UNITED STATES |
ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, |
OR |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to |
Commission File Number 1-8097 |
ENSCO International Incorporated |
DELAWARE (State or other jurisdiction of incorporation or organization) 500 North Akard Street Suite 4300 Dallas, Texas (Address of principal executive offices) | 76-0232579 (I.R.S. Employer Identification No.) 75201-3331 (Zip Code) |
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Title of each class Common Stock, par value $.10 | Name of each exchange on which registered New York Stock Exchange |
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Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes ý No o Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act: Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company o Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). The aggregate market value of the common stock (based upon the closing price on the New York Stock Exchange on June As of February 25, DOCUMENTS INCORPORATED BY REFERENCE Portions of the Company's Proxy Statement for the |
TABLE OF CONTENTS |
PART I | |||
ITEM 1. | BUSINESS | 3 | |
ITEM 1A. | RISK FACTORS | ||
ITEM 1B. | UNRESOLVED STAFF COMMENTS | ||
ITEM 2. | PROPERTIES | ||
ITEM 3. | LEGAL PROCEEDINGS | ||
ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
PART III | |||
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE | ||
ITEM 11. | EXECUTIVE COMPENSATION | ||
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS | ||
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE | ||
ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
PART IV | |||
ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES | ||
SIGNATURES | 104 |
FORWARD-LOOKING STATEMENTS
Forward-looking statements include words or phrases such as "anticipate," "believe," "estimate," "expect," "intend," "plan," "project," "could," "may," "might," "should," "will" and words and phrases of similar import. The forward-looking statements include, but are not limited to, statements |
regarding future operations, industry trends or conditions and the business | ||
environment; statements regarding future levels of, or trends in, utilization, day rates, | ||
funding; statements regarding future construction (including construction in progress and completion thereof), enhancement, upgrade or repair of rigs | ||
and timing thereof; statements regarding future mobilization, relocation or other movement of rigs and | ||
timing thereof; statements regarding future availability or suitability of | ||
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• | industry conditions and competition, including | |
• | risks associated with the current global economic crisis and its impact on capital markets and liquidity, | |
• | prices of oil and natural gas in general, and the recent precipitous decline in prices in particular, and the impact of commodity prices upon future levels of drilling activity and expenditures, | |
• | changes in the timing of revenue recognition resulting from the deferral of revenues payable by our customers (which are recognized over the contract term upon commencement of drilling operations) for mobilization of our drilling rigs, time waiting on weather or time in shipyards, | |
• | excess rig availability or supply resulting from delivery of new drilling rigs, | |
• | heavy concentration of our rig fleet in premium jackups, | |
• | cyclical nature of the industry, | |
• | worldwide expenditures for oil and natural gas drilling, | |
• | operational risks, including hazards created by severe storms and hurricanes, | |
• | risks associated with offshore rig operations or rig relocations in general, and in foreign jurisdictions in particular, | |
• | renegotiation, nullification or breach of contracts or letters of intent with customers or other parties, including failure to negotiate definitive contracts following announcements or receipt of letters of intent, | |
• | inability to collect receivables, | |
• | changes in the dates new contracts actually commence, | |
• | changes in the dates our rigs will enter a shipyard, be delivered, return to or enter service, | |
• | risks inherent to domestic and foreign shipyard rig construction, repair or enhancement, including risks associated with concentration of our ENSCO 8500 Series® rig construction contracts in a single foreign shipyard, unexpected delays in equipment delivery and engineering or design issues following shipyard delivery, | |
• | availability of transport vessels to relocate rigs, | |
• | environmental or other liabilities, risks or losses, whether related to hurricane equipment damage, losses or liabilities (including wreckage or debris removal) in the Gulf of Mexico or otherwise, that may arise in the future and are not covered by insurance or indemnity in whole or in part, | |
• | limited availability of insurance coverage at commercially feasible rates for certain perils such as hurricanes in the Gulf of Mexico or associated removal of wreckage or debris, | |
• | self-imposed or regulatory limitations on drilling locations in the Gulf of Mexico during hurricane season, | |
• | impact of current and future government laws and regulation affecting the oil and gas industry in general and our operations in particular, including taxation as well as repeal or modification of same, | |
• | governmental action, political and economic uncertainties, | |
• | our ability to attract and retain skilled personnel, | |
• | expropriation, nationalization, deprivation, terrorism or military action impacting our operations, assets or financial performance, | |
• | outcome of litigation, legal proceedings, investigations or claims, | |
• | adverse changes in foreign currency exchange rates, | |
• | potential long-lived asset or goodwill impairments, and | |
• | potential reduction in fair value of our auction rate securities. | |
In addition to the numerous factors described |
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As part of this reorganization, we evaluated our remaining assets and operations, consisting of 43 jackup rigs and one We engage in the drilling of offshore oil and natural gas wells in domestic and international markets by providing our drilling rigs and crews under contracts with major international, government-owned and independent oil and gas companies. |
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• | market price of oil and natural gas and the stability thereof, | |
• | production levels and related activities of the Organization of Petroleum Exporting Countries ("OPEC") and other oil and natural gas producers, | |
• | global oil supply and demand, | |
• | regional natural gas supply and demand, | |
• | worldwide expenditures for offshore oil and natural gas drilling, | |
• | long-term effect of worldwide energy conservation measures, | |
• | the development and use of alternatives to hydrocarbon-based energy sources, and | |
• | worldwide economic activity. | |
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• | contract duration extending over a specific period of time or a period necessary to drill one or more wells, | |
• | term extension options in favor of our customer, generally upon advance notice to us, at mutually agreed, indexed or fixed rates, | |
• | provisions permitting early termination of the contract (i) if the rig is lost or destroyed or (ii) by the customer if operations are suspended for a specified period of time due to breakdown of major rig equipment, unsatisfactory performance, "force majeure" events beyond our control and the control of the customer or other specified conditions, | |
• | some of our drilling contracts permit early termination of the contract by the customer without cause, generally exercisable upon advance notice | |
• | payment of compensation to us (generally in U.S. dollars although some contracts require a | |
• | payment by us of the operating expenses of the drilling unit, including crew labor | |
• | provisions | |
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Backlog Information Our contract drilling backlog reflects firm commitments, typically represented by signed drilling contracts, and |
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2013 and | |||||||||||||
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2009 | 2010 | 2011 | 2012 | Beyond | Total | ||||||||
Deepwater | $ 293 | .3 | $458 | .2 | $583 | .8 | $498 | .5 | $61 | .9 | $1,895 | .7 | |
Asia Pacific | 581 | .3 | 143 | .1 | -- | -- | -- | 724 | .4 | ||||
Europe/Africa | 516 | .9 | 175 | .5 | 139 | .3 | 26 | .4 | -- | 858 | .1 | ||
North and South America | 342 | .8 | 109 | .8 | 87 | .6 | 16 | .6 | -- | 556 | .8 | ||
Total | $1,734 | .3 | $886 | .6 | $810 | .7 | $541 | .5 | $61 | .9 | $4,035 | .0 | |
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2012 and | |||||||||||||
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2008 | 2009 | 2010 | 2011 | Beyond | Total | ||||||||
Jackup rigs | |||||||||||||
Asia Pacific | $ 914 | .1 | $242 | .4 | $ 51 | .7 | $ | -- | $ | -- | $1,208 | .2 | |
Europe/Africa | 631 | .2 | 142 | .8 | 104 | .0 | 95 | .5 | -- | 973 | .5 | ||
North and South America | 157 | .0 | 59 | .3 | 27 | .8 | -- | -- | 244 | .1 | |||
Total jackup rigs | 1,702 | .3 | 444 | .5 | 183 | .5 | 95 | .5 | -- | 2,425 | .8 | ||
Semisubmersible rigs | 129 | .2 | 409 | .3 | 407 | .1 | 277 | .7 | 215 | .1 | 1,438 | .4 | |
Barge rig | 6 | .6 | -- | -- | -- | -- | 6 | .6 | |||||
Total | $1,838 | .1 | $853 | .8 | $590 | .6 | $373 | .2 | $215 | .1 | $3,870 | .8 | |
Major Customers We provide our services to major international, government-owned and independent oil and gas companies. Competition The offshore contract drilling industry is highly competitive with numerous industry participants. Drilling contracts are, for the most part, awarded on a competitive bid basis. Price competition is often the primary factor in determining which contractor is awarded a contract, although quality of service, operational and safety performance, equipment suitability and availability, location of equipment, reputation and technical expertise are also factors. We have numerous competitors in the offshore contract drilling industry, several of which are larger and have greater resources than Governmental Regulation Our operations are affected by political developments and by local, state, federal and international laws and regulations that relate directly to the oil and gas industry. Accordingly, we will be directly affected by the approval and adoption of laws and regulations curtailing exploration and development drilling for oil and natural gas for economic, environmental, safety or other policy reasons. It is also possible that these laws and regulations could adversely affect our operations in the future by significantly increasing our operating costs. |
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• | terrorist acts, war and civil disturbances, | |
• | expropriation, nationalization, deprivation or confiscation of our equipment, | |
• | expropriation or nationalization of a customer's property or drilling rights, | |
• | repudiation or nationalization of contracts, | |
• | assaults on property or personnel, | |
• | increased risk of government and/or vendor corruption, | |
• | exchange restrictions, | |
• | currency fluctuations, | |
• | changes in the manner or rate of taxation, | |
• | limitations on the ability to repatriate income or capital to the United States, | |
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• | piracy, kidnapping and | |
• | changes in political conditions, and | |
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We are subject to various tax laws and regulations in substantially all of the non-U.S. countries in which we operate or have a legal presence. We evaluate applicable tax laws and employ various business structures and operating strategies in non-U.S. countries to obtain the optimal level of taxation on our revenues, income, assets and personnel. Actions by international tax authorities that impact our business structures and operating strategies, such as changes to tax treaties, laws and regulations, or the interpretation or repeal of same, adverse rulings in connection with audits or otherwise or other challenges, may substantially increase our tax expense. Our international operations also face the risk of fluctuating currency values, which can impact our revenues, operating costs and We currently conduct contract drilling operations in certain countries that have experienced substantial fluctuations in the value of their currency compared to the U.S. dollar. Our drilling contracts generally stipulate payment wholly or substantially in U.S. dollars, which reduces the impact currency fluctuations have on our earnings and cash flows. However, there is no assurance that our contracts will contain such payment terms in the future. A substantial Our international operations are also subject to various laws and regulations in countries in which we operate, including laws and regulations relating to the |
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The table below sets forth certain information regarding our principal officers including our |
Name | Age | Position | ||
Daniel W. Rabun | Chairman, President and Chief Executive Officer | |||
William S. Chadwick, Jr. | Executive Vice President - Chief Operating Officer | |||
Senior Vice President - Chief Financial Officer | ||||
John Mark Burns | 52 | President - ENSCO Offshore International Company | ||
Patrick Carey Lowe | 50 | Senior Vice President | ||
Phillip J. Saile | Senior Vice President - Operations | |||
David A. Armour | 51 | Vice President - Finance | ||
Richard A. LeBlanc | Vice President - Investor Relations | |||
H. E. Malone, Jr. | Vice President - Finance | |||
Cary A. Moomjian, Jr. | Vice President, General Counsel and Secretary | |||
Controller | ||||
