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UNITED STATES |
| ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2005 |
OR |
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to |
Commission File Number 1-8097 |
ENSCO International Incorporated |
| DELAWARE (State or other jurisdiction of incorporation or organization) 500 North Akard Street Suite 4300 Dallas, Texas (Address of principal executive offices) | 76-0232579 (I.R.S. Employer Identification No.) 75201-3331 (Zip Code) |
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| Title of each class Common Stock, par value $.10 | Name of each exchange on which registered New York Stock Exchange |
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Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes ý No o Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act: Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). The aggregate market value of the common stock (based upon the closing price on the New York Stock Exchange on June 30, 2005, of $35.75) of ENSCO International Incorporated held by nonaffiliates of the registrant at that date was approximately $4,758,575,000. As of February 22, 2006, there were 153,492,688 shares of the registrant's common stock issued and outstanding. DOCUMENTS INCORPORATED BY REFERENCE Certain sections of the Company's definitive proxy statement to be filed under the Securities Exchange Act of 1934 within 120 days of the end of the Company's fiscal year ended December 31, 2005, are incorporated by reference into Part III hereof. Except for those portions specifically incorporated by reference herein, such document shall not be deemed to be filed with the Commission as part of this Form 10-K. |
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| PART III | |
| ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT | 108 |
| ITEM 11. EXECUTIVE COMPENSATION | 109 |
| ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS | 109 |
| ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS | 110 |
| ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES | 110 |
| PART IV | |
| ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES | 111 |
| SIGNATURES | 120 |
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FORWARD-LOOKING STATEMENTS
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| • | market price of oil and gas and the stability thereof, | |
| • | production levels and related activities of the Organization of Petroleum Exporting Countries ("OPEC") and other oil and gas producers, | |
| • | regional supply and demand for natural gas, | |
| • | worldwide expenditures for offshore oil and gas drilling, | |
| • | level of worldwide economic activity, | |
| • | long-term effect of worldwide energy conservation measures, and | |
| • | the development and use of alternatives to hydrocarbon-based energy sources. | |
The drilling services provided by the Company are conducted on a "day rate" contract basis. Under day rate contracts, the Company provides the drilling rig and rig crews and receives a fixed amount per day for drilling the well, and the customer bears substantially all of the ancillary costs of constructing the well and supporting drilling operations, as well as the economic risk relative to the success of the well. The customer may pay all or a portion of the cost of moving the Company's equipment and personnel to the well site and, in the case of platform rigs, the cost of assembling and dismantling the equipment. The Company does not provide "turnkey" or other risk-based drilling services. Financial information regarding the Company's operating segment and geographic regions is presented in Note 12 to the Company's Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data." Additional financial information regarding the Company's operating segment is presented in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." |
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| • | demand for oil and gas, | |
| • | regional and global economic conditions and expected changes therein, | |
| • | political, social and legislative environments in the U.S. and other major oil-producing countries, | |
| • | production levels and related activities of OPEC and other oil and gas producers, | |
| • | technological advancements that impact the methods or cost of oil and gas exploration and development, and | |
| • | the impact these and other events have on the current and expected future pricing of oil and natural gas. | |
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The following table sets forth certain information regarding the current executive officers of the Company: |
| Name | Age | Position with the Company | ||
| Carl F. Thorne | 65 | Chairman of the Board and Chief Executive Officer | ||
| William S. Chadwick, Jr. | 58 | Executive Vice President and Chief Operating Officer | ||
| J. W. Swent | 55 | Senior Vice President - Chief Financial Officer | ||
| P. J. Saile | 53 | Senior Vice President - Business Development and SHE | ||
| Richard A. LeBlanc | 55 | Vice President - Investor Relations | ||
| H. E. Malone, Jr. | 62 | Vice President - Finance | ||
| Paul Mars | 47 | President - ENSCO Offshore International Company | ||
| Charles A. Mills | 56 | Vice President - Human Resources and Security | ||
| Cary A. Moomjian, Jr. | 58 | Vice President, General Counsel and Secretary | ||
| David A. Armour | 48 | Controller | ||
| �� | ||||
| Ramon Yi | 52 | Treasurer | ||
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Carl F. Thorne has been a Director of the Company since December 1986. He was elected President and Chief Executive Officer of the Company in May 1987, and served as President until January 2002. He was first elected Chairman of the Board of Directors in November 1987. Mr. Thorne holds a Bachelor of Science Degree in Petroleum Engineering from The University of Texas at Austin and a Juris Doctorate Degree from Baylor University College of Law. William S. Chadwick, Jr. joined the Company in June 1987 and was elected to his present position of Executive Vice President and Chief Operating Officer effective January 2, 2006. Prior to his current position, Mr. Chadwick served the Company as Senior Vice President - Operations, Senior Vice President, Member - Office of the President and Chief Operating Officer and as Vice President - Administration and Secretary. Mr. Chadwick holds a Bachelor of Science Degree in Economics from the Wharton School of the University of Pennsylvania. J. W. Swent joined the Company in July 2003 and was elected to his present position of Senior Vice President and Chief Financial Officer effective July 28, 2003. Mr. Swent previously held various financial executive positions in the information technology, telecommunications and manufacturing industries, including Memorex Corporation and Nortel Networks. He served as Chief Financial Officer and Chief Executive Officer of Cyrix Corporation from 1996 to 1997 and Chief Financial Officer and Chief Executive Officer of American Pad and Paper Company from 1998 to 2000. Prior to joining the Company, Mr. Swent had served as Co-Founder and Managing Director of Amrita Holdings, LLC since 2001. He is a graduate of the University of California at Berkeley, where he received a Bachelor of Science Degree in Finance and Masters Degree in Business Administration. P. J. Saile joined the Company in August 1987 and was elected Senior Vice President - Business Development and SHE in August 2005. In addition, he serves as the Senior Executive having oversight responsibility for Engineering. Prior to assuming his current position, Mr. Saile served the Company as Senior Vice President, Member - Office of the President and Chief Operating Officer, and as Vice President - Operations until June 2002 when he became President and Chief Operating Officer of ENSCO Offshore International Company, a subsidiary of the parent company, a position he held until July 2005. Mr. Saile holds a Bachelor of Business Administration Degree from the University of Mississippi. |
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H. E. Malone, Jr. joined the Company in August 1987 and was elected Vice President - Finance effective May 2004. Prior to his current position, Mr. Malone served the Company as Vice President - Accounting, Tax and Information Systems, Vice President - Finance and Vice President - Controller. Mr. Malone holds Bachelor of Business Administration Degrees from The University of Texas at Austin and Southern Methodist University and a Master of Business Administration Degree from the University of North Texas. Paul Mars joined the Company in June 1998 and served as Vice President - Engineering from May 2003 until July 2005, when he was elected to his current position. Mr. Mars previously served the Company as General Manager for the Europe and Africa Business Unit. Prior to joining the Company, Mr. Mars served in various capacities as an employee of Smedvig Offshore Limited and Transworld North Sea Drilling Services Limited. Mr. Mars holds a Bachelor of Science Honors Degree in Naval Architecture from the University of Newcastle upon Tyne, England. Charles A. Mills joined the Company in June 2004 as Vice President - Human Resources and Security. He has over 27 years oil and gas industry experience in human resources and managerial positions most recently from 1989 to 2002 with Hunt Oil Company where he was Senior Vice President Human Resources and Corporate Services. Prior to 1989, Mr. Mills held a number of executive and management positions with Tenneco Oil E & P and Shell Oil Company. Mr. Mills holds a Bachelor of Science degree in Management from the University of West Florida. Cary A. Moomjian, Jr. joined the Company in January 2002 and thereupon was elected Vice President, General Counsel and Secretary. Mr. Moomjian has over thirty years of experience in the oil and gas industry. From 1976 to 2001, Mr. Moomjian served in various management and executive capacities as an employee of Santa Fe International Corporation, including Vice President, General Counsel and Secretary from 1993 to 2001. Mr. Moomjian holds a Bachelor of Arts Degree from Occidental College and a Juris Doctorate Degree from Duke University School of Law. |
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Ramon Yi joined the Company in August 2004 as Treasurer. Mr. Yi has over thirty years of business experience in a variety of industries, most recently as Corporate Treasurer in the manufacturing and high tech sectors, including Sunrise Medical and Fresenius Medical Care, global manufacturers of durable medical equipment, and Symbios, Inc., a manufacturer of semiconductor chips. He was also Vice President for George E. Warren Corporation and Assistant Treasurer for Northeast Petroleum Corporation, both in the petroleum trading and marketing industry. Mr. Yi earned a Bachelor of Arts degree from Harvard University in 1975 and a Master of Business Administration in Finance and Accounting from Boston University. Officers each serve for a one-year term or until their successors are elected and qualified to serve. Mr. Thorne and Mr. Malone are brothers-in-law. On February 6, 2006, Daniel W. Rabun, age 51, was named by ENSCO's Board of Directors to serve as President of the Company and as a member of the Board of Directors, effective on or before March 31, 2006. Mr. Rabun has been a partner at the international law firm of Baker & McKenzie where he has practiced law since 1986. He left the firm from October 2000 to August 2001, to serve as vice president, general counsel and secretary of Chorum Technologies Inc. Mr. Rabun has provided legal advice and counsel to ENSCO for over fifteen years, and served as a Director of the Company during 2001. He holds a B.B.A. in Accounting from the University of Houston and a Juris Doctorate Degree from Southern Methodist University. He has been a Certified Public Accountant since 1976 and was admitted to the Texas Bar in 1983. Mr. Rabun will report to Carl F. Thorne who will continue to serve as ENSCO's Chairman and Chief Executive Officer. It is currently contemplated that Mr. Thorne will step down as Chief Executive Officer within the next year, at which time Mr. Rabun will be appointed to serve as ENSCO's Chief Executive Officer. Mr. Thorne will thereupon continue to serve as Chairman of the Board. |
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| • | demand for oil and gas, | |
| • | the ability of OPEC to set and maintain production levels and pricing, | |
| • | the level of production by non-OPEC countries, | |
| • | domestic and foreign tax policy, | |
| • | laws and governmental regulations that restrict exploration and development of oil and natural gas in various jurisdictions, | |
| • | advances in exploration and development technology, and | |
| • | the worldwide military or political environment, including uncertainty or instability resulting from an escalation or additional outbreak of armed hostilities or other crises in oil or natural gas producing areas of the Middle East or geographic areas in which we operate, or acts of terrorism in the United States or elsewhere. |
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THE OFFSHORE CONTRACT DRILLING INDUSTRY IS CYCLICAL, WITH PERIODS OF LOW DEMAND AND EXCESS RIG AVAILABILITY THAT COULD RESULT IN ADVERSE EFFECTS ON OUR BUSINESS.Financial operating results in the offshore contract drilling industry have historically been very cyclical and primarily are related to the demand for drilling rigs and the available supply of rigs. Demand for rigs is directly related to the regional and worldwide levels of offshore exploration and development spending by oil and gas companies, which is beyond our control. Offshore exploration and development spending may fluctuate substantially from year to year and from region to region as noted in "THE SUCCESS OF OUR BUSINESS WILL DEPEND ON THE LEVEL OF ACTIVITY IN THE OIL AND NATURAL GAS INDUSTRY, WHICH IS SIGNIFICANTLY AFFECTED BY VOLATILE OIL AND GAS PRICES" above. The supply of drilling rigs is limited and new rigs require a substantial capital investment and a long period of time to construct. Currently, there are over seventy new rigs, primarily jackup rigs, reported to be on order for delivery by the end of 2009. There are no assurances that the market will be able to fully absorb the supply of new rigs scheduled to enter the market in future periods. It is time consuming and costly to move rigs between geographic areas. Accordingly, as demand changes in a particular market, the supply of rigs may not adjust quickly, and therefore the utilization and day rates of rigs could fluctuate significantly. Certain events, such as hurricanes, craterings, punchthrough and blowouts may impact the supply of rigs in a particular market and cause rapid fluctuations in rig demand, utilization and day rates. Periods of decreased demand and excess rig supply may require us to idle rigs or to enter into lower rate contracts. There can be no assurance that the current demand for drilling rigs will not decline in future periods, nor can there be any assurance concerning any adverse effect resulting from such decrease in activity. |
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THE OFFSHORE CONTRACT DRILLING INDUSTRY IS HIGHLY COMPETITIVE WHICH COULD LEAD US TO ACCEPT LOWER DAY RATES AND LESS FAVORABLE CONTRACT TERMS DURING INDUSTRY DOWNTURNS.The offshore contract drilling industry is highly competitive with numerous industry participants. The industry has experienced consolidation in recent years and may experience additional consolidation. Furthermore, recent mergers among oil and natural gas exploration and production companies have reduced the number of available customers. Drilling contracts are, for the most part, awarded on a competitive bid basis. Price competition is often the primary factor in determining which qualified contractor is awarded a contract, although quality of service, operational and safety performance, equipment suitability and availability, reputation and technical expertise are also factors. We will compete with numerous offshore drilling contractors, several of which are larger and have greater resources than us. During good industry market cycles we experience higher utilization, receive relatively high average day rates, and also generally are able to negotiate more favorable contract terms. During adverse industry market cycles, we compete more aggressively for contracts at lower day rates and may have to accept contractual liability and indemnity provisions that do not offer the same level of protection against potential losses as can be obtained during good industry market cycles. Lower day rates and/or utilization will adversely affect our results of operations. Increased contractual liabilities may also have an adverse effect on results of operations, especially in respect of risks for which we are uninsured or underinsured, or in relation to increased cost of insurance. |
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WE MAY SUFFER LOSSES IF OUR CUSTOMERS TERMINATE OR SEEK TO RENEGOTIATE OUR CONTRACTS.Our drilling contracts often are cancelable upon specific notice by the customer. Although contracts may require the customer to pay an early termination payment upon cancellation, such payment may not fully compensate for the loss of the contract. In periods of rapid market downturn, our customers may not honor the terms of existing contracts, may terminate contracts or may seek to renegotiate contract rates and terms to conform with depressed market conditions. Furthermore, contracts customarily specify automatic termination or termination at the option of the customer in the event of a total loss of the drilling rig and often include provisions addressing termination rights or cessation of day rates if operations are suspended for extended periods by reason of excessive downtime for repairs, acts of God or other specified conditions. Our operating results may be adversely affected by early termination of contracts, contract renegotiations or cessation of day rates while operations are suspended. OUR BUSINESS MAY BE MATERIALLY ADVERSELY AFFECTED IF CERTAIN CUSTOMERS CEASE TO DO BUSINESS WITH US.We provide our services to major international, government-owned and independent oil and gas companies. However, the number of customers served by us has decreased in recent years as a result of mergers among the major international oil companies and large independent oil companies. ExxonMobil provided approximately 12% of our consolidated revenues in 2005. The next four largest customers for 2005 accounted in the aggregate for approximately 30% of our 2005 consolidated revenues. Our results of operations may be materially adversely affected if any major customer terminates its contracts with us, fails to renew its existing contracts with us, or declines to award new contracts to us. |
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| • | rig or other property damage resulting from hurricanes and other severe weather conditions, collisions, groundings, blowouts, fires, explosions and other accidents or terrorism, | |
| • | blowouts, fires, explosions and other loss of well control events causing damage to wells, reservoirs, production facilities and other properties and which may require wild well control, including drilling of relief wells, | |
| • | craterings, punchthroughs or other events causing rigs to capsize, sink or otherwise incur significant damage, | |
| • | extensive uncontrolled fires, blowouts, oil spills or other discharges of pollutants causing damage to the environment, | |
| • | machinery breakdowns, equipment failures, personnel shortages, failure of subcontractors and vendors to perform or supply goods and services and other events causing the suspension or cancellation of drilling operations, and | |
| • | unionization or similar collective actions by our employees or employees of subcontractors causing significant increases in operating costs. |
We currently maintain broad insurance coverage, subject to certain significant deductibles and levels of self-insurance, but it does not cover all types of losses and in some situations it may not provide full coverage of losses or liabilities resulting from our operations. We have historically maintained insurance coverage for damage to our drilling rigs for amounts not less than the estimated fair market value thereof. However, in the event of total loss, such coverage is unlikely to be sufficient to recover the cost of a newly constructed replacement rig. Additionally, we do not generally maintain business interruption or loss of hire insurance. |
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Our contracts generally protect us from certain losses sustained as a result of our negligence. However, losses resulting from contracts that do not contain such protection could have a material adverse affect on our financial position, results of operations and cash flows. Losses resulting from our gross negligence or willful misconduct may not be protected contractually by specific provision or by application of law, and our insurance may not provide adequate protection for such losses. Moreover, the cost of many of the types of insurance coverage maintained by us has increased significantly during recent years. In addition, insurance market conditions have resulted in retention of additional risk by us, primarily through higher insurance deductibles. Very few insurance underwriters offer certain types of insurance coverage maintained by us, and there can be no assurance that any particular type of insurance coverage will continue to be available in the future, that we will not accept retention of additional risk through higher insurance deductibles or otherwise, or that we will be able to purchase our desired level of insurance coverage at commercially feasible rates. Further, due to the losses sustained by us and the offshore drilling industry as a consequence of hurricanes that occurred in the Gulf of Mexico in 2005 and 2004, we may not be able to obtain future insurance coverage comparable with that of prior years, thus putting us at a greater risk of loss due to severe weather conditions which could have a material adverse effect on our financial position, results of operations and cash flows. In addition, we are likely to experience increased cost for available insurance coverage which may impose higher deductibles and limit maximum aggregate recoveries for certain perils such as hurricane related windstorm damage or loss. Our primary insurance policies renew annually effective July 1, and we may modify our risk management program in response to changes in the insurance market, including possible implementation of a captive insurance program or increased risk retention. |
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| • | foreign terrorist acts, war and civil disturbances, | |
| • | expropriation, nationalization or deprivation of our equipment, | |
| • | expropriation or nationalization of a customer's property or drilling rights, | |
| • | repudiation of contracts, | |
| • | assaults on property or personnel, | |
| • | foreign exchange restrictions, | |
| • | foreign currency fluctuations, | |
| • | foreign taxation, | |
| • | limitations on the ability to repatriate income or capital to the United States, | |
| • | changing local and international political conditions, and | |
| • | foreign and domestic monetary policies. |
