UNITED STATES |
ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended |
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 |
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(State or other jurisdiction of incorporation or organization) (Address of principal executive offices) | (I.R.S. Employer Identification No.) (Zip Code) |
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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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o 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. |
Large accelerated filer ý Non-accelerated filero (Do not check if a smaller reporting company) | Accelerated filer o Smaller reporting companyo |
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ENSCO |
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 about the impact of the December 2009 reorganization of the Company's corporate structure (referred to elsewhere herein as the "redomestication") and our plans, objectives, expectations and intentions with respect thereto and with respect to future operations, including the tax savings or other benefits that we expect to achieve as a result of the redomestication. Forward-looking statements also include statements regarding future operations, market conditions, cash generation, the impact of recently contracted premium jackups, contributions from Forward-looking statements are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Numerous factors could cause actual results to differ materially from those in the forward-looking statements, including: |
• | changes in U.S. or non-U.S. laws, including tax laws, that could effectively reduce or eliminate the benefits we expect to achieve from the redomestication, | |
• | an inability to realize expected benefits from the redomestication, | |
• | costs related to the redomestication and ancillary matters, which could be greater than expected, | |
• | industry conditions and competition, including changes in rig supply and demand or new technology, | |
• | risks associated with the global economy and its impact on capital markets and liquidity, | |
• | prices of oil and natural gas | |
• | further declines in | |
• | excess rig availability or supply resulting from delivery of newbuild drilling rigs, | |
• | ||
• | cyclical nature of the industry, | |
• | worldwide expenditures for oil and natural gas drilling, | |
• | the ultimate resolution of the ENSCO 69 situation in general and the pending litigation, potential return of the rig or package policy political risk insurance recovery in particular, | |
• | changes in the timing of revenue recognition resulting from the deferral of certain revenues for mobilization of our drilling rigs, time waiting on weather or time in shipyards, which are recognized over the contract term upon commencement of drilling operations, | |
• | operational risks, including excessive unplanned downtime due to rig or equipment failure, damage or repair in general and hazards created by severe storms and hurricanes in particular, | |
• | changes in the dates our rigs will enter a shipyard, be delivered, return to service or enter service, | |
• | risks inherent to shipyard rig construction, repair or enhancement, including risks associated with | |
• | changes in | |
• | renegotiation, nullification, cancellation 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, | |
• | ||
• | ||
• | availability of transport vessels to relocate rigs, | |
• | environmental or other liabilities, risks or losses, whether related to hurricane damage, losses or liabilities (including wreckage or debris removal) in the Gulf of Mexico or otherwise, that may arise in the future | |
• | limited availability or high cost of insurance coverage 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 | |
• | our ability to attract and retain skilled personnel, | |
• | governmental action and political and economic uncertainties, including expropriation, nationalization, confiscation or deprivation of our assets, | |
• | terrorism or military action impacting our operations, assets or financial performance, | |
• | ||
outcome of litigation, legal proceedings, investigations or insurance or other claims, | ||
• | adverse changes in foreign currency exchange rates, including their impact on the fair value measurement of our derivative | |
• | potential long-lived asset or goodwill impairments, and | |
• | potential reduction in fair value of our auction rate securities and the ultimate resolution of our pending arbitration proceedings. | |
Moreover, the United States Congress, the Internal Revenue Service (the "IRS"), the United Kingdom Parliament or Her Majesty's Revenue and Customs ("HMRC") may enact new statutory or regulatory provisions that could adversely affect our status as a non-U.S. corporation or otherwise adversely affect our anticipated consolidated effective income tax rate. Retroactive statutory or regulatory actions have occurred in the past, and there can be no assurance that any such provisions, if enacted or promulgated, would not have retroactive application. In addition to the numerous factors described above and in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part I, you should carefully read and consider "Item 1A. Risk Factors" in Part I and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II of our Annual Report on Form 10-K for the year ended December 31, |
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PART I - FINANCIAL INFORMATION |
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ENSCO |
Three Months Ended | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
September 30, | Three Months Ended | |||||||||||||
2009 | 2008 | March 31, | ||||||||||||
2010 | 2009 | |||||||||||||
OPERATING REVENUES | $425.4 | $619.5 | $449.4 | $499.9 | ||||||||||
OPERATING EXPENSES | ||||||||||||||
Contract drilling (exclusive of depreciation) | 183.3 | 185.2 | ||||||||||||
Contract drilling (exclusive of depreciation expense) | 184.9 | 157.7 | ||||||||||||
Depreciation | 53.3 | 47.0 | 53.9 | 45.1 | ||||||||||
General and administrative | 13.6 | 15.2 | 20.6 | 12.0 | ||||||||||
250.2 | 247.4 | 259.4 | 214.8 | |||||||||||
OPERATING INCOME | 175.2 | 372.1 | 190.0 | 285.1 | ||||||||||
OTHER INCOME (EXPENSE), NET | 3.6 | (6.5 | ) | 3.1 | (4.3 | ) | ||||||||
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | 178.8 | 365.6 | 193.1 | 280.8 | ||||||||||
PROVISION FOR INCOME TAXES | ||||||||||||||
Current income tax expense | 17.3 | 59.1 | 22.4 | 47.8 | ||||||||||
Deferred income tax expense | 11.1 | 9.7 | 10.8 | 6.8 | ||||||||||
28.4 | 68.8 | 33.2 | 54.6 | |||||||||||
INCOME FROM CONTINUING OPERATIONS | 150.4 | 296.8 | 159.9 | 226.2 | ||||||||||
DISCONTINUED OPERATIONS | ||||||||||||||
Income from discontinued operations, net | .4 | 10.4 | ||||||||||||
Loss on disposal of discontinued operations, net | -- | (23.5 | ) | |||||||||||
Income (loss) from discontinued operations, net | 2.5 | (4.1 | ) | |||||||||||
Gain on disposal of discontinued operations, net | 29.2 | -- | ||||||||||||
.4 | (13.1 | ) | 31.7 | (4.1 | ) | |||||||||
NET INCOME | 150.8 | 283.7 | 191.6 | 222.1 | ||||||||||
LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | (1.1 | ) | (1.4 | ) | ||||||||||
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | (1.8 | ) | (1.4 | ) | ||||||||||
NET INCOME ATTRIBUTABLE TO ENSCO | $149.7 | $282.3 | $189.8 | $220.7 | ||||||||||
EARNINGS (LOSS) PER COMMON SHARE - BASIC | ||||||||||||||
EARNINGS (LOSS) PER SHARE - BASIC | ||||||||||||||
Continuing operations | $ 1.05 | $ 2.07 | $ 1.11 | $ 1.59 | ||||||||||
Discontinued operations | .00 | (.09 | ) | .22 | (.03 | ) | ||||||||
$ 1.05 | $ 1.98 | $ 1.33 | $ 1.56 | |||||||||||
EARNINGS (LOSS) PER COMMON SHARE - DILUTED | ||||||||||||||
EARNINGS (LOSS) PER SHARE - DILUTED | ||||||||||||||
Continuing operations | $ 1.05 | $ 2.06 | $ 1.11 | $ 1.59 | ||||||||||
Discontinued operations | .00 | (.09 | ) | .22 | (.03 | ) | ||||||||
$ 1.05 | $ 1.97 | $ 1.33 | $ 1.56 | |||||||||||
NET INCOME ATTRIBUTABLE TO ENSCO COMMON SHARES | ||||||||||||||
NET INCOME ATTRIBUTABLE TO ENSCO SHARES | ||||||||||||||
Basic | $147.8 | $278.8 | $187.4 | $218.0 | ||||||||||
Diluted | $147.8 | $278.8 | $187.4 | $218.0 | ||||||||||
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING | ||||||||||||||
WEIGHTED-AVERAGE SHARES OUTSTANDING | ||||||||||||||
Basic | 140.7 | 141.1 | 140.7 | 140.1 | ||||||||||
Diluted | 140.7 | 141.4 | 140.8 | 140.1 | ||||||||||
CASH DIVIDENDS PER SHARE | $ .025 | $ .025 | ||||||||||||
CASH DIVIDENDS PER COMMON SHARE | $ .025 | $ .025 |
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 |
ENSCO |
Nine Months Ended | |||||||
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September 30, | |||||||
2009 | 2008 | ||||||
OPERATING REVENUES | $1,446.3 | $1,788.8 | |||||
OPERATING EXPENSES | |||||||
Contract drilling (exclusive of depreciation) | 524.8 | 566.8 | |||||
Depreciation | 149.8 | 139.4 | |||||
General and administrative | 41.6 | 41.7 | |||||
716.2 | 747.9 | ||||||
OPERATING INCOME | 730.1 | 1,040.9 | |||||
OTHER INCOME (EXPENSE), NET | 6.2 | 4.8 | |||||
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | 736.3 | 1,045.7 | |||||
PROVISION FOR INCOME TAXES | |||||||
Current income tax expense | 104.9 | 175.9 | |||||
Deferred income tax expense | 28.9 | 16.1 | |||||
133.8 | 192.0 | ||||||
INCOME FROM CONTINUING OPERATIONS | 602.5 | 853.7 | |||||
DISCONTINUED OPERATIONS | |||||||
(Loss) income from discontinued operations, net | (16.4 | ) | 25.1 | ||||
Loss on disposal of discontinued operations, net | (11.8 | ) | (23.5 | ) | |||
(28.2 | ) | 1.6 | |||||
NET INCOME | 574.3 | 855.3 | |||||
LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | (3.6 | ) | (4.3 | ) | |||
NET INCOME ATTRIBUTABLE TO ENSCO | $ 570.7 | $ 851.0 | |||||
EARNINGS (LOSS) PER COMMON SHARE - BASIC | |||||||
Continuing operations | $ 4.22 | $ 5.91 | |||||
Discontinued operations | (.20 | ) | .01 | ||||
$ 4.02 | $ 5.92 | ||||||
EARNINGS (LOSS) PER COMMON SHARE - DILUTED | |||||||
Continuing operations | $ 4.21 | $ 5.90 | |||||
Discontinued operations | (.20 | ) | .01 | ||||
$ 4.01 | $ 5.91 | ||||||
NET INCOME ATTRIBUTABLE TO ENSCO COMMON SHARES | |||||||
Basic | $ 563.7 | $ 842.1 | |||||
Diluted | $ 563.7 | $ 842.1 | |||||
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING | |||||||
Basic | 140.3 | 142.2 | |||||
Diluted | 140.4 | 142.6 | |||||
CASH DIVIDENDS PER COMMON SHARE | $ .075 | $ .075 |
March 31, | December 31, | ||||
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2010 | 2009 | ||||
(Unaudited) | |||||
ASSETS | |||||
CURRENT ASSETS | |||||
Cash and cash equivalents | $1,229.4 | $1,141.4 | |||
Accounts receivable, net | 310.6 | 324.6 | |||
Other | 160.8 | 186.8 | |||
Total current assets | 1,700.8 | 1,652.8 | |||
PROPERTY AND EQUIPMENT, AT COST | 6,132.9 | 6,151.2 | |||
Less accumulated depreciation | 1,650.3 | 1,673.9 | |||
