UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-11353
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LABORATORY CORPORATION OF AMERICA HOLDINGS
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3757370
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
358 SOUTH MAIN STREET, BURLINGTON, NORTH CAROLINA 27215
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(Address of principal executive offices) (Zip code)
(336) 229-1127
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
The number of shares outstanding of the issuer's common stock is 34,766,353
shares as of October 31, 2000, of which 11,352,537 shares are held by indirect
wholly owned subsidiaries of Roche Holding Ltd.
<PAGE>
<TABLE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<CAPTION>
September 30, December 31,
2000 1999
-------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 15.3 $ 40.3
Accounts receivable, net 378.1 348.0
Inventories 32.4 29.1
Prepaid expenses and other 20.4 37.5
Deferred income taxes 38.0 44.6
-------- --------
Total current assets 484.2 499.5
Property, plant and equipment, net 271.5 273.2
Intangible assets, net 806.7 803.9
Other assets, net 77.4 13.6
-------- --------
$1,639.8 $1,590.2
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 57.1 $ 43.6
Accrued expenses and other 112.4 107.0
Current portion of long-term debt 121.0 95.0
-------- --------
Total current liabilities 290.5 245.6
Revolving credit facility -- --
Long-term debt, less current portion 379.5 478.4
Capital lease obligations 7.2 4.4
Other liabilities 128.6 127.6
Commitments and contingent liabilities -- --
Mandatorily redeemable preferred stock
(30,000,000 shares authorized):
Series A 8 1/2% Convertible
Exchangeable Preferred Stock, $0.10
par value, 0 and 4,363,178 shares
issued and outstanding at
September 30, 2000 and December 31,
1999 respectively (aggregate
preference value of $0 and 218.2 at
September 30, 2000 and December 31,
1999 respectively) -- 213.4
Series B 8 1/2% Convertible Pay-in-Kind
Preferred Stock, $0.10 par value, 0
and 6,971,970 shares issued and
outstanding at September 30, 2000
and December 31, 1999 respectively
(aggregate preference value of
$0 and $348.6, respectively) -- 345.3
Shareholders' equity:
Common stock, $0.10 par value;
52,000,000 shares authorized;
34,551,707 and 12,878,958 shares
issued and outstanding at September 30,
2000 and December 31, 1999, respectively 3.5 1.3
Additional paid-in capital 1,031.3 423.9
Accumulated deficit (188.9) (245.5)
Unearned restricted stock compensation (11.3) (4.1)
Accumulated other comprehensive loss (0.6) (0.1)
-------- --------
Total shareholders' equity 834.0 175.5
-------- --------
$1,639.8 $1,590.2
======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
</TABLE>
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<TABLE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS,EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- --------------------
2000 1999 2000 1999
------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $1,433.3 $1,276.0 $ 488.1 $ 428.6
Cost of sales 851.8 796.8 291.4 265.2
-------- -------- ------- -------
Gross profit 581.5 479.2 196.7 163.4
Selling, general and
administrative expenses 359.3 339.2 118.7 115.6
Amortization of intangibles
and other assets 24.2 23.4 8.7 7.7
-------- -------- ------- -------
Operating income 198.0 116.6 69.3 40.1
Other income (expenses):
Loss on sale of assets (0.8) (1.4) -- (0.1)
Investment income (loss) 1.0 (1.4) 0.9 (1.8)
Interest expense (29.3) (31.2) (9.5) (10.4)
-------- -------- ------- -------
Earnings before income taxes 168.9 82.6 60.7 27.8
Provision for income taxes 77.7 31.4 27.9 10.6
-------- -------- ------- -------
Net earnings 91.2 51.2 32.8 17.2
Less preferred stock dividends 34.4 36.4 -- 12.9
