LabCorp 2010 Annual Report Download - page 21

19
LABORATORY CORPORATION OF AMERICA
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
22. changes in government regulations or policies, includ-
ing regulations and policies of the Food and Drug
Administration, affecting the approval, availability of, and
the selling and marketing of diagnostic tests;
23. 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;
24. 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;
25. failure in the Company’s information technology
systems resulting in an increase in testing turn-
around time or billing processes or the failure to meet
future regulatory or customer information technology,
data security and connectivity requirements;
26. failure of the Company’s financial information
systems resulting in failure to meet required
financial reporting deadlines;
27. failure of the Company’s disaster recovery plans to
provide adequate protection against the interruption
of business and/or to permit the recovery of business
operations;
28. business interruption or other impact on the business
due to adverse weather (including hurricanes), fires
and/or other natural disasters, terrorism or other crimi-
nal acts, and/or widespread outbreak of influenza or
other pandemic illness;
29. liabilities that result from the inability to comply with
corporate governance requirements;
30. significant deterioration in the economy or financial mar-
kets which could negatively impact the Company’s test-
ing volumes, cash collections and the availability of
credit for general liquidity or other financing needs; and
31. changes in reimbursement by foreign governments
and foreign currency fluctuations.
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 authoritative guidance in
connection with 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 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 foreign currency exchange risk.