UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
| |
| (Mark One) |
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended SeptemberJune 30, 20172018 |
OR
|
| |
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to |
Commission File Number 1-8097
Ensco plc
(Exact name of registrant as specified in its charter)
|
| | |
England and Wales (State or other jurisdiction of incorporation or organization) 6 Chesterfield Gardens London, England (Address of principal executive offices) | | 98-0635229 (I.R.S. Employer Identification No.) W1J 5BQ (Zip Code) |
Registrant's telephone number, including area code: 44 (0) 20 7659 4660
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No 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 x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
|
| | | | | | |
| Large accelerated filer | | x | | Accelerated filer | | o |
| | | | | | | |
| Non-Accelerated filer | | o (Do not check if a smaller reporting company) | | Smaller reporting company | | o |
| | | | | | | |
| | | | | Emerging-growth company | | o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of OctoberJuly 19, 2017,2018, there were 436,019,178437,121,391 Class A ordinary shares of the registrant issued and outstanding.
ENSCO PLC
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBERJUNE 30, 20172018
FORWARD-LOOKING STATEMENTS
Statements contained in this report that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements include words or phrases such as "anticipate," "believe," "estimate," "expect," "intend," "plan," "project," "could," "may," "might," "should," "will" and similar words and specifically include statements regarding expected financial performance; dividends; expected utilization, day rates, revenues, operating expenses, contract terms, contract backlog, capital expenditures, insurance, financing and funding; expected work commitments, awards and contracts; the timing of availability, delivery, mobilization, contract commencement or relocation or other movement of rigs and the timing thereof;rigs; future rig construction (including construction in progress and completion thereof), enhancement, upgrade or repair and timing and cost thereof; the suitability of rigs for future contracts; the offshore drilling market, including supply and demand, customer drilling programs, stacking of rigs, effects of new rigs on the market and effects of declines in commodity prices; expected divestitures of assets; general market, business and industry conditions, trends and outlook; future operations; the impact of increasing regulatory complexity; our program to high-grade the rig fleet by investing in new equipment and divesting selected assets and underutilized rigs; expense management; and the likely outcome of litigation, legal proceedings, investigations or insurance or other claims or contract disputes and the timing thereof.
Such statements are subject to numerous risks, uncertainties and assumptions that may cause actual results to vary materially from those indicated, including:
our ability to successfully integrate the business, operations and employees of Atwood Oceanics, Inc. (“Atwood”("Atwood") and to realize synergies and cost savings in connection with our acquisition of Atwood;
changes in future levels of drilling activity and capital expenditures by our customers, whether as a result of global capital markets and liquidity, prices of oil and natural gas or otherwise, which may cause us to idle or stack additional rigs;
changes in worldwide rig supply and demand, competition or technology, including as a result of delivery of newbuild drilling rigs;
downtime and other risks associated with offshore rig operations, including rig or equipment failure, damage and other unplanned repairs, the limited availability of transport vessels, hazards, self-imposed drilling limitations and other delays due to severe storms and hurricanes and the limited availability or high cost of insurance coverage for certain offshore perils, such as hurricanes in the Gulf of Mexico or associated removal of wreckage or debris;
governmental action, terrorism, piracy, military action and political and economic uncertainties, including uncertainty or instability resulting from civil unrest, political demonstrations, mass strikes, or an escalation or additional outbreak of armed hostilities or other crises in oil or natural gas producing areas of the Middle East, North Africa, West Africa or other geographic areas, which may result in expropriation, nationalization, confiscation or deprivation of our assets or suspension and/or termination of contracts based on force majeure events;
risks inherent to shipyard rig construction, repair, modification or upgrades, unexpected delays in equipment delivery, engineering, design or commissioning issues following delivery, or changes in the commencement, completion or service dates;
possible cancellation, suspension, renegotiation or termination (with or without cause) of drilling contracts as a result of general and industry-specific economic conditions, mechanical difficulties, performance or other reasons;
our ability to enter into, and the terms of, future drilling contracts, including contracts for our newbuild units and acquired rigs, for rigs currently idled and for rigs whose contracts are expiring;
any failure to execute definitive contracts following announcements of letters of intent, letters of award or other expected work commitments;
the outcome of litigation, legal proceedings, investigations or other claims or contract disputes, including any inability to collect receivables or resolve significant contractual or day rate disputes, any renegotiation, nullification, cancellation or breach of contracts with customers or other parties and any failure to execute definitive contracts following announcements of letters of intent;
governmental regulatory, legislative and permitting requirements affecting drilling operations, including limitations on drilling locations (such as the Gulf of Mexico during hurricane season);
new and future regulatory, legislative or permitting requirements, future lease sales, changes in laws, rules and regulations that have or may impose increased financial responsibility, additional oil spill abatement contingency plan capability requirements and other governmental actions that may result in claims of force majeure or otherwise adversely affect our existing drilling contracts, operations or financial results;
our ability to attract and retain skilled personnel on commercially reasonable terms, whether due to labor regulations, unionization or otherwise;
environmental or other liabilities, risks, damages or losses, whether related to storms or hurricanes (including wreckage or debris removal), collisions, groundings, blowouts, fires, explosions, other accidents, terrorism or otherwise, for which insurance coverage and contractual indemnities may be insufficient, unenforceable or otherwise unavailable;
our ability to obtain financing, service our indebtedness and pursue other business opportunities may be limited by our debt levels, debt agreement restrictions and the credit ratings assigned to our debt by independent credit rating agencies;
the adequacy of sources of liquityliquidity for us and our customers;
tax matters, including our effective tax rates, tax positions, results of audits, changes in tax laws, treaties and regulations, tax assessments and liabilities for taxes;
delays in contract commencement dates or the cancellation of drilling programs by operators;
the occurrence of cybersecurity incidents, attacks or other breaches to our information technology systems;
adverse changes in foreign currency exchange rates, including their effect on the fair value measurement of our derivative instruments; and
potential long-lived asset impairments.
In addition to the numerous risks, uncertainties and assumptions described above, you should also carefully read and consider "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part I and "Item 1A. Risk Factors" in Part II of this report and "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, 2016,2017, which is available on the U.S. Securities and Exchange Commission website at www.sec.gov. Each forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to publicly update or revise any forward-lookingforward looking statements, except as required by law.
PART I - FINANCIAL INFORMATION
Item 1.Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Ensco plc:
Results of Review of Interim Financial Information
We have reviewed the accompanying condensed consolidated balance sheet of Ensco plc and subsidiaries (the Company) as of SeptemberJune 30, 2017, and2018, the related condensed consolidated statements of operations and comprehensive (loss) incomeloss for the three-month and nine-monthsix-month periods ended SeptemberJune 30, 20172018 and 2016, and2017, the related condensed consolidated statements of cash flows for the nine-monthsix-month periods ended SeptemberJune 30, 2018 and 2017, and 2016. These condensedthe related notes (collectively, the consolidated interim financial statementsinformation). Based on our reviews, we are not aware of any material modifications that should be made to the responsibility of the Company’s management.consolidated interim financial information for it to be in conformity with U.S. generally accepted accounting principles.
We conducted our reviewhave previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States). (PCAOB), the consolidated balance sheet of the Company as of December 31, 2017, and the related consolidated statements of operations, comprehensive income (loss), and cash flows for the year then ended (not presented herein); and in our report dated February 27, 2018, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2017, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
This consolidated interim financial information is the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our reviews in accordance with the standards of the PCAOB. A review of consolidated interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States),PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Ensco plc and subsidiaries as of December 31, 2016 and the related consolidated statements of operations, comprehensive income (loss), and cash flows for the year then ended (not presented herein); and in our report dated February 28, 2017, we expressed an unqualified opinion on those consolidated financial statements.In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2016, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
/s/ KPMG LLP
Houston, Texas
OctoberJuly 26, 20172018
ENSCO PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
| | | | Three Months Ended
September 30, | Three Months Ended
June 30, |
| | 2017 | | 2016 | 2018 | | 2017 |
| OPERATING REVENUES | $ | 460.2 |
| | $ | 548.2 |
| $ | 458.5 |
|
| $ | 457.5 |
|
| OPERATING EXPENSES | | | |
|
| |
| Contract drilling (exclusive of depreciation) | 285.8 |
| | 298.1 |
| 344.3 |
|
| 291.3 |
|
| Depreciation | 108.2 |
| | 109.4 |
| 120.7 |
|
| 107.9 |
|
| General and administrative | 30.4 |
| | 25.3 |
| 26.1 |
|
| 30.5 |
|
| | 424.4 |
| | 432.8 |
| 491.1 |
|
| 429.7 |
|
| OPERATING INCOME | 35.8 |
| | 115.4 |
| |
| OPERATING INCOME (LOSS) | | (32.6 | ) |
| 27.8 |
|
| OTHER INCOME (EXPENSE) | | | | | | |
| Interest income | 7.5 |
| | 3.8 |
| 3.9 |
|
| 7.6 |
|
| Interest expense, net | (48.1 | ) | | (53.4 | ) | (75.7 | ) |
| (60.3 | ) |
| Other, net | .2 |
| | 18.7 |
| (13.0 | ) |
| (.5 | ) |
| | (40.4 | ) | | (30.9 | ) | (84.8 | ) |
| (53.2 | ) |
| (LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | (4.6 | ) | | 84.5 |
| |
| LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | | (117.4 | ) |
| (25.4 | ) |
| PROVISION FOR INCOME TAXES | | | | | | |
| Current income tax expense (benefit) | 14.9 |
| | (5.7 | ) | |
| Current income tax expense | | 20.1 |
| | 13.1 |
|
| Deferred income tax expense | 8.5 |
| | 2.2 |
| 4.6 |
| | 6.2 |
|
| | 23.4 |
| | (3.5 | ) | 24.7 |
|
| 19.3 |
|
| (LOSS) INCOME FROM CONTINUING OPERATIONS | (28.0 | ) | | 88.0 |
| |
| LOSS FROM DISCONTINUED OPERATIONS, NET | (.2 | ) | | (.7 | ) | |
| NET (LOSS) INCOME | (28.2 | ) | | 87.3 |
| |
| NET LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTERESTS | 2.8 |
| | (2.0 | ) | |
| NET (LOSS) INCOME ATTRIBUTABLE TO ENSCO | $ | (25.4 | ) | | $ | 85.3 |
| |
| (LOSS) EARNINGS PER SHARE - BASIC AND DILUTED | | | | |
| LOSS FROM CONTINUING OPERATIONS | | (142.1 | ) |
| (44.7 | ) |
| INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET | | (8.0 | ) |
| .4 |
|
| NET LOSS | | (150.1 | ) |
| (44.3 | ) |
| NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | | (.9 | ) |
| (1.2 | ) |
| NET LOSS ATTRIBUTABLE TO ENSCO | | $ | (151.0 | ) |
| $ | (45.5 | ) |
| LOSS PER SHARE - BASIC AND DILUTED | | | | |
| Continuing operations | $ | (0.08 | ) | | $ | 0.28 |
| $ | (0.33 | ) |
| $ | (0.15 | ) |
| Discontinued operations | — |
| | — |
| (0.02 | ) |
| — |
|
| | $ | (0.08 | ) | | $ | 0.28 |
| $ | (0.35 | ) |
| $ | (0.15 | ) |
| | | | | | | |
| NET (LOSS) INCOME ATTRIBUTABLE TO ENSCO SHARES - BASIC AND DILUTED | $ | (25.5 | ) | | $ | 83.5 |
| |
| NET LOSS ATTRIBUTABLE TO ENSCO SHARES - BASIC AND DILUTED | | $ | (151.1 | ) |
| $ | (45.6 | ) |
| | | | | | | |
| WEIGHTED-AVERAGE SHARES OUTSTANDING | | | | | | |
| Basic and Diluted | 301.2 |
| | 298.6 |
| 434.1 |
|
| 300.9 |
|
| | | | | | | |
| CASH DIVIDENDS PER SHARE | $ | 0.01 |
| | $ | 0.01 |
| $ | 0.01 |
| | $ | 0.01 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
ENSCO PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
| | | | Nine Months Ended
September 30, | Six Months Ended
June 30, |
| | 2017 | | 2016 | 2018 | | 2017 |
| OPERATING REVENUES | $ | 1,388.8 |
| | $ | 2,271.8 |
| $ | 875.5 |
|
| $ | 928.6 |
|
| OPERATING EXPENSES | | | | |
| |
| Contract drilling (exclusive of depreciation) | 855.2 |
| | 1,012.0 |
| 669.5 |
|
| 569.4 |
|
| Depreciation | 325.3 |
| | 335.1 |
| 235.9 |
|
| 217.1 |
|
| General and administrative | 86.9 |
| | 76.1 |
| 54.0 |
|
| 56.5 |
|
| | 1,267.4 |
| | 1,423.2 |
| 959.4 |
|
| 843.0 |
|
| OPERATING INCOME | 121.4 |
| | 848.6 |
| |
| OPERATING INCOME (LOSS) | | (83.9 | ) |
| 85.6 |
|
| OTHER INCOME (EXPENSE) | |
| | |
| |
| | |
|
| Interest income | 22.3 |
| | 8.6 |
| 6.9 |
|
| 14.8 |
|
| Interest expense, net | (167.0 | ) | | (172.5 | ) | (141.3 | ) |
| (118.9 | ) |
| Other, net | (6.6 | ) | | 278.3 |
| (21.1 | ) |
| (6.8 | ) |
| | (151.3 | ) | | 114.4 |
| (155.5 | ) |
| (110.9 | ) |
| (LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | (29.9 | ) | | 963.0 |
| |
| LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | | (239.4 | ) |
| (25.3 | ) |
| PROVISION FOR INCOME TAXES | | | | | | |
| Current income tax expense | 32.3 |
| | 81.0 |
| 27.2 |
| | 17.4 |
|
| Deferred income tax expense | 34.5 |
| | 23.6 |
| 15.9 |
| | 26.0 |
|
| | 66.8 |
| | 104.6 |
| 43.1 |
|
| 43.4 |
|
| (LOSS) INCOME FROM CONTINUING OPERATIONS | (96.7 | ) | | 858.4 |
| |
| LOSS FROM CONTINUING OPERATIONS | | (282.5 | ) |
| (68.7 | ) |
| LOSS FROM DISCONTINUED OPERATIONS, NET | (.4 | ) | | (1.8 | ) | (8.1 | ) |
| (.2 | ) |
| NET (LOSS) INCOME | (97.1 | ) | | 856.6 |
| |
| NET LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTERESTS | .5 |
| | (5.4 | ) | |
| NET (LOSS) INCOME ATTRIBUTABLE TO ENSCO | $ | (96.6 | ) | | $ | 851.2 |
| |
| (LOSS) EARNINGS PER SHARE - BASIC AND DILUTED | | | | |
| NET LOSS | | (290.6 | ) |
| (68.9 | ) |
| NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | | (.5 | ) |
| (2.3 | ) |
| NET LOSS ATTRIBUTABLE TO ENSCO | | $ | (291.1 | ) |
| $ | (71.2 | ) |
| LOSS PER SHARE - BASIC AND DILUTED | | | | |
| Continuing operations | $ | (0.32 | ) | | $ | 3.07 |
| $ | (0.65 | ) |
| $ | (0.24 | ) |
| Discontinued operations | — |
| | — |
| (0.02 | ) |
| — |
|
| | $ | (0.32 | ) | | $ | 3.07 |
| $ | (0.67 | ) |
| $ | (0.24 | ) |
| | | | | | | |
| NET (LOSS) INCOME ATTRIBUTABLE TO ENSCO SHARES - BASIC AND DILUTED | $ | (96.9 | ) | | $ | 836.1 |
| |
| NET LOSS ATTRIBUTABLE TO ENSCO SHARES - BASIC AND DILUTED | | $ | (291.3 | ) |
| $ | (71.4 | ) |
| | |
| | |
| |
| | |
|
| WEIGHTED-AVERAGE SHARES OUTSTANDING | | | | | | |
| Basic and Diluted | 300.9 |
| | 272.0 |
| 433.8 |
|
| 300.7 |
|
| | | | | | | |
| CASH DIVIDENDS PER SHARE | $ | 0.03 |
| | $ | 0.03 |
| $ | 0.02 |
| | $ | 0.02 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
ENSCO PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOMELOSS
(In millions)
(Unaudited)
|
| | | | | | | |
| | Three Months Ended
September 30, |
| | 2017 | | 2016 |
| | | | |
| NET (LOSS) INCOME | $ | (28.2 | ) | | $ | 87.3 |
|
| OTHER COMPREHENSIVE INCOME (LOSS), NET | | | |
| Net change in derivative fair value | 1.7 |
| | — |
|
| Reclassification of net (income) losses on derivative instruments from other comprehensive income into net (loss) income | (.1 | ) | | 2.2 |
|
| Other | .1 |
| | (.5 | ) |
| NET OTHER COMPREHENSIVE INCOME | 1.7 |
| | 1.7 |
|
| | | | |
| COMPREHENSIVE (LOSS) INCOME | (26.5 | ) | | 89.0 |
|
| COMPREHENSIVE LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTERESTS | 2.8 |
| | (2.0 | ) |
| COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO ENSCO | $ | (23.7 | ) | | $ | 87.0 |
|
|
| | | | | | | |
| | Three Months Ended
June 30, |
| | 2018 | | 2017 |
| NET LOSS | $ | (150.1 | ) | | $ | (44.3 | ) |
| OTHER COMPREHENSIVE INCOME (LOSS), NET | | | |
| Net change in derivative fair value | (7.6 | ) | | 2.9 |
|
| Reclassification of net (gains) losses on derivative instruments from other comprehensive income (loss) into net loss | (.7 | ) | | .3 |
|
| Other | (.2 | ) | | .2 |
|
| NET OTHER COMPREHENSIVE INCOME (LOSS) | (8.5 | ) | | 3.4 |
|
| | | | |
| COMPREHENSIVE LOSS | (158.6 | ) | | (40.9 | ) |
| COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | (.9 | ) | | (1.2 | ) |
| COMPREHENSIVE LOSS ATTRIBUTABLE TO ENSCO | $ | (159.5 | ) | | $ | (42.1 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
ENSCO PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOMELOSS
(In millions)
(Unaudited)
|
| | | | | | | |
| | Nine Months Ended
September 30, |
| | 2017 | | 2016 |
| | | | |
| NET (LOSS) INCOME | $ | (97.1 | ) | | $ | 856.6 |
|
| OTHER COMPREHENSIVE INCOME, NET | | | |
| Net change in derivative fair value | 7.7 |
| | (.6 | ) |
| Reclassification of net losses on derivative instruments from other comprehensive income into net (loss) income | 1.1 |
| | 10.1 |
|
| Other | .8 |
| | (.5 | ) |
| NET OTHER COMPREHENSIVE INCOME | 9.6 |
| | 9.0 |
|
| | | | |
| COMPREHENSIVE (LOSS) INCOME | (87.5 | ) | | 865.6 |
|
| COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | .5 |
| | (5.4 | ) |
| COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO ENSCO | $ | (87.0 | ) | | $ | 860.2 |
|
|
| | | | | | | |
| | Six Months Ended
June 30, |
| | 2018 | | 2017 |
| NET LOSS | $ | (290.6 | ) | | $ | (68.9 | ) |
| OTHER COMPREHENSIVE INCOME (LOSS), NET | | | |
| Net change in derivative fair value | (4.9 | ) | | 6.0 |
|
| Reclassification of net (gains) losses on derivative instruments from other comprehensive income (loss) into net loss | (2.9 | ) | | 1.2 |
|
| Other | (.3 | ) | | .7 |
|
| NET OTHER COMPREHENSIVE INCOME (LOSS) | (8.1 | ) | | 7.9 |
|
| | | | |
| COMPREHENSIVE LOSS | (298.7 | ) | | (61.0 | ) |
| COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | (.5 | ) | | (2.3 | ) |
| COMPREHENSIVE LOSS ATTRIBUTABLE TO ENSCO | $ | (299.2 | ) | | $ | (63.3 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
ENSCO PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share and par value amounts) | | | | September 30,
2017 | | December 31,
2016 | June 30,
2018 | | December 31,
2017 |
| | (Unaudited) | | | (Unaudited) | | |
ASSETS | | CURRENT ASSETS | | | | | | |
| Cash and cash equivalents | $ | 724.4 |
| | $ | 1,159.7 |
| $ | 485.5 |
|
| $ | 445.4 |
|
| Short-term investments | 1,069.8 |
| | 1,442.6 |
| 255.0 |
|
| 440.0 |
|
| Accounts receivable, net | 349.0 |
| | 361.0 |
| 332.7 |
|
| 345.4 |
|
| Other | 318.3 |
| | 316.0 |
| |
| Other current assets | | 389.6 |
|
| 381.2 |
|
| Total current assets | 2,461.5 |
| | 3,279.3 |
| 1,462.8 |
|
| 1,612.0 |
|
| PROPERTY AND EQUIPMENT, AT COST | 13,492.6 |
| | 12,992.5 |
| 15,476.5 |
|
| 15,332.1 |
|
| Less accumulated depreciation | 2,396.2 |
| | 2,073.2 |
| 2,692.6 |
|
| 2,458.4 |
|
| Property and equipment, net | 11,096.4 |
| | 10,919.3 |
| 12,783.9 |
|
| 12,873.7 |
|
| OTHER ASSETS, NET | 125.0 |
| | 175.9 |
| |
| OTHER ASSETS | | 93.9 |
|
| 140.2 |
|
| | $ | 13,682.9 |
| | $ | 14,374.5 |
| $ | 14,340.6 |
|
| $ | 14,625.9 |
|
LIABILITIES AND SHAREHOLDERS' EQUITY | | CURRENT LIABILITIES | | | | | | |
| Accounts payable - trade | $ | 187.9 |
| | $ | 145.9 |
| $ | 218.3 |
|
| $ | 432.6 |
|
| Accrued liabilities and other | 300.8 |
| | 376.6 |
| 331.5 |
|
| 325.9 |
|
| Current maturities of long-term debt | — |
| | 331.9 |
| |
| Total current liabilities | 488.7 |
| | 854.4 |
| 549.8 |
|
| 758.5 |
|
| LONG-TERM DEBT | 4,747.7 |
| | 4,942.6 |
| 4,994.9 |
|
| 4,750.7 |
|
| OTHER LIABILITIES | 279.2 |
| | 322.5 |
| 362.0 |
|
| 386.7 |
|
| COMMITMENTS AND CONTINGENCIES |
|
| |
|
|
|
|
|
|
|
| ENSCO SHAREHOLDERS' EQUITY | |
| | |
| |
| | |
|
| Class A ordinary shares, U.S. $.10 par value, 314.9 million and 310.3 million shares issued as of September 30, 2017 and December 31, 2016 | 31.5 |
| | 31.0 |
| |
| Class B ordinary shares, £1 par value, 50,000 shares authorized and issued as of September 30, 2017 and December 31, 2016 | .1 |
| | .1 |
| |
| Class A ordinary shares, U.S. $.10 par value, 460.7 million and 447.1 million shares issued as of June 30, 2018 and December 31, 2017 | | 46.1 |
|
| 44.7 |
|
| Class B ordinary shares, £1 par value, 50,000 shares authorized and issued as of June 30, 2018 and December 31, 2017 | | .1 |
|
| .1 |
|
| Additional paid-in capital | 6,429.8 |
| | 6,402.2 |
| 7,209.5 |
|
| 7,195.0 |
|
| Retained earnings | 1,744.2 |
| | 1,864.1 |
| 1,232.0 |
|
| 1,532.7 |
|
| Accumulated other comprehensive income | 28.6 |
| | 19.0 |
| 20.5 |
|
| 28.6 |
|
| Treasury shares, at cost, 11.0 million and 7.3 million shares as of September 30, 2017 and December 31, 2016 | (69.0 | ) | | (65.8 | ) | |
| Treasury shares, at cost, 23.6 million and 11.1 million shares as of June 30, 2018 and December 31, 2017 | | (72.0 | ) |
| (69.0 | ) |
| Total Ensco shareholders' equity | 8,165.2 |
| | 8,250.6 |
| 8,436.2 |
|
| 8,732.1 |
|
| NONCONTROLLING INTERESTS | 2.1 |
| | 4.4 |
| (2.3 | ) |
| (2.1 | ) |
| Total equity | 8,167.3 |
| | 8,255.0 |
| 8,433.9 |
|
| 8,730.0 |
|
| | $ | 13,682.9 |
| | $ | 14,374.5 |
| $ | 14,340.6 |
|
| $ | 14,625.9 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
ENSCO PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
| | | | Nine Months Ended
September 30, | Six Months Ended
June 30, |
| | 2017 | | 2016 | 2018 | | 2017 |
| OPERATING ACTIVITIES | |
| | |
| |
| | |
|
| Net (loss) income | $ | (97.1 | ) | | $ | 856.6 |
| |
| Adjustments to reconcile net (loss) income to net cash provided by operating activities of continuing operations: | | | | |
| Net loss | | $ | (290.6 | ) |
| $ | (68.9 | ) |
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities of continuing operations: | | | | |
| Depreciation expense | 325.3 |
| | 335.1 |
| 235.9 |
|
| 217.1 |
|
| Amortization, net | | (24.4 | ) | | (37.0 | ) |
| Share-based compensation expense | | 20.6 |
|
| 20.9 |
|
| Loss on debt extinguishment | | 19.0 |
| | 2.6 |
|
| Deferred income tax expense | 34.5 |
| | 23.6 |
| 15.9 |
| | 26.0 |
|
| Share-based compensation expense | 31.3 |
| | 28.7 |
| |
| Amortization of intangibles and other, net | (8.7 | ) | | (16.2 | ) | |
| Loss (gain) on debt extinguishment | 2.6 |
| | (279.0 | ) | |
| Gain on bargain purchase | | (8.3 | ) |
| — |
|
| Loss from discontinued operations, net | | 8.1 |
| | 0.2 |
|
| Other | (.3 | ) | | (2.9 | ) | (2.1 | ) |
| (12.2 | ) |
| Changes in operating assets and liabilities | (68.0 | ) | | 48.9 |
| 7.9 |
|
| (18.2 | ) |
| Net cash provided by operating activities of continuing operations | 219.6 |
| | 994.8 |
| |
| | | | | |
| Net cash provided by (used in) operating activities of continuing operations | | (18.0 | ) |
| 130.5 |
|
| INVESTING ACTIVITIES | | | | | | |
| Maturities of short-term investments | 1,412.7 |
| | 1,582.0 |
| 599.0 |
|
| 897.0 |
|
| Purchases of short-term investments | (1,040.0 | ) | | (1,704.0 | ) | (414.0 | ) |
| (1,134.8 | ) |
| Additions to property and equipment | (474.1 | ) | | (255.5 | ) | (331.9 | ) |
| (332.6 | ) |
| Other | 2.6 |
| | 7.7 |
| 2.9 |
|
| 1.7 |
|
| Net cash used in investing activities of continuing operations | (98.8 | ) | | (369.8 | ) | (144.0 | ) |
| (568.7 | ) |
| | | | | |
| FINANCING ACTIVITIES | | | | | | |
| Proceeds from issuance of senior notes | | 1,000.0 |
| | — |
|
| Reduction of long-term borrowings | (537.0 | ) | | (862.4 | ) | (771.2 | ) | | (537.0 | ) |
| Debt issuance costs | | (17.0 | ) | | (5.5 | ) |
| Cash dividends paid | (9.4 | ) | | (8.5 | ) | (9.0 | ) |
| (6.2 | ) |
| Debt issuance costs | (5.5 | ) | | — |
| |
| Proceeds from equity issuance | — |
| | 585.5 |
| |
| Other | (4.5 | ) | | (2.3 | ) | (2.5 | ) |
| (3.6 | ) |
| Net cash used in financing activities | (556.4 | ) | | (287.7 | ) | |
| | | | | |
| Net cash (used in) provided by discontinued operations | (.4 | ) | | 7.4 |
| |
| Net cash provided by (used in) financing activities | | 200.3 |
|
| (552.3 | ) |
| Net cash provided by (used in) discontinued operations | | 2.5 |
|
| (0.2 | ) |
| Effect of exchange rate changes on cash and cash equivalents | .7 |
| | (.6 | ) | (.7 | ) |
| .6 |
|
| (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (435.3 | ) | | 344.1 |
| |
| INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | 40.1 |
|
| (990.1 | ) |
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 1,159.7 |
| | 121.3 |
| 445.4 |
|
| 1,159.7 |
|
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 724.4 |
| | $ | 465.4 |
| $ | 485.5 |
|
| $ | 169.6 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
ENSCO PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 -Unaudited Condensed Consolidated Financial Statements
We prepared the accompanying condensed consolidated financial statements of Ensco plc and subsidiaries (the "Company," "Ensco," "our," "we" or "us") in accordance with accounting principles generally accepted in the United States of America ("GAAP"), pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") included in the instructions to Form 10-Q and Article 10 of Regulation S-X. The financial information included in this report is unaudited but, in our opinion, includes all adjustments (consisting of normal recurring adjustments) that are necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods presented. The December 31, 20162017 condensed consolidated balance sheet data were derived from our 20162017 audited consolidated financial statements, but do not include all disclosures required by GAAP. The preparation of our condensed consolidated financial statements requires us to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the related revenues and expenses and disclosures of gain and loss contingencies as of the date of the financial statements. Actual results could differ from those estimates.
The financial data for the three-month and nine-monthsix-month periods ended SeptemberJune 30, 20172018 and 20162017 included herein have been subjected to a limited review by KPMG LLP, our independent registered public accounting firm. The accompanying independent registered public accounting firm's review report is not a report within the meaning of Sections 7 and 11 of the Securities Act, and the independent registered public accounting firm's liability under Section 11 does not extend to it.
Results of operations for the three-month and nine-monthsix-month periods ended SeptemberJune 30, 20172018 are not necessarily indicative of the results of operations that will be realized for the year ending December 31, 2017.2018. We recommend these condensed consolidated financial statements be read in conjunction with our annual report on Form 10-K for the year ended December 31, 20162017, filed with the SEC on February 28, 201727, 2018, and our quarterly reportsreport on Form 10-Q filed with the SEC on April 27, 2017 and July 27, 2017.
Operating Revenues and Expenses
During the nine-month period ended September 30, 2016, operating revenues included $185.0 million for the lump-sum consideration received in settlement and release of the ENSCO DS-9 customer's ongoing early termination obligations and $20.0 million for the lump-sum consideration received in settlement of the ENSCO 8503 customer's remaining obligations under the contract. The ENSCO DS-9 contract was terminated for convenience by the customer in July 2015, whereby our customer was obligated to pay us monthly termination fees for two years under the termination provisions of the contract. The ENSCO 8503 contract was originally scheduled to expire in August 2017.26, 2018.
New Accounting Pronouncements
In August 2017,February 2018, the Financial Accounting Standards Board (the "FASB") issued Update 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects From Accumulated Other Comprehensive Income ("Update 2018-02"), which allows for a reclassification from accumulated other comprehensive income (AOCI) to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. This update is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, with early adoption permitted. We adopted Update 2018-02 effective January 1, 2018. As a result, we reclassified a total of $800,000 in tax effects from AOCI to opening retained earnings.
In August 2017, the FASB issued Update 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities ("Update 2017-12"), which will make more hedging strategies eligible for hedge accounting. It also amends presentation and disclosure requirements and changes how companies assess effectiveness. This update is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. We are currently evaluating the effect that Update 2017-12 will have on our consolidated financial statements and related disclosures.
In OctoberDuring 2016, the FASB issued Accounting Standards Update 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (“Update 2016-16”), which requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transaction occurs as opposed to deferring tax consequences and amortizing them into future periods. We adopted Update 2016-16 on a modified retrospective basis effective January 1, 2017. As a result of modified retrospective application, we reduced prepaid taxes on intercompany transfers of property and related deferred tax liabilities resulting in the recognition of a cumulative-effect reduction in retained earnings of $14.1 million on our condensed consolidated balance sheet as of January 1, 2017. We do not expect a material impact to our 2017 operating results as a result of the adoption of Update 2016-16.
In March 2016, the FASB issued Accounting Standards Update 2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting ("Update 2016-09"), which simplifies several aspects of accounting for share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. We adopted Update 2016-09 effective January 1, 2017. Our adoption of Update 2016-09 did not result in any cumulative effect on retained earnings and no adjustments have been made to prior periods. The new standard will cause volatility in our effective tax rates primarily due to the new requirement to recognize additional tax benefits or expenses in earnings related to the vesting or settlement of employee share-based awards, rather than in additional paid-in capital, during the period in which they occur. Furthermore, forfeitures are now recorded as they occur as opposed to estimating an allowance for future forfeitures.
During 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) ("Update 2014-09"), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. Update 2014-09 is effective for annual and interim periods for fiscal years beginning after December 15, 2017. Subsequent to the issuance of Update 2014-09, the FASB issued several additional Accounting Standards Updates to clarify implementation guidance, provide narrow-scope improvements and provide additional disclosure guidance. Update 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP and may be adopted using a retrospective, modified retrospective or prospective with a cumulative catch-up approach. Due to the significant interaction between Update 2014-09 and Accounting Standards Update 2016-02, Leases (Topic 842): Amendments to the FASB Accounting Standards Codification ("Update 2016-02"), we expect to adopt Update 2014-09 and Update 2016-02 concurrently with an effective date of January 1, 2018. We expect to apply the modified retrospective approach to our adoption. We are currently evaluating the effect that Update 2014-09 and Update 2016-02 will have on our consolidated financial statements and related disclosures.
