LabCorp 2010 Annual Report Download

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Laboratory Corporation of America 2010 Annual Report
Building
Forward 2010 ANNUAL REPORT

Table of contents

  • Page 1
    Building Forward 2010 ANNUAL REPORT

  • Page 2
    ... Tests Performed Annually 220,000 Clients Over 1,700 Patient Service Centers 51 Primary Laboratories 8 Specialized Centers of Excellence 8,000 Patient Service Technicians/Phlebotomists 2,700 Service Representatives/Couriers 8 Aircraft 2 to 3% of Total U.S. Health Care Dollars Spent On Lab Tests...

  • Page 3
    ...฀our฀free฀cash฀flow฀to฀make฀acquisitions฀that฀enhance฀our฀ test menu and expand our geographic footprint Moving฀toward฀alternative฀delivery฀models฀for฀lab฀services Improving฀our฀ability฀to฀provide฀actionable฀information฀to฀doctors฀ and patients...

  • Page 4
    ...strategy. USE FREE CASH FLOW TO MAKE STRATEGIC ACQUISITIONS THAT ENHANCE OUR TEST MENU AND EXPAND OUR GEOGRAPHIC FOOTPRINT Building Forward Quality Team Broad Capabilities Customer Satisfaction Expansion With the 2010 acquisition of Genzyme Genetics, a business unit of Genzyme Corporation, LabCorp...

  • Page 5
    .... We also implemented online appointment scheduling and our AccuDraw specimen collection tool in all patient service centers. We continued the consolidation of our billing resources and the implementation of LEAN processes. The billing team's accomplishments (with strong support from our operating...

  • Page 6
    ...team, we produced a report that is without peer in the field of virology and will assist clinicians, scientists, and public health officials in understanding infectious diseases and treating patients optimally. POSITIONED FOR GROWTH IN A CHANGING HEALTH CARE MARKETPLACE Efficient Well-Positioned...

  • Page 7
    ...Results of Operations Report of Management on Internal Control Over Financial Reporting Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Changes in Shareholders' Equity Consolidated Statements of Cash...

  • Page 8
    ... incurred approximately $25.7 in professional fees and expenses in connection with the acquisition of Genzyme Genetics and other acquisition activity, including significant costs associated with the Federal Trade Commission's review of the Company's purchase of specified net assets of Westcliff...

  • Page 9
    ... equity awards granted, based on the fair market value of the award as of the grant date. As a result of adopting the guidance, 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...

  • Page 10
    ... the year ended December 31, 2010. Due to the normal post-acquisition enrollment process for government payers and contract assignment process for managed care payers, the Company will experience delays in billing for services rendered by Genzyme Genetics. Cash collections, receivable agings and DSO...

  • Page 11
    ...increase in net sales for the three years ended December 31, 2010 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 to higher-priced genomic and esoteric tests, growth in...

  • Page 12
    ... in the Company's Managed Care and third party (Medicare and Medicaid) business, the continued shift in test mix to higher cost genomic and esoteric testing and the impact of acquisitions. As a percentage of sales, cost of sales has decreased during the three year period ended December 31, 2010 from...

  • Page 13
    ... to 2009 was primarily due to the Company incurring $7.0 of bridge financing fees related to the acquisition of Genzyme Genetics and interest incurred since November 2010 on proceeds from the senior notes offerings of $925.0. Other interest related costs decreased due to lower average borrowings...

  • Page 14
    LABORATORY CORPORATION OF AMERICA Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity, Capital Resources and Financial Position The Company's strong cash-generating capability and financial condition typically have provided ready access to capital markets...

  • Page 15
    ...2011, interest on the Senior Notes due 2016 and 2020 is payable semi-annually on May 15 and November 15. On December 1, 2010, the acquisition of Genzyme Genetics was funded by the proceeds from the issuance of these Notes ($915.4) and with cash on hand. During 2010, the Company repurchased $337.5 of...

  • Page 16
    ...with certain insurance programs. Letters of credit provided by the Company are secured by the Company's senior credit facilities and are renewed annually, around mid-year. Effective January 1, 2008 the Company acquired additional partnership units in its Ontario, Canada ("Ontario") joint venture for...

