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Item 8. Financial Statements and Supplementary Data

2021-03-02 compared with 2020-02-21 · 1133 added, 1005 removed, 974 unchanged (69% of the section changed)

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Based on this evaluation, we have concluded that our internal control over financial reporting is effective as of December 31, 2020 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Management's assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2019 excluded Rowan Companies plc internal control over financial reporting associated with total revenue of $135.0 million and total expenses of $259.0 million included in the consolidated financial statements of Valaris plc and subsidiaries for the year ended December 31, 2019.

KPMG LLP, the independent registered public accounting firm who audited our consolidated financial statements, has issued an audit report on our internal control over financial reporting.

KPMG LLP's audit report on our internal control over financial reporting is included herein.

February 21, 2020

March 2, 2021

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019 , based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 21, 2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 2, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 2 to the consolidated financial statements, the Company's operations and its ability to develop and execute its business plan are subject to a high degree of risk and uncertainty associated with the Chapter 11 voluntary petition, that raise substantial doubt about its ability to continue as a going concern.

Management's plans in regard to these matters are also described in Note 2.

The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

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The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Assessment of the valuation of property and equipment and investment in joint venture acquired in the Rowan Transaction

As discussed in Notes 1 and 3 to the consolidated financial statements, the Company merged with Rowan Companies plc on April 11, 2019 (the Rowan Transaction).

In connection with the Rowan Transaction, the assets acquired and liabilities assumed were recorded at their estimated fair value at the acquisition date.

The key assumptions used to estimate the acquisition-date fair values of the acquired property and equipment and investment were forecasted day rates, forecasted utilization and risk-adjusted discount rates.

The Company, with the use of a third-

party valuation expert, estimated the fair value of the assets acquired and liabilities assumed at $4.8 billion and $2.8 billion , respectively.

We identified the evaluation of the Company's valuation of property and equipment and investment in joint venture acquired in the Rowan Transaction as a critical audit matter.

The use of unobservable inputs and subjective assumptions necessary to estimate the fair value of those assets required a high degree of subjective auditor judgment to evaluate the assumptions described above.

In addition, the discounted cash flow model included the internally-developed assumptions described above for which there were limited observable market information, and the calculated fair value of such assets was sensitive to possible changes to these assumptions.

The primary procedures we performed to address this critical audit matter included the following.

We tested certain internal controls over the Company’s acquisition-date valuation process, including controls over the development of the relevant assumptions listed above.

We evaluated the Company’s forecasted day rates and utilization by comparing them to historical information, data from the Company’s peers and industry reports.

We challenged the Company's information and assumptions based on evidence we identified that was contrary to that used by the Company.

In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in evaluating the Company’s discount rates by comparing the Company's discount rates against discount rate ranges that we independently developed using publicly available market data for comparable entities.

Assessment of property and equipment impairment triggering events

As discussed in Notes 1 and 6 to the consolidated financial statements, the net carrying value of property and equipment as of December 31, 2019 was $15.1 billion .

The Company evaluates the carrying value of property and equipment for impairment, on a quarterly basis, by identifying events or changes in circumstances, including global macroeconomic conditions, that indicate the carrying value may not be recoverable (triggering events).

Generally, extended periods of idle time or the inability to contract rigs at economical rates are an indication that a rig may be impaired.

We identified the assessment of property and equipment impairment triggering events as a critical audit matter.

The Company's evaluation of possible triggering events uses both internal and external data, including the following key indicators and internally-developed assumptions:

historical utilization trends, oil price projections and global rig supply and demand trends.

Assessing these indicators and assumptions requires a high degree of subjective auditor judgment to perform procedures and evaluate the audit evidence obtained.

The primary procedures we performed to address this critical audit matter included the following.

We tested certain internal controls over the Company's identification of possible property and equipment impairment triggering events, including controls to develop the indicators and assumptions listed above.

We evaluated the information used by the Company in its triggering event assessment by comparing such information to historical information, external third-party expectations, peer company results, and other industry data.