In February 2016, the FASB issued Update 2016-02, which requires an entity to recognize lease assets and lease liabilities on the balance sheet and to disclose key qualitative and quantitative information about the entity's leasing arrangements. This update is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. A modified retrospective approach is required. During our evaluation of Update 2016-02, we have concluded that our drilling contracts contain a lease component,component. In January 2018, the FASB issued a Proposed Accounting Standard Update to provide targeted improvements to Update 2016-02, which (1) provides for a new transition method whereby entities may elect to adopt the Update using a prospective with cumulative catch-up approach and upon adoption, we will be required(2) provides lessors with a practical expedient to separately recognize revenues associated withnot separate non-lease components from the related lease components, by class of our drilling rigs andunderlying asset. On March 28, 2018, the provision of contract drilling services. DueFASB held a meeting to approve certain additional amendments to Update 2016-02, including a revision to the significant interaction between Update 2016-02practical expedient that would allow a lessor to account for the combined lease and Update 2014-09, we expect to adopt both updates concurrently with an effective date of January 1, 2018. Adoption will result in increased disclosurenon-lease components under Topic 606 (discussed below) when the non-lease component is the predominant element of the naturecombined component. Depending on the criteria included in the final Update, this practical expedient may be available to us. As a result of the pending content of the final Update, we are not yet able to determine what, if any, impact our leasing arrangements and may result in variability inadoption will have on our revenue recognition patterns relative to current U.S. GAAP based on the provisions in each of our drilling contracts.and related disclosures. With respect to leases whereby we are the lessee, we expect to recognize lease liabilities and offsetting "right of use" assets ranging from approximately $70$60 million to $90$80 million. We are currently evaluating
During 2014, the other impacts that Update 2016-02 andFASB issued Update 2014-09, Revenue from Contracts with Customers (Topic 606) ("Update 2014-09"), which requires entities to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. Update 2014-09 is effective for annual and interim periods for fiscal years beginning after December 15, 2017. We adopted Update 2014-09 effective January 1, 2018, using the modified retrospective approach. Only customer contracts that were not completed as of the effective adoption date were evaluated under the transition guidance to determine if a cumulative catch-up adjustment to retained earnings was warranted. Revenues recognized in prior years for customer contracts that expired prior to the effective adoption date continue to be reported under the previous revenue recognition guidance. Our adoption of Update 2014-09 did not result in a cumulative effect on retained earnings and no adjustments were made to prior periods. While Update 2014-09 requires additional disclosure regarding revenues recognized from customer contracts, our adoption did not have a material impact on the recognition of current or prior period revenues as compared to previous guidance nor do we expect a material impact to our pattern of revenue recognition in future periods. See "Note 2 - Revenue from Contracts with Customers" for additional information.
Note 2 -Revenue from Contracts with Customers
We provide drilling services on a day rate contract basis. Under day rate contracts, we provide an integrated service that includes the provision of a drilling rig and rig crews for which we receive a daily rate that may vary between the full rate and zero rate throughout the duration of the contractual term, depending on the operations of the rig. We also may receive lump-sum fees or similar compensation for the mobilization, demobilization and capital upgrades of our rigs. Our customers bear substantially all of the costs of constructing the well and supporting drilling operations, as well as the economic risk relative to the success of the well.
Our integrated drilling service provided under each drilling contract is a single performance obligation satisfied over time and comprised of a series of distinct time increments, or service periods. Total revenue is determined for each individual drilling contract by estimating both fixed and variable consideration expected to be earned over the contract term. Fixed consideration generally relates to activities such as mobilization, demobilization and capital upgrades of our rigs that are not distinct within the context of our contracts and is recognized on a straight-line basis over the contract term. Variable consideration generally relates to distinct service periods during the contract term and is recognized in the period when the services are performed.
The amount estimated for variable consideration is only recognized as revenue to the extent that it is probable that a significant reversal will not occur during the contract term. We have applied the optional exemption afforded in Update 2014-09 and have not disclosed the variable consideration related to our estimated future day rate revenues. The remaining duration of our drilling contracts based on those in place as of June 30, 2018 was between approximately one month and five years.
Day Rate Drilling Revenue
Our drilling contracts provide for payment on a day rate basis and include a rate schedule with higher rates for periods when the drilling unit is operating and lower rates or zero rates for periods when drilling operations are interrupted or restricted. The day rate invoiced to the customer is determined based on the varying rates applicable to specific activities performed on an hourly basis. Day rate consideration is allocated to the distinct hourly increment to which it relates within the contract term and is generally recognized consistent with the contractual rate invoiced for the services provided during the respective period. Invoices are typically issued to our customers on a monthly basis and payment terms on customer invoices typically range from 30 to 45 days.
Certain of our contracts contain performance incentives whereby we may earn a bonus based on pre-established performance criteria. Such incentives are generally based on our consolidated financial statements andperformance over individual monthly time periods or individual wells. Consideration related disclosures.to performance bonus is generally recognized in the specific time period to which the performance criteria was attributed.
We may receive termination fees if certain drilling contracts are terminated by the customer prior to the end of the contractual term. Such compensation is recognized as revenues when our performance obligation is satisfied, the termination fee can be reasonably measured and collection is probable.
Mobilization / Demobilization Revenue
In connection with certain contracts, we receive lump-sum fees or similar compensation for the mobilization of equipment and personnel prior to the commencement of drilling services or the demobilization of equipment and personnel upon contract completion. Fees received for the mobilization or demobilization of equipment and personnel are included in operating revenues. The costs incurred in connection with the mobilization and demobilization of equipment and personnel are included in contract drilling expense.
Mobilization fees received prior to commencement of drilling operations are recorded as a contract liability and amortized on a straight-line basis over the contract term. Demobilization fees expected to be received upon contract completion are estimated at contract inception and recognized on a straight-line basis over the contract term. In some cases, demobilization fees may be contingent upon the occurrence or non-occurrence of a future event. In such cases, this may result in cumulative-effect adjustments to demobilization revenues upon changes in our estimates of future events during the contract term.
Capital Upgrade / Contract Preparation Revenue
In connection with certain contracts, we receive lump-sum fees or similar compensation for requested capital upgrades to our drilling rigs or for other contract preparation work. Fees received for requested capital upgrades and other contract preparation work are recorded as a contract liability and amortized on a straight-line basis over the contract term to operating revenues. Costs incurred for capital upgrades are capitalized and depreciated over the useful life of the asset.
Contract Assets and Liabilities
Contract assets represent amounts previously recognized as revenue but for which the right to invoice the customer is dependent upon our future performance. Once the previously recognized revenue is invoiced, the corresponding contract asset, or a portion thereof, is transferred to accounts receivable. Contract liabilities generally represent fees received for mobilization or capital upgrades.
Contract assets and liabilities are presented net on our condensed consolidated balance sheet on a contract-by-contract basis. Current contract assets and liabilities are included in other current assets and accrued liabilities and other, respectively, and noncurrent contract assets and liabilities are included in other assets and other liabilities, respectively, on our condensed consolidated balance sheets.
The following table summarizes our trade receivables, contract assets and contract liabilities (in millions):
|
| | | | | | | |
| | June 30, 2018 | | December 31, 2017 |
| Current contract assets | $ | 4.1 |
| | $ | 3.0 |
|
| Noncurrent contract assets | $ | — |
| | $ | 2.8 |
|
| Current contract liabilities (deferred revenue) | $ | 76.6 |
| | $ | 71.9 |
|
| Noncurrent contract liabilities (deferred revenue) | $ | 23.2 |
| | $ | 51.2 |
|
Significant changes in contract assets and liabilities during the period are as follows (in millions):
|
| | | | | | | |
| | Contract Assets | | Contract Liabilities |
| Balance as of December 31, 2017 | $ | 5.8 |
| | $ | 123.1 |
|
| Increase due to cash received | — |
| | 27.6 |
|
| Decrease due to amortization of deferred revenue that was included in the beginning contract liability balance | — |
| | (43.0 | ) |
| Decrease due to amortization of deferred revenue that was added during the period | — |
| | (7.9 | ) |
| Decrease due to transfer to receivables during the period | (1.7 | ) | | — |
|
| Balance as of June 30, 2018 | $ | 4.1 |
| | $ | 99.8 |
|
Deferred Contract Costs
Costs incurred for upfront rig mobilizations and certain contract preparations are attributable to our future performance obligation under each respective drilling contract. Such costs are deferred and amortized on a straight-line basis over the contract term. Demobilization costs are recognized as incurred upon contract completion. Costs associated with the mobilization of equipment and personnel to more promising market areas without contracts are expensed as incurred. Deferred contract costs were included in other current assets and other assets on our condensed consolidated balance sheets and totaled $39.2 million and $40.6 million as of June 30, 2018 and December 31, 2017, respectively. During the three-month and six-month periods ended June 30, 2018, amortization of such costs totaled $9.1 million and $15.9 million, respectively. During the three-month and six-month periods ended June 30, 2017, amortization of such costs totaled $8.2 million and $14.7 million, respectively.
Deferred Certification Costs
We must obtain certifications from various regulatory bodies in order to operate our drilling rigs and must maintain such certifications through periodic inspections and surveys. The costs incurred in connection with maintaining such certifications, including inspections, tests, surveys and drydock, as well as remedial structural work and other compliance costs, are deferred and amortized on a straight-line basis over the corresponding certification periods. Deferred regulatory certification and compliance costs were included in other current assets and other assets on our condensed consolidated balance sheets and totaled $14.2 million and $15.3 million as of June 30, 2018 and December 31, 2017, respectively. During the three-month and six-month periods ended June 30, 2018, amortization of such costs totaled $3.2 million and $6.3 million, respectively. During the three-month and six-month periods ended June 30, 2017, amortization of such costs totaled $2.8 million and $5.9 million, respectively.
Future Amortization of Contract Liabilities and Deferred Costs
Our contract liabilities and deferred costs are amortized on a straight-line basis over the contract term or corresponding certification period to operating revenues and contract drilling expense, respectively. Expected future amortization of our contract liabilities and deferred costs recorded as of June 30, 2018 is set forth in the table below (in millions):
|
| | | | | | | | | | | | | | | | | | | |
| | Remaining 2018 | | 2019 | | 2020 | | 2021 and Thereafter | | Total |
| Amortization of contract liabilities | $ | 38.9 |
| | $ | 51.0 |
| | $ | 6.4 |
| | $ | 3.5 |
| | $ | 99.8 |
|
| Amortization of deferred costs | $ | 23.4 |
| | $ | 21.6 |
| | $ | 6.0 |
| | $ | 2.4 |
| | $ | 53.4 |
|
Note 23 -Acquisition of Atwood Merger
On May 29, 2017, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Atwood Oceanics, Inc. (“Atwood”) and Echo Merger Sub, LLC, our wholly-owned subsidiary, and on October 6, 2017 (the "Merger Date"), we completed a merger transaction (the "Merger") with Atwood Oceanics, Inc. ("Atwood") and Echo Merger Sub, LLC, our acquisition of Atwood pursuant to the Merger Agreement (the “Merger”). Atwood’s financial results will be included in our consolidated results beginning on the Merger Date.
The Merger is expected to strengthen our position as the leader in offshore drilling across a wide range of water depths around the world. The Merger significantly enhances the capabilities of our rig fleet and improves our ability to meet future customer demand with the highest-specification assets.
Consideration
As a result of the Merger, Atwood shareholders received 1.60 Ensco Class A Ordinary shares for each share of Atwood common stock, representing a value of $9.33 per share of Atwood common stock based on a closing price of $5.83 per Class A ordinary share on October 5, 2017, the last trading day before the Merger Date. Total consideration delivered in the Merger consisted of 134.1 million Class A ordinary shares with an aggregate value of $782.0 million.
Assets Acquired and Liabilities Assumed
wholly-owned subsidiary. Assets acquired and liabilities assumed in the Merger will bewere recorded at their estimated fair values as of the Merger Date under the acquisition method of accounting. When the fair value of the net assets acquired exceeds the consideration transferred in an acquisition, the difference is recorded as a bargain purchase gain in the period in which the transaction occurs. WeWith the exception of certain spare parts and equipment and legal and tax exposures, we have not finalized thesubstantially completed our fair valuesvalue assessments of assets acquired and liabilities assumed; therefore, the fair value estimates set forth below are subject to adjustment during a one year measurement period subsequent to the Merger Date. The estimated fair values ofassumed. While certain assets and liabilities including inventory, long-lived assets and contingencies require judgments and assumptions that increase the likelihood that adjustments may be made to these estimatesrecorded during the remainder of the measurement period, and those adjustments couldwe do not expect them to be material.
Assets Acquired and Liabilities Assumed
The provisional amounts and respective measurement period adjustments recorded for assets acquired and liabilities assumed are based on preliminary estimates of their fair values as of the Merger Date and arewere as follows (in millions):
| | | | Estimated Fair Value | Amounts Recognized as of Merger Date | | Measurement Period Adjustments (1) | | Estimated Fair Value |
| Assets: | | | | | | |
Cash and cash equivalents(1)(2) | $ | 445.4 |
| $ | 445.4 |
| | $ | — |
| | $ | 445.4 |
|
Accounts receivable(2)(3) | 59.4 |
| 62.3 |
| | (1.6 | ) | | 60.7 |
|
| Other current assets | 115.9 |
| 118.1 |
| | 4.7 |
| | 122.8 |
|
| Property and equipment | 1,776.1 |
| 1,762.0 |
| | 9.2 |
| | 1,771.2 |
|
| Other assets | 26.0 |
| 23.7 |
| | (2.9 | ) | | 20.8 |
|
| Liabilities: | | | | | | |
Debt(1) | 1,305.9 |
| |
| Accounts payable and accrued liabilities | | 64.9 |
| | (2.3 | ) | | 62.6 |
|
| Other liabilities | 167.1 |
| 118.7 |
| | 3.4 |
| | 122.1 |
|
| Net assets acquired | 949.8 |
| 2,227.9 |
| | 8.3 |
| | 2,236.2 |
|
| Less: merger consideration | (782.0 | ) | |
| Less: | | | | | | |
| Merger consideration | | (781.8 | ) | | | | (781.8 | ) |
| Repayment of Atwood debt | | (1,305.9 | ) | | | | (1,305.9 | ) |
| Bargain purchase gain | $ | 167.8 |
| $ | 140.2 |
| | | | $ | 148.5 |
|
| |
(1) Upon closing of the Merger, we utilized acquired cash of $445.4 million and cash on hand from the liquidation of short-term investments to repay Atwood's debt and accrued interest of $1.3 billion.
| The measurement period adjustments reflect changes in the estimated fair values of certain assets and liabilities, primarily related to inventory, capital equipment and accrued non-income tax liabilities. The measurement period adjustments were recorded to reflect new information obtained about facts and circumstances existing as of the Merger Date and did not result from subsequent intervening events. The adjustments recorded resulted in an $8.3 million decline and an $8.3 million increase to bargain purchase gain during the three-month and six-month periods ended June 30, 2018, respectively, and are included in other, net, in our condensed consolidated statements of operations. |
| |
(2) | Upon closing of the Merger, we utilized acquired cash of $445.4 million and cash on hand from the liquidation of short-term investments to repay Atwood's debt and accrued interest of $1.3 billion. |
(3) Gross contractual amounts receivable totaled $61.8$64.7 million as of the Merger Date.
Bargain Purchase Gain
The estimated fair values assigned to assets acquired net of liabilities assumed exceeded the consideration transferred, resulting in a bargain purchase gain primarily due to depressed offshore drilling company valuations. Market capitalizations across the offshore drilling industry have declined significantly since mid-2014 due to the decline in commodity prices and the related imbalance of supply and demand for drilling rigs. The resulting bargain purchase gain was further driven by the decline in our share price from $6.70 to $5.83 between the last trading day prior to the announcement of the Merger and the Merger Date. The estimated gain will be reflected in other, net, in our consolidated statement of operations during the fourth quarter.
Merger-Related CostsIntangible Assets and Liabilities
Merger-related costsWe recorded intangible assets totaling$30.1 million representing the estimated fair value of Atwood's firm drilling contracts in place at the Merger Date with favorable contract terms compared to then-market day rates for comparable drilling rigs.
Operating revenues were expensed as incurred and consistednet of various advisory, legal, accounting, valuation and other professional or consulting fees totaling $3.8$4.3 million and $8.0$5.8 million of asset amortization during the three-month and nine-monthsix-month periods ended SeptemberJune 30, 2017,2018, respectively. These costs wereThe remaining balance of $8.2 million was included in general and administrative expense inother assets on our condensed consolidated statementsbalance sheet as of operations. Upon closingJune 30, 2018. This balance will be amortized to operating revenues over the remaining drilling contract term on a straight-line basis totaling $5.6 million and $2.6 million during the remainder of the Merger, we incurred additional Merger-related costs of $11.8 million.2018 and full year 2019, respectively.
Pro Forma ImpactWe recorded intangible liabilities of $60.0 million for the Merger
estimated fair value of unfavorable drillship construction contracts, which were determined by comparing the firm obligations for the remaining construction of ENSCO DS-13 and ENSCO DS-14 to the estimated current market rates for the construction of a comparable drilling rig. The following unaudited supplemental pro forma results present consolidated informationliabilities will be amortized over the estimated life of ENSCO DS-13 and ENSCO DS-14 as if the Merger was completed on January 1, 2016. The pro forma results include, among others, (i) the amortization associated with acquired intangible assets and liabilities, (ii) a reduction inof depreciation expense for adjustments to property and equipment and (iii) a reduction to interest expense resulting frombeginning on the retirement of Atwood's revolving credit facility and 6.50% senior notes due 2020. The pro forma results do not include any potential synergies or non-recurring charges that may result directly fromdate the Merger.rig is placed into service.
|
| | | | | | | | | | | | | |
| (in millions, except per share amounts) | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | 2016 | | 2017 | 2016 |
Revenues
| $ | 561.2 |
| $ | 732.2 |
| | $ | 1,769.8 |
| $ | 2,960.8 |
|
Net income
| (14.3 | ) | 136.0 |
| | (24.0 | ) | 1,196.9 |
|
Earnings per share - basic and diluted
| (0.03 | ) | 0.31 |
| | (0.06 | ) | 2.95 |
|
Note 34 -Fair Value Measurements
The following fair value hierarchy table categorizes information regarding our financial assets and liabilities measured at fair value on a recurring basis (in millions):
| | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total |
| As of September 30, 2017 | | | |
| | |
| | |
| |
| Supplemental executive retirement plan assets | $ | 30.0 |
| | $ | — |
| | $ | — |
| | $ | 30.0 |
| |
| Derivatives, net | — |
| | 6.0 |
| | — |
| | 6.0 |
| |
| Total financial assets | $ | 30.0 |
| | $ | 6.0 |
| | $ | — |
| | $ | 36.0 |
| |
| | | | | | | | | |
| As of December 31, 2016 | | | |
| | |
| | |
| |
| As of June 30, 2018 | | | | |
| | |
| | |
|
| Supplemental executive retirement plan assets | $ | 27.7 |
| | $ | — |
| | $ | — |
| | $ | 27.7 |
| $ | 30.5 |
| | $ | — |
| | $ | — |
| | $ | 30.5 |
|
| Total financial assets | $ | 27.7 |
| | $ | — |
| | $ | — |
| | $ | 27.7 |
| $ | 30.5 |
| | $ | — |
| | $ | — |
| | $ | 30.5 |
|
| Derivatives, net | $ | — |
| | $ | (8.8 | ) | | $ | — |
| | $ | (8.8 | ) | $ | — |
| | $ | (6.5 | ) | | $ | — |
| | $ | (6.5 | ) |
| Total financial liabilities | $ | — |
| | $ | (8.8 | ) | | $ | — |
| | $ | (8.8 | ) | $ | — |
| | $ | (6.5 | ) | | $ | — |
| | $ | (6.5 | ) |
| | | | | | | | | |
| As of December 31, 2017 | | | | |
| | |
| | |
|
| Supplemental executive retirement plan assets | | $ | 30.9 |
| | $ | — |
| | $ | — |
| | $ | 30.9 |
|
| Derivatives, net | | — |
| | 6.8 |
| | — |
| | 6.8 |
|
| Total financial assets | | $ | 30.9 |
| | $ | 6.8 |
| | $ | — |
| | $ | 37.7 |
|
Supplemental Executive Retirement Plan Assets
Our supplemental executive retirement plans (the "SERP") are non-qualified plans that provide eligible employees an opportunity to defer a portion of their compensation for use after retirement. Assets held in the SERP were marketable securities measured at fair value on a recurring basis using Level 1 inputs and were included in other assets net, on our condensed consolidated balance sheets. The fair value measurement of assets held in the SERP was based on quoted market prices.
Derivatives
Our derivatives wereare measured at fair value on a recurring basis using Level 2 inputs. See "Note 45 - Derivative Instruments" for additional information on our derivatives, including a description of our foreign currency hedging activities and related methodologies used to manage foreign currency exchange rate risk. The fair value measurement of our derivatives was based on market prices that are generally observable for similar assets or liabilities at commonly-quoted intervals.
Other Financial Instruments
The carrying values and estimated fair values of our long-term debt instruments were as follows (in millions):
| | | | September 30,
2017 | | December 31,
2016 | June 30,
2018 | | December 31,
2017 |
| | Carrying Value | | Estimated Fair Value | | Carrying Value | | Estimated Fair Value | Carrying Value | | Estimated Fair Value | | Carrying Value | | Estimated Fair Value |
8.50% Senior notes due 2019 | $ | 253.7 |
| | $ | 252.3 |
| | $ | 480.2 |
| | $ | 485.0 |
| $ | — |
| | $ | — |
| | $ | 251.4 |
| | $ | 252.9 |
|
6.875% Senior notes due 2020 | 480.3 |
| | 465.2 |
| | 735.9 |
| | 727.5 |
| 128.9 |
| | 128.3 |
| | 477.9 |
| | 473.1 |
|
4.70% Senior notes due 2021 | 266.9 |
| | 264.6 |
| | 674.4 |
| | 658.9 |
| 112.6 |
| | 110.7 |
| | 267.1 |
| | 265.3 |
|
3.00% Exchangeable senior notes due 2024(1)(3) | 628.2 |
| | 726.8 |
| | 604.3 |
| | 874.7 |
| 651.1 |
| | 793.2 |
| | 635.7 |
| | 757.1 |
|
| 4.50% Senior notes due 2024 | 619.1 |
| | 520.2 |
| | 618.6 |
| | 536.0 |
| 619.5 |
| | 516.5 |
| | 619.3 |
| | 527.1 |
|
| 8.00% Senior notes due 2024 | 338.2 |
| | 330.2 |
| | — |
| | — |
| 337.4 |
| | 334.2 |
| | 337.9 |
| | 333.8 |
|
| 5.20% Senior notes due 2025 | 663.4 |
| | 564.0 |
| | 662.8 |
| | 582.3 |
| 664.0 |
| | 557.7 |
| | 663.6 |
| | 571.4 |
|
| 7.75% Senior notes due 2026 | | 983.9 |
| | 947.6 |
| | — |
| | — |
|
| 7.20% Debentures due 2027 | 149.2 |
| | 139.2 |
| | 149.2 |
| | 138.7 |
| 149.3 |
| | 136.9 |
| | 149.3 |
| | 141.9 |
|
| 7.875% Senior notes due 2040 | 377.1 |
| | 256.6 |
| | 378.3 |
| | 270.6 |
| 375.9 |
| | 270.6 |
| | 376.7 |
| | 258.8 |
|
| 5.75% Senior notes due 2044 | 971.6 |
| | 731.9 |
| | 970.8 |
| | 728.0 |
| 972.3 |
| | 709.5 |
| | 971.8 |
| | 690.4 |
|
| Total | $ | 4,747.7 |
| | $ | 4,251.0 |
| | $ | 5,274.5 |
| | $ | 5,001.7 |
| $ | 4,994.9 |
| | $ | 4,505.2 |
| | $ | 4,750.7 |
| | $ | 4,271.8 |
|
| |
(1) | Our senior notes due 2019 were redeemed in full in February 2018. See "Note 7 - Debt" for additional information. |
| |
(2) | The reduction in carrying value of our seniors notes due 2020 and senior notes due 2021 was attributable to repurchases and redemptions during the first quarter of 2018. |
| |
(3) | Our exchangeable senior notes due 2024 (the "2024 Convertible Notes") were issued with a conversion feature. The 2024 Convertible Notes were separated into their liability and equity components on our condensed consolidated balance sheet. The equity component was initially recorded to additional paid-in capital and as a debt discount that will be amortized to interest expense over the life of the instrument. Excluding the unamortized discount, the carrying amountvalue of the 2024 Convertible Notes was $833.5$835.1 million and $830.1$834.0 million as of SeptemberJune 30, 20172018 and December 31, 2016,2017, respectively. |
The estimated fair values of our senior notes and debentures were determined using quoted market prices. The decline in the carrying value of long-term debt instruments from December 31, 2016 to September 30, 2017 is primarily due to the January 2017 debt exchange and debt repurchases as discussed in "Note 7 - Debt."prices, which are level 1 inputs.
The estimated fair values of our cash and cash equivalents, short-term investments, receivables, trade payables and other liabilities approximated their carrying values as of SeptemberJune 30, 20172018 and December 31, 2016.2017. Our short-term investments consisted of time deposits with initial maturities in excess of three months but less than one year as of each respective balance sheet date.
Note 45 -Derivative Instruments
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 revenues earned and expenses incurred by certain of our subsidiaries are denominated in currencies other than the U.S. dollar. These transactions are remeasured in U.S. dollars based on a combination of both current and historical exchange rates. We use foreign currency forward contracts to reduce our exposure to various market risks, primarily foreign currency exchange rate risk.
All derivatives were recorded on our condensed consolidated balance sheets at fair value. Derivatives subject to legally enforceable master netting agreements were not offset in our condensed consolidated balance sheets. Accounting for the gains and losses resulting from changes in derivative fair value depends on the use of the derivative and whether it qualifies for hedge accounting. Net assetsliabilities of $6.0$6.5 million and net liabilitiesassets of $8.86.8 million associated with our foreign currency forward contracts were included on our condensed consolidated balance sheets as of SeptemberJune 30, 20172018 and December 31, 2016,2017, respectively. All of our derivativesderivative instruments mature during the next 18 months.months. See "Note 34 - Fair Value Measurements" for additional information on the fair value measurement of our derivatives.
Derivatives recorded at fair value on our condensed consolidated balance sheets consisted of the following (in millions):
| | | | Derivative Assets | | Derivative Liabilities | Derivative Assets | | Derivative Liabilities |
| | September 30,
2017 | | December 31,
2016 | | September 30,
2017 | | December 31,
2016 | June 30,
2018 | | December 31,
2017 | | June 30,
2018 | | December 31,
2017 |
| Derivatives Designated as Hedging Instruments | | | |
| | |
| | |
| | | |
| | |
| | |
|
Foreign currency forward contracts - current(1) | $ | 6.4 |
| | $ | 4.1 |
| | $ | .7 |
| | $ | 11.4 |
| $ | .7 |
| | $ | 5.9 |
| | $ | 5.1 |
| | $ | .2 |
|
Foreign currency forward contracts - non-current(2) | .7 |
| | .2 |
| | .1 |
| | .8 |
| — |
| | .5 |
| | 1.1 |
| | .1 |
|
| | 7.1 |
| | 4.3 |
| | .8 |
| | 12.2 |
| .7 |
| | 6.4 |
| | 6.2 |
| | .3 |
|
| | | | | | | | | | | | | | | |
| Derivatives Not Designated as Hedging Instruments | | | |
| | |
| | |
| | | |
| | |
| | |
|
Foreign currency forward contracts - current(1) | .8 |
| | .4 |
| | 1.1 |
| | 1.3 |
| .6 |
| | .9 |
| | 1.6 |
| | .2 |
|
| | .8 |
| | .4 |
| | 1.1 |
| | 1.3 |
| |
| Total | $ | 7.9 |
| | $ | 4.7 |
| | $ | 1.9 |
| | $ | 13.5 |
| $ | 1.3 |
| | $ | 7.3 |
| | $ | 7.8 |
| | $ | .5 |
|
| |
(1) | Derivative assets and liabilities with maturity dates equal to or less than twelve months from the respective balance sheet date were included in other current assets and accrued liabilities and other, respectively, on our condensed consolidated balance sheets. |
| |
(2) | Derivative assets and liabilities with maturity dates greater than twelve months from the respective balance sheet date were included in other assets net, and other liabilities, respectively, on our condensed consolidated balance sheets. |
We utilize cash flow hedges to hedge forecasted foreign currency denominated transactions, primarily to reduce our exposure to foreign currency exchange rate risk associated with contract drilling expenses and capital expenditures denominated in various currencies. As of SeptemberJune 30, 2017,2018, we had cash flow hedges outstanding to exchange an aggregate $164.0$212.1 million for various foreign currencies, including $74.4$82.5 million for British pounds, $33.8$69.2 million for Australian dollars, $23.3$24.2 million for euros, $20.3$14.9 million for Brazilian reals, $14.5 million for Singapore dollars and $12.2$6.8 million for other currencies.
Gains and losses, net of tax, on derivatives designated as cash flow hedges included in our condensed consolidated statements of operations and comprehensive income (loss) income were as follows (in millions):
Three Months Ended SeptemberJune 30, 20172018 and 20162017
| | | | Gain (Loss) Recognized in Other Comprehensive (Loss) Income (Effective Portion) | | (Loss) Gain Reclassified from Accumulated Other Comprehensive Income ("AOCI") into Income (Effective Portion)(1) | | Gain Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing)(2) | Gain (Loss) Recognized in Other Comprehensive Income (Loss) (Effective Portion) | | Gain (Loss) Reclassified from Accumulated Other Comprehensive Income ("AOCI") into Income (Effective Portion)(1) | | Loss Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing)(2) |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
Interest rate lock contracts(3) | $ | — |
| | $ | — |
| | $ | (.1 | ) | | $ | (.1 | ) | | $ | — |
| | $ | — |
| $ | — |
| | $ | — |
| | $ | — |
| | $ | (.1 | ) | | $ | — |
| | $ | — |
|
Foreign currency forward contracts(4) | 1.7 |
| | — |
| | .2 |
| | (2.1 | ) | | .3 |
| | .2 |
| (7.6 | ) | | 2.9 |
| | .7 |
| | (.2 | ) | | (1.0 | ) | | (.5 | ) |
| Total | $ | 1.7 |
| | $ | — |
| | $ | .1 |
| | $ | (2.2 | ) | | $ | .3 |
| | $ | .2 |
| $ | (7.6 | ) | | $ | 2.9 |
| | $ | .7 |
| | $ | (.3 | ) | | $ | (1.0 | ) | | $ | (.5 | ) |
NineSix Months Ended SeptemberJune 30, 20172018 and 20162017
| | | | Gain (Loss) Recognized in Other Comprehensive (Loss) Income (Effective Portion) | | Loss Reclassified from AOCI into Income (Effective Portion)(1) | | (Loss) Gain Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing)(2) | Gain (Loss) Recognized in Other Comprehensive Income (Loss) (Effective Portion) | | Gain (Loss) Reclassified from AOCI into Income (Effective Portion)(1) | | Loss Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing)(2) |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
Interest rate lock contracts(3) | $ | — |
| | $ | — |
| | $ | (.3 | ) | | $ | (.2 | ) | | $ | — |
| | $ | — |
| $ | — |
| | $ | — |
| | $ | (.1 | ) | | $ | (.2 | ) | | $ | — |
| | $ | — |
|
Foreign currency forward contracts(5) | 7.7 |
| | (.6 | ) | | (.8 | ) | | (9.9 | ) | | (.1 | ) | | 2.1 |
| (4.9 | ) | | 6.0 |
| | 3.0 |
| | (1.0 | ) | | (1.2 | ) | | (.4 | ) |
| Total | $ | 7.7 |
| | $ | (.6 | ) | | $ | (1.1 | ) | | $ | (10.1 | ) | | $ | (.1 | ) | | $ | 2.1 |
| $ | (4.9 | ) | | $ | 6.0 |
| | $ | 2.9 |
| | $ | (1.2 | ) | | $ | (1.2 | ) | | $ | (.4 | ) |
| |
(1) | Changes in the effective portion of cash flow hedge fair values are recorded in AOCI. Amounts recorded in AOCI associated with cash flow hedges are subsequently reclassified into contract drilling, depreciation or interest expense as earnings are affected by the underlying hedged forecasted transaction. |
| |
(2) | Gains and losses recognized in income for ineffectiveness and amounts excluded from effectiveness testing were included in other, net, in our condensed consolidated statements of operations. |
| |
(3) | Losses on interest rate lock derivatives reclassified from AOCI into income were included in interest expense, net, in our condensed consolidated statements of operations. |
| |
(4) | During the three-month period ended SeptemberJune 30, 2017,2018, there were no net amounts$500,000 of gains reclassified from AOCI into contract drilling expense and $200,000$200,000 of gains were reclassified from AOCI into depreciation expense in our condensed consolidated statement of operations. During the three-month period ended SeptemberJune 30, 2016, $2.3 million2017, $400,000 of losses were reclassified from AOCI into contract drilling expense and $200,000 of gains were reclassified from AOCI into depreciation expense in our condensed consolidated statement of operations. |
| |
(5) | During the nine-monthsix-month period ended SeptemberJune 30, 2017, $1.42018, $2.6 million of lossesgains were reclassified from AOCI into contract drilling expense and $600,000$400,000 of gains were reclassified from AOCI into depreciation expense in our condensed consolidated statement of operations. During the nine-monthsix-month period ended SeptemberJune 30, 2016, $10.52017, $1.4 million of losses were reclassified from AOCI into contract drilling expense and $600,000$400,000 of gains were reclassified from AOCI into depreciation expense in our condensed consolidated statement of operations. |
We have net assets and liabilities denominated in numerous foreign currencies and use various methods to manage our exposure to foreign currency exchange rate risk. We predominantly structure our drilling contracts in U.S. dollars, which significantly reduces the portion of our cash flows and assets denominated in foreign currencies. We occasionally enter into derivatives that hedge the fair value of recognized foreign currency denominated assets or liabilities but do not designate such derivatives as hedging instruments. In these situations, a natural hedging relationship generally exists whereby changes in the fair value of the derivatives offset changes in the fair value of the underlying hedged items. As of SeptemberJune 30, 2017,2018, we held derivatives not designated as hedging instruments to exchange an aggregate $137.1$153.2 million for various foreign currencies, including $94.4$96.8 million for euros, $12.3$22.2 million for Australian dollars, $11.6 million for Indonesian rupiahs, $8.4 million for Brazilian reals, $6.5 million for British pounds, $10.1 million for Brazilian reals,and $7.7 million for Australian dollars and $12.6 million for other currencies.
