UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
February 12, 2004
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(Date of earliest event reported)
LABORATORY CORPORATION OF AMERICA HOLDINGS
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(Exact name of registrant as specified in its charter)
DELAWARE 1-11353 13-3757370
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(State or Other (Commission (IRS Employer
Jurisdiction of File Number) Identification
Incorporation) Number)
358 SOUTH MAIN STREET, BURLINGTON, NORTH CAROLINA 27215
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(Address of principal executive offices)
336-229-1127
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(Registrant's telephone number, including area code)
ITEM 12. Results of Operations and Financial Conditions.
Summary information of the Company dated February 12, 2004.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned hereunto duly
authorized.
LABORATORY CORPORATION OF AMERICA HOLDINGS
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(Registrant)
By:/s/ BRADFORD T. SMITH
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Bradford T. Smith
Executive Vice President
and Secretary
Date: February 12, 2004
This information contains forward-looking statements which are
subject to change based on various important factors, including
without limitation, competitive actions in the marketplace and
adverse actions of governmental and other third-party payors. Actual
results could differ materially from those suggested by these forward-
looking statements. Further information on potential factors that
could affect the Company's financial results is included in the
Company's Form 10-K for the year ended December 31, 2002 and subsequent
filings, and will be included in the Company's Form 10-K for the year
ended December 31, 2003, when filed.
LabCorp's Investment and Performance Fundamentals
- Significant Cash Generator
- EBITDA Percentage of Sales: 24.2% through December 31, 2003
- Strong Balance Sheet
- Investment Grade Credit Ratings
The Clinical Laboratory Testing Market
US Clinical Laboratory testing market is $34-$36 billion
- Represents 3% - 4% of all health care spending
- Grew at a CAGR of 5.5% from 1998-2001
- Influences/directs approximately 80% of health care spending
- Role and importance of testing are increasing
- Rapidly evolving technology, emphasis on preventative medicine
and aging of population are all driving growth
CLINICAL LABORATORY TESTING INDEPENDENT CLINICAL LABORATORIES
Hospitals 49% All others 78%
Independent Clinical Labs 39% LabCorp 22%
Physician Offices 12%
Source: Company estimates, industry reports & 2003 revenue
for LabCorp.
Profile of LabCorp
- Second-largest clinical laboratory company in North America and
the leader in the specialty testing market
- Offers more than 4,400 routine and specialty tests and conducts
testing on more than 340,000 specimens daily
- Serves more than 220,000 physicians and other health care providers
- Approximately 23,000 employees nationwide
MAP OF PRIMARY TESTING LOCATIONS & PSC's
LabCorp's Strategy
Be a national core laboratory servicing all geographic areas, and the
leading esoteric, genomic testing laboratory in North America.
Strategic Approach
1) CORE TESTING
- Managed Care
- Selected Internal Expansion
- Acquisitions (Dynacare)
2) GENOMIC/ESOTERIC
- Internal Development
- Acquisitions (DIANON)
- Licensing
Demonstrated Genomic and Esoteric Strategy Execution
INTERNAL ACQUISITION LICENSE/PARTNER
-------- ----------- ---------------
CMBP NGI MYRIAD GENETICS
- Cancer - Infectious Disease: Predictive Tests:
- Genetics (Cystic Fibrosis) Hepatitis C - Breast/Ovarian and
- Infectious Disease - PCR Plasma Colon Cancer
(GENOSURE) - Melanoma
- Hypertension
CLINICAL TRIALS VIROMED CORRELOGIC SYSTEMS
- Drug Metabolism - Infectious Disease: - Ovarian Cancer
HIV, Hepatitis
West Nile CELERA DIAGNOSTICS
- Real-time PCR - Breast and
Prostate Cancer
- Alzheimer's Disease
PATH LABS
- Hospital Esoteric EXACT SCIENCES
- Colorectal Cancer
DIANON
- Cancer/Anatomic ATHEROTECH
Pathology - VAP Cholesterol
BIOPREDICTIVE
- Liver Fibrosis
Fourth Quarter Operating Results
($ in millions)
12/31/02 12/31/03
-------- --------
Revenue 650.1 731.5
Operating Expense 561.8 602.6
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Operating Income 88.3 128.9
------- -------
Margin 13.6% 17.6%
EBITDA 123.9 174.4
------- -------
Margin 19.1% 23.8%
Bad Debt % to revenue 8.4% 6.75%
DSO 54 53
1) Q4 '03 results above exclude restructuring and other special items
relating to the Company's restructuring charges and adjustments.
