UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2003
----------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-11353
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LABORATORY CORPORATION OF AMERICA HOLDINGS
- -------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3757370
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
358 SOUTH MAIN STREET, BURLINGTON, NORTH CAROLINA 27215
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(Address of principal executive offices) (Zip code)
(336) 229-1127
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
The number of shares outstanding of the issuer's common stock is
148,025,467 shares as of April 30, 2003.
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act. Yes X No
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INDEX
PART I. Financial Information
Item 1 Financial Statements:
Condensed Consolidated Balance Sheets (unaudited)
March 31, 2003 and December 31, 2002
Condensed Consolidated Statements of Operations (unaudited)
Three-months ended March 31, 2003 and 2002
Condensed Consolidated Statements of Changes in
Shareholders' Equity (unaudited)
Three months ended March 31, 2003 and 2002
Condensed Consolidated Statements of Cash Flows
(unaudited) Three months ended March 31, 2003 and 2002
Notes to Unaudited Condensed Consolidated Financial Statements
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3 Quantitative and Qualitative Disclosures about
Market Risk
Item 4 Controls and Procedures
PART II. OTHER INFORMATION
Item 1 Legal Proceedings
Item 6 Exhibits and Reports on Form 8-K
PART I - FINANCIAL INFORMATION
Item 1. Financial Information
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(Unaudited)
March 31, December 31,
2003 2002
------------ -------------
ASSETS
Current assets:
Cash and cash equivalents $ 50.0 $ 56.4
Accounts receivable, net 440.5 393.0
Supplies inventories 49.1 44.8
Prepaid expenses and other 26.9 33.8
Deferred income taxes 58.0 68.7
-------- --------
Total current assets 624.5 596.7
Property, plant and equipment, net 370.1 351.2
Goodwill 1,255.0 910.1
Identifiable intangible assets, net 577.7 307.4
Investments in equity affiliates 442.4 400.6
Other assets, net 33.7 26.0
-------- --------
$ 3,303.4 $ 2,592.0
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 99.1 $ 79.9
Accrued expenses and other 157.3 148.5
Current portion of long-term debt 0.4 0.4
-------- --------
Total current liabilities 256.8 228.8
Revolving credit facility 135.0 --
Zero coupon-subordinated notes 515.4 512.9
5 1/2% senior notes 350.0 --
Long-term debt, less current portion 2.6 3.1
Capital lease obligations 5.1 5.5
Other liabilities 353.3 230.0
Commitments and contingent liabilities -- --
Shareholders' equity:
Preferred stock, $0.10 par value; 30,000,000
shares authorized; shares issued: none -- --
Common stock, $0.10 par value; 265,000,000
shares authorized;148,048,800 and
147,839,103 shares issued and outstanding
at March 31, 2003 and December 31,
2002, respectively 14.8 14.8
Additional paid-in capital 1,421.1 1,406.5
Retained earnings 340.0 266.1
Treasury stock, at cost; 1,523,320 shares
and 97,426 shares at March 31, 2003 and
December 31, 2002, respectively (43.2) (4.4)
Unearned restricted stock compensation (36.9) (41.4)
Accumulated other comprehensive loss (10.6) (29.9)
-------- --------
Total shareholders' equity 1,685.2 1,611.7
-------- --------
$ 3,303.4 $ 2,592.0
======== ========
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(Unaudited)
Three Months Ended
March 31,
-------------------------
2003 2002
-------------------------
Net sales $ 712.2 $ 590.0
Cost of sales 415.7 331.6
-------- -------
Gross profit 296.5 258.4
Selling, general and
administrative expenses 163.3 136.9
Amortization of intangibles
and other assets 8.5 5.1
Operating income 124.7 116.4
Other income (expenses):
Interest income 2.3 0.8
Interest expense (11.4) (4.2)
Income from equity investments, net 9.8 --
Other (0.1) (0.6)
------ -------
Earnings before income taxes 125.3 112.4
Provision for income taxes 51.4 46.6
------- -------
Net earnings $ 73.9 $ 65.8
======= =======
Basic earnings per
common share $ 0.51 $ 0.47
======== ========
Diluted earnings per
common share $ 0.51 $ 0.46
======== ========
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(Unaudited)
Additional
Common Paid-in Retained Treasury
Stock Capital Earnings Stock
------- ---------- ------------- --------
PERIOD ENDED MARCH 31, 2002
Balance at beginning of year $ 14.2 $1,081.7 $ 11.5 $ --
Comprehensive earnings:
Net earnings -- -- 65.8 --
Other comprehensive loss:
Foreign currency translation
adjustments -- -- -- --
------ ------- ------- ------
Comprehensive earnings -- -- 65.8 --
Issuance of common stock -- 9.4 -- --
Issuance of restricted stock
awards -- 40.6 -- --
Amortization of unearned
restricted stock compensation -- -- -- --
Income tax benefit from stock
options exercised -- 13.1 -- --
Surrender of restricted stock
awards -- -- -- (4.4)
------ ------- ------- ------
BALANCE AT MARCH 31, 2002 $ 14.2 $1,144.8 $ 77.3 $ (4.4)
====== ======= ======= ======
PERIOD ENDED MARCH 31, 2003
Balance at beginning of year $ 14.8 $1,406.5 $ 266.1 $ (4.4)
Comprehensive earnings:
Net earnings -- -- 73.9 --
Other comprehensive loss:
Foreign currency translation
adjustments -- -- -- --
Tax effect of other comprehensive
loss adjustments -- -- -- --
------ ------- ------- ------
Comprehensive earnings -- -- 73.9 --
