Income Taxes

12 Months Ended

Dec. 31, 2012

Income Taxes

Income Taxes

3.     Income Taxes

        The income tax expense (benefit) included in the Consolidated Statement of Earnings is as follows:

	Year Ended December 31,
(in thousands)	2012			2011			2010
Current:
Federal	$	(133,312	)	$	117,868		$	22,406
Foreign		226,110			176,116			94,293
State and local		(7,804	)		27,143			27,260
Total current		84,994			321,127			143,959
Deferred:
Federal		87,723			(13,039	)		(26,322	)
Foreign		(16,645	)		(883	)		2,355
State and local		6,366			(3,476	)		(1,478	)
Total deferred		77,444			(17,398	)		(25,445	)
Total income tax expense	$	162,438		$	303,729		$	118,514

        A reconciliation of U.S. statutory federal income tax expense to income tax expense is as follows:

	Year Ended December 31,
(in thousands)	2012			2011			2010
U.S. statutory federal tax expense	$	256,727		$	350,635		$	195,859
Increase (decrease) in taxes resulting from:
State and local income taxes		1,727			15,360			16,255
Other permanent items, net		(4,849	)		(7,932	)		(10,575	)
Worthless stock		—			—			(152,409	)
Noncontrolling interests		(39,600	)		(35,682	)		(28,644	)
Foreign losses benefited, net		(84,366	)		—			—
Valuation allowance, net		85,541			11,014			90,214
Statute expirations and tax authority settlements		(13,152	)		(13,795	)		(10,686	)
Other changes to unrecognized tax positions		(29,740	)		(8,973	)		(1,075	)
Other, net		(9,850	)		(6,898	)		19,575
Total income tax expense	$	162,438		$	303,729		$	118,514

        Deferred taxes reflect the tax effects of differences between the amounts recorded as assets and liabilities for financial reporting purposes and the amounts recorded for income tax purposes. The tax effects of significant temporary differences giving rise to deferred tax assets and liabilities are as follows:

	December 31,
(in thousands)	2012			2011
Deferred tax assets:
Accrued liabilities not currently deductible:
Employee compensation and benefits	$	42,387		$	62,134
Employee time-off accrual		90,573			83,526
Project and non-project reserves		70,882			132,872
Workers' compensation insurance accruals		8,566			6,269
Tax basis of investments in excess of book basis		18,583			1,632
Net operating loss carryforwards		257,692			172,852
Unrealized currency loss		6,991			11,659
Capital loss carryforwards		3,896			3,896
Other comprehensive loss		149,364			113,957
Other		9,640			24,928
Total deferred tax assets		658,574			613,725
Valuation allowance for deferred tax assets		(230,123	)		(144,582	)
Deferred tax assets, net	$	428,451		$	469,143
Deferred tax liabilities:
Book basis of property, equipment and other capital costs in excess of tax basis		(44,332	)		(57,558	)
Residual U.S. tax on unremitted non-U.S. earnings		(40,250	)		(23,003	)
Other		(14,673	)		(13,521	)
Total deferred tax liabilities		(99,255	)		(94,082	)
Deferred tax assets, net of deferred tax liabilities	$	329,196		$	375,061

        The company had non-U.S. net operating loss carryforwards, related to various jurisdictions, of approximately $1.0 billion as of December 31, 2012. Of the total losses, $974 million can be carried forward indefinitely and $73 million will begin to expire in various jurisdictions starting in 2013.

        The company had non-U.S. capital loss carryforwards of approximately $11 million as of December 31, 2012, which can be carried forward indefinitely.

        The company maintains a valuation allowance to reduce certain deferred tax assets to amounts that are more likely than not to be realized. The allowances for 2012 and 2011 primarily related to the deferred tax assets established for certain net operating and capital loss carryforwards and certain reserves on investments. The net increase in the valuation allowance during 2012 was primarily due to an increase in net operating losses.

        The company conducts business globally and, as a result, the company or one or more of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, the company is subject to examination by taxing authorities throughout the world, including such major jurisdictions as Australia, Canada, the Netherlands, South Africa, the United Kingdom and the United States. Although the company believes its reserves for its tax positions are reasonable, the final outcome of tax audits could be materially different, both favorably and unfavorably. With a few exceptions, the company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations for years before 2003.

        During 2012, the company reached an agreement on certain issues with the U.S. Internal Revenue Service ("IRS") on a tax audit for tax years 2003 through 2005. This agreement resulted in a net reduction in tax expense of $13 million.

        The unrecognized tax benefits as of December 31, 2012 and 2011 were $47 million and $215 million, of which $33 million and $78 million, if recognized, would have favorably impacted the effective tax rates at the end of 2012 and 2011, respectively. The company does not anticipate any significant changes to the unrecognized tax benefits within the next twelve months.

        A reconciliation of the beginning and ending amount of unrecognized tax benefits including interest and penalties is as follows:

(in thousands)	2012			2011
Balance at beginning of year	$	214,998		$	219,028
Change in tax positions of prior years		(64,214	)		9,765
Change in tax positions of current year		—			—
Reduction in tax positions for statute expirations		—			(874	)
Reduction in tax positions for audit settlements		(103,741	)		(12,921	)
Balance at end of year	$	47,043		$	214,998

        The company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. The company has $7 million and $14 million in interest and penalties accrued as of December 31, 2012 and 2011.

        U.S. and foreign earnings before taxes are as follows:

	Year Ended December 31,
(in thousands)	2012		2011		2010
United States	$	279,890	$	346,016	$	454,066
Foreign		453,615		655,800		105,530
Total	$	733,505	$	1,001,816	$	559,596

        Earnings before taxes in the United States declined in 2012 compared to 2011 principally due to reduced contributions from several completed projects in the Power segment and expenses associated with the company's continued investment in NuScale. Earnings before taxes in foreign jurisdictions decreased in 2012 compared to 2011 primarily due to a pre-tax charge of an unexpected adverse decision in the arbitration proceedings related to the company's claim for additional compensation on the Greater Gabbard Project (see "13. Contingencies and Commitments"). Earnings before taxes in the United States declined in 2011 compared to 2010 principally due to the reduction in project execution activities in the Power segment, as well as reduced contributions from various projects in the Oil & Gas segment. Earnings before taxes in foreign jurisdictions increased significantly in 2011 compared to 2010 primarily due to increased contributions from the Industrial & Infrastructure segment including a reduced level of pre-tax charges for the Greater Gabbard Project (see "13. Contingencies and Commitments") and improved performance in the mining and metals business line.