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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
1998 FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from . . . . . . to . . . . .
Commission File Number 1-8097
ENSCO International Incorporated
(Exact name of registrant as specified in its charter)
DELAWARE 76-0232579
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2700 Fountain Place
1445 Ross Avenue
Dallas, Texas 75202-2792
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (214) 922-1500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, par value $.10 New York Stock Exchange
Preferred Share Purchase Right New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark 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. [X]
As of February 19, 1999, 137,047,152 shares of the registrant's common stock
were outstanding. The aggregate market value of the common stock (based upon the
closing price on the New York Stock Exchange on February 19, 1999 of $9.00) of
ENSCO International Incorporated held by nonaffiliates of the registrant at that
date was approximately $976,957,741.
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the Company's definitive proxy statement, which involves the
election of directors and is to be filed under the Securities Exchange Act of
1934 within 120 days of the end of the Company's fiscal year on December 31,
1998, 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.
<PAGE>
TABLE OF CONTENTS
PAGE
- --------------------------------------------------------------------------------
PART ITEM 1. BUSINESS ............................................. 1
I Overview and Operating Strategy ...................... 1
Contract Drilling Operations ......................... 1
Marine Transportation Operations ..................... 2
Backlog Information .................................. 2
Segment Information .................................. 3
Major Customers ...................................... 4
Industry Conditions and Competition .................. 4
Governmental Regulation .............................. 4
Environmental Matters ................................ 5
Operational Risks and Insurance ...................... 5
International Operations ............................. 5
Executive Officers of the Registrant ................. 6
Employees ............................................ 7
ITEM 2. PROPERTIES ........................................... 8
Contract Drilling .................................... 8
Marine Transportation ................................ 10
Other Property ....................................... 10
ITEM 3. LEGAL PROCEEDINGS .................................... 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .. 11
- --------------------------------------------------------------------------------
PART ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
II RELATED STOCKHOLDER MATTERS .......................... 12
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA ................. 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS .................. 14
Business Environment ................................. 14
Results of Operations ................................ 14
Liquidity and Capital Resources ...................... 19
Market Risk .......................................... 21
Year 2000 Update ..................................... 21
Outlook and Forward-Looking Statements ............... 22
New Accounting Pronouncements ........................ 23
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK ................................................. 23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA .......... 24
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE .................. 44
- --------------------------------------------------------------------------------
PART ITEMS 10-13. DIRECTORS AND EXECUTIVE OFFICERS, EXECUTIVE
III COMPENSATION, SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT, AND CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS ............ 45
- --------------------------------------------------------------------------------
PART ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
IV REPORTS ON FORM 8-K ................................. 46
SIGNATURES ..................................................... 50
- i -
<PAGE>
PART I
Item 1. Business
Overview and Operating Strategy
ENSCO International Incorporated ("ENSCO" or the "Company") is an
international offshore contract drilling company that also provides marine
transportation services in the Gulf of Mexico. The Company's complement of
offshore drilling rigs includes 36 jackup rigs, six barge rigs and eight
platform rigs. The Company's marine transportation fleet consists of 36 vessels.
The Company's operations are integral to the exploration, development and
production of oil and natural gas.
Since 1987, the Company has pursued a strategy of building its fleet of
offshore drilling rigs. This strategy was exemplified by the Company's
acquisition of Penrod Holding Corporation ("Penrod") in August 1993, the
construction of eight new barge rigs for the Company's Venezuelan rig fleet
during 1993 and 1994 and the addition of three harsh environment jackup rigs to
its North Sea fleet, two in 1994 and one in 1995. In June 1996, the Company
acquired DUAL DRILLING COMPANY ("Dual") in a transaction which added 20 rigs to
the Company's fleet. The Company subsequently purchased two additional jackup
rigs, one each in November 1996 and December 1997. During 1998, the Company
began construction of three barge rigs, one harsh environment jackup rig, and a
semisubmersible rig.
With the Company's increasing emphasis on offshore markets, the Company
has disposed of businesses that are not offshore oriented or that management
believed would not meet the Company's standards for financial performance.
Accordingly, the Company sold its supply business in 1993, substantially all of
its land rigs in 1994 and its technical services business in 1995. Four of the
Company's barge rigs constructed in 1993 were sold in 1998 pursuant to purchase
options provided for in the original charter agreements.
The Company was formed as a Texas corporation in 1975 and was
reincorporated in Delaware in 1987. The Company's principal office is located at
2700 Fountain Place, 1445 Ross Avenue, Dallas, Texas, 75202-2792 and its
telephone number is (214) 922-1500. The Company's website is www.enscous.com.
Contract Drilling Operations
The Company's contract drilling operations, other than in Venezuela, are
conducted by a number of wholly-owned subsidiaries (the "Subsidiaries"). The
Company's Venezuela contract drilling operations are conducted through its 85%
ownership interest in ENSCO Drilling (Caribbean), Inc. ("Caribbean"). The
Subsidiaries engage in the drilling of oil and gas wells in domestic and
international markets under contracts with major international oil and gas
companies, government owned oil and gas companies and independent oil and gas
companies. The Company currently owns 36 jackup rigs, six barge rigs and seven
platform rigs. Of the 36 jackup rigs, 22 are located in the Gulf of Mexico,
seven are located in the North Sea and seven are located in the Asia Pacific
region. The six barge rigs are all located in Venezuela and the seven platform
rigs are all located in the Gulf of Mexico. An additional platform rig, which is
not owned but is operated under a management contract, is located off the coast
of China. The Company is currently constructing three barge rigs, one harsh
environment jackup rig and a semisubmersible drilling rig. The Company
anticipates that construction of the three new barge rigs will be completed
during the first and second quarters of 1999. These rigs will be operated in
Venezuela under five year contracts with an affiliate of Chevron Corporation.
The Company anticipates that the harsh environment jackup rig will be completed
in the first quarter of 2000 and the semisubmersible rig will be completed in
the second half of 2000. The semisubmersible rig is under contract with
Burlington Resources and will be operated initially in the Gulf of Mexico. The
Company does not currently have a contract for the harsh environment jackup rig
under construction, which is capable of operating worldwide.
The Company's contract drilling services and equipment are used in
connection with the process of drilling and completing oil and gas wells. Demand
for the Company's drilling services is based upon many factors over which the
Company has no control, including the market price of oil and gas, the stability
of such prices, the production levels and other activities of OPEC and other oil
and gas producers, the regional supply and demand for natural gas, the worldwide
expenditures for oil and gas drilling, the level of worldwide economic activity
and the long-term effect of worldwide energy conservation measures.
1
<PAGE>
The drilling services provided by the Company are conducted on a
"daywork" contract basis. Under daywork contracts, the Company receives a fixed
amount per day for drilling the well, and the customer bears a major portion of
the ancillary costs of constructing the well. The customer may pay the cost of
moving the equipment to the job site and assembling and dismantling the
equipment. In some cases, the Company provides drilling services on a daywork
contract basis along with "well management" services which provide additional
incentive compensation to the Company for completion of drilling activity ahead
of budgeted targets set by the customer. The Company does not provide "turnkey"
or other risk based drilling services.
Marine Transportation Operations
The Company conducts its marine transportation operations through a
wholly owned subsidiary, ENSCO Marine Company ("ENSCO Marine"), based in
Broussard, Louisiana. The Company has a marine transportation fleet of 36
vessels consisting of five anchor handling tug supply ("AHTS") vessels, 23
supply vessels and eight mini-supply vessels. All of the Company's marine
transportation vessels are currently located in the Gulf of Mexico.
The Company's five AHTS vessels support semisubmersible drilling rigs and
large offshore construction projects or provide towing services including moving
some of the Company's jackup rigs between drilling locations. The 23 supply
vessels and eight mini-supply vessels support general drilling and production
activity by ferrying supplies from land and between offshore rigs.
Backlog Information
During the past several years, contracts for the Company's rigs have
typically been short-term, particularly in the U.S. Gulf of Mexico where the
Company has its largest concentration of rigs. However, due to renewals and
extension clauses included in the contracts, approximately 36% of the Company's
rigs have worked for the same customer for greater than six months and over 30%
of the Company's rigs have worked for the same customer for longer than one
year.
The Company's marine transportation vessels are typically chartered on a
well-to-well basis, or on term contracts which may be terminated on short
notice.
The current and historic backlog of unfilled business for the Company's
contract drilling and marine transportation operations is shown below (in
millions):
As of As of
February 1, 1999 February 1, 1998
---------------- ----------------
Contract Drilling $541.0 $601.3
Marine Transportation 7.2 39.2
------ ------
Total $548.2 $640.5
====== ======
Approximately $384.5 million of the backlog for contract drilling
services will be realized after December 31, 1999. Included in the contract
drilling backlog as of February 1, 1999 is approximately $190.7 million
associated with the Company's semisubmersible rig that is under construction and
was not included in the contract drilling backlog as of February 1, 1998. All of
the marine transportation services backlog at February 1, 1999 will be realized
before December 31, 1999.
2
<PAGE>
Segment Information
The following table provides information regarding the Company's two
segments, contract drilling and marine transportation, for each of the last five
years in the period ended December 31, 1998:
1998 1997 1996(1) 1995 1994
------- ------- ------- ------- -------
Offshore Drilling Rig Utilization and
Day Rates
Utilization:
Jackup rigs
North America ............... 93% 96% 93% 90% 91%
Europe ...................... 97% 100% 88% 73% 71%
Asia Pacific ................ 61% 79% 86% -- 29%
South America ............... -- -- -- -- 62%
------- ------- ------- ------- -------
Total jackup rigs ........ 88% 93% 92% 87% 83%
Barge rigs - South America ....... 100% 100% 91% 86% 100%
Platform rigs .................... 89% 63% 78% -- --
------- ------- ------- ------- -------
Total ....................... 90% 90% 90% 86% 87%
======= ======= ======= ======= =======
Average day rates:
Jackup rigs
North America ............... $43,473 $46,530 $27,793 $20,559 $21,531
Europe ...................... 95,307 79,548 47,714 42,631 24,528
Asia Pacific ................ 49,328 39,363 26,751 -- 27,739
South America ............... -- -- -- -- 24,629
------- ------- ------- ------- -------
Total jackup rigs ........ 54,242 51,438 31,505 24,813 22,269
Barge rigs - South America ....... 22,069 22,628 22,608 19,631 16,413
Platform rigs .................... 25,534 19,148 16,913 -- --
------- ------- ------- ------- -------
Total ....................... $45,112 $42,838 $28,238 $23,196 $20,539
======= ======= ======= ======= =======
Marine Fleet Utilization and Day Rates
Utilization:
AHTS(2)........................... 67% 83% 79% 84% 81%
Supply ........................... 87% 91% 92% 84% 86%
Mini-supply ...................... 73% 95% 87% 65% 93%
------- ------- ------- ------- -------
Total ....................... 81% 91% 89% 79% 86%
======= ======= ======= ======= =======
Average day rates:
AHTS(2)........................... $15,870 $13,380 $ 9,321 $ 7,732 $ 7,686
Supply ........................... 6,917 7,789 4,729 3,136 3,173
Mini-supply ...................... 4,041 3,997 2,972 1,985 1,663
------- ------- ------- ------- -------
Total ....................... $ 7,308 $ 7,687 $ 5,016 $ 3,753 $ 3,826
======= ======= ======= ======= =======
- ----------
(1) Offshore Drilling Rig information includes the results of Dual rigs from
the June 12, 1996 acquisition date. The Company acquired its Asia Pacific
and platform rigs in the June 1996 Dual acquisition.
(2) Anchor handling tug supply vessels.
Financial information regarding the Company's operating segments and
foreign and domestic operations is presented in Note 9 of the Notes to the
Consolidated Financial Statements included in "Item 8. Financial Statements and
Supplementary Data." Additional financial information regarding the Company's
operating segments is presented in "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations."
3
<PAGE>
Major Customers
The Company provides its services to a broad customer base which includes
major international oil and gas companies, government owned oil and gas
companies and independent oil and gas companies. During 1998, aggregate revenues
provided to the Company's contract drilling operations by Nederlandse Aardolie
Maatschappij B.V. ("NAM"), a Royal Dutch/Shell affiliate, were $142.2 million,
or 17% of total revenues.
Industry Conditions and Competition
The market for offshore drilling and marine transportation services is
largely determined by the level of capital spending of the oil companies which
in turn is influenced by the level of oil and gas prices. From the mid-1980s to
the early 1990s, demand for offshore drilling and marine equipment was generally
depressed following the collapse of oil prices in 1986 and the resulting
contraction of oil company spending, while the over supply of offshore drilling
and marine equipment gradually decreased, primarily due to attrition. Between
1994 and the first part of 1998, oil company spending steadily improved and, as
a result, day rates and utilization for offshore drilling and marine equipment
increased. Technological advancements, such as three dimensional seismic,
extended reach drilling, and multilateral drilling techniques, have improved the
economics of finding and developing oil and gas reserves. During 1998, concern
over excess oil supplies, due in part to the economic slowdown in Southeast
Asia, caused oil prices to decrease to levels not experienced since the
mid-1980's. As a result, oil companies have decreased their exploration and
production budgets, which has led to a decrease in demand for drilling and
marine transportation services. The supply of drilling rigs exceeds the demand
on a worldwide basis. This has resulted in a dramatic drop in the day rates and
utilization of the Company's rigs and marine transportation vessels.
As a result of current industry conditions, the Company and several of
its competitors have experienced early terminations of long-term contracts by
customers. In January 1999, contracts on the Company's six barge rigs in
Venezuela were terminated early by Petroleos de Venezuela, the Venezuelan
national oil company. These contracts were originally scheduled to expire in the
second and third quarters of 1999. As a result of termination clauses and a
negotiated settlement, the Company received lump sum payments amounting to $18.7
million in January 1999. In addition, the Company has received notice from NAM,
the Company's largest customer in 1998, that it intends to terminate early the
contracts on four jackup rigs that were originally under contract through 1999.
These contracts were cancelable with a 90 day notification period. At present,
the Company's only remaining long-term contracts are associated with the three
barge rigs and one semisubmersible rig currently under construction.
The contract drilling business is highly competitive and ENSCO competes
with other drilling contractors on the basis of price, quality of service,
equipment suitability and availability, reputation and technical expertise.
Competition is usually on a regional basis, but the Company's drilling rigs are
mobile and may be moved from one region to another in response to demand.
Drilling operations are generally conducted throughout the year with some
seasonal declines in winter months.
As the Company's marine transportation services are used primarily in
connection with the process of servicing offshore oil and gas operations, demand
for these services is largely dependent on the factors affecting the level of
activity in the offshore oil and gas industry. ENSCO Marine competes with
numerous vessel operators on the basis of price, quality of service, vessel
suitability and availability and reputation. Marine transportation operations
are conducted throughout the year, but some reductions in vessel utilization and
charter rates may be experienced during winter months due to seasonal declines
in offshore activities.
Additional information regarding industry conditions is presented in
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations."
Governmental Regulation
The Company's businesses are affected by political developments and by
federal, state, foreign and local laws and regulations that relate directly to
the oil and gas industry. The industry is also affected by changing tax laws,
price controls and other laws affecting the energy business. The adoption of
laws and regulations curtailing exploration and development drilling for oil and
gas for economic, environmental or other policy reasons adversely affects the
Company's operations by limiting available drilling and other opportunities in
the energy service industry, as well as increasing the costs of operations.
4
<PAGE>
The Company and its rigs and operations are subject to federal, state,
local and foreign laws and regulations relating to engineering, design,
structural, safety and operational and inspection standards.
Most of the Company's marine transportation operations are conducted in
U.S. waters and are subject to the coastwise laws of the United States,
principally, the Jones Act. Such laws reserve marine transportation between
points in the United States to vessels built and documented under U.S. laws and
owned and manned by U.S. citizens. From time to time, interests opposed to the
Jones Act have expressed an intent to seek changes to the Jones Act. Although
the Company believes it is unlikely that the Jones Act will be substantively
modified or repealed, there can be no assurance that the Jones Act may not be
modified or repealed. Such changes in the Jones Act could have a material
adverse effect on the Company's operations and financial condition.
Environmental Matters
The Company's operations are subject to federal, state and local laws and
regulations controlling the discharge of materials into the environment or
otherwise relating to the protection of the environment. Laws and regulations
specifically applicable to the Company's business activities could impose
significant liability on the Company for damages, clean-up costs and penalties
in the event of the occurrence of oil spills or similar discharges of pollutants
into the environment in the course of the Company's operations, although, to
date, such laws and regulations have not had a material adverse effect on the
Company's results of operations, nor has the Company experienced an accident
that has exposed it to material liability for discharges of pollutants into the
environment. In addition, events in recent years have heightened environmental
concerns about the oil and gas industry generally. From time to time,
legislative proposals have been introduced which would materially limit or
prohibit offshore drilling in certain areas. To date, no proposals which would
materially limit or prohibit offshore drilling in the Company's principal areas
of operation have been enacted into law. If laws are enacted or other
governmental action is taken that restrict or prohibit offshore drilling in the
Company's areas of operation or impose environmental protection requirements
that materially increase the cost of offshore exploration, development or
production of oil and gas, the Company could be materially adversely affected.
