ENSCO PLC, 10-K filed on 2/27/2018
Annual Report
Document And Entity Information (USD $)
12 Months Ended
Dec. 31, 2017
Feb. 21, 2018
Jun. 30, 2017
Document And Entity Information [Abstract]
 
 
 
Document Type
10-K 
 
 
Amendment Flag
false 
 
 
Document Period End Date
Dec. 31, 2017 
 
 
Entity Registrant Name
Ensco plc 
 
 
Entity Central Index Key
0000314808 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Document Fiscal Year Focus
2017 
 
 
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
 
 
$ 1,548,237,000 
Entity Common Shares, Shares Outstanding
 
436,009,156 
 
Consolidated Statements Of Operations (USD $)
In Millions, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Income Statement [Abstract]
 
 
 
OPERATING REVENUES
$ 1,843.0 
$ 2,776.4 
$ 4,063.4 
OPERATING EXPENSES
 
 
 
Contract drilling (exclusive of depreciation)
1,189.5 
1,301.0 
1,869.6 
Loss on impairment
182.9 
2,746.4 
Depreciation
444.8 
445.3 
572.5 
General and administrative
157.8 
100.8 
118.4 
Total operating expenses
1,975.0 
1,847.1 
5,306.9 
OPERATING INCOME (LOSS)
(132.0)
929.3 
(1,243.5)
OTHER INCOME (EXPENSE)
 
 
 
Interest income
25.8 
13.8 
9.9 
Interest expense, net
(224.2)
(228.8)
(216.3)
Other, net
134.4 
283.2 
(21.3)
Other income (expense), net
(64.0)
68.2 
(227.7)
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
(196.0)
997.5 
(1,471.2)
PROVISION FOR INCOME TAXES
 
 
 
Current income tax expense
54.2 
79.8 
144.1 
Deferred income tax expense (benefit)
55.0 
28.7 
(158.0)
Total provision for income taxes
109.2 
108.5 
(13.9)
INCOME (LOSS) FROM CONTINUING OPERATIONS
(305.2)
889.0 
(1,457.3)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET
1.0 
8.1 
(128.6)
NET INCOME (LOSS)
(304.2)
897.1 
(1,585.9)
NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS
0.5 
(6.9)
(8.9)
NET INCOME (LOSS) ATTRIBUTABLE TO ENSCO
(303.7)
890.2 
(1,594.8)
EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED
 
 
 
Continuing operations
$ (0.91)
$ 3.10 
$ (6.33)
Discontinued operations
$ 0.00 
$ 0.03 
$ (0.55)
Total earnings per share - basic
$ (0.91)
$ 3.13 
$ (6.88)
NET INCOME ATTRIBUTABLE TO ENSCO SHARES - BASIC AND DILUTED
$ (304.1)
$ 873.6 
$ (1,596.8)
WEIGHTED-AVERAGE SHARES OUTSTANDING
 
 
 
Basic and Diluted
332.5 
279.1 
232.2 
CASH DIVIDENDS PER SHARE
$ 0.04 
$ 0.04 
$ 0.60 
Consolidated Statements of Comprehensive Income (Loss) (USD $)
In Millions, unless otherwise specified
3 Months Ended 12 Months Ended
Dec. 31, 2017
Sep. 30, 2017
Jun. 30, 2017
Mar. 31, 2017
Dec. 31, 2016
Sep. 30, 2016
Jun. 30, 2016
Mar. 31, 2016
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Statement of Comprehensive Income [Abstract]
 
 
 
 
 
 
 
 
 
 
 
NET INCOME (LOSS)
$ (207.1)
$ (28.2)
$ (44.3)
$ (24.6)
$ 40.5 
$ 87.3 
$ 592.6 
$ 176.7 
$ (304.2)
$ 897.1 
$ (1,585.9)
OTHER COMPREHENSIVE INCOME (LOSS), NET
 
 
 
 
 
 
 
 
 
 
 
Net change in fair value of derivatives
 
 
 
 
 
 
 
 
8.5 
(5.4)
(23.6)
Reclassification of net losses on derivative instruments from other comprehensive income into net income (loss)
 
 
 
 
 
 
 
 
0.4 
12.4 
22.2 
Other
 
 
 
 
 
 
 
 
0.7 
(0.5)
2.0 
NET OTHER COMPREHENSIVE INCOME (LOSS)
 
 
 
 
 
 
 
 
9.6 
6.5 
0.6 
COMPREHENSIVE INCOME (LOSS)
 
 
 
 
 
 
 
 
(294.6)
903.6 
(1,585.3)
COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
 
 
 
 
 
 
 
 
0.5 
(6.9)
(8.9)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO ENSCO
 
 
 
 
 
 
 
 
$ (294.1)
$ 896.7 
$ (1,594.2)
Consolidated Balance Sheets (USD $)
In Millions, unless otherwise specified
Dec. 31, 2017
Dec. 31, 2016
CURRENT ASSETS
 
 
Cash and cash equivalents
$ 445.4 
$ 1,159.7 
Short-term Investments
440.0 
1,442.6 
Accounts receivable, net
345.4 
361.0 
Other
381.2 
316.0 
Total current assets
1,612.0 
3,279.3 
PROPERTY AND EQUIPMENT, AT COST
15,332.1 
12,992.5 
Less accumulated depreciation
2,458.4 
2,073.2 
Property and equipment, net
12,873.7 
10,919.3 
OTHER ASSETS, NET
140.2 
175.9 
TOTAL ASSETS
14,625.9 
14,374.5 
CURRENT LIABILITIES
 
 
Accounts payable - trade
432.6 
145.9 
Accrued liabilities and other
325.9 
376.6 
Current maturities of long-term debt
331.9 
Total current liabilities
758.5 
854.4 
LONG-TERM DEBT
4,750.7 
4,942.6 
OTHER LIABILITIES
386.7 
322.5 
COMMITMENTS AND CONTINGENCIES
   
   
ENSCO SHAREHOLDERS' EQUITY
 
 
Additional paid-in capital
7,195.0 
6,402.2 
Retained earnings
1,532.7 
1,864.1 
Accumulated other comprehensive income
28.6 
19.0 
Treasury shares, at cost, 11.1 million and 7.3 million shares as of December 31, 2017 and 2016
(69.0)
(65.8)
Total Ensco shareholders' equity
8,732.1 
8,250.6 
NONCONTROLLING INTERESTS
(2.1)
4.4 
Total equity
8,730.0 
8,255.0 
Total liabilities and shareholders' equity
14,625.9 
14,374.5 
Class A Ordinary Shares, U.S. [Member]
 
 
ENSCO SHAREHOLDERS' EQUITY
 
 
Common shares, value
44.7 
31.0 
Common Class B, Par Value In GBP [Member]
 
