UNITED STATES |
X | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended |
OR |
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 |
(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) |
Registrant's telephone number, including area code:(214) 397-3000 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 X No Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No X There were |
ENSCO INTERNATIONAL INCORPORATEDINDEX TO FORM 10-QFOR THE QUARTER ENDED | |
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Three Months Ended | |||||||
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September 30, | |||||||
2005 | 2004 | ||||||
OPERATING REVENUES | $276.7 | $187.0 | |||||
OPERATING EXPENSES | |||||||
Contract drilling | 117.1 | 101.7 | |||||
Depreciation and amortization | 39.8 | 34.3 | |||||
General and administrative | 6.7 | 6.8 | |||||
163.6 | 142.8 | ||||||
OPERATING INCOME | 113.1 | 44.2 | |||||
OTHER INCOME (EXPENSE) | |||||||
Interest income | 2.0 | .9 | |||||
Interest expense, net | (6.5 | ) | (8.7 | ) | |||
Other, net | (5.2 | ) | (1.4 | ) | |||
(9.7 | ) | (9.2 | ) | ||||
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | 103.4 | 35.0 | |||||
PROVISION FOR INCOME TAXES | |||||||
Current income tax expense (benefit) | 25.3 | (1.8 | ) | ||||
Deferred income tax expense | 2.0 | 9.1 | |||||
27.3 | 7.3 | ||||||
INCOME FROM CONTINUING OPERATIONS | 76.1 | 27.7 | |||||
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET | .4 | (1.9 | ) | ||||
NET INCOME | $ 76.5 | $ 25.8 | |||||
EARNINGS (LOSS) PER SHARE - BASIC | |||||||
Continuing operations | $ .50 | $ .18 | |||||
Discontinued operations | .00 | (.01 | ) | ||||
$ .50 | $ .17 | ||||||
EARNINGS (LOSS) PER SHARE - DILUTED | |||||||
Continuing operations | $ .50 | $ .18 | |||||
Discontinued operations | .00 | (.01 | ) | ||||
$ .50 | $ .17 | ||||||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | |||||||
Basic | 151.8 | 150.8 | |||||
Diluted | 152.6 | 151.0 | |||||
CASH DIVIDENDS PER COMMON SHARE | $ .025 | $ .025 |
The accompanying notes are an integral part of these financial statements. |
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Three Months Ended | Nine Months Ended | |||||||||||
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June 30, | September 30, | |||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||
OPERATING REVENUES | $ | 248.6 | $ | 170.9 | $737.1 | $536.0 | ||||||
OPERATING EXPENSES | ||||||||||||
Contract drilling | 111.0 | 102.1 | 336.3 | 306.6 | ||||||||
Depreciation and amortization | 38.7 | 34.1 | 115.8 | 102.0 | ||||||||
General and administrative | 6.2 | 7.4 | 19.1 | 19.9 | ||||||||
155.9 | 143.6 | 471.2 | 428.5 | |||||||||
OPERATING INCOME | 92.7 | 27.3 | 265.9 | 107.5 | ||||||||
OTHER INCOME (EXPENSE) | ||||||||||||
Interest income | 1.8 | .8 | 4.9 | 2.5 | ||||||||
Interest expense, net | (8.0) | (9.7) | (22.3 | ) | (28.4 | ) | ||||||
Other, net | (2.0) | 1.0 | (3.4 | ) | (.5 | ) | ||||||
(8.2) | (7.9) | (20.8 | ) | (26.4 | ) | |||||||
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | 84.5 | 19.4 | 245.1 | 81.1 | ||||||||
PROVISION FOR INCOME TAXES | ||||||||||||
Current income tax expense | 22.8 | 1.8 | 63.1 | 1.8 | ||||||||
Deferred income tax expense | 2.6 | 2.6 | 6.2 | 16.8 | ||||||||
25.4 | 4.4 | 69.3 | 18.6 | |||||||||
INCOME FROM CONTINUING OPERATIONS | 59.1 | 15.0 | 175.8 | 62.5 | ||||||||
DISCONTINUED OPERATIONS | ||||||||||||
Gain (loss) from discontinued operations, net | (.7) | 2.5 | ||||||||||
Income from discontinued operations, net | .9 | 1.8 | ||||||||||
Gain on disposal of discontinued operations, net | 11.6 | -- | 11.6 | -- | ||||||||
10.9 | 2.5 | 12.5 | 1.8 | |||||||||
NET INCOME | $ | 70.0 | $ | 17.5 | $188.3 | $ 64.3 | ||||||
EARNINGS PER SHARE - BASIC | ||||||||||||
Continuing operations | $ | .39 | $ | .10 | $ 1.16 | $ .41 | ||||||
Discontinued operations | .07 | .02 | .08 | .02 | ||||||||
$ | .46 | $ | .12 | $ 1.24 | $ .43 | |||||||
EARNINGS PER SHARE - DILUTED | ||||||||||||
Continuing operations | $ | .39 | $ | .10 | $ 1.16 | $ .41 | ||||||
Discontinued operations | .07 | .02 | .08 | .02 | ||||||||
$ | .46 | $ | .12 | $ 1.24 | $ .43 | |||||||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | ||||||||||||
Basic | 151.3 | 150.8 | 151.3 | 150.7 | ||||||||
Diluted | 151.6 | 150.8 | 151.9 | 150.8 | ||||||||
CASH DIVIDENDS PER SHARE | $ | .025 | $ | .025 | ||||||||
CASH DIVIDENDS PER COMMON SHARE | $ .075 | $ .075 |
The accompanying notes are an integral part of these financial statements. |
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Six Months Ended | |||||||
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June 30, | |||||||
2005 | 2004 | ||||||
OPERATING REVENUES | $ | 460.4 | $ | 349.0 | |||
OPERATING EXPENSES | |||||||
Contract drilling | 219.2 | 204.9 | |||||
Depreciation and amortization | 76.0 | 67.7 | |||||
General and administrative | 12.4 | 13.1 | |||||
307.6 | 285.7 | ||||||
OPERATING INCOME | 152.8 | 63.3 | |||||
OTHER INCOME (EXPENSE) | |||||||
Interest income | 2.9 | 1.6 | |||||
Interest expense, net | (15.8) | (19.7) | |||||
Other, net | 1.8 | .9 | |||||
(11.1) | (17.2) | ||||||
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | 141.7 | 46.1 | |||||
PROVISION FOR INCOME TAXES | |||||||
Current income tax expense | 37.8 | 3.6 | |||||
Deferred income tax expense | 4.2 | 7.7 | |||||
42.0 | 11.3 | ||||||
INCOME FROM CONTINUING OPERATIONS | 99.7 | 34.8 | |||||
DISCONTINUED OPERATIONS | |||||||
Gain from discontinued operations, net | .5 | 3.7 | |||||
Gain on disposal of discontinued operations, net | 11.6 | -- | |||||
12.1 | 3.7 | ||||||
NET INCOME | $ | 111.8 | $ | 38.5 | |||
EARNINGS PER SHARE - BASIC | |||||||
Continuing operations | $ | .66 | $ | .23 | |||
Discontinued operations | .08 | .03 | |||||
$ | .74 | $ | .26 | ||||
EARNINGS PER SHARE - DILUTED | |||||||
Continuing operations | $ | .66 | $ | .23 | |||
Discontinued operations | .08 | .03 | |||||
$ | .74 | $ | .26 | ||||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | |||||||
Basic | 151.1 | 150.7 | |||||
Diluted | 151.5 | 150.8 | |||||
CASH DIVIDENDS PER SHARE | $ | .05 | $ | .05 |
September 30, | December 31, | ||||
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2005 | 2004 | ||||
(Unaudited) | |||||
ASSETS | |||||
CURRENT ASSETS | |||||
Cash and cash equivalents | $ 232.2 | $ 267.0 | |||
Accounts receivable, net | 217.5 | 183.0 | |||
Prepaid expenses and other | 47.2 | 43.7 | |||
Total current assets | 496.9 | 493.7 | |||
PROPERTY AND EQUIPMENT, AT COST | 3,621.6 | 3,445.5 | |||
Less accumulated depreciation | 982.6 | 1,014.2 | |||
Property and equipment, net | 2,639.0 | 2,431.3 | |||
GOODWILL | 336.2 | 341.0 | |||
OTHER ASSETS, NET | 37.7 | 56.0 | |||
$3,509.8 | $3,322.0 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||
CURRENT LIABILITIES | |||||
Accounts payable | $ 17.8 | $ 15.6 | |||
Accrued liabilities | 185.7 | 177.2 | |||
Current maturities of long-term debt | 17.2 | 23.0 | |||
Total current liabilities | 220.7 | 215.8 | |||
LONG-TERM DEBT | 483.9 | 527.1 | |||
DEFERRED INCOME TAXES | 356.1 | 375.3 | |||
OTHER LIABILITIES | 22.7 | 21.9 | |||
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, | |||||
176.6 million and 174.5 million shares issued | 17.7 | 17.5 | |||
Additional paid-in capital | 1,492.2 | 1,420.0 | |||
Retained earnings | 1,193.2 | 1,016.3 | |||
Restricted stock (unearned compensation) | (15.9 | ) | (12.5 | ) | |
Accumulated other comprehensive loss | (10.1 | ) | (9.0 | ) | |
Treasury stock, at cost, 23.4 million shares | (250.7 | ) | (250.4 | ) | |
Total stockholders' equity | 2,426.4 | 2,181.9 | |||
$3,509.8 | $3,322.0 | ||||
The accompanying notes are an integral part of these financial statements. |
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June 30, | December 31, | ||||
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2005 | 2004 | ||||
(Unaudited) | |||||
ASSETS | |||||
CURRENT ASSETS | |||||
Cash and cash equivalents | $ | 296.9 | $ | 267.0 | |
Accounts receivable, net | 188.4 | 183.0 | |||
Prepaid expenses and other | 42.8 | 43.7 | |||
Total current assets | 528.1 | 493.7 | |||
PROPERTY AND EQUIPMENT, AT COST | 3,454.0 | 3,445.5 | |||
Less accumulated depreciation | 948.9 | 1,014.2 | |||
Property and equipment, net | 2,505.1 | 2,431.3 | |||
GOODWILL | 336.2 | 341.0 | |||
OTHER ASSETS, NET | 33.8 | 56.0 | |||
