Quest Diagnostics 2015 Annual Report Download - page 101

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(in millions unless otherwise indicated)
F- 26
During the fourth quarter of 2015, the Company early adopted a new accounting standard which requires that all
deferred income tax assets and liabilities be classified as non-current in the balance sheet (see Note 2). As the Company elected
to apply the standard prospectively, prior periods were not retrospectively adjusted. Adoption of this standard resulted in $168
million of deferred taxes associated with current assets and liabilities being classified as non-current deferred tax assets of $26
million and as a reduction of non-current deferred tax liabilities of $142 million on the consolidated balance sheet as of
December 31, 2015.
At December 31, 2015 and 2014, non-current deferred tax assets of $37 million and $33 million, respectively, are
recorded in other long-term assets in the consolidated balance sheets. At December 31, 2015 and 2014, non-current deferred
tax liabilities of $157 million and $204 million, respectively, are included in other long-term liabilities in the consolidated
balance sheets.
As of December 31, 2015, the Company had estimated net operating loss carryforwards for federal and state income
tax purposes of $268 million and $1.4 billion, respectively, which expire at various dates through 2035. Estimated net
operating loss carryforwards for foreign income tax purposes are $48 million at December 31, 2015, some of which can be
carried forward indefinitely while others expire at various dates through 2025. As of December 31, 2015, 2014 and 2013,
deferred tax assets associated with net operating loss carryforwards of $222 million, $242 million and $140 million,
respectively, have each been reduced by valuation allowances of $54 million, $60 million and $34 million, respectively. The
increase in the valuation allowance as of December 31, 2014 was a result of a $14 million valuation allowance recorded on net
operating loss carryforwards acquired in a business combination, with the remainder primarily associated with additional net
operating losses generated during 2014.
The Company has not provided U.S. federal income and foreign tax withholdings on undistributed earnings from
certain non-U.S. subsidiaries for which the Company intends to reinvest such earnings indefinitely outside the U.S.
Determination of the amount of unrecognized deferred tax liability related to these earnings is not practicable.
Income taxes payable, including those classified in other long-term liabilities in the consolidated balance sheets at
December 31, 2015 and 2014, were $50 million and $110 million, respectively. Prepaid income taxes were $41 million and $44
million at December 31, 2015 and 2014, respectively, and were included in prepaid expenses and other current assets in the
consolidated balance sheets.
The total amount of unrecognized tax benefits as of and for the years ended December 31, 2015, 2014 and 2013
consisted of the following:
2015 2014 2013
Balance, beginning of year $ 122 $ 168 $ 199
Additions:
For tax positions of current year 5 17 11
For tax positions of prior years 5 1 12
Reductions:
Changes in judgment (11)(56)(23)
Expirations of statutes of limitations (3)(6)(2)
Settlements (27)(2)(29)
Balance, end of year $ 91 $ 122 $ 168
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, 2015, that, if recognized, would affect the effective
income tax rate from continuing operations is $38 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 $4 million within the next twelve months.
QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM 10-K