XNYS:ESV Ensco PLC Class A Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
     Washington, D.C. 20549     
 
FORM 10-Q

(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2012
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from                   to                  

Commission File Number 1-8097

 Ensco plc
(Exact name of registrant as specified in its charter)

England and Wales
(State or other jurisdiction of
incorporation or organization)
 
6 Chesterfield Gardens
London, England
(Address of principal executive offices)
 
98-0635229
(I.R.S. Employer
Identification No.)
 
W1J 5BQ
(Zip Code)
 Registrant's telephone number, including area code:  44 (0) 20 7659 4660
  
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x        No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
x
  
Accelerated filer
 
o
 
 
 
 
 
 
 
Non-Accelerated filer
 
o  (Do not check if a smaller reporting company)
  
Smaller reporting company
 
o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o      No  x
 
As of April 27, 2012, there were 231,330,787 American depositary shares of the registrant issued and outstanding, each representing one Class A ordinary share.






ENSCO PLC
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2012

 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 5. OTHER INFORMATION
 
 
 
 






EXPLANATORY NOTE

On May 31, 2011 (the "Merger Date"), Ensco plc completed a merger transaction (the "Merger") with Pride International, Inc., a Delaware corporation ("Pride"), ENSCO International Incorporated, a Delaware corporation and an indirect, wholly-owned subsidiary and predecessor of Ensco plc ("Ensco Delaware"), and ENSCO Ventures LLC, a Delaware limited liability company and an indirect, wholly-owned subsidiary of Ensco plc ("Merger Sub").

In connection with the integration of Pride’s operations, we are in the process of changing the names of most of Pride’s fleet in accordance with our naming convention. For purposes of this quarterly report, we used the new names whether or not the name change had been legally completed. For a list of the new and old rig names, see the most recent Fleet Status Report posted in the Investor Relations section of our website at www.enscoplc.com. Information contained on our website is not included as part of, or incorporated by reference into, this report.

FORWARD-LOOKING STATEMENTS
  
Statements contained in this report that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  Forward-looking statements include words or phrases such as "anticipate," "believe," "estimate," "expect," "intend," "plan," "project," "could," "may," "might," "should," "will" and similar words and specifically include statements regarding expected financial performance; expected utilization, day rates, revenues, operating expenses, contract term, contract backlog, capital expenditures, insurance, financing and funding; the timing of availability, delivery, mobilization, contract commencement or relocation or other movement of rigs; future rig construction (including construction in progress and completion thereof), enhancement, upgrade or repair and timing thereof; the suitability of rigs for future contracts; general market, business and industry conditions, trends and outlook; future operations; the impact of increasing regulatory complexity; expected contributions from our rig fleet expansion program and our program to high-grade the rig fleet by investing in new equipment and divesting selected assets and underutilized rigs; expense management; and the likely outcome of litigation, legal proceedings, investigations or insurance or other claims and the timing thereof.

Such statements are subject to numerous risks, uncertainties and assumptions that may cause actual results to vary materially from those indicated, including:
 
downtime and other risks associated with offshore rig operations or rig relocations, including rig or equipment failure, damage and other unplanned repairs, the limited availability of transport vessels, hazards, self-imposed drilling limitations and other delays due to severe storms and hurricanes and the limited availability or high cost of insurance coverage for certain offshore perils, such as hurricanes in the Gulf of Mexico or associated removal of wreckage or debris;

changes in worldwide rig supply and demand, competition or technology, including changes as a result of delivery of newbuild drilling rigs;

changes in future levels of drilling activity and expenditures, whether as a result of global capital markets and liquidity, prices of oil and natural gas or otherwise, which may cause us to idle or stack additional rigs;

governmental action, terrorism, piracy, military action and political and economic uncertainties, including uncertainty or instability resulting from civil unrest, political demonstrations, mass strikes, or an escalation or additional outbreak of armed hostilities or other crises in oil or natural gas producing areas of the Middle East, North Africa, West Africa or other geographic areas, which may result in expropriation, nationalization, confiscation or deprivation of our assets or result in claims of a force majeure situation;

risks inherent to shipyard rig construction, repair or enhancement, including risks associated with concentration of our construction contracts with two shipyards, unexpected delays in equipment delivery and engineering or design issues following delivery, or changes in the commencement, completion or service dates;

1




possible cancellation or suspension of drilling contracts as a result of mechanical difficulties, performance or other reasons;

the outcome of litigation, legal proceedings, investigations or other claims or contract disputes, including any inability to collect receivables or resolve significant contractual or day rate disputes, any purported renegotiation, nullification, cancellation or breach of contracts with customers or other parties and any failure to negotiate or complete definitive contracts following announcements of receipt of letters of intent;

governmental regulatory, legislative and permitting requirements affecting drilling operations, including limitations on drilling locations, such as the Gulf of Mexico during hurricane season;

new and future regulatory, legislative or permitting requirements, future lease sales, changes in laws, rules and regulations that have or may impose increased financial responsibility, additional oil spill abatement contingency plan capability requirements and other governmental actions that may result in claims of force majeure or otherwise adversely affect our existing drilling contracts;

our ability to attract and retain skilled personnel on commercially reasonable terms, whether due to labor regulations, unionization or otherwise;

environmental or other liabilities, risks or losses, whether related to storm or hurricane damage, losses or liabilities (including wreckage or debris removal), collisions, groundings, blowouts, fires, explosions and other accidents or terrorism or otherwise, for which insurance coverage and contractual indemnities may be insufficient, unenforceable or otherwise unavailable;

our debt levels and debt agreement restrictions may limit our liquidity and flexibility in obtaining additional financing and in pursuing other business opportunities;

our ability to realize expected benefits from the December 2009 redomestication as a U.K. public limited company and the related reorganization of Ensco's corporate structure (the "redomestication"), including the effect of any changes in laws, rules and regulations, or the interpretation thereof, or in the applicable facts, that could adversely affect our status as a non-U.S. corporation for U.S. tax purposes or otherwise adversely affect our anticipated consolidated effective income tax rate;

delays in actual contract commencement dates;

adverse changes in foreign currency exchange rates, including their effect on the fair value measurement of our derivative instruments;

potential long-lived asset or goodwill impairments; and

the additional risks, uncertainties and assumptions described in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part I and in "Item 1A. Risk Factors" in Part II of this report.

In addition to the numerous risks, uncertainties and assumptions described above, you should also carefully read and consider "Item 1A. Risk Factors" in Part I and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II of our annual report on Form 10-K for the year ended December 31, 2011, which is available on the SEC's website at www.sec.gov. Each forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to publicly update or revise any forward looking statements, except as required by law.





2



PART I - FINANCIAL INFORMATION

Item 1.Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
The Board of Directors and Shareholders
Ensco plc:
 
We have reviewed the condensed consolidated balance sheet of Ensco plc and subsidiaries (the Company) as of March 31, 2012, the related condensed consolidated statements of income for the three-month periods ended March 31, 2012 and 2011, the related condensed consolidated statements of comprehensive income for the three-month periods ended March 31, 2012 and 2011, and the related condensed consolidated statements of cash flows for the three-month periods ended March 31, 2012 and 2011. These condensed consolidated financial statements are the responsibility of the Company's management.
 
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
 
Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.
 