$ | 3,403.2 | $ | 3,322.0 | ||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||
CURRENT LIABILITIES | |||||
Accounts payable | $ | 23.3 | $ | 15.6 | |
Accrued liabilities | 198.0 | 177.2 | |||
Current maturities of long-term debt | 17.2 | 23.0 | |||
Total current liabilities | 238.5 | 215.8 | |||
LONG-TERM DEBT | 483.9 | 527.1 | |||
DEFERRED INCOME TAXES | 355.6 | 375.3 | |||
OTHER LIABILITIES | 17.0 | 21.9 | |||
COMMITMENTS AND CONTINGENCIES | |||||
STOCKHOLDERS' EQUITY | |||||
Preferred stock, $1 par value, 20.0 million shares authorized, | |||||
none issued | -- | -- | |||
Common stock, $.10 par value, 250.0 million shares authorized, | |||||
175.4 million and 174.5 million shares issued | 17.5 | 17.5 | |||
Additional paid-in capital | 1,447.7 | 1,420.0 | |||
Retained earnings | 1,120.5 | 1,016.3 | |||
Restricted stock (unearned compensation) | (16.7) | (12.5) | |||
Accumulated other comprehensive loss | (10.2) | (9.0) | |||
Treasury stock, at cost, 23.4 million shares | (250.6) | (250.4) | |||
Total stockholders' equity | 2,308.2 | 2,181.9 | |||
$ | 3,403.2 | $ | 3,322.0 | ||
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Six Months Ended | ||||||||||
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June 30, | Nine Months Ended September 30, | |||||||||
2005 | 2004 | 2005 | 2004 | |||||||
OPERATING ACTIVITIES | ||||||||||
Net income | $ | 111.8 | $ | 38.5 | $188.3 | $ 64.3 | ||||
Adjustments to reconcile net income to net cash | ||||||||||
provided by operating activities: | ||||||||||
Gain from discontinued operations | (.5) | (3.7) | ||||||||
Adjustments to reconcile net income to net cash provided | ||||||||||
by operating activities: | ||||||||||
Income from discontinued operations | (.9 | ) | (1.8 | ) | ||||||
Gain on disposal of discontinued operations, net | (11.6) | -- | (11.6 | ) | -- | |||||
Depreciation and amortization | 76.0 | 67.7 | 115.8 | 102.0 | ||||||
Expense for redemption of debt | 2.4 | -- | 2.4 | -- | ||||||
Deferred income tax provision | 4.2 | 7.7 | 6.2 | 16.8 | ||||||
Tax benefit from stock compensation | 1.2 | 1.8 | 4.3 | 1.9 | ||||||
Amortization of other assets | 3.0 | 3.1 | 4.7 | 4.6 | ||||||
Net loss on asset dispositions | 3.4 | .3 | ||||||||
Net (gain) loss on asset dispositions | 3.5 | (.3 | ) | |||||||
Other | 1.8 | 1.5 | 3.0 | 2.7 | ||||||
Changes in operating assets and liabilities: | ||||||||||
(Increase) decrease in accounts receivable | (5.4) | 4.5 | ||||||||
(Increase) decrease in prepaid expenses and other assets | (7.2) | 5.7 | ||||||||
Increase in accounts receivable | (34.3 | ) | (1.6 | ) | ||||||
Increase in prepaid expenses and other assets | (19.0 | ) | (1.3 | ) | ||||||
Increase in accounts payable | 7.7 | 1.6 | 2.2 | 10.5 | ||||||
Decrease in accrued liabilities | (17.3) | (9.5) | (19.2 | ) | (13.3 | ) | ||||
Net cash provided by operating activities of continuing operations | 169.5 | 119.2 | 245.4 | 184.5 | ||||||
INVESTING ACTIVITIES | ||||||||||
Additions to property and equipment | (223.6) | (179.7) | (401.8 | ) | (247.5 | ) | ||||
Net proceeds from disposal of discontinued operations | 121.0 | -- | 121.0 | -- | ||||||
Proceeds from disposition of assets | 4.8 | 1.3 | 6.0 | 2.1 | ||||||
Investment in joint venture | (4.0) | (5.3) | (4.0 | ) | (6.0 | ) | ||||
Net cash used by investing activities of continuing operations | (101.8) | (183.7) | (278.8 | ) | (251.4 | ) | ||||
FINANCING ACTIVITIES | ||||||||||
Reduction of long-term borrowings | (49.7) | (11.5) | (49.7 | ) | (14.5 | ) | ||||
Cash dividends paid | (7.6) | (7.5) | (11.4 | ) | (11.3 | ) | ||||
Proceeds from exercise of stock options | 21.3 | 4.8 | 62.9 | 6.2 | ||||||
Deferred financing costs | (.6) | -- | (.7 | ) | -- | |||||
Premium related to debt redemption | (1.8) | -- | (1.8 | ) | -- | |||||
Other | (.2) | (.1) | (.3 | ) | (.1 | ) | ||||
Net cash used by financing activities of continuing operations | (38.6) | (14.3) | ||||||||
Net cash used in financing activities of continuing operations | (1.0 | ) | (19.7 | ) | ||||||
Effect of exchange rate changes on cash and cash equivalents | (1.0) | (.8) | (1.1 | ) | (1.0 | ) | ||||
Net cash provided by discontinued operations | 1.8 | 8.8 | .7 | 14.3 | ||||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 29.9 | (70.8) | ||||||||
DECREASE IN CASH AND CASH EQUIVALENTS | (34.8 | ) | (73.3 | ) | ||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 267.0 | 354.0 | 267.0 | 354.0 | ||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 296.9 | $ | 283.2 | $232.2 | $280.7 |
The accompanying notes are an integral part of these financial statements. |
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Note 1 - Unaudited Condensed Financial Statements The accompanying condensed consolidated financial statements of ENSCO International Incorporated and subsidiaries (the "Company") have been prepared in accordance with U.S. The financial data for the three-month and Results of operations for the three-month and
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• | During the third quarter 2005, the Company | |
• | On June 30, 2005, the Company sold its six South America/Caribbean barge rigs (see "Note 5 - Discontinued Operations" | |
• | In June 2005, the Company | |
• | In March and April 2005, the Company finalized the accounting for | |
• | In February 2005, the Company acquired the ENSCO 106 jackup rig from an affiliated joint venture (see "Note 6 - Investment in Joint Ventures"). | |
• | During January 2005, the Company transferred a drilling rig between |
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For the three-month and |
Three Months | Six Months | Three Months | Nine Months | |||||||||||||||
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Ended June 30, | Ended June 30, | Ended September 30, | ||||||||||||||||
2005 | 2004 | 2005 | 2004 | 2005 | 2004 | 2005 | 2004 | |||||||||||
Weighted average common shares - basic | 151.3 | 150.8 | 151.1 | 150.7 | ||||||||||||||
Weighted average common shares-basic | 151.8 | 150.8 | 151.3 | 150.7 | ||||||||||||||
Potentially dilutive common shares: | ||||||||||||||||||
Stock options | .7 | .1 | .5 | .1 | ||||||||||||||
Restricted stock grants | -- | .0 | -- | .0 | .1 | .1 | .1 | -- | ||||||||||
Stock options | .3 | .0 | .4 | .1 | ||||||||||||||
Weighted average common shares - diluted | 151.6 | 150.8 | 151.5 | 150.8 | ||||||||||||||
Weighted average common shares-diluted | 152.6 | 151.0 | 151.9 | 150.8 | ||||||||||||||
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Note 3 - Stock-Based Employee Compensation |
In May 2005, the Company's stockholders approved the 2005 Long-Term Incentive Plan (the "2005 Plan"). The 2005 Plan is similar to and will essentially replace the Company's previously adopted 1998 Incentive Plan and 1996 Non-Employee Directors' Stock Option Plan. No further awards will be granted under the previously adopted plans, however, those plans shall continue to apply to and govern awards made under those plans. Under the 2005 Plan, a maximum of 10.0 million shares are reserved for issuance as awards of stock options and restricted stock to officers, employees and non-employee directors. Stock options granted to officers and employees generally become exercisable in 25% increments over a four-year period and to the extent not exercised, expire on the seventh anniversary of the date of grant. Stock options granted to non-employee directors generally are immediately exercisable and to the extent not exercised, expire on the seventh anniversary of the date of grant. The exercise price of stock options granted under the 2005 Plan equals the market value of the underlying stock on the date of grant. Restricted stock awards to officers, employees and non-employee directors generally vest in 20% increments over a five-year period. |
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Three Months | Six Months | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
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Ended June 30, | Ended June 30, | 2005 | 2004 | 2005 | 2004 | |||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||||
Net income, as reported | $76.5 | $25.8 | $188.3 | $64.3 | ||||||||||||||
Less stock-based employee compensation expense, net of tax | (2.2 | ) | (2.5 | ) | (7.0 | ) | (7.0 | ) | ||||||||||
Net income as reported | $70.0 | $17.5 | $111.8 | $38.5 | ||||||||||||||
