01—Abstract
Summary
Summary of the 10-K filed March 1, 2011. 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 2010 net revenues.
It operates 51 primary laboratories and over 1,700 patient service centers, employs over 31,000 people, and processes more than 440,000 patient specimens daily. Net sales for 2010 were $5,003.9 milliona, up from $4,694.7 million in 2009, and net earnings attributable to the company were $558.2 million, compared with $543.3 million in 2009. Diluted earnings per share were $5.29 versus $4.98 a year earlier.
Growth was driven in part by genomic and esoteric testing, which generated $1.7 billionb in revenue in 2010, and by acquisitions, most notably Genzyme Genetics, acquired on December 1, 2010 for approximately $925.2 million in cash. The company's balance sheet expanded materially in 2010. Total assets rose to $6,187.8 million from $4,837.8 million, and long-term debt increased to $1,826.7 million from $977.2 million, largely due to $925.0 million of senior notes issued in November 2010 to fund the Genzyme Genetics deal.
The company repurchased $337.5 millionc of stock during 2010 and announced a new $500.0 million repurchase authorization in February 2011. It has not historically paid dividends. Operating cash flow was $883.6 million.
The filing highlights risk from government and third-party payer reimbursement pressure, including Medicare fee schedule reductions mandated by the Patient Protection and Affordable Care Act. It also discloses numerous legal matters, including Medicaid billing investigations, a qui tam lawsuit in California, and a Federal Trade Commission administrative challenge to the Westcliff Medical Laboratories acquisition. Management states that most of these matters are not expected to have a material adverse effect on the company's financial position, though they may affect results of operations or cash flows.
02—Key points
Key Highlights
- Net sales of $5,003.9 million in 2010, up from $4,694.7 million in 2009; net earnings attributable to the company of $558.2 million versus $543.3 million.
- Diluted earnings per share of $5.29 in 2010 compared with $4.98 in 2009.
- Genomic and esoteric testing revenue of $1,728.5 million in 2010, up from $1,601.6 million in 2009; routine testing revenue was $2,995.4 million.
- Acquired Genzyme Genetics on December 1, 2010 for approximately $925.2 million in cash, funded by $925.0 million of senior notes issued in November 2010.
- Total assets grew to $6,187.8 million and long-term debt rose to $1,826.7 million from $977.2 million at year-end 2009.
- Repurchased $337.5 million of common stock in 2010; a new $500.0 million repurchase authorization was announced on February 10, 2011.
- Medicare and Medicaid represented approximately 19.4% of 2010 net sales, and capitated managed care contracts accounted for approximately 3.1%, highlighting reimbursement exposure.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2010, Labcorp Holdings kept $0.11.
- Revenue$5.00B100.0%
- Cost of revenue−$2.91B58.1%
- Gross profit$2.10B41.9%
- Operating costs−$1.12B22.4%
- Operating income$978.8M19.6%
- Interest, other & tax−$420.6M8.4%
- Net income$558.2M11.2%
Where FY2010 revenue went
$5.00B- Cost of revenue: $2.91B, 58% of revenue
- SG&A: $1.03B, 21% of revenue
- Net income: $558.2M, 11% of revenue
- Other operating costs: $84.7M, 1.7% of revenue
- Interest, other & tax: $420.6M, 8.4% of revenue
Kept 11% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2010filed March 1, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $5.00B$4.69B | +6.6% |
| Cost of Revenue | $2.91B$2.72B | +6.7% |
| Gross Profit | $2.10B$1.97B | +6.4% |
| SG&A Expenses | $1.03B$958.90M | +7.9% |
| Operating Income | $978.80M$935.90M | +4.6% |
| Interest Expense | $70.00M$62.90M | +11.3% |
| Net Income | $558.20M$543.30M | +2.7% |
| EPS (Basic) | $5.42$5.06 | +7.1% |
| EPS (Diluted) | $5.29$4.98 | +6.2% |
| Shares Outstanding (Basic) | 103.00M107.40M | −4.1% |
| Shares Outstanding (Diluted) | 105.40M109.10M | −3.4% |
05—Questions
Frequently Asked Questions
How large is the company and what does it do?
The company is the second largest independent clinical laboratory in the United States based on 2010 net revenues. It operates 51 primary laboratories, more than 1,700 patient service centers, and employs over 31,000 people, processing more than 440,000 patient specimens daily for clients in all 50 states and several other locations.
What drove the increase in 2010 results?
The filing attributes growth to managed care business, increased third-party revenue from Medicare and Medicaid, a shift in test mix toward higher-priced genomic and esoteric tests, growth in revenue per requisition in routine testing, and acquisitions. Severe winter weather in the first quarter of 2010 reduced volumes by an estimated 0.3% and revenue by an estimated $23.0 million.
How is the company exposed to government reimbursement changes?
Medicare and Medicaid accounted for about 19.4% of 2010 net sales, and the Patient Protection and Affordable Care Act reduces Medicare clinical laboratory fee schedule updates, including a 1.75% annual CPI reduction in each of 2011 through 2015. The filing states that significant reductions in these programs could adversely affect net earnings and cash flows.
What are the main legal and regulatory matters investors should know about?
The company faces a California qui tam lawsuit alleging improper Medicaid billing with trial scheduled for January 30, 2012, several state and federal Medicaid billing subpoenas, an Aetna lawsuit filed August 19, 2010, and an FTC administrative complaint challenging the Westcliff Medical Laboratories acquisition with a hearing scheduled to begin May 2, 2011. Management does not expect these matters to have a material adverse effect on financial position but says they may be material to results of operations or cash flows.
What are the company's capital allocation and dividend policies?
The company has not historically paid dividends on its common stock and does not presently anticipate paying them in the foreseeable future. It repurchased $337.5 million of stock in 2010, completed its prior repurchase authorization in January 2011, and announced a new $500.0 million authorization on February 10, 2011. Capital expenditures were $126.1 million in 2010, with $140.0 million to $150.0 million expected in 2011.
06—Continue