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We are subject to various tax laws and regulations in substantially all of the foreign countries in which we operate. We evaluate applicable tax laws and employ various business structures and operating strategies in foreign countries to obtain the optimal level of taxation on our revenues, income, assets and personnel. Actions by foreign tax authorities that impact our business structures and operating strategies, such as changes to tax treaties, laws and regulations, or repeal of same, adverse rulings in connection with audits, or other challenges, may result in substantially increased tax expense. Our international operations also face the risk of fluctuating currency values, which can impact revenues and operating costs denominated in foreign currencies. In addition, some of the countries in which we operate have occasionally enacted exchange controls. Historically, we have been able to limit these risks by invoicing and receiving payment in U.S. dollars or freely convertible international currency and, to the extent possible, by limiting acceptance of foreign currency to amounts which approximate our expenditure requirements in such currencies. However, there is no assurance that we will be able to renegotiate such terms in the future. We also use foreign currency purchase options or futures contracts to reduce our exposure to foreign currency risk. We currently conduct contract drilling operations in certain countries that have experienced substantial devaluations of their currency compared to the U.S. dollar. However, since our drilling contracts generally stipulate payment wholly or substantially in U.S. dollars, we have experienced no significant losses due to the devaluation of such currencies. However, there is no assurance that we will be able to negotiate such payment terms in the future. Our international operations are also subject to various laws and regulations in countries in which we operate, including laws and regulations relating to the equipment and operation of drilling rigs. Governments in some foreign countries have become increasingly active in regulating and controlling the ownership of concessions and companies holding concessions, the exploration of oil and gas and other aspects of the oil and gas industries in their countries. In addition, government action, including initiatives by OPEC, may continue to cause oil or gas price volatility. In some areas of the world, this government activity has adversely affected the amount of exploration and development work done by major oil companies and may continue to do so. There can be no assurance that these laws and regulations or activities will not have a material adverse effect on our operations in the future. |
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| • | shortages of materials or skilled labor, | |
| • | unforeseen engineering problems, | |
| • | unanticipated actual or purported change orders, | |
| • | work stoppages, | |
| • | financial or operating difficulties of the shipyard upgrading, refurbishing or constructing the rig, | |
| • | adverse weather conditions, | |
| • | unanticipated cost increases, | |
| • | inability to obtain any of the requisite permits or approvals, and | |
| • | additional risks inherent to ship building and ship repairing in a foreign location. |
| The risks are concentrated in respect of our three rigs currently under construction at one shipyard in Singapore. Significant shipyard project cost overruns or delays could materially and adversely affect our financial condition and results of operations. |
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We require highly skilled personnel to operate and provide technical services and support for our business. Competition for the skilled and other labor required for drilling operations has intensified as the number of rigs activated or added to worldwide fleets or under construction has increased in the last few years. Specfically, there are over seventy new rigs, primarily jackup rigs, reported to be on order for delivery by the end of 2009, which will require new skilled and other personnel to operate. Although competition for skilled and other labor has not materially affected us to date, the possibility exists that competition for skilled and other labor for operations could limit our results of operations in the future. In 2001, we entered into a voluntary agreement with a labor union in the North Sea and have not experienced any significant work stoppages or strikes as a result of labor disputes. Although none of our domestic employees are currently represented by unions, there may be continued labor union efforts to organize offshore employees in the Gulf of Mexico. Unionization or similar collective actions by our employees, domestically and internationally, may adversely impact our cost of labor. |
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Terrorist acts or acts of war may cause damage to or disruption of our United States or international operations, employees, property and equipment, or customers, suppliers and subcontractors, which could significantly impact our financial position, results of operations and cash flows. Terrorist acts often create many economic and political uncertainties and the potential for future terrorist acts, the national and international responses to terrorism, and other acts of war or hostility could create many economic and political uncertainties, including an impact upon oil and gas drilling, exploration and development, which could adversely affect our business in ways that cannot readily be determined. |
The Company has no unresolved Securities and Exchange Commission staff comments. |
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Item 2. Properties Contract Drilling The following table provides certain information about the Company's drilling rig fleet as of February 15, 2006: JACKUP RIGS |
| Rig Name | Year Built/ Rebuilt | Rig Make | Maximum Water Depth/ Drilling Depth | Current Location | Current Customer | ||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
North America | |||||||||||
| ENSCO 60 | 1981/2003 | Lev 111-C | 300'/25,000' | Gulf of Mexico | Newfield | ||||||
| ENSCO 68 | 1976/2004 | MLT 116-CE | 400'/30,000' | Gulf of Mexico | Tana | ||||||
| ENSCO 69 | 1976/1995 | MLT 84-S | 400'/25,000' | Gulf of Mexico | Committed(1) | ||||||
| ENSCO 74 | 1999 | MLT Super 116-C | 400'/30,000' | Gulf of Mexico | Dominion | ||||||
| ENSCO 75 | 1999 | MLT Super 116-C | 400'/30,000' | Gulf of Mexico | Tarpon | ||||||
| ENSCO 81 | 1979/2003 | MLT 116-C | 350'/30,000' | Gulf of Mexico | Hunt Petroleum | ||||||
| ENSCO 82 | 1979/2003 | MLT 116-C | 300'/30,000' | Gulf of Mexico | Chevron | ||||||
| ENSCO 83 | 1979 | MLT 82 SD-C | 250'/25,000' | Gulf of Mexico | Gryphon | ||||||
| ENSCO 84 | 1981/2005 | MLT 82 SD-C | 250'/25,000' | Gulf of Mexico | Apache | ||||||
| ENSCO 86 | 1981/2006 | MLT 82 SD-C | 250'/30,000' | Gulf of Mexico | Shipyard(2) | ||||||
| ENSCO 87 | 1982/2006 | MLT 116-C | 350'/25,000' | Gulf of Mexico | Committed(3) | ||||||
| ENSCO 89 | 1982/2005 | MLT 82 SD-C | 250'/25,000' | Gulf of Mexico | Unocal | ||||||
| ENSCO 90 | 1982/2002 | MLT 82 SD-C | 250'/25,000' | Gulf of Mexico | Apache | ||||||
| ENSCO 93 | 1982/2002 | MLT 82 SD-C | 250'/25,000' | Gulf of Mexico | Hunt Oil | ||||||
| ENSCO 98 | 1977/2003 | MLT 82 SD-C | 250'/25,000' | Gulf of Mexico | Stone | ||||||
| ENSCO 99 | 1985/2005 | MLT 82 SD-C | 250'/30,000' | Gulf of Mexico | ExxonMobil | ||||||
| ENSCO 105 | 2002 | KFELS MOD V-B | 400'/30,000' | Gulf of Mexico | Dominion | ||||||
| Europe/Africa | |||||||||||
| ENSCO 70 | 1981/1996 | Hitachi K1032N | 250'/30,000' | United Kingdom | ATP | ||||||
| ENSCO 71 | 1982/1995 | Hitachi K1032N | 225'/25,000' | Denmark | Maersk | ||||||
| ENSCO 72 | 1981/1996 | Hitachi K1025N | 225'/25,000' | Netherlands | Total | ||||||
| ENSCO 80 | 1978/1995 | MLT 116-CE | 225'/30,000' | United Kingdom | ConocoPhillips | ||||||
| ENSCO 85 | 1981/1995 | MLT 116-C | 225'/25,000' | United Kingdom | Newfield | ||||||
| ENSCO 92 | 1982/1996 | MLT 116-C | 225'/25,000' | United Kingdom | ConocoPhillips | ||||||
| ENSCO 100 | 1987/2000 | MLT 150-88-C | 350'/30,000' | Nigeria | ExxonMobil | ||||||
| ENSCO 101 | 2000 | KFELS MOD V-A | 400'/30,000' | United Kingdom | Tullow | ||||||
| ENSCO 102 | 2002 | KFELS MOD V-A | 400'/30,000' | United Kingdom | ConocoPhillips | ||||||
| Asia Pacific | |||||||||||
| ENSCO 50 | 1983/1998 | F&G L-780 MOD II-C | 300'/25,000' | India | British Gas | ||||||
| ENSCO 51 | 1981/2002 | F&G L-780 MOD II-C | 300'/25,000' | Brunei | Shell | ||||||
| ENSCO 52 | 1983/1997 | F&G L-780 MOD II-C | 300'/25,000' | Malaysia | Petronas Carigali | ||||||
| ENSCO 53 | 1982/1998 | F&G L-780 MOD II-C | 300'/25,000' | India | British Gas | ||||||
| ENSCO 54 | 1982/1997 | F&G L-780 MOD II-C | 300'/25,000' | Qatar | Ras Gas | ||||||
| ENSCO 56 | 1982/1997 | F&G L-780 MOD II-C | 300'/25,000' | New Zealand | Committed(4) | ||||||
| ENSCO 57 | 1982/2003 | F&G L-780 MOD II-C | 300'/25,000' | Malaysia | Murphy | ||||||
| ENSCO 67 | 1976/2005 | MLT 116-CE | 400'/30,000' | Australia | ROC Oil | ||||||
| ENSCO 76 | 2000 | MLT Super 116-C | 350'/30,000' | Saudi Arabia | Saudi Aramco | ||||||
| ENSCO 88 | 1982/2004 | MLT 82 SD-C | 250'/25,000' | Qatar | Ras Gas | ||||||
| ENSCO 94 | 1981/2001 | Hitachi 250-C | 250'/25,000' | Qatar | Ras Gas | ||||||
| ENSCO 95 | 1981/2005 | Hitachi 250-C | 250'/25,000' | Saudi Arabia | Saudi Aramco | ||||||
| ENSCO 96 | 1982/1997 | Hitachi 250-C | 250'/25,000' | Saudi Arabia | Saudi Aramco | ||||||
| ENSCO 97 | 1980/1997 | MLT 82 SD-C | 250'/25,000' | Saudi Arabia | Saudi Aramco | ||||||
| ENSCO 104 | 2002 | KFELS MOD V-B | 400'/30,000' | Indonesia | Premier | ||||||
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| Rig Name | Year Built/ Rebuilt | Rig Make | Maximum Water Depth/ Drilling Depth | Current Location | Current Customer | ||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
Asia Pacific (Continued) | |||||||||||
| ENSCO 106 | 2005 | KFELS MOD V-B | 400'/30,000' | Australia | Apache | ||||||
| ENSCO 107 | 2006 | KFELS MOD V-B | 400'/30,000' | Singapore | Committed(5) | ||||||
| ENSCO 108 | 2007 | KFELS MOD V-B | 400'/30,000' | Singapore | Under construction(6) | ||||||
| ULTRA-DEEPWATER SEMISUBMERSIBLE RIGS |
| Rig Name | Year Built | Rig Type | Maximum Water Depth/ Drilling Depth | Current Location | Current Customer | ||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| ENSCO 7500 | 2000 | Dynamically Positioned | 8,000'/30,000' | Gulf of Mexico | Chevron | ||||||
| ENSCO 8500 | 2008 | Dynamically Positioned | 8,500'/35,000' | Singapore | Under construction(6) | ||||||
| ENSCO 8501 | 2009 | Dynamically Positioned | 8,500'/35,000' | Singapore | Under construction(6) | ||||||
| BARGE RIG | |||||||||||
| Rig Name | Year Built | Maximum Drilling Depth | Current Location | Current Customer | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| ENSCO I | 1999 | 30,000' | Indonesia | Total | |||||||
| PLATFORM RIG | |||||||||||
| Rig Name | Year Built/ Rebuilt | Maximum Drilling Depth | Current Location | Current Customer | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| ENSCO 25 | 1980/1998 | 30,000' | Gulf of Mexico | Chevron | |||||||
| (1) | ENSCO 69 is in a Gulf of Mexico shipyard preparing for a long-term contract with ConocoPhillips in Venezuela that is scheduled to commence in March 2006. |
| (2) | ENSCO 86 is in a shipyard undergoing enhancement procedures. |
| (3) | ENSCO 87 is in a shipyard undergoing enhancement procedures and is scheduled to commence a contract with Hunt Petroleum in March 2006. |
| (4) | ENSCO 56 is mobilizing to New Zealand where it is expected to commence a long-term contract in March 2006. |
| (5) | On January 23, 2006, the Company accepted delivery of ENSCO 107 which is scheduled to commence drilling operations with various operators in March 2006 in Malaysia. |
| (6) | For additional information concerning the two ultra-deepwater semisubmersible rigs and one ultra-high specification jackup rig under construction, see "Outlook" section included in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." The ENSCO 8500 and ENSCO 8501 are subject to long-term drilling contracts of four years and three and one half years, respectively. ENSCO 108 is scheduled to commence a one year contract upon construction completion. |
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Jackup rigs stand on the ocean floor with their hull and drilling equipment elevated above the water on connected leg supports. Jackup rigs are generally preferred over other rig types in water depths of 400 feet or less, primarily because jackup rigs provide a more stable drilling platform with above water blowout prevention equipment. All of the Company's jackup rigs are of the independent leg design. All but one of the Company's jackup rigs are equipped with cantilevers, which allow the drilling equipment to extend outward from their hulls over fixed platforms enabling drilling of both exploratory and development wells. The jackup rig hull supports the drilling equipment, jacking system, crew quarters, storage and loading facilities, helicopter landing pad and related equipment. A semisubmersible rig is a floating offshore drilling unit with pontoons and columns that, when flooded with water, cause the unit to be partially submerged to a predetermined depth. Semisubmersible rigs can be held in a fixed location over the ocean floor by being either anchored to the sea bottom with mooring chains or dynamically positioned by computer-controlled propellers, or "thrusters." ENSCO 7500, which is capable of drilling in water depths up to 8,000 feet, is a dynamically positioned rig, but it also can be adapted for moored operations. ENSCO 8500 and ENSCO 8501 will be enhanced versions of the ENSCO 7500. The ENSCO 8500 SeriesTM rigs will be capable of drilling in up to 8,500 feet of water, and can readily be upgraded to 10,000 feet water-depth capability if required. Enhancements over ENSCO 7500 include a two million pound quad derrick, offline pipe handling capability, increased drilling capacity, greater variable deck load, and improved automatic station keeping ability. With these features, the ENSCO 8500 SeriesTM rigs will be especially well-suited for deepwater development drilling. Barge rigs are towed to the drilling location and are held in place by anchors while drilling activities are conducted. The Company's barge rig has all of the crew quarters, storage facilities and related equipment mounted on the floating barge, with the drilling equipment cantilevered from the stern of the barge. Platform rigs are designed to be temporarily installed on permanently constructed customer offshore platforms. The platform rig sections are lifted onto the offshore platforms with heavy lift cranes. A platform rig typically remains at a location for a longer period of time than a jackup rig, because several wells can be drilled from a single offshore platform. Over the life of a typical rig, several of the major components are replaced due to normal wear and tear or due to technological advancements in drilling equipment. All of the Company's rigs are in good condition. As of February 15, 2006, the Company owns all of the rigs in its fleet. |
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In September 2005, the Company received summonses from the Lancaster Magistrates' Court charging violations of the U.K. Health and Safety at Work Act in connection with a fatal injury sustained by an employee on one of its rigs during May 2003. Should criminal liability be established, the Company is subject to a monetary fine. The Company currently believes it has established a sufficient reserve in relation to this matter, and does not believe the resolution of these charges to have a material adverse effect on its financial position, results of operations or cash flows. In August 2004, the Company and certain subsidiaries were named as defendants in three multi-party lawsuits filed in the Circuit Courts of Jones County (Second Judicial District) and Jasper County (First Judicial District), Mississippi, involving numerous other companies as co-defendants. The lawsuits seek an unspecified amount of monetary damages on behalf of individuals alleging personal injury or death, including claims under the Jones Act, purportedly resulting from exposure to asbestos on drilling rigs and associated facilities during the period 1965 through 1986. The lawsuits are at a very preliminary stage during which the plaintiffs are required to submit "Fact Sheets", which presumably would establish if they have a cause of action which merits review by the courts and, if so, whether the courts in question have jurisdiction to hear their claims. Inasmuch as not all plaintiffs have filed their "Fact Sheets" and others who have are the focus of motions to either transfer, sever and/or dismiss their claims, the Company has not been able to determine the number of plaintiffs with claims that may have been employed by the Company or its subsidiaries or otherwise associated with its drilling operations during the relevant period. The Company has filed responsive pleadings preserving all defenses and challenges to jurisdiction or venue, and intends to vigorously defend against the litigation. Based on information currently available or, more appropriately, the lack thereof, the Company cannot reasonably estimate a range of potential liability exposure, if any. While the Company does not expect the resolution of these lawsuits to have a material adverse effect on its financial position, results of operations or cash flows, there can be no assurance as to the ultimate outcome of these lawsuits. The Company and its subsidiaries are named defendants in certain lawsuits and are involved from time to time as parties to governmental proceedings, including matters related to taxation, all arising in the ordinary course of business. Although the outcome of lawsuits or other proceedings involving the Company and its subsidiaries cannot be predicted with certainty and the amount of any liability that could arise with respect to such lawsuits or other proceedings cannot be predicted accurately, management does not expect these matters to have a material effect on the financial position, results of operations or cash flows of the Company |
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| First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Year | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2005 High | $41.42 | $39.49 | $47.85 | $50.34 | $50.34 | ||||||
| 2005 Low | $30.32 | $29.25 | $35.22 | $39.42 | $29.25 | ||||||
| 2004 High | $30.79 | $29.16 | $33.15 | $34.15 | $34.15 | ||||||
| 2004 Low | $26.35 | $24.95 | $26.95 | $28.25 | $24.95 | ||||||
The Company's common stock (Symbol: ESV) is traded on the New York Stock Exchange. At February 1, 2006, there were 1,143 stockholders of record of the Company's common stock. The Company initiated the payment of a $.025 per share quarterly cash dividend on its common stock during the third quarter of 1997 and has continued to pay such quarterly dividends through December 31, 2005. Cash dividends totaling $.10 per share were paid in both 2005 and 2004. The Company currently intends to continue paying quarterly dividends for the foreseeable future. However, the final determination of the timing, amount and payment of dividends on the common stock is at the discretion of the Board of Directors and will depend on, among other things, the Company's profitability, liquidity, financial condition, reinvestment opportunities and capital requirements. |
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Following is a summary of all repurchases by the Company of its common stock during the three month period ended December 31, 2005: |
| Issuer Purchases of Equity Securities | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total Number | Maximum | |||||||||||||
| of Shares | Number of | |||||||||||||
| Average | Purchased as | Shares that | ||||||||||||
| Total | Price | Part of Publicly | May Yet Be | |||||||||||
| Number of | Paid | Announced | Purchased | |||||||||||
| Shares | per | Plans or | Under Plans | |||||||||||
| Period | Purchased | Share | Programs | or Programs | ||||||||||
| October | -- | -- | -- | -- | ||||||||||
| November | 862 | $44.86 | -- | -- | ||||||||||
| December | 7,755 | $46.98 | -- | -- | ||||||||||
| Total | 8,617 | $46.76 | -- | -- | ||||||||||
| All of the shares repurchased during the three month period ended December 31, 2005 were surrendered by employees in connection with the settlement of income tax and related benefit withholding obligations arising from vesting of restricted stock grants. |
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| Year Ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2005 | 2004 | 2003 | 2002 | 2001 | |||||||
| (in millions, except per share amounts) | |||||||||||
| Consolidated Statement of Income Data | |||||||||||
| Revenues | $ | 1,046.9 | $ | 740.6 | $ | 742.3 | $ | 602.4 | $ | 655.8 | |
| Operating expenses | |||||||||||
| Contract drilling | 454.4 | 406.1 | 420.8 | 315.5 | 271.4 | ||||||
| Depreciation and amortization | 154.8 | 134.7 | 119.5 | 97.9 | 92.5 | ||||||
| Impairment of assets | -- | -- | -- | -- | 9.2 | ||||||
| General and administrative | 25.8 | 26.3 | 22.0 | 18.6 | 16.8 | ||||||
| Operating income | 411.9 | 173.5 | 180.0 | 170.4 | 265.9 | ||||||
| Other expense, net | (20.7 | ) | (33.6 | ) | (32.8 | ) | (23.1 | ) | (25.5 | ) | |
| Income from continuing operations before income taxes | 391.2 | 139.9 | 147.2 | 147.3 | 240.4 | ||||||
| Provision for income taxes | 107.3 | 35.2 | 43.3 | 41.2 | 65.3 | ||||||
| Income from continuing operations | 283.9 | 104.7 | 103.9 | 106.1 | 175.1 | ||||||
| Income (loss) from discontinued operations(1) | 10.3 | (1.9 | ) | 4.4 | (46.8 | ) | 32.2 | ||||
| Net income | $ | 294.2 | $ | 102.8 | $ | 108.3 | $ | 59.3 | $ | 207.3 | |
| Earnings (loss) per share - basic | |||||||||||
| Continuing operations | $ | 1.87 | $ | .70 | $ | .69 | $ | .75 | $ | 1.28 | |
| Discontinued operations | .07 | (.02 | ) | .03 | (.33 | ) | .23 | ||||
| $ | 1.94 | $ | .68 | $ | .72 | $ | .42 | $ | 1.51 | ||
| Earnings (loss) per share - diluted | |||||||||||
| Continuing operations | $ | 1.86 | $ | .70 | $ | .69 | $ | .75 | $ | 1.27 | |
| Discontinued operations | .07 | (.02 | ) | .03 | (.33 | ) | .23 | ||||
| $ | 1.93 | $ | .68 | $ | .72 | $ | .42 | $ | 1.50 | ||
| Weighted average common shares outstanding: | |||||||||||
| Basic | 151.7 | 150.5 | 149.6 | 140.7 | 136.9 | ||||||
| Diluted | 152.4 | 150.6 | 150.1 | 141.4 | 137.9 | ||||||
| Cash dividends per common share | $ | .10 | $ | .10 | $ | .10 | $ | .10 | $ | .10 | |
| Consolidated Balance Sheet Data | |||||||||||
| Working capital | $ | 347.0 | $ | 277.9 | $ | 355.9 | $ | 189.2 | $ | 312.0 | |
| Total assets | 3,617.9 | 3,322.0 | 3,183.0 | 3,061.5 | 2,323.8 | ||||||
| Long-term debt, net of current portion | 475.4 | 527.1 | 549.9 | 547.5 | 462.4 | ||||||
| Stockholders' equity | 2,533.2 | 2,181.9 | 2,081.1 | 1,967.0 | 1,440.2 | ||||||
| Cash flow from continuing operations | 355.7 | 247.8 | 273.2 | 180.3 | 363.6 | ||||||
| (1) | See Note 10 to the Company's Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data" for information concerning the Company's discontinued operations. |
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| • | demand for oil and gas, | |
| • | regional and global economic conditions and expected changes therein, | |
| • | political, social and legislative environments in the U.S. and other major oil-producing countries, | |
| • | production levels and related activities of OPEC and other oil and gas producers, | |
| • | technological advancements that impact the methods or cost of oil and gas exploration and development, and | |
| • | the impact that these and other events have on the current and expected future pricing of oil and natural gas. |
Since factors that affect offshore exploration and development spending are beyond the control of the Company and rig demand can change quickly, it is difficult for the Company to predict industry conditions or trends in operating results. Periods of low demand result in excess rig supply, which generally reduces rig utilization levels and day rates; periods of high demand tighten rig supply, generally resulting in increased rig utilization levels and day rates. |
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|
| 2005 | 2004 | 2003 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenues | $ | 1,046.9 | $ | 740.6 | $ | 742.3 | |||||
| Operating expenses | |||||||||||
| Contract drilling | 454.4 | 406.1 | 420.8 | ||||||||
| Depreciation and amortization | 154.8 | 134.7 | 119.5 | ||||||||
| General and administrative | 25.8 | 26.3 | 22.0 | ||||||||
| Operating income | 411.9 | 173.5 | 180.0 | ||||||||
| Other expense, net | (20.7 | ) | (33.6 | ) | (32.8 | ) | |||||
| Provision for income taxes | 107.3 | 35.2 | 43.3 | ||||||||
| Income from continuing operations | 283.9 | 104.7 | 103.9 | ||||||||
| Income (loss) from discontinued operations | 10.3 | (1.9 | ) | 4.4 | |||||||
