UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
     Washington, WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017
ORFor the quarterly period ended June 30, 2021
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from  to
For the transition period from __________ to__________

Commission File Number 1-8097
Ensco plcValaris Limited
(Exact name of registrant as specified in its charter)
England and Wales
Bermuda
98-1589854
(State or other jurisdiction of

incorporation or organization)
6 Chesterfield Gardens
London, England
(I.R.S. Employer
Identification No.)
Clarendon House, 2 Church Street
HamiltonBermudaHM 11
(Address of principal executive offices)
98-0635229
(I.R.S. Employer
Identification No.)
W1J 5BQ
(Zip Code)
Registrant's telephone number, including area code:  +44 (0) 20 7659 4660
  
Securities registered pursuant to Section 12(b) of the Act:

Title of each classTicker Symbol(s)Name of each exchange on which registered
Common Shares, $0.01 par value shareVALNew York Stock Exchange
Warrants to purchase Common SharesVAL WSNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No  o


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x        No  o


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Large accelerated filerxAccelerated filero
Non-Accelerated filer
o  (Do not check if a smaller reporting company)
Smaller reporting companyo
Emerging-growthEmerging growth companyo





If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  oNo  x


As of October 19, 2017,July 29, 2021, there were 436,019,178 Class A ordinary shares75,000,045 Common Shares of the registrant issued and outstanding.





ENSCO PLCVALARIS LIMITED
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBERJUNE 30, 2017

2021





FORWARD-LOOKING STATEMENTS
  
Statements contained in this report that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements include words or phrases such as "anticipate," "believe," "estimate," "expect," "intend," "likely," "plan," "project," "could," "may," "might," "should," "will" and similar words and specifically include statements regarding expected financial performance; dividends;the impact of our emergence from bankruptcy; expected utilization, day rates, revenues, operating expenses, cash flows, contract terms, contract backlog, capital expenditures, insurance, financing and funding; the timingeffect, impact, potential duration and other implications of availability, delivery, mobilization, contract commencement or relocation or other movement of rigs and the timing thereof; future rig construction (including construction in progress and completion thereof), enhancement, upgrade or repair and timing and cost thereof; the suitability of rigs for future contracts;ongoing COVID-19 pandemic; the offshore drilling market, including supply and demand, customer drilling programs, stacking of rigs, effects of new rigs on the market and effects of declines in commodity prices; expected work commitments, awards and contracts; the timing of availability, delivery, mobilization, contract commencement or relocation or other movement of rigs and the timing thereof; future rig construction (including work in progress and completion thereof), enhancement, upgrade or repair and timing and cost thereof; the suitability of rigs for future contracts; performance of our joint venture with Saudi Arabian Oil Company ("Saudi Aramco"); expected divestitures of assets; general market, business and industry conditions, trends and outlook; future operations; the impact of increasing regulatory complexity; our program to high-grade the rig fleet by investing in new equipmentoutcome of tax disputes, assessments and divesting selected assetssettlements; synergies and underutilized rigs;expected additional cost savings; dividends; expense management; and the likely outcome of litigation, legal proceedings, investigations or insurance or other claims or contract disputes and the timing thereof.


Such statements are subject to numerous risks, uncertainties and assumptions that may cause actual results to vary materially from those indicated, particularly in light of difficult market conditions, including:
the impact of our abilityemergence from bankruptcy on our business and relationships and comparability of our financial results, as well as the dilutive impacts of warrants issues pursuant to successfully integrate the business,plan of reorganization;
the ongoing COVID-19 pandemic, the related public health measures implemented by governments worldwide, the duration and severity of the outbreak and its impact on global oil demand, the volatility in prices for oil and natural gas and the extent of disruptions to our operations;
downtime or temporary shutdown of operations of our rigs as a result of an outbreak of COVID-19 on one or more of our rigs;
disruptions to the operations and employeesbusiness, as a result of Atwood Oceanics, Inc.the spread of COVID-19, of our key customers, suppliers and other counterparties, including impacts affecting our supply chain and logistics;
disputes over production levels among members of the Organization of Petroleum Exporting Countries and other oil and gas producing nations (“Atwood”OPEC+”), which could result in increased volatility in prices for oil and to realize synergies and cost savingsnatural gas that could affect the markets for our services;
decreases in connection with our acquisition of Atwood;

changes in future levels of drilling activity and capital expenditures by our customers, whether as a result of the global capital markets and liquidity, prices of oil and natural gas or otherwise, which may cause us to idle or stack additional rigs;

delays in contract commencement dates or cancellation, suspension, renegotiation or termination (with or without cause, including those due to impacts of the COVID-19 pandemic) of drilling contracts or drilling programs as a result of general and industry-specific economic conditions, mechanical difficulties, performance or other reasons;
the occurrence of cybersecurity incidents, attacks or other breaches to our information technology systems, including our rig operating systems;
increased scrutiny from regulators, market and industry participants, stakeholders and others regarding our Environmental, Social and Governance (ESG) practices and reporting responsibilities;
1


the costs, disruption and diversion of our management's attention associated with campaigns by activist securityholders;
potential additional asset impairments;
the adequacy of sources of liquidity for us and our customers;
the reaction of our customers, prospective customers, suppliers and service providers to our bankruptcy and our emergence from chapter 11;
our customers, in response to reduced oil price expectations, cancelling or shortening the duration of our drilling contracts, cancelling future drilling programs and seeking pricing and other contract concessions from us;
our ability to attract and retain skilled personnel on commercially reasonable terms, whether due to labor regulations, unionization, or otherwise, or to retain employees as a result of the imposition of further public health measures due to the COVID-19 pandemic, or as a result of our financial condition generally;
internal control risk due to significant employee reductions;
changes in worldwide rig supply and demand, competition or technology, including as a result of delivery of newbuild drilling rigs;rigs and governmental policies that could reduce demand for hydrocarbons, including mandating or incentivizing the conversion from internal combustion engine powered vehicles to electric-powered vehicles;

downtime and other risks associated with offshore rig operations, including rig or equipment failure, damage and other unplanned repairs, the limited availability of transport vessels, hazards, self-imposed drilling limitations and other delays due to severe storms and hurricanes and the limited availability or high cost of insurance coverage for certain offshore perils, such as hurricanes in the Gulf of Mexico or associated removal of wreckage or debris;

governmental action, terrorism, cyber-attacks, piracy, military action and political and economic uncertainties, including uncertainty or instability resulting from civil unrest, political demonstrations, mass strikes, or an escalation or additional outbreak of armed hostilities or other crises in oil or natural gas producing areas of the Middle East, North Africa, West Africa or other geographic areas, which may result in expropriation, nationalization, confiscation or deprivation or destruction of our assetsassets; or suspension and/or termination of contracts based on force majeure events or adverse environmental safety events;

risks inherent to shipyard rig construction, repair, modification or upgrades, unexpected delays in equipment delivery, engineering, design or commissioning issues following delivery, or changes in the commencement, completion or service dates;

possible cancellation, suspension, renegotiation or termination (with or without cause) of drilling contracts as a result of general and industry-specific economic conditions, mechanical difficulties, performance or other reasons;

our ability to enter into, and the terms of, future drilling contracts, including contracts for our newbuild units,rigs and acquired rigs, for rigs currently idled and for rigs whose contracts are expiring;

any failure to execute definitive contracts following announcements of letters of intent, letters of award or other expected work commitments;


the outcome of litigation, legal proceedings, investigations or other claims or contract disputes, including any inability to collect receivables or resolve significant contractual or day rate disputes, and any renegotiation, nullification, cancellation or breach of contracts with customers or other parties and any failure to execute definitive contracts following announcements of letters of intent;parties;

governmental regulatory, legislative and permitting requirements affecting drilling operations, including limitations on drilling locations (such as the Gulf of Mexico during hurricane season);, limitations on new leases under the current moratorium on oil and gas leasing in U.S. federal lands and waters, and regulatory measures to limit or reduce greenhouse gas emissions;

potential impacts on our business resulting from climate-change or greenhouse gas legislation or regulations, and the impact on our business from climate-change related physical changes or changes in weather patterns;
2


new and future regulatory, legislative or permitting requirements, future lease sales, changes in laws, rules and regulations that have or may impose increased financial responsibility, additional oil spill abatement contingency plan capability requirements and other governmental actions that may result in claims of force majeure or otherwise adversely affect our existing drilling contracts, operations or financial results;

our ability to attract and retain skilled personnel on commercially reasonable terms, whether due to labor regulations, unionization or otherwise;

environmental or other liabilities, risks, damages or losses, whether related to storms, hurricanes or hurricanesother weather-related events (including wreckage or debris removal), collisions, groundings, blowouts, fires, explosions, other accidents, terrorism, cyber-attacks or otherwise, for which insurance coverage and contractual indemnities may be insufficient, unenforceable or otherwise unavailable;

our ability to obtain financing, service indebtedness and pursue other business opportunities may be limited by our debt levels, debt agreement restrictions and the credit ratings assigned to our debt by independent credit rating agencies;

the adequacy of sources of liquity for us and our customers;

tax matters, including our effective tax rates, tax positions, results of audits, changes in tax laws, treaties and regulations, tax assessments and liabilities for taxes;

our ability to realize the expected benefits of our joint venture with Saudi Aramco, including our ability to fund any required capital contributions or to enforce any payment obligations of the joint venture pursuant to outstanding shareholder notes receivable;
delays in contract commencement dates oreconomic volatility and political, legal and tax uncertainties following the cancellation of drilling programs by operators;U.K. exit from the European Union; and

adverse changes in foreign currency exchange rates, including their effect on the fair value measurement of ourany derivative instruments; andinstruments that we may enter into.

potential long-lived asset impairments.

In addition to the numerous risks, uncertainties and assumptions described above, you should also carefully read and consider "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part I and "Item 1A. Risk Factors" in Part II of this report and "Item 1A. Risk Factors" in Part I and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II of our annual report on Form 10-K for the year ended December 31, 2016,2020, which is available on the U.S. Securities and Exchange Commission website at www.sec.gov. Each forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to publicly update or revise any forward-lookingforward looking statements, except as required by law.


3




PART I - FINANCIAL INFORMATION


Item 1.Financial Statements


4
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


The Board of Directors and Shareholders
Ensco plc:

We have reviewed the accompanying condensed consolidated balance sheet of Ensco plc and subsidiaries (the Company) as of September 30, 2017, and the related condensed consolidated statements of operations and comprehensive (loss) income for the three-month and nine-month periods ended September 30, 2017 and 2016, and the related condensed consolidated statements of cash flows for the nine-month periods ended September 30, 2017 and 2016. These condensed consolidated financial statements are the responsibility of the Company’s management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Ensco plc and subsidiaries as of December 31, 2016 and the related consolidated statements of operations, comprehensive income (loss), and cash flows for the year then ended (not presented herein); and in our report dated February 28, 2017, we expressed an unqualified opinion on those consolidated financial statements.In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2016, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
/s/ KPMG LLP
Houston, Texas
October 26, 2017


ENSCO PLCVALARIS LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
 Three Months Ended
September 30,
 2017 2016
OPERATING REVENUES$460.2
 $548.2
OPERATING EXPENSES   
Contract drilling (exclusive of depreciation)285.8
 298.1
Depreciation108.2
 109.4
General and administrative30.4
 25.3
 424.4
 432.8
OPERATING INCOME35.8
 115.4
OTHER INCOME (EXPENSE)   
Interest income7.5
 3.8
Interest expense, net(48.1) (53.4)
Other, net.2
 18.7
 (40.4) (30.9)
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES(4.6) 84.5
PROVISION FOR INCOME TAXES   
Current income tax expense (benefit)14.9
 (5.7)
Deferred income tax expense8.5
 2.2
 23.4
 (3.5)
(LOSS) INCOME FROM CONTINUING OPERATIONS(28.0) 88.0
LOSS FROM DISCONTINUED OPERATIONS, NET(.2) (.7)
NET (LOSS) INCOME(28.2) 87.3
NET LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTERESTS2.8
 (2.0)
NET (LOSS) INCOME ATTRIBUTABLE TO ENSCO$(25.4) $85.3
(LOSS) EARNINGS PER SHARE - BASIC AND DILUTED   
Continuing operations$(0.08) $0.28
Discontinued operations
 
 $(0.08) $0.28
    
NET (LOSS) INCOME ATTRIBUTABLE TO ENSCO SHARES - BASIC AND DILUTED$(25.5) $83.5
    
WEIGHTED-AVERAGE SHARES OUTSTANDING   
Basic and Diluted301.2
 298.6
    
CASH DIVIDENDS PER SHARE$0.01
 $0.01
SuccessorPredecessor
Two Months Ended June 30, 2021One Month Ended April 30, 2021Three Months Ended June 30, 2020
OPERATING REVENUES$202.8 $90.3 $388.8 
OPERATING EXPENSES 
Contract drilling (exclusive of depreciation)168.7 85.6 370.7 
Loss on impairment838.0 
Depreciation16.6 37.5 131.5 
General and administrative12.7 6.4 62.6 
Total operating expenses198.0 129.5 1,402.8 
EQUITY IN EARNINGS (LOSSES) OF ARO4.8 1.2 (5.2)
OPERATING INCOME (LOSS)9.6 (38.0)(1,019.2)
OTHER INCOME (EXPENSE)
Interest income7.8 1.0 5.7 
Interest expense, net (Unrecognized contractual interest expense for debt subject to compromise was $32.6 million for the one month ended April 30, 2021)(8.0)(1.1)(116.2)
Reorganization items, net(4.1)(3,532.4)
Other, net5.7 (1.2)5.1 
 1.4 (3,533.7)(105.4)
INCOME (LOSS) BEFORE INCOME TAXES11.0 (3,571.7)(1,124.6)
PROVISION (BENEFIT) FOR INCOME TAXES
Current income tax expense14.0 3.6 13.8 
Deferred income tax expense (benefit)1.1 (19.1)(29.6)
 15.1 (15.5)(15.8)
NET LOSS(4.1)(3,556.2)(1,108.8)
NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS(2.1)(.8)1.4 
NET LOSS ATTRIBUTABLE TO VALARIS$(6.2)$(3,557.0)$(1,107.4)
LOSS PER SHARE - BASIC AND DILUTED$(0.08)$(17.81)$(5.58)
WEIGHTED-AVERAGE SHARES OUTSTANDING
Basic and Diluted75.0 199.7 198.6 
The accompanying notes are an integral part of these condensed consolidated financial statements.

5



ENSCO PLCVALARIS LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
 Nine Months Ended
September 30,
 2017 2016
OPERATING REVENUES$1,388.8
 $2,271.8
OPERATING EXPENSES   
Contract drilling (exclusive of depreciation)855.2
 1,012.0
Depreciation325.3
 335.1
General and administrative86.9
 76.1
 1,267.4
 1,423.2
OPERATING INCOME121.4
 848.6
OTHER INCOME (EXPENSE) 
  
Interest income22.3
 8.6
Interest expense, net(167.0) (172.5)
Other, net(6.6) 278.3
 (151.3) 114.4
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES(29.9) 963.0
PROVISION FOR INCOME TAXES   
Current income tax expense32.3
 81.0
Deferred income tax expense34.5
 23.6
 66.8
 104.6
(LOSS) INCOME FROM CONTINUING OPERATIONS(96.7) 858.4
LOSS FROM DISCONTINUED OPERATIONS, NET(.4) (1.8)
NET (LOSS) INCOME(97.1) 856.6
NET LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTERESTS.5
 (5.4)
NET (LOSS) INCOME ATTRIBUTABLE TO ENSCO$(96.6) $851.2
(LOSS) EARNINGS PER SHARE - BASIC AND DILUTED   
Continuing operations$(0.32) $3.07
Discontinued operations
 
 $(0.32) $3.07
    
NET (LOSS) INCOME ATTRIBUTABLE TO ENSCO SHARES - BASIC AND DILUTED$(96.9) $836.1
  
  
WEIGHTED-AVERAGE SHARES OUTSTANDING   
Basic and Diluted300.9
 272.0
    
CASH DIVIDENDS PER SHARE$0.03
 $0.03
The accompanying notes are an integral part of these condensed consolidated financial statements.


ENSCO PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(In millions)
(Unaudited)
 Three Months Ended
September 30,
 2017 2016
    
NET (LOSS) INCOME$(28.2) $87.3
OTHER COMPREHENSIVE INCOME (LOSS), NET   
Net change in derivative fair value1.7
 
Reclassification of net (income) losses on derivative instruments from other comprehensive income into net (loss) income(.1) 2.2
Other.1
 (.5)
NET OTHER COMPREHENSIVE INCOME1.7
 1.7
    
COMPREHENSIVE (LOSS) INCOME(26.5) 89.0
COMPREHENSIVE LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTERESTS2.8
 (2.0)
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO ENSCO$(23.7) $87.0

The accompanying notes are an integral part of these condensed consolidated financial statements.


ENSCO PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(In millions)
(Unaudited)
 Nine Months Ended
September 30,
 2017 2016
    
NET (LOSS) INCOME$(97.1) $856.6
OTHER COMPREHENSIVE INCOME, NET   
Net change in derivative fair value7.7
 (.6)
Reclassification of net losses on derivative instruments from other comprehensive income into net (loss) income1.1
 10.1
Other.8
 (.5)
NET OTHER COMPREHENSIVE INCOME9.6
 9.0
    
COMPREHENSIVE (LOSS) INCOME(87.5) 865.6
COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS.5
 (5.4)
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO ENSCO$(87.0) $860.2

SuccessorPredecessor
Two Months Ended June 30, 2021Four Months Ended April 30, 2021Six Months Ended June 30, 2020
OPERATING REVENUES$202.8 $397.4 $845.4 
OPERATING EXPENSES 
Contract drilling (exclusive of depreciation)168.7 337.8 846.7 
Loss on impairment756.5 3,646.2 
Depreciation16.6 159.6 296.0 
General and administrative12.7 30.7 116.0 
Total operating expenses198.0 1,284.6 4,904.9 
EQUITY IN EARNINGS (LOSSES) OF ARO4.8 3.1 (11.5)
OPERATING INCOME (LOSS)9.6 (884.1)(4,071.0)
OTHER INCOME (EXPENSE)  
Interest income7.8 3.6 10.5 
Interest expense, net (Unrecognized contractual interest expense for debt subject to compromise was $132.9 million for the four months ended April 30, 2021)(8.0)(2.4)(229.4)
Reorganization items, net(4.1)(3,584.6)
Other, net5.7 19.9 5.6 
 1.4 (3,563.5)(213.3)
INCOME (LOSS) BEFORE INCOME TAXES11.0 (4,447.6)(4,284.3)
PROVISION (BENEFIT) FOR INCOME TAXES  
Current income tax expense (benefit)14.0 34.4 (58.7)
Deferred income tax expense (benefit)1.1 (18.2)(109.1)
 15.1 16.2 (167.8)
NET LOSS(4.1)(4,463.8)(4,116.5)
NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS(2.1)(3.2)2.8 
NET LOSS ATTRIBUTABLE TO VALARIS$(6.2)$(4,467.0)$(4,113.7)
LOSS PER SHARE - BASIC AND DILUTED$(0.08)$(22.38)$(20.75)
WEIGHTED-AVERAGE SHARES OUTSTANDING
Basic and Diluted75.0 199.6 198.3 
The accompanying notes are an integral part of these condensed consolidated financial statements.

6




ENSCO PLCVALARIS LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETSSTATEMENTS OF COMPREHENSIVE LOSS
(In millions, except share and par value amounts)
millions)
 September 30,
2017
 December 31,
2016
 (Unaudited)  
ASSETS
CURRENT ASSETS   
    Cash and cash equivalents$724.4
 $1,159.7
    Short-term investments1,069.8
 1,442.6
    Accounts receivable, net349.0
 361.0
    Other318.3
 316.0
Total current assets2,461.5
 3,279.3
PROPERTY AND EQUIPMENT, AT COST13,492.6
 12,992.5
    Less accumulated depreciation2,396.2
 2,073.2
       Property and equipment, net11,096.4
 10,919.3
OTHER ASSETS, NET125.0
 175.9
 $13,682.9
 $14,374.5
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES   
Accounts payable - trade$187.9
 $145.9
Accrued liabilities and other300.8
 376.6
Current maturities of long-term debt
 331.9
Total current liabilities488.7
 854.4
LONG-TERM DEBT4,747.7
 4,942.6
OTHER LIABILITIES279.2
 322.5
COMMITMENTS AND CONTINGENCIES

 

ENSCO SHAREHOLDERS' EQUITY 
  
Class A ordinary shares, U.S. $.10 par value, 314.9 million and 310.3 million shares issued as of September 30, 2017 and December 31, 201631.5
 31.0
Class B ordinary shares, £1 par value, 50,000 shares authorized and issued as of September 30, 2017 and December 31, 2016.1
 .1
Additional paid-in capital6,429.8
 6,402.2
Retained earnings1,744.2
 1,864.1
Accumulated other comprehensive income28.6
 19.0
Treasury shares, at cost, 11.0 million and 7.3 million shares as of September 30, 2017 and December 31, 2016(69.0) (65.8)
Total Ensco shareholders' equity8,165.2
 8,250.6
NONCONTROLLING INTERESTS2.1
 4.4
Total equity8,167.3
 8,255.0
 $13,682.9
 $14,374.5
(Unaudited)
SuccessorPredecessor
Two Months Ended June 30, 2021One Month Ended April 30, 2021Three Months Ended June 30, 2020
NET LOSS$(4.1)$(3,556.2)$(1,108.8)
OTHER COMPREHENSIVE LOSS, NET
Net change in fair value of derivatives4.8 
Reclassification of net gains on derivative instruments from other comprehensive loss into net loss(10.9)
Other(.2)(.2)
NET OTHER COMPREHENSIVE LOSS(.2)(.2)(6.1)
COMPREHENSIVE LOSS(4.3)(3,556.4)(1,114.9)
COMPREHENSIVE (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS(2.1)(0.8)1.4 
COMPREHENSIVE LOSS ATTRIBUTABLE TO VALARIS$(6.4)$(3,557.2)$(1,113.5)

The accompanying notes are an integral part of these condensed consolidated financial statements.

7



ENSCO PLCVALARIS LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In millions)
(Unaudited)
SuccessorPredecessor
Two Months Ended June 30, 2021Four Months Ended April 30, 2021Six Months Ended June 30, 2020
NET LOSS$(4.1)$(4,463.8)$(4,116.5)
OTHER COMPREHENSIVE LOSS, NET  
Net changes in pension and postretirement plan assets and benefit obligations recognized in other comprehensive income (loss).1 
Net change in derivative fair value(8.1)
Reclassification of net gains on derivative instruments from other comprehensive loss into net loss(5.6)(11.0)
Other(.2)(.4)
NET OTHER COMPREHENSIVE LOSS(.2)(5.5)(19.5)
COMPREHENSIVE LOSS(4.3)(4,469.3)(4,136.0)
COMPREHENSIVE (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS(2.1)(3.2)2.8 
COMPREHENSIVE LOSS ATTRIBUTABLE TO VALARIS$(6.4)$(4,472.5)$(4,133.2)

The accompanying notes are an integral part of these condensed consolidated financial statements.

8


VALARIS LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share and par value amounts)
SuccessorPredecessor
June 30,
2021
December 31,
2020
(Unaudited)
ASSETS
CURRENT ASSETS  
    Cash and cash equivalents$608.8 $325.8 
    Restricted cash53.1 11.4 
    Accounts receivable, net436.1 449.2 
    Other current assets119.7 386.5 
Total current assets1,217.7 1,172.9 
PROPERTY AND EQUIPMENT, AT COST914.4 13,209.3 
    Less accumulated depreciation16.6 2,248.8 
       Property and equipment, net897.8 10,960.5 
LONG-TERM NOTES RECEIVABLE FROM ARO234.3 442.7 
INVESTMENT IN ARO85.4 120.9 
OTHER ASSETS166.5 176.2 
 $2,601.7 $12,873.2 
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES  
Accounts payable - trade$183.9 $176.4 
Accrued liabilities and other212.7 250.4 
Total current liabilities396.6 426.8 
LONG-TERM DEBT544.8 
OTHER LIABILITIES569.8 762.4 
Total liabilities not subject to compromise1,511.2 1,189.2 
LIABILITIES SUBJECT TO COMPROMISE7,313.7 
COMMITMENTS AND CONTINGENCIES00
VALARIS SHAREHOLDERS' EQUITY  
Predecessor Class A ordinary shares, U.S. $0.40 par value, 206.1 million shares issued as of December 31, 202082.5 
Predecessor Class B ordinary shares, £1 par value, 50,000 shares issued as of December 31, 2020.1 
Successor common shares, $0.01 par value, 700 million shares authorized, 75 million shares issued as of June 30, 2021.8 
Successor preference shares, $0.01 par value, 150 million shares authorized, 0 shares issued as of June 30, 2021
Successor stock warrants16.4 
Additional paid-in capital1,078.7 8,639.9 
Retained deficit(6.2)(4,183.8)
Accumulated other comprehensive loss(.2)(87.9)
Predecessor Treasury shares, at cost, 6.6 million shares as of December 31, 2020(76.2)
Total Valaris shareholders' equity1,089.5 4,374.6 
NONCONTROLLING INTERESTS1.0 (4.3)
Total equity1,090.5 4,370.3 
 $2,601.7 $12,873.2 
The accompanying notes are an integral part of these condensed consolidated financial statements.
9


VALARIS LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
SuccessorPredecessor
 Two Months Ended June 30, 2021Four Months Ended April 30, 2021Six Months Ended June 30, 2020
OPERATING ACTIVITIES  
Net loss$(4.1)$(4,463.8)$(4,116.5)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense16.6 159.6 296.0 
Accretion of discount on shareholders note(6.0)
Equity in losses (earnings) of ARO(4.8)(3.1)11.5 
Deferred income tax expense (benefit)1.1 (18.2)(109.1)
Debt discounts and other.4 28.8 
Amortization, net(.3)(4.8)12.2 
Reorganization items, net3,487.3 
Loss on impairment756.5 3,646.2 
Share-based compensation expense4.8 13.5 
Adjustment to gain on bargain purchase6.3 
Other(2.5)(4.1)(2.7)
   Changes in operating assets and liabilities(25.7)68.5 (156.7)
   Contributions to pension plans and other post-retirement benefits(0.6)(22.5)(10.6)
Net cash used in operating activities(25.9)(39.8)(381.1)
INVESTING ACTIVITIES  
Additions to property and equipment(8.1)(8.7)(67.1)
Net proceeds from disposition of assets.2 30.1 13.8 
Net cash provided by (used in) investing activities(7.9)21.4 (53.3)
FINANCING ACTIVITIES  
Issuance of First Lien Notes520.0 
Payments to Predecessor creditors(129.9)
Borrowings on credit facility566.0 
Repayments of credit facility borrowings(15.0)
Reduction of long-term borrowings(9.7)
Other(1.4)(1.9)
Net cash provided by financing activities388.7 539.4 
Effect of exchange rate changes on cash and cash equivalents and restricted cash(.3)(.1)(.2)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH(34.1)370.2 104.8 
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD696.0 325.8 97.2 
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD$661.9 $696.0 $202.0 
 Nine Months Ended
September 30,
 2017 2016
OPERATING ACTIVITIES 
  
Net (loss) income$(97.1) $856.6
Adjustments to reconcile net (loss) income to net cash provided by operating activities of continuing operations:   
Depreciation expense325.3
 335.1
Deferred income tax expense34.5
 23.6
Share-based compensation expense31.3
 28.7
Amortization of intangibles and other, net(8.7) (16.2)
Loss (gain) on debt extinguishment2.6
 (279.0)
Other(.3) (2.9)
Changes in operating assets and liabilities(68.0) 48.9
Net cash provided by operating activities of continuing operations219.6
 994.8
    
INVESTING ACTIVITIES   
Maturities of short-term investments1,412.7
 1,582.0
Purchases of short-term investments(1,040.0) (1,704.0)
Additions to property and equipment(474.1) (255.5)
Other 2.6
 7.7
Net cash used in investing activities of continuing operations(98.8) (369.8)
    
FINANCING ACTIVITIES   
Reduction of long-term borrowings(537.0) (862.4)
Cash dividends paid(9.4) (8.5)
Debt issuance costs(5.5) 
Proceeds from equity issuance
 585.5
Other(4.5) (2.3)
Net cash used in financing activities(556.4) (287.7)
    
Net cash (used in) provided by discontinued operations(.4) 7.4
Effect of exchange rate changes on cash and cash equivalents.7
 (.6)
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS(435.3) 344.1
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD1,159.7
 121.3
CASH AND CASH EQUIVALENTS, END OF PERIOD$724.4
 $465.4


The accompanying notes are an integral part of these condensed consolidated financial statements.

10



ENSCO PLCVALARIS LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Note 1 -Unaudited Condensed Consolidated Financial Statements
 
We prepared the accompanying condensed consolidated financial statements of Ensco plcValaris Limited and subsidiaries (the "Company," "Ensco,"Valaris," "Successor," "our," "we" or "us") in accordance with accounting principles generally accepted in the United States of America ("GAAP"), pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") included in the instructions to Form 10-Q and Article 10 of Regulation S-X. The financial information included in this report is unaudited but, in our opinion, includes all adjustments (consisting of normal recurring adjustments) that are necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods presented. The December 31, 2016 condensed consolidated balance sheet2020 Condensed Consolidated Balance Sheet data werewas derived from our 20162020 audited consolidated financial statements but dodoes not include all disclosures required by GAAP. The preparation of our condensed consolidated financial statements 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.

The financial dataOn August 19, 2020 (the "Petition Date"), Valaris plc ("Legacy Valaris" or "Predecessor") and certain of its direct and indirect subsidiaries (collectively, the "Debtors"), filed voluntary petitions for the three-month and nine-month periods ended September 30, 2017 and 2016 included herein have been subjected to a limited review by KPMG LLP, our independent registered public accounting firm. The accompanying independent registered public accounting firm's review report is not a report within the meaning of Sections 7 andreorganization under chapter 11 of the Securities Act,United States Bankruptcy Code ("Bankruptcy Code") in the Bankruptcy Court for the Southern District of Texas (the "Bankruptcy Court"). The Debtors obtained joint administration of their chapter 11 cases under the caption In re Valaris plc, et al., Case No. 20-34114 (MI)(the "Chapter 11 Cases").

In connection with the Chapter 11 Cases, on and prior to April 30, 2021 (the "Effective Date"), Legacy Valaris effectuated certain restructuring transactions, pursuant to which the independent registered public accounting firm's liability under Section 11 does not extendsuccessor company, Valaris, was formed and through a series of transactions Legacy Valaris transferred to it.a subsidiary of the Successor substantially all of the subsidiaries, and other assets, of Legacy Valaris.

References to the financial position and results of operations of the "Successor" or "Successor Company" relate to the financial position and results of operations of the Company after the Effective Date. References to the financial position and results of operations of the "Predecessor" or "Predecessor Company" refer to the financial position and results of operations of Legacy Valaris on and prior to the Effective Date. References to the “Company,” “we,” “us” or “our” in this Quarterly Report are to Valaris, together with its consolidated subsidiaries, when referring to periods following the Effective Date, and to Legacy Valaris, together with its consolidated subsidiaries, when referring to periods prior to and including the Effective Date.
  
Results of operations for the three-monthfour months ended April 30, 2021 (Predecessor) and nine-month periodstwo months ended SeptemberJune 30, 20172021 (Successor) are not necessarily indicative of the results of operations that will be realized for the year ending from June 30, 2021to December 31, 2017.2021 (Successor), or for any future period. We recommend these condensed consolidated financial statements be read in conjunction with our annual report on Form 10-K for the year ended December 31, 20162020, filed with the SEC on February 28, 2017March 2, 2021.

Bankruptcy and Fresh Start Accounting

On the Effective Date, the Debtors emerged from the Chapter 11 Cases. Upon emergence from the Chapter 11 Cases, we qualified for and adopted fresh start accounting. The application of fresh start accounting resulted in a new basis of accounting, and the Company became a new entity for financial reporting purposes. Accordingly, our quarterly reportsfinancial statements and notes after the Effective Date are not comparable to our financial statements and notes on Form 10-Q filedand prior to that date. Furthermore, the unaudited condensed consolidated financial statements and notes have been presented with a black line division to delineate the SEClack of comparability between the Predecessor and Successor.

11


SeeNote 2 – Chapter 11 Proceedings” and "Note 3 - Fresh Start Accounting" for additional details regarding the bankruptcy and fresh start accounting.

Changes in Accounting Policies

Upon emergence from bankruptcy, we elected to change our accounting policies related to property and equipment as well as materials and supplies.

Prior to emergence from bankruptcy, we recorded our drilling rigs as a single asset with a useful life ascribed by the expected useful life of that asset. Upon emergence, we have identified the significant components of our drilling rigs and ascribed useful lives based on April 27, 2017the expected time until the next required overhaul or the end of the expected economic lives of the components.

Historically, we recognized materials and July 27, 2017.

Operating Revenuessupplies on the balance sheet when purchased and Expenses

During the nine-monthsubsequently expensed items when consumed. Following emergence, materials and supplies will be expensed as a period ended September 30, 2016, operating revenues included $185.0 millioncost when received. Additionally, a customer arrangement provides that we take title to their materials and supplies for the lump-sum consideration received in settlement and releaseduration of the ENSCO DS-9 customer's ongoing early termination obligationscontract and $20.0 millionreturn or pay cash for the lump-sum consideration received in settlement of the ENSCO 8503 customer's remaining obligations under the contract. The ENSCO DS-9 contract was terminated for convenience by the customer in July 2015, whereby our customer was obligated to pay us monthly termination fees for two years underthem at the termination provisions of the contract. The ENSCO 8503 contract was originally scheduledTogether with our policy change on materials and supplies, we elected to expire in August 2017.record these assets and the obligation to our customer on a net basis as opposed to on a gross basis.


New Accounting Pronouncements


Recently adopted accounting pronouncements
Income Taxes - In August 2017,December 2019, the Financial Accounting Standards Board (the "FASB")FASB issued Update 2017-12, Derivatives and HedgingASU 2019-12, Income Taxes (Topic 815)740): Targeted Improvements toSimplifying the Accounting for Hedging Activities Income Taxes ("Update 2017-12"2019-12"), which will make more hedging strategies eligibleremoves certain exceptions for hedge accounting. It also amends presentation and disclosure requirements and changes how companies assess effectiveness. This update is effective for annualinvestments, intraperiod allocations and interim periods beginningtax calculations and adds guidance to reduce complexity in accounting for income taxes. The various amendments in Update 2019-12 are applied on a retrospective basis, modified retrospective basis and prospective basis, depending on the amendment. We adopted Update 2019-12 effective January 1, 2021 with no material impact to our financial statements upon adoption.

Accounting pronouncements to be adopted

Reference Rate Reform - In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("Update 2020-04"), which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in Update 2020-04 apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 15, 2018, with early adoption permitted.31, 2022, except for hedging relationships existing as of December 31, 2022, for which an entity has elected certain optional expedients and that are retained through the end of the hedging relationship. The provisions in Update 2020-04 are effective upon issuance and can be applied prospectively through December 31, 2022. We are currentlyin the process of evaluating the effect that Update 2017-12impact this amendment will have on our condensed consolidated financial statements and related disclosures.statements.




Leases - In October 2016,July 2021, the FASB issued Accounting Standards ASU 2021-05, Leases (Topic 842); Lessors - Certain Leases with Variable Lease Payments, ("Update 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (“Update 2016-16”2021-05"), which requires entitiesa lessor 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 onclassify 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 condensed consolidated balance sheet as of January 1, 2017. Welease with entirely or partially variable payments that do not expectdepend on an index or rate as an operating lease if another classification (i.e. sales-type or direct financing) would trigger a material impact to our 2017 operating results as a result of the adoption ofday-one loss. Update 2016-16.
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 2014-092021-05 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 prospective2021, 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 expect to adopt Update 2014-09 and Update 2016-02 concurrently with an effective date of January 1, 2018. We expect to apply the modified retrospective approach to our adoption.early adoption permitted. We are currentlyin the process of evaluating the effect that Update 2014-09 and Update 2016-02impact this amendment will have on our condensed consolidated financial statementsstatements.

12


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 condensed consolidated financial statements.

Note 2 -Chapter 11 Proceedings

Chapter 11 Cases and Emergence from Chapter 11

On the Petition Date, the Debtors filed voluntary petitions for reorganization under chapter 11 of the Bankruptcy Code in the Bankruptcy Court. The Debtors obtained joint administration of the Chapter 11 Cases under the caption In re Valaris plc, et al., Case No. 20-34114 (MI). On March 3, 2021, the Bankruptcy Court confirmed the Debtors' chapter 11 plan of reorganization.

On the Effective Date, we successfully completed our financial restructuring and together with the Debtors emerged from the Chapter 11 Cases. Upon emergence from the Chapter 11 Cases, we eliminated $7.1 billion of debt and obtained a $520 million capital injection by issuing the first lien secured notes (the "First Lien Notes"). See “Note 11 - Debt" for additional information on the First Lien Notes. On the Effective Date, the Legacy Valaris Class A ordinary shares were cancelled and common shares of Valaris with a nominal value of $0.01 per share (“Common Shares”) were issued. Also, former holders of Legacy Valaris' equity were issued warrants (the "Warrants") to purchase Common Shares.

Below is a summary of the terms of the plan of reorganization:

Appointed six new members to the Company's Board of Directors to replace all of the directors of Legacy Valaris, other than the director also serving as President and Chief Executive Officer, who was re-appointed pursuant to the plan of reorganization. All but one of the seven new directors, became directors as of the Effective Date and one became a director on July 1, 2021.

Obligations under Legacy Valaris's outstanding senior notes (the "Senior Notes") were cancelled and the related indentures were cancelled, except to the limited extent expressly set forth in the plan of reorganization and the holders thereunder received the treatment as set forth in the plan of reorganization;

The Legacy Valaris revolving credit facility (the "Revolving Credit Facility") was terminated and the holders thereunder received the treatment as set forth in the plan of reorganization;

Holders of the Senior Notes received their pro rata share of (1) 38.48%, or 28,859,900, of Common Shares and (2) approximately 97.6% of the subscription rights to participate in the rights offering (the "Rights Offering") through which the Company offered $550 million of the First Lien Notes, which includes the backstop premium;

Holders of the Senior Notes who participated in the Rights Offering received their pro ratashare of approximately 29.3%, or 21,975,000, of Common Shares, and senior noteholders who agreed to backstop the Rights Offering received their pro rata share of approximately 2.63%, or 1,975,500 of Common Shares and approximately $48.8 million in First Lien Notes as a backstop premium;

Certain Revolving Credit Facility lenders ("RCF Lenders") who participated in the Rights Offering received their pro rata share of approximately 0.7%, or 525,000 Common Shares, RCF Lenders who agreed to backstop the Rights Offering received their pro rata share of 0.07%, or 49,500 of Common Shares and approximately $1.2 million in First Lien Notes as a backstop premium;

13


Senior noteholders, solely with respect to Pride International LLC's 6.875% senior notes due 2020 and 7.875% senior notes due 2040, Ensco International 7.20% Debentures due 2027, and the 4.875% senior notes due 2022, 4.75% senior notes due 2024, 7.375% senior notes due 2025, 5.4% senior notes due 2042 and 5.85% senior notes due 2044, received an aggregate cash payment of $26.0 million in connection with settlement of certain alleged claims against the Company;

The two RCF Lenders who chose to participate in the Rights Offering received their pro rata share of (1) 5.3%, or 4,005,000 of Common Shares (2) approximately 2.427% of the First Lien Notes (and associated Common Shares), (3) $7.8 million in cash, and (4) their pro rata share of the backstop premium. The RCF Lenders who entered into the amended restructuring support agreement and elected not to participate in the Rights Offering received their pro rata share of (1) 22.980%, or 17,235,000 of Common Shares and (2) $96.1 million in cash;

Holders of general unsecured claims will receive payment in full within ninety days after the later of (a) the Effective Date and (b) the date such claim comes due;

375,000 Common Shares were issued and $5.0 million was paid to Daewoo Shipbuilding & Marine Engineering Co., Ltd (the "Shipyard");

Legacy Valaris Class A ordinary shares were cancelled and holders received 5,645,161 in Warrants exercisable for one Common Share per Warrant at initial exercise price of $131.88 per Warrant, in each case as may be adjusted from time to time pursuant to the applicable warrant agreement. The Warrants are exercisable for a period of seven years and will expire on April 29, 2028;

All equity-based awards of Legacy Valaris that were outstanding were cancelled;

On the Effective Date, Valaris entered into a registration rights agreement with certain parties who received Common Shares;

On the Effective Date, Valaris entered into a registration rights agreement with certain parties who received First Lien Notes; and

There were 0 borrowings outstanding against our debtor-in-possession ("DIP") facility and there were no DIP claims that were not due and payable on, or that otherwise survived, the Effective Date. The DIP Credit Agreement terminated on the Effective Date.

