LabCorp 2007 Annual Report Download - page 27

Management’s Discussion and Analysis of Financial
Condition and Results of Operations (Dollars in millions)
Laboratory Corporation of America® Holdings 2007 25
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
fi nancing other than normal operating leases.
Other Commercial Commitments
At December 31, 2007, the Company provided letters of credit
aggregating approximately $104.8, primarily in connection with certain
insurance programs and contractual guarantees on obligations under
the Company’s contract with UnitedHealthcare. The UnitedHealthcare
contract requires that the Company provide a $50.0 letter of credit, as
security for the Company’s contingent obligation to reimburse up to
$200.0 in transition costs during the fi rst three years of the contract.
Letters of credit provided by the Company are secured by the Company’s
senior credit facilities and are renewed annually, around mid-year.
At December 31, 2007, the Company was a guarantor on
approximately $6.4 of equipment leases. These leases were entered
into by a joint venture in which the Company owns a fi fty percent
interest and have a remaining term of approximately four years.
Based on current and projected levels of operations, coupled with
availability under its senior credit facilities, the Company believes it
has suffi cient liquidity to meet both its short-term and long-term cash
needs; however, the Company continually reassesses its liquidity
position in light of market conditions and other relevant factors.
New Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157 “Fair Value
Measurements” (“SFAS 157”). SFAS 157 establishes a common
defi nition for fair value to be applied to U.S. generally accepted
accounting principles requiring use of fair value, establishes a frame-
work for measuring fair value, and expands disclosure about such fair
value measurements. SFAS 157 is effective for fi scal years beginning
after November 15, 2007. In February 2008, the FASB decided to
issue a fi nal Staff Position to allow a one-year deferral of adoption
of SFAS 157 for nonfi nancial assets and nonfi nancial liabilities that
are recognized or disclosed at fair value in the fi nancial statements
on a nonrecurring basis. The FASB also decided to amend SFAS
157 to exclude FASB Statement No. 13 and its related interpretative
accounting pronouncements that address leasing transactions. The
Company is currently assessing the impact, if any, of SFAS 157 on
its consolidated fi nancial statements.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value
Option for Financial Assets and Financial Liabilities” (“SFAS 159”).
SFAS 159 permits entities to choose to measure many fi nancial instruments
and certain other items at fair value. Items eligible for this measurement
include: employer and plan obligations for pension benefi ts, other
postretirement benefi ts, employee stock options, and stock purchase
plans. The Company must report unrealized gains or losses on items
for which the fair value option has been elected in earnings at each
subsequent reporting date. This Statement is effective for the Company
as of January 1, 2008. The Company is currently assessing the impact,
if any, of SFAS 159 on its consolidated fi nancial statements.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling
Interests in Consolidated Financial Statements – an amendment of
ARB No. 151.” (“SFAS 160”). SFAS 160 requires all entities to report
noncontrolling (minority) interests in subsidiaries as equity in the con-
solidated fi nancial statements. Its intention is to eliminate the diversity in
practice regarding the accounting for transactions between an entity
and noncontrolling interests. This Statement is effective for the Company
as of January 1, 2009. Earlier adoption is prohibited. The Company is
currently assessing the impact, if any, of SFAS 160 on its consolidated
fi nancial statements.
In December 2007, the FASB issued SFAS No. 141(R), a revised
version of SFAS No. 141,“Business Combinations.” The revision is
intended to simplify existing guidance and converge rulemaking under
U.S. generally accepted accounting principles (“GAAP”) with international
accouting rules. This statement applies prospectively to business
combinations where the acquisition date is on or after the beginning
of the fi rst annual reporting period beginning on or after December 15,
2008. An entity may not apply it before that date. The new standard
also converges fi nancial reporting under U.S. GAAP with international
accounting rules. The Company is currently assessing the impact, if
any, of SFAS 141(R) on its consolidated fi nancial statements.
Critical Accounting Policies
The preparation of fi nancial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the fi nancial statements and the reported amounts of revenues
and expenses during the reported periods. While management believes
these estimates are reasonable and consistent, they are by their very
Laboratory Corporation of America