LabCorp 2006 Annual Report Download - page 49

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars and shares in millions, except per share data)
Laboratory Corporation of America® Holdings 2006 47
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Under the Company’s present insurance programs, coverage is
obtained for catastrophic exposures as well as those risks required
to be insured by law or contract. The Company is responsible for the
uninsured portion of losses related primarily to general, professional
and vehicle liability, certain medical costs and workers’ compensation.
The self-insured retentions are on a per occurrence basis without any
aggregate annual limit. Provisions for losses expected under these
programs are recorded based upon the Company’s estimates of the
aggregated liability of claims incurred. At December 31, 2006 and
2005, the Company had provided letters of credit aggregating approxi-
mately $111.7 and $62.6 respectively, primarily in connection with
certain insurance programs and contractual guarantees on obligations
under a new customer contract. The Company’s availability under its
revolving credit facility is reduced by amount of these letters of credit.
On October 3, 2006, the Company announced that it had entered
into a new, ten-year agreement with UnitedHealthcare Insurance
Company (UnitedHealthcare), effective January 1, 2007. Under the terms
of the Agreement, the Company became UnitedHealthcare’s exclusive
national laboratory, offering a comprehensive suite of services, and will
also work with other regional and local laboratory providers to selectively
develop, implement and manage for UnitedHealthcare a series of labora-
tory networks in selected regions across the United States. During the
first three years of the ten-year agreement, the Company has committed
to reimburse UnitedHealthcare up to $200 for transition costs related to
developing an expanded network in the Oxford, MAMSI and Neighbor-
hood Health Partnership markets, as well as in California and Colorado.
The Company leases various facilities and equipment under
non-cancelable lease arrangements. Future minimum rental commit-
ments for leases with non-cancelable terms of one year or more at
December 31, 2006 are as follows:
Operating Capital
2007 $ 83.4 $ 1.3
2008 64.6 –
2009 47.6 –
2010 33.2 –
2011 25.8 –
Thereafter 49.4 –
Total minimum lease payments 304.0 1.3
Less:
Amounts included in restructuring and
acquisition related accruals (14.9) (0.4)
Amounts representing interest – (0.1)
Non-cancellable sub-lease income (1.8) (0.2)
Total minimum operating lease payments and present
value of minimum capital lease payments $287.3 $ 0.6
Current $ 0.6
Non-current –
$ 0.6
Rental expense, which includes rent for real estate, equipment
and automobiles under operating leases, amounted to $130.9, $119.6
and $106.6 for the years ended December 31, 2006, 2005 and
2004, respectively.
At December 31, 2006, the Company was named as guarantor
on approximately $6.4 of equipment leases. These leases were
entered into by a joint venture that the Company owns a fifty percent
interest in and have a five year term.
16. PENSION AND POST-RETIREMENT PLANS
Effective December 31, 2006, the Company adopted SFAS No. 158,
“Employers’ Accounting for Defined Benefit Pension and Other Post-
retirement Plans” (SFAS No. 158). SFAS No. 158 requires that employ-
ers recognize on a prospective basis the funded status of their defined
benefit pension and other post-retirement plans on their consolidated
balance sheet and recognize as a component of other comprehensive
income, net of tax, the gains or losses and prior service costs or credits
that arise during the period but are not recognized as components of net
periodic benefit cost. SFAS No. 158 also requires additional disclosures
in the notes to financial statements. The impact of SFAS No. 158 as of
December 31, 2006, was a decrease of the Company’s other assets
by $26.4, increase of its accrued liabilities by $4.5 for pension and
post-retirement medical benefits, which resulted in a decrease to share-
holders’ equity of approximately $30.9, net of tax in the Company’s
consolidated balance sheet as of December 31, 2006.
Pension Plans
The Company maintains a defined contribution retirement plan for
substantially all employees. Company contributions to the plan are
based on a percentage of employee contributions. The cost of this plan
was $13.8, $12.8 and $11.0 in 2006, 2005 and 2004, respectively.
In addition, substantially all employees of the Company are
covered by a defined benefit retirement plan (the “Company Plan”).
The benefits to be paid under the Company Plan are based on years of
credited service and average final compensation. The Company’s policy
is to fund the Company Plan with at least the minimum amount required
by applicable regulations. The Company did not make any contributions
to the Company Plan in 2006 and at the present time, does not plan to
make any contributions in 2007.
The Company also has a nonqualified supplemental retirement plan
which covers its senior management group that provides for the payment
of the difference, if any, between the amount of any maximum limitation
on annual benefit payments under the Employee Retirement Income
Security Act of 1974 and the annual benefit that would be payable under
the Company Plan but for such limitation. This plan is an unfunded plan.