Management Incentive Plan

In accordance with the plan of reorganization, Valaris adopted the Valaris Limited 2021 Management Incentive Plan (the “MIP”) as of the Effective Date and authorized and reserved 8,960,573 Common Shares for issuance pursuant to equity incentive awards to be granted under the MIP, which may be in the form of incentive stock options, nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights, dividend equivalents and cash awards or any combination thereof.

Liabilities Subject to Compromise

The Debtors' pre-petition unsecured senior notes and related disclosures.unpaid accrued interest as of the Petition Date were classified as Liabilities Subject to Compromise on our Condensed Consolidated Balance Sheets as of December 31, 2020. The liabilities were reported at the amounts expected to be allowed as claims by the Bankruptcy Court.


In February 2016,
14


Liabilities subject to compromise at December 31, 2020 (Predecessor) consisted of the FASB issued Update 2016-02, which requires an entityfollowing (in millions):
6.875% Senior notes due 2020$122.9 
4.70% Senior notes due 2021100.7 
4.875% Senior notes due 2022620.8 
3.00% Exchangeable senior notes due 2024849.5 
4.50% Senior notes due 2024303.4 
4.75% Senior notes due 2024318.6 
8.00% Senior notes due 2024292.3 
5.20% Senior notes due 2025333.7 
7.375% Senior notes due 2025360.8 
7.75% Senior notes due 20261,000.0 
7.20% Debentures due 2027112.1 
7.875% Senior notes due 2040300.0 
5.40% Senior notes due 2042400.0 
5.75% Senior notes due 20441,000.5 
5.85% Senior notes due 2044400.0 
Amounts drawn under the Revolving Credit Facility581.0 
Accrued Interest on Senior Notes and Revolving Credit Facility203.5 
Rig holding costs(1)
13.9 
Total liabilities subject to compromise$7,313.7 
(1)    Represents the holding costs incurred to recognize lease assetsmaintain VALARIS DS-13 and lease liabilitiesVALARIS DS-14 in the shipyard.

The contractual interest expense on the balance sheetoutstanding Senior Notes and the Revolving Credit Facility was in excess of recorded interest expense by $32.6 million and $132.9 million for the one month and four months ended April 30, 2021, respectively. This excess contractual interest was not included as interest expense on our Condensed Consolidated Statements of Operations, as we had discontinued accruing interest on the Predecessor's Senior Notes and Revolving Credit Facility subsequent to disclose key qualitativethe Petition Date. The Predecessor discontinued making interest payments on our unsecured senior notes beginning in June 2020.

Reorganization Items

Expenditures, gains and quantitative information aboutlosses that are realized or incurred by the entity's leasing arrangements. This update is effectiveDebtors as of or subsequent to the Petition Date and as a direct result of the Chapter 11 Cases are reported as Reorganization items, net in our Condensed Consolidated Statement of Operations for annualthe two months ended June 30, 2021 (Successor) and interim periods beginning after December one month and four months ended April 30, 2021 (Predecessor). These costs include professional advisory service fees pertaining to the Chapter 11 Cases, contract items related to rejecting certain operating leases ("Contract items") and the effects of the emergence from bankruptcy, including the application of fresh start accounting.

15 2018, with early adoption permitted.


The components of reorganization items, net were as follows (in millions):

SuccessorPredecessor
Two Months Ended June 30, 2021One Month Ended April 30, 2021Four Months Ended April 30, 2021
Professional fees$5.6 $45.6 $93.4 
Contract items(1.5)3.9 
Reorganization items (fees)4.1 45.6 97.3 
Contract items.5 
Backstop premium30.0 30.0 
Gain on settlement of liabilities subject to compromise(6,139.0)(6,139.0)
Issuance of Common Shares for backstop premium29.1 29.1 
Issuance of Common Shares to the Shipyard5.4 5.4 
Write-off of unrecognized share-based compensation expense16.0 16.0 
Impact of newbuild contract amendments350.7 350.7 
Loss on fresh start adjustments9,194.6 9,194.6 
Reorganization items (non-cash)3,486.8 3,487.3 
Total reorganization items, net$4.1 $3,532.4 $3,584.6 
Reorganization items (fees) unpaid$2.2 $12.2 $38.3 
Reorganization items (fees) paid$1.9 $33.4 $59.0 


Note 3 -Fresh Start Accounting

Applicability of Fresh Start Accounting

Upon emergence from bankruptcy, we qualified for and applied fresh start accounting, which resulted in the Company becoming a new entity for financial reporting purposes because (1) the holders of the then existing Class A modified retrospective approach is required. During our evaluationordinary shares of Update 2016-02, we have concluded that our drilling contracts contain a lease component,the Predecessor received less than 50 percent of the new common shares of the Successor outstanding upon emergence and upon adoption, we will be required(2) the reorganization value of the Company’s assets immediately prior to separately recognize revenuesconfirmation of the plan of reorganization was less than the total of all post-petition liabilities and allowed claims.

The reorganization value derived from the range of enterprise values associated with the leaseplan of reorganization was allocated to the Company’s identifiable tangible and intangible assets and liabilities based on their fair values (except for deferred income taxes). The amount of deferred income taxes recorded was determined in accordance with the applicable income tax accounting standard. The April 30, 2021 fair values of the Company’s assets and liabilities differ materially from their recorded values as reflected on the historical balance sheets.

16


Reorganization Value

The reorganization value represents the fair value of the Successor's total assets and was derived from the enterprise value associated with the plan of reorganization, which represents the estimated fair value of an entity's long-term debt and equity less unrestricted cash upon emergence from chapter 11. As set forth in the disclosure statement and approved by the bankruptcy court, third-party valuation advisors estimated the enterprise value to be between $1,860.0 million and $3,145.0 million. The enterprise value range of the reorganized Debtors was determined primarily by using a discounted cash flow analysis. The value agreed in the plan of reorganization is indicative of an enterprise value at the low end of this range, or $1,860.0 million.

The following table reconciles the enterprise value to the estimated fair value of Successor Common Shares as of the Effective Date (in millions, except per share value):
April 30, 2021
Enterprise Value$1,860.0 
Plus: Cash and cash equivalents607.6 
Less: Fair value of debt(544.8)
Less: Warrants(16.4)
Less: Noncontrolling interest1.1 
Less: Pension and other post retirement benefits liabilities(189.0)
Less: Adjustments not contemplated in Enterprise Value(639.0)
Fair value of Successor Common Shares$1,079.5 
Shares issued upon emergence75 
Per share value$14.39 

The following table reconciles the enterprise value to the reorganization value as of the Effective Date (in millions):
April 30, 2021
Enterprise Value$1,860.0 
Plus: Cash and cash equivalents607.6 
Plus: Non-interest bearing current liabilities346.0 
Less: Adjustments not contemplated in Enterprise Value(218.0)
Reorganization value of Successor assets$2,595.6 

Adjustments not contemplated in Enterprise Value represent certain obligations of the Successor that were either not contemplated or contemplated in a different amount in the forecasted cash flows of the enterprise valuation performed by third-party valuation advisors that had they incorporated those anticipated cash flows into their analysis, the resulting valuation would have been different. For the reconciliation of Reorganization value of Successor assets, this item includes certain tax balances, contract liabilities, as well as an adjustment for the fair value of pension obligations. The reconciliation to Successor Common Share value includes these same reconciling items as well as other current and non-current liabilities of the Successor at the emergence.

The enterprise value and corresponding implied equity value are dependent upon achieving the future financial results set forth in the valuation utilizing assumptions regarding future day rates, utilization, operating costs and capital requirements as of the emergence date. All estimates, assumptions, valuations and financial projections, including the fair value adjustments, the enterprise value and equity value projections, are inherently subject to significant uncertainties and the resolution of contingencies beyond our control. Accordingly, there is no assurance that the estimates, assumptions, valuations or financial projections will be realized, and actual results could vary materially.

17


Valuation Process

The fair values of the Company's principal assets and liabilities including property, plant and equipment as well as our 50% equity interest in Saudi Aramco Rowan Offshore Drilling Company ("ARO") and our notes receivable from ARO, the First Lien Notes, pensions and Warrants were estimated with the assistance of third-party valuation advisors.

Property, Plant and Equipment

The valuation of the Company’s drilling rigs was estimated by using an income approach or estimated sales price. These valuations were based on unobservable inputs that require significant judgments for which there is limited information, including, in the case of an income approach, assumptions regarding future day rates, utilization, operating costs, reactivation costs and capital requirements. In developing these assumptions, forecasted day rates and utilization took into account current market conditions and our anticipated business outlook. The cash flows were discounted at our weighted average cost of capital ("WACC"), which was derived from a blend of our after-tax cost of debt and our cost of equity, and computed using public share price information for similar offshore drilling rigsmarket participants, certain U.S. Treasury rates and certain risk premiums specific to the Company.

Our remaining property and equipment including owned real estate and other equipment was valued using a cost approach, in which the estimated replacement cost of the assets was adjusted for physical depreciation and obsolescence, where applicable, to arrive at estimated fair value.

The estimated fair value of our property and equipment includes an adjustment to reconcile to our reorganization value.

Notes Receivable from ARO

The fair value of the long-term notes receivable from ARO was estimated using an income approach to value the forecasted cash flows attributed to the note receivable using a discount rate based on a comparable yield with a country-specific risk premium.

Investment in ARO

We estimated the fair value of the equity investment in ARO primarily by applying an income approach, using projected discounted cash flows of the underlying assets, a risk-adjusted discount rate and an estimated effective income tax rate.

First Lien Notes

The fair value of the First Lien Notes was determined to approximate the par value based on third-party valuation advisors’ analysis of the Company’s collateral coverage, financial metrics, and interest rate for the First Lien Notes relative to market rates of recent placements of a similar term for industry participants with similar credit risk.

Pensions

Our pension and other postretirement benefit liabilities and costs are based upon actuarial computations that reflect our assumptions about future events, including long-term asset returns, interest rates, annual compensation increases, mortality rates and other factors. Upon emergence, our pension and other post retirement plans were remeasured as of the Effective Date. Key assumptions at the Effective Date included (1) a weighted average discount rate of 2.81% to determine pension benefit obligations and (2) an expected long-term rate of return on pension plan assets of 6.03% to determine net periodic pension cost.

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Warrants

The fair value of the Warrants was determined using an option pricing model considering the contractual terms of the Warrant issuance. The key market data assumptions for the option pricing model are the estimated volatility and the provisionrisk-free rate. The volatility assumption was estimated using market data for offshore drilling market participants with consideration for differences in leverage. The risk-free rate assumption was based on U.S. Treasury Constant Maturity rates with a comparable term.

Condensed Consolidated Balance Sheet

The adjustments included in the following condensed consolidated balance sheet reflect the effects of contract drilling services. Duethe transactions contemplated by the plan of reorganization and executed by the Company on the Effective Date (reflected in the column “Reorganization Adjustments”), and fair value and other required accounting adjustments resulting from the adoption of fresh start accounting (reflected in the column “Fresh Start Accounting Adjustments”). The explanatory notes provide additional information with regard to the significant interaction between Update 2016-02adjustments recorded.

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As of April 30, 2021
PredecessorReorganization AdjustmentsFresh Start Accounting AdjustmentsSuccessor
ASSETS
CURRENT ASSETS  
    Cash and cash equivalents$280.2 $327.4 (a)$$607.6 
Restricted cash45.7 42.7 (b)88.4 
    Accounts receivable, net425.9 425.9 
    Other current assets370.1 1.5 (c)(281.1)(o)90.5 
Total current assets1,121.9 371.6 (281.1)1,212.4 
PROPERTY AND EQUIPMENT, NET10,026.4 (417.6)(d)(8,699.7)(p)909.1 
LONG-TERM NOTES RECEIVABLE FROM ARO442.7 (214.4)(q)228.3 
INVESTMENT IN ARO123.9 (43.4)(r)80.5 
OTHER ASSETS166.4 (10.0)(e)8.9 (s)165.3 
 $11,881.3 $(56.0)$(9,229.7)$2,595.6 
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES  
Accounts payable - trade$161.5 $13.1 (f)$(0.5)(t)$174.1 
Accrued liabilities and other290.7 (12.4)(g)(61.8)(u)216.5 
Total current liabilities452.2 0.7 (62.3)390.6 
LONG-TERM DEBT544.8 (h)544.8 
OTHER LIABILITIES706.2 (55.2)(i)(85.6)(v)565.4 
Total liabilities not subject to compromise1,158.4 490.3 (147.9)1,500.8 
LIABILITIES SUBJECT TO COMPROMISE7,313.7 (7,313.7)(j)
COMMITMENTS AND CONTINGENCIES
VALARIS SHAREHOLDERS' EQUITY  
Predecessor Class A ordinary shares82.5 (82.5)(k)
Predecessor Class B ordinary shares0.1 (0.1)(k)
Successor common shares0.8 (l)0.8 
Successor stock warrants16.4 (m)16.4 
Predecessor additional paid-in capital8,644.0 (8,644.0)(k)
Successor additional paid-in capital1,078.7 (l)1,078.7 
Retained deficit(5,147.4)14,322.6 (n)(9,175.2)(w)
Accumulated other comprehensive loss(93.4)93.4 (x)
Predecessor treasury shares(75.5)75.5 (k)
Total Valaris shareholders' equity3,410.3 6,767.4 (9,081.8)1,095.9 
NONCONTROLLING INTERESTS(1.1)(1.1)
Total equity3,409.2 6,767.4 (9,081.8)1,094.8 
 $11,881.3 $(56.0)$(9,229.7)$2,595.6 





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Reorganization Adjustments

(a)Cash

Represents the reorganization adjustments (in millions):

Receipt of cash for First Lien Notes$500.0 
Loan proceeds from backstop lenders20.0 
Funds received for liquidation of rabbi trust related to certain employee benefits17.6 
PaymentsPayments to Predecessor Creditors(129.9)
Transfer of funds for payment of certain professional fees to escrow account(42.7)
Payment for certain professional services fees(29.0)
Various other(8.6)
$327.4 

(b)Restricted cash

Reflects the reorganization adjustment to record the transfer of cash for payment of certain professional fees to restricted cash, which will be held in escrow until billings from professionals have been received and Update 2014-09, we expectreconciled at which time the funds in the account will be released.

(c)Other current asset

Reflects certain prepayments incurred upon emergence.

(d)Property and Equipment, net

Reflects the reorganization adjustment to adopt both updates concurrently with an effective dateremove $417.6 million of January 1, 2018. Adoption will result in increased disclosure ofwork-in-process related to the nature of our leasing arrangementsNewbuild Rigs. These values have been removed from property and may result in variability in our revenue recognition patterns relative to current U.S. GAAPequipment, net, based on the provisions in eachterms of our drilling contracts. 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. We are currently evaluating the other impacts that Update 2016-02 and Update 2014-09 will have on our consolidated financial statements and related disclosures.



Note 2 -    Atwood Merger

On May 29, 2017, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Atwood Oceanics, Inc. (“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 will be 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 demandamended agreements with the highest-specification assets.

Consideration

Shipyard. As a result of the Merger, Atwood shareholders received 1.60 Ensco Class A Ordinary sharesoption to take delivery, we removed the historical work-in-process balances from the balance sheet.

(e)Other assets

Represents the reorganization adjustments (in millions):

Liquidation of rabbi trust related to certain employee benefits$(17.6)
Elimination of right-of-use asset associated with Newbuild Rigs(5.5)
Fair value of options to purchase Newbuild Rigs13.1 
$(10.0)

Our supplemental executive retirement plans (the "SERPs") are non-qualified plans that provided eligible employees an opportunity to defer a portion of their compensation for each shareuse after retirement. The SERPs were frozen to the entry 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 deliverednew participants in the Merger consisted of 134.1 million Class A ordinary shares with an aggregate value of $782.0 million.

Assets AcquiredNovember 2019 and Liabilities Assumed
Assets acquired and liabilities assumed in the Merger will be recorded at their estimated fair valuesto future compensation deferrals as of January 1, 2020. Upon emergence, assets previously held in a rabbi trust maintained for the Merger Date underSERP were liquidated and the acquisition methodSERPs were amended.

In accordance with the amended agreement with the Shipyard, our leases were terminated and we have eliminated the historical right-of-use asset associated with the berthing locations of accounting. WhenVALARIS DS-13 and VALARIS DS-14.
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Additionally, upon effectiveness of the plan of reorganization, the amended agreement with the Shipyard provides the Company with the option to purchase the Newbuild Rigs. The reorganization adjustments include a Contract Intangible asset that reflects the fair value of the net assets acquired exceedsoption to purchase the Newbuild Rigs and embedded feature related to the ability, under the amended agreements with the Shipyard, for the equity issued pursuant to this arrangement to be put to the Company for $8.0 million of consideration transferred in an acquisition,for each rig, should we choose to take delivery.

(f)Accounts payable - trade

Reflects the difference is recordedfollowing reorganization adjustments (in millions):

Professional fees incurred upon emergence$26.1 
Payment of professional fees incurred prior to emergence(12.6)
Payment of certain accounts payable incurred prior to emergence(0.4)
$13.1 

(g)Accrued liabilities and other

Reflects the following reorganization adjustments (in millions):

Elimination of lease liabilities associated with Newbuild Rigs$(5.0)
Elimination of accrued post-petition holding costs associated with Newbuild Rigs(4.1)
Payment of certain accrued liabilities incurred prior to emergence(3.3)
$(12.4)

In accordance with the amended agreement with the Shipyard, our leases were terminated and we have eliminated the historical lease liability associated with the berthing locations of VALARIS DS-13 and VALARIS DS-14. Accrued post-petition holding costs have also been eliminated as a bargainresult of the amendments executed upon emergence. Additionally, reorganization adjustments to accrued liabilities and other includes an amount primarily related to payment of professional fees incurred prior to emergence.

(h)Long-term debt

    Reflects the reorganization adjustment to record the issuance of the $550.0 million aggregate principal amount of First Lien Notes and debt issuance costs of $5.2 million.

(i)Other liabilities

Reflects the following reorganization adjustments (in millions):

Elimination of construction contract intangible liabilities associated with Newbuild Rigs$(49.9)
Elimination of accrued post-petition holding costs associated with Newbuild Rigs(4.7)
Elimination of lease liabilities associated with Newbuild Rigs(0.6)
$(55.2)

The reorganization adjustments to other liabilities primarily relate to the elimination of construction contract intangibles associated with the Newbuild Rigs. These construction contract intangible liabilities were recorded in purchase gain inaccounting for the period in whichoriginal contracting entity. As the transaction occurs. amended contract is structured as an
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option whereby we have the right, not the obligation to take delivery of the rigs, there is no longer an intangible liability associated with the contracts and it has been eliminated from the financial statements.

We have not finalizedeliminated the fair valueshistorical lease liability associated with the berthing locations of assets acquiredVALARIS DS-13 and liabilities assumed; therefore,VALARIS DS-14 and accrued post-petition holding costs as described in (g) above.

(j) Liabilities subject to compromise

Reflects the following reorganization adjustments (in millions):

Settlement of liabilities subject to compromise$7,313.7 
Issuance of common stock to Predecessor creditors(721.0)
Issuance of common stock to backstop parties(323.8)
Payment to Predecessor creditors(129.9)
Gain on settlement of liabilities subject to compromise$6,139.0 

(k)Predecessor ordinary shares, additional paid-in capital and treasury shares

Represents the cancellation of the Predecessor's common shares of $82.6 million, additional paid-in capital of $8,644.0 million and treasury stock of $75.5 million.

(l)Successor common shares and additional paid-in capital

Represents par value of 75 million new Common Shares of $0.8 million and capital in excess of par value of $1,078.7 million.

(m)Successor stock warrants

On the Effective Date and pursuant to the plan of reorganization, Valaris issued an aggregate of 5.6 million Warrants exerciseable for up to an aggregate of 5.6 million Common Shares to former holders of Legacy Valaris's equity interests. The fair value estimates set forth below are subjectof the Warrants as of the Effective Date was $16.4 million.

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(n)Retained deficit

Represents the reorganization adjustments to total equity as follows (in millions):
Gain on settlement of liabilities subject to compromise$(6,139.0)
Issuance of Common Shares for backstop premium29.1 
Issuance of Common Shares to the Shipyard5.4 
Write-off of unrecognized share-based compensation expense16.0 
Professional fees and success fees35.9 
Backstop premium30.0 
Impact of newbuild contract amendments350.7 
Reorganization items, net(5,671.9)
Cancellation of Predecessor common shares(82.6)
Cancellation of Predecessor treasury shares75.5 
Cancellation of Predecessor additional paid in capital(7,856.4)
Cancellation of equity component of Predecessor convertible notes(220.0)
Cancellation of Predecessor cash and equity compensation plans(583.6)
Fair value of Warrants16.4 
$(14,322.6)

Fresh Start Adjustments

(o) Other current assets

Reflects the fresh start adjustments to record the estimated fair value of other current assets as follows (in millions):

Elimination of materials and supplies$(260.8)
Elimination of historical deferred contract drilling expenses(20.3)
$(281.1)

Primarily reflects the fresh start adjustment duringto eliminate the Valaris historical balance for materials and supplies as the result of a one year measurement period subsequentchange in accounting policy upon emergence.

    The fresh start adjustment for the elimination of historical deferred contract drilling expenses primarily relates to deferred mobilization costs, deferred contract preparation costs. and deferred certification costs. Costs incurred for mobilization and contract preparation prior to the Merger Date.commencement of drilling services are deferred and subsequently amortized over the term of the related drilling contract. Additionally, we must obtain certifications from various regulatory bodies in order to operate our drilling rigs and must maintain such certifications through periodic inspections and surveys. The costs incurred in connection with maintaining such certifications, including inspections, tests, surveys and drydock, as well as remedial structural work and other compliance costs, are deferred and amortized on a straight-line basis over the corresponding certification periods. These deferred costs have no future economic benefit to Valaris and are eliminated from the fresh start financial statements.

(p) Property and equipment, net

    Reflects the fresh start adjustments to historical amounts to record the estimated fair valuesvalue of property and equipment.

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(q) Long-term notes receivable from ARO

    Reflects the fresh start adjustment to record the estimated fair value of the long-term notes receivable from ARO. The fair value of the long-term notes receivable from ARO was estimated using an income approach to value the forecasted cash flows attributed to the note receivable using a discount rate based on comparable yield with a country-specific risk premium.

(r) Investment in ARO

    Reflects the fresh start adjustment to record the estimated fair value of the equity investment in ARO.

(s) Other assets

Reflects the fresh start adjustments to record the estimated fair value of other assets as follows (in millions):
Deferred tax impacts of certain fresh start adjustments$21.1 
Fair value of contracts with customers8.5 
Fair value adjustments to right-of-use assets0.4 
Elimination of historical deferred contract drilling expenses(16.5)
Elimination of other deferred costs(4.6)
$8.9 
The fresh start adjustment for deferred income tax assets represents the estimated incremental deferred income taxes, which reflects the tax effect of the differences between the estimated fair value of certain assets and liabilities including inventory, long-livedrecorded under fresh start accounting and the carryover tax basis of those 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.liabilities.


The provisional amountsfresh start adjustment to record the estimated fair value of contracts with customers represents the intangible assets recognized for firm customer contracts in place at the balance sheet date that have favorable contract terms as compared to current market day rates for comparable drilling rigs. The various factors considered in the adjustment are (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 emergence date. The intangible assets acquired and liabilities assumed are computed based on preliminary estimatesthe present value of their fair valuesthe difference in cash inflows over the remaining contract term as compared to a hypothetical contract with the same remaining term at an estimated current market day rate using a risk-adjusted discount rate and an estimated effective income tax rate. This balance will be amortized to operating revenues over the respective remaining contract terms on a straight-line basis.

The fresh start adjustment to right-of-use assets reflects the remeasuring our operating leases as of the Merger Dateemergence date. Certain operating leases had unfavorable terms as of the emergence date, and as a result the right-of-use asset for such leases does not equal the lease liability upon emergence.

The fresh start adjustment to eliminate historical deferred contract drilling expenses reflects the noncurrent portion of historical deferred contract drilling expenses described in (n) above as well as the elimination of customer contract intangibles previously recorded in purchase accounting.

The fresh start adjustments to eliminate other deferred costs reflect non-operational deferred costs that have no future economic benefit to Valaris.

(t) Accounts payable - trade

The fresh start adjustment to accounts payable trade reflects the write off of certain deferred amounts related to our operating leases. This value was eliminated through the remeasurement of our leases as of the emergence date.

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(u)Accrued liabilities and other

Reflects the fresh start adjustments to record the estimated fair value of current liabilities as follows (in millions):
Elimination of customer payable balance$(36.8)
Elimination of historical deferred revenues(25.9)
Fair value of contracts with customers0.5 
Fair value adjustment to lease liabilities0.4 
$(61.8)

The fresh start adjustment to eliminate the customer payable balance is related to a fresh start adjustment made to present the balance on a net basis.

    The fresh start adjustment to eliminate historical deferred revenues is primarily related to amounts previously received for the reimbursement for capital upgrades, upfront contract deferral fees and mobilization. Such amounts are deferred and subsequently amortized over the term of the related drilling contract. The deferred revenue does not represent future performance obligations of Valaris and are eliminated as fresh accounting adjustments.

The fresh start adjustment to record the estimated fair value of contracts with customers reflects the intangible liabilities recognized for firm customer contracts that have unfavorable contract terms as compared to current market day rates for comparable assets. The various factors considered in the adjustment are (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 emergence date. The intangible liabilities are computed based on the present value of the difference in cash inflows over the remaining contract term as compared to a hypothetical contract with the same remaining term at an estimated current market day rate using a risk-adjusted discount rate and an estimated effective income tax rate. This balance will be amortized to operating revenues over the respective remaining contract terms on a straight-line basis.

The fresh start adjustment to lease liabilities reflects the remeasuring of our operating leases as of the emergence date.

(v)Other liabilities

    Reflects the fresh start adjustments to record the estimated fair value of other liabilities as follows (in millions):
Adjustment to fair value of pension and other post-retirement plan liabilities$(82.7)
Elimination of historical deferred revenue(5.9)
Deferred tax impacts of certain fresh start adjustments1.7 
Fair value adjustments to lease liabilities1.1 
Fair value adjustments to other liabilities0.2 
$(85.6)

The fresh start adjustment to fair value pension and other post-retirement plan liabilities results from the remeasurement of the pension and other post-retirement benefit plans at the emergence date.

    The fresh start adjustment to eliminate deferred revenues reflects the noncurrent portion of deferred revenues described in (t) above.

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The fresh start adjustment for deferred income tax liabilities represents the estimated incremental deferred taxes, which reflects the tax effect of the differences between the estimated fair value certain assets and liabilities recorded under fresh start accounting and the carryover tax basis of those assets and liabilities.

The fresh start adjustment to lease liabilities reflects the remeasuring of our operating leases as of the Effective Date.

(w)Retained Deficit

Reflects the fresh start adjustments to retained deficit as follows (in millions):
Fair value adjustments to prepaid and other current assets$(281.1)
Fair value adjustments to property(8,699.7)
Fair value of intangible assets8.5 
Fair value adjustment to investment in ARO(43.4)
Fair value adjustment to note receivable from ARO(214.4)
Fair value adjustments to other assets(20.7)
Fair value adjustments to other current liability62.8 
Fair value of intangible liabilities(0.5)
Fair value adjustment to other liabilities87.3 
Elimination of Predecessor accumulated other comprehensive loss(93.4)
Total fresh start adjustments included in reorganization items, net$(9,194.6)
Tax impact of fresh start adjustments19.4 
$(9,175.2)

(x)Accumulated other comprehensive loss

Reflects the fresh start adjustments for the elimination of Predecessor accumulated other comprehensive loss through reorganization items, net.


Note 4 -Revenue from Contracts with Customers
Our drilling contracts with customers provide a drilling rig and drilling services on a day rate contract basis. Under day rate contracts, we provide an integrated service that includes the provision of a drilling rig and rig crews for which we receive a daily rate that may vary between the full rate and zero rate throughout the duration of the contractual term, depending on the operations of the rig.

We also may receive lump-sum fees or similar compensation for the mobilization, demobilization and capital upgrades of our rigs. Our customers bear substantially all of the costs of constructing the well and supporting drilling operations, as well as the economic risk relative to the success of the well.

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

The amount estimated for variable consideration is only recognized as revenue to the extent that it is probable that a significant reversal will not occur during the contract term. We have applied the optional exemption
27


afforded in ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), and have not disclosed the variable consideration related to our estimated future day rate revenues. The remaining duration of our drilling contracts based on those in place as of June 30, 2021 was between approximately one month and three years.

Day Rate Drilling Revenue

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

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

We may receive termination fees if certain drilling contracts are terminated by the customer prior to the end of the contractual term. Such compensation is recognized as revenue when our performance obligation is satisfied, the termination fee can be reasonably measured and collection is probable.

Mobilization / Demobilization Revenue

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

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

Capital Upgrade / Contract Preparation Revenue

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

Contract Assets and Liabilities

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

As of June 30, 2021 and December 31, 2020, we have a contract liability with ARO, our 50/50 joint venture with Saudi Aramco, representing the difference between the amounts billed under the Lease Agreements and lease revenues earned up to the respective date. See “Note 5 – Equity Method Investment in ARO" for additional details regarding our balances with ARO.

The following table summarizes our contract assets and contract liabilities (in millions):
SuccessorPredecessor
 June 30, 2021 December 31, 2020
Current contract assets$3.1 $1.4 
Noncurrent contract assets$$.4 
Current contract liabilities (deferred revenue)$35.2 $57.6 
Noncurrent contract liabilities (deferred revenue)$10.2 $14.3 

Changes in contract assets and liabilities during the period are as follows (in millions):
 Contract AssetsContract Liabilities
Balance as of December 31, 2020 (Predecessor)$1.8 $71.9 
Revenue recognized in advance of right to bill customer2.3 — 
Increase due to cash received— 10.2 
Decrease due to amortization of deferred revenue that was included in the beginning contract liability balance— (14.8)
Decrease due to transfer to receivables during the period(1.6)— 
Fresh start accounting revaluation(.3)(31.6)
Balance as of April 30, 2021 (Predecessor)$2.2 $35.7 
Balance as of May 1, 2021 (Successor)$2.2 $35.7 
Revenue recognized in advance of right to bill customer.9 — 
Increase due to cash received— 10.3 
Decrease due to amortization of deferred revenue that was added during the period— (.6)
Balance as of June 30, 2021 (Successor)$3.1 $45.4 
 
Estimated Fair Value
Assets: 
Cash and cash equivalents(1)
$445.4
Accounts receivable(2)
59.4
Other current assets115.9
Property and equipment1,776.1
Other assets26.0
Liabilities: 
Debt(1)
1,305.9
Other liabilities167.1
Net assets acquired949.8
Less: merger consideration(782.0)
Bargain purchase gain$167.8


(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 $61.8 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 estimated gain will be reflected in other, net, in our consolidated statement of operations during the fourth quarter.

Merger-RelatedDeferred Contract Costs


Merger-relatedCosts incurred for upfront rig mobilizations and certain contract preparations are attributable to our future performance obligation under each respective drilling contract. These costs wereare deferred and amortized on a straight-line basis over the contract term. Demobilization costs are recognized as incurred upon contract completion. Costs associated with the mobilization of equipment and personnel to more promising market areas without contracts are expensed as incurred and consisted of various advisory, legal, accounting, valuation and other professional or consulting fees totaling $3.8 million and $8.0 million during the three-month and nine-month periods ended September 30, 2017, respectively. Theseincurred. Deferred contract costs were included in other current assets and other assets on our Condensed Consolidated Balance Sheets and totaled $20.8 million and $13.8 million as of June 30, 2021
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(Successor) and December 31, 2020 (Predecessor), respectively. For the Successor, during the two months ended June 30, 2021, amortization of such costs totaled $3.6 million. For the Predecessor, during the one month and four months ended April 30, 2021, amortization of such costs totaled $1.8 million and $7.6 million, respectively. During the three and six months ended June 30, 2020, amortization of such costs for the Predecessor totaled $17.5 million and $28.9 million, respectively.

Deferred Certification Costs

We must obtain certifications from various regulatory bodies in order to operate our drilling rigs and must maintain such certifications through periodic inspections and surveys. The costs incurred in connection with maintaining such certifications, including inspections, tests, surveys and drydock, as well as remedial structural work and other compliance costs, are deferred and amortized on a straight-line basis over the corresponding certification periods. Deferred regulatory certification and compliance costs were included in other current assets and other assets on our Condensed Consolidated Balance Sheets and totaled $1.3 million and $8.4 million as of June 30, 2021 (Successor) and December 31, 2020 (Predecessor), respectively. For the Successor, during the two months ended June 30, 2021, amortization of these costs totaled $0.6 million. For the Predecessor, during the one month and four months ended April 30, 2021, amortization of these cost totaled $0.5 million and $3.1 million, respectively. During the three and six months ended June 30, 2020, amortization of such costs for the Predecessor totaled $2.6 million and $5.7 million, respectively.

Future Amortization of Contract Liabilities and Deferred Costs

Our contract liabilities and deferred costs are amortized on a straight-line basis over the contract term or corresponding certification period to operating revenues and contract drilling expense, respectively, with the exception of the contract liabilities related to our Lease Agreements with ARO which would not be contractually payable until the end of the lease term or termination, if sooner. Expected future amortization for the Successor of our contract liabilities and deferred costs recorded as of June 30, 2021 is set forth in the table below (in millions):
 Remaining 2021202220232024 and Thereafter Total
Amortization of contract liabilities$33.7 $11.0 $.7 $$45.4 
Amortization of deferred costs$14.0 $8.1 $$$22.1 


Note 5 -Equity Method Investment in ARO

Background
ARO, a company that owns and operates offshore drilling rigs in Saudi Arabia, was formed and commenced operations in 2017 pursuant to the terms of an agreement entered into by Rowan Companies Limited (formerly Rowan Companies plc) ("Rowan") and Saudi Aramco to create a 50/50 joint venture ("Shareholder Agreement"). Pursuant to our completion of the combination with Rowan (the "Rowan Transaction") on April 11, 2019 (the "Transaction Date"), Valaris acquired Rowan's interest in ARO making Valaris a 50% partner. ARO owns 7 jackup rigs, has ordered 2 newbuild jackup rigs, and leases 9 rigs from us through bareboat charter arrangements (the "Lease Agreements") whereby substantially all operating costs are incurred by ARO. As of June 30, 2021, all 9 of the leased rigs were operating under three-year drilling contracts with Saudi Aramco. The seven rigs owned by ARO, previously purchased from Rowan and Saudi Aramco, are currently operating under contracts with Saudi Aramco for an aggregate 15 years provided that the rigs meet the technical and operational requirements of Saudi Aramco.
Valaris and Saudi Aramco have agreed to take all steps necessary to ensure that ARO purchases 20 newbuild jackup rigs ratably over an approximate 10-year period. In January 2020, ARO ordered the first 2 newbuild jackups, each with a shipyard price of $176.0 million, for delivery scheduled in 2022. The joint venture partners intend for the newbuild jackup rigs to be financed out of available cash from ARO's operations and/or
30


funds available from third-party debt financing. In the event ARO has insufficient cash from operations or is unable to obtain third-party financing, each partner may periodically be required to make additional capital contributions to ARO, up to a maximum aggregate contribution of $1.25 billion from each partner to fund the newbuild program. Each partner's commitment shall be reduced by the actual cost of each newbuild rig, on a proportionate basis. The joint venture partners agreed that Saudi Aramco, as a customer, will provide drilling contracts to ARO in connection with the acquisition of the newbuild rigs. The initial contracts provided by Saudi Aramco for each of the newbuild rigs will be for an eight-year term. The day rate for the initial contracts for each newbuild rig will be determined using a pricing mechanism that targets a six-year payback period for construction costs on an EBITDA basis. The initial eight-year contracts will be followed by a minimum of another eight years of term, re-priced in three-year intervals based on a market pricing mechanism.
Upon establishment of ARO, Rowan entered into (1) an agreement to provide certain back-office services for a period of time until ARO develops its own infrastructure (the "Transition Services Agreement"), and (2) an agreement to provide certain Rowan employees through secondment arrangements to assist with various onshore and offshore services for the benefit of ARO (the "Secondment Agreement"). These agreements remained in place subsequent to the Rowan Transaction. Pursuant to these agreements, we or our seconded employees provided various services to ARO, and in return, ARO provided remuneration for those services. During the quarter ended June 30, 2020, almost all remaining employees seconded to ARO became employees of ARO. Additionally, our services to ARO under the Transition Services Agreement were completed as of December 31, 2020.

Summarized Financial Information

The operating revenues of ARO presented below reflect revenues earned under drilling contracts with Saudi Aramco for the 7 ARO-owned jackup rigs as well as the rigs leased from us.

Contract drilling expense is inclusive of the bareboat charter fees for the rigs leased from us. Cost incurred under the Secondment Agreement are included in contract drilling expense and general and administrative, expensedepending on the function to which the seconded employee's service related. Substantially all costs incurred under the Transition Services Agreement are included in general and administrative. See additional discussion below regarding these related-party transactions.

Summarized financial information for ARO is as follows (in millions):
Three Months EndedSix Months Ended
June 30, 2021June 30, 2020June 30, 2021June 30, 2020
Revenues$124.8 $146.0 $247.5 $286.3 
Operating expenses
Contract drilling (exclusive of depreciation)92.7 112.5 179.0 220.8 
Depreciation14.6 13.3 30.7 26.3 
General and administrative4.3 7.1 7.3 15.4 
Operating income13.2 13.1 30.5 23.8 
Other expense, net3.1 6.7 7.6 13.3 
Provision (Benefit) for income taxes1.9 (.2)6.4 .7 
Net income$8.2 $6.6 $16.5 $9.8 
31


June 30,
2021
December 31, 2020
Cash and cash equivalents$318.2 $237.7 
Other current assets81.7 120.9 
Non-current assets782.8 804.0 
Total assets$1,182.7 $1,162.6 
Current liabilities$74.9 $70.8 
Non-current liabilities950.3 950.8 
Total liabilities$1,025.2 $1,021.6 

Equity in Earnings of ARO

We account for our interest in ARO using the equity method of accounting and only recognize our portion of ARO's net income, adjusted for basis differences as discussed below, which is included in equity in earnings (losses) of ARO in our condensed consolidated statementsCondensed Consolidated Statements of operations. Upon closingOperations. ARO is a variable interest entity; however, we are not the primary beneficiary and therefore do not consolidate ARO. Judgments regarding our level of influence over ARO included considering key factors such as each partner's ownership interest, representation on the board of managers of ARO and ability to direct activities that most significantly impact ARO's economic performance, including the ability to influence policy-making decisions. Our investment in ARO would be assessed for impairment if there were changes in facts and circumstances that indicate a loss in value may have occurred. If a loss were deemed to have occurred and this loss was determined to be other than temporary, the carrying value of our investment would be written down to fair value and an impairment recorded.

We have an equity method investment in ARO that was recorded at its estimated fair value as of the Merger,date we incurred additional Merger-related costsacquired our 50% interest on April 11, 2019 ("Investment Date"). We computed the difference between the fair value of $11.8 million.

