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August 21, 2006
VIA EDGAR AND FAX
Ms. Tia Jenkins
Senior Assistant Chief Accountant
Division of Corporation Finance
Office of Emerging Growth Companies
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549-0305
Re: Laboratory Corporation of America Holdings
Form 10-K for the year ended December 31, 2005
Filed February 28, 2006
Forms 10-Q for the Fiscal Periods ended March 31, and June 30, 2006
Filed May 4 and August 3, 2006
File Number 1011353
Dear Ms. Jenkins:
We have reviewed the comments of the Staff, as set forth in its letter dated
August 10, 2006, with respect to the above-referenced filings. Enclosed
herewith are the Staff's comments followed by our responses on behalf of
Laboratory Corporation of America Holdings (the "Company").
Form 10-K for the Year Ended December 31, 2005
- ----------------------------------------------
Part II, Item 8 - Financial Statements, page 47
- -----------------------------------------------
Note 1 - Summary of Significant Accounting Policies
- ---------------------------------------------------
Financial Statement Revisions, page F-8
- ---------------------------------------
Comment:
1. We note that previously filed financial statements appear to have been
restated for the correction of an error regarding the classification of
auction rate securities and variable rate demand notes. We note that no
Item 4.02 8-K was filed relating to these restatements. Please tell us
how you evaluated the requirements of Item 4.02 of Form 8-K to determine
that no filing was required.
Response:
Disclosures under Item 4.02 of Form 8-K (Non-Reliance on Previously
Issued Financial Statements or a Related Audit Report or Completed
Interim Review) are triggered in two circumstances: (a) a conclusion by
a registrant's Board, a Board Committee or appropriate officers that
previously issued financial statements "should no longer be relied upon
because of an error" in such financial statements and (b) advice from,
or notice by, a registrant's independent accountants that "disclosure
should be made or action should be taken to prevent future reliance" on
an audit report or interim review. Neither circumstance has occurred.
Our independent accountants, PricewaterhouseCoopers, have not advised us
or given notice to us as contemplated by paragraph (b) of Item 4.02.
Similarly, our Board, Audit Committee and appropriate officers have not
concluded that prior financial statements should no longer be relied
upon as a consequence of the revisions to certain items in our pre-2005
financial statements that are described in footnote 1 to our 2005
consolidated financial statements. The reason such a conclusion was not
reached, notwithstanding the revision to prior periods, is because of
our assessment of the materiality of the financial statement revision
under the criteria set forth in Staff Accounting Bulletin 99. After
carefully weighing the guidance in SAB 99, we concluded that the
revision is not material and therefore does not require that prior
period financial statements should not be relied upon. Our
consideration of the guidance in SAB 99 is set forth below:
Assessment of Materiality of Financial Statement Revision
- ---------------------------------------------------------
A summary of the December 31, 2004 financial statement effect of this
reclassification follows:
As reported Adjustment As reclassified
----------- ---------- ---------------
Cash & cash equivalents $ 186.9 $ (139.2) $ 47.7
Short-term investments $ 20.0 $ 139.2 $ 159.2
Cash used in investing activities $(139.9) $ (84.0) $ (223.9)
Net increase (decrease) in cash $ 83.8 $ (84.0) $ (0.2)
The above effects on the amounts of the individual line items affected by the
misclassification are quantitatively significant to those amounts. However,
notwithstanding those effects, we believe that this misclassification was not
material to our historical financial statements and would not be considered
material or significant by our shareholders, lenders and potential investors,
for the reasons set forth below.
1. At December 31, 2004 we reported a total of $186.6 million in cash and
cash equivalents, including the following amounts ($ in millions):
- Auction rate securities (ARS) $ 92.9
- Variable rate demand notes (VRDN) 46.3
-------
$ 139.2
=======
Our cash balances were temporarily high during 2004 as we prepared for the
possible need to satisfy the possible redemption requirements of our zero
coupon notes in September 2004. The put date passed without any puts.
We used most of the ARS funds in the first quarter of 2005 to make a $155
million business acquisition (as described in Note 21 to our 2004 Annual
Report). We used our positive cash flow subsequent to the first quarter
of 2005 to make another $150 million business acquisition and to fund
treasury stock purchases, rather than to invest in ARS or VRDN. The
corrected cash balance was down to $45 million at December 31, 2005, and
short-term investments were only $17 million. Accordingly, the ARS error
diminished significantly in the first quarter of 2005 and declined to a
deminimus amount throughout 2005.
