☒ | 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 June 30, | Three Months Ended September 30, | |||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||
OPERATING REVENUES | $ | 583.9 | $ | 458.5 | OPERATING REVENUES | $ | 551.3 | $ | 430.9 | |||||||||||||||
OPERATING EXPENSES | OPERATING EXPENSES | |||||||||||||||||||||||
Contract drilling (exclusive of depreciation) | 500.3 | 344.3 | Contract drilling (exclusive of depreciation) | 496.5 | 327.1 | |||||||||||||||||||
Loss on impairment | 2.5 | — | Loss on impairment | 88.2 | — | |||||||||||||||||||
Depreciation | 157.9 | 120.7 | Depreciation | 163.0 | 120.6 | |||||||||||||||||||
General and administrative | 81.2 | 26.1 | General and administrative | 36.1 | 25.1 | |||||||||||||||||||
Total operating expenses | 741.9 | 491.1 | Total operating expenses | 783.8 | 472.8 | |||||||||||||||||||
EQUITY IN EARNINGS OF ARO | .6 | — | EQUITY IN EARNINGS OF ARO | (3.7) | — | |||||||||||||||||||
OPERATING LOSS | (157.4 | ) | (32.6 | ) | OPERATING LOSS | (236.2) | (41.9) | |||||||||||||||||
OTHER INCOME (EXPENSE) | OTHER INCOME (EXPENSE) | |||||||||||||||||||||||
Interest income | 11.9 | 3.9 | Interest income | 6.7 | 3.6 | |||||||||||||||||||
Interest expense, net | (118.3 | ) | (75.7 | ) | Interest expense, net | (113.9) | (72.2) | |||||||||||||||||
Other, net | 703.7 | (13.0 | ) | Other, net | 147.4 | (9.1) | ||||||||||||||||||
597.3 | (84.8 | ) | 40.2 | (77.7) | ||||||||||||||||||||
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | 439.9 | (117.4 | ) | |||||||||||||||||||||
LOSS BEFORE INCOME TAXES | LOSS BEFORE INCOME TAXES | (196.0) | (119.6) | |||||||||||||||||||||
PROVISION FOR INCOME TAXES | PROVISION FOR INCOME TAXES | |||||||||||||||||||||||
Current income tax expense | 21.2 | 20.1 | ||||||||||||||||||||||
Deferred income tax expense | 11.4 | 4.6 | ||||||||||||||||||||||
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 | |||||||||||||||||||||
32.6 | 24.7 | 1.5 | 23.3 | |||||||||||||||||||||
INCOME (LOSS) FROM CONTINUING OPERATIONS | 407.3 | (142.1 | ) | |||||||||||||||||||||
LOSS FROM DISCONTINUED OPERATIONS, NET | — | (8.0 | ) | |||||||||||||||||||||
NET INCOME (LOSS) | 407.3 | (150.1 | ) | |||||||||||||||||||||
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | (1.8 | ) | (.9 | ) | ||||||||||||||||||||
NET INCOME (LOSS) ATTRIBUTABLE TO VALARIS | $ | 405.5 | $ | (151.0 | ) | |||||||||||||||||||
EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED | ||||||||||||||||||||||||
Continuing operations | $ | 2.09 | $ | (1.31 | ) | |||||||||||||||||||
Discontinued operations | — | (0.08 | ) | |||||||||||||||||||||
NET LOSS | NET LOSS | (197.5) | (142.9) | |||||||||||||||||||||
NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS | NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS | .4 | (2.1) | |||||||||||||||||||||
NET LOSS ATTRIBUTABLE TO VALARIS | NET LOSS ATTRIBUTABLE TO VALARIS | $ | (197.1) | $ | (145.0) | |||||||||||||||||||
$ | 2.09 | $ | (1.39 | ) | ||||||||||||||||||||
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 | 188.6 | 108.5 | Basic and Diluted | 197.6 | 108.6 |
Six Months Ended June 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||
OPERATING REVENUES | $ | 989.8 | $ | 875.5 | OPERATING REVENUES | $ | 1,541.1 | $ | 1,306.4 | |||||||||||||||
OPERATING EXPENSES | OPERATING EXPENSES | |||||||||||||||||||||||
Contract drilling (exclusive of depreciation) | 832.9 | 669.5 | Contract drilling (exclusive of depreciation) | 1,329.4 | 996.6 | |||||||||||||||||||
Loss on impairment | 2.5 | — | Loss on impairment | 90.7 | — | |||||||||||||||||||
Depreciation | 282.9 | 235.9 | Depreciation | 445.9 | 356.5 | |||||||||||||||||||
General and administrative | 110.8 | 54.0 | General and administrative | 146.9 | 79.1 | |||||||||||||||||||
Total operating expenses | 1,229.1 | 959.4 | Total operating expenses | 2,012.9 | 1,432.2 | |||||||||||||||||||
EQUITY IN EARNINGS OF ARO | .6 | — | EQUITY IN EARNINGS OF ARO | (3.1) | — | |||||||||||||||||||
OPERATING LOSS | (238.7 | ) | (83.9 | ) | OPERATING LOSS | (474.9) | (125.8) | |||||||||||||||||
OTHER INCOME (EXPENSE) | OTHER INCOME (EXPENSE) | |||||||||||||||||||||||
Interest income | 15.4 | 6.9 | Interest income | 22.1 | 10.5 | |||||||||||||||||||
Interest expense, net | (199.3 | ) | (141.3 | ) | Interest expense, net | (313.2) | (213.5) | |||||||||||||||||
Other, net | 706.0 | (21.1 | ) | Other, net | 853.4 | (30.2) | ||||||||||||||||||
522.1 | (155.5 | ) | 562.3 | (233.2) | ||||||||||||||||||||
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | 283.4 | (239.4 | ) | INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | 87.4 | (359.0) | ||||||||||||||||||
PROVISION FOR INCOME TAXES | PROVISION FOR INCOME TAXES | |||||||||||||||||||||||
Current income tax expense | 46.8 | 27.2 | Current income tax expense | 69.4 | 21.5 | |||||||||||||||||||
Deferred income tax expense | 17.3 | 15.9 | ||||||||||||||||||||||
Deferred income tax expense (benefit) | Deferred income tax expense (benefit) | (3.8) | 44.9 | |||||||||||||||||||||
64.1 | 43.1 | 65.6 | 66.4 | |||||||||||||||||||||