Pro Forma ImpactARO's net assets and the carrying value of those net assets in ARO's U.S. GAAP financial statements ("basis differences") on that date. These basis differences primarily relate to ARO's long-lived assets and the recognition of intangible assets associated with certain of ARO's drilling contracts that were determined to have favorable terms. Additionally, in fresh start accounting, we have recorded our investment in ARO at its estimated fair value as of the Mergerdate of emergence. Basis differences on that date primarily related to ARO's long-lived assets.


Basis differences are amortized over the remaining life of the assets or liabilities to which they relate and are recognized as an adjustment to the equity in earnings of ARO in our Condensed Consolidated Statements of Operations. The amortization of those basis differences are combined with our 50% interest in ARO's net income. A reconciliation of those components is presented below (in millions):
SuccessorPredecessor
Two Months Ended June 30, 2021One Month Ended April 30, 2021Three Months Ended June 30, 2020
50% interest in ARO net income$2.3 $1.9 $3.3 
Amortization of basis differences2.5 (.7)(8.5)
Equity in earnings (losses) of ARO$4.8 $1.2 $(5.2)

32


SuccessorPredecessor
Two Months Ended June 30, 2021Four Months Ended April 30, 2021Six Months Ended June 30, 2020
50% interest in ARO net income$2.3 $6.0 $4.9 
Amortization of basis differences2.5 (2.9)(16.4)
Equity in earnings (losses) of ARO$4.8 $3.1 $(11.5)

Related-Party Transactions

Revenues recognized by us related to the Lease Agreements, Transition Services Agreement and Secondment Agreement are as follows (in millions):
SuccessorPredecessor
Two Months Ended June 30, 2021One Month Ended April 30, 2021Three Months Ended June 30, 2020
Lease revenue$10.3 $5.1 $19.9 
Secondment revenue.4 .3 .2 
Total revenue from ARO (1)
$10.7 $5.4 $20.1 

SuccessorPredecessor
Two Months Ended June 30, 2021Four Months Ended April 30, 2021Six Months Ended June 30, 2020
Lease revenue$10.3 $21.7 $41.4 
Secondment and Transition Services revenue.4 1.1 22.0 
Total revenue from ARO (1)
$10.7 $22.8 $63.4 

(1)    All of the revenues presented above are included in our Other segment in our segment disclosures. See "Note 15 - Segment Information" for additional information.

Amounts receivable from ARO related to the items above totaled $21.0 million and $21.6 million as of June 30, 2021 (Successor) and December 31, 2020 (Predecessor), respectively, and are included in accounts receivable, net, on our Condensed Consolidated Balance Sheets.

We had $38.6 million and $30.9 million of Contract Liabilities related to our Lease Agreements with ARO as of June 30, 2021 (Successor) and December 31, 2020 (Predecessor), respectively.

During 2017 and 2018, Rowan contributed cash to ARO in exchange for 10-year shareholder notes receivable at a stated interest rate of LIBOR plus two percent. As of June 30, 2021 (Successor) and December 31, 2020 (Predecessor), the carrying amount of the long-term notes receivable from ARO was $234.3 million and $442.7 million, respectively. The notes receivable were adjusted to fair value as of the emergence date. The discount to the carrying amount will be amortized using the effective interest method to interest income over the remaining terms of the notes.The Shareholders’ Agreement prohibits the sale or transfer of the shareholder note to a third party, except in certain limited circumstances. The notes receivable may be reduced by future Company obligations to the joint venture. Interest is recognized as interest income in our Condensed Consolidated Statement of Operations. For the Successor, during the two months ended June 30, 2021, interest totaled $1.7 million. For the Predecessor, the one month and four months ended April 30, 2021, interest totaled $0.9 million and $3.5 million
33


respectively. Interest totaled $4.6 million and $9.2 million for the three and six months ended June 30, 2020, respectively. As of June 30, 2021 (Successor), our interest receivable from ARO was $5.2 million, which is included in Accounts receivable, net, on our Condensed Consolidated Balance Sheet. There was no interest receivable from ARO as of December 31, 2020 (Predecessor).

Maximum Exposure to Loss

The following unaudited supplemental pro forma results present consolidated information as iftable summarizes the Merger was completed on January 1, 2016. The pro forma results include, among others, (i) the amortization associated with acquired intangibletotal assets and liabilities (ii) a reductionas reflected in depreciation expenseour Condensed Consolidated Balance Sheets as well as our maximum exposure to loss related to ARO (in millions). Our maximum exposure to loss is limited to (1) our equity investment in ARO; (2) the outstanding balance on our shareholder notes receivable; and (3) other receivables and contract assets related to services provided to ARO, partially offset by contract liabilities as well as payables for adjustmentsservices received. Contract liabilities related to property and equipment and (iii) a reductionour Lease Agreements are subject to interest expense resulting fromadjustment during the retirementlease term. The per day bareboat charter amount in the Lease Agreements is subject to adjustment based on actual performance 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.respective rig.

SuccessorPredecessor
June 30, 2021December 31, 2020
Total assets$340.7 $585.2 
Less: total liabilities38.6 30.9 
Maximum exposure to loss$302.1 $554.3 


(in millions, except per share amounts)Three Months Ended
September 30,
 Nine Months Ended
September 30,
 20172016 20172016
Revenues

$561.2
$732.2
 $1,769.8
$2,960.8
Net income

(14.3)136.0
 (24.0)1,196.9
Earnings per share - basic and diluted

(0.03)0.31
 (0.06)2.95



Note 36 -Fair Value Measurements
 
The following fair value hierarchy table categorizes information regarding our financial assets and liabilities measured at fair value on a recurring basis (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, 2020 (Predecessor)   
Supplemental executive retirement plan assets22.6 22.6 
Total financial assets$22.6 $$$22.6 
 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 Total
As of September 30, 2017   
  
  
Supplemental executive retirement plan assets $30.0
 $
 $
 $30.0
Derivatives, net
 6.0
 
 6.0
Total financial assets$30.0
 $6.0
 $
 $36.0
        
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 Plan Assets

Our supplemental executive retirement plans (the "SERP") are non-qualified plans that provideprovided eligible employees an opportunity to defer a portion of their compensation for use after retirement. The SERP were frozen to the entry of new participants in November 2019 and to future compensation deferrals as of January 1, 2020. Assets held in a rabbi trust maintained for the SERP wereare marketable securities measured at fair value on a recurring basis using Level 1 inputs and were included in other assets, net, on our condensed consolidated balance sheets.Condensed Consolidated Balance Sheets as of December 31, 2020. The fair value measurementmeasurements of assets held in the SERP waswere based on quoted market prices.

Derivatives
Our derivatives Pursuant to the plan of reorganization, the assets held in the rabbi trust maintained for the SERP were measured at fair value on a recurring basis using Level 2 inputs. See "Note 4 - Derivative Instruments" for additional information on our derivatives, including a description of our foreign currency hedging activitiesliquidated upon emergence from Chapter 11 Cases and related methodologies used to manage foreign currency exchange rate risk. The fair value measurementsatisfy the claims of our derivatives was based on market prices that are generally observable for similar assets or liabilities at commonly-quoted intervals.creditors.


34



Other Financial Instruments

The carrying values and estimated fair values of our long-term debt instruments were as follows (in millions):
SuccessorPredecessor
June 30,
2021
December 31,
2020
Carrying Value  Estimated Fair Value  Carrying Value  Estimated Fair Value  
Secured first lien notes due 2028$544.8 $570.1 $$
6.875% Senior notes due 2020122.9 8.6 
4.70% Senior notes due 2021100.7 4.5 
4.875% Senior notes due 2022620.8 32.9 
3.00% Exchangeable senior notes due 2024(1)
849.5 76.5 
4.50% Senior notes due 2024303.4 13.7 
4.75% Senior notes due 2024318.6 18.8 
8.00% Senior notes due 2024292.3 12.9 
5.20% Senior notes due 2025333.7 12.7 
7.375% Senior notes due 2025360.8 20.9 
7.75% Senior notes due 20261,000.0 44.0 
7.20% Debentures due 2027112.1 5.7 
7.875% Senior notes due 2040300.0 21.0 
5.40% Senior notes due 2042400.0 23.6 
5.75% Senior notes due 20441,000.5 38.0 
5.85% Senior notes due 2044400.0 26.0 
Amounts borrowed under Revolving Credit Facility(2)
581.0 581.0 
Total debt$544.8 $570.1 $7,096.3 $940.8 
Less : Liabilities Subject to Compromise(3)
7,096.3 940.8 
Total long-term debt$544.8 $570.1 $$

(1)    For the Predecessor, the 3% exchangeable senior notes due 2024 (the "2024 Convertible Notes") were exchangeable into cash, our Class A ordinary shares or a combination thereof. The 2024 Convertible Notes were separated, at issuance, into their liability and equity components on our Condensed Consolidated Balance Sheet. The equity component was initially recorded to additional paid-in capital and as a debt discount and the discount was being amortized to interest expense over the life of the instrument. As discussed above, the carrying amount at December 31, 2020 represented the aggregate principal amount of these notes as of the Petition Date and were classified as Liabilities Subject to Compromise in our Condensed Consolidated Balance Sheets as of December 31, 2020. The Predecessor discontinued accruing interest on these notes as of the Petition Date. The equity component was $220.0 million and was classified as Additional Paid-in Capital as of December 31, 2020. On the Effective Date, in accordance with the plan of reorganization, all outstanding obligations under the 2024 Convertible Notes were cancelled and the equity component was written off to retained earnings.

(2)    In addition to the amount borrowed above, the Predecessor had $27.0 million in undrawn letters of credit issued under the Revolving Credit Facilityas of December 31, 2020. On the emergence date, in accordance with the plan of reorganization, all undrawn letters of credit issued under the Revolving Credit Facility were collateralized pursuant to the terms of the RevolvingCredit Facility. As of June 30, 2021, we had $22.0 million of collateralized letters of credit issued to lenders of the predecessor Revolving Credit Facility.
35


 September 30,
2017
 December 31,
2016
 Carrying Value   Estimated Fair Value   Carrying Value   Estimated Fair Value  
8.50% Senior notes due 2019$253.7
 $252.3
 $480.2
 $485.0
6.875% Senior notes due 2020480.3
 465.2
 735.9
 727.5
4.70% Senior notes due 2021266.9
 264.6
 674.4
 658.9
3.00% Exchangeable senior notes due 2024(1)
628.2
 726.8
 604.3
 874.7
4.50% Senior notes due 2024619.1
 520.2
 618.6
 536.0
8.00% Senior notes due 2024338.2
 330.2
 
 
5.20% Senior notes due 2025663.4
 564.0
 662.8
 582.3
7.20% Debentures due 2027149.2
 139.2
 149.2
 138.7
7.875% Senior notes due 2040377.1
 256.6
 378.3
 270.6
5.75% Senior notes due 2044971.6
 731.9
 970.8
 728.0
Total$4,747.7
 $4,251.0
 $5,274.5
 $5,001.7


(1)
Our exchangeable senior notes due 2024 (the "2024 Convertible Notes") were issued with a conversion feature. The 2024 Convertible Notes were separated into their liability and equity components on our condensed consolidated balance sheet. The equity component was initially recorded to additional paid-in capital and as a debt discount that will be amortized to interest expense over the life of the instrument. Excluding the unamortized discount, the carrying amount of the 2024 Convertible Notes was $833.5 million and $830.1 million as of September 30, 2017 and December 31, 2016, respectively.

(3)     As discussed in “Note 2 - Chapter 11 Proceedings” and “Note 3 - Fresh Start Accounting,” since the commencement of the Chapter 11 Cases on August 19, 2020 and through April 30, 2021, the Company operated as a debtor-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with the provisions of the Bankruptcy Code. Accordingly, all of our long-term debt obligations were presented as Liabilities Subject to Compromise in our Condensed Consolidated Balance Sheets as of December 31, 2020. All unamortized debt discounts, premiums or issuance costs related to our long-term debt obligations were written off to reorganization items as of the Petition Date in 2020.

The estimated fair values of our senior notesthe Successor's First Lien Notes and debentures the Predecessor's Senior Noteswere determined using quoted market prices.prices, which are level 1 inputs. The decline in the carryingestimated fair value of long-term debt instruments from December 31, 2016our notes receivable was estimated by using an income approach to September 30, 2017 is primarily duevalue the forecasted cash flows attributed to the January 2017 debt exchange and debt repurchases as discussed in "Note 7 - Debt."note receivable using a discount rate based on comparable yield with a country-specific risk premium


The estimated fair values of our cash and cash equivalents, short-term investments, receivables,restricted cash, accounts receivable and trade payables and other liabilities approximated their carrying values as of SeptemberJune 30, 20172021 and December 31, 2016. Our short-term investments2020.

As discussed above, the carrying amount at December 31, 2020 represents the Predecessor's outstanding borrowings as of the Petition Date and are classified as Liabilities Subject to Compromise in our Condensed Consolidated Balance Sheets as of December 31, 2020. We discontinued accruing interest on our indebtedness as of the Petition Date.


Note 7 -Property and Equipment

    Property and equipment as of June 30, 2021 and December 31, 2020 consisted of the following (in millions):
SuccessorPredecessor
June 30,
2021
December 31, 2020
Drilling rigs and equipment$855.8 $12,584.4 
Work-in-progress23.4 446.1 
Other35.2 178.8 
$914.4 $13,209.3 

Predecessor Impairments of Long-Lived Assets

During the four months ended April 30, 2021, we recorded an aggregate pre-tax, non-cash impairment with respect to certain floaters of $756.5 million, which is included in loss on impairment in our Condensed Consolidated Statement of Operations.

During the three and six months ended June 30, 2020 we recorded an aggregate pre-tax, non-cash impairment with respect to certain floaters, jackups and spare equipment of $832.3 million and $3.6 billion respectively, which were included in loss on impairment in our Condensed Consolidated Statement of Operations.

Assets held-for-use

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. For rigs whose carrying values were determined not to be recoverable, we recorded an impairment for the difference between their fair values and carrying values.

36


Predecessor

During the first quarter of 2021, as a result of challenging market conditions for certain of our floaters, we revised our near-term operating assumptions which resulted in a triggering event for purposes of evaluating impairment. We determined that the estimated undiscounted cash flows were not sufficient to recover the carrying values for certain rigs and concluded they were impaired as of March 31, 2021.

Based on the asset impairment analysis performed as of March 31, 2021, we recorded a pre-tax, non-cash loss on impairment in the first quarter for certain floaters totaling $756.5 million. We measured the fair value of these assets to be $26.0 million at the time depositsof impairment by applying either an income approach, using projected discounted cash flows or estimated sales price. These valuations were based on unobservable inputs that require significant judgments for which there is limited information, including, in the case of an income approach, 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 current market conditions and our anticipated business outlook.

During the second quarter of 2020, given the anticipated sustained market impacts arising from the decline in oil price and demand late in the first quarter, we revised our long-term operating assumptions which resulted in a triggering event for purposes of evaluating impairment and we performed a fleet-wide recoverability test. As a result, we recorded a pre-tax, non-cash impairment with initial maturitiesrespect to 2 floaters and spare equipment totaling $817.3 million. We measured the fair value of these assets to be $69.0 million at the time of impairment by applying an income approach or estimated scrap value. These valuations were based on unobservable inputs that require significant judgments for which there is limited information including, in the case of the income approach, assumptions regarding future day rates, utilization, operating costs and capital requirements.

During the first quarter of 2020, the COVID-19 global pandemic and the response thereto negatively impacted the macro-economic environment and global economy. Global oil demand fell sharply at the same time global oil supply increased as a result of certain oil producers competing for market share which lead to a supply glut. As a consequence, Brent crude oil fell from around $60 per barrel at year-end 2019 to around $20 per barrel as of mid-April 2020. These adverse changes and impacts to our customer's capital expenditure plans in the first quarter resulted in further deterioration in our forecasted day rates and utilization for the remainder of 2020 and beyond. As a result, we concluded that a triggering event had occurred, and we performed a fleet-wide recoverability test. We determined that our estimated undiscounted cash flows were not sufficient to recover the carrying values of certain rigs and concluded such were impaired as of March 31, 2020.

Based on the asset impairment analysis performed as of March 31, 2020, we recorded a pre-tax, non-cash loss on impairment in the first quarter with respect to certain floaters, jackups and spare equipment totaling $2.8 billion. We measured the fair value of these assets to be $72.3 million at the time of impairment by applying either an income approach, using projected discounted cash flows or estimated sales price. These valuations were based on unobservable inputs that require significant judgments for which there is limited information, including, in the case of an income approach, 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 then current market conditions and our anticipated business outlook at that time, both of which had been impacted by the adverse changes in the business environment observed during the first quarter of 2020.

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Assets held-for-sale

Our business strategy has been to focus on ultra-deepwater floater and premium jackup operations and de-emphasize other assets and operations that are not part of our long-term strategic plan or that no longer meet our standards for economic returns. We continue to focus on our fleet management strategy in light of the composition of our rig fleet. While taking into account certain restrictions on the sales of assets under our First Lien Notes Indenture, see “Note 11 – Debt" for additional details on restrictions, as part of our strategy, we may act opportunistically from time to time to monetize assets to enhance stakeholder value and improve our liquidity profile, in addition to reducing holding costs by selling or disposing of older, lower-specification or non-core rigs. To this end, we continually assess our rig portfolio and actively work with our rig broker to market certain rigs.

On a quarterly basis, we assess whether any rig meets the criteria established for held-for-sale classification on our balance sheet. All rigs classified as held-for-sale are recorded at fair value, less costs to sell. We measure the fair value of our assets held-for-sale by applying a market approach based on unobservable third-party estimated prices that would be received in exchange for the assets in an orderly transaction between market participants or a negotiated sales price. We reassess the fair value of our held-for-sale assets on a quarterly basis and adjust the carrying value, as necessary

Assets held-for-sale had an aggregate carrying value of $1.0 million and $2.3 million and is included in other assets, net, on our Condensed Consolidated Balance Sheet as of June 30, 2021 (Successor) and December 31, 2020 (Predecessor), respectively.


Note 8 -Pension and Other Post-retirement Benefits

    We have defined-benefit pension plans and a retiree medical plan that provides post-retirement health and life insurance benefits.

    The components of net periodic pension and retiree medical cost were as follows (in millions):
SuccessorPredecessor
 Two Months Ended June 30, 2021One Month Ended April 30, 2021Three Months Ended June 30, 2020
Service cost (1)
$$$.7 
Interest cost (2)
3.8 1.6 6.4 
Expected return on plan assets(2)
(6.2)(3.0)(9.5)
Net periodic pension and retiree medical cost (income)$(2.4)$(1.4)$(2.4)

38


SuccessorPredecessor
 Two Months Ended June 30, 2021Four Months Ended April 30, 2021Six Months Ended June 30, 2020
Service cost (1)
$$$1.3 
Interest cost (2)
3.8 6.6 12.9 
Expected return on plan assets(2)
(6.2)(12.1)(19.0)
Amortization of net loss (2)
.1 
Net periodic pension and retiree medical cost (income)$(2.4)$(5.4)$(4.8)

(1)Included in contract drilling and general and administrative expense in our Condensed Consolidated Statements of Operations.

(2)Included in other, net, in our Condensed Consolidated Statements of Operations.

During the two months ended June 30, 2021 (Successor), we contributed $0.6 million to our pension and other post-retirement benefit plans. During the four months ended April 30, 2021 (Predecessor), we contributed $22.5 million to our pension and other post-retirement benefit plans, of which $7.0 million and $5.3 million relate to the 2020 and 2019 plan year contributions, respectively, that were deferred under the U. S. Cares Act. Additionally, in March 2021, the American Rescue Plan Act of 2021 ("ARPA-21") was passed. ARPA-21 provides funding relief for U.S. qualified pension plans which should lower pension contribution requirements over the next few years. As a result, we will not make contributions to certain plans for the remainder of 2021. However, we expect to make contributions to certain other plans for the remainder of 2021 of approximately $1.3 million. These amounts represent the minimum contributions we are required to make under relevant statutes. We do not expect to make contributions in excess of three months but less than one year as of each respective balance sheet date.the minimum required amounts.


Note 49 -Derivative Instruments
    
Our functional currency is the U.S. dollar. As is customary in the oil and gas industry, a majority of our revenues 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. We use foreign currency forward contractspreviously used derivatives to reduce our exposure to various market risks, primarily foreign currency exchange rate risk.

AllThe commencement of the Chapter 11 Cases constituted a termination event with respect to the Company’s derivative instruments, which permitted the counterparties of our derivative instruments to terminate their outstanding contracts. The exercise of these termination rights are not stayed under the Bankruptcy Code and the counterparties elected to terminate their outstanding derivatives were recordedwith us in September 2020. As a result, we do not have derivative assets or liabilities on our condensed consolidated balance sheets at fair value. Derivatives subject to legally enforceable master netting agreements wereCondensed Consolidated Balance Sheets as of December 31, 2020 (Predecessor). During the four months ended April 30, 2021 (Predecessor) and two months ended June 30, 2021 (Successor), we did not offset in our condensed consolidated balance sheets. Accounting for the gains and losses resulting from changes inenter into derivative fair value depends on the use of thecontracts; therefore, we do not have derivative and whether it qualifies for hedge accounting.  Net assets of $6.0 million and net or liabilities of $8.8 million associated with our foreign currency forward contracts were included on our condensed consolidated balance sheetsCondensed Consolidated Balance Sheet as of SeptemberJune 30, 2017 and December 31, 2016, respectively.  All of our derivatives mature during the next 18 months.  See "Note 3 - Fair Value Measurements" for additional information on the fair value measurement of our derivatives.2021.


Derivatives recorded at fair value on our condensed consolidated balance sheets consisted of the following (in millions):
 Derivative Assets Derivative Liabilities
 September 30,
2017
 December 31,
2016
 September 30,
2017
 December 31,
2016
Derivatives Designated as Hedging Instruments   
  
  
Foreign currency forward contracts - current(1)
$6.4
 $4.1
 $.7
 $11.4
Foreign currency forward contracts - non-current(2)
.7
 .2
 .1
 .8
 7.1
 4.3
 .8
 12.2
        
Derivatives Not Designated as Hedging Instruments   
  
  
Foreign currency forward contracts - current(1)
.8
 .4
 1.1
 1.3
 .8
 .4
 1.1
 1.3
Total$7.9
 $4.7
 $1.9
 $13.5
(1)
Derivative assets and liabilities with maturity dates equal to or less than twelve months from the respective balance sheet date were included in other current assets and accrued liabilities and other, respectively, on our condensed consolidated balance sheets.

(2)
Derivative assets and liabilities with maturity dates greater than twelve months from the respective balance sheet date were included in other assets, net, and other liabilities, respectively, on our condensed consolidated balance sheets.

We utilizepreviously utilized 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 expensesexpense and capital expenditures denominated in various currencies. As of September 30, 2017, we had cash flow hedges outstanding to exchange an aggregate $164.0 million for various foreign currencies, including $74.4 million for British pounds, $33.8 million for Australian dollars, $23.3 million for euros, $20.3 million for Brazilian reals and $12.2 million for other currencies.


39


Gains and losses, net of tax, on derivatives designated as cash flow hedges included in our condensed consolidated statementsCondensed Consolidated Statements of operationsOperations and comprehensive (loss) incomeloss were as follows (in millions):


Three Months Ended September
Gain Recognized in Other Comprehensive Loss ("OCI") on Derivatives (Effective Portion)
Gain Reclassified from ("AOCI") into Income (Effective Portion)(1)
SuccessorPredecessorSuccessorPredecessor
Two Months Ended June 30, 2021One Month Ended April 30, 2021Three Months Ended June 30, 2020Two Months Ended June 30, 2021One Month Ended April 30, 2021Three Months Ended June 30, 2020
Foreign currency forward contracts(2)
$$$4.8 $$$(10.9)


Loss Recognized in Other Comprehensive Loss ("OCI") on Derivatives (Effective Portion)
Gain Reclassified from ("AOCI") into Income (Effective Portion)(1)
SuccessorPredecessorSuccessorPredecessor
Two Months Ended June 30, 2021Four Months Ended April 30, 2021Six Months Ended June 30, 2020Two Months Ended June 30, 2021Four Months Ended April 30, 2021Six Months Ended June 30, 2020
Foreign currency forward contracts(3)
$$$(8.1)$$(5.6)$(11.0)


(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)During the three months ended June 30, 20172020 (Predecessor), $1.6 million of losses were reclassified from AOCI into contract drilling expense and 2016$12.5 million of gains were reclassified from AOCI into depreciation expense in our Condensed Consolidated Statement of Operations.

 Gain (Loss) Recognized in Other Comprehensive (Loss) Income (Effective Portion)   
(Loss) Gain Reclassified from Accumulated Other Comprehensive Income ("AOCI") into Income (Effective Portion)(1)
 
Gain Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing)(2)
 2017 2016 2017 2016 2017 2016
Interest rate lock contracts(3)
$
 $
 $(.1) $(.1) $
 $
Foreign currency forward contracts(4)
1.7
 
 .2
 (2.1) .3
 .2
Total$1.7
 $
 $.1
 $(2.2) $.3
 $.2
(3)During the four months ended April 30, 2021 (Predecessor), $5.6 million of gains were reclassified from AOCI into impairment expense in our Condensed Consolidated Statement of Operations in connection with the impairment of certain rigs. During the six months ended June 30, 2020 (Predecessor), $2.5 million of losses were reclassified from AOCI into contract drilling expense and $13.5 million of gains were reclassified from AOCI into depreciation expense in our Condensed Consolidated Statement of Operations.




Nine Months Ended September 30, 2017 and 2016
 Gain (Loss) Recognized in Other Comprehensive (Loss) Income (Effective Portion)   
Loss Reclassified from AOCI into Income (Effective Portion)(1)
 
(Loss) Gain Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing)(2)
 2017 2016 2017 2016 2017 2016
Interest rate lock contracts(3)
$
 $
 $(.3) $(.2) $
 $
Foreign currency forward contracts(5)
7.7
 (.6) (.8) (9.9) (.1) 2.1
Total$7.7
 $(.6) $(1.1) $(10.1) $(.1) $2.1

(1)
Changes in the effective portion of cash flow hedge fair values 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 condensed consolidated statements of operations.

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

(4)
During the three-month period ended September 30, 2017, there were no net amounts reclassified from AOCI into contract drilling expense and $200,000 of gains were reclassified from AOCI into depreciation expense in our condensed consolidated statement of operations. During the three-month period ended September 30, 2016, $2.3 million of losses were reclassified from AOCI into contract drilling expense and $200,000 of gains were reclassified from AOCI into depreciation expense in our condensed consolidated statement of operations.

(5)
During the nine-month period ended September 30, 2017, $1.4 million of losses were reclassified from AOCI into contract drilling expense and $600,000 of gains were reclassified from AOCI into depreciation expense in our condensed consolidated statement of operations. During the nine-month period ended September 30, 2016, $10.5 million of losses were reclassified from AOCI into contract drilling expense and $600,000 of gains were reclassified from AOCI into depreciation expense in our condensed 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. WeHistorically, we have occasionally enterentered into derivatives that hedge the fair value of recognized foreign currency denominated assets or liabilities but dodid not designate such derivatives as hedging instruments. In these situations, a natural hedging relationship generally existsexisted whereby changes in the fair value of the derivatives offset changes in the fair value of the underlying hedged items. AsNet gains of September 30, 2017, we held derivatives not designated as hedging instruments to exchange an aggregate $137.1 million for various foreign currencies, including $94.4 million for euros, $12.3 million for British pounds, $10.1 million for Brazilian reals, $7.7 million for Australian dollars and $12.6 million for other currencies.
Net gains of $2.7$1.4 million and net losses of $400,000$1.3 million associated with our derivatives not designated as hedging instruments were included in other, net, in our condensed consolidated statementsCondensed Consolidated Statement of operationsOperations for the three-month periodsthree months and six months ended SeptemberJune 30, 2017 and 20162020 (Predecessor), respectively. Net gains

40


Note 10 - Earnings Per Share
Basic income (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted-average number of $8.9 million and $500,000 associated with our derivatives not designated as hedging instruments were included in other, net, in our condensed consolidated statements of operations for the nine-month periods ended September 30, 2017 and 2016, respectively. These gains and losses were largely offset by net foreign currency exchange gains and lossescommon shares outstanding during the respective periods.


As of September 30, 2017, the estimated amount of net gains associated with derivative instruments, net of tax, that would be reclassified into earnings during the next twelve months totaled $3.3 million.
Note 5 - 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 condensed consolidated balance sheets, and net income attributable to noncontrolling interests is presented separately in our condensed consolidated statements of operations.
(Loss) income from continuing operations attributable to Ensco for the three-month and nine-month periods ended September 30, 2017 and 2016 was as follows (in millions):
 Three Months Ended
September 30,
 Nine Months Ended
September 30,
 2017 2016 2017 2016
(Loss) income from continuing operations$(28.0) $88.0
 $(96.7) $858.4
Loss (income) from continuing operations attributable to noncontrolling interests2.8
 (2.0) .5
 (5.4)
(Loss) income from continuing operations attributable to Ensco$(25.2) $86.0
 $(96.2) $853.0
Note 6 - Earnings Per Share
We compute basic and diluted earnings per share ("EPS") in accordance with the two-class method. Net (loss) income 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.period. 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 stock options and Warrants and excludes non-vested shares. For the Successor, during the two months ended June 30, 2021, 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. For the Predecessor, during the one month and four months ended April 30, 2021 and three and six months ended June 30, 2020, 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 (loss) incomeFor the Successor, during the two months ended June 30, 2021, loss from continuing operations attributable to EnscoValaris shares usedwas $6.2 million. No amounts were allocated to non-vested share awards given that losses are not allocated to non-vested share awards.

For the Predecessor, during one month and four months ended April 30, 2021, loss from continuing operations attributable to Valaris shares was $3.6 billion and $4.5 billion respectively. No amounts were allocated to non-vested share awards in our basiceither period given that losses are not allocated to non-vested share awards. During three and diluted EPS computations forsix months ended June 30, 2020, loss from continuing operations attributable to Valaris shares were $1.1 billion and $4.1 billion respectively.

For the three-monthSuccessor, during the two months ended June 30, 2021, there were 29,000 anti-dilutive shares. For the Predecessor, during the one month and nine-month periodsfour months ended SeptemberApril 30, 2017 and 2016 (in millions):
 Three Months Ended
September 30,
 Nine Months Ended
September 30,
 2017 2016 2017 2016
(Loss) income from continuing operations attributable to Ensco$(25.2) $86.0
 $(96.2) $853.0
Income from continuing operations allocated to non-vested share awards(1)
(.1) (1.8) (.3) (15.1)
(Loss) income from continuing operations attributable to Ensco shares$(25.3) $84.2
 $(96.5) $837.9

(1)
Losses are not allocated to non-vested share awards. Therefore, only dividends attributable to our non-vested share awards are included in the three-month and nine-month periods ended September 30, 2017.

Antidilutive2021, anti-dilutive share awards totaling 1.3 million and 1.2 million300,000 were excluded from the computation of diluted EPS respectively. Anti-dilutive share awards totaling 400,000 were excluded from the computation of diluted EPS for the three-monththree and nine-month periodssix months ended SeptemberJune 30, 20172020, respectively. Due to the net loss position, potentially dilutive share awards are excluded from the computation of diluted EPS.

On the Effective Date and 2016, respectively.pursuant to the plan of reorganization, all of the Predecessor's ordinary shares were cancelled. In accordance with the plan of reorganization, all agreements, instruments and other documents evidencing, relating or otherwise connected with any of Legacy Valaris' equity interests outstanding prior to the Effective Date, including all equity-based awards, were cancelled.

WeOn the Effective Date and pursuant to the plan of reorganization, the Company issued 5,645,161 Warrants, to the former holders of the Company's equity interests outstanding prior to the Effective Date. The Warrants are exercisable for one Common Share per Warrant at initial exercise price of $131.88 per Warrant, in each case as may be adjusted from time to time pursuant to the applicable warrant agreement. The Warrants are exercisable for a period of seven years and will expire on April 29, 2028. The exercise of these Warrants into Common Shares would have a dilutive effect to the optionholdings of Valaris’s existing shareholders.


Note 11 -Debt

First Lien Notes Indenture

On the Effective Date, in accordance with the plan of reorganization and Backstop Commitment Agreement, dated August 18, 2020 (as amended, the "BCA"), the Company consummated the rights offering of senior secured first lien notes (“First Lien Notes”) and associated shares in an aggregate principal amount of $550.0 million, In accordance with the BCA, certain holders of senior notes claims and certain holders of claims under the Revolving Credit Facility ("Backstop Parties") who provided backstop commitments received the backstop premium.

41


The First Lien Notes were issued pursuant to settle our 2024 Convertiblethe Indenture dated April 30, 2021 (the “First Lien Notes Indenture”), among the Company, certain direct and indirect subsidiaries of the Company as guarantors, and Wilmington Savings Fund Society, FSB, as collateral agent and trustee (in such capacities, the “Collateral Agent”).

The First Lien Notes are guaranteed, jointly and severally, on a senior basis, by certain of the direct and indirect subsidiaries of the Company under the First Lien Notes Indenture. The First Lien Notes and such guarantees are secured by first-priority perfected liens on 100% of the equity interests of each Restricted Subsidiary directly owned by the Company or any guarantor and a first-priority perfected lien on substantially all assets of the Company and each guarantor of the First Lien Notes, in each case subject to certain exceptions and limitations. The following is a brief description of the material provisions of the First Lien Notes Indenture and the First Lien Notes.

The First Lien Notes are scheduled to mature on April 30, 2028. Interest on the First Lien Notes accrues, at Valaris’s option, at a rate of: (i) 8.25% per annum, payable in cash; (ii) 10.25% per annum, with 50% of such interest to be payable in cash sharesand 50% of such interest to be paid in kind; or (iii) 12% per annum, with the entirety of such interest to be paid in kind. The Company shall pay interest semi-annually in arrears on May 1 and November 1 of each year, commencing November 1, 2021. Interest on the First Lien Notes shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from April 30, 2021. Interest shall be computed on the basis of a combination thereof for360-day year of twelve 30-day months.

At any time prior to April 30, 2023, the Company may redeem up to 35% of the aggregate amount due upon conversion. Our intent is to settle the principal amount of the 2024 ConvertibleFirst Lien Notes inat a redemption price of 104% up to the net cash upon conversion. Ifproceeds received by the conversion value exceedsCompany from equity offerings provided that at least 65% of the aggregate principal amount (i.e., our shareof the First Lien Notes remains outstanding and provided that the redemption occurs within 120 days after such equity offering of the Company. At any time prior to April 30, 2023 the Company may redeem the First Lien Notes at a redemption price exceedsof 104% plus a “make-whole” premium. On or after April 30, 2023, the exchange price onCompany may redeem all or part of the date of conversion), we expect to deliver shares equal to the remainder of our conversion obligation in excessFirst Lien Notes at fixed redemption prices (expressed as percentages of the principal amount.



During each reporting period that our average shareamount), plus accrued and unpaid interest, if any, to, but excluding, the redemption date. The Company may also redeem the First Lien Notes, in whole or in part, at any time and from time to time on or after April 30, 2026 at a redemption price exceeds the exchange price, an assumed number of shares requiredequal to settle the conversion obligation in excess100% of the principal amount plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. Notwithstanding the foregoing, if a Change of Control (as defined in the First Lien Notes Indenture, with certain exclusions as provided therein) occurs, the Company will be included in our denominator forrequired to make an offer to repurchase all or any part of each note holder’s notes at a purchase price equal to 101% of the computation of diluted EPS using the treasury stock method. Our average share price did not exceed the exchange price during the three-month or nine-month periods ended September 30, 2017.
Note 7 -Debt

Exchange Offers

In January 2017, we completed exchange offers (the "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 senior notesFirst Lien Notes repurchased, plus accrued and unpaid interest to, but excluding, the applicable date.

The First Lien Notes Indenture contains covenants that were settledlimit, among other things, the Company’s ability and exchanged as follows (in millions):the ability of the guarantors and other restricted subsidiaries, to: (i) incur, assume or guarantee additional indebtedness; (ii) pay dividends or distributions on Equity Interests (as defined in the First Lien Notes Indenture) or redeem or repurchase Equity Interests; (iii) make investments; (iv) repay or redeem junior debt; (v) transfer or sell assets; (vi) enter into sale and lease back transactions; (vii) create, incur or assume liens; and (viii) enter into transactions with certain affiliates. These covenants are subject to a number of important limitations and exceptions.


  Aggregate Principal Amount Repurchased 8.00% Senior notes due 2024 Consideration 
Cash Consideration(1)
 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
(1)
As of December 31, 2016, the aggregate amount of principal repurchased with cash of $332.5 million, along with associated premiums, was classified as current maturities of long-term debt on our condensed consolidated balance sheet.
During the first quarter, we recognized a net pre-tax loss on the Exchange OffersThe First Lien Notes Indenture also provides for certain customary events of $6.2 million, consistingdefault, including, among other things, nonpayment of principal or interest, breach of covenants, failure to pay final judgments in excess of a lossspecified threshold, failure of $3.5a guarantee to remain in effect, failure of a collateral document to create an effective security interest in collateral, with a fair market value in excess of a specified threshold, bankruptcy and insolvency events, cross payment default and cross acceleration, which could permit the principal, premium, if any, interest and other monetary obligations on all the then outstanding First Lien Notes to be declared due and payable immediately.

The Company incurred $5.2 million in issuance costs in association with the First Lien Notes that includeswill be amortized into interest expense over the write-offexpected life of premiums on tendered debt and $2.7 million of transaction costs.the notes using the effective interest method.

Open Market Repurchases

During the nine-month period ended September 30, 2017, we repurchased certain of our outstanding senior notes with cash on hand and recognized an insignificant pre-tax gain, net of discounts, premiums and debt issuance costs. The aggregate repurchases were as follows (in millions):
42


 Aggregate Principal Amount Repurchased 
Aggregate Repurchase Price(1)
8.50% Senior notes due 2019$54.6
 $60.1
6.875% Senior notes due 2020100.1
 105.1
4.70% Senior notes due 202139.4
 39.3
Total$194.1
 $204.5
Predecessor Debtor in Possession Financing

(1)
Excludes accrued interest paid to holders of the repurchased senior notes.


Maturities

Our next debt maturity is $237.6 million during 2019, followedOn September 25, 2020, following approval by $450.9 millionthe Bankruptcy Court, the Debtors entered into the Debtor-in-Possession ("DIP") Credit Agreement (the "DIP Credit Agreement"), by and $269.7 million during 2020among the Company and 2021, respectively.



Revolving Credit Facility

In October 2017, we amended our revolving credit facility ("Credit Facility") to extendcertain wholly owned subsidiaries of 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 toCompany, as borrowers, the amendment, our borrowing capacity is $2.0 billion through September 2019lenders party thereto and declines 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 expiringWilmington Savings Fund Society, FSB, as administrative agent and security trustee, in September 2022 up to an aggregate amount not to exceed $1.5 billion.$500.0 million that will be used to finance, among other things, the ongoing general corporate needs of the Debtors during the course of the Chapter 11 Cases and to pay certain fees, costs and expenses associated with the Chapter 11 Cases. As of the Effective Date, there were 0 borrowings outstanding against our DIP facility and there were no DIP claims that were not due and payable on, or that otherwise survived, the Effective Date. The DIP Credit Agreement terminated on the Effective Date.


Also in October, Moody's downgraded our credit rating from B1 to B2Predecessor Senior Notes and Standard & Poor's downgraded our credit rating from BB to B+. TheRevolving Credit Facility amendment

On the Effective Date, in accordance with the plan of reorganization, all outstanding obligations under the Predecessor's senior notes, including the 2024 Convertible Notes, and the rating actions resulted in increases toRevolving Credit Facility were cancelled and the interest rates applicable to our borrowings. The applicable margin rates are 2.50% per annumholders thereunder received their pro rata share of certain Common Shares issued on the Effective Date. See “Note 12 - Shareholders' Equity" for Base Rate advances and 3.50% per annum for LIBOR advances. In addition, our quarterly commitment fee increased as a resultadditional information regarding the issuance of the amendmentCommon Shares.

