LabCorp 2008 Annual Report Download - page 52

Notes to Consolidated Financial Statements
(Dollars and shares in millions, except per share data)
Laboratory Corporation of America
50 Laboratory Corporation of America® Holdings 2008
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.
The Company leases various facilities and equipment under non-cancelable lease
arrangements. Future minimum rental commitments for leases with non-cancelable terms of
one year or more at December 31, 2008 are as follows:
Operating
2009 $ 108.1
2010 79.8
2011 63.1
2012 43.0
2013 29.0
Thereafter 68.2
Total minimum lease payments 391.2
Less:
Amounts included in restructuring and acquisition related accruals (13.8)
Non-cancelable sub-lease income (0.8)
Total minimum operating lease payments $ 376.6
Rental expense, which includes rent for real estate, equipment and automobiles under
operating leases, amounted to $175.1, $158.9 and $130.9 for the years ended December 31,
2008, 2007 and 2006, respectively.
At December 31, 2008, the Company was a guarantor on approximately $6.4 of equipment
leases. These leases were entered into by a joint venture in which the Company owns a fifty percent
interest and have a remaining term of approximately three years.
17) Pension and Postretirement Plans
Effective December 31, 2006, the Company adopted SFAS No. 158, “Employers’ Accounting
for Defined Benefit Pension and Other Postretirement Plans” (SFAS No. 158). SFAS No. 158
requires that employers recognize on a prospective basis the funded status of their defined
benefit pension and other postretirement 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 state-
ments. 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 postretirement
medical benefits, which resulted in a decrease to shareholders’ 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 $15.5, $14.8 and $13.8 in 2008, 2007 and 2006, 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 2008 and 2007. However,
based upon the underlying value of the Company Plan’s assets and the amount of the Company
Plan’s benefit obligation as of December 31, 2008, the Company plans to contribute $54.8 to
the Company Plan during 2009.
Due to the stock market’s performance in 2008, the fair value of assets in the Company
Plan decreased significantly from January 1, 2008 to December 31, 2008. As a result, the
Company’s projected pension expense for the Company Plan and the nonqualified supplemental
retirement plan is expected to increase from $19.5 in 2008 to $34.2 in 2009.
The Company’s nonqualified supplemental retirement plan covers its senior management
group and 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.
The effect on operations for both the defined benefit retirement plan and the nonqualified
supplemental retirement plan are summarized as follows:
Year Ended December 31,
2008 2007 2006
Service cost for benefits earned $ 20.0 $ 19.1 $ 17.1
Interest cost on benefit obligation 17.2 16.0 14.5
Expected return on plan assets (22.2) (22.7) (21.4)
Net amortization and deferral 2.8 2.1 4.4
Executive retirement charge 1.7 – 0.7
Defined benefit plan costs $ 19.5 $ 14.5 $ 15.3
Amounts included in accumulated other comprehensive earnings consist of unamortized net
loss of $130.1 and unrecognized prior service cost of $7.2. The accumulated other comprehensive
earnings that are expected to be recognized as components of the defined benefit plan costs
during 2009 are $11.6 related to amortization of net loss and $1.0 related to recognition of
prior service costs.