- Q3 Net revenue of $2.4 billion, up 5%
over last year
- Q3 Diluted EPS of $1.71, up 14% over
last year
- Q3 Adjusted EPS of $2.25, up 9% over
last year
- 2016 Adjusted EPS guidance updated to
$8.70 - $8.90, up 10% to 13% over 2015 Adjusted EPS
Laboratory Corporation of America® Holdings (LabCorp®) (NYSE:
LH) today announced results for the quarter ended September 30,
2016.
“The Company delivered another quarter of solid revenue and
adjusted EPS growth, despite some headwinds,” said David P. King,
chairman and chief executive officer. “We continued to execute on
our strategy to deliver world class diagnostics, bring innovative
medicines to patients faster and change the way care is provided.
We remain confident in our outlook for the balance of the year and
our positioning for long-term profitable growth, as we deliver
proprietary solutions that address our customers’ greatest needs,
and improve the health and lives of patients around the globe."
Consolidated Results
Third Quarter Results
Net revenue for the quarter was $2.37 billion, an increase of
4.5% over last year’s $2.27 billion. The increase in net revenue
was due to organic growth and acquisitions, partially offset by the
negative impact of foreign currency translation of approximately 50
basis points. Organic revenue growth in the quarter, excluding the
impact of currency, was 3.6%.
Operating income for the quarter was $324.0 million, or 13.7% of
net revenue, compared to $308.1 million, or 13.6%, in the third
quarter of 2015. The increase in operating income and margin were
primarily due to price, mix, the Company’s LaunchPad business
process improvement initiative and cost synergies related to the
acquisition of Covance, partially offset by personnel costs. The
Company recorded restructuring charges and special items of $38.9
million in the quarter, compared to $31.2 million during the same
period in 2015. Adjusted operating income (excluding amortization
of $41.1 million, restructuring and special items) for the quarter
was $404.0 million, or 17.0% of net revenue, compared to $384.2
million, or 16.9%, in the third quarter of 2015.
Net earnings in the quarter were $179.5 million, compared to
$154.7 million in the third quarter of 2015. Diluted EPS were $1.71
in the quarter, an increase of 14.0% compared to $1.50 last year.
Adjusted EPS (excluding amortization, restructuring and special
items) were $2.25 in the quarter, an increase of 8.7% compared to
$2.07 in the third quarter of 2015. The Company’s results in the
quarter included two special items -- a benefit of $0.02 per
diluted share from the early adoption in the third quarter of the
new FASB pronouncement relating to tax benefits of stock
compensation, and a loss of $0.02 per diluted share from the
impairment of an investment in its venture fund. In addition, the
Company incurred a loss of $0.01 per diluted share in the quarter
from the acquisition of Sequenom, which closed on September 7,
2016.
Operating cash flow for the quarter was $249.9 million, compared
to $288.0 million last year. The decline in operating cash flow was
primarily due to fees tied to the acquisition of Sequenom, and
greater working capital requirements, including an advance payment
as part of an exclusive strategic alliance that enhanced the global
specimen tracking and data management solutions of the Company’s
central laboratory business. Capital expenditures totaled $66.2
million, compared to $67.8 million in the third quarter of 2015. As
a result, free cash flow (operating cash flow less capital
expenditures) was $183.7 million, compared to $220.2 million in the
third quarter of 2015.
At the end of the quarter, the Company’s cash balance and total
debt were $567.6 million and approximately $6.2 billion,
respectively. During the quarter, the Company invested $252.7
million in acquisitions and acquired $130.0 million of debt from
the acquisition of Sequenom, which was retired in October.
Year-To-Date Results
The following year-to-date consolidated results of the Company
include Covance as of February 19, 2015; prior to February 19,
2015, the consolidated results exclude Covance.
Net revenue was $7.05 billion, an increase of 12.6% over last
year’s $6.26 billion. The increase was primarily due to the
inclusion of Covance’s financial results for the entire first nine
months of the year as well as solid organic growth and
acquisitions, partially offset by the negative impact of foreign
currency translation.
