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EX-32.2 - EXHIBIT 32.2 - Ensco plcesv-9302014xexhibit322.htm
EX-31.2 - EXHIBIT 31.2 - Ensco plcesv-9302014xexhibit312.htm
EX-31.1 - EXHIBIT 31.1 - Ensco plcesv-9302014xexhibit311.htm
EX-4.1 - EXHIBIT 4.1 - Ensco plcesv9-30x2014xexhibit41.htm
EX-32.1 - EXHIBIT 32.1 - Ensco plcesv-9302014xexhibit321.htm
EX-15.1 - EXHIBIT 15.1 - Ensco plcesv-9302014xexhibit151.htm


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

(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from                   to                  

Commission File Number 1-8097

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

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o      No  x
 
As of October 23, 2014, there were 234,258,168 Class A ordinary shares of the registrant issued and outstanding.





ENSCO PLC
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2014

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





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

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

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

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

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

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

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

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

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

1




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

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

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

our ability to obtain financing and pursue other business opportunities may be limited by our debt levels and debt agreement restrictions;

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

delays in actual contract commencement dates;

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

potential long-lived asset or goodwill impairments.

In addition to the numerous risks, uncertainties and assumptions described above, you should also carefully read and consider "Item 1A. Risk Factors" in Part I and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II of the 2013 Form 10-K, as updated, the First Quarter Form 10-Q, as updated, and the Second Quarter Form 10-Q, all of which are available on the SEC's website at www.sec.gov and on the Investor Relations section of our website at www.enscoplc.com. Each forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to publicly update or revise any forward-looking statements, except as required by law.


2





PART I - FINANCIAL INFORMATION

Item 1.Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
The Board of Directors and Shareholders
Ensco plc:
 

We have reviewed the condensed consolidated balance sheet of Ensco plc and subsidiaries (the Company) as of September 30, 2014, the related condensed consolidated statements of operations, and comprehensive income, for the three-month and nine-month periods ended September 30, 2014 and 2013, and the related condensed consolidated statements of cash flows for the nine-month periods ended September 30, 2014 and 2013. These condensed consolidated financial statements are the responsibility of the Company’s management.
We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Ensco plc and subsidiaries as of December 31, 2013, and the related consolidated statements of income, comprehensive income, and cash flows for the year then ended (not presented herein); and in our report dated February 26, 2014, except for notes 1, 2, 10, 11, 13, 14, 15, 16, and 17, as to which the date is September 22, 2014, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2013, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

 
/s/ KPMG LLP
 
Houston, Texas
October 30, 2014

3



ENSCO PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
 
Three Months Ended
September 30,
 
2014
 
2013
OPERATING REVENUES
$
1,261.2

 
$
1,162.2

OPERATING EXPENSES
 
 
 
Contract drilling (exclusive of depreciation)
531.4

 
534.3

Depreciation
140.9

 
132.6

General and administrative
29.3

 
37.4

 
701.6

 
704.3

OPERATING INCOME
559.6

 
457.9

OTHER INCOME (EXPENSE)
 
 
 
Interest income
3.1

 
4.3

Interest expense, net
(38.0
)
 
(40.2
)
Other, net
(3.5
)
 
34.3

 
(38.4
)
 
(1.6
)
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
521.2

 
456.3

PROVISION FOR INCOME TAXES
 
 
 
Current income tax expense
147.6

 
72.5

Deferred income tax benefit
(82.1
)
 
(7.1
)
 
65.5

 
65.4

INCOME FROM CONTINUING OPERATIONS
455.7

 
390.9

LOSS FROM DISCONTINUED OPERATIONS, NET
(22.8
)
 
(9.5
)
NET INCOME
432.9

 
381.4

NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
(3.5
)
 
(2.6
)
NET INCOME ATTRIBUTABLE TO ENSCO
$
429.4

 
$
378.8

EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED
 
 
 
Continuing operations
$
1.93

 
$
1.66

Discontinued operations
(0.10
)
 
(0.04
)
 
$
1.83

 
$
1.62

 
 
 
 
NET INCOME ATTRIBUTABLE TO ENSCO SHARES - BASIC AND DILUTED
$
424.5

 
$
374.8

 
 
 
 
WEIGHTED-AVERAGE SHARES OUTSTANDING
 
 
 
Basic
231.8

 
231.1

Diluted
232.0

 
231.3

 
 
 
 
CASH DIVIDENDS PER SHARE
$
0.75

 
$
0.50

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

4



ENSCO PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
 
Nine Months Ended
September 30,
 
2014
 
2013
OPERATING REVENUES
$
3,594.1

 
$
3,332.8

OPERATING EXPENSES
 
 
 
Contract drilling (exclusive of depreciation)
1,660.0

 
1,541.3

Loss on impairment

991.5

 

Depreciation
419.5

 
392.5

General and administrative
103.6

 
111.6

 
3,174.6

 
2,045.4

OPERATING INCOME
419.5

 
1,287.4

OTHER INCOME (EXPENSE)
 

 
 

Interest income
10.2

 
12.3

Interest expense, net
(109.0
)
 
(123.6
)
Other, net
.5

 
40.1

 
(98.3
)
 
(71.2
)
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
321.2

 
1,216.2

PROVISION FOR INCOME TAXES
 
 
 
Current income tax expense
256.7

 
181.4

Deferred income tax benefit
(90.3
)
 
(16.7
)
 
166.4

 
164.7

INCOME FROM CONTINUING OPERATIONS
154.8

 
1,051.5

(LOSS) INCOME FROM DISCONTINUED OPERATIONS, NET
(594.8
)
 
12.4

NET (LOSS) INCOME
(440.0
)
 
1,063.9

NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
(10.8
)
 
(7.1
)
NET (LOSS) INCOME ATTRIBUTABLE TO ENSCO
$
(450.8
)
 
$
1,056.8

EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED
 
 
 
Continuing operations
$
0.60

 
$
4.48

Discontinued operations
(2.57
)
 
0.05

 
$
(1.97
)
 
$
4.53

 
 
 
 
NET (LOSS) INCOME ATTRIBUTABLE TO ENSCO SHARES - BASIC AND DILUTED
$
(456.7
)
 
$
1,045.6

 
 

 
 

WEIGHTED-AVERAGE SHARES OUTSTANDING
 
 
 
Basic
231.5

 
230.8

Diluted
231.7

 
231.0

 
 
 
 
CASH DIVIDENDS PER SHARE
$
2.25

 
$
1.50

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

5



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

 
 
Three Months Ended
September 30,
 
2014
 
2013
 
 
 
 
NET INCOME
$
432.9

 
$
381.4

OTHER COMPREHENSIVE (LOSS) INCOME, NET
 
 
 
Net change in fair value of derivatives
(12.7
)
 
8.3

Reclassification of net (gains) losses on derivative instruments from other comprehensive income into net income
(1.4
)
 
2.8

Other
3.7

 

NET OTHER COMPREHENSIVE (LOSS) INCOME
(10.4
)
 
11.1

 
 
 
 
COMPREHENSIVE INCOME
422.5

 
392.5

COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
(3.5
)
 
(2.6
)
COMPREHENSIVE INCOME ATTRIBUTABLE TO ENSCO
$
419.0

 
$
389.9


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

6



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

 
Nine Months Ended
September 30,
 
2014
 
2013
 
 
 
 
NET (LOSS) INCOME
$
(440.0
)
 
$
1,063.9

OTHER COMPREHENSIVE LOSS, NET
 
 
 
Net change in fair value of derivatives
(2.8
)
 
(5.3
)
Reclassification of net (gains) losses on derivative instruments from other comprehensive income into net income
(3.3
)
 
2.2

Other
4.2

 
.5

NET OTHER COMPREHENSIVE LOSS
(1.9
)
 
(2.6
)
 
 
 
 
COMPREHENSIVE (LOSS) INCOME
(441.9
)
 
1,061.3

COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
(10.8
)
 
(7.1
)
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO ENSCO
$
(452.7
)
 
$
1,054.2


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


7



ENSCO PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share and par value amounts)
 
 
September 30,
2014
 
December 31,
2013
 
(Unaudited)
 
 
ASSETS
CURRENT ASSETS
 
 
 