Net gainslosses of $2.7$9.3 million and net lossesgains of $400,0005.7 million associated with our derivatives not designated as hedging instruments were included in other, net, in our condensed consolidated statements of operations for the three-month periods ended SeptemberJune 30, 20172018 and 2016,2017, respectively. Net gainslosses of $8.9$7.5 million and $500,000net gains of $6.2 million associated with our derivatives not designated as hedging instruments were included in other, net, in our condensed consolidated statements of operations for the nine-monthsix-month periods ended SeptemberJune 30, 20172018 and 2016,2017, respectively. These gains and losses were largelypartially offset by net foreign currency exchange gains and losses during the respective periods.
As of SeptemberJune 30, 2017,2018, the estimated amount of net gainslosses associated with derivative instruments, net of tax, that would be reclassified into earnings during the next twelve months totaled $3.3 million.$2.3 million.
Note 5 - Noncontrolling Interests
Third parties hold a noncontrolling ownership interest in certain of our non-U.S. subsidiaries. Noncontrolling interests are classified as equity on our condensed consolidated balance sheets, and net income attributable to noncontrolling interests is presented separately in our condensed consolidated statements of operations.
(Loss) income from continuing operations attributable to Ensco for the three-month and nine-month periods ended September 30, 2017 and 2016 was as follows (in millions):
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| (Loss) income from continuing operations | $ | (28.0 | ) | | $ | 88.0 |
| | $ | (96.7 | ) | | $ | 858.4 |
|
| Loss (income) from continuing operations attributable to noncontrolling interests | 2.8 |
| | (2.0 | ) | | .5 |
| | (5.4 | ) |
| (Loss) income from continuing operations attributable to Ensco | $ | (25.2 | ) | | $ | 86.0 |
| | $ | (96.2 | ) | | $ | 853.0 |
|
Note 6 - Earnings Per Share
We compute basic and diluted earnings per share ("EPS") in accordance with the two-class method. Net (loss) incomeloss attributable to Ensco used in our computations of basic and diluted EPS is adjusted to exclude net income allocated to non-vested shares granted to our employees and non-employee directors. Weighted-average shares outstanding used in our computation of diluted EPS is calculated using the treasury stock method and excludes non-vested shares.
During the three-month and six-month periods ended June 30, 2018 and 2017, all income attributable to noncontrolling interests was from continuing operations. The following table is a reconciliation of (loss) incomeloss from continuing operations attributable to Ensco shares used in our basic and diluted EPS computations for the three-month and nine-monthsix-month periods ended SeptemberJune 30, 20172018 and 20162017 (in millions):
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| (Loss) income from continuing operations attributable to Ensco | $ | (25.2 | ) | | $ | 86.0 |
| | $ | (96.2 | ) | | $ | 853.0 |
|
Income from continuing operations allocated to non-vested share awards(1) | (.1 | ) | | (1.8 | ) | | (.3 | ) | | (15.1 | ) |
| (Loss) income from continuing operations attributable to Ensco shares | $ | (25.3 | ) | | $ | 84.2 |
| | $ | (96.5 | ) | | $ | 837.9 |
|
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
| Loss from continuing operations attributable to Ensco | $ | (143.0 | ) | | $ | (45.9 | ) | | $ | (283.0 | ) | | $ | (71.0 | ) |
Income from continuing operations allocated to non-vested share awards(1) | (.1 | ) | | (.1 | ) | | (.2 | ) | | (.2 | ) |
| Loss from continuing operations attributable to Ensco shares | $ | (143.1 | ) | | $ | (46.0 | ) | | $ | (283.2 | ) | | $ | (71.2 | ) |
| |
(1) | Losses are not allocated to non-vested share awards. Therefore, only dividends attributable to our non-vested share awards are included infor the three-month and nine-monthsix-month periods ended SeptemberJune 30, 2018 and 2017. |
AntidilutiveAnti-dilutive share awards totaling 1.3 million and 1.21.7 million were excluded from the computation of diluted EPS for the three-month and nine-monthsix-month periods ended SeptemberJune 30, 20172018. Anti-dilutive share awards totaling 1.3 million were excluded from the computation of diluted EPS for the three-month and 2016, respectively.six-month periods ended June 30, 2017.
We have the option to settle our 2024 Convertible Notes in cash, shares or a combination thereof for the aggregate amount due upon conversion. Our intent is to settle the principal amount of the 2024 Convertible Notes in cash upon conversion. If the conversion value exceeds the principal amount (i.e., our share price exceeds the exchange price on the date of conversion), we expect to deliver shares equal to the remainder of our conversion obligation in excess of the principal amount.
During each reporting period that our average share price exceeds the exchange price, an assumed number of shares required to settle the conversion obligation in excess of the principal amount will be included in our denominator for the computation of diluted EPS using the treasury stock method. Our average share price did not exceed the exchange price during the three-month or nine-monthsix-month periods ended SeptemberJune 30, 2018 and June 30, 2017.
Note 7 -Debt
Exchange OffersSenior Notes
InOn January 2017,26, 2018, we completed exchangeissued $1.0 billion aggregate principal amount of unsecured 7.75% senior notes due 2026 at par (the "2026 Notes"). Interest on the 2026 Notes is payable semiannually on February 1 and August 1 of each year commencing August 1, 2018.
Tender Offers and Redemption
Concurrent with the issuance of the 2026 Notes in January 2018, we launched cash tender offers (the "Exchange Offers")for up to exchange$985.0 million aggregate principal amount of certain series of our outstandingsenior notes issued by us and Pride International LLC, our wholly-owned subsidiary. The tender offers expired February 7, 2018, and we repurchased $182.6 million of our 8.50% senior notes due 2019, $256.6 million of our 6.875% senior notes due 2020 and $156.2 million of our 4.70% senior notes due 20212021. Subsequently, we issued a redemption notice for 8.00%the remaining outstanding $55.0 million principal amount of the 8.50% senior notes due 20242019 and cash. The Exchange Offers resulted in the tender of $649.5repurchased $71.4 million aggregate principal amount of our outstanding senior notes that were settleddue 2020.
The following table sets forth the total principal amounts repurchased as a result of the tender offers, redemption and exchanged as followsrepurchase (in millions):
|
| | | | | | | | | | | | | | | | |
| | | Aggregate Principal Amount Repurchased | | 8.00% Senior notes due 2024 Consideration | | Cash Consideration(1) | | Total Consideration |
| 8.50% Senior notes due 2019 | | $ | 145.8 |
| | $ | 81.6 |
| | $ | 81.7 |
| | $ | 163.3 |
|
| 6.875% Senior notes due 2020 | | 129.8 |
| | 69.3 |
| | 69.4 |
| | 138.7 |
|
| 4.70% Senior notes due 2021 | | 373.9 |
| | 181.1 |
| | 181.4 |
| | 362.5 |
|
| Total | | $ | 649.5 |
| | $ | 332.0 |
| | $ | 332.5 |
| | $ | 664.5 |
|
| |
(1)
| As of December 31, 2016, the aggregate amount of principal repurchased with cash of $332.5 million, along with associated premiums, was classified as current maturities of long-term debt on our condensed consolidated balance sheet. |
During the first quarter, we recognized a net pre-tax loss on the Exchange Offers of $6.2 million, consisting of a loss of $3.5 million that includes the write-off of premiums on tendered debt and $2.7 million of transaction costs.
Open Market Repurchases
During the nine-month period ended September 30, 2017, we repurchased certain of our outstanding senior notes with cash on hand and recognized an insignificant pre-tax gain, net of discounts, premiums and debt issuance costs. The aggregate repurchases were as follows (in millions):
| | | | Aggregate Principal Amount Repurchased | | Aggregate Repurchase Price(1) | Aggregate Principal Amount Repurchased | | Aggregate Repurchase Price(1) |
| 8.50% Senior notes due 2019 | $ | 54.6 |
| | $ | 60.1 |
| |
| 6.875% Senior notes due 2020 | 100.1 |
| | 105.1 |
| |
| 8.50% senior notes due 2019 | | $ | 237.6 |
|
| $ | 256.8 |
|
| 6.875% senior notes due 2020 | | 328.0 |
|
| 354.7 |
|
| 4.70% Senior notes due 2021 | 39.4 |
| | 39.3 |
| 156.2 |
| | 159.7 |
|
| Total | $ | 194.1 |
| | $ | 204.5 |
| $ | 721.8 |
| | $ | 771.2 |
|
| |
(1) | Excludes accrued interest paid to holders of the repurchased senior notes. |
During the first quarter of 2018, we recognized a pre-tax loss from debt extinguishment of $19.0 million, net of discounts, premiums, debt issuance costs and commissions.
Maturities
Our nextFollowing the January 2018 debt maturity is $237.6 million during 2019, followed by $450.9 millionoffering, repurchases and $269.7redemption, our only debt maturities until 2024 are $122.9 million during 2020 and 2021, respectively.$113.5 million during 2021.
Revolving Credit Facility
In October 2017, we amended ourWe have a $2.0 billion senior unsecured revolving credit facility ("Credit Facility") with a syndicate of banks to extend the final maturity date by two years. Previously, our Credit Facility had a borrowing capacity of $2.25 billion through September 2019 that declined to $1.13 billion through September 2020. Subsequent to the amendment, ourbe used for general corporate purposes. Our borrowing capacity is $2.0 billion through September 2019 and declines to $1.3 billion through September 2020 and to $1.2 billion through September 2022. The credit agreement governing our revolving credit facilitythe Credit Facility includes an accordion feature allowing us to increase the commitments expiring in September 2022 up to an aggregate amount not to exceed $1.5 billion.
Also in October,Advances under the Credit Facility bear interest at Base Rate or LIBOR plus an applicable margin rate, depending on our credit ratings. We are required to pay a quarterly commitment fee on the undrawn portion of the $2.0 billion commitment, which is also based on our credit rating.
In January 2018, Moody's downgraded our senior unsecured bond credit rating from B1B2 to B2 and Standard & Poor's downgraded our credit rating from BB to B+.B3. The Credit Facility amendment and the rating actions resulted in increasesan increase to the interest rates applicable to our borrowings.borrowings and the quarterly commitment fee on the undrawn portion of the $2.0 billion commitment. The applicable margin rates are 2.50%3.00% per annum for Base Rate advances and 3.50%4.00% per annum for LIBOR advances. In addition, ourThe quarterly commitment fee increased as a result of the amendment and rating actions to 0.625%is 0.75% per annum on the undrawn portion of the $2.0 billion commitment.
The Credit Facility requires us to maintain a total debt to total capitalization ratio that is less than or equal to 60% and to provide guarantees from certain of our rig-owning subsidiaries sufficient to meet certain guarantee coverage ratios. The Credit Facility also contains customary restrictive covenants, including, among others, prohibitions on creating, incurring or assuming certain debt and liens (subject to customary exceptions, including a permitted lien basket that permits us to raise secured debt up to the lesser of $750 million or 10% of consolidated tangible net worth (as defined in the Credit Facility)); entering into certain merger arrangements; selling, leasing, transferring or otherwise disposing of all or substantially all of our assets; making a material change in the nature of the business; paying or distributing dividends on our ordinary shares (subject to certain exceptions, including the ability to continue paying a quarterly dividend of $0.01 per share); borrowings, if after giving effect to any such borrowings and the application of the proceeds thereof, the aggregate amount of available cash (as defined in the Credit Facility) would exceed $150 million; and entering into certain transactions with affiliates.
The Credit Facility also includes a covenant restricting our ability to repay indebtedness maturing after September 2022, which is the final maturity date of our Credit Facility. This covenant is subject to certain exceptions that permit us to manage our balance sheet, including the ability to make repayments of indebtedness (i) of acquired companies within 90 days of the completion of the acquisition or (ii) if, after giving effect to such repayments, available cash is greater than $250 million and there are no amounts outstanding under the Credit Facility.
As of SeptemberJune 30, 2017,2018, we were in compliance in all material respects with our covenants under the Credit Facility. We had no amounts outstanding under the Credit Facility as of SeptemberJune 30, 20172018 and December 31, 2016.2017.
Our access to credit and capital markets depends on the credit ratings assigned to our debt. We no longerAs a result of recent rating actions, we do not maintain an investment-grade status. Our current credit ratings, and any additional actual or anticipated downgrades in our credit ratings, could limit our available options when accessing credit and capital markets, or when restructuring or refinancing our debt. In addition, future financings or refinancings may result in higher borrowing costs and require more restrictive terms and covenants, which may further restrict our operations. With a credit rating below investment grade, we have no access to the commercial paper market.
Note 8 -Shareholders' EquityShare-based Compensation
As a U.K. company governed in part byDuring the Companies Act,quarter ended June 30, 2018, we cannot issue new shares (other than in limited circumstances) without being authorizedgranted 4.7 million non-vested share awards to our employees pursuant to our 2018 Long-Term Incentive Plan, which was approved by our shareholders. Atshareholders at our last annual general meeting held on May 22, 2017, our shareholders authorized the allotment of 101.1 million Class A ordinary shares (or 202.2 million Class A ordinary shares in connection with an offer by way of a rights issue or other similar issue) for a period up to the conclusionMay. Grants of our 2018 annual general meeting (or, if earlier,non-vested share awards generally vest at rates of 20% per year, as determined by a committee or subcommittee of the Board of Directors at the closetime of businessgrant. The non-vested share awards have dividend rights effective on August 22, 2018).
On October 5, 2017the date of grant. Compensation expense for awards to be settled in conjunctioncash is remeasured each quarter with a cumulative adjustment to compensation cost during the approval of the Merger, our shareholders authorized an increaseperiod based on changes in our allotment to reflectshare price. The weighted-average grant date fair value for our expected enlargednon-vested share capital immediately followingawards that were granted during the completion of the Merger. As a result of the authorization, our share allotment increased to 146.1 million Class A ordinary shares (or 292.2 million Class A ordinary shares in connection with an offer by way of a rights issue or other similar issue).
In connection with the Merger on October 6, 2017, we issued 134.1 million Ensco Class A ordinary shares to Atwood shareholders.quarter ended June 30, 2018 was $6.58.
Note 9 -Income Taxes
WeHistorically, we have historically calculated our provision for income taxes during interim reporting periods by applying the estimated annual effective tax rate for the full fiscal year to pre-tax income or loss, excluding discrete items, for the reporting period. We determined that since small changes in estimated pre-tax income or loss would result in significant changes in ourthe estimated annual effective tax rate, the historical method utilized would not provide a reliable estimate of income taxes for the three-month and nine-monthsix-month periods ended SeptemberJune 30, 2018 and 2017. We used a discrete effective tax rate method to calculate income taxes for the three-month and nine-monthsix-month periods ended SeptemberJune 30, 2017.2018. We will continue to evaluate income tax estimates under the historical method in subsequent quarters and employ a discrete effective tax rate method if warranted.
Discrete income tax benefit for the three-month period ended June 30, 2018 was $2.3 million and was primarily attributable to U.S. tax reform, partially offset by discrete tax expense related to rig sales and unrecognized tax benefits associated with tax positions taken in prior years. Discrete income tax benefit for the six-month period ended June 30, 2018 was $11.2 million and was primarily attributable to U.S. tax reform and a restructuring transaction, partially offset by discrete tax expense related to repurchase and redemption of senior notes, the effective settlement of liabilities for unrecognized tax benefits associated with tax positions taken in prior years and rig sales.
Discrete income tax expense for the three-month period ended SeptemberJune 30, 2017 was $3.2$2.2 million and resultedwas primarily fromattributable to the debt exchange and repurchases we undertook during the first quarter of 2017 and a rig sale and resolutionssettlement of prior year tax matters.a previously disclosed legal contingency. Discrete income tax expense for the nine-monthsix-month period ended SeptemberJune 30, 2017 was $13.0$9.8 million and resultedwas primarily fromattributable to the Exchange Offersexchange offers and debt repurchases, rig sales, a restructuring transaction, settlement of a previously disclosed legal contingency, the effective settlement of a liability for unrecognized tax benefits associated with a tax position taken in prior years and other resolutionsa settlement of prior year tax matters.a previously disclosed legal contingency.
U.S Tax Reform
The U.S. Tax Cuts and Jobs Act (“U.S. tax reform”) was enacted on December 22, 2017 and introduced significant changes to U.S. income tax law, including a reduction in the statutory income tax rate from 35% to 21% effective January 1, 2018, a one-time transition tax on deemed repatriation of deferred foreign income, a base erosion anti-abuse tax that effectively imposes a minimum tax on certain payments to non-U.S. affiliates, new and revised rules relating to the current taxation of certain income of foreign subsidiaries and revised rules associated with limitations on the deduction of interest.
Due to the timing of the enactment of U.S. tax reform and the complexity involved in applying its provisions, we made reasonable estimates of its effects and recorded such amounts in our consolidated financial statements as of December 31, 2017 on a provisional basis. As we continue to analyze applicable information and data, and interpret any additional guidance issued by the U.S. Treasury Department, the Internal Revenue Service and others, we may make adjustments to the provisional amounts throughout the one-year measurement period as provided by Staff Accounting Bulletin No. 118. Our accounting for the enactment of U.S. tax reform will be completed during 2018, and any adjustments we recognize could be material. The ongoing impact of U.S. tax reform may result in an increase in our consolidated effective income tax rate forin future periods.
During the three-month and nine-monthsix-month periods ended SeptemberJune 30, 2016, excluding the impact2018, we recognized a tax benefit of discrete tax items, was 6.0% and 21.9%, respectively. Net discrete income tax benefits for the three-month and nine-month periods ended September 30, 2016 of $6.0$7.1 million and $1.6$11.7 million, respectively, were primarily attributable to the gain on debt extinguishment, changes in liabilities for unrecognized tax benefits associated with the one-time transition tax positions taken in prior years and other resolutionson deemed repatriation of prior year matters. Discrete tax items for the nine-month period ended September 30, 2016 also resulted from restructuring transactions involving certaindeferred foreign income of our U.S. subsidiaries.
Note 10 -Contingencies
Brazil Internal Investigation
Pride International LLC, formerly Pride International, Inc. (“Pride”), a company we acquired in 2011, commenced drilling operations in Brazil in 2001. In 2008, Pride entered into a drilling services agreement with Petrobras (the "DSA") for ENSCO DS-5, a drillship ordered from Samsung Heavy Industries, a shipyard in South Korea ("SHI"). Beginning in 2006, Pride conducted periodic compliance reviews of its business with Petrobras, and, after the acquisition of Pride, Ensco conducted similar compliance reviews.
We commenced a compliance review in early 2015 after the release of media reports were released regarding ongoing investigations of various kickback and bribery schemes in Brazil involving Petrobras. While conducting our compliance review, we became aware of an internal audit report by Petrobras alleging irregularities in relation to the DSA. Upon learning of the Petrobras internal audit report, our Audit Committee appointed independent counsel to lead an investigation into the alleged irregularities. Further, in June and July 2015, we voluntarily contacted the SEC and the U.S. Department of Justice ("DOJ"(the "DOJ"), respectively, to advise them of this matter and of our Audit Committee’s investigation. Independent counsel, under the direction of our Audit Committee, has substantially completed its investigation by reviewing and analyzing available documents and correspondence and interviewing current and former
employees involved in the DSA negotiations and the negotiation of the ENSCO DS-5 construction contract with SHI (the "DS-5 Construction Contract").
To date, our Audit Committee has found no credible evidence that Pride or Ensco or any of their current or former employees were aware of or involved in any wrongdoing, and our Audit Committee has found no credible evidence linking Ensco or Pride to any illegal acts committed by our former marketing consultant who provided services to Pride and Ensco in connection with the DSA. IndependentWe, through independent counsel, hashave continued to providecooperate with the SEC and DOJ, with updates throughout the investigation, including providing detailed briefings regarding itsour investigation and findings.findings and responding to inquiries as they arise. We entered into a one-year tolling agreement with the DOJ that expired in December 2016. We extended ourOur tolling agreement with the SEC for 12 months until Marchexpired in June 2018.
Subsequent to initiating our Audit Committee investigation, Brazilian court documents connected to the prosecution of former Petrobras directors and employees as well as certain other third parties, including our former marketing consultant, referenced the alleged irregularities cited in the Petrobras internal audit report. Our former marketing consultant has entered into a plea agreement with the Brazilian authorities. On January 10, 2016, Brazilian authorities filed an indictment against a former Petrobras director. This indictment states that the former Petrobras director received bribes paid out of proceeds from a brokerage agreement entered into for purposes of intermediating a drillship construction contract between SHI and Pride, which we believe to be the DS-5 Construction Contract. The parties to the brokerage agreement were a company affiliated with a person acting on behalf of the former Petrobras director, a company affiliated with our former marketing consultant, and SHI. The indictment alleges that amounts paid by SHI under the brokerage agreement ultimately were used to pay bribes to the former Petrobras director. The
indictment does not state that Pride or Ensco or any of their current or former employees were involved in the bribery scheme or had any knowledge of the bribery scheme.
On January 4, 2016, we received a notice from Petrobras declaring the DSA void effective immediately. Petrobras’ notice alleges that our former marketing consultant both received and procured improper payments from SHI for employees of Petrobras and that Pride had knowledge of this activity and assisted in the procurement of and/or facilitated these improper payments. We disagree with Petrobras’ allegations. See "DSA Dispute" below for additional information.
In August 2017, one of our Brazilian subsidiaries was contacted by the Office of the Attorney General for the Brazilian state of Paraná in connection with a criminal investigation procedure initiated against agents of both SHI and Pride in relation to the DSA. The Brazilian authorities requested information regarding our compliance program and the findings of our internal investigations. We are cooperatingcooperated with the Office of the Attorney General and have provided documents in response to theirits request. We cannot predict the scope or ultimate outcome of this procedure or whether any other governmental authority will open an investigation into Pride’s involvement in this matter, or if a proceeding were opened, the scope or ultimate outcome of any such investigation. If the SEC or DOJ determines that violations of the FCPAForeign Corrupt Practices Act of 1977 (the "FCPA") have occurred, or if any governmental authority determines that we have violated applicable anti-bribery laws, they could seek civil and criminal sanctions, including monetary penalties, against us, as well as changes to our business practices and compliance programs, any of which could have a material adverse effect on our business and financial condition. Although our internal investigation is substantially complete, we cannot predict whether any additional allegations will be made or whether any additional facts relevant to the investigation will be uncovered during the course of the investigation and what impact those allegations and additional facts will have on the timing or conclusions of the investigation. Our Audit Committee will examine any such additional allegations and additional facts and the circumstances surrounding them.
DSA Dispute
As described above, on January 4, 2016, Petrobras sent a notice to us declaring the DSA void effective immediately, reserving its rights and stating its intention to seek any restitution to which it may be entitled. We disagree with Petrobras’ declaration that the DSA is void. We believe that Petrobras repudiated the DSA and havehas therefore accepted the DSA as terminated on April 8, 2016 (the "Termination Date"). At this time, we cannot reasonably determine
the validity of Petrobras' claim or the range of our potential exposure, if any. As a result, there can be no assurance as to how this dispute will ultimately be resolved.
We did not recognize revenue for amounts owed to us under the DSA from the beginning of the fourth quarter of 2015 through the Termination Date, as we concluded that collectability of these amounts was not reasonably assured. Additionally, our receivables from Petrobras related to the DSA from prior to the fourth quarter of 2015 are fully reserved in our condensed consolidated balance sheet as of SeptemberJune 30, 2017. We have2018. In August 2016, we initiated arbitration proceedings in the U.K. against Petrobras seeking payment of all amounts owed to us under the DSA, in addition to any other amounts to which we are entitled, and intend to vigorously pursue our claims. Petrobras subsequently filed a counterclaim seeking restitution of certain sums paid under the DSA less value received by Petrobras under the DSA. We have alsoThe arbitral hearing on liability was held in March 2018, and we are awaiting the tribunal's decision. There can be no assurance as to how this arbitration proceeding will ultimately be resolved.
In November 2016, we initiated separate arbitration proceedings in the U.K. against SHI for any losses we have incurredincur in connection with the foregoing.foregoing Petrobras arbitration. SHI subsequently filed a statement of defense disputing our claim. There can be no assurance as to how theseIn January 2018, the arbitration proceedings will ultimately be resolved.
Customer Dispute
A customer filed a lawsuit in Texas federal court against one of our subsidiaries claiming damages based on allegations that our subsidiary breached and was negligent in the performance of a drilling contract during the period beginning in mid-2011 through May 2012. The customer's court documents alleged damages totaling approximately $40 million.During the second quarter, we settled the lawsuit and agreed to pay the customer $9.8 million, which was recognized in contract drilling expense in our condensed consolidated statements of operationstribunal for the nine-month period ended September 30, 2017.
Atwood Merger
On June 23, 2017, a putative class action captioned Bernard Stern v. Atwood Oceanics, Inc., et al, was filedSHI matter issued an award on liability fully in Ensco’s favor. SHI is liable to us for $10 million or damages that we can prove. As the U.S. District Court forlosses suffered by us will depend in part on the Southern District of Texas against Atwood, Atwood’s directors, Ensco and Merger Sub. The Stern complaint generally alleges that Atwood and the Atwood directors disseminated a false or misleading registration statement on Form S-4 (the “Registration Statement”) on June 16, 2017, which omitted material information regarding the proposed Merger, in violation of Section 14(a)outcome of the Exchange Act. Specifically,Petrobras arbitration described above, the Stern complaint alleges that Atwood andamount of damages to be paid by SHI will be determined after the Atwood directors omitted material information regarding the parties’ financial projections, the analysis performed by Atwood’s financial advisor, Goldman Sachs & Co. LLC (“Goldman Sachs”), in support of its fairness opinion, the timing and nature of communications regarding post-transaction employment of Atwood's directors and officers, potential conflicts of interest of Goldman Sachs, and whether there were further discussions with another potential acquirer of Atwood following the May 30, 2017 announcementconclusion of the Merger. The Stern complaint further alleges thatPetrobras arbitration. We are unable to estimate the Atwood directors, Ensco and Merger Sub are liableultimate outcome of recovery for these violations as “control persons” of Atwood under Section 20(a) of the Exchange Act. With respect to Ensco, the Stern complaint alleges that Ensco had direct supervisory control over the composition of the Registration Statement. The Stern complaint seeks injunctive relief, including to enjoin the Merger, rescissory damages and an award of attorneys’ fees in addition to other relief.
On June 27, 2017, June 29, 2017 and June 30, 2017, additional putative class actions captioned Joseph Composto v. Atwood Oceanics, Inc., et al, Booth Family Trust v. Atwood Oceanics, Inc., et al and Mary Carter v. Atwood Oceanics, Inc.et al, respectively, were filed in the U.S. District Court for the Southern District of Texas against Atwood and Atwood’s directors. These actions allege violations of Sections 14(a) and 20(a) of the Exchange Act by Atwood and Atwood’s directors similar to those alleged in the Stern complaint; however, neither Ensco plc nor Merger Sub is named as a defendant in these actions. On October 2, 2017, the actions were consolidated and the Stern matter was designated as the lead case. The plaintiffs subsequently voluntarily dismissed the actions.at this time.
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.
In the ordinary course of business with customers and others, we have entered into letters of credit and surety bonds to guarantee our performance as it relates to our drilling contracts, contract bidding, customs duties, tax appeals and other obligations in various jurisdictions. Letters of credit and surety bonds outstanding as of SeptemberJune 30, 20172018 totaled $83.5$125.4 million and wereare issued under facilities provided by various banks and other financial institutions. Obligations under these letters of credit and surety bonds are not normally called, as we typically comply with the underlying performance requirement. As of SeptemberJune 30, 2017,2018, we werehad not been required to make collateral deposits with respect to these agreements.
Note 11 -Segment Information
Our business consists of three operating segments: (1) Floaters, which includes our drillships and semisubmersible rigs, (2) Jackups and (3) Other, which consists of management services on rigs owned by third-parties. Our two reportable segments, Floaters and Jackups, provide one service, contract drilling.
Segment information for the three-month and nine-monthsix-month periods ended 2017June 30, 2018 and 20162017 is presented below (in millions). General and administrative expense and depreciation expense incurred by our corporate office are not allocated to our operating segments for purposes of measuring segment operating income and are included in "Reconciling Items." We measure segment assets as property and equipment.