| Net income | $ | 294.2 | $ | 102.8 | $ | 108.3 | |||||
In 2005, net income increased by $191.4 million, or 186%, and operating income increased by $238.4 million, or 137%, as compared to 2004. The increases are primarily due to improved average day rates for the Company's jackup rigs and ENSCO 7500 and improved utilization of the Europe/Africa jackup rigs and ENSCO 7500, as compared to the prior year period. In 2004, net income for the Company decreased by $5.5 million, or 5%, and operating income decreased by $6.5 million, or 4%, as compared to 2003. These decreases are due primarily to reduced utilization and average day rates for the Europe/Africa jackup rigs and ENSCO 7500, partially offset by increased average day rates for the North America jackup rigs and increased operating days for the Asia Pacific jackup rigs. Detailed explanations of the Company's operating results for each of the years in the three-year period ended December 31, 2005, including discussions of revenues and contract drilling expense based on geographical location and type of rig, are set forth below. |
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The following is an analysis of the Company's revenues, contract drilling expense, rig utilization and average day rates from continuing operations for each of the years in the three-year period ended December 31, 2005 (in millions, except utilization and day rates): |
| 2005 | 2004 | 2003 | |||||
|---|---|---|---|---|---|---|---|
| Revenues | |||||||
| Jackup rigs: | |||||||
| North America | $362.2 | $243.2 | $201.8 | ||||
| Europe/Africa | 241.5 | 146.0 | 179.7 | ||||
| Asia Pacific | 354.9 | 268.8 | 233.3 | ||||
| South America/Caribbean | 4.0 | 31.5 | 32.4 | ||||
| Total jackup rigs | 962.6 | 689.5 | 647.2 | ||||
| Semisubmersible rig - North America | 52.0 | 23.8 | 66.2 | ||||
| Barge rig - Asia Pacific | 19.7 | 18.0 | 19.5 | ||||
| Platform rig - North America | 12.6 | 9.3 | 9.4 | ||||
| Total | $1,046.9 | $740.6 | $742.3 | ||||
| Contract Drilling Expense | |||||||
| Jackup rigs: | |||||||
| North America | $130.9 | $131.3 | $137.7 | ||||
| Europe/Africa | 112.5 | 95.8 | 99.2 | ||||
| Asia Pacific | 170.4 | 136.2 | 134.1 | ||||
| South America/Caribbean | 2.8 | 12.5 | 13.3 | ||||
| Total jackup rigs | 416.6 | 375.8 | 384.3 | ||||
| Semisubmersible rig - North America | 21.3 | 15.8 | 19.4 | ||||
| Barge rig - Asia Pacific | 9.4 | 8.9 | 11.4 | ||||
| Platform rig - North America | 7.1 | 5.6 | 5.7 | ||||
| Total | $454.4 | $406.1 | $420.8 | ||||
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| 2005 | 2004 | 2003 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Rig utilization(1) | |||||||||||
| Jackup rigs | |||||||||||
| North America | 85% | 85% | 86% | ||||||||
| Europe/Africa | 96% | 82% | 93% | ||||||||
| Asia Pacific | 84% | 82% | 82% | ||||||||
| South America/Caribbean | 100% | 97% | 99% | ||||||||
| Total jackup rigs | 87% | 84% | 86% | ||||||||
| Semisubmersible rig - North America | 86% | 51% | 96% | ||||||||
| Barge rig - Asia Pacific | 98% | 100% | 99% | ||||||||
| Platform rig | 99% | 100% | 99% | ||||||||
| Total | 87% | 84% | 87% | ||||||||
| Average day rates(2) | |||||||||||
| Jackup rigs | |||||||||||
| North America | $ 67,725 | $ 41,800 | $ 31,445 | ||||||||
| Europe/Africa | 84,441 | 60,542 | 64,615 | ||||||||
| Asia Pacific | 69,506 | 63,226 | 63,154 | ||||||||
| South America/Caribbean | 77,589 | 87,529 | 86,381 | ||||||||
| Total jackup rigs | 71,694 | 53,570 | 47,236 | ||||||||
| Semisubmersible rig - North America | 161,527 | 123,988 | 188,335 | ||||||||
| Barge rig - Asia Pacific | 52,684 | 48,317 | 41,333 | ||||||||
| Platform rig | 35,848 | 29,401 | 28,161 | ||||||||
| Total | $ 72,721 | $ 53,939 | $ 51,687 | ||||||||
| (1) | Utilization is derived by dividing the number of days under contract, including days associated with compensated mobilizations, by the number of days in the period. |
| (2) | Average day rates are derived by dividing contract drilling revenue by the aggregate number of contract days, adjusted to exclude certain types of non-recurring reimbursable revenue and lump sum revenue and contract days associated with certain mobilizations, demobilizations, shipyard contracts and standby contracts. |
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|
| 2005 | 2004 | 2003 | |||||
|---|---|---|---|---|---|---|---|
| Jackup rigs: | |||||||
| North America(1) | 17 | 17 | 20 | ||||
| Europe/Africa(2) | 9 | 8 | 8 | ||||
| Asia Pacific(1)(2)(3)(4) | 16 | 15 | 12 | ||||
| South America/Caribbean(3) | -- | 1 | 1 | ||||
| Total jackup rigs | 42 | 41 | 41 | ||||
| Semisubmersible rig - North America | 1 | 1 | 1 | ||||
| Barge rig - Asia Pacific | 1 | 1 | 1 | ||||
| Platform rig - North America | 1 | 1 | 1 | ||||
| Total(5) | 45 | 44 | 44 | ||||
| (1) | During 2004, the Company mobilized three jackup rigs from the Gulf of Mexico to the Asia Pacific region. |
| (2) | At December 31, 2005, ENSCO 102 was en route from the Asia Pacific region to the United Kingdom and it commenced a one-year contract in February 2006. |
| (3) | During 2005, the Company mobilized ENSCO 76 from Trinidad and Tobago to Saudi Arabia to commence a three-year contract in September 2005. |
| (4) | Upon completion of its construction in the first quarter of 2005, the Company acquired ENSCO 106 from a joint venture in which the Company held a 25% interest. |
| (5) | The total number of rigs for each period excludes rigs reclassified as discontinued operations (See Note 10 to the Company's Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data" for information concerning the Company's discontinued operations), and rigs under construction at December 31, 2005 (ENSCO 107, ENSCO 108, ENSCO 8500 and ENSCO 8501). |
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In 2005, revenues for the North America jackup rigs increased by $119.0 million, or 49%, and contract drilling expense decreased by $400,000, as compared to 2004. The increase in revenues is due primarily to a 62% increase in average day rates, partially offset by decreased revenue attributable to the reduced size of the Company's North America jackup rig fleet resulting from the relocation of three jackup rigs from the Gulf of Mexico in 2004. The significant increase in average day rates is primarily attributable to a reduction in the supply of available rigs in the region and increased demand. The decrease in the supply of jackup rigs was partially due to several of the Company's competitors' rigs being taken out of operation in the second half of 2005 to prepare for international contract commitments. Additionally, Hurricane Katrina and Hurricane Rita disrupted drilling operations and severely damaged or destroyed several rigs operating in the region thereby reducing the number of available rigs even further. Demand increased due to higher levels of spending by oil and gas companies resulting from an increasing global demand for oil coupled with record level oil and natural gas prices. The slight decrease in contract drilling expense is primarily attributable to $4.0 million of costs incurred during the second quarter of 2004 relating to the termination of a rig transportation contract associated with the delayed relocation of two jackup rigs from the Gulf of Mexico to the Middle East and to the reduced size of the fleet in 2005, partially offset by an increase in repair costs and the receipt of a $500,000 insurance premium rebate in the prior year third quarter, which resulted from the low level of claims experienced during the Company's prior policy year. In 2004, revenues for the North America jackup rigs increased by $41.4 million, or 21%, and contract drilling expense decreased by $6.4 million, or 5%, as compared to 2003. The increase in revenues is due primarily to a 33% increase in the average day rates, partially offset by decreased revenue attributable to the reduced size of the Company's North America jackup rig fleet in 2004 as noted above. The significant increase in average day rates is primarily attributable to a reduction in supply of Gulf of Mexico jackup rigs resulting from the relocation of several rigs by the Company and its competitors to international markets in the latter half of 2003 and in 2004. The decrease in contract drilling expense is primarily attributable to the reduced size of the fleet in 2004 and reduced insurance costs, partially offset by $4.0 million of costs incurred in 2004 in connection with the termination of a rig transportation contract as noted above and increased personnel costs. |
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In 2005, revenues for the Europe/Africa jackup rigs increased by $95.5 million, or 65%, and contract drilling expense increased by $16.7 million, or 17%, as compared to 2004. The increase in revenues is primarily attributable to a 39% increase in average day rates and an increase in utilization to 96% in 2005 from 82% in 2004. The improvement in day rates and utilization is attributable to increased spending by oil and gas companies. Contract drilling expense increased due to increased utilization and an increase in reimbursable expenses. In 2004, revenues for the Europe/Africa jackup rigs decreased by $33.7 million, or 19%, and contract drilling expense decreased by $3.4 million, or 3%, as compared to 2003. The decrease in revenues is primarily attributable to a 6% decrease in the average day rates and a reduction in utilization to 82% in 2004 from 93% in 2003. The decrease in average day rates and utilization is due to market weakness in the North Sea that began during the latter part of 2003 and continued throughout 2004. Contract drilling expense decreased from the prior year period primarily due to reduced repair and insurance costs as well as $900,000 of expenses associated with a crane failure during the prior year, partially offset by increased personnel costs. Asia Pacific Jackup Rigs In 2005, revenues for the Asia Pacific jackup rigs increased by $86.1 million, or 32%, and contract drilling expense increased by $34.2 million, or 25%, as compared to 2004. The increase in revenues is primarily due to the increased size of the Asia Pacific jackup rig fleet. The Company relocated three rigs to the Asia Pacific region during the second and third quarters of 2004, which commenced operations after completing enhancement and contract preparation procedures. Additionally, the Company acquired ENSCO 106 in February 2005, which commenced operations shortly thereafter. Contract drilling expense increased primarily due to the increased size of the Asia Pacific jackup rig fleet in 2005. In 2004, revenues for the Asia Pacific jackup rigs increased by $35.5 million, or 15%, and contract drilling expense increased by $2.1 million, or 2%, as compared to 2003. The increase in revenues is primarily due to improved utilization and increased revenues associated with reimbursed costs. The Company relocated three rigs to the Asia Pacific region during 2004, including two rigs that underwent enhancement procedures until year-end 2004, and a third rig that commenced operations in November 2004 after completing enhancement procedures. Excluding the impact of these three rigs, utilization of the remaining 12 rigs in the Asia Pacific jackup rig fleet increased to 93% in 2004 from 82% in 2003. The improved utilization resulted from a reduction in the amount of time rigs spent in shipyards undergoing enhancements and contract preparation during 2004 compared to 2003. The increase in contract drilling expense is primarily attributable to $6.7 million of costs associated with the three rigs added to the Asia Pacific fleet in 2004, the impact of increased utilization of the remaining rigs in the fleet and increased mobilization and reimbursable expenses, partially offset by a $13.4 million decrease in costs associated with the ENSCO 102 joint venture charter operations, which ceased effective January 31, 2004 upon ENSCO's acquisition of the rig from the joint venture, and a decrease in insurance expense. (See "Off-Balance Sheet Arrangements" for further information on the Company's joint venture arrangements.) |
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In 2005, revenues for the South American/Caribbean jackup rig decreased by $27.5 million, or 87%, and contract drilling expense decreased by $9.7 million, or 78%, as compared to 2004. The decrease in revenues and contract drilling expense is due to the completion of a long-term contract in February 2005 and the subsequent mobilization of ENSCO 76 from Trinidad and Tobago, compared to operating at near full utilization during the prior year period. In 2004, revenues for the South American/Caribbean jackup rig decreased by $900,000, or 3%, and contract drilling expenses decreased by $800,000, or 6%, as compared to 2003. The decrease in revenues is primarily due to a decrease in revenue associated with reimbursed costs. The decrease in contract drilling expense is due primarily to minor decreases in personnel, repair and maintenance, insurance and reimbursable expenses. North America Semisubmersible Rig In 2005, revenues for ENSCO 7500 increased by $28.2 million, or 118%, and contract drilling expense increased by $5.5 million, or 35%, as compared to 2004. The increase in revenues and contract drilling expense is attributable to the rig being idle while undergoing minor improvements, regulatory inspection and maintenance procedures during approximately six months of 2004. In 2004, revenues for ENSCO 7500 decreased by $42.4 million, or 64%, and contract drilling expense decreased by $3.6 million, or 19%, as compared to 2003, as the rig completed an approximate three-year contract in the first quarter of 2004 and was idle approximately six months as discussed above. |
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In 2005, revenues for the Asia Pacific barge rig, which is currently located in Indonesia, increased by $1.7 million, or 9%, and contract drilling expense increased by $500,000, or 6%, as compared to 2004. The increase in revenues is primarily due to a 9% increase in the average day rate of ENSCO I. The increase in contract drilling expense is primarily due to increased repair, maintenance and supply costs. In 2004, revenues for the Asia Pacific barge rig decreased by $1.5 million, or 8%, and contract drilling expense decreased by $2.5 million, or 22%, as compared to 2003. The decrease in revenues is primarily due to a $4.0 million decrease in revenues associated with mobilization and other customer reimbursements relating to costs associated with initial contract operations in 2003, partially offset by a 17% increase in the average day rate of ENSCO I. The decrease in contract drilling expense is due primarily to a reduction in the aforementioned reimbursed costs. North America Platform Rig In 2005, revenues for the North America platform rig increased by $3.3 million, or 35%, and contract drilling expense increased by $1.5 million, or 27%, as compared to 2004. The increase in revenues is primarily due to a 22% increase in the average day rate of ENSCO 25. The increase in contract drilling expense is primarily due to an increase in personnel, repair and maintenance, and reimbursable expenses. In 2004, revenues and contract drilling expense for the North America platform rig were comparable to 2003. |
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Depreciation and amortization expense for 2005 increased by $20.1 million, or 15%, as compared to 2004. The increase is primarily attributable to depreciation on capital enhancement projects completed in 2005 and 2004 and depreciation on ENSCO 106, which was acquired in February 2005. Depreciation and amortization expense for 2004 increased by $15.2 million, or 13%, as compared to 2003. The increase is primarily attributable to depreciation on capital enhancement projects completed in 2004 and 2003 and depreciation on ENSCO 102, which was acquired in January 2004. General and Administrative General and administrative expense for 2005 decreased by $500,000, or 2%, as compared to 2004. The decrease is primarily attributable to non-recurring costs incurred in 2004 related to information systems consulting services, Sarbanes-Oxley Act compliance initiatives and other projects, partially offset by an increase in personnel costs in 2005. General and administrative expense for 2004 increased by $4.3 million, or 20%, as compared to 2003. The increase is primarily attributable to increased personnel costs, audit fees and consulting services related to information systems, the Sarbanes-Oxley Act and other projects, offset in part by a decrease resulting from a $1.1 million payment of one-time severance costs during the first quarter of 2003 under an employment contract assumed in connection with a prior acquisition. |
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The components of other income (expense) for each of the years in the three-year period ended December 31, 2005, is as follows (in millions): |
| 2005 | 2004 | 2003 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Interest income | $ | 7.0 | $ | 3.7 | $ | 3.4 | |||||
| Interest expense, net: | |||||||||||
| Interest expense | (37.7 | ) | (40.5 | ) | (38.7 | ) | |||||
| Capitalized interest | 8.9 | 3.9 | 2.0 | ||||||||
| (28.8 | ) | (36.6 | ) | (36.7 | ) | ||||||
| Other, net | 1.1 | (.7 | ) | .5 | |||||||
| $ | (20.7 | ) | $ | (33.6 | ) | $ | (32.8 | ) | |||
Interest expense decreased by $2.8 million in 2005, as compared to 2004, due primarily to a decrease in outstanding debt. Interest expense increased by $1.8 million in 2004, as compared to 2003, due primarily to a minor increase in average effective interest rates. Capitalized interest increased by $5.0 million in 2005, as compared to 2004 due to an increase in the amount invested in rig construction and enhancement projects, primarily the ENSCO 107, ENSCO 108 and ENSCO 8500 construction projects and the enhancement projects associated with ENSCO 67 and ENSCO 87. Capitalized interest increased by $1.9 million in 2004, as compared to 2003, due to an increase in the amount invested in rig construction and enhancement projects, primarily the ENSCO 107 construction project and the enhancement projects associated with ENSCO 68, ENSCO 88 and ENSCO 67. |
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Other, net for 2004 consists primarily of a $5.5 million loss for the insurance deductible related to damages sustained on ENSCO 64 and ENSCO 25 during Hurricane Ivan in the Gulf of Mexico, partially offset by a $3.9 million gain resulting from the settlement of an insurance claim related to ENSCO 7500 hull repairs and lost revenue in the first quarter of 2002 and net foreign currency translation gains of $900,000. Other, net for 2003 consists primarily of a $3.0 million gain related to the receipt and sale of shares of common stock of Prudential Financial, Inc. The shares were issued to the Company as a result of the Company's previous purchase of a Group Annuity Contract upon termination of a predecessor consolidated pension plan and the conversion of Prudential Financial, Inc. from a mutual company to a stock company. Other net for 2003 also includes $1.9 million of foreign currency translation losses and a loss of $300,000 related to the decline in fair value of certain treasury rate lock agreements obtained in connection with a prior acquisition. (See "Market Risk" for further information on the treasury rate lock agreements.) Provision for Income Taxes The Company recorded income tax expense of $107.3 million and $35.2 million in the years ended December 31, 2005 and 2004, respectively. The $72.1 million increase in the income tax provision from 2004 to 2005 is primarily attributable to increased profitability and an increase in the effective income tax rate, partially offset by the impact of a $6.5 million net benefit included in the income tax provision for the year ended December 31, 2005 that results primarily from the resolution of various issues in connection with an audit by tax authorities of the Company's 2002 and 2003 U.S. tax returns and release of certain tax liabilities recognized in prior years that are determined to no longer be necessary. The Company's effective income tax rate increased to 27.4% in 2005 from 25.2% in 2004. The income tax rates imposed in the tax jurisdictions in which the Company's foreign 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 revenue, statutory or negotiated deemed profits, or other bases utilized under local tax laws, rather than to net income. In addition, the Company's drilling rigs are frequently moved from one tax jurisdiction to another. As a result, the Company's consolidated effective income tax rate may vary substantially from one reporting period to another, depending on the relative components of the Company's earnings generated in tax jurisdictions with higher tax rates and lower tax rates. |
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Discontinued Operations The ENSCO 29 platform rig sustained substantial damage as a consequence of Hurricane Katrina in September 2005. On January 5, 2006, beneficial ownership of ENSCO 29 effectively transferred to the Company's insurance underwriters following their acknowledgement that the rig was a constructive total loss under the terms of the Company's insurance policies. Accordingly, the Company will receive the rig's net insured value of $10.0 million. The $7.5 million carrying value of the rig remains classified in "Property and equipment, net" on the December 31, 2005 consolidated balance sheet. The Company expects to record the disposal of the rig in the first quarter of 2006 and recognize a pre-tax gain equivalent to the excess of the insurance proceeds received over the carrying value of the rig. The operating results of ENSCO 29 have been reclassified as discontinued operations in the consolidated statements of income for each of the years in the three-year period ended December 31, 2005. On October 20, 2005, the Company sold the ENSCO 26 platform rig for $12.0 million and recognized a minimal gain. The operating results of ENSCO 26 have been reclassified as discontinued operations in the consolidated statements of income for each of the years in the three-year period ended December 31, 2005. On June 30, 2005, the Company sold its six South America/Caribbean barge rigs for $59.6 million and recognized a pre-tax gain of $9.6 million, which is included in "Gain on disposal of discontinued operations, net" in the consolidated statement of income for the year ended December 31, 2005. The net book value of the rigs was $45.1 million on the date of sale. The operating results of the six South America/Caribbean barge rigs have been reclassified as discontinued operations in the consolidated statements of income for each of the years in the three-year period ended December 31, 2005. The ENSCO 64 jackup rig sustained substantial damage during Hurricane Ivan in September 2004. On April 15, 2005, beneficial ownership of ENSCO 64 effectively transferred to the Company's insurance underwriters following their acknowledgement that the rig was a constructive total loss under the terms of the Company's insurance policies. Accordingly, the Company received the rig's full insured value of $65.0 million. On the date of transfer, the net book value of the rig was $52.8 million. The Company recognized a pre-tax gain of $11.7 million upon receipt of the insurance proceeds, which is included in "Gain on disposal of discontinued operations, net" in the consolidated statement of income for year ended December 31, 2005. The operating results of ENSCO 64 have been reclassified as discontinued operations in the consolidated statements of income for each of the years in the three-year period ended December 31, 2005. |
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In February 2003, the Company reached an agreement to sell its 27-vessel marine transportation fleet. After receipt of various regulatory consents, the transaction was finalized in April 2003 for approximately $79.0 million. The Company recognized a pre-tax gain of approximately $6.4 million related to the transaction, which is included in "Gain on disposal of discontinued operations, net" in the consolidated statement of income for year ended December 31, 2003. The operating results of the marine transportation fleet, which represent the entire marine transportation services segment previously reported by the Company, have been reclassified as discontinued operations in the consolidated statement of income for the year ended December 31, 2003. Following is a summary of income (loss) from discontinued operations for each of the years in the three-year period ended December 31, 2005 (in millions): |