Operating income was $989.0 million, or 14.0% of net revenue,
compared to $760.3 million, or 12.1%, in the first nine months of
2015. The increase in operating income and margin were primarily
due to strong revenue growth, and a decline in restructuring
charges and special items (costs primarily associated with the
acquisition of Covance), partially offset by personnel costs. The
Company recorded restructuring charges and special items of $82.7
million in the first nine months of 2016, compared to $193.1
million during the same period in 2015. Adjusted operating income
(excluding amortization of $130.7 million, restructuring and
special items) was $1.2 billion, or 17.1% of net revenue, compared
to $1.1 billion, or 17.2%, in the first nine months of 2015.
Net earnings in the first nine months of 2016 were $547.7
million, or $5.25 per diluted share, compared to $327.6 million, or
$3.29 per diluted share, last year. Adjusted EPS (excluding
amortization, restructuring and special items) were $6.67, compared
to $5.94 in the first nine months of 2015. The Company’s
year-to-date results included a benefit of $0.11 per diluted share
from the early adoption of the new FASB pronouncement relating to
tax benefits of stock compensation, and a net gain of $0.03 per
diluted share from its venture fund.
Operating cash flow was $727.0 million, compared to $597.8
million in the first nine months of 2015. The Company’s operating
cash flow was negatively impacted by $153.5 million last year due
to non-recurring items relating to the acquisition of Covance.
Excluding these items, operating cash flow was $751.3 million last
year. Capital expenditures totaled $204.6 million, compared to
$170.7 million in the first nine months of 2015. As a result, free
cash flow (operating cash flow less capital expenditures) was
$522.4 million, compared to $427.1 million in the first nine months
of 2015. Excluding non-recurring items, free cash flow was $580.6
million during the first nine months of 2015.
***
The following segment results exclude amortization,
restructuring, special items and unallocated corporate expenses.
Reconciliations of segment results to historically reported results
are included in the Condensed Pro Forma Segment Information tables
and notes.
Segment Results
LabCorp Diagnostics
Net revenue for the quarter was $1.67 billion, an increase of
4.4% over last year’s $1.60 billion. The increase in net revenue
was the result of price, mix and acquisitions, partially offset by
organic volume (measured by requisitions) and the negative impact
of foreign currency translation of 0.1%. Total volume (measured by
requisitions) increased 0.3% year over year, as organic volume
declined 0.3% and acquisition volume increased 0.6%. Revenue per
requisition increased by 4.2%.
Adjusted operating income (excluding amortization, restructuring
and special items) for the quarter was $341.8 million, or 20.4% of
net revenue, compared to $318.5 million, or 19.9%, in the third
quarter of 2015. The increase was primarily due to price, mix, the
LaunchPad initiative and acquisitions, partially offset by
personnel costs. LaunchPad remains on track to deliver net savings
of $150 million through the three-year period ending in 2017.
Covance Drug Development
Net revenue for the quarter was $701.1 million, an increase of
4.8% over last year’s $669.0 million. The increase in net revenue
was primarily due to broad-based demand, partially offset by the
negative impact of foreign currency translation of approximately
150 basis points. Excluding the impact from currency and the
expiration of the Sanofi site support agreement, net revenue
increased 9.5% year over year.
Adjusted operating income (excluding amortization, restructuring
and special items) was $95.5 million, or 13.6% of net revenue,
compared to $96.9 million, or 14.5%, in the third quarter of 2015.
The decline was primarily due to the expiration of the Sanofi site
support agreement, an unusually high level of rework in the
clinical business, and personnel costs, including investments in
clinical research associates (CRAs) and the sales force, partially
offset by demand and cost synergies. The Company remains on track
to deliver cost synergies of $100 million related to the
acquisition of Covance through the three-year period ending in
2017.
During the quarter, net orders (gross orders less cancellations
and reductions) were $755 million, representing a net book-to-bill
of 1.08, and a trailing twelve month net book-to-bill of 1.14.
Outlook for 2016
The following updated guidance assumes foreign exchange rates
effective as of September 30, 2016 for the remainder of the
year:
- Net revenue growth of 10.0% to 11.0%
over 2015 net revenue of $8.51 billion, which includes the impact
from approximately 60 basis points of negative currency. This is an
increase from prior guidance of 9.5% to 10.5%, primarily due to the
acquisition of Sequenom.
- Net revenue growth in LabCorp
Diagnostics of 5.0% to 6.0% over 2015 pro forma revenue of $6.21
billion, which includes the impact from approximately 30 basis
points of negative currency. This is an increase from prior
guidance of 4.5% to 5.5%, primarily due to the acquisition of
Sequenom.
