LabCorp 2011 Annual Report Download - page 14

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LABORATORY CORPORATION OF AMERICA
Management’s Discussion and Analysis
of Financial Condition and Results of Operations (in millions)
its scientific capabilities, grow esoteric testing capabilities and
increase presence in key geographic areas.
The Company has invested a total of $50.8 over the past
three years in licensing new testing technologies (including
approximately $49.4 estimated fair market value of technol-
ogy acquired in certain acquisitions in 2010 and 2009) and
had $66.2 net book value of capitalized patents, licenses
and technology as of December 31, 2011. While the
Company continues to believe its strategy of entering into
licensing and technology distribution agreements with the
developers of leading-edge technologies will provide future
growth in revenues, there are certain risks associated with
these investments. These risks include, but are not limited
to, the failure of the licensed technology to gain broad
acceptance in the marketplace and/or that insurance
companies, managed care organizations, or Medicare and
Medicaid will not approve reimbursement for these tests at
a level commensurate with the costs of running the tests.
Any or all of these circumstances could result in impairment
in the value of the related capitalized licensing costs.
Financing Activities
On December 21, 2011, the Company entered into a Credit
Agreement (the “Credit Agreement”) providing for a five-year
$1,000.0 senior unsecured revolving credit facility (the
“Revolving Credit Facility”) with Bank of America, N.A., acting
as Administrative Agent, Barclays Capital as Syndication
Agent, and a group of financial institutions as lending parties.
As part of the new Revolving Credit Facility, the Company
repaid all of the outstanding balances of $318.8 on its existing
term loan facility and $235.0 on its existing revolving credit
facility. In conjunction with the repayment and cancellation
of its old credit facility, the Company recorded approximately
$1.0 of remaining unamortized debt costs as interest expense
in the accompanying Consolidated Statements of Operations
for the year ended December 31, 2011. The balances out-
standing on the Company’s Revolving Credit Facility at
December 31, 2011 and December 31, 2010 were $560.0
and $0.0, respectively. The Revolving Credit Facility bears
interest at varying rates based upon a base rate or LIBOR plus
(in each case) a percentage based on the Company’s debt
rating with Standard & Poor’s and Moody’s Ratings Services.
The Revolving Credit Facility is available for general
corporate purposes, including working capital, capital expen-
ditures, acquisitions, funding of share repurchases and other
restricted payments permitted under the Credit Agreement.
The Credit Agreement also contains limitations on aggregate
subsidiary indebtedness and a debt covenant that requires
that the Company maintain on the last day of any period for
four consecutive fiscal quarters, in each case taken as one
accounting period, a ratio of total debt to consolidated
EBITDA (Earnings Before Interest, Taxes, Depreciation, and
Amortization) of not more than 3.0 to 1.0. The Company was
in compliance with all covenants in the Credit Agreement at
December 31, 2011.
As of December 31, 2011, the effective interest rate on the
Revolving Credit Facility was 1.26%.
The interest rate swap agreement to hedge variable interest
rate risk on the Company’s variable interest rate term loan
expired on March 31, 2011. On a quarterly basis under the
swap, the Company paid a fixed rate of interest (2.92%) and
received 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
was designated as a cash flow hedge. Accordingly, the
Company recognized the fair value of the swap in the
condensed consolidated balance sheets and any changes in
the fair value were recorded as adjustments to accumulated
other comprehensive income (loss), net of tax. The fair value
of the interest rate swap agreement was the estimated amount
that the Company would have paid or received to terminate
the swap agreement at the reporting date. The fair value of
the swap was a liability of $2.4 at December 31, 2010 and
was included in other liabilities in the respective condensed
consolidated balance sheet.
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 acquisi-
tion of Genzyme Genetics was funded by the proceeds from the
issuance of these Notes ($915.4) and with cash on hand.