Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes
12 Months Ended
Dec. 31, 2013
Income Taxes
9. Income Taxes

We are incorporated in Bermuda. Under current Bermuda law, we are not subject to tax on income or capital gains. We have received from the Minister of Finance under The Exempted Undertakings Tax Protection Act 1966, as amended, an assurance that, in the event that Bermuda enacts legislation imposing tax computed on profits, income, any capital asset, gain or appreciation, or any tax in the nature of estate duty or inheritance, then the imposition of any such tax shall not be applicable to us or to any of our operations or shares, debentures or other obligations, until March 31, 2035.

The components of the provision for income taxes consisted of the following (in thousands):


     Year Ended
December 31,
     2013      2012      2011  




   $ —         $ —         $ —     

United States

     8,098         —           —     

Foreign -Other

     860         706         1,700   










Total current

     8,958         706         1,700   




     —           —           —     

United States

     2,844         —           —     

Foreign -Other

     —           —           —     










Total deferred:

     2,844         —           —     










Income tax expense

   $ 11,802      $ 706      $ 1,700  










Our reconciliation of income tax expense computed by applying our Bermuda statutory rate and reported income tax expense was as follows (in thousands):


     Year Ended
December 31,
     2013     2012      2011  

Tax at Bermuda statutory rate

   $ —        $ —         $ —     

Foreign income taxes at different rates

     14,020        706         1,700   

Benefit from global tax platform

     (6,074     —           —     

Tax contingencies

     1,394        —           —     

Expense from change in tax status

     2,462        —           —     










Income tax expense

   $ 11,802      $ 706       $ 1,700   










Deferred tax assets and liabilities were as follows:


     As of December 31,  
     2013     2012  

Deferred tax assets:


Loss carryforwards

   $ 28,351      $ 30,945   

Shares in foreign subsidiary

     59,587        81,715   


     2,920        535   






     90,858        113,195   

Valuation allowance

     (84,695     (113,195







Total net deferred assets

     6,163       —     







Deferred tax liabilities:


Property and equipment

     (6,367     —     







Total deferred tax liabilities

     (6,367     —     







Net deferred tax liability

   $ (204   $ —     








Included above are deferred tax assets associated with our prior operations in Norway in which we have provided a full valuation allowance. As of December 31, 2013, we have Norway net operating loss carryforwards of $88.0 million which can be carried forward indefinitely, U.S. net operating loss carryforwards of $3.6 million which expire in 2033 and U.S. state net operating loss carryforwards of $42.3 million expiring between the years 2025 to 2033.

As a result of the Corporate Reorganization, we obtained certain U.S. net operating losses of our corporate shareholders. These loss carryforwards were subject to Section 382 of the code which may limit the amount of taxable income that can be offset by net operating loss carryforwards after a change in control (generally greater than 50% change in ownership). We anticipate that Section 382 will not result in a significant limitation on the use of these net operating loss carryforwards and accordingly we expect some or all of these loss carryforwards to be utilized during 2013.

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits (in thousands):


     Year Ended
December 31,


Unrecognized tax benefits, beginning of year

   $ —     

Gross increases (decreases) in tax positions from prior periods


Gross increases in tax positions in current period


Settlement of tax positions/lapse of statute of limitations





Unrecognized tax benefits, end of year

   $ 10,894   




If the $10.9 million unrecognized tax benefits at December 31, 2013 were recognized, the entire amount would affect the effective tax rate. We believe that there will not be a significant increase or decrease to the tax positions within twelve months of the reporting date. We recognize interest and penalties related to unrecognized tax benefits in income tax expense. We file income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and foreign jurisdictions. We generally are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by authorities for years prior to 2005.