The United States Oil Pollution Act of 1990 ("OPA 90") and similar
legislation in Texas, Louisiana and other coastal states address oil spill
prevention and control and significantly expand liability exposure across all
segments of the oil and gas industry. OPA 90, and similar legislation and
related regulations impose a variety of obligations on the Company related to
the prevention of oil spills and liability for resulting damages. OPA 90 imposes
strict and, with limited exceptions, joint and several liability upon each
responsible party for oil removal costs and a variety of damages. OPA 90 imposes
ongoing financial responsibility requirements. A failure to comply with OPA 90
may subject a responsible party to civil or criminal enforcement action.
Operational Risks and Insurance
Contract drilling and oil and gas operations are subject to various risks
including blowouts, craterings, fires and explosions, each of which could result
in damage to or destruction of drilling rigs and oil and gas wells, personal
injury and property damage, suspension of operations or environmental damage
through oil spillage or extensive, uncontrolled fires. The Company's marine
transportation operations are subject to various risks, which include property
and environmental damage and personal injury. The Company generally insures its
drilling rigs and marine transportation vessels for amounts not less than the
estimated fair market value thereof. The Company also maintains liability
insurance coverage in amounts and scope which management believes are comparable
to the levels of coverage carried by other energy service companies. To date,
the Company has not experienced difficulty in obtaining insurance coverage.
While the Company believes its insurance coverages are customary for the energy
service industry, the occurrence of a significant event not fully insured
against could have a material adverse effect on the Company's financial
position. Also, there can be no assurance that any particular insurance claim
will be paid or that the Company will be able to procure adequate insurance
coverage at commercially reasonable rates in the future.
International Operations
A significant portion of the Company's contract drilling operations are
conducted in foreign countries. Revenues from international operations as a
percentage of the Company's total revenues were 45% in 1998 and 41% in 1997. The
Company's international operations are subject to political, economic, and other
uncertainties, such as the risks of expropriation of its equipment,
expropriation of a customer's property or drilling rights, repudiation of
contracts, adverse tax policies, general hazards associated with international
sovereignty over certain areas in which the Company operates and fluctuations in
international economies.
5
<PAGE>
The Company's international operations also face the risk of fluctuating
currency values and exchange controls. Occasionally the countries in which the
Company operates have enacted exchange controls. Historically, the Company has
been able to limit these risks by obtaining compensation in United States
dollars or freely convertible international currency and, to the extent
possible, by limiting acceptance of foreign currency to amounts which match its
expenditure requirements in such currencies.
The Company currently has contract drilling operations in Asian countries
that have experienced substantial devaluations of their currency compared to the
U.S. dollar. However, as the Company's drilling contracts generally stipulate
payment in U.S. dollars, the Company has experienced no significant losses due
to the devaluation of such currencies.
Executive Officers of the Registrant
The following table sets forth certain information regarding the
executive officers of the Company:
Name Age Position with the Company
---- --- -------------------------
Carl F. Thorne 58 Chairman of the Board, President, Chief Executive
Officer and Director
Richard A. Wilson 61 Senior Vice President, Chief Operating Officer and
Director
Marshall Ballard 56 Vice President - Business Development
William S. Chadwick, Jr. 51 Vice President - Administration and Secretary
Eugene R. Facey 51 Vice President - Operations
C. Christopher Gaut 42 Vice President - Finance and Chief Financial
Officer
H. E. Malone 55 Vice President - Controller and Chief Accounting
Officer
Philip J. Saile 47 Vice President - Operations
Frank Williford 59 Vice President - Engineering
Richard A. LeBlanc 48 Treasurer
Set forth below is certain additional information concerning the
executive officers of the Company, including the business experience of each
executive officer for at least the last five years.
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
was 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 and a Juris Doctorate Degree from Baylor University College of Law.
Richard A. Wilson has been a director of the Company since June 1990. Mr.
Wilson joined the Company in July 1988 and was elected President of ENSCO
Drilling Company in August 1988. Mr. Wilson was elected Senior Vice President -
Operations of the Company in October 1989 and to his present position of Senior
Vice President and Chief Operating Officer in June 1991. Mr. Wilson holds a
Bachelor of Science Degree in Petroleum Engineering from the University of
Wyoming.
Marshall Ballard joined the Company in connection with the acquisition of
Penrod Holding Corporation and was elected Vice President of Business
Development in August 1993. From September 1977 through August 1993, Mr. Ballard
served in various capacities as an employee of Penrod Holding Corporation, most
recently as President. Mr. Ballard holds a Bachelor of Arts Degree in History
from the University of North Carolina and a Law Degree from Tulane University.
William S. Chadwick, Jr. joined the Company as Director of Administration
in June 1987, has been a Vice President of the Company since July 1988 and was
elected Secretary of the Company in May 1993. Mr. Chadwick holds a Bachelor of
Science Degree in Industrial Management from the University of Pennsylvania.
6
<PAGE>
Eugene R. Facey joined the Company in August 1996 and was elected Vice
President Operations in February 1999, to be effective April 1, 1999. Prior to
his appointment, Mr. Facey served as Unit Manager for the Asia Pacific Unit.
From 1990 to 1996, Mr. Facey served in various capacities as an employee of
Wilrig AS and Transocean AS, most recently as Vice President International
Operations. Mr. Facey holds a Bachelor of Science Degree in Civil Engineering
from the University of Virginia.
C. Christopher Gaut joined the Company in December 1987 and was elected
Treasurer and Chief Financial Officer in February 1988 and Vice President
Finance in January 1991. Mr. Gaut holds a Bachelor of Arts Degree in Engineering
Science from Dartmouth College and a Master of Business Administration Degree in
Finance from The Wharton School of the University of Pennsylvania.
H. E. Malone joined the Company in August 1987 and was elected Controller
and Chief Accounting Officer in January 1988 and Vice President - Controller and
Chief Accounting Officer in February 1995. Mr. Malone holds Bachelor of Business
Administration Degrees from The University of Texas and Southern Methodist
University and a Master of Business Administration Degree from the University of
North Texas.
Philip J. Saile joined the Company in August 1987 and was elected Vice
President Operations in February 1999, to be effective April 1, 1999. Prior to
his appointment, Mr. Saile served the Company in various capacities, most
recently as Unit Manager for the North America Unit. Mr. Saile hold a Bachelor
of Business Administration degree from the University of Mississippi.
Frank B. Williford joined the Company and was elected Vice President -
Engineering in February 1996. From January 1966 through January 1996, Mr.
Williford served in various capacities as an employee of Sedco, Inc. and Sedco
Forex, most recently as Vice President and General Manager of Engineering.
Mr. Williford holds a Bachelor of Science Degree in Structural Engineering
from Texas A&M University.
Richard A. LeBlanc joined the Company in July 1989 as Manager of Finance.
He assumed responsibilities for the investor relations function in March 1993
and was elected Treasurer in May 1995. Mr. LeBlanc holds a Bachelor of Science
Degree in Finance and a Master of Business Administration degree from Louisiana
State 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.
Employees
The Company had approximately 3,100 full-time employees worldwide as of
February 1, 1999. The Company considers relations with its employees to be
satisfactory. None of the Company's domestic employees are represented by
unions. The Company has not experienced any significant work stoppages or
strikes as a result of labor disputes.
7
<PAGE>
Item 2. Properties
Contract Drilling
The following table provides certain information about the Company's
drilling rig fleet as of February 15, 1999:
<TABLE>
<CAPTION>
JACKUP RIGS
- -----------
Year Built/ Water Depth/ Current Current
Rig Name Rebuilt Rig Make Rated Depth Location Customer
- -------- ------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
North America
ENSCO 51 1981 FG-780II-C 300'/25,000' Gulf of Mexico Santa Fe
ENSCO 54 1982/1997 FG-780II-C 300'/25,000' Gulf of Mexico Taylor Energy
ENSCO 55 1981/1997 FG-780II-C 300'/25,000' Gulf of Mexico Newfield
ENSCO 60 1981/1997 Lev-111-C 300'/25,000' Gulf of Mexico BP Amoco
ENSCO 64 1973 MLT-53-S 250'/30,000' Gulf of Mexico Prime
ENSCO 67 1976/1996 MLT-84-S 400'/30,000' Gulf of Mexico Available(1)
ENSCO 68 1976 MLT-84-S 350'/30,000' Gulf of Mexico Sonat
ENSCO 69 1976/1995 MLT-84-S 400'/25,000' Gulf of Mexico Murphy
ENSCO 81 1979 MLT-116-C 350'/25,000' Gulf of Mexico Exxon
ENSCO 82 1979 MLT-116-C 300'/25,000' Gulf of Mexico Chevron
ENSCO 83 1979 MLT-82 SD-C 250'/25,000' Gulf of Mexico Vastar
ENSCO 84 1981 MLT-82 SD-C 250'/25,000' Gulf of Mexico Available(1)
ENSCO 86 1981 MLT-82 SD-C 250'/30,000' Gulf of Mexico Exxon
ENSCO 87 1982 MLT-116-C 350'/25,000' Gulf of Mexico Remington
ENSCO 88 1982 MLT-82 SD-C 250'/25,000' Gulf of Mexico Prime
ENSCO 89 1982 MLT-82 SD-C 250'/25,000' Gulf of Mexico Exxon
ENSCO 90 1982 MLT-82 SD-C 250'/25,000' Gulf of Mexico Shell
ENSCO 93 1982 MLT-82 SD-C 250'/25,000' Gulf of Mexico Chevron
ENSCO 94 1981 Hitachi-250-C 250'/25,000' Gulf of Mexico Energy Partners
ENSCO 95 1981 Hitachi-250-C 250'/25,000' Gulf of Mexico Chevron
ENSCO 98 1977 MLT-82 SD-C 250'/25,000' Gulf of Mexico Cockrell Oil
ENSCO 99 1985 MLT-82 SD-C 250'/30,000' Gulf of Mexico Exxon
Europe
ENSCO 70 1981/1996 Hitachi-300-C NS 250'/30,000' The Netherlands NAM (Shell)
ENSCO 71 1982/1995 Hitachi-300-C NS 225'/25,000' The Netherlands NAM (Shell)
ENSCO 72 1981/1996 Hitachi-300-C NS 225'/25,000' The Netherlands Burlington
ENSCO 80 1978/1995 MLT-116-CE 225'/30,000' United Kingdom Shell
ENSCO 85 1981/1995 MLT-116-C 225'/25,000' The Netherlands Stacked(1)
ENSCO 92 1982/1996 MLT-116-C 225'/25,000' United Kingdom Conoco
ENSCO 100 1987 MLT-150-88-C 325'/30,000' Norway Smedvig(2)
Asia Pacific
ENSCO 50 1983/1998 FG-780II-C 300'/25,000' Singapore Stacked(1)
ENSCO 52 1983/1997 FG-780II-C 300'/25,000' Singapore Available(1)
ENSCO 53 1982/1998 FG-780II-C 300'/25,000' Singapore Stacked(1)
ENSCO 56 1982/1997 FG-780II-C 300'/25,000' Australia Apache
ENSCO 57 1982/1997 FG-780II-C 300'/25,000' Thailand Unocal
ENSCO 96 1982/1997 Hitachi-250-C 250'/25,000' Abu Dhabi Bunduq
ENSCO 97 1980/1997 MLT-82 SD-C 250'/25,000' Qatar Maersk
</TABLE>
8
<PAGE>
BARGE RIGS
- ----------
Year Built/ Current Current
Rig Name Rebuilt Rated Depth Location Customer
- -------- ------- ----------- -------- --------
ENSCO I(3) 1999 30,000' Shipyard Chevron
ENSCO II(3) 1999 30,000' Shipyard Chevron
ENSCO III(3) 1999 30,000' Shipyard Chevron
ENSCO V 1982/1996 15,000' Venezuela Available(1)
ENSCO VI 1991/1996 15,000' Venezuela Available(1)
ENSCO XI 1994 25,000' Venezuela Stacked(1)
ENSCO XII 1994 25,000' Venezuela Stacked(1)
ENSCO XIV 1994 25,000' Venezuela Stacked(1)
ENSCO XV 1994 25,000' Venezuela Stacked(1)
- --------------------------------------------------------------------------------
PLATFORM RIGS
- -------------
Year Built/ Current Current
Rig Name Rebuilt Rated Depth Location Customer
- -------- ------- ----------- -------- --------
ENSCO 20(4) 1980/1992 25,000' China Arco
ENSCO 21 1982/1996 25,000' Gulf of Mexico Phillips
ENSCO 22 1982/1997 25,000' Gulf of Mexico Kerr-McGee
ENSCO 23 1980/1998 25,000' Gulf of Mexico Amerada Hess
ENSCO 24 1980/1998 25,000' Gulf of Mexico Exxon
ENSCO 25 1980/1998 30,000' Gulf of Mexico Available(1)
ENSCO 26(5) 1982/1999 30,000' Gulf of Mexico Exxon
ENSCO 29 1981/1997 30,000' Gulf of Mexico Texaco
- --------------------------------------------------------------------------------
JACKUP AND SEMISUBMERSIBLE RIGS UNDER CONSTRUCTION
- --------------------------------------------------
Water Rated
Rig Name Type Depth Depth
- -------- ---- ----- -----
ENSCO 101(6) KFELS MOD V Independent 400' 30,000'
Leg Cantilever Jackup
ENSCO 7500(7) Semisubmersible - Moored 7,500' 30,000'
or Dynamically Positioned
- ---------------------
Notes:
(1) Rigs classified as available are being actively marketed and can commence
work on short notice. Stacked rigs do not have operating crews immediately
available and may require some recommissioning before commencing
operations.
(2) The ENSCO 100 is under a bareboat charter contract to Smedvig asa which the
Company expects will last until the year 2000.
(3) The ENSCO I, II and III are currently being constructed at Halter Marine's
shipyard in Orange, Texas with deliveries scheduled in the first and second
quarters of 1999.
(4) The ENSCO 20 is managed, but is not owned, by the Company.
(5) The ENSCO 26 is presently undergoing enhancements and upgrades prior to
commencing a long-term contract with Exxon.
(6) The ENSCO 101 is under construction at the Keppel FELS shipyard in
Singapore with delivery scheduled in the first quarter of 2000. The Company
does not currently have a contract for this rig.
(7) The ENSCO 7500 is being constructed at Halter Marine's shipyard in Orange,
Texas with delivery scheduled in the second half of 2000. The rig is under
a long-term contract with Burlington Resources.
- --------------------------------------------------------------------------------
The Company's drilling rigs consist of engines, drawworks, derricks,
pumps to circulate the drilling fluid, blowout preventers, drill string and
related equipment. The engines power a drive mechanism that turns the drill
string and drill bit so that the hole is drilled by grinding subsurface
materials, which are then carried to the surface by the drilling fluid. The
intended well depth and the drilling conditions are the principal factors that
determine the size and type of rig most suitable for a particular drilling job.
9
<PAGE>
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 in water depths of 350 feet or less. All of the Company's
jackup rigs are of the independent leg design. The majority of the Company's
jackup units 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, crews' quarters, storage and loading
facilities, helicopter landing pad and related equipment.
Barge rigs are towed to the drilling location and are held in place by
anchors while drilling activities are conducted. The Company's barge rigs have
all of the crews' quarters, storage facilities and related equipment mounted on
floating barges, with the drilling equipment cantilevered from the stern of the
barge.
Platform rigs are designed to be temporarily installed on permanently
constructed offshore platforms. The platform rig sections are lifted onto the
offshore platforms with the use of heavy lift cranes. A platform rig typically
stays at a location for a longer period of time than a jackup rig, because
several wells can be drilled from a single offshore platform.
A semisubmersible rig is a floating offshore drilling unit that has
pontoons and columns that, when flooded with water, cause the unit to be
partially submerged to a predetermined depth. Semisubmersibles 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." The Company's new semisubmersible rig will be capable of
drilling in water depths up to 7,500 feet and can be adapted for either
dynamically positioned or moored operations.
Over the life of a typical rig, several of the major components are
replaced due to normal wear and tear. All of the Company's rigs are in good
condition.
Marine Transportation
The Company has a marine transportation fleet of 36 vessels consisting of
five anchor handling tug supply vessels, 23 supply vessels and eight mini-supply
vessels. All of the Company's marine transportation vessels are currently
located in the Gulf of Mexico. Substantially all of the Company's marine
transportation vessels, which had a combined net book value of $39.0 million at
December 31, 1998, are pledged as collateral to secure payment of secured term
loans with an outstanding balance of $8.1 million at December 31, 1998.
The following table provides, as of February 15, 1999, certain
information regarding the Company's marine transportation vessels:
MARINE FLEET
------------
No. Of Year Horse
Vessel Type Vessels Built Power Length Location
----------- ------- ----- ----- ------ --------
KODIAK - AHTS 1 1983 12,000 225' Gulf of Mexico
OTHER- AHTS 4 1975-1983 5,800-8,100 195'-230' Gulf of Mexico
SUPPLY 23 1976-1985 1,800-3,500 166'-220' Gulf of Mexico
MINI-SUPPLY 8 1981-1984 1,200 140'-146' Gulf of Mexico
Currently, two of the Company's supply vessels and four mini-supply
vessels are stacked. Additional vessels may be stacked in 1999 as their
drydocking requirements mature.