Issuance of common stock -- 3.7 -- --
Amortization of unearned
restricted stock compensation -- -- -- --
Income tax benefit from stock
options exercised -- 2.4 -- --
Surrender of restricted stock
awards -- -- -- (4.8)
Assumption of vested stock options -- 8.5 -- --
Purchase of common stock -- -- -- (34.0)
------ ------- ------- ------
BALANCE AT MARCH 31, 2003 $ 14.8 $1,421.1 $ 340.0 $ (43.2)
====== ======= ======= ======
(continued)
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(Unaudited)
Unearned Accumulated
Restricted Other Total
Stock Comprehensive Shareholders'
Compensation Loss Equity
------------ -------------- -------------
PERIOD ENDED MARCH 31, 2002
Balance at beginning of year $ (13.2) $ (8.8) $1,085.4
Comprehensive earnings:
Net earnings -- -- 65.8
Other comprehensive loss:
Foreign currency translation
adjustments -- -- --
------- ------- -------
Comprehensive earnings -- -- 65.8
Issuance of common stock -- -- 9.4
Issuance of restricted stock
awards (40.6) -- --
Amortization of unearned
restricted stock compensation 2.8 -- 2.8
Income tax benefit from stock
options exercised -- -- 13.1
Surrender of restricted stock
awards -- -- (4.4)
------- ------- -------
BALANCE AT MARCH 31, 2002 $ (51.0) $ (8.8) $1,172.1
======= ======= =======
PERIOD ENDED MARCH 31, 2003
Balance at beginning of year $ (41.4) $ (29.9) $1,611.7
Comprehensive earnings:
Net earnings -- -- 73.9
Other comprehensive loss:
Foreign currency translation
adjustments -- 32.2 32.2
Tax effect of other comprehensive
loss adjustments -- (12.9) (12.9)
------- ------- -------
Comprehensive earnings -- 19.3 93.2
Issuance of common stock -- -- 3.7
Amortization of unearned
restricted stock compensation 4.5 -- 4.5
Income tax benefit from stock
options exercised -- -- 2.4
Surrender of restricted stock
awards -- -- (4.8)
Assumption of vested stock options -- -- 8.5
Purchase of common stock -- -- (34.0)
------- ------- -------
BALANCE AT MARCH 31, 2003 $ (36.9) $ (10.6) $1,685.2
======= ======= =======
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(Unaudited)
Three Months Ended
March 31,
-------------------------
2003 2002
--------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 73.9 $ 65.8
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 33.1 22.3
Stock compensation 4.5 2.8
Loss on sale of assets -- 0.6
Accreted interest on zero coupon-
subordinated notes 2.6 2.5
Deferred income taxes 3.6 2.1
Change in assets and liabilities:
Increase in accounts receivable, net (17.2) (24.8)
Increase in inventories (2.1) (1.8)
Decrease in prepaid expenses and other 1.5 1.1
Increase in accounts payable 7.4 4.0
Increase in accrued expenses and other 29.0 37.8
Other, net (1.3) (0.2)
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Net cash provided by operating activities 135.0 112.2
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (16.2) (18.4)
Proceeds from sale of assets 0.5 0.4
Deferred payments on acquisitions (5.8) (3.6)
Proceeds from sale of marketable securities 50.4 --
Distributions from equity affiliates in
excess of cumulative earnings 1.9 --
Acquisition of businesses, net of
cash acquired (618.8) (2.3)
------ ------
Net cash used for investing activities (588.0) (23.9)
------ ------
(continued)
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(Unaudited)
Three Months Ended
March 31,
----------------------
2003 2002
----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bridge loan $ 350.0 $ --
Payments on bridge loan (350.0) --
Proceeds from revolving credit
facilities 250.0 --
Payments on revolving credit
facilities (115.0) --
Proceeds from senior note offering 350.0 --
Payments on other long-term debt (0.2) --
Termination of interest rate swap
agreements (0.2) --
Debt issuance costs (7.3) (1.6)
Payments on long-term lease obligations (0.4) (0.3)
Purchase of common stock (34.0) --
Net proceeds from issuance of stock to
employees 3.7 9.4
------- -------
Net cash provided by financing
activities 446.6 7.5
------- -------
Effect of exchange rate changes on cash
and cash equivalents -- --
------- -------
Net (decrease) increase in cash and
cash equivalents (6.4) 95.8
Cash and cash equivalents at
beginning of period 56.4 149.2
------- -------
Cash and cash equivalents at
end of period $ 50.0 $ 245.0
======= =======
Supplemental schedule of cash
flow information:
Cash paid during the period for:
Interest $ 1.9 $ 0.4
Income taxes, net of refunds 10.2 2.0
Disclosure of non-cash financing
and investing activities:
Issuance of restricted stock awards -- 40.6
Surrender of restricted stock awards 4.8 4.4
Assumption of vested stock options 8.5 --
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
The condensed consolidated financial statements include the accounts of
Laboratory Corporation of America Holdings and its wholly owned subsidiaries
(the "Company") after elimination of all material intercompany accounts and
transactions. On January 17, 2003, the Company completed the acquisition of
DIANON Systems, Inc., (DIANON) a leading U.S. provider of anatomic pathology
and oncology testing services. Disclosure of certain business combination
transactions is included in Notes 7 and 8 - Business Acquisitions. The
Company operates in one business segment.
The financial statements of the Company's foreign subsidiaries are
measured using the local currency as the functional currency. Assets and
liabilities are translated at exchange rates as of the balance sheet date.
