LabCorp 2014 Annual Report Download - page 88

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F-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 regulatory changes. Actual results could
differ from those estimates.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash
equivalents and accounts receivable.
The Company maintains cash and cash equivalents with various major financial institutions. The total cash balances on deposit
that exceeded the balances insured by the F.D.I.C., were approximately $49.3 at December 31, 2014. Cash equivalents at
December 31, 2014, totaled $535.0, which includes amounts invested in money market funds, time deposits, municipal, treasury
and government funds.
Substantially all of the Company’s accounts receivable are with companies in the health care industry and individuals. However,
concentrations of credit risk are limited due to the number of the Company’s clients as well as their dispersion across many different
geographic regions.
While the Company has receivables due from federal and state governmental agencies, the Company does not believe that
such receivables represent a credit risk since the related health care programs are funded by federal and state governments, and
payment is primarily dependent upon submitting appropriate documentation. Accounts receivable balances (gross) from Medicare
and Medicaid were $135.1 and $128.6 at December 31, 2014 and 2013, respectively.
For the Company's subsidiary operations in Ontario, Canada, the Ministry of Health determines who can establish a licensed
community medical laboratory and caps the amount that each of these licensed laboratories can bill the government sponsored
health care plan. The Ontario government-sponsored health care plan covers the cost of clinical laboratory testing performed by
the licensed laboratories. The provincial government discounts the annual testing volumes based on certain utilization discounts
and establishes an annual maximum it will pay for all community laboratory tests. The agreed-upon reimbursement rates are
subject to Ministry of Health review at the end of year and can be adjusted (at the government's discretion) based upon the actual
volume and mix of test work performed by the licensed providers in the province during the year. The accounts receivable balances
from the Ontario government sponsored health care plan were $22.4 and $33.2 at December 31, 2014 and 2013, respectively.
The portion of the Company's accounts receivable due from patients comprises the largest portion of credit risk. At
December 31, 2014 and 2013, receivables due from patients represent approximately 27.1% and 27.8% of the Company's
consolidated gross accounts receivable. The Company applies assumptions and judgments including historical collection
experience for assessing collectibility and determining allowances for doubtful accounts for accounts receivable from patients.
Earnings per Share
Basic earnings per share is computed by dividing net earnings attributable to Laboratory Corporation of America Holdings by
the weighted average number of common shares outstanding. Diluted earnings per share is computed by dividing net earnings
including the impact of dilutive adjustments by the weighted average number of common shares outstanding plus potentially
dilutive shares, as if they had been issued at the earlier of the date of issuance or the beginning of the period presented. Potentially
dilutive common shares result primarily from the Company’s outstanding stock options, restricted stock awards, performance
share awards, and shares issuable upon conversion of zero-coupon subordinated notes.
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars and shares in millions, except per share data)