INCOME (LOSS) FROM CONTINUING OPERATIONS | 219.3 | (282.5 | ) | INCOME (LOSS) FROM CONTINUING OPERATIONS | 21.8 | (425.4) | ||||||||||||||||||
LOSS FROM DISCONTINUED OPERATIONS, NET | — | (8.1 | ) | LOSS FROM DISCONTINUED OPERATIONS, NET | — | (8.1) | ||||||||||||||||||
NET INCOME (LOSS) | 219.3 | (290.6 | ) | NET INCOME (LOSS) | 21.8 | (433.5) | ||||||||||||||||||
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | (4.2 | ) | (.5 | ) | NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | (3.8) | (2.6) | |||||||||||||||||
NET INCOME (LOSS) ATTRIBUTABLE TO VALARIS | $ | 215.1 | $ | (291.1 | ) | NET INCOME (LOSS) ATTRIBUTABLE TO VALARIS | $ | 18.0 | $ | (436.1) | ||||||||||||||
EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED | EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED | |||||||||||||||||||||||
Continuing operations | $ | 1.40 | $ | (2.61 | ) | Continuing operations | $ | 0.10 | $ | (3.94) | ||||||||||||||
Discontinued operations | — | (0.08 | ) | Discontinued operations | — | (0.08) | ||||||||||||||||||
$ | 1.40 | $ | (2.69 | ) | $ | 0.10 | $ | (4.02) | ||||||||||||||||
WEIGHTED-AVERAGE SHARES OUTSTANDING | WEIGHTED-AVERAGE SHARES OUTSTANDING | |||||||||||||||||||||||
Basic and Diluted | 148.9 | 108.5 | 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) |
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) |
Three Months Ended June 30, | |||||||
2019 | 2018 | ||||||
NET INCOME (LOSS) | $ | 407.3 | $ | (150.1 | ) | ||
OTHER COMPREHENSIVE INCOME (LOSS), NET | |||||||
Net change in derivative fair value | (1.6 | ) | (7.6 | ) | |||
Reclassification of net (gains) losses on derivative instruments from other comprehensive income (loss) into net income (loss) | 1.8 | (.7 | ) | ||||
Other | — | (.2 | ) | ||||
NET OTHER COMPREHENSIVE INCOME (LOSS) | .2 | (8.5 | ) | ||||
COMPREHENSIVE INCOME (LOSS) | 407.5 | (158.6 | ) | ||||
COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | (1.8 | ) | (.9 | ) | |||
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO VALARIS | $ | 405.7 | $ | (159.5 | ) |
Six Months Ended June 30, | |||||||
2019 | 2018 | ||||||
NET INCOME (LOSS) | $ | 219.3 | $ | (290.6 | ) | ||
OTHER COMPREHENSIVE INCOME (LOSS), NET | |||||||
Net change in derivative fair value | (1.6 | ) | (5.7 | ) | |||
Reclassification of net (gains) losses on derivative instruments from other comprehensive income (loss) into net income (loss) | 3.4 | (2.9 | ) | ||||
Other | (.1 | ) | (.3 | ) | |||
NET OTHER COMPREHENSIVE INCOME (LOSS) | 1.7 | (8.9 | ) | ||||
COMPREHENSIVE INCOME (LOSS) | 221.0 | (299.5 | ) | ||||
COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | (4.2 | ) | (.5 | ) | |||
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO VALARIS | $ | 216.8 | $ | (300.0 | ) |
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 |
June 30, 2019 | December 31, 2018 | ||||||
(Unaudited) | |||||||
ASSETS | |||||||
CURRENT ASSETS | |||||||
Cash and cash equivalents | $ | 959.1 | $ | 275.1 | |||
Short-term investments | 135.0 | 329.0 | |||||
Accounts receivable, net | 628.7 | 344.7 | |||||
Other current assets | 499.7 | 360.9 | |||||
Total current assets | 2,222.5 | 1,309.7 | |||||
PROPERTY AND EQUIPMENT, AT COST | 18,472.8 | 15,517.0 | |||||
Less accumulated depreciation | 3,017.1 | 2,900.8 | |||||
Property and equipment, net | 15,455.7 | 12,616.2 | |||||
LONG-TERM NOTES RECEIVABLE FROM ARO | 453.1 | — | |||||
INVESTMENT IN ARO | 139.4 | — | |||||
OTHER ASSETS | 169.4 | 97.8 | |||||
$ | 18,440.1 | $ | 14,023.7 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||
CURRENT LIABILITIES | |||||||
Accounts payable - trade | $ | 335.2 | $ | 210.5 | |||
Accrued liabilities and other | 438.3 | 318.0 | |||||
Current maturities of long-term debt | 1,125.3 | — | |||||
Total current liabilities | 1,898.8 | 528.5 | |||||
LONG-TERM DEBT | 6,020.1 | 5,010.4 | |||||
OTHER LIABILITIES | 799.0 | 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 June 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 June 30, 2019 and December 31, 2018 | .1 | .1 | |||||
Additional paid-in capital | 8,608.4 | 7,225.0 | |||||
Retained earnings | 1,084.8 | 874.2 | |||||
Accumulated other comprehensive income | 19.9 | 18.2 | |||||
Treasury shares, at cost, 8.1 million and 5.9 million shares as of June 30, 2019 and December 31, 2018 | (75.0 | ) | (72.2 | ) | |||
Total Valaris shareholders' equity | 9,720.6 | 8,091.4 | |||||
NONCONTROLLING INTERESTS | 1.6 | (2.6 | ) | ||||
Total equity | 9,722.2 | 8,088.8 | |||||
$ | 18,440.1 | $ | 14,023.7 |
Six Months Ended June 30, | |||||||
2019 | 2018 | ||||||
OPERATING ACTIVITIES | |||||||
Net income (loss) | $ | 219.3 | $ | (290.6 | ) | ||
Adjustments to reconcile net income (loss) to net cash used in operating activities of continuing operations: | |||||||
Gain on bargain purchase | (712.8 | ) | (8.3 | ) | |||
Depreciation expense | 282.9 | 235.9 | |||||
Share-based compensation expense | 19.2 | 14.8 | |||||
Amortization, net | (17.3 | ) | (24.4 | ) | |||
Deferred income tax expense | 17.3 | 15.9 | |||||
Contributions to pension plans | (4.0 | ) | — | ||||
