QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
England and Wales | 98-0635229 | |||||||||||||||||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||||||||
6 Chesterfield Gardens | ||||||||||||||||||||
London, | England | W1J 5BQ | ||||||||||||||||||
(Address of principal executive offices) | (Zip Code) |
Title of each class | Ticker Symbol(s) | Name of each exchange on which on which registered | ||||||||||||
Class A ordinary shares, U.S. $0.40 par value | VAL | New York Stock Exchange | ||||||||||||
4.70% Senior Notes due 2021 | VAL21 | New York Stock Exchange | ||||||||||||
4.50% Senior Notes due 2024 | VAL24 | New York Stock Exchange | ||||||||||||
8.00% Senior Notes due 2024 | VAL24A | New York Stock Exchange | ||||||||||||
5.20% Senior Notes due 2025 | VAL25A | New York Stock Exchange | ||||||||||||
7.75% Senior Notes due 2026 | VAL26 | New York Stock Exchange | ||||||||||||
5.75% Senior Notes due 2044 | VAL44 | New York Stock Exchange |
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||||||||||||||||
Non-Accelerated filer | Smaller reporting company | |||||||||||||||||||
Emerging-growth company |
Three Months Ended March 31, | Three Months Ended September 30, | |||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||
OPERATING REVENUES | $ | 405.9 | $ | 417.0 | OPERATING REVENUES | $ | 551.3 | $ | 430.9 | |||||||||||||||
OPERATING EXPENSES | OPERATING EXPENSES | |||||||||||||||||||||||
Contract drilling (exclusive of depreciation) | 332.6 | 325.2 | Contract drilling (exclusive of depreciation) | 496.5 | 327.1 | |||||||||||||||||||
Loss on impairment | Loss on impairment | 88.2 | — | |||||||||||||||||||||
Depreciation | 125.0 | 115.2 | Depreciation | 163.0 | 120.6 | |||||||||||||||||||
General and administrative | 29.6 | 27.9 | General and administrative | 36.1 | 25.1 | |||||||||||||||||||
487.2 | 468.3 | |||||||||||||||||||||||
Total operating expenses | Total operating expenses | 783.8 | 472.8 | |||||||||||||||||||||
EQUITY IN EARNINGS OF ARO | EQUITY IN EARNINGS OF ARO | (3.7) | — | |||||||||||||||||||||
OPERATING LOSS | (81.3 | ) | (51.3 | ) | OPERATING LOSS | (236.2) | (41.9) | |||||||||||||||||
OTHER INCOME (EXPENSE) | OTHER INCOME (EXPENSE) | |||||||||||||||||||||||
Interest income | 3.5 | 3.0 | Interest income | 6.7 | 3.6 | |||||||||||||||||||
Interest expense, net | (81.0 | ) | (65.6 | ) | Interest expense, net | (113.9) | (72.2) | |||||||||||||||||
Other, net | 2.3 | (8.1 | ) | Other, net | 147.4 | (9.1) | ||||||||||||||||||
(75.2 | ) | (70.7 | ) | 40.2 | (77.7) | |||||||||||||||||||
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | (156.5 | ) | (122.0 | ) | ||||||||||||||||||||
LOSS BEFORE INCOME TAXES | LOSS BEFORE INCOME TAXES | (196.0) | (119.6) | |||||||||||||||||||||
PROVISION FOR INCOME TAXES | PROVISION FOR INCOME TAXES | |||||||||||||||||||||||
Current income tax expense | 25.6 | 7.1 | ||||||||||||||||||||||
Deferred income tax expense | 5.9 | 11.3 | ||||||||||||||||||||||
Current income tax expense (benefit) | Current income tax expense (benefit) | 22.6 | (5.7) | |||||||||||||||||||||
Deferred income tax expense (benefit) | Deferred income tax expense (benefit) | (21.1) | 29.0 | |||||||||||||||||||||
31.5 | 18.4 | 1.5 | 23.3 | |||||||||||||||||||||
LOSS FROM CONTINUING OPERATIONS | (188.0 | ) | (140.4 | ) | ||||||||||||||||||||
LOSS FROM DISCONTINUED OPERATIONS, NET | — | (.1 | ) | |||||||||||||||||||||
NET LOSS | (188.0 | ) | (140.5 | ) | NET LOSS | (197.5) | (142.9) | |||||||||||||||||
NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS | (2.4 | ) | .4 | NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS | .4 | (2.1) | ||||||||||||||||||
NET LOSS ATTRIBUTABLE TO ENSCOROWAN | $ | (190.4 | ) | $ | (140.1 | ) | ||||||||||||||||||
LOSS PER SHARE - BASIC AND DILUTED | ||||||||||||||||||||||||
Continuing operations | $ | (1.75 | ) | $ | (1.29 | ) | ||||||||||||||||||
Discontinued operations | — | — | ||||||||||||||||||||||
NET LOSS ATTRIBUTABLE TO VALARIS | NET LOSS ATTRIBUTABLE TO VALARIS | $ | (197.1) | $ | (145.0) | |||||||||||||||||||
$ | (1.75 | ) | $ | (1.29 | ) | |||||||||||||||||||
LOSS PER SHARE - BASIC AND DILUTED | LOSS PER SHARE - BASIC AND DILUTED | $ | (1.00) | $ | (1.34) | |||||||||||||||||||
WEIGHTED-AVERAGE SHARES OUTSTANDING | WEIGHTED-AVERAGE SHARES OUTSTANDING | |||||||||||||||||||||||
Basic and Diluted | 108.7 | 108.4 | Basic and Diluted | 197.6 | 108.6 |
Nine Months Ended September 30, | |||||||||||||||||
2019 | 2018 | ||||||||||||||||
OPERATING REVENUES | $ | 1,541.1 | $ | 1,306.4 | |||||||||||||
OPERATING EXPENSES | |||||||||||||||||
Contract drilling (exclusive of depreciation) | 1,329.4 | 996.6 | |||||||||||||||
Loss on impairment | 90.7 | — | |||||||||||||||
Depreciation | 445.9 | 356.5 | |||||||||||||||
General and administrative | 146.9 | 79.1 | |||||||||||||||
Total operating expenses | 2,012.9 | 1,432.2 | |||||||||||||||
EQUITY IN EARNINGS OF ARO | (3.1) | — | |||||||||||||||
OPERATING LOSS | (474.9) | (125.8) | |||||||||||||||
OTHER INCOME (EXPENSE) | |||||||||||||||||
Interest income | 22.1 | 10.5 | |||||||||||||||
Interest expense, net | (313.2) | (213.5) | |||||||||||||||
Other, net | 853.4 | (30.2) | |||||||||||||||
562.3 | (233.2) | ||||||||||||||||
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | 87.4 | (359.0) | |||||||||||||||
PROVISION FOR INCOME TAXES | |||||||||||||||||
Current income tax expense | 69.4 | 21.5 | |||||||||||||||
Deferred income tax expense (benefit) | (3.8) | 44.9 | |||||||||||||||
65.6 | 66.4 | ||||||||||||||||
INCOME (LOSS) FROM CONTINUING OPERATIONS | 21.8 | (425.4) | |||||||||||||||
LOSS FROM DISCONTINUED OPERATIONS, NET | — | (8.1) | |||||||||||||||
NET INCOME (LOSS) | 21.8 | (433.5) | |||||||||||||||
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | (3.8) | (2.6) | |||||||||||||||
NET INCOME (LOSS) ATTRIBUTABLE TO VALARIS | $ | 18.0 | $ | (436.1) | |||||||||||||
EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED | |||||||||||||||||
Continuing operations | $ | 0.10 | $ | (3.94) | |||||||||||||
Discontinued operations | — | (0.08) | |||||||||||||||
$ | 0.10 | $ | (4.02) | ||||||||||||||
WEIGHTED-AVERAGE SHARES OUTSTANDING | |||||||||||||||||
Basic and Diluted | 165.2 | 108.5 |
Three Months Ended September 30, | |||||||||||||||||
2019 | 2018 | ||||||||||||||||
NET LOSS | $ | (197.5) | $ | (142.9) | |||||||||||||
OTHER COMPREHENSIVE LOSS, NET | |||||||||||||||||
Net change in derivative fair value | (5.7) | (1.9) | |||||||||||||||
Reclassification of net losses on derivative instruments from other comprehensive loss into net loss | 4.9 | .7 | |||||||||||||||
Other | (.2) | (.1) | |||||||||||||||
NET OTHER COMPREHENSIVE LOSS | (1.0) | (1.3) | |||||||||||||||
COMPREHENSIVE LOSS | (198.5) | (144.2) | |||||||||||||||
COMPREHENSIVE (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS | .4 | (2.1) | |||||||||||||||
COMPREHENSIVE LOSS ATTRIBUTABLE TO VALARIS | $ | (198.1) | $ | (146.3) |
Three Months Ended March 31, | |||||||
2019 | 2018 | ||||||
NET LOSS | $ | (188.0 | ) | $ | (140.5 | ) | |
OTHER COMPREHENSIVE INCOME (LOSS), NET | |||||||
Net change in fair value of derivatives | — | 1.9 | |||||
Reclassification of net (gains) losses on derivative instruments from other comprehensive income into net income | 1.6 | (2.2 | ) | ||||
Other | (.1 | ) | (.1 | ) | |||
NET OTHER COMPREHENSIVE INCOME (LOSS) | 1.5 | (.4 | ) | ||||
COMPREHENSIVE LOSS | (186.5 | ) | (140.9 | ) | |||
COMPREHENSIVE (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS | (2.4 | ) | .4 | ||||
COMPREHENSIVE LOSS ATTRIBUTABLE TO ENSCOROWAN | $ | (188.9 | ) | $ | (140.5 | ) |
March 31, 2019 | December 31, 2018 | ||||||
(Unaudited) | |||||||
ASSETS | |||||||
CURRENT ASSETS | |||||||
Cash and cash equivalents | $ | 298.4 | $ | 275.1 | |||
Short-term investments | 245.0 | 329.0 | |||||
Accounts receivable, net | 313.7 | 344.7 | |||||
Other | 354.8 | 360.9 | |||||
Total current assets | 1,211.9 | 1,309.7 | |||||
PROPERTY AND EQUIPMENT, AT COST | 15,368.6 | 15,517.0 | |||||
Less accumulated depreciation | 2,859.7 | 2,900.8 | |||||
Property and equipment, net | 12,508.9 | 12,616.2 | |||||
OTHER ASSETS | 142.2 | 97.8 | |||||
$ | 13,863.0 | $ | 14,023.7 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||
CURRENT LIABILITIES | |||||||
Accounts payable - trade | $ | 214.2 | $ | 210.5 | |||
Accrued liabilities and other | 302.7 | 318.0 | |||||
Total current liabilities | 516.9 | 528.5 | |||||
LONG-TERM DEBT | 5,018.5 | 5,010.4 | |||||
OTHER LIABILITIES | 427.3 | 396.0 | |||||
COMMITMENTS AND CONTINGENCIES | |||||||
ENSCOROWAN SHAREHOLDERS' EQUITY | |||||||
Class A ordinary shares, U.S. $.40 par value, 115.2 million shares issued as of March 31, 2019 and December 31, 2018 | 46.1 | 46.1 | |||||