    Cash and cash equivalents
$
1,173.7

 
$
165.6

    Accounts receivable, net
869.8

 
855.7

    Other
986.9

 
513.9

Total current assets
3,030.4

 
1,535.2

PROPERTY AND EQUIPMENT, AT COST
15,985.7

 
17,498.5

    Less accumulated depreciation
2,858.1

 
3,187.5

       Property and equipment, net
13,127.6

 
14,311.0

GOODWILL
3,274.0

 
3,274.0

OTHER ASSETS, NET
340.5

 
352.7

 
$
19,772.5

 
$
19,472.9

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
 
 
 
Accounts payable - trade
$
423.8

 
$
341.1

Accrued liabilities and other
653.9

 
658.7

Current maturities of long-term debt
53.8

 
47.5

Total current liabilities
1,131.5

 
1,047.3

LONG-TERM DEBT
5,903.9

 
4,718.9

DEFERRED INCOME TAXES
258.6

 
362.1

OTHER LIABILITIES
629.5

 
545.7

COMMITMENTS AND CONTINGENCIES


 


ENSCO SHAREHOLDERS' EQUITY
 

 
 

Class A ordinary shares, U.S. $.10 par value, 450.0 million shares
     authorized, 240.7 million and 239.5 million shares issued
24.1

 
24.0

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

 
.1

Additional paid-in capital
5,505.7

 
5,467.2

Retained earnings
6,348.4

 
7,327.3

Accumulated other comprehensive income
16.3

 
18.2

Treasury shares, at cost, 6.4 million shares and 6.0 million shares
(58.2
)
 
(45.2
)
Total Ensco shareholders' equity
11,836.4

 
12,791.6

NONCONTROLLING INTERESTS
12.6

 
7.3

Total equity
11,849.0

 
12,798.9

 
$
19,772.5

 
$
19,472.9

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

8



ENSCO PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)

 
Nine Months Ended
September 30,
 
2014
 
2013
OPERATING ACTIVITIES
 

 
 

Net (loss) income
$
(440.0
)
 
$
1,063.9

Adjustments to reconcile net (loss) income to net cash provided by operating activities of continuing operations:
 
 
 
Loss (income) from discontinued operations, net
594.8

 
(12.4
)
Loss on impairment
991.5

 

Depreciation expense
419.5

 
392.5

Deferred income tax benefit
(90.3
)
 
(16.7
)
Share-based compensation expense
35.5

 
38.1

(Gain) loss on disposal of assets
(8.1
)
 
1.3

Amortization of intangibles and other, net
(6.1
)
 
(18.3
)
Other
(0.9
)
 
(4.4
)
Changes in operating assets and liabilities
89.4

 
(94.6
)
Net cash provided by operating activities of continuing operations
1,585.3

 
1,349.4

 
 
 
 
INVESTING ACTIVITIES
 
 
 
Additions to property and equipment
(1,247.0
)
 
(1,273.6
)
Maturities of short-term investments
50.0

 
50.0

Purchases of short-term investments
(45.3
)
 

Other 
9.8

 
3.8

Net cash used in investing activities of continuing operations
(1,232.5
)
 
(1,219.8
)
 
 
 
 
FINANCING ACTIVITIES
 
 
 
Proceeds from issuance of senior notes
1,246.4

 

Cash dividends paid
(526.7
)
 
(350.2
)
Reduction of long-term borrowings
(30.9
)
 
(30.9
)
Debt financing costs
(11.3
)
 

Proceeds from exercise of share options
2.4

 
22.0

Other
(20.0
)
 
(20.8
)
Net cash provided by (used in) financing activities
659.9

 
(379.9
)
 
 
 
 
DISCONTINUED OPERATIONS
 
 
 
Operating activities
(62.0
)
 
83.2

Investing activities
57.4

 
6.4

Net cash (used in) provided by discontinued operations
(4.6
)
 
89.6

Effect of exchange rate changes on cash and cash equivalents

 
(1.0
)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
1,008.1

 
(161.7
)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
165.6

 
487.1

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
1,173.7

 
$
325.4


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

9



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

Note 1 -Unaudited Condensed Consolidated Financial Statements
 
We prepared the accompanying condensed consolidated financial statements of Ensco plc and subsidiaries (the "Company," "Ensco," "our," "we" or "us") in accordance with accounting principles generally accepted in the United States of America ("GAAP"), pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") included in the instructions to Form 10-Q and Article 10 of Regulation S-X. The financial information included in this report is unaudited but, in our opinion, includes all adjustments (consisting of normal recurring adjustments) that are necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods presented. The December 31, 2013 condensed consolidated balance sheet data were derived from our 2013 audited consolidated financial statements, but do not include all disclosures required by GAAP. Certain previously reported amounts have been reclassified to conform to the current year presentation. The preparation of our condensed consolidated financial statements requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the related revenues and expenses and disclosures of gain and loss contingencies as of the date of the financial statements. Actual results could differ from those estimates.
 
The financial data for the three-month and nine-month periods ended September 30, 2014 and 2013 included herein have been subjected to a limited review by KPMG LLP, our independent registered public accounting firm. The accompanying independent registered public accounting firm's review report is not a report within the meaning of Sections 7 and 11 of the Securities Act of 1933, and the independent registered public accounting firm's liability under Section 11 does not extend to it.
 
Results of operations for the three-month and nine-month periods ended September 30, 2014 are not necessarily indicative of the results of operations that will be realized for the year ending December 31, 2014. We recommend these condensed consolidated financial statements be read in conjunction with our annual report on Form 10-K for the year ended December 31, 2013 filed with the SEC on February 26, 2014, as updated by the Current Report on Form 8-K dated September 22, 2014, and our quarterly reports on Form 10-Q filed with the SEC on April 29, 2014, as updated by the Current Report on Form 8-K dated September 22, 2014, and on August 1, 2014.

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) ("Update 2014-09"), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective on January 1, 2017. Early application is not permitted. We are currently evaluating the effect that ASU 2014-09 will have on our consolidated financial statements and related disclosures.
  

10



Note 2 -Fair Value Measurements
 
The following fair value hierarchy table categorizes information regarding our net financial assets measured at fair value on a recurring basis (in millions):
 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
Total
As of September 30, 2014
 
 
 

 
 

 
 

Supplemental executive retirement plan assets 
$
41.8

 
$

 
$

 
$
41.8

Total financial assets
$
41.8

 
$

 
$

 
$
41.8

Derivatives, net 
$

 
$
(17.0
)
 
$

 
$
(17.0
)
Total financial liabilities
$

 
$
(17.0
)
 
$

 
$
(17.0
)
 
 
 
 
 
 
 
 
As of December 31, 2013
 
 
 

 
 

 
 

Supplemental executive retirement plan assets
$
37.7

 
$

 
$

 
$
37.7

Derivatives, net 

 
1.8

 

 
1.8

Total financial assets
$
37.7

 
$
1.8

 
$

 
$
39.5


Supplemental Executive Retirement Plan Assets
 
Our supplemental executive retirement plans (the "SERP") are non-qualified plans that provide eligible employees an opportunity to defer a portion of their compensation for use after retirement. Assets held in the SERP were marketable securities measured at fair value on a recurring basis using Level 1 inputs and were included in other assets, net, on our condensed consolidated balance sheets. The fair value measurement of assets held in the SERP was based on quoted market prices.
 
Derivatives
 
Our derivatives were measured at fair value on a recurring basis using Level 2 inputs. See "Note 3 - Derivative Instruments" for additional information on our derivatives, including a description of our foreign currency hedging activities and related methodologies used to manage foreign currency exchange rate risk. The fair value measurement of our derivatives was based on market prices that are generally observable for similar assets or liabilities at commonly-quoted intervals.
 

