UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20192020
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to__________


Commission File Number 1-8097
 Valaris plc
(Exact name of registrant as specified in its charter)
England and Wales98-0635229
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer
Identification No.)
6 Chesterfield GardensEngland and Wales98-0635229
London,
(State or other jurisdiction of
incorporation or organization)
EnglandW1J 5BQ
(I.R.S. Employer
Identification No.)
110 Cannon Street
London,EnglandEC4N 6EU
(Address of principal executive offices)(Zip Code)
 Registrant's telephone number, including area code:  44 (0) 207659 4660
  
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTicker Symbol(s)Name of each exchange on which on which registered
Class A ordinary shares, U.S. $0.40 par valueVALNew York Stock Exchange
4.70% Senior Notes due 2021VAL21New York Stock Exchange
4.875% Senior Notes due 2022VAL/22New York Stock Exchange
4.50% Senior Notes due 2024VAL24New York Stock Exchange
4.75% Senior Notes due 2024VAL/24New York Stock Exchange
8.00% Senior Notes due 2024VAL24ANew York Stock Exchange
5.20% Senior Notes due 2025VAL25ANew York Stock Exchange
7.375% Senior Notes due 2025VAL/25New York Stock Exchange
7.75% Senior Notes due 2026VAL26New York Stock Exchange
5.4% Senior Notes due 2042VAL/42New York Stock Exchange
5.75% Senior Notes due 2044VAL44New York Stock Exchange
5.85% Senior Notes due 2044VAL/44New York Stock Exchange

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒        No  ☐



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer☒Accelerated filer☐
Large accelerated filer☒Accelerated filer☐
Non-Accelerated filer☐Smaller reporting company☐
Emerging-growth company☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐ No  ☒



As of October 23, 2019,July 24, 2020, there were 197,877,182199,430,217 Class A ordinary shares of the registrant issued and outstanding.



VALARIS PLC
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBERJUNE 30, 20192020

PART I      FINANCIAL INFORMATION
ITEM 1.   FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
34
Condensed Consolidated Statements of Operations

Three Months Ended SeptemberJune 30, 20192020 and 20182019
45
Condensed Consolidated Statements of Operations
Nine
Six Months Ended SeptemberJune 30, 20192020 and 20182019
56
Condensed Consolidated Statements of Comprehensive Loss
Income (Loss)
Three Months Ended SeptemberJune 30, 20192020 and 20182019
67
Condensed Consolidated Statements of Comprehensive Income (Loss)
Nine(Loss)
Six Months Ended SeptemberJune 30, 20192020 and 20182019
78
Condensed Consolidated Balance Sheets
September
June 30, 20192020 and December 31, 20182019
89
Condensed Consolidated Statements of Cash Flows
Nine
Six Months Ended SeptemberJune 30, 20192020 and 20182019
910
Notes to Condensed Consolidated Financial Statements
1011
ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
5755
ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
7876
ITEM 4.   CONTROLS AND PROCEDURES
7876
PART II     OTHER INFORMATION
ITEM 1.   LEGAL PROCEEDINGS
8077
ITEM 1A. RISK FACTORS
8278
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
8379
ITEM 6.  EXHIBITS
8480
SIGNATURES
8581



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

Such statements are subject to numerous risks, uncertainties and assumptions that may cause actual results to vary materially from those indicated, particularly in light of difficult market conditions, our projected negative cash flows in 2020 and highly leveraged balance sheet, including:
•our failure to satisfy the obligations with respect to our indebtedness, including our missed interest payments and other cross-defaults or payment defaults, and any expiration of the related forbearance and waiver agreements with our lenders and bondholders, which have raised substantial doubt about our ability to continue as a going concern;
the outcome of any discussions with our lenders and bondholders regarding the terms of a potential restructuring of our indebtedness or reorganization of the Company and any resulting dilution for our shareholders;
the COVID-19 global pandemic, the related public health measures implemented by governments worldwide and the decline in oil prices during 2020, including the duration and severity of the outbreak, the duration of the price and demand decline and the extent of disruptions to our operations;
the dispute over production levels among members of the Organization of Petroleum Exporting Countries and other oil and gas producing nations (“OPEC+”);
decreases in levels of drilling activity and capital expenditures by our customers, whether as a result of the global capital markets and liquidity, prices of oil and natural gas or otherwise, which may cause us to idle or stack additional rigs;
delays in contract commencement dates or cancellation, suspension, renegotiation or termination (with or without cause) of drilling contracts or drilling programs as a result of general and industry-specific economic conditions, mechanical difficulties, performance or other reasons;
potential additional asset impairments, including the impact of any impairment on our compliance with debt covenants, our ability to continue to borrow under our revolving credit facility and any resulting acceleration of our debt;



our ability to obtain financing, service our indebtedness, fund negative cash flows and capital expenditures and pursue other business opportunities, which may be limited by our significant debt levels, debt agreement restrictions and the credit ratings assigned to our debt by independent credit rating agencies;
the adequacy of sources of liquidity for us and our customers;
the reaction of our customers, prospective customers, suppliers and service providers to the increased performance and credit risks associated with our constrained liquidity position and capital structure, which reflects a recently increased risk of bankruptcy or insolvency proceedings;
potential delisting of our Class A ordinary shares from the New York Stock Exchange ("NYSE") if we fail to satisfy the NYSE's minimum share price requirement, which could result in the holders of our 2024 Convertible Notes having the right to require us to repurchase the notes at a price equal to the principal amount thereof plus accrued interest to the repurchase date;
our ability to attract and retain skilled personnel on commercially reasonable terms, whether due to labor regulations, unionization, or otherwise, or to retain employees, customers or suppliers as a result of our financial condition generally or as a result of a potential restructuring of our indebtedness or reorganization of the Company;
internal control risk due to significant employee reductions;
our ability to successfully integrate the business, operations and employees of Rowan Companies Limited (formerly named Rowan Companies plc) ("Rowan") and the Company to realize synergies and cost savings in connection with the Rowan Transaction (as defined herein);
•changes in future levels of drilling activity and capital expenditures by our customers, whether as a result of global capital markets and liquidity, prices of oil and natural gas or otherwise;
•changes in worldwide rig supply and demand, competition or technology, including as a result of delivery of newbuild drilling rigs;
•downtime and other risks associated with offshore rig operations, including rig or equipment failure, damage and other unplanned repairs, the limited availability of transport vessels, hazards, self-imposed drilling limitations and other delays due to severe storms and hurricanes and the limited availability or high cost of insurance coverage for certain offshore perils, such as hurricanes in the Gulf of Mexico or associated removal of wreckage or debris;
•our ability to successfully recover losses from underwriters under our loss of hire policy in connection with the VALARIS DS-8 non-drilling incident;
governmental action, terrorism, piracy, military action and political and economic uncertainties, including uncertainty or instability resulting from the U.K.'s withdrawal from the European Union, civil unrest, political demonstrations, mass strikes, or an escalation or additional outbreak of armed hostilities or other crises in oil or natural gas producing areas of the Middle East, North Africa, West Africa or other geographic areas, which may result in expropriation, nationalization, confiscation or deprivation or destruction of our assets,assets; or suspension and/or termination of contracts based on force majeure events or adverse environmental safety events;
•risks inherent to shipyard rig construction, repair, modification or upgrades, unexpected delays in equipment delivery, engineering, design or commissioning issues following delivery, or changes in the commencement, completion or service dates;
•possible cancellation, suspension, renegotiation or termination (with or without cause) of drilling contracts as a result of general and industry-specific economic conditions, mechanical difficulties, performance or other reasons;
•our ability to enter into, and the terms of, future drilling contracts, including contracts for our newbuild units and acquired rigs, for rigs currently idled and for rigs whose contracts are expiring;
1

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

governmental regulatory, legislative and permitting requirements affecting drilling operations, including limitations on drilling locations (such as the Gulf of Mexico during hurricane season); and regulatory measures to limit or reduce greenhouse gases;
•potential impacts on our business resulting from climate-change or greenhouse gas legislation or regulations, and the impact on our business from climate-change related physical changes or changes in weather patterns;
new and future regulatory, legislative or permitting requirements, future lease sales, changes in laws, rules and regulations that have or may impose increased financial responsibility, additional oil spill abatement contingency plan capability requirements and other governmental actions that may result in claims of force majeure or otherwise adversely affect our existing drilling contracts, operations or financial results;
•our ability to attract and retain skilled personnel on commercially reasonable terms, whether due to labor regulations, unionization or otherwise;
•environmental or other liabilities, risks, damages or losses, whether related to storms, hurricanes or hurricanesother weather-related events (including wreckage or debris removal), collisions, groundings, blowouts, fires, explosions, other accidents, terrorism or otherwise, for which insurance coverage and contractual indemnities may be insufficient, unenforceable or otherwise unavailable;
•our ability to obtain financing, service our indebtedness, fund negative cash flow and capital expenditures and pursue other business opportunities may be limited by our debt levels, debt agreement restrictions and the credit ratings assigned to our debt by independent credit rating agencies;
•the adequacy of sources of liquidity for us and our customers;
•tax matters, including our effective tax rates, tax positions, results of audits, changes in tax laws, treaties and regulations, tax assessments and liabilities for taxes;
•our ability to realize the expected benefits of our joint venture with Saudi Aramco, including our ability to fund any required capital contributions;
•delays in contract commencement dates or the cancellation of drilling programsactivism by operators;our security holders;
•economic volatility and political, legal and tax uncertainties following the June 23, 2016, vote in the U.K. to exit from the European Union;
•the occurrence of cybersecurity incidents, attacks or other breaches to our information technology systems, including our rig operating systems; and
•adverse changes in foreign currency exchange rates, including their effect on the fair value measurement of our derivative instruments; and
•potential long-lived asset impairments, including the impact of any impairment on our debt covenants.instruments.
In addition to the numerous risks, uncertainties and assumptions described above, you should also carefully read and consider "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part I and "Item 1A. Risk Factors" in Part II of this report and "Item 1A. Risk Factors" in Part I and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II of our annual report on Form 10-K for the year ended December 31, 2018,2019, as updated in Item 1A of Part II of our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, which is available on the U.S. Securities and Exchange Commission (the "SEC") website at www.sec.gov. Each forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to publicly update or revise any forward looking statements, except as required by law.

2


PART I - FINANCIAL INFORMATION

Item 1.Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
TheTo the Board of Directors and Shareholders
Valaris plc:
 
Results of Review of Interim Financial Information
We have reviewed the condensed consolidated balance sheet of Valaris plc and subsidiaries (the Company, formerly known as Ensco Rowan plc and Ensco plc) as of SeptemberJune 30, 2019,2020, the related condensed consolidated statements of operations and comprehensive income (loss) for the three-monththree and nine-monthsix-month periods ended SeptemberJune 30, 20192020 and 2018,2019, the related condensed consolidated statements of cash flows for the nine-monthsix-month periods ended SeptemberJune 30, 20192020 and 2018,2019, and the related notes (collectively, the consolidated interim financial information). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial information for it to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2018,2019, and the related consolidated statements of operations, comprehensive income (loss),loss, and cash flows for the year then ended (not presented herein); and in our report dated February 28, 2019,21, 2020, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2018,2019, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Inability to Continue as a Going Concern
As indicated in Note 1 of the Company's unaudited condensed consolidated interim financial information as of June 30, 2020 and for the three-month and six-month periods then ended, certain conditions indicate that the Company may be unable to continue as a going concern. The accompanying unaudited and condensed consolidated interim financial information does not include any adjustments that might result from the outcome of this uncertainty.
Basis for Review Results
This consolidated interim financial information is the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our reviews in accordance with the standards of the PCAOB. A review of consolidated interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
 
/s/ KPMG LLP
 
Houston, Texas
October 31, 2019July 30, 2020
3

VALARIS PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
Three Months Ended
September 30,
20192018
OPERATING REVENUES$551.3  $430.9  
OPERATING EXPENSES 
Contract drilling (exclusive of depreciation)496.5  327.1  
Loss on impairment88.2  —  
Depreciation163.0  120.6  
General and administrative36.1  25.1  
Total operating expenses783.8  472.8  
EQUITY IN EARNINGS OF ARO(3.7) —  
OPERATING LOSS(236.2) (41.9) 
OTHER INCOME (EXPENSE)
Interest income6.7  3.6  
Interest expense, net(113.9) (72.2) 
Other, net147.4  (9.1) 
 40.2  (77.7) 
LOSS BEFORE INCOME TAXES(196.0) (119.6) 
PROVISION FOR INCOME TAXES
Current income tax expense (benefit)22.6  (5.7) 
Deferred income tax expense (benefit)(21.1) 29.0  
 1.5  23.3  
NET LOSS(197.5) (142.9) 
NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS.4  (2.1) 
NET LOSS ATTRIBUTABLE TO VALARIS$(197.1) $(145.0) 
LOSS PER SHARE - BASIC AND DILUTED$(1.00) $(1.34) 
WEIGHTED-AVERAGE SHARES OUTSTANDING
Basic and Diluted197.6  108.6  
 Three Months Ended
June 30,
 2020 2019
OPERATING REVENUES$388.8

$583.9
OPERATING EXPENSES

 
Contract drilling (exclusive of depreciation)370.7
 500.3
Loss on impairment838.0
 2.5
Depreciation131.5

157.9
General and administrative62.6

81.2
Total operating expenses1,402.8

741.9
EQUITY IN EARNINGS OF ARO(5.2) .6
OPERATING LOSS(1,019.2)
(157.4)
OTHER INCOME (EXPENSE)   
Interest income5.7

11.9
Interest expense, net(116.2)
(118.3)
Other, net5.1

703.7
 (105.4)
597.3
INCOME (LOSS) BEFORE INCOME TAXES(1,124.6)
439.9
PROVISION (BENEFIT) FOR INCOME TAXES   
Current income tax expense13.8
 21.2
Deferred income tax expense (benefit)(29.6) 11.4
 (15.8)
32.6
NET INCOME (LOSS)(1,108.8)
407.3
NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS1.4

(1.8)
NET INCOME (LOSS) ATTRIBUTABLE TO VALARIS$(1,107.4)
$405.5
EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED$(5.58) $2.09
WEIGHTED-AVERAGE SHARES OUTSTANDING   
Basic and Diluted198.6

188.6
The accompanying notes are an integral part of these condensed consolidated financial statements.
4

VALARIS PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
Nine Months Ended
September 30,
20192018
OPERATING REVENUES$1,541.1  $1,306.4  
OPERATING EXPENSES  
Contract drilling (exclusive of depreciation)1,329.4  996.6  
Loss on impairment90.7  —  
Depreciation445.9  356.5  
General and administrative146.9  79.1  
Total operating expenses2,012.9  1,432.2  
EQUITY IN EARNINGS OF ARO(3.1) —  
OPERATING LOSS(474.9) (125.8) 
OTHER INCOME (EXPENSE)  
Interest income22.1  10.5  
Interest expense, net(313.2) (213.5) 
Other, net853.4  (30.2) 
 562.3  (233.2) 
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES87.4  (359.0) 
PROVISION FOR INCOME TAXES  
Current income tax expense69.4  21.5  
Deferred income tax expense (benefit)(3.8) 44.9  
 65.6  66.4  
INCOME (LOSS) FROM CONTINUING OPERATIONS21.8  (425.4) 
LOSS FROM DISCONTINUED OPERATIONS, NET—  (8.1) 
NET INCOME (LOSS)21.8  (433.5) 
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS(3.8) (2.6) 
NET INCOME (LOSS) ATTRIBUTABLE TO VALARIS$18.0  $(436.1) 
EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED
Continuing operations$0.10  $(3.94) 
Discontinued operations—  (0.08) 
$0.10  $(4.02) 
WEIGHTED-AVERAGE SHARES OUTSTANDING
Basic and Diluted165.2  108.5  
 Six Months Ended
June 30,
 2020 2019
OPERATING REVENUES$845.4

$989.8
OPERATING EXPENSES 
 
Contract drilling (exclusive of depreciation)846.7

832.9
Loss on impairment3,646.2
 2.5
Depreciation296.0

282.9
General and administrative116.0

110.8
Total operating expenses4,904.9

1,229.1
EQUITY IN EARNINGS OF ARO(11.5) .6
OPERATING LOSS(4,071.0)
(238.7)
OTHER INCOME (EXPENSE) 
  
Interest income10.5

15.4
Interest expense, net(229.4)
(199.3)
Other, net5.6

706.0
 (213.3)
522.1
INCOME (LOSS) BEFORE INCOME TAXES(4,284.3)
283.4
PROVISION (BENEFIT) FOR INCOME TAXES   
Current income tax expense (benefit)(58.7) 46.8
Deferred income tax expense (benefit)(109.1) 17.3
 (167.8)
64.1
NET INCOME (LOSS)(4,116.5)
219.3
NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS2.8

(4.2)
NET INCOME (LOSS) ATTRIBUTABLE TO VALARIS$(4,113.7)
$215.1
EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED$(20.75) $1.40
WEIGHTED-AVERAGE SHARES OUTSTANDING   
Basic and Diluted198.3
 148.9
The accompanying notes are an integral part of these condensed consolidated financial statements.
5

VALARIS PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In millions)
(Unaudited)
Three Months Ended
September 30,
20192018
NET LOSS$(197.5) $(142.9) 
OTHER COMPREHENSIVE LOSS, NET  
Net change in derivative fair value(5.7) (1.9) 
Reclassification of net losses on derivative instruments from other comprehensive loss into net loss4.9  .7  
Other(.2) (.1) 
NET OTHER COMPREHENSIVE LOSS(1.0) (1.3) 
COMPREHENSIVE LOSS(198.5) (144.2) 
COMPREHENSIVE (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS.4  (2.1) 
COMPREHENSIVE LOSS ATTRIBUTABLE TO VALARIS$(198.1) $(146.3) 

The accompanying notes are an integral part of these condensed consolidated financial statements.
6

VALARIS PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions)
(Unaudited)
Nine Months Ended
September 30,
20192018
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  $(446.3) 
 Three Months Ended
June 30,
 2020 2019
NET INCOME (LOSS)$(1,108.8) $407.3
OTHER COMPREHENSIVE INCOME (LOSS), NET   
Net change in derivative fair value4.8
 (1.6)
Reclassification of net (gains) losses on derivative instruments from other comprehensive income (loss) into net income (loss)(10.9) 1.8
NET OTHER COMPREHENSIVE INCOME (LOSS)(6.1) .2
COMPREHENSIVE INCOME (LOSS)(1,114.9) 407.5
COMPREHENSIVE (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS1.4
 (1.8)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO VALARIS$(1,113.5) $405.7

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

7

VALARIS PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETSSTATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions, except share and par value amounts)millions)
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, net567.0  344.7  
    Other current assets487.5  360.9  
Total current assets1,184.0  1,309.7  
PROPERTY AND EQUIPMENT, AT COST18,392.9  15,517.0  
    Less accumulated depreciation3,142.2  2,900.8  
       Property and equipment, net15,250.7  12,616.2  
LONG-TERM NOTES RECEIVABLE FROM ARO452.9  —  
INVESTMENT IN ARO138.2  —  
OTHER ASSETS204.8  97.8  
 $17,230.6  $14,023.7  
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES  
Accounts payable - trade$326.4  $210.5  
Accrued liabilities and other407.7  318.0  
Current maturities of long-term debt125.5  —  
Total current liabilities859.6  528.5  
LONG-TERM DEBT6,042.3  5,010.4  
OTHER LIABILITIES798.2  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, 201882.4  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 capital8,617.5  7,225.0  
Retained earnings887.7  874.2  
Accumulated other comprehensive income18.9  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' equity9,531.4  8,091.4  
NONCONTROLLING INTERESTS(0.9) (2.6) 
Total equity9,530.5  8,088.8  
 $17,230.6  $14,023.7  
(Unaudited)
 Six Months Ended
June 30,
 2020 2019
NET INCOME (LOSS)$(4,116.5) $219.3
OTHER COMPREHENSIVE INCOME (LOSS), NET   
Net change in derivative fair value(8.1) (1.6)
Reclassification of net (gains) losses on derivative instruments from other comprehensive income (loss) into net income (loss)(11.0) 3.4
Other(.4) (.1)
NET OTHER COMPREHENSIVE INCOME (LOSS)(19.5) 1.7
COMPREHENSIVE INCOME (LOSS)(4,136.0) 221.0
COMPREHENSIVE (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS2.8
 (4.2)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO VALARIS$(4,133.2) $216.8

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

8

VALARIS PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share and par value amounts)
 June 30,
2020		 December 31,
2019
 (Unaudited)  
ASSETS
CURRENT ASSETS   
    Cash and cash equivalents$202.0

$97.2
    Accounts receivable, net363.3

520.7
    Other current assets500.8

446.5
Total current assets1,066.1

1,064.4
PROPERTY AND EQUIPMENT, AT COST13,220.3

18,393.8
    Less accumulated depreciation2,027.7

3,296.9
       Property and equipment, net11,192.6

15,096.9
LONG-TERM NOTES RECEIVABLE FROM ARO452.8
 452.9
INVESTMENT IN ARO117.2
 128.7
OTHER ASSETS210.2

188.3
 $13,038.9

$16,931.2
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES   
Accounts payable - trade$151.9

$288.2
Accrued liabilities and other398.1

417.7
Current maturities of long-term debt2,518.1

124.8
Total current liabilities3,068.1

830.7
LONG-TERM DEBT4,092.2

5,923.5
OTHER LIABILITIES693.2

867.4
COMMITMENTS AND CONTINGENCIES





VALARIS SHAREHOLDERS' EQUITY 
  
Class A ordinary shares, U.S. $.40 par value, 206.1 and 205.9 million shares issued as of June 30, 2020 and December 31, 201982.5

82.4
Class B ordinary shares, £1 par value, 50,000 shares issued as of June 30, 2020 and December 31, 2019.1

.1
Additional paid-in capital8,639.9

8,627.8
Retained (deficit) earnings(3,442.0)
671.7
Accumulated other comprehensive (loss) income(13.3)
6.2
Treasury shares, at cost, 6.8 million and 7.9 million shares as of June 30, 2020 and December 31, 2019(76.8)
(77.3)
Total Valaris shareholders' equity5,190.4

9,310.9
NONCONTROLLING INTERESTS(5.0)
(1.3)
Total equity5,185.4

9,309.6
 $13,038.9

$16,931.2
The accompanying notes are an integral part of these condensed consolidated financial statements.


VALARIS PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 Nine Months Ended
September 30, 		 
 20192018
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 expense445.9  356.5  
(Gain) loss on extinguishment of debt(194.1) 19.0  
Loss on impairment90.7  —  
Share-based compensation expense28.7  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 ARO3.1  —  
Loss from discontinued operations, net—  8.1  
Other13.4  (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 acquired931.9  —  
Maturities of short-term investments474.0  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 operations1,091.6  (362.7) 
FINANCING ACTIVITIES  
Reduction of long-term borrowings(928.1) (771.2) 
Borrowings on credit facility175.0  —  
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 PERIOD275.1  445.4  
CASH AND CASH EQUIVALENTS, END OF PERIOD$129.5  $196.0  
 Six Months Ended
June 30,
 2020 2019
OPERATING ACTIVITIES 
  
Net income (loss)$(4,116.5)
$219.3
Adjustments to reconcile net income (loss) to net cash used in operating activities:   
Loss on impairment3,646.2
 2.5
Depreciation expense296.0

282.9
Deferred income tax expense (benefit)(109.1) 17.3
Debt discounts and other28.8
 8.7
Share-based compensation expense13.5
 19.2
Amortization, net12.2
 (17.3)
Equity in earnings of ARO11.5
 (.6)
(Gain on) adjustment to bargain purchase6.3
 (712.8)
Other(2.7)
2.9
   Changes in operating assets and liabilities(156.7)
(111.5)
   Contributions to pension plans and other post-retirement benefits(10.6) (4.0)
Net cash used in operating activities(381.1)
(293.4)
INVESTING ACTIVITIES   
Additions to property and equipment(67.1) (134.8)
Net proceeds from disposition of assets13.8
 4.5
Maturities of short-term investments—

339.0
Rowan cash acquired—
 931.9
Purchases of short-term investments—

(145.0)
Net cash provided by (used in) investing activities(53.3)
995.6
FINANCING ACTIVITIES   
Borrowings on credit facility566.0
 —
Repayments of credit facility borrowings(15.0) —
Reduction of long-term borrowings(9.7) —
Debt solicitation fees—
 (8.7)
Cash dividends paid—

(4.5)
Other(1.9)
(4.7)
Net cash provided by (used in) financing activities539.4

(17.9)
Effect of exchange rate changes on cash and cash equivalents(.2)
(.3)
INCREASE IN CASH AND CASH EQUIVALENTS104.8

684.0
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD97.2

275.1
CASH AND CASH EQUIVALENTS, END OF PERIOD$202.0

$959.1

The accompanying notes are an integral part of these condensed consolidated financial statements.
9

VALARIS PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 -Unaudited Condensed Consolidated Financial Statements
 
On April 11, 2019, we completed our combination with Rowan Companies Limited (formerly named Rowan Companies plc) ("Rowan") and effected a four-to-one share consolidation (being a reverse stock split under English law or the "Reverse Stock Split") and changed our name to Ensco Rowan plc. On July 30, 2019, we changed our name to Valaris plc. All share and per-share amounts in these financial statements have been retrospectively adjusted to reflect the Reverse Stock Split.

We prepared the accompanying condensed consolidated financial statements of Valaris plc and subsidiaries (the "Company," "Valaris," "our," "we" or "us") in accordance with accounting principles generally accepted in the United States of America ("GAAP"), pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") included in the instructions to Form 10-Q and Article 10 of Regulation S-X. The financial information included in this report is unaudited but, in our opinion, includes all adjustments (consisting of normal recurring adjustments) that are necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods presented. The December 31, 20182019 condensed consolidated balance sheet data was derived from our 20182019 audited consolidated financial statements but does not include all disclosures required by GAAP. The preparation of our condensed consolidated financial statements requires us to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the related revenues and expenses and disclosures of gain and loss contingencies as of the date of the financial statements. Actual results could differ from those estimates.
 
The financial data for the quartersthree and six months ended SeptemberJune 30, 20192020 and 20182019 included herein have been subjected to a limited review by KPMG LLP, our independent registered public accounting firm. The accompanying independent registered public accounting firm's review report is not a report within the meaning of Sections 7 and 11 of the Securities Act, and the independent registered public accounting firm's liability under Section 11 does not extend to it.
 
Results of operations for the quarterthree and six months ended SeptemberJune 30, 20192020 are not necessarily indicative of the results of operations that will be realized for the year ending December 31, 2019.2020. We recommend these condensed consolidated financial statements be read in conjunction with our annual report on Form 10-K for the year ended December 31, 2018,2019, filed with the SEC on February 28, 2019.21, 2020.

Going Concern

Following several years of market volatility beginning with oil price declines in 2014, as we entered 2020, we expected that volatility to continue over the near-term with the expectation that long-term oil prices would remain at levels sufficient to support a continued gradual recovery in the demand for offshore drilling services. We were focused on opportunities to put our rigs to work, manage liquidity, extend our financial runway, and reduce debt as we sought to navigate the extended market downturn and improve our balance sheet. Recognizing our ability to maintain a sufficient level of liquidity to meet our financial obligations depended upon our future performance, which is subject to general economic conditions, industry cycles and financial, business and other factors affecting our operations, many of which are beyond our control, we had significant financial flexibility within our capital structure to support our liability management efforts. Since then, the combined effects of the global COVID-19 pandemic, the significant decline in the demand for oil and the substantial surplus in the supply of oil have resulted in significantly reduced demand and day rates for offshore drilling provided by the Company and increased uncertainty regarding long-term market conditions.

The development of COVID-19 into a pandemic, the actions taken to mitigate the spread of COVID-19 by governmental authorities around the world and the risk of infection have altered, and are expected to continue to alter, policies of governments and companies and behaviors of customers around the world in ways that we anticipate will have a significant negative effect on oil consumption, with measures such as government-imposed or voluntary social


distancing and quarantining, reduced travel and remote work policies. At the start of the COVID-19 pandemic and related mitigation efforts, disagreements developed within OPEC+ as certain oil producers competing for market share initiated efforts to aggressively increase oil production, thereby increasing inventory levels even further. The convergence of these events resulted in a significant decline in the demand for oil and a substantial surplus in the supply of oil in the first half of 2020, leading oil producers to cancel or shorten the duration of many of the Company's 2020 drilling contracts, cancel future drilling programs and seek pricing and other contract concessions. As a result, the Company's earnings, cash flows and rig values were significantly, adversely impacted in the six months ended June 30, 2020. Although OPEC+ agreed in April 2020 to reduce production, the continued decreased demand for crude oil and historically low oil prices are expected to continue for the foreseeable future. Such challenging conditions had, and are expected to continue to have, a significant impact on our business, operations and financial condition in various respects, including substantially reducing demand for our services.

These events have had a meaningful adverse impact on our current and expected liquidity position and financial runway. The Company did not make interest payments due in June and July 2020 on the Defaulted Notes (as defined herein). The June 2020 missed interest payments represent a default or event of default under the Defaulted Notes. An aggregate of approximately $2.1 billion is outstanding under the Defaulted Notes. Pursuant to the Second A&R Waiver (as defined herein), the lenders under our revolving credit facility have waived certain defaults and events of default under the revolving credit facility, including in relation to the non-payment of interest on the Defaulted Notes, and pursuant to the Forbearance Agreement (as defined herein), certain holders of our senior notes have agreed to forbear from the exercise of certain rights and remedies that they have with respect to certain specified defaults and events of defaults (including cross-defaults). The Second A&R Waiver and the Forbearance Agreement each terminate automatically on August 3, 2020. See “Note 10 - Debt” for a description of the terms of the Second A&R Waiver and the Forbearance Agreement.

Based on our evaluation of the circumstances described above, coupled with significant asset impairments (See Note 6 - "Property and Equipment") and substantial borrowings on our revolving credit facility, we determined that there was a significant level of uncertainty as to whether we will be in compliance over the next 12 months with covenants to maintain specified financial and guarantee coverage ratios, including a total debt to total capitalization ratio that is less than or equal to 60%. If we exceed the total debt to total capitalization covenant in our revolving credit facility, further borrowings under the revolving credit facility would not be permitted, absent a waiver in respect of the resulting event of default from the breach of the total debt to total capitalization covenant, and all outstanding borrowings could become immediately due and payable by actions of lenders holding a majority of the commitments under the revolving credit facility. Any such acceleration would trigger a cross-acceleration event of default with respect to approximately $2.1 billion outstanding under the Defaulted Notes. In addition to the approximately $58.5 million of missed interest payments on the Defaulted Notes discussed above, there is substantial uncertainty whether we will pay $79.2 million of interest on other series of outstanding notes on or prior to August 15, 2020 together with the $122.9 million outstanding principal amount of our 6.875% Senior Notes due on August 15, 2020. Therefore, due to the uncertainty as to our ability to comply with our debt covenants over the next 12 months and the related potential for cross-covenant defaults, we concluded that there is a substantial doubt regarding our ability to continue as a going concern within one year after the date that the financial statements are issued.

We are actively pursuing a variety of transactions and cost-cutting measures, including, but not limited to, further reductions in corporate overhead and discretionary expenditures, another potential waiver from lenders under, or amendment to, our revolving credit facility, another potential forbearance from holders of our senior notes, further reductions in capital expenditures and increased focus on operational efficiencies. We are also actively negotiating with certain holders of our senior notes and the lenders under our revolving credit facility regarding a comprehensive restructuring of our indebtedness. While there can be no assurances as to ultimate timing, we expect our restructuring is likely to be implemented imminently through cases under Chapter 11 of the U.S. Bankruptcy Code and that our restructuring may result in cancellation of existing equity interests and little or no recovery to existing shareholders.

In light of the foregoing, the unaudited condensed consolidated financial statements included herein were prepared on a going concern basis of accounting, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The consolidated financial statements do not reflect any adjustments that


might be necessary should we be unable to continue as a going concern. We will continue to evaluate our going concern assessment in connection with future periodic reports.

New Accounting Pronouncements

Recently adopted accounting standards
    
Derivatives and HedgingCredit Losses - In August 2017,June 2016, the Financial Accounting Standards Board (the "FASB"("FASB")issued ASU 2017-12, 2016-13,Derivatives and Hedging Financial Instruments - Credit Losses (Topic 815)326): Targeted Improvements to Accounting for Hedging ActivitiesMeasurement of Credit Losses on Financial Instruments ("Update 2017-12"2016-13"), which makes more hedging strategies eligiblerequires companies to measure credit losses of financial instruments, including customer accounts receivable, utilizing a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Subsequent to the issuance of Update 2016-13, the FASB issued several additional Accounting Standard Updates to clarify implementation guidance, provide narrow-scope improvements and provide additional disclosure guidance. We adopted Update 2016-13 effective January 1, 2020 with no material impact to our financial statements upon adoption as our previously estimated reserves were in line with expected credit losses calculated under Update 2016-13.

Accounting pronouncements to be adopted

Income Taxes - In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for hedgeIncome Taxes ("Update 2019-12"), which removes certain exceptions for investments, intraperiod allocations and interim tax calculations and adds guidance to reduce complexity in accounting amends presentation and disclosure requirements and changes how companies assess effectiveness, includingfor income taxes. We will be required to adopt the elimination of separate measurement and recognition of ineffectiveness on designated hedging instruments. This update is effective foramended guidance in annual and interim periods beginning after December 15, 2018,2020, with early adoption permitted. We adoptedThe various amendments in Update 2017-12 effective January 1, 2019. As2019-12 are applied on a result, beginningretrospective basis, modified retrospective basis and prospective basis, depending on the effective date, weamendment. We are in the process of evaluating the impact this amendment will no longer separately measure and recognize ineffectivenesshave on our designated cash flow hedges. Update 2017-02 requires a modified retrospective adoption approach whereby amounts previously recorded to earnings for hedge ineffectiveness on hedging relationships that exist as of the adoption date are recorded as a cumulative effect adjustment to opening retained earnings. As of our adoption date, we had no amounts previously recorded forconsolidated financial statements.
10

ineffectiveness for hedging relationships that existed as of our adoption date and therefore no cumulative effect adjustment to retained earnings was recorded.

Leases - During 2016, the FASB issued Update 2016-02, Leases (Topic 842) ("Update 2016-02"), which requires an entity to recognize lease assets and lease liabilities on the balance sheet and to disclose key qualitative and quantitative information about the entity's leasing arrangements. This update is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. During our evaluation of Update 2016-02, we concluded that our drilling contracts contain a lease component. In July 2018, the FASB issued Accounting Standard Update 2018-11, Leases (Topic 842), Targeted Improvements, which (1) provided for a new transition method whereby entities could elect to adopt the Update using a prospective with cumulative catch-up approach (the "effective date method") and (2) provided lessors with a practical expedient, by class of underlying asset, to not separate lease and non-lease components and account for the combined component under Topic 606 when the non-lease component is the predominant element of the combined component. The lessor practical expedient is limited to circumstances in which the lease, if accounted for separately, would be classified as an operating lease under Topic 842. We adopted Update 2016-02, effective January 1, 2019, using the effective date method.

With respect to our drilling contracts, which contain a lease component, we elected to apply the practical expedient to not separate the lease and non-lease components and account for the combined component under Topic 606. With respect to all of our drilling contracts that existed on the adoption date, we concluded that the criteria to elect the lessor practical expedient had been met. As a result, we will continue to recognize the revenue associated with our drilling contracts under Topic 606. Therefore, we do not expect any change in our revenue recognition patterns or disclosures as a result of our adoption of Topic 842.

With respect to leases whereby we are the lessee, we elected several practical expedients afforded under Topic 842. We elected the package of practical expedients permitted under the transition guidance of Topic 842, including the hindsight practical expedient which permits entities to use hindsight in determining the lease term and assessing impairment. We also elected the practical expedient to not separate lease components from non-lease components for all asset classes, with the exception of office space. Furthermore, we also elected the practical expedient that permits entities not to apply the recognition requirements for leases with a term of 12 months or less. Upon adoption of Update 2016-02 on January 1, 2019, we recognized lease liabilities and right-of-use assets of $64.6 million and $53.7 million, respectively. See Note 14 for additional information.

