LabCorp 2015 Annual Report Download - page 90

Index




CDD pays on behalf of its customers certain out-of-pocket costs for which the Company is reimbursed at cost, without mark-up or profit. Out-of-pocket
costs paid by CDD are reflected in operating expenses, while the reimbursements received are reflected in revenues in the consolidated statements of
operations. CDD excludes from revenue and expense in the consolidated statements of operations fees paid to investigators and the associated reimbursement
because CDD acts as an agent on behalf of the pharmaceutical company sponsors with regard to investigator payments.

Cost of revenue includes direct labor and related benefit charges, other direct costs, shipping and handling fees, and an allocation of facility charges and
information technology costs. Selling, general and administrative expenses consist primarily of administrative payroll and related benefit charges,
advertising and promotional expenses, administrative travel and an allocation of facility charges and information technology costs. Cost of advertising is
expensed as incurred.

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.

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 Federal Deposit Insurance Commission, were approximately $243.6 at December 31, 2015. Cash equivalents at December 31, 2015,
totaled $491.3, 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 healthcare 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 U.S. and state governmental agencies, the Company does not believe that such receivables represent a
credit risk since the related healthcare programs are funded by U.S. and state governments, and payment is primarily dependent upon submitting appropriate
documentation. Accounts receivable balances (gross) from Medicare and Medicaid were $112.0 and $135.1 at December 31, 2015 and 2014, respectively.
For the Company's operations in Ontario, Canada, the Ontario Ministry of Health and Long-Term Care (Ministry) determines who can establish a licensed
community medical laboratory and caps the amount that each of these licensed laboratories can bill the government sponsored healthcare plan. The Ontario
government-sponsored healthcare 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 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 healthcare plan were CN$21.3 and CN$22.4 at December 31, 2015 and 2014, respectively.
The portion of the Company's accounts receivable due from patients comprises the largest portion of credit risk. At December 31, 2015 and 2014,
receivables due from patients represent approximately 18.8% and 27.1% 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.
F-10