10.

INCOME TAXES:

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


	Year Ended December 31,
	2013		2012		2011
Income from continuing operations before income taxes:
Domestic	$	523,745	$	390,734	$	181,520
Foreign		115,504		73,846		11,988

Total	$	639,249	$	464,580	$	193,508

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


	Year Ended December 31,
	2013			2012		2011
Current:
Federal	$	173,930		$	109,272	$	42,874
State		23,287			12,397		11,998
Foreign		37,193			14,657		7,668

Total current tax provision		234,410			136,326		62,540

Deferred:
Federal		(15,457	)		16,134		4,487
State		(451	)		1,627		965
Foreign		(562	)		4,772		(4,896	)

Total deferred tax provision (benefit)		(16,470	)		22,533		556

Total provision for income taxes	$	217,940		$	158,859	$	63,096

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,
	2013			2012			2011
Provision at the statutory rate	$	223,737		$	162,603		$	67,727
Increases (decreases) resulting from —
State taxes		14,788			10,980			6,375
Foreign taxes		(9,994	)		(5,841	)		(2,815	)
Contingency reserves, net		(3,422	)		(3,880	)		(7,262	)
Production activity deduction		(10,247	)		(7,081	)		(2,394	)
Employee per diems, meals and entertainment		7,960			6,441			4,149
Taxes on unincorporated joint ventures		(6,786	)		(5,609	)		(4,142	)
Other		1,904			1,246			1,458

	$	217,940		$	158,859		$	63,096

Deferred income taxes result from temporary differences in the recognition of income and expenses for financial reporting purposes and tax purposes. Deferred tax assets and liabilities as of December 31, 2012 have been reclassified to be consistent with changes in the presentation of book/tax method differences as of December 31, 2013. The tax effects of these temporary differences, representing deferred tax assets and liabilities, result principally from the following (in thousands):


	December 31,
	2013			2012
Deferred income tax liabilities —
Property and equipment	$	(218,739	)	$	(205,977	)
Goodwill		(58,643	)		(48,201	)
Other intangibles		(42,604	)		(46,661	)
Book/tax accounting method difference		(50,764	)		(54,768	)

Total deferred income tax liabilities		(370,750	)		(355,607	)

Deferred income tax assets —
Accruals and reserves		64,944			42,966
Accrued insurance		59,640			53,163
Deferred revenue		15,336			16,259
Net operating loss carryforwards		20,828			17,115
Other		26,229			20,540

Subtotal		186,977			150,043
Valuation allowance		(15,644	)		(9,344	)

Total deferred income tax assets		171,333			140,699

Total net deferred income tax liabilities	$	(199,417	)	$	(214,908	)

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


	December 31,
	2013			2012
Current deferred income taxes:
Assets	$	84,244		$	51,570
Liabilities		(39,405	)		(41,428	)

		44,839			10,142

Non-current deferred income taxes:
Assets		87,089			89,129
Liabilities		(331,345	)		(314,179	)

		(244,256	)		(225,050	)

Total net deferred income tax liabilities	$	(199,417	)	$	(214,908	)

The valuation allowance for deferred income tax assets at December 31, 2013, 2012 and 2011 was $15.6 million, $9.3 million and $8.8 million, respectively. These valuation allowances relate to foreign net operating loss carryforwards, state 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, 2013, 2012 and 2011 was an increase of $6.3 million, an increase of $0.5 million and a decrease of $2.6 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, 2013, Quanta had state and foreign net operating loss carryforwards, the tax effect of which is approximately $20.8 million. These carryforwards will expire as follows: 2014, $0.3 million; 2015, $0.1 million; 2016, $0.0 million; 2017, $0.7 million; 2018, $0.3 million and $19.4 million thereafter. A valuation allowance of $15.4 million has been recorded against certain foreign and state net operating loss carryforwards.

Through December 31, 2013, Quanta has not provided U.S. income taxes on approximately $218.0 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 Quanta’s intentions or U.S. tax laws change in the future, there may be a significant negative impact on the provision for income taxes and cash flows, 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,
	2013			2012			2011
Balance at beginning of year	$	51,244		$	47,379		$	50,632
Additions based on tax positions related to the current year		9,073			15,411			10,133
Additions for tax positions of prior years		—			1,607			131
Reductions for tax positions of prior years		—			(293	)		—
Reductions for audit settlements		—			(895	)		(4,877	)
Reductions resulting from a lapse of the applicable statute of limitations periods		(11,479	)		(11,965	)		(8,640	)

Balance at end of year	$	48,838		$	51,244		$	47,379

For the year ended December 31, 2013, the $11.5 million reduction is primarily due to the expiration of certain federal and state statute of limitations periods for the 2009 tax year. For the year ended December 31, 2012, the $12.0 million reduction is primarily due to the expiration of certain federal and state statute of limitations periods 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 statute of limitations periods 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.

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,
	2013		2012		2011
Unrecognized tax benefits	$	48,838	$	51,244	$	47,379
Portion that, if recognized, would reduce tax expense and effective tax rate		40,562		43,910		39,824
Accrued interest on unrecognized tax benefits		5,837		6,088		7,180
Accrued penalties on unrecognized tax benefits		99		127		163
Reasonably possible reduction to the balance of unrecognized tax benefits in succeeding 12 months	$	0 to $6,722	$	0 to $11,479	$	0 to $12,110
Portion that, if recognized, would reduce tax expense and effective tax rate	$	0 to $4,984	$	0 to $9,645	$	0 to $10,221

Quanta classifies interest and penalties within the provision for income taxes. Quanta recognized $0.3 million of interest income, $1.1 million of interest income and $0.7 million of interest expense in the provision for income taxes for the years ended December 31, 2013, 2012 and 2011, 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 2010 through 2013 as these statute of limitations periods have not yet expired. Quanta does not consider any state in which it does business to be a major tax jurisdiction.