11



Other Financial Instruments
 
The carrying values and estimated fair values of our long-term debt instruments were as follows (in millions):
 
September 30,
2014
 
December 31,
2013
 
Carrying Value  
 
Estimated Fair Value  
 
Carrying Value  
 
Estimated Fair Value  
4.7% Senior notes due 2021
$
1,479.2

 
$
1,579.2

 
$
1,477.2

 
$
1,596.9

6.875% Senior notes due 2020
1,012.4

 
1,060.3

 
1,024.8

 
1,086.7

3.25% Senior notes due 2016
997.6

 
1,032.9

 
996.5

 
1,045.8

4.50% Senior notes due 2024
624.2

 
633.2

 

 

5.75% Senior notes due 2044
622.2

 
632.5

 

 

8.50% Senior notes due 2019
588.0

 
619.0

 
600.5

 
635.8

7.875% Senior notes due 2040
381.6

 
389.5

 
382.6

 
410.5

7.20% Debentures due 2027
149.2

 
186.3

 
149.1

 
178.6

4.33% MARAD bonds, including current maturities, due 2016
55.0

 
55.3

 
78.9

 
79.7

4.65% MARAD bonds, including current maturities, due 2020
29.3

 
32.2

 
31.5

 
35.2

6.36% MARAD bonds, including current maturities, due 2015
19.0

 
19.8

 
25.3

 
27.1

Total
$
5,957.7

 
$
6,240.2

 
$
4,766.4

 
$
5,096.3


The estimated fair values of our senior notes and debentures were determined using quoted market prices. The estimated fair values of our Maritime Administration ("MARAD") bonds were determined using an income approach valuation model.

The estimated fair values of our cash and cash equivalents, restricted cash, short-term investments, receivables, trade payables and other liabilities approximated their carrying values as of September 30, 2014 and December 31, 2013.

Note 3 -Derivative Instruments
    
Our functional currency is the U.S. dollar. As is customary in the oil and gas industry, a majority of our revenues are denominated in U.S. dollars; however, a portion of the revenues earned and expenses incurred by certain of our subsidiaries are denominated in currencies other than the U.S. dollar ("foreign currencies"). These transactions are remeasured in U.S. dollars based on a combination of both current and historical exchange rates. We use foreign currency forward contracts to reduce our exposure to various market risks, primarily foreign currency exchange rate risk.
 
All derivatives were recorded on our condensed consolidated balance sheets at fair value. Derivatives subject to legally enforceable master netting agreements were not offset in our condensed consolidated balance sheets. Accounting for the gains and losses resulting from changes in the fair value of derivatives depends on the use of the derivative and whether it qualifies for hedge accounting.  Net liabilities of $17.0 million and net assets of $1.8 million associated with our foreign currency forward contracts were included on our condensed consolidated balance sheets as of September 30, 2014 and December 31, 2013, respectively.  All of our derivatives mature during the next 18 months.  See "Note 2 - Fair Value Measurements" for additional information on the fair value measurement of our derivatives.
 

12



Derivatives recorded at fair value on our condensed consolidated balance sheets consisted of the following (in millions):
 
Derivative Assets
 
Derivative Liabilities
 
September 30,
2014
 
December 31,
2013
 
September 30,
2014
 
December 31,
2013
Derivatives Designated as Hedging Instruments
 
 
 

 
 

 
 

Foreign currency forward contracts - current(1)
$
1.9

 
$
9.1

 
$
8.6

 
$
9.8

Foreign currency forward contracts - non-current(2)

 
1.2

 
2.3

 
.6

 
1.9

 
10.3

 
10.9

 
10.4

 
 
 
 
 
 
 
 
Derivatives Not Designated as Hedging Instruments
 
 
 

 
 

 
 

Foreign currency forward contracts - current(1)
.7

 
2.5

 
8.7

 
.6

 
.7

 
2.5

 
8.7

 
.6

Total
$
2.6

 
$
12.8

 
$
19.6

 
$
11.0

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

(2) 
Derivative assets and liabilities that have maturity dates greater than twelve months from the respective balance sheet date were included in other assets, net, and other liabilities, respectively, on our condensed consolidated balance sheets.
 
We utilize cash flow hedges to hedge forecasted foreign currency denominated transactions, primarily to reduce our exposure to foreign currency exchange rate risk associated with contract drilling expenses and capital expenditures denominated in various currencies. As of September 30, 2014, we had cash flow hedges outstanding to exchange an aggregate $391.2 million for various foreign currencies, including $179.3 million for British pounds, $101.1 million for Brazilian reais, $38.2 million for euros, $32.1 million for Singapore dollars, $23.0 million for Australian dollars and $17.5 million for other currencies.

Gains and losses, net of tax, on derivatives designated as cash flow hedges included in our condensed consolidated statements of operations and comprehensive income were as follows (in millions):

Three Months Ended September 30, 2014 and 2013
 
(Loss) Gain Recognized in Other Comprehensive Income (Effective Portion)  
 
Gain (Loss) Reclassified from Accumulated Other Comprehensive Income ("AOCI") into Income (Effective Portion)(1)
 
(Loss) Gain Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing)(2)
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
Interest rate lock contracts(3)
$

 
$

 
$

 
$
(.1
)
 
$

 
$

Foreign currency forward contracts(4)
(12.7
)
 
8.3

 
1.4

 
(2.7
)
 
(1.9
)
 
1.2

Total
$
(12.7
)
 
$
8.3

 
$
1.4

 
$
(2.8
)
 
$
(1.9
)
 
$
1.2



13



Nine Months Ended September 30, 2014 and 2013
 
Loss Recognized in Other Comprehensive Income (Effective Portion)  
 
(Loss) Gain Reclassified from AOCI into Income (Effective Portion)(1)
 
Loss Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing)(2)
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
Interest rate lock contracts(3)
$

 
$

 
$
(.2
)
 
$
(.3
)
 
$

 
$

Foreign currency forward contracts(5)
(2.8
)
 
(5.3
)
 
3.5

 
(1.9
)
 

 
(.2
)
Total
$
(2.8
)
 
$
(5.3
)
 
$
3.3

 
$
(2.2
)
 
$

 
$
(.2
)

(1)
Changes in the fair value of cash flow hedges are recorded in AOCI.  Amounts recorded in AOCI associated with cash flow hedges are subsequently reclassified into contract drilling, depreciation or interest expense as earnings are affected by the underlying hedged forecasted transaction.

(2)
Gains and losses recognized in income for ineffectiveness and amounts excluded from effectiveness testing were included in other, net, in our condensed consolidated statements of operations.

(3)
Losses on interest rate lock derivatives reclassified from AOCI into income (effective portion) were included in interest expense, net in our condensed consolidated statements of operations.

(4) 
During the three-month period ended September 30, 2014, $1.2 million of gains were reclassified from AOCI into contract drilling expense and $200,000 of gains were reclassified from AOCI into depreciation expense in our condensed consolidated statement of operations. During the three-month period ended September 30, 2013, $2.9 million of losses were reclassified from AOCI into contract drilling expense and $200,000 of gains were reclassified from AOCI into depreciation expense in our condensed consolidated statement of operations.

(5) 
During the nine-month period ended September 30, 2014, $2.9 million of gains were reclassified from AOCI into contract drilling expense and $600,000 of gains were reclassified from AOCI into depreciation expense in our condensed consolidated statement of operations. During the nine-month period ended September 30, 2013, $2.5 million of losses were reclassified from AOCI into contract drilling expense and $600,000 of gains were reclassified from AOCI into depreciation expense in our condensed consolidated statement of operations.

We have net assets and liabilities denominated in numerous foreign currencies and use various methods to manage our exposure to foreign currency exchange rate risk. We predominantly structure our drilling contracts in U.S. dollars, which significantly reduces the portion of our cash flows and assets denominated in foreign currencies. We occasionally enter into derivatives that hedge the fair value of recognized foreign currency denominated assets or liabilities but do not designate such derivatives as hedging instruments.  In these situations, a natural hedging relationship generally exists whereby changes in the fair value of the derivatives offset changes in the fair value of the underlying hedged items. As of September 30, 2014, we held derivatives not designated as hedging instruments to exchange an aggregate $211.2 million for various foreign currencies, including $106.6 million for euros, $27.5 million for Swiss francs, $22.3 million for British pounds, $15.9 million for Indonesian rupiah, $14.3 million for Australian dollars and $24.6 million for other currencies.
     
Net losses of $15.4 million and net gains of $7.5 million associated with our derivatives not designated as hedging instruments were included in other, net, in our condensed consolidated statements of operations for the three-month periods ended September 30, 2014 and 2013, respectively. Net losses of $15.1 million and net gains of $2.8 million associated with our derivatives not designated as hedging instruments were included in other, net in our condensed consolidated statements of operations for the nine-month periods ended September 30, 2014 and 2013, respectively.


14



As of September 30, 2014, the estimated amount of net losses associated with derivative instruments, net of tax, that would be reclassified into earnings during the next twelve months totaled $3.4 million.

