During 2008, the Company continued to strengthen its financial performance through the implementation of the Company's strategic plan and the expansion of its national platform. The Company has been successful in growing many of its focus areas, in such areas as esoteric testing, disease management and companion diagnostics.

Effective January 1, 2007, the Company commenced its successful implementation of its ten-year agreement with United Healthcare Insurance Company ("UnitedHealthcare") and became its exclusive national laboratory provider. Over a period of several years, the Company will continue to perform more of UnitedHealthcare's testing. During the first three years of the ten-year agreement, the Company has committed to reimburse UnitedHealthcare up to $200.0 for transition costs related to developing expanded networks in defined markets. Since the inception of this agreement, approximately $74.6 of such transition payments were billed to the Company by UnitedHealthcare and approximately $74.4 had been remitted by the Company. Based on trend rates of the transition payment amounts billed by UnitedHealthcare during 2008 and 2007, the Company believes that its total reimbursement commitment under this agreement will be approximately $125.6. The Company is amortizing the total estimated transition costs over the life of the contract.

Effective January 1, 2008 the Company acquired additional partnership units in its Ontario, Canada ("Ontario") joint venture for approximately $140.9 in cash (net of cash acquired), bringing the Company's percentage interest owned up to 85.6%. Concurrent with this acquisition, the terms of the joint venture's partnership agreement were amended. Based upon the amended terms of this agreement, the Company began including the consolidated operating results, financial position and cash flows of the Ontario joint venture in the Company's consolidated financial statements on January 1, 2008. The amended joint venture's partnership agreement also enables the holders of the minority interest to put the remaining partnership units to the Company in defined future periods, at an initial amount equal to the consideration paid by the Company in 2008, and subject to adjustment based on market value formulas contained in the agreement. The initial difference of $123.0 between the value of the put and the underlying minority interest was recorded as additional minority interest liability and as a reduction to additional paid-in capital in the consolidated financial statements. The contractual value of the put, in excess of the current minority interest of $22.5, totals $98.8 at December 31, 2008.

Seasonality

The majority of the Company's testing volume is dependent on patient visits to doctor's offices and other providers of health care. Volume of testing generally declines during the year-end holiday periods and other major holidays. In addition, volume declines due to inclement weather may reduce net revenues and cash flows. Therefore, comparison of the results of successive quarters may not accurately reflect trends or results for the full year.

Results of Operations

Effective January 1, 2008, the Company began consolidating the results of its Ontario joint venture. Certain analysis of the Company's operating results is provided below, excluding the impact of this consolidation, in order to facilitate comparison with the prior period's results.

Years ended December 31, 2008, 2007, and 2006



Net Sales



                                  Years Ended December 31,                 % Change
                            -------------------------------------   ----------------------
                               2008         2007         2006          2008        2007
                            -------------------------------------   ----------------------
Net Sales
   Routine Testing          $ 2,777 .9   $ 2,671 .9    $ 2,347 .6       4.0%       13.8%
   Genomic and Esoteric       1,478 .3     1,396 .3      1,243 .2       5.9%       12.3%
   Ontario, Canada              249 .0           --            --     100.0%         --%
                              --------     --------      --------
   Total                    $ 4,505 .2   $ 4,068 .2   $  3,590 .8      10.7%       13.3%
                              --------     --------      --------

                                   Number of Accessions
                                 Years Ended December 31,               % Change
                            ----------------------------------   ----------------------
                               2008          2007       2006        2008        2007
                            ----------------------------------   ----------------------
Volume
   Routine Testing               86 .0         85 .4     76 .7       0.7%       11.3%
   Genomic and Esoteric          23 .7         21 .9     18 .8       8.2%       16.5%
   Ontario, Canada                8 .0            --        --     100.0%         --%
                               --------       ------     -----
   Total                        117 .7        107 .3     95 .5       9.7%       12.3%
                               --------       ------     -----

                                 Price Per Accession("PPA")
                                  Years Ended December 31,                 % Change
                            ------------------------------------   ------------------------
                               2008           2007        2006        2008          2007
                            ------------------------------------   ------------------------
Price
   Routine Testing           $  32 .30      $  31 .29   $ 30 .60       3.2%         2.3%
   Genomic and Esoteric      $  62 .49      $  63 .76   $ 66 .14      (2.0% )      (3.6% )

