NOTE 9—INCOME TAXES

The provision for income taxes consisted of:


	Year Ended December 31,
	2013			2012		2011
	(In thousands)
Other than U.S.:
Current	$	54,410		$	125,402	$	85,474
Deferred		(5,359	)		3,802		1,650

Total provision for income taxes	$	49,051		$	129,204	$	87,124

The geographic sources of income before income taxes are as follows:


	Year Ended December 31,
	2013			2012			2011
	(In thousands)
U.S.	$	(147,098	)	$	(82,035	)	$	(187,426	)
Other than U.S.		(301,806	)		425,165			438,717

Income before provision for income taxes	$	(448,904	)	$	343,130		$	251,291

The following is a reconciliation of the Panama statutory federal tax rate to the consolidated effective tax rate:


	Year Ended December 31,
	2013			2012			2011
Panama federal statutory rate		25.0	%		25.0	%		25.0	%
Non-Panama operations		(16.6	)		(5.2	)		(24.7	)
Valuation allowance for deferred tax assets		(18.8	)		14.2			30.7
Audit settlements and reserves		(0.8	)		2.9			0.7
Other		0.3			0.8			3.0

Effective tax rate attributable to continuing operations		(10.9	%)		37.7	%		34.7	%

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes, as well as operating loss and tax credit carryforwards.

Significant components of deferred tax assets and liabilities were as follows:


	December 31,
	2013			2012
	(In thousands)
Deferred tax assets:
Pension liability	$	16,658		$	5,779
Accrued liabilities for incentive compensation		15,032			13,630
Net operating loss carryforward		259,600			172,073
State net operating loss carryforward		24,679			23,231
Long-term contracts		13,504			10,791
Other		4,936			8,606

Total deferred tax assets		334,409			234,110
Valuation allowance for deferred tax assets		(292,388	)		(208,061	)

Deferred tax assets	$	42,021		$	26,049

Deferred tax liabilities:
Property, plant and equipment	$	19,115		$	14,072
Prepaid drydock		13,025			6,633
Investments in joint ventures and affiliated companies		8,354			8,988
Unrealized exchange gains and other		3,236			3,424

Total deferred tax liabilities	$	43,730		$	33,117

Net deferred tax liability	$	(1,709	)	$	(7,068	)


	December 31,
	2013			2012
	(In thousands)
Deferred tax assets and liabilities in the accompanying consolidated balance sheets include:
Current deferred tax assets	$	7,091		$	9,765
Noncurrent deferred tax assets	$	16,766		$	4,180

Total	$	23,857		$	13,945

Current deferred tax liabilities	$	17,892		$	10,758
Noncurrent deferred tax liabilities		7,674			10,255

Total	$	25,566		$	21,013

Net deferred tax liability	$	(1,709	)	$	(7,068	)

At December 31, 2013, we had a valuation allowance of $292.4 million for deferred tax assets that we expect cannot be realized through carrybacks, future reversals of existing taxable temporary differences or based on our estimate of future taxable income. We believe that our remaining deferred tax assets will more likely than not be realized through carrybacks, future reversals of existing taxable temporary differences and future taxable income. Any changes to our estimated valuation allowance could be material to our consolidated financial statements.

We have foreign net operating loss carryforwards of $448.5 million available to offset future taxable income in foreign jurisdictions. Of the foreign net operating loss carryforwards, $11.0 million is scheduled to expire in years 2014 to 2016. The foreign net operating losses have a valuation allowance of $95.7 million against the related deferred taxes. We have U.S. federal net operating loss carryforwards of approximately $450.8 million, which includes $16.2 million for which the benefit will be recorded in APIC when realized, and carry a $157.8 million valuation allowance against the related deferred taxes. The U.S. federal net operating loss carryforwards are scheduled to expire in years 2023 to 2033. We have state net operating losses of $474.6 million available to offset future taxable income in states where we operate. The state net operating loss carryforwards are scheduled to expire in years 2014 to 2028. We are carrying a valuation allowance of $24.7 million against the deferred tax asset related to the state loss carryforwards. We also have an approximate $19.9 million valuation allowance against other deferred tax assets.

We have provided $11.7 million of taxes on earnings we intend to remit. All other earnings are considered permanently reinvested. We would be subject to withholding taxes if we were to distribute these permanently reinvested earnings from our U.S. subsidiaries and certain foreign subsidiaries. At December 31, 2013, the undistributed earnings of these subsidiaries were $195.6 million. Unrecognized deferred income tax liabilities, including withholding taxes, of approximately $4.2 million would be payable upon distribution of these earnings.

Panama enacted a law in 2013 that would have introduced a worldwide income tax on Panamanian tax residents, such as MII. The law, which was issued without detailed guidance being given as to how it would have been implemented or applied, was subsequently repealed in 2014 with retroactive effect. Therefore no tax impact with respect to that law was recorded in the consolidated financial statements.

We conduct business globally and, as a result, we or one or more of our subsidiaries file income tax returns in a number of jurisdictions. In the normal course of business, we are subject to examination by taxing authorities throughout the world, including such major jurisdictions as Australia, Indonesia, Singapore, Saudi Arabia, Kuwait, India, Qatar, Azerbaijan and the United States. With few exceptions, we are no longer subject to tax examinations for years prior to 2009.

A reconciliation of unrecognized tax benefits is as follows (in thousands):


	Year Ended December 31,
	2013			2012			2011
Balance at beginning of period	$	40,516		$	31,664		$	26,412
Increases based on tax positions taken in the current year		539			10,830			8,197
Increases based on tax positions taken in prior years		3,831			158			2,590
Decreases based on tax positions taken in prior years		(3,688	)		(1,465	)		(473	)
Decreases due to settlements with tax authorities		—			—			(2,697	)
Decreases due to lapse of applicable statute of limitation		(585	)		(671	)		(2,365	)

Balance at end of period	$	40,613		$	40,516		$	31,664

The entire balance of unrecognized tax benefits at December 31, 2013 would reduce our effective tax rate if recognized.

We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. During the year ended December 31, 2013, we had recorded liabilities of approximately $15.4 million for the payment of tax-related interest and penalties. At December 31, 2012 and 2011 each, we had recorded liabilities of approximately $15.3 million for the payment of tax-related interest and penalties.