Less accretion of mandatorily
redeemable preferred stock 0.2 0.7 -- 0.2
-------- -------- ------- -------
Net earnings attributable to
common shareholders $ 56.6 $ 14.1 $ 32.8 $ 4.1
======== ======== ======= =======
Basic earnings per common
share $ 2.85 $ 1.12 $ 0.98 $ 0.32
========= ========= ======== ========
Diluted earnings per common
share $ 2.66 $ 1.10 $ 0.94 $ 0.32
========= ========= ======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
</TABLE>
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<TABLE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 91.2 $ 51.2
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 65.8 63.0
Amortization of deferred compensation 2.1 0.2
Net losses on sale of assets 0.8 1.4
Investment loss -- 2.0
Deferred income taxes 10.0 (4.0)
Change in assets and liabilities:
Net decrease in restructuring reserves (2.7) (4.8)
(Increase) decrease in accounts
receivable, net (29.3) 14.6
(Increase)decrease in inventories (2.7) 4.4
Decrease (increase) in prepaid
expenses and other 18.0 (6.2)
Increase (decrease) in accounts payable 13.2 (11.7)
Increase in accrued expenses and other 15.1 21.3
Other, net (3.9) (2.5)
------ ------
Net cash provided by operating activities 177.6 128.9
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (39.7) (53.6)
Proceeds from sale of assets 0.7 0.7
Acquisition of businesses (88.4) --
------ ------
Net cash used for investing activities (127.4) (52.9)
------ ------
(continued)
<PAGE>
</TABLE>
<TABLE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
2000 1999
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<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facilities -- 40.0
Payments on revolving credit facilities -- (40.0)
Payments on long-term debt (73.0) (59.2)
Payments on long-term lease obligations (0.8) (0.7)
Deferred payments on acquisitions (0.9) (8.7)
Payment of preferred stock dividends (9.5) (13.9)
Net proceeds from issuance of stock to
employees 9.5 3.8
------ ------
Net cash used for financing activities (74.7) (78.7)
------ ------
Effect of exchange rate changes on cash
and cash equivalents (0.5) (0.3)
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Net increase (decrease) in cash and
cash equivalents (25.0) (3.0)
Cash and cash equivalents at
beginning of period 40.3 22.7
------ ------
Cash and cash equivalents at
end of period $ 15.3 $ 19.7
====== ======
Supplemental schedule of cash
flow information:
Cash paid during the period for:
Interest $ 29.4 $ 34.9
Income taxes, net of refunds 38.7 22.8
Disclosure of non-cash financing
and investing activities:
Preferred stock dividends 24.9 22.5
Accretion of mandatorily redeemable
preferred stock 0.3 0.7
Unrealized loss on securities available-
for-sale (net of tax) -- 0.8
Conversion of preferred stock into
common stock 583.9 --
The accompanying notes are an integral part of these condensed consolidated
financial statements.
</TABLE>
<PAGE>
<TABLE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
Additional
Common Paid-in Accumulated
Stock Capital Deficit
------ ---------- -----------
<S> <C> <C> <C>
PERIOD ENDED SEPTEMBER 30, 1999
Balance at beginning of year $ 1.2 $ 415.7 $ (260.5)
Comprehensive income:
Net earnings -- -- 51.2
Other comprehensive income:
Foreign currency translation
adjustments -- -- --
Unrealized loss on securities,
net of tax -- -- --
------- --------- ---------
Comprehensive income -- -- 51.2
Issuance of common stock 0.1 3.7 --
Issuance of restricted stock
Awards -- 4.5 --
Amortization of unearned restricted
stock compensation -- -- --
Preferred stock dividends -- -- (36.4)
Accretion of mandatorily
redeemable preferred stock -- -- (0.7)
------- --------- ---------
BALANCE AT SEPTEMBER 30, 1999 $ 1.3 $ 423.9 $ (246.4)
======= ========= =========
