Quest Diagnostics 2008 Annual Report Download - page 92

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets
(liabilities) at December 31, 2008 and 2007 were as follows: 2008 2007
Current deferred tax assets:
Accounts receivable reserves . . . ................................................ $ 82,594 $ 54,226
Liabilities not currently deductible.............................................. 135,825 95,615
Total current deferred tax assets. ............................................. $ 218,419 $ 149,841
Non-current deferred tax assets (liabilities):
Liabilities not currently deductible.............................................. $ 125,693 $ 117,647
Stock-based compensation...................................................... 55,413 36,664
Net operating loss carryforwards ............................................... 52,394 29,131
Depreciation and amortization . . ................................................ (423,074) (393,134)
Total non-current deferred tax liabilities ...................................... $(189,574) $(209,692)
During 2008, the Company increased deferred tax assets related to accounts receivable reserves by
approximately $32 million, with a corresponding decrease in goodwill, for changes in estimates regarding the
realization of tax benefits associated with acquired reserve balances.
At December 31, 2008 and 2007, non-current deferred tax liabilities of $190 million and $210 million,
respectively, are included in other long-term liabilities in the consolidated balance sheet.
As of December 31, 2008, the Company had estimated net operating loss carryforwards for federal, state and
foreign income tax purposes of $73 million, $647 million and $42 million, respectively, which expire at various
dates through 2028. As of December 31, 2008 and 2007, deferred tax assets associated with net operating loss
carryforwards of $66 million and $71 million, respectively, have each been reduced by a valuation allowance of
$14 million and $42 million, respectively.
Income taxes payable including those classified in other long-term liabilities in the consolidated balance
sheets at December 31, 2008 and 2007, were $88 million and $83 million, respectively.
As of January 1, 2007, the Company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in
financial statements and provides guidance on the recognition and measurement of tax positions taken or expected
to be taken by an entity. The adoption of FIN 48 resulted in an increase to our contingent tax liability reserves
of $30 million with corresponding charges to retained earnings, goodwill and additional paid-in capital. The
contingent liabilities for tax positions under FIN 48 primarily relate to uncertainties associated with the realization
of tax benefits derived from certain state net operating loss carryforwards, the allocation of income and expense
among state jurisdictions, the characterization and timing of certain tax deductions associated with business
combinations and employee compensation, and income and expenses associated with certain intercompany
licensing arrangements.
The recognition and measurement of certain tax benefits includes estimates and judgment by management
and inherently involves subjectivity. Changes in estimates may create volatility in the Company’s effective tax
rate in future periods and may be due to settlements with various tax authorities (either favorable or unfavorable),
the expiration of the statute of limitations on some tax positions and obtaining new information about particular
tax positions that may cause management to change its estimates.
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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands unless otherwise indicated)