LabCorp 2011 Annual Report Download - page 19

17
LABORATORY CORPORATION OF AMERICA
Management’s Discussion and Analysis
of Financial Condition and Results of Operations (in millions)
operating expenses. Actual asset over/under performance
compared to expected returns will respectively decrease/
increase unrecognized loss. The change in the unrecognized
loss will change amortization cost in upcoming periods. A one
percentage point increase or decrease in the expected return
on plan assets would have resulted in a corresponding
change in 2011 pension expense of $2.5.
Net pension cost for 2011 was $8.6 as compared with
$9.6 in 2010 and $36.6 in 2009 (including the impact of the
$2.8 non-recurring net curtailment charge). The decrease in
pension expense in 2011 and 2010 was due to the changes
to the Company Plan and PEP. Projected pension expense
for the Company Plan and the PEP is expected to increase
from $8.6 in 2011 to $12.2 in 2012.
Further information on the Company’s defined benefit
retirement plan is provided in Note 16 to the consolidated
financial statements.
Accruals for Self-Insurance Reserves
Accruals for self-insurance reserves (including workers’
compensation, auto and employee medical) are determined
based on a number of assumptions and factors, including
historical payment trends and claims history, actuarial assump-
tions and current and estimated future economic conditions.
These estimated liabilities are not discounted.
The Company is self-insured (up to certain limits) for
professional liability claims arising in the normal course of
business, generally related to the testing and reporting of
laboratory test results. The Company maintains excess
insurance which limits the Company’s maximum exposure
on individual claims. The Company estimates a liability that
represents the ultimate exposure for aggregate losses below
those limits. The liability is discounted and is based on a
number of assumptions and factors for known and incurred
but not reported claims based on an actuarial assessment of
the accrual driven by frequency and amount of claims.
If actual trends differ from these estimates, the financial
results could be impacted. Historical trends have not differed
materially from these estimates.
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 differences between the financial 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 enactment date. The Company does not recog-
nize a tax benefit, unless the Company concludes that it is
more likely than not that the benefit will be sustained on audit
by the taxing authority based solely on the technical merits
of the associated tax position. If the recognition threshold is
met, the Company recognizes a tax benefit measured at the
largest amount of the tax benefit that the Company believes
is greater than 50% likely to be realized. The Company
records interest and penalties in income tax expense.
Forward-Looking Statements
The Company has made in this report, and from time to time
may otherwise make in its public filings, press releases and
discussions by Company management, forward-looking
statements concerning the Company’s operations, perfor-
mance and financial condition, as well as its strategic
objectives. Some of these forward-looking statements can
be identified by the use of forward-looking words such as
“believes”, “expects”, “may”, “will”, “should”, “seeks”,
“approximately”, “intends”, “plans”, “estimates”, or “antici-
pates” or the negative of those words or other comparable
terminology. Such forward-looking statements are subject to
various risks and uncertainties and the Company claims the
protection afforded by the safe harbor for forward-looking
statements contained in the Private Securities Litigation
Reform Act of 1995. Actual results could differ materially
from those currently anticipated due to a number of factors
in addition to those discussed elsewhere herein and in the
Company’s other public filings, press releases and discus-
sions with Company management, including:
1. changes in federal, state, local and third party payer
regulations or policies or other future reforms in the
health care system (or in the interpretation of current
regulations), new insurance or payment systems, includ-
ing state or regional insurance cooperatives, new public
insurance programs or a single-payer system, affecting
governmental and third-party coverage or reimburse-
ment for clinical laboratory testing;