Class B ordinary shares, £1 par value, 50,000 shares authorized and issued as of March 31, 2019 and December 31, 2018 | .1 | .1 | |||||
Additional paid-in capital | 7,230.2 | 7,225.0 | |||||
Retained earnings | 679.3 | 874.2 | |||||
Accumulated other comprehensive income | 19.7 | 18.2 | |||||
Treasury shares, at cost, 5.9 million shares as of March 31, 2019 and December 31, 2018 | (74.9 | ) | (72.2 | ) | |||
Total EnscoRowan shareholders' equity | 7,900.5 | 8,091.4 | |||||
NONCONTROLLING INTERESTS | (0.2 | ) | (2.6 | ) | |||
Total equity | 7,900.3 | 8,088.8 | |||||
$ | 13,863.0 | $ | 14,023.7 |
Nine Months Ended September 30, | |||||||||||||||||
2019 | 2018 | ||||||||||||||||
NET INCOME (LOSS) | $ | 21.8 | $ | (433.5) | |||||||||||||
OTHER COMPREHENSIVE INCOME (LOSS), NET | |||||||||||||||||
Net change in derivative fair value | (7.3) | (7.6) | |||||||||||||||
Reclassification of net (gains) losses on derivative instruments from other comprehensive income (loss) into net income (loss) | 8.3 | (2.2) | |||||||||||||||
Other | (.3) | (.4) | |||||||||||||||
NET OTHER COMPREHENSIVE INCOME (LOSS) | .7 | (10.2) | |||||||||||||||
COMPREHENSIVE INCOME (LOSS) | 22.5 | (443.7) | |||||||||||||||
COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | (3.8) | (2.6) | |||||||||||||||
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO VALARIS | $ | 18.7 | $ | (446.3) |
September 30, 2019 | December 31, 2018 | |||||||||||||||||||
(Unaudited) | ||||||||||||||||||||
ASSETS | ||||||||||||||||||||
CURRENT ASSETS | ||||||||||||||||||||
Cash and cash equivalents | $ | 129.5 | $ | 275.1 | ||||||||||||||||
Short-term investments | — | 329.0 | ||||||||||||||||||
Accounts receivable, net | 567.0 | 344.7 | ||||||||||||||||||
Other current assets | 487.5 | 360.9 | ||||||||||||||||||
Total current assets | 1,184.0 | 1,309.7 | ||||||||||||||||||
PROPERTY AND EQUIPMENT, AT COST | 18,392.9 | 15,517.0 | ||||||||||||||||||
Less accumulated depreciation | 3,142.2 | 2,900.8 | ||||||||||||||||||
Property and equipment, net | 15,250.7 | 12,616.2 | ||||||||||||||||||
LONG-TERM NOTES RECEIVABLE FROM ARO | 452.9 | — | ||||||||||||||||||
INVESTMENT IN ARO | 138.2 | — | ||||||||||||||||||
OTHER ASSETS | 204.8 | 97.8 | ||||||||||||||||||
$ | 17,230.6 | $ | 14,023.7 | |||||||||||||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||||||||||||
CURRENT LIABILITIES | ||||||||||||||||||||
Accounts payable - trade | $ | 326.4 | $ | 210.5 | ||||||||||||||||
Accrued liabilities and other | 407.7 | 318.0 | ||||||||||||||||||
Current maturities of long-term debt | 125.5 | — | ||||||||||||||||||
Total current liabilities | 859.6 | 528.5 | ||||||||||||||||||
LONG-TERM DEBT | 6,042.3 | 5,010.4 | ||||||||||||||||||
OTHER LIABILITIES | 798.2 | 396.0 | ||||||||||||||||||
COMMITMENTS AND CONTINGENCIES | ||||||||||||||||||||
VALARIS SHAREHOLDERS' EQUITY | ||||||||||||||||||||
Class A ordinary shares, U.S. $.40 par value, 205.8 million and 115.2 million shares issued as of September 30, 2019 and December 31, 2018 | 82.4 | 46.1 | ||||||||||||||||||
Class B ordinary shares, £1 par value, 50,000 shares authorized and issued as of September 30, 2019 and December 31, 2018 | .1 | .1 | ||||||||||||||||||
Additional paid-in capital | 8,617.5 | 7,225.0 | ||||||||||||||||||
Retained earnings | 887.7 | 874.2 | ||||||||||||||||||
Accumulated other comprehensive income | 18.9 | 18.2 | ||||||||||||||||||
Treasury shares, at cost, 7.9 million and 5.9 million shares as of September 30, 2019 and December 31, 2018 | (75.2) | (72.2) | ||||||||||||||||||
Total Valaris shareholders' equity | 9,531.4 | 8,091.4 | ||||||||||||||||||
NONCONTROLLING INTERESTS | (0.9) | (2.6) | ||||||||||||||||||
Total equity | 9,530.5 | 8,088.8 | ||||||||||||||||||
$ | 17,230.6 | $ | 14,023.7 |
Three Months Ended March 31, | Nine Months Ended September 30, | |||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||
OPERATING ACTIVITIES | OPERATING ACTIVITIES | |||||||||||||||||||||||
Net loss | $ | (188.0 | ) | $ | (140.5 | ) | ||||||||||||||||||
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | ||||||||||||||||||||||||
Net income (loss) | Net income (loss) | $ | 21.8 | $ | (433.5) | |||||||||||||||||||
Adjustments to reconcile net income (loss) to net cash used in operating activities of continuing operations: | Adjustments to reconcile net income (loss) to net cash used in operating activities of continuing operations: | |||||||||||||||||||||||
Gain on bargain purchase | Gain on bargain purchase | (659.8) | (1.8) | |||||||||||||||||||||
Depreciation expense | 125.0 | 115.2 | Depreciation expense | 445.9 | 356.5 | |||||||||||||||||||
(Gain) loss on extinguishment of debt | (Gain) loss on extinguishment of debt | (194.1) | 19.0 | |||||||||||||||||||||
Loss on impairment | Loss on impairment | 90.7 | — | |||||||||||||||||||||
Share-based compensation expense | Share-based compensation expense | 28.7 | 21.6 | |||||||||||||||||||||
Amortization, net | (14.5 | ) | (16.8 | ) | Amortization, net | (18.1) | (30.7) | |||||||||||||||||
Share-based compensation expense | 7.8 | 8.4 | ||||||||||||||||||||||
Deferred income tax expense | 5.9 | 11.3 | ||||||||||||||||||||||
Loss on debt extinguishment | — | 18.8 | ||||||||||||||||||||||
Gain on bargain purchase | — | (16.6 | ) | |||||||||||||||||||||
Contributions to pension plans | Contributions to pension plans | (8.0) | — | |||||||||||||||||||||
Deferred income tax expense (benefit) | Deferred income tax expense (benefit) | (3.8) | 44.9 | |||||||||||||||||||||
Equity in earnings of ARO | Equity in earnings of ARO | 3.1 | — | |||||||||||||||||||||
Loss from discontinued operations, net | Loss from discontinued operations, net | — | 8.1 | |||||||||||||||||||||
Other | 1.4 | (2.1 | ) | Other | 13.4 | (5.3) | ||||||||||||||||||
Changes in operating assets and liabilities | 38.0 | 61.8 | Changes in operating assets and liabilities | (147.3) | (61.0) | |||||||||||||||||||
Net cash (used in) provided by operating activities | (24.4 | ) | 39.5 | |||||||||||||||||||||
Net cash used in operating activities of continuing operations | Net cash used in operating activities of continuing operations | (427.5) | (82.2) | |||||||||||||||||||||
INVESTING ACTIVITIES | INVESTING ACTIVITIES | |||||||||||||||||||||||
Rowan cash acquired | Rowan cash acquired | 931.9 | — | |||||||||||||||||||||
Maturities of short-term investments | 204.0 | 390.0 | Maturities of short-term investments | 474.0 | 675.0 | |||||||||||||||||||
Additions to property and equipment | Additions to property and equipment | (174.2) | (378.7) | |||||||||||||||||||||
Purchases of short-term investments | (120.0 | ) | (349.0 | ) | Purchases of short-term investments | (145.0) | (669.0) | |||||||||||||||||
Additions to property and equipment | (29.0 | ) | (269.3 | ) | ||||||||||||||||||||
Other | .3 | .1 | Other | 4.9 | 10.0 | |||||||||||||||||||
Net cash provided by (used in) investing activities | 55.3 | (228.2 | ) | |||||||||||||||||||||
Net cash provided by (used in) investing activities of continuing operations | Net cash provided by (used in) investing activities of continuing operations | 1,091.6 | (362.7) | |||||||||||||||||||||
FINANCING ACTIVITIES | FINANCING ACTIVITIES | |||||||||||||||||||||||
Reduction of long-term borrowings | Reduction of long-term borrowings | (928.1) | (771.2) | |||||||||||||||||||||
Borrowings on credit facility | Borrowings on credit facility | 175.0 | — | |||||||||||||||||||||
Repayments of credit facility borrowings | Repayments of credit facility borrowings | (34.4) | — | |||||||||||||||||||||
Debt solicitation fees | Debt solicitation fees | (9.4) | — | |||||||||||||||||||||
Cash dividends paid | (4.5 | ) | (4.5 | ) | Cash dividends paid | (4.5) | (13.4) | |||||||||||||||||
Proceeds from issuance of senior notes | — | 1,000.0 | Proceeds from issuance of senior notes | — | 1,000.0 | |||||||||||||||||||
Reduction of long-term borrowings | — | (771.0 | ) | |||||||||||||||||||||
Debt financing costs | — | (16.8 | ) | |||||||||||||||||||||
Debt issuance costs | Debt issuance costs | — | (17.0) | |||||||||||||||||||||
Other | (2.8 | ) | (1.2 | ) | Other | (7.7) | (4.7) | |||||||||||||||||
Net cash (used in) provided by financing activities | (7.3 | ) | 206.5 | |||||||||||||||||||||
Net cash provided by (used in) financing activities | Net cash provided by (used in) financing activities | (809.1) | 193.7 | |||||||||||||||||||||
Net cash provided by discontinued operations | — | 2.5 | Net cash provided by discontinued operations | — | 2.5 | |||||||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | (.3 | ) | (.3 | ) | Effect of exchange rate changes on cash and cash equivalents | (.6) | (.7) | |||||||||||||||||
