LabCorp 2012 Annual Report Download - page 42

40
13. Income Taxes
The sources of income before taxes, classified between
domestic and foreign entities are as follows:
Pre-Tax Income
2012 2011 2010
Domestic $ 909.0 $ 834.0 $ 876.1
Foreign 35.2 32.1 39.5
Total pre-tax income $ 944.2 $ 866.1 $ 915.6
The provisions for income taxes in the accompanying
consolidated statements of operations consist of
the following:
Years Ended December 31,
2012 2011 2010
Current:
Federal $ 254.1 $ 269.7 $ 269.9
State 35.1 54.3 50.4
Foreign 16.9 6.8 10.8
$ 306.1 $ 330.8 $ 331.1
Deferred:
Federal $ 58.3 $ 5.0 $ 12.2
State 0.4 (4.4) (0.5)
Foreign (5.4) 1.6 1.2
53.3 2.2 12.9
$ 359.4 $ 333.0 $ 344.0
A portion of the tax benefit associated with option
exercises from stock plans reducing taxes currently payable
are recorded through additional paid-in capital. The benefits
recorded through additional paid-in capital are approximately
$8.4, $11.0 and $7.8 in 2012, 2011 and 2010, respectively.
The effective tax rates on earnings before income taxes
are reconciled to statutory federal income tax rates as follows:
Years Ended December 31,
2012 2011 2010
Statutory federal rate 35.0% 35.0% 35.0%
State and local income taxes,
net of federal income tax effect 2.4 3.7 3.5
Other 0.7 (0.3) (0.9)
Effective rate 38.1% 38.4% 37.6%
The effective tax rate for 2012 was favorably impacted by
an increase in unrecognized income tax benefits compared
to 2011, partially offset by an increase in tax as a result of the
Company’s increase in ownership percentage of its Ontario
subsidiary. The effective tax rate for 2011 was negatively
impacted by a decrease in unrecognized income tax
benefits compared to 2010, the divestiture of certain Orchid
paternity contracts, and foreign losses not tax effected.
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,
2012 2011
Deferred tax assets:
Accounts receivable $ 25.0 $ 27.1
Employee compensation and benefits 114.4 123.9
Self-insurance reserves 17.0 20.7
Postretirement benefit obligation 23.3 20.5
Acquisition and restructuring reserves 18.5 18.8
Tax loss carryforwards 66.3 68.5
Other 2.1 –
266.6 279.5
Less: valuation allowance (18.4) (14.4)
Net deferred tax assets $ 248.2 $ 265.1
Deferred tax liabilities:
Deferred earnings $ (17.9) $ (25.3)
Intangible assets (434.1) (373.7)
Property, plant and equipment (73.8) (71.5)
Zero-coupon subordinated notes (110.5) (105.5)
Currency translation adjustment (101.0) (90.1)
Other – (3.6)
Total gross deferred tax liabilities $ (737.3) $ (669.7)
Net deferred tax liabilities $ (489.1) $ (404.6)
The Company has revised its classification of $24.8
of deferred tax assets from current to non-current as of
December 31, 2011 to conform to the classification of its
self-insurance reserves and employee compensation and
benefits, as described in Note 9.
The valuation allowance increased from $14.4 in 2011
to $18.4 in 2012. The increase in the valuation allowance is
primarily due to a current year foreign capital loss resulting
from the disposition of a foreign subsidiary.
The Company has foreign tax loss carryovers of $11.7
with a full valuation allowance. Most of the foreign losses
have an indefinite carryover. The Company has federal tax
loss carryovers of approximately $52.1 expiring periodically
through 2031. The utilization of the 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. In addition to the net operating
losses, the Company has a U.S. and foreign capital loss
c arryover of $2.6. The entire loss has a full valuation
allowance with the foreign loss having an indefinite life.
LABORATORY CORPORATION OF AMERICA
Notes to Consolidated Financial Statements