LabCorp 2010 Annual Report Download - page 15

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LABORATORY CORPORATION OF AMERICA
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
Financing Activities
On October 26, 2007, the Company entered into senior
unsecured credit facilities totaling $1,000.0. The credit facilities
consist of a five-year Revolving Facility in the principal amount of
$500.0 and a five-year, $500.0 Term Loan Facility. The balances
outstanding on the Company’s Term Loan Facility at December 31,
2010 and 2009 were $375.0 and $425.0, respectively. The
balances outstanding on the Company’s Revolving Facility at
December 31, 2010 and 2009 were $0.0 and $75.0, respectively.
The senior unsecured credit facilities bear interest at varying rates
based upon LIBOR plus a percentage based on the Company’s
credit rating with Standard & Poor’s Ratings Services.
The senior credit facilities contain certain debt covenants,
which require that the Company maintain a leverage ratio of no
more than 2.5 to 1.0 and an interest coverage ratio of at least
5.0 to 1.0. Both ratios are calculated in relation to EBITDA
(Earnings Before Interest, Taxes, Depreciation and Amortization).
The credit agreement allows payment of dividends provided
that the Company is not in default (as defined in the agreement)
and its leverage ratio is less than 2.0 to 1.0. The Company is in
compliance with all covenants at December 31, 2010.
On March 31, 2008, the Company entered into a three-year
interest rate swap agreement to hedge variable interest rate
risk on the Company’s variable interest rate term loan. On a
quarterly basis under the swap, the Company pays a fixed rate
of interest (2.92%) and receives a variable rate of interest based
on the three-month LIBOR rate on an amortizing notional
amount of indebtedness equivalent to the term loan balance
outstanding. The swap has been designated as a cash flow
hedge. Accordingly, the Company recognizes the fair value of
the swap in the consolidated balance sheets and any changes
in the fair value are recorded as adjustments to accumulated
other comprehensive income (loss), net of tax. The fair value of
the interest rate swap agreement is the estimated amount
that the Company would pay or receive to terminate the swap
agreement at the reporting date. The fair value of the swap
was a liability of $2.4 and $10.6 at December 31, 2010 and
2009, respectively, and is included in other liabilities in the
consolidated balance sheets.
As of December 31, 2010, the interest rates on the Term
Loan Facility and the Revolving Facility were 3.67% and 0.61%,
respectively.
On October 28, 2010, in conjunction with the acquisition of
Genzyme Genetics, the Company entered into a $925.0 Bridge
Term Loan Credit Agreement, among the Company, the lenders
named therein and Citibank, N.A., as administrative agent (the
“Bridge Facility”). The Company replaced and terminated the
Bridge Facility in November 2010 by making an offering in the
debt capital markets. On November 19, 2010, the Company
sold $925.0 in debt securities, consisting of $325.0 aggregate
principal amount of 3.125% Senior Notes due May 15, 2016
and $600.0 aggregate principal amount of 4.625% Senior
Notes due November 15, 2020. Beginning on May 15, 2011,
interest on the Senior Notes due 2016 and 2020 is payable
semi-annually on May 15 and November 15. On December 1,
2010, the acquisition of Genzyme Genetics was funded by the
proceeds from the issuance of these Notes ($915.4) and with
cash on hand.
During 2010, the Company repurchased $337.5 of stock
representing 4.5 shares. As of December 31, 2010, the
Company had outstanding authorization from the Board of
Directors to purchase approximately $234.3 of Company
common stock. During January 2011, the Company completed
its repurchase authorization, representing approximately 2.6
shares of its common stock. On February 10, 2011, the
Company announced the Board of Directors authorized the
purchase of $500.0 of additional shares of the Company’s
common stock.
During the second quarter of 2009, the Company redeemed
approximately $369.5 principal amount at maturity of its zero-
coupon subordinated notes, equaling approximately 50% of
the principal amount at maturity outstanding of the zero-coupon
subordinated notes. The total cash used for these redemptions
was $289.4. As a result of certain holders of the zero-coupon
subordinated notes electing to convert their notes, the Company
also issued 0.4 additional shares of common stock and reversed
approximately $11.3 of deferred tax liability to reflect the tax
benefit realized upon issuance of these shares.
Credit Ratings
The Company’s debt ratings of Baa2 from Moody’s and BBB+
from Standard and Poor’s contribute to its ability to access
capital markets.