Filing summary
Entity and period: The supplied filing is Ensco International plc’s Form 10-K for the fiscal year ended December 31, 2009, filed February 25, 2010—not a Valaris Ltd filing or a standalone Q4 report. Ensco’s filing describes its December 2009 redomestication to the U.K. and continued NYSE trading under ticker ESV.
Business context and financial results
Ensco provided offshore contract drilling services on a day-rate basis. At year-end it reported 42 jackups, four ultra-deepwater semisubmersibles and one barge rig, with four additional semisubmersibles under construction.
| Metric | FY 2009 | FY 2008 |
|---|---|---|
| Revenue | $1,945.9 million | $2,393.6 million |
| Operating income | $950.5 million | $1,401.3 million |
| Operating margin | 48.9% | 58.6% |
| Income from continuing operations | $780.9 million | $1,159.8 million |
| Net income attributable to Ensco | $779.4 million | $1,150.8 million |
| Diluted EPS | $5.48 | $8.02 |
| Cash flow from continuing operations | $1,221.7 million | $1,125.4 million |
| Capital expenditures | $861.3 million | $771.9 million |
At December 31, 2009, cash and cash equivalents were $1,141.4 million, working capital was $1,167.9 million and the current ratio was 3.4. Long-term debt, net of current maturities, was $257.2 million; current maturities were $17.2 million. No amounts were drawn on the $350 million revolving facility, which was due to expire in June 2010. The company reported a $0.10 annual dividend per share.
Material changes versus 2008
- Revenue fell 19% and operating income fell 32%, principally because jackup utilization declined across regions as customers reduced spending amid weaker commodity prices and the global downturn.
- Total rig utilization fell to 72% from 96%. Utilization declined in Asia Pacific to 70% from 95%, Europe and Africa to 77% from 96%, and North and South America to 67% from 97%.
- Deepwater results improved as ENSCO 8500 and 8501 began operating and ENSCO 7500 earned a higher day rate. Segment revenue rose to $254.1 million from $84.4 million.
- Cash from continuing operations increased 9%, while year-end cash rose to $1,141.4 million from $789.6 million. Debt continued to decline.
- Contract backlog as of February 1, 2010 was $2,955.1 million, down from $4,035.0 million a year earlier, reflecting limited tender activity and no new ultra-deepwater contract in 2009.
Outlook, risks and unusual items
- Management said 2010 revenue, operating income and cash flow were unlikely to match 2009 levels, despite more than $1.3 billion of 2010 backlog. Near-term jackup day rates and utilization were expected to remain pressured, especially in Asia Pacific and Europe and Africa. Management expected ultra-deepwater demand to remain comparatively firm.
- Management projected 2010 capital expenditures of approximately $610 million for ENSCO 8500 Series construction, $30 million for rig enhancements and $100 million for other upgrades. Remaining construction commitments were $1,126.9 million. Three of the four rigs under construction did not have contracts.
- The December 2009 redomestication was intended to improve tax, administrative and operational positioning. Benefits were uncertain and subject to possible challenges by U.S. or U.K. tax authorities, changes in law, and added ongoing costs. An $8.8 million non-recurring tax expense related to restructuring contributed to the 2009 effective tax rate of 18.6%.
- ENSCO 69 was taken over and retained by Petrosucre in Venezuela after payment and contract disputes. Ensco recorded an $18.1 million pretax disposal loss and $33.1 million pretax income under a subsequent agreement, but did not recognize additional amounts whose collection was uncertain. No insurance recovery was recognized; underwriters had denied coverage.
- ENSCO 74 was lost in Hurricane Ike. Ensco received $50 million net under its property policy and recorded $50.3 million of estimated wreckage-removal liabilities with a corresponding $52.0 million receivable. Related tanker and pipeline claims remain unresolved; the company said outcomes could not be assured.
- An FCPA investigation relating to Nigerian customs and immigration matters was essentially concluded internally; Ensco had voluntarily disclosed the matter and was discussing a possible negotiated resolution with U.S. authorities. Potential charges, penalties or sanctions were not predictable.
- Auction-rate securities remained illiquid: $66.8 million par value and $60.5 million carrying value at year-end. Other risks included rig oversupply, customer contract termination or renegotiation, uninsured Gulf of Mexico jackup hurricane exposure, construction delays and cost overruns, and possible asset impairment. No goodwill impairment was recorded in 2009.
Important facts for investors to verify
- Confirm the intended issuer and period: the text is Ensco’s FY 2009 10-K, not a Valaris Ltd filing or a Q4-only report.
- Track subsequent utilization, day rates, backlog conversion and contract awards, particularly for the three uncontracted newbuild semisubmersibles.
- Review the 2010 credit-facility replacement and funding of the $1,126.9 million remaining rig-construction commitments.
- Monitor the resolution and potential financial effects of the FCPA matter, ENSCO 69 recovery and ENSCO 74 claims and wreckage removal.
- Assess whether redomestication tax benefits materialized and whether U.S./U.K. tax challenges or changes altered the effective tax rate.
- Evaluate auction-rate-security liquidity and the extent of retained hurricane, environmental and other insurance risks.