Assessment of income tax positions pertaining to certain transactions

As discussed in Notes 1 and 12 to the consolidated financial statements, the Company evaluates the income tax effect of certain transactions which often require local country tax expertise and judgment.

This requires the Company to interpret complex tax laws in multiple jurisdictions to assess if its tax positions have a more than 50 percent likelihood of being sustained with the taxing authorities.

We identified the assessment of income tax positions pertaining to certain transactions as a critical audit matter.

Complex auditor judgment was required to:

(1) evaluate the Company's assessment that the tax position has a more than 50 percent likelihood of being sustained with the taxing authorities;

and (2) evaluate the Company's measurement of the tax effects resulting from these transactions.

In addition, specialized skills were required to evaluate the Company's interpretation of tax laws in the applicable jurisdictions.

The primary procedures we performed to address this critical audit matter included the following.

We tested certain internal controls over the Company's income tax process, including controls related to the interpretation of tax laws applicable to certain transactions, assessment that tax positions pertaining to those transactions have a more

than 50 percent likelihood of being sustained with taxing authorities and measurement of the tax effects resulting from those transactions.

We involved tax professionals with specialized skills and knowledge, who assisted in reading the Company's documentation and evaluating the Company's interpretation of local tax laws, assessing the likelihood that the tax position has a greater than 50 percent likelihood of being sustained with taxing authorities, and measuring the tax effects resulting from those transactions.

Impairment of property and equipment

As discussed in Notes 1 and 7 to the consolidated financial statements, the Company recorded impairment with respect to certain floaters, jackups and spare equipment of $ 3.6 billion for the year ended December 31, 2020.

On a quarterly basis, the Company evaluates the carrying value of property and equipment for impairment when events or changes in circumstances indicate that the carrying value of such rigs may not be recoverable.

For property and equipment used in operations, recoverability generally is determined by comparing the carrying value of an asset to the expected undiscounted future cash flows of the asset.

If the carrying value of an asset is not recoverable, the amount of impairment loss is measured as the difference between the carrying value of the asset and its estimated fair value.

To estimate the fair value of property and equipment, the Company utilized an income approach or estimated scrap value.

We identified the evaluation of the impairment assessment for certain floaters and jackups as a critical audit matter.

A high degree of subjective auditor judgment was required to evaluate certain inputs and assumptions used in the Company's recoverability assessment and determination of fair value using the income approach, specifically assumptions regarding future day rates, forecasted utilization and the discount rate.

The assumptions related to future day rates and forecasted utilization were based on unobservable and subjective inputs for which there is limited information.

Evaluation of the discount rate involved specialized skills and knowledge.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company's property and equipment impairment assessment process.

This included controls over the determination of certain inputs and assumptions used in the recoverability assessment and the fair value estimates of floaters and jackups, including future day rates, forecasted utilization, and the discount rate.

We evaluated the Company's estimated future day rates and forecasted utilization by comparing them to historical information, considering contract modifications and industry reports on floaters and jackups.

We involved valuation professionals with specialized skills and knowledge, who assisted in evaluating the Company's discount rate by comparing the Company's discount rate against discount rate ranges that we independently developed using publicly-available market data for comparable entities.

Income tax positions pertaining to certain tax transactions

As discussed in Notes 1 and 13 to the consolidated financial statements, the Company evaluates the income tax effect of certain transactions which often requires local country tax expertise and judgment.

This requires the Company to interpret complex tax laws in multiple jurisdictions to assess whether its tax positions have a more than 50 percent likelihood of being sustained with the taxing authorities.

We identified the assessment of income tax positions pertaining to certain tax transactions as a critical audit matter.

Complex auditor judgment was required to evaluate the Company's assessment that certain tax positions have a more than 50 percent likelihood of being sustained with the taxing authorities.

In addition, specialized skills and knowledge were required to evaluate the Company's interpretation of tax laws in the applicable jurisdictions.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls over the Company's income tax

This included controls related to the interpretation of tax laws applicable to certain transactions and the assessment that tax positions pertaining to those transactions have a more than 50 percent likelihood of being sustained with taxing authorities.

