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
October 23, 2003
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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. Regulation FD Disclosure.
Summary information of the Company dated October 23, 2003.
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: October 23, 2003
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.
LabCorp's Investment and Performance Fundamentals
- Significant Cash Generator
- EBITDA Percentage of Sales: 24.3% through September 30, 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 82%
Independent Clinical Labs 39% LabCorp 18%
Physician Offices 12%
Source: Company estimates, industry reports & 2002 revenue
for LabCorp and Dynacare
Profile of LabCorp
- Second-largest clinical laboratory company in North America and the leader
in the specialty testing market
- Offers more than 4,000 routine and specialty tests and conducts testing on
more than 340,000 specimens daily
- Serves more than 200,000 physicians and other health care providers
- Approximately 24,000 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
Third Quarter Operating Results
($ in millions)
9/30/02 9/30/03
-------- --------
Revenue 655.2 752.0
Operating Expense 541.5 613.3
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Operating Income 113.7 138.7
------- -------
Margin 17.4% 18.4%
EBITDA 145.9 183.9
------- -------
Margin 22.3% 24.5%
Bad Debt % to revenue 8.4% 7.0%
DSO 56 53
1) Q3 '03 and '02 results above exclude restructuring
and other one-time charges relating to the Company's
integration of its DIANON and Dynacare acquisitions.
2) For definition of EBITDA and a reconciliation to the
most comparable measure under Generally Accepted Accounting
Principles, see Company's 3rd Quarter 2003 earnings release
furnished on Form 8-K on October 23, 2003.
2003 Third Quarter Financial Achievements
- Increased revenues 14.8% (volume approximately 9.3%; price
approximately 5.5%)
- EBITDA margins of 24.5%
- Diluted EPS of $0.59*
- Operating cash flow of $161.9 million
- Repurchased approximately $63 million of LabCorp stock
- Paid down $60 million in debt
* Before restructuring and other one-time charges
Key Third Quarter Highlights
- Genomic testing revenues increased approx. 40% period-over-period, driven
primarily by strong volume growth
- Overall pricing continues to increase, driven by both increased
PPA in core and esoteric areas and by continuing mix shift to
higher-priced esoteric tests
Nine-Month Operating Results
($ in millions)
YTD YTD
9/30/02 9/30/03
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Revenue 1,857.6 2,207.9
Operating Expense 1,493.4 1,801.6
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Operating Income 364.2 406.3
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Margin 19.6% 18.4%
EBITDA 439.9 537.0
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Margin 23.7% 24.3%
Bad Debt % to revenue 8.6% 7.5%
DSO 56 53
1) YTD '03 and '02 results above exclude restructuring
and other one-time charges relating to the Company's
integration of its DIANON and Dynacare acquisitions.
2) For definition of EBITDA and a reconciliation to the
most comparable measure under Generally Accepted Accounting
Principles, see Company's 3rd Quarter 2003 earnings release
furnished on Form 8-K on October 23, 2003.
2003 Nine-Month Financial Achievements
- Increased revenues 18.9% (volume approximately 13.2%; price
approximately 5.7%)
- EBITDA margin of 24.3%
- Diluted EPS of $1.69*
- Operating cash flow of $420.1 million
- Repurchased approximately $150 million of LabCorp stock
- Paid down $225 million in debt
* Before restructuring and other special charges
Financial Performance
Price & Volumes: Trends by Payor Type
2001 2002 YTD SEPT 2003
PPA Accessions PPA Accessions PPA Accessions
----- ---------- ---- ---------- ---- -----------
$ millions $ millions $ millions
----------------- ---------------- -----------------
Client (Physicians) 24.46 27.9 26.27 29.6 27.22 24.1