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Daniel W. Rabun joined William S. Chadwick, Jr. joined John Mark Burns joined Ensco in June 2008 and was elected to serve as President of ENSCO Offshore International Company, a subsidiary of the Company. Prior to joining Ensco, Mr. Burns served in various international capacities with Noble Corporation and most recently served as Vice President & Division Manager responsible for offshore units located in the U.S. Gulf of Mexico. Mr. Burns holds a Bachelor of Arts Degree in Business and Political Science from Sam Houston State University. Patrick Carey Lowe joined Ensco in August 2008 as Senior Vice President. His responsibilities include safety, health and environmental matters, capital projects, engineering and strategic planning. Prior to joining the Company, Mr. Lowe was Vice President - Latin America for Occidental Oil & Gas. He also served as President & General Manager, Occidental Petroleum of Qatar Ltd. from 2001 to 2007. Mr. Lowe held various drilling-related management positions with Sedco Forex and Schlumberger Oilfield Services from 1980 to 2000, including Business Manager - Drilling, North and South America and General Manager - Oilfield Services, Saudi Arabia, Bahrain and Kuwait. Following Schlumberger, he was associated with a business-to-business e-procurement company until he joined Occidental in 2001. Mr. Lowe holds a Bachelor of Science Degree in Civil Engineering from Tulane University. Phillip J. Saile joined David A. Armour joined Ensco in October 1990 and was elected Vice President - Finance in September 2008. Prior to his current position, Mr. Armour served the Company as Assistant Controller and Controller. From 1981 to 1990, Mr. Armour served in various capacities as an employee of the public accounting firm Deloitte & Touche LLP and its predecessor firm Touche Ross & Co. Mr. Armour holds a Bachelor of Business Administration Degree from The University of Texas at Austin. |
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H. E. Malone, Jr. joined |
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Cary A. Moomjian, Jr. joined
Officers generally serve for a one-year term or until their successors are elected and qualified to serve. Mr. Malone is a brother-in-law of Carl F. Thorne who served as Chairman of the Board of Directors for all periods prior to May 22, 2007 and as Chief Executive Officer for all periods prior to December 31, 2006. |
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The success of our business largely depends on the level of activity in offshore oil and natural gas exploration, development and production in markets worldwide. Oil and natural gas prices, and market expectations of potential changes in these prices, may significantly affect the level of drilling activity. An actual decline, or the perceived risk of a decline, in oil and/or natural gas prices could cause oil and gas companies to reduce their overall level of activity or spending, in which case demand for our Worldwide military, political, environmental and economic events also contribute to oil and natural gas price volatility. Numerous other factors may affect oil and natural gas prices and the level of demand for our services, including: |
• | demand for oil and natural gas, | |
• | the ability of OPEC to set and maintain production levels and pricing, | |
• | the level of production by non-OPEC countries, | |
• | domestic and international tax policy, | |
• | laws and | |
• | advances in exploration and development technology, | |
• | disruption to exploration and development activities due to hurricanes and other severe weather conditions, | |
• | the worldwide military or political environment, including uncertainty or instability resulting from an escalation or additional outbreak of armed hostilities or other crises in oil or natural gas producing areas of the Middle East or geographic areas in which we operate, or acts of | |
• | global economic conditions. |
THE OFFSHORE CONTRACT DRILLING INDUSTRY HISTORICALLY HAS |
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Future periods of decreased demand and/or excess rig supply may require us to idle rigs or DUE TO THE DETERIORATION OF THE GLOBAL ECONOMY, RECENT DECLINE IN OIL AND NATURAL GAS PRICES AND SUBSTANTIAL UNCERTAINTY IN THE CAPITAL MARKETS, OUR CUSTOMERS MAY REDUCE SPENDING ON EXPLORATION AND DEVELOPMENT DRILLING AND CUSTOMERS AND/OR VENDORS AND SUPPLIERS MAY NOT BE ABLE TO FULFILL THEIR COMMITMENTS AND/OR FUND FUTURE OPERATIONS AND OBLIGATIONS, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.The success of our business largely depends on the level of activity in offshore oil and natural gas exploration and development drilling worldwide. Oil and natural gas prices, and market expectations of potential changes in these prices, significantly impact the level of worldwide drilling activity. Oil and natural gas prices have declined significantly during recent months in a deteriorating global economic environment. A sustained decline in oil and natural gas prices could cause oil and gas companies to reduce their overall level of drilling activity and spending. Disruption in the capital markets could also cause oil and gas companies to reduce their overall level of drilling activity and spending. Historically, when drilling activity and spending decline, utilization and day rates also decline and drilling may be reduced or discontinued, resulting in an oversupply of drilling rigs. The oversupply of drilling rigs could be exacerbated by the projected entry of newbuild rigs into the market. When idled or stacked, drilling rigs do not earn revenue, but require cash expenditures for crews, fuel, insurance, berthing and associated items. A sustained decline in oil and natural gas prices, together with the global economic crisis, could adversely affect our financial condition, operating results and cash flows. |
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OUR INTERNATIONAL OPERATIONS INVOLVE ADDITIONAL RISKS NOT ASSOCIATED WITH DOMESTIC OPERATIONS. A significant portion of our contract drilling operations is conducted in countries outside the United States. Revenues from international operations were 80%, 77% and 62% of our total revenues during 2008, 2007 and 2006, respectively. Our international operations and our international shipyard rig construction and enhancement projects are subject to political, economic and other uncertainties, including: |
• | terrorist acts, war and civil disturbances, | |
• | expropriation, nationalization, deprivation or confiscation of our equipment, | |
• | expropriation or nationalization of a customer's property or drilling rights, | |
• | repudiation or nationalization of contracts, | |
• | assaults on property or personnel, | |
• | piracy, kidnapping and extortion demands, | |
• | exchange restrictions, | |
• | currency fluctuations, | |
• | changes in the manner or rate of taxation, | |
• | limitations on the ability to repatriate income or capital to the United States, | |
• | limitations on our ability to recover amounts due, | |
• | increased risk of government and vendor/supplier corruption, | |
• | changes in political conditions, and | |
• | changes in monetary policies. |
We are subject to various tax laws and regulations in substantially all of the non-U.S. countries in which we operate or have a legal presence. We evaluate applicable tax laws and employ various business structures and operating strategies in non-U.S. countries to obtain the optimal level of taxation on our revenues, income, assets and personnel. Actions by international tax authorities that impact our business structures and operating strategies, such as changes to tax treaties, laws and regulations, or the interpretation or repeal of same, adverse rulings in connection with audits or otherwise or other challenges, may substantially increase our tax expense. Our international operations also face the risk of fluctuating currency values, which can impact our revenues, operating costs and capital expenditures. In addition, some of the countries in which we operate have occasionally enacted exchange controls. Historically, these risks have been limited by invoicing and receiving payment in U.S. dollars or freely convertible international currency and, to the extent possible, by limiting acceptance of foreign currency to amounts which approximate our expenditure requirements in such currencies. However, there is no assurance that our contracts will contain such terms in the future. We currently conduct contract drilling operations in certain countries that have experienced substantial fluctuations in the value of their currency compared to the U.S. dollar. Our drilling contracts generally stipulate payment wholly or substantially in U.S. dollars, which reduces the impact currency fluctuations have on our earnings and cash flows. However, there is no assurance that our contracts will contain such payment terms in the future. |
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Our international operations are also subject to various laws and regulations in countries in which we operate, including laws and regulations relating to the operation of drilling rigs and the requirement for equipment thereon. Governments in some non-U.S. countries have become increasingly active in regulating and controlling the ownership of oil, natural gas and mineral concessions and companies holding concessions, the exploration of oil and natural gas and other aspects of the oil and gas industry in their countries. In addition, government action, including initiatives by OPEC, may continue to cause oil and/or natural gas price volatility. In some areas of the world, government activity has adversely affected the amount of exploration and development work performed by major international oil companies and may continue to do so. There can be no assurance that such laws and regulations or activities will not have a material adverse effect on our future operations. WE HAVE SUBSTANTIAL RISK ASSOCIATED WITH ENSCO 69 OPERATIONS FOR A NATIONAL OIL COMPANY IN VENEZUELA.Since May 2007, ENSCO 69 has been contracted to Petrosucre, a subsidiary of PDVSA, the national oil company of Venezuela. PDVSA subsidiaries lack funding and generally have not been paying their contractors and service providers. As of January 31, 2009, we had a total receivable balance of approximately $36.0 million under the ENSCO 69 contracts. In late January 2009, we suspended drilling operations upon completion of the well in progress after Petrosucre failed to meet commitments relative to the payment of past due amounts. Petrosucre resumed ENSCO 69 drilling operations under observation by our supervisory rig personnel, utilizing Petrosucre employees and a portion of the Venezuelan rig crews that were utilized by us. Petrosucre has advised us that it temporarily is taking over operations on the rig. We currently are engaged in discussions and exchanging correspondence with Petrosucre regarding each party's contractual rights and obligations. The ENSCO 69 contracts are governed by Venezuelan law and there can be no assurances as to the ultimate outcome of the pending dispute. The payment dispute and other risks associated with international operations for national oil companies, including expropriation or confiscation of our rig, could have a material adverse effect upon our financial position, operating results or cash flows. CHANGES IN LAWS, EFFECTIVE INCOME TAX RATES OR ADVERSE OUTCOMES RESULTING FROM EXAMINATION OF OUR TAX RETURNS COULD ADVERSELY AFFECT OUR FINANCIAL RESULTS.Our future effective income tax rates could be adversely affected by changes in tax laws, both domestically and internationally. They could also be adversely affected by lower than anticipated earnings in countries where we have lower statutory rates and higher than anticipated earnings in countries where we have higher statutory rates, by changes in the valuation of our deferred tax assets and liabilities or by changes in tax treaties, regulations, accounting principles or interpretations thereof in one or more countries in which we operate. In addition, we are subject to the continuous examination of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. There can be no assurance that such examinations will not have an adverse effect on our financial condition, operating results or cash flows. |
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• | failure of third party equipment to meet quality and/or performance standards, | |
• | delays in equipment deliveries or shipyard construction, | |
• | shortages of materials or skilled labor, | |
• | damage to shipyard facilities, including damage resulting from fire, explosion, flooding, severe weather or terrorism, | |
• | unforeseen design or engineering problems, | |
• | unanticipated actual or purported change orders, | |
• | strikes, labor disputes or work stoppages, | |
• | financial or operating difficulties of equipment vendors or the shipyard while constructing, upgrading, refurbishing or repairing a rig or rigs, | |
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unanticipated cost increases, | ||
• | foreign currency fluctuations impacting overall cost, | |
• | inability to obtain | |
• | force majeure, and | |
• | additional risks inherent to shipyard projects in an international location. |
ENSCO 8504, ENSCO 8505 and ENSCO 8506 have not |
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• | rig or other property damage, liability or loss, including removal of wreckage or debris, resulting from hurricanes and other severe weather conditions, collisions, groundings, blowouts, fires, explosions and other accidents or terrorism, | |
• | blowouts, fires, explosions and other loss of well control events causing damage to wells, reservoirs, production facilities and other properties and which may require wild well control, including drilling of relief wells, | |
• | craterings, punchthroughs or other events causing rigs to capsize, sink or otherwise incur significant damage or total loss, | |
• | extensive uncontrolled rig or well fires, blowouts, oil spills or other discharges of pollutants causing damage to the environment, | |
• | machinery breakdowns, equipment failures, personnel shortages, failure of subcontractors and vendors to perform or supply goods and services and other events causing the suspension or cancellation of drilling operations, and | |