We involved tax professionals with specialized skills and knowledge, who assisted in evaluating the Company's interpretation of local tax laws and assessment of whether certain tax positions had a greater than 50 percent likelihood of being sustained with taxing authorities.

We have served as the Company’s auditor since 2002.

Houston, Texas

February 21, 2020

March 2, 2021

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018 , the related consolidated statements of operations, comprehensive loss, and cash flows for each of the years in the three-year period ended December 31, 2019 , and the related notes (collectively, the consolidated financial statements), and our report dated February 21, 2020 expressed an unqualified opinion on those consolidated financial statements.

The Company acquired Rowan Companies plc during 2019 , and management excluded from its assessment of the effectiveness of the Company's internal controls over financial reporting as of December 31, 2019 , Rowan Companies plc's internal control over financial reporting associated with total revenue of $135.0 million and total expenses of $259.0 million included in the consolidated financial statements of the Company for the year ended December 31, 2019 .

Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Rowan Companies plc.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements), and our report dated March 2, 2021 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

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(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely

detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may

become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Houston, Texas

February 21, 2020

VALARIS PLC AND SUBSIDIARIES

March 2, 2021

VALARIS PLC AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)

CONSOLIDATED STATEMENTS OF OPERATIONS

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Year Ended December 31,

2020 2019 2018

OPERATING REVENUES $ 1,427.2 $ 2,053.2 $ 1,705.4

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Loss on impairment 3,646.2 104.0 40.3

Depreciation 540.8 609.7 478.9

General and administrative 214.6 188.9 102.7

EQUITY IN EARNINGS OF ARO

Total operating expenses 5,860.2 2,708.6 1,941.3

Other Operating Income 118.1 — —

EQUITY IN LOSSES OF ARO ( 7.8 ) ( 12.6 ) —

OPERATING LOSS ( 4,322.7 ) ( 668.0 ) ( 235.9 )

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Interest income 19.7 28.1 14.5

Interest expense, net

Interest expense, net (Unrecognized contractual interest expense for debt subject to compromise was $ 140.7 million for the year ended December 31, 2020)

( 290.6 ) ( 428.3 ) ( 282.7 )

Reorganization items, net ( 527.6 ) — —

Other, net 4.2 1,004.4 ( 34.8 )

( 794.3 ) 604.2 ( 303.0 )

LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES ( 5,117.0 ) ( 63.8 ) ( 538.9 )

PROVISION FOR INCOME TAXES

Current income tax expense

Deferred income tax expense

PROVISION (BENEFIT) FOR INCOME TAXES

Current income tax expense (benefit) ( 153.7 ) 104.5 33.0

Deferred income tax expense (benefit) ( 105.7 ) 23.9 56.6

( 259.4 ) 128.4 89.6

LOSS FROM CONTINUING OPERATIONS ( 4,857.6 ) ( 192.2 ) ( 628.5 )

INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET

LOSS FROM DISCONTINUED OPERATIONS, NET — — ( 8.1 )

NET LOSS ( 4,857.6 ) ( 192.2 ) ( 636.6 )

NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS 2.1 ( 5.8 ) ( 3.1 )

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Discontinued operations — — ( 0.08 )

$ ( 24.42 ) $ ( 1.14 ) $ ( 5.90 )

WEIGHTED-AVERAGE SHARES OUTSTANDING

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

VALARIS PLC AND SUBSIDIARIES

VALARIS PLC AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

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Year Ended December 31,

OTHER COMPREHENSIVE INCOME (LOSS), NET

Net changes in pension and other postretirement plan assets and benefit obligations recognized in other comprehensive loss, net of income tax benefits of ($5.9 million) for the year ended December 31, 2019

2020 2019 2018

NET LOSS $ ( 4,857.6 ) $ ( 192.2 ) $ ( 636.6 )

OTHER COMPREHENSIVE LOSS, NET

Net changes in pension and other postretirement plan assets and benefit obligations recognized in other comprehensive loss, net of income tax benefit of $ 5.9 million for the year ended December 31, 2019