Note 4 - Noncontrolling Interests

Third parties hold a noncontrolling ownership interest in certain of our non-U.S. subsidiaries. Noncontrolling interests are classified as equity on our condensed consolidated balance sheets, and net income attributable to noncontrolling interests is presented separately in our condensed consolidated statements of operations.
    
Income from continuing operations attributable to Ensco for the three-month and nine-month periods ended September 30, 2014 and 2013 was as follows (in millions):
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
Income from continuing operations
$
455.7

 
$
390.9

 
$
154.8

 
$
1,051.5

Income from continuing operations attributable to noncontrolling interests
(3.5
)
 
(2.4
)
 
(10.7
)
 
(6.5
)
Income from continuing operations attributable to Ensco
$
452.2

 
$
388.5

 
$
144.1

 
$
1,045.0


(Loss) income from discontinued operations attributable to Ensco for the three-month and nine-month periods ended September 30, 2014 and 2013 was as follows (in millions):

 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
(Loss) income from discontinued operations, net
$
(22.8
)
 
$
(9.5
)
 
$
(594.8
)
 
$
12.4

Income from discontinued operations attributable to noncontrolling interests


 
(.2
)
 
(.1
)
 
(.6
)
(Loss) income from discontinued operations attributable to Ensco

$
(22.8
)
 
$
(9.7
)
 
$
(594.9
)
 
$
11.8


Note 5 - Earnings Per Share
 
We compute basic and diluted earnings per share ("EPS") in accordance with the two-class method. Net (loss) income attributable to Ensco used in our computations of basic and diluted EPS is adjusted to exclude net income allocated to non-vested shares granted to our employees and non-employee directors. Weighted-average shares outstanding used in our computation of diluted EPS is calculated using the treasury stock method and excludes non-vested shares.
    

15



The following table is a reconciliation of income from continuing operations attributable to Ensco shares used in our basic and diluted EPS computations for the three-month and nine-month periods ended September 30, 2014 and 2013 (in millions):
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
Income from continuing operations attributable to Ensco
$
452.2

 
$
388.5

 
$
144.1

 
$
1,045.0

Income from continuing operations allocated to non-vested share awards
(5.2
)
 
(4.1
)
 
(5.9
)
 
(11.1
)
Income from continuing operations attributable to Ensco shares
$
447.0

 
$
384.4

 
$
138.2

 
$
1,033.9

 
The following table is a reconciliation of the weighted-average shares used in our basic and diluted EPS computations for the three-month and nine-month periods ended September 30, 2014 and 2013 (in millions):
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
Weighted-average shares - basic
231.8

 
231.1

 
231.5

 
230.8

Potentially dilutive shares
.2

 
.2

 
.2

 
.2

Weighted-average shares - diluted
232.0

 
231.3

 
231.7

 
231.0

 
Antidilutive share options totaling 100,000 and 200,000 were excluded from the computation of diluted EPS for the three-month and nine-month periods ended September 30, 2014. Antidilutive share options totaling 300,000 were excluded from the computation of diluted EPS for the three-month and nine-month periods ended September 30, 2013.

Note 6 -Debt

Senior Notes

On September 29, 2014, we issued $625.0 million aggregate principal amount of unsecured 4.50% senior notes due 2024 at a discount of $850,000 and $625.0 million aggregate principal amount of unsecured 5.75% senior notes due 2044 at a discount of $2.8 million (collectively the “2014 Notes”) in a public offering. Interest on the 2014 Notes is payable semiannually in April and October of each year commencing April 1, 2015.  The 2014 Notes were issued pursuant to an Indenture between us and Deutsche Bank Trust Company Americas, as trustee (the “Trustee”), dated March 17, 2011 (the “Indenture”) and a Second Supplemental Indenture between us and the Trustee, dated September 29, 2014 (the “2014 Supplemental Indenture”). We expect to use the net proceeds from this offering for general corporate purposes, which may include payments with respect to our rigs under construction and other capital expenditures. 

We may redeem each series of the 2014 Notes, in whole at any time or in part from time to time, prior to maturity. If we elect to redeem the 2014 Notes due 2024 before the date that is three months prior to the maturity date or the 2014 Notes due 2044 before the date that is six months prior to the maturity date, we will pay an amount equal to 100% of the principal amount of the notes redeemed plus accrued and unpaid interest and a “make-whole” premium. If we elect to redeem the 2014 Notes on or after the aforementioned dates, we will pay an amount equal to 100% of the principal amount of the notes redeemed plus accrued and unpaid interest, but are not required to pay a "make-whole" premium.


16



The 2014 Notes, the Indenture and the 2014 Supplemental Indenture also contain customary events of default, including failure to pay principal or interest on the 2014 Notes when due, among others. The 2014 Supplemental Indenture contains certain restrictions, including, among others, restrictions on our ability and the ability of our subsidiaries to create liens on certain assets, enter into certain sale-leaseback transactions, enter into certain merger or consolidation transactions or transfers of all or substantially all of our assets.
 
Five-Year Credit Facility

On September 30, 2014, we entered into an amendment to the Fourth Amended and Restated Credit Agreement (the "Five-Year Credit Facility"), among Ensco, Citibank, N.A., as Administrative Agent, DNB Bank ASA, as Syndication Agent, and a syndicate of banks. This amendment extended the Five-Year Credit Facility maturity date from May 7, 2018 to September 30, 2019 and increased the total commitment of the lenders from $2.0 billion to $2.25 billion. As amended, the Five-Year Credit Facility provides for a $2.25 billion senior unsecured revolving credit facility to be used for general corporate purposes.

Advances under the Five-Year Credit Facility bear interest at Base Rate or LIBOR plus an applicable margin rate (currently 0.125% per annum for Base Rate advances and 1.125% per annum for LIBOR advances) depending on our credit rating. Amounts repaid may be re-borrowed during the term of the Five-Year Credit Facility. We are required to pay a quarterly commitment fee (currently 0.125% per annum) on the undrawn portion of the $2.25 billion commitment, which is also based on our credit rating. In addition to other customary restrictive covenants, the Five-Year Credit Facility requires us to maintain a total debt to total capitalization ratio of less than or equal to 50%. We have the right, subject to lender consent, to increase the commitments under the Five-Year Credit Facility to an aggregate amount of up to $2.75 billion. We had no amounts outstanding under the Five-Year Credit Facility as of September 30, 2014 and December 31, 2013.

Note 7 -Impairment

Impairment of Long-Lived Assets

During the second quarter of 2014, demand for floaters deteriorated as a result of continued reduction in capital spending by operators in addition to recently announced delays in operators’ drilling programs. The reduction in demand, combined with the increasing supply from newbuild floater deliveries, led to a very competitive market. In general, contracting activity for floaters declined significantly, and new day rate fixtures were substantially lower than rates realized during the first quarter of 2014 and fourth quarter of 2013. More specifically, drilling contractors have been unable to contract older, less capable rigs as operators are now targeting premium, high-specification rigs at lower day rates. The significant supply and demand imbalance will continue to be adversely impacted by future newbuild deliveries, program delays and lower capital spending by operators. As a result, day rates and utilization will remain under pressure, especially for older, less capable floaters. In response to the adverse change in the current and anticipated floaters business climate, management evaluated our older, less capable floaters and committed to a plan to sell five rigs. These rigs were written down to fair value, less costs to sell, as of May 31, 2014 and classified as "held for sale" on our September 30, 2014 condensed consolidated balance sheet.

We measured the fair value of the "held for sale" rigs by applying a market approach, which was based on unobservable third-party estimated prices that would be received in exchange for the assets in an orderly transaction between market participants. We recorded a pre-tax, non-cash loss on impairment totaling $546.4 million during the nine-month period ended September 30, 2014. The impairment charge was included in (loss) income from discontinued operations, net in our condensed consolidated statement of operations for the nine-month period ended September 30, 2014. See "Note 9 - Discontinued Operations" for additional information on our "held for sale" rigs.


17


On a quarterly basis, we evaluate the carrying value of our property and equipment to identify events or changes in circumstances ("triggering events") that indicate the carrying value may not be recoverable. As a result of the adverse change in the floater business climate observed during the second quarter of 2014, management's commitment to a plan to sell five floaters during the second quarter of 2014 and the impairment charge incurred on the "held for sale" floaters, management concluded that a triggering event had occurred during the second quarter of 2014 and performed an asset impairment analysis on our remaining older, less capable floaters.