Property and equipment, net | 4,482.6 | 4,477.3 | |||
GOODWILL | 336.2 | 336.2 | |||
LONG-TERM INVESTMENTS | 55.4 | 60.5 | |||
OTHER ASSETS, NET | 207.7 | 220.4 | |||
$6,782.7 | $6,747.2 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||
CURRENT LIABILITIES | |||||
Accounts payable - trade | $ 97.6 | $ 159.1 | |||
Accrued liabilities and other | 221.8 | 308.6 | |||
Current maturities of long-term debt | 17.2 | 17.2 | |||
Total current liabilities | 336.6 | 484.9 | |||
LONG-TERM DEBT | 257.2 | 257.2 | |||
DEFERRED INCOME TAXES | 379.0 | 377.3 | |||
OTHER LIABILITIES | 110.1 | 120.7 | |||
COMMITMENTS AND CONTINGENCIES | |||||
ENSCO SHAREHOLDERS' EQUITY | |||||
Class A ordinary shares, U.S. $.10 par value, 250.0 million shares authorized, 150.0 million shares issued | 15.0 | 15.0 | |||
Class B ordinary shares, £1 par value, 50,000 shares authorized and issued | .1 | .1 | |||
Additional paid-in capital | 611.3 | 602.6 | |||
Retained earnings | 5,065.5 | 4,879.2 | |||
Accumulated other comprehensive income | 2.5 | 5.2 | |||
Treasury shares, at cost, 7.5 million shares | (3.3 | ) | (2.9 | ) | |
Total Ensco shareholders' equity | 5,691.1 | 5,499.2 | |||
NONCONTROLLING INTERESTS | 8.7 | 7.9 | |||
Total equity | 5,699.8 | 5,507.1 | |||
$6,782.7 | $6,747.2 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements. |
ENSCO |
September 30, | December 31, | ||||
---|---|---|---|---|---|
2009 | 2008 | ||||
(Unaudited) | |||||
ASSETS | |||||
CURRENT ASSETS | |||||
Cash and cash equivalents | $1,017.2 | $ 789.6 | |||
Accounts receivable, net of allowance of $25.1 and $20.6 | 341.2 | 482.7 | |||
Other | 192.4 | 128.6 | |||
Total current assets | 1,550.8 | 1,400.9 | |||
PROPERTY AND EQUIPMENT, AT COST | 5,951.8 | 5,376.3 | |||
Less accumulated depreciation | 1,621.3 | 1,505.0 | |||
Property and equipment, net | 4,330.5 | 3,871.3 | |||
GOODWILL | 336.2 | 336.2 | |||
LONG-TERM INVESTMENTS | 60.9 | 64.2 | |||
OTHER ASSETS, NET | 176.8 | 157.5 | |||
$6,455.2 | $5,830.1 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||
CURRENT LIABILITIES | |||||
Accounts payable | $ 28.8 | $ 30.0 | |||
Accrued liabilities and other | 357.0 | 380.7 | |||
Current maturities of long-term debt | 17.2 | 17.2 | |||
Total current liabilities | 403.0 | 427.9 | |||
LONG-TERM DEBT | 265.8 | 274.3 | |||
DEFERRED INCOME TAXES | 372.0 | 340.5 | |||
OTHER LIABILITIES | 122.9 | 103.8 | |||
COMMITMENTS AND CONTINGENCIES | |||||
ENSCO STOCKHOLDERS' EQUITY | |||||
Preferred stock, $1 par value, 20.0 shares authorized and none issued | -- | -- | |||
Common stock, $.10 par value, 250.0 shares authorized, | |||||
142.6 and 181.9 shares issued | 14.3 | 18.2 | |||
Additional paid-in capital | 594.0 | 1,761.2 | |||
Retained earnings | 4,674.0 | 4,114.0 | |||
Accumulated other comprehensive income (loss) | 4.1 | (17.0 | ) | ||
Treasury stock, at cost, ..1 and 40.1 shares | (2.2 | ) | (1,199.5 | ) | |
Total Ensco stockholders' equity | 5,284.2 | 4,676.9 | |||
NONCONTROLLING INTERESTS | 7.3 | 6.7 | |||
Total equity | 5,291.5 | 4,683.6 | |||
$6,455.2 | $5,830.1 | ||||
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Nine Months Ended September 30, | Three Months Ended March 31, | |||||||||
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2009 | 2008 | 2010 | 2009 | |||||||
OPERATING ACTIVITIES | ||||||||||
Net income | $ 574.3 | $ 855.3 | $ 191.6 | $ 222.1 | ||||||
Adjustments to reconcile net income to net cash provided by operating | ||||||||||
activities of continuing operations: | ||||||||||
Adjustments to reconcile net income to net cash provided by operating activities of continuing operations: | ||||||||||
Depreciation expense | 149.8 | 139.4 | 53.9 | 45.1 | ||||||
Amortization expense | 10.9 | 7.9 | ||||||||
Deferred income tax expense | 28.9 | 16.1 | 10.8 | 6.8 | ||||||
Share-based compensation expense | 25.1 | 21.1 | 10.7 | 7.0 | ||||||
Amortization expense | 23.5 | 24.6 | ||||||||
Loss (income) from discontinued operations, net | 16.4 | (25.1 | ) | |||||||
Loss on disposal of discontinued operations, net | 11.8 | 23.5 | ||||||||
(Income) loss from discontinued operations, net | (2.5 | ) | 4.1 | |||||||
Gain on disposal of discontinued operations, net | (29.2 | ) | -- | |||||||
Other | 2.9 | (2.2 | ) | .3 | 6.0 | |||||
Changes in operating assets and liabilities: | ||||||||||
Decrease (increase) in accounts receivable | 154.4 | (86.6 | ) | |||||||
Decrease (increase) in trading securities | 3.6 | (73.2 | ) | |||||||
Increase in other assets | (76.0 | ) | (31.2 | ) | ||||||
Increase (decrease) in accounts payable and other liabilities | 23.5 | (127.9 | ) | |||||||
(Increase) decrease in accounts receivable | (3.5 | ) | 6.5 | |||||||
Decrease (increase) in other assets | 6.4 | (25.2 | ) | |||||||
(Decrease) increase in liabilities | (105.3 | ) | 47.4 | |||||||
Net cash provided by operating activities of continuing operations | 938.2 | 733.8 | 144.1 | 327.7 | ||||||
INVESTING ACTIVITIES | ||||||||||
Additions to property and equipment | (684.7 | ) | (653.9 | ) | (167.7 | ) | (183.9 | ) | ||
Proceeds from disposal of discontinued operations | 4.9 | -- | 90.0 | 4.9 | ||||||
Proceeds from disposition of assets | 1.9 | 5.1 | .2 | .8 | ||||||
Purchase of short-term investments | -- | (38.4 | ) | |||||||
Net cash used in investing activities | (677.9 | ) | (687.2 | ) | (77.5 | ) | (178.2 | ) | ||
FINANCING ACTIVITIES | ||||||||||
Cash dividends paid | (10.7 | ) | (10.7 | ) | (3.5 | ) | (3.5 | ) | ||
Proceeds from exercise of stock options | 9.0 | 27.3 | ||||||||
Reduction of long-term borrowings | (8.6 | ) | (10.5 | ) | ||||||
Repurchase of common stock | (6.3 | ) | (259.5 | ) | ||||||
Other | (5.1 | ) | 2.1 | (1.3 | ) | (1.1 | ) | |||
Net cash used in financing activities | (21.7 | ) | (251.3 | ) | (4.8 | ) | (4.6 | ) | ||
Effect of exchange rate changes on cash and cash equivalents | .3 | (7.6 | ) | (.5 | ) | (.3 | ) | |||
Net cash (used in) provided by operating activities of discontinued operations | (11.3 | ) | 30.4 | |||||||
Net cash provided by (used in) operating activities of discontinued operations | 26.7 | (6.9 | ) | |||||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 227.6 | (181.9 | ) | |||||||
INCREASE IN CASH AND CASH EQUIVALENTS | 88.0 | 137.7 | ||||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 789.6 | 629.5 | 1,141.4 | 789.6 | ||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $1,017.2 | $ 447.6 | $1,229.4 | $ 927.3 |
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6 |
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We prepared the accompanying condensed consolidated financial statements of The preparation of our The financial data for the Results of operations for the Note 2 - Noncontrolling Interests
Noncontrolling interests |
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Three Months | Nine Months | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Ended September 30, | Ended September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | 2010 | 2009 | |||||||||||
Income from continuing operations | $150.4 | $296.8 | $602.5 | $853.7 | $159.9 | $226.2 | ||||||||||
Income from continuing operations attributable to noncontrolling interests | (1.1 | ) | (1.4 | ) | (3.6 | ) | (4.3 | ) | (1.8 | ) | (1.4 | ) | ||||
Income from continuing operations attributable to Ensco | $149.3 | $295.4 | $598.9 | $849.4 | $158.1 | $224.8 | ||||||||||
Note 3 - Earnings Per Share The following table is a reconciliation of net income attributable to Ensco |
Three Months | Nine Months | |||||||||||||||
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Ended September 30, | Ended September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | 2010 | 2009 | |||||||||||
Net income attributable to Ensco | $149.7 | $282.3 | $570.7 | $851.0 | $189.8 | $220.7 | ||||||||||
Net income allocated to non-vested share awards | (1.9 | ) | (3.5 | ) | (7.0 | ) | (8.9 | ) | (2.4 | ) | (2.7 | ) | ||||
Net income attributable to Ensco common shares | $147.8 | $278.8 | $563.7 | $842.1 | ||||||||||||
Net income attributable to Ensco shares | $187.4 | $218.0 | ||||||||||||||
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Three Months | Nine Months | ||||||||
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Ended September 30, | Ended September 30, | ||||||||
2009 | 2008 | 2009 | 2008 | ||||||
Weighted-average common shares - basic | 140.7 | 141.1 | 140.3 | 142.2 | |||||
Potentially dilutive share options | .0 | .3 | .1 | .4 | |||||
Weighted-average common shares - diluted | 140.7 | 141.4 | 140.4 | 142.6 | |||||
|
2010 | 2009 | ||||||
---|---|---|---|---|---|---|---|
Weighted-average shares - basic | 140.7 | 140.1 | |||||
Potentially dilutive share options | .1 | .0 | |||||
Weighted-average shares - diluted | 140.8 | 140.1 | |||||
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8 |
Note 4 - Derivative historical exchange rates. We use All derivatives were recorded on our condensed consolidated balance sheets 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 accounting. As of Derivatives recorded at fair value in our condensed consolidated balance sheets as of |
Derivative Assets | Derivative Liabilities | |||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Derivative Assets | Derivative Liabilities | March 31, | December 31, | March 31, | December 31, | |||||||||||||||||||||||||||||||||||
September 30, | December 31, | September 30, | December 31, | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||||||||||||||||||||||||||
Derivatives Designated as Hedging Instruments | Derivatives Designated as Hedging Instruments | |||||||||||||||||||||||||||||||||||||||
Foreign currency forward contracts - current(1) | $12.2 | $ .3 | $3.2 | $25.8 | $ 6.8 | $10.2 | $3.3 | $1.1 | ||||||||||||||||||||||||||||||||
Foreign currency forward contracts - non-current(2) | 3.3 | 5.1 | -- | .0 | 3.4 | 3.8 | -- | -- | ||||||||||||||||||||||||||||||||
15.5 | 5.4 | 3.2 | 25.8 | 10.2 | 14.0 | 3.3 | 1.1 | |||||||||||||||||||||||||||||||||
Derivatives not Designated as Hedging Instruments | ||||||||||||||||||||||||||||||||||||||||
Derivatives Not Designated as Hedging Instruments | Derivatives Not Designated as Hedging Instruments | |||||||||||||||||||||||||||||||||||||||
Foreign currency forward contracts - current(1) | .2 | .1 | -- | .0 | .2 | .3 | .1 | .0 | ||||||||||||||||||||||||||||||||
.2 | .1 | -- | .0 | .2 | .3 | .1 | .0 | |||||||||||||||||||||||||||||||||
Total | $15.7 | $5.5 | $3.2 | $25.8 | $10.4 | $14.3 | $3.4 | $1.1 | ||||||||||||||||||||||||||||||||
(1) | Derivative assets and liabilities that have maturity dates equal to or less than twelve months from the respective balance sheet |
(2) | Derivative assets and liabilities that have maturity dates greater than twelve months from the respective balance sheet |
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Gains and losses on derivatives designated as cash flow hedges included in our condensed consolidated statements of income for the
