UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
March 7, 2017
(Date of earliest event reported)
LABORATORY CORPORATION OF
AMERICA HOLDINGS
(Exact Name of Registrant as Specified in its Charter)
Delaware | 1-11353 | 13-3757370 | ||
(State or other jurisdiction of Incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) | ||
358 South Main Street, | ||||
Burlington, North Carolina | 27215 | 336-229-1127 | ||
(Address of principal executive offices) | (Zip Code) | (Registrant’s telephone number including area code) | ||
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[ ] | Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
[ ] | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
[ ] | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
[ ] | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | |
Item 7.01 | Regulation FD Disclosure | |
Summary information of the Company dated March 7, 2017.
SIGNATURES
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 hereunto duly authorized.
LABORATORY CORPORATION OF AMERICA HOLDINGS
Registrant
By: | /s/ F. SAMUEL EBERTS III | |
F. Samuel Eberts III | ||
Chief Legal Officer and Secretary | ||
March 7, 2017
RAYMOND JAMES
INSTITUTIONAL INVESTORS CONFERENCE
MARCH 7, 2017 | ORLANDO, FL
1
FORWARD LOOKING STATEMENT
Cautionary Statement Regarding Forward Looking Statements
This presentation contains forward-looking statements including with respect to
estimated 2017 results and guidance and the impact of various factors on operating
and financial results. Each of the forward-looking statements is subject to change
based on various important factors, including without limitation, competitive actions in
the marketplace, and adverse actions of governmental and other third-party payers.
Actual results could differ materially from those suggested by these forward-looking
statements. The Company has no obligation to provide any updates to these forward-
looking statements even if its expectations change. Further information on potential
factors that could affect operating and financial results is included in the Company’s
Form 10-K for the year ended December 31, 2016, including in each case under the
heading risk factors, and in the Company’s other filings with the SEC. The information
in this presentation 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, 2016, under the heading MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
2
AGENDA
Company Overview
Update on “Wave One” Initiatives
2016 Highlights
Financial Strength
2017 Priorities
3
WHO WE ARE
Our
Mission
is to
improve
health and
improve lives
LabCorp is
a world-leading
life sciences
company
that is deeply integrated
in guiding patient care
4
LABCORP OVERVIEW
• Provides diagnostic, drug development
and technology-enabled solutions for
>110 million patient encounters per year
• Operates in two segments – LabCorp Diagnostics
and Covance Drug Development
• ~$9.4B revenue in 2016
• >50,000 mission-driven employees worldwide
• Leadership in large, growing, fragmented
global markets
• Experienced management team
A World-Leading Life Sciences Company
5
LABCORP DIAGNOSTICS OVERVIEW
• ~$6.6B revenue in 2016
• National network of 41 primary clinical
laboratories and approximately 1,750
patient service centers
• Offers broad range of 4,800+ clinical,
anatomic pathology, genetic and
genomic tests
• Processes ~500,000 patient specimens daily
• Vast and growing patient database --
approximately 50% of U.S. population
• Serves hundreds of thousands of customers,
including physicians, government agencies,
managed care organizations, hospitals and
health systems, patients and consumers
1. Presented on a pro forma basis as if the acquisition of Covance closed on January 1, 2015.
Adjusted operating income and margin exclude unallocated corporate expenses, amortization,