Other Property
The Company leases its executive offices in Dallas, Texas. The Company
owns offices and other facilities in Louisiana and Scotland. The Company rents
office space in Australia, Abu Dhabi, Malaysia, the Netherlands, Qatar,
Singapore, Thailand and Venezuela.
10
<PAGE>
Item 3. Legal Proceedings
The Company is from time to time involved in litigation incidental to the
conduct of its business. In the opinion of management, none of such litigation
in which the Company is currently involved would, individually or in the
aggregate, have a material adverse effect on its financial condition or results
of operations.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders in the
fourth quarter of 1998.
11
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The following table sets forth the high and low sales prices for each
period indicated for the Company's common stock, $.10 par value (the "common
stock"), for each of the last two fiscal years, adjusted for the two-for-one
stock split on September 15, 1997:
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----
1998 High....... $33 9/16 $30 3/4 $18 7/16 $15 3/4 $33 9/16
1998 Low........ $23 11/16 $16 7/16 $10 3/8 $ 8 11/16 $ 8 11/16
1997 High....... $29 $28 $39 3/4 $47 $47
1997 Low........ $20 1/4 $20 15/16 $26 5/16 $28 3/8 $20 1/4
The Company's Common Stock (Symbol: ESV) is traded on the New York Stock
Exchange. At February 1, 1999, there were approximately 2,700 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. Cash dividends
per share paid in 1998 and 1997 were $.10 and $.05, respectively. The Company
currently intends to continue to pay such 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 and capital requirements.
12
<PAGE>
Item 6. Selected Consolidated Financial Data
The selected consolidated financial data set forth below for the five
years in the period ended December 31, 1998 has been derived from the Company's
audited consolidated financial statements. This information should be read in
conjunction with the audited consolidated financial statements and notes thereto
included in "Item 8. Financial Statements and Supplementary Data."
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1998 1997 1996(1) 1995 1994
------ ------ ------- ------ ------
(in millions, except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data(2)
Operating revenues ............................. $ 813.2 $ 815.1 $ 468.8 $ 279.1 $ 245.5
Operating expenses ............................. 344.5 321.0 238.3 165.5 144.6
Depreciation and amortization .................. 83.5 104.8 81.8 58.4 51.8
-------- -------- -------- -------- --------
Operating income ............................... 385.2 389.3 148.7 55.2 49.1
Other expense, net ............................. 2.7 13.5 6.0 7.9 8.8
-------- -------- -------- -------- --------
Income from continuing operations before income
taxes and minority interest .................. 382.5 375.8 142.7 47.3 40.3
Provision for income taxes ..................... 123.8 137.8 44.0 3.4 3.7
Minority interest .............................. 4.8 3.1 3.3 2.1 3.0
-------- -------- -------- -------- --------
Income from continuing operations .............. 253.9 234.9 95.4 41.8 33.6
Income from discontinued operations(2) ......... -- -- -- 6.3 3.6
-------- -------- -------- -------- --------
Income before extraordinary item ............... 253.9 234.9 95.4 48.1 37.2
Extraordinary item - extinguishment of debt .... -- (1.0) -- -- --
-------- -------- -------- -------- --------
Net income ..................................... 253.9 233.9 95.4 48.1 37.2
Preferred stock dividend requirements .......... -- -- -- -- 2.2
-------- -------- -------- -------- --------
Income applicable to common stock .............. $ 253.9 $ 233.9 $ 95.4 $ 48.1 $ 35.0
======== ======== ======== ======== ========
Basic earnings per share:(3)
Continuing operations ........................ $ 1.82 $ 1.67 $ .73 $ .35 $ .27
Discontinued operations ...................... -- -- -- .05 .03
Extraordinary item ........................... -- (.01) -- -- --
-------- -------- -------- -------- --------
Net income per share ......................... $ 1.82 $ 1.66 .73 .40 .31
======== ======== ======== ======== ========
Diluted earnings per share:(3)
Continuing operations ........................ $ 1.81 $ 1.64 $ .72 $ .35 $ .27
Discontinued operations ...................... -- -- -- .05 .03
Extraordinary item ........................... -- (.01) -- -- --
-------- -------- -------- -------- --------
Net income per share ......................... $ 1.81 $ 1.64 $ .72 $ .40 $ .30
======== ======== ======== ======== ========
Weighted average common shares outstanding:(3)
Basic ........................................ 139.6 141.0 131.5 119.9 114.4
Diluted ...................................... 140.6 142.9 133.1 120.8 115.4
Cash dividends per common share ................ $ .10 $ .05 $ -- $ -- $ --
======== ======== ======== ======== ========
Balance Sheet Data
Working capital ................................ $ 316.9 $ 316.2 $ 107.5 $ 78.9 $ 129.2
Total assets ................................... 1,992.8 1,772.0 1,315.4 821.5 773.1
Long-term debt, net of current portion ......... 375.5 400.8 258.6 159.2 162.5
Stockholders' equity ........................... 1,245.0 1,076.7 845.9 531.2 488.0
</TABLE>
- ----------
(1) The Company acquired Dual on June 12, 1996. Statement of Operations Data
include the results of Dual from the acquisition date.
(2) The Company sold its technical services segment in 1995. Prior year results
of the technical service segment have been reclassified for comparative
purposes. The 1995 results include a gain of $5.2 million in connection with
the sale of the technical services segment.
(3) Earnings per share and weighted average common shares outstanding amounts
have been adjusted for the two-for-one stock split on September 15, 1997 and
the adoption of Statement of Financial Accounting Standards No. 128,
"Earnings per Share."
13
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Business Environment
ENSCO International Incorporated ("ENSCO" or the "Company") is one of the
leading international providers of offshore drilling and marine transportation
services to the oil and gas industry. The Company's operations are concentrated
in the geographic regions of North America, Europe, Asia Pacific and South
America.
Demand for the Company's services is significantly affected by worldwide
expenditures for oil and gas drilling. Expenditures for oil and gas drilling
activity fluctuate based upon many factors including world economic conditions,
the legislative environment in the U.S. and other major countries, production
levels and other activities of OPEC and other oil and gas producers, and the
impact that these and other events have on the current and expected future
pricing of oil and natural gas.
By many accounts, current industry conditions are the worst that have
been experienced since the mid-1980's. Concern over excess oil supplies, due in
part to the economic slowdown in Southeast Asia, caused oil prices to plummet
during 1998. As a result, oil companies have curtailed or deferred their
exploration and development programs causing a decrease in demand for drilling
rigs and marine vessels. As the demand for drilling rigs and marine vessels
declines, day rates and utilization are adversely affected. The diametric change
in industry conditions from the beginning of 1998 until the end of 1998
exemplifies the unpredictable nature of oil and natural gas prices and the
external factors that can affect those prices. Although members of OPEC and some
other oil and gas producers have attempted to reduce oil production levels,
there can be no assurance that these efforts will reduce oil production levels
or if or when these measures will increase oil prices.
The Company currently expects that day rates and utilization levels for
drilling rigs and marine transportation vessels will continue to deteriorate in
1999 as a result of current industry conditions and expected reductions in
spending for exploration and development programs by oil companies in 1999.
These reductions in day rates and utilization levels will have a significant
adverse effect on the Company's revenues, operating income and net income. If
current conditions persist throughout 1999, the Company anticipates it will
incur a net loss for 1999. See "Outlook and Forward-Looking Statements" for
further information about how the current business environment is expected to
impact the Company's future operations and financial results.
Results of Operations
The Company achieved another successive year of record results in 1998,
however, earnings have been on a downward trend from the first quarter of 1998
as the business environment has deteriorated. The following table highlights the
Company's consolidated operating results for each of the three years in the
period ended December 31, 1998 (in millions):
1998 1997 1996
-------- -------- --------
Operating Results
- -----------------
Revenues ................................... $ 813.2 $ 815.1 $ 468.8
Operating expenses ......................... 344.5 321.0 238.3
Depreciation and amortization............... 83.5 104.8 81.8
------- ------- -------
Operating income ........................... 385.2 389.3 148.7
Other expense, net ......................... 2.7 13.5 6.0
Provision for income taxes ................. 123.8 137.8 44.0
Minority interest .......................... 4.8 3.1 3.3
------- ------- -------
Income before extraordinary item ........... 253.9 234.9 95.4
Extraordinary item - extinguishment of debt. -- (1.0) --
------- ------- -------
Net income ................................. $ 253.9 $ 233.9 $ 95.4
======= ======= =======
The Company acquired DUAL DRILLING COMPANY ("Dual") in June 1996. The
Company's 1996 results include the results of Dual from the acquisition date.
See Note 2 to the Consolidated Financial Statements.
14
<PAGE>
The following is an analysis of the Company's revenues and operating
margin for each of the three years in the period ended December 31, 1998 (in
millions):
1998 1997 1996
------ ------ ------
Revenues
Contract drilling
Jackup rigs
North America ........................ $324.1 $357.9 $197.2
Europe ............................... 217.4 173.8 91.8
Asia Pacific(1) ...................... 78.3 80.0 23.8
------ ------ ------
Total jackup rigs .................. 619.8 611.7 312.8
Barge rigs - South America ............. 71.1 82.8 75.5
Platform rigs (1) ...................... 42.6 26.4 20.3
------ ------ ------
Total contract drilling ............ 733.5 720.9 408.6
------ ------ ------
Marine transportation
AHTS (2) ............................... 18.4 22.2 16.1
Supply ................................. 52.7 60.9 36.5
Mini-supply ............................ 8.6 11.1 7.6
------ ------ ------
Total marine transportation ........ 79.7 94.2 60.2
------ ------ ------
Total ......................... $813.2 $815.1 $468.8
====== ====== ======
Operating Margin (3)
Contract drilling
Jackup rigs
North America ........................ $200.9 $240.8 $106.4
Europe ............................... 155.7 117.7 40.3
Asia Pacific (1) ..................... 35.7 36.2 7.9
------ ------ --------
Total jackup rigs .................. 392.3 394.7 154.6
Barge rigs - South America ............. 34.6 48.7 49.0
Platform rigs (1) ...................... 18.9 8.0 5.5
------ ------ --------
Total offshore rigs ................ 445.8 451.4 209.1
Land rig (4) ........................... -- -- .7
------ ------ ---------
Total contract drilling ............ 445.8 451.4 209.8
------ ------ -------
Marine transportation
AHTS (2) ............................... 8.8 12.6 8.1
Supply ................................. 26.0 38.0 20.0
Mini-supply ............................ 3.5 6.4 3.6
------ ------ ------
Total marine transportation ........ 38.3 57.0 31.7
------ ------ ------
Total ......................... $484.1 $508.4 $241.5
====== ====== ======
(1) The Company acquired its Asia Pacific and platform rigs in the June 1996
Dual acquisition.
(2) Anchor handling tug supply vessels.
(3) Defined as operating revenues less operating expenses exclusive of
depreciation and amortization and general and administrative expenses.
(4) The Company sold its remaining land rig in July 1996.
15
<PAGE>
Discussions relative to each of the Company's operating segments and
geographic operations are set forth below.
Contract Drilling. The following is an analysis of the geographic
locations of the Company's offshore drilling rigs at December 31, 1998, 1997 and
1996.
1998 1997 1996
---- ---- ----
Jackup rigs:
North America .............. 22 22 23
Europe ..................... 7 7 6
Asia Pacific ............... 7(1) 7(1) 6(1)
--- --- ---
Total jackup rigs .. 36 36 35
Barge rigs - South America ......... 6(2) 10 10
Platform rigs ...................... 8(3) 8(3) 8(3)
--- --- ---
Total .............. 50 54 53
=== === ===
(1) Includes one jackup rig operated by the Company that was previously 49%
owned. The Company acquired the remaining 51% interest in May 1997.
(2) Four barge rigs were sold in October 1998.
(3) Seven are located in the Gulf of Mexico and one, which is not owned but
is operated under a management contract, is located off the coast of
China.
In 1998, revenues for the contract drilling segment increased by $12.6
million, or 2%, while operating margin decreased by $5.6 million, or 1%, from
1997. The increase in revenues is due primarily to a 5% increase in average day
rates for the Company's jackup rigs, and a 33% increase in average day rates for
the Company's platform rigs. In addition, the acquisition of the ENSCO 100
jackup rig, in December 1997, increased revenues by $14.2 million in 1998. These
increases were offset in part by a decrease in utilization for the Company's
jackup rigs, to 88% in 1998 from 93% in 1997, and the sale of four barge rigs in
Venezuela in October 1998. The contract drilling operating margin was negatively
impacted by an $18.2 million, or 7%, increase in operating expenses. The
increase in operating expenses is due primarily to higher wages and benefits and
increased oilfield equipment and materials costs.
In 1997, revenues for the contract drilling segment increased by $312.3
million, or 76%, and operating margin increased by $241.6 million, or 115%, from
1996. The increase in revenues and operating margin is primarily attributable to
an increase in average day rates, which increased 52% for the contract drilling
segment overall. In addition, revenues increased approximately $90.7 million as
a result of a full year of operations of the rigs acquired in the Dual
acquisition and other rig acquisitions in 1996 and 1997. The Company's contract
drilling operating margin was negatively impacted by an increase in operating
expenses of $70.7 million in 1997 as compared to 1996. Approximately $41.3
million, or 58%, of the increase in operating expenses resulted from a full year
of operations of the rigs acquired in the Dual acquisition and other rig
acquisitions in 1996 and 1997. The remaining increase in operating expenses is
primarily due to higher personnel costs for offshore rig workers and increased
oilfield equipment and materials costs.
North America Jackup Rigs
In 1998, revenues for the North America jackup rigs decreased by $33.8
million, or 9%, and operating margin decreased by $39.9, or 17%, as compared to
1997. The decrease in revenues and operating margin is due primarily to an
approximate 7% decrease in average day rates and a decrease in utilization to
93% in 1998 from 96% in 1997. In addition to the decrease in revenues, operating
margin was negatively impacted by a $6.1 million increase in operating expenses
in 1998, due primarily to higher wages and benefits and increased oilfield
equipment and materials costs.
In 1997, revenues for North America jackup rigs increased by $160.7
million, or 81%, and operating margin increased $134.4 million, or 126%, as
compared to 1996. The increase in revenues and operating margin is primarily
attributable to a 67% increase in average day rates in 1997, and an increase in
utilization to 96% in 1997 from 93% in 1996. In addition, the 1997 results
benefitted from a full year of operations from the rigs acquired in the Dual
acquisition, contributing an additional $28.0 million in revenues and $18.2
million in operating margin from the prior year results.
16
<PAGE>
Europe Jackup Rigs
In 1998, revenues for the Europe jackup rigs increased by $43.6 million,
or 25%, and operating margin increased by $38.0 million, or 32%, as compared to
1997. The increase in revenues and operating margin is due primarily to a 20%
increase in average day rates in 1998 as compared to 1997 and the addition of
the ENSCO 100 jackup rig, in December 1997, which added revenues of $14.2
million in 1998. These increases in revenues were offset in part by a decrease
in utilization to 97% in 1998 as compared to 100% in 1997. Operating margin was
negatively impacted by a $5.6 million increase in operating expenses in 1998,
due primarily to higher wages and benefits and increased oilfield equipment and
materials costs.
In 1997, revenues for the Europe jackup rigs increased $82.0 million, or
89%, and operating margin increased $77.4 million, or 192%, as compared to 1996.
The increase in revenues and operating margin is primarily due to an increase in
average day rates of 67% in 1997, and an increase in utilization to 100% in 1997
from 88% in 1996. Three of the Europe jackup rigs were in a shipyard for
modifications and enhancements during part of 1996 resulting in lower
utilization.
Asia Pacific Jackup Rigs
In 1998, revenues for the Asia Pacific jackup rigs decreased by $1.7
million, or 2%, and operating margin decreased by $.5 million, or 1%, as
compared to 1997. The decrease in revenues is due primarily to a decrease in
utilization, to 61% in 1998 as compared to 79% in 1997, offset in part by a 25%
increase in average day rates. The decrease in utilization is due to shipyard
downtime and additional idle time resulting from the slowdown in drilling
activity in Southeast Asia.
In 1997, revenues for the Asia Pacific jackup rigs increased $56.2
million, or 236%, and operating margin increased by $28.3 million, or 358%, from
1996. Prior to the Dual acquisition in June 1996, the Company had no operations
in the Asia Pacific region. Consequently, the increase in revenues and operating
margin in 1997, as compared to 1996, is significantly enhanced as a result of
the partial year of operations in 1996. Additionally, the Company purchased a
jackup rig located in Southeast Asia in November 1996, relocated another jackup
rig from the Gulf of Mexico to Southeast Asia in the first quarter of 1997, and
purchased the remaining 51% interest in a jointly-owned jackup rig in May 1997.
Average day rates increased 47% in 1997 while utilization decreased to 79% in
1997 from 86% in 1996. The decrease in utilization in 1997 is due to shipyard
downtime. During 1997, all of the Asia Pacific jackup rigs were in a shipyard,
or mobilizing to a shipyard, for a portion of the year for modifications and
enhancements.
South America Barge Rigs
In 1998, revenues for the South America barge rigs decreased by $11.7
million, or 14%, and operating margin decreased by $14.1 million, or 29%, as
compared to 1997. The decrease in revenues and operating margin is due primarily
to the sale of four barge rigs in October 1998 whose initial contract periods
expired during the second quarter of 1998.