- Net revenue growth in Covance Drug
Development of 7.5% to 9.0% over 2015 pro forma revenue of $2.63
billion, which includes the impact from approximately 110 basis
points of negative currency. This is an update from prior guidance
of 7.0% to 9.0%. Excluding the impact from currency and the
expiration of the Sanofi site support agreement, net revenue is
expected to increase 11.2% to 12.7%.
- Adjusted EPS of $8.70 to $8.90, versus
prior guidance of $8.60 to $8.95, and as compared to $7.91 last
year.
- Free cash flow (operating cash flow
less capital expenditures) of $840 million to $880 million, an
increase of approximately 17% to 24% over the prior year. This is
an update from prior guidance of $900 million to $950 million.
Use of Adjusted Measures
The Company has provided in this press release and accompanying
tables “adjusted” financial information that has not been prepared
in accordance with GAAP, including Adjusted EPS, Adjusted Operating
Income, and Free Cash Flow. The Company believes these adjusted
measures are useful to investors as a supplement to, but not as a
substitute for, GAAP measures, in evaluating the Company’s
operational performance. The Company further believes that the use
of these non-GAAP financial measures provides an additional tool
for investors in evaluating operating results and trends, and
growth and shareholder returns, as well as in comparing the
Company’s financial results with the financial results of other
companies. However, the Company notes that these adjusted measures
may be different from and not directly comparable to the measures
presented by other companies. Reconciliations of these non-GAAP
measures to the most comparable GAAP measures are included in the
tables accompanying this press release.
The Company today is furnishing its Current Report on Form 8-K
that will include additional information on its business and
operations. This information will also be available on the
Company's website at www.labcorp.com. Analysts and investors are
directed to the Current Report on Form 8-K and the website to
review this supplemental information.
A conference call discussing LabCorp's quarterly results will be
held today at 9:00 a.m. Eastern Time and is available by dialing
844-634-1444 (615-247-0253 for international callers). The access
code is 82511466. A telephone replay of the call will be available
through November 2, 2016 and can be heard by dialing 855-859-2056
(404-537-3406 for international callers). The access code for the
replay is 82511466. A live online broadcast of LabCorp’s quarterly
conference call on October 26, 2016 will be available at
http://www.labcorp.com/ or at http://www.streetevents.com/
beginning at 9:00 a.m. Eastern Time. This webcast will be archived
and accessible continuing through November 25, 2016.
About LabCorp®
Laboratory Corporation of America® Holdings (NYSE: LH), an
S&P 500 company, is the world’s leading healthcare diagnostics
company, providing comprehensive clinical laboratory and end-to-end
drug development services. With a mission to improve health and
improve lives, LabCorp delivers world-class diagnostic solutions,
brings innovative medicines to patients faster and develops
technology-enabled solutions to change the way care is provided.
With net revenue in excess of $8.5 billion in 2015, LabCorp’s
50,000 employees serve clients in 60 countries. To learn more about
LabCorp visit www.labcorp.com and to learn more about Covance Drug
Development visit www.covance.com.
This press release contains forward-looking statements including
with respect to estimated 2016 guidance and the impact of various
factors on operating results. Each of the forward-looking
statements is subject to change based on various important factors,
including without limitation, competitive actions in the
marketplace, adverse actions of governmental and other third-party
payers and the results from the Company’s acquisition of Covance.
