INCOME TAXES:

Income Tax Provision

The table below sets forth the provision for income taxes attributable to continuing operations for the periods presented.



	Year Ended December 31,
	2013			2012			2011
	(In Thousands)
Current:
Federal	$	—		$	(34,733	)	$	(201	)
Foreign	—			—			28,921
State	(707		)	(805		)	1,421
	(707		)	(35,538		)	30,141
Deferred:
Federal	—			202,552			56,482
State	—			6,423			2,512
	—			208,975			58,994
Total income tax	$	(707	)	$	173,437		$	89,135

Earnings (loss) from continuing operations before income taxes consists of the following for the periods presented:



	Year Ended December 31,
	2013		2012			2011
	(In Thousands)
United States federal	$	65,167	$	(1,013,801	)	$	188,421
Foreign	8,050		(101,693		)	(1,026		)
	$	73,217	$	(1,115,494	)	$	187,395

A reconciliation of reported income tax attributable to continuing operations to the amount of income tax that would result from applying the United States federal statutory income tax rate to pretax earnings from continuing operations is as follows:



	Year Ended December 31,
	2013			2012			2011
	(In Thousands)
Federal income tax at 35% of earnings from continuing operations before income taxes	$	25,626		$	(390,423	)	$	65,947
State income taxes, net of federal income tax benefits	740			(11,211		)	2,214
Change in valuation allowance	(67,606		)	575,570			—
Change in non-tax deductible goodwill	37,937			—			—
Stock-based compensation	4,002			484			—
Canadian dividend tax, net of U.S. tax benefit	—			—			18,460
Effect of federal, state, and foreign tax on permanent differences	638			3,026			4,025
Other	(2,044		)	(4,009		)	(1,511		)
Total income tax	$	(707	)	$	173,437		$	89,135

Net Deferred Tax Assets and Liabilities

The components of net deferred tax assets and liabilities at December 31, 2013 and 2012 are as follows:



	December 31,
	2013			2012
	(In Thousands)
Deferred tax assets:
Property and equipment⁽¹⁾	$	161,450		$	353,352
Accrual for postretirement benefits	3,193			3,134
Stock-based compensation accruals	9,592			10,748
Net operating loss carryforwards	274,177			157,103
Alternative minimum tax credit carryforward	49,409			49,409
Other	23,721			32,278
Total gross deferred tax assets	521,542			606,024
Less valuation allowance	(504,458		)	(575,570		)
Net deferred tax assets	17,084			30,454
Deferred tax liabilities:
Unrealized gains on derivative instruments, net	(1,994		)	(17,429		)
Amortization of deferred gain on rig sales	(12,724		)	(10,472		)
Other	(2,366		)	(2,553		)
Total gross deferred tax liabilities	(17,084		)	(30,454		)
Net deferred tax assets	$	—		$	—

____________________________________________


(1)	Includes deferred tax assets of $25.5 million and $28.3 million related to Italy and South Africa as of December 31, 2013 and 2012, respectively.

The net deferred tax assets and liabilities are reflected in the Consolidated Balance Sheets as follows:



	December 31,
	2013			2012
	(In Thousands)
Current deferred tax liabilities	$	(2,230	)	$	(14,681	)
Non-current deferred tax assets	2,230			14,681
Net deferred tax assets	$	—		$	—

Tax Attributes

Net Operating Losses

U.S. federal net operating loss carryforwards (“NOLs”) at December 31, 2013 were approximately $765.5 million, with $32.2 million of NOLs limited under Section 382 of the Internal Revenue Code scheduled to expire in 2019 and 2020 and the remaining scheduled to expire after 2029. Forest completed a Section 382 study in 2009. Because of the full valuation allowance placed against its deferred tax assets, Forest has not yet updated this study. Additionally, as of December 31, 2013, the Company had state income tax NOLs of approximately $152.2 million, which, if unused, will expire between 2014 and 2031.

The statute of limitations is closed for the Company’s U.S. federal income tax returns for years ending on or before December 31, 2008. Pre-acquisition returns of acquired businesses are also closed for tax years ending on or before December 31, 2008. However, the Company has utilized, and will continue to utilize, NOLs (including NOLs of acquired businesses) in its open tax years. The earliest available NOLs were generated in the tax year beginning January 1, 1999, but are potentially subject to adjustment by the federal tax authorities in the tax year in which they are utilized. Thus, the Company’s earliest U.S. federal income tax return that is closed to potential audit adjustment is the tax year ending December 31, 1998.

Alternative Minimum Tax Credits

The Alternative Minimum Tax credit carryforward available to reduce future U.S. federal regular taxes equaled an aggregate amount of $49.4 million at December 31, 2013, which can be carried forward indefinitely.

Accounting for Uncertainty in Income Taxes

The table below sets forth the reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits. The Company records interest accrued related to unrecognized tax benefits in interest expense and penalties in other expense, to the extent they apply. The Company does not expect a material amount of unrecognized tax benefits to reverse in the next twelve months.



	Year Ended December 31,
	2013		2012			2011
	(In Thousands)
Gross unrecognized tax benefits at beginning of period	$	859	$	2,829		$	3,345
Increases as a result of tax positions taken during a prior period	31		—			—
Decreases as a result of tax positions taken during a prior period	—		(1,970		)	(516		)
Gross unrecognized tax benefits at end of period	$	890	$	859		$	2,829

Income Tax Receivables

As of December 31, 2013 and 2012, Forest had a non-current income tax receivable of $20.7 million which is included in “Other assets” in the Consolidated Balance Sheets.