Three Months Ended SeptemberJune 30, 20172018
| | | | Floaters | | Jackups | | Other | | Operating Segments Total | | Reconciling Items | | Consolidated Total | Floaters | | Jackups | | Other | | Operating Segments Total | | Reconciling Items | | Consolidated Total |
| Revenues | $ | 291.9 |
| | $ | 153.1 |
| | $ | 15.2 |
| | $ | 460.2 |
| | $ | — |
| | $ | 460.2 |
| $ | 284.9 |
| | $ | 158.7 |
| | $ | 14.9 |
| | $ | 458.5 |
| | $ | — |
| | $ | 458.5 |
|
| Operating expenses | | | | | | | | | | | | | | | | | | | | | | |
| Contract drilling (exclusive of depreciation) | 139.1 |
| | 132.9 |
| | 13.8 |
| | 285.8 |
| | — |
| | 285.8 |
| 203.7 |
| | 126.8 |
| | 13.8 |
| | 344.3 |
| | — |
| | 344.3 |
|
| Depreciation | 72.7 |
| | 31.6 |
| | — |
| | 104.3 |
| | 3.9 |
| | 108.2 |
| 80.8 |
| | 36.5 |
| | — |
| | 117.3 |
| | 3.4 |
| | 120.7 |
|
| General and administrative | — |
| | — |
| | — |
| | — |
| | 30.4 |
| | 30.4 |
| — |
| | — |
| | — |
| | — |
| | 26.1 |
| | 26.1 |
|
| Operating income (loss) | $ | 80.1 |
| | $ | (11.4 | ) | | $ | 1.4 |
| | $ | 70.1 |
| | $ | (34.3 | ) | | $ | 35.8 |
| $ | 0.4 |
| | $ | (4.6 | ) | | $ | 1.1 |
| | $ | (3.1 | ) | | $ | (29.5 | ) | | $ | (32.6 | ) |
| Property and equipment, net | $ | 8,545.5 |
| | $ | 2,502.4 |
| | $ | — |
| | $ | 11,047.9 |
| | $ | 48.5 |
| | $ | 11,096.4 |
| $ | 9,574.9 |
| | $ | 3,167.0 |
| | $ | — |
| | $ | 12,741.9 |
| | $ | 42.0 |
| | $ | 12,783.9 |
|
Three Months Ended SeptemberJune 30, 20162017
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Floaters | | Jackups | | Other | | Operating Segments Total | | Reconciling Items | | Consolidated Total |
| Revenues | $ | 264.0 |
| | $ | 178.9 |
| | $ | 14.6 |
| | $ | 457.5 |
| | $ | — |
| | $ | 457.5 |
|
| Operating expenses | | | | | | | | | | | |
| Contract drilling (exclusive of depreciation) | 145.6 |
| | 132.3 |
| | 13.4 |
| | 291.3 |
| | — |
| | 291.3 |
|
| Depreciation | 72.0 |
| | 31.6 |
| | — |
| | 103.6 |
| | 4.3 |
| | 107.9 |
|
| General and administrative | — |
| | — |
| | — |
| | — |
| | 30.5 |
| | 30.5 |
|
| Operating income | $ | 46.4 |
| | $ | 15.0 |
| | $ | 1.2 |
| | $ | 62.6 |
| | $ | (34.8 | ) | | $ | 27.8 |
|
| Property and equipment, net | $ | 8,493.2 |
| | $ | 2,515.3 |
| | $ | — |
| | $ | 11,008.5 |
| | $ | 50.5 |
| | $ | 11,059.0 |
|
Six Months Ended June 30, 2018
| | | | Floaters | | Jackups | | Other | | Operating Segments Total | | Reconciling Items | | Consolidated Total | Floaters | | Jackups | | Other | | Operating Segments Total | | Reconciling Items | | Consolidated Total |
| Revenues | $ | 319.3 |
| | $ | 213.8 |
| | $ | 15.1 |
| | $ | 548.2 |
| | $ | — |
| | $ | 548.2 |
| $ | 543.9 |
| | $ | 302.1 |
| | $ | 29.5 |
| | $ | 875.5 |
| | $ | — |
| | $ | 875.5 |
|
| Operating expenses | | | | | | | | | | | | | | | | | | | | | | |
| Contract drilling (exclusive of depreciation) | 153.7 |
| | 133.2 |
| | 11.2 |
| | 298.1 |
| | — |
| | 298.1 |
| 388.8 |
| | 253.7 |
| | 27.0 |
| | 669.5 |
| | — |
| | 669.5 |
|
| Depreciation | 72.9 |
| | 32.1 |
| | — |
| | 105.0 |
| | 4.4 |
| | 109.4 |
| 156.1 |
| | 73.0 |
| | — |
| | 229.1 |
| | 6.8 |
| | 235.9 |
|
| General and administrative | — |
| | — |
| | — |
| | — |
| | 25.3 |
| | 25.3 |
| — |
| | — |
| | — |
| | — |
| | 54.0 |
| | 54.0 |
|
| Operating income | $ | 92.7 |
| | $ | 48.5 |
| | $ | 3.9 |
| | $ | 145.1 |
| | $ | (29.7 | ) | | $ | 115.4 |
| |
| Operating income (loss) | | $ | (1.0 | ) | | $ | (24.6 | ) | | $ | 2.5 |
| | $ | (23.1 | ) | | $ | (60.8 | ) | | $ | (83.9 | ) |
| Property and equipment, net | $ | 8,360.4 |
| | $ | 2,537.9 |
| | $ | — |
| | $ | 10,898.3 |
| | $ | 61.4 |
| | $ | 10,959.7 |
| $ | 9,574.9 |
| | $ | 3,167.0 |
| | $ | — |
| | $ | 12,741.9 |
| | $ | 42.0 |
| | $ | 12,783.9 |
|
NineSix Months Ended SeptemberJune 30, 2017
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Floaters | | Jackups | | Other | | Operating Segments Total | | Reconciling Items | | Consolidated Total |
| Revenues | $ | 840.7 |
| | $ | 503.8 |
| | $ | 44.3 |
| | $ | 1,388.8 |
| | $ | — |
| | $ | 1,388.8 |
|
| Operating expenses | | | | | | | | | | | |
| Contract drilling (exclusive of depreciation) | 431.1 |
| | 383.8 |
| | 40.3 |
| | 855.2 |
| | — |
| | 855.2 |
|
| Depreciation | 217.5 |
| | 95.3 |
| | — |
| | 312.8 |
| | 12.5 |
| | 325.3 |
|
| General and administrative | — |
| | — |
| | — |
| | — |
| | 86.9 |
| | 86.9 |
|
| Operating income | $ | 192.1 |
| | $ | 24.7 |
| | $ | 4.0 |
| | $ | 220.8 |
| | $ | (99.4 | ) | | $ | 121.4 |
|
| Property and equipment, net | $ | 8,545.5 |
| | $ | 2,502.4 |
| | $ | — |
| | $ | 11,047.9 |
| | $ | 48.5 |
| | $ | 11,096.4 |
|
Nine Months Ended September 30, 2016 | | | | Floaters | | Jackups | | Other | | Operating Segments Total | | Reconciling Items | | Consolidated Total | Floaters | | Jackups | | Other | | Operating Segments Total | | Reconciling Items | | Consolidated Total |
| Revenues | $ | 1,468.3 |
| | $ | 743.0 |
| | $ | 60.5 |
| | $ | 2,271.8 |
| | $ | — |
| | $ | 2,271.8 |
| $ | 548.8 |
| | $ | 350.7 |
| | $ | 29.1 |
| | $ | 928.6 |
| | $ | — |
| | $ | 928.6 |
|
| Operating expenses | | | | | | | | | | | | | | | | | | | | | | |
| Contract drilling (exclusive of depreciation) | 573.6 |
| | 390.0 |
| | 48.4 |
| | 1,012.0 |
| | — |
| | 1,012.0 |
| 292.0 |
| | 250.9 |
| | 26.5 |
| | 569.4 |
| | — |
| | 569.4 |
|
| Depreciation | 231.0 |
| | 90.8 |
| | — |
| | 321.8 |
| | 13.3 |
| | 335.1 |
| 144.8 |
| | 63.7 |
| | — |
| | 208.5 |
| | 8.6 |
| | 217.1 |
|
| General and administrative | — |
| | — |
| | — |
| | — |
| | 76.1 |
| | 76.1 |
| — |
| | — |
| | — |
| | — |
| | 56.5 |
| | 56.5 |
|
| Operating income | $ | 663.7 |
| | $ | 262.2 |
| | $ | 12.1 |
| | $ | 938.0 |
| | $ | (89.4 | ) | | $ | 848.6 |
| $ | 112.0 |
| | $ | 36.1 |
| | $ | 2.6 |
| | $ | 150.7 |
| | $ | (65.1 | ) | | $ | 85.6 |
|
| Property and equipment, net | $ | 8,360.4 |
| | $ | 2,537.9 |
| | $ | — |
| | $ | 10,898.3 |
| | $ | 61.4 |
| | $ | 10,959.7 |
| $ | 8,493.2 |
| | $ | 2,515.3 |
| | $ | — |
| | $ | 11,008.5 |
| | $ | 50.5 |
| | $ | 11,059.0 |
|
Information about Geographic Areas
As of SeptemberJune 30, 2017,2018, the geographic distribution of our drilling rigs by reportable segment was as follows:
| | | | Floaters | | Jackups | | Total(1) | Floaters | | Jackups | | Total(1) |
| North & South America | 8 | | 6 | | 14 | 8 | | 4 | | 12 |
| Europe & Mediterranean | 4 | | 10 | | 14 | 6 | | 11 | | 17 |
| Middle East & Africa | 3 | | 11 | | 14 | 3 | | 12 | | 15 |
| Asia & Pacific Rim | 5 | | 5 | | 10 | 5 | | 7 | | 12 |
| Asia & Pacific Rim (under construction) | — | | 1 | | 1 | 2 | | 1 | | 3 |
Held-for-sale | 1 | | — | | 1 | 2 | | 1 | | 3 |
| Total | 21 | | 33 | | 54 | 26 | | 36 | | 62 |
| |
(1) | We provide management services on two rigs owned by third-parties in the U.S. Gulf of Mexico which are not included in the table above. |
| |
(2) | One floater classified as held-for-sale as of June 30, 2018 was sold in July 2018. |
Note 12 -Supplemental Financial Information
Consolidated Balance Sheet Information
Accounts receivable, net, consisted of the following (in millions):
| | | | September 30,
2017 | | December 31,
2016 | June 30,
2018 | | December 31,
2017 |
| Trade | $ | 338.6 |
| | $ | 358.4 |
| $ | 338.6 |
| | $ | 335.4 |
|
| Other | 31.2 |
| | 24.5 |
| 15.1 |
| | 33.6 |
|
| | 369.8 |
| | 382.9 |
| 353.7 |
| | 369.0 |
|
| Allowance for doubtful accounts | (20.8 | ) | | (21.9 | ) | (21.0 | ) | | (23.6 | ) |
| | $ | 349.0 |
| | $ | 361.0 |
| $ | 332.7 |
| | $ | 345.4 |
|
Other current assets consisted of the following (in millions):
| | | | September 30,
2017 | | December 31,
2016 | June 30,
2018 | | December 31,
2017 |
| Inventory | $ | 219.7 |
| | $ | 225.2 |
| $ | 274.8 |
| | $ | 278.8 |
|
| Prepaid taxes | 35.8 |
| | 30.7 |
| 44.7 |
| | 43.5 |
|
| Deferred costs | 31.4 |
| | 32.4 |
| 38.2 |
| | 29.7 |
|
| Prepaid expenses | 14.1 |
| | 7.9 |
| 13.3 |
| | 14.2 |
|
| Assets held-for-sale | | 3.4 |
| | 1.5 |
|
| Derivative asset | | 1.3 |
| | 6.8 |
|
| Other | 17.3 |
| | 19.8 |
| 13.9 |
| | 6.7 |
|
| | $ | 318.3 |
| | $ | 316.0 |
| $ | 389.6 |
| | $ | 381.2 |
|
Other assets net, consisted of the following (in millions):
| | | | September 30,
2017 | | December 31,
2016 | June 30,
2018 | | December 31,
2017 |
| Supplemental executive retirement plan assets | | $ | 30.5 |
| | $ | 30.9 |
|
| Deferred costs | | 24.8 |
| | 37.4 |
|
| Deferred tax assets | $ | 54.7 |
| | $ | 69.3 |
| 15.5 |
| | 38.8 |
|
| Deferred costs | 30.8 |
| | 35.7 |
| |
| Supplemental executive retirement plan assets | 30.0 |
| | 27.7 |
| |
| Prepaid taxes on intercompany transfers of property | — |
| | 33.0 |
| |
| Intangible assets | | 8.2 |
| | 15.7 |
|
| Other | 9.5 |
| | 10.2 |
| 14.9 |
| | 17.4 |
|
| | $ | 125.0 |
| | $ | 175.9 |
| $ | 93.9 |
| | $ | 140.2 |
|
Accrued liabilities and other consisted of the following (in millions):
| | | | September 30,
2017 | | December 31,
2016 | June 30,
2018 | | December 31,
2017 |
| Accrued interest | | $ | 101.6 |
| | $ | 83.1 |
|
| Personnel costs | $ | 95.2 |
| | $ | 124.0 |
| 81.7 |
| | 112.0 |
|
| Deferred revenue | 88.0 |
| | 116.7 |
| 76.6 |
| | 71.9 |
|
| Accrued interest | 70.6 |
| | 71.7 |
| |
| Taxes | 36.9 |
| | 40.7 |
| 50.8 |
| | 46.4 |
|
| Derivative liabilities | 1.8 |
| | 12.7 |
| 6.7 |
| | 0.4 |
|
| Other | 8.3 |
| | 10.8 |
| 14.1 |
| | 12.1 |
|
| | $ | 300.8 |
| | $ | 376.6 |
| $ | 331.5 |
| | $ | 325.9 |
|
Other liabilities consisted of the following (in millions):
| | | | September 30,
2017 | | December 31,
2016 | June 30,
2018 | | December 31,
2017 |
Unrecognized tax benefits (inclusive of interest and penalties)
| $ | 144.2 |
| | $ | 142.9 |
| $ | 180.7 |
| | $ | 178.0 |
|
| Deferred revenue | 65.5 |
| | 120.9 |
| |
| Intangible liabilities | | 55.1 |
| | 59.6 |
|
| Supplemental executive retirement plan liabilities | 31.2 |
| | 28.9 |
| 31.5 |
| | 32.0 |
|
| Personnel costs | 14.9 |
| | 13.5 |
| 24.1 |
| | 18.1 |
|
| Deferred revenue | | 23.2 |
| | 51.2 |
|
| Deferred tax liabilities | | 16.3 |
| | 18.5 |
|
| Deferred rent | | 13.0 |
| | 17.1 |
|
| Other | 23.4 |
| | 16.3 |
| 18.1 |
| | 12.2 |
|
| | $ | 279.2 |
| | $ | 322.5 |
| $ | 362.0 |
| | $ | 386.7 |
|
Accumulated other comprehensive income consisted of the following (in millions):
| | | | September 30,
2017 | | December 31,
2016 | June 30,
2018 | | December 31,
2017 |
| Derivative instruments | $ | 22.4 |
| | $ | 13.6 |
| $ | 14.7 |
| | $ | 22.5 |
|
| Currency translation adjustment | 7.8 |
| | 7.6 |
| 7.5 |
| | 7.8 |
|
| Other | (1.6 | ) | | (2.2 | ) | (1.7 | ) | | (1.7 | ) |
| | $ | 28.6 |
| | $ | 19.0 |
| $ | 20.5 |
| | $ | 28.6 |
|
Concentration of Risk
We are exposed to credit risk relatingrelated to our receivables from customers, our cash and cash equivalents, our short-term investments and our use of derivatives in connection with the management of foreign currency exchange rate risk. We mitigate our credit risk relating to receivables from customers, which consist primarily of major international, government-owned and independent oil and gas companies, by performing ongoing credit evaluations. We also maintain reserves for potential credit losses, which generally have been within management'sour expectations. We mitigate our credit risk relating to cash and cash equivalents by focusing on diversification and quality of instruments. Cash equivalents consist of a portfolio of high-grade instruments. Custody of cash and cash equivalents is maintained at several well-capitalized financial institutions, and we monitor the financial condition of those financial institutions.
We mitigate our credit risk relating to derivative counterparties through a variety of techniques, including transacting with multiple, high-quality financial institutions, thereby limiting our exposure to individual counterparties and by entering into International Swaps and Derivatives Association, Inc. (“ISDA”("ISDA") Master Agreements, which include provisions for a legally enforceable master netting agreement, with almost all of our derivative counterparties. The terms of the ISDA agreements may also include credit support requirements, cross default provisions, termination events or set-off provisions. Legally enforceable master netting agreements reduce credit risk by providing protection in bankruptcy in certain circumstances and generally permitting the closeout and netting of transactions with the same counterparty
upon the occurrence of certain events. See "Note 45 - Derivative Instruments" for additional information on our derivatives.
Consolidated revenues by customer for the three-month and nine-monthsix-month periods ended SeptemberJune 30, 20172018 and 20162017 were as follows:
| | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2017 | | 2016 | | 2017 | | 2016 | 2018 | | 2017 | | 2018 | | 2017 |
Total(1) | 24 | % | | 23 | % | | 23 | % | | 16 | % | 13 | % | | 22 | % | | 14 | % | | 22 | % |
Petrobras(1) | | 10 | % | | 11 | % | | 11 | % | | 10 | % |
BP (2) | 15 | % | | 13 | % | | 15 | % | | 12 | % | 5 | % | | 15 | % | | 8 | % | | 15 | % |
Petrobras(1) | 11 | % | | 9 | % | | 11 | % | | 11 | % | |
ConocoPhillips(3) | 3 | % | | 2 | % | | 2 | % | | 12 | % | |
| Other | 47 | % | | 53 | % | | 49 | % | | 49 | % | 72 | % | | 52 | % | | 67 | % | | 53 | % |
| | 100 | % | | 100 | % | | 100 | % | | 100 | % | 100 | % | | 100 | % | | 100 | % | | 100 | % |
| |
(1) | During the three-month and nine-monthsix-month periods ended SeptemberJune 30, 20172018 and 2016,2017, all revenues were attributable to our Floater segment. |
| |
(2)
| During the three-month periods ended September 30, 2017 and 2016, 78% and 73% of the revenues provided by BP, respectively, were attributable to our Floaters segment and no revenue was attributable to our Jackups segment. During the nine-month periods ended September 30, 2017 and 2016, 78% and 75% of the revenues provided by BP, respectively, were attributable to our Floaters segment and no revenue was attributable to our Jackups segment. |
| |
(3)
| During the nine-month period ended September 30, 2016, excluding the impact of the lump-sum termination payment of $185.0 million for ENSCO DS-9, revenues from ConocoPhillips represented 3% of our consolidated revenues. |
Consolidated revenues by region for the three-month and nine-month periods ended September 30, 2017 and 2016 were as follows:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Angola(1) | $ | 118.9 |
| | $ | 142.7 |
| | $ | 356.5 |
| | $ | 411.3 |
|
Egypt(2) | 53.8 |
| | 50.5 |
| | 160.4 |
| | 87.0 |
|
Brazil(2) | 51.1 |
| | 48.6 |
| | 147.6 |
| | 251.3 |
|
United Kingdom(3) | 49.1 |
| | 60.5 |
| | 117.0 |
| | 204.0 |
|
Australia(4) | 48.7 |
| | 44.6 |
| | 158.6 |
| | 169.4 |
|
U.S. Gulf of Mexico(5)(6) | 34.9 |
| | 33.6 |
| | 112.2 |
| | 498.3 |
|
| Other | 103.7 |
| | 167.7 |
| | 336.5 |
| | 650.5 |
|
| | $ | 460.2 |
| | $ | 548.2 |
| | $ | 1,388.8 |
| | $ | 2,271.8 |
|
| |
(1)
| During the three-month periods ended September 30, 2017 and 2016, 85% and 87% of the revenues earned in Angola, respectively, were attributable to our Floaters segment. During the nine-month periods ended September 30, 2017 and 2016, 86% and 87% of the revenues earned in Angola, respectively, were attributable to our Floaters segment. |
| |
(2) | During the three-month and nine-month periods ended SeptemberJune 30, 2018 and 2017, 28% of the revenues provided by BP were attributable to our Jackups segment and 2016, all79% were attributable to our Floaters segment, respectively, and the remaining revenues were attributable to our Other segment. During the six-month period ended June 30, 2018, 43% of the revenues provided by BP were attributable to our Floaters segment, 15% of the revenues were attributable to our Jackups segment and the remaining revenues were attributable to our Other segment. During the six-month period ended June 30, 2017, 79% of the revenues provided by BP were attributable to our Floaters segment and the remaining revenues were attributable to our Other segment. |
Consolidated revenues by region for the three-month and six-month periods ended June 30, 2018 and 2017 were as follows:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
Australia(1) | $ | 80.4 |
| | $ | 55.3 |
| | $ | 132.6 |
| | $ | 109.9 |
|
Angola(2) | 72.2 |
| | 115.9 |
| | 133.3 |
| | 237.6 |
|
U.S. Gulf of Mexico(3) | 59.5 |
| | 33.0 |
| | 113.1 |
| | 77.3 |
|
United Kingdom(4) | 53.7 |
| | 36.7 |
| | 100.3 |
| | 67.9 |
|
Brazil(5) | 46.1 |
| | 48.7 |
| | 96.4 |
| | 96.5 |
|
Egypt(5) | — |
| | 53.4 |
| | 31.2 |
| | 106.6 |
|
| Other | 146.6 |
| | 114.5 |
| | 268.6 |
| | 232.8 |
|
| | $ | 458.5 |
| | $ | 457.5 |
| | $ | 875.5 |
| | $ | 928.6 |
|
| |
(1) | During the three-month periods ended June 30, 2018 and 2017, 95% and 78% of the revenues earned in Australia, respectively, were attributable to our Floaters segment, and the remaining revenues were attributable to our Jackups segment. During the six-month periods ended June 30, 2018 and 2017, 97% and 78% of the revenues earned in Australia, respectively, were attributable to our Floaters segment, and the remaining revenues were attributable to our Jackups segment. |
| |
(2) | During the three-month periods ended June 30, 2018 and 2017, 84% and 87% of the revenues earned in Angola, respectively, were attributable to our Floaters segment, and the remaining revenues were attributable to our Jackups segment. During the six-month periods ended June 30, 2018 and 2017, 90% and 86% of the revenues earned in Angola, respectively, were attributable to our Floaters segment, and the remaining revenues were attributable to our Jackups segment. |
| |
(3) | During the three-month period ended June 30, 2018, 36% of the revenues earned in the U.S. Gulf of Mexico, were attributable to our Floaters segment, 39% were attributable to our Jackups segment, and nine-month periods ended September 30, 2017 and 2016, allthe remaining revenues were attributable to our Other segment. During the three-month period ended June 30, 2017, 10% of the revenues earned in the U.S. Gulf of Mexico were attributable to our Floaters segment, 46% were attributable to our Jackups segment and the remaining revenues were attributable to our Other segment. During the six-month period ended June 30, 2018, both the Jackups and Floaters segments earned 37% of revenues in the U.S. Gulf of Mexico and the remaining revenues were attributable to our Other segment. During the six-month period ended June 30, 2017, 37% and 25% of the revenues earned in the U.S. Gulf of Mexico were attributable to our Jackups segment and Floaters segment, respectively, and the remaining revenues were attributable to our Other segment. |
| |
(4) | During the three-month and nine-monthsix-month periods ended SeptemberJune 30, 2018 and 2017, 92% and 83% of theall revenues earned in Australiathe United Kingdom were attributable to our Floaters segment. For the three-month and nine-month periods ended September 30, 2016, all revenues were attributable to our FloatersJackups segment. |
| |
(5) | During the three-month and six-month periods ended SeptemberJune 30, 2018 and 2017, and 2016, 21% and 41% of theall revenues earned respectively,in Brazil and Egypt were attributable to our Floaters segment and 35% and 14% of the revenues earned, respectively, were attributable to our Jackups segment. During the nine-month period ended September 30, 2017 and 2016, 24% and 86% of the revenues earned, respectively, were attributable to our Floaters segment and 37% and 5% earned, respectively, were attributable to our Jackups segment. |
| |
| Revenue recognized during the nine-month period ended September 30, 2016 related to the U.S. Gulf of Mexico included termination fees totaling $205.0 million as discussed in "Note 1 - Unaudited Condensed Consolidated Financial Statements." ENSCO DS-9 termination revenues were attributed to the U.S. Gulf of Mexico as the related drilling contract was intended for operations in that region. |
Note 13 -Guarantee of Registered Securities
In connection with the Pride acquisition, Ensco plc and Pride entered into a supplemental indenture to the indenture dated as of July 1, 2004, between Pride and the Bank of New York Mellon, as indenture trustee, providing for, among other matters, the full and unconditional guarantee by Ensco plc of Pride's 8.5% unsecured senior notes due 2019,Pride’s 6.875% unsecured senior notes due 2020 and 7.875% unsecured senior notes due 2040, which had an aggregate outstanding principal balance of $1.0 billion$422.9 million as of SeptemberJune 30, 2017.2018. The Ensco plc guarantee provides for the unconditional and irrevocable guarantee of the prompt payment, when due, of any amount owed to the note holders.holders of the notes.
Ensco plc is also a full and unconditional guarantor of the 7.2% debentures due 2027 issued by ENSCO International Incorporated, a wholly-owned subsidiary of Ensco plc, during 1997, which had an aggregate outstanding principal balance of $150.0$150.0 million as of SeptemberJune 30, 2017.2018.
Pride International LLC (formerly Pride International, Inc.) and Ensco International Incorporated are 100% owned subsidiaries of Ensco plc. All guarantees are unsecured obligations of Ensco plc ranking equal in right of payment with all of its existing and future unsecured and unsubordinated indebtedness.
The following tables present the unaudited condensed consolidating statements of operations for the three-month and nine-monthsix-month periods ended SeptemberJune 30, 20172018 and 2016;2017; the unaudited condensed consolidating statements of comprehensive income (loss) income for the three-month and nine-monthsix-month periods ended SeptemberJune 30, 20172018 and 2016;2017; the condensed consolidating balance sheets as of SeptemberJune 30, 20172018 (unaudited) and December 31, 2016;2017; and the unaudited condensed consolidating statements of cash flows for the nine-monthsix-month periods ended SeptemberJune 30, 20172018 and 2016,2017, in accordance with Rule 3-10 of Regulation S-X.
ENSCO PLC AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS Three Months Ended September 30, 2017 (In millions) (Unaudited)
| |
ENSCO PLC AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS Three Months Ended June 30, 2018 (In millions) (Unaudited)
| | ENSCO PLC AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS Three Months Ended June 30, 2018 (In millions) (Unaudited)
|
| | | Ensco plc | | ENSCO International Incorporated | | Pride International LLC | | Other Non-Guarantor Subsidiaries of Ensco | | Consolidating Adjustments | | Total | Ensco plc | | ENSCO International Incorporated | | Pride International LLC | | Other Non-Guarantor Subsidiaries of Ensco | | Consolidating Adjustments | | Total |
| OPERATING REVENUES | $ | 13.0 |
| | $ | 47.2 |
| | $ | — |
| | $ | 490.1 |
| | $ | (90.1 | ) | | $ | 460.2 |
| $ | 12.3 |
| | $ | 39.8 |
| | $ | — |
| | $ | 484.3 |
| | $ | (77.9 | ) | | $ | 458.5 |
|
| OPERATING EXPENSES | | | | | | | | | | | | | | | | | | | | | | |
| Contract drilling (exclusive of depreciation) | 11.3 |
| | 43.0 |
| | — |
| | 321.6 |
| | (90.1 | ) | | 285.8 |
| 13.0 |
| | 36.2 |
| | — |
| | 373.0 |
| | (77.9 | ) | | 344.3 |
|
| Depreciation | — |
| | 4.0 |
| | — |
| | 104.2 |
| | — |
| | 108.2 |
| — |
| | 3.5 |
| | — |
| | 117.2 |
| | — |
| | 120.7 |
|
| General and administrative | 10.3 |
| | 5.1 |
| | — |
| | 15.0 |
| | — |
| | 30.4 |
| 10.3 |
| | .1 |
| | — |
| | 15.7 |
| | — |
| | 26.1 |
|
| OPERATING (LOSS) INCOME | (8.6 | ) | | (4.9 | ) |
| — |
|
| 49.3 |
|
| — |
|
| 35.8 |
| |
| OTHER INCOME (EXPENSE), NET | 3.4 |
| | (28.0 | ) | | (17.4 | ) | | (1.0 | ) | | 2.6 |
| | (40.4 | ) | |
| (LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | (5.2 | ) | | (32.9 | ) |
| (17.4 | ) |
| 48.3 |
|
| 2.6 |
|
| (4.6 | ) | |
| OPERATING LOSS | | (11.0 | ) | | — |
|
| — |
|
| (21.6 | ) |
| — |
|
| (32.6 | ) |
| OTHER EXPENSE, NET | | (5.1 | ) | | (40.5 | ) | | (19.7 | ) | | (23.5 | ) | | 4.0 |
| | (84.8 | ) |
| LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | | (16.1 | ) | | (40.5 | ) |
| (19.7 | ) |
| (45.1 | ) |
| 4.0 |
|
| (117.4 | ) |
| INCOME TAX PROVISION | — |
| | 11.6 |
| | — |
| | 11.8 |
| | — |
| | 23.4 |
| — |
| | 18.6 |
| | — |
| | 6.1 |
| | — |
| | 24.7 |
|
| DISCONTINUED OPERATIONS, NET | — |
| | — |
| | — |
| | (.2 | ) | | — |
| | (.2 | ) | — |
| | — |
| | — |
| | (8.0 | ) | | — |
| | (8.0 | ) |
| EQUITY (LOSSES) EARNINGS IN AFFILIATES, NET OF TAX | (20.2 | ) | | 29.9 |
| | 23.2 |
| | — |
| | (32.9 | ) | | — |
| |
| NET (LOSS) INCOME | (25.4 | ) |
| (14.6 | ) |
| 5.8 |
|
| 36.3 |
|
| (30.3 | ) |
| (28.2 | ) | |
| EQUITY EARNINGS (LOSSES) IN AFFILIATES, NET OF TAX | | (134.9 | ) | | 28.7 |
| | 22.6 |
| | — |
| | 83.6 |
| | — |
|
| NET LOSS | | (151.0 | ) |
| (30.4 | ) |
| 2.9 |
|
| (59.2 | ) |
| 87.6 |
|
| (150.1 | ) |
| NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | — |
| | — |
| | — |
| | 2.8 |
| | — |
| | 2.8 |
| — |
| | — |
| | — |
| | (.9 | ) | | — |
| | (.9 | ) |
| NET (LOSS) INCOME ATTRIBUTABLE TO ENSCO | $ | (25.4 | ) | | $ | (14.6 | ) |
| $ | 5.8 |
|
| $ | 39.1 |
|
| $ | (30.3 | ) |
| $ | (25.4 | ) | |
| NET LOSS ATTRIBUTABLE TO ENSCO | | $ | (151.0 | ) | | $ | (30.4 | ) |
| $ | 2.9 |
|
| $ | (60.1 | ) |
| $ | 87.6 |
|
| $ | (151.0 | ) |
ENSCO PLC AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS Three Months Ended September 30, 2016 (In millions) (Unaudited)
| |
ENSCO PLC AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS Three Months Ended June 30, 2017 (In millions) (Unaudited)
| | ENSCO PLC AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS Three Months Ended June 30, 2017 (In millions) (Unaudited)
|
| | | Ensco plc | | ENSCO International Incorporated | | Pride International LLC | | Other Non-Guarantor Subsidiaries of Ensco | | Consolidating Adjustments | | Total | Ensco plc | | ENSCO International Incorporated | | Pride International LLC | | Other Non-Guarantor Subsidiaries of Ensco | | Consolidating Adjustments | | Total |
| OPERATING REVENUES | $ | 6.7 |
| | $ | 36.1 |
| | $ | — |
| | $ | 581.0 |
| | $ | (75.6 | ) | | $ | 548.2 |
| $ | 12.8 |
| | $ | 43.9 |
| | $ | — |
| | $ | 486.5 |
| | $ | (85.7 | ) | | $ | 457.5 |
|
| OPERATING EXPENSES | |
| | |
| | |
| | |
| | |
| |
|
| |
| | |
| | |
| | |
| | |
| |
|
|
| Contract drilling (exclusive of depreciation) | 6.7 |
| | 36.5 |
| | — |
| | 330.5 |
| | (75.6 | ) | | 298.1 |
| 11.1 |
| | 41.4 |
| | — |
| | 324.5 |
| | (85.7 | ) | | 291.3 |
|
| Depreciation | — |
| | 4.2 |
| | — |
| | 105.2 |
| | — |
| | 109.4 |
| — |
| | 4.3 |
| | — |
| | 103.6 |
| | — |
| | 107.9 |
|
| General and administrative | 9.1 |
| | .1 |
| | — |
| | 16.1 |
| | — |
| | 25.3 |
| 12.1 |
| | 4.2 |
| | — |
| | 14.2 |
| | — |
| | 30.5 |
|
| OPERATING (LOSS) INCOME | (9.1 | ) |
| (4.7 | ) |
| — |
|
| 129.2 |
|
| — |
|
| 115.4 |
| |
| OTHER INCOME (EXPENSE), NET | 6.9 |
| | (32.5 | ) | | (18.9 | ) | | 7.8 |
| | 5.8 |
| | (30.9 | ) | |
| (LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | (2.2 | ) |
| (37.2 | ) |
| (18.9 | ) |
| 137.0 |
|
| 5.8 |
|
| 84.5 |
| |
| OPERATING INCOME (LOSS) | | (10.4 | ) |
| (6.0 | ) |
| — |
|
| 44.2 |
|
| — |
|
| 27.8 |
|
| OTHER EXPENSE, NET | | (7.1 | ) | | (26.9 | ) | | (16.9 | ) | | (4.9 | ) | | 2.6 |
| | (53.2 | ) |
| INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | | (17.5 | ) |
| (32.9 | ) |
| (16.9 | ) |
| 39.3 |
|
| 2.6 |
|
| (25.4 | ) |
| INCOME TAX PROVISION | — |
| | (3.5 | ) | | (.6 | ) | | .6 |
| | — |
| | (3.5 | ) | — |
| | 4.3 |
| | — |
| | 15.0 |
| | — |
| | 19.3 |
|
| DISCONTINUED OPERATIONS, NET | — |
| | — |
| | — |
| | (.7 | ) | | — |
| | (.7 | ) | — |
| | — |
| | — |
| | .4 |
| | — |
| | .4 |
|
| EQUITY EARNINGS IN AFFILIATES, NET OF TAX | 87.5 |
| | 60.2 |
| | 23.2 |
| | — |
| | (170.9 | ) | | — |
| |
| NET INCOME | 85.3 |
| | 26.5 |
|
| 4.9 |
|
| 135.7 |
|
| (165.1 | ) |
| 87.3 |
| |
| EQUITY EARNINGS(LOSS) IN AFFILIATES, NET OF TAX | | (28.0 | ) | | 28.7 |
| | 19.9 |
| | — |
| | (20.6 | ) | | — |
|
| NET INCOME (LOSS) | | (45.5 | ) | | (8.5 | ) |
| 3.0 |
|
| 24.7 |
|
| (18.0 | ) |
| (44.3 | ) |
| NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | — |
| | — |
| | — |
| | (2.0 | ) | | — |
| | (2.0 | ) | — |
| | — |
| | — |
| | (1.2 | ) | | — |
| | (1.2 | ) |
| NET INCOME ATTRIBUTABLE TO ENSCO | $ | 85.3 |
|
| $ | 26.5 |
|
| $ | 4.9 |
|
| $ | 133.7 |
|
| $ | (165.1 | ) |
| $ | 85.3 |
| |
| NET INCOME (LOSS) ATTRIBUTABLE TO ENSCO | | $ | (45.5 | ) |
| $ | (8.5 | ) |
| $ | 3.0 |
|
| $ | 23.5 |
|
| $ | (18.0 | ) |
| $ | (45.5 | ) |
ENSCO PLC AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS Nine Months Ended September 30, 2017 (In millions) (Unaudited)
| |
ENSCO PLC AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS Six Months Ended June 30, 2018 (In millions) (Unaudited)
| | ENSCO PLC AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS Six Months Ended June 30, 2018 (In millions) (Unaudited)
|
| | | Ensco plc | | ENSCO International Incorporated | | Pride International LLC | | Other Non-Guarantor Subsidiaries of Ensco | | Consolidating Adjustments | | Total | Ensco plc | | ENSCO International Incorporated | | Pride International LLC | | Other Non-Guarantor Subsidiaries of Ensco | | Consolidating Adjustments | | Total |
| OPERATING REVENUES | $ | 38.5 |
| | $ | 137.1 |
| | $ | — |
| | $ | 1,477.3 |
| | $ | (264.1 | ) | | $ | 1,388.8 |
| $ | 24.6 |
| | $ | 80.1 |
| | $ | — |
| | $ | 927.8 |
| | $ | (157.0 | ) | | $ | 875.5 |
|
| OPERATING EXPENSES | | | | | | | | | | | | | | | | | | | | | | |
| Contract drilling (exclusive of depreciation) | 33.7 |
| | 126.4 |
| | — |
| | 959.2 |
| | (264.1 | ) | | 855.2 |
| 26.4 |
| | 72.8 |
| | — |
| | 727.3 |
