LabCorp 2012 Annual Report Download - page 13

11
LABORATORY CORPORATION OF AMERICA
Management’s Discussion and Analysis
of Financial Condition and Results of Operations (in millions)
The increase in interest expense for 2011 as compared
to 2010 is primarily due to interest incurred during 2011 in
connection with the senior notes offering of $925.0 in
November 2010, which was outstanding for all of 2011.
Certain interest related costs decreased due to lower
average borrowings outstanding during 2011 as compared
with 2010 primarily due to principal payments on the prior
Term Loan Facility and the settlement of approximately
$155.1 of the zero-coupon subordinated notes during the
year. In addition, the effective interest rate on the Term Loan
Facility was lower in 2011 as compared with 2010 due to the
expiration of the interest rate swap on March 31, 2011. In
conjunction with the repayment and cancellation of its old
credit agreement in December 2011, the Company recorded
approximately $1.0 of unamortized debt costs as interest
expense in the Company’s Consolidated Statements of
Operations. 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
2012 2011 2010 2012 2011
Equity method income $21.4 $9.5 $10.6 125.3% (10.4)%
Equity method income represents the Company’s
ownership share in joint venture partnerships along with
equity investments in other companies in the health care
industry. The increase in income in 2012 compared with
2011 is primarily due to the Company’s share of losses
during 2011 in the Cincinnati, Ohio joint venture (liquidation
initiated in the second half of 2011) and the Canada, China,
Singapore and Western Europe equity method investments
(acquired by the Company in the second half of 2011). In
addition, in conjunction with the liquidation of one of its
joint ventures, the Company recorded a $2.9 increase in
equity method income during the second quarter of 2012.
Income Tax Expense
Years Ended December 31,
2012 2011 2010
Income tax expense $ 359.4 $ 333.0 $ 344.0
Income tax expense as a % of income before tax 38.1% 38.4% 37.6%
The effective tax rate for 2012 was favorably impacted by
an increase in unrecognized income tax benefits compared
to 2011, partially offset by an increase in tax on the additional
investment in the Company’s Canadian subsidiary. The
effective tax rate for 2011 was negatively impacted by a
decrease in unrecognized income tax benefits compared to
2010, the divestiture of certain Orchid paternity contracts,
and foreign losses not tax effected.
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.”
On July 31, 2012, the Company completed its acquisition
of MEDTOX for $236.4 in cash, excluding transaction fees.
The acquisition was financed through borrowings from the
Company’s Revolving Credit Facility and cash on hand.
On August 23, 2012, the Company issued $1,000.0 in
new senior notes pursuant to the Company’s effective shelf
registration statement on Form S-3. The new senior notes
consisted of $500.0 aggregate principal amount of 2.20%
Senior Notes due 2017 and $500.0 aggregate principal amount
of 3.75% Senior Notes due 2022. The net proceeds were
used to repay $625.0 of the outstanding borrowings under
the Company’s Revolving Credit Facility. The remaining
proceeds are available for other general corporate purposes.
The Company believes that its cash from operations, in
combination with available cash on hand and borrowing
capacity, will be sufficient to satisfy its obligations in 2013.
The Company’s $350.0 Senior Note matured on February 1,
2013 was paid with available cash on hand and $30.0 from
the Revolving Credit Facility. The Company has recently
discussed its intention to increase its ratio of total debt
to consolidated EBITDA over time from 2.0 to 1.0 as of
December 2012 to 2.5 to 1.0. The Company believes that it