Quest Diagnostics 2005 Annual Report Download - page 95

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands unless otherwise indicated)
The tax effects of temporary differences that give rise to significant portions of the deferred taxes at
December 31, 2005 and 2004 were as follows:
2005 2004
Current deferred tax asset:
Accounts receivable reserve ........................................ $ 32,598 $ 28,020
Liabilities not currently deductible .................................. 74,844 55,010
Total current deferred tax asset .................................. $ 107,442 $ 83,030
Non-current deferred tax asset (liability):
Liabilities not currently deductible .................................. $ 69,071 $ 55,534
Net operating loss carryforwards ................................... 9,663 14,247
Depreciation and amortization ...................................... (100,752) (40,407)
Total non-current deferred tax (liability) asset ..................... $ (22,018) $ 29,374
The non-current deferred tax liability of $22 million at December 31, 2005 is included in other liabilities
in the consolidated balance sheet.
As of December 31, 2005, the Company had estimated net operating loss carryforwards for federal and
state income tax purposes of $24 million and $311 million, respectively, which expire at various dates through
2025. As of December 31, 2005 and 2004, deferred tax assets associated with net operating loss carryforwards
for federal and state income tax purposes of $22 million and $30 million, respectively, have each been reduced
by a valuation allowance of $14 million and $16 million, respectively.
Income taxes payable at December 31, 2005 and 2004 were $29 million and $28 million, respectively, and
consisted primarily of federal income taxes payable of $19 million and $25 million, respectively.
The Company provides reserves for potential tax exposures that may arise from examinations by federal or
state tax authorities. Management believes that while the ultimate resolution of these matters will not be
material to the Company’s financial position, resolution of these matters could be material to the Company’s
results of operations or cash flows in the period in which the resolution of such matters is determined.
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. In conjunction with its acquisition of SmithKline Beecham Clinical Laboratories, Inc. (“SBCL’’),
which operated the clinical laboratory testing business of SmithKline Beecham plc (“SmithKline Beecham’’), the
Company entered into a tax indemnification arrangement with SmithKline Beecham that provides the parties
with certain rights of indemnification against each other.
The American Jobs Creation Act of 2004 (the “Act’’) was signed into law on October 22, 2004. The
provisions of the Act did not have a material effect on the Company’s consolidated results of operations or
financial condition.
F-18