| | (157.0 | ) | | 669.5 |
|
| Depreciation | — |
| | 12.5 |
| | — |
| | 312.8 |
| | — |
| | 325.3 |
| — |
| | 7.0 |
| | — |
| | 228.9 |
| | — |
| | 235.9 |
|
| General and administrative | 33.9 |
| | 9.4 |
| | — |
| | 43.6 |
| | — |
| | 86.9 |
| 20.5 |
| | .3 |
| | — |
| | 33.2 |
| | — |
| | 54.0 |
|
| OPERATING (LOSS) INCOME | (29.1 | ) | | (11.2 | ) | | — |
| | 161.7 |
| | — |
| | 121.4 |
| |
| OTHER EXPENSE, NET | (10.2 | ) | | (86.2 | ) | | (53.0 | ) | | (13.6 | ) | | 11.7 |
| | (151.3 | ) | |
| (LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | (39.3 | ) | | (97.4 | ) | | (53.0 | ) | | 148.1 |
| | 11.7 |
| | (29.9 | ) | |
| OPERATING LOSS | | (22.3 | ) | | — |
| | — |
| | (61.6 | ) | | — |
| | (83.9 | ) |
| OTHER INCOME (EXPENSE), NET | | 0.5 |
| | (68.5 | ) | | (50.0 | ) | | (56.9 | ) | | 19.4 |
| | (155.5 | ) |
| LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | | (21.8 | ) | | (68.5 | ) | | (50.0 | ) | | (118.5 | ) | | 19.4 |
| | (239.4 | ) |
| INCOME TAX PROVISION | — |
| | 30.5 |
| | — |
| | 36.3 |
| | — |
| | 66.8 |
| — |
| | 22.9 |
| | — |
| | 20.2 |
| | — |
| | 43.1 |
|
| DISCONTINUED OPERATIONS, NET | — |
| | — |
| | — |
| | (.4 | ) | | — |
| | (.4 | ) | — |
| | — |
| | — |
| | (8.1 | ) | | — |
| | (8.1 | ) |
| EQUITY (LOSSES) EARNINGS IN AFFILIATES, NET OF TAX | (57.3 | ) | | 113.5 |
| | 69.4 |
| | — |
| | (125.6 | ) | | — |
| |
| NET (LOSS) INCOME | (96.6 | ) | | (14.4 | ) | | 16.4 |
| | 111.4 |
| | (113.9 | ) | | (97.1 | ) | |
| EQUITY EARNINGS (LOSSES) IN AFFILIATES, NET OF TAX | | (269.3 | ) | | 49.5 |
| | 46.0 |
| | — |
| | 173.8 |
| | — |
|
| NET LOSS | | (291.1 | ) | | (41.9 | ) | | (4.0 | ) | | (146.8 | ) | | 193.2 |
| | (290.6 | ) |
| NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | — |
| | — |
| | — |
| | .5 |
| | — |
| | .5 |
| — |
| | — |
| | — |
| | (.5 | ) | | — |
| | (.5 | ) |
| NET (LOSS) INCOME ATTRIBUTABLE TO ENSCO | $ | (96.6 | ) | | $ | (14.4 | ) | | $ | 16.4 |
| | $ | 111.9 |
| | $ | (113.9 | ) | | $ | (96.6 | ) | |
| NET LOSS ATTRIBUTABLE TO ENSCO | | $ | (291.1 | ) | | $ | (41.9 | ) | | $ | (4.0 | ) | | $ | (147.3 | ) | | $ | 193.2 |
| | $ | (291.1 | ) |
ENSCO PLC AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS Nine Months Ended September 30, 2016 (In millions) (Unaudited)
| |
ENSCO PLC AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS Six Months Ended June 30, 2017 (In millions) (Unaudited)
| | ENSCO PLC AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS Six Months Ended June 30, 2017 (In millions) (Unaudited)
|
| | | Ensco plc | | ENSCO International Incorporated | | Pride International LLC | | Other Non-Guarantor Subsidiaries of Ensco | | Consolidating Adjustments | | Total | Ensco plc | | ENSCO International Incorporated | | Pride International LLC | | Other Non-Guarantor Subsidiaries of Ensco | | Consolidating Adjustments | | Total |
| OPERATING REVENUES | $ | 21.5 |
| | $ | 108.2 |
| | $ | — |
| | $ | 2,361.7 |
| | $ | (219.6 | ) | | $ | 2,271.8 |
| $ | 25.5 |
| | $ | 89.9 |
| | $ | — |
| | $ | 987.2 |
| | $ | (174.0 | ) | | $ | 928.6 |
|
| OPERATING EXPENSES | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
|
| Contract drilling (exclusive of depreciation) | 20.6 |
| | 108.6 |
| | — |
| | 1,102.4 |
| | (219.6 | ) | | 1,012.0 |
| 22.4 |
| | 83.4 |
| | — |
| | 637.6 |
| | (174.0 | ) | | 569.4 |
|
| Depreciation | — |
| | 12.9 |
| | — |
| | 322.2 |
| | — |
| | 335.1 |
| — |
| | 8.5 |
| | — |
| | 208.6 |
| | — |
| | 217.1 |
|
| General and administrative | 25.8 |
| | .2 |
| | — |
| | 50.1 |
| | — |
| | 76.1 |
| 23.6 |
| | 4.3 |
| | — |
| | 28.6 |
| | — |
| | 56.5 |
|
| OPERATING (LOSS) INCOME | (24.9 | ) |
| (13.5 | ) |
| — |
|
| 887.0 |
|
| — |
|
| 848.6 |
| |
| OTHER INCOME (EXPENSE), NET | 145.9 |
| | (39.2 | ) | | (56.8 | ) | | (1.2 | ) | | 65.7 |
| | 114.4 |
| |
| OPERATING INCOME (LOSS) | | (20.5 | ) |
| (6.3 | ) |
| — |
|
| 112.4 |
|
| — |
|
| 85.6 |
|
| OTHER EXPENSE, NET | | (13.6 | ) | | (58.2 | ) | | (35.6 | ) | | (12.6 | ) | | 9.1 |
| | (110.9 | ) |
| INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | 121.0 |
|
| (52.7 | ) |
| (56.8 | ) |
| 885.8 |
|
| 65.7 |
|
| 963.0 |
| (34.1 | ) |
| (64.5 | ) |
| (35.6 | ) |
| 99.8 |
|
| 9.1 |
|
| (25.3 | ) |
| INCOME TAX PROVISION | — |
| | 11.9 |
| | (.6 | ) | | 93.3 |
| | — |
| | 104.6 |
| — |
| | 18.9 |
| | — |
| | 24.5 |
| | — |
| | 43.4 |
|
| DISCONTINUED OPERATIONS, NET | — |
| | — |
| | — |
| | (1.8 | ) | | — |
| | (1.8 | ) | — |
| | — |
| | — |
| | (.2 | ) | | — |
| | (.2 | ) |
| EQUITY EARNINGS IN AFFILIATES, NET OF TAX | 730.2 |
| | 113.7 |
| | 87.0 |
| | — |
| | (930.9 | ) | | — |
| |
| NET INCOME | 851.2 |
|
| 49.1 |
|
| 30.8 |
|
| 790.7 |
|
| (865.2 | ) |
| 856.6 |
| |
| EQUITY EARNINGS (LOSSES) IN AFFILIATES, NET OF TAX | | (37.1 | ) | | 83.6 |
| | 46.2 |
| | — |
| | (92.7 | ) | | — |
|
| NET INCOME (LOSS) | | (71.2 | ) |
| .2 |
|
| 10.6 |
|
| 75.1 |
|
| (83.6 | ) |
| (68.9 | ) |
| NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | — |
| | — |
| | — |
| | (5.4 | ) | | — |
| | (5.4 | ) | — |
| | — |
| | — |
| | (2.3 | ) | | — |
| | (2.3 | ) |
| NET INCOME ATTRIBUTABLE TO ENSCO | $ | 851.2 |
|
| $ | 49.1 |
|
| $ | 30.8 |
|
| $ | 785.3 |
|
| $ | (865.2 | ) |
| $ | 851.2 |
| |
| NET INCOME (LOSS) ATTRIBUTABLE TO ENSCO | | $ | (71.2 | ) |
| $ | .2 |
|
| $ | 10.6 |
|
| $ | 72.8 |
|
| $ | (83.6 | ) |
| $ | (71.2 | ) |
ENSCO PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE (LOSS) INCOMELOSS
Three Months Ended SeptemberJune 30, 20172018
(In millions)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Ensco plc | | ENSCO International Incorporated | | Pride International LLC | | Other Non-Guarantor Subsidiaries of Ensco | | Consolidating Adjustments | | Total |
| | | | | | | | | | | | |
| NET (LOSS) INCOME | $ | (25.4 | ) | | $ | (14.6 | ) | | $ | 5.8 |
| | $ | 36.3 |
| | $ | (30.3 | ) | | $ | (28.2 | ) |
| OTHER COMPREHENSIVE INCOME, NET | | | | | | | | | | | |
| Net change in derivative fair value | — |
| | 1.7 |
| | — |
| | — |
| | — |
| | 1.7 |
|
| Reclassification of net income on derivative instruments from other comprehensive income into net (loss) income | — |
| | (.1 | ) | | — |
| | — |
| | — |
| | (.1 | ) |
| Other | — |
| | — |
| | — |
| | .1 |
| | — |
| | .1 |
|
| NET OTHER COMPREHENSIVE INCOME | — |
| | 1.6 |
|
| — |
|
| .1 |
|
| — |
|
| 1.7 |
|
| COMPREHENSIVE (LOSS) INCOME | (25.4 | ) | | (13.0 | ) |
| 5.8 |
|
| 36.4 |
|
| (30.3 | ) |
| (26.5 | ) |
| COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | — |
| | — |
| | — |
| | 2.8 |
| | — |
| | 2.8 |
|
| COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO ENSCO | $ | (25.4 | ) | | $ | (13.0 | ) |
| $ | 5.8 |
|
| $ | 39.2 |
|
| $ | (30.3 | ) |
| $ | (23.7 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Ensco plc | | ENSCO International Incorporated | | Pride International LLC | | Other Non-Guarantor Subsidiaries of Ensco | | Consolidating Adjustments | | Total |
| NET LOSS | $ | (151.0 | ) | | $ | (30.4 | ) | | $ | 2.9 |
| | $ | (59.2 | ) | | $ | 87.6 |
| | $ | (150.1 | ) |
| OTHER COMPREHENSIVE LOSS, NET | | | | | | | | | | | |
| Net change in derivative fair value | — |
| | (7.6 | ) | | — |
| | — |
| | — |
| | (7.6 | ) |
| Reclassification of net gains on derivative instruments from other comprehensive loss into net loss | — |
| | (.7 | ) | | — |
| | — |
| | — |
| | (.7 | ) |
| Other | — |
| | — |
| | — |
| | (.2 | ) | | — |
| | (.2 | ) |
| NET OTHER COMPREHENSIVE LOSS | — |
| | (8.3 | ) |
| — |
|
| (.2 | ) |
| — |
|
| (8.5 | ) |
| COMPREHENSIVE LOSS | (151.0 | ) | | (38.7 | ) |
| 2.9 |
|
| (59.4 | ) |
| 87.6 |
|
| (158.6 | ) |
| COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | — |
| | — |
| | — |
| | (.9 | ) | | — |
| | (.9 | ) |
| COMPREHENSIVE LOSS ATTRIBUTABLE TO ENSCO | $ | (151.0 | ) | | $ | (38.7 | ) |
| $ | 2.9 |
|
| $ | (60.3 | ) |
| $ | 87.6 |
|
| $ | (159.5 | ) |
ENSCO PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Three Months Ended SeptemberJune 30, 20162017
(In millions)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Ensco plc | | ENSCO International Incorporated | | Pride International LLC | | Other Non-Guarantor Subsidiaries of Ensco | | Consolidating Adjustments | | Total |
| | | | | | | | | | | | |
| NET INCOME | $ | 85.3 |
| | $ | 26.5 |
| | $ | 4.9 |
| | $ | 135.7 |
| | $ | (165.1 | ) | | $ | 87.3 |
|
| OTHER COMPREHENSIVE INCOME (LOSS), NET | | | | | | | | | | |
|
| Net change in derivative fair value | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Reclassification of net losses on derivative instruments from other comprehensive income into net income | — |
| | 2.2 |
| | — |
| | — |
| | — |
| | 2.2 |
|
| Other | — |
| | — |
| | — |
| | (.5 | ) | | — |
| | (.5 | ) |
| NET OTHER COMPREHENSIVE INCOME (LOSS) | — |
|
| 2.2 |
|
| — |
|
| (.5 | ) |
| — |
| | 1.7 |
|
| COMPREHENSIVE INCOME | 85.3 |
|
| 28.7 |
|
| 4.9 |
|
| 135.2 |
|
| (165.1 | ) | | 89.0 |
|
| COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | — |
| | — |
| | — |
| | (2.0 | ) | | — |
| | (2.0 | ) |
| COMPREHENSIVE INCOME ATTRIBUTABLE TO ENSCO | $ | 85.3 |
|
| $ | 28.7 |
|
| $ | 4.9 |
|
| $ | 133.2 |
|
| $ | (165.1 | ) |
| $ | 87.0 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Ensco plc | | ENSCO International Incorporated | | Pride International LLC | | Other Non-Guarantor Subsidiaries of Ensco | | Consolidating Adjustments | | Total |
| NET INCOME (LOSS) | $ | (45.5 | ) | | $ | (8.5 | ) | | $ | 3.0 |
| | $ | 24.7 |
| | $ | (18.0 | ) | | $ | (44.3 | ) |
| OTHER COMPREHENSIVE INCOME, NET | | | | | | | | | | |
|
| Net change in derivative fair value | — |
| | 2.9 |
| | — |
| | — |
| | — |
| | 2.9 |
|
| Reclassification of net losses on derivative instruments from other comprehensive income into net income | — |
| | .3 |
| | — |
| | — |
| | — |
| | .3 |
|
| Other | — |
| | — |
| | — |
| | .2 |
| | — |
| | .2 |
|
| NET OTHER COMPREHENSIVE INCOME | — |
|
| 3.2 |
|
| — |
|
| .2 |
|
| — |
| | 3.4 |
|
| COMPREHENSIVE INCOME (LOSS) | (45.5 | ) |
| (5.3 | ) |
| 3.0 |
|
| 24.9 |
|
| (18.0 | ) | | (40.9 | ) |
| COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | — |
| | — |
| | — |
| | (1.2 | ) | | — |
| | (1.2 | ) |
| COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO ENSCO | $ | (45.5 | ) |
| $ | (5.3 | ) |
| $ | 3.0 |
|
| $ | 23.7 |
|
| $ | (18.0 | ) |
| $ | (42.1 | ) |
ENSCO PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE (LOSS) INCOMELOSS
NineSix Months Ended SeptemberJune 30, 20172018
(In millions)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Ensco plc | | ENSCO International Incorporated | | Pride International LLC | | Other Non-Guarantor Subsidiaries of Ensco | | Consolidating Adjustments | | Total |
| | | | | | | | | | | | |
| NET (LOSS) INCOME | $ | (96.6 | ) | | $ | (14.4 | ) | | $ | 16.4 |
| | $ | 111.4 |
| | $ | (113.9 | ) | | $ | (97.1 | ) |
| OTHER COMPREHENSIVE INCOME, NET | | | | | | | | | | |
|
| Net change in derivative fair value | — |
| | 7.7 |
| | — |
| | — |
| | — |
| | 7.7 |
|
| Reclassification of net losses on derivative instruments from other comprehensive income into net (loss) income | — |
| | 1.1 |
| | — |
| | — |
| | — |
| | 1.1 |
|
| Other | — |
| | — |
| | — |
| | .8 |
| |
|
| | .8 |
|
| NET OTHER COMPREHENSIVE INCOME | — |
|
| 8.8 |
|
| — |
|
| .8 |
|
| — |
| | 9.6 |
|
| COMPREHENSIVE (LOSS) INCOME | (96.6 | ) |
| (5.6 | ) |
| 16.4 |
|
| 112.2 |
|
| (113.9 | ) | | (87.5 | ) |
| COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | — |
| | — |
| | — |
| | .5 |
| | — |
| | .5 |
|
| COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO ENSCO | $ | (96.6 | ) |
| $ | (5.6 | ) |
| $ | 16.4 |
|
| $ | 112.7 |
|
| $ | (113.9 | ) |
| $ | (87.0 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Ensco plc | | ENSCO International Incorporated | | Pride International LLC | | Other Non-Guarantor Subsidiaries of Ensco | | Consolidating Adjustments | | Total |
| NET LOSS | $ | (291.1 | ) | | $ | (41.9 | ) | | $ | (4.0 | ) | | $ | (146.8 | ) | | $ | 193.2 |
| | $ | (290.6 | ) |
| OTHER COMPREHENSIVE LOSS, NET | | | | | | | | | | |
|
| Net change in derivative fair value | — |
| | (4.9 | ) | | — |
| | — |
| | — |
| | (4.9 | ) |
| Reclassification of net gains on derivative instruments from other comprehensive loss to net loss | — |
| | (2.9 | ) | | — |
| | — |
| | — |
| | (2.9 | ) |
| Other | — |
| | — |
| | — |
| | (.3 | ) | | — |
| | (.3 | ) |
| NET OTHER COMPREHENSIVE LOSS | — |
|
| (7.8 | ) |
| — |
|
| (.3 | ) |
| — |
| | (8.1 | ) |
| COMPREHENSIVE LOSS | (291.1 | ) |
| (49.7 | ) |
| (4.0 | ) |
| (147.1 | ) |
| 193.2 |
| | (298.7 | ) |
| COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | — |
| | — |
| | — |
| | (.5 | ) | | — |
| | (.5 | ) |
| COMPREHENSIVE LOSS ATTRIBUTABLE TO ENSCO | $ | (291.1 | ) |
| $ | (49.7 | ) |
| $ | (4.0 | ) |
| $ | (147.6 | ) |
| $ | 193.2 |
|
| $ | (299.2 | ) |
ENSCO PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
NineSix Months Ended SeptemberJune 30, 20162017
(In millions)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Ensco plc | | ENSCO International Incorporated | | Pride International LLC | | Other Non-Guarantor Subsidiaries of Ensco | | Consolidating Adjustments | | Total |
| | | | | | | | | | | | |
| NET INCOME | $ | 851.2 |
| | $ | 49.1 |
| | $ | 30.8 |
| | $ | 790.7 |
| | $ | (865.2 | ) | | $ | 856.6 |
|
| OTHER COMPREHENSIVE INCOME (LOSS), NET | | | | | | | | | | |
|
| Net change in derivative fair value | — |
| | (.6 | ) | | — |
| | — |
| | — |
| | (.6 | ) |
| Reclassification of net losses on derivative instruments from other comprehensive income into net income | — |
| | 10.1 |
| | — |
| | — |
| | — |
| | 10.1 |
|
| Other | — |
| | — |
| | — |
| | (.5 | ) | | — |
| | (.5 | ) |
| NET OTHER COMPREHENSIVE INCOME (LOSS) | — |
|
| 9.5 |
|
| — |
|
| (.5 | ) |
| — |
|
| 9.0 |
|
| COMPREHENSIVE INCOME | 851.2 |
|
| 58.6 |
|
| 30.8 |
|
| 790.2 |
|
| (865.2 | ) |
| 865.6 |
|
| COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | — |
| | — |
| | — |
| | (5.4 | ) | | — |
| | (5.4 | ) |
| COMPREHENSIVE INCOME ATTRIBUTABLE TO ENSCO | $ | 851.2 |
|
| $ | 58.6 |
|
| $ | 30.8 |
|
| $ | 784.8 |
|
| $ | (865.2 | ) |
| $ | 860.2 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Ensco plc | | ENSCO International Incorporated | | Pride International LLC | | Other Non-Guarantor Subsidiaries of Ensco | | Consolidating Adjustments | | Total |
| NET INCOME (LOSS) | $ | (71.2 | ) | | $ | .2 |
| | $ | 10.6 |
| | $ | 75.1 |
| | $ | (83.6 | ) | | $ | (68.9 | ) |
| OTHER COMPREHENSIVE INCOME, NET | | | | | | | | | | |
|
| Net change in derivative fair value | — |
| | 6.0 |
| | — |
| | — |
| | — |
| | 6.0 |
|
| Reclassification of net losses on derivative instruments from other comprehensive income into net income (loss) | — |
| | 1.2 |
| | — |
| | — |
| | — |
| | 1.2 |
|
| Other | — |
| | — |
| | — |
| | .7 |
| | — |
| | .7 |
|
| NET OTHER COMPREHENSIVE INCOME | — |
|
| 7.2 |
|
| — |
|
| .7 |
|
| — |
|
| 7.9 |
|
| COMPREHENSIVE INCOME (LOSS) | (71.2 | ) |
| 7.4 |
|
| 10.6 |
|
| 75.8 |
|
| (83.6 | ) |
| (61.0 | ) |
| COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | — |
| | — |
| | — |
| | (2.3 | ) | | — |
| | (2.3 | ) |
| COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO ENSCO | $ | (71.2 | ) |
| $ | 7.4 |
|
| $ | 10.6 |
|
| $ | 73.5 |
|
| $ | (83.6 | ) |
| $ | (63.3 | ) |
ENSCO PLC AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEETS September 30, 2017 (In millions) (Unaudited)
| |
ENSCO PLC AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEETS June 30, 2018 (In millions) (Unaudited)
| | ENSCO PLC AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEETS June 30, 2018 (In millions) (Unaudited)
|
| | | Ensco plc | | ENSCO International Incorporated | | Pride International LLC | | Other Non-Guarantor Subsidiaries of Ensco | | Consolidating Adjustments | | Total | Ensco plc | | ENSCO International Incorporated | | Pride International LLC | | Other Non-Guarantor Subsidiaries of Ensco | | Consolidating Adjustments | | Total |
ASSETS | | | | | | | | | | | | | | | | | | | | | | |
| CURRENT ASSETS | | | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | $ | 516.0 |
| | $ | — |
| | $ | 20.5 |
| | $ | 187.9 |
| | $ | — |
| | $ | 724.4 |
| $ | 305.7 |
| | $ | — |
| | $ | 16.1 |
| | $ | 163.7 |
| | $ | — |
| | $ | 485.5 |
|
| Short-term investments | 1,065.0 |
| | — |
| | — |
| | 4.8 |
| | — |
| | 1,069.8 |
| 255.0 |
| | — |
| | — |
| | — |
| | — |
| | 255.0 |
|
| Accounts receivable, net | 12.2 |
| | .4 |
| | (.1 | ) | | 336.5 |
| | — |
| | 349.0 |
| 1.9 |
| | .4 |
| | — |
| | 330.4 |
| | — |
| | 332.7 |
|
| Accounts receivable from affiliates | 410.8 |
| | 173.6 |
| | — |
| | 112.2 |
| | (696.6 | ) | | — |
| 1,163.0 |
| | 413.4 |
| | 1.4 |
| | 386.2 |
| | (1,964.0 | ) | | — |
|
| Other | .3 |
| | 14.8 |
| | — |
| | 303.2 |
| | — |
| | 318.3 |
| .3 |
| | 2.1 |
| | — |
| | 387.2 |
| | — |
| | 389.6 |
|
| Total current assets | 2,004.3 |
| | 188.8 |
|
| 20.4 |
|
| 944.6 |
|
| (696.6 | ) |
| 2,461.5 |
| 1,725.9 |
| | 415.9 |
|
| 17.5 |
|
| 1,267.5 |
|
| (1,964.0 | ) |
| 1,462.8 |
|
| PROPERTY AND EQUIPMENT, AT COST | 1.8 |
| | 124.0 |
| | — |
| | 13,366.8 |
| | — |
| | 13,492.6 |
| 1.8 |
| | 124.4 |
| | — |
| | 15,350.3 |
| | — |
| | 15,476.5 |
|
| Less accumulated depreciation | 1.8 |
| | 76.3 |
| | — |
| | 2,318.1 |
| | — |
| | 2,396.2 |
| 1.8 |
| | 84.1 |
| | — |
| | 2,606.7 |
| | — |
| | 2,692.6 |
|
| Property and equipment, net | — |
| | 47.7 |
|
| — |
|
| 11,048.7 |
|
| — |
|
| 11,096.4 |
| — |
| | 40.3 |
|
| — |
|
| 12,743.6 |
|
| — |
|
| 12,783.9 |
|
| DUE FROM AFFILIATES | 1,977.8 |
| | 2,803.9 |
| | 321.0 |
| | 4,012.7 |
| | (9,115.4 | ) | | — |
| 3,080.5 |
| | 461.3 |
| | 161.2 |
| | 2,185.4 |
| | (5,888.4 | ) | | — |
|
| INVESTMENTS IN AFFILIATES | 8,521.4 |
| | 3,575.8 |
| | 1,130.7 |
| | — |
| | (13,227.9 | ) | | — |
| 8,835.1 |
| | 3,641.4 |
| | 1,152.6 |
| | — |
| | (13,629.1 | ) | | — |
|
| OTHER ASSETS, NET | — |
| | 40.7 |
| | — |
| | 175.5 |
| | (91.2 | ) | | 125.0 |
| |
| OTHER ASSETS | | 9.7 |
| | — |
| | — |
| | 204.1 |
| | (119.9 | ) | | 93.9 |
|
| | $ | 12,503.5 |
| | $ | 6,656.9 |
|
| $ | 1,472.1 |
|
| $ | 16,181.5 |
|
| $ | (23,131.1 | ) |
| $ | 13,682.9 |
| $ | 13,651.2 |
| | $ | 4,558.9 |
|
| $ | 1,331.3 |
|
| $ | 16,400.6 |
|
| $ | (21,601.4 | ) |
| $ | 14,340.6 |
|
LIABILITIES AND SHAREHOLDERS' EQUITY | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | | |
| CURRENT LIABILITIES | | | | | | | | | | | | | | | | | | | | | | |
| Accounts payable and accrued liabilities | $ | 54.6 |
| | $ | 42.8 |
| | $ | 13.1 |
| | $ | 378.2 |
| | $ | — |
| | $ | 488.7 |
| $ | 79.7 |
| | $ | 10.0 |
| | $ | 12.5 |
| | $ | 447.6 |
| | $ | — |
| | $ | 549.8 |
|
| Accounts payable to affiliates | 45.0 |
| | 171.3 |
| | 10.3 |
| | 470.0 |
| | (696.6 | ) | | $ | — |
| 47.2 |
| | 374.9 |
| | 27.1 |
| | 1,514.8 |
| | (1,964.0 | ) | | — |
|
| Total current liabilities | 99.6 |
| | 214.1 |
|
| 23.4 |
|
| 848.2 |
|
| (696.6 | ) |
| 488.7 |
| 126.9 |
| | 384.9 |
|
| 39.6 |
|
| 1,962.4 |
|
| (1,964.0 | ) |
| 549.8 |
|
| DUE TO AFFILIATES | 1,396.0 |
| | 3,666.9 |
| | 930.4 |
| | 3,122.1 |
| | (9,115.4 | ) | | — |
| 1,417.2 |
| | 1,426.1 |
| | 1,387.6 |
| | 1,657.5 |
| | (5,888.4 | ) | | — |
|
| LONG-TERM DEBT | 2,840.6 |
| | 149.2 |
| | 1,111.1 |
| | 646.8 |
| | — |
| | 4,747.7 |
| 3,673.2 |
| | 149.4 |
| | 504.8 |
| | 667.5 |
| | — |
| | 4,994.9 |
|
| OTHER LIABILITIES | — |
| | 10.4 |
| | — |
| | 360.0 |
| | (91.2 | ) | | 279.2 |
| — |
| | 24.2 |
| | — |
| | 457.7 |
| | (119.9 | ) | | 362.0 |
|
| ENSCO SHAREHOLDERS' EQUITY (DEFICIT) | 8,167.3 |
| | 2,616.3 |
| | (592.8 | ) | | 11,202.3 |
| | (13,227.9 | ) | | 8,165.2 |
| 8,433.9 |
| | 2,574.3 |
| | (600.7 | ) | | 11,657.8 |
| | (13,629.1 | ) | | 8,436.2 |
|
| NONCONTROLLING INTERESTS | — |
| | — |
| | — |
| | 2.1 |
| | — |
| | 2.1 |
| — |
| | — |
| | — |
| | (2.3 | ) | | — |
| | (2.3 | ) |
| Total equity (deficit) | 8,167.3 |
| | 2,616.3 |
|
| (592.8 | ) |
| 11,204.4 |
|
| (13,227.9 | ) |
| 8,167.3 |
| 8,433.9 |
| | 2,574.3 |
|
| (600.7 | ) |
| 11,655.5 |
|
| (13,629.1 | ) |
| 8,433.9 |
|
| | $ | 12,503.5 |
| | $ | 6,656.9 |
|
| $ | 1,472.1 |
|
| $ | 16,181.5 |
|
| $ | (23,131.1 | ) |
| $ | 13,682.9 |
| $ | 13,651.2 |
| | $ | 4,558.9 |
|
| $ | 1,331.3 |
|
| $ | 16,400.6 |
|
| $ | (21,601.4 | ) |
| $ | 14,340.6 |
|
ENSCO PLC AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEETS December 31, 2016 (In millions)
| |
ENSCO PLC AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEETS December 31, 2017 (In millions)
| | ENSCO PLC AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEETS December 31, 2017 (In millions)
|
| | | Ensco plc | | ENSCO International Incorporated | | Pride International LLC | | Other Non-Guarantor Subsidiaries of Ensco | | Consolidating Adjustments | | Total | Ensco plc | | ENSCO International Incorporated | | Pride International LLC | | Other Non-Guarantor Subsidiaries of Ensco | | Consolidating Adjustments | | Total |
ASSETS | | | | | | | | | | | | | | | | | | | | | | |
| CURRENT ASSETS | | | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | $ | 892.6 |
| | $ | — |
| | $ | 19.8 |
| | $ | 247.3 |
| | $ | — |
| | $ | 1,159.7 |
| $ | 185.2 |
| | $ | — |
| | $ | 25.6 |
| | $ | 234.6 |
| | $ | — |
| | $ | 445.4 |
|
| Short-term investments | 1,165.1 |
| | 5.5 |
| | — |
| | 272.0 |
| | — |
| | $ | 1,442.6 |
| 440.0 |
| | — |
| | — |
| | — |
| | — |
| | $ | 440.0 |
|
| Accounts receivable, net | 6.8 |
| | — |
| | — |
| | 354.2 |
| | — |
| | 361.0 |
| 6.9 |
| | .4 |
| | — |
| | 338.1 |
| | — |
| | 345.4 |
|
| Accounts receivable from affiliates | 486.5 |
| | 251.2 |
| | — |
| | 152.2 |
| | (889.9 | ) | | — |
| 351.8 |
| | 492.7 |
| | — |
| | 424.3 |
| | (1,268.8 | ) | | — |
|
| Other | .1 |
| | 6.8 |
| | — |
| | 309.1 |
| | — |
| | 316.0 |
| — |
| | 8.8 |
| | — |
| | 372.4 |
| | — |
| | 381.2 |
|
| Total current assets | 2,551.1 |
|
| 263.5 |
|
| 19.8 |
|
| 1,334.8 |
|
| (889.9 | ) |
| 3,279.3 |
| 983.9 |
|
| 501.9 |
|
| 25.6 |
|
| 1,369.4 |
|
| (1,268.8 | ) |
| 1,612.0 |
|
| PROPERTY AND EQUIPMENT, AT COST | 1.8 |
| | 121.0 |
| | — |
| | 12,869.7 |
| | — |
| | 12,992.5 |
| 1.8 |
| | 120.8 |
| | — |
| | 15,209.5 |
| | — |
| | 15,332.1 |
|
| Less accumulated depreciation | 1.8 |
| | 63.8 |
| | — |
| | 2,007.6 |
| | — |
| | 2,073.2 |
| 1.8 |
| | 77.1 |
| | — |
| | 2,379.5 |
| | — |
| | 2,458.4 |
|
| Property and equipment, net | — |
|
| 57.2 |
|
| — |
|
| 10,862.1 |
|
| — |
|
| 10,919.3 |
| — |
|
| 43.7 |
|
| — |
|
| 12,830.0 |
|
| — |
|
| 12,873.7 |
|
| DUE FROM AFFILIATES | 1,512.2 |
| | 4,513.8 |
| | 1,978.8 |
| | 7,234.4 |
| | (15,239.2 | ) | | — |
| 3,002.1 |
| | 2,618.0 |
| | 165.1 |
| | 3,736.1 |
| | (9,521.3 | ) | | — |
|
| INVESTMENTS IN AFFILIATES | 8,557.7 |
| | 3,462.3 |
| | 1,061.3 |
| | — |
| | (13,081.3 | ) | | — |
| 9,098.5 |
| | 3,591.9 |
| | 1,106.6 |
| | — |
| | (13,797.0 | ) | | — |
|
| OTHER ASSETS, NET | — |
| | 81.5 |
| | — |
| | 181.1 |
| | (86.7 | ) | | 175.9 |
| |
| OTHER ASSETS | | 12.9 |
| | 5.0 |
| | — |
| | 226.5 |
| | (104.2 | ) | | 140.2 |
|
| | $ | 12,621.0 |
|
| $ | 8,378.3 |
|
| $ | 3,059.9 |
|
| $ | 19,612.4 |
|
| $ | (29,297.1 | ) |
| $ | 14,374.5 |
| $ | 13,097.4 |
|
| $ | 6,760.5 |
|
| $ | 1,297.3 |
|
| $ | 18,162.0 |
|
| $ | (24,691.3 | ) |
| $ | 14,625.9 |
|
LIABILITIES AND SHAREHOLDERS' EQUITY | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | | |
| CURRENT LIABILITIES | | | | | | | | | | | | | | | | | | | | | | |
| Accounts payable and accrued liabilities | $ | 44.1 |
| | $ | 45.2 |
| | $ | 28.3 |
| | $ | 404.9 |
| | $ | — |
| | $ | 522.5 |
| $ | 55.4 |
| | $ | 39.0 |
| | $ | 21.7 |
| | $ | 642.4 |
| | $ | — |
| | $ | 758.5 |
|
| Accounts payable to affiliates | 38.8 |
| | 208.4 |
| | 5.9 |
| | 636.8 |
| | (889.9 | ) | | — |
| 67.3 |
| | 458.3 |
| | 12.4 |
| | 730.8 |
| | (1,268.8 | ) | | — |
|
| Current maturities of long-term debt | 187.1 |
| | — |
| | 144.8 |
| | — |
| | — |
| | 331.9 |
| |
| Total current liabilities | 270.0 |
|
| 253.6 |
|
| 179.0 |
|
| 1,041.7 |
|
| (889.9 | ) |
| 854.4 |
| 122.7 |
|
| 497.3 |
|
| 34.1 |
|
| 1,373.2 |
|
| (1,268.8 | ) |
| 758.5 |
|
| DUE TO AFFILIATES | 1,375.8 |
| | 5,367.6 |
| | 2,040.7 |
| | 6,455.1 |
| | (15,239.2 | ) | | — |
| 1,402.9 |
| | 3,559.2 |
| | 753.9 |
| | 3,805.3 |
| | (9,521.3 | ) | | — |
|
| LONG-TERM DEBT | 2,720.2 |
| | 149.2 |
| | 1,449.5 |
| | 623.7 |
| | — |
| | 4,942.6 |
| 2,841.8 |
| | 149.2 |
| | 1,106.0 |
| | 653.7 |
| | — |
| | 4,750.7 |
|
| OTHER LIABILITIES | — |
| | 2.9 |
| | — |
| | 406.3 |
| | (86.7 | ) | | 322.5 |
| — |
| | 3.1 |
| | — |
| | 487.8 |
| | (104.2 | ) | | 386.7 |
|
| ENSCO SHAREHOLDERS' EQUITY (DEFICIT) | 8,255.0 |
| | 2,605.0 |
| | (609.3 | ) | | 11,081.2 |
| | (13,081.3 | ) | | 8,250.6 |
| 8,730.0 |
| | 2,551.7 |
| | (596.7 | ) | | 11,844.1 |
| | (13,797.0 | ) | | 8,732.1 |
|
| NONCONTROLLING INTERESTS | — |
| | — |
| | — |
| | 4.4 |
| | — |
| | 4.4 |
| — |
| | — |
| | — |
| | (2.1 | ) | | — |
| | (2.1 | ) |
| Total equity (deficit) | 8,255.0 |
| | 2,605.0 |
|
| (609.3 | ) |
| 11,085.6 |
|
| (13,081.3 | ) |
| 8,255.0 |
| 8,730.0 |
| | 2,551.7 |
|
| (596.7 | ) |
| 11,842.0 |
|
| (13,797.0 | ) |
| 8,730.0 |
|
| | $ | 12,621.0 |
| | $ | 8,378.3 |
|
| $ | 3,059.9 |
|
| $ | 19,612.4 |
|
| $ | (29,297.1 | ) |
| $ | 14,374.5 |
| $ | 13,097.4 |
| | $ | 6,760.5 |
|
| $ | 1,297.3 |
|
| $ | 18,162.0 |
|
| $ | (24,691.3 | ) |
| $ | 14,625.9 |
|
| | ENSCO PLC AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS Nine Months Ended September 30, 2017 (In millions) (Unaudited) | |
ENSCO PLC AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS Six Months Ended June 30, 2018 (In millions) (Unaudited) | | ENSCO PLC AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS Six Months Ended June 30, 2018 (In millions) (Unaudited) |
| | Ensco plc | | ENSCO International Incorporated | | Pride International LLC | | Other Non-guarantor Subsidiaries of Ensco | | Consolidating Adjustments | | Total | Ensco plc | | ENSCO International Incorporated | | Pride International LLC | | Other Non-guarantor Subsidiaries of Ensco | | Consolidating Adjustments | | Total |
| OPERATING ACTIVITIES | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
|
| Net cash (used in) provided by operating activities of continuing operations | $ | (17.3 | ) | | $ | (68.4 | ) | | $ | (84.9 | ) | | $ | 390.2 |
| | $ | — |
| | $ | 219.6 |
| |
| Net cash provided by (used in) operating activities of continuing operations | | $ | 28.3 |
| | $ | (87.8 | ) | | $ | (56.6 | ) | | $ | 98.1 |
| | $ | — |
| | $ | (18.0 | ) |
| INVESTING ACTIVITIES | | | | | | | | | | | | | | | | | | | | | | |
| Maturities of short-term investments | 1,123.1 |
| | 5.5 |
| | — |
| | 284.1 |
| | — |
| | 1,412.7 |
| 599.0 |
| | — |
| | — |
| | — |
| | — |
| | 599.0 |
|
| Purchases of short-term investments | (1,023.0 | ) | | — |
| | — |
| | (17.0 | ) | | — |
| | (1,040.0 | ) | (414.0 | ) | | — |
| | — |
| | — |
| | — |
| | (414.0 | ) |
| Additions to property and equipment | — |
| | — |
| | — |
| | (474.1 | ) | | — |
| | (474.1 | ) | — |
| | — |
| | — |
| | (331.9 | ) | | — |
| | (331.9 | ) |
| Sale of affiliate debt | | 479.0 |
| | — |
| | — |
| | — |
| | (479.0 | ) | | — |
|
| Purchase of affiliate debt | (316.3 | ) | | — |
| | — |
| | — |
| | 316.3 |
| | — |
| (552.5 | ) | | — |
| | — |
| | — |
| | 552.5 |
| | — |
|
| Other | — |
| | — |
| | — |
| | 2.6 |
| | — |
| | 2.6 |
| — |
| | — |
| | — |
| | 2.9 |
| | — |
| | 2.9 |
|
| Net cash used in investing activities of continuing operations | (216.2 | ) | | 5.5 |
|
| — |
|
| (204.4 | ) |
| 316.3 |
|
| (98.8 | ) | |
| Net cash provided by (used in) investing activities of continuing operations | | 111.5 |
| | — |
|
| — |
|
| (329.0 | ) |
| 73.5 |
|
| (144.0 | ) |
| FINANCING ACTIVITIES | |
| | |
| | |
| | |
| | |
| | | |
| | |
| | |
| | |
| | |
| | |
| Proceeds from issuance of senior notes | | 1,000.0 |
| | — |
| | — |
| | — |
| | — |
| | 1,000.0 |
|
| Reduction of long-term borrowings | (220.7 | ) | | — |
| | — |
| | — |
| | (316.3 | ) | | (537.0 | ) | (159.9 | ) | | — |
| | (537.8 | ) | | — |
| | (73.5 | ) | | (771.2 | ) |
| Debt financing costs | | (17.0 | ) | | — |
| | — |
| | — |
| | — |
| | (17.0 | ) |
| Cash dividends paid | (9.4 | ) | | — |
| | — |
| | — |
| | — |
| | (9.4 | ) | (9.0 | ) | | — |
| | — |
| | — |
| | — |
| | (9.0 | ) |
| Debt financing costs | (5.5 | ) | | — |
| | — |
| | — |
| | — |
| | (5.5 | ) | |
| Advances from (to) affiliates | 95.1 |
| | 62.9 |
| | 85.6 |
| | (243.6 | ) | | — |
| | — |
| (831.5 | ) | | 87.8 |
| | 584.9 |
| | 158.8 |
| | — |
| | — |
|
| Other | (2.6 | ) | | — |
| | — |
| | (1.9 | ) | | — |
| | (4.5 | ) | (1.9 | ) | | — |
| | — |
| | (0.6 | ) | | — |
| | (2.5 | ) |
| Net cash (used in) provided by financing activities | (143.1 | ) | | 62.9 |
|
| 85.6 |
|
| (245.5 | ) |
| (316.3 | ) |
| (556.4 | ) | |
| Net cash used in discontinued operations | — |
| | — |
| | — |
| | (.4 | ) | | — |
|
| (.4 | ) | |
| Net cash provided by (used in) financing activities | | (19.3 | ) | | 87.8 |
|
| 47.1 |
|
| 158.2 |
|
| (73.5 | ) |
| 200.3 |
|
| Net cash provided by discontinued operations | | — |
| | — |
| | — |
| | 2.5 |
| | — |
|
| 2.5 |
|
| Effect of exchange rate changes on cash and cash equivalents | — |
| | — |
| | — |
| | .7 |
| | — |
| | .7 |
| — |
| | — |
| | — |
| | (.7 | ) | | — |
| | (.7 | ) |
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (376.6 | ) | | — |
|
| .7 |
|
| (59.4 | ) |
| — |
|
| (435.3 | ) | |
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | 120.5 |
| | — |
|
| (9.5 | ) |
| (70.9 | ) |
| — |
|
| 40.1 |
|
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 892.6 |
| | — |
| | 19.8 |
| | 247.3 |
| | — |
| | 1,159.7 |
| 185.2 |
| | — |
| | 25.6 |
| | 234.6 |
