LabCorp 2013 Annual Report Download - page 25

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21
LABORATORY CORPORATION OF AMERICA
Management’s Discussion and Analysis
of Financial Condition and Results of Operations (in millions)
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 consid-
ered 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.
During the third quarter of 2013, the Company entered into two
fixed-to-variable interest rate swap agreements for the 4.625%
senior notes due 2020 with an aggregate notional amount of
$600.0 and variable interest rates based on one-month LIBOR plus
2.298% to hedge against changes in the fair value of a portion of
the Company’s long term debt.
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 flows
generated from the Ontario operations are subject to foreign
currency exchange risk.
The Company’s wholly-owned subsidiary, Clearstone Central
Laboratories, has operations in China and Singapore, and, accordingly
the earnings and cash flows generated from these operations are
subject to foreign currency 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.