ENSCO PLC, 10-K filed on 2/28/2019
Annual Report
v3.10.0.1
Document And Entity Information - USD ($)
12 Months Ended
Dec. 31, 2018
Feb. 22, 2019
Jun. 30, 2018
Document And Entity Information [Abstract]      
Document Type 10-K    
Amendment Flag false    
Document Period End Date Dec. 31, 2018    
Entity Registrant Name Ensco plc    
Entity Central Index Key 0000314808    
Current Fiscal Year End Date --12-31    
Document Fiscal Year Focus 2018    
Document Fiscal Period Focus FY    
Entity Well-known Seasoned Issuer Yes    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Filer Category Large Accelerated Filer    
Entity Public Float     $ 3,149,586,000
Entity Emerging Growth Company false    
Entity Common Shares, Shares Outstanding   437,071,204  
Entity Small Business false    
Entity Shell Company false    
v3.10.0.1
Consolidated Statements Of Operations - USD ($)
shares in Millions, $ in Millions
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Income Statement [Abstract]      
OPERATING REVENUES $ 1,705.4 $ 1,843.0 $ 2,776.4
OPERATING EXPENSES      
Contract drilling (exclusive of depreciation) 1,319.4 1,189.5 1,301.0
Loss on impairment 40.3 182.9 0.0
Depreciation 478.9 444.8 445.3
General and administrative 102.7 157.8 100.8
Total operating expenses 1,941.3 1,975.0 1,847.1
OPERATING INCOME (LOSS) (235.9) (132.0) 929.3
OTHER INCOME (EXPENSE)      
Interest income 14.5 25.8 13.8
Interest expense, net (282.7) (224.2) (228.8)
Other, net (34.8) 134.4 283.2
Other income (expense), net (303.0) (64.0) 68.2
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (538.9) (196.0) 997.5
PROVISION FOR INCOME TAXES      
Current income tax expense 33.0 54.2 79.8
Deferred income tax expense (benefit) 56.6 55.0 28.7
Total provision for income taxes 89.6 109.2 108.5
INCOME (LOSS) FROM CONTINUING OPERATIONS (628.5) (305.2) 889.0
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET (8.1) 1.0 8.1
NET INCOME (LOSS) (636.6) (304.2) 897.1
NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS (3.1) 0.5 (6.9)
NET INCOME (LOSS) ATTRIBUTABLE TO ENSCO $ (639.7) $ (303.7) $ 890.2
EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED      
Continuing operations $ (1.45) $ (0.91) $ 3.10
Discontinued operations (0.02) 0.00 0.03
Total earnings per share - basic $ (1.47) $ (0.91) $ 3.13
WEIGHTED-AVERAGE SHARES OUTSTANDING      
Basic and Diluted 434.1 332.5 279.1
v3.10.0.1
Consolidated Statements of Comprehensive Income (Loss) - USD ($)
$ in Millions
3 Months Ended 12 Months Ended
Dec. 31, 2018
Sep. 30, 2018
Jun. 30, 2018
Mar. 31, 2018
Dec. 31, 2017
Sep. 30, 2017
Jun. 30, 2017
Mar. 31, 2017
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Statement of Comprehensive Income [Abstract]                      
NET INCOME (LOSS) $ (203.1) $ (142.9) $ (150.1) $ (140.5) $ (207.1) $ (28.2) $ (44.3) $ (24.6) $ (636.6) $ (304.2) $ 897.1
OTHER COMPREHENSIVE INCOME (LOSS), NET                      
Net change in fair value of derivatives                 (9.7) 8.5 (5.4)
Reclassification of net (gains) losses on derivative instruments from other comprehensive income (loss) into net income (loss)                 (1.0) 0.4 12.4
Other                 (0.5) 0.7 (0.5)
NET OTHER COMPREHENSIVE INCOME (LOSS)                 (11.2) 9.6 6.5
COMPREHENSIVE INCOME (LOSS)                 (647.8) (294.6) 903.6
COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS                 (3.1) 0.5 (6.9)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO ENSCO                 $ (650.9) $ (294.1) $ 896.7
v3.10.0.1
Consolidated Balance Sheets - USD ($)
$ in Millions
Dec. 31, 2018
Dec. 31, 2017
CURRENT ASSETS    
Cash and cash equivalents $ 275.1 $ 445.4
Short-term Investments 329.0 440.0
Accounts receivable, net 344.7 345.4
Other 360.9 381.2
Total current assets 1,309.7 1,612.0
PROPERTY AND EQUIPMENT, AT COST 15,517.0 15,332.1
Less accumulated depreciation 2,900.8 2,458.4
Property and equipment, net 12,616.2 12,873.7
OTHER ASSETS, NET 97.8 140.2
TOTAL ASSETS 14,023.7 14,625.9
CURRENT LIABILITIES    
Accounts payable - trade 210.5 432.6
Accrued liabilities and other 318.0 325.9
Total current liabilities 528.5 758.5
LONG-TERM DEBT 5,010.4 4,750.7
OTHER LIABILITIES 396.0 386.7
COMMITMENTS AND CONTINGENCIES
ENSCO SHAREHOLDERS' EQUITY    
Additional paid-in capital 7,225.0 7,195.0
Retained earnings 874.2 1,532.7
Accumulated other comprehensive income 18.2 28.6
Treasury shares, at cost, 23.6 million and 11.1 million shares as of December 31, 2018 and 2017 (72.2) (69.0)
Total Ensco shareholders' equity 8,091.4 8,732.1
NONCONTROLLING INTERESTS (2.6) (2.1)
Total equity 8,088.8 8,730.0
Total liabilities and shareholders' equity 14,023.7 14,625.9
Class A Ordinary Shares, U.S. [Member]    
ENSCO SHAREHOLDERS' EQUITY    
Common shares, value 46.1 44.7
Common Class B, Par Value In GBP [Member]    
ENSCO SHAREHOLDERS' EQUITY    
Common shares, value $ 0.1 $ 0.1
v3.10.0.1
Consolidated Balance Sheets (Parenthetical)
Dec. 31, 2018
£ / shares
shares
Dec. 31, 2018
$ / shares
shares
Dec. 31, 2017
£ / shares
shares
Dec. 31, 2017
$ / shares
shares
Treasury shares, shares held 23,600,000 23,600,000 11,100,000 11,100,000
Class A Ordinary Shares, U.S. [Member]        
Common shares, par value | $ / shares   $ 0.10   $ 0.10
Common shares, shares issued 460,700,000 460,700,000 447,000,000 447,000,000
Common Class B, Par Value In GBP [Member]        
Common shares, par value | £ / shares £ 1   £ 1  
Common shares, shares issued 50,000 50,000 50,000 50,000
v3.10.0.1
Consolidated Statements Of Cash Flows - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
OPERATING ACTIVITIES      
Net income (loss) $ (636.6) $ (304.2) $ 897.1
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities of continuing operations:      
Depreciation expense 478.9 444.8 445.3
Deferred income tax expense (benefit) 56.6 55.0 28.7
Share-based compensation expense 41.6 41.2 39.6
Loss on impairment 40.3 182.9 0.0
Amortization (40.2) (61.6) (139.7)
(Gain) loss on debt extinguishment 19.0 2.6 (287.8)
Discontinued operations, net 8.1 (1.0) (8.1)
Bargain purchase gain (1.8) (140.2) 0.0
Other (3.6) (25.5) (38.3)
Changes in operating assets and liabilities, net of acquisition (18.0) 65.4 140.6
Net cash provided by operating activities of continuing operations (55.7) 259.4 1,077.4
INVESTING ACTIVITIES      
Maturities of short-term investments 1,030.0 2,042.5 2,212.0
Purchases of short-term investments (919.0) (1,040.0) (2,474.6)
Additions to property and equipment (426.7) (536.7) (322.2)
Net proceeds from disposition of assets 11.0 2.8 9.8
Acquisition of Atwood, net of cash acquired 0.0 (871.6) 0.0
Net cash used in investing activities of continuing operations (304.7) (403.0) (575.0)
FINANCING ACTIVITIES      
Proceeds from issuance of senior notes 1,000.0 0.0 849.5
Reduction of long-term borrowings (771.2) (537.0) (863.9)
Cash dividends paid (17.9) (13.8) (11.6)
Debt financing costs (17.0) (12.0) (23.4)
Proceeds from equity issuance 0.0 0.0 585.5
Other (5.7) (7.7) (7.1)
Net cash provided by (used in) financing activities 188.2 (570.5) 529.0
Net cash provided by (used in) discontinued operations 2.5 (0.8) 8.4
Effect of exchange rate changes on cash and cash equivalents (0.6) 0.6 (1.4)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (170.3) (714.3) 1,038.4
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 445.4 1,159.7 121.3
CASH AND CASH EQUIVALENTS, END OF YEAR $ 275.1 $ 445.4 $ 1,159.7
v3.10.0.1
Description Of The Business And Summary Of Significant Accounting Policies
12 Months Ended
Dec. 31, 2018
Accounting Policies [Abstract]  
Description Of The Business And Summary Of Significant Accounting Policies
DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
    Business
 
We are one of the leading providers of offshore contract drilling services to the international oil and gas industry. We own and operate an offshore drilling rig fleet of 56 rigs spanning most of the strategic markets around the globe. We also have three rigs under construction. Inclusive of our rigs under construction, our fleet includes 12 drillships, 9 dynamically positioned semisubmersible rigs, three moored semisubmersible rigs and 35 jackup rigs.   We operate the world's largest fleet amongst competitive rigs, including one of the newest ultra-deepwater fleets in the industry and a leading premium jackup fleet.

Our customers include many of the leading national and international oil companies, in addition to many independent operators. We are among the most geographically diverse offshore drilling companies, with current operations spanning 14 countries on six continents. The markets in which we operate include the Gulf of Mexico, Brazil, the Mediterranean, the North Sea, the Middle East, West Africa, Australia and Southeast Asia.

We provide drilling services on a day rate contract basis. Under day rate contracts, we provide an integrated service that includes the provision of a drilling rig and rig crews for which we receive a daily rate that may vary between the full rate and zero rate throughout the duration of the contractual term, depending on the operations of the rig. We also may receive lump-sum fees or similar compensation for the mobilization, demobilization and capital upgrades of our rigs. Our customers bear substantially all of the costs of constructing the well and supporting drilling operations, as well as the economic risk relative to the success of the well.