In October 1998, the Company sold the four barge rigs whose contracts had
expired to Petroleos de Venezuela ("PDVSA") for cash proceeds of $49.4 million.
PDVSA purchased the rigs pursuant to a purchase option provided for in the
original charter agreement. The Company and PDVSA are in dispute concerning
additional consideration the Company believes it is entitled to under the
charter agreement for reimbursement of taxes, liabilities and costs related to
the sale. The parties have yet to agree on the amount and method of calculating
such additional payment. In connection with the sale, the Company and PDVSA have
agreed to reserve their rights for resolution of these contractual disputes.
Based on the cash proceeds received from the sale, the Company recognized an
insignificant gain after taxes and required payment of $4.8 million to ENSCO's
minority interest holder. Any additional proceeds collected in future periods
will be recognized as income when received.
In January 1999, the contracts for the remaining six barge rigs in
Venezuela were terminated early by PDVSA. Four of these barge rig contracts were
scheduled to expire in the third quarter of 1999. As a result of the early
termination of the contracts for these four rigs, ENSCO received from PDVSA a
lump sum payment of $13.5 million in January 1999. The two other barge rigs
whose contracts were terminated early were originally scheduled to expire in May
and July 1999. In January 1999, PDVSA paid $5.2 million to ENSCO for early
termination of these two contracts. All of these termination payments will be
recognized as income in the first quarter of 1999.
17
<PAGE>
In 1997, revenues increased $7.3 million, or 10%, while operating margin
remained flat as compared to 1996. The lack of increase in operating margin,
despite the increase in revenues, is primarily due to the structure of the
Company's contracts with PDVSA. Under these contracts, the Company is reimbursed
through its day rate for inflationary cost increases in Venezuela, therefore,
the increase in revenues effectively reimburses the Company for cost increases.
Platform Rigs
In 1998, revenues for the platform rigs increased by $16.2 million, or
61%, and operating margin increased by $10.9 million, or 136%, as compared to
1997. The increase in revenues is due to an increase in utilization, to 89% in
1998 from 63% in 1997, and a 33% increase in day rates. The increase in
utilization is due primarily to less shipyard downtime in 1998 as compared to
1997 and reduced idle time due to increased demand. Operating margin was
negatively impacted by a $5.3 million increase in operating expenses. The
increase in operating expenses is due primarily to the additional operating days
in 1998.
Marine Transportation. The Company currently has a marine transportation
fleet of 36 vessels, consisting of five anchor handling tug supply vessels, 23
supply vessels and eight mini-supply vessels. In September 1998, one of the
Company's large anchor handling tug supply vessels sank while supporting
drilling operations for a customer in the Gulf of Mexico. The vessel was fully
insured and the Company recognized a gain on the loss of the vessel (see "Other
Income (Expense)" and Note 3 to the Company's Financial Statements). All of the
Company's marine transportation vessels are located in the Gulf of Mexico.
In 1998, revenues for the marine transportation segment decreased by
$14.5 million, or 15%, and operating margin decreased by $18.7 million, or 33%.
The decrease in revenues and operating margin is due primarily to a decrease in
utilization, to 81% in 1998 from 91% in 1997, and a 5% decrease in average day
rates. In addition, revenues decreased due to the loss of a vessel in September
1998. Operating expenses increased $4.2 million, or 11%, due primarily to
increased drydocking expense and higher personnel costs.
In 1997, revenues for the Company's marine transportation segment
increased $34.0 million, or 56%, and operating margin increased $25.3 million,
or 80%, as compared to 1996. The increase in revenues and operating margin is
due to an approximate $2,700, or 53%, increase in average day rates in 1997 and
an increase in utilization to 91% in 1997 from 89% in 1996.
Depreciation and Amortization. In 1998, depreciation and amortization
decreased by $21.3 million, or 20%, due primarily to a change in the estimated
useful lives of the Company's drilling rigs and marine vessels effective January
1, 1998. Based on an engineering and economic study of the Company's asset base
completed in the fourth quarter of 1997, the depreciable lives of the Company's
drilling rigs and marine vessels were extended by an average of five to six
years. The effect of this change on the Company's financial results for the year
ended 1998 was to reduce depreciation expense by $35.2 million, or $.25 per
basic and diluted share. The decrease in depreciation expense caused by the
increase in the estimated useful lives was offset in part by the increase in the
Company's asset base resulting from acquisitions in 1997 and capital additions
to drilling rigs and marine vessels during 1997 and 1998.
In 1997, depreciation and amortization expense increased $23.0 million,
or 28%, as compared to 1996. The increase in depreciation and amortization is
primarily due to a full year of depreciation and goodwill amortization on the
assets acquired in the Dual acquisition, as well as additional depreciation from
other asset acquisitions and modifications and enhancements to existing assets.
General and Administrative. In 1998, general and administrative expenses
increased by $1.1 million, or 8%, as compared to 1997. The increase in general
and administrative expenses is due primarily to increased professional fees and
higher personnel costs.
In 1997, general and administrative expenses increased $3.3 million, or
30%, as compared to 1996, due primarily to a full year of expense for the
additional personnel added in conjunction with the Dual acquisition and higher
performance based compensation and benefits costs.
18
<PAGE>
Other Income (Expense). Other income (expense) for each of the three
years in the period ended December 31, 1998 is as follows (in millions):
1998 1997 1996
------ ------ ------
Interest income .......... $ 15.1 $ 7.4 $ 4.5
Interest expense, net .... (26.2) (21.4) (20.8)
Other, net ............... 8.4 .5 10.3
------- ------- -------
$ (2.7) $(13.5) $ (6.0)
======= ======= =======
Interest income increased in 1998 as compared to 1997 due to higher
average outstanding cash balances. The increase in cash is primarily a result of
increased cash flow from operations and cash received from the issuance of
$300.0 million in public debt in November 1997. Interest expense, net increased
in 1998 as compared to 1997 as a result of higher average debt outstanding
offset in part by a $4.9 million increase in capitalized interest. The increase
in debt is due to the issuance of $300.0 million in public debt offset in part
by the retirement of other debt outstanding. The increase in Other, net in 1998
as compared to 1997 is due primarily to a $10.0 million gain recorded on the
loss of the Kodiak II marine vessel which sank in September 1998. The gain
represents the insurance proceeds in excess of the net book value of the vessel.
Interest income increased in 1997 as compared to 1996 due to higher
average cash balances. Other, net decreased in 1997 as compared to 1996 due
primarily to a $6.4 million litigation settlement received in 1996 (see Note 8
to the Consolidated Financial Statements) and other non-recurring income in 1996
of $2.9 million related to the disposition of securities previously received
from the sale of the Company's technical services operations in 1995.
Provision for Income Taxes. For the years ended December 31, 1998, 1997
and 1996 the Company recorded provisions for income taxes of $123.8 million,
$137.8 million and $44.0 million, resulting in effective tax rates of 32.4%,
36.7% and 30.8%, respectively. In 1998, the Company's effective tax rate
decreased as compared to 1997 due primarily to a favorable settlement of a
foreign tax matter and an adjustment of prior year accruals. The Company's
effective tax rate and provision for income taxes increased significantly in
1997 as compared to 1996 due primarily to the increased profitability of the
Company and the recognition, in 1996, of the remaining net operating losses for
financial reporting purposes. The Company's effective tax rate varies between
years due primarily to the Company's level of profitability, the expected
utilization or non-utilization of U.S. net operating loss carryforwards and
foreign taxes. See Note 7 to the Company's Consolidated Financial Statements.
Liquidity and Capital Resources
Cash Flow from Operations and Capital Expenditures.
---------------------------------------------------
Year Ended December 31,
------------------------------
1998 1997 1996
------ ------- -------
(in millions)
Cash flow from operations ................ $ 448.7 $ 336.6 $ 198.6
======= ======= =======
Capital expenditures:
Sustaining .......................... $ 44.1 $ 30.6 $ 19.3
Enhancements ........................ 159.6 131.8 99.4
New construction and acquisitions ... 127.1 119.9 57.3
------- ------- -------
$ 330.8 $ 282.3 $ 176.0
======= ======= =======
In 1998, cash flow from operations increased $112.1 million, or 33%, as
compared to 1997. The 1998 increase in cash flow from operations is due
primarily to working capital changes. In 1997, cash flow from operations
increased $138.0 million, or 69%, as compared to 1996. The 1997 increase in cash
flow from operations is primarily a result of improved operating results offset
in part by cash used for working capital changes.
19
<PAGE>
As part of the Company's ongoing enhancement program, $390.8 million has
been invested over the last three years in upgrading the capability and
extending the service lives of the Company's drilling rigs and marine vessels.
In addition, the Company has added to its fleet of drilling rigs through
acquisitions. In December 1997, the Company acquired a harsh environment,
Gorilla class, jackup rig located in the North Sea and, in May 1997, purchased
the remaining 51% interest of a previously jointly-owned jackup rig located in
Southeast Asia. In 1996, the Company acquired a jackup rig located in Southeast
Asia and made the final payment on a jackup rig, purchased in 1995, which is
located in the North Sea. Not included in the cash expenditure amounts above is
the 10.1 million shares (20.1 million shares giving effect to the two-for-one
stock split on September 15, 1997) of common stock, valued at $218.4 million,
issued in the acquisition of Dual.
In addition to the Company's enhancement program, the Company is
currently completing the construction of three new barge rigs for Lake
Maracaibo, Venezuela, which will operate under five-year contracts for an
affiliate of Chevron Corporation. The barge drilling rigs are projected to be
delivered during the first and second quarters of 1999. The Company also has
under construction an international class, harsh environment, jackup rig and a
semisubmersible drilling rig. The jackup rig, an enhanced KFELS MOD V, is
scheduled for delivery during the first quarter of 2000. Currently, the Company
does not have a contract for this new jackup rig. The semisubmersible rig is
being constructed under a contract for Burlington Resources. Completion of the
semisubmersible rig is expected in the second half of 2000.
Capital expenditures, including capitalized interest, related to the new
construction projects will be approximately $240.0 million in 1999 and $130.0
million in 2000. In addition, management anticipates that capital expenditures
will be approximately $30.0 million for existing operations and $30.0 million
for upgrades and enhancements in 1999. The Company may spend additional funds to
construct or acquire rigs or vessels in 1999 depending on market conditions and
opportunities.
Financing and Capital Resources. The Company's long-term debt, total
capital and debt to capital ratios are summarized below (in millions, except
percentages):
At December 31,
---------------------------------
1998 1997 1996
-------- -------- --------
Long-term debt ...................... $ 375.5 $ 400.8 $ 258.6
Total capital ....................... 1,620.5 1,477.5 1,104.5
Long-term debt to total capital ..... 23.2% 27.1% 23.4%
In May 1998, the Company entered into a $185.0 million unsecured
revolving credit agreement (the "Credit Agreement") with a syndicate of banks.
Interest on amounts borrowed under the Credit Agreement are based on LIBOR plus
an applicable margin rate (currently .4%) depending on the Company's credit
rating. The Company also pays a commitment fee (currently .15% per annum) on the
undrawn portion of the available credit line, which is also based on the
Company's credit rating. The Company is required to maintain certain financial
covenants under the Credit Agreement which include the Company meeting a
specified level of interest coverage, assets to indebtedness, leverage ratio and
tangible net worth. As of December 31, 1998, the Company had $185.0 million
available for borrowings under the Credit Agreement. The Credit Agreement
matures in May 2003.
The increase in long-term debt in 1997 as compared to 1996 is primarily
due to the issuance of $300.0 million of unsecured debt in a November 1997
public debt offering. The debt offering consisted 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"). The Notes and the Debentures were
issued pursuant to a $500.0 million universal shelf registration statement filed
with the Securities and Exchange Commission in October 1997. The net proceeds
from the offering totaled approximately $287.8 million after selling and
underwriting discounts and the settlement of interest rate hedges. Approximately
$75.0 million of the net proceeds were used to retire the Company's revolving
credit facility and $103.2 million of the net proceeds were used to acquire a
harsh environment, Gorilla class, jackup rig. The Company recorded an
extraordinary charge in the fourth quarter of 1997 for $1.0 million, net of
income taxes, to write-off the remaining deferred financing costs associated
with the revolving credit facility. See Note 4 to the Company's Consolidated
Financial Statements.
20
<PAGE>
The Company's total capital increased in 1998 as compared to 1997 due
primarily to the profitability of the Company in 1998, offset in part by the
repurchase of approximately 5.5 million shares of the Company's common stock at
a cost of $74.2 million, and payment of cash dividends of $14.1 million in 1998.
Total capital of the Company increased in 1997 as compared to 1996 due to the
profitability of the Company in 1997 and the increase in long-term debt.
The Company's liquidity position is summarized in the table below (in
millions, except ratios):
At December 31,
----------------------------
1998 1997 1996
---- ---- ----
Cash and cash equivalents .... $330.1 $262.2 $ 80.7
Working capital .............. 316.9 316.2 107.5
Current ratio ................ 3.0 3.4 2.0
Based on the current financial condition of the Company, management
believes cash flow from operations, working capital and its available credit
line should be sufficient to fund the Company's ongoing liquidity needs for the
foreseeable future. In addition, the Company expects to secure a commitment for
additional long-term financing guaranteed by the United States Maritime
Administration in connection with the construction of the semisubmersible
drilling rig.
Market Risk
The Company occasionally uses derivative financial instruments to hedge
against its exposure to changes in foreign currencies. The Company does not use
derivative financial instruments for trading purposes. The Company predominantly
structures its drilling rig contracts in U.S. dollars to mitigate its exposure
to fluctuations in foreign currencies. The Company will, however, from time to
time, hedge its known liabilities or projected payments in foreign currencies to
reduce the impact of foreign currency gains and losses in its financial results.
At December 31, 1998, the Company had foreign currency exchange contracts
outstanding to exchange U.S. dollars for Dutch guilders, British pounds sterling
and Singapore dollars totaling $52.3 million. At December 31, 1998, there were
no material unrealized gains or losses on open foreign currency exchange
derivative hedges. Management believes that the Company's hedging activities do
not expose the Company to any material interest rate risk, foreign currency
exchange rate risk, commodity price risk or any other market rate or price risk.
See Note 11 to the Consolidated Financial Statements.
Year 2000 Update
The Company has completed its assessment of its critical information
technology (IT) systems and non-IT systems and is working to correct the
deficiencies identified. The Company believes that it is on schedule to
successfully implement the required systems and equipment modifications
necessary to make the Company's critical systems Year 2000 compliant by
mid-1999.
The Company's critical IT systems are comprised primarily of a general
ledger accounting software package and related application modules, a fixed
asset system, payroll system and procurement and purchasing system. The
assessment of the Company's IT systems found that some of the IT systems were
not Year 2000 compliant. Changes to make these systems Year 2000 compliant are
being made in conjunction with the Company's planned upgrade cycle, which should
be completed by mid-1999.
Non-IT systems are comprised primarily of computer controlled equipment
and electronic devices, including equipment with embedded microprocessors which
are used to operate equipment on the Company's drilling rigs and marine vessels.
Additionally, telephone systems and other office based electronic equipment are
considered in the assessment of non-IT systems. With respect to drilling rig and
marine vessel based systems, the Company's assessment indicates that there will
be no disruption in the operations of its drilling rigs and marine vessels as a
result of the Year 2000 problem. The Company conducted testing of its drilling
rig based equipment with manufacture representatives during the fourth quarter
of 1998 which verified the Company's assessment. With respect to other office
based non-IT systems, the Company's assessment found that it will be necessary
to replace or modify some existing equipment, which should be completed by
mid-1999.
21
<PAGE>
The total cost to make all systems and equipment Year 2000 compliant is
currently estimated at $550,000, including software and systems that are being
replaced in the Company's normal upgrade cycle. Approximately $400,000 has been
spent in modifying and upgrading systems and equipment to date. These estimates
do not include internal labor costs for employees who spend part of their time
working on the Company's Year 2000 project.
The Company has initiated or received communication from most significant
suppliers, customers and financial service providers on the Year 2000 issue.
This communication has been used to determine the extent to which the Company is
vulnerable to these third parties' failure to remedy their own Year 2000 issues.
Although there is currently no indication that these business partners will not
achieve their Year 2000 compliance plans, there can be no guarantee that the
systems of other companies on which the Company relies will be timely converted.
Additionally, there can be no guarantee that the Company will not experience
Year 2000 problems. If the Company or its business partners experience Year 2000
compliance problems, material adverse business consequences could result. The
Company believes that the most likely negative effects, if any, could include
delays in payments to the Company from customers or payments by the Company to
suppliers and disruptions in shipments of equipment and materials required to
operate the Company's drilling rigs and marine vessels.
The Company has begun contingency planning for its Year 2000 issues and
is expected to have such plans completed by mid-1999. The Company's contingency
planning will primarily focus on precautionary measures related to the shipment
of equipment to foreign countries and rig crew changes on or around January 1,
2000.
Outlook and Forward-Looking Statements
The Company currently expects that day rates and utilization levels for
drilling rigs and marine transportation vessels will continue to deteriorate in
1999 as a result of current industry conditions and expected reductions in
spending for exploration and development programs by oil companies in 1999. As
day rates and utilization continue to decrease, the Company's financial results
will be adversely affected. Due to the short-term nature of many of the
Company's contracts and the unpredictable nature of oil and natural gas prices,
which affect the demand for drilling activity, the extent of such adverse change
cannot be accurately predicted. However, if current conditions persist
throughout 1999, the Company anticipates it will incur a net loss for 1999. The
duration of this market downturn depends on many factors that also cannot be
accurately predicted. Management does, however, remain positive on the long-term
outlook for the industry and for ENSCO.
