UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2016 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to ______ Commission file number 1-11353 LABORATORY CORPORATION OF AMERICA HOLDINGS (Exact name of registrant as specified in its charter) Delaware 13-3757370 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 358 South Main Street, Burlington, North Carolina 27215 (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) 336-229-1127 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 [ ] Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (paragraph 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer [X] Accelerated Filer [ ] Non-accelerated filer [ ] (Do not check if a smaller reporting company) Smaller reporting company [ ] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]. The number of shares outstanding of the issuer's common stock is 103.0 million shares, net of treasury stock as of October 26, 2016.
INDEX INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Condensed Consolidated Balance Sheets 2 September 30, 2016 and December 31, 2015 Condensed Consolidated Statements of Operations 3 Three and nine months ended September 30, 2016 and 2015 Condensed Consolidated Statements of Comprehensive Earnings 4 Three and nine months ended September 30, 2016 and 2015 Condensed Consolidated Statements of Changes in Shareholders’ Equity 5 Nine months ended September 30, 2016 and 2015 Condensed Consolidated Statements of Cash Flows 6 Nine months ended September 30, 2016 and 2015 Notes to Unaudited Condensed Consolidated Financial Statements 7 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 24 Item 3. Quantitative and Qualitative Disclosures about Market Risk 33 Item 4. Controls and Procedures 34 PART II. OTHER INFORMATION Item 1. Legal Proceedings 35 Item 1A. Risk Factors 35 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 36 Item 6. Exhibits 36 1
INDEX PART I – FINANCIAL INFORMATION ITEM 1. FINANCIAL INFORMATION LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in millions) (unaudited) 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 inventories 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, net 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 Short-term borrowings and 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 1,235.0 330.7 323.1 Other liabilities Total liabilities 8,944.0 9,198.9 Commitments and contingent liabilities Noncontrolling interest 15.6 14.9 Shareholders’ equity: Common stock, 102.8 and 101.3 shares outstanding at September 30, 2016 and December 31, 2015, respectively 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) (378.0) (367.4) Accumulated other comprehensive loss 5,523.4 4,864.0 Total shareholders’ equity Total liabilities and shareholders’ equity $ 14,483.0 $ 14,077.8 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 2
INDEX LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in millions, except per share data) (unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2016 2015 2016 2015 Net revenue $ 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 42.0 47.4 163.5 118.7 Reimbursable out-of-pocket expenses 1,626.3 1,552.4 4,820.9 4,216.9 Total cost of revenues 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 (expenses): 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 (5.6) (3.2) (1.3) (4.4) Other, net 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 (0.3) (0.3) (0.9) (0.9) Less: Net earnings attributable to the noncontrolling interest 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 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3
INDEX LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (in millions) (unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2016 2015 2016 2015 Net earnings $ 179.8 $ 155.0 $ 548.6 $ 328.5 Foreign currency translation adjustments (27.4) (207.5) 11.7 (344.7) (1.6) — (0.5) 1.4 Net benefit plan adjustments Other comprehensive (loss) income before tax (29.0) (207.5) 11.2 (343.3) 8.3 34.0 (21.8) 74.0 Provision for income tax related to items of other comprehensive earnings Other comprehensive loss, net of tax (20.7) (173.5) (10.6) (269.3) Comprehensive earnings (loss) 159.1 (18.5) 538.0 59.2 (0.3) (0.3) (0.9) (0.9) Less: Net earnings attributable to the noncontrolling interest Comprehensive earnings (loss) attributable to Laboratory Corporation of America Holdings $ 158.8 $ (18.8) $ 537.1 $ 58.3 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4
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