NOTE 11 – INCOME TAXES

Rowan Delaware, our predecessor company, was domiciled in the U.S. and subject to a statutory rate of 35%. As a result of our redomestication to the U.K. we are now subject to the U.K. statutory rate, which was 26% through March 31, 2012, and 24% for the remainder of the year. We have computed our statutory tax rate for 2012 using a weighted average rate of 24.5%. Income tax information for the years ended December 31, 2011 and 2010 set forth below is presented from the perspective of an enterprise domiciled in the U.S.

The significant components of income taxes attributable to continuing operations consisted of (in thousands):

	2012			2011			2010

Current:
Federal	$	(69,934	)	$	(39,708	)	$	16,959
Foreign		23,931			15,368			32,402
State		100			566			(908	)
Total current provision (benefit)		(45,903	)		(23,774	)		48,453
Deferred		26,074			18,115			43,481
Total provision (benefit)	$	(19,829	)	$	(5,659	)	$	91,934

Differences between our provision for income taxes and the amount determined by applying our applicable statutory rate to income before income taxes are set forth below (dollars in thousands):

	2012			2011			2010

Statutory rate		24.5	%		35	%		35	%
Tax at statutory rate	$	44,950		$	45,528		$	125,837
Increase (decrease) due to:
Capitalized interest transactions		(39,204	)		-			-
Foreign rate differential		(29,223	)		(46,720	)		(25,711	)
Deferred intercompany gain/loss		(8,749	)		(12,629	)		-
Change in valuation allowance		2,806			-			-
Prior period adjustments		4,482			(1,398	)		-
Unrecognized tax benefits		2,463			3,895			-
Excess compensation		1,432			1,447			-
Extraterritorial income exclusion		(45	)		(522	)		-
Domestic production activities		-			-			(6,372	)
Other, net		1,259			4,740			(1,820	)
Total provision	$	(19,829	)	$	(5,659	)	$	91,934

Temporary differences and carryforwards which gave rise to deferred tax assets and liabilities at December 31 were as follows (in thousands):

	2012					2011
	Current		Noncurrent			Current		Noncurrent

Deferred tax assets:
Accrued employee benefit plan costs	$	27,011	$	118,961		$	26,519	$	72,467
U.S. net operating loss		-		30,623			-		64,495
U.K. net operating loss		-		7,889			-		14,722
Other		5,567		21,154			4,874		10,861
Total deferred tax assets		32,578		178,627			31,393		162,545
Less: valuation allowance		-		(17,528	)		-		(14,722	)
Deferred tax assets, net of valuation allowance		32,578		161,099			31,393		147,823

Deferred tax liabilities:
Property, plant and equipment		-		590,334			-		615,319
Other		5,950		44,637			4,370		8,947
Total deferred tax liabilities		5,950		634,971			4,370		624,266
Net deferred tax asset (liability)	$	26,628	$	(473,872	)	$	27,023	$	(476,443	)

At December 31, 2012, the Company had approximately $51.8 million of net operating loss carryforwards (NOLs) in the U.S. expiring in 2028 and 2029; $35.7 million of NOLs in the U.S. attributable to the Company's foreign subsidiaries expiring in 2032 and which was subject to a full valuation allowance at December 31, 2012; and $33.9 million of non-expiring NOLs in the U.K. In addition, at December 31, 2012, the Company had $3.8 million of non-expiring NOLs in other foreign jurisdictions, of which $2.3 million was subject to a valuation allowance. During 2012, the Company released a valuation allowance against the U.K. NOLs, which totaled $55.6 million at December 31, 2011. Management has determined that no other valuation allowances were necessary at December 31, 2012, as anticipated future tax benefits relating to all recognized deferred income tax assets are expected to be fully realized when measured against a more likely than not standard.

The Company has not provided deferred income taxes on undistributed earnings of the Company's non-U.K. subsidiaries, including Rowan Delaware and Rowan Delaware's non-U.S. subsidiaries. It is the Company's policy and intention to permanently reinvest earnings of the non-U.S. subsidiaries of Rowan Delaware outside the U.S. The earnings of non-U.K. subsidiaries that are not subsidiaries of Rowan Delaware can be distributed to Rowan UK without the imposition of either U.K. or local country tax.

As of December 31, 2012, unremitted earnings of Rowan Delaware were approximately $2,453 million, and unremitted earnings of Rowan Delaware's non-U.S. subsidiaries were approximately $400 million. Should the non-U.S. subsidiaries of Rowan Delaware make a distribution from these earnings, we may be subject to additional U.S. income taxes. It is not practicable to estimate the amount of deferred tax liability related to the undistributed earnings, and Rowan Delaware has no plan to distribute earnings in a manner that would cause those earnings to be subject to U.S., U.K. or other local country taxation.

At December 31, 2012, 2011 and 2010, we had $58.9 million, $55.3 million and $51.0 million, respectively, of net unrecognized tax benefits attributable to continuing operations, all of which would reduce the Company's income tax provision if recognized. The Company does not expect to recognize significant increases or decreases in unrecognized tax benefits during the next twelve months.

The following table sets forth the changes in the Company's gross unrecognized tax benefits during the years ended December 31 (in thousands):

	2012		2011		2010

Gross unrecognized tax benefits - beginning of year	$	55,300	$	51,000	$	54,200
Gross increases - tax positions in prior period		700		4,300		-
Gross decreases - tax positions in prior period		-		-		(1,300	)
Gross increases - current period tax positions		2,900		-		-
Settlements		-		-		-
Lapse of statute of limitations		-		-		(1,900	)
Gross unrecognized tax benefit - end of year	$	58,900	$	55,300	$	51,000

Interest and penalties relating to income taxes are included in other income and expense. At December 31, 2012, 2011 and 2010, accrued interest was $2.5 million, $2.1 million and $0.9 million, respectively, and accrued penalties were $1.4 million, $1.1 million and $0.6 million, respectively. To the extent accrued interest and penalties relating to uncertain tax positions are not actually assessed, such accruals will be reversed in the year of the resolution.

The Company's U.S. federal tax returns for 2006 through 2008 are currently under audit by the Internal Revenue Service (IRS), and 2002 and later years remain subject to examination. Various state tax returns for 2005 and subsequent years remain open for examination. In the Company's non-U.S. tax jurisdictions, returns for 2006 and subsequent years remain open for examination. We are undergoing other routine tax examinations in various U.S. and non-US. taxing jurisdictions in which the Company has operated. These examinations cover various tax years and are in various stages of finalization. The Company believes that any income taxes ultimately assessed by any taxing authorities will not materially exceed amounts for which the Company has already provided.

In 2009, the Company recognized a $25.4 million tax benefit as a result of applying the facts of a third-party tax case to the Company's situation. That case provided a more favorable tax treatment for certain non-U.S. contracts entered into in prior years. This position is currently under audit and is initially being challenged by the IRS field agents. We have appealed their findings and expect to come to a conclusion within the next twelve months. The Company plans to vigorously defend its position and continues to believe it is more likely than not that the Company will prevail. The Company has deferred recognition of a remaining $49.2 million estimated benefit in accordance with the accounting guidelines for income tax uncertainties. As of December 31, 2012, the Company had recognized a $46.6 million long-term receivable, which is included in other assets on the Consolidated Balance Sheet, and a long-term liability of approximately $48.7 million, in connection with its tax position.

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

	2012		2011			2010

U.S.	$	9,800	$	(1,200	)	$	260,300
Non-U.S.		173,700		131,300			118,700