LabCorp 2011 Annual Report Download - page 21

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LABORATORY CORPORATION OF AMERICA
Management’s Discussion and Analysis
of Financial Condition and Results of Operations (in millions)
25. failure of the Company’s financial information systems
resulting in failure to meet required financial reporting
deadlines;
26. 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;
27. business interruption or other impact on the business
due to adverse weather (including hurricanes), fires
and/or other natural disasters, labor unrest, terrorism
or other criminal acts, and/or widespread outbreak of
influenza or other pandemic illness;
28. liabilities that result from the inability to comply with
corporate governance requirements;
29. significant deterioration in the economy or financial
markets which could negatively impact the Company’s
testing volumes, cash collections and the availability
of credit for general liquidity or other financing needs;
30. changes in reimbursement by foreign governments
and foreign currency fluctuations; and
31. expenses and risks associated with international
operations, including compliance with laws and
regulations that differ from the United States, and
economic, political, legal and other operational risks
associated with foreign markets.
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 embed-
ded 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
flows generated from the Ontario operations are subject to
foreign currency exchange risk.
The Company’s wholly-owned subsidiary, Orchid, has
operations in the United Kingdom and, accordingly the
earnings and cash flows generated from Orchid’s United
Kingdom operation are subject to foreign currency 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.