Loss on impairment | 2.5 | — | |||||
Equity in earnings of ARO | (0.6 | ) | — | ||||
Loss on debt extinguishment | — | 19.0 | |||||
Loss from discontinued operations, net | — | 8.1 | |||||
Other | 4.9 | (2.1 | ) | ||||
Changes in operating assets and liabilities | (104.8 | ) | 13.7 | ||||
Net cash used in operating activities of continuing operations | (293.4 | ) | (18.0 | ) | |||
INVESTING ACTIVITIES | |||||||
Rowan cash acquired | 931.9 | — | |||||
Maturities of short-term investments | 339.0 | 599.0 | |||||
Purchases of short-term investments | (145.0 | ) | (414.0 | ) | |||
Additions to property and equipment | (134.8 | ) | (331.9 | ) | |||
Other | 4.5 | 2.9 | |||||
Net cash provided by (used in) investing activities of continuing operations | 995.6 | (144.0 | ) | ||||
FINANCING ACTIVITIES | |||||||
Debt solicitation fees | (8.7 | ) | — | ||||
Cash dividends paid | (4.5 | ) | (9.0 | ) | |||
Proceeds from issuance of senior notes | — | 1,000.0 | |||||
Reduction of long-term borrowings | — | (771.2 | ) | ||||
Debt issuance costs | — | (17.0 | ) | ||||
Repurchase of common stock | (4.2 | ) | (2.0 | ) | |||
Other | (0.5 | ) | (0.5 | ) | |||
Net cash provided by (used in) financing activities | (17.9 | ) | 200.3 | ||||
Net cash provided by discontinued operations | — | 2.5 | |||||
Effect of exchange rate changes on cash and cash equivalents | (.3 | ) | (.7 | ) | |||
INCREASE IN CASH AND CASH EQUIVALENTS | 684.0 | 40.1 | |||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 275.1 | 445.4 | |||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 959.1 | $ | 485.5 |
Nine Months Ended September 30, | |||||||||||||||||
2019 | 2018 | ||||||||||||||||
OPERATING ACTIVITIES | |||||||||||||||||
Net income (loss) | $ | 21.8 | $ | (433.5) | |||||||||||||
Adjustments to reconcile net income (loss) to net cash used in operating activities of continuing operations: | |||||||||||||||||
Gain on bargain purchase | (659.8) | (1.8) | |||||||||||||||
Depreciation expense | 445.9 | 356.5 | |||||||||||||||
(Gain) loss on extinguishment of debt | (194.1) | 19.0 | |||||||||||||||
Loss on impairment | 90.7 | — | |||||||||||||||
Share-based compensation expense | 28.7 | 21.6 | |||||||||||||||
Amortization, net | (18.1) | (30.7) | |||||||||||||||
Contributions to pension plans | (8.0) | — | |||||||||||||||
Deferred income tax expense (benefit) | (3.8) | 44.9 | |||||||||||||||
Equity in earnings of ARO | 3.1 | — | |||||||||||||||
Loss from discontinued operations, net | — | 8.1 | |||||||||||||||
Other | 13.4 | (5.3) | |||||||||||||||
Changes in operating assets and liabilities | (147.3) | (61.0) | |||||||||||||||
Net cash used in operating activities of continuing operations | (427.5) | (82.2) | |||||||||||||||
INVESTING ACTIVITIES | |||||||||||||||||
Rowan cash acquired | 931.9 | — | |||||||||||||||
Maturities of short-term investments | 474.0 | 675.0 | |||||||||||||||
Additions to property and equipment | (174.2) | (378.7) | |||||||||||||||
Purchases of short-term investments | (145.0) | (669.0) | |||||||||||||||
Other | 4.9 | 10.0 | |||||||||||||||
Net cash provided by (used in) investing activities of continuing operations | 1,091.6 | (362.7) | |||||||||||||||
FINANCING ACTIVITIES | |||||||||||||||||
Reduction of long-term borrowings | (928.1) | (771.2) | |||||||||||||||
Borrowings on credit facility | 175.0 | — | |||||||||||||||
Repayments of credit facility borrowings | (34.4) | — | |||||||||||||||
Debt solicitation fees | (9.4) | — | |||||||||||||||
Cash dividends paid | (4.5) | (13.4) | |||||||||||||||
Proceeds from issuance of senior notes | — | 1,000.0 | |||||||||||||||
Debt issuance costs | — | (17.0) | |||||||||||||||
Other | (7.7) | (4.7) | |||||||||||||||
Net cash provided by (used in) financing activities | (809.1) | 193.7 | |||||||||||||||
Net cash provided by discontinued operations | — | 2.5 | |||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | (.6) | (.7) | |||||||||||||||
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, 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 |
June 30, 2019 | December 31, 2018 | ||||||
Current contract assets | $ | 12.8 | $ | 4.0 | |||
Current contract liabilities (deferred revenue) | $ | 46.2 | $ | 56.9 | |||
Noncurrent contract liabilities (deferred revenue) | $ | 14.8 | $ | 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 | |||
Contract assets acquired and liabilities assumed in the Rowan Transaction | 8.4 | 5.3 | |||||
Revenue recognized in advance of right to bill customer | 2.3 | — | |||||
Increase due to cash received | — | 34.3 | |||||
Decrease due to amortization of deferred revenue that was included in the beginning contract liability balance | — | (40.2 | ) | ||||
Decrease due to amortization of deferred revenue that was added during the period | — | (15.8 | ) | ||||
Decrease due to transfer to receivables during the period | (1.9 | ) | — | ||||
Balance as of June 30, 2019 | $ | 12.8 | $ | 61.0 |
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 | $ | 39.0 | $ | 11.7 | $ | 7.6 | $ | 2.7 | $ | 61.0 | |||||||||
Amortization of deferred costs | $ | 39.7 | $ | 13.3 | $ | 2.8 | $ | 1.4 | $ | 57.2 |