43



Note 12 -Shareholders' Equity

Activity in our various shareholders' equity accounts for the two months ended June 30, 2021 (Successor), one month and rating actions to 0.625%four months ended April 30, 2021 (Predecessor), and three and six months ended June 30, 2020 (Predecessor) were as follows (in millions, except per annum on the undrawn portion of the $2.0 billion commitment. share amounts):
 Shares Par ValueAdditional
Paid-in
Capital
WarrantsRetained
Earnings (Deficit)
AOCI Treasury
Shares
Non-controlling
Interest
BALANCE, December 31, 2020 (Predecessor)206.1 $82.6 $8,639.9 $$(4,183.8)$(87.9)$(76.2)$(4.3)
Net loss— — — — (910.0)— — 2.4 
Shares issued under share-based compensation plans, net— — (.2)— — — .2 — 
Net changes in pension and other postretirement benefits— — — — — .1 — — 
Share-based compensation cost— — 3.8 — — — — — 
Net other comprehensive loss— — — — — (5.4)— — 
BALANCE, March 31, 2021 (Predecessor)206.1 $82.6 $8,643.5 $$(5,093.8)$(93.2)$(76.0)$(1.9)
Net loss— — — — (3,557.0)— — .8 
Shares issued under share-based compensation plans, net(.5)— — — .5 — 
Share-based compensation cost— — 1.0 — — — — — 
Net other comprehensive loss— — — — — (.2)— — 
Cancellation of Predecessor equity(206.1)(82.6)(8,644.0)— 8,650.8 93.4 75.5 — 
Issuance of Successor Common Shares and Warrants75.0 0.8 1,078.7 16.4 — — — — 
BALANCE, April 30, 2021 (Predecessor)75.0 $0.8 $1,078.7 $16.4 $$$$(1.1)
BALANCE, May 1, 2021 (Successor)75.0 $0.8 $1,078.7 $16.4 $$$$(1.1)
Net income— — — — (6.2)— — $2.1 
Net other comprehensive income— — — — — (0.2)— $— 
BALANCE, June 30, 2021 (Successor)75.0 $0.8 $1,078.7 $16.4 $(6.2)$(0.2)$$1.0 
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.
44



 Shares Par ValueAdditional
Paid-in
Capital
Retained
Earnings (Deficit)
AOCI Treasury
Shares
Non-controlling
Interest
BALANCE, December 31, 2019 (Predecessor)205.9 $82.5 $8,627.8 $671.7 $6.2 $(77.3)$(1.3)
Net loss— — — (3,006.3)— — (1.4)
Shares issued under share-based compensation plans, net— — (.7)— — .9 — 
Repurchase of shares— — — — — (.9)— 
Share-based compensation cost— — 7.8 — — — — 
Net other comprehensive loss— — — — (13.4)— — 
BALANCE, March 31, 2020 (Predecessor)205.9 $82.5 $8,634.9 $(2,334.6)$(7.2)$(77.3)$(2.7)
Net loss— — — (1,107.4)— — (1.4)
Shares issued under share-based compensation plans, net.2 .1 (.7)— — .6 — 
Repurchase of shares— — — — — (.1)— 
Share-based compensation cost— — 5.7 — — — — 
Net other comprehensive loss— — — — (6.1)— — 
Distributions to noncontrolling interests$(0.9)
BALANCE, June 30, 2020
(Predecessor)
206.1 $82.6 $8,639.9 $(3,442.0)$(13.3)$(76.8)$(5.0)
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.

Valaris Share Capital

As of September 30, 2017, we were in compliance in all material respects with our covenants under the Credit Facility. We had no amounts outstanding underEffective Date, the Credit Facility asauthorized share capital of September 30, 2017Valaris is $8.5 million divided into 700 million Common Shares of a par value of $0.01 each and December 31, 2016.150 million preference shares of a par value of $0.01.


Our access to credit and capital markets depends onIssuance of Common Shares

On the credit ratings assigned to our debt. 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. With a credit rating below investment grade, we have no accessEffective Date, pursuant to the commercial paper market.plan of reorganization, we issued 75 million Common Shares.

Note 8 -Shareholders'Cancellation of Predecessor Equity and Issuance of Warrants


As a U.K. company governed in part byOn 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 held on May 22, 2017, our shareholders authorizedEffective Date and pursuant to the allotmentplan of 101.1 millionreorganization, the Legacy Valaris Class A ordinary shares (or 202.2 million Class A ordinary shareswere cancelled and the Company issued 5,645,161 Warrants to the former holders of the Company's equity interests outstanding prior to the Effective Date. The Warrants are exercisable for one Common Share per Warrant at initial exercise price of $131.88 per Warrant, in connection with an offer by way of a rights issue or other similar issue)each case as may be adjusted from time to time pursuant to the applicable warrant agreement. The Warrants are exercisable for a period upof seven years and will expire on April 29, 2028. The exercise of these Warrants into Common Shares would have a dilutive effect to the conclusionholdings of Valaris’s existing shareholders.

Management Incentive Plan

In accordance with the plan of reorganization, Valaris adopted the Valaris Limited 2021 Management Incentive Plan (the “MIP”) as of the Effective Date and authorized and reserved 8,960,573 Common Shares for issuance pursuant to equity incentive awards to be granted under the MIP, which may be in the form of incentive stock options, nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights, dividend equivalents and cash awards or any combination thereof.

45



Note 13 -Income Taxes
Valaris Limited, the Successor Company and our parent company, is domiciled and resident in Bermuda. Our subsidiaries conduct operations and earn income in numerous countries and are subject to the laws of taxing jurisdictions within those countries. The income of our 2018 annual general meeting (or, if earlier,non-Bermuda subsidiaries is not subject to Bermuda taxation as there is not an income tax regime in Bermuda.
Valaris plc, the Predecessor Company and our former parent company was domiciled and resident in the U.K. The income of our non-U.K. subsidiaries was generally not subject to U.K. taxation.

Income tax rates and taxation systems in the jurisdictions in which our subsidiaries conduct operations vary and our subsidiaries are frequently subjected to minimum taxation regimes. In some jurisdictions, tax liabilities are based on gross revenues, statutory deemed profits or other factors, rather than on net income and our subsidiaries are frequently unable to realize tax benefits when they operate at a loss. Accordingly, during periods of declining profitability, our income tax expense may not decline proportionally with income, which could result in higher effective income tax rates. Furthermore, we will continue to incur income tax expense in periods in which we operate at a loss.
Our drilling rigs frequently move from one taxing jurisdiction to another to perform contract drilling services. In some instances, the closemovement of business on August 22, 2018).



On October 5, 2017 in conjunction withdrilling rigs among taxing jurisdictions will involve the approvaltransfer of ownership of the Merger,drilling rigs among our shareholders authorized an increase in our allotment to reflect our expected enlarged share capital immediately following the completion of the Merger.subsidiaries. As a result of frequent changes in the authorization,taxing jurisdictions in which our share allotment increaseddrilling rigs are operated and/or owned, changes in profitability levels and changes in tax laws, our annual effective income tax rate may vary substantially from one reporting period to 146.1 million Class A ordinary shares (or 292.2 million Class A ordinary shares in connection with an offer by way of a rights issue or other similar issue).another.


In connection with the Merger on October 6, 2017,Historically, we issued 134.1 million Ensco Class A ordinary shares to Atwood shareholders.
Note 9 -Income Taxes
We have historically calculated our provision for income taxes during interim reporting periods by applying the estimated annual effective tax rate for the full fiscal year to pre-tax income or loss, excluding discrete items, for the reporting period. We determined that since small changes in estimated pre-tax income or loss would result in significant changes in ourthe estimated annual effective tax rate, the historical method utilized would not provide a reliable estimate of income taxes for the three-monthtwo months ended June 30, 2021 (Successor), one month and nine-month periodsfour months ended SeptemberApril 30, 2017.2021 (Predecessor), and three and six months ended June 30, 2020 (Predecessor). We used a discrete effective tax rate method to calculate income taxes for the three-monthtwo months ended June 30, 2021 (Successor), one month and nine-month periodsfour months ended SeptemberApril 30, 2017.2021 (Predecessor), and three and six months ended June 30, 2020 (Predecessor). We will continue to evaluate income tax estimates under the historical method in subsequent quarters and employ a discrete effective tax rate method if warranted.


Discrete income tax expense for the three-month periodtwo months ended SeptemberJune 30, 20172021(Successor) was $3.2$5.6 million and resulted primarily from a rig sale and resolutions of prior year tax matters. Discrete income tax expense for the nine-month period ended September 30, 2017 was $13.0 million and resulted primarily from the Exchange Offers and debt repurchases, rig sales, a restructuring transaction, settlement of a previously disclosed legal contingency, the effective settlement of a liability for unrecognized tax benefits associated with a tax position taken in prior years and other resolutions of prior year tax matters.

Our consolidated effective income tax rate for the three-month and nine-month periods ended September 30, 2016, excluding the impact of discrete tax items, was 6.0% and 21.9%, respectively. Net discrete income tax benefits for the three-month and nine-month periods ended September 30, 2016 of $6.0 million and $1.6 million, respectively, were primarily attributable to the gain on debt extinguishment, changes in liabilities for unrecognized tax benefits associated with tax positions taken in prior years and resolution of other prior period tax matters. Discrete income tax benefit for the one-month ended April 30, 2021 (Predecessor) was $18.1 million and was primarily attributable to fresh start accounting adjustments. Discrete income tax expense for the four months ended April 30, 2021 (Predecessor) was $2.2 million and was primarily attributable to changes in liabilities for unrecognized tax benefits associated with tax positions taken in prior years and resolution of other prior period tax matters offset by discrete tax benefit related to fresh start accounting adjustments. Excluding the aforementioned discrete tax items, income tax expense for the two months ended June 30, 2021 (Successor), one month and four months ended April 30, 2021 (Predecessor) was $9.5 million, $2.6 million and $14.0 million, respectively.

Discrete income tax benefit for the three months ended June 30, 2020 (Predecessor) was $47.3 million and was primarily attributable to rig impairments and other resolutions of prior year tax matters. Discrete income tax benefit for the six months ended June 30, 2020 (Predecessor) was $211.7 million and was primarily attributable to a restructuring transaction, rig impairments, implementation of the U.S. Cares Act, changes in liabilities for unrecognized tax benefits associated with tax positions taken in prior years and resolution of other prior period tax
46


matters. Excluding the aforementioned discrete tax items, income tax expense for the nine-monththree and six months ended June 30, 2020 (Predecessor) was $31.5 million and $43.9 million, respectively.

Unrecognized Tax Benefits

During 2019, the Luxembourg tax authorities issued aggregate tax assessments totaling approximately €142.0 million (approximately $168.4 million converted using the current period-end exchange rates) related to tax years 2014, 2015 and 2016 for several of Rowan's Luxembourg subsidiaries. We recorded a liability for uncertain tax positions of €93.0 million (approximately $110.3 million converted using the current period-end exchange rates) in purchase accounting related to these assessments. During the first quarter of 2020, in connection with the administrative appeals process, the tax authority withdrew assessments of €142.0 million (approximately $168.4 million converted using the current period-end exchange rates), accepting the associated tax returns as previously filed. Accordingly, we de-recognized previously accrued liabilities for uncertain tax positions and net wealth taxes of €79.0 million (approximately $93.7 million converted using the current period-end exchange rates) and €2.0 million (approximately $2.4 million converted using the current period-end exchange rates), respectively. The de-recognition of amounts related to these assessments was recognized as a tax benefit during the three-month period ended SeptemberMarch 31, 2020 and is included in changes in operating assets and liabilities on the Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2016 also resulted from restructuring transactions involving certain2020.


Note 14 -Contingencies

Indonesian Well-Control Event

In July 2019, a well being drilled offshore Indonesia by one of our subsidiaries.
Note 10 -     Contingencies

Brazil Internal Investigation

Pride International LLC, formerly Pride International, Inc. (“Pride”),jackup rigs experienced a company we acquired in 2011, commencedwell-control event requiring the cessation of drilling operations in Brazil in 2001.activities. In 2008, Pride entered into a drilling services agreement with Petrobras (the "DSA") for ENSCO DS-5, a drillship ordered from Samsung Heavy Industries, a shipyard in South Korea ("SHI"). Beginning in 2006, Pride conducted periodic compliance reviews of its business with Petrobras, and, afterFebruary 2020, the acquisition of Pride, Ensco conducted similar compliance reviews.

We commenced a compliance review in early 2015 after media reports were released regarding ongoing investigations of various kickback and bribery schemes in Brazil involving Petrobras. While conducting our compliance review, we became aware of an internal audit report by Petrobras alleging irregularities in relation to the DSA. Upon learning of the Petrobras internal audit report, our Audit Committee appointed independent counsel to leadrig resumed operations. Indonesian authorities initiated an investigation into the alleged irregularities. Further, in Juneevent and July 2015, we voluntarilyhave contacted the SECcustomer, us and the U.S. Department of Justice ("DOJ"), respectively, to advise them of this matter and of our Audit Committee’s investigation. Independent counsel, under the direction of our Audit Committee, has substantially completed its investigation by reviewing and analyzing available documents and correspondence and interviewing current and former


employeesother parties involved in drilling the DSA negotiations and the negotiation of the ENSCO DS-5 construction contract with SHI (the "DS-5 Construction Contract").

To date, our Audit Committee has found no credible evidence that Pride or Ensco or any of their current or former employees were aware of or involved in any wrongdoing, and our Audit Committee has found no credible evidence linking Ensco or Pride to any illegal acts committed by our former marketing consultant who provided services to Pride and Ensco in connection with the DSA. Independent counsel has continued to provide the SEC and DOJ with updates throughout the investigation, including detailed briefings regarding its investigation and findings. We entered into a one-year tolling agreement with the DOJ that expired in December 2016. We extended our tolling agreement with the SEC for 12 months until March 2018.

Subsequent to initiating our Audit Committee investigation, Brazilian court documents connected to the prosecution of former Petrobras directors and employees as well as certain other third parties, including our former marketing consultant, referenced the alleged irregularities cited in the Petrobras internal audit report. Our former marketing consultant has entered into a plea agreement with the Brazilian authorities. On January 10, 2016, Brazilian authorities filed an indictment against a former Petrobras director. This indictment states that the former Petrobras director received bribes paid out of proceeds from a brokerage agreement entered into for purposes of intermediating a drillship construction contract between SHI and Pride, which we believe to be the DS-5 Construction Contract. The parties to the brokerage agreement were a company affiliated with a person acting on behalf of the former Petrobras director, a company affiliated with our former marketing consultant, and SHI. The indictment alleges that amounts paid by SHI under the brokerage agreement ultimately were used to pay bribes to the former Petrobras director. The indictment does not state that Pride or Ensco or any of their current or former employees were involved in the bribery scheme or had any knowledge of the bribery scheme.

On January 4, 2016, we received a notice from Petrobras declaring the DSA void effective immediately. Petrobras’ notice alleges that our former marketing consultant both received and procured improper payments from SHI for employees of Petrobras and that Pride had knowledge of this activity and assisted in the procurement of and/or facilitated these improper payments. We disagree with Petrobras’ allegations. See "DSA Dispute" below for additional information.

In August 2017, one of our Brazilian subsidiaries was contacted by the Office of the Attorney General for the Brazilian state of Paraná in connection with a criminal investigation procedure initiated against agents of both SHI and Pride in relation to the DSA.  The Brazilian authorities requested information regarding our compliance program and the findings of our internal investigations. We are cooperating with the Office of the Attorney General and have provided documents in response to their request.Indonesian authorities. We cannot predict the scope or ultimate outcome of this procedure or whether any other governmental authority will open an investigation into Pride’s involvement in this matter, or if a proceeding were opened, the scope or ultimate outcome of any such investigation. If the SEC or DOJ determines that violations of the FCPA have occurred, or if any governmental authority determinesIndonesian authorities determine that we have violated applicable anti-briberylocal laws theyin connection with this matter, we could seek civil and criminal sanctions,be subject to penalties including monetary penalties, against us, as well as changes to our business practices and compliance programs, any ofenvironmental or other liabilities, which couldmay have a material adverse effectimpact on our businessus.

ARO Funding Obligations

Valaris and financial condition. Although our internal investigation is substantially complete, we cannot predict whether any additional allegations willSaudi Aramco have agreed to take all steps necessary to ensure that ARO purchases 20 newbuild jackup rigs ratably over an approximate 10-year period. In January 2020, ARO ordered the first 2 newbuild jackups for delivery scheduled in 2022. The partners intend for the newbuild jackup rigs to be made financed out of available cash from ARO's operations and/or whether any additional facts relevant to the investigation will be uncovered during the coursefunds available from third-party debt financing. ARO paid a 25% down payment from cash on hand for each of the investigation and what impact those allegations andnewbuilds ordered in January 2020. In the event ARO has insufficient cash from operations or is unable to obtain third-party financing, each partner may periodically be required to make additional factscapital contributions to ARO, up to a maximum aggregate contribution of $1.25 billion from each partner to fund the newbuild program. Each partner's commitment shall be reduced by the actual cost of each newbuild rig, on a proportionate basis. The partners agreed that Saudi Aramco, as a customer, will have on the timing or conclusions of the investigation. Our Audit Committee will examine any such additional allegations and additional facts and the circumstances surrounding them.

DSA Dispute

As described above, on January 4, 2016, Petrobras sent a noticeprovide drilling contracts to us declaring the DSA void effective immediately, reserving its rights and stating its intention to seek any restitution to which it may be entitled. We disagree with Petrobras’ declaration that the DSA is void. We believe that Petrobras repudiated the DSA and have therefore accepted the DSA as terminated on April 8, 2016 (the "Termination Date"). At this time, we cannot reasonably determine


the validity of Petrobras' claim or the range of our potential exposure, if any. As a result, there can be no assurance as to how this dispute will ultimately be resolved.

We did not recognize revenue for amounts owed to us under the DSA from the beginning of the fourth quarter of 2015 through the Termination Date, as we concluded that collectability of these amounts was not reasonably assured. Additionally, our receivables from Petrobras related to the DSA from prior to the fourth quarter of 2015 are fully reserved in our condensed consolidated balance sheet as of September 30, 2017. We have initiated arbitration proceedings in the U.K. against Petrobras seeking payment of all amounts owed to us under the DSA, in addition to any other amounts to which we are entitled, and intend to vigorously pursue our claims. Petrobras subsequently filed a counterclaim seeking restitution of certain sums paid under the DSA less value received by Petrobras under the DSA. We have also initiated separate arbitration proceedings in the U.K. against SHI for any losses we have incurredARO in connection with the foregoing. SHI subsequently filedacquisition of the newbuild rigs. The initial contracts for each newbuild rig will be determined using a statementpricing mechanism that targets a six-year payback period for construction costs on an EBITDA basis. The initial eight-year contracts will be followed by a minimum of defense disputing our claim. There can be no assurance as to how these arbitration proceedings will ultimately be resolved.

Customer Dispute

A customer filed a lawsuitanother eight years of term, re-priced in Texas federal court against one of our subsidiaries claiming damagesthree-year intervals based on allegations that our subsidiary breached and was negligent in the performance of a drilling contract during the period beginning in mid-2011 through May 2012. The customer's court documents alleged damages totaling approximately $40 million.During the second quarter, we settled the lawsuit and agreed to pay the customer $9.8 million, which was recognized in contract drilling expense in our condensed consolidated statements of operations for the nine-month period ended September 30, 2017.market pricing mechanism.


Atwood Merger
47



On June 23, 2017, a putative class action captioned Bernard Stern v. Atwood Oceanics, Inc., et al, was filed in the U.S. District Court for the Southern District of Texas against Atwood, Atwood’s directors, Ensco and Merger Sub. The Stern complaint generally alleges that Atwood and the Atwood directors disseminated a false or misleading registration statement on Form S-4 (the “Registration Statement”) on June 16, 2017, which omitted material information regarding the proposed Merger, in violation of Section 14(a) of the Exchange Act. Specifically, the Stern complaint alleges that Atwood and the Atwood directors omitted material information regarding the parties’ financial projections, the analysis performed by Atwood’s financial advisor, Goldman Sachs & Co. LLC (“Goldman Sachs”), in support of its fairness opinion, the timing and nature of communications regarding post-transaction employment of Atwood's directors and officers, potential conflicts of interest of Goldman Sachs, and whether there were further discussions with another potential acquirer of Atwood following the May 30, 2017 announcement of the Merger. The Stern complaint further alleges that the Atwood directors, Ensco and Merger Sub are liable for these violations as “control persons” of Atwood under Section 20(a) of the Exchange Act. With respect to Ensco, the Stern complaint alleges that Ensco had direct supervisory control over the composition of the Registration Statement. The Stern complaint seeks injunctive relief, including to enjoin the Merger, rescissory damages, and an award of attorneys’ fees in addition to other relief.

On June 27, 2017, June 29, 2017 and June 30, 2017, additional putative class actions captioned Joseph Composto v. Atwood Oceanics, Inc., et al, Booth Family Trust v. Atwood Oceanics, Inc., et al and Mary Carter v. Atwood Oceanics, Inc.et al, respectively, were filed in the U.S. District Court for the Southern District of Texas against Atwood and Atwood’s directors. These actions allege violations of Sections 14(a) and 20(a) of the Exchange Act by Atwood and Atwood’s directors similar to those alleged in the Stern complaint; however, neither Ensco plc nor Merger Sub is named as a defendant in these actions. On October 2, 2017, the actions were consolidated and the Stern matter was designated as the lead case. The plaintiffs subsequently voluntarily dismissed the actions.



Other Matters


In addition to the foregoing, we are named defendants or parties in certain other lawsuits, claims or proceedings incidental to our business and are involved from time to time as parties to governmental investigations or proceedings, including matters related to taxation, arising in the ordinary course of business. Although the outcome of such lawsuits or other proceedings cannot be predicted with certainty and the amount of any liability that could arise with respect to such lawsuits or other proceedings cannot be predicted accurately, we do not expect these matters to have a material adverse effect on our financial position, operating results orand cash flows.


In the ordinary course of business with customers and others, we have entered into letters of credit and surety bonds to guarantee our performance as it relates to our drilling contracts, contract bidding, customs duties, tax appeals and other obligations in various jurisdictions. Letters of credit and surety bonds outstanding as of SeptemberJune 30, 20172021 (Successor) totaled $83.5$114.4 million and wereare issued under facilities provided by various banks and other financial institutions. Obligations under these letters of credit and surety bonds are not normally called, as we typically comply with the underlying performance requirement. As of SeptemberJune 30, 2017,2021 (Successor), we were not required to makehad collateral deposits in the amount of $37.4 million with respect to these agreements.


Note 1115 -Segment Information
 
Our business consists of three4 operating segments: (1) Floaters, which includes our drillships and semisubmersible rigs, (2) Jackups, (3) ARO and (3)(4) Other, which consists of management services on rigs owned by third-parties. Our twothird-parties and the activities associated with our arrangements with ARO under the Rig Lease Agreements, the Secondment Agreement and the Transition Services Agreement. Floaters, Jackups and ARO are also reportable segments.

Upon emergence, we ceased allocation of our onshore support costs included within contract drilling expenses to our operating segments Floatersfor purposes of measuring segment operating income (loss) and Jackups, provide one service, contract drilling.
Segment information foras such, those costs are included in “Reconciling Items”. We have adjusted the three-month and nine-monthhistorical periods ended 2017 and 2016 is presented below (in millions)to conform with current period presentation. GeneralFurther, general and administrative expense and depreciation expense incurred by our corporate office are not allocated to our operating segments for purposes of measuring segment operating income (loss) and are included in "Reconciling Items." Substantially all of the expenses incurred associated with our Transition Services Agreement are included in general and administrative under "Reconciling Items" in the table set forth below. We measure segment assets as property and equipment.


The full operating results included below for ARO are not included within our consolidated results and thus deducted under "Reconciling Items" and replaced with our equity in earnings of ARO. See "Note 5 - Equity Method Investment in ARO" for additional information on ARO and related arrangements.

Two Months Ended June 30, 2021 (Successor)
FloatersJackupsAROOtherReconciling ItemsConsolidated Total
Revenues$49.7 $128.5 $84.0 $24.6 $(84.0)$202.8 
Operating expenses
Contract drilling (exclusive of depreciation)45.2 95.5 62.9 9.2 (44.1)168.7 
Depreciation7.9 7.8 9.7 .8 (9.6)16.6 
General and administrative3.1 9.6 12.7 
Equity in earnings of ARO4.8 4.8 
Operating income (loss)$(3.4)$25.2 $8.3 $14.6 $(35.1)$9.6 
Property and equipment, net$413.8 $396.2 $730.0 $49.8 $(692.0)$897.8 
48



One Month Ended April 30, 2021 (Predecessor)
FloatersJackupsAROOtherReconciling ItemsConsolidated Total
Revenues$18.4 $59.8 $40.8 $12.1 $(40.8)$90.3 
Operating expenses
Contract drilling (exclusive of depreciation)21.7 48.8 29.8 4.7 (19.4)85.6 
Depreciation15.9 17.3 4.9 3.5 (4.1)37.5 
General and administrative1.2 5.2 6.4 
Equity in earnings of ARO1.2 1.2 
Operating income (loss)$(19.2)$(6.3)$4.9 $3.9 $(21.3)$(38.0)
Property and equipment, net$419.3 $401.4 $730.7 $50.5 $(692.8)$909.1 

Four Months Ended April 30, 2021 (Predecessor)
FloatersJackupsAROOtherReconciling ItemsConsolidated Total
Revenues$115.7 $232.4 $163.5 $49.3 $(163.5)$397.4 
Operating expenses
Contract drilling (exclusive of depreciation)106.0 169.3 116.1 19.8 (73.4)337.8 
Loss on impairment756.5 756.5 
Depreciation72.1 69.7 21.0 14.8 (18.0)159.6 
General and administrative4.2 26.5 30.7 
Equity in earnings of ARO3.1 3.1 
Operating income (loss)$(818.9)$(6.6)$22.2 $14.7 $(95.5)$(884.1)
Property and equipment, net$419.3 $401.4 $730.7 $50.5 $(692.8)$909.1 

Three Months Ended SeptemberJune 30, 20172020 (Predecessor)
FloatersJackupsAROOtherReconciling ItemsConsolidated Total
Revenues$163.6 $186.3 $146.0 $38.9 $(146.0)$388.8 
Operating expenses
Contract drilling (exclusive of depreciation)150.5 163.5 112.5 15.3 (71.1)370.7 
Loss on impairment831.9 .4 5.7 838.0 
Depreciation62.0 52.8 13.3 11.2 (7.8)131.5 
General and administrative7.1 55.5 62.6 
Equity in losses of ARO(5.2)(5.2)
Operating income (loss)$(880.8)$(30.4)$13.1 $6.7 $(127.8)$(1,019.2)
Property and equipment, net$6,536.9 $4,000.6 $739.7 $600.4 $(685.0)$11,192.6 

49


 Floaters Jackups Other Operating Segments Total Reconciling Items Consolidated Total
Revenues$291.9
 $153.1
 $15.2
 $460.2
 $
 $460.2
Operating expenses           
Contract drilling (exclusive of depreciation)139.1
 132.9
 13.8
 285.8
 
 285.8
Depreciation72.7
 31.6
 
 104.3
 3.9
 108.2
General and administrative
 
 
 
 30.4
 30.4
Operating income (loss)$80.1
 $(11.4) $1.4
 $70.1
 $(34.3) $35.8
Property and equipment, net$8,545.5
 $2,502.4
 $
 $11,047.9
 $48.5
 $11,096.4



ThreeSix Months Ended SeptemberJune 30, 20162020 (Predecessor)
FloatersJackupsAROOtherReconciling ItemsConsolidated Total
Revenues$343.2 $399.1 $286.3 $103.1 $(286.3)$845.4 
Operating expenses
Contract drilling (exclusive of depreciation)339.3 370.1 220.8 49.4 (132.9)846.7 
Loss on impairment3,386.2 254.3 5.7 3,646.2 
Depreciation151.4 111.3 26.3 22.3 (15.3)296.0 
General and administrative15.4 100.6 116.0 
Equity in losses of ARO(11.5)(11.5)
Operating income (loss)$(3,533.7)$(336.6)$23.8 $25.7 $(250.2)$(4,071.0)
Property and equipment, net$6,536.9 $4,000.6 $739.7 $600.4 $(685.0)$11,192.6 
 Floaters Jackups Other Operating Segments Total Reconciling Items Consolidated Total
Revenues$319.3
 $213.8
 $15.1
 $548.2
 $
 $548.2
Operating expenses           
Contract drilling (exclusive of depreciation)153.7
 133.2
 11.2
 298.1
 
 298.1
Depreciation72.9
 32.1
 
 105.0
 4.4
 109.4
General and administrative
 
 
 
 25.3
 25.3
Operating income$92.7
 $48.5
 $3.9
 $145.1
 $(29.7) $115.4
Property and equipment, net$8,360.4
 $2,537.9
 $
 $10,898.3
 $61.4
 $10,959.7


Nine Months Ended September 30, 2017
 Floaters Jackups Other Operating Segments Total Reconciling Items Consolidated Total
Revenues$840.7
 $503.8
 $44.3
 $1,388.8
 $
 $1,388.8
Operating expenses           
Contract drilling (exclusive of depreciation)431.1
 383.8
 40.3
 855.2
 
 855.2
Depreciation217.5
 95.3
 
 312.8
 12.5
 325.3
General and administrative
 
 
 
 86.9
 86.9
Operating income$192.1
 $24.7
 $4.0
 $220.8
 $(99.4) $121.4
Property and equipment, net$8,545.5
 $2,502.4
 $
 $11,047.9
 $48.5
 $11,096.4

Nine Months Ended September 30, 2016
 Floaters Jackups Other Operating Segments Total Reconciling Items Consolidated Total
Revenues$1,468.3
 $743.0
 $60.5
 $2,271.8
 $
 $2,271.8
Operating expenses           
Contract drilling (exclusive of depreciation)573.6
 390.0
 48.4
 1,012.0
 
 1,012.0
Depreciation231.0
 90.8
 
 321.8
 13.3
 335.1
General and administrative
 
 
 
 76.1
 76.1
Operating income$663.7
 $262.2
 $12.1
 $938.0
 $(89.4) $848.6
Property and equipment, net$8,360.4
 $2,537.9
 $
 $10,898.3
 $61.4
 $10,959.7



Information about Geographic Areas


As of SeptemberJune 30, 2017,2021, the geographic distribution of our and ARO's drilling rigs by reportable segment was as follows:
FloatersJackupsOtherTotal ValarisARO
North & South America560110
Europe & the Mediterranean7140210
Middle East & Africa289197
Asia & Pacific Rim26080
Held-for-sale01010
Total16359607

We provide management services on 2 rigs owned by third-parties not included in the table above.

We are a party to contracts whereby we have the option to take delivery of 2 drillships, VALARIS DS-13 and VALARIS DS-14, that are not included in the table above.

ARO has ordered 2 newbuild jackups which are under construction in the Middle East that are not included in the table above.

50
 Floaters Jackups 
Total(1)
North & South America8 6 14
Europe & Mediterranean4 10 14
Middle East & Africa3 11 14
Asia & Pacific Rim5 5 10
Asia & Pacific Rim (under construction) 1 1
Held-for-sale1  1
Total21 33 54



(1)
We provide management services on two rigs owned by third-parties not included in the table above.


Note 1216 -Supplemental Financial Information


Condensed Consolidated Balance Sheet Information


Accounts receivable, net, consisted of the following (in millions):
SuccessorPredecessor
June 30,
2021
December 31,
2020
Trade$280.3 $260.1 
Income tax receivable162.1 190.6 
Other10.0 14.7 
 452.4 465.4 
Allowance for doubtful accounts(16.3)(16.2)
 $436.1 $449.2 
 September 30,
2017
 December 31,
2016
Trade$338.6
 $358.4
Other31.2
 24.5
 369.8
 382.9
Allowance for doubtful accounts(20.8) (21.9)
 $349.0
 $361.0


Other current assets consisted of the following (in millions):
SuccessorPredecessor
September 30,
2017
 December 31,
2016
June 30,
2021
December 31,
2020
Inventory$219.7
 $225.2
Prepaid taxes35.8
 30.7
Prepaid taxes$44.4 $32.9 
Prepaid expensesPrepaid expenses29.1 43.4 
Deferred costs31.4
 32.4
Deferred costs20.2 17.4 
Prepaid expenses14.1
 7.9
Materials and suppliesMaterials and supplies279.4 
Other17.3
 19.8
Other26.0 13.4 
$318.3
 $316.0
$119.7 $386.5 
    
Other assets net, consisted of the following (in millions):
SuccessorPredecessor
September 30,
2017
 December 31,
2016
June 30,
2021
December 31,
2020
Tax receivablesTax receivables$65.8 $66.8 
Deferred tax assets$54.7
 $69.3
Deferred tax assets42.7 21.9 
Deferred costs30.8
 35.7
Right-of-use assetsRight-of-use assets32.4 35.8 
Supplemental executive retirement plan assets30.0
 27.7
Supplemental executive retirement plan assets22.6 
Prepaid taxes on intercompany transfers of property
 33.0
Other9.5
 10.2
Other25.6 29.1 
$125.0
 $175.9
$166.5 $176.2 
    
51


Accrued liabilities and other consisted of the following (in millions):
SuccessorPredecessor
September 30,
2017
 December 31,
2016
June 30,
2021
December 31,
2020
Personnel costs$95.2
 $124.0
Personnel costs$75.2 $95.6 
Income and other taxes payableIncome and other taxes payable51.5 50.8 
Deferred revenue88.0
 116.7
Deferred revenue35.2 57.6 
Accrued interest70.6
 71.7
Taxes36.9
 40.7
Derivative liabilities1.8
 12.7
Lease liabilitiesLease liabilities15.1 15.7 
Other8.3
 10.8
Other35.7 30.7 
$300.8
 $376.6
$212.7 $250.4 
        
Other liabilities consisted of the following (in millions):
SuccessorPredecessor
June 30,
2021
December 31,
2020
Unrecognized tax benefits (inclusive of interest and penalties)$298.8 $286.1 
Pension and other post-retirement benefits182.8 296.6 
Intangible liabilities50.4 
Customer payable— 35.5 
Other88.2 93.8 
 $569.8 $762.4 
 September 30,
2017
 December 31,
2016
Unrecognized tax benefits (inclusive of interest and penalties)
$144.2
 $142.9
Deferred revenue65.5
 120.9
Supplemental executive retirement plan liabilities31.2
 28.9
Personnel costs14.9
 13.5
Other23.4
 16.3
 $279.2
 $322.5

Accumulated other comprehensive income (loss) consisted of the following (in millions):
SuccessorPredecessor
June 30,
2021
December 31,
2020
Currency translation adjustment$(.2)$6.5 
Derivative instruments5.6 
Pension and other post-retirement benefits(98.2)
Other(1.8)
$(.2)$(87.9)
 September 30,
2017
 December 31,
2016
Derivative instruments$22.4
 $13.6
Currency translation adjustment7.8
 7.6
Other(1.6) (2.2)
 $28.6
 $19.0


Condensed Consolidated Statement of Cash Flows Information

Our restricted cash of $53.1 million at June 30, 2021 consists primarily of approximately $37.4 million for the collateral on letters of credit and approximately $11.4 million in escrow for payment of professional fees related to the reorganization. See" Note 14 - Contingencies" for more information regarding our letters of credit.

Concentration of Risk


We are exposed to credit risk relating to our receivables from customers and our cash and cash equivalents, our short-term investments and our use of derivatives in connection with the management of foreign currency exchange rate risk.equivalents. We mitigate our credit risk relating to receivables from customers, which consist primarily of major international, government-owned and independent oil and gas companies, by performing ongoing credit evaluations. We also maintain reserves for potential credit losses, which generally have been within management'sour expectations. We mitigate our credit risk relating to cash and cash equivalentsinvestments by focusing on diversification and quality of instruments. Cash equivalents consist of a portfolio of high-grade instruments. Custody of cash and cash equivalents is maintained at several well-capitalized financial institutions, and we monitor the financial condition of those financial institutions.  


We mitigate our credit risk relating to derivative counterparties through a variety of techniques, including transacting with multiple, high-quality financial institutions, thereby limiting our 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. The terms of the ISDA agreements may also include credit support requirements, cross default provisions, termination events or set-off provisions.  Legally enforceable master netting agreements reduce credit risk by providing protection in bankruptcy in certain circumstances and generally permitting the closeout and netting of transactions with the same counterparty
52




upon the occurrence of certain events.  See "Note 4 - Derivative Instruments" for additional information on our derivatives.

Consolidated revenues by customer for the three-month and nine-month periods ended September 30, 2017 and 2016 were as follows:

SuccessorPredecessor
Two Months Ended June 30, 2021One Month Ended April 30, 2021Three Months Ended June 30, 2020
BP(1)
%11 %11 %
Total(2)
%%%
Woodside Energy(3)
%%12 %
Other91 %89 %72 %
100 %100 %100 %


SuccessorPredecessor
Two Months Ended June 30, 2021Four Months Ended April 30, 2021Six Months Ended June 30, 2020
BP(1)
%14 %%
Total(2)
%%11 %
Woodside Energy(3)
%%%
Other91 %86 %73 %
100 %100 %100 %

(1)During the two months ended June 30, 2021, 25% of the revenues were attributable to our Jackups segment, and the remaining were attributable to our managed rigs. During one month and four months ended April 30, 2021, 7% and 37% of the revenue provided by BP were attributable to our Floaters segment respectively, 28% and 17% of the revenue were attributable to our Jackup segment respectively, and the remaining were attributable to our managed rigs.

During the three months ended June 30, 2020, 17% of the revenues provided by BP were attributable to our Jackups segment, 39% of the revenues were attributable to our Floaters segment and the remaining were attributable to our managed rigs. During the six months ended June 30, 2020, 20% of the revenue provided by BP were attributable to our Jackup segment, 27% of the revenue were attributable to our Floater segment and the remaining were attributable to our managed rigs.

(2)During the three and six months ended June 30, 2020, 56% and 82% of revenues provided by Total were attributable to the Floaters segment and the remaining were attributable to the Jackups segment.

(3)During the three and six months ended June 30, 2020, all the revenue provided by Woodside Energy were attributable to our Floaters segment.


53

 Three Months Ended
September 30,
 Nine Months Ended
September 30,
 2017 2016 2017 2016
Total(1)
24% 23% 23% 16%
BP (2)
15% 13% 15% 12%
Petrobras(1)
11% 9% 11% 11%
ConocoPhillips(3)
3% 2% 2% 12%
Other47% 53% 49% 49%
 100% 100% 100% 100%


(1)
During the three-month and nine-month periods ended September 30, 2017 and 2016, all revenues were attributable to our Floater segment.

(2)
During the three-month periods ended September 30, 2017 and 2016, 78% and 73% of the revenues provided by BP, respectively, were attributable to our Floaters segment and no revenue was attributable to our Jackups segment. During the nine-month periods ended September 30, 2017 and 2016, 78% and 75% of the revenues provided by BP, respectively, were attributable to our Floaters segment and no revenue was attributable to our Jackups segment.

(3)
During the nine-month period ended September 30, 2016, excluding the impact of the lump-sum termination payment of $185.0 million for ENSCO DS-9, revenues from ConocoPhillips represented 3% of our consolidated revenues.