 
ENSCO SHAREHOLDERS' EQUITY
 
 
Common shares, value
$ 0.1 
$ 0.1 
Consolidated Balance Sheets (Parenthetical)
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2017
Class A Ordinary Shares, U.S. [Member]
USD ($)
Dec. 31, 2016
Class A Ordinary Shares, U.S. [Member]
USD ($)
Dec. 31, 2017
Common Class B, Par Value In GBP [Member]
GBP (£)
Dec. 31, 2016
Common Class B, Par Value In GBP [Member]
GBP (£)
Common shares, par value
 
 
$ 0.10 
$ 0.10 
£ 1 
£ 1 
Common shares, shares issued
 
 
447,000,000 
310,300,000 
50,000 
50,000 
Treasury shares, shares held
11,100,000 
7,300,000 
 
 
 
 
Consolidated Statements Of Cash Flows (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
OPERATING ACTIVITIES
 
 
 
Net income (loss)
$ (304.2)
$ 897.1 
$ (1,585.9)
Adjustments to reconcile net income (loss) to net cash provided by operating activities of continuing operations:
 
 
 
Depreciation expense
444.8 
445.3 
572.5 
Loss on impairment
182.9 
2,746.4 
Bargain purchase gain
(140.2)
Amortization
(61.6)
(139.7)
(165.0)
Deferred income tax expense (benefit)
55.0 
28.7 
(158.0)
Share-based compensation expense
41.2 
39.6 
40.2 
(Gain) loss on debt extinguishment
2.6 
(287.8)
33.5 
Discontinued operations, net
(1.0)
(8.1)
128.6 
Other
(25.5)
(38.3)
(27.9)
Changes in operating assets and liabilities, net of acquisition
65.4 
140.6 
113.5 
Net cash provided by operating activities of continuing operations
259.4 
1,077.4 
1,697.9 
INVESTING ACTIVITIES
 
 
 
Maturities of short-term investments
2,042.5 
2,212.0 
1,357.3 
Purchases of short-term investments
(1,040.0)
(2,474.6)
(1,780.0)
Acquisition of Atwood, net of cash acquired
(871.6)
Additions to property and equipment
(536.7)
(322.2)
(1,619.5)
Net proceeds from disposition of assets
2.8 
9.8 
1.6 
Net cash used in investing activities of continuing operations
(403.0)
(575.0)
(2,040.6)
FINANCING ACTIVITIES
 
 
 
Reduction of long-term borrowings
(537.0)
(863.9)
(1,072.5)
Cash dividends paid
(13.8)
(11.6)
(141.2)
Debt financing costs
(12.0)
(23.4)
(10.5)
Proceeds from issuance of senior notes
849.5 
1,078.7 
Proceeds from equity issuance
585.5 
Premium paid on redemption of debt
(30.3)
Other
(7.7)
(7.1)
(16.0)
Net cash provided by (used in) financing activities
(570.5)
529.0 
(191.8)
Net cash provided by (used in) discontinued operations
(0.8)
8.4 
(8.7)
Effect of exchange rate changes on cash and cash equivalents
0.6 
(1.4)
(0.3)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(714.3)
1,038.4 
(543.5)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
1,159.7 
121.3 
664.8 
CASH AND CASH EQUIVALENTS, END OF YEAR
$ 445.4 
$ 1,159.7 
$ 121.3 
Description Of The Business And Summary Of Significant Accounting Policies
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 62 rigs spanning most of the strategic markets around the globe. Our rig fleet includes 12 drillships, 11 dynamically positioned semisubmersible rigs, four moored semisubmersible rigs and 38 jackup rigs, including three rigs under construction.   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 U.S. 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 a drilling rig and rig crews for which we receive a daily rate that may vary throughout the duration of the contractual term. The day rate we earn can vary between the full day rate and zero rate, depending on the operations of the rig. 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. In addition, our customers may pay all or a portion of the cost of moving our equipment and personnel to and from the well site.

    Acquisition of Atwood Oceanics, Inc.

On October 6, 2017 (the "Merger Date"), we completed a merger transaction (the "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 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 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.
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 statutory accounts required by the U.K. Companies Act 2006 ("Companies Act"), which will be prepared in accordance with Financial Reporting Standard 102, The Financial Reporting Standard applicable in the UK and Republic of Ireland (“FRS 102”) and delivered to the Registrar of Companies in the U.K. following the annual general meeting of shareholders.  The U.K. statutory accounts are expected to include an unqualified auditor’s report, which is not expected to contain any references to matters on which the auditors drew attention by way of emphasis without qualifying the report or any statements under Sections 498(2) or 498(3) of the Companies Act.
 
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 gains and losses, inclusive of offsetting fair value derivatives, were $5.1 million of losses, $6.0 million of losses and $5.4 million of gains, and were included in other, net, in our consolidated statements of operations for the years ended December 31, 2017, 2016 and 2015, 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 $440.0 million and $1.4 billion as of December 31, 2017 and 2016, 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, 2017, 2016 and 2015. 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 that are not reimbursed by the customer. Repair and maintenance costs are charged to contract drilling expense in the period in which they are incurred. Upon 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.

During 2017 and 2015, we recorded pre-tax, non-cash losses on impairment of long-lived assets of $182.9 million and $2.6 billion. See "Note 4 - Property and Equipment" for additional information on these impairments.

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    

Our drilling contracts are performed on a day rate basis, and the terms of such contracts are typically for a specific period of time or the period of time required to complete a specific task, such as drill a well. Contract revenues and expenses are recognized on a per day basis, as the work is performed.

In connection with some 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 and costs incurred prior to commencement of drilling operations are deferred and amortized on a straight-line basis over the period that the related drilling services are performed. Demobilization fees and related 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 mobilization costs were included in other current assets and other assets, net, on our consolidated balance sheets and totaled $39.9 million and $43.9 million as of December 31, 2017 and 2016, respectively. Deferred mobilization revenue was included in accrued liabilities and other, and other liabilities on our consolidated balance sheets and totaled $35.7 million and $62.1 million as of December 31, 2017 and 2016, respectively.

In connection with some contracts, we receive up-front lump-sum fees or similar compensation for capital improvements to our drilling rigs. Such compensation is deferred and amortized to revenue over the period that the related drilling services are performed, and the cost is capitalized and depreciated over the useful life of the asset. Deferred revenue associated with capital improvements was included in accrued liabilities and other, and other liabilities on our consolidated balance sheets and totaled $87.4 million and $165.2 million as of December 31, 2017 and 2016, respectively.

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 revenues when services have been completed under the terms of the contract, the termination fee can be reasonably measured and collectability is reasonably assured.

