LabCorp 2008 Annual Report Download - page 31

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Laboratory Corporation of America® Holdings 2008 29
Management’s Discussion and Analysis of Financial Condition
and Results of Operations (in millions)
Laboratory Corporation of America
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 includes from
time to time, 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 “Accounting 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 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.
Borrowings under the Company’s revolving credit facility are subject to variable interest
rates, unless fixed through interest rate swaps or other agreements.
The Company’s Ontario, Canada consolidated joint venture operates in Canada and,
accordingly, the earnings and cash flow generated from the Ontario operation are subject to a
certain amount of foreign currency exchange risk.
The Alberta, Canada joint venture partnership operates in Canada and remits the Company’s
share of partnership income in Canadian Dollars. Accordingly, the cash flow received from this
affiliate is subject to a certain amount of foreign currency exchange risk.