We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Ensco plc and subsidiaries as of December 31, 2011, and the related consolidated statements of income and cash flows for the year then ended (not presented herein); and in our report dated February 24, 2012, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2011 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
 
 
 
 
/s/ KPMG LLP
 
Houston, Texas
May 3, 2012

3



ENSCO PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
(Unaudited)
 
Three Months Ended
March 31,
 
2012
 
2011
OPERATING REVENUES
$
1,026.4

 
$
361.5

OPERATING EXPENSES
 
 
 
Contract drilling (exclusive of depreciation)
520.2

 
191.6

Depreciation
139.4

 
59.5

General and administrative
38.2

 
30.1

 
697.8

 
281.2

 
 
 
 
OPERATING INCOME
328.6

 
80.3

 
 
 
 
OTHER INCOME (EXPENSE)
 

 
 

Interest income
5.9

 
.2

Interest expense, net
(34.6
)
 
(4.1
)
Other, net
2.5

 
6.1

 
(26.2
)
 
2.2

 
 
 
 
INCOME BEFORE INCOME TAXES
302.4

 
82.5

 
 
 
 
PROVISION FOR INCOME TAXES
 
 
 
Current income tax expense
30.4

 
26.3

Deferred income tax expense (benefit)
4.6

 
(9.3
)
 
35.0

 
17.0

 
 
 
 
NET INCOME
267.4

 
65.5

 
 
 
 
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
(2.0
)
 
(.9
)
 
 
 
 
NET INCOME ATTRIBUTABLE TO ENSCO
$
265.4

 
$
64.6

 
 
 
 
EARNINGS PER SHARE
 
 
 
Basic
$
1.15

 
$
0.45

Diluted
$
1.15

 
$
0.45

 
 
 
 
NET INCOME ATTRIBUTABLE TO ENSCO SHARES
 
 
 
Basic
$
262.7

 
$
63.6

Diluted
$
262.7

 
$
63.6

WEIGHTED-AVERAGE SHARES OUTSTANDING
 
 
 
Basic
228.8

 
141.2

Diluted
229.2

 
141.4

 
 
 
 
CASH DIVIDENDS PER SHARE
$
.375

 
$
.350

 
The accompanying notes are an integral part of these condensed consolidated financial statements.

4



ENSCO PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)

 
 
Three Months Ended March 31,
 
2012
 
2011
 
 
 
 
NET INCOME
$
267.4

 
$
65.5

OTHER COMPREHENSIVE INCOME (LOSS), NET
 
 
 
Net change in fair value of derivatives
6.3

 
2.9

Reclassification of gains and losses on derivative instruments from other comprehensive income into net income
(.1
)
 
(.8
)
Other
(1.9
)
 

NET OTHER COMPREHENSIVE INCOME
4.3

 
2.1

 
 
 
 
COMPREHENSIVE INCOME
271.7

 
67.6

COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
(2.0
)
 
(.9
)
COMPREHENSIVE INCOME ATTRIBUTABLE TO ENSCO
$
269.7

 
$
66.7


The accompanying notes are an integral part of these condensed consolidated financial statements.

5



ENSCO PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share and par value amounts)
 
 
March 31,
2012
 
December 31,
2011
 
(Unaudited)
 
 
ASSETS
 

 
 

CURRENT ASSETS
 
 
 
    Cash and cash equivalents
$
208.9

 
$
430.7

    Accounts receivable, net
760.4

 
843.5

    Other
327.7

 
380.3

Total current assets
1,297.0

 
1,654.5

PROPERTY AND EQUIPMENT, AT COST
15,083.5

 
14,483.4

    Less accumulated depreciation
2,193.6

 
2,061.5

       Property and equipment, net
12,889.9

 
12,421.9

GOODWILL
3,263.0

 
3,263.0

OTHER ASSETS, NET
498.1

 
538.5

 
$
17,948.0

 
$
17,877.9

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
CURRENT LIABILITIES
 
 
 
Accounts payable - trade
$
553.5

 
$
644.4

Accrued liabilities and other
438.0

 
514.6

Short-term debt
200.0

 
125.0

Current maturities of long-term debt
47.5

 
47.5

Total current liabilities
1,239.0

 
1,331.5

LONG-TERM DEBT
4,862.6

 
4,877.6

DEFERRED INCOME TAXES
341.4

 
339.5

OTHER LIABILITIES
417.4

 
444.8

COMMITMENTS AND CONTINGENCIES


 


ENSCO SHAREHOLDERS' EQUITY
 

 
 

Class A ordinary shares, U.S. $.10 par value, 450.0 million shares
     authorized and 235.8 million shares issued
23.6

 
23.6

Class B ordinary shares, £1 par value, 50,000 shares authorized and issued
.1

 
.1

Additional paid-in capital
5,274.6

 
5,253.0

Retained earnings
5,791.7

 
5,613.1

Accumulated other comprehensive income
12.9

 
8.6

Treasury shares, at cost, 4.6 million shares and 4.9 million shares
(22.1
)
 
(19.1
)
Total Ensco shareholders' equity
11,080.8

 
10,879.3

NONCONTROLLING INTERESTS
6.8

 
5.2

Total equity
11,087.6

 
10,884.5

 
$
17,948.0

 
$
17,877.9

 
The accompanying notes are an integral part of these condensed consolidated financial statements.

6



ENSCO PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
 
Three Months Ended
March 31,
 
2012
 
2011
OPERATING ACTIVITIES
 

 
 

Net income
$
267.4

 
$
65.5

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation expense
139.4

 
59.5

Amortization of intangibles and other, net
(13.1
)
 
5.5

Share-based compensation expense
11.7

 
11.5

Deferred income tax expense (benefit)
4.6

 
(9.3
)
Other
2.8

 
(2.9
)
Changes in operating assets and liabilities:
 
 
 
Decrease (increase) in accounts receivable
80.5

 
(55.7
)
Decrease (increase) in other assets
33.6

 
(9.2
)
Decrease in trading securities
31.6

 
49.3

(Decrease) increase in liabilities
(11.2
)
 
11.0

Net cash provided by operating activities
547.3

 
125.2

 
 
 
 
INVESTING ACTIVITIES
 
 
 
Additions to property and equipment
(764.1
)
 
(131.0
)
Proceeds from disposition of assets
.6

 
.5

Other 
4.5

 

Net cash used in investing activities
(759.0
)
 
(130.5
)
 
 
 
 
FINANCING ACTIVITIES
 
 
 
Cash dividends paid
(86.8
)
 
(50.2
)
Commercial paper borrowings, net
75.0

 

Reduction of long-term borrowings
(7.1
)
 

Proceeds from issuance of senior notes

 
2,462.8

Debt financing costs      

 
(25.5
)
Other
8.3

 
(.5
)
Net cash (used in) provided by financing activities
(10.6
)
 
2,386.6

 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
.5

 
.1

 
 
 
 
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(221.8
)
 
2,381.4

 
 
 
 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
430.7

 
1,050.7

 
 
 
 
CASH AND CASH EQUIVALENTS, END OF PERIOD
$
208.9

 
$
3,432.1

 
The accompanying notes are an integral part of these condensed consolidated financial statements.

7



ENSCO PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 -Unaudited Condensed Consolidated Financial Statements
 
We prepared the accompanying condensed consolidated financial statements of Ensco plc and subsidiaries (the "Company," "Ensco," "we" or "us") in accordance with accounting principles generally accepted in the United States of America ("GAAP"), pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") included in the instructions to Form 10-Q and Article 10 of Regulation S-X. The financial information included in this report is unaudited but, in our opinion, includes all adjustments (consisting of normal recurring adjustments) that are necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods presented. The December 31, 2011 condensed consolidated balance sheet data were derived from our 2011 audited consolidated financial statements, but do not include all disclosures required by GAAP. Certain previously reported amounts have been reclassified to conform to the current year presentation. The preparation of our condensed consolidated financial statements requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the related revenues and expenses and disclosures of gain and loss contingencies as of the date of the financial statements. Actual results could differ from those estimates.
 
