01—Abstract
Summary
Summary of the 10-K filed February 26, 2008. Cited figures are marked; the original filing is the authoritative source.
Laboratory Corporation of America Holdings (LabCorp), headquartered in Burlington, North Carolina, reported 2007 net sales of $4,068.2 milliona, up from $3,590.8 million in 2006, with net earnings of $476.8 million (diluted EPS of $3.93, versus $3.24 in 2006).
The Company describes itself as the second largest independent clinical laboratory company in the United States based on 2007 net revenues, operating 37 primary laboratories and over 1,600 patient service centers, with more than 26,000 employees. Growth was attributed to managed care volume, acquisitions, and a shift in test mix toward genomic and esoteric testing, which accounted for 34.3%b of 2007 net sales. Managed care revenue rose to 46.1% of net sales in 2007 from 40.2% in 2005.
The filing highlights a ten-year exclusive national laboratory agreement with UnitedHealthcare, effective January 1, 2007, under which the Company committed to reimburse up to $200 millionc in transition costs over the first three years. Restructuring charges of $50.6 million were recorded in 2007, and the Company acquired medical reference laboratories for about $222.3 million. Total long-term obligations rose to $1,667.0 million, reflecting a new $1.0 billion senior unsecured credit facility (including a $500.0 million term loan), and shareholders' equity fell to $1,725.3 million after $924.2 million of share repurchases in 2007.
The filing flags material risks tied to government reimbursement. Medicare and Medicaid represented about 18.3%d of 2007 net sales, the Medicare clinical lab fee schedule has been frozen for CPI updates for 2004 through 2008, and CMS has proposed a competitive acquisition demonstration in San Diego that local parties have sued to block. Company management also notes that compliance with fraud and abuse, CLIA, and HIPAA rules could carry material penalties, and that the Ontario, Canada joint venture was consolidated beginning January 1, 2008 after the Company raised its ownership to 85.6%.
02—Key points
Key Highlights
- Net sales rose to $4,068.2 million in 2007 from $3,590.8 million in 2006, and operating income increased to $777.0 million from $697.1 million.
- Net earnings were $476.8 million in 2007 (diluted EPS $3.93), compared with $431.6 million (diluted EPS $3.24) in 2006.
- Managed care is a growing share of revenue, rising to 46.1% of 2007 net sales from 40.2% in 2005; the UnitedHealthcare ten-year exclusive national agreement began January 1, 2007.
- Genomic and esoteric testing generated $1,396.3 million, or 34.3% of 2007 net sales, and the Company introduced six new companion diagnostic tests in 2007.
- Restructuring and other special charges were $50.6 million in 2007, including severance for about 1,560 employees.
- Total long-term obligations increased to $1,667.0 million from $1,157.4 million, after a new $1.0 billion senior credit facility and $924.2 million of share repurchases in 2007.
- Medicare and Medicaid accounted for 18.3% of 2007 net sales, and a Medicare clinical lab fee schedule CPI freeze runs from 2004 through 2008.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2008, Labcorp Holdings kept $0.10.
- Revenue$4.51B100.0%
- Cost of revenue−$2.63B58.4%
- Gross profit$1.87B41.6%
- Operating costs−$1.03B22.9%
- Operating income$842.9M18.7%
- Interest, other & tax−$378.4M8.4%
- Net income$464.5M10.3%
Where FY2008 revenue went
$4.51B- Cost of revenue: $2.63B, 58% of revenue
- SG&A: $935.1M, 21% of revenue
- Net income: $464.5M, 10% of revenue
- Other operating costs: $95.8M, 2.1% of revenue
- Interest, other & tax: $378.4M, 8.4% of revenue
Kept 10% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2008filed February 26, 2008Financial Statements
FY2008 against FY2007
| Line item | FY2008FY2007 | Change |
|---|---|---|
| Revenue | $4.51B$4.07B | +10.7% |
| Cost of Revenue | $2.63B$2.38B | +10.7% |
| Gross Profit | $1.87B$1.69B | +10.8% |
| SG&A Expenses | $935.10M$808.70M | +15.6% |
| Operating Income | $842.90M$777.00M | +8.5% |
| Interest Expense | -$72.00M-$56.60M | −27.2% |
| Net Income | $464.50M$476.80M | −2.6% |
| EPS (Basic) | $4.23$4.08 | +3.7% |
| EPS (Diluted) | $4.16$3.93 | +5.9% |
| Shares Outstanding (Basic) | 109.70M— | — |
| Shares Outstanding (Diluted) | 111.80M— | — |
05—Questions
Frequently Asked Questions
How large is the company and how is it positioned in its industry?
The Company describes itself as the second largest independent clinical laboratory company in the United States based on 2007 net revenues, with 37 primary laboratories, over 1,600 patient service centers, and more than 26,000 employees. It states that two major national independent laboratories exist, itself and Quest Diagnostics, which had approximately $6.7 billion in clinical laboratory revenues in 2007.
What drove revenue growth in 2007?
The filing attributes the increase in net sales primarily to volume growth in the managed care business, the impact of acquisitions, and a shift in test mix toward higher-priced genomic and esoteric tests. Routine testing net sales rose 13.8% and genomic and esoteric net sales rose 12.3%.
What are the main regulatory and reimbursement risks?
About 18.3% of 2007 net sales came directly from Medicare and Medicaid. The filing notes that the Medicare clinical lab fee schedule CPI update is frozen for 2004 through 2008, that the physician fee schedule faces expected decreases, and that a Medicare competitive acquisition demonstration in San Diego is scheduled to start July 1, 2008 but faces a lawsuit. The filing says these changes could have a material adverse effect on the Company.
How did the balance sheet and capital allocation change?
Long-term obligations rose to $1,667.0 million at year-end 2007 from $1,157.4 million, reflecting a new $1.0 billion senior unsecured credit facility with a $500.0 million term loan. Shareholders' equity declined to $1,725.3 million from $1,977.1 million, largely due to $924.2 million of stock repurchases in 2007, and the Company had about $425.8 million remaining under its repurchase authorization at year-end.
06—Continue