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 30, 2002,
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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 October 30, 2002.
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 30, 2002
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.
Laboratory Testing Overview
- 3-4% of health care spending
- Influences/directs 80% of health care spending
- Growing market
- Role and importance of testing are increasing
LabCorp's Industry-leading Financial Indicators
- EBITDA Percentage of Sales: 22.3% in Q3
- Strong Balance Sheet
- Investment Grade Credit Rating
The Clinical Laboratory Testing Market
US market is approximately $34-36 billion
CLINICAL LABORATORY TESTING INDEPENDENT CLINICAL LABORATORIES
Hospitals 49% All others 82%
Independent Clinical Labs 39% LabCorp($2.44b) 18%
Physician Offices 12%
Source: Company estimates, industry reports & 2001YE revenue
for LabCorp and Dynacare
MAP OF COMBINED TESTING LOCATIONS & PSC's (Includes Dynacare)
LabCorp's Strategy
Expand leadership position in genomic testing by utilizing our
national infrastructure (anchored by core testing) to offer a
broad menu of genomic tests
Strategic Approach
1) Develop/Be First to Offer New Tests (Internal/External)
- HER2/neu
- HPV
- HIV/HCV
- Cystic fibrosis
2) License New Tests and Methods
- Celera (breast and prostate cancer, Alzheimer's)
- EXACT Sciences (colon cancer)
- Myriad Genetics (breast, ovarian cancer)
- VIRCO (HIV phenotyping)
3) Acquisitions
- National Genetics Institute (plasma testing, clinical studies)
- ViroMed (lyme disease, West Nile virus)
Expectations from Strategy
- Ensure long-term growth
- Shift toward higher priced tests and services
- Volumes are lower, profitability higher
- Must understand volume versus price relationship (balance)
Financial Performance
Price & Volumes: Trends by Payor Type
2000 2001 YTD SEPT 2002
PPA Accessions PPA Accessions PPA Accessions
----- ---------- ---- ---------- ---- -----------
$ millions $ millions $ millions
----------------- ---------------- -----------------
Client (Physicians) 22.70 27.1 24.46 27.9 25.99 22.2
Patient 102.87 2.2 111.28 2.5 119.00 1.7
Third Party 29.80 10.3 31.59 12.2 32.49 10.7
(MC/MD/Insurance)
Managed Care
- Capitated 8.89 10.6 8.90 11.9 9.28 9.6
- Fee for service 42.32 16.0 43.45 17.2 44.72 14.4
------ ---- ------ ---- ------ ----
Total 28.97 26.6 29.27 29.1 30.52 24.0
------ ---- ------ ---- ------ ----
LabCorp Total $28.98 66.2 $30.69 71.7 $31.71 58.6
====== ==== ====== ==== ====== ====
Financial Performance
Revenue Analysis by Business Area
YTD SEPT 2001
Revenue Accns %Accns PPA
$Million 000 to total $
--------- ------- -------- ------
Prior Genomic 123.9 1,029.6 1.9% 120.38
Add'l Genomic* 83.6 2,009.5 3.8% 41.63
Other Esoteric 166.5 4,158.0 7.8% 40.04
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All Esoteric: 374.0 7,197.1 13.5% 51.98
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Core: 1,262.0 46,336.3 86.5% 27.23
Total: 1,636.0 53,533.4 100.0% 30.56
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YTD SEPT 2002 02 vs 01
PPA
Revenue Accns %Accns PPA Incr/
$Million 000 to total $ (Decr)
--------- ------ --------- ------- ---------
Prior Genomic 148.8 1,304.0 2.2% 114.13 (5.2)%
Add'l Genomic* 96.4 2,389.3 4.1% 40.36 (3.0)%
Other Esoteric 183.3 4,434.1 7.6% 41.32 3.2%
-------------- ------- -------- ------ ------ ------
All Esoteric: 428.5 8,127.4 13.9% 52.72 1.4%
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Core: 1,429.1 50,451.5 86.1% 28.33 4.0%
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Total: 1,857.6 58,578.9 100.0% 31.71 3.8%
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* Includes identity testing and gene probes (chlamydia and gonorrhea)
Third Quarter Operating Results
($ in millions)
9/30/01 9/30/02
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Revenue 560.9 655.2
Operating Expense 460.6 541.5
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Operating Income 100.3 113.7
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Margin 17.9% 17.4%
EBITDA 125.3 145.9
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Margin 22.3% 22.3%
Bad Debt % to revenue 9.00% 8.40%
DSO 62 56
1) Q3 02 results above exclude restructuring and other one-time
charges relating to the Dynacare transaction.