Less stock-based employee compensation expense, net of tax | (2.3 | ) | (2.2 | ) | (4.8 | ) | (4.5 | ) | ||||||||||
Pro forma net income | $67.7 | $15.3 | $107.0 | $34.0 | $74.3 | $23.3 | $181.3 | $57.3 | ||||||||||
Basic earnings per share: | ||||||||||||||||||
As reported | $ .46 | $ .12 | $ .74 | $ .26 | $ .50 | $ .17 | $1.24 | $ .43 | ||||||||||
Pro forma | .45 | .10 | .71 | .23 | .49 | .15 | 1.20 | .38 | ||||||||||
Diluted earnings per share: | ||||||||||||||||||
As reported | $ .46 | $ .12 | $ .74 | $ .26 | $ .50 | $ .17 | $1.24 | $ .43 | ||||||||||
Pro forma | .45 | .10 | .71 | .23 | .49 | .15 | 1.19 | .38 | ||||||||||
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Three Months Ended | Six Months Ended | Three Months | Nine Months | |||||||||||||||
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June 30, | June 30, | Ended September 30, | Ended September 30, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | 2005 | 2004 | 2005 | 2004 | |||||||||||
Net income | $70.0 | $17.5 | $111.8 | $38.5 | $76.5 | $25.8 | $188.3 | $64.3 | ||||||||||
Other comprehensive income (loss): | ||||||||||||||||||
Net change in fair value of derivatives | (1.0 | ) | (1.0 | ) | (1.5 | ) | (1.4 | ) | .6 | .6 | (.9 | ) | (.8 | ) | ||||
Reclassification of unrealized gains and losses on | ||||||||||||||||||
derivatives from other comprehensive income | ||||||||||||||||||
(loss) into net income | .6 | .3 | .3 | .6 | (.5 | ) | .4 | (1.3 | ) | 1.0 | ||||||||
Foreign currency translation adjustment | -- | -- | 1.1 | -- | ||||||||||||||
Other | -- | (.6 | ) | -- | (.6 | ) | ||||||||||||
Net other comprehensive loss | (.4 | ) | (.7 | ) | (1.2 | ) | (.8 | ) | ||||||||||
Net other comprehensive income (loss) | .1 | .4 | (1.1 | ) | (.4 | ) | ||||||||||||
Total comprehensive income | $69.6 | $16.8 | $110.6 | $37.7 | ||||||||||||||
Comprehensive income | $76.6 | $26.2 | $187.2 | $63.9 | ||||||||||||||
The components of the accumulated other comprehensive loss section of stockholders' equity at |
June 30, | December 31, | September 30, | December 31, | |||||||
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2005 | 2004 | 2005 | 2004 | |||||||
Net unrealized losses on derivatives, net of tax | $10.2 | $7.9 | $10.1 | $7.9 | ||||||
Cumulative translation adjustment | -- | 1.1 | -- | 1.1 | ||||||
Total accumulated other comprehensive loss | $10.2 | $9.0 | ||||||||
Accumulated other comprehensive loss | $10.1 | $9.0 | ||||||||
The estimated amount of net unrealized losses on derivative instruments, net of tax at |
$ .7 | |||||
Unrealized losses to be reclassified to interest expense | 1.2 | ||||
Net unrealized losses to be reclassified to earnings | $1.9 | ||||
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Three Months | Nine Months | ||||||||
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Ended September 30, | Ended September 30, | ||||||||
2005 | 2004 | 2005 | 2004 | ||||||
Revenues | $ -- | $3.9 | $ 8.8 | $25.4 | |||||
Operating expenses and other | (1.0 | ) | 5.1 | 6.4 | 21.7 | ||||
Operating income (loss) before income taxes | 1.0 | (1.2 | ) | 2.4 | 3.7 | ||||
Income tax expense | (.6 | ) | (.7 | ) | (1.5 | ) | (1.9 | ) | |
Gain on disposal of discontinued operations, net | -- | -- | 11.6 | -- | |||||
Income (loss) from discontinued operations | $ .4 | $(1.9 | ) | $12.5 | $ 1.8 | ||||
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Three Months | Six Months | ||||||||
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Ended June 30, | Ended June 30, | ||||||||
2005 | 2004 | 2005 | 2004 | ||||||
Revenues | $ 3.6 | $10.5 | $ 8.8 | $21.5 | |||||
Operating expenses | 3.7 | 7.6 | 7.4 | 16.6 | |||||
Operating income (loss) before income taxes | (.1 | ) | 2.9 | 1.4 | 4.9 | ||||
Income tax expense | (.6 | ) | (.4 | ) | (.9 | ) | (1.2 | ) | |
Gain on disposal of discontinued operations, net | 11.6 | -- | 11.6 | -- | |||||
Income from discontinued operations | $10.9 | $ 2.5 | $12.1 | $ 3.7 | |||||
Note 6 - Investment in Joint VenturesDuring the fourth quarter of 2000, the Company entered into an agreement with KFELS and acquired a 25% ownership interest in a harsh environment jackup rig under construction, which was subsequently named ENSCO 102. Upon completion of rig construction in the second quarter of 2002, the Company and KFELS established a joint venture company, ENSCO Enterprises Limited ("EEL"), to own and charter ENSCO 102. The Company and KFELS had initial ownership interests in EEL of 25% and 75%, respectively. Concurrent with the transfer of the rig to EEL, the Company agreed to charter ENSCO 102 from EEL for a two-year period that was scheduled to expire in May 2004. |
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During the first quarter of 2003, the Company entered into an agreement with KFELS to establish a second joint venture company, ENSCO Enterprises Limited II ("EEL II"), to construct a premium heavy duty jackup rig to be named ENSCO 106. The Company and KFELS had initial ownership interests in EEL II of 25% and 75%, respectively. At December 31, 2004, the Company's net investment in EEL II totaled $23.2 million and is included in other assets, net on the consolidated balance sheet. Upon completion of rig construction in February 2005, the Company exercised its purchase option under the terms of the joint venture and acquired ENSCO 106 for a net payment of $79.6 million. EEL II was effectively liquidated upon the Company's acquisition of ENSCO 106. The Company's equity interest in EEL and EEL II constituted variable interests in variable interest entities, as defined in the Financial Accounting Standards Board's Interpretation No. 46 (revised December 2003), "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51" ("FIN 46R"). However, the Company did not absorb a majority of the expected losses or receive a majority of the expected residual returns of EEL and EEL II, as defined by FIN 46R, and accordingly, was not required to consolidate EEL or EEL II. Note 7 - |
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Note 8 - Long-Term Debt On June 23, 2005, the Company amended and restated its existing $250.0 million unsecured revolving credit agreement (the "Credit Agreement"). The amended and restated agreement (the "2005 Credit Facility") provides for a $350.0 million unsecured revolving credit facility with a syndicate of lenders for general corporate purposes. The 2005 Credit Facility has a five-year term, expiring June 23, 2010, and replaces the Company's $250.0 million five-year Credit Agreement that was scheduled to mature on July 26, 2007. Advances under the 2005 Credit Facility bear interest at LIBOR plus an applicable margin rate (currently .35% per annum), depending on the Company's credit rating. The Company pays a facility fee (currently .10% per annum) on the total $350.0 million commitment, which is also based on the Company's credit rating, and pays an additional utilization fee on outstanding advances if such advances equal or exceed 50% of the total $350.0 million commitment. The Company is required to maintain certain financial covenants under the 2005 Credit Facility, including a specified level of interest coverage and debt to total capitalization ratio. The Company had no amounts outstanding under the 2005 Credit Facility In connection with a prior acquisition, the Company assumed 5.63% bonds that were issued to provide long-term financing for ENSCO 76. The bonds were guaranteed by MARAD and were being repaid in 24 equal semiannual principal installments of $2.9 million ending in July 2011. On June 15, 2005, the Company redeemed the bonds for $40.9 million, including $900,000 of accrued interest and a $1.8 million redemption premium. The $1.8 million redemption premium and a $600,000 unamortized debt discount are included in "Other income (expense) - Other, net" in the consolidated statement of income for the nine-month period ended September 30, 2005. Note 9 - ContingenciesHurricane Damage During the third quarter 2005, several of the Company's drilling rigs in the Gulf of Mexico were in the path of two major storms, Hurricane Katrina and Hurricane Rita. Physical damage to the Company's rigs caused by a hurricane, as well as the related removal and recovery costs, are covered by insurance subject to a deductible. The Company maintains insurance coverage under multiple insurance policies that subject the Company to escalating deductibles, the