The decline experienced in the offshore drilling markets has resulted in
the Company stacking certain rigs and vessels. The Company will stack its rigs
and vessels if it does not believe there will be a market for the equipment in
the near-term or if sufficient cash flow cannot be generated to cover cash
operating costs. In 1999, the Company expects that its Gulf of Mexico jackup
rigs will experience greater downtime as the majority of these rigs are on
short-term contracts and will be competing against many available rigs for
additional work. Currently, the Company has no plans to stack any of its North
America jackup rigs. In Europe, the Company has received notice that four of its
rigs working under long-term contracts previously scheduled through 1999 will be
terminated early during the first and second quarters of 1999. As a result, the
Company anticipates stacking at least two of these rigs during the first half of
1999. In the Asia Pacific region, three of the Company's rigs are currently not
under contract. The Company has stacked two of these rigs in the first quarter
of 1999. In South America, the Company's six barge rigs are presently idle as a
result of early contract terminations by PDVSA. The Company plans to market two
of the barge rigs and the remaining four barge rigs have been stacked. The three
new barge rigs under construction for Venezuela are expected to be delivered and
commence drilling under their contracts in the first and second quarters of
1999. In the marine transportation segment, there are currently two supply
vessels and four mini-supply vessels stacked. Additional vessels will be
considered for stacking as their drydocking requirements mature in 1999.
22
<PAGE>
This report contains forward-looking statements based on current
expectations that involve a number of risks and uncertainties. Generally,
forward-looking statements include words or phrases such as "management
anticipates," "the Company believes," "the Company anticipates," "the Company
expects," "the Company plans" and words and phrases of similar impact, and
include but are not limited to statements regarding future operations and
business environment. The forward-looking statements are made pursuant to safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. The
factors that could cause actual results to differ materially from those in the
forward-looking statements include the following: (i) industry conditions and
competition, (ii) cyclical nature of the industry, (iii) worldwide expenditures
for oil and gas drilling, (iv) operational risks and insurance, (v) risks
associated with operating in foreign jurisdictions, (vi) environmental
liabilities which may arise in the future which are not covered by insurance or
indemnity, (vii) the impact of current and future laws and government
regulation, as well as repeal or modification of same, affecting the oil and gas
industry and the Company's operations in particular, (viii) changes in the dates
the Company's rigs being constructed or undergoing enhancement will enter
service, (ix) renegotiation, nullification, or breach of contracts with
customers or other parties, and (x) the risks described elsewhere, herein and
from time to time in the Company's other reports to the Securities and Exchange
Commission.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement requires companies to record
derivatives on the balance sheet as assets and liabilities, measured at fair
value. Gains and losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. This statement is not expected to
have a material impact on the Company's consolidated financial statements. This
statement is effective for fiscal years beginning after June 15, 1999, with
earlier adoption encouraged. ENSCO will adopt this accounting standard as
required by January 1, 2000.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Information required under Item 7A. has been incorporated into
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Market Risk.
23
<PAGE>
Item 8. Financial Statements and Supplementary Data
REPORT OF MANAGEMENT
--------------------
The management of ENSCO International Incorporated and its subsidiaries
has responsibility for the preparation, integrity and reliability of the
consolidated financial statements and related financial information contained in
this report.
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles and prevailing practices of the
industries in which the Company operates. In some instances, these financial
statements include amounts that are based on management's best estimates and
judgments.
The Company maintains a system of procedures and controls over financial
reporting that is designed to provide reasonable assurance to the Company's
management and Board of Directors regarding the integrity and the fair and
reliable preparation and presentation, in all material respects, of its
published financial statements. This system of financial controls and procedures
is reviewed, modified, and improved as changes occur in business conditions and
operations, and as a result of suggestions from the independent accountants.
There are inherent limitations in the effectiveness of any system of internal
control and even an effective system of internal control can provide only
reasonable assurance with respect to the financial statement preparation and may
vary over time. Management believes that, as of December 31, 1998, the Company's
internal control system provides reasonable assurance that material errors or
irregularities will be prevented or detected within a timely period and is cost
effective.
As part of management's responsibility for monitoring compliance with
established policies and procedures, it relies on, among other things, audit
procedures performed by corporate auditors and independent accountants to give
assurance that established policies and procedures are adhered to in all areas
subject to their audits. The Board of Directors, operating through its Audit
Committee composed solely of outside directors, meets periodically with
management and the independent accountants for the purpose of monitoring their
activities to ensure that each is properly discharging its responsibilities. The
Audit Committee and independent accountants have unrestricted access to one
another to discuss their findings.
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Stockholders of ENSCO International Incorporated
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of income and of cash flows present fairly, in
all material respects, the financial position of ENSCO International
Incorporated and its subsidiaries at December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Dallas, Texas
January 25, 1999
24
<PAGE>
ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(in millions, except per share amounts)
Year Ended December 31,
-------------------------
1998 1997 1996
------ ------ ------
REVENUES
Contract drilling .............................. $733.5 $720.9 $408.6
Marine transportation .......................... 79.7 94.2 60.2
------ ------ ------
813.2 815.1 468.8
------ ------ ------
OPERATING EXPENSES
Contract drilling .............................. 287.7 269.5 198.8
Marine transportation .......................... 41.4 37.2 28.5
Depreciation and amortization .................. 83.5 104.8 81.8
General and administrative ..................... 15.4 14.3 11.0
------ ------ ------
428.0 425.8 320.1
------ ------ ------
OPERATING INCOME .................................... 385.2 389.3 148.7
------ ------ ------
OTHER INCOME (EXPENSE)
Interest income ................................ 15.1 7.4 4.5
Interest expense, net .......................... (26.2) (21.4) (20.8)
Other, net ..................................... 8.4 .5 10.3
------ ------ ------
(2.7) (13.5) (6.0)
------ ------ ------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST..... 382.5 375.8 142.7
PROVISION FOR INCOME TAXES
Current income taxes ........................... 73.2 82.1 5.4
Deferred income taxes .......................... 50.6 55.7 38.6
------ ------ ------
123.8 137.8 44.0
MINORITY INTEREST ................................... 4.8 3.1 3.3
------ ------ ------
INCOME BEFORE EXTRAORDINARY ITEM .................... 253.9 234.9 95.4
EXTRAORDINARY ITEM - EXTINGUISHMENT OF DEBT ......... -- (1.0) --
------ ------ ------
NET INCOME .......................................... $253.9 $233.9 $ 95.4
====== ====== ======
BASIC EARNINGS PER SHARE
Income before extraordinary item ............... $ 1.82 $ 1.67 $ .73
Extraordinary item ............................. -- (.01) --
------ ------ ------
Net income ..................................... $ 1.82 $ 1.66 $ .73
====== ====== ======
DILUTED EARNINGS PER SHARE
Income before extraordinary item ............... $ 1.81 $ 1.64 $ .72
Extraordinary item ............................. -- (.01) --
------ ------ ------
Net income ..................................... $ 1.81 $ 1.64 $ .72
====== ====== ======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic .......................................... 139.6 141.0 131.5
Diluted ........................................ 140.6 142.9 133.1
CASH DIVIDENDS PER COMMON SHARE ..................... $ .10 $ .05 $ --
====== ====== ======
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in millions, except par value amounts)
<TABLE>
<CAPTION>
December 31,
----------------------
1998 1997
-------- --------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ......................................... $ 330.1 $ 262.2
Accounts receivable, net .......................................... 118.4 157.2
Prepaid expenses and other ........................................ 27.8 27.7
-------- --------
Total current assets .......................................... 476.3 447.1
-------- --------
PROPERTY AND EQUIPMENT, AT COST ...................................... 1,799.2 1,534.1
Less accumulated depreciation ..................................... 409.8 357.0
-------- --------
Property and equipment, net ................................... 1,389.4 1,177.1
-------- --------
OTHER ASSETS, NET .................................................... 127.1 147.8
-------- --------
$1,992.8 $1,772.0
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable .................................................... $ 9.1 $ 7.8
Accrued liabilities ................................................. 126.7 93.8
Current maturities of long-term debt ................................ 23.6 29.3
-------- --------
Total current liabilities ....................................... 159.4 130.9
-------- --------
LONG-TERM DEBT ......................................................... 375.5 400.8
DEFERRED INCOME TAXES .................................................. 180.0 128.2
OTHER LIABILITIES ...................................................... 17.1 24.4
MINORITY INTEREST ...................................................... 15.8 11.0
COMMITMENTS AND CONTINGENCIES ..........................................
STOCKHOLDERS' EQUITY
First preferred stock, $1 par value, 5.0 million shares
authorized, none issued ......................................... -- --
Preferred stock, $1 par value, 15.0 million shares authorized,
none issued ..................................................... -- --
Common stock, $.10 par value, 250.0 million shares authorized,
155.6 million and 155.2 million shares issued ................... 15.6 15.5
Additional paid-in capital .......................................... 846.1 841.3
Retained earnings ................................................... 538.4 298.6
Restricted stock (unearned compensation) ............................ (7.7) (6.8)
Cumulative translation adjustment ................................... (1.1) (1.1)
Treasury stock, at cost, 18.5 million and 13.0 million shares ....... (146.3) (70.8)
-------- --------
Total stockholders' equity ................................... 1,245.0 1,076.7
-------- --------
$1,992.8 $1,772.0
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1998 1997 1996
----- ------ ------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income .................................................. $253.9 $233.9 $ 95.4
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ........................... 83.5 104.8 81.8
Deferred income tax provision ........................... 50.6 55.7 38.6
Amortization of other assets ............................ 10.1 8.6 4.4
Gain on asset dispositions .............................. (10.6) (1.6) (1.8)
Other ................................................... 4.5 .9 1.4
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable ........... 38.8 (46.7) (28.6)
(Increase) decrease in prepaid expenses and other .... 1.0 (33.3) 1.0
Increase (decrease) in accounts payable .............. 1.3 (9.1) .9
Increase in accrued and other liabilities ............ 15.6 23.4 5.5
------ ------ ------
Net cash provided by operating activities ......... 448.7 336.6 198.6
------ ------ ------
INVESTING ACTIVITIES
Additions to property and equipment ......................... (330.8) (282.3) (176.0)
Net proceeds from disposition of assets ..................... 68.4 2.1 5.3
Net cash acquired in Dual acquisition ....................... -- -- 8.5
Net proceeds from sales of discontinued operations .......... -- -- 5.1
Sale of short-term investments, net ......................... -- -- 5.0
Other ....................................................... -- .6 2.0
------ ------ ------
Net cash used by investing activities ............. (262.4) (279.6) (150.1)
------ ------ ------
FINANCING ACTIVITIES
Long-term borrowings ........................................ -- -- 59.0
Reduction of long-term borrowings ........................... (30.6) (160.0) (85.4)
Net proceeds from public debt offering ...................... -- 287.8 --
Pre-acquisition purchase of Dual debt ....................... -- -- (18.1)
Repurchase of common stock .................................. (74.2) -- --
Cash dividends paid ......................................... (14.1) (7.1) --
Tax benefit from stock compensation ......................... .6 5.2 --
Reduction in restricted cash ................................ -- 1.6 --
Other ....................................................... (.1) (3.0) (.4)
------ ------ ------
Net cash provided (used) by financing activities .. (118.4) 124.5 (44.9)
------ ------ ------
INCREASE IN CASH AND CASH EQUIVALENTS ............................ 67.9 181.5 3.6
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ..................... 262.2 80.7 77.1
------ ------ ------
CASH AND CASH EQUIVALENTS, END OF YEAR ........................... $330.1 $262.2 $ 80.7
====== ====== ======
The accompanying notes are an integral part of these financial statements.
</TABLE>
27
<PAGE>
ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
ENSCO International Incorporated (the "Company") is one of the leading
international providers of offshore drilling and marine transportation services
to the oil and gas industry. All of the Company's domestic and foreign
operations are conducted through wholly owned subsidiaries, with the exception
of the Company's Venezuelan operations in which the Company holds an 85%
interest and a locally owned private company owns the remaining 15%.
The Company's 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
expenditures for oil and gas drilling. Expenditures for oil and gas drilling
activity fluctuate based upon many factors, including world economic conditions,
the legislative environment in the U.S. and other major countries, production
levels and other activities of OPEC and other oil and gas producers, and the
impact that these and other events have on the current and expected future
pricing of oil and natural gas. See Note 9 "Segment Information" for additional
information concerning the Company's operations by segment and 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 generally
accepted accounting principles requires management to make 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.
Cash Equivalents
The Company considers all highly liquid investments to be cash
equivalents if they have maturities of three months or less at the date of
purchase.
Foreign Currency Translation
The U.S. dollar is the functional currency of all of 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 applicable
to foreign subsidiaries are reflected in the consolidated statement of income.
Translation gains and losses were insignificant for all years in the three year
period ended December 31, 1998. In prior years, the financial statements of
certain foreign subsidiaries were maintained in the local foreign currency.
Foreign currency translation adjustments for those subsidiaries were accumulated
as a separate component of equity.
28
<PAGE>
Property and Equipment
Depreciation on drilling rigs and related equipment and marine vessels
acquired after 1990 is computed using the straight line method over estimated
useful lives ranging from 4 to 22 years. Depreciation on drilling rigs and
related equipment and marine vessels acquired prior to 1991 is computed using
the units-of-production method over estimated useful lives ranging from 12 to 24
years. Under the units-of-production method, depreciation is based on the
utilization of the drilling rigs and vessels with a minimum provision when the
rigs or vessels are idle. Depreciation for other equipment and for buildings and
improvements is computed using the straight line method over estimated useful
lives ranging from 2 to 6 years and 2 to 30 years, respectively.
During the latter part of 1997, the Company performed an engineering and
economic study of the Company's asset base. As a result of this study, the
Company, effective January 1, 1998, extended the depreciable lives of its
drilling rigs and marine vessels by an average of five to six years. The Company
believes that this change provides a better matching of the revenues and
expenses of the Company's assets over their anticipated useful lives. The effect
of this change on the Company's financial results for the year ended December
31, 1998 was to reduce depreciation expense by approximately $35.2 million or
$.25 per basic and diluted share.
Maintenance and repair costs are charged to expense as incurred. Major
renewals and improvements are capitalized. Upon retirement or replacement of
assets, the related cost and accumulated depreciation are removed from the
accounts and the resulting gain or loss is included in income.
Goodwill
Goodwill arising from acquisitions is amortized on the straight-line
basis over periods ranging from 10 to 40 years. Amortization of goodwill was
$3.3 million, $3.1 million and $1.7 million for the years ended December 31,
1998, 1997 and 1996, respectively. Goodwill, net of accumulated amortization,
was $113.4 million and $116.7 million at December 31, 1998 and 1997,
respectively, and is included in Other Assets, Net. Accumulated amortization of
goodwill at December 31, 1998 and 1997 was $10.6 million and $7.3 million,
respectively.
Impairment of Assets
The Company evaluates the carrying value of its long-lived assets,
consisting primarily of property and equipment and goodwill, when events or
changes in circumstances indicate that the carrying value of such assets may be
impaired. The determination of impairment is based upon expectations of
undiscounted future cash flows, before interest, of the related asset.
Revenue Recognition
The Company's drilling and marine services contracts generally provide
for payment on a day rate basis, and revenues are recognized as the work is
performed.
Income Taxes
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.
Minority Interest
The Company's Venezuelan operations are conducted through ENSCO Drilling
(Caribbean), Inc. ("Caribbean"), in which the Company owns an 85% equity
interest. Minority interest expense for the three years in the period ended
December 31, 1998 reflects the minority shareholder's 15% equity interest in
Caribbean. The minority shareholder is also entitled to an additional 15% of the
net proceeds from any future sale of rigs currently owned by Caribbean.
29
<PAGE>
Stock-Based Employee Compensation
The Company uses the intrinsic value method of accounting for employee
stock-based compensation in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees." Under the intrinsic value
method, if the exercise price of the Company's stock options equals the market
value of the underlying stock on the date of grant, no compensation expense is
recognized. See Note 6 "Employee Benefit Plans" for the required disclosure of
pro forma information regarding net income and earnings per share as if the
Company had accounted for its employee stock options under the fair value method
of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation."
Earnings Per Share
For each of the three years in the period ended December 31, 1998 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 (in
millions):
Year Ended December 31,
-----------------------
1998 1997 1996
------ ------ ------
Weighted average common shares outstanding (basic) .... 139.6 141.0 131.5
Potentially dilutive common shares:
Restricted stock grants ............................ .3 .5 .5
Stock options ...................................... .7 1.4 1.1
----- ----- -----
Weighted average common shares outstanding (diluted) ... 140.6 142.9 133.1
===== ===== =====
All earnings per share amounts and weighted average common shares
outstanding have been adjusted to reflect the two-for-one stock split on
September 15, 1997. See Note 5 "Stockholders' Equity."
Comprehensive Income
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." The adoption of this statement had no effect on the
Company's financial statements.
Reclassifications
Certain previously reported amounts have been reclassified to conform to
the 1998 presentation.