Revenues and expenses are translated at average monthly exchange rates
prevailing during the period. Resulting translation adjustments are included
in "Accumulated Other Comprehensive Loss."
The accompanying condensed consolidated financial statements of the
Company are unaudited. In the opinion of management, all adjustments (which
include only normal recurring accruals) necessary for a fair presentation of
such financial statements have been included. Interim results are not
necessarily indicative of results for a full year.
The financial statements and notes are presented in accordance with the
rules and regulations of the Securities and Exchange Commission and do not
contain certain information included in the Company's annual report.
Therefore, the interim statements should be read in conjunction with the
consolidated financial statements and notes thereto contained in the Company's
annual report.
Certain amounts in the prior year's financial statements have been
reclassified to conform with the current year presentation.
2. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net earnings by the
weighted average number of common shares outstanding. Dilutive earnings per
share is computed by dividing net earnings by the weighted average number of
common shares outstanding plus potentially dilutive shares, as if they had been
issued at the beginning of the period presented. Potentially dilutive common
shares result primarily from the Company's restricted stock awards and
outstanding stock options.
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
The following represents a reconciliation of the weighted average shares
used in the calculation of basic and diluted earnings per share:
Three Months
Ended March 31,
--------------------------
2003 2002
--------------------------
Basic 145,864,065 139,913,568
Assumed conversion/exercise
of:
Stock options 303,968 896,937
Restricted stock awards 207,970 1,370,666
----------- -----------
Diluted 146,376,003 142,181,171
----------- -----------
The following table summarizes the potential common shares not included in the
computation of diluted earnings per share because their impact would have been
antidilutive:
March 31,
2003 2002
------------------------
Stock Options 4,933,210 861,354
Restricted Stock Awards 1,314,896 619,208
The Company's zero coupon-subordinated notes are contingently convertible
into 9,977,634 shares of common stock and are not currently included in the
diluted earnings per share calculation because these notes were not convertible
according to their terms during the period ended March 31, 2003.
3. STOCK COMPENSATION PLANS
During February 2003, the Company granted 1,532,500 options at a price of
$24.46 under its 2000 Stock Incentive Plan. During March 2003, the Company
granted 216,700 options at a price of $28.18 under its 2000 Stock Incentive
Plan.
The tax benefits associated with the exercise of non-qualified stock
options reduced taxes currently payable by $2.4 and $13.1 for the three months
ended March 31, 2003 and 2002, respectively. Such benefits are credited to
additional paid-in-capital.
On January 21, 2003, in connection with the acquisition of DIANON, the
Company filed a Form S-8 registering approximately 690,000 shares of the
Company's common stock under DIANON stock incentive plans.
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
The Company applies the provisions of APB Opinion No. 25 in accounting for
its stock compensation plan and, accordingly, no compensation cost has been
recognized for its stock compensation plans in the financial statements. Had
the Company determined compensation cost based on the fair value method as
defined in SFAS No. 123, and as amended by SFAS No. 148, "Accounting for Stock-
Based Compensation - Transition and Disclosure - an amendment of FASB Statement
No. 123", the impact on the Company's net earnings on a pro forma basis is
indicated below:
Three Months Ended
March 31,
------------------
2003 2002
------------------
Net earnings As reported $ 73.9 $ 65.8
Pro forma $ 67.4 60.6
Basic earnings per
common share As reported 0.51 0.47
Pro forma 0.46 0.43
Diluted earnings per
common share As reported 0.51 0.46
Pro forma 0.46 0.43
4. STOCK REPURCHASE PROGRAM
On October 22, 2002, the Company's Board of Directors authorized a stock
repurchase program under which the Company may purchase up to an aggregate of
$150.0 of its common stock from time-to-time. During the first quarter of
2003, the Company purchased approximately 1.2 million shares of its common
stock totaling $34.0 with cash flow from operations. It is the Company's
intention to fund future purchases of its common stock with cash flow from
operations.
5. SENIOR CREDIT FACILITIES
On January 14, 2003, the Company entered into a new $150.0 364-day
revolving credit facility with Credit Suisse First Boston, acting as
Administrative Agent, and a group of financial institutions to replace the
existing $100.0 364-day revolving credit facility. The $200.0 three-year
revolving credit facility was amended on January 14, 2003 and expires on
February 18, 2005. These credit facilities bear interest at varying rates
based upon the Company's credit rating with Standard & Poor's Ratings Services.
As of March 31, 2003, the effective interest rate on the revolving credit
agreements was 2.14%.
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
On January 17, 2003, in conjunction with the acquisition of DIANON, the
Company borrowed $350.0 under the DIANON Bridge Loan Agreement with Credit
Suisse First Boston, acting as Administrative Agent. On January 31, 2003, the
Company sold $350.0 aggregate principal amount of its 5 1/2% Senior Notes due
February 1, 2013. Proceeds from the issuance of these Notes ($345.1) together
with cash on hand was used to repay the $350.0 principal amount of the
Company's bridge loan facility, and as a result, the DIANON bridge loan was
terminated.
During the period ended March 31, 2003, the Company borrowed $250.0 under
its revolving credit agreements and had an outstanding balance of $135.0 as of
March 31, 2003.
6. DERIVATIVE FINANCIAL INSTRUMENTS
Interest rate swap agreements, which have been used by the Company from
time to time in the management of interest rate exposure, are accounted for on
an accrual basis. Amounts to be paid or received under such agreements are
recognized as interest expense in the periods in which they accrue.