| | — |
| | 445.4 |
|
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 516.0 |
| | $ | — |
| | $ | 20.5 |
| | $ | 187.9 |
| | $ | — |
| | $ | 724.4 |
| $ | 305.7 |
| | $ | — |
| | $ | 16.1 |
| | $ | 163.7 |
| | $ | — |
| | $ | 485.5 |
|
| | ENSCO PLC AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS Nine Months Ended September 30, 2016 (In millions) (Unaudited) | |
ENSCO PLC AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS Six Months Ended June 30, 2017 (In millions) (Unaudited) | | ENSCO PLC AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS Six Months Ended June 30, 2017 (In millions) (Unaudited) |
| | Ensco plc | | ENSCO International Incorporated | | Pride International LLC | | Other Non-guarantor Subsidiaries of Ensco | | Consolidating Adjustments | | Total | Ensco plc | | ENSCO International Incorporated | | Pride International LLC | | Other Non-guarantor Subsidiaries of Ensco | | Consolidating Adjustments | | Total |
| OPERATING ACTIVITIES | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
|
| Net cash provided by (used in) operating activities of continuing operations | $ | 150.4 |
| | $ | (23.6 | ) | | $ | (95.3 | ) | | $ | 963.3 |
| | $ | — |
| | $ | 994.8 |
| $ | (17.8 | ) | | $ | (50.5 | ) | | $ | (53.9 | ) | | $ | 252.7 |
| | $ | — |
| | $ | 130.5 |
|
| INVESTING ACTIVITIES | |
| | |
| | |
| | |
| | |
| |
|
| |
| | |
| | |
| | |
| | |
| |
|
|
| Maturities of short-term investments | 1,582.0 |
| | — |
| | — |
| | — |
| | — |
| | 1,582.0 |
| 65.1 |
| | — |
| | — |
| | 831.9 |
| | — |
| | 897.0 |
|
| Purchases of short-term investments | (1,282.0 | ) | | — |
| | — |
| | (422.0 | ) | | — |
| | (1,704.0 | ) | (563.0 | ) | | — |
| | — |
| | (571.8 | ) | | — |
| | (1,134.8 | ) |
| Additions to property and equipment | — |
| | — |
| | — |
| | (255.5 | ) | | — |
| | (255.5 | ) | — |
| | — |
| | — |
| | (332.6 | ) | | — |
| | (332.6 | ) |
| Purchase of affiliate debt | (237.9 | ) | | — |
| | — |
| | — |
| | 237.9 |
| | — |
| (316.3 | ) | | — |
| | — |
| | — |
| | 316.3 |
| | — |
|
| Other | — |
| | — |
| | — |
| | 7.7 |
| | — |
| | 7.7 |
| — |
| | — |
| | — |
| | 1.7 |
| | — |
| | 1.7 |
|
| Net cash provided by (used in) investing activities of continuing operations | 62.1 |
| | — |
| | — |
| | (669.8 | ) | | 237.9 |
| | (369.8 | ) | |
| Net cash used in investing activities of continuing operations | | (814.2 | ) | | — |
| | — |
| | (70.8 | ) | | 316.3 |
| | (568.7 | ) |
| FINANCING ACTIVITIES | |
| | |
| | |
| | |
| | |
| |
|
| |
| | |
| | |
| | |
| | |
| |
|
|
| Proceeds from equity issuance | 585.5 |
| | — |
| | — |
| | — |
| | — |
| | 585.5 |
| |
| Reduction of long-term borrowings | (862.4 | ) | | — |
| | — |
| | 237.9 |
| | (237.9 | ) | | (862.4 | ) | (220.7 | ) | | — |
| | — |
| | — |
| | (316.3 | ) | | (537.0 | ) |
| Cash dividends paid | (8.5 | ) | | — |
| | — |
| | — |
| | — |
| | (8.5 | ) | (6.2 | ) | | — |
| | — |
| | — |
| | — |
| | (6.2 | ) |
| Advances from (to) affiliates | 156.1 |
| | 23.6 |
| | 114.1 |
| | (293.8 | ) | | — |
| | — |
| |
| Debt financing costs | | (5.5 | ) | | — |
| | — |
| | — |
| | — |
| | (5.5 | ) |
| Advances from affiliates | | 247.7 |
| | 50.5 |
| | 37.9 |
| | (336.1 | ) | | — |
| | — |
|
| Other | (2.0 | ) | | — |
| | — |
| | (0.3 | ) | | — |
| | (2.3 | ) | (2.6 | ) | | — |
| | — |
| | (1.0 | ) | | — |
| | (3.6 | ) |
| Net cash (used in) provided by financing activities | (131.3 | ) | | 23.6 |
| | 114.1 |
| | (56.2 | ) | | (237.9 | ) | | (287.7 | ) | |
| Net cash provided by discontinued operations | — |
| | — |
| | — |
| | 7.4 |
| | — |
| | 7.4 |
| |
| Net cash provided by (used in) financing activities | | 12.7 |
| | 50.5 |
| | 37.9 |
| | (337.1 | ) | | (316.3 | ) | | (552.3 | ) |
| Net cash used in discontinued operations | | — |
| | — |
| | — |
| | (0.2 | ) | | — |
| | (0.2 | ) |
| Effect of exchange rate changes on cash and cash equivalents | — |
| | — |
| | — |
| | (.6 | ) | | — |
| | (.6 | ) | — |
| | — |
| | — |
| | .6 |
| | — |
| | .6 |
|
| NET INCREASE IN CASH AND CASH EQUIVALENTS | 81.2 |
| | �� |
| | 18.8 |
| | 244.1 |
| | — |
| | 344.1 |
| |
| NET DECREASE IN CASH AND CASH EQUIVALENTS | | (819.3 | ) | | — |
| | (16.0 | ) | | (154.8 | ) | | — |
| | (990.1 | ) |
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 94.0 |
| | — |
| | 2.0 |
| | 25.3 |
| | — |
| | 121.3 |
| 892.6 |
| | — |
| | 19.8 |
| | 247.3 |
| | — |
| | 1,159.7 |
|
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 175.2 |
| | $ | — |
| | $ | 20.8 |
| | $ | 269.4 |
| | $ | — |
| | $ | 465.4 |
| $ | 73.3 |
| | $ | — |
| | $ | 3.8 |
| | $ | 92.5 |
| | $ | — |
| | $ | 169.6 |
|
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the accompanying unaudited consolidated financial statements as of SeptemberJune 30, 20172018 and for the three-month and nine-monthsix-month periods ended SeptemberJune 30, 20172018 and 20162017 included elsewhere herein and with our annual report on Form 10-K for the year ended December 31, 2016.2017. The following discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under “Risk Factors” in Item 1A of our annual report and elsewhere in this quarterly report. See “Forward-Looking Statements.”
EXECUTIVE SUMMARY
Our Business
We are one of the leading providers of offshore contract drilling services to the international oil and gas industry. On October 6, 2017, we acquired Atwood Oceanics, Inc. ("Atwood") to further strengthen our position as a leader in offshore drilling across a wide range of water depths around the world. Following the acquisition, weWe currently own and operate an offshore drilling rig fleet of 6258 rigs, with drilling operations in most of the strategic markets around the globe. We also have three rigs under construction. Our rig fleet consists ofincludes 12 drillships, 11nine dynamically positioned semisubmersible rigs, four moored semisubmersible rigs and 3836 jackup rigs. Our offshore rig fleet is one ofrigs, including rigs under construction. We operate the world's largest fleet amongst competitive rigs, including one of the newest ultra-deepwater fleets in the industry and a leading premium jackup fleet.
One of our older, less capable rigs is marketed for sale as part of our fleet high-grading strategy and classified as held-for-sale.
Our Industry
Oil prices have reboundedincreased significantly offduring the 12-year lows experienced during 2016second half of 2017 and have generally stabilized and ranged from around $45 to around $55into the first half of 2018, with prices remaining above $70 per barrel since late last year. Wefor most of the second quarter. While commodity prices have improved, we expect near-term market conditions to remain challenging as current contracts expire and new contracts are executed at lower rates. While commodity prices have improved, they have not yet improvedthe recovery in demand for contract drilling services to be gradual with different segments of the market recovering more quickly than others. In addition to a level that supports increased rig demand sufficient to absorb existing supply and improve pricing power. We believe the current market dynamics will not change until we see a further sustained recoveryincrease in commodity prices, and/orwe believe further improvements in demand coupled with a reduction in rig supply.supply are necessary to generate meaningful increases in day rates.
While industry conditions remain challenging, we have observed improvements in the shallow-water market as higher levels of customer inquiriesdemand and rig retirements have led to gradually increasing jackup utilization over the past year. Moreover, new floater contracts and open tenders have increased in recent months, particularly with respectas compared to shallow-watera year ago due to higher commodity prices and improved break-even economics for deepwater projects. Despite the increase in customer activity, recent contract awards have generally been for short-term work, subject to an extremely competitive bidding process. The significant oversupply of rigs continues to put downwardintense pressure on operating day rates resulting in certain cases wherebyrecent periods has resulted in low margin contracts. Therefore, we expect our results from operations to continue to decline in 2018 as current contracts with above market rates approximate, orexpire and new contracts are slightlyexecuted at lower than, direct operating expenses.
Atwood Merger
On May 29, 2017, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Atwood and Echo Merger Sub, LLC, our wholly-owned subsidiary, and on October 6, 2017 (the "Merger Date"), we completed our acquisition of Atwood pursuant to the Merger Agreement (the “Merger”).
The Merger is expected to strengthen our position as the leader in offshore drilling across a wide range of water depths around the world. The Merger significantly enhances the capabilities of our rig fleet and improves our ability to meet future customer demand with the highest-specification assets.
As a result of the Merger, Atwood shareholders received 1.60 Ensco Class A Ordinary shares for each share of Atwood common stock, representing a value of $9.33 per share of Atwood common stock based on a closing price of $5.83 per Class A ordinary share on October 5, 2017, the last trading day before the Merger Date. Total consideration delivered in the Merger consisted of 134.1 million Class A ordinary shares with an aggregate value of $782.0 million. The estimated fair values assigned to assets acquired net of liabilities assumed exceeded the consideration transferred, resulting in an estimated bargain purchase gain of $167.8 million that will be recognized during the fourth quarter.rates.
Liquidity Position
We have historically relied on our cash flow from continuing operations to meet liquidity needs and fund the majority of our cash requirements. We periodically rely on the issuance of debt and/or equity securities to supplement our liquidity needs. Based on our balance sheet, our contractual backlog and $2.0 billion available under our amended revolving credit facility ("Credit Facility"),Facility, we expect to fund our short-term and long-term liquidity needs, including contractual obligations and anticipated capital expenditures, as well as working capital requirements, from cash and cash equivalents, short-term investments, operating cash flows and, if necessary, funds borrowed under our revolving credit facilityCredit Facility or other future financing arrangements. We remain focused on our liquidity and throughoutover the market downturn,past several years have executed severala number of transactions to significantly improve our financial position.position and manage our debt maturities.
Cash and Debt
As of SeptemberJune 30, 2017,2018, we had $4.7$5.0 billion in total debt outstanding, representing approximately 36.8%37.2% of our total capitalization. We also had $1.8 billion$740.5 million in cash and cash equivalents and short-term investments and $2.25$2.0 billion of undrawn capacity under our Credit Facility.
Upon closing of the Merger, we utilized acquired cash of $445.4 million and cash on hand from the liquidation of short-term investments to repay Atwood's debt and accrued interest of $1.3 billion, resulting in adjusted cash and short-term investments of $926.5 million on a pro forma basis as of September 30, 2017. After adjusting total capital to reflect the $782.0 million equity consideration transferred in the Merger and the estimated $167.8 million bargain purchase gain, our total debt outstanding represented approximately 34.2% of our adjusted total capitalization on a pro forma basis as of September 30, 2017.
Upon closing of the Merger, we amended our Credit Facility to extend the final maturity date by two years. Previously, our Credit Facility had a borrowing capacity of $2.25 billion through September 2019 that declined to $1.13 billion through September 2020. Subsequent to the amendment, our borrowing capacity is $2.0 billion through September 2019 and declines to $1.2 billion through September 2022. The Credit Facility, as amended, requires us to maintain a total debt to total capitalization ratio that is less than or equal to 60%.
In January 2017, through a private-exchange transaction,2018, we repurchased $649.5 million of our outstanding debt with $332.5 million of cash and $332.0 million of newly issued 8.00% senior notes due 2024.
During the nine-month period ended September 30, 2017, we repurchased $194.1 million$1.0 billion aggregate principal amount of unsecured 7.75% senior notes due 2026. Net proceeds of $983.5 million from the 2026 Notes were partially used to fund the repurchase and redemption of $237.6 million principal amount of our outstanding8.50% senior notes due 2019, $328.0 million principal amount of our 6.875% senior notes due 2020 and $156.2 million principal amount of our 4.70% senior notes due 2021. During the first quarter, we recognized a pre-tax loss from debt for $204.5extinguishment of $19.0 million, of cash on the open market and recognized an insignificant pre-tax gain, net of discounts, premiums, and debt issuance costs.costs and commissions.
Our nextFollowing the debt maturity is $237.6 million during 2019, followed by $450.9 millionoffering, repurchases and $269.7redemption, our only debt maturities until 2024 are $122.9 million during 2020 and 2021, respectively.$113.5 million during 2021.
Backlog
As of SeptemberJune 30, 2017,2018, our backlog was $3.0$2.3 billion as compared to $3.6$2.8 billion as of December 31, 2016.2017. Our backlog declined primarily due to revenues realized during the first nine months of the year, partially offset by new contract awards and contract extensions. Adjusted for the Merger on a pro forma basis, our backlog as of September 30, 2017 was $3.2 billion. As current contracts expire, we will likely experience further declines in backlog, which will result in a decline in revenues and operating cash flows over the near-term. Contract backlog includes the impact ofwas adjusted for drilling contracts signed or terminated after each respective balance sheet date but prior to filing our annual and quarterly reportreports on February 28, 201727, 2018 and OctoberJuly 26, 2017,2018, respectively.
In July 2018, we executed a contract amendment for ENSCO DS-8, which primarily modified the scheduled cost escalations, bonus scheme and priced option, but did not change the day rate or primary term of the firm contracted period. Our operating results will not be significantly impacted as a result of the amendment.
BUSINESS ENVIRONMENT
Floaters
The floater contracting environment continues to be challenged bydue to reduced demand, as well as excess newbuild supply. Floater demand has declined significantly in recent years due to lower commodity prices which have caused our customers to rationalizereduce capital expenditures, resulting in the cancellation and delay of drilling programs. We expect this trendDuring the past several quarters, we have observed increased activity that is translating into marginal improvements in near-term utilization; however, further improvements in demand and/or reductions in supply will be necessary before meaningful increases in utilization and day rates are realized.
During the first quarter, we extended the contract for ENSCO 8503 by two wells and executed one-well and two-well contracts for ENSCO 8505.
In April 2018, our customer terminated the contract for ENSCO 8504 due to continue until we see a further sustained recovery in commodity prices.force majure.
During the second quarter, we executed contracts for ENSCO DS-4 and ENSCO DS-10 for two-year and one-year terms, respectively. The contracts contain a one-year priced option for ENSCO DS-4 and five one-year priced options for ENSCO DS-10. ENSCO DS-4 began drilling operations offshore Nigeria in August 2017. As a result of the DS-10 contract award, we accelerated delivery to September 2017 and made the final milestone payment of $75.0 million, which was previously deferred into 2019. We expect ENSCO DS-10 to commence drilling operations offshore Nigeria during the first quarter of 2018.
During the third quarter, we executed a six-well100-day contract for ENSCO DS-7, which8503 that contains two one-well priced options. The contract is expected to commence in MarchNovember 2018 in the Mediterranean Sea. TheU.S. Gulf of Mexico. We also extended the contract contains two two-well priced options. Additionally, we executed a one-well extension for ENSCO DS-12 (formerly Atwood Achiever)for approximately 45 days.
During the first quarter, we began marketing the ENSCO 5005 for sale and classified this rig as held-for-sale as of March 31, 2018. In April 2018, we sold ENSCO 7500 for scrap and recognized an insignificant pre-tax gain within loss from discontinued operations, net, in direct continuationour condensed consolidated statement of its current contract.operations. During the second
Currently, there
quarter, we began marketing for sale ENSCO 6001 and classified this rig as held-for-sale as of June 30, 2018. The rig was sold for scrap in July 2018, resulting in an insignificant pre-tax loss that will be recognized during the third quarter.
There are approximately 45 competitive42 newbuild drillships and semisubmersible rigs reported to be under construction, of which approximately 25eight are scheduled to be delivered by the end of 2018. MostNearly all newbuild floaters are uncontracted. Several newbuild deliveries have already been delayed into future years, and we expect that more uncontracted newbuilds will be delayed or cancelled.
Drilling contractors have retired more than 90approximately 111 floaters since the beginning of the downturn. Approximately 3024 floaters older than 30 years of age are currently idle, and approximately 2516 additional floaters greaterolder than 30 years old have contracts that will expire by the end ofyear-end 2018 without follow-on work.work and a further 12 floaters between 15 and 30 years old have been idle for more than two years. Operating costs associated with keeping these rigs idle as well as expenditures required to re-certify these aging rigs may prove cost prohibitive. Drilling contractors will likely elect to scrap or cold-stack the majoritysome or all of these rigs.
Jackups
Demand for jackups has improved with increased tendering activity observed in recent months followingthe past several quarters off historic lows; however, contract terms generally have been short-term in nature andday rates remain depressed due to the oversupply of rigs.
During the first quarter, we executed a four-yearseven-well contract for ENSCO 92 as well as several72, a three-well extension and a one-well contract for ENSCO 101 and a one-well extension for ENSCO 121. We also executed two short-term contracts for ENSCO 68.
In April 2018, we executed three-year contracts with Saudi Aramco for ENSCO 140, ENSCO 141 and ENSCO 108 for drilling operations offshore Saudi Arabia. ENSCO 140 commenced drilling operations during July 2018, and we expect ENSCO 141 and ENSCO 108 to commence drilling operations during the third and fourth quarters of 2018, respectively.
Additionally, during the second quarter, we executed a ten-month contract for ENSCO 115 and short-term contracts and contract extensions for ENSCO 68, ENSCO 75, ENSCO 87, ENSCO 106121 and ENSCO 107.122. The ENSCO 115 contact is expected to commence during the first quarter of 2019.
During the second quarter, we executed three-year contracts forsold ENSCO 11081 and ENSCO 120 and a 400-day contract for ENSCO 102. We also executed short-term contracts and contract extensions for ENSCO 72, ENSCO 107, ENSCO 121 and ENSCO 122. In addition, we sold ENSCO 56, ENSCO 86, ENSCO 90 and ENSCO 99, which were previously classified as held-for-sale82 and recognized an insignificant pre-tax gain.
Also during the second quarter, we received noticesgain in our condensed consolidated statement of termination for convenienceoperations for the ENSCO 104 and ENSCO 71 contracts effective in May and August 2017, respectively, which were previously expected to end in January and July 2018, respectively.
During the third quarter we executed a one-year contract extension for ENSCO 67 and short-term contracts and contract extensions for ENSCO 68, ENSCO 72, ENSCO 101 and ENSCO 115 (formerly Atwood Orca).ended June 30, 2018. Additionally, we soldbegan marketing ENSCO 52, which was previously80 and classified this rig as held-for-sale and recognized an insignificant pre-tax gain. In October, we executed a short-term contract for ENSCO 75.as of June 30, 2018.
Currently, thereThere are approximately 95 competitive91 newbuild jackup rigs reported to be under construction, of which approximately 7049 are scheduled to be delivered by the end of 2018. MostAll newbuild jackups are uncontracted. Over the past year, some jackup orders have been cancelled, and many newbuild jackups have been delayed. We expect that additional rigs may be delayed or cancelled given limited contracting opportunities.
Drilling contractors have retired more than 30approximately 66 jackups since the beginning of the downturn. Approximately 100108 jackups older than 30 years of age are idle. Furthermore,idle and approximately 6059 jackups that are 30 years of age or older have contracts that expire beforeexpiring by the end of 2018 and these rigs may be unable to find additionalwithout follow-on work. Operating costs associated with keeping these rigs idle as well as expendituresExpenditures required to re-certify these aging rigs may prove cost prohibitive. Drillingprohibitive and drilling contractors will likelymay instead elect to scrap or cold-stack somethese rigs. We expect jackup scrapping and cold-stacking to continue during 2018 and into 2019.
Divestitures
Our business strategy has been to focus on ultra-deepwater floater and premium jackup operations and deemphasize other assets and operations that are not part of our long-term strategic plan or allthat no longer meet our standards for economic returns. Consistent with this strategy, we recently scrapped two floaters and two jackup rigs. Additionally, we are currently marketing for sale ENSCO 80 and ENSCO 5005, both of thesewhich are older, less capable assets, as part of our fleet high-grading strategy.
Following the Merger, we continue to focus on our fleet management strategy in light of the new composition of our rig fleet. As part of this strategy, we may act opportunistically from time to time to monetize assets to enhance shareholder value and improve our liquidity profile, in addition to selling or disposing of older, lower-specification or non-core rigs.
RESULTS OF OPERATIONS
The following table summarizes our condensed consolidated results of operations for the three-month and nine-monthsix-month periods ended SeptemberJune 30, 20172018 and 20162017 (in millions):
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Revenues | $ | 460.2 |
| | $ | 548.2 |
| | $ | 1,388.8 |
| | $ | 2,271.8 |
|
| Operating expenses | |
| | |
| | |
| | |
|
| Contract drilling (exclusive of depreciation) | 285.8 |
| | 298.1 |
| | 855.2 |
| | 1,012.0 |
|
| Depreciation | 108.2 |
| | 109.4 |
| | 325.3 |
| | 335.1 |
|
| General and administrative | 30.4 |
| | 25.3 |
| | 86.9 |
| | 76.1 |
|
| Operating income | 35.8 |
| | 115.4 |
| | 121.4 |
| | 848.6 |
|
| Other (expense) income, net | (40.4 | ) | | (30.9 | ) | | (151.3 | ) | | 114.4 |
|
| Provision for income taxes | 23.4 |
| | (3.5 | ) | | 66.8 |
| | 104.6 |
|
| (Loss) income from continuing operations | (28.0 | ) | | 88.0 |
| | (96.7 | ) | | 858.4 |
|
| Loss from discontinued operations, net | (.2 | ) | | (.7 | ) | | (.4 | ) | | (1.8 | ) |
| Net (loss) income | (28.2 | ) | | 87.3 |
| | (97.1 | ) | | 856.6 |
|
| Net loss (income) attributable to noncontrolling interests | 2.8 |
| | (2.0 | ) | | .5 |
| | (5.4 | ) |
| Net (loss) income attributable to Ensco | $ | (25.4 | ) | | $ | 85.3 |
| | $ | (96.6 | ) | | $ | 851.2 |
|
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
| Revenues | $ | 458.5 |
| | $ | 457.5 |
| | $ | 875.5 |
| | $ | 928.6 |
|
| Operating expenses | |
| | |
| | |
| | |
|
| Contract drilling (exclusive of depreciation) | 344.3 |
| | 291.3 |
| | 669.5 |
| | 569.4 |
|
| Depreciation | 120.7 |
| | 107.9 |
| | 235.9 |
| | 217.1 |
|
| General and administrative | 26.1 |
| | 30.5 |
| | 54.0 |
| | 56.5 |
|
| Operating income (loss) | (32.6 | ) | | 27.8 |
| | (83.9 | ) | | 85.6 |
|
| Other expense, net | (84.8 | ) | | (53.2 | ) | | (155.5 | ) | | (110.9 | ) |
| Provision for income taxes | 24.7 |
| | 19.3 |
| | 43.1 |
| | 43.4 |
|
| Loss from continuing operations | (142.1 | ) | | (44.7 | ) | | (282.5 | ) | | (68.7 | ) |
| Income (loss) from discontinued operations, net | (8.0 | ) | | .4 |
| | (8.1 | ) | | (.2 | ) |
| Net loss | (150.1 | ) | | (44.3 | ) | | (290.6 | ) | | (68.9 | ) |
| Net income attributable to noncontrolling interests | (.9 | ) | | (1.2 | ) | | (.5 | ) | | (2.3 | ) |
| Net loss attributable to Ensco | $ | (151.0 | ) | | $ | (45.5 | ) | | $ | (291.1 | ) | | $ | (71.2 | ) |
Revenues declined $88.0increased $1.0 million, or 16%, for the three-month period ended SeptemberJune 30, 2017 as compared to the prior year quarter primarily due to lower average day rates, fewer days under contract across the fleet, lower revenues from various jackup rigs undergoing shipyard projects during the quarter and the sale of ENSCO 52.
Excluding the impact of ENSCO DS-9 and ENSCO 8503 lump-sum termination payments received during the second quarter of 2016 totaling $205.0 million, revenues declined $678.0 million, or 33%, for the nine-month period ended September 30, 2017 as compared to the prior year period. This decline was due primarily to fewer days under contract across the fleet, lower average day rates and the contract terminations and ultimate sale of ENSCO 6003 and ENSCO 6004.
Contract drilling expense declined $12.3 million, or 4%, for the three-month period ended September 30, 20172018, as compared to the prior year quarter, primarily due to the saleaddition of various jackupAtwood rigs to the fleet and other cost control initiatives that reduced personnel costs.
Contractthe commencement of ENSCO DS-10 drilling expenseoperations during the first quarter of 2018, offset by lower average day rates across the fleet. For the six-month period ended June 30, 2018, revenues declined $156.8$53.1 million, or 15%6%, for the nine-month period ended September 30, 2017 as compared to the prior year period, primarily due to rig stackings,lower average day rates across the contract terminationsfleet which more than offset the increase from the addition of Atwood rigs and ultimate salethe commencement of ENSCO 6003DS-10 drilling operations during the first quarter of 2018.
Contract drilling expense increased $53.0 million, or 18%, and $100.1 million, or 18%, for the three-month and six-month periods ended June 30, 2018, as compared to the prior periods, primarily due to the addition of Atwood rigs to the fleet, the commencement of ENSCO 6004, cost control initiatives that reduced personnel costsDS-10 drilling operations during the first quarter of 2018 and integration-related costs.
Depreciation expense increased $12.8 million, or 12%, and $18.8 million, or 9%, respectively, for the three-month and six-month periods ended June 30, 2018, as compared to the prior periods, primarily due to the addition of Atwood rigs to the fleet and the salecommencement of various jackup rigs.ENSCO DS-10 drilling operations. This declineincrease was partially offset by contract preparation costs for certain rigs.
Depreciationlower depreciation expense foron two non-core floaters and one non-core jackup that were impaired to scrap during the three-month period ended September 30, 2017 was consistent with the prior year period. Depreciation expense declined $9.8 million, or 3%, for the nine-month period ended September 30, 2017, primarily due to the extensionfourth quarter of useful lives for certain contracted rigs.2017.
General and administrative expenses increaseddeclined by $5.1$4.4 million, or 20%14%, and $10.8$2.5 million, or 14%4%, for the three-month and nine-monthsix-month periods ended SeptemberJune 30, 2017, respectively. The increase2018, respectively, primarily due to lower Merger-related costs and accrued performance-based compensation.
Other expense, net, increased $31.6 million for the three-month period ended June 30, 2018, as compared to the prior year periods wasquarter, primarily due to transaction costshigher debt balances and average interest rates resulting from the debt transactions we undertook during the first quarter of 2018, lower capitalized interest due to the decline in the amount of capital invested in newbuild construction and foreign currency losses. In addition, other expense, net, for the current period included measurement period adjustments related to the Merger.Merger resulting in a reduction to the bargain purchase gain.
Other (expense) income,expense, net, increased $44.6 million for the nine-monthsix-month period ended SeptemberJune 30, 2017 included a2018, as compared to the prior year period, primarily due to higher interest expense resulting from the debt transactions we undertook during the first quarter of 2018, the pre-tax loss of $6.2 millionon debt extinguishment associated with those transactions, foreign currency losses and lower interest income. These declines were partially offset by measurement period adjustments related to the January 2017 debt exchange. Other (expense) income,Merger resulting in additional bargain purchase gain.
