LabCorp 2014 Annual Report Download - page 120

F-41
The noncontrolling interest put is valued at its contractually determined value, which approximate fair value. During the year
ended December 31, 2014, the carrying value of the noncontrolling interest put decreased by $1.7 consisting of a $0.2 increase in
the contractually determined value and a $1.9 decrease for foreign currency translation.
The Company offers certain employees the opportunity to participate in a DCP. A participant's deferrals are allocated by the
participant to one or more of 16 measurement funds, which are indexed to externally managed funds. From time to time, to offset
the cost of the growth in the participant's investment accounts, the Company purchases life insurance policies, with the Company
named as beneficiary of the policies. Changes in the cash surrender value of the life insurance policies are based upon earnings
and changes in the value of the underlying investments, which are typically invested in a similar manner to the participants'
allocations. Changes in the fair value of the DCP obligation are derived using quoted prices in active markets based on the market
price per unit multiplied by the number of units. The cash surrender value and the DCP obligations are classified within Level 2
because their inputs are derived principally from observable market data by correlation to the hypothetical investments.
The carrying amounts of cash and cash equivalents, accounts receivable, income taxes receivable, and accounts payable are
considered to be representative of their respective fair values due to their short-term nature. The fair market value of the zero-
coupon subordinated notes, based on market pricing, was approximately $155.6 and $155.5 as of December 31, 2014 and 2013,
respectively. The fair market value of the senior notes, based on market pricing, was approximately $2,949.8 and $2,907.8 as of
December 31, 2014 and 2013, respectively. The Company's note and debt instruments are considered level 2 instruments, as the
fair market values of these instruments are determined using other observable inputs. The Company's investment in equity securities
of $1.0 is considered a level 1 instrument, as the fair market value of this instrument is determined using observable inputs.
18. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
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 (see Interest Rate Swap section below). Although the Company’s zero-coupon subordinated notes
contain features that are considered to be embedded derivative instruments (see Embedded Derivative section below), 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.
Interest Rate Swap
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. These derivative financial
instruments are accounted for as fair value hedges of the senior notes due 2020. These interest rate swaps are included in other
long term assets or liabilities, as applicable, and added to the value of the senior notes, with an aggregate fair value of $18.5 at
December 31, 2014. As the specific terms and notional amounts of the derivative financial instruments match those of the fixed-
rate debt being hedged, the derivative instruments are assumed to be perfectly effective hedges and accordingly, there is no impact
to the Company's consolidated statements of operations. Cash flows from the interest rate swaps are including in operating
activities. There were no derivative instruments designated as accounting hedges in 2012.
Embedded Derivatives Related to the Zero-Coupon Subordinated Notes
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.
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars and shares in millions, except per share data)