0000949039
2008-01-01 2008-12-31
0000949039
2007-12-31 0000949039
2009-06-30 0000949039
2008-12-31 0000949039
2009-04-01 2009-06-30
0000949039
2008-04-01 2008-06-30
0000949039
2008-01-01 2008-06-30
0000949039
2008-06-30 0000949039
2009-07-24 0000949039
2009-01-01 2009-06-30
iso4217:USD xbrli:shares
xbrli:shares
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<!--DOCTYPE html PUBLIC "-//W3C//DTD
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--> <html> <head></head> <body> <!-- Begin Block
Tagged Note 1 - us-gaap:OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif"> <div align="center"
style="font-size: 10pt; margin-top: 0pt"><b></b></div>
<div align="left"> </div> <!-- xbrl,ns --> <div align="Center"
style="font-size: 10pt; margin-top: 0pt"><b></b></div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>1.
General Information</b> </div> <div align="left" style="font-size:
10pt; margin-top: 6pt">     The
unaudited consolidated financial statements of Diamond Offshore Drilling,
Inc. and subsidiaries, which we refer to as “Diamond Offshore,”
“we,” “us” or “our,”
should be read in conjunction with our Annual Report on Form 10-K for the
year ended December 31, 2008 (File No. 1-13926). </div> <div
align="left" style="font-size: 10pt; margin-top: 6pt">     As
of July 24, 2009, Loews Corporation, or Loews, owned 50.4% of the
outstanding shares of our common stock. </div> <div align="left"
style="font-size: 10pt; margin-top: 12pt"><i>Interim Financial Information</i>
</div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The
accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles in the U.S., or
GAAP, for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X of the Securities
and Exchange Commission, or SEC. Accordingly, pursuant to such rules and regulations,
they do not include all disclosures required by GAAP for complete financial
statements. The consolidated financial information has not been audited but,
in the opinion of management, includes all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of the consolidated
balance sheets, statements of operations and statements of cash flows at the
dates and for the periods indicated. Results of operations for interim periods
are not necessarily indicative of results of operations for the respective
full years. </div> <div align="left" style="font-size: 10pt; margin-top:
6pt">     Our management has
evaluated subsequent events through July 28, 2009. </div> <div
align="left" style="font-size: 10pt; margin-top: 12pt"><i>Adoption
of FSP APB 14-1.</i> </div> <div align="left" style="font-size:
10pt; margin-top: 6pt">     We
adopted Financial Accounting Standards Board, or FASB, Staff Position, or
FSP, Accounting Principles Board, or APB, No. 14-1, “Accounting
for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion
(including Partial Cash Settlement)”, or FSP APB 14-1, on January
1, 2009. FSP APB 14-1 applies to convertible debt securities that may be settled
by the issuer fully or partially in cash and requires that the statement be
retrospectively applied to all past periods presented. For convertible debt
securities falling within the scope of FSP APB 14-1, issuers must separate
the securities into two components: debt and equity. The proceeds of the issuance
are first allocated to the debt based on the estimated fair value of a similar
debt issue without a conversion option; the remaining proceeds are allocated
to equity. </div> <div align="left" style="font-size: 10pt; margin-top:
6pt">     Both our Zero Coupon
Convertible Debentures due 2020, or Zero Coupon Debentures, and our 1.5% Convertible
Senior Debentures Due 2031, or 1.5% Debentures, are within the scope of FSP
APB 14-1. Consequently, we retrospectively applied the requirements of the
pronouncement to both of these issuances. The effect of adoption on our Consolidated
Balance Sheets is as follows: </div> <div align="center"> <table
style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0"
width="100%"> <!-- Begin Table Head --> <tr valign="bottom">
<td width="28%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> </tr> <tr style="font-size:
8pt" valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px
solid #000000"><b>Zero Coupon Debentures</b></td> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="6"
style="border-bottom: 1px solid #000000"><b>1.5% Debentures</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>Total</b></td>
<td> </td> </tr> <tr style="font-size: 8pt"
valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>June 30,</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2"><b>December 31,</b></td> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>June
30,</b></td> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>December 31,</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2"><b>June 30,</b></td> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>December
31,</b></td> <td> </td> </tr> <tr
style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="2"
style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2008</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2008</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2008</b></td>
<td> </td> </tr> <tr style="font-size: 8pt"
valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="22"><b>(In thousands)</b></td>
<td> </td> </tr> <!-- End Table Head -->
<!-- Begin Table Body --> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:15px; text-indent:-15px"><b>Increase
(Decrease):</b> </div></td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Drilling
and other property and equipment, net </div></td> <td> </td>
<td align="left">$</td> <td align="right">6,256</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">6,429</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">9,046</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">9,240</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">15,302</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">15,669</td> <td> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:30px; text-indent:-15px">Deferred tax liability
</div></td> <td> </td> <td> </td>
<td align="right">1,049</td> <td> </td> <td> </td>
<td> </td> <td align="right">1,080</td> <td> </td>
<td> </td> <td> </td> <td align="right">1,709</td>
<td> </td> <td> </td> <td> </td>
<td align="right">1,741</td> <td> </td> <td> </td>
<td> </td> <td align="right">2,758</td> <td> </td>
<td> </td> <td> </td> <td align="right">2,821</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:30px; text-indent:-15px">Additional paid-in
capital </div></td> <td> </td> <td> </td>
<td align="right">48,997</td> <td> </td>
<td> </td> <td> </td> <td align="right">48,997</td>
<td> </td> <td> </td> <td> </td>
<td align="right">62,701</td> <td> </td>
<td> </td> <td> </td> <td align="right">62,701</td>
<td> </td> <td> </td> <td> </td>
<td align="right">111,698</td> <td> </td>
<td> </td> <td> </td> <td align="right">111,698</td>
<td> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Retained
earnings </div></td> <td> </td> <td nowrap="nowrap"
align="left"> </td> <td align="right">(43,790</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(43,648</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(55,364</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(55,202</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(99,154</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(98,850</td>
<td nowrap="nowrap">)</td> </tr> <!-- End Table Body
--> </table> </div> <!-- Folio --> <!-- /Folio -->
</div> <!-- PAGEBREAK --> <div style="font-family: 'Times New
Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top:
6pt">     The effect of the
adoption of FSP APB 14-1 on our Consolidated Statements of Operations is as
follows: </div> <div align="center"> <table style="font-size:
10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --> <tr valign="bottom"> <td width="16%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="2%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="2%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="2%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="2%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="2%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="2%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="2%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="2%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="2%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="2%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="2%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="2%"> </td> <td width="1%"> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="14"
style="border-bottom: 1px solid #000000"><b>Zero Coupon Debentures</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="14" style="border-bottom: 1px solid #000000"><b>1.5%
Debentures</b></td> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="14" style="border-bottom: 1px
solid #000000"><b>Total</b></td> <td> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="14"
style="border-bottom: 1px solid #000000"><b>June 30</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="14" style="border-bottom: 1px solid #000000"><b>June
30</b></td> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="14" style="border-bottom: 1px
solid #000000"><b>June 30</b></td> <td> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="6"
style="border-bottom: 1px solid #000000"><b>Three Months</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>Six
Months</b></td> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px
solid #000000"><b>Three Months</b></td> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="6"
style="border-bottom: 1px solid #000000"><b>Six Months</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>Three
Months</b></td> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px
solid #000000"><b>Six Months</b></td> <td> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="2"
style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2008</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2008</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2008</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2008</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2008</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2008</b></td>
<td> </td> </tr> <tr style="font-size: 8pt"
valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="46"><b>(In thousands)</b></td>
<td> </td> </tr> <!-- End Table Head -->
<!-- Begin Table Body --> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:15px; text-indent:-15px"><b>Increase
(Decrease):</b> </div></td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Depreciation
expense </div></td> <td> </td> <td align="left">$</td>
<td align="right">86</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">69</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">173</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">139</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">97</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">73</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">194</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">145</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">183</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">142</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">367</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">284</td>
<td> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Tax
expense </div></td> <td> </td> <td nowrap="nowrap"
align="left"> </td> <td align="right">(15</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(12</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(31</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(24</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(16</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(12</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(32</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(23</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(31</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(24</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(63</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(47</td>
<td nowrap="nowrap">)</td> </tr> <tr valign="bottom">
<td> <div style="margin-left:30px; text-indent:-15px">Income from
continuing operations </div></td> <td> </td>
<td nowrap="nowrap" align="left"> </td> <td align="right">(71</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(57</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(142</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(115</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(81</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(61</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(162</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(122</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(152</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(118</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(304</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(237</td>
<td nowrap="nowrap">)</td> </tr> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:30px;
text-indent:-15px">Net income </div></td> <td> </td>
<td nowrap="nowrap" align="left"> </td> <td align="right">(71</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(57</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(142</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(115</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(81</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(61</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(162</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(122</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(152</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(118</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(304</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(237</td>
<td nowrap="nowrap">)</td> </tr> <!-- End Table Body
--> </table> </div> <div align="left" style="font-size:
10pt; margin-top: 6pt">     Debt
discounts related to our Zero Coupon Debentures and 1.5% Debentures were fully
amortized in 2005 and 2007, respectively. Consequently, the adoption of FSP
APB 14-1 had no effect on the carrying amount of our Zero Coupon Debentures
at June 30, 2009 and December 31, 2008. Our then outstanding
1.5% Debentures were redeemed in full in April 2008. </div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The
carrying amounts of the liability and equity components of the debentures
at June 30, 2009 and December 31, 2008 is as follows: </div>
<div align="center"> <table style="font-size: 10pt; text-align: left"
cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin
Table Head --> <tr valign="bottom"> <td width="28%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="6"
style="border-bottom: 1px solid #000000"><b>Zero Coupon Debentures</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>1.5%
Debentures</b></td> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px
solid #000000"><b>Total</b></td> <td> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>June
30,</b></td> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>December 31,</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2"><b>June 30,</b></td> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>December
31,</b></td> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>June 30,</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2"><b>December 31,</b></td> <td> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="2"
style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2008</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2008</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2008</b></td>
<td> </td> </tr> <tr style="font-size: 8pt"
valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="22"><b>(In thousands)</b></td>
<td> </td> </tr> <!-- End Table Head -->
<!-- Begin Table Body --> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Carrying
amount of liability component of debt issue </div></td> <td> </td>
<td align="left">$</td> <td align="right">4,107</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">4,036</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">—</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">—</td> <td> </td>
<td> </td> <td align="left">$</td> <td
align="right">4,107</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">4,036</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:15px; text-indent:-15px">Carrying amount of
equity component of debt issue </div></td> <td> </td>
<td align="left">$</td> <td align="right">48,997</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">48,997</td> <td> </td>
<td> </td> <td align="left">$</td> <td
align="right">62,701</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">62,701</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">111,698</td> <td> </td>
<td> </td> <td align="left">$</td> <td
align="right">111,698</td> <td> </td> </tr>
<!-- End Table Body --> </table> </div> <div align="left"
style="font-size: 10pt; margin-top: 6pt">     Interest
expense (net of capitalized interest) for our Zero Coupon Debentures related
to the contractual coupon rate was $36,000 and $7,000 for the three months
ended June 30, 2009 and 2008, respectively, with an effective interest
rate of 3.63% in each period. Interest expense (net of capitalized interest)
for our Zero Coupon Debentures related to the contractual coupon rate was
$72,000 and $12,000 for the six months ended June 30, 2009 and 2008,
respectively, with an effective interest rate of 3.63% in each period. Interest
expense (net of capitalized interest) for the 1.5% Debentures related to the
contractual coupon interest rate was $16,000 and $17,000 for the three months
and six months ended June 30, 2008, respectively. The effective interest
rate for the 1.5% Debentures was 1.6% for the three months ended June 30,
2008. See Note 10. </div> <div align="left" style="font-size: 10pt;
margin-top: 6pt">     The
adoption of FSP APB 14-1 resulted in a $0.01 per share decline in basic and
diluted earning per share for the three months ended June 30, 2008,
from $3.00 per share to $2.99 per share. The adoption of FSP APB 14-1 had
no effect on previously stated basic and diluted earnings per share for the
six months ended June 30, 2008. As required, our consolidated financial
statements and notes thereto have been adjusted to reflect the effect of adoption
of FSP APB 14-1 on January 1, 2009. </div> <div align="left"
style="font-size: 10pt; margin-top: 12pt"><i>Other Reclassifications</i>
</div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Certain
amounts applicable to the prior periods have been reclassified to conform
to the classifications currently followed. Such reclassifications do not affect
earnings. </div> <div align="left" style="font-size: 10pt; margin-top:
12pt"><i>Cash and Cash Equivalents, Marketable Securities</i>
</div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     We
consider short-term, highly liquid investments that have an original maturity
of three months or less and deposits in money market mutual funds that are
readily convertible into cash to be cash equivalents. See Note 5. </div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     We
classify our investments in marketable securities as available for sale and
they are stated at fair value in our Consolidated Balance Sheets. Accordingly,
any unrealized gains and losses, net of taxes, are reported in our Consolidated
Balance Sheets in “Accumulated other comprehensive gains (losses)”
until realized. The cost of debt securities is adjusted for amortization of
premiums and accretion of discounts to maturity and such adjustments are included
in our Consolidated Statements of Operations in “Interest income.”