Recently issued accounting standards

Defined Benefit Plans - In August 2018, the FASB issued ASU No. 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans("Update 2018-14"), which modifies the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans. We will be required to adopt the amended guidance in annual and interim reports beginning January 1, 2021, with early adoption permitted. Adoption is required to be applied on a retrospective basis to all periods presented. We will adopt the new standard effective January 1, 2021 and do not expect the adoption of Update 2018-14 to have a material impact on our consolidated financial statements.

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

Credit Losses - In June 2016,With the FASBexception of the updated standards discussed above, there have been no accounting pronouncements issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("Update 2016-13"), whichrequires companiesand not yet effective that have significance, or potential significance, to measure credit losses of financial instruments, including customer accounts receivable, utilizing a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Update 2016-13 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. We are currently in the process of evaluating the impact this amendment will have on our condensed consolidated financial statements.


11


Note 2 -Revenue from Contracts with Customers
 
Our drilling contracts with customers provide a drilling rig and drilling services on a day rate contract basis. Under day rate contracts, we provide an integrated service that includes the provision of a drilling rig and rig crews for which we receive a daily rate that may vary between the full rate and zero rate throughout the duration of the contractual term, depending on the operations of the rig.

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

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

The amount estimated for variable consideration is only recognized as revenue to the extent that it is probable that a significant reversal will not occur during the contract term. We have applied the optional exemption afforded in UpdateASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), and have not disclosed the variable consideration related to our estimated future day rate revenues. The remaining duration of our drilling contracts based on those in place as of SeptemberJune 30, 20192020 was between approximately one month and threefour years.

Day Rate Drilling Revenue

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

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

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

Mobilization / Demobilization Revenue

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



12

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

Capital Upgrade / Contract Preparation Revenue

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

Contract Assets and Liabilities

Contract assets and liabilities are presented net on our condensed consolidated balance sheet on a contract-by-contract basis. Current contract assets and liabilities are included in other current assets and accrued liabilities and other, respectively, and noncurrent contract assets and liabilities are included in other assets and other liabilities, respectively, on our condensed consolidated balance sheets.

Contract assets represent amounts previously recognized as revenue but for which the right to invoice the customer is dependent upon our future performance. Once the previously recognized revenue is invoiced, the corresponding contract asset, or a portion thereof, is transferred to accounts receivable. Contract liabilities generally represent fees received for mobilization or capital upgrades.

Contract assets and liabilities are presented net on our consolidated balance sheet on a contract-by-contract basis. Current contract assets and liabilities are included in other current assets and accrued liabilities and other, respectively, and noncurrent contract assets and liabilities are included in other assets and other liabilities, respectively, on our condensed consolidated balance sheets.

The following table summarizes our contract assets and contract liabilities (in millions):
 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, 2020 December 31, 2019
Current contract assets$6.6
 $3.5
Noncurrent contract assets$.5
 $—
Current contract liabilities (deferred revenue)$31.5
 $30.0
Noncurrent contract liabilities (deferred revenue)$11.2
 $9.7
Significant changesChanges in contract assets and liabilities during the period are as follows (in millions):
 Contract AssetsContract Liabilities
Balance as of December 31, 2018$4.0  $77.4  
Contract assets acquired and liabilities assumed in the Rowan Transaction8.4  5.3  
Revenue recognized in advance of right to bill customer0.3  —  
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, 2019$3.5
 $39.7
Revenue recognized in advance of right to bill customer4.6
 —
Increase due to cash received—
 23.5
Decrease due to amortization of deferred revenue that was included in the beginning contract liability balance—
 (17.5)
Decrease due to amortization of deferred revenue that was added during the period—
 (3.0)
Decrease due to transfer to receivables during the period(1.0) —
Balance as of June 30, 2020$7.1
 $42.7


13

Deferred Contract Costs

Costs incurred for upfront rig mobilizations and certain contract preparationpreparations are attributable to our future performance obligation under each respective drilling contract. Such costs are deferred and amortized on a straight-line basis over the contract term. Demobilization costs are recognized as incurred upon contract completion. Costs associated with the mobilization of equipment and personnel to more promising market areas without contracts are expensed as incurred. Deferred contract costs were included in other current assets and other assets on our condensed consolidated balance sheets and totaled $22.2$20.8 million and $23.5$19.7 million as of SeptemberJune 30, 20192020 and December 31, 2018,2019, respectively. During the three-monththree and nine-month periodssix months ended SeptemberJune 30, 2020, amortization of such costs totaled $17.5 million and $28.9 million, respectively. During the three and six months ended June 30, 2019, amortization of such costs totaled $12.6$14.7 million and $33.7$21.1 million, respectively. During the three-month and nine-month periods ended September 30, 2018, amortization of such costs totaled $10.1 million and $26.0 million, respectively.

Deferred Certification Costs

We must obtain certifications from various regulatory bodies in order to operate our drilling rigs and must maintain such certifications through periodic inspections and surveys. The costs incurred in connection with maintaining such certifications, including inspections, tests, surveys and drydock, as well as remedial structural work and other compliance costs, are deferred and amortized on a straight-line basis over the corresponding certification periods. Deferred regulatory certification and compliance costs were included in other current assets and other assets on our condensed consolidated balance sheets and totaled $10.5$9.5 million and $13.6$10.8 million as of SeptemberJune 30, 20192020 and December 31, 2018,2019, respectively. During the three-monththree and nine-month periodssix months ended SeptemberJune 30, 2020, amortization of such costs totaled $2.6 million and $5.7 million, respectively. During the three and six months ended June 30, 2019, amortization of such costs totaled $2.5$2.8 million and $8.1 million, respectively. During the three-month and nine-month periods ended September 30, 2018, amortization of such costs totaled $3.3 million and $9.6$5.7 million, respectively.    

Expected Future Amortization of Contract Liabilities and Deferred Costs

Our contract liabilities and deferred costs are amortized on a straight-line basis over the contract term or corresponding certification period to operating revenues and contract drilling expense, respectively. Expected future amortization of our contract liabilities and deferred costs recorded as of SeptemberJune 30, 20192020 is set forth in the table below (in millions):
Remaining 2019202020212022 and Thereafter TotalRemaining 2020 2021 2022 2023 and Thereafter  Total
Amortization of contract liabilitiesAmortization of contract liabilities$12.1  $12.9  $7.2  $4.1  $36.3  $21.6
 $17.2
 $3.9
 $—
 $42.7
Amortization of deferred costs Amortization of deferred costs  $12.1  $15.9  $3.3  $1.4  $32.7  $15.7
 $11.1
 $3.2
 $.3
 $30.3


14


Note 3 -Rowan Transaction

On October 7, 2018, we entered into a transaction agreement (the "Transaction Agreement") with Rowan.
On April 11, 2019 (the "Transaction Date"), we completed our combination with Rowan pursuant to the Transaction Agreement (the "Rowan Transaction"). Rowan's financial results are included in our consolidated results beginning on the Transaction Date.

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 7 jackup rigs, leases another 9 jackup rigs from us (one of which is expected to commence drilling operations during the fourth quarter of 2019) and has plans to purchase up to 20 newbuild jackup rigs over an approximate 10 year period. See Note 4 for additional information on ARO.

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 2 older jackup rigs marked for retirement, Rowan’s offshore rig fleet as of the Transaction Date consisted of 4 ultra-deepwater drillships and 19 jackup rigs.

Consideration

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, inclusive of $2.6 million for the estimated fair value of replacement employee equity awards. Upon closing of the Rowan Transaction, we effected a consolidation (being a reverse stock split under English law) where every 4 existing 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. All share and per share data included in this report have been retroactively adjusted to reflect the Reverse Stock Split.

Assets Acquired and Liabilities Assumed

Under GAAP, Valaris is considered to be the acquirer for accounting purposes. As a result, Rowan's assets acquired and liabilities assumed in the Rowan Transaction were recorded at their estimated fair values as of the Transaction Date under the acquisition method of accounting. When the fair value of the net assets acquired exceeds the consideration transferred in an acquisition, the difference is recorded as a bargain purchase gain in the period in which the transaction occurs. We have not finalized theAs of March 31, 2020, we completed our fair valuesvalue assessments of assets acquired and liabilities assumed; therefore, the fair value estimates set forth below are subject to adjustment during a one-year measurement period subsequent to the Transaction Date. The estimated fair values of certain assetsassumed.

Assets Acquired and liabilities including materials and supplies, long-lived assets, contingencies and unrecognized tax benefits require judgments and assumptions that increase the likelihood that adjustments may be made to these estimates during the measurement period, and those adjustments could be material.Liabilities Assumed

15

The provisional amounts for assets acquired and liabilities assumed are based on preliminary estimates of their fair values as of the Transaction Date and arerespective measurement period adjustments were as follows (in millions):
Amounts Recognized as of Merger Date
Measurement Period Adjustments(1)
Estimated Fair Value
Assets:
Cash and cash equivalents$931.9  $—  $931.9  
Accounts receivable(2)
207.1  (2.6) 204.5  
Other current assets101.6  —  101.6  
Long-term notes receivable from ARO454.5  —  454.5  
Investment in ARO138.8  2.5  141.3  
Property and equipment2,989.8  (14.2) 2,975.6  
Other assets41.7  (1.8) 39.9  
Liabilities:
Accounts payable and accrued liabilities259.4  (0.3) 259.1  
Current portion of long-term debt203.2  —  203.2  
Long-term debt1,910.9  —  1,910.9  
Other liabilities376.3  37.2  413.5  
Net assets acquired2,115.6  (53.0) 2,062.6  
Less: Merger consideration(1,402.8) —  (1,402.8) 
Estimated bargain purchase gain$712.8  $(53.0) $659.8  

 Amounts Recognized as of Transaction Date
Measurement Period Adjustments (1)
Estimated Fair Value
Assets:   
Cash and cash equivalents$931.9
$—
$931.9
Accounts receivable (2)
207.1
(6.9)200.2
Other current assets101.6
(2.6)99.0
Long-term notes receivable from ARO454.5
—
454.5
Investment in ARO138.8
2.5
141.3
Property and equipment2,989.8
(26.0)2,963.8
Other assets41.7
1.1
42.8
Liabilities:   
Accounts payable and accrued liabilities259.4
15.7
275.1
Current portion of long-term debt203.2
—
203.2
Long-term debt1,910.9
—
1,910.9
Other liabilities376.3
34.5
410.8
Net assets acquired2,115.6
(82.1)2,033.5
Less: Merger consideration(1,402.8)—
(1,402.8)
Estimated bargain purchase gain$712.8
$(82.1)$630.7
(1)The measurement period adjustments reflect changes in the estimated fair values of certain assets and liabilities, primarily related to long-lived assets, deferred income taxes and uncertain tax positions. The measurement period adjustments were recorded to reflect new information obtained about facts and circumstances existing as of the Transaction Date and did not result from subsequent intervening events. These adjustments resulted in a $53.0 million decrease to the bargain purchase gain within current period earnings, which is included in other, net, in our condensed consolidated statement of operations for the three-month and nine-month periods ended September 30, 2019.

(1)
The measurement period adjustments reflect changes in the estimated fair values of certain assets and liabilities, primarily related to long-lived assets, deferred income taxes and uncertain tax positions. The measurement period adjustments were recorded to reflect new information obtained about facts and circumstances existing as of the Transaction Date and did not result from subsequent intervening events. The adjustments recorded resulted in a $6.3 million decline to bargain purchase gain during the first quarter of 2020 and are included in other, net, in our condensed consolidated statements of operations for the six monthsendedJune 30, 2020.
(2)Gross contractual amounts receivable totaled $208.3 million as of the Transaction Date.
(2)
Gross contractual amounts receivable totaled $208.3 million as of the Transaction Date.

Bargain Purchase Gain

The estimated fair values assigned to assets acquired net of liabilities assumed exceeded the consideration transferred, resulting in a bargain purchase gain primarily driven by the decline in our share price from $33.92 to $15.88 between the last trading day prior to the announcement of the Rowan Transaction and the Transaction Date.

Transaction-Related Costs

Transaction-related costs were expensed as incurred and consisted of various advisory, legal, accounting, valuation and other professional or consulting fees totaling $0.2 million and $18.0 million for the three-month and nine-month periods ended September 30, 2019. These costs were included in general and administrative expense in our condensed consolidated statements of operations.

Materials and Supplies

We recorded materials and supplies at an estimated fair value of $83.0 million. Materials and supplies consist of consumable parts and supplies maintained on drilling rigs and in shore-based warehouse locations for use in operations and is generally comprised of items of low per unit cost and high reorder frequency. We estimated the fair value of Rowan's materials and supplies primarily using a market approach.

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Equity Method Investment in ARO

The equity method investment in ARO was recorded at its estimated fair value as of the Transaction Date. See Note 4 for additional information on ARO. We estimated the fair value of the equity investment primarily by applying an income approach, using projected discounted cash flows of the underlying assets, a risk-adjusted discount rate and an estimated effective income tax rate.

Property and Equipment

Property and equipment acquired in connection with the Rowan Transaction consisted primarily of drilling rigs and related equipment, including 4 drillships and 19 jackup rigs (exclusive of 2 jackups marked for retirement).  We recorded property and equipment at its estimated fair value of $3.0 billion. We estimated the fair value of the rigs and equipment by applying an income approach, using projected discounted cash flows, a risk-adjusted discount rate and an estimated effective income tax rate. The estimated remaining useful lives for Rowan's drilling rigs ranged from 16 to 35 years based on original estimated useful lives of 30 to 35 years.

Intangible Assets and Liabilities

We recorded intangible assets and liabilities of $16.2 million and $2.1 million, respectively, representing the estimated fair value of Rowan's firm contracts in place at the Transaction Date with favorable or unfavorable contract terms compared to then-market day rates for comparable drilling rigs.

As a result of a price concession negotiated following the onset of the COVID-19 pandemic, on one of our bare boat charter agreements for a rig leased to our 50/50 joint venture with Saudi Aramco ("ARO"), we recognized a $5.7 million impairment to the related contract intangible during the quarter ending June 30, 2020. The various factors consideredimpairment was included in loss on impairment in our condensed consolidated statements of operations for the determinationthree and six months ended June 30, 2020.

Amortization of these fair values were (1) the contracted day rate for each contract, (2) the remaining term of each contract, (3) the rig class and (4) the market conditions for each respective rig class at the Transaction Date. The intangible assets and liabilities were calculated based on the present valueresulted in a net reduction of the difference in cash flows over the remaining contract term as compared to a hypothetical contract with the same remaining term at an estimated then-current market day rate using a risk-adjusted discount rate and an estimated effective income tax rate.

Operatingoperating revenues were reduced by $1.3of $0.6 million and $2.4$1.9 million for net asset amortization during the three-monththree and nine-month periodssix months ended SeptemberJune 30, 2019, respectively.2020. The remaining balance of intangible assets and liabilities of $13.3$3.8 million and $1.6$0.9 million, respectively, was included in other assets and other liabilities, respectively, on our condensed consolidated balance sheet as of SeptemberJune 30, 2019.2020. These balances will be amortized to operating revenues over the respective remaining contract terms on a straight-line basis. As of SeptemberJune 30, 2019,2020, the remaining termsterm of the underlying contracts is approximately 2.31.5 years. Amortization of these intangibles is expected to result in a reduction to revenue of $1.3 million, $5.1$0.9 million and $5.32.0 million in 2019,for the remainder of 2020 and 2021, respectively.

Long-term Debt

We recorded Rowan's long-term debt at its estimated fair value as of the Transaction Date, which were based on quoted market prices for Rowan's publicly traded debt as of April 10, 2019.

Deferred Taxes

The Rowan Transaction was executed through the acquisition of Rowan's outstanding ordinary shares and, therefore, the historical tax bases of the acquired assets and assumed liabilities, net operating losses and other tax attributes of Rowan, were assumed as of the Transaction Date.  However, adjustments were recorded to recognize deferred tax assets and liabilities for the tax effects of differences between acquisition date fair values and tax bases of assets acquired and liabilities assumed. Additionally, the interaction of our and Rowan's tax attributes that impacted the deferred taxes of the combined entity were also recognized as part of acquisition accounting. As of the Transaction Date, a decrease of $100.0 million to Rowan's historical net deferred tax assets was recognized.     

17

Deferred tax assets and liabilities recognized in connection with the Rowan Transaction were measured at rates enacted as of the Transaction Date.  Tax rate changes, or any deferred tax adjustments for new tax legislation, following the Transaction Date will be reflected in our operating results in the period in which the change in tax laws or rate is enacted.

Uncertain Tax Positions

Uncertain tax positions assumed in a business combination are measured at the largest amount of the tax benefit that is greater than 50% likely of being realized upon effective settlement with a taxing authority that has full knowledge of all relevant information. As of the Transaction Date, Rowan had previously recognized net liabilities for uncertain tax positions totaling $50.4 million.

During 2019, we received income tax assessments fromthe Luxembourg tax authorities related to certain filing positions taken by Rowan for several of Rowan’s Luxembourg subsidiaries in prior yearsissued aggregate tax assessments totaling approximately €142.0 million (approximately $155.0$159.6 million converted using the current period-end exchange rates). During the second quarter, we recognized liabilitiesrate) related to tax years 2014, 2015 and 2016 for several of €47.0 million (approximately $51.0 million converted using the current period-end exchange rates) in connection with theRowan's Luxembourg assessments, which reflected the amount of the Rowan filing positions that we concluded, on a preliminary basis, we would not more-likely-than-not sustain. During the third quarter, assubsidiaries. As a result of our continued review and analysis of facts and circumstances that existed at the Transaction Date, we recognized additional liabilities of €46.0related to the Luxembourg tax assessments totaling €93.0 million (approximately $50.0$104.5 million converted using the current period-end exchange rates).

Transaction-related costs

Transaction-related costs were expensed as measurement period adjustments.

As a result,incurred and consisted of various advisory, legal, accounting, valuation and other professional or consulting fees totaling $15.0 million and $17.8 million for the amount recognized onthree and six months ended June 30, 2019. These costs were included in general and administrative expense in our condensed consolidated balance sheet related to the Luxembourg income tax assessments totaled €93.0 million (approximately $101.0 million converted using the current period-end exchange rates) asstatement of September 30, 2019. Our ongoing evaluation of the relevant facts and circumstances surrounding these positions may result in further revisions to this estimate, which could be material.operations.

Revenue and Earnings of Rowan

Our condensed consolidated statements of operations for the three-monththree and nine-month periodssix months ended ended SeptemberJune 30, 2019 included include revenues of $147.2 million and a $138.9 million and $286.2 million andnet lossesloss of $31.2$95.3 million and $95.1 million fassociated with Rowan's operations from the Transaction Date through or the three-month and nine-month periods ended SeptemberJune 30, 2019 respectively..

18

Unaudited Pro Forma Impact of the Rowan Transaction

The following unaudited supplemental pro forma results present consolidated information as if the Rowan Transaction was completed on January 1, 2018.2019. The pro forma results include, among others, (1)(i) the amortization associated with acquired intangible assets and liabilities, (2)(ii) a reduction in depreciation expense for adjustments to property and equipment, (3)(iii) the amortization of premiums and discounts recorded on Rowan's debt, (4)(iv) removal of the historical amortization of unrealized gains and losses related to Rowan's pension plans and (5)(v) the amortization of


basis differences in assets and liabilities of ARO. The pro forma results do not include any potential synergies or non-recurring charges that may result directly from the Rowan Transaction.
(in millions, except per share amounts)(in millions, except per share amounts)Three Months Ended
September 30,		Nine Months Ended
September 30,		 Three Months Ended June 30, 2019 Six Months Ended June 30, 2019
2019(1)
2018
2019(1)
2018
RevenuesRevenues$552.0  $624.0  $1,729.5  $1,952.0   $599.0
 $1,179.5
Net lossNet loss$(151.1) $(250.0) $(795.2) $(607.1)  $(271.3) $(591.8)
Loss per share - basic and dilutedLoss per share - basic and diluted$(0.53) $(1.27) $(3.14) $(3.09)  $(1.38) $(3.02)

(1)
Pro forma net loss and loss per share were adjusted to exclude an aggregate $71.5 million and $80.8 million of transaction-related and integration costs incurred during the three and six months ended June 30, 2019, respectively, and the estimated $712.8 million bargain purchase gain.

(1)Pro forma net loss and loss per share were adjusted to exclude an aggregate of $16.0 million and $85.4 million of transaction-related and integration costs incurred for the three-month and nine-month periods ended September 30, 2019, respectively. Additionally, pro forma net loss and loss per share exclude the measurement period adjustments and estimated gain on bargain purchase of $53.0 million and $659.8 million recognized during the three-month and nine-month periods ended September 30, 2019, respectively.
Note 4 - Equity Method Investment in ARO

Background

During 2016,ARO, a company that owns and operates offshore drilling rigs in Saudi Arabia, was formed and commenced operations in 2017 pursuant to the terms of an agreement entered into by Rowan and Saudi Aramco entered into an agreement to create a 50/50 joint venture ("Shareholder Agreement"). Pursuant to the Rowan Transaction, Valaris acquired Rowan's interest in ARO making Valaris a 50% partner. ARO owns 7 jackup rigs and leases 9 rigs from us through bareboat charter arrangements (the "Shareholders' Agreement""Lease Agreements") to own, manage and operate offshorewhereby substantially all operating costs are incurred by ARO. As of June 30, 2020, all 9 of the leased rigs were operating under three-year drilling contracts with Saudi Aramco. The seven rigs in Saudi Arabia. The new entity,owned by ARO, was formed in May 2017 with each ofpreviously purchased from Rowan and Saudi Aramco, contributing $25 million to be used for working capital needs.
In October 2017, Rowan sold rigs Bob Keller, J.P. Bussell and Gilbert Rowe to ARO and Saudi Aramco sold SAR 201 and related assets to ARO in each case for cash. Upon completion of the rig sales, ARO was deemed to have commenced operations. Saudi Aramco subsequently sold another rig, SAR 202, to ARO in December 2017 for cash and in October 2018, Rowan sold 2 additional jackup rigs, the Scooter Yeargain and the Hank Boswell, to ARO for cash. As a result of these rig sales, ARO owned seven jackup rigs as of the Transaction Date.

During 2017 and 2018, Rowan contributed cash to ARO in exchange for 10-year shareholder notes receivable at a stated interest rate of LIBOR plus two percent. As of September 30, 2019, the carrying amount of the long-term notes receivable from ARO was $452.9 million. The Shareholders’ Agreement prohibits the sale or transfer of the shareholder note to a third party, except in certain limited circumstances.

Rigs purchased by ARO will receiveare currently operating under contracts fromwith Saudi Aramco for an aggregate 15 years, renewed and re-priced every three years, provided that the rigs meet the technical and operational requirements of Saudi Aramco. Each of the 7 rigs owned by ARO is currently operating under its initial three-year contract.

Additionally, prior to the Rowan Transaction, Rowan entered into agreements with ARO to lease 9 rigs to ARO (the "Lease Agreements"). The rigs are leased to ARO through bareboat charter arrangements whereby substantially all operating costs are incurred by ARO. All 9 leased rigs are under three-year drilling contracts with Saudi Aramco. As of September 30, 2019, 8 of the rigs were operating under their contracts and the remaining rig, VALARIS JU-148, is expected to commence operations during the fourth quarter of 2019.

RowanValaris and Saudi Aramco have agreed to take all steps necessary to ensure that ARO purchases at least 20 newbuild jackup rigs ratably over an approximate 10 year-year period. In January 2020, ARO ordered the first two newbuild jackups, each with a shipyard price of $176 million, for delivery scheduled in 2022. The partners intend for the newbuild jackup rigs
19

to be financed out of available cash from ARO's operations and/or funds available from third-party debt financing. In the event ARO has insufficient cash from operations or is unable to obtain third-party financing, each partner may periodically be required to make additional capital contributions to ARO, up to a maximum aggregate contribution of $1.25 billion from each partner to fund the newbuild program. Each partner's commitment shall be reduced by the actual cost of each newbuild rig, on a proportionate basis. The partners agreed that Saudi Aramco, as a customer, will provide drilling contracts to ARO in connection with the acquisition of the newbuild rigs. The initial contracts provided by Saudi Aramco for each of the newbuild rigs will be for an eight-year term. The day rate for the initial contracts for each newbuild rig will be determined using a pricing mechanism that targets a definedsix-year payback period for construction costs on an EBITDA basis. The initial eight-year contracts will be followed by a minimum of another eight years of term, re-priced in three-year intervals based on a market pricing mechanism.

Upon establishment of ARO, Rowan also entered into (1) an agreement to provide certain back-office services for a period of time until ARO develops its own infrastructure (the "Transition Services Agreement"), and (2) an agreement to provide certain Rowan employees through secondment arrangements to assist with various onshore and offshore services for the benefit of ARO (the "Secondment Agreement"). These agreements remainremained in place subsequent to the Rowan Transaction. Pursuant to these agreements, we or our seconded employees provide various services to ARO, and in return, ARO provides remuneration for those services. From time to time, we may also sell equipment or supplies to ARO. During the quarter ended June 30, 2020, almost all remaining employees seconded to ARO became employees of ARO.






Summarized Financial Information

The operating revenues of ARO presented below reflect revenues earned under drilling contracts with Saudi Aramco for the 7 ARO-owned jackup rigs andas well as the rigs leased from us that operated during the three-month period ended September 30, 2019 and for the period from the Transaction Date through September 30, 2019, respectively.us.

The contract drilling expenses, depreciation and general and administrative expenses presented below are also for the three-month period ended September 30, 2019 and the period from the Transaction Date through September 30, 2019, respectively. Contract drilling expense is inclusive of the bareboat charter fees for the rigs leased from us. Cost incurred under the Secondment Agreement are included in both contract drilling expense and general and administrative, depending on the function to which the seconded employee's service relates.related. Substantially all costs incurred under the Transition Services Agreement are included in general and administrative. See additional discussion below regarding these related-party transactions.

Summarized financial information for ARO is as follows (in millions):
  Three Months Ended Six Months Ended April 11 - June 30, 2019
  June 30, 2020 
Revenues $146.0
 $286.3
 $123.8
Operating expenses      
Contract drilling (exclusive of depreciation) 112.5
 220.8
 78.9
Depreciation 13.3
 26.3
 12.4
General and administrative 7.1
 15.4
 5.3
Operating income 13.1

23.8
 27.2
Other expense, net 6.7
 13.3
 8.7
Provision (Benefit) for income taxes (.2) .7
 1.7
Net income $6.6

$9.8
 $16.8
 June 30, 2020 December 31, 2019
Current assets$349.2
 $407.2
Non-current assets924.1
 874.8
Total assets$1,273.3

$1,282.0
    
Current liabilities$206.8
 $183.2
Non-current liabilities973.4
 1,015.5
Total liabilities$1,180.2

$1,198.7

Equity in Earnings of ARO

We account for our interest in ARO using the equity method of accounting and only recognize our portion of ARO's net income, adjusted for basis differences as discussed below, which is included in equity in earnings of ARO in our condensed consolidated statements of operations. ARO is a variable interest entity; however, we are not the primary beneficiary and therefore do not consolidate ARO. Judgments regarding our level of influence over ARO included considering key factors such as:as each partner's ownership interest, representation on the board of managers of ARO and ability to direct activities that most significantly impact ARO's economic performance, including the ability to influence policy-making decisions.
20

Summarized Financial Information

Summarized financial information for ARO is as follows (in millions):
Three Months Ended September 30, 2019April 11 - September 30, 2019
Revenues$138.4  $262.2  
Operating expenses
Contract drilling (exclusive of depreciation)92.7  171.7  
Depreciation14.6  26.9  
General and administrative8.8  13.9  
Operating income22.3  49.7  
Other expense, net9.9  18.8  
Provision for income taxes2.2  3.8  
Net income$10.2  $27.1  

September 30, 2019
Current assets$452.8 
Non-current assets887.1 
Total assets$1,339.9 
Current liabilities$232.4 
Non-current liabilities1,021.7 
Total liabilities$1,254.1 

21

Equity in Earnings of ARO
As a result of the Rowan Transaction, we recorded our equity method investment in ARO at its estimated fair value on the Transaction Date. Additionally, we computed the difference between the fair value of ARO's net assets and the carrying value of those net assets in ARO's GAAP financial statements ("basis differences"). The basis differences primarily relate to ARO's long-lived assets and the recognition of intangible assets associated with certain of ARO's drilling contracts that were determined to have favorable terms as of the Transaction Date. The basis


differences are amortized over the remaining life of the assets or liabilities to which they relate and are recognized as an adjustment to the equity in earnings of ARO in our condensed consolidated statements of operations. The amortization of those basis differences are combined with our 50% interest in ARO's net income. A reconciliation of those components is presented below (in millions):
 Three Months Ended Six Months Ended April 11 - June 30, 2019
Three Months Ended September 30, 2019  April 11 - September 30, 2019   June 30, 2020 
50% interest in ARO net income50% interest in ARO net income$5.1  $13.6   $3.3
 $4.9
 $8.4
Amortization of basis differencesAmortization of basis differences(8.8) (16.7)  (8.5) (16.4) (7.8)
Equity in earnings of AROEquity in earnings of ARO$(3.7) $(3.1)  $(5.2) $(11.5) $.6


Related-Party Transactions

Revenues recognized by us related to the Lease Agreements, Transition Services Agreement and Secondment Agreement are as follows (in millions):
Three Months Ended September 30, 2019April 11 - September 30, 2019
Lease revenue$19.9  $37.0  
Secondment revenue17.9  33.5  
Transition Services revenue5.0  10.2  
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
  Three Months Ended Six Months Ended April 11 - June 30, 2019
  June 30, 2020 
Lease revenue $19.9
 $41.4
 $18.3
Secondment and Transition Services revenue .2
 22.0
 20.8
Total revenue from ARO (1)
 $20.1
 $63.4
 $39.1
(1)
All of the revenues presented above are included in our Other segment in our segment disclosures. See "Note 14 - Segment Information" for additional information.
Amounts receivable from ARO related to the items above items totaled $40.6$8.6 million and $21.8 million as of SeptemberJune 30, 2020 and December 31, 2019, respectively, and are included in accounts receivable, net, on our condensed consolidated balance sheet. Accounts payable to ARO totaled $3.0 millionsheets.
Additionally, as of September 30, 2019.
We also haveDecember 31, 2019, we had a receivable from ARO of $14.2 million related to an agreement between us and ARO, pursuant to which ARO willwould reimburse us for certain capital expenditures related to the shipyard upgrade projects for the VALARIS JU-147 and VALARIS JU-148. AsSuch amount was received in the first quarter of September2020.
We had no amounts payable to ARO as of June 30, 2019, $14.32020 and $0.7 million related to reimbursementas of these expenditures is included in accounts receivable, net, on our condensed consolidated balance sheet.December 31, 2019.
During 2017 and 2018, Rowan contributed cash to ARO in exchange for 10-year shareholder notes receivable at a stated interest rate of LIBOR plus two percent that maturepercent. As of June 30, 2020 and December 31, 2019, the carrying amount of the long-term notes receivable from ARO was $452.8 million and $452.9 million, respectively. The Shareholders’ Agreement prohibits the sale or transfer of the shareholder note to a third party, except in 2027 and 2028.certain limited circumstances. Interest is recognized as interest income in our condensed consolidated statement of operations and totaled $5.8$4.6 million and $10.9$9.2 million for the three-month periodthree and six months ended SeptemberJune 30, 20192020, respectively and $5.1 million for the period from the Transaction DateApril 11 through SeptemberJune 30, 2019, respectively.2019. As of SeptemberJune 30, 2019, we had2020, our interest receivable from ARO of $17.3was $9.2 million, which is included in otherOther current assets on our condensed consolidated balance sheet.


22

The following table summarizes the maturity schedule of our notes There was no interest receivable from ARO as of September 30, 2019 (in millions):


Maturity Date		Principal Amount
October 2027$275.2 
October 2028177.7 
Total$452.9 

December 31, 2019.
Maximum Exposure to Loss

The following summarizes the total assets and liabilities as reflected in our condensed consolidated balance sheet as well as our maximum exposure to loss related to ARO (in millions). Generally, ourOur maximum exposure to loss is limited


to (1) our equity investment in ARO;ARO, (2) the outstanding balance on our shareholder notes receivable;receivable, and (3) other receivables forand contract assets related to services provided to ARO, partially offset by payables for services received.
September 30, 2019
Total assets$663.3 
Less: total liabilities3.0 
Maximum exposure to loss$660.3 
  June 30, 2020 December 31, 2019
Total assets $593.7
 $623.5
Less: total liabilities —
 .7
Maximum exposure to loss $593.7
 $622.8

Note 5 -Fair Value Measurements
 
The following fair value hierarchy table categorizes information regarding our financial assets and liabilities measured at fair value on a recurring basis (in millions):
Quoted Prices in Active Markets for Identical Assets
(Level 1)		Significant Other Observable Inputs
(Level 2)		Significant Unobservable Inputs
(Level 3)		Total
As of September 30, 2019   
Supplemental executive retirement plan assets $25.1  $—  $—  $25.1  
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 Total
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   
As of June 30, 2020   
  
  
Supplemental executive retirement plan assetsSupplemental executive retirement plan assets$27.2  $—  $—  $27.2  $22.3
 $—
 $—
 $22.3
Total financial assetsTotal financial assets$27.2  $—  $—  $27.2  22.3

—

—

22.3
Derivatives, net Derivatives, net $—  $(10.7) $—  $(10.7) —
 (1.0) —
 (1.0)
Total financial liabilitiesTotal financial liabilities$—  $(10.7) $—  $(10.7) $—

$(1.0) $—
 $(1.0)
As of December 31, 2019   
  
  
Supplemental executive retirement plan assets$26.0
 $—
 $—
 $26.0
Derivatives, net—
 5.4
 —
 5.4
Total financial assets$26.0
 $5.4
 $—
 $31.4

23

Supplemental Executive Retirement Plan Assets

Our Valaris supplemental executive retirement plans (the "SERP") are non-qualified plans that provideprovided eligible employees an opportunity to defer a portion of their compensation for use after retirement. The SERPs were frozen to the entry of new participants in November 2019 and to future compensation deferrals as of January 1, 2020. Assets held in a rabbi trust maintained for the SERP wereare marketable securities measured at fair value on a recurring basis using Level 1 inputs and were included in other assets, net, on our condensed consolidated balance sheets.sheets as of June 30, 2020 and December 31, 2019. The fair value measurementmeasurements of assets held in the SERP waswere based on quoted market prices.

Derivatives
 
Our derivatives arewere measured at fair value on a recurring basis using Level 2 inputs. See "Note 78 - Derivative Instruments" for additional information on our derivatives, including a description of our foreign currency hedging activities and related methodologies used to manage foreign currency exchange rate risk. The fair value measurementmeasurements of our derivatives waswere based on market prices that are generally observable for similar assets or liabilities at commonly-quotedcommonly quoted intervals.