Effective March 18, 2003, the Company entered into an interest rate swap
agreement with a major financial institution, solely to manage its interest
rate exposure on $175.0 of its 5 1/2% senior notes. These swaps require that
the financial institution pay a fixed rate amount in exchange for the Company
paying a floating rate amount. The notional amount of the agreement is used
to measure the interest to be paid or received and does not represent the
amount of exposure to credit loss. This agreement matures in February 2013.
With the execution of this swap agreement, the weighted-average effective
interest rate on the Company's 5 1/2% senior notes was 3.98% at March 31, 2003.
The fair value of the swap was not significant at March 31, 2003.
At January 1, 2003, the Company had cross currency and interest rate swap
agreements due January 15, 2006, whereby the Company swapped $85.5 Canadian
dollar denominated receivables due from certain of its subsidiaries for $58.9.
These same subsidiaries swapped in aggregate $85.5 Canadian dollar denominated
debt due to Dynacare for $58.9. These swap agreements were terminated during
March 2003, and resulted in the net payment of approximately $0.2.
The Company's zero coupon-subordinated notes contain the following three
features that are considered to be embedded derivative instruments under
FAS No. 133:
1) The Company will pay contingent cash interest on the zero coupon
subordinated notes after September 11, 2006, if the average market price of
the notes equals 120% or more of the sum of the issue price, accrued original
issue discount and contingent additional principal, if any, for a specified
measurement period.
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
2) Contingent additional principal will accrue on the zero coupon-subordinated
notes during the two-year period from September 11, 2004 to September 11, 2006,
if the Company's stock price is at or below specified thresholds.
3) Holders may surrender zero coupon-subordinated notes for conversion during
any period in which the rating assigned to the zero coupon-subordinated notes
by Standard & Poor's Ratings Services is BB- or lower.
Based upon independent appraisals, these embedded derivatives had no fair
value at March 31, 2003 and 2002.
7. BUSINESS ACQUISITION - DIANON SYSTEMS, INC.
On January 17, 2003, the Company completed the acquisition of all of the
outstanding shares of DIANON Systems, Inc. (DIANON) for $47.50 per share in
cash, or approximately $595.6 including transaction fees and expenses, and
converted approximately 390,000 vested DIANON employee stock options into
approximately 690,000 vested Company options valued at $8.5. The transaction
total of approximately $604.1 was funded by a combination of cash on hand,
borrowings under the Company's senior credit facilities and a bridge loan
facility.
DIANON is a leading provider of anatomic pathology and oncology testing
services in the U.S. and had 2001 revenues of approximately $125.7. DIANON had
approximately 1,100 employees at the closing date of the acquisition and
processed more than 8,000 samples per day in one main testing facility and four
regional labs.
The acquisition of DIANON was accounted for under the purchase method of
accounting. As such, the cost to acquire DIANON has been allocated to the
assets and liabilities acquired based on estimated fair values as of the
closing date. The consolidated financial statements include the results of
operations of DIANON subsequent to the closing of the acquisition.
The Company expects to finalize its recording of the DIANON purchase price
allocation by the end of the second quarter. The following table summarizes
the Company's preliminary purchase price allocation related to the acquisition
of DIANON based on the fair value of the assets acquired and liabilities
assumed on the acquisition date.
Fair Values
as of
January 17, 2003
-------------------
Current assets $ 87.7
Property, plant and equipment 28.3
Goodwill 349.1
Identifiable intangible assets 271.5
Other assets 3.0
-------
Total assets acquired 739.6
-------
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
Fair Values
as of
January 17, 2003
-------------------
Current liabilities $ 23.3
Other liabilities 112.2
-------
Total liabilities assumed 135.5
-------
Net assets acquired $ 604.1
=======
As a result of this acquisition, the Company recorded an addition to non-
deductible goodwill of approximately $349.1, an addition to customer lists of
approximately $227.8 (expected period of benefit of 30 years, non-deductible
for tax) and an addition to trade names of approximately $43.7 (expected period
of benefit of 15 years, non-deductible for tax).
The following unaudited pro forma combined financial information for the
three months ended March 31, 2003 and 2002 assumes that the DIANON and Dynacare
acquisitions which were closed by the Company on January 17, 2003 and July 25,
2002, respectively, were acquired on January 1, 2002:
Three Months Ended
March 31,
2003 2002
------------------
Net sales $ 720.2 $ 709.9
Net earnings 74.0 69.2
Diluted earnings per common share 0.51 0.47
The Company believes that the combined company is now in a position
nationally to offer to both primary care physicians and specialists such as
oncologists, urologists and gastroenterologists, the broadest range of leading-
edge anatomic, genomic and clinical testing technology for the large and
rapidly growing cancer diagnostic market.
8. BUSINESS ACQUISITIONS - OTHER
In March 2003, the Company purchased certain assets in Northern California
from Quest Diagnostics Incorporated for $4.5 in cash. The assets purchased
included the assignment of four contracts with independent physician
associations, as well as the leases for 46 patient service centers, five of
which also serve as rapid response laboratories, located throughout Northern
California.