Consolidated revenues by region for the three-month and nine-month periods ended September 30, 2017 and 2016 were as follows:follows (in millions):

SuccessorPredecessor
Two Months Ended June 30, 2021One Month Ended April 30, 2021Three Months Ended June 30, 2020
United Kingdom(1)
$41.1 $19.6 $52.8 
Norway(1)
40.5 19.3 46.5 
U.S. Gulf of Mexico(2)
30.9 17.6 66.6 
Saudi Arabia(3)
25.2 12.0 57.3 
Mexico(4)
18.9 6.1 22.7 
Australia(5)
17.8 0.9 72.3 
Other28.4 14.8 70.6 
$202.8 $90.3 $388.8 

 Three Months Ended
September 30,
 Nine Months Ended
September 30,
 2017 2016 2017 2016
Angola(1)
$118.9
 $142.7
 $356.5
 $411.3
Egypt(2)
53.8
 50.5
 160.4
 87.0
Brazil(2)
51.1
 48.6
 147.6
 251.3
United Kingdom(3)
49.1
 60.5
 117.0
 204.0
Australia(4)
48.7
 44.6
 158.6
 169.4
U.S. Gulf of Mexico(5)(6)
34.9
 33.6
 112.2
 498.3
Other103.7
 167.7
 336.5
 650.5
 $460.2
 $548.2
 $1,388.8
 $2,271.8
SuccessorPredecessor
Two Months Ended June 30, 2021Four Months Ended April 30, 2021Six Months Ended June 30, 2020
United Kingdom(1)
$41.1 $75.7 $105.3 
Norway(1)
40.5 73.3 87.5 
U.S. Gulf of Mexico(2)
30.9 74.4 145.3 
Saudi Arabia(3)
25.2 53.6 141.2 
Mexico(4)
18.9 44.3 38.7 
Australia(5)
17.8 1.0 98.3 
Other28.4 75.1 229.1 
$202.8 $397.4 $845.4 

(1)
During the three-month periods ended September 30, 2017 and 2016, 85% and 87% of the revenues earned in Angola, respectively, were attributable to our Floaters segment. During the nine-month periods ended September 30, 2017 and 2016, 86% and 87% of the revenues earned in Angola, respectively, were attributable to our Floaters segment.

(2)
During the three-month and nine-month periods ended September 30, 2017 and 2016, all revenues were attributable to our Floaters segment.

(3)
During the three-month and nine-month periods ended September 30, 2017 and 2016, all revenues were attributable to our Jackups segment.

(4)
During the three-month and nine-month periods ended September 30, 2017, 92% and 83% of the revenues earned in Australia were attributable to our Floaters segment. For the three-month and nine-month periods ended September 30, 2016, all revenues were attributable to our Floaters segment.

(5)
During the three-month periods ended September 30, 2017 and 2016, 21% and 41% of the revenues earned, respectively, were attributable to our Floaters segment and 35% and 14% of the revenues earned, respectively, were attributable to our Jackups segment. During the nine-month period ended September 30, 2017 and 2016, 24% and 86% of the revenues earned, respectively, were attributable to our Floaters segment and 37% and 5% earned, respectively, were attributable to our Jackups segment.

(6)
Revenue recognized during the nine-month period ended September 30, 2016 related to the U.S. Gulf of Mexico included termination fees totaling $205.0 million as discussed in "Note 1 - Unaudited Condensed Consolidated Financial Statements." ENSCO DS-9 termination revenues were attributed to the U.S. Gulf of Mexico as the related drilling contract was intended for operations in that region.




Note 13 -Guarantee of Registered Securities(1)During the two months ended June 30, 2021, one month and four months ended April 30, 2021 and three and six months ended June 30, 2020, all revenues earned in the United Kingdom and Norway were attributable to our Jackups segment.


In connection with(2)During the Pride acquisition, Ensco plc and Pride entered into a supplemental indenture to the indenture dated July 1, 2004 between Pride and New York Mellon, as indenture trustee, providing for, among other matters, the full and unconditional guarantee by Ensco plc of Pride's 8.5% unsecured senior notes due 2019, 6.875% unsecured senior notes due 2020 and 7.875% unsecured senior notes due 2040, which had an aggregate outstanding principal balance of $1.0 billion as of Septembertwo months ended June 30, 2017. The Ensco plc guarantee provides for the unconditional and irrevocable guarantee2021, 56% of the prompt payment, when due,revenues earned in U.S. Gulf of any amount owedMexico were attributable to our Floaters segment. During the note holders.
Ensco plc is also a fullone month and unconditional guarantorfour months ended April 30, 2021, 62% and 64% of the 7.2% debentures due 2027 issued by ENSCO International Incorporated, a wholly-owned subsidiaryrevenue earned in U.S. Gulf of Ensco plc, during 1997, which had an aggregate outstanding principal balanceMexico were attributable to our Floaters segment respectively. The remaining revenues were attributable to our managed rigs.

During the three months ended June 30, 2020, 66% of $150.0 million asthe revenues earned in U.S. Gulf of September 30, 2017.
Pride International LLC (formerly Pride International, Inc.) and Ensco International Incorporated are 100% owned subsidiaries of Ensco plc. All guarantees are unsecured obligations of Ensco plc ranking equal in right of payment with all of its existing and future unsecured and unsubordinated indebtedness.
The following tables present the unaudited condensed consolidating statements of operations for the three-month and nine-month periods ended September 30, 2017 and 2016; the unaudited condensed consolidating statements of comprehensive (loss) income for the three-month and nine-month periods ended September 30, 2017 and 2016; the condensed consolidating balance sheets as of September 30, 2017 (unaudited) and December 31, 2016;Mexico were attributable to our Floaters segment, 6% were attributable to our Jackups segment and the unaudited condensed consolidating statementsremaining revenues were attributable to our managed rigs. During the six months ended June 30, 2020, 61% of cash flows for the nine-month periodsrevenues earned in U.S. Gulf of Mexico were attributable to our Floaters segment, 12% were attributable to our Jackups segment and the remaining revenues were attributable to our managed rigs

(3)During the two months ended SeptemberJune 30, 20172021, 57% of the revenues earned in Saudi Arabia were attributable to our Jackups segment. During the one month and 2016,four months ended April 30, 2021, 55% and 57% of the revenues earned in accordance with Rule 3-10Saudi Arabia were attributable to our Jackups segment respectively. During the three and six months ended June 30, 2020, 62% and 57% of Regulation S-X.


the revenues earned in Saudi Arabia were attributable to our Jackups segment. The remaining revenues were attributable to our Other segment and
54


ENSCO PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Three Months Ended September 30, 2017
(In millions)
(Unaudited)

 Ensco plc ENSCO International Incorporated Pride International LLC Other Non-Guarantor Subsidiaries of Ensco Consolidating Adjustments Total
OPERATING REVENUES$13.0
 $47.2
 $
 $490.1
 $(90.1) $460.2
OPERATING EXPENSES           
Contract drilling (exclusive of depreciation)11.3
 43.0
 
 321.6
 (90.1) 285.8
Depreciation
 4.0
 
 104.2
 
 108.2
General and administrative10.3
 5.1
 
 15.0
 
 30.4
OPERATING (LOSS) INCOME(8.6) (4.9)


49.3



35.8
OTHER INCOME (EXPENSE), NET3.4
 (28.0) (17.4) (1.0) 2.6
 (40.4)
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES(5.2) (32.9)
(17.4)
48.3

2.6

(4.6)
INCOME TAX PROVISION
 11.6
 
 11.8
 
 23.4
DISCONTINUED OPERATIONS, NET
 
 
 (.2) 
 (.2)
EQUITY (LOSSES) EARNINGS IN AFFILIATES, NET OF TAX(20.2) 29.9
 23.2
 
 (32.9) 
NET (LOSS) INCOME(25.4)
(14.6)
5.8

36.3

(30.3)
(28.2)
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
 
 
 2.8
 
 2.8
NET (LOSS) INCOME ATTRIBUTABLE TO ENSCO$(25.4) $(14.6)
$5.8

$39.1

$(30.3)
$(25.4)
relates to our rigs leased to ARO and certain revenues related to our Transition Services Agreement and Secondment Agreement.



(4)During the two months ended June 30, 2021, 41% and 59% of the revenues earned in Mexico were attributable to our Floaters and Jackups segment respectively. During the one month and four months ended April 30, 2021, 4% and 49% of the revenues earned Mexico were attributable to our Floaters segment, respectively, and 96% and 51% of the revenue earned in Mexico were attributable to our Jackups segment respectively. During the three and six months ended June 30, 2020, 35% and 58% revenue earned in Mexico were attributable to our Floaters segment respectively, 65% and 42% revenue earned in Mexico were attributable to our Jackups segment respectively.

(5)During two months ended June 30, 2021, 58% and 42% revenues earned in Australia were attributable to our Floaters and Jackups segment respectively. During the one month and four months ended April 30, 2021, 78% and 77% revenues earned in Australia were attributable to Floaters segment respectively, 22% and 23% revenues earned in Australia were attributable to Jackups segment respectively. During the three and six months ended June 30, 2020, 100% and 89% of the revenue earned in Australia were attributable to our Floater segment, and the remaining revenues attributable to our Jackups segment.
55
ENSCO PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Three Months Ended September 30, 2016
(In millions)
(Unaudited)

 Ensco plc ENSCO International Incorporated Pride International LLC Other Non-Guarantor Subsidiaries of Ensco Consolidating Adjustments Total
OPERATING REVENUES$6.7
 $36.1
 $
 $581.0
 $(75.6) $548.2
OPERATING EXPENSES 
  
  
  
  
 

Contract drilling (exclusive of depreciation)6.7
 36.5
 
 330.5
 (75.6) 298.1
Depreciation
 4.2
 
 105.2
 
 109.4
General and administrative9.1
 .1
 
 16.1
 
 25.3
OPERATING (LOSS) INCOME(9.1)
(4.7)


129.2



115.4
OTHER INCOME (EXPENSE), NET6.9
 (32.5) (18.9) 7.8
 5.8
 (30.9)
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES(2.2)
(37.2)
(18.9)
137.0

5.8

84.5
INCOME TAX PROVISION
 (3.5) (.6) .6
 
 (3.5)
DISCONTINUED OPERATIONS, NET
 
 
 (.7) 
 (.7)
EQUITY EARNINGS IN AFFILIATES, NET OF TAX87.5
 60.2
 23.2
 
 (170.9) 
NET INCOME85.3
 26.5

4.9

135.7

(165.1)
87.3
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
 
 
 (2.0) 
 (2.0)
NET INCOME ATTRIBUTABLE TO ENSCO$85.3

$26.5

$4.9

$133.7

$(165.1)
$85.3






ENSCO PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 2017
(In millions)
(Unaudited)

 Ensco plc ENSCO International Incorporated Pride International LLC Other Non-Guarantor Subsidiaries of Ensco Consolidating Adjustments Total
OPERATING REVENUES$38.5
 $137.1
 $
 $1,477.3
 $(264.1) $1,388.8
OPERATING EXPENSES           
Contract drilling (exclusive of depreciation)33.7
 126.4
 
 959.2
 (264.1) 855.2
Depreciation
 12.5
 
 312.8
 
 325.3
General and administrative33.9
 9.4
 
 43.6
 
 86.9
OPERATING (LOSS) INCOME(29.1) (11.2) 
 161.7
 
 121.4
OTHER EXPENSE, NET(10.2) (86.2) (53.0) (13.6) 11.7
 (151.3)
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES(39.3) (97.4) (53.0) 148.1
 11.7
 (29.9)
INCOME TAX PROVISION
 30.5
 
 36.3
 
 66.8
DISCONTINUED OPERATIONS, NET
 
 
 (.4) 
 (.4)
EQUITY (LOSSES) EARNINGS IN AFFILIATES, NET OF TAX(57.3) 113.5
 69.4
 
 (125.6) 
NET (LOSS) INCOME(96.6) (14.4) 16.4
 111.4
 (113.9) (97.1)
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
 
 
 .5
 
 .5
NET (LOSS) INCOME ATTRIBUTABLE TO ENSCO$(96.6) $(14.4) $16.4
 $111.9
 $(113.9) $(96.6)



ENSCO PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 2016
(In millions)
(Unaudited)

 Ensco plc ENSCO International Incorporated Pride International LLC Other Non-Guarantor Subsidiaries of Ensco Consolidating Adjustments Total
OPERATING REVENUES$21.5
 $108.2
 $
 $2,361.7
 $(219.6) $2,271.8
OPERATING EXPENSES 
  
  
  
  
  
Contract drilling (exclusive of depreciation)20.6
 108.6
 
 1,102.4
 (219.6) 1,012.0
Depreciation
 12.9
 
 322.2
 
 335.1
General and administrative25.8
 .2
 
 50.1
 
 76.1
OPERATING (LOSS) INCOME(24.9)
(13.5)


887.0



848.6
OTHER INCOME (EXPENSE), NET145.9
 (39.2) (56.8) (1.2) 65.7
 114.4
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES121.0

(52.7)
(56.8)
885.8

65.7

963.0
INCOME TAX PROVISION
 11.9
 (.6) 93.3
 
 104.6
DISCONTINUED OPERATIONS, NET
 
 
 (1.8) 
 (1.8)
EQUITY EARNINGS IN AFFILIATES, NET OF TAX730.2
 113.7
 87.0
 
 (930.9) 
NET INCOME851.2

49.1

30.8

790.7

(865.2)
856.6
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
 
 
 (5.4) 
 (5.4)
NET INCOME ATTRIBUTABLE TO ENSCO$851.2

$49.1

$30.8

$785.3

$(865.2)
$851.2








ENSCO PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
Three Months Ended September 30, 2017
(In millions)
(Unaudited)

 Ensco plc ENSCO International Incorporated Pride International LLC Other Non-Guarantor Subsidiaries of Ensco Consolidating Adjustments Total
            
NET (LOSS) INCOME$(25.4) $(14.6) $5.8
 $36.3
 $(30.3) $(28.2)
OTHER COMPREHENSIVE INCOME, NET           
Net change in derivative fair value
 1.7
 
 
 
 1.7
Reclassification of net income on derivative instruments from other comprehensive income into net (loss) income
 (.1) 
 
 
 (.1)
Other
 
 
 .1
 
 .1
NET OTHER COMPREHENSIVE INCOME
 1.6



.1



1.7
COMPREHENSIVE (LOSS) INCOME(25.4) (13.0)
5.8

36.4

(30.3)
(26.5)
COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
 
 
 2.8
 
 2.8
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO ENSCO$(25.4) $(13.0)
$5.8

$39.2

$(30.3)
$(23.7)



ENSCO PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Three Months Ended September 30, 2016
(In millions)
(Unaudited)

 Ensco plc ENSCO International Incorporated Pride International LLC Other Non-Guarantor Subsidiaries of Ensco Consolidating Adjustments Total
            
NET INCOME$85.3
 $26.5
 $4.9
 $135.7
 $(165.1) $87.3
OTHER COMPREHENSIVE INCOME (LOSS), NET          
Net change in derivative fair value
 
 
 
 
 
Reclassification of net losses on derivative instruments from other comprehensive income into net income
 2.2
 
 
 
 2.2
Other
 
 
 (.5) 
 (.5)
NET OTHER COMPREHENSIVE INCOME (LOSS)

2.2



(.5)

 1.7
COMPREHENSIVE INCOME85.3

28.7

4.9

135.2

(165.1) 89.0
COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
 
 
 (2.0) 
 (2.0)
COMPREHENSIVE INCOME ATTRIBUTABLE TO ENSCO$85.3

$28.7

$4.9

$133.2

$(165.1)
$87.0



ENSCO PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
Nine Months Ended September 30, 2017
(In millions)
(Unaudited)

 Ensco plc ENSCO International Incorporated Pride International LLC Other Non-Guarantor Subsidiaries of Ensco Consolidating Adjustments Total
            
NET (LOSS) INCOME$(96.6) $(14.4) $16.4
 $111.4
 $(113.9) $(97.1)
OTHER COMPREHENSIVE INCOME, NET          
Net change in derivative fair value
 7.7
 
 
 
 7.7
Reclassification of net losses on derivative instruments from other comprehensive income into net (loss) income
 1.1
 
 
 
 1.1
Other
 
 
 .8
 

 .8
NET OTHER COMPREHENSIVE INCOME

8.8



.8


 9.6
COMPREHENSIVE (LOSS) INCOME(96.6)
(5.6)
16.4

112.2

(113.9) (87.5)
COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
 
 
 .5
 
 .5
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO ENSCO$(96.6)
$(5.6)
$16.4

$112.7

$(113.9)
$(87.0)



ENSCO PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
Nine Months Ended September 30, 2016
(In millions)
(Unaudited)

 Ensco plc ENSCO International Incorporated Pride International LLC Other Non-Guarantor Subsidiaries of Ensco Consolidating Adjustments Total
            
NET INCOME$851.2
 $49.1
 $30.8
 $790.7
 $(865.2) $856.6
OTHER COMPREHENSIVE INCOME (LOSS), NET          
Net change in derivative fair value
 (.6) 
 
 
 (.6)
Reclassification of net losses on derivative instruments from other comprehensive income into net income
 10.1
 
 
 
 10.1
Other
 
 
 (.5) 
 (.5)
NET OTHER COMPREHENSIVE INCOME (LOSS)

9.5



(.5)


9.0
COMPREHENSIVE INCOME851.2

58.6

30.8

790.2

(865.2)
865.6
COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
 
 
 (5.4) 
 (5.4)
COMPREHENSIVE INCOME ATTRIBUTABLE TO ENSCO$851.2

$58.6

$30.8

$784.8

$(865.2)
$860.2



ENSCO PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
September 30, 2017
(In millions)
(Unaudited)

  Ensco plc ENSCO International Incorporated Pride International LLC Other Non-Guarantor Subsidiaries of Ensco Consolidating Adjustments Total
ASSETS 
           
CURRENT ASSETS           
Cash and cash equivalents$516.0
 $
 $20.5
 $187.9
 $
 $724.4
Short-term investments1,065.0
 
 
 4.8
 
 1,069.8
Accounts receivable, net 12.2
 .4
 (.1) 336.5
 
 349.0
Accounts receivable from affiliates410.8
 173.6
 
 112.2
 (696.6) 
Other.3
 14.8
 
 303.2
 
 318.3
Total current assets2,004.3
 188.8

20.4

944.6

(696.6)
2,461.5
PROPERTY AND EQUIPMENT, AT COST1.8
 124.0
 
 13,366.8
 
 13,492.6
Less accumulated depreciation1.8
 76.3
 
 2,318.1
 
 2,396.2
Property and equipment, net
 47.7



11,048.7



11,096.4
DUE FROM AFFILIATES1,977.8
 2,803.9
 321.0
 4,012.7
 (9,115.4) 
INVESTMENTS IN AFFILIATES8,521.4
 3,575.8
 1,130.7
 
 (13,227.9) 
OTHER ASSETS, NET 
 40.7
 
 175.5
 (91.2) 125.0
 $12,503.5
 $6,656.9

$1,472.1

$16,181.5

$(23,131.1)
$13,682.9
LIABILITIES AND SHAREHOLDERS' EQUITY 
        
CURRENT LIABILITIES           
Accounts payable and accrued liabilities$54.6
 $42.8
 $13.1
 $378.2
 $
 $488.7
Accounts payable to affiliates45.0
 171.3
 10.3
 470.0
 (696.6) $
Total current liabilities99.6
 214.1

23.4

848.2

(696.6)
488.7
DUE TO AFFILIATES 1,396.0
 3,666.9
 930.4
 3,122.1
 (9,115.4) 
LONG-TERM DEBT 2,840.6
 149.2
 1,111.1
 646.8
 
 4,747.7
OTHER LIABILITIES
 10.4
 
 360.0
 (91.2) 279.2
ENSCO SHAREHOLDERS' EQUITY (DEFICIT)8,167.3
 2,616.3
 (592.8) 11,202.3
 (13,227.9) 8,165.2
NONCONTROLLING INTERESTS
 
 
 2.1
 
 2.1
Total equity (deficit)8,167.3
 2,616.3

(592.8)
11,204.4

(13,227.9)
8,167.3
      $12,503.5
 $6,656.9

$1,472.1

$16,181.5

$(23,131.1)
$13,682.9



ENSCO PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
December 31, 2016
(In millions)

  Ensco plc ENSCO International Incorporated Pride International LLC Other Non-Guarantor Subsidiaries of Ensco Consolidating Adjustments Total
ASSETS 
           
CURRENT ASSETS           
Cash and cash equivalents$892.6
 $
 $19.8
 $247.3
 $
 $1,159.7
Short-term investments1,165.1
 5.5
 
 272.0
 
 $1,442.6
Accounts receivable, net 6.8
 
 
 354.2
 
 361.0
Accounts receivable from affiliates486.5
 251.2
 
 152.2
 (889.9) 
Other.1
 6.8
 
 309.1
 
 316.0
Total current assets2,551.1

263.5

19.8

1,334.8

(889.9)
3,279.3
PROPERTY AND EQUIPMENT, AT COST1.8
 121.0
 
 12,869.7
 
 12,992.5
Less accumulated depreciation1.8
 63.8
 
 2,007.6
 
 2,073.2
Property and equipment, net  

57.2



10,862.1



10,919.3
DUE FROM AFFILIATES1,512.2
 4,513.8
 1,978.8
 7,234.4
 (15,239.2) 
INVESTMENTS IN AFFILIATES8,557.7
 3,462.3
 1,061.3
 
 (13,081.3) 
OTHER ASSETS, NET 
 81.5
 
 181.1
 (86.7) 175.9
 $12,621.0

$8,378.3

$3,059.9

$19,612.4

$(29,297.1)
$14,374.5
LIABILITIES AND SHAREHOLDERS' EQUITY 
        
CURRENT LIABILITIES           
Accounts payable and accrued liabilities$44.1
 $45.2
 $28.3
 $404.9
 $
 $522.5
Accounts payable to affiliates38.8
 208.4
 5.9
 636.8
 (889.9) 
Current maturities of long-term debt187.1
 
 144.8
 
 
 331.9
Total current liabilities270.0

253.6

179.0

1,041.7

(889.9)
854.4
DUE TO AFFILIATES 1,375.8
 5,367.6
 2,040.7
 6,455.1
 (15,239.2) 
LONG-TERM DEBT 2,720.2
 149.2
 1,449.5
 623.7
 
 4,942.6
OTHER LIABILITIES
 2.9
 
 406.3
 (86.7) 322.5
ENSCO SHAREHOLDERS' EQUITY (DEFICIT)8,255.0
 2,605.0
 (609.3) 11,081.2
 (13,081.3) 8,250.6
NONCONTROLLING INTERESTS
 
 
 4.4
 
 4.4
Total equity (deficit)8,255.0
 2,605.0

(609.3)
11,085.6

(13,081.3)
8,255.0
      $12,621.0
 $8,378.3

$3,059.9

$19,612.4

$(29,297.1)
$14,374.5



ENSCO PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2017
(In millions)
(Unaudited)
 Ensco plc ENSCO International Incorporated Pride International LLC Other Non-guarantor Subsidiaries of Ensco Consolidating Adjustments Total
OPERATING ACTIVITIES 
  
  
  
  
  
Net cash (used in) provided by operating activities of continuing operations$(17.3) $(68.4) $(84.9) $390.2
 $
 $219.6
INVESTING ACTIVITIES           
Maturities of short-term investments1,123.1
 5.5
 
 284.1
 
 1,412.7
Purchases of short-term investments(1,023.0) 
 
 (17.0) 
 (1,040.0)
Additions to property and equipment 
 
 
 (474.1) 
 (474.1)
Purchase of affiliate debt(316.3) 
 
 
 316.3
 
Other
 
 
 2.6
 
 2.6
Net cash used in investing activities of continuing operations (216.2) 5.5



(204.4)
316.3

(98.8)
FINANCING ACTIVITIES 
  
  
  
  
  
Reduction of long-term borrowings(220.7) 
 
 
 (316.3) (537.0)
Cash dividends paid(9.4) 
 
 
 
 (9.4)
Debt financing costs(5.5) 
 
 
 
 (5.5)
Advances from (to) affiliates95.1
 62.9
 85.6
 (243.6) 
 
Other(2.6) 
 
 (1.9) 
 (4.5)
Net cash (used in) provided by financing activities(143.1) 62.9

85.6

(245.5)
(316.3)
(556.4)
Net cash used in discontinued operations
 
 
 (.4) 

(.4)
Effect of exchange rate changes on cash and cash equivalents
 
 
 .7
 
 .7
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS(376.6) 

.7

(59.4)


(435.3)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD892.6
 
 19.8
 247.3
 
 1,159.7
CASH AND CASH EQUIVALENTS, END OF PERIOD$516.0
 $
 $20.5
 $187.9
 $
 $724.4



ENSCO PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2016
(In millions)
(Unaudited)
 Ensco plc ENSCO International Incorporated  Pride International LLC Other Non-guarantor Subsidiaries of Ensco Consolidating Adjustments Total
OPERATING ACTIVITIES 
  
  
  
  
  
Net cash provided by (used in) operating activities of continuing operations$150.4
 $(23.6) $(95.3) $963.3
 $
 $994.8
INVESTING ACTIVITIES 
  
  
  
  
 

Maturities of short-term investments1,582.0
 
 
 
 
 1,582.0
Purchases of short-term investments(1,282.0) 
 
 (422.0) 
 (1,704.0)
Additions to property and equipment 
 
 
 (255.5) 
 (255.5)
Purchase of affiliate debt(237.9) 
 
 
 237.9
 
Other
 
 
 7.7
 
 7.7
Net cash provided by (used in) investing activities of continuing operations  62.1
 
 
 (669.8) 237.9
 (369.8)
FINANCING ACTIVITIES 
  
  
  
  
 

Proceeds from equity issuance585.5
 
 
 
 
 585.5
Reduction of long-term borrowings(862.4) 
 
 237.9
 (237.9) (862.4)
Cash dividends paid(8.5) 
 
 
 
 (8.5)
Advances from (to) affiliates156.1
 23.6
 114.1
 (293.8) 
 
Other(2.0) 
 
 (0.3) 
 (2.3)
Net cash (used in) provided by financing activities(131.3) 23.6
 114.1
 (56.2) (237.9) (287.7)
Net cash provided by discontinued operations
 
 
 7.4
 
 7.4
Effect of exchange rate changes on cash and cash equivalents
 
 
 (.6) 
 (.6)
NET INCREASE IN CASH AND CASH EQUIVALENTS81.2
 ��
 18.8
 244.1
 
 344.1
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD94.0
 
 2.0
 25.3
 
 121.3
CASH AND CASH EQUIVALENTS, END OF PERIOD$175.2
 $
 $20.8
 $269.4
 $
 $465.4




Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations
    
Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the accompanying unaudited condensed consolidated financial statements as of September 30, 2017and for the three-month and nine-month periods ended September 30, 2017 and 2016related notes thereto included elsewhere hereinin "Item 1. Financial Statements" and with our annual report on Form 10-K for the year ended December 31, 2016.2020. The following discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under “Risk Factors” in Item 1A of our annual report and elsewhere in this quarterly report. See “Forward-Looking Statements.”



EXECUTIVE SUMMARY


Our Business


We are one of thea leading providersprovider of offshore contract drilling services to the international oil and gas industry. On October 6, 2017, we acquired Atwood Oceanics, Inc. ("Atwood") to further strengthen our position as a leader in offshore drilling across a wide range of water depths around the world. Following the acquisition,sale of a jackup in April 2021, we currently own and operate an offshore drilling rig fleet of 6260 rigs, with drilling operations in most of the strategic markets around the globe. We also have three rigs under construction.almost every major offshore market across five continents. Our rig fleet consists of 12includes 11 drillships, 11four dynamically positioned semisubmersible rigs, fourone moored semisubmersible rig, 44 jackup rigs and 38 jackupa 50% equity interest in Saudi Aramco Rowan Offshore Drilling Company ("ARO"), our 50/50 joint venture with Saudi Aramco, which owns an additional seven rigs. Our offshore rig fleet is one ofWe operate the world's largest amongst competitive rigs,fleet, including one of the newest ultra-deepwater fleets in the industry and a leading premium jackup fleet.


OneChapter 11 Proceedings, Emergence from Chapter 11 and Fresh Start Accounting

On August 19, 2020 (the “Petition Date”), Valaris plc (“Legacy Valaris” or “Predecessor”) and certain of its direct and indirect subsidiaries (collectively, the “Debtors”) filed voluntary petitions for reorganization under chapter 11 of the Bankruptcy Code in the Bankruptcy Court under the caption In re Valaris plc, et al., Case No. 20-34114 (MI) (the “Chapter 11 Cases”).

In connection with the Chapter 11 Cases and the plan of reorganization, on and prior to April 30, 2021 (the "Effective Date"), the Company effectuated certain restructuring transactions, pursuant to which Valaris was formed and, through a series of transactions, Legacy Valaris transferred to a subsidiary of Valaris substantially all of the subsidiaries, and other assets, of Legacy Valaris.

On the Effective Date, we successfully completed our older, less capable rigs is marketedfinancial restructuring and together with the Debtors emerged from the Chapter 11 Cases. Upon emergence from the Chapter 11 Cases, we eliminated $7.1 billion of debt and obtained a $520.0 million capital injection by issuing the First Lien Notes. See “Note 11 - Debt" for sale as partadditional information on the First Lien Notes. On the Effective Date. Legacy Valaris Class A ordinary shares were cancelled and common shares of Valaris with a nominal value of $0.01 per share (“Common Shares”) were issued. Also, former holders of Legacy Valaris' equity were issued warrants (the "Warrants") to purchase Common Shares.. See “Note 12 - Shareholders' Equity" for additional information on the issuance of the Common Shares and Warrants.

References to the financial position and results of operations of the "Successor" or "Successor Company" relate to the financial position and results of operations of the Company after the Effective Date. References to the financial position and results of operations of the "Predecessor" or "Predecessor Company" refer to the financial position and results of operations of Legacy Valaris on and prior to the Effective Date. References to the “Company,” “we,” “us” or “our” in this Quarterly Report are to Valaris, together with its consolidated subsidiaries, when referring to periods following the Effective Date, and to Legacy Valaris, together with its consolidated subsidiaries, when referring to periods prior to and including Effective Date.


56


Upon emergence from the Chapter 11 Cases, we qualified for and adopted fresh start accounting. The application of fresh start accounting resulted in a new basis of accounting, and the Company became a new entity for financial reporting purposes. Accordingly, our fleet high-grading strategyfinancial statements and classified as held-for-sale.notes after the Effective Date are not comparable to our financial statements and notes on and prior to that date.


SeeNote 2 – Chapter 11 Proceedings” and "Note 3 - Fresh Start Accounting" for additional details regarding the bankruptcy, our emergence and fresh start accounting.

Our Industry


OilOperating results in the offshore contract drilling industry are highly cyclical and are directly related to the demand for and the available supply of drilling rigs. Low demand and excess supply can independently affect day rates and utilization of drilling rigs. Therefore, adverse changes in either of these factors can result in adverse changes in our industry. While the cost of moving a rig may cause the balance of supply and demand to vary somewhat between regions, significant variations betweenmostregions are generally of a short-term nature due to rig mobility.

As we entered 2020, we expected the volatility that began with the oil price decline in 2014 to continue over the near-term with the expectation that long-term oil prices have rebounded significantly offwould remain at levels sufficient to support a continued gradual recovery in the 12-year lows experienced during 2016demand for offshore drilling services. We were focused on opportunities to put our rigs to work, manage liquidity, extend our financial runway, and have generally stabilizedreduce debt as we sought to navigate the extended market downturn and rangedimprove our balance sheet. Recognizing our ability to maintain a sufficient level of liquidity to meet our financial obligations depended upon our future performance, which is subject to general economic conditions, industry cycles and financial, business and other factors affecting our operations, many of which are beyond our control, we had significant financial flexibility within our capital structure to support our liability management efforts. However, starting in early 2020, the COVID-19 pandemic and the response thereto negatively impacted the macro-economic environment and global economy. Global oil demand fell sharply at the same time global oil supply increased as a result of certain oil producers competing for market share, leading to a supply glut. As a consequence, the price of Brent crude oil fell from around $45$60 per barrel at year-end 2019 to around $55$20 per barrel since late last year. in mid-April 2020.In response to dramatically reduced oil price expectations, our customers reviewed, and in most cases lowered significantly, their capital expenditure plans in light of revised pricing expectations. This caused our customers, primarily in the second and third quarters of 2020, to cancel or shorten the duration of many of our 2020 drilling contracts, cancel future drilling programs and seek pricing and other contract concessions which led to material operating losses and liquidity constraints for us.

In 2020, the combined effects of the global COVID-19 pandemic, the significant decline in the demand for oil and the substantial surplus in the supply of oil resulted in significantly reduced demand and day rates for offshore drilling provided by the Company and increased uncertainty regarding long-term market conditions. These events had a significant adverse impact on our current and expected liquidity position and financial runway and led to the filing of the Chapter 11 Cases.

57


By the middle of 2021, Brent crude oil prices climbed back to pre-COVID-19 pandemic levels, to approximately $73 per barrel in June 2021, and we observed a slight increase in customer tendering activity for both floaters and jackups beginning in the latter part of 2020. In early July 2021, rising global demand for oil and continuing disputes about supply levels among members of OPEC+ sent Brent crude oil prices above $75 per barrel. Later in July 2021, the members of OPEC+ agreed to phase out 5.8 million barrels of oil per day of oil production cuts by September 2022, effectively undoing production cuts put in place in response to the COVID-19 pandemic. After a brief decline following the announcement, oil prices returned to $74 per barrel by the end of July. The constructive oil price environment has led to an improvement in contracting and tendering activity in 2021 as compared to 2020. Benign environment floater rig years awarded in the first half of 2021 were nearly double that in the first half of 2020 and jackup rig years awarded increased by 15% when comparing the same periods. This increase in activity is particularly evident for drillships with several multi-year contracts awarded year to date. However, the global recovery from the COVID-19 pandemic remains uneven, and there is still a significant amount of uncertainty around the sustainability of the improvement in oil prices to support a recovery in demand for offshore drilling services.

Additionally, the full impact that the pandemic and the volatility of oil prices will have on our results of operations, financial condition, liquidity and cash flows is uncertain due to numerous factors, including the duration and severity of the pandemic, the continued development, availability and effectiveness of the ongoing vaccine rollout, the general resumption of global economic activity along with the injection of substantial government monetary and fiscal stimulus and the sustainability of the improvements in oil prices and demand in the face of market volatility. To date, the COVID-19 pandemic has resulted in only limited operational downtime. Our rigs have had to shut down operations while crews are tested and incremental sanitation protocols are implemented and while crew changes have been restricted as replacement crews are quarantined. We continue to incur additional personnel, housing and logistics costs in order to mitigate the potential impacts of COVID-19 to our operations. In limited instances, we have been reimbursed for these costs by our customers. Our operations and business may be subject to further economic disruptions as a result of the spread of COVID-19 among our workforce, the extension or imposition of further public health measures affecting supply chain and logistics, and the impact of the pandemic on key customers, suppliers, and other counterparties. There can be no assurance that these, or other issues caused by the COVID-19 pandemic, will not materially affect our ability to operate our rigs in the future.

We expect market conditionsthat these challenges will continue for drilling contractors as customers wait to remain challenging as current contracts expire and new contracts are executed at lower rates. Whilegain additional clarity on the sustainability of improved commodity prices have improved, they have not yet improved to a level that supports increased rig demand sufficient to absorb existing supply and improve pricing power.pricing. We believe the current market dynamicsand macro-economic conditions will not change until we seecontinue to create a further sustained recovery in commodity prices and/or reduction in rig supply.challenging contracting environment through 2021, into 2022 and potentially beyond.

While industry conditions remain challenging, customer inquiries have increased in recent months, particularly with respect to shallow-water projects. Despite the increase in customer activity, recent contract awards have generally been for short-term work, subject to an extremely competitive bidding process. The significant oversupply of rigs continues to put downward pressure on day rates, resulting in certain cases whereby rates approximate, or are slightly lower than, direct operating expenses.

Atwood Merger

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”).

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.



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 134.1 million Class A ordinary shares with an aggregate value of $782.0 million. The estimated fair values assigned to assets acquired net of liabilities assumed exceeded the consideration transferred, resulting in an estimated bargain purchase gain of $167.8 million that will be recognized during the fourth quarter.

Liquidity Position

We have historically relied on our cash flow from continuing operations to meet liquidity needs and fund the majority of our cash requirements. We periodically rely on the issuance of debt and/or equity securities to supplement our liquidity needs. Based on our balance sheet, our contractual backlog and $2.0 billion available under our amended revolving credit facility ("Credit Facility"), we expect to fund our short-term and long-term liquidity needs, including contractual obligations and anticipated capital expenditures, as well as working capital requirements, from cash and cash equivalents, short-term investments, operating cash flows, and, if necessary, funds borrowed under our revolving credit facility or other future financing arrangements. We remain focused on our liquidity and, throughout the market downturn, have executed several transactions to significantly improve our financial position.

Cash and Debt

As of September 30, 2017, we had $4.7 billion in total debt outstanding, representing approximately 36.8% of our total capitalization. We also had $1.8 billion in cash and short-term investments and $2.25 billion undrawn capacity under our Credit Facility.

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, resulting in adjusted cash and short-term investments of $926.5 million on a pro forma basis as of September 30, 2017. After adjusting total capital to reflect the $782.0 million equity consideration transferred in the Merger and the estimated $167.8 million bargain purchase gain, our total debt outstanding represented approximately 34.2% of our adjusted total capitalization on a pro forma basis as of September 30, 2017.

Upon closing of the Merger, we amended our 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 $1.2 billion through September 2022. The Credit Facility, as amended, requires us to maintain a total debt to total capitalization ratio that is less than or equal to 60%.

In January 2017, through a private-exchange transaction, we repurchased $649.5 million of our outstanding debt with $332.5 million of cash and $332.0 million of newly issued 8.00% senior notes due 2024.

During the nine-month period ended September 30, 2017, we repurchased $194.1 million aggregate principal amount of our outstanding debt for $204.5 million of cash on the open market and recognized an insignificant pre-tax gain, net of discounts, premiums and debt issuance costs.

Our next debt maturity is $237.6 million during 2019, followed by $450.9 million and $269.7 million during 2020 and 2021, respectively.




Backlog


As of September 30, 2017, ourOur backlog was $3.0$2.2 billion as compared to $3.6and $1.0 billion as of August 2, 2021 and December 31, 2016.2020, respectively. Our backlog declined primarilyexcludes ARO's backlog but includes backlog of $31.1 million and $74.7 million, respectively, from our rigs leased to ARO at the contractual rates. Contract rates with ARO are subject to adjustment resulting from the shareholder agreement. See "Note 5- Equity Method Investment in ARO" for additional information. The increase to backlog is due to revenues realized during the first nine months of the year, partially offset by newrecent contract awards and contract extensions. Adjusted for the Merger on a pro forma basis, our backlog as of September 30, 2017 was $3.2 billion.extensions, partially offset by revenues realized. As current contracts expire,revenues are realized and if we will likelyexperience customer contract cancellations, we may experience declines in backlog, which willwould result in a decline in revenues and operating cash flows over the near-term. Contract

ARO backlog includeswas $953.2 million and $347.5 million as of August 2, 2021 and December 31, 2020, respectively, inclusive of backlog on both ARO owned rigs and rigs leased from us. The increase in backlog is due to contracts awarded to five ARO owned rigs during the impactfirst quarter. As a 50/50 joint venture, when ARO realizes revenue from its backlog, 50% of drilling contracts signed or terminated after each respective balance sheet date but priorthe earnings thereon would be reflected in our results. The earnings from ARO backlog with respect to filingrigs leased from us will be net of, among other things, payments to us under bareboat charters for those rigs.

See “Item 1A. – Risk Factors” for risks related to the realization of our annual and quarterly report on February 28, 2017 and October 26, 2017, respectively.backlog.
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BUSINESS ENVIRONMENT
 
Floaters


The floater contracting environment continuesremains challenging due to be challenged by reducedlimited demand as well asand excess newbuild supply. Floater demand has declined significantlymaterially in recent years dueMarch and April 2020, as our customers reduced capital expenditures particularly for capital-intensive, long-lead deepwater projects in the wake of oil price declines from around $60 per barrel at year-end 2019 to lower commodity prices which havearound $20 per barrel in mid-April 2020. This caused our customers, to rationalize capital expenditures, resultingprimarily in the cancellationsecond and third quarters of 2020, to cancel or delay drilling programs, to terminate drilling contracts and to request contract concessions. We have observed a slight increase in customer tendering activity for floaters that commenced in the latter part of drilling programs. We expect this trend2020. However, the global recovery from the COVID-19 pandemic remains uneven, and there is still a significant amount of uncertainty around the sustainability of the improvement in oil prices to continue until we seesupport a further sustained recovery in commodity prices.demand for offshore drilling services.