The financial data for the quarters ended March 31, 2012 and 2011 included herein have been subjected to a limited review by KPMG LLP, our independent registered public accounting firm. The accompanying independent registered public accounting firm's review report is not a report within the meaning of Sections 7 and 11 of the Securities Act of 1933, and the independent registered public accounting firm's liability under Section 11 does not extend to it.
 
Results of operations for the quarter ended March 31, 2012 are not necessarily indicative of the results of operations that will be realized for the year ending December 31, 2012.  It is recommended that these condensed consolidated financial statements be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended December 31, 2011 included in our annual report on Form 10-K filed with the SEC on February 24, 2012.
Note 2 -Acquisition of Pride International, Inc.
 
Assets Acquired and Liabilities Assumed
 
The Merger has been accounted for using the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recorded at their estimated fair values as of the Merger Date. The excess of the consideration transferred over the estimated fair values of the net assets acquired was recorded as goodwill. We have not finalized the determination of the fair values of the assets acquired and liabilities assumed and, therefore, the fair value estimates set forth below are subject to adjustment during a measurement period not to exceed one year subsequent to the acquisition date as permitted under GAAP.  The estimated fair values of certain assets and liabilities, including inventory, taxes and contingencies, require judgments and assumptions that increase the likelihood that adjustments may be made to these estimates during the measurement period.  

    

8



The provisional amounts and respective measurement period adjustments recorded for assets acquired and liabilities assumed were based on preliminary estimates of their fair values as of the Merger Date and were as follows:

 
Amounts Recognized as of Merger Date
 
Measurement Period Adjustments(1)
 
Estimated Fair Value
Assets:
 

 
 

 
 

Cash and cash equivalents
$
147.0

 
$

 
$
147.0

Accounts receivable(2)
371.3

 
29.9

 
401.2

Other current assets
150.9

 
9.0

 
159.9

Property and equipment
6,758.8

 
(9.4
)
 
6,749.4

Other assets
343.7

 
25.0

 
368.7

Liabilities:
 

 
 

 
 

Accounts payable and accrued liabilities and other
539.8

 
52.8

 
592.6

Debt 
2,436.0

 

 
2,436.0

Deferred income tax liabilities
19.0

 
(18.3
)
 
.7

Other liabilities
319.8

 
(12.0
)
 
307.8

Net assets acquired
4,457.1

 
32.0

 
4,489.1

Less merger consideration
7,415.9

 

 
7,415.9

Goodwill
$
2,958.8

 
$
(32.0
)
 
$
2,926.8

(1)
The measurement period adjustments reflect changes in the estimated fair values of certain assets and liabilities, primarily related to contingencies and income taxes.  The measurement period adjustments were recorded to reflect new information obtained about facts and circumstances existing as of the Merger Date and did not result from subsequent intervening events.  These adjustments did not have a material impact on our previously reported financial position or results of operations subsequent to the Merger Date; however, we have retrospectively revised our 2011 consolidated financial statements to reflect these adjustments as if they were recorded on the Merger Date. 

(2)
Gross contractual amounts receivable totaled $458.5 million as of the Merger Date.

Goodwill
 
Goodwill recognized as a result of the Merger was calculated as the excess of the consideration transferred over the net assets acquired and represents the estimated fair value of future economic benefits arising from other intangible assets acquired that could not be individually identified and separately recognized.  Goodwill specifically includes the expected synergies and other benefits that we believe will result from combining the operations of Pride with the operations of Ensco and other intangible assets that do not qualify for separate recognition, such as assembled workforce in place at the Merger Date.  Goodwill is not expected to be tax deductible.
 
Goodwill recognized as a result of the Merger preliminarily was allocated to our reportable segments as follows (in millions):
 
Deepwater
$
2,458.3

Midwater
468.5

Jackup

Total
$
2,926.8


9



Contingencies
 
In connection with the Merger, we recognized contingent liabilities resulting from certain lawsuits, claims or proceedings existing as of the Merger Date. These matters existed as of the Merger Date as Pride was involved from time to time as party to governmental or other investigations or proceedings, including matters related to taxation, arising in the ordinary course of business. Although the outcome of such lawsuits or other proceedings cannot be predicted with certainty and the amount of any liability that could arise with respect to such lawsuits or other proceedings cannot be predicted accurately, we do not expect these matters to have a material adverse effect on our financial position, operating results or cash flows.

Deferred Taxes

The acquisition of a business through the purchase of its common stock generally is treated as a "nontaxable" transaction. The acquisition of Pride was executed through the acquisition of its outstanding common stock and, therefore, the historical tax bases of the acquired assets and assumed liabilities, net operating losses and other tax attributes of Pride were assumed as of the Merger Date. However, adjustments were recorded to recognize deferred tax assets and liabilities for the tax effects of differences between acquisition date fair values and tax bases of assets acquired and liabilities assumed. As of the Merger Date, a decrease of $31.1 million to Pride’s net deferred tax liability was recognized.
Note 3 -Fair Value Measurements
 
The following fair value hierarchy table categorizes information regarding our financial assets and liabilities measured at fair value on a recurring basis (in millions):
 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
Total
 
 
 
 
 
 
 
 
As of March 31, 2012
 

 
 

 
 

 
 

Supplemental executive retirement plan assets 
$
28.1

 
$

 
$

 
$
28.1

Derivatives, net 

 
1.1

 

 
1.1

Total financial assets
$
28.1

 
$
1.1

 
$

 
$
29.2

 
 
 
 
 
 
 
 
 As of December 31, 2011
 

 
 

 
 

 
 

Hercules Offshore, Inc. common stock
$
32.2

 
$

 
$

 
$
32.2

Supplemental executive retirement plan assets
25.6

 

 

 
25.6

Total financial assets
$
57.8

 
$

 
$

 
$
57.8

Derivatives, net 
$

 
$
7.1

 
$

 
$
7.1

Total financial liabilities
$

 
$
7.1

 
$

 
$
7.1


Hercules Offshore, Inc. Common Stock
 
In December 2011, we received 10.3 million shares of Hercules Offshore, Inc. ("HERO") common stock in connection with the resolution of certain litigation in respect of the previously reported Seahawk Drilling, Inc. ("Seahawk") bankruptcy claims.  We subsequently sold 3.0 million shares for $13.4 million of net proceeds in December 2011 and sold the remaining 7.3 million shares for $31.6 million of net proceeds in January 2012. 


10



In connection with the bankruptcy, we received an additional 1.1 million shares of HERO common stock during the first quarter of 2012, which we sold for $5.0 million during the same period. The aforementioned events revealed new information about facts and circumstances in existence as of the Merger Date that, if known at the Merger Date, would have led to a different estimate of the acquired receivable from Seahawk.  Therefore, the impact of the applicable portion of the aforementioned recovery from the Seahawk bankruptcy estate during the first quarter of 2012 was recorded as a retrospective decrease to goodwill and an increase in the acquired receivable from Seahawk as of the Merger Date. As of March 31, 2012, we did not hold any HERO common stock. We designated our investments in HERO common stock as trading securities as it was our intent to sell them in the near-term.  Net proceeds from sales of HERO common stock and net realized losses recorded during the quarter ended March 31, 2012 were $36.6 million and $933,000, respectively.