24

Other Financial Instruments

The carrying values and estimated fair values of our long-term debt instruments were as follows (in millions):
 June 30,
2020		 December 31,
2019
 Carrying Value   Estimated Fair Value   Carrying Value   Estimated Fair Value  
6.875% Senior notes due 2020$123.4
 $9.7
 $124.8
 $117.3
4.70% Senior notes due 2021100.5
 7.1
 113.2
 95.5
4.875% Senior notes due 2022603.3
 69.2
 599.2
 460.5
3.00% Exchangeable senior notes due 2024(1)
716.2
 124.0
 699.0
 607.4
4.50% Senior notes due 2024302.1
 26.3
 302.0
 167.2
4.75% Senior notes due 2024280.8
 33.5
 276.5
 201.4
8.00% Senior notes due 2024295.4
 19.4
 295.7
 181.7
5.20% Senior notes due 2025331.9
 28.1
 331.7
 186.7
7.375% Senior notes due 2025331.4
 37.2
 329.2
 218.6
7.75% Senior notes due 2026988.2
 82.6
 987.1
 575.1
7.20% Debentures due 2027111.7
 15.7
 111.7
 70.0
7.875% Senior notes due 2040372.3
 22.1
 373.3
 153.5
5.40% Senior notes due 2042263.7
 42.3
 262.8
 194.4
5.75% Senior notes due 2044974.4
 76.4
 973.3
 450.0
5.85% Senior notes due 2044269.5
 44.6
 268.8
 194.8
Amounts borrowed under credit facility(2)
545.5
 551.0
 —
 —
Total debt$6,610.3
 $1,189.2
 $6,048.3
 $3,874.1
Less: current maturities2,518.1
 794.6
 124.8
 117.3
Total long-term debt$4,092.2

$394.6

$5,923.5

$3,756.8
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 2021113.1  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 2024301.9  170.5  619.8  405.2  
4.75% Senior notes due 2024(2)
274.3  197.9  —  —  
8.00% Senior notes due 2024296.0  195.4  337.0  273.7  
7.375% Senior notes due 2025(2)
328.1  214.1  —  —  
5.20% Senior notes due 2025331.6  180.3  664.4  443.9  
7.75% Senior notes due 2026986.6  541.9  985.0  725.5  
7.20% Debentures due 2027111.6  70.5  149.3  109.1  
7.875% Senior notes due 2040373.7  155.3  375.0  223.2  
5.40% Senior notes due 2042(2)
262.3  192.2  —  —  
5.75% Senior notes due 2044973.7  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 maturities125.5  121.3  —  —  
Total long-term debt$6,042.3  $3,836.8  $5,010.4  $3,545.8  
(1)Our exchangeable senior notes due 2024 (the "2024 Convertible Notes") were issued with a conversion feature. The 2024 Convertible Notes were separated into their liability and equity components on our condensed consolidated balance sheet. The equity component was initially recorded to additional paid-in capital and as a debt discount that will be amortized to interest expense over the life of the instrument. Excluding the unamortized discount, the carrying value of the 2024 Convertible Notes was $838.0 million and $836.3 million as of September 30, 2019 and December 31, 2018, respectively.

(2)These senior notes were assumed by Valaris as a result of the Rowan Transaction.
(1)
Our 2024 Convertible Notes were issued with a conversion feature. The 2024 Convertible Notes were separated into their liability and equity components on our condensed consolidated balance sheet. The equity component was initially recorded to additional paid-in capital and as a debt discount that will be amortized to interest expense over the life of the instrument. Excluding the unamortized discount, the carrying value of the 2024 Convertible Notes was $839.9 million and $838.3 million as of June 30, 2020 and December 31, 2019, respectively.

(2)
Total outstanding borrowings under our credit facility are $551.0 million and are recorded net of $5.5 million of unamortized deferred financing cost on our condensed consolidated balance sheet. In addition, we have $37.8 million in letters of credit issued under our credit facility, leaving $1.0 billion of undrawn borrowing capacity at June 30, 2020.
(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.

The estimated fair values of our senior notes and debentures were determined using quoted market prices, which are level 1 inputs.

The estimated fair values of our cash and cash equivalents, short-term investments, receivables,accounts receivable, notes receivable, trade payables and other liabilities approximated their carrying values as of SeptemberJune 30, 20192020 and December 31, 2018. Our short-term investments2019.


Note 6 -Property and Equipment

Property and equipment as of June 30, 2020 and December 31, 2019 consisted of time deposits with initial maturities in excess of three months but less than one year as of December 31, 2018.the following (in millions):

  June 30, 2020 December 31, 2019
Drilling rigs and equipment $12,559.5
 $17,714.0
Work-in-progress 473.2
 473.6
Other 187.6
 206.2
  $13,220.3
 $18,393.8

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Note 6 -  PensionImpairment of Long-Lived Assets

During the three and Other Post-retirement Benefitssix months ended June 30, 2020, we recorded pre-tax, non-cash impairments with respect to certain floaters, jackups and spare equipment of $832.3 million and $3.6 billion, respectively, which were included in loss on impairment in our condensed consolidated statement of operations for the respective periods.

Assets held-for-use


On a quarterly basis, we evaluate the carrying value of our property and equipment to identify events or changes in circumstances ("triggering events") that indicate the carrying value may not be recoverable.
Prior to
During the Rowan Transaction, Rowan established various defined-benefit pension planssecond quarter, given the anticipated sustained market impacts arising from the decline in oil price and demand late in the first quarter, we revised our long-term operating assumptions which resulted in a post-retirement healthtriggering event for purposes of evaluating impairment and life insurance plan that provide benefits upon retirement for certain full-time employees. The defined-benefit pension plans include: (1) the Rowan Pension Plan; (2) the Rowan SERP; (3) the Norway Onshore Plan; and (4) the Norway Offshore Plan. The Retiree Medical Plan provides post-retirement health and life insurance benefits.
we performed a fleet-wide recoverability test. As a result, of the Rowan Transaction, we assumed these plans, which were remeasured as of the Transaction Date. Each of the plans hasrecorded a benefit obligation that exceedspre-tax, non-cash impairment with respect to 2 floaters and spare equipment totaling $817.3 million. We measured the fair value of plan assets. Asthese assets to be $69.0 million at the time of impairment by applying an income approach or estimated scrap value. These valuations were based on unobservable inputs that require significant judgments for which there is limited information including, in the case of the Transaction Date,income approach, assumptions regarding future day rates, utilization, operating costs and capital requirements.
During the netfirst quarter, the COVID-19 global pandemic and the response thereto negatively impacted the macro-economic environment and global economy. Global oil demand fell sharply at the same time global oil supply increased as a result of certain oil producers competing for market share which lead to a supply glut. As a consequence, Brent crude oil fell from around $60 per barrel at year-end 2019 to around $20 per barrel as of mid-April 2020. These adverse changes and impacts to our customer's capital expenditure plans in the first quarter resulted in further deterioration in our forecasted day rates and utilization for the remainder of 2020 and beyond. As a result, we concluded that a triggering event had occurred and we performed a fleet-wide recoverability test. We determined that our estimated undiscounted cash flows were not sufficient to recover the carrying values of certain rigs and concluded such were impaired as of March 31, 2020.

Based on the asset impairment analysis performed as of March 31, 2020, we recorded a pre-tax, non-cash loss on impairment in the first quarter with respect to certain floaters, jackups and spare equipment totaling $2.8 billion. We measured the fair value of these assets to be $72.3 million at the time of impairment by applying either an income approach, using projected benefit obligations totaled $239.3 million,discounted cash flows or estimated scrap value. These valuations were based on unobservable inputs that require significant judgments for which there is limited information, including, in the case of an income approach, assumptions regarding future day rates, utilization, operating costs and capital requirements. In instances where we applied an income approach, forecasted day rates and utilization took into account then current market conditions and our anticipated business outlook at that time, both of which $19.2 million washad been impacted by the adverse changes in the business environment observed during the first quarter.



Assets held-for-sale

Our business strategy has been to focus on ultra-deepwater floater and premium jackup operations and de-emphasize other assets and operations that are not part of our long-term strategic plan or that no longer meet our standards for economic returns. We continue to focus on our fleet management strategy in light of the composition of our rig fleet. 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 reducing holding costs by selling or disposing of older, lower-specification or non-core rigs. To this end, we continually assess our rig portfolio and actively work with our rig broker to market certain rigs.

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

During the second quarter of 2020, we began marketing the net benefit obligationsVALARIS 8500, VALARIS 8501, VALARIS 8502, VALARIS DS-3, VALARIS DS-5, VALARIS DS-6 and VALARIS JU-105. We concluded that the rigs met the held-for-sale criteria during the second quarter of 2020 and their carrying value was reduced to fair value, less costs to sell, based on their estimated sales price. We recorded a pre-tax, non-cash loss on impairment totaling $15.0 million, which was included in loss on impairment in our condensed consolidated statement of operations for the three and six months ended June 30, 2020. In July 2020, we completed the sale of all of these rigs, except VALARIS DS-6, VALARIS 8502 and VALARIS JU-105.

Our 7 held-for-sale rigs had a remaining aggregate carrying value of $20.9 million and are included in accrued liabilities and other and other liabilities inassets, net, on our condensed consolidated balance sheet respectively. The most significantas of the assumed plans is the Rowan Pension Plan, which had a net projected benefit obligation of $202.1 million. Prior to the Transaction Date, Rowan amended the Rowan Pension Plan to freeze the plan as to any future benefit accruals. As a result, eligible employees no longer receive pay credits in the pension plan and newly hired employees will not be eligible to participate in the pension plan.June 30, 2020.
 The components of net periodic pension cost were as follows (in millions):
 Three Months Ended September 30, 2019April 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) 
(1)Included in contract drilling and general and administrative expense in our condensed consolidated statements of operations.

(2)Included in other, net, in our condensed consolidated statements of operations.

From the Transaction Date through September 30, 2019, we contributed $8.0 million to our pension and other post-retirement benefit plans and expect to make additional contributions to such plans totaling approximately $6.6 million for the remainder of 2019, which represent the minimum contributions we are required to make under relevant statutes. We do not expect to make contributions in excess of the minimum required amounts.
Note 7 -Pension and Other Post-retirement Benefits

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

    The components of net periodic pension and retiree medical cost were as follows (in millions):
  Three Months Ended Six Months Ended April 11 - June 30, 2019
  June 30, 2020 
Service cost (1)
 $.7
 $1.3
 $.4
Interest cost (2)
 6.4
 12.9
 6.5
Expected return on plan assets (2)
 (9.5) (19.0) (8.2)
Net periodic pension and retiree medical cost (income) $(2.4)
$(4.8) $(1.3)

(1)
Included in contract drilling and general and administrative expense in our condensed consolidated statements of operations.

(2)
Included in other, net, in our condensed consolidated statements of operations.

During the six months ended June 30, 2020, we contributed $10.6 million to our pension and other post-retirement benefit plans and we do not expect to make additional contributions to such plans for the remainder of 2020. Approximately $21.4 million of anticipated payments have been deferred to January 1, 2021 as a result of relief provided


under the U.S. Cares Act. These amounts represent the minimum contributions we are required to make under relevant statutes. We do not expect to make contributions in excess of the minimum required amounts.
Note 8 - Derivative Instruments

Our functional currency is the U.S. dollar. As is customary in the oil and gas industry, a majority of our revenues are denominated in U.S. dollars; however, a portion of the revenues earned and expenses incurred by certain of our subsidiaries are denominated in currencies other than the U.S. dollar. These transactions are remeasured in U.S. dollars based on a combination of both current and historical exchange rates. We use foreign currency forward contractsderivatives to reduce our exposure to various market risks, primarily foreign currency exchange rate risk.
 
26

All of our derivatives were recorded on our condensed consolidated balance sheets at fair value. Derivatives subject to legally enforceable master netting agreements were not offset inon our condensed consolidated balance sheets. Accounting for the gains and losses resulting from changes in the fair value of derivatives depends on the use of the derivative and whether it qualifies for hedge accounting. Net liabilitiesAs of $7.9 millionJune 30, 2020 and $10.7 million associated with our derivatives were included onDecember 31, 2019, our condensed consolidated balance sheets asincluded net foreign currency derivative liabilities of September 30, 2019$1.0 million and December 31, 2018,assets of $5.4 million, respectively. All of our derivative instruments mature during the next 1815 months. See "Note 5- Fair Value Measurements" for additional information on the fair value measurement of our derivatives.
 
Derivatives recorded at fair value on our condensed consolidated balance sheets consisted of the following (in millions):
 Derivative AssetsDerivative Liabilities
September 30,
2019		December 31,
2018		September 30,
2019		December 31,
2018
Derivatives Designated as Hedging Instruments   
Foreign currency forward contracts - current(1)
$—  $.2  $7.0  $8.3  
Foreign currency forward contracts - non-current(2)
—  —  .4  .4  
 $—  $.2  $7.4  $8.7  
Derivatives Not Designated as Hedging Instruments   
Foreign currency forward contracts - current(1)
$.3  $.4  $.8  $2.6  
Total$.3  $.6  $8.2  $11.3  
 Derivative Assets Derivative Liabilities
 June 30,
2020		 December 31,
2019		 June 30,
2020		 December 31,
2019
Derivatives Designated as Hedging Instruments   
  
  
Foreign currency forward contracts - current(1)
$1.1
 $4.2
 $4.0
 $.7
Foreign currency forward contracts - non-current(2)
.3
 .8
 .2
 —
 $1.4
 $5.0
 $4.2
 $.7
        
Derivatives not Designated as Hedging Instruments   
  
  
Foreign currency forward contracts - current(1)
$2.0
 $1.3
 $.2
 $.2
Total$3.4
 $6.3
 $4.4
 $.9
 
(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.
(1)
Derivative assets and liabilities that have maturity dates equal to or less than 12 months from the respective balance sheet dates 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 12 months from the respective balance sheet dates were included in other assets and other liabilities, respectively, on our condensed consolidated balance sheets.
 
We utilize cash flow hedges to hedge forecasted foreign currency denominated transactions, primarily to reduce our exposure to foreign currency exchange rate risk associated with future expected contract drilling expenses and capital expenditures denominated in various currencies. As of SeptemberJune 30, 2019,2020, we had cash flow hedges outstanding to exchange an aggregate $212.6$134.9 million for various foreign currencies, including $116.7$74.7 million for British pounds, $44.6$39.4 million for Australian dollars, $18.2$9.2 million for euros $9.5and $11.6 million for Singapore dollars, $16.5 million for Norwegian krone and $7.1 million for Brazilian reals.other currencies.

27

Gains and losses, net of tax, on derivatives designated as cash flow hedges included in our condensed consolidated statements of operations and comprehensive income (loss) were as follows (in millions):



Three Months Ended SeptemberJune 30, 20192020 and 20182019
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)
201920182019201820192018
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 Loss ("OCI") on Derivatives (Effective Portion) 
(Gain) Loss Reclassified from ("AOCI") into Income  (Effective Portion)(1)
 2020 2019 2020 2019
Foreign currency forward contracts(2)
$4.8
 $(1.6) $(10.9) $1.8


Six Months Ended June 30, 2020 and 2019

 Loss Recognized in Other Comprehensive Loss ("OCI") on Derivatives (Effective Portion) 
(Gain) Loss Reclassified from ("AOCI") into Income  (Effective Portion)(1)
 2020 2019 2020 2019
Interest rate lock contracts(3)
$—
 $—
 $—
 $.1
Foreign currency forward contracts(4)
(8.1) (1.6) (11.0) 3.3
Total$(8.1) $(1.6) $(11.0) $3.4

Nine Months Ended September 30, 2019 and 2018
(1)
Changes in the fair value of cash flow hedges are recorded in AOCI.  Amounts recorded in AOCI associated with cash flow hedges are subsequently reclassified into contract drilling, depreciation or interest expense as earnings are affected by the underlying hedged forecasted transaction.
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)
 201920182019201820192018
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) 

(2)
During the three months ended June 30, 2020, $1.6 million of losses were reclassified from AOCI into contract drilling expense and $12.5 million of gains were reclassified from AOCI into depreciation expense in our condensed consolidated statement of operations. During the three months ended June 30, 2019, $2.0 million of losses were reclassified from AOCI into contract drilling expense and $200,000 of gains were reclassified from AOCI into depreciation expense in our condensed consolidated statement of operations.

(3)
Losses on interest rate lock derivatives reclassified from AOCI into income were included in interest expense, net, in our condensed consolidated statements of operations.
(1)Changes in the fair value of cash flow hedge derivatives are recorded in AOCI.  Amounts recorded in AOCI associated with cash flow hedges are subsequently reclassified into contract drilling, depreciation or interest expense as earnings are affected by the underlying hedged forecasted transaction.
(4)
During the six months ended June 30, 2020, $2.5 million of losses were reclassified from AOCI into contract drilling expense and $13.5 million of gains were reclassified from AOCI into depreciation expense in our condensed consolidated statement of operations. During the six months ended June 30, 2019, $3.7 million of losses were reclassified from AOCI into contract drilling expense and $400,000 of gains were reclassified from AOCI into depreciation expense in our condensed consolidated statement of operations.

(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.

We have net assets and liabilities denominated in numerous foreign currencies and use various methods to manage our exposure to foreign currency exchange rate risk. We predominantly structure our drilling contracts in U.S. dollars, which significantly reduces the portion of our cash flows and assets denominated in foreign currencies. We occasionally enter into derivatives that hedge the fair value of recognized foreign currency denominated assets or liabilities but 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 SeptemberJune 30, 2019,2020, we helddid not have foreign currency exposure due to our outstanding derivatives not designated as hedging instruments to exchange an aggregate $27.1 million for various foreign currencies, including $7.8 million for British pounds, $9.6 million for Nigerian Naira, $6.6 million for Israeli New Shekel and $3.1 million for Mexican pesos.instruments.
     
Net lossesgains of $2.3$1.4 million and net gainslosses of $2.2 million associated with our derivatives not designated as hedging instruments were included in other, net, in our condensed consolidated statements of operations for the three-month periods three monthsended SeptemberJune 30, 20192020 and 2018,2019, respectively. Net lossesgains of $7.6$1.3 million and net gainslosses of $9.7$5.3 million associated


with our derivatives not designated as hedging instruments were included in other, net, in our condensed consolidated statements of operations for the nine-month periodssix months ended SeptemberJune 30, 20192020 and 2018,2019, respectively.

As of SeptemberJune 30, 2019,2020, the estimated amount of net losses associated with derivative instruments,derivatives, net of tax, that wouldwill be reclassified intoto earnings during the next twelve12 months totaled $5.0$1.9 million.

Note 8 -  Property and Equipment

Property and equipment as of September 30, 2019 and December 31, 2018 consisted of the following, at cost (in millions):


September 30, 2019December 31, 2018
Drilling rigs and equipment$17,615.1  $14,542.5  
Work-in-progress574.6  779.2  
Other203.2  195.3  
$18,392.9  $15,517.0  

Impairment of Long-Lived Assets

On a quarterly basis, we evaluate the carrying value of our property and equipment to identify events or changes in circumstances that indicate the carrying value may not be recoverable.

During the third quarter of 2019, we decided to retire VALARIS 5006, which was reclassified to held-for-sale. We recognized a pre-tax, 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.
29

Note 9 - Earnings (Loss) Per Share
 
We compute basic and diluted earnings (loss) per share ("EPS") in accordance with the two-class method. Net income (loss)loss attributable to Valaris used in our computations of basic and diluted earnings (loss) per shareEPS is adjusted to exclude net income allocated to non-vested shares granted to our employees and non-employee directors. Weighted-average shares outstanding used in our computation of diluted income (loss)EPS is calculated using the treasury stock method and includes the effect of all potentially dilutive stock options and excludes non-vested shares. In the three and six months ended June 30, 2020 and 2019, our potentially dilutive instruments were not included in the computation of diluted EPS as the effect of including these shares in the calculation would have been anti-dilutive.

During the three-month and nine-month periods ended September 30, 2019 and 2018, all income attributable to noncontrolling interests was from continuing operations. The following table is a reconciliation of income (loss)loss from continuing operations attributable to Valaris shares used in our basic and diluted earnings (loss) per shareEPS computations for the three-monththree and nine-month periodssix months ended SeptemberJune 30, 20192020 and 20182019 (in millions):
Three Months Ended
September 30,		Nine Months Ended
September 30,		Three Months Ended
June 30,		 Six Months Ended
June 30,
20192018201920182020 2019 2020 2019
Income (loss) from continuing operations attributable to ValarisIncome (loss) from continuing operations attributable to Valaris $(197.1) $(145.0) $18.0  $(436.1) $(1,107.4) $405.5
 $(4,113.7) $215.1
Income from continuing operations allocated to non-vested share awards(1)
Income from continuing operations allocated to non-vested share awards(1)
—  (.2) (.6) (.4) —
 (12.1) —
 (6.3)
Income (loss) from continuing operations attributable to Valaris sharesIncome (loss) from continuing operations attributable to Valaris shares $(197.1) $(145.2) $17.4  $(436.5) $(1,107.4) $393.4
 $(4,113.7) $208.8

(1)  Losses are not allocated to non-vested share awards. Therefore, in periods in which we were in a net loss position, only dividends attributable to our non-vested share awards are included.
(1)
Losses are not allocated to non-vested share awards. Due to the net loss position, potentially dilutive share awards are excluded from the computation of diluted EPS. There were no potentially dilutive share awards for the three and six months ended June 30, 2019.

Anti-dilutive share awards totaling 0.4 million and 0.3 million400,000 were excluded from the computation of diluted earnings (loss) per shareEPS for the three-monththree and nine-month periodssix months ended SeptemberJune 30, 2019,2020, respectively. Anti-dilutive share awards totaling 1.6 million400,000 and 1.7 million300,000 were excluded from the computation of diluted earnings (loss) per shareEPS for the three-monththree and nine-month periodssix months ended SeptemberJune 30, 2018.2019, respectively.

We have the option to settle our 2024 Convertible Notes in cash, shares or a combination thereof for the aggregate amount due upon conversion. Our intent is to settle the principal amount of the 2024 Convertible Notes in cash upon conversion. If the conversion value exceeds the principal amount, (i.e., our share price exceeds the exchange price on the date of conversion), we expect to deliver shares equal to the remainder of our conversion obligation in excess of the principal amount.

During each respective reporting period that our average share price exceeds the exchange price, an assumed number of shares required to settle the conversion obligation in excess of the principal amount will be included in our denominator for the computation of diluted earnings (loss) per shareEPS using the treasury stock method. Our average share price did not exceed the exchange price during the three-month or nine-month periodsthree and six months ended SeptemberJune 30, 20192020 and 2018.2019.


30

Note 10 -Debt
Rowan Transaction
Second A&R Waiver

On July 15, 2020, the Company, certain lenders party thereto, Citibank, N.A., as administrative agent (the “Agent”), and the other parties party thereto entered into a Second Amended and Restated Waiver to Fourth Amended and Restated Credit Agreement (the “Second A&R Waiver”), which amends, restates and replaces the Amended and Restated Waiver to Fourth Amended and Restated Credit Agreement, dated June 30, 2020 (the “A&R Waiver”), which was previously entered into by the Company, certain lenders party thereto, the Agent and the other parties thereto and which amended, restated and replaced the Waiver to Fourth Amended and Restated Credit Agreement, dated June 1,


2020, which was previously entered into by the Company, certain lenders party thereto, the Agent and the other parties party thereto (the “Initial Waiver”).

The Initial Waiver was entered into under the Company’s Fourth Amended and Restated Credit Agreement dated May 7, 2013 (as amended, the “revolving credit facility”) to waive any resulting default or event of default attributed to any failure by the Company or any of its subsidiaries to make all or any part of their required interest payments due (i) on June 1, 2020 with respect to the Company’s 4.875% Senior Notes due 2022 (the “2022 Notes”) and 5.40% Senior Notes due 2042 (the “2042 Notes”) (collectively, the “June 1 Interest Payments”) and (ii) on June 15, 2020 with respect to the Company’s 7.375% Senior Notes due 2025 (the “2025 Notes”) (the “June 15 Interest Payments” and together with the June 1 Interest Payments, the “June Interest Payments”). The A&R Waiver was entered into by the parties thereto to continue to waive any default or event of default addressed in the A&R Waiver as well as to also waive any default or event of default under the revolving credit facility resulting from any cross-defaults (the “June 1 Cross-Defaults”) under the 2022 Notes, 2042 Notes, 2025 Notes, the 4.75% Senior Notes due 2024 (the "2024 Notes") and the 5.85% Senior Notes due 2044 (the "2044 Notes" and, collectively, the “Defaulted Notes”) in respect of the failure to pay the June 1 Interest Payments.

The Second A&R Waiver was entered into to continue to waive any default or event of default under the revolving credit facility attributed to (i) the failure to make the June Interest Payments and (ii) the June 1 Cross-Defaults. Additionally, the Second A&R Waiver waived any default or event of default under the revolving credit facility attributed to (i) any failure by the Company or any of its subsidiaries to make all or any part of their required interest payments due on (a) July 15, 2020, with respect to the Company’s 2024 Notes and 2044 Notes, (b) July 31, 2020, with respect to the Company’s 8.00%Senior Notes due 2024 and with respect to a subsidiary of the Company’s 3.00% Exchangeable Notes due 2024 and (c) August 1, 2020, with respect to the Company’s 7.75% Senior Notes due 2025, (ii) any resulting cross-defaults under the Defaulted Notes in respect of the failure to pay the June Interest Payments and (iii) an additional waiver relating to a vendor payment.

The Second A&R Waiver will remain in effect until the earliest of (i) August 3, 2020, (ii) termination or invalidity of the Forbearance Agreement (as defined below), the Forbearance Agreement ceasing to be in full force and effect or amendment of the Forbearance Agreement without consent of the requisite number of revolving credit facility lenders, (iii) acceleration by the holders of any of the Defaulted Notes in accordance with the terms of the Defaulted Notes and (iv) the date on which the aggregate amount of advances (excluding letter of credit obligations) outstanding under the revolving credit facility exceeds $630.0 million. The Second A&R Waiver includes customary representations and does not limit, impair or constitute a waiver of the rights and remedies of the lenders or the Agent, and except as expressly provided in the Second A&R Waiver and does not amend or affect the terms of the revolving credit facility.

Noteholder Forbearance

On July 15, 2020, the Company entered into a Forbearance Agreement (the “Forbearance Agreement”) pursuant to that certain indenture dated July 21, 2009 between the Company and U.S. Bank National Association, as indenture trustee, under which the respective Defaulted Notes were issued with certain beneficial holders or investment managers or advisors for such beneficial holders (the “Supporting Holders”). At the time of entry into the Forbearance Agreement, the Supporting Holders held (i) approximately 44.0% of the outstanding 2022 Notes, (ii) approximately 74.2%of the outstanding 2024 Notes, (iii) approximately 65.3% of the outstanding 2025 Notes, (iv) approximately 68.9% of the outstanding 2042 Notes and (v) approximately 82.9%of the outstanding 2044 Notes. The parties previously entered into a Forbearance Agreement on June 30, 2020 that expired on July 15, 2020.

Pursuant to the Forbearance Agreement, the Supporting Holders have agreed to (i) forbear from the exercise of certain rights and remedies that they have under the related indenture or applicable law with respect to certain specified defaults and events of defaults (including cross-defaults as a result of an acceleration) and (ii) in the event that the applicable trustee or any holder or group of holders takes any action which results in an acceleration during the Forbearance Period (as defined below), to deliver written notice to the applicable trustee to rescind such acceleration and its consequences and take all other action in their power to cause such acceleration to be rescinded and annulled.


The Company and the Supporting Holders have agreed to continue this forbearance until the earlier of (i) August 3, 2020, (ii) the occurrence of any other default or event of default under the related indenture that is not cured within any applicable grace period, (iii) the acceleration of the Company’s obligations under the revolving credit facility, (iv) the termination or invalidity of the Second A&R Waiver, the Second A&R Waiver otherwise ceasing to be in full force and effect, or the Second A&R Waiver being amended, supplemented or otherwise modified in each case without the consent of the Supporting Holders, (v) the commencement of a case under title 11 of the United States Code or any similar reorganization, liquidation, insolvency or receivership proceeding by or against the Company or a subsidiary of the Company or (vi) the failure of the Company to timely comply with any term, condition or covenant set forth in the Forbearance Agreement (such period, the “Forbearance Period”).

Senior Notes

We did not make interest payments due in June and July 2020 on the Defaulted Notes. The June 2020 missed interest payments represent current events of default under the Defaulted Notes. We have entered into the Forbearance Agreement pursuant to which certain holders of our senior notes have agreed to forbear from the exercise of certain rights and remedies that they have with respect to certain specified defaults and events of defaults (including cross-defaults). However, the events of default under the Defaulted Notes have not been waived and still exist, and the Forbearance Agreement will terminate automatically on August 3, 2020 and may be terminated upon certain other events that may occur prior to August 3, 2020. Accordingly, the amounts outstanding under the Defaulted Notes were classified as current in the accompanying Condensed Consolidated Balance Sheet as of June 30, 2020.

As a result of the Rowan Transaction, we assumedacquired the following debt fromsenior notes issued by Rowan Companies, Inc. ("RCI") and guaranteed by Rowan: (1) $201.4 million in aggregate principal amount of 7.875% unsecured senior notes due 2019, which washave been repaid at maturity in August 2019,full, (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%5.40% unsecured senior notes due 2042 and (6) $400.0 million in aggregate principal amount of 5.85% unsecured senior notes due 2044. Upon closingOn February 3, 2020, Rowan and RCI transferred substantially all their assets on a consolidated basis to Valaris plc, Valaris plc became the obligor on the notes and Rowan and RCI were relieved of their obligations under the Rowan Transaction, we terminated Rowan's outstanding credit facilities.

notes and the related indenture.
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 was $2.3 billion through September 2019 and $1.6 billion through September 2022. The credit agreement governing the credit facility includes an accordion feature allowing us to increase future commitments up to an aggregate amount not to exceed $250.0 million.

Revolving Credit Facility

As of SeptemberJune 30, 2019,2020, we had $140.6$588.8 million outstanding under our credit facility, inclusive of $37.8 million in letters of credit, leaving $1.0 billion of undrawn capacity available. Our revolving credit facility requires compliance with covenants to maintain specified financial and 0guarantee coverage ratios, including a total debt to total capitalization ratio that is less than or equal to 60%. In the first six months of 2020, we incurred impairments of $3.6 billion, which contributed to an increase in the total debt to total capitalization ratio to 57.7% as of June 30, 2020. As of June 30, 2020, we were in compliance with our debt covenants due to the Second A&R Waiver. There is a significant level of uncertainty that we will remain in compliance with our credit facility covenants during the next twelve months. The full impact that the pandemic and the decline in oil prices and demand will have on our results of operations, financial condition, liquidity and cash flows is uncertain. If we were to violate the covenants of the revolving credit facility, further borrowings under the credit facility would not be permitted, absent a waiver in respect of the resulting event of default, and all outstanding borrowings could become immediately due and payable by action of lenders holding a majority of the commitments under the facility. Any such acceleration would trigger a cross-acceleration event of default with respect to approximately $2.1 billion outstanding under the Defaulted Notes.

The failure to make the interest payments due in June 2020 on the Defaulted Notes would have represented an event of default under the revolving credit facility if it had not been waived pursuant to the Second A&R Waiver. We have entered into the Second A&R Waiver pursuant to which the lenders under our revolving credit facility have waived certain defaults and events of default under the revolving credit facility, including in relation to the non-payment of interest under the Defaulted Notes. However, the Second A&R Waiver will terminate automatically on August 3, 2020 and may be terminated upon certain other events that may occur prior to August 3, 2020, including if advances


outstanding under the revolving credit facility exceed $630.0 million. Accordingly, the amounts outstanding under the revolving credit facility were classified as current in the accompanying Condensed Consolidated Balance Sheet as of December 31, 2018.June 30, 2020.

The revolving credit facility generally limits the company to no more than $200.0 million in available cash (including certain liquid investments as defined in the facility documents), and requires consent of all lenders for draws on the facility that would result in the company having more than $200.0 million in available cash and liquid investments.

Furthermore, the agent under the revolving credit facility has reserved the right to assert that a material adverse effect has occurred based on changes in the oil market and certain company-specific operating incidents, including the drop of the blowout preventer stack off the VALARIS DS-8. See "Note 13- Contingencies" for additional information. We do not believe that a material adverse effect has occurred, but there can be no assurance that the lenders will not assert a material adverse effect as a basis to deny further borrowing requests.

Tender Offers2024 Convertible Notes

On June 25, 2019, we commenced cash tender offers for certain seriesIn December 2016, Ensco Jersey Finance Limited, a wholly-owned subsidiary of senior notesValaris plc, issued by us and Ensco International Incorporated and Rowan Companies, Inc., our wholly-owned subsidiaries. The tender offers expired on July 23, 2019, and we repurchased $951.8$849.5 million aggregate principal amount of notes.unsecured 2024 Convertible Notes in a private offering. The 2024 Convertible Notes are fully and unconditionally guaranteed, on a senior, unsecured basis, by Valaris plc and are exchangeable into cash, our Class A ordinary shares or a combination thereof, at our election. Interest on the 2024 Convertible Notes is payable semiannually on January 31 and July 31 of each year. The 2024 Convertible Notes will mature on January 31, 2024, unless exchanged, redeemed or repurchased in accordance with their terms prior to such date. Holders may exchange their 2024 Convertible Notes at their option any time prior to July 31, 2023 only under certain circumstances set forth in the indenture governing the 2024 Convertible Notes. On or after July 31, 2023, holders may exchange their 2024 Convertible Notes at any time. The exchange rate is 17.8336 shares per $1,000 principal amount of notes, representing an exchange price of $56.08 per share, and is subject to adjustment upon certain events. The 2024 Convertible Notes may not be redeemed by us except in the event of certain tax law changes.

On April 15, 2020, we were notified by the NYSE that the average closing price of our Class A ordinary shares was below $1.00 per share over a period of 30 consecutive trading days, which is the minimum average share price required to maintain listing on NYSE. The following table sets forthCompany has until late December 2020 to regain compliance. If our shares are delisted from the totalNYSE and not concurrently listed on Nasdaq, the holders of our 2024 Convertible Notes would have the right to require us to repurchase the notes at a price equal to the principal amountsamount thereof plus accrued interest to the repurchase date. Such an accelerated repurchase, if required by the holders, could be in excess of the forecasted availability under the revolving credit facility and new financing facilities could be required, which we may not be able to put in place.

Open Market Repurchases

In early March 2020, we repurchased and$12.8 million of our outstanding 4.70% Senior notes due 2021 on the open market for an aggregate purchase price paid in the tender offers (in millions):
Aggregate Principal Amount Repurchased
Aggregate Repurchase Price(1)
4.50% Senior notes due 2024$320.0  $240.0  
5.20% Senior notes due 2025335.5  250.0  
7.20% Senior notes due 202737.9  29.9  
4.75% Senior notes due 202479.5  61.2  
7.375% Senior notes due 2025139.2  109.2  
8.00% Senior notes due 202439.7  33.8  
Total$951.8  $724.1  

(1)Excludesof $9.7 million, excluding accrued interest, paid to holderswith cash on hand. As a result of the repurchased senior notes.

During the third quarter of 2019,transaction, we recognized a pre-tax gain from debt extinguishment of $194.1$3.1 million, related to the tender offers, net of discounts premiums and transaction costs.in other, net, in the consolidated statement of operations.