PERIOD ENDED SEPTEMBER 30, 2000
Balance at beginning of year $ 1.3 $ 423.9 $ (245.5)
Comprehensive income:
Net earnings -- -- 91.2
Other comprehensive income:
Foreign currency translation
adjustments -- -- --
------- --------- ---------
Comprehensive income -- -- 91.2
Issuance of common stock 0.1 9.6 --
Issuance of restricted stock awards -- 9.3 --
Amortization of unearned
restricted stock compensation -- -- --
Income tax benefit from stock
options exercised -- 6.7 --
Conversion of preferred stock into
common stock 2.1 581.8 --
Preferred stock dividends -- -- (34.4)
Accretion of mandatorily
redeemable preferred stock -- -- (0.2)
------- --------- ---------
BALANCE AT SEPTEMBER 30, 2000 $ 3.5 $ 1,031.3 $ (188.9)
======= ========= =========
</TABLE>
<PAGE>
<TABLE>
Unearned Accumulated
Restricted Other Total
Stock Comprehensive Shareholders'
Compensation Loss Equity
------------ ------------- -------------
<S> <C> <C> <C>
PERIOD ENDED SEPTEMBER 30, 1999
Balance at beginning of year $ -- $ (2.0) $ 154.4
Comprehensive income:
Net earnings -- -- 51.2
Other comprehensive income:
Foreign currency translation
adjustments -- (0.3) (0.3)
Unrealized loss on securities,
net of tax -- 0.7 0.7
-------- --------- --------
Comprehensive income -- 0.4 51.6
Issuance of common stock -- -- 3.8
Issuance of restricted stock
Awards (4.5) -- --
Amortization of unearned restricted
stock compensation 0.2 -- 0.2
Preferred stock dividends -- -- (36.4)
Accretion of mandatorily
redeemable preferred stock -- -- (0.7)
-------- --------- --------
BALANCE AT SEPTEMBER 30, 1999 $ (4.3) $ (1.6) $ 172.9
========= ========= ========
PERIOD ENDED SEPTEMBER 30, 2000
Balance at beginning of year $ (4.1) $ (0.1) $ 175.5
Comprehensive income:
Net earnings -- -- 91.2
Other comprehensive income:
Foreign currency translation
adjustments -- (0.5) (0.5)
--------- --------- --------
Comprehensive income -- (0.5) 90.7
Issuance of common stock -- -- 9.7
Issuance of restricted stock awards (9.3) -- --
Amortization of unearned
restricted stock compensation 2.1 -- 2.1
Income tax benefit from stock
options exercised -- -- 6.7
Conversion of preferred stock into
common stock -- -- 583.9
Preferred stock dividends -- -- (34.4)
Accretion of mandatorily
redeemable preferred stock -- -- (0.2)
--------- --------- --------
BALANCE AT SEPTEMBER 30, 2000 $ (11.3) $ (0.6) $ 834.0
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
The condensed consolidated financial statements include the accounts of
Laboratory Corporation of America Holdings and its wholly owned subsidiaries
(the "Company") after elimination of all material intercompany accounts and
transactions.
The financial statements of the Company's foreign subsidiary are measured
using the local currency as the functional currency. Assets and liabilities
are translated at exchange rates as of the balance sheet date. Revenues and
expenses are translated at average monthly exchange rates prevailing during
the year. Resulting translation adjustments are included in "Accumulated
other comprehensive loss."
The accompanying condensed consolidated financial statements of the
Company are unaudited. In the opinion of management, all adjustments (which
include only normal recurring accruals) necessary for a fair presentation of
such financial statements have been included. Interim results are not
necessarily indicative of results for a full year.
The financial statements and notes are presented in accordance with the
rules and regulations of the Securities and Exchange Commission and do not
contain certain information included in the Company's annual report.
Therefore, the interim statements should be read in conjunction with the
consolidated financial statements and notes thereto contained in the Company's
annual report.
2. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income, less
preferred stock dividends, by the weighted average number of common shares
outstanding. Dilutive earnings per share is computed by dividing net income,
by the weighted average number of common shares outstanding plus potentially
dilutive shares, as if they had been issued at the beginning of the period
presented. Potentially dilutive common shares result primarily from the
Company's mandatorily redeemable preferred stock, restricted stock awards and
outstanding stock options.
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
The following represents a reconciliation of the weighted average shares
used in the calculation of basic and diluted earnings per share:
Three months Nine months
Ended September 30, Ended September 30,
------------------------ ------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
Basic 33,356,347 12,707,291 19,863,645 12,649,307
Assumed conversion/exercise
of:
Stock options 358,845 182,205 313,000 83,993
Restricted stock awards 187,649 162,000 170,034 63,495
Series A preferred stock 267,940 -- 5,211,502 --
Series B preferred Stock 580,736 -- 8,682,599 --
---------- ---------- ---------- ----------
Diluted 34,751,517 13,051,496 34,240,780 12,796,795
========== ========== ========== ==========
The effect of conversion of the Company's redeemable preferred stock, or
exercise of certain of the Company's stock options was not included in the
computation of diluted earnings per common share for the three- and nine-
months ended September 30, 1999, as it would have been antidilutive.
The following table summarizes the potential common shares not included
in the computation of diluted earnings per share, because their impact would
have been antidilutive:
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
------------ ------------
Stock options 360,283 1,058,759
Series A convertible exchangeable
preferred stock -- 7,933,043
Series B convertible pay-in-kind
preferred stock -- 12,412,533
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
3. RESTRUCTURING CHARGES
The following represents the Company's restructuring activities for the
period indicated:
Total
-----
Balance at December 31, 1999 $ 26.8
Cash payments (2.7)
Reclassifications and
non-cash items (3.7)
------
Balance at September 30, 2000 $ 20.4
======
Current $ 10.7
Non-current 9.7
------
$ 20.4
======
Reclassifications and non-cash items relate to changes in certain long-
term capital lease obligations.
4. INTEREST RATE SWAP
The existing rate collar transaction and swap have effectively changed
the interest exposure on $500.0 of floating rate debt to a weighted-average
fixed interest rate of 6.14%. The notional amounts of the agreements are used
to measure interest to be paid or received and do not represent the amount of
exposure to credit loss.
5. STOCK COMPENSATION PLANS
During August 2000, the Company granted 129,525 options and 50,600
shares of restricted stock under its 2000 Stock Incentive Plan. The awards
were granted at a price of $106.8125.
The tax benefits associated with the exercise of non-qualified stock
options reduces taxes currently payable by $6.7 for the nine months ended
September 30, 2000. Such benefits are credited to additional paid-in-capital.
6. COMMITMENTS AND CONTINGENCIES
The Company is involved in two litigations which purport to be class
actions brought on behalf of certain patients, private insurers and benefit
plans that paid for laboratory testing services, primarily during the time
frame covered by the 1996 Government Settlement. The Company has also received
certain similar claims brought on behalf of certain other insurance companies,
some of which have been resolved for immaterial amounts. These claims for
private reimbursement are similar to the government claims settled in 1996.
However, no amount of damages, which would be considered material, has been
specified or requested at this time and, with the exception of the above, no
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
settlement agreements have been finalized. The Company is carefully
evaluating these claims. However, due to the early stage of the claims and
related settlement discussions, the ultimate outcome of these claims cannot
presently be predicted.
The Company is also involved in certain claims and legal actions arising
in the ordinary course of business. These matters include, but are not
limited to, professional liability, employee-related matters, inquiries from
governmental agencies and Medicare or Medicaid carriers requesting comment on
allegations of billing irregularities that have been brought to their
attention through billing audits or third parties.
In the opinion of management, based upon the advice of counsel and
consideration of all facts available at this time, the ultimate disposition
of the matters referred to above, is not expected to have a material adverse
effect on the financial position, results of operations or liquidity of the
Company.