• | unionization or similar collective actions by our employees or employees of subcontractors causing suspension of drilling operations or significant increases in operating costs. |
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Although we currently maintain broad insurance coverage, subject to certain significant deductibles and levels of self-insurance or risk retention, it does not cover all types of losses and, in some situations such as rig loss or damage resulting from Gulf of Mexico hurricane related windstorm exposures, may not provide full coverage for damages, losses or liabilities resulting from our operations. Except for windstorm coverage on our Gulf of Mexico rigs subsequent to July 1, 2006, which was placed on a limited basis, we historically have We generally obtain contractual indemnification obligating our customers to protect and indemnify us for all or part of the liabilities resulting from pollution and damage to the environment, damage to wells, reservoirs and other customer property, control of wild wells, drilling of relief wells and certain non-rig crew personnel injuries. Such indemnification protection may be qualified or limited, and may exclude certain perils or events or the application of local law. In some circumstances, we are unable to obtain indemnification protection for some or all of the risks generally assumed by our Our contracts generally protect us in whole or part from certain losses sustained as a result of our |
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COMPLIANCE WITH OR BREACH OF ENVIRONMENTAL LAWS CAN BE COSTLY AND COULD LIMIT OUR OPERATIONS. Our operations are subject to local, state, federal and foreign laws and regulations controlling the discharge of materials into the environment, pollution, contamination and hazardous waste disposal or otherwise relating to the protection of the environment. Laws and regulations specifically applicable to our business activities could impose significant liability on us for damages, clean-up costs, fines and penalties in the event |
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LAWS AND GOVERNMENTAL REGULATIONS MAY ADD TO COSTS, |
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TERRORIST ATTACKS, PIRACY AND MILITARY ACTION COULD |
None. |
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Contract Drilling Fleet The following table
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Rig Name | Rig Type | Year Built/ Rebuilt | | Maximum Water Depth/ Drilling Depth | Current Location | Current Customer | |||||||
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Deepwater | |||||||||||||
ENSCO 7500 | Semisubmersible | 2000 | Dynamically Positioned | 8,000'/30,000' | Australia | Chevron | |||||||
ENSCO 8500 | Semisubmersible | 2008 | Dynamically Positioned | 8,500'/35,000' | Gulf of Mexico | Sea Trials(1) | |||||||
ENSCO 8501 | Semisubmersible | 2009(2) | Dynamically Positioned | 8,500'/35,000' | Singapore | Under construction(3) | |||||||
ENSCO 8502 | Semisubmersible | 2010(2) | Dynamically Positioned | 8,500'/35,000' | Singapore | Under construction(3) | |||||||
ENSCO 8503 | Semisubmersible | 2010(2) | Dynamically Positioned | 8,500'/35,000' | Singapore | Under construction(3) | |||||||
ENSCO 8504 | Semisubmersible | 2011(2) | Dynamically Positioned | 8,500'/35,000' | Singapore | Under construction(3) | |||||||
ENSCO 8505 | Semisubmersible | 2012(2) | Dynamically Positioned | 8,500'/35,000' | Singapore | Under construction(3) | |||||||
ENSCO 8506 | Semisubmersible | 2012(2) | Dynamically Positioned | 8,500'/35,000' | Singapore | Under construction(3) | |||||||
Asia Pacific | |||||||||||||
ENSCO 50 | Jackup | 1983/1998 | F&G L-780 MOD II-C | 300'/25,000' | |||||||||
ENSCO 51 | Jackup | 1981/2002 | F&G L-780 MOD II-C | 300'/25,000' | Thailand | ||||||||
ENSCO 52 | Jackup | 1983/1997 | F&G L-780 MOD II-C | 300'/25,000' | Malaysia | Petronas Carigali | |||||||
ENSCO 53 | Jackup | 1982/1998 | F&G L-780 MOD II-C | 300'/25,000' | |||||||||
ENSCO 54 | Jackup | 1982/1997 | F&G L-780 MOD II-C | 300'/25,000' | UAE/Qatar | ||||||||
ENSCO 56 | Jackup | 1982/1997 | F&G L-780 MOD II-C | 300'/25,000' | |||||||||
ENSCO 57 | Jackup | 1982/2003 | F&G L-780 MOD II-C | 300'/25,000' | Malaysia | Petronas Carigali | |||||||
ENSCO 67 | Jackup | 1976/2005 | MLT 84-CE | 400'/30,000' | Indonesia | ConocoPhillips | |||||||
ENSCO 76 | Jackup | 2000 | MLT Super 116-C | 350'/30,000' | Saudi Arabia | Saudi Aramco | |||||||
ENSCO 84 | Jackup | 1981/2005 | MLT 82 SD-C | 250'/25,000' | Qatar | Maersk | |||||||
ENSCO 88 | Jackup | 1982/2004 | MLT 82 SD-C | 250'/25,000' | Qatar | Ras Gas | |||||||
ENSCO 94 | Jackup | 1981/2001 | Hitachi 250-C | 250'/25,000' | Qatar | Ras Gas | |||||||
ENSCO 95 | Jackup | 1981/2005 | Hitachi 250-C | 250'/25,000' | Saudi Arabia | Saudi Aramco | |||||||
ENSCO 96 | Jackup | 1982/1997 | Hitachi 250-C | 250'/25,000' | |||||||||
ENSCO 97 | Jackup | 1980/1997 | MLT 82 SD-C | 250'/25,000' | Saudi Arabia | Saudi Aramco | |||||||
ENSCO 104 | Jackup | 2002 | KFELS MOD V-B | 400'/30,000' | Indonesia | BP | |||||||
ENSCO 106 | Jackup | 2005 | KFELS MOD V-B | 400'/30,000' | Australia | Apache | |||||||
ENSCO 107 | Jackup | 2006 | KFELS MOD V-B | 400'/30,000' | New Zealand | ||||||||
ENSCO 108 | Jackup | 2007 | KFELS MOD V-B | 400'/30,000' | Indonesia | BP | |||||||
ENSCO I | Barge | 1999 | Barge | --/18,000' | Singapore | Available | |||||||
Europe/Africa | |||||||||||||
ENSCO 70 | Jackup | 1981/1996 | Hitachi K1032N | 250'/30,000' | |||||||||
ENSCO 71 | Jackup | 1982/1995 | Hitachi K1032N | 225'/25,000' | Denmark | Maersk | |||||||
ENSCO 72 | Jackup | 1981/1996 | Hitachi K1025N | 225'/25,000' | |||||||||
ENSCO 80 | Jackup | 1978/1995 | MLT 116-CE | 225'/30,000' | United Kingdom | ||||||||
ENSCO 85 | Jackup | 1981/1995 | MLT 116-C | 300'/25,000' | Tunisia | PA Resources | |||||||
ENSCO 92 | Jackup | 1982/1996 | MLT 116-C | 225'/25,000' | United Kingdom | ||||||||
ENSCO 100 | Jackup | 1987/2000 | MLT 150-88-C | 350'/30,000' | United Kingdom | AGR Peak | |||||||
ENSCO 101 | Jackup | 2000 | KFELS MOD V-A | 400'/30,000' | Maersk | ||||||||
ENSCO 102 | Jackup | 2002 | KFELS MOD V-A | 400'/30,000' | United Kingdom | ConocoPhillips | |||||||
ENSCO 105 | Jackup | 2002 | KFELS MOD V-B | 400'/30,000' | Tunisia | BG |
|
Rig Name | Rig Type | Year Built/ Rebuilt | Design | Maximum Water Depth/ Drilling Depth | Current Location | Current Customer | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
North & South America | ||||||||||||||
ENSCO 60 | Jackup | 1981/2003 | Levingston 111-C | 300'/25,000' | Gulf of Mexico | |||||||||
ENSCO 68 | Jackup | 1976/2004 | MLT 84-CE | 400'/30,000' | Gulf of Mexico | |||||||||
ENSCO 69 | Jackup | 1976/1995 | MLT 84-S | 400'/25,000' | Venezuela | PDVSA | ||||||||
ENSCO | Jackup | 1999 | MLT Super 116-C | 400'/30,000' | Gulf of Mexico | |||||||||
ENSCO 81 | Jackup | 1979/2003 | MLT 116-C | 350'/30,000' | Mexico | |||||||||
ENSCO 82 | Jackup | 1979/2003 | MLT 116-C | 300'/30,000' | Gulf of Mexico | |||||||||
ENSCO 83 | Jackup | 1979/2007 | MLT 82 SD-C | 250'/25,000' | Gulf of Mexico | |||||||||
ENSCO 86 | Jackup | 1981/2006 | MLT 82 SD-C | 250'/30,000' | Gulf of Mexico | |||||||||
ENSCO 87 | Jackup | 1982/2006 | MLT 116-C | 350'/25,000' | Gulf of Mexico | |||||||||
ENSCO 89 | Jackup | 1982/2005 | MLT 82 SD-C | 250'/25,000' | Gulf of Mexico | |||||||||
ENSCO 90 | Jackup | 1982/2002 | MLT 82 SD-C | 250'/25,000' | Gulf of Mexico | Apache | ||||||||
ENSCO 93 | Jackup | 1982/2008 | MLT 82 SD-C | 250'/25,000' | Gulf of Mexico | Shipyard | ||||||||
ENSCO 98 | Jackup | 1977/2003 | MLT 82 SD-C | 250'/25,000' | Gulf of Mexico | |||||||||
ENSCO 99 | Jackup | 1985/2005 | MLT 82 SD-C | 250'/30,000' | Gulf of Mexico |
|
ENSCO 8500 was delivered by KFELS in September 2008 and arrived in the Gulf of Mexico in mid-December 2008. The rig is currently undergoing deepwater sea trials and is projected to commence operations under a four-year contract with Anadarko and Eni in April 2009. | |||||||||||
Rig is currently under construction. The "year built" provided is based on the current construction schedule. |
(3) | ENSCO 8501, ENSCO 8502 and ENSCO 8503 have secured long-term drilling contracts in the Gulf of Mexico of three and one half years, two years and two years, respectively. We are currently marketing ENSCO 8504, ENSCO 8505 and ENSCO 8506 and anticipate they will be contracted in advance of delivery. For additional information |
Jackup rigs stand on the ocean floor with their hull and drilling equipment elevated above the water on connected leg supports. Jackup rigs are generally preferred over other rig types in water depths of 400 feet or less, primarily because jackup rigs provide a more stable drilling platform with above water blowout prevention equipment. All of our jackup rigs are of the independent leg design. All but one of our jackup rigs |
25 |
|
|
Over the life of a typical rig, several of the major components are replaced due to normal wear and tear or
We lease our executive offices in Dallas, Texas and own offices and other facilities in Louisiana and Scotland. In addition to our executive offices, we currently FCPA Internal Investigation Following disclosures by other offshore As is customary for companies operating offshore The principal purpose of Following The internal investigation has essentially been concluded. A meeting to review the results of the investigation with the authorities was held on February 24, 2009. We expect to discuss a possible negotiated disposition with the authorities during the second or third quarter of 2009. It currently is |
26 |
Since ENSCO 100 completed its contract commitment and departed Nigeria in August
ENSCO 29 Wreck Removal A portion of the ENSCO 29 platform drilling rig was lost over the side of a customer's platform |
|
While we Asbestos Litigation In August 2004, we and certain current and former subsidiaries were named as defendants, along with numerous other third party companies as co-defendants, in three multi-party lawsuits filed in the Circuit Courts of Jones County (Second Judicial District) and Jasper County (First Judicial District), Mississippi. The lawsuits sought an unspecified amount of monetary damages on behalf of individuals alleging personal injury or death, primarily under the Jones Act, purportedly resulting from exposure to asbestos on drilling rigs and associated facilities during the period 1965 through 1986. |
27 |
|
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Year | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Year | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2008 High | $65.23 | $83.24 | $81.12 | $57.85 | $83.24 | |||||||||||||||||
2008 Low | $45.94 | $59.81 | $52.50 | $22.38 | $22.38 | |||||||||||||||||
2007 High | $56.59 | $63.28 | $67.61 | $60.94 | $67.61 | $56.59 | $63.28 | $67.61 | $60.94 | $67.61 | ||||||||||||
2007 Low | $45.00 | $53.12 | $50.57 | $51.80 | $45.00 | $45.00 | $53.12 | $50.57 | $51.80 | $45.00 | ||||||||||||
2006 High | $56.40 | $58.75 | $47.40 | $55.75 | $58.75 | |||||||||||||||||
2006 Low | $42.82 | $39.80 | $37.36 | $39.10 | $37.36 | |||||||||||||||||
Our common stock (Symbol: ESV) is traded on the New York Stock Exchange. We had We began paying a $.025 per share quarterly cash dividend on our common stock during the third quarter of 1997 and have continued to pay this quarterly dividend through December 31, For information The following table |
Issuer Purchases of Equity Securities | ||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Total Number | Approximate | Total Number | Approximate | |||||||||||||||||||||||||
of Shares | Dollar Value | of Shares | Dollar Value | |||||||||||||||||||||||||
Purchased as | of Shares that | Purchased as | of Shares that | |||||||||||||||||||||||||
Total | Part of Publicly | May Yet Be | Total | Part of Publicly | May Yet Be | |||||||||||||||||||||||
Number of | Announced | Purchased | Number of | Announced | Purchased | |||||||||||||||||||||||
Shares | Average Price | Plans or | Under Plans | Shares | Average Price | Plans or | Under Plans | |||||||||||||||||||||
Period | Period | Purchased | Paid per Share | Programs | or Programs | Period | Purchased | Paid per Share | Programs | or Programs | ||||||||||||||||||
October 1 - October 31 | 1,000,832 | $55.47 | 1,000,000 | $367,000,000 | 2,259 | $35.09 | -- | $562,000,000 | ||||||||||||||||||||
November 1 - November 30 | 438,274 | $54.55 | 434,700 | $343,000,000 | 2,674 | $33.13 | -- | $562,000,000 | ||||||||||||||||||||
December 1 - December 31 | 446,279 | $56.01 | 445,400 | $318,000,000 | 895 | $29.08 | -- | $562,000,000 | ||||||||||||||||||||
Total | 1,885,385 | $55.38 | 1,880,100 | 5,828 | $33.27 | -- |
|
29 |
In March 2006, our Board of Directors authorized |
|
The chart below presents a comparison of the |
Cumulative Total Return | Cumulative Total Return | |||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
12/02 | 12/03 | 12/04 | 12/05 | 12/06 | 12/07 | 12/03 | 12/04 | 12/05 | 12/06 | 12/07 | 12/08 | |||||||||||||||
ENSCO International Incorporated | 100.00 | 92.59 | 108.54 | 152.05 | 171.99 | 205.21 | 100.00 | 117.23 | 164.21 | 185.75 | 221.62 | 105.76 | ||||||||||||||
S & P 500 | 100.00 | 128.68 | 142.69 | 149.70 | 173.34 | 182.87 | 100.00 | 110.88 | 116.33 | 134.70 | 142.10 | 89.53 | ||||||||||||||
Dow Jones U.S. Oil Equipment & Services Index | 100.00 | 114.70 | 155.29 | 235.66 | 267.40 | 387.58 | 100.00 | 135.40 | 205.46 | 233.14 | 337.92 | 137.54 |
* $100 invested on December 31, |
|
Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2007 | 2006 | 2005 | 2004 | 2003 | 2008 | 2007 | 2006 | 2005 | 2004 | |||||||||||||
(in millions, except per share amounts) | (in millions, except per share amounts) | |||||||||||||||||||||
Consolidated Statement of Income Data | ||||||||||||||||||||||
Revenues | $ | 2,143.8 | $ | 1,813.5 | $ | 1,034.3 | $ | 731.3 | $ | 732.9 | $ | 2,450.4 | $ | 2,088.6 | $ | 1,769.8 | $ | 1,009.3 | $ | 713.7 | ||
Operating expenses | ||||||||||||||||||||||
Contract drilling | 684.1 | 576.7 | 454.4 | 407.8 | 421.9 | |||||||||||||||||
Contract drilling (exclusive of depreciation) | 800.5 | 671.2 | 564.8 | 442.8 | 398.1 | |||||||||||||||||
