LabCorp 2008 Annual Report Download - page 48

Notes to Consolidated Financial Statements
(Dollars and shares in millions, except per share data)
Laboratory Corporation of America
46 Laboratory Corporation of America® Holdings 2008
The effective tax rates on earnings before income taxes is reconciled to statutory federal
income tax rates as follows:
Years Ended December 31,
2008 2007 2006
Statutory federal rate 35.0% 35.0% 35.0%
State and local income taxes, net of federal income tax effect 4.0 4.0 4.3
Other 0.9 1.6 0.8
Effective rate 39.9% 40.6% 40.1%
The tax effects of temporary differences that give rise to significant portions of the deferred
tax assets and deferred tax liabilities are as follows:
December 31, December 31,
2008 2007
Deferred tax assets:
Employee compensation and benefits $ 66.9 $ 55.0
Self-insurance reserves 21.7 23.0
Postretirement benefit obligation 14.5 16.9
Acquisition and restructuring reserves 15.7 13.6
Tax loss carryforwards 5.3 9.7
Other 7.8 13.0
131.9 131.2
Less valuation allowance (3.9) (3.9)
Net deferred tax assets $ 128.0 $ 127.3
Deferred tax liabilities:
Accounts receivable (1.7) (28.3)
Deferred earnings (23.6) (21.6)
Intangible assets (304.0) (285.5)
Property, plant and equipment (51.1) (27.2)
Zero-coupon subordinated notes (137.7) (113.9)
Currency translation adjustment (39.7) (96.1)
Total gross deferred tax liabilities (557.8) (572.6)
Net deferred tax liabilities $ (429.8) $ (445.3)
The Company has state tax loss carryovers of approximately $0.7, which expire in 2009
through 2024. In addition, the Company has federal tax loss carryovers of approximately $4.6
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 federal 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 approximately $56.8 of total
gross unrecognized income tax benefits, which included interest and penalties of $7.5.
The gross unrecognized income tax benefits were $72.5 and $55.7 at December 31, 2008
and 2007, respectively. It is anticipated that the amount of the unrecognized income tax benefits
will change within the next twelve months; however these changes are not expected to have a
significant impact on the results of operations, cash flows or the financial position of the Company.
The Company recognizes interest and penalties related to unrecognized income tax benefits
in income tax expense. Accrued interest and penalties related to uncertain tax positions totaled
$14.2 and $10.8 as of December 31, 2008 and 2007, respectively. During the years ended
December 31, 2008 and 2007, the Company recognized $4.5 and $4.4, respectively, in interest
and penalties expense, which was offset by a benefit of $1.4 and $1.1, respectively.
The following table shows a reconciliation of the unrecognized income tax benefits from
uncertain tax positions for the years ended December 31, 2008 and 2007:
2008 2007
Balance as of January 1 $ 55.7 $ 49.3
Increase in reserve for tax positions taken in the current year 13.4 11.2
Increase in reserve for tax positions taken in a prior period 5.2 –
Decrease in reserve as a result of settlements reached with tax authorities (0.6) (2.1)
Decrease in reserve as a result of lapses in the statute of limitations (1.2) (2.7)
Balance as of December 31 $ 72.5 $ 55.7
As of December 31, 2008 and 2007, $70.2 and $52.5, respectively, is the approximate
amount of unrecognized income tax benefits 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 2004. Substantially all material state and local, and foreign income tax matters have
been concluded through 2002 and 2001, respectively.
The Company’s 2006 U.S. federal income tax return is currently under examination by the
Internal Revenue Service. In addition, the Company has various state income tax examinations
ongoing throughout the year. Management believes adequate provisions have been recorded
related to all open tax years.
The Company provided for taxes on undistributed earnings of foreign subsidiaries.