The sale and purchase of securities are recorded on the date of the trade.
The cost of debt securities sold is based on the specific identification method.
Realized gains or losses, as well as any declines in value that are judged
to be other than temporary, are reported in our Consolidated Statements of
Operations in “Other, net.” </div> <div align="left"
style="font-size: 10pt; margin-top: 12pt"><i>Fair Value of Financial
Instruments</i> </div> <div align="left" style="font-size:
10pt; margin-top: 6pt">     We
believe that the carrying amount of our current financial instruments approximates
fair value because of the short maturity of these instruments. For non-current
financial instruments we use quoted market prices, when available, and discounted
cash flows to estimate fair value. </div> <div align="left" style="font-size:
10pt; margin-top: 6pt">     We
have adopted FSP No. FAS 107-1 and APB 28-1, “Interim Disclosures
about Fair Value of Financial Instruments,” which requires disclosures
about fair value of financial instruments for interim reporting periods as
well as in annual financial statements. See Note 5. </div> <div align="left"
style="font-size: 10pt; margin-top: 12pt"><i>Supplementary Cash Flow
Information</i> </div> <div align="left" style="font-size:
10pt; margin-top: 6pt">     We
paid interest on long-term debt totaling $12.5 million and $12.6 million
for the six months ended June 30, 2009 and 2008, respectively. </div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     We
made estimated U.S. federal income tax payments of $140.0 million
and $235.0 million during the six months ended June 30,
2009 and 2008, respectively. We paid $106.1 million and $62.1 million
in foreign income taxes, net of foreign tax refunds, during the six months
ended June 30, 2009 and 2008, respectively. </div> <div
align="left" style="font-size: 10pt; margin-top: 6pt">     Capital
expenditures for the six months ended June 30, 2009 included $59.4 million
that were accrued but unpaid at December 31, 2008. Capital expenditures
for the six months ended June 30, 2008 included $43.0 million
that were accrued but unpaid at December 31, 2007. Capital expenditures
that were accrued but not paid as of June 30, 2009 totaled $47.6 million.
We have included this amount in “Accrued liabilities”
in our Consolidated Balance Sheets at June 30, 2009. </div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     We
recorded income tax benefits of $2,000 and $1.3 million related to
employee stock plan exercises during the six months ended June 30,
2009 and 2008, respectively. </div> <div align="left" style="font-size:
10pt; margin-top: 12pt"><i>Capitalized Interest</i> </div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     We
capitalize interest cost for the construction and upgrade of qualifying assets.
There were no qualifying expenditures during the six months ended June 30,
2009. During the six months ended June 30, 2008, we capitalized interest
on qualifying expenditures related to the upgrade of the <i>Ocean Monarch
</i>for ultra-deepwater service (completed December 2008) and
the construction of our two jack-up rigs, the <i>Ocean Shield </i>(completed
May 2008) and the <i>Ocean Scepter </i>(completed August 2008)<i>.</i>
</div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     A
reconciliation of our total interest cost to “Interest expense”
as reported in our Consolidated Statements of Operations is as follows: </div>
<div align="center"> <table style="font-size: 10pt; text-align: left"
cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin
Table Head --> <tr valign="bottom"> <td width="76%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Three
Months</b></td> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Six Months</b></td>
<td> </td> </tr> <tr style="font-size: 8pt"
valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px
solid #000000"><b>Ended</b></td> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="2"
style="border-bottom: 1px solid #000000"><b>Ended</b></td>
<td> </td> </tr> <tr style="font-size: 8pt"
valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px
solid #000000"><b>June 30, 2008</b></td> <td> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="6"><b>(In
thousands)</b></td> <td> </td> </tr>
<!-- End Table Head --> <!-- Begin Table Body --> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:15px;
text-indent:-15px">Total interest cost including amortization of debt issuance
costs </div></td> <td> </td> <td align="left">$</td>
<td align="right">7,186</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">14,052</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:15px; text-indent:-15px">Capitalized interest
</div></td> <td> </td> <td nowrap="nowrap"
align="left"> </td> <td align="right">(5,291</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(10,815</td>
<td nowrap="nowrap">)</td> </tr> <tr style="font-size:
1px"> <td> <div style="margin-left:15px; text-indent:-15px"> 
</div></td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Total
interest expense as reported </div></td> <td> </td>
<td align="left">$</td> <td align="right">1,895</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">3,237</td> <td> </td> </tr>
<tr style="font-size: 1px"> <td> <div style="margin-left:15px;
text-indent:-15px">  </div></td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double
#000000"> </td> <td> </td> </tr>
<!-- End Table Body --> </table> </div> <div align="left"
style="font-size: 10pt; margin-top: 12pt"><i>Assets Held For Sale</i>
</div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     At
December 31, 2008, we had transferred the $32.2 million
net book value of the <i>Ocean Tower</i> to “Assets
held for sale” in our Consolidated Balance Sheets. In December 2008,
we entered into an agreement to sell the rig, which was damaged during a hurricane
in September 2008, at a price in excess of its $32.2 million
carrying value. In connection with the execution of the sales agreement, and
amendments thereto, we received $9.5 million in aggregate deposits
($3.5 million in third quarter of 2009. </div> <div align="left"
style="font-size: 10pt; margin-top: 12pt"><i>Impairment of Long-Lived
Assets</i> </div> <div align="left" style="font-size: 10pt;
margin-top: 6pt">     We evaluate
our property and equipment for impairment whenever changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. We utilize
a probability-weighted cash flow analysis in testing an asset for potential
impairment. Our assumptions and estimates underlying this analysis include
the following: </div> <div style="margin-top: 6pt"> <table
width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color:
#000000; background: transparent"> <td width="2%" style="background:
transparent"> </td> <td width="2%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td> <td>dayrate by rig;</td>
</tr> <tr> <td style="font-size: 6pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="2%" style="background: transparent"> </td>
<td width="2%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td> <td>utilization rate by rig
(expressed as the actual percentage of time per year that the rig would be
used);</td> </tr> <tr> <td style="font-size: 6pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="2%" style="background: transparent"> </td>
<td width="2%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td> <td>the per day operating
cost for each rig if active, ready-stacked or cold-stacked; and</td>
</tr> <tr> <td style="font-size: 6pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="2%" style="background: transparent"> </td>
<td width="2%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td> <td>salvage value for each
rig.</td> </tr> </table> </div> <div align="left"
style="font-size: 10pt; margin-top: 6pt">Based on these assumptions and
estimates, we develop a matrix by assigning probabilities to various combinations
of assumed utilization rates and dayrates. </div> <div align="left"
style="font-size: 10pt; margin-top: 6pt">     As
of June 30, 2009, we evaluated the <i>Ocean Tower </i>and
our three mat-supported jack-up rigs (<i>Ocean Champion</i>, <i>Ocean
Crusader </i>and <i>Ocean Drake</i>), which had been cold-stacked
during the second quarter of 2009, for impairment. The <i>Ocean Tower
</i>has a pending sales agreement for a price in excess of its carrying
value (see “ — <i>Assets Held For Sale</i>”)
and is not considered to be impaired. We evaluated our three cold-stacked
rigs for impairment using the probability-weighted cash flow analysis discussed
above. Based on these analyses, we determined that the probability-weighted
cash flows exceeded the carrying value of each rig. </div> <div align="left"
style="font-size: 10pt; margin-top: 6pt">     Management’s
assumptions are an inherent part of our asset impairment evaluation and the
use of different assumptions could produce results that differ from those
reported. </div> <div align="left" style="font-size: 10pt; margin-top:
12pt"><i>Comprehensive Income</i> </div> <div align="left"
style="font-size: 10pt; margin-top: 6pt">     A
reconciliation of net income to comprehensive income is as follows: </div>
<div align="center"> <table style="font-size: 10pt; text-align: left"
cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin
Table Head --> <tr valign="bottom"> <td width="52%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="6"><b>Three
Months Ended</b></td> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Six Months Ended</b></td>
<td> </td> </tr> <tr style="font-size: 8pt"
valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px
solid #000000"><b>June 30,</b></td> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="6"
style="border-bottom: 1px solid #000000"><b>June 30,</b></td>
<td> </td> </tr> <tr style="font-size: 8pt"
valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px
solid #000000"><b>2009</b></td> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="2"
style="border-bottom: 1px solid #000000"><b>2008</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2008</b></td>
<td> </td> </tr> <tr style="font-size: 8pt"
valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="14"><b>(In thousands)</b></td>
<td> </td> </tr> <!-- End Table Head -->
<!-- Begin Table Body --> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Net
income </div></td> <td> </td> <td align="left">$</td>
<td align="right">387,440</td> <td> </td>
<td> </td> <td align="left">$</td> <td
align="right">416,164</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">736,021</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">706,671</td> <td> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:15px;
text-indent:-15px">Other comprehensive gains (losses), net of tax: </div></td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Unrealized
holding gain on forward exchange contracts </div></td> <td> </td>
<td> </td> <td align="right">3,831</td> <td> </td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">3,831</td> <td> </td> <td> </td>
<td> </td> <td align="right">—</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:30px; text-indent:-15px">Unrealized holding
gain on investments </div></td> <td> </td>
<td> </td> <td align="right">9</td> <td> </td>
<td> </td> <td> </td> <td align="right">9</td>
<td> </td> <td> </td> <td> </td>
<td align="right">36</td> <td> </td> <td> </td>
<td> </td> <td align="right">18</td> <td> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:30px; text-indent:-15px">Reclassification adjustment
for gain included in net income </div></td> <td> </td>
<td nowrap="nowrap" align="left"> </td> <td align="right">(14</td>
<td nowrap="nowrap">)</td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="left"> </td>
<td align="right">(507</td> <td nowrap="nowrap">)</td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td> <div style="margin-left:15px; text-indent:-15px"> 
</div></td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:15px; text-indent:-15px">Comprehensive income
</div></td> <td> </td> <td align="left">$</td>
<td align="right">391,266</td> <td> </td>
<td> </td> <td align="left">$</td> <td
align="right">416,173</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">739,381</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">706,689</td> <td> </td>
</tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px;
text-indent:-15px">  </div></td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double
#000000"> </td> <td> </td> </tr>
<!-- End Table Body --> </table> </div> <div align="left"
style="font-size: 10pt; margin-top: 6pt">     The
tax related to the change in unrealized holding gains on investments was approximately
$5,000 and $19,000 for the three months and six months ended June 30,
2009. The tax effect on the reclassification adjustment for net gains included
in net income was approximately $8,000 and $273,000 for the three and six
months ended June 30, 2009, respectively. The tax related to the
change in unrealized holding gains on our forward exchange contracts was approximately
$2.1 million for the three months and six months ended June 30,
2009. </div> <div align="left" style="font-size: 10pt; margin-top:
6pt">     The tax related
to the change in unrealized holding gains on investments was approximately
$5,000 and $10,000 for the three months and six months ended June 30,
2008, respectively. </div> <div align="left" style="font-size: 10pt;
margin-top: 12pt"><i>Foreign Currency</i> </div> <div
align="left" style="font-size: 10pt; margin-top: 6pt">     Our
functional currency is the U.S. dollar. Foreign currency transaction gains
and losses, including gains and losses on our foreign currency forward exchange
contracts not designated as accounting hedges, are reported as “Foreign
currency transaction gain (loss)” in our Consolidated Statements
of Operations. For the three and six months ended June 30, 2009,
we recognized net currency exchange gains of $12.5 million and $14.4 million,
respectively. See Note 4. </div> <div align="left" style="font-size:
10pt; margin-top: 12pt"><i>Revenue Recognition</i> </div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Revenue
from our dayrate drilling contracts is recognized as services are performed.