The increase in net sales for the three years ended December 31, 2008 has been driven primarily by volume growth in the Company's Managed Care business, the impact of acquisitions and the Company's continued shift in test mix to higher priced genomic and esoteric tests. Excluding the Ontario operation, Managed Care revenue as a percentage of net sales has increased from 42.6% in 2006 to 44.5% in 2008. Excluding the Ontario operation,the Company's genomic and esoteric volume increased as a percentage of accessions from 19.7% in 2006 to 21.6% in 2008. During the fourth quarter of 2008, the Company recorded a $7.5 cumulative revenue adjustment relating to certain historic overpayments made by Medicare for claims submitted by a subsidiary of the Company. Net sales of the Ontario joint venture were $249.0 for the twelve months ended December 31, 2008.

Cost of Sales

2008 2007 2006 2008 2007

Cost of sales $ 2,631.4 $ 2,377.0 $ 2,061.4 10.7% 15.3%

Cost of sales as a % of sales 58.4% 58.4% 57.4%

Cost of sales, which includes primarily laboratory and distribution costs, has increased over the three year period ended December 31, 2008 primarily due to increased volume in the Company's Managed Care business, the impact of acquisitions and the continued shift in test mix to higher cost genomic and esoteric testing. As a percentage of sales, cost of sales has increased during the three year period ended December 31, 2008 from 57.4% in 2006 to 58.4% in 2008 and 2007. Excluding the Ontario operation, cost of sales as a percentage of net sales was 59.1% for 2008. The increase in cost of sales from 2007 to 2008 as a percentage of net sales is primarily due to increases in the cost of materials, which is caused by shifts in the Company's test mix. From 2006 to 2007, the increase in cost of sales was driven by the Company's roll-out of patient service centers and other customer service infrastructure, along with

Selling, General and Administrative Expenses



  Years Ended December 31, % Change


  2008 2007 2006 2008 2007


Selling, general and

  administrative expenses $ 935.1 $ 808.7 $ 779.1 15.6% 3.8%

SG&A as a % of sales 20.8% 19.9% 21.7%

Total selling, general and administrative expenses ("SG&A") as a percentage of sales over the three year period ended December 31, 2008 have ranged from 21.7% to 19.9%. Excluding the Ontario operation, SG&A as a percentage of net sales was 21.0% for 2008. Bad debt expense increased to 6.2% of net sales in 2008 as compared with 4.8% in 2007 primarily due to an increase of $45.0 in the Company's provision for doubtful accounts recorded in the second quarter of 2008, due to the impact of the economy, higher patient deductibles and copayments, and recent acquisitions on the collectibility of accounts receivable balances. During the fourth quarter of 2008, the Company also recorded charges of $3.7 related to the acceleration of the recognition of stock compensation and certain defined benefit plan obligations due to the retirement of the Company's Executive Vice President of Corporate Affairs which was effective December 31, 2008. From 2006 to 2007, the decrease in SG&A as a percentage of net sales was due to 2006 including charges of $12.3 primarily related to the acceleration of the recognition of stock compensation due to the retirement of the Company's Chief Executive Officer, which was effective December 31, 2006. In addition, the Managed Care volume and revenue growth in 2007 drove an increase in net sales of $477.4, or 13.3%, while the Company controlled costs and also made reductions in work force.

Amortization of Intangibles and Other Assets

2008 2007 2006 2008 2007

Amortization of intangibles

and other assets $ 57.9 $ 54.9 $ 52.2 5.5% 5.2%

The increase in amortization of intangibles and other assets over the three year period ended December 31, 2008 primarily reflects certain acquisitions closed during 2008 and 2007.

