LabCorp 2012 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 2012 the Company grew its revenue in a challenging
economic environment. Net sales for 2012 increased 2.3%
in comparison to 2011 on a 1.7% increase in volume and a
0.6% increase in revenue per requisition. The Company’s
acquisition of Orchid in December 2011 increased revenue
and volume by 1.1% and 0.3%, respectively, in 2012 compared
to 2011. The Company’s acquisition of MEDTOX on July 31,
2012 increased revenue and volume by 1.0% and 1.4%,
respectively, in 2012 compared to 2011.
During 2012, the impact of inclement weather (notably
from Super Storm Sandy in October 2012) reduced the
Company’s revenues and diluted earnings per share by an
estimated $16.0 and $0.09, respectively.
Changes in governmental regulations will have a significant
impact on the Company’s operations in 2013. The Affordable
Care Act Baseline for the 2013 update to the Clinical Lab Fee
Schedule was negative 0.95% and the Middle Class Tax
Relief and Job Creation Act rebaselined the fee schedule an
additional 2% lower. These fee schedule reductions became
effective on January 1, 2013. If mandatory sequestration is
implemented, the Company will receive an additional 2%
reduction to the Clinical Lab Fee Schedule and a separate
2% reduction to the Physician Fee Schedule effective April 1,
2013. The Company also faces significant revenue impacts in
2013 as a result of a variety of other government reductions
in payment for laboratory services. Altogether, the Company
estimates that these payment reductions will negatively
impact 2013 revenue by over $50.0 and diluted earnings
per share by approximately $0.35.
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, 2012, 2011, and 2010
Net Sales
Years Ended December 31, % Change
2012 2011 2010 2012 2011
Net Sales
Routine Testing $ 3,246.6 $ 3,143.9 $ 2,995.4 3.3% 5.0%
Genomic and
Esoteric Testing 2,089.8 2,089.0 1,728.5 0.0% 20.9%
Ontario, Canada 335.0 309.4 280.0 8.3% 10.5%
Total $ 5,671.4 $ 5,542.3 $ 5,003.9 2.3% 10.8%
Years Ended December 31, % Change
2012 2011 2010 2012 2011
Volume
Routine Testing 86.2 85.2 83.3 1.2% 2.3%
Genomic and
Esoteric Testing 29.9 29.3 27.2 1.8% 7.8%
Ontario, Canada 9.8 9.3 9.1 6.2% 1.8%
Total 125.9 123.8 119.6 1.7% 3.5%
Years Ended December 31, % Change
2012 2011 2010 2012 2011
Revenue Per Requisition
Routine Testing $ 37.68 $ 36.91 $ 35.96 2.1% 2.6%
Genomic and
Esoteric Testing $ 69.94 $ 71.19 $ 63.48 (1.8)% 12.1%
Ontario, Canada $ 33.94 $ 33.29 $ 30.68 2.0% 8.5%
Total $ 45.04 $ 44.76 $ 41.82 0.6% 7.0%
The increase in net sales for the three years ended
December 31, 2012 has been driven primarily by acquisitions
made in all years (most significantly in the second half of
2010), along with growth in the Company’s managed care
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.
During the fourth quarter of 2012, the impact of inclement
weather reduced revenue by an estimated $16.0. The increase
in net sales for the year ended December 31, 2012 as compared
with 2011 was driven primarily by the MEDTOX and Orchid
acquisitions and by contributions from the milder winter
weather experienced in the first quarter of 2012, along with
positive volume growth in genomic and esoteric testing and
Ontario, Canada, offset by volume losses sustained