REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Participants and Plan Administrator of the
Ensco Savings Plan
Opinion on the Financial Statements
We have audited the accompanying statements of net assets available for benefits of the Ensco Savings Plan (the “Plan”) as of
December 31, 2018
and
2017
, and the related statements of changes in net assets available for benefits for the years then ended, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the net assets available for benefits of the Plan as of
December 31, 2018
and
2017
, and the changes in net assets available for benefits for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on the Plan’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Plan in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Supplemental Information
The supplemental information in the accompanying schedule of Form 5500, Schedule H, Line 4i - Schedule of Assets (Held at End of Year) as of
December 31, 2018
has been subjected to audit procedures performed in conjunction with the audit of the Plan’s financial statements. The supplemental schedule is the responsibility of the Plan’s management. Our audit procedures included determining whether the supplemental schedule reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the supplemental information. In forming our opinion on the supplemental information, we evaluated whether the supplemental information, including its form and content, is presented in conformity with the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. In our opinion, the supplemental information is fairly stated, in all material respects, in relation to the financial statements as a whole.
/s/Whitley Penn LLP
We have served as the Plan’s auditor since 2009.
Houston, Texas
June 24, 2019
NOTES TO FINANCIAL STATEMENTS
1. PLAN ORGANIZATION AND DESCRIPTION
The Ensco Savings Plan (the “Plan”) is a defined contribution plan available to employees (“Eligible Employees”) of Ensco Rowan plc and subsidiary companies (the “Company” or “EnscoRowan”). ENSCO International Incorporated, a wholly-owned subsidiary of the Company, is the Plan Sponsor. The Plan was established to provide a retirement benefit for eligible employees through Company annual discretionary contributions and matching contributions based on eligible employee contributions and to promote and encourage eligible employees to provide additional security and income for their retirement through a systematic savings program. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The following description of the Plan provides only general information. Participants should refer to the Plan document for a more complete description of the Plan’s provisions.
On October 6, 2017, the Company completed a merger transaction with Atwood Oceanics, Inc. (“Atwood”). The Company determined that all participants in the Atwood 401(k) Plan would continue to be eligible to participate in the Atwood 401(k) Plan through December 31, 2017 and would then become eligible to participate in the Plan effective January 1, 2018. The Atwood 401(k) Plan’s assets and participant accounts totaling
$73.9 million
were merged into the Plan effective January 1, 2018.
Participation
Eligible Employees of the Company may participate in the Plan upon meeting certain age requirements, except for those employees, if any, who are covered by a collective bargaining agreement with retirement benefits that are subject to good faith bargaining between the Company and the employee representative (unless the agreement requires inclusion in the Plan), contract employees and certain non-resident employees.
Eligible Employees participate in the discretionary contribution feature of the Plan provided that they became employees prior to September 30, employees that become employed after September 30 will become eligible beginning January 1 of the following calendar year. All employer contributions are at the discretion of the Company’s Board of Directors as disclosed below.
Contributions
Participants in the Plan (“Plan Participants”) may elect to make contributions to the Plan through salary deferrals (“Savings Contributions”), which qualify for tax deferral under Section 401(k) of the Internal Revenue Code (the “Code”). Under the Plan, Savings Contributions are limited to 50% (15%, or such lesser percentage established by the Administrator, for highly compensated Plan Participants) of the participant’s compensation, subject to the annual dollar limitation set forth in Section 402(g) of the Code (
$18,500
and
$18,000
for the years ended
December 31, 2018
and
2017
, respectively). Plan Participants who have attained age 50 before the close of the Plan year are eligible to make catch-up contributions. An individual’s total catch-up contributions during
2018
and
2017
could not exceed
$6,000
. Plan Participants may elect to increase, decrease or suspend their Savings Contributions within certain limits, as defined in the Plan document. Under certain circumstances, Plan Participants may make contributions to the Plan in the form of rollover contributions (“Rollover Contributions”).
At the discretion of its Board of Directors, the Company may make contributions to the Plan (“Matching Contributions”) in the form of a stated dollar amount or in the form of a matching percentage of Savings Contributions. For the years ended
December 31, 2018
and
2017
, the Company made Matching Contributions to active participant Eligible Employee accounts in the amount of 100% of the first 5% of eligible compensation.
