01—Abstract
Summary
Summary of the 10-K filed February 24, 2010. Cited figures are marked; the original filing is the authoritative source.
Laboratory Corporation of America Holdings, headquartered in Burlington, North Carolina, reported net sales of $4.69 billiona for 2009, up from $4.51 billion in 2008 and $4.07 billion in 2007.
Operating income was $935.9 millionb and net earnings attributable to the Company were $543.3 million, or $4.98 per diluted share, compared with $464.5 million and $4.16 per diluted share in 2008. The Company describes itself as the second largest independent clinical laboratory company in the United States based on 2009 net revenues, with 38 primary laboratories, over 1,500 patient service centers, and more than 28,000 employees. Its strategy centers on scientific differentiation, managed care, and customer service, with an increasing focus on personalized medicine.
Genomic and esoteric testing generated $1.6 billionc in net sales in 2009, and the August 2009 acquisition of Monogram Biosciences, Inc. for approximately $160.0 million in cash expanded its HIV resistance and oncology capabilities. The filing highlights several risks for investors. Medicare and Medicaid accounted for 19.1% of net sales in 2009, and the filing notes that the 2010 clinical lab fee schedule CPI update is a reduction of 1.9% and that the physician fee schedule conversion factor faces a scheduled 21.2% reduction absent further legislation.
Capitated managed care contracts accounted for approximately $167.4 milliond, or 3.6%, of net sales. The Company is also subject to a California Medicaid billing qui tam lawsuit, Medicaid and OIG subpoenas, and a $10.0 million state court judgment against its DIANON subsidiary, which it is appealing. Cash flow from operations was $862.4 million in 2009, and total debt included $977.2 million of long-term debt plus $417.2 million of short-term borrowings and current portion, including the zero-coupon convertible subordinated notes that holders may convert in the first quarter of 2010 or put to the Company in September 2011.
The Company's board authorized an additional $250.0 million share repurchase on February 11, 2010, and the Company states that it has not historically paid dividends on its common stock. The Ontario, Canada joint venture remains at an 85.6% ownership interest after a February 2010 transaction in which the Company acquired and resold partnership units for CN$147.8, and the Company reported that Canadian joint venture net sales were $247.5 million in 2009.
02—Key points
Key Highlights
- Net sales rose to $4,694.7 million in 2009 from $4,505.2 million in 2008, and operating income increased to $935.9 million from $842.9 million.
- Net earnings attributable to Laboratory Corporation of America Holdings were $543.3 million, or $4.98 per diluted share, versus $464.5 million, or $4.16 per diluted share, in 2008.
- Genomic and esoteric testing generated $1,601.6 million in net sales in 2009, up from $1,478.3 million in 2008, and managed care represented 48.8% of requisitions.
- Medicare and Medicaid accounted for 19.1% of 2009 net sales, and the filing cites a 1.9% reduction in the 2010 clinical lab fee schedule CPI update and a 21.2% scheduled reduction in the physician fee schedule conversion factor.
- Cash provided by operating activities was $862.4 million in 2009, and cash and cash equivalents ended the year at $148.5 million.
- Long-term debt was $977.2 million at year-end 2009, and the Company repurchased $273.5 million of stock during 2009 and authorized an additional $250.0 million on February 11, 2010.
- The Company faces a California Medicaid billing qui tam lawsuit, subpoenas from state agencies and the HHS Office of Inspector General, and a DIANON wrongful termination judgment of approximately $10.0 million that it is appealing.
03—Questions
Frequently Asked Questions
How did Laboratory Corporation of America Holdings perform financially in 2009?
Net sales grew to $4,694.7 million from $4,505.2 million, operating income rose to $935.9 million from $842.9 million, and net earnings attributable to the Company increased to $543.3 million from $464.5 million. Diluted earnings per share were $4.98, compared with $4.16 in 2008.
How much of the Company's revenue depends on government programs?
In 2009, the Company derived approximately 19.1% of its net sales directly from the Medicare and Medicaid programs. Approximately 14.3% of revenue is reimbursed under the clinical laboratory fee schedule and approximately 2.3% under the physician fee schedule.
What are the main reimbursement risks identified in the filing?
The filing cites a 1.9% reduction in the 2010 clinical lab fee schedule CPI update and a scheduled 21.2% reduction in the physician fee schedule conversion factor effective March 1, 2010 unless further legislation is enacted. It also notes that managed care contracts often include pricing pressure, and capitated contracts accounted for approximately $167.4 million, or 3.6%, of net sales in 2009.
What debt and capital return obligations does the Company have?
At year-end 2009, long-term debt was $977.2 million and short-term borrowings and current portion of long-term debt were $417.2 million, including $292.2 million of zero-coupon convertible subordinated notes. Holders may put the notes to the Company on September 11, 2011 at $819.54 per note, and the Board authorized an additional $250.0 million share repurchase on February 11, 2010.
What legal matters could affect the Company?
The Company is a defendant in a California qui tam lawsuit alleging improper billing to the state Medicaid program and has received subpoenas from two state agencies and HHS Office of Inspector General regional offices. A DIANON subsidiary is appealing a state court judgment of approximately $10.0 million in a wrongful termination case. The Company states that it does not expect these matters to have a material adverse effect on its financial position, although they may be material to results of operations or cash flows in the period they are resolved.
04—Continue