Proposed Rowan Transaction

On October 7, 2018, Ensco plc and Rowan Companies plc ("Rowan") entered into an agreement that provides for the combination of the two companies (as amended the "Transaction Agreement"). Ensco has agreed to acquire the entire issued and to be issued share capital of Rowan in an all-stock transaction (the " Rowan Transaction") by way of a scheme of arrangement to be undertaken by Rowan under Part 26 of the UK Companies Act 2006. On January 29, 2019, the Transaction Agreement was amended to increase the exchange ratio in connection with the Rowan Transaction from 2.215 to 2.750.

Subject to the terms and conditions of the Transaction Agreement, each Class A ordinary share of Rowan will be converted into the right to receive 2.750 Class A ordinary shares of Ensco plc. We estimate the total consideration to be delivered in the Rowan Transaction to be approximately $1.5 billion, consisting of approximately 351.3 million of our shares based on the closing price of $4.41 on February 22, 2019. The value of the Rowan Transaction consideration will fluctuate until the closing date based on changes in the price of our shares and the number of Rowan ordinary shares outstanding.

The completion of the Rowan Transaction is subject to various closing conditions, including, among others, (i) the sanction of the Rowan Transaction by the High Court of Justice of England and Wales, (ii) the receipt of certain required regulatory approvals or lapse of certain review periods with respect thereto, including in the Kingdom of Saudi Arabia, (iii) the absence of legal restraints prohibiting or restraining the Rowan Transaction and (iv) the absence of any law or order reasonably expected to result in the dissolution of the Saudi Aramco Offshore Drilling Company, Rowan’s joint venture with Saudi Aramco (the “ARO JV”), or the sale, disposition, forfeiture or nationalization of Rowan’s interest in the ARO JV. Shareholders of Rowan and Ensco approved the Rowan Transaction on February 21, 2019. The Rowan Transaction is expected to close during the first half of 2019, subject to satisfaction of all conditions to closing. Upon closing of the Rowan Transaction, we intend to complete a reverse split of our ordinary shares under which every four existing Ensco ordinary shares will be consolidated into one Ensco ordinary share.

    Atwood Merger

On October 6, 2017 (the "Merger Date"), we completed a merger transaction (the "Atwood Merger") with Atwood Oceanics, Inc. ("Atwood") and Echo Merger Sub, LLC, a wholly-owned subsidiary of Ensco plc. Pursuant to the merger agreement, Echo Merger Sub, LLC, merged with and into Atwood, with Atwood as the surviving entity and an indirect, wholly-owned subsidiary of Ensco plc. Total consideration delivered in the Atwood Merger consisted of 132.2 million of our Class A ordinary shares and $11.1 million of cash in settlement of certain share-based payment awards. The total aggregate value of consideration transferred was $781.8 million. Additionally, upon closing of the Atwood Merger, we utilized cash acquired of $445.4 million and cash on hand to extinguish Atwood's revolving credit facility, outstanding senior notes and accrued interest totaling $1.3 billion. The estimated fair values assigned to assets acquired net of liabilities assumed exceeded the consideration transferred, resulting in a bargain purchase gain of $140.2 million that was recognized during the fourth quarter of 2017. During 2018, we recognized measurement period adjustments as we completed our fair value assessments resulting in additional bargain purchase gain of $1.8 million.
Basis of Presentation—U.K. Companies Act 2006 Section 435 Statement

The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP, which the Board of Directors consider to be the most meaningful presentation of our results of operations and financial position. The accompanying consolidated financial statements do not constitute U.K. statutory accounts for the year ended December 31, 2018 and 2017 as required to be prepared under the U.K. Companies Act 2006.  The U.K. statutory accounts are prepared in accordance with Financial Reporting Standard 102, the financial reporting standard applicable in the U.K. and Republic of Ireland (“FRS 102”).  The auditor has reported on the U.K. statutory accounts for the year ended December 31, 2017; their report was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the U.K. Companies Act 2006.  The U.K. statutory accounts for the year ended December 31, 2018 have yet to be finalized and will be delivered to the U.K. registrar of companies during 2019.
 
Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Ensco plc, those of our wholly-owned subsidiaries and entities in which we hold a controlling financial interest. All intercompany accounts and transactions have been eliminated. Certain previously reported amounts have been reclassified to conform to the current year presentation.

Pervasiveness of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires us to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the related revenues and expenses and disclosures of gain and loss contingencies as of the date of the financial statements. Actual results could differ from those estimates.

Foreign Currency Remeasurement and Translation

Our functional currency is the U.S. dollar. As is customary in the oil and gas industry, a majority of our revenues and expenses are denominated in U.S. dollars; however, a portion of the revenues earned and expenses incurred by certain of our subsidiaries are denominated in currencies other than the U.S. dollar. These transactions are remeasured in U.S. dollars based on a combination of both current and historical exchange rates. Most transaction gains and losses, including certain gains and losses on our derivative instruments, are included in other, net, in our consolidated statement of operations.  Certain gains and losses from the translation of foreign currency balances of our non-U.S. dollar functional currency subsidiaries are included in accumulated other comprehensive income on our consolidated balance sheet.  Net foreign currency exchange losses, inclusive of offsetting fair value derivatives, were $17.2 million, $5.1 million and $6.0 million, and were included in other, net, in our consolidated statements of operations for the years ended December 31, 2018, 2017 and 2016, respectively.

Cash Equivalents and Short-Term Investments

Highly liquid investments with maturities of three months or less at the date of purchase are considered cash equivalents. Highly liquid investments with maturities of greater than three months but less than one year at the date of purchase are classified as short-term investments.

Short-term investments consisted of time deposits with initial maturities in excess of three months but less than one year and totaled $329.0 million and $440.0 million as of December 31, 2018 and 2017, respectively. Cash flows from purchases and maturities of short-term investments were classified as investing activities in our consolidated statements of cash flows for the years ended December 31, 2018, 2017 and 2016. To mitigate our credit risk, our investments in time deposits are diversified across multiple, high-quality financial institutions.
    
Property and Equipment

All costs incurred in connection with the acquisition, construction, major enhancement and improvement of assets are capitalized, including allocations of interest incurred during periods that our drilling rigs are under construction or undergoing major enhancements and improvements. Costs incurred to place an asset into service are capitalized, including costs related to the initial mobilization of a newbuild drilling rig. Repair and maintenance costs are charged to contract drilling expense in the period in which they are incurred. Upon the sale or retirement of assets, the related cost and accumulated depreciation are removed from the balance sheet, and the resulting gain or loss is included in contract drilling expense, unless reclassified to discontinued operations.

Our property and equipment is depreciated on a straight-line basis, after allowing for salvage values, over the estimated useful lives of our assets. Drilling rigs and related equipment are depreciated over estimated useful lives ranging from four to 35 years. Buildings and improvements are depreciated over estimated useful lives ranging from seven to 30 years. Other equipment, including computer and communications hardware and software costs, is depreciated over estimated useful lives ranging from three to six years.

We evaluate the carrying value of our property and equipment for impairment when events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. For property and equipment used in our operations, recoverability generally is determined by comparing the carrying value of an asset to the expected undiscounted future cash flows of the asset. If the carrying value of an asset is not recoverable, the amount of impairment loss is measured as the difference between the carrying value of the asset and its estimated fair value. Property and equipment held-for-sale is recorded at the lower of net book value or fair value less cost to sell.

We recorded pre-tax, non-cash impairment losses related to long-lived assets of $40.3 million and $182.9 million during 2018 and 2017, respectively. See "Note 5 - Property and Equipment" for additional information on our impairment charges.

If the global economy deteriorates and/or our expectations relative to future offshore drilling industry conditions decline, it is reasonably possible that additional impairment charges may occur with respect to specific individual rigs, groups of rigs, such as a specific type of drilling rig, or rigs in a certain geographic location.
Operating Revenues and Expenses    
 
See "Note 2 - Revenue from Contracts with Customers" for information on our accounting policies for revenue recognition and certain operating costs that are deferred and amortized over future periods, which reflects our revenue recognition policies subsequent to our adoption of ASC Topic 606, Revenue from Contracts with Customers, effective January 1, 2018. Prior to our adoption of ASC Topic 606, we recognized revenue in accordance with prior guidance under ASC Topic 605. With the exception of a change in our policy to recognize demobilization revenue over the related contract term, if certain conditions are met, our revenue recognition policies are substantively unchanged as a result of our adoption of ASC Topic 606.
    
Derivative Instruments

We use derivatives to reduce our exposure to various market risks, primarily foreign currency exchange rate risk. See "Note 7 - Derivative Instruments" for additional information on how and why we use derivatives.

All derivatives are recorded on our consolidated balance sheet at fair value. Derivatives subject to legally enforceable master netting agreements are not offset on our consolidated balance sheet. Accounting for the gains and losses resulting from changes in the fair value of derivatives depends on the use of the derivative and whether it qualifies for hedge accounting. Derivatives qualify for hedge accounting when they are formally designated as hedges and are effective in reducing the risk exposure that they are designated to hedge.

Changes in the fair value of derivatives that are designated as hedges of the variability in expected future cash flows associated with existing recognized assets or liabilities or forecasted transactions ("cash flow hedges") are recorded in accumulated other comprehensive income ("AOCI").  Amounts recorded in AOCI associated with cash flow hedges are subsequently reclassified into contract drilling, depreciation or interest expense as earnings are affected by the underlying hedged forecasted transactions.

Gains and losses on a cash flow hedge, or a portion of a cash flow hedge, that no longer qualifies as effective due to an unanticipated change in the forecasted transaction are recognized currently in earnings and included in other, net, in our consolidated statement of operations based on the change in the fair value of the derivative. When a forecasted transaction becomes probable of not occurring, gains and losses on the derivative previously recorded in AOCI are reclassified currently into earnings and included in other, net, in our consolidated statement of operations.

We occasionally enter into derivatives that hedge the fair value of recognized assets or liabilities, but do not designate such derivatives as hedges or the derivatives otherwise do not qualify for hedge accounting. In these situations, a natural hedging relationship generally exists where changes in the fair value of the derivatives offset changes in the fair value of the underlying hedged items. Changes in the fair value of these derivatives are recognized currently in earnings in other, net, in our consolidated statement of operations.

Derivatives with asset fair values are reported in other current assets or other assets, net, on our consolidated balance sheet depending on maturity date. Derivatives with liability fair values are reported in accrued liabilities and other, or other liabilities on our consolidated balance sheet depending on maturity date.

Income Taxes

We conduct operations and earn income in numerous countries. Current income taxes are recognized for the amount of taxes payable or refundable based on the laws and income tax rates in the taxing jurisdictions in which operations are conducted and income is earned.