Total Matching Contributions, net of forfeitures of
$343,000
and
$1.0 million
, for the years ended
December 31, 2018
and
2017
were
$9.6 million
and
$8.0 million
, respectively.
Also at the discretion of the Board of Directors, following the close of a fiscal year, the Company may also make a contribution of 5% of each Plan Participant’s base salary during the plan year (“5% Contributions). The Company did not make a discretionary 5% Contribution for the years ended
December 31, 2018
and
2017
.
Statutory limits on the sum of a participant’s annual Savings Contributions and Matching Contributions were the lesser of
$55,000
(
$61,000
including catch-up contributions) or
100%
of the Plan Participant’s compensation for
2018
. The limits for
2017
were the lesser of
$54,000
(
$60,000
including catch-up contributions) or
100%
of the Plan Participant’s compensation.
Plan Administration
T. Rowe Price Trust Company (“T. Rowe Price”) serves as the asset custodian, recordkeeper and investment manager for the Plan’s trust fund and executes all investment actions at the discretion of Plan Participants.
Vesting
A Plan Participant’s Matching Contribution account balance and the 5% Contribution account balance become vested and nonforfeitable upon the completion of years of service with the Company, as follows:
|
|
|
|
|
|
Completed years of service
|
Vested percentage
|
|
Less than one year
|
0%
|
|
One year
|
33%
|
|
Two years
|
67%
|
|
Three or more years
|
100%
|
A Plan Participant shall become fully vested in his or her Matching Contribution account balance and 5% Contribution account balance upon certain events, including death or disability, attaining the age of 65 or a full termination of the Plan. A Plan Participant’s Savings Contribution account balance and Rollover Contribution account balance are fully vested at all times.
The non-vested portion of Matching Contribution account balances and 5% Contribution account balances of terminated Plan Participants are forfeited to the Plan and may be used to reduce the amount of employer contributions.
Distributions
Distributions of a Plan Participant’s Savings Contribution account, Rollover Contribution account and the vested portion of a participant’s Matching Contribution account and 5% Contribution account are made at the request of the participant. As of
December 31, 2018
and
2017
, distributions of approximately
$20,000
and
$2,000
, respectively, were requested by Plan Participants but had not yet been paid.
Hardship Withdrawals
Should a Plan Participant experience a hardship, he or she may elect to withdraw all or part of his or her vested account balance from the Plan. In order to qualify for a hardship withdrawal, the participant must first obtain all in-service distributions and/or loans available from this Plan and all other plans of the employer. All cases of hardship must be presented in writing to, and approved by, the plan recordkeeper. Additional supporting documentation from Plan Participants to substantiate any case of hardship may be required before making a determination. The plan recordkeeper may, at its discretion, approve all or part of the withdrawal request. Participants that elect to make hardship withdrawals are suspended for six months from making contributions to the Plan. Hardship withdrawals are recorded
as distributions in the period in which they are disbursed.
Investments
The Plan allows participants to direct all contributions among a number of different investment funds managed or held by T. Rowe Price, including Ensco Rowan plc Class A Ordinary Shares (the “EnscoRowan Fund”). The Plan limits the portion of a participant’s aggregate account balance that may be invested in the EnscoRowan Fund to
25%
. The daily value of each investment unit is determined by dividing the total fair market value of all assets in each fund by the total number of units in that fund. Investment income, certain administrative fees and net appreciation (depreciation) of the fair value of investments are allocated to each Plan Participant’s account based on the change in unit value for each investment fund in which the participant has an account balance.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
New Accounting Standard
In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. ASU No. 2018-13 modifies the disclosure requirements for fair value measurements in Topic 820, Fair Value Measurement. The amendments are based on the concepts in the FASB concepts Statement, Conceptual Framework for Financial Reporting -- Chapter 8: Notes to Financial Statements, which the Board finalized on August 28, 2018. ASU No. 2018-13 is effective for fiscal years beginning after December 15, 2019. The Company’s Management is currently assessing the impact that ASU No. 2018-13 will have on the Plan's financial statements and does not believe that adoption of this standard will have a material impact on our Statement of Net Assets or Statement of Changes in Net assets.