Income (loss) from discontinued operations, net, forincluded a $7.5 million discrete tax expense related to the three-month and nine-month periods ended September 30, 2016 included pre-tax gains on debt extinguishmentsale of $18.2 million and $279.0 million, respectively.ENSCO 7500 in April 2018.
A significant number of our drilling contracts are of a long-term nature. Accordingly, an increase or decline in demand for contract drilling services generally affects our operating results and cash flows gradually over future quarters as long-term contracts expire. We expect operating results to decline during 2017 and into 2018 as long-term contracts expire, and our rigs either go uncontracted or we renew contracts at significantly lower rates.
Rig Counts, Utilization and Average Day Rates
The following table summarizes our offshore drilling rigs by reportable segment, rigs under construction and rigs held-for-sale as of SeptemberJune 30, 20172018 and 2016:2017:
| | | | 2017 | | 2016 | 2018 | | 2017 |
Floaters(1)(3) | 20 | | 19 | 22 | | 19 |
Jackups(2) (3) | 32 | | 35 | |
Jackups(3)(4) | | 34 | | 32 |
Under construction(3)(5) | 1 | | 3 | 3 | | 2 |
Held-for-sale(2) (4) | 1 | | 4 | |
Held-for-sale(3)(6) | | 3 | | 2 |
| Total | 54 | | 61 | 62 | | 55 |
| |
(1) | During the third quarter of 2017, we accepted delivery of ENSCO DS-10. |
| |
(2) | During the firstfourth quarter of 2017, we classifiedadded ENSCO 56,DS-11, ENSCO 86DS-12, ENSCO DPS-1 and ENSCO 99 as held-for-sale. DuringMS-1 from the second quarter of 2017, we classified ENSCO 52 as held-for-sale.Merger. |
| |
(3) | During the fourthfirst quarter of 2016,2018, we accepted deliveryclassified ENSCO 5005, ENSCO 81 and ENSCO 82 as held-for-sale. During the second quarter of 2018, we classified ENSCO 141.6001 and ENSCO 80 as held-for-sale. |
| |
(4) | During the fourth quarter of 2016,2017, we soldadded ENSCO 53111, ENSCO 112, ENSCO 113, ENSCO 114 and ENSCO 94. 115 from the Merger. |
| |
(5) | During the secondfourth quarter of 2017, we soldadded ENSCO 56, ENSCO 86, ENSCO 90DS-13 and ENSCO 99. DS-14 from the Merger, both of which are under construction. |
| |
(6) | During the third quarter of 2017, we sold ENSCO 52. During the second quarter of 2018, we sold ENSCO 7500, ENSCO 81 and ENSCO 82. |
The following table summarizes our rig utilization and average day rates by reportable segment for the three-month and nine-monthsix-month periods ended SeptemberJune 30, 20172018 and 2016:2017:
| | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2017 | | 2016 | | 2017 | | 2016 | 2018 | | 2017 | | 2018 | | 2017 |
Rig Utilization(1) | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
| Floaters | 46 | % | | 48 | % | | 45 | % | | 57 | % | 53 | % | | 43 | % | | 48 | % | | 45 | % |
| Jackups | 60 | % | | 55 | % | | 63 | % | | 61 | % | 66 | % | | 64 | % | | 63 | % | | 64 | % |
| Total | 55 | % | | 53 | % | | 56 | % | | 60 | % | 61 | % | | 56 | % | | 57 | % | | 57 | % |
Average Day Rates(2) | |
| | |
| | | | | |
| | |
| | | | |
| Floaters | $ | 334,218 |
| | $ | 353,187 |
| | $ | 336,445 |
| | $ | 360,073 |
| $ | 237,513 |
| | $ | 338,675 |
| | $ | 248,576 |
| | $ | 337,611 |
|
| Jackups | 88,272 |
| | 109,379 |
| | 87,711 |
| | 113,378 |
| 78,408 |
| | 88,583 |
| | 76,011 |
| | 87,468 |
|
| Total | $ | 165,623 |
| | $ | 183,537 |
| | $ | 159,158 |
| | $ | 196,640 |
| $ | 135,343 |
| | $ | 155,946 |
| | $ | 133,988 |
| | $ | 156,200 |
|
| |
(1) | Rig utilization is derived by dividing the number of days under contract by the number of days in the period. Days under contract equals the total number of days that rigs have earned and recognized day rate revenue, including days associated with early contract terminations, compensated downtime and mobilizations. When revenue is earned but is deferred and amortized over a future period, for example, when a rig earns revenue while mobilizing to commence a new contract or while being upgraded in thea shipyard, the related days are excluded from days under contract. |
For newly-constructed or acquired rigs, the number of days in the period begins upon commencement of drilling operations for rigs with a contract or when the rig becomes available for drilling operations for rigs without a contract.
| |
(2) | Average day rates are derived by dividing contract drilling revenues, adjusted to exclude certain types of non-recurring reimbursable revenues, lump-sum revenues and revenues attributable to amortization of drilling contract intangibles, by the aggregate number of contract days, adjusted to exclude contract days associated with certain mobilizations, demobilizations, shipyard contracts and standby contracts. |
Operating Income
Our business consists of three operating segments: (1) Floaters, which includes our drillships and semisubmersible rigs, (2) Jackups and (3) Other, which currently consists of management services on rigs owned by third-parties. Our two reportable segments, Floaters and Jackups, provide one service, contract drilling.
Segment information is presented below (in millions). General and administrative expense and depreciation expense incurred by our corporate office are not allocated to our operating segments for purposes of measuring segment operating income and were included in "Reconciling Items."
Three Months Ended SeptemberJune 30, 2018
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Floaters | | Jackups | | Other | | Operating Segments Total | | Reconciling Items | | Consolidated Total |
| Revenues | $ | 284.9 |
| | $ | 158.7 |
| | $ | 14.9 |
| | $ | 458.5 |
| | $ | — |
| | $ | 458.5 |
|
| Operating expenses | | | | | | | | | | | |
| Contract drilling (exclusive of depreciation) | 203.7 |
| | 126.8 |
| | 13.8 |
| | 344.3 |
| | — |
| | 344.3 |
|
| Depreciation | 80.8 |
| | 36.5 |
| | — |
| | 117.3 |
| | 3.4 |
| | 120.7 |
|
| General and administrative | — |
| | — |
| | — |
| | — |
| | 26.1 |
| | 26.1 |
|
| Operating income (loss) | $ | 0.4 |
| | $ | (4.6 | ) | | $ | 1.1 |
| | $ | (3.1 | ) | | $ | (29.5 | ) | | $ | (32.6 | ) |
Three Months Ended June 30, 2017
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Floaters | | Jackups | | Other | | Operating Segments Total | | Reconciling Items | | Consolidated Total |
| Revenues | $ | 264.0 |
| | $ | 178.9 |
| | $ | 14.6 |
| | $ | 457.5 |
| | $ | — |
| | $ | 457.5 |
|
| Operating expenses | | | | | | | | | | | |
| Contract drilling (exclusive of depreciation) | 145.6 |
| | 132.3 |
| | 13.4 |
| | 291.3 |
| | — |
| | 291.3 |
|
| Depreciation | 72.0 |
| | 31.6 |
| | — |
| | 103.6 |
| | 4.3 |
| | 107.9 |
|
| General and administrative | — |
| | — |
| | — |
| | — |
| | 30.5 |
| | 30.5 |
|
| Operating income | $ | 46.4 |
| | $ | 15.0 |
| | $ | 1.2 |
| | $ | 62.6 |
| | $ | (34.8 | ) | | $ | 27.8 |
|
Six Months Ended June 30, 2018
| | | | Floaters | | Jackups | | Other | | Operating Segments Total | | Reconciling Items | | Consolidated Total | Floaters | | Jackups | | Other | | Operating Segments Total | | Reconciling Items | | Consolidated Total |
| Revenues | $ | 291.9 |
| | $ | 153.1 |
| | $ | 15.2 |
| | $ | 460.2 |
| | $ | — |
| | $ | 460.2 |
| $ | 543.9 |
| | $ | 302.1 |
| | $ | 29.5 |
| | $ | 875.5 |
| | $ | — |
| | $ | 875.5 |
|
| Operating expenses | | | | | | | | | | | | | | | | | | | | | | |
| Contract drilling (exclusive of depreciation) | 139.1 |
| | 132.9 |
| | 13.8 |
| | 285.8 |
| | — |
| | 285.8 |
| 388.8 |
| | 253.7 |
| | 27.0 |
| | 669.5 |
| | — |
| | 669.5 |
|
| Depreciation | 72.7 |
| | 31.6 |
| | — |
| | 104.3 |
| | 3.9 |
| | 108.2 |
| 156.1 |
| | 73.0 |
| | — |
| | 229.1 |
| | 6.8 |
| | 235.9 |
|
| General and administrative | — |
| | — |
| | — |
| | — |
| | 30.4 |
| | 30.4 |
| — |
| | — |
| | — |
| | — |
| | 54.0 |
| | 54.0 |
|
| Operating income (loss) | $ | 80.1 |
| | $ | (11.4 | ) | | $ | 1.4 |
| | $ | 70.1 |
| | $ | (34.3 | ) | | $ | 35.8 |
| $ | (1.0 | ) | | $ | (24.6 | ) | | $ | 2.5 |
| | $ | (23.1 | ) | | $ | (60.8 | ) | | $ | (83.9 | ) |
ThreeSix Months Ended SeptemberJune 30, 2016
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Floaters | | Jackups | | Other | | Operating Segments Total | | Reconciling Items | | Consolidated Total |
| Revenues | $ | 319.3 |
| | $ | 213.8 |
| | $ | 15.1 |
| | $ | 548.2 |
| | $ | — |
| | $ | 548.2 |
|
| Operating expenses | | | | | | | | | | | |
| Contract drilling (exclusive of depreciation) | 153.7 |
| | 133.2 |
| | 11.2 |
| | 298.1 |
| | — |
| | 298.1 |
|
| Depreciation | 72.9 |
| | 32.1 |
| | — |
| | 105.0 |
| | 4.4 |
| | 109.4 |
|
| General and administrative | — |
| | — |
| | — |
| | — |
| | 25.3 |
| | 25.3 |
|
| Operating income | $ | 92.7 |
| | $ | 48.5 |
| | $ | 3.9 |
| | $ | 145.1 |
| | $ | (29.7 | ) | | $ | 115.4 |
|
Nine Months Ended September 30, 2017
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Floaters | | Jackups | | Other | | Operating Segments Total | | Reconciling Items | | Consolidated Total |
| Revenues | $ | 840.7 |
| | $ | 503.8 |
| | $ | 44.3 |
| | $ | 1,388.8 |
| | $ | — |
| | $ | 1,388.8 |
|
| Operating expenses | | | | | | | | | | | |
| Contract drilling (exclusive of depreciation) | 431.1 |
| | 383.8 |
| | 40.3 |
| | 855.2 |
| | — |
| | 855.2 |
|
| Depreciation | 217.5 |
| | 95.3 |
| | — |
| | 312.8 |
| | 12.5 |
| | 325.3 |
|
| General and administrative | — |
| | — |
| | — |
| | — |
| | 86.9 |
| | 86.9 |
|
| Operating income | $ | 192.1 |
| | $ | 24.7 |
| | $ | 4.0 |
| | $ | 220.8 |
| | $ | (99.4 | ) | | $ | 121.4 |
|
Nine Months Ended September 30, 2016 | | | | Floaters | | Jackups | | Other | | Operating Segments Total | | Reconciling Items | | Consolidated Total | Floaters | | Jackups | | Other | | Operating Segments Total | | Reconciling Items | | Consolidated Total |
| Revenues | $ | 1,468.3 |
| | $ | 743.0 |
| | $ | 60.5 |
| | $ | 2,271.8 |
| | $ | — |
| | $ | 2,271.8 |
| $ | 548.8 |
| | $ | 350.7 |
| | $ | 29.1 |
| | $ | 928.6 |
| | $ | — |
| | $ | 928.6 |
|
| Operating expenses | | | | | | | | | | | | | | | | | | | | | | |
| Contract drilling (exclusive of depreciation) | 573.6 |
| | 390.0 |
| | 48.4 |
| | 1,012.0 |
| | — |
| | 1,012.0 |
| 292.0 |
| | 250.9 |
| | 26.5 |
| | 569.4 |
| | — |
| | 569.4 |
|
| Depreciation | 231.0 |
| | 90.8 |
| | — |
| | 321.8 |
| | 13.3 |
| | 335.1 |
| 144.8 |
| | 63.7 |
| | — |
| | 208.5 |
| | 8.6 |
| | 217.1 |
|
| General and administrative | — |
| | — |
| | — |
| | — |
| | 76.1 |
| | 76.1 |
| — |
| | — |
| | — |
| | — |
| | 56.5 |
| | 56.5 |
|
| Operating income | $ | 663.7 |
| | $ | 262.2 |
| | $ | 12.1 |
| | $ | 938.0 |
| | $ | (89.4 | ) | | $ | 848.6 |
| $ | 112.0 |
| | $ | 36.1 |
| | $ | 2.6 |
| | $ | 150.7 |
| | $ | (65.1 | ) | | $ | 85.6 |
|
Floaters
Floater revenue declined $27.4increased $20.9 million, or 9%8%, for the three-month period ended SeptemberJune 30, 20172018, as compared to the prior year quarter, primarily due to fewer days under contract acrossthe addition of Atwood rigs to the fleet and the ENSCO DS-7 contract termination.
Excluding the impactcommencement of ENSCO DS-9 and ENSCO 8503 lump-sum termination payments receivedDS-10 drilling operations during the secondfirst quarter of 2016 totaling $205.0 million, revenues declined $422.6 million, or 33%, for the nine-month period ended September 30, 2017, respectively, as compared to the prior year period. The decline is primarily due to fewer days under contract across the fleet, the contract terminations and ultimate sale of ENSCO 6003 and ENSCO 6004,2018. This increase was partially offset by lower average day rates andacross the ENSCO DS-7 contract termination. The declines were partially offset by a higher average day rate for ENSCO DS-6 while operating in Egypt.
Floater contract drilling expense forfleet. For the three-monthsix-month period ended SeptemberJune 30, 20172018, floater revenues declined $14.6$4.9 million, or 9%1%, as compared to the prior year period, primarily due to rig stackings.as lower average day rates across the fleet more than offset the addition of the Atwood rigs and the commencement of ENSCO DS-10 drilling operations.
Floater contract drilling expense increased $58.1 million, or 40%, and $96.8 million, or 33%, for the nine-month periodthree-month and six-month periods ended SeptemberJune 30, 2017 declined $142.5 million, or 25%,2018, respectively, as compared to the prior year periodperiods, primarily due to rig stackings, the contract terminationsaddition of Atwood rigs to the fleet and ultimate salethe commencement of ENSCO 6003 and ENSCO 6004 and other cost control initiatives to reduce personnel costs. These declines wereDS-10 drilling operations during the first quarter of 2018. The increase was partially offset by costs incurred in the prior year to settle a previously disclosed legal contingency and lower contract preparation costs for certain rigs.in the current period.
Floater depreciation expense increased $8.8 million, or 12%, and 11.3 million, or 8%, for the three-month periodand six-month periods ended SeptemberJune 30, 2017 was consistent with the prior year period. Floater depreciation expense for the nine-month period ended September 30, 2017 declined $13.5 million, or 6%,2018, as compared to the prior year periodperiods, primarily due to the extensionaddition of useful lives for certain contracted assets.Atwood rigs and the commencement of depreciation on the ENSCO DS-10, partially offset by lower depreciation expense on two non-core floaters that were impaired to scrap during the fourth quarter of 2017.
Jackups
Jackup revenues declined $60.7$20.2 million, or 28%11%, and $239.2$48.6 million, or 32%14%, for the three-month and nine-monthsix-month periods ended SeptemberJune 30, 2017, respectively. The decline as compared to the prior year periods was2018, respectively, primarily due to lower average day rates, fewer days under contractthe sale of the ENSCO 52 and various jackup rigs undergoing shipyard projectsENSCO 104 termination payments recognized during the currentprior year periods.period. These declines were partially offset by the addition of Atwood rigs to the fleet.
Jackup contract drilling expense declined $5.5 million, or 4%, for the three-month period ended SeptemberJune 30, 2017 was consistent with2018, as compared to the prior year quarter, primarily due to rigs that were undergoing shipyard projects during the prior period, the sale of various jackupENSCO 52 and lower stacking costs on idle rigs, partially offset by higher operating costs forthe addition of Atwood rigs that were stacked into the prior year period.fleet.
Jackup contract drilling expense increased $2.8 million, or 1%, for the nine-monthsix-month period ended SeptemberJune 30, 2017 declined $6.2 million, or 2%,2018, as compared to the prior year period, primarily due to the saleaddition of variousAtwood rigs to the fleet and cost control initiatives to reduce personnelhigher stacking costs, partially offset by higher repairthe sale of ENSCO 52 and lower contract preparation costs and rig reactivation costs duringin the current period.
Jackup depreciation expense for the three-month and six-month period ended SeptemberJune 30, 2017 was consistent with the prior year period. Jackup depreciation expense for the nine-month period ended September 30, 2017 declined $4.52018 increased $4.9 million, or 5%16%, and $9.3 million, or 15%, respectively, as compared to the prior year periods, primarily due to the extensionaddition of useful lives for certain contracted assets.Atwood rigs to the fleet.
Other Income (Expense)
The following table summarizes other income (expense) for the three-month and nine-monthsix-month periods ended SeptemberJune 30, 20172018 and 20162017 (in millions):
| | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2017 | | 2016 | | 2017 | | 2016 | 2018 | | 2017 | | 2018 | | 2017 |
| Interest income | $ | 7.5 |
| | $ | 3.8 |
| | $ | 22.3 |
| | $ | 8.6 |
| $ | 3.9 |
| | $ | 7.6 |
| | $ | 6.9 |
| | $ | 14.8 |
|
| Interest expense, net: |
|
| | |
| | | | |
|
| | |
| | | | |
| Interest expense | (72.6 | ) | | (65.1 | ) | | (221.9 | ) | | (209.0 | ) | (86.9 | ) | | (73.9 | ) | | (170.9 | ) | | (149.3 | ) |
| Capitalized interest | 24.5 |
| | 11.7 |
| | 54.9 |
| | 36.5 |
| 11.2 |
| | 13.6 |
| | 29.6 |
| | 30.4 |
|
| | (48.1 | ) | | (53.4 | ) | | (167.0 | ) | | (172.5 | ) | (75.7 | ) | | (60.3 | ) | | (141.3 | ) | | (118.9 | ) |
| Other, net | .2 |
| | 18.7 |
| | (6.6 | ) | | 278.3 |
| (13.0 | ) | | (.5 | ) | | (21.1 | ) | | (6.8 | ) |
| | $ | (40.4 | ) | | $ | (30.9 | ) | | $ | (151.3 | ) | | $ | 114.4 |
| $ | (84.8 | ) | | $ | (53.2 | ) | | $ | (155.5 | ) | | $ | (110.9 | ) |
Interest income for the three-month and nine-monthsix-month periods ended SeptemberJune 30, 2017 increased2018 declined as compared to the prior year periods as a result of higherlower average short-term investment balances.
Interest expense for the three-month and nine-monthsix-month periods ended SeptemberJune 30, 20172018 increased as compared to the prior year periods due to the issuance of $849.5 million in convertible noteshigher debt balance and $332.0 million in exchange notesaverage interest rates resulting from the debt transactions we undertook during 2016 and 2017, respectively, partially offset by the repurchase of $2.0 billion of debt during 2016 and 2017.January 2018. Interest expense capitalized during the three-month and nine-monthsix-month periods ended SeptemberJune 30, 2017 increased2018 declined as compared to the prior year periods due to an increasea decline in the amount of capital invested in newbuild construction.construction, resulting from the commencement of drilling operations on ENSCO DS-10.
Other expense, net, for the three-month period ended June 30, 2018 included foreign currency losses as discussed below and measurement period adjustments related to the Merger resulting in an $8.3 million decline in bargain purchase gain.
Other expense, net, for the nine-monthsix-month period ended SeptemberJune 30, 2018 included a pre-tax loss of $19.0 million related to the repurchase and redemption of senior notes in the first quarter of 2018 and foreign currency losses as discussed below. These losses were partially offset by measurement period adjustments related to the Merger resulting in $8.3 million of additional bargain purchase gain.
Other expense, net, for the six-month period ended June 30, 2017 included a pre-tax loss of $6.2 million related to the January 2017 debt exchange. Other income, net, for the three-month and nine-month periods ended September 30, 2016 included pre-tax gains on debt extinguishment of $18.2 million and $279.0 million, respectively, related to debt repurchases.
Our functional currency is the U.S. dollar, and a portion of the revenues earned and expenses incurred by certain of our subsidiaries are denominated in currencies other than the U.S. dollar. These transactions are remeasured in U.S. dollars based on a combination of both current and historical exchange rates. Net foreign currency exchange losses of $800,000$5.7 million and $4.9$12.0 million, inclusive of offsetting fair value derivatives, were included in other, net, for the three-month and nine-monthsix-month periods ended SeptemberJune 30, 2017,2018, respectively. These losses were primarily attributable to a strengthening U.S. dollar and the devaluation of the Angolan kwanza. Net foreign currency exchange losses of $600,000$2.4 million and $2.4$4.1 million, inclusive of offsetting fair value derivatives, were included in other, net, for the three-month and nine-monthsix-month periods ended SeptemberJune 30, 2016,2017, respectively.
Gains from the change in fair value of our supplemental executive retirement plans (the "SERP") of $1.0 million and $3.5 million were included in other, net, for the three-month and nine-month periods ended September 30, 2017, respectively. Gains from the change in fair value of our SERP of $1.1 million and $1.6 million were included in other, net, for the three-month and nine-month periods ended September 30, 2016, respectively.
Provision for Income Taxes
Ensco plc, our parent company, is domiciled and resident in the U.K. Our subsidiaries conduct operations and earn income in numerous countries and are subject to the laws of taxing jurisdictions within those countries. The income of our non-U.K. subsidiaries is generally not subject to U.K. taxation. 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 our drilling rigs among taxing jurisdictions will involve the transfer of ownership of the drilling rigs among our subsidiaries. As a result of frequent changes in the taxing jurisdictions in which our drilling rigs are operated and/or owned, changes in the overall level of our income and changes in tax laws, our consolidated effective income tax rate may vary substantially from one reporting period to another. In periods of declining profitability, our income tax expense may not decline proportionally with income, which could result in higher effective income tax rates. Further, we may continue to incur income tax expense in periods in which we operate at a loss.
IncomeDiscrete income tax benefit for the three-month period ended June 30, 2018 was $2.3 million and was primarily attributable to U.S. tax reform, partially offset by discrete tax expense related to rig sales and unrecognized tax benefits associated with tax positions taken in prior years. Discrete income tax expense for the three-month and nine-month periodsperiod ended SeptemberJune 30, 2017 was $23.4$2.2 million and $66.8 million, respectively, as comparedwas primarily attributable to an incomethe debt exchange and repurchases we undertook during the first quarter of 2017 and a settlement of a previously disclosed legal contingency. Excluding the aforementioned discrete tax benefit of $3.5 million anditems, income tax expense of $104.6for the three-month periods ended June 30, 2018 and 2017 was $27.0 million during the respective prior year periods.and $17.1 million, respectively. The changes$9.9 million increase in income tax expense fromas compared to the prior year periods results from changes in overall profitabilityperiod was primarily due to U.S. tax reform and changesan increase in the mixrelative components of our profits and lossesearnings, excluding discrete items, generated in tax jurisdictions with differenthigher tax rates.rates, partially offset by overall lower income levels.
Discrete income tax benefit for the six-month period ended June 30, 2018 was $11.2 million and was primarily attributable to U.S. tax reform and a restructuring transaction, partially offset by discrete tax expense related to repurchase and redemption of senior notes, the effective settlement of liabilities for unrecognized tax benefits associated with tax positions taken in prior years and rig sales. Discrete income tax expense for the six-month period ended June 30, 2017 was $9.8 million and was primarily attributable to the debt exchange and repurchases we undertook during the first quarter of 2017, a restructuring transaction, the effective settlement of a liability for unrecognized tax benefits associated with a tax position taken in prior years and a settlement of a previously disclosed legal contingency. Excluding the aforementioned discrete tax items, income tax expense for the six-month periods ended June 30, 2018 and 2017 was $54.3 million and $33.6 million, respectively. The $20.7 million increase in income tax expense as compared to the prior year period was primarily due to U.S. tax reform and an increase in the relative components of our earnings, excluding discrete items, generated in tax jurisdictions with higher tax rates, partially offset by overall lower income levels.
LIQUIDITY AND CAPITAL RESOURCES
We have historically relied on our cash flow from continuing operations to meet liquidity needs and fund the majority of our cash requirements. We periodically rely on the issuance of debt and/or equity securities to supplement our liquidity needs. A substantial portion of our operating cash flow has been invested in the expansion and enhancement of our fleet of drilling rig fleetrigs through newbuild construction, acquisitions and upgrade projects and the return of capital to shareholders through dividend payments.projects. We expect that cash flow generated from operations during 20172018 will primarily be used to fund capital expenditures repurchase debt and repay Atwood'srepurchase debt.
Upon closing of the Merger, we amendedBased on our balance sheet, our contractual backlog and $2.0 billion available under our Credit Facility, we expect to extend the final maturity date by two years. Previously,fund our short-term and long-term liquidity needs, including contractual obligations and anticipated capital expenditures, as well as working capital requirements, from cash and cash equivalents, short-term investments,
operating cash flows and, if necessary, funds borrowed under our Credit Facility hador other future financing arrangements. We remain focused on our liquidity and over the past several years have executed a borrowing capacitynumber of $2.25 billion through September 2019 that declinedtransactions to $1.13 billion through September 2020. Subsequent to the amendment,significantly improve our borrowing capacity is $2.0 billion through September 2019financial position and declines to $1.2 billion through September 2022. Further, we utilized acquired cash of $445.4 million and cash on hand from the liquidation of short-term investments to repay Atwood'smanage our debt and accrued interest of $1.3 billion.maturities.
In January 2017, through a private-exchange transaction,2018, we repurchased $649.5 million of our outstanding debt with $332.5 million of cash and $332.0 million of newly issued 8.00% senior notes due 2024.
During the nine-month period ended September 30, 2017, we repurchased $194.1 million$1.0 billion aggregate principal amount of unsecured 7.75% senior notes due 2026. Net proceeds of $983.5 million from the 2026 Notes were partially used to fund the repurchase and redemption of $237.6 million principal amount of our outstanding debt for $204.58.50% senior notes due 2019, $328.0 million principal amount of cash on the open marketour 6.875% senior notes due 2020 and recognized an insignificant pre-tax gain, net$156.2 million principal amount of discounts, premiums and debt issuance costs.our 4.70% senior notes due 2021.
Our Board of Directors declared a $0.01 per share quarterly cash dividend during the first, second and third quarters.quarter. Our Credit Facility prohibits us from paying dividends in excess of $0.01 per share per fiscal quarter. Dividends in excess of this amount would require the amendment or waiver of such provisions. The declaration and amount of future dividends is at the discretion of our Board of Directors. In the future, our Board of Directors may, without advance notice, reduce ordetermine to suspend our dividend in order to maintain our financial flexibility and best position us for long-term success. When evaluating dividend payment timing and amounts, our Board of Directors considers several factors, including our profitability, liquidity, financial condition, market outlook, reinvestment opportunities, capital requirements and limitations under our Credit Facility.
During the nine-monthsix-month period ended SeptemberJune 30, 2017,2018, our primary sourcessource of cash werewas $1.0 billion in proceeds from the issuance of senior notes and $185.0 million in net maturities of short-term investmentsinvestments. Our primary uses of $372.7cash for the same period were $771.2 million for the repurchase and $219.6redemption of outstanding debt and $331.9 million for the construction, enhancement and other improvements of our drilling rigs.
During the six-month period ended June 30, 2017, our primary source of cash was $130.5 million generated from operating activities of continuing operations. Our primary uses of cash for the same period were $537.0$537.0 million for the repurchase of debt and $474.1repurchases, $332.6 million for the construction, enhancement and other improvement of our drilling rigs.
During the nine-month period ended September 30, 2016, our primary sources of cash were $1.0 billion generated from operating activities of continuing operations and $585.5 million in proceeds from our equity offering. Our primary uses of cash for the same period were $862.4 million for the repurchase of debt,$255.5 million for the construction, enhancement and other improvementimprovements of our drilling rigs and net purchases of short-term investments of $122.0 million.$237.8 million.
Cash Flow and Capital Expenditures
Our cash flow from operating activities of continuing operations and capital expenditures for the nine-monthsix-month periods ended SeptemberJune 30, 20172018 and 20162017 were as follows (in millions):
| | | | 2017 | | 2016 | 2018 | | 2017 |
| Cash flow from operating activities of continuing operations | $ | 219.6 |
| | $ | 994.8 |
| |
| Cash provided by (used in) operating activities of continuing operations | | $ | (18.0 | ) | | $ | 130.5 |
|
| Capital expenditures | |
| | |
| |
| | |
|
| New rig construction | $ | 397.8 |
| | $ | 155.7 |
| $ | 277.7 |
| | $ | 286.6 |
|
| Rig enhancements | 25.6 |
| | 15.6 |
| 26.5 |
| | 15.5 |
|
| Minor upgrades and improvements | 50.7 |
| | 84.2 |
| 27.7 |
| | 30.5 |
|
| | $ | 474.1 |
| | $ | 255.5 |
| $ | 331.9 |
| | $ | 332.6 |
|
Excluding the impact of ENSCO DS-9 and ENSCO 8503 lump-sum termination payments of $205.0 million received during the nine-months ended September 30, 2016, cash flowCash flows from operating activities of continuing operations declined$570.2 $148.5 million, or 72%, for the nine-month period ended September 30, 2017 as compared to the prior year period. The declineperiod due primarily resulted from a $785.2 millionto declining margins. As challenging industry conditions persist and our remaining above-market, older contracts expire and utilization increases with the execution of new market-rate contracts, our operating cash flows are expected to continue to decline in net cash receipts from contract drilling services, offset by a $169.7 million decline in net cash payments for contract drilling services, a $13.8 million decline in cash payments for taxes and a $9.1 million decline in cash payments for interest, net of interest income.over the near-term.
During the third quarter, we accepted delivery and made the final milestone payment of $75.0 million for ENSCO DS-10, which was previously deferred into 2019. We currently have one premium jackup rig under construction, scheduled for delivery during the first quarterENSCO 123. In January 2018, we made a milestone payment of 2018. Following the Merger, we$207.4 million which was invoiced and included in accounts payable - trade as of December 31, 2017 on our condensed consolidated balance sheet. We have two ultra-deepwater drillships under construction, ENSCO DS-13 (formerly Atwood Admiral) and ENSCO DS-14, (formerly Atwood Archer), which are scheduled for delivery in JuneSeptember 2019 and SeptemberJune 2020, respectively, or such earlier date that we elect to take delivery with 45 days' notice. In June 2018, we paid an interim milestone payment of $15.0 million on ENSCO DS-14.
The following table summarizes the cumulative amount of contractual payments made as of SeptemberJune 30, 20172018 for our rigs under construction and estimated timing of our remaining contractual payments inclusive of rigs acquired in the Merger (in millions):
| | | | | Cumulative Paid(1) | | Remaining 2017 | | 2018 and 2019 | | 2020 and 2021 | | Thereafter | | Total(2) | | Cumulative Paid(1) | | Remaining 2018 | | 2019 | | 2020 | | Total(2) |
| ENSCO 123 | | $ | 63.3 |
| | $ | 2.2 |
| | $ | 215.3 |
| | $ | — |
| | $ | — |
| | $ | 280.8 |
| | $ | 275.8 |
| | $ | 2.0 |
| | $ | 7.6 |
| | $ | — |
| | $ | 285.4 |
|
ENSCO DS-13(3) | | — |
| | — |
| | — |
| | — |
| | 83.9 |
| | 83.9 |
| | — |
| | — |
| | 83.9 |
| | — |
| | 83.9 |
|
ENSCO DS-14(3) | | — |
| | — |
| | 15.0 |
| | — |
| | 165.0 |
| | 180.0 |
| | 15.0 |
| | — |
| | — |
| | 165.0 |
| | 180.0 |
|
| | | $ | 63.3 |
| | $ | 2.2 |
| | $ | 230.3 |
| | $ | — |
| | $ | 248.9 |
| | $ | 544.7 |
| | $ | 290.8 |
| | $ | 2.0 |
| | $ | 91.5 |
| | $ | 165.0 |
| | $ | 549.3 |
|
| |
(1) | Cumulative paid represents the aggregate amount of contractual payments made from commencement of the construction agreement through SeptemberJune 30, 2017.2018. Contractual payments made by Atwood prior to the Merger for ENSCO DS-13 (formerly Atwood Admiral) and ENSCO DS-14 (formerly Atwood Archer) are excluded. |
| |
(2) | Total commitments are based on fixed-price shipyard construction contracts, exclusive of costs associated with commissioning, systems integration testing, project management, holding costs and interest. |
| |
(3) | The remaining milestone payments for ENSCO DS-13 and ENSCO DS-14 bear interest at a rate of 4.5% per annum, which accrues during the holding period until delivery. Delivery is scheduled for September 2019 and June 2020 for ENSCO DS-13 and ENSCO DS-14, respectively. Upon delivery, the remaining milestone payments and accrued interest thereon may be financed through a promissory note with the shipyard for each rig. The promissory notes will bear interest at a rate of 5% per annum with a maturity date of December 31,30, 2022 and will be secured by a mortgage on each respective rig. The remaining milestone payments for ENSCO DS-13 and ENSCO DS-14 are included in the table above in the period in which we expect to take delivery of the rig. However, we may elect to execute the promissory notes and defer payment until December 2022. |
The actual timing of these expenditures may vary based on the completion of various construction milestones, which are, to a large extent, beyond our control.