DuringOur backlog for our floater segment was $1.4 billion and $163.7 million as of August 2, 2021 and December 31, 2020, respectively. The increase in our backlog was due to the addition of backlog from new contract awards and contract extensions, partially offset by revenues realized.
Utilization for our floaters was 22% during the second quarter we executed contracts for ENSCO DS-4 and ENSCO DS-10 for two-year and one-year terms, respectively. The contracts contain a one-year priced option for ENSCO DS-4 and five one-year priced options for ENSCO DS-10. ENSCO DS-4 began drilling operations offshore Nigeriaof 2021 compared to 29% in August 2017. As a result of the DS-10 contract award, we accelerated delivery to September 2017 and made the final milestone payment of $75.0 million, which was previously deferred into 2019. We expect ENSCO DS-10 to commence drilling operations offshore Nigeria during the first quarter of 2018.

During2021. Average day rates were approximately $197,000 during the thirdsecond quarter we executed a six-well contract for ENSCO DS-7, which is expectedof 2021 compared to commence in March 2018approximately $198,000 in the Mediterranean Sea. The contract contains two two-well priced options. Additionally, we executed a one-well extension for ENSCO DS-12 (formerly Atwood Achiever) in direct continuationfirst quarter of its current contract.2021.
Currently, thereThere are approximately 45 competitive21 newbuild drillships and benign environment semisubmersible rigs reported to be under construction, of which approximately 25five are scheduled to be delivered bybefore the end of 2018.2021. Most newbuild floaters are uncontracted. Several newbuild deliveries have been delayed into future years, and we expect that more uncontracted newbuilds will be delayed or cancelled.

Drilling contractors have retired more than 90approximately 130 benign environment floaters since the beginning of the downturn. Approximately 302014. Six benign environment floaters older than 3020 years of age are currently idle, and approximately 25eight additional benign environment floaters greaterolder than 3020 years old have contracts that will expire by the end of 2018within six months without follow-on work.work, and there are a further 15 benign environment floaters that have been stacked for more than three years. Operating costs associated with keeping these rigs idle as well as expenditures required to re-certify some of these aging rigs may prove cost prohibitive. Drilling contractors will likely elect to scrap or cold-stack the majoritysome or all of these rigs. Improvements in demand and/or reductions in supply will be necessary before meaningful increases in utilization and day rates are realized.

Jackups


DemandDuring 2020, demand for jackups has improved withdeclined in light of increased market uncertainty. This caused our customers, primarily in the second and third quarters of 2020, to cancel or delay drilling programs, to terminate drilling contracts and to request contract concessions. We have observed a slight increase in customer tendering activity observedfor jackups that commenced in recent months following historic lows; however, contract terms generally have been short-termthe latter part of 2020. However, the global recovery from the COVID-19 pandemic remains uneven, and there is still a significant amount of uncertainty around the sustainability of the improvement in natureoil prices to support a recovery in demand for offshore drilling services.
Our backlog for our jackup segment was $767.2 million and rates remain depressed$737.6 million as of August 2, 2021 and December 31, 2020, respectively. The increase in our backlog was due to the oversupplyaddition of rigs.
During the first quarter, we executed a four-yearbacklog from new contract for ENSCO 92 as well as several short-term contractsawards and contract extensions, partially offset by revenues realized.

Utilization for ENSCO 68, ENSCO 75, ENSCO 87, ENSCO 106 and ENSCO 107.
During the second quarter, we executed three-year contracts for ENSCO 110 and ENSCO 120 and a 400-day contract for ENSCO 102. We also executed short-term contracts and contract extensions for ENSCO 72, ENSCO 107, ENSCO 121 and ENSCO 122. In addition, we sold ENSCO 56, ENSCO 86, ENSCO 90 and ENSCO 99, which were previously classified as held-for-sale and recognized an insignificant pre-tax gain.


Alsoour jackups was 54% during the second quarter we received noticescompared to 50% in the first quarter of termination for convenience for2021. Average day rates were approximately $99,000 during the ENSCO 104 and ENSCO 71 contracts effectivesecond quarter compared to approximately $95,000 in May and August 2017, respectively, which were previously expected to end in January and July 2018, respectively.the first quarter of 2021.
During the third quarter, we executed a one-year contract extension for ENSCO 67 and short-term contracts and contract extensions for ENSCO 68, ENSCO 72, ENSCO 101 and ENSCO 115 (formerly Atwood Orca). Additionally, we sold ENSCO 52, which was previously classified as held-for-sale, and recognized an insignificant pre-tax gain. In October, we executed a short-term contract for ENSCO 75.
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Currently, there
There are approximately 95 competitive34 newbuild jackup rigs reported to be under construction, of which approximately 7012 are scheduled to be delivered bybefore the end of 2018.2021. Most newbuild jackups are uncontracted. Over the past year, some jackup orders have been cancelled, and many newbuild jackups have been delayed. We expect that additional rigs mayscheduled jackup deliveries will continue to be delayed or cancelled given limited contracting opportunities.until more rigs are contracted.


Drilling contractors have retired more than 30approximately 140 jackups since the beginning of the downturn. Approximately 10080 jackups older than 30 years of age are idle. Furthermore, approximately 60idle, 30 jackups that are 30 years of age or older have contracts expiring within the next six months without follow-on work, and there are a further 65 jackups that expire before the end of 2018, and these rigs may be unable to find additional work. Operating costs associated with keeping these rigs idle as well as expenditureshave been stacked for more than three years. Expenditures required to re-certify some of these aging rigs may prove cost prohibitive. Drillingprohibitive and drilling contractors will likelymay instead elect to scrap or cold-stack some or all of these rigs. We expect jackup scrapping and cold-stacking to continue for the remainder of 2021. Improvements in demand and/or reductions in supply will be necessary before meaningful increases in utilization and day rates are realized.

Divestitures

Our business strategy has been to focus on ultra-deepwater floater and premium jackup operations and de-emphasize other assets and operations that are not part of our long-term strategic plan or that no longer meet our standards for economic returns.

We continue to focus on our fleet management strategy in light of the composition of our rig fleet. While taking into account certain restrictions on the sales of assets under our First Lien Notes, as part of our strategy, we may act opportunistically from time to time to monetize assets to enhance stakeholder value and improve our liquidity profile, in addition to reducing holding costs by selling or disposing of older, lower-specification or non-core rigs.


RESULTS OF OPERATIONS

    We are not able to compare the results of operations for the month ended April 30, 2021 (the “Q2 Predecessor Period”) and four-month period ended April 30, 2021 (the “H1 Predecessor Period” and, together with the Q2 Predecessor Period, the “2021 Predecessor Periods”) to any of the previous periods reported in the condensed consolidated financial statements, and we do not believe reviewing this period in isolation would be useful in identifying any trends in or reaching any conclusions regarding our overall operating performance. We believe that the discussion of our results of operations for the two-months ended June 30, 2021 (the “Successor Period”) combined with the 2021 Predecessor Periods provide more meaningful comparisons to the comparable periods in 2020 and are more useful in understanding operational trends. These combined results do not comply with GAAP and have not been prepared as pro forma results under applicable SEC rules, but are presented because we believe they provide the most meaningful comparison of our results to prior periods.

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The following table summarizes our condensed consolidated resultsCondensed Consolidated Results of operations for the three-month and nine-month periods ended September 30, 2017 and 2016Operations (in millions):
SuccessorPredecessorCombined (Non-GAAP)Predecessor
Two Months Ended June 30, 2021One Month Ended April 30, 2021Three Months Ended June 30, 2021Three Months Ended June 30, 2020
Revenues$202.8 $90.3 $293.1 $388.8 
Operating expenses
Contract drilling (exclusive of depreciation)168.7 85.6 254.3 370.7 
Loss on impairment— — — 838.0 
Depreciation16.6 37.5 54.1 131.5 
General and administrative12.7 6.4 19.1 62.6 
Total operating expenses198.0 129.5 327.5 1,402.8 
Equity in earnings (losses) of ARO4.8 1.2 6.0 (5.2)
Operating income (loss)9.6 (38.0)(28.4)(1,019.2)
Other income (expense), net1.4 (3,533.7)(3,532.3)(105.4)
Provision (benefit) for income taxes15.1 (15.5)(0.4)(15.8)
Net loss(4.1)(3,556.2)(3,560.3)(1,108.8)
Net income (loss) attributable to noncontrolling interests(2.1)(.8)(2.9)1.4 
Net loss attributable to Valaris$(6.2)$(3,557.0)$(3,563.2)$(1,107.4)


SuccessorPredecessorCombined (Non-GAAP)Predecessor
Two Months Ended June 30, 2021Four Months Ended April 30, 2021Six Month Ended June 30, 2021Six Months Ended June 30, 2020
Revenues$202.8 $397.4 $600.2 $845.4 
Operating expenses 
Contract drilling (exclusive of depreciation)168.7 337.8 506.5 846.7 
Loss on impairment— 756.5 756.5 3,646.2 
Depreciation16.6 159.6 176.2 296.0 
General and administrative12.7 30.7 43.4 116.0 
Total operating expenses198.0 1,284.6 1,482.6 4,904.9 
Equity in earnings (losses) of ARO4.8 3.1 7.9 (11.5)
Operating income (loss)9.6 (884.1)(874.5)(4,071.0)
Other income (expense), net1.4 (3,563.5)(3,562.1)(213.3)
Provision (benefit) for income taxes15.1 16.2 31.3 (167.8)
Net loss(4.1)(4,463.8)(4,467.9)(4,116.5)
Net income (loss) attributable to noncontrolling interests(2.1)(3.2)(5.3)2.8 
Net loss attributable to Valaris$(6.2)$(4,467.0)$(4,473.2)$(4,113.7)



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 Three Months Ended
September 30,
 Nine Months Ended
September 30,
 2017 2016 2017 2016
Revenues$460.2
 $548.2
 $1,388.8
 $2,271.8
Operating expenses 
  
  
  
Contract drilling (exclusive of depreciation)285.8
 298.1
 855.2
 1,012.0
Depreciation108.2
 109.4
 325.3
 335.1
General and administrative30.4
 25.3
 86.9
 76.1
Operating income35.8
 115.4
 121.4
 848.6
Other (expense) income, net(40.4) (30.9) (151.3) 114.4
Provision for income taxes23.4
 (3.5) 66.8
 104.6
(Loss) income from continuing operations(28.0) 88.0
 (96.7) 858.4
Loss from discontinued operations, net (.2) (.7) (.4) (1.8)
Net (loss) income(28.2) 87.3
 (97.1) 856.6
Net loss (income) attributable to noncontrolling interests2.8
 (2.0) .5
 (5.4)
Net (loss) income attributable to Ensco$(25.4) $85.3
 $(96.6) $851.2
Overview
    
Revenues declined $88.0decreased $95.7 million,, or 16%25%, for the three-month periodcombined Successor and Predecessor results for the three months ended SeptemberJune 30, 20172021, as compared to the prior year quarter primarily due to lower average day rates,$64.1 million from fewer days under contract across our fleet, $46.3 million due to termination fees received for certain rigs in the fleet, lower revenuesprior year quarter, $14.1 million from various jackup rigs undergoing shipyard projects during the quarter and the sale of ENSCO 52.

ExcludingVALARIS JU-84, VALARIS JU-87 and VALARIS JU-101 which operated in the impact of ENSCO DS-9prior year quarter, and ENSCO 8503 lump-sum termination payments received during$4.0 million due to lower revenues earned under the second quarter of 2016 totaling $205.0Lease Agreements and Secondment Agreement with ARO. This decline was partially offset by a $33.5 million revenues declined $678.0 million, or 33%,increase in revenue for certain rigs with higher average day rates for the nine-month periodcombined three months ended SeptemberJune 30, 20172021 as compared to the prior year period. This decline wasquarter.

Revenues decreased $245.2 million, or 29%, for the combined Successor and Predecessor results for the six months ended June 30, 2021, as compared to the prior year period primarily due primarily to $188.1 million from fewer days under contract across our fleet, $47.4 million from the fleet,sale of VALARIS 5004, VALARIS JU-84, VALARIS JU-87, VALARIS JU-88 and VALARIS JU-101 which operated in the prior year quarter, $46.3 million due to termination fees received for certain rigs in prior year period, and $29.9 million due to lower revenues earned under the Secondment Agreement, Lease Agreements and Transition Services agreement with ARO. This decline was partially offset by a $58.5 million increase in revenue for certain rigs with higher average day rates andfor the contract terminations and ultimate sale of ENSCO 6003 and ENSCO 6004.combined six months ended June 30, 2021 as compared to the prior year period.



Contract drilling expense declined $12.3decreased $116.4 million, or 4%31%, for the three-monthcombined Successor and Predecessor results for the three months ended June 30, 2021, as compared to the prior year quarter, primarily due to $84.3 million of lower cost on idle rigs, $28.0 million from rigs sold between the comparative periods, and reduced cost resulting primarily from spend control efforts.

Contract drilling expense decreased $340.2 million, or 40%, for the combined Successor and Predecessor results for the six months ended June 30, 2021, as compared to the prior year period primarily due to $193.2 million of lower cost on idle rigs, $52.5 million from rigs sold between the comparative periods, and reduced cost resulting primarily from spend control efforts. Additionally, there was a decline of $18.6 million related to the Secondment Agreement with ARO as almost all remaining seconded employees became employees of ARO during the second quarter of 2020.

During the second quarter of 2020, we recorded non-cash losses on impairment totaling $838.0 million with respect to certain assets in our fleet. See "Note 7 - Property and Equipment" for additional information.

During the four months ended SeptemberApril 30, 20172021 and the six months ended June 30, 2020, we recorded non-cash losses on impairment totaling $756.5 million and $3.6 billion, respectively, with respect to certain assets in our fleet. See "Note 7 - Property and Equipment" for additional information.

Depreciation expense decreased $77.4 million, or 59%, for the combined Successor and Predecessor results for the three months ended June 30, 2021 as compared to the prior year quarter, primarily due to the salereduction in values of various jackup rigsproperty and other cost control initiatives that reduced personnel costs.equipment from the application of fresh start accounting.


Contract drillingDepreciation expense declined $156.8decreased $119.8 million, or 15%40%, for the nine-month periodcombined Successor and Predecessor results for the six months ended SeptemberJune 30, 20172021, as compared to the prior year period primarily due to rig stackings,reduction in values of property and equipment from the contract terminationsapplication of fresh start accounting and ultimate sale of ENSCO 6003 and ENSCO 6004, cost control initiatives that reduced personnel costs and the sale of various jackup rigs. This decline was partially offset by contract preparation costs for certain rigs.

Depreciation expense for the three-month period ended September 30, 2017 was consistent with the prior year period. Depreciation expense declined $9.8 million, or 3%, for the nine-month period ended September 30, 2017, primarily due to lower depreciation expense on certain non-core assets which were impaired in the extensionfirst and second quarters of useful lives for certain contracted rigs.2020, some of which were subsequently sold in 2020.

General and administrative expenses increaseddecreased by $5.1$43.5 million or 20%69%, and $10.8$72.6 million or 14%63%, for the three-monthcombined Successor and nine-month periodsPredecessor results for the combined Successor and Predecessor results for the three and six months ended SeptemberJune 30, 2017, respectively. The increase2021, respectively, as compared to the prior year comparative periods. The decline is related to charges in the prior year periods wasfor professional fees incurred in relation to the Chapter 11 Cases, but
62


prior to the Petition Date, professional fees associated with shareholder activism defense, organizational change initiatives, as well as merger integration related costs.

Other expense, net, increased $3,426.9 million and $3,348.8 million for the combined Successor and Predecessor results for the three and six months ended June 30, 2021, respectively, as compared to the prior year comparative periods, primarily due to transaction costsreorganization items incurred in the current year directly related to the Merger.

Other (expense) income, net,Chapter 11 Cases. SeeNote 2– Chapter 11 Proceedings” for the nine-month period ended September 30, 2017 included a pre-tax loss of $6.2 milliondetails related to reorganization items. This increase was partially offset by a reduction in interest expense as we discontinued accruing interest on our outstanding debt after the January 2017 debt exchange. Other (expense) income, net, for the three-month and nine-month periods ended September 30, 2016 included pre-tax gains on debt extinguishment of $18.2 million and $279.0 million, respectively.Petition Date.
A significant number of our drilling contracts are of a long-term nature. Accordingly, an increase or decline in demand for contract drilling services generally affects our operating results and cash flows gradually over future quarters as long-term contracts expire. We expect operating results to decline during 2017 and into 2018 as long-term contracts expire, and our rigs either go uncontracted or we renew contracts at significantly lower rates.


Rig Counts, Utilization and Average Day Rates
 
The following table summarizes our and ARO's offshore drilling rigs by reportable segment, rigs under construction and rigs held-for-sale as of SeptemberJune 30, 20172021 and 2016:2020:
 20212020
Floaters(1)
1617
Jackups(2)
3439
Other(3)
99
Held-for-sale(2)(4)
17
Total Valaris6072
Valaris - Under construction(5)
22
ARO(6)
77
ARO - Under construction (7)
22

(1)During the fourth quarter of 2020, we sold VALARIS 8504.
(2)During the third quarter of 2020, we sold VALARIS JU-87 and during the fourth quarter of 2020, we sold VALARIS JU-84 and VALARIS JU-88. During the second quarter of 2021, we sold VALARIS 101 and classified VALARIS 100 as held-for-sale.
(3)This represents the nine rigs leased to ARO through bareboat charter agreements whereby substantially all operating costs are incurred by ARO. All jackup rigs leased to ARO are under three-year contracts with Saudi Aramco.
(4)During the third quarter of 2020, we sold VALARIS 8500, VALARIS 8501, VALARIS 8502, VALARIS DS-3, VALARIS DS-5, VALARIS DS-6 and JU-105.
(5)We have an option to take delivery of VALARIS DS-13 and VALARIS DS-14, on or before December 31, 2023. The purchase price for the rigs are estimated to be approximately $119.1 million and $218.3 million, respectively, assuming a December 31, 2023 delivery date. Delivery can be requested any time prior to December 31, 2023 with a downward purchase price adjustment based on predetermined terms. If we elect not to purchase the rigs, we have no further obligations to the shipyard.
(6)This represents the seven jackup rigs owned by ARO which are operating under long-term contracts with Saudi Aramco.
(7)During 2020, ARO ordered two newbuild jackup rigs scheduled for delivery in 2022.

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 2017 2016
Floaters(1)
20 19
Jackups(2) (3)
32 35
Under construction(1)(3)
1 3
Held-for-sale(2) (4)
1 4
Total54 61


(1)
During the third quarter of 2017, we accepted delivery of ENSCO DS-10.
(2)
During the first quarter of 2017, we classified ENSCO 56, ENSCO 86 and ENSCO 99 as held-for-sale. During the second quarter of 2017, we classified ENSCO 52 as held-for-sale.
(3)
During the fourth quarter of 2016, we accepted delivery of ENSCO 141.
(4)
During the fourth quarter of 2016, we sold ENSCO 53 and ENSCO 94. During the second quarter of 2017, we sold ENSCO 56, ENSCO 86, ENSCO 90 and ENSCO 99. During the third quarter of 2017, we sold ENSCO 52.



The following table summarizes our and ARO's rig utilization and average day rates by reportable segment were as follows (in millions):
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Rig Utilization(1)
  
Floaters22 %25 %26 %32 %
Jackups54 %54 %53 %60 %
Other (2)
100 %100 %100 %100 %
Total Valaris54 %52 %54 %57 %
ARO89 %97 %89 %93 %
Average Day Rates(3)
Floaters$197,150 $172,313 $197,905 $188,107 
Jackups98,685 86,058 97,476 83,539 
Other (2)
30,633 37,368 31,137 39,855 
Total Valaris$86,861 $83,912 $88,091 $90,846 
ARO$95,773 $103,049 $94,485 $105,843 

(1)Rig utilization is derived by dividing the number of days under contract by the number of days in the period. Days under contract equals the total number of days that rigs have earned and recognized day rate revenue, including days associated with early contract terminations, compensated downtime and mobilizations and excluding suspension periods. When revenue is deferred and amortized over a future period, for example, when we receive fees while mobilizing to commence a new contract or while being upgraded in a shipyard, the three-month and nine-month periods ended September 30, 2017 and 2016:related days are excluded from days under contract. Beginning in 2021, our method for calculating rig utilization has been updated to remove the impact of suspension periods. To the extent applicable, comparative period calculations have been retroactively adjusted.
 Three Months Ended
September 30,
 Nine Months Ended
September 30,
 2017 2016 2017 2016
Rig Utilization(1)
 
  
  
  
Floaters46% 48% 45% 57%
Jackups60% 55% 63% 61%
Total55% 53% 56% 60%
Average Day Rates(2)
 
  
    
Floaters$334,218
 $353,187
 $336,445
 $360,073
Jackups88,272
 109,379
 87,711
 113,378
Total$165,623
 $183,537
 $159,158
 $196,640
(1)
Rig utilization is derived by dividing the number of days under contract by the number of days in the period. Days under contract equals the total number of days that rigs have earned and recognized day rate revenue, including days associated with early contract terminations, compensated downtime and mobilizations. When revenue is earned but is deferred and amortized over a future period, for example when a rig earns revenue while mobilizing to commence a new contract or while being upgraded in the shipyard, the related days are excluded from days under contract.


For newly-constructed or acquired rigs, the number of days in the period begins upon commencement of drilling operations for rigs with a contract or when the rig becomes available for drilling operations for rigs without a contract.


(2)
Average day rates are derived by dividing contract drilling revenues, adjusted to exclude certain types of non-recurring reimbursable revenues, lump-sum revenues and revenues attributable to amortization of drilling contract intangibles, by the aggregate number of contract days, adjusted to exclude contract days associated with certain mobilizations, demobilizations, shipyard contracts and standby contracts.

(2)Includes our two management services contracts and our nine rigs leased to ARO under bareboat charter contracts.

(3)Average day rates are derived by dividing contract drilling revenues, adjusted to exclude certain types of non-recurring reimbursable revenues, lump-sum revenues, revenues earned during suspension periods and revenues attributable to amortization of drilling contract intangibles, by the aggregate number of contract days, adjusted to exclude contract days associated with certain suspension periods, mobilizations, demobilizations and shipyard contracts. Beginning in 2021, our method for calculating average day rates has been updated to remove the impact of suspension periods. To the extent applicable, comparative period calculations have been retroactively adjusted.

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    Detailed explanations of our operating results, including discussions of revenues, contract drilling expense and depreciation expense by segment, are provided below.

Operating Income by Segment
 
Our business consists of threefour operating segments: (1) Floaters, which includes our drillships and semisubmersible rigs, (2) Jackups, (3) ARO and (3)(4) Other, which currently consists of management services on rigs owned by third-parties. Our twothird-parties and the activities associated with our arrangements with ARO under the Rig Lease Agreements, the Secondment Agreement and the Transition Services Agreement. Floaters, Jackups and ARO are also reportable segments.
Upon emergence, we ceased allocation of our onshore support costs included within contract drilling expenses to our operating segments Floatersfor purposes of measuring segment operating income (loss) and Jackups, provide one service, contract drilling.
Segment information is presented below (in millions)as such, those costs are included in “Reconciling Items”. GeneralWe have adjusted the historical periods to conform with current period presentation.Further, general and administrative expense and depreciation expense incurred by our corporate office are not allocated to our operating segments for purposes of measuring segment operating income (loss) and wereare included in "Reconciling Items." Substantially all of the expenses incurred associated with our Transition Services Agreement are included in general and administrative under "Reconciling Items" in the table set forth below.

The full operating results included below for ARO are not included within our consolidated results and thus deducted under "Reconciling Items" and replaced with our equity in earnings of ARO. See "Note 5- Equity Method Investment in ARO" for additional information on ARO and related arrangements.

    Segment information was as follows (in millions):


Two Months Ended June 30, 2021 (Successor)
FloatersJackupsAROOtherReconciling ItemsConsolidated Total
Revenues$49.7 $128.5 $84.0 $24.6 $(84.0)$202.8 
Operating expenses
Contract drilling (exclusive of depreciation)45.2 95.5 62.9 9.2 (44.1)168.7 
Depreciation7.9 7.8 9.7 .8 (9.6)16.6 
General and administrative— — 3.1 — 9.6 12.7 
Equity in earnings of ARO— — — — 4.8 4.8 
Operating income (loss)$(3.4)$25.2 $8.3 $14.6 $(35.1)$9.6 

One Month Ended April 30, 2021 (Predecessor)
FloatersJackupsAROOtherReconciling ItemsConsolidated Total
Revenues$18.4 $59.8 $40.8 $12.1 $(40.8)$90.3 
Operating expenses
Contract drilling (exclusive of depreciation)21.7 48.8 29.8 4.7 (19.4)85.6 
Depreciation15.9 17.3 4.9 3.5 (4.1)37.5 
General and administrative— — 1.2 — 5.2 6.4 
Equity in earnings of ARO— — — — 1.2 1.2 
Operating income (loss)$(19.2)$(6.3)$4.9 $3.9 $(21.3)$(38.0)

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Four Months Ended April 30, 2021 (Predecessor)

FloatersJackupsAROOtherReconciling ItemsConsolidated Total
Revenues$115.7 $232.4 $163.5 $49.3 $(163.5)$397.4 
Operating expenses
Contract drilling (exclusive of depreciation)106.0 169.3 116.1 19.8 (73.4)337.8 
Loss on impairment756.5 — — — — 756.5 
Depreciation72.1 69.7 21.0 14.8 (18.0)159.6 
General and administrative— — 4.2 — 26.5 30.7 
Equity in earnings of ARO— — — — 3.1 3.1 
Operating income (loss)$(818.9)$(6.6)$22.2 $14.7 $(95.5)$(884.1)

Three Months Ended SeptemberJune 30, 20172020 (Predecessor)

FloatersJackupsAROOtherReconciling ItemsConsolidated Total
Revenues$163.6 $186.3 $146.0 $38.9 $(146.0)$388.8 
Operating expenses
Contract drilling (exclusive of depreciation)150.5 163.5 112.5 15.3 (71.1)370.7 
Loss on impairment831.9 .4 — 5.7 — 838.0 
Depreciation62.0 52.8 13.3 11.2 (7.8)131.5 
General and administrative— — 7.1 — 55.5 62.6 
Equity in losses of ARO— — — — (5.2)(5.2)
Operating income (loss)$(880.8)$(30.4)$13.1 $6.7 $(127.8)$(1,019.2)

Six Months Ended June 30, 2020 (Predecessor)

FloatersJackupsAROOtherReconciling ItemsConsolidated Total
Revenues$343.2 $399.1 $286.3 $103.1 $(286.3)$845.4 
Operating expenses
Contract drilling (exclusive of depreciation)339.3 370.1 220.8 49.4 (132.9)846.7 
Loss on impairment3,386.2 254.3 — 5.7 — 3,646.2 
Depreciation151.4 111.3 26.3 22.3 (15.3)296.0 
General and administrative— — 15.4 — 100.6 116.0 
Equity in losses of ARO— — — — (11.5)(11.5)
Operating income (loss)$(3,533.7)$(336.6)$23.8 $25.7 $(250.2)$(4,071.0)

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 Floaters Jackups Other Operating Segments Total Reconciling Items Consolidated Total
Revenues$291.9
 $153.1
 $15.2
 $460.2
 $
 $460.2
Operating expenses           
Contract drilling (exclusive of depreciation)139.1
 132.9
 13.8
 285.8
 
 285.8
Depreciation72.7
 31.6
 
 104.3
 3.9
 108.2
General and administrative
 
 
 
 30.4
 30.4
Operating income (loss)$80.1
 $(11.4) $1.4
 $70.1
 $(34.3) $35.8

Combined Three Months Ended SeptemberJune 30, 20162021 (Non-GAAP)

Floaters Jackups Other Operating Segments Total Reconciling Items Consolidated TotalFloatersJackupsAROOtherReconciling ItemsConsolidated Total
Revenues$319.3
 $213.8
 $15.1
 $548.2
 $
 $548.2
Revenues$68.1 $188.3 $124.8 $36.7 $(124.8)$293.1 
Operating expenses           Operating expenses
Contract drilling (exclusive of depreciation)153.7
 133.2
 11.2
 298.1
 
 298.1
Contract drilling (exclusive of depreciation)66.9 144.3 92.7 13.9 (63.5)254.3 
Depreciation72.9
 32.1
 
 105.0
 4.4
 109.4
Depreciation23.8 25.1 14.6 4.3 (13.7)54.1 
General and administrative
 
 
 
 25.3
 25.3
General and administrative— — 4.3 — 14.8 19.1 
Operating income$92.7
 $48.5
 $3.9
 $145.1
 $(29.7) $115.4
Equity in losses of AROEquity in losses of ARO— — — — 6.0 6.0 
Operating income (loss)Operating income (loss)$(22.6)$18.9 $13.2 $18.5 $(56.4)$(28.4)


Nine Months
Combined Six Month Ended SeptemberJune 30, 20172021 (Non-GAAP)

Floaters Jackups Other Operating Segments Total Reconciling Items Consolidated TotalFloatersJackupsAROOtherReconciling ItemsConsolidated Total
Revenues$840.7
 $503.8
 $44.3
 $1,388.8
 $
 $1,388.8
Revenues$165.4 $360.9 $247.5 $73.9 $(247.5)$600.2 
Operating expenses           Operating expenses
Contract drilling (exclusive of depreciation)431.1
 383.8
 40.3
 855.2
 
 855.2
Contract drilling (exclusive of depreciation)151.2 264.8 179.0 29.0 (117.5)506.5 
Loss on impairmentLoss on impairment756.5 — — — — 756.5 
Depreciation217.5
 95.3
 
 312.8
 12.5
 325.3
Depreciation80.0 77.5 30.7 15.6 (27.6)176.2 
General and administrative
 
 
 
 86.9
 86.9
General and administrative— — 7.3 — 36.1 43.4 
Operating income$192.1
 $24.7
 $4.0
 $220.8
 $(99.4) $121.4
Equity in losses of AROEquity in losses of ARO— — — — 7.9 7.9 
Operating income (loss)Operating income (loss)$(822.3)$18.6 $30.5 $29.3 $(130.6)$(874.5)

Nine Months Ended September 30, 2016
 Floaters Jackups Other Operating Segments Total Reconciling Items Consolidated Total
Revenues$1,468.3
 $743.0
 $60.5
 $2,271.8
 $
 $2,271.8
Operating expenses           
Contract drilling (exclusive of depreciation)573.6
 390.0
 48.4
 1,012.0
 
 1,012.0
Depreciation231.0
 90.8
 
 321.8
 13.3
 335.1
General and administrative
 
 
 
 76.1
 76.1
Operating income$663.7
 $262.2
 $12.1
 $938.0
 $(89.4) $848.6




Floaters


Floater revenue declined $27.4decreased $95.5 million, or 9%58%, for the three-month periodcombined Successor and Predecessor results for the three months ended SeptemberJune 30, 20172021, as compared to the prior year quarter primarily due to $58.7 million as a result of fewer days under contract across the floater fleet and $46.3 million due to termination fees received for certain rigs in the ENSCO DS-7 contract termination.

Excluding the impact of ENSCO DS-9 and ENSCO 8503 lump-sum termination payments received during the second quarter of 2016 totaling $205.0prior year period. This decline was partially offset by a $13.8 million revenues declined $422.6 million, or 33%,increase in revenue for certain rigs with higher average day rates for the nine-month periodcombined three months ended SeptemberJune 30, 2017, respectively,2021 as compared to the prior year period. The decline is primarily due to fewer days under contract across the fleet, the contract terminations and ultimate sale of ENSCO 6003 and ENSCO 6004, lower average day rates and the ENSCO DS-7 contract termination. The declines were partially offset by a higher average day rate for ENSCO DS-6 while operating in Egypt.quarter.


Floater contract drilling expenserevenue decreased $177.8 million, or 52%, for the three-month periodcombined Successor and Predecessor results for the six months ended SeptemberJune 30, 2017 declined $14.6 million, or 9%,2021, as compared to the prior year period primarily due to rig stackings.$146.5 million as a result of fewer days under contract across the floater fleet, $46.3 million due to termination fees received for certain rigs in prior year period, and $13.5 million from the sale of VALARIS 5004, which operated in the prior year period. This decline was partially offset by a $28.4 million increase in revenue for certain rigs with higher average day rates for the combined six months ended June 30, 2021 as compared to the prior year period.


Floater contract drilling expense decreased $83.6 million, or 56%, for the nine-month periodcombined Successor and Predecessor results for the three months ended SeptemberJune 30, 2017 declined $142.52021, as compared to the prior year quarter, primarily due to $70.8 million lower cost on idle rigs, $10.4 million due to the sale of VALARIS 5004, VALARIS 5006, VALARIS 8500, VALARIS 8501, VALARIS 8502, VALARIS 8504, VALARIS DS-3, VALARIS DS-5 and VALARIS DS-6.

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Floater contract drilling expense decreased $188.1 million, or 25%55%, for the combined Successor and Predecessor results for the six months ended June 30, 2021, as compared to the prior year period primarily due to rig stackings,$133.8 million as a result of fewer days under contract across the contract terminations and ultimatefloater fleet, $23.1 million to the sale of ENSCO 6003VALARIS 5004, VALARIS 5006, VALARIS 8500, VALARIS 8501, VALARIS 8502, VALARIS 8504, VALARIS DS-3, VALARIS DS-5 and ENSCO 6004VALARIS DS-6, as well as reduced costs resulting primarily from spend control efforts.

During the second quarter of 2020, we recorded non-cash losses on impairment totaling $831.9 million with respect to certain assets in our Floater segment. See "Note 7 - Property and other cost control initiativesEquipment" for additional information.

During the four months ending April 30, 2021 and the six months ended June 30, 2020, the Predecessor recorded non-cash losses on impairment totaling $756.5 million and $3.4 billion, respectively, with respect to reduce personnel costs. These declines were partially offset by contract preparation costscertain assets in our Floater segment. See "Note 7 - Property and Equipment" for certain rigs.additional information.

Floater depreciation expense decreased for the three-month period ended September 30, 2017 was consistent with the prior year period. Floater depreciation expensecombined Successor and Predecessor results for the nine-month periodthree months ended SeptemberJune 30, 2017 declined $13.5 million, or 6%,2021, as compared to the prior year period due to the extension of useful lives for certain contracted assets.

Jackups

Jackup revenues declined $60.7 million, or 28%, and $239.2 million, or 32%, for the three-month and nine-month periods ended September 30, 2017, respectively. The decline as compared to the prior year periods was primarily due to lower average day rates, fewer days under contract and various jackup rigs undergoing shipyard projects during the current year periods.

Jackup contract drilling expense for the three-month period ended September 30, 2017 was consistent with the prior year quarter, primarily due to the salereduction in values of various jackup rigs offset by higher operating costs for rigs that were stacked inproperty and equipment from the prior year period.application of fresh start accounting.


Jackup contract drillingFloater depreciation expense decreased for the nine-month periodcombined Successor and Predecessor results for the six months ended SeptemberJune 30, 2017 declined $6.2 million, or 2%,2021, as compared to the prior year period, primarily due to the salereduction in values of various rigsproperty and cost control initiativesequipment from the application of fresh start accounting and due to reduce personnel costs, partially offset by higher repair costslower depreciation expense on certain non-core assets which were impaired in the first and rig reactivation costs during the period.second quarters of 2020, some of which were subsequently sold in 2020.


Jackups

Jackup depreciation expenserevenues increased $2.0 million, or 1%, for the three-month period ended September 30, 2017 was consistent with the prior year period. Jackup depreciation expensecombined Successor and Predecessor results for the nine-month periodthree months ended SeptemberJune 30, 2017 declined $4.5 million, or 5%,2021, as compared to the prior year quarter, primarily due to a $19.7 million increase in revenue for certain rigs with higher average day rates for the three months ended June 30, 2021 as compared to the prior year quarter. This increase was partially offset by $14.1 million due to the sale of VALARIS JU-84, VALARIS JU-87 and VALARIS JU-101 which operated in the prior year quarter, and $5.4 million as a result of fewer days under contract across the jackup fleet.

Jackup revenues decreased $38.2 million, or 10%, for the combined Successor and Predecessor results for the six months ended June 30, 2021, as compared to the prior year period, primarily due to declines of $41.6 million from fewer days under contract across the jackup fleet and $33.9 million due to the sale of VALARIS JU-84, VALARIS JU-87, VALARIS JU-88 and VALARIS JU-101 which operated in the prior year quarter. This decline was partially offset by a $30.1 million increase in revenue for certain rigs with higher average day rates in the six months ended June 30, 2021.

Jackup contract drilling expense decreased $19.2 million, or 12%, for the combined Successor and Predecessor results for the three months ended June 30, 2021, as compared to the prior year quarter, primarily due to declines of $17.6 million resulting from the sale of VALARIS JU-68, VALARIS JU-70, VALARIS JU-71, VALARIS JU-84, VALARIS JU-87, VALARIS JU-88, VALARIS JU-101 and VALARIS JU-105, and $13.5 million of lower cost on idle rigs. This decrease was partially offset by a $16.5 million increase in reactivation cost for certain rigs.
Jackup contract drilling expense decreased $105.3 million, or 28%, for the combined Successor and Predecessor results for the six months ended June 30, 2021, as compared to the prior year period, primarily due to $59.4 million of lower cost on idle rigs, $29.4 million due to the sale of VALARIS JU-68, VALARIS JU-70, VALARIS JU-71, VALARIS JU-84, VALARIS JU-87, VALARIS JU-88, VALARIS JU-101 and VALARIS JU-105, and reduced costs resulting largely from spend control efforts. This decrease was partially offset by a $16.5 million increase in reactivation cost for certain rigs.
68



During the three and six months ended June 30, 2020, we recorded a non-cash loss on impairment of $0.4 million and $254.3 million, respectively, with respect to certain assets in our Jackup segment. See "Note 7 - Property and Equipment" for additional information.

Jackup depreciation expense decreased $27.7 million, or 52%, for the combined Successor and Predecessor results for the three months ended June 30, 2021 as compared to the prior year quarter, primarily due to the extensionreduction in values of useful livesproperty and equipment from the application of fresh start accounting.

Jackup depreciation expense decreased primarily $33.8 million, or 30%, for the combined Successor and Predecessor results for the six months ended June 30, 2021 primarily due to the reduction in values of property and equipment from the application of fresh start accounting and lower depreciation expense on certain contracted assets.non-core assets which were impaired in the second quarter of 2020, some of which were subsequently sold in 2020.


ARO


The operating revenues of ARO reflect revenues earned under drilling contracts with Saudi Aramco for the seven ARO-owned jackup rigs and the nine rigs leased from us.

Contract drilling expenses are inclusive of the bareboat charter fees for the rigs leased from us. Cost incurred under the Secondment Agreement are included in contract drilling expense and general and administrative, depending on the function to which the seconded employees' services related. General and administrative expenses include costs incurred under the Transition Services Agreement and other administrative costs. Services under the Transition Services Agreement were completed by December 31, 2020.

ARO revenue decreased $21.2 million or 15%, and $38.8 million or 14%, for three and six months ended June 30, 2021, respectively, as compared to the prior year period primarily due to lower day rates, as well as fewer operating days related to certain rigs for which operations were temporarily suspended.

ARO contract drilling expense decreased $19.8 million or 18%, and $41.8 million or 19%, for three and six months ended June 30, 2021, respectively, as compared to the prior year period primarily due to lower costs for repairs and maintenance of $7.8 million and $23.1 million, respectively, as well as a reduction in bareboat charter expense for the rigs leased from us for the respective periods.

ARO depreciation expense increased $1.3 million or 10%, and $4.4 million or 17% for three and six months ended June 30, 2021, respectively, as compared to the prior year period primarily due to capital expenditures.