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 | $ | 931.9 | |
Accounts receivable(1) | 207.1 | ||
Other current assets | 101.6 | ||
Long-term notes receivable from ARO | 454.5 | ||
Investment in ARO | 138.8 | ||
Property and equipment | 2,989.8 | ||
Other assets | 41.7 | ||
Liabilities: | |||
Accounts payable and accrued liabilities | 259.4 | ||
Current portion of long-term debt | 203.2 | ||
Long-term debt | 1,910.9 | ||
Other liabilities | 376.3 | ||
Net assets acquired | 2,115.6 | ||
Less: Transaction consideration | (1,402.8 | ) | |
Estimated bargain purchase gain | $ | 712.8 |
(2)Gross contractual amounts receivable totaled $208.3 million as of the Transaction Date. |
(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 June 30, | Six Months Ended June 30, | |||||||||||||
2019(1) | 2018 | 2019(1) | 2018 | ||||||||||||
Revenues | $ | 599.0 | $ | 699.8 | $ | 1,179.5 | $ | 1,328.0 | |||||||
Net loss | $ | (264.9 | ) | $ | (172.6 | ) | $ | (596.4 | ) | $ | (373.5 | ) | |||
Loss per share - basic and diluted | $ | (1.35 | ) | $ | (0.88 | ) | $ | (3.04 | ) | $ | (1.90 | ) |
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 |
April 11 - June 30, 2019 | |||
Revenues | $ | 123.8 | |
Operating expenses | |||
Contract drilling (exclusive of depreciation) | 78.9 | ||
Depreciation | 12.4 | ||
General and administrative | 5.3 | ||
Operating income | 27.2 | ||
Other expense, net | 8.7 | ||
Provision for income taxes | 1.7 | ||
Net income | $ | 16.8 |
September 30, 2019 | |||||
Current assets | $ | 452.8 | |||
Non-current assets | 887.1 | ||||
Total assets | $ | 1,339.9 | |||
Current liabilities | $ | 232.4 | |||
Non-current liabilities | 1,021.7 | ||||
Total liabilities | $ | 1,254.1 |
June 30, 2019 | |||
Current assets | $ | 434.9 | |
Non-current assets | 898.6 | ||
Total assets | $ | 1,333.5 | |
Current liabilities | $ | 227.4 | |
Non-current liabilities | 1,030.6 | ||
Total liabilities | $ | 1,258.0 |
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) |
April 11 - June 30, 2019 | |||
50% interest in ARO net income | $ | 8.4 | |
Amortization of basis differences | (7.8 | ) | |
Equity in earnings of ARO | $ | 0.6 |
April 11 - June 30, 2019 | Three Months Ended September 30, 2019 | April 11 - September 30, 2019 | |||||||||||||||
Lease revenue | $ | 18.3 | Lease revenue | $ | 19.9 | $ | 37.0 | ||||||||||
Secondment revenue | 15.6 | Secondment revenue | 17.9 | 33.5 | |||||||||||||
Transition Services revenue | 5.2 | Transition Services revenue | 5.0 | 10.2 | |||||||||||||
Total revenue from ARO (1) | $ | 39.1 | Total revenue from ARO (1) | $ | 42.8 | $ | 80.7 |
(1)All of the revenues presented above are included in our Other segment in our segment disclosures. See Note 15 for additional information. Amounts receivable from ARO related to the above items totaled $40.6 million as of September 30, 2019 and are included in accounts receivable, net, on our condensed consolidated balance sheet. Accounts payable to ARO totaled $3.0 million as of September 30, 2019. |
Maturity Date | Principal Amount | ||||
October 2027 | $ | 275.2 | |||
October 2028 | 177.7 | ||||
Total | $ | 452.9 |
June 30, 2019 | |||
Total assets | $ | 667.6 | |
Less: total liabilities | 2.8 | ||
Maximum exposure to loss | $ | 664.8 |
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 June 30, 2019 | |||||||||||||||
Supplemental executive retirement plan assets | $ | 26.2 | $ | — | $ | — | $ | 26.2 | |||||||
Total financial assets | $ | 26.2 | $ | — | $ | — | $ | 26.2 | |||||||
Derivatives, net | $ | — | $ | (4.3 | ) | $ | — | $ | (4.3 | ) | |||||
Total financial liabilities | $ | — | $ | (4.3 | ) | $ | — | $ | (4.3 | ) | |||||
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 |
June 30, 2019 | December 31, 2018 | ||||||||||||||
Carrying Value | Estimated Fair Value | Carrying Value | Estimated Fair Value | ||||||||||||
7.875% Senior notes due 2019(2) | $ | 202.0 | $ | 201.9 | $ | — | $ | — | |||||||
6.875% Senior notes due 2020 | 126.2 | 122.4 | 127.5 | 121.6 | |||||||||||
4.70% Senior notes due 2021 | 113.0 | 105.8 | 112.7 | 101.8 | |||||||||||
4.875% Senior notes due 2022(2) | 595.0 | 572.6 | — | — | |||||||||||
3.00% Exchangeable senior notes due 2024(1) | 682.8 | 666.4 | 666.8 | 575.5 | |||||||||||
4.50% Senior notes due 2024 | 620.1 | 467.7 | 619.8 | 405.2 | |||||||||||
4.75% Senior notes due 2024(2) | 339.5 | 304.0 | — | — | |||||||||||
8.00% Senior notes due 2024 | 336.5 | 282.2 | 337.0 | 273.7 | |||||||||||
7.375% Senior notes due 2025(2) | 452.5 | 388.3 | — | — | |||||||||||
5.20% Senior notes due 2025 | 664.8 | 494.1 | 664.4 | 443.9 | |||||||||||
7.75% Senior notes due 2026 | 986.1 | 750.7 | 985.0 | 725.5 | |||||||||||
7.20% Debentures due 2027 | 149.4 | 114.8 | 149.3 | 109.1 | |||||||||||
7.875% Senior notes due 2040 | 374.2 | 205.9 | 375.0 | 223.2 | |||||||||||
5.40% Senior notes due 2042(2) | 261.9 | 237.9 | — | — | |||||||||||
5.75% Senior notes due 2044 | 973.4 | 585.9 | 972.9 | 566.3 | |||||||||||
5.85% Senior notes due 2044(2) | 268.0 | 233.8 | — | — | |||||||||||