For the year ended December 31, 2016, 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. The ENSCO DS-9 contract was terminated for convenience by the customer in July 2015, whereby the customer was obligated to pay us monthly termination fees for two years under the termination provisions of the contract. Operating revenues in 2016 also included $20.0 million for the lump-sum consideration received in settlement of the ENSCO 8503 customer's remaining obligations under the contract.
    
For the year ended December 31, 2015, operating revenues included $129.0 million related to the lump-sum payments associated with the ENSCO DS-4 and ENSCO DS-9 contract terminations.

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 over the corresponding certification periods. Deferred regulatory certification and compliance costs were included in other current assets and other assets, net, on our consolidated balance sheets and totaled $15.3 million and $14.9 million as of December 31, 2017 and 2016, respectively.
    
Derivative Instruments

We use derivatives to reduce our exposure to various market risks, primarily foreign currency exchange rate risk. See "Note 6 - 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. Our assessment of hedge effectiveness is formally documented at hedge inception, and we review hedge effectiveness and measure any ineffectiveness throughout the designated hedge period on at least a quarterly basis.

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 (“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. 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 base erosion anti-abuse tax that effectively imposes a minimum tax on certain payments to non-U.S. affiliates and new and revised rules relating to the current taxation of certain income of foreign subsidiaries. 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 “2012 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 8 - 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 3 - 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. 

Income (loss) from continuing operations attributable to Ensco for each of the years in the three-year period ended December 31, 2017 was as follows (in millions):

 
2017
 
2016
 
2015
Income (loss) from continuing operations
$
(305.2
)
 
$
889.0

 
$
(1,457.3
)
(Income) loss from continuing operations attributable to noncontrolling interests
.5

 
(6.9
)
 
(8.8
)
Income (loss) from continuing operations attributable to Ensco
$
(304.7
)
 
$
882.1

 
$
(1,466.1
)

    
Income (loss) from discontinued operations attributable to Ensco for each of the years in the three-year period ended December 31, 2017 was as follows (in millions):

 
2017
 
2016
 
2015
Income (loss) from discontinued operations
$
1.0

 
$
8.1

 
$
(128.6
)
Income from discontinued operations attributable to noncontrolling interests

 

 
(.1
)
Income (loss) from discontinued operations attributable to Ensco
$
1.0

 
$
8.1

 
$
(128.7
)


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, 2017, 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, 2017 (in millions):

 
2017
 
2016
 
2015
Income (loss) from continuing operations attributable to Ensco
$
(304.7
)
 
$
882.1

 
$
(1,466.1
)
Income from continuing operations allocated to non-vested share awards
(.4
)
 
(16.6
)
 
(2.0
)
Income (loss) from continuing operations attributable to Ensco shares
$
(305.1
)
 
$
865.5

 
$
(1,468.1
)

    
Anti-dilutive share awards totaling 2.0 million, 500,000 and 800,000 for the years ended December 31, 2017, 2016 and 2015, 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 5 - 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, 2017 and December 31, 2016.

New Accounting Pronouncements
    
In August 2017, the Financial Accounting Standards Board (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.

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.
    
In March 2016, the FASB issued Accounting Standards Update 2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting ("Update 2016-09"), which simplifies several aspects of accounting for share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. We adopted Update 2016-09 effective January 1, 2017. Our adoption of Update 2016-09 did not result in any cumulative effect on retained earnings and no adjustments have been made to prior periods. The new standard will cause volatility in our effective tax rates primarily due to the new requirement to recognize additional tax benefits or expenses in earnings related to the vesting or settlement of employee share-based awards, rather than in additional paid-in capital, during the period in which they occur. Furthermore, forfeitures are now recorded as they occur as opposed to estimating an allowance for future forfeitures.

During 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) ("Update 2014-09"), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. Update 2014-09 is effective for annual and interim periods for fiscal years beginning after December 15, 2017. Subsequent to the issuance of Update 2014-09, the FASB issued several additional Accounting Standards Updates to clarify implementation guidance, provide narrow-scope improvements and provide additional disclosure guidance. Update 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP and may be adopted using a retrospective, modified retrospective or prospective with a cumulative catch-up approach. Due to the significant interaction between Update 2014-09 and Accounting Standards Update 2016-02, Leases (Topic 842): Amendments to the FASB Accounting Standards Codification ("Update 2016-02"), we will adopt Update 2014-09 and Update 2016-02 concurrently with an effective date of January 1, 2018. A substantial portion of our revenues will be recognized under Update 2016-02; therefore, Update 2014-09 will not have a significant impact on our revenue recognition patterns. However, certain additional disclosures will be required upon adoption.

During 2016, the FASB issued 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 January 2018, the FASB issued a Proposed Accounting Standard Update to provide targeted improvements to Update 2016-02 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 to not separate non-lease components from the related lease components, by class of underlying asset. Application of the practical expedient would result in a combined single lease component that, provided specified conditions are met, would be classified as an operating lease for lessors. We expect to elect both provisions afforded under the Proposed Accounting Standard Update. We do not expect a significant cumulative-effect adjustment in the period of adoption, and we do not expect a significant change to our pattern of revenue recognition as compared to current GAAP. However, as a result of the adoption of Update 2016-12, we will be required to present increased disclosures of the nature of our leasing arrangements as well as certain other qualitative and quantitative disclosures. With respect to leases whereby we are the lessee, we expect to recognize lease liabilities and offsetting "right of use" assets ranging from approximately $70 million to $90 million.

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.
Acquisition Of Atwood (Notes)
Business Combination Disclosure
ACQUISITION OF ATWOOD

On May 29, 2017, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Atwood and Echo Merger Sub, LLC, our wholly-owned subsidiary, and on October 6, 2017 (the "Merger Date"), we completed our acquisition of Atwood pursuant to the Merger Agreement (the “Merger”). Atwood’s financial results are included in our consolidated results beginning on the Merger Date.

The Merger is expected to strengthen our position as the leader in offshore drilling across a wide range of water depths around the world. The Merger significantly enhances the capabilities of our rig fleet and improves our ability to meet future customer demand with the highest-specification assets. Revenues of Atwood from the Merger Date included in our consolidated statements of operations were $23.3 million for the year ended December 31, 2017. Net loss of Atwood from the Merger Date included in our consolidated statements of operations was $70.1 million, inclusive of integration costs of $27.9 million, for the year ended December 31, 2017.

Consideration

    As a result of the 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 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 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.

Assets Acquired and Liabilities Assumed
    
Assets acquired and liabilities assumed in the Merger have been recorded at their estimated fair values as of the Merger Date under the acquisition method of accounting. When the fair value of the net assets acquired exceeds the consideration transferred in an acquisition, the difference is recorded as a bargain purchase gain in the period in which the transaction occurs. We have not finalized the fair values of assets acquired and liabilities assumed; therefore, the fair value estimates set forth below are subject to adjustment during a one year measurement period subsequent to the Merger Date. The estimated fair values of certain assets and liabilities including inventory, long-lived assets and contingencies require judgments and assumptions that increase the likelihood that adjustments may be made to these estimates during the measurement period, and those adjustments could be material.

