Quest Diagnostics 2013 Annual Report Download - page 98

F- 26
At December 31, 2013 and 2012, non-current deferred tax assets of $24 million and $15 million, respectively, are
recorded in other long-term assets in the consolidated balance sheet. At December 31, 2013 and 2012, non-current deferred tax
liabilities of $192 million and $187 million, respectively, are included in other long-term liabilities in the consolidated balance
sheet.
As of December 31, 2013, the Company had estimated net operating loss carryforwards for federal and state income
tax purposes of $180 million and $1.2 billion, respectively, which expire at various dates through 2033. Estimated net
operating loss carryforwards for foreign income tax purposes are $37 million at December 31, 2013, some of which can be
carried forward indefinitely while others expire at various dates through 2022. As of December 31, 2013 and 2012, deferred tax
assets associated with net operating loss carryforwards of $140 million and $137 million, respectively, have each been reduced
by valuation allowances of $34 million and $32 million, respectively.
Income taxes payable including those classified in other long-term liabilities in the consolidated balance sheets at
December 31, 2013 and 2012, were $157 million and $251 million, respectively.
The total amount of unrecognized tax benefits as of and for the years ended December 31, 2013, 2012 and 2011
consisted of the following:
2013 2012 2011
Balance, beginning of year $ 199 $ 195 $ 152
Additions:
For tax positions of current year 11 12 63
For tax positions of prior years 12 10 9
Reductions:
Changes in judgment (23)(2)(13)
Expirations of statutes of limitations (2)(6)(3)
Settlements (29)(10)(13)
Balance, end of year $ 168 $ 199 $ 195
The contingent liabilities for tax positions primarily relate to uncertainties associated with the realization of tax
benefits derived from the allocation of income and expense among state jurisdictions, the characterization and timing of certain
tax deductions associated with business combinations, income and expenses associated with certain intercompany licensing
arrangements, certain tax credits and the deductibility of certain settlement payments.
The total amount of unrecognized tax benefits as of December 31, 2013, that, if recognized, would affect the effective
income tax rate from continuing operations is $136 million. Based upon the expiration of statutes of limitations, settlements
and/or the conclusion of tax examinations, the Company believes it is reasonably possible that the total amount of unrecognized
tax benefits may decrease by up to $3 million within the next twelve months.
Accruals for interest expense on contingent tax liabilities are classified in income tax expense in the consolidated
statements of operations. Accruals for penalties have historically been immaterial. Interest expense included in income tax
expense in each of the years ended December 31, 2013, 2012 and 2011 was approximately $3 million. As of both
December 31, 2013 and 2012, the Company has approximately $13 million accrued, net of the benefit of a federal and state
deduction, for the payment of interest on uncertain tax positions.
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.
In the regular course of business, various federal, state, local and foreign tax authorities conduct examinations of the
Company's income tax filings and the Company generally remains subject to examination until the statute of limitations expires
QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(in millions unless otherwise indicated)