restructuring charges and other special items
Leading National Clinical Laboratory
Pro Forma Segment Financial Summary1
Constant
Year Ended Currency
2016 2015 Change Change
Revenue $6,594 $6,211 6.2% 6.4%
Adj. O.I. $1,323 $1,234 7.2%
Adj. O.I. % 20.1% 19.9% 20 bps
6
COVANCE DRUG DEVELOPMENT OVERVIEW
• ~$2.8B revenue in 2016
• Market leader in early development,
central laboratory, and Phase I-IV clinical
trial management services
• Collaborated on 87% of the 45 new drugs
approved by FDA in 2015, including all 14
approved oncology drugs, and 20 of 21
drugs treating rare and orphan diseases
• Xcellerate® is the world’s most
comprehensive investigator
performance database
Leading CRO / Drug Development Services Provider
1. Presented on a pro forma basis as if the acquisition of Covance closed on January 1, 2015.
Adjusted operating income and margin exclude unallocated corporate expenses, amortization,
restructuring charges and other special items
Pro Forma Segment Financial Summary1
Constant
Year Ended Currency
2016 2015 Change Change
Revenue $2,842 $2,629 6.2% 9.5%
Adj. O.I. $ 413 $ 371 11.2%
Adj. O.I. % 14.5% 14.1% 40 bps
7
DIVERSIFIED REVENUE BASE
Unique Customer Mix
30%
31%
23%
11%
3% 2%
Pharma & Biotech
Managed Care (Fee for Service)
Other Payers
Medicare & Medicaid
Patient
Managed Care (Capitated)
1. Includes physicians and hospitals, occupational testing services, non-U.S. clinical diagnostic laboratory operations,
nutritional chemistry and food safety operations, and Beacon LBS
1
8
EXPANDED GROWTH OPPORTUNITIES
WITH INCREASED GLOBAL PRESENCE
1. 2014 revenue excludes Covance.
2. Based on industry publications and company estimates
3. Over 30 currencies in 2016 and no single currency (other than US dollar) accounts for more than 10% of 2016 revenue
2014 Revenue Distribution1
>$70 billion
addressable
market2
2016 Revenue Distribution
0%
25%
50%
75%
100%
USA Rest of World
92.7%
80.9%
7.3%
19.1%
0%
25%
50%
75%
100%
USA Rest of World
92.7%
Markets Served
North American
Clinical Reference Laboratory
Central Laboratory
Market Opportunities
Global Clinical Reference
Laboratory
Drug Development
Central Laboratory Market Access
Food Safety and Chemistry
>$200 billion
addressable
market2
3
9
OUR MISSION: IMPROVE HEALTH AND IMPROVE LIVES
Build / Acquire
Complementary Capabilities
Organic Growth Through
New Tests, Customers and
Markets
Integrate Diagnostic
Information and Content
Build / Acquire
Complementary Capabilities
Use Tools and Technology to
Improve Success, and Reduce
Time and Cost, of Trials
Commercialize
Technology-Enabled
Solutions
Develop Scalable Platforms
and Applications for
Customers
Delivering
World Class Diagnostics
Bringing Innovative
Medicines to Patients Faster
Using Technology
to Provide Better Care
10
AGENDA
Company Overview
Update on “Wave One” Initiatives
2016 Highlights
Financial Strength
2017 Priorities
11
2015 JP MORGAN CONFERENCE
COMBINATION PROVIDES SIGNIFICANT NEW GROWTH AVENUES
Prioritized top 3 opportunities based on
materiality, feasibility, and strategic fit
Deliver faster clinical
trial enrollment
1
Partner of choice to
develop and commercialize
companion diagnostics
2
Enhance Phase IV trial
experience and post-market
surveillance
3
Wave One
12
>$225 million of cumulative new orders won through the
combination of LabCorp patient data and Covance capabilities
Awarded 15 studies to date across
multiple therapeutic categories
Nearly 100,000 patients have consented through our patient
portal to be contacted about future relevant clinical trials
Expect current awards to convert into nearly
$100 million of revenue through 2018
PATIENT RECRUITMENT AND SITE SELECTION SOLUTIONS
Combination of Covance and LabCorp Data
Translates into Clear Financial and Strategic Benefits
13
Keytruda is a registered trademark of Merck Sharp & Dohme Corp.,
a subsidiary of Merck & Co., Inc.
OPDIVO is a registered trademark of Bristol-Myers Squibb Company.
cobas is a registered trademark of Roche.
TAGRISSO is a trademark of the AstraZeneca group of companies.
Tarceva is a registered trademark of OSI Pharmaceuticals.
TECENTRIQ is a registered trademark of Genentech, Inc.