2. ACQUISITION OF DUAL DRILLING COMPANY ("DUAL")
On June 12, 1996, the Company acquired Dual pursuant to an Agreement and
Plan of Merger among the Company, a wholly owned subsidiary of the Company and
Dual. The acquisition was approved on that date by Dual stockholders who
received 0.625 shares (1.25 shares giving effect to the two-for-one stock split
effective September 15, 1997) of the Company's common stock for each share of
Dual common stock. The Company issued approximately 10.1 million shares (20.1
million shares post split) of its common stock to Dual stockholders in
connection with the acquisition, resulting in an acquisition price of
approximately $218.4 million.
The acquisition of Dual was accounted for as a purchase and the
acquisition cost was allocated to the assets acquired and liabilities assumed
based on estimates of their respective fair values. The excess of the purchase
price over net assets acquired of $114.3 million was allocated to goodwill and
is being amortized over 40 years. The Company completed its final purchase price
allocation and determination of goodwill, deferred taxes and other accounts in
the second quarter of 1997.
30
<PAGE>
The following unaudited pro forma information shows the consolidated
results of operations for the year ended December 31, 1996 based upon
adjustments to the historical financial statements of the Company and the
historical financial statements of Dual to give effect to the acquisition by the
Company as if such acquisition had occurred January 1, 1996 (in millions, except
per share data):
1996
------
Operating revenues ........................... $522.4
Operating income ............................. 149.6
Income from continuing operations ............ 91.7
Net income ................................... 91.7
Basic earnings per share ..................... $ .65
Diluted earnings per share ................... .65
The pro forma consolidated results of operations are not necessarily
indicative of the actual results that would have occurred had the acquisition
been effective on January 1, 1996, or of results that may occur in the future.
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1998 and 1997 consists of the
following (in millions):
1998 1997
-------- --------
Drilling rigs and equipment ............... $1,522.3 $1,371.2
Marine vessels ............................ 87.7 86.5
Other ..................................... 25.8 20.8
Work in progress .......................... 163.4 55.6
-------- --------
$1,799.2 $1,534.1
======== ========
In September 1998, one of the Company's large anchor handling tug supply
vessels, the Kodiak II, sank while supporting drilling operations for a customer
in the Gulf of Mexico. The Company received insurance proceeds of $21.0 million
on the loss of the vessel, resulting in a financial statement gain of $10.0
million ($6.5 million or $.05 per basic and diluted share net of tax). The gain
represents the insurance proceeds in excess of the retired net book value of the
vessel and is recorded in "Other, net" under Other Income (Expense) in the
Consolidated Statement of Income for the year ended December 31, 1998.
In October 1998, the Company sold to Petroleos de Venezuela ("PDVSA")
four barge drilling rigs whose contracts expired in 1998 for cash proceeds of
$49.4 million. The drilling contracts between the Company and PDVSA, which
expired in 1998, contained an option for PDVSA to purchase these four rigs. The
Company and PDVSA are in dispute concerning additional consideration the Company
believes it is entitled to receive under the charter agreement, for
reimbursement of taxes, liabilities and costs related to the sale. The parties
have yet to agree on the amount and method of calculating such additional
payment. In connection with the sale, the Company and PDVSA have agreed to
reserve their rights for resolution of these contractual disputes. Based on cash
proceeds received from the sale, an insignificant gain has been recognized on
the transaction after considering taxes and required payment of $4.8 million to
ENSCO's minority interest holder. Any additional proceeds collected in future
periods will be recognized as income when received.
In May 1997, the Company acquired the remaining 51% interest in a
jointly-owned premium jackup rig located in Southeast Asia for approximately
$21.7 million. The Company's 49% interest in the jackup rig was previously
acquired in the acquisition of Dual.
In December 1997, the Company purchased a harsh environment, Gorilla
class, jackup drilling rig and certain related equipment for approximately
$103.2 million. The drilling rig was renamed the ENSCO 100 and is under bareboat
charter to Smedvig asa, the seller of the rig, until the year 2000.
31
<PAGE>
The Company's additions to property and equipment for the years ended
December 31, 1998 and 1997 include approximately $162.9 million and $137.2
million, respectively, in connection with major modifications and enhancements
of rigs and vessels. During 1998, the Company began construction on three new
barge rigs, a harsh environment jackup rig and a semisubmersible drilling rig.
Capital additions for these projects were approximately $136.9 million in 1998.
4. LONG-TERM DEBT
Long-term debt at December 31, 1998 and 1997 consists of the following
(in millions):
1998 1997
------ ------
6.75% Notes due 2007 .................................. $149.1 $149.0
7.20% Debentures due 2027 ............................. 148.1 148.1
9.875% Senior Subordinated Notes due 2004 ............. 74.2 74.7
Secured term loans (non-recourse to the Company) ...... 19.6 44.6
Secured term loans .................................... 8.1 13.7
------ ------
399.1 430.1
Less current maturities ............................... (23.6) (29.3)
------ ------
Total long-term debt .................................. $375.5 $400.8
====== ======
Revolving Credit Agreement
In May 1998, the Company entered into a $185.0 million unsecured
revolving credit agreement (the "Credit Agreement") with a syndicate of banks.
Interest on amounts borrowed under the Credit Agreement are based on LIBOR plus
an applicable margin rate (currently .4%) depending on the Company's credit
rating. The Company also pays a commitment fee (currently .15% per annum) on the
undrawn portion of the available credit line, which is also based on the
Company's credit rating. The Company is required to maintain certain financial
covenants under the Credit Agreement which include the Company meeting a
specified level of interest coverage, assets to indebtedness, leverage ratio and
tangible net worth. As of December 31, 1998, the Company had $185.0 million
available for borrowings under the Credit Agreement. The Credit Agreement
matures in May 2003.
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 on May 15 and November 15. The Notes and the Debentures were issued
pursuant to a $500.0 million universal shelf registration statement filed with
the Securities and Exchange Commission in October 1997. The net proceeds from
the offering totaled approximately $287.8 million after selling and underwriting
discounts and the settlement of interest rate hedges. Approximately $75.0
million of the net proceeds were used to retire the Company's revolving credit
facility in November 1997 and $103.2 million of the net proceeds were used to
acquire a harsh environment, Gorilla class, jackup rig in December 1997. The
company recorded an extraordinary charge of $1.0 million, net of income taxes,
upon retirement of the revolving credit facility.
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.
32
<PAGE>
Senior Subordinated Notes due 2004
At the June 12, 1996 acquisition date, Dual had outstanding $100.0
million (face amount) of 9.875% Senior Subordinated Notes due 2004 (the "Dual
Notes"). In July 1996, $5.0 million (face amount) of the Dual Notes were
redeemed pursuant to an offer required to be made under the terms of the
indenture. Additionally, the Company purchased $23.2 million (face amount) of
the Dual Notes on the open market during 1996. At December 31, 1998 and 1997,
the carrying value of the Dual Notes in the Consolidated Financial Statements is
net of the amounts redeemed and purchased by the Company, and includes the
unamortized premium assigned to the Dual Notes as a result of purchase
accounting. The Dual Notes are unsecured obligations and are guaranteed by
certain of the former Dual subsidiaries. The Dual Notes' indenture contains
certain restrictive covenants relating to debt, restricted payments, disposition
of proceeds of asset sales, transactions with affiliates, limitation on the
payment of dividends and other payment restrictions, limitations on sale/
leaseback transactions and restrictions on mergers, consolidations and transfer
of assets. Interest on the Dual Notes is payable semiannually and the Dual Notes
are redeemable at the option of the Company, in whole or in part, at any time on
or after January 15, 1999. The Dual Notes are redeemable at prices decreasing
annually from 104.94% of the face amount on January 15, 1999, to par on January
15, 2002 and thereafter.
Secured term loans (non-recourse to the Company)
During 1993 and 1994, a subsidiary of the Company entered into two
financing arrangements, in an original principal amount totalling $143.0
million, with a subsidiary of a Japanese corporation in connection with the
construction of eight barge rigs that were delivered to Venezuela. The financing
arrangements consisted of eight secured term loans, one for each barge rig. The
eight secured term loans had an average fixed rate of 8.17% and were each
repayable in 60 equal monthly installments of principal and interest ending in
April 1998 through January 2000. During 1998, four of these term loans were paid
in full and the remaining four term loans were repaid on February 5, 1999 in
connection with the early termination of the four barge drilling rig contracts
with PDVSA.
Secured term loans
In October 1993, the Company entered into a $25.0 million loan agreement
with a financial institution. The seven year secured term loan bears interest at
a fixed rate of 7.91% per annum, repayable in 28 equal quarterly installments
ending October 2000. In September 1998, the Company repaid approximately $1.3
million of outstanding debt under the loan agreement, in addition to scheduled
maturities, representing the outstanding portion of the debt related to Kodiak
II which sank in September 1998. The term loan is collateralized by certain of
the Company's marine transportation vessels which had a combined net book value
of $35.5 million at December 31, 1998. The loan agreement requires that the
Company maintain a specified minimum tangible net worth and that the Company not
exceed a certain ratio of liabilities to tangible net worth.
In December 1995, in connection with the purchase of four supply vessels
that were previously leased, the Company entered into a $4.7 million loan
agreement with the seller. The five year secured term loan bears interest at a
fixed rate of 7.75% per annum, repayable in 20 equal quarterly installments
ending December 2000. The term loan is collateralized by the four supply vessels
purchased which had a combined net book value of $3.5 million at December 31,
1998.
Maturities
Maturities of long-term debt, excluding amortization of discount or
premium, are as follows: $23.6 million in 1999, $4.1 million in 2000, none in
2001 through 2003 and $371.4 million thereafter.
5. STOCKHOLDERS' EQUITY
In May 1998, the Company's Board of Directors authorized the repurchase
of up to 5.0 million shares of the Company's common stock. In the second and
third quarters of 1998, the Company repurchased 5.0 million shares of treasury
stock at a cost of approximately $69.6 million. In November 1998, the Board of
Directors approved an extension of the stock repurchase program and authorized
the Company to repurchase an additional 5.0 million shares of its common stock.
In December 1998, the Company repurchased an additional .5 million shares at a
cost of approximately $4.6 million.
At the Company's annual meeting of stockholders on May 13, 1997, the
stockholders approved an increase in the Company's authorized shares of common
stock from 125.0 million shares to 250.0 million shares.
33
<PAGE>
In August 1997, the Company's Board of Directors approved a two-for-one
stock split of the Company's common stock effective September 15, 1997.
Accordingly, all references to weighted average common shares outstanding and
earnings per share amounts in the financial statements and footnotes have been
adjusted to reflect the two-for-one stock split.
A summary of activity in the various stockholders' equity accounts for
each of the three years in the period ended December 31, 1998 is as follows
(shares in thousands, dollars in millions):
<TABLE>
<CAPTION>
Restricted
Common Stock Additional Retained Stock
------------------ Paid-In Earnings (Unearned Treasury
Shares Amount Capital (Deficit) Compensation) Stock
------ ------ ------- --------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 66,891 $ 6.7 $615.6 $(23.6) $ (5.3) $(61.1)
Net income -- -- -- 95.4 -- --
Common stock issued under
employee and director incentive
plans, net 215 -- 2.4 -- (.7) (1.9)
Common stock issued in Dual
acquisition 10,069 1.0 217.4 -- -- --
Amortization of unearned
stock compensation -- -- -- -- 1.1 --
------- ------ ------ ------ ------- -------
BALANCE, December 31, 1996 77,175 7.7 835.4 71.8 (4.9) (63.0)
Net income -- -- -- 233.9 -- --
Cash dividends paid -- -- -- (7.1) -- --
Common stock issued under
employee and director incentive
plans, net 505 .1 8.4 -- (3.1) (7.8)
Amortization of unearned
stock compensation -- -- -- -- 1.2 --
Tax benefit from stock
compensation -- -- 5.2 -- -- --
Two-for-one stock split 77,494 7.7 (7.7) -- -- --
------- ------ ------ ------ ------- -------
BALANCE, December 31, 1997 155,174 15.5 841.3 298.6 (6.8) (70.8)
Net income -- -- -- 253.9 -- --
Cash dividends paid -- -- -- (14.1) -- --
Common stock issued under
employee and director
incentive plans, net 402 .1 4.2 -- (2.3) (1.3)
Repurchase of common stock -- -- -- -- -- (74.2)
Amortization of unearned
stock compensation -- -- -- -- 1.4 --
Tax benefit from stock
compensation -- -- .6 -- -- --
------- ------ ------ ------ ------- -------
BALANCE, December 31, 1998 155,576 $ 15.6 $846.1 $538.4 $ (7.7) $(146.3)
======= ====== ====== ====== ======= =======
</TABLE>
At December 31, 1998 and 1997, the outstanding shares of the Company's
common stock, net of treasury shares, were 137.0 million and 142.2 million,
respectively.
34
<PAGE>
On February 21, 1995, the Board of Directors of the Company adopted a
shareholder rights plan and declared a dividend of one preferred share purchase
right (a "Right") for each share of the Company's common stock outstanding on
March 6, 1995. Each Right initially entitled its holder to purchase 1/100th of a
share of the Company's Series A Junior Participating Preferred Stock for $50.00,
subject to adjustment. In March 1997, the plan was amended to increase the
purchase price from $50.00 to $250.00. The Rights generally will not become
exercisable until 10 days after a public announcement that a person or group has
acquired 15% or more of the Company's common stock (thereby becoming an
"Acquiring Person") or the commencement of a tender or exchange offer upon
consummation of which such person or group would own 15% or more of the
Company's common stock (the earlier of such dates being called the "Distribution
Date"). Rights will be issued with all shares of the Company's common stock
issued from March 6, 1995 to the Distribution Date. Until the Distribution Date,
the Rights will be evidenced by the certificates representing the Company's
common stock and will be transferrable only with the Company's common stock. If
any person or group becomes an Acquiring Person, each Right, other than Rights
beneficially owned by the Acquiring Person (which will thereupon become void),
will thereafter entitle its holder to purchase, at the Rights' then current
exercise price, shares of the Company's common stock having a market value of
two times the exercise price of the Right. If, after a person or group has
become an Acquiring Person, the Company is acquired in a merger or other
business combination transaction or 50% or more of its assets or earning power
are sold, each Right (other than Rights owned by an Acquiring Person which will
have become void) will entitle its holder to purchase, at the Rights' then
current exercise price, that number of shares of common stock of the person with
whom the Company has engaged in the foregoing transaction (or its parent) which
at the time of such transaction will have a market value of two times the
exercise price of the Right. After any person or group has become an Acquiring
Person, the Company's Board of Directors may, under certain circumstances,
exchange each Right (other than Rights of the Acquiring Person) for shares of
the Company's common stock having a value equal to the difference between the
market value of the shares of the Company's common stock receivable upon
exercise of the Right and the exercise price of the Right. The Company will
generally be entitled to redeem the Rights for $.01 per Right at any time until
10 days after a public announcement that a 15% position has been acquired. The
Rights expire on February 21, 2005.
6. EMPLOYEE BENEFIT PLANS
Stock Options
In May 1998, the stockholders approved the ENSCO International
Incorporated 1998 Incentive Plan (the "1998 Plan"). The 1998 Plan replaced the
Company's previous stock incentive plan, the ENSCO Incentive Plan. Under the
1998 Plan, a maximum of 11.3 million shares are reserved for issuance as options
and awards of restricted stock. However, no more than 1.13 million shares may be
issued as grants of restricted stock. Stock options 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. Restricted stock grants
generally vest at the rate of 10% per year.
In May 1996, the stockholders approved the Company's 1996 Non-Employee
Directors Stock Option Plan ("Directors Plan"). Under the Directors Plan, a
maximum of 600,000 shares are reserved for issuance. Options 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 under the 1998 Plan and the Directors
Plan is the market value of the stock at the date the option is granted.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
statement. The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions:
1998 1997 1996
------ ------ ------
Risk-free interest rate .......... 5.5% 6.4% 6.3%
Expected life (in years) ......... 4.5 4.0 4.0
Expected volatility .............. 38.9% 36.0% 38.7%
Dividend yield ................... .5% -- --
35
<PAGE>
The following table reflects pro forma net income and earnings per
share under the fair value approach of SFAS No. 123 (in millions, except per
share amounts):
<TABLE>
<CAPTION>
1998 1997 1996
----------------------- ----------------------- -----------------------
As Reported Pro forma As Reported Pro forma As Reported Pro forma
----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income $253.9 $249.6 $233.9 $230.9 $ 95.4 $ 94.3
Basic earnings per share 1.82 1.79 1.66 1.64 .73 .72
Diluted earnings per share 1.81 1.78 1.64 1.62 .72 .71
</TABLE>
These pro forma amounts may not be representative of future disclosures
since the estimated fair value of stock options is amortized to expense over the
vesting period, and additional options may be granted in future years.