Total debt | $ | 7,145.4 | $ | 5,734.4 | $ | 5,010.4 | $ | 3,545.8 | |||||||
Less: current maturities | 1,125.3 | 921.2 | — | — | |||||||||||
Total long-term debt | $ | 6,020.1 | $ | 4,813.2 | $ | 5,010.4 | $ | 3,545.8 |
(3)Total outstanding borrowings under our credit facility are $140.6 million and are recorded net of $7.7 million of unamortized deferred financing cost on our condensed consolidated balance sheet. |
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) |
April 11 - June 30, 2019 | |||
Service cost (1) | $ | 0.4 | |
Interest cost (2) | 6.5 | ||
Expected return on plan assets (2) | (8.2 | ) | |
Net periodic pension cost | $ | (1.3 | ) |
(2)Included in other, net, in our condensed consolidated statements of operations. |
Derivative Assets | Derivative Liabilities | Derivative Assets | Derivative Liabilities | |||||||||||||||||||||||||||||||||||||||||||||||
June 30, 2019 | December 31, 2018 | June 30, 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) | $ | .3 | $ | .2 | $ | 4.4 | $ | 8.3 | Foreign currency forward contracts - current(1) | $ | — | $ | .2 | $ | 7.0 | $ | 8.3 | |||||||||||||||||||||||||||||||||
Foreign currency forward contracts - non-current(2) | — | — | .3 | .4 | Foreign currency forward contracts - non-current(2) | — | — | .4 | .4 | |||||||||||||||||||||||||||||||||||||||||
$ | .3 | $ | .2 | $ | 4.7 | $ | 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) | $ | .8 | $ | .4 | $ | .7 | $ | 2.6 | Foreign currency forward contracts - current(1) | $ | .3 | $ | .4 | $ | .8 | $ | 2.6 | |||||||||||||||||||||||||||||||||
Total | $ | 1.1 | $ | .6 | $ | 5.4 | $ | 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) | Gain (Loss) Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing)(2) | |||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||
Foreign currency forward contracts(4) | $ | (1.6 | ) | $ | (7.6 | ) | $ | 1.8 | $ | (.7 | ) | $ | — | $ | (1.0 | ) | |||||||
Total | $ | (1.6 | ) | $ | (7.6 | ) | $ | 1.8 | $ | (.7 | ) | $ | — | $ | (1.0 | ) |
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 (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 | $ | .1 | $ | — | $ | — | |||||||||||
Foreign currency forward contracts(5) | (1.6 | ) | (5.7 | ) | 3.3 | (3.0 | ) | — | (1.2 | ) | |||||||||||||
Total | $ | (1.6 | ) | $ | (5.7 | ) | $ | 3.4 | $ | (2.9 | ) | $ | — | $ | (1.2 | ) |
(2)Gains and losses recognized in income for ineffectiveness and amounts excluded from effectiveness testing were included in other, net, in our condensed consolidated statements of operations. As a result of our adoption of Update 2017-12 on January 1, 2019, ineffectiveness is no longer separately measured and recognized. See additional information in Note 1. (3)Losses on interest rate lock derivatives reclassified from AOCI into income (effective portion) were included in interest expense, net, in our condensed consolidated statements of operations. (4)During the three-month period ended September 30, 2019, $3.4 million of losses were reclassified from AOCI into contract drilling expense and $0.2 million of gains were reclassified from AOCI into depreciation expense in our condensed consolidated statement of operations. During the three-month period ended September 30, 2018, $0.8 million of losses were reclassified from AOCI into contract drilling expense and $0.2 million of gains were reclassified from AOCI into depreciation expense in our condensed consolidated statement of operations. 28 (5)During the nine-month period ended September 30, 2019, $7.1 million of losses were reclassified from AOCI into contract drilling expense and $0.6 million of gains were reclassified from AOCI into depreciation expense in our condensed consolidated statement of operations. During the nine-month period ended September 30, 2018, $1.8 million of gains were reclassified from AOCI into contract drilling expense and $0.6 million of gains were reclassified from AOCI into depreciation expense in our condensed consolidated statement of operations. |
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 June 30, | Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Income (loss) from continuing operations | $ | 407.3 | $ | (142.1 | ) | $ | 219.3 | $ | (282.5 | ) | |||||
Income from continuing operations attributable to noncontrolling interests | (1.8 | ) | (.9 | ) | (4.2 | ) | (0.5 | ) | |||||||
Income (loss) from continuing operations attributable to Valaris | $ | 405.5 | $ | (143.0 | ) | $ | 215.1 | $ | (283.0 | ) |
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) |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Income (loss) from continuing operations attributable to Valaris | $ | 405.5 | $ | (143.0 | ) | $ | 215.1 | $ | (283.0 | ) | |||||
Income from continuing operations allocated to non-vested share awards(1) | (12.1 | ) | (.1 | ) | (6.3 | ) | (.2 | ) | |||||||
Income (loss) from continuing operations attributable to Valaris shares | $ | 393.4 | $ | (143.1 | ) | $ | 208.8 | $ | (283.2 | ) |
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 |
(1)Excludes accrued interest paid to holders of the repurchased senior notes. |
