LabCorp 2011 Annual Report Download - page 10

8
LABORATORY CORPORATION OF AMERICA
Management’s Discussion and Analysis
of Financial Condition and Results of Operations (in millions)
General
During 2011, 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.
The Company’s acquisition of Genzyme Genetics in
December 2010 has helped to expand the Company’s
capabilities in reproductive, genetic, hematology-oncology
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, the Company reached a settlement in the
previously disclosed lawsuit, California ex rel. Hunter
Laboratories, LLC et al. v. Quest Diagnostics Incorporated,
et al. to avoid the uncertainty and costs associated with
prolonged litigation. Pursuant to the executed settlement
agreement, the Company paid $49.5 in the third quarter of
2011 to resolve all claims brought against the Company in the
lawsuit without any admission of liability. In connection with
the settlement, the Company recorded litigation settlement
expense of $34.5 ($49.5 settlement, net of previously recorded
reserves of $15.0) in the second quarter of 2011. This expense
was recorded in Selling, General and Administrative expense
in the Company’s Consolidated Statements of Operations.
In September 2011, the Company announced that it had
extended the term of its agreement with UnitedHealthcare
Insurance Company, an affiliate of UnitedHealth Group
Incorporated, for an additional two years. The agreement,
which was effective January 1, 2007, will now continue
through the end of 2018.
Following the closing of its acquisition of Orchid Cellmark
Inc. (“Orchid”) in mid-December, 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-deductible loss on disposal was recorded in Other
Income and Expense in the Company’s Consolidated
Statements of Operations.
In November 2011, the Company acquired an additional
12.6% ownership interest from the holders of the non-
controlling interest in the Ontario joint venture in accordance
with the terms of the joint venture’s partnership agreement,
bringing the Company’s ownership interest to 98.2%.
On December 21, 2011, the Company entered into a new
$1,000.0 revolving credit facility. As part of this new financing,
the Company repaid all of the outstanding balances of
$318.8 on its term loan and $235.0 on its previous revolving
credit facility. In conjunction with the repayment and cancellation
of its old credit agreement, the Company recorded approxi-
mately $1.0 of unamortized debt costs as interest expense
in the Company’s Consolidated Statements of Operations
during the fourth quarter of 2011.
Seasonality
The majority of the Company’s testing volume is dependent
on patient visits to physician offices and other providers of
health care. Volume of testing generally declines during the
year-end holiday periods and other major holidays. In addition,
volume declines due to inclement weather may reduce net
revenues and cash flows. Therefore, comparison of the results
of successive quarters may not accurately reflect trends or
results for the full year.
Results of Operations
(amounts in millions except Revenue Per Requisition info)
Years Ended December 31, 2011, 2010, and 2009
Operating results for the year ended December 31, 2011 were
impacted by a challenging economic climate, offset by growth
resulting from the Company’s 2010 acquisitions of Genzyme
Genetics and Westcliff, along with organic growth within its
core operations. Inclement weather reduced volumes by an
estimated 0.1% and 0.3%, and revenue by an estimated
$26.0 and $23.0 during the years ended December 31, 2011
and 2010, respectively.
Net Sales
Years Ended December 31, % Change
2011 2010 2009 2011 2010
Net sales
Routine Testing $ 3,143.9 $ 2,995.4 $ 2,845.6 5.0% 5.3%
Genomic and
Esoteric Testing
2,089.0 1,728.5 1,601.6 20.9% 7.9%
Ontario, Canada 309.4 280.0 247.5 10.5% 13.1%
Total $ 5,542.3 $ 5,003.9 $ 4,694.7 10.8% 6.6%