A summary of stock option transactions under the 1998 Plan, Directors
Plan and the ENSCO Incentive Plan is as follows (shares in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- -------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year......... 3,105 $17.36 2,301 $ 8.83 2,242 $ 6.66
Granted .......................... 125 21.22 1,583 24.74 486 15.51
Exercised ........................ (268) 7.10 (721) 6.39 (376) 4.49
Forfeited ........................ (40) 19.04 (58) 16.59 (51) 9.34
------ ------ ------ ------ ------ ------
Outstanding at end of year ............... 2,922 $18.44 3,105 $17.36 2,301 $ 8.83
====== ====== ====== ====== ====== ======
Exercisable at end of year ............... 1,307 $15.11 773 $ 9.38 948 $ 6.65
Weighted average fair value of
options granted during the year ....... $ 8.27 $ 9.34 $ 6.08
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1998 (shares in thousands):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------- --------------------------------
Number Weighted Average Number
Range of Outstanding Remaining Weighted Average Exercisable Weighted Average
Exercise Prices at 12/31/98 Contractual Life Exercise Price at 12/31/98 Exercise Price
--------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 7 - $ 9 856 1.1 years $ 8.07 649 $ 8.05
12 - 16 281 2.3 years 14.81 143 14.90
16 - 20 196 3.5 years 17.21 57 16.76
22 - 25 1,520 3.4 years 24.66 415 24.55
25 - 32 69 4.0 years 28.48 43 28.98
----- --------- ------ ----- ------
$ 7 - $32 2,922 2.7 years $18.44 1,307 $15.11
===== ========= ====== ===== ======
</TABLE>
At December 31, 1998, 11.1 million shares were available for grant as
options or incentive grants under the 1998 Plan and 492,000 shares were
available for grant as options under the Directors Plan.
36
<PAGE>
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 under the 1998 Plan and previously under the ENSCO
Incentive Plan. Shares of common stock subject to incentive grants vest on such
a basis as determined by a committee of the Board of Directors. Through 1998,
incentive stock grants for 2.7 million shares of common stock were granted, of
which 1.9 million were vested at December 31, 1998. During 1998, 1997 and 1996,
incentive stock grants for 130,000 shares, 100,000 shares and 50,000 shares,
respectively, were granted. The remaining outstanding incentive stock grants
vest as follows: 212,500 in years 1999 and 2000, 50,500 in years 2001 through
2004, 38,500 in 2005, 28,000 in 2006, 23,000 in 2007 and 13,000 in 2008.
Savings Plan
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 for the years ended December 31, 1998, 1997 and 1996 of
$8.9 million, $8.4 million and $3.8 million, respectively.
The ENSCO Savings Plan includes a 401(k) savings plan feature which
allows eligible employees with more than three months of service 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 $2.6 million, $2.1 million
and $1.1 million in 1998, 1997 and 1996, 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 Company's 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 and eligibility
for participation is determined by the Company's Board of Directors. The
contribution and Company matching provisions of the SERP are identical to the
ENSCO Savings Plan, except that each participant's contributions and matching
contributions under the SERP are further limited by contribution amounts, if
any, under the 401(k) savings plan feature of the ENSCO Savings Plan. Matching
contributions totaled $118,000 in 1998, $56,000 in 1997 and $22,000 in 1996. A
SERP liability of $1.3 million and $689,000 is included in Other Liabilities at
December 31, 1998 and 1997, respectively.
7. INCOME TAXES
The Company had income of $240.2 million, $240.5 million and $92.8
million from its operations before income taxes in the United States and income
of $142.3 million, $135.3 million and $49.9 million from its operations before
income taxes in foreign countries for the years ended December 31, 1998, 1997
and 1996, respectively.
The components of the provision for income taxes for each of the three
years in the period ended December 31, 1998 are as follows (in millions):
1998 1997 1996
------ ------ ------
Current:
Federal ............................ $ 41.5 $ 61.2 $ 2.1
State .............................. 1.0 1.3 --
Foreign ............................ 30.7 19.6 3.3
------ ------ ------
Total current ................. 73.2 82.1 5.4
------ ------ ------
Deferred:
Federal ............................ 56.1 42.9 40.9
Foreign ............................ (5.5) 12.8 7.7
------ ------ ------
Total deferred ................ 50.6 55.7 48.6
------ ------ ------
Deferred tax asset valuation allowance ... -- -- (10.0)
------ ------ ------
Total .............................. $123.8 $137.8 $ 44.0
====== ====== ======
37
<PAGE>
Significant components of deferred income tax assets (liabilities) as of
December 31, 1998 and 1997 are comprised of the following (in millions):
1998 1997
-------- --------
Deferred tax assets:
Net operating loss carryforwards .............. $ 15.3 $ 22.5
Liabilities not deductible for tax purposes ... 3.3 5.9
Safe harbor leases ............................ 2.2 3.7
Accrued benefits .............................. 2.3 2.0
Foreign tax credit carryforward ............... 7.7 14.9
Unfunded pension liability .................... .5 1.2
Other ......................................... 2.7 3.8
------- -------
Total deferred tax assets ..................... 34.0 54.0
------- -------
Deferred tax liabilities:
Property ...................................... (192.0) (168.8)
Tax gain recognized on transfer of assets ..... (3.2) (3.3)
Maritime capital construction fund ............ (5.3) --
Other ......................................... (8.5) (6.3)
------- -------
Total deferred tax liabilities ................ (209.0) (178.4)
------- -------
Net deferred tax liabilities .............. $(175.0) $(124.4)
======= =======
Net current deferred tax asset ...................... $ 5.0 $ 3.8
Net noncurrent deferred tax liability ............... (180.0) (128.2)
------- -------
Net deferred tax liability ................ $(175.0) $(124.4)
======= =======
During 1996, the Company released the remaining $10.0 million of its
deferred tax asset valuation allowance based on the assessment of the Company's
ability to realize the full benefit of all of its net operating loss
carryforwards.
The consolidated effective income tax rate for each of the three years in
the period ended December 31, 1998, differs from the United States statutory
income tax rate as follows:
1998 1997 1996
------ ------ ------
Statutory income tax rate ............. 35.0% 35.0% 35.0%
Adjustment of prior year accruals ..... (2.4) -- --
Change in valuation allowance ......... -- -- (7.0)
Foreign taxes ......................... 3.1 (0.5) (3.3)
Alternative minimum tax ............... -- -- 1.5
Other ................................. (3.3) 2.2 4.6
------ ------ ------
Effective income tax rate ............. 32.4% 36.7% 30.8%
====== ====== ======
At December 31, 1998, the Company had net operating loss carryforwards of
approximately $43.6 million and foreign tax credit carryforwards of $7.7
million. If not utilized, the net operating loss carryforwards expire from 2003
through 2011 and the foreign tax credit carryforwards expire from 2001 through
2003. As a result of certain acquisitions in prior years, the utilization of a
portion of the Company's net operating loss carryforwards are subject to
limitations imposed by the Internal Revenue Code of 1986. However, the Company
does not expect such limitations to have an effect upon its ability to utilize
its net operating loss carryforwards.
It is the policy of the Company to consider that income generated in
foreign subsidiaries is permanently invested. A significant portion of the
Company's undistributed foreign earnings at December 31, 1998 were generated by
controlled foreign corporations. A portion of the undistributed foreign earnings
were taxed, for U.S. tax purposes, in the year that such earnings arose. Upon
distribution of foreign earnings in the form of dividends or otherwise, the
Company may be subject to additional U.S. income taxes. However, deferred taxes
related to the future remittance of these funds are not expected to be
significant to the financial statements of the Company.
38
<PAGE>
8. COMMITMENTS AND CONTINGENCIES
Leases
The Company is obligated under leases for certain of its offices and
equipment. Rental expense relating to operating leases was $4.6 million in 1998,
$3.9 million in 1997 and $3.1 million in 1996. 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: $3.2 million in
1999; $2.1 million in 2000; $921,000 in 2001; $511,000 in 2002; $115,000 in 2003
and none thereafter.
Insurance
Prior to its acquisition by the Company, Dual was self-insured for a
substantial portion of its maritime claims exposure, with self-insured limits of
up to $500,000 for each claim. Effective June 12, 1996, the Company increased
Dual's insurance coverage to levels consistent with the Company's existing
policies which, among other things, limits the exposure to maritime claims to
$25,000 for each claim. Based on current information, the Company has provided
adequate reserves for such claims.
Litigation Settlement
In February 1991, a subsidiary of the Company filed an action against
TransAmerican Natural Gas Corporation and related subsidiaries and affiliates
("TransAmerican") seeking damages for breach of contract. On April 5, 1996, the
U.S. District court for the Southern District of Texas, Houston Division,
entered a judgment against TransAmerican. As a result of the judgment, on April
18, 1996, the subsidiary of the Company entered into a settlement agreement with
TransAmerican. Under the terms of the settlement agreement, the subsidiary of
the Company received approximately $7.3 million. In the second quarter of 1996,
the Company recorded a gain of $6.4 million in Other Income, net, with a
corresponding increase in deferred income tax expense of $2.2 million for an
after tax gain of $4.2 million.
Other
At December 31, 1998, there were no other contingencies, claims or
lawsuits against the Company which, in the opinion of management, would have a
material effect on its financial condition or results of operations.
39
<PAGE>
9. SEGMENT INFORMATION
The Company's operations are categorized into two operating segments
which are differentiated based on the core services provided by the Company, (1)
contract drilling services and (2) marine transportation services. The Company's
contract drilling segment owns or operates a fleet of 50 offshore drilling rigs,
including 36 jackup rigs, six barge rigs and eight platform rigs. The Company's
marine transportation segment owns a fleet of 36 oilfield support vessels.
Operating income for each segment includes an allocation of general and
administrative expenses of the Company's corporate office. Assets and
depreciation expense of the Company's corporate office are not allocated to the
operating segments. Segment information for each of the three years in the
period ended December 31, 1998 is as follows (in millions):
<TABLE>
<CAPTION>
INDUSTRY SEGMENT
Contract Marine
Drilling Transportation Corporate Total
-------- -------------- --------- ---------
<S> <C> <C> <C> <C>
1998
----
Revenues ...................................... $ 733.5 $ 79.7 $ -- $ 813.2
Operating income (loss) ....................... 354.5 32.2 (1.5) 385.2
Assets ........................................ 1,660.6 72.2 260.0 1,992.8
Capital expenditures .......................... 315.4 13.0 2.4 330.8
Depreciation and amortization ................. 77.2 4.8 1.5 83.5
1997
----
Revenues ...................................... $ 720.9 $ 94.2 $ -- $ 815.1
Operating income (loss) ....................... 341.7 48.2 (.6) 389.3
Assets ........................................ 1,424.7 77.3 270.0 1,772.0
Capital expenditures .......................... 268.8 9.7 3.8 282.3
Depreciation and amortization ................. 96.7 7.4 .7 104.8
1996
----
Revenues ...................................... $ 408.6 $ 60.2 $ -- $ 468.8
Operating income (loss) ....................... 125.8 23.4 (.5) 148.7
Assets ........................................ 1,165.6 70.5 79.3 1,315.4
Capital expenditures .......................... 170.1 4.2 1.7 176.0
Depreciation and amortization ................. 74.2 7.1 .5 81.8
</TABLE>
The Company's operations are concentrated in four geographic regions:
North America, Europe, Asia Pacific and South America. In North America, the
Company's operations consist of 22 jackup rigs, seven platform rigs and 36
oilfield support vessels, all located in the U.S. waters of the Gulf of Mexico.
The Company's European operations consist of seven jackup rigs currently
deployed in the United Kingdom, Netherlands, and Norwegian territorial waters of
the North Sea. In Asia Pacific, the Company's operations consist of seven jackup
rigs deployed in various locations and one platform rig that is not owned, but
is operated by the Company under a management contract. In South America, the
Company's operations consist of six barge rigs all located on Lake Maracaibo,
Venezuela. The Company attributes revenues and assets to geographic locations
based on the location of a drilling rig or marine vessel. For new construction
projects, assets are attributed to the location of future operation if known or
to the location of construction if ultimate location of operation is
undetermined.
40
<PAGE>
Information by country for those countries that account for more than 10%
of total revenues or 10% of the Company's long-lived assets is as follows (in
millions):
<TABLE>
<CAPTION>
Revenues Long-lived Assets
------------------------------- --------------------------------
1998 1997 1996 1998 1997 1996
------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
United States.................. $ 444.9 $ 475.3 $ 268.4 $ 544.2 $ 458.9 $ 407.9
Netherlands.................... 142.2 121.0 66.0 146.4 150.3 157.2
Venezuela...................... 71.1 82.8 75.5 161.3 125.9 135.3
Singapore...................... -- -- -- 153.7 .7 44.3
Other foreign countries........ 155.0 136.0 58.9 383.8 441.3 246.9
------- ------- -------- -------- -------- --------
Total..................... $ 813.2 $ 815.1 $ 468.8 $1,389.4 $1,177.1 $ 991.6
======= ======= ======= ======== ======== ========
</TABLE>
Revenues from one customer were $142.2 million or 17% of consolidated
revenues in 1998, $121.0 million or 15% of consolidated revenues in 1997 and
$63.7 million or 14% of consolidated revenues in 1996. Revenues from another
customer were $82.8 million or 10% of consolidated revenues in 1997 and $75.5
million or 16% of consolidated revenues in 1996. All revenues from these
customers were associated with revenues earned by the Company's contract
drilling segment.
10. TRANSACTIONS WITH RELATED PARTIES
In January 1997, a director of the Company settled a $675,000 note
payable to the Company. The note payable related to the director's purchase of
168,750 shares (337,500 shares post split) of restricted common stock of the
Company in 1988. The note was settled through the delivery to the Company of
restricted shares of the Company's common stock valued at a formula price
provided for in the 1988 stock purchase agreement. The director retained 132,998
net shares (265,996 shares post split) of common stock and $238,000 cash after
repayment of the note.
11. SUPPLEMENTAL FINANCIAL INFORMATION
Consolidated Balance Sheet Information. Accounts receivable, net at
December 31, 1998 and 1997 consists of the following (in millions):
1998 1997
------ ------
Trade ............................. $115.6 $154.3
Other ............................. 8.4 6.6
------ ------
124.0 160.9
Allowance for doubtful accounts ... (5.6) (3.7)
------ ------
$118.4 $157.2
====== ======
Prepaid expenses and other at December 31, 1998 and 1997 consists of
the following (in millions):
1998 1997
------ ------
Deferred tax asset ............... $ 5.0 $ 3.8
Prepaid expenses ................. 6.5 5.7
Inventory ........................ 4.2 3.4
Deposits ......................... 5.7 1.1
Prepaid taxes .................... -- 8.8
Other ............................ 6.4 4.9
------ ------
$ 27.8 $ 27.7
====== ======
41
<PAGE>
Accrued liabilities at December 31, 1998 and 1997 consists of the
following (in millions):
1998 1997
------ ------
Operating expenses ................. $ 16.1 $ 18.3
Payroll ............................ 25.7 21.1
Taxes .............................. 49.0 28.1
Insurance .......................... 1.8 4.0
Deferred revenue ................... 6.2 6.1
Accrued interest ................... 6.2 5.8
Accrued capital additions .......... 19.0 5.4
Other .............................. 2.7 5.0
------ ------
$126.7 $ 93.8
====== ======
Consolidated Statement of Income Information. Maintenance and repairs
expense for the years ended December 31, 1998, 1997 and 1996 is as follows (in
millions):
1998 1997 1996
----- ----- -----
Maintenance and repairs .............. $42.0 $38.3 $30.7
Consolidated Statement of Cash Flows Information. The 1996 consolidated
statement of cash flows excludes the issuance of approximately 10.1 million
shares (20.1 million shares post split) of common stock valued at approximately
$218.4 million for the acquisition of Dual. See Note 2 "Acquisition of Dual
Drilling Company."
Cash paid for interest and income taxes for each of the three years in
the period ended December 31, 1998 is as follows (in millions):
1998 1997 1996
----- ----- -----
Interest, net of amounts capitalized ... $29.5 $20.4 $20.9
Income taxes ........................... 51.7 69.2 3.9
The Company capitalized interest of approximately $6.3 million in 1998,
$1.4 million in 1997 and none in 1996.
Fair Value of Financial Instruments. The carrying amounts and estimated
fair values of the Company's financial instruments at December 31, 1998 and 1997
are as follows (in millions):
<TABLE>
<CAPTION>
1998 1997
--------------------- ---------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
6.75% Notes .................................................. $149.1 $152.5 $149.0 $150.6
7.20% Debentures ............................................. 148.1 145.8 148.1 150.9
9.875% Senior Subordinated Notes ............................. 74.2 75.6 74.7 77.8
Other long-term debt, including current maturities ........... 27.7 27.8 58.3 59.2
</TABLE>
The estimated fair values were determined as follows:
Notes, Debentures and Senior Subordinated Notes -Quoted market price.
Other long-term debt - Interest rates currently available to the Company
for issuance of debt with similar terms and remaining maturities.
42
<PAGE>
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, 1998 and 1997. The Company has cash, receivables and
payables denominated in currencies other than functional 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. The fair value of such contracts
outstanding at December 31, 1998 and 1997 was insignificant. See further
discussion regarding the Company's derivative financial instruments under
"Market Risk" in Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Concentration of Credit Risk. The Company provides services to the
offshore oil and gas industry and the Company's customers consist primarily of
major and independent oil and gas producers as well as government-owned oil
companies. The Company performs ongoing credit evaluations of its customers and
generally does not require material collateral. The Company maintains reserves
for potential credit losses, which to date have been within management's
expectations. The Company's cash and cash equivalents are maintained in major
banks and high grade investments. As a result, the Company believes the credit
risk in such instruments is minimal.
