LabCorp 2009 Annual Report Download - page 42

40 LABORATORY CORPORATION OF AMERICA
LABORATORY CORPORATION OF AMERICA
Notes to Consolidated Financial Statements
(Dollars and shares in millions, except per share data)
1. Summary of Significant Accounting Policies
Basis of Financial Statement Presentation
Laboratory Corporation of America Holdings with its subsidiaries
(the “Company”) is the second largest independent clinical labo-
ratory company in the United States based on 2009 net revenues.
Through a national network of laboratories, the Company offers
a broad range of testing services used by the medical profession
in routine testing, patient diagnosis and in the monitoring and
treatment of disease. In addition, the Company has developed
specialty and niche operations based on certain types of special-
ized testing capabilities and client requirements, such as oncology
testing, HIV genotyping and phenotyping, diagnostic genetics
and clinical research trials.
Since its founding in 1971, the Company has grown into
a network of 38 primary laboratories and over 1,500 patient
service centers along with a network of branches and STAT
laboratories. With over 28,000 employees, the Company pro-
cesses tests on more than 440,000 patient specimens daily
and provides clinical laboratory testing services in all 50 states,
the District of Columbia, Puerto Rico, Belgium and three
provinces in Canada. The Company’s operating segments are
aggregated within one reportable segment based on the way
the Company manages its business. The Company’s divisions
exhibit similar long-term economic characteristics, process
similar transactions and provide their testing services to similar
classes of customers.
The consolidated financial statements include the accounts
of the Company and its majority-owned subsidiaries for which it
exercises control. Long-term investments in affiliated companies
in which the Company exercises significant influence, but which
it does not control, are accounted for using the equity method.
Investments in which the Company does not exercise significant
influence (generally, when the Company has an investment of
less than 20% and no representation on the investee’s board of
directors) are accounted for using the cost method. All significant
inter-company transactions and accounts have been eliminated.
The Company does not have any variable interest entities or
special purpose entities whose financial results are not included
in the consolidated financial statements.
The financial statements of the Company’s foreign subsidiaries
are measured using the local currency as the functional currency.
Assets and liabilities are translated at exchange rates as of the
balance sheet date. Revenues and expenses are translated at
average monthly exchange rates prevailing during the year.
Resulting translation adjustments are included in “Accumulated
other comprehensive income”.
The Company evaluated events occurring subsequent to
December 31, 2009 for potential recognition or disclosure in the
consolidated financial statements through February 24, 2010.
Revenue Recognition
Sales are recognized on the accrual basis at the time test results
are reported, which approximates when services are provided.
Services are provided to certain patients covered by various third-
party payer programs including various managed care organiza-
tions, as well as the Medicare and Medicaid programs. Billings for
services under third-party payer programs are included in sales
net of allowances for contractual discounts and allowances for
differences between the amounts billed and estimated program
payment amounts. Adjustments to the estimated payment amounts
based on final settlement with the programs are recorded upon
settlement as an adjustment to revenue. In 2009, 2008 and 2007,
approximately 19.1%, 17.7% and 18.3%, respectively, of the
Company’s revenues were derived directly from the Medicare and
Medicaid programs. The Company has capitated agreements with
certain managed care customers and recognizes related revenue
based on a predetermined monthly contractual rate for each
member of the managed care plan regardless of the number or
cost of services provided by the Company. In 2009, 2008 and
2007, approximately 4% of the Company’s revenues were
derived from such capitated agreements.
In connection with revenue arrangements with multiple
deliverables, revenue is deferred until the Company can
reasonably estimate when the performance obligation
ceases or becomes inconsequential.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reported periods.
Significant estimates include the allowances for doubtful accounts,
deferred tax assets, fair values and amortization lives for intangi-
ble assets and accruals for self-insurance reserves and pensions.
The allowance for doubtful accounts is determined based on
historical collections trends, the aging of accounts, current
economic conditions and regulatory changes. Actual results
could differ from those estimates.