| 2005 | 2004 | 2003 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenues | |||||||||||
| Contract drilling | $ | 15.0 | $ | 30.0 | $ | 48.5 | |||||
| Marine transportation | -- | -- | 7.6 | ||||||||
| 15.0 | 30.0 | 56.1 | |||||||||
| Operating expenses and other | |||||||||||
| Contract drilling | 20.1 | 31.5 | 46.4 | ||||||||
| Marine transportation | -- | -- | 12.2 | ||||||||
| 20.1 | 31.5 | 58.6 | |||||||||
| Operating loss before income taxes | (5.1 | ) | (1.5 | ) | (2.5 | ) | |||||
| Income tax benefit (expense) | 1.5 | (.4 | ) | 2.8 | |||||||
| Gain on disposal of discontinued operations, net | 13.9 | -- | 4.1 | ||||||||
| Income (loss) from discontinued operations | $ | 10.3 | $ | (1.9 | ) | $ | 4.4 | ||||
|
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| 2005 | 2004 | 2003 | |||||
|---|---|---|---|---|---|---|---|
| Cash flow from continuing operations | $ | 355.7 | $ | 247.8 | $ | 273.2 | |
| Capital expenditures on continuing operations: | |||||||
| Rig acquisition | $ | 80.5 | $ | 94.6 | $ | -- | |
| New construction | 139.3 | 1.6 | 1.0 | ||||
| Enhancements | 208.0 | 161.8 | 139.6 | ||||
| Minor upgrades and improvements | 50.3 | 46.5 | 45.1 | ||||
| $ | 478.1 | $ | 304.5 | $ | 185.7 | ||
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Cash flow from continuing operations in 2004 decreased by $25.4 million, or 9%, from 2003. The decrease resulted primarily from a $18.8 million decrease in cash receipts from drilling services, a $7.1 million increase in income tax payments and $5.1 million of cash payments in 2004 related to the recovery and damage analysis of ENSCO 64, partially offset by a $3.7 million decrease in cash payments associated with contract drilling expenses and a $4.9 million decrease in interest payments. ENSCO 64 was severely damaged by Hurricane Ivan in September 2004 and the payments made in connection with its recovery and damage analysis were substantially recovered from insurance proceeds received after the rig was declared a constructive total loss in 2005. The Company continues to expand the size and quality of its fleet of drilling rigs. During the past three years, the Company has invested $509.4 million upgrading the capability and extending the service lives of its drilling rigs as part of its enhancement program and an additional $141.9 million related to the construction of ENSCO 107, ENSCO 108 and ENSCO 8500. During 2004 and 2005, the Company purchased a harsh environment jackup rig, ENSCO 102, for $94.6 million and a ultra-high specification jackup rig, ENSCO 106, for $79.6 million. Both rigs were constructed through joint ventures with KFELS. (See Note 3 to the Company's Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data" for information concerning the Company's investments in joint ventures.) On January 23, 2006, the Company accepted delivery of ENSCO 107 and made the final installment payment of $27.5 million. In addition to the final payment on ENSCO 107, management anticipates that capital expenditures in 2006 will include approximately $85.0 million for rig enhancement projects, approximately $290.0 million for construction of ENSCO 108, ENSCO 8500 and ENSCO 8501, and approximately $60.0 million for minor upgrades and improvements. (See "Outlook" for information concerning the acquisition of ENSCO 107 and the construction of ENSCO 108, ENSCO 8500 and ENSCO 8501.) Depending on market conditions and opportunities, the Company may also make capital expenditures to construct or acquire additional rigs. |
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The Company's long-term debt, total capital and long-term debt to total capital ratios at December 31, 2005, 2004 and 2003 are summarized below (in millions, except percentages): |
| 2005 | 2004 | 2003 | |||||
|---|---|---|---|---|---|---|---|
| Long-term debt | $ 475.4 | $ 527.1 | $ 549.9 | ||||
| Total capital* | 3,008.6 | 2,709.0 | 2,631.0 | ||||
| Long-term debt to total capital | 15.8% | 19.5% | 20.9% | ||||
| * | Total capital includes long-term debt plus stockholders' equity. |
On June 15, 2005, the Company redeemed its 5.63% bonds for $40.9 million, including $900,000 of accrued interest and a $1.8 million redemption premium. The bonds were guaranteed by MARAD and were assumed by the Company in connection with a prior acquisition to provide long-term financing for ENSCO 76. There were no other significant changes in the Company's long-term debt or total capital during 2005. At December 31, 2005, the Company has an aggregate $194.2 million outstanding under its remaining two separate MARAD guaranteed bond issues that require semiannual principal and interest payments. The Company also makes semiannual interest payments on $150.0 million of notes and $150.0 million of debentures, due in 2007 and 2027, respectively. On June 23, 2005, the Company amended and restated its existing $250.0 million unsecured revolving credit agreement (the "Credit Agreement"). The amended and restated agreement (the "2005 Credit Facility") provides for a $350.0 million unsecured revolving credit facility with a syndicate of lenders for general corporate purposes. The 2005 Credit Facility has a five-year term, expiring June 23, 2010, and replaces the Company's $250.0 million five-year Credit Agreement that was scheduled to mature on July 26, 2007. The Company is in compliance with the financial covenants under the 2005 Credit Facility, which among other things require the maintenance of a specified level of interest coverage and debt to total capitalization ratio. The Company had no amounts outstanding under the 2005 Credit Facility or the Credit Agreement at December 31, 2005 and 2004, respectively. The Company maintains investment grade credit ratings of Baa1 from Moody's and BBB+ from Standard & Poor's. |
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During recent years the Company entered into two separate joint venture arrangements with KFELS in connection with the construction and ownership of two jackup rigs. ENSCO Enterprises Limited ("EEL") was established by the Company (with an initial 25% ownership interest) and KFELS (with an initial 75% ownership interest) to own and charter ENSCO 102. Construction of ENSCO 102 commenced in 2000 and was completed in May 2002, after which the Company chartered ENSCO 102 from EEL. In January 2004, the Company exercised a purchase option and acquired ENSCO 102 from EEL and EEL was liquidated. ENSCO Enterprises Limited II ("EEL II") was established by the Company (25% ownership interest) and KFELS (75% ownership interest) in March 2003 to construct and own ENSCO 106. Upon completion of rig construction in February 2005, the Company exercised a purchase option and acquired ENSCO 106 from EEL II and EEL II was effectively liquidated. The Company's equity interests in EEL and EEL II constituted variable interests in variable interest entities, as defined in the Financial Accounting Standards Board's Interpretation No. 46 (revised December 2003), "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51" ("FIN 46R"). However, the Company did not absorb a majority of the expected losses or receive a majority of the expected residual returns of EEL and EEL II, as defined by FIN 46R, and accordingly was not required to consolidate EEL or EEL II. Further information regarding the Company's off-balance arrangements is presented in Note 3 to the Company's Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data." |
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The Company's significant contractual obligations as of December 31, 2005, and the periods in which such obligations are due, are as follows (in millions): |
| Payments due by period | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2007 | 2009 | ||||||||||
| and | and | After | |||||||||
| 2006 | 2008 | 2010 | 2010 | Total | |||||||
| Principal payments on long-term debt | $ | 17.2 | $ | 184.4 | $ | 34.4 | $ | 258.2 | $ | 494.2 | |
| Interest payments on long-term debt | 31.9 | 50.6 | 36.4 | 205.6 | 324.5 | ||||||
| Operating leases | 4.9 | 3.6 | .1 | -- | 8.6 | ||||||
| New rig construction agreements | 159.7 | 172.6 | -- | -- | 332.3 | ||||||
| Total contractual cash obligations | $ | 213.7 | $ | 411.2 | $ | 70.9 | $ | 463.8 | $ | 1,159.6 | |
The above table does not reflect the ENSCO 8501 contractual obligation as the Company entered into the agreement with KFELS in Singapore to construct ENSCO 8501 in January 2006. The aggregate contractual obligation of ENSCO 8501 is $313.7 million, of which, $125.5 million is due in 2006. Furthermore, "New rig construction agreements" represents the contractually fixed purchase obligation of the Company and comprises a majority of a new rig's total construction cost as provided in the "Outlook" section below. Liquidity The Company's liquidity position at December 31, 2005, 2004 and 2003 is summarized in the table below (in millions, except ratios): |
| 2005 | 2004 | 2003 | |||||
|---|---|---|---|---|---|---|---|
| Cash and short-term investments | $268.5 | $267.0 | $354.0 | ||||
| Working capital | 347.0 | 277.9 | 355.9 | ||||
| Current ratio | 2.5 | 2.3 | 2.9 | ||||
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In connection with a prior acquisition, the Company obtained $80.0 million notional amount of outstanding treasury rate lock agreements that were scheduled to mature in October 2003. Upon completion of the acquisition, the Company designated approximately $65.0 million notional amount of the treasury rate lock agreements as an effective hedge against the variability in cash flows of $76.5 million of MARAD guaranteed bonds the Company intended to issue in October 2003. The Company deemed the remaining $15.0 million notional amount of treasury rate lock agreements obtained in the acquisition to be speculative in nature and settled $10.0 million notional amount in 2002 and $5.0 million notional amount in 2003. The Company settled the $65.0 million notional amount of treasury rate lock agreements designated as an effective hedge in October 2003 in connection with the pricing and subsequent issuance of the MARAD bonds. (See Note 5 to the Company's Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data"). The Company utilizes derivative instruments and undertakes hedging activities in accordance with its established policies for the management of market risk. The Company does not enter into derivative instruments for trading or other speculative purposes. Management believes that the Company's use of derivative instruments and related hedging activities do not expose the Company to any material interest rate risk, foreign currency exchange rate risk, commodity price risk, credit risk or any other market rate or price risk. |
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ENSCO 69 entered a shipyard in November 2005 for enhancement and contract preparation work. In March 2006, the rig is expected to mobilize to offshore Venezuela to commence a long-term contract. ENSCO 86 entered a shipyard in October 2005 for enhancement procedures and is projected to return to service in the Gulf of Mexico during April 2006. ENSCO 87 entered a shipyard in May 2005 for enhancement procedures and is expected to return to service in the Gulf of Mexico during March 2006. Enhancement procedures were recently completed on ENSCO 56 and it is currently en route to New Zealand where it is expected to commence a long term contract in March 2006. ENSCO 105 is scheduled to continue its commitment for work in the Gulf of Mexico through early 2007 when it is expected to mobilize to Tunisia for an estimated two year contract, plus options. Industry Conditions Demand for offshore drilling rigs is strong, and utilization and day rates are generally improving, in all of the major geographical markets in which the Company currently operates. The Company has substantial contract backlog and the durations of recently executed contracts are generally greater than historical average contract durations in all of the Company's major geographical markets. While it is not possible to project the period of time for which current industry conditions will be sustained or predict long-term trends in industry conditions, the Company does not anticipate significant changes in current industry conditions in the near-term. Hurricane Damage During the third quarter 2005, ENSCO 7500 sustained minor damage during Hurricane Katrina. The rig was repaired in early 2006 in conjunction with minor enhancement and preparatory work for its pending two year contract. The Company believes the insurance claim for the ENSCO 7500 hull repairs will be finalized by the end of the second quarter of 2006 with no significant gain or loss realized. Additional information regarding the resolution of insurance claims relating to hurricane damage is included in Note 11 to the Company's Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data." Although several of the Company's jackup rigs were in the paths of Hurricane Katrina and/or Huricane Rita, the Company has detected only minor damage to those rigs and the associated repair costs incurred, or expected to be incurred, are not significant. In addition, none of the Company's jackup rigs experienced, or is expected to experience, significant downtime in order to complete damage repairs as a result of these hurricanes. |
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Useful lives of rigs are difficult to estimate due to a variety of factors, including technological advances that impact the methods or cost of oil and gas exploration and development, changes in market or economic conditions, and changes in laws or regulations affecting the drilling industry. The Company evaluates the remaining useful lives of its rigs on a periodic basis, considering operating condition, functional capability and market and economic factors. The Company's most recent change in estimated useful lives occurred in January 1998, when the Company extended the useful lives of its drilling rigs by an average of five to six years. Under the Company's depreciation policy, the fleet of jackup rigs (42 as of December 31, 2005), which comprise in excess of 78% of both the gross cost and net carrying amount of the Company's property and equipment at December 31, 2005, is depreciated over useful lives ranging from 15 to 30 years. The Company's ultra-deepwater semisubmersible rig is depreciated over a 30-year useful life. The following table provides an analysis of estimated increases and decreases in depreciation expense that would have been recognized for the year ended December 31, 2005 for various assumed changes in the useful lives of the Company's drilling rigs effective January 1, 2005: |
| Increase (decrease) in useful lives of the Company's drilling rigs | Estimated increase (decrease) in depreciation expense that would have been recognized (in millions) | ||
|---|---|---|---|
| 10% | $(14.9) | ||
| 20% | (27.2) | ||
| (10%) | 15.7 | ||
| (20%) | 37.1 | ||
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The Company evaluates the carrying value of its property and equipment, primarily its drilling rigs, when events or changes in circumstances indicate that the carrying value of such rigs may not be recoverable. Generally, extended periods of idle time and/or inability to contract rigs at economical rates are an indication that a rig may be impaired. However, the offshore drilling industry is highly cyclical and it is not unusual for rigs to be unutilized or underutilized for significant periods of time and subsequently resume full or near full utilization when business cycles change. Likewise, during periods of supply and demand imbalance, rigs are frequently contracted at or near cash break-even rates for extended periods of time until demand comes back into balance with supply. Impairment situations may arise with respect to specific individual rigs, groups of rigs, such as a specific type of drilling rig, or rigs in a certain geographic location. The Company's rigs are mobile and may generally be moved from markets with excess supply, if economically feasible. The Company's jackup rigs and ultra-deepwater semisubmersible rig are suited for, and accessible to, broad and numerous markets throughout the world. However, there are fewer economically feasible markets available to the Company's barge rig and platform rig. The Company tests goodwill for impairment on an annual basis, or when events or changes in circumstances indicate that a potential impairment exists. The goodwill impairment test requires the Company to identify reporting units and estimate the fair value of those units as of the testing date. If the estimated fair value of a reporting unit exceeds its carrying value, its goodwill is considered not impaired. If the estimated fair value of a reporting unit is less than its carrying value, the Company estimates the implied fair value of the reporting unit's goodwill. If the carrying amount of the reporting unit's goodwill exceeds the implied fair value of the goodwill, an impairment loss is recognized in an amount equal to such excess. In the event the Company disposes drilling rig operations that constitute a business, goodwill would be allocated in the determination of gain or loss on sale. Based on the Company's goodwill impairment analysis performed as of December 31, 2005, there was no impairment of goodwill. Asset impairment evaluations are, by nature, highly subjective. In most instances they involve expectations of future cash flows to be generated by the Company's drilling rigs, and are based on management's assumptions and judgments regarding future industry conditions and operations, as well as management's estimates of future expected utilization, contract rates, expense levels and capital requirements of the Company's drilling rigs. The estimates, assumptions and judgments used by management in the application of the Company's asset impairment policies reflect both historical experience and an assessment of current operational, industry, economic and political environments. The use of different estimates, assumptions, judgments and expectations regarding future industry conditions and operations would likely result in materially different carrying values of assets and results of operations. |
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The Company conducts operations and earns income in numerous foreign countries and is subject to the laws of taxing jurisdictions within those countries, as well as U.S. federal and state tax laws. At December 31, 2005, the Company has a $331.7 million net deferred income tax liability and $46.3 million of accrued liabilities for income taxes currently payable. The carrying values of deferred income tax assets and liabilities reflect the application of the Company's income tax accounting policies in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), and are based on management's assumptions and estimates regarding future operating results and levels of taxable income, as well as management's judgments regarding the interpretation of the provisions of SFAS 109. Carryforwards and tax credits are assessed for realization as a reduction of future taxable income by using a "more likely than not" determination. A U.S. deferred tax liability has not been recognized for undistributed earnings of foreign subsidiaries because it is not practicable to estimate. Should the Company elect to make a distribution of foreign earnings, or be deemed to have made a distribution of foreign earnings through application of various provisions of the Internal Revenue Code, it may be subject to additional U.S. income taxes. The carrying values of liabilities for income taxes currently payable are based on management's interpretation of applicable tax laws, and incorporate management's assumptions and judgments regarding the use of tax planning strategies in various taxing jurisdictions. The use of different estimates, assumptions and judgments in connection with accounting for income taxes, especially those involving the deployment of tax planning strategies, may result in materially different carrying values of income tax assets and liabilities and results of operations. |
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|
| • | During recent years the portion of the Company's overall operations conducted in foreign tax jurisdictions has been increasing and the Company currently anticipates this trend will continue. | |
• | In order to deploy tax planning strategies and conduct foreign operations efficiently, the Company's subsidiaries frequently enter into transactions with affiliates, which are generally subject to complex tax regulations and frequently are reviewed by tax authorities. | |
• | The Company may conduct future operations in certain tax jurisdictions where tax laws are not well developed and it may be difficult to secure adequate professional guidance. | |
• | Tax laws, regulations, agreements and treaties change frequently, requiring the Company to modify existing tax strategies to conform to such changes. |
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|
| Year Ended December 31, | |||||||
|---|---|---|---|---|---|---|---|
| 2005 | 2004 | 2003 | |||||
| OPERATING REVENUES | $ | 1,046.9 | $ | 740.6 | $ | 742.3 | |
| OPERATING EXPENSES | |||||||
| Contract drilling | 454.4 | 406.1 | 420.8 | ||||
| Depreciation and amortization | 154.8 | 134.7 | 119.5 | ||||
| General and administrative | 25.8 | 26.3 | 22.0 | ||||
| 635.0 | 567.1 | 562.3 | |||||
| OPERATING INCOME | 411.9 | 173.5 | 180.0 | ||||
| OTHER INCOME (EXPENSE) | |||||||
| Interest income | 7.0 | 3.7 | 3.4 | ||||
| Interest expense, net | (28.8 | ) | (36.6 | ) | (36.7 | ) | |
| Other, net | 1.1 | (.7 | ) | .5 | |||
| (20.7 | ) | (33.6 | ) | (32.8 | ) | ||
| INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | 391.2 | 139.9 | 147.2 | ||||
| PROVISION FOR INCOME TAXES | |||||||
| Current income tax expense | 105.8 | 13.3 | 15.9 | ||||
| Deferred income tax expense | 1.5 | 21.9 | 27.4 | ||||
| 107.3 | 35.2 | 43.3 | |||||
| INCOME FROM CONTINUING OPERATIONS | 283.9 | 104.7 | 103.9 | ||||
| DISCONTINUED OPERATIONS | |||||||
| Income (loss) from discontinued operations, net | (3.6 | ) | (1.9 | ) | .3 | ||
| Gain on disposal of discontinued operations, net | 13.9 | -- | 4.1 | ||||
| 10.3 | (1.9 | ) | 4.4 | ||||
| NET INCOME | $ | 294.2 | $ | 102.8 | $ | 108.3 | |
| EARNINGS (LOSS) PER SHARE - BASIC | |||||||
| Continuing operations | $ | 1.87 | $ | .70 | $ | .69 | |
| Discontinued operations | .07 | (.02 | ) | .03 | |||
| $ | 1.94 | $ | .68 | $ | .72 | ||
| EARNINGS (LOSS) PER SHARE - DILUTED | |||||||
| Continuing operations | $ | 1.86 | $ | .70 | $ | .69 | |
| Discontinued operations | .07 | (.02 | ) | .03 | |||
| $ | 1.93 | $ | .68 | $ | .72 | ||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | |||||||
| Basic | 151.7 | 150.5 | 149.6 | ||||
| Diluted | 152.4 | 150.6 | 150.1 | ||||
| CASH DIVIDENDS PER COMMON SHARE | $ | .10 | $ | .10 | $ | .10 | |
| The accompanying notes are an integral part of these consolidated financial statements. |
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|
| December 31, | |||||
|---|---|---|---|---|---|
| 2005 | 2004 | ||||
| ASSETS | |||||
| CURRENT ASSETS | |||||
| Cash and cash equivalents | $ | 268.5 | $ | 267.0 | |
| Accounts receivable, net | 269.0 | 183.0 | |||
| Prepaid expenses and other | 40.9 | 43.7 | |||
| Total current assets | 578.4 | 493.7 | |||
| PROPERTY AND EQUIPMENT, AT COST | 3,672.8 | 3,445.5 | |||
| Less accumulated depreciation | 1,009.2 | 1,014.2 | |||
| Property and equipment, net | 2,663.6 | 2,431.3 | |||
| GOODWILL | 336.2 | 341.0 | |||
| OTHER ASSETS, NET | 39.7 | 56.0 | |||
| $ | 3,617.9 | $ | 3,322.0 | ||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||
| CURRENT LIABILITIES | |||||
| Accounts payable | $ | 19.1 | $ | 15.6 | |
| Accrued liabilities | 195.1 | 177.2 | |||
| Current maturities of long-term debt | 17.2 | 23.0 | |||
| Total current liabilities | 231.4 | 215.8 | |||