Supplemental Executive Retirement Plan Assets
 
Our Ensco supplemental executive retirement plans (the "SERP") are non-qualified plans that accord eligible employees an opportunity to defer a portion of their compensation for use after retirement. Assets held in the SERP were marketable securities measured at fair value on a recurring basis using Level 1 inputs and were included in other assets, net, on our condensed consolidated balance sheets. The fair value measurement of assets held in the SERP was based on quoted market prices.
 
Derivatives
 
Our derivatives were measured at fair value on a recurring basis using Level 2 inputs as of March 31, 2012 and December 31, 2011. See "Note 4 - Derivative Instruments" for additional information on our derivatives, including a description of our foreign currency hedging activities and related methodologies used to manage foreign currency exchange rate risk. The fair value measurement of our derivatives was based on market prices that generally are observable for similar assets or liabilities at commonly-quoted intervals.
 
Other Financial Instruments
 
The carrying values and estimated fair values of our long-term debt instruments were as follows (in millions):
 
March 31,
2012
 
December 31,
2011
 
Carrying Value  
 
Estimated Fair Value  
 
Carrying Value  
 
Estimated Fair Value  
4.70% Senior notes due 2021
$
1,472.9

 
$
1,617.9

 
$
1,472.2

 
$
1,565.8

6.875% Senior notes due 2020
1,052.1

 
1,098.9

 
1,055.8

 
1,042.7

3.25% Senior notes due 2016
993.9

 
1,043.2

 
993.5

 
1,016.5

8.50% Senior notes due 2019
627.9

 
659.6

 
631.7

 
615.3

7.875% Senior notes due 2040
384.7

 
416.2

 
385.0

 
381.9

7.20% Debentures due 2027
149.0

 
176.3

 
149.0

 
167.2

4.33% MARAD bonds, including current maturities, due 2016
138.4

 
139.2

 
146.7

 
156.4

6.36% MARAD bonds, including current maturities, due 2015
50.7

 
63.1

 
50.7

 
64.0

4.65% MARAD bonds, including current maturities, due 2020
40.5

 
49.0

 
40.5

 
49.6

Total
$
4,910.1

 
$
5,263.4

 
$
4,925.1

 
$
5,059.4


The estimated fair values of our senior notes and debentures were determined using quoted market prices. The estimated fair values of our MARAD bonds were determined using an income approach valuation model. The estimated fair values of our cash and cash equivalents, receivables, trade payables and other liabilities approximated their carrying values as of March 31, 2012 and December 31, 2011 due, in most circumstances, to their short-term nature.



11



Note 4 -Derivative Instruments
    
Our functional currency is the U.S. dollar. As is customary in the oil and gas industry, a majority of our revenues are denominated in U.S. dollars; however, a portion of the revenues earned and expenses incurred by some of our subsidiaries are denominated in currencies other than the U.S. dollar ("foreign currencies"). These transactions are remeasured in U.S. dollars based on a combination of both current and historical exchange rates. We use foreign currency forward contracts ("derivatives") to reduce our exposure to various market risks, primarily foreign currency exchange rate risk.
 
All derivatives were recorded on our condensed consolidated balance sheets at fair value. 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.  Net assets of $1.1 million and net liabilities of $7.1 million associated with our foreign currency derivatives were included in our condensed consolidated balance sheets as of March 31, 2012 and December 31, 2011, respectively.  All of our derivatives mature during the next 17 months.  See "Note 3 - Fair Value Measurements" for additional information on the fair value measurement of our derivatives.
 
Derivatives recorded at fair value in our condensed consolidated balance sheets consisted of the following (in millions):
 
Derivative Assets
 
Derivative Liabilities
 
March 31,
2012
 
December 31,
2011
 
March 31,
2012
 
December 31,
2011
 
 
 
 
 
 
 
 
Derivatives Designated as Hedging Instruments
 
 
 

 
 

 
 

Foreign currency forward contracts - current(1)
$
2.5

 
$
.2

 
$
1.7

 
$
7.1

Foreign currency forward contracts - non-current(2)
.2

 
.1

 

 
.1

 
2.7

 
.3

 
1.7

 
7.2

 
 
 
 
 
 
 
 
Derivatives Not Designated as Hedging Instruments
 
 
 

 
 

 
 

Foreign currency forward contracts - current(1)
.1

 

 

 
.2

 
.1

 

 

 
.2

Total
$
2.8

 
$
.3

 
$
1.7

 
$
7.4

 
(1)
Derivative assets and liabilities that have maturity dates equal to or less than twelve months from the respective balance sheet date were included in other current assets and accrued liabilities and other, respectively, on our condensed consolidated balance sheets.

(2)
Derivative assets and liabilities that have maturity dates greater than twelve months from the respective balance sheet date were included in other assets, net, and other liabilities, respectively, on our condensed consolidated balance sheets.
 
We utilize cash flow hedges to hedge forecasted foreign currency denominated transactions, primarily to reduce our exposure to foreign currency exchange rate risk associated with contract drilling expenses denominated in various currencies. As of March 31, 2012, we had cash flow hedges outstanding to exchange an aggregate $265.1 million for various foreign currencies, including $124.7 million for British pounds, $83.8 million for Singapore dollars, $26.8 million for Australian dollars, $22.5 million for euros and $7.3 million for other currencies.





12



Gains and losses, net of tax, on derivatives designated as cash flow hedges included in our condensed consolidated statements of income for the quarters ended March 31, 2012 and 2011 were as follows (in millions):
 
Derivatives Designated as Cash Flow Hedges
Gain (Loss) Recognized in Other Comprehensive Income (Effective Portion)  
 
Gain (Loss) Reclassified  from Accumulated Other Comprehensive Income ("AOCI") into Income (Effective Portion)
 
Gain (Loss) Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing)(1)
 
2012
 
2011
 
2012
 
2011
 
2012
 
2011
Interest rate lock contracts(2)
$

 
$

 
$
.1

 
$
(.1
)
 
$

 
$

Foreign currency forward contracts(3)
6.3

 
2.9

 

 
.9

 
(.8
)
 
(.4
)
Total
$
6.3

 
$
2.9

 
$
.1

 
$
.8

 
$
(.8
)
 
$
(.4
)
 
(1)
Gains and losses recognized in income for ineffectiveness and amounts excluded from effectiveness testing were included in other, net, in our condensed consolidated statements of income.

(2)
Losses on derivatives reclassified from AOCI into income (effective portion) were included in interest expense in our condensed consolidated statements of income.

(3)
Gains and losses on derivatives reclassified from AOCI into income (effective portion) were included in contract drilling expense in our condensed consolidated statements of income.
    
We have net assets and liabilities denominated in numerous foreign currencies and use various methods to manage our exposure to foreign currency exchange rate risk. We predominantly structure our drilling contracts in U.S. dollars, which significantly reduces the portion of our cash flows and assets denominated in foreign currencies. We occasionally enter into derivatives that hedge the fair value of recognized foreign currency denominated assets or liabilities but do not designate such derivatives as hedging instruments.  In these situations, a natural hedging relationship generally exists whereby changes in the fair value of the derivatives offset changes in the fair value of the underlying hedged items. As of March 31, 2012, we held derivatives not designated as hedging instruments to exchange an aggregate $72.2 million for various foreign currencies, including $15.5 million for Swiss francs, $13.3 million for euros, $12.7 million for Australian dollars, $10.9 million for British pounds and $19.8 million for other currencies.
 
Net gains of $900,000 and $200,000 associated with our derivatives not designated as hedging instruments were included in other, net, in our condensed consolidated statements of income for the quarters ended March 31, 2012 and 2011, respectively.
 