COMPANION AND COMPLEMENTARY DIAGNOSTICS (CDX)
Unmatched CDx Franchise Providing End-to-End
Clinical Development and Commercial Lab Testing Solutions
• Dedicated global CDx team and
laboratories
• Worked on 60+ CDx programs supporting
145+ clinical protocols in 2016
• 35% increase in revenue across drug
development and commercial clinical
laboratory testing since 2014
• CDx collaborations with 13 of
top 20 pharmaceutical companies
• Only CRO awarded a podium presentation
at World Companion Diagnostics
Conference
• PD-L1 IHC 22C3 pharmDx
(Merck’s Keytruda®)
• PD-L1 IHC 28-8 pharmDx
(Bristol-Myers Squibb’s OPDIVO®)
• cobas® EGFR Mutation Test v2
(AstraZeneca’s TAGRISSO™ and
Roche’s Tarceva®)
• Ventana PD-L1 (SP142)
(Genentech’s TECENTRIQ®)
Notable CDx Tests from LabCorp
14
UNIQUELY POSITIONED FOR PARTNERSHIPS
IN REAL-WORLD EVIDENCE AND POST-MARKET SURVEILLANCE
Delivering Integrated Solutions for Commercially-Approved
Products in “Real-World” Setting
• Lab Assist Program with Top 20
pharmaceutical partner to facilitate
required monthly liver testing
• Patient and provider support through
program enrollment, monthly test
scheduling, and follow up on missed
appointments
• Convenient access to LabCorp’s Patient
Service Center network for specimen
collections or drop-offs
• Customized informatics enable electronic
delivery of results to providers and patients
• Coordination between Covance Market
Access and LabCorp Diagnostics
• Program Coordinator
calls the patient to
schedule monthly testing
• Sample is collected and
submitted to LabCorp
• Results are delivered to
the provider’s office
15
AGENDA
Company Overview
Update on “Wave One” Initiatives
2016 Highlights
Financial Strength
2017 Priorities
16
ENTERPRISE HIGHLIGHT
Trial Data / Capability Outcome
Prevention of upper
respiratory tract
infections with seasonal
incidence
LabCorp-generated data enables Covance to
flexibly open and close sites based on timely
insights into viruses of interest circulating in a
particular community
All Studies
Awarded to
Non-alcoholic
steatohepatitis (NASH)
Leveraged the LabCorp database of physicians
ordering Fibrosure, a non-invasive biomarker of
fibrosis, in client proposals
Rare genetic disorder
Director in Biochemical & Molecular Genetics at
LabCorp will serve as “Geneticist Expert,” and
LabCorp team will conduct review, validation and
classification of mutation types
Cardiopulmonary bypass
surgery involving use of
frozen platelets
LabCorp’s Chief Medical Officer served as in-
house consultant for transfusion medicine for RFP
Innovative Use Cases for LabCorp Data and
Technical Expertise Contribute to New Study Awards
17
ENTERPRISE HIGHLIGHT
Integrated “Research Hub” Model for Hospitals and Health Systems,
Adding Value for All Key Stakeholders
• Expand patient
recruitment
• Enhance site
identification
• Greater access to clinical trials
• Improve patient care and
outcomes
• Grow reference testing
• Cultivate long-term,
comprehensive
partnerships
• Collaboration and
medical institution
growth
• Access to new revenue stream
• Differentiate from competitors
• Enhance academic reputation
• Reduce costs under value-based
reimbursement framework
Integrated
“Research Hub”
Model
LabCorp
Diagnostics
Covance Drug
Development
Hospitals, Health
Systems & Large
Provider Networks
Patients
18
ENTERPRISE HIGHLIGHT
Combined Expertise in Oncology Drives Growth
• Utilized LabCorp data and Covance informatics to secure
Phase III study in Acute Myeloid Leukemia
• Heat map highlighted U.S. physicians with high
volume of AML patients; 50,000+ patients
represented in this dataset from LabCorp
• Physicians in LabCorp database evaluated for
clinical trial experience and categorized by
expertise and practice type
• Integrated, end-to-end development and
commercialization capabilities in immuno-oncology
• Doubled the number of immuno-oncology study
awards and related backlog year on year
• Performed thousands of PD-L1 tests through
Diagnostic and Drug Development segments
• Published real world utilization data at ASCO
Acute myeloid leukemia cells
19
BeaconLBS
• Scalable front-end platform providing
physician decision support through
integrated workflow
• Successful pilot in Florida with