Depreciation | 184.3 | 175.0 | 153.4 | 133.0 | 117.8 | 189.5 | 180.2 | 171.1 | 149.5 | 129.1 | ||||||||||||
General and administrative | 59.5 | 44.6 | 32.0 | 33.1 | 27.2 | 53.8 | 59.5 | 44.6 | 32.0 | 33.1 | ||||||||||||
Operating income | 1,215.9 | 1,017.2 | 394.5 | 157.4 | 166.0 | 1,406.6 | 1,177.7 | 989.3 | 385.0 | 153.4 | ||||||||||||
Other income (expense), net | 37.8 | (5.9 | ) | (24.0 | ) | (33.6 | ) | (32.8 | ) | (4.2 | ) | 37.8 | (5.9 | ) | (24.0 | ) | (33.6 | ) | ||||
Provision for income taxes | 261.7 | 252.7 | 100.5 | 29.9 | 39.2 | 242.4 | 248.3 | 243.0 | 97.2 | 28.5 | ||||||||||||
Income from continuing operations | 992.0 | 758.6 | 270.0 | 93.9 | 94.0 | 1,160.0 | 967.2 | 740.4 | 263.8 | 91.3 | ||||||||||||
Income (loss) from discontinued operations, net(1) | -- | 10.5 | 14.9 | (.9 | ) | 5.1 | ||||||||||||||||
(Loss) income from discontinued operations, net(1) | (9.2 | ) | 24.8 | 28.7 | 21.1 | 1.7 | ||||||||||||||||
Cumulative effect of accounting change, net(2) | -- | .6 | -- | -- | -- | -- | -- | .6 | -- | -- | ||||||||||||
Net income | $ | 992.0 | $ | 769.7 | $ | 284.9 | $ | 93.0 | $ | 99.1 | $ | 1,150.8 | $ | 992.0 | $ | 769.7 | $ | 284.9 | $ | 93.0 | ||
Earnings (loss) per share - basic | ||||||||||||||||||||||
Continuing operations | $ | 6.76 | $ | 4.98 | $ | 1.78 | $ | .62 | $ | .63 | $ | 8.19 | $ | 6.59 | $ | 4.86 | $ | 1.74 | $ | .61 | ||
Discontinued operations | -- | .07 | .10 | (.01 | ) | .03 | (.06 | ) | .17 | .19 | .14 | .01 | ||||||||||
Cumulative effect of accounting change | -- | .00 | -- | -- | -- | -- | -- | .00 | -- | -- | ||||||||||||
$ | 6.76 | $ | 5.06 | $ | 1.88 | $ | .62 | $ | .66 | $ | 8.13 | $ | 6.76 | $ | 5.06 | $ | 1.88 | $ | .62 | |||
Earnings (loss) per share - diluted | ||||||||||||||||||||||
Continuing operations | $ | 6.73 | $ | 4.96 | $ | 1.77 | $ | .62 | $ | .63 | $ | 8.17 | $ | 6.57 | $ | 4.85 | $ | 1.73 | $ | .61 | ||
Discontinued operations | -- | .07 | .10 | (.01 | ) | .03 | (.06 | ) | .17 | .19 | .14 | .01 | ||||||||||
Cumulative effect of accounting change | -- | .00 | -- | -- | -- | -- | -- | .00 | -- | -- | ||||||||||||
$ | 6.73 | $ | 5.04 | $ | 1.87 | $ | .62 | $ | .66 | $ | 8.11 | $ | 6.73 | $ | 5.04 | $ | 1.87 | $ | .62 | |||
Weighted average common shares outstanding: | ||||||||||||||||||||||
Weighted-average common shares outstanding: | ||||||||||||||||||||||
Basic | 146.7 | 152.2 | 151.7 | 150.5 | 149.6 | 141.6 | 146.7 | 152.2 | 151.7 | 150.5 | ||||||||||||
Diluted | 147.3 | 152.8 | 152.4 | 150.6 | 150.1 | 141.9 | 147.3 | 152.8 | 152.4 | 150.6 | ||||||||||||
Cash dividends per common share | $ | .10 | $ | .10 | $ | .10 | $ | .10 | $ | .10 | $ | .10 | $ | .10 | $ | .10 | $ | .10 | $ | .10 | ||
Consolidated Balance Sheet Data | ||||||||||||||||||||||
Consolidated Balance Sheet and Cash Flow Statement Data | Consolidated Balance Sheet and Cash Flow Statement Data | |||||||||||||||||||||
Working capital | $ | 625.8 | $ | 602.3 | $ | 347.0 | $ | 277.9 | $ | 355.9 | $ | 973.0 | $ | 625.8 | $ | 602.3 | $ | 347.0 | $ | 277.9 | ||
Total assets | 4,968.8 | 4,334.4 | 3,617.9 | 3,322.0 | 3,183.0 | 5,830.1 | 4,968.8 | 4,334.4 | 3,617.9 | 3,322.0 | ||||||||||||
Long-term debt, net of current portion | 291.4 | 308.5 | 475.4 | 527.1 | 549.9 | 274.3 | 291.4 | 308.5 | 475.4 | 527.1 | ||||||||||||
Stockholders' equity | 3,752.0 | 3,216.0 | 2,540.0 | 2,193.9 | 2,090.4 | 4,676.9 | 3,752.0 | 3,216.0 | 2,540.0 | 2,193.9 | ||||||||||||
Cash flow from continuing operations | 1,242.0 | 943.8 | 351.6 | 243.2 | 265.6 | 1,140.1 | 1,214.1 | 922.8 | 342.2 | 236.4 |
(1) | See Note |
(2) | On January 1, 2006, we recognized a cumulative adjustment related to the adoption of SFAS No. 123 (revised 2004) "Share-Based Payment" ("FAS 123(R)"). See Note |
|
32 |
Drilling Rig Demand Demand for rigs is directly related to the regional and worldwide levels of offshore exploration and development spending by oil and gas companies, which is beyond our control. Offshore exploration and development spending may fluctuate substantially from year to year and from region to region. Such spending fluctuations result from many factors, including: |
• | demand for oil and natural gas, | |
• | regional and global economic conditions and | |
• | political, social and legislative environments in the U.S. and other major oil-producing countries, | |
• | production and inventory levels and related activities of | |
• | technological advancements that impact the methods or cost of oil and natural gas exploration and development, | |
• | disruption to exploration and development activities due to hurricanes and other severe weather conditions, and | |
• | the impact that these and other events have on the current and expected future prices of oil and natural gas. |
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However, as the |
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|
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|
2007 | 2006 | 2005 | 2008 | 2007 | 2006 | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenues | $ | 2,143.8 | $ | 1,813.5 | $ | 1,034.3 | $ | 2,450.4 | $ | 2,088.6 | $ | 1,769.8 | ||||||||||
Operating expenses | ||||||||||||||||||||||
Contract drilling | 684.1 | 576.7 | 454.4 | |||||||||||||||||||
Contract drilling (exclusive of depreciation) | 800.5 | 671.2 | 564.8 | |||||||||||||||||||
Depreciation | 184.3 | 175.0 | 153.4 | 189.5 | 180.2 | 171.1 | ||||||||||||||||
General and administrative | 59.5 | 44.6 | 32.0 | 53.8 | 59.5 | 44.6 | ||||||||||||||||
Operating income | 1,215.9 | 1,017.2 | 394.5 | 1,406.6 | 1,177.7 | 989.3 | ||||||||||||||||
Other income (expense), net | 37.8 | (5.9 | ) | (24.0 | ) | (4.2 | ) | 37.8 | (5.9 | ) | ||||||||||||
Provision for income taxes | 261.7 | 252.7 | 100.5 | 242.4 | 248.3 | 243.0 | ||||||||||||||||
Income from continuing operations | 992.0 | 758.6 | 270.0 | 1,160.0 | 967.2 | 740.4 | ||||||||||||||||
Income from discontinued operations, net | -- | 10.5 | 14.9 | |||||||||||||||||||
(Loss) income from discontinued operations, net | (9.2 | ) | 24.8 | 28.7 | ||||||||||||||||||
Cumulative effect of accounting change, net | -- | .6 | -- | -- | -- | .6 | ||||||||||||||||
Net income | $ | 992.0 | $ | 769.7 | $ | 284.9 | $ | 1,150.8 | $ | 992.0 | $ | 769.7 |
|
During 2007, revenues increased by $318.8 million, or 18%, and operating income increased by $188.4 million, or 19%, as compared to 2006. The increases were primarily due to improved average day rates |
|
Rig Locations, Utilization and Average Day Rates As discussed below, we manage our business through four operating
geographic region segments. The following |
2007 | 2006 | 2005 | |||||
---|---|---|---|---|---|---|---|
Revenues | |||||||
Jackup rigs: | |||||||
Asia Pacific | $ 889.8 | $ 564.5 | $ 354.9 | ||||
Europe/Africa | 670.8 | 497.1 | 241.5 | ||||
North and South America | 487.5 | 670.0 | 366.2 | ||||
Total jackup rigs | 2,048.1 | 1,731.6 | 962.6 | ||||
Semisubmersible rig - North America | 72.8 | 60.9 | 52.0 | ||||
Barge rig - Asia Pacific | 22.9 | 21.0 | 19.7 | ||||
Total | $2,143.8 | $1,813.5 | $1,034.3 | ||||
Contract Drilling Expense | |||||||
Jackup rigs: | |||||||
Asia Pacific | $ 261.2 | $ 213.8 | $ 173.1 | ||||
Europe/Africa | 208.4 | 158.0 | 114.1 | ||||
North and South America | 175.0 | 166.4 | 135.9 | ||||
Total jackup rigs | 644.6 | 538.2 | 423.1 | ||||
Semisubmersible rigs - North America | 28.8 | 26.3 | 21.8 | ||||
Barge rig - Asia Pacific | 10.7 | 12.2 | 9.5 | ||||
Total | $ 684.1 | $ 576.7 | $ 454.4 | ||||
|
2007 | 2006 | 2005 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Rig utilization(1) | |||||||||||
Jackup rigs | |||||||||||
Asia Pacific | 99% | 98% | 84% | ||||||||
Europe/Africa | 93% | 100% | 96% | ||||||||
North and South America | 80% | 90% | 85% | ||||||||
Total jackup rigs | 91% | 95% | 87% | ||||||||
Semisubmersible rig - North America | 97% | 87% | 86% | ||||||||
Barge rig - Asia Pacific | 95% | 98% | 98% | ||||||||
Total | 91% | 95% | 87% | ||||||||
Average day rates(2) | |||||||||||
Jackup rigs | |||||||||||
Asia Pacific | $131,384 | $ 89,568 | $ 69,506 | ||||||||
Europe/Africa | 198,551 | 149,072 | 84,441 | ||||||||
North and South America | 108,883 | 122,058 | 67,801 | ||||||||
Total jackup rigs | 140,042 | 114,587 | 71,694 | ||||||||
Semisubmersible rig - North America | 199,432 | 191,163 | 161,527 | ||||||||
Barge rig - Asia Pacific | 66,699 | 57,168 | 52,684 | ||||||||
Total | $139,882 | $114,762 | $ 73,553 | ||||||||
2008 | 2007 | 2006 | |||||
---|---|---|---|---|---|---|---|
Deepwater(1) | 2 | 1 | 1 | ||||
Asia Pacific(2) | 20 | 20 | 19 | ||||
Europe/Africa(3) | 10 | 10 | 9 | ||||
North and South America(3) | 14 | 14 | 15 | ||||
Under construction(1)(2)(4) | 6 | 4 | 4 | ||||
Total(5) | 52 | 49 | 48 | ||||
(1) |
(2) |
|
|
2007 | 2006 | 2005 | |||||
---|---|---|---|---|---|---|---|
Jackup rigs: | |||||||
Asia Pacific(1)(2) | 19 | 18 | 16 | ||||
Europe/Africa(3) | 10 | 9 | 9 | ||||
North and South America(2)(3) | 15 | 16 | 17 | ||||
Under construction(1) | -- | 1 | 2 | ||||
Total jackup rigs | 44 | 44 | 44 | ||||
Semisubmersible rigs: | |||||||
North America | 1 | 1 | 1 | ||||
Under construction(4) | 4 | 3 | 1 | ||||
Total semisubmersible rigs | 5 | 4 | 2 | ||||
Barge rig - Asia Pacific | 1 | 1 | 1 | ||||
Total(5) | 50 | 49 | 47 | ||||
Upon completion of its construction |
(3) | During 2007, we mobilized ENSCO 105 from the Gulf of Mexico to Tunisia. |
(4) | During 2007, we entered into an agreement to construct ENSCO 8503 with delivery expected |
(5) | The total number of rigs for each period excludes rigs reclassified as discontinued operations. |
37 |
The following table summarizes our rig utilization and average day rates from continuing operations by operating segment for each of the years in the three-year period ended December 31, 2008: |
2008 | 2007 | 2006 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Rig utilization(1) | |||||||||||
Deepwater | 95% | 97% | 87% | ||||||||
Asia Pacific(3) | 95% | 99% | 98% | ||||||||
Europe/Africa | 96% | 93% | 100% | ||||||||
North and South America | 97% | 79% | 90% | ||||||||
Total | 96% | 91% | 95% | ||||||||
Average day rates(2) | |||||||||||
Deepwater | $334,688 | $199,432 | $191,163 | ||||||||
Asia Pacific(3) | 152,981 | 131,384 | 89,568 | ||||||||
Europe/Africa | 221,164 | 198,551 | 149,072 | ||||||||
North and South America | 101,534 | 104,318 | 121,637 | ||||||||
Total | $155,150 | $140,984 | $115,868 | ||||||||
(1) | Rig utilization is derived by dividing the number of days under contract, including days associated with compensated mobilizations, by the number of days in the period. |
(2) | Average day rates are derived by dividing contract drilling revenues, adjusted to exclude certain types of non-recurring reimbursable revenues and lump sum revenues, by the aggregate number of contract days, adjusted to exclude contract days associated with certain mobilizations, demobilizations, shipyard contracts and standby contracts. |
(3) | Rig utilization and average day rates for the Asia Pacific operating segment include our jackup rigs only. The ENSCO I barge rig has been excluded. |
Operating Income We are in the process of developing a fleet of ultra-deepwater semisubmersible rigs. In connection therewith, we contracted Keppel FELS Limited ("KFELS"), a major international shipyard based in Singapore, to construct seven ultra-deepwater semisubmersible rigs (the "ENSCO 8500 Series®"). ENSCO 8500 was delivered by KFELS in September 2008 and arrived in the Gulf of Mexico in mid-December 2008. The rig is currently undergoing deepwater sea trials and is projected to commence operations under a four-year contract in April 2009. In connection with the arrival of our first ENSCO 8500 Series® rig, we reorganized the management of our operations, establishing a separate business unit to manage our fleet of ultra-deepwater semisubmersible rigs. As part of this reorganization, we evaluated our remaining assets and operations, consisting of 43 jackup rigs and one barge rig organized into three business units based on major geographic region, and now consider these three business units as operating segments. Accordingly, our business now consists of four operating segments: (1) Deepwater, (2) Asia Pacific, (3) Europe/Africa and (4) North and South America. Each of our four operating segments provides one service, contract drilling. The following tables summarize our operating income for each of the years in the three-year period ended December 31, 2008. General and administrative expense and depreciation expense incurred by our corporate office are not allocated to our operating segments for purposes of measuring segment operating income and were included in "Reconciling Items." |
38 |
Year Ended December 31, 2008 |
North | |||||||||||||||||||||||
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and | Operating | ||||||||||||||||||||||
Asia | Europe/ | South | Segments | Reconciling | Consolidated | ||||||||||||||||||
Deepwater | Pacific | Africa | America | Total | Items | Total | |||||||||||||||||
Revenue | $ 84.4 | $1,052.9 | $804.1 | $509.0 | $2,450.4 | $ -- | $2,450.4 | ||||||||||||||||
Operating expenses Contract drilling (exclusive of depreciation) | 31.2 | 321.9 | 246.7 | 200.7 | 800.5 | -- | 800.5 | ||||||||||||||||
Depreciation | 9.1 | 85.2 | 43.0 | 50.3 | 187.6 | 1.9 | 189.5 | ||||||||||||||||
General and administrative | -- | -- | -- | -- | -- | 53.8 | 53.8 | ||||||||||||||||
Operating income | $ 44.1 | $ 645.8 | $514.4 | $258.0 | $1,462.3 | $ (55.7) | $1,406.6 | ||||||||||||||||
Total assets | $1,759.9 | $1,327.7 | $806.7 | $773.1 | $4,667.4 | $1,162.7 | $5,830.1 | ||||||||||||||||
Capital expenditures | 657.8 | 42.6 | 22.7 | 46.3 | 769.4 | 2.7 | 772.1 |
Year Ended December 31, 2007 |
North | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
and | Operating | ||||||||||||||||||||||
Asia | Europe/ | South | Segments | Reconciling | Consolidated | ||||||||||||||||||
Deepwater | Pacific | Africa | America | Total | Items | Total | |||||||||||||||||
Revenue | $ 72.8 | $ 912.7 | $670.8 | $432.3 | $2,088.6 | $ -- | $2,088.6 | ||||||||||||||||
Operating expenses Contract drilling (exclusive of depreciation) | 28.8 | 271.9 | 208.4 | 162.1 | 671.2 | -- | 671.2 | ||||||||||||||||