As of March 31, 2012, the estimated amount of net losses associated with derivative instruments, net of tax, that would be reclassified to earnings during the next twelve months totaled $400,000.
Note 5 - Earnings Per Share
 
We compute basic and diluted earnings per share ("EPS") in accordance with the two-class method. Net income attributable to Ensco used in our computations of basic and diluted EPS is adjusted to exclude net income allocated to non-vested shares granted to our employees and non-employee directors. Weighted-average shares outstanding used in our computation of diluted EPS includes the dilutive effect of share options using the treasury stock method and excludes non-vested shares.

    

13



The following table is a reconciliation of net income attributable to Ensco shares used in our basic and diluted EPS computations for the quarters ended March 31, 2012 and 2011 (in millions):
 
2012
 
2011
 
 
 
 
Net income attributable to Ensco
$
265.4

 
$
64.6

Net income allocated to non-vested shares
(2.7
)
 
(1.0
)
Net income attributable to Ensco shares
$
262.7

 
$
63.6

 
The following table is a reconciliation of the weighted-average shares used in our basic and diluted EPS computations for the quarters ended March 31, 2012 and 2011 (in millions):
 
2012
 
2011
 
 
 
 
Weighted-average shares - basic
228.8

 
141.2

Potentially dilutive share options
.4

 
.2

Weighted-average shares - diluted
229.2

 
141.4

 
Antidilutive share options totaling 400,000 were excluded from the computation of diluted EPS for the quarters ended March 31, 2012 and 2011
Note 6 -
Income Taxes
 
Our consolidated effective income tax rate for the quarter ended March 31, 2012 of 11.6% includes the impact of various discrete tax items, the majority of which is attributable to the derecognition of a liability upon the lapse of the statute of limitations applicable to an uncertain tax position, partially offset by the resolution of a prior period tax matter. Excluding the impact of the aforementioned discrete items, our consolidated effective income tax rate for the quarter ended March 31, 2012 was 12.1% compared to a consolidated effective income tax rate, excluding discrete tax items, of 14.9% for the quarter ended March 31, 2011. The decrease primarily was attributable to the impact of the acquired operations of Pride and other changes in taxing jurisdictions in which our drilling rigs are operated and/or owned that resulted in an increase in the relative components of our earnings generated in tax jurisdictions with lower tax rates, partially offset by the impact of the expiration of the Look-thru Rule for Related Controlled Foreign Corporations under Internal Revenue Code Section 954(c)(6) on December 31, 2011. The Look-thru rule generally excludes from U.S. federal income tax certain dividends, interest, rents and royalties received or accrued by a controlled foreign corporation (“CFC”) from a related CFC that would otherwise be taxable pursuant to the Subpart F regime.
Note 7 -Contingencies
 
Derivative Cases and Shareholder Class Actions
 
In April 2010, two purported shareholders of Pride filed separate derivative actions against all of Pride's then-current directors and against Pride, as nominal defendant. The lawsuits were consolidated and alleged that the individual defendants breached their fiduciary duties in regards to certain matters involving Pride's previously disclosed investigation under the Foreign Corrupt Practices Act ("FCPA"). Among other remedies, the lawsuit sought damages in an unspecified amount and equitable relief against the individual defendants, along with an award of attorney fees and other costs and expenses to the plaintiff. After the conclusion of Pride's investigation, the plaintiffs filed a consolidated amended petition in January 2011, raising allegations substantially similar to those made in the prior lawsuits.
    
    

14



Following the announcement of the Merger, a number of putative shareholder class action complaints or petitions were filed against various combinations of Pride, Pride's directors, Ensco and certain of our subsidiaries. These lawsuits challenged the proposed Merger and generally alleged, among other matters, that the individual members of the Pride board of directors breached their fiduciary duties by approving the proposed Merger, failing to take steps to maximize value to Pride's shareholders and failing to disclose material information concerning the proposed Merger in the registration statement on Form S-4; that Pride, Ensco and certain of our subsidiaries aided and abetted such breaches of fiduciary duties; and that the Merger improperly favored Ensco and unduly restricted Pride's ability to negotiate with other bidders. These lawsuits generally sought, among other remedies, compensatory damages, declaratory and injunctive relief concerning the alleged fiduciary breaches, and injunctive relief prohibiting the defendants from consummating the Merger. In addition, the plaintiffs in the derivative class action lawsuits related to Pride's previously disclosed FCPA investigation amended their petition to add claims related to the Merger.

In 2011, we entered into a stipulation of settlement with the plaintiffs in certain cases, under which Pride or its successor agreed not to oppose any application by attorneys for the class for fees and expenses not exceeding $1.1 million. The plaintiffs in all but one of the remaining cases filed motions to dismiss with prejudice, and these motions were approved in March 2012. Our motion to dismiss in the remaining matter currently is pending. At this time, we are unable to predict the outcome of this matter or estimate the extent to which we may be exposed to any resulting liability. Although the outcome cannot be predicted, we do not expect this matter to have a material adverse effect on our financial position, operating results or cash flows.

ENSCO 74 Loss

In September 2008, ENSCO 74 was lost as a result of Hurricane Ike in the U.S. Gulf of Mexico.  Portions of its legs remained underwater adjacent to the customer's platform, and the sunken rig hull of ENSCO 74 was located approximately 95 miles from the original drilling location when it was struck by an oil tanker in March 2009.  In 2010, wreck removal operations on the sunken rig hull of ENSCO 74 were completed.
 
In April 2012, we entered into an agreement with the customer pursuant to which, among other matters, the customer agreed to remove the legs and Ensco agreed to pay $19.0 million in nine installments upon the completion of certain milestones during the removal. The actual removal costs may be less than or greater than the aggregate amount paid to the customer, which will not result in any reduction in the $19.0 million amount paid or additional payments due to the customer from Ensco. We have insurance coverage for the actual removal costs incurred by the customer. A $19.0 million liability and a corresponding receivable for recovery of those costs under our insurance policy was recorded as of March 31, 2012 and included in accrued liabilities and other and other assets, net, on our condensed consolidated balance sheet.

In March 2009, we received notice from legal counsel representing certain underwriters in a subrogation claim alleging that ENSCO 74 caused a pipeline to rupture during Hurricane Ike.  In September 2009, civil litigation was filed seeking damages for the cost of repairs and business interruption in an amount in excess of $26.0 million. Based on information currently available, primarily the adequacy of available defenses, we have not concluded that it is probable a liability exists with respect to this matter.

In March 2009, the owner of the oil tanker that struck the hull of ENSCO 74 commenced civil litigation against us seeking monetary damages of $10.0 million for losses incurred when the tanker struck the sunken hull of ENSCO 74. Based on information currently available, primarily the adequacy of available defenses, we have not concluded that it is probable a liability exists with respect to this matter.
  
We filed a petition for exoneration or limitation of liability under U.S. admiralty and maritime law in September 2009. The petition seeks exoneration from or limitation of liability for any and all injury, loss or damage caused, occasioned or occurred in relation to the ENSCO 74 loss in September 2008. The owner of the tanker that struck the hull of ENSCO 74 and the owners of two subsea pipelines have presented claims in the exoneration/limitation proceedings.  The matter is scheduled for trial in November 2012.
 

