LabCorp 2009 Annual Report Download - page 55

LABORATORY CORPORATION OF AMERICA 53
The tax benefit associated with option exercises from stock
plans reduced taxes currently payable by approximately $1.1,
$20.9 and $26.2 in 2009, 2008 and 2007, respectively. Such
benefits are recorded as additional paid-in-capital.
The effective tax rates on earnings before income taxes are
reconciled to statutory federal income tax rates as follows:
Years Ended December 31,
2009 2008 2007
Statutory federal rate 35.0% 35.0% 35.0%
State and local income taxes,
net of federal income tax effect 1.9 4.3 4.0
Other 0.3 (0.1) 1.6
Effective rate 37.2% 39.2% 40.6%
In 2009, the Company recorded favorable adjustments of
$21.5 to its tax provision relating to the resolution of certain
state tax issues under audit, as well as the realization of foreign
tax credits.
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,
2009 2008
Deferred tax assets:
Accounts receivable $ 12.1 $ –
Employee compensation and benefits 72.0 66.9
Self insurance reserves 20.2 21.7
Postretirement benefit obligation 15.4 14.5
Acquisition and restructuring reserves 11.6 15.7
Tax loss carryforwards 45.9 5.3
Other – 7.8
177.2 131.9
Less: valuation allowance (3.9) (3.9)
Net deferred tax assets $ 173.3 $ 128.0
Deferred tax liabilities:
Accounts receivable – (1.7)
Deferred earnings (23.1) (23.6)
Intangible assets (336.7) (304.0)
Property, plant and equipment (58.5) (51.1)
Zero-coupon subordinated notes (136.5) (137.7)
Currency translation adjustment (78.0) (39.7)
Other (2.2) –
Total gross deferred tax liabilities (635.0) (557.8)
Net deferred tax liabilities $ (461.7) $ (429.8)
The Company has state tax loss carryovers of approximately
$0.6, which expire in 2010 through 2024. In addition, the Company
has federal tax loss carryovers of approximately $45.3 expiring
periodically through 2028. The utilization of these tax loss carry-
overs 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 authoritative guidance in connection
with accounting for uncertainty in income taxes on January 1,
2007. As a result of the implementation of the authoritative
guidance, 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 $59.0
and $72.5 at December 31, 2009 and 2008, respectively.
It is anticipated that the amount of the unrecognized income
tax benefits will change within the next 12 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 $14.7 and $14.2 as of December 31, 2009 and 2008,
respectively. During the years ended December 31, 2009 and
2008, the Company recognized $5.4 and $4.5, respectively, in
interest and penalties expense, which was offset by a benefit
of $4.9 and $1.4, respectively.
The following table shows a reconciliation of the unrecognized
income tax benefits from uncertain tax positions for the years
ended December 31, 2009, 2008 and 2007:
2009 2008 2007
Balance as of January 1 $ 72.5 $ 55.7 $ 49.3
Increase in reserve for tax positions
taken in the current year 10.9 13.4 11.2
Increase (decrease) in reserve for tax positions
taken in a prior period (4.2) 5.2 –
Decrease in reserve as a result of settlements
reached with tax authorities (15.7) (0.6) (2.1)
Decrease in reserve as a result of lapses
in the statute of limitations (4.5) (1.2) (2.7)
Balance as of December 31 $ 59.0 $ 72.5 $ 55.7
LABORATORY CORPORATION OF AMERICA
Notes to Consolidated Financial Statements