LabCorp 2006 Annual Report Download - page 29

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in millions)
Laboratory Corporation of America® Holdings 2006 27
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11. failure to effectively manage newly acquired businesses and the
cost related to such integration;
12. adverse results in litigation matters;
13. inability to attract and retain experienced and qualified personnel;
14. failure to maintain the Company’s days sales outstanding levels;
15. decrease in credit ratings by Standard & Poor’s and/or Moody’s;
16. failure to develop or acquire licenses for new or improved
technologies, or if customers use new technologies to perform
their own tests;
17. inability to commercialize newly licensed tests or technologies or
to obtain appropriate coverage or reimbursement for such tests,
which could result in impairment in the value of certain capitalized
licensing costs;
18. inability to obtain and maintain adequate patent and other proprietary
rights for protection of the Company’s products and services and
successfully enforce the Company’s proprietary rights;
19. the scope, validity and enforceability of patents and other
proprietary rights held by third parties which might have an
impact on the Company’s ability to develop, perform, or market
the Company’s tests or operate its business;
20. failure in the Company’s information technology systems resulting
in an increase in testing turnaround time or billing processes
or the failure to meet future regulatory or customer information
technology and connectivity requirements;
21. failure of the Company’s existing and new financial information
systems resulting in failure to meet required financial reporting
deadlines;
22. failure of the Company’s disaster recovery plans to provide
adequate protection against the interruption of business
and/or the recovery of business operations;
23. business interruption or other impact on the business due to
adverse weather (including hurricanes), fires and/or other
natural disasters and terrorism or other criminal acts;
24. liabilities that result from the inability to comply with new
corporate governance requirements.
QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK
The Company addresses its exposure to market risks, principally
the market risk associated with changes in interest rates, through
a controlled program of risk management that has included in the
past, the use of derivative financial instruments such as interest
rate swap agreements. Although, as set forth below, the Company’s
zero-coupon subordinated notes contain features that are considered
to be embedded derivative instruments, the Company does not hold
or issue derivative financial instruments for trading purposes. The
Company does not believe that its exposure to market risk is material
to the Company’s financial position or results of operations.
The Company’s zero-coupon subordinated notes contain the
following two features that are considered to be embedded derivative
instruments under SFAS No. 133:
1) The Company will pay contingent cash interest on the zero-
coupon subordinated notes after September 11, 2006, if the
average market price of the notes equals 120% or more of
the sum of the issue price, accrued original issue discount
and contingent additional principal, if any, for a specified
measurement period.
2) Holders may surrender zero-coupon subordinated notes for
conversion during any period in which the rating assigned to
the zero-coupon subordinated notes by Standard & Poor’s
Ratings Services is BB- or lower.
Based upon independent appraisals, these embedded derivatives
had no fair market value at December 31, 2006.
Borrowings under the Company’s revolving credit facility are
subject to variable interest rates, unless fixed through interest rate
swap or other agreements.
Two of the Company’s joint venture partnerships operate in
Canada and remit the Company’s share of partnership income
in Canadian Dollars. Accordingly, the cash flow received from
these affiliates is subject to a certain amount of foreign currency
exchange risk.