01—Abstract
Summary
Summary of the 10-K filed February 26, 2009. Cited figures are marked; the original filing is the authoritative source.
Laboratory Corporation of America Holdings (Burlington, North Carolina) filed its annual report on Form 10-K for fiscal 2008, reporting net sales of $4,505.2 milliona, up from $4,068.2 million in 2007, and net earnings of $464.5 million, down from $476.8 million.
Diluted earnings per share were $4.16b versus $3.93. The Company describes itself as the second largest independent clinical laboratory company in the United States based on 2008 net revenues, with 36 primary laboratories, over 1,600 patient service centers, and over 28,000 employees. Growth drivers cited include managed care volume, acquisitions, and a shift in test mix toward higher-priced genomic and esoteric testing, which generated $1.5 billion in revenue.
Profitability was pressured in 2008. Bad debt expense rose to 6.2% of net sales from 4.8%, largely due to a $45.0 millionc increase in the provision for doubtful accounts in the second quarter. Restructuring and other special charges totaled $37.9 million, and cost of sales rose to 58.4% of sales.
Operating cash flow was $780.9 milliond, and the Company acquired the remaining control of its Ontario, Canada joint venture effective January 1, 2008, consolidating it for the first time, which added $249.0 million in net sales. Total debt grew, with long-term debt of $1,600.5 million at year end, including a $573.5 million accreted balance on zero-coupon convertible notes that holders may put to the Company on September 11, 2011. The Company repurchased $330.6 million of stock in 2008 and had about $95.2 million remaining under its repurchase authorization.
It has not historically paid dividends, and its senior credit facilities limit dividend payments. The filing notes that Lehman Brothers' subsidiaries had a $28.0 million commitment in the $500.0 million revolving facility, and that Lehman filed for bankruptcy in September 2008.
02—Key points
Key Highlights
- Net sales rose to $4,505.2 million in 2008 from $4,068.2 million in 2007, with total accession volume up 9.7% and routine testing up 4.0%.
- Net earnings declined to $464.5 million from $476.8 million, and diluted EPS was $4.16 versus $3.93 in 2007.
- Bad debt expense increased to 6.2% of net sales from 4.8%, driven by a $45.0 million second-quarter provision increase tied to economic conditions and higher patient deductibles and copayments.
- Ontario, Canada joint venture consolidated from January 1, 2008, contributing $249.0 million of net sales; the Company now holds an 85.6% interest after about $140.9 million in cash paid.
- Operating cash flow was $780.9 million, while capital expenditures were $156.7 million and the Company spent $344.8 million on business acquisitions, net of cash acquired.
- Long-term debt rose to $1,600.5 million, including $573.5 million of zero-coupon convertible notes subject to holder put rights in September 2011 at $819.54 per note.
- Share repurchases totaled $330.6 million in 2008, with about $95.2 million left under the Board authorization; the Company has not historically paid dividends.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2009, Labcorp Holdings kept $0.12.
- Revenue$4.69B100.0%
- Cost of revenue−$2.72B58.0%
- Gross profit$1.97B42.0%
- Operating costs−$1.03B22.0%
- Operating income$935.9M19.9%
- Interest, other & tax−$392.6M8.4%
- Net income$543.3M11.6%
Where FY2009 revenue went
$4.69B- Cost of revenue: $2.72B, 58% of revenue
- SG&A: $958.9M, 20% of revenue
- Net income: $543.3M, 12% of revenue
- Other operating costs: $76.1M, 1.6% of revenue
- Interest, other & tax: $392.6M, 8.4% of revenue
Kept 12% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2009filed February 26, 2009Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Revenue | $4.69B$4.51B | +4.2% |
| Cost of Revenue | $2.72B$2.63B | +3.5% |
| Gross Profit | $1.97B$1.87B | +5.2% |
| SG&A Expenses | $958.90M$935.10M | +2.5% |
| Operating Income | $935.90M$842.90M | +11.0% |
| Interest Expense | $62.90M-$72.00M | +187.4% |
| Net Income | $543.30M$464.50M | +17.0% |
| EPS (Basic) | $5.06$4.23 | +19.6% |
| EPS (Diluted) | $4.98$4.16 | +19.7% |
| Shares Outstanding (Basic) | 107.40M109.70M | −2.1% |
| Shares Outstanding (Diluted) | 109.10M111.80M | −2.4% |
05—Questions
Frequently Asked Questions
How did the company's revenue and earnings change in 2008?
Net sales increased to $4,505.2 million from $4,068.2 million, but net earnings fell to $464.5 million from $476.8 million. Diluted EPS was $4.16 compared with $3.93 in 2007. The filing attributes sales growth to managed care volume, acquisitions, and a shift toward higher-priced genomic and esoteric tests.
What factors pressured profitability in 2008?
Bad debt expense rose to 6.2% of net sales from 4.8%, mainly due to a $45.0 million increase in the allowance for doubtful accounts. The Company also recorded $37.9 million in restructuring and other special charges, including $32.4 million of net restructuring charges, and cost of sales rose to 58.4% of sales from 57.4% in 2006.
Why did the Ontario, Canada joint venture matter for 2008 results?
Effective January 1, 2008, the Company acquired additional partnership units, raising its interest to 85.6% for about $140.9 million in cash and began consolidating the venture. Ontario contributed $249.0 million of net sales in 2008. The partnership agreement lets minority holders put their remaining units to the Company in future periods, with a contractual value of the put of $98.8 million above the current minority interest of $22.5 million.
What debt obligations and liquidity risks should investors note?
The Company had a $475.0 million term loan and $70.8 million drawn on a $500.0 million revolving facility at year end, with interest rates of 3.67% and 1.89%, respectively. Zero-coupon convertible notes with an accreted balance of $573.5 million may be put to the Company on September 11, 2011. The Company reported compliance with its leverage and interest coverage covenants, and Lehman Brothers' $28.0 million revolving commitment is not expected to be funded.
What does the filing say about capital returns to shareholders?
The Company repurchased $330.6 million of common stock in 2008, representing 4.6 million shares, and had about $95.2 million remaining under its Board authorization at year end. It has not historically paid dividends, and its senior credit facilities restrict dividend payments.
06—Continue