LabCorp 2015 Annual Report Download

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Index




[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2015
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ______ to ______
Commission file number - 1-11353

(Exact name of registrant as specified in its charter)
 
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

 
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
Common Stock, $0.10 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant is well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [X] No [ ].
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes [ ] No [X].
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes [X] No [ ].
1

Table of contents

  • Page 1
    ...-K [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2015 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _____ to _____ Commission file number...

  • Page 2
    ...price on such date of the registrant's common stock on the New York Stock Exchange. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: 101.7 million shares as of February 23, 2016. DOCUMENTS INCORPORTTED BY REFERENCE List...

  • Page 3
    ... Page Part I Item 1. Business Business Segments LabCorp Diagnostics Segment Covance Drug Development Clients Capital Allocation Seasonality Investments in Joint Venture Partnerships Sales, Marketing and Client Service Information Systems Quality Intellectual Property Rights Employees Regulation and...

  • Page 4
    ... and health systems, employers, patients and consumers, food and nutritional companies and independent clinical laboratories. The Company believes that it generated more revenue from laboratory testing than any other company in the world in 2015. The Company's Annual Report on Form 10-K, Quarterly...

  • Page 5
    ... of three types of providers: hospital-based laboratories, physician-office laboratories and independent clinical and anatomical pathology laboratories, such as those operated by LCD. The clinical laboratory business is intensely competitive. The Centers for Medicare and Medicaid Services (CMS) of...

  • Page 6
    ... group of tests in its major laboratories using sophisticated and computerized instruments, with most results reported within 24 hours or less. In addition, LCD provides a comprehensive range of specialty testing services in the areas of allergy, diagnostic genetics, women's health, cardiovascular...

  • Page 7
    ... physicians with analysis, assessment and interpretation of genetics test results to help optimize patient decisions and outcomes. Endocrinology. LCD is a leading provider of advanced hormone/steroid testing including comprehensive services for the endocrine specialist. LCD has expanded its menu...

  • Page 8
    ... change diagnostic testing. New tests are allowing clinical laboratories to provide unprecedented amounts of health-related information to physicians and patients. New molecular diagnostic tests that have been introduced over the past several years, including a gene-based test for HPV, HIV drug...

  • Page 9
    ... business provides a technology-enabled solution that provides point-of-care decision support through interfaces with test ordering systems to assist physicians in lab and test selection. BeaconLBS helps physicians to order the appropriate test for the patient at the appropriate time. Physicians...

  • Page 10
    ...and mix of testing services performed by the licensed providers in the province during the year. In 2015, the amount of the Company's capitated revenue derived from the Ontario government sponsored healthcare plan was CN$189.8 million. Effect of Market Changes on the Clinical Laboratory Business The...

  • Page 11
    ... laboratories, including LCD, to begin reporting their test-specific private payer payment amounts to CMS during the first quarter of 2016. CMS intends to use that private market data to calculate weighted median prices for each test (based on applicable CPT codes) that would represent the new...

  • Page 12
    ...; scope of service offerings; strengths in various geographic markets; price; technological expertise and efficient drug development processes; ability to acquire, process, analyze and report data in a rapid and accurate manner; quality of relationships; ability to manage large-scale clinical trials...

  • Page 13
    ... laboratory services testing in Japan with BML, Inc., a leading Japanese laboratory testing company. CDD's capabilities provide clients the flexibility to conduct studies on a global basis. The data it provides can be combinable and result in global clinical trial reference ranges because CDD uses...

  • Page 14
    ... manage patient enrollment, site selection, and investigator selection to produce higher quality and faster clinical trials resulting in reduced costs and increased market potential for biopharmaceutical company clients. CDD and LCD are also collaborating to use LCD information to support clinical...

  • Page 15
    ... independent clinical laboratories that do not have the breadth of the Company's testing capabilities and in jurisdictions where permitted, consumers who may order diagnostic testing directly. These clients typically pay on a negotiated feefor-service basis or based on a set fee schedule. Capital...

  • Page 16
    ... Asia Pacific region. The sales force provides client coverage across the biopharmaceutical industry for services including lead optimization, preclinical safety assessment, analytical services, clinical solutions, central laboratories and market access solutions. Client segments called upon include...

  • Page 17
    ... medicine markets. Information Systems The Company is committed to developing and commercializing technology-enabled solutions to support its operations and change the way care is provided. The Company operates standard platforms for its core business services including laboratory diagnostics, drug...

  • Page 18
    ...January, 2012 Center for Molecular Biology and Pathology (CMBP), Research Triangle Park, North Carolina - February, 2011 LabCorp's Regional Testing Facility, Tampa, Florida - January, 2010 Integrated Oncology, Phoenix, Arizona - September, 2009 Covance Central Laboratory Services Inc., Indianapolis...

