LabCorp 2013 Annual Report Download

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2013 Annual Report
TRUSTED
KNOWLEDGE
PARTNER

Table of contents

  • Page 1
    TRUSTED KNOWLEDGE PARTNER 2013 Annual Report

  • Page 2
    ... Corporation of America® Holdings, an S&P 500 company, is a pioneer in commercializing new diagnostic technologies and the first in its industry to embrace genomic testing. With annual revenues of $5.8 billion in 2013, over 34,000 employees worldwide and more than 220,000 clients, LabCorp...

  • Page 3
    ... and patient experience We will be a trusted knowledge partner to stakeholders, leading to growth in our business and continued creation of shareholder value. We will achieve this mission by continuing to execute our five pillar strategy. 2 4 Scientific innovation at appropriate pricing

  • Page 4
    1 Deploy capital to investments that enhance our business and return capital to shareholders Continue to improve efficiency to offer the most compelling value in laboratory services 3 5 Develop knowledge services

  • Page 5
    ... drive to improve quality, reduce costs, provide care in the lowest acuity site and reward good outcomes. Through disciplined focus on our mission - to be a trusted knowledge partner for our stakeholders - we have positioned LabCorp to succeed in this continually changing environment. In fiscal 2013...

  • Page 6
    ... in toxicology and pain management testing, and in 2013 solid growth in these businesses contributed to strong volume trends for the year. MEDTOX is the latest of several successful acquisition integrations, including Genzyme Genetics1, Clearstone Central Laboratories, Orchid Cellmark and Monogram...

  • Page 7
    ...fferentiates LabCorp's BRCA offering from our competitors' is our comprehensive suite of services to assist doctors and patients in ordering the test, assessing insurance coverage and understanding the results. Our Care Coordination preauthorization service assists patients who request the test in...

  • Page 8
    ...its value to payers, physicians and patients. Our knowledge services now go well beyond the testing of samples and the delivery of results, as we provide end-to-end lab solutions for our customers. Our capabilities include population health management tools, data analytics, decision-support programs...

  • Page 9
    ฀ 2013 Financial Summary Table of Contents Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations Report of Management on Internal Control Over Financial Reporting Report of Independent Registered Public Accounting Firm Consolidated Balance ...

  • Page 10
    ... 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 business (formerly Genzyme...

  • Page 11
    ... the closing of its acquisition of Orchid in mid-December 2011, the Company recorded a net $2.8 loss on its divestiture of certain assets of Orchid's U.S. government paternity business, under the terms of the agreement reached with the U.S. Federal Trade Commission. This non-deductible loss on...

  • Page 12
    ... well as the impact of the stronger U.S. dollar in 2013 as compared with 2012. 8 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...

  • Page 13
    ...to improved collection trends resulting from process improvement programs within the Company's billing department and field operations. These decreases in selling, general and administrative expenses were partially offset by $9.9 in transaction fees related to the MEDTOX acquisition, mentioned above...

  • Page 14
    ... sale of one of the Company's lab operations. 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...

  • Page 15
    ... income tax benefits, 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...

  • Page 16
    ...'s solid business results. The decrease in cash provided from operations in 2013 as compared with 2012 is primarily attributable to the delays and denials of coverage for existing tests by some payers after implementation of newly established molecular pathology codes as well as government payment...

  • Page 17
    ... the last business day of the calendar quarter, which is 5:00 p.m., New York City time, on Monday, March 31, 2014. If notices of conversion are received, the Company plans to settle the cash portion of the conversion obligation with cash on hand and/or borrowings under the revolving credit facility...

  • Page 18
    ... 16 to Consolidated Financial Statements." Benefits under the Company's postretirement medical plan are made when claims are submitted for payment, the timing of which is not practicable to estimate. (d) The table does not include the Company's reserves for unrecognized tax benefits. The Company had...

  • Page 19
    ... entity. Under this new standard, a parent company that ceases to have a controlling financial interest in a foreign subsidiary or group of assets within a foreign entity shall release any related cumulative translation adjustment into net income only if a sale or transfer results in complete or...

  • Page 20
    ...results are reported to the ordering physician. The Company's sales are generally billed to three types of payers - clients, patients and third parties such as managed care companies, Medicare and Medicaid. For clients, sales are recorded on a fee-for-service basis at the Company's client list price...

  • Page 21
    ... pay for eligible employees based on service. The Company Plan covers substantially all employees hired prior to December 31, 2009. The benefits to be paid under the Company Plan are based on years of credited service through December 31, 2009, interest credits and average compensation. The Company...

