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Income Taxes | 12 Months Ended
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Dec. 31, 2014
Components of Income Tax Expense (Benefit), Continuing Operations [Abstract] |
Income Taxes | INCOME TAXES We generated loss of $460.3 million, income of $173.4 million and $101.1 million from continuing operations before income taxes in the U.S. and loss of $2.1 billion, income of $1.5 billion and $1.2 billion from continuing operations before income taxes in non-U.S. countries for the years ended December 31, 2014, 2013 and 2012, respectively. The following table summarizes components of the provision for income taxes from continuing operations for each of the years in the three-year period ended December 31, 2014 (in millions):
| 2014 |  | 2013 |  | 2012
Current income tax expense: |  |  |  |  |  |  |  |
U.S. | $ | 114.8 |  |  | $ | 94.4 |  |  | $ | 46.6 |
Non-U.S. | 149.2 |  |  | 98.6 |  |  | 154.2 |
| 264.0 |  |  | 193.0 |  |  | 200.8 |
Deferred income tax expense (benefit): |  |  |  |  |  |  |  |
U.S. | (86.7 | ) |  | 19.2 |  |  | 29.4 |
Non-U.S. | (36.8 | ) |  | (9.1 | ) |  | (1.6 | )
| (123.5 | ) |  | 10.1 |  |  | 27.8 |
Total income tax expense | $ | 140.5 |  |  | $ | 203.1 |  |  | $ | 228.6 |
Deferred Taxes The following table summarizes significant components of deferred income tax assets (liabilities) as of December 31, 2014 and 2013 (in millions):
|  | 2014 |  | 2013
Deferred tax assets: |  |  |  |  |
Net operating loss carryforwards |  | $ | 204.5 |  |  | $ | 104.0 |
Deferred revenue |  | 103.0 |  |  | 19.4 |
Premium on long-term debt |  | 99.2 |  |  | 111.9 |
Foreign tax credits |  | 98.6 |  |  | 159.0 |
Employee benefits, including share-based compensation |  | 39.5 |  |  | 41.7 |
Other |  | 16.7 |  |  | 19.8 |
Total deferred tax assets |  | 561.5 |  |  | 455.8 |
Valuation allowance |  | (271.3 | ) |  | (232.6 | )
Net deferred tax assets |  | 290.2 |  |  | 223.2 |
Deferred tax liabilities: |  |  |  |  |  |
Property and equipment |  | (314.2 | ) |  | (453.6 | )
Intercompany transfers of property |  | (23.0 | ) |  | (29.2 | )
Deferred costs |  | (20.2 | ) |  | (11.4 | )
Other |  | (14.1 | ) |  | (24.0 | )
Total deferred tax liabilities |  | (371.5 | ) |  | (518.2 | )
Net deferred tax liability |  | $ | (81.3 | ) |  | $ | (295.0 | )
Net current deferred tax asset |  | $ | 41.4 |  |  | $ | 20.9 |
Net noncurrent deferred tax liability |  | (122.7 | ) |  | (315.9 | )
Net deferred tax liability |  | $ | (81.3 | ) |  | $ | (295.0 | )
The realization of substantially all of our deferred tax assets is dependent on generating sufficient taxable income during future periods in various jurisdictions in which we operate. Realization of certain of our deferred tax assets is not assured. We recognize a valuation allowance for deferred tax assets when it is more-likely-than-not that the benefit from the deferred tax asset will not be realized. The amount of deferred tax assets considered realizable could increase or decrease in the near-term if our estimates of future taxable income change. As of December 31, 2014, we had deferred tax assets of $98.6 million for U.S. foreign tax credits (“FTC”) and $204.5 million related to $814.5 million of net operating loss (“NOL”) carryforwards, which can be used to reduce our income taxes payable in future years. The FTC expire between 2017 and 2023. NOL carryforwards, which were generated in various jurisdictions worldwide, include $459.5 million that do not expire and $355.0 million that will expire, if not utilized, beginning in 2015 through 2020. Due to the uncertainty of realization, we have a $267.5 million valuation allowance on FTC and NOL carryforwards, primarily relating to countries where we no longer operate or do not expect to generate future taxable income. Effective Tax Rate Ensco plc, our parent company, is domiciled and resident in the U.K. Our subsidiaries conduct operations and earn income in numerous countries and are subject to the laws of taxing jurisdictions within those countries. The income of our non-U.K. subsidiaries is not subject to U.K. taxation. As a result of frequent changes in the taxing jurisdictions in which our drilling rigs are operated and/or owned, changes in the overall level of our income and changes in tax laws, our consolidated effective income tax rate may vary substantially from one reporting period to another. Our consolidated effective income tax rate on continuing operations for each of the years in the three-year period ended December 31, 2014, differs from the U.K. statutory income tax rate as follows:
| 2014 |  | 2013 |  | 2012
U.K. statutory income tax rate | 21.5 | % |  | 23.3 | % |  | 24.5 | %
Goodwill impairment | (25.3 | ) |  | — |  |  | — |