Depreciation | 9.3 | 81.1 | 40.4 | 45.3 | 176.1 | 4.1 | 180.2 | ||||||||||||||||
General and administrative | -- | -- | -- | -- | -- | 59.5 | 59.5 | ||||||||||||||||
Operating income | $ 34.7 | $ 559.7 | $422.0 | $224.9 | $1,241.3 | $ (63.6) | $1,177.7 | ||||||||||||||||
Total assets | $973.8 | $1,386.6 | $773.6 | $808.8 | $3,942.8 | $1,026.0 | $4,968.8 | ||||||||||||||||
Capital expenditures | 352.4 | 50.6 | 22.0 | 93.0 | 518.0 | 1.4 | 519.4 |
Year Ended December 31, 2006 |
North | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
and | Operating | ||||||||||||||||||||||
Asia | Europe/ | South | Segments | Reconciling | Consolidated | ||||||||||||||||||
Deepwater | Pacific | Africa | America | Total | Items | Total | |||||||||||||||||
Revenue | $ 60.9 | $ 585.5 | $497.1 | $626.3 | $1,769.8 | $ -- | $1,769.8 | ||||||||||||||||
Operating expenses Contract drilling (exclusive of depreciation) | 26.3 | 226.0 | 158.0 | 154.5 | 564.8 | -- | 564.8 | ||||||||||||||||
Depreciation | 8.9 | 75.3 | 36.4 | 46.8 | 167.4 | 3.7 | 171.1 | ||||||||||||||||
General and administrative | -- | -- | -- | -- | -- | 44.6 | 44.6 | ||||||||||||||||
Operating income | $ 25.7 | $ 284.2 | $302.7 | $425.0 | $1,037.6 | $ (48.3 | ) | $ 989.3 | |||||||||||||||
Total assets | $564.6 | $1,358.6 | $640.4 | $891.7 | $3,455.3 | $879.1 | $4,334.4 | ||||||||||||||||
Capital expenditures | 299.5 | 128.9 | 9.5 | 88.0 | 525.9 | 2.0 | 527.9 |
39 |
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During 2008, Asia Pacific revenues costs and increased repair and maintenance expense associated with the aforementioned maintenance projects, and to a lesser extent, the addition of ENSCO 108 to the fleet. Depreciation expense increased by $4.1 million, or 5%, as compared to 2007. The increase was primarily attributable to depreciation associated with ENSCO 108, depreciation associated with ENSCO 96 and ENSCO 104 capital enhancement projects completed during the fourth quarter of 2007 and depreciation on minor upgrades and improvements to our Asia Pacific fleet completed during 2007 and 2008. |
40 |
During 2007, Europe/Africa revenues increased by $173.7 million, or 35%, as compared to 2006. The increase in revenues was primarily attributable to the addition of ENSCO 105 to our Europe/Africa jackup fleet during the first quarter of 2007 and a 33% increase in average day rates, partially offset by a decrease in utilization to 93% from 100% during the prior year. The addition of ENSCO 105 contributed an additional $55.7 million of revenues and $21.0 million of contract drilling expense during 2007 as compared to the prior year. The improvement in average day rates was attributable to improved demand resulting from increased spending by oil and gas companies. The decline in utilization was primarily due to the mobilization of ENSCO 100 from Nigeria to the North Sea, which commenced in August 2007. Contract drilling expense increased by $50.4 million, or 32%, as compared to 2006, primarily due to the addition of ENSCO 105 to the Europe/Africa fleet, $5.5 million of costs associated with the departure of ENSCO 100 from Nigeria and a $4.2 million increase in reimbursable costs associated with ENSCO 100. Excluding the impact of the aforementioned items, contract drilling expense increased by $19.7 million, or 12%, as compared to the prior year due to increased personnel costs and repair and maintenance expense, partially offset by a reduction in fleet-wide mobilization expense. Depreciation expense increased by $4.0 million, or 11%, as compared to 2006. The increase was primarily attributable to depreciation associated with ENSCO 105 and depreciation on minor upgrades and improvements to our Europe/Africa fleet completed during 2006 and 2007. North and South America During 2008, North and South America revenues increased by $76.7 million, or 18%, as compared to 2007. The increase in revenues was primarily due to an increase in utilization to 97% from 79% during the prior year, partially offset by a 3% decline in average day rates. The increase in utilization was attributable to decreased rig supply, as drilling contractors mobilized rigs to international locations, and an increase in customer demand. Although we realized day rate increases during the majority of 2008, day rates earned during the current year were generally lower than day rates earned during the early portions of 2007. The increase in revenues was also partially offset by ENSCO 105, which generated $7.1 million of revenues and $2.1 million of contract drilling expense during the first quarter of 2007 prior to relocation from the region. Contract drilling expense increased by $38.6 million, or 24%, as compared to 2007, primarily due to increased personnel costs, a $13.8 million bad debt provision recorded during the fourth quarter of 2008 related to our operations in Venezuela and the impact of increased utilization, partially offset by decreased mobilization expense and the relocation of ENSCO 105 during the prior year. Depreciation expense increased by $5.0 million, or 11%, as compared to 2007. The increase was primarily attributable to depreciation associated with the ENSCO 83 and ENSCO 93 capital enhancement projects completed |
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Other During 2007, general and administrative expense increased by $14.9 million, or 33%, as compared to 2006. The increase was primarily attributable to
Other Income (Expense) The following |
2007 | 2006 | 2005 | 2008 | 2007 | 2006 | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Interest income | $ | 26.3 | $ | 14.9 | $ | 7.0 | $ | 14.0 | $ | 26.3 | $ | 14.9 | ||||||||||
Interest expense, net: | ||||||||||||||||||||||
Interest expense | (32.3 | ) | (35.4 | ) | (37.7 | ) | (21.6 | ) | (32.3 | ) | (35.4 | ) | ||||||||||
Capitalized interest | 30.4 | 18.9 | 8.9 | 21.6 | 30.4 | 18.9 | ||||||||||||||||
(1.9 | ) | (16.5 | ) | (28.8 | ) | -- | (1.9 | ) | (16.5 | ) | ||||||||||||
Other, net | 13.4 | (4.3 | ) | (2.2 | ) | (18.2 | ) | 13.4 | (4.3 | ) | ||||||||||||
$ | 37.8 | $ | (5.9 | ) | $ | (24.0 | ) | $ | (4.2 | ) | $ | 37.8 | $ | (5.9 | ) |
Our interest expense Foreign currency translation adjustments and foreign currency transaction gains and losses, including certain gains and losses on derivative instruments, During 2008, other, net, also included an unrealized loss of $8.1 million associated with the valuation of our auction rate securities. Our fair value measurements are discussed in Note 8 to our consolidated financial statements. During 2007, other, net, also included a $3.1 million net gain resulting from the settlement of litigation we initiated in relation to a non-operational dispute with a third party service provider. |
42 |
Income tax expense was $242.4 million, $248.3 million and $243.0 million during the years ended December 31, 2008, 2007 and 2006, respectively. The effective income tax rates during the years ended December 31, 2008, 2007 and 2006 were 17.3%, 20.4% and 24.7%, respectively. The decrease in effective income tax rates was due primarily to an increase in earnings generated by non-U.S. subsidiaries whose earnings are being permanently reinvested and taxed at lower rates. Discontinued Operations In September 2008, ENSCO 74 was lost as a result of Hurricane Ike and is now presumed to have sunk in the Gulf of Mexico. Portions of the rig's legs remain underwater adjacent to the customer's platform, and the hull has not been located despite search efforts by us and third parties. Management concluded the rig was a total loss under the terms of our insurance policies based on the condition of the legs and the inability to locate the rig's hull. We recognized a $36.2 million pre-tax loss in connection with the disposal of ENSCO 74, which was included in loss (gain) on disposal of discontinued operations, net, in the consolidated statement of income for the year ended December 31, 2008. The operating results of ENSCO 74 were reclassified as discontinued operations in the consolidated statements of income for each of the years in the three-year period ended December 31, 2008. See Note 11 to our consolidated financial statements for discussion of our insurance coverage and a summary of the pre-tax loss on disposal of discontinued operations. In January 2006, we effectively sold the ENSCO 29 platform rig by transferring beneficial ownership to our insurance underwriters after concluding the rig was a total loss under our insurance policies subsequent to sustaining substantial damage during Hurricane Katrina. Additionally, we sold the ENSCO 25 platform rig in December 2006. The operating results of ENSCO 29 and ENSCO 25 were reclassified as discontinued operations in the consolidated statement of income for the year ended December 31, 2006. The following table summarizes (loss) income from discontinued operations for each of the years in the three-year period ended December 31, 2008 (in millions): |
2008 | 2007 | 2006 | |||||
---|---|---|---|---|---|---|---|
Revenues | $ 36.2 | $55.2 | $58.6 | ||||
Operating expenses | 14.1 | 17.0 | 25.5 | ||||
Operating income before income taxes | 22.1 | 38.2 | 33.1 | ||||
Income tax expense | 7.8 | 13.4 | 11.6 | ||||
(Loss) gain on disposal of discontinued operations, net | (23.5) | -- | 7.2 | ||||
(Loss) income from discontinued operations | $ (9.2) | $24.8 | $28.7 | ||||
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On January 1, 2008, we adopted SFAS No. 157, "Fair Value Measurements" ("SFAS 157"), as it relates to financial assets and liabilities. SFAS 157 refines the definition of fair value, provides a framework for measuring fair value and expands disclosures about fair value measurements. Our auction rate securities were measured at fair value as of December 31, 2008 using significant Level 3 inputs as defined by SFAS 157. See Note 8 to our consolidated financial statements for additional information on the fair value hierarchy under SFAS 157. See Note 2 to our consolidated financial statements for additional information on our auction rate securities, including a description of the securities and underlying collateral, a discussion of the uncertainties relating to their liquidity and our accounting treatment under SFAS No. 115, "Accounting for Certain Debt and Equity Securities (as amended)". As a result of continued auction failures, quoted prices for our auction rate securities did not exist as of December 31, 2008 and, accordingly, we concluded that Level 1 inputs were not available. We determined that use of a valuation model was the best available technique for measuring the fair value of our auction rate securities. We used an income While our valuation model was based on both Level 2 (credit quality and interest rates) and Level 3 inputs, we determined that the Level 3 inputs were most significant to the overall fair value measurement, particularly the estimates of risk-adjusted discount rates and ranges of expected periods of illiquidity. The valuation model also reflected our intention to hold our auction rate securities until they can be redeemed by issuers, repurchased by brokerage firms or sold in a market that facilitates orderly transactions and our belief that we have the ability to maintain our investment in these securities indefinitely. We reviewed these inputs to our valuation model, evaluated the results and performed sensitivity analysis on key assumptions. Based on our review, we concluded that the fair value measurement of our auction rate securities as of December 31, 2008 was appropriate. Based on the results of our fair value measurement, we recognized an unrealized loss of $8.1 million LIQUIDITY AND CAPITAL RESOURCES Although our business has historically been very cyclical, we have relied on our cash flow from continuing operations to meet liquidity needs and fund the majority of our cash requirements. We believe the deteriorating global economic environment and substantial decline in oil and natural gas prices will lead to a decline in jackup rig utilization and day rates in 2009, the extent of which is currently unknown. It is likely that this will result in a decline in our cash flow from operations during the second half of 2009 and during 2010. However, based on our $789.6 million of cash and cash equivalents as of December 31, 2008 and our current contractual backlog, we believe our remaining obligations associated with the construction of the ENSCO 8500 Series® rigs will be funded from existing cash and cash equivalents and future operating cash flow. |
44 |
Detailed explanations of our liquidity and capital resources for each of the years in the three-year period ended December 31, |
Our cash flow from continuing operations and capital expenditures on continuing operations for each of the years in the three-year period ended December 31, |
2007 | 2006 | 2005 | 2008 | 2007 | 2006 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Cash flow from continuing operations | $1,242.0 | $943.8 | $351.6 | $1,140.1 | $1,214.1 | $922.8 | ||||||||
Capital expenditures on continuing operations: | ||||||||||||||
New rig construction | $367.7 | $379.9 | $139.3 | $651.5 | $367.7 | $379.9 | ||||||||
Rig acquisition | -- | -- | 80.5 | |||||||||||
Rig enhancements | 65.0 | 92.7 | 207.0 | 33.7 | 65.0 | 92.7 | ||||||||
Minor upgrades and improvements | 87.2 | 56.0 | 50.3 | 86.9 | 86.7 | 55.3 | ||||||||
$ 519.9 | $528.6 | $477.1 | $ 772.1 | $ 519.4 | $527.9 |
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During 2007, cash flow from continuing operations increased by $291.3 million, or 32%, as compared to the prior year. The increase resulted primarily from a $379.0 million increase in cash receipts from drilling services, partially offset by a $100.2 million increase in cash payments related to contract drilling expenses. We continue to expand the size and quality of our drilling rig fleet. During the three-year period ended December 31, Based on our current projections, we expect capital expenditures |
45 |
Our long-term debt, total capital and long-term debt to total capital ratios |
2007 | 2006 | 2005 | 2008 | 2007 | 2006 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Long-term debt | $ 291.4 | $ 308.5 | $ 475.4 | $ 274.3 | $ 291.4 | $ 308.5 | ||||||||