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 | ||||||||||||||||||||
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 |
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 | ) | |||||||||||
Net loss | — | — | — | (151.0 | ) | — | — | .9 | ||||||||||||||||||
Dividends paid ($0.04 per share) | — | — | — | (4.4 | ) | — | — | — | ||||||||||||||||||
Shares issued under share-based compensation plans, net | 3.4 | 1.4 | (.4 | ) | — | — | (1.4 | ) | — | |||||||||||||||||
Distributions to noncontrolling interests | — | — | — | — | — | — | (.7 | ) | ||||||||||||||||||
Repurchase of shares | — | — | — | — | — | (.6 | ) | — | ||||||||||||||||||
Share-based compensation cost | — | — | 7.5 | — | — | — | — | |||||||||||||||||||
Net other comprehensive loss | — | — | — | — | (8.5 | ) | — | — | ||||||||||||||||||
BALANCE, June 30, 2018 | 115.2 | $ | 46.2 | $ | 7,209.5 | $ | 1,232.0 | $ | 20.5 | $ | (72.0 | ) | $ | (2.3 | ) |
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) | ||||||||||||||||||||||||||||
Net loss | — | — | — | (151.0) | — | — | .9 | ||||||||||||||||||||||||||||||||||
Dividends paid ($0.04 per share) | — | — | — | (4.4) | — | — | — | ||||||||||||||||||||||||||||||||||
Shares issued under share-based compensation plans, net | 3.4 | 1.4 | (.4) | — | — | (1.4) | — | ||||||||||||||||||||||||||||||||||
Distributions to noncontrolling interests | — | — | — | — | — | — | (.7) | ||||||||||||||||||||||||||||||||||
Repurchase of shares | — | — | — | — | — | (.6) | — | ||||||||||||||||||||||||||||||||||
Share-based compensation cost | — | — | 7.5 | — | — | — | — | ||||||||||||||||||||||||||||||||||
Net other comprehensive loss | — | — | — | — | (8.5) | — | — | ||||||||||||||||||||||||||||||||||
BALANCE, June 30, 2018 | 115.2 | $ | 46.2 | $ | 7,209.5 | $ | 1,232.0 | $ | 20.5 | $ | (72.0) | $ | (2.3) | ||||||||||||||||||||||||||||
Net loss | — | — | — | (145.0) | — | — | 2.1 | ||||||||||||||||||||||||||||||||||
Dividends paid ($0.04 per share) | — | — | — | (4.5) | — | — | — | ||||||||||||||||||||||||||||||||||
Distributions to noncontrolling interests | — | — | — | — | — | — | (2.0) | ||||||||||||||||||||||||||||||||||
Repurchase of shares | — | — | (.1) | — | — | (.1) | — | ||||||||||||||||||||||||||||||||||
Share-based compensation cost | — | — | 7.2 | — | — | — | — | ||||||||||||||||||||||||||||||||||
Net other comprehensive loss | — | — | — | — | (1.3) | — | — | ||||||||||||||||||||||||||||||||||
BALANCE, September 30, 2018 | 115.2 | $ | 46.2 | $ | 7,216.6 | $ | 1,082.5 | $ | 19.2 | $ | (72.1) | $ | (2.2) |
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 June 30, 2019 | Six Months Ended June 30, 2019 | ||||||
Long-term operating lease cost | $ | 7.0 | $ | 13.2 | |||
Short-term operating lease cost | 2.2 | 5.3 | |||||
Sublease income | (.4 | ) | (.7 | ) | |||
Total operating lease cost | $ | 8.8 | $ | 17.8 |
June 30, 2019 | |||
Operating lease right-of-use assets(1) | $ | 57.1 | |
Current lease liability(1) | $ | 21.5 | |
Long-term lease liability(1) | 48.6 | ||
Total operating lease liabilities | $ | 70.1 | |
Weighted-average remaining lease term (in years) | 5.4 | ||
Weighted-average discount rate (2) | 8.00 | % |
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 15 -Segment Information Prior to the Rowan Transaction, our business consisted of As a result of the Rowan Transaction, we concluded that we would maintain the aforementioned segment structure while adding ARO as a reportable segment for the new combined company. We also concluded that the activities associated with our arrangements with ARO, consisting of our Transition Services Agreement, 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 "Reconciling Items." The full operating results included below for ARO (representing only results of operations of ARO from the Transaction Date) are not included within our consolidated results and thus deducted under "Reconciling Items" and replaced with our equity in earnings of ARO. See Note 4 for additional information on ARO and related arrangements. Segment information for the three-month and 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 16 -Supplemental Financial Information Consolidated Balance Sheet Information 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 Note 5 for additional information on our derivatives. Consolidated revenues by customer for the three-month and
During the (2)During the three-month and nine-month periods ended September 30, 2019, 90% and 93% of revenues provided by Total were attributable to the Floaters segment and the remainder was attributable to the Jackup segments. During the three-month and nine-month periods ended September 30, 2018, all revenues were attributable to the Floaters segment. (3)During the three-month period ended 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 (4)During the three-month and nine-month periods ended September 30, 2019 and 2018, all revenues were attributable to our Floaters segment.
Consolidated revenues by region for the three-month and
(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.
