LabCorp 2007 Annual Report Download - page 49

Notes to Consolidated Financial Statements
(Dollars and shares in millions, except per share data)
Laboratory Corporation of America® Holdings 2007 47
The tax benefi t associated with option exercises from stock plans
reduced taxes currently payable by approximately $26.2, $20.4 and
$11.9 in 2007, 2006 and 2005, respectively. Such benefi ts are
recorded as additional paid-in-capital.
The effective tax rates on earnings before income taxes is reconciled
to statutory federal income tax rates as follows:
Years Ended December 31,
2007 2006 2005
Statutory federal rate 35.0% 35.0% 35.0%
State and local income taxes,
net of federal income tax effect 4.0 4.3 4.5
Change in valuation allowance – – 0.2
Dividend received deduction for
foreign repatriation – – (1.1)
Other 1.6 0.8 1.1
Effective rate 40.6% 40.1% 39.7%
The tax effects of temporary differences that give rise to signifi cant
portions of the deferred tax assets and deferred tax liabilities are as follows:
December 31, December 31,
2007 2006
Deferred tax assets:
Employee compensation and benefi ts $ 55.0 $ 43.9
Self-insurance reserves 23.0 22.3
Postretirement benefi t obligation 16.9 18.1
Acquisition and restructuring reserves 13.6 6.2
Tax loss carryforwards 9.7 16.9
Other 13.0 1.7
131.2 109.1
Less valuation allowance (3.9) (3.9)
Net deferred tax assets $127.3 $105.2
Deferred tax liabilities:
Accounts receivable (28.3) (14.7)
Deferred earnings (21.6) (18.1)
Intangible assets (285.5) (282.0)
Property, plant and equipment (27.2) (29.8)
Zero-coupon subordinated notes (113.9) (90.6)
Currency translation adjustment (96.1) (57.9)
Total gross deferred tax liabilities (572.6) (493.1)
Net deferred tax liabilities $(445.3) $(387.9)
The Company has state tax loss carryovers of approximately $1.1,
which expire in 2008 through 2024. In addition, the Company has
federal tax loss carryovers of approximately $8.6 expiring periodically
through 2024. The utilization of these tax loss carryovers is limited
due to change of ownership rules. However, at this time the Company
expects to fully utilize substantially all of its tax loss carryovers.
The Company adopted the provisions of Financial Standards
Accounting Board Interpretation No. 48 Accounting for Uncertainty in
Income Taxes (“FIN 48”) an interpretation of FASB Statement No. 109
(“SFAS 109”) on January 1, 2007. As a result of the implementation of
FIN 48, the Company recognized approximately $0.5 as an increase
to its reserve for uncertain tax positions and a reduction of the beginning
shareholders’ equity.
At the adoption date of January 1, 2007 the Company had approxi-
mately $56.8 of total gross unrecognized income tax benefi ts, which
included interest and penalties.
The gross reserves for uncertain tax positions were $49.3 and
$55.7 at January 1, 2007 and December 31, 2007, respectively. It
is anticipated that the amount of the unrecognized tax benefi ts will
change within the next twelve months; however these changes are
not expected to have a signifi cant impact on the results of operations,
cash fl ows or the fi nancial position of the Company.
The Company recognizes interest and penalties related to uncertain
tax positions in income tax expense. Accrued interest and penalties related
to uncertain tax positions totaled $7.5 and $10.8 as of January 1,
2007 and December 31, 2007, respectively. During the year ended
December 31, 2007, the Company recognized $4.4 in interest and
penalties expense, which was offset by a $1.1 benefi t.
Below is a reconciliation of the reserve associated with uncertain
tax positions as of the adoption date through December 31, 2007.
Beginning balance as of the date of adoption $49.3
Increase in reserve for tax positions taken in the current year 11.2
Decrease in reserve as a result of settlements reached with tax authorities (2.1)
Decrease in reserve as a result of lapses in the statute of limitations (2.7)
Balance as of December 31, 2007 $ 55.7
At the date of adoption and at December 31, 2007, $45.2 and
$52.5, respectively, is the approximate amount of unrecognized
tax benefi ts that, if recognized, would favorably affect the effective
income tax rate in any future periods.
The Company has substantially concluded all U.S. federal income
tax matters for years through 2003. Substantially all material state
and local, and foreign income tax matters have been concluded through
2001. Management believes adequate provisions have been recorded
related to all open tax years.
The Company provided for taxes on undistributed earnings of
foreign subsidiaries.
Laboratory Corporation of America