LabCorp 2011 Annual Report Download

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2011 ANNUAL REPORT
Our Five Pillars
of
Success

Table of contents

  • Page 1
    Our Five Pillars of Success 2011 ANNUAL REPORT

  • Page 2
    ...its Esoterix Clinical Trials Services. 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. Leading National Lab Provider • Fastest...

  • Page 3
    ...-value provider of laboratory services Continue฀scientific฀innovation฀to฀offer฀new฀tests฀at฀reasonable฀ and appropriate pricing, and Participate฀in฀the฀development฀of฀alternative฀delivery฀models฀ to improve patient outcomes and reduce the cost of care. Despite...

  • Page 4
    ...฀addition,฀LabCorp's฀ extensive฀test฀menu฀allowed฀us฀to฀internalize฀approximately฀ 50฀tests฀that฀Genzyme฀Genetics฀previously฀referred฀to฀other฀labs.฀ In฀December฀of฀2011,฀we฀closed฀our฀acquisition฀of฀Orchid฀Cellmark,฀ an฀international...

  • Page 5
    ... all phases of our operations - from specimen collection, to processing and testing, to result reporting and to billing. LabCorp TOUCHSM accessioning provides leading-edge automation฀at฀our฀patient฀service฀center฀(PSC)฀locations.฀LabCorp฀ TOUCH, including AccuDrawSM, automates key...

  • Page 6
    ... the cost of care With new health policy mandates and an urgent need to control costs, we believe the health care system will continue to move away from traditional fee-for-service payment models. As the most efficient, highest-value provider of laboratory services, LabCorp is ideally positioned to...

  • Page 7
    ฀ 2011 Financial Summary 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 ...

  • Page 8
    ... the closing of its acquisition of Orchid Cellmark Inc. ("Orchid") in mid-December 2011, the Company recorded a net $2.8 loss on its divestiture of certain assets of Orchid's U.S. government paternity business, under the terms of the agreement reached with the U.S. Federal Trade Commission. This non...

  • Page 9
    ... 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. These fees and expenses are included in selling, general and administrative expenses...

  • Page 10
    ... and clinical trials central laboratory testing, enhance the Company's esoteric testing capabilities and advance the Company's personalized medicine strategy. The Genzyme Genetics acquisition contributed approximately 6.8% to the Company's 10.8% growth in net sales experienced in 2011. In July 2011...

  • Page 11
    ... business, increased revenue from third parties (Medicare and Medicaid), the Company's continued shift in test mix to higher-priced genomic and esoteric tests, and growth in revenue per requisition in the Company's routine testing. Managed care and third party revenue as a percentage of net sales...

  • Page 12
    .... The Company recorded $7.0 of bridge financing fees in the 2010 period related to the signing of the definitive agreement to acquire Genzyme Genetics in September 2010. Equity Method Income Years Ended December 31, % Change Equity method income 2011 $9.5 2010 $10.6 2009 $13.8 2011 (10...

  • Page 13
    ... relating to the resolution of certain state tax issues under audit, as well as the realization of foreign tax credits. 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 14
    ... leading-edge technologies will provide future growth in revenues, there are certain risks associated with these investments. These risks include, but are not limited to, the failure of the licensed technology to gain broad acceptance in the marketplace and/or that insurance companies, managed care...

  • Page 15
    ... notes, holders are required to validly surrender their zero-coupon subordinated notes at any time during the calendar quarter beginning January 1, 2012, 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 Friday, March 30, 2012...

  • Page 16
    ... venture's partnership agreement. On November 28, 2011, this purchase was completed for a total purchase price of CN$151.7 as outlined in the partnership agreement (CN$147.8 plus certain adjustments relating to cash distribution hold backs made to finance recent business acquisitions and capital...

  • Page 17
    ... these estimated fee schedules based upon historical payment trends. Under capitated agreements with managed care companies, the Company recognizes revenue based on a negotiated monthly contractual rate for each member of the managed care plan regardless of the number or cost of services performed...

  • Page 18
    ..., 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 PEP provided for the payment of the difference...

  • Page 19
    ... 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 20
    ...as a result of changes in business models, including new risk based or network approaches, or other changes in strategy or business models by managed care companies; 13. failure to effectively integrate and/or manage newly acquired businesses, including Genzyme Genetics, and the cost related to such...

  • Page 21
    ... 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. Although, as set forth below, the Company's zero-coupon subordinated notes...

  • Page 22
    ... LLP, an independent registered public accounting firm, who audited and reported on the consolidated financial statements of the Company included in this annual report, also audited the effectiveness of the Company's internal control over financial reporting as of December 31, 2011 as stated in its...

  • Page 23
    ... financial position of Laboratory Corporation of America Holdings and its subsidiaries at December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011 in conformity with accounting principles generally accepted...

  • Page 24
    ...CORPORATION OF AMERICA Consolidated Balance Management's Discussion Sheets and Analysis of Financial Condition and Results of Operations (in millions) December 31, (In Millions) 2011 2010 Assets Current assets: Cash and cash equivalents Accounts receivable, net of allowance for doubtful accounts...

  • Page 25
    LABORATORY CORPORATION OF AMERICA Consolidated Statements Management's Discussionof and Operations Analysis of Financial Condition and Results of Operations (in millions) Years Ended December 31, (In Millions, Except Per Share Data) 2011 $ 5,542.3 3,267.6 2,274.7 1,159.6 85.8 80.9 948.4 (87.5) 9.5...