( 76.3 ) ( 21.7 ) —

Net change in fair value of derivatives ( 5.4 ) 1.6 ( 9.7 )

Reclassification of net (gains) losses on derivative instruments from other comprehensive income (loss) into net loss

NET OTHER COMPREHENSIVE INCOME (LOSS)

Amortization of settlement gain, net of income tax expense of $( 0.1 ) million for the year ended December 31, 2020

Reclassification of net (gains) losses on derivative instruments from other comprehensive loss into net loss ( 11.6 ) 8.3 ( 1.0 )

Other ( .6 ) ( .2 ) ( .5 )

NET OTHER COMPREHENSIVE LOSS ( 94.1 ) ( 12.0 ) ( 11.2 )

COMPREHENSIVE LOSS ( 4,951.7 ) ( 204.2 ) ( 647.8 )

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

VALARIS PLC AND SUBSIDIARIES

VALARIS PLC AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)

CONSOLIDATED BALANCE SHEETS

(in millions, except share and par value amounts)

ASSETS 2020 2019

CURRENT ASSETS

Cash and cash equivalents $ 325.8 $ 97.2

Short-term investments

Accounts receivable, net 449.2 520.7

Other 397.9 446.5

Total current assets 1,172.9 1,064.4

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INVESTMENT IN ARO 120.9 128.7

OTHER ASSETS 176.2 188.3

$ 12,873.2 $ 16,931.2

LIABILITIES AND SHAREHOLDERS' EQUITY

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OTHER LIABILITIES 762.4 867.4

Total liabilities not subject to compromise 1,189.2 7,621.6

LIABILITIES SUBJECT TO COMPROMISE 7,313.7 —

COMMITMENTS AND CONTINGENCIES

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Class A ordinary shares, U.S.

$.40 par value, 205.9 million and 115.2 million

$ 0.40 par value, 206.1 and 205.9 million

shares issued as of December 31, 2020 and 2019

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Additional paid-in capital 8,639.9 8,627.8

Retained earnings

Accumulated other comprehensive income

Retained (deficit) earnings ( 4,183.8 ) 671.7

Accumulated other comprehensive (loss) income ( 87.9 ) 6.2

Treasury shares, at cost, 6.6 million and 7.9 million shares as of

December 31, 2020 and 2019

( 76.2 ) ( 77.3 )

Total Valaris shareholders' equity 4,374.6 9,310.9

NONCONTROLLING INTERESTS ( 4.3 ) ( 1.3 )

Total equity 4,370.3 9,309.6

$ 12,873.2 $ 16,931.2

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

VALARIS PLC AND SUBSIDIARIES

VALARIS PLC AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)

CONSOLIDATED STATEMENTS OF CASH FLOWS

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Year Ended December 31,

2020 2019 2018

OPERATING ACTIVITIES

Adjustments to reconcile net loss to net cash provided by (used in) operating activities of continuing operations:

Bargain purchase gain

Depreciation expense

(Gain) loss on debt extinguishment

Net loss $ ( 4,857.6 ) $ ( 192.2 ) $ ( 636.6 )

Adjustments to reconcile net loss to net cash used in operating activities of continuing operations:

Loss on impairment 3,646.2 104.0 40.3

Depreciation expense 540.8 609.7 478.9

Non-cash reorganization items, net 436.4 — —

Deferred income tax expense (benefit) ( 105.7 ) 23.9 56.6

Debtor in Possession financing fees and payments on Backstop Agreement 40.0 — —

Debt discounts and other 36.8 31.5 ( 7.2 )

Share-based compensation expense 21.4 37.3 29.9

Deferred income tax expense

Equity in losses of ARO 7.8 12.6 —

(Gain on) adjustment to bargain purchase 6.3 ( 637.0 ) ( 1.8 )

Amortization, net 6.2 ( 16.8 ) ( 40.2 )