Restructuring and Other Special Charges

Years Ended December 31,

2008 2007 2006

Restructuring and other

special charges $ 37.9 $ 50.6 $ 1.0

During 2008, the Company recorded charges primarily related to work force reductions and the closing of redundant and underutilized facilities. For 2008, the Company recorded net restructuring charges of $32.4. Of this amount, $20.9 related to severance and other employee costs in connection with the general work force reductions and $13.4 related to contractual obligations associated with leased facilities and equipment. The Company also recorded a credit of $1.9, comprised of $1.2 of previously recorded facility costs and $0.7 of employee severance benefits relating to changes in cost estimates accrued in prior periods. These restructuring initiatives are expected to provide annualized cost savings of approximately $62.0.

During the third quarter of 2008, the Company also recorded a special charge of $5.5 related to estimated uncollectible amounts primarily owed by patients in the areas of the Gulf Coast severely impacted by hurricanes similar to losses incurred during the 2005 hurricane season.

During the third quarter of 2006, the Company recorded net restructuring charges of $1.0 related to certain expense-reduction initiatives undertaken across the Company's corporate and divisional operations. This net charge was the result of a charge of $2.4 related to employee severance benefits for employees primarily in administrative and support functions, and a credit of $1.4 related to occupying a testing facility that had previously been shut down.

Interest Expense

2008 2007 2006 2008 2007

Interest expense $ 72.0 $ 56.6 $ 47.8 27.2% 18.4%

The increase in interest expense for 2008 as compared to 2007 was primarily due to borrowings outstanding under the Term Loan Facility since October 2007 and the Revolving Facility that totaled $475.0 and $70.8, respectively, at December 31, 2008. The increase in interest expense for 2007 as compared to 2006 was driven primarily by borrowings under the five-year, $500.0 Term Loan Facility in October 2007.

Income from Joint Venture Partnerships

2008 2007 2006 2008 2007

Income from joint

venture partnerships $ 14.4 $ 77.9 $ 66.7 (81.5)% 16.8%

Income from investments in joint venture partnerships represents the Company's ownership share in joint venture partnerships. During 2007 and 2006, a significant portion of this income was derived from investments in Ontario and Alberta, Canada, and was earned in Canadian dollars. Effective January 1, 2008, the income from the Ontario operation is included in the consolidated operating results of the Company, which is the primary reason for the lower income from investments in joint venture partnerships in 2008 as compared with 2007. From 2006 to 2007, the increase in income from the investments in joint venture partnerships was driven by improvement in operational performance and favorable exchange rates.

Income Tax Expense

Years Ended December 31,

2008 2007 2006

Income tax expense $ 307.9 $ 325.5 $ 289.3

Income tax expense as a %

of income before tax 39.9% 40.6% 40.1%

The effective tax rate for 2008 was favorably impacted by the fifth protocol amending the existing tax treaty with Canada entered into force December 15, 2008. A net reduction of $7.1 of the Company's income tax expense was recorded to reflect the impact of amending prior period income tax returns as a result of this treaty change. The increase in the effective tax rate for 2007 as compared to 2006 was primarily the result of higher foreign related earnings.

The Company's strong cash-generating capability and financial condition typically have provided ready access to capital markets. The Company's principal source of liquidity is operating cash flow. This cash-generating capability is one of the Company's fundamental strengths and provides substantial financial flexibility in meeting operating, investing and financing needs. In addition, the Company has senior unsecured credit facilities that are further discussed in "Note 12 to Consolidated Financial Statements."

Operating Activities

In 2008, the Company's operations provided $780.9 of cash, net of $42.4 in transition payments to UnitedHeathcare, reflecting the Company's solid business results. The growth in the Company's cash flow from operations primarily resulted from improved cash collections and lower payments for income taxes of $60.6 ($211.8 in 2008 as compared with $272.4 in 2007). The Company continued to focus on efforts to increase cash collections from all payers, as well as on-going improvements to the claim submission processes.

The Company did not make any contributions to its defined benefit pension plan in 2008, 2007 and 2006. However, based upon the underlying value of the defined pension plan's assets and the amount of the pension plan's benefit obligation as of December 31, 2008, the Company plans to contribute $54.8 to the defined benefit pension plan during 2009.

Due to the stock market's performance in 2008, the fair value of assets in the defined pension plan decreased significantly from January 1, 2008 to December 31, 2008. As a result, the Company's projected pension expense for the defined pension plan and the nonqualified supplemental retirement plan is expected to increase from $19.5 in 2008 to $34.2 in 2009. See "Note 17 to the Consolidated Financial Statements" for a further discussion of the Company's pension and postretirement plans.