31


Note 11 - Shareholders' Equity


Activity in our various shareholders' equity accounts for the nine-month periodsthree and six months ended SeptemberJune 30, 20192020 and 20182019 were as follows (in millions, except per share amounts):
 Shares Par ValueAdditional
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, 2019115.2  $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 Transaction88.0  35.2  1,365.5  —  —  2.1  —  
Shares issued under share-based compensation plans, net2.6  1.1  (1.1) —  —  (.8) —  
Repurchase of shares—  —  —  —  —  (1.4) —  
Share-based compensation cost—  —  13.8  —  —  —  —  
Net other comprehensive income  —  —  —  —  .2  —  —  
BALANCE, June 30, 2019205.8  $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, 2019205.8  $82.5  $8,617.5  $887.7  $18.9  $(75.2) $(0.9) 
  Shares  Par Value 
Additional
Paid-in
Capital
 
Retained
Earnings (Deficit)
 AOCI  
Treasury
Shares
 
Non-controlling
Interest
BALANCE, December 31, 2019205.9
 $82.5
 $8,627.8
 $671.7
 $6.2
 $(77.3) $(1.3)
Net loss—
 —
 —
 (3,006.3) —
 —
 (1.4)
Shares issued under share-based compensation plans, net—
 —
 (.7) —
 —
 .9
 —
Repurchase of shares—
 —
 —
 —
 —
 (.9) —
Share-based compensation cost—
 —
 7.8
 —
 —
 —
 —
Net other comprehensive loss—
 —
 —
 —
 (13.4) —
 —
BALANCE, March 31, 2020205.9
 $82.5
 $8,634.9
 $(2,334.6) $(7.2) $(77.3) $(2.7)
Net loss—
 —
 —
 (1,107.4) —
 —
 (1.4)
Shares issued under share-based compensation plans, net.2
 .1
 (.7) —
 —
 .6
 —
Repurchase of shares—
 —
 —
 —
 —
 (.1) —
Share-based compensation cost—
 —
 5.7
 —
 —
 —
 —
Net other comprehensive loss—
 —
 —
 —
 (6.1) —
 —
Distributions to noncontrolling interests—
 —
 —
 —
 —
 —
 (.9)
BALANCE, June 30, 2020206.1
 $82.6
 $8,639.9
 $(3,442.0) $(13.3) $(76.8) $(5.0)

  Shares  Par Value Additional
Paid-in
Capital		 Retained
Earnings		 AOCI  Treasury
Shares		 Non-controlling
Interest
BALANCE, December 31, 2018115.2
 $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, 2019115.2
 $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 Transaction88.0
 35.2
 1,367.5
 —
 —
 .1
 —
Shares issued under share-based compensation plans, net2.6
 1.1
 (1.1) —
 —
 (.8) —
Repurchase of shares—
 —
 —
 —
 —
 (1.4) —
Share-based compensation cost—
 —
 13.8
 —
 —
 —
 —
Net other comprehensive income—
 —
 —
 —
 .2
 —
 —
BALANCE, June 30, 2019205.8
 $82.5
 $8,610.4
 $1,084.8
 $19.9
 $(77.0) $1.6



32

 Shares Par ValueAdditional
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, 2018111.8  $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, net3.4  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, 2018115.2  $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, 2018115.2  $46.2  $7,216.6  $1,082.5  $19.2  $(72.1) $(2.2) 

In connection with the Rowan Transaction on April 11, 2019, we issued 88.3 million Class A ordinary shares with an aggregate value of $1.4 billion. See Note 3 for additional information.

On April 11, 2019, we completed our combination with Rowan and effected the Reverse Stock Split. All share and per-share amounts in these condensed consolidated financial statements have been retrospectively adjusted to reflect the Reverse Stock Split.

Note 12 -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. Therefore, we generally incur income tax expense in periods in which we operate at a loss.

33

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 incomeprofitability levels and changes in tax laws, our consolidatedannual 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 doesmay not decline proportionally with consolidated income, which resultscould result in higher effective income tax rates. Furthermore, we generallywill continue to incur income tax expense in periods in which we operate at a loss on a consolidated basis.loss.

Historically, we calculated our provision for income taxes during interim reporting periods by applying the estimated annual effective tax rate for the full fiscal year to pre-tax income or loss, excluding discrete items, for the reporting period. We determined that since small changes in estimated pre-tax income or loss would result in significant changes in the estimated annual effective tax rate, the historical method would not provide a reliable estimate of income taxes for the three-monththree and nine-month periodssix months ended SeptemberJune 30, 20192020 and 2018.2019. We used a discrete effective tax rate method to calculate income taxes for the three-monththree and nine-month periodssix months ended SeptemberJune 30, 20192020 and 2018.2019. We will continue to evaluate income tax estimates under the historical method in subsequent quarters and employ a discrete effective tax rate method if warranted.

Discrete income tax benefit for the three-month periodthree months ended SeptemberJune 30, 20192020 was $18.4$47.3 million and was primarily attributable to rig impairments and other resolutions of prior year tax matters. Discrete income tax benefit for the three months ended June 30, 2019 was $1.2 million and was primarily attributable to resolution of prior period tax matters. Excluding the aforementioned discrete tax items, income tax expense for the three months ended June 30, 2020 and 2019 was $31.5 million and $33.8 million, respectively.

Discrete income tax benefit for the six months ended June 30, 2020 was $211.7 million and was primarily attributable to a restructuring transactions,transaction, rig impairments, implementation of the impairment of a drilling rig,U.S. Cares Act, changes in liabilities for unrecognized tax benefits associated with tax positions taken in prior years and the resolution of other resolutions of prior yearperiod tax matters, partially offset by discrete tax expense resulting from gains on the repurchase of debt.matters. Discrete income tax benefit for the three-month periodsix months ended SeptemberJune 30, 20182019 was $7.9$0.6 million and was primarily attributable to an election under U.S. Treasury Regulations not to apply U.S. 2017 operating losses to deemed repatriated income, which provided for utilization of foreign tax credits that were subject to valuation allowance, and U.S. tax reform, partially offset by discrete tax expense related to the settlement of arbitration proceedings, rig sales and unrecognized tax benefits associated with tax positions taken in prior years. Excluding the aforementioned discrete tax items, income tax expense for the three-month periods ended September 30, 2019 and 2018 was $19.9 million and $31.2 million, respectively.

Discrete income tax benefit for the nine-month period ended September 30, 2019 was $19.0 million and was primarily attributable to restructuring transactions, the impairment of a drilling rig, changes in liabilities for unrecognized tax benefits associated with tax positions taken in prior years and the resolution of other resolutions of prior yearperiod tax matters, partially offset by discrete tax expense resulting from gains on the repurchase of debt. Discrete income tax benefit for the nine-month period ended September 30, 2018 was $19.1 million and was primarily attributable to an election under U.S. Treasury Regulations not to apply U.S. 2017 operating losses to deemed repatriated income, which provided for utilization of foreign tax credits that were subject to valuation allowance, U.S. tax reform and a restructuring transaction, partially offset by discrete tax expense related to the settlement of arbitration proceedings, repurchase and redemption of senior notes, unrecognized tax benefits associated with tax positions taken in prior years and rig sales.matters. Excluding the aforementioned discrete tax items, income tax expense for the nine-month periodssix months ended SeptemberJune 30, 2020 and 2019 and 2018 was $84.6$43.9 million and $85.5$64.7 million, respectively.

Restructuring Transactions


As discussed in "Note 10 - Debt", on February 3, 2020, Rowan and RCI transferred substantially all their assets and liabilities to Valaris plc, and Valaris plc became the obligor on the 4.875% unsecured senior notes due 2022, 5.40% unsecured senior notes due 2042, 7.375% unsecured senior notes due 2025, 4.75% unsecured senior notes due
Recent Tax Assessments

2024 and 5.85% unsecured senior notes due 2044. We recognized a tax benefit of $66.0 million during the six months ended June 30, 2020 in connection with this transaction.

Unrecognized tax benefits


During 2019, the Luxembourg tax authorities issued aggregate tax assessments totaling approximately €142.0 million (approximately $155.0$159.6 million converted using the current period-end exchange rates) related to tax years 2014, 2015 and 2016 for several of Rowan’sRowan's Luxembourg subsidiaries, which assessments accrue interest at the rate of 7.2% per annum. Although we are vigorously contesting these assessments, we havesubsidiaries.  We recorded an
34

estimated liability for uncertain tax positions taken during these years as part of our acquisition accounting for the Rowan Transaction totaling €93.0 million (approximately $101.0$104.5 million converted using the current period-end exchange rates) in purchase accounting related to these assessments. During the first quarter of 2020, in connection with the administrative appeals process, the tax authority withdrew assessments of €142.0 million (approximately $159.6 million converted using the current period-end exchange rates), which could change materiallyaccepting the associated tax returns as previously filed. Accordingly, we complete our evaluationde-recognized previously accrued liabilities for uncertain tax positions and net wealth taxes of €79.0 million (approximately $88.8 million converted using the filing positions. See Note 3current period-end exchange rates) and €2.0 million (approximately $2.2 million converted using the current period-end exchange rates), respectively. The de-recognition of amounts related to these assessments was recognized as a tax benefit during the three-month period ended March 31, 2020 and is included in changes in operating assets and liabilities on the condensed consolidated statement of cash flows for additional information.  Although the outcome of such assessments and related administrative proceedings cannot be predicted with certainty, an unfavorable outcome could result in a material adverse effect on our financial position, operating results and cash flows.

six months ended June 30, 2020.
During 2019, the Australian tax authorities issued aggregate tax assessments totaling approximately A$101 million (approximately $68$69.7 million converted using theat current period-end exchange rate)rates) plus interest related to the examination of certain of our tax returns for the years 2011 through 2016. During the third quarter of 2019, we made a A$42 million payment (approximately $29 million at then-current exchange rates) to the Australian tax authorities to litigate the assessment, partially mitigating potential interest on any ultimate assessment outcomes.assessment. We have recorded a $15.6 million liability for these assessments as of June 30, 2020. We believe our tax returns are materially correct as filed, and we are vigorously contesting these assessments. Although the outcome of such assessments and related administrative proceedings cannot be predicted with certainty, we do not expect these matters to have a material adverse effect on our financial position, operating results and cash flows.    

Other Matters

During the three-month period ended September 30, 2019, we completed certain restructuring transactions that generated substantial U.S capital gains and losses. At September 30, 2019, we have recognized a deferred tax asset of $988 million associated with the net capital loss arising from these transactions. Based on our current assessment, this deferred tax asset is subject to a full valuation allowance because we more-likely-than-not will be unable to realize a future benefit from it.
Note 13 -Contingencies

DSA Dispute

Angola Non-Drilling Event
On January 4, 2016, Petrobras sent
In March 2020, VALARIS DS-8 experienced a notice to us declaringnon-drilling incident while operating offshore Angola, resulting in the drilling services agreement with Petrobras (the "DSA") for ENSCO DS-5, a drillship orderedblowout preventer (BOP) stack being disconnected from Samsung Heavy Industries, a shipyard in South Korea ("SHI"), void effective immediately, reserving its rights and stating its intention to seek any restitution tothe riser while the rig was moving between well locations. The BOP stack, which it may be entitled. The previously disclosed arbitral hearing on liability relatedwe later recovered, dropped to the matter was heldseabed floor, clear of any subsea structures. No injuries, environmental pollution or third-party damage resulted from the BOP stack being disconnected. 

As a result of the incident, the operator terminated the contract. The termination results in March 2018. Priora decline in our contracted revenue backlog of approximately $150 million. We have loss of hire insurance for $602,500 per day, after a 45-day deductible waiting period, through the end of the contract in November 2020. The waiting period expired on April 22, 2020. We are seeking 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.

In April 2016, we initiated separate arbitration proceedings in the U.K. against SHI for therecover losses incurred in connectionaccordance with the foregoing Petrobras arbitration and certain other losses relating toterms of this insurance policy, which would largely offset 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.lost backlog noted above. There can be no assurance when we will collect allas to the timing or any portionamount of the damages awarded or any related interest or costs.insurance proceeds ultimately received.

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Indonesian Well-Control Event

In July 2019, a well being drilled offshore Indonesia by one of our jackup rigs experienced a well-control event requiring the cessation of drilling activities. The operator could seek to terminateIn February 2020, the contract under certain circumstances. If this drilling contract were to be terminated for cause, it would result in an approximate $14 million decrease in our backlog as of September 30, 2019.

rig resumed operations. Indonesian authorities have initiated a preliminaryan investigation into the event and have contacted the customer, us and other parties involved in drilling the well for additional information. We are cooperating with the Indonesian authorities. We cannot predict the scope or ultimate outcome of this preliminary investigation or whether the Indonesian authorities will open a full investigation into our involvement in this matter.investigation. If the Indonesian authorities determine that we violated local laws in connection with this matter, we could be subject to penalties including environmental or other liabilities, which may have a material adverse impact on us.



Middle East Dispute

On July 30, 2019, we received notice that a local partner of legacy Ensco plc in the Middle East filed a lawsuit in the U.K. against the Company alleging it induced the breach of a non-compete provision in an agreement between the local partner and a subsidiary of the Company.  The lawsuit includesincluded a claim for an unspecified amount of damages in excess of £100 million and other relief.  We strongly disagreereached an agreement to settle this matter and to acquire the local partner's interest in the subsidiary for an aggregate amount of $27.5 million, which was paid in April 2020. Of this amount, we concluded that $20.3 million was attributable to the settlement of the dispute and was recognized as a loss included in other, net, in our consolidated statement of operations for the year ended 31 December 2019. The remaining amount is attributable to the acquisition of the local partner's interest in the subsidiary.

ARO Funding Obligations

Valaris and Saudi Aramco have agreed to take all steps necessary to ensure that ARO purchases at least 20 newbuild jackup rigs ratably over an approximate 10-year period. In January 2020, ARO ordered the first two newbuild jackups for delivery scheduled in 2022. The partners intend for the newbuild jackup rigs to vigorously defend againstbe financed out of available cash from ARO's operations and/or funds available from third-party debt financing. ARO paid a 25% down payment from cash on hand for each of the lawsuit.  We do not have sufficient information at this timenewbuilds ordered in January 2020. In the event ARO has insufficient cash from operations or is unable to obtain third-party financing, each partner may periodically be required to make additional capital contributions to ARO, up to a maximum aggregate contribution of $1.25 billion from each partner to fund the newbuild program. Each partner's commitment shall be reduced by the actual cost of each newbuild rig, on a proportionate basis. The partners agreed that Saudi Aramco, as a customer, will provide drilling contracts to ARO in connection with the acquisition of the newbuild rigs. The initial contracts for each newbuild rig will be determined using a reasonable estimatepricing mechanism that targets a six-year payback period for construction costs on an EBITDA basis. The initial eight-year contracts will be followed by a minimum of potential liability, if any. Asanother eight years of term, re-priced in three-year intervals based on a result, there can be no assurance as to how this dispute will ultimately be resolved.market pricing mechanism.

Other Matters

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

In the ordinary course of business with customers and others, we have entered into letters of credit to guarantee our performance as it relates to our drilling contracts, contract bidding, customs duties, tax appeals and other obligations in various jurisdictions. Letters of credit outstanding as of SeptemberJune 30, 20192020 totaled $90.0$112.9 million and are issued under facilities provided by various banks and other financial institutions. Obligations under these letters of credit and surety bonds are not normally called, as we typically comply with the underlying performance requirement. As of SeptemberJune 30, 2019,2020, we had not been required to make collateral deposits with respect to these agreements.

Note 14 -  Leases

We have operating leases for office space, facilities, equipment, employee housing and certain rig berthing facilities. For all asset classes, except office space, we account for the lease component and the non-lease component as a single lease component. Our leases have remaining lease terms of less than one year to 11 years, some of which include options to extend. Additionally, we sublease certain office space to third parties.

36

The components of lease expense are as follows (in millions):
Three Months Ended September 30, 2019Nine Months Ended September 30, 2019
Long-term operating lease cost$8.3  $21.5  
Short-term operating lease cost1.3  5.6  
Sublease income(.7) (1.7) 
Total operating lease cost$8.9  $25.4  

Supplemental balance sheet information related to our operating leases is as follows (in millions, except lease term and discount rate):
September 30, 2019
Operating lease right-of-use assets(1)
$64.9 
Current lease liability(1)
$23.4 
Long-term lease liability(1)
53.5 
Total operating lease liabilities$76.9 
Weighted-average remaining lease term (in years)5.1
Weighted-average discount rate (2)
8.18 %

(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 three-month and nine-month periods ended September 30, 2019, cash paid for amounts included in the measurement of our operating lease liabilities was $7.5 million and $21.1 million, respectively. Right-of-use assets and lease liabilities recorded for leases commencing during the quarter ended September 30, 2019 totaled $1.4 million, primarily related to the commencement of an operating lease for certain office space in the U.K.

Maturities of lease liabilities as of September 30, 2019 were as follows (in millions):
Year Ending December 31,Total
2019 (excluding the nine months ended September 30, 2019)$8.4  
202024.2  
202117.6  
202212.0  
202310.4  
Thereafter22.2  
Total lease payments$94.8  
Less imputed interest17.9  
Total$76.9  

37

Note 1514 -Segment Information
 
Prior to the Rowan Transaction, ourOur business consistedconsists of 34 operating segments: (1) Floaters, which includedincludes our drillships and semisubmersible rigs, (2) Jackups, (3) ARO and (3)(4) Other, which consisted onlyconsists of our management services provided on rigs owned by third-parties. Our Floatersthird-parties 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 ourunder the Transition Services Agreement, Rig Lease Agreements and Secondment Agreement, do not constituteAgreement. Floaters, Jackups and ARO are also 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.segments.

General and administrative expense and depreciation expense incurred by our corporate office are not allocated to our operating segments for purposes of measuring segment operating income (loss) and are included in "Reconciling Items." Substantially all of the expenses incurred associated with our Transition Services Agreement are included in


general and administrative under "Reconciling Items" in the table set forth below. We measure segment assets as property and equipment.
The full operating results included below for ARO (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- Equity Method Investment in ARO" for additional information on ARO and related arrangements.
Segment information for the three-monththree and nine-month periodssix months ended SeptemberJune 30, 20192020 and 20182019 is presented below (in millions):

Three Months Ended SeptemberJune 30, 20192020
FloatersJackupsAROOtherReconciling ItemsConsolidated Total
Revenues$269.8  $217.8  $138.4  $63.7  $(138.4) $551.3  
Operating expenses
Contract drilling (exclusive of depreciation)250.3  213.5  92.7  32.7  (92.7) 496.5  
Loss on impairment88.2  —  —  —  —  88.2  
Depreciation98.1  59.0  14.6  —  (8.7) 163.0  
General and administrative—  —  8.8  —  27.3  36.1  
Equity in earnings of ARO—  —  —  —  (3.7) (3.7) 
Operating income (loss)$(166.8) $(54.7) $22.3  $31.0  $(68.0) $(236.2) 
Property and equipment, net$10,187.5  $5,022.0  $652.5  $—  $(611.3) $15,250.7  

 Floaters Jackups ARO Other Reconciling Items Consolidated Total
Revenues$163.6
 $186.3
 $146.0
 $38.9
 $(146.0) $388.8
Operating expenses          

Contract drilling (exclusive of depreciation)170.8
 182.7
 112.5
 17.2
 (112.5) 370.7
Loss on impairment831.9
 0.4
 —
 5.7
 —
 838.0
Depreciation62.0
 52.8
 13.3
 11.2
 (7.8) 131.5
General and administrative—
 —
 7.1
 —
 55.5
 62.6
Equity in earnings of ARO—
 —
 —
 —
 (5.2) (5.2)
Operating income (loss)$(901.1)
$(49.6)
$13.1

$4.8

$(86.4) $(1,019.2)
Property and equipment, net$6,536.9
 $4,000.6
 $739.7
 $655.1
 $(739.7) $11,192.6

Three Months Ended SeptemberJune 30, 20182019
FloatersJackupsAROOtherReconciling ItemsConsolidated Total
Revenues$241.8  $173.3  $—  $15.8  $—  $430.9  
Operating expenses
Contract drilling (exclusive of depreciation)175.6  136.4  —  15.1  —  327.1  
Depreciation77.8  39.3  —  —  3.5  120.6  
General and administrative—  —  —  —  25.1  25.1  
Operating income (loss)$(11.6) $(2.4) $—  $0.7  $(28.6) $(41.9) 
Property and equipment, net$9,501.7  $3,190.2  $—  $—  $39.7  $12,731.6  
 Floaters Jackups ARO Other Reconciling Items Consolidated Total
Revenues$295.6
 $229.2
 $123.8
 $59.1
 $(123.8) $583.9
Operating expenses          

Contract drilling (exclusive of depreciation)249.2
 212.2
 78.9
 38.9
 (78.9) 500.3
Loss on impairment—
 —
 —
 —
 2.5
 2.5
Depreciation98.4
 55.5
 12.4
 —
 (8.4) 157.9
General and administrative—
 —
 5.3
 —
 75.9
 81.2
Equity in earnings of ARO—
 —
 —
 —
 0.6
 0.6
Operating income (loss)$(52.0)
$(38.5)
$27.2

$20.2

$(114.3) $(157.4)
Property and equipment, net$10,364.7
 $5,055.6
 $656.5
 $—
 $(621.1) $15,455.7



Six Months Ended June 30, 2020
 Floaters Jackups ARO Other Reconciling Items Consolidated Total
Revenues$343.2
 $399.1
 $286.3
 $103.1
 $(286.3) $845.4
Operating expenses          

Contract drilling (exclusive of depreciation)384.7
 408.8
 220.8
 53.2
 (220.8) 846.7
Loss on impairment3,386.2
 254.3
 —
 5.7
 —
 3,646.2
Depreciation151.4
 111.3
 26.3
 22.3
 (15.3) 296.0
General and administrative—
 —
 15.4
 —
 100.6
 116.0
Equity in earnings of ARO—
 —
 —
 —
 (11.5) (11.5)
Operating income (loss)$(3,579.1) $(375.3) $23.8
 $21.9
 $(162.3) $(4,071.0)
Property and equipment, net$6,536.9
 $4,000.6
 $739.7
 $655.1
 $(739.7) $11,192.6

Six Months Ended June 30, 2019
 Floaters Jackups ARO Other Reconciling Items Consolidated Total
Revenues$528.3
 $386.2
 123.8
 $75.3
 $(123.8) $989.8
Operating expenses          

Contract drilling (exclusive of depreciation)431.0
 347.6
 78.9
 54.3
 (78.9) 832.9
Loss on impairment—
 —
 —
 —
 2.5
 2.5
Depreciation183.2
 92.4
 12.4
 —
 (5.1) 282.9
General and administrative—
 —
 5.3
 —
 105.5
 110.8
Equity in earnings of ARO—
 —
 —
 —
 0.6
 0.6
Operating income (loss)$(85.9) $(53.8)
$27.2
 $21.0
 $(147.2) $(238.7)
Property and equipment, net$10,364.7
 $5,055.6
 $656.5
 $—
 $(621.1) $15,455.7

38

Nine Months Ended September 30, 2019
FloatersJackupsAROOtherReconciling ItemsConsolidated Total
Revenues$798.1  $604.0  $262.2  $139.0  $(262.2) $1,541.1  
Operating expenses
Contract drilling (exclusive of depreciation)681.3  561.1  171.7  87.0  (171.7) 1,329.4  
Loss on impairment88.2  —  —  2.5  90.7  
Depreciation281.3  151.4  26.9  —  (13.7) 445.9  
General and administrative—  —  13.9  —  133.0  146.9  
Equity in earnings of ARO—  —  —  —  (3.1) (3.1) 
Operating income (loss)$(252.7) $(108.5) $49.7  $52.0  $(215.4) $(474.9) 
Property and equipment, net$10,187.5  $5,022.0  $652.5  $—  $(611.3) $15,250.7  

Nine Months Ended September 30, 2018
FloatersJackupsAROOtherReconciling ItemsConsolidated Total
Revenues$785.7  $475.4  $—  $45.3  $—  $1,306.4  
Operating expenses
Contract drilling (exclusive of depreciation)564.4  390.1  —  42.1  —  996.6  
Depreciation233.9  112.3  —  —  10.3  356.5  
General and administrative—  —  —  —  79.1  79.1  
Operating income (loss)$(12.6) $(27.0) $—  $3.2  $(89.4) (125.8) 
Property and equipment, net$9,501.7  $3,190.2  $—  $—  $39.7  12,731.6  

Information about Geographic Areas

As of SeptemberJune 30, 2019,2020, the geographic distribution of our and ARO's drilling rigs was as follows:
FloatersJackups
Other (1)
Total ValarisARO
North & South America11  8  —  19  —  
Europe & Mediterranean6  15  —  21  —  
Middle East & Africa5  13  9  27  7  
Asia & Pacific Rim3  7  —  10  —  
Asia & Pacific Rim (under construction)2  —  —  2  —  
Held for Sale1  1  —  2  —  
Total  28  44  9  81  7  

 Floaters Jackups Other Total Valaris ARO
North & South America7 7 — 14 —
Europe & the Mediterranean5 14 — 19 —
Middle East & Africa2 12 9 23 7
Asia & Pacific Rim3 6 — 9 —
Asia & Pacific Rim (under construction)2 — — 2 —
Held-for-sale6 1 — 7 —
Total25 40
9 74
7
(1)The
We provide management services on 2 rigs owned by third-parties not included in the "Other" segment represent the 9 rigs leased to ARO. See Note 4 for additional information.table above.



39


Note 1615 -Supplemental Financial Information

Consolidated Balance Sheet Information

Accounts receivable, net, consisted of the following (in millions):
September 30,
2019		December 31,
2018		June 30,
2020		 December 31,
2019
TradeTrade$518.7  $301.7  $316.7
 $466.4
OtherOther56.1  46.4  54.9
 60.3
574.8  348.1  371.6
 526.7
Allowance for doubtful accountsAllowance for doubtful accounts(7.8) (3.4) (8.3) (6.0)
$567.0  $344.7  $363.3
 $520.7


Other current assets consisted of the following (in millions):
September 30,
2019		December 31,
2018		June 30,
2020		 December 31,
2019
Materials and suppliesMaterials and supplies$347.1  $268.1  $303.0
 $340.1
Prepaid expenses81.0
 13.5
Prepaid taxesPrepaid taxes59.2  35.0  44.5
 36.2
Deferred costsDeferred costs25.2  23.5  21.9
 23.3
Prepaid expenses17.3  15.2�� 
Assets held-for-saleAssets held-for-sale8.9  —  20.9
 2.3
OtherOther29.8  19.1  29.5
 31.1
$487.5  $360.9  $500.8
 $446.5

Other assets consisted of the following (in millions):
September 30,
2019		December 31,
2018
June 30,
2020		 December 31,
2019
Tax receivables$64.4
 $36.3
Deferred tax assets48.6
 26.6
Right-of-use assetsRight-of-use assets$64.9  $—  46.2
 58.1
Deferred tax assets42.7  29.4  
Tax receivables36.6  8.4  
Supplemental executive retirement plan assetsSupplemental executive retirement plan assets25.1  27.2  22.3
 26.0
Deferred costs8.4
 7.1
Intangible assetsIntangible assets13.4  2.5  3.8
 11.9
Deferred costs10.5  21.5  
OtherOther11.6  8.8  16.5
 22.3
$204.8  $97.8  $210.2

$188.3


40

Accrued liabilities and other consisted of the following (in millions):
September 30,
2019		December 31,
2018
June 30,
2020		 December 31,
2019
Accrued interest$157.2
 $115.2
Personnel costsPersonnel costs$117.9  $82.5  97.9
 134.4
Accrued interest99.0  100.6  
Income and other taxes payableIncome and other taxes payable65.3  36.9  65.9
 61.2
Pension and other post-retirement benefits34.1  —  
Deferred revenueDeferred revenue24.6  56.9  31.5
 30.0
Lease liabilitiesLease liabilities23.4  —  16.8
 21.1
Derivative liabilitiesDerivative liabilities7.8  10.9  4.2
 .9
Accrued rig holding costs7.2  14.3  
Settlement of legal dispute—
 20.3
OtherOther28.4  15.9  24.6
 34.6
$407.7  $318.0  $398.1

$417.7

Other liabilities consisted of the following (in millions):
September 30,
2019		December 31,
2018		June 30,
2020		 December 31,
2019
Unrecognized tax benefits (inclusive of interest and penalties)Unrecognized tax benefits (inclusive of interest and penalties)$313.5  $177.0  $240.1
 $323.1
Pension and other post-retirement benefitsPension and other post-retirement benefits194.5  —  230.3
 246.7
Intangible liabilities50.8
 52.1
Lease liabilities44.1
 51.8
Deferred tax liabilitiesDeferred tax liabilities88.4  70.7  37.1
 99.0
Lease liabilities53.5  —  
Intangible liabilities52.7  53.5  
Supplemental executive retirement plan liabilitiesSupplemental executive retirement plan liabilities25.6  28.1  22.7
 26.7
Personnel costsPersonnel costs21.0  25.1  15.1
 24.5
Deferred revenueDeferred revenue11.7  20.5  11.2
 9.7
Deferred rent—  11.7  
OtherOther37.3  9.4  41.8
 33.8
$798.2  $396.0  $693.2
 $867.4

Accumulated other comprehensive income (loss) consisted of the following (in millions):
September 30,
2019		December 31,
2018
June 30,
2020		 December 31,
2019
Pension and other post-retirement benefits$(21.7) $(21.7)
Derivative instruments Derivative instruments  $13.6  $12.6  3.5
 22.6
Currency translation adjustment Currency translation adjustment  7.0  7.3  6.7
 7.1
Other Other  (1.7) (1.7) (1.8) (1.8)
$18.9  $18.2  $(13.3) $6.2



Consolidated Statement of Operations Information

Other, net, for the three and six months ended June 30, 2020 and 2019 (in millions):
 Three Months Ended
June 30,		 Six Months Ended
June 30,
 2020 2019 2020 2019
Net periodic pension (cost) income, excluding service cost$3.1
 $1.7
 $6.1
 $1.7
Currency translation adjustments(1.2) (2.8) 2.6
 (3.1)
Gain on bargain purchase and measurement period adjustments—
 712.8
 (6.3) 712.8
Other income (expense)3.2
 (8.0) 3.2
 (5.4)
 $5.1
 $703.7
 $5.6
 $706.0


Concentration of Risk

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

41

We mitigate our credit risk relating to derivative counterparties of our derivatives 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 58 - Derivative Instruments" for additional information on our derivatives.derivative activity.

Consolidated revenues by customer for the three-monththree and nine-month periodssix months ended SeptemberJune 30, 20192020 and 20182019 were as follows:

Three Months Ended
September 30,		Nine Months Ended
September 30,
2019201820192018
Saudi Aramco(1)
16 %11 %12 %10 %
Total(2)
15 %14 %15 %14 %
BP(3)
10 %5 %8 %7 %
INPEX(4)
7 %10 %7 %7 %
Other52 %60 %58 %62 %
84 %89 %88 %90 %
 Three Months Ended
June 30,		 Six Months Ended
June 30,
 2020 2019 2020 2019
Woodside Energy(1)
12% 4% 7% 4%
BP(2)
11% 9% 9% 8%
Saudi Aramco(3)
9% 9% 9% 10%
Total(4)
5% 13% 11% 15%
Other63% 65% 64% 63%
 100%
100%
100%
100%

(1)
During the three and six months ended June 30, 2020 and 2019, all revenues were attributable to our Floaters segment.

(2)
During the three-month period ended June 30, 2020, 17% of the revenues provided by BP were attributable to our Jackups segment, 39% of the revenues were attributable to our Floaters segment and the remaining were attributable to our managed rigs. During the six-month period ended June 30, 2020, 20% of the revenues

(1)During
provided by BP were attributable to our Jackups segment, 27% of the three-month and nine-month periods ended September 30, 2019 and 2018, all revenues were attributable to our Jackups segment.

(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 revenuesremaining were attributable to the Floaters segment.our managed rigs.

(3)During the three-month period ended SeptemberJune 30, 2019, 43%44% of the revenues provided by BP were attributable to our Jackups segment, 17%19% of the revenues were attributable to our Floaters segment and the remaining waswere attributable to our Other segment.managed rigs. During the three-monthsix-month period ended SeptemberJune 30, 2018, 27%2019, 39% of the revenues provided by BP were attributable to our Jackups segment, and the remainder was attributable to our Other segment.

During the nine-month period ended September 30, 2019, 41% of the revenues provided by BP were attributable to our Jackups segment, 16%13% of the revenues were attributable to our Floaters segment and the remainder was attributable to our Other segment. During the nine-month period ended September 30, 2018, 33% of the revenues provided by BPremaining were attributable to our Floaters segment, 18% of the revenues were attributable to our Jackups segment and the remainder was attributable to our Other segment.managed rigs.

(4)During the three-month and nine-month periods ended September 30, 2019 and 2018, all revenues were attributable to our Floaters segment.






42

(3)
During the three and six months ended June 30, 2020 and 2019, all revenues were attributable to our Jackups segment.

(4)
During the three and six months ended June 30, 2020, 56% and 82% of revenues provided by Total were attributable to the Floaters segment and the remaining were attributable to the Jackup segment. During the three and six months ended June 30, 2019, 90% and 95% of revenues provided by Total were attributable to the Floaters segment and the remaining were attributable to the Jackup segment.

Consolidated revenues by region for the three-monththree and nine-month periodssix months ended SeptemberJune 30, 20192020 and 20182019 were as follows:

Three Months Ended
September 30,		Nine Months Ended
September 30,
2019201820192018
Saudi Arabia(1)
$90.3  $49.0  $226.9  $131.8  
U.S. Gulf of Mexico(2)
83.1  59.3  231.2  172.4  
Angola(3)
72.1  76.2  210.8  209.5  
United Kingdom(4)
59.6  55.4  157.2  155.7  
Australia(5)
51.6  75.1  189.0  207.7  
Other194.6  115.9  526.0  429.3  
$551.3  $430.9  $1,541.1  $1,306.4  

 Three Months Ended
June 30,		 Six Months Ended
June 30,
 2020 2019 2020 2019
Australia(1)
$72.3
 $70.0
 $98.3
 $137.3
U.S. Gulf of Mexico(2)
66.6
 93.4
 145.3
 148.1
Saudi Arabia(3)
57.3
 83.2
 141.2
 136.6
United Kingdom(4)
52.8
 54.2
 105.3
 97.6
Norway(4)
46.5
 9.7
 87.5
 9.7
Angola(5)
1.7
 68.1
 63.2
 138.7
Other91.6
 205.3
 204.6
 321.8
 $388.8
 $583.9
 $845.4

$989.8
(1)
(1)
During the three months ended June 30, 2020 and 2019, 100% and 94% of the revenues earned in Australia, respectively, were attributable to our Floaters segment, and remaining revenues were attributable to our Jackups segment.

During the three-monthsix months ended June 30, 2020 and nine-month periods ended September 30, 2019, 58%89% and 69%94% of the revenues earned in Saudi ArabiaAustralia, respectively, were attributable to our JackupsFloaters segment, respectively. Theand 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. Jackups segment.

(2)
During the three months ended June 30, 2020, 66% of the revenues earned in the U.S. Gulf of Mexico were attributable to our Floaters segment, 6%were attributable to our Jackups segment and the remaining revenues were attributable to our managed rigs. During the six months ended June 30, 2020, 61% of the revenues earned in the U.S. Gulf of Mexico were attributable to our Floaters segment, 12% were attributable to our Jackups segment and the remaining revenues were attributable to our managed rigs.

During the three-month and nine-month periodsthree months ended September 30, 2018, all revenues earned in Saudi Arabia were attributable to our Jackups segment.

(2)During the three-month period ended SeptemberJune 30, 2019, 52%39% of the revenues earned in the U.S. Gulf of Mexico were attributable to our Floaters segment, 22% were attributable to our Jackups segment and the remaining revenues were attributable to our Other segment. During the three-month period ended September 30, 2018, 35% of the revenues earned in U.S. Gulf of Mexico were attributable to our Floaters segment, 39% were attributable to our Jackups segment and the remaining revenues were attributable to our Other segment.

managed rigs. During the nine-month periodsix months ended SeptemberJune 30, 2019, 40%34% of the revenues earned in the U.S. Gulf of Mexico were attributable to our Floaters segment, 35%41% were attributable to our Jackups segment and the remaining revenues were attributable to our Othermanaged rigs.



(3)
During the three and six months ended June 30, 2020, 62% and 57% of the revenues earned in Saudi Arabia, respectively, were attributable to our Jackups segment. The remaining revenues were attributable to our Other segment and relates to our rigs leased to ARO and certain revenues related to our Transition Services Agreement and Secondment Agreement.

During the nine-month periodthree and six months ended SeptemberJune 30, 2018, 36%2019, 60% and 76% of the revenues earned in the U.S. Gulf of Mexico were attributable to our Floaters segment, 38%Saudi Arabia, respectively, were attributable to our Jackups segment and thesegment. The remaining revenues were attributable to our Other segment.segment and relates to our rigs leased to ARO and certain revenues related to our Transition Services Agreement and Secondment Agreement.

(4)
During the three and six months ended June 30, 2020 and 2019, all revenues earned in the United Kingdom and Norway were attributable to our Jackups segment.

(5)
During the three months ended June 30, 2020, all of the revenues earned in Angola were attributable to our Jackup segment. During the three months ended June 30, 2019, 90% of the revenues earned in Angola, were attributable to our Floaters segment, and the remaining revenues were attributable to our Jackups segment.