| LONG-TERM DEBT | 475.4 | 527.1 | |||
| DEFERRED INCOME TAXES | 345.1 | 375.3 | |||
| OTHER LIABILITIES | 32.8 | 21.9 | |||
| COMMITMENTS AND CONTINGENCIES | |||||
| STOCKHOLDERS' EQUITY | |||||
| Preferred stock, $1 par value, 20.0 million shares authorized | |||||
| and none issued | -- | -- | |||
| Common stock, $.10 par value, 250.0 million shares authorized, | |||||
| 176.8 million and 174.5 million shares issued | 17.7 | 17.5 | |||
| Additional paid-in capital | 1,498.5 | 1,420.0 | |||
| Retained earnings | 1,295.3 | 1,016.3 | |||
| Restricted stock (unearned compensation) | (16.2 | ) | (12.5 | ) | |
| Accumulated other comprehensive loss | (10.9 | ) | (9.0 | ) | |
| Treasury stock, at cost, 23.4 million shares | (251.2 | ) | (250.4 | ) | |
| Total stockholders' equity | 2,533.2 | 2,181.9 | |||
| $ | 3,617.9 | $ | 3,322.0 | ||
| The accompanying notes are an integral part of these consolidated financial statements. |
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ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) |
| Year Ended December 31, | |||||||
|---|---|---|---|---|---|---|---|
| 2005 | 2004 | 2003 | |||||
| OPERATING ACTIVITIES | |||||||
| Net income | $ | 294.2 | $ | 102.8 | $ | 108.3 | |
| Adjustments to reconcile net income to net cash provided | |||||||
| by operating activities: | |||||||
| (Income) loss from discontinued operations, net | 3.6 | 1.9 | (.3 | ) | |||
| Gain on disposal of discontinued operations, net | (13.9 | ) | -- | (4.1 | ) | ||
| Depreciation and amortization | 154.8 | 134.7 | 119.5 | ||||
| Expense for redemption of debt | 2.4 | -- | -- | ||||
| Deferred income tax provision | 1.5 | 21.9 | 27.4 | ||||
| Tax benefit from stock compensation | 5.2 | 2.1 | 6.6 | ||||
| Amortization of other assets | 6.0 | 6.2 | 5.6 | ||||
| Net loss on asset dispositions | 3.7 | .4 | .2 | ||||
| Other | 4.2 | 3.5 | 2.5 | ||||
| Changes in operating assets and liabilities: | |||||||
| Decrease (increase) in accounts receivable | (86.0 | ) | (18.1 | ) | 13.8 | ||
| Increase in prepaid expenses and other assets | (16.8 | ) | (8.0 | ) | (11.6 | ) | |
| Increase (decrease) in accounts payable | 3.5 | (.1 | ) | .6 | |||
| Increase (decrease) in accrued and other liabilities | (6.7 | ) | .5 | 4.7 | |||
| Net cash provided by operating activities of continuing operations | 355.7 | 247.8 | 273.2 | ||||
| INVESTING ACTIVITIES | |||||||
| Additions to property and equipment | (478.1 | ) | (304.5 | ) | (185.7 | ) | |
| Net proceeds from disposal of discontinued operations | 132.9 | -- | 78.8 | ||||
| Proceeds from disposition of assets | 6.6 | 2.9 | 5.0 | ||||
| Sale (purchase) of short-term investments | -- | -- | 38.4 | ||||
| Investment in joint ventures | (4.0 | ) | (11.3 | ) | (13.5 | ) | |
| Net cash used in investing activities | (342.6 | ) | (312.9 | ) | (77.0 | ) | |
| FINANCING ACTIVITIES | |||||||
| Proceeds from long-term borrowings | -- | -- | 26.7 | ||||
| Reduction of long-term borrowings | (58.3 | ) | (23.0 | ) | (23.0 | ) | |
| Cash dividends paid | (15.2 | ) | (15.1 | ) | (15.0 | ) | |
| Proceeds from exercise of stock options | 67.2 | 7.8 | 12.4 | ||||
| Deferred financing costs | (.7 | ) | -- | (5.8 | ) | ||
| Premium related to debt redemption | (1.8 | ) | -- | -- | |||
| Other | (.7 | ) | (.4 | ) | (.7 | ) | |
| Net cash used in financing activities | (9.5 | ) | (30.7 | ) | (5.4 | ) | |
| Effect of exchange rate changes on cash and cash equivalents | (.7 | ) | (.9 | ) | 1.9 | ||
| Net cash (used in) provided by discontinued operations | (1.4 | ) | 9.7 | 14.2 | |||
| INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 1.5 | (87.0 | ) | 206.9 | |||
| CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | 267.0 | 354.0 | 147.1 | ||||
| CASH AND CASH EQUIVALENTS, END OF YEAR | $ | 268.5 | $ | 267.0 | $ | 354.0 | |
| The accompanying notes are an integral part of these consolidated financial statements. |
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|
| 1. DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Business ENSCO International Incorporated and subsidiaries (the "Company") is one of the leading international providers of offshore drilling services to the oil and gas industry. The Company's contract drilling operations are integral to the exploration, development and production of oil and gas. Business levels for the Company, and its corresponding operating results, are significantly affected by worldwide levels of offshore exploration and development spending by oil and gas companies. Levels of offshore exploration and development spending may fluctuate substantially from year to year and from region to region. Such fluctuations result from many factors, including demand for oil and gas, regional and global economic conditions, political and legislative environments in the U.S. and other major oil-producing countries, the production levels and related activities of OPEC and other oil and gas producers, technological advancements that impact the methods or cost of oil and gas exploration and development, and the impact that these and other events have on the current and expected future pricing of oil and natural gas (see Note 12 "Segment Information" for additional information concerning the Company's operations by geographic region). Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Pervasiveness of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, the related revenues and expenses, and disclosure of gain and loss contingencies at the date of the financial statements. Actual results could differ from those estimates. |
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The U.S. dollar is the functional currency of all the Company's foreign subsidiaries. The financial statements of foreign subsidiaries are remeasured in U.S. dollars based on a combination of both current and historical exchange rates. Gains and losses caused by the remeasurement process are included in "other, net" on the consolidated statement of income. The Company had net translation gains of $700,000 and $900,000 for the years ended December 31, 2005 and 2004, respectively, and net translation losses of $1.9 million for the year ended December 31, 2003. Cash Equivalents and Short-Term Investments Highly liquid investments with maturities of three months or less at the date of purchase are considered cash equivalents. Highly liquid investments with maturities of greater than three months but less than one year at the date of purchase are classified as short-term investments. Property and Equipment All costs incurred in connection with the acquisition, construction, enhancement and improvement of assets are capitalized, including allocations of interest incurred during periods that drilling rigs are under construction or undergoing major enhancements and improvements. Maintenance and repair costs are charged to operating expenses. Upon sale or retirement of assets, the related cost and accumulated depreciation are removed from the accounts and the resulting gain or loss is included in income. |
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The Company evaluates the carrying value of its property and equipment for impairment when events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. For property and equipment used in the Company's operations, recoverability is determined by comparing the net carrying value of an asset to either an independent fair value appraisal of the asset or the expected undiscounted future cash flows, before interest, of the asset. The amount of impairment loss, if any, is measured as the difference between the net book value of the asset and its estimated fair value. The Company recorded no impairment charges during the three-year period ended December 31, 2005. Property and equipment held for sale is recorded at the lower of net book value or net realizable value. Goodwill Goodwill is recorded at fair value. The Company tests goodwill for impairment on an annual basis, or when events or changes in circumstances indicate that a potential impairment exists. Based on the Company's goodwill impairment analysis performed as of December 31, 2005, there was no impairment of goodwill. During 2005 and 2004, the Company recorded purchase price adjustments reducing goodwill by $4.8 million and $1.7 million, respectively, primarily related to deferred taxes associated with prior acquisitions. The following table summarizes changes in the Company's goodwill during 2005 and 2004 (in millions): |
| 2005 | 2004 | |||||||
|---|---|---|---|---|---|---|---|---|
| Balance as of January 1 | $ | 341.0 | $ | 342.7 | ||||
| Purchase price adjustments | (4.8 | ) | (1.7 | ) | ||||
| Balance as of December 31 | $ | 336.2 | $ | 341.0 | ||||
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Substantially all of the Company's drilling services contracts ("contracts") are performed on a day rate basis and the terms of such contracts are typically for a specific period of time or the period of time required to complete a specific task, such as drilling a well. Contract revenue and expenses are recognized on a per day basis, as the work is performed. Day rate revenues are typically earned, and contract drilling expenses are typically incurred, on a uniform basis over the terms of the Company's contracts. In connection with some contracts, the Company receives 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 revenue. The costs incurred in connection with the mobilization and demobilization of equipment and personnel are included in contract drilling expense. Effective October 1, 2004, the Company changed its method of accounting for the fees received and related costs incurred to mobilize its rigs from one geographic area to another. Mobilization fees received and costs incurred are now deferred and recognized over the period that the related drilling services are performed on a straight-line basis. Prior to October 1, 2004, only the excess of mobilization fees received over costs incurred or the excess of mobilization costs incurred over fees received, as applicable, was deferred and recognized on a straight-line basis over the period that the related drilling services were performed. The Company changed its method of accounting for mobilization fees and costs because it believes it is more appropriate to defer all mobilization fees and costs during the mobilization period and subsequently recognize them over the period that the drilling services are performed. If the method of accounting for mobilization fees and costs adopted on October 1, 2004, had been utilized in prior periods, the Company's operating income and net income would not have changed and the change in the amounts of operating revenue and contract drilling expenses within previously reported periods would not have been material. Demobilization fees and related costs are recognized as incurred, upon contract completion. Costs associated with the mobilization of equipment and personnel to more promising market areas without contracts are expensed as incurred. |
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In connection with some contracts, the Company receives up-front, lump-sum fees or similar compensation for capital improvements to its rigs. Such compensation is deferred and recognized as revenue over the related contract period. The cost of such capital improvements is capitalized and depreciated over the useful life of the asset. Deferred revenue associated with capital improvements is included in accrued liabilities and other liabilities and totaled $4.4 million and $1.1 million at December 31, 2005 and 2004, respectively. The Company must obtain certifications from various regulatory bodies in order to operate its drilling rigs and must maintain such certifications through periodic inspections and surveys. The costs incurred in connection with maintaining such certifications, including inspections, tests, surveys and drydock, as well as remedial structural work and other compliance costs, are deferred and amortized over the corresponding certification periods. Deferred regulatory certification and compliance costs are included in prepaid expenses and other current assets and other assets, net, and totaled $6.1 million and $7.0 million at December 31, 2005 and 2004, respectively. |
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The Company uses derivative financial instruments ("derivatives") to reduce its exposure to various market risks, primarily interest rate risk and foreign currency risk. The Company employs an interest rate risk management strategy that occasionally utilizes derivatives to minimize or eliminate unanticipated fluctuations in earnings and cash flows arising from changes in, and volatility of, interest rates. The Company maintains a foreign currency risk management strategy that utilizes derivatives to reduce its exposure to unanticipated fluctuations in earnings and cash flows caused by changes in foreign currency exchange rates. The Company does not enter into derivatives for trading or other speculative purposes. All derivatives are recorded on the Company's consolidated balance sheet at fair value. Accounting for the gains and losses resulting from changes in the fair value of derivatives depends on the use of the derivative and whether it qualifies for hedge accounting. Derivatives qualify for hedge accounting when they are formally designated as hedges at inception of the associated derivative contract and are effective in reducing the risk exposure that they are designated to hedge. The Company's assessment for hedge effectiveness is formally documented at hedge inception and the Company reviews hedge effectiveness and measures any ineffectiveness throughout the designated hedge period on at least a quarterly basis. Changes in the fair value of derivatives that are designated as hedges of the fair value of recognized assets or liabilities or unrecognized firm commitments ("fair value hedges") are recorded currently in earnings and included in "other, net" on the consolidated statement of income. Changes in the fair value of derivatives that are designated as hedges of the variability in expected future cash flows associated with existing recognized assets or liabilities or forecasted transactions ("cash flow hedges") are recorded in the accumulated other comprehensive loss section of stockholders' equity. Amounts recorded in accumulated other comprehensive loss associated with cash flow hedges are subsequently reclassified into contract drilling expense as earnings are affected by the underlying hedged forecasted transaction. Gains and losses on a cash flow hedge, or a portion of a cash flow hedge, that no longer qualifies as effective due to an unanticipated change in forecasted transactions are recognized currently in earnings and included in "other, net" on the consolidated statement of income based on the change in the market value of the cash flow hedge. When a forecasted transaction is no longer probable of occurring, gains and losses on the cash flow hedge previously recorded in the accumulated other comprehensive loss section of shareholders' equity are reclassified currently into earnings and included in "other, net" on the consolidated statement of income. In assessing the effectiveness of a cash flow hedge, the hedge's time value component is excluded from the measurement of hedge effectiveness and recognized currently in earnings in "other, net" on the consolidated statement of income. |
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Derivatives with asset fair values are reported in other current assets or other assets, net, depending on maturity date. Derivatives with liability fair values are reported in accrued current liabilities or other liabilities, depending on maturity date. At December 31, 2005 and 2004, the fair value of the Company's foreign currency derivatives was a net liability of $2.7 million and a net asset of $4.0 million, respectively. Income Taxes The Company conducts operations and earns income in numerous foreign countries and is subject to the laws of taxing jurisdictions within those countries, as well as U.S. federal and state tax laws. Current income taxes are recognized for the amount of taxes payable or refundable based on the laws and income tax rates in the taxing jurisdictions in which operations are conducted and income is earned. Deferred tax assets and liabilities are recognized for the anticipated future tax effects of temporary differences between the financial statement basis and the tax basis of the Company's assets and liabilities using the enacted tax rates in effect at year end. A valuation allowance for deferred tax assets is recorded when it is more likely than not that the benefit from the deferred tax asset will not be realized. It is the policy and intention of the Company to permanently reinvest all of the undistributed earnings of its foreign subsidiaries in such subsidiaries. Accordingly, no U.S. deferred taxes are provided on the undistributed earnings of foreign subsidiaries. The Company's drilling rigs are frequently moved from one taxing jurisdiction to another based on where they are contracted to perform drilling services. The movement of drilling rigs among taxing jurisdictions may include a transfer of the ownership of the drilling rig among the Company's subsidiaries. Income taxes attributable to gains resulting from intercompany sales of the Company's drilling rigs, as well as the tax effect of any reversing temporary differences resulting from intercompany sales or transfers, are deferred and amortized on a straight-line basis over the remaining useful life of the rig. In some instances, the Company determines that certain temporary differences may not result in a taxable or deductible amount in future years, as it is more likely than not the Company will commence operations and depart from a given taxing jurisdiction without such temporary differences being recovered or settled. Under these circumstances, no future tax consequences are expected and no deferred taxes are recognized in connection with such operations. The Company evaluates its determinations on a periodic basis and in the event its expectations relative to future tax consequences change, the applicable deferred taxes are recognized. |
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The Company uses the intrinsic value method of accounting for employee stock options in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). No compensation expense related to employee stock options is included in the Company's net income, as the exercise price of the Company's stock options equals the market value of the underlying stock on the date of grant. The following table includes disclosures required by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" as amended ("SFAS 123"), and illustrates the effect on net income and earnings per share as if the Company had applied the fair value recognition provisions of SFAS 123 for each of the years in the three-year period ended December 31, 2005 (in millions, except per share amounts): |
| 2005 | 2004 | 2003 | |||||
|---|---|---|---|---|---|---|---|
| Net income, as reported | $ | 294.2 | $ | 102.8 | $ | 108.3 | |
| Add: Stock-based employee compensation expense included | |||||||
| in reported net income, net of tax | 2.6 | 1.6 | 1.0 | ||||
| Deduct: Stock-based employee compensation expense determined under | |||||||
| the fair value based method for all awards, net of tax | (11.8 | ) | (11.3 | ) | (10.2 | ) | |
| Net income, pro forma | $ | 285.0 | $ | 93.1 | $ | 99.1 | |
| Basic earnings per share: | |||||||
| As reported | $ | 1.94 | $ | .68 | $ | .72 | |
| Pro forma | 1.88 | .62 | .66 | ||||
| Diluted earnings per share: | |||||||
| As reported | 1.93 | .68 | .72 | ||||
| Pro forma | 1.87 | .62 | .66 | ||||
|
| 2005 | 2004 | 2003 | |||||
|---|---|---|---|---|---|---|---|
| Risk-free interest rate | 3.5% | 3.2% | 2.2% | ||||
| Expected life (in years) | 5.1 | 4.1 | 4.3 | ||||
| Expected volatility | 38.8% | 40.7% | 48.1% | ||||
| Dividend yield | .3% | .4% | .3% | ||||
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Earnings Per Share For each of the years in the three-year period ended December 31, 2005, there were no adjustments to net income for purposes of calculating basic and diluted earnings per share. The following is a reconciliation of the weighted average common shares used in the basic and diluted earnings per share computations for each of the years in the three-year period ended December 31, 2005 (in millions):
|
| 2005 | 2004 | 2003 | |||||
|---|---|---|---|---|---|---|---|
| Weighted average common shares - basic | 151.7 | 150.5 | 149.6 | ||||
| Potentially dilutive common shares: | |||||||
| Restricted stock grants | .1 | .1 | .0 | ||||
| Stock options | .6 | .0 | .5 | ||||
| Weighted average common shares - diluted | 152.4 | 150.6 | 150.1 | ||||
Options to purchase 15,000 shares of common stock in 2005, 3.3 million shares of common stock in 2004 and 3.4 million shares of common stock in 2003 were not included in the computation of diluted earnings per share because the exercise price of the options exceeded the average market price of the common stock. Reclassifications Certain previously reported amounts have been reclassified to conform to the 2005 presentation. |
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Property and equipment at December 31, 2005 and 2004 consists of the following (in millions): |
| 2005 | 2004 | ||||
|---|---|---|---|---|---|
| Drilling rigs and equipment | $ | 3,374.1 | $ | 3,256.8 | |
| Other | 39.4 | 44.2 | |||
| Work in progress | 259.3 | 144.5 | |||
| $ | 3,672.8 | $ | 3,445.5 | ||
In February 2005, the Company exercised a purchase option and acquired ENSCO 106 from an affiliated joint venture for a net payment of $79.6 million. Additions to drilling rigs and equipment during 2005 include $106.8 million for the acquisition of ENSCO 106, consisting of the $79.6 million payment and the Company's $27.2 million net investment in the joint venture. In January 2004, the Company exercised a purchase option and acquired ENSCO 102 from an affiliated joint venture for a net payment of $94.6 million. Additions to drilling rigs and equipment during 2004 include $135.8 million for the acquisition of ENSCO 102, consisting of the $94.6 million payment and the Company's $41.2 million net investment in the joint venture (see Note 3 "Investment in Joint Ventures"). In October 2005, the Company sold the ENSCO 26 platform rig for $12.0 million and in June 2005, the Company sold six South America/Caribbean barge rigs for $59.6 million. In April 2005, beneficial ownership of ENSCO 64 effectively transferred to the Company's insurance underwriters following their acknowledgement that the rig was a constructive total loss under the terms of the Company's insurance policies. ENSCO 64 had sustained substantial damage during Hurricane Ivan in September 2004. The aggregate net book value of the rigs disposed of in 2005 was $108.8 million. In May 2004, the Company exchanged three rigs and $55.0 million for the construction of a new ultra-high specification jackup rig. The aggregate net book value of the three rigs was $39.9 million (see Note 10 "Discontinued Operations"). Work in progress at December 31, 2005 includes $7.6 million of capitalized interest and primarily consists of costs associated with various modification and enhancement projects and $181.1 million related to the construction of two ultra-high specification jackup rigs, ENSCO 107 and ENSCO 108, and the ultra-deepwater semisubmersible rig, ENSCO 8500. ENSCO 107 was delivered on January 23, 2006, ENSCO 108 is expected to be delivered by the second quarter of 2007 and delivery of ENSCO 8500 is expected during the second quarter of 2008. Additions to drilling rigs and equipment in 2005, 2004 and 2003 include $203.7 million, $181.7 million and $114.5 million, respectively, in connection with major modification and enhancement projects that improve the capability and extend the service lives of drilling rigs. In January 2006, the Company entered into an agreement with Keppel FELS Limited ("KFELS"), a major international shipyard in Singapore, to construct ENSCO 8501 for a total construction cost of approximately $338.0 million. Similar to ENSCO 8501, ENSCO 8500 will be a dynamically positioned ultra-deepwater semisubmersible rig capable of drilling in up to 8,500 feet of water which can be readily upgraded to 10,000 feet water-depth capability if required. ENSCO 8501 is scheduled for delivery during the second quarter of 2009. |