INCREASE IN CASH AND CASH EQUIVALENTS | 23.3 | 20.0 | ||||||||||||||||||||||
DECREASE IN CASH AND CASH EQUIVALENTS | DECREASE IN CASH AND CASH EQUIVALENTS | (145.6) | (249.4) | |||||||||||||||||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 275.1 | 445.4 | CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 275.1 | 445.4 | |||||||||||||||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 298.4 | $ | 465.4 | CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 129.5 | $ | 196.0 |
September 30, 2019 | December 31, 2018 | ||||||||||
Current contract assets | $ | 10.7 | $ | 4.0 | |||||||
Current contract liabilities (deferred revenue) | $ | 24.6 | $ | 56.9 | |||||||
Noncurrent contract liabilities (deferred revenue) | $ | 11.7 | $ | 20.5 |
March 31, 2019 | December 31, 2018 | ||||||
Current contract assets | $ | 3.1 | $ | 4.0 | |||
Current contract liabilities (deferred revenue) | $ | 55.9 | $ | 56.9 | |||
Noncurrent contract liabilities (deferred revenue) | $ | 17.8 | $ | 20.5 |
Contract Assets | Contract Liabilities | ||||||||||
Balance as of December 31, 2018 | $ | 4.0 | $ | 77.4 | |||||||
Contract assets acquired and liabilities assumed in the Rowan Transaction | 8.4 | 5.3 | |||||||||
Revenue recognized in advance of right to bill customer | 0.3 | — | |||||||||
Increase due to cash received | — | 29.4 | |||||||||
Decrease due to amortization of deferred revenue that was included in the beginning contract liability balance | — | (52.1) | |||||||||
Decrease due to amortization of deferred revenue that was added during the period | — | (23.7) | |||||||||
Decrease due to transfer to receivables during the period | (2.0) | — | |||||||||
Balance as of September 30, 2019 | $ | 10.7 | $ | 36.3 |
Contract Assets | Contract Liabilities | ||||||
Balance as of December 31, 2018 | $ | 4.0 | $ | 77.4 | |||
Revenue recognized in advance of right to bill customer | .1 | — | |||||
Increase due to cash received | — | 22.3 | |||||
Decrease due to amortization of deferred revenue that was included in the beginning contract liability balance | — | (24.6 | ) | ||||
Decrease due to amortization of deferred revenue that was added during the period | — | (1.4 | ) | ||||
Decrease due to transfer to receivables during the period | (1.0 | ) | — | ||||
Balance as of March 31, 2019 | $ | 3.1 | $ | 73.7 |
Remaining 2019 | 2020 | 2021 | 2022 and Thereafter | Total | |||||||||||||||||||||||||
Amortization of contract liabilities | $ | 12.1 | $ | 12.9 | $ | 7.2 | $ | 4.1 | $ | 36.3 | |||||||||||||||||||
Amortization of deferred costs | $ | 12.1 | $ | 15.9 | $ | 3.3 | $ | 1.4 | $ | 32.7 |
Remaining 2019 | 2020 | 2021 | 2022 and Thereafter | Total | |||||||||||||||
Amortization of contract liabilities | $ | 52.4 | $ | 11.8 | $ | 7.7 | $ | 1.8 | $ | 73.7 | |||||||||
Amortization of deferred costs | $ | 25.4 | $ | 10.4 | $ | 2.7 | $ | 1.5 | $ | 40.0 |
Amounts Recognized as of Merger Date | Measurement Period Adjustments(1) | Estimated Fair Value | |||||||||||||||
Assets: | |||||||||||||||||
Cash and cash equivalents | $ | 931.9 | $ | — | $ | 931.9 | |||||||||||
Accounts receivable(2) | 207.1 | (2.6) | 204.5 | ||||||||||||||
Other current assets | 101.6 | — | 101.6 | ||||||||||||||
Long-term notes receivable from ARO | 454.5 | — | 454.5 | ||||||||||||||
Investment in ARO | 138.8 | 2.5 | 141.3 | ||||||||||||||
Property and equipment | 2,989.8 | (14.2) | 2,975.6 | ||||||||||||||
Other assets | 41.7 | (1.8) | 39.9 | ||||||||||||||
Liabilities: | |||||||||||||||||
Accounts payable and accrued liabilities | 259.4 | (0.3) | 259.1 | ||||||||||||||
Current portion of long-term debt | 203.2 | — | 203.2 | ||||||||||||||
Long-term debt | 1,910.9 | — | 1,910.9 | ||||||||||||||
Other liabilities | 376.3 | 37.2 | 413.5 | ||||||||||||||
Net assets acquired | 2,115.6 | (53.0) | 2,062.6 | ||||||||||||||
Less: Merger consideration | (1,402.8) | — | (1,402.8) | ||||||||||||||
Estimated bargain purchase gain | $ | 712.8 | $ | (53.0) | $ | 659.8 |
Estimated Fair Value | |||
Assets: | |||
Cash and cash equivalents | $ | 928.9 | |
Accounts receivable(1) | 199.1 | ||
Other current assets | 200.0 | ||
Long-term notes receivable from ARO | 454.5 | ||
Investment in ARO | 152.3 | ||
Property and equipment | 2,755.3 | ||
Other assets | 184.4 | ||
Liabilities: | |||
Accounts payable and accrued liabilities | 252.1 | ||
Current portion of long-term debt | 181.2 | ||
Long-term debt | 1,910.9 | ||
Other liabilities | 372.0 | ||
Net assets acquired | 2,158.3 | ||
Less: Transaction consideration | (1,404.6 | ) | |
Bargain purchase gain | $ | 753.7 |
(in millions, except per share amounts) | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||
2019(1) | 2018 | 2019(1) | 2018 | ||||||||||||||||||||||||||||||||
Revenues | $ | 552.0 | $ | 624.0 | $ | 1,729.5 | $ | 1,952.0 | |||||||||||||||||||||||||||
Net loss | $ | (151.1) | $ | (250.0) | $ | (795.2) | $ | (607.1) | |||||||||||||||||||||||||||
Loss per share - basic and diluted | $ | (0.53) | $ | (1.27) | $ | (3.14) | $ | (3.09) |
(in millions, except per share amounts) | Three Months Ended March 31, | ||||||
2019(1) | 2018 | ||||||
Revenues | $ | 580.4 | $ | 628.2 | |||
Net loss | $ | (271.6 | ) | $ | (191.4 | ) | |
Earnings per share - basic and diluted | $ | (1.38 | ) | $ | (0.97 | ) |
Three Months Ended September 30, 2019 | April 11 - September 30, 2019 | ||||||||||
Revenues | $ | 138.4 | $ | 262.2 | |||||||
Operating expenses | |||||||||||
Contract drilling (exclusive of depreciation) | 92.7 | 171.7 | |||||||||
Depreciation | 14.6 | 26.9 | |||||||||
General and administrative | 8.8 | 13.9 | |||||||||
Operating income | 22.3 | 49.7 | |||||||||
Other expense, net | 9.9 | 18.8 | |||||||||
Provision for income taxes | 2.2 | 3.8 | |||||||||
Net income | $ | 10.2 | $ | 27.1 |
September 30, 2019 | |||||
Current assets | $ | 452.8 | |||
Non-current assets | 887.1 | ||||
Total assets | $ | 1,339.9 | |||
232.4 | |||||
Non-current liabilities | 1,021.7 | ||||
Total liabilities | $ | 1,254.1 |
Three Months Ended September 30, 2019 | April 11 - September 30, 2019 | ||||||||||
50% interest in ARO net income | $ | 5.1 | $ | 13.6 | |||||||
Amortization of basis differences | (8.8) | (16.7) | |||||||||
Equity in earnings of ARO | $ | (3.7) | $ | (3.1) |
Three Months Ended September 30, 2019 | April 11 - September 30, 2019 | |||||||||||||
Lease revenue | $ | 19.9 | $ | 37.0 | ||||||||||
Secondment revenue | 17.9 | 33.5 | ||||||||||||
Transition Services revenue | 5.0 | 10.2 | ||||||||||||
Total revenue from ARO (1) | $ | 42.8 | $ | 80.7 | ||||||||||
Maturity Date | Principal Amount | ||||
October 2027 | $ | 275.2 | |||
October 2028 | 177.7 | ||||
Total | $ | 452.9 |
September 30, 2019 | |||||
Total assets | $ | 663.3 | |||
Less: total liabilities | 3.0 | ||||
Maximum exposure to loss | $ | 660.3 |
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, 2019 | |||||||||||||||||||||||
Supplemental executive retirement plan assets | $ | 25.1 | $ | — | $ | — | $ | 25.1 | |||||||||||||||
Total financial assets | $ | 25.1 | $ | — | $ | — | $ | 25.1 | |||||||||||||||
Derivatives, net | $ | — | $ | (7.9) | $ | — | $ | (7.9) | |||||||||||||||
Total financial liabilities | $ | — | $ | (7.9) | $ | — | $ | (7.9) | |||||||||||||||
As of December 31, 2018 | |||||||||||||||||||||||
Supplemental executive retirement plan assets | $ | 27.2 | $ | — | $ | — | $ | 27.2 | |||||||||||||||
Total financial assets | $ | 27.2 | $ | — | $ | — | $ | 27.2 | |||||||||||||||
Derivatives, net | $ | — | $ | (10.7) | $ | — | $ | (10.7) | |||||||||||||||
Total financial liabilities | $ | — | $ | (10.7) | $ | — | $ | (10.7) |
Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||
As of March 31, 2019 | |||||||||||||||
Supplemental executive retirement plan assets | $ | 29.3 | $ | — | $ | — | $ | 29.3 | |||||||
Total financial assets | $ | 29.3 | $ | — | $ | — | $ | 29.3 | |||||||
Derivatives, net | $ | — | $ | (6.9 | ) | $ | — | $ | (6.9 | ) | |||||
Total financial liabilities | $ | — | $ | (6.9 | ) | $ | — | $ | (6.9 | ) | |||||
As of December 31, 2018 | |||||||||||||||
Supplemental executive retirement plan assets | $ | 27.2 | $ | — | $ | — | $ | 27.2 | |||||||
Total financial assets | $ | 27.2 | $ | — | $ | — | $ | 27.2 | |||||||
Derivatives, net | $ | — | $ | (10.7 | ) | $ | — | $ | (10.7 | ) | |||||
Total financial liabilities | $ | — | $ | (10.7 | ) | $ | — | $ | (10.7 | ) |
September 30, 2019 | December 31, 2018 | ||||||||||||||||||||||||||||||||||
Carrying Value | Estimated Fair Value | Carrying Value | Estimated Fair Value | ||||||||||||||||||||||||||||||||
6.875% Senior notes due 2020 | $ | 125.5 | $ | 121.3 | $ | 127.5 | $ | 121.6 | |||||||||||||||||||||||||||
4.70% Senior notes due 2021 | 113.1 | 98.7 | 112.7 | 101.8 | |||||||||||||||||||||||||||||||