amount of which depends on the type of rig damaged and the magnitude of the damage sustained by rig type. However, all losses incurred as a result of a single hurricane (an "occurrence") are limited to a maximum aggregate deductible of $5.5 million. The most significant damage to the Company's drilling rigs resulted from Hurricane Katrina, with severe damage sustained by the ENSCO 29 platform rig. Analysis of the damage is ongoing and the Company is currently unable to determine when it will be completed or when the associated insurance claim will be finalized. Based on preliminary analysis of the damage performed by the Company and its insurance underwriters, the Company believes it is likely that ENSCO 29 will be declared a constructive total loss under the terms of its insurance policies. If this is the case, the Company will transfer beneficial ownership in the rig to underwriters and receive $10.0 million. The net book value of ENSCO 29 is $7.5 million. Preliminary inspections indicate the hull of ENSCO 7500 sustained some damage during Hurricane Katrina. While the damage is believed to be minor and the rig continues to work under its existing contract, the Company and its insurance underwriters have not completed an analysis of the damage. The ENSCO 7500 is expected to complete its existing contract on or about October 31, 2005, and was previously scheduled to enter a shipyard for minor enhancement and preparatory work for its pending two year contract. The Company plans to extend the shipyard stay to an estimated 30 days to accommodate completion of the hull repairs. |
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Although several of the Company's jackup rigs were in the path of Hurricane Rita, the Company has detected only minor damage to those rigs and the associated repair costs incurred, or expected to be incurred, are not significant. In addition, none of the Company's jackup rigs experienced, or is expected to experience, significant downtime in order to complete damage repairs as a result of this hurricane. Other Contingencies |
The Company has In August 2004, the Company and certain subsidiaries were named as defendants in three multi-party lawsuits filed in Mississippi State courts involving numerous other companies as co-defendants. The lawsuits seek an unspecified amount of monetary damages on behalf of approximately 120 named individuals alleging personal injury or death, including claims under the Jones Act, purportedly resulting from exposure to asbestos on drilling rigs and associated facilities during the period 1965 through 1986. The lawsuits are in |
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The Company and its subsidiaries are named defendants in certain lawsuits and are involved from time to time as parties to governmental proceedings, including matters related to taxation, all arising in the ordinary course of business. Although the outcome of lawsuits or other proceedings involving the Company and its subsidiaries cannot be predicted with certainty and the amount of any liability that could arise with respect to such lawsuits or other proceedings cannot be predicted accurately, management does not expect these matters to have a material effect on the financial position, results of operations or cash flows of the Company. Note 10 - Resolution of Insurance Claims Relating to Hurricane Ivan DamageTwo of the Company's drilling rigs, the ENSCO 64 jackup rig and ENSCO 25 platform rig, sustained damage during Hurricane Ivan in September 2004. The physical damage to the rigs, as well as the related removal, salvage and recovery costs, was covered by insurance, subject to an aggregate escalating deductible of up to $5.5 million. Damage to ENSCO 64 was substantial and upon initial evaluation it was not possible to determine whether ENSCO 64 would be declared a constructive total loss ("CTL") under the terms of the Company's insurance policies. If ENSCO 64 were to be declared a CTL, the Company would transfer its interest in the rig to underwriters and receive the rig's insured value of $65.0 million, with no deductible applicable. Due to the uncertainties involved and difficulties associated with estimating the damage sustained by the two rigs, the Company recognized a $5.5 million loss, representing its aggregate insurance deductible, during the third quarter of 2004. The loss is included in "Other income (expense) - Other, net" in the consolidated statements of income for the three-month and nine-month periods ended September 30, 2004. On April 15, 2005, the Company's insurance underwriters completed their analysis of the damage to ENSCO 64 and declared the rig a CTL. Accordingly, the Company transferred beneficial ownership of ENSCO 64 to insurance underwriters and received the rig's insured value of $65.0 million, which resulted in a pre-tax gain of approximately $11.7 million included in "Gain on disposal of discontinued operations, net" in the consolidated statement of income for the nine-month period ended September 30, 2005. Damage to ENSCO 25 was less extensive than that of ENSCO 64, and the rig returned to service in late February 2005 after completion of the damage assessment and repair work. The Company recognized a net gain of $3.1 million during the first quarter of 2005, which consists of the excess of the $5.5 million provision recognized during the third quarter of 2004 for the aggregate insurance deductible over the $2.4 million loss realized in connection with the ENSCO 25 repair work. The $3.1 million net gain is included in "Other income (expense) - Other, net" in the consolidated statement of income for the nine-month period ended September 30, 2005. |
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• | demand for oil and gas, | |
• | regional and global economic conditions and expected changes therein, | |
• | political and legislative environments in the U.S. and other major oil-producing countries, | |
• | production levels and related activities of OPEC and other oil and gas producers, and | |
• | the impact that these and other events have on the current and expected future pricing of oil and natural | |
gas |
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The Company's drilling rigs are deployed throughout the world, with drilling operations concentrated in the major geographic regions of North America, Europe/Africa, and Asia Pacific (which includes Asia, the Middle East and Australia). The Company competes with other offshore drilling contractors on the basis of price, quality of service, operational and safety performance, equipment suitability and availability, reputation and technical expertise. Competition is usually on a regional basis, but offshore drilling rigs are mobile and may generally be moved from one region to another in response to demand. BUSINESS ENVIRONMENT The Company's North America offshore drilling operations are conducted in the Gulf of Mexico. The U.S. natural gas market and trends in oil and gas company spending largely determine offshore drilling industry conditions in this region. The supply of jackup rigs in the Gulf of Mexico declined from prior year levels during 2004 as the Company and some of its competitors mobilized rigs from this market to international markets. |
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Demand for jackup rigs in most Asia Pacific region markets was strong during 2004, as many of the major international and government-owned oil companies increased spending in those markets. However, Asia Pacific region day rates remained relatively stable over the course of 2004, as the Company and some of its competitors mobilized additional rigs to the region in response to the increased demand. |
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On June 30, 2005, the Company sold its six South America/Caribbean barge rigs. The operating results of the six South America/Caribbean barge rigs have been reclassified as discontinued operations in the consolidated statements of income for the three-month and The ENSCO 64 jackup rig, which was substantially damaged by Hurricane Ivan in September 2004, was declared a constructive total loss on April 15, 2005 under the terms of the Company's insurance policies. Accordingly, the Company transferred beneficial ownership of ENSCO 64 to insurance underwriters and the operating results of ENSCO 64 have been reclassified as discontinued operations in the consolidated statements of income for the three-month period ended September 30, 2004 and In May 2004, the Company transferred three rigs (ENSCO 23, ENSCO 24 and ENSCO 55) to Keppel FELS Limited ("KFELS") as partial payment for the construction of a new high performance premium jackup rig that is scheduled for delivery in early 2006. The results of operations of ENSCO 23, ENSCO 24 and ENSCO 55 have been reclassified as discontinued operations in the consolidated statement of income for the |