The Company believes that it is in compliance in all material respects
with all statutes, regulations and other requirements applicable to its
clinical laboratory operations. The clinical laboratory testing industry
is, however, subject to extensive regulation, and many of these statutes and
regulations have not been interpreted by the courts. There can be no
assurance therefore that applicable statutes and regulations might not be
interpreted or applied by a prosecutorial, regulatory or judicial authority in
a manner that would adversely affect the Company. Potential sanctions for
violation of these statutes and regulations included significant fines and the
loss of various licenses, certificates and authorizations.
7. NEW ACCOUNTING PRONOUNCEMENTS
In June 2000, Statement of Financial Accounting Standards (FAS) No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities," was issued. This Statement amends certain paragraphs of FAS No.
133 which standardized the accounting for derivative instruments by requiring
that an entity recognize those items as assets or liabilities and measure them
at fair value. Adoption is required for the quarter ending March 31, 2001, and
is not expected to have a material impact on the Company's financial position
or results of operations.
In December 1999, the SEC issued its Staff Accounting Bulletin 101,
"Revenue Recognition in Financial Statements". This Bulletin, along with its
amendments (101A and 101B), establishes the SEC staff's specific criteria for
the recognition of revenue. Adoption is required no later than the fourth
fiscal quarter of fiscal years beginning after December 15, 1999, and is not
expected to have a material impact on the Company's financial position or
results of operations.
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
OVERVIEW
This quarterly report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. In
addition, from time to time, the Company or its representatives have made
or may make forward-looking statements, orally or in writing. Such forward-
looking statements may be included in, but are not limited to, various filings
made by the Company with the Securities and Exchange Commission, press
releases or oral statements made by or with the approval of an authorized
executive officer of the Company. Actual results could differ materially from
those projected or suggested in any forward-looking statements as a result of
a wide variety of factors and conditions, which have been described in the
section of the Company's Annual Report on Form 10-K for the year ended
December 31, 1999, entitled, "Cautionary Statement for Purposes of the `Safe
Harbor' Provisions of the Private Securities Litigation Reform Act of 1995"
and other documents the Company files from time to time with the Securities
and Exchange Commission including the Company's quarterly reports on Form 10-Q
and current reports on Form 8-K, and shareholders are specifically referred to
these documents with regard to factors and conditions that may affect future
results.
RESULTS OF OPERATIONS
Three Months ended September 30, 2000 compared with Three Months ended
September 30, 1999.
Net sales for the three months ended September 30, 2000 were $488.1, an
increase of $59.5, or 13.9%, from $428.6 for the comparable 1999 period. The
sales increase is a result of a 9.4% increase in volume and a 4.5% increase
in price. The increase in sales for the second quarter of 2000 would have
been approximately 11.6% after excluding the effect of the four acquisitions
made in 2000 (POISONLAB, Inc., Bio-Diagnostics Laboratories, Pathology Medical
Laboratories and National Genetics Institute, Inc.).
Cost of sales, which includes primarily laboratory and distribution
costs, was $291.4 for the three months ended September 30, 2000 compared to
$265.2 in the corresponding 1999 period, an increase of $26.2. Cost of sales
increased $24.3 due to the increase in volume along with increases in supplies
due to increases in the mix of esoteric tests run. Cost of sales as a
percentage of net sales was 59.7% for the three months ended September 30,
2000 and 61.9% in the corresponding 1999 period. The decrease in the cost of
sales percentage of net sales primarily resulted from the Company's continued
cost reduction efforts and cost efficiencies related to increased volume.
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
Selling, general and administrative expenses increased to $118.7 for the
three months ended September 30, 2000 from $115.6 in the same period in 1999.
This increase resulted from personnel and other costs primarily related to
billing system conversions. As a percentage of net sales, selling, general
and administrative expenses were 24.3% and 27.0% for the three months ended
September 30, 2000 and 1999, respectively.
