LabCorp 2006 Annual Report Download - page 40

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars and shares in millions, except per share data)
38 Laboratory Corporation of America® Holdings 2006
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Fair Value of Financial Instruments:
The carrying amounts of cash and cash equivalents, short-term
investments, accounts receivable, income taxes receivable, senior
notes and accounts payable are considered to be representative
of their respective fair values due to their short-term nature. The
fair market value of the zero-coupon subordinated notes, based
on market pricing, was approximately $729.7 and $567.3 as of
December 31, 2006 and 2005, respectively.
2. BUSINESS ACQUISITIONS
On February 3, 2005, the Company acquired all of the outstanding
shares of US Pathology Labs, Inc. and Subsidiaries (“US LABS”) for
approximately $155 in cash. US LABS, based in Irvine, California,
is a national, anatomic pathology reference laboratory devoted to
comprehensive, high-quality, rapid-response cancer testing. The
company provides diagnostic, prognostic, and predictive cancer
testing services to hospitals, physician offices and surgery centers.
On May 11, 2005, the Company acquired all of the outstanding
shares of Esoterix, Inc. and Subsidiaries (“Esoterix”) for approximately
$150 in cash. Esoterix, based in Austin, Texas, is a leading provider of
specialty reference testing.
3. CEO RETIREMENT
On July 21, 2006, the Company announced the retirement of its
Chief Executive Officer (“CEO”), Thomas P. Mac Mahon, effective
December 31, 2006. During the second half of 2006, the Company
recorded charges of approximately $12.3, which included $11.6 related
to the acceleration of the recognition of stock compensation and $0.7
related to the acceleration of certain defined benefit plan obligations.
On July 20, 2006, Mr. Mac Mahon entered into a consulting
agreement with the Company effective January 1, 2007, following
the announcement of his retirement as CEO on December 31, 2006.
The agreement provides for additional services to be provided by
Mr. Mac Mahon following the termination of his employment as
CEO to assist the Company during a transition period. Mr. Mac Mahon
will remain as Chairman of the Board. The Agreement provided for an
additional five years of age for purposes of calculating pension benefits.
The agreement has a term of six months up to sixteen months.
On November 29, 2006, Mr. Mac Mahon entered into an Aircraft
Time Sharing Agreement with the Company. Under the provisions
of this agreement, Mr. Mac Mahon may sublease from time to time
aircraft possessed by the Company, subject to the prior permission and
approval of the Company provided such use shall not be for purposes
of providing transportation of passengers or cargo in air commerce
for compensation or hire. The agreement is for a one-year period and
automatically renews for additional one-year periods until 2026 in the
absence of written notice of non-renewal at least ten days prior to the
applicable renewal period. Mr. Mac Mahon is responsible for the direct
operating costs of the aircraft for each flight undertaken under this time
sharing agreement.
4. RESTRUCTURING AND
OTHER SPECIAL CHARGES
During the third and fourth quarters of 2005, the Company began to
implement its plan related to the integration of Esoterix and US LABS
operations into the Company’s service delivery network. The plan is
directed at reducing redundant facilities, while maintaining the goal of
providing excellent customer service. In connection with the integration
plan, the Company recorded $11.9 of costs associated with the
execution of the plan. The majority of these integration costs related
to employee severance and contractual obligations associated with
leased facilities and equipment. Of this amount, $10.1 million related
to employee severance benefits for approximately 700 employees, with
the remainder primarily related to contractual obligations associated
with leased facilities. Employee groups affected as a result of this plan
included those involved in the collection and testing of specimens, as
well as administrative and other support functions.
The Company also recorded a special charge of $5.0 related to
forgiveness of amounts owed by patients and clients as well as other
costs associated with the areas of the Gulf Coast severely impacted
by hurricanes Katrina and Rita.
5. INVESTMENTS IN JOINT
VENTURE PARTNERSHIPS
At December 31, 2006 the Company had investments in the following
joint venture partnerships:
Net Percentage
Location Investment Interest Owned
Milwaukee, Wisconsin $ 4.2 50.00%
Ontario, Canada 518.8 72.99%
Alberta, Canada 54.8 43.37%
Each of the joint venture agreements that govern the conduct
of business of these partnerships mandates unanimous agreement
between partners on all major business decisions as well as providing
other participating rights to each partner. These partnerships, including