The provisional amounts for assets acquired and liabilities assumed are based on preliminary estimates of their fair values as of the Merger Date and were as follows (in millions):
 
Estimated Fair Value
Assets:
 
Cash and cash equivalents(1)
$
445.4

Accounts receivable(2)
62.3

Other current assets
118.1

Property and equipment
1,762.0

Other assets
23.7

Liabilities:
 
Accounts payable and accrued liabilities
64.9

Other liabilities
118.7

Net assets acquired
2,227.9

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


(1) Upon closing of the 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.
(2) Gross contractual amounts receivable totaled $64.7 million as of the Merger Date.

Bargain Purchase Gain

The estimated 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 have 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 Merger and the Merger Date. The gain was included in other, net, in our consolidated statement of operations for the year ended December 31, 2017.

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 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 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 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 , will be 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 $33.3 million representing the estimated fair value of Atwood's firm drilling contracts in place at the Merger Date with favorable contract terms compared to then-market day rates for comparable drilling rigs. The various factors considered in the determination of these fair values were (1) the contracted day rate for each contract, (2) the remaining term of each contract, (3) the rig class and (4) the market conditions for each respective rig class at the Merger Date. The intangible assets were calculated based on the present value of the difference in cash flows over the remaining contract term as compared to a hypothetical contract with the same remaining term at an estimated then-current market day rate using a risk-adjusted discount rate and an estimated effective income tax rate.

Operating revenues included $16.1 million of asset amortization during the year ended December 31, 2017. The remaining balance of $17.2 million was included in other current assets and other assets, net, on our consolidated balance sheet as of December 31, 2017. These balances will be amortized to operating revenues over the respective remaining drilling contract terms on a straight-line basis. Amortization for these intangible assets is estimated to be $11.4 million and $5.8 million for 2018 and 2019, respectively.

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 unfavorable construction liability was calculated based on the present value of the difference in cash outflows for the remaining contractual payments as compared to a hypothetical contract with the same remaining contractual payments at estimated then-current market rates using a risk-adjusted discount rate and an estimated effective income tax rate. 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 Merger

The following unaudited supplemental pro forma results present consolidated information as if the 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 that may result directly from the Merger.

(in millions, except per share amounts)
Twelve Months Ended (Unaudited)
 
   2017(1)
 
2016
Revenues
$
2,243.0

 
$
3,622.1

Net income (loss)
(168.7
)
 
1,284.9

Earnings (loss) per share - basic and diluted
(.39
)
 
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.
Fair Value Measurements
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, 2017 and 2016 (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, 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

Total financial liabilities

 

 

 

As of December 31, 2016
 

 
 

 
 

 
 

Supplemental executive retirement plan assets
$
27.7

 
$

 
$

 
$
27.7

Total financial assets
27.7

 

 

 
27.7

Derivatives, net

 
(8.8
)
 

 
(8.8
)
Total financial liabilities
$

 
$
(8.8
)
 
$

 
$
(8.8
)


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, 2017 and 2016.  The fair value measurements of assets held in the SERP were based on quoted market prices. Net unrealized gains of $4.5 million, $1.8 million and $700,000 from marketable securities held in our SERP were included in other, net, in our consolidated statements of operations for the years ended December 31, 2017, 2016 and 2015, respectively.
 
Derivatives

Our derivatives were measured at fair value on a recurring basis using Level 2 inputs as of December 31, 2017 and 2016.  See "Note 6 - 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, 2017 and 2016 were as follows (in millions):
 
 
December 31, 2017
 
December 31, 2016
 
 
Carrying
Value
 
Estimated
  Fair
Value
 
Carrying
Value
 
Estimated
  Fair
Value
8.50% Senior notes due 2019
 
$
251.4

 
$
252.9

 
$
480.2

 
$
485.0

6.875% Senior notes due 2020
 
477.9

 
473.1

 
735.9

 
727.5

4.70% Senior notes due 2021
 
267.1

 
265.3

 
674.4

 
658.9

3.00% Exchangeable senior notes due 2024 (1)
 
635.7

 
757.1

 
604.3

 
874.7

4.50% Senior notes due 2024
 
619.3

 
527.1

 
618.6

 
536.0

8.00% Senior notes due 2024
 
337.9

 
333.8

 

 

5.20% Senior notes due 2025
 
663.6

 
571.4

 
662.8

 
582.3

7.20% Debentures due 2027
 
149.3

 
141.9

 
149.2

 
138.7

7.875% Senior notes due 2040
 
376.7

 
258.8

 
378.3

 
270.6

5.75% Senior notes due 2044
 
971.8

 
690.4

 
970.8

 
728.0

Total 
 
$
4,750.7

 
$
4,271.8

 
$
5,274.5

 
$
5,001.7



 (1)  
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, which will be amortized to interest expense. Excluding the unamortized discount, the carrying value of the 2024 Convertible Notes was $834.0 million and $830.1 million as of December 31, 2017 and 2016. See "Note 5 - Debt" for additional information on this issuance.

The estimated fair values of our senior notes and debentures were determined using quoted market prices. The decline in the carrying value of long-term debt instruments from December 31, 2016 to December 31, 2017 is primarily due to debt repurchases as discussed in "Note 5 - Debt". 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, 2017 and 2016.
Property And Equipment
Property And Equipment
PROPERTY AND EQUIPMENT

Property and equipment as of December 31, 2017 and 2016 consisted of the following (in millions):
 
 
2017
 
2016
Drilling rigs and equipment
 
$
12,272.4

 
$
11,067.4

Other
 
183.4

 
180.8

Work in progress
 
2,876.3

 
1,744.3

 
 
$
15,332.1

 
$
12,992.5


 
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 ENSCO 140 and ENSCO 141 premium jackup rigs 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 have been delivered by the respective shipyards but have not yet been placed into service as of December 31, 2017.

Work in progress as of December 31, 2016 primarily consisted of $1.1 billion related to the construction of ultra-deepwater drillships ENSCO DS-9 and ENSCO DS-10, $415.4 million related to the construction of ENSCO 140 and ENSCO 141 premium jackup rigs and $85.2 million related to the construction of ENSCO 123, an ultra-premium harsh environment jackup rig.

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 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.

During 2015, we recognized a pre-tax, non-cash loss on impairment of $2.6 billion, of which $2.5 billion was included in income (loss) from continuing operations and $148.6 million was included in income (loss) from discontinued operations, net, in our consolidated statement of operations. The impairments recognized during 2015 resulted from adverse changes in our business climate that led to the conclusion that triggering events had occurred across our fleet.
 