We filed our 2004 10-K prior to the SEC's first public clarification on
ARS, dated March 4, 2005.
We had $3.6 billion in assets at December 31, 2004. The ARS error was
3.9% of total assets at that date, and was between 0.3% and 1.1% of total
assets at the end of each quarter in 2005.
During the course of liquidating our ARS and VRDN investments, neither we
nor (to our knowledge) other investors in these types of instruments, have
experienced a lack of liquidity resulting from a failed auction or other
constraint on obtaining the full carrying value of these instruments. We
believe that market participants do not perceive these types of short term
investments to be impairments of near-term liquidity and our experience
has confirmed this view.
2. The misclassification had no impact on the following financial statement
captions/items:
- Current assets
- Total assets
- Current or long-term liabilities
- Total shareholders' equity
- Net income or any line item in the Statement of Operations
- Cash flow provided by operations
We have reviewed analysts' reports covering LabCorp and have reflected
upon our experience in numerous one-on-one and group meetings with
shareholders', investors and lenders. Based on our review and
experience, these users of our financial statements are most focused
upon our growth in revenues and earnings and operating cash flows. To
a lesser extent they are interested in our leverage ratios and working
capital. In investing cash flows, their interests are focused on capital
expenditures and business acquisitions. None of these items were
affected by the misclassification between cash and short-term
investments.
3. The misclassification affected the 2004 Statement of Cash Flows, by
overstating the beginning and ending balance of cash and cash equivalents
by $55.1 million and $139.2 million, respectively and by increasing the
amount of Cash Used in Investing Activities by $84.0 million and reducing
the net increase in cash, by the same amount.
We do not believe that knowledge of this type of error in our 2004 cash
flow information is material information to the reader of LabCorp's
financial statements today. We believe that readers of our financial
statements generally consider ARS and VRDN to be highly-secure, highly-
liquid assets that are close in quality to cash equivalents. Therefore,
it is our view that the separate highlighting of changes in ARS and VRDN
in our historical financial statements would not have changed users'
conclusions regarding our liquidity. Further, we believe that users
would have expected us to be investing our excess cash in low-risk,
highly liquid financial instruments such as ARS and VRDN. We believe
that it is of very limited importance for today's readers to know that
LabCorp, at one time over a year ago, held short-term investments that
were accidentally grouped with cash equivalents.
We do not believe that old cash flow information has the same degree of
recurring utility of other historical financial information. This is
implicit in SEC reporting rules because cash flow information is always
reflected year-to-date, rather than prior discrete quarterly periods. We
believe this lack of utility is particularly true for short-term timing
effects in cash flow such as changes in short-term investments, credit
line fluctuations or other recurring cash management activities. In a
sense, the cash build-up was a short-term timing issue, not unlike
revolving credit balance fluctuations - but was more nonrecurring.
Unlike a prior year income statement error, this cash flow error did not
affect trend data such as growth in revenues, earnings, or operating
cash flow, that may have continued relevance to current analyses of
LabCorp.
4. Our MD&A disclosures would have been unaffected by the misclassification.
In discussing our liquidity status in our 10-Q and 10-K MD&A's, we focus
on cash flows from operations rather than our balance sheet amounts for
cash or short-term investments. Further, while cash flows from investing
activities were quantitatively impacted, the element of our investing
activities that management addresses within MD&A is the level of capital
expenditures, which was not affected by this issue. Also, our MD&A
disclosure of free cash flow (a non-GAAP measure that we discuss) was not
affected by this issue. Lastly, our quarterly MD&A disclosures reference
the fact that cash resources were used to make a significant acquisition,
which was a correct statement in the context of how we classified our ARS
balances throughout the affected periods.
5. There were no debt covenants that would have been impacted by the
reclassification. Furthermore, we are highly liquid and have not
experienced any cash flow issues for the past 5+ years. We carry an
Investment Grade credit rating from both S&P and Moody's. Accordingly, we
don't believe our shareholders or investors make any distinction between
cash and cash equivalents and short-term investments. In our quarterly
earnings releases, we have historically combined these two amounts in our
condensed balance sheet amounts.
6. The misclassification was not a function of lack of precision, but rather
an inadvertent misapplication of GAAP. The misclassification was not made
intentionally.