  • Page 19
    ...and reimbursement for laboratory services, healthcare fraud and abuse, drug development services, security and confidentiality of health information, quality, and environmental and occupational safety. Regulation of Clinical Laboratories Virtually all clinical laboratories operating in the U.S. must...

  • Page 20
    ... research animals. Payment for Clinical Laboratory Services In 2015, LCD derived approximately 16.0% of its net revenue directly from the Medicare and Medicaid programs. In addition, LCD's other clinical laboratory testing business that is not directly related to Medicare or Medicaid nevertheless...

  • Page 21
    ... issues related to price and margins through direct negotiation with the associated payers. Further coding and billing changes related to toxicology testing and other procedure types are to be implemented in 2016. The Company expects delays in the pricing and implementation of these new codes...

  • Page 22
    ... to PHI. The HIPAA Privacy Rule amendment resulted in the preemption of a number of state laws that prohibit a laboratory from releasing a test report directly to the individual. The Company revised its policies and procedures to comply with these new access requirements and has updated its privacy...

  • Page 23
    ...; (ii) offering certain laboratory services at prices below fair market value in return for referrals of other tests which are billed to Medicare at higher rates; (iii) providing free testing to physicians' managed care patients in situations where the referring physicians benefit from such reduced...

  • Page 24
    ... by laboratories to referring physicians for blood specimen processing and for submitting patient data to registries. This Special Fraud Alert reiterates the OIG's long-standing concerns about payments from laboratories to physicians in excess of the fair market value of the physician's services and...

  • Page 25
    ... for disposal of such specimens. In addition, the U.S. Occupational Safety and Health Administration (OSHA) has established extensive requirements relating to workplace safety for healthcare employers, including clinical laboratories, whose workers may be exposed to blood-borne pathogens such as...

  • Page 26
    ...in payment policies of other third-party payers may occur as well. Such changes in the past have resulted in reduced payments as well as added costs and have decreased test utilization for the clinical laboratory industry by adding more complex new regulatory and administrative requirements. Further...

  • Page 27
    ...under a new category separate from medical devices, and regulation of laboratories by the Centers for Medicare and Medicaid Services (CMS) under the Clinical Laboratory Improvement Amendments (CLIA) would be modernized. On November 16, 2015, the FDA issued a report titled, The Public Health Evidence...

  • Page 28
    ...be obtained from the ordering physician. The failure of the Company, third party payers or physicians to apply the new code set could have an adverse impact on reimbursement, days sales outstanding and cash collections. Failure to comply with privacy and security laws and regulations could result in...

  • Page 29
    ... "waived" test kits could lead to increased testing by physicians in their offices or by patients at home, which could affect the Company's market for laboratory testing services and negatively impact its revenues. Healthcare reform and related products (e.g., Health Insurance Exchanges), changes in...

  • Page 30
    ..., to begin reporting their test-specific private payer payment amounts to CMS during the first quarter of 2016, which CMS would then use to calculate new CLFS rates that would be effective in 2017. The American Clinical Laboratory Association (ACLA) and the lab community provided extensive comments...

  • Page 31
    ... industries. The clinical laboratory business is intensely competitive both in terms of price and service. Pricing of laboratory testing services is often one of the most significant factors used by healthcare providers and third-party payers in selecting a laboratory. As a result of significant...

  • Page 32
    ...increased consolidation of managed care organizations, pharmaceutical companies, health systems, physicians and other customers could adversely affect the Company's business. Many healthcare companies and providers, including MCOs, pharmaceutical companies, health systems and physician practices are...

  • Page 33
    ... may undermine the usefulness of a trial or data from the trial or study or may delay the entry of a drug to the market. CDD also contracts with physicians, also referred to as investigators, to conduct the clinical trials to test new drugs on patients and volunteers. These tests can create a risk...

  • Page 34
    ... indication of future results. While fluctuations in the Company's quarterly operating results could negatively or positively affect the market price of the Company's common stock, these fluctuations may not be related to the Company's future overall operating performance. CDD's revenues depend on...

  • Page 35
    ... is experiencing increasing patient responsibility as a result of managed care fee-for-service plans which continue to increase deductibles, coinsurance and patient copayments. A material increase in LCD's days sales outstanding level could have an adverse effect on the Company's business, including...

  • Page 36
    ... and other safeguards in place, which are monitored and routinely tested internally and by external parties, because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often are not recognized until launched against a target...

  • Page 37
    ...net revenues and profitability and the market price of its common stock. If the Company fails to successfully complete the integration of Covance into its existing operations or is not able to achieve the anticipated benefits of the Acquisition and integration, its business and results of operations...