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
9. GOODWILL AND INTANGIBLE ASSETS
The changes in the carrying amount of goodwill for the period ended March
31, 2003 and for the year ended December 31, 2002 are as follows:
March 31, 2003 December 31, 2002
-------------- -----------------
Balance as of January 1 $ 910.1 $ 719.3
Goodwill acquired during
the period 357.8 190.8
Adjustments to goodwill (12.9) --
-------- --------
Balance at end of period $ 1,255.0 $ 910.1
======== ========
The components of identifiable intangible assets are as follows:
March 31, 2003 December 31, 2002
----------------------- ------------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
----------------------- ------------------------
Customer lists $ 572.7 $ 97.1 $ 338.4 $ 90.8
Patents and
technology 55.2 7.2 55.2 6.0
Non-compete
agreements 22.1 16.5 21.3 16.1
Trade name 49.6 1.1 5.9 0.5
------- ------- ------- -------
$ 699.6 $ 121.9 $ 420.8 $ 113.4
======= ======= ======= =======
Amortization of intangible assets was $8.5 and $5.1 for the three-month
period ended March 31, 2003 and 2002, respectively. Amortization expense for
the net carrying amount of intangible assets is estimated to be $39.2 for the
remainder of fiscal 2003, $58.7 in fiscal 2004, $58.1 in fiscal 2005, $56.7 in
fiscal 2006, and $56.2 in fiscal 2007.
10. NEW ACCOUNTING PRONOUNCEMENTS
In January 2003, the FASB issued FASB Interpretation No. 46 (FIN No. 46),
"Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51."
FIN No. 46 requires certain variable interest entities to be consolidated by
the primary beneficiary of the entity if the equity investors in the entity do
not have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN No. 46 is
effective for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN No. 46 must be applied for the first
interim or annual period beginning after June 15, 2003. The Company does not
believe it has any unconsolidated variable interest entities, but has not fully
completed its evaluation.
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
In December 2002, Statement of Financial Accounting Standards ("SFAS") No.
148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an
amendment of FASB Statement No. 123", was issued. This Statement amends SFAS
No. 123 to provide alternative methods of transition for a voluntary change to
the fair-value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure requirements of
SFAS No. 123 to require disclosure in interim financial statements about the
method of accounting for stock-based employee compensation and the effect of
the method used on reported results. The Company does not intend to adopt a
fair-value based method of accounting for stock-based employee compensation at
this time and does not believe that SFAS No. 148 will have a material impact
on its consolidated financial statements.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." Interpretation No. 45 changes current
practice in accounting for and disclosure of guarantees and will require
certain guarantees to be recorded as liabilities at fair value on the balance
sheet. Current practice requires that liabilities related to guarantees be
recorded only when a loss is probable and reasonably estimable, as those terms
are defined in SFAS No. 5, "Accounting for Contingencies." Interpretation No.
45 also requires a guarantor to make significant new disclosures, even when the
likelihood of making any payments under the guarantee is remote. The
disclosure requirements of Interpretation No. 45 were effective December 31,
2002. The initial recognition and measurement provisions are applicable on a
prospective basis to guarantees issued or modified after December 31, 2002.
The Company does not have any guarantees that would require current disclosure
or further recognition under Interpretation No. 45.
In July 2002, SFAS No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities" was issued. This Statement addresses the recognition,
measurement, and reporting of costs associated with exit or disposal
activities, and supercedes Emerging Issues Task Force Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)" ("EITF 94-3"). The principal difference between SFAS No. 146
and EITF 94-3 relates to the requirements for recognition of a liability for a
cost associated with an exit or disposal activity. SFAS No. 146 requires that
a liability for a cost associated with an exit or disposal activity, including
those related to employee termination benefits and obligations under operating
leases and other contracts, be recognized when the liability is incurred, and
not necessarily the date of an entity's commitment to an exit plan, as under
EITF 94-3. SFAS No. 146 also establishes that the initial measurement of a
liability recognized under SFAS No. 146 be based on fair value. The provisions
of SFAS No. 146 are effective for exit or disposal activities that are
initiated after December 31, 2002, with early application encouraged. The
Company adopted this statement on January 1, 2003.
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
In May 2002, SFAS No. 145, "Rescission of FAS Nos. 4, 44, and 64,
Amendment of FAS 13, and Technical Corrections as of April 2002" was issued.
This Statement rescinds SFAS No. 4, Reporting Gains and Losses from
Extinguishment of Debt, and an amendment of that Statement, SFAS No. 64,
Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. This
Statement also rescinds SFAS No. 44, Accounting for Intangible Assets of Motor
Carriers. This Statement amends SFAS No. 13, Accounting for Leases, to
eliminate any inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback transactions. This
Statement also amends other existing authoritative pronouncements to make
various technical corrections, clarify meanings, or describe their
applicability under changed conditions. The provisions of this Statement
related to the rescission of SFAS No. 4 shall be applied in fiscal years
beginning after May 15, 2002. The Company adopted this statement effective
January 1, 2003 and it will result in the reclassification of the 2001
extraordinary loss.
In June 2001, SFAS No. 143, "Accounting for Asset Retirement Obligations"
was issued. This Statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated legal obligations of such asset retirement costs. This
Statement is effective for fiscal years beginning after June 15, 2002. The
Company adopted this statement on January 1, 2003.
11. RESTRUCTURING CHARGES
The following represents the Company's restructuring activities for the
period indicated:
Lease and
Severance Other Facility
Costs Costs Total
--------- -------------- --------
Balance at December 31, 2002 $ 5.8 $20.3 $26.1
Cash payments (0.9) (0.7) (1.6)
---- ---- ----
Balance at March 31, 2003 $ 4.9 $19.6 $24.5
==== ==== ====
Current $ 8.9
Non-current 15.6
----
$24.5
====
12. COMMITMENTS AND CONTINGENCIES
The Company is involved in litigation purporting to be a nation-wide class
action involving the alleged overbilling of patients who are covered by private
insurance. The Company has reached a settlement with the class that will not
exceed existing reserves or have a material adverse affect on the Company. On
January 9, 2001, the Company was served with a complaint in North Carolina
which purports to be a class action and makes claims similar to those referred
to above. The claim has been stayed and
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
the plaintiff's counsel has agreed to dismiss the case, with prejudice. The
Company believes that the likelihood of an adverse result in the North Carolina
case is remote.