For rigs whose carrying values were determined not to be recoverable during 2017 and 2015, we recorded an impairment for the difference between their fair values and carrying values. We estimated the fair values of these rigs by applying either an income approach, using projected discounted cash flows, or a market approach. 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.

In instances where we applied an income approach, forecasted day rates and utilization took into account market conditions and our anticipated business outlook. In instances where we applied a market approach, the fair value was based on unobservable third-party estimated prices that would be received in exchange for the assets in an orderly transaction between market participants. We validated all third-party estimated prices using our forecasts of economic returns for the respective rigs or other market data.

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.
Debt
Debt
DEBT

The carrying value of our long-term debt as of December 31, 2017 and 2016 consisted of the following (in millions):
 
 
2017
 
2016
8.50% Senior notes due 2019
 
$
251.4

 
$
480.2

6.875% Senior notes due 2020
 
477.9

 
735.9

4.70% Senior notes due 2021
 
267.1

 
674.4

3.00% Exchangeable senior notes due 2024
 
635.7

 
604.3

4.50% Senior notes due 2024
 
619.3

 
618.6

8.00% Senior notes due 2024
 
337.9

 

5.20% Senior notes due 2025
 
663.6

 
662.8

7.20% Debentures due 2027
 
149.3

 
149.2

7.875% Senior notes due 2040
 
376.7

 
378.3

5.75% Senior notes due 2044
 
971.8

 
970.8

Total debt
 
4,750.7

 
5,274.5

Less current maturities(1)
 

 
(331.9
)
Total long-term debt
 
$
4,750.7

 
$
4,942.6



(1) 
In January 2017, we completed exchange offers to exchange our outstanding 8.50% senior notes due 2019, 6.875% senior notes due 2020 and 4.70% senior notes due 2021 for 8.00% senior notes due 2024 and cash. As of December 31, 2016, the aggregate amount of principal repurchased with cash, along with associated premiums, was classified as current maturities of long-term debt on our consolidated balance sheet.

 Convertible Senior 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, 2017 and 2016, the 2024 Convertible Notes consist of the following (in millions):
Liability component:
 
2017
 
2016
Principal
 
$
849.5

 
$
849.5

Less: Unamortized debt discount and issuance costs
 
(213.8
)
 
(245.2
)
Net carrying amount
 
635.7

 
604.3

Equity component, net
 
$
220.0

 
$
220.0


During the year ended December 31, 2017, we recognized $25.5 million associated with coupon interest and $31.4 million associated with the amortization of debt discount and issuance costs. During the year ended December 31, 2016, we recognized $1.3 million associated with coupon interest and $1.5 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 at par. Interest on the 2026 Notes is payable semiannually on February 1 and August 1 of each year commencing August 1, 2018.     

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") in a public offering. 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. The Debentures are not subject to any sinking fund requirements. 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 and Open Market Repurchases

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.

During 2016, we launched cash tender offers for up to $750.0 million aggregate purchase price of our outstanding debt. We received tenders totaling $860.7 million for an aggregate purchase price of $622.3 million. We used cash on hand to settle the tendered debt. Additionally during 2016, we repurchased on the open market $269.9 million of outstanding debt for an aggregate purchase price of $241.6 million.

Our tender offers and open market repurchases during the two-year period ended December 31, 2017 were as follows (in millions):

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.

Year Ended December 31, 2016
 
Aggregate Principal Amount Repurchased
 
Aggregate Repurchase Price (1)
8.50% Senior notes due 2019
$
62.0

 
$
55.7

6.875% Senior notes due 2020
219.2

 
181.5

4.70% Senior notes due 2021
817.0

 
609.0

4.50% Senior notes due 2024
1.7

 
.9

5.20% Senior notes due 2025
30.7

 
16.8

Total
$
1,130.6

 
$
863.9


(1) 
Excludes accrued interest paid to holders of the repurchased senior notes.
 
Exchange Offers
    
During 2017, we completed exchange offers to exchange our outstanding 8.50% senior notes due 2019, 6.875% senior notes due 2020 and 4.70% senior notes due 2021 for 8.00% senior notes due 2024 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.

2018 Tender Offers and Redemption

Concurrent with the issuance of the 2026 Notes in January 2018, we launched cash tender offers for up to $985.0 million aggregate purchase price on certain series of senior notes issued by us and Pride International LLC, our wholly-owned subsidiary. The tender offers expired February 7, 2018 and we repurchased $182.6 million of the 8.50% senior notes due 2019, $256.6 million of the 6.875% senior notes due 2020 and $156.2 million of the 4.70% senior notes due 2021. We subsequently issued a redemption notice for the remaining outstanding $55.0 million principal amount of the 8.50% senior notes due 2019. The following table sets forth the total principal amounts repurchased as a result of the tender offers and redemption (in millions):
 
Aggregate Principal Amount Repurchased
 
Aggregate Repurchase Price(1)
8.50% Senior notes due 2019
$
237.6

 
$
256.8

6.875% Senior notes due 2020
256.6

 
277.1

4.70% Senior notes due 2021
156.2

 
159.3

Total
$
650.4

 
$
693.2


(1) 
Excludes accrued interest paid to holders of the repurchased senior notes.
    
During the first quarter of 2018, we expect to recognize a pre-tax loss from debt extinguishment of approximately $18.2 million related to the tender offers, net of discounts, premiums, debt issuance costs and transaction costs.

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 revolving 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 October 2017, Moody's announced a downgrade of our credit rating from B1 to B2, and Standard & Poor's downgraded our credit rating from BB to B+, which are both ratings below investment grade. Subsequently, in January 2018, Moody's downgraded our senior unsecured bond credit rating from B2 to B3. The Credit Facility amendment and the rating actions resulted in increases 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, 2017, 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 2017. We had no amounts outstanding under the Credit Facility as of December 31, 2017 and 2016.