Based on our current projections, we expect capital expenditures during 20172018 to include approximately $456$360.0 million for newbuild construction, approximately $57$55.0 million for rig enhancement projects and approximately $73$60.0 million for minor upgrades and improvements. Depending on market conditions and future opportunities, we may make additional capital expenditures to upgrade rigs for customer requirements and construct or acquire additional rigs.
Financing and Capital Resources
Exchange OffersSenior Notes
InOn January 2017,26, 2018, we completed exchangeissued $1.0 billion aggregate principal amount of unsecured 7.75% senior notes due 2026 at par. Interest on the 2026 Notes is payable semiannually on February 1 and August 1 of each year commencing August 1, 2018.
Tender Offers and Redemption
Concurrent with the issuance of the 2026 Notes in January 2018, we launched cash tender offers (the "Exchange Offers")for up to exchange$985.0 million aggregate principal amount on certain series of our outstanding senior notes issued by us and Pride, our wholly-owned subsidiary. The tender offers expired February 7, 2018, and we repurchased $182.6 million of our 8.50% senior notes due 2019, $256.6 million of our 6.875% senior notes due 2020 and $156.2 million of our 4.70% senior notes due 20212021. Subsequently, we issued a redemption notice for 8.00%the remaining outstanding $55.0 million principal amount of the 8.50% senior notes due 20242019 and cash. The Exchange Offers resulted in the tender of $649.5repurchased $71.4 million aggregate principal amount of our outstandingsenior notes that were settleddue 2020.
The following table sets forth the total principal amounts repurchased as a result of the tender offers, redemption and exchanged as followsrepurchase (in millions):
| | | | | Aggregate Principal Amount Repurchased | | 8.00% Senior notes due 2024 Consideration | | Cash Consideration(1) | | Total Consideration | | Aggregate Principal Amount Repurchased | | Aggregate Repurchase Price(1) |
| 8.50% Senior notes due 2019 | | $ | 145.8 |
| | $ | 81.6 |
| | $ | 81.7 |
| | $ | 163.3 |
| | $ | 237.6 |
| | $ | 256.8 |
|
| 6.875% Senior notes due 2020 | | 129.8 |
| | 69.3 |
| | 69.4 |
| | 138.7 |
| | 328.0 |
| | 354.7 |
|
| 4.70% Senior notes due 2021 | | 373.9 |
| | 181.1 |
| | 181.4 |
| | 362.5 |
| | 156.2 |
| | 159.7 |
|
| Total | | $ | 649.5 |
| | $ | 332.0 |
| | $ | 332.5 |
| | $ | 664.5 |
| | $ | 721.8 |
| | $ | 771.2 |
|
| |
(1) | As of December 31, 2016, the aggregate amount of principal repurchased with cash of $332.5 million, along with associated premiums, was classified as current maturities of long-term debt on our condensed consolidated balance sheet.
|
During the first quarter, we recognized a net pre-tax loss on the Exchange Offers of $6.2 million, consisting of a loss of $3.5 million that includes the write-off of premiums on tendered debt and $2.7 million of transaction costs.
Open Market Repurchases
During the nine-month period ended September 30, 2017, we repurchased certain of our outstanding senior notes with cash on hand and recognized an insignificant pre-tax gain, net of discounts, premiums and debt issuance costs. The aggregate repurchases were as follows (in millions):
|
| | | | | | | |
| | Aggregate Principal Amount Repurchased | | Aggregate Repurchase Price(1) |
| 8.50% Senior notes due 2019 | $ | 54.6 |
| | $ | 60.1 |
|
| 6.875% Senior notes due 2020 | 100.1 |
| | 105.1 |
|
| 4.70% Senior notes due 2021 | 39.4 |
| | 39.3 |
|
| Total | $ | 194.1 |
| | $ | 204.5 |
|
| |
(1)
| Excludes accrued interest paid to holders of the repurchased senior notes. |
During the first quarter of 2018, we recognized a pre-tax loss from debt extinguishment of $19.0 million, net of discounts, premiums, debt issuance costs and commissions.
Maturities
Our nextFollowing the January 2018 debt maturity is $237.6offering, repurchases and redemption, our only debt maturities until 2024 are $122.9 million during 2019, followed by $450.9 million and $269.7 million during 2020 and 2021, respectively.$113.5 million during 2021.
Debt to Capital
Our total debt, total capital and total debt to total capital ratios are summarized below (in millions, except percentages):
| | | | Pro Forma(1) September 30, 2017 | | September 30,
2017 | | December 31,
2016 | June 30,
2018 | | December 31,
2017 |
| Total debt | $ | 4,747.7 |
| | $ | 4,747.7 |
| | $ | 5,274.5 |
| $ | 4,994.9 |
| | $ | 4,750.7 |
|
Total capital (2)(1) | $ | 13,862.7 |
| | $ | 12,912.9 |
| | $ | 13,525.1 |
| $ | 13,431.1 |
| | $ | 13,482.8 |
|
| Total debt to total capital | 34.2 | % | | 36.8 | % | | 39.0 | % | 37.2 | % | | 35.2 | % |
| |
(1) (1) Total capital consists of total debt and Ensco shareholders' equity.
| Pro forma amounts reflect the impact of the Merger as if it occurred on September 30, 2017. Total capital was adjusted to reflect the $782.0 million equity consideration transferred and the estimated $167.8 million bargain purchase gain. Upon closing of the Merger, we utilized acquired cash of $445.4 million and cash on hand from the liquidation of short-term investments to repay Atwood's debt and accrued interest of $1.3 billion.
|
| |
(2)
| Total capital consists of total debt and Ensco shareholders' equity. |
Revolving Credit Facility
In October 2017, we amended our Credit FacilityWe have a $2.0 billion senior unsecured revolving credit facility with a syndicate of banks to extend the final maturity date by two years. Previously, our Credit Facility had a borrowing capacity of $2.25 billion through September 2019 that declined to $1.13 billion through September 2020. Subsequent to the amendment, ourbe used for general corporate purposes. Our borrowing capacity is $2.0$2.0 billion through September 2019 and declines to $1.2$1.3 billion through September 2020 and to $1.2 billion through September 2022. The credit agreement governing our revolving credit facilitythe Credit Facility includes an accordion feature allowing us to increase the commitments expiring in September 2022 up to an aggregate amount not to exceed $1.5 billion.$1.5 billion.
Also in October,Advances under the Credit Facility bear interest at Base Rate or LIBOR plus an applicable margin rate, depending on our credit ratings. We are required to pay a quarterly commitment fee on the undrawn portion of the $2.0 billion commitment, which is also based on our credit rating.
In January 2018, Moody's downgraded our senior unsecured bond credit rating from B1B2 to B2 and Standard & Poor's downgraded our credit rating from BB to B+.B3. The Credit Facility amendment and the rating actions resulted in increasesan increase to the interest rates applicable to borrowings.our borrowings and the quarterly commitment fee on the undrawn portion of the $2.0 billion commitment. The applicable margin rates are 2.50%3.00% per annum for Base Rate advances and
3.50% 4.00% per annum for LIBOR advances. In addition, ourThe quarterly commitment fee increased as a result of the amendment and rating actions to 0.625%is 0.75% per annum on the undrawn portion of the $2.0$2.0 billion commitment.
The Credit Facility requires us to maintain a total debt to total capitalization ratio that is less than or equal to 60% and to provide guarantees from certain of our rig-owning subsidiaries sufficient to meet certain guarantee coverage ratios. The Credit Facility also contains customary restrictive covenants, including, among others, prohibitions on creating, incurring or assuming certain debt and liens (subject to customary exceptions, including a permitted lien basket that permits us to raise secured debt up to the lesser of $750 million or 10% of consolidated tangible net worth (as defined in the Credit Facility)); entering into certain merger arrangements; selling, leasing, transferring or otherwise disposing of all or substantially all of our assets; making a material change in the nature of the business; paying or distributing dividends on our ordinary shares (subject to certain exceptions, including the ability to continue paying a quarterly dividend of $0.01 per share); borrowings, if after giving effect to any such borrowings and the application of the proceeds thereof, the aggregate amount of available cash (as defined in the Credit Facility) would exceed $150 million; and entering into certain transactions with affiliates.
The Credit Facility also includes a covenant restricting our ability to repay indebtedness maturing after September 2022, which is the final maturity date of ourthe Credit Facility. This covenant is subject to certain exceptions that permit us to manage our balance sheet, including the ability to make repayments of indebtedness (i) of acquired companies within 90 days of the completion of the acquisition or (ii) if, after giving effect to such repayments, available cash is greater than $250 million and there are no amounts outstanding under the Credit Facility.
As of SeptemberJune 30, 2017,2018, we were in compliance in all material respects with our covenants under the Credit Facility. We had no amounts outstanding under the Credit Facility as of SeptemberJune 30, 20172018 and December 31, 2016.2017.
Our access to credit and capital markets depends on the credit ratings assigned to our debt. We no longerdebt, and we do not maintain an investment-grade status. Our current credit ratings, and any additional actual or anticipated downgrades in our credit ratings, could limit our available options when accessing credit and capital markets, or when restructuring or refinancing our debt. In addition, future financings or refinancings may result in higher borrowing costs and require more restrictive terms and covenants, which may further restrict our operations. With a credit rating below investment grade, we have no access to the commercial paper market.
Other Financing
We filed an automatically effective shelf registration statement on Form S-3 with the U.S. Securities and Exchange CommissionSEC on January 15, 2015,November 21, 2017, which provides us the ability to issue debt securities, equity securities, guarantees and/or units of securities in one or more offerings. The registration statement as amended, expires in January 2018.November 2020.
During 2013, ourOur shareholders approved a new share repurchase program.program at our annual shareholder meeting held in May 2018. Subject to certain provisions under English law, including the requirement of Ensco plc to have sufficient distributable reserves, we may repurchase shares up to a maximum of $2.0 billion$500.0 million in the aggregate from one or more financial intermediaries under the program, but in no case more than 35.065.0 million shares. As of September 30, 2017, no shares have been repurchased under the program. The program terminates in May 2023. Our prior share repurchase program approved by our shareholders in 2013, under which we could repurchase up to a maximum of $2.0 billion in the aggregate, not to exceed 35.0 million shares, terminated in May 2018.
From time to time, we and our affiliates may repurchase our outstanding senior notes in the open market, in privately negotiated transactions, through tender offers, exchange offers or otherwise, or we may redeem senior notes that are able to be redeemed, pursuant to their terms. In connection with any exchange, we may issue equity, issue new debt and/or pay cash consideration. Any future repurchases, exchanges or redemptions will depend on various factors existing at that time. There can be no assurance as to which, if any, of these alternatives (or combinations thereof) we may choose to pursue in the future. There can be no assurance that an active trading market will exist for our outstanding senior notes following any such transactions.
Other Commitments
As of SeptemberJune 30, 2017,2018, we were contingently liable for an aggregate amount of $83.5$125.4 million under outstanding letters of credit and surety bonds which guarantee our performance as it relates to our drilling contracts, contract bidding, customs duties, tax appeals and other obligations in various jurisdictions. Obligations under these letters of credit and surety bonds are not normally called, as we typically comply with the underlying performance requirement. As of SeptemberJune 30, 2017,2018, we werehad not been required to make any collateral deposits with respect to these agreements.
Liquidity
Our liquidity position is summarized in the table below (in millions, except ratios):
|
| | | | | | | | | | | |
| | Pro Forma September 30, 2017 | | September 30,
2017 | | December 31,
2016 |
| Cash and cash equivalents | $ | 724.4 |
| | $ | 724.4 |
| | $ | 1,159.7 |
|
| Short-term investments | $ | 202.1 |
| | $ | 1,069.8 |
| | $ | 1,442.6 |
|
| Working capital | $ | 1,228.3 |
| | $ | 1,972.8 |
| | $ | 2,424.9 |
|
| Current ratio | 3.3 |
| | 5.0 |
| | 3.8 |
|
The pro forma amounts reflect the impact of the Merger as if it occurred on September 30, 2017. Upon closing of the Merger, we utilized acquired cash of $445.4 million and cash on hand from the liquidation of short-term investments to repay Atwood's debt and accrued interest of $1.3 billion. Pro forma working capital and current ratio reflects the aforementioned, in addition to other current assets acquired and current liabilities assumed of $175.3 million and $59.3 million, respectively. |
| | | | | | | |
| | June 30,
2018 | | December 31,
2017 |
| Cash and cash equivalents | $ | 485.5 |
| | $ | 445.4 |
|
| Short-term investments | $ | 255.0 |
| | $ | 440.0 |
|
| Working capital | $ | 913.0 |
| | $ | 853.5 |
|
| Current ratio | 2.7 |
| | 2.1 |
|
We expect to fund our short-term liquidity needs, including contractual obligations and anticipated capital expenditures, as well as working capital requirements, from our cash and cash equivalents, short-term investments, operating cash flows, and, if necessary, funds borrowed under our revolving credit facility.the Credit Facility.
We expect to fund our long-term liquidity needs, including contractual obligations and anticipated capital expenditures from our operating cash flows and, if necessary, funds borrowed under our revolving credit facilitythe Credit Facility or other future financing arrangements.
We may decide to access debt and/or equity markets to raise additional capital or increase liquidity as necessary.
MARKET RISK
We use derivatives to reduce our exposure to 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 and expenses are denominated in U.S. dollars; however, a portion of the revenues earned and expenses incurred by certain of our subsidiaries are denominated in currencies other than the U.S. dollar. 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 utilize cash flow hedges to hedge forecasted foreign currency denominated transactions, primarily to reduce our exposure to foreign currency exchange rate risk on future expected contract drilling expenses and capital expenditures denominated in various foreign currencies. 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. As of SeptemberJune 30, 2017,2018, we had cash flow hedges outstanding to exchange an aggregate $164.0$212.1 million for various foreign currencies.
We have net assets and liabilities denominated in numerous foreign currencies and use various strategies to manage our exposure to changes in foreign currency exchange rates. We occasionally enter into derivatives that hedge the fair value of recognized foreign currency denominated assets or liabilities, thereby reducing exposure to earnings fluctuations caused by changes in foreign currency exchange rates. We do not designate such derivatives as hedging instruments. In these situations, a natural hedging relationship generally exists whereby changes in the fair value of the derivatives offset changes in the fair value of the underlying hedged items. As of SeptemberJune 30, 2017,2018, we held derivatives not designated as hedging instruments to exchange an aggregate $137.1$153.2 million for various foreign currencies.
If we were to incur a hypothetical 10% adverse change in foreign currency exchange rates, net unrealized losses associated with our foreign currency denominated assets and liabilities as of SeptemberJune 30, 20172018 would approximate $15.1$17.9 million. Approximately $13.7$13.0 million of these unrealized losses would be offset by corresponding gains on the derivatives utilized to offset changes in the fair value of net assets and liabilities denominated in foreign currencies.
We utilize derivatives and undertake foreign currency exchange rate hedging activities in accordance with our established policies for the management of market risk. We mitigate our credit risk relatingrelated to derivative counterparties through a variety of techniques, including transacting with multiple, high-quality financial institutions, thereby limiting our exposure to individual counterparties and by entering into ISDA Master Agreements, which include provisions for a legally enforceable master netting agreement, with almost all of our derivative counterparties. The terms of the ISDA agreements may also include credit support requirements, cross default provisions, termination events or set-off provisions. Legally enforceable master netting agreements reduce credit risk by providing protection in bankruptcy in certain circumstances and generally permitting the closeout and netting of transactions with the same counterparty upon the occurrence of certain events.
We do not enter into derivatives for trading or other speculative purposes. We believe that our use of derivatives and related hedging activities reduces our exposure to foreign currency exchange rate risk and does not expose us to material credit risk or any other material market risk. All of our derivatives mature during the next 18 months.months. See Note 45 to our condensed consolidated financial statements included in "Item 1. Financial Information" for additional information on our derivative instruments.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires us to make estimates, judgments and assumptions that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. Our significant accounting policies are included in Note 1 to our audited consolidated financial statements for the year ended December 31, 20162017, included in our annual report on Form 10-K filed with the SEC on February 28, 2017.27, 2018. These policies, along with our underlying judgments and assumptions made in their application, have a significant impact on our condensed consolidated financial statements.
We identify our critical accounting policies as those that are the most pervasive and important to the portrayal of our financial position and operating results and that require the most difficult, subjective and/or complex judgments by management regarding estimates in matters that are inherently uncertain. Our critical accounting policies are those related to property and equipment, impairment of long-lived assets and income taxes. For a discussion of the critical accounting policies and estimates that we use in the preparation of our condensed consolidated financial statements, 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, 2016, in addition to supplemental disclosure regarding impairment of long-lived assets set forth in Item 2 of our quarterly report on Form 10-Q for the quarter ended June 30, 2017.
New Accounting Pronouncements
See Note 1 to our condensed consolidated financial statements included in "Item 1. Financial Statements" for information on new accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information required under Item 3. has been incorporated into "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Market Risk."
Item 4. Controls and Procedures
Based on their evaluation as of the end of the period covered by this quarterly report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures, as defined in Rule 13a-15 under the Securities Exchange Act of 1934, are effective.
During the fiscal quarter ended SeptemberJune 30, 2017,2018, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Brazil Internal Investigation
Pride International LLC, formerly Pride International, Inc. (“Pride”), a company we acquired in 2011, commenced drilling operations in Brazil in 2001. In 2008, Pride entered into a drilling services agreement with Petrobras (the "DSA") for ENSCO DS-5, a drillship ordered from Samsung Heavy Industries, a shipyard in South Korea ("SHI"). Beginning in 2006, Pride conducted periodic compliance reviews of its business with Petrobras, and, after the acquisition of Pride, Ensco conducted similar compliance reviews.
We commenced a compliance review in early 2015 after the release of media reports were released regarding ongoing investigations of various kickback and bribery schemes in Brazil involving Petrobras. While conducting our compliance review, we became aware of an internal audit report by Petrobras alleging irregularities in relation to the DSA. Upon learning of the Petrobras internal audit report, our Audit Committee appointed independent counsel to lead an investigation into the alleged irregularities. Further, in June and July 2015, we voluntarily contacted the SEC and the DOJ, respectively, to advise them of this matter and of our Audit Committee’s investigation. Independent counsel, under the direction of our Audit Committee, has substantially completed its investigation by reviewing and analyzing available documents and correspondence and interviewing current and former employees involved in the DSA negotiations and the negotiation of the ENSCO DS-5 construction contract with SHI (the "DS-5 Construction Contract").
To date, our Audit Committee has found no credible evidence that Pride or Ensco or any of their current or former employees were aware of or involved in any wrongdoing, and our Audit Committee has found no credible evidence linking Ensco or Pride to any illegal acts committed by our former marketing consultant who provided services to Pride and Ensco in connection with the DSA. IndependentWe, through independent counsel, hashave continued to providecooperate with the SEC and DOJ, with updates throughout the investigation, including providing detailed briefings regarding itsour investigation and findings.findings and responding to inquiries as they arise. We entered into a one-year tolling agreement with the DOJ that expired in December 2016. We extended ourOur tolling agreement with the SEC for 12 months until Marchexpired in June 2018.
Subsequent to initiating our Audit Committee investigation, Brazilian court documents connected to the prosecution of former Petrobras directors and employees as well as certain other third parties, including our former marketing consultant, referenced the alleged irregularities cited in the Petrobras internal audit report. Our former marketing consultant has entered into a plea agreement with the Brazilian authorities. On January 10, 2016, Brazilian authorities filed an indictment against a former Petrobras director. This indictment states that the former Petrobras director received bribes paid out of proceeds from a brokerage agreement entered into for purposes of intermediating a drillship construction contract between SHI and Pride, which we believe to be the DS-5 Construction Contract. The parties to the brokerage agreement were a company affiliated with a person acting on behalf of the former Petrobras director, a company affiliated with our former marketing consultant, and SHI. The indictment alleges that amounts paid by SHI under the brokerage agreement ultimately were used to pay bribes to the former Petrobras director. The indictment does not state that Pride or Ensco or any of their current or former employees were involved in the bribery scheme or had any knowledge of the bribery scheme.
On January 4, 2016, we received a notice from Petrobras declaring the DSA void effective immediately. Petrobras’ notice alleges that our former marketing consultant both received and procured improper payments from SHI for employees of Petrobras and that Pride had knowledge of this activity and assisted in the procurement of and/or facilitated these improper payments. We disagree with Petrobras’ allegations. See "DSA Dispute" below for additional information.
In August 2017, one of our Brazilian subsidiaries was contacted by the Office of the Attorney General for the Brazilian state of Paraná in connection with a criminal investigation procedure initiated against agents of both SHI
and Pride in relation to the DSA. The Brazilian authorities requested information regarding our compliance program and the findings of our internal investigations. We are cooperatingcooperated with the Office of the Attorney General and have provided documents in response to theirits request. We cannot predict the scope or ultimate outcome of this procedure or whether any other governmental authority will open an investigation into Pride’s involvement in this matter, or if a proceeding were opened, the scope or ultimate outcome of any such investigation. If the SEC or DOJ determines that violations of the FCPA have occurred, or if any governmental authority determines that we have violated applicable anti-bribery laws, they could seek civil and criminal sanctions, including monetary penalties, against us, as well as changes to our business practices and compliance programs, any of which could have a material adverse effect on our business and financial condition. Our customers, business partners and other stakeholders could seek to take actions adverse to our interests. Further, investigating and resolving such allegations is expensive and could consume significant management time and attention. Although our internal investigation is substantially complete, we cannot predict whether any additional allegations will be made or whether any additional facts relevant to the investigation will be uncovered during the course of the investigation and what impact those allegations and additional facts will have on the timing or conclusions of the investigation. Our Audit Committee will examine any such additional allegations and additional facts and the circumstances surrounding them.
DSA Dispute
As described above, on January 4, 2016, Petrobras sent a notice to us declaring the DSA void effective immediately, reserving its rights and stating its intention to seek any restitution to which it may be entitled. We disagree with Petrobras’ declaration that the DSA is void. We believe that Petrobras repudiated the DSA and havehas therefore accepted the DSA as terminated on April 8, 2016 (the "Termination Date").2016. At this time, we cannot reasonably determine the validity of Petrobras' claim or the range of our potential exposure, if any. As a result, there can be no assurance as to how this dispute will ultimately be resolved.
We did not recognize revenue for amounts owed to us under the DSA from the beginning of the fourth quarter of 2015 through the Termination Date as we concluded that collectability of these amounts was not reasonably assured. Additionally, our receivables from Petrobras related to the DSA from prior to the fourth quarter of 2015 are fully reserved in our condensed consolidated balance sheet as of SeptemberJune 30, 2017. We have2018. In August 2016, we initiated arbitration proceedings in the U.K. against Petrobras seeking payment of all amounts owed to us under the DSA, in addition to any other amounts to which we are entitled, and intend to vigorously pursue our claims. Petrobras subsequently filed a counterclaim seeking restitution of certain sums paid under the DSA less value received by Petrobras under the DSA. We have alsoThe arbitral hearing on liability was held in March 2018, and we are awaiting the tribunal's decision. There can be no assurance as to how this arbitration proceeding will ultimately be resolved.
In November 2016, we initiated separate arbitration proceedings in the U.K. against SHI for any losses we have incurredincur in connection with the foregoing.foregoing Petrobras arbitration. SHI subsequently filed a statement of defense disputing our claim. ThereIn January 2018, the arbitration tribunal for the SHI matter issued an award on liability fully in Ensco’s favor. SHI is liable to us for $10 million or damages that we can prove. As the losses suffered by us will depend in part on the outcome of the Petrobras arbitration described above, the amount of damages to be no assurance aspaid by SHI will be determined after the conclusion of the Petrobras arbitration. We are unable to how these arbitration proceedings will ultimately be resolved.estimate the ultimate outcome of recovery for damages at this time.
Pride FCPA Investigation
During 2010, Pride and its subsidiaries resolved their previously disclosed investigations into potential violations of the U.S. Foreign Corrupt Practices Act of 1977 (the "FCPA")FCPA with the DOJ and SEC. The settlement with the DOJ included a deferred prosecution agreement (the "DPA") between Pride and the DOJ and a guilty plea by Pride Forasol S.A.S., one of Pride’s subsidiaries, to FCPA-related charges. During 2012, the DOJ moved to (i) dismiss the charges against Pride and end the DPA one year prior to its scheduled expiration; and (ii) terminate the unsupervised probation of Pride Forasol S.A.S. The Court granted the motions.
Pride has received preliminary inquiries from governmental authorities of certain countries referenced in its settlements with the DOJ and SEC. We could face additional fines, sanctions and other penalties from authorities in these and other relevant jurisdictions, including prohibition of our participating in or curtailment of business operations in certain jurisdictions and the seizure of rigs or other assets. At this stage of such inquiries, we are unable to determine what, if any, legal liability may result. Our customers in certain jurisdictions could seek to impose penalties or take other actions adverse to our business. We could also face other third-party claims by directors, officers, employees,
affiliates, advisors, attorneys, agents, stockholders, debt holders or other stakeholders. In addition, disclosure of the subject matter of the investigations and settlements could adversely affect our reputation and our ability to obtain new business or retain existing business, to attract and retain employees and to access the capital markets.
We cannot currently predict what, if any, actions may be taken by any other applicable government or other authorities or our customers or other third parties or the effect any such actions may have on our financial position, operating results orand cash flows.
Environmental Matters
We are currently subject to pending notices of assessment relating to spills of drilling fluids, oil, brine, chemicals, grease or fuel from drilling rigs operating offshore Brazil from 2008 to 2016,2017, pursuant to which the governmental authorities have assessed, or are anticipated to assess, fines. We have contested these notices and appealed certain adverse decisions and are awaiting decisions in these cases. Although we do not expect final disposition of these assessments to have a material adverse effect on our financial position, operating results orand cash flows, there can be no assurance as to the ultimate outcome of these assessments. A $200,000$180,000 liability related to these matters was included in accrued liabilities and other onin our condensed consolidated balance sheet as of SeptemberJune 30, 2017.2018.
We currently are subject to a pending administrative proceeding initiated during 2009 by a Spanish government authority seeking payment in an aggregate amount of approximately $3$3.0 million, for an alleged environmental spill originating from ENSCO 5006 while it was operating offshore Spain. Our customer has posted guarantees with the Spanish government to cover potential penalties. Additionally, we expect to be indemnified for any payments resulting from this incident by our customer under the terms of the drilling contract. A criminal investigation of the incident was initiated during 2010 by a prosecutor in Tarragona, Spain, and the administrative proceedings have been suspended pending the outcome of this investigation. We do not know at this time what, if any, involvement we may have in this investigation.
We intend to vigorously defend ourselves in the administrative proceeding and any criminal investigation. At this time, we are unable to predict the outcome of these matters or estimate the extent to which we may be exposed to any resulting liability. Although we do not expect final disposition of this matter to have a material adverse effect on our financial position, operating results orand cash flows, there can be no assurance as to the ultimate outcome of the proceedings.
Atwood Merger
On June 23, 2017, a putative class action captioned Bernard Stern v. Atwood Oceanics, Inc., et al, was filed in the U.S. District Court for the Southern District of Texas against Atwood, Atwood’s directors, Ensco and Merger Sub. The Stern complaint generally alleges that Atwood and the Atwood directors disseminated a false or misleading registration statement on Form S-4 (the “Registration Statement”) on June 16, 2017, which omitted material information regarding the proposed Merger, in violation of Section 14(a) of the Exchange Act. Specifically, the Stern complaint alleges that Atwood and the Atwood directors omitted material information regarding the parties’ financial projections, the analysis performed by Atwood’s financial advisor, Goldman Sachs & Co. LLC (“Goldman Sachs”), in support of its fairness opinion, the timing and nature of communications regarding post-transaction employment of Atwood's directors and officers, potential conflicts of interest of Goldman Sachs, and whether there were further discussions with another potential acquirer of Atwood following the May 30, 2017 announcement of the Merger. The Stern complaint further alleges that the Atwood directors, Ensco and Merger Sub are liable for these violations as “control persons” of Atwood under Section 20(a) of the Exchange Act. With respect to Ensco, the Stern complaint alleges that Ensco had direct supervisory control over the composition of the Registration Statement. The Stern complaint seeks injunctive relief, including to enjoin the Merger, rescissory damages, and an award of attorneys’ fees in addition to other relief.
On June 27, 2017, June 29, 2017 and June 30, 2017, additional putative class actions captioned Joseph Composto v. Atwood Oceanics, Inc., et al, Booth Family Trust v. Atwood Oceanics, Inc., et al and Mary Carter v. Atwood Oceanics, Inc., et al, respectively, were filed in the U.S. District Court for the Southern District of Texas against Atwood and Atwood’s directors. These actions allege violations of Sections 14(a) and 20(a) of the Exchange Act by Atwood and Atwood’s directors similar to those alleged in the Stern complaint; however, neither Ensco plc nor Merger Sub is named as a defendant in these actions. On October 2, 2017, the actions were consolidated and the Stern matter was designated as the lead case. The plaintiffs subsequently voluntarily dismissed the actions.
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.
Item 1A. Risk Factors
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 quarterly report, 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, 2016, as well as “Item 1A. Risk Factors” in Part II of our quarterly report on Form 10-Q for the quarter ended June 30, 2017, each of which contains descriptions of significant risks that mightmay cause our actual results of operations in future periods to differ materially from those currently anticipated or expected. There have been no material changes from the risks previously disclosed in our annual report on Form 10-K for the year ended December 31, 2016, except as set forth below and in our quarterly report on Form 10-Q for the quarter ended June 30, 2017.
We may not achieve the intended results from the Merger, and we may not be able to successfully integrate our operations with Atwood after the Merger. Failure to successfully integrate Atwood may adversely affect our future results, and consequently, the value of our shares.
We consummated the Merger with the expectation that it would result in various benefits, including, among others, the expansion of our asset base and creation of synergies. We closed the Merger on October 6, 2016, however, achieving the anticipated benefits of the Merger is subject to a number of uncertainties, including whether the Atwood business can be integrated in an efficient and effective manner.
While we have successfully merged companies into our operations in the past, the integration process could take longer than anticipated and could result in the loss of valuable employees, the disruption of our ongoing business, processes and systems or inconsistencies in standards, controls, procedures, practices, policies and compensation arrangements, any of which could adversely affect our ability to achieve the anticipated benefits of the Merger. Our combined operations could be adversely affected by issues attributable to Atwood’s historical operations that arose or are based on events or actions that occurred prior to the completion of the Merger. In addition, integrating Atwood’s employees and operations will require the time and attention of management, which may negatively impact our business. Events outside of our control, including changes in regulation and laws as well as economic trends, could adversely affect our ability to realize the expected benefits from the Merger.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The table below provides a summary of our repurchases of equity securities during the quarter ended SeptemberJune 30, 2017:2018:
| |
|
| Issuer Purchases of Equity Securities | | Period | Total Number of Securities Purchased(1) | | Average Price Paid per Security | | Total Number of Securities Purchased as Part of Publicly Announced Plans or Programs (2) | | Approximate Dollar Value of Securities that May Yet Be Purchased Under Plans or Programs | | Total Number of Securities Purchased(1) | | Average Price Paid per Security | | Total Number of Securities Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Securities that May Yet Be Purchased Under Plans or Programs (2) |
| | | | | | | | | | | | | | | | |
| July 1 - July 31 | 1,701 |
| | $ | 4.69 |
| | — |
| | $ | 2,000,000 |
| |
| August 1 - August 31 | 2,491 |
| | $ | 5.25 |
| | — |
| | $ | 2,000,000 |
| |
| September 1 - September 30 | 3,136 |
| | $ | 4.53 |
| | — |
| | $ | 2,000,000 |
| |
| April 1 - April 30 | | | 1,348 |
| | $ | 4.54 |
| | — |
| | $ | 2,000,000,000 |
|
| May 1 - May 31 | | | 9,459 |
| | $ | 5.75 |
| | — |
| | $ | 2,000,000,000 |
|
| June 1 - June 30 | | | 89,172 |
| | $ | 6.58 |
| | — |
| | $ | 500,000,000 |
|
| Total | 7,328 |
| | $ | 4.81 |
| | — |
| | |
| | 99,979 |
| | $ | 6.47 |
| | — |
| | |
|
| |
(1) | During the quarter ended SeptemberJune 30, 2017,2018, equity securities were repurchased from employees and non-employee directors by an affiliated employee benefit trust in connection with the settlement of income tax withholding obligations arising from the vesting of share awards. Such securities remain available for re-issuance in connection with employee share awards. |
| |
(2) | During 2013, ourOur shareholders approved a new share repurchase program.program at our annual shareholder meeting held in May 2018. Subject to certain provisions under English law, including the requirement of Ensco plc to have sufficient distributable reserves, we may repurchase up to a maximum of $2.0 billion$500.0 million in the aggregate from one ore more financial intermediaries under the program, but in no case more than 35.065.0 million shares. As of SeptemberJune 30, 2017,2018, no shares have been repurchased under the program.The program terminates in May 2023. Our prior share repurchase program approved by our shareholders in 2013, under which we could purchase up to a maximum of $2.0 billion in the aggregate, but in no case more than 35.0 million shares, terminated in May 2018.
|
Item 6. Exhibits
|
| | |
| Exhibit Number | | Exhibit |
2.13.1 | | |
| 3.2 | | |
| 10.1 | | Commitment Agreement and Fifth Amendment to Fourth Amended and Restated Credit Agreement, dated as of October 3, 2017, among Ensco Pride International LLC, certain other subsidiaries of Ensco party thereto, Citibank, N.A., as administrative agent, and the lenders party theretoplc 2018 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on October 6, 2017,May 22, 2018, File No. 1-08097)1-8097). |
| 10.2 | | |
| *12.1 | | |
| *15.1 | | |
| *31.1 | | |
| *31.2 | | |
| **32.1 | | |
| **32.2 | | |
| *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.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
| | | |
| | | | Ensco plc |
| | | | |
| | | | |
| Date: | OctoberJuly 26, 20172018 | | /s/ JONATHAN H. BAKSHT |
| | | | Jonathan H. Baksht Senior Vice President and Chief Financial Officer (principal financial officer) |
| | | | |
| | | | /s/ TOMMY E. DARBY |
| | | | Tommy E. Darby Controller (principal accounting officer) |