Deferred tax assets and liabilities are recognized for the anticipated future tax effects of temporary differences between the financial statement basis and the tax basis of our assets and liabilities using the enacted tax rates in effect at year-end. A valuation allowance for deferred tax assets is recorded when it is more-likely-than-not that the benefit from the deferred tax asset will not be realized. We do not offset deferred tax assets and deferred tax liabilities attributable to different tax paying jurisdictions.

We operate in certain jurisdictions where tax laws relating to the offshore drilling industry are not well developed and change frequently. Furthermore, we may enter into transactions with affiliates or employ other tax planning strategies that generally are subject to complex tax regulations. As a result of the foregoing, the tax liabilities and assets we recognize in our financial statements may differ from the tax positions taken, or expected to be taken, in our tax returns. Our tax positions are evaluated for recognition using a more-likely-than-not threshold, and those tax positions requiring recognition are measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon effective settlement with a taxing authority that has full knowledge of all relevant information. Interest and penalties relating to income taxes are included in current income tax expense in our consolidated statement of operations.

Our drilling rigs frequently move from one taxing jurisdiction to another based on where they are contracted to perform drilling services. The movement of drilling rigs among taxing jurisdictions may involve a transfer of drilling rig ownership among our subsidiaries through an intercompany rig sale. The pre-tax profit resulting from an intercompany rig sale is eliminated from our consolidated financial statements, and the carrying value of a rig sold in an intercompany transaction remains at historical net depreciated cost prior to the transaction. Our consolidated financial statements do not reflect the asset disposition transaction of the selling subsidiary or the asset acquisition transaction of the acquiring subsidiary. Prior to our adoption of Accounting Standards Update 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (“Update 2016-16”) on January 1, 2017, income taxes resulting from an intercompany rig sale, as well as the tax effect of any reversing temporary differences resulting from the sale, were deferred and amortized on a straight-line basis over the remaining useful life of the rig. Subsequent to our adoption of Update 2016-16, the income tax effects resulting from intercompany rig sales are recognized in earnings in the period in which the sale occurs.

In some instances, we may determine that certain temporary differences will not result in a taxable or deductible amount in future years, as it is more-likely-than-not we will commence operations and depart from a given taxing jurisdiction without such temporary differences being recovered or settled. Under these circumstances, no future tax consequences are expected and no deferred taxes are recognized in connection with such operations. We evaluate these determinations on a periodic basis and, in the event our expectations relative to future tax consequences change, the applicable deferred taxes are recognized or derecognized.

We do not provide deferred taxes on the undistributed earnings of certain subsidiaries because our policy and intention is to reinvest such earnings indefinitely. Should we make a distribution from these subsidiaries in the form of dividends or otherwise, we may be subject to additional income taxes.

The U.S. Tax Cuts and Jobs Act (“U.S. tax reform”) was enacted on December 22, 2017 and introduced significant changes to U.S. income tax law, including a reduction in the statutory income tax rate from 35% to 21% effective January 1, 2018, a one-time transition tax on deemed repatriation of deferred foreign income, a base erosion anti-abuse tax that effectively imposes a minimum tax on certain payments to non-U.S. affiliates, new and revised rules relating to the current taxation of certain income of foreign subsidiaries and revised rules associated with limitations on the deduction of interest. See "Note 10 - Income Taxes" for additional information.

Share-Based Compensation

We sponsor share-based compensation plans that provide equity compensation to our key employees, officers and non-employee directors. Our Long-Term Incentive Plan (the “2018 LTIP”) allows our Board of Directors to authorize share grants to be settled in cash or shares. Compensation expense for share awards to be settled in shares is measured at fair value on the date of grant and recognized on a straight-line basis over the requisite service period (usually the vesting period). Compensation expense for share awards to be settled in cash is remeasured each quarter with a cumulative adjustment to compensation cost during the period based on changes in our share price. Any adjustments to the compensation cost recognized in our consolidated statement of operations for awards that are forfeited are recognized in the period in which the forfeitures occur. See "Note 9 - Benefit Plans" for additional information on our share-based compensation.

Fair Value Measurements

We measure certain of our assets and liabilities based on a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy assigns the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities ("Level 1") and the lowest priority to unobservable inputs ("Level 3").  Level 2 measurements represent inputs that are observable for similar assets or liabilities, either directly or indirectly, other than quoted prices included within Level 1.  See "Note 4 - Fair Value Measurements" for additional information on the fair value measurement of certain of our assets and liabilities.

Noncontrolling Interests

Third parties hold a noncontrolling ownership interest in certain of our non-U.S. subsidiaries. Noncontrolling interests are classified as equity on our consolidated balance sheet and net income attributable to noncontrolling interests is presented separately in our consolidated statement of operations.  For each of the years in the three-year period ended December 31, 2018, all income attributable to noncontrolling interest was from continuing operations.

Earnings Per Share
    
We compute basic and diluted earnings per share ("EPS") in accordance with the two-class method. Net income (loss) attributable to Ensco used in our computations of basic and diluted EPS is adjusted to exclude net income allocated to non-vested shares granted to our employees and non-employee directors. Weighted-average shares outstanding used in our computation of diluted EPS is calculated using the treasury stock method and includes the effect of all potentially dilutive performance awards and excludes non-vested shares. In each of the years in the three-year period ended December 31, 2018, our potentially dilutive instruments were not included in the computation of diluted EPS as the effect of including these shares in the calculation would have been anti-dilutive.
 
The following table is a reconciliation of income (loss) from continuing operations attributable to Ensco shares used in our basic and diluted EPS computations for each of the years in the three-year period ended December 31, 2018 (in millions):

 
2018
 
2017
 
2016
Income (loss) from continuing operations attributable to Ensco
$
(631.6
)
 
$
(304.7
)
 
$
882.1

Income from continuing operations allocated to non-vested share awards
(.5
)
 
(.4
)
 
(16.6
)
Income (loss) from continuing operations attributable to Ensco shares
$
(632.1
)
 
$
(305.1
)
 
$
865.5


    
Anti-dilutive share awards totaling 1.5 million, 2.0 million and 500,000 for the years ended December 31, 2018, 2017 and 2016, respectively, were excluded from the computation of diluted EPS.
     
During 2016, we issued our 3.00% exchangeable senior notes due 2024 (the "2024 Convertible Notes"). See "Note 6 - Debt" for additional information on this issuance. We have the option to settle the notes in cash, shares or a combination thereof for the aggregate amount due upon conversion. Our intent is to settle the principal amount of the 2024 Convertible Notes in cash upon conversion. If the conversion value exceeds the principal amount (i.e., our share price exceeds the exchange price on the date of conversion), we expect to deliver shares equal to the remainder of our conversion obligation in excess of the principal amount.

During each respective reporting period that our average share price exceeds the exchange price, an assumed number of shares required to settle the conversion obligation in excess of the principal amount will be included in our denominator for the computation of diluted EPS using the treasury stock method. Our average share price did not exceed the exchange price during the years ended December 31, 2018 and December 31, 2017.

New Accounting Pronouncements

Recently adopted accounting standards

In August 2018, the Financial Accounting Standards Board (the "FASB") issued Update 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract ("Update 2018-15"), which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that included an internal-use software license). This update is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years, with early adoption permitted. We elected to early-adopt Update 2018-15 effective October 1, 2018. As a result of adopting Update 2018-15, we began deferring and amortizing certain costs incurred to implement cloud computing arrangements that would have been recognized as incurred under previous guidance. We do not expect our adoption of Update 2018-15 to have a material impact on our financial position or results of operations in future periods.

In February 2018, the FASB issued Update 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects From Accumulated Other Comprehensive Income ("Update 2018-02"), which allows for a reclassification from accumulated other comprehensive income (AOCI) to retained earnings for stranded tax effects resulting from U.S. tax reform. This update is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, with early adoption permitted. We adopted Update 2018-02 effective January 1, 2018. As a result, we reclassified a total of $800,000 in tax effects from AOCI to opening retained earnings.

In October 2016, the FASB issued Accounting Standards Update 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (“Update 2016-16”), which requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transaction occurs as opposed to deferring tax consequences and amortizing them into future periods. We adopted Update 2016-16 on a modified retrospective basis effective January 1, 2017. As a result of modified retrospective application, we reduced prepaid taxes on intercompany transfers of property and related deferred tax liabilities resulting in the recognition of a cumulative-effect reduction in retained earnings of $14.1 million on our consolidated balance sheet as of January 1, 2017.
        
During 2014, the FASB issued Update 2014-09, Revenue from Contracts with Customers (Topic 606) ("Update 2014-09"), which requires entities to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. Update 2014-09 is effective for annual and interim periods for fiscal years beginning after December 15, 2017. We adopted Update 2014-09 effective January 1, 2018, using the modified retrospective approach. Only customer contracts that were not completed as of the effective adoption date were evaluated under the transition guidance to determine if a cumulative catch-up adjustment to retained earnings was warranted. Revenues recognized in prior years for customer contracts that expired prior to the effective adoption date continue to be reported under the previous revenue recognition guidance. Our adoption of Update 2014-09 did not result in a cumulative effect on retained earnings and no adjustments were made to prior periods. While Update 2014-09 requires additional disclosure regarding revenues recognized from customer contracts, our adoption did not have a material impact on the recognition of current or prior period revenues as compared to previous guidance nor do we expect a material impact to our pattern of revenue recognition in future periods. See "Note 2 - Revenue from Contracts with Customers" for additional information.

Recently issued accounting standards

In August 2017, the FASB issued Update 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities ("Update 2017-12"), which will make more hedging strategies eligible for hedge accounting. It also amends presentation and disclosure requirements and changes how companies assess effectiveness. This update is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. We are currently evaluating the effect that Update 2017-12 will have on our consolidated financial statements and related disclosures. However, we do not expect our adoption of Update 2017-12 to have a material impact on our financial position or results of operations.

