LabCorp 2012 Annual Report Download - page 14

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LABORATORY CORPORATION OF AMERICA
Management’s Discussion and Analysis
of Financial Condition and Results of Operations (in millions)
can achieve this through use of its Revolving Credit Facility
and its ready access to debt capital markets. In the event
that the Company needs additional liquidity, it believes it
can readily access the debt capital markets.
Operating Activities
In 2012, the Company’s operations provided $841.4 of cash,
reflecting the Company’s solid business results. The Company
continued to focus on efforts to increase cash collections
from all payers and to generate ongoing improvements to
the claim submission processes. At December 31 2012, a
balance sheet reclassification adjustment was made to reduce
cash and accounts payable to net positive cash balances in
certain accounts at one of the Company’s financial institutions
with outstanding checks in specific accounts with that same
bank as there is a technical right of offset for cash accounts
within the same bank. This adjustment included an out of
period one-time correction that reduced 2012 reported
operating cash flows by $34.0, which is not material to the
previously reported financial statements.
The Company made contributions to the defined benefit
retirement plan (“Company Plan”) of $11.3, $0.0 and $0.0
in 2012, 2011 and 2010, 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 $49.0 in
2012, compared to $44.3 in 2011 and $40.6 in 2010.
Projected pension expense for the Company Plan and
the PEP is expected to remain at $12.1 in 2013. The Company
plans to make contributions of $6.5 to the Company Plan
during 2013. 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 $173.8, $145.7 and $126.1 for
2012, 2011 and 2010, respectively. The increase in capital
spending in 2012 was related to certain integration and cost
savings initiatives started by the Company. The Company
expects capital expenditures of approximately $200.0 to
$220.0 in 2013. The Company’s projected capital expenditures
are higher than historical levels due to near-term investments
in facility consolidation and replacement of a major testing
platform. Such expenditures are expected to be funded by
cash flow from operations, as well as borrowings under the
Company’s Revolving Credit Facility as needed.
The Company remains committed to growing its business
through strategic acquisitions and licensing agreements.
The Company has invested a total of $1,650.8 over the past
three years in strategic business acquisitions, including
MEDTOX Scientific in 2012, Orchid in 2011 and Genzyme
Genetics in 2010. 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 its scientific capabilities,
grow esoteric testing capabilities and increase presence in
key geographic areas.
The Company has invested a total of $2.9 over the past
three years in licensing new testing technologies and had
$41.0 net book value of capitalized patents, licenses and
technology as of December 31, 2012. While the Company
continues to believe its strategy of entering into licensing
and technology distribution agreements with the developers
of leading-edge technologies will provide future growth in
revenues, there are certain risks associated with these
investments. These risks include, but are not limited to, the
failure of the licensed technology to gain broad acceptance in
the marketplace and/or that insurance companies, managed
care organizations, or Medicare and Medicaid will not approve
reimbursement for these tests at a level commensurate
with the costs of running the tests. Any or all of these
circumstances could result in impairment in the value of
the related capitalized licensing costs.