Patient 111.28 2.5 119.93 2.3 116.53 1.9
Third Party 31.59 12.2 31.87 14.8 34.62 13.5
(MC/MD/Insurance)
Managed Care
- Capitated 8.90 11.9 9.28 13.1 9.82 9.8
- Fee for service 43.45 17.2 44.79 19.3 45.67 16.7
------ ---- ------ ---- ------ ----
Total 29.27 29.1 30.45 32.4 32.48 26.5
------ ---- ------ ---- ------ ----
LabCorp Total $30.69 71.7 $31.71 79.1 $33.43 66.0
====== ==== ====== ==== ====== ====
Financial Performance
Revenue Analysis by Business Area
YTD SEPT 2002
Revenue Accns %Accns PPA
$Million 000 to total $
--------- -------- -------- ------
Genomic 148.8 1,304.0 2.2% 114.13
Identity/Gene
Probes 96.4 2,389.3 4.1% 40.36
-------------- ------- --------- ------ ------
All Genomic 245.2 3,693.3 6.3% 66.40
Other Esoteric 183.2 4,434.1 7.6% 41.32
Histology 71.4 1,114.3 1.9% 64.04
-------------- ------- --------- ----- -------
All Genomic/
Esoteric 499.8 9,241.7 15.8% 54.08
Core 1,357.8 49,337.2 84.2% 27.52
-------------- ------- --------- ------ ------
Total: 1,857.6 58,578.9 100.0% 31.71
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YTD SEPT 2003 03 vs 02
PPA
Revenue Accns %Accns PPA Incr/
$Million 000 to total $ (Decr)
--------- ------- --------- ------- ---------
Genomic 213.6 1,733.8 2.6% 123.21 8.0%
Identity/Gene
Probes 114.4 2,628.0 4.0% 43.52 7.8%
-------------- ------ -------- ----- ------ -----
All Genomic 328.0 4,361.8 6.6% 75.20 13.2%
Other Esoteric 188.4 4,615.7 7.0% 40.81 (1.2)%
Histology 148.4 1,619.0 2.4% 91.67 43.1%
-------------- ------- -------- ----- ------ -----
All Genomic/
Esoteric 664.8 10,596.5 16.0% 62.74 16.0%
Core 1,543.1 55,451.4 84.0% 27.83 1.1%
-------------- ------- -------- ----- ------ -----
Total: 2,207.9 66,047.9 100.0% 33.43 5.4%
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Cash Investment Strategy
- Investment Strategy Should Match Strategic Plan
- Priority #1 - Strengthen Core Business
- Standardize lab/billing IT systems
- State-of-the-art analyzers (chemistry, hematology,
sequencers)
- Pursue selected acquisitions (i.e. Dynacare)
- Priority #2 - Invest in Appropriate Acquisitions as well as
Genomic/Esoteric and Anatomic Pathology Growth
- NGI, ViroMed, DIANON
- EXACT, Myriad, Correlogics
- DIANIZING LabCorp
- Priority #3 - Share Repurchases
- Consider Dividends
Financial Guidance for 2003
- Revenue growth of approximately 18 to 19% compared to 2002
- EBITDA margins of approximately 24% of sales
- EPS in the range of $2.20 to $2.25
- Free cash flow of approximately $400 to $420 million (net of
Cap Ex of approximately $90 million)
- Bad debt rate of 7.0% for the second half of 2003
- Net interest expense of approximately $35 million
Preliminary Financial Guidance for 2004
- Revenue growth of approximately 4% to 7% compared to 2003
- EPS growth in the range of 11% to 15%*
* Compared to the current First Call 2003 consensus EPS estimate of
$2.22 as reported by Thomson Financial
Opportunity for Investors
- Long-term industry trends appear favorable
- Visible growth drivers
- Low P/E relative to market valuations
- Significant free cash flow - multiple opportunities
to increase shareholder value
- Strong balance sheet - Investment Grade ratings (S&P,
Moody's)
- Solid growth potential driven by genomic strategy
Other Financial Information
September 30, 2003
($ in millions)
Q1 03 Q2 03 Q3 03
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Depreciation $ 21,873.0 $ 22,778.0 $ 23,464.0
Amortization $ 8,464.0 $ 9,512.0 $ 9,552.0
Capital expenditures $ 16,164.0 $ 21,250.0 $ 23,055.0
Cash flows from operations $135,017.0 $123,169.0 $161,894.0
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
Sept 03
----------
Depreciation $ 68,115.0
Amortization $ 27,528.0
Capital expenditures $ 60,469.0
Cash flows from operations $420,080.0
Bad debt as a percentage of sales 7.46%
Effective interest rate on debt:
Zero coupon-subordinated notes 2.00%
5 1/2% Senior Notes (including
effect of interest rate swap) 5.38%
Revolving credit facility 1.95%
Days sales outstanding 53