During 2016, the FASB issued Update 2016-02, Leases (Topic 842) ("Update 2016-02"), which requires an entity to recognize lease assets and lease liabilities on the balance sheet and to disclose key qualitative and quantitative information about the entity's leasing arrangements. This update is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. During our evaluation of Update 2016-02, we concluded that our drilling contracts contain a lease component. In July 2018, the FASB issued Accounting Standard Update 2018-11, Leases (Topic 842), Targeted Improvements, which (1) provides for a new transition method whereby entities may elect to adopt the Update using a prospective with cumulative catch-up approach and (2) provides lessors with a practical expedient, by class of underlying asset, to not separate lease and non-lease components and account for the combined component under Topic 606 when the non-lease component is the predominant element of the combined component. The lessor practical expedient is limited to circumstances in which the lease, if accounted for separately, would be classified as an operating lease under Topic 842. While we are still finalizing our analysis, we believe the non-lease component of our contracts is the predominant element and that the lease component, if accounted for separately, would be classified as an operating lease. Accordingly, we expect that substantially all of our contracts will qualify for the practical expedient provided for in Update 2018-11. Therefore, we expect to elect the practical expedient prescribed in Update 2018-11 and account for the combined component as a single component under Topic 606. We do not expect our adoption to have a material impact on the recognition of current or prior period revenues as compared to previous guidance nor do we expect a material impact to our pattern of revenue recognition in future periods. With respect to leases whereby we are the lessee, we expect to recognize upon adoption on January 1, 2019 lease liabilities ranging from approximately $75 million to $80 million and offsetting "right of use" assets ranging from approximately $65 million to $70 million. Our adoption of Update 2016-02 is not expected to have a material impact on our ability to comply with current debt covenants.

With the exception of the updated standards discussed above, there have been no accounting pronouncements issued and not yet effective that have significance, or potential significance, to our consolidated financial statements.
v3.10.0.1
Revenues from Contracts with Customers
12 Months Ended
Dec. 31, 2018
Revenue from Contract with Customer [Abstract]  
Revenue from Contract with Customer [Text Block]
REVENUE FROM CONTRACTS WITH CUSTOMERS
 
We provide drilling services on a day rate contract basis. Under day rate contracts, we provide an integrated service that includes the provision of a drilling rig and rig crews for which we receive a daily rate that may vary between the full rate and zero rate throughout the duration of the contractual term, depending on the operations of the rig. We also may receive lump-sum fees or similar compensation for the mobilization, demobilization and capital upgrades of our rigs. Our customers bear substantially all of the costs of constructing the well and supporting drilling operations, as well as the economic risk relative to the success of the well.

Our integrated drilling service provided under each drilling contract is a single performance obligation satisfied over time and comprised of a series of distinct time increments, or service periods. Total revenue is determined for each individual drilling contract by estimating both fixed and variable consideration expected to be earned over the contract term. Fixed consideration generally relates to activities such as mobilization, demobilization and capital upgrades of our rigs that are not distinct within the context of our contracts and is recognized on a straight-line basis over the contract term. Variable consideration generally relates to distinct service periods during the contract term and is recognized in the period when the services are performed.

The amount estimated for variable consideration is only recognized as revenue to the extent that it is probable that a significant reversal will not occur during the contract term. We have applied the optional exemption afforded in Update 2014-09 and have not disclosed the variable consideration related to our estimated future day rate revenues. The remaining duration of our drilling contracts based on those in place as of December 31, 2018 was between approximately one month and four years.

Day Rate Drilling Revenue

Our drilling contracts provide for payment on a day rate basis and include a rate schedule with higher rates for periods when the drilling unit is operating and lower rates or zero rates for periods when drilling operations are interrupted or restricted. The day rate invoiced to the customer is determined based on the varying rates applicable to specific activities performed on an hourly basis. Day rate consideration is allocated to the distinct hourly increment to which it relates within the contract term and is generally recognized consistent with the contractual rate invoiced for the services provided during the respective period. Invoices are typically issued to our customers on a monthly basis and payment terms on customer invoices typically range from 30 to 45 days.

Certain of our contracts contain performance incentives whereby we may earn a bonus based on pre-established performance criteria. Such incentives are generally based on our performance over individual monthly time periods or individual wells. Consideration related to performance bonus is generally recognized in the specific time period to which the performance criteria was attributed.

We may receive termination fees if certain drilling contracts are terminated by the customer prior to the end of the contractual term. Such compensation is recognized as revenue when our performance obligation is satisfied, the termination fee can be reasonably measured and collection is probable. For the year ended December 31, 2017, operating revenues included $185.0 million for the lump-sum consideration received in settlement and release of the ENSCO DS-9 customer's ongoing early termination obligations. For the year ended December 31, 2016, operating revenues included $20.0 million for the lump-sum consideration received in settlement of the ENSCO 8503 customer's remaining obligations under the contract.
 
Mobilization / Demobilization Revenue

In connection with certain contracts, we receive lump-sum fees or similar compensation for the mobilization of equipment and personnel prior to the commencement of drilling services or the demobilization of equipment and personnel upon contract completion. Fees received for the mobilization or demobilization of equipment and personnel are included in operating revenues. The costs incurred in connection with the mobilization and demobilization of equipment and personnel are included in contract drilling expense.

Mobilization fees received prior to commencement of drilling operations are recorded as a contract liability and amortized on a straight-line basis over the contract term. Demobilization fees expected to be received upon contract completion are estimated at contract inception and recognized on a straight-line basis over the contract term. In some cases, demobilization fees may be contingent upon the occurrence or non-occurrence of a future event. In such cases, this may result in cumulative-effect adjustments to demobilization revenues upon changes in our estimates of future events during the contract term.
 
Capital Upgrade / Contract Preparation Revenue

In connection with certain contracts, we receive lump-sum fees or similar compensation for requested capital upgrades to our drilling rigs or for other contract preparation work. Fees received for requested capital upgrades and other contract preparation work are recorded as a contract liability and amortized on a straight-line basis over the contract term to operating revenues. Costs incurred for capital upgrades are capitalized and depreciated over the useful life of the asset.

Contract Assets and Liabilities

Contract assets represent amounts recognized as revenue but for which the right to invoice the customer is dependent upon our future performance. Once the previously recognized revenue is invoiced, the corresponding contract asset, or a portion thereof, is transferred to accounts receivable. Contract liabilities generally represent fees received for mobilization or capital upgrades.
    
Contract assets and liabilities are presented net on our consolidated balance sheet on a contract-by-contract basis. Current contract assets and liabilities are included in other current assets and accrued liabilities and other, respectively, and noncurrent contract assets and liabilities are included in other assets and other liabilities, respectively, on our consolidated balance sheets.

The following table summarizes our contract assets and contract liabilities (in millions):
 
December 31, 2018
 
December 31, 2017
Current contract assets
$
4.0

 
$
3.0

Noncurrent contract assets
$

 
$
2.8

Current contract liabilities (deferred revenue)
$
56.9

 
$
71.9

Noncurrent contract liabilities (deferred revenue)
$
20.5

 
$
51.2

    
Changes in contract assets and liabilities during the period are as follows (in millions):
 
Contract Assets
 
Contract Liabilities
Balance as of December 31, 2017
$
5.8

 
$
123.1

Revenue recognized in advance of right to bill customer
2.2

 

Increase due to cash received

 
49.4

Decrease due to amortization of deferred revenue that was included in the beginning contract liability balance

 
(72.0
)
Decrease due to amortization of deferred revenue that was added during the period

 
(23.1
)
Decrease due to transfer to receivables during the period
(4.0
)
 

Balance as of December 31, 2018
$
4.0

 
$
77.4



Deferred Contract Costs

Costs incurred for upfront rig mobilizations and certain contract preparations are attributable to our future performance obligation under each respective drilling contract. Such costs are deferred and amortized on a straight-line basis over the contract term. Demobilization costs are recognized as incurred upon contract completion. Costs associated with the mobilization of equipment and personnel to more promising market areas without contracts are expensed as incurred. Deferred contract costs were included in other current assets and other assets on our consolidated balance sheets and totaled $23.5 million and $40.6 million as of December 31, 2018 and 2017, respectively. Amortization of such costs totaled $34.0 million, $28.1 million and $42.5 million for the years ended December 31, 2018, 2017 and 2016, respectively.

Deferred Certification Costs

We must obtain certifications from various regulatory bodies in order to operate our drilling rigs and must maintain such certifications through periodic inspections and surveys. The costs incurred in connection with maintaining such certifications, including inspections, tests, surveys and drydock, as well as remedial structural work and other compliance costs, are deferred and amortized on a straight-line basis over the corresponding certification periods. Deferred regulatory certification and compliance costs were included in other current assets and other assets on our consolidated balance sheets and totaled $13.6 million and $15.3 million as of December 31, 2018 and 2017, respectively. Amortization of such costs totaled $12.4 million, $12.1 million and $16.8 million for the years ended December 31, 2018, 2017 and 2016, respectively.

Future Amortization of Contract Liabilities and Deferred Costs

Our contract liabilities and deferred costs are amortized on a straight-line basis over the contract term or corresponding certification period to operating revenues and contract drilling expense, respectively. Expected future amortization of our contract liabilities and deferred costs recorded as of December 31, 2018 is set forth in the table below (in millions):

 
2019
 
2020
 
2021
 
2022 and Thereafter
 
Total
Amortization of contract liabilities
$
57.0

 
$
11.7

 
$
7.2

 
$
1.5

 
$
77.4

Amortization of deferred costs
$
23.8

 
$
9.4

 
$
2.4

 
$
1.5

 
$
37.1

v3.10.0.1
Acquisition Of Atwood
12 Months Ended
Dec. 31, 2018
Business Combinations [Abstract]  
Business Combination Disclosure
ACQUISITION OF ATWOOD

On the Merger Date, we completed the Atwood Merger with Atwood and Echo Merger Sub, LLC, our wholly-owned subsidiary. Assets acquired and liabilities assumed in the Atwood Merger were recorded at their estimated fair values as of the Merger Date under the acquisition method of accounting. As of September 30, 2018, we completed our fair value assessments.

Consideration

    As a result of the Atwood Merger, Atwood shareholders received 1.60 Ensco Class A Ordinary shares for each share of Atwood common stock, representing a value of $9.33 per share of Atwood common stock based on a closing price of $5.83 per Class A ordinary share on October 5, 2017, the last trading day before the Merger Date. Total consideration delivered in the Atwood Merger consisted of 132.2 million of our Class A ordinary shares and $11.1 million of cash in settlement of certain share-based payment awards. The total aggregate value of consideration transferred was $781.8 million. Additionally, upon closing of the Atwood Merger, we utilized cash acquired of $445.4 million and cash on hand to extinguish Atwood's revolving credit facility, outstanding senior notes and accrued interest totaling $1.3 billion. The estimated fair values assigned to assets acquired net of liabilities assumed exceeded the consideration transferred, resulting in a bargain purchase gain of $140.2 million that was recognized during the fourth quarter of 2017. During 2018, we recognized measurement period adjustments as we completed our fair value assessments resulting in additional bargain purchase gain of $1.8 million. Bargain purchase gain was included in other, net, in our consolidated statements of operations.