2002 Third Quarter Financial Achievements
- Increased revenues per day 15.0% (volume 11.4%; price 3.6%)
- EBITDA margins of 22.3%
- Increased diluted EPS 12.2%*
- Operating cash flow of $121.1 million
*Before special charges, compared to pro forma prior year EPS, after
the required change in goodwill accounting and special items.
Nine Month Operating Results
($ in millions)
YTD 9/01 YTD 9/02
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Revenue 1,636.0 1,857.6
Operating Expense 1,345.8 1,493.4
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Operating Income 290.2 364.2
-------- --------
Margin 17.7% 19.6%
EBITDA 363.8 439.9
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Margin 22.2% 23.7%
Bad Debt % to revenue 9.0% 8.4%
DSO 62 56
1) YTD 02 results above exclude restructuring and other one-time
charges relating to the Dynacare transaction.
2002 Nine Month Financial Achievements
- Increased revenues 13.5% (volume 9.5%; price 4.0%)
- EBITDA margins of 23.7%
- Increased diluted EPS 24.6%*
- Operating cash flow of $326.4 million
- DSO decline of 6 days from Sept 2001
*Before special charges, compared to pro forma prior year EPS,
after the required change in goodwill accounting and special items.
Quarterly DSO Trend
DSO Trend December '97 through September '02
December 1997 - 79 days September 2000 - 70 days
December 1998 - 83 days December 2000 - 68 days
March 1999 - 83 days March 2001 - 67 days
June 1999 - 79 days June 2001 - 64 days
September 1999 - 76 days September 2001 - 62 days
December 1999 - 74 days December 2001 - 58 days
March 2000 - 72 days March 2002 - 60 days
June 2000 - 70 days June 2002 - 58 days
September 2002 - 56 days
Recent Accomplishments
- Preferred provider contract with Premier
- Completed acquisition of Dynacare and Immunodiagnostic
Laboratories (N. California)
- Established $150 million stock repurchase program
Financial Guidance for 2002*
- Revenue growth of approximately 14% compared to 2001
(approximately 10.5% volume and 3.5% price)
- Adjusted EBITDA margins of approximately 22.5% of sales (including
EBITDA from Dynacare equity investments)
- EPS of approximately $1.83
- Bad debt rate of approximately 8.4% of sales in the fourth quarter
- Free cash flow of approximately $350 million (net of Cap Ex of
approximately $85 million)
- Net interest expense of $15.5 million
- A tax rate of approximately 41.5% in the fourth quarter
*Including the impact of Dynacare, but not including restructuring charges
related to that acquisition
Preliminary Financial Guidance for 2003
- Increase overall revenues by approximately 13% to 14% compared to 2002
- EPS growth of approximately 20% compared to 2002
Opportunity for Investors
- Long-term industry trends appear favorable
- Visible growth drivers
- Low P/E relative to market valuations
- Significant free cash flow - multiple opportunities
to increase shareholder value
- Solid growth potential driven by genomic strategy
Other Financial Information
September 30, 2002
($ in millions)
YTD
Q1 02 Q2 02 Q3 02 Sept-02
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Depreciation $ 16.1 $ 17.1 $ 19.2 $ 52.4
Amortization $ 5.1 $ 5.2 $ 6.1 $ 16.4
Capital expenditures $ 18.4 $ 19.5 $ 17.0 $ 54.9
Cash flows from operations $112.2 $ 93.1 $121.1 $326.4
Bad debt as a percentage of sales 8.75% 8.75% 8.40% 8.63%
Effective interest rate on debt 2.00% 2.00% 2.00% N/A
Days sales outstanding 60 58 56 56