In connection with such drilling contracts, we may receive fees (either lump-sum
or dayrate) for the mobilization of equipment. These fees are earned as services
are performed over the initial term of the related drilling contracts. We
defer mobilization fees received, as well as direct and incremental mobilization
costs incurred, and amortize each, on a straight line basis, over the term
of the related drilling contracts (which is the period estimated to be benefited
from the mobilization activity). Straight line amortization of mobilization
revenues and related costs over the initial term of the related drilling contracts
(which generally range from two to 60 months) is consistent with
the timing of net cash flows generated from the actual drilling services performed.
Absent a contract, mobilization costs are recognized as incurred. </div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     From
time to time, we may receive fees from our customers for capital improvements
to our rigs. We defer such fees received in “Accrued liabilities”
and “Other liabilities” in our Consolidated Balance Sheets
and recognize these fees into income on a straight-line basis over the period
of the related drilling contract. We capitalize the costs of such capital
improvements and depreciate them over the estimated useful life of the asset.
</div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     We
record reimbursements received for the purchase of supplies, equipment, personnel
services and other services provided at the request of our customers in accordance
with a contract or agreement, for the gross amount billed to the customer,
as “Revenues related to reimbursable expenses” in our
Consolidated Statements of Operations. </div> <div align="left" style="font-size:
10pt; margin-top: 12pt"><i>Use of Estimates in the Preparation of
Financial Statements</i> </div> <div align="left" style="font-size:
10pt; margin-top: 6pt">     The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amount of revenues and expenses
during the reporting period. Actual results could differ from those estimated.
</div> </div> </body> </html>
<!--DOCTYPE html PUBLIC "-//W3C//DTD
XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd"
--> <html> <head></head> <body> <!-- Begin Block
Tagged Note 2 - us-gaap:EarningsPerShareTextBlock--> <div style="font-family:
'Times New Roman',Times,serif"> <div align="left" style="font-size:
10pt; margin-top: 12pt"><b>2. Earnings Per Share</b> </div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     A
reconciliation of the numerators and the denominators of our basic and diluted
per-share computations follows: </div> <div align="center"> <table
style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0"
width="100%"> <!-- Begin Table Head --> <tr valign="bottom">
<td width="52%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> </tr> <tr style="font-size:
8pt" valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Three Months
Ended</b></td> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Six Months Ended</b></td>
<td> </td> </tr> <tr style="font-size: 8pt"
valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px
solid #000000"><b>June 30,</b></td> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="6"
style="border-bottom: 1px solid #000000"><b>June 30,</b></td>
<td> </td> </tr> <tr style="font-size: 8pt"
valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px
solid #000000"><b>2009</b></td> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="2"
style="border-bottom: 1px solid #000000"><b>2008</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2008</b></td>
<td> </td> </tr> <tr style="font-size: 8pt"
valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="14"><b>(In thousands,
except per share data)</b></td> <td> </td>
</tr> <!-- End Table Head --> <!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff"> <td> <div
style="margin-left:15px; text-indent:-15px">Net income — basic
(numerator): </div></td> <td> </td> <td
align="left">$</td> <td align="right">387,440</td> <td> </td>
<td> </td> <td align="left">$</td> <td
align="right">416,164</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">736,021</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">706,671</td> <td> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:30px;
text-indent:-15px">Effect of dilutive potential shares </div></td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:45px; text-indent:-15px">1.5%
Debentures </div></td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td> </td> <td align="right">10</td>
<td> </td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td> </td> <td align="right">11</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:45px; text-indent:-15px">Zero Coupon Debentures
</div></td> <td> </td> <td> </td>
<td align="right">24</td> <td> </td> <td> </td>
<td> </td> <td align="right">5</td> <td> </td>
<td> </td> <td> </td> <td align="right">46</td>
<td> </td> <td> </td> <td> </td>
<td align="right">8</td> <td> </td> </tr>
<tr style="font-size: 1px"> <td> <div style="margin-left:15px;
text-indent:-15px">  </div></td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid
#000000"> </td> <td> </td> </tr>
<tr valign="bottom" style="background: #cceeff"> <td> <div
style="margin-left:15px; text-indent:-15px">Net income including conversions
— diluted (numerator) </div></td> <td> </td>
<td align="left">$</td> <td align="right">387,464</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">416,179</td> <td> </td>
<td> </td> <td align="left">$</td> <td
align="right">736,067</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">706,690</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td> <div style="margin-left:15px; text-indent:-15px"> 
</div></td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td> </tr> <tr valign="bottom"><!--
Blank Space --> <td> <div style="margin-left:15px; text-indent:-15px"> 
</div></td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Weighted
average shares — basic (denominator): </div></td> <td> </td>
<td> </td> <td align="right">139,002</td>
<td> </td> <td> </td> <td> </td>
<td align="right">138,959</td> <td> </td>
<td> </td> <td> </td> <td align="right">139,001</td>
<td> </td> <td> </td> <td> </td>
<td align="right">138,916</td> <td> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:30px; text-indent:-15px">Effect of dilutive
potential shares </div></td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:45px; text-indent:-15px">1.5%
Debentures </div></td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td> </td> <td align="right">5</td>
<td> </td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td> </td> <td align="right">38</td>
<td> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:45px; text-indent:-15px">Zero
Coupon Debentures </div></td> <td> </td>
<td> </td> <td align="right">52</td> <td> </td>
<td> </td> <td> </td> <td align="right">52</td>
<td> </td> <td> </td> <td> </td>
<td align="right">52</td> <td> </td> <td> </td>
<td> </td> <td align="right">52</td> <td> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:45px;
text-indent:-15px">Stock options and SARs </div></td> <td> </td>
<td> </td> <td align="right">27</td> <td> </td>
<td> </td> <td> </td> <td align="right">67</td>
<td> </td> <td> </td> <td> </td>
<td align="right">20</td> <td> </td> <td> </td>
<td> </td> <td align="right">62</td> <td> </td>
</tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px;
text-indent:-15px">  </div></td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid
#000000"> </td> <td> </td> </tr>
<tr valign="bottom" style="background: #cceeff"> <td> <div
style="margin-left:15px; text-indent:-15px">Weighted average shares including
conversions — diluted (denominator) </div></td> <td> </td>
<td> </td> <td align="right">139,081</td>
<td> </td> <td> </td> <td> </td>
<td align="right">139,083</td> <td> </td>
<td> </td> <td> </td> <td align="right">139,073</td>
<td> </td> <td> </td> <td> </td>
<td align="right">139,068</td> <td> </td>
</tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px;
text-indent:-15px">  </div></td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double
#000000"> </td> <td> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Earnings
per share: </div></td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> </tr>
<tr valign="bottom" style="background: #cceeff"> <td> <div
style="margin-left:45px; text-indent:-15px">Basic </div></td>
<td> </td> <td align="left">$</td> <td
align="right">2.79</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">2.99</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">5.30</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">5.09</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td> <div style="margin-left:15px; text-indent:-15px"> 
</div></td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:45px; text-indent:-15px">Diluted </div></td>
<td> </td> <td align="left">$</td> <td
align="right">2.79</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">2.99</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">5.29</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">5.08</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td> <div style="margin-left:15px; text-indent:-15px"> 
</div></td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td> </tr> <!-- End Table Body -->
</table> </div> <!-- Folio --> <!-- /Folio --> </div>
<!-- PAGEBREAK --> <div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Our
computation of diluted earnings per share, or EPS, for the three months ended
June 30, 2009 excludes stock options representing 8,000 shares of common stock
and 449,652 stock appreciation rights, or SARs. Our computation of EPS for
the six months ended June 30, 2009 excludes stock options representing
15,704 shares of common stock and 466,029 SARs. The inclusion of such potentially
dilutive shares in the computation of diluted EPS would have been antidilutive
for the periods presented. </div> <div align="left" style="font-size:
10pt; margin-top: 6pt">     Our
computation of diluted EPS for the three and six months ended June 30,
2008 excludes 140,607 and 149,178 SARs, respectively. The inclusion of such
potentially dilutive shares in the computation of diluted EPS would have been
antidilutive for the periods presented. </div> </div> </body>
</html>
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XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd"
--> <html> <head></head> <body> <!-- Begin Block
Tagged Note 3 - us-gaap:MarketableSecuritiesTextBlock--> <div style="font-family:
'Times New Roman',Times,serif"> <div align="left" style="font-size:
10pt; margin-top: 12pt"><b>3. Marketable Securities</b> </div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     We
report our investments as current assets in our Consolidated Balance Sheets
in “Marketable securities,” representing the investment
of cash available for current operations. See Note 5. </div> <div
align="left" style="font-size: 10pt; margin-top: 6pt">     Our
investments in marketable securities are classified as available for sale
and are summarized as follows: </div> <div align="center"> <table
style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0"
width="100%"> <!-- Begin Table Head --> <tr valign="bottom">
<td width="64%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> </tr> <tr style="font-size:
8pt" valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="10" style="border-bottom: 1px
solid #000000"><b>June 30, 2009</b></td> <td> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Amortized</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2"><b>Unrealized</b></td> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Market</b></td>
<td> </td> </tr> <tr style="font-size: 8pt"
valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px
solid #000000"><b>Cost</b></td> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="2"
style="border-bottom: 1px solid #000000"><b>Gain</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Value</b></td>
<td> </td> </tr> <tr style="font-size: 8pt"
valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="10"><b>(In thousands)</b></td>
<td> </td> </tr> <!-- End Table Head -->
<!-- Begin Table Body --> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Due
within one year </div></td> <td> </td> <td
align="left">$</td> <td align="right">199,988</td> <td> </td>
<td> </td> <td align="left">$</td> <td
align="right">2</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">199,990</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:15px; text-indent:-15px">Mortgage-backed securities
</div></td> <td> </td> <td> </td>
<td align="right">872</td> <td> </td> <td> </td>
<td> </td> <td align="right">58</td> <td> </td>
<td> </td> <td> </td> <td align="right">930</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td> <div style="margin-left:15px; text-indent:-15px"> 
</div></td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Total
</div></td> <td> </td> <td align="left">$</td>
<td align="right">200,860</td> <td> </td>
<td> </td> <td align="left">$</td> <td
align="right">60</td> <td> </td> <td> </td>
<td> </td> <td align="right">$200,920</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td> <div style="margin-left:15px; text-indent:-15px"> 
</div></td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td> </tr> <!-- End Table Body -->
</table> </div> <div align="center"> <table style="font-size:
10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --> <tr valign="bottom"> <td width="64%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="10"
style="border-bottom: 1px solid #000000"><b>December 31, 2008</b></td>
<td> </td> </tr> <tr style="font-size: 8pt"
valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Amortized</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2"><b>Unrealized</b></td> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Market</b></td>