Assets impairment | (10.9 | ) |  | — |  |  | — |
Non-U.K. taxes | 9.6 |  |  | (13.2 | ) |  | (17.5 | )
Valuation allowance | (1.1 | ) |  | 1.0 |  |  | 5.0 |
Income taxes associated with restructuring transactions | — |  |  | — |  |  | 3.9 |
Other | .7 |  |  | 1.3 |  |  | 1.6 |
Effective income tax rate | (5.5 | )% |  | 12.4 | % |  | 17.5 | %
Our consolidated effective income tax rate for 2014 includes the impact of various discrete tax items, including the recognition of a net $18.4 million tax expense associated with liabilities for unrecognized tax benefits and other adjustments relating to prior years, and a $16.4 million tax benefit associated with rig impairments. In addition, we recognized a net $41.4 million tax benefit in connection with the utilization of foreign tax credits that were previously subject to a valuation allowance. The majority of discrete tax expense recognized during 2013 was attributable to the recognition of a $7.4 million liability for taxes associated with a $30.6 million reimbursement from the resolution of a dispute with the Mexican tax authority and a $7.0 million increase in the valuation allowance on U.S. foreign tax credits resulting from a restructuring transaction in December 2013. The majority of discrete tax expense recognized during 2012 was attributable to $51.2 million of income tax expense associated with the restructuring of certain subsidiaries of Pride in December 2012, and tax expense associated with liabilities for unrecognized tax benefits and other adjustments relating to prior years. Excluding the impact of the aforementioned tax items and goodwill and asset impairments, our consolidated effective income tax rates for the years ended December 31, 2014, 2013 and 2012 were 10.7%, 12.2% and 12.4%, respectively. The changes in our consolidated effective income tax rate excluding discrete tax items during the three years result primarily from changes in the relative components of our earnings from the various taxing jurisdictions in which our drilling rigs are operated and/or owned and the differences in the tax rates in such tax jurisdictions. Unrecognized Tax Benefits Our tax positions are evaluated for recognition using a more-likely-than-not threshold, and those tax positions requiring recognition are measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon effective settlement with a taxing authority that has full knowledge of all relevant information. As of December 31, 2014, we had $134.4 million of unrecognized tax benefits, of which $115.9 million was included in other liabilities on our consolidated balance sheet and the remaining $18.5 million, which is associated with a tax position taken in tax years with NOL carryforwards, was presented as a reduction of deferred tax assets. As of December 31, 2013, we had $151.7 million of unrecognized tax benefits, of which $130.7 million was included in other liabilities on our consolidated balance sheet and the remaining $21.0 million was presented as a reduction of deferred tax assets. If recognized, $110.4 million of our unrecognized tax benefits would impact our consolidated effective income tax rate. A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2014 and 2013 is as follows (in millions):
|  | 2014 |  | 2013
Balance, beginning of year |  | $ | 151.7 |  |  | $ | 110.7 |
Increases in unrecognized tax benefits as a result of tax positions taken during prior years |  | 16.3 |  |  | 35.8 |
Increases in unrecognized tax benefits as a result of tax positions taken during the current year |  | 5.5 |  |  | 10.0 |
Decreases in unrecognized tax benefits as a result of tax positions taken during prior years |  | (15.5 | ) |  | (3.7 | )
Settlements with taxing authorities |  | (14.2 | ) |  | — |
Lapse of applicable statutes of limitations |  | (.7 | ) |  | (1.1 | )
Impact of foreign currency exchange rates |  | (8.7 | ) |  | — |
Balance, end of year |  | $ | 134.4 |  |  | $ | 151.7 |
Accrued interest and penalties totaled $26.5 million and $17.3 million as of December 31, 2014 and 2013, respectively, and were included in other liabilities on our consolidated balance sheets. We recognized net expense of $9.2 million, benefits $1.6 million and $2.8 million associated with interest and penalties during the years ended December 31, 2014, 2013 and 2012, respectively. Interest and penalties are included in current income tax expense in our consolidated statements of operations. Tax years as early as 2004 remain subject to examination in the major tax jurisdictions in which we operated. Ensco Delaware and Ensco United Incorporated, an indirect wholly-owned subsidiary of Ensco, participate in the U.S. Internal Revenue Service’s Compliance Assurance Process ("IRS CAP") which, among other things, provides for the resolution of tax issues