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 18, 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 9. Regulation FD Disclosure.
Summary information of the Company dated February 18, 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: February 18, 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, 2001 and subsequent
filings, and will be available in the Company's Form 10-K for the year
ended December 31, 2002, when filed.
LabCorp's Industry-leading Financial Indicators
- EBITDA Percentage of Sales: 22.5% in 2002
- 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 300,000 specimens daily
- Serves more than 200,000 physicians and other health care providers
- More than 24,000 employees nationwide
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
- Licensing
- Acquisitions (DIANON)
MAP OF COMBINED TESTING LOCATIONS & PSC's (Includes Dynacare and DIANON)
Demonstrated Genomic Strategy Execution
- Targeted introduction of new tests
- Acquire innovative technology
- License/partner to expand testing menu
INTERNAL ACQUISITION LICENSE/PARTNER
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CMBP NGI MYRIAD GENETICS
- Cancer - Infectious Disease: Predictive Tests:
- Genetics (Cystic Fibrosis) Hepatitis C - Breast/Ovarian and
- Infectious Disease - Cancer: Colon Cancer
(GENOSURE) Melanoma - Melanoma
Breast - Hypertension
CLINICAL TRIALS VIROMED CORRELOGIC SYSTEMS
- Drug Metabolism - Infectious Disease: - Ovarian Cancer
HIV
Hepatitis CELERA DIAGNOSTICS
Real-time PCR - Breast and
Prostate Cancer
- Alzheimer's Disease
PATH LABS
Hospital Esoteric EXACT SCIENCES
- Colorectal Cancer
DIANON
Cancer ALPHA THERAPEUTICS
- PCR Plasma
VIROLOGICS
- HIV Phenotyping
Genomic/Cancer Strategy
- LabCorp has identified cancer testing as its most important growth
opportunity over the next 3-5 years
- Diagnostic testing for cancer is expected to increase substantially-
DIANON complements LabCorp's capabilities in anatomic and gene-based
testing
- DIANON's broad testing menu (anatomic and esoteric) is supported by its
strong scientific expertise, outstanding sales capabilities and
innovative, proprietary reporting format, CarePath-trademark-
- LabCorp's genomic and esoteric testing can be offered through DIANON,
expanding access to these tests
- LabCorp's strategic cancer partnerships will be enhanced by DIANON's
sales and marketing efforts to DIANON's more than 14,000 physician
customers
- Myriad Genetics (predisposition assays for breast, ovarian cancer)
- EXACT Sciences (colorectal cancer)
- Celera Diagnostics (prostate cancer)
- Correlogic (ovarian cancer)
Fourth Quarter Operating Results
($ in millions)
12/31/01 12/31/02
-------- --------
Revenue 563.7 650.1
Operating Expense 486.3 561.8
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Operating Income 77.4 88.3
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Margin 13.7% 13.6%
EBITDA 104.9 123.9
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Margin 18.6% 19.1%
Bad Debt % to revenue 8.8% 8.4%
DSO 58 54
2002 Fourth Quarter Financial Achievements
- Increased revenues 15.3% (volume 13.0%; price 2.3%)
- EBITDA margins of 19.1%
- Diluted EPS of $0.36
- Operating cash flow of $105.0 million
Full Year Operating Results
($ in millions)
YTD 12/01 YTD 12/02
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Revenue 2,199.8 2,507.7
Operating Expense 1,832.2 2,055.2
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Operating Income 367.6 452.5
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Margin 16.7% 18.0%
EBITDA 468.7 563.8
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Margin 21.3% 22.5%
Bad Debt % to revenue 9.2% 8.6%
DSO 58 54
1) YTD 01 results above exclude one-time charges for early
extinguishment of debt relating to the LYONS transaction.
2) YTD 02 results above exclude restructuring and other one-time
charges relating to the Dynacare transaction.
2002 Twelve Month Financial Achievements
- Increased revenues 14.0% (volume 10.7%; price 3.3%)
- EBITDA margins of 22.5%
- Increased diluted EPS 21.9%*
- Operating cash flow of $431.5 million
- DSO decline of 4 days from Dec 2001
*Before special charges, compared to pro forma prior year EPS,
after the required change in goodwill accounting and special items.