7. The misclassification did not mask a change in net earnings or other
trends. Net earnings and cash flows from operations were not affected by
this matter.
8. The misclassification did not hide a failure to meet an analyst's
expectations as it does not affect earnings.
9. The misclassification did not affect our compliance with regulatory
requirements, loan covenants or other contractual requirements, nor did
it conceal unlawful transactions.
10. The misstatement did not have the effect of increasing management's
compensation.
11. We had no reason to believe that the reclassification of these items
would have resulted in any positive or negative market reaction. We
believe that information about our ARS investments in 2004 has now
diminished in significance to today's LabCorp reader, such that
retroactive reclassification (i.e., immaterial error correction with
transparent disclosure) provides sufficient disclosure to a reader of
our financial statements. We are, in no way, trying to be dismissive of
the importance of the balance sheet or the statement of cash flows. We
are highly respectful of the importance of getting those financial
statements right. We do, however, believe that the qualitative factors
in LabCorp's particular facts and circumstances relating to the ARS
error, are of such a nature that they have rendered the error not
material to today's financial statement reader.
12. We also looked at several registrants who, in 2005, revised their 2004
financial statements for similar ARS errors. Specific companies examined
were:
- Kimball (KBALB), Toll Brothers (TOL), Microsoft (MFST), Cognizant
Technology Solutions (CTSH), and Proctor & Gamble (PG).
In looking at the companies' stock prices in the periods following their
respective financial statement revisions, there were no noticeable market
reactions to the reclassifications to these companies' financial
statements. We believe this further supports our view that today's
reader does not have a concern over a financial statement revision
related to an ARS error such as ours.
Note 2 - Business Acquisitions, page F-14
- -----------------------------------------
Comment:
2. Please revise to disclose all of the information required by paragraphs
51-55 of SFAS 141 for the acquisitions of US LABS and Esoterix in 2005,
or explain in detail why you believe these disclosures are not required.
Response:
Paragraph 51 of SFAS 141 describes required disclosure surrounding
material business combinations. In evaluating whether or not the acquisitions
of US LABS and Esoterix in 2005 were material, we looked to the following
calculations, both individually and in combination, as follows ($s in 000's):
Test #1 (Investment in subsidiary)
- ----------------------------------
- - Total LabCorp assets per 12/31/04 balance sheet $ 3,626,100
- - Purchase price for:
US LABS $ 156,407 4.3%
Esoterix $ 155,333 4.3%
----------- ----
Total $ 311,740 8.6%
=========== ====
Test #2 (Total assets)
- ----------------------
- - Total LabCorp assets per 12/31/04 balance sheet $ 3,626,100
- - Assets of the acquired subsidiaries:
US LABS $ 95,637 2.6%
Esoterix $ 52,400 1.5%
----------- ----
Total $ 148,037 4.1%
=========== ====
Test #3 (Income from continuing operations)
- -------------------------------------------
- - Total LabCorp 12/31/04 earnings before tax $ 615,300
- - Earnings before tax of acquired subsidiaries:
US LABS $ 1,910 0.3%
Esoterix $ 701 0.1%
----------- ----
Total $ 2,611 0.4%
Based upon the calculations shown above and our evaluation of the these two
companies, we believe these two acquisitions were not material to our 2005
financial statements and that the disclosure contained in Note 2, Business
Acquisitions (specifically the purchase price) to our December 31, 2005
financial statements was sufficient under the circumstances. Additionally, we
disclosed goodwill acquired in Note 7.
Note 4 - Investments in Joint Venture Partnerships, page F-14
- -------------------------------------------------------------
Comment:
3. It appears that summarized financial information including assets,
liabilities, and results of operations for the company's investments in
joint ventures should be presented as required by Section 210.4-08(g) of
Regulation S-X. Please advise or revise.