UnitedHealthcare
• Compliance with evidence-based guidelines
when ordering lab tests increased ~50%
since initiation
• Set for expansion into Texas
Xcellerate Monitoring
• Scalable software-as-a-service platform that
enables centralized risk-based monitoring
• Implemented first set of studies with Eli Lilly
Internally-Developed Technology
Improves Quality of Care Delivered
ENTERPRISE HIGHLIGHT
Successful
Pilot in
Florida
Improved
Quality
of Care
Increased
Compliance
with
Guidelines Improved
Lab Cost
and Trend
Expansion
into Texas
20
LABCORP DIAGNOSTICS HIGHLIGHT
Broad and Flexible Health System and Large Provider Collaborations
Have Been a Successful Model for Over Three Decades
Reference
Testing
Lab Optimization
(incl. Outreach Business)
Research
Hub Model
• 1,800+ hospital clients, and
200+ partnerships
• Average partnership length
of ~6 years
• Significant progress on
multiple strategic health
system initiatives in 2016
• Enhanced executive
leadership focused on
comprehensive partnerships
21
Acquiring Pathology Associates Medical Laboratories (PAML)
from Providence Health & Services and Catholic Health Initiatives
LABCORP DIAGNOSTICS HIGHLIGHT
• LabCorp will provide outreach testing
and reference laboratory services
• Strengthens relationships with anchor
health systems
• Increases engagement with multiple
community-based hospitals
• Expands geographic presence into
important markets
• Transaction closings expected to begin
in 2017 and continue into 2018
• Meets stated financial criteria
Shared vision and commitment
to provide high-quality,
community-based
laboratory services
22
Acquiring Assets of Mount Sinai Health System
Clinical Outreach Laboratories
LABCORP DIAGNOSTICS HIGHLIGHT
• LabCorp will provide comprehensive
laboratory services
• Exploring opportunities to collaborate
on companion diagnostics, clinical trials
and medical education
• LabCorp’s differentiators include:
• Access to clinical trials and
research through Covance
Drug Development
• Enhanced IT and data analytics
• Standardized testing platforms
• Meets stated financial criteria
“[LabCorp’s] unparalleled reputation
and success ensure our patients will
continue to have access to high-quality,
high-value and convenient testing
services.” 1
“LabCorp’s proven track record of
service excellence, breadth of diagnostic
capabilities, and cost-efficiency will
benefit our community now and in
years to come.” 2
“We are confident this transaction will
provide great benefits for our patients
and physicians and allow Mount Sinai
to continue to invest in our core
strategic programs.” 2
1. Quote attributed to Carlos Cordon-Cardo, MD, PhD, Irene Heinz Given and John LaPorte
Given Professor and Chairman, Department of Pathology, Mount Sinai Health System
2. Quote attributed to Donald Scanlon, Chief Financial Officer and Chief of Corporate Services,
Mount Sinai Health System
23
• Increased Patient Engagement
• Mobile-Friendly Patient Portal
• Clinical Trial Patient Consents
• Self Service Registration in 2017
(opportunity for clinical trial opt-ins)
• Integrated Clinical Decision Support
Capabilities
• LabCorp Link
• LithoLink CDS Platform and Reports
• UpToDate® Advisor
• Enhanced Revenue Cycle Management Tools
• Nationwide Real-Time Eligibility Verification
• Introduced Patient Responsibility Estimate
(Price Transparency)
Continued Commitment to Technology
Innovation to Deliver Improved Patient Care
LABCORP DIAGNOSTICS HIGHLIGHT
24
COVANCE DRUG DEVELOPMENT HIGHLIGHT
Novel Drug Development Solutions Drive Growth and Loyalty
Research
Hub Model
• Integrated LabCorp Diagnostics’ specialty
test menu into global central laboratory
services
• Leveraged the Xcellerate informatics platform
to optimize and execute an enrollment
strategy for 12,000-patient Cardiovascular
Outcomes trial
• Developed a “One Stop” laboratory solution
that manages all internal and external
lab vendors
• Early Phase Development Solutions (EPDS)
available from pre-Clinical Lead Optimization
through Clinical Proof of Concept with
consistent and focused project team
• Nearly 10x increase in number of
complex tests referred from Covance to
LabCorp
• Enrollment for this 600 site, 37 country
study was completed 5 months
