Acquisition of Atwood

On October 6, 2017 (the "Merger Date"), we completed a merger transaction (the "Merger") with Atwood Oceanics, Inc. ("Atwood") and Echo Merger Sub, LLC, our wholly-owned subsidiary. Assets acquired and liabilities assumed in the Merger were 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. With the exception of certain spare parts and equipment and legal and tax exposures, we have substantially completed our fair value assessments of assets acquired and liabilities assumed. While certain adjustments may be recorded during the remainder of the measurement period, we do not expect them to be material.

Assets Acquired and Liabilities Assumed

The provisional amounts and respective measurement period adjustments recorded 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):



	Amounts Recognized as of Merger Date			Measurement Period Adjustments ⁽¹⁾			Estimated Fair Value
Assets:
Cash and cash equivalents⁽²⁾	$	445.4		$	—		$	445.4
Accounts receivable⁽³⁾	62.3			(1.6		)	60.7
Other current assets	118.1			4.7			122.8
Property and equipment	1,762.0			9.2			1,771.2
Other assets	23.7			(2.9		)	20.8
Liabilities:
Accounts payable and accrued liabilities	64.9			(2.3		)	62.6
Other liabilities	118.7			3.4			122.1
Net assets acquired	2,227.9			8.3			2,236.2
Less:
Merger consideration	(781.8		)				(781.8		)
Repayment of Atwood debt	(1,305.9		)				(1,305.9		)
Bargain purchase gain	$	140.2					$	148.5

⁽¹⁾

The measurement period adjustments reflect changes in the estimated fair values of certain assets and liabilities, primarily related to inventory, capital equipment and accrued non-income tax liabilities. The measurement period adjustments were recorded to reflect new information obtained about facts and circumstances existing as of the Merger Date and did not result from subsequent intervening events. The adjustments recorded resulted in an $8.3 million decline and an $8.3 million increase to bargain purchase gain during the three-month and six-month periods ended June 30, 2018, respectively, and are included in other, net, in our condensed consolidated statements of operations.


⁽²⁾	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.

⁽³⁾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.

Intangible Assets and Liabilities

We recorded intangible assets totaling $30.1 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.

Operating revenues were net of $4.3 million and $5.8 million of asset amortization during the three-month and six-month periods ended June 30, 2018, respectively. The remaining balance of $8.2 million was included in other assets on our condensed consolidated balance sheet as of June 30, 2018. This balance will be amortized to operating revenues over the remaining drilling contract term on a straight-line basis totaling $5.6 million and $2.6 million during the remainder of 2018 and full year 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 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.