Equity in earnings of ARO

(Gain) loss on debt extinguishment ( 3.1 ) ( 194.1 ) 19.0

Other 6.9 9.9 26.2

Changes in operating assets and liabilities, net of acquisition ( 22.0 ) ( 52.5 ) ( 20.8 )

Contributions to pension plans and other post-retirement benefits ( 12.1 ) ( 13.2 ) —

Net cash provided by (used in) operating activities of continuing operations

Net cash used in operating activities ( 251.7 ) ( 276.9 ) ( 55.7 )

INVESTING ACTIVITIES

Additions to property and equipment ( 93.8 ) ( 227.0 ) ( 426.7 )

Net proceeds from disposition of assets 51.8 17.7 11.0

Acquisition of Rowan, net of cash acquired — 931.9 —

Maturities of short-term investments — 474.0 1,030.0

Additions to property and equipment

Purchases of short-term investments — ( 145.0 ) ( 919.0 )

Net proceeds from disposition of assets

Acquisition of Atwood, net of cash acquired

Net cash provided by (used in) investing activities of continuing operations

Net cash provided by (used in) investing activities ( 42.0 ) 1,051.6 ( 304.7 )

FINANCING ACTIVITIES

Reduction of long-term borrowings

Borrowings on credit facility 596.0 215.0 —

Debtor in Possession financing fees and payments on Backstop Agreement ( 40.0 ) — —

Repayments of credit facility borrowings ( 15.0 ) ( 215.0 ) —

Reduction of long-term borrowings ( 9.7 ) ( 928.1 ) ( 771.2 )

Purchase of noncontrolling interests ( 7.2 ) — —

Debt solicitation fees — ( 9.5 ) —

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Debt issuance costs — — ( 17.0 )

Other ( 1.9 ) ( 10.2 ) ( 5.7 )

Net cash provided by (used in) financing activities 522.2 ( 952.3 ) 188.2

Net cash provided by (used in) discontinued operations

Net cash provided by discontinued operations — — 2.5

Effect of exchange rate changes on cash and cash equivalents .1 ( .3 ) ( .6 )

DECREASE IN CASH AND CASH EQUIVALENTS

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 228.6 ( 177.9 ) ( 170.3 )

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 97.2 275.1 445.4

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We are a leading provider of offshore contract drilling services to the international oil and gas industry.

Exclusive of two rigs under construction and one rigs marked for retirement and classified as held-for-sale, we currently own and operate an offshore drilling rig fleet of 74 rigs, with drilling operations in almost every major offshore market across six continents.

Inclusive of our rigs under construction, our fleet includes 16 drillships, eight dynamically positioned semisubmersible rigs, two moored semisubmersible rigs and 50 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.

We currently own an offshore drilling rig fleet of 61 rigs, with drilling operations in almost every major offshore market across five continents.

Our rig fleet includes 11 drillships, four dynamically positioned semisubmersible rigs, one moored semisubmersible rig and 45 jackup rigs and a 50% equity interest in Saudi Aramco Rowan Offshore Drilling Company ("ARO"), our 50/50 joint venture with Saudi Aramco, which owns an additional seven rigs, 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.

Our customers include many of the leading national and international oil companies, in addition to many independent operators.

We are among the most geographically diverse offshore drilling companies, with current operations spanning 24 countries on six continents.

The markets in which we operate include the Gulf of Mexico, Brazil, the Mediterranean, the North Sea, Norway, the Middle East, West Africa, Australia and Southeast Asia.

We are among the most geographically diverse offshore drilling companies, with current operations spanning nine countries on five continents.

The markets in which we operate include the Gulf of Mexico, North Sea, the Middle East, West Africa, Australia and Southeast Asia.

We provide drilling services on a day rate contract basis.

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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.

Rowan Transaction

On October 7, 2018 , we entered into a transaction agreement (the "Transaction Agreement") with Rowan Companies Limited (formerly Rowan Companies plc ("Rowan")) and on April 11, 2019 (the "Transaction Date"), we completed our combination with Rowan pursuant to the Transaction Agreement (the "Rowan Transaction") and changed our name to Ensco Rowan plc.

