LabCorp 2010 Annual Report Download - page 13

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LABORATORY CORPORATION OF AMERICA
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
and contractual obligations associated with leased facilities
and other facility related costs. Of this amount, $8.0 related to
severance and other employee costs in connection with certain
work force reductions and $3.1 related to contractual obligations
associated with leased facilities and other facility related costs.
These restructuring initiatives are expected to provide annualized
cost savings of approximately $34.7. The Company also reduced
its prior restructuring accruals by $5.3, comprised of $4.7 of
previously recorded facility costs and $0.6 of employee severance
benefits as a result of changes in cost estimates on the restruc-
turing initiatives. In addition, the Company recorded a special
charge of $6.2 related to the write-off of development costs
incurred on systems abandoned during the year.
During 2009, the Company recorded net restructuring
charges of $13.5 primarily related to the closing of redundant
and underutilized facilities. The majority of these costs related
to severance and other employee costs and contractual obli-
gations associated with leased facilities and other facility related
costs. Of this amount, $10.5 related to severance and other
employee costs for employees primarily in the affected facilities,
and $12.5 related to contractual obligations associated with
leased facilities and other facility related costs. The Company
also reduced its prior restructuring accruals by $9.5, comprised
of $7.3 of previously recorded facility costs and $2.2 of employee
severance benefits as a result of incurring less cost than
planned on those restructuring initiatives primarily resulting
from favorable settlements on lease buyouts and severance
payments that were not required to achieve the planned
reduction in work force.
During 2008, the Company recorded net restructuring
charges of $32.4 primarily related to work force reductions
and the closing of redundant and underutilized facilities. Of
this amount, $20.9 related to severance and other employee
costs in connection with the general work force reductions
and $13.4 related to contractual obligations associated with
leased facilities and equipment. The Company also recorded a
credit of $1.9, comprised of $1.2 of previously recorded facility
costs and $0.7 of employee severance benefits relating to
changes in cost estimates accrued in prior periods.
During the third quarter of 2008, the Company also recorded
a special charge of $5.5 related to estimated uncollectible
amounts primarily owed by patients in the areas of the Gulf
Coast severely impacted by hurricanes similar to losses
incurred during the 2005 hurricane season.
Interest Expense
Years Ended December 31, % Change
2010 2009 2008 2010 2009
Interest expense $ 70.0 $ 62.9 $ 72.0 11.3% (12.6)%
The increase in interest expense for 2010 as compared 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 outstanding in 2010
as compared with 2009 primarily due to principal payments
on the Term Loan Facility. The decrease in interest expense for
2009 as compared to 2008 was primarily driven by lower aver-
age borrowings outstanding in 2009 due to principal payments
on the Term Loan Facility and the redemption of approximately
50% of the zero-coupon subordinated notes in the second
quarter of 2009. Also, the Company’s zero-coupon subordinated
notes did not accrue contingent cash interest for the period
March 12, 2009 through December 31, 2009.
Equity Method Income
Years Ended December 31, % Change
2010 2009 2008 2010 2009
Equity method income $ 10.6 $ 13.8 $ 14.4 (23.2)% (4.2)%
Equity method income represents the Company’s ownership
share in joint venture partnerships along with stock investments
in other companies in the clinical diagnostic industry. The
decrease in income since 2008 is primarily due to the Company’s
share of losses in the Cincinnati, Ohio joint venture and the
Canada, China and Western Europe equity method investment.
Income Tax Expense
Years Ended December 31,
2010 2009 2008
Income tax expense $ 344.0 $ 329.0 $ 307.9
Income tax expense as a % of income before tax 37.6% 37.2% 39.2%
The effective tax rate for 2010 was favorably impacted by a
benefit relating to the net decrease in unrecognized income tax
benefits. The effective tax rate for 2009 was favorably impacted
by adjustments of $21.5 relating to the resolution of certain
state tax issues under audit, as well as the realization of foreign
tax credits.