ARO general and administrative expenses decreased $2.8 million or 39% and $8.1 million or 53%, for the three and six months ended June 30, 2021, respectively, as compared to the prior year period primarily due to a reduction in services received under the Transition Services Agreement which was completed as of December 31, 2020 as well as a reduction in professional fees.

See "Note 5 - Equity Method Investment in ARO" to our condensed consolidated financial statements included in "Item 1. Financial Statements" for additional information on ARO.

Other

Other revenues decreased $2.2 million for the combined Successor and Predecessor results for the three months ended June 30, 2021, as compared to the prior year quarter, primarily due to $4.5 million of lower revenues earned under the Lease Agreements with ARO. See "Note 5 - Equity Method Investment in ARO" to our condensed consolidated financial statements included in "Item 1. Financial Statements" for additional information.

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Other revenues decreased $29.2 million for the combined Successor and Predecessor results for the six months ended June 30, 2021, as compared to the prior year period, primarily due to $20.5 million and $9.4 million of lower revenues earned under the Secondment and Lease Agreements with ARO, respectively. See "Note 5 - Equity Method Investment in ARO" to our condensed consolidated financial statements included in "Item 1. Financial Statements" for additional information.

Other contract drilling expenses decreased $1.4 million and $20.4 million for the combined Successor and Predecessor results for the three and six months ended June 30, 2021, respectively, as compared to the prior year period, primarily due to $1.1 million and $18.6 million decrease in cost for services provided to ARO under the Secondment Agreement for the respective periods as almost all remaining employees seconded to ARO became employees of ARO during the second quarter of 2020.

Other Income (Expense)
 
The following table summarizes other income (expense) for the three-month and nine-month periods ended September 30, 2017 and 2016 (in millions):
Three Months Ended
September 30,
 Nine Months Ended
September 30,
SuccessorPredecessorCombined (Non-GAAP)Predecessor
2017 2016 2017 2016Two Months Ended June 30, 2021One Month Ended April 30, 2021Three Months Ended June 30, 2021Three Months Ended June 30, 2020
Interest income$7.5
 $3.8
 $22.3
 $8.6
Interest income$7.8 $1.0 $8.8 $5.7 
Interest expense, net:

  
    Interest expense, net:
Interest expense(72.6) (65.1) (221.9) (209.0)Interest expense(8.0)(1.1)(9.1)(116.8)
Capitalized interest24.5
 11.7
 54.9
 36.5
Capitalized interest— — — .6 
(48.1) (53.4) (167.0) (172.5) (8.0)(1.1)(9.1)(116.2)
Reorganization items, netReorganization items, net(4.1)(3,532.4)(3,536.5)— 
Other, net.2
 18.7
 (6.6) 278.3
Other, net5.7 (1.2)4.5 5.1 
$(40.4) $(30.9) $(151.3) $114.4
$1.4 $(3,533.7)$(3,532.3)$(105.4)
 

SuccessorPredecessorCombined (Non-GAAP)Predecessor
Two Months Ended June 30, 2021Four Months Ended April 30, 2021Six Month Ended June 30, 2021Six Months Ended June 30, 2020
Interest income$7.8 $3.6 $11.4 $10.5 
Interest expense, net:
Interest expense(8.0)(2.4)(10.4)(230.7)
Capitalized interest— — — 1.3 
 (8.0)(2.4)(10.4)(229.4)
Reorganization items, net(4.1)(3,584.6)(3,588.7)— 
Other, net5.7 19.9 25.6 5.6 
 $1.4 $(3,563.5)$(3,562.1)$(213.3)

Interest income increased for the three-monthcombined Successor and nine-monthPredecessor results for the three and six months ended June 30, 2021 as compared to the respective prior year periods primarily due to amortization of the discount on our note receivable from ARO. This increase was partially offset by lower LIBOR rates earned on that note.

70


Interest expense decreased by $107.7 million and $220.3 million for the combined Successor and Predecessor results for the three and six months ended SeptemberJune 30, 2017 increased2021, respectively, as compared to the prior year periods as we did not accrue interest on our outstanding debt or amortize discounts, premiums and debt issuance costs subsequent to the chapter 11 filing. Further, our interest costs are lower as a result of higher short-term investment balances.our lower debt level following emergence from chapter 11.


Interest expenseReorganization items, net of $3.5 billion recognized during the combined Successor and Predecessor results for the three-monththree and nine-month periodssix months ended SeptemberJune 30, 2017 increased as compared2021 was related to professional advisory service fees pertaining to the prior year periods due to the issuance of $849.5 million in convertible notes and $332.0 million in exchange notes during 2016 and 2017, respectively, partially offset by the repurchase of $2.0 billion of debt during 2016 and 2017. Interest expense capitalized during the three-month and nine-month periods ended September 30, 2017 increased as compared to the prior year periods due to an increase in the amount of capital invested in newbuild construction.

Other expense, net, for the nine-month period ended September 30, 2017 included a pre-tax loss of $6.2 millionChapter 11 Cases, contract items related to rejecting certain operating leases and the January 2017 debt exchange. Other income,effects of the emergence from bankruptcy, including the application of fresh start accounting.other net for the three-monthlosses and nine-month periods ended September 30, 2016 included pre-tax gains on debt extinguishment of $18.2 million and $279.0 million, respectively,expenses directly related to debt repurchases.Chapter 11 Cases. See ""Note 2 - Chapter 11 Proceedings" to our condensed consolidated financial statements included in "Item 1. Financial Statements" for additional information.


Our functional currency is the U.S. dollar, and 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. Net foreign currency exchange losses of $800,000$0.1 million and $4.9gains $16.5 million were included in other, net, for the combined Successor and Predecessor results for the three and six months ended June 30, 2021, respectively. During the combined Successor and Predecessor results for the three months ended June 30, 2021, the net foreign currency exchange losses were primarily attributable to the Euro partially offset by gains in the Brazilian Reals. During the combined Successor and Predecessor results for the six months ended June 30, 2021, the net foreign currency exchange gains were primarily attributable to the Libyan Dinar and Euro.

Net foreign currency exchange losses of $1.2 million and gains of $2.6 million, respectively, inclusive of offsetting fair value derivatives, were included in other, net, for the three-monththree and nine-month periodssix months ended SeptemberJune 30, 2017,2020 (Predecessor), respectively. NetDuring the three months ended June 30, 2020 (Predecessor), the net foreign currency exchange losses of $600,000were primarily attributable to the Euro and $2.4 million, inclusive of offsetting fair value derivatives,the net foreign currency exchange gains the six months ended June 30, 2020 (Predecessor), were included in other, net, forprimarily attributable to the three-monthEuro and nine-month periods ended September 30, 2016, respectively.Australian dollar.


Gains from the change in fair value of our supplemental executive retirement plans (the "SERP") of $1.0 million and $3.5 million were included in other, net, for the three-month and nine-month periods ended September 30, 2017, respectively. Gains from the change in fair value of our SERP of $1.1 million and $1.6 million were included in other, net, for the three-month and nine-month periods ended September 30, 2016, respectively.

Provision for Income Taxes
 
Ensco plc,Valaris Limited, the Successor Company and our parent company, is domiciled and resident in the U.K.Bermuda. Our subsidiaries conduct operations and earn income in numerous countries and are subject to the laws of taxing jurisdictions within those countries. The income of our non-Bermuda subsidiaries is not subject to Bermuda taxation as there is not an income tax regime in Bermuda.

Valaris plc, the Predecessor Company and our former parent company was domiciled and resident in the U.K. The income of our non-U.K. subsidiaries iswas generally not subject to U.K. taxation.

Income tax rates imposedand taxation systems in the tax jurisdictions in which our subsidiaries conduct operations vary as does the tax baseand our subsidiaries are frequently subjected to which the rates are applied.minimum taxation regimes. In some cases,jurisdictions, tax rates may be applicable toliabilities are based on gross revenues, statutory or negotiated deemed profits or other bases utilized under local tax laws,factors, rather than on net income and our subsidiaries are frequently unable to net income.realize tax benefits when they operate at a loss. Accordingly, during periods of declining profitability, our income tax expense may not decline proportionally with income, which could result in higher effective income tax rates. Furthermore, we will continue to incur income tax expense in periods in which we operate at a loss.



Our drilling rigs frequently move from one taxing jurisdiction to another to perform contract drilling services. In some instances, the movement of drilling rigs among taxing jurisdictions will involve the transfer of ownership of the drilling rigs among our subsidiaries. As a result of frequent changes in the taxing jurisdictions in which our drilling rigs are operated and/or owned, changes in the overall level of our incomeprofitability levels and changes in tax laws, our consolidatedannual effective income tax rate may vary substantially from one reporting period to another. In periods of declining profitability, our

71




Discrete income tax expense may not decline proportionally with income, which could result in higher effective income tax rates. Further, we may continue to incur income tax expense in periods in which we operate at a loss.

Income tax expense for the three-month and nine-month periodstwo months ended SeptemberJune 30, 20172021 (Successor) was $23.4$5.6 million and $66.8 million, respectively, as comparedwas primarily attributable to anchanges in liabilities for unrecognized tax benefits associated with tax positions taken in prior years and resolution of other prior period tax matters. Discrete income tax benefit of $3.5for the one-month ended April 30, 2021 (Predecessor) was $18.1 million and was primarily attributable to fresh start accounting adjustments. Discrete income tax expense of $104.6for the four months ended April 30, 2021 (Predecessor) was $2.2 million during the respective prior year periods. Theand was primarily attributable to changes in liabilities for unrecognized tax benefits associated with tax positions taken in prior years and resolution of other prior period tax matters offset by discrete tax benefit related to fresh start accounting adjustments. Excluding the aforementioned discrete tax items, income tax expense fromfor the two months ended June 30, 2021 (Successor), one month and four months ended April 30, 2021 (Predecessor) was $9.5 million, $2.6 million and $14.0 million, respectively.

Discrete income tax benefit for the three months ended June 30, 2020 (Predecessor) was $47.3 million and was primarily attributable to rig impairments and other resolutions of prior year periods results fromtax matters. Discrete income tax benefit for the six months ended June 30, 2020 (Predecessor) was $211.7 million and was primarily attributable to a restructuring transaction, rig impairments, implementation of the U.S. Cares Act, changes in overall profitabilityliabilities for unrecognized tax benefits associated with tax positions taken in prior years and changes inresolution of other prior period tax matters. Excluding the mix of our profitsaforementioned discrete tax items, income tax expense for the three and losses generated in tax jurisdictions with different tax rates.six months ended June 30, 2020 (Predecessor) was $31.5 million and $43.9 million, respectively.


LIQUIDITY AND CAPITAL RESOURCES


We have historically relied on our cash flow from continuing operations to meet liquidity needs and fund the majority of our cash requirements. We periodically rely on the issuance of debt and/or equity securities to supplement our liquidity needs. A substantial portion of our operating cash flow has been invested in the expansion and enhancement of our drilling rig fleet through newbuild construction and upgrade projects and the return of capital to shareholders through dividend payments. We expect that cash flow generated during 2017 will primarily be used to fund capital expenditures, repurchase debt and repay Atwood's debt.First Lien Notes


Upon closing of the Merger, we amended our 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. SubsequentThe First Lien Notes were issued pursuant to the amendment, our borrowing capacity is $2.0 billion through September 2019Indenture dated April 30, 2021 (the "First Lien Notes Indenture"), among Valaris, certain direct and declines to $1.2 billion through September 2022. Further, we utilized acquired cashindirect subsidiaries of $445.4 millionValaris as guarantors, and cash on hand fromWilmington Savings Fund Society, FSB, as collateral agent and trustee (in such capacities, the liquidation“Collateral Agent”).

On the Effective Date, in accordance with the plan of short-term investments to repay Atwood's debtreorganization and accrued interestBackstop Commitment Agreement, dated August 18, 2020 (as amended, the "BCA"), the Company consummated the rights offering of $1.3 billion.

In January 2017, through a private-exchange transaction, we repurchased $649.5 million of our outstanding debt with $332.5 million of cashsenior secured first lien notes (“First Lien Notes”) and $332.0 million of newly issued 8.00% senior notes due 2024.    

During the nine-month period ended September 30, 2017, we repurchased $194.1 millionassociated shares in an aggregate principal amount of $550 million, In accordance with the BCA, certain holders of senior notes claims and certain holders of claims under the Revolving Credit Facility ("Backstop Parties") who provided backstop commitments received the backstop premium.

The First Lien Notes are guaranteed, jointly and severally, on a senior basis, by certain of the direct and indirect subsidiaries of the Company under the First Lien Notes Indenture. The First Lien Notes and such guarantees are secured by first-priority perfected liens on 100% of the equity interests of each Restricted Subsidiary directly owned by the Company or any guarantor and a first-priority perfected lien on substantially all assets of the Company and each guarantor of the First Lien Notes, in each case subject to certain exceptions and limitations. The following is a brief description of the material provisions of the First Lien Notes Indenture and the First Lien Notes.

The First Lien Notes are scheduled to mature on April 30, 2028. Interest on the First Lien Notes accrues, at Valaris’s option, at a rate of: (i) 8.25% per annum, payable in cash; (ii) 10.25% per annum, with 50% of such interest to be payable in cash and 50% of such interest to be paid in kind; or (iii) 12% per annum, with the entirety of such interest to be paid in kind. The Company shall pay interest semi-annually in arrears on May 1 and November 1 of each year, commencing November 1, 2021. Interest on the First Lien Notes shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from April 30, 2021. Interest shall be computed on the basis of a 360-day year of twelve 30-day months.

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At any time prior to April 30, 2023, the Company may redeem up to 35% of the aggregate principal amount of the First Lien Notes at a redemption price of 104% up to the net cash proceeds received by the Company from equity offerings provided that at least 65% of the aggregate principal amount of the First Lien Notes remains outstanding and provided that the redemption occurs within 120 days after such equity offering of the Company. At any time prior to April 30, 2023 the Company may redeem the First Lien Notes at a redemption price of 104% plus a “make-whole” premium. On or after April 30, 2023, the Company may redeem all or part of the First Lien Notes at fixed redemption prices (expressed as percentages of the principal amount), plus accrued and unpaid interest, if any, to, but excluding, the redemption date. The Company may also redeem the First Lien Notes, in whole or in part, at any time and from time to time on or after April 30, 2026 at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. Notwithstanding the foregoing, if a Change of Control (as defined in the First Lien Notes Indenture, with certain exclusions as provided therein) occurs, the Company will be required to make an offer to repurchase all or any part of each note holder’s notes at a purchase price equal to 101% of the aggregate principal amount of First Lien Notes repurchased, plus accrued and unpaid interest to, but excluding, the applicable date.

The First Lien Notes Indenture contains covenants that limit, among other things, Valaris’s ability and the ability of the guarantors and other restricted subsidiaries, to: (i) incur, assume or guarantee additional indebtedness; (ii) pay dividends or distributions on Equity Interests (as defined in the First Lien Notes Indenture) or redeem or repurchase Equity Interests; (iii) make investments; (iv) repay or redeem junior debt; (v) transfer or sell assets; (vi) enter into sale and lease back transactions; (vii) create, incur or assume liens; and (viii) enter into transactions with certain affiliates. These covenants are subject to a number of important limitations and exceptions.

The First Lien Notes Indenture also provides for certain customary events of default, including, among other things, nonpayment of principal or interest, breach of covenants, failure to pay final judgments in excess of a specified threshold, failure of a guarantee to remain in effect, failure of a collateral document to create an effective security interest in collateral, with a fair market value in excess of a specified threshold, bankruptcy and insolvency events, cross payment default and cross acceleration, which could permit the principal, premium, if any, interest and other monetary obligations on all the then outstanding First Lien Notes to be declared due and payable immediately.

Liquidity
Our liquidity position is summarized in the table below (in millions, except ratios):
SuccessorPredecessor
June 30,
2021
December 31,
2020
Cash and cash equivalents$608.8 $325.8 
Available DIP Facility capacity(1)
— 500.0 
   Total liquidity$608.8 $825.8 
Working capital$821.1 $746.1 
Current ratio(2)
3.1 2.7 

(1)The DIP Facility was terminated upon our emergence from the Chapter 11 Cases on the Effective Date.
(2)As a result of our chapter 11 filing, we reclassified $7.3 billion representing the principal balance on our unsecured senior notes, the amount of outstanding borrowings on our Revolving Credit Facility, the accrued interest on our unsecured senior notes and Revolving Credit Facility, and rig holding costs for VALARIS DS-13 and VALARIS DS-14 to “Liabilities Subject to Compromise” as of December 31, 2020.

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Cash and Debt

As discussed in "Note 2 - Chapter 11 Proceedings" and above, we filed the Chapter 11 Cases to effect a comprehensive restructuring of our indebtedness. As of June 30, 2021, our only outstanding long-term debt for $204.5 millionconsisted of the First Lien Notes.

During the two months ended June 30, 2021, our primary uses of cash onwere $25.9 million used in operating activities and $8.1 million for the open marketenhancement and recognized an insignificant pre-tax gain, net of discounts, premiums and debt issuance costs.

Our Board of Directors declared a $0.01 per share quarterly cash dividend during the first, second and third quarters. The declaration and amount of future dividends is at the discretionother improvements of our Board of Directors. In the future, our Board of Directors may, without advance notice, reduce or suspend our dividend in order to maintain our financial flexibility and best position us for long-term success. When evaluating dividend payment timing and amounts, our Board of Directors considers several factors, including our profitability, liquidity, financial condition, market outlook, reinvestment opportunities, capital requirements and limitations under our Credit Facility.drilling rigs.


During the nine-month periodfour months ended SeptemberApril 30, 2017,2021, our primary sources of cash were net maturities$520.0 million from the issuance of short-term investmentsthe First Lien Notes and proceeds of $372.7$30.1 million and $219.6 million generated from operating activities for the disposition of continuing operations.assets. Our primary uses of cash for the same period were $537.0$39.8 million used in operating activities and $8.7 million for the repurchase of debt and $474.1 million for the construction, enhancement and other improvementimprovements of our drilling rigs.




During the nine-month periodsix months ended SeptemberJune 30, 2016,2020, our primary sourcessource of cash were $1.0 billion generated from operating activities of continuing operations and $585.5was $551.0 million in proceeds fromnet borrowings under our equity offering.Revolving Credit Facility. Our primary uses of cash for the same period were $862.4$381.1 million for the repurchase of debt,$255.5 used in operating activities, $67.1 million for the construction, enhancement and other improvementimprovements of our drilling rigs and net purchases$9.7 million for the repurchase of short-term investments of $122.0 million.outstanding debt on the open market.


Cash Flow and Capital Expenditures
 
Our cash flow from operating activities of continuing operations and capital expenditures for the nine-month periods ended September 30, 2017 and 2016 were as follows (in millions):
 2017 2016
Cash flow from operating activities of continuing operations$219.6
 $994.8
Capital expenditures 
  
New rig construction$397.8
 $155.7
Rig enhancements25.6
 15.6
Minor upgrades and improvements50.7
 84.2
 $474.1
 $255.5
SuccessorPredecessorPredecessor
Two Months Ended June 30, 2021Four Months Ended April 30, 2021Six Months Ended June 30, 2020
Net cash used in operating activities$(25.9)$(39.8)$(381.1)
Capital expenditures8.1 8.767.1 
    
Excluding the impact of ENSCO DS-9Net cash used in operating activities was $25.9 million and ENSCO 8503 lump-sum termination payments of $205.0$39.8 million received during the nine-monthstwo months ended SeptemberJune 30, 2016,2021 and four months ended April 30, 2021, respectively. The cash flow from operating activities of continuing operations declined$570.2 million, or 72%,outflow for the nine-month period ended September 30, 2017 as comparedSuccessor primarily relates to reorganization costs while the prior year period.cash outflow for the Predecessor primarily relates to declining margins and reorganization costs.

Prior to our chapter 11 filing, we had contractual commitments for the construction of VALARIS DS-13 and VALARIS DS-14 (the "Newbuild Rigs"). On February 26, 2021, we entered into amended agreements with the Shipyard that became effective upon our emergence from bankruptcy. The decline primarily resulted from a $785.2 million decline in net cash receipts from contract drilling services, offset by a $169.7 million decline in net cash paymentsamendments provide for, contract drilling services, a $13.8 million decline in cash payments for taxes and a $9.1 million decline in cash payments for interest, net of interest income.

Duringamong other things, an option construct whereby the third quarter, we accepted delivery and madeCompany has the final milestone payment of $75.0 million for ENSCO DS-10, which was previously deferred into 2019. We currently have one premium jackup rig under construction scheduled for delivery duringright, but not the first quarter of 2018. Following the Merger, we have two ultra-deepwater drillships under construction, ENSCO DS-13 (formerly Atwood Admiral) and ENSCO DS-14 (formerly Atwood Archer), which are scheduled for delivery in June 2019 and September 2020, respectively, or such earlier date that we electobligation, to take delivery of either or both rigs on or before December 31, 2023. Under the amended agreements, the purchase price for the rigs are estimated to be approximately $119.1 million for the VALARIS DS-13 and $218.3 million for the VALARIS DS-14, assuming a December 31, 2023 delivery date. Delivery can be requested any time prior to December 31, 2023 with 45 days' notice.
The following table summarizes the cumulative amount of contractual payments made as of September 30, 2017 for our rigs under construction and estimated timing of our remaining contractual payments, inclusive of rigs acquired in the Merger (in millions):
  
Cumulative Paid(1)
 Remaining 2017 
2018
and
2019
 
2020
and
2021
 Thereafter 
Total(2)
ENSCO 123 $63.3
 $2.2
 $215.3
 $
 $
 $280.8
ENSCO DS-13(3)
 
 
 
 
 83.9
 83.9
ENSCO DS-14(3)
 
 
 15.0
 
 165.0
 180.0
  $63.3
 $2.2
 $230.3
 $
 $248.9
 $544.7

(1)
Cumulative paid represents the aggregate amount of contractual payments made from commencement of the construction agreement through September 30, 2017. Contractual payments made by Atwood prior to the Merger for ENSCO DS-13 (formerly Atwood Admiral) and ENSCO DS-14 (formerly Atwood Archer) are excluded.

(2)
Total commitments are based on fixed-price shipyard construction contracts, exclusive of costs associated with commissioning, systems integration testing, project management, holding costs and interest.



(3)
The remaining milestone payments bear interest at a rate of 4.5% per annum, which accrues during the holding period until delivery. Upon delivery, the remaining milestone payments and accrued interest thereon may be financed through a promissory note with the shipyard for each rig. The promissory notes will bear interest at a rate of 5% per annum with a maturity date of December 31, 2022 and will be secured by a mortgage on each respective rig.
The actual timing of these expenditures may varya downward purchase price adjustment based on predetermined terms. If the completion of various construction milestones, which are,Company elects not to a large extent, beyond our control.    purchase the rigs, the Company has no further obligations to the shipyard. The amended agreements removed any Company guarantee.


Based on our current projections, we expect capital expenditures during 2017 to include approximately $456 million for newbuild construction, approximately $57 million for rig enhancement projects and approximately $73 million for minor upgrades and improvements. Depending on market conditions and future opportunities, we may make additional capital expenditures to upgrade rigs for customer requirements and construct or acquire additional rigs.

Financing and Capital Resources

Exchange OffersSuccessor First Lien Notes


In January 2017, we completed exchange offers (the "Exchange Offers")On the Effective Date, pursuant to exchange our outstanding 8.50% senior notes due 2019, 6.875% senior notes due 2020the Backstop Commitment Agreement and 4.70% senior notes due 2021 for 8.00% senior notes due 2024in accordance with the plan of reorganization, the Company consummated the Rights Offering of First Lien Notes and cash. The Exchange Offers resultedassociated shares in the tender of $649.5 millionan aggregate principal amount of our outstanding notes that were settled and exchanged as follows (in millions):$550.0 million. The First Lien Notes are scheduled to mature on April 30, 2028.
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  Aggregate Principal Amount Repurchased 8.00% Senior notes due 2024 Consideration 
Cash Consideration(1)
 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

(1)
As of December 31, 2016, the aggregate amount of principal repurchased with cash of $332.5 million, along with associated premiums, was classified as current maturities of long-term debt on our condensed consolidated balance sheet.

During the first quarter, we recognized a net pre-tax lossInterest on the Exchange OffersFirst Lien Notes accrues, at Valaris’s option, at a rate of: (i) 8.25% per annum, payable in cash; (ii) 10.25% per annum, with 50% of $6.2 million, consistingsuch interest to be payable in cash and 50% of a losssuch interest to be paid in kind; or (iii) 12% per annum, with the entirety of $3.5 million that includessuch interest to be paid in kind.

PredecessorSenior Notes

The commencement of the write-offChapter 11 Cases resulted in an event of premiums on tendered debt and $2.7 million of transaction costs.



Open Market Repurchases

During the nine-month period ended September 30, 2017, we repurchased certaindefault under each series of our outstanding senior notes with cash on hand and recognized an insignificant pre-tax gain, net of discounts, premiums and debt issuance costs. The aggregate repurchasesall obligations thereunder were as follows (in millions):
 Aggregate Principal Amount Repurchased 
Aggregate Repurchase Price(1)
8.50% Senior notes due 2019$54.6
 $60.1
6.875% Senior notes due 2020100.1
 105.1
4.70% Senior notes due 202139.4
 39.3
Total$194.1
 $204.5

(1)
Excludes accrued interest paid to holders of the repurchased senior notes.

Maturities

Our next debt maturity is $237.6 million during 2019, followed by $450.9 million and $269.7 million during 2020 and 2021, respectively.

Debtaccelerated. However, any efforts to Capital

Our total debt, total capital and total debt to total capital ratios are summarized below (in millions, except percentages):
 
Pro Forma(1)
September 30, 2017
 September 30,
2017
 December 31,
2016
Total debt$4,747.7
 $4,747.7
 $5,274.5
Total capital (2)
$13,862.7
 $12,912.9
 $13,525.1
Total debt to total capital34.2% 36.8% 39.0%

(1)
Pro forma amounts reflect the impact of the Merger as if it occurred on September 30, 2017. Total capital was adjusted to reflect the $782.0 million equity consideration transferred and the estimated $167.8 million bargain purchase gain. 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)
Total capital consists of total debt and Ensco shareholders' equity.

Revolving Credit Facility

In October 2017, we amended our 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. Subsequentenforce payment obligations related to the amendment,acceleration of our borrowing capacity is $2.0 billion through September 2019 and declines 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.

Also in October, Moody's downgraded our credit rating from B1 to B2 and Standard & Poor's downgraded our credit rating from BB to B+. The Credit Facility amendment and the rating actions resulted in increases to the interest rates applicable to borrowings. The applicable margin rates are 2.50% per annum for Base Rate advances and


3.50% per annum for LIBOR advances. In addition, our quarterly commitment fee increaseddebt were automatically stayed as a result of the amendment and rating actions to 0.625% per annum on the undrawn portionfiling of the $2.0Chapter 11 Cases. Accordingly, the $6.5 billion commitment. 

The Credit Facility requires us in aggregate principal amount outstanding under the Senior Notes as well as $201.9 million in associated accrued interest as of the Petition Date were classified as Liabilities Subject to maintain a total debtCompromise in our Condensed Consolidated Balance Sheets as of December 31, 2020. On the Effective Date, pursuant to total capitalization ratio that is less than or equal to 60% and to provide guarantees from certainthe plan of reorganization, each series 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 debtsenior notes were cancelled 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 definedholders thereunder received the treatment as set forth in the Credit Facility)); entering into certain merger arrangements; selling, leasing, transferring or otherwise disposingplan of all or substantially allreorganization.

In December 2016, Ensco Jersey Finance Limited, a wholly-owned subsidiary of Valaris plc, issued $849.5 million aggregate principal amount of the 2024 Convertible Notes in a private offering. The 2024 Convertible Notes were fully and unconditionally guaranteed, on a senior, unsecured basis, by Valaris plc. Under the terms of our assets; makingdebt agreement, we had the option to settle our 2024 Convertible Notes in cash, shares or 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 proceedscombination thereof for the aggregate amount due upon conversion. However, the commencement of available cash (as definedthe Chapter 11 Cases on August 19, 2020, constituted an event of default under the 2024 Convertible Notes. Any efforts to enforce payment obligations under the 2024 Convertible Notes, including any rights to require the repurchase by the Company of the 2024 Convertible Notes upon the NYSE delisting of the Class A ordinary shares, were automatically stayed as a result of the filing of the Chapter 11 Cases. Accordingly, the aggregate principal amount of 2024 Convertible Notes outstanding as well as associated accrued interest as of the Petition Date were classified as Liabilities Subject to Compromise in our Condensed Consolidated Balance Sheets as of December 31, 2020. On the Effective Date, pursuant to the plan of reorganization, all outstanding obligations under the senior notes, including the 2024 Convertible Notes, were cancelled and the holders thereunder received the treatment as set forth in the plan of reorganization.

PredecessorRevolving Credit Facility) would exceed $150 million; and entering into certain transactions with affiliates.Facility


The commencement of the Chapter 11 Cases resulted in an event of default under our Revolving Credit Facility. However, the ability of the lenders to exercise remedies in respect of the Revolving Credit Facility also includeswas stayed upon commencement of the Chapter 11 Cases. Accordingly, the $581.0 million of outstanding borrowing as well as accrued interest as of the Petition Date were classified as Liabilities Subject to Compromise in our Condensed Consolidated Balance Sheets as of December 31, 2020. On the Effective Date, pursuant to the plan of reorganization, the Revolving Credit Facility was cancelled and the holders thereunder received the treatment as set forth in the plan of reorganization.

Prior to the Effective Date, pursuant to the plan of reorganization, all undrawn letters of credit issued under the Revolving Credit Facility were collateralized pursuant to the terms of the Revolving Credit Facility. As of June 30, 2021, we had $22.0 million of collateralized letters of credit issued to lenders of the predecessor Revolving Credit Facility.

Investment in ARO and Notes Receivable from ARO

We consider our investment in ARO to be a covenant restrictingsignificant component of our abilityinvestment portfolio and an integral part of our long-term capital resources. We expect to receive cash from ARO in the future both from the maturity of our long-term notes receivable and from the distribution of earnings from ARO. The long-term notes receivable, which are governed by the laws of Saudi Arabia, earn interest at LIBOR plus two percent and mature during 2027 and 2028. In the event that ARO is unable to repay indebtedness maturing after September 2022, which isthese notes when they become due, we would require the final maturity dateprior consent of our Credit Facility. This covenantjoint venture partner to enforce ARO’s payment obligations. The notes receivable may be reduced by future Company obligations to the joint venture.

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The distribution of earnings to the joint-venture partners is subjectat the discretion of the ARO Board of Managers, consisting of 50/50 membership of managers appointed by Saudi Aramco and managers appointed by us, with approval required by both shareholders. The timing and amount of any cash distributions to certain exceptions that permit us to manage our balance sheet,the joint-venture partners cannot be predicted with certainty and will be influenced by various factors, including the abilityliquidity position and long-term capital requirements of ARO. ARO has not made a cash distribution of earnings to make repaymentsits partners since its formation. See "Note 5 - Equity Method Investment in ARO" to our condensed consolidated financial statements included in "Item 1. Financial Statements" for additional information on our investment in ARO and notes receivable from ARO.

The following table summarizes the maturity schedule 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 September 30, 2017, we were in compliance in all material respects with our covenants under the Credit Facility. We had no amounts outstanding under the Credit Facilitynotes receivable from ARO as of SeptemberJune 30, 2017 and December 31, 2016.2021 (in millions):


Our access to credit and capital markets depends on the credit ratings assigned to our debt. 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 available options when accessing credit and capital markets, or when restructuring or refinancing 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. With a credit rating below investment grade, we have no access to the commercial paper market.
Maturity DatePrincipal Amount
October 2027$265.0 
October 2028177.7 
Total$442.7 


Other Financing

We filed an automatically effective shelf registration statement on Form S-3 with the U.S. Securities and Exchange Commission on January 15, 2015, which provides us the ability to issue debt securities, equity securities, guarantees and/or units of securities in one or more offerings. The registration statement, as amended, expires in January 2018.

During 2013, our shareholders approved a new share repurchase program. Subject to certain provisions under English law, including the requirement of Ensco plc to have sufficient distributable reserves, we may repurchase shares up to a maximum of $2.0 billion in the aggregate under the program, but in no case more than 35.0 million shares. As of September 30, 2017, no shares have been repurchased under the program. The program terminates in May 2018.

From time to time, we and our affiliates may repurchase our outstanding senior notes in the open market, in privately negotiated transactions, through tender offers, exchange offers or otherwise, or we may redeem senior notes that are able to be redeemed, pursuant to their terms. In connection with any exchange, we may issue equity, issue new debt and/or pay cash consideration. Any future repurchases, exchanges or redemptions will depend on various factors existing at that time. There can be no assurance as to which, if any, of these alternatives (or combinations thereof) we may choose to pursue in the future. There can be no assurance that an active trading market will exist for our outstanding senior notes following any such transactions.


Other Commitments

We have other commitments that we are contractually obligated to fulfill with cash under certain circumstances. As of SeptemberJune 30, 2017,2021, we were contingently liable for an aggregate amount of $83.5$114.4 million under outstanding letters of credit and surety bonds which guarantee our performance as it relates to our drilling contracts, contract bidding, customs duties, tax appeals and other obligations in various jurisdictions. Obligations under these letters of credit and surety bonds are not normally called, as we typically comply with the underlying performance requirement. As of SeptemberJune 30, 2017,2021, we were not required to make anyhad collateral deposits in the amount of $37.4 million with respect to these agreements.


Liquidity
Our liquidity position is summarized in the table below (in millions, except ratios):
 
Pro Forma
September 30, 2017
 September 30,
2017
 December 31,
2016
Cash and cash equivalents$724.4
 $724.4
 $1,159.7
Short-term investments$202.1
 $1,069.8
 $1,442.6
Working capital$1,228.3
 $1,972.8
 $2,424.9
Current ratio3.3
 5.0
 3.8

The pro forma amounts reflect the impact of the Merger as if it occurred on September 30, 2017. Upon closing of the Merger,In connection with our 50/50 joint venture with ARO, 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. Pro forma working capital and current ratio reflects the aforementioned, in addition to other current assets acquired and current liabilities assumed of $175.3 million and $59.3 million, respectively.

We expecthave a potential obligation to fund our short-term liquidity needs, including contractual obligations and anticipatedARO for newbuild jackup rigs. ARO has plans to purchase 20 newbuild jackup rigs over an approximate 10 year period. In January 2020, ARO ordered the first two newbuild jackups with delivery scheduled in 2022. In the event ARO has insufficient cash from operations or is unable to obtain third-party financing, each partner may periodically be required to make additional capital expenditures, as well as working capital requirements,contributions to ARO, up to a maximum aggregate contribution of $1.25 billion from our cash and cash equivalents, short-term investments, operating cash flows and, if necessary, funds borrowed under our revolving credit facility.

We expecteach partner to fund our long-term liquidity needs, including contractual obligations and anticipated capital expenditures, from our operating cash flows and, if necessary, funds borrowed under our revolving credit facility or other future financing arrangements.

We may decide to access debt and/or equity markets to raise additional capital or increase liquidity as necessary. 
MARKET RISK
We use derivatives to reduce our exposure to foreign currency exchange rate risk. Our functional currency is the U.S. dollar. As is customarynewbuild program. Each partner's commitment shall be reduced by the actual cost of each newbuild rig, on a proportionate basis. See "Note 5 - Equity Method Investment 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. 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 utilize cash flow hedges to hedge forecasted foreign currency denominated transactions, primarily to reduce our exposure to foreign currency exchange rate risk on future expected contract drilling expenses and capital expenditures denominated in various foreign currencies. 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. As of September 30, 2017, we had cash flow hedges outstanding to exchange an aggregate $164.0 million for various foreign currencies.



We have net assets and liabilities denominated in numerous foreign currencies and use various strategies to manage our exposure to changes in foreign currency exchange rates. We occasionally enter into derivatives that hedge the fair value of recognized foreign currency denominated assets or liabilities, thereby reducing exposure to earnings fluctuations caused by changes in foreign currency exchange rates. We 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 September 30, 2017, we held derivatives not designated as hedging instruments to exchange an aggregate $137.1 million for various foreign currencies.

If we were to incur a hypothetical 10% adverse change in foreign currency exchange rates, net unrealized losses associated with our foreign currency denominated assets and liabilities as of September 30, 2017 would approximate $15.1 million. Approximately $13.7 million of these unrealized losses would be offset by corresponding gains on the derivatives utilized to offset changes in the fair value of net assets and liabilities denominated in foreign currencies.

We utilize derivatives and undertake foreign currency exchange rate hedging activities in accordance with our established policies for the management of market risk. We mitigate our credit risk relating to derivative counterparties through a variety of techniques, including transacting with multiple, high-quality financial institutions, thereby limiting our exposure to individual counterparties and by entering into ISDA Master Agreements, which include provisions for a legally enforceable master netting agreement, with our derivative counterparties. The terms of the ISDA agreements may also include credit support requirements, cross default provisions, termination events or set-off provisions. Legally enforceable master netting agreements reduce credit risk by providing protection in bankruptcy in certain circumstances and generally permitting the closeout and netting of transactions with the same counterparty upon the occurrence of certain events.

We do not enter into derivatives for trading or other speculative purposes. We believe that our use of derivatives and related hedging activities reduces our exposure to foreign currency exchange rate risk and does not expose us to material credit risk or any other material market risk. All of our derivatives mature during the next 18 months. See Note 4ARO" to our condensed consolidated financial statements included in "Item 1. Financial Statements" for additional information on our derivative instruments.joint venture with ARO.

We review from time to time possible acquisition opportunities relating to our business, which may include the acquisition of rigs or other businesses. The timing, size or success of any acquisition efforts and the associated potential capital commitments are unpredictable and uncertain. We may seek to fund all or part of any such efforts with cash on hand and proceeds from debt and/or equity issuances and may issue equity directly to the sellers. Our ability to obtain capital for additional projects to implement our growth strategy over the longer term will depend on our future operating performance, financial condition and, more broadly, on the availability of equity and debt financing. Capital availability will be affected by prevailing conditions in our industry, the global economy, the global financial markets and other factors, many of which are beyond our control. In addition, any additional debt service requirements we take on could be based on higher interest rates and shorter maturities and could impose a significant burden on our results of operations and financial condition, and the issuance of additional equity securities could result in significant dilution to shareholders.

Recent Tax Assessments

During 2019, the Australian tax authorities issued aggregate tax assessments totaling approximately A$101.0 million (approximately $75.7 million converted at current period-end exchange rates) plus interest related to the examination of certain of our tax returns for the years 2011 through 2016. During the third quarter of 2019,
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we made a A$42.0 million payment (approximately $29 million at then-current exchange rates) to the Australian tax authorities to litigate the assessment. We have a $18.0 million liability for unrecognized tax benefits relating to these assessments as of June 30, 2021. We believe our tax returns are materially correct as filed, and we are vigorously contesting these assessments. Although the outcome of such assessments and related administrative proceedings cannot be predicted with certainty, we do not expect these matters to have a material adverse effect on our financial position, operating results and cash flows.

Guarantees of Registered Securities

The First Lien Notes issued by Valaris have been fully and unconditionally guaranteed, jointly and severally, on a senior secured basis, by certain of the direct and indirect subsidiaries (the “Guarantors”) of Valaris under the First Lien Notes Indenture governing the First Lien Notes (the “Guarantees”). The First Lien Notes and Guarantees are secured by liens on the collateral, including, among other things, subject to certain agreed security principles, (i) first-priority perfected liens on 100% of the equity interests of each restricted subsidiary directly owned by Valaris or any Guarantor and (ii) a first-priority perfected lien on substantially all assets of Valaris and each Guarantor, in each case subject to certain exceptions and limitations (collectively, the “Collateral”). We are providing the following information about the Guarantors and the Collateral in compliance with Rules 13-01 and 13-02 of Regulation S-X.