15



We have liability insurance policies that provide coverage for claims such as the tanker and pipeline claims as well as removal of wreckage and debris in excess of the property insurance policy sublimit, subject to a $10.0 million per occurrence self-insured retention for third-party claims and an annual aggregate limit of $500.0 million. We believe all liabilities associated with the ENSCO 74 loss during Hurricane Ike resulted from a single occurrence under the terms of the applicable insurance policies. However, legal counsel for certain liability underwriters have asserted that the liability claims arise from separate occurrences. In the event of multiple occurrences, the self-insured retention is $15.0 million for two occurrences and $1.0 million for each occurrence thereafter.

Although we do not expect final disposition of the claims associated with the ENSCO 74 loss to have a material adverse effect upon our financial position, operating results or cash flows, there can be no assurances as to the ultimate outcome.
  
Asbestos Litigation

During 2004, we and certain current and former subsidiaries were named as defendants, along with numerous other third-party companies as co-defendants, in several multi-party lawsuits filed in Mississippi. The lawsuits sought an unspecified amount of monetary damages on behalf of individuals alleging personal injury or death, primarily under the Jones Act, purportedly resulting from exposure to asbestos on drilling rigs and associated facilities during the period 1965 through 1986. We have been named as a defendant by 69 individual plaintiffs.
 
During 2011 and 2012, we and certain subsidiaries were named as defendants, along with numerous other third-party companies as co-defendants, in eight multi-party lawsuits filed in Louisiana. The lawsuits sought an unspecified amount of monetary damages on behalf of individuals alleging personal injury or death, primarily under the Jones Act, purportedly resulting from exposure to asbestos on drilling rigs and associated facilities during the 1960s until the 1980s.

We intend to continue to vigorously defend against these claims and have filed responsive pleadings preserving all defenses and challenges to jurisdiction and venue. However, discovery is still ongoing and, therefore, available information regarding the nature of all pending claims is limited. At present, we cannot reasonably determine how many of the claimants may have valid claims under the Jones Act or estimate a range of potential liability exposure, if any.

In addition to the pending cases in Mississippi and Louisiana, we have other asbestos or lung injury claims pending against us in litigation in other jurisdictions. Although we do not expect the final disposition of these asbestos or lung injury lawsuits to have a material adverse effect upon our financial position, operating results or cash flows, there can be no assurances as to the ultimate outcome of the lawsuits.

Environmental Matters
 
We currently are subject to pending notices of assessment issued from 2008 to 2012 pursuant to which governmental authorities in Brazil are seeking fines in an aggregate amount of approximately $2 million for the release of drilling fluid from drilling rigs operating offshore Brazil. We are contesting these notices and intend to defend ourselves vigorously.  Although we do not expect the outcome of these assessments to have a material adverse effect on our financial position, operating results or cash flows, there can be no assurance as to the ultimate outcome of these assessments. A $2 million liability related to these matters was recorded as of March 31, 2012 and included in accrued liabilities and other on our condensed consolidated balance sheet.
 
    

16



We currently are subject to a pending administrative proceeding initiated in July 2009 by a governmental authority of Spain pursuant to which such governmental authority is seeking payment in an aggregate amount of approximately $4 million for an alleged environmental spill originating from the ENSCO 5006 while it was operating offshore Spain. We expect to be indemnified for any payments resulting from this incident by our customer under the terms of the drilling contract. Our customer has posted guarantees with the Spanish government to cover potential penalties. In addition, a criminal investigation of the incident was initiated in July 2010 by a prosecutor in Tarragona, Spain, and the administrative proceedings have been suspended pending the outcome of this investigation. We do not know at this time what, if any, involvement we may have in this investigation.
 
We intend to defend ourselves vigorously in the administrative proceeding and any criminal investigation. At this time, we are unable to predict the outcome of these matters or estimate the extent to which we may be exposed to any resulting liability. Although we do not expect the outcome of the proceedings to have a material adverse effect on our financial position, operating results or cash flows, there can be no assurance as to the ultimate outcome of the proceedings.
 
Other Matters

In addition to the foregoing, we are named defendants or parties in certain other lawsuits, claims or proceedings incidental to our business and are involved from time to time as parties to governmental investigations or proceedings, including matters related to taxation, arising in the ordinary course of business. Although the outcome of such lawsuits or other proceedings cannot be predicted with certainty and the amount of any liability that could arise with respect to such lawsuits or other proceedings cannot be predicted accurately, we do not expect these matters to have a material adverse effect on our financial position, operating results or cash flows.
Note 8 -Segment Information
 
Our business consists of three reportable segments: (1) Deepwater, which includes our drillships and semisubmersible rigs capable of drilling in water depths of 4,500 feet or greater, (2) Midwater, which includes our semisubmersible rigs capable of drilling in water depths of 4,499 feet or less and (3) Jackup, which includes all of our jackup rigs. Each of our three reportable segments provides one service, contract drilling.  We also manage the drilling operations for three deepwater rigs and own one barge rig, which are included in "Other."
 
Segment information is presented below (in millions). General and administrative expense and depreciation expense incurred by our corporate office are not allocated to our operating segments for purposes of measuring segment operating income and were included in "Reconciling Items."  

Three Months Ended March 31, 2012
 
Deepwater  
 
Midwater
 
Jackup
 
Other
 
Operating Segments Total
 
Reconciling Items
 
Consolidated Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
548.6

 
$
91.1

 
$
365.1

 
$
21.6

 
$
1,026.4

 
$

 
$
1,026.4

Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
Contract drilling (exclusive
of depreciation)
260.1

 
61.9

 
181.5

 
16.7

 
520.2

 

 
520.2

Depreciation
76.6

 
15.7

 
42.8

 
.5

 
135.6

 
3.8

 
139.4

General and administrative

 

 

 

 

 
38.2

 
38.2

Operating income (loss)
$
211.9

 
$
13.5

 
$
140.8

 
$
4.4

 
$
370.6

 
$
(42.0
)
 
$
328.6

Property and equipment, net
$
9,451.5

 
$
917.0

 
$
2,452.5

 
$
39.5

 
$
12,860.5

 
$
29.4

 
$
12,889.9


17




Three Months Ended March 31, 2011
 
Deepwater  
 
Midwater
 
Jackup
 
Other
 
Operating Segments Total
 
Reconciling Items
 
Consolidated Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
98.2

 
$

 
$
263.3

 
$

 
$
361.5

 
$

 
$
361.5

Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
Contract drilling (exclusive of depreciation)
40.9

 

 
150.3

 
.4

 
191.6

 

 
191.6

Depreciation
16.3

 

 
42.4

 
.4

 
59.1

 
.4

 
59.5

General and administrative

 

 

 

 

 
30.1

 
30.1

Operating income (loss)
$
41.0

 
$

 
$
70.6

 
$
(.8
)
 
$
110.8

 
$
(30.5
)
 
$
80.3

Property and equipment, net
$
3,008.7

 
$

 
$
2,232.8

 
$
14.0

 
$
5,255.5

 
$
3.6

 
$
5,259.1


Information about Geographic Areas
 
As of March 31, 2012, the geographic distribution of our drilling rigs by operating segment was as follows:
 
Deepwater
 
Midwater
 
Jackup
 
Other
 
Total(1)
 
 
 
 
 
 
 
 
 
 
North & South America (excl. Brazil)
6
 
 
15
 
 
21
Brazil
6
 
5
 
 
 
11
Europe & Mediterranean
1
 
 
8
 
 
9
Middle East & Africa
4
 
1
 
12
 
 
17
Asia & Pacific Rim
2
 
 
11
 
1
 
14
Asia & Pacific Rim (under construction)(2)
2
 
 
3
 
 
5
Total
21
 
6
 
49
 
1
 
77
 
(1) We have three deepwater drilling management contracts not included in the table above.