Total capital* | 4,043.4 | 3,524.5 | 3,015.4 | 4,951.2 | 4,043.4 | 3,524.5 | ||||||||
Long-term debt to total capital | 7.2% | 8.8% | 15.8% | 5.5% | 7.2% | 8.8% | ||||||||
* | Total capital includes long-term debt plus stockholders' equity. |
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In March 2006, our Board of Directors authorized the repurchase of up to $500.0 million of our outstanding common stock. In August 2007, following completion of the authorized repurchase, Contractual Obligations We have various contractual commitments related to our |
Payments due by period | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Payments due by period | 2010 | 2012 | ||||||||||||||||||||
2009 | 2011 | and | and | After | ||||||||||||||||||
and | and | After | 2009 | 2011 | 2013 | Total | ||||||||||||||||
2008 | 2010 | 2012 | 2012 | Total | ||||||||||||||||||
New rig construction agreements | $ | 393.5 | $ | 1,009.3 | $ | 202.4 | $ | -- | $ | 1,605.2 | ||||||||||||
Principal payments on long-term debt | $ | 19.1 | $ | 34.4 | $ | 34.4 | $ | 223.9 | $ | 311.8 | 17.2 | 34.4 | 34.4 | 206.7 | 292.7 | |||||||
Interest payments on long-term debt | 19.7 | 36.4 | 32.4 | 173.4 | 261.9 | 18.7 | 34.3 | 30.3 | 158.3 | 241.6 | ||||||||||||
Operating leases | 6.4 | 5.3 | 2.9 | 7.8 | 22.4 | 6.7 | 4.2 | 2.8 | 6.5 | 20.2 | ||||||||||||
New rig construction agreements | 353.1 | 366.8 | -- | -- | 719.9 | |||||||||||||||||
Total contractual cash obligations | $ | 398.3 | $ | 442.9 | $ | 69.7 | $ | 405.1 | $ | 1,316.0 | ||||||||||||
Total contractual obligations | $ | 436.1 | $ | 1,082.2 | $ | 269.9 | $ | 371.5 | $ | 2,159.7 | ||||||||||||
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Additionally, our contractual obligations table does not include derivative instruments. As of December 31, 2008, we had foreign currency forward contracts outstanding to exchange an aggregate $474.1 million U.S. dollars for various foreign currencies, including $298.5 million for Singapore dollars. As of December 31, 2008, our consolidated balance sheet included net foreign currency derivative liabilities of $20.3 million. All of our outstanding foreign currency forward contracts mature during the next three years. Liquidity Our liquidity position |
2007 | 2006 | 2005 | 2008 | 2007 | 2006 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Cash and cash equivalents | $629.5 | $565.8 | $268.5 | $789.6 | $629.5 | $565.8 | ||||||||
Working capital | 625.8 | 602.3 | 347.0 | 973.0 | 625.8 | 602.3 | ||||||||
Current ratio | 2.2 | 2.6 | 2.5 | 3.3 | 2.2 | 2.6 |
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48 |
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Increase (decrease) in useful lives of our drilling rigs | Increase (decrease) in useful lives of our drilling rigs | Estimated increase (decrease) in depreciation expense that would have been recognized (in millions) | Increase (decrease) in useful lives of our drilling rigs | Estimated increase (decrease) in depreciation expense that would have been recognized (in millions) | ||
---|---|---|---|---|---|---|
10% | $(18.3) | $(18.9) | ||||
20% | (33.4) | (33.3) | ||||
(10%) | 19.0 | 16.3 | ||||
(20%) | 44.6 | 40.1 |
We evaluate the carrying value of our property and equipment, primarily our drilling rigs, when events or changes in circumstances indicate that the carrying value of such rigs may not be recoverable. Generally, extended periods of idle time and/or inability to contract rigs at economical rates are an indication that a rig may be impaired. However, the offshore drilling industry has historically been highly cyclical and it is not unusual for rigs to be unutilized or underutilized for significant periods of time and subsequently resume full or near full utilization when business cycles change. Likewise, during periods of supply and demand imbalance, rigs are frequently contracted at or near cash break-even rates for extended periods of time until demand comes back into balance with supply. Impairment situations may arise with respect to specific individual rigs, groups of rigs, such as a specific type of drilling rig, or rigs in a certain geographic location. Our rigs are mobile and may generally be moved from markets with excess supply, if economically feasible. Our jackup rigs and ultra-deepwater semisubmersible We test goodwill for impairment on an annual basis, or when events or changes in circumstances indicate that a potential impairment exists. The goodwill impairment test requires us to identify reporting units and estimate the fair value of those units as of the testing date. Our four operating segments represent our reporting units in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets (as amended)". In most instances, our calculation of the fair value of our reporting units is based on estimates of future discounted cash flows to be generated by our drilling rigs, which reflect management's judgments and assumptions regarding future industry conditions and operations, including expected utilization, day rates, expense levels and capital requirements for each of our drilling rigs. If the aggregate fair value of our reporting units exceeds our market capitalization, we evaluate the reasonableness of the implied control premium through a comparison to implied control premiums from recent market transactions within our industry. To the extent that the implied control premium based on the aggregate fair value of our reporting units is not reasonable, we adjust the discount rate used in our discounted cash flow model accordingly. If the estimated fair value of a reporting unit exceeds its carrying value, its goodwill is considered not impaired. If the estimated fair value of a reporting unit is less than its carrying value, we estimate the implied fair value of the reporting unit's goodwill. If the carrying amount of the reporting unit's goodwill exceeds the implied fair value of the goodwill, an impairment loss is recognized in an amount equal to such excess. In the event we dispose of drilling rig operations that constitute a business, goodwill would be allocated in the determination of gain or loss on sale. Based on our goodwill impairment |
49 |
Asset impairment evaluations are, by nature, highly subjective. In most instances they involve expectations of future cash flows to be generated by our drilling rigs, which reflect management's judgments and |
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We conduct operations and earn income in numerous international countries and are subject to the laws of tax jurisdictions within those countries, as well as U.S. The carrying values of deferred income tax assets and liabilities reflect the application of our income tax accounting policies in accordance with In December 2007, substantially all of the undistributed earnings of our non-U.S. subsidiaries were distributed to The carrying values of liabilities for We operate in many international jurisdictions where tax laws relating to the offshore drilling industry are not well developed. In jurisdictions where available statutory law and regulations are incomplete or underdeveloped, we obtain professional guidance and consider existing industry practices before utilizing tax planning strategies and meeting our tax obligations. Tax returns are routinely subject to audit in most jurisdictions and tax liabilities are frequently finalized through a negotiation process. While we have not historically |
• | During recent years, the portion of our overall operations conducted in international tax jurisdictions has | |
• | In order to utilize tax planning strategies and conduct international operations efficiently, our subsidiaries frequently enter into transactions with affiliates | |
• | We may conduct future operations in certain tax jurisdictions where tax laws are not well developed, and it may be difficult to secure adequate professional guidance. | |
• | Tax laws, regulations, agreements and treaties change frequently, requiring us to modify existing tax strategies to conform to such changes. |
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Year Ended December 31, | Year Ended December 31, | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2007 | 2006 | 2005 | 2008 | 2007 | 2006 | |||||||||
OPERATING REVENUES | $ | 2,143.8 | $ | 1,813.5 | $ | 1,034.3 | $ | 2,450.4 | $ | 2,088.6 | $ | 1,769.8 | ||
OPERATING EXPENSES | ||||||||||||||
Contract drilling | 684.1 | 576.7 | 454.4 | |||||||||||
Contract drilling (exclusive of depreciation) | 800.5 | 671.2 | 564.8 | |||||||||||
Depreciation | 184.3 | 175.0 | 153.4 | 189.5 | 180.2 | 171.1 | ||||||||
General and administrative | 59.5 | 44.6 | 32.0 | 53.8 | 59.5 | 44.6 | ||||||||
927.9 | 796.3 | 639.8 | 1,043.8 | 910.9 | 780.5 | |||||||||
OPERATING INCOME | 1,215.9 | 1,017.2 | 394.5 | 1,406.6 | 1,177.7 | 989.3 | ||||||||
OTHER INCOME (EXPENSE) | ||||||||||||||
Interest income | 26.3 | 14.9 | 7.0 | 14.0 | 26.3 | 14.9 | ||||||||
Interest expense, net | (1.9 | ) | (16.5 | ) | (28.8 | ) | -- | (1.9 | ) | (16.5 | ) | |||
Other, net | 13.4 | (4.3 | ) | (2.2 | ) | (18.2 | ) | 13.4 | (4.3 | ) | ||||
37.8 | (5.9 | ) | (24.0 | ) | (4.2 | ) | 37.8 | (5.9 | ) | |||||
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE | 1,253.7 | 1,011.3 | 370.5 | 1,402.4 | 1,215.5 | 983.4 | ||||||||
PROVISION FOR INCOME TAXES | ||||||||||||||
Current income tax expense | 261.3 | 236.8 | 93.6 | 240.2 | 246.7 | 225.9 | ||||||||
Deferred income tax expense | .4 | 15.9 | 6.9 | 2.2 | 1.6 | 17.1 | ||||||||
261.7 | 252.7 | 100.5 | 242.4 | 248.3 | 243.0 | |||||||||
INCOME FROM CONTINUING OPERATIONS | 992.0 | 758.6 | 270.0 | 1,160.0 | 967.2 | 740.4 | ||||||||
DISCONTINUED OPERATIONS | ||||||||||||||
Income from discontinued operations, net | -- | 3.3 | 1.0 | 14.3 | 24.8 | 21.5 | ||||||||
Gain on disposal of discontinued operations, net | -- | 7.2 | 13.9 | |||||||||||
(Loss) gain on disposal of discontinued operations, net | (23.5 | ) | -- | 7.2 | ||||||||||
-- | 10.5 | 14.9 | (9.2 | ) | 24.8 | 28.7 | ||||||||
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE | 992.0 | 769.1 | 284.9 | 1,150.8 | 992.0 | 769.1 | ||||||||
CUMULATIVE EFFECT OF ACCOUNTING CHANGE FOR ADOPTION OF SFAS 123(R), NET | -- | .6 | -- | -- | -- | .6 | ||||||||
NET INCOME | $ | 992.0 | $ | 769.7 | $ | 284.9 | $ | 1,150.8 | $ | 992.0 | $ | 769.7 | ||
EARNINGS PER SHARE - BASIC | ||||||||||||||
EARNINGS (LOSS) PER SHARE - BASIC | ||||||||||||||
Continuing operations | $ | 6.76 | $ | 4.98 | $ | 1.78 | $ | 8.19 | $ | 6.59 | $ | 4.86 | ||
Discontinued operations | -- | .07 | .10 | (.06 | ) | .17 | .19 | |||||||
Cumulative effect of accounting change | -- | .00 | -- | -- | -- | .00 | ||||||||
$ | 6.76 | $ | 5.06 | $ | 1.88 | $ | 8.13 | $ | 6.76 | $ | 5.06 | |||
EARNINGS PER SHARE - DILUTED | ||||||||||||||
EARNINGS (LOSS) PER SHARE - DILUTED | ||||||||||||||
Continuing operations | $ | 6.73 | $ | 4.96 | $ | 1.77 | $ | 8.17 | $ | 6.57 | $ | 4.85 | ||
Discontinued operations | -- | .07 | .10 | (.06 | ) | .17 | .19 | |||||||
Cumulative effect of accounting change | -- | .00 | -- | -- | -- | .00 | ||||||||
$ | 6.73 | $ | 5.04 | $ | 1.87 | $ | 8.11 | $ | 6.73 | $ | 5.04 | |||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | ||||||||||||||
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING | ||||||||||||||
Basic | 146.7 | 152.2 | 151.7 | 141.6 | 146.7 | 152.2 | ||||||||
Diluted | 147.3 | 152.8 | 152.4 | 141.9 | 147.3 | 152.8 | ||||||||
CASH DIVIDENDS PER COMMON SHARE | $ | .10 | $ | .10 | $ | .10 | $ | .10 | $ | .10 | $ | .10 | ||
The accompanying notes are an integral part of these consolidated financial statements. |
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December 31, | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|
December 31, | 2008 | 2007 | ||||||||
2007 | 2006 | |||||||||
ASSETS | ||||||||||
CURRENT ASSETS | ||||||||||
Cash and cash equivalents | $ | 629.5 | $ | 565.8 | $ | 789.6 | $ | 629.5 | ||
Accounts receivable, net | 383.2 | 338.8 | 482.7 | 383.2 | ||||||
Other | 116.6 | 82.6 | 128.6 | 116.6 | ||||||
Total current assets | 1,129.3 | 987.2 | 1,400.9 | 1,129.3 | ||||||
PROPERTY AND EQUIPMENT, AT COST | 4,704.7 | 4,129.5 | 5,376.3 | 4,704.7 | ||||||
Less accumulated depreciation | 1,345.8 | 1,169.1 | 1,505.0 | 1,345.8 | ||||||
Property and equipment, net | 3,358.9 | 2,960.4 | 3,871.3 | 3,358.9 | ||||||
GOODWILL | 336.2 | 336.2 | 336.2 | 336.2 | ||||||
LONG-TERM INVESTMENTS | 64.2 | -- | ||||||||
OTHER ASSETS, NET | 144.4 | 50.6 | 157.5 | 144.4 | ||||||
$ | 4,968.8 | $ | 4,334.4 | $ | 5,830.1 | $ | 4,968.8 | |||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||
CURRENT LIABILITIES | ||||||||||
Accounts payable | $ | 18.8 | $ | 12.4 | $ | 30.0 | $ | 18.8 | ||
Accrued liabilities and other | 465.6 | 205.4 | 380.7 | 465.6 | ||||||
Current maturities of long-term debt | 19.1 | 167.1 | 17.2 | 19.1 | ||||||
Total current liabilities | 503.5 | 384.9 | 427.9 | 503.5 | ||||||
LONG-TERM DEBT | 291.4 | 308.5 | 274.3 | 291.4 | ||||||
DEFERRED INCOME TAXES | 352.0 | 356.5 | 340.5 | 352.0 | ||||||
OTHER LIABILITIES | 69.9 | 68.5 | 110.5 | 69.9 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||||
STOCKHOLDERS' EQUITY | ||||||||||
Preferred stock, $1 par value, 20.0 million shares authorized | ||||||||||
and none issued | -- | -- | -- | -- | ||||||
Common stock, $.10 par value, 250.0 million shares authorized, | ||||||||||
180.3 million and 178.7 million shares issued | 18.0 | 17.9 | ||||||||
181.9 million and 180.3 million shares issued | 18.2 | 18.0 | ||||||||
Additional paid-in capital | 1,700.5 | 1,621.3 | 1,761.2 | 1,700.5 | ||||||
Retained earnings | 2,977.5 | 1,994.5 | 4,114.0 | 2,977.5 | ||||||
Accumulated other comprehensive loss | (4.2 | ) | (5.5 | ) | (17.0 | ) | (4.2 | ) | ||
Treasury stock, at cost, 36.4 million shares and 26.9 million shares | (939.8 | ) | (412.2 | ) | ||||||
Treasury stock, at cost, 40.1 million shares and 36.4 million shares | (1,199.5 | ) | (939.8 | ) | ||||||
Total stockholders' equity | 3,752.0 | 3,216.0 | 4,676.9 | 3,752.0 | ||||||
$ | 4,968.8 | $ | 4,334.4 | $ | 5,830.1 | $ | 4,968.8 | |||
The accompanying notes are an integral part of these consolidated financial statements. |