<td> </td> </tr> <tr style="font-size: 8pt"
valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px
solid #000000"><b>Cost</b></td> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="2"
style="border-bottom: 1px solid #000000"><b>Gain</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Value</b></td>
<td> </td> </tr> <tr style="font-size: 8pt"
valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="10"><b>(In thousands)</b></td>
<td> </td> </tr> <!-- End Table Head -->
<!-- Begin Table Body --> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Due
within one year </div></td> <td> </td> <td
align="left">$</td> <td align="right">398,791</td> <td> </td>
<td> </td> <td align="left">$</td> <td
align="right">758</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">399,549</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:15px; text-indent:-15px">Mortgage-backed securities
</div></td> <td> </td> <td> </td>
<td align="right">1,016</td> <td> </td> <td> </td>
<td> </td> <td align="right">27</td> <td> </td>
<td> </td> <td> </td> <td align="right">1,043</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td> <div style="margin-left:15px; text-indent:-15px"> 
</div></td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Total
</div></td> <td> </td> <td align="left">$</td>
<td align="right">399,807</td> <td> </td>
<td> </td> <td align="left">$</td> <td
align="right">785</td> <td> </td> <td> </td>
<td> </td> <td align="right">$400,592</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td> <div style="margin-left:15px; text-indent:-15px"> 
</div></td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td> </tr> <!-- End Table Body -->
</table> </div> <div align="left" style="font-size: 10pt; margin-top:
6pt">     Proceeds from sales
and maturities of marketable securities and gross realized gains and losses
are summarized as follows: </div> <div align="center"> <table
style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0"
width="100%"> <!-- Begin Table Head --> <tr valign="bottom">
<td width="52%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> </tr> <tr style="font-size:
8pt" valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Three Months
Ended</b></td> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Six Months Ended</b></td>
<td> </td> </tr> <tr style="font-size: 8pt"
valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px
solid #000000"><b>June 30,</b></td> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="6"
style="border-bottom: 1px solid #000000"><b>June 30,</b></td>
<td> </td> </tr> <tr style="font-size: 8pt"
valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px
solid #000000"><b>2009</b></td> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="2"
style="border-bottom: 1px solid #000000"><b>2008</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2008</b></td>
<td> </td> </tr> <tr style="font-size: 8pt"
valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="14"><b>(In thousands)</b></td>
<td> </td> </tr> <!-- End Table Head -->
<!-- Begin Table Body --> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Proceeds
from sales </div></td> <td> </td> <td
align="left">$</td> <td align="right">999,886</td> <td> </td>
<td> </td> <td align="left">$</td> <td
align="right">99,992</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">2,448,829</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">100,022</td> <td> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:15px;
text-indent:-15px">Proceeds from maturities </div></td> <td> </td>
<td> </td> <td align="right">750,000</td>
<td> </td> <td> </td> <td> </td>
<td align="right">250,000</td> <td> </td>
<td> </td> <td> </td> <td align="right">750,000</td>
<td> </td> <td> </td> <td> </td>
<td align="right">550,000</td> <td> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px">Gross realized gains
</div></td> <td> </td> <td> </td>
<td align="right">36</td> <td> </td> <td> </td>
<td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">768</td> <td> </td> <td> </td>
<td> </td> <td align="right">—</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:15px; text-indent:-15px">Gross realized losses
</div></td> <td> </td> <td nowrap="nowrap"
align="left"> </td> <td align="right">(34</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(2</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(169</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(3</td>
<td nowrap="nowrap">)</td> </tr> <!-- End Table Body
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Tagged Note 4 - us-gaap:DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif"> <div align="left"
style="font-size: 10pt; margin-top: 12pt"><b>4. Derivative Financial
Instruments</b> </div> <div align="left" style="font-size:
10pt; margin-top: 6pt"><i>Foreign Currency Forward Exchange Contracts</i>
</div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Our
international operations expose us to foreign exchange risk associated with
our costs payable in foreign currencies for employee compensation, foreign
income tax payments and purchases from foreign suppliers. We may utilize foreign
currency forward exchange contracts to reduce our forward exchange risk. Our
foreign currency forward exchange contracts may obligate us to exchange predetermined
amounts of foreign currencies on specified dates or to net settle the spread
between the contracted foreign currency exchange rate and the spot rate on
the contract settlement date, which, for certain of our contracts, is the
average spot rate for the contract period. </div> <div align="left"
style="font-size: 10pt; margin-top: 6pt">     We
enter into foreign currency forward exchange contracts when we believe market
conditions are favorable to purchase contracts for future settlement with
the expectation that such contracts, when settled, will reduce our exposure
to foreign currency gains/losses on foreign currency which we do business
and for which there is a financial market (<i>i.e.</i>, Australian
dollars, Brazilian reais, British pounds sterling, Mexican pesos and Norwegian
kroner). These forward contracts are derivatives as defined by Statement of
Financial Accounting Standards, or SFAS, No. 133, “Accounting
for Derivatives and Hedging Activities,” or SFAS 133. </div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     SFAS
133 requires that each derivative be stated in the balance sheet at its fair
value with gains and losses reflected in the income statement except that,
to the extent the derivative qualifies for hedge accounting, the gains and
losses are reflected in income in the same period as offsetting losses and
gains on the qualifying hedged positions. For derivative contracts entered
into prior to May 2009, we did not seek hedge accounting treatment
under SFAS 133. Accordingly, prior to May 2009, all adjustments to
record the carrying value of our derivative financial instruments at fair
value were reported as “Foreign currency transaction gain (loss)”
in our Consolidated Statements of Operations. </div> <div align="left"
style="font-size: 10pt; margin-top: 6pt">     Realized
gains or losses upon settlement of the derivative contracts not designated
as cash flow hedges are reported as “Foreign currency transaction
gain (loss)” in our Consolidated Statements of Operations. During
the six months ended June 30, 2009, we settled foreign currency exchange
contracts with an aggregate notional value of approximately $214.6 million.
</div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Beginning
in May 2009, we began a hedging strategy and designated certain of
our qualifying foreign currency forward exchange contracts as cash flow hedges
pursuant to SFAS 133. These hedges are expected to be highly effective, and
therefore, , adjustments to record the carrying value of the effective portion
of our derivative financial instruments to their fair value is recorded as
a component of “Accumulated other comprehensive income,”
or AOCI, in our Consolidated Financial Statements. The effective portion of
the cash flow hedge will remain in AOCI until it is reclassified into earnings
in the period or periods during which the hedged transaction affects earnings
or it is determined that the hedged transaction will not occur. Adjustments
to record the carrying value of the ineffective portion of our derivative
financial instruments to fair value are recorded as “Foreign currency
transaction gain (loss)” in our Consolidated Statements of Operations.
</div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Realized
gains or losses upon settlement of derivative contracts designated as cash
flow hedges will be reported as a component of “Contract drilling
expense” in our Consolidated Statements of Operations to offset
the impact of foreign currency fluctuations in our expenditures in local foreign
currencies in the countries in which we operate. We did not settle any forward
exchange contracts designated as cash flow hedges during the three and six
months ended June 30, 2009. </div> <div align="left" style="font-size:
10pt; margin-top: 6pt">     As
of June 30, 2009, we had foreign currency exchange contracts outstanding,
in the aggregate notional amount of $125.0 million, consisting of
$33.3 million in Australian dollars, $34.4 million in Brazilian
reais, $30.4 million in British pounds sterling, $6.9 million
in Mexican pesos and $20.0 million in Norwegian kroner. These contracts
generally settle monthly through February 2010. As of June 30,
2009, all outstanding derivative contracts had been designated as cash flow
hedges, except for derivative contracts with a notional amount aggregating
$3,6 million in British pounds sterling and $2.4 million
in Norwegian kroner. See Note 5. </div> <div align="left" style="font-size:
10pt; margin-top: 6pt">     The
following table presents the fair values of our derivative financial instruments
at June 30, 2009. </div> <div align="center"> <table style="font-size:
10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --> <tr valign="bottom"> <td width="52%"> </td>
<td width="5%"> </td> <td width="7%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
<td width="5%"> </td> <td width="7%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center"><b>Balance
Sheet</b></td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td nowrap="nowrap" align="center"><b>Balance Sheet</b></td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3"> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" style="border-bottom:
1px solid #000000"><b>Location</b></td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px
solid #000000"><b>Fair Value</b></td> <td> </td>
<td nowrap="nowrap" align="center" style="border-bottom: 1px solid #000000"><b>Location</b></td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3"
style="border-bottom: 1px solid #000000"><b>Fair Value</b></td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3"><b>(In thousands)</b></td>
<td> </td> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3"><b>(In thousands)</b></td>
</tr> <!-- End Table Head --> <!-- Begin Table Body -->
<tr valign="bottom"> <td valign="bottom"> <div style="margin-left:0px;
text-indent:-0px"><b>Derivatives designated as hedging <br />
instruments under SFAS 133:</b> </div></td> <td> </td>
<td align="left" valign="bottom"> </td> <td> </td>
<td nowrap="nowrap" align="right" valign="bottom"> </td>
<td align="right" valign="bottom"> </td> <td valign="bottom"> </td>
<td> </td> <td align="center" valign="bottom"> </td>
<td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td>
<td align="right" valign="bottom"> </td> <td valign="bottom"> </td>
</tr> <tr valign="bottom"> <td valign="bottom"> <div
style="margin-left:0px; text-indent:-0px">     Foreign
currency forward<br />           exchange
contracts </div></td> <td> </td> <td align="left"
valign="bottom"><font style="white-space: nowrap">Prepaid expenses
and</font><br /> <font style="white-space: nowrap">     other
current assets</font> </td> <td> </td> <td
nowrap="nowrap" align="right" valign="bottom">$</td> <td align="right"
valign="bottom">6,406</td> <td nowrap="nowrap" valign="bottom"> </td>
<td> </td> <td align="center" valign="bottom"><font
style="white-space: nowrap">Accrued liabilities</font> </td>
<td> </td> <td nowrap="nowrap" align="right" valign="bottom">$</td>
<td align="right" valign="bottom">(243</td> <td nowrap="nowrap"
valign="bottom">)</td> </tr> <tr valign="bottom"><!--
Blank Space --> <td valign="bottom"> <div style="margin-left:0px;
text-indent:-0px">  </div></td> <td> </td>
<td align="left" valign="bottom"> </td> <td> </td>
<td nowrap="nowrap" align="right" valign="bottom"> </td>
<td align="right" valign="bottom"> </td> <td valign="bottom"> </td>
<td> </td> <td align="center" valign="bottom"> </td>
<td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td>
<td align="right" valign="bottom"> </td> <td valign="bottom"> </td>
</tr> <tr valign="bottom"> <td valign="bottom"> <div
style="margin-left:0px; text-indent:-0px"><b>Derivatives not designated
as <br /> hedging instruments under <br /> SFAS 133:</b>
</div></td> <td> </td> <td align="left"
valign="bottom"> </td> <td> </td> <td
nowrap="nowrap" align="right" valign="bottom"> </td> <td
align="right" valign="bottom"> </td> <td valign="bottom"> </td>
<td> </td> <td align="center" valign="bottom"> </td>
<td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td>
<td align="right" valign="bottom"> </td> <td valign="bottom"> </td>
</tr> <tr valign="bottom"> <td valign="bottom"> <div
style="margin-left:0px; text-indent:-0px">     Foreign
currency forward<br />           exchange
contracts </div></td> <td> </td> <td align="left"
valign="bottom">Prepaid expenses and<br />      other
current assets </td> <td> </td> <td nowrap="nowrap"
align="right" valign="bottom">$</td> <td align="right" valign="bottom">130</td>