ahead of original stretch goal
• Executed two multi-year sole
source agreements with top 20
pharmaceutical companies
• Through EPDS, worked with over 50
companies worldwide in pre-clinical,
early clinical or both stages of
development
Solution Result
25
AGENDA
Company Overview
Update on “Wave One” Initiatives
2016 Highlights
Financial Strength
2017 Priorities
26
LONG-TERM REVENUE GROWTH1
$3.6
$4.1
$4.5
$4.7
$5.0
$5.5
$5.7 $5.8
$6.0
$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$8.5
$9.4
CAGR 9%
41%
1. 2006-2014 revenue excludes Covance results. 2008 revenue includes a $7.5 million adjustment relating to certain historic
overpayments made by Medicare for claims submitted by a subsidiary of the Company
($ Billions)
Covance
Drug
Development
LabCorp
Diagnostics
11%
27
LONG-TERM ADJUSTED EPS GROWTH1,2
$3.53
$4.45
$4.91
$5.24
$5.98
$6.37
$6.82 $6.95 $6.80
$7.91
$8.83
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
CAGR 2%
1. EPS, as presented, represents adjusted, non-GAAP financial measures (excludes amortization, restructuring and other special
charges). Diluted EPS, as reported in the Company’s Annual Report were: $2.71 in 2005; $3.24 in 2006; $3.93 in 2007; $4.16 in
2008; $4.98 in 2009; $5.29 in 2010; $5.11 in 2011; $5.99 in 2012; $6.25 in 2013; $5.91 in 2014; $4.34 in 2015; and $7.02 in 2016
2. 2006-2014 figures exclude Covance results, and other items discussed in the Appendix
CAGR 13%
16%
12%
28
FREE CASH FLOW1,2
$567
$624
$748 $758
$759
$668
$617
$536
$727
$897
$0
$200
$400
$600
$800
$1,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
1. 2006-2014 figures exclude Covance results
2. Operating Cash Flow and Free Cash Flow in 2011 excludes the $49.5 million Hunter Labs settlement
($ Millions) 2007 – 2016 Average Free Cash Flow: $690 million
29
EFFECTIVE CAPITAL DEPLOYMENT TO BUILD SHAREHOLDER VALUE
Capital
Expenditures 11%
$1.9 Billion
Share Repurchase
19%
Other Acquisitions
13%
$5.6 Billion
$1.1 Billion
Covance Acquisition
57%
$1.3 Billion
Approximately $9.9 Billion in Capital Deployment
Between 2012 and 2016
30
AGENDA
Company Overview
Update on “Wave One” Initiatives
2016 Highlights
Financial Strength
2017 Priorities
31
2017 STRATEGIC PRIORITIES
Solution
Focus
Fully-
Integrated
Organization
Return of
Capital to
Shareholders -
Reinitiated Share
Repurchases
32
The Combination of Covance and LabCorp will:
OUR PURPOSE FOR CREATING
A WORLD LEADING LIFE SCIENCES COMPANY
• Accelerate long-term profitable growth through
expanded market opportunities
• Commercialize new business models in clinical care
and research settings
• Increase shareholder value, including return of capital
• Continue to enhance capabilities that guide patient care,
fulfilling our mission of improving health and improving lives
MARCH 7, 2017 | ORLANDO, FL
RAYMOND JAMES
INSTITUTIONAL INVESTORS CONFERENCE
34
APPENDIX
35
Pro forma results assume that the acquisition of Covance
closed on January 1, 2015
Twelve Months Twelve Months
Ended 12/31/16 Ended 12/31/15 % Change
Net Revenue
LabCorp Diagnostics $6,593.9 $6,210.6 6.2%
Covance Drug Development(2) $2,842.2 $2,628.7 8.1%
Total Net Revenue(2) $9,435.6 $8,839.3 6.7%
Adjusted Operating Income(3) (4)
LabCorp Diagnostics $1,322.9 $1,234.0 7.2%
Adjusted Operating Margin 20.1% 19.9% 20 bps
Covance Drug Development $412.7 $371.2 11.2%
Adjusted Operating Margin 14.5% 14.1% 40 bps
Unallocated Corporate Expense ($145.4) ($134.0) (8.5%)
Total Adjusted Operating Income $1,590.2 $1,471.2 8.1%
Total Adjusted Operating Margin 16.9% 16.6% 30 bps
FULL YEAR PRO FORMA SEGMENT RESULTS1
(DOLLARS IN MILLIONS)
(1) The consolidated net revenue and adjusted operating income are presented net of inter-segment transaction eliminations
(2) Covance Drug Development’s results exclude the impact from the wind-down of operations relating to a committed minimum volume
contract that expired on October 31, 2015
(3) Adjusted Operating Income excludes amortization, restructuring charges and special items
(4) See Reconciliation of non-GAAP Financial Measures in Appendix
36
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
The following consolidated results include Covance as of February 19, 2015;
prior to February 19, 2015, all consolidated results exclude Covance