Based on the analysis performed as of May 31, 2014, we recorded an additional non-cash loss on impairment with respect to four other floaters totaling $991.5 million. The impairment charge was included in loss on impairment in our condensed consolidated statement of operations for the nine-month period ended September 30, 2014. We measured the fair value of these rigs by applying an income approach, using projected discounted cash flows. These valuations were based on unobservable inputs that require significant judgments for which there is limited information, including assumptions regarding future day rates, utilization, operating costs and capital requirements.

Goodwill

Our business consists of three operating segments: (1) Floaters, which includes our drillships and semisubmersible rigs, (2) Jackups and (3) Other, which consists of management services on rigs owned by third-parties. Our two reportable segments, Floaters and Jackups, provide one service, contract drilling.

We test goodwill for impairment on an annual basis or when events or changes in circumstances indicate that a potential impairment exists.  Management concluded that the aforementioned adverse change in the current and anticipated floater business climate, the commitment to a plan to sell five floaters and the impairment charge on the "held for sale" floaters triggered an interim impairment test to evaluate the Floaters reporting unit goodwill balance of $3.1 billion as of May 31, 2014.

Based on the valuation performed as of May 31, 2014, the Floaters reporting unit estimated fair value exceeded the carrying value (adjusted for the long-lived impairments noted above) by approximately 7%; therefore, we concluded that the goodwill balance was not impaired.  We estimated the fair value of the Floaters reporting unit using a blended income and market approach.

The income approach was based on a discounted cash flow model, which utilized present values of cash flows to estimate fair value. The future cash flows were projected based on our estimates of future day rates, utilization, operating costs, capital requirements, growth rates and terminal values for our rigs. Forecasted day rates and utilization take into account current market conditions and our anticipated business outlook, both of which have been impacted by the recent adverse change in the floater business environment. The day rates reflected contracted rates during the respective contracted periods and management's estimate of market day rates in uncontracted periods. The forecasted market day rates were held constant in the near-term and were forecasted to grow in the longer-term and terminal period.

Operating costs were forecasted using our historical average operating costs and were adjusted for an estimated inflation factor. Capital requirements in the discounted cash flow model were based on management's estimates of future capital costs, taking into consideration our historical trends. The estimated capital requirements include cash outflows for new rig construction, rig enhancements and minor upgrades and improvements.

A terminal period was used to reflect our estimate of stable, perpetual growth. The terminal period reflects a terminal growth rate of 3.5%, which includes an estimated inflation factor. The future cash flows were discounted using a market-participant risk-adjusted weighted average cost of capital ("WACC") of 10.5%.


18


These assumptions were derived from unobservable inputs and reflect management's judgments and assumptions. A decline in the Floaters reporting unit cash flow projections or changes in other key assumptions may result in a goodwill impairment charge in the future. Specifically, keeping all other variables constant, a 50 basis point increase in the WACC applied would reduce the estimated fair value of our Floaters reporting unit below its carrying value. In addition, keeping all other variables constant, a 1.5% reduction in the terminal growth rate would reduce the estimated fair value of our Floaters reporting unit below its carrying value. Also, keeping all other variables constant, a 5.0% reduction in our forecasted market day rates would reduce the estimated fair value of our Floaters reporting unit below its carrying value.

The market approach was based upon the application of price-to-earnings multiples to management's estimates of future earnings adjusted for a control premium. The price-to-earnings multiples used in the market valuation ranged from 7.5x to 8.5x and were based on competitor market multiples. The fair value determined under the market approach is sensitive to these multiples, and a decline in any of the multiples could reduce the estimated fair value of our Floaters reporting unit below its carrying value. Management's earnings estimates were derived from unobservable inputs that require significant estimates, judgments and assumptions as described in the income approach.

The estimated fair value of the Floaters reporting unit determined under the income approach was consistent with the estimated fair value determined under the market approach. For purposes of the goodwill impairment test, we calculated the Floaters reporting unit estimated fair value as the average of the values calculated under the income approach and the market approach.

We evaluated the estimated fair value of our reporting units compared to our market capitalization as of May 31, 2014. To perform this assessment, we used a market approach to estimate the fair value of the Jackups reporting unit. The aggregate fair values of our reporting units exceeded our market capitalization, and we believe the resulting implied control premium was reasonable based on recent market transactions within our industry or other relevant benchmark data.

Our stock price declined significantly during September and October 2014 reaching a twelve-month low of $35.96 on October 10th. Our stock price traded between $47.85 and $57.45 during the eight-month period ended August 2014. The average stock price for the three-month period ended September 30, 2014 was $49.01, including average stock prices of $52.79 and $48.78 in July and August, respectively.

A sustained decline in our stock price is one of several qualitative factors we consider each quarter when evaluating whether events or changes in circumstances indicate that a potential goodwill impairment exists. We concluded that the decline in stock price observed in September and October did not represent a sustained decline and that no triggering events occurred during the third quarter requiring an interim goodwill impairment test as of September 30, 2014.

If our Floater operating performance or our Floater business outlook deteriorates and/or our stock trades at current levels for a sustained period, our Floaters reporting unit estimated fair value could decline below its carrying value, resulting in a goodwill impairment.

Factors that could have a negative impact on the fair value of the Floaters reporting unit include, but are not limited to:

decreases in estimated market day rates and utilization due to greater-than-expected market pressures, downtime and other risks associated with offshore rig operations;

sustained decline in our stock price;

decreases in revenue due to our inability to attract and retain skilled personnel;


19


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

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

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

delays in actual contract commencement dates;

the outcome of litigation, legal proceedings, investigations or other claims or contract disputes resulting in significant cash outflows;

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

increases in the market-participant risk-adjusted WACC;

declines in anticipated growth rates.

Adverse changes in one or more of these factors could reduce the estimated fair value of our Floaters reporting unit below its carrying value in future periods.

Note 8 -Shareholders' Equity

During the three-month and nine-month periods ended September 30, 2014, we granted 100,000 and 1.2 million non-vested share awards, respectively, to our employees, officers and non-employee directors for annual equity awards and for equity awards granted to new or recently promoted employees, pursuant to our 2012 Long-Term Incentive Plan. Grants of non-vested share awards generally vest at rates of 20% or 33% per year, as determined by a committee or subcommittee of the Board of Directors at the time of the grant. Our non-vested share awards have dividend rights effective on the date of grant and are measured at fair value using the market value of our shares on the date of grant. The weighted-average grant-date fair value of non-vested share awards granted during the three-month and nine-month periods ended September 30, 2014 was $51.31 and $52.48 per share, respectively.

Note 9 -Discontinued Operations
    
During the nine-month period ended September 30, 2014, management committed to a plan to sell five floaters. The ENSCO 5000, ENSCO 5001, ENSCO 5002, ENSCO 6000 and ENSCO 7500 were removed from our portfolio of rigs marketed for contract drilling services and are being actively marketed for sale. These rigs were written down to fair value, less costs to sell, as of May 31, 2014, and classified as "held for sale" on our September 30, 2014 condensed consolidated balance sheet.

We recorded a non-cash loss on impairment totaling $508.8 million, net of tax benefits of $37.6 million, during the nine-month period ended September 30, 2014. The impairment charge was included in (loss) income from discontinued operations, net in our condensed consolidated statement of operations for the nine-month period ended September 30, 2014. The operating results from these rigs were included in (loss) income from discontinued operations, net in our condensed consolidated statement of operations for the three-month and nine-month periods ended September 30, 2014 and 2013.

Prior to the sale of ENSCO 7500, we will be required to pay the outstanding principal on the 6.36% MARAD bonds due 2015 collateralized by this rig. The outstanding principal balance on these bonds was $19.0 million as of September 30, 2014. We recently provided notification to the indenture trustee for the 6.36% MARAD bonds due 2015 that we intend to make an optional redemption of these bonds in December 2014. The outstanding principal balance was included in current maturities of long-term debt on our condensed consolidated balance sheet as of September 30, 2014.


20



During the nine-month period ended September 30, 2014, we sold jackup rig ENSCO 85 for net proceeds of $64.4 million. The proceeds from the sale were included in investing activities of discontinued operations in our condensed consolidated statement of cash flows for the nine-month period ended September 30, 2014. We recognized a gain of $2.3 million in connection with the disposal, which was included in (loss) income from discontinued operations, net in our condensed consolidated statement of operations for the nine-month period ended September 30, 2014. ENSCO 85 operating results were included in (loss) income from discontinued operations, net in our condensed consolidated statement of operations for the three-month and nine-month periods ended September 30, 2014 and 2013.