Response:
In determining whether or not disclosure under Section 210.4-08(g) of
Regulation S-X is required for our investments in joint venture partnerships
in our 2005 financial statements, we examined these investments under the
provisions of S-X Rule 1-02(w), individually and in the aggregate, as follows
($ in 000s):
Test #1 (Investment in joint venture)
- -------------------------------------
- - Total LabCorp assets per 12/31/05 balance sheet $3,875,800
- - Investment in joint venture:
Milwaukee, Wisconsin $ 3,974 0.1%
Ontario, Canada $ 102,239 2.6%
Alberta, Canada $ 6,983 0.2%
Allocated intangible to Canadian operations $ 465,656 12.0%
---------- -----
Total $ 578,852 14.9%
========== =====
Test #2 (Total assets)
- ----------------------
- - Total LabCorp assets per 12/31/05 balance sheet $3,875,800
- - Total assets of the joint ventures (100% of underlying
Assets - not our Proportionate share):
Milwaukee, Wisconsin $ 15,328 0.1%
Ontario, Canada $ 150,700 3.9%
Alberta, Canada $ 20,964 0.5%
--------- ----
Total $ 186,992 4.8%
========= ====
Test #3 (Income from continuing operations)
- -------------------------------------------
- - Total LabCorp 12/31/05 earnings before tax $ 615,300
Total combined income from joint venture
partnerships, net $ 58,300 9.5%
All three of the tests, individually and in the aggregate, were below the 10%
criteria for the significant subsidiary, except for the allocated purchase
price (in Test #1), which was not pushed-down to the two Canadian joint
ventures (both partnerships were acquired as part of our 2002 business
acquisition of Dynacare, Inc.), but is grouped with the investments in joint
ventures as it relates entirely to these Canadian assets. We included this
allocated asset value in our footnote disclosure and in the "investments in
joint venture partnerships" line item on the balance sheet. However, since
that intangible asset is not recorded on the balance sheets of either of the
Canadian joint ventures, we did not believe that underlying summarized
financial information was required for any of these investments individually
or in the aggregate.
After careful consideration of your comments and further review of the
requirements of Section 210.4-08(g) of Regulation S-X, we believe we should
have included the value of the allocated intangible in the Rule 1-02(w) test.
Accordingly, we will include the following disclosure in our 2006 10-K, as
well as required disclosure in other filings, if applicable($ in millions):
"4. INVESTMENTS IN JOINT VENTURE PARTNERSHIPS
At December 31, 2005 the Company had investments in the following joint
venture partnerships:
Net Percentage
Location Investment Interest Owned
Milwaukee, Wisconsin $ 4.0 50.00%
Ontario, Canada $ 521.3 72.99%
Alberta, Canada $ 53.6 43.37%
Each of the joint venture agreements that govern the conduct of business
of these partnerships mandates unanimous agreement between partners on all
major business decisions as well as providing other participating rights to
each partner. These partnerships, including the Ontario, Canada partnership,
are accounted for under the equity method of accounting, as the Company
does not have control of these three partnerships, due to the participating
rights afforded to all partners in each agreement. The Company has no material
obligations or guarantees to, or in support of, these unconsolidated joint
ventures and their operations.
Condensed unconsolidated financial information for the joint venture
partnerships is shown in the following table.
2005 2004
-------- -------
As of December 31:
- -----------------
Current assets $55.0 $ 51.3
Other assets 132.0 120.3
----- -----
Total assets $187.0 $171.6
====== ======
Total liabilities $ 25.5 $ 30.0
Partners' equity 161.5 141.6
------ ------
Total liabilities and
Partners' equity $187.0 $171.6
====== ======
2005 2004 2003
------- ------ ------
For the period January 1 - December 31:
Net sales $337.2 $280.8 $251.7
Gross profit 144.6 127.2 112.7
Net earnings 93.1 77.8 68.7
The Company's recorded investments in the Ontario and Alberta joint venture
partnerships at December 31, 2005, include $419.1 and $46.6, respectively of
value assigned to these two partnerships' Canadian licenses (with an
indefinite life and deductible for tax) , to conduct diagnostic testing
services in their respective provinces."
Note 5 - Goodwill and Intangible Assets, page F-15
- --------------------------------------------------
Comment:
4. Please disclose the weighted average amortization period for total
intangible assets acquired in 2005, and each major class of intangible
assets acquired in 2005, as specified in paragraph 44(a)(3) of SFAS 142,
or explain the reasons these disclosures are not required.
Response:
While we believe we have disclosed the average useful lives of our
intangible assets in Note 1 - Summary of Significant Accounting Policies,
"Intangible Assets", we agree that we have not specifically disclosed the
weighted average amortization period for total intangible assets acquired
in 2005. We intend to insert the following wording into our 2006
Form 10-K:
"A summary of intangible assets acquired during 2005, and their
respective weighted average amortization periods is as follows ($s in
millions):
Weighted Average
Amount Amortization Period
------ -------------------
Customer lists $79.5 5.67
Patents, licenses and technology 9.0 0.32
Non-compete agreements 0.4 0.01
Trade name 51.3 1.83
----- ----
$140.2 7.84"
====== =====
We will include this disclosure for all acquired intangibles assets in
future filings.
