Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v2.4.0.6
INCOME TAXES
12 Months Ended
Dec. 31, 2012
INCOME TAXES
10.

INCOME TAXES:

The components of income from continuing operations before income taxes are as follows (in thousands):

 

      Year Ended December 31,  
     2012      2011      2010  

Income from continuing operations before income taxes:

        

Domestic

   $ 390,734      $ 181,520       $ 215,263   

Foreign

     73,846         11,988         18,695   
  

 

 

    

 

 

    

 

 

 

Total

   $ 464,580       $ 193,508       $ 233,958   
  

 

 

    

 

 

    

 

 

 

The components of the provision for income taxes for continuing operations are as follows (in thousands):

 

      Year Ended December 31,  
     2012      2011     2010  

Current:

       

Federal

   $  109,272       $ 42,874      $ 39,818   

State

     12,397         11,998        9,650   

Foreign

     14,657         7,668        6,260   
  

 

 

    

 

 

   

 

 

 

Total current tax provision

     136,326         62,540        55,728   
  

 

 

    

 

 

   

 

 

 

Deferred:

       

Federal

     16,134         4,487        31,539   

State

     1,627         965        2,062   

Foreign

     4,772         (4,896     (445
  

 

 

    

 

 

   

 

 

 

Total deferred tax provision

     22,533         556        33,156   
  

 

 

    

 

 

   

 

 

 

Total provision for income taxes

   $ 158,859       $ 63,096      $ 88,884   
  

 

 

    

 

 

   

 

 

 

 

The actual income tax provision differs from the income tax provision computed by applying the U.S. federal statutory corporate rate to income from continuing operations before provision for income taxes as follows (in thousands):

 

     Year Ended December 31,  
     2012     2011     2010  

Provision at the statutory rate

   $  162,603      $ 67,727      $ 81,885   

Increases (decreases) resulting from —

      

State taxes

     10,980        6,375        8,058   

Foreign taxes

     (5,841     (2,815     182   

Contingency reserves, net

     (3,880     (7,262     (4,184

Production activity deduction

     (7,081     (2,394     (2,650

Employee per diems, meals and entertainment

     6,441        4,149        4,725   

Taxes on unincorporated joint ventures

     (5,609     (4,142     (833

Other

     1,246        1,458        1,701   
  

 

 

   

 

 

   

 

 

 
   $ 158,859      $ 63,096      $ 88,884   
  

 

 

   

 

 

   

 

 

 

Deferred income taxes result from temporary differences in the recognition of income and expenses for financial reporting purposes and tax purposes. The tax effects of these temporary differences, representing deferred tax assets and liabilities, result principally from the following (in thousands):

 

     December 31,  
     2012     2011  

Deferred income tax liabilities —

    

Property and equipment

   $ (205,977   $ (204,918

Goodwill

     (48,201     (43,057

Other intangibles

     (46,661     (54,206

Book/tax accounting method difference

     (45,159     (27,924
  

 

 

   

 

 

 

Total deferred income tax liabilities

     (345,998     (330,105
  

 

 

   

 

 

 

Deferred income tax assets —

    

Accruals and reserves

     33,357        40,619   

Accrued insurance

     53,163        55,169   

Deferred revenue

     16,259        14,243   

Net operating loss carryforwards

     17,115        15,615   

Other

     20,540        13,140   
  

 

 

   

 

 

 

Subtotal

     140,434        138,786   

Valuation allowance

     (9,344     (8,783
  

 

 

   

 

 

 

Total deferred income tax assets

     131,090        130,003   
  

 

 

   

 

 

 

Total net deferred income tax liabilities

   $ (214,908   $ (200,102
  

 

 

   

 

 

 

 

The net deferred income tax assets and liabilities are comprised of the following (in thousands):

 

     December 31,  
     2012     2011  

Current deferred income taxes:

    

Assets

   $ 41,961      $ 51,373   

Liabilities

     (31,819     (17,831
  

 

 

   

 

 

 
     10,142        33,542   
  

 

 

   

 

 

 

Non-current deferred income taxes:

    

Assets

     89,129        78,630   

Liabilities

     (314,179     (312,274
  

 

 

   

 

 

 
     (225,050     (233,644
  

 

 

   

 

 

 

Total net deferred income tax liabilities

   $ (214,908   $ (200,102
  

 

 

   

 

 

 

