LabCorp 2010 Annual Report Download - page 28

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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
laboratory company in the United States based on 2010 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 specialized 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 51 primary laboratories and over 1,700 patient
service centers along with a network of branches and STAT
laboratories. With over 31,000 employees, the Company
processes 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 prov-
inces in Canada. The Company operates within one reportable
segment based on the way the Company manages its business.
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.”
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 organizations, 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 2010, 2009 and 2008, approximately 19.4%,
19.1% and 17.7%, respectively, of the Company’s revenues
were derived directly from the Medicare and Medicaid pro-
grams. 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 2010,
2009 and 2008, approximately 3.1%, 3.6% and 4.0%,
respectively, 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 intangible 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 regu-
latory changes. Actual results could differ from those estimates.