  • Page 26
    ... CORPORATION OF AMERICA Consolidated Statements Management's Discussionof and Changes Analysis in Shareholders' Equity of Financial Condition and Results of Operations (in millions) Accumulated Other Comprehensive Income (Loss) $ (16.7) (In Millions) Common Stock Additional Paid-in Capital...

  • Page 27
    ... Net cash provided by operating activities Cash Flows From Investing Activities: Capital expenditures Proceeds from sale of assets Deferred payments on acquisitions Acquisition of licensing technology Investments in equity affiliates Acquisition of businesses, net of cash acquired Net cash used for...

  • Page 28
    ... and Medicaid programs. The Company has capitated agreements with certain managed care customers and recognizes related revenue based on a predetermined monthly contractual rate for each member of the managed care plan regardless of the number or cost of services provided by the Company. In 2011...

  • Page 29
    ...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 30
    ... periods 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...

  • Page 31
    ... of net revenue for health care entities that provide services regardless of a patient's ability to pay. The guidance also requires enhanced disclosures of significant changes in estimates in the provision for bad debts relating to patient services when an entity recognizes revenue regardless of...

  • Page 32
    ... differentiation and esoteric testing capabilities. In April 2011, the Company and Orchid Cellmark Inc. ("Orchid") announced that they had entered into a definitive agreement and plan of merger under which the Company would acquire all of the outstanding shares of Orchid in a cash tender offer...

  • Page 33
    ... 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 Company's capabilities in reproductive, genetic, hematologyoncology and clinical trials central laboratory testing, enhance the Company's esoteric...

  • Page 34
    ... 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 for under the equity method of accounting as the Company does not...

  • Page 35
    ....9 Customer relationships Patents, licenses and technology Non-compete agreements Trade names Amortization of intangible assets was $85.8, $72.7 and $62.6 in 2011, 2010 and 2009, respectively. Amortization expense of intangible assets is estimated to be $83.9 in fiscal 2012, $78.3 in fiscal 2013...

  • Page 36
    ... 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 Restructuring reserves Acquisition related reserves Interest payable Other December 31, 2011 $ 207...

  • Page 37
    ... notes, holders are required to validly surrender their zero-coupon subordinated notes at any time during the calendar quarter beginning January 1, 2012, 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 Friday, March 30, 2012...

  • Page 38
    ..., payable semi-annually on June 15 and December 15. The changes in common shares issued and held in treasury are summarized below: Common shares issued 2011 Common stock issued at January 1 124.5 1.9 Common stock issued under employee stock plans Common stock issued upon conversion of zero-coupon...

  • Page 39
    ....5) A portion of the tax benefit associated with option exercises from stock plans reducing taxes currently payable are recorded through additional paid-in capital. The benefits recorded through additional paid-in capital are approximately $11.0, $7.8 and $1.1 in 2011, 2010 and 2009, respectively...

  • Page 40
    ...open tax years. The Company provided for taxes on substantially all undistributed earnings of foreign subsidiaries. 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 2011...

  • Page 41
    ...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 2011...

  • Page 42
    ..., respectively. For 2011, 2010 and 2009, expense related to the Company's employee stock purchase plan was $2.7, $2.0 and $3.2, respectively. The Company uses the Black-Scholes model to calculate the fair value of the employee's purchase right. The fair value of the employee's purchase right and the...

  • Page 43
    ... of Health & Human Services of Inspector General's regional office in New York. On August 17, 2011, the Southern District of New York unsealed a False Claims Act lawsuit, United States of America ex rel. NPT Associates v. Laboratory Corporation of America Holdings, which alleges that the Company...

  • Page 44
    ...its largest managed care customers. The letter requests information about the Company's contracts and financial data regarding its managed care customers. The Company is cooperating with the request. The Company is a defendant in two putative class actions related to overtime pay. In September 2011...

  • Page 45
    ... participants. Employees participating in the Company Plan and the PEP no longer earn service-based credits, but continue to earn interest credits. In addition, effective January 1, 2010, all employees eligible for the defined contribution retirement plan (the "401K Plan") receive a minimum 3% non...

  • Page 46
    ...addition, the Company Plan covers substantially 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's policy is to fund the Company Plan...

  • Page 47
    ...bond index fund not actively managed that tracks the Barclays Capital U.S. Aggregate Index. The weighted-average discount rates used in the calculation of the accumulated post-retirement benefit obligation were 4.3% and 5.4% as of December 31, 2011 and 2010, respectively. The health care cost trend...

  • Page 48
    ... 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 (see Interest Rate Swap section below). Although the Company's zero-coupon subordinated...

  • Page 49
    ... December 31, 2011 Supplemental schedule of cash flow information: Cash paid during period for: Interest Income taxes, net of refunds Disclosure of non-cash financing and investing activities: Surrender of restricted stock awards and performance shares Converison of zero-coupon convertible debt...

  • Page 50
    ... Consolidated Financial Statements 20. Quarterly Data (Unaudited) The following is a summary of unaudited quarterly data: Year Ended December 31, 2011 1st Quarter Net sales Gross profit Net earnings attributable to Laboratory Corporation of America Holdings Basic earnings per common share Diluted...

  • Page 51
    ... Company's Code of Business Conduct and Ethics are available on the Company's Web Site at www.labcorp.com. You can also obtain a hard copy of these documents, without charge, upon written request to Stephen Anderson, Laboratory Corporation of America Holdings, 358 South Main Street, Burlington, NC...

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