LabCorp 2011 Annual Report Download - page 13

11
LABORATORY CORPORATION OF AMERICA
Management’s Discussion and Analysis
of Financial Condition and Results of Operations (in millions)
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 2009 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,
2011 2010 2009
Income tax expense $ 333.0 $ 344.0 $ 329.0
Income tax expense as a % of income before tax 38.4% 37.6% 37.2%
The effective tax rate for 2011 was negatively impacted by
non-deductible losses incurred in certain subsidiaries of the
Company. The effective tax rate for 2010 was favorably
impacted by a benefit relating to the net decrease in unrecog-
nized 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.
Liquidity, Capital Resources and Financial Position
The Company’s strong cash-generating capability and
financial condition typically have provided ready access to
capital markets. The Company’s principal source of liquidity
is operating cash flow, supplemented by proceeds from debt
offerings. This cash-generating capability is one of the
Company’s fundamental strengths and provides substantial
financial flexibility in meeting operating, investing and financing
needs. The Company’s senior unsecured revolving credit
facility is further discussed in “Note 11 to Consolidated
Financial Statements.”
Operating Activities
In 2011, the Company’s operations provided $855.6 of cash,
reflecting the Company’s solid business results. The decrease
in the Company’s cash flow from operations primarily resulted
from a litigation settlement of $49.5 which was paid in
September 2011. The Company continued to focus on efforts
to increase cash collections from all payers and to generate
on-going improvements to the claim submission processes.
The Company made contributions to the defined benefit
retirement plan (“Company Plan”) of $0.0, $0.0 and $54.8 in
2011, 2010 and 2009, respectively. In October 2009, the
Company received approval from its Board of Directors to
freeze any additional service-based credits for any years of
service after December 31, 2009 on the Company Plan and
the PEP. Both plans have been closed to new 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-elective
contribution (“NEC”) concurrent with each payroll period.
The NEC replaces the Company match, which has been
discontinued. Employees are not required to make a
contribution to the 401K Plan to receive the NEC. The NEC
is non-forfeitable and vests immediately. The 401K Plan also
permits discretionary contributions by the Company of 1% to
3% of pay for eligible employees based on years of service.
Non-elective and discretionary contributions were comparable
in 2011, compared to 2010, but were approximately $25.4
higher in 2010 than the Company’s contributions to its 401K
Plan in 2009.
Projected pension expense for the Company Plan and PEP
is expected to increase from $8.6 in 2011 to $12.2 in 2012.
The Company plans to make contributions of $14.6 to the
Company Plan during 2012. See “Note 16 to the Consolidated
Financial Statements” for a further discussion of the Company’s
pension and postretirement plans.
Investing Activities
Capital expenditures were $145.7, $126.1 and $114.7 for
2011, 2010 and 2009, respectively. The Company expects
capital expenditures of approximately $155.0 in 2012. The
Company will continue to make important investments in its
business, including information technology. Such expenditures
are expected to be funded by cash flow from operations, as
well as borrowings under the Company’s revolving credit
facilities as needed.
The Company remains committed to growing its business
through strategic acquisitions and licensing agreements. The
Company has invested a total of $1,531.2 over the past three
years in strategic business acquisitions. These acquisitions
have helped strengthen the Company’s geographic presence
along with expanding capabilities in the specialty testing
operations. The Company believes the acquisition market
remains attractive with a number of opportunities to strengthen