During the nine-month period ended September 30, 2014, we sold jackup rigs ENSCO 69 and Wisconsin for net proceeds of $32.2 million. These rigs were classified as held for sale as of December 31, 2013. The proceeds from the sale were received in December 2013 and included in net cash used in investing activities of discontinued operations in our consolidated statement of cash flows for the year ended December 31, 2013, as updated. ENSCO 69 and Wisconsin operating results were included in (loss) income from discontinued operations, net in our condensed consolidated statement of operations for the three-month and nine-month periods ended September 30, 2014 and 2013. We recognized a gain of $17.9 million in connection with the disposal, which was also included in (loss) income from discontinued operations, net in our condensed consolidated statement of operations for the nine-month period ended September 30, 2014.

During the nine-month period ended September 30, 2013, we sold jackup rig Pride Pennsylvania for net proceeds of $15.5 million. The proceeds from the sale were included in investing activities of discontinued operations in our condensed consolidated statement of cash flows for the nine-month period ended September 30, 2013. We recognized a loss of $1.1 million in connection with the disposal, which was included in (loss) income from discontinued operations, net in our condensed consolidated statement of operations for the nine-month period ended September 30, 2013. Pride Pennsylvania operating results were included in (loss) income from discontinued operations, net in our condensed consolidated statement of operations for the three-month and nine-month periods ended September 30, 2013.
    
The following table summarizes (loss) income from discontinued operations, net for the three-month and nine-month periods ended September 30, 2014 and 2013 (in millions):
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
Revenues
$
19.2

 
$
103.9

 
$
109.0

 
$
331.4

Operating expenses
36.7

 
105.5

 
207.1

 
308.3

Operating (loss) income
(17.5
)

(1.6
)
 
(98.1
)
 
23.1

Other income

 

 

 
.3

Income tax expense
(14.8
)
 
(7.9
)
 
(17.5
)
 
(9.9
)
Loss on impairment, net

 

 
(508.8
)
 

Gain (loss) on disposal of discontinued operations, net
9.5

 

 
29.6

 
(1.1
)
(Loss) income from discontinued operations, net
$
(22.8
)
 
$
(9.5
)
 
$
(594.8
)
 
$
12.4


Debt and interest expense are not allocated to our discontinued operations.

As of September 30, 2014, the $289.0 million of assets classified as "held for sale" in other current assets on our condensed consolidated balance sheet primarily relates to the carrying values of five floaters.

Note 10 -
Income Taxes
 
Our consolidated effective income tax rate for the three-month period ended September 30, 2014 was 12.6% as compared to 14.3% in the prior year quarter. Excluding the impact of discrete income tax items, our consolidated effective income tax rate for the three-month periods ended September 30, 2014 and 2013 was 12.7% and 13.7%, respectively.

Excluding the impact of the $991.5 million loss on impairment and discrete income tax expense, our consolidated effective income tax rate for the nine-month periods ended September 30, 2014 and 2013 was 11.6% and 12.6%, respectively. The decline in our effective tax rate for the three-month and nine-month periods is primarily attributable to an increase in the relative components of our earnings, excluding discrete items, generated in tax jurisdictions with lower tax rates.     


21



Note 11 -Contingencies

ENSCO 29 Wreck Removal

During 2005, a portion of the ENSCO 29 platform drilling rig was lost over the side of a customer's platform as a result of Hurricane Katrina. In June 2014, we received a letter from an operator demanding that Ensco retrieve the derrick and drawworks from the seabed.
Our property insurance policies include coverage for ENSCO 29 wreckage and debris removal costs up to $3.8 million. We also maintain liability insurance policies that provide coverage under certain circumstances for wreckage and debris removal costs in excess of the $3.8 million coverage provided under the property insurance policies. We believe that it is not probable a liability exists with respect to this matter, and no liability has been recorded on our condensed consolidated balance sheet as of September 30, 2014. While we cannot reasonably estimate a range of possible loss at this time, it is possible that removal costs may be in excess of our insurance coverage. Although we do not expect costs associated with the ENSCO 29 wreck removal to have a material adverse effect upon our financial position, operating results or cash flows, there can be no assurances as to the ultimate outcome.

ENSCO 74 Loss

During 2008, ENSCO 74 was lost as a result of Hurricane Ike in the U.S. Gulf of Mexico.  The sunken rig hull of ENSCO 74 was located approximately 95 miles from the original drilling location when it was struck by an oil tanker during 2009.  Wreck removal operations on the sunken rig hull of ENSCO 74 were completed during 2010.
 
We filed a petition for exoneration or limitation of liability under U.S. admiralty and maritime law during 2009. A number of claimants presented claims in the exoneration/limitation proceedings. We have liability insurance policies that provide coverage for such claims as well as removal of wreckage and debris in excess of the property insurance policy sublimit, subject to a $10.0 million per occurrence deductible for third-party claims and an annual aggregate limit of $490.0 million.

The owner of a pipeline filed claims alleging that ENSCO 74 caused the pipeline to rupture during Hurricane Ike and sought damages for the cost of repairs and business interruption in an amount in excess of $26.0 million. During the first quarter of 2014, we reached an agreement with the owner of the pipeline to settle the claims for $9.6 million. Prior to the settlement, we incurred legal fees of $3.6 million for this matter. During the second quarter of 2014, we paid the remaining $6.4 million of our deductible under our liability insurance policy, which was included in accrued liabilities and other on our condensed consolidated balance sheet as of December 31, 2013. The remaining $3.2 million of settlement proceeds was paid by our underwriters under the terms of the related insurance policies.

The owner of the oil tanker that struck the hull of ENSCO 74 filed claims seeking monetary damages in excess of $5.0 million for losses incurred when the tanker struck the sunken hull of ENSCO 74. This matter went to trial in June 2014, and the Company won a directed verdict on all claims. The plaintiff has the right to appeal the decision. We believe that it is not probable that a liability exists with respect to these claims.
 
We believe all liabilities associated with the ENSCO 74 loss during Hurricane Ike resulted from a single occurrence under the terms of the applicable insurance policies. However, legal counsel for certain liability underwriters have asserted that the liability claims arise from separate occurrences. In the event of multiple occurrences, the self-insured retention is $15.0 million for two occurrences and $1.0 million for each occurrence thereafter.

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


22



Asbestos Litigation

We and certain subsidiaries have been named as defendants, along with numerous third-party companies as co-defendants, in multi-party lawsuits filed in Illinois, Mississippi, Texas, Louisiana and the UK by approximately 125 plaintiffs. The lawsuits seek an unspecified amount of monetary damages on behalf of individuals alleging personal injury or death, primarily under the Jones Act, purportedly resulting from exposure to asbestos on drilling rigs and associated facilities during the 1960s through the 1980s.

During 2013, we reached an agreement in principle with 58 of the plaintiffs to settle lawsuits filed in Mississippi for a nominal amount. While we believe the settlement will be approved by the Court, there can be no assurances as to the ultimate outcome.

We intend to vigorously defend against the remaining claims and have filed responsive pleadings preserving all defenses and challenges to jurisdiction and venue. However, discovery is still ongoing and, therefore, available information regarding the nature of all pending claims is limited. At present, we cannot reasonably determine how many of the claimants may have valid claims under the Jones Act or estimate a range of potential liability exposure, if any.
 
In addition to the pending cases in Mississippi and Louisiana, we have other asbestos or lung injury claims pending against us in litigation in other jurisdictions. Although we do not expect final disposition of these asbestos or lung injury lawsuits to have a material adverse effect upon our financial position, operating results or cash flows, there can be no assurances as to the ultimate outcome of the lawsuits.

   Other Matters

In addition to the foregoing, we are named defendants or parties in certain other lawsuits, claims or proceedings incidental to our business and are involved from time to time as parties to governmental investigations or proceedings, including matters related to taxation, arising in the ordinary course of business. Although the outcome of such lawsuits or other proceedings cannot be predicted with certainty and the amount of any liability that could arise with respect to such lawsuits or other proceedings cannot be predicted accurately, we do not expect these matters to have a material adverse effect on our financial position, operating results or cash flows.