Method of Accounting
The Plan’s financial statements are prepared on the accrual basis of accounting.
The Plan’s investments in mutual funds are stated at fair value using quoted market prices. The Plan’s investment in the EnscoRowan Fund is stated at fair value using the quoted market price of the Company’s stock. The Plan’s investments in the T. Rowe Price Active Retirement Trust Funds, the T. Rowe Price Stable Value Common Trust Fund and the Blackrock Collective Investment Funds are stated at fair value based on the net asset values of shares owned in the funds.
The Plan’s T. Rowe Price Stable Value Common Trust Fund invests in investment contracts through a collective trust. This fund’s investments meet the fully benefit-responsive investment contract criteria and, therefore, the underlying investment and related transactions are reported at contract value. The T.Rowe Price Stable Value Common Trust Fund’s net asset value is therefore computed on a contract value basis. This net asset value represents the Plan’s fair value as the net asset value is the basis upon which the Plan transacts with the fund.
The BlackRock Lifepath funds and the BlackRock Collective Investment Funds (the “Collective Trust Funds”) are operated by Blackrock Institutional Trust Company, N.A. and are structured as a trust of trusts whereby the underlying trusts invest directly in securities. The investment objectives are to invest over time in a diversified portfolio of underlying trusts that represent various asset classes and sectors to provide stability of principal and to deliver consistent returns to participants.
Purchases and sales of mutual funds, the EnscoRowan Fund and the Collective Trust Funds are recorded on a trade-date basis. Interest is recorded on the accrual basis and dividends are recorded on the ex-dividend date.
The Plan presents in the statements of changes in net assets available for benefits the net appreciation/(depreciation) in the fair value of its investments, which consists of the realized gains/(losses) and the unrealized appreciation/(depreciation) on those investments.
Distributions
Distributions of benefits to participants are recorded when paid.
Notes Receivable from Participants
Approved loans to eligible participants are granted from the Plan Participants’ vested accounts. The interest rate is a fixed rate determined monthly and interest income is recorded on the accrual basis. All loans must be secured with an irrevocable pledge assignment. Loan payments are generally made through participant payroll deductions. Loans may not exceed the limitations listed in the Plan document, which are the lesser of 50% of the Plan Participant’s vested balance or
$50,000
less the highest outstanding loan balance in the previous 12 months. The Plan allows no more than two outstanding loans at a time to any one participant.
Loan payments to participants are recorded when paid. As of
December 31, 2018
and
2017
, loans of approximately
$44,000
and
$8,000
, respectively, were requested by Plan participants but had not yet been paid.
Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires the Company to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Such estimates and assumptions are subject to inherent uncertainties, which may result in actual amounts differing from reported amounts.
3. FAIR VALUE MEASUREMENTS
The following fair value hierarchy table categorizes information regarding the Plan’s net assets measured at fair value on a recurring basis as of
December 31, 2018
and
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
Significant
|
|
|
|
|
|
|
|
Active Markets
|
|
Other
|
|
Significant
|
|
|
|
|
|
for
|
|
Observable
|
|
Unobservable
|
|
|
|
|
|
Identical Assets
|
|
Inputs
|
|
Inputs
|
|
|
|
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Total
|
|
As of December 31, 2018
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
$
|
33,160,737
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
33,160,737
|
|
|
EnscoRowan Fund
|
|
17,993,484
|
|
|
—
|
|
|
—
|
|
|
17,993,484
|
|
|
Common collective trust funds
|
|
—
|
|
|
324,805,004
|
|
|
—
|
|
|
324,805,004
|
|
|
Total investments at fair value in hierarchy
|
|
$
|
51,154,221
|
|
|
$
|
324,805,004
|
|
|
—
|
|
|
$
|
375,959,225
|
|
|
Investments measured at net asset value
(1)
:
|
|
|
|
|
|
|
|
|
|
Stable Value Common Trust Fund
|
|
|
|
|
|
|
|
73,867,543
|
|
|
Investments at fair value
|
|
|
|
|
|
|
|
|
|
|
$
|
449,826,768
|
|
|
As of December 31, 2017
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
$
|
36,273,777
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
36,273,777
|
|
|
EnscoRowan Fund
|
|
22,687,319
|
|
|
—
|
|
|
—
|
|
|
22,687,319
|
|
|
Common collective trust funds
|
|
—
|
|
|
315,410,671
|
|
|
—
|
|
|
315,410,671
|
|
|
Total investments at fair value in hierarchy
|
|
$
|
58,961,096
|
|
|
$
|
315,410,671
|
|
|
—
|
|
|
$
|
374,371,767
|
|
|
Investments measured at net asset value
(1)
:
|
|
|
|
|
|
|
|
|
|
Stable Value Common Trust Fund
|
|
|
|
|
|
|
|
74,706,801
|
|
|
Investments at fair value
|
|
|
|
|
|
|
|
|
|
|
$
|
449,078,568
|
|
|
|
|
|
(1)
|
Certain investments that were measured at net asset value per share have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the statements of net assets available for benefits.