  • Page 22
    ... compared to the book value of the reporting unit. The Company uses a market value approach for determining fair value and utilizes a number of factors such as publicly available information regarding the market capitalization of the Company as well as operating results, business plans, and present...

  • Page 23
    ... public filings, press releases and discussions with Company management, including: 1. changes in federal, state, local and third-party payer regulations or policies or other future reforms in the health care system (or in the interpretation of current regulations), new insurance or payment systems...

  • Page 24
    ..., or market the Company's tests or operate its business; 26. failure in the Company's information technology systems resulting in an increase in testing turnaround time or billing processes or the failure to meet future regulatory or customer information technology, data security and connectivity...

  • Page 25
    ... with changes in interest rates, through a controlled program of risk management that includes, from time to time, the use of derivative financial instruments such as interest rate swap agreements. Although, as set forth below, the Company's zero-coupon subordinated notes contain features that are...

  • Page 26
    ... of December 31, 2013, the Company maintained effective internal control over financial reporting. Management reviewed the results of its assessment with the Audit Committee of the Company's Board of Directors. PricewaterhouseCoopers LLP, an independent registered public accounting firm, who audited...

  • Page 27
    ...internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control...

  • Page 28
    ...CORPORATION OF AMERICA Consolidated Balance Management's Discussion Sheets and Analysis of Financial Condition and Results of Operations (in millions) December 31, (In Millions) 2013 2012 ASSETS Current assets: Cash and cash equivalents Accounts receivable, net of allowance for doubtful accounts...

  • Page 29
    ...CORPORATION OF AMERICA Consolidated Statements Management's Discussionof and Operations Analysis of Financial Condition and Results of Operations (in millions) Years Ended December 31, (In Millions, Except Per Share Data) 2013...11 Net sales Cost of sales Gross profit Selling, general and ...

  • Page 30
    ... Issuance of common stock under employee stock plans Surrender of restricted stock and performance share awards Conversion of zero-coupon convertible debt Stock compensation Income tax benefit from stock options exercised Purchase of common stock BALANCE AT DECEMBER 31, 2013 The accompanying notes...

  • Page 31
    ... obligations Cash paid to acquire an interest in a consolidated subsidiary Noncontrolling interest distributions Deferred payments on acquisitions Excess tax benefits from stock based compensation Net proceeds from issuance of stock to employees Purchase of common stock Net cash used for financing...

  • Page 32
    ... Medicaid programs. The Company has capitated agreements with certain managed care customers and recognizes related revenue based on a predetermined monthly contractual rate for each member of the managed care plan regardless of the number or cost of services provided by the Company. In 2013, 2012...

  • Page 33
    ... number of the Company's clients as well as their dispersion across many different geographic regions. While the Company has receivables due from federal and state governmental agencies, the Company does not believe that such receivables represent a credit risk since the related healthcare programs...

  • Page 34
    ... the related accounts with any resulting gain or loss reflected in the consolidated statements of operations. Capitalized Software Costs The Company capitalizes purchased software which is ready for service and capitalizes software development costs incurred on significant projects starting from...

  • Page 35
    ... compared to the book value of the reporting unit. The Company uses a market value approach for determining fair value and utilizes a number of factors such as publicly available information regarding the market capitalization of the Company as well as operating results, business plans, and present...

  • Page 36
    LABORATORY CORPORATION OF AMERICA Notes to Consolidated Financial Statements Derivative Financial Instruments Interest rate swap agreements, which have been used by the Company from time to time in the management of interest rate exposure, are accounted for at fair value. The Company's zero-coupon...

  • Page 37
    ...was accepted by the FTC for public comment, the Company was required to divest certain assets of Orchid's U.S. government paternity business following closing of the acquisition. On December 16, 2011, the Company sold those assets to DNA Diagnostics Center, a privately held provider of DNA paternity...

  • Page 38
    ... 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 Integrated Genetics Division (formerly Genzyme...

  • Page 39
    ... on all major business decisions as well as providing other participating rights to each partner. The equity method investments represent the Company's purchase of shares in clinical diagnostic companies. The investments are accounted for under the equity method of accounting as the Company does not...

  • Page 40
    ... and Other Employee compensation and benefits Self-insurance reserves Accrued taxes payable Royalty and license fees payable Restructuring reserves Acquisition related reserves Interest payable Other December 31, 2013 $166.0 33.3 24.2 8.1 9.3 14.2 19.7 35.2 $310.0 December 31, 2012 $ 158.0 34...

  • Page 41
    LABORATORY CORPORATION OF AMERICA Notes to Consolidated Financial Statements 10. Other Liabilities Post-retirement benefit obligation Defined benefit plan obligation Restructuring reserves Self-insurance reserves Acquisition related reserves Deferred revenue Other December 31, 2013 $ 60.6 80.0 16...