(3)During the three-month periods six monthsended SeptemberJune 30, 2020 and 2019, 79% and 2018, 86% and 82%88% 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 1716 -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 $422.8$422.9 million as of SeptemberJune 30, 2019.2020. The Valaris guarantee provides for the unconditional and irrevocable guarantee of the prompt payment, when due, of any amount owed to the holders of the notes.
 
Valaris is also a full and unconditional guarantor of the 7.2% debentures due 2027 issued by Ensco International Incorporated duringin November 1997, which had an aggregate outstanding principal balance of $112.1 million as of SeptemberJune 30, 2019.2020.

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-monththree and nine-month periodssix months ended SeptemberJune 30, 20192020 and 2018;2019; the unaudited condensed consolidating statements of comprehensive income (loss) for the three-monththree and nine-month periodssix months ended SeptemberJune 30, 20192020 and 2018;2019; the condensed consolidating balance sheets as of SeptemberJune 30, 20192020 (unaudited) and December 31, 2018;2019; and the unaudited condensed consolidating statements of cash flows for the nine-month periodssix months ended SeptemberJune 30, 20192020 and 2018,2019, in accordance with Rule 3-10 of Regulation S-X.




44




VALARIS PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Three Months Ended SeptemberJune 30, 20192020
(In millions)
(Unaudited)

Valaris plcENSCO International IncorporatedPride International LLCOther Non-Guarantor Subsidiaries of ValarisConsolidating AdjustmentsTotal
OPERATING REVENUES$15.7  $53.0  $—  $588.8  $(106.2) $551.3  
OPERATING EXPENSES
Contract drilling (exclusive of depreciation)19.3  45.3  —  538.1  (106.2) 496.5  
Loss on impairment—  —  —  88.2  —  88.2  
Depreciation—  7.7  —  155.3  —  163.0  
General and administrative9.7  .1  —  26.3  —  36.1  
Total operating expenses29.0  53.1  —  807.9  (106.2) 783.8  
EQUITY IN EARNINGS OF ARO—  —  —  (3.7) —  (3.7) 
OPERATING LOSS(13.3) (.1) —  (222.8) —  (236.2) 
OTHER INCOME (EXPENSE), NET94.7  (5.6) (20.2) (33.0) 4.3  40.2  
INCOME (LOSS) BEFORE INCOME TAXES 81.4  (5.7) (20.2) (255.8) 4.3  (196.0) 
INCOME TAX PROVISION—  (18.4) —  19.9  —  1.5  
EQUITY LOSSES IN AFFILIATES, NET OF TAX  (278.5) (40.2) (68.0) —  386.7  —  
NET LOSS  (197.1) (27.5) (88.2) (275.7) 391.0  (197.5) 
NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS  —  —  —  .4  —  .4  
NET LOSS ATTRIBUTABLE TO VALARIS  $(197.1) $(27.5) $(88.2) $(275.3) $391.0  $(197.1) 

45
 Valaris plc ENSCO International Incorporated Pride International LLC Other Non-Guarantor Subsidiaries of Valaris Consolidating Adjustments Total
OPERATING REVENUES$17.6
 $49.7
 $—
 $445.7
 $(124.2) $388.8
OPERATING EXPENSES          

Contract drilling (exclusive of depreciation)35.6
 52.6
 —
 406.7
 (124.2) 370.7
Loss on impairment—
 —
 —
 838.0
 —
 838.0
Depreciation—
 4.7
 —
 126.8
 —
 131.5
General and administrative13.5
 13.3
 —
 35.8
 —
 62.6
Total operating expenses49.1

70.6

—

1,407.3

(124.2) 1,402.8
EQUITY IN EARNINGS OF ARO—
 —
 —
 (5.2) —
 (5.2)
OPERATING LOSS(31.5)
(20.9)
—

(966.8)
—
 (1,019.2)
OTHER INCOME (EXPENSE), NET(129.6) (0.4) (18.3) 38.4
 4.5
 (105.4)
LOSS BEFORE INCOME TAXES(161.1)
(21.3)
(18.3)
(928.4)
4.5
 (1,124.6)
PROVISION (BENEFIT) FOR INCOME TAXES—
 (88.4) —
 72.6
 —
 (15.8)
EQUITY EARNINGS (LOSSES) IN AFFILIATES, NET OF TAX(946.3) (50.0) 9.3
 —
 987.0
 —
NET INCOME (LOSS)(1,107.4)
17.1

(9.0)
(1,001.0)
991.5
 (1,108.8)
NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS—
 —
 —
 1.4
 —
 1.4
NET INCOME (LOSS) ATTRIBUTABLE TO VALARIS$(1,107.4)
$17.1

$(9.0)
$(999.6)
$991.5
 $(1,107.4)




















VALARIS PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Three Months Ended September 30, 2018
(In millions)
(Unaudited)

Valaris plcENSCO
International Incorporated		Pride International LLCOther Non-Guarantor Subsidiaries of ValarisConsolidating AdjustmentsTotal
OPERATING REVENUES$12.1  $40.7  $—  $459.2  $(81.1) $430.9  
OPERATING EXPENSES               
Contract drilling (exclusive of depreciation)15.2  36.4  —  356.6  (81.1) 327.1  
Depreciation—  3.6  —  117.0  —  120.6  
General and administrative10.5  1.9  —  12.7  —  25.1  
OPERATING LOSS  (13.6) (1.2) —  (27.1) —  (41.9) 
OTHER EXPENSE, NET(.6) (32.6) (19.5) (29.0) 4.0  (77.7) 
LOSS BEFORE INCOME TAXES  (14.2) (33.8) (19.5) (56.1) 4.0  (119.6) 
INCOME TAX PROVISION—  9.5  —  13.8  —  23.3  
EQUITY EARNINGS (LOSSES) IN AFFILIATES, NET OF TAX (130.8) 28.2  23.1  —  79.5  —  
NET INCOME (LOSS) (145.0) (15.1) 3.6  (69.9) 83.5  (142.9) 
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS  —  —  —  (2.1) —  (2.1) 
NET INCOME (LOSS) ATTRIBUTABLE TO VALARIS $(145.0) $(15.1) $3.6  $(72.0) $83.5  $(145.0) 


46

VALARIS PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Nine Months Ended SeptemberJune 30, 2019
(In millions)
(Unaudited)

Valaris plcENSCO International IncorporatedPride International LLCOther Non-Guarantor Subsidiaries of ValarisConsolidating AdjustmentsTotal
OPERATING REVENUES$47.0  $128.6  $—  $1,627.1  $(261.6) $1,541.1  
OPERATING EXPENSES
Contract drilling (exclusive of depreciation)49.3  112.8  —  1,428.9  (261.6) 1,329.4  
Loss on impairment—  —  —  90.7  —  90.7  
Depreciation—  15.4  —  430.5  —  445.9  
General and administrative71.0  .3  —  75.6  —  146.9  
Total operating expenses120.3  128.5  —  2,025.7  (261.6) 2,012.9  
EQUITY IN EARNINGS OF ARO—  —  —  (3.1) —  (3.1) 
OPERATING INCOME (LOSS)(73.3) 0.1  —  (401.7) —  (474.9) 
OTHER INCOME (EXPENSE), NET773.5  (36.6) (61.0) (126.3) 12.7  562.3  
INCOME (LOSS) BEFORE INCOME TAXES 700.2  (36.5) (61.0) (528.0) 12.7  87.4  
INCOME TAX PROVISION—  10.6  —  55.0  —  65.6  
EQUITY EARNINGS (LOSSES) IN AFFILIATES, NET OF TAX(682.2) 35.1  (14.9) —  662.0  —  
NET INCOME (LOSS) 18.0  (12.0) (75.9) (583.0) 674.7  21.8  
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS  —  —  —  (3.8) —  (3.8) 
NET INCOME (LOSS) ATTRIBUTABLE TO VALARIS $18.0  $(12.0) $(75.9) $(586.8) $674.7  $18.0  

47

VALARIS PLC AND SUBSIDIARIES
 Valaris plc ENSCO International Incorporated Pride International LLC Other Non-Guarantor Subsidiaries of Valaris Consolidating Adjustments Total
OPERATING REVENUES$19.9
 $36.1
 $—
 $607.9
 $(80.0) $583.9
OPERATING EXPENSES          

Contract drilling (exclusive of depreciation)18.3
 31.8
 —
 530.2
 (80.0) 500.3
Loss on impairment—
 —
 —
 2.5
 —
 2.5
Depreciation—
 4.0
 —
 153.9
 —
 157.9
General and administrative46.4
 .1
 —
 34.7
 —
 81.2
Total operating expenses64.7

35.9

—

721.3

(80.0) 741.9
EQUITY IN EARNINGS OF ARO—
 —
 —
 .6
 —
 .6
OPERATING INCOME (LOSS)(44.8)
.2

—

(112.8)
—
 (157.4)
OTHER INCOME (EXPENSE), NET694.9
 (15.6) (20.3) (66.0) 4.3
 597.3
INCOME (LOSS) BEFORE INCOME TAXES650.1

(15.4)
(20.3)
(178.8)
4.3
 439.9
PROVISION FOR INCOME TAXES—
 12.4
 —
 20.2
 —
 32.6
EQUITY EARNINGS (LOSSES) IN AFFILIATES, NET OF TAX(244.6) 43.2
 27.0
 —
 174.4
 —
NET INCOME (LOSS)405.5

15.4

6.7

(199.0)
178.7
 407.3
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS—
 —
 —
 (1.8) —
 (1.8)
NET INCOME (LOSS) ATTRIBUTABLE TO VALARIS$405.5

$15.4

$6.7

$(200.8)
$178.7
 $405.5
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 2018
(In millions)
(Unaudited)

Valaris plcENSCO International IncorporatedPride International LLCOther Non-Guarantor Subsidiaries of ValarisConsolidating AdjustmentsTotal
OPERATING REVENUES$36.7  $120.8  $—  $1,387.0  $(238.1) $1,306.4  
OPERATING EXPENSES                  
Contract drilling (exclusive of depreciation)41.6  109.2  —  1,083.9  (238.1) 996.6  
Depreciation—  10.6  —  345.9  —  356.5  
General and administrative31.0  2.2  —  45.9  —  79.1  
OPERATING LOSS  (35.9) (1.2) —  (88.7) —  (125.8) 
OTHER INCOME (EXPENSE), NET(0.1) (101.1) (69.5) (85.9) 23.4  (233.2) 
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES  (36.0) (102.3) (69.5) (174.6) 23.4  (359.0) 
INCOME TAX PROVISION—  32.4  —  34.0  —  66.4  
DISCONTINUED OPERATIONS, NET—  —  —  (8.1) —  (8.1) 
EQUITY EARNINGS (LOSSES) IN AFFILIATES, NET OF TAX(400.1) 77.7  69.1  —  253.3  —  
NET LOSS  (436.1) (57.0) (0.4) (216.7) 276.7  (433.5) 
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS  —  —  —  (2.6) —  (2.6) 
NET LOSS ATTRIBUTABLE TO VALARIS  $(436.1) $(57.0) $(.4) $(219.3) $276.7  $(436.1) 















48
VALARIS PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Six Months Ended June 30, 2020
(In millions)
(Unaudited)

 Valaris plc ENSCO International Incorporated Pride International LLC Other Non-Guarantor Subsidiaries of Valaris Consolidating Adjustments Total
OPERATING REVENUES$34.9
 $96.7
 $—
 $939.0
 $(225.2) $845.4
OPERATING EXPENSES           
Contract drilling (exclusive of depreciation)56.2
 95.7
 —
 920.0
 (225.2) 846.7
Loss on impairment—
 —
 —
 3,646.2
 —
 3,646.2
Depreciation—
 9.3
 —
 286.7
 —
 296.0
General and administrative33.7
 24.8
 —
 57.5
 —
 116.0
Total operating expenses89.9
 129.8
 —
 4,910.4
 (225.2) 4,904.9
EQUITY IN EARNINGS OF ARO—
 —
 —
 (11.5) —
 (11.5)
OPERATING LOSS(55.0) (33.1) —
 (3,982.9) —
 (4,071.0)
OTHER INCOME (EXPENSE), NET215.5
 (.2) (37.8) (399.7) 8.9
 (213.3)
INCOME (LOSS) BEFORE INCOME TAXES160.5
 (33.3) (37.8) (4,382.6) 8.9
 (4,284.3)
BENEFIT FOR INCOME TAXES—
 (100.0) —
 (67.8) —
 (167.8)
EQUITY EARNINGS (LOSSES) IN AFFILIATES, NET OF TAX(4,274.2) (134.6) 14.9
 —
 4,393.9
 —
NET LOSS(4,113.7) (67.9) (22.9) (4,314.8) 4,402.8
 (4,116.5)
NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS—
 —
 —
 2.8
 —
 2.8
NET LOSS ATTRIBUTABLE TO VALARIS$(4,113.7) $(67.9) $(22.9) $(4,312.0) $4,402.8
 $(4,113.7)




VALARIS PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Six Months Ended June 30, 2019
(In millions)
(Unaudited)

 Valaris plc ENSCO International Incorporated Pride International LLC Other Non-Guarantor Subsidiaries of Valaris Consolidating Adjustments Total
OPERATING REVENUES$31.3
 $75.6
 $—
 $1,038.3
 $(155.4) $989.8
OPERATING EXPENSES 
  
  
  
  
  
Contract drilling (exclusive of depreciation)30.0
 67.5
 —
 890.8
 (155.4) 832.9
Loss on impairment—
 —
 —
 2.5
 —
 2.5
Depreciation—
 7.7
 —
 275.2
 —
 282.9
General and administrative61.3
 .2
 —
 49.3
 —
 110.8
Total operating expenses91.3

75.4

—

1,217.8

(155.4) 1,229.1
EQUITY IN EARNINGS OF ARO—
 —
 —
 .6
 —
 .6
OPERATING INCOME (LOSS)(60.0)
.2

—

(178.9)
—

(238.7)
OTHER INCOME (EXPENSE), NET678.8
 (31.0) (40.8) (93.3) 8.4
 522.1
INCOME (LOSS) BEFORE INCOME TAXES618.8

(30.8)
(40.8)
(272.2)
8.4

283.4
PROVISION FOR INCOME TAXES—
 29.0
 —
 35.1
 —
 64.1
EQUITY EARNINGS (LOSSES) IN AFFILIATES, NET OF TAX(403.7) 75.3
 53.1
 —
 275.3
 —
NET INCOME (LOSS)215.1

15.5

12.3

(307.3)
283.7

219.3
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS—
 —
 —
 (4.2) —
 (4.2)
NET INCOME (LOSS) ATTRIBUTABLE TO VALARIS$215.1

$15.5

$12.3

$(311.5)
$283.7

$215.1



















VALARIS PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE LOSS
Three Months Ended SeptemberJune 30, 20192020
(In millions)
(Unaudited)

Valaris plcENSCO International IncorporatedPride International LLCOther Non-Guarantor Subsidiaries of ValarisConsolidating AdjustmentsTotal
NET LOSS  $(197.1) $(27.5) $(88.2) $(275.7) $391.0  $(197.5) 
OTHER COMPREHENSIVE LOSS, NET  
Net change in derivative fair value—  (5.7) —  —  —  (5.7) 
Reclassification of net losses on derivative instruments from other comprehensive income into net income—  4.9  —  —  —  4.9  
Other—  —  —  (.2) —  (.2) 
NET OTHER COMPREHENSIVE LOSS  —  (.8) —  (.2) —  (1.0) 
COMPREHENSIVE LOSS  (197.1) (28.3) (88.2) (275.9) 391.0  (198.5) 
COMPREHENSIVE LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS  —  —  —  .4  —  .4  
COMPREHENSIVE LOSS ATTRIBUTABLE TO VALARIS  $(197.1) $(28.3) $(88.2) $(275.5) $391.0  $(198.1) 

49
 Valaris plc ENSCO International Incorporated Pride International LLC Other Non-Guarantor Subsidiaries of Valaris Consolidating Adjustments Total
NET INCOME (LOSS)$(1,107.4) $17.1
 $(9.0) $(1,001.0) $991.5
 $(1,108.8)
OTHER COMPREHENSIVE LOSS, NET          

Net change in derivative fair value—
 4.8
 —
 —
 —
 4.8
Reclassification of net gains on derivative instruments from other comprehensive loss to net loss—
 (10.9) —
 —
 —
 (10.9)
NET OTHER COMPREHENSIVE LOSS—

(6.1)
—

—

—

(6.1)
COMPREHENSIVE INCOME (LOSS)(1,107.4)
11.0

(9.0)
(1,001.0)
991.5

(1,114.9)
COMPREHENSIVE LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS—
 —
 —
 1.4
 —
 1.4
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO VALARIS$(1,107.4)
$11.0

$(9.0)
$(999.6)
$991.5
 $(1,113.5)



VALARIS PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Three Months Ended SeptemberJune 30, 20182019
(In millions)
(Unaudited)

 Valaris plc ENSCO International Incorporated Pride International LLC Other Non-Guarantor Subsidiaries of Valaris Consolidating Adjustments Total
NET INCOME (LOSS)$405.5
 $15.4
 $6.7
 $(199.0) $178.7
 $407.3
OTHER COMPREHENSIVE INCOME, NET          

Net change in derivative fair value—
 (1.6) —
 —
 —
 (1.6)
Reclassification of net losses on derivative instruments from other comprehensive income to net income (loss)—
 1.8
 —
 —
 —
 1.8
NET OTHER COMPREHENSIVE INCOME—

.2

—

—

—
 .2
COMPREHENSIVE INCOME (LOSS)405.5

15.6

6.7

(199.0)
178.7
 407.5
COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS—
 —
 —
 (1.8) —
 (1.8)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO VALARIS$405.5

$15.6

$6.7

$(200.8)
$178.7
 $405.7




VALARIS PLC AND SUBSIDIARIES
Valaris plcENSCO International IncorporatedPride International LLCOther Non-Guarantor Subsidiaries of ValarisConsolidating AdjustmentsTotal
NET INCOME (LOSS) $(145.0) $(15.1) $3.6  $(69.9) $83.5  $(142.9) 
OTHER COMPREHENSIVE LOSS, NET  
Net change in derivative fair value—  (1.9) —  —  —  (1.9) 
Reclassification of net gains on derivative instruments from other comprehensive income into net loss—  .7  —  —  —  .7  
Other—  —  —  (.1) —  (.1) 
NET OTHER COMPREHENSIVE LOSS  —  (1.2) —  (.1) —  (1.3) 
COMPREHENSIVE INCOME (LOSS) (145.0) (16.3) 3.6  (70.0) 83.5  (144.2) 
COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS  —  —  —  (2.1) —  (2.1) 
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO VALARIS $(145.0) $(16.3) $3.6  $(72.1) $83.5  $(146.3) 
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE LOSS

Six Months Ended June 30, 2020
(In millions)
(Unaudited)

50
 Valaris plc ENSCO International Incorporated Pride International LLC Other Non-Guarantor Subsidiaries of Valaris Consolidating Adjustments Total
NET LOSS$(4,113.7) $(67.9) $(22.9) $(4,314.8) $4,402.8
 $(4,116.5)
OTHER COMPREHENSIVE LOSS, NET          
Net change in derivative fair value—
 (8.1) —
 —
 —
 (8.1)
Reclassification of net gains on derivative instruments from other comprehensive loss to net loss—
 (11.0) —
 —
 —
 (11.0)
Other—
 —
 —
 (.4) —
 (.4)
NET OTHER COMPREHENSIVE LOSS—

(19.1)
—

(.4)
—
 (19.5)
COMPREHENSIVE LOSS(4,113.7)
(87.0)
(22.9)
(4,315.2)
4,402.8
 (4,136.0)
COMPREHENSIVE LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS—
 —
 —
 2.8
 —
 2.8
COMPREHENSIVE LOSS ATTRIBUTABLE TO VALARIS$(4,113.7)
$(87.0)
$(22.9)
$(4,312.4)
$4,402.8

$(4,133.2)



VALARIS PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
NineSix Months Ended SeptemberJune 30, 2019
(In millions)
(Unaudited)

 Valaris plc ENSCO International Incorporated Pride International LLC Other Non-Guarantor Subsidiaries of Valaris Consolidating Adjustments Total
NET INCOME (LOSS)$215.1
 $15.5
 $12.3
 $(307.3) $283.7
 $219.3
OTHER COMPREHENSIVE INCOME (LOSS), NET          

Net change in derivative fair value—
 (1.6) —
 —
 —
 (1.6)
Reclassification of net losses on derivative instruments from other comprehensive income (loss) to net income (loss)—
 3.4
 —
 —
 —
 3.4
Other—
 —
 —
 (.1) —
 (.1)
NET OTHER COMPREHENSIVE INCOME (LOSS)—

1.8

—

(.1)
—

1.7
COMPREHENSIVE INCOME (LOSS)215.1

17.3

12.3

(307.4)
283.7

221.0
COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS—
 —
 —
 (4.2) —
 (4.2)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO VALARIS$215.1

$17.3

$12.3

$(311.6)
$283.7

$216.8

Valaris plcENSCO International IncorporatedPride International LLCOther Non-Guarantor Subsidiaries of ValarisConsolidating AdjustmentsTotal
NET INCOME (LOSS) $18.0  $(12.0) $(75.9) $(583.0) $674.7  $21.8  
OTHER COMPREHENSIVE INCOME (LOSS), NET 
Net change in derivative fair value—  (7.3) —  —  —  (7.3) 
Reclassification of net gains on derivative instruments from other comprehensive income (loss) to net income (loss)—  8.3  —  —  —  8.3  
Other—  —  —  (.3) —  (.3) 
NET OTHER COMPREHENSIVE INCOME (LOSS) —  1.0  —  (.3) —  .7  
COMPREHENSIVE INCOME (LOSS) 18.0  (11.0) (75.9) (583.3) 674.7  22.5  
COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS  —  —  —  (3.8) —  (3.8) 
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO VALARIS $18.0  $(11.0) $(75.9) $(587.1) $674.7  $18.7  



VALARIS PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
June 30, 2020
(In millions)
(Unaudited)

 Valaris plc ENSCO International Incorporated Pride International LLC Other Non-Guarantor Subsidiaries of Valaris Consolidating Adjustments Total
ASSETS 
           
CURRENT ASSETS           
Cash and cash equivalents$156.5
 $—
 $—
 $45.5
 $—
 $202.0
Accounts receivable, net .2
 25.7
 —
 337.4
 —
 363.3
Accounts receivable from affiliates4,334.8
 201.2
 1.4
 1,224.7
 (5,762.1) —
Other current assets.5
 53.6
 —
 446.7
 —
 500.8
Total current assets4,492.0
 280.5

1.4

2,054.3

(5,762.1)
1,066.1
PROPERTY AND EQUIPMENT, AT COST1.1
 113.6
 —
 13,105.6
 —
 13,220.3
Less accumulated depreciation1.1
 93.4
 —
 1,933.2
 —
 2,027.7
Property and equipment, net—
 20.2

—

11,172.4

—

11,192.6
LONG - TERM NOTES RECEIVABLE FROM ARO—
 —
 —
 452.8
 —
 452.8
INVESTMENT IN ARO—
 —
 —
 117.2
 —
 117.2
DUE FROM AFFILIATES1,593.3
 217.5
 38.9
 4,680.8
 (6,530.5) —
INVESTMENTS IN AFFILIATES9,166.5
 654.2
 1,239.8
 


 (11,060.5) —
OTHER ASSETS1.1
 20.4
 —
 188.7
 —
 210.2
 $15,252.9
 $1,192.8

$1,280.1

$18,666.2

$(23,353.1)
$13,038.9
LIABILITIES AND SHAREHOLDERS' EQUITY         
CURRENT LIABILITIES           
Accounts payable and accrued liabilities$141.1
 $16.6
 $12.2
 $380.1
 $—
 $550.0
Accounts payable to affiliates1,117.0
 237.2
 802.2
 3,605.7
 (5,762.1) —
Current maturities of long-term debt2,394.8
 


 123.3
 —
 —
 2,518.1
Total current liabilities3,652.9
 253.8

937.7

3,985.8

(5,762.1)
3,068.1
DUE TO AFFILIATES 3,534.0
 505.6
 641.2
 1,849.7
 (6,530.5) —
LONG-TERM DEBT 2,880.6
 111.7
 372.3
 727.6
 


 4,092.2
OTHER LIABILITIES


 247.6
 


 445.6
 —
 693.2
VALARIS SHAREHOLDERS' EQUITY (DEFICIT)5,185.4
 74.1
 (671.1) 11,662.5
 (11,060.5) 5,190.4
NONCONTROLLING INTERESTS—
 —
 —
 (5.0) —
 (5.0)
Total equity (deficit)5,185.4
 74.1

(671.1)
11,657.5

(11,060.5)
5,185.4
      $15,252.9
 $1,192.8

$1,280.1

$18,666.2

$(23,353.1)
$13,038.9



VALARIS PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
December 31, 2019
(In millions)

 Valaris plc ENSCO International Incorporated Pride International LLC Other Non-Guarantor Subsidiaries of Valaris Consolidating Adjustments Total
ASSETS 
           
CURRENT ASSETS           
Cash and cash equivalents$21.5
 $—
 $—
 $75.7
 $—
 $97.2
Accounts receivable, net .2
 19.7
 —
 500.8
 —
 520.7
Accounts receivable from affiliates4,031.4
 386.0
 —
 897.2
 (5,314.6) —
Other current assets.6
 11.6
 —
 434.3
 —
 446.5
Total current assets4,053.7

417.3

—

1,908.0

(5,314.6)
1,064.4
PROPERTY AND EQUIPMENT, AT COST1.9
 108.8
 —
 18,283.1
 —
 18,393.8
Less accumulated depreciation1.9
 84.7
 —
 3,210.3
 —
 3,296.9
Property and equipment, net  —

24.1

—

15,072.8

—

15,096.9
LONG-TERM NOTES RECEIVABLE FROM ARO—
 —
 —
 452.9
 —
 452.9
INVESTMENT IN ARO—
 —
 —
 128.7
 —
 128.7
DUE FROM AFFILIATES73.8
 —
 38.9
 1,775.7
 (1,888.4) —
INVESTMENTS IN AFFILIATES9,778.5
 788.8
 1,224.9
 —
 (11,792.2) —
OTHER ASSETS7.9
 3.8
 —
 182.6
 (6.0) 188.3
 $13,913.9

$1,234.0

$1,263.8

$19,520.7

$(19,001.2)
$16,931.2
LIABILITIES AND SHAREHOLDERS' EQUITY 
        
CURRENT LIABILITIES           
Accounts payable and accrued liabilities$99.2
 $29.3
 $12.2
 $565.2
 $—
 $705.9
Accounts payable to affiliates818.8
 147.8
 815.1
 3,532.9
 (5,314.6) —
Current maturities of long - term debt—
 —
 124.8
 —
 —
 124.8
Total current liabilities918.0

177.1

952.1

4,098.1

(5,314.6)
830.7
DUE TO AFFILIATES 710.3
 478.8
 586.6
 112.7
 (1,888.4) —
LONG-TERM DEBT 2,990.6
 111.7
 373.3
 2,447.9
 —
 5,923.5
OTHER LIABILITIES(14.6) 90.6
 —
 797.4
 (6.0) 867.4
VALARIS SHAREHOLDERS' EQUITY (DEFICIT)9,309.6
 375.8
 (648.2) 12,065.9
 (11,792.2) 9,310.9
NONCONTROLLING INTERESTS—
 —
 —
 (1.3) —
 (1.3)
Total equity (deficit)9,309.6
 375.8

(648.2)
12,064.6

(11,792.2)
9,309.6
      $13,913.9
 $1,234.0

$1,263.8

$19,520.7

$(19,001.2)
$16,931.2




51

VALARIS PLC AND SUBSIDIARIES
VALARIS PLC AND SUBSIDIARIES 
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2020
(In millions)
(Unaudited)
 Valaris plc ENSCO International Incorporated Pride International LLC Other Non-guarantor Subsidiaries of Valaris Consolidating Adjustments Total
OPERATING ACTIVITIES 
  
  
  
  
  
Net cash provided by (used in) operating activities$(203.1) $149.5
 $(40.3) $(287.2) $—
 $(381.1)
INVESTING ACTIVITIES           
Additions to property and equipment —
 —
 —
 (67.1) —
 (67.1)
Proceeds from disposition of assets—
 —
 —
 13.8
 —
 13.8
Net cash used in investing activities—
 —

—

(53.3)
—

(53.3)
FINANCING ACTIVITIES 
  
  
  
  
  
Borrowings on credit facility566.0
 —
 —
 —
 —
 566.0
Advances from (to) affiliates(202.9) (149.5) 40.3
 312.1
 —
 —
Repayments of credit facility borrowings(15.0) —
 —
 —
 —
 (15.0)
Reduction of long -term borrowings(9.7) —
 —
 —
 —
 (9.7)
Other(.3) —
 —
 (1.6) —
 (1.9)
Net cash provided by (used in) financing activities338.1
 (149.5)
40.3

310.5

—

539.4
Effect of exchange rate changes on cash and cash equivalents—
 —
 —
 (.2) 


 (.2)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS135.0

—

—

(30.2)
—

104.8
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD21.5
 —
 —
 75.7
 —
 97.2
CASH AND CASH EQUIVALENTS, END OF PERIOD$156.5
 $—
 $—
 $45.5
 $—
 $202.0
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE LOSS
Nine Months Ended September 30, 2018
(In millions)
(Unaudited)
VALARIS PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2019
(In millions)
(Unaudited)
 Valaris plc ENSCO International Incorporated  Pride International LLC Other Non-guarantor Subsidiaries of Valaris Consolidating Adjustments Total
OPERATING ACTIVITIES 
  
  
  
  
  
Net cash used in operating activities$(79.9) $(117.5) $(68.6) $(27.4) $—
 $(293.4)
INVESTING ACTIVITIES 
  
  
  
  
 

Rowan cash acquired—
 —
 —
 931.9
 —
 931.9
Maturities of short-term investments339.0
 —
 —
 —
 —
 339.0
Purchases of short-term investments(145.0) —
 —
 —
 —
 (145.0)
Additions to property and equipment —
 —
 —
 (134.8) —
 (134.8)
Other2.5
 —
 —
 2.0
 —
 4.5
Net cash provided by investing activities 196.5

—

—

799.1

—
 995.6
FINANCING ACTIVITIES 
  
  
  
  
 

Debt solicitation fees—
 —
 —
 (8.7) —
 (8.7)
Cash dividends paid(4.5) —
 —
 —
 —
 (4.5)
Repurchase of common shares(4.2) —
 —
 —
 —
 (4.2)
Advances from (to) affiliates174.5
 117.5
 68.6
 (360.6) —
 —
Other(0.5) —
 —
 —
 —
 (0.5)
Net cash provided by (used in) financing activities165.3
 117.5
 68.6
 (369.3) —
 (17.9)
Effect of exchange rate changes on cash and cash equivalents—
 —
 —
 (.3) —
 (.3)
INCREASE IN CASH AND CASH EQUIVALENTS281.9
 —
 —
 402.1
 —
 684.0
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD199.8
 —
 2.7
 72.6
 —
 275.1
CASH AND CASH EQUIVALENTS, END OF PERIOD$481.7
 $—
 $2.7
 $474.7
 $—
 $959.1

Valaris plcENSCO International IncorporatedPride International LLCOther Non-Guarantor Subsidiaries of ValarisConsolidating AdjustmentsTotal
NET LOSS  $(436.1) $(57.0) $(.4) $(216.7) $276.7  $(433.5) 
OTHER COMPREHENSIVE LOSS, NET  
Net change in derivative fair value—  (7.6) —  —  —  (7.6) 
Reclassification of net gains on derivative instruments from other comprehensive loss into net loss—  (2.2) —  —  —  (2.2) 
Other—  —  —  (.4) —  (.4) 
NET OTHER COMPREHENSIVE LOSS  —  (9.8) —  (.4) —  (10.2) 
COMPREHENSIVE LOSS  (436.1) (66.8) (.4) (217.1) 276.7  (443.7) 
COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS  —  —  —  (2.6) —  (2.6) 
COMPREHENSIVE LOSS ATTRIBUTABLE TO VALARIS  $(436.1) $(66.8) $(.4) $(219.7) $276.7  $(446.3) 



52

VALARIS PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
September 30, 2019
(In millions)
(Unaudited)

 Valaris plcENSCO International IncorporatedPride International LLCOther Non-Guarantor Subsidiaries of ValarisConsolidating AdjustmentsTotal
ASSETS 
      
CURRENT ASSETS      
Cash and cash equivalents$72.5  $—  $—  $57.0  $—  $129.5  
Short-term investments—  —  —  —  —  —  
Accounts receivable, net 2.0  25.4  —  539.6  —  567.0  
Accounts receivable from affiliates3,282.0  372.2  2.0  280.5  (3,936.7) —  
Other—  8.9  —  478.6  —  487.5  
Total current assets3,356.5  406.5  2.0  1,355.7  (3,936.7) 1,184.0  
PROPERTY AND EQUIPMENT, AT COST1.8  123.2  —  18,267.9  —  18,392.9  
Less accumulated depreciation1.8  82.8  —  3,057.6  —  3,142.2  
Property and equipment, net—  40.4  —  15,210.3  —  15,250.7  
LONG-TERM NOTES RECEIVABLE FROM ARO—  —  —  452.9  —  452.9  
INVESTMENT IN ARO—  —  —  138.2  —  138.2  
DUE FROM AFFILIATES1,100.0  —  38.9  2,590.3  (3,729.2) —  
INVESTMENTS IN AFFILIATES9,934.2  776.1  1,184.9  —  (11,895.2) —  
OTHER ASSETS1.5  —  —  203.3  —  204.8  
 $14,392.2  $1,223.0  $1,225.8  $19,950.7  $(19,561.1) $17,230.6  
LIABILITIES AND SHAREHOLDERS' EQUITY     
CURRENT LIABILITIES      
Accounts payable and accrued liabilities$81.6  $22.1  $4.7  $625.7  $—  $734.1  
Accounts payable to affiliates213.7  112.9  796.8  2,813.3  (3,936.7) —  
Current maturities of long-term debt—  —  125.5  —  —  125.5  
Total current liabilities295.3  135.0  927.0  3,439.0  (3,936.7) 859.6  
DUE TO AFFILIATES 1,454.3  542.4  593.6  1,138.9  (3,729.2) —  
LONG-TERM DEBT 3,122.7  111.7  373.6  2,434.3  —  6,042.3  
OTHER LIABILITIES(10.6) 56.0  —  752.8  —  798.2  
VALARIS SHAREHOLDERS' EQUITY (DEFICIT) 9,530.5  377.9  (668.4) 12,186.6  (11,895.2) 9,531.4  
NONCONTROLLING INTERESTS—  —  —  (.9) —  (.9) 
Total equity (deficit)9,530.5  377.9  (668.4) 12,185.7  (11,895.2) 9,530.5  
      $14,392.2  $1,223.0  $1,225.8  $19,950.7  $(19,561.1) $17,230.6  

53

VALARIS PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
December 31, 2018
(In millions)

 Valaris plcENSCO International IncorporatedPride International LLCOther Non-Guarantor Subsidiaries of ValarisConsolidating AdjustmentsTotal
ASSETS 
      
CURRENT ASSETS      
Cash and cash equivalents$199.8  $—  $2.7  $72.6  $—  $275.1  
Short-term investments329.0  —  —  —  —  329.0  
Accounts receivable, net 7.3  25.4  —  312.0  —  344.7  
Accounts receivable from affiliates1,861.2  171.4  —  131.7  (2,164.3) —  
Other.6  6.0  —  354.3  —  360.9  
Total current assets2,397.9  202.8  2.7  870.6  (2,164.3) 1,309.7  
PROPERTY AND EQUIPMENT, AT COST1.8  125.2  —  15,390.0  —  15,517.0  
Less accumulated depreciation1.8  91.3  —  2,807.7  —  2,900.8  
Property and equipment, net  —  33.9  —  12,582.3  —  12,616.2  
DUE FROM AFFILIATES2,413.8  234.5  125.0  2,715.1  (5,488.4) —  
INVESTMENTS IN AFFILIATES8,522.6  3,713.7  1,199.9  —  (13,436.2) —  
OTHER ASSETS8.1  —  —  89.7  —  97.8  
 $13,342.4  $4,184.9  $1,327.6  $16,257.7  $(21,088.9) $14,023.7  
LIABILITIES AND SHAREHOLDERS' EQUITY 
    