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Derivatives Designated as Cash Flow Hedges | Gain (Loss) Recognized in Other Comprehensive Income ("OCI") on Derivatives (Effective Portion) | Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) | Loss Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing)(1) | ||||||||||||||
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2009 | 2008 | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Foreign currency forward contracts(2) | $7.8 | $(11.7) | $ .8 | $(.1) | $(.6) | $(.9) | |||||||||||
Interest rate lock contracts(3) | -- | -- | (.2) | (.1) | -- | -- | |||||||||||
Total | $7.8 | $(11.7) | $ .6 | $(.2) | $(.6) | $(.9) | |||||||||||
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Derivatives Designated as Cash Flow Hedges | Derivatives Designated as Cash Flow Hedges | Gain (Loss) Recognized in OCI on Derivatives (Effective Portion) | (Loss) Gain Reclassified from Accumulated OCI into Income (Effective Portion) | Loss Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing)(1) | Derivatives Designated as Cash Flow Hedges | Loss Recognized in Other Comprehensive Income ("OCI") (Effective Portion) | (Loss) Gain Reclassified from Accumulated Other Comprehensive Income ("AOCI") into Income (Effective Portion) | Gain (Loss) Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing)(1) | ||||||||||||||||||||||||||
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2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||||
Foreign currency forward contracts(2) | $6.6 | $(6.3) | $(14.0) | $4.5 | $(3.0) | $(.8) | ||||||||||||||||||||||||||||
Interest rate lock contracts(3) | -- | -- | (.5) | (.5) | -- | -- | ||||||||||||||||||||||||||||
Interest rate lock contracts(2) | $ -- | $ -- | $(.1) | $ (.2) | $ -- | $ -- | ||||||||||||||||||||||||||||
Foreign currency forward contracts(3) | (1.4) | (15.4) | 1.4 | (9.8) | .0 | (6.5) | ||||||||||||||||||||||||||||
Total | $6.6 | $(6.3) | $(14.5) | $4.0 | $(3.0) | $(.8) | $(1.4) | $(15.4) | $1.3 | $(10.0) | $.0 | $(6.5) | ||||||||||||||||||||||
(1) | Gains and losses recognized in income for ineffectiveness and amounts excluded from effectiveness testing were included in other income (expense), net, in our condensed consolidated statements of income. |
(2) |
Losses on derivatives reclassified from AOCI into income (effective portion) were included in other income (expense), net, in our condensed consolidated statements of income. |
| Gains and losses on derivatives reclassified from AOCI into income (effective portion) were included in contract drilling expense in our condensed consolidated statements of income. |
Net gains of |
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Net unrealized gains to be reclassified to contract drilling expense | $ .6 | |||||
Net realized losses to be reclassified to other income (expense), net | ( | ) | ||||
Net gains to be reclassified to earnings | $ .2 | |||||
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2010 | 2009 | ||||
---|---|---|---|---|---|
Deferred revenue | $ 63.6 | $ 89.0 | |||
Wreckage and debris removal | 50.3 | 50.3 | |||
Taxes | 49.7 | 97.3 | |||
Personnel costs | 29.2 | 48.6 | |||
Other | 29.0 | 23.4 | |||
$221.8 | $308.6 | ||||
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Note 6 - Comprehensive Income Accumulated other comprehensive income |
Three Months Ended | Nine Months Ended | ||||||||
---|---|---|---|---|---|---|---|---|---|
September 30, | September 30, | ||||||||
2009 | 2008 | 2009 | 2008 | ||||||
Net income | $150.8 | $283.7 | $574.3 | $855.3 | |||||
Other comprehensive income: | |||||||||
Net change in fair value of derivatives | 7.8 | (11.7 | ) | 6.6 | (6.3 | ) | |||
Reclassification of gains and losses on | |||||||||
derivatives from other comprehensive (income) | |||||||||
loss into net income | (.6 | ) | .2 | 14.5 | (4.0 | ) | |||
Net other comprehensive income (loss) | 7.2 | (11.5 | ) | 21.1 | (10.3 | ) | |||
Comprehensive income | 158.0 | 272.2 | 595.4 | 845.0 | |||||
Comprehensive income attributable to noncontrolling interests | (1.1 | ) | (1.4 | ) | (3.6 | ) | (4.3 | ) | |
Comprehensive income attributable to Ensco | $156.9 | $270.8 | $591.8 | $840.7 | |||||
2010 | 2009 | ||||||||
---|---|---|---|---|---|---|---|---|---|
Net income | $191.6 | $222.1 | |||||||
Other comprehensive (loss) income: | |||||||||
Net change in fair value of derivatives | (1.4 | ) | (15.4 | ) | |||||
Reclassification of gains and losses on derivative instruments from other comprehensive (income) loss into net income | (1.3 | ) | 10.0 | ||||||
Net other comprehensive loss | (2.7 | ) | (5.4 | ) | |||||
Comprehensive income | 188.9 | 216.7 | |||||||
Comprehensive income attributable to noncontrolling interests | (1.8 | ) | (1.4 | ) | |||||
Comprehensive income attributable to Ensco | $187.1 | $215.3 | |||||||
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Quoted Prices in | Significant | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Active Markets | Other | Significant | ||||||||||||
for | Observable | Unobservable | ||||||||||||
Identical Assets | Inputs | Inputs | ||||||||||||
(Level 1) | (Level 2) | (Level 3) | Total | |||||||||||
As of September 30, 2009 | ||||||||||||||
Auction rate securities | $ -- | $ -- | $60.9 | $60.9 | ||||||||||
Supplemental executive retirement plan assets | 17.6 | -- | -- | 17.6 | ||||||||||
Derivative instruments, net | -- | 12.5 | -- | 12.5 | ||||||||||
Total financial assets | $17.6 | $12.5 | $60.9 | $91.0 | ||||||||||
As of December 31, 2008 | ||||||||||||||
Auction rate securities | $ -- | $ -- | $64.2 | $64.2 | ||||||||||
Supplemental executive retirement plan assets | 12.7 | -- | -- | 12.7 | ||||||||||
Total financial assets | $12.7 | $ -- | $64.2 | $76.9 | ||||||||||
Derivative instruments, net | $ -- | $20.3 | $ -- | $20.3 | ||||||||||
Total financial liabilities | $ -- | $20.3 | $ -- | $20.3 | ||||||||||
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Quoted Prices in | Significant | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Active Markets | Other | Significant | ||||||||||||
for | Observable | Unobservable | ||||||||||||
Identical Assets | Inputs | Inputs | ||||||||||||
(Level 1) | (Level 2) | (Level 3) | Total | |||||||||||
As of March 31, 2010 | ||||||||||||||
Auction rate securities | $ -- | $ -- | $55.4 | $55.4 | ||||||||||
Supplemental executive retirement plan assets | 20.4 | -- | -- | 20.4 | ||||||||||
Derivatives, net | -- | 7.0 | -- | 7.0 | ||||||||||
Total financial assets | $20.4 | $ 7.0 | $55.4 | $82.8 | ||||||||||
As of December 31, 2009 | ||||||||||||||
Auction rate securities | $ -- | $ -- | $60.5 | $60.5 | ||||||||||
Supplemental executive retirement plan assets | 18.7 | -- | -- | 18.7 | ||||||||||
Derivatives, net | -- | 13.2 | -- | 13.2 | ||||||||||
Total financial assets | $18.7 | $13.2 | $60.5 | $92.4 | ||||||||||
As of |
Three Months Ended | Nine Months Ended | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
September 30, | September 30, | |||||||||||||
2009 | 2008 | 2009 | 2008 | 2010 | 2009 | |||||||||
Beginning Balance | $61.6 | $70.0 | $64.2 | $ -- | $60.5 | $64.2 | ||||||||
(Sales) purchases, net | (1.0) | (.1 | ) | (3.6) | 73.2 | |||||||||
Unrealized gains (losses)* | .3 | .3 | .3 | (3.0) | ||||||||||
Realized losses | -- | -- | -- | -- | ||||||||||
Sales | (5.4) | (2.3) | ||||||||||||
Unrealized gains* | .3 | .0 | ||||||||||||
Transfers in and/or out of Level 3 | -- | -- | -- | -- | -- | -- | ||||||||
Ending balance | $60.9 | $70.2 | $60.9 | $70.2 | $55.4 | $61.9 |
* | Unrealized gains |
12 |
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 While our valuation model was based on both Level 2 (credit quality and interest rates) and Level 3 inputs, we determined that our Level 3 inputs were |
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Our |
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The carrying values and estimated fair values of our debt instruments as of |
September 30, | December 31, | March 31, | December 31, | |||||||||||||||
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2009 | 2008 | 2010 | 2009 | |||||||||||||||
Estimated | Estimated | Estimated | Estimated | |||||||||||||||
Carrying | Fair | Carrying | Fair | Carrying | Fair | Carrying | Fair | |||||||||||
Value | Value | Value | Value | Value | Value | Value | Value | |||||||||||
7.20% Debentures | $148.9 | $156.0 | $148.9 | $155.9 | ||||||||||||||
6.36% Bonds, including current maturities | 76.0 | 85.2 | 76.0 | 85.8 | ||||||||||||||
4.65% Bonds, including current maturities | $ 51.8 | $ 57.1 | $ 54.0 | $ 62.1 | 49.5 | 53.9 | 49.5 | 53.8 | ||||||||||
6.36% Bonds, including current maturities | 82.3 | 93.4 | 88.7 | 103.9 | ||||||||||||||
7.20% Debentures | 148.8 | 145.8 | 148.8 | 140.3 |
Note 8 - Discontinued OperationsENSCO 50 and ENSCO 51 In March 2010, we sold ENSCO 50 and ENSCO 51 for an aggregate $94.7 million, of which $4.7 million was received in December 2009. We recognized an aggregate pre-tax gain of $33.9 million in connection with the disposals of ENSCO 50 and ENSCO 51, which was included in gain on disposal of discontinued operations, net, in our condensed consolidated statement of income for the quarter ended March 31, 2010. The rigs' aggregate net book value and inventory and other assets on the date of sale totaled $60.8 million. ENSCO 50 and ENSCO 51 operating results were reclassified as discontinued operations in our condensed consolidated statements of income for the quarters ended March 31, 2010 and 2009. ENSCO 69 From May 2007 to June 2009, ENSCO 69 was contracted to Petrosucre, a subsidiary of Petróleos de Venezuela S.A., the national oil company of Venezuela ("PDVSA"). |
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Due to Petrosucre's
In November 2009, we executed an agreement with Petrosucre to mitigate our losses and resolve issues relative to outstanding amounts owed by Petrosucre for drilling operations performed by Ensco through the date of termination of the drilling contract in June 2009 (the "agreement"). Although ENSCO 69 will continue to be fully controlled and operated by Petrosucre, the agreement requires Petrosucre to compensate us for its ongoing use of the rig. We recognized $6.9 million of pre-tax income from discontinued operations for the quarter ended Although the agreement obligates Petrosucre to make additional payments for its use of the rig through March 31, 2010, the associated income was not recognized in our condensed consolidated statement of income, as collectability was not reasonably assured. There can be no assurances relative to the recovery of outstanding contract entitlements, insurance recovery and related pending litigation, the possible return of ENSCO 69 to us by Petrosucre or the imposition of customs duties in relation to the rig's ongoing presence in Venezuela. See "Note 9 - Contingencies" for additional information on |