|
The following table summarizes investments for which fair value is measured using the NAV per share practical expedient as of
December 31, 2018
and
2017
, respectively. There are no participant redemption restrictions for these investments; the redemption notice period is applicable only to the Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption
|
|
|
|
|
|
|
|
|
|
Frequency
|
|
Redemption
|
|
|
|
Fair
|
|
Unfunded
|
|
(If Currently
|
|
Notice
|
|
December 31, 2018
|
|
Value
|
|
Commitments
|
|
Eligible)
|
|
Period
|
|
Stable Value Common Trust Fund
|
|
$73,867,543
|
|
N/A
|
|
Daily
|
|
12 months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption
|
|
|
|
|
|
|
|
|
|
Frequency
|
|
Redemption
|
|
|
|
Fair
|
|
Unfunded
|
|
(If Currently
|
|
Notice
|
|
December 31, 2017
|
|
Value
|
|
Commitments
|
|
Eligible)
|
|
Period
|
|
Stable Value Common Trust Fund
|
|
$74,706,801
|
|
N/A
|
|
Daily
|
|
12 months
|
4. ADMINISTRATIVE FEES
Fees paid by the participants for investment management, qualified administrative expenses and loan origination services amounted to
$419,000
and
$459,000
for the years ended
December 31, 2018
and
2017
, respectively. Plan expenses are paid through certain percentages of returns generated by the investment funds elected by participants. Loan origination fees are paid directly by participants.
5. PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, participants will become 100% vested in their accounts.
6. TAX STATUS
The IRS has determined and informed the Company by letter dated November 6, 2015 that the Plan and related trust are designed in accordance with applicable sections of the Code. Therefore, management believes that the Plan is designed and operated in compliance with the applicable requirements of the Code, the Plan is qualified and the related trust is tax-exempt.
The financial statement effects of a tax position are recognized when the position is more-likely-than-not to be sustained upon examination by the IRS. The plan administrator has analyzed the tax positions taken by the Plan and concluded that, as of
December 31, 2018
, there are no uncertain positions taken or expected to be taken that would require recognition of a liability (or asset) or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits in progress for any tax periods.
7. PARTY-IN-INTEREST TRANSACTIONS
Our Plan investments include shares of mutual funds and common collective trust funds managed by T. Rowe Price, the trustee as defined by the Plan, and, therefore, transactions in those investments qualify as party-in-interest transactions.
Transactions in Company shares held by the Plan in the EnscoRowan Fund as an investment and approved loans to eligible participants also qualify as party-in-interest transactions.
8. RISKS AND UNCERTAINTIES
The Plan invests in investment options that are exposed to various risks including interest rate, market and credit risks. Due to the level of risk associated with certain investments, it is at least reasonably possible that changes in the value of the investments will occur in the near-term and that such changes could materially affect Plan Participants’ account balances and the amounts reported in the statement of net assets available for benefits.
9. SUBSEQUENT EVENTS
Effective January 1, 2019, the requirement for participants to complete years of service with the Company for account balance to vest is annulled, and all participants are immediately 100% vested in their contributions and their employer contributions, including earnings and losses thereon, at all times.