LabCorp 2013 Annual Report Download - page 36

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LABORATORY CORPORATION OF AMERICA
Notes to Consolidated Financial Statements
Derivative Financial Instruments
Interest rate swap agreements, which have been used by the
Company from time to time in the management of interest
rate exposure, are accounted for at fair value. The Company’s
zero-coupon subordinated notes contain two features that are
considered to be embedded derivative instruments under
authoritative guidance in connection with accounting for deriva-
tive instruments and hedging activities. The Company believes
these embedded derivatives had no fair value at December 31,
2013 and 2012.
See Note 18 for the Company’s objectives in using derivative
instruments and the effect of derivative instruments and related
hedged items on the Company’s financial position, financial
performance and cash flows.
Fair Value of Financial Instruments
Fair value measurements for financial assets and liabilities are
determined based on the assumptions that a market participant
would use in pricing an asset or liability. A three-tiered fair value
hierarchy draws distinctions between market participant assump-
tions based on (i) observable inputs such as quoted prices in active
markets (Level 1), (ii) inputs other than quoted prices in active
markets that are observable either directly or indirectly (Level 2)
and (iii) unobservable inputs that require the Company to use
present value and other valuation techniques in the determination
of fair value (Level 3).
Research and Development
The Company expenses research and development costs as incurred.
New Accounting Pronouncements
In March 2013, the FASB issued a new accounting standard on
foreign currency matters that clarifies the guidance of a parent
company’s accounting for the cumulative translation adjustment
upon derecognition of certain subsidiaries or groups of assets
within a foreign entity or of an investment in a foreign entity. Under
this new standard, a parent company that ceases to have a con-
trolling financial interest in a foreign subsidiary or group of assets
within a foreign entity shall release any related cumulative transla-
tion adjustment into net income only if a sale or transfer results in
complete or substantially complete liquidation of the foreign
entity. This standard shall be applied prospectively and will become
effective for the Company on January 1, 2014. The Company
expects that the adoption of this standard will not have a material
effect on its consolidated financial statements.
2. Business Acquisitions
During the year ended December 31, 2013, the Company acquired
various laboratories and related assets for approximately $159.5 in
cash (net of cash acquired). These acquisitions were made primarily
to extend the Company’s geographic reach in important market
areas and/or enhance the Company’s scientific differentiation and
esoteric testing capabilities. The purchase consideration for these
acquisitions has been allocated to the estimated fair market value
of the net assets acquired, including approximately $40.9 in
identifiable intangible assets (primarily customer relationships and
non-compete agreements) and a residual amount of goodwill of
approximately $127.0. The purchase price allocations for certain of
these acquisitions are preliminary and subject to adjustment based
on changes in the fair value of working capital and other assets and
liabilities on the effective acquisition dates and final valuation of
intangible assets.