The Company is the appellant in a patent case originally filed in the
United States District Court for the District of Colorado. The Company has
disputed liability and contested the case vigorously. After a jury trial, the
district court entered judgment against the Company for patent infringement.
The Company appealed the case to the United States Court of Appeals for the
Federal Circuit. The Company has received a letter from its counsel dated
February 7, 2003 stating "it remains our opinion that the amended judgment and
order will be reversed on appeal."
The Company is also involved in various claims and legal actions arising
in the ordinary course of business. These matters include, but are not limited
to, intellectual property disputes, professional liability, employee related
matters, and inquiries from governmental agencies and Medicare or Medicaid
payors and managed care payors requesting comment on allegations of billing
irregularities that are brought to their attention through billing audits or
third parties. In the opinion of management, based upon the advice of
counsel and consideration of all facts available at this time, the ultimate
disposition of these matters is not expected to have a material adverse effect
on the financial position, results of operations or liquidity of the Company.
The Company believes that it is in compliance in all material respects
with all statutes, regulations and other requirements applicable to its
clinical laboratory operations. The clinical laboratory testing industry is,
however, subject to extensive regulation, and many of these statutes and
regulations have not been interpreted by the courts. There can be no
assurance therefore that applicable statutes and regulations might not be
interpreted or applied by a prosecutorial, regulatory or judicial authority
in a manner that would adversely affect the Company. Potential sanctions for
violation of these statutes and regulations include significant fines and the
loss of various licenses, certificates and authorizations.
Under the Company's present insurance programs, coverage is obtained for
catastrophic exposures as well as those risks required to be insured by law or
contract. The Company is responsible for the uninsured portion of losses
related primarily to general, professional and vehicle liability, certain
medical costs and workers' compensation. The self-insured retentions are on a
per occurrence basis without any aggregate annual limit. Provisions for losses
expected under these programs are recorded based upon the Company's estimates
of the aggregated liability of claims incurred. At March 31, 2003 and 2002,
the Company had provided letters of credit aggregating approximately $48.6 and
$27.0 respectively, primarily in connection with certain insurance programs.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
The Company has made in this report, and from time to time may otherwise
make in its public filings, press releases and discussions with Company
management, forward-looking statements concerning the Company's operations,
performance and financial condition, as well as its strategic objectives. Some
of these forward-looking statements can be identified by the use of forward-
looking words such as "believes", "expects", "may", "will", "should", "seeks",
"approximately", "intends", "plans", "estimates", or "anticipates" or the
negative of those words or other comparable terminology. Such forward-looking
statements are subject to various risks and uncertainties and the Company
claims the protection afforded by the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995.
Actual results could differ materially from those currently anticipated due to
a number of factors in addition to those discussed elsewhere herein and in the
Company's other public filings, press releases and discussions with Company
management, including:
1. changes in federal, state, local and third party payor regulations or
policies (or in the interpretation of current regulations) affecting
governmental and third-party reimbursement for clinical laboratory testing.
2. adverse results from investigations of clinical laboratories by the
government, which may include significant monetary damages and/or exclusion
from the Medicare and Medicaid programs.
3. loss or suspension of a license or imposition of a fine or penalties under,
or future changes in, the law or regulations of the Clinical Laboratory
Improvement Act of 1967, and the Clinical Laboratory Improvement Amendments of
1988, or those of Medicare, Medicaid or other federal, state or local agencies.
4. failure to comply with the Federal Occupational Safety and Health
Administration requirements and the Needlestick Safety and Prevention Act which
may result in penalties and loss of licensure.
5. failure to comply with HIPAA, which could result in significant fines.
6. increased competition, including price competition.
7. changes in payor mix, including an increase in capitated managed-cost health
care.
8. failure to obtain and retain new customers and alliance partners, or a
reduction in tests ordered or specimens submitted by existing customers.
9. failure to integrate newly acquired businesses and the cost related to such
integration.
10.adverse results in litigation matters.
11.inability to attract and retain experienced and qualified personnel.
12.failure to maintain the Company's days sales outstanding levels.
13.decrease in credit ratings by Standard & Poor's and/or Moody's.
14.failure to develop or acquire licenses for new or improved technologies, or
if customers use new technologies to perform their own tests.
15.failure in the Company's information technology systems resulting in an
increase in testing turnaround time or billing processes.
RESULTS OF OPERATIONS
- --------------------
As discussed in the Company's Annual Report for the year ended
December 31, 2002, the Company acquired Dynacare Inc. on July 25, 2002 and
DIANON Systems, Inc. on January 17, 2003. All dollar amounts are in millions.
Three Months ended March 31, 2003 compared with Three Months ended March 31,
2002.
Net sales for the three months ended March 31, 2003 were $712.2, an
increase of $122.2, or approximately 20.7%, from $590.0 for the comparable
2002 period. The sales increase is a result of an increase of approximately
14.5% in volume (primarily volume growth in genomic testing and acquisitions
of Dynacare and DIANON) and 6.1% in price (increased price per accession in
core and esoteric testing, a continued mix shift to higher-priced esoteric
tests and acquisitions of Dynacare and DIANON). These improvements were
partially offset by the impact of severe winter weather during the first
quarter of 2003.