Note 11 - Preferred Stock and Common Shareholders Equity, page F-18
- -------------------------------------------------------------------
Comment:
5. We note your disclosure regarding the potential liability to a bank under
an overnight share repurchase agreement for 4.8 million common shares,
depending upon the actual purchase price of these shares in future
periods, and the related agreement to cap your exposure with respect to
2.4 million of the repurchased shares. Please tell us how you evaluated
these agreements under paragraphs 12-32 of EITF 00-19 to determine that
equity classification was appropriate.
Response:
In evaluating the accounting treatment of our overnight share repurchase
(OSR), we carefully considered the guidance contained in paragraphs
12 - 32 of EITF 00-19. That analysis, prepared at the time of the
transaction in December 2005, is as follows:
The general premise of EITF 00-19 is that contracts that require net
settlement in cash are considered liabilities and contracts that require
net settlement in shares are considered equity. If contracts allow for
the choice of net settlement in either shares or cash at the issuer's
option, the EITF model assumes the contracts will be settled in shares.
Subject to meeting certain criteria, such contracts should be initially
be recorded as equity. The following analysis discusses the criteria set
forth in paragraphs 12-32 of EITF 00-19, noting the criteria for equity
treatment is met.
- The contract permits the company to settle in unregistered shares
Section 5(a)(ii)(A): The Company may transfer to Bank of America (BOA),
the contract counterparty, its own common stock which is not registered
for resale. Additionally, the value assigned to the restricted shares
will be 95% of fair value, which is determined by the calculation agent
by commercially reasonable means (Section 2). Based on the formula
comparing the economic circumstances of a settlement in registered
shares with unregistered shares, we determined that in every scenario,
the difference between the number of shares in each case is 5%, which
represents the 'penalty' for the unregistered share alternative. This
difference appears to be a reasonable estimate of the difference in fair
value between these settlement alternatives and does not cause this
criterion to fail.
- The company had sufficient authorized and unissued shares available to
settle the contract after considering all other commitments that may
require the issuance of stock during the maximum period the derivative
contract could remain outstanding
Currently, the Company has 265.0 million authorized shares of common
stock. As of September 30, 2005 approximately 152.5 million shares were
issued and there were approximately 18.9 million treasury shares;
therefore this results in total authorized and available shares of 131.4
million on that date. Total vested and unvested stock options amounted
to approximately 6.2 million and potentially issuable shares relating to
the Company's zero coupon subordinated notes were approximately 10.0
million. Therefore, the net authorized and available shares amounted to
approximately 115.2 million. Based on these numbers, the Company had a
sufficient amount of shares available to settle the contract. The
Company also has a poison pill provision in preferred share purchase
rights in case of potential takeovers but they are only exercised within
the control of the company and thus there are no issues related to the
OSR that would cause the trigger of this anti-takeover provision outside
the control of the Company.
- The contract contains an explicit limit on the number of shares to be
delivered in a share settlement
Section 2; 5(c); 6(e): The contract stipulates that if the Company
elects to settle in shares, then the Company will not be required to
deliver more than the maximum deliverable number of shares (15.0
million), notwithstanding the make-whole share guidelines provided in
the agreement.
- There are no required cash payments to the counterparty in the event that
the company fails to make timely filings with the SEC
No such provision exists in the OSR contract.
- There are no required cash payments to the counterparty if the shares
initially delivered upon settlement are subsequently sold by the
counterparty and the proceeds are insufficient to provide the
counterparty with full return of the amount due
Section 5(b): The contract does not require cash payments by the Company
in the event that the settlement shares are insufficient to provide BOA
with a full return. There is a specific share settlement calculation that
includes Make-Whole Payment Shares to provide BOA with their required
return.
- The contract requires net-cash settlement only in specific circumstances
in which holders of shares underlying the contract also would receive cash
in exchange for their shares
The contract does not require net-cash settlement for any circumstances
that are out of the Company's control.
