INCOME TAXES

RCI, 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 main rate, which was 24% for the financial year starting April 1, 2012 and 23% for the financial year starting April 1, 2013. The main rate reduces to 21% for the financial year starting April 1, 2014 and 20% for the financial year starting April 1, 2015. We have computed our statutory tax rate for 2013 using a weighted average U.K. rate of 23.3%. Income tax information for 2011 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):



	2013			2012			2011
Current:
U.S.	$	(38,025	)	$	(69,934	)	$	(39,708	)
Non - U.S.	31,932			23,931			15,368
State	(5,141		)	100			566
Current benefit	(11,234		)	(45,903		)	(23,774		)
Deferred:
U.S.	20,827			45,794			27,401
Non - U.S.	(930		)	(19,720		)	(9,286		)
Deferred provision	19,897			26,074			18,115
Total provision (benefit)	$	8,663		$	(19,829	)	$	(5,659	)

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):



	2013			2012			2011
Statutory rate	23.3		%	24.5		%	35		%
Tax at statutory rate	$	60,738		$	44,950		$	45,528
Increase (decrease) due to:
Capitalized interest transactions	(11,317		)	(39,204		)	—
Foreign rate differential	(27,078		)	(27,591		)	(36,311		)
Deferred intercompany gain/loss	(9,062		)	(8,749		)	(12,629		)
Change in valuation allowance	8,381			2,806			—
Prior period adjustments	(9,837		)	4,482			(1,398		)
Unrecognized tax benefits	17,544			2,463			3,895
Excess compensation	1,022			1,432			1,447
Foreign taxes of subsidiaries for which U.S. federal income taxes have been provided	9,155			—			—
Foreign tax credits	(31,078		)	(1,632		)	(10,409		)
Extraterritorial income exclusion	(43		)	(45		)	(522		)
Other, net	238			1,259			4,740
Total provision (benefit)	$	8,663		$	(19,829	)	$	(5,659	)

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



	2013					2012
	Current		Noncurrent			Current		Noncurrent
Deferred tax assets:
Accrued employee benefit plan costs	$	27,295	$	76,619		$	27,011	$	118,961
U.S. net operating loss	—		28,486			—		30,623
U.K. net operating loss	—		8,280			—		10,130
Norway net operating loss	—		13,949			—		408
Other	700		28,744			5,567		20,811
Total deferred tax assets	27,995		156,078			32,578		180,933
Less: valuation allowance	—		(25,909		)	—		(17,528		)
Deferred tax assets, net of valuation allowance	27,995		130,169			32,578		163,405

Deferred tax liabilities:
Property, plant and equipment	—		514,612			—		590,334
Other	5,858		45,212			5,950		46,943
Total deferred tax liabilities	5,858		559,824			5,950		637,277
Net deferred tax asset (liability)	$	22,137	$	(429,655	)	$	26,628	$	(473,872	)

At December 31, 2013, the Company had approximately $32.1 million of net operating loss carryforwards (NOLs) in the U.S. expiring in 2028 and 2029; $49.3 million of NOLs in the U.S. attributable to the Company’s foreign subsidiaries expiring in 2032 and which was subject to a valuation allowance of $35.7 million at December 31, 2013; $41.4 million of non-expiring NOLs in the U.K. of which $18.6 million was subject to a valuation allowance; and $51.7 million of non-expiring NOLs in Norway, of which $28.7 million was subject to a valuation allowance. In addition, at December 31, 2013, the Company had $17.0 million of non-expiring NOLs in other foreign jurisdictions, of which $13.9 million was subject to a valuation allowance. During 2013, the Company released a valuation allowance against the other foreign jurisdiction NOLs, which totaled $2.8 million at December 31, 2012. Management has determined that no other valuation allowances were necessary at December 31, 2013, 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 RCI’s non-U.S. subsidiaries. It is the Company’s policy and intention to permanently reinvest earnings of non-U.S. subsidiaries of RCI outside the U.S. The earnings of non-U.K. subsidiaries that are not subsidiaries of RCI can be distributed to Rowan plc without the imposition of either U.K. or local country tax.

As of December 31, 2013, unremitted earnings of RCI’s non-U.S. subsidiaries were approximately $419 million. Should the non-U.S. subsidiaries of RCI 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 RCI's non-U.S. subsidiaries have no plan to distribute earnings in a manner that would cause them to be subject to U.S., U.K., or other local country taxation.

At December 31, 2013, 2012 and 2011, we had approximately $82 million, $59 million and $55 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’s unrecognized tax benefits largely include U.S. tax return issues for periods 2006 - 2008 regarding the application of a third party tax case to Rowan’s tax returns as mentioned below. As a result of the anticipated settling of these claims, the Company believes that is reasonably possible that a decrease of up to $64 million may be necessary within 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):



	2013			2012		2011
Gross unrecognized tax benefits - beginning of year	$	58,900		$	55,300	$	51,000
Gross increases - tax positions in prior period	11,021			700		4,300
Gross decreases - tax positions in prior period	(4,114		)	—		—
Gross increases - current period tax positions	16,674			2,900		—
Settlements	—			—		—
Lapse of statute of limitations	(561		)	—		—
Gross unrecognized tax benefit - end of year	$	81,920		$	58,900	$	55,300

Interest and penalties relating to income taxes are included in other income and expense. At December 31, 2013, 2012 and 2011, accrued interest was $2.4 million, $2.5 million and $2.1 million, respectively, and accrued penalties were $1.7 million, $1.4 million and $1.1 million, respectively. Accrued interest and penalties relating to uncertain tax positions that are not actually assessed will be reversed in the year of the resolution.

The Company’s U.S. federal tax returns for 2006 through 2011 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 has been challenged by 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, 2013, 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 $48.8 million, in connection with its tax position.

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



	2013		2012		2011
U.S.	$	163,400	$	9,800	$	(1,200	)
Non-U.S.	97,800		173,700		131,300