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ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) |
Year Ended December 31, | ||||||||||||||
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2007 | 2006 | 2005 | Year Ended December 31, | |||||||||||
2008 | 2007 | 2006 | ||||||||||||
OPERATING ACTIVITIES | ||||||||||||||
Net income | $ | 992.0 | $ | 769.7 | $ | 284.9 | $ | 1,150.8 | $ | 992.0 | $ | 769.7 | ||
Adjustments to reconcile net income to net cash provided | ||||||||||||||
by operating activities of continuing operations: | ||||||||||||||
Depreciation expense | 184.3 | 175.0 | 153.4 | 189.5 | 180.2 | 171.1 | ||||||||
Amortization expense | 32.5 | 10.9 | 8.2 | |||||||||||
Share-based compensation expense | 27.3 | 36.9 | 21.9 | |||||||||||
Bad debt expense | 16.2 | 1.4 | .4 | |||||||||||
Unrealized loss on trading securities | 8.1 | -- | -- | |||||||||||
Excess tax benefit from share-based compensation | (5.3 | ) | (6.6 | ) | (3.6 | ) | ||||||||
Deferred income tax expense | .4 | 15.9 | 6.9 | 2.2 | 1.6 | 17.1 | ||||||||
Share-based compensation expense | 36.9 | 21.9 | 15.9 | |||||||||||
Excess tax (benefit) deficiency from share-based compensation | (6.6 | ) | (3.6 | ) | 4.9 | |||||||||
Amortization of other assets | 8.1 | 6.2 | 6.0 | |||||||||||
Income from discontinued operations, net | -- | (3.3 | ) | (1.0 | ) | (14.3 | ) | (24.8 | ) | (21.5 | ) | |||
Gain on disposal of discontinued operations, net | -- | (7.2 | ) | (13.9 | ) | |||||||||
Loss (gain) on disposal of discontinued operations, net | 23.5 | -- | (7.2 | ) | ||||||||||
Other | .1 | 6.7 | 4.6 | (1.2 | ) | .4 | 6.6 | |||||||
Changes in operating assets and liabilities: | ||||||||||||||
Increase in accounts receivable | (44.4 | ) | (69.8 | ) | (86.0 | ) | (110.7 | ) | (45.8 | ) | (70.2 | ) | ||
Increase in investments designated as trading securities | (72.3 | ) | -- | -- | ||||||||||
Increase in other assets | (130.9 | ) | (23.8 | ) | (16.8 | ) | (40.5 | ) | (133.6 | ) | (25.8 | ) | ||
Increase (decrease) in accounts payable | 6.5 | (6.7 | ) | 3.5 | 11.2 | 6.5 | (6.7 | ) | ||||||
Increase (decrease) in accrued liabilities and other | 195.6 | 62.8 | (10.8 | ) | ||||||||||
(Decrease) increase in accrued liabilities and other | (76.9 | ) | 195.0 | 62.8 | ||||||||||
Net cash provided by operating activities of continuing operations | 1,242.0 | 943.8 | 351.6 | 1,140.1 | 1,214.1 | 922.8 | ||||||||
INVESTING ACTIVITIES | ||||||||||||||
Additions to property and equipment | (519.9 | ) | (528.6 | ) | (477.1 | ) | (772.1 | ) | (519.4 | ) | (527.9 | ) | ||
Net proceeds from disposal of discontinued operations | -- | 23.7 | 132.9 | |||||||||||
Other | 7.7 | 2.9 | 2.5 | |||||||||||
�� Proceeds from disposal of discontinued operations | 45.1 | -- | 23.7 | |||||||||||
Proceeds from disposition of assets | 5.2 | 7.7 | 2.9 | |||||||||||
Net cash used in investing activities | (512.2 | ) | (502.0 | ) | (341.7 | ) | (721.8 | ) | (511.7 | ) | (501.3 | ) | ||
FINANCING ACTIVITIES | ||||||||||||||
Repurchase of common stock under authorized program | (521.6 | ) | (160.0 | ) | -- | |||||||||
Repurchase of common stock | (259.7 | ) | (527.6 | ) | (161.0 | ) | ||||||||
Proceeds from exercise of stock options | 27.3 | 35.8 | 41.8 | |||||||||||
Reduction of long-term borrowings | (167.2 | ) | (17.1 | ) | (58.3 | ) | (19.0 | ) | (165.3 | ) | (17.1 | ) | ||
Cash dividends paid | (14.8 | ) | (15.3 | ) | (15.2 | ) | (14.3 | ) | (14.8 | ) | (15.3 | ) | ||
Proceeds from exercise of share options | 35.8 | 41.8 | 67.2 | |||||||||||
Excess tax benefit (deficiency) from share-based compensation | 6.6 | 3.6 | (4.9 | ) | ||||||||||
Other | (4.1 | ) | (1.0 | ) | (3.2 | ) | ||||||||
Excess tax benefit from share-based compensation | 5.3 | 6.6 | 3.6 | |||||||||||
Net cash used in financing activities | (665.3 | ) | (148.0 | ) | (14.4 | ) | (260.4 | ) | (665.3 | ) | (148.0 | ) | ||
Effect of exchange rate changes on cash and cash equivalents | (.8 | ) | (.2 | ) | (.7 | ) | (15.0 | ) | (.8 | ) | (.2 | ) | ||
Net cash provided by operating activities of discontinued operations | -- | 3.7 | 6.7 | 17.2 | 27.4 | 24.0 | ||||||||
INCREASE IN CASH AND CASH EQUIVALENTS | 63.7 | 297.3 | 1.5 | 160.1 | 63.7 | 297.3 | ||||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | 565.8 | 268.5 | 267.0 | 629.5 | 565.8 | 268.5 | ||||||||
CASH AND CASH EQUIVALENTS, END OF YEAR | $ | 629.5 | $ | 565.8 | $ | 268.5 | $ | 789.6 | $ | 629.5 | $ | 565.8 |
The accompanying notes are an integral part of these consolidated financial statements. |
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1. DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
ENSCO International Incorporated is one of the leading providers of offshore contract drilling services to the international oil and gas industry. We have one of the largest and most capable offshore drilling rig fleets in the world Our contract drilling operations are integral to the exploration, development and production of oil and natural gas. Our business levels and corresponding operating results are significantly affected by worldwide levels of offshore exploration and development spending by oil and gas companies. Levels of offshore exploration and development spending may fluctuate substantially from year to year and from region to region. Such fluctuations result from many factors including demand for oil and natural gas, regional and global economic conditions and changes therein, political, social and legislative environments in the U.S. and other major oil-producing countries, Principles of Consolidation The accompanying consolidated financial statements include the accounts of ENSCO International Incorporated and its majority owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Certain previously reported amounts have been reclassified to conform to the current-year presentation. Unless the context otherwise requires, the terms "Ensco," "Company," "we," "us" and "our" refer to ENSCO International Incorporated and its consolidated subsidiaries. Pervasiveness of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") requires Foreign Currency Translation The U.S. dollar is the functional currency of all our non-U.S. subsidiaries. The financial statements of these subsidiaries are remeasured in U.S. dollars based on a combination of both current and historical exchange rates. Currency translation adjustments and transaction gains and losses, including certain gains and losses on our derivative instruments, |
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Highly liquid investments with maturities of three months or less at the date of purchase are considered cash equivalents. Highly liquid investments with maturities of greater than three months but less than one year at the date of purchase are classified as short-term investments. Property and Equipment All costs incurred in connection with the acquisition, construction, enhancement and improvement of assets are capitalized, including allocations of interest incurred during periods that our drilling rigs are under construction or undergoing major enhancements and improvements. Our property and equipment is depreciated on the straight-line method, after allowing for salvage values, over the estimated useful lives of our assets. Drilling rigs and related equipment are depreciated over estimated useful lives ranging from 4 to 30 years. Buildings and improvements are depreciated over estimated useful lives ranging from 2 to 30 years. Other equipment, including computer and communications hardware and software costs, is depreciated over estimated useful lives ranging from We evaluate the carrying value of our property and equipment for impairment when events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. For property and equipment used in our operations, recoverability is determined by comparing the net carrying value of an asset to either an independent fair value appraisal of the asset or the expected undiscounted future cash flows The precipitous decline in oil and natural gas prices and the general deterioration of the global economy during the latter half of 2008 is resulting in a decrease in demand for drilling rigs and a corresponding reduction in utilization and day rates for our jackup rigs. The change in demand, utilization and day rates was deemed a triggering event for asset impairment purposes. We Based on our recoverability test performed as of December 31, 2008, we concluded that the net book value of our drilling rigs was recoverable and no impairment charges were recorded. Additionally, no asset impairment charges were recorded during the three-year period ended December 31, Goodwill In connection with the arrival of our first ENSCO 8500 Series® rig, we reorganized the management of our operations, establishing a separate business unit to manage our fleet of ultra-deepwater semisubmersible rigs. As part of this reorganization, we evaluated our remaining assets and operations, consisting of 43 jackup rigs and one barge rig organized into three business units based on major geographic region, and now consider these three business units as operating segments. Accordingly, our business now consists of four operating segments: (1) Deepwater, (2) Asia Pacific, (3) Europe/Africa and (4) North and South America. Each of our four operating segments provides one service, contract drilling. |
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Deepwater | $ | 143.6 | |||
Asia Pacific | 84.6 | ||||
Europe/Africa | 61.4 | ||||
North and South America | 46.6 | ||||
Total | $ | 336.2 | |||
We test goodwill for impairment on an annual basis, or when events or changes in circumstances indicate that a potential impairment exists. The determination of the fair value of our reporting units requires significant estimates, judgments and assumptions. These estimates, judgments and assumptions include the risk-adjusted discount rate, as well as utilization, day rates, expense levels, capital requirements and terminal values for each of our drilling rigs. Due to the inherent uncertainties associated with these estimates, we performed sensitivity analysis on key assumptions as part of our goodwill impairment Operating Revenues and Expenses Substantially all of our drilling In connection with some contracts, we receive lump-sum fees or similar compensation for the mobilization of equipment and personnel prior to the commencement of drilling services or the demobilization of equipment and personnel upon contract completion. Fees received for the mobilization or demobilization of equipment and personnel are included in operating Mobilization fees received and costs incurred are deferred and recognized on a straight-line basis over the period that the related drilling services are performed. Demobilization fees and related costs are recognized as incurred upon contract completion. Costs associated with the mobilization of equipment and personnel to more promising market areas without contracts are expensed as incurred. |
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Deferred mobilization costs |
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We must obtain certifications from various regulatory bodies in order to operate our drilling rigs and must maintain such certifications through periodic inspections and surveys. The costs incurred in connection with maintaining such certifications, including inspections, tests, surveys and drydock, as well as remedial structural work and other compliance costs, are deferred and amortized over the corresponding certification periods. Deferred regulatory certification and compliance costs In certain countries in which we operate, taxes such as sales, use, Derivative Financial Instruments We use derivative financial instruments ("derivatives") to reduce our exposure to various market risks, primarily foreign currency risk and interest rate All derivatives are recorded on our consolidated balance sheet at fair value. Accounting for the gains and losses resulting from changes in the fair value of derivatives depends on the use of the derivative and whether it qualifies for hedge Changes in the fair value of derivatives that are designated as hedges of the fair value of recognized assets or liabilities or unrecognized firm commitments ("fair value hedges") are recorded currently in earnings and included in other, net, Gains and losses on a cash flow hedge, or a portion of a cash flow hedge, that no longer qualify as effective due to an unanticipated change in the forecasted |
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Derivatives with asset fair values are reported in other current assets or other assets, net, depending on maturity date. Derivatives with liability fair values are reported in accrued liabilities and other, or other liabilities, depending on maturity date. Income Taxes We conduct operations and earn income in numerous international countries and are subject to the laws of taxing jurisdictions within those countries, as well as U.S. Deferred tax assets and liabilities are recognized for the anticipated future tax effects of temporary differences between the financial statement basis and the tax basis of our assets and liabilities using the enacted tax rates in effect at In many of the international jurisdictions Our drilling rigs In some instances, we may determine that certain temporary differences will not result in a taxable or deductible amount in future years, as it is more-likely-than-not we will commence operations and depart from a given taxing jurisdiction without such temporary differences being recovered or settled. Under these circumstances, no future tax consequences are expected and no deferred taxes are recognized in connection with such operations. We evaluate In December 2007, substantially all of the undistributed earnings of our non-U.S. subsidiaries were distributed to |
