LabCorp 2015 Annual Report Download - page 65

Index
39. impact on the Company's revenue, cash collections and the availability of credit for general liquidity or other financing needs arising from a
significant deterioration in the economy or financial markets or in the Company's credit ratings by S&P's and/or Moody's;
40. changes in reimbursement by foreign governments and foreign currency fluctuations;
41. inability to obtain certain billing information not usually provided to the Company by physicians, resulting in increased costs and complexity, a
temporary disruption in receipts and ongoing reductions in reimbursements and net revenues;
42. expenses and risks associated with international operations, including but not limited to compliance with the Foreign Corrupt Practices Act, the U.K.
Bribery Act, and laws and regulations that differ from those of the U.S., and economic, political, legal and other operational risks associated with
foreign markets; and
43. failure to achieve expected efficiencies and savings in connection with Project LaunchPad, LCD's comprehensive, enterprise-wide business process
improvement initiative.
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Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange rates, interest rates and other
relevant market rate or price changes. In the ordinary course of business, the Company is exposed to various market risks, including changes in foreign
currency exchange and interest rates, and the Company regularly evaluates the exposure to such changes. The Company addresses its exposure to market
risks, principally the market risks associated with changes in foreign currency exchange rates and interest rates, through a controlled program of risk
management that includes, from time to time, the use of derivative financial instruments such as foreign currency forward contracts and 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.
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Approximately 17.7% of the Company's net revenues for year ended December 31, 2015 and approximately 6.8% of those for year ended 2014 were
denominated in currencies other than the U.S. Dollar. The Company's financial statements are reported in U.S. Dollars and, accordingly, fluctuations in
exchange rates will affect the translation of revenues and expenses denominated in foreign currencies into U.S. Dollars for purposes of reporting the
Company's consolidated financial results. In 2015, the most significant currency exchange rate exposures were to the Canadian Dollar, Swiss Franc, Euro and
British Pound. In 2014, the most significant currency exposure was to the Canadian Dollar. Excluding the impacts from any outstanding or future hedging
transactions, a hypothetical change of 10% in average exchange rates used to translate all foreign currencies to U.S. Dollars would have impacted income
before income taxes for 2015 by approximately $9.6. Gross accumulated currency translation adjustments recorded as a separate component of shareholders’
equity were $370.7 and $89.5 at December 31, 2015 and 2014, respectively. The Company does not have significant operations in countries in which the
economy is considered to be highly-inflationary.
The Company earns revenue from service contracts over a period of several months and, in some cases, over a period of several years. Accordingly,
exchange rate fluctuations during this period may affect the Company's profitability with respect to such contracts. The Company is also subject to foreign
currency transaction risk for fluctuations in exchange rates during the period of time between the consummation and cash settlement of transactions. The
Company limits its foreign currency transaction risk through exchange rate fluctuation provisions stated in some of its contracts with customers, or it may
hedge transaction risk with foreign currency forward contracts. At December 31, 2015, the Company had 4 open foreign exchange forward contracts relating
to service contracts with various amounts maturing monthly through January 2016 with a notional value totaling approximately $93.1 million. At
December 31, 2014, the Company had no open foreign exchange forward contracts.
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Some of the Company's debt is subject to interest at variable rates. As a result, fluctuations in interest rates affect the business. The Company attempts to
manage interest rate risk and overall borrowing costs through an appropriate mix of fixed and variable rate debt including by the utilization of derivative
financial instruments, primarily interest rate swaps.
Borrowings under the Company's term loan credit facility and revolving credit facility are subject to variable interest rates, unless fixed through interest
rate swaps or other agreements. As of December 31, 2015, the Company had approximately $715.0 of unhedged variable rate debt from the term loan credit
facility. As of December 31, 2014 the Company had no outstanding balance on its revolving credit facility and no term loan facility.
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