Cost of sales, which includes primarily laboratory and distribution costs,
was $415.7 for the three months ended March 31, 2003 compared to $331.6 in the
corresponding 2002 period, an increase of $84.1. The increase in cost of sales
is primarily the result of increases in volume due to recent acquisitions,
growth in the base business and growth in genomic and esoteric
testing. Cost of sales as a percentage of net sales was 58.4% for the three
months ended March 31, 2003 and 56.2% in the corresponding 2002 period. Cost
of sales as a percentage of sales was impacted, in part, by severe winter
weather during the first quarter of 2003.
Selling, general and administrative expenses increased to $163.3 for the
three months ended March 31, 2003 from $136.9 in the same period in 2002. This
increase resulted primarily from personnel and other costs as a result of the
Dynacare and DIANON acquisitions. As a percentage of net sales, selling,
general and administrative expenses were 22.9% and 23.2% for the three months
ended March 31, 2003 and 2002, respectively. This decrease in selling, general
and administrative expenses as a percentage of net sales is a result of
realized synergies from the Dynacare and DIANON acquisitions, as well as a
reduced effective bad debt expense rate, resulting from DIANON's accounting
for bad debts as a reduction of net sales.
The amortization of intangibles and other assets was $8.5 and $5.1 for the
three months ended March 31, 2003 and 2002. The increase in the amortization
expense for the three months ended March 31, 2003 is a result of the
acquisitions of Dynacare and DIANON.
Interest expense was $11.4 for the three months ended March 31, 2003
compared with $4.2 for the same period in 2002. This increase was a direct
result of the Company's financing of the DIANON acquisition.
Income from equity investments was $9.8 for the three months ended March
31, 2003. This income represents the Company's ownership share in equity
affiliates acquired as part of the Dynacare acquisition on July 25, 2002. A
significant portion of this income is derived from investments in Ontario and
Alberta, Canada, and is earned in Canadian dollars. The strengthening of the
Canadian dollar versus the U.S. dollar during the first quarter of 2003 has had
a positive impact on this income.
The provision for income taxes as a percentage of earnings before taxes
was 41.0% for the three months ended March 31, 2003 compared to 41.5% for the
three months ended March 31, 2002.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash provided by operating activities was $135.0 and $112.2 for the
three months ended March 31, 2003 and March 31, 2002, respectively. The
increase in cash flows from operations primarily resulted from improved
earnings and the improvement of the Company's DSO to 55 days at March 31, 2003
from 60 days at March 31, 2002.
Capital expenditures were $16.2 and $18.4 at March 31, 2003 and 2002,
respectively. The Company expects capital expenditures of approximately $90.0
in 2003. These expenditures are intended to continue to improve information
systems and further automate laboratory processes. Such expenditures are
expected to be funded by cash flow from operations as well as borrowings under
the Company's revolving credit facilities.
In connection with the acquisition of DIANON, on January 31, 2003, the
Company completed a private placement of $350.0 in senior notes, which was used
to repay the $350.0 bridge loan that was entered into to fund part of the
DIANON purchase. The notes, in an aggregate principal amount of $350.0, bear
an interest rate of 5 1/2% and resulted in net proceeds of $345.1. See
Note 6 - Derivative Financial Instruments- for a discussion of the Company's
interest rate swap agreement which manages its interest rate exposure on
$175.0 of the 5 1/2% senior notes.
During the period ended March 31, 2003, the Company borrowed $250.0 on its
revolving credit facilities and repaid a total of $115.0.
During the period ended March 31, 2003, the Company purchased approximately 1.2
million shares of its common stock totaling $34.0 with cash flow from
operations. It is the Company's intention to fund future purchases of its
common stock with cash flow from operations.
In connection with the DIANON integration plan, the Company expects to
achieve synergy savings of approximately $7.5 in 2003, $25.0 in 2004, and a
total savings of $35.0 by 2005. The integration of Dynacare remains on
schedule with $4.0 in synergy savings at the end of 2002, $36.0 in 2003, and
a total savings of $45.0 by 2004.
During the first quarter of 2003, the Company entered into an interest
rate swap agreement with a major financial institution, solely to manage its
interest rate exposure on $175.0 of its 5 1/2% senior notes. These swaps
require that the financial institution pay a fixed rate amount in exchange for
the Company paying a floating rate amount.
Based on current and projected levels of operations, coupled with
availability under its revolving credit facilities, the Company believes it has
sufficient liquidity to meet both its short-term and long-term cash needs.
CONTRACTUAL CASH OBLIGATIONS
- ---------------------------
Payments Due by Period
---------------------------------------
1 Yr 2-3 Yrs 4-5 Yrs > 5 Yrs
------- ------- ------- ---------
Capital lease obligations $ 2.7 $ 5.4 $ 4.1 $ --
Operating leases 39.6 70.0 35.3 32.2
Contingent future acquisition
payments 5.7 -- -- --
Restructuring obligations 2.2 1.8 1.8 7.3
Contingent future licensing
payments 42.5 7.0 15.0 --
Revolving credit facilities -- 135.0 -- --
5 1/2% Senior Notes -- -- -- 345.1
Zero Coupon-Subordinated Notes -- 530.5(a) -- --
----- ----- ----- -----
Total contractual cash
obligations $ 92.7 $749.7 $ 56.2 $384.6
===== ===== ===== =====
ITEM 3. Quantitative and Qualitative Disclosure about
Market Risk
The Company addresses its exposure to market risks, principally the market
risk associated with changes in interest rates, through a controlled program of
risk management that has included in the past, the use of derivative financial
instruments such as interest rate swap agreements. As more fully discussed in
Note 6 to the Unaudited Condensed Consolidated Financial Statements, the
Company has an interest rate swap agreement with a major financial institution,
solely to manage its interest rate exposure on $175.0 of its 5 1/2% senior
notes. The fair value of the swap was not significant at March 31, 2003. The
Company does not hold or issue derivative financial instruments for trading
purposes. The Company does not believe that its exposure to market risk is
material to the Company's financial position or results of operations.