4.875% Senior notes due 2022(2) | 597.1 | 474.9 | — | — | |||||||||||||||||||||||||||||||
3.00% Exchangeable senior notes due 2024(1) | 691.0 | 573.4 | 666.8 | 575.5 | |||||||||||||||||||||||||||||||
4.50% Senior notes due 2024 | 301.9 | 170.5 | 619.8 | 405.2 | |||||||||||||||||||||||||||||||
4.75% Senior notes due 2024(2) | 274.3 | 197.9 | — | — | |||||||||||||||||||||||||||||||
8.00% Senior notes due 2024 | 296.0 | 195.4 | 337.0 | 273.7 | |||||||||||||||||||||||||||||||
7.375% Senior notes due 2025(2) | 328.1 | 214.1 | — | — | |||||||||||||||||||||||||||||||
5.20% Senior notes due 2025 | 331.6 | 180.3 | 664.4 | 443.9 | |||||||||||||||||||||||||||||||
7.75% Senior notes due 2026 | 986.6 | 541.9 | 985.0 | 725.5 | |||||||||||||||||||||||||||||||
7.20% Debentures due 2027 | 111.6 | 70.5 | 149.3 | 109.1 | |||||||||||||||||||||||||||||||
7.875% Senior notes due 2040 | 373.7 | 155.3 | 375.0 | 223.2 | |||||||||||||||||||||||||||||||
5.40% Senior notes due 2042(2) | 262.3 | 192.2 | — | — | |||||||||||||||||||||||||||||||
5.75% Senior notes due 2044 | 973.7 | 434.0 | 972.9 | 566.3 | |||||||||||||||||||||||||||||||
5.85% Senior notes due 2044(2) | 268.4 | 197.1 | — | — | |||||||||||||||||||||||||||||||
Amounts borrowed under credit facility(3) | 132.9 | 140.6 | — | — | |||||||||||||||||||||||||||||||
Total debt | $ | 6,167.8 | $ | 3,958.1 | $ | 5,010.4 | $ | 3,545.8 | |||||||||||||||||||||||||||
Less: current maturities | 125.5 | 121.3 | — | — | |||||||||||||||||||||||||||||||
Total long-term debt | $ | 6,042.3 | $ | 3,836.8 | $ | 5,010.4 | $ | 3,545.8 |
March 31, 2019 | December 31, 2018 | ||||||||||||||
Carrying Value | Estimated Fair Value | Carrying Value | Estimated Fair Value | ||||||||||||
6.875% senior notes due 2020 | $ | 126.9 | $ | 122.8 | $ | 127.5 | $ | 121.6 | |||||||
4.70% senior notes due 2021 | 112.9 | 108.5 | 112.7 | 101.8 | |||||||||||
3.00% exchangeable senior notes due 2024(1) | 674.7 | 655.5 | 666.8 | 575.5 | |||||||||||
4.50% senior notes due 2024 | 620.0 | 476.0 | 619.8 | 405.2 | |||||||||||
8.00% senior notes due 2024 | 336.7 | 305.1 | 337.0 | 273.7 | |||||||||||
5.20% senior notes due 2025 | 664.6 | 517.7 | 664.4 | 443.9 | |||||||||||
7.75% senior notes due 2026 | 985.6 | 849.8 | 985.0 | 725.5 | |||||||||||
7.20% debentures due 2027 | 149.4 | 121.1 | 149.3 | 109.1 | |||||||||||
7.875% senior notes due 2040 | 374.6 | 238.2 | 375.0 | 223.2 | |||||||||||
5.75% senior notes due 2044 | 973.1 | 648.2 | 972.9 | 566.3 | |||||||||||
Total | $ | 5,018.5 | $ | 4,042.9 | $ | 5,010.4 | $ | 3,545.8 |
Three Months Ended September 30, 2019 | April 11 to September 30, 2019 | |||||||||||||
Service cost (1) | $ | 0.5 | $ | 1.0 | ||||||||||
Interest cost (2) | 7.7 | 13.9 | ||||||||||||
Expected return on plan assets (2) | (9.4) | (17.6) | ||||||||||||
Net periodic pension cost | $ | (1.2) | $ | (2.7) |
Derivative Assets | Derivative Liabilities | Derivative Assets | Derivative Liabilities | |||||||||||||||||||||||||||||||||||||||||||||||
March 31, 2019 | December 31, 2018 | March 31, 2019 | December 31, 2018 | September 30, 2019 | December 31, 2018 | September 30, 2019 | December 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||
Derivatives Designated as Hedging Instruments | Derivatives Designated as Hedging Instruments | |||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency forward contracts - current(1) | $ | .2 | $ | .2 | $ | 5.1 | $ | 8.3 | Foreign currency forward contracts - current(1) | $ | — | $ | .2 | $ | 7.0 | $ | 8.3 | |||||||||||||||||||||||||||||||||
Foreign currency forward contracts - non-current(2) | .1 | — | .2 | .4 | Foreign currency forward contracts - non-current(2) | — | — | .4 | .4 | |||||||||||||||||||||||||||||||||||||||||
.3 | .2 | 5.3 | 8.7 | $ | — | $ | .2 | $ | 7.4 | $ | 8.7 | |||||||||||||||||||||||||||||||||||||||
Derivatives Not Designated as Hedging Instruments | Derivatives Not Designated as Hedging Instruments | |||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency forward contracts - current(1) | .2 | .4 | 2.1 | 2.6 | Foreign currency forward contracts - current(1) | $ | .3 | $ | .4 | $ | .8 | $ | 2.6 | |||||||||||||||||||||||||||||||||||||
Total | $ | .5 | $ | .6 | $ | 7.4 | $ | 11.3 | Total | $ | .3 | $ | .6 | $ | 8.2 | $ | 11.3 |
(1)Derivative assets and liabilities that have 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 that have maturity dates greater than twelve months from the respective balance sheet date were included in other assets and other liabilities, respectively, on our condensed consolidated balance sheets. |
Gain (Loss) Recognized in Other Comprehensive Income (Loss) ("OCI") (Effective Portion) | (Gain) Loss Reclassified from Accumulated Other Comprehensive Income ("AOCI") into Income (Effective Portion)(1) | Gain (Loss) Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing)(2) | |||||||||||||||||||||||||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest rate lock contracts(3) | $ | — | $ | — | $ | 1.7 | $ | (.1) | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||||||
Foreign currency forward contracts(4) | (5.7) | (1.9) | 3.2 | (.6) | — | (.3) | |||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | (5.7) | $ | (1.9) | $ | 4.9 | $ | (.7) | $ | — | $ | (.3) |
Gain (Loss) Recognized in Other Comprehensive Income (Loss) ("OCI") (Effective Portion) | (Gain) Loss Reclassified from Accumulated Other Comprehensive Income ("AOCI") into Income (Effective Portion)(1) | Loss Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing)(2) | |||||||||||||||||||||||||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest rate lock contracts(3) | $ | — | $ | — | $ | 1.8 | $ | (.2) | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||||||
Foreign currency forward contracts(5) | (7.3) | (7.6) | 6.5 | 2.4 | — | (1.5) | |||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | (7.3) | $ | (7.6) | $ | 8.3 | $ | 2.2 | $ | — | $ | (1.5) |
Gain Recognized in Other Comprehensive Income ("OCI") (Effective Portion) | (Gain) Loss Reclassified from Accumulated Other Comprehensive Income ("AOCI") into Income (Effective Portion)(1) | Loss Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing)(2) | |||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||
Interest rate lock contracts(3) | $ | — | $ | — | $ | .1 | $ | .1 | $ | — | $ | — | |||||||||||
Foreign currency forward contracts(4) | — | 1.9 | 1.5 | (2.3 | ) | — | (.2 | ) | |||||||||||||||
Total | $ | — | $ | 1.9 | $ | 1.6 | $ | (2.2 | ) | $ | — | $ | (.2 | ) |
September 30, 2019 | December 31, 2018 | ||||||||||
Drilling rigs and equipment | $ | 17,615.1 | $ | 14,542.5 | |||||||
Work-in-progress | 574.6 | 779.2 | |||||||||
Other | 203.2 | 195.3 | |||||||||
$ | 18,392.9 | $ | 15,517.0 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||||||||||||||||||||||
Income (loss) from continuing operations attributable to Valaris | $ | (197.1) | $ | (145.0) | $ | 18.0 | $ | (436.1) | |||||||||||||||||||||||||||
Income from continuing operations allocated to non-vested share awards(1) | — | (.2) | (.6) | (.4) | |||||||||||||||||||||||||||||||
Income (loss) from continuing operations attributable to Valaris shares | $ | (197.1) | $ | (145.2) | $ | 17.4 | $ | (436.5) |
2019 | 2018 | ||||||
Loss from continuing operations attributable to EnscoRowan | $ | (190.4 | ) | $ | (140.0 | ) | |
Income from continuing operations allocated to non-vested share awards | (.1 | ) | (.1 | ) | |||
Loss from continuing operations attributable to EnscoRowan shares | $ | (190.5 | ) | $ | (140.1 | ) |
Aggregate Principal Amount Repurchased | Aggregate Repurchase Price(1) | ||||||||||
4.50% Senior notes due 2024 | $ | 320.0 | $ | 240.0 | |||||||
5.20% Senior notes due 2025 | 335.5 | 250.0 | |||||||||
7.20% Senior notes due 2027 | 37.9 | 29.9 | |||||||||
4.75% Senior notes due 2024 | 79.5 | 61.2 | |||||||||
7.375% Senior notes due 2025 | 139.2 | 109.2 | |||||||||
8.00% Senior notes due 2024 | 39.7 | 33.8 | |||||||||
Total | $ | 951.8 | $ | 724.1 |
Shares | Par Value | Additional Paid-in Capital | Retained Earnings | AOCI | Treasury Shares | Non-controlling Interest | |||||||||||||||||||||||||||||||||||
BALANCE, December 31, 2018 | 115.2 | $ | 46.2 | $ | 7,225.0 | $ | 874.2 | $ | 18.2 | $ | (72.2) | $ | (2.6) | ||||||||||||||||||||||||||||
Net loss | — | — | — | (190.4) | — | — | 2.4 | ||||||||||||||||||||||||||||||||||
Dividends paid ($0.04 per share) | — | — | — | (4.5) | — | — | — | ||||||||||||||||||||||||||||||||||
Shares issued under share-based compensation plans, net | — | — | (.1) | — | — | .1 | — | ||||||||||||||||||||||||||||||||||
Repurchase of shares | — | — | — | — | — | (2.8) | — | ||||||||||||||||||||||||||||||||||
Share-based compensation cost | — | — | 5.3 | — | — | — | — | ||||||||||||||||||||||||||||||||||