Actual results could differ materially from those suggested by
these forward-looking statements. Further information on potential
factors that could affect LabCorp’s operating and financial results
is included in the Company’s Form 10-K for the year ended December
31, 2015, including in each case under the heading risk factors,
and in the Company’s other filings with the SEC, as well as in the
risk factors included in Covance’s filings with the SEC. The
information in this press release should be read in conjunction
with a review of the Company’s filings with the SEC including the
information in the Company’s Form 10-K for the year ended December
31, 2015, and subsequent Forms 10-Q, under the heading MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
LABORATORY CORPORATION OF AMERICA HOLDINGS AND
SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Millions, except per share
data)
For the Three Months Ended
For the Nine Months Ended September 30 September 30
2016 2015 2016 2015 Net revenues
$ 2,372.7 $ 2,269.9 $ 7,049.9 $ 6,260.9 Reimbursable out-of-pocket
expenses 42.0 47.4 163.5
118.7 Total revenues 2,414.7 2,317.3 7,213.4 6,379.6
Net cost of revenues 1,584.3 1,505.0 4,657.4 4,098.2
Reimbursable out-of-pocket expenses 42.0 47.4
163.5 118.7 Total cost of
revenues 1,626.3 1,552.4 4,820.9 4,216.9 Gross profit 788.4
764.9 2,392.5 2,162.7 Selling, general and administrative
expenses 400.5 385.6 1,224.2 1,221.9 Amortization of intangibles
and other assets 41.1 44.9 130.7 120.6 Restructuring and other
special charges 22.8 26.3 48.6
59.9 Operating income 324.0 308.1 989.0
760.3 Other income (expense): Interest expense (58.2 ) (55.9
) (166.2 ) (218.1 ) Equity method income, net 2.6 2.0 5.9 7.6
Investment income 0.6 0.5 1.5 1.4 Other, net (5.6 )
(3.2 ) (1.3 ) (4.4 ) Earnings before income
taxes 263.4 251.5 828.9 546.8 Provision for income taxes
83.6 96.5 280.3
218.3 Net earnings 179.8 155.0 548.6 328.5
Less: Net earnings attributable to the
noncontrolling interest
(0.3 ) (0.3 ) (0.9 ) (0.9 )
Net earnings attributable to Laboratory
Corporation of America Holdings
$ 179.5 $ 154.7 $ 547.7 $ 327.6
Basic earnings per common share $ 1.74 $ 1.53
$ 5.36 $ 3.35 Diluted earnings per common
share $ 1.71 $ 1.50 $ 5.25 $ 3.29
Weighted average basic shares outstanding 102.9 101.1
102.3 97.9 Weighted average diluted shares outstanding 104.9
102.9 104.2 99.7
LABORATORY CORPORATION OF AMERICA
HOLDINGS AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(Dollars in Millions, except per share
data)
September 30,
December 31, 2016 2015 ASSETS
Current assets: Cash and cash equivalents $ 567.6 $ 716.4
Accounts receivable, net of allowance for
doubtful accounts of $250.8 and $217.0 at September 30, 2016 and
December 31, 2015, respectively
1,346.6 1,217.9 Unbilled services 216.3 156.6 Supplies inventory
198.8 191.0 Prepaid expenses and other 325.6
339.3 Total current assets 2,654.9 2,621.2 Property,
plant and equipment, net 1,730.6 1,747.4 Goodwill 6,389.0 6,166.3
Intangible assets, net 3,457.2 3,332.4 Joint venture partnerships
and equity method investments 60.4 58.2 Deferred income tax assets
1.9 2.3 Other assets, net 189.0 150.0
Total assets $ 14,483.0 $ 14,077.8
LIABILITIES AND SHAREHOLDERS' EQUITY Current
liabilities: Accounts payable $ 454.8 $ 497.4 Accrued expenses and
other 589.7 633.1 Unearned revenue 169.5 146.1 Current portion of
long-term debt 698.2 423.9 Total
current liabilities 1,912.2 1,700.5 Long-term debt, less
current portion 5,473.2 5,940.3 Deferred income taxes and other tax
liabilities 1,227.9 1,235.0 Other liabilities 330.7
323.1 Total liabilities 8,944.0
9,198.9 Commitments and contingent liabilities - -
Noncontrolling interest 15.6 14.9 Shareholders' equity:
Common stock 12.1 12.0 Additional paid-in capital 2,130.3 1,974.5
Retained earnings 4,770.7 4,223.0 Less common stock held in
treasury (1,011.7 ) (978.1 ) Accumulated other comprehensive income
(378.0 ) (367.4 ) Total shareholders' equity
5,523.4 4,864.0 Total liabilities and
shareholders' equity $ 14,483.0 $ 14,077.8
LABORATORY CORPORATION OF AMERICA HOLDINGS AND
SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
For the
For the For the
For the Three Months Ended Three Months
Ended Nine Months Ended Nine Months Ended
