Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.0.6
Income Taxes
12 Months Ended
Dec. 31, 2011
Income Tax [Abstract]  
INCOME TAXES
9. INCOME TAXES:

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

 

 

                         
     Year ended December 31,  
    2011     2010     2009  

Income before income taxes:

                       

Domestic

  $ 204,382     $ 227,560     $ 228,461  

Foreign

    11,988       18,695       5,269  
   

 

 

   

 

 

   

 

 

 

Total

  $ 216,370     $ 246,255     $ 233,730  
   

 

 

   

 

 

   

 

 

 

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

 

 

                         
    Year Ended December 31,  
    2011     2010     2009  

Federal —

                       

Current

  $ 44,399     $ 38,698     $ 34,763  

Deferred

    10,470       34,813       26,240  

State —

                       

Current

    12,870       9,310       6,664  

Deferred

    1,443       2,062       865  

Foreign —

                       

Current

    7,668       6,260       1,857  

Deferred

    (4,896     (445     (194
   

 

 

   

 

 

   

 

 

 
    $ 71,954     $ 90,698     $ 70,195  
   

 

 

   

 

 

   

 

 

 

 

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

 

 

                         
    Year Ended December 31,  
    2011     2010     2009  

Provision at the statutory rate

  $ 75,729     $ 86,189     $ 81,806  

Increases (decreases) resulting from —

                       

State and foreign taxes

    4,762       7,881       5,049  

Contingency reserves, net

    (8,769     (6,353     (15,810

Production activity deduction

    (2,527     (3,031     (5,007

Employee per diems, meals and entertainment

    4,687       5,126       3,537  

Taxes on unincorporated joint ventures

    (4,142     (833     (480

Other

    2,214       1,719       1,100  
   

 

 

   

 

 

   

 

 

 
    $ 71,954     $ 90,698     $ 70,195  
   

 

 

   

 

 

   

 

 

 

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,  
    2011     2010  

Deferred income tax liabilities —

               

Property and equipment

  $ (204,918   $ (180,776

Goodwill

    (43,057     (30,251

Other intangibles

    (54,206     (55,762

Book/tax accounting method difference

    (27,924     (31,919
   

 

 

   

 

 

 

Total deferred income tax liabilities

    (330,105     (298,708
   

 

 

   

 

 

 

Deferred income tax assets —

               

Accruals and reserves

    40,619       20,144  

Accrued insurance

    55,169       55,984  

Deferred revenue

    14,243       10,316  

Net operating loss carryforwards

    15,615       12,374  

Other

    13,140       22,634  
   

 

 

   

 

 

 

Subtotal

    138,786       121,452  

Valuation allowance

    (8,783     (11,368
   

 

 

   

 

 

 

Total deferred income tax assets

    130,003       110,084  
   

 

 

   

 

 

 

Total net deferred income tax liabilities

  $ (200,102   $ (188,624
   

 

 

   

 

 

 

 

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

 

 

                 
    December 31,  
    2011     2010  

Current deferred income taxes:

               

Assets

  $ 51,373     $ 46,883  

Liabilities

    (17,831     (23,307
   

 

 

   

 

 

 
      33,542       23,576  
   

 

 

   

 

 

 

Non-current deferred income taxes:

               

Assets

    78,630       63,201  

Liabilities

    (312,274     (275,401
   

 

 

   

 

 

 
      (233,644     (212,200
   

 

 

   

 

 

 

Total net deferred income tax liabilities

  $ (200,102   $ (188,624
   

 

 

   

 

 

 

The valuation allowance for deferred income tax assets at December 31, 2011, 2010, and 2009 was $8.8 million, $11.4 million, and $8.6 million, respectively. These valuation allowances relate to state net operating loss carryforwards, a deferred tax asset for goodwill and foreign tax credit carryforwards. The net change in the total valuation allowance for each of the years ended December 31, 2011, 2010, and 2009 was a decrease of $2.6 million, an increase of $2.8 million and a decrease of $0.6 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, 2011, Quanta had state and foreign net operating loss carryforwards, the tax effect of which is approximately $15.6 million. These carryforwards will expire as follows: 2012, $0.3 million; 2013, $0.4 million; 2014, $0.8 million; 2015, $0.3 million; 2016, $0.3 million and $13.5 million thereafter. A valuation allowance of $6.4 million has been recorded against certain state net operating loss carryforwards.

Through December 31, 2011, Quanta has not provided U.S. income taxes on 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.

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

 

 

                         
    December 31,  
    2011     2010     2009  

Balance at beginning of year

  $ 50,632     $ 45,201     $ 59,190  

Additions based on tax positions related to the current year

    10,133       10,602       10,078  

Additions for tax positions of prior years

    131       5,183       633  

Additions attributable to acquisitions of businesses

                1,904  

Reductions for tax positions of prior years

                (1,132

Settlements

    (4,877     (93     (447

Reductions resulting from a lapse of the applicable statutes of limitations

    (8,640     (10,261     (25,025
   

 

 

   

 

 

   

 

 

 

Balance at end of year

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

 

 

   

 

 

   

 

 

 

 

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. For the year ended December 31, 2009, the $25.0 million reduction is primarily due to the expiration of certain federal and state statutes of limitations for the 2005 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,  
    2011     2010     2009  

Unrecognized tax benefits

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

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

    39,824       43,077       37,054  

Accrued interest on unrecognized tax benefits

    7,180       6,524       8,694  

Accrued penalties on unrecognized tax benefits

    163       163       213  

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

  $ 0 to $12,110     $ 0 to $8,786     $ 0 to $9,300  

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

  $ 0 to $10,221     $ 0 to $6,896     $ 0 to $7,100  

Quanta classifies interest and penalties within the provision for income taxes. Quanta recognized $0.7 million of interest expense and $2.2 million and $3.6 million of interest income in the provision for income taxes for the years ended December 31, 2011, 2010 and 2009, respectively.

Quanta is subject to income tax in the United States, multiple state jurisdictions and a few foreign jurisdictions. Quanta remains open to examination by the IRS for tax years 2008 through 2011 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.