in a timely manner and generally eliminates the need for lengthy post-filing examinations. The 2010, 2011, 2012 and 2013 U.S. federal tax returns of Ensco Delaware remain subject to examination under the IRS CAP. Statutes of limitations applicable to certain of our tax positions lapsed during 2014, 2013 and 2012, resulting in net income tax benefits, inclusive of interest and penalties, of $2.4 million, $3.1 million and $28.6 million, respectively. Statutes of limitations applicable to certain of our tax positions will lapse during 2015. Therefore, it is reasonably possible that our unrecognized tax benefits will decline during the next 12 months by $9.6 million, inclusive of $2.8 million of accrued interest and penalties, all of which would impact our consolidated effective income tax rate if recognized. Intercompany Transfer of Drilling Rigs During the three-year period ended December 31, 2014, we transferred ownership of certain drilling rigs among our subsidiaries, including three jackup rigs during 2014, two semisubmersible rigs during 2013 and one jackup rig during 2012. There was no income tax liability associated with the intercompany transfers of drilling rigs during 2014 and 2013. A $1.7 million income tax liability resulted from the gain on the intercompany transfer of the jackup rig in 2012. The related income tax expense was deferred and is being amortized on a straight-line basis over the 15-year remaining useful life of the rig. There were no temporary differences associated with any of the intercompany transfers of drilling rigs during the three-year period ended December 31, 2014 As of December 31, 2014 and 2013, the unamortized balance associated with deferred charges for income taxes incurred in connection with intercompany transfers of drilling rigs totaled $39.7 million and $50.2 million, respectively, and was included in other assets, net, on our consolidated balance sheets. Current income tax expense for the years ended December 31, 2014, 2013 and 2012 included $2.6 million, $4.1 million and $9.1 million, respectively, of amortization of income taxes incurred in connection with intercompany transfers of drilling rigs. As of December 31, 2014 and 2013, the unamortized balance associated with the deferred tax liability for reversing temporary differences of transferred drilling rigs totaled $23.0 million and $29.2 million, respectively, and was included in deferred income taxes on our consolidated balance sheets. Deferred income tax benefit for the year ended December 31, 2014 and deferred income tax expense for the years ended December 31, 2013 and 2012 included benefits of $4.8 million, $1.9 million and $3.4 million, respectively, of amortization of deferred reversing temporary differences associated with intercompany transfers of drilling rigs. Undistributed Earnings Dividend income received by Ensco plc from its subsidiaries is exempt from U.K. taxation. We do not provide deferred taxes on undistributed earnings of certain subsidiaries because our policy and intention is to reinvest such earnings indefinitely. Each of the subsidiaries for which we maintain such policy has significant net assets, liquidity, contract backlog and/or other financial resources available to meet operational and capital investment requirements and otherwise allow us to continue to maintain our policy of reinvesting the undistributed earnings indefinitely. In December 2012, a U.S. subsidiary received $530.0 million in earnings distributions from two non-U.S. subsidiaries. There was no net U.S. tax liability on the earnings repatriation, as we utilized net operating loss carryforwards to offset the previously untaxed portion of the earnings distribution. The earnings distribution was made in consideration of unique circumstances, and our U.S. subsidiaries continue to have significant net assets, liquidity, contract backlog and other financial resources available to meet operational and capital investment requirements. Accordingly, this distribution did not change, and we continue to maintain, our policy and intention to reinvest the undistributed earnings of the two aforementioned subsidiaries indefinitely. As of December 31, 2014 and 2013, the aggregate undistributed earnings of the subsidiaries for which we maintain a policy and intention to reinvest earnings indefinitely totaled $2.3 billion and $2.1 billion, respectively. Should we make a distribution from these subsidiaries in the form of dividends or otherwise, we would be subject to additional income taxes. The unrecognized deferred tax liability related to these undistributed earnings was not practicable to estimate as of December 31, 2014.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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