In the ordinary course of business with customers and others, we have entered into letters of credit and surety bonds to guarantee our performance as it relates to our drilling contracts, contract bidding, customs duties, tax appeals and other obligations in various jurisdictions. Letters of credit and surety bonds outstanding as of September 30, 2014 totaled $246.5 million and were issued under facilities provided by various banks and other financial institutions. Obligations under these letters of credit and surety bonds are not normally called as we typically comply with the underlying performance requirement. As of September 30, 2014, we had not been required to make collateral deposits with respect to these agreements.

Note 12 -Sale-leaseback

In September 2014, we sold jackup rigs ENSCO 83, ENSCO 89, ENSCO 93 and ENSCO 98, all of which are contracted to Petroleos Mexicanos (“Pemex”). We received proceeds of $211.8 million and incurred commissions and other incremental, direct costs of $5.3 million. The carrying value of these rigs was $169.6 million.
In connection with this sale, we executed charter agreements with the purchaser to continue operating the rigs for the remainder of the Pemex contracts, which have anticipated completion dates in either late 2015 or 2016. We accounted for the transaction as a sale-leaseback, whereby we will retain a significant portion of the remaining use of the rigs as a result of the charter agreements.


23



We recorded a gain on sale of $7.5 million, which represents the portion of the gain that exceeded the present value of payments due under the charter agreements, included in contract drilling expense in our condensed consolidated statement of operations for the three-month and nine-month periods ended September 30, 2014. The remaining $29.4 million of gain was deferred and will be amortized to contract drilling expense within the Jackup segment over the remaining charter term of each rig. Of the $29.4 million deferred gain, $26.6 million is included in accrued liabilities and other and $2.8 million is included in other liabilities on our condensed consolidated balance sheet as of September 30, 2014.

The operating results from these rigs for the three-month and nine-month periods ended September 30, 2014 were included in income from continuing operations within the Jackup segment, as we expect to have significant continuing involvement and cash flows due to our charter agreements with the purchaser. Beginning October 1, 2014, the operating results for these rigs will be reported in our Other segment.

The $211.8 million of proceeds from the rig sales were invested directly in cash equivalents subject to certain restrictions on our ability to receive, pledge, borrow or otherwise obtain the funds as of September 30, 2014. As a result of these restrictions, the sales proceeds are classified as restricted cash and included in other current assets on our condensed consolidated balance sheet as of September 30, 2014. We expect these restrictions to lapse prior to December 31, 2014.
  
Note 13 -Segment Information
 
Our business consists of three operating segments: (1) Floaters, which includes our drillships and semisubmersible rigs, (2) Jackups and (3) Other, which consists of management services on rigs owned by third-parties. Our two reportable segments, Floaters and Jackups, provide one service, contract drilling.
    
Segment information for the three-month and nine-month periods ended 2014 and 2013 is presented below (in millions). General and administrative expense and depreciation expense incurred by our corporate office are not allocated to our operating segments for purposes of measuring segment operating income and were included in "Reconciling Items." We measure segment assets as property and equipment. Prior year information has been reclassified to conform to the current year presentation.

Three Months Ended September 30, 2014
 
Floaters
 
Jackups
 
Other
 
Operating Segments Total
 
Reconciling Items
 
Consolidated Total
Revenues
$
745.3

 
$
499.0

 
$
16.9

 
$
1,261.2

 
$

 
$
1,261.2

Operating expenses
 
 
 
 
 
 
 
 
 
 
 
Contract drilling (exclusive of depreciation)
309.7

 
210.2

 
11.5

 
531.4

 

 
531.4

Depreciation
91.4

 
47.6

 

 
139.0

 
1.9

 
140.9

General and administrative

 

 

 

 
29.3

 
29.3

Operating income (loss)
$
344.2

 
$
241.2

 
$
5.4

 
$
590.8

 
$
(31.2
)
 
$
559.6

Property and equipment, net
$
9,836.2

 
$
3,215.3

 
$

 
$
13,051.5

 
$
76.1

 
$
13,127.6


24




Three Months Ended September 30, 2013
 
Floaters
 
Jackups
 
Other
 
Operating Segments Total
 
Reconciling Items
 
Consolidated Total
Revenues
$
696.7

 
$
446.8

 
$
18.7

 
$
1,162.2

 
$

 
$
1,162.2

Operating expenses
 
 
 
 
 
 
 
 
 
 
 
Contract drilling (exclusive of depreciation)
315.4

 
203.8

 
15.1

 
534.3

 

 
534.3

Depreciation
91.5

 
39.5

 

 
131.0

 
1.6

 
132.6

General and administrative

 

 

 

 
37.4

 
37.4

Operating income (loss)
$
289.8

 
$
203.5

 
$
3.6

 
$
496.9

 
$
(39.0
)
 
$
457.9

Property and equipment, net
$
11,252.8

 
$
2,705.4

 
$

 
$
13,958.2

 
$
39.2

 
$
13,997.4


Nine Months Ended September 30, 2014
 
Floaters
 
Jackups
 
Other
 
Operating Segments Total
 
Reconciling Items
 
Consolidated Total
Revenues
$
2,156.1

 
$
1,388.0

 
$
50.0

 
$
3,594.1

 
$

 
$
3,594.1

Operating expenses
 
 
 
 
 
 
 
 
 
 
 
Contract drilling (exclusive of depreciation)
966.1

 
659.4

 
34.5

 
1,660.0

 

 
1,660.0

Loss on impairment
991.5

 

 

 
991.5

 

 
991.5

Depreciation
281.0

 
132.6

 

 
413.6

 
5.9

 
419.5

General and administrative

 

 

 

 
103.6

 
103.6

Operating (loss) income
$
(82.5
)
 
$
596.0

 
$
15.5

 
$
529.0

 
$
(109.5
)
 
$
419.5

Property and equipment, net
$
9,836.2

 
$
3,215.3

 
$

 
$
13,051.5

 
$
76.1

 
$
13,127.6


Nine Months Ended September 30, 2013
 
Floaters
 
Jackups
 
Other
 
Operating Segments Total
 
Reconciling Items
 
Consolidated Total
Revenues
$
2,038.9

 
$
1,234.7

 
$
59.2

 
$
3,332.8

 
$

 
$
3,332.8

Operating expenses
 
 
 
 
 
 
 
 
 
 
 
Contract drilling (exclusive of depreciation)
888.6

 
605.9

 
46.8

 
1,541.3

 

 
1,541.3

Depreciation
270.9

 
116.8

 

 
387.7

 
4.8

 
392.5

General and administrative

 

 

 

 
111.6

 
111.6

Operating income (loss)
$
879.4

 
$
512.0

 
$
12.4

 
$
1,403.8

 
$
(116.4
)
 
$
1,287.4

Property and equipment, net
$
11,252.8

 
$
2,705.4

 
$

 
$
13,958.2

 
$
39.2

 
$
13,997.4


25



Information about Geographic Areas    

As of September 30, 2014, the geographic distribution of our drilling rigs by reportable segment was as follows:
 
Floaters(1)

 
Jackups

 
Total(2)

North & South America (excluding Brazil)
9
 
8
 
17
Middle East & Africa
6
 
10
 
16
Europe & Mediterranean
3
 
11
 
14
Asia & Pacific Rim
4
 
9
 
13
Asia & Pacific Rim (under construction)
3
 
4
 
7
Brazil
4
 
 
4
Total
29
 
42
 
71

(1) 
The five floaters classified as "held for sale" as of September 30, 2014 are included in the table above.

(2) 
We provide management services on six rigs owned by third-parties, including ENSCO 83, ENSCO 89, ENSCO 93, and ENSCO 98, which were sold during September 2014. Rigs for which we provide management services are not included in the table above.  