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During the fourth quarter of 2000, the Company entered into an agreement with KFELS, a major international shipyard, and acquired a 25% ownership interest in a harsh environment jackup rig under construction, which was subsequently named ENSCO 102. Upon completion of rig construction in the second quarter of 2002, the Company and KFELS established a joint venture company, ENSCO Enterprises Limited ("EEL"), to own and charter ENSCO 102. The Company and KFELS had initial ownership interests in EEL of 25% and 75%, respectively. Concurrent with the transfer of the rig to EEL, the Company agreed to charter ENSCO 102 from EEL for a two-year period that was scheduled to expire in May 2004. In January 2004, the Company exercised a purchase option under the terms of the joint venture and acquired ENSCO 102 for a net payment of $94.6 million. EEL was liquidated upon the Company's acquisition of ENSCO 102. During the year ended December 31, 2004, EEL generated net income of $300,000 (unaudited), and the Company recognized $400,000, net of intercompany eliminations, from its equity in the earnings of EEL, which is included in contract drilling expenses on the consolidated statement of income. During the first quarter of 2003, the Company entered into an agreement with KFELS to establish a second joint venture company, ENSCO Enterprises Limited II ("EEL II"), to construct a premium heavy duty jackup rig to be named ENSCO 106. The Company and KFELS had initial ownership interests in EEL II of 25% and 75%, respectively. At December 31, 2004, the Company's net investment in EEL II totaled $23.2 million and is included in other assets, net on the consolidated balance sheet. Upon completion of rig construction in February 2005, the Company exercised its purchase option under the terms of the joint venture and acquired ENSCO 106 for a net payment of $79.6 million. EEL II was effectively liquidated upon the Company's acquisition of ENSCO 106. The Company's equity interest in EEL and EEL II constituted variable interests in variable interest entities, as defined in the Financial Accounting Standards Board's Interpretation No. 46 (revised December 2003), "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51" ("FIN 46R"). However, the Company did not absorb a majority of the expected losses or receive a majority of the expected residual returns of EEL and EEL II, as defined by FIN 46R, and accordingly, was not required to consolidate EEL or EEL II. |
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Long-term debt at December 31, 2005 and 2004 consists of the following (in millions): |
| 2005 | 2004 | ||||
|---|---|---|---|---|---|
| 4.65% Bonds due 2020 | $ | 67.5 | $ | 72.0 | |
| 5.63% Bonds due 2011 | -- | 40.5 | |||
| 6.36% Bonds due 2015 | 126.7 | 139.4 | |||
| 6.75% Notes due 2007 | 149.8 | 149.7 | |||
| 7.20% Debentures due 2027 | 148.6 | 148.5 | |||
| 492.6 | 550.1 | ||||
| Less current maturities | (17.2 | ) | (23.0 | ) | |
| Total long-term debt | $ | 475.4 | $ | 527.1 | |
4.65% Bonds Due 2020 In October 2003, the Company issued $76.5 million of 17-year bonds to provide long-term financing for ENSCO 105. The bonds are guaranteed by the United States Maritime Administration ("MARAD") and will be repaid in 34 equal semiannual principal installments of $2.3 million ending in October 2020. Interest on the bonds is payable semiannually, in April and October, at a fixed rate of 4.65%. The bonds are collateralized by ENSCO 105 and the Company has guaranteed the performance of its obligations under the bonds to MARAD. Proceeds from the bond issuance were used to retire a floating rate term loan that provided interim financing for the construction of ENSCO 105. |
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In connection with a prior acquisition, the Company assumed 5.63% bonds that were issued to provide long-term financing for ENSCO 76. The bonds were guaranteed by MARAD and were being repaid in 24 equal semiannual principal installments of $2.9 million ending in July 2011. On June 15, 2005, the Company redeemed the bonds for $40.9 million, including $900,000 of accrued interest and a $1.8 million redemption premium. The $1.8 million redemption premium and a $600,000 unamortized debt discount are included in "Other income (expense) - Other, net" in the consolidated statement of income for the year ended December 31, 2005. 6.36% Bonds Due 2015 In January 2001, the Company issued $190.0 million of 15-year bonds to provide long-term financing for ENSCO 7500. The bonds are guaranteed by MARAD and are being repaid in 30 equal semiannual principal installments of $6.3 million ending in December 2015. Interest on the bonds is payable semiannually, in June and December, at a fixed rate of 6.36%. The bonds are collateralized by ENSCO 7500 and the Company has guaranteed the performance of its obligations under the bonds to MARAD. Notes Due 2007 and Debentures Due 2027 In November 1997, the Company issued $300.0 million of unsecured debt in a public offering, consisting of $150.0 million of 6.75% Notes due November 15, 2007 (the “Notes”) and $150.0 million of 7.20% Debentures due November 15, 2027 (the “Debentures”). Interest on the Notes and the Debentures is payable semiannually in May and November. The Notes and Debentures may be redeemed at any time at the option of the Company, in whole or in part, at a price equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, and a make-whole premium. The indenture under which the Notes and the Debentures were issued contains limitations on the incurrence of indebtedness secured by certain liens, and limitations on engaging in certain sale/leaseback transactions and certain merger, consolidation or reorganization transactions. The Notes and Debentures are not subject to any sinking fund requirements. |
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On June 23, 2005, the Company amended and restated its existing $250.0 million unsecured revolving credit agreement (the "Credit Agreement"). The amended and restated agreement (the "2005 Credit Facility") provides for a $350.0 million unsecured revolving credit facility with a syndicate of lenders for general corporate purposes. The 2005 Credit Facility has a five-year term, expiring June 23, 2010, and replaces the Company's $250.0 million five-year Credit Agreement that was scheduled to mature on July 26, 2007. Advances under the 2005 Credit Facility bear interest at LIBOR plus an applicable margin rate (currently .35% per annum), depending on the Company's credit rating. The Company pays a facility fee (currently .10% per annum) on the total $350.0 million commitment, which is also based on the Company's credit rating, and pays an additional utilization fee on outstanding advances if such advances equal or exceed 50% of the total $350.0 million commitment. The Company is required to maintain certain financial covenants under the 2005 Credit Facility, including a specified level of interest coverage and debt to total capitalization ratio. The Company had no amounts outstanding under the 2005 Credit Facility or the Credit Agreement at December 31, 2005 and 2004, respectively. Maturities The aggregate maturities of long-term debt, excluding un-amortized discounts of $1.6 million, for each of the five years subsequent to December 31, 2005, are as follows (in millions): |
| 2006 | $ | 17.2 | |||
| 2007 | 167.2 | ||||
| 2008 | 17.2 | ||||
| 2009 | 17.2 | ||||
| 2010 | 17.2 | ||||
| Thereafter | 258.2 | ||||
| Total | $ | 494.2 | |||
The Company is in compliance with the covenants of all of its debt instruments. |
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In connection with a prior acquisition, the Company obtained $80.0 million notional amount of outstanding treasury rate lock agreements of which the Company designated $65.0 million notional amount as an effective hedge against the variability in cash flows of $76.5 million of MARAD guaranteed bonds that the Company intended to issue in October 2003. The Company deemed the remaining $15.0 million notional amount of treasury rate lock agreements to be speculative in nature and subsequently settled $10.0 million notional amount in 2002 and $5.0 million notional amount in 2003. The Company recognized a loss of $300,000 for the year ended December 31, 2003 in connection with the decline in fair value of the speculative treasury rate lock agreement. The Company settled the $65.0 million notional amount of treasury locks in October 2003 in connection with the pricing and subsequent issuance of the MARAD bonds (see Note 4 "Long Term Debt"). The estimated amount of net unrealized losses on derivative instruments, net of tax at December 31, 2005, that will be reclassified to earnings during the next twelve months is as follows (in millions): |
| Unrealized losses to be reclassified to interest expense | $ | 1.1 | |
| Net unrealized losses to be reclassified to contract drilling expenses | 1.7 | ||
| Net unrealized losses to be reclassified to earnings | $ | 2.8 | |
|
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The components of the Company's comprehensive income for each of the years in the three-year period ended December 31, 2005, are as follows (in millions): |
| 2005 | 2004 | 2003 | |||||
|---|---|---|---|---|---|---|---|
| Net Income | $ | 294.2 | $ | 102.8 | $ | 108.3 | |
| Other comprehensive income (loss) | |||||||
| Net change in fair value of derivatives | (6.3 | ) | 2.4 | .3 | |||
| Reclassification of unrealized gains and losses on derivatives from other comprehensive income (loss) into net income | 3.3 | .1 | .9 | ||||
| Foreign currency translation adjustment | 1.1 | -- | -- | ||||
| Other | -- | (.6 | ) | -- | |||
| Net other comprehensive income (loss) | (1.9 | ) | 1.9 | 1.2 | |||
| Comprehensive income | $ | 292.3 | $ | 104.7 | $ | 109.5 | |
The components of the accumulated other comprehensive loss section of stockholders' equity at December 31, 2005 and 2004, are as follows (in millions): |
| 2005 | 2004 | ||||
|---|---|---|---|---|---|
| Net unrealized losses on derivatives, net of tax | $ | 10.9 | $ | 7.9 | |
| Cumulative translation adjustment | -- | 1.1 | |||
| Accumulated other comprehensive loss | $ | 10.9 | $ | 9.0 | |
The cumulative translation adjustment component of accumulated other comprehensive loss of $1.1 million at December 31, 2004 was associated with the six South America/Caribbean barge rigs sold on June 30, 2005, and is included in the pre-tax gain recognized on the sale (see "Note 10 - Discontinued Operations"). 7. STOCKHOLDERS' EQUITY The Company initiated the payment of a $.025 per share quarterly cash dividend on its common stock during the third quarter of 1997. Cash dividends of $.10 per share were paid in each of the years in the three-year period ended December 31, 2005. At December 31, 2005 and 2004, the outstanding shares of the Company's common stock, net of treasury shares, were 153.4 million and 151.1 million, respectively. On January 1, 2006, the Company will adopt SFAS 123(R). The new standard requires that compensation cost attributable to equity awards be recognized over the period during which an employee is required to provide service in exchange for the award (usually the vesting period). Accordingly, the use of a deferred compensation account will not longer be permitted and as part of the transition adjustments at adoption, unearned compensation associated with restricted stock will be reclassified into additional paid-in capital. |
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|
| Restricted | Accumulated | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Additional | Stock | Other | |||||||||||||
| Common Stock | Paid-In | Retained | (Unearned | Comprehensive | Treasury | ||||||||||
| Shares | Amounts | Capital | Earnings | Compensation) | Loss | Stock | |||||||||
| BALANCE, December 31, 2002 | 172,645 | $17.2 | $1,383.5 | $ 835.3 | $ (5.8 | ) | $(12.1 | ) | $(251.1 | ) | |||||
| Net income | -- | -- | -- | 108.3 | -- | -- | -- | ||||||||
| Cash dividends paid | -- | -- | -- | (15.0 | ) | -- | -- | -- | |||||||
| Common stock issued under | |||||||||||||||
| employee and director incentive | |||||||||||||||
| plans, net | 1,269 | .2 | 18.9 | -- | (8.4 | ) | -- | 1.1 | |||||||
| Amortization of unearned | |||||||||||||||
| stock compensation | -- | -- | -- | -- | 1.2 | -- | -- | ||||||||
| Tax benefit from stock | |||||||||||||||
| compensation | -- | -- | 6.6 | -- | -- | -- | -- | ||||||||
| Net other comprehensive income | -- | -- | -- | -- | -- | 1.2 | -- | ||||||||
| BALANCE, December 31, 2003 | 173,914 | 17.4 | 1,409.0 | 928.6 | (13.0 | ) | (10.9 | ) | (250.0 | ) | |||||
| Net income | -- | -- | -- | 102.8 | -- | -- | -- | ||||||||
| Cash dividends paid | -- | -- | -- | (15.1 | ) | -- | -- | -- | |||||||
| Common stock issued under | |||||||||||||||
| employee and director incentive | |||||||||||||||
| plans, net | 628 | .1 | 8.9 | -- | (1.2 | ) | -- | (.4 | ) | ||||||
| Amortization of unearned | |||||||||||||||
| stock compensation | -- | -- | -- | -- | 1.7 | -- | -- | ||||||||
| Tax benefit from stock | |||||||||||||||
| compensation | -- | -- | 2.1 | -- | -- | -- | -- | ||||||||
| Net other comprehensive income | -- | -- | -- | -- | -- | 1.9 | -- | ||||||||
| BALANCE, December 31, 2004 | 174,542 | 17.5 | 1,420.0 | 1,016.3 | (12.5 | ) | (9.0 | ) | (250.4 | ) | |||||
| Net income | -- | -- | -- | 294.2 | -- | -- | -- | ||||||||
| Cash dividends paid | -- | -- | -- | (15.2 | ) | -- | -- | -- | |||||||
| Common stock issued under | |||||||||||||||
| employee and director incentive | |||||||||||||||
| plans, net | 2,266 | .2 | 73.3 | -- | (6.3 | ) | -- | (.8 | ) | ||||||
| Amortization of unearned | |||||||||||||||
| stock compensation | -- | -- | -- | -- | 2.6 | -- | -- | ||||||||
| Tax benefit from stock | |||||||||||||||
| compensation | -- | -- | 5.2 | -- | -- | -- | -- | ||||||||
| Net other comprehensive income (loss) | -- | -- | -- | -- | -- | (1.9 | ) | -- | |||||||
| BALANCE, December 31, 2005 | 176,808 | $17.7 | $1,498.5 | $1,295.3 | $(16.2 | ) | $(10.9 | ) | $(251.2 | ) | |||||
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Stock Options In May 2005, the Company's stockholders approved the 2005 Long-Term Incentive Plan (the "2005 Plan"). The 2005 Plan is similar to and essentially replaces the Company's previously adopted 1998 Incentive Plan (the "1998 Plan") and 1996 Non-Employee Directors' Stock Option Plan (the "Directors' Plan"). No further awards will be granted under the previously adopted plans, however, those plans shall continue to apply to and govern awards made under those plans. Under the 2005 Plan, a maximum of 7.5 million shares are reserved for issuance as awards of stock options to officers, employees and non-employee directors. Stock options granted to officers and employees generally become exercisable in 25% increments over a four-year period and to the extent not exercised, expire on the seventh anniversary of the date of grant. Stock options granted to non-employee directors are immediately exercisable and to the extent not exercised, expire on the seventh anniversary of the date of grant. The exercise price of stock options granted under the 2005 Plan equals the market value of the underlying stock on the date of grant. At December 31, 2005, options to purchase 715,700 shares of the Company's common stock were outstanding under the 2005 Plan. Stock options previously granted under the 1998 Plan generally become exercisable in 25% increments over a four-year period and to the extent not exercised, expire on the fifth anniversary of the date of grant. Stock options previously granted under the Directors' Plan become exercisable six months after the date of grant and expire, if not exercised, five years thereafter. The exercise price of stock options granted under the 1998 Plan and the Directors' Plan equals the market value of the underlying stock on the date of grant. At December 31, 2005, options to purchase 2,865,981 shares of the Company's common stock were outstanding under the 1998 Plan and the Directors' Plan. In connection with a prior acquisition, the Company assumed the predecessor's stock option plan and the outstanding stock options thereunder. The plan was renamed the ENSCO International Incorporated 2000 Stock Option Plan (the "2000 Plan") and the option awards have been converted to ENSCO common stock equivalents in terms of exercise prices and number of shares exercisable. At the assumption date, exercise prices of the assumed options ranged from $10.74 per share to $25.48 per share with various expiration dates through February 2012 (6.2 years weighted average remaining contractual life). No further options will be granted under the 2000 Plan and it will be terminated upon the exercise or expiration date of the last outstanding option. At December 31, 2005, options to purchase 11,408 shares of the Company's common stock were outstanding under the 2000 Plan. The 2005 Plan, the 2000 Plan, the 1998 Plan and the Directors' Plan are collectively referred to as the "Plans" hereafter. |
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|
| 2005 | 2004 | 2003 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Weighted | Weighted | Weighted | |||||||||||
| Average | Average | Average | |||||||||||
| Exercise | Exercise | Exercise | |||||||||||
| Shares | Price | Shares | Price | Shares | Price | ||||||||
| Outstanding at beginning of year | 5,224 | $30.41 | 4,749 | $29.23 | 5,241 | $25.44 | |||||||
| Granted | 742 | 33.68 | 1,381 | 27.49 | 1,292 | 29.16 | |||||||
| Exercised | (2,098 | ) | 32.02 | (591 | ) | 13.12 | (1,202 | ) | 10.71 | ||||
| Forfeited | (275 | ) | 28.63 | (315 | ) | 32.34 | (582 | ) | 33.16 | ||||
| Outstanding at end of year | 3,593 | $30.28 | 5,224 | $30.41 | 4,749 | $29.23 | |||||||
| Exercisable at end of year | 1,199 | $30.61 | 2,095 | $32.19 | 1,791 | $26.63 | |||||||
| Weighted average fair value of options granted during the year | $13.02 | $ 9.71 | $10.17 | ||||||||||
The following table summarizes information about stock options outstanding under the Plans at December 31, 2005 (shares in thousands): |
| Options Outstanding | Options Exercisable | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Number | Weighted Average | Number | |||||||||
| Outstanding | Remaining | Weighted Average | Exercisable | Weighted Average | |||||||
| Exercise Prices | at 12/31/05 | Contractual Life | Exercise Price | at 12/31/05 | Exercise Price | ||||||
| $10.74 - $11.73 | 2 | 3.0 years | $10.94 | 2 | $10.94 | ||||||
| 20.91 - 26.92 | 202 | 2.8 years | 25.57 | 66 | 25.99 | ||||||
| 27.13 - 29.33 | 1,163 | 3.3 years | 27.58 | 309 | 27.97 | ||||||
| 30.04 - 33.89 | 2,139 | 3.4 years | 31.97 | 750 | 31.71 | ||||||
| 35.21 - 40.32 | 87 | 1.5 years | 36.21 | 72 | 35.36 | ||||||
| 3,593 | 3.3 years | $30.28 | 1,199 | $30.61 | |||||||
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Incentive Stock Grants Key employees, who are in a position to contribute materially to the Company's growth and development and to its long-term success, are eligible for incentive stock grants. Prior to the adoption of the 2005 Plan, incentive stock grants were issued under the 1998 Plan and generally vested at a rate of 10% per year, as determined by a committee of the Board of Directors. No further incentive stock grants will be granted under the 1998 Plan, however, that plan shall continue to apply to and govern awards issued under that plan. The 2005 Plan provides for the issuance of incentive stock grants up to a maximum of 2.5 million shares. Under the 2005 Plan, shares of common stock subject to incentive grants generally vest at a rate of 20% per year, as determined by a committee of the Board of Directors, and have voting and dividend rights effective on the date of grant. Compensation expense is measured using the market value of the common stock on the date of grant and is recognized on a straight-line basis over the requisite service period (usually the vesting period). Incentive stock grants issued under the Plans during each of the years in the three-year period ended December 31, 2005, were as follows: 211,860 shares at a weighted average fair value of $35.37 per share in 2005, 60,000 shares at a weighted average fair value of $28.61 per share in 2004 and 345,000 shares at a weighted average fair value of $26.50 per share in 2003. At December 31, 2005, there were 2.3 million shares of common stock available for incentive stock grants under the 2005 Plan. Incentive stock grants for an aggregate 589,175 shares of common stock issued under the 2005 Plan, 1998 Plan and a predecessor plan were outstanding at December 31, 2005, and vest as follows: 98,935 shares in 2006, 95,935 shares in 2007, 89,935 shares in 2008, 82,935 shares in 2009, 82,935 shares in 2010, 46,000 shares in 2011, 43,000 shares in 2012, 38,000 shares in 2013, 8,500 shares in 2014 and 3,000 shares in 2015. |
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The Company has a profit sharing plan (the “ENSCO Savings Plan”) which covers eligible employees with more than one year of service, as defined. Profit sharing contributions require Board of Directors approval and may be in cash or grants of the Company's common stock. The Company recorded profit sharing contribution provisions of $5.0 million, $3.1 million and $1.6 million for the years ended December 31, 2005, 2004 and 2003, respectively. The ENSCO Savings Plan includes a 401(k) savings plan feature which allows eligible employees to make tax deferred contributions to the plan. The Company makes matching contributions based on the amount of employee contributions and rates set by the Company's Board of Directors. Matching contributions totaled $4.2 million, $4.1 million and $4.5 million in 2005, 2004 and 2003, respectively. The Company has reserved 1.0 million shares of common stock for issuance as matching contributions under the ENSCO Savings Plan. Supplemental Executive Retirement Plan The ENSCO 2005 Supplemental Executive Retirement Plan (the "SERP") provides a tax deferred savings plan for certain highly compensated employees whose participation in the profit sharing and 401(k) savings plan features of the ENSCO Savings Plan is restricted due to funding and contribution limitations of the Internal Revenue Code. The SERP is a non-qualified plan where eligible employees may defer a portion of their compensation for use after retirement. Eligibility for participation is determined by the Company's Board of Directors. The Company's matching and vesting provisions of the SERP are identical to the ENSCO Savings Plan, except that matching contributions under the SERP are further limited by contribution amounts under the 401(k) savings plan feature of the ENSCO Savings Plan. Matching contributions totaled $52,000 in 2005, $51,000 in 2004 and $40,000 in 2003. A SERP liability of $8.6 million and $6.7 million is included in other liabilities at December 31, 2005 and 2004, respectively. |
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|
| 2005 | 2004 | 2003 | |||||
|---|---|---|---|---|---|---|---|
| Current income tax expense (benefit): | |||||||
| Federal | $ 70.9 | $ (.9 | ) | $ (1.3 | ) | ||
| State | 1.3 | .4 | .2 | ||||
| Foreign | 33.6 | 13.8 | 17.0 | ||||
| 105.8 | 13.3 | 15.9 | |||||
| Deferred income tax expense (benefit): | |||||||
| Federal | 6.6 | 22.1 | 24.6 | ||||
| Foreign | (5.1 | ) | (.2 | ) | 2.8 | ||
| 1.5 | 21.9 | 27.4 | |||||
| Total income tax expense | $107.3 | $35.2 | $43.3 | ||||
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Significant components of deferred income tax assets (liabilities) as of December 31, 2005 and 2004 are comprised of the following (in millions): |
| 2005 | 2004 | ||||
|---|---|---|---|---|---|
| Deferred tax assets: | |||||
| Net operating loss carryforwards | $ 5.5 | $ 3.9 | |||
| Foreign tax credit carryforwards | -- | 2.7 | |||
| Alternative minimum tax credit carryforwards | -- | 2.6 | |||
| Accrued liabilities | 9.8 | 9.4 | |||
| Other | 2.2 | 3.3 | |||
| Gross deferred tax assets | 17.5 | 21.9 | |||
| Less: Valuation allowance | 1.7 | -- | |||
| Deferred tax assets, net of valuation allowance | 15.8 | 21.9 | |||