12. UNAUDITED QUARTERLY FINANCIAL DATA
A summary of unaudited quarterly consolidated financial information for
1998 and 1997 is as follows (in millions, except per share amounts):
<TABLE>
<CAPTION>
First Second Third Fourth
1998 Quarter Quarter Quarter Quarter Year
---- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues
Contract drilling ............................... $220.8 $211.2 $161.7 $139.8 $733.5
Marine transportation ........................... 25.6 22.8 18.1 13.2 79.7
------ ------ ------ ------ ------
246.4 234.0 179.8 153.0 813.2
------ ------ ------ ------ ------
Operating expenses
Contract drilling ............................... 73.4 73.2 70.0 71.1 287.7
Marine transportation ........................... 10.3 10.4 10.5 10.2 41.4
------ ------ ------ ------ ------
83.7 83.6 80.5 81.3 329.1
------ ------ ------ ------ -----
Operating margin ................................... 162.7 150.4 99.3 71.7 484.1
Depreciation and amortization ...................... 19.8 20.2 20.9 22.6 83.5
General and administrative ......................... 3.6 4.1 3.8 3.9 15.4
------ ------ ------ ------ ------
Operating income ................................... 139.3 126.1 74.6 45.2 385.2
Interest income .................................... 2.7 3.8 4.0 4.6 15.1
Interest expense, net .............................. 7.6 6.6 6.2 5.8 26.2
Other income (expense) ............................. (.1) .1 10.0 (1.6) 8.4
------ ------ ------ ------ ------
Income before income taxes and minority interest ... 134.3 123.4 82.4 42.4 382.5
Provision for income taxes ......................... 45.8 42.3 22.3 13.4 123.8
Minority interest .................................. 1.3 .5 1.1 1.9 4.8
------ ------ ------ ------ ------
Net income ......................................... $ 87.2 $ 80.6 $ 59.0 $ 27.1 $253.9
====== ====== ====== ====== ======
Earnings per share
Basic ........................................... $ .62 $ .57 $ .42 $ .20 $ 1.82
Diluted ......................................... .61 .57 .42 .20 1.81
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
First Second Third Fourth
1997 Quarter Quarter Quarter Quarter Year
---- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues
Contract drilling ............................... $ 140.8 $ 172.5 $ 199.5 $ 208.1 $ 720.9
Marine transportation ........................... 20.8 22.9 23.8 26.7 94.2
------- ------- ------- ------- -------
161.6 195.4 223.3 234.8 815.1
------- ------- ------- ------- -------
Operating expenses
Contract drilling ............................... 61.9 68.2 70.4 69.0 269.5
Marine transportation ........................... 8.2 8.9 10.0 10.1 37.2
------- ------- ------- ------- -------
70.1 77.1 80.4 79.1 306.7
------- ------- ------- ------- -------
Operating margin ................................... 91.5 118.3 142.9 155.7 508.4
Depreciation and amortization ...................... 24.2 25.8 27.0 27.8 104.8
General and administrative ......................... 3.1 3.8 3.5 3.9 14.3
------- ------- ------- ------- -------
Operating income ................................... 64.2 88.7 112.4 124.0 389.3
Interest income .................................... 1.4 1.3 1.4 3.3 7.4
Interest expense, net .............................. 5.8 4.8 5.0 5.8 21.4
Other income (expense) ............................. .1 -- (.1) .5 .5
------- ------- ------- ------- -------
Income before income taxes and minority interest ... 59.9 85.2 108.7 122.0 375.8
Provision for income taxes ......................... 22.7 32.1 40.4 42.6 137.8
Minority interest .................................. .9 .9 .5 .8 3.1
------- ------- ------- ------- -------
Income before extraordinary item ................... 36.3 52.2 67.8 78.6 234.9
Extraordinary item - extinguishment of debt ........ -- -- -- (1.0) (1.0)
------- ------- ------- ------- -------
Net income ......................................... $ 36.3 $ 52.2 $ 67.8 $ 77.6 $ 233.9
======= ======= ======= ======= =======
Basic earnings per share
Income before extraordinary item ................ $ .26 $ .37 $ .48 $ .56 $ 1.67
Extraordinary item .............................. -- -- -- (.01) (.01)
-------- ------- ------- ------- -------
Net income ..................................... $ .26 $ .37 $ .48 $ .55 $ 1.66
======== ======= ======= ======= =======
Diluted earnings per share
Income before extraordinary item ................ $ .25 $ .37 $ .47 .55 $ 1.64
Extraordinary item .............................. -- -- -- (.01) (.01)
-------- ------- ------- ------- -------
Net income ..................................... $ .25 $ .37 $ .47 $ .54 $ 1.64
======== ======= ======= ======= =======
</TABLE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
44
<PAGE>
PART III
Item 10. Directors and Executive Officers, Item 11. Executive Compensation,
Item 12. Security Ownership of Certain Beneficial Owners and Management, and
Item 13. Certain Relationships and Related Transactions
Certain information regarding the executive officers of the Company has
been presented in "Executive Officers of the Registrant" as included in "Item 1
Business."
Pursuant to General Instruction G(3), the additional information required
by these items is hereby incorporated by reference to the Company's definitive
proxy statement, which involves the election of directors and will be filed with
the Commission not later than 120 days after the end of the fiscal year ended
December 31, 1998.
45
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Financial statements, financial statement schedules and exhibits filed as
part of this report:
(1) Financial Statements of ENSCO International Incorporated Page
Report of Independent Accountants - PricewaterhouseCoopers LLP .... 24
Consolidated Statement of Income .................................. 25
Consolidated Balance Sheet ........................................ 26
Consolidated Statement of Cash Flows .............................. 27
Notes to Consolidated Financial Statements ........................ 28
(2) Exhibits
The following instruments are included as exhibits to this Report.
Exhibits incorporated by reference are so indicated by parenthetical
information.
Exhibit
No. Document
- ------- --------
2.1 - Agreement and Plan of Merger, dated March 21, 1996, between ENSCO
International Incorporated, DDC Acquisition Company and DUAL DRILLING
COMPANY (incorporated by reference to Exhibit 99.7 to the Registrant's
Form 8-K dated March 21, 1996, File No. 1-8097).
2.2 - Principal Stockholder Agreement between ENSCO International Incorporated
and Dual Invest AS (incorporated by reference to Exhibit 99.8 to the
Registrant's Form 8-K dated March 21, 1996, File No. 1-8097).
2.3 - Amendment No. 1 to Agreement and Plan of Merger, dated May 7, 1996,
between ENSCO International Incorporated, DDC Acquisition Company and
DUAL DRILLING COMPANY (incorporated by reference to Exhibit 2.2 of
Amendment No. 1 to the Registrant's Registration Statement on Form S-4
filed May 10, 1996, Registration No. 333-3411).
3.1 - Amended and Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3.1 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997, File No. 1-8097).
3.2 - Bylaws of the Company, as amended (incorporated by reference to Exhibit
3.2 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992, File No. 1-8097).
4.1 - Indenture, dated November 20, 1997, between the Company and Bankers
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).
4.2 - 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).
4.3 - 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).
4.4 - 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).
46
<PAGE>
Exhibit
No. Document
- ------- --------
4.5 - Rights Agreement, dated February 21, 1995, between the Company and
American Stock Transfer & Trust Company, as Rights Agent, which includes
as Exhibit A the Form of Certificate of Designations of Series A Junior
Participating Preferred Stock of ENSCO International Incorporated, as
Exhibit B the Form of Right Certificate, and as Exhibit C the Summary of
Rights to Purchase Shares of Preferred Stock of ENSCO International
Incorporated (incorporated by reference to Exhibit 4 to Registrant's Form
8-K dated February 21, 1995, File No. 1-8097).
4.6 - First Amendment to Rights Agreement, dated March 3, 1997, between ENSCO
International Incorporated and American Stock Transfer & Trust Company,
as Rights Agent (incorporated by reference to Exhibit 4.2 to the
Registrant's Current Report on Form 8-K dated March 3, 1997, File No.
1-8097).
4.7 - 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).
10.1 - ENSCO 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 - Amendment to ENSCO 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).
10.3 - Construction and Purchase Agreement dated as of February 3, 1992
between Nissho Iwai Hong Kong Corporation Limited as Purchaser and ENSCO
Drilling Company as Contractor (incorporated by reference to Exhibit
10.21 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993, File No. 1-8097).
10.4 - Sale and Financing Agreement dated as of February 3, 1992 between ENSCO
Drilling Venezuela, Inc. as Purchaser and Nissho Iwai Hong Kong
Corporation Limited as Seller (incorporated by reference to Exhibit 10.22
to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993, File No. 1-8097).
10.5 - Construction and Purchase Agreement dated November 12, 1993, by and
between ENSCO Drilling Company and Nissho Iwai Hong Kong Corporation
Limited (incorporated by reference to Exhibit 10.28 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993, File No.
1-8097).
10.6 - Sale and Financing Agreement dated November 12, 1993, by and between
Nissho Iwai Hong Kong Corporation Limited and ENSCO Drilling Venezuela,
Inc. (incorporated by reference to Exhibit 10.29 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993, File No.
1-8097).
10.7 - Loan Agreement dated October 14, 1993, by and among ENSCO Marine
Company and The CIT Group/Equipment Financing, Inc. (incorporated by
reference to Exhibit 10.27 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993, File No. 1-8097).
10.8 - Partial Satisfaction of Mortgage, dated November 29, 1994, between
Wilmington Trust Company, as trustee for the benefit of The CIT
Group/Equipment Financing, Inc., and ENSCO Marine Company (incorporated
by reference to Exhibit 10.30 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994, File No. 1-8097).
47
<PAGE>
Exhibit
No. Document
- ------- --------
10.9 - Modification and Amendment of First Preferred Fleet Ship Mortgage,
dated January 23, 1995, by ENSCO Marine Company and Wilmington Trust
Company, as trustee for the benefit of The CIT Group/Equipment
Financing, Inc. (incorporated by reference to Exhibit 10.31 to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1994, File No. 1-8097).
10.10 - ENSCO 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 1-8097).
10.11 - ENSCO Supplemental Executive Retirement Plan, as amended and restated
(incorporated by reference to Exhibit 10.18 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1997, File 1-8097).
10.12 - 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 1-8097).
10.13 - Credit Agreement among ENSCO International Incorporated, ENSCO
Offshore Company, Dual Holding Company, various lending institutions,
Bankers Company as Administrative Agent, Den Norske Bank ASA, New York
Branch as Syndication Agent and ABN Amro Bank N.V. as Documentation
Agent concerning a $185 million Revolving Credit Loan, dated as of May
21, 1998 (incorporated by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, File
No. 1-8097).
10.14 - 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).
*21.1 - Subsidiaries of the Registrant.
*23.1 - Consent of PricewaterhouseCoopers LLP.
*27.1 - Financial Data Schedule (EDGAR version only).
- ----------
* Filed herewith
48
<PAGE>
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 1998 Incentive Plan (filed as
Exhibit 10.14 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).
2. ENSCO 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).
3. Amendment to ENSCO Incentive Plan, dated November 11, 1997 (filed
as Exhibit 10.2 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, 1993, File No. 1-8097).
4. ENSCO Supplemental Executive Retirement Plan, as amended and
restated (filed as Exhibit 10.11 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, 1993, 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 4(iii)(A) of
Item 601 of Regulation S-K.
(b) Reports on Form 8-K
No Current Reports on Form 8-K were filed by the Company during the
fourth quarter of the year ended December 31, 1998.
49
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on February 25, 1999.
ENSCO International Incorporated
(Registrant)
By /s/ CARL F. THORNE
-----------------------------
Carl F. Thorne
Chairman, President 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/ CARL F. THORNE
------------------------------ Chairman, President February 25, 1999
Carl F. Thorne Chief Executive Officer
and Director
/s/ RICHARD A. WILSON
------------------------------ Senior Vice President, Chief February 25, 1999
Richard A. Wilson Operating Officer and
Director
/s/ C. CHRISTOPHER GAUT
------------------------------ Vice President, Chief February 25, 1999
C. Christopher Gaut Financial Officer
/s/ H. E. MALONE
------------------------------ Vice President, Chief February 25, 1999
H. E. Malone Accounting Officer and
Controller
/s/ CRAIG I. FIELDS
------------------------------ Director February 25, 1999
Craig I. Fields
/s/ ORVILLE D. GAITHER, SR.
------------------------------ Director February 25, 1999
Orville D. Gaither, Sr.
/s/ GERALD W. HADDOCK
------------------------------ Director February 25, 1999
Gerald W. Haddock
/s/ DILLARD S. HAMMETT
------------------------------ Director February 25, 1999
Dillard S. Hammett
/s/ THOMAS L. KELLY, II
------------------------------ Director February 25, 1999
Thomas L. Kelly II
/s/ MORTON H. MEYERSON
------------------------------ Director February 25, 1999
Morton H. Meyerson
50
SUBSIDIARIES OF THE REGISTRANT
The following list sets forth the name and jurisdiction of
incorporation of each subsidiary of the Registrant (other than certain
subsidiaries that, considered in the aggregate as a single subsidiary, would not
constitute a significant subsidiary) and the percentage of voting securities
owned by each subsidiary's immediate parent. Each such subsidiary is included in
the Consolidated Financial Statements.
<TABLE>
<CAPTION>
Percentage
Percentage of Voting
of Voting Securities
Securities Owned by
Owned by Immediate
Registrant Parent
---------- ----------
<S> <C> <C>
ENSCO Drilling Company (Delaware)................................... 100%
ENSCO de Venezuela, C.A. (Venezuela)............................. 100%
ENSCO Drilling (Caribbean), Inc. (Cayman Islands)................ 85%
ENSCO Drilling Venezuela, Inc. (Cayman Islands)............... 100%
ENSCO Holding Company (Delaware).................................... 100%
ENSCO Offshore Company (Delaware)................................ 100%
ENSCO Offshore U.K. Limited (U.K.)............................ 100%
ENSCO Australia Corporation I (Delaware)...................... 100%
ENSCO Offshore Partnership (Australia)..................... 1%
ENSCO Australia Corporation II (Delaware)..................... 100%
ENSCO Offshore Partnership (Australia)..................... 99%
ENSCO Incorporated (Texas).......................................... 100%
ENSCO Limited (Cayman Islands)...................................... 100%
ENSCO Marine Company (Delaware)..................................... 100%
ENSCO Oceanics Company (Delaware)................................... 100%
ENSCO Netherlands Ltd. (Cayman Islands).......................... 100%
ENSCO Asia Pacific Pte. Limited (Singapore)...................... 100%
Petroleum Finance Corporation (Cayman Islands)................... 100%
ENSCO Brazil Servicos de Petroleo Limitada (Brazil).............. 99%
ENSCO Drilling Company (Nigeria), Ltd. (Nigeria)................. 99%
ENSCO Offshore International Company (Cayman)....................... 100%
Dual Holding Company (Delaware)..................................... 100%
ENSCO Offshore Company II (Delaware)............................. 100%
ENSCO Qatar Company (Delaware)................................ 100%
ENSCO Oceanics Company II (Delaware)............................. 100%
ENSCO Maritime Limited (Bermuda).............................. 100%
Dual Drilling Arabia, Ltd. (Saudi Arabia).................. 50%
ENSCO Asia Company (Texas).................................... 100%
P. T. Dual Perkasa Offshore (Indonesia).................... 80%
SOBRAPER Sociedade Brasileira de Perfuacoes Ltda. (Brazil). 99%
ENSCO Platform Company (Texas)................................... 100%
Dual Drilling Nigeria Ltd.(Nigeria)........................... 100%
Dual Drilling de Venezuela (Venezuela)........................ 100%
ENSCO Platform AS (Norway)....................................... 100%
ENSCO Malaysia Company (Delaware)................................ 100%
ENSCO Gerudi (M) Sdn. Bhd.(Malaysia).......................... 49%
</TABLE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting parts of the Registration Statements on Form S-3 (Nos. 333-37897,
333-03575, 33-64642, 33-49590, 33-46500, 33-43756 and 33-42965) and Form S-8
(Nos. 333-58625, 33-40282, 33-41294, 33-35862, 33-32447 and 33-14714) of ENSCO
International Incorporated of our report dated January 25, 1999 appearing on
page 24 of this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Dallas, Texas
February 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
DECEMBER 31, 1998 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 330,100
<SECURITIES> 0
<RECEIVABLES> 124,000
<ALLOWANCES> 5,600
<INVENTORY> 4,200
<CURRENT-ASSETS> 476,300
<PP&E> 1,799,200
<DEPRECIATION> 409,800
<TOTAL-ASSETS> 1,992,800
<CURRENT-LIABILITIES> 159,400
<BONDS> 375,500
0
0
<COMMON> 15,600
<OTHER-SE> 1,229,400
<TOTAL-LIABILITY-AND-EQUITY> 1,992,800
<SALES> 0
<TOTAL-REVENUES> 813,200
<CGS> 0
<TOTAL-COSTS> 329,100
<OTHER-EXPENSES> 98,900
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,200
<INCOME-PRETAX> 382,500
<INCOME-TAX> 123,800
<INCOME-CONTINUING> 253,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 253,900
<EPS-PRIMARY> 1.82
<EPS-DILUTED> 1.81
</TABLE>