<td nowrap="nowrap" valign="bottom"> </td> <td> </td>
<td align="center" valign="bottom"> </td> <td> </td>
<td nowrap="nowrap" align="right" valign="bottom">$</td> <td
align="right" valign="bottom">—</td> <td nowrap="nowrap"
valign="bottom"> </td> </tr> <!-- End Table Body
--> </table> </div> <!-- Folio --> <!-- /Folio -->
</div> <!-- PAGEBREAK --> <div style="font-family: 'Times New
Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top:
6pt">     The following table
presents the amounts recognized in our Consolidated Balance Sheets and Consolidated
Statements of Operations related to our foreign currency forward exchange
contracts designated as cash flow hedges under SFAS 133 for each of the three
and six month periods ended June 30, 2009. </div> <div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0"
cellpadding="0" width="100%"> <!-- Begin Table Head --> <tr valign="bottom">
<td width="19%"> </td> <td width="1%"> </td>
<td width="19%"> </td> <td width="1%"> </td>
<td width="19%"> </td> <td width="1%"> </td>
<td width="19%"> </td> <td width="1%"> </td>
<td width="9%"> </td> <td width="1%"> </td>
<td width="9%"> </td> </tr> <tr style="font-size:
8pt" valign="bottom"> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td nowrap="nowrap" align="center"><b>Location
of Gain</b></td> <td> </td> <td nowrap="nowrap"
align="center" colspan="3"> </td> </tr> <tr style="font-size:
8pt" valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center"><b>Location of Gain</b></td>
<td> </td> <td> </td> <td> </td>
<td nowrap="nowrap" align="center"><b>Recognized in Income</b></td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3"><b>Amount
of Gain</b></td> </tr> <tr style="font-size: 8pt" valign="bottom">
<td> </td> <td> </td> <td nowrap="nowrap"
align="center"><b>(Loss)</b></td> <td> </td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center"><b>on Derivative</b></td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3"><b>Recognized in
Income on</b></td> </tr> <tr style="font-size: 8pt" valign="bottom">
<td nowrap="nowrap" align="center"><b>Amount of Gain</b></td>
<td> </td> <td nowrap="nowrap" align="center"><b>Reclassified
from</b></td> <td> </td> <td nowrap="nowrap"
align="center"><b>Amount of Gain (Loss)</b></td> <td> </td>
<td nowrap="nowrap" align="center"><b>(Ineffective Portion</b></td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3"><b>Derivative
(Ineffective</b></td> </tr> <tr style="font-size: 8pt"
valign="bottom"> <td nowrap="nowrap" align="center"><b>Recognized
in AOCI</b></td> <td> </td> <td nowrap="nowrap"
align="center"><b>AOCI into Income</b></td> <td> </td>
<td nowrap="nowrap" align="center"><b>Reclassified from</b></td>
<td> </td> <td nowrap="nowrap" align="center"><b>and
Amount Excluded</b></td> <td> </td> <td
nowrap="nowrap" align="center" colspan="3"><b>Portion and Amount</b></td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap"
align="center"><b>on Derivative</b></td> <td> </td>
<td nowrap="nowrap" align="center"><b>(Effective</b></td>
<td> </td> <td nowrap="nowrap" align="center"><b>AOCI
into Income</b></td> <td> </td> <td nowrap="nowrap"
align="center"><b>from Effectiveness</b></td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3"><b>Excluded from</b></td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap"
align="center" style="border-bottom: 1px solid #000000"><b>(Effective
Portion)</b></td> <td> </td> <td nowrap="nowrap"
align="center" style="border-bottom: 1px solid #000000"><b>Portion)</b></td>
<td> </td> <td nowrap="nowrap" align="center" style="border-bottom:
1px solid #000000"><b>(Effective Portion)</b></td> <td> </td>
<td nowrap="nowrap" align="center" style="border-bottom: 1px solid #000000"><b>Testing)</b></td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3"
style="border-bottom: 1px solid #000000"><b>Effectiveness Testing)</b></td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap"
align="center"><b>(In thousands)</b></td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3"><b>(In thousands)</b></td>
</tr> <!-- End Table Head --> <!-- Begin Table Body -->
<tr valign="bottom"> <td align="center" valign="bottom"> <div
style="margin-left:0px; text-indent:-0px">$     5,894
</div></td> <td> </td> <td align="center"
valign="bottom">n/a </td> <td> </td> <td
align="center" valign="bottom">$     —
</td> <td> </td> <td align="left" valign="bottom">Foreign
currency<br />      transaction
gain </td> <td> </td> <td nowrap="nowrap" align="right"
valign="bottom">$</td> <td align="right" valign="bottom">269</td>
<td nowrap="nowrap" valign="bottom"> </td> </tr>
<!-- End Table Body --> </table> </div> <div align="left"
style="font-size: 10pt; margin-top: 6pt">     The
following table presents the amounts recognized in our Consolidated Statements
of Operations related to our foreign currency forward exchange contracts not
designated as hedging instruments under SFAS 133 for the three and six month
periods ended June 30, 2009 and 2008. </div> <div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0"
cellpadding="0" width="100%"> <!-- Begin Table Head --> <tr valign="bottom">
<td width="52%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> </tr> <tr style="font-size:
8pt" valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="14" style="border-bottom: 1px
solid #000000"><b>Amount of Gain Recognized in Income</b></td>
<td> </td> </tr> <tr style="font-size: 8pt"
valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px
solid #000000"><b>Three Months Ended June 30,</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>Six
Months Ended June 30,</b></td> <td> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap"
align="left" style="border-bottom: 1px solid #000000"><b>Location
of Gain (Loss) Recognized in Income</b></td> <td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px
solid #000000"><b>2009</b></td> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="2"
style="border-bottom: 1px solid #000000"><b>2008</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2008</b></td>
<td> </td> </tr> <tr style="font-size: 8pt"
valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="14"><b>(In thousands)</b></td>
<td> </td> </tr> <!-- End Table Head -->
<!-- Begin Table Body --> <tr valign="bottom"> <td> <div
style="margin-left:15px; text-indent:-15px">Foreign currency transaction
gain </div></td> <td> </td> <td align="left">$</td>
<td align="right">8,594</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">15,027</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">8,568</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">17,150</td>
<td> </td> </tr> <!-- End Table Body -->
</table> </div> <div align="left" style="font-size: 10pt; margin-top:
6pt">     The amounts presented
in the table above include unrealized gains of $12.6 million and
$37.4 million for the three months and six months ended June 30,
2009, respectively, to record the carrying value of our derivative financial
instruments to their fair value. The amounts presented in the table above
include unrealized gains of $8.3 million and $9.5 million
for the three months and six months ended June 30, 2008, respectively,
to record the carrying value of our derivative financial instruments to their
fair value. </div> </div> </body> </html>
<!--DOCTYPE html PUBLIC "-//W3C//DTD
XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd"
--> <html> <head></head> <body> <!-- Begin Block
Tagged Note 5 - us-gaap:FairValueDisclosuresTextBlock--> <div style="font-family:
'Times New Roman',Times,serif"> <div align="left" style="font-size:
10pt; margin-top: 12pt"><b>5. Financial Instruments and Fair Value
Disclosures</b> </div> <div align="left" style="font-size:
10pt; margin-top: 6pt"><i>Concentrations of Credit and Market Risk</i>
</div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Financial
instruments which potentially subject us to significant concentrations of
credit or market risk consist primarily of periodic temporary investments
of excess cash, trade accounts receivable and investments in debt securities,
including mortgage-backed securities. We place our excess cash investments
in high quality short-term money market instruments through several financial
institutions. At times, such investments may be in excess of the insurable
limit. We periodically evaluate the relative credit standing of these financial
institutions as part of our investment strategy. </div> <div align="left"
style="font-size: 10pt; margin-top: 6pt">     Concentrations
of credit risk with respect to our trade accounts receivable are limited primarily
due to the entities comprising our customer base. Since the market for our
services is the offshore oil and gas industry, this customer base consists
primarily of major and independent oil and gas companies and government-owned
oil companies. In general, before working for a customer with whom we have
not had a prior business relationship and/or whose financial stability may
appear uncertain to us, we perform a credit review on that company. Based
on that analysis, we may require that the customer present a letter of credit,
prepay or provide other credit enhancements. </div> <div align="left"
style="font-size: 10pt; margin-top: 6pt">     In
December 2008, we recorded a $31.9 million provision for
bad debts to reserve the uncollected balance of one of our customers in the
United Kingdom, or U.K., that has entered into administration (a U.K. insolvency
proceeding similar to U.S. Chapter 11 bankruptcy). We also provide
allowances for potential credit losses when necessary. In addition, during
the first three months of 2009, we recorded a $3.2 million provision
for bad debts related to receivables owed by one of our customers in the U.S.
Gulf of Mexico that is experiencing credit problems; however, we subsequently
collected $0.6 million of these previously reserved amounts and reversed
a corresponding portion of the provision for bad debts. </div> <div
align="left" style="font-size: 10pt; margin-top: 6pt">     No
additional allowances were deemed necessary for the periods presented. Prior
to December 2008, we have not experienced significant losses on our trade
receivables. </div> <!-- Folio --> <!-- /Folio --> </div>
<!-- PAGEBREAK --> <div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 6pt">     A
majority of our investments in debt securities are U.S. government securities
with minimal credit risk. However, we are exposed to market risk due to price
volatility associated with interest rate fluctuations. </div> <div
align="left" style="font-size: 10pt; margin-top: 12pt"><i>Fair Values</i>
</div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The
amounts reported in our Consolidated Balance Sheets for cash and cash equivalents,
marketable securities, accounts receivable, forward exchange contracts and
accounts payable approximate fair value. Fair values and related carrying
values of our debt instruments are shown below: </div> <div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0"
cellpadding="0" width="100%"> <!-- Begin Table Head --> <tr valign="bottom">
<td width="52%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> </tr> <tr style="font-size:
8pt" valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px
solid #000000"><b>June 30, 2009</b></td> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="6"
style="border-bottom: 1px solid #000000"><b>December 31, 2008</b></td>
<td> </td> </tr> <tr style="font-size: 8pt"
valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px
solid #000000"><b>Fair Value</b></td> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="2"
style="border-bottom: 1px solid #000000"><b>Carrying Value</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Fair
Value</b></td> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px
solid #000000"><b>Carrying Value</b></td> <td> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="14"><b>(In
millions)</b></td> <td> </td> </tr>
<!-- End Table Head --> <!-- Begin Table Body --> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:15px;
text-indent:-15px">Zero Coupon Debentures </div></td> <td> </td>
<td align="left">$</td> <td align="right">4.3</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">4.1</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">3.0</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">4.0</td> <td> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">4.875%
Senior Notes </div></td> <td> </td> <td> </td>
<td align="right">254.1</td> <td> </td> <td> </td>
<td> </td> <td align="right">249.6</td> <td> </td>
<td> </td> <td> </td> <td align="right">230.0</td>
<td> </td> <td> </td> <td> </td>
<td align="right">249.6</td> <td> </td> </tr>
<tr valign="bottom" style="background: #cceeff"> <td> <div
style="margin-left:15px; text-indent:-15px">5.15% Senior Notes </div></td>
<td> </td> <td> </td> <td align="right">246.0</td>
<td> </td> <td> </td> <td> </td>
<td align="right">249.7</td> <td> </td> <td> </td>
<td> </td> <td align="right">237.0</td> <td> </td>
<td> </td> <td> </td> <td align="right">249.6</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:15px; text-indent:-15px">5.875% Senior Notes
</div></td> <td> </td> <td> </td>
<td align="right">491.6</td> <td> </td> <td> </td>
<td> </td> <td align="right">499.3</td> <td> </td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
</tr> <!-- End Table Body --> </table> </div> <div
align="left" style="font-size: 10pt; margin-top: 6pt">     We
have estimated the fair value amounts by using appropriate valuation methodologies
and information available to management as of June 30, 2009 and December 31,
2008, respectively. Considerable judgment is required in developing these
estimates, and accordingly, no assurance can be given that the estimated values
are indicative of the amounts that would be realized in a free market exchange.