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Three Months Ended | Nine Months Ended | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
September 30, | September 30, | |||||||||||||
2009 | 2008 | 2009 | 2008 | 2010 | 2009 | |||||||||
Revenues | $ -- | $ 27.6 | $ 4.8 | $ 75.7 | $11.7 | $14.2 | ||||||||
Operating expenses | (.8) | 11.7 | 18.8 | 35.8 | 5.9 | 18.4 | ||||||||
Operating income (loss) before income taxes | .8 | 15.9 | (14.0) | 39.9 | 5.8 | (4.2) | ||||||||
Income tax expense | .4 | 5.5 | 2.4 | 14.8 | ||||||||||
Loss on disposal of discontinued operations, net | -- | (23.5 | ) | (11.8) | (23.5) | |||||||||
Income tax expense (benefit) | 3.3 | (.1) | ||||||||||||
Gain on disposal of discontinued operations, net | 29.2 | -- | ||||||||||||
Income (loss) from discontinued operations | $ .4 | $(13.1 | ) | $(28.2) | $ 1.6 | $31.7 | $(4.1) | |||||||
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Although we believe the U.S. authorities will take into account our voluntary disclosure, our cooperation with the agencies and the remediation and compliance enhancement activities that are underway, we are unable to predict the ultimate disposition of this matter, whether we will be charged with violation of the anti-bribery, recordkeeping or internal accounting control provisions of the FCPA or whether the scope of the investigation will be extended to other issues in Nigeria or to other countries. We also are unable to predict what potential corrective measures, fines, sanctions or other remedies, if any, the agencies may seek against us or any of our employees. |
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Since ENSCO 100 completed its contract commitment and departed Nigeria in August 2007, this matter is not expected to have a material effect on or disrupt our current operations. As noted above, we are unable to predict the outcome of this matter or estimate the extent to which we may be exposed to any resulting potential liability, sanctions or significant additional expense. ENSCO 74 Loss In September 2008, ENSCO 74 was lost as a result of Hurricane Ike in the Gulf of Mexico. Portions of its legs remained underwater adjacent to the customer's platform, and we conducted extensive aerial and sonar reconnaissance but In March 2009, the sunken rig hull of ENSCO 74 was located Physical damage to our rigs caused by a hurricane, the associated "sue and labor" costs to mitigate the insured loss and removal, salvage and recovery costs are all covered by our property insurance policies subject to a $50.0 million per occurrence Coverage for ENSCO 74 sue and labor costs and wreckage and debris removal costs under our property insurance policies is limited to $25.0 million and $50.0 million, respectively. Supplemental wreckage and debris removal coverage is provided under our liability insurance policies, subject to an annual aggregate limit of $500.0 million. We also have a customer contractual indemnification that provides for reimbursement of any ENSCO 74 wreckage and debris removal costs that are not recovered under our insurance policies. |
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We have liability insurance policies that provide coverage for ENSCO 69 We have filed an insurance claim under our package policy, which includes coverage for certain political risks, and are evaluating legal remedies against Petrosucre for contractual and other ENSCO 69 related damages. ENSCO 69 has an insured value of $65.0 million under our package policy, subject to a $10.0 million deductible. By letter dated September 30, 2009, legal counsel acting for the package policy underwriters denied coverage under the package policy and reserved rights. On March 15, 2010, underwriters commenced litigation for purposes of enforcing mediation under the disputes clause of our package policy and precluding us from pursuing litigation in the United States. On that date, we commenced litigation to recover on our political risk package policy claim. Our lawsuit seeks recovery under the policy for the loss of ENSCO 69 and includes claims for wrongful denial of coverage, breach of contract, breach of the Texas insurance code, failure to timely respond to the claim and bad faith. Our lawsuit seeks actual damages in the amount of $55.0 million (insured value of $65.0 million less a $10.0 million deductible), punitive damages and attorneys' fees. On March 30, 2010, we obtained a temporary restraining order barring underwriters from pursuing the lawsuit in the U.K. |
18 |
ENSCO 29 Wreck Removal A portion of the ENSCO 29 platform drilling rig was lost over the side of a customer's platform as a result of Hurricane Katrina during 2005. Although beneficial ownership of ENSCO 29 was transferred to our insurance underwriters when the rig was determined to be a total loss, management believes we may be legally required to remove ENSCO 29 wreckage and debris from the seabed and currently estimates the removal cost to range from $5.0 million to $15.0 million. Our property insurance policies include coverage for ENSCO 29 wreckage and debris removal costs up to $3.8 million. We also have liability insurance policies that provide specified coverage for wreckage and debris removal costs in excess of the $3.8 million coverage provided under our property insurance policies. Our liability insurance underwriters have issued letters reserving rights and effectively denying coverage by questioning the applicability of coverage for the potential ENSCO 29 wreckage and debris removal costs. During 2007, we commenced litigation against certain underwriters alleging breach of contract, wrongful denial, bad faith and other claims which seek a declaration that removal of wreckage and debris is covered under our liability insurance, monetary damages, attorneys' fees and other remedies. The While we anticipate that any ENSCO 29 wreckage and debris removal costs incurred will be largely or fully covered by insurance, a $1.2 million provision, representing the portion of the $5.0 million low end of the range of estimated removal cost we believe is subject to liability insurance coverage, was recognized during 2006. |
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During 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 In compliance with the Mississippi Rules of Civil Procedure, the individual claimants in the original multi-party lawsuits whose claims were not dismissed were ordered to file either new or amended single plaintiff complaints naming the specific defendant(s) against whom they intended to pursue claims. As a result, out of more than 600 initial multi-party claims, we have been named as a defendant by 65 individual plaintiffs. Of these claims, 62 claims or lawsuits are pending in Mississippi state courts and three are pending in the U.S. District Court as a result of their removal from state court. |
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We intend to vigorously defend against these claims and have filed responsive pleadings preserving all defenses and challenges to jurisdiction and venue. However, discovery is still ongoing and, therefore, available information regarding the nature of all pending claims is limited. At present, we cannot reasonably determine how many of the claimants may have valid claims under the Jones Act or estimate a range of potential liability exposure, if any. In addition to the pending cases in Mississippi, we have |
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Legislation known as the U.K. Working Time Directive ("WTD") was introduced during 2003 and may be applicable to our employees and employees of other drilling contractors that work offshore in A Labor Tribunal in Aberdeen, Scotland, rendered decisions in claims involving other offshore drilling contractors and offshore service companies in February 2008. The Tribunal decisions effectively held that employers of offshore workers in the U.K. sector employed on an equal time on/time off rotation are obligated to accord such rotating personnel two-weeks annual paid time off from their scheduled offshore work assignment period. Both sides of the matter, employee and employer groups, appealed the Tribunal decision. The appeals were heard by the Employment Appeal Tribunal ("EAT") in December 2008. In an opinion rendered The employee group (led by a trade union) appealed the EAT decision to the highest court in Scotland (the Court of Session). A hearing on the appeal is expected
Based on information currently available, we do not expect the ultimate resolution of these matters to have a material adverse effect on our financial position, operating results or cash flows. |
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In addition to the foregoing, we are named defendants or parties in certain other lawsuits, claims or proceedings incidental to our business and are involved from time to time as parties to governmental investigations or proceedings, including matters related to taxation, arising in the ordinary course of business. Although the outcome of such lawsuits or other proceedings 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, we do not expect these matters to have a material adverse effect on our financial position, operating results or cash flows. |
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Our business consists of four operating segments: (1) Deepwater, (2) Asia Pacific, (3) Europe and Africa and (4) North and South America. Each of our four operating segments provides one service, contract drilling. Segment information for the Three Months Ended |
North | |||||||||||||||||||||||
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Europe | and | Operating | |||||||||||||||||||||
Asia | and | South | Segments | Reconciling | Consolidated | ||||||||||||||||||
Deepwater | Pacific | Africa | America | Total | Items | Total | |||||||||||||||||
Revenues | $ 130.4 | $ 139.9 | $ 87.6 | $ 91.5 | $ 449.4 | $ -- | $ 449.4 | ||||||||||||||||
Operating expenses Contract drilling (exclusive of depreciation) | 45.0 | 53.9 | 47.1 | 38.9 | 184.9 | -- | 184.9 | ||||||||||||||||
Depreciation | 9.8 | 19.5 | 11.8 | 12.5 | 53.6 | .3 | 53.9 | ||||||||||||||||
General and administrative | -- | -- | -- | -- | -- | 20.6 | 20.6 | ||||||||||||||||
Operating income (loss) | $ 75.6 | $ 66.5 | $ 28.7 | $ 40.1 | $ 210.9 | $ (20.9) | $ 190.0 | ||||||||||||||||
Total assets | $2,551.0 | $1,179.0 | $755.1 | $822.1 | $5,307.2 | $1,475.5 | $6,782.7 |
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North | North | |||||||||||||||||||||||||||||||||||||||||||||
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and | Operating | Europe | and | Operating | ||||||||||||||||||||||||||||||||||||||||||
Asia | Europe | South | Segments | Reconciling | Consolidated | Asia | and | South | Segments | Reconciling | Consolidated | |||||||||||||||||||||||||||||||||||