| Deferred tax liabilities: | |||||
| Property | (311.7 | ) | (361.5 | ) | |
| Intercompany transfers of property | (32.8 | ) | (15.3 | ) | |
| Derivative financial instruments | (1.8 | ) | (1.9 | ) | |
| Other | (1.2 | ) | (2.7 | ) | |
| Total deferred tax liabilities | (347.5 | ) | (381.4 | ) | |
| Net deferred tax liabilities | $(331.7 | ) | $(359.5 | ) | |
| Net current deferred tax asset | $ 9.5 | $ 12.6 | |||
| Net noncurrent deferred tax liability | (341.2 | ) | (372.1 | ) | |
| Net deferred tax liability | $(331.7 | ) | $(359.5 | ) | |
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The income tax rates imposed in the taxing jurisdictions in which the Company's foreign 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 revenue, statutory or negotiated deemed profits, or other bases utilized under local tax laws, rather than to net income. In addition, the Company's drilling rigs are frequently moved from one taxing jurisdiction to another. As a result, the Company's consolidated effective income tax rate may vary substantially from year to year, depending on the relative components of the Company's earnings generated in taxing jurisdictions with higher tax rates and lower tax rates. The consolidated effective income tax rate on continuing operations for each of the years in the three-year period ended December 31, 2005, differs from the U.S. statutory income tax rate as follows: |
| 2005 | 2004 | 2003 | |||||
|---|---|---|---|---|---|---|---|
| Statutory income tax rate | 35.0 | % | 35.0 | % | 35.0 | % | |
| Foreign taxes | (6.9 | ) | (10.2 | ) | (4.3 | ) | |
| Change in valuation allowance | .4 | -- | -- | ||||
| Resolution of income tax audits and release of | |||||||
| tax liabilities determined to no longer be necessary | (1.7 | ) | -- | -- | |||
| Other | .6 | .4 | (1.3 | ) | |||
| Effective income tax rate | 27.4 | % | 25.2 | % | 29.4 | % | |
At December 31, 2005, the Company had non-expiring foreign net operating loss carryforwards of $19.5 million in Denmark. During 2005, the Company established a $1.7 million valuation allowance against the $5.5 million deferred tax asset for these net operating loss carryforwards. Based on current earnings projections, management has determined that it is more likely than not that the $3.8 million excess of the deferred tax asset over the valuation allowance will be fully utilized. The income tax provision for the year ended December 31, 2005 includes a $6.5 million net benefit that results from the resolution of various issues in connection with an audit by tax authorities of the Company's 2002 and 2003 U.S. tax returns and release of certain tax liabilities recognized in prior years that are determined to no longer be necessary. Undistributed earnings of the Company's foreign subsidiaries, which are permanently reinvested, totaled $15.1 million at December 31, 2005. A U.S. deferred tax liability has not been quantified for these undistributed earnings because it is not practicable to estimate. Should the Company make a distribution of these foreign earnings in the form or dividends or otherwise, it may be subject to additional U.S. income taxes. |
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The ENSCO 29 platform rig sustained substantial damage as a consequence of Hurricane Katrina in September 2005. On January 5, 2006, beneficial ownership of ENSCO 29 effectively transferred to the Company's insurance underwriters following their acknowledgement that the rig was a constructive total loss under the terms of the Company's insurance policies. Accordingly, the Company will receive the rig's net insured value of $10.0 million. The $7.5 million carrying value of the rig remains classified in "Property and equipment, net" on the December 31, 2005 consolidated balance sheet. The Company expects to record the disposal of the rig in the first quarter of 2006 and recognize a pre-tax gain equivalent to the excess of the insurance proceeds received over the carrying value of the rig. The operating results of ENSCO 29 have been reclassified as discontinued operations in the consolidated statements of income for each of the years in the three-year period ended December 31, 2005. On October 20, 2005, the Company sold the ENSCO 26 platform rig for $12.0 million and recognized a minimal gain. The operating results of ENSCO 26 have been reclassified as discontinued operations in the consolidated statements of income for each of the years in the three-year period ended December 31, 2005. On June 30, 2005, the Company sold its six South America/Caribbean barge rigs for $59.6 million and recognized a pre-tax gain of $9.6 million, which is included in "Gain on disposal of discontinued operations, net" in the consolidated statement of income for the year ended December 31, 2005. The net book value of the rigs was $45.1 million on the date of sale. The operating results of the six South America/Caribbean barge rigs have been reclassified as discontinued operations in the consolidated statements of income for each of the years in the three-year period ended December 31, 2005. The ENSCO 64 jackup rig sustained substantial damage during Hurricane Ivan in September 2004. On April 15, 2005, beneficial ownership of ENSCO 64 effectively transferred to the Company's insurance underwriters following their acknowledgement that the rig was a constructive total loss under the terms of the Company's insurance policies. Accordingly, the Company received the rig's full insured value of $65.0 million. On the date of transfer, the net book value of the rig was $52.8 million. The Company recognized a pre-tax gain of $11.7 million upon receipt of the insurance proceeds, which is included in "Gain on disposal of discontinued operations, net" in the consolidated statement of income for year ended December 31, 2005. The operating results of ENSCO 64 have been reclassified as discontinued operations in the consolidated statements of income for each of the years in the three-year period ended December 31, 2005. |
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In February 2003, the Company reached an agreement to sell its 27-vessel marine transportation fleet. After receipt of various regulatory consents, the transaction was finalized in April 2003 for approximately $79.0 million. The Company recognized a pre-tax gain of approximately $6.4 million related to the transaction. The operating results of the marine transportation fleet, which represent the entire marine transportation services segment previously reported by the Company, have been reclassified as discontinued operations in the consolidated statement of income for the year ended December 31, 2003. Following is a summary of income (loss) from discontinued operations for each of the years in the three-year period ended December 31, 2005 (in millions): |
| 2005 | 2004 | 2003 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenues | |||||||||||
| Contract drilling | $ | 15.0 | $ | 30.0 | $ | 48.5 | |||||
| Marine transportation | -- | -- | 7.6 | ||||||||
| 15.0 | 30.0 | 56.1 | |||||||||
| Operating expenses and other | |||||||||||
| Contract drilling | 20.1 | 31.5 | 46.4 | ||||||||
| Marine transportation | -- | -- | 12.2 | ||||||||
| 20.1 | 31.5 | 58.6 | |||||||||
| Operating loss before income taxes | (5.1 | ) | (1.5 | ) | (2.5 | ) | |||||
| Income tax benefit (expense) | 1.5 | (.4 | ) | 2.8 | |||||||
| Gain on disposal of discontinued operations, net | 13.9 | -- | 4.1 | ||||||||
| Income (loss) from discontinued operations | $ | 10.3 | $ | (1.9 | ) | $ | 4.4 | ||||
There is no debt or interest expense allocated to the Company's discontinued operations. |
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Leases The Company is obligated under leases for certain of its offices and equipment. Rental expense relating to operating leases was $5.3 million in 2005, $5.2 million in 2004 and $4.3 million in 2003. Future minimum rental payments under the Company's noncancellable operating lease obligations having initial or remaining lease terms in excess of one year are as follows: $4.9 million in 2006; $2.7 million in 2007; $900,000 in 2008 and $100,000 in 2009. Resolution of Insurance Claims Relating to Hurricane Katrina Damage During the third quarter 2005, several of the Company's drilling rigs in the Gulf of Mexico sustained damage during Hurricane Katrina. Physical damage to the Company's rigs caused by a hurricane, as well as the related removal and recovery costs, are covered by insurance subject to a deductible. The Company maintains insurance coverage under multiple insurance policies that subject the Company to escalating deductibles, the amount of which depends on the type of rig damaged and the magnitude of the damage sustained by rig type. However, all losses incurred as a result of a single hurricane (an "occurrence") are limited to a maximum aggregate deductible of $5.5 million. The ENSCO 29 platform rig sustained significant damage from Hurricane Katrina. Damage to the platform rig was substantial and, upon initial evaluation, it was not possible to determine whether the rig would be declared a constructive total loss ("CTL") under the terms of the Company's insurance policies. If ENSCO 29 was declared a CTL, the Company would transfer its interest in the platform rig to underwriters and receive the rig's net insured value of $10.0 million. In addition to the damage sustained by ENSCO 29, preliminary inspections indicated that the hull of ENSCO 7500 sustained minor damage during Hurricane Katrina. Due to the uncertainties involved and difficulties associated with estimating the damage sustained by the two rigs, the Company recognized a $5.5 million loss, representing its aggregate insurance deductible, during the third quarter of 2005. On January 5, 2006, beneficial ownership of ENSCO 29 effectively transferred to the Company's insurance underwriters following their acknowledgement that the rig was a CTL. Accordingly, the Company will receive the rig's net insured value of $10.0 million. The $7.5 million carrying value of the rig remains classified in property and equipment on the consolidated balance sheet at December 31, 2005. The Company expects to record the disposal of the rig in the first quarter of 2006 and recognize a pre-tax gain equivalent to the excess of the insurance proceeds received over the carrying value of the rig. Of the total $5.5 million loss representing the aggregate insurance deductible recognized during the third quarter of 2005, $5.0 million is included in "Income (loss) from discontinued operations, net" and $500,000 is included in "Other income (expense) - Other, net" in the consolidated statement of income for the year ended December 31, 2005. The portion of the loss allocated to discontinued operations represents the deductible applicable to ENSCO 29. Damage to ENSCO 7500 was minor and the rig was repaired in early 2006 in conjunction with minor enhancement and prerequisite work for its pending two year contract. The Company believes the insurance claim for the ENSCO 7500 hull repairs will be finalized by the end of the second quarter of 2006 with no significant gain or loss recognized. Additionally, the Company has made minor repairs to several jackup rigs that were in the path of Hurricane Katrina. The repair costs incurred were not significant and none of the Company's jackup rigs experienced significant downtime in order to complete repairs. Although several of the Company's jackup rigs were in the path of Hurricane Rita, the Company has detected only minor damage to those rigs and the associated repair costs incurred, or expected to be incurred, are not significant. In addition, none of the Company's jackup rigs experienced, or is expected to experience, significant downtime in order to complete damage repairs as a result of this hurricane. |
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Two of the Company's drilling rigs, the ENSCO 64 jackup rig and ENSCO 25 platform rig, sustained damage during Hurricane Ivan in September 2004. The physical damage to the rigs, as well as the related removal, salvage and recovery costs, was covered by insurance, subject to an aggregate escalating deductible of up to a maximum $5.5 million. Damage to ENSCO 64 was substantial and upon initial evaluation it was not possible to determine whether ENSCO 64 would be declared a CTL under the terms of the Company's insurance policies. If ENSCO 64 were to be declared a CTL, the Company would transfer its interest in the rig to underwriters and receive the rig's insured value of $65.0 million, with no deductible applicable. Due to the uncertainties involved and difficulties associated with estimating the damage sustained by the two rigs, the Company recognized a $5.5 million loss, representing its aggregate insurance deductible, during the third quarter of 2004. The loss is included in "Other income (expense) - - Other, net" in the consolidated statements of income for the year ended December 31, 2004. On April 15, 2005, beneficial ownership of ENSCO 64 effectively transferred to the Company's insurance underwriters following their acknowledgement that the rig was a CTL. Accordingly, the Company received the rig's full insured value of $65.0 million, which resulted in a pre-tax gain of approximately $11.7 million included in "Gain on disposal of discontinued operations, net" in the consolidated statement of income for the year ended December 31, 2005. Damage to ENSCO 25 was less extensive than that of ENSCO 64, and the rig returned to service in late February 2005 after completion of the damage assessment and repair work. The Company recognized a net gain of $3.1 million during the first quarter of 2005, which consists of the excess of the $5.5 million provision recognized during the third quarter of 2004 for the aggregate insurance deductible over the $2.4 million loss realized in connection with the ENSCO 25 repair work. The $3.1 million net gain is included in "Other income (expense) - Other, net" in the consolidated statement of income for the year ended December 31, 2005. Other Contingencies In September 2005, the Company received summonses from the Lancaster Magistrates' Court charging violations of the U.K. Health and Safety at Work Act in connection with a fatal injury sustained by an employee on one of its rigs during May 2003. Should criminal liability be established, the Company is subject to a monetary fine. The Company currently believes it has established a sufficient reserve in relation to this matter, and does not believe the resolution of these charges will have a material adverse effect on its financial position, results of operations or cash flows. In August 2004, the Company and certain subsidiaries were named as defendants in three multi-party lawsuits filed in the Circuit Courts of Jones County (Second Judicial District) and Jasper County (First Judicial District), Mississippi, involving numerous other companies as co-defendants. The lawsuits seek an unspecified amount of monetary damages on behalf of individuals alleging personal injury or death, including claims under the Jones Act, purportedly resulting from exposure to asbestos on drilling rigs and associated facilities during the period 1965 through 1986. The lawsuits are at a very preliminary stage during which the plaintiffs are required to submit "Fact Sheets", which presumably would establish if they have a cause of action which merits review by the courts and, if so, whether the courts in question have jurisdiction to hear their claims. Inasmuch as not all plaintiffs have filed their "Fact Sheets" and others who have are the focus of motions to either transfer, sever and/or dismiss their claims, the Company has not been able to determine the number of plaintiffs with claims that may have been employed by the Company or its subsidiaries or otherwise associated with its drilling operations during the relevant period. The Company has filed responsive pleadings preserving all defenses and challenges to jurisdiction or venue, and intends to vigorously defend against the litigation. Based on information currently available or, more appropriately, the lack thereof, the Company cannot reasonably estimate a range of potential liability exposure, if any. While the Company does not expect the resolution of these lawsuits to have a material adverse effect on its financial position, results of operations or cash flows, there can be no assurance as to the ultimate outcome of these lawsuits. |
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In September 2004, the Republic of India amended the Finance Act, 1994, by enacting the Finance (No. 2) Act, 2004 (the "Act"), which purported to extend a 10.2% tax levied on services to the specific service of "survey and exploration of minerals." Based on the definition of "survey and exploration of minerals" contained in the Act, the Company does not believe its contract drilling operations in India should be considered taxable services, and thus, has not paid the tax or recognized a liability for the tax. The local chapter of the International Association of Drilling Contractors has filed a Writ Petition with the Indian courts challenging the applicability of the tax to contract drilling services, a position which is supported by the Oil and Natural Gas Corporation Limited, the government sponsored oil company in India. Proceedings relative to the Writ Petition have not concluded. If the Indian courts determine the tax applies to contract drilling services, the Company's liability for such tax would be $4.8 million at December 31, 2005. However, the Company believes its customer has a contractual indemnity obligation and will reimburse, either in whole or in part, any tax liability that may be assessed. Based on the information available at this time, the Company does not expect the resolution of this matter to have a material adverse effect on its financial position, results of operations or cash flows. The Company and its subsidiaries are named defendants in certain lawsuits and are involved from time to time as parties to governmental proceedings, including matters related to taxation, all arising in the ordinary course of business. Although the outcome of lawsuits or other proceedings involving the Company and its subsidiaries cannot be predicted with certainty and the amount of any liability that could arise with respect to such lawsuits or other proceedings cannot be predicted accurately, management does not expect these matters to have a material effect on the financial position, results of operations or cash flows of the Company 12. SEGMENT INFORMATION In April 2003, the Company completed the sale of its marine transportation fleet (see Note 10 "Discontinued Operations"). The operating results and net carrying value of the marine transportation fleet represent the entire marine transportation services segment as previously reported by the Company. Accordingly, the Company's continuing operations now consist of one reportable segment: contract drilling services. At December 31, 2005, the Company's contract drilling segment owned and operated a fleet of 45 offshore drilling rigs, including 42 jackup rigs, one ultra-deepwater semisubmersible rig, one platform rig and one barge rig. The Company's operations are concentrated in four geographic regions: North America, Europe/Africa, Asia Pacific (which includes Asia, the Middle East, Australia and New Zealand) and South America/Caribbean. At December 31, 2005, the Company's North America operations consisted of 17 jackup rigs, one platform rig and one ultra-deepwater semisubmersible rig, all located in the U.S. waters of the Gulf of Mexico. The Company's Europe/Africa operations consist of nine jackup rigs, eight of which are currently deployed in various territorial waters of the North Sea and one is located offshore Nigeria. In Asia Pacific, the Company's operations currently consist of 16 jackup rigs deployed in various locations and one barge rig located in Indonesia. |
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|
| Revenues | Long-lived Assets | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2005 | 2004 | 2003 | 2005 | 2004 | 2003 | ||||||||
| United States | $426.8 | $276.4 | $277.4 | $1,060.0 | $1,015.6 | $1,050.1 | |||||||
| United Kingdom | 157.8 | 35.7 | 54.2 | 381.3 | 102.8 | 143.9 | |||||||
| Qatar | 71.3 | 92.5 | 48.5 | 118.2 | 200.5 | 25.1 | |||||||
| Other foreign countries | 391.0 | 336.0 | 362.2 | 1,104.1 | 1,112.4 | 998.1 | |||||||
| Total | $1,046.9 | $740.6 | $742.3 | $2,663.6 | $2,431.3 | $2,217.2 | |||||||
13. SUPPLEMENTAL FINANCIAL INFORMATION Consolidated Balance Sheet Information Accounts receivable, net at December 31, 2005 and 2004 consists of the following (in millions): |
| 2005 | 2004 | ||||
|---|---|---|---|---|---|
| Trade | $251.4 | $164.0 | |||
| Other | 21.3 | 21.9 | |||
| 272.7 | 185.9 | ||||
| Allowance for doubtful accounts | (3.7 | ) | (2.9 | ) | |
| $269.0 | $183.0 | ||||
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Prepaid expenses and other current assets at December 31, 2005 and 2004 consists of the following (in millions): |
| 2005 | 2004 | ||||
|---|---|---|---|---|---|
| Prepaid expenses | $10.5 | $17.7 | |||
| Inventory | 3.7 | 2.7 | |||
| Deferred mobilization costs | 9.7 | .6 | |||
| Deferred tax asset | 9.5 | 12.5 | |||
| Deferred regulatory certification and compliance costs | 4.0 | 4.0 | |||
| Other | 3.5 | 6.2 | |||
| $40.9 | $43.7 | ||||
Other assets, net at December 31, 2005 and 2004 consists of the following (in millions): |
| 2005 | 2004 | ||||
|---|---|---|---|---|---|
| Prepaid taxes on intercompany transfers of property | $12.8 | $12.9 | |||
| Investment in joint ventures | -- | 23.2 | |||
| Deferred finance costs | 6.1 | 6.7 | |||
| Deferred mobilization costs | 5.3 | .1 | |||
| Deferred regulatory certification and compliance costs | 2.1 | 3.0 | |||
| Deferred tax asset | 3.8 | 3.2 | |||
| Supplemental executive retirement plan | 8.9 | 6.8 | |||
| Other | .7 | .1 | |||
| $39.7 | $56.0 | ||||
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Accrued liabilities at December 31, 2005 and 2004 consists of the following (in millions): |
| 2005 | 2004 | ||||
|---|---|---|---|---|---|
| Personnel | $ 34.0 | $ 21.6 | |||
| Taxes | 50.0 | 62.4 | |||
| Other operating expense | 45.8 | 35.2 | |||
| Capital additions | 36.8 | 30.7 | |||
| Interest | 5.1 | 5.9 | |||
| Deferred and prepaid revenue | 15.2 | 6.3 | |||
| ENSCO 64 salvage and damage assessment | -- | 10.3 | |||
| Other | 8.2 | 4.8 | |||
| $195.1 | $177.2 | ||||
Consolidated Statement of Income Information Maintenance and repairs expense related to continuing operations for each of the years in the three-year period ended December 31, 2005 is as follows (in millions): |
| 2005 | 2004 | 2003 | |||||
|---|---|---|---|---|---|---|---|
| Maintenance and repairs | $62.7 | $49.8 | $55.8 | ||||
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Consolidated Statement of Cash Flows Information Cash paid for interest and income taxes for each of the years in the three-year period ended December 31, 2005 is as follows (in millions): |
| 2005 | 2004 | 2003 | |||||
|---|---|---|---|---|---|---|---|
| Interest, net of amounts capitalized | $ 29.7 | $33.4 | $33.8 | ||||
| Income taxes | 143.1 | 18.0 | 10.9 | ||||
Capitalized interest totaled $8.9 million in 2005, $3.9 million in 2004 and $2.0 million in 2003. Financial Instruments The carrying amounts and estimated fair values of the Company's debt instruments at December 31, 2005 and 2004 are as follows (in millions): |
| 2005 | 2004 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Estimated | Estimated | ||||||||
| Carrying | Fair | Carrying | Fair | ||||||
| Amount | Value | Amount | Value | ||||||
| 6.75% Notes | $149.8 | $154.5 | $149.7 | $161.6 | |||||
| 7.20% Debentures | 148.6 | 176.9 | 148.5 | 174.7 | |||||
| 4.65% Bonds, including current maturities | 67.5 | 60.5 | 72.0 | 65.3 | |||||
| 6.36% Bonds, including current maturities | 126.7 | 134.3 | 139.4 | 153.1 | |||||
| 5.63% Bonds, including current maturities | -- | -- | 40.5 | 43.2 | |||||
