LabCorp 2012 Annual Report Download - page 12

10
LABORATORY CORPORATION OF AMERICA
Management’s Discussion and Analysis
of Financial Condition and Results of Operations (in millions)
Restructuring and Other Special Charges
Years Ended December 31,
2012 2011 2010
Restructuring and other special charges $ 25.3 $ 80.9 $ 12.0
During 2012, the Company recorded net restructuring
charges of $25.3. The charges were comprised of $16.2 in
severance and other personnel costs and $19.6 in facility-
related costs primarily associated with the ongoing integration
activities of Orchid and the Integrated Genetics Division
(formerly Genzyme Genetics) and costs associated with
the previously announced termination of an executive vice
president. These charges were offset by the reversal of
previously established reserves of $6.3 in unused severance
and $4.2 in unused facility-related costs.
During 2011, the Company recorded net restructuring
charges of $44.6. Of this amount, $27.4 related to severance
and other personnel costs, and $22.0 primarily related to
facility-related costs associated with the ongoing integration
of certain acquisitions including Genzyme Genetics and
Westcliff. These charges were offset by restructuring credits
of $4.8, resulting from the reversal of unused severance
and facility closure liabilities. In addition, the Company
recorded fixed assets impairment charges of $18.9 primarily
related to equipment, computer systems and leasehold
improvements in closed facilities. The Company also recorded
special charges of $14.8 related to the write-off of certain
assets and liabilities related to an investment made in
prior years, along with a $2.6 write-off of an uncollectible
receivable from a past installment sale of one of the Company’s
lab operations.
During 2010, the Company recorded net restructuring
charges of $5.8 primarily related to the closing of redundant
and underutilized facilities. Of this amount, $8.0 related to
severance and other employee costs for employees primarily
in the affected facilities, and $3.1 related to contractual
obligations associated with leased facilities and other
facility-related costs. 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
restructuring 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.
From time to time, the Company implements cost savings
initiatives. These initiatives result from the integration of
recently acquired businesses and from reducing the number
of facilities and employees in an effort to balance the
Company’s cost of operations with current test volume
trends while maintaining the high quality of its services that
the marketplace demands. It is difficult to determine the
nature, timing and extent of these activities until adequate
planning has been completed and reviewed. The continuing
economic downturn being experienced in the United States
and globally has had an impact on the Company’s volume.
The Company believes that any restructuring costs which
may be incurred in future periods will be more than offset
by subsequent savings realized from these potential actions
and that any related restructuring charges will not have a
material impact on the Company’s operations or liquidity.
As part of the Clearstone integration, the Company also
recorded a $6.9 loss on the disposal of one of its European
subsidiaries in Other, net under Other income (expenses)
during 2012.
Interest Expense
Years Ended December 31, % Change
2012 2011 2010 2012 2011
Interest expense $94.5 $87.5 $70.0 8.0% 25.0%
The increase in interest expense for 2012 as compared
with 2011 is primarily due to the issuance of $1,000.0 of
senior notes in August 2012. This increase was partially
offset by the settlement of approximately $155.1 of the
zero-coupon subordinated notes during 2011. In addition,
during December 2011, the Company replaced its existing
term loan facility (the “Term Loan Facility”) with a new
revolving credit facility (the “Revolving Credit Facility”),
which is described further in “Note 11 to Consolidated
Financial Statements.” The new Revolving Credit Facility
had a lower effective interest rate during 2012 compared
with the effective interest rate on the Term Loan Facility
during 2011. Finally, there were no borrowings outstanding
under the Revolving Credit Facility during the fourth quarter
of 2012.