(2)  In April 2012, we entered into an agreement with Samsung Heavy Industries to construct our sixth ultra-deepwater drillship (ENSCO DS-8), which is not included in the table above. The rig is scheduled for delivery during the third quarter of 2014.
Note 9 -Supplemental Financial Information

Consolidated Balance Sheet Information

Accounts receivable, net, consisted of the following (in millions):
 
March 31,
2012
 
December 31,
2011
 
 
 
 
Trade
$
743.6

 
$
803.5

Other
31.9

 
53.6

 
775.5

 
857.1

Allowance for doubtful accounts
(15.1
)
 
(13.6
)
 
$
760.4

 
$
843.5


18




Other current assets consisted of the following (in millions):
 
March 31,
2012
 
December 31,
2011
 
 
 
 
Inventory
$
192.1

 
$
188.9

Prepaid taxes
55.6

 
59.5

Deferred mobilization costs
40.7

 
43.8

Prepaid expenses
14.5

 
22.3

Deferred tax assets
7.2

 
9.1

Marketable securities

 
32.2

Other
17.6

 
24.5

 
$
327.7

 
$
380.3

 
    
    
Other assets, net, consisted of the following (in millions):
 
March 31,
2012
 
December 31,
2011
 
 
 
 
Intangible assets
$
184.0

 
$
197.3

Unbilled reimbursable receivables
107.4

 
119.4

Prepaid taxes on intercompany transfers of property
65.8

 
68.8

Deferred tax assets
43.8

 
43.1

Supplemental executive retirement plan assets
28.1

 
25.6

Deferred mobilization costs
25.0

 
38.4

Wreckage and debris removal receivables
19.0

 
19.8

Other
25.0

 
26.1

 
$
498.1

 
$
538.5


    
Accrued liabilities and other consisted of the following (in millions):
 
March 31,
2012
 
December 31,
2011
 
 
 
 
Personnel costs
$
128.8

 
$
158.4

Deferred revenue
109.2

 
111.3

Taxes
80.0

 
74.7

Accrued interest
36.0

 
69.4

Wreckage and debris removal
19.0

 
16.0

Intangible liabilities

 
43.4

Other
65.0

 
41.4

 
$
438.0

 
$
514.6

  
    

19



Other liabilities consisted of the following (in millions):
 
March 31,
2012
 
December 31,
2011
 
 
 
 
Intangible liabilities
$
163.5

 
$
177.8

Deferred revenue
117.4

 
124.4

Unrecognized tax benefits (inclusive of interest and penalties)
68.8

 
75.4

Supplemental executive retirement plan liabilities
34.4

 
30.1

Other
33.3

 
37.1

 
$
417.4

 
$
444.8

 
Concentration of Credit Risk

We are exposed to credit risk relating to our receivables from customers, our cash and cash equivalents and investments and our use of derivatives in connection with the management of foreign currency exchange rate risk. We mitigate our credit risk relating to receivables from customers, which consists primarily of major international, government-owned and independent oil and gas companies, by performing ongoing credit evaluations. We also maintain reserves for potential credit losses, which to date have been within management's expectations. We mitigate our credit risk relating to cash and investments by focusing on diversification and quality of instruments. Cash balances are maintained in major, well-capitalized commercial banks. Cash equivalents consist of a portfolio of high-grade instruments. Custody of cash and cash equivalents is maintained at several major financial institutions, and we monitor the financial condition of those financial institutions.  We mitigate our credit risk relating to the counterparties of our derivatives by transacting with multiple, high-quality counterparties, thereby limiting exposure to individual counterparties, and by monitoring the financial condition of our counterparties.

During the quarter ended March 31, 2012, Petrobras provided an aggregate $258.0 million, or 25%, of our consolidated revenues, which was attributable to our Deepwater and Midwater segments. During the same period, Total provided an aggregate $116.7 million, or 11%, of our consolidated revenues, which was attributable to our Deepwater segment.

Revenues provided by our drilling operations in Brazil and Angola totaled $271.4 million, or 26%, and $131.2 million, or 13%, respectively, of our consolidated revenues during the quarter ended March 31, 2012. Of these amounts, 67% and 94% were provided by our deepwater drilling operations, respectively. Revenues provided by our drilling operations in the U.S. Gulf of Mexico totaled $253.4 million, or 25%, of our consolidated revenues during the quarter ended March 31, 2012. Of this amount, 69% was provided by our deepwater drilling operations.  


Note 10 -Guarantee of Registered Securities

In connection with the Merger, on May 31, 2011, Ensco plc and Pride entered into a supplemental indenture to the indenture dated as of July 1, 2004 between Pride and the Bank of New York Mellon, as indenture trustee, providing for, among other matters, the full and unconditional guarantee by Ensco plc of Pride’s 8.50% unsecured senior notes due 2019, 6.875% unsecured senior notes due 2020 and 7.875% unsecured senior notes due 2040, which had an aggregate outstanding principal balance as of March 31, 2012 of $1.7 billion.  The Ensco plc guarantee provides for the unconditional and irrevocable guarantee of the prompt payment, when due, of any amount owed to the holders of the notes.
 
Ensco plc also is a full and unconditional guarantor of the 7.20% debentures due 2027 issued by Ensco Delaware in November 1997, which had an aggregate outstanding principal balance of $150.0 million as of March 31, 2012.
 
    

20



All guarantees are unsecured obligations of Ensco plc ranking equal in right of payment with all of its existing and future unsecured and unsubordinated indebtedness.
   
The following tables present the condensed consolidating statements of income for the three months ended March 31, 2012 and 2011; the condensed consolidating statements of comprehensive income for the three months ended March 31, 2012 and 2011; the condensed consolidating balance sheets as of March 31, 2012 and December 31, 2011; and the condensed consolidating statements of cash flows for the three months ended March 31, 2012 and 2011, in accordance with Rule 3-10 of Regulation S-X.

  
ENSCO PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
Three Months Ended March 31, 2012
(in millions)

 
 
Ensco plc
 
ENSCO International Inc.
 
Pride International Inc.
 
Other Non-Guarantor Subsidiaries of Ensco
 
Consolidating Adjustments
 
Total
OPERATING REVENUES
$
21.9

 
$
10.6

 
$

 
$
1,042.8

 
$
(48.9
)
 
$
1,026.4

OPERATING EXPENSES
 

 
 

 
 

 
 

 
 

 
 

Contract drilling (exclusive of depreciation)
6.9

 
10.6

 

 
551.6

 
(48.9
)
 
520.2

Depreciation
.1

 
.8

 

 
138.5

 

 
139.4

General and administrative
14.6

 

 

 
23.6

 

 
38.2

OPERATING INCOME (LOSS)
.3

 
(.8
)
 

 
329.1

 

 
328.6

OTHER INCOME (EXPENSE), NET
(11.2
)
 
(.3
)
 
(11.7
)
 
(3.0
)
 

 
(26.2
)
INCOME BEFORE INCOME TAXES
(10.9
)
 
(1.1
)
 
(11.7
)
 
326.1

 

 
302.4

INCOME TAX PROVISION

 
11.2

 
 
 
23.8

 
 
 
35.0

EQUITY EARNINGS IN AFFILIATES, NET OF TAX
276.3

 
44.2

 
79.7

 

 
(400.2
)
 

NET INCOME
265.4

 
31.9

 
68.0

 
302.3

 
(400.2
)
 
267.4

NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS

 

 

 
(2.0
)
 

 
(2.0
)
NET INCOME ATTRIBUTABLE TO ENSCO
$
265.4

 
$
31.9

 
$
68.0

 
$
300.3

 
$
(400.2
)
 
$
265.4




21



ENSCO PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
Three Months Ended March 31, 2011
(in millions)

 
 
Ensco plc
 
ENSCO International Inc.
 