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument for which it was practicable to estimate
that value: </div> <div style="margin-top: 6pt"> <table width="100%"
border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align:
left"> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="3%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td> <td><i>Cash and cash
equivalents </i>— The carrying amounts approximate fair value
because of the short maturity of these instruments.</td> </tr>
<tr> <td style="font-size: 6pt"> </td> </tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td> <td><i>Marketable securities
</i>— The fair values of the debt securities, including mortgage-backed
securities, available for sale were based on the quoted closing market prices
on June 30, 2009 and December 31, 2008, respectively.</td>
</tr> <tr> <td style="font-size: 6pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="3%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td> <td><i>Accounts receivable
and accounts payable </i>— The carrying amounts approximate
fair value based on the nature of the instruments.</td> </tr>
<tr> <td style="font-size: 6pt"> </td> </tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td> <td><i>Forward exchange
contracts — </i>The fair value of our foreign currency forward
exchange contracts is based on both quoted market prices and valuations derived
from pricing models on June 30, 2009 and December 31, 2008,
respectively.</td> </tr> <tr> <td style="font-size: 6pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="3%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td> <td><i>Long-term debt
</i>— The fair value of our Zero Coupon Debentures is based
on the closing market price of our common stock on June 30, 2009
and December 31, 2008, respectively, and the stated conversion rate
for the debentures. The fair values of our 4.875% Senior Notes due 2015 and
5.15% Senior Notes due 2014 are based on the quoted closing market prices
on June 30, 2009 and December 31, 2008, respectively, from
brokers of these instruments. The fair value of our 5.875% Senior Notes due
2019 is based on the quoted market price on June 30, 2009 from brokers
of this instrument.</td> </tr> </table> </div> <div
align="left" style="font-size: 10pt; margin-top: 6pt">     Effective
January 1, 2008, we adopted SFAS No. 157, “Fair
Value Measurements,” or SFAS 157, which requires additional disclosures
about our assets and liabilities that are measured at fair value. SFAS 157
defines fair value as the exchange price that would be received for an asset
or paid to transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market
participants on the measurement date. SFAS 157 also establishes a fair value
hierarchy which requires an entity to maximize the use of observable inputs
and minimize the use of unobservable inputs when measuring fair value. The
standard describes three levels of inputs that may be used to measure fair
value: </div> <div align="left" style="margin-top: 12pt"> <table
width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; background: transparent; color: #000000; text-align: left"> <tr>
<td width="3%"></td> <td width="1%"></td> <td></td>
</tr> <tr valign="top"> <td nowrap="nowrap" align="left">Level
1</td> <td> </td> <td>Quoted prices for identical
instruments in active markets. Level 1 assets include short-term investments
such as money market funds and U.S. Treasury Bills. Our Level 1 assets at
June 30, 2009 included $443.0 million in cash held in money
market funds and $200.0 million of investments in U.S. Treasury Bills.</td>
</tr> </table> </div> <div align="left" style="margin-top:
12pt"> <table width="100%" border="0" cellpadding="0" cellspacing="0"
style="font-size: 10pt; background: transparent; color: #000000; text-align:
left"> <tr> <td width="3%"></td> <td width="1%"></td>
<td></td> </tr> <tr valign="top"> <td nowrap="nowrap"
align="left">Level 2</td> <td> </td> <td>Quoted
market prices for similar instruments in active markets; quoted prices for
identical or similar instruments in markets that are not active; and model-derived
valuations in which all significant inputs and significant value drivers are
observable in active markets. Level 2 assets and liabilities include mortgage-backed
securities and over-the-counter foreign currency forward exchange contracts
that are valued using a model-derived valuation technique.</td> </tr>
</table> </div> <!-- Folio --> <!-- /Folio --> </div>
<!-- PAGEBREAK --> <div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="margin-top: 12pt"> <table width="100%" border="0"
cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent;
color: #000000; text-align: left"> <tr> <td width="3%"></td>
<td width="1%"></td> <td></td> </tr> <tr
valign="top"> <td nowrap="nowrap" align="left">Level 3</td>
<td> </td> <td>Valuations derived from valuation
techniques in which one or more significant inputs or significant value drivers
are unobservable. Level 3 assets and liabilities generally include financial
instruments whose value is determined using pricing models, discounted cash
flow methodologies, or similar techniques, as well as instruments for which
the determination of fair value requires significant management judgment or
estimation or for which there is a lack of transparency as to the inputs used.</td>
</tr> </table> </div> <div align="left" style="font-size:
10pt; margin-top: 6pt">Assets and liabilities measured at fair value on
a recurring basis are summarized below: </div> <div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0"
cellpadding="0" width="100%"> <!-- Begin Table Head --> <tr valign="bottom">
<td width="52%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> </tr> <tr style="font-size:
8pt" valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="14" style="border-bottom: 1px
solid #000000"><b>June 30, 2009</b></td> <td> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="10"
style="border-bottom: 1px solid #000000"><b>Fair Value Measurements
Using</b></td> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td> </tr> <tr style="font-size: 8pt"
valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px
solid #000000"><b>Level 1</b></td> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="2"
style="border-bottom: 1px solid #000000"><b>Level 2</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Level
3</b></td> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px
solid #000000"><b>Fair Value</b></td> <td> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="14"><b>(In
thousands)</b></td> <td> </td> </tr>
<!-- End Table Head --> <!-- Begin Table Body --> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:15px;
text-indent:-15px"><b>Assets:</b> </div></td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:30px;
text-indent:-15px">Short-term investments </div></td> <td> </td>
<td align="left">$</td> <td align="right">642,977</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">—</td> <td> </td>
<td> </td> <td align="left">$</td> <td
align="right">—</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">642,977</td>
<td> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Residential
mortgage-backed securities </div></td> <td> </td>
<td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">930</td> <td> </td> <td> </td>
<td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">930</td> <td> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Forward
exchange contracts </div></td> <td> </td>
<td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">6,536</td> <td> </td> <td> </td>
<td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">6,536</td> <td> </td> </tr>
<tr style="font-size: 1px"> <td> <div style="margin-left:15px;
text-indent:-15px">  </div></td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid
#000000"> </td> <td> </td> </tr>
<tr valign="bottom" style="background: #cceeff"> <td> <div
style="margin-left:45px; text-indent:-15px">Total assets </div></td>
<td> </td> <td align="left">$</td> <td
align="right">642,977</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">7,466</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">—</td> <td> </td>
<td> </td> <td align="left">$</td> <td
align="right">650,443</td> <td> </td> </tr>
<tr style="font-size: 1px"> <td> <div style="margin-left:15px;
text-indent:-15px">  </div></td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double
#000000"> </td> <td> </td> </tr>
<tr valign="bottom"><!-- Blank Space --> <td> <div style="margin-left:15px;
text-indent:-15px">  </div></td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:15px;
text-indent:-15px"><b>Liabilities:</b> </div></td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Forward
exchange contracts </div></td> <td> </td>
<td align="left">$</td> <td align="right">—</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="left">$</td> <td align="right">(243</td> <td
nowrap="nowrap">)</td> <td> </td> <td align="left">$</td>
<td align="right">—</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="left">$</td>
<td align="right">(243</td> <td nowrap="nowrap">)</td>
</tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px;
text-indent:-15px">  </div></td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double
#000000"> </td> <td> </td> </tr>
<!-- End Table Body --> </table> </div> <div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0"
cellpadding="0" width="100%"> <!-- Begin Table Head --> <tr valign="bottom">
<td width="52%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> </tr> <tr style="font-size:
8pt" valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="14" style="border-bottom: 1px
solid #000000"><b>December 31, 2008</b></td> <td> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="10"
style="border-bottom: 1px solid #000000"><b>Fair Value Measurements
Using</b></td> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td> </tr> <tr style="font-size: 8pt"
valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px
solid #000000"><b>Level 1</b></td> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="2"
style="border-bottom: 1px solid #000000"><b>Level 2</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Level
3</b></td> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px
solid #000000"><b>Fair Value</b></td> <td> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="14"><b>(In
thousands)</b></td> <td> </td> </tr>
<!-- End Table Head --> <!-- Begin Table Body --> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:15px;
text-indent:-15px"><b>Assets:</b> </div></td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:30px;
text-indent:-15px">Short-term investments </div></td> <td> </td>
<td align="left">$</td> <td align="right">700,038</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">—</td> <td> </td>
<td> </td> <td align="left">$</td> <td
align="right">—</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">700,038</td>
<td> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Residential
mortgage-backed securities </div></td> <td> </td>
<td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">1,043</td> <td> </td> <td> </td>
<td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">1,043</td> <td> </td> </tr>
<tr style="font-size: 1px"> <td> <div style="margin-left:15px;
text-indent:-15px">  </div></td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid
#000000"> </td> <td> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:45px; text-indent:-15px">Total
assets </div></td> <td> </td> <td align="left">$</td>
<td align="right">700,038</td> <td> </td>
<td> </td> <td align="left">$</td> <td
align="right">1,043</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">—</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">701,081</td> <td> </td>
</tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px;
text-indent:-15px">  </div></td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double
#000000"> </td> <td> </td> </tr>
<tr valign="bottom"><!-- Blank Space --> <td> <div style="margin-left:15px;
text-indent:-15px">  </div></td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px"><b>Liabilities:</b>
</div></td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Forward
exchange contracts </div></td> <td> </td>
<td align="left">$</td> <td align="right">—</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="left">$</td> <td align="right">(37,301</td> <td
nowrap="nowrap">)</td> <td> </td> <td align="left">$</td>
<td align="right">—</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="left">$</td>
<td align="right">(37,301</td> <td nowrap="nowrap">)</td>
</tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px;
text-indent:-15px">  </div></td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double
#000000"> </td> <td> </td> </tr>
<!-- End Table Body --> </table> </div> </div> </body>
</html>
<!--DOCTYPE html PUBLIC "-//W3C//DTD
XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd"
--> <html> <head></head> <body> <!-- Begin Block
Tagged Note 6 - us-gaap:DeferredCostsCapitalizedPrepaidAndOtherAssetsDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif"> <div align="left"
style="font-size: 10pt; margin-top: 12pt"><b>6. Prepaid Expenses
and Other Current Assets</b> </div> <div align="left" style="font-size:
10pt; margin-top: 6pt">     Prepaid
expenses and other current assets consist of the following: </div> <div
align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0"
border="0" cellpadding="0" width="100%"> <!-- Begin Table Head -->
<tr valign="bottom"> <td width="76%"> </td> <td
width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>June
30,</b></td> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>December 31,</b></td>
<td> </td> </tr> <tr style="font-size: 8pt"
valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px
solid #000000"><b>2009</b></td> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="2"
style="border-bottom: 1px solid #000000"><b>2008</b></td>
<td> </td> </tr> <tr style="font-size: 8pt"
valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>(In thousands)</b><br
/> </td> <td> </td> </tr> <!--
End Table Head --> <!-- Begin Table Body --> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:15px;
text-indent:-15px">Rig spare parts and supplies </div></td>
<td> </td> <td align="left">$</td> <td
align="right">52,541</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">52,481</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:15px; text-indent:-15px">Deferred mobilization
costs </div></td> <td> </td> <td> </td>
<td align="right">24,138</td> <td> </td>
<td> </td> <td> </td> <td align="right">28,924</td>
<td> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Prepaid
insurance </div></td> <td> </td> <td> </td>
<td align="right">24,982</td> <td> </td>
<td> </td> <td> </td> <td align="right">11,845</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:15px; text-indent:-15px">Deferred tax assets
</div></td> <td> </td> <td> </td>
<td align="right">9,350</td> <td> </td> <td> </td>
<td> </td> <td align="right">9,350</td> <td> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px">Foreign currency forward
exchange contracts </div></td> <td> </td>
<td> </td> <td align="right">6,536</td> <td> </td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:15px; text-indent:-15px">Deposits </div></td>
<td> </td> <td> </td> <td align="right">4,136</td>
<td> </td> <td> </td> <td> </td>
<td align="right">3,846</td> <td> </td> </tr>
<tr valign="bottom" style="background: #cceeff"> <td> <div
style="margin-left:15px; text-indent:-15px">Prepaid taxes </div></td>
<td> </td> <td> </td> <td align="right">25,437</td>
<td> </td> <td> </td> <td> </td>
<td align="right">11,589</td> <td> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:15px;
text-indent:-15px">Other </div></td> <td> </td>
<td style="border-bottom:1px solid black"> </td> <td
align="right" style="border-bottom:1px solid black">2,932</td> <td> </td>
<td> </td> <td style="border-bottom:1px solid black"> </td>
<td align="right" style="border-bottom:1px solid black">5,011</td>
<td> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Total
</div></td> <td> </td> <td align="left">$</td>
<td align="right">150,052</td> <td> </td>
<td> </td> <td align="left">$</td> <td
align="right">123,046</td> <td> </td> </tr>
<tr style="font-size: 1px"> <td> <div style="margin-left:15px;
text-indent:-15px">  </div></td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double
#000000"> </td> <td> </td> </tr>
<!-- End Table Body --> </table> </div> <!-- Folio -->
<!-- /Folio --> </div> <!-- PAGEBREAK --> <div style="font-family:
'Times New Roman',Times,serif"> </div> </body> </html>
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XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd"
--> <html> <head></head> <body> <!-- Begin Block
Tagged Note 7 - us-gaap:PropertyPlantAndEquipmentDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif"> <div align="left"
style="font-size: 10pt; margin-top: 12pt"><b>7. Drilling and Other
Property and Equipment</b> </div> <div align="left" style="font-size:
10pt; margin-top: 6pt">     Cost
and accumulated depreciation of drilling and other property and equipment
are summarized as follows: </div> <div align="center"> <table
style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0"
width="100%"> <!-- Begin Table Head --> <tr valign="bottom">
<td width="76%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> </tr> <tr style="font-size:
8pt" valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>June 30,</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2"><b>December 31,</b></td> <td> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="2"
style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2008</b></td>
<td> </td> </tr> <tr style="font-size: 8pt"
valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>(In thousands)</b></td>
<td> </td> </tr> <!-- End Table Head -->
<!-- Begin Table Body --> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Drilling
rigs and equipment </div></td> <td> </td>
<td align="left">$</td> <td align="right">6,275,825</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">5,600,306</td> <td> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:15px;
text-indent:-15px">Land and buildings </div></td> <td> </td>
<td> </td> <td align="right">31,806</td>
<td> </td> <td> </td> <td> </td>
<td align="right">35,069</td> <td> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px">Office equipment and
other </div></td> <td> </td> <td> </td>
<td align="right">35,936</td> <td> </td>
<td> </td> <td> </td> <td align="right">34,021</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td> <div style="margin-left:15px; text-indent:-15px"> 
</div></td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:30px; text-indent:-15px">Cost </div></td>
<td> </td> <td> </td> <td align="right">6,343,567</td>
<td> </td> <td> </td> <td> </td>
<td align="right">5,669,396</td> <td> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px">Less: accumulated depreciation
</div></td> <td> </td> <td nowrap="nowrap"
align="left"> </td> <td align="right">(2,425,515</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(2,255,023</td>
<td nowrap="nowrap">)</td> </tr> <tr style="font-size:
1px"> <td> <div style="margin-left:15px; text-indent:-15px"> 
</div></td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:30px; text-indent:-15px">Drilling and other
property and equipment, net </div></td> <td> </td>
<td align="left">$</td> <td align="right">3,918,052</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">3,414,373</td> <td> </td>
</tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px;
text-indent:-15px">  </div></td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double
#000000"> </td> <td> </td> </tr>
<!-- End Table Body --> </table> </div> <div align="left"
style="font-size: 10pt; margin-top: 6pt">     In
June 2009, we acquired the <i>Ocean Courage</i>, a newbuild,
dynamically positioned, semisubmersible drilling rig, for $460.0 million,
exclusive of final commissioning and initial mobilization costs, drill string
and other necessary capital spares. </div> </div> </body>
</html>
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XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd"
--> <html> <head></head> <body> <!-- Begin Block
Tagged Note 8 - us-gaap:LoansNotesTradeAndOtherReceivablesDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif"> <div align="left"
style="font-size: 10pt; margin-top: 12pt"><b>8. Long-term Receivable</b>
</div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     During
the second quarter of 2009, one of our customers sought short-term financial
relief with respect to an existing contractual agreement with us for a six-well,
one-year minimum contract term, program that began in May 2009. As
a result, we agreed to amend our existing contract with this customer, and
in consideration of this amendment, we will receive a $20,000 per day increase
in the total contractual operating dayrate, to a total of $560,000 per day,
for a minimum of the first 240 days of the initial one-year contract.