  • Page 38
    ...the asset quality and value of Covance and its assets; projections of the business and CDD's future financial performance; timing and total costs of integrating a large number of processes, policies, procedures, operations, technologies and systems; the Company's ability to realize synergies and the...

  • Page 39
    ... The Company's corporate headquarter are located in Burlington, NC and include facilities that are both owned and leased. LCD operates through a network of primary laboratories, branches, PSCs and STAT laboratories. The table below summarizes certain information as to LCD's principal operating and...

  • Page 40
    ... improved for the single purpose of providing clinical laboratory testing or drug development services. The Company believes that these facilities are suitable and adequate and have sufficient production capacity for its currently foreseeable level of operations. The Company believes that if it were...

  • Page 41
    ...be used to establish new rates effective July 1, 2016. DHHS has not provided further direction regarding possible recoupments. Taken together, these changes are not expected to have a material impact on the Company's consolidated revenues or results of operations. As previously reported, the Company...

  • Page 42
    .... The lawsuit alleges that the defendants committed unlawful and unfair business practices, and violated various other state laws by changing screening codes to diagnostic codes on laboratory test orders, thereby resulting in customers being responsible for co-payments and other debts. The lawsuit...

  • Page 43
    ...et al. v. Laboratory Corporation of America, et al. , filed in the State Superior Court of King County, Washington. The lawsuit alleges that the Company was negligent in the handling of a prenatal genetic test order that allegedly resulted in the parents being given incorrect information. The matter...

  • Page 44
    ... Claims Act from the U.S. Attorney's Office for South Carolina, which requests information regarding remuneration and services provided by the Company to physicians who also received draw and processing/handling fees from competitor laboratories Health Diagnostic Laboratory, Inc. and Singulex, Inc...

  • Page 45
    ... SECURITIES Market Information The Company's common stock, par value $0.10 per share (Common Stock), trades on the New York Stock Exchange (NYSE) under the symbol "LH." The following table sets forth for the calendar periods indicated the high and low sales prices for the Common Stock reported on...

  • Page 46
    ... the Company's common stock. As of December 31, 2015 and 2014, the Company had outstanding authorization from the Board of Directors to purchase up to $789.5 million of Company common stock. The repurchase authorization has no expiration date. Following the announcement of the acquisition of Covance...

  • Page 47
    ...public accounting firm. This data should be read in conjunction with the accompanying notes, the Company's consolidated financial statements and the related notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations," all included elsewhere herein. Year...

  • Page 48
    ... 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. (f) Following the closing of its acquisition of Orchid in mid-December 2011, the...

  • Page 49
    ...doubtful accounts and bad debt expense in future periods. Prior to the first quarter of 2015, the chief operating decision maker (CODM) managed the operating results of the Company as two segments: clinical laboratory diagnostics and other. In connection with the Acquisition, the Company changed its...

  • Page 50
    ... revenue amount represents LabCorp's legacy clinical trials testing business. The increase in LCD net revenues for the year ended December 31, 2014 was driven primarily by strong organic volume growth and the benefit of fold-in acquisitions, along with growth in the Company's managed care business...

  • Page 51
    ... charge relating to CDD lab and customer service applications that will no longer be used. The Company incurred additional legal and other costs of $5.7 relating to the wind-down of the minimum volume contract operations referred to in the previous paragraph. On February 9, 2016, the Company reached...

  • Page 52
    ... Covance-related financing activities. This increase was also partially offset by a decrease in interest expense on the Company's senior notes due 2020 as a result of entering into a fixed to floating interest rate swap in the third quarter of 2013. Equity Method Income Years Ended December 31, 2015...

  • Page 53
    ... Company's senior unsecured revolving credit facility is further discussed in Note 11 (Debt) to the Company's Consolidated Financial Statements. In summary the Company's cash flows were as follows: For the Year Ended December 31, 2015 2014 2013 Net cash provided by operating activities Net cash used...

  • Page 54
    ... the year ended December 31, 2015 and 2014, respectively. The Company expects capital expenditures of approximately 3.0% of revenue in 2016. The Company intends to continue to pursue acquisitions to fund growth and make important investments in its business, including in information technology, to...

  • Page 55
    ...last business day of the calendar quarter, which is 5:00 p.m., New York City time, on Thursday, March 31, 2016. 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 new revolving credit facility...

  • Page 56
    ...and long-term cash needs; however, the Company continually reassesses its liquidity position in light of market conditions and other relevant factors. New Tccounting Pronouncements In April 2014, the FASB issued a new accounting standard on discontinued operations that significantly changed criteria...

  • Page 57
    ... method, at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The standard became effective for the Company beginning January 1, 2016...

