LabCorp 2009 Annual Report Download - page 29

LABORATORY CORPORATION OF AMERICA
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
LABORATORY CORPORATION OF AMERICA 27
Contractual Cash Obligations
Payments Due by Period
2011- 2013- 2015 and
Total 2010 2012 2014 thereafter
Operating lease obligations $ 366.6 $ 100.4 $ 134.9 $ 69.2 $ 62.1
Contingent future licensing payments (a) 38.4 0.5 6.6 13.2 18.1
Minimum royalty payments 19.8 5.8 5.0 5.3 3.7
Zero-coupon subordinated notes (b) 292.2 292.2 – – –
Scheduled interest payments on Senior Notes 151.8 33.3 66.6 37.8 14.1
Term loan and revolving credit facility 500.0 125.0 375.0 – –
Long-term debt, other than term loan, revolving credit facility and
zero-coupon subordinated notes 602.2 0.7 1.5 350.0 250.0
Total contractual cash obligations (c)(d)(e) $ 1,971.0 $ 557.9 $ 589.6 $ 475.5 $ 348.0
(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 ($302.2 in the aggregate).
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 5, 2010, holders of the zero-coupon subordinated notes may choose to convert their notes during the first quarter of
2010 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 postretirement benefit plans, which are included in “Note 16 to Consolidated Financial Statements.” Benefits under the Company’s
postretirement medical plan are made when claims are submitted for payment, the timing of which is not practicable to estimate.
(d) The table does not include the Company’s contingent obligation to reimburse up to $200.0 in transition costs incurred during the first three years of the UnitedHealthcare contract. The Company anticipates
that it has approximately $22.8 remaining to be paid out on this contingent obligation.
(e) The table does not include the Company’s reserves for unrecognized tax benefits. The Company had a $73.7 and $86.7 reserve for unrecognized tax benefits, including interest and penalties, at
December 31, 2009 and 2008, respectively, which is included in “Note 13 to Consolidated Financial Statements.” Substantially all of these tax reserves are classified in other long-term liabilities
in the Company’s Consolidated Balance Sheets at December 31, 2009 and 2008.
Off-Balance Sheet Arrangements
The Company does not have transactions or relationships with
“special purpose” entities, and the Company does not have any
off-balance sheet financing other than normal operating leases.
Other Commercial Commitments
At December 31, 2009, the Company provided letters of credit
aggregating approximately $39.5, primarily in connection with
certain insurance programs. Letters of credit provided by the
Company are secured by the Company’s senior credit facilities
and are renewed annually, around mid-year.
Effective January 1, 2008 the Company acquired additional
partnership units in its Ontario, Canada (“Ontario”) joint venture
for approximately $140.9 in cash (net of cash acquired), bringing
the Company’s percentage interest owned to 85.6%. Concurrent
with this acquisition, the terms of the joint venture’s partnership
agreement were amended. Based upon the amended terms of
this agreement, the Company began including the consolidated
operating results, financial position and cash flows of the Ontario
joint venture in the Company’s consolidated financial statements
on January 1, 2008. The amended joint venture’s partnership
agreement also enables the holders of the noncontrolling interest
to put the remaining partnership units to the Company in defined
future periods, at an initial amount equal to the consideration
paid by the Company in 2008, and subject to adjustment
based on market value formulas contained in the agreement.
The initial difference of $123.0 between the value of the put and
the underlying noncontrolling interest was recorded as additional
noncontrolling interest liability and as a reduction to additional
paid-in capital in the consolidated financial statements. The con-
tractual value of the put, in excess of the current noncontrolling
interest of $23.5, totals $118.9 at December 31, 2009.
In December 2009, the Company received notification
from the holders of the noncontrolling interest in the Ontario
joint venture that they intend to put their remaining partner-
ship units to the Company in accordance with the terms of
the joint venture’s partnership agreement. These units were
acquired on February 8, 2010 for CN$147.8. On February 17,
2010, the Company completed a transaction to sell the units
acquired from the previous noncontrolling interest holder to a new
Canadian partner for the same price. Upon the completion of
these two transactions, the Company’s financial ownership
percentage in the joint venture partnership remained unchanged
at 85.6%. Concurrent with the sale to the new partner, the
partnership agreement for the Ontario Canada joint venture
was amended and restated with substantially the same terms
as the previous agreement.