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We sponsor several share-based compensation plans that provide equity compensation to our employees, officers and directors. Effective January 1, 2006, we adopted the fair value recognition provisions of Fair Value Measurements On January 1, 2008, we adopted SFAS No. 157, "Fair Value Measurements" ("SFAS 157"), as it relates to financial assets and liabilities. SFAS 157 refines the definition of fair value, provides a framework for measuring fair value and expands disclosures about fair value measurements. The standard establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy assigns the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities ("Level 1") and the lowest priority to unobservable inputs ("Level 3"). Level 2 measurements are inputs that are observable for assets or liabilities, either directly or indirectly, other than quoted prices included within Level 1. Our derivative instruments were measured at fair value on a recurring basis using Level 2 inputs as of December 31, 2008 and 2007. See "Note 5 - Derivative Financial Instruments" for additional information on our derivative instruments, including a description of our foreign currency hedging activities and related methods used to manage foreign currency exchange risk. The fair value measurement of our derivatives was based on market prices that are generally observable for similar assets or liabilities at commonly quoted intervals. Our auction rate securities were measured at fair value as of December 31, 2008 using significant Level 3 inputs as defined by SFAS 157. See "Note 2 - Long-Term Investments" for additional information on our auction rate securities, including a description of the securities and underlying collateral, a discussion of the uncertainties relating to their liquidity and our accounting treatment under SFAS No. 115, "Accounting for Certain Debt and Equity Securities (as amended)". We determined that use of a valuation model was the best available technique for measuring the fair value of our auction rate securities. We used an income approach valuation model to estimate the price that would be received in exchange for our auction rate securities in an orderly transaction between market participants ("exit price") as of December 31, 2008. The exit price was derived as the weighted-average present value of expected cash flow over various periods of illiquidity, using a risk-adjusted discount rate that was based on the credit risk and liquidity risk of our auction rate securities. See "Note 8 - Fair Value Measurements" for additional information on the fair value measurement of our auction rate securities. |
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Earnings Per Share For each of the years in the three-year period ended December 31, |
2007 | 2006 | 2005 | 2008 | 2007 | 2006 | |||||||||
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Weighted average common shares - basic | 146.7 | 152.2 | 151.7 | |||||||||||
Weighted-average common shares - basic | 141.6 | 146.7 | 152.2 | |||||||||||
Potentially dilutive common shares: | ||||||||||||||
Share options | .3 | .5 | .6 | |||||||||||
Non-vested share awards | .1 | .0 | .1 | -- | .1 | .0 | ||||||||
Share options | .5 | .6 | .6 | |||||||||||
Weighted average common shares - diluted | 147.3 | 152.8 | 152.4 | |||||||||||
Weighted-average common shares - diluted | 141.9 | 147.3 | 152.8 |
In June 2008, the Adoption of SAB 108 In September 2006, the Securities and Exchange Commission ("SEC") issued During years prior to 2006, we used the rollover approach to quantify and evaluate the effects of financial statement misstatements. In applying the guidance of SAB 108 during 2006, we concluded the two misstatements described below, when evaluated using the iron curtain approach, were material to our December 31, 2006 consolidated financial statements. |
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In 1997, we adopted a policy pursuant to which the depreciation of a drilling rig was suspended during periods it was out of service while undergoing major upgrade and enhancement procedures. In 2005, we discontinued this policy after concluding it was not in accordance with |
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2. LONG-TERM INVESTMENTS As of December 31, 2008, we held $72.3 million (par value) of long-term debt instruments with variable interest rates that periodically reset through an auction process ("auction rate securities"). Our auction rate securities were originally acquired in January 2008 and have final maturity dates ranging from 2025 to 2047. We did not own auction rate securities as of December 31, 2007. Auctions for our auction rate securities failed beginning in February 2008. An auction failure, which is not a default in the underlying debt instrument, occurs when there are more sellers than buyers at a scheduled interest rate auction date and parties desiring to sell their auction rate securities are unable to do so. When an auction fails, the interest rate is adjusted according to the provisions of the associated security agreement, which may result in an interest rate that is higher than the interest rate the issuer pays in connection with successful auctions. Auctions for our auction rate securities continued to fail during the remainder of 2008, with the exception of the successful auction of $4.7 million of our securities in June 2008. Our investments in auction rate securities as of December 31, 2008 were diversified across sixteen separate issues and each issue maintains scheduled interest rate auctions in either 28-day or 35-day intervals. Substantially all of our auction rate securities are currently rated Aaa by Moody's, AAA by Standard & Poor's and/or AAA by Fitch. An aggregate $68.6 million (par value), or 95%, of our auction rate securities were issued by state agencies and are supported by student loans for which repayment is substantially guaranteed by the U.S. government under the Federal Family Education Loan Program ("FFELP"). Auction failures and the resulting lack of liquidity have Some broker/dealers previously indicated that they planned to develop secondary markets for auction rate securities, but no such market has materialized. Consequently, we are currently unable to determine if alternative markets that provide for orderly purchases and sales of auction rate securities will develop. Several major brokerage firms announced regulatory settlements in which they will initially offer to repurchase auction rate securities from retail investors, charities and small businesses and use best efforts to provide liquidity to institutional investors within the next several years. However, we are currently unable to determine whether these brokerage firms will be able to comply with the terms of their regulatory settlements. Moreover, the deteriorating global economic environment may impede auction rate security repurchases. Although we acquired our auction rate securities with the intention of selling them in the near term, due to the aforementioned uncertainties, our auction rate securities were classified as long-term investments on our consolidated balance sheet as of December 31, |
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Upon acquisition in January 2008, we designated our auction rate securities as trading securities in accordance with SFAS 115 as it was our intent to sell them in the near term. Due to illiquidity in the auction rate securities market, we intend to hold our auction rate securities until they can be redeemed by issuers, repurchased by brokerage firms or sold in a market that facilitates orderly transactions. Although we will hold our auction rate securities longer than originally anticipated, we continue to designate them as trading securities.
3. PROPERTY AND EQUIPMENT Property and equipment |
2007 | 2006 | 2008 | 2007 | |||||||
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Drilling rigs and equipment | $ | 3,816.4 | $ | 3,586.5 | $ | 3,829.8 | $ | 3,816.4 | ||
Other | 40.4 | 39.4 | 45.5 | 40.4 | ||||||
Work in progress | 847.9 | 503.6 | 1,501.0 | 847.9 | ||||||
$ | 4,704.7 | $ | 4,129.5 | $ | 5,376.3 | $ | 4,704.7 |
Long-term debt |
2007 | 2006 | ||||
---|---|---|---|---|---|
4.65% Bonds due 2020 | $ 58.5 | $ 63.0 | |||
6.36% Bonds due 2015 | 101.4 | 114.0 | |||
6.75% Notes due 2007 | -- | 149.9 | |||
7.20% Debentures due 2027 | 148.7 | 148.7 | |||
Other | 1.9 | -- | |||
310.5 | 475.6 | ||||
Less current maturities | (19.1 | ) | (167.1 | ) | |
Total long-term debt | $291.4 | $308.5 | |||
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2008 | 2007 | ||||
---|---|---|---|---|---|
4.65% Bonds due 2020 | $ 54.0 | $ 58.5 | |||
6.36% Bonds due 2015 | 88.7 | 101.4 | |||
7.20% Debentures due 2027 | 148.8 | 148.7 | |||
Other | -- | 1.9 | |||
291.5 | 310.5 | ||||
Less current maturities | (17.2 | ) | (19.1 | ) | |
Total long-term debt | $274.3 | $291.4 | |||
In October 2003, we issued $76.5 million of 17-year bonds to provide long-term financing for ENSCO 105. The bonds are guaranteed by |
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In January 2001, we issued $190.0 million of 15-year bonds to provide long-term financing for ENSCO 7500. The bonds are guaranteed by MARAD and will be repaid in 30 equal semiannual principal installments of $6.3 million ending in December 2015. Interest on the bonds is payable semiannually, in June and December, at a fixed rate of 6.36%. The bonds are collateralized by ENSCO 7500, and we have guaranteed the performance of our obligations under the bonds to MARAD. In November 1997, we issued Revolving Credit Facility We have a $350.0 million unsecured revolving credit facility (the "Credit Facility") with a syndicate of lenders for general corporate purposes. The Credit Facility has a five-year term, expiring in June 2010. Advances under the Credit Facility bear interest at LIBOR plus an applicable margin rate (currently .35% per annum), depending on our credit rating. We pay a facility fee (currently .10% per annum) on the total $350.0 million commitment, which is also based on our credit rating, and pay an additional utilization fee on outstanding advances if such advances equal or exceed 50% of the total $350.0 million commitment. We had no amounts outstanding under the Credit Facility Maturities The aggregate maturities of our long-term debt, excluding |
2008 | $ | 19.1 | ||||||||
2009 | 17.2 | $ | 17.2 | |||||||
2010 | 17.2 | 17.2 | ||||||||
2011 | 17.2 | 17.2 | ||||||||
2012 | 17.2 | 17.2 | ||||||||
2013 | 17.2 | |||||||||
Thereafter | 223.9 | 206.7 | ||||||||
Total | $ | 311.8 | $ | 292.7 |
We have net assets and liabilities denominated in numerous foreign currencies and use various methods to manage our exposure to foreign currency exchange risk. We predominantly structure our drilling contracts in U.S. dollars, which significantly reduces the portion of our cash flows and assets denominated in foreign currencies. We also employ various strategies, including the use of derivative instruments, to match foreign currency denominated assets with equal or near equal amounts of foreign currency denominated liabilities, thereby minimizing exposure to earnings fluctuations caused by changes in foreign currency exchange rates. We also utilize derivative instruments to hedge forecasted foreign currency denominated transactions. As of December 31, 2008, we had foreign currency forward contracts outstanding to exchange an aggregate $474.1 million U.S. dollars for various foreign currencies, including $298.5 million for Singapore dollars. We currently have six ultra-deepwater semisubmersible rigs under construction with a major international shipyard in Singapore. As of December 31, 2008, approximately $341.9 million of the aggregate remaining contractual obligations associated with these construction projects was denominated in Singapore dollars of which $291.0 million was hedged through foreign currency forward contracts. |
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Net unrealized gains to be reclassified to contract drilling expenses | $ | 2.8 | |
Net unrealized losses to be reclassified to interest expense | (.7 | ) | |
Net unrealized gains to be reclassified to earnings | $ | 2.1 | |
We utilize derivative instruments and undertake foreign currency hedging activities in accordance with our established policies for the management of market risk. We do not enter into derivative instruments for trading or other speculative purposes.
As of December 31, 2008, the estimated amount of net unrealized losses on derivative instruments, net of tax, that will be reclassified to earnings during the next twelve months was as follows (in millions): |
Net unrealized losses to be reclassified to contract drilling expense | $ | 15.1 | |
Net unrealized losses to be reclassified to interest expense | .6 | ||
Net unrealized losses to be reclassified to earnings | $ | 15.7 | |
6. COMPREHENSIVE INCOME Accumulated other comprehensive loss as of December 31, 2008 and 2007 was comprised of net unrealized losses on derivative instruments, net of tax. The components of our comprehensive income, net of tax, for each of the years in the three-year period ended December 31, |
2007 | 2006 | 2005 | |||||
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Net Income | $ | 992.0 | $ | 769.7 | $ | 284.9 | |
Other comprehensive income (loss) | |||||||
Net change in fair value of derivatives | 8.2 | 5.8 | (6.3 | ) | |||
Reclassification of unrealized gains and losses on derivatives from other comprehensive (income) loss into net income | (6.9 | ) | (.4 | ) | 3.3 | ||
Foreign currency translation adjustment | -- | -- | 1.1 | ||||
Net other comprehensive income (loss) | 1.3 | 5.4 | (1.9 | ) | |||
Comprehensive income | $ | 993.3 | $ | 775.1 | $ | 283.0 | |
2008 | 2007 | 2006 | |||||
---|---|---|---|---|---|---|---|
Net Income | $ | 1,150.8 | $ | 992.0 | $ | 769.7 | |
Other comprehensive income: | |||||||
Net change in fair value of derivatives | (16.4) | 8.2 | 5.8 | ||||
Reclassification of unrealized gains and losses on derivatives from other comprehensive loss (income) into net income | 3.6 | (6.9 | ) | (.4 | ) | ||
Net other comprehensive (loss) income | (12.8 | ) | 1.3 | 5.4 | |||
Comprehensive income | $ | 1,138.0 | $ | 993.3 | $ | 775.1 | |
In March 2006, our Board of Directors authorized the repurchase of up to $500.0 million of our outstanding common stock. In August 2007, following completion of the authorized repurchase, During the year ended December 31,
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