  • Page 58
    ... Accounts LCD recognizes revenue for services rendered when the testing process is complete and test results are reported to the ordering physician. The sales are generally billed to three types of payers - clients, patients and third parties such as MCOs, Medicare and Medicaid. For clients, sales...

  • Page 59
    .... In other cases, services may be provided and revenue recognized before the client is invoiced. In these cases, revenue recognized will exceed amounts billed, and the difference, representing an unbilled receivable, is recorded for the amount that is currently unbillable to the customer pursuant to...

  • Page 60
    ... 31, 2015. Discount Rate The Company evaluates several approaches toward setting the discount rate assumption that is used to value the benefit obligations of its retirement plans. At year-end, priority was given to use of the Towers Watson Bond:Link model, which simulates the purchase of investment...

  • Page 61
    ... present value using the reporting unit's weighted average cost of capital. For the market-based approach, the Company utilizes a number of factors such as publicly available information regarding the market capitalization of the Company as well as operating results, business plans, market multiples...

  • Page 62
    ... results, ii) financial performance versus management's annual and five-year strategic plans, iii) changes in the reporting unit carrying value since prior year, (iv) industry and market conditions in which the reporting unit operates, (v) macroeconomic conditions, including discount rate changes...

  • Page 63
    ..., costs and/or damage to the Company's reputation arising from the failure to comply with U.S. and international privacy and security laws and regulations, including the Health Insurance Portability and Accountability Act of 1996, Health Information Technology for Economic and Clinical Health Act...

  • Page 64
    ... reporting deadlines, or the failure to meet future regulatory or customer information technology, data security and connectivity requirements; business interruption, increased costs, and other adverse effects on the Company's operations due to the unionization of employees, union strikes, work...

  • Page 65
    ... or financial markets or in the Company's credit ratings by S&P's and/or Moody's; changes in reimbursement by foreign governments and foreign currency fluctuations; inability to obtain certain billing information not usually provided to the Company by physicians, resulting in increased costs and...

  • Page 66
    ...by this annual report. Changes in Internal Control Over Financial Reporting On February 19, 2015, the Company completed the Acquisition. The Company's management has extended its oversight and monitoring processes that support internal control over financial reporting to include Covance's operations...

  • Page 67
    ... of the clinical laboratory industry, business strategy, sales and marketing and executive management of the Company and its operations. Kerrii B. Tnderson 1,4 - Mrs. Anderson (58) has served as a director of the Company since May 17, 2006. Ms. Anderson was Chief Executive Officer of Wendy...

  • Page 68
    ... working within medical communities ranging from academia to the pharmaceutical industry position him to provide a practical and balanced perspective to the Board. Garheng Kong, M.D.2 ,4 - Dr. Kong (40) has served as a director of the Company since December 1, 2013. Dr. Kong is the Managing...

  • Page 69
    ... Technology subcommittee and helping to drive the "Revolutionizing Health Care Through Information Technology" report, published in June 2004. Mr. Neupert served as the founding President and Chief Executive Officer of drugstore.com from 1998 to 2001 and as Chairman of the Board of Directors...

  • Page 70
    ... as Executive Vice President, Chief Operating Officer since October 2009. Prior to October 2009, Mr. Boyle was Senior Vice President, Managed Care since May 2006. In December of 2008, Mr. Boyle also assumed operating responsibility for the Company's Occupational Testing/Employer Group Services in...

  • Page 71
    ... captions "Board Independence" and "Related Party Transactions." Item 14. PRINCIPTL TCCOUNTTNT FEES TND SERVICES The information required by this item is incorporated by reference to information in the 2016 Proxy Statement under the caption "Fees to Independent Registered Public Accounting Firm...

  • Page 72
    Index PTRT IV Item 15. EXHIBITS TND FINTNCITL STTTEMENT SCHEDULES (a) List of documents filed as part of this report: (1) Consolidated Financial Statements and Report of Independent Registered Public Accounting Firm included herein: See Index on page F-1 (2) Financial Statement Schedules: See ...

  • Page 73
    ... herein by reference to Exhibit 4.5 to the Company's Current Report on Form 8-K filed on January 30, 2015). National Health Laboratories Incorporated Pension Equalization Plan (incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31...

  • Page 74
    ... of America Holdings Senior Executive Transition Policy (incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2004). Laboratory Corporation of America Holdings 1995 Stock Plan for Non-Employee Directors (incorporated herein by...

  • Page 75
    ... 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2009). Laboratory Corporation of America Holdings Master Senior Executive Change in Control Severance Plan (incorporated herein by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the...

  • Page 76
    ...* 101.DEF* 101.LAB* 101.PRE* * Certification by the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) Written Statement of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of...Label Linkbase XBRL Taxonomy Extension Presentation Linkbase Filed herewith 75

  • Page 77
    Index 76

  • Page 78
    ... of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LABORATORY CORPORATION OF AMERICA HOLDINGS Registrant By: /s/ DAVID P. KING David P. King Chairman of the Board, President and Chief Executive Officer Dated: February 29...

