LabCorp 2007 Annual Report Download - page 41

Notes to Consolidated Financial Statements
(Dollars and shares in millions, except per share data)
Laboratory Corporation of America® Holdings 2007 39
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. The cost of properties
held under capital leases is equal to the lower of the net present value
of the minimum lease payments or the fair value of the leased property
at the inception of the lease. Depreciation and amortization expense
is computed on all classes of assets based on their estimated useful
lives, as indicated below, using principally the straight line method.
Years
Buildings and building improvements 35
Machinery and equipment 3-10
Furniture and fi xtures 5-10
Leasehold improvements and assets held under capital leases are
amortized over the shorter of their estimated lives or the term of the
related leases. Expenditures for repairs and maintenance are charged
to operations as incurred. Retirements, sales and other disposals of
assets are recorded by removing the cost and accumulated deprecia-
tion from the related accounts with any resulting gain or loss refl ected
in operations.
Capitalized Software Costs
The Company capitalizes purchased software which is ready for service
and capitalizes software development costs incurred on signifi cant
projects starting from the time that the preliminary project stage is
completed and management commits to funding a project until the
project is substantially complete and the software is ready for its
intended use. Capitalized costs include direct material and service
costs and payroll and payroll-related costs. Research and development
costs and other computer software maintenance costs related to
software development are expensed as incurred. Capitalized software
costs are amortized using the straight-line method over the estimated
useful life of the underlying system, generally fi ve years.
Long-Lived Assets
Goodwill is evaluated for impairment by applying a fair value based
test on an annual basis and more frequently if events or changes in
circumstances indicate that the asset might be impaired.
Long-lived assets, other than goodwill, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amounts may not be recoverable. Recoverability of assets to be held
and used is determined by the Company at the level for which there
are identifi able cash fl ows by comparison of the carrying amount
of the assets to future undiscounted net cash fl ows before interest
expense and income taxes expected to be generated by the assets.
Impairment, if any, is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets (based on
market prices in an active market or on discounted cash fl ows).
Assets to be disposed of are reported at the lower of the carrying
amount or fair value.
The Company completed an annual impairment analysis of its
indefi nite lived assets, including goodwill, and has found no instances
of impairment as of December 31, 2007.
Intangible Assets
Intangible assets (patents and technology, customer lists and
non-compete agreements), are amortized on a straight-line basis over
the expected periods to be benefi ted, such as legal life for patents and
technology, 10 to 25 years for customer lists and contractual lives for
non-compete agreements.
Debt Issuance Costs
The costs related to the issuance of debt are capitalized and amortized
to interest expense using the effective interest method over the terms
of the related debt.
Professional Liability
The Company is self-insured for professional liability claims arising
in the normal course of business, generally related to the testing and
reporting of laboratory test results. The Company records a reserve
for such asserted and estimated unasserted claims based on actuarial
assessments of future settlement and legal defense costs.
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 fi nancial 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 enact-
ment date. The Company does not recognize a tax benefi t, unless the
Company concludes that it is more likely than not that the benefi t will
be sustained on audit by the taxing authority based solely on the tech-
nical merits of the associated tax position. If the recognition threshold
is met, the Company recognizes a tax benefi t measured at the largest
amount of the tax benefi t that the Company believes is greater than
50 percent likely to be realized. The Company records interest and
penalties in income tax expense.
Laboratory Corporation of America