September 30, September 30, September 30,
September 30, 2016 2015 2016
2015 CASH FLOWS FROM OPERATING ACTIVITIES: Net
earnings $ 179.8 $ 154.9 $ 548.6 $ 328.5
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 121.1 119.0 368.9 338.9 Stock
compensation 24.3 23.7 81.9 77.7 Gain on sale of assets 5.6 3.0
(2.3 ) 2.9 Accreted interest on zero-coupon subordinated notes 0.4
0.5 1.3 1.5
Cumulative earnings less than (in excess
of) distributions from equity affiliates
0.3 0.8 0.4 (1.8 ) Asset impairment - - - 14.8 Deferred income
taxes (38.1 ) (11.1 ) 5.2 (16.0 ) Change in assets and liabilities:
(Increase) decrease in accounts receivable, net (9.6 ) (36.1 )
(109.2 ) (89.9 ) (Increase) decrease in unbilled services (9.3 )
1.7 (59.7 ) (23.0 ) (Increase) decrease in inventories (5.4 ) 0.1
(4.8 ) 9.6 (Increase) decrease in prepaid expenses and other (22.9
) 8.6 (19.5 ) 23.5 (Decrease) increase in accounts payable (2.0 )
9.5 (56.3 ) (24.3 ) (Decrease) increase in deferred revenue (9.3 )
(0.9 ) 23.4 1.7 (Decrease) increase in accrued expenses and other
15.0 14.3 (50.9 ) (46.3 )
Net cash provided by operating activities 249.9
288.0 727.0 597.8
CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures
(66.2 ) (67.8 ) (204.6 ) (170.7 ) Proceeds from sale of assets 2.6
- 23.9 0.5 Proceeds from sale of investments 0.8 - 13.5 8.0
Investments in equity affiliates (2.2 ) (6.6 ) (12.1 ) (11.4 )
Acquisitions of businesses, net of cash acquired (252.7 )
(8.3 ) (396.8 ) (3,692.7 ) Net cash
used for investing activities (317.7 ) (82.7 )
(576.1 ) (3,866.3 )
CASH FLOWS FROM FINANCING
ACTIVITIES: Proceeds from senior notes offerings - - - 2,900.0
Proceeds from term loan - - - 1,000.0 Payments on term loan -
(125.0 ) - (285.0 ) Proceeds from revolving credit facilities - - -
60.0 Payments on revolving credit facilities - - - (60.0 ) Proceeds
from bridge loan - - - 400.0 Payments on bridge loan - - - (400.0 )
Payments on senior notes - - (325.0 ) (250.0 ) Payments on
zero-coupon subordinated notes (17.8 ) - (31.5 ) - Debt issuance
costs - - - (36.7 ) Payments on long-term lease obligations (2.9 )
(1.1 ) (5.9 ) (3.3 ) Noncontrolling interest distributions (0.1 ) -
(1.7 ) - Deferred acquisition costs 0.9 - (4.9 ) (0.1 ) Tax benefit
adjustments related to stock based compensation - 6.2 - 10.1 Net
proceeds from issuance of stock to employees 26.6
33.2 67.3 89.2 Net
cash (used for) provided by financing activities 6.7
(86.7 ) (301.7 ) 3,424.2 Effect
of exchange rate changes on cash and cash equivalents (10.9
) (24.6 ) 2.0 (22.7 ) Net
(decrease) increase in cash and cash equivalents (72.0 ) 94.0
(148.8 ) 133.0 Cash and cash equivalents at beginning of period
639.6 619.0 716.4
580.0 Cash and cash equivalents at end of period $
567.6 $ 713.0 $ 567.6 $ 713.0
LABORATORY CORPORATION OF AMERICA HOLDINGS
Condensed Combined Non-GAAP Pro Forma Segment Information
(in millions)
Three Months Ended September
30,
Nine Months Ended September
30,
2016 2015 2016
2015
LabCorp
Diagnostics
Net Revenue $ 1,671.8 $ 1,600.9 $ 4,922.1 $ 4,659.2 Adjusted
Operating Income $ 341.8 $ 318.5 $ 1,005.1 $ 942.0 Adjusted
Operating Margin 20.4 % 19.9 % 20.4 % 20.2 %
Covance Drug
Development
Net Revenue $ 701.1 $ 669.0 $ 2,126.6 $ 1,937.3 Adjusted
Operating Income $ 95.5 $ 96.9 $ 306.2 $ 260.9 Adjusted Operating
Margin 13.6 % 14.5 % 14.4 % 13.5 %
Consolidated
Net Revenue $ 2,372.7 $ 2,269.9 $ 7,048.2 $ 6,596.5 Adjusted
Segment Operating Income $ 437.3 $ 415.4 $ 1,311.3 $ 1,202.9
Unallocated corporate expense $ (33.3 ) $ (31.2 ) $ (108.9 ) $
(98.5 ) Consolidated Adjusted Operating Income $ 404.0 $ 384.2 $
1,202.4 $ 1,104.4 Adjusted Operating Margin 17.0 % 16.9 % 17.1 %
16.7 %
The Condensed Combined Non-GAAP Pro Forma Segment Information
includes operational information for Covance prior to the
acquisition by the Company, including the period from January 1,
2015 through February 19, 2015. The Covance Drug Development
segment amounts as well as the consolidated amounts are non-GAAP
measures. The Consolidated Net Revenue and Adjusted Segment
Operating Income are presented net of inter-segment transaction
eliminations. See the subsequent footnotes for discussion of the
adjustments made for presentation purposes.