Under the terms of the amended agreement, the customer is obligated to pay
us $75,000 per day in accordance with our normal credit terms (due 30 days
after receipt of invoice). The remainder of the dayrate for the six well program
(minimum of 240 days) will be paid through the conveyance of a 27%
net profit interest, or NPI, in three developmental oil-and-gas producing
properties covering six wells owned by the customer. Based on the current
production payout estimate, we anticipate that the first payment from the
conveyance of the NPI will commence in early 2010. Payment of such amounts,
and the timing of such payments, are contingent upon such production and upon
energy sale prices. At June 30, 2009, the $17.2 million
portion of this trade receivable, which is expected to be paid from the NPI,
is presented as “Long-term Receivable” in our Consolidated
Balance Sheets. </div> </div> </body> </html>
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XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd"
--> <html> <head></head> <body> <!-- Begin Block
Tagged Note 9 - us-gaap:AccountsPayableAndAccruedLiabilitiesDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif"> <div align="left"
style="font-size: 10pt; margin-top: 12pt"><b>9. Accrued Liabilities</b>
</div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Accrued
liabilities consist of the following: </div> <div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0"
cellpadding="0" width="100%"> <!-- Begin Table Head --> <tr valign="bottom">
<td width="76%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> </tr> <tr style="font-size:
8pt" valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>June 30,</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2"><b>December 31,</b></td> <td> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="2"
style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2008</b></td>
<td> </td> </tr> <tr style="font-size: 8pt"
valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>(In thousands)</b></td>
<td> </td> </tr> <!-- End Table Head -->
<!-- Begin Table Body --> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Accrued
maintenance/capital projects </div></td> <td> </td>
<td align="left">$</td> <td align="right">92,172</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">106,135</td> <td> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:15px;
text-indent:-15px">Deferred revenue </div></td> <td> </td>
<td> </td> <td align="right">85,063</td>
<td> </td> <td> </td> <td> </td>
<td align="right">39,307</td> <td> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px">Payroll and benefits
</div></td> <td> </td> <td> </td>
<td align="right">59,482</td> <td> </td>
<td> </td> <td> </td> <td align="right">69,326</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:15px; text-indent:-15px">Rig operating expenses
</div></td> <td> </td> <td> </td>
<td align="right">27,318</td> <td> </td>
<td> </td> <td> </td> <td align="right">30,056</td>
<td> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Interest
payable </div></td> <td> </td> <td> </td>
<td align="right">15,036</td> <td> </td>
<td> </td> <td> </td> <td align="right">10,385</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:15px; text-indent:-15px">Personal injury and
other claims </div></td> <td> </td> <td> </td>
<td align="right">10,146</td> <td> </td>
<td> </td> <td> </td> <td align="right">10,489</td>
<td> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Hurricane
related expenses </div></td> <td> </td> <td> </td>
<td align="right">3,219</td> <td> </td> <td> </td>
<td> </td> <td align="right">5,080</td> <td> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:15px;
text-indent:-15px">Foreign currency forward exchange contracts </div></td>
<td> </td> <td> </td> <td align="right">243</td>
<td> </td> <td> </td> <td> </td>
<td align="right">37,301</td> <td> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px">Other </div></td>
<td> </td> <td> </td> <td align="right">23,253</td>
<td> </td> <td> </td> <td> </td>
<td align="right">21,447</td> <td> </td>
</tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px;
text-indent:-15px">  </div></td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid
#000000"> </td> <td> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Total
</div></td> <td> </td> <td align="left">$</td>
<td align="right">315,932</td> <td> </td>
<td> </td> <td align="left">$</td> <td
align="right">329,526</td> <td> </td> </tr>
<tr style="font-size: 1px"> <td> <div style="margin-left:15px;
text-indent:-15px">  </div></td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double
#000000"> </td> <td> </td> </tr>
<!-- End Table Body --> </table> </div> <!-- Folio -->
<!-- /Folio --> </div> <!-- PAGEBREAK --> <div style="font-family:
'Times New Roman',Times,serif"> </div> </body> </html>
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XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd"
--> <html> <head></head> <body> <!-- Begin Block
Tagged Note 10 - us-gaap:LongTermDebtTextBlock--> <div style="font-family:
'Times New Roman',Times,serif"> <div align="left" style="font-size:
10pt; margin-top: 12pt"><b>10. Long-Term Debt</b> </div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Long-term
debt consists of the following: </div> <div align="center"> <table
style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0"
width="100%"> <!-- Begin Table Head --> <tr valign="bottom">
<td width="76%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> </tr> <tr style="font-size:
8pt" valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>June 30,</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2"><b>December 31,</b></td> <td> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="2"
style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2008</b></td>
<td> </td> </tr> <tr style="font-size: 8pt"
valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>(In thousands)</b></td>
<td> </td> </tr> <!-- End Table Head -->
<!-- Begin Table Body --> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Zero
Coupon Debentures (due 2020) </div></td> <td> </td>
<td align="left">$</td> <td align="right">4,107</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">4,036</td> <td> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">5.15%
Senior Notes (due 2014) </div></td> <td> </td>
<td> </td> <td align="right">249,652</td>
<td> </td> <td> </td> <td> </td>
<td align="right">249,623</td> <td> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px">4.875% Senior Notes
(due 2015) </div></td> <td> </td> <td> </td>
<td align="right">249,646</td> <td> </td>
<td> </td> <td> </td> <td align="right">249,621</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:15px; text-indent:-15px">5.875% Senior Notes
(due 2019) </div></td> <td> </td> <td> </td>
<td align="right">499,264</td> <td> </td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td> <div style="margin-left:15px; text-indent:-15px"> 
</div></td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:15px; text-indent:-15px"> 
</div></td> <td> </td> <td> </td>
<td align="right">1,002,669</td> <td> </td>
<td> </td> <td> </td> <td align="right">503,280</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:15px; text-indent:-15px">Less: Current maturities
</div></td> <td> </td> <td nowrap="nowrap"
align="left"> </td> <td align="right">(4,107</td>
<td nowrap="nowrap">)</td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
</tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px;
text-indent:-15px">  </div></td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid
#000000"> </td> <td> </td> </tr>
<tr valign="bottom" style="background: #cceeff"> <td> <div
style="margin-left:30px; text-indent:-15px">Total </div></td>
<td> </td> <td align="left">$</td> <td
align="right">998,562</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">503,280</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td> <div style="margin-left:15px; text-indent:-15px"> 
</div></td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td> </tr> <!-- End Table Body -->
</table> </div> <div align="left" style="font-size: 10pt; margin-top:
6pt">     At June 30,
2009, there was $6.0 million aggregate principal amount at maturity,
or $4.1 million accreted, or carrying, value, of our Zero Coupon Debentures
outstanding. </div> <div align="left" style="font-size: 10pt; margin-top:
6pt">     <b><i>5.875%
Senior Notes</i></b> </div> <div align="left" style="font-size:
10pt; margin-top: 6pt">     On
May 4, 2009, we issued $500.0 million aggregate principal
amount of our 5.875% Senior Notes Due May 1, 2019, or 5.875% Senior
Notes, for general corporate purposes. The 5.875% Senior Notes were issued
at an offering price of 99.851% of the principal and resulted in net proceeds
to us of approximately $495.5 million. </div> <div align="left"
style="font-size: 10pt; margin-top: 6pt">     The
notes bear interest at 5.875% per year, payable semiannually in arrears on
May 1 and November 1 of each year, beginning November 1, 2009, and
mature on May 1, 2019. The 5.875% Senior Notes are unsecured and
unsubordinated obligations of Diamond Offshore Drilling, Inc., or DODI, and
rank equal in right of payment to existing and future unsecured and unsubordinated
indebtedness of DODI. We have the right to redeem all or a portion of these
notes for cash at any time or from time to time, on at least 15 days
but not more than 60 days prior written notice, at the redemption
price specified in the governing indenture plus accrued and unpaid interest
to the date of redemption. </div> <div align="left" style="font-size:
10pt; margin-top: 6pt">     As
reflected in the table below, the holders of our outstanding Zero Coupon Debentures
have the right to require us to purchase all or a portion of their outstanding
debentures on June 6, 2010. The aggregate maturities of long-term
debt for each of the five years subsequent to June 30, 2009 are as
follows: </div> <div align="center"> <table style="font-size:
10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="50%">
<!-- Begin Table Head --> <tr valign="bottom"> <td width="88%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap"
align="center" colspan="4" style="border-bottom: 1px solid #000000"><b>(In
thousands)</b> </td> <td> </td> </tr>
<!-- End Table Head --> <!-- Begin Table Body --> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:15px;
text-indent:-15px">2009 </div></td> <td> </td>
<td align="left">$</td> <td align="right">—</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:15px; text-indent:-15px">2010 </div></td>
<td> </td> <td> </td> <td align="right">4,107</td>
<td> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">2011
</div></td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:15px;
text-indent:-15px">2012 </div></td> <td> </td>
<td> </td> <td align="right">—</td>
<td> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">2013
</div></td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:15px;
text-indent:-15px">Thereafter </div></td> <td> </td>
<td> </td> <td align="right">998,562</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td> <div style="margin-left:15px; text-indent:-15px"> 
</div></td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:15px; text-indent:-15px"> 
</div></td> <td> </td> <td> </td>
<td align="right">1,002,669</td> <td> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:15px;
text-indent:-15px">Less: Current maturities </div></td> <td> </td>
<td nowrap="nowrap" align="left"> </td> <td align="right">(4,107</td>
<td nowrap="nowrap">)</td> </tr> <tr style="font-size:
1px"> <td> <div style="margin-left:15px; text-indent:-15px"> 
</div></td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Total
</div></td> <td> </td> <td align="left">$</td>
<td align="right">998,562</td> <td> </td>
</tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px;
text-indent:-15px">  </div></td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double
#000000"> </td> <td> </td> </tr>
<!-- End Table Body --> </table> </div> </div> </body>
</html>
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XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd"
--> <html> <head></head> <body> <!-- Begin Block
Tagged Note 11 - us-gaap:CommitmentsAndContingenciesDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif"> <div align="left"
style="font-size: 10pt; margin-top: 12pt"><b>11. Commitments and
Contingencies</b> </div> <div align="left" style="font-size:
10pt; margin-top: 6pt">     Various
claims have been filed against us in the ordinary course of business, including
claims by offshore workers alleging personal injuries. In accordance with
SFAS No. 5, “Accounting for Contingencies,” or
SFAS 5, we have assessed each claim or exposure to determine the likelihood
that the resolution of the matter might ultimately result in an adverse effect
on our financial condition, results of operations and cash flows. When we
determine that an unfavorable resolution of a matter is probable and such
amount of loss can be determined, we record a reserve for the estimated loss
at the time that both of these criteria are met. Our management believes that
we have established adequate reserves for any liabilities that may reasonably
be expected to result from these claims. </div> <!-- Folio -->
<!-- /Folio --> </div> <!-- PAGEBREAK --> <div style="font-family:
'Times New Roman',Times,serif"> <div align="left" style="font-size:
10pt; margin-top: 6pt">     <i>Litigation.
</i>During the second quarter of 2009, the U.S. District Court ruled
in our favor and dismissed a lawsuit filed in January 2005 by Total E&P
USA, Inc. and several oil companies against us alleging that our semisubmersible
rig, the <i>Ocean America</i>, damaged a natural gas pipeline
in the Gulf of Mexico during Hurricane Ivan. The plaintiffs have 30 days to
appeal the judgment. </div> <div align="left" style="font-size: 10pt;
margin-top: 6pt">     We are
one of several unrelated defendants in lawsuits filed in the Circuit Courts
of the State of Mississippi alleging that defendants manufactured, distributed
or utilized drilling mud containing asbestos and, in our case, allowed such
drilling mud to have been utilized aboard our offshore drilling rigs. The
plaintiffs seek, among other things, an award of unspecified compensatory
and punitive damages. We expect to receive complete defense and indemnity
from Murphy Exploration & Production Company pursuant to the terms
of our 1992 asset purchase agreement with them. We are unable to estimate
our potential exposure, if any, to these lawsuits at this time but do not
believe that ultimate liability, if any, resulting from this litigation will
have a material adverse effect on our financial condition, results of operations
and cash flows. </div> <div align="left" style="font-size: 10pt;
margin-top: 6pt">     Various
other claims have been filed against us in the ordinary course of business.
