Note 12 Income Taxes

Income (loss) from continuing operations before income taxes consisted of the following:

	Year Ended December 31,
United States and Other Jurisdictions	2015			2014			2013
	(In thousands)

United States	$	(264,919	)	$	(598,121	)	$	(84,032	)
Other jurisdictions	(162,617		)	(6,494		)	190,192

Income (loss) from continuing operations before income taxes	$	(427,536	)	$	(604,615	)	$	106,160

Income tax expense (benefit) from continuing operations consisted of the following:

	Year Ended December 31,
	2015			2014			2013
	(In thousands)

Current:
U.S. federal	$	5,088		$	183,840		$	(16,934	)
Outside the U.S.	76,550			109,072			50,866
State	8,227			9,401			5,933

	$	89,865		$	302,313		$	39,865

Deferred:
U.S. federal	$	(182,518	)	$	(211,119	)	$	(71,251	)
Outside the U.S.	1,757			(9,127		)	(10,288		)
State	(7,142		)	(19,401		)	(13,507		)

	$	(187,903	)	$	(239,647	)	$	(95,046	)

Income tax expense (benefit)	$	(98,038	)	$	62,666		$	(55,181	)

A reconciliation of our statutory tax rate to our worldwide effective tax rate consists of the following:

	Year Ended December 31,
	2015			2014			2013
	(In thousands)

Income tax provision at statutory (Bermuda rate of 0%)	$	—		$	—		$	—
Taxes (benefit) on U.S. and other international earnings (losses) at greater than the Bermuda rate	(109,101		)	(83,747		)	(33,277		)
Increase (decrease) in valuation allowance	22,655			(9,934		)	25,592
Tax reserves and interest	(12,679		)	166,347			(39,921		)
State income taxes (benefit)	1,087			(10,000		)	(7,575		)

Income tax expense (benefit)	$	(98,038	)	$	62,666		$	(55,181	)

Effective tax rate	22.9%			(10.4)%			(52.0)%

The change in our worldwide effective tax rate from 2014 to 2015 is primarily attributable to the tax effect of the geographic mix of pre-tax earnings (losses), including greater losses in higher-tax jurisdictions. The tax effect of impairments and internal restructuring also contributed to the change.

The change in our worldwide effective tax rate from 2013 to 2014 is primarily attributable to the tax effect related to impairments and internal restructuring. The change in geographic mix of pre-tax earnings also contributed to the change.

The components of our net deferred taxes consisted of the following:

	December 31,
	2015			2014
	(In thousands)
Deferred tax assets:
Net operating loss carryforwards	$	1,510,354		$	1,470,407
Equity compensation	37,633			35,296
Deferred revenue	19,422			23,116
Tax credit and other attribute carryforwards	119,471			116,833
Insurance loss reserves	6,192			6,235
Accrued Interest	288,687			227,572
Other	135,185			143,302

Subtotal	2,116,944			2,022,761
Valuation allowance	(1,560,162		)	(1,537,507		)

Deferred tax assets:	$	556,782		$	485,254


Deferred tax liabilities:
Depreciation and amortization for tax in excess of book expense	$	384,513		$	760,294
Variable interest investments	718			4,496
Other	16,009			17,953

Deferred tax liability	$	401,240		$	782,743

Net deferred tax assets (liabilities)	$	155,542		$	(297,489	)


Balance Sheet Summary:
Net current deferred asset	$	—		$	118,230
Net noncurrent deferred asset (1)	184,865			30,961
Net current deferred liability (2)	—			(3,677		)
Net noncurrent deferred liability	(29,323		)	(443,003		)

Net deferred asset (liability)	$	155,542		$	(297,489	)

(1)

This amount is included in other long-term assets.

(2)

This amount is included in accrued liabilities.

For U.S. federal income tax purposes, we have net operating loss (“NOL”) carryforwards of approximately $303.0 million that, if not utilized, will expire between 2019 and 2035. The NOL carryforwards for alternative minimum tax purposes are approximately $279.0 million. Additionally, we have NOL carryforwards in other jurisdictions of approximately $5.3 billion of which $386.4 million, if not utilized, will expire at various times from 2016 to 2035. We provide a valuation allowance against NOL carryforwards in various tax jurisdictions based on our consideration of existing temporary differences and expected future earning levels in those jurisdictions. We have recorded a deferred tax asset of approximately $1.43 billion as of December 31, 2015 relating to NOL carryforwards that have an indefinite life in several non-U.S. jurisdictions. A valuation allowance of approximately $1.43 billion has been recognized because we believe it is more likely than not that substantially all of the deferred tax asset will not be realized.

In addition, for state income tax purposes, we have NOL carryforwards of approximately $451.0 million that, if not utilized, will expire at various times from 2016 to 2035.

The following is a reconciliation of our uncertain tax positions:

	Year Ended December 31,
	2015			2014			2013
	(In thousands)
Balance as of January 1	$	203,707		$	47,552		$	83,950
Additions based on tax positions related to the current year	384			167,107		(3)	145
Additions for tax positions of prior years	—			1,744			3,360
Reductions for tax positions for prior years	(7,163		)(1)	(4,473		)	(30,320		)(5)
Settlements	(5,027		)(2)	(8,223		)(4)	(9,583		)

Balance as of December 31	$	191,901		$	203,707		$	47,552

(1)

Includes $6.0 million related to settlements in Canada, Trinidad and the U.S. and $1.1 million due to the expiration of statutes of limitations.

(2)

Includes $5.0 million related to settlements in Colombia, Ecuador, U.S. and Canada.

(3)

Includes $166.0 million related to internal restructuring.

(4)

Includes $7.6 million related to settlements in Algeria, Canada and Oman.

(5)

Includes $21.6 million related to settlements in Mexico, Canada and Algeria and $8.7 million due to the expiration of statutes of limitations.

If the reserves of $191.9 million are not realized, this would favorably impact the worldwide effective tax rate. As of December 31, 2015, 2014 and 2013, we had approximately $3.9 million, $16.9 million and $20.6 million, respectively, of interest and penalties related to uncertain tax positions. During 2015, 2014 and 2013, we accrued and recognized estimated interest and penalties related to uncertain tax positions of approximately $1.4 million, $6.1 million and $5.2 million, respectively. We include potential interest and penalties related to uncertain tax positions within our global operations in the income tax expense (benefit) line item in our consolidated statements of income (loss).

It is reasonably possible that our existing liabilities related to our reserve for uncertain tax positions may increase or decrease in the next twelve months primarily due to the completion of open audits or the expiration of statutes of limitation. However, we cannot reasonably estimate a range of changes in our existing liabilities due to various uncertainties, such as the unresolved nature of various audits.

We conduct business globally and, as a result, we file numerous income tax returns in the U.S. and non-U.S. jurisdictions. In the normal course of business we are subject to examination by taxing authorities throughout the world, including major jurisdictions such as Algeria, Canada, Mexico, Saudi Arabia and the United States. We are no longer subject to U.S. Federal income tax examinations for years before 2012 and non-U.S. income tax examinations for years before 2005.