LabCorp 2013 Annual Report Download - page 44

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13. Income Taxes
The sources of income before taxes, classified between domestic
and foreign entities are as follows:
Pre-Tax Income
2013 2012 2011
Domestic $ 844.2 $ 909.0 $ 834.0
Foreign 71.4 35.2 32.1
Total pre-tax income $ 915.6 $ 944.2 $ 866.1
The provisions for income taxes in the accompanying
consolidated statements of operations consist of the following:
Years Ended December 31,
2013 2012 2011
Current:
Federal $ 231.6 $ 254.1 $ 269.7
State 29.9 35.1 54.3
Foreign 22.5 16.9 6.8
$ 284.0 $ 306.1 $ 330.8
Deferred:
Federal $ 55.2 $ 58.3 $ 5.0
State 6.1 0.4 (4.4)
Foreign (5.1) (5.4) 1.6
56.2 53.3 2.2
$ 340.2 $ 359.4 $ 333.0
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 $10.6, $8.4 and $11.0
in 2013, 2012 and 2011, respectively.
The effective tax rates on earnings before income taxes are
reconciled to statutory federal income tax rates as follows:
Years Ended December 31,
2013 2012 2011
Statutory federal rate 35.0% 35.0% 35.0%
State and local income taxes,
net of federal income tax effect 2.6 2.4 3.7
Other (0.4) 0.7 (0.3)
Effective rate 37.2% 38.1% 38.4%
The effective rate for 2013 was favorably impacted by the release
of the capital loss valuation allowance and recording two years of
the R&D tax credit. The American Taxpayer Relief Act of 2012 was
enacted in early 2013 and reinstated the R&D tax credit for 2012
and extended the credit for calendar year 2013.
The effective tax rate for 2012 was favorably impacted by a
decrease in the reserve for unrecognized income tax benefits
compared to 2011, partially offset by an increase in tax on the
additional investment in the Company’s Canadian subsidiary. The
effective tax rate for 2011 was negatively impacted by an increase
in the reserve for unrecognized income tax benefits, 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,
2013 2012
Deferred tax assets:
Accounts receivable $ 20.2 $ 25.0
Employee compensation and benefits 83.4 114.4
Self insurance reserves 17.8 17.0
Postretirement benefit obligation 23.2 23.3
Acquisition and restructuring reserves 20.6 18.5
Tax loss carryforwards 58.0 66.3
Other 3.8 2.1
227.0 266.6
Less: valuation allowance (16.5) (18.4)
Net deferred tax assets $ 210.5 $ 248.2
Deferred tax liabilities:
Deferred earnings $ (15.1) $ (17.9)
Intangible assets (463.4) (434.1)
Property, plant and equipment (86.4) (73.8)
Zero-coupon subordinated notes (106.7) (110.5)
Currency translation adjustment (77.9) (101.0)
Total gross deferred tax liabilities (749.5) (737.3)
Net deferred tax liabilities $ (539.0) $ (489.1)
The valuation allowance decreased from $18.4 in 2012 to
$16.5 in 2013. The decrease in the valuation allowance is primarily
due to a current year capital gain resulting from the disposition of
a minority investment. A capital loss carryover with a full valuation
allowance was released to offset substantially all of the 2013 capital
gain income.
The Company has foreign tax loss carryovers of $11.8 with a full
valuation allowance. Most of the foreign losses have an indefinite
carryover. The Company has federal tax loss carryovers of approxi-
mately $44.2 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 substan-
tially all federal tax loss carryovers. In addition to the net operating
losses, the Company has a foreign capital loss carryover of $1.9.
The loss has an indefinite life and has a full valuation allowance.
The gross unrecognized income tax benefits were $25.6 and
$36.4 at December 31, 2013 and 2012, respectively. It is anticipated
that the amount of the unrecognized income tax benefits will
LABORATORY CORPORATION OF AMERICA
Notes to Consolidated Financial Statements