  • Page 79
    ... Accounting Officer (Principal Accounting Officer) * F. Samuel Eberts III, by his signing his name hereto, does hereby sign this report on behalf of the directors of the Registrant after whose typed names asterisks appear, pursuant to powers of attorney duly executed by such directors and filed...

  • Page 80
    ... STTTEMENTS TND SCHEDULE Page Report of Independent Registered Public Accounting Firm Consolidated Financial Statements: Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Comprehensive Earnings Consolidated Statements of Changes in Shareholders' Equity...

  • Page 81
    ...Item 9A Controls and Procedures, management has excluded Covance, Inc. from its assessment of internal control over financial reporting as of December 31, 2015 because it was acquired by the Company in a purchase business combination during 2015. We have also excluded Covance, Inc. from our audit of...

  • Page 82
    ... venture partnerships and equity method investments Other assets, net Total assets LITBILITIES TND SHTREHOLDERS' EQUITY Current liabilities: Accounts payable Accrued expenses and other Unearned revenue Deferred income taxes Short-term borrowings and current portion of long-term debt Total current...

  • Page 83
    ... OF OPERTTIONS (In Millions, Except Per Share Data) Years Ended December 31, 2015 Net revenues Reimbursable out-of-pocket expenses Total revenues Net cost of revenue Reimbursable out-of-pocket expenses Total cost of revenue Gross profit Selling, general and administrative expenses Amortization...

  • Page 84
    ... ETRNINGS (In Millions, Except Per Share Data) Years Ended December 31, 2015 Net earnings Foreign currency translation adjustments Net benefit plan adjustments Investment adjustments Other comprehensive loss before tax Provision for income tax related to items of comprehensive earnings Other...

  • Page 85
    ... 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 BTLTNCE TT DECEMBER 31, 2013 Net earnings attributable to Laboratory...

  • Page 86
    ... Net cash provided by operating activities CTSH FLOWS FROM INVESTING TCTIVITIES: Capital expenditures Proceeds from sale of assets Proceeds from sale of investments Acquisition of licensing technology Investments in equity affiliates Acquisition of businesses, net of cash acquired Net cash used for...

  • Page 87
    The accompanying notes are an integral part of these consolidated financial statements. F-7

  • Page 88
    ... providing comprehensive clinical laboratory services and end-to-end drug development support. The Company's strategic vision is to improve health and improve lives by delivering world class diagnostic solutions, bringing innovative medicines to patients faster, and changing the way care is provided...

  • Page 89
    ... of output measures in the clinical trials services, include among others, number of investigators enrolled, number of sites initiated, number of patients enrolled and number of monitoring visits completed. Revenue is determined by dividing the actual units of work completed by the total units of...

  • Page 90
    ... of Health and Long-Term Care (Ministry) determines who can establish a licensed community medical laboratory and caps the amount that each of these licensed laboratories can bill the government sponsored healthcare plan. The Ontario government-sponsored healthcare plan covers the cost of clinical...

  • Page 91
    ... goods accounted for $33.3 million and $0.0 million of total inventory at December 31, 2015 and 2014, respectively. Prepaid Expenses and Other In connection with the management of multi-site clinical trials, CDD pays on behalf of its customers certain out-of-pocket costs, for which the Company...

  • Page 92
    ... present value using the reporting unit's weighted average cost of capital. For the market-based approach, the Company utilizes a number of factors such as publicly available information regarding the market capitalization of the Company as well as operating results, business plans, market multiples...

  • Page 93
    ... results, ii) financial performance versus management's annual and five-year strategic plans, iii) changes in the reporting unit carrying value since prior year, (iv) industry and market conditions in which the reporting unit operates, (v) macroeconomic conditions, including discount rate changes...

  • Page 94
    ...quoted prices in active markets that are observable either directly or indirectly (Level 2) and (iii) unobservable inputs that require the Company to use present value and other valuation techniques in the determination of fair value (Level 3). Research and Development The Company expenses R&D costs...

  • Page 95
    ... the impact that this new guidance will have on the consolidated financial statements. 2. BUSINESS TCQUISITIONS On February 19, 2015 (Acquisition Date), the Company completed its acquisition (Acquisition) of Covance Inc. (Covance), a leading drug development services company and a leader in...

  • Page 96
    ... term loan credit facility will mature five years after the closing date of the Acquisition and may be prepaid without penalty. The Company has continued to finalize its purchase price allocation during the measurement period and obtained new fair value information related to the assets acquired and...