LABORATORY CORPORATION OF AMERICA HOLDINGS
Reconciliation of Non-GAAP Financial Measures
(in millions, except per share data)
Adjusted Operating Income 2016 2015
Operating Income 1,312.4$ 996.8$
Acquisition-related costs 18.4 119.1
Restructuring and other special charges 58.4 113.9
Consulting fees and executive transition expenses 9.3 25.6
Settlement costs - 12.2
Wind-down of minimum volume contract operations 4.6 5.7
LaunchPad system implementation costs 7.6 3.0
Amortization of intangibles and other assets 179.5 164.5
Adjusted operating income 1,590.2$ 1,440.8$
Adjusted EPS
Diluted earnings per common share 7.02$ 4.35$
Restructuring and special items 0.64 2.44
Amortization expense 1.17 1.12
Adjusted EPS 8.83$ 7.91$
Twelve Months Ended
December 31,
37
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
The following consolidated results include Covance as of February 19, 2015;
prior to February 19, 2015, all consolidated results exclude Covance
LABORATORY CORPORATION OF AMERICA HOLDINGS
Reconciliation of Non-GAAP Financial Measures
(in millions, except per share data)
Free Cash Flow: 2016 2015
Net cash provided by operating activities 1,175.9$ 982.4$
Less: Capital expenditures (278.9) (255.8)
Free cash flow 897.0$ 726.6$
Twelve Months Ended
December 31,
38
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES –
FOOTNOTES
1) During the fourth quarter of 2016, the Company recorded net restructuring charges and special items of $9.8 million. The charges included
$8.1 million in severance and other personnel costs along with $2.8 million in facility-related costs associated with facility closures and general
integration initiatives. The Company reversed previously established reserves of $0.1 in unused personnel-related reserves and $1.0 million in
unused facility-related costs. The Company incurred $0.6 million in fees and expenses associated with acquisitions completed during the
quarter and incurred additional legal and other costs of $0.6 million relating to the wind-down of its minimum volume contract operations.
The Company also recorded $2.5 million in consulting expenses relating to fees incurred as part of its Covance integration costs and
compensation analysis, along with $0.2 million in short-term equity retention arrangements relating to the acquisition of Covance and $1.4
million of accelerated equity and other final compensation relating to executive transition announced during the third quarter and incurred
$0.5 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 recorded a $3.6 million gain on sale
of certain assets held for sale. The after tax impact of these net charges decreased net earnings for the quarter ended December 31, 2016, by
$8.3 million and diluted earnings per share by $0.08 ($8.3 million divided by 105.1 million shares).
During the first three quarters of 2016, the Company recorded net restructuring charges and other special charges of $48.6 million. The
charges included $23.1 million in severance and other personnel costs along with $30.7 million in facility-related costs associated with facility
closures and general integration initiatives. The Company reversed previously established reserves of $2.5 million in unused facility-related
costs and $2.7 million in unused severance reserves. The Company incurred $7.4 million in fees and expenses associated with completed
acquisitions and incurred additional legal and other costs of $4.0 million relating to the wind-down of its minimum volume contract
operations. The Company also recorded $4.4 million in consulting expenses relating to fees incurred as part of its Covance integration costs
and compensation analysis, along with $2.3 million in short-term equity retention arrangements relating to the acquisition of Covance and
$7.5 million of accelerated equity compensation relating to the announced retirement of a Company executive and incurred $8.5 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 acquisition of Sequenom. 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 net charges decreased net earnings for the year ended December 31, 2016, by $66.3 million and diluted earnings
per share by $0.64 ($66.3 million divided by 104.3 million shares).
.
