LabCorp 2012 Annual Report Download - page 30

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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
sub sidiaries (the “Company”) is the second largest independent
clinical laboratory company in the United States based on
2012 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 50 primary laboratories and over 1,800 patient
service centers along with a network of branches and STAT
laboratories. With over 34,000 employees, the Company
processes tests on approximately 470,000 patient specimens
daily and provides clinical laboratory testing services in all
50 states, the District of Columbia, Puerto Rico, Belgium,
Japan, the United Kingdom, China, Singapore and three
provinces 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 2012,
2011 and 2010, approximately 17.6%, 19.0% and 19.4%,
respectively, of the Company’s revenues were derived
directly from the Medicare and Medicaid programs. 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 2012, 2011 and
2010, approximately 3.0%, 2.9% and 3.1%, respectively,
of the Company’s revenues were derived from such
capitated agreements.
The Company’s net sales are comprised of the following:
Years Ended December 31,
Net sales 2012 2011 2010
Routine Testing $ 3,246.6 $ 3,143.9 $ 2,995.4
Genomic and Esoteric Testing 2,089.8 2,089.0 1,728.5
Ontario, Canada 335.0 309.4 280.0
Total $ 5,671.4 $ 5,542.3 $ 5,003.9
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires the Company
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 regula-
tory changes. Actual results could differ from those estimates.