Other Non-Guarantor Subsidiaries of Ensco
 
Consolidating Adjustments
 
Total
OPERATING REVENUES
$

 
$

 
$
361.8

 
$
(.3
)
 
$
361.5

OPERATING EXPENSES
 

 
 
 
 
 
 
 
 
Contract drilling (exclusive of depreciation)
.7

 

 
191.2

 
(.3
)
 
191.6

Depreciation
.2

 
.3

 
59.0

 

 
59.5

General and administrative
13.3

 

 
16.8

 

 
30.1

OPERATING INCOME (LOSS)
(14.2
)
 
(.3
)
 
94.8

 

 
80.3

OTHER INCOME (EXPENSE), NET
3.6

 
(.2
)
 
(1.2
)
 

 
2.2

INCOME (LOSS) BEFORE INCOME TAXES
(10.6
)
 
(.5
)
 
93.6

 

 
82.5

INCOME TAX PROVISION

 
5.6

 
11.4

 

 
17.0

EQUITY EARNINGS IN AFFILIATES, NET OF TAX
75.2


66.1




(141.3
)


NET INCOME
64.6

 
60.0

 
82.2

 
(141.3
)
 
65.5

NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS

 

 
(.9
)
 

 
(.9
)
NET INCOME ATTRIBUTABLE TO ENSCO
$
64.6

 
$
60.0

 
$
81.3

 
$
(141.3
)
 
$
64.6



22



ENSCO PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended March 31, 2012
(in millions)

 
 
Ensco plc
 
ENSCO International Inc.
 
Pride International Inc.
 
Other Non-Guarantor Subsidiaries of Ensco
 
Consolidating Adjustments
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
NET INCOME
$
265.4

 
$
31.9

 
$
68.0

 
$
302.3

 
$
(400.2
)
 
$
267.4

OTHER COMPREHENSIVE INCOME (LOSS), NET
 
 
 
 
 
 
 
 
 
 
 
Net change in fair value of derivatives

 
(3.4
)
 

 
9.7

 

 
6.3

Reclassification of gains and losses on derivative instruments from other comprehensive (income) into net income

 
.1

 

 
(.2
)
 

 
(.1
)
Other

 

 

 
(1.9
)
 

 
(1.9
)
NET OTHER COMPREHENSIVE INCOME

 
(3.3
)
 

 
7.6

 

 
4.3

 
 
 
 
 
 
 
 
 
 
 
 
COMPREHENSIVE INCOME
265.4

 
28.6

 
68.0

 
309.9

 
(400.2
)
 
271.7

COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS

 

 

 
(2.0
)
 

 
(2.0
)
COMPREHENSIVE INCOME ATTRIBUTABLE TO ENSCO
$
265.4

 
$
28.6

 
$
68.0

 
$
307.9

 
$
(400.2
)
 
$
269.7


23



ENSCO PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended March 31, 2011
(in millions)
 
 
Ensco plc
 
ENSCO International Inc.
 
Other Non-Guarantor Subsidiaries of Ensco
 
Consolidating Adjustments
 
Total
 
 
 
 
 
 
 
 
 
 
NET INCOME
$
64.6

 
$
60.0

 
$
82.2

 
$
(141.3
)
 
$
65.5

OTHER COMPREHENSIVE INCOME (LOSS), NET
 
 
 
 
 
 
 
 
 
Net change in fair value of derivatives

 
2.0

 
.9

 

 
2.9

Reclassification of gains and losses on derivative instruments from other comprehensive (income) loss into net income

 
.1

 
(.9
)
 

 
(.8
)
Other

 

 

 

 

NET OTHER COMPREHENSIVE INCOME

 
2.1

 

 

 
2.1

 
 
 
 
 
 
 
 
 
 
COMPREHENSIVE INCOME
64.6

 
62.1

 
82.2

 
(141.3
)
 
67.6

COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS

 

 
(.9
)
 

 
(.9
)
COMPREHENSIVE INCOME ATTRIBUTABLE TO ENSCO
$
64.6

 
$
62.1

 
$
81.3

 
$
(141.3
)
 
$
66.7



24



ENSCO PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
March 31, 2012
(in millions)

 
 
Ensco plc
 
ENSCO International Inc.
 
Pride International Inc.
 
Other Non-Guarantor Subsidiaries of Ensco
 
Consolidating Adjustments
 
Total
                          ASSETS 
 
 
 
 
 
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
12.2

 
$
13.5

 
$
29.3

 
$
153.9

 
$

 
$
208.9

Accounts receivable, net 

 
7.7

 

 
752.7

 

 
760.4

Accounts receivable from affiliates
1,289.5

 
71.5

 
535.5

 
2,003.8

 
(3,900.3
)
 

Other
3.0

 
24.6

 
1.4

 
298.7

 

 
327.7

Total current assets
1,304.7

 
117.3

 
566.2

 
3,209.1

 
(3,900.3
)
 
1,297.0

PROPERTY AND EQUIPMENT, AT COST
1.8

 
29.9

 

 
15,051.8

 

 
15,083.5

Less accumulated depreciation
.8

 
21.8

 

 
2,171.0

 

 
2,193.6

Property and equipment, net  
1.0

 
8.1

 

 
12,880.8

 

 
12,889.9

GOODWILL

 

 

 
3,263.0

 

 
3,263.0

DUE FROM AFFILIATES
2,506.8

 
2,616.1

 
208.3

 
3,597.0

 
(8,928.2
)
 

INVESTMENTS IN AFFILIATES
12,318.1

 
3,010.2

 
4,892.1

 

 
(20,220.4
)
 

OTHER ASSETS, NET 
13.2

 
76.7

 
108.9

 
299.3

 

 
498.1

 
$
16,143.8

 
$
5,828.4

 
$
5,775.5

 
$
23,249.2

 
$
(33,048.9
)
 
$
17,948.0

LIABILITIES AND SHAREHOLDERS' EQUITY 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
 
 
 
 
 
 
 
Accounts payable and accrued liabilities
$
6.6

 
$
10.8

 
$
23.4

 
$
950.7

 
$

 
$
991.5

Accounts payable to affiliates
1,193.2

 
735.5

 
110.5

 
1,861.1

 
(3,900.3
)
 

Short-term debt 
200.0

 

 

 

 

 
200.0

Current maturities of long-term debt

 

 

 
47.5

 

 
47.5

Total current liabilities
1,399.8

 
746.3

 
133.9

 
2,859.3

 
(3,900.3
)
 
1,239.0

DUE TO AFFILIATES 
1,922.6

 
1,053.3

 
633.4

 
5,318.9

 
(8,928.2
)
 

LONG-TERM DEBT 
2,466.7

 
149.0

 
2,064.6

 
182.3

 

 
4,862.6

DEFERRED INCOME TAXES

 
327.2

 

 
14.2

 

 
341.4

OTHER LIABILITIES

 

 

 
417.4

 

 
417.4

ENSCO SHAREHOLDERS' EQUITY 
10,354.7

 
3,552.6

 
2,943.6

 
14,450.3

 
(20,220.4
)
 
11,080.8

NONCONTROLLING INTERESTS

 

 

 
6.8

 

 
6.8