  • Page 97
    ...$167.2 of revenue and operating income, respectively, during the year ended December 31, 2015. Unaudited Pro Forma Information The Company completed the Acquisition on February 19, 2015. Had the Acquisition been completed as of the beginning of 2014, the Company's pro forma results for 2015 and 2014...

  • Page 98
    ... be used. In addition, during 2015, the Company recorded $25.6 in consulting expenses (recorded in selling, general and administrative expenses) relating to fees incurred as part of LCD's business process improvement initiative (Project LaunchPad) as well as one-time Covance integration costs and...

  • Page 99
    ... 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 100
    ... testing in future years at current levels. A decision by the provincial government to limit or reduce its reimbursement of laboratory diagnostic services would have a negative impact on the profits and cash flows the Company derives from this Canadian joint venture. In December 2013, Alberta Health...

  • Page 101
    ...Company recorded earn-out and purchase accounting adjustments through amortization expense of $1.7, $10.4, and $5.8 in 2015, 2014 and 2013, respectively. Amortization expense of intangible assets is estimated to be $174.4 in fiscal 2016, $167.2 in fiscal 2017, $156.0 in fiscal 2018, $149.2 in fiscal...

  • Page 102
    ... Defined benefit plan obligation Restructuring reserves Self-insurance reserves Acquisition related reserves Deferred revenue Deferred compensation plan obligation Worker's compensation and auto Other $ 11. DEBT Short-term borrowings and current portion of long-term debt at December 31, 2015 and...

  • Page 103
    ... to be used for general corporate purposes, including working capital, capital expenditures, funding of share repurchases and certain other payments, and acquisitions and other investments. There were no balances outstanding on the Company's new Revolving Credit Facility at December 31, 2015 or on...

  • Page 104
    ...in certain circumstances, if one of the following conditions occurs: 1) If the sales price of the Company's common stock for at least 20 trading days in a period of 30 consecutive trading days ending on the last trading day of the preceding quarter reaches specified thresholds (beginning at 120% and...

  • Page 105
    ...last business day of the calendar quarter, which is 5:00 p.m., New York City time, on Thursday, March 31, 2016. 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 new revolving credit facility...

  • Page 106
    ... 31, 2015, the Company had outstanding authorization from the Board of Directors to purchase $789.5 of Company common stock based on settled trades as of these respective dates. The repurchase authorization has no expiration date. Following the announcement of the acquisition of Covance, the Company...

  • Page 107
    ... included in the computation of net periodic benefit cost. Refer to Note 16 Pension and Postretirement Plans for additional information regarding the Company's net periodic benefit cost. (b) The realized gain from the sale of an available for sale investment and the other-than-temporary impairment...

  • Page 108
    ... assets and deferred tax liabilities are as follows: December 31, 2015 Deferred tax assets: Accounts receivable Employee compensation and benefits Self insurance reserves Postretirement benefit obligation Acquisition and restructuring reserves Tax loss carryforwards Other Less: valuation allowance...

  • Page 109
    ... believes adequate provisions have been recorded related to all open tax years. The Company changed its method for accounting for foreign earnings at the beginning of 2015 as a result of the Acquisition. Prior to the Acquisition, the Company provided tax for substantially all of the foreign earnings...

  • Page 110
    ... per share data) Stock Options The following table summarizes grants of non-qualified options made by the Company to officers, key employees, and non-employee directors under all plans. Stock options are generally granted at an exercise price equal to or greater than the fair market price per share...

  • Page 111
    ... cost related to non-vested restricted stock, restricted stock unit and performance share-based compensation arrangements granted under the Company's stock incentive plans. That cost is expected to be recognized over a weighted average period of 1.9 years. Employee Stock Purchase Plan The Company...

  • Page 112
    ... data) The Company uses the Black-Scholes model to calculate the fair value of the employee's purchase right. The fair value of the employee's purchase right and the assumptions used in its calculation are as follows: 2015 Fair value of the employee's purchase right Valuation assumptions Risk free...

  • Page 113
    ...be used to establish new rates effective July 1, 2016. DHCS has not provided further direction regarding possible recoupments. Taken together, these changes are not expected to have a material impact on the Company's consolidated revenues or results of operations. As previously reported, the Company...

  • Page 114
    ...business practices, and violated various other state laws by changing screening codes to diagnostic codes on laboratory test orders, thereby resulting in customers... on behalf of similarly situated phlebotomists and couriers that the Company failed to pay overtime, failed to provide meal and rest ...

  • Page 115
    ...et al. v. Laboratory Corporation of America, et al. , filed in the State Superior Court of King County, Washington. The lawsuit alleges that the Company was negligent in the handling of a prenatal genetic test order that allegedly resulted in the parents being given incorrect information. The matter...