First Lien Note Guarantees

The Guarantees are joint and several senior secured obligations of each Guarantor and rank equally in right of payment with existing and future senior indebtedness of such Guarantor and effectively senior to such Guarantor’s existing and future indebtedness (i) that is not secured by a lien on the Collateral securing the First Lien Notes, or (ii) that is secured by a lien on the Collateral securing the First Lien Notes ranking junior to the liens securing the First Lien Notes. The Guarantees rank effectively junior to such Guarantor’s existing and future secured indebtedness (i) that is secured by a lien on the Collateral that is senior or prior to the lien securing the First Lien Notes, or (ii) that is secured by liens on assets that are not part of the Collateral, to the extent of the value of such assets. The Guarantees rank equally with such Guarantor’s existing and future indebtedness that is secured by first-priority liens on the Collateral and senior in right of payment to any existing and future subordinated indebtedness of such Guarantor. The Guarantees are structurally subordinated to all existing and future indebtedness and other liabilities of any non-Guarantors, including trade payables (other than indebtedness and liabilities owed to such Guarantor).

Under the First Lien Notes Indenture, a Guarantor may be automatically and unconditionally released and relieved of its obligations under its guarantee under certain circumstances, including: (1) in connection with any sale, transfer or other disposition (including by merger, consolidation, distribution, dividend or otherwise) of all or substantially all of the assets of such Guarantor to a person that is not the Company or a restricted subsidiary, if such sale, transfer or other disposition is conducted in accordance with the applicable terms of the First Lien Notes Indenture, (2) in connection with any sale, transfer or other disposition (including by merger, consolidation, amalgamation, distribution, dividend or otherwise) of all of the capital stock of any Guarantor, if such sale, transfer or other disposition is conducted in accordance with the applicable terms of the First Lien Notes Indenture, (3) upon Valaris’s exercise of legal defeasance, covenant defeasance or discharge under the First Lien Notes Indenture, (4) unless an event of default has occurred and is continuing, upon the dissolution or liquidation of a Guarantor in accordance with the First Lien Notes Indenture, and (5) if such Guarantor is properly designated as an unrestricted subsidiary, in each case in accordance with the provisions of the First Lien Notes Indenture.

Valaris conducts its operations primarily through its subsidiaries. As a result, its ability to pay principal and interest on the First Lien Notes is dependent on the cash flow generated by its subsidiaries and their ability to make such cash available to Valaris by dividend or otherwise. The Guarantors’ earnings will depend on their financial and operating performance, which will be affected by general economic, industry, financial, competitive, operating, legislative, regulatory and other factors beyond Valaris’s control. Any payments of dividends, distributions, loans or advances to Valaris by the Guarantors could also be subject to restrictions on dividends under applicable local law
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in the jurisdictions in which the Guarantors operate. In the event that Valaris does not receive distributions from the Guarantors, or to the extent that the earnings from, or other available assets of, the Guarantors are insufficient, Valaris may be unable to make payments on the First Lien Notes.

Pledged Securities of Affiliates

Pursuant to the terms of the First Lien Notes collateral documents, the Collateral Agent under the First Lien Notes Indenture may pursue remedies, or pursue foreclosure proceedings on the Collateral (including the equity of the Guarantors and other direct subsidiaries of Valaris and the Guarantors), following an event of default under the First Lien Notes Indenture. The Collateral Agent’s ability to exercise such remedies is limited by the intercreditor agreement for so long as any priority lien debt is outstanding.

The combined value of the affiliates whose securities are pledged as Collateral constitutes substantially all of the Company’s value, including assets, liabilities and results of operations. As such, the assets, liabilities and results of operations of the combined affiliates whose securities are pledged as Collateral are not materially different than the corresponding amounts presented in the consolidated financial statements of the Company. The value of the pledged equity is subject to fluctuations based on factors that include, among other things, general economic conditions and the ability to realize on the Collateral as part of a going concern and in an orderly fashion to available and willing buyers and outside of distressed circumstances. There is no trading market for the pledged equity interests.

Under the terms of the First Lien Notes Indenture and the other documents governing the obligations with respect to the First Lien Notes (the “Notes Documents”), Valaris and the Guarantors will be entitled to the release of the Collateral from the liens securing the First Lien Notes under one or more circumstances, including (1) upon full and final payment of any such obligations; (2) to the extent that proceeds continue to constitute Collateral, in the event that Collateral is sold, transferred, disbursed or otherwise disposed of in accordance with the Notes Documents; (3) upon Valaris’s exercise of legal defeasance, covenant defeasance or discharge under the First Lien Notes Indenture; (4) with respect to vessels, certain specified events permitting release of the mortgage with respect to such vessels under the First Lien Notes Indenture; (5) with the consent of the requisite holders under the First Lien Notes Indenture; (6) with respect to equity interests in restricted subsidiaries that incur permitted indebtedness, if such equity interests shall secure such other indebtedness and the same is permitted under the terms of the First Lien Notes Indenture; and (7) as provided in the intercreditor agreement. The collateral agency agreement also provides for release of the Collateral from the liens securing the Notes under the above described circumstances (but including additional requirements for release in relation to all of the documents governing the indebtedness that is secured by first-priority liens on the Collateral, in addition to the First Lien Notes Indenture). Upon the release of any subsidiary from its guarantee, if any, in accordance with the terms of the First Lien Notes Indenture, the lien on any pledged equity interests issued by such Guarantor and on any assets of such Guarantor will automatically terminate.

Summarized Financial Information

The summarized financial information below reflects the combined accounts of the Guarantors and Valaris (collectively, the “Obligors”), for the dates and periods indicated. The financial information is presented on a combined basis and intercompany balances and transactions between entities in the Obligor group have been eliminated.

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Summarized Balance Sheet Information:
SuccessorPredecessor
(in millions)June 30,
2021
December 31, 2020
ASSETS
Current assets$1,134.2 $901.8 
Amounts due from non-guarantor subsidiaries, current744.3 756.5 
Amounts due from related party, current16.1 20.5 
Noncurrent assets1,014.5 10,514.5 
Amounts due from non-guarantor subsidiaries, noncurrent1,472.5 4,879.2 
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities354.9 369.4 
Amounts due from non-guarantor subsidiaries, current62.0 865.5 
Long Term Debt544.8 — 
Noncurrent liabilities463.8 653.4 
Amounts due from non-guarantor subsidiaries, noncurrent2,255.9 7,848.6 
Noncontrolling interest.9 (4.4)


Summarized Statement of Operations Information:
SuccessorPredecessor
(in millions)Two Months Ended June 30, 2021One Month Ended April 30, 2021Three Months Ended June 30, 2020
Operating revenues$216.6 $80.5 $411.8 
Operating revenues from related party10.8 5.4 20.7 
Operating costs and expenses192.5 126.3 1,382.4 
Reorganization expense(4.1)(3,532.4)— 
Income (loss) from continuing operations before income taxes173.8 (3,487.9)(914.2)
Net income (loss) attributable to noncontrolling interest(2.1)(.8)1.3 
Net income (loss)171.7 (3,488.7)(912.9)


SuccessorPredecessor
(in millions)Two Months Ended June 30, 2021Four Months Ended April 30, 2021Six Months Ended June 30, 2020
Operating revenues$216.6 $384.1 $830.9 
Operating revenues from related party10.8 23.1 50.5 
Operating costs and expenses192.5 1,262.2 4,812.0 
Reorganization expense(4.1)(3,584.1)— 
Income (loss) from continuing operations before income taxes173.8 (4,337.0)(3,757.7)
Net income (loss) attributable to noncontrolling interest(2.1)(3.2)2.8 
Net income (loss)171.7 (4,340.2)(3,754.9)


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CRITICAL ACCOUNTING POLICIES


The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires us to make estimates, judgments and assumptions that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. Our significant accounting policies are included in Note 1 to our audited consolidated financial statements for the year ended December 31, 20162020, included in our annual report on Form 10-K filed with the SEC on February 28, 2017.March 2, 2021. These policies, along with our underlying judgments and assumptions made in their application, have a significant impact on our condensed consolidated financial statements.


We identify our critical accounting policies as those that are the most pervasive and important to the portrayal of our financial position and operating results and that require the most difficult, subjective and/or complex judgments by management regarding estimates in matters that are inherently uncertain. Our critical accounting policies are those related to property and equipment, impairment of long-lived assetsproperty and equipment, income taxes.taxes and pension and other post-retirement benefits. For a discussion of the critical accounting policies and estimates that we use in the preparation of our condensed consolidated financial statements, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates" in Part II of our annual report on Form 10-K for the year ended December 31, 2016,2020.Concurrent with our emergence from bankruptcy, we adopted fresh start accounting and elected to change the accounting policies related to property and equipment as well as materials and supplies. See "Note 1, Unaudited Condensed Consolidated Financial Statements" to our condensed consolidated financial statements included in addition to supplemental disclosure regarding impairment of long-lived assets set forth in"Part I, Item 2 of our quarterly report on Form 10-Q1. Financial Statements" for the quarter ended June 30, 2017.more information.



New Accounting Pronouncements

See Note 1 - Unaudited Condensed Consolidated Financial Statements to our condensed consolidated financial statements included in "Item 1. Financial Statements" for information on new accounting pronouncements.


Item 3.   Quantitative and Qualitative Disclosures About Market Risk
 
Information required under Item 3. has been incorporated into "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Market Risk."Not applicable.


Item 4.   Controls and Procedures

Evaluation of Disclosure Controls and Procedures – We have established disclosure controls and procedures to ensure that the information required to be disclosed by us in the reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and made known to the officers who certify the Company’s financial reports and to other members of senior management and the Board of Directors as appropriate to allow timely decisions regarding required disclosure.

We have appropriately implemented Financial Accounting Standards Board Accounting Standard Codification Topic No. 852 – Reorganizations (“ASC 852”), during the quarter and have prepared the Condensed Consolidated Financial Statements and disclosures in accordance with ASC 852.

Based on their evaluation as of the end of the period covered by this quarterly report on Form 10-Q,June 30, 2021, our Chief Executive Officerprincipal executive officer and Chief Financial Officerprincipal financial officer have concluded that our disclosure controls and procedures as(as defined in Rule 13a-15Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934,Act) are effective.

Changes in Internal Controls During the fiscalsecond quarter ended September 30, 2017,of 2021, upon emergence from Chapter 11, we established controls over the application of fresh start accounting. Except for such application of fresh start accounting, there werehave been no material changes in our internal controlcontrols over financial reporting during the fiscal
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quarter ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION



Item 1.  Legal Proceedings

Brazil Internal InvestigationUMB Bank Lawsuit


Pride International LLC, formerly Pride International, Inc.On March 19, 2020, UMB Bank, National Association (“Pride”UMB”), the purported indenture trustee for four series of Valaris notes, filed a company we acquiredlawsuit in 2011, commenced drilling operationsHarris County District Court in Brazil in 2001. In 2008, Pride entered into a drilling services agreement with Petrobras (the "DSA") for ENSCO DS-5, a drillship ordered from Samsung Heavy Industries, a shipyard in South Korea ("SHI"). Beginning in 2006, Pride conducted periodic compliance reviews of its business with Petrobras,Houston, Texas. The lawsuit was filed against Valaris plc, two legacy Rowan entities, two legacy Ensco entities and after the acquisition of Pride, Ensco conducted similar compliance reviews.

We commenced a compliance review in early 2015 after media reports were released regarding ongoing investigations of various kickback and bribery schemes in Brazil involving Petrobras. While conducting our compliance review, we became aware of an internal audit report by Petrobras alleging irregularities in relation to the DSA. Upon learningindividual directors of the Petrobras internal audit report, our Audit Committee appointed independent counsel to lead an investigation into thetwo legacy Rowan entities. The complaint alleged, irregularities. Further, in Juneamong other things, breach of fiduciary duty, aiding and July 2015, we voluntarily contacted the SECabetting breach of fiduciary duty and the DOJ, respectively, to advise them of this matter and of our Audit Committee’s investigation. Independent counsel, under the direction of our Audit Committee, has substantially completed its investigation by reviewing and analyzing available documents and correspondence and interviewing current and former employees involved in the DSA negotiations and the negotiation of the ENSCO DS-5 construction contract with SHI (the "DS-5 Construction Contract").

To date, our Audit Committee has found no credible evidence that Pride or Ensco or any of their current or former employees were aware of or involved in any wrongdoing, and our Audit Committee has found no credible evidence linking Ensco or Pride to any illegal acts committed by our former marketing consultant who provided services to Pride and Enscofraudulent transfer in connection with certain intercompany transactions occurring after completion of the DSA. Independent counsel has continuedRowan merger and the Rowan entities’ guarantee of the Predecessor’s now terminated Revolving Credit Facility. In addition to providean unspecified amount of damages, the SEClawsuit sought to void and DOJ with updatesundo all historical transfers of cash or other assets from legacy Rowan entities to Valaris and its other subsidiaries and the internal reorganization transaction. On August 18, 2020, Valaris and certain of its affiliates entered into the restructuring support agreement, including the noteholders that directed UMB to file the lawsuit. Under the restructuring support agreement, the lawsuit was stayed by agreement throughout the investigation, including detailed briefings regardingpendency of the bankruptcy proceeding unless the restructuring support agreement terminated at which point each party reserved its investigationrights to argue whether the case should proceed while in bankruptcy. On August 24, 2020, the parties filed a joint notice staying the case. Because the chapter 11 plan of reorganization was confirmed by the Bankruptcy Court and findings. We entered intowas consummated, the lawsuit was dismissed with prejudice.

Shareholder Class Action

On August 20, 2019, plaintiff Xiaoyuan Zhang, a one-year tolling agreement with the DOJ that expired in December 2016. We extended our tolling agreement with the SEC for 12 months until March 2018.

Subsequent to initiating our Audit Committee investigation, Brazilian court documents connected to the prosecution of former Petrobras directors and employees as well as certain other third parties, including our former marketing consultant, referenced the alleged irregularities cited in the Petrobras internal audit report. Our former marketing consultant has entered intopurported Valaris shareholder, filed a plea agreement with the Brazilian authorities. On January 10, 2016, Brazilian authorities filed an indictment against a former Petrobras director. This indictment states that the former Petrobras director received bribes paid out of proceeds from a brokerage agreement entered into for purposes of intermediating a drillship construction contract between SHI and Pride, which we believe to be the DS-5 Construction Contract. The parties to the brokerage agreement were a company affiliated with a person actingclass action lawsuit on behalf of Valaris shareholders against Valaris plc and certain of our executive officers, alleging violations of federal securities laws. After the former Petrobras director,court appointed a company affiliated with our former marketing consultant,lead plaintiff and SHI. The indictment allegeslead counsel, the case was stayed in light of the Valaris plc bankruptcy filing. Lead plaintiff submitted a general unsecured claim in Valaris plc’s chapter 11 case. On June 10, 2021, the Bankruptcy Court granted Valaris plc’s motion to subordinate the claim to a class that amounts paid by SHIwas not entitled to receive any recovery in the bankruptcy. On June 16, 2021, the Bankruptcy Court also granted Valaris plc’s motion to enforce the releases and injunction under its plan of reorganization and require lead plaintiff to dismiss the brokerage agreement ultimately were used to pay bribeslawsuit as to the former Petrobras director. The indictment does not state that Pride or Ensco or any of their current or former employees were involved in the bribery scheme or had any knowledge of the bribery scheme.

On January 4, 2016, we receivedremaining defendants. Accordingly, on July 8, 2021, lead plaintiff filed a notice from Petrobras declaring the DSA void effective immediately. Petrobras’ notice alleges that our former marketing consultant both received and procured improper payments from SHI for employees of Petrobras and that Pride had knowledgevoluntary dismissal of this activity and assisted in the procurement of and/or facilitated these improper payments. We disagreehis claims with Petrobras’ allegations. See "DSA Dispute" below for additional information.prejudice.




In August 2017, one of our Brazilian subsidiaries was contacted by the Office of the Attorney General for the Brazilian state of Paraná in connection with a criminal investigation procedure initiated against agents of both SHI and Pride in relation to the DSA.  The Brazilian authorities requested information regarding our compliance program and the findings of our internal investigations. We are cooperating with the Office of the Attorney General and have provided documents in response to their request.  We cannot predict the scope or ultimate outcome of this procedure or whether any other governmental authority will open an investigation into Pride’s involvement in this matter, or if a proceeding were opened, the scope or ultimate outcome of any such investigation. If the SEC or DOJ determines that violations of the FCPA have occurred, or if any governmental authority determines that we have violated applicable anti-bribery laws, they could seek civil and criminal sanctions, including monetary penalties, against us, as well as changes to our business practices and compliance programs, any of which could have a material adverse effect on our business and financial condition. Our customers, business partners and other stakeholders could seek to take actions adverse to our interests. Further, investigating and resolving such allegations is expensive and could consume significant management time and attention. Although our internal investigation is substantially complete, we cannot predict whether any additional allegations will be made or whether any additional facts relevant to the investigation will be uncovered during the course of the investigation and what impact those allegations and additional facts will have on the timing or conclusions of the investigation. Our Audit Committee will examine any such additional allegations and additional facts and the circumstances surrounding them.

DSA Dispute

As described above, on January 4, 2016, Petrobras sent a notice to us declaring the DSA void effective immediately, reserving its rights and stating its intention to seek any restitution to which it may be entitled. We disagree with Petrobras’ declaration that the DSA is void. We believe that Petrobras repudiated the DSA and have therefore accepted the DSA as terminated on April 8, 2016 (the "Termination Date"). At this time, we cannot reasonably determine the validity of Petrobras' claim or the range of our potential exposure, if any. As a result, there can be no assurance as to how this dispute will ultimately be resolved.

We did not recognize revenue for amounts owed to us under the DSA from the beginning of the fourth quarter of 2015 through the Termination Date as we concluded that collectability of these amounts was not reasonably assured. Additionally, our receivables from Petrobras related to the DSA from prior to the fourth quarter of 2015 are fully reserved in our condensed consolidated balance sheet as of September 30, 2017. We have initiated arbitration proceedings in the U.K. against Petrobras seeking payment of all amounts owed to us under the DSA, in addition to any other amounts to which we are entitled, and intend to vigorously pursue our claims. Petrobras subsequently filed a counterclaim seeking restitution of certain sums paid under the DSA less value received by Petrobras under the DSA. We have also initiated separate arbitration proceedings in the U.K. against SHI for any losses we have incurred in connection with the foregoing. SHI subsequently filed a statement of defense disputing our claim. There can be no assurance as to how these arbitration proceedings will ultimately be resolved.

Pride FCPA Investigation

During 2010, Pride and its subsidiaries resolved their previously disclosed investigations into potential violations of the U.S. Foreign Corrupt Practices Act of 1977 (the "FCPA") with the DOJ and SEC. The settlement with the DOJ included a deferred prosecution agreement (the "DPA") between Pride and the DOJ and a guilty plea by Pride Forasol S.A.S., one of Pride’s subsidiaries, to FCPA-related charges. During 2012, the DOJ moved to (i) dismiss the charges against Pride and end the DPA one year prior to its scheduled expiration; and (ii) terminate the unsupervised probation of Pride Forasol S.A.S. The Court granted the motions.

Pride has received preliminary inquiries from governmental authorities of certain countries referenced in its settlements with the DOJ and SEC. We could face additional fines, sanctions and other penalties from authorities in these and other relevant jurisdictions, including prohibition of our participating in or curtailment of business operations in certain jurisdictions and the seizure of rigs or other assets. At this stage of such inquiries, we are unable to determine what, if any, legal liability may result. Our customers in certain jurisdictions could seek to impose penalties or take other actions adverse to our business. We could also face other third-party claims by directors, officers, employees,


affiliates, advisors, attorneys, agents, stockholders, debt holders or other stakeholders. In addition, disclosure of the subject matter of the investigations and settlements could adversely affect our reputation and our ability to obtain new business or retain existing business, to attract and retain employees and to access the capital markets.

We cannot currently predict what, if any, actions may be taken by any other applicable government or other authorities or our customers or other third parties or the effect any such actions may have on our financial position, operating results or cash flows.

Environmental Matters
 
We are currently subject to pending notices of assessment relating to spills of drilling fluids, oil, brine, chemicals, grease or fuel from drilling rigs operating offshore Brazil from 2008 to 2016,2020, pursuant to which the governmental authorities have assessed, or are anticipated to assess, fines. We have contested these notices and appealed certain adverse decisions and are awaiting decisions in these cases. Although we do not expect final disposition of these assessments to have a material adverse effect on our financial position, operating results orand cash flows, there can be no assurance as to the ultimate outcome of these assessments. A $200,000$0.5 million liability related to these matters was included in accrued liabilities and other on our condensed consolidated balance sheetCondensed Consolidated Balance Sheet as of September 30, 2017.
We currently are subject to a pending administrative proceeding initiated during 2009 by a Spanish government authority seeking payment in an aggregate amount of approximately $3 million, for an alleged environmental spill originating from ENSCO 5006 while it was operating offshore Spain. Our customer has posted guarantees with the Spanish government to cover potential penalties. Additionally, we expect to be indemnified for any payments resulting from this incident by our customer under the terms of the drilling contract. A criminal investigation of the incident was initiated during 2010 by a prosecutor in Tarragona, Spain, and the administrative proceedings have been suspended pending the outcome of this investigation. We do not know at this time what, if any, involvement we may have in this investigation.
We intend to vigorously defend ourselves in the administrative proceeding and any criminal investigation. At this time, we are unable to predict the outcome of these matters or estimate the extent to which we may be exposed to any resulting liability. Although we do not expect final disposition of this matter to have a material adverse effect on our financial position, operating results or cash flows, there can be no assurance as to the ultimate outcome of the proceedings.

Atwood Merger

On June 23, 2017, a putative class action captioned Bernard Stern v. Atwood Oceanics, Inc., et al, was filed in the U.S. District Court for the Southern District of Texas against Atwood, Atwood’s directors, Ensco and Merger Sub. The Stern complaint generally alleges that Atwood and the Atwood directors disseminated a false or misleading registration statement on Form S-4 (the “Registration Statement”) on June 16, 2017, which omitted material information regarding the proposed Merger, in violation of Section 14(a) of the Exchange Act. Specifically, the Stern complaint alleges that Atwood and the Atwood directors omitted material information regarding the parties’ financial projections, the analysis performed by Atwood’s financial advisor, Goldman Sachs & Co. LLC (“Goldman Sachs”), in support of its fairness opinion, the timing and nature of communications regarding post-transaction employment of Atwood's directors and officers, potential conflicts of interest of Goldman Sachs, and whether there were further discussions with another potential acquirer of Atwood following the May 30, 2017 announcement of the Merger. The Stern complaint further alleges that the Atwood directors, Ensco and Merger Sub are liable for these violations as “control persons” of Atwood under Section 20(a) of the Exchange Act. With respect to Ensco, the Stern complaint alleges that Ensco had direct supervisory control over the composition of the Registration Statement. The Stern complaint seeks injunctive relief, including to enjoin the Merger, rescissory damages, and an award of attorneys’ fees in addition to other relief.



On June 27, 2017, June 29, 2017 and June 30, 2017, additional putative class actions captioned Joseph Composto v. Atwood Oceanics, Inc., et al, Booth Family Trust v. Atwood Oceanics, Inc., et al and Mary Carter v. Atwood Oceanics, Inc., et al, respectively, were filed in the U.S. District Court for the Southern District of Texas against Atwood and Atwood’s directors. These actions allege violations of Sections 14(a) and 20(a) of the Exchange Act by Atwood and Atwood’s directors similar to those alleged in the Stern complaint; however, neither Ensco plc nor Merger Sub is named as a defendant in these actions. On October 2, 2017, the actions were consolidated and the Stern matter was designated as the lead case. The plaintiffs subsequently voluntarily dismissed the actions.2021.


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Other Matters


In addition to the foregoing, we are named defendants or parties in certain other lawsuits, claims or proceedings incidental to our business and are involved from time to time as parties to governmental investigations or proceedings, including matters related to taxation, arising in the ordinary course of business. Although the outcome of such lawsuits or other proceedings cannot be predicted with certainty and the amount of any liability that could arise with respect to such lawsuits or other proceedings cannot be predicted accurately, we do not expect these matters to have a material adverse effect on our financial position, operating results or cash flows.

Item 1A.Risk Factors

There are numerous factors that affect our business and results of operations, many of which are beyond our control. In addition to information set forth in this quarterly report, you should carefully read and consider "Item 1A. Risk Factors" in Part I and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II of our annual report on Form 10-K for the year ended December 31, 2016, as well as “Item 1A. Risk Factors” in Part II of our quarterly report on Form 10-Q for the quarter ended June 30, 2017, each of2020, which contains descriptions of significant risks that mightmay cause our actual results of operations in future periods to differ materially from those currently anticipated or expected. There have been no material changes from the risks previously disclosed in our annual report on Form 10-K for the year ended December 31, 2016, except as set forth below and in our quarterly report on Form 10-Q for the quarter ended June 30, 2017.


We may not achieve the intended resultsrecently emerged from the Merger, and we may not be able to successfully integrate our operations with Atwood after the Merger. Failure to successfully integrate Atwoodbankruptcy, which may adversely affect our future results,business and consequently,relationships.

It is possible that our having filed for bankruptcy and our recent emergence from the valueChapter 11 Cases may adversely affect our business and relationships with our vendors, suppliers, service providers, customers, employees and other third parties. Many risks exist as a result of the Chapter 11 Cases and our emergence, including the following:

we may have difficulty obtaining acceptable and sufficient financing to execute our business plan;
key suppliers, vendors and customers, may among other things, renegotiate the terms of our shares.agreements, attempt to terminate their relationship with us or require financial assurances from us;

our ability to renew existing contracts and obtain new contracts on reasonably acceptable terms and conditions may be adversely affected;
our ability to attract, motivate and retain key employees and executives may be adversely affected; and
competitors may take business away from us, and our ability to compete for new business and attract and retain customers may be negatively impacted.

The occurrence of one or more of these events could have a material and adverse effect on our operations, financial condition and reputation. We consummated the Merger with the expectationcannot assure you that it would result in various benefits, including, among others, the expansion of our asset base and creation of synergies. We closed the Merger on October 6, 2016, however, achieving the anticipated benefits of the Merger ishaving been subject to a number of uncertainties, including whether the Atwood business can be integrated in an efficient and effective manner.
While we have successfully merged companies intobankruptcy protection will not adversely affect our operations in the past,future.

Our actual financial results after emergence from bankruptcy may not be comparable to our projections filed with the integration processBankruptcy Court in the course of the Chapter 11 Cases.

In connection with the disclosure statement we filed with the Bankruptcy Court and the hearing to consider confirmation of the plan of reorganization, we prepared projected financial information to demonstrate to the Bankruptcy Court the feasibility of the plan of reorganization and our ability to continue operations upon our emergence from the Chapter 11 Cases. Those projections were prepared solely for the purpose of the Chapter 11 Cases and have not been and will not be updated and should not be relied upon by investors. At the time they were prepared, the projections reflected numerous assumptions concerning our anticipated future performance with respect to then prevailing and anticipated market and economic conditions that were and remain beyond our control and that may not materialize. We have not reviewed the projections or the assumptions on which they were based after our emergence. Projections are inherently subject to substantial and numerous uncertainties and to a wide variety of significant business, economic and competitive risks, and the assumptions underlying the projections or valuation estimates may prove to be wrong in material respects. Actual results may vary significantly from those contemplated by the projections. As a result, investors should not rely on these projections.
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Our historical financial information will not be indicative of future financial performance as a result of the implementation of the plan of reorganization and the transactions contemplated thereby, as well as our application of fresh start accounting following emergence.

Our capital structure was significantly impacted by the plan of reorganization. Under fresh start accounting rules that we applied on the Effective Date, assets and liabilities will be adjusted to fair values and our accumulated deficit will be reset to zero. Accordingly, as a result of the application of fresh start accounting, our financial condition and results of operations following emergence from the Chapter 11 Cases will not be comparable to the financial condition and results of operations reflected in our historical financial statements on or prior to the Effective Date.

The exercise of all or any number of outstanding warrants or the issuance of stock-based awards may dilute the holders of our common shares.

On the Effective Date, we issued 75,000,000 common shares and 5,645,161 Warrants to purchase 5,645,161 common shares at an exercise price of $131.88 per share, exercisable for a seven years period commencing on that date. Additionally, on May 3, 2021, our board of directors approved and ratified the Valaris Limited 2021 Management Incentive Plan (the “MIP”) and reserved 8,960,573 of our common shares for issuance under awards to be made under the MIP primarily for employees and directors. The grant of equity awards in the future, any exercise of the Warrants into common shares and any sale of common shares underlying outstanding Warrants would have a dilutive effect to the holdings of our existing shareholders and could take longer than anticipatedhave an adverse effect on the market for our common shares, including the price that an investor could obtain for their common shares.

Our ability to make payments due on our debt depends on many factors beyond our control.

Our ability to pay our operating and capital expenses and make payments due on our debt depends on our future performance, which will be affected by financial, business, economic, legislative and other factors, many of which are beyond our control. The First Lien Notes contain payment-in-kind interest provisions, which reduce the cash needed to pay interest while increasing the principal amount of First Lien Notes that ultimately must be retired with a cash payment. Our business may not generate sufficient cash flow from operations in the future, which could result in our being unable to repay indebtedness or to fund other liquidity needs. A range of economic, competitive, business and industry factors will affect our future financial performance, and many of these factors, such as the loss of valuable employees, the disruptioneconomic and financial condition of our ongoingindustry, the global economy and initiatives of its competitors, are beyond our control. If we do not generate enough cash flow from operations to satisfy our debt obligations, we may have to undertake alternative financing plans, such as:

selling assets;
reducing or delaying capital investments;
seeking to raise additional capital; or
restructuring or refinancing all or a portion of our indebtedness at or before maturity.

We cannot assure you that we will be able to accomplish any of these alternatives on terms acceptable to us or at all. In addition, the terms of existing or future debt agreements may restrict us from adopting any of these alternatives. The failure to generate sufficient cash flow or to achieve any of these alternatives could materially adversely affect our ability to pay the amounts due under our debt.

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The indenture governing the First Lien Notes contains operating and financial restrictions that restrict our business processes and systemsfinancing activities and could limit our growth.

The primary restrictive covenants contained in the indenture governing the First Lien Notes limit our ability to, among other things:

incur additional indebtedness;
sell or inconsistenciesconvey assets;
make loans to or investments in others;
enter into mergers;
make certain payments;
incur liens; and
pay dividends.

We may also be prevented from taking advantage of business opportunities that arise because of the limitations that the restrictive covenants imposed on us by the indenture.

Increased scrutiny from stakeholders and others regarding our ESG practices and reporting responsibilities could result in additional costs or risks and adversely impact our business and reputation.

Environmental, Social and Governance (ESG) matters have been the subject of increased focus by investors, investment funds and other market and industry participants, as well as certain regulators, including in the U.S. and the EU. We publish an annual Sustainability Report, which includes disclosure of our ESG practices and goals. We anticipate that we will publish our 2020 Sustainability Report in September 2021. Our disclosures on these matters or a failure to meet these goals or evolving stakeholder expectations for ESG practices and reporting may potentially harm our reputation and impact employee retention, customer relationships and access to capital. By electing to set and share publicly our corporate ESG standards, controls, procedures, practices, policiesour business may also face increased scrutiny related to ESG activities. As ESG best-practices and compensation arrangements,reporting standards continue to develop, we may incur increasing costs related ESG monitoring and reporting and complying with ESG initiatives.

We are a Bermuda company and it may be difficult to enforce judgments against us or our directors and executive officers.

We are a Bermuda exempted company. As a result, the rights of holders of our common shares are governed by Bermuda law and our memorandum of association and bye-laws. The rights of shareholders under Bermuda law may differ from the rights of shareholders of companies incorporated in other jurisdictions. Some of our directors and officers are not residents of the United States, and a substantial portion of our assets are located outside the United States. As a result, it may be difficult for investors to effect service of process on those persons in the United States or to enforce in the United States judgments obtained in U.S. courts against us or those persons based on the civil liability provisions of the U.S. securities laws. It is doubtful whether courts in Bermuda will enforce judgments obtained in other jurisdictions, including the United States, against us or our directors or officers under the securities laws of those jurisdictions or entertain actions in Bermuda against us or our directors or officers under the securities laws of other jurisdictions.

Our bye-laws restrict shareholders from bringing legal action against our officers and directors.

Our bye-laws contain a broad waiver by our shareholders of any claim or right of action, both individually and on our behalf, against any of our officers or directors. The waiver applies to any action taken by an officer or director, or the failure of an officer or director to take any action, in the performance of his or her duties, except with respect to any matter involving any fraud or dishonesty on the part of the officer or director. This waiver limits the right of shareholders to assert claims against our officers and directors unless the act or failure to act involves fraud or dishonesty.

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Legislation enacted in Bermuda as to Economic Substance may affect our operations.

Pursuant to the Economic Substance Act 2018 (as amended) of Bermuda (the “ES Act”) that came into force on January 1, 2019, a registered entity other than an entity which is resident for tax purposes in certain jurisdictions outside Bermuda (“non-resident entity”) that carries on as a business any one or more of the “relevant activities” referred to in the ES Act must comply with economic substance requirements. The ES Act may require in-scope Bermuda entities which are engaged in such “relevant activities” to be directed and managed in Bermuda, have an adequate level of qualified employees in Bermuda, incur an adequate level of annual expenditure in Bermuda, maintain physical offices and premises in Bermuda or perform core income-generating activities in Bermuda. The list of “relevant activities” includes carrying on any one or more of: banking, insurance, fund management, financing, leasing, headquarters, shipping, distribution and service center, intellectual property and holding entities. The ES Act could affect the manner in which we operate our business, which could adversely affect our ability to achieve the anticipated benefitsbusiness, financial condition and results of the Merger. Our combined operationsoperations.

Provisions in our bye-laws could be adversely affected by issues attributable to Atwood’s historical operations that arosedelay or are based on events or actions that occurred prior to the completion of the Merger. In addition, integrating Atwood’s employees and operations will require the time and attention of management, which may negatively impact our business. Events outsideprevent a change in control of our control, including changes in regulation and laws as well as economic trends,company, which could adversely affect the price of our common shares.

The existence of some provisions in our bye-laws could delay or prevent a change in control of our company that a shareholder may consider favorable, which could adversely affect the price of our common shares. Certain provisions of our bye-laws could make it more difficult for a third party to acquire control of our company, even if the change of control would be beneficial to our shareholders. These provisions include:

authority of our board to determine its size;
the ability of our board of directors to issue preferred shares without shareholder approval;
limitations on the removal of directors; and
limitations on the ability of our shareholders to act by written consent in lieu of a meeting.

In addition, our bye-laws establish advance notice provisions for shareholder proposals and nominations for elections to the board of directors to be acted upon at meetings of shareholders.

Our current backlog of contract drilling revenue may not be fully realized and may decline significantly in the future.

As of August 2, 2021, our contract backlog was approximately $2.2 billion and $1.0 billion as of December 31, 2020. This amount reflects the remaining contractual terms multiplied by the applicable contractual day rate. The contractual revenue may be higher than the actual revenue we ultimately receive because of a number of factors, including rig downtime or suspension of operations. Several factors could cause rig downtime or a suspension of operations, many of which are beyond our control, including:

•the early termination, repudiation or renegotiation of contracts,
•breakdowns of equipment,
•work stoppages, including labor strikes,
•shortages of material or skilled labor,
•surveys by government and maritime authorities,
•periodic classification surveys,
•severe weather, strong ocean currents or harsh operating conditions,
•the occurrence or threat of epidemic or pandemic diseases and any government response to such occurrence or threat, and
•force majeure events.

Our customers may seek to terminate, repudiate or renegotiate our drilling contracts for various reasons, including in the event of a total loss of the drilling rig, the suspension or interruption of operations for extended periods due to breakdown of major rig equipment, failure to comply with performance conditions or equipment specifications, "force majeure" events, the failure of the customer to receive final investment decision (FID) with
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respect to projects for which the drilling rig was contracted or other specified events. Generally, our drilling contracts permit early termination of the contract by the customer for convenience (without cause), exercisable upon advance notice to us, and in certain cases without making an early termination payment to us. There can be no assurances that our customers will be able to or willing to fulfill their contractual commitments to us.

The decline in oil prices and the resulting downward pressure on utilization has caused and may continue to cause some customers to consider early termination of select contracts despite having to pay onerous early termination fees in certain cases. Customers may continue to request to renegotiate the terms of existing contracts, or they may request early termination or seek to repudiate contracts in some circumstances. Furthermore, as our existing contracts expire, we may be unable to secure new contracts for our rigs. Therefore, revenues recorded in future periods could differ materially from our current backlog. Our inability to realize the expected benefits from the Merger.full amount of our contract backlog may have a material adverse effect on our financial position, operating results or cash flows.





Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds
 
The following table below provides a summary of our repurchases of our equity securities during the quarter ended SeptemberJune 30, 2017:2021:
Issuer Repurchases of Equity Securities
 
 
 
 
 
 
 
Period
Total Number of Securities Repurchased(1)
Average Price Paid per Security
Total Number of Securities Repurchased as Part of Publicly Announced Plans or Programs (3)
Approximate Dollar Value of Securities that May Yet Be Repurchased Under Plans or Programs (3)
April 1 - April 30 (2)
1,057 $0.07 — $500,000,000 
May 1 - May 31— $— — — 
June 1 - June 30— $— — — 
Total 1,057 $0.07 —  

(1)During the month of April 2021, equity securities were repurchased from employees and non-employee directors by an affiliated employee benefit trust in connection with the settlement of income tax withholding obligations arising from the vesting of share awards. 

(2)On the Effective Date and pursuant to the terms of the plan of reorganization, all Legacy Valaris ordinary shares were cancelled. Furthermore, all agreements, instruments and other documents evidencing, relating or otherwise connected with any of Legacy Valaris' equity interests outstanding prior to the Effective Date, including all equity-based awards, were cancelled.

(3)Since the Effective Date, we have not had, and currently do not have, a share repurchase program in place.

Item 6.   Exhibits
Issuer Purchases of Equity Securities
 
 
 
 
 
 
 
Period
Total Number of Securities Purchased(1)
 Average Price Paid per Security 
Total Number of Securities Purchased as Part of Publicly Announced Plans or Programs (2)   
 Approximate Dollar Value of Securities that May Yet Be Purchased Under Plans or Programs
        
July 1 - July 311,701
 $4.69
 
 $2,000,000
August 1 - August 312,491
 $5.25
 
 $2,000,000
September 1 - September 303,136
 $4.53
 
 $2,000,000
Total 7,328
 $4.81
 
  

(1)
During the quarter ended September 30, 2017, equity securities were repurchased from employees and non-employee directors by an affiliated employee benefit trust in connection with the settlement of income tax withholding obligations arising from the vesting of share awards.  Such securities remain available for re-issuance in connection with employee share awards.

(2)
During 2013, our shareholders approved a new 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. As of September 30, 2017, no shares have been repurchased under the program.The program terminates in May 2018.



Item 6.   Exhibits

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4.1
4.2
10.1
*12.110.2
*15.110.3
*31.110.4
10.5
10.6
*10.7
*10.8
*31.1
*31.2
**32.1
**32.2
*101.INSXBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
*101.SCHInline XBRL Taxonomy Extension Schema Document
*101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
*101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
*101.LABInline XBRL Taxonomy Extension Label Linkbase Document
*101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
*104The cover page of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, formatted in Inline XBRL (included with Exhibit 101 attachments).
*   Filed herewith.
** Furnished herewith.



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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
Valaris Limited
Date:August 3, 2021/s/ JONATHAN H. BAKSHT
Jonathan H. Baksht
Executive Vice President and
Chief Financial Officer
(principal financial officer)
Ensco plc/s/ COLLEEN W. GRABLE
Date: October 26, 2017/s/ JONATHAN H. BAKSHT
Jonathan H. Baksht
Senior Vice President and
Chief Financial Officer
(principal financial officer)
/s/ TOMMY E. DARBY  
Tommy E. Darby
Colleen W. Grable
Controller

(principal accounting officer)



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