LabCorp 2010 Annual Report Download - page 39

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The tax benefit associated with option exercises from
stock plans reduced taxes currently payable by approximately
$7.8, $1.1 and $20.9 in 2010, 2009 and 2008, 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,
2010 2009 2008
Statutory federal rate 35.0% 35.0% 35.0%
State and local income taxes,
net of federal income tax effect 3.5 1.9 4.3
Other (0.9) 0.3 (0.1)
Effective rate 37.6% 37.2% 39.2%
The effective tax rate for 2010 was favorably impacted by
a benefit relating to the net decrease in unrecognized income
tax benefits. In 2009, the Company recorded favorable adjust-
ments 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,
2010 2009
Deferred tax assets:
Accounts receivable
$ 2.6 $ 12.1
Employee compensation and benefits 96.3 72.0
Self insurance reserves 27.1 20.2
Postretirement benefit obligation 16.3 15.4
Acquisition and restructuring reserves 10.2 11.6
Tax loss carryforwards 50.1 45.9
202.6 177.2
Less: valuation allowance (11.4) (3.9)
Net deferred tax assets $ 191.2 $ 173.3
Deferred tax liabilities:
Deferred earnings
(18.0) (23.1)
Intangible assets
(343.8) (336.7)
Property, plant and equipment (63.3) (58.5)
Zero-coupon subordinated notes (145.2) (136.5)
Currency translation adjustment (94.3) (78.0)
Other
(5.1) (2.2)
Total gross deferred tax liabilities (669.7) (635.0)
Net deferred tax liabilities $ (478.5) $ (461.7)
The Company has state tax loss carryovers of approximately
$0.3, which expire in 2010 through 2024. During 2010, $0.2
of state net operating losses expired and such losses had a
full valuation allowance. The Company has foreign tax loss
carryovers of $7.7 having an indefinite carryover. The foreign
tax loss carryovers have a full valuation allowance provided.
In addition, the Company has federal tax loss carryovers of
approximately $42.1 expiring periodically through 2028. 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 gross unrecognized income tax benefits were $53.6 and
$59.0 at December 31, 2010 and 2009, respectively. It is antici-
pated 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
$12.2 and $14.7 as of December 31, 2010 and 2009, respec-
tively. During the years ended December 31, 2010, 2009 and
2008, the Company recognized $4.5, $5.4 and $4.5, respectively,
in interest and penalties expense, which was offset by a benefit
of $5.4, $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, 2010, 2009 and 2008:
2010 2009 2008
Balance as of January 1 $ 59.0 $ 72.5 $ 55.7
Increase in reserve for tax positions
taken in the current year 9.1 10.9 13.4
Increase (decrease) in reserve for
tax positions taken in a prior period (0.6) (4.2) 5.2
Decrease in reserve as a result of
settlements reached with tax authorities (1.3) (15.7) (0.6)
Decrease in reserve as a result of lapses
in the statute of limitations (12.6) (4.5) (1.2)
Balance as of December 31 $ 53.6 $ 59.0 $ 72.5
As of December 31, 2010 and 2009, $54.6 and $60.3,
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.
LABORATORY CORPORATION OF AMERICA
Notes to Consolidated Financial Statements