Q3 2016 Notes to Condensed Combined
Non-GAAP Pro Forma Segment Information
1) The Condensed Combined Non-GAAP Pro Forma
Segment Information for the periods ended September 30, 2016 and
2015 is presented for the sole purpose of helping the reader
understand the segment presentation of the Company for the periods
ended September 30, 2016 and 2015 as a direct result of its
acquisition of Covance on February 19, 2015. The Condensed Pro
Forma Segment Information has been prepared utilizing historical
Covance financial information for the period January 1, 2015 to
February 19, 2015, and does not reflect what the Company’s actual
results of operations were for the periods ended September 30,
2015, nor does it reflect all of the accounting entries that would
normally be presented in pro forma financial statements prepared in
accordance with the guidance contained in ASC 805-10-50 or
Regulation S-X Rule 10-1.
2) The LabCorp Diagnostics segment includes
historical LabCorp business units, excluding its clinical trials
operations (which are part of the Covance Drug Development
segment), and including the nutritional chemistry and food safety
operations acquired as part of the Covance acquisition. The Covance
Drug Development segment includes historical Covance business
units, excluding its nutritional chemistry and food safety
operations (which are part of the LabCorp Diagnostics segment), and
including the LabCorp clinical trials operations. Unallocated
corporate expenses represent general management and administrative
expenses that are incurred to support enterprise-wide initiatives.
The cost of all other corporate support functions is charged to the
specific operating segment as consumed.
3) The following table reconciles the
Company’s operating income that is expected to be reported in its
Quarterly Report on Form 10-Q for the three- and nine-month periods
ended September 30, 2016 and 2015, to total adjusted operating
income as presented below:
Three Months Ended September
30,
Nine Months Ended September
30,
(Dollars in Millions)
2016 2015
2016 2015
Operating loss of Covance Inc. for the
period January 1, 2015 through February 19, 2015, prepared on its
historical basis of accounting
$ - $ - $ - $ (24.2 ) Add-back restructuring costs and asset
impairments - - - 0.9 Acquisition-related costs - -
- 53.7
Covance Inc. - pre-acquisition adjusted
operating income, excluding amortization
$ - $ - $ - $ 30.4 LabCorp - operating income, as
reported $ 324.0 $ 308.1 $ 989.0 $ 760.3 Acquisition-related costs
7.7 1.4 15.1 118.0 Restructuring and other special charges 22.8
26.3 48.6 59.9 Consulting fees and executive transition expenses
3.4 3.5 7.9 15.2 Wind-down of minimum volume contract operations
1.3 - 4.0 - LaunchPad system implementation costs 3.7 - 7.1 -
Amortization of intangibles and other assets 41.1
44.9 130.7 120.6 LabCorp - adjusted operating
income $ 404.0 $ 384.2 $ 1,202.4 $ 1,074.0 Total
Condensed Combined Non-GAAP Pro Forma Adjusted
Operating Income, excluding amortization $ 404.0 $ 384.2 $
1,202.4 $ 1,104.4
The Reconciliation of Non-GAAP Financial Measures provided below
includes Covance as of February 19, 2015; prior to February 19,
2015, all results exclude Covance.