- There are no provisions in the contract that indicate that the
counterparty has rights that rank higher than those of a shareholder of
the stock underlying the contract
Section 16: The contract explicitly states that BOA acknowledges and
agrees that the OSR agreement is not intended to convey to BOA rights
that are senior to the claims of common stockholders in the event of the
Company's bankruptcy.
- There is no requirement in the contract to post collateral at any point or
for any reason
Section 16: The contract states that this OSR agreement is not secured by
any collateral that would otherwise secure the obligations of the Company
thereunder or pursuant to any other agreement.
Based on the assessment of the various criteria presented in EITF 00-19,
the OSR agreement appears to comply and therefore it is appropriate for
the Company to classify this contract within stockholders' equity.
Note 13 - Stock Compensation Plans, page F-21
- ---------------------------------------------
Comment:
6. Please explain why your valuation assumption for the weighted average life
of outstanding stock options changed from 7 years in fiscal 2003, to 3
years in 2004 and 2005, to 1.1 years in the first quarter of fiscal 2006.
It is not clear what events or circumstances would have caused these
reductions. We note that the weighted average useful life of all
outstanding options was more than 7 years at December 31, 2005. To the
extent that modifications in your stock compensation practices have
resulted in shorter expected terms, disclose the material terms of
each such modification.
Response:
There have been no significant modifications to our stock compensation
practices for any of the years presented in our financial statements. We
believe the weighted average expected lives disclosed for outstanding
stock options are accurate reflections of the underlying assumptions used
in developing the pro forma stock compensation disclosure (for years
prior to 2006) and for our recorded stock compensation expense subsequent
to January 1, 2006 (with the exception of the 1.1 years disclosed in the
March 31, 2006 Form 10-Q, which was a typographical error - subsequently
corrected in our June 30, 2006 Form 10-Q - that had no effect on the
stock compensation expense we recorded in 2006).
During 2003, we were using the weighted average contractual life of the
options as our estimate of the expected term for stock options. After a
careful reading of the exposure draft on SFAS 123R and in anticipation
of our implementation of that pronouncement, we realized that this
assumption was not the correct interpretation of the expected life of
the options. Utilizing a report from our option management software, we
determined that the weighted average expected life for options was
approximately 3 years and has remained at approximately 3 years through
the second quarter of 2006 for all periods presented.
Had we restated 2003 pro forma expense, utilizing shorter weighted
average expected lives for our stock options, it would have resulted in
$6.9 million reduced pro forma compensation expense (net of related tax
effects), or 2.3% of pro forma net earnings, which we believe is
material.
The 7-year life you note in the table to Note 13, is the weighted-
average contractual life of the outstanding options (e.g., life left
before the expiration of the options).
Forms 10-Q for the Fiscal Periods Ended March 31, 2006 and June 30, 2006
- ------------------------------------------------------------------------
Item 1 - Financial Statements
- -----------------------------
Note 3 - Stock Compensation Plans, page 8
- -----------------------------------------
Comment:
7. It appears that the effect of adopting SFAS 123R on income before taxes,
cash flows from operations, and cash flows from financing activities
should also be disclosed in Note 3, as required by paragraph 84. Please
advise or revise.
Response:
We believe all of these amounts are disclosed in different sections of
our financial statements, but agree that they are not all summarized in
Note 3. The effect of adoption on income before taxes is found in the
first table in Note 3, by the caption "Stock option and stock purchase
plans". That same table shows the grand total for share-based
compensation, which in turn agrees to the amount shown in Operating Cash
Flows, in the Statement of Cash Flows. Under Cash Flows From Financing
Activities, we disclose the amount of excess tax benefits from stock
based compensation. We agree that before the adoption of SFAS 123R,
this amount would have been part of the working capital change in the
income tax liability accounts.
We will include all of this information in the Stock Compensation Plans
footnote in future filings.
Furthermore, we acknowledge that:
- the company is responsible for the adequacy and accuracy of the
disclosure in the filing;
- staff comments or changes to disclosure in response to staff comments do
not foreclose the Commission from taking any action with respect to the
filing; and
- the company may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities
laws of the United States.
If you have any questions concerning this letter or if you would like any
additional information, please do not hesitate to call me at (336)436-4602.
Very truly yours,
/s/ William B. Hayes
William B. Hayes
Executive Vice President -
Chief Financial Officer
Cc: Michael J. Silver, Hogan & Hartson L.L.P.
Sam Hayes - PricewaterhouseCoopers L.L.P.