LabCorp 2012 Annual Report Download - page 16

14
LABORATORY CORPORATION OF AMERICA
Management’s Discussion and Analysis
of Financial Condition and Results of Operations (in millions)
On September 12, 2012, the Company announced that
for the period of September 12, 2012 to March 11, 2013,
the zero-coupon subordinated notes will accrue contingent
cash interest at a rate of no less than 0.125% of the average
market price of a zero-coupon subordinated note for the
five trading days ended September 7, 2012, in addition to
the continued accrual of the original issue discount.
On January 2, 2013, the Company announced that its
zero-coupon subordinated notes may be converted into
cash and common stock at the conversion rate of 13.4108
per $1,000 principal amount at maturity of the notes, subject
to the terms of the zero-coupon subordinated notes and the
Indenture, dated as of October 24, 2006 between the
Company and The Bank of New York Mellon, as trustee and
conversion agent. In order to exercise the option to convert
all or a portion of the zero-coupon subordinated notes,
holders are required to validly surrender their zero-coupon
subordinated notes at any time during the calendar quarter
beginning January 1, 2013, through the close of business
on the last business day of the calendar quarter, which is
5:00 p.m., New York City time, on Friday, March 29, 2013.
If notices of conversion are received, the Company plans to
settle the cash portion of the conversion obligation with cash
on hand and/or borrowings under the revolving credit facility.
Credit Ratings
The Company’s debt ratings of Baa2 from Moody’s and
BBB from Standard & Poor’s contribute to its ability to
access capital markets.
Contractual Cash Obligations
Payments Due by Period
2014- 2016- 2018 and
Total 2013 2015 2017 thereafter
Operating lease obligations $ 583.8 $ 166.9 $ 228.4 $ 100.8 $ 87.7
Contingent future licensing payments(a) 21.9 5.1 9.1 6.1 1.6
Minimum royalty payments 10.3 2.0 3.5 3.2 1.6
Zero-coupon subordinated notes(b) 130.0 130.0 – – –
Scheduled interest payments on Senior Notes 530.7 83.3 163.4 115.6 168.4
Revolving credit facility – – – – –
Long-term debt, other than revolving credit facility 2,525.0 350.0 250.0 825.0 1,100.0
Total contractual cash obligations(c)(d) $ 3,801.7 $ 737.3 $ 654.4 $ 1,050.7 $ 1,359.3
(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) As announced by the Company on January 2, 2013, holders of the zero-coupon subordinated notes may choose to convert their notes during the first quarter of 2013 subject to terms as defined in the note
agreement. See “Note 11 to Consolidated Financial Statements” and “Credit Ratings” above 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 reserves for unrecognized tax benefits. The Company had a $46.2 and $63.5 reserve for unrecognized tax benefits, including interest and penalties, at
December 31, 2012 and 2011, 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, 2012 and 2011.
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
As of December 31, 2012, the Company provided letters
of credit aggregating approximately $37.4, primarily in
connection with certain insurance programs. Letters of
credit provided by the Company are secured by the
Company’s Revolving Credit Facility and are renewed
annually, around mid-year.