2) For definition of EBITDA and a reconciliation to the
most comparable measure under Generally Accepted Accounting
Principles, see Company's 4th Quarter 2003 earnings release
furnished on Form 8-K on February 12, 2004.
2003 Fourth Quarter Financial Achievements
- Increased revenues 12.5% (volume approx. 7.0%; price
approx. 5.5%)
- EBITDA margins of 23.8%
- Diluted EPS of $0.53*
- Operating cash flow of $144.2 million
- Paid down $25 million in debt
* Before restructuring and other special items
Key Fourth Quarter Highlights
- Genomic testing revenues increased approx. 37.5% period-over-period,
driven primarily by strong volume growth
- Overall pricing continues to increase, driven by both increased
PPA in core and esoteric areas and by continuing mix shift to
higher-priced esoteric tests
Full Year Operating Results
($ in millions)
YTD YTD
12/31/02 12/31/03
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Revenue 2,507.7 2,939.4
Operating Expense 2,055.2 2,404.2
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Operating Income 452.5 535.2
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Margin 18.0% 18.2%
EBITDA 536.8 711.5
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Margin 22.5% 24.2%
Bad Debt % to revenue 8.6% 7.3%
DSO 54 53
1) YTD '03 and '02 results above exclude restructuring
and other special items relating to the Company's
restructuring charges and adjustments.
2) For definition of EBITDA and a reconciliation to the
most comparable measure under Generally Accepted Accounting
Principles, see Company's 4th Quarter 2003 earnings release
furnished on Form 8-K on February 12, 2004.
2003 Financial Achievements
- Increased revenues 17.2% (volume approx. 11.7%; price
approx. 5.5%)
- EBITDA margin of 24.2%
- Diluted EPS of $2.22*
- Operating cash flow of $564.3 million
- Repurchased approximately $150 million of LabCorp stock
- Paid down $250 million in debt
* Before restructuring and other special items
Financial Performance
Price & Volumes: Trends by Payor Type
2001 2002 2003
PPA Accessions PPA Accessions PPA Accessions
----- ---------- ---- ---------- ---- -----------
$ millions $ millions $ millions
----------------- ---------------- -----------------
Client (Physicians) 24.46 27.9 26.27 29.6 27.07 31.7
Patient 111.28 2.5 119.93 2.3 118.48 2.5
Third Party 31.59 12.2 31.87 14.8 34.25 18.1
(MC/MD/Insurance)
Managed Care
- Capitated 8.90 11.9 9.28 13.1 9.95 12.9
- Fee for service 43.45 17.2 44.79 19.3 45.68 22.7
------ ---- ------ ---- ------ ----
Total 29.27 29.1 30.45 32.4 32.74 35.6
------ ---- ------ ---- ------ ----
LabCorp Total $30.69 71.7 $31.71 79.1 $33.43 87.9
====== ==== ====== ==== ====== ====
Financial Performance
Revenue Analysis by Business Area
YTD DEC 2002
Revenue Accns %Accns PPA
$Million 000 to total $
--------- -------- -------- ------
Genomic 205.9 1,773.3 2.2% 116.13
Identity/Gene
Probes 132.0 3,214.9 4.1% 41.05
-------------- ------- --------- ------ ------
All Genomic 337.9 4,988.2 6.3% 67.74
Other Esoteric 245.4 5,873.3 7.4% 41.78
Histology 94.1 1,492.2 1.9% 63.09
-------------- ------- --------- ----- -------
All Genomic/
Esoteric 677.4 12,353.7 15.6% 54.83
