LabCorp 2011 Annual Report Download - page 30

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LABORATORY CORPORATION OF AMERICA
Notes to Consolidated Financial Statements
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. The cost
of properties held under capital leases is equal to the lower of
the net present value of the minimum lease payments or the
fair value of the leased property at the inception of the lease.
Depreciation and amortization expense is computed on all
classes of assets based on their estimated useful lives, as
indicated below, using principally the straight-line method.
Years
Buildings and building improvements 35
Machinery and equipment 3-10
Furniture and fixtures 5-10
Leasehold improvements and assets held under capital
leases are amortized over the shorter of their estimated useful
lives or the term of the related leases. Expenditures for
repairs and maintenance are charged to operations as incurred.
Retirements, sales and other disposals of assets are recorded
by removing the cost and accumulated depreciation from the
related accounts with any resulting gain or loss reflected in the
consolidated statements of operations.
Capitalized Software Costs
The Company capitalizes purchased software which is ready
for service and capitalizes software development costs
incurred on significant projects starting from the time that the
preliminary project stage is completed and the Company
commits to funding a project until the project is substantially
complete and the software is ready for its intended use.
Capitalized costs include direct material and service costs
and payroll and payroll-related costs. Research and develop-
ment costs and other computer software maintenance costs
related to software development are expensed as incurred.
Capitalized software costs are amortized using the straight-line
method over the estimated useful life of the underlying system,
generally five years.
Long-Lived Assets
Goodwill is evaluated for impairment by applying a fair value
based test on an annual basis and more frequently if events
or changes in circumstances indicate that the asset might
be impaired.
Long-lived assets, other than goodwill, are reviewed for
impairment whenever events or changes in circumstances
indicate that the carrying amounts may not be recoverable.
Recoverability of assets to be held and used is determined by
the Company at the level for which there are identifiable cash
flows by comparison of the carrying amount of the assets to
future undiscounted net cash flows before interest expense and
income taxes expected to be generated by the assets. Impair-
ment, if any, is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets (based
on market prices in an active market or on discounted cash
flows). Assets to be disposed of are reported at the lower of
the carrying amount or fair value.
The Company completed an annual impairment analysis
of its indefinite lived assets, including goodwill, and has found
no instances of impairment as of December 31, 2011.
Intangible Assets
Intangible assets (patents and technology, customer relationships
and non-compete agreements), are amortized on a straight-
line basis over the expected periods to be benefited, such as
legal life for patents and technology, 10 to 25 years for cus-
tomer lists and contractual lives for non-compete agreements.
Debt Issuance Costs
The costs related to the issuance of debt are capitalized and
amortized to interest expense using the effective interest method
over the terms of the related debt.
Professional Liability
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 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 actuarial assessment of the accrual driven by frequency and
amount of claims.
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