Quest Diagnostics 2006 Annual Report Download - page 105

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets
(liabilities) at December 31, 2006 and 2005 were as follows:
2006 2005
Current deferred tax asset:
Accounts receivable reserve .................................................... $ 36,888 $ 32,598
Liabilities not currently deductible.............................................. 83,652 74,844
Total current deferred tax asset .............................................. $ 120,540 $ 107,442
Non-current deferred tax asset (liability):
Liabilities not currently deductible.............................................. $ 85,821 $ 69,071
Stock-based compensation...................................................... 19,896 -
Net operating loss carryforwards ............................................... 18,229 9,663
Depreciation and amortization . . ................................................ (128,814) (100,752)
Total non-current deferred tax liability. ....................................... $ (4,868) $ (22,018)
At December 31, 2006, non-current deferred tax assets of $16 million are included in other long-term assets
in the consolidated balance sheet. At December 31, 2006 and 2005, non-current deferred tax liabilities of $21
million and $22 million, respectively, are included in other long-term liabilities in the consolidated balance sheet.
As of December 31, 2006, the Company had estimated net operating loss carryforwards for federal and state
income tax purposes of $16 million and $411 million, respectively, which expire at various dates through 2026.
As of December 31, 2006 and 2005, deferred tax assets associated with net operating loss carryforwards for
federal and state income tax purposes of $29 million and $22 million, respectively, have each been reduced by a
valuation allowance of $11 million and $14 million, respectively.
Income taxes payable including those classified in other long-term liabilities in the consolidated balance
sheet at December 31, 2006 and 2005, were $36 million and $29 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.
6. SUPPLEMENTAL CASH FLOW AND OTHER DATA
2006 2005 2004
Depreciation expense ................................................. $184,844 $ 166,546 $156,955
Interest expense . ..................................................... (96,454) (61,443) (60,152)
Interest income . . ..................................................... 5,029 4,089 2,326
Interest, net .......................................................... (91,425) (57,354) (57,826)
Interest paid.......................................................... 102,055 49,976 51,781
Income taxes paid .................................................... 381,348 314,534 209,156
Businesses acquired:
Fair value of assets acquired .......................................... $278,078 $1,039,300 $ -
Fair value of liabilities assumed....................................... 28,453 230,235 -
Non-cash financing activities:
Conversion of contingent convertible debentures ....................... $ - $ 244,338 $ 3,197
F-18
QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands unless otherwise indicated)