2002 Accomplishments
- Myriad Genetics' products introduced; new partnerships with EXACT,
Celera and Correlogic
- Completed acquisition of DIANON, Dynacare and Immunodiagnostic
Laboratories (N. California)
- Established $150 million stock repurchase program
- Expanded agreement with Aetna in Texas
Financial Performance
Price & Volumes: Trends by Payor Type
2000 2001 2002
PPA Accessions PPA Accessions PPA Accessions
----- ---------- ---- ---------- ---- -----------
$ millions $ millions $ millions
----------------- ---------------- -----------------
Client (Physicians) 22.70 27.1 24.46 27.9 26.27 29.6
Patient 102.87 2.2 111.28 2.5 119.93 2.3
Third Party 29.80 10.3 31.59 12.2 31.87 14.8
(MC/MD/Insurance)
Managed Care
- Capitated 8.89 10.6 8.90 11.9 9.28 13.1
- Fee for service 42.32 16.0 43.45 17.2 44.79 19.3
------ ---- ------ ---- ------ ----
Total 28.97 26.6 29.27 29.1 30.45 32.4
------ ---- ------ ---- ------ ----
LabCorp Total $28.98 66.2 $30.69 71.7 $31.71 79.1
====== ==== ====== ==== ====== ====
Financial Performance
Revenue Analysis by Business Area
YTD DEC 2001
Revenue Accns %Accns PPA
$Million 000 to total $
--------- ------- -------- ------
Prior Genomic 167.7 1,393.1 1.9% 120.40
Add'l Genomic* 114.2 2,757.7 3.8% 41.42
Other Esoteric 226.6 5,575.8 7.8% 40.63
-------------- ------ -------- ------ ------
All Esoteric: 508.5 9,726.6 13.5% 52.28
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Core: 1,691.3 61,953.4 86.5% 27.30
Total: 2,199.8 71,680.0 100.0% 30.69
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YTD DEC 2002 02 vs 01
PPA
Revenue Accns %Accns PPA Incr/
$Million 000 to total $ (Decr)
--------- ------- --------- ------- ---------
Prior Genomic 205.9 1,773.3 2.2% 116.13 (3.5)%
Add'l Genomic* 132.0 3,214.9 4.1% 41.05 (0.9)%
Other Esoteric 245.4 5,873.3 7.4% 41.78 2.8%
-------------- ------- -------- ------ ------ ------
All Esoteric: 583.3 10,861.5 13.7% 53.70 2.7%
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Core: 1,924.4 68,217.0 86.3% 28.21 3.3%
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Total: 2,507.7 79,078.5 100.0% 31.71 3.3%
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* Includes identity testing and gene probes (chlamydia and gonorrhea)
Key Highlights
- Genomic testing revenues increased 20% year-over-year, 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
Expectations of Strategy
- Ensure long-term growth
- Shift toward higher priced tests and services
- Improve profitability
Financial Guidance for 2003
- Revenue growth of approximately 22% compared to 2002
- Adjusted EBITDA margins of approximately 24% of sales (including
EBITDA from Dynacare equity investments)
- EPS growth of approximately 22.5% compared to 2002
- Bad debt rate of approximately 8.4% of sales
- Free cash flow of approximately $380 to $400 million (net of
Cap Ex of approximately $90 million)
- Net interest expense of $35-$38 million
- A tax rate of approximately 41.5%
Opportunity for Investors
- Long-term industry trends appear favorable
- Visible growth drivers
- Low P/E relative to market valuations
- Significant free cash flow - multiple opportunities
to increase shareholder value
- Strong balance sheet - Investment Grate ratings (S&P,
Moody's)
- Solid growth potential driven by genomic strategy
Other Financial Information
December 31, 2002
($ in 000's)
Q1 02 Q2 02 Q3 02
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Depreciation $ 16,077.0 $ 17,142.0 $ 19,241.0
Amortization $ 5,106.0 $ 5,157.0 $ 6,150.0
Capital expenditures $ 18,367.0 $ 19,525.0 $ 17,002.0
Cash flows from operations $112,197.0 $ 93,148.0 $121,085.0
Bad debt as a percentage of sales 8.75% 8.75% 8.40%
Effective interest rate on debt 2.00% 2.00% 2.00%
Days sales outstanding 60 58 56
Other Financial Information
December 31, 2002
($ in 000's)
YTD
Q4 02 Dec-02
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Depreciation $ 20,580.0 $ 73,040.0
Amortization $ 7,403.0 $ 23,816.0
Capital expenditures $ 19,456.0 $ 74,350.0
Cash flows from operations $105,038.0 $431,468.0
Bad debt as a percentage of sales 8.42% 8.57%
Effective interest rate on debt 2.00% N/A
Days sales outstanding 54 54