  • Page 17
    ...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 and Medicaid. For clients, sales are recorded on a fee-for-service...

  • Page 18
    ... all employees hired prior to December 31, 2009. The benefits to be paid under the Company Plan are based on years of credited service through December 31, 2009, interest credits and average compensation. The Company also has the PEP which covers its senior management group. Prior to 2010, the...

  • Page 19
    ... has made in this report, and from time to time may otherwise make in its public filings, press releases and discussions by Company management, forward-looking statements concerning the Company's operations, performance and financial condition, as well as its strategic objectives. Some of these...

  • Page 20
    ... public filings, press releases and discussions with Company management, including: 1. changes in federal, state, local and third party payer regulations or policies or other future reforms in the health care system (or in the interpretation of current regulations), new insurance or payment systems...

  • Page 21
    ... in testing turnaround time or billing processes or the failure to meet future regulatory or customer information technology, data security and connectivity requirements; 26. failure of the Company's financial information systems resulting in failure to meet required financial reporting deadlines...

  • Page 22
    ... of December 31, 2010, the Company maintained effective internal control over financial reporting. Management reviewed the results of its assessment with the Audit Committee of the Company's Board of Directors. PricewaterhouseCoopers LLP, an independent registered public accounting firm, who audited...

  • Page 23
    ... in the Report of Management on Internal Controls over Financial Reporting, management has excluded Genzyme Genetics from its assessment of internal control over financial reporting as of December 31, 2010 because it was acquired by the Company in a purchase business combination during 2010. We have...

  • Page 24
    LABORATORY CORPORATION OF AMERICA Consolidated Balance Management's Discussion Sheets and Analysis of Financial Condition and Results of Operations December 31, (In Millions) 2010 2009 Assets Current assets: Cash and cash equivalents Accounts receivable, net of allowance for doubtful accounts of...

  • Page 25
    ...CORPORATION OF AMERICA Consolidated Statements Management's Discussionof and Operations Analysis of Financial Condition and Results of Operations Years Ended December 31, (In Millions, Except Per Share Data) 2010... Net sales Cost of sales Gross profit Selling, general and administrative expenses ...

  • Page 26
    ... earnings Issuance 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...

  • Page 27
    ... Payment of debt issuance costs Proceeds from sale of interest in a consolidated subsidiary Cash paid to acquire an interest in a consolidated subsidiary Noncontrolling interest distributions Excess tax benefits from stock based compensation Net proceeds from issuance of stock to employees Purchase...

  • Page 28
    ... time test results are reported, which approximates when services are provided. Services are provided to certain patients covered by various third-party payer programs including various managed care organizations, as well as the Medicare and Medicaid programs. Billings for services under third-party...

  • Page 29
    ... 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 their dispersion across many different geographic regions. Accounts receivable balances (gross) from Medicare and Medicaid were...

  • Page 30
    ...to be benefited, such as legal life for patents and technology, 10 to 25 years for customer lists and contractual lives for non-compete agreements. Debt Issuance Costs The costs related to the issuance of debt are capitalized and amortized to interest expense using the effective interest method over...

  • Page 31
    ... fair value measurement. For more information, see note 17. 2. Business Acquisitions On December 1, 2010, the Company acquired Genzyme Genetics, a business unit of Genzyme Corporation, for approximately $925.2 in cash (net of cash acquired). The Genzyme Genetics acquisition was made to expand the...

  • Page 32
    ... 31, 2010. The Company incurred approximately $25.7 in professional fees and expenses in connection with the acquisition of Genzyme Genetics and other acquisition activity, including significant costs associated with the Federal Trade Commission's review of the Company's purchase of specified...

  • Page 33
    ...2010 the Company had investments in the following unconsolidated joint venture partnerships and equity method investments: Locations Joint Venture Partnerships: Milwaukee, Wisconsin Alberta, Canada Cincinnati, Ohio Equity Method Investments: Canada, China and Western Europe Charlotte, North Carolina...