Assets Acquired and Liabilities Assumed
    
The provisional amounts recorded for assets acquired and liabilities assumed as of the Merger Date and respective measurement period adjustments were as follows (in millions):
 
Amounts Recognized as of Merger Date
 
Measurement Period Adjustments (1)
 
Estimated Fair Value
Assets:
 
 
 
 
 
Cash and cash equivalents(2)
$
445.4

 
$

 
$
445.4

Accounts receivable(3)
62.3

 
(1.6
)
 
60.7

Other current assets
118.1

 
4.6

 
122.7

Property and equipment
1,762.0

 
9.2

 
1,771.2

Other assets
23.7

 
(5.1
)
 
18.6

Liabilities:
 
 
 
 
 
Accounts payable and accrued liabilities
64.9

 
(1.1
)
 
63.8

Other liabilities
118.7

 
6.4

 
125.1

Net assets acquired
2,227.9

 
1.8

 
2,229.7

Less:
 
 
 
 
 
Merger consideration
(781.8
)
 
 
 
(781.8
)
Repayment of Atwood debt(2)
(1,305.9
)
 
 
 
(1,305.9
)
Bargain purchase gain
$
140.2

 
 
 
$
142.0


(1) The measurement period adjustments reflect changes in the estimated fair values of certain assets and liabilities, primarily related to inventory, capital equipment and other liabilities. The measurement period adjustments were recorded to reflect new information obtained about facts and circumstances existing as of the Merger Date and did not result from subsequent intervening events.
(2) Upon closing of the Atwood Merger, we utilized acquired cash of $445.4 million and cash on hand from the liquidation of short-term investments to repay Atwood's debt and accrued interest of $1.3 billion.
(3) Gross contractual amounts receivable totaled $64.7 million as of the Merger Date.

Bargain Purchase Gain

The fair values assigned to assets acquired net of liabilities assumed exceeded the consideration transferred, resulting in a bargain purchase gain primarily due to depressed offshore drilling company valuations. Market capitalizations across the offshore drilling industry declined significantly since mid-2014 due to the decline in commodity prices and the related imbalance of supply and demand for drilling rigs. The resulting bargain purchase gain was further driven by the decline in our share price from $6.70 to $5.83 between the last trading day prior to the announcement of the Atwood Merger and the Merger Date.

Merger-Related Costs

Merger-related costs were expensed as incurred and consisted of various advisory, legal, accounting, valuation and other professional or consulting fees totaling $19.4 million for the year ended December 31, 2017. These costs are included in general and administrative expense in our consolidated statements of operations.

Property and Equipment

Property and equipment acquired in connection with the Atwood Merger consisted primarily of drilling rigs and related equipment, including four drillships (two of which are under construction), two semisubmersible rigs and five jackup rigs.  We recorded property and equipment acquired at its estimated fair value of $1.8 billion. We estimated the fair value of the rigs and equipment by applying an income approach, using projected discounted cash flows, or a market approach. We estimated remaining useful lives for Atwood's drilling rigs, which ranged from 16 to 35 years based on original estimated useful lives of 30 to 35 years.

Deferred Taxes

The Atwood Merger was executed through the acquisition of Atwood's outstanding common stock and, therefore, the historical tax bases of the acquired assets and assumed liabilities, net operating losses and other tax attributes of Atwood were assumed as of the Merger Date.  However, adjustments were recorded to recognize deferred tax assets and liabilities for the tax effects of differences between acquisition date fair values and tax bases of assets acquired and liabilities assumed. Additionally, the interaction of our and Atwood's tax attributes that impacted the deferred taxes of the combined entity were also recognized as part of acquisition accounting. As of the Merger Date, an increase of $2.5 million to Atwood’s net deferred tax liability was recognized.

Deferred tax assets and liabilities recognized in connection with the Atwood Merger were measured at rates enacted as of the Merger Date.  Tax rate changes, or any deferred tax adjustments for new tax legislation, following the Merger Date, including the recently enacted U.S. tax reform, are reflected in our operating results in the period in which the change in tax laws or rate is enacted.

Intangible Assets and Liabilities

We recorded intangible assets totaling $30.1 million, inclusive of certain measurement period adjustments, as of the Merger Date representing the estimated fair value of Atwood's firm drilling contracts with favorable contract terms compared to then-market day rates for comparable drilling rigs.

Operating revenues were net of $11.4 million and $16.1 million of asset amortization during the years ended December 31, 2018 and 2017, respectively. The remaining balance of $2.6 million was included in other assets on our consolidated balance sheet as of December 31, 2018 and will be amortized to operating revenue during 2019.

We recorded intangible liabilities of $60.0 million for the estimated fair value of unfavorable drillship construction contracts, which were determined by comparing the firm obligations for the remaining construction of ENSCO DS-13 and ENSCO DS-14 to the estimated current market rates for the construction of a comparable drilling rig. The liabilities will be amortized over the estimated life of ENSCO DS-13 and ENSCO DS-14 as a reduction of depreciation expense beginning on the date the rig is placed into service.

Pro Forma Impact of the Atwood Merger

The following unaudited supplemental pro forma results present consolidated information as if the Atwood Merger was completed on January 1, 2016. The pro forma results include, among others, (i) the amortization associated with acquired intangible assets and liabilities, (ii) a reduction in depreciation expense for adjustments to property and equipment and (iii) a reduction to interest expense resulting from the retirement of Atwood's revolving credit facility and 6.50% senior notes due 2020. The pro forma results do not include any potential synergies or non-recurring charges resulting directly from the Atwood Merger.

(in millions, except per share amounts)
Twelve Months Ended (Unaudited)
 
   2017(1)
 
2016
Revenues
$
2,226.0

 
$
3,622.1

Net income (loss)
(347.0
)
 
1,284.9

Earnings (loss) per share - basic and diluted
(.80
)
 
3.18

(1) Pro forma net income and earnings per share were adjusted to exclude an aggregate $80.7 million of merger-related and integration costs incurred by Ensco and Atwood during 2017 and the $140.2 million estimated bargain purchase gain.
v3.10.0.1
Fair Value Measurements
12 Months Ended
Dec. 31, 2018
Fair Value Disclosures [Abstract]  
Fair Value Measurements
FAIR VALUE MEASUREMENTS

The following fair value hierarchy table categorizes information regarding our net financial assets measured at fair value on a recurring basis as of December 31, 2018 and 2017 (in millions):
 
Quoted Prices in
Active Markets
for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
  (Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
As of December 31, 2018
 

 
 

 
 

 
 

Supplemental executive retirement plan assets
$
27.2

 
$

 
$

 
$
27.2

Total financial assets
27.2

 

 

 
27.2

Derivatives, net

 
(10.7
)
 

 
(10.7
)
Total financial liabilities
$

 
$
(10.7
)
 
$

 
$
(10.7
)
As of December 31, 2017
 

 
 

 
 

 
 

Supplemental executive retirement plan assets
$
30.9

 
$

 
$

 
$
30.9

Derivatives, net

 
6.8

 

 
6.8

Total financial assets
$
30.9

 
$
6.8

 
$

 
$
37.7



Supplemental Executive Retirement Plans

Our Ensco supplemental executive retirement plans (the "SERPs") are non-qualified plans that provide for eligible employees to defer a portion of their compensation for use after retirement. Assets held in the SERP were marketable securities measured at fair value on a recurring basis using Level 1 inputs and were included in other assets, net, on our consolidated balance sheets as of December 31, 2018 and 2017.  The fair value measurements of assets held in the SERP were based on quoted market prices. Net unrealized losses of $700,000 and gains of $4.5 million and $1.8 million from marketable securities held in our SERP were included in other, net, in our consolidated statements of operations for the years ended December 31, 2018, 2017 and 2016, respectively.
 
Derivatives

Our derivatives were measured at fair value on a recurring basis using Level 2 inputs as of December 31, 2018 and 2017.  See "Note 7 - Derivative Instruments" for additional information on our derivatives, including a description of our foreign currency hedging activities and related methodologies used to manage foreign currency exchange rate risk. The fair value measurements of our derivatives were based on market prices that are generally observable for similar assets or liabilities at commonly quoted intervals.

Other Financial Instruments

The carrying values and estimated fair values of our debt instruments as of December 31, 2018 and 2017 were as follows (in millions):
 
 
December 31, 2018
 
December 31, 2017
 
 
Carrying
Value
 
Estimated
  Fair
Value
 
Carrying
Value
 
Estimated
  Fair
Value
8.50% Senior notes due 2019(1)
 
$

 
$

 
$
251.4

 
$
252.9

6.875% Senior notes due 2020(1)
 
127.5

 
121.6

 
477.9

 
473.1

4.70% Senior notes due 2021(1)
 
112.7

 
101.8

 
267.1

 
265.3

3.00% Exchangeable senior notes due 2024 (2)
 
666.8

 
575.5

 
635.7

 
757.1

4.50% Senior notes due 2024
 
619.8

 
405.2

 
619.3

 
527.1

8.00% Senior notes due 2024
 
337.0

 
273.7

 
337.9

 
333.8

5.20% Senior notes due 2025
 
664.4

 
443.9

 
663.6

 
571.4

7.75% Senior notes due 2026
 
985.0

 
725.5

 

 

7.20% Debentures due 2027
 
149.3

 
109.1

 
149.3

 
141.9

7.875% Senior notes due 2040
 
375.0

 
223.2

 
376.7

 
258.8

5.75% Senior notes due 2044
 
972.9

 
566.3

 
971.8

 
690.4

Total 
 
$
5,010.4

 
$
3,545.8

 
$
4,750.7

 
$
4,271.8



 (1)  
The decline in the carrying value of our 8.50% senior notes due 2019, 6.875% senior notes due 2020 and our 4.70% senior notes due 2021 from December 31, 2017 to December 31, 2018 is primarily due to debt repurchases and redemptions as discussed in "Note 6 - Debt".

(2) 
Our 3.00% exchangeable senior notes due 2024 (the "2024 Convertible Notes") were issued with a conversion feature. The 2024 Convertible Notes were separated into their liability and equity components on our consolidated balance sheet. The equity component was initially recorded to additional paid-in capital and as a debt discount, which will be amortized to interest expense. Excluding the unamortized discount, the carrying value of the 2024 Convertible Notes was $836.3 million and $834.0 million as of December 31, 2018 and 2017. See "Note 6 - Debt" for additional information on this issuance.