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Three Months Ended | Six Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||
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June 30, | June 30, | September 30, | ||||||||||||||||
2005 | 2004 | 2005 | 2004 | 2005 | 2004 | 2005 | 2004 | |||||||||||
Operating Results | ||||||||||||||||||
Revenues | $248.6 | $170.9 | $460.4 | $349.0 | $276.7 | $187.0 | $737.1 | $536.0 | ||||||||||
Operating expenses | ||||||||||||||||||
Contract drilling | 111.0 | 102.1 | 219.2 | 204.9 | 117.1 | 101.7 | 336.3 | 306.6 | ||||||||||
Depreciation and amortization | 38.7 | 34.1 | 76.0 | 67.7 | 39.8 | 34.3 | 115.8 | 102.0 | ||||||||||
General and administrative | 6.2 | 7.4 | 12.4 | 13.1 | 6.7 | 6.8 | 19.1 | 19.9 | ||||||||||
Operating income | 92.7 | 27.3 | 152.8 | 63.3 | 113.1 | 44.2 | 265.9 | 107.5 | ||||||||||
Other income (expense), net | (8.2 | ) | (7.9 | ) | (11.1 | ) | (17.2 | ) | ||||||||||
Other expense, net | 9.7 | 9.2 | 20.8 | 26.4 | ||||||||||||||
Provision for income taxes | 25.4 | 4.4 | 42.0 | 11.3 | 27.3 | 7.3 | 69.3 | 18.6 | ||||||||||
Income from continuing operations | 59.1 | 15.0 | 99.7 | 34.8 | 76.1 | 27.7 | 175.8 | 62.5 | ||||||||||
Income from discontinued operations | 10.9 | 2.5 | 12.1 | 3.7 | ||||||||||||||
Income (loss) from discontinued operations | .4 | (1.9 | ) | 12.5 | 1.8 | |||||||||||||
Net income | $ 70.0 | $ 17.5 | $111.8 | $ 38.5 | $76.5 | $25.8 | $188.3 | $64.3 |
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For the |
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The following is an analysis of the Company's revenues, contract drilling expense, rig utilization and average day rates from continuing operations for the three-month and |
Three Months Ended | Six Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||
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June 30, | June 30, | September 30, | September 30, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | 2005 | 2004 | 2005 | 2004 | |||||||||||
Revenues | ||||||||||||||||||
Jackup rigs: | ||||||||||||||||||
North America | $ 82.8 | $ 56.9 | $156.4 | $117.9 | $ 89.9 | $ 59.1 | $246.3 | $177.0 | ||||||||||
Europe/Africa | 53.1 | 29.0 | 93.6 | 66.6 | 71.9 | 37.0 | 165.5 | 103.6 | ||||||||||
Asia Pacific | 90.5 | 70.2 | 168.7 | 123.2 | 86.7 | 72.4 | 255.4 | 195.6 | ||||||||||
South America/Caribbean | -- | 7.6 | 4.0 | 15.7 | -- | 8.2 | 4.0 | 23.9 | ||||||||||
Total jackup rigs | 226.4 | 163.7 | 422.7 | 323.4 | 248.5 | 176.7 | 671.2 | 500.1 | ||||||||||
Semisubmersible rig - North America | 11.9 | .1 | 19.5 | 12.0 | 17.9 | 2.8 | 37.4 | 14.8 | ||||||||||
Barge rig - Asia Pacific | 4.6 | 4.4 | 9.2 | 8.2 | 5.1 | 4.9 | 14.3 | 13.1 | ||||||||||
Platform rigs - North America | 5.7 | 2.7 | 9.0 | 5.4 | 5.2 | 2.6 | 14.2 | 8.0 | ||||||||||
Total | $248.6 | $170.9 | $460.4 | $349.0 | $276.7 | $187.0 | $737.1 | $536.0 | ||||||||||
Contract Drilling Expense | ||||||||||||||||||
Jackup rigs: | ||||||||||||||||||
North America | $ 30.6 | $ 35.0 | $ 62.8 | $ 70.7 | $ 33.7 | $ 29.5 | $ 96.5 | $100.2 | ||||||||||
Europe/Africa | 25.8 | 20.9 | 52.0 | 46.0 | 27.8 | 24.5 | 79.8 | 70.5 | ||||||||||
Asia Pacific | 42.8 | 34.7 | 79.2 | 65.5 | 44.6 | 35.5 | 123.8 | 101.0 | ||||||||||
South America/Caribbean | -- | 3.5 | 2.5 | 6.7 | -- | 3.0 | 2.5 | 9.7 | ||||||||||
Total jackup rigs | 99.2 | 94.1 | 196.5 | 188.9 | 106.1 | 92.5 | 302.6 | 281.4 | ||||||||||
Semisubmersible rig - North America | 5.5 | 3.3 | 11.3 | 7.6 | 4.8 | 4.0 | 16.1 | 11.6 | ||||||||||
Barge rig - Asia Pacific | 2.3 | 2.3 | 4.6 | 4.2 | 2.1 | 2.4 | 6.7 | 6.6 | ||||||||||
Platform rigs - North America | 4.0 | 2.4 | 6.8 | 4.2 | 4.1 | 2.8 | 10.9 | 7.0 | ||||||||||
Total | $111.0 | $102.1 | $219.2 | $204.9 | $117.1 | $101.7 | $336.3 | $306.6 | ||||||||||
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Three Months Ended | Six Months Ended | ||||||||
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June 30, | June 30, | ||||||||
2005 | 2004 | 2005 | 2004 | ||||||
Rig Utilization(1) | |||||||||
Rig utilization: | |||||||||
Jackup rigs: | |||||||||
North America | 86% | 86% | 87% | 86% | |||||
Europe/Africa | 96% | 66% | 92% | 78% | |||||
Asia Pacific | 87% | 87% | 86% | 82% | |||||
South America/Caribbean | -- | 90% | 100% | 94% | |||||
Total jackup rigs | 88% | 82% | 88% | 83% | |||||
Semisubmersible rig - North America | 92% | 0% | 81% | 33% | |||||
Barge rig - Asia Pacific | 96% | 100% | 97% | 100% | |||||
Platform rigs - North America | 66% | 33% | 66% | 33% | |||||
Total | 87% | 78% | 86% | 79% | |||||
Average day rates:(2) | |||||||||
Jackup rigs: | |||||||||
North America | $ 60,820 | $ 38,344 | $ 57,238 | $ 38,465 | |||||
Europe/Africa | 75,667 | 62,131 | 70,449 | 58,771 | |||||
Asia Pacific | 65,737 | 61,862 | 65,220 | 62,747 | |||||
South America/Caribbean | -- | 89,957 | 77,589 | 89,790 | |||||
Total jackup rigs | 65,434 | 51,344 | 62,784 | 50,820 | |||||
Semisubmersible rig - North America | 141,788 | -- | 133,648 | 184,815 | |||||
Barge rig - Asia Pacific | 52,249 | 47,867 | 51,128 | 44,828 | |||||
Platform rigs - North America | 29,476 | 29,475 | 28,926 | 28,980 | |||||
Total | $ 65,446 | $ 50,697 | $ 62,998 | $ 51,468 | |||||
Three Months Ended | Nine Months Ended | ||||||||
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September 30, | September 30, | ||||||||
2005 | 2004 | 2005 | 2004 | ||||||
Rig Utilization:(1) | |||||||||
Jackup rigs: | |||||||||
North America | 82% | 84% | 85% | 85% | |||||
Europe/Africa | 100% | 77% | 94% | 78% | |||||
Asia Pacific | 82% | 83% | 84% | 82% | |||||
South America/Caribbean | -- | 100% | 100% | 96% | |||||
Total jackup rigs | 85% | 82% | 87% | 83% | |||||
Semisubmersible rig - North America | 98% | 36% | 86% | 34% | |||||
Barge rig - Asia Pacific | 99% | 100% | 98% | 100% | |||||
Platform rigs - North America | 55% | 33% | 62% | 33% | |||||
Total | 84% | 78% | 85% | 79% | |||||
Average day rates:(2) | |||||||||
Jackup rigs: | |||||||||
North America | $ 69,348 | $ 42,743 | $ 61,171 | $ 39,799 | |||||
Europe/Africa | 94,062 | 62,767 | 79,030 | 60,044 | |||||
Asia Pacific | 71,895 | 63,355 | 67,338 | 62,979 | |||||
South America/Caribbean | -- | 88,791 | 77,589 | 89,441 | |||||
Total jackup rigs | 75,376 | 54,930 | 66,935 | 52,201 | |||||
Semisubmersible rig - North America | 185,828 | 86,605 | 153,547 | 149,966 | |||||
Barge rig - Asia Pacific | 51,846 | 51,777 | 51,372 | 47,161 | |||||
Platform rigs - North America | 33,668 | 30,384 | 30,703 | 29,401 | |||||
Total | $ 76,365 | $ 54,655 | $ 67,435 | $ 52,537 | |||||
(1) | Utilization is derived by dividing the number of days under contract by the number of days in the period. |
(2) | Average day rates are derived by dividing contract drilling revenue by the aggregate number of contract days, adjusted to exclude certain types of non-recurring reimbursable revenue and lump sum revenue and contract days associated with certain mobilizations, demobilizations, shipyard contracts and standby contracts. |
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Number of Rigs | Number of Rigs | |||||||||
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June 30, | September 30, | |||||||||
2005 | 2004 | 2005 | 2004 | |||||||
Jackup rigs: | ||||||||||
North America(1)(3) | 17 | 19 | ||||||||
North America(1) | 17 | 17 | ||||||||
Europe/Africa | 8 | 8 | 8 | 8 | ||||||
Asia Pacific(1)(2)(4) | 17 | 13 | ||||||||
Asia Pacific(2)(3) | 17 | 15 | ||||||||
South America/Caribbean(2) | -- | 1 | -- | 1 | ||||||
Total jackup rigs | 42 | 41 | 42 | 41 | ||||||
Semisubmersible rig - North America | 1 | 1 | 1 | 1 | ||||||
Barge rig - Asia Pacific | 1 | 1 | 1 | 1 | ||||||
Platform rigs - North America | 3 | 3 | 3 | 3 | ||||||
Total(5) | 47 | 46 | ||||||||
Total(4) | 47 | 46 | ||||||||
(1) |