Investing Activities

Capital expenditures were $156.7, $142.6 and $115.9 for 2008, 2007 and 2006, respectively. The Company expects capital expenditures of approximately $130.0 in 2009. The Company will continue to make important investments in its business, including information technology. Such expenditures are expected to be funded by cash flow from operations, as well as borrowings under the Company's revolving credit facilities as needed.

The Company remains committed to growing its business through strategic acquisitions and licensing agreements. The Company has invested a total of $603.1 over the past three years in strategic business acquisitions. These acquisitions have helped strengthen the Company's geographic presence along with expanding capabilities in the specialty testing businesses. The Company believes the acquisition market remains attractive, especially in light of recent credit market corrections, with a number of opportunities to strengthen its scientific capabilities, grow esoteric testing capabilities and increase presence in key geographic areas.

The Company has invested a total of $2.1 over the past three years in licensing new testing technologies and had $40.5 net book value of capitalized patents, licenses and technology at December 31, 2008. While the Company continues to believe its strategy of entering into licensing and technology distribution agreements with the developers of leading-edge technologies will provide future growth in revenues, there are certain risks associated with these investments. These risks include, but are not limited to, the risk that the licensed technology will not gain broad acceptance in the marketplace; or that insurance companies, managed care organizations, or Medicare and Medicaid will not approve reimbursement for these tests at a level commensurate with the costs of running the tests. Any or all of these circumstances could result in impairment in the value of the related capitalized licensing costs.

On October 26, 2007, the Company entered into senior unsecured credit facilities totaling $1,000.0. The credit facilities consist of a five-year Revolving Facility in the principal amount of $500.0 and a five-year, $500.0 Term Loan Facility. The balances outstanding on the Company's Term Loan Facility at December 31, 2008 and 2007 were $475.0 and $500.0, respectively. The balances outstanding on the Company's Revolving Facility at December 31, 2008 and 2007 were $70.8 and $0.0, respectively. The senior unsecured credit facilities bear interest at varying rates based upon LIBOR plus a percentage based on the Company's credit rating with Standard & Poor's Ratings Services.

The senior credit facilities contain certain debt covenants, which require that the Company maintain leverage and interest coverage ratios of 2.5 to 1.0 and 5.0 to 1.0, respectively. Both ratios are calculated in relation to EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). The covenants also restrict the payment of dividends. The Company is in compliance with all covenants at December 31, 2008.

On September 15, 2008, Lehman Brothers Holdings, Inc. ("Lehman"), whose subsidiaries have a $28.0 commitment in the Company's Revolving Facility, filed for bankruptcy. Accordingly, the Company does not expect Lehman will fulfill its pro rata share of any future borrowing requests under the Revolving Facility. The Company is considering various options regarding this current limitation on the Revolving Facility.

On March 31, 2008, the Company entered into a three-year interest rate swap agreement to hedge variable interest rate risk on the Company's variable interest rate term loan. Under the swap the Company will, on a quarterly basis, pay a fixed rate of interest (2.92%) and receive a variable rate of interest based on the three-month LIBOR rate on an amortizing notional amount of indebtedness equivalent to the term loan balance outstanding. The swap has been designated as a cash flow hedge. Accordingly, the Company recognizes the fair value of the swap in the consolidated balance sheet and any changes in the fair value are recorded as adjustments to accumulated other comprehensive income, net of tax. The fair value of the interest rate swap agreement is the estimated amount that the Company would pay or receive to terminate the swap agreement at the reporting date. The fair value of the swap was a liability of $13.5 at December 31, 2008 and is included in other liabilities in the consolidated balance sheet. The Company is exposed to credit-related losses in the event of nonperformance by the counterparty to the swap agreement. Management does not expect the counterparty to fail to meet its obligation given the strong creditworthiness of the counterparty to the agreement.

As of December 31, 2008, the interest rates on the Term Loan Facility and the Revolving Facility were 3.67% and 1.89%, respectively.