The estimated fair values of our senior notes and debentures were determined using quoted market prices. The estimated fair values of our cash and cash equivalents, short-term investments, receivables, trade payables and other liabilities approximated their carrying values as of December 31, 2018 and 2017.
v3.10.0.1
Property And Equipment
12 Months Ended
Dec. 31, 2018
Property, Plant and Equipment [Abstract]  
Property And Equipment
PROPERTY AND EQUIPMENT

Property and equipment as of December 31, 2018 and 2017 consisted of the following (in millions):
 
 
2018
 
2017
Drilling rigs and equipment
 
$
14,542.5

 
$
12,272.4

Work-in-progress
 
779.2

 
2,876.3

Other
 
195.3

 
183.4

 
 
$
15,517.0

 
$
15,332.1


 
Work-in-progress as of December 31, 2018 primarily consisted of $416.8 million related to the construction of ultra-deepwater drillships ENSCO DS-13 and ENSCO DS-14 and $352.4 million related to the construction of ENSCO 123, an ultra-premium harsh environment jackup rig.

Work-in-progress as of December 31, 2017 primarily consisted of $2.0 billion related to the construction of ultra-deepwater drillships ENSCO DS-9, ENSCO DS-10, ENSCO DS-13 and ENSCO DS-14, $423.6 million related to the construction of premium jackup rigs ENSCO 140 and ENSCO 141 and $321.6 million related to the construction of ENSCO 123, an ultra-premium harsh environment jackup rig.

ENSCO DS-9, ENSCO DS-10, ENSCO 140 and ENSCO 141 were placed into service and reclassified from work-in-progress to drilling rigs and equipment during the year ended December 31, 2018.

Impairment of Long-Lived Assets

On a quarterly basis, we evaluate the carrying value of our property and equipment to identify events or changes in circumstances ("triggering events") that indicate the carrying value may not be recoverable.

During 2018, we recorded a pre-tax, non-cash loss on impairment of $40.3 million related to one older non-core jackup rig. During the fourth quarter, we concluded that a triggering event occurred due to the expiration of a legacy higher day rate contract resulting in the performance of a recoverability test. We determined that the estimated undiscounted cash flows over the remaining useful life of the rig were not sufficient to recover the rig’s carrying value and concluded the rig was impaired as of December 31, 2018.

During 2017, we recognized a pre-tax, non-cash loss on impairment of $182.9 million related to older, less capable, non-core assets in our fleet. During the fourth quarter, we determined that the remaining useful life of certain non-core rigs would not extend substantially beyond their current contracts, resulting in triggering events and the performance of recoverability tests. Our estimates of undiscounted cash flows over the revised estimated remaining useful lives were not sufficient to recover each asset’s carrying value. Accordingly, we concluded that two semisubmersibles and one jackup were impaired as of December 31, 2017.
 
For rigs whose carrying values were determined not to be recoverable during 2018 and 2017, we recorded an impairment for the difference between their fair values and carrying values. We estimated the fair values of these rigs by applying an income approach, using projected discounted cash flows. These valuations were based on unobservable inputs that require significant judgments for which there is limited information, including assumptions regarding future day rates, utilization, operating costs and capital requirements. Forecasted day rates and utilization took into account market conditions and our anticipated business outlook.

If the global economy, our overall business outlook and/or our expectations regarding the marketability of one or more of our drilling rigs deteriorate further, we may conclude that a triggering event has occurred and perform a recoverability test that could lead to a material impairment charge in future periods.
v3.10.0.1
Debt
12 Months Ended
Dec. 31, 2018
Debt Disclosure [Abstract]  
Debt
DEBT

The carrying value of our long-term debt as of December 31, 2018 and 2017 consisted of the following (in millions):
 
 
2018
 
2017
8.50% Senior notes due 2019(1)
 
$

 
$
251.4

6.875% Senior notes due 2020(1)
 
127.5

 
477.9

4.70% Senior notes due 2021(1)
 
112.7

 
267.1

3.00% Exchangeable senior notes due 2024(2)
 
666.8

 
635.7

4.50% Senior notes due 2024
 
619.8

 
619.3

8.00% Senior notes due 2024
 
337.0

 
337.9

5.20% Senior notes due 2025
 
664.4

 
663.6

7.75% Senior notes due 2026
 
985.0

 

7.20% Debentures due 2027
 
149.3

 
149.3

7.875% Senior notes due 2040
 
375.0

 
376.7

5.75% Senior notes due 2044
 
972.9

 
971.8

Total long-term debt
 
$
5,010.4

 
$
4,750.7



(1) 
The decline in the carrying value of our 8.50% senior notes due 2019, 6.875% senior notes due 2020 and our 4.70% senior notes due 2021 resulted from repurchases and redemptions during the first quarter of 2018 discussed below.

(2) 
Our 2024 Convertible Notes were issued with a conversion feature. The 2024 Convertible Notes were separated into their liability and equity components on our consolidated balance sheet. The equity component was initially recorded to additional paid-in capital and as a debt discount that will be amortized to interest expense over the life of the instrument. Excluding the unamortized discount, the carrying value of the 2024 Convertible Notes was $836.3 million and $834.0 million as of December 31, 2018 and 2017, respectively.
    
2024 Convertible Notes
 
     In December 2016, Ensco Jersey Finance Limited, a wholly-owned subsidiary of Ensco plc, issued $849.5 million aggregate principal amount of unsecured 2024 Convertible Notes in a private offering. The 2024 Convertible Notes are fully and unconditionally guaranteed, on a senior, unsecured basis, by Ensco plc and are exchangeable into cash, our Class A ordinary shares or a combination thereof, at our election. Interest on the 2024 Convertible Notes is payable semiannually on January 31 and July 31 of each year. The 2024 Convertible Notes will mature on January 31, 2024, unless exchanged, redeemed or repurchased in accordance with their terms prior to such date. Holders may exchange their 2024 Convertible Notes at their option any time prior to July 31, 2023 only under certain circumstances set forth in the indenture governing the 2024 Convertible Notes. On or after July 31, 2023, holders may exchange their 2024 Convertible Notes at any time. The exchange rate is 71.3343 shares per $1,000 principal amount of notes, representing an exchange price of $14.02 per share, and is subject to adjustment upon certain events. The 2024 Convertible Notes may not be redeemed by us except in the event of certain tax law changes.
Upon conversion of the 2024 Convertible Notes, holders will receive cash, our Class A ordinary shares or a combination thereof, at our election. Our intent is to settle the principal amount of the 2024 Convertible Notes in cash upon conversion. If the conversion value exceeds the principal amount (i.e., our share price exceeds the exchange price on the date of conversion), we expect to deliver shares equal to our conversion obligation in excess of the principal amount. During each respective reporting period that our average share price exceeds the exchange price, an assumed number of shares required to settle the conversion obligation in excess of the principal amount will be included in the denominator for our computation of diluted EPS using the treasury stock method. See "Note 1 - Description of the Business and Summary of Significant Accounting Policies" for additional information regarding the impact to our EPS.

The 2024 Convertible Notes were separated into their liability and equity components and included in long-term debt and additional paid-in capital on our consolidated balance sheet, respectively. The carrying amount of the liability component was calculated by measuring the estimated fair value of a similar liability that does not include an associated conversion feature. The carrying amount of the equity component representing the conversion feature was determined by deducting the fair value of the liability component from the principal amount of the 2024 Convertible Notes. The difference between the carrying amount of the liability and the principal amount is amortized to interest expense over the term of the 2024 Convertible Notes, together with the coupon interest, resulting in an effective interest rate of approximately 8% per annum. The equity component is not remeasured if we continue to meet certain conditions for equity classification.

The costs related to the issuance of the 2024 Convertible Notes were allocated to the liability and equity components based on their relative fair values. Issuance costs attributable to the liability component are amortized to interest expense over the term of the notes and the issuance costs attributable to the equity component were recorded to additional paid-in capital on our consolidated balance sheet.

As of December 31, 2018 and 2017, the 2024 Convertible Notes consist of the following (in millions):
Liability component:
 
2018
 
2017
Principal
 
$
849.5

 
$
849.5

Less: Unamortized debt discount and issuance costs
 
(182.7
)
 
(213.8
)
Net carrying amount
 
666.8

 
635.7

Equity component, net
 
$
220.0

 
$
220.0


During the year ended December 31, 2018, we recognized $25.5 million associated with coupon interest and $31.0 million associated with the amortization of debt discount and issuance costs. During the year ended December 31, 2017, we recognized $25.5 million associated with coupon interest and $31.4 million associated the amortization of debt discount and issuance costs.

The indenture governing the 2024 Convertible Notes contains customary events of default, including failure to pay principal or interest on such notes when due, among others. The indenture also contains certain restrictions, including, among others, restrictions on our ability and the ability of our subsidiaries to create or incur secured indebtedness, enter into certain sale/leaseback transactions and enter into certain merger or consolidation transactions.

  Senior Notes

On January 26, 2018, we issued $1.0 billion aggregate principal amount of unsecured 7.75% senior notes due 2026 (the "2026 Notes") at par, net of $16.5 million of debt issuance costs. Interest on the 2026 Notes is payable semiannually on February 1 and August 1 of each year.

During 2017, we exchanged $332.0 million aggregate principal amount of unsecured 8.00% senior notes due 2024 (the “8 % 2024 Notes”) for certain amounts of our outstanding senior notes due 2019, 2020 and 2021. Interest on the 8% 2024 Notes is payable semiannually on January 31 and July 31 of each year.
 
During 2015, we issued $700.0 million aggregate principal amount of unsecured 5.20% senior notes due 2025 (the “2025 Notes”) at a discount of $2.6 million and $400.0 million aggregate principal amount of unsecured 5.75% senior notes due 2044 (the “New 2044 Notes”) at a discount of $18.7 million in a public offering. Interest on the 2025 Notes is payable semiannually on March 15 and September 15 of each year. Interest on the New 2044 Notes is payable semiannually on April 1 and October 1 of each year.

During 2014, we issued $625.0 million aggregate principal amount of unsecured 4.50% senior notes due 2024 (the "2024 Notes") at a discount of $850,000 and $625.0 million aggregate principal amount of unsecured 5.75% senior notes due 2044 (the "Existing 2044 Notes" and together with the New 2044 Notes, the "2044 Notes") at a discount of $2.8 million. Interest on the 2024 Notes and the Existing 2044 Notes is payable semiannually on April 1 and October 1 of each year. The Existing 2044 Notes and the New 2044 Notes are treated as a single series of debt securities under the indenture governing the notes.