  • Page 116
    ... Claims Act from the U.S. Attorney's Office for South Carolina, which requests information regarding remuneration and services provided by the Company to physicians who also received draw and processing/handling fees from competitor laboratories Health Diagnostic Laboratory, Inc. and Singulex, Inc...

  • Page 117
    ... the Company Plan of $9.5, $12.4 and $8.4 in 2015, 2014 and 2013, respectively. The PEP covers the Company's senior management group. Prior to 2010, the PEP provided for the payment of the difference, if any, between the amount of any maximum limitation on annual benefit payments under the Employee...

  • Page 118
    ... defined benefit plan costs during 2016 are $10.5 related to amortization of the net loss. A summary of the changes in the projected benefit obligations of the Company Plan and the PEP are summarized as follows: 2015 Balance at January 1 Service cost Interest cost Actuarial (gain)/loss Benefits and...

  • Page 119
    ... 5.0% Weighted Average Expected Long-Term Rate of Return 5.5% 1.2% 0.3% The fair values of the Company Plan's assets at December 31, 2015 and 2014, by asset category are as follows: Fair Value Measurements as of December 31, 2015 Using Fair Value Hierarchy Level 1 $ 6.1 6.1 $ $ Level 2 - 55.1 21...

  • Page 120
    ... the Company also has a frozen non-qualified Supplemental Executive Retirement Plan (SERP). The SERP, which is not funded, is intended to provide retirement benefits for certain employees who were executive officers of Covance prior to the Acquisition. Benefit amounts are based upon years of service...

  • Page 121
    ...to contribute annually amounts at least equal to the local statutory funding requirements. U.K. Plans Year Ended December 31, 2015 Service cost Interest cost Expected return on plan assets Net amortization and deferral Expected participant contributions Defined benefit plan costs Assumptions used to...

  • Page 122
    ... pension cost in 2016. The investment policies for the U.K. Plans are set by the plan trustees, based upon the guidance of professional advisors and after consultation with the Company, taking into consideration the plans' liabilities and future funding levels. The trustees have set the long-term...

  • Page 123
    ... result of the Acquisition, the Company sponsors a post-employment retiree health and welfare plan for the benefit of eligible employees at certain U.S. subsidiaries who retire after satisfying service and age requirements. This plan is funded on a pay-as-you-go basis and the cost of providing these...

  • Page 124
    ...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, 2015 Service cost for benefits earned Interest cost on benefit...

  • Page 125
    ...-retirement medical plan costs during 2016 are $10.4 related to amortization of the net gain resulting from the shift of Medicare-eligible participants to private exchanges. A summary of the changes in the accumulated post-retirement benefit obligation follows: 2015 Balance at January 1 Service cost...

  • Page 126
    ... funds, which are indexed to externally managed funds. From time to time, to offset the cost of the growth in the participant's investment accounts, the Company purchases life insurance policies, with the Company named as beneficiary of the policies. Changes in the cash surrender value of the...

  • Page 127
    ...of segment information for the years ended December 31, 2015, 2014, and 2013. The "management approach" has been used to present the following segment information. This approach is based upon the way the management of the Company organizes segments within an enterprise for making operating decisions...

  • Page 128
    ... per share data) executive officer has been identified as the CODM. Prior to the first quarter of 2015, the CODM managed the operating results of the Company as two segments: clinical laboratory diagnostics and other. In connection with the Acquisition, the Company changed its operating segments to...

  • Page 129
    ...64 Diluted earnings per common share 0.02 The quarterly data above reflects all measurement period adjustments as of the Acquisition Date. Year ended December 31, 2014 1st Quarter Net earnings $ Gross profit Net earnings attributable to Laboratory Corporation of America Holdings Basic earnings per...

  • Page 130
    ...millions, except per share data) Schedule II LTBORTTORY CORPORTTION OF TMERICT HOLDINGS TND SUBSIDITRIES VALUATION AND QUALIFYING ACCOUNTS AND RESERVES Years Ended December 31, 2015, 2014 and 2013 (Dollars in millions) Balance at beginning of year Year ended December 31, 2015: Applied against asset...

  • Page 131
    ...information) Fiscal Years Ended... December 31, 2011 Incomn from continuing opnrations bnforn incomn tax Equity in thn incomn of invnstnns Cash distributions rncnivnd from nquity invnstnns $ 866.1 (10.4) 11.8 867.5 Fixnd Chargns: Intnrnst on long...14.6) 8.8 820.9 $ 2015 732.1 (10.6) 10...

  • Page 132
    ... Genetic Laboratories, LLC Esoterix, Inc. Execmed Health Services Inc. FirstSource Laboratory Solutions, Inc. Gamma Dynacare Central Medical Laboratories GP Inc. Gamma Dynacare Central Medical Laboratory Limited Partnership GDML Medical Laboratories Inc. GeneScreen, Inc. Glen Ames LLP HHLA Lab...