Deepwater | Pacific | and Africa | America | Total | Items | Total | Deepwater | Pacific | Africa | America | Total | Items | Total | |||||||||||||||||||||||||||||||||
Revenues | $ 62.5 | $ 161.6 | $104.4 | $ 96.9 | $ 425.4 | $ -- | $ 425.4 | $ -- | $ 211.5 | $196.4 | $ 92.0 | $ 499.9 | $ -- | $ 499.9 | ||||||||||||||||||||||||||||||||
Operating expenses Contract drilling (exclusive of depreciation) | 34.7 | 61.1 | 46.5 | 41.0 | 183.3 | -- | 183.3 | 4.8 | 60.3 | 53.5 | 39.1 | 157.7 | -- | 157.7 | ||||||||||||||||||||||||||||||||
Depreciation | 6.5 | 22.3 | 11.1 | 13.1 | 53.0 | .3 | 53.3 | 2.3 | 19.6 | 10.9 | 12.0 | 44.8 | .3 | 45.1 | ||||||||||||||||||||||||||||||||
General and administrative | -- | -- | -- | -- | -- | 13.6 | 13.6 | -- | -- | -- | -- | -- | 12.0 | 12.0 | ||||||||||||||||||||||||||||||||
Operating income (loss) | $ 21.3 | $ 78.2 | $ 46.8 | $ 42.8 | $ 189.1 | $ (13.9) | $ 175.2 | |||||||||||||||||||||||||||||||||||||||
Operating (loss) income | $ (7.1 | ) | $ 131.6 | $132.0 | $ 40.9 | $ 297.4 | $ (12.3) | $ 285.1 | ||||||||||||||||||||||||||||||||||||||
Total assets | $2,225.6 | $1,277.5 | $785.5 | $821.9 | $5,110.5 | $1,344.7 | $6,455.2 | $1,877.7 | $1,338.4 | $808.5 | $807.1 | $4,831.7 | $1,253.2 | $6,084.9 |
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North | |||||||||||||||||||||||
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and | Operating | ||||||||||||||||||||||
Asia | Europe | South | Segments | Reconciling | Consolidated | ||||||||||||||||||
Deepwater | Pacific | and Africa | America | Total | Items | Total | |||||||||||||||||
Revenues | $ 27.1 | $ 260.8 | $209.3 | $122.3 | $ 619.5 | $ -- | $ 619.5 | ||||||||||||||||
Operating expenses Contract drilling (exclusive of depreciation) | 8.3 | 75.3 | 62.8 | 38.8 | 185.2 | -- | 185.2 | ||||||||||||||||
Depreciation | 2.3 | 21.4 | 10.8 | 12.0 | 46.5 | .5 | 47.0 | ||||||||||||||||
General and administrative | -- | -- | -- | -- | -- | 15.2 | 15.2 | ||||||||||||||||
Operating income (loss) | $ 16.5 | $ 164.1 | $135.7 | $ 71.5 | $ 387.8 | $ (15.7) | $ 372.1 | ||||||||||||||||
Total assets | $1,602.0 | $1,310.7 | $747.2 | $801.3 | $4,461.2 | $996.0 | $5,457.2 |
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North | |||||||||||||||||||||||
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and | Operating | ||||||||||||||||||||||
Asia | Europe | South | Segments | Reconciling | Consolidated | ||||||||||||||||||
Deepwater | Pacific | and Africa | America | Total | Items | Total | |||||||||||||||||
Revenues | $ 130.2 | $ 544.0 | $476.8 | $295.3 | $1,446.3 | $ -- | $1,446.3 | ||||||||||||||||
Operating expenses Contract drilling (exclusive of depreciation) | 63.2 | 188.4 | 152.6 | 120.6 | 524.8 | -- | 524.8 | ||||||||||||||||
Depreciation | 12.5 | 66.2 | 33.0 | 37.2 | 148.9 | .9 | 149.8 | ||||||||||||||||
General and administrative | -- | -- | -- | -- | -- | 41.6 | 41.6 | ||||||||||||||||
Operating income (loss) | $ 54.5 | $ 289.4 | $291.2 | $137.5 | $ 772.6 | $ (42.5) | $ 730.1 | ||||||||||||||||
Total assets | $2,225.6 | $1,277.5 | $785.5 | $821.9 | $5,110.5 | $1,344.7 | $6,455.2 |
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North | |||||||||||||||||||||||
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and | Operating | ||||||||||||||||||||||
Asia | Europe | South | Segments | Reconciling | Consolidated | ||||||||||||||||||
Deepwater | Pacific | and Africa | America | Total | Items | Total | |||||||||||||||||
Revenues | $ 84.3 | $ 779.5 | $602.9 | $322.1 | $1,788.8 | $ -- | $1,788.8 | ||||||||||||||||
Operating expenses Contract drilling (exclusive of depreciation) | 26.5 | 239.4 | 184.9 | 116.0 | 566.8 | -- | 566.8 | ||||||||||||||||
Depreciation | 6.8 | 63.7 | 32.1 | 35.4 | 138.0 | 1.4 | 139.4 | ||||||||||||||||
General and administrative | -- | -- | -- | -- | -- | 41.7 | 41.7 | ||||||||||||||||
Operating income (loss) | $ 51.0 | $ 476.4 | $385.9 | $170.7 | $1,084.0 | $(43.1) | $1,040.9 | ||||||||||||||||
Total assets | $1,602.0 | $1,310.7 | $747.2 | $801.3 | $4,461.2 | $996.0 | $5,457.2 |
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22 |
The deepwater market is becoming increasingly bifurcated between the high-specification, ultra-deepwater rig market and the market for other deepwater rigs. We anticipate continued high utilization of the worldwide ultra-deepwater semisubmersible rig fleet for the foreseeable |
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Asia Pacific During Europe and Africa Our Europe and Africa offshore drilling operations are mainly conducted in |
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The following table summarizes our condensed consolidated operating results |
Three Months Ended | Nine Months Ended | ||||||||||||||||
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September 30, | September 30, | ||||||||||||||||
2009 | 2008 | 2009 | 2008 | 2010 | 2009 | ||||||||||||
Revenues | $425.4 | $619.5 | $1,446.3 | $1,788.8 | $449.4 | $499.9 | |||||||||||
Operating expenses | |||||||||||||||||
Contract drilling (exclusive of depreciation) | 183.3 | 185.2 | 524.8 | 566.8 | 184.9 | 157.7 | |||||||||||
Depreciation | 53.3 | 47.0 | 149.8 | 139.4 | 53.9 | 45.1 | |||||||||||
General and administrative | 13.6 | 15.2 | 41.6 | 41.7 | 20.6 | 12.0 | |||||||||||
Operating income | 175.2 | 372.1 | 730.1 | 1,040.9 | 190.0 | 285.1 | |||||||||||
Other income (expense), net | 3.6 | (6.5 | ) | 6.2 | 4.8 | 3.1 | (4.3) | ||||||||||
Provision for income taxes | 28.4 | 68.8 | 133.8 | 192.0 | 33.2 | 54.6 | |||||||||||
Income from continuing operations | 150.4 | 296.8 | 602.5 | 853.7 | 159.9 | 226.2 | |||||||||||
Income (loss) from discontinued operations, net | .4 | (13.1 | ) | (28.2 | ) | 1.6 | 31.7 | (4.1) | |||||||||
Net income | 150.8 | 283.7 | 574.3 | 855.3 | 191.6 | 222.1 | |||||||||||
Less: Net income attributable to noncontrolling interests | (1.1 | ) | (1.4 | ) | (3.6 | ) | (4.3 | ) | |||||||||
Net income attributable to noncontrolling interests | (1.8) | (1.4) | |||||||||||||||
Net income attributable to Ensco | $149.7 | $282.3 | $ 570.7 | $ 851.0 | $189.8 | $220.7 | |||||||||||
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Rig Locations, Utilization and Average Day Rates We manage our business through four operating segments. |
September 30, | September 30, | |||||||||||||
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2009 | 2008 | 2010 | 2009 | |||||||||||
Deepwater(1) | 3 | 2 | 4 | 2 | ||||||||||
Asia Pacific | 20 | 20 | 18 | 18 | ||||||||||
Europe and Africa | 10 | 10 | 10 | 10 | ||||||||||
North and South America | 13 | 13 | 13 | 13 | ||||||||||
Under construction(1) | 5 | 6 | ||||||||||||
Under construction | 4 | 6 | ||||||||||||
Total(2) | 51 | 51 | 49 | 49 | ||||||||||
(1) |
(2) | The total number of rigs for each period excludes rigs reclassified as discontinued operations. |
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Three Months Ended | Nine Months Ended | ||||||||
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September 30, | September 30, | ||||||||
2009 | 2008 | 2009 | 2008 | ||||||
Rig Utilization(1) | |||||||||
Deepwater | 64% | 87% | 82% | 93% | |||||
Asia Pacific(3) | 62% | 96% | 68% | 95% | |||||
Europe and Africa | 63% | 96% | 83% | 97% | |||||
North and South America | 57% | 98% | 65% | 96% | |||||
Total | 61% | 97% | 71% | 96% | |||||
Average Day Rates(2) | |||||||||
Deepwater | $387,407 | $361,612 | $436,340 | $334,688 | |||||
Asia Pacific(3) | 141,945 | 156,951 | 150,241 | 150,956 | |||||
Europe and Africa | 175,861 | 226,080 | 208,259 | 219,021 | |||||
North and South America | 132,962 | 102,727 | 123,255 | 94,203 | |||||
Total | $159,067 | $160,472 | $166,477 | $154,159 | |||||
2010 | 2009 | ||||||||||
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Rig utilization(1) | |||||||||||
Deepwater | 99% | 100% | |||||||||
Asia Pacific(3) | 74% | 83% | |||||||||
Europe and Africa | 68% | 99% | |||||||||
North and South America | 86% | 67% | |||||||||
Total | 78% | 82% | |||||||||
Average day rates(2) | |||||||||||
Deepwater | $411,090 | $ -- | |||||||||
Asia Pacific(3) | 119,009 | 161,025 | |||||||||
Europe and Africa | 141,032 | 218,947 | |||||||||
North and South America | 88,098 | 119,057 | |||||||||
Total | $139,138 | $167,863 | |||||||||
(1) | Rig utilization is derived by dividing the number of days under contract |
(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. |
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Detailed explanations of our operating results, including discussions of revenues, contract drilling expense and depreciation expense by operating segment, are provided below. |
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Our business consists of four operating segments: (1) Deepwater, (2) Asia Pacific, (3) Europe and Africa and (4) North and South America. Each of our four operating segments provides one service, contract drilling. Segment information for the |
Three Months Ended |
North | |||||||||||||||||||||||
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Europe | and | Operating | |||||||||||||||||||||
Asia | and | South | Segments | Reconciling | Consolidated | ||||||||||||||||||
Deepwater | Pacific | Africa | America | Total | Items | Total | |||||||||||||||||
Revenues | $130.4 | $139.9 | $87.6 | $91.5 | $449.4 | $ -- | $449.4 | ||||||||||||||||
Operating expenses Contract drilling (exclusive of depreciation) | 45.0 | 53.9 | 47.1 | 38.9 | 184.9 | -- | 184.9 | ||||||||||||||||
Depreciation | 9.8 | 19.5 | 11.8 | 12.5 | 53.6 | .3 | 53.9 | ||||||||||||||||
General and administrative | -- | -- | -- | -- | -- | 20.6 | 20.6 | ||||||||||||||||
Operating income (loss) | $ 75.6 | $ 66.5 | $28.7 | $40.1 | $210.9 | $(20.9) | $190.0 | ||||||||||||||||
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North | North | |||||||||||||||||||||||||||||||||||||||||||||
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and | Operating | Europe | and | Operating | ||||||||||||||||||||||||||||||||||||||||||
Asia | Europe | South | Segments | Reconciling | Consolidated | Asia | and | South | Segments | Reconciling | Consolidated | |||||||||||||||||||||||||||||||||||
Deepwater | Pacific | and Africa | America | Total | Items | Total | Deepwater | Pacific | Africa | America | Total | Items | Total | |||||||||||||||||||||||||||||||||
Revenues | $62.5 | $161.6 | $104.4 | $96.9 | $425.4 | $ -- | $425.4 | $ -- | $211.5 | $196.4 | $92.0 | $499.9 | $ -- | $499.9 | ||||||||||||||||||||||||||||||||
Operating expenses Contract drilling (exclusive of depreciation) | 34.7 | 61.1 | 46.5 | 41.0 | 183.3 | -- | 183.3 | 4.8 | 60.3 | 53.5 | 39.1 | 157.7 | -- | 157.7 | ||||||||||||||||||||||||||||||||
Depreciation | 6.5 | 22.3 | 11.1 | 13.1 | 53.0 | .3 | 53.3 | 2.3 | 19.6 | 10.9 | 12.0 | 44.8 | .3 | 45.1 | ||||||||||||||||||||||||||||||||
General and administrative | -- | -- | -- | -- | -- | 13.6 | 13.6 | -- | -- | -- | -- | -- | 12.0 | 12.0 | ||||||||||||||||||||||||||||||||
