| |
QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED(dollars in thousands unless otherwise indicated)
5.
TAXES ON INCOME
In conjunction with the Spin-Off Distribution,
the Company entered into a tax sharing agreement with its former parent and a
former subsidiary, that provide the parties with certain rights of
indemnification against each other. As
part of the SBCL acquisition agreements, the Company entered into a tax
indemnification arrangement with SmithKline Beecham that provides the parties
with certain rights of indemnification against each other.
The Company’s pretax income (loss) consisted of
$736 million, $547 million and $290 million from U.S. operations and
approximately $1.4 million, $(4.5) million and $6.6 million from foreign
operations for the years ended December 31, 2003, 2002 and 2001, respectively.
The components of income tax expense for 2003,
2002 and 2001 were as follows:
|
|
 |
|
|
|
|
|
|
Current: |
|
|
|
|
Federal....................................................................................................................... |
$ 214,729 |
$ 105,799 |
$ 107,629 |
|
State and local.......................................................................................................... |
51,771 |
23,396 |
25,727 |
|
Foreign...................................................................................................................... |
728 |
627 |
1,490 |
|
|
|
|
|
|
Deferred: |
|
|
|
|
Federal....................................................................................................................... |
29,271 |
73,002 |
(452) |
|
State and local.......................................................................................................... |
4,582 |
17,399 |
(108) |
|
Total...................................................................................................................... |
$ 301,081 |
$ 220,223 |
$ 134,286 |
A reconciliation of the federal statutory rate
to the Company’s effective tax rate for 2003, 2002 and 2001 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax provision at statutory
rate................................................................................. |
35.0% |
35.0% |
35.0% |
|
State and local income
taxes, net of federal benefit............................................... |
5.0 |
5.0 |
5.0 |
|
Non-deductible goodwill
amortization.................................................................... |
- |
- |
4.4 |
|
Impact of foreign
operations..................................................................................... |
0.2 |
0.2 |
0.5 |
|
Non-deductible meals and
entertainment expense................................................ |
0.3 |
0.3 |
0.4 |
|
Other, net..................................................................................................................... |
0.3 |
0.1 |
- |
|
Effective
tax rate...................................................................................................... |
40.8% |
40.6% |
45.3% |
The tax effects of temporary differences that
give rise to significant portions of the deferred tax assets at December 31,
2003 and 2002 were as follows:
|
|
|
|
|
|
|
Current deferred tax
asset: |
|
|
|
Accounts
receivable reserve................................................................................. |
$ 33,797 |
$ 30,449 |
|
Liabilities
not currently deductible....................................................................... |
65,352 |
67,173 |
|
Accrued
settlement reserves................................................................................. |
4,972 |
3,456 |
|
Accrued
restructuring and integration costs...................................................... |
4,854 |
1,622 |
|
Total....................................................................................................................... |
$ 108,975 |
$ 102,700 |
|
|
|
|
Non-current deferred tax
asset: |
|
|
|
Liabilities
not currently deductible....................................................................... |
$ 44,978 |
$ 40,422 |
|
Net operating loss carryforwards.......................................................................... |
17,914 |
1,652 |
|
Accrued
restructuring and integration costs...................................................... |
1,613 |
3,334 |
|
Depreciation
and amortization............................................................................... |
(14,870) |
(15,652) |
|
Total....................................................................................................................... |
$ 49,635 |
$ 29,756 |
As of
December 31, 2003, the Company had estimated net operating loss carryforwards
for federal and state income tax purposes of $45 million and $430 million,
respectively, which expire at various dates through 2023. As of December 31, 2003 and 2002, deferred
tax assets associated with net operating loss carryforwards for federal and
state income tax purposes of $51 million and $29 million, respectively, have
each been reduced by a valuation reserve of $33 million and $27 million
respectively.
Income taxes payable at December 31, 2003 and
2002 were $29 million and $20 million, respectively, and consisted primarily of
federal income taxes payable of $22 million and $23 million, respectively. |