During 2008, the Company repurchased $330.6 of stock representing 4.6 shares. As of December 31, 2008, the Company had outstanding authorization from the Board of Directors to purchase approximately $95.2 of Company common stock.

On September 22, 2006, the Company announced that it had commenced an exchange offer related to its zero-coupon subordinated notes due 2021. In the exchange offer, the Company offered to exchange a new series of zero-coupon convertible subordinated notes due September 11, 2021 (the "New Notes") and an exchange fee of $2.50 per $1,000 aggregate principal amount at maturity for all of the outstanding zero-coupon subordinated notes due 2021 (the "Old Notes").

The purpose of the exchange offer was to exchange the Old Notes for the New Notes with certain different terms, including the addition of a net share settlement feature. The net share settlement feature requires the Company to satisfy its obligation due upon conversion to holders of the New Notes in cash for a portion of the conversion obligation equal to the accreted principal of the New Notes and in shares for the remainder of the conversion value. In addition, the New Notes provide that the Company eliminate its option to issue shares in lieu of paying cash if and when the Company repurchases the New Notes at the option of holders.

On October 23, 2006, the exchange offer expired. Following settlement of the exchange, $741.2 in aggregate principal amount at maturity of the New Notes and $2.6 in aggregate principal amount at maturity of the Old Notes were outstanding.

The Company's debt ratings of Baa3 from Moody's and BBB from Standard and Poor's contribute to its ability to access capital markets.

Contractual Cash Obligations

                                                        Payments Due by Period
                             ----------------------------------------------------------------------------
                                                                2010-          2012-          2014 and
                                 Total           2009           2011           2013          thereafter
                             -------------    -----------    -----------    -----------    --------------
Operating lease
obligations                   $   376.6        $ 100.8        $ 136.2        $  71.4        $     68.2
Contingent future
licensing payments (a)             52.0            2.7            7.6           13.9              27.8
Minimum royalty payments           24.1            6.8            8.0            5.8               3.5
Minimum purchase
obligations                        20.0           10.0           10.0             --                --
Zero-coupon subordinated
notes (b)                         573.5             --          573.5             --                --
Scheduled interest
payments
  on Senior Notes                 185.1           33.3           66.7           57.0              28.1
Term loan and revolving
credit facility                   545.8          120.8          125.0          300.0                --
Long-term debt, other
than term loan,
  revolving credit
facility and
  zero-coupon
subordinated notes                602.0            0.5            1.0          350.5             250.0
                                -------          -----          -----          -----          --------
Total contractual cash
obligations(c)(d)(e)          $ 2,379.1        $ 274.9        $ 928.0        $ 798.6        $    377.6
                                -------          -----          -----          -----          --------

(a) Contingent future licensing payments will be made if certain events take place, such as the launch of a specific test, the transfer of certain technology, and when specified revenue milestones are met.

(b) Holders of the zero-coupon subordinated notes may require the Company to purchase in cash all or a portion of their notes on September 11, 2011 at $819.54 per note ($604.7 in the aggregate). Should the holders put the notes to the Company on that date, the Company believes that it will be able to satisfy this contingent obligation with cash on hand, borrowings on the revolving credit facility, and additional financing if necessary. As announced by the Company on January 6, 2009, the zero-coupon subordinated notes may not be converted during the period of January 1, 2009 through March 31, 2009 because the common stock trading price conversion feature of the zero-coupon subordinated notes was not triggered by fourth quarter 2008 trading prices. See "Note 12 to Consolidated Financial Statements" for further information regarding the Company's zero-coupon subordinated notes.

(c) The table does not include obligations under the Company's pension and postretirement benefit plans, which are included in "Note 17 to Consolidated Financial Statements." Benefits under the Company's postretirement medical plan are made when claims are submitted for payment, the timing of which are not practicable to estimate. The Company plans to contribute $54.8 to the defined benefit pension plan during 2009.

(d) The table does not include the Company's contingent obligation to reimburse up to $200.0 in transition costs during the first three years of the UnitedHealthcare contract. The Company anticipates that it has approximately $51.2 remaining to be paid out on this contingent obligation.

(e) The table does not include the Company's reserves for unrecognized tax . . .