Net other comprehensive income | — | — | — | — | 1.5 | — | — | ||||||||||||||||||||||||||||||||||
BALANCE, March 31, 2019 | 115.2 | $ | 46.2 | $ | 7,230.2 | $ | 679.3 | $ | 19.7 | $ | (74.9) | $ | (0.2) | ||||||||||||||||||||||||||||
Net income | — | — | — | 405.5 | — | — | 1.8 | ||||||||||||||||||||||||||||||||||
Equity issuance in connection with the Rowan Transaction | 88.0 | 35.2 | 1,365.5 | — | — | 2.1 | — | ||||||||||||||||||||||||||||||||||
Shares issued under share-based compensation plans, net | 2.6 | 1.1 | (1.1) | — | — | (.8) | — | ||||||||||||||||||||||||||||||||||
Repurchase of shares | — | — | — | — | — | (1.4) | — | ||||||||||||||||||||||||||||||||||
Share-based compensation cost | — | — | 13.8 | — | — | — | — | ||||||||||||||||||||||||||||||||||
Net other comprehensive income | — | — | — | — | .2 | — | — | ||||||||||||||||||||||||||||||||||
BALANCE, June 30, 2019 | 205.8 | $ | 82.5 | $ | 8,608.4 | $ | 1,084.8 | $ | 19.9 | $ | (75.0) | $ | 1.6 | ||||||||||||||||||||||||||||
Net loss | — | — | — | (197.1) | — | — | (.4) | ||||||||||||||||||||||||||||||||||
Equity issuance costs | — | — | (.6) | — | — | — | — | ||||||||||||||||||||||||||||||||||
Repurchase of shares | — | — | — | — | — | (.2) | — | ||||||||||||||||||||||||||||||||||
Share-based compensation cost | — | — | 9.7 | — | — | — | — | ||||||||||||||||||||||||||||||||||
Distributions to noncontrolling interests | — | — | — | — | — | — | (2.1) | ||||||||||||||||||||||||||||||||||
Net other comprehensive loss | — | — | — | — | (1.0) | — | — | ||||||||||||||||||||||||||||||||||
BALANCE, September 30, 2019 | 205.8 | $ | 82.5 | $ | 8,617.5 | $ | 887.7 | $ | 18.9 | $ | (75.2) | $ | (0.9) |
Shares | Par Value | Additional Paid-in Capital | Retained Earnings | AOCI | Treasury Shares | Non-controlling Interest | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Par Value | Additional Paid-in Capital | Retained Earnings | AOCI | Treasury Shares | Non-controlling Interest | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCE, December 31, 2018 | 115.2 | $ | 46.2 | $ | 7,225.0 | $ | 874.2 | $ | 18.2 | $ | (72.2 | ) | $ | (2.6 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCE, December 31, 2017 | BALANCE, December 31, 2017 | 111.8 | $ | 44.8 | $ | 7,195.0 | $ | 1,532.7 | $ | 28.6 | $ | (69.0) | $ | (2.1) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | Net loss | — | — | — | (140.1) | — | — | (.4) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends paid ($0.04 per share) | Dividends paid ($0.04 per share) | — | — | — | (4.4) | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cumulative-effect due to ASU 2018-02 | Cumulative-effect due to ASU 2018-02 | — | — | — | (.8) | .8 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares issued under share-based compensation plans, net | Shares issued under share-based compensation plans, net | — | — | (.1) | — | — | .1 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Repurchase of shares | Repurchase of shares | — | — | — | — | — | (1.1) | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation cost | Share-based compensation cost | — | — | 7.5 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net other comprehensive loss | Net other comprehensive loss | — | — | — | — | (.4) | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCE, March 31, 2018 | BALANCE, March 31, 2018 | 111.8 | $ | 44.8 | $ | 7,202.4 | $ | 1,387.4 | $ | 29.0 | $ | (70.0) | $ | (2.5) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | (190.4 | ) | — | — | 2.4 | Net loss | — | — | — | (151.0) | — | — | .9 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends paid ($0.04 per share) | — | — | — | (4.5 | ) | — | — | — | Dividends paid ($0.04 per share) | — | — | — | (4.4) | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
Shares issued under share-based compensation plans, net | — | — | (.1 | ) | — | — | .1 | — | Shares issued under share-based compensation plans, net | 3.4 | 1.4 | (.4) | — | — | (1.4) | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
Distributions to noncontrolling interests | Distributions to noncontrolling interests | — | — | — | — | — | — | (.7) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Repurchase of shares | — | — | — | — | — | (2.8 | ) | — | Repurchase of shares | — | — | — | — | — | (.6) | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation cost | — | — | 5.3 | — | — | — | — | Share-based compensation cost | — | — | 7.5 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Net other comprehensive income | — | — | — | — | 1.5 | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCE, March 31, 2019 | 115.2 | $ | 46.2 | $ | 7,230.2 | $ | 679.3 | $ | 19.7 | $ | (74.9 | ) | $ | (0.2 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Net other comprehensive loss | Net other comprehensive loss | — | — | — | — | (8.5) | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCE, June 30, 2018 | BALANCE, June 30, 2018 | 115.2 | $ | 46.2 | $ | 7,209.5 | $ | 1,232.0 | $ | 20.5 | $ | (72.0) | $ | (2.3) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | Net loss | — | — | — | (145.0) | — | — | 2.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends paid ($0.04 per share) | Dividends paid ($0.04 per share) | — | — | — | (4.5) | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Distributions to noncontrolling interests | Distributions to noncontrolling interests | — | — | — | — | — | — | (2.0) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Repurchase of shares | Repurchase of shares | — | — | (.1) | — | — | (.1) | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation cost | Share-based compensation cost | — | — | 7.2 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net other comprehensive loss | Net other comprehensive loss | — | — | — | — | (1.3) | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCE, September 30, 2018 | BALANCE, September 30, 2018 | 115.2 | $ | 46.2 | $ | 7,216.6 | $ | 1,082.5 | $ | 19.2 | $ | (72.1) | $ | (2.2) |
Shares | Par Value | Additional Paid-in Capital | Retained Earnings | AOCI | Treasury Shares | Non-controlling Interest | ||||||||||||||||||||
BALANCE, December 31, 2017 | 111.8 | $ | 44.8 | $ | 7,195.0 | $ | 1,532.7 | $ | 28.6 | $ | (69.0 | ) | $ | (2.1 | ) | |||||||||||
Net loss | — | — | — | (140.1 | ) | — | — | (.4 | ) | |||||||||||||||||
Dividends paid ($0.04 per share) | — | — | — | (4.4 | ) | — | — | — | ||||||||||||||||||
Cumulative-effect due to ASU 2018-02 | — | — | — | (.8 | ) | .8 | — | — | ||||||||||||||||||
Shares issued under share-based compensation plans, net | — | — | (.1 | ) | — | — | .1 | — | ||||||||||||||||||
Repurchase of shares | — | — | — | — | — | (1.1 | ) | — | ||||||||||||||||||
Share-based compensation cost | — | — | 7.5 | — | — | — | — | |||||||||||||||||||
Net other comprehensive loss | — | — | — | — | (.4 | ) | — | — | ||||||||||||||||||
BALANCE, March 31, 2018 | 111.8 | $ | 44.8 | $ | 7,202.4 | $ | 1,387.4 | $ | 29.0 | $ | (70.0 | ) | $ | (2.5 | ) |
Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2019 | ||||||||||
Long-term operating lease cost | $ | 8.3 | $ | 21.5 | |||||||
Short-term operating lease cost | 1.3 | 5.6 | |||||||||
Sublease income | (.7) | (1.7) | |||||||||
Total operating lease cost | $ | 8.9 | $ | 25.4 |
Three Months Ended March 31, 2019 | |||
Long-term operating lease cost | $ | 6.2 | |
Short-term operating lease cost | 3.1 | ||
Sublease income | (.4 | ) | |
Total operating lease cost | $ | 8.9 |
March 31, 2019 | |||
Operating lease right-of-use assets | $ | 47.9 | |
Current lease liability | $ | 17.9 | |
Long-term lease liability | 41.1 | ||
Total operating lease liabilities | $ | 59.0 | |
Weighted-average remaining lease term (in years) | 5.2 | ||
Weighted-average discount rate (1) | 8.71 | % |
September 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating lease right-of-use assets(1)
(1)The right-of-use assets include $12.2 million assumed in the Rowan Transaction. The current and long-term lease liabilities include $3.9 million and $10.6 million, respectively, assumed in the Rowan Transaction. (2)Represents our estimated incremental borrowing cost on a secured basis for similar terms as the underlying leases. For the Maturities of lease liabilities as of
37 Note 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 and Segment information for the three-month and nine-month periods ended September 30, 2019 and 2018 is presented below (in millions): Three Months Ended
Three Months Ended
38
Nine Months Ended September 30, 2018
Information about Geographic Areas As of
(1)The rigs included in the "Other" segment represent the 9 rigs leased to ARO. See Note 4 for additional information.
