LabCorp 2010 Annual Report Download - page 10

8
LABORATORY CORPORATION OF AMERICA
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
General
During 2010, the Company continued to strengthen its financial
performance through pricing discipline, continued growth of
its esoteric testing, outcome improvement and companion
diagnostics offerings, and expense control.
On December 1, 2010, the Company acquired Genzyme
Genetics, a business unit of Genzyme Corporation, for approxi-
mately $925.2 in cash (net of cash acquired). The Genzyme
Genetics acquisition was made to expand the Company’s
capabilities in reproductive, genetic, hematology-oncology and
clinical trials central laboratory testing, to enhance the Company’s
esoteric testing capabilities and to advance the Company’s
personalized medicine strategy.
On October 28, 2010, in conjunction with the acquisition of
Genzyme Genetics, the Company entered into a $925.0 bridge
term loan credit agreement. The Company replaced and termi-
nated the bridge term loan credit agreement in November 2010 by
making an offering in the debt capital markets. On November 19,
2010, the Company sold $925.0 in debt securities, consisting
of $325.0 aggregate principal amount of 3.125% Senior Notes
due May 15, 2016 and $600.0 aggregate principal amount of
4.625% Senior Notes due November 15, 2020. As of December 31,
2010 the Company incurred $7.0 of financing commitment
fees, which is included in interest expense for the year ended
December 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 net assets of Westcliff Medical
Laboratories, Inc. These fees and expenses are included in
selling, general and administrative expenses for the year ended
December 31, 2010.
Due to the normal post-acquisition enrollment process for
government payers and contract assignment process for man-
aged care payers, the Company will experience delays in billing
for services rendered by Genzyme Genetics. Cash collections,
receivable agings and DSO in the first quarter of 2011 will be
negatively impacted by these delays. The Company expects
the delays to be resolved in due course and the related billings
and collections will be brought up-to-date during the second
quarter of 2011. The acquisition of Genzyme Genetics is
expected to be approximately $0.25 to $0.35 dilutive to the
Company’s earnings per share in 2011.
Effective January 1, 2008 the Company acquired additional
partnership units in its Ontario, Canada (“Ontario”) joint venture
for approximately $140.9 in cash (net of cash acquired), 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 cash flows of the
Ontario joint venture in the Company’s consolidated financial
statements on January 1, 2008. The amended joint venture’s
partnership agreement also enabled the holders of the non-
controlling interest to put the remaining partnership units to the
Company in defined future periods, at an initial amount equal
to the consideration paid by the Company in 2008, and subject
to adjustment based on market value formulas contained in
the agreement. In December 2009, the Company received
notification from the holders of the noncontrolling interest in the
Ontario joint venture that they intended to put their remaining
partnership units to the Company in accordance with the terms
of the joint venture’s partnership agreement. These units were
acquired on February 8, 2010 for $137.5. On February 17,
2010, the Company completed a transaction to sell the units
acquired from the previous noncontrolling interest holder to a
new Canadian partner for the same price. As a result of this
transaction, the Company recorded a component of noncon-
trolling interest in other liabilities and a component in mezzanine
equity. Upon the completion of these two transactions, the
Company’s financial ownership percentage in the joint venture
partnership remained unchanged at 85.6%. Concurrent with
the sale to the new partner, the partnership agreement for the
Ontario joint venture was amended and restated with substan-
tially the same terms as the previous agreement. The contractual
value of these puts, in excess of the current noncontrolling
interest of $25.2, totaled $143.5 at December 31, 2010. At
December 31, 2010, $148.1 has been classified as a current
liability in the Company’s consolidated balance sheet as the
noncontrolling interest that acquired these units has the ability
to put its units in the partnership to the Company on
December 31, 2011.
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
the first three years of the ten-year agreement, the Company