LabCorp 2006 Annual Report Download - page 25

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in millions)
Laboratory Corporation of America® Holdings 2006 23
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Financing Activities
During 2006, the Company repurchased $435.1 of stock represent-
ing 6.7 million shares. As of December 31, 2006, the Company had
outstanding authorizations from the Board of Directors to purchase
approximately $350.2 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 out-
standing 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 will require 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 will 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.
Credit Ratings
The Company’s debt ratings of Baa3 from Moody’s and BBB from
Standard and Poor’s contribute to our ability to access capital markets.
Contractual Cash Obligations
Payments Due by Period
2011 and
Total 2007 2008 – 2009 2010 –2011 thereafter
Capital lease obligations $ 0.6 $ 0.6 $ – $ – $ –
Operating lease obligations 287.3 78.8 104.2 55.8 48.5
Contingent future licensing payments(a) 55.9 3.8 19.3 12.6 20.2
Minimum royalty payments 28.9 6.5 12.6 6.2 3.6
Minimum purchase obligations 20.0 10.0 10.0 – –
Zero-coupon subordinated notes(b) 554.4 554.4 – – –
Scheduled interest payments on Senior Notes 251.7 33.3 66.6 66.6 85.2
Long-term debt 603.0 1.0 1.0 1.0 600.0
Total contractual cash obligations(c)(d) $1,801.8 $688.4 $213.7 $142.2 $757.5
(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. 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 9, 2007, holders of the zero-coupon subordinated notes may choose to convert their notes subject to terms as defined in the
note agreement. See “Note 11 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 post-retirement benefit plans, which are included in “Note 16 to Consolidated Financial Statements.” Benefits under the
Company’s post-retirement medical plan are made when claims are submitted for payment, the timing of which are not practicable to estimate.
(d) The table does not include the Company’s contingent obligation to reimburse up to $200.0 in transitional costs during the first three years of the UnitedHealthcare contract.