Operating income (loss) | $21.3 | $ 78.2 | $ 46.8 | $42.8 | $189.1 | $(13.9) | $175.2 | |||||||||||||||||||||||||||||||||||||||
Operating (loss) income | $(7.1 | ) | $131.6 | $132.0 | $40.9 | $297.4 | $(12.3) | $285.1 |
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North | |||||||||||||||||||||||
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and | Operating | ||||||||||||||||||||||
Asia | Europe | South | Segments | Reconciling | Consolidated | ||||||||||||||||||
Deepwater | Pacific | and Africa | America | Total | Items | Total | |||||||||||||||||
Revenues | $27.1 | $260.8 | $209.3 | $122.3 | $619.5 | $ -- | $619.5 | ||||||||||||||||
Operating expenses Contract drilling (exclusive of depreciation) | 8.3 | 75.3 | 62.8 | 38.8 | 185.2 | -- | 185.2 | ||||||||||||||||
Depreciation | 2.3 | 21.4 | 10.8 | 12.0 | 46.5 | .5 | 47.0 | ||||||||||||||||
General and administrative | -- | -- | -- | -- | -- | 15.2 | 15.2 | ||||||||||||||||
Operating income (loss) | $16.5 | $164.1 | $135.7 | $ 71.5 | $387.8 | $(15.7) | $372.1 | ||||||||||||||||
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North | |||||||||||||||||||||||
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and | Operating | ||||||||||||||||||||||
Asia | Europe | South | Segments | Reconciling | Consolidated | ||||||||||||||||||
Deepwater | Pacific | and Africa | America | Total | Items | Total | |||||||||||||||||
Revenues | $130.2 | $544.0 | $476.8 | $295.3 | $1,446.3 | $ -- | $1,446.3 | ||||||||||||||||
Operating expenses Contract drilling (exclusive of depreciation) | 63.2 | 188.4 | 152.6 | 120.6 | 524.8 | -- | 524.8 | ||||||||||||||||
Depreciation | 12.5 | 66.2 | 33.0 | 37.2 | 148.9 | .9 | 149.8 | ||||||||||||||||
General and administrative | -- | -- | -- | -- | -- | 41.6 | 41.6 | ||||||||||||||||
Operating income (loss) | $ 54.5 | $289.4 | $291.2 | $137.5 | $ 772.6 | $(42.5) | $ 730.1 | ||||||||||||||||
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North | |||||||||||||||||||||||
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and | Operating | ||||||||||||||||||||||
Asia | Europe | South | Segments | Reconciling | Consolidated | ||||||||||||||||||
Deepwater | Pacific | and Africa | America | Total | Items | Total | |||||||||||||||||
Revenues | $84.3 | $779.5 | $602.9 | $322.1 | $1,788.8 | $ -- | $1,788.8 | ||||||||||||||||
Operating expenses Contract drilling (exclusive of depreciation) | 26.5 | 239.4 | 184.9 | 116.0 | 566.8 | -- | 566.8 | ||||||||||||||||
Depreciation | 6.8 | 63.7 | 32.1 | 35.4 | 138.0 | 1.4 | 139.4 | ||||||||||||||||
General and administrative | -- | -- | -- | -- | -- | 41.7 | 41.7 | ||||||||||||||||
Operating income (loss) | $51.0 | $476.4 | $385.9 | $170.7 | $1,084.0 | $(43.1) | $1,040.9 | ||||||||||||||||
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Deepwater revenues for the quarter ended
Asia Pacific Asia Pacific revenues for the quarter ended
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Europe and Africa revenues for the quarter ended
North and South America North and South America revenues for the quarter ended
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General and administrative expense for the quarter ended |
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2010 | 2009 | ||||
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Interest income | $ .1 | $ .7 | |||
Interest expense, net: | |||||
Interest expense | (5.0 | ) | (5.3 | ) | |
Capitalized interest | 5.0 | 5.3 | |||
-- | -- | ||||
Other, net | 3.0 | (5.0 | ) | ||
$3.1 | $(4.3 | ) | |||
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Three Months Ended | Nine Months Ended | ||||||||
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September 30, | September 30, | ||||||||
2009 | 2008 | 2009 | 2008 | ||||||
Interest income | $ .8 | $ 3.2 | $ 1.9 | $ 11.9 | |||||
Interest expense, net: | |||||||||
Interest expense | (5.2 | ) | (5.5 | ) | (15.8 | ) | (16.3 | ) | |
Capitalized interest | 5.2 | 5.5 | 15.8 | 16.3 | |||||
-- | -- | -- | -- | ||||||
Other, net | 2.8 | (9.7 | ) | 4.3 | (7.1 | ) | |||
$3.6 | $(6.5 | ) | $ 6.2 | $ 4.8 | |||||
Our functional currency is the U.S. dollar, and a portion of the revenues earned and expenses incurred by some of our subsidiaries are denominated in currencies other than the U.S. dollar ("foreign currencies"). These transactions are remeasured in U.S. dollars based on a combination of both current and historical exchange rates. Other, net,
Provision for Income Taxes Income tax rates imposed in the tax jurisdictions in which our subsidiaries conduct operations vary, as does the tax base to which the rates are applied. In some cases, tax rates may be applicable to gross revenues, statutory or negotiated deemed profits or other bases utilized under local tax laws, rather than to net income. Our drilling rigs frequently move from one taxing jurisdiction to another to perform contract drilling services. In some instances, the movement of drilling rigs among taxing jurisdictions will involve a transfer of drilling rig ownership among our subsidiaries. As a result of the frequent changes in taxing jurisdictions in which our drilling rigs are operated and/or owned, our consolidated effective income tax rate may vary substantially from one reporting period Subsequent to our redomestication to the U.K. in December 2009, we reorganized our worldwide operations, which included, Income tax expense was $33.2 million and |
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Discontinued OperationsENSCO 50 and ENSCO 51 In recent years we have focused on the expansion of our ultra-deepwater semisubmersible rig fleet and high-grading our premium jackup rig fleet. Accordingly, we sold ENSCO 50 and ENSCO 51 in March 2010 for an aggregate $94.7 million, of which $4.7 million was received in December 2009. We recognized an aggregate pre-tax gain of $33.9 million in connection with the disposals of ENSCO 50 and ENSCO 51, which was included in gain on disposal of discontinued operations, net, in our condensed consolidated statement of income for the quarter ended March 31, 2010. ENSCO 50 and ENSCO 51 operating results were reclassified as discontinued operations in our condensed consolidated statements of income for the quarters ended March 31, 2010 and 2009. See Note |
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ENSCO 69 From May 2007 to June 2009, ENSCO 69 was contracted to Petrosucre, a subsidiary of
Due to Petrosucre's |
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In November 2009, we executed an agreement with Petrosucre to mitigate our losses and resolve issues relative to outstanding amounts owed by Petrosucre for drilling operations performed by Ensco through the date of termination of the drilling contract in June 2009 (the "agreement"). Although ENSCO 69 will continue to be fully controlled and operated by Petrosucre, the agreement requires Petrosucre to compensate us for its ongoing use of the rig. We recognized $6.9 million of pre-tax income from discontinued operations for the quarter ended Although the agreement obligates Petrosucre to make additional payments for its use of the rig during the quarter ended March 31, 2010, the associated income was not recognized in our condensed consolidated statement of income, as collectability was not reasonably assured. There can be no assurances relative to the recovery of outstanding contract entitlements, insurance recovery and related pending litigation, the possible return of ENSCO 69 to us by Petrosucre or the imposition of customs duties in relation to the rig's ongoing presence in Venezuela. See Note 9 to our condensed consolidated financial statements for additional information on |
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Three Months | Nine Months | |||||||||||||
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Ended September 30, | Ended September 30, | |||||||||||||
2009 | 2008 | 2009 | 2008 | 2010 | 2009 | |||||||||
Revenues | $ -- | $ 27.6 | $ 4.8 | $ 75.7 | $11.7 | $14.2 | ||||||||
Operating expenses | (.8 | ) | 11.7 | 18.8 | 35.8 | 5.9 | 18.4 | |||||||
Operating income (loss) before income taxes | .8 | 15.9 | (14.0) | 39.9 | 5.8 | (4.2 | ) | |||||||
Income tax expense | .4 | 5.5 | 2.4 | 14.8 | ||||||||||
Loss on disposal of discontinued operations, net | -- | (23.5) | (11.8) | (23.5) | ||||||||||
Income tax expense (benefit) | 3.3 | (.1 | ) | |||||||||||
Gain on disposal of discontinued operations, net | 29.2 | -- | ||||||||||||
Income (loss) from discontinued operations | $.4 | $(13.1) | $(28.2) | $ 1.6 | $31.7 | $(4.1 | ) | |||||||
Fair Value Measurements Our auction rate securities were measured at fair value as of As a result of continued auction failures, quoted prices for our auction rate securities did not exist as of |
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Based on the results of our |
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LIQUIDITY AND CAPITAL RESOURCES Although our business historically has During the During the |
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Our cash flow from continuing operations and capital expenditures on continuing operations for the |
Nine Months Ended | ||||||||||
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September 30, | ||||||||||
2009 | 2008 | 2010 | 2009 | |||||||
Cash flow from continuing operations | $938.2 | $733.8 | $144.1 | $327.7 | ||||||
Capital expenditures on continuing operations | ||||||||||
New rig construction | $486.5 | $562.4 | $151.5 | $118.8 | ||||||
Rig enhancements | 129.9 | 24.0 | 1.9 | 38.5 | ||||||
Minor upgrades and improvements | 68.3 | 67.5 | 14.3 | 26.6 | ||||||
$684.7 | $653.9 | $167.7 | $183.9 | |||||||
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We continue to expand the size and quality of our drilling rig fleet. We have Based on our current projections, we expect capital expenditures during |
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Our long-term debt, total capital and long-term debt to total capital ratios as of |
September 30, | December 31, | March 31, | December 31, | |||||||
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2009 | 2008 | 2010 | 2009 | |||||||
Long-term debt | $ 265.8 | $ 274.3 | $ 257.2 | $ 257.2 | ||||||
Total capital* | 5,550.0 | 4,951.2 | 5,948.3 | 5,756.4 | ||||||
Long-term debt to total capital | 4.8 | % | 5.5 | % | 4.3% | 4.5% |
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As of From inception of our |
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Liquidity Our liquidity position as of |
September 30, | December 31, | March 31, | December 31, | |||||||
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2009 | 2008 | 2010 | 2009 | |||||||
Cash and cash equivalents | $1,017.2 | $789.6 | $1,229.4 | $1,141.4 | ||||||
Working capital | 1,147.8 | 973.0 | 1,364.2 | 1,167.9 | ||||||
Current ratio | 3.8 | 3.3 | 5.1 | 3.4 |