The amortization of intangibles and other assets was $8.7 and $7.7 for
the three months ended September 30, 2000 and 1999.
Interest expense was $9.5 for the three months ended September 30, 2000
compared with $10.4 for the same period in 1999. The decline in interest
expense is a result of the Company's reduction in long-term debt and lower
interest rates.
The provision for income taxes as a percentage of earnings before taxes
was 46.0% for the three months ended September 30, 2000 compared to 38.1% for
the three months ended September 30, 1999. During the three months ended
September 30, 1999, the Company reduced its valuation allowance applied
against its deferred tax assets by $2.5, thereby reducing its provision for
income taxes as a percentage of earnings before taxes by approximately 8
percentage points. The reduction in the effective rate, before consideration
of the 1999 valuation allowance reduction, is related to increased earnings
before taxes and the reduced impact that non deductible goodwill has on the
effective tax rate.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1999.
Net sales for the nine months ended September 30, 2000 were $1,433.3, an
increase of $157.3, or 12.3%, from $1,276.0 reported in the comparable 1999
period. The sales increase is a result of an 8.9% increase in volume and a
3.4% increase in price. The increase in sales for the for the nine months
ended September 30, 2000 would have been approximately 11.2% after excluding
the effect of the four acquisitions made in 2000 (POISONLAB, Inc., Bio-
Diagnostics Laboratories, Pathology Medical Laboratories and National Genetics
Institute, Inc.).
Cost of sales, which includes primarily laboratory and distribution
costs, was $851.8 for the nine months ended September 30, 2000 compared to
$796.8 in the corresponding 1999 period, an increase of $55.0. Cost of sales
increased approximately $69.5 due to the increase in volume which was offset
by economies of scale improvements of approximately $14.0 in salaries and
benefits. Cost of sales as a percentage of net sales was 59.4% for the nine
months ended September 30, 2000 and 62.4% in the corresponding 1999 period.
The decrease in the cost of sales percentage of net sales
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
primarily resulted from the Company's continued cost reduction efforts and
cost efficiencies related to increased volume.
Selling, general and administrative expenses increased to $359.3 for the
nine months ended September 30, 2000 from $339.2 in the same period in 1999.
This increase resulted from personnel and other costs primarily related to
billing system conversions. As a percentage of net sales, selling, general
and administrative expenses were 25.1% and 26.6% for the nine months ended
September 30, 2000 and 1999, respectively.
The amortization of intangibles and other assets was $24.2 and $23.4 for
the nine months ended September 30, 2000 and 1999, respectively.
Net interest expense was $29.3 for the nine months ended September 30,
2000 compared with $31.2 for the same period in 1999.
The provision for income taxes as a percentage of earnings before taxes
was 46.0% for the nine months ended September 30, 2000 compared to 38.0% for
the nine months ended September 30, 1999. During the nine months ended
September 30, 1999, the Company reduced its valuation allowance applied
against its deferred tax assets by $7.5, thereby reducing its provision for
income taxes as a percentage of earnings before taxes by approximately 8
percentage points. The reduction in the effective rate, before consideration
of the 1999 valuation allowance reduction, is related to increased earnings
before taxes and the reduced impact that non deductible goodwill has on the
effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $177.7 and $128.9 for the
nine months ended September 30, 2000 and September 30, 1999, respectively.
The increase in cash flow from operations primarily resulted from improved
earnings and increases in accounts payable and accrued expenses offset by
increases in accounts receivable. Capital expenditures were $39.7 and $53.6
for the first nine months of 2000 and 1999, respectively.
During the first nine months of 2000, the Company has repaid $73.0 of its
bank debt, made cash payments on business acquisitions totaling $88.4, and
purchased $39.7 of capital assets. All of these transactions have been
financed through internally generated funds.
The Company maintained its days sales outstanding (DSO) of 70 days at
September 30, 2000, unchanged from the end of the second quarter of 2000.