Our access to credit and capital markets depends on the credit ratings assigned to our debt. As a result of recent rating actions by these 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 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
 
2017 Repurchases
 
Principal Outstanding at December 31, 2017(1)
 
2018 Tender Offers, Redemption and Debt Issuance
 
Remaining Principal
8.50% due 2019
$
500.0

 
$
(62.0
)
 
$
(145.8
)
 
$
(54.6
)
 
$
237.6

 
$
(237.6
)
 
$

6.875% due 2020
900.0

 
(219.2
)
 
(129.8
)
 
(100.1
)
 
450.9

 
(256.6
)
 
194.3

4.70% due 2021
1,500.0

 
(817.0
)
 
(373.9
)
 
(39.4
)
 
269.7

 
(156.2
)
 
113.5

3.00% due 2024
849.5

 

 

 

 
849.5

 

 
849.5

4.50% due 2024
625.0

 
(1.7
)
 

 

 
623.3

 

 
623.3

8.00% due 2024

 

 
332.0

 

 
332.0

 

 
332.0

5.20% due 2025
700.0

 
(30.7
)
 

 

 
669.3

 

 
669.3

7.75% due 2026

 

 

 

 

 
1,000.0

 
1,000.0

7.20% due 2027
150.0

 

 

 

 
150.0

 

 
150.0

7.875% due 2040
300.0

 

 

 

 
300.0

 

 
300.0

5.75% due 2044
1,025.0

 
(24.5
)
 

 

 
1,000.5

 

 
1,000.5

Total
$
6,549.5

 
$
(1,155.1
)
 
$
(317.5
)
 
$
(194.1
)
 
$
4,882.8

 
$
349.6

 
$
5,232.4


(1) 
The aggregate principal amount outstanding as of December 31, 2017 excludes net unamortized discounts and debt issuance costs of $132.1 million.

Interest Expense

Interest expense totaled $224.2 million, $228.8 million and $216.3 million for the years ended December 31, 2017, 2016 and 2015, respectively, which was net of interest amounts capitalized of $72.5 million, $45.7 million and $87.4 million in connection with newbuild rig construction and other capital projects.
Derivative Instruments
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 3 - Fair Value Measurements" for additional information on the fair value measurement of our derivatives.
 
As of December 31, 2017 and 2016, our consolidated balance sheets included net foreign currency derivative assets of $6.8 million and liabilities of $8.8 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, 2017 and 2016 consisted of the following (in millions):
 
Derivative Assets
 
Derivative Liabilities
 
2017
 
2016
 
2017
 
2016
Derivatives Designated as Hedging Instruments
 

 
 

 
 

 
 

Foreign currency forward contracts - current(1)
$
5.9

 
$
4.1

 
$
.2

 
$
11.4

Foreign currency forward contracts - non-current(2)
.5

 
.2

 
.1

 
.8

 
6.4

 
4.3

 
.3

 
12.2

Derivatives not Designated as Hedging Instruments
 

 
 

 
 

 
 

Foreign currency forward contracts - current(1)
.9

 
.4

 
.2

 
1.3

 
.9

 
.4

 
.2

 
1.3

Total
$
7.3

 
$
4.7

 
$
.5

 
$
13.5


(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, net, 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, 2017, we had cash flow hedges outstanding to exchange an aggregate $188.4 million for various foreign currencies, including $82.2 million for British pounds, $47.8 million for Australian dollars, $27.0 million for euros, $19.9 million for Brazilian reals, $10.4 million for Singapore dollars and $1.1 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, 2017 were as follows (in millions):
 
Gain (Loss) Recognized in Other Comprehensive
Income ("OCI")
on Derivatives
  (Effective Portion)  
 
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)
 
2017
 
2016
 
2015
 
2017
 
2016
 
2015
 
2017
 
2016
 
2015
Interest rate lock contracts(3) 
$

 
$

 
$

 
$
(.2
)
 
$
(.2
)
 
$
(.6
)
 
$

 
$

 
$

Foreign currency forward contracts(4)
8.5

 
(5.4
)
 
(23.6
)
 
(.2
)
 
(12.2
)
 
(21.6
)
 
(.7
)
 
1.9

 
(.1
)
Total
$
8.5

 
$
(5.4
)
 
$
(23.6
)
 
$
(.4
)
 
$
(12.4
)
 
$
(22.2
)
 
$
(.7
)
 
$
1.9

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

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

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

(4) 
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 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, 2015, $22.5 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, 2017, we held derivatives not designated as hedging instruments to exchange an aggregate $131.1 million for various foreign currencies, including $93.3 million for euros, $9.6 million for Brazilian reals, $7.4 million for Indonesian rupiah, $5.6 million for British pounds, $5.4 million for Australian dollars and $9.8 million for other currencies.

Net gains of $10.0 million, and net losses of $7.0 million and $17.3 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, 2017, 2016 and 2015, respectively.

As of December 31, 2017, the estimated amount of net gains associated with derivatives, net of tax, that will be reclassified to earnings during the next 12 months was as follows (in millions):

Net unrealized gains to be reclassified to contract drilling expense
 
$
3.1

Net realized gains to be reclassified to depreciation expense
 
.9

Net realized losses to be reclassified to interest expense
 
(.4
)
Net gains to be reclassified to earnings
 
$
3.6

Shareholders' Equity
Shareholders' Equity
SHAREHOLDERS' EQUITY
 
Activity in our various shareholders' equity accounts for each of the years in the three-year period ended December 31, 2017 was as follows (in millions):
 
 Shares 
 
Par Value
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
AOCI 
 
Treasury
Shares
 
Noncontrolling
Interest
BALANCE, December 31, 2014
240.6

 
$
24.2

 
$
5,517.5

 
$
2,720.4

 
$
11.9

 
$
(59.0
)
 
$
7.9

Net loss

 

 

 
(1,594.8
)
 

 

 
8.9

Dividends paid

 

 

 
(140.3
)
 

 

 

Distributions to noncontrolling interests

 

 

 

 

 

 
(12.5
)
Shares issued under share-based compensation plans, net
2.3

 
.2

 

 

 

 
(.2
)
 

Tax expense from share-based compensation

 

 
(2.4
)
 

 

 

 

Repurchase of shares

 

 

 

 

 
(4.6
)
 

Share-based compensation cost

 

 
39.4

 

 

 

 

Net other comprehensive loss

 

 

 

 
.6

 

 

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

 

 

 
(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 senior notes issuance, net

 

 
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 income

 

 

 

 
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

 

 

 
(13.6
)
 

 

 

Cumulative-effect adjustment due to ASU 2016-16

 

 

 
(14.1
)
 

 

 

Distributions to noncontrolling interests

 

 

 

 

 

 
(6.0
)
Equity issuance in connection with the 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
)


    

    
In October 2017, as a result of the Merger, we issued 132.2 million of our Class A Ordinary shares, representing total equity consideration of $770.7 million 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.

In April, 2016, we closed an underwritten public offering of 65,550,000 Class A ordinary shares at $9.25 per share. We received net proceeds from the offering of $585.5 million.

In October 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 Class A ordinary 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.