During 2011, we issued $1.5 billion aggregate principal amount of unsecured 4.70% senior notes due 2021 (the “2021 Notes”) at a discount of $29.6 million in a public offering. Interest on the 2021 Notes is payable semiannually on March 15 and September 15 of each year.

Upon consummation of the Pride acquisition during 2011, we assumed outstanding debt comprised of $900.0 million aggregate principal amount of unsecured 6.875% senior notes due 2020$500.0 million aggregate principal amount of unsecured 8.5% senior notes due 2019 and $300.0 million aggregate principal amount of unsecured 7.875% senior notes due 2040 (collectively, the "Acquired Notes" and together with the 2021 Notes, 8% 2024 Notes, 2024 Notes, 2025 Notes, 2026 Notes and 2044 Notes, the "Senior Notes").  Ensco plc has fully and unconditionally guaranteed the performance of all Pride obligations with respect to the Acquired Notes.  See "Note 15 - Guarantee of Registered Securities" for additional information on the guarantee of the Acquired Notes.
   
We may redeem the 8% 2024 Notes, 2024 Notes, 2025 Notes, 2026 Notes and 2044 Notes in whole at any time, or in part from time to time, prior to maturity. If we elect to redeem the 8% 2024 Notes, 2024 Notes, 2025 Notes and 2026 Notes before the date that is three months prior to the maturity date or the 2044 Notes before the date that is six months prior to the maturity date, we will pay an amount equal to 100% of the principal amount of the notes redeemed plus accrued and unpaid interest and a "make-whole" premium. If we elect to redeem the 8% 2024 Notes, 2024 Notes, 2025 Notes, 2026 Notes or 2044 Notes on or after the aforementioned dates, we will pay an amount equal to 100% of the principal amount of the notes redeemed plus accrued and unpaid interest but we are not required to pay a "make-whole" premium.

We may redeem each series of the 2021 Notes and the Acquired Notes, in whole or in part, at any time at a price equal to 100% of their principal amount, plus accrued and unpaid interest and a "make-whole" premium.

The indentures governing the Senior Notes contain customary events of default, including failure to pay principal or interest on such notes when due, among others. The indentures governing the Senior Notes also contain certain restrictions, including, among others, restrictions on our ability and the ability of our subsidiaries to create or incur secured indebtedness, enter into certain sale/leaseback transactions and enter into certain merger or consolidation transactions.

  Debentures Due 2027

During 1997, Ensco International Incorporated issued $150.0 million of unsecured 7.20% Debentures due 2027 (the "Debentures"). Interest on the Debentures is payable semiannually on May 15 and November 15 of each year. We may redeem the Debentures, in whole or in part, at any time prior to maturity, at a price equal to 100% of their principal amount, plus accrued and unpaid interest and a "make-whole" premium. During 2009, Ensco plc entered into a supplemental indenture to unconditionally guarantee the principal and interest payments on the Debentures. See "Note 15 - Guarantee of Registered Securities" for additional information on the guarantee of the Debentures.

The Debentures and the indenture pursuant to which the Debentures were issued also contain customary events of default, including failure to pay principal or interest on the Debentures when due, among others. The indenture also contains certain restrictions, including, among others, restrictions on our ability and the ability of our subsidiaries to create or incur secured indebtedness, enter into certain sale/leaseback transactions and enter into certain merger or consolidation transactions.

  Tender Offers, Redemptions and Open Market Repurchases

Concurrent with the issuance of the 2026 Notes in January 2018, we launched cash tender offers for up to $985.0 million aggregate principal amount of certain series of our senior notes issued by us and Pride. The tender offers expired February 7, 2018, and we repurchased $182.6 million of our 8.50% senior notes due 2019, $256.6 million of our 6.875% senior notes due 2020 and $156.2 million of the 2021 Notes. Subsequently, we issued a redemption notice for the remaining outstanding $55.0 million principal amount of the 8.50% senior notes due 2019 and repurchased $71.4 million principal amount of our senior notes due 2020. As a result of these transactions, we recognized a pre-tax loss from debt extinguishment of $19.0 million, net of discounts, premiums, debt issuance costs and commissions during the first quarter of 2018.

During 2017, we repurchased $194.1 million of our outstanding senior notes on the open market for an aggregate purchase price of $204.5 million with cash on hand and recognized an insignificant pre-tax gain, net of discounts, premiums and debt issuance costs.

Our tender offers and open market repurchases during the two-year period ended December 31, 2018 were as follows (in millions):

Year Ended December 31, 2018
 
Aggregate Principal Amount Repurchased
 
Aggregate Repurchase Price(1)
8.50% Senior notes due 2019
$
237.6

 
$
256.8

6.875% Senior notes due 2020
328.0

 
354.7

4.70% Senior notes due 2021
156.2

 
159.7

Total
$
721.8

 
$
771.2


Year Ended December 31, 2017
 
Aggregate Principal Amount Repurchased
 
Aggregate Repurchase Price(1)
8.50% Senior notes due 2019
$
54.6

 
$
60.1

6.875% Senior notes due 2020
100.1

 
105.1

4.70% Senior notes due 2021
39.4

 
39.3

Total
$
194.1

 
$
204.5


(1) 
Excludes accrued interest paid to holders of the repurchased senior notes.
Exchange Offers
    
During 2017, we completed exchange offers to exchange our outstanding 2019 Notes, 2020 Notes and 2021 Notes for our 8% 2024 Notes and cash. The exchange offers resulted in the tender of $649.5 million aggregate principal amount of our outstanding notes that were settled and exchanged as follows (in millions):

 
Aggregate Principal Amount Repurchased
 
8% Senior Notes Due 2024 Consideration
 
Cash
Consideration
 
Total Consideration
8.50% Senior notes due 2019
$
145.8

 
$
81.6

 
$
81.7

 
$
163.3

6.875% Senior notes due 2020
129.8

 
69.3

 
69.4

 
138.7

4.70% Senior notes due 2021
373.9

 
181.1

 
181.4

 
362.5

Total
$
649.5

 
$
332.0

 
$
332.5

 
$
664.5


During the year ended December 31, 2017, we recognized a pre-tax loss on the exchange offers of approximately $6.2 million, consisting of a loss of $3.5 million that includes the write-off of premiums on tendered debt and $2.7 million of transaction costs.

 Debt to Equity Exchange

During 2016, we entered into a privately-negotiated exchange agreement whereby we issued 1,822,432 Class A ordinary shares, representing less than one percent of our outstanding shares, in exchange for $24.5 million principal amount of our 2044 Notes, resulting in a pre-tax gain from debt extinguishment of $8.8 million.

Revolving Credit    

In October 2017, we amended our revolving credit facility ("Credit Facility") to extend the final maturity date by two years. Previously, our Credit Facility had a borrowing capacity of $2.25 billion through September 2019 that declined to $1.13 billion through September 2020. Subsequent to the amendment, our borrowing capacity is $2.0 billion through September 2019 and declines to $1.3 billion through September 2020 and to $1.2 billion through September 2022. The credit agreement governing our Credit Facility includes an accordion feature allowing us to increase the commitments expiring in September 2022 up to an aggregate amount not to exceed $1.5 billion.

Advances under the Credit Facility bear interest at Base Rate or LIBOR plus an applicable margin rate, depending on our credit ratings. We are required to pay a quarterly commitment fee on the undrawn portion of the $2.0 billion commitment, which is also based on our credit ratings.

In January 2018, Moody's downgraded our senior unsecured bond credit rating from B2 to B3. The rating actions resulted in an increase to the interest rates applicable to our borrowings and the quarterly commitment fee on the undrawn portion of the $2.0 billion commitment. The applicable margin rates are 3.00% per annum for Base Rate advances and 4.00% per annum for LIBOR advances. The quarterly commitment fee is 0.75% per annum on the undrawn portion of the $2.0 billion commitment.

The Credit Facility requires us to maintain a total debt to total capitalization ratio that is less than or equal to 60% and to provide guarantees from certain of our rig-owning subsidiaries sufficient to meet certain guarantee coverage ratios. The Credit Facility also contains customary restrictive covenants, including, among others, prohibitions on creating, incurring or assuming certain debt and liens (subject to customary exceptions, including a permitted lien basket that permits us to raise secured debt up to the lesser of $750 million or 10% of consolidated tangible net worth (as defined in the Credit Facility)); entering into certain merger arrangements; selling, leasing, transferring or otherwise disposing of all or substantially all of our assets; making a material change in the nature of the business; paying or distributing dividends on our ordinary shares (subject to certain exceptions, including the ability to continue paying a quarterly dividend of $0.01 per share); borrowings, if after giving effect to any such borrowings and the application of the proceeds thereof, the aggregate amount of available cash (as defined in the Credit Facility) would exceed $150 million; and entering into certain transactions with affiliates.

The Credit Facility also includes a covenant restricting our ability to repay indebtedness maturing after September 2022, which is the final maturity date of our Credit Facility. This covenant is subject to certain exceptions that permit us to manage our balance sheet, including the ability to make repayments of indebtedness (i) of acquired companies within 90 days of the completion of the acquisition or (ii) if, after giving effect to such repayments, available cash is greater than $250 million and there are no amounts outstanding under the Credit Facility.

As of December 31, 2018, we were in compliance in all material respects with our covenants under the Credit Facility. We expect to remain in compliance with our Credit Facility covenants during 2019. We had no amounts outstanding under the Credit Facility as of December 31, 2018 and 2017.

Our access to credit and capital markets depends on the credit ratings assigned to our debt. As a result of recent rating actions by credit rating agencies, we no longer maintain an investment-grade status. Our current credit ratings, and any additional actual or anticipated downgrades in our credit ratings, could limit our available options when accessing credit and capital markets, or when restructuring or refinancing our debt. In addition, future financings or refinancings may result in higher borrowing costs and require more restrictive terms and covenants, which may further restrict our operations.

