01—Abstract
Summary
Summary of the 10-K filed February 26, 2013. 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 2012 net revenues, operating a national network of 50 primary laboratories and approximately 1,800 patient service centers.
Net sales for 2012 were $5,671.4 milliona, up from $5,542.3 million in 2011, with net earnings attributable to the Company of $583.1 million and diluted earnings per share of $5.99. Growth in 2012 was driven by a 1.7% increase in volume and a 0.6% increase in revenue per requisition, with the MEDTOX and Orchid acquisitions contributing, while Super Storm Sandy reduced revenues by an estimated $16.0 million. Cost of sales rose to 60.3% of net sales from 59.0% in 2011, while SG&A fell to 19.7% of sales from 20.9%.
The filing highlights significant 2013 headwinds from government reimbursement cuts. The Company estimates these payment reductions will reduce 2013 revenue by over $50.0 millionb and diluted earnings per share by approximately $0.35, and a possible 2% sequestration reduction to the Clinical Lab Fee Schedule and a separate 2% reduction to the Physician Fee Schedule could take effect April 1, 2013. Medicare and Medicaid represented approximately 17.6% of 2012 net sales, and the Company faces ongoing False Claims Act and Medicaid billing inquiries, though management does not believe the outcomes will have a material adverse effect on financial condition.
Capital allocation remained a priority. Operating cash flow was $841.4 millionc, capital expenditures were $173.8 million with 2013 guidance of $200.0 to $220.0 million, and the Company repurchased $516.5 million of stock in 2012.
On February 8, 2013, the Board authorized up to $1.0 billiond of additional share repurchases. Total debt to consolidated EBITDA was 2.0 to 1.0 at year-end, against a covenant maximum of 3.0 to 1.0, and the Company has discussed raising that ratio over time to 2.5 to 1.0.
02—Key points
Key Highlights
- Net sales rose 2.3% to $5,671.4 million in 2012, driven by a 1.7% volume increase and a 0.6% increase in revenue per requisition.
- Net earnings attributable to the Company were $583.1 million in 2012 (diluted EPS $5.99), compared with $519.7 million (diluted EPS $5.11) in 2011.
- Operating income was $1,023.5 million in 2012, compared with $948.4 million in 2011.
- Medicare Clinical Lab Fee Schedule payment reductions effective January 1, 2013 and a possible 2% sequestration cut from April 1, 2013 are expected to reduce 2013 revenue by over $50.0 million and diluted EPS by approximately $0.35.
- The Company repurchased $516.5 million of its stock in 2012 and the Board authorized an additional $1,000.0 million of repurchases on February 8, 2013.
- Since 2008, the Company has invested approximately $2.2 billion in strategic acquisitions, including MEDTOX in July 2012 for $236.4 million in cash.
- Operating cash flow was $841.4 million in 2012; the Company issued $1,000.0 million in senior notes in August 2012 and had total debt to EBITDA of 2.0 to 1.0 at year-end.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2012, Labcorp Holdings kept $0.10.
- Revenue$5.67B100.0%
- Cost of revenue−$3.42B60.3%
- Gross profit$2.25B39.7%
- Operating costs−$1.23B21.6%
- Operating income$1.02B18.0%
- Interest, other & tax−$440.4M7.8%
- Net income$583.1M10.3%
Where FY2012 revenue went
$5.67B- Cost of revenue: $3.42B, 60% of revenue
- SG&A: $1.11B, 20% of revenue
- Net income: $583.1M, 10% of revenue
- Other operating costs: $111.6M, 2.0% of revenue
- Interest, other & tax: $440.4M, 7.8% of revenue
Kept 10% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2012filed February 26, 2013Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $5.67B$5.54B | +2.3% |
| Cost of Revenue | $3.42B$3.27B | +4.7% |
| Gross Profit | $2.25B$2.27B | −1.1% |
| SG&A Expenses | $1.11B$1.16B | −3.9% |
| Operating Income | $1.02B$948.40M | +7.9% |
| Interest Expense | $94.50M$87.50M | +8.0% |
| Net Income | $583.10M$519.70M | +12.2% |
| EPS (Basic) | $6.09$5.20 | +17.1% |
| EPS (Diluted) | $5.99$5.11 | +17.2% |
| Shares Outstanding (Basic) | 95.70M100.00M | −4.3% |
| Shares Outstanding (Diluted) | 97.40M101.80M | −4.3% |
05—Questions
Frequently Asked Questions
How much revenue could the 2013 reimbursement cuts cost the Company?
The Company estimates that payment reductions it faces in 2013 will negatively impact 2013 revenue by over $50.0 million and diluted earnings per share by approximately $0.35. The filing notes the 2% sequestration reduction to the Clinical Lab Fee Schedule and a separate 2% reduction to the Physician Fee Schedule would take effect April 1, 2013 if implemented.
How dependent is the Company on government payers?
In 2012, the Company derived approximately 17.6% of its net sales directly from the Medicare and Medicaid programs, and about 12.3% of revenue was reimbursed under the Medicare clinical laboratory fee schedule. Requisitions from Medicare and Medicaid made up 16.2% of total volume.
What drove the 2012 sales growth and what hurt results?
Net sales growth was driven by a 1.7% volume increase, a 0.6% increase in revenue per requisition, and the Orchid and MEDTOX acquisitions, which added 1.1% and 1.0% to revenue respectively. Inclement weather, notably Super Storm Sandy, reduced revenues by an estimated $16.0 million and diluted EPS by $0.09.
How is the Company returning capital and funding growth?
The Company repurchased $516.5 million of stock in 2012 and authorized up to $1,000.0 million of additional repurchases on February 8, 2013. It funds growth through operating cash flow, senior notes (including $1,000.0 million issued in August 2012), and its $1,000.0 million revolving credit facility, with projected 2013 capital expenditures of $200.0 to $220.0 million.
What is the Company's debt position?
At December 31, 2012, the ratio of total debt to consolidated EBITDA was 2.0 to 1.0 against a covenant maximum of 3.0 to 1.0, and the Company was in compliance with all covenants. Its debt ratings were Baa2 from Moody's and BBB from Standard and Poor's. The Company discussed its intention to increase the ratio over time to 2.5 to 1.0.
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