LabCorp 2010 Annual Report Download - page 18

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LABORATORY CORPORATION OF AMERICA
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
doubtful accounts at an appropriate level. The Company’s
process for determining the appropriate level of the allowance
for doubtful accounts involves judgment, and considers such
factors as the age of the underlying receivables, historical and
projected collection experience, and other external factors that
could affect the collectibility of its receivables. Accounts are
written off against the allowance for doubtful accounts based
on the Company’s write-off policy (e.g., when they are deemed
to be uncollectible). In the determination of the appropriate
level of the allowance, accounts are progressively reserved
based on the historical timing of cash collections relative to their
respective aging categories within the Company’s receivables.
These collection and reserve processes, along with the close
monitoring of the billing process, help reduce the risks of
material revisions to reserve estimates resulting from adverse
changes in collection or reimbursement experience. The
following table presents the percentage of the Company’s
net accounts receivable outstanding by aging category at
December 31, 2010 and 2009:
Days Outstanding
2010 2009
0 – 30 51.1% 47.7%
31 – 60 17.5% 16.8%
61 – 90 9.7% 10.5%
91 – 120 7.2% 6.8%
121 – 150 4.0% 4.4%
151 – 180 3.7% 4.0%
181 – 270 5.8% 7.8%
271 – 360 0.9% 1.7%
Over 360 0.1% 0.3%
The above table excludes the Ontario operation’s percentage
of net accounts receivable outstanding by aging category. The
provincial government is the primary customer of the Ontario
operation. The Company believes that including the aging for
Ontario would not be representative of the majority of the
accounts receivable by aging category for the Company.
Pension Expense
In October 2009, the Company received approval from its Board
of Directors to freeze any additional service-based credits for any
years of service after December 31, 2009 on the Company
Plan and the PEP. Both plans have been closed to new partici-
pants. Employees participating in the Company Plan and the
PEP no longer earn service-based credits, but continue to
earn interest credits. In addition, effective January 1, 2010,
all employees eligible for the defined contribution retirement
plan (the “401K Plan”) receive a minimum 3% non-elective
contribution (“NEC”) concurrent with each payroll period.
The 401K Plan also permits discretionary contributions by
the Company of 1% to 3% of pay for eligible employees based
on service.
The Company Plan covers substantially all employees hired
prior to December 31, 2009. The benefits to be paid under the
Company Plan are based on years of credited service through
December 31, 2009, interest credits and average compensa-
tion. The Company also has the PEP which covers its senior
management group. Prior to 2010, the PEP provided for the
payment of the difference, if any, between the amount of any
maximum limitation on annual benefit payments under the
Employee Retirement Income Security Act of 1974 and the
annual benefit that would be payable under the Company
Plan but for such limitation.
The Company’s net pension cost is developed from actuarial
valuations. Inherent in these valuations are key assumptions,
including discount rates and expected return on plan assets,
which are updated on an annual basis at the beginning of
each year. The Company is required to consider current market
conditions, including changes in interest rates, in making these
assumptions. Changes in pension costs may occur in the future
due to changes in these assumptions. The key assumptions
used in accounting for the defined benefit retirement plans
were a 5.1% discount rate and a 7.5% expected long-term
rate of return on plan assets as of December 31, 2010.
Discount Rate
The Company evaluates several approaches toward setting
the discount rate assumption that is used to value the benefit
obligations of its retirement plans. At year-end, priority was given
to use of the Citigroup Pension Discount Curve and anticipated
cash outflows of each retirement plan were discounted with
the spot yields from the Citigroup Pension Discount Curve. A
single-effective discount rate assumption was then determined
for each retirement plan based on this analysis. A one percentage
point decrease or increase in the discount rate would have resulted
in a respective increase or decrease in 2010 retirement plan
expense of $1.5.