LabCorp 2007 Annual Report Download - page 31

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Management’s Discussion and Analysis of Financial
Condition and Results of Operations (Dollars in millions)
Laboratory Corporation of America® Holdings 2007 29
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 fi nancial 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 fi nancial instruments for trading purposes. The
Company does not believe that its exposure to market risk is material
to the Company’s fi nancial 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 “Accouting for Derivative Instruments
and Hedging Activities”:
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 specifi ed
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.
The Company believes these embedded derivatives had no fair
value at December 31, 2007.
Borrowings under the Company’s revolving credit facility are
subject to variable interest rates, unless fi xed through interest rate
swaps 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 fl ow received from these affi liates is
subject to a certain amount of foreign currency exchange risk.
Laboratory Corporation of America