LabCorp 2006 Annual Report Download - page 28

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in millions)
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26 Laboratory Corporation of America® Holdings 2006
Accruals for Self-Insurance Reserves
Accruals for self-insurance reserves (including workers’ compensation,
auto and employee medical) are determined based on historical
payment trends and claims history, along with current and estimated
future economic conditions.
The Company is self-insured for professional liability claims aris-
ing in the normal course of business, generally related to the testing
and reporting of laboratory test results. The Company records an
accrual for known and incurred but not reported claims based on an
actuarial assessment of the accrual driven by frequency and amounts
of claims, which is performed at least annually.
While management believes these estimates are reasonable and
consistent, they are by their very nature, estimates of amounts that
will depend on future events. Accordingly, actual results could differ
from these estimates. The Company’s Audit Committee periodically
reviews the Company’s significant accounting policies.
Income Taxes
The Company accounts for income taxes utilizing the asset and
liability method. Under this method deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differ-
ences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and for tax loss
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date. Future tax benefits, such as net operating loss
carryforwards, are recognized to the extent that realization of such
benefits is more likely than not.
FORWARD-LOOKING STATEMENTS
The Company has made in this report, and from time to time may
otherwise make in its public filings, press releases and discussions
by Company management, forward-looking statements concerning
the Company’s operations, performance and financial condition,
as well as its strategic objectives. Some of these forward-looking
statements can be identified by the use of forward-looking words
such as “believes,” “expects,” “may,” “will,” “should,” “seeks,”
“approximately,” “intends,” “plans,” “estimates,” or “anticipates”
or the negative of those words or other comparable terminology.
Such forward-looking statements are subject to various risks and
uncertainties and the Company claims the protection afforded by the
safe harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995. Actual results could differ
materially from those currently anticipated due to a number of factors
in addition to those discussed elsewhere herein and in the Company’s
other public filings, press releases and discussions with Company
management, including:
1. changes in federal, state, local and third party payer regulations
or policies (or in the interpretation of current regulations) affecting
governmental and third-party coverage or reimbursement for
clinical laboratory testing;
2. adverse results from investigations of clinical laboratories by the
government, which may include significant monetary damages
and/or exclusion from the Medicare and Medicaid programs;
3. loss or suspension of a license or imposition of a fine or penalties
under, or future changes in, the law or regulations of the Clinical
Laboratory Improvement Act of 1967, and the Clinical Laboratory
Improvement Amendments of 1988, or those of Medicare,
Medicaid, the False Claims Act or other federal, state or
local agencies;
4. failure to comply with the Federal Occupational Safety and
Health Administration requirements and the Needlestick Safety
and Prevention Act, which may result in penalties and loss
of licensure;
5. failure to comply with HIPAA, which could result in significant fines;
6. failure of third party payers to complete testing with the Company,
or accept or remit transactions in HIPAA-required standard
transaction and code set format, could result in an interruption in
the Company’s cash flow;
7. increased competition, including price competition;
8. changes in payer mix, including an increase in capitated man-
aged-cost health care or the impact of a shift to consumer-
driven health plans;
9. failure to obtain and retain new customers and alliance part-
ners, or a reduction in tests ordered or specimens submitted by
existing customers;
10. failure to retain or attract managed care business as a result of
changes in business models, including new risk based or network
approaches, or other changes in strategy or business models by
managed care companies;