LABORATORY CORPORATION OF AMERICA HOLDINGS
Reconciliation of Non-GAAP Financial Measures (in
millions, except per share data)
Three Months Ended September
30,
Nine Months Ended September
30,
Adjusted
Operating Income
2016 2015 2016
2015 Operating Income $ 324.0 $ 308.1 $ 989.0 $ 760.3
Acquisition-related costs 7.7 1.4 15.1 118.0 Restructuring and
other special charges 22.8 26.3 48.6 59.9 Consulting fees and
executive transition expenses 3.4 3.5 7.9 15.2 Wind-down of minimum
volume contract operations 1.3 - 4.0 - LaunchPad system
implementation costs 3.7 - 7.1 - Amortization of intangibles and
other assets 41.1 44.9 130.7
120.6 Adjusted operating income $ 404.0
$ 384.2 $ 1,202.4 $ 1,074.0
Adjusted
EPS
Diluted earnings per common share $ 1.71 $ 1.50 $ 5.25 $ 3.29
Restructuring and special items 0.27 0.27 0.56 1.83 Amortization
expense 0.27 0.30 0.86
0.82 Adjusted EPS $ 2.25 $ 2.07 $ 6.67
$ 5.94
Free Cash
Flow:
Net cash provided by operating activities $ 249.9 $ 288.0 $ 727.0 $
597.8 Less: Capital expenditures (66.2 ) (67.8 )
(204.6 ) (170.7 ) Free cash flow $ 183.7 $
220.2 $ 522.4 $ 427.1
Free Cash Flow,
Excluding Acquisition Related Charges:
Net cash provided by operating activities $ 249.9 $ 288.0 $ 727.0 $
597.8 Add back: Acquisition related charges -
- - 153.5
Net cash provided by operating activities,
excluding acquisition related charges
$ 249.9 $ 288.0 $ 727.0 $ 751.3 Less: Capital expenditures
(66.2 ) (67.8 ) (204.6 ) (170.7 ) Free cash
flow, excluding acquisition related charges $ 183.7 $ 220.2
$ 522.4 $ 580.6
1) During the third quarter of 2016, the Company recorded net
restructuring and special items of $22.8 million. The charges
included $14.1 million in severance and other personnel costs along
with $9.1 million in facility-related costs associated with
facility closures and general integration initiatives. The Company
reversed previously established reserves of $0.2 million in unused
facility-related costs and $0.2 million in unused personnel costs.
The Company incurred $5.9 million in fees and expenses associated
with acquisitions completed during the quarter and incurred
additional legal and other costs of $1.3 million relating to the
wind-down of its minimum volume contract operations. The Company
also recorded $1.4 million in consulting expenses relating to fees
incurred as part of its Covance integration costs and compensation
analysis, along with $0.5 million in short-term equity retention
arrangements relating to the acquisition of Covance and $3.4
million of accelerated equity and other final compensation relating
to executive transition announced during the third quarter and
incurred $3.7 million of non-capitalized costs associated with the
implementation of a major system as part of its LaunchPad business
process improvement initiative (all recorded in selling, general
and administrative expenses). The Company also incurred $5.6
million of interest expense relating to the early retirement of
subsidiary indebtedness acquired as part of its recent acquisition
of Sequenom. The after tax impact of these charges decreased net
earnings for the quarter ended September 30, 2016, by $28.5 million
and diluted earnings per share by $0.27 ($28.5 million divided by
104.9 million shares).
During the first two quarters of 2016, the Company recorded net
restructuring and other special charges of $25.8 million. The
charges included $9.0 million in severance and other personnel
costs along with $21.6 million in facility-related costs associated
with facility closures and general integration initiatives. The
Company reversed previously established reserves of $2.2 million in
unused facility-related costs and $2.6 million in unused severance
reserves. The Company incurred $1.5 million in fees and expenses
associated with completed acquisitions and incurred additional
legal and other costs of $2.7 million relating to the wind-down of
its minimum volume contract operations. The Company also recorded
$3.0 million in consulting expenses relating to fees incurred as
part of its Covance integration costs and compensation analysis,
along with $1.8 million in short-term equity retention arrangements
relating to the acquisition of Covance and $4.1 million of
accelerated equity compensation relating to the announced
retirement of a Company executive and incurred $4.8 million of
non-capitalized costs associated with the implementation of a major
system as part of its LaunchPad business process improvement
initiative (all recorded in selling, general and administrative
expenses). In conjunction with certain international legal entity
tax structuring, the Company recorded a one-time tax liability of
$1.1 million.