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Effects of Climate Change and Climate Change RegulationGreenhouse gas emissions have increasingly become the subject of international, national, regional, state and local attention. Cap and trade initiatives to limit greenhouse gas emissions have been introduced in the European Union. Similarly, numerous bills related to climate change have been introduced in the U.S. Congress, which could adversely impact most industries. In addition, future regulation of greenhouse gas could occur pursuant to future treaty obligations, statutory or regulatory changes or new climate change legislation in the jurisdictions in which we operate. It is uncertain whether any of these initiatives will be implemented. However, based on published media reports, we believe that it is not reasonably likely that the current proposed initiatives in the U.S. will be implemented without substantial modification. If such initiatives are implemented, we do not believe that such initiatives would have a direct, material adverse effect on our operating costs. Restrictions on greenhouse gas emissions could have an indirect effect in those industries that use significant amounts of petroleum products, which could potentially result in a reduction in demand for petroleum products and, consequently, our offshore contract drilling services. We are currently unable to predict the manner or extent of any such effect. Furthermore, one of the long-term physical effects of climate change may be an increase in the severity and frequency of adverse weather conditions, such as hurricanes, which may increase our insurance costs or risk retention, limit insurance availability or reduce the areas in which, or the number of days during which, our customers would contract for our drilling rigs in general and in the Gulf of Mexico in particular. We are currently unable to predict the manner or extent of any such effect. MARKET RISK Derivatives We use derivatives to reduce our exposure to various market risks, primarily foreign currency exchange rate risk. Our functional currency is the U.S. dollar. As is customary in the oil and gas industry, a majority of our revenues are denominated in U.S. dollars, however, a portion of the expenses incurred by some of our subsidiaries are denominated in currencies other than the U.S. dollar ("foreign currencies"). We maintain a foreign currency exchange rate risk management strategy that utilizes derivatives to reduce our exposure to unanticipated fluctuations in earnings and cash flows caused by changes in foreign currency exchange rates. We occasionally employ an interest rate risk management strategy that utilizes |
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We have net assets and liabilities denominated in numerous foreign currencies and use various methods to manage our exposure to changes in foreign currency exchange rates. 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 derivatives, 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 utilize As of |
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We have generated a substantial cash balance, portions of which are invested in securities that meet our requirements for quality and return. Investment of our cash exposes us to market risk. We held To measure the fair value of our auction rate securities as of |
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The preparation of Property and Equipment As of We develop and apply property and equipment accounting policies that are designed to appropriately and consistently capitalize those costs incurred to enhance, improve and extend the useful lives of our assets and expense those costs incurred to repair or maintain the existing condition or useful lives of our assets. The development and application of such policies requires estimates, judgments and assumptions by management relative to the nature of, and benefits from, expenditures on our assets. We establish property and equipment accounting policies that are designed to depreciate our assets over their estimated useful lives. The judgments and assumptions used by management in determining the For additional information on the useful lives of our 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 Part II of our Annual Report on Form 10-K for the year ended December 31, |
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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 day rates increase when 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 |
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If the global economy deteriorates and/or other events or changes in circumstances indicate that the carrying value of one or more of our drilling rigs may not be recoverable, we will conclude that a triggering event has occurred and perform a recoverability test. If, at the time of the recoverability test, management's judgments and assumptions regarding future industry conditions and operations have diminished, it is reasonably possible that we would conclude that one or more of our drilling rigs are impaired. 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 each unit's fair value as of the testing date. Our four operating segments represent our reporting units. 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 the appropriate risk-adjusted discount rate, as well as future industry conditions and operations, including If the aggregate fair value of our reporting units exceeds our market capitalization, we evaluate the reasonableness of the implied control premium which includes a comparison to implied control premiums from recent market transactions within our industry or other relevant benchmark data. 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 and reduce the estimated fair values of our reporting 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 disposal. Based on our annual goodwill impairment test performed as of December 31, If the global economy deteriorates and/or our expectations relative to future offshore drilling industry conditions decline, we may conclude that the fair value of one or more of our reporting units has more-likely-than-not declined below its carrying amount and perform 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 assumptions regarding future industry conditions and operations, as well as management's estimates of |
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We conduct operations and earn income in numerous countries and are subject to the laws of numerous tax The carrying values of deferred income tax assets and liabilities reflect the application of our income tax accounting policies and are based on management's estimates, judgments and assumptions regarding future operating results and levels of taxable income. Carryforwards and tax credits are assessed for realization as a reduction of future taxable income by using a more-likely-than-not determination. The carrying values of liabilities for income taxes currently payable and unrecognized tax benefits are based on management's interpretation of applicable tax laws and incorporate management's estimates, judgments and assumptions regarding the use of tax planning strategies in various taxing jurisdictions. The use of different estimates, judgments and assumptions in connection with accounting for income taxes, especially those involving the deployment of tax planning strategies, may result in materially different carrying values of income tax assets and liabilities and operating results. We operate in many Tax returns are routinely subject to audit in most jurisdictions and tax liabilities are occasionally finalized through a negotiation process. While we have not historically experienced significant adjustments to previously recognized tax assets and liabilities as a result of finalizing tax returns, there can be no assurance that significant adjustments will not arise in the future. In addition, there are several factors that could cause the future level of uncertainty relating to our tax liabilities to increase, including the following: |
• | The IRS and/or HMRC may disagree with our interpretation of tax laws, treaties or regulations with respect to the redomestication. | |
• | During recent years, the | |
• | In order to utilize tax planning strategies and conduct | |
• | 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. | |
• |
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PART II - OTHER INFORMATION FCPA Internal Investigation Following disclosures by other offshore service companies announcing internal investigations involving the legality of amounts paid to and by customs brokers in connection with temporary importation of rigs and vessels into Nigeria, the Audit Committee of our Board of Directors and management commenced an internal investigation in July 2007. The investigation initially focused on our payments to customs brokers relating to the temporary importation of ENSCO 100, our only rig that operated offshore Nigeria during the pertinent period. As is customary for companies operating offshore Nigeria, we had engaged independent customs brokers to process customs clearance of routine shipments of equipment, materials and supplies and to process the ENSCO 100 temporary importation permits, extensions and renewals. One or more of the customs brokers that our subsidiary in Nigeria used to obtain the ENSCO 100 temporary import permits, extensions and renewals also provided this service to other offshore service companies that have undertaken The principal purpose of our investigation was to determine whether any of the payments made to or by our customs brokers were inappropriate under the anti-bribery provisions of the FCPA or whether any violations of the recordkeeping or internal accounting control provisions of the FCPA occurred. Our Audit Committee engaged a Washington, D.C. law firm with significant experience in investigating and advising upon FCPA matters to assist in the internal investigation. Following notification to the Audit Committee and to KPMG LLP, our independent registered public accounting firm, in consultation with the Audit Committee's external legal counsel, we voluntarily notified the United States Department of Justice and SEC that we had commenced an internal investigation. We expressed our intention to cooperate with both agencies, comply with their directives and fully disclose the results of the investigation. The internal investigation process has involved extensive reviews of documents and records, as well as production to the authorities, and interviews of relevant personnel. In addition to the temporary importation of ENSCO 100, the investigation has examined our customs clearance of routine shipments and immigration activities in Nigeria. Our internal investigation has essentially been concluded. Although we believe the U.S. authorities will take into account our voluntary disclosure, our cooperation with the agencies and the remediation and compliance enhancement activities that are underway, we are unable to predict the ultimate disposition of this matter, whether we will be charged with violation of the anti-bribery, recordkeeping or internal accounting control provisions of the FCPA or whether the scope of the investigation will be extended to other issues in Nigeria or to other countries. We also are unable to predict what potential corrective measures, fines, sanctions or other remedies, if any, the agencies may seek against us or any of our employees. In November 2008, our Board of Directors approved enhanced FCPA compliance recommendations issued by the Audit Committee's external legal counsel, and the Company embarked upon an enhanced compliance initiative that included appointment of a Chief Compliance Officer and a Director - Corporate Compliance. We engaged consultants to assist us in implementing the compliance recommendations approved by our Board of Directors, which include an enhanced compliance policy, increased training and testing, prescribed contractual provisions for our service providers that interface with foreign government officials, due diligence for the selection of such service providers and an increased Company-wide awareness initiative that includes periodic issuance of FCPA Alerts. |
