ACQUISITION OF ATWOOD

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

Consideration

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

Assets Acquired and Liabilities Assumed

The provisional amounts recorded for assets acquired and liabilities assumed as of the Merger Date and respective measurement period adjustments were as follows (in millions):



	Amounts Recognized as of Merger Date			Measurement Period Adjustments ⁽¹⁾			Estimated Fair Value
Assets:
Cash and cash equivalents⁽²⁾	$	445.4		$	—		$	445.4
Accounts receivable⁽³⁾	62.3			(1.6		)	60.7
Other current assets	118.1			4.6			122.7
Property and equipment	1,762.0			9.2			1,771.2
Other assets	23.7			(5.1		)	18.6
Liabilities:
Accounts payable and accrued liabilities	64.9			(1.1		)	63.8
Other liabilities	118.7			6.4			125.1
Net assets acquired	2,227.9			1.8			2,229.7
Less:
Merger consideration	(781.8		)				(781.8		)
Repayment of Atwood debt⁽²⁾	(1,305.9		)				(1,305.9		)
Bargain purchase gain	$	140.2					$	142.0

⁽¹⁾ The measurement period adjustments reflect changes in the estimated fair values of certain assets and liabilities, primarily related to inventory, capital equipment and other liabilities. The measurement period adjustments were recorded to reflect new information obtained about facts and circumstances existing as of the Merger Date and did not result from subsequent intervening events.

⁽²⁾ Upon closing of the Atwood Merger, we utilized acquired cash of $445.4 million and cash on hand from the liquidation of short-term investments to repay Atwood's debt and accrued interest of $1.3 billion.

⁽³⁾ Gross contractual amounts receivable totaled $64.7 million as of the Merger Date.

Bargain Purchase Gain

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

Merger-Related Costs

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

Property and Equipment

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

Deferred Taxes

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

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

Intangible Assets and Liabilities

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

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

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

Pro Forma Impact of the Atwood Merger

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



(in millions, except per share amounts)	Twelve Months Ended (Unaudited)
	2017⁽¹⁾			2016
Revenues	$	2,226.0		$	3,622.1
Net income (loss)	(347.0		)	1,284.9
Earnings (loss) per share - basic and diluted	(.80		)	3.18

⁽¹⁾ Pro forma net income and earnings per share were adjusted to exclude an aggregate $80.7 million of merger-related and integration costs incurred by Ensco and Atwood during 2017 and the $140.2 million estimated bargain purchase gain.