 and 2007, 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 61
    ...Expected Long-Term Rate of Return 5.5% 2.0% The following assumed benefit payments under the Company's defined benefit and nonqualified supplemental retirement plans, which reflect expected future service, and were used in the calculation of projected benefit obligations, are expected to be paid as...

  • Page 62
    ...the 2009 post-retirement benefit costs results in an increase of $0.4 or decrease of $0.3. The following assumed benefit payments under the Company's post-retirement benefit plan, which reflect expected future service, as appropriate, and were used in the calculation of projected benefit obligations...

  • Page 63
    ... Activities The Company addresses its exposure to market risks, principally the market risk associated with changes in interest rates, through a controlled program of risk management that includes, from time to time, the use of derivative financial instruments such as interest rate swap agreements...

  • Page 64
    ... of stock compensation and $1.7 related to the acceleration of certain defined benefit plan obligations. Following the announcement of his retirement as EVP, Mr. Smith entered into a consulting agreement with the Company effective January 1, 2009. The agreement provided for additional services to...

  • Page 65
    ... Headquarters 358 South Main Street Burlington, NC 27215 336-584-5171 Information Sources Information about LabCorp is available from the following Company sources: Investor Relations Contact Stephen Anderson Director Investor Relations 336-436-5274 Center for Molecular Biology and Pathology...

  • Page 66
    ฀ Laboratory Corporation of America Holdings 358 South Main Street Burlington, NC 27215 336-584-5171 www.labcorp.com ®