39 Note Accounts receivable, net, consisted of the following (in millions):
Other current assets consisted of the following (in millions):
Other assets consisted of the following (in millions):
40
Accrued liabilities and other consisted of the following (in millions):
Other liabilities consisted of the following (in millions):
Accumulated other comprehensive income consisted of the following (in millions):
Concentration of Risk We are exposed to credit risk related to our receivables from customers, our cash and cash equivalents 41 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 almost all of 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. See Consolidated revenues by customer for the
(3)During the three-month period ended September 30, 2019, 43% of the revenues provided by BP were attributable to our Jackups segment, 17% of the revenues were attributable to our Floaters segment and the remaining was attributable to our Other segment. During the three-month period ended September 30, 2018, 27% of the revenues provided by BP were attributable to our Jackups segment and the remainder was attributable to our Other segment. During the nine-month period ended September 30, 2019, 41% of the revenues provided by BP were attributable to our Jackups segment, 16% of the revenues were attributable to our Floaters segment and the remainder was attributable to our Other segment. During the nine-month period ended September 30, 2018, 33% of the revenues provided by BP were attributable to our Floaters segment, 18% of the revenues were attributable to our Jackups segment and the remainder was attributable to our Other segment. (4)During the three-month and nine-month periods ended September 30, 2019 and 2018, all revenues were attributable to our 42 Consolidated revenues by region for the three-month and nine-month periods ended September 30, 2019 and 2018 were as follows:
(1)During the three-month and nine-month periods ended September 30, 2019, 58% and 69% of the revenues earned in Saudi Arabia were attributable to our Jackups segment, respectively. The remaining revenues were attributable to our Other segment and related to our rigs leased to ARO and certain revenues related to our Transition Services Agreement and Secondment Agreement. During the three-month and nine-month periods ended September 30, 2018, all revenues earned in Saudi Arabia were attributable to our Jackups segment. (2)During the three-month period ended September 30, 2019, 52% of the revenues earned in the U.S. Gulf of Mexico were attributable to our Floaters segment, 22% were attributable to our Jackups segment and the remaining revenues were attributable to our Other segment. During the three-month period ended September 30, 2018, 35% of the revenues earned in U.S. Gulf of Mexico were attributable to our Floaters segment, 39% were attributable to our Jackups segment and the remaining revenues were attributable to our Other segment. During the nine-month period ended September 30, 2019, 40% of revenues in the U.S. Gulf of Mexico were attributable to our Floaters segment, 35% were attributable to our Jackups segment and the remaining revenues were attributable to our Other segment. During the nine-month period ended September 30, 2018, 36% of the revenues in the U.S. Gulf of Mexico were attributable to our Floaters segment, 38% were attributable to our Jackups segment and the remaining revenues were attributable to our Other segment. (3)During the three-month periods ended September 30, 2019 and 2018, 86% and 82% of the revenues earned in Angola were attributable to our Floaters segment, respectively, and the remaining revenues were attributable to our Jackups segment. During the nine-month periods ended September 30, 2019 and 2018, 87% of the revenues earned in Angola were attributable to our Floaters segment and the remaining revenues were attributable to our Jackups segment. (4)During the three-month and nine-month periods ended September 30, 2019 and 2018, all revenues earned in the United Kingdom were attributable to our Jackups segment. (5)During the three-month periods ended September 30, 2019 and 2018, 99% and 87% of the revenues earned in Australia, were attributable to our Floaters segment, and the remaining revenues were attributable to our Jackups segment. During the nine-month periods ended September 30, 2019 and 2018, 95% and 94% of the revenues earned in Australia were attributable to our Floaters segment, respectively, and the remaining revenues were attributable to our Jackups segment. 43 Note In connection with the Pride International LLC ("Pride") acquisition, Pride and Ensco International Incorporated are 100% owned subsidiaries of The following tables present the unaudited condensed consolidating statements of operations for the 44
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS Three Months Ended September 30, 2019 (In millions) (Unaudited)
45 VALARIS PLC AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS Three Months Ended September 30, 2018 (In millions) (Unaudited)
46 VALARIS PLC AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS Nine Months Ended September 30, 2019 (In millions) (Unaudited)
47 VALARIS PLC AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS Nine Months Ended September 30, 2018 (In millions) (Unaudited)
48 VALARIS PLC AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE LOSS Three Months Ended ( (Unaudited)
49
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Three Months Ended September 30, 2018 (In millions) (Unaudited)
50 VALARIS PLC AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Nine Months Ended September 30, 2019 (In millions) (Unaudited)
51 VALARIS PLC AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE LOSS (In millions) (Unaudited)
52 VALARIS PLC AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEETS September 30, 2019 (In millions) (Unaudited)
53 VALARIS PLC AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEETS December 31, 2018 (
54
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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 EXECUTIVE SUMMARY Our Business We are Rowan Transaction On October 7, 2018, we entered into a transaction agreement (the "Transaction Agreement") with Rowan and on April 11, 2019 (the "Transaction Date"), we completed our combination with Rowan pursuant to the Transaction Agreement (the "Rowan Transaction") and changed our name to Ensco Rowan plc. On July 30, 2019, we changed our name to Valaris plc. Rowan's financial results As a result of the Rowan Transaction, Rowan shareholders received 2.750 share and per share data included in this report have been retroactively adjusted to reflect the Reverse Stock Split (as defined herein). Prior to the Rowan Transaction, Rowan and Saudi Aramco formed a 50/50 joint venture to own, manage and operate drilling rigs offshore Saudi Arabia ("Saudi Aramco Rowan Offshore Drilling Company" or "ARO"). ARO currently owns a fleet of seven jackup rigs, leases another nine jackup rigs from us and has plans to Additionally, as a result of the Rowan Transaction, we assumed the following debt from Rowan: (1) $201.4 million in aggregate principal amount of 7.875% unsecured senior notes due 2019, which was repaid at maturity in August 2019, (2) $620.8 million in aggregate principal amount of 4.875% unsecured senior notes due 2022, (3) $398.1 million in aggregate principal amount of 4.75% unsecured senior notes due 2024, (4) $500.0 million in aggregate principal amount of 7.375% unsecured senior notes due 2025, (5) $400.0 million in aggregate principal amount of 5.4% unsecured senior notes due 2042 57 unsecured senior notes due The Rowan Transaction is expected to enhance the market leadership of the combined company with a fleet of high-specification floaters and jackups and position us well to meet increasing and evolving customer demand. The increased scale, diversification and financial strength of the combined company will provide us advantages to better serve our customers. Exclusive of two older jackup rigs marked for retirement, Rowan’s offshore rig fleet Reverse Stock Split Upon closing of the Rowan Transaction, we effected a consolidation (being a reverse stock split under English law) where every four existing Valaris Class A ordinary shares, each with a nominal value of $0.10, were consolidated into one Class A ordinary share, each with a nominal value of $0.40 (the “Reverse Stock Split”). Our shares began trading on a reverse stock split-adjusted basis on April 11, 2019. All share and per share data included in this report have been retroactively adjusted to reflect the Reverse Stock Split. Our Industry Oil prices have increased While market volatility may continue over the near-term, we expect long-term oil prices to remain at levels sufficient to We continue to observe improvements in the shallow-water market, particularly with respect to higher-specification rigs, as higher levels of customer demand and rig retirements have led to gradually increasing jackup utilization over the past year. Moreover, global floater utilization has increased as compared to a year ago due to a higher number of contracted rigs and lower global supply resulting from rig retirements. However, the floater recovery continues to be gradual as contracts remain short-term and pricing remains depressed. Despite the increase in customer activity, contract awards remain subject to an extremely competitive bidding process, and the corresponding pressure on operating day rates in recent periods has resulted in low margin contracts, particularly for floaters. Therefore, our results from operations may continue to decline over the near-term as current contracts with Liquidity Position We 58 Based on our balance sheet, our contractual backlog and availability under our credit facility, we expect to fund our liquidity needs, including expected negative operating cash flows, contractual obligations, Our credit facility is an integral part of our financial flexibility and liquidity. We also may rely on the issuance of debt and/or equity securities in the future to supplement our liquidity needs. In addition, we may seek to extend our maturities through other liability management transactions. We have significant financial flexibility within our capital structure, including the ability to issue debt that would be structurally senior to our currently outstanding debt, on both an unsecured and secured basis, subject to restrictions contained in our existing debt arrangements. Cash and Debt As of Effective upon closing of the Rowan Transaction, we amended our credit facility to, among other changes, increase the borrowing capacity. Previously, our borrowing capacity was $2.0 billion through September 2019, $1.3 billion through September 2020 and $1.2 billion through September 2022. Subsequent to the amendment, our borrowing capacity On June 25, 2019, we commenced cash tender offers for certain series of senior notes issued by us and by Ensco International Incorporated and Rowan Companies, Inc., our wholly-owned subsidiaries. The tender offers expired on July 23, 2019, and we repurchased $951.8 million aggregate principal amount of notes and recognized a gain on debt extinguishment of $194.1 million during the third quarter of 2019. Following the completion of the tender offers and August 2019 debt maturity, our debt maturities through 2023 total $997.8 million and include $122.9 million in 2020, $113.5 million in 2021 and $761.4 million in 2022. The amount due in 2022 includes $140.6 million drawn under our credit facility as of September 30, 2019. Backlog As above-market rate contracts expire and revenues are realized, we may experience declines in backlog, which could result in a decline in revenues and operating cash flows over the near-term. Contract backlog was adjusted for drilling contracts signed or terminated after each respective balance sheet date but prior to filing each annual and quarterly report on February 28, 2019 and 59 BUSINESS ENVIRONMENT Floaters The floater contracting environment remains challenging due to limited demand and excess newbuild supply. Floater demand has declined significantly following the decline in During the first quarter of 2019, we executed a four-well contract for During the second quarter of 2019, we executed a one-well contract for VALARIS DS-18 in the U.S. Gulf of Mexico that is expected to commence in Mexico in January 2020 and a one-well contract for VALARIS DS-4 that is expected to commence offshore Ghana in March 2020. We also extended contracts for VALARIS DPS-1 by seven-wells with an estimated duration of 420 days, VALARIS 8505 by three-wells, VALARIS DS-16 by approximately 180 days and VALARIS DS-7 by approximately 165 days. Additionally, we began marketing the VALARIS 5006 for sale and classified the rig as held-for-sale on our September 30, 2019 condensed consolidated balance sheet. As a result, we recognized an impairment charge of $88.2 million in our condensed consolidated statement of operations. There are approximately 30 newbuild drillships and semisubmersible rigs reported to be under construction, of which approximately Drilling contractors have retired approximately Jackups Demand for jackups has improved with increased rates. During the first quarter of 2019, we executed a nine-well contract for 60 With respect to the legacy Rowan jackups, a six-month contract extension with a two-month option was executed for During the second quarter of 2019, we executed a two-year contract for VALARIS JU-120, a two-well contract for VALARIS JU-122, a forty-well P&A contract for VALARIS JU-72, a five-month contract for VALARIS JU-107, two one-well contracts for VALARIS JU-102 and a one-well contract for VALARIS JU-101. Additionally, we executed a two-year extension for VALARIS JU-109, a seven-month extension for VALARIS JU-104, a six-month extension for VALARIS JU-247, a three-month extension for VALARIS JU-96, and one-well extensions for VALARIS JU-118 and VALARIS JU-144. During the During the third quarter of 2019, we executed a four-well contract for VALARIS JU-248, an accommodation contract for VALARIS JU-290, a one-well contract for VALARIS JU-107 and a one-well contract for VALARIS JU-87 that commenced in September. We also extended the contracts for VALARIS JU-291 by two-wells, VALARIS JU-247 by approximately eight months and received short-term extensions for VALARIS JU-248, VALARIS JU-123, VALARIS JU-117, VALARIS JU-115 and VALARIS JU-88. Additionally, we began marketing the VALARIS JU-68 and VALARIS JU-42 for sale There are approximately Drilling contractors have retired approximately In July 2019, a well being drilled offshore Indonesia by one of our jackup rigs experienced a well-control event requiring the cessation of drilling activities. The operator could seek to terminate the contract under certain circumstances. If this drilling contract were to be terminated for cause, it would result in an approximate $14 million decrease in our backlog as of September 30, 2019. See Note 13 for additional information. 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. Consistent with this strategy, we scrapped ENSCO 97 61 We continue to focus on our fleet management strategy in light of the new composition of our rig fleet following the Atwood acquisition and the Rowan Transaction. As part of this strategy, we may act opportunistically from time to time to monetize assets to enhance shareholder value and improve our liquidity profile, in addition to selling or disposing of older, lower-specification or non-core rigs. RESULTS OF OPERATIONS The following table summarizes our condensed consolidated results of operations for the