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In September 2008, ENSCO 74 was lost as a result of Hurricane Ike in the Gulf of Mexico. Portions of its legs remained underwater adjacent to the customer's platform, and we conducted extensive aerial and sonar reconnaissance but In March 2009, the sunken rig hull of ENSCO 74 was located On March 17, 2009, we received notice from legal counsel representing certain underwriters in a subrogation claim alleging that ENSCO 74 caused a pipeline to rupture during Hurricane Ike. On September 4, 2009, High Island Offshore System, LLC, commenced civil litigation against us in the U.S. District Court for the Southern District of Texas seeking damages for the cost of repairs and business interruption in On March 18, 2009, SKS OBO & Tankers AS and Kristen Gehard Jebsen Skipsrederi AS, the owner and manager of the SKS Satilla, commenced civil litigation against us in the U.S. District Court for the Southern District of Texas On June 9, 2009, we received notice from legal counsel representing another pipeline owner which allegedly sustained damages to a subsea pipeline caused by ENSCO 74 We filed a petition for exoneration or limitation of liability under U.S. admiralty and maritime law in the U.S. District Court for the Southern District of Texas on September 2, 2009. The petition seeks exoneration from or limitation of liability for any and all injury, loss or damage caused, occasioned or occurred in relation to the ENSCO 74 loss in September 2008. Claims have been presented in the exoneration/limitation proceedings by the owners of the SKS Satilla tanker and the High Island and Sea Robin pipelines. The owners of two other subsea pipelines have also presented claims in the exoneration/limitation of liability proceedings. The claims were filed on behalf of Stingray Pipeline Company, LLC, and Tennessee Gas Pipeline seeking monetary damages incurred by reason of damage to pipelines allegedly caused by ENSCO 74 during Hurricane Ike. The Stingray claim is in the amount of $14.0 million, and the Tennessee Gas Pipeline claim is for unspecified damages. Based on information currently available, we have concluded that it is remote that liabilities exist with respect to these matters. |
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A portion of the ENSCO 29 platform drilling rig was lost over the side of a customer's platform as a result of Hurricane Katrina during 2005. Although beneficial ownership of ENSCO 29 was transferred to our insurance underwriters when the rig was determined to be a total loss, management believes we may be legally required to remove ENSCO 29 wreckage and debris from the seabed and currently estimates the removal cost to range from $5.0 million to $15.0 million. Our property insurance policies include coverage for ENSCO 29 wreckage and debris removal costs up to $3.8 million. We also have liability insurance policies that provide specified coverage for wreckage and debris removal costs in excess of the $3.8 million coverage provided under our property insurance policies. |
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While we anticipate that any ENSCO 29 wreckage and debris removal costs incurred will be largely or fully covered by insurance, a $1.2 million provision, representing the portion of the $5.0 million low end of the range of estimated removal cost we believe is subject to liability insurance coverage, was recognized during 2006. |
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Asbestos Litigation During 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. In compliance with the Mississippi Rules of Civil Procedure, the individual claimants in the original multi-party lawsuits whose claims were not dismissed were ordered to file either new or amended single plaintiff complaints naming the specific defendant(s) against whom they intended to pursue claims. As a result, out of more than 600 initial multi-party claims, we have been named as a defendant by 65 individual plaintiffs. Of these claims, 62 claims or lawsuits are pending in Mississippi state courts and three are pending in the U.S. District Court as a result of their removal from state court. We intend to vigorously defend against these claims and have filed responsive pleadings preserving all defenses and challenges to jurisdiction and venue. However, discovery is still ongoing and, therefore, available information regarding the nature of all pending claims is limited. At present, we cannot reasonably determine how many of the claimants may have valid claims under the Jones Act or estimate a range of potential liability exposure, if any. In addition to the pending cases in Mississippi, we have |
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We have filed an insurance claim under our package policy, which includes coverage for certain political risks, and are evaluating legal remedies against Petrosucre for contractual and other ENSCO 69 related damages. ENSCO 69 has an insured value of $65.0 million under our package policy, subject to a $10.0 million deductible. By letter dated September 30, 2009, legal counsel acting for the package policy underwriters denied coverage under the package policy and reserved rights. On March 15, 2010, underwriters commenced litigation in the U.K. High Court of Justice, Commercial Court, for purposes of enforcing mediation under the disputes clause of our package policy and precluding us from pursuing litigation in the United States. On that date, we commenced litigation styled ENSCO International Incorporated vs Certain Underwriters at Lloyds, et al, in the District Court, Dallas County, Texas to recover on our political risk package policy claim. Our lawsuit seeks recovery under the policy for the loss of ENSCO 69 and includes claims for wrongful denial of coverage, breach of contract, breach of the Texas insurance code, failure to timely respond to the claim and bad faith. Our lawsuit seeks actual damages in the amount of $55.0 million (insured value of $65.0 million less a $10.0 million deductible), punitive damages and attorneys' fees. On March 30, 2010, we obtained a temporary restraining order from the Texas Court barring underwriters from pursuing the lawsuit in the U.K, and we will seek a temporary injunction to continue this restrainment until we have pursued our claim in Texas. These proceedings are in an early stage and there can be no assurances as to the ultimate outcome. See Note 8 to our condensed consolidated financial statements for additional information on ENSCO 69. Other Matters In addition to the foregoing, we are named defendants or parties in certain other lawsuits, claims or proceedings incidental to our business and are involved from time to time as parties to governmental investigations or proceedings, including matters related to taxation, arising in the ordinary course of business. Although the outcome of such lawsuits or other proceedings 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, we do not expect these matters to have a material adverse effect on our financial position, operating results or cash flows. |
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There are numerous factors that affect our business and results of operations, many of which are beyond our control. In addition to information set forth in this
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Issuer Purchases of Equity Securities | ||||||||||||||||||||||||||||
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Approximate | ||||||||||||||||||||||||||||
Total Number | Dollar | Total Number | Approximate | |||||||||||||||||||||||||
of Shares | Value of | of Shares | Dollar Value 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 | ||||||||||||||||||
July 1 - July 31 | 4,061 | $37.11 | -- | $562,000,000 | ||||||||||||||||||||||||
August 1 - August 31 | 3,915 | 37.15 | -- | $562,000,000 | ||||||||||||||||||||||||
September 1 - September 30 | 3,535 | 38.30 | -- | $562,000,000 | ||||||||||||||||||||||||
January 1 - January 31 | 282 | $41.58 | -- | $562,000,000 | ||||||||||||||||||||||||
February 1 - February 28 | 1,337 | 41.89 | -- | 562,000,000 | ||||||||||||||||||||||||
March 1 - March 31 | 6,759 | 44.04 | -- | 562,000,000 | ||||||||||||||||||||||||
Total | 11,511 | $37.49 | -- | 8,378 | $43.61 | -- | ||||||||||||||||||||||
From inception of our share repurchase programs during 2006 through December 31, 2009, we repurchased an aggregate 16.5 million shares at a cost of $937.6 million (an average cost of $56.79 per share). No shares were repurchased under |
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Exhibit No. |
3.1 | ||
3.2 | ||
4.1 | ||
*10.1 | First Amendment | |
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*15.1 | 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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Exhibit No. |
**101.INS | XBRL Instance Document | |
**101.SCH | XBRL Taxonomy Extension Schema | |
**101.CAL | XBRL Taxonomy Extension Calculation Linkbase | |
**101.DEF | XBRL Taxonomy Extension Definition Linkbase | |
**101.LAB | XBRL Taxonomy Extension Label Linkbase | |
**101.PRE | XBRL Taxonomy Extension Presentation Linkbase |
* Filed herewith. |
** Furnished herewith. |
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Date: | /s/ JAMES W. SWENT III James W. Swent III Senior Vice President - Chief Financial Officer | |
/s/ DAVID A. ARMOUR David A. Armour Vice President - Finance | ||
/s/ DOUGLAS J. MANKO Douglas J. Manko Controller and Assistant Secretary | ||
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