  • Page 42
    ... the last business day of the calendar quarter, which is 5:00 p.m., New York City time, on Monday, March 31, 2014. If notices of conversion are received, the Company plans to settle the cash portion of the conversion obligation with cash on hand and/or borrowings under the revolving credit facility...

  • Page 43
    ... stock, par value $0.10 per share. There were no preferred shares outstanding as of December 31, 2013 and 2012. (a) The amortization of prior service cost is included in the computation of net periodic benefit cost. Refer to Note 16 Pension and Postretirement Plans for additional information...

  • Page 44
    ...A portion of the tax benefit associated with option exercises from stock plans reducing taxes currently payable are recorded through additional paid-in capital. The benefits recorded through additional paid-in capital are approximately $10.6, $8.4 and $11.0 in 2013, 2012 and 2011, respectively. The...

  • Page 45
    ...$ 51.5 $ 51.3 $ 44.2 The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company's closing stock price on the last trading day of 2013 and the exercise price, multiplied by the number of in-the-money options) that would have been...

  • Page 46
    ...2013, 2012 and 2011, expense related to the Company's stock option plan totaled $14.5, $21.5 and $24.9, respectively. The Company did not grant any options to employees during 2013. Restricted Stock, Restricted Stock Units and Performance Shares The Company grants restricted stock, restricted stock...

  • Page 47
    ... number of shares of Company stock at 85% of market value. The Company issues shares to participating employees semi-annually in January and July of each year. Approximately 0.2 shares were purchased by eligible employees in 2013, 2012 and 2011, respectively. For 2013, 2012 and 2011, expense related...

  • Page 48
    ... or results of operations. As previously reported, the Company responded to an October 2007 subpoena from the United States Department of Health & Human Services Office of Inspector General's regional office in New York. On August 17, 2011, the Southern District of New York unsealed a False Claims...

  • Page 49
    ... requesting documents related to its billing to Texas Medicaid. The Company is cooperating with these requests. On May 2, 2013, the Company was served with a False Claims Act lawsuit, State of Georgia ex rel. Hunter Laboratories, LLC and Chris Riedel v. Quest Diagnostics Incorporated, et al., filed...

  • Page 50
    LABORATORY CORPORATION OF AMERICA Notes to Consolidated Financial Statements On August 24, 2012, the Company was served with a putative class action lawsuit, Sandusky Wellness Center, LLC, et al. v. MEDTOX Scientific, Inc., et al., filed in the United States District Court for the District of ...

  • Page 51
    ....3 in 2013, 2012 and 2011, respectively. In addition, the Company Plan covers substantially all employees hired prior to December 31, 2009. The benefits to be paid under the Company Plan are based on years of credited service through December 31, 2009, interest credits and average compensation. The...

  • Page 52
    ...a limited number of existing employees of the subsidiary. This plan is unfunded and the Company's policy is to fund benefits as claims are incurred. The effect on operations of the post-retirement medical plan is shown in the following table: Year ended December 31, Service cost for benefits earned...

  • Page 53
    LABORATORY CORPORATION OF AMERICA Notes to Consolidated Financial Statements The weighted-average discount rates used in the calculation of the accumulated post-retirement benefit obligation were 5.0% and 4.2% as of December 31, 2013 and 2012, respectively. The health care cost trend rate was ...

  • Page 54
    ..., and accounts payable are considered to be representative of their respective fair values due to their short-term nature. The fair market value of the zero-coupon subordinated notes, based on market pricing, was approximately $155.5 and $179.1 as of December 31, 2013 and 2012, respectively...

  • Page 55
    ... in general corporate expenses below. Laboratory tests and procedures are used generally by hospitals, physicians and other health care providers and commercial clients to assist in the diagnosis, evaluation, detection, therapy selection, monitoring and treatment of diseases and other medical...

  • Page 56
    ... (Unaudited) The following is a summary of unaudited quarterly data: Year Ended December 31, 2013 1st Quarter Net sales Gross profit Net earnings attributable to Laboratory Corporation of America Holdings Basic earnings per common share Diluted earnings per common share $1,440.9 572.2 147.2 1.58...

  • Page 57
    ... to: Laboratory Corporation of America Holdings Investor Relations Department 358 South Main Street Burlington, NC 27215 To download this Annual Report or the Company's Proxy Statement, visit our website at: www.labcorp.com. William B. Hayes, Executive Vice President and Chief Financial Officer...

  • Page 58
    Laboratory Corporation of America® Holdings 358 South Main Street Burlington, NC 27215 336-584-5171 www.labcorp.com