LabCorp 2012 Annual Report Download - page 33

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LABORATORY CORPORATION OF AMERICA
Notes to Consolidated Financial Statements
value of the reporting unit. If Step One indicates potential
impairment, the second step is performed to measure the
amount of the impairment.
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, 2012.
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 inter-
est expense and income taxes expected to be generated by
the assets. Impairment, 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.
Intangible Assets
Intangible assets are amortized on a straight-line basis over
the expected periods to be benefited, as set forth in the
table below, such as legal life for patents and technology
and contractual lives for non-compete agreements.
Years
Customer relationships 10-30
Patents, licenses and technology 3-15
Non-compete agreements 5-10
Trade names 5-10
Debt Issuance Costs
The costs related to the issuance of debt are capitalized
and amortized to interest expense 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 actuarial assumptions and factors for known and
incurred but not reported claims, including the frequency
and payment trends of historical 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 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 recognize 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.
Derivative Financial Instruments
Interest rate swap agreements, which have been used
by the Company from time to time in the management of
interest rate exposure, are accounted for at fair value. The
Company’s zero-coupon subordinated notes contain two
features that are considered to be embedded derivative
instruments under authoritative guidance in connection
with accounting for derivative instruments and hedging
activities. The Company believes these embedded derivatives
had no fair value at December 31, 2012 and 2011.
See Note 18 for the Company’s objectives in using
derivative instruments and the effect of derivative
instruments and related hedged items on the Company’s
financial position, financial performance and cash flows.