CURRENT LIABILITIES      
Accounts payable and accrued liabilities$85.3  $32.0  $12.7  $398.5  $—  $528.5  
Accounts payable to affiliates59.7  139.5  38.2  1,926.9  (2,164.3) —  
Total current liabilities145.0  171.5  50.9  2,325.4  (2,164.3) 528.5  
DUE TO AFFILIATES 1,432.0  1,226.9  1,366.5  1,463.0  (5,488.4) —  
LONG-TERM DEBT 3,676.5  149.3  502.6  682.0  —  5,010.4  
OTHER LIABILITIES0.1  64.3  —  331.6  —  396.0  
VALARIS SHAREHOLDERS' EQUITY (DEFICIT) 8,088.8  2,572.9  (592.4) 11,458.3  (13,436.2) 8,091.4  
NONCONTROLLING INTERESTS—  —  —  (2.6) —  (2.6) 
Total equity (deficit)8,088.8  2,572.9  (592.4) 11,455.7  (13,436.2) 8,088.8  
      $13,342.4  $4,184.9  $1,327.6  $16,257.7  $(21,088.9) $14,023.7  

54

VALARIS PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2019
(In millions)
(Unaudited)
 Valaris plcENSCO International IncorporatedPride International LLCOther Non-guarantor Subsidiaries of ValarisConsolidating AdjustmentsTotal
OPERATING ACTIVITIES      
Net cash used in operating activities of continuing operations  $(125.2) $(82.3) $(98.0) $(122.0) $—  $(427.5) 
INVESTING ACTIVITIES
Rowan cash acquired—  —  —  931.9  —  931.9  
Maturities of short-term investments474.0  —  —  —  —  474.0  
Purchases of short-term investments(145.0) —  —  —  —  (145.0) 
Additions to property and equipment —  —  —  (174.2) —  (174.2) 
Other—  —  —  4.9  —  4.9  
Net cash provided by investing activities of continuing operations  329.0  —  —  762.6  —  1,091.6  
FINANCING ACTIVITIES               
Reduction of long-term borrowings(536.6) (30.4) —  (361.1) —  (928.1) 
Cash dividends paid(4.5) —  —  —  —  (4.5) 
Borrowings on credit facility175.0  —  —  —  —  175.0  
Repayments of credit facility borrowings(34.4) —  —  —  —  (34.4) 
Debt solicitation fee—  —  —  (9.4) —  (9.4) 
Other(5.3) —  —  (2.4) —  (7.7) 
Advances from (to) affiliates74.7  112.7  95.3  (282.7) —  —  
Net cash provided by (used in) financing activities (331.1) 82.3  95.3  (655.6) —  (809.1) 
Net cash provided by discontinued operations  —  —  —  —  —  —  
Effect of exchange rate changes on cash and cash equivalents—  —  —  (.6) (.6) 
NET DECREASE IN CASH AND CASH EQUIVALENTS  (127.3) —  (2.7) (15.6) —  (145.6) 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD199.8  —  2.7  72.6  —  275.1  
CASH AND CASH EQUIVALENTS, END OF PERIOD$72.5  $—  $—  $57.0  $—  $129.5  

55

VALARIS PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2018
(In millions)
(Unaudited)
 Valaris plcENSCO International Incorporated Pride International LLCOther Non-guarantor Subsidiaries of ValarisConsolidating AdjustmentsTotal
OPERATING ACTIVITIES      
Net cash provided by (used in) operating activities of continuing operations $19.7  $(257.2) $(85.1) $240.4  $—  $(82.2) 
INVESTING ACTIVITIES               
Maturities of short-term investments675.0  —  —  —  —  675.0  
Purchases of short-term investments(669.0) —  —  —  —  (669.0) 
Additions to property and equipment —  —  —  (378.7) —  (378.7) 
Sale of affiliate debt479.0  —  —  —  (479.0) —  
Purchase of affiliate debt(552.5) —  —  —  552.5  —  
Other—  —  —  10.0  —  10.0  
Net cash used in investing activities of continuing operations  (67.5) —  —  (368.7) 73.5  (362.7) 
FINANCING ACTIVITIES               
Proceeds from issuance of senior notes1,000.0  —  —  —  —  1,000.0  
Reduction of long-term borrowings(159.9) —  (537.8) —  (73.5) (771.2) 
Cash dividends paid(13.4) —  —  —  —  (13.4) 
Debt issuance costs(17.0) —  —  —  —  (17.0) 
Advances from affiliates(798.5) 257.2  603.2  (61.9) —  —  
Other(1.9) —  —  (2.8) —  (4.7) 
Net cash provided by (used in) financing activities 9.3  257.2  65.4  (64.7) (73.5) 193.7  
Net cash provided by discontinued operations  —  —  —  2.5  —  2.5  
Effect of exchange rate changes on cash and cash equivalents—  —  —  (.7) —  (.7) 
NET DECREASE IN CASH AND CASH EQUIVALENTS  (38.5) —  (19.7) (191.2) —  (249.4) 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD185.2  —  25.6  234.6  —  445.4  
CASH AND CASH EQUIVALENTS, END OF PERIOD$146.7  $—  $5.9  $43.4  $—  $196.0  


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 condensed consolidated financial statements as of SeptemberJune 30, 20192020 and for the three-monththree and nine-month periodssix months ended SeptemberJune 30, 20192020 and 20182019 included elsewhere herein and with our annual report on Form 10-K for the year ended December 31, 2018.2019. The following discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under “Risk Factors” in Item 1A of our annual report and elsewhere in this quarterly report. See “Forward-Looking Statements.”

EXECUTIVE SUMMARY

Our Business

We are a leading provider of offshore contract drilling services to the international oil and gas industry. Exclusive of two rigs under construction and twothree rigs marked for retirement and classified as held-for-sale, we currently own and operate an offshore drilling rig fleet of 7765 rigs, with drilling operations in almost every major offshore market across six continents. Inclusive of rigs under construction, our rig fleet includes 1613 drillships, ninefive dynamically positioned semisubmersible rigs, twoone moored semisubmersible rigsrig and 5248 jackup rigs, nine of which are leased to our 50/50 joint venture with Saudi Aramco.  We operate the world's largest fleet amongst competitive rigs, including one of the newest ultra-deepwater fleets in the industry and a leading premium jackup fleet.

Rowan Transaction

On October 7, 2018,As of June 30, 2020, we entered into a transaction agreementhad $7.1 billion of indebtedness outstanding, and as of the date hereof we had $58.5 million of due and unpaid interest on our indebtedness. Pursuant to the Second Amended and Restated Waiver to Fourth Amended and Restated Credit Agreement (the "Transaction Agreement"“Second A&R Waiver”) with Rowan, the lenders under our revolving credit facility have waived certain defaults and on April 11, 2019 (the "Transaction Date")events of default under the revolving credit facility, including in relation to the non-payment of interest under the Defaulted Notes (defined herein), we completed our combination with Rowanand pursuant to the TransactionForbearance Agreement (the "Rowan Transaction"“Forbearance Agreement”), certain holders of our senior notes have agreed to forbear from the exercise of certain rights and changedremedies that they have with respect to certain specified defaults and events of defaults (including cross-defaults). The Second A&R Waiver and the Forbearance Agreement each terminate automatically on August 3, 2020. See “Note 10 - Debt” for a description of the terms of the Second A&R Waiver and the Forbearance Agreement. We continue to have discussions with our namelenders and bondholders regarding the terms of a potential comprehensive restructuring of our indebtedness. While there can be no assurances as to Ensco Rowan plc. On July 30, 2019,ultimate timing, we changedexpect our namerestructuring is likely to Valaris plc. Rowan's financialbe implemented imminently through cases under Chapter 11 of the U.S. Bankruptcy Code and that our restructuring may result in cancellation of existing equity interest and little or no recovery to existing shareholders.

Our Industry

Operating results in the offshore contract drilling industry are includedhighly cyclical and are directly related to the demand for drilling rigs and the available supply of drilling rigs. Low demand and excess supply can independently affect day rates and utilization of drilling rigs. Therefore, adverse changes in either of these factors can result in adverse changes in our consolidated results beginning onindustry. While the Transaction Date.

cost of moving a rig may cause the balance of supply and demand to vary somewhat between regions, significant variations between regions are generally of a short-term nature due to rig mobility.
As a result
During the first half of 2020, 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,COVID-19 global pandemic and the last trading day beforeresponse thereto have negatively impacted the Transaction Date. Total consideration delivered inmacro-economic environment and global economy. Global oil demand has fallen sharply at 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 andsame time global oil supply has plans to purchase up to 20 newbuild jackup rigs over an approximate 10 year period. The rigs we lease to ARO are done so through bareboat charter agreements whereby substantially all operating costs are incurred by ARO. All nine jackup rigs leased to ARO are under three-year contracts with Saudi Aramco (one of which is expected to commence drilling operations during the fourth quarter of 2019). All seven ARO-owned jackup rigs are under long-term contracts with Saudi Aramco.

Additionally,increased as a result of certain oil producers competing for market share, leading to a supply glut. As a consequence, the Rowan Transaction, we assumed the following debt from Rowan: (1) $201.4 million in aggregate principal amountprice 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 four ultra-deepwater drillships and 19 jackup rigs.

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 $55oil fell from around $60 per barrel at year-end 2019 to around $20 per barrel in 2017mid-April. In response to dramatically reduced oil price expectations for the near term, our customers are reviewing, and more than $70in most cases lowering significantly, their capital expenditure plans in light of revised pricing expectations. While there has been some recent improvement to Brent crude oil prices, to approximately $43 per barrel through mostas of 2018, leadingmid-July 2020, there is still a significant amount of uncertainty around the sustainability of the improvement in oil prices to signs ofsupport a gradual recovery in demand for offshore drilling services. However, macroeconomic



Additionally, the full impact that the pandemic and geopolitical headwinds triggered athe decline in Brent crudeoil prices will have on our results of operations, financial condition, liquidity and cash flows is uncertain due to numerous factors, including the duration and severity of the outbreak, the duration of the price and demand decline, and the extent of disruptions to our operations. To date, the COVID-19 pandemic has resulted in only limited operational downtime where outbreaks have been experienced on rigs requiring a shutdown of operations while crews are tested and incremental sanitation protocols are implemented. While we have not experienced downtime due to quarantines or an inability to staff our rigs due to travel restrictions or stay-at-home orders, we are incurring additional personnel, housing and logistics costs in order to mitigate these potential impacts to our operations. In limited instances, we have been reimbursed for these costs by our customers. Our operations and business may be subject to further economic disruptions as a result of the spread of COVID-19 among our workforce, the extension or imposition of further public health measures affecting supply chain and logistics, and the impact of the pandemic on key customers, suppliers, and other counterparties.

We expect that the remainder of 2020 will be a challenging year for drilling contractors as customers wait to gain additional clarity on commodity pricing and seek to reduce costs in the fourth quarternear-term by attempting to renegotiate existing contract terms. We believe the current market and macro-economic conditions will create a challenging contracting environment through at least 2021.

The combined effects of 2018, resulting in athe global COVID-19 pandemic, the significant decline in prices from more than $85 per barrel to approximately $50 per barrel at year-end. Oil pricesthe demand for oil and the substantial surplus in the supply of oil have experienced a gradual recovery from this declineresulted in 2019 with Brent crude prices averaging approximately $60 per barrel.

While market volatility may continue over the near-term, we expect long-term oil prices to remain at levels sufficient to support a continued gradual recoverysignificantly reduced demand and day rates for offshore drilling services. However,provided by the Company and increased uncertainty remains regarding global trade discussions and other geopolitical tensions in the Middle East and their resulting impact on the global economy. Adverse changes in the macro-economic environment resulting from trade discussions and other geopoliticallong-term market conditions. These recent events could have had a significant adverse impact on global economic growthour current and ultimatelyexpected liquidity position and financial runway. The Company did not make interest payments due in June and July 2020 on the demand forDefaulted Notes (as defined herein). The June 2020 missed interest payments currently represents a default or event of default under the Defaulted Notes. An aggregate of approximately $2.1 billion is outstanding under the Defaulted Notes. Pursuant to the Second A&R Waiver (as defined herein), the lenders under our offshore drilling services.

We continuerevolving credit facility have waived certain defaults under the revolving credit facility, including in relation to observe improvements in the shallow-water market, particularlynon-payment of interest on the Defaulted Notes, and pursuant to the Forbearance Agreement (as defined herein), certain holders of our senior notes have agreed to forbear from the exercise of certain rights and remedies that they have with respect to higher-specification rigs, as higher levelscertain specified defaults and events of customer demanddefaults (including cross-defaults). At the time of entry into the Forbearance Agreement, the Supporting Holders (as defined herein) held (i) approximately 44.0% of the outstanding 2022 Notes, (ii) approximately 74.2% of the outstanding 2024 Notes, (iii) approximately 65.3% of the outstanding 2025 Notes, (iv) approximately 68.9% of the outstanding 2042 Notes and rig retirements have led to gradually increasing jackup utilization over(v) approximately 82.9% of the past year. Moreover, global floater utilization has increased as compared to a year ago due to a higher number of contracted rigs and lower global supply resulting from rig retirements. However, the floater recovery continues to be gradual as contracts remain short-term and pricing remains depressed.

Despite the increase in customer activity, contract awards remain subject to an extremely competitive bidding process,outstanding 2044 Notes. The Second A&R Waiver and the corresponding pressureForbearance Agreement each terminate automatically on operating day rates in recent periods has resulted in low margin contracts, particularlyAugust 3, 2020. See “Note 10 - Debt” for floaters. Therefore, our results from operations may continue to decline overa description of the near-term as current contracts with above-market rates expireterms of the Second A&R Waiver and new contracts are executed at lower rates. We believe further improvements in demand coupled with a reduction in rig supply are necessary to improve the commercial landscape for day rates.Forbearance Agreement.


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 capital; over the past several years have executed a number of financing transactions to improve our financial position and manage our debt maturities, including the July 2019 tender offers discussed below.

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Based on our balance sheet,evaluation of the circumstances described above, coupled with significant asset impairments (See "Note 6 - Property and Equipment") and substantial borrowings on our contractual backlog and availability under ourrevolving credit facility, we expectdetermined that there was a significant level of uncertainty as to fundwhether we will be in compliance with covenants to maintain specified financial and guarantee coverage ratios, including a total debt to total capitalization ratio that is less than or equal to 60%, within the next twelve months. If we exceed the total debt to total capitalization covenant in our liquidity needs, including expected negative operating cash flows, contractual obligations, anticipated capital expenditures, as well as working capital requirements, from cash, funds borrowed under ourrevolving credit facility, or other future financing arrangements, including available shipyard financing options for our two drillshipsfurther borrowings under construction.

Ourthe revolving credit facility is an integral partwould not be permitted, absent a waiver in respect of our financial flexibilitythe resulting event of default from the breach of the total debt to total capitalization covenant, and liquidity. We also may relyall outstanding borrowings could become immediately due and payable by actions of lenders holding a majority of the commitments under the revolving credit facility. Any such acceleration would trigger a cross-acceleration event of default with respect to approximately $2.1 billion outstanding under the Defaulted Notes. In addition to the approximately $58.5 million of missed interest payments on the issuance of debt and/or equity securities inDefaulted Notes discussed above, there is substantial uncertainty whether 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 September 30, 2019, we had $6.7 billion of total debt principal outstanding, inclusive of $140.6 million drawn under our credit facility, representing 41.2% of our total capitalization. We also had $129.5Company will pay $79.2 million of cash and $1.5 billion of undrawn capacity under our credit facility.

Effective upon closing of the Rowan Transaction, we amended our credit facility to, amonginterest on 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 was $2.3 billion through September 2019 and $1.6 billion through September 2022. The credit agreement governing the credit facility includes an accordion feature allowing us to increase future commitments up to an aggregate amount not to exceed $250.0 million.

On June 25, 2019, we commenced cash tender offers for certain series of senioroutstanding notes issued by us and by Ensco International Incorporated and Rowan Companies, Inc., our wholly-owned subsidiaries. The tender offers expired on July 23, 2019, and we repurchased $951.8or prior to August 15, 2020 together with the $122.9 million aggregateoutstanding principal amount of our 6.875% Senior Notes due on August 15, 2020. Therefore, due to the uncertainty as to our ability to comply with our debt covenants over the next 12 months and the related potential for cross-covenant defaults, we concluded that there is a substantial doubt regarding our ability to continue as a going concern within one year after the date that the financial statements are issued.




We are actively pursuing a variety of transactions and cost-cutting measures, including, but not limited to, further reductions in corporate overhead and discretionary expenditures, another potential waiver from lenders under, or amendment to, our revolving credit facility, another potential forbearance from holders of our senior notes, further reductions in capital expenditures and increased focus on operational efficiencies. We are also actively negotiating with certain holders of our senior notes and recognizedcertain lenders under our revolving credit facility regarding a gain on debt extinguishmentcomprehensive restructuring of $194.1 million during the third quarter of 2019.

Following the completionour indebtedness. While there can be no assurances as to ultimate timing, we expect our restructuring is likely to be implemented imminently through cases under Chapter 11 of the tender offersU.S. Bankruptcy Code and August 2019 debt maturity,that our debt maturities through 2023 total $997.8 millionrestructuring may result in cancellation of existing equity interest and include $122.9 millionlittle or no recovery to existing shareholders.

In light of the foregoing, the unaudited condensed consolidated financial statements included herein were prepared on a going concern basis of accounting, which contemplates the realization of assets and the satisfaction of liabilities in 2020, $113.5 millionthe normal course of business. The consolidated financial statements do not reflect any adjustments that might be necessary should we be unable to continue as a going concern. We will continue to evaluate our going concern assessment in 2021 and $761.4 million in 2022. The amount due in 2022 includes $140.6 million drawn under our credit facility as of September 30, 2019.connection with future periodic reports.

Backlog

Our backlog was $2.3$1.6 billion and $2.2$2.5 billion as of SeptemberJune 30, 20192020 and December 31, 2018,2019, respectively. OurThe decrease in our backlog increasedwas due to customer contract cancellations, customer concessions and revenues realized, partially offset by the addition of backlog from the Rowan Transaction, new contract awards and contract extensions, which was partially offset by revenues realized during the period.extensions.

As we finalize negotiations of contract concessions with our customers, above-market rate contracts expire and revenues are realized, we may experience further declines in backlog, which couldwould result in a decline in revenues and operating cash flows over the near-term. Contract backlog was adjusted for drilling contracts signed, terminated or terminatedconcessions granted after each respective balance sheet date but prior to filing each annual and quarterly report on February 28, 201921, 2020 and October 31, 2019,July 30, 2020, respectively.

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BUSINESS ENVIRONMENT
 
Floaters

The floater contracting environment remains challenging due to limited demand, and excess newbuild supply.supply and the fall in oil prices earlier in the year. Floater demand has declined significantly following the declinematerially in commodity prices in 2014 which causedMarch and April 2020, as our customers to reducereduced capital expenditures particularly for capital-intensive, long-lead deepwater projects resultingin the wake of oil price declines from around $60 per barrel at year-end 2019 to around $20 per barrel in mid-April 2020. The decline in demand has resulted in the cancellation and delay of drilling programs. programs and the termination of drilling contracts. To date, the COVID-19 pandemic has resulted in only limited operational downtime where outbreaks have been experienced on rigs requiring a shutdown of operations while crews are tested and incremental sanitation protocols are implemented. While we have not experienced downtime due to quarantines or an inability to staff our rigs due to travel restrictions or stay-at-home orders, we are incurring additional personnel, housing and logistics costs in order to mitigate these potential impacts to our operations. In limited instances, we have been reimbursed for these costs by our customers. Our operations and business may be subject to further economic disruptions as a result of the spread of COVID-19 among our workforce, the extension or imposition of further public health measures affecting supply chain and logistics, and the impact of the pandemic on key customers, suppliers, and other counterparties. There can be no assurance that these, or other issues caused by the COVID-19 pandemic, will not materially affect our ability to operate our rigs in the future.

During 2020, we have received notices of termination, requests for concessions, cancellation and/or deferral of drilling programs by operators and we may receive additional requests for concessions, termination and/or deferral notices during the pendency of the current market environment.



During the past several quarters, we have observed increased tendering activity that may translate into marginal improvementssecond quarter, the VALARIS DS-7 contract for operations offshore Ghana and the contract awarded in near-term utilization; however, further improvementsthe first quarter of 2020 for operations offshore Senegal/Mauritania, the VALARIS DS-9 contract awarded in demand and/or reductionsthe first quarter of 2020 for operations offshore Brazil and the VALARIS MS-1 contract awarded in supply will be necessary before meaningful increasesthe first quarter of 2020 for operations offshore Australia were terminated. Additionally, the VALARIS DPS-1 contract was terminated in utilizationJune, earlier than the previously scheduled end date of September 2021, and the VALARIS DS-10, VALARIS DS-15 and VALARIS 8505 are expected to operate on reduced day rates for various periods during 2020. During the first quarter, the VALARIS 5004 operated on a reduced day rate from mid-March to mid-April, at which point the contract was terminated, and the VALARIS DS-8 contract was terminated in March 2020 as described below.
In March 2020, VALARIS DS-8 experienced a non-drilling incident while operating offshore Angola, resulting in the blowout preventer (BOP) stack being disconnected from the riser while the rig was moving between well locations. The BOP stack, which we later recovered, dropped to the seabed floor, clear of any subsea structures. No injuries, environmental pollution or third-party damage resulted from the BOP stack being disconnected.  As a result of the incident, the operator terminated the contract. The termination resulted in a decline in our contracted revenue backlog of approximately $150 million. We have loss of hire insurance for $602,500 per day, after a 45-day deductible waiting period, through the end of the contract in November 2020. The waiting period expired on April 22, 2020. We are realized.seeking to recover losses incurred in accordance with the terms of this insurance policy, which would largely offset the lost backlog noted above. There can be no assurance as to the timing or amount of insurance proceeds ultimately received.

During the first quarter of 2019, we executed2020, VALARIS DS-12 was awarded a four-wellone-well contract for VALARIS DS-9 that commenced offshore Brazil in June 2019 and a six-month contract for VALARIS DS-7 that commenced offshore Egypt in April 2019. Additionally, we executed a two-well contract for VALARIS DPS-1 that is expected to commence in February 2020 and a four-well contract for VALARIS 8503 that commenced in July 2019.
During the second quarter of 2019, we executedFebruary 2020. VALARIS MS-1 was awarded a one-wellthree-well contract for VALARIS DS-18 in the U.S. Gulf of Mexico that is expected to commence in January 2020. We also entered into short-term contract extensions for VALARIS DS-12 and VALARIS DPS-1.

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. Gulffirst quarter of Mexico in January 20202021 and has an estimated duration of 155 days. VALARIS 8505 was awarded a one-well contract for VALARIS DS-4 that iswas expected to commence offshore Ghana in March 2020. We also extended contracts for VALARIS DPS-1 by seven-wellsmid-November 2020, but is now expected to be July 2021 with an estimated duration of 420 days,80 days.

The VALARIS 8505 by three-wells,6002 was sold in January 2020 resulting in an insignificant pre-tax gain. Additionally, the VALARIS DS-16 by approximately 180 days and VALARIS DS-7 by approximately 165 days. Additionally,5004 was sold in April 2020 resulting in an insignificant pre-tax loss. During the second quarter of 2020, we began marketing the VALARIS 5006 for sale8500, VALARIS 8501, VALARIS 8502, VALARIS DS-3, VALARIS DS-5 and VALARIS DS-6 and classified the rigrigs as held-for-sale, on our September 30, 2019 condensed consolidated balance sheet. As a result, we recognizedresulting in an impairment charge of $88.2approximately $14.6 million as the net book value exceeded the fair value less costs to sell. All of these rigs except VALARIS DS-6 and VALARIS 8502 were subsequently sold in our condensed consolidated statement of operations.July 2020.
There are approximately 3025 newbuild drillships and semisubmersible rigs reported to be under construction, of which approximately fivefour are scheduled to be delivered bybefore the end of 2019. Nearly all2020. Most newbuild floaters are uncontracted. Several newbuild deliveries have been delayed into future years, and we expect that more uncontracted newbuilds will be delayed or canceled.cancelled.

Drilling contractors have retired approximately 130150 floaters since the beginning of the downturn.2014. Approximately 2015 floaters older than 30 years of age are currently idle, approximately 10 additional floaters older than 30 years have contracts that will expire by year-end 2019end of 2020 without follow-on work andwork. Additional rigs are expected to become idle as a further approximately five floaters between 15 and 30 years old have been idle for more than two years.result of recent market events. Operating costs associated with keeping these rigs idle as well as expenditures required to re-certify these aging rigs may prove cost prohibitive. Drilling contractors will likely elect to scrap or cold-stack some or all of these rigs. Improvements in demand and/or reductions in supply will be necessary before meaningful increases in utilization and day rates are realized.

Jackups

DemandDespite recent gains in the jackup market, demand for jackups has improved withdeclined in light of increased contracting activity observed overmarket uncertainty. To date, the past year off historic lows, leadingCOVID-19 pandemic has resulted in only limited operational downtime where outbreaks have been experienced on rigs requiring a shutdown of operations while crews are tested and incremental sanitation protocols are implemented. While we have not experienced downtime due to slight improvementsquarantines or an inability to staff our rigs due to travel restrictions or stay-at-home orders, we are incurring additional personnel, housing and logistics costs in order to mitigate these potential impacts to our operations. In limited instances, we have been reimbursed for these costs by our customers. Our operations and business may be subject to further economic disruptions as a result of the


spread of COVID-19 among our workforce, the extension or imposition of further public health measures affecting supply chain and logistics, and the impact of the pandemic on key customers, suppliers, and other counterparties. There can be no assurance, however, that these, or other issues caused by the COVID-19 pandemic, will not materially affect our ability to operate our rigs in the future.
During 2020, we have received notices of termination, requests for concessions, cancellation and/or deferral of drilling programs by operators, and we may receive additional requests for concessions, termination and/or deferral notices during the pendency of the current market environment.
During the second quarter, the VALARIS JU-84 contract was terminated and we negotiated a day rates.rate reduction for VALARIS JU-290 to operate at a standby rate from September 2020 to March 2021.
During the first quarter of 2019,2020, the VALARIS JU-109 contract was terminated. In April 2020, there were various negotiated customer contract concessions, including day rate reductions: VALARIS JU-120 is operating on a reduced day rate from late-April 2020 to late-September 2020. VALARIS JU-92 was previously expected to operate on a reduced day rate from mid-May 2020 to late-September 2020, but has continued to operate at full dayrate and VALARIS JU-72 operated on a reduced day rate from April 2020 to July 2020. Additionally, VALARIS JU-249 ended its contract in April 2020 and VALARIS JU-100 ended its contract in late-April 2020, in both cases, earlier than expected.
During the second quarter of 2020, we executed short-term contracts for VALARIS JU-102 and VALARIS JU-87 that commenced in June 2020 and May 2020, respectively. We were also awarded a nine-welltwo-well extension for VALARIS JU-291 with an expected duration of approximately 180 days from January 2021 to June 2021. We executed a four year contract for VALARIS JU-100 that isJU-104 expected to commence in November 2019. As a result, a previously disclosedSeptember 2020 and we extended the VALARIS JU-67 contract for VALARIS JU-100 will be fulfilled by VALARIS JU-248. Additionally,210 days from May 2020 to December 2020.

During the first quarter of 2020, we executed a three-well contract for VALARIS JU-121JU-118 that commenced in April 2019 and three-well and one-well contractsmid-March 2020 with an estimated duration of 425 days. Additionally, we executed a two-well contract for VALARIS JU-72JU-144 that commenced in May 2020 with an estimated duration of 200 days. The previously disclosed contract for the JU-144 that was expected to commence in September 2020 was transferred to the VALARIS JU-102. VALARIS JU-87 was awarded a one-well contract that commenced in March 2020 with an estimated duration of 30 days and an extension to May 2020 for another well with an estimated duration of 30 days.

The VALARIS JU-68 was sold in January 2020 and VALARIS JU-68, respectively, that commenced during May 2019. We also executed short-term contract extensions forJU-70 was sold in June 2020, resulting in an insignificant pre-tax gain and pre-tax loss, respectively. Additionally, VALARIS JU-101 and VALARIS JU-96.

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With respect to the legacy Rowan jackups, a six-month contract extension with a two-month optionJU-71 was executed for VALARIS JU-248 during the first quarter. Additionally, short-term contracts were executed for VALARIS JU-292, VALARIS JU-290 and VALARIS JU-144. The VALARIS JU-290 and VALARIS JU-292 contracts include four additional one-well priced options and two short-term option periods, respectively.
sold in June 2020 resulting in an insignificant pre-tax loss. During the second quarter of 2019,2020, we executed a two-year contract forclassified VALARIS JU-120, a two-well contract for VALARIS JU-122, a forty-well P&A contract for VALARIS JU-72, a five-month contract for VALARIS JU-107, two one-well contracts for VALARIS JU-102 and a one-well contract for VALARIS JU-101. Additionally, we executed a two-year extension for VALARIS JU-109, a seven-month extension for VALARIS JU-104, a six-month extension for VALARIS JU-247, a three-month extension for VALARIS JU-96, and one-well extensions for VALARIS JU-118 and VALARIS JU-144.

During the second quarter of 2019, we scrapped ENSCO 97 and the Gorilla IV, and recognized an insignificant pre-tax gain in our condensed consolidated statement of operations for the quarter ended June 30, 2019.

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 rigs105 as held-for-sale, on our September 30, 2019 condensed consolidated balance sheet. In October 2019, we scrapped VALARIS JU-42 and expectresulting in an impairment of approximately $0.4 million as the net book value exceeded the fair value less costs to recognize an insignificant gain during the fourth quarter.sell.

There are approximately 6045 newbuild jackup rigs reported to be under construction, of which approximately 1015 are scheduled to be delivered bybefore the end of 2019 and only four2020. Most newbuild jackups are contracted.uncontracted. Over the past year, some jackup orders have been canceled,cancelled, and many newbuild jackups have been delayed. We expect that additional rigs mayscheduled jackup deliveries will continue to be delayed or canceled due to limited contracting opportunities.until more rigs are contracted.

Drilling contractors have retired approximately 100110 jackups since the beginning of the downturn. Approximately 90 jackups older than 30 years are idle and approximately 40 jackups that are 30 years or older have contracts expiring by the end of 20192020 without follow-on work. Expenditures required to re-certify these aging rigs may prove cost prohibitive and drilling contractors may instead elect to scrap or cold-stack these rigs. We expect jackup scrapping and cold-stacking to continue during 2019for the remainder of 2020. Improvements in demand and/or reductions in supply will be necessary before meaningful increases in utilization and into 2020.day rates are realized.

In July 2019, a well being drilled offshore Indonesia by one of our jackup rigs experienced a well-control event requiring the cessation of drilling activities. The operator could seek to terminate the contract under certain circumstances.  If this drilling contract were to be terminated for cause, it would result in an approximate $14 million decrease in our backlog as of September 30, 2019. See Note 13 for additional information.

Divestitures

Our business strategy has been to focus on ultra-deepwater floater and premium jackup operations and de-emphasize other assets and operations that are not part of our long-term strategic plan or that no longer meet our standards for economic returns.  Consistent with this strategy, we scrapped ENSCO 97 and Gorilla IV duringIn the second quarter, which were older, less capable jackup rigs. During the thirdfourth quarter of 2019, we began marketing the VALARIS 5006,6002, VALARIS JU-68 and VALARIS JU-42 for saleJU-70, and classified thesethe rigs as held-for-sale on our December 31, 2019 condensed consolidated balance sheet. In the second quarter of 2020, we began marketing the VALARIS 8500, VALARIS 8501, VALARIS 8502, VALARIS DS-3, VALARIS DS-5, VALARIS DS-6 and VALARIS 105, and classified the rigs as of Septemberheld-for-sale on our June 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 classification2020 condensed consolidated balance sheet. To date all of these rigs, as held-for-sale.except VALARIS DS-6, VALARIS 8502 and VALARIS 105 have been sold.

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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.fleet. 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 reducing holding costs by 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-monththree and nine-month periodssix months ended SeptemberJune 30, 20192020 and 20182019 (in millions), including the results of Rowan from the Transaction Date::
Three Months Ended
September 30,		Nine Months Ended
September 30,
2019201820192018
Revenues$551.3  $430.9  $1,541.1  $1,306.4  
Operating expenses    
Contract drilling (exclusive of depreciation)496.5  327.1  1,329.4  996.6  
Loss on impairment88.2  —  90.7  —  
Depreciation163.0  120.6  445.9  356.5  
General and administrative36.1  25.1  146.9  79.1  
Total operating expenses  783.8  472.8  2,012.9  1,432.2  
Equity in earnings of ARO(3.7) —  (3.1) —  
Operating loss  (236.2) (41.9) (474.9) (125.8) 
Other income (expense), net40.2  (77.7) 562.3  (233.2) 
Provision for income taxes1.5  23.3  65.6  66.4  
Income (loss) from continuing operations (197.5) (142.9) 21.8  (425.4) 
Loss from discontinued operations, net  —  —  —  (8.1) 
Net income (loss) (197.5) (142.9) 21.8  (433.5) 
Net (income) loss attributable to noncontrolling interests .4  (2.1) (3.8) (2.6) 
Net income (loss) attributable to Valaris $(197.1) $(145.0) $18.0  $(436.1) 
 Three Months Ended
June 30,		 Six Months Ended
June 30,
 2020 
2019(1)
 2020 
2019(1)
Revenues$388.8
 $583.9
 $845.4
 $989.8
Operating expenses 
  
  
  
Contract drilling (exclusive of depreciation)370.7
 500.3
 846.7
 832.9
Loss on impairment838.0
 2.5
 3,646.2
 2.5
Depreciation131.5
 157.9
 296.0
 282.9
General and administrative62.6
 81.2
 116.0
 110.8
Total operating expenses1,402.8
 741.9
 4,904.9
 1,229.1
Equity in earnings of ARO(5.2) .6
 (11.5) .6
Operating loss(1,019.2)
(157.4)
(4,071.0)
(238.7)
Other income (expense), net(105.4) 597.3
 (213.3) 522.1
Provision (benefit) for income taxes(15.8) 32.6
 (167.8) 64.1
Net income (loss)(1,108.8)
407.3

(4,116.5)
219.3
Net (income) loss attributable to noncontrolling interests1.4
 (1.8) 2.8
 (4.2)
Net income (loss) attributable to Valaris$(1,107.4)
$405.5

$(4,113.7)
$215.1

(1)
The three months and six months ended June 30, 2019 include results of the Rowan transaction from April 11, 2019 through June 30, 2019.

Overview
    
Overview 

Revenues increased $120.4decreased $195.1 million, or 28%33%, for the three-month periodthree months ended SeptemberJune 30, 2019,2020, as compared to the prior year quarter primarily due to $138.9$87.8 million from fewer days under contract across our fleet, $86.7 million from the sale of revenue earned by the Rowan rigs and the commencement of drilling operations for VALARIS DS-95006, VALARIS 6002, VALARIS 5004, VALARIS JU-68 and VALARIS JU-123.JU-96, which operated in the prior year quarter, $61.5 million due to the termination of the VALARIS DS-8 contract and $19.0 million due


to lower revenues earned from our rigs leased to ARO and under the Secondment Agreement and Transition Services Agreement. This increasedecrease was partially offset by lower average day rates across the remaining fleet.$46.3 million of contract termination fees received for certain rigs.