39
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES –
FOOTNOTES
2) During the fourth quarter of 2015, the Company recorded net restructuring charges and special items of $54.0 million. The charges included
$25.3 million in severance and other personnel costs along with $17.0 million in facility-related costs associated with facility closures and
general integration initiatives. A substantial portion of these costs relates to the planned closure of two Covance Drug Development segment
(“CDD”) operations that serviced a minimum volume contract that expired on October 31, 2015. In addition, the Company recorded asset
impairments of $11.9 million relating to CDD customer service applications that will no longer be used. The Company reversed previously
established reserves of $0.2 million in unused facility-related costs. The Company incurred additional legal and other costs of $5.7 million
relating to the wind-down of the minimum volume contract operations. The Company also recorded $10.1 million in consulting expenses
relating to fees incurred as part of its Covance integration costs and compensation analysis, along with $1.1 million in short-term equity
retention arrangements relating to the acquisition of Covance and $0.3 million of accelerated equity compensation relating to the announced
retirement of a Company executive (all recorded in selling, general and administrative expenses). During the fourth quarter, the Company
paid $12.2 million in settlement costs and litigation expenses related to the resolution of a federal court putative class action lawsuit. In
addition, the Company incurred $3.0 million of non-capitalized costs associated with the implementation of a major system as part of its
LaunchPad business process improvement initiative. The after tax impact of these charges decreased net earnings for the quarter ended
December 31, 2015, by $63.2 million and diluted earnings per share by $0.61 ($63.2 million divided by 103.2 million shares).
During the first three quarters of 2015, the Company recorded net restructuring charges and other special charges of $59.9 million. The
charges included $33.9 million in severance and other personnel costs along with $12.1 million in costs associated with facility closures and
general integration initiatives. The Company reversed previously established reserves of $0.9 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 $15.3 million of consulting expenses relating to fees incurred as part of its LaunchPad initiative as well as
Covance integration costs, along with $4.3 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).
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 twelve months ended December 31, 2015, by $245.7 million and diluted
earnings per share by $2.44 ($245.7 million divided by 100.6 million shares).
40
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES –
FOOTNOTES
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 December 31, 2016 and 2015, intangible amortization was $48.8
million and $43.9 million, respectively ($33.2 million and $28.4 million net of tax, respectively) and decreased EPS by $0.32 ($33.2 million
divided by 105.1 million shares) and $0.30 ($30.8 million divided by 103.2 million shares), respectively. For the years ended December 31,
2016 and 2015, intangible amortization was $179.5 million and $164.5 million, respectively ($122.5 million and $113.0 million net of tax,
respectively) and decreased EPS by $1.17 ($122.5 million divided by 104.3 million shares) and $1.12 ($113.0 million divided by 100.6 million
shares), respectively.
41
FOOTNOTES TO “LONG-TERM ADJUSTED EPS GROWTH” SLIDE
(1) EPS, as presented, represents adjusted, non-GAAP financial measures (excludes amortization, restructuring and other special charges).
Diluted EPS, as reported in the Company’s Annual Report were: $2.71 in 2005; $3.24 in 2006; $3.93 in 2007; $4.16 in 2008; $4.98 in 2009;
$5.29 in 2010; $5.11 in 2011; $5.99 in 2012; $6.25 in 2013; $5.91 in 2014; $4.35 in 2015; and $7.02 in 2016.
(2) 2005-2014 figures exclude Covance results. Excluding the $0.09 per diluted share impact of restructuring and other special charges and the
$0.21 per diluted share impact from amortization in 2005; excluding the $0.06 per diluted share impact of restructuring and other special
charges and the $0.23 per diluted share impact from amortization in 2006; excluding the $0.25 per diluted share impact of restructuring and
other special charges and the $0.27 per diluted share impact from amortization in 2007; excluding the $0.44 per diluted share impact of
restructuring and other special charges and the $0.31 per diluted share impact from amortization in 2008; excluding the ($0.09) per diluted
share impact of restructuring and other special charges and the $0.35 per diluted share impact from amortization in 2009; excluding the
$0.26 per diluted share impact of restructuring and other special charges and the $0.43 per diluted share impact from amortization in 2010;
excluding the $0.72 per diluted share impact of restructuring and other special charges, the $0.03 per diluted share impact from a loss on the
divestiture of assets and the $0.51 per diluted share impact from amortization in 2011; excluding the $0.29 per diluted share impact of
restructuring and other special charges and the $0.54 per diluted share impact from amortization in 2012; excluding the $0.15 per diluted
share impact of restructuring and other special charges and the $0.55 per diluted share impact from amortization in 2013; excluding the
$0.34 per diluted share impact of restructuring and other special charges and the $0.55 per diluted share impact from amortization in 2014;
excluding the $2.44 per diluted share impact of restructuring and other special charges and the $1.12 per diluted share impact from
amortization in 2015; and excluding the $0.64 per diluted share impact of restructuring and other special charges and the $1.17 per diluted
share impact from amortization in 2016.