LabCorp 2007 Annual Report Download - page 26

Management’s Discussion and Analysis of Financial
Condition and Results of Operations (Dollars in millions)
24 Laboratory Corporation of America® Holdings 2007
On September 22, 2006, the Company announced that it had
commenced an exchange offer related to its zero-coupon subordi-
nated 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 no longer has the 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 its ability to access capital markets.
Contractual Cash Obligations
Payments Due by Period
2013 and
Total 2008 2009-2010 2011 -2012 Thereafter
Operating lease obligations $ 296.3 $ 85.5 $108.6 $ 61.4 $ 40.8
Contingent future licensing payments (a) 55.0 4.7 3.8 17.6 28.9
Minimum royalty payments 28.6 6.4 12.4 4.8 5.0
Minimum purchase obligations 30.0 10.0 20.0 – –
Zero-coupon subordinated notes (b) 564.4 564.4 – – –
Scheduled interest payments on Senior Notes 218.4 33.3 66.6 66.6 51.9
Term loan 500.0 25.0 100.0 375.0 –
Long-term debt, other than term loan 602.6 0.9 0.9 0.8 600.0
Total contractual cash obligations (c)(d)(e) $2,295.3 $730.2 $312.3 $526.2 $726.6
(a) Contingent future licensing payments will be made if certain events take place, such as the launch of a specifi c test, the transfer of certain technology, and when specifi ed 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 ($741.2 in the aggregate). Should the hold-
ers 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 fi nancing if
necessary. As announced by the Company on January 4, 2008, holders of the zero-coupon subordinated notes may choose to convert their notes subject to terms as defi ned in the note agreement. 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 benefi t plans, which are included in “Note 17 to Consolidated Financial Statements.” Benefi ts under the Company’s postretire-
ment 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 transition costs during the fi rst three years of the UnitedHealthcare contract.
(e) The table does not include the Company’s reserves for unrecognized tax benefi ts. The Company had a $66.5 and $56.8 reserve for unrecognized tax benefi ts, including interest and penalties, at December 31, 2007
and January 1, 2007, respectively, which is included in “Note 14 to Consolidated Financial Statements.” Substantially all of these tax reserves are classifi ed in other long-term liabilities in the Company’s Consolidated
Balance Sheet at December 31, 2007.
Laboratory Corporation of America