The after tax impact of these charges decreased net earnings for
the nine months ended September 30, 2016, by $58.1 million and
diluted earnings per share by $0.56 ($58.1 million divided by 104.2
million shares).
2) During the third quarter of 2015, the Company recorded net
restructuring and special items of $26.3 million. The charges
included $24.4 million in severance and other personnel costs along
with $2.2 million in facility-related costs associated with
facility closures and general integration initiatives. The Company
reversed previously established reserves of $0.3 million in unused
facility-related costs. The Company also recorded $3.5 million in
consulting expenses relating to fees incurred as part of its
Covance integration costs, along with $1.4 million in short-term
equity retention arrangements relating to the acquisition of
Covance (all recorded in selling, general and administrative
expenses). In addition, the Company recorded a non-cash loss of
$2.3 million, upon the dissolution of one of its equity investments
(recorded in other, net in the accompanying Consolidated Statements
of Operations). The after tax impact of these charges decreased net
earnings for the quarter ended September 30, 2015, by $27.7 million
and diluted earnings per share by $0.27 ($27.7 million divided by
102.9 million shares).
During the first two quarters of 2015, the Company recorded net
restructuring and other special charges of $33.5 million. The
charges included $9.5 million in severance and other personnel
costs along with $9.8 million in costs associated with facility
closures and general integration initiatives. The Company reversed
previously established reserves of $0.6 million in unused
facility-related costs. In addition, the Company recorded asset
impairments of $14.8 million relating to lab and customer service
applications that will no longer be used. The Company also recorded
$11.6 million of consulting expenses relating to fees incurred as
part of its LaunchPad business process improvement initiative as
well as Covance integration costs. In addition, the Company also
expensed $2.9 million in short-term equity retention arrangements
relating to the acquisition of Covance.
During the first quarter of 2015, the Company recorded $166.0
million of one-time costs associated with its acquisition of
Covance. The costs included $79.5 million of Covance employee
equity awards, change in control payments and short-term retention
arrangements that were accelerated or triggered by the acquisition
transaction (recorded in selling, general and administrative
expenses in the accompanying Consolidated Statements of
Operations). The acquisition costs also included advisor and legal
fees of $33.9 million (recorded in selling, general and
administrative expenses in the accompanying Consolidated Statements
of Operations), $15.2 million of deferred financing fees associated
with the Company’s bridge loan facility as well as a make-whole
payment of $37.4 million paid to call Covance’s private placement
debt outstanding at the purchase date (both amounts recorded in
interest expense in the accompanying Consolidated Statements of
Operations).
The after tax impact of these charges decreased net earnings for
the nine months ended September 30, 2015, by $182.5 million and
diluted earnings per share by $1.83 ($182.5 million divided by 99.7
million shares).
3) The Company continues to grow the business through
acquisitions and uses Adjusted EPS excluding amortization as a
measure of operational performance, growth and shareholder returns.
The Company believes adjusting EPS for amortization provides
investors with better insight into the operating performance of the
business. For the quarters ended September 30, 2016 and 2015,
intangible amortization was $41.1 million and $44.9 million,
respectively ($28.4 million and $31.3 million net of tax,
respectively) and decreased EPS by $0.27 ($28.4 million divided by
104.9 million shares) and $0.30 ($30.8 million divided by 102.9
million shares), respectively. For the nine months ended September
30, 2016 and 2015, intangible amortization was $130.7 million and
$120.6 million, respectively ($89.4 million and $81.9 million net
of tax, respectively) and decreased EPS by $0.86 ($89.4 million
divided by 104.2 million shares) and $0.82 ($81.9 million divided
by 99.7 million shares), respectively.
4) During the first quarter of 2015, the Company's operating
cash flows were reduced due to payment of $153.5 million in
acquisition-related charges. These payments were comprised of $75.5
million in legal and advisor fees, $40.6 million in accelerated
Covance employee equity awards, and $37.4 million in make-whole
payments triggered by calling Covance private placement notes
outstanding at the time of the transaction.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161026005810/en/
Laboratory Corporation of America® HoldingsInvestors:Paul
Surdez, 336-436-5076Investor@labcorp.comorMedia:Pattie Kushner,
336-436-8263Media@labcorp.com
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