Core 1,830.3 66,724.8 84.4% 27.43
-------------- ------- --------- ------ ------
Total: 2,507.7 79,078.5 100.0% 31.71
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YTD DEC 2003 03 vs 02
PPA
Revenue Accns %Accns PPA Incr/
$Million 000 to total $ (Decr)
--------- ------- --------- ------- ---------
Genomic 283.2 2,323.9 2.6% 121.86 4.9%
Identity/Gene
Probes 152.0 3,533.4 4.0% 43.02 4.8%
-------------- ------ -------- ----- ------ -----
All Genomic 435.2 5,857.3 6.6% 74.30 9.7%
Other Esoteric 256.0 6,243.9 7.1% 41.01 (1.8)%
Histology 197.9 2,175.6 2.5% 90.96 44.2%
-------------- ------- -------- ----- ------ -----
All Genomic/
Esoteric 889.1 14,276.8 16.2% 62.28 13.6%
Core 2,050.3 73,638.3 83.8% 27.84 1.5%
-------------- ------- -------- ----- ------ -----
Total: 2,939.4 87,915.1 100.0% 33.43 5.4%
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Cash Investment Strategy
- $90 to $100 million in capital expenditures to support strategic
growth plan
- $50 to $60 million for selected acquisitions (core, esoteric or
anatomic pathology labs)
- Share repurchases - new $250 million stock repurchase program
- Retain flexibility in utilizing remaining cash
Financial Guidance for 2004
- Revenue growth of approximately 5% to 7% compared to 2003,
including small acquisitions and/or new contracts
- EBITDA margins of approximately 25% of sales
- EPS in the range of 11% to 13% compared to 2003 EPS
- Free cash flow of approximately $440 to $460 million (net of
Cap Ex of approximately $100 million)*
- Bad debt rate of 6.75%, dropping to 6.25% by year end
- Net interest expense of approximately $36 million
- Tax rate of 41%
* Projected 2004 free cash flow is impacted as compared to 2003 by
increased capital expenditures and the benefit in 2003 of one-time
income tax credits of approximately $50 million.
Opportunity for Investors
- Long-term industry trends appear favorable
- Visible growth drivers
- Low P/E relative to market valuations
- Significant free cash flow - multiple opportunities
to increase shareholder value
- Strong balance sheet - Investment Grade ratings (S&P,
Moody's)
- Solid growth potential driven by genomic strategy
Other Financial Information
December 31, 2003
($ in millions)
Q1 03 Q2 03 Q3 03
---------- ---------- ----------
Depreciation $ 21.9 $ 22.8 $ 23.5
Amortization $ 8.4 $ 9.5 $ 9.6
Capital expenditures $ 16.1 $ 21.2 $ 23.1
Cash flows from operations $ 135.0 $ 123.2 $ 161.9
Bad debt as a percentage of sales 8.00% 7.44% 7.01%
Effective interest rate on debt:
Zero coupon-subordinated notes 2.00% 2.00% 2.00%
5 1/2% Senior Notes (including
effect of interest rate swap) 3.98% 4.07% 5.38%
Revolving credit facility 2.14% 1.86% 1.95%
Days sales outstanding 55 54 53
YTD
Q4 03 Dec 03
---------- ----------
Depreciation $ 23.4 $ 91.6
Amortization $ 10.1 $ 37.6
Capital expenditures $ 23.2 $ 83.6
Cash flows from operations $ 144.2 $ 564.3
Bad debt as a percentage of sales 6.75% 7.29%
Effective interest rate on debt:
Zero coupon-subordinated notes 2.00% 2.00%
5 1/2% Senior Notes (including
effect of interest rate swap) 5.38% 5.38%
Revolving credit facility 1.78% 1.78%
Days sales outstanding 53 53