As a U.K. company governed in part by the Companies Act, we cannot issue new shares (other than in limited circumstances) without being authorized by our shareholders. At our last annual general meeting, our shareholders authorized the allotment of 101.1 million Class A ordinary shares (or 202.2 million Class A ordinary shares in connection with an offer by way of a rights issue or other similar issue). On October 5, 2017, at our general shareholders meeting, our shareholders approved an increase to our allotment in the amount of 45.3 million Class A ordinary shares (or 90.2 million Class A ordinary shares in connection with an offer by way of rights issue or other similar issuance) to reflect the expected enlarged share capital of Ensco immediately following the completion of the Merger. The total allotment of 146.4 million Class A ordinary shares (or 292.4 million Class A ordinary shares in connection with an offer by way of rights issue or similar issuance) is authorized for a period up to the conclusion of our 2018 annual general meeting (or, if earlier, at the close of business on August 22, 2018).

Under English law, we are only able to declare dividends and return funds to our shareholders out of the accumulated distributable reserves on our statutory balance sheet. The declaration and amount of future dividends is at the discretion of our Board of Directors and will depend on our profitability, liquidity, financial condition, market outlook, reinvestment opportunities, capital requirements and other factors and restrictions our Board of Directors deems relevant. There can be no assurance that we will pay a dividend in the future.
    During 2013, our shareholders approved a share repurchase program. Subject to certain provisions under English law, including the requirement of Ensco plc to have sufficient distributable reserves, we may repurchase up to a maximum of $2.0 billion in the aggregate under the program, but in no case more than 35.0 million shares. The program terminates during 2018. As of December 31, 2017, there had been no share repurchases under this program.
Benefit Plans
Benefit Plans
BENEFIT PLANS
 
Our shareholders approved the 2012 Long-Term Incentive Plan (the “2012 LTIP”) effective January 1, 2012, to provide for the issuance of non-vested share awards, share option awards and performance awards (collectively "awards"). Under the 2012 LTIP, as amended, 32.0 million shares were reserved for issuance as awards to officers, non-employee directors and key employees who are in a position to contribute materially to our growth, development and long-term success. As of December 31, 2017, there were 18.2 million shares available for issuance as awards under the 2012 LTIP. Awards may be satisfied by newly issued shares, including shares held by a subsidiary or affiliated entity, or by delivery of shares held in an affiliated employee benefit trust at the Company's discretion.

In connection with the Merger, we assumed Atwood’s Amended and Restated 2007 Long-Term Incentive Plan (the “Atwood LTIP”) and the options outstanding thereunder. As of December 31, 2017, there were 1.6 million shares remaining available for future issuance as awards under the Atwood LTIP, which may be granted to employees and other service providers who were not employed or engaged with Ensco prior to the Merger.

Non-Vested Share Awards and Cash-Settled Awards
 
Grants of share awards and share units (collectively "share awards") and share units to be settled in cash ("cash-settled awards"), generally vest at rates of 20% or 33% per year, as determined by a committee or subcommittee of the Board of Directors at the time of grant. During 2017, we granted 5.0 million cash-settled awards and 1.4 million share awards to our employees and non-employee directors pursuant to the 2012 LTIP. Our non-vested share awards have voting and dividend rights effective on the date of grant, and our non-vested share units have dividend rights effective on the date of grant. Compensation expense for share awards 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 cash-settled awards is remeasured each quarter with a cumulative adjustment to compensation cost during the period based on changes in our share price. Our compensation cost is reduced for forfeited awards in the period in which the forfeitures occur.

The following table summarizes share award and cash-settled award compensation expense recognized during each of the years in the three-year period ended December 31, 2017 (in millions):
 
2017
 
2016
 
2015
Contract drilling
$
18.3

 
$
19.9

 
$
19.5

General and administrative
14.5

 
16.6

 
17.8

 
32.8

 
36.5

 
37.3

Tax benefit
(4.8
)
 
(5.9
)
 
(4.8
)
Total
$
28.0

 
$
30.6

 
$
32.5



The following table summarizes the value of share awards and cash-settled awards granted and vested during each of the years in the three-year period ended December 31, 2017:
 
Share Awards
 
Cash-Settled Awards
 
2017
 
2016
 
2015
 
2017
 
2016
 
2015
Weighted-average grant-date fair value of share awards granted (per share)
$
7.90

 
$
10.42


$
23.95

 
$
6.27

 
$
9.64

 
$

Total fair value of share awards vested during the period (in millions)
$
8.6

 
$
8.8


$
18.0

 
$
3.9

 
$

 
$


    
The following table summarizes share awards and cash-settled awards activity for the year ended December 31, 2017 (shares in thousands):
 
Share Awards
 
Cash-settled Awards
 
Awards
 
Weighted-Average
Grant-Date
Fair Value
 
Awards
 
Weighted-Average
Grant-Date
Fair Value
Share awards and cash-settled awards as of December 31, 2016
3,073

 
$
26.02

 
3,060

 
$
9.64

Granted
1,433

 
7.90

 
4,968

 
6.27

Vested
(1,123
)
 
32.75

 
(614
)
 
9.64

Forfeited
(78
)
 
31.52

 
(325
)
 
7.77

Share awards and cash-settled awards as of December 31, 2017
3,305

 
$
16.06

 
7,089

 
$
7.37



As of December 31, 2017, there was $74.8 million of total unrecognized compensation cost related to share awards, which is expected to be recognized over a weighted-average period of 2.0 years.

Share Option Awards

Share option awards ("options") granted to employees generally become exercisable in 25% increments over a four-year period or 33% increments over a three-year period and, to the extent not exercised, expire on either the seventh or tenth anniversary of the date of grant. The exercise price of options granted under the 2012 LTIP equals the market value of the underlying shares on the date of grant. As of December 31, 2017, options granted to purchase 896,279 shares with a weighted-average exercise price of $25.97 were outstanding under the 2012 LTIP and predecessor or acquired plans. Excluding options assumed under the Atwood LTIP, no options have been granted since 2011, and there was no unrecognized compensation cost related to options as of December 31, 2017.

Performance Awards

Under the 2012 LTIP, performance awards may be issued to our senior executive officers. Performance awards are subject to achievement of specified performance goals based on relative total shareholder return ("TSR") and relative return on capital employed ("ROCE"). The performance goals are determined by a committee or subcommittee of the Board of Directors. Awards are payable in either Ensco shares or cash upon attainment of relative TSR and ROCE performance goals. Performance awards granted during 2017 are payable in cash while performance awards granted in 2015 and 2016 are payable in Ensco shares.

Our performance awards granted during 2017 are classified as liability awards with compensation expense measured based on the estimated probability of attainment of the specified performance goals and recognized on a straight-line basis over the requisite service period. The estimated probable outcome of attainment of the specified performance goals is based on historical experience, and any subsequent changes in this estimate are recognized as a cumulative adjustment to compensation cost in the period in which the change in estimate occurs.