  • Page 133
    Impact Genetics, Inc. Kaleida LabCorp, LLC Lab Delivery Service of New York City, Inc. LabCorp BVBA LabCorp Central Laboratories (Canada) Inc. LabCorp Central Laboratories (China) Inc. LabCorp Central Laboratories (Singapore) Pte. Ltd. LabCorp Development Company Health Testing Centers LabCorp Japan...

  • Page 134

  • Page 135
    ... Covance Laboratories Limited Covance Laboratory Covance Latin America Inc. Covance Limited Covance Luxembourg S.Ã r.l. Covance Neon Luxembourg S.Ã r.l. Covance Market Access Services Inc. Medaxial Limited Covance Services Malaysia Sdn. Bhd. Covance Mexico Services, S. DE R. L. De C.V. Covance New...

  • Page 136

  • Page 137
    ... International Inc. Glen Davis Equities Ltd. L.R.C. Management Service Inc. Lawrence-Curlew Medical Centre Inc. Roselat Developments Limited St. Joseph's Health Centre Stockwin Corporation Ltd. Thistle Place Care Corp. Toronto Argyro Medical Laboratories Ltd. Woodstock Medical Arts Building Inc.

  • Page 138
    ... by reference in the Registration Statements on Form S-3ASR (No. 333-200740) and Form S-8 (No. 333-102602, No. 333-90764, No. 333-97745, No. 333-115905, No. 333-150704, No. 333-181107 and No. 333-181108) of Laboratory Corporation of America Holdings of our report dated February 29, 2016 relating to...

  • Page 139
    ... Report on Form 10-K for the year ended December 31, 2015 under the Securities Exchange Act of 1934, as amended, including, without limiting the generality of the foregoing, to sign the Form 10-K in the name and on behalf of the Corporation or on behalf of the undersigned as a director or officer...

  • Page 140
    ... Report on Form 10-K for the year ended December 31, 2015 under the Securities Exchange Act of 1934, as amended, including, without limiting the generality of the foregoing, to sign the Form 10-K in the name and on behalf of the Corporation or on behalf of the undersigned as a director or officer...

  • Page 141
    ... Report on Form 10-K for the year ended December 31, 2015 under the Securities Exchange Act of 1934, as amended, including, without limiting the generality of the foregoing, to sign the Form 10-K in the name and on behalf of the Corporation or on behalf of the undersigned as a director or officer...

  • Page 142
    ... Report on Form 10-K for the year ended December 31, 2015 under the Securities Exchange Act of 1934, as amended, including, without limiting the generality of the foregoing, to sign the Form 10-K in the name and on behalf of the Corporation or on behalf of the undersigned as a director or officer...

  • Page 143
    ... Report on Form 10-K for the year ended December 31, 2015 under the Securities Exchange Act of 1934, as amended, including, without limiting the generality of the foregoing, to sign the Form 10-K in the name and on behalf of the Corporation or on behalf of the undersigned as a director or officer...

  • Page 144
    ... Report on Form 10-K for the year ended December 31, 2015 under the Securities Exchange Act of 1934, as amended, including, without limiting the generality of the foregoing, to sign the Form 10-K in the name and on behalf of the Corporation or on behalf of the undersigned as a director or officer...

  • Page 145
    ... Report on Form 10-K for the year ended December 31, 2015 under the Securities Exchange Act of 1934, as amended, including, without limiting the generality of the foregoing, to sign the Form 10-K in the name and on behalf of the Corporation or on behalf of the undersigned as a director or officer...

  • Page 146
    ... Report on Form 10-K for the year ended December 31, 2015 under the Securities Exchange Act of 1934, as amended, including, without limiting the generality of the foregoing, to sign the Form 10-K in the name and on behalf of the Corporation or on behalf of the undersigned as a director or officer...

  • Page 147
    ... Report on Form 10-K for the year ended December 31, 2015 under the Securities Exchange Act of 1934, as amended, including, without limiting the generality of the foregoing, to sign the Form 10-K in the name and on behalf of the Corporation or on behalf of the undersigned as a director or officer...

  • Page 148
    ... and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 29, 2016 By: /s/ DAVID P. KING David P. King Chief Executive Officer...

  • Page 149
    ... financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 29, 2016 By: /s/ GLENN A. EISENBERG Glenn A. Eisenberg Chief Financial Officer...

  • Page 150
    ... Exchange Act of 1934; and (b) information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. By: /s/ DAVID P. KING David P. King Chief Executive Officer February 29, 2016 /s/ GLENN A. EISENBERG Glenn A. Eisenberg...

  • Page 151