During the (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 17 -Guarantee of Registered Securities In connection with the Pride International LLC ("Pride") acquisition, Valaris and Pride entered into a supplemental indenture to the indenture dated as of July 1, 2004, between Pride and the Bank of New York Mellon, as indenture trustee, providing for, among other matters, the full and unconditional guarantee by Valaris of Pride’s 6.875% unsecured senior notes due 2020 and 7.875% unsecured senior notes due 2040, which had an aggregate outstanding principal balance of Valaris is also a full and unconditional guarantor of the 7.2% debentures due 2027 issued by Ensco International Incorporated during 1997, which had an aggregate outstanding principal balance of Pride and Ensco International Incorporated are 100% owned subsidiaries of Valaris. All guarantees are unsecured obligations of Valaris ranking equal in right of payment with all of its existing and future unsecured and unsubordinated indebtedness. The following tables present the unaudited condensed consolidating statements of operations for the three-month and 44 VALARIS PLC AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS Three Months Ended September 30, 2019 (In millions) (Unaudited)
45
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS Three Months Ended September 30, 2018 (In millions) (Unaudited)
46
(In millions) (Unaudited)
47
Nine Months Ended September 30, 2018 (In millions) (Unaudited)
48
49 VALARIS PLC AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Three Months Ended (In millions) (Unaudited)
50
VALARIS PLC AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions) (Unaudited)
51
VALARIS PLC AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE LOSS (In millions) (Unaudited)
52 September 30, 2019 (In millions) (Unaudited)
53 VALARIS PLC AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEETS December 31, 2018 (In millions)
54
55
56 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 consolidated financial statements as of EXECUTIVE SUMMARY Our Business We are a leading provider of offshore contract drilling services to the international oil and gas industry. Rowan Transaction On October 7, 2018, we entered into a transaction agreement (the "Transaction Agreement") with Rowan As a result of the Rowan Transaction, Rowan shareholders received 2.750 Valaris Class A ordinary shares for each Rowan Class A ordinary share, representing a value of $43.67 per Rowan share based on a closing price of $15.88 per Valaris share on April 10, 2019, the last trading day before the Transaction Date. Total consideration delivered in the Rowan Transaction consisted of 88.3 million Valaris shares with an aggregate value of $1.4 billion. All 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 and (6) $400.0 million in aggregate principal amount of 5.85% 57 unsecured senior notes due 2044. Upon closing of the Rowan Transaction, we terminated Rowan's outstanding credit facilities. 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 at the Transaction Date consisted of 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 from the decade lows reached during 2016, with Brent crude averaging nearly $55 per barrel in 2017 and more than $70 per barrel through most of 2018, leading to signs of a gradual recovery in demand for offshore drilling services. However, macroeconomic and geopolitical headwinds triggered a decline in Brent crude prices in the fourth quarter of 2018, resulting in a decline in prices from more than $85 per barrel 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 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 proactively manage our capital structure in a manner allowing us to most effectively execute our strategic priorities and maximize value for shareholders. In support of these objectives, we are focused on our liquidity, debt levels and cost of 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 Following the completion of the tender offers and August 2019 debt maturity, our debt maturities through 2023 total Backlog Our backlog was 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 During the third quarter of 2019, we executed a four-well contract for VALARIS DS-12 that is expected to commence offshore Angola in April 2020, a one-well contract for VALARIS DS-15 that is expected to commence in the U.S. Gulf of 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 130 floaters since the beginning of the downturn. Approximately Jackups Demand for jackups has improved with increased 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 During the second quarter of 2019, we 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 and classified the rigs as held-for-sale on our September 30, 2019 condensed consolidated balance sheet. In October 2019, we scrapped VALARIS JU-42 and expect to recognize an insignificant gain during the fourth quarter. There are approximately Drilling contractors have retired approximately 100 jackups since the beginning of the downturn. Approximately 90 jackups older than 30 years are idle and approximately In July 2019, a well being drilled offshore Indonesia by one of our jackup rigs experienced a 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 and Gorilla IV during the second quarter, which were older, less capable jackup rigs. During the third quarter of 2019, we began marketing VALARIS 5006, VALARIS JU-68 and VALARIS JU-42 for sale and classified these rigs as held-for-sale as of September 30, 2019. In October 2019, we sold VALARIS JU-42 for scrap value. See Note 8 for more information on the impairment charge associated with VALARIS 5006. The carrying value of VALARIS JU-68 and JU-42 approximated their respective estimated fair values, less selling costs; therefore, no impairment charges were recorded upon classification of these rigs as held-for-sale. 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 three-month and
Overview Revenues increased 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, Contract drilling expense increased 62 Contract drilling expense increased $332.8 million, or 33%, for the nine-month period ended September 30, 2019, as compared to the prior year period, primarily due to $267.0 million of contract drilling expense incurred by the Rowan rigs and the commencement of drilling operations for VALARIS DS-10, VALARIS DS-9, VALARIS JU-140, VALARIS JU-141 and VALARIS JU-123. This increase was partially offset by the sale of ENSCO 6001, ENSCO 97 and ENSCO 80, which operated in the prior year Depreciation expense increased 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 operations. General and administrative expenses increased by Other income increased Other income increased $795.5 million for the nine-month period ended September 30, 2019, primarily due to $659.8 million of estimated gain on bargain purchase recognized in connection with the Rowan Transaction and the aforementioned gain on debt extinguishment, partially offset by 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 as of
(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 for the three-month and
Operating Income by Segment Prior to the Rowan Transaction, our business consisted of three operating segments: (1) Floaters, which included our drillships and semisubmersible rigs, (2) Jackups and (3) Other, which consisted only of our management services provided on rigs owned by third-parties. Our Floaters and Jackups segments were also reportable segments. As a result of the Rowan Transaction, we concluded that we would maintain the aforementioned segment structure while adding ARO as a reportable segment for the new combined company. We also concluded that the activities associated with our arrangements with ARO, consisting of our Transition Services Agreement, Rig Lease Agreements and Secondment Agreement, do not constitute reportable segments and are therefore included within Other in the following segment disclosures. Substantially all of the expenses incurred associated with our Transition Services Agreement are included in general and administrative under "Reconciling Items" in the table set forth below. 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 "Reconciling Items." The full operating results included below for ARO (representing only results of ARO from the Transaction Date) are not included within our consolidated results and thus deducted under "Reconciling Items" and replaced with our equity in earnings of ARO. See Note 4 for additional information on ARO and related arrangements. Segment information for the three-month and Three Months Ended
65
Three Months Ended
Nine Months Ended
66
Floaters Floater revenue increased 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 Floater contract drilling expense increased Floater contract drilling expense increased 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 Jackups Jackup revenues increased 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 expense increased 67 Jackup contract drilling expense increased $171.0 million, or 44%, for the nine-month period ended September 30, 2019, as compared to the prior year period, primarily due $131.3 million of contract drilling expense incurred by the Rowan rigs and the commencement of VALARIS JU-140, VALARIS JU-141 and VALARIS JU-123 drilling operations. This increase was partially offset by the sale of ENSCO 80 and ENSCO 97, which operated in the prior year period. Jackup depreciation expense for the three-month and ARO ARO currently owns a fleet of seven jackup rigs, leases another nine jackup rigs from us and The operating revenues of ARO reflect revenues earned under drilling contracts with Saudi Aramco for the seven ARO-own jackup rigs and the The contract drilling, depreciation and general and administrative expenses are also for the period from the Transaction Date through Other Other revenues increased Other revenues increased $93.7 million, or 207%, for the nine-month period ended September 30, 2019, as compared to the prior year period, primarily due to revenues earned from our rigs leased to ARO and revenues earned under the Secondment Agreement and Transition Services Agreement of $37.0 million, $33.5 million and $10.2 million, respectively. Other contract drilling expenses increased 68 Other Income (Expense) The following table summarizes other income (expense) for the three-month and
