01—Abstract
Summary
Summary of the 10-K filed February 25, 2014. Cited figures are marked; the original filing is the authoritative source.
Laboratory Corporation of America Holdings, headquartered in Burlington, North Carolina, reported 2013 net sales of $5.81 billiona, up 2.4% from $5.67 billion in 2012, on 4.0% higher volume offset by a 1.6% decline in revenue per requisition.
Net earnings attributable to the Company were $573.8 millionb, or $6.25 diluted earnings per share, compared with $583.1 million, or $5.99 per diluted share, in 2012. Operating income declined to $990.9 million from $1,023.5 million. The Company attributes margin pressure to government payment reductions and molecular pathology payment delays and denials, which it estimates reduced 2013 operating margins by about 150 basis points and operating cash flow by more than an estimated $100.0 million.
Cash from operations fell to $818.7 millionc from $841.4 million. The Company describes its strategy as a five-pillar plan covering capital deployment, IT enhancement through LabCorp Beacon, operating efficiency, scientific innovation (152 new assays introduced in 2013), and knowledge services. It invested $1,015.6 million to repurchase 10.4 million shares in 2013, leaving $1,058.5 million of repurchase authorization at year-end.
Total debt rose to $3.0 billiond in long-term obligations, and the ratio of total debt to consolidated EBITDA was 2.4 to 1.0 against a covenant maximum of 3.0 to 1.0. The Company issued $700.0 million of senior notes in November 2013 and expects capital expenditures of $185.0 million to $205.0 million in 2014. The filing highlights regulatory and reimbursement risk, including a 2% sequestration reduction effective April 1, 2013, a 0.75% reduction to the Clinical Lab Fee Schedule in 2014, and CMS plans to evaluate 1,250 CLFS codes starting in 2015.
Several False Claims Act and Medicaid overcharge lawsuits are pending, and a Washington jury returned a $50.0 million verdict in a prenatal genetic testing case, which the Company intends to appeal. The Company's Chief Financial Officer, William B. Hayes, announced plans to retire around the second quarter of 2014.
02—Key points
Key Highlights
- Net sales rose 2.4% to $5.81 billion in 2013, driven by a 4.0% increase in test volume, partly offset by a 1.6% decline in revenue per requisition.
- Net earnings attributable to the Company were $573.8 million, or $6.25 per diluted share, down from $583.1 million, or $5.99 per diluted share, in 2012 (diluted EPS was higher in 2013).
- Government payment reductions and molecular pathology payment issues reduced operating margins by about 150 basis points and operating cash flow by more than an estimated $100.0 million.
- The Company repurchased 10.4 million shares for $1,015.6 million in 2013 and had $1,058.5 million of remaining repurchase authorization at December 31, 2013.
- Issued $700.0 million of senior notes in November 2013; total debt to consolidated EBITDA was 2.4 to 1.0 versus a 3.0 to 1.0 covenant maximum.
- Introduced 152 new assays in 2013; LabCorp Beacon platform interfaces with more than 650 EMR partner solutions and over 38,000 EMR interfaces.
- Faces ongoing legal exposure, including several False Claims Act and Medicaid overcharge suits and a $50.0 million jury verdict in the Wuth prenatal testing case, which the Company plans to appeal.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, Labcorp Holdings kept $0.10.
- Revenue$5.81B100.0%
- Cost of revenue−$3.59B61.7%
- Gross profit$2.22B38.3%
- Operating costs−$1.23B21.2%
- Operating income$990.9M17.1%
- Interest, other & tax−$417.1M7.2%
- Net income$573.8M9.9%
Where FY2013 revenue went
$5.81B- Cost of revenue: $3.59B, 62% of revenue
- SG&A: $1.13B, 19% of revenue
- Net income: $573.8M, 9.9% of revenue
- Other operating costs: $103.5M, 1.8% of revenue
- Interest, other & tax: $417.1M, 7.2% of revenue
Kept 9.9% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 25, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $5.81B$5.67B | +2.4% |
| Cost of Revenue | $3.59B$3.42B | +4.8% |
| Gross Profit | $2.22B$2.25B | −1.2% |
| SG&A Expenses | $1.13B$1.11B | +1.3% |
| Operating Income | $990.90M$1.02B | −3.2% |
| Interest Expense | $96.50M$94.50M | +2.1% |
| Net Income | $573.80M$583.10M | −1.6% |
| EPS (Basic) | $6.36$6.09 | +4.4% |
| EPS (Diluted) | $6.25$5.99 | +4.3% |
| Shares Outstanding (Basic) | 90.20M95.70M | −5.7% |
| Shares Outstanding (Diluted) | 91.80M97.40M | −5.7% |
05—Questions
Frequently Asked Questions
How did Labcorp perform financially in 2013?
Net sales grew 2.4% to $5,808.3 million, driven by a 4.0% increase in requisition volume that was partly offset by a 1.6% decline in revenue per requisition. Operating income fell to $990.9 million from $1,023.5 million, and net earnings attributable to the Company were $573.8 million, compared with $583.1 million in 2012.
What pressures affected Labcorp's margins and cash flow in 2013?
The filing says government payment reductions, including the 2% sequestration effective April 1, 2013, and molecular pathology payment delays and coverage denials reduced year-over-year margins by about 150 basis points and operating cash flow by more than an estimated $100.0 million. Cash provided by operations was $818.7 million, down from $841.4 million.
How much capital did the Company return to shareholders and how is it funded?
In 2013 the Company repurchased 10.4 million shares for $1,015.6 million and had $1,058.5 million of repurchase authorization remaining at year-end. It funded these activities partly through $700.0 million of senior notes issued in November 2013, and the Company had no borrowings outstanding under its $1.0 billion Revolving Credit Facility at December 31, 2013.
What are the main legal and regulatory risks disclosed?
The filing discloses several False Claims Act lawsuits and Medicaid billing investigations, including suits in Georgia, Virginia and Florida and a New York action alleging kickbacks to UnitedHealthcare. It also reports a $50.0 million jury verdict in the Wuth prenatal genetic testing case, of which the Company is responsible for 50% of liability, and says it will appeal. The Company believes the outcomes will not have a material adverse effect on its financial condition, though they could affect results for a particular period.
What is the outlook for reimbursement and the Company's strategy?
The Company faces a 0.75% payment reduction to the Clinical Lab Fee Schedule in 2014 and a estimated $6.6 million reduction to the Physician Fee Schedule, assuming Congress does not prevent further SGR-related cuts. CMS plans annual evaluations of CLFS codes starting January 1, 2015. The Company's strategy centers on five pillars: capital deployment, IT enhancements, efficiency, scientific innovation, and knowledge services, with capital expenditures expected at $185.0 million to $205.0 million in 2014.
06—Continue