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The estimated fair values of the Company's debt instruments were determined using quoted market prices or third party valuations. The estimated fair value of the Company's cash and cash equivalents, receivables, trade payables and other liabilities approximated their carrying values at December 31, 2005 and 2004. The Company has cash, receivables and payables denominated in foreign currencies. These financial assets and liabilities create exposure to foreign currency exchange risk. When warranted, the Company hedges such risk by entering into purchase options or futures contracts. The Company does not enter into such contracts for trading purposes or to engage in speculation. At December 31, 2005 and 2004, the fair value of such contracts was a net liability of $2.7 million and a net asset of $4.0 million, respectively. Concentration of Credit Risk The Company is exposed to credit risk relating to its receivables from customers, its cash and cash equivalents and its use of derivative instruments in connection with the management of foreign currency risk. The Company minimizes its credit risk relating to receivables from customers, which consist primarily of major and independent oil and gas producers as well as government-owned oil companies, by performing ongoing credit evaluations. The Company also maintains reserves for potential credit losses, which to date have been within management's expectations. The Company minimizes its credit risk relating to cash and investments by focusing on diversification and quality of instruments. Cash balances are maintained in major, highly-capitalized commercial banks. Cash equivalents and investments consist of a portfolio of high-grade instruments. Custody of cash equivalents and investments is maintained at several major financial institutions and the Company monitors the financial condition of those financial institutions. The Company minimizes its credit risk relating to the counterparties to its derivative instruments by transacting with multiple, high-quality counterparties, thereby limiting exposure to individual counterparties, and by monitoring the financial condition of those counterparties. During 2005, one customer provided 12%, or $127.0 million, of consolidated revenues. During 2004, no customer provided more than 10% of consolidated revenues. Revenues from two customers exceeded 10% of consolidated revenues in 2003 and were $100.4 million, or 14% and $85.6 million, or 12% of consolidated revenues. |
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A summary of unaudited quarterly consolidated income statement data for the years ended December 31, 2005 and 2004, is as follows (in millions, except per share amounts): |
| 2005 | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Year | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Operating revenues | $210.6 | $246.3 | $275.1 | $314.9 | $1,046.9 | ||||||||||||
| Operating expenses | |||||||||||||||||
| Contract drilling | 106.6 | 108.9 | 115.0 | 123.9 | 454.4 | ||||||||||||
| Depreciation and amortization | 36.6 | 38.1 | 39.1 | 41.0 | 154.8 | ||||||||||||
| General and administrative | 6.2 | 6.2 | 6.7 | 6.7 | 25.8 | ||||||||||||
| Operating income | 61.2 | 93.1 | 114.3 | 143.3 | 411.9 | ||||||||||||
| Interest income | 1.1 | 1.8 | 2.0 | 2.1 | 7.0 | ||||||||||||
| Interest expense, net | (7.8 | ) | (8.0 | ) | (6.5 | ) | (6.5 | ) | (28.8 | ) | |||||||
| Other income (expense), net | 3.8 | (2.0 | ) | (.2 | ) | (.5 | ) | 1.1 | |||||||||
| Income from continuing operations before | |||||||||||||||||
| income taxes | 58.3 | 84.9 | 109.6 | 138.4 | 391.2 | ||||||||||||
| Provision for income taxes | 17.0 | 25.5 | 29.5 | 35.3 | 107.3 | ||||||||||||
| Income from continuing operations | 41.3 | 59.4 | 80.1 | 103.1 | 283.9 | ||||||||||||
| Income (loss) from discontinued operations | .5 | 10.6 | (3.6 | ) | 2.8 | 10.3 | |||||||||||
| Net income | $ 41.8 | $ 70.0 | $ 76.5 | $105.9 | $294.2 | ||||||||||||
| Earnings (loss) per share - basic | |||||||||||||||||
| Continuing operations | $ .27 | $ .39 | $ .53 | $ .68 | $ 1.87 | ||||||||||||
| Discontinued operations | .01 | .07 | (.03 | ) | .01 | .07 | |||||||||||
| $ .28 | $ .46 | $ .50 | $ .69 | $ 1.94 | |||||||||||||
| Earnings (loss) per share - diluted | |||||||||||||||||
| Continuing operations | $ .27 | $ .39 | $ .52 | $ .67 | $ 1.86 | ||||||||||||
| Discontinued operations | .01 | .07 | (.02 | ) | .02 | .07 | |||||||||||
| $ .28 | $ .46 | $ .50 | $ .69 | $ 1.93 | |||||||||||||
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| 2004 | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Year | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Operating revenues | $178.1 | $170.9 | $187.0 | $204.6 | $740.6 | ||||||||||||
| Operating expenses | |||||||||||||||||
| Contract drilling | 102.6 | 101.2 | 100.5 | 101.8 | 406.1 | ||||||||||||
| Depreciation and amortization | 32.9 | 33.4 | 33.5 | 34.9 | 134.7 | ||||||||||||
| General and administrative | 5.7 | 7.4 | 6.8 | 6.4 | 26.3 | ||||||||||||
| Operating income | 36.9 | 28.9 | 46.2 | 61.5 | 173.5 | ||||||||||||
| Interest income | .8 | .8 | .9 | 1.2 | 3.7 | ||||||||||||
| Interest expense, net | (10.0 | ) | (9.7 | ) | (8.7 | ) | (8.2 | ) | (36.6 | ) | |||||||
| Other income (expense), net | (.1 | ) | 1.0 | (1.4 | ) | (.2 | ) | (.7 | ) | ||||||||
| Income from continuing operations before | |||||||||||||||||
| income taxes | 27.6 | 21.0 | 37.0 | 54.3 | 139.9 | ||||||||||||
| Provision for income taxes | 7.2 | 5.0 | 8.0 | 15.0 | 35.2 | ||||||||||||
| Income from continuing operations | 20.4 | 16.0 | 29.0 | 39.3 | 104.7 | ||||||||||||
| Income (loss) from discontinued operations | .6 | 1.5 | (3.2 | ) | (.8 | ) | (1.9 | ) | |||||||||
| Net income | $ 21.0 | $ 17.5 | $ 25.8 | $ 38.5 | $102.8 | ||||||||||||
| Earnings (loss) per share - basic | |||||||||||||||||
| Continuing operations | $ .14 | $ .11 | $ .19 | $ .26 | $ .70 | ||||||||||||
| Discontinued operations | .00 | .01 | (.02 | ) | (.00 | ) | (.02 | ) | |||||||||
| $ .14 | $ .12 | $ .17 | $ .26 | $ .68 | |||||||||||||
| Earnings (loss) per share - diluted | |||||||||||||||||
| Continuing operations | $ .14 | $ .11 | $ .19 | $ .26 | $ .70 | ||||||||||||
| Discontinued operations | .00 | .01 | (.02 | ) | (.00 | ) | (.02 | ) | |||||||||
| $ .14 | $ .12 | $ .17 | $ .26 | $ .68 | |||||||||||||
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| Number of securities | |||||||
|---|---|---|---|---|---|---|---|
| remaining available for | |||||||
| Number of securities | future issuance under | ||||||
| to be issued upon | Weighted-average | equity compensation | |||||
| exercise of | exercise price of | plans (excluding | |||||
| outstanding options, | outstanding options, | securities reflected in | |||||
| Plan category | warrants and rights | warrants and rights | column (a)) | ||||
| (a) | (b) | (c) | |||||
| Equity compensation plans approved by security holders | 3,581,681 | $30.30 | 9,076,625 | ||||
| Equity compensation plans not approved by security holders* | 11,408 | $21.78 | -- | ||||
| Total | 3,593,089 | $30.28 | 9,076,625 | ||||
| * | In connection with the acquisition of Chiles Offshore Inc. ("Chiles") on August 7, 2002, the Company assumed Chiles' stock option plan and the outstanding stock options thereunder. At December 31, 2005, options to purchase 11,408 shares of the Company's common stock, at a weighted-average exercise price of $21.78 per share, were outstanding under this plan. No shares of the Company's common stock are available for future issuance under this plan, no further options will be granted under this plan and the plan will be terminated upon the earlier of the exercise or expiration date of the last outstanding option. | ||
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| Additional information required by this item is included in the Proxy Statement and is incorporated herein by reference. |
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|
| Item 15. Exhibits, Financial Statement Schedules |
| (a) | Financial statement schedules of ENSCO International Incorporated |
| Reports of Independent Registered Public Accounting Firm | 67 |
| Consolidated Statements of Income | 68 |
| Consolidated Balance Sheets | 69 |
| Consolidated Statements of Cash Flows | 70 |
| Notes to Consolidated Financial Statements | 71 | ||
| (b) | Exhibits |
| The following instruments are included as exhibits to this Report. Exhibits incorporated by reference are so indicated by parenthetical information. | |||
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| Exhibit No. | Document |
| 3.1 | - | Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit A to the Company's Definitive Proxy Statement filed with the Commission on March 21, 2005, File No. 1-8097). |
| 3.2 | - | Revised and Restated Bylaws of the Company, effective November 9, 2004 (incorporated by reference to Exhibit 99.1 to the Registrant's Current Report on Form 8-K dated November 9, 2004, File No. 1-8097). |
| 4.1 | - | Certificate of Designation of Series A Junior Participating Preferred Stock of the Company (incorporated by reference to Exhibit 4.6 to the Registrant's Annual Report on Form 10-K/A for the year ended December 31, 1995, File No. 1-8097). |
| 4.2 | - | Indenture, dated November 20, 1997, between the Company and Bankers Trust Company, as Trustee (incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K dated November 24, 1997, File No. 1-8097). |
| 4.3 | - | First Supplemental Indenture, dated November 20, 1997, between the Company and Bankers Trust Company, as trustee, supplementing the Indenture dated as of November 20, 1997 (incorporated by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K dated November 24, 1997, File No. 1-8097). |
| 4.4 | - | Form of Note (incorporated by reference to Exhibit 4.3 to the Registrant's Current Report on Form 8-K dated November 24, 1997, File No. 1-8097). |
| 4.5 | - | Form of Debenture (incorporated by reference to Exhibit 4.4 to the Registrant's Current Report on Form 8-K dated November 24, 1997, File No. 1-8097). |
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| 10.1 | - | ENSCO International Incorporated 1993 Incentive Plan, as amended (incorporated by reference to Exhibit 10.1 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993, File No. 1-8097). |
| 10.2 | - | ENSCO International Incorporated 1996 Non-Employee Directors Stock Option Plan (incorporated by reference to Exhibit 4.1 to the Registrant's Registration Statement on Form S-8 filed August 23, 1996, Registration No. 333-10733). |
| 10.3 | - | Amendment to ENSCO International Incorporated Incentive Plan, dated November 11, 1997 (incorporated by reference to Exhibit 10.2 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1997, File No. 1-8097). |
| 10.4 | - | ENSCO International Incorporated Savings Plan, as revised and restated (incorporated by reference to Exhibit 10.17 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1997, File No. 1-8097). |
| 10.5 | - | Indemnification Agreement between the Company and its officers and directors (incorporated by reference to Exhibit 10.19 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1997, File No. 1-8097). |
| 10.6 | - | ENSCO International Incorporated 1998 Incentive Plan (incorporated by reference to Exhibit 4.1 to the Registrant's Form S-8 filed on July 7, 1998, Registration No. 333-58625). |
| 10.7 | - | Bond Purchase Agreement of ENSCO Offshore Company dated January 22, 2001, concerning $190,000,000 of United States Government Guaranteed Ship Financing Obligations (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001, File No. 1-8097). |
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| 10.8 | - | United States Government Guaranteed Ship Financing Bond issued by ENSCO Offshore Company dated January 25, 2001 (incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001, File No. 1-8097). |
| 10.9 | - | Supplement No.1, dated January 25, 2001, to the Trust Indenture dated December 15, 1999, between ENSCO Offshore Company and Bankers Trust Company (incorporated by reference to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001, File No. 1-8097). |
| 10.10 | - | Ratification of Guaranty by ENSCO International Incorporated in favor of the United States of America dated January 25, 2001 and associated Guaranty Agreement by ENSCO International Incorporated in favor of the United States of America dated December 15, 1999 (incorporated by reference to Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001, File No. 1-8097). |
| 10.11 | - | ENSCO International Incorporated 2000 Stock Option Plan (formerly known as the Chiles Offshore Inc. 2000 Stock Option Plan) (incorporated by reference to Exhibit 4.6 to the Registrant's Registration Statement on Form S-8 filed August 7, 2002, Registration No. 333-97757). |
| 10.12 | - | Amendment No. 1 to the ENSCO International Incorporated 2000 Stock Option Plan (incorporated by reference to Exhibit 4.7 to the Registrant's Registration Statement on Form S-8 filed August 7, 2002, Registration No. 333-97757). |
| 10.13 | - | Amendment No. 2 to the ENSCO International Incorporated 2000 Stock Option Plan (incorporated by reference to Exhibit 4.8 to the Registrant's Registration Statement on Form S-8 filed August 7, 2002, Registration No. 333-97757). |
| 10.14 | - | Amended and Restated Credit Agreement among ENSCO International Incorporated and ENSCO Offshore International Company as Borrowers, the lenders signatory thereto, Citigroup Global Markets Inc. and J.P. Morgan Securities Inc. as Joint Lead Arrangers and Joint Book Managers, Citibank, N.A. as Administrative Agent, JPMorgan Chase Bank, NA, as Syndication Agent, DnB NOR Bank ASA, New York Branch as Issuing Bank, The Bank Of Tokyo-Mitsubishi, Ltd., DnB NOR Bank ASA, New York Branch, and Wells Fargo Bank, N.A. as Co-Documentation Agents, and Mizuho Corporate Bank, Ltd. and SunTrust Bank as Co-Agents concerning a $350 million unsecured revolving credit facility, dated as of June 23, 2005 (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated June 23, 2005, File No. 1-8097). |
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| 10.15 | - | Amendment No. 3 to the ENSCO International Incorporated 2000 Stock Option Plan (incorporated by reference to Exhibit 10.18 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2002, File No. 1-8097). |
| 10.16 | - | Amendment to the ENSCO International Incorporated 1998 Incentive Plan (incorporated by reference to Exhibit 10.19 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2002, File No. 1-8097). |
| 10.17 | - | Amendment to the ENSCO International Incorporated 1993 Incentive Plan, as amended (incorporated by reference to Exhibit 10.20 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2002, File No. 1-8097). |
| 10.18 | - | Amendment to the ENSCO International Incorporated 1996 Non-Employee Directors Stock Option Plan (incorporated by reference to Exhibit 10.21 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2002, File No. 1-8097). |
| 10.19 | - | ENSCO Non-Employee Director Deferred Compensation Plan (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, File No. 1-8097). |
| 10.20 | - | ENSCO Supplemental Executive Retirement Plan, as amended and restated effective January 1, 2004 (incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, File No. 1-8097). |
| 10.21 | - | ENSCO Supplemental Executive Retirement Plan and Non-Employee Director Deferred Compensation Plan Trust Agreement, as revised and restated effective January 1, 2004 (incorporated by reference to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, File No. 1-8097). |
| 10.22 | - | ENSCO International Incorporated Key Employees' Incentive Compensation Plan, as revised and restated effective January 1, 2003 (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, File No. 1-8097). |
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| 10.23 | - | ENSCO 2005 Supplemental Executive Retirement Plan, effective January 1, 2005 (incorporated by reference to Exhibit 99.1 to the Registrant's Current Report on Form 8-K dated January 5, 2005, File No. 1-8097). |
| 10.24 | - | ENSCO 2005 Non-Employee Director Deferred Compensation Plan, effective January 1, 2005 (incorporated by reference to Exhibit 99.2 to the Registrant's Current Report on Form 8-K dated January 5, 2005, File No. 1-8097). |
| 10.25 | - | ENSCO 2005 Benefit Reserve Trust, effective January 1, 2005 (incorporated by reference to Exhibit 99.3 to the Registrant's Current Report on Form 8-K dated January 5, 2005, File No. 1-8097). |
| 10.26 | - | ENSCO 2005 Long-Term Incentive Plan, effective January 1, 2005 (incorporated by reference to Exhibit B to the Company's Definitive Proxy Statement filed with the Commission on March 21, 2005, File No. 1-8097). |
| 10.27 | - | ENSCO 2005 Cash Incentive Plan, effective January 1, 2005 (incorporated by reference to Exhibit C to the Company's Definitive Proxy Statement filed with the Commission on March 21, 2005, File No. 1-8097). |
| 10.28 | - | Amendment No. 6 to the ENSCO Savings Plan (As Revised and Restated Effective January 1, 1997), dated as of September 1, 2005 (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report of Form 10-Q for the quarter ended September 30, 2005, File No. 1-8097). |
| *10.29 | - | Amendment to the ENSCO International Incorporated 1998 Incentive Plan. |
| 10.30 | - | Employment Offer Letter Agreement dated January 13, 2006 and accepted on February 6, 2006 between the Company and Daniel W. Rabun (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated February 6, 2006, File No. 1-8097). |
| *21.1 | - | Subsidiaries of the Registrant. |
| *23.1 | - | Consent of Independent Registered Public Accounting Firm. |
| *31.1 | - | Certification of the Chief Executive Officer of Registrant pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| *31.2 | - | Certification of the Chief Financial Officer of Registrant pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| *32.1 | - | Certification of the Chief Executive Officer of Registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| *32.2 | - | Certification of the Chief Financial Officer of Registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| * Filed herewith |
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| Executive Compensation Plans and Arrangements |
| The following is a list of all executive compensation plans and arrangements required to be filed as an exhibit to this Form 10-K: |
| 1. | ENSCO International Incorporated 1993 Incentive Plan, as amended (filed as Exhibit 10.1 hereto and incorporated by reference to Exhibit 10.1 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993, File No. 1-8097). | |
| 2. | ENSCO International Incorporated 1996 Non-Employee Directors Stock Option Plan (filed as Exhibit 10.2 hereto and incorporated by reference to Exhibit 4.1 to the Registrant's Registration Statement Form S-8 filed August 23, 1996, Registration No. 333-10733). | |
| 3. | Amendment to ENSCO International Incorporated Incentive Plan, dated November 11, 1997 (filed as Exhibit 10.3 hereto and incorporated by reference to Exhibit 10.2 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1997, File No. 1-8097). | |
| 4. | ENSCO International Incorporated 1998 Incentive Plan (filed as Exhibit 10.6 hereto and incorporated by reference to Exhibit 4.1 to the Registrant's Form S-8 filed on July 7, 1998, Registration No. 333-58625). | |
| 5. | Amendment to the ENSCO International Incorporated 1998 Incentive Plan (filed as Exhibit 10.16 hereto and incorporated by reference to Exhibit 10.19 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2002, File No. 1-8097). | |
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| 6. | Amendment to the ENSCO International Incorporated 1996 Non-Employee Directors Stock Option Plan (filed as Exhibit 10.18 hereto and incorporated by reference to Exhibit 10.21 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2002, File No. 1-8097). | |
| 7. | Amendment to the ENSCO International Incorporated 1993 Incentive Plan, as amended (filed as Exhibit 10.17 hereto and incorporated by reference to Exhibit 10.20 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2002, File No. 1-8097). | |
| 8. | ENSCO Non-Employee Director Deferred Compensation Plan (filed as Exhibit 10.19 hereto and incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, File No. 1-8097). | |
| 9. | ENSCO Supplemental Executive Retirement Plan, as amended and restated effective January 1, 2004 (filed as Exhibit 10.20 hereto and incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, File No. 1-8097). | |
| 10. | ENSCO Supplemental Executive Retirement Plan and Non-Employee Director Deferred Compensation Plan Trust Agreement, as revised and restated effective January 1, 2004 (filed as Exhibit 10.21 hereto and incorporated by reference to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, File No. 1-8097). | |
| 11. | ENSCO International Incorporated Key Employees' Incentive Compensation Plan, as revised and restated effective January 1, 2003 (filed as Exhibit 10.22 hereto and incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, File No. 1-8097). |
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| 12. | ENSCO 2005 Supplemental Executive Retirement Plan, effective January 1, 2005 (filed as Exhibit 10.23 hereto and incorporated by reference to Exhibit 99.1 to the Registrant's Current Report on Form 8-K dated January 5, 2005, File No. 1-8097). | |
| 13. | ENSCO 2005 Non-Employee Director Deferred Compensation Plan, effective January 1, 2005 (filed as Exhibit 10.24 hereto and incorporated by reference to Exhibit 99.2 to the Registrant's Current Report on Form 8-K dated January 5, 2005, File No. 1-8097). | |
| 14. | ENSCO 2005 Benefit Reserve Trust, effective January 1, 2005 (filed as Exhibit 10.25 hereto and incorporated by reference to Exhibit 99.3 to the Registrant's Current Report on Form 8-K dated January 5, 2005, File No. 1-8097). | |
| 15. | ENSCO 2005 Long-Term Incentive Plan, effective January 1, 2005 (filed as Exhibit 10.26 hereto and incorporated by reference to Exhibit B to the Company's Definitive Proxy Statement filed with the Commission on March 21, 2005, File No. 1-8097). | |
| 16. | ENSCO 2005 Cash Incentive Plan, effective January 1, 2005 (filed as Exhibit 10.27 hereto and incorporated by reference to Exhibit C to the Company's Definitive Proxy Statement filed with the Commission on March 21, 2005, File No. 1-8097). | |
| 17. | Amendment No. 6 to the ENSCO Savings Plan (As Revised and Restated Effective January 1, 1997), dated as of September 1, 2005 (filed as Exhibit 10.28 hereto and incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report of Form 10-Q for the quarter ended September 30, 2005, File No. 1-8097). | |
| 18. | Amendment to the ENSCO International Incorporated 1998 Incentive Plan (filed as Exhibit 10.29 hereto). | |
| 19. | Employment Offer Letter Agreement dated January 13, 2006 and accepted on February 6, 2006 between the Company and Daniel W. Rabun (filed as Exhibit 10.30 hereto and incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated February 6, 2006, File No. 1-8097). |
| The Company will furnish to the Securities and Exchange Commission upon request, all constituent instruments defining the rights of holders of long-term debt of the Company not filed herewith as permitted by paragraph (b)(4)(iii)(A) of Item 601 of Regulation S-K. |
| (c) | Excluded Financial Statements |
| None. | |||
Table of Contents |
| ENSCO International Incorporated (Registrant) | ||
| By /s/ CARL F. THORNE Carl F. Thorne Chairman of the Board and Chief Executive Officer |
| Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the date indicated. |
| Signatures | Title | Date | ||
| /s/ J. W. SWENT J. W. Swent | Senior Vice President - Chief Financial Officer | February 23, 2006 | ||
| /s/ H. E. MALONE, JR. H. E. Malone, Jr. | Vice President - Finance | February 23, 2006 | ||
| /s/ DAVID A. ARMOUR David A. Armour | Controller | February 23, 2006 | ||
| /s/ DAVID M. CARMICHAEL David M. Carmichael | Director | February 23, 2006 | ||
| /s/ GERALD W. HADDOCK Gerald W. Haddock | Director | February 23, 2006 | ||
| /s/ THOMAS L. KELLY II Thomas L. Kelly II | Director | February 23, 2006 | ||
| /s/ MORTON H. MEYERSON Morton H. Meyerson | Director | February 23, 2006 | ||
| /s/ RITA M. RODRIGUEZ Rita M. Rodriguez | Director | February 23, 2006 | ||
| /s/ PAUL E. ROWSEY, III Paul E. Rowsey, III | Director | February 23, 2006 | ||
| /s/ JOEL V. STAFF Joel V. Staff | Director | February 23, 2006 |
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