Overview Revenues Revenues increased $234.7 million, or 18%, for the nine-month period ended September 30, 2019, as compared to the prior year period, primarily due to $286.2 million of revenue earned by the Rowan rigs and the commencement of drilling operations for VALARIS DS-9, VALARIS DS-10, VALARIS JU-140, VALARIS JU-141 and VALARIS JU-123. This increase was partially offset by the sale of ENSCO Contract drilling 62 Contract drilling expense Depreciation expense increased $42.4 million, or 35%, for the three-month period ended September 30, 2019, as compared to the prior year quarter, primarily due to Depreciation expense increased $89.4 million, or 25%, for the nine-month period ended September 30, 2019, as compared to the prior year period, primarily due to $65.5 million of depreciation expense recognized on the Rowan rigs and the commencement of VALARIS DS-9, VALARIS DS-10, VALARIS JU-140, VALARIS JU-141 and VALARIS JU-123 drilling General and administrative expenses increased by $11.0 million, or 44%, and $67.8 million, or 86%, for the three-month and nine-month periods ended September 30, 2019, respectively, primarily due to transaction and integration costs associated with the Rowan Transaction. Other income increased $117.9 million for the three-month period ended September 30, 2019, primarily due to a pre-tax gain from debt extinguishment of $194.1 million related to the senior notes repurchased in connection with our July 2019 tender offers. This increase was partially offset by additional interest expense incurred on Rowan's senior notes and a reduction in the gain on bargain purchase resulting from measurement period adjustments of $53.0 million recognized during the Other income increased $795.5 million for the nine-month period ended September 30, 2019, primarily due to $659.8 million of The loss on impairment recognized during the Rig Counts, Utilization and Average Day Rates The following table summarizes our and ARO's offshore drilling rigs
(1)During the second quarter of 2019, we added VALARIS DS-18, VALARIS DS-17, VALARIS DS-16 and VALARIS DS-15 from the Rowan Transaction. (2)During the first quarter of 2019, we classified VALARIS 97 as held-for-sale. 63
(4)During the second quarter of 2019, we accepted the delivery of VALARIS JU-123. (5)During the third quarter of 2019, we classified VALARIS JU-68 and VALARIS 5006 as held-for-sale. This excludes the Rowan California, which was not added to our rig count as it was marked for retirement at the Transaction Date. (6)During the second quarter of 2019, we added nine jackups that are leased to ARO from the Rowan Transaction. (7)This represents the seven rigs owned by ARO. The following table summarizes our and ARO's rig utilization and average day rates
(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 a 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)Includes our two management services contracts and our nine rigs leased to ARO under bareboat charter contracts (one of which is expected to commence drilling operations during the fourth quarter of 2019). 64 (3)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. Operating Income by Segment 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 and are included in Segment information for the three-month and nine-month periods ended September 30, 2019 and 2018 is presented below (in millions): Three Months Ended
65
Three Months Ended
Nine Months Ended September 30, 2019
Nine Months Ended September 30, 2018
66
Floaters Floater Floater revenue increased $12.4 million, or 2%, for the nine-month period ended September 30, 2019, as compared to the prior year period, primarily due to $72.7 million earned by the Rowan rigs and the commencement of VALARIS DS-9 and VALARIS DS-10 drilling operations. This increase was partially offset by the sale of ENSCO 6001 and fewer days under contract and lower average day rates across the remaining floater fleet. Floater contract drilling expense increased $74.7 million, or 43%, for the three-month period ended September 30, 2019, as compared to the prior year quarter, primarily due to $44.1 million of contract drilling expense incurred by the Rowan rigs and the commencement of VALARIS DS-9 drilling operations. This increase was partially offset by the sale of ENSCO 6001, which operated in the prior Floater contract drilling expense increased $116.9 million, or 21%, for the nine-month period ended September 30, 2019, as compared to the prior year period, primarily due to $95.2 million of contract drilling expense incurred by the Rowan rigs and the commencement of VALARIS DS-9 and VALARIS DS-10 drilling operations. This increase was partially offset by the sale of ENSCO 6001 and lower costs on idle rigs. Loss on impairment recognized for our floater segment was related to VALARIS 5006. During the third quarter, we decided to retire VALARIS 5006, which was reclassified to held-for-sale. We recognized a non-cash impairment charge of $88.2 million, which represents the difference between the carrying value of the rig and related assets and their estimated fair values, less selling costs. Floater depreciation expense increased $20.3 million, or 26%, and $47.4 million, or 20%, for the three-month and nine-month periods ended September 30, 2019, as compared to the prior year periods, primarily due to the addition of Rowan rigs to the fleet and the commencement of Jackup revenues increased $44.5 million, or Jackup revenues increased $128.6 million, or 27%, for the nine-month period ended September 30, 2019, as compared to prior year period, primarily due to $132.4 million of revenue earned by the Rowan rigs and Jackup contract drilling 67 Jackup contract drilling expense increased Jackup depreciation expense for the three-month and nine-month periods ended September 30, 2019 increased $19.7 million, or 50%, and $39.1 million, or 35%, respectively, as compared to the prior year periods, primarily due to the addition of Rowan rigs to the fleet and the commencement of VALARIS JU-140, VALARIS JU-141 and VALARIS JU-123 drilling operations. ARO ARO currently owns a fleet of seven jackup rigs, leases another nine jackup rigs from us and plans to purchase up to 20 newbuild jackup rigs over an approximate 10 year period. The rigs we lease to ARO are done so through bareboat charter agreements whereby substantially all operating costs are incurred by ARO. All nine jackup rigs leased to ARO are under three-year contracts with Saudi Aramco (one of which is expected to commence drilling operations during the fourth quarter of 2019). All seven ARO-owned jackup rigs are under long-term contracts with Saudi Aramco. The operating revenues of ARO reflect revenues earned under drilling contracts with Saudi Aramco for the seven ARO-own jackup rigs and the nine rigs leased from us that operated during the period from the Transaction Date through September 30, 2019. The contract drilling, depreciation and general and administrative expenses are also for the period from the Transaction Date through September 30, 2019. Contract drilling expenses are inclusive of the bareboat charter fees for the rigs leased from us and costs incurred under the Secondment Agreement. General and administrative expenses include costs incurred under the Transition Services Agreement and other administrative costs. Other Other revenues increased $47.9 million, or 303%, for the three-month period ended September 30, 2019, as compared to the prior year quarter, primarily due to revenues earned from our rigs leased to ARO and revenues earned under the Other revenues increased Other contract drilling expenses increased $17.6 million, or 117%, and $44.9 million, or 107%, for the three-month and nine-month periods ended September 30, 2019, respectively, as compared to the prior year periods, primarily due to costs incurred associated with the services provided to ARO under the Secondment Agreement. 68 Other Income (Expense) The following table summarizes other income (expense) for the
Interest Interest expense for the three-month and nine-month periods ended September 30, 2019 increased as compared to the prior year periods, primarily due to $37.4 million and $75.1 million, respectively, of interest expense incurred on Rowan's senior notes. Interest expense capitalized during the three-month and nine-month periods ended September 30, 2019 declined as compared to the prior year periods due to the Other, net, for the 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. 69 Provision for Income Taxes Our drilling rigs frequently move from one taxing jurisdiction to another to perform contract drilling services. In some instances, the movement of our 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 income and changes in tax laws, our consolidated effective income tax rate may vary substantially from one reporting period to another. 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 or negotiated 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 consolidated income tax expense generally does not decline proportionally with consolidated income, which results in higher effective income tax rates. Furthermore, we generally continue to incur income tax expense in periods in which we operate at a loss on a consolidated basis. Discrete income tax Discrete income tax benefit for the 70 LIQUIDITY AND CAPITAL RESOURCES We July 2019 tender offers discussed below. Based on our balance sheet, our contractual backlog and availability under our credit facility, we expect to fund our liquidity needs, including expected negative operating cash flows, contractual obligations, Our credit facility is an integral part of our financial flexibility and liquidity. We also may rely on the issuance of debt and/or equity securities in the future to supplement our liquidity needs. In addition, we may seek to extend our maturities through our liability management transactions. We have significant financial flexibility within our capital structure, including the ability to issue debt that would be structurally senior to our currently outstanding debt, on both an unsecured and secured basis, subject to restrictions contained in our existing debt arrangements. Effective upon closing of the Rowan Transaction, we amended our credit facility to, among other changes, increase the borrowing capacity. Previously, our borrowing capacity was $2.0 billion through September 2019, $1.3 billion through September 2020 and $1.2 billion through September 2022. Subsequent to the amendment, our borrowing capacity Additionally, as a result of the Rowan Transaction, we assumed the following debt from Rowan: (1) $201.4 million in aggregate principal amount of 7.875% unsecured senior notes due 2019, which was repaid at maturity in August 2019, (2) $620.8 million in aggregate principal amount of 4.875% unsecured senior notes due 2022, (3) $398.1 million in aggregate principal amount of 4.75% unsecured senior notes due 2024, (4) $500.0 million in aggregate principal amount of 7.375% unsecured senior notes due 2025, (5) $400.0 million in aggregate principal amount of 5.4% unsecured senior notes due 2042 Cash Flow and Capital Expenditures Our cash flow from operating activities of continuing operations and capital expenditures for the
During the nine-month period ended September 30, 2019, our primary source of cash was Rowan cash acquired of $931.9 million, $329.0 million from net maturities of short-term investments and $140.6 of net borrowings under our credit facility. Our primary uses of cash for the same period were $928.1 for the repayment of senior notes in connection with the maturity of our $201.4 million principal amount of senior notes in August 2019 71
During the nine-month period ended September 30, 2018, our primary source of cash was $1.0 billion in proceeds from the issuance of senior notes. Our primary uses of cash for the same period were $771.2 million for the repurchase and redemption of outstanding debt, $378.7 million for the construction, enhancement and other improvements of our drilling rigs and $82.2 million for operating activities. Cash flows from operating activities of continuing operations declined The following table summarizes the cumulative amount of contractual payments made as of
(1)Cumulative paid represents the aggregate amount of contractual payments made from commencement of the construction agreement through September 30, 2019. Contractual payments made by Atwood prior to the Atwood acquisition for VALARIS DS-13 and VALARIS DS-14 are excluded.
