Quest Diagnostics 2006 Annual Report Download - page 109

Industrial Revenue Bonds
In connection with the acquisition of LabOne in November 2005, the Company assumed $7.2 million of
Industrial Revenue Bonds. Principal is payable annually in equal installments through September 1, 2009. Interest
is payable monthly at a rate adjusted weekly based on LIBOR plus approximately 0.08%. At December 31, 2006
and 2005, the rate was 5.4% and 4.5%, respectively. At December 31, 2006, the remaining principal outstanding
was $5.4 million. The bonds are secured by the Lenexa, Kansas laboratory facility and an irrevocable bank letter
of credit.
Term Loan due December 2008
On December 19, 2003, the Company entered into a $75 million amortizing term loan facility (the “term
loan due December 2008”), which was funded on January 12, 2004. Interest under the term loan due December
2008 is based on LIBOR plus an applicable margin that can fluctuate over a range of up to 119 basis points,
based on changes in the Company’s public debt rating. At the option of the Company, it may elect to enter into
LIBOR-based interest rate contracts for periods up to 180 days. Interest on any outstanding amounts not covered
under the LIBOR-based interest rate contracts is based on an alternate base rate, which is calculated by reference
to the prime rate or federal funds rate. As of December 31, 2006 and 2005, the Company’s borrowing rate for
LIBOR-based loans was LIBOR plus 0.50%. The term loan due December 2008 requires principal repayments of
the initial amount borrowed equal to 20% on each of the third and fourth anniversary dates of the funding and
the remainder of the outstanding balance on December 31, 2008. The term loan due December 2008 is
guaranteed by the Subsidiary Guarantors and contains various covenants similar to those under the Credit Facility.
Senior Notes
In conjunction with its 2001 debt refinancing, the Company completed a $550 million senior notes offering
in June 2001 (the “2001 Senior Notes”). The 2001 Senior Notes were issued in two tranches: (a) $275 million
aggregate principal amount of 6
3
⁄ 4 % senior notes due 2006 (“Senior Notes due 2006”), issued at a discount of
approximately $1.6 million and (b) $275 million aggregate principal amount of 7
1
⁄ 2 % senior notes due 2011
(“Senior Notes due 2011”), issued at a discount of approximately $1.1 million. On July 12, 2006, the Company
repaid the $275 million outstanding under the Senior Notes due 2006. After considering the discount, the
effective interest rates on the Senior Notes due 2011 is 7.6%. The Senior Notes due 2011 require semiannual
interest payments. The Senior Notes due 2011 are unsecured obligations of the Company and rank equally with
the Company’s other unsecured senior obligations. The Senior Notes due 2011 are guaranteed by the Subsidiary
Guarantors and do not have a sinking fund requirement.
On October 31, 2005, the Company completed its $900 million private placement of senior notes (the “2005
Senior Notes”). The 2005 Senior Notes were priced in two tranches: (a) $400 million aggregate principal amount
of 5.125% senior notes due November 1, 2010 (“Senior Notes due 2010”); and (b) $500 million aggregate
principal amount of 5.45% senior notes due November 1, 2015 (“Senior Notes due 2015”). The Company used
the net proceeds from the 2005 Senior Notes, together with cash on hand, to pay the cash purchase price and
transaction costs of the LabOne acquisition and to repay $127 million of LabOne’s debt. The Senior Notes due
2010 and 2015 were issued at a discount of $0.8 million and $1.6 million, respectively. After considering the
discounts, the effective interest rates on the Senior Notes due 2010 and 2015 are approximately 5.3% and 5.6%,
respectively. The 2005 Senior Notes require semiannual interest payments, which commenced on May 1, 2006.
The 2005 Senior Notes are unsecured obligations of the Company and rank equally with the Company’s other
unsecured senior obligations. The 2005 Senior Notes are guaranteed by the Subsidiary Guarantors. Under a
registration rights agreement executed in connection with the offering and sale of the 2005 Senior Notes and
related guarantees, the Company filed a registration statement which was declared effective on February 16, 2006,
to enable the holders of the 2005 Senior Notes to exchange the notes and guarantees for publicly registered notes
and guarantees and all the holders exchanged the notes and guarantees for publicly registered notes and
guarantees.
Treasury Lock Agreements
In October 2005, the Company entered into interest rate lock agreements with two financial institutions for a
total notional amount of $300 million to lock the U.S. treasury rate component of a portion of the Company’s
offering of its debt securities in the fourth quarter of 2005 (the “Treasury Lock Agreements”). The Treasury Lock
F-22
QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands unless otherwise indicated)