Maturities

The descriptions of our senior notes above reflect the original principal amounts issued, which have subsequently changed as a result of our tenders, repurchases, exchanges, redemptions and new debt issuances such that the maturities of our debt were as follows (in millions):
Senior Notes
Original Principal
 
2016 Tenders, Repurchases and Equity Exchange
 
2017 Exchange Offers and Repurchases
 
2018 Tender Offers, Redemption and Debt Issuance
 
Remaining Principal
8.50% due 2019
$
500.0

 
$
(62.0
)
 
$
(200.4
)
 
$
(237.6
)
 
$

6.875% due 2020
900.0

 
(219.2
)
 
(229.9
)
 
(328.0
)
 
122.9

4.70% due 2021
1,500.0

 
(817.0
)
 
(413.3
)
 
(156.2
)
 
113.5

3.00% Exchangeable senior notes due 2024
849.5

 

 

 

 
849.5

4.50% due 2024
625.0

 
(1.7
)
 

 

 
623.3

8.00% due 2024

 

 
332.0

 

 
332.0

5.20% due 2025
700.0

 
(30.7
)
 

 

 
669.3

7.75% due 2026

 

 

 
1,000.0

 
1,000.0

7.20% due 2027
150.0

 

 

 

 
150.0

7.875% due 2040
300.0

 

 

 

 
300.0

5.75% due 2044
1,025.0

 
(24.5
)
 

 

 
1,000.5

Total
$
6,549.5

 
$
(1,155.1
)
 
$
(511.6
)
 
$
278.2

 
$
5,161.0



Interest Expense

Interest expense totaled $282.7 million, $224.2 million and $228.8 million for the years ended December 31, 2018, 2017 and 2016, respectively, which was net of capitalized interest of $62.6 million, $72.5 million and $45.7 million associated with newbuild rig construction and other capital projects.
v3.10.0.1
Derivative Instruments
12 Months Ended
Dec. 31, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments
DERIVATIVE INSTRUMENTS
   
We use derivatives to reduce our exposure to various market risks, primarily foreign currency exchange rate risk. We maintain a foreign currency exchange rate risk management strategy that utilizes derivatives to reduce our exposure to unanticipated fluctuations in earnings and cash flows caused by changes in foreign currency exchange rates. We mitigate our credit risk relating to the counterparties of our derivatives by transacting with multiple, high-quality financial institutions, thereby limiting exposure to individual counterparties, and by entering into International Swaps and Derivatives Association, Inc. (“ISDA”) Master Agreements, which include provisions for a legally enforceable master netting agreement, with our derivative counterparties. See "Note 14 - Supplemental Financial Information" for additional information on the mitigation of credit risk relating to counterparties of our derivatives. We do not enter into derivatives for trading or other speculative purposes.
 
All derivatives were recorded on our consolidated balance sheets at fair value. Derivatives subject to legally enforceable master netting agreements were not offset on our consolidated balance sheets. Accounting for the gains and losses resulting from changes in the fair value of derivatives depends on the use of the derivative and whether it qualifies for hedge accounting. See "Note 1 - Description of the Business and Summary of Significant Accounting Policies" for additional information on our accounting policy for derivatives and "Note 4 - Fair Value Measurements" for additional information on the fair value measurement of our derivatives.
 
As of December 31, 2018 and 2017, our consolidated balance sheets included net foreign currency derivative liabilities of $10.7 million and assets of $6.8 million, respectively.  All of our derivatives mature within the next 18 months.

Derivatives recorded at fair value on our consolidated balance sheets as of December 31, 2018 and 2017 consisted of the following (in millions):
 
Derivative Assets
 
Derivative Liabilities
 
2018
 
2017
 
2018
 
2017
Derivatives Designated as Hedging Instruments
 

 
 

 
 

 
 

Foreign currency forward contracts - current(1)
$
.2

 
$
5.9

 
$
8.3

 
$
.2

Foreign currency forward contracts - non-current(2)

 
.5

 
.4

 
.1

 
.2

 
6.4

 
8.7

 
.3

Derivatives not Designated as Hedging Instruments
 

 
 

 
 

 
 

Foreign currency forward contracts - current(1)
.4

 
.9

 
2.6

 
.2

Total
$
.6

 
$
7.3

 
$
11.3

 
$
.5


(1) 
Derivative assets and liabilities that have maturity dates equal to or less than 12 months from the respective balance sheet dates were included in other current assets and accrued liabilities and other, respectively, on our consolidated balance sheets.

(2) 
Derivative assets and liabilities that have maturity dates greater than 12 months from the respective balance sheet dates were included in other assets and other liabilities, respectively, on our consolidated balance sheets.

We utilize cash flow hedges to hedge forecasted foreign currency denominated transactions, primarily to reduce our exposure to foreign currency exchange rate risk associated with contract drilling expenses and capital expenditures denominated in various currencies.  As of December 31, 2018, we had cash flow hedges outstanding to exchange an aggregate $187.8 million for various foreign currencies, including $88.0 million for British pounds, $50.3 million for Australian dollars, $19.7 million for euros, $16.2 million for Brazilian reals, $11.0 million for Singapore dollars and $2.6 million for other currencies.

Gains and losses, net of tax, on derivatives designated as cash flow hedges included in our consolidated statements of operations and comprehensive income for each of the years in the three-year period ended December 31, 2018 were as follows (in millions):
 
Gain (Loss) Recognized in Other Comprehensive
Income ("OCI")
on Derivatives
  (Effective Portion)  
 
(Gain) Loss Reclassified from
 AOCI into Income
(Effective Portion)(1)
 
Gain (Loss) Recognized
in Income on
Derivatives (Ineffective
Portion and Amount
Excluded from
Effectiveness Testing)(2)
 
2018
 
2017
 
2016
 
2018
 
2017
 
2016
 
2018
 
2017
 
2016
Interest rate lock contracts(3) 
$

 
$

 
$

 
$
.2

 
$
.2

 
$
.2

 
$

 
$

 
$

Foreign currency forward contracts(4)
(9.7
)
 
8.5

 
(5.4
)
 
(1.2
)
 
.2

 
12.2

 
(1.9
)
 
(.7
)
 
1.9

Total
$
(9.7
)
 
$
8.5

 
$
(5.4
)
 
$
(1.0
)
 
$
.4

 
$
12.4

 
$
(1.9
)
 
$
(.7
)
 
$
1.9

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

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

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

(4) 
During the year ended December 31, 2018, $400,000 of gains were reclassified from AOCI into contract drilling expense and $800,000 of gains were reclassified from AOCI into depreciation expense in our consolidated statement of operations. During the year ended December 31, 2017, $1.1 million of losses were reclassified from AOCI into contract drilling expense and $900,000 of gains were reclassified from AOCI into depreciation expense in our consolidated statement of operations. During the year ended December 31, 2016, $13.1 million of losses were reclassified from AOCI into contract drilling and $900,000 of gains were reclassified from AOCI into depreciation expense in our consolidated statement of operations.

We have net assets and liabilities denominated in numerous foreign currencies and use various methods to manage our exposure to foreign currency exchange rate risk. We predominantly structure our drilling contracts in U.S. dollars, which significantly reduces the portion of our cash flows and assets denominated in foreign currencies. We occasionally enter into derivatives that hedge the fair value of recognized foreign currency denominated assets or liabilities but do not designate such derivatives as hedging instruments. In these situations, a natural hedging relationship generally exists whereby changes in the fair value of the derivatives offset changes in the fair value of the underlying hedged items. As of December 31, 2018, we held derivatives not designated as hedging instruments to exchange an aggregate $175.7 million for various foreign currencies, including $89.3 million for euros, $19.8 million for Australian dollars, $19.6 million for Qatari riyals, $10.3 million for Indonesian rupiahs, $10.2 million for British pounds and $26.5 million for other currencies.

Net losses of $11.8 million, gains of $10.0 million and losses of $7.0 million associated with our derivatives not designated as hedging instruments were included in other, net, in our consolidated statements of operations for the years ended December 31, 2018, 2017 and 2016, respectively.

As of December 31, 2018, the estimated amount of net losses associated with derivatives, net of tax, that will be reclassified to earnings during the next 12 months was as follows (in millions):

Net unrealized losses to be reclassified to contract drilling expense
 
$
(5.2
)
Net realized gains to be reclassified to depreciation expense
 
.8

Net realized losses to be reclassified to interest expense
 
(.2
)
Net losses to be reclassified to earnings
 
$
(4.6
)
v3.10.0.1
Shareholders' Equity
12 Months Ended
Dec. 31, 2018
Stockholders' Equity Note [Abstract]  
Shareholders' Equity
SHAREHOLDERS' EQUITY
 
Activity in our various shareholders' equity accounts for each of the years in the three-year period ended December 31, 2018 was as follows (in millions):
 
 Shares 
 
Par Value
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
AOCI 
 
Treasury
Shares
 
Non-controlling
Interest
BALANCE, December 31, 2015
242.9

 
$
24.4

 
$
5,554.5

 
$
985.3

 
$
12.5

 
$
(63.8
)
 
$
4.3

Net income

 

 

 
890.2

 

 

 
6.9

Dividends paid ($0.04 per share)

 

 

 
(11.4
)
 

 

 

Distributions to noncontrolling interests

 

 

 

 

 

 
(7.8
)
Equity issuance
65.6

 
6.5

 
579.0

 

 

 

 

Equity for debt exchange
1.8

 
.2

 
14.8

 

 

 

 

Equity component of convertible debt

 

 
220.0

 

 

 

 

Contributions from noncontrolling interests

 

 

 

 

 

 
1.0

Tax expense on share-based compensation

 

 
(3.4
)
 

 

 

 

Repurchase of shares

 

 

 

 

 
(2.0
)
 

Share-based compensation cost

 

 
37.3

 

 

 

 

Net other comprehensive loss

 

 

 

 
6.5

 

 

BALANCE, December 31, 2016
310.3

 
31.1

 
6,402.2

 
1,864.1

 
19.0

 
(65.8
)
 
4.4

Net loss

 

 

 
(303.7
)
 

 

 
(.5
)
Dividends paid ($0.04 per share)

 

 

 
(13.6
)
 

 

 

Cumulative-effect reduction from adoption of ASU 2016-16

 

 

 
(14.1
)
 

 

 

Distributions to noncontrolling interests

 

 

 

 

 

 
(6.0
)
Equity issuance in connection with Atwood Merger
132.2

 
13.2

 
757.5

 

 

 

 

Shares issued under share-based compensation plans, net
4.5

 
.5

 
(.4
)
 

 

 
(1.3
)
 

Repurchase of shares

 

 

 

 

 
(1.9
)
 

Share-based compensation cost

 

 
35.7

 

 

 

 

Net other comprehensive income

 

 

 

 
9.6

 

 

BALANCE, December 31, 2017
447.0

 
44.8

 
7,195.0

 
1,532.7

 
28.6

 
(69.0
)
 
(2.1
)
Net loss

 

 

 
(639.7
)