Performance awards generally vest at the end of a three-year measurement period based on attainment of performance goals. Our performance awards granted during 2015 and 2016 are classified as equity awards with compensation expense recognized on a straight-line basis over the requisite service period. The estimated probable outcome of attainment of the specified performance goals is based on historical experience, and any subsequent changes in this estimate for the relative ROCE performance goal are recognized as a cumulative adjustment to compensation cost in the period in which the change in estimate occurs.
    
The aggregate grant-date fair value of performance awards granted during 2017, 2016 and 2015 totaled $6.7 million, $6.1 million and $8.3 million, respectively. The aggregate fair value of performance awards vested during 2017, 2016 and 2015 totaled $2.9 million, $2.8 million and $4.6 million, respectively.

During the years ended December 31, 2017, 2016 and 2015, we recognized $8.4 million, $3.1 million and $2.9 million of compensation expense for performance awards, respectively, which was included in general and administrative expense in our consolidated statements of operations.  As of December 31, 2017, there was $8.2 million of total unrecognized compensation cost related to unvested performance awards, which is expected to be recognized over a weighted-average period of 1.8 years.

Savings Plans

We have profit sharing plans (the "Ensco Savings Plan," the "Ensco Multinational Savings Plan" and the "Ensco Limited Retirement Plan"), which cover eligible employees, as defined within each plan.  The Ensco Savings Plan includes a 401(k) savings plan feature, which allows eligible employees to make tax-deferred contributions to the plan.  The Ensco Limited Retirement Plan also allows eligible employees to make tax-deferred contributions to the plan. Contributions made to the Ensco Multinational Savings Plan may or may not qualify for tax deferral based on each plan participant's local tax requirements.
 
We generally make matching cash contributions to the plans.  We match 100% of the amount contributed by the employee up to a maximum of 5% of eligible salary. Matching contributions totaled $12.2 million, $16.7 million and $18.9 million for the years ended December 31, 2017, 2016 and 2015, respectively.  Any additional discretionary contributions made into the plans require approval of the Board of Directors and are generally paid in cash.  We recorded additional discretionary contribution provisions of $19.2 million and $27.5 million for the years ended December 31, 2016 and 2015, respectively.  Matching contributions and additional discretionary contributions become vested in 33% increments upon completion of each initial year of service with all contributions becoming fully vested subsequent to achievement of three or more years of service.  We have 1.0 million shares reserved for issuance as matching contributions under the Ensco Savings Plan.
Goodwill
Goodwill and Other Intangible Assets and Liabilities
GOODWILL

Our business consists of three operating segments: (1) Floaters, which includes our drillships and semisubmersible rigs, (2) Jackups and (3) Other, which consists of management services on rigs owned by third-parties. Our two reportable segments, Floaters and Jackups, represent our reporting units. We have historically tested goodwill for impairment on an annual basis or when events or changes in circumstances indicate that a potential impairment exists. All of our goodwill was impaired as of December 31, 2015.

At the beginning of 2015, our goodwill balance was $276.1 million, net of accumulated impairment of $3.0 billion. During 2015, we recorded non-cash losses on impairment of $192.6 million and $83.5 million for the Jackups and Floaters reporting units, respectively, which were included in loss on impairment in our consolidated statement of operations.

As part of our annual 2015 goodwill impairment test, we considered the decline in oil prices, which resulted in significant capital spending reductions by our customers and corresponding deterioration in our forecasted day rates and utilization. Additionally, our stock price declined significantly from $35 at the end of 2014 to below $15 at the end of 2015. We concluded it was more-likely-than-not that the fair values of our reporting units were less than their carrying amounts.

We utilized an income approach that was based on a discounted cash flow model, which included present values of cash flows to estimate the fair value of our reporting units and was based on unobservable inputs that require significant judgments for which there was limited information. The future cash flows were projected based on our estimates of future day rates, utilization, operating costs, capital requirements, growth rates and terminal values. Forecasted day rates and utilization took into account market conditions and our anticipated business outlook.
    
We compared the estimated fair value of each reporting unit to the fair values of all assets and liabilities within the respective reporting unit to calculate the implied fair value of goodwill and recorded an impairment to goodwill for the difference.
Income Taxes
Income Taxes
INCOME TAXES

We generated profits of $6.3 million and losses of $151.6 million and $578.2 million from continuing operations before income taxes in the U.S. and a loss of $202.3 million, profits of $1.1 billion and a loss of $893.0 million from continuing operations before income taxes in non-U.S. jurisdictions for the years ended December 31, 2017, 2016 and 2015, respectively.

The following table summarizes components of our provision for income taxes from continuing operations for each of the years in the three-year period ended December 31, 2017 (in millions):
 
2017
 
2016
 
2015
Current income tax (benefit) expense:
 

 
 

 
 

U.S.
$
(2.2
)
 
$
(6.6
)
 
$
18.7

Non-U.S.
56.4

 
86.4

 
125.4

 
54.2

 
79.8

 
144.1

Deferred income tax expense (benefit):
 

 
 

 
 

U.S.
36.0

 
15.9

 
(180.4
)
Non-U.S.
19.0

 
12.8

 
22.4

 
55.0

 
28.7

 
(158.0
)
Total income tax expense (benefit)
$
109.2

 
$
108.5

 
$
(13.9
)

    
U.S. Tax Reform

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 base erosion anti-abuse tax that effectively imposes a minimum tax on certain payments to non-U.S. affiliates and new and revised rules relating to the current taxation of certain income of foreign subsidiaries. We recognized a net tax expense of $16.5 million during the fourth quarter of 2017 in connection with enactment of U.S. tax reform, consisting of a $38.5 million tax expense associated with the one-time transition tax on deemed repatriation of the deferred foreign income of our U.S. subsidiaries, a $17.3 million tax expense associated with revisions to rules over the taxation of income of foreign subsidiaries, a $20.0 million tax benefit resulting from the re-measurement of our deferred tax assets and liabilities as of December 31, 2017 to reflect the reduced tax rate and a $19.3 million tax benefit resulting from adjustments to the valuation allowance on deferred tax assets.

Due to the timing of the enactment of U.S. tax reform and the complexity involved in applying its provisions, we have made reasonable estimates of its effects and recorded such amounts in our consolidated financial statements as of December 31, 2017 on a provisional basis. As we continue to analyze applicable information and data, and interpret any additional guidance issued by the U.S. Treasury Department, the Internal Revenue Service and others, we may make adjustments to the provisional amounts throughout the one-year measurement period as provided by Staff Accounting Bulletin No. 118. Our accounting for the enactment of U.S. tax reform will be completed during 2018 and any adjustments we recognize could be material. The ongoing impact of U.S. tax reform may result in an increase in our consolidated effective income tax rate in future periods.

    
    
Deferred Taxes

The following table summarizes significant components of deferred income tax assets (liabilities) as of December 31, 2017 and 2016 (in millions):