In the opinion of our management, no pending or known threatened claims, actions
or proceedings against us are expected to have a material adverse effect on
our consolidated financial position, results of operations and cash flows.
</div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>Personal
Injury Claims</i>. Our deductible for liability coverage for personal
injury claims, which primarily result from Jones Act liability in the Gulf
of Mexico, is $5.0 million per occurrence, with no aggregate deductible.
The Jones Act is a federal law that permits seamen to seek compensation for
certain injuries during the course of their employment on a vessel and governs
the liability of vessel operators and marine employers for the work-related
injury or death of an employee. We engage experts to assist us in estimating
our aggregate reserve for personal injury claims based on our historical losses
and utilizing various actuarial models. At June 30, 2009, our estimated
liability for personal injury claims was $33.0 million, of which
$9.5 million and $23.5 million were recorded in “Accrued
liabilities” and “Other liabilities,” respectively,
in our Consolidated Balance Sheets. At December 31, 2008, our estimated
liability for personal injury claims was $30.1 million, of which
$9.5 million and $20.6 million were recorded in “Accrued
liabilities” and “Other liabilities,” respectively,
in our Consolidated Balance Sheets. The eventual settlement or adjudication
of these claims could differ materially from our estimated amounts due to
uncertainties such as: </div> <div style="margin-top: 6pt"> <table
width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color:
#000000; background: transparent"> <td width="3%" style="background:
transparent"> </td> <td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td> <td>the severity of personal
injuries claimed;</td> </tr> <tr> <td style="font-size:
6pt"> </td> </tr> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="3%" style="background:
transparent"> </td> <td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td> <td>significant changes in
the volume of personal injury claims;</td> </tr> <tr> <td
style="font-size: 6pt"> </td> </tr> <tr valign="top"
style="font-size: 10pt; color: #000000; background: transparent"> <td
width="3%" style="background: transparent"> </td> <td
width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td> <td>the unpredictability
of legal jurisdictions where the claims will ultimately be litigated;</td>
</tr> <tr> <td style="font-size: 6pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="3%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td> <td>inconsistent court decisions;
and</td> </tr> <tr> <td style="font-size: 6pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="3%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td> <td>the risks and lack of
predictability inherent in personal injury litigation.</td> </tr>
</table> </div> <!-- Folio --> <!-- /Folio --> </div>
<!-- PAGEBREAK --> <div style="font-family: 'Times New Roman',Times,serif">
</div> </body> </html>
<!--DOCTYPE html PUBLIC "-//W3C//DTD
XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd"
--> <html> <head></head> <body> <!-- Begin Block
Tagged Note 12 - us-gaap:SegmentReportingDisclosureTextBlock--> <div
style="font-family: 'Times New Roman',Times,serif"> <div align="left"
style="font-size: 10pt; margin-top: 12pt"><b>12. Segments and Geographic
Area Analysis</b> </div> <div align="left" style="font-size:
10pt; margin-top: 6pt">     Although
we provide contract drilling services with different types of offshore drilling
rigs and also provide such services in many geographic locations, we have
aggregated these operations into one reportable segment based on the similarity
of economic characteristics among all divisions and locations, including the
nature of services provided and the type of customers of such services, in
accordance with SFAS No. 131, “Disclosures about Segments
of an Enterprise and Related Information.” </div> <div
align="left" style="font-size: 10pt; margin-top: 6pt">Revenues from contract
drilling services by equipment-type are listed below: </div> <div
align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0"
border="0" cellpadding="0" width="100%"> <!-- Begin Table Head -->
<tr valign="bottom"> <td width="52%"> </td> <td
width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="6"><b>Three
Months Ended</b></td> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Six Months Ended</b></td>
<td> </td> </tr> <tr style="font-size: 8pt"
valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px
solid #000000"><b>June 30,</b></td> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="6"
style="border-bottom: 1px solid #000000"><b>June 30,</b></td>
<td> </td> </tr> <tr style="font-size: 8pt"
valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px
solid #000000"><b>2009</b></td> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="2"
style="border-bottom: 1px solid #000000"><b>2008</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2008</b></td>
<td> </td> </tr> <tr style="font-size: 8pt"
valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="14"><b>(In thousands)</b></td>
<td> </td> </tr> <!-- End Table Head -->
<!-- Begin Table Body --> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">High
Specification Floaters </div></td> <td> </td>
<td align="left">$</td> <td align="right">334,527</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">354,218</td> <td> </td>
<td> </td> <td align="left">$</td> <td
align="right">646,661</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">635,289</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:15px; text-indent:-15px">Intermediate Semisubmersibles
</div></td> <td> </td> <td> </td>
<td align="right">465,762</td> <td> </td>
<td> </td> <td> </td> <td align="right">464,598</td>
<td> </td> <td> </td> <td> </td>
<td align="right">882,762</td> <td> </td>
<td> </td> <td> </td> <td align="right">837,820</td>
<td> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Jack-ups
</div></td> <td> </td> <td> </td>
<td align="right">123,169</td> <td> </td>
<td> </td> <td> </td> <td align="right">117,810</td>
<td> </td> <td> </td> <td> </td>
<td align="right">249,743</td> <td> </td>
<td> </td> <td> </td> <td align="right">233,857</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td> <div style="margin-left:15px; text-indent:-15px"> 
</div></td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td> <td> </td> <td nowrap="nowrap"
colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:30px; text-indent:-15px">Total contract drilling
revenues </div></td> <td> </td> <td> </td>
<td align="right">923,458</td> <td> </td>
<td> </td> <td> </td> <td align="right">936,626</td>
<td> </td> <td> </td> <td> </td>
<td align="right">1,779,166</td> <td> </td>
<td> </td> <td> </td> <td align="right">1,706,966</td>
<td> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Revenues
related to reimbursable expenses </div></td> <td> </td>
<td> </td> <td align="right">22,949</td>
<td> </td> <td> </td> <td> </td>
<td align="right">17,746</td> <td> </td>
<td> </td> <td> </td> <td align="right">52,961</td>
<td> </td> <td> </td> <td> </td>
<td align="right">33,508</td> <td> </td>
</tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px;
text-indent:-15px">  </div></td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid
#000000"> </td> <td> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:45px; text-indent:-15px">Total
revenues </div></td> <td> </td> <td align="left">$</td>
<td align="right">946,407</td> <td> </td>
<td> </td> <td align="left">$</td> <td
align="right">954,372</td> <td> </td> <td> </td>
<td> </td> <td align="right">1,832,127</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">1,740,474</td> <td> </td>
</tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px;
text-indent:-15px">  </div></td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double
#000000"> </td> <td> </td> </tr>
<!-- End Table Body --> </table> </div> <div align="left"
style="font-size: 10pt; margin-top: 12pt"><i>Geographic Areas</i>
</div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     At
June 30, 2009, our drilling rigs were located offshore twelve countries
in addition to the United States. As a result, we are exposed to the risk
of changes in social, political and economic conditions inherent in international
operations and our results of operations and the value of our international
assets are affected by fluctuations in foreign currency exchange rates. Revenues
by geographic area are presented by attributing revenues to the individual
country or areas where the services were performed. </div> <div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0"
cellpadding="0" width="100%"> <!-- Begin Table Head --> <tr valign="bottom">
<td width="52%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> </tr> <tr style="font-size:
8pt" valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Three Months
Ended</b></td> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Six Months Ended</b></td>
<td> </td> </tr> <tr style="font-size: 8pt"
valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px
solid #000000"><b>June 30,</b></td> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="6"
style="border-bottom: 1px solid #000000"><b>June 30,</b></td>
<td> </td> </tr> <tr style="font-size: 8pt"
valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px
solid #000000"><b>2009</b></td> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="2"
style="border-bottom: 1px solid #000000"><b>2008</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2008</b></td>
<td> </td> </tr> <tr style="font-size: 8pt"
valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="14"><b>(In thousands)</b></td>
<td> </td> </tr> <!-- End Table Head -->
<!-- Begin Table Body --> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">United
States </div></td> <td> </td> <td align="left">$</td>
<td align="right">333,865</td> <td> </td>
<td> </td> <td align="left">$</td> <td
align="right">396,048</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">690,180</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">719,561</td> <td> </td>
</tr> <tr valign="bottom"><!-- Blank Space --> <td>
<div style="margin-left:15px; text-indent:-15px">  </div></td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:15px; text-indent:-15px">International: </div></td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Australia/Asia/Middle
East. </div></td> <td> </td> <td> </td>
<td align="right">199,232</td> <td> </td>
<td> </td> <td> </td> <td align="right">147,793</td>
<td> </td> <td> </td> <td> </td>
<td align="right">373,457</td> <td> </td>
<td> </td> <td> </td> <td align="right">254,768</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:30px; text-indent:-15px">South America </div></td>
<td> </td> <td> </td> <td align="right">172,708</td>
<td> </td> <td> </td> <td> </td>
<td align="right">158,067</td> <td> </td>
<td> </td> <td> </td> <td align="right">297,409</td>
<td> </td> <td> </td> <td> </td>
<td align="right">285,604</td> <td> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:30px; text-indent:-15px">Europe/Africa/Mediterranean
</div></td> <td> </td> <td> </td>
<td align="right">160,970</td> <td> </td>
<td> </td> <td> </td> <td align="right">172,077</td>
<td> </td> <td> </td> <td> </td>
<td align="right">310,802</td> <td> </td>
<td> </td> <td> </td> <td align="right">309,608</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:30px; text-indent:-15px">Mexico </div></td>
<td> </td> <td> </td> <td align="right">79,632</td>
<td> </td> <td> </td> <td> </td>
<td align="right">80,387</td> <td> </td>
<td> </td> <td> </td> <td align="right">160,279</td>
<td> </td> <td> </td> <td> </td>
<td align="right">170,933</td> <td> </td>
</tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px;
text-indent:-15px">  </div></td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid
#000000"> </td> <td> </td> </tr>
<tr valign="bottom" style="background: #cceeff"> <td> <div
style="margin-left:45px; text-indent:-15px">Total revenues </div></td>
<td> </td> <td align="left">$</td> <td
align="right">946,407</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">954,372</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">1,832,127</td> <td> </td>
<td> </td> <td align="left">$</td> <td
align="right">1,740,474</td> <td> </td> </tr>
<tr style="font-size: 1px"> <td> <div style="margin-left:15px;
text-indent:-15px">  </div></td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double
#000000"> </td> <td> </td> <td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double
#000000"> </td> <td> </td> </tr>
<!-- End Table Body --> </table> </div> </div> </body>
</html>
<!--DOCTYPE html PUBLIC "-//W3C//DTD
XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd"
--> <html> <head></head> <body> <!-- Begin Block
Tagged Note 13 - us-gaap:IncomeTaxDisclosureTextBlock--> <div style="font-family:
'Times New Roman',Times,serif"> <div align="left" style="font-size:
10pt; margin-top: 12pt"><b>13. Income Taxes</b> </div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Our
income tax expense is a function of the mix between our domestic and international
pre-tax earnings or losses, as well as the mix of international tax jurisdictions
in which we operate. Certain of our international rigs are owned and operated,
directly or indirectly, by Diamond Offshore International Limited, or DOIL,
a Cayman Islands subsidiary which we wholly own. It is our intention to indefinitely
reinvest future earnings of DOIL to finance foreign activities except to the
extent that such earnings were immediately subject to U.S. federal income
taxes and except for the earnings of Diamond East Asia Limited, a wholly-owned
subsidiary of DOIL formed in December 2008. Accordingly, U.S. income taxes
have been provided on the earnings of Diamond East Asia Limited. </div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     On
March 31, 2009, the statute of limitations relative to a 2003 uncertain
tax position in Mexico expired. As a consequence we reversed $5.5 million
of previously accrued interest expense and $5.9 million of previously
accrued tax expense, $0.8 million of which had been accrued for penalties.
</div> </div> </body> </html>
N/A false --12-31
2009-06-30
10-Q
0000949039
139003798
Yes
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