Revenues increased $234.7decreased $144.4 million, or 18%15%, for the nine-month periodsix months ended SeptemberJune 30, 2019,2020, as compared to the prior year period primarily due to $286.2$161.2 million from the sale of VALARIS 5006, VALARIS 6002, VALARIS 5004, VALARIS JU-68 and VALARIS JU-96, which operated in the prior comparative period, $102.2 million as a result of fewer days under contract across our fleet and $71.7 million due to the termination of VALARIS DS-8 contract. The decline in revenue was partially offset by $113.6 million of revenue earned by rigs added from the Rowan Transaction, $46.3 million of contract termination fees received for certain rigs and $24.3 million due to revenues earned from our rigs leased to ARO and under the commencement of drilling operations for VALARIS DS-9, VALARIS DS-10, VALARIS JU-140, VALARIS JU-141Secondment Agreement and VALARIS JU-123. This increase was partially offset by the sale of ENSCO 6001, ENSCO 80 and ENSCO 97, which operated in the prior year period, and lower average day rates across the remaining fleet.Transition Services Agreement.

Contract drilling expense increased $169.4decreased $129.6 million, or 52%26%, for the three-month periodthree months ended SeptemberJune 30, 2019,2020, as compared to the prior year quarter, primarily due to $129.5$65.0 million of contract drilling expense incurred by the Rowanlower cost on idle rigs, and the commencement of drilling operations for VALARIS DS-9 and VALARIS JU-123. This increase was partially offset by$29.5 million from the sale of ENSCO 6001VALARIS 5006, VALARIS 6002, VALARIS 5004, VALARIS JU-68 and ENSCO 97,VALARIS JU-96, which operated in the prior year quarter.quarter, and $15.5 million due to costs incurred for services provided to ARO under the Secondment Agreement and other costs for rigs leased to ARO.

62

Contract drilling expense increased $332.8$13.8 million, or 33%2%, for the nine-month periodsix months ended SeptemberJune 30, 2019,2020, as compared to the prior year period, primarily due to $267.0$140.1 million of contract drilling expenseexpenses incurred byon rigs added from 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.Transaction. This increase was partially offset by $57.0 million due to lower cost on idle rigs and $60.4 million from the sale of ENSCO 6001, ENSCO 97VALARIS 5006, VALARIS 6002, VALARIS 5004, VALARIS JU-68 and ENSCO 80,VALARIS JU-96, which operated in the prior yearprior-year period.
During the three and six months ended June 30, 2020, we recorded a non-cash loss on impairment of $838.0 million and $3.6 billion, respectively, with respect to assets in our fleet and a certain contract intangible, primarily due to the adverse change in the current and anticipated market for these assets. See "Note 3 - Rowan Transaction" and "Note 6 - Property and Equipment" for additional information.

Depreciation expense increased $42.4decreased $26.4 million, or 35%,17% for the three-month periodthree months ended SeptemberJune 30, 2019,2020, as compared to the prior year quarter, primarily due to $36.5 million oflower depreciation expense recognized on certain non-core assets which were impaired to scrap value during the Rowan rigs and the commencementfirst quarter of VALARIS DS-9, VALARIS JU-141 and VALARIS JU-123 drilling operations.2020.


Depreciation expense increased $89.4$13.1 million, or 25%5%, for the nine-month periodsix months ended SeptemberJune 30, 2019,2020, as compared to the prior year period, primarily due to $65.5 million of depreciation expense recognized onrecorded for rigs added in the Rowan rigsTransaction. This increase was partially offset by lower depreciation expense on certain assets which were impaired to scrap value during the first quarter of 2020.
General and administrative expenses decreased by $18.6 million, or 23% for the commencement of VALARIS DS-9, VALARIS DS-10, VALARIS JU-140, VALARIS JU-141 and VALARIS JU-123 drilling operations.three months ended June 30, 2020, as compared to the prior year quarter, primarily due to merger related costs in the respective prior year comparable period.

General and administrative expenses increased by $11.0$5.2 million, or 44%, and $67.8 million, or 86%5%, for the three-month and nine-month periodssix months ended SeptemberJune 30, 2019, respectively,2020, as compared to the respective prior year period, primarily due to transaction and integration costs associated with the Rowan Transaction.professional fees.

Other incomeexpense, net, increased $117.9$702.7 million, or 118% and $735.4 million or 141%, for the three-monththree and six months ended June 30, 2020, respectively, as compared to the respective prior year comparative period, ended September 30, 2019, primarily due to a pre-tax gain from debt extinguishment of $194.1 million related to the senior notes repurchased in connection with our July 2019 tender offers. This increase was partially offset by additional interest expense incurred on Rowan's senior notes and a reduction in the gain on bargain purchase resulting from measurement period adjustments of $53.0 million recognized during the three-month period ended September 30, 2019.

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 additional interest expense incurred on Rowan's senior notes.prior year.

The loss on impairment recognized during the third quarter of 2019 was related to VALARIS 5006, which was marked for retirement and classified as held-for-sale as of September 30, 2019. See Note 8 for additional information.

Rig Counts, Utilization and Average Day Rates
 
The following table summarizes our and ARO's offshore drilling rigs as of SeptemberJune 30, 20192020 and 2018:
 20192018
Floaters(1)(5)
25  22  
Jackups(2)(3)(4)(5)
43  34  
Other(6)
9  —  
Under construction(4)
2  3  
Held-for-sale(5)
2  —  
Total Valaris81  59  
ARO(7)
7  —  

(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.

2019:
63

(3)During the second quarter of 2019, we added 10 jackups from the Rowan Transaction, exclusive of the Gorilla IV, that was classified as held-for-sale subsequent to the completion of the Rowan Transaction, the Rowan California that was marked for retirement at the Transaction Date and rigs leased to ARO that are included in Other.
 2020 2019
Floaters(1)
17 26
Jackups(2)
39 44
Other9 9
Under construction2 2
Held-for-sale(1)(2)
7 —
Total Valaris74
81
ARO(3)
7 7

(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.

(1)
During the fourth quarter of 2019, we sold VALARIS 5006. During the first and second quarters of 2020, we sold VALARIS 6002 and VALARIS 5004, respectively. During the second quarter of 2020, we classified VALARIS 8500, VALARIS 8501, VALARIS 8502, VALARIS DS-3, VALARIS DS-5 and VALARIS DS-6 as held-for-sale.
(2)
During the fourth quarter of 2019, we sold VALARIS JU-96 and in the first quarter of 2020, we sold VALARIS JU-68. During the second quarter of 2020, we classified VALARIS JU-105 as held-for-sale and sold VALARIS JU-70 and VALARIS JU-71.
(3)
This represents the seven rigs owned by ARO.
The following table summarizes our and ARO's rig utilization and average day rates by reportable segment for the three-monththree and nine-month periodssix months ended SeptemberJune 30, 2020 and 2019. Rig utilization and average day rates for the three and six months ended June 30, 2019 and 2018:periods include results of rigs added in the Rowan Transaction or ARO from the date the Rowan Transaction closed in April 2019:

Three Months Ended
September 30,		Nine Months Ended
September 30,		 Three Months Ended
June 30,		 Six Months Ended
June 30,
2019201820192018 2020 2019 2020 2019
Rig Utilization(1)
Rig Utilization(1)
      
  
  
  
FloatersFloaters48 %46 %48 %47 % 32% 53% 35% 48%
JackupsJackups65 %66 %67 %64 % 53% 69% 57% 69%
Other (2)
Other (2)
100 %100 %100 %100 % 100% 82% 100% 85%
Total ValarisTotal Valaris64 %59 %64 %59 % 53% 65% 56% 63%
AROARO89 %—  93 %—   97% 97% 93% 97%
Average Day Rates(3)
Average Day Rates(3)
        
  
    
FloatersFloaters$215,157  $239,196  $223,041  $245,617   $152,968
 $218,339
 $176,338
 $227,415
JackupsJackups77,888  79,921  76,418  77,365   83,698
 78,229
 82,515
 75,608
Other (2)
Other (2)
47,553  80,458  52,271  81,097   37,368
 50,347
 39,856
 56,618
Total ValarisTotal Valaris$106,157  $132,348  $110,765  $132,169   $83,912
 $110,063
 $89,668
 $113,510
AROARO$109,862  $—  $111,717  $—   $104,346
 $112,906
 $106,518
 $112,906
 
(1)
Rig utilization is derived by dividing the number of days under contract by the number of days in the period. Days under contract equals the total number of days that rigs have earned and recognized day rate revenue, including days associated with early contract terminations, compensated downtime and mobilizations. When revenue is deferred and amortized over a future period, for example, when we receive fees while mobilizing to commence a new contract or while being upgraded in a shipyard, the related days are excluded from days under contract.
(1)Rig utilization is derived by dividing the number of days under contract by the number of days in the period. Days under contract equals the total number of days that rigs have earned and recognized day rate revenue, including days associated with early contract terminations, compensated downtime and mobilizations. When revenue is earned but is deferred and amortized over a future period, for example, when a rig earns revenue while mobilizing to commence a new contract or while being upgraded in a shipyard, the related days are excluded from days under contract.


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

(2)Includes our two management services contracts and our nine rigs leased to ARO under bareboat charter contracts (one of which is expected to commence drilling operations during the fourth quarter of 2019).
(2)
Includes our two management services contracts and our nine rigs leased to ARO under bareboat charter contracts.


64

(3)
Average day rates are derived by dividing contract drilling revenues, adjusted to exclude certain types of non-recurring reimbursable revenues, lump-sum revenues and revenues attributable to amortization of drilling contract intangibles, by the aggregate number of contract days, adjusted to exclude contract days associated with certain mobilizations, demobilizations and shipyard contracts.

Detailed explanations of our operating results, including discussions of revenues, contract drilling revenues, adjusted to exclude certain types of non-recurring reimbursable revenues, lump-sum revenuesexpense and revenues attributable to amortization of drilling contract intangibles,depreciation expense by the aggregate number of contract days, adjusted to exclude contract days associated with certain mobilizations, demobilizations, shipyard contracts and standby contracts.segment, are provided below.

Operating Income by Segment
 
Prior to the Rowan Transaction, ourOur business consistedconsists of threefour operating segments: (1) Floaters, which includedincludes our drillships and semisubmersible rigs, (2) Jackups, (3) ARO and (3)(4) Other, which consisted onlyconsists of our management services provided on rigs owned by third-parties. Our Floatersthird-parties 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 ourunder the Transition Services Agreement, Rig Lease Agreements and Secondment Agreement, doAgreement. Floaters, Jackups and ARO are also reportable segments.
General and administrative expense and depreciation expense incurred by our corporate office are not constitute reportableallocated to our operating segments for purposes of measuring segment operating income (loss) and are therefore included within Other in the following segment disclosures."Reconciling Items." Substantially all of the expenses incurred associated with our Transition Services Agreement are included in general and administrative under "Reconciling Items" in the table set forth below. We measure segment assets as property and equipment.
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- Equity Method Investment in ARO" for additional information on ARO and related arrangements.
Segment information for the three-monththree and nine-month periodssix months ended SeptemberJune 30, 20192020 and 20182019 is presented below (in millions):

Three Months Ended SeptemberJune 30, 20192020
FloatersJackupsAROOtherReconciling ItemsConsolidated Total
Revenues$269.8  $217.8  $138.4  $63.7  $(138.4) $551.3  
Operating expenses
Contract drilling (exclusive of depreciation)250.3  213.5  92.7  32.7  (92.7) 496.5  
Loss on impairment88.2  —  —  —  —  88.2  
Depreciation98.1  59.0  14.6  —  (8.7) 163.0  
General and administrative—  —  8.8  —  27.3  36.1  
Equity in earnings of ARO(3.7) (3.7) 
Operating income (loss)$(166.8) $(54.7) $22.3  $31.0  $(68.0) $(236.2) 

65
 Floaters Jackups ARO Other Reconciling Items Consolidated Total
Revenues$163.6
 $186.3
 $146.0
 $38.9
 $(146.0) $388.8
Operating expenses           
Contract drilling (exclusive of depreciation)170.8
 182.7
 112.5
 17.2
 (112.5) 370.7
Loss on impairment831.9
 .4
 —
 5.7
 —
 838.0
Depreciation62.0
 52.8
 13.3
 11.2
 (7.8) 131.5
General and administrative—
 —
 7.1
 —
 55.5
 62.6
Equity in earnings of ARO—
 —
 —
 —
 (5.2) (5.2)
Operating income (loss)$(901.1)
$(49.6)
$13.1

$4.8

$(86.4)
$(1,019.2)


Three Months Ended SeptemberJune 30, 20182019
FloatersJackupsAROOtherReconciling ItemsConsolidated Total
Revenues$241.8  $173.3  $—  $15.8  $—  $430.9  
Operating expenses
Contract drilling (exclusive of depreciation)175.6  136.4  —  15.1  —  327.1  
Depreciation77.8  39.3  —  —  3.5  120.6  
General and administrative—  —  —  —  25.1  25.1  
Operating income (loss)$(11.6) $(2.4) $—  $0.7  $(28.6) $(41.9) 


Nine
 Floaters Jackups ARO Other Reconciling Items Consolidated Total
Revenues$295.6
 $229.2
 $123.8
 $59.1
 $(123.8) $583.9
Operating expenses           
Contract drilling (exclusive of depreciation)249.2
 212.2
 78.9
 38.9
 (78.9) 500.3
Loss on impairment—
 —
 —
 —
 2.5
 2.5
Depreciation98.4
 55.5
 12.4
 —
 (8.4) 157.9
General and administrative—
 —
 5.3
 —
 75.9
 81.2
Equity in earnings of ARO—
 —
 —
 —
 .6
 .6
Operating income (loss)$(52.0)
$(38.5)
$27.2

$20.2

$(114.3)
$(157.4)

Six Months Ended SeptemberJune 30, 20192020
FloatersJackupsAROOtherReconciling ItemsConsolidated Total
Revenues$798.1  $604.0  $262.2  $139.0  $(262.2) $1,541.1  
Operating expenses
Contract drilling (exclusive of depreciation)681.3  561.1  171.7  87.0  (171.7) 1,329.4  
Loss on impairment88.2  —  —  2.5  90.7  
Depreciation281.3  151.4  26.9  —  (13.7) 445.9  
General and administrative—  —  13.9  —  133.0  146.9  
Equity in earnings of ARO—  —  —  —  (3.1) (3.1) 
Operating income (loss)$(252.7) $(108.5) $49.7  $52.0  $(215.4) $(474.9) 
 Floaters Jackups ARO Other Reconciling Items Consolidated Total
Revenues$343.2
 $399.1
 $286.3
 $103.1
 $(286.3) $845.4
Operating expenses           
Contract drilling (exclusive of depreciation)384.7
 408.8
 220.8
 53.2
 (220.8) 846.7
Loss on impairment3,386.2
 254.3
 —
 5.7
 —
 3,646.2
Depreciation151.4
 111.3
 26.3
 22.3
 (15.3) 296.0
General and administrative—
 —
 15.4
 —
 100.6
 116.0
Equity in earnings of ARO—
 —
 —
 —
 (11.5) (11.5)
Operating income (loss)$(3,579.1) $(375.3) $23.8
 $21.9
 $(162.3) $(4,071.0)




NineSix Months Ended SeptemberJune 30, 20182019
FloatersJackupsAROOtherReconciling ItemsConsolidated Total
Floaters Jackups ARO Other Reconciling Items Consolidated Total
RevenuesRevenues$785.7  $475.4  $—  $45.3  $—  $1,306.4  $528.3
 $386.2
 $123.8
 $75.3
 $(123.8) $989.8
Operating expensesOperating expenses           
Contract drilling (exclusive of depreciation)Contract drilling (exclusive of depreciation)564.4  390.1  —  42.1  —  996.6  431.0
 347.6
 78.9
 54.3
 (78.9) 832.9
Loss on impairment—
 —
 —
 —
 2.5
 2.5
DepreciationDepreciation233.9  112.3  —  —  10.3  356.5  183.2
 92.4
 12.4
 —
 (5.1) 282.9
General and administrativeGeneral and administrative—  —  —  —  79.1  79.1  —
 —
 5.3
 —
 105.5
 110.8
Equity in earnings of ARO—
 —
 —
 —
 .6
 .6
Operating income (loss)Operating income (loss)$(12.6) $(27.0) $—  $3.2  $(89.4) $(125.8) $(85.9)
$(53.8)
$27.2
 $21.0
 $(147.2)
$(238.7)


66

Floaters

Floater revenue declined $132.0 million, or 45%, for the three months ended June 30, 2020, as compared to the prior year quarter due to $75.2 million from the sale of VALARIS 5006, VALARIS 6002 and VALARIS 5004, which operated in the prior year quarter, $61.5 million due to the termination of the VALARIS DS-8 contract, and $42.8 millionas a result of fewer days under contract across the floater fleet. This decline was partially offset by $46.3 million of contract termination fees received for certain rigs.

Floater revenue increased $28.0declined $185.1 million, or 12%35%, for the three-monthsix months ended June 30, 2020, as compared to the prior year period due to $137.3 million from the sale of VALARIS 5006, VALARIS 6002 and VALARIS 5004, which operated in the prior year comparative period, $71.7 million due to the termination of the VALARIS DS-8 contract, and $57.5 million as a result of fewer days under contract across the floater fleet. This decline was partially offset by $46.3 million of contract termination fees received for certain rigs and $40.1 million earned by rigs added in the Rowan Transaction.

Floater contract drilling expense declined $78.4 million, or 31%, for the three months ended SeptemberJune 30, 2019,2020, as compared to the prior year quarter, primarily due to $37.2$42.1 million of revenue earned by the Rowanlower cost on idle rigs and $21.1 million due to the commencementsale of VALARIS DS-9 drilling operations. This increase was partially offset by fewer days under contract5006, VALARIS 6002 and lower average day rates acrossVALARIS 5004, which operated in the remaining floater fleet.prior year quarter.

Floater revenue increased $12.4contract drilling expense declined $46.3 million, or 2%11%, for the nine-month periodsix months ended SeptemberJune 30, 2019,2020, as compared to the prior year period, primarily due to $72.7$45.9 million earned by the Rowanlower cost on idle rigs and $41.4 million from the commencementsale of VALARIS DS-95006, VALARIS 6002 and VALARIS DS-10 drilling operations.5004, which operated in the prior year comparative period. This increasedecrease was partially offset by the sale$53.8 million of ENSCO 6001 and fewer days under contract and lower average day rates across the remaining floater fleet.

Floater contract drilling expense increased $74.7incurred by rigs added in the Rowan Transaction.

During the three and six months ended June 30, 2020, we recorded a non-cash loss on impairment of $831.9 million and$3.4 billion, respectively, with respect to assets in our Floater segment due to the adverse change in the current and anticipated market for these assets. See "Note 6 - Property and Equipment" for additional information.
Floater depreciation expense declined for the three months ended June 30, 2020, as compared to the respective prior year quarter, primarily due to lower depreciation on certain non-core assets which were impaired to scrap value during the first quarter of 2020.

Floater depreciation expense declined for the six months ended June 30, 2020, as compared to the respective prior year period, primarily due to lower depreciation on certain non-core assets which were impaired to scrap value during the first quarter of 2020, partially offset by depreciation on rigs added in the Rowan Transaction.

Jackups

Jackup revenues declined $42.9 million, or 43%19%, for the three-month periodthree months ended SeptemberJune 30, 2019,2020, as compared to the prior year quarter, primarily due to $44.1$45.0 million as a result of fewer days under contract drilling expense incurred byacross the Rowan rigsjackup fleet and the commencement of VALARIS DS-9 drilling operations. This increase was partially offset by$11.5 million due to the sale of ENSCO 6001, which operated in the prior year quarter.

VALARIS JU-96 and VALARIS JU-68.
Floater contract drilling expense
Jackup revenues increased $116.9$12.9 million, or 21%3%, for the nine-month periodsix months ended SeptemberJune 30, 2019,2020, as compared to the prior year period, primarily due to $95.2$73.5 million of contract drilling expense incurredrevenue earned by rigs added in the Rowan rigs and the commencement of VALARIS DS-9 and VALARIS DS-10 drilling operations.Transaction. This increase was partially offset by $44.7 million as a result of fewer days under contract across the jackup fleet and $23.9 million due to the sale of ENSCO 6001VALARIS JU-96 and lower costs on idle rigs.VALARIS JU-68, which operated in the prior year period.

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 depreciationJackup contract drilling expense increased $20.3declined $29.5 million, or 26%, and $47.4 million, or 20%14%, for the three-month and nine-month periodsthree months ended SeptemberJune 30, 2019, as compared to the prior year periods, primarily due to the addition of Rowan rigs to the fleet and the commencement of VALARIS DS-9 and VALARIS DS-10 drilling operations.

Jackups

Jackup revenues increased $44.5 million, or 26%, for the three-month period ended September 30, 2019,2020, as compared to the prior year quarter, primarily due to $58.9$22.9 million of revenue earned by the Rowanlower cost on idle rigs and commencement$8.4 million due to the sale of VALARIS JU-123 drilling operations, partially offset by lower average day rates acrossJU-96 and VALARIS JU-68, which operated in the remaining jackup fleet.prior year quarter.



Jackup revenuescontract drilling expense increased $128.6$61.2 million, or 27%18%, for the nine-month periodsix months ended SeptemberJune 30, 2019,2020, as compared to the prior year period, primarily due to $132.4$86.3 million of revenue earnedcontract drilling expense incurred by rigs added in the Rowan rigs and commencement of VALARIS JU-140, VALARIS JU-141 and VALARIS JU-123 drilling operations.Transaction. This increase was partially offset by $19.0 million due to the sale of ENSCO 80VALARIS JU-96 and ENSCO 97,VALARIS JU-68, which operated in the prior year period,period.
During the three and lower average day rates acrosssix months ended June 30, 2020, we recorded a non-cash loss on impairment of $0.4 millionand$254.3 million, respectively, with respect to assets in our Jackup segment primarily due to the remaining jackup fleet.adverse change in the current and anticipated market for these assets. See "Note 6 - Property and Equipment" for additional information.

Jackup contract drillingdepreciation expense increased $77.1declined $2.7 million, or 57%5%, for the three-month periodthree months ended SeptemberJune 30, 2019,2020 as compared to the prior year quarter, primarily due $67.8 millionto lower depreciation on certain non-core assets which were impaired to scrap value during the first quarter of contract drilling expense incurred by the Rowan rigs and the commencement of 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.2020.
67

Jackup contract drillingdepreciation expense increased $171.0$18.9 million, or 44%20%, for the nine-month periodsix months ended SeptemberJune 30, 2019,2020 as compared to the prior year period, primarily due $131.3 millionto the addition of contract drilling expense incurred byrigs in the Rowan rigs and the commencement of VALARIS JU-140, VALARIS JU-141 and VALARIS JU-123 drilling operations.Transaction. This increase was partially offset by lower depreciation on certain non-core assets which were impaired during the salefirst quarter of ENSCO 80 and ENSCO 97, which operated in the prior year period.2020.

Jackup depreciation expense for the three-month and nine-month periods ended September 30, 2019 increased $19.7 million, or 50%, and $39.1 million, or 35%, respectively, as compared to the prior year periods, primarily due to the addition of Rowan rigs to the fleet and the commencement of VALARIS JU-140, VALARIS JU-141 and VALARIS JU-123 drilling operations.

ARO

ARO currently owns a fleet of seven jackup rigs, leases another nine jackup rigs from us and has plans to purchase up toat least 20 newbuild jackup rigs over an approximate 10 year period. In January 2020, ARO ordered the first two newbuild jackups with delivery scheduled in 2022. The rigs we lease to ARO are done so through bareboat charter agreements whereby substantially all operating costs are incurred by ARO. All nine jackup rigs leased to ARO are under three-year contracts with Saudi Aramco (one of which is expected to commence drilling operations during the fourth quarter of 2019).Aramco. All seven ARO-owned jackup rigs are under long-term contracts with Saudi Aramco.

The operating revenues of ARO reflect revenues earned under drilling contracts with Saudi Aramco for the seven ARO-own jackup rigs and the nine rigs leased from us that operated during the period from the Transaction Date through Septemberthree months and six months ended June 30, 2019.2020.


The contractContract drilling depreciation and general and administrative expenses are also for the period from the Transaction Date through Septemberthree months and six months ended June 30, 2019. Contract drilling expenses2020, are inclusive of the bareboat charter fees for the rigs leased from us and costsus. Cost incurred under the Secondment Agreement.Agreement are included in contract drilling expense and general and administrative, depending on the function to which the seconded employee's service related. General and administrative expenses for the three months and six months ended June 30, 2020, include costs incurred under the Transition Services Agreement and other administrative costs.

See "Note 4 - Equity Method Investment in ARO" for additional information on ARO.

Other

Other revenues increased $47.9declined $20.2 million or 303%, for the three-month periodthree months ended SeptemberJune 30, 2019,2020, as compared to the prior year quarter, primarily due to $20.6 million of lower revenues earned under the Secondment Agreement and Transition Services Agreement.

    Other revenues increased $27.8 million for the six months ended June 30, 2020, as compared to the prior year period, primarily due to $24.3 million of revenues earned from our rigs leased to ARO and revenues earned under the Secondment Agreement and Transition Services Agreement of $19.9 million, $17.9Agreement.

Other contract drilling expenses declined $21.7 million and $5.0$1.1 million respectively.for the three and six months ended June 30, 2020, as compared to the respective prior year period, primarily due to lower costs incurred for services provided to ARO under the Secondment Agreement and lower other costs for rigs leased to ARO.



During the three months and six months ended June 30, 2020, we recorded a non-cash loss on impairment of $5.7 million, with respect to a certain contract intangible due to current market conditions. See "Note 3 - Rowan Transaction" for additional information.

Other revenues increased $93.7 million, or 207%,Income (Expense)
The following table summarizes other income (expense) for the nine-monththree and six months ended June 30, 2020 and 2019 (in millions):
 Three Months Ended
June 30,		 Six Months Ended
June 30,
 2020 2019 2020 2019
Interest income$5.7
 $11.9
 $10.5
 $15.4
Interest expense, net:

  
    
Interest expense(116.8) (126.4) (230.7) (213.6)
Capitalized interest.6
 8.1
 1.3
 14.3
 (116.2) (118.3) (229.4) (199.3)
Other, net5.1
 703.7
 5.6
 706.0
 $(105.4) $597.3
 $(213.3) $522.1
Interest income for the three and six months ended June 30, 2020 decreased as compared to the respective prior year period primarily due to fewer investments in time deposits and lower cash balances in the current year as compared to the prior year comparable period.

Interest expense decreased $2.1 million for the three months ended SeptemberJune 30, 2020, as compared to the prior year quarter, primarily due to interest savings due to the repurchase of debt in 2019 and the first quarter of 2020.

Interest expense increased $30.1 million for the six months ended June 30, 2020, 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 $17.6 million, or 117%, and $44.9 million, or 107%, for the three-month and nine-month periods ended September 30, 2019, respectively, as compared to the prior year periods, primarily due to costs incurred associated with the services provided to ARO under the Secondment Agreement.

See Note 4 for additional information on ARO.

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Other Income (Expense)
The following table summarizes other income (expense) for the three-month and nine-month periods ended September 30, 2019 and 2018 (in millions):
Three Months Ended
September 30,		Nine Months Ended
September 30,
 2019201820192018
Interest income$6.7  $3.6  $22.1  $10.5  
Interest expense, net:  
Interest expense(119.4) (87.3) (333.0) (258.2) 
Capitalized interest5.5  15.1  19.8  44.7  
 (113.9) (72.2) (313.2) (213.5) 
Other, net147.4  (9.1) 853.4  (30.2) 
 $40.2  $(77.7) $562.3  $(233.2) 
Interest income for the three-month and nine-month periods ended September 30, 2019 increased as compared to the prior year periods primarily due to interest income of $5.8 million and $10.9 million, respectively, earned on the shareholder note to ARO (see Note 4) acquired from the Rowan Transaction.

Interest expense for the three-month and nine-month periods ended September 30, 2019 increased as compared to the prior year periods, primarily due to $37.4 million and $75.1 million, respectively, of interest expense incurred on Rowan's senior notes.

Interest expense capitalized duringnotes acquired in the three-month and nine-month periods ended September 30, 2019 declined as compared to the prior year periodsRowan Transaction, partially offset by interest savings due to the commencementrepurchases of VALARIS DS-10, VALARIS DS-9, VALARIS JU-140, VALARIS JU-141debt in 2019 and VALARIS JU-123 drilling operations.the first quarter of 2020.

Other, net, for the three-month periodthree and six months ended SeptemberJune 30, 2019 increased as compared to the prior year period primarily due to $194.1 million of pre-tax gain on debt extinguishment related to the repurchase of senior notes in connection with the July 2019 tender offers, partially offset by the reduction to the estimated gain on bargain purchase of $53.0 million recognized during the quarter.

Other, net, for the nine-month period ended September 30, 2019 increased as compared to the prior year period primarily due to $659.8includes $712.8 million of gain on bargain purchase recognized in connection with the Rowan Transaction and $194.1 million of pre-tax gain on debt extinguishment related to the repurchase of senior notes associated with the July 2019 tender offers. Other, net for the nine-month period ended September 30, 2018 included a pre-tax loss of $19.0 million related to the repurchase and redemption of senior notes during the first quarter of 2018 and foreign currency losses discussed below.Transaction.

Our functional currency is the U.S. dollar, and a portion of the revenues earned and expenses incurred by certain of our subsidiaries are denominated in currencies other than the U.S. dollar. These transactions are remeasured in U.S. dollars based on a combination of both current and historical exchange rates. Net foreign currency exchange losses of $1.2 million and gains of $4.9 million and $1.8$2.6 million, inclusive of offsetting fair value derivatives, were included in other, net, for the three-monththree and nine-month periodssix months ended SeptemberJune 30, 2019,2020, respectively. These gainsDuring the three months ended June 30, 2020, the net foreign currency exchange losses were primarily attributable to the Brazilian real, Angolan Kwanza, Euro and Venezuelan Bolivar. the net foreign currency exchange gains the six months ended June 30, 2020, were primarily attributable to the Euro and Australian Dollar.

Net foreign currency exchange losses of $3.2$2.8 million and $15.2$3.1 million, inclusive of offsetting fair value derivatives, were included in other, net, for the three-monththree and nine-month periodssix months ended SeptemberJune 30, 2018, respectively, which2019, respectively. These losses were primarily attributable to a strengthening U.S. dollarthe Brazilian Real, Angolan Kwanza, Euro and the devaluation of the Angolan Kwanza.Venezuelan Bolivar.


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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 incomeprofitability levels and changes in tax laws, our consolidated effective income tax rate may vary substantially from one reporting period to another. In periods of declining profitability, our income tax expense may not decline proportionally with income, which could result in higher effective income tax rates. Further, we may continue to incur income tax expense in periods in which we operate at a loss.

Income tax 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 periodthree months ended SeptemberJune 30, 20192020 was $18.4$47.3 million and was primarily attributable to rig impairments and other resolutions of prior year tax matters. Discrete income tax benefit for the three months ended June 30, 2019 was $1.2 million and was primarily attributable to the resolution of prior period tax matters. Excluding the aforementioned discrete tax items, income tax expense for the three months ended June 30, 2020 and 2019 was $31.5 million and $33.8 million, respectively.

Discrete income tax benefit for the six months ended June 30, 2020 was $211.7 million and was primarily attributable to a restructuring transactions,transaction, rig impairments, implementation of the impairment of a drilling rig,U.S. Cares Act, changes in liabilities for unrecognized tax benefits associated with tax positions taken in prior years and other resolutions of prior year tax matters, partially offset by discrete tax expense resulting from gains on the repurchase of debt.matters. Discrete income tax benefit for the three-month periodsix months ended SeptemberJune 30, 20182019 was $7.9$0.6 million and was primarily attributable to an election under U.S. Treasury Regulations not to apply U.S. 2017 operating losses to deemed repatriated income, which provided for utilization of foreign tax credits that were subject to valuation allowance, and U.S. tax reform, partially offset by discrete tax expense related to the settlement of arbitration proceedings, rig sales and unrecognized tax benefits associated with tax positions taken in prior years. Excluding the aforementioned discrete tax items, income tax expense for the three-month periods ended September 30, 2019 and 2018 was $19.9 million and $31.2 million, respectively.

Discrete income tax benefit for the nine-month period ended September 30, 2019 was $19.0 million and was primarily attributable to restructuring transactions, the impairment of a drilling rig, changes in liabilities for unrecognized tax benefits associated with tax positions taken in prior years and the resolution of other resolutions of prior yearperiod tax matters, partially offset by discrete tax expense resulting from gains on the repurchase of debt. Discrete income tax benefit for the nine-month period ended September 30, 2018 was $19.1 million and was primarily attributable an election under U.S. Treasury Regulations not to apply U.S. 2017 operating losses to deemed repatriated income, which provided for utilization of foreign tax credits that were subject to valuation allowance, U.S. tax reform and a restructuring transaction, partially offset by discrete tax expense related to the settlement of arbitration proceedings, repurchase and redemption of senior notes, unrecognized tax benefits associated with tax positions taken in prior years and rig sales.matters. Excluding the aforementioned discrete tax items, income tax expense for the nine-month periods six monthsended SeptemberJune 30, 2020 and 2019 and 2018 was $84.6$43.9 million and $85.5$64.7 million, respectively.


70

LIQUIDITY AND CAPITAL RESOURCES

We proactively manageAs a result of the impacts to our financial position resulting from declining commodity price conditions and in consideration of the substantial amount of long-term debt outstanding, we have engaged financial and legal advisors to assist us in, among other things, analyzing various alternatives to address our liquidity and capital structure, which may include, but not be limited to, seeking a restructuring, amendment or refinancing of existing debt through a private restructuring or a reorganization under Chapter 11 of the U.S. Bankruptcy Code. As part of the evaluation of alternatives, we also are engaged in discussions with our lenders and bondholders regarding the terms of a manner allowing uspotential comprehensive restructuring of our indebtedness. While there can be no assurances as to most effectively executeultimate timing, we expect our strategic prioritiesrestructuring is likely to be implemented imminently through cases under Chapter 11 of the U.S. Bankruptcy Code and maximize value forthat our restructuring may result in the cancellation of existing equity interests and little or no recovery to existing shareholders.

We did not make interest payments due in June 2020 on the 4.875% Senior Notes due 2022, 5.40% Senior Notes due 2042 and 7.375% Senior Notes due 2025. We also did not make an interest payment on July 15, 2020, on


the 4.75% Senior Notes due 2024 and 5.85% Senior Notes due 2044. The June 2020 missed interest payments represent current events of default under the 4.875% Senior Notes due 2022, 5.40% Senior Notes due 2042, 7.375% Senior Notes due 2025, 4.75% Senior Notes due 2024 and 5.85% Senior Notes due 2044 (the “Defaulted Notes”). We have entered into the Forbearance Agreement pursuant to which certain holders of our senior notes have agreed to forbear from the exercise of certain rights and remedies that they have with respect to certain specified defaults and events of defaults (including cross-defaults). However, the events of default under the Defaulted Notes have not been waived and still exist, and the Forbearance Agreement will terminate automatically on August 3, 2020 and may be terminated upon certain other events that may occur prior to August 3, 2020. In supportaddition to the approximately $58.5 million of these objectives,missed interest payments on the Defaulted Notes discussed above, there is substantial uncertainty whether we are focusedwill pay $79.2 million of interest on other series of outstanding notes on or prior to August 15, 2020 together with the $122.9 million outstanding principal amount of our 6.875% Senior Notes due on August 15, 2020.

Our focus on liquidity and capital resources includes our cash position, debt levels and maturity profile, cost of capital;capital, and our credit facility. Our revolving credit facility requires compliance with covenants to maintain specified financial and guarantee coverage ratios, including a total debt to total capitalization ratio that is less than or equal to 60%. In the first six months of 2020, we incurred impairments of $3.6 billion, which contributed to an increase in the total debt to total capitalization ratio to 57.7% as of June 30, 2020. As of June 30, 2020, we were in compliance with our debt covenants due to the Second A&R Waiver. The full impact that the pandemic and the decline in oil prices and demand will have on our results of operations, financial condition, liquidity and cash flows is uncertain. We may incur additional material impairments as a result of declines in demand for offshore drilling rigs. As of June 30, 2020, at current debt levels, if we incur additional impairments or experience additional losses in excess of approximately $500 million in the near future, we would no longer be in compliance with such covenant, leading to a significant level of uncertainty as to whether we will be in compliance over the past several yearsnext 12 months.

