01—Abstract
Summary
Summary of the 10-K filed March 9, 2001. Cited figures are marked; the original filing is the authoritative source.
Laboratory Corporation of America Holdings, headquartered in Burlington, North Carolina, describes itself as the second largest independent clinical laboratory company in the United States based on 2000 net revenues, operating 24 primary testing facilities and approximately 1,200 service sites serving clients in 50 states.
Net sales for 2000 were $1,919.3 milliona, up 13.0% from $1,698.7 million in 1999, with sales growth of approximately 9.0% attributed to volume and 4.0% to price per accession. Operating income rose to $245.6 million from $149.7 million, and net earnings were $112.1 million compared with $65.4 million in 1999. Diluted earnings per share were $3.22 versus $1.16 a year earlier.
Shareholders' equity increased to $877.4 millionb from $175.5 million, largely due to the conversion of preferred stock into common stock during 2000. The company's balance sheet and cash generation improved during 2000. Net cash provided by operating activities was $246.7 million, and days sales outstanding fell to 68 days from 74 days at the end of 1999.
Total debt was reduced, with approximately $95.0 millionc repaid on the term loan, and Standard & Poor's upgraded the company's corporate credit rating from BB+ to BBB in November 2000. The company also completed several acquisitions in 2000, the largest being National Genetics Institute, Inc. for approximately $56.0 million in cash plus $16.0 million in future payments. Investors should note ongoing risks disclosed in the filing, including reimbursement pressure from Medicare and Medicaid, where about 16% of 2000 net sales were derived from those programs.
The company also faces a class action lawsuit related to claims similar to those resolved by the 1996 government settlement, and it has stated that management does not expect the outcome of these claims to exceed existing reserves. The filing also notes HIPAA compliance costs that cannot yet be estimated.
02—Key points
Key Highlights
- Net sales rose 13.0% to $1,919.3 million in 2000 from $1,698.7 million in 1999, with the company citing growth of approximately 9.0% from volume and 4.0% from price per accession.
- Operating income increased to $245.6 million from $149.7 million, and net earnings reached $112.1 million versus $65.4 million.
- Diluted earnings per share were $3.22 in 2000, compared with $1.16 in 1999.
- Net cash provided by operating activities was $246.7 million, up from $180.5 million in 1999, supported by improved DSO of 68 days versus 74 days.
- Total shareholders' equity rose to $877.4 million from $175.5 million, reflecting the conversion of preferred stock into common stock.
- Standard & Poor's upgraded the company's corporate credit rating from BB+ to BBB in November 2000, to an investment-grade level.
- Approximately 16% of 2000 net sales came from Medicare and Medicaid beneficiaries, and the filing warns that future reimbursement reductions could have a material adverse effect.
03—Questions
Frequently Asked Questions
What drove the increase in revenue and earnings in 2000?
The filing attributes 2000 growth to new contracts with CIGNA Healthcare, Aetna and UnitedHealthcare, agreements with HealthTrust Purchasing Group and AmeriNet, and several laboratory acquisitions, including National Genetics Institute. Net sales grew 13.0%, with the company stating that excluding acquisitions revenues would have increased 11.6%. Cost of sales as a percentage of net sales declined to 60.0% from 63.0%.
How much debt did the company repay and how did its credit profile change?
The company repaid approximately $95.0 million on its term loan facility during 2000 and had no outstanding balances on its revolving credit facility at the end of 2000 or 1999. Standard & Poor's upgraded its corporate credit and bank loan ratings two levels, from BB+ to BBB.
What are the main regulatory and reimbursement risks?
The filing notes that Medicare and Medicaid programs accounted for approximately 16% of 2000 net sales, down from 19% in 1999 as stated in the regulation section. It cautions that Medicare reimbursement reductions have a direct adverse effect on net earnings and cash flows because a significant portion of costs is relatively fixed. It also notes that Medicare coverage rules being developed could have an impact that the company cannot yet estimate.
Are there material pending legal matters?
The company is involved in a class action on behalf of patients, private insurers and benefit plans related to the period covered by the 1996 government settlement, and it has entered settlement negotiations. Management does not believe the ultimate outcome will exceed existing reserves or have a material adverse effect. A separate class action complaint was served in North Carolina on January 9, 2001, and its outcome cannot yet be predicted.
Does the company pay dividends?
No. The company discontinued dividend payments in 1994 to increase flexibility for its acquisition strategy, and its credit agreement restricts dividend payments.
04—Continue