The Company's zero coupon-subordinated notes contain the following three
features that are considered to be embedded derivative instruments under FAS
No. 133:
1) The Company will pay contingent cash interest on the zero coupon-
subordinated notes after September 11, 2006, if the average market price of
the notes equals 120% or more of the sum of the issue price, accrued original
issue discount and contingent additional principal, if any, for a specified
measurement period.
2) Contingent additional principal will accrue on the zero coupon-subordinated
notes during the two-year period from September 11, 2004 to September 11, 2006,
if the Company's stock price is at or below specified thresholds.
3) Holders may surrender zero coupon-subordinated notes for conversion during
any period in which the rating assigned to the zero coupon-subordinated notes
by Standard & Poor's Ratings Services is BB- or lower.
Based upon independent appraisals, these embedded derivatives had no fair
value at March 31, 2003.
ITEM 4. Controls and Procedures
Within 90 days prior to the date of this report, the Company carried out,
under the supervision and with the participation of the Company's management,
including the Company's Chief Executive Officer and Chief Financial Officer, an
evaluation of the effectiveness of the design and operation of the Company's
disclosure controls and procedures. Based on the foregoing, the Company's
Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures are effective in timely alerting
them to material information which is required to be included in the periodic
reports that the Company must file with the Securities and Exchange Commission.
There were no significant changes in the Company's internal controls or in
other factors that could adversely affect the internal controls subsequent to
the date the Company completed its evaluation.
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See "Note 12 to the Company's Unaudited Condensed
Consolidated Financial Statements" for the three
months ended March 31, 2003, which is incorporated
by reference.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 DIANON Systems, Inc. 1996 Stock Incentive Plan
(incorporated herein by reference to the Company's
Registration Statement on Form S-8, filed with the
Commission of January 21, 2003, File No. 333-
102602).
10.2 DIANON Systems, Inc. 1999 Stock Incentive Plan
(incorporated herein by reference to the Company's
Registration Statement on Form S-8, filed with the
Commission of January 21, 2003, File No. 333-
102602).
10.3 DIANON Systems, Inc. 2000 Stock Incentive Plan
(incorporated herein by reference to the Company's
Registration Statement on Form S-8, filed with the
Commission of January 21, 2003, File No. 333-
102602).
10.4 DIANON Systems, Inc. 2001 Stock Incentive Plan
(incorporated herein by reference to the Company's
Registration Statement on Form S-8, filed with the
Commission of January 21, 2003, File No. 333-
102602).
10.5 Urocor, Inc. Second Amended and Restated 1992
Stock Option Plan (incorporated herein by
reference to the Company's Registration Statement
on Form S-8, filed with the Commission of January
21, 2003, File No. 333-102602).
10.6 Amendment to the 2000 Stock Incentive Plan
(incorporated herein by reference to Annex V of the
Company's 2003 Annual Proxy Statement filed with
the Commission on April 14, 2003).
10.7 Laboratory Corporation of America Holdings
Management Incentive Bonus Plan (incorporated
herein by reference to Annex VI of the Company's
2003 Annual Proxy Statement filed with the
Commission on April 14, 2003).
99.1 Written Statement of Chief Executive Officer and
Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
(b) Reports on Form 8-K
(1) A current report on Form 8-K dated January 17,
2003 was filed on January 17, 2003, by the
registrant, announcing that it had completed
its previously announced acquisition of DIANON
Systems, Inc.
(2) A current report on Form 8-K dated January 17,
2003 was filed on February 3, 2003, by the
registrant, along with DIANON Systems, Inc and
DaVinci Development, Inc., disclosing the terms
of the Merger Agreement and including certain
DIANON financial statements, effective as of
January 17, 2003.
(3) A current report on Form 8-K dated January 31,
2003, was filed on February 3, 2003, by the
registrant, to announce the sale of $350.0
aggregate principal amount of the Company's
5 1/2% Senior Notes due February 1, 2013.
(4) A current report on Form 8-K dated February 18,
2003 was filed on February 18, 2003, by the
registrant, containing certain financial
statements of Dynacare Inc.
(5) A current report on Form 8-K dated February 18,
2003 was filed on February 18, 2003, by the
registrant, containing certain financial
statements of DIANON Systems, Inc.
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LABORATORY CORPORATION OF AMERICA HOLDINGS
Registrant
By:/s/THOMAS P. MAC MAHON
-------------------------------
Thomas P. Mac Mahon
Chairman, President and
Chief Executive Officer
By:/S/WESLEY R. ELINGBURG
----------------------------------
Wesley R. Elingburg
Executive Vice President,
Chief Financial Officer and
Treasurer
May 15, 2003
Certification
- -------------
I, Thomas P. Mac Mahon, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Laboratory Corporation
of America Holdings;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 15, 2003
-----------------
/s/ THOMAS P. MAC MAHON
-----------------------
Thomas P. Mac Mahon
Chief Executive Officer
Certification
- -------------
I, Wesley R. Elingburg, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Laboratory Corporation
of America Holdings;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 15, 2003
-----------------
/s/ WESLEY R. ELINGBURG
-----------------------
Wesley R. Elingburg
Chief Financial Officer