On July 30, 2019 , we changed our name to Valaris plc.

Rowan's financial results are included in our consolidated results beginning on the Transaction Date.

As a result of the Rowan Transaction, Rowan shareholders received 2.750 Valaris Class A ordinary shares for each Rowan Class A ordinary share, representing a value of $ 43.67 per Rowan share based on a closing price of $ 15.88 per Valaris share on April 10, 2019 , the last trading day before the Transaction Date.

Total consideration delivered in the Rowan Transaction consisted of 88.3 million Valaris shares with an aggregate value of $ 1.4 billion .

All share and per share data included in this report have been retroactively adjusted to reflect the Reverse Stock Split (as defined herein).

Prior to the Rowan Transaction, Rowan and Saudi Aramco formed a 50/50 joint venture to own, manage and operate drilling rigs offshore Saudi Arabia ("Saudi Aramco Rowan Offshore Drilling Company" or "ARO").

ARO currently owns a fleet of seven jackup rigs, leases another nine jackup rigs from us and has plans to purchase up to 20 newbuild jackup rigs over an approximate 10 year period.

In January 2020, ARO ordered the first two newbuild jackups scheduled for delivery 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.

All seven ARO-owned jackup rigs are under long-term contracts with Saudi Aramco.

The Rowan Transaction enhanced the market leadership of the combined company with a fleet of high-specification floaters and jackups and positions us well to meet increasing and evolving customer demand.

increased scale, diversification and financial strength of the combined company provides 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 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").

All share and per share data included in this report have been retroactively adjusted to reflect the Reverse Stock Split.

Chapter 11 Cases and Restructuring Support Agreement

On August 19, 2020 (the "Petition Date"), Valaris plc and certain of its direct and indirect subsidiaries (collectively, the "Debtors"), filed voluntary petitions for reorganization under chapter 11 of the United States Bankruptcy Code ("Bankruptcy Code") in the Bankruptcy Court for the Southern District of Texas (the "Bankruptcy Court").

The Debtors obtained joint administration of their chapter 11 cases under the caption In re Valaris plc, et al., Case No.

20-34114 (MI) (the "Chapter 11 Cases").

On August 18, 2020, the Debtors entered into the Restructuring Support Agreement (the "Original RSA") with certain senior note holders (collectively, the "Consenting Noteholders").

On February 5, 2021, the Debtors entered into the Amended Restructuring Support Agreement (the “Amended RSA”) with the Consenting Noteholders and holders of approximately 100 % of the total commitments under our revolving credit facility (the “Consenting Lenders” and, together with the Consenting Noteholders, the “Consenting Creditors”), which contemplates that the Company will implement the restructuring through the Chapter 11 Cases pursuant to a plan of reorganization and the various related transactions set forth in or contemplated by the Amended RSA.

See “ Note 2 – Chapter 11 Proceedings and Ability to Continue as a Going Concern” for additional details regarding the Chapter 11 Cases and Amended RSA.

Basis of Presentation—U.K.

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statutory accounts for the year ended December 31, 2019;

their report was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the U.K.

their report was (1) unqualified, (2) for the year ended December 31, 2019 included reference to a matter to which the auditor drew attention by way of emphasis without qualifying their report in respect of a material uncertainty in respect of going concern and (3) did not contain a statement under section 498 (2) or (3) of the U.K.

Companies Act 2006.

statutory accounts for the year ended December 31, 2019 have yet to be finalized and will be delivered to the U.K.

statutory accounts for the year ended December 31, 2020 have yet to be finalized and, if required, will be delivered to the U.K.

registrar of companies during 2021.

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however, we are not the primary beneficiary and therefore do not consolidate ARO.

Certain previously reported amounts have been reclassified to conform to the current year presentation.

Pervasiveness of Estimates

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dollar functional currency subsidiaries are included in accumulated other comprehensive income on our consolidated balance sheet.

Net foreign currency exchange losses, inclusive of offsetting fair value derivatives, were

$ 7.4 million , $ 17.2 million and $ 5.1 million , and were included in other, net