(3)During the 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 9% per annum with a maturity date of December 30, 2022 and will be secured by a mortgage on each respective rig. The remaining milestone payments for VALARIS DS-13 and VALARIS DS-14 are included in the table above in the period in which 72 Based on our current projections, Financing and Capital Resources Investment in ARO and Notes Receivable from ARO We consider our investment in ARO to be a significant component of our investment 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 earn interest at LIBOR plus two percent and mature during 2027 and 2028. The following table summarizes the maturity schedule of our notes receivable from ARO as of September 30, 2019 (in millions):
The distribution of earnings to the joint-venture partners is at 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 the joint-venture partners cannot be predicted with certainty and will be influenced by various factors, including the liquidity position and long-term capital requirements of ARO. ARO has not made a cash distribution to its partners since its formation. See Note 4 for additional information on our investment in ARO and notes receivable from ARO. Debt to Capital Our total debt, total capital and total debt to total capital ratios are summarized below (in millions, except percentages):
(1)Total debt consists of the principal amount outstanding. (2)Total capital consists of total debt and Valaris shareholders' equity. 73
On June 25, 2019, we commenced cash tender offers for certain series of senior notes issued by us and by Ensco International Incorporated and Rowan Companies, Inc., our wholly-owned subsidiaries. The tender offers expired on July 23, 2019, and we repurchased $951.8 million aggregate principal amount of notes. The following table sets forth the total principal amounts repurchased and purchase price paid in the tender offers (in millions):
(1)Excludes accrued interest paid to holders of the repurchased senior notes. During the third quarter of 2019, we recognized a pre-tax gain from debt extinguishment of $194.1 million related to the tender offers, net of discounts, premiums and transaction costs. Following the completion of the tender offers and August 2019 debt maturity, our debt maturities through 2023 total $997.8 million and include $122.9 million in 2020, $113.5 million in 2021 and $761.4 million in 2022. The amount due in 2022 includes $140.6 million drawn under our credit facility as of September 30, 2019. Revolving Credit Facility Effective upon closing of the Rowan Transaction, we amended our credit facility to, among other changes, increase the borrowing capacity. Previously, our borrowing capacity was $2.0 billion through September 2019, $1.3 billion through September 2020 and $1.2 billion through September 2022. Subsequent to the amendment, our borrowing capacity Advances under the credit facility bear interest at Base Rate or LIBOR plus an applicable margin rate, depending on our credit ratings. We are required to pay a quarterly commitment fee on the undrawn portion of the commitment, which is also based on our credit rating. 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 $1 billion 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; repurchasing our ordinary shares or paying or distributing dividends on our ordinary shares (subject to certain exceptions, including the ability to 74 The credit facility also includes a covenant restricting our ability to repay indebtedness maturing after September 2022, which is the final maturity date of the 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 $250.0 million and there are no amounts outstanding under the credit facility. The July 2019 tender offers discussed above were in compliance with these covenants. As of As discussed above, the credit facility contains restrictions on paying dividends, repurchasing shares and issuing other indebtedness. Our decisions around capital allocation matters could, in addition to the shareholder proposal previously disclosed regarding our capital allocation policies, give rise to objections by one or more shareholders and/or result in shareholder activism, including potential proxy contests, any of which could cause us to incur significant costs, result in management distraction and negatively impact our business. Our access to credit and capital markets depends on the credit ratings assigned to our debt, and 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. Other Financing We filed an automatically effective shelf registration statement on Form S-3 with the SEC on November 21, 2017, 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 expires in November 2020. From time to time, we and our affiliates may repurchase or refinance 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, pursuant to their terms. In connection with any exchange or refinancing transaction, we may issue equity, issue new debt (including debt that is structurally senior to our existing senior notes) and/or pay cash consideration. Any future repurchases, exchanges, redemptions or refinancings 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. 75 Other Commitments As of In connection with our 50/50 joint venture with ARO, in the event ARO has insufficient cash from operations or is unable to obtain Liquidity Our liquidity position is summarized in the table below (in millions, except ratios):
We expect to fund our Recent Tax Assessments During 2019, we received income tax assessments totaling approximately €142 million (approximately $155.0 million converted using the current period-end exchange rates) and A$101 million (approximately $68 million converted at current period-end exchange rates) from taxing authorities in Luxembourg and Australia, respectively. See Note 12 for additional information. During the third quarter of 2019, we made a A$42 million (approximately $29 million at then-current exchange rates) payment to the Australian tax authorities to litigate the assessment, partially mitigating potential interest on any ultimate assessment outcomes. We may make a payment to the Luxembourg tax authorities in advance of the final resolution of these assessments. Although the outcome of such assessments cannot be predicted with certainty, unfavorable outcomes could have a material adverse effect on our liquidity. 76 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 customary in the oil and gas industry, a majority of our revenues and expenses are denominated in U.S. dollars; however, a portion of the revenues earned and expenses incurred by certain of our subsidiaries are denominated in currencies other than the U.S. dollar. 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 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 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 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 related 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 almost all of 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 77 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, 2018, 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 us regarding estimates in matters that are inherently uncertain. Our critical accounting policies are those related to property and equipment, impairment of long-lived assets, income taxes and As a result of the Rowan Transaction, we assumed the pension and other post-retirement benefit obligations of Rowan. We have identified our accounting policies associated with those obligations as critical accounting policies, as set forth in our quarterly report on Form 10-Q filed with the SEC on August 1, 2019. New Accounting Pronouncements See Note 1 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." 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 to allow timely decisions regarding required disclosure. Based on their evaluation as of During the quarter ended June 30, 2019, we completed our merger with Rowan (see Note 3 to our condensed consolidated financial statements for more information). We are currently integrating Rowan into our 78 operations and internal control processes and, pursuant to the SEC’s guidance that a recently acquired business may be excluded from the scope of an assessment of internal control over financial reporting in the year of acquisition, the scope of our assessment of the effectiveness of our internal controls over financial reporting at December 31, 2019 will exclude Rowan to the extent not integrated into our control environment. 79 PART II - OTHER INFORMATION Item 1. Legal Proceedings Shareholder Derivative Lawsuit On August 20, 2019, plaintiff Xiaoyuan Zhang, a purported Valaris shareholder, filed a class action lawsuit on behalf of Valaris shareholders against Valaris plc and certain of our executive officers, alleging violations of federal securities laws. The complaint cites general statements in press releases and SEC filings and alleges that the defendants made false or misleading statements or failed to disclose material information regarding the performance of our ultra-deepwater segment, among other things. The complaint asserts claims on behalf of a class of investors who purchased Valaris plc shares between April 11, 2019 and July 31, 2019. Under applicable law, the court will appoint a lead plaintiff and lead counsel. We anticipate that an amended complaint will be filed in the first quarter of 2020. We strongly disagree and intend to vigorously defend against these claims. At this time, we are unable to predict the outcome of these matters or the extent of any resulting liability. DSA Dispute On January 4, 2016, Petrobras sent a notice to us declaring the drilling services agreement with Petrobras (the "DSA") for ENSCO DS-5, a drillship ordered from Samsung Heavy Industries, a shipyard in South Korea ("SHI"), void effective immediately, reserving its rights and stating its intention to seek any restitution to which it may be entitled. The previously disclosed arbitral hearing on liability related to the matter was held in March 2018. Prior to the arbitration tribunal issuing its decision, we and Petrobras agreed in August 2018 to a settlement of all claims relating to the DSA. No payments were made by either party in connection with the settlement agreement. The parties agreed to normalize business relations and the settlement agreement provides for our participation in current and future Petrobras tenders on the same basis as all other companies invited to these tenders. No losses were recognized during 2018 with respect to this settlement as all disputed receivables with Petrobras related to the DSA were fully reserved in 2015. See Item 1 “Legal Proceedings” in our quarterly report on Form 10-Q for the quarter ended June 30, 2018 for further information about the DSA dispute. In The January 2018 arbitration award provides that SHI is liable to us for $10.0 million or damages that we can prove. We submitted our claim for damages to the tribunal, and the arbitral hearing on damages owed to us by SHI took place in the first quarter of 2019. In May 2019, the arbitration tribunal for the SHI matter awarded us $180.0 million in damages. Further, we are entitled to claim interest on this award and costs incurred in connection with this matter. In June 2019, we and SHI filed separate applications with the English High Court to seek leave to appeal the damages awarded. We are awaiting the 80 Pride FCPA Investigation During 2010, Pride International LLC ("Pride") and its subsidiaries resolved their previously disclosed investigations into potential violations of the 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 and 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 2017, 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 and cash flows, there can be no assurance as to the ultimate outcome of these assessments. A 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 $3.0 million, for an alleged environmental spill originating from We intend to vigorously defend ourselves in the administrative 81 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, 2018, as updated in our subsequent quarterly reports on Form 10-Q, which contains descriptions of significant risks that may 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 82 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The table below provides a summary of our repurchases of equity securities during the quarter ended
(1)During the quarter ended September 30, 2019, (2)Our shareholders approved a new repurchase program at our annual shareholder meeting held in May 2018. Subject to certain provisions under English law, including the requirement of Valaris to have sufficient distributable reserves, we may repurchase up to a maximum of $500.0 million in the aggregate from one or more financial intermediaries under the program, but in no case more than 16.3 million shares. As of September 30, 2019, no shares have been repurchased under the program. The program terminates in May 2023. 83
Item 6. Exhibits
* Filed herewith. ** Furnished herewith. 84 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.
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