  • Page 34
    ... these partnerships mandates unanimous agreement between partners on all major business decisions as well as providing other participating rights to each partner. The equity method investments represent the Company's purchase of shares in clinical diagnostic companies. The investments are accounted...

  • Page 35
    ... debt 9. Accrued Expenses and Other Employee compensation and benefits Self-insurance reserves Accrued taxes payable Royalty and license fees payable Accrued repurchases of common stock Restructuring reserves Acquisition related reserves Interest payable Other December 31, 2010 $ 188.0 70.8 13.8 12...

  • Page 36
    ...31, 2010, future principal repayments under the Term Loan facility are as follows: 2011 - $75.0 and 2012 - $300.0. The senior credit facilities are available for general corporate purposes, including working capital, capital expenditures, acquisitions, funding of share repurchases and other payments...

  • Page 37
    ... January 1, 2011, through the close of business on the last business day of the calendar quarter, which is 5:00 p.m., New York City time, on Thursday, March 31, 2011. Senior Notes On October 28, 2010, in conjunction with the acquisition of Genzyme Genetics, the Company entered into a $925.0 Bridge...

  • Page 38
    .... In that event, each right will entitle the holder, other than the acquiring person, to purchase, for the initial purchase price, shares of the Company's common stock having a value of twice the initial purchase 36 13. Income Taxes The sources of income before taxes, classified between domestic...

  • Page 39
    ... deferred tax liabilities are as follows: December 31, 2010 Deferred tax assets: Accounts receivable Employee compensation and benefits Self insurance reserves Postretirement benefit obligation Acquisition and restructuring reserves Tax loss carryforwards Less: valuation allowance Net deferred tax...

  • Page 40
    ... 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 2010 and the exercise price, multiplied by the number of in-themoney options) that would have been received by the option holders had all option...

  • Page 41
    ... 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 2010, 2009 and 2008, expense related to the Company's stock option plan totaled...

  • Page 42
    ...Connecticut Supreme Court. DIANON has disputed liability and intends to contest the case vigorously on appeal. 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. During the...

  • Page 43
    ...Aetna Health Management, LLC filed a lawsuit against Laboratory Corporation of America Holdings in the United States District Court for the Eastern District of Pennsylvania, alleging unfair competition, misrepresentation, interference and breach of contract, and violation of trade secret laws. Aetna...

  • Page 44
    ... be no further billings. The Company is amortizing the total 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 required to be insured by law or contract. The Company is responsible for...

  • Page 45
    ...'s senior management group. Prior to 2010, the PEP provided for the payment of the difference, if any, between the amount of any maximum limitation on annual benefit payments under the Employee Retirement Income Security Act of 1974 and the annual benefit that would be payable under the Company Plan...

  • Page 46
    ...assumptions used in the accounting for the Company Plan and the PEP are summarized as follows: Discount rate Compensation increases Expected long term rate of return 2010 5.1% -% 7.5% 2009 5.8% -% 7.5% 2008 6.5% 3.5% 8.5% Asset Category Cash Equity securities: U.S. large cap - blend(a) U.S. mid cap...

  • Page 47
    ...the service cost and interest cost components of the 2010 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...

  • Page 48
    ...Instruments and Hedging 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...

  • Page 49
    ... 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 be...

  • Page 50
    ... following is a summary of unaudited quarterly data: Year Ended December 31, 2010 1st Quarter Net sales Gross profit Net earnings attributable to Laboratory Corporation of America Holdings Basic earnings per common share Diluted earnings per common share $1,193.6 506.9 132.7 1.27 1.25 2nd Quarter...

  • Page 51
    ... Center for Molecular Biology and Pathology 800-533-0567 Center for Occupational Testing 800-833-3984 Center for Esoteric Testing 800-334-5161 Paternity/Identity 800-742-3944 LabCorp Drug Development Laboratory Services 888-244-4102 Web Site www.LabCorp.com Transfer Agent American Stock Transfer...

  • Page 52
    Laboratory Corporation of America Holdings 358 South Main Street Burlington, NC 27215 336-584-5171 www.labcorp.com ®