As a result of these uncertainties, our missed interest payments and the likelihood of a restructuring or reorganization, management has concluded that there is substantial doubt regarding our ability to continue as a going concern. See "Note 1 - Unaudited Condensed Consolidated Financial Statements" and “Note 10 - Debt” for additional information.
The failure to make certain interest payments under the Defaulted Notes, due to cross-default provisions, represents a default or event of default under the revolving credit facility. However, any default or event of default under the revolving credit facility resulting from such failure has been waived, for the term of such waiver, pursuant to the Second A&R Waiver. We have executedentered into the Second A&R Waiver pursuant to which the lenders under our revolving credit facility have waived certain defaults under the revolving credit facility, including in relation to the non-payment of interest on the Defaulted Notes. However, the Second A&R Waiver will terminate automatically on August 3, 2020 and may be terminated upon certain other events that may occur prior to August 3, 2020, including if advances outstanding under the revolving credit facility exceed $630.0 million. If we exceed the total debt to total capitalization covenant in our revolving credit facility or the Second A&R Waiver is terminated without the prior cure of the defaults and events of default waived thereunder, further borrowings under the revolving credit facility would not be permitted, absent a numberwaiver in respect of financing transactionsthe resulting event of default from the breach of the total debt to improve our financial positiontotal capitalization covenant, and manage our debt maturities,all outstanding borrowings could become immediately due and payable by action of lenders holding a majority of the commitments under the revolving credit facility. Any such acceleration would trigger a cross-acceleration event of default with respect to approximately $2.1 billion outstanding under the Defaulted Notes.

The revolving credit facility generally limits us to no more than $200 million in available cash (including certain liquid investments as defined in the revolving credit facility documents), and requires consent of all lenders for draws on the revolving credit facility that would result in us having more than $200 million in available cash and liquid investments.  There can be no assurances that the lenders would approve borrowing requests that would result in us having more than $200 million in available cash and liquid investments.

Furthermore, the agent under the revolving credit facility has reserved the right to assert that a material adverse effect has occurred based on changes in the oil market and certain company-specific operating incidents, including the July 2019 tender offers discussed below. Based ondrop of the blowout preventer stack off the VALARIS DS-8, disclosed above.  We do not believe that a material adverse


effect has occurred, but there can be no assurance that the revolving credit facility lenders will not assert a material adverse effect as a basis to deny further borrowing requests.

Liquidity
Our liquidity position is summarized in the table below (in millions, except ratios):
  June 30,
2020		 December 31,
2019
   
Cash and cash equivalents $202.0
 $97.2
Available credit facility borrowing capacity 1,033.4
 1,622.2
   Total liquidity $1,235.4
 $1,719.4
Working capital $(2,002.0) $233.7
Current ratio 0.3
 1.3

Cash and Debt

As of June 30, 2020, we had $7.1 billion of total debt principal outstanding, representing 57.7% of our balance sheet, our contractual backlogtotal capitalization. We also had $202.0 million in cash and availability$1.0 billion of undrawn capacity under our credit facility, we expect to fund our liquidity needs, including expected negative operating cash flows, contractual obligations, anticipated capital expenditures, as well as working capital requirements, from cash, funds borrowed under our credit facility or other future financing arrangements, including available shipyard financing options for our two drillships under construction.

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 securitieswhich expires 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 was $2.3 billion through September 2019 and $1.6 billion through September 2022. The credit agreement governing the revolving credit facility includes an accordion feature allowing us to increase future commitments up to an aggregate amount not to exceed $250.0 million.
Additionally, as a resultmillion, subject to the approval of the Rowan Transaction, we assumed the followinglenders agreeing to increase their commitments.     

As of June 30, 2020, our principal debt from Rowan: (1) $201.4maturities through 2024 include $122.9 million in aggregate principal amount of 7.875% unsecured senior notes due 2019, which was repaid at maturityAugust 2020, $100.7 million in August 2019, (2)January 2021, $620.8 million in aggregate principal amount of 4.875% unsecured senior notes due 2022 (3) $398.1 millionand $1.8 billion 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.2024.


Cash Flow and Capital Expenditures
Our cash flow from operating activities of continuing operations and capital expenditures for the nine-month periods ended September 30, 2019 and 2018 were as follows (in millions):
20192018
Net cash used in operating activities of continuing operations$(427.5) $(82.2) 
Capital expenditures  
New rig construction$46.0  $309.4  
Rig enhancements84.4  33.6  
Minor upgrades and improvements43.8  35.7  
$174.2  $378.7  

During the nine-month periodsix months ended SeptemberJune 30, 2019,2020, our primary source of cash was Rowan cash acquired of $931.9$551.0 million $329.0 million from net maturities of short-term investments and $140.6 ofin net borrowings under our credit facility. Our primary uses of cash for the same period were $928.1 for the repayment of senior notes$381.1 million used in connection with the maturity of our $201.4 million principal amount of senior notes in August 2019
71

and our July tender offers, $174.2operating activities, $67.1 million for the construction, enhancement and other improvements of our drilling rigs and $427.5$9.7 million for operating activities.the repurchase of outstanding debt on the open market.

During the nine-month periodsix months ended SeptemberJune 30, 2018,2019, our primary source of cash was $1.0 billion in proceedsRowan cash acquired of $931.9 million and $194.0 million from the issuancenet maturities of senior notes.short-term investments. Our primary uses of cash for the same period were $771.2 million for the repurchase and redemption of outstanding debt, $378.7$134.8 million for the construction, enhancement and other improvements of our drilling rigs and $82.2$293.4 million for operating activities.

Cash flows fromused in operating activities of continuing operations declined $345.3operations.

Cash Flow and Capital Expenditures
Our cash flow from operating activities and capital expenditures for the six months ended June 30, 2020 and 2019 were as follows (in millions):
 2020 2019
Net cash used in operating activities$(381.1) $(293.4)
Capital expenditures 
  
New rig construction$2.8
 $40.8
Rig enhancements35.8
 66.2
Minor upgrades and improvements28.5
 27.8
 $67.1
 $134.8


Cash flows used in operating activities increased $87.7 million as compared to the prior year period primarily due primarily to costs incurred related to the Rowan Transaction and declining margins. As challenging industry conditions persist, and our remaining above-market contracts expire and utilization increaseswe renegotiate contracts with the execution of new market-rate contracts, coupled with the potential impact of rig reactivation costs,customers, we expect our operating cash flows will remain negative overin the near-term.near term.

DuringBased on our current projections, we expect capital expenditures for the second quarter,remainder of 2020 to approximate $40 million for newbuild construction, rig enhancement projects and minor upgrades and improvements. Approximately $12 million of our projected capital expenditures are reimbursable by our customers. Depending on market conditions and opportunities, we accepted the delivery of VALARIS JU-123, which commenced drilling operations under its initial contract in August 2019. may reduce our planned expenditures or make additional capital expenditures to upgrade rigs for customer requirements.

We have two ultra-deepwater drillships under construction, VALARIS DS-13 and VALARIS DS-14, which are scheduled for delivery in September 2021 and June 2022, respectively.
The following table summarizes the cumulative amount of contractual payments made as of September 30, 2019 for our rigs under construction and estimated timing of our remaining contractual payments for our rigs under construction as of June 30, 2020 (in millions):
Cumulative Paid(1)
Remaining 2019202020212022
Total Remaining Payments(2)
VALARIS DS-13(3)
$—  $—  $—  $83.9  $—  $83.9  
VALARIS DS-14(3)
15.0  —  —  —  165.0  165.0  
$15.0  $—  $—  $83.9  $165.0  $248.9  

(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.

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Based on our current projections, excluding integration-related capital expenditures, we expect total capital expenditures during 2019 to include approximately $57.0 million for newbuild construction, approximately $65.0 million for minor upgrades and improvements and approximately $113.0 million for rig enhancement projects. Depending on market conditions and future opportunities, we may reduce our planned expenditures or make additional capital expenditures to upgrade rigs for customer requirements and construct or acquire additional rigs.
  2020 2021 2022 Thereafter 
Total(1)
VALARIS DS-13(2)
 $—
 $83.9
 $—
 $—
 $83.9
VALARIS DS-14(2)
 —
 —
 165.0
 —
 165.0
  $—

$83.9

$165.0

$—

$248.9

(1)
Total commitments are based on fixed-price shipyard construction contracts, exclusive of our internal costs associated with project management, commissioning and systems integration testing. Total commitments also exclude holding costs and interest.
(2)
The 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 are 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 applicable interest are due at the delivery dates (or, if accelerated, the actual delivery dates) and are estimated to be approximately $313.3 million in aggregate for both rigs, inclusive of interest, assuming we take delivery on the delivery dates. In lieu of making the final milestone payments, we have the option to take delivery of the rigs and issue a promissory note for each rig to the shipyard owner for the amount due. The promissory notes will bear interest at a rate of 9% per annum with a maturity date of December 31, 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. If we issue the promissory note to the shipyard owner, we would also be required to provide a guarantee from Valaris plc.



Financing and Capital Resources

Debt to Capital

Our total debt, total capital and total debt to total capital ratios are summarized below (in millions, except percentages):
  June 30, 2020 December 31, 2019
 
Total debt (1)
 $7,066.3
 $6,528.1
Total capital (2)
 $12,256.7
 $15,839.0
Total debt to total capital 57.7% 41.2%
(1)
Total debt consists of the principal amount outstanding and borrowings on our credit facility.
(2)
Total capital consists of total debt and Valaris shareholders' equity.    
During the six months ended June 30, 2020, our total debt principal increased by $538.2 million primarily as a result of borrowings on our credit facility and total capital declined by $3.6 billion due to operating losses, inclusive of impairment of assets.

Open Market Repurchases

In early March 2020, we repurchased $12.8 million of our outstanding 4.70% Senior notes due 2021 on the open market for an aggregate purchase price of $9.7 million, excluding accrued interest, with cash on hand. As a result of the transaction, we recognized a pre-tax gain of $3.1 million net of discounts in other, net, in the consolidated statement of operations.

Senior Notes

On February 3, 2020, Rowan and Rowan Companies, Inc. ("RCI") transferred substantially all their assets on a consolidated basis to Valaris plc, Valaris plc became the obligor on the outstanding notes acquired in the Rowan Transaction and Rowan and RCI were relieved of their obligations under the notes and the related indenture. See "Note 10 - Debt" for additional information.

We did not make interest payments due in June and July 2020 on the Defaulted Notes. The June 2020 missed interest payments represent current events of default under the Defaulted Notes. We have entered into the Forbearance Agreement pursuant to which certain holders of our senior notes have agreed to forbear from the exercise of certain rights and remedies that they have with respect to certain specified defaults and events of defaults (including cross-defaults). However, the events of default under the Defaulted Notes have not been waived and still exist, and the Forbearance Agreement will terminate automatically on August 3, 2020 and may be terminated upon certain other events that may occur prior to August 3, 2020. Accordingly, the amounts outstanding under the Defaulted Notes were classified as current in the accompanying Condensed Consolidated Balance Sheet as of June 30, 2020.

Revolving Credit Facility

Our borrowing capacity under our credit facility is $1.6 billion through September 2022 of which $1.0 billion is available as of June 30, 2020. The credit agreement governing the revolving credit facility includes an accordion feature allowing us to increase the future commitments by up to an aggregate amount not to exceed $250.0 million, subject to the approval of the lenders agreeing to increase their commitments.     

Advances under the revolving 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 $1.6 billion commitment, which is also based on our credit ratings.



The revolving 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 revolving 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 revolving credit facility)); entering into certain merger arrangements; selling, leasing, transferring or otherwise disposing of all or substantially all of our assets; making a material change in the nature of the business; paying or distributing dividends on our ordinary shares (subject to certain exceptions, including the ability to pay a quarterly dividend of $0.01 per share); borrowings, if after giving effect to any such borrowings and the application of the proceeds thereof, the aggregate amount of available cash (as defined in the revolving credit facility) would exceed $200 million; and entering into certain transactions with affiliates.

The revolving credit facility also includes a covenant restricting our ability to repay indebtedness maturing after September 2022, which is the final maturity date of the revolving 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 revolving credit facility.

The missed interest payments under the Defaulted Notes, due to cross-default provisions, represent a default or event of default under the revolving credit facility. However, any default or event of default under the revolving credit facility resulting from such failure has been waived, for the term of such waiver, pursuant to the Second A&R Waiver. We have entered into the Second A&R Waiver pursuant to which certain lenders under our revolving credit facility have waived certain defaults under the revolving credit facility, including in relation to the non-payment of interest on the Defaulted Notes. However, the Second A&R Waiver will terminate automatically on August 3, 2020 and may be terminated upon certain other events that may occur prior to August 3, 2020, including if advances outstanding under the revolving credit facility exceed $630.0 million. Accordingly, the amounts outstanding under the revolving credit facility were classified as current in the accompanying Condensed Consolidated Balance Sheet as of June 30, 2020.

As of June 30, 2020, we were in compliance in all material respects with our covenants under the revolving credit facility due to the Second A&R Waiver. We had $588.8 million outstanding under the revolving credit facility, inclusive of $37.8 million in letters of credit, leaving a remaining $1.0 billion of undrawn capacity under our credit facility as of June 30, 2020.

Our access to credit and capital markets is limited because of current market conditions and our credit rating among other reasons. Limitations on our ability to access credit and capital markets could have a material adverse impact on our financial position, operating results or cash flows.

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 asmay be reduced by the transfer of September 30, 2019 (in millions):certain employee benefit obligations to the joint venture.


Maturity Date		Principal Amount
October 2027$275.2 
October 2028177.7 
Total$452.9 

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 of earnings to its partners since its formation.


See "Note 4 - Equity Method Investment in ARO" 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):

September 30,
2019		December 31,
2018
Total debt (1)
$6,668.7  $5,161.0  
Total capital (2)
$16,200.1  $13,252.4  
Total debt to total capital41.2 %38.9 %

(1)Total debt consists of the principal amount outstanding.
(2)Total capital consists of total debt and Valaris shareholders' equity.

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Debt Tender Offers

On June 25, 2019, we commenced cash tender offers for certain series of senior notes issued by us and by Ensco International Incorporated and Rowan Companies, Inc., our wholly-owned subsidiaries. The tender offers expired on July 23, 2019, and we repurchased $951.8 million aggregate principal amount of notes. The following table sets forthsummarizes the total principal amounts repurchased and purchase price paid in the tender offersmaturity schedule of our notes receivable from ARO as of June 30, 2020 (in millions):
Aggregate Principal Amount Repurchased
Aggregate Repurchase Price(1)
4.50% Senior notes due 2024$320.0  $240.0  
5.20% Senior notes due 2025335.5  250.0  
7.20% Senior notes due 202737.9  29.9  
4.75% Senior notes due 202479.5  61.2  
7.375% Senior notes due 2025139.2  109.2  
8.00% Senior notes due 202439.7  33.8  
Total$951.8  $724.1  

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

During the third quarter of 2019, we recognized a pre-tax gain from debt extinguishment of $194.1 million related to the tender offers, net of discounts, premiums and transaction costs.

Following the completion of the tender offers and August 2019 debt maturity, our debt maturities through 2023 total $997.8 million and include $122.9 million in 2020, $113.5 million in 2021 and $761.4 million in 2022. The amount due in 2022 includes $140.6 million drawn under our credit facility as of September 30, 2019.

Revolving Credit Facility

Effective upon closing of the Rowan Transaction, we amended our credit facility to, among other changes, increase the borrowing capacity. Previously, our borrowing capacity was $2.0 billion through September 2019, $1.3 billion through September 2020 and $1.2 billion through September 2022. Subsequent to the amendment, our borrowing capacity was $2.3 billion through September 2019 and $1.6 billion through September 2022. The credit agreement governing the credit facility includes an accordion feature allowing us to increase future commitments up to an aggregate amount not to exceed $250.0 million.

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.

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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.
Maturity DatePrincipal Amount
October 2027$275.1
October 2028177.7
Total$452.8

As of September 30, 2019, we were in compliance in all material respects with our covenants under the credit facility. As of September 30, 2019, we had $140.6 million outstanding under the credit facility and $1.5 billion in remaining borrowing capacity. We had no amounts outstanding under our credit facility as of December 31, 2018.

As discussed above, the credit facility contains restrictions on paying dividends, repurchasing shares and issuing other indebtedness.  Our decisions around capital allocation matters could, in addition to the shareholder proposal previously disclosed regarding our capital allocation policies, give rise to objections by one or more shareholders and/or result in shareholder activism, including potential proxy contests, any of which could cause us to incur significant costs, result in management distraction and negatively impact our business.

Our access to credit and capital markets depends on the credit ratings assigned to our debt, and we no longer maintain an investment-grade status. Our current credit ratings, and any additional actual or anticipated downgrades in our credit ratings, could limit our available options when accessing credit and capital markets, or when restructuring or refinancing our debt. In addition, future financings or refinancings may result in higher borrowing costs and require more restrictive terms and covenants, which may further restrict our operations.

Other Financing Arrangements

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 SeptemberJune 30, 2019,2020, there had been no share repurchases under this program. Our credit facility prohibits us from repurchasing our shares, except in certain limited circumstances. Any share repurchases, outside of such limited circumstances, would require the amendment or waiver of such provision.

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.
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future or, if any such alternatives are pursued, that they will be successful. There can be no assurance that an active trading market will exist for our outstanding senior notes following any such transaction.
Other Commitments

We have other commitments that we are contractually obligated to fulfill with cash under certain circumstances.  As of SeptemberJune 30, 2019,2020, we were contingently liable for an aggregate amount of $90.0$112.9 million under outstanding letters of credit and surety bonds which guarantee our performance as it relates to our drilling contracts, contract bidding, customs duties, tax appeals and other obligations in various jurisdictions. Obligations under these letters of credit and surety bonds are not normally called, as we typically comply with the underlying performance requirement. As of SeptemberJune 30, 2019,2020, we had not been required to make any collateral deposits with respect to these agreements.

In connection with our 50/50 joint venture with ARO, inwe have a potential obligation to fund ARO for newbuild jackup rigs. In the event ARO has insufficient cash from operations or is unable to obtain third-party financing, each partner may periodically be required to make additional capital contributions to ARO, up to a maximum aggregate contribution of $1.25 billion from each partner to fund the newbuild program. Each partner's commitment shall be reduced by the actual cost of each newbuild rig, on a proportionate basis. See "Note 3 for additional information on the Rowan Transaction and Note 4 - Equity Method Investment in ARO" for additional information on our joint venture with ARO.

Liquidity
Our liquidity position is summarized in the table below (in millions, except ratios):
September 30,
2019		December 31,
2018
Cash and cash equivalents$129.5  $275.1  
Short-term investments—  329.0  
Available credit facility borrowing capacity1,481.6  2,000.0  
Total liquidity$1,611.1  $2,604.1  
Working capital$324.4  $781.2  
Current ratio1.4  2.5  

We expect to fund our liquidity needs, including contractual obligations and anticipated capital expenditures, as well as working capital requirements, from cash, funds borrowed under our credit facility or other future financing arrangements, including available shipyard financing options for our two drillships under construction. We may rely on the issuance of debt and/or equity securities in the future to supplement our liquidity needs. As of September 30, 2019, we had $140.6 million outstanding under the credit facility and $1.5 billion in remaining borrowing capacity.

Recent Tax Assessments

During 2019, we received incomethe Australian tax authorities issued aggregate tax assessments totaling approximately €142 million (approximately $155.0 million converted using the current period-end exchange rates) and A$101 million (approximately $68$69.7 million converted at current period-end exchange rates) from taxing authorities in Luxembourg and Australia, respectively.  See Note 12plus interest related to the examination of certain of our tax returns for additional information.the years 2011 through 2016. During the third quarter of 2019, we made a A$42 million payment (approximately $29 million at then-current exchange rates) payment to the Australian tax authorities


to litigate the assessment, partially mitigating potential interest on any ultimate assessment outcomes.assessment. We may makehave recorded a payment to the Luxembourg$15.6 million liability for these assessments as of June 30, 2020. We believe our tax authorities in advance of the final resolution ofreturns are materially correct as filed, and we are vigorously contesting these assessments. Although the outcome of such assessments and related administrative proceedings cannot be predicted with certainty, unfavorable outcomes couldwe do not expect these matters to have a material adverse effect on our liquidity.financial position, operating results and cash flows.
See "Note 12 - Income Taxes" for additional information on recent tax assessments.

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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 SeptemberJune 30, 2019,2020, we had cash flow hedges outstanding to exchange an aggregate $212.6$134.9 million for various foreign currencies.

We have net assets and liabilities denominated in numerous foreign currencies and use various strategies to manage our exposure to changes in foreign currency exchange rates. We occasionally enter into derivatives that hedge the fair value of recognized foreign currency denominated assets or liabilities, thereby reducing exposure to earnings fluctuations caused by changes in foreign currency exchange rates. We do not designate such derivatives as hedging instruments. In these situations, a natural hedging relationship generally exists whereby changes in the fair value of the derivatives offset changes in the fair value of the underlying hedged items. As of SeptemberJune 30, 2019,2020, we helddid not have foreign currency exposure due to our outstanding derivatives not designated as hedging instruments to exchange an aggregate $27.1 million for various foreign currencies.instruments.

If we were to incur a hypothetical 10% adverse change in foreign currency exchange rates, net unrealized losses associated with our foreign currency denominated assets and liabilities as of September 30, 2019 would approximate $25.0 million. Approximately $1.4 million of these unrealized losses would be offset by corresponding gains on the derivatives utilized to offset changes in the fair value of net assets and liabilities denominated in foreign currencies.
We utilize derivatives and undertake foreign currency exchange rate hedging activities in accordance with our established policies for the management of market risk. We mitigate our credit risk related to derivative counterparties of our derivatives 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 1815 months. See "Note 78 - Derivative Instruments" for additional information on our derivative instruments.
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CRITICAL ACCOUNTING POLICIES

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires us to make estimates, judgments and assumptions that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. Our significant accounting policies are included in Note 1 to our audited consolidated financial statements for the year ended December 31, 2018,2019, included in our annual report on Form 10-K filed with the SEC on February 28, 2019.21, 2020. 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,property and equipment, 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 addition2019. During the three and six months ended June 30, 2020, there were no material changes to the judgments, assumptions or policies upon which our critical accounting policy related to pensions and other post-retirement benefits as set forth below.estimates are based.

As a result of the Rowan Transaction, we assumed the pension and other post-retirement benefit obligations of Rowan. We have identified our accounting policies associated with those obligations as critical accounting policies, as set forth in our quarterly report on Form 10-Q filed with the SEC on August 1, 2019.

New Accounting Pronouncements

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


Item 3.   Quantitative and Qualitative Disclosures About Market Risk
 
Information required under Item 3. has been incorporated into "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Market Risk."

Item 4.   Controls and Procedures

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

Based on their evaluation as of SeptemberJune 30, 2019,2020, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are effective.

Changes in Internal Controls – There have been no changes in our internal controls over financial reporting during the fiscal quarter ended SeptemberJune 30, 20192020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, except as noted below.reporting.

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
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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.


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PART II - OTHER INFORMATION

Item 1.  Legal Proceedings
UMB Bank Lawsuit

On March 19, 2020, UMB Bank, National Association (“UMB”), the purported indenture trustee for four series of Valaris notes, filed a lawsuit in Harris County District Court in Houston, Texas.  The lawsuit was filed against Valaris plc, two legacy Rowan entities, two legacy Ensco entities and the individual directors of the two legacy Rowan entities. The complaint alleges, among other things, breach of fiduciary duty, aiding and abetting breach of fiduciary duty and fraudulent transfer in connection with certain intercompany transactions occurring after completion of the Rowan merger and the Rowan entities’ guarantee of Valaris’ revolving credit facility.  In addition to an unspecified amount of damages, the lawsuit seeks to void and undo all historical transfers of cash or other assets from legacy Rowan entities to Valaris and its other subsidiaries and the internal reorganization transaction.  We and the other defendants intend to vigorously defend ourselves in the proceeding. On April 13, 2020, certain defendants that had been served by that date filed a plea to the jurisdiction, which seeks dismissal of the lawsuit on the grounds that the prior trustee was not properly removed and UMB was not properly appointed as trustee prior to filing the lawsuit. The plea to the jurisdiction was denied by the court on June 5, 2020 and discovery is now ongoing. At this time, we are unable to predict the outcome of this matter 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.

Shareholder Derivative LawsuitClass Action


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 appointappointed a lead plaintiff and lead counsel. The defendants have not yet been served. We anticipate that an amended complaint will be filed in the firstfourth 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.

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Pride FCPA Investigation

During 2010, Pride International LLC ("Pride") and its subsidiaries resolved their previously disclosed investigations into potential violations of the Foreign Corrupt Practices Act of 1977 (the "FCPA") with the DOJ and SEC. The settlement with the DOJ included a deferred prosecution agreement (the "DPA") between Pride and the DOJ and a guilty plea by Pride Forasol S.A.S., one of Pride’s subsidiaries, to FCPA-related charges. During 2012, the DOJ moved to (1) dismiss the charges against Pride and end the DPA one year prior to its scheduled expiration; and (2) terminate the unsupervised probation of Pride Forasol S.A.S. The Court granted the motions.

Pride has received preliminary inquiries from governmental authorities of certain countries referenced in its settlements with the DOJ and SEC. We could face additional fines, sanctions and other penalties from authorities in these and other relevant jurisdictions, including prohibition of our participating in or curtailment of business operations in certain jurisdictions and the seizure of rigs or other assets. At this stage of such inquiries, we are unable to determine what, if any, legal liability may result. Our customers in certain jurisdictions could seek to impose penalties or take other actions adverse to our business. We could also face other third-party claims by directors, officers, employees, affiliates, advisors, attorneys, agents, stockholders, debt holders or other stakeholders. In addition, disclosure of the subject matter of the investigations and settlements could adversely affect our reputation and our ability to obtain new business or retain existing business, to attract and retain employees and to access the capital markets.

We cannot currently predict what, if any, actions may be taken by any other applicable government or other authorities or our customers or other third parties or the effect any such actions may have on our financial position, operating results 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 $140,000liability$107,000 liability related to these matters was included in accrued liabilities and other inon our condensed consolidated balance sheet as of SeptemberJune 30, 2019.2020.
 
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 VALARIS 5006 while it was operating offshore Spain. Our customer has posted guarantees with the Spanish government to cover potential penalties. Additionally, we expect to be indemnified for any payments resulting from this incident by our customer under the terms of the drilling contract. A criminal investigation of the incident was initiated during 2010 by a prosecutor in Tarragona, Spain, and the administrative proceedings have been suspended pending the outcome of this investigation. In May 2019, we were informed that the criminal investigation has been completed. We have not received any indication from the Spanish government if or when the administrative proceedings will resume.

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.

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Other Matters

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

Item 1A.Risk Factors

There are numerous factors that affect our business and results of operations, many of which are beyond our control. In addition to information set forth in this quarterly report, you should carefully read and consider "Item 1A. Risk Factors" in Part I and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II of our annual report on Form 10-K for the year ended December 31, 2018,2019, as updated in Item 1A of Part II of our subsequent quarterly reportsQuarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, 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
We failed to make interest payments due in June and July 2020 on the Defaulted Notes. The June 2020 missed interest payments currently represent a default or event of default under the Defaulted Notes.

We did not make interest payments due in June and July 2020 on the Defaulted Notes. The June 2020 missed interest payments currently represent a default or event of default under the Defaulted Notes, and due to cross-default provisions, represents an event of default under the revolving credit facility. However, any default or event of default under the revolving credit facility resulting from such failure has been waived, for the term of such waiver, pursuant to the Second A&R Waiver. Due to the events of default under the Defaulted Notes, the holders or trustee under the Defaulted Notes may accelerate payment under the notes. Pursuant to the Second A&R Waiver, the lenders under our revolving credit facility have been no material changeswaived certain defaults and events of default under the revolving credit facility, including in relation to the non-payment of interest on the Defaulted Notes, and pursuant to the Forbearance Agreement, certain holders of our senior notes have agreed to forbear from the risks previously disclosedexercise of certain rights and remedies that they have with respect to certain specified defaults and events of defaults (including cross-defaults). See “Note 10 - Debt” for a description of the terms of the Second A&R Waiver and the Forbearance Agreement.

During the Forbearance Period (as defined in Note 10), the events of default under the Defaulted Notes have not been waived and still exist, and the Second A&R Waiver and the Forbearance Agreement each terminate automatically on August 3, 2020 and may be terminated upon certain other events that may occur prior to August 3, 2020. In addition to the approximately $58.5 million of missed interest payments on the Defaulted Notes discussed above, there is substantial uncertainty that we will pay $79.2 million of interest on other series of outstanding notes on or prior to August 15, 2020 together with the $122.9 million outstanding principal amount of our 6.875% Senior Notes due on Form 10-K forAugust 15, 2020. We have concluded that these circumstances create substantial doubt regarding our ability to continue as a going concern. We do not anticipate maintaining compliance over the year ended December 31, 2018next 12 months with covenants to maintain specified financial and inguarantee coverage ratios, including a total debt to total capitalization ratio that is less than or equal to 60% under the revolving credit facility and may not be able to restructure, refinance or otherwise satisfy our Form 10-Q for the quarter ended March 31, 2019.obligations under our indebtedness.


We continue to have discussions with our lenders and bondholders regarding the terms of a potential comprehensive restructuring of our indebtedness, which may include additional waivers, forbearances or amendments to the covenants or other provisions of our indebtedness to address any existing or future defaults and have engaged financial and legal advisors to assist us. If we are unable to reach an agreement with our lenders and bondholders, the lenders and bondholders may choose to accelerate repayment of our indebtedness. If our lenders or our bondholders accelerate the payment of amounts outstanding under the revolving credit facility or Defaulted Notes, we do not currently have sufficient liquidity to repay such indebtedness and would need additional sources of capital to do so.




We cannot provide any assurances that we will be successful in any restructuring of existing debt obligations or obtaining capital sufficient to fund the refinancing of our outstanding indebtedness or to provide sufficient liquidity to meet our operating needs. While there can be no assurances as to ultimate timing, we expect our restructuring is likely to be implemented imminently through cases under Chapter 11 of the U.S. Bankruptcy Code and that our restructuring may result in the cancellation of existing equity interests and little or no recovery to existing shareholders.

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Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds
 
The following table below provides a summary of our repurchases of equity securities during the quarter ended SeptemberJune 30, 2019:2020:



Issuer Purchases of Equity SecuritiesIssuer Purchases of Equity SecuritiesIssuer Purchases of Equity Securities
Period
Period
Total Number of Securities Purchased(1)
Average Price Paid per Security
Total Number of Securities Purchased as Part of Publicly Announced Plans or Programs  
Approximate Dollar Value of Securities that May Yet Be Purchased Under Plans or Programs (2)
 
Total Number of Securities Repurchased(1)
 Average Price Paid per Security 
Total Number of Securities Repurchased as Part of Publicly Announced Plans or Programs (2)
 Approximate Dollar Value of Securities that May Yet Be Repurchased Under Plans or Programs
        
July 1 - July 3122,879  $8.76  —  $500,000,000  
August 1 - August 311,473  $4.93  —  $500,000,000  
September 1 - September 304,500  $6.23  —  $500,000,000  
April 1 - April 30 11,824
 $0.48
 —
 $500,000,000
May 1 - May 31 20,687
 $0.34
 —
 $500,000,000
June 1 - June 30 242,988
 $0.40
 —
 $500,000,000
Total Total 28,852  $8.17  —    275,499
 $0.40
 —
  

(1)During the quarter ended September 30, 2019,
(1)
During the three months ended June 30, 2020, 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 repurchase program at our annual shareholder meeting held in May 2018. Subject to certain provisions under English law, including the requirement of Valaris plc 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. The program terminates in May 2023. As of June 30, 2020, there had been no share repurchases under the repurchase program. Our revolving credit facility prohibits the repurchase of shares for cash, except in certain limited circumstances.

Item 5. Other Information

We did not make certain interest payments due in June and July 2020 on the Defaulted Notes. The June 2020 missed interest payments currently represent a default or event of default under the Defaulted Notes. An aggregate of approximately $2.1 billion is outstanding under the Defaulted Notes. Pursuant to the Second A&R Waiver, the lenders under our revolving credit facility have waived certain defaults under the revolving credit facility, including in relation to the non-payment of interest on the Defaulted Notes, and pursuant to the Forbearance Agreement, certain holders of our senior notes have agreed to forbear from the vestingexercise of share awards.  Such securities remain available for re-issuance in connectioncertain rights and remedies that they have with employee share awards.

(2)Our shareholders approved a new repurchase program at our annual shareholder meeting held in May 2018. Subjectrespect to certain provisions under English law, includingspecified defaults and events of defaults (including cross-defaults). The Second A&R Waiver and the requirementForbearance Agreement each terminate automatically on August 3, 2020. See “Note 10 - Debt” for a description of Valaris to have sufficient distributable reserves, we may repurchase up to a maximumthe terms of $500.0 million in the aggregate from one or more financial intermediaries underSecond A&R Waiver and 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.Forbearance Agreement.

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Item 6.   Exhibits

Exhibit NumberExhibit
3.110.1
ArticlesWaiver to Fourth Amended and Restated Credit Agreement dated as of AssociationJune 1, 2020 (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on June 1, 2020, File No. 1-8097)
* 10.2
Amended and Restated Waiver to Fourth Amended and Restated Credit Agreement dated as of June 30, 2020
* 10.3
Valaris Executive Severance Plan
* 10.4
Forbearance Agreement dated as of June 30, 2020
* 10.5
Deed of Amendment No. 1 to Restated Employment Agreement of Carl Trowell dated as of April 26, 2020
* 10.6
Consultancy Agreement of Carl Trowell dated as of April 26, 2020
10.7
Amendment to 2018 Valaris plc Long Term Incentive Plan (incorporated by reference to Annex 2 to the Registrant's Proxy Statement on FormSchedule DEF 14A filed on April 5, 2013, as adopted by Special Resolution passed on May 20, 2013,27, 2020, File No. 1-8097).
4.1* 10.8
Sixth Supplemental Indenture, dated July 12, 2019, among Ensco Rowan plc and Deutsche Bank Trust Company Americas, as trustee, incorporated by reference to Exhibit 4.1 of the Company's Current Report on Form 8-K filed on July 12, 2019 (File No. 1-08097).Valaris Cash Incentive Plan
*10.1 10.9
SeparationForm of Executive STI Retention Bonus Letter Agreement dated July 24, 2019, by and between Ensco Global Resources Limited and Steve Brady(No Retention)
*15.1 10.10
Form of Executive STI Retention Bonus Letter Agreement (Messrs. Baksht and McGuinty)
* 10.11
Form of Executive STI Retention Bonus Letter Agreement (Retention)
*15.1
Letter regarding unaudited interim financial information.
*31.1
Certification of the Chief Executive Officer of Registrant Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*31.2
Certification of the Chief Financial Officer of Registrant Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
**32.1
Certification of the Chief Executive Officer of Registrant Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
**32.2
Certification of the Chief Financial Officer of Registrant Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*101.INS
XBRL Instance Document - The instantinstance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
*101.SCH
XBRL Taxonomy Extension Schema
*101.CAL
XBRL Taxonomy Extension Calculation Linkbase
*101.DEF
XBRL Taxonomy Extension Definition Linkbase
*101.LAB
XBRL Taxonomy Extension Label Linkbase
*101.PRE
XBRL Taxonomy Extension Presentation Linkbase
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*   Filed herewith.
** Furnished herewith.

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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
Valaris plc
Date: October 31, 2019July 30, 2020/s/ JONATHAN H. BAKSHT
Jonathan H. Baksht
Executive Vice President and
Chief Financial Officer
(principal financial officer)
/s/ TOMMY E. DARBY  COLLEEN W. GRABLE
Tommy E. DarbyColleen W. Grable
Vice President and Controller
(principal accounting officer)


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