Note 14 -Supplemental Financial Information

Consolidated Balance Sheet Information

Accounts receivable, net, consisted of the following (in millions):
 
September 30,
2014
 
December 31,
2013
Trade
$
850.9

 
$
869.8

Other
31.5

 
14.3

 
882.4

 
884.1

Allowance for doubtful accounts
(12.6
)
 
(28.4
)
 
$
869.8

 
$
855.7


Other current assets consisted of the following (in millions):
 
September 30,
2014
 
December 31,
2013
Assets held for sale
$
289.0

 
$
8.6

Inventory
253.7

 
256.4

Restricted cash
211.8

 

Deferred costs
68.3

 
47.4

Prepaid expenses
46.3

 
18.5

Short-term investments
45.3

 
50.0

Prepaid taxes
41.7

 
88.1

Deferred tax assets
22.8

 
23.1

Derivative assets
2.6

 
11.6

Other
5.4

 
10.2

 
$
986.9

 
$
513.9

 
    

26



Other assets, net consisted of the following (in millions):
 
September 30,
2014
 
December 31,
2013
Deferred costs
$
87.4

 
$
59.1

Intangible assets
57.8

 
83.8

Deferred tax assets
42.9

 
25.2

Supplemental executive retirement plan assets
41.8

 
37.7

Prepaid taxes on intercompany transfers of property
40.4

 
50.2

Warranty and other claim receivables
30.6

 
30.6

Unbilled receivables
26.9

 
51.9

Other
12.7

 
14.2

 
$
340.5

 
$
352.7

    
Accrued liabilities and other consisted of the following (in millions):
 
September 30,
2014
 
December 31,
2013
Personnel costs
$
211.2

 
$
242.0

Deferred revenue
195.5

 
169.8

Taxes
152.0

 
84.2

Accrued interest
34.5

 
68.0

Deferred gain on rig sales
26.6

 

Derivative liabilities
17.3

 
10.4

Advance payment received on sale of assets

 
33.0

Customer pre-payments

 
20.0

Other
16.8

 
31.3

 
$
653.9

 
$
658.7

        
Other liabilities consisted of the following (in millions):
 
September 30,
2014
 
December 31,
2013
Deferred revenue
$
331.4

 
$
217.6

Unrecognized tax benefits (inclusive of interest and penalties)
139.6

 
148.0

Intangible liabilities
47.9

 
69.1

Supplemental executive retirement plan liabilities
44.1

 
40.5

Personnel costs
28.6

 
37.2

Other
37.9

 
33.3

 
$
629.5

 
$
545.7


27



Accumulated other comprehensive income consisted of the following (in millions):
 
September 30,
2014
 
December 31,
2013
Derivative Instruments
$
14.5

 
$
20.6

Other
1.8

 
(2.4
)
 
$
16.3

 
$
18.2


Consolidated Statement of Cash Flows Information

In September 2014, we sold jackup rigs ENSCO 83, ENSCO 89, ENSCO 93 and ENSCO 98, all of which are currently contracted to Pemex. The sale proceeds of $211.8 million were subject to certain restrictions as of September 30, 2014 and therefore were not included in our condensed consolidated statement of cash flows for the nine-month period ended September 30, 2014.

Concentration of Risk

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

We mitigate our credit risk relating to counterparties of our derivatives through a variety of techniques, including transacting with multiple, high-quality financial institutions, thereby limiting our exposure to individual counterparties and by entering into International Swaps and Derivatives Association, Inc. (“ISDA”) Master Agreements, which include provisions for a legally enforceable master netting agreement, with almost all of our derivative counterparties. The terms of the ISDA agreements may also include credit support requirements, cross default provisions, termination events or set-off provisions.  Legally enforceable master netting agreements reduce credit risk by providing protection in bankruptcy in certain circumstances and generally permitting the closeout and netting of transactions with the same counterparty upon the occurrence of certain events.  See "Note 3 - Derivative Instruments" for additional information on our derivatives.

During the three-month period ended September 30, 2014, BP accounted for 14% of our consolidated revenues, 79% of which were attributable to our Floaters segment.  During the same period, Total accounted for 11% of our consolidated revenues, all of which were attributable to our Floaters segment.

During the nine-month period ended September 30, 2014, BP accounted for 15% of our consolidated revenues, 80% of which were attributable to our Floaters segment. During the same period, Total accounted for 12% of our consolidated revenues, all of which were attributable to our Floaters segment.

During the three-month period ended September 30, 2014, revenues provided by our drilling operations in the U.S. Gulf of Mexico totaled $451.1 million, or 36%, of our consolidated revenues, of which 79% were provided by our Floaters segment. Revenues provided by our drilling operations in Angola during the three-month period ended September 30, 2014 totaled $192.0 million, or 15%, of our consolidated revenues, all of which were provided by our Floaters segment.


28



During the nine-month period ended September 30, 2014, revenues provided by our drilling operations in the U.S. Gulf of Mexico totaled $1.3 billion, or 37%, of our consolidated revenues, of which 76% were provided by our Floaters segment.  Revenues provided by our drilling operations in Angola and Brazil during the nine-month period ended September 30, 2014 totaled $580.1 million and $361.5 million, or 16% and 10%, respectively, of our consolidated revenues, all of which were provided by our Floaters segment.

Note 15 -Guarantee of Registered Securities

On May 31, 2011, Ensco plc completed a merger transaction (the "Merger") with Pride International Inc. ("Pride"). In connection with the Merger, Ensco plc and Pride entered into a supplemental indenture to the indenture dated as of July 1, 2004 between Pride and the Bank of New York Mellon, as indenture trustee, providing for, among other matters, the full and unconditional guarantee by Ensco plc of Pride’s 8.5% unsecured senior notes due 2019, 6.875% unsecured senior notes due 2020 and 7.875% unsecured senior notes due 2040, which had an aggregate outstanding principal balance of $1.7 billion as of September 30, 2014. The Ensco plc guarantee provides for the unconditional and irrevocable guarantee of the prompt payment, when due, of any amount owed to the holders of the notes.
 
Ensco plc is also a full and unconditional guarantor of the 7.2% debentures due 2027 issued by ENSCO International Incorporated during 1997, which had an aggregate outstanding principal balance of $150.0 million as of September 30, 2014.
    
All guarantees are unsecured obligations of Ensco plc ranking equal in right of payment with all of its existing and future unsecured and unsubordinated indebtedness.
   
The following tables present the unaudited condensed consolidating statements of operations for the three-month and nine-month periods ended September 30, 2014 and 2013; the unaudited condensed consolidating statements of comprehensive income for the three-month and nine-month periods ended September 30, 2014 and 2013; the condensed consolidating balance sheets as of September 30, 2014 (unaudited) and December 31, 2013; and the unaudited condensed consolidating statements of cash flows for the nine-month periods ended September 30, 2014 and 2013, in accordance with Rule 3-10 of Regulation S-X.


29



ENSCO PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Three Months Ended September 30, 2014
(in millions)
(Unaudited)

 
Ensco plc
 
ENSCO International Incorporated
 
Pride International, Inc.
 
Other Non-Guarantor Subsidiaries of Ensco
 
Consolidating Adjustments
 
Total
OPERATING REVENUES
$
8.3

 
$
39.0

 
$

 
$
1,292.2

 
$
(78.3
)
 
$
1,261.2

OPERATING EXPENSES
 
 
 
 
 
 
 
 
 
 
 
Contract drilling (exclusive of depreciation)
9.1

 
37.4

 

 
563.2

 
(78.3
)
 
531.4

Depreciation
.1

 
1.8

 

 
139.0

 

 
140.9

General and administrative
10.2

 
.1

 

 
19.0

 

 
29.3

OPERATING (LOSS) INCOME
(11.1
)
 
(0.3
)



571.0




559.6

OTHER (EXPENSE) INCOME, NET
(15.0
)
 
(23.1
)
 
(13.1
)
 
12.8

 

 
(38.4
)
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
(26.1
)
 
(23.4
)

(13.1
)

583.8




521.2

INCOME TAX PROVISION

 
(2.1
)
 

 
67.6

 

 
65.5

DISCONTINUED OPERATIONS, NET

 

 

 
(22.8
)
 

 
(22.8
)
EQUITY EARNINGS IN AFFILIATES, NET OF TAX
455.5

 
73.3

 
66.9

 

 
(595.7
)
 

NET INCOME
429.4


52.0


53.8


493.4


(595.7
)

432.9

NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS

 

 

 
(3.5
)
 

 
(3.5
)
NET INCOME ATTRIBUTABLE TO ENSCO
$
429.4

 
$
52.0


$
53.8


$
489.9


$
(595.7
)

$
429.4


30



ENSCO PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Three Months Ended September 30, 2013
(in millions)
(Unaudited)

 
Ensco plc
 
ENSCO International Incorporated
 
Pride International, Inc.
 
Other Non-Guarantor Subsidiaries of Ensco
 
Consolidating Adjustments
 
Total
OPERATING REVENUES
$
5.5

 
$
38.1

 
$