Since September 1999, the Company has reduced its DSO by a total of 6 days and
as of October 15, 2000, 80% of total revenues are currently being processed on
the Company's centralized billing system.
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
For a discussion of legal proceedings which may impact the Company's
liquidity and capital resources see "Note 6 to the Company's Unaudited
Condensed Consolidated Financial Statements".
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See "Note 6 to the Company's Unaudited Condensed
Consolidated Financial Statements" for the nine months ended
September 30, 2000
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule (electronically filed
version only).
Exhibits and Reports on Form 8-K (continued)
(b) Reports on Form 8-K
(1) A current report on Form 8-K dated August 24, 2000
was filed on September 11, 2000, by the registrant, in
connection with the press release dated August 24, 2000
announcing that the Company signed a multi-year national
contract with Nashville based HealthTrust Purchasing
Group, L.P. (HPG), one of the country's largest group
purchasing organizations.
(2) A current report on Form 8-K dated September 19,
2000 was filed on September 27, 2000, by the registrant,
in connection with the press release dated September 19,
2000 announcing that the Company presented its latest
findings on HIV viral load trends in the United States
at the Interscience Conference on Antimicrobial Agents
and chemotherapy (ICAAC) in Toronto, Canada.
(3) A current report on Form 8-K dated September 27,
2000 was filed on September 28, 2000, by the registrant,
in connection with the press release dated September 27,
2000 announcing that Roche Holdings, Inc. has indicated
that it plans to sell up to 5.0 million shares of the
Company's common stock.
<PAGE>
(b) Reports on Form 8-K (continued)
(4) A current report on Form 8-K dated October 16, 2000 was
filed on October 16, 2000, by the registrant, in connection
with the press release dated October 16, 2000 announcing
that Roche Holdings, Inc. (Roche), a subsidiary of
Hoffman-La Roche of Switzerland and the current owner of
44% of LabCorp's common stock, on October 13, 2000 sold
3,625,000 shares of LabCorp in a SEC-registered public
offering through underwriters led by Credit Suisse First
Boston.
(5) A current report on Form 8-K dated October 23, 2000
was filed on October 23, 2000, by the registrant, in
connection with the press release dated October 23, 2000
announcing the results for the quarter and nine months
ended September 30, 2000.
(6) A current report on Form 8-K dated October 23, 2000
was filed on October 23, 2000, by the registrant, in
connection with Summary information of the Company dated
October 23, 2000.
(7) A current report on Form 8-K dated September 28,
2000 was filed on October 31, 2000, by the registrant,
in connection with the Underwriting Agreement, dated
October 13, 2000, entered into by the Company, Credit
Suisse First Boston Corporation, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, and UBS Warburg LLC
(together, the "Underwriters"), and selling stockholders
Roche Holdings, Inc., Thomas P. MacMahon and Bradford T.
Smith (together, the "Selling stockholders").
(8) A current report on Form 8-K dated November 6, 2000
was filed on November 7, 2000 by the registrant, in
connection with the press release dated November 6, 2000
announcing that the Company's Houston toxicology
laboratory has received certification from the Substance
Abuse and Mental Health Services Administration (SAMHSA)
for workplace drug testing.
(9) A current report on Form 8-K dated November 10, 2000
was filed on November 13, 2000 by the registrant, in
connection with the press release dated November 10, 2000
announcing that Standard & Poor's has upgraded its
corporate credit and bank loan ratings for LabCorp two
levels, from BB+ to BBB.
<PAGE>
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LABORATORY CORPORATION OF AMERICA HOLDINGS
Registrant
By:/s/ THOMAS P. MAC MAHON
---------------------------------
Thomas P. Mac Mahon
Chairman, President and Chief
Executive Officer
By:/s/ WESLEY R. ELINGBURG
---------------------------------
Wesley R. Elingburg
Executive Vice President, Chief
Financial Officer and Treasurer
November 14, 2000
<PAGE>