Interest income for the three-month and Interest expense for the three-month and Interest expense capitalized during the three-month and Other, net, for the three-month Other, net, for the nine-month period ended September 30, 2019 increased as compared to the prior year period primarily due to $659.8 million of gain on bargain purchase recognized in connection with the Rowan Our functional currency is the U.S. dollar, and a portion of the revenues earned and expenses incurred by certain of our subsidiaries are denominated in currencies other than the U.S. dollar. These transactions are remeasured in U.S. dollars based on a combination of both current and historical exchange rates. Net foreign currency exchange 69 Provision for Income Taxes Valaris plc, our parent company, is domiciled and resident in the U.K. Our subsidiaries conduct operations and earn income in numerous countries and are subject to the laws of taxing jurisdictions within those countries. The income of our non-U.K. subsidiaries is generally not subject to U.K. taxation. Income tax rates imposed in the tax jurisdictions in which our subsidiaries conduct operations vary, as does the tax base to which the rates are applied. In some cases, tax rates may be applicable to gross revenues, statutory or negotiated deemed profits or other bases utilized under local tax laws, rather than to net income. 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 benefit for the three-month period ended Discrete income tax benefit for the 70 LIQUIDITY AND CAPITAL RESOURCES We proactively manage our capital structure in a manner allowing us to most effectively execute our strategic priorities and maximize value for shareholders. In support of these objectives, we are focused on our liquidity, debt levels and cost of 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 and (6) $400.0 million in aggregate principal amount of 5.85% unsecured senior notes due 2044. Upon closing of the Rowan Transaction, we terminated Rowan's outstanding credit facilities. 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
and our July tender offers, $174.2 million for the construction, enhancement and other improvements of our drilling rigs and $427.5 million for operating activities. 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 During the second quarter, we accepted the delivery of 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. (2)Total commitments are based on fixed-price shipyard construction contracts, exclusive of costs associated with commissioning, systems integration testing, project management, holding costs and interest. (3)During the third quarter of 2019, we entered into amendments to our construction agreements with the shipyard for VALARIS DS-13 and VALARIS DS-14 to provide for, among other things, two-year extensions of the delivery date of each rig in exchange for payment of all accrued holding costs through March 31, 2019, totaling approximately $23 million. The new delivery dates for the VALARIS DS-13 and VALARIS DS-14 are September 30, 2021 and June 30, 2022, respectively. We can elect to request earlier delivery in certain circumstances. The interest rate on the final milestone payments increased from 5% to 7% per annum from October 1, 2019, for the VALARIS DS-13, and from July 1, 2020, for the VALARIS DS-14, until the actual delivery dates. The final milestone payments and interest are due at the new delivery dates (or, if accelerated, the actual delivery dates) and are estimated to be approximately $313 million in aggregate for both rigs, inclusive of interest, assuming we take delivery on the new delivery dates. 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 we expect to take delivery of the rig. However, we may elect to execute the promissory notes and defer payment until December 2022. 72
Based on our current projections, excluding integration-related capital expenditures, we expect total capital expenditures during 2019 to include approximately 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 Debt Tender Offers On June 25, 2019, we commenced cash tender offers
During the third quarter of 2019, we Following the completion of the tender offers and August 2019 debt maturity, our debt maturities through 2023 total 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 pay a quarterly dividend of $0.01 per share); borrowings, if after giving effect to such borrowings and the application of the proceeds thereof, the aggregate amount of available cash (as defined in the credit facility) would exceed $200 million; and entering into certain transactions with affiliates. 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 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. During 2018, our shareholders approved our current share repurchase program. Subject to certain provisions under English law, including the requirement of the Company to have sufficient distributable reserves, we may repurchase shares 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. The program terminates in May 2023. As of 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 third-party financing, each partner may periodically be required to make additional capital contributions to ARO, up to a maximum aggregate contribution of $1.25 billion to fund the newbuild program. Each partner's commitment shall be reduced by the actual cost of each newbuild rig, on a proportionate basis. See Note 3 for additional information on the Rowan Transaction and Note 4 for additional information on our joint venture with ARO. Liquidity Our liquidity position is summarized in the table below (in millions, except ratios):
We expect to fund our liquidity needs, including contractual obligations and anticipated capital expenditures, as well as working capital requirements, from cash, Recent Tax Assessments During 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 months. See Note 7 for additional information on our derivative instruments. 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, included in our annual report on Form 10-K filed with the SEC on February 28, 2019. These policies, along with our underlying judgments and assumptions made in their application, have a significant impact on our condensed consolidated financial statements. We identify our critical accounting policies as those that are the most pervasive and important to the portrayal of our financial position and operating results and that require the most difficult, subjective and/or complex judgments by 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 pension and other post-retirement benefits. For a discussion of the critical accounting policies and estimates that we use in the preparation of our condensed consolidated financial statements, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates" in Part II of our annual report on Form 10-K for the year ended December 31, 2018, in addition to our critical accounting policy related to pensions and other post-retirement benefits as set forth below. 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 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 Based on their evaluation as of Changes in Internal Controls – There have been no changes in our internal controls over financial reporting during the fiscal quarter ended 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 April 2016, we initiated separate arbitration proceedings in the U.K. against SHI for the losses incurred in connection with the foregoing Petrobras arbitration and certain other losses relating to the DSA. In January 2018, the arbitration tribunal for the SHI matter issued an award on liability fully in our favor. 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 English High Court decision as to whether it will hear the appeal, which decision is expected in the fourth quarter of 2019. There can be no assurance when we will collect all or any portion of the damages awarded or any related interest or costs. 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 proceeding. At this time, we are unable to predict the outcome of these matters or estimate the extent to which we may be exposed to any resulting liability. Although we do not expect final disposition of this matter to have a material adverse effect on our financial position, operating results and cash flows, there can be no assurance as to the ultimate outcome of the proceedings. 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 on Form 10-K for the year ended December 31, 2018 and in our Form 10-Q for the quarter ended March 31, 2019. 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, equity securities were repurchased from employees and non-employee directors by an affiliated employee benefit trust in connection with the settlement of income tax withholding obligations arising from the vesting of share awards. Such securities remain available for re-issuance in connection with employee share awards. (2)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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