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Laboratory Corp. of America Holdings Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: August 2, 2011 04:38PM
Laboratory Corp. of America Holdings (LH) filed Quarterly Report for the period ended 2011-06-30.
Highlight of Business Operations:
On October 28, 2010, in conjunction with the acquisition of Genzyme Genetics, the Company entered into a $925.0 bridge term loan credit agreement. The Company replaced and terminated the bridge term loan credit agreement in November 2010 by making an offering in the debt capital markets. On November 19, 2010, the Company sold $925.0 in debt securities, consisting of $325.0 aggregate principal amount of 3.125% Senior Notes due May 15, 2016 and $600.0 aggregate principal amount of 4.625% Senior Notes due November 15, 2020.
Operating results for the six months ended June 30, 2011 and 2010 were negatively impacted by severe winter weather primarily in the eastern and middle sections of the country during the first quarters of 2011 and 2010. The Company s testing facilities were not damaged by the severe winter weather; however, specimen volume was negatively impacted due to patients inability to visit doctors offices and patient service centers – the sources of the majority of testing volume. During the six months ended June 30, 2011 and 2010 inclement weather had an impact on the Company s results, reducing volume by an estimated 0.5 and 0.6, respectively, and reducing revenue by an estimated $22.0 and $23.0, respectively.
The increase in net sales for the three months ended June 30, 2011 as compared with the corresponding 2010 period was driven primarily by incremental revenue from recent acquisitions including Genzyme Genetics (8% of growth in revenue and 6.4% of growth in revenue per requisition), the Company s organic volume growth and continued shift in test mix to higher priced genomic and esoteric tests along with growth in revenue per requisition for such testing, and increases in the Canadian exchange rate. Genomic and esoteric testing volume as a percentage of total volume increased from 22.9% in 2010 to 23.9% in 2011. Revenue per requisition and volume growth for genomic and esoteric testing was primarily due to the incremental revenue and volume from Genzyme Genetics. Net sales of the Ontario joint venture were $80.8 for the three months ended June 30, 2011 compared to $71.1 in the corresponding 2010 period, an increase of $9.7, or 13.6%. Net sales of the Ontario joint venture were impacted by a weaker U.S. dollar in 2011 as compared with 2010. In Canadian dollars, net sales of the Ontario joint venture increased by CN$5.0, or 6.8%.
Selling, general and administrative (“SG&A”) expenses as a percentage of net sales increased to 23.0% in the second quarter of 2011 compared to 19.8% in 2010. The increase in SG&A as a percentage of net sales is primarily due to the recently announced settlement of the Hunter Labs litigation in California for $34.5 ($49.5 settlement less previously recorded reserves of $15.0), $1.1 in legal costs associated with the planned acquisition of Orchid Cellmark, and expenses from recently acquired operations that have not been fully integrated into the Company s operating cost structure as of June 30, 2011. As an offset to the increase in SG&A as a percentage of net sales, bad debt expense decreased to 4.7% of net sales in 2011 as compared with 4.8% in 2010 primarily due to improved collection trends resulting from process improvement programs within the Company s billing department and field operations.
During the second quarter of 2011, the Company recorded net restructuring charges of $11.1. Of this amount, $9.3 related to severance and other personnel costs, and $4.0 primarily related to facility-related costs associated with the ongoing integration of the Genzyme Genetics andWestcliff acquisitions. These charges were offset by a restructuring credit of $2.2 resulting from the reversal of unused severance and facility closure liabilities. These restructuring initiatives are expected to provide annualized cost savings of approximately $35.2. In addition, the Company recorded fixed assets impairment charges of $7.2 primarily related to equipment and leasehold improvements in closed facilities.
The increase in interest expense was primarily due to interest incurred during 2011 in connection with proceeds from the senior notes offering of $925.0 in November 2010. Other interest related costs decreased due to lower average borrowings outstanding in the second quarter of 2011 as compared with the 2010 period primarily due to principal payments on the Term Loan Facility and the settlement of approximately $149.1 of the zero-coupon subordinated notes in the first six months of 2011. In addition, the effective interest rate on the Term Loan Facility was lower in 2011 as compared with the 2010 period due to the expiration of the interest rate swap on March 31, 2011.
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