LabCorp 2011 Annual Report Download - page 16

14
LABORATORY CORPORATION OF AMERICA
Management’s Discussion and Analysis
of Financial Condition and Results of Operations (in millions)
Off-Balance Sheet Arrangements
The Company does not have transactions or relationships
with “special purpose” entities, and the Company does not
have any off balance sheet financing other than normal
operating leases.
Other Commercial Commitments
As of December 31, 2011, the Company provided letters of
credit aggregating approximately $37.4, primarily in connec-
tion with certain insurance programs. Letters of credit provided
by the Company are secured by the Company’s Revolving
Credit Facility and are renewed annually, around mid-year.
The partnership units of the holders of the noncontrolling
interest in the Ontario, Canada (“Ontario”) joint venture were
acquired by the Company on February 8, 2010 for $137.5.
On February 17, 2010, the Company completed a transaction
to sell the units acquired from the previous noncontrolling
interest holder to a new Canadian partner for the same price.
As a result of this transaction, the Company recorded a
component of noncontrolling interest in other liabilities and
a component in mezzanine equity. Upon the completion of
these two transactions, the Company’s financial ownership
percentage in the joint venture partnership remained
unchanged at 85.6%. Concurrent with the sale to the new
partner, the partnership agreement for the Ontario joint venture
was amended and restated with substantially the same terms
as the previous agreement.
On October 14, 2011, the Company issued notice to a
noncontrolling interest holder in the Ontario joint venture of its
intent to purchase the holder’s partnership units in accordance
with the terms of the joint venture’s partnership agreement. On
November 28, 2011, this purchase was completed for a total
purchase price of CN$151.7 as outlined in the partnership
agreement (CN$147.8 plus certain adjustments relating to
cash distribution hold backs made to finance recent business
acquisitions and capital expenditures). The purchase of these
additional partnership units brings the Company’s percentage
interest owned to 98.2%.
The contractual value of the remaining noncontrolling
interest put, in excess of the current noncontrolling interest of
$3.6, totals $16.6 at December 31, 2011. At December 31,
2011 and 2010, $20.2 and $20.6, respectively, have been
classified as mezzanine equity in the Company’s condensed
consolidated balance sheet.
At December 31, 2011, the Company was a guarantor on
approximately $0.9 of equipment leases. These leases were
entered into by a joint venture in which the Company owns a 50%
interest and have a remaining term of approximately two years.
Based on current and projected levels of operations,
coupled with availability under its Revolving Credit Facility,
the Company believes it has sufficient liquidity to meet both
its anticipated short-term and long-term cash needs; however,
the Company continually reassesses its liquidity position in
light of market conditions and other relevant factors.
New Accounting Pronouncements
In September 2011, the FASB issued authoritative guidance
to amend and simplify the rules related to testing goodwill for
impairment. The revised guidance allows an entity to make an
initial qualitative evaluation, based on the entity’s events and
circumstances, to determine whether it is more likely than not
that the fair value of a reporting unit is less than its carrying
amount. The results of this qualitative assessment determine
whether it is necessary to perform the currently required
two-step impairment test. The new guidance is effective for
annual and interim goodwill impairment tests performed for
fiscal years beginning after December 15, 2011, with early
adoption permitted. Adoption of this guidance is not expected
to have a material impact on the Company’s consolidated
financial statements.
In July 2011, the FASB issued authoritative guidance on the
presentation and disclosure of patient service revenue, provision
for bad debts, and the allowance for doubtful accounts for
certain health care entities. This literature was issued to
provide greater transparency about a health care entity’s net
patient service revenue and the related allowance for doubtful
accounts. Specifically, this literature requires the provision for
bad debts associated with patient service revenue to be sepa-
rately displayed on the face of the statement of operations as a
component of net revenue for health care entities that provide
services regardless of a patient’s ability to pay. The guidance
also requires enhanced disclosures of significant changes in
estimates in the provision for bad debts relating to patient
services when an entity recognizes revenue regardless of a
patient’s ability to pay. This guidance is effective for fiscal years
and interim periods beginning after December 15, 2011, with
early adoption permitted. The Company does not believe the
adoption of the authoritative guidance in the first quarter of 2012
will have an impact on its consolidated financial statements.