(2) | During the first quarter of 2005, the Company mobilized ENSCO 76 from Trinidad and Tobago to a shipyard in the Gulf of Mexico for enhancement |
(3) |
Upon completion of its construction in the first quarter of 2005, the Company acquired ENSCO 106 from a joint venture in which the Company held a 25% interest. |
| The total number of rigs excludes ENSCO 107 (which commenced construction during the first quarter of 2004 and is expected to enter service in early 2006), ENSCO 108 (which commenced construction during April of 2005 and is expected to be delivered |
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For the Europe/Africa Jackup Rigs
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For the nine months ended September 30, 2005, revenues for the Asia Pacific jackup rigs increased by $59.8 million, or 31%, as compared to the prior year period. The increase in revenues is primarily due to the increased size of the Asia Pacific jackup rig fleet. The Company relocated three rigs to the Asia Pacific region during the second and third quarters of 2004 at which time the rigs were undergoing enhancement and contract preparation procedures. As noted above, the Company acquired ENSCO 106 in February
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ENSCO 76 completed a long-term contract in Trinidad and Tobago and subsequently mobilized from the region during the first quarter 2005. For the North America Semisubmersible Rig
For the |
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For the nine months ended September 30, 2005, revenues for the Asia Pacific barge rig increased $1.2 million, or 9%, and contract drilling expense was comparable to the prior year period. The increase in revenues is primarily due to a 9% increase in the average day rate of ENSCO I.
North America Platform Rigs
For the |
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Depreciation and amortization expense for the three-month and General and Administrative General and administrative expense for the three-month and |
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Three Months Ended | Six Months Ended | |||||||||||||||||
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June 30, | June 30, | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | 2005 | 2004 | 2005 | 2004 | |||||||||||
Interest income | $ 1.8 | $ .8 | $ 2.9 | $ 1.6 | $ 2.0 | $ .9 | $ 4.9 | $ 2.5 | ||||||||||
Interest expense, net: | ||||||||||||||||||
Interest expense | (9.6 | ) | (10.0 | ) | (19.3 | ) | (20.1 | ) | (8.8 | ) | (10.2 | ) | (28.1 | ) | (30.3 | ) | ||
Capitalized interest | 1.6 | .3 | 3.5 | .4 | 2.3 | 1.5 | 5.8 | 1.9 | ||||||||||
(8.0 | ) | (9.7 | ) | (15.8 | ) | (19.7 | ) | (6.5 | ) | (8.7 | ) | (22.3 | ) | (28.4 | ) | |||
Other, net | (2.0 | ) | 1.0 | 1.8 | .9 | (5.2 | ) | (1.4 | ) | (3.4 | ) | (.5 | ) | |||||
$(8.2 | ) | $ (7.9 | ) | $(11.1 | ) | $(17.2 | ) | $(9.7 | ) | $ (9.2 | ) | $(20.8 | ) | $(26.4 | ) | |||
Other, net, in the three-month period ended Other, net, in the nine-month period ended September 30, 2005 includes a $2.4 million expense for the unamortized discount and redemption premium incurred upon the redemption of the Company's 5.63% bonds on June 15, 2005 (see Note 8 to the Company's Consolidated Financial Statements) |
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The The Company's effective income tax rates for the three-month and nine-month periods ended September 30, 2005 were 26.4% and 28.3%, respectively, compared to effective income tax rates in the corresponding periods of The income tax provisions for the three-month and nine-month periods ended September 30, 2005 include a $5.4 million net benefit that results primarily from the resolution of various issues in connection with an audit by Discontinued Operations On June 30, 2005, the Company sold its six South America/Caribbean barge rigs for $59.6 million and recognized a pre-tax gain of $9.6 million, which is included in "Gain on disposal of discontinued operations, net" in the consolidated |
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The ENSCO 64 jackup rig sustained substantial damage during Hurricane Ivan in September 2004. On April 15, 2005, the Company's insurance underwriters completed their analysis of the damage to ENSCO 64 and declared the rig a constructive total loss under the terms of the Company's insurance policies. Accordingly, the Company transferred beneficial ownership of ENSCO 64 to insurance underwriters and received the rig's insured value of $65.0 million. On the date of transfer, the net book value of the rig was $52.8 million. The Company recognized a pre-tax gain of $11.7 million upon receipt of the insurance proceeds, which is included in "Gain on disposal of discontinued operations, net" in the consolidated |
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Following is a summary of income (loss) from discontinued operations for the three-month and |
Three Months | Six Months | Three Months | Nine Months | |||||||||||||||
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Ended June 30, | Ended June 30, | Ended September 30, | ||||||||||||||||
2005 | 2004 | 2005 | 2004 | 2005 | 2004 | 2005 | 2004 | |||||||||||
Revenues | $ 3.6 | $10.5 | $ 8.8 | $21.5 | $ -- | $3.9 | $ 8.8 | $25.4 | ||||||||||
Operating expenses | 3.7 | 7.6 | 7.4 | 16.6 | ||||||||||||||
Operating expenses and other | (1.0 | ) | 5.1 | 6.4 | 21.7 | |||||||||||||
Operating income (loss) before income taxes | (.1 | ) | 2.9 | 1.4 | 4.9 | 1.0 | (1.2 | ) | 2.4 | 3.7 | ||||||||
Income tax expense | (.6 | ) | (.4 | ) | (.9 | ) | (1.2 | ) | (.6 | ) | (.7 | ) | (1.5 | ) | (1.9 | ) | ||
Gain on disposal of discontinued operations, net | 11.6 | -- | 11.6 | -- | -- | -- | 11.6 | -- | ||||||||||
Income from discontinued operations | $10.9 | $ 2.5 | $12.1 | $ 3.7 | ||||||||||||||
Income (loss) from discontinued operations | $ .4 | $(1.9 | ) | $12.5 | $ 1.8 |
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The Company has historically relied on its cash flow from continuing operations to meet liquidity needs and fund the majority of its cash requirements. Management believes the Company has maintained a strong financial position through the disciplined and conservative use of debt. A substantial majority of the Company's cash flow is invested in the expansion and enhancement of its fleet of drilling rigs. During the Detailed explanations of the Company's liquidity and capital resources for the Cash Flow from Continuing Operations and Capital Expenditures The Company's cash flow from continuing operations and capital expenditures of continuing operations for the |
Nine Months Ended September 30, | ||||||||||
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2005 | 2004 | 2005 | 2004 | |||||||
Cash flow from continuing operations | $169.5 | $119.2 | $245.4 | $184.5 | ||||||
Capital expenditures on continuing operations | ||||||||||
Rig acquisition | $ 80.3 | $ 94.6 | $ 80.3 | $ 94.6 | ||||||
New construction | 25.4 | -- | 135.5 | .1 | ||||||
Enhancements | 99.0 | 63.4 | 152.9 | 118.8 | ||||||
Minor upgrades and improvements | 18.9 | 21.7 | 33.1 | 34.0 | ||||||
$223.6 | $179.7 | $401.8 | $247.5 |
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Upon completion of rig construction |
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June 30, | December 31, | September 30, | December 31, | |||||||
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2005 | 2004 | 2005 | 2004 | |||||||
Long-term debt | $ 483.9 | $ 527.1 | $ 483.9 | $ 527.1 | ||||||
Total capital* | 2,792.1 | 2,709.0 | ||||||||
Total capital* | 2,910.3 | 2,709.0 | ||||||||
Long-term debt to total capital | 17.3 | % | 19.5 | % | 16.6% | 19.5% | ||||
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On June 23, 2005, the Company amended and restated its existing $250.0 million unsecured revolving credit agreement (the "Credit Agreement"). The amended and restated agreement (the "2005 Credit Facility") provides for a $350.0 million unsecured revolving credit facility with a syndicate of lenders for general corporate purposes. The 2005 Credit Facility has a five-year term, expiring June 23, 2010, and replaces the Company's $250.0 million five-year Credit Agreement that was scheduled to mature on July 26, 2007. The Company is in compliance with the financial covenants under the 2005 Credit Facility, which require the maintenance of a specified level of interest coverage and debt to total capitalization ratio. The Company had no amounts outstanding under the 2005 Credit Facility or the Credit Agreement at The Company maintains investment grade credit ratings of Baa1 from Moody's and BBB+ from Standard & Poor's. |