The valuation allowance for deferred income tax assets at December 31, 2012, 2011 and 2010 was $9.3 million, $8.8 million and $11.4 million, respectively. These valuation allowances relate to state net operating loss carryforwards, foreign net operating loss carryforwards and foreign tax credit carryforwards. The net change in the total valuation allowance for each of the years ended December 31, 2012, 2011 and 2010 was an increase of $0.5 million, a decrease of $2.6 million and an increase of $2.8 million, respectively. The valuation allowance was established primarily as a result of uncertainty in Quanta’s outlook as to future taxable income in particular tax jurisdictions. Quanta believes it is more likely than not that it will realize the benefit of its deferred tax assets, net of existing valuation allowances.

At December 31, 2012, Quanta had state and foreign net operating loss carryforwards, the tax effect of which is approximately $17.1 million. These carryforwards will expire as follows: 2013, $0.6 million; 2014, $0.8 million; 2015, $0.2 million; 2016, $0.2 million; 2017, $0.5 million and $14.8 million thereafter. A valuation allowance of $4.9 million has been recorded against certain state net operating loss carryforwards.

Through December 31, 2012, Quanta has not provided U.S. income taxes on approximately $105.0 million of unremitted foreign earnings because such earnings are intended to be indefinitely reinvested outside the U.S. It is not practicable to determine the amount of any additional U.S. tax liability that may result if Quanta decides to no longer indefinitely reinvest foreign earnings outside the U.S. If management intentions or U.S. tax law changes in the future, there may be a significant negative impact on the provision for income taxes, as a result of recording an incremental tax liability, in the period such change occurs.

A reconciliation of unrecognized tax benefit balances is as follows (in thousands):

 

     December 31,  
     2012     2011     2010  

Balance at beginning of year

   $ 47,379      $ 50,632      $ 45,201   

Additions based on tax positions related to the current year

     15,411        10,133        10,602   

Additions for tax positions of prior years

     1,607        131        5,183   

Reductions for tax positions of prior years

     (293              

Reductions for audit settlements

     (895     (4,877     (93

Reductions resulting from a lapse of the applicable statutes of limitations

     (11,965     (8,640     (10,261
  

 

 

   

 

 

   

 

 

 

Balance at end of year

   $ 51,244      $ 47,379      $ 50,632   
  

 

 

   

 

 

   

 

 

 

 

For the year ended December 31, 2012, the $12.0 million reduction is primarily due to the expiration of certain federal and state statutes of limitations for the 2008 tax year. For the year ended December 31, 2011, the $8.6 million reduction is primarily due to the expiration of certain federal and state statutes of limitations for the 2007 tax year and the $4.9 million reduction primarily relates to settlement with tax authorities regarding a foreign tax credit position taken in a pre-acquisition tax return of an acquired business. For the year ended December 31, 2010, the $10.3 million reduction is primarily due to the expiration of certain federal and state statutes of limitations for the 2006 tax year.

The balances of unrecognized tax benefits, the amount of related interest and penalties and what Quanta believes to be the range of reasonably possible changes in the next 12 months are as follows (in thousands):

 

     December 31,  
     2012      2011      2010  

Unrecognized tax benefits

   $ 51,244       $ 47,379       $ 50,632   

Portion that, if recognized, would reduce tax expense and effective tax rate

     43,910         39,824         43,077   

Accrued interest on unrecognized tax benefits

     6,088         7,180         6,524   

Accrued penalties on unrecognized tax benefits

     127         163         163   

Reasonably possible reduction to the balance of unrecognized tax benefits in succeeding 12 months

   $ 0 to $11,479       $ 0 to $12,110       $ 0 to $8,786   

Portion that, if recognized, would reduce tax expense and effective tax rate

   $ 0 to $9,645       $ 0 to $10,221       $ 0 to $6,896   

Quanta classifies interest and penalties within the provision for income taxes. Quanta recognized $1.1 million of interest income, $0.7 million of interest expense and $2.2 million of interest income in the provision for income taxes for the years ended December 31, 2012, 2011 and 2010, respectively.

Quanta is subject to income tax in the United States, multiple state jurisdictions and some foreign jurisdictions. Quanta remains open to examination by the IRS for tax years 2009 through 2012 as these statutes of limitations have not yet expired. Quanta does not consider any state in which it does business to be a major tax jurisdiction.