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During recent years the Company entered into two separate joint venture arrangements with KFELS in connection with the construction and ownership of two jackup rigs. ENSCO Enterprises Limited ("EEL") was established by the Company (with an initial 25% ownership interest) and KFELS (with an initial 75% ownership interest) to own and charter ENSCO 102. Construction of ENSCO 102 commenced in 2000 and was completed in May 2002, after which the Company chartered ENSCO 102 from EEL. In January 2004, the Company exercised a purchase option and acquired ENSCO 102 from EEL and EEL was liquidated. ENSCO Enterprises Limited II ("EEL II") was established by the Company (25% ownership interest) and KFELS (75% ownership interest) in March 2003 to construct and own ENSCO 106. Upon completion of rig construction in February 2005, the Company exercised a purchase option and acquired ENSCO 106 from EEL II and EEL II was effectively liquidated. The Company's equity interests in EEL and EEL II constituted variable interests in variable interest entities, as defined in the Financial Accounting Standards Board's Interpretation No. 46 (revised December 2003), "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51" ("FIN 46R"). However, the Company did not absorb a majority of the expected losses or receive a majority of the expected residual returns of EEL and EEL II, as defined by FIN 46R, and accordingly was not required to consolidate EEL or EEL II. |
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June 30, | December 31, | September 30, | December 31, | |||||||
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2005 | 2004 | 2005 | 2004 | |||||||
Cash and cash equivalents | $296.9 | $267.0 | $232.2 | $267.0 | ||||||
Working capital | 289.6 | 277.9 | 276.2 | 277.9 | ||||||
Current ratio | 2.2 | 2.3 | 2.3 | 2.3 |
Management expects to fund the Company's short-term liquidity needs, including contractual obligations and anticipated capital expenditures, as well as any working capital requirements, from its cash and cash equivalents and operating cash flow. |
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The Company has historically funded the majority of its liquidity from operating cash flow. The Company anticipates the majority of its cash flow in the near to intermediate-term will continue to be invested in the expansion and enhancement of its fleet of drilling rigs. As a substantial majority of such expenditures are elective, the Company expects to be able to maintain adequate liquidity throughout future business cycles through the deferral or acceleration of its future capital investments, as necessary. Accordingly, while future operating cash flow cannot be accurately predicted, management believes its long-term liquidity will continue to be funded primarily by operating cash flow. |
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The Company has net assets and liabilities denominated in numerous foreign currencies and uses various methods to manage its exposure to foreign currency exchange risk. The Company predominantly structures its drilling rig contracts in U.S. dollars, which significantly reduces the portion of the Company's cash flows and assets denominated in foreign currencies. The Company also employs 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. The Company occasionally utilizes derivative instruments to hedge forecasted foreign currency denominated transactions. At The Company uses various derivative financial instruments to manage its exposure to interest rate risk. The Company occasionally uses interest rate swap agreements to effectively convert the variable interest rate on debt to a fixed rate or the fixed rate on debt to a variable rate, and interest rate lock agreements to hedge against increases in interest rates on pending financing. At The Company utilizes derivative instruments and undertakes hedging activities in accordance with its established policies for the management of market risk. The Company does not enter into derivative instruments for trading or other speculative purposes. Management believes that the Company's use of derivative instruments and related hedging activities do not expose the Company to any material interest rate risk, foreign currency exchange rate risk, commodity price risk, credit risk or any other market rate or price risk. |
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The most significant damage to the Company's drilling rigs resulted from Hurricane Katrina, with severe damage sustained by the ENSCO 29 platform rig. Analysis of the damage is ongoing and the Company is currently unable to determine when it will be completed or when the associated insurance claim will be finalized. Based on preliminary analysis of the damage performed by the Company and its insurance underwriters, the Company believes it is likely that ENSCO 29 will be declared a constructive total loss under the terms of its insurance policies. If this is the case, the Company will transfer beneficial ownership in the rig to underwriters and receive $10.0 million. The net book value of ENSCO 29 is $7.5 million. Preliminary inspections indicate the hull of ENSCO 7500 sustained some damage during Hurricane Katrina. While the damage is believed to be minor and the rig continues to work under its existing contract, the Company and its insurance underwriters have not completed an analysis of the damage. The ENSCO 7500 is expected to complete its existing contract on or about October 31, 2005, and was previously scheduled to enter a shipyard for The Company is
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The preparation of financial statements and related disclosures in conformity with generally accepted accounting principles in the United States requires the Company's management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company's significant accounting policies are included in Note 1 to the Consolidated Financial Statements for the year ended December 31, 2004 included in the Company's Annual Report to the Securities and Exchange Commission on Form 10-K. These policies, along with the underlying assumptions and judgments made by the Company's management in their application, have a significant impact on the Company's consolidated financial statements. The Company identifies its most critical accounting policies as those that are the most pervasive and important to the portrayal of the Company's financial position and results of operations, and that require the most difficult, subjective and/or complex judgments by management regarding estimates about matters that are inherently uncertain. The Company's most critical accounting policies are those related to property and equipment, impairment of long-lived assets and goodwill, and income taxes. Property and Equipment At |
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For additional information concerning the useful lives of the Company's drilling rigs, including an analysis of the impact of various changes in useful life assumptions, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates" in our Annual Report on Form 10-K for the year ended December 31, 2004. |
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The Company evaluates the carrying value of its property and equipment, primarily its 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 is 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. The Company's rigs are mobile and may generally be moved from markets with excess supply, if economically feasible. The Company's jackup rigs and semisubmersible rig are suited for, and accessible to, broad and numerous markets throughout the world. However, there are fewer economically feasible markets available to the Company's barge rig and platform rigs. |
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Asset impairment evaluations are, by nature, highly subjective. In most instances they involve expectations of future cash flows to be generated by the Company's drilling rigs, and are based on management's assumptions and judgments regarding future industry conditions and operations, as well as management's estimates of future expected utilization, contract rates, expense levels and capital requirements of the Company's drilling rigs. The estimates, assumptions and judgments used by management in the application of the Company's asset impairment policies reflect both historical experience and an assessment of current operational, industry, economic and political environments. The use of different estimates, assumptions, judgments and expectations regarding future industry conditions and operations, would likely result in materially different carrying values of assets and results of operations. |
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Income Taxes The Company conducts operations and earns income in numerous foreign countries and is subject to the laws of |
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The Company operates in many foreign 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, the Company obtains professional guidance and considers existing industry practices before deploying tax planning strategies and meeting its tax obligations. Tax returns are routinely subject to audit in most jurisdictions and tax liabilities are frequently finalized through a negotiation process. While the Company has |
• | During recent years the portion of the Company's overall operations conducted in foreign tax jurisdictions has been increasing and the Company currently anticipates this trend will continue. | |
• | In order to deploy tax planning strategies and conduct foreign operations efficiently, the Company's subsidiaries frequently enter into transactions with affiliates, which are generally subject to complex tax regulations and frequently are reviewed by tax authorities. | |
• | The Company 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 the Company to modify existing tax strategies to conform to such changes | |
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In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123, (revised 2004) "Share-Based Payment" ("SFAS 123(R)"). This statement is a revision of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" as amended ("SFAS 123"), and requires entities to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The cost will be recognized over the period during which an employee is required to provide services in exchange for the award (usually the vesting period). SFAS 123(R) covers various share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. SFAS 123(R) eliminates the ability to use the intrinsic value method of accounting for share options, as provided in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). SFAS 123(R) is effective for the first fiscal year beginning after June 15, 2005, with early adoption encouraged. The Company is currently evaluating the statement's transition methods and does not expect this statement to have an effect materially different than that of the pro forma SFAS 123 disclosures provided in Note 3 to the Company's Consolidated Financial Statements. |
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The Company has In August 2004, the Company and certain subsidiaries were named as defendants in three multi-party lawsuits filed in Mississippi State courts involving numerous other companies as co-defendants. The lawsuits seek an unspecified amount of monetary damages on behalf of approximately 120 named individuals alleging personal injury or death, including claims under the Jones Act, purportedly resulting from exposure to asbestos on drilling rigs and associated facilities during the period 1965 through 1986. The lawsuits are in Legislation known as the U.K. Working Time Directive was introduced in August 2003 and may be applicable to employees of the Company and other drilling contractors that work offshore in U.K. territorial waters or in the U.K. sector of the North Sea. Certain unions representing offshore employees have claimed that drilling contractors are not in compliance with the U.K. Working Time Directive in respect of paid time off (vacation time) for employees working offshore on a rotational basis (equal time working and off). Based on the information available at this time, the Company does not expect the resolution of this matter to have a material adverse effect on its financial position, results of operations or cash flows. The Company and its subsidiaries are named defendants in certain lawsuits and are involved from time to time as parties to governmental proceedings, including matters related to taxation, all arising in the ordinary course of business. Although the outcome of lawsuits or other proceedings involving the Company and its subsidiaries cannot be predicted with certainty and the amount of any liability that could arise with respect to such lawsuits or other proceedings cannot be predicted accurately, management does not expect these matters to have a material effect on the financial position, results of operations or cash flows of the Company. |
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Issuer Purchases of Equity Securities | ||||||||||||||||||||||||||||
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Total Number | Maximum | Total Number | Maximum | |||||||||||||||||||||||||
of Shares | Number of | of Shares | Number of | |||||||||||||||||||||||||
Average | Purchased as | Shares that | Average | Purchased as | Shares that | |||||||||||||||||||||||
Total | Price | Part of Publicly | May Yet Be | Total | Price | Part of Publicly | May Yet Be | |||||||||||||||||||||
Number of | Paid | Announced | Purchased | Number of | Paid | Announced | Purchased | |||||||||||||||||||||
Shares | per | Plans or | Under Plans | Shares | per | Plans or | Under Plans | |||||||||||||||||||||
Period | Period | Purchased | Share | Programs | or Programs | Period | Purchased | Share | Programs | or Programs | ||||||||||||||||||
April | -- | -- | -- | -- | ||||||||||||||||||||||||
May | 2,371 | $32.56 | -- | -- | ||||||||||||||||||||||||
June | 397 | 33.30 | -- | -- | ||||||||||||||||||||||||
July | 2,729 | $38.07 | -- | -- | ||||||||||||||||||||||||
August | 1,625 | $40.82 | -- | -- | ||||||||||||||||||||||||
September | 398 | 42.24 | -- | -- | ||||||||||||||||||||||||
Total | 2,768 | $32.66 | -- | -- | 4,752 | $39.36 | -- | -- |
All of the shares repurchased during the three month period ended |
grant vesting. |
Votes for | Votes Withheld | ||||
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Morton H. Meyerson | 134,757,834 | 3,112,107 | |||
Joel V. Staff | 137,059,143 | 810,798 | |||
Votes For | Votes Against | Votes Abstain |
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137,129,841 | 634,774 | 105,325 |
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Votes For | Votes Against | Votes Abstain |
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137,499,476 | 269,681 | 100,784 |
Votes For | Votes Against | Votes Abstain |
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137,653,672 | 127,207 | 89,061 |
Votes For | Votes Against | Votes Abstain |
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134,914,277 | 2,822,195 | 133,468 |
Votes For | Votes Against | Votes Abstain |
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96,348,949 | 18,644,661 | 139,375 |
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Votes For | Votes Against | Votes Abstain |
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137,324,797 | 487,141 | 58,002 |
Exhibit No. |
Letter regarding unaudited interim financial information. | ||
31.1 | Certification of the Chief Executive Officer of Registrant Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of the Chief Financial Officer of Registrant Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Certification of the Chief Executive Officer of Registrant Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 | Certification of the Chief Financial Officer of Registrant Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
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ENSCO INTERNATIONAL INCORPORATED | ||
Date: | /s/ J. W. SWENT J. W. Swent Senior Vice President - Chief Financial Officer | |
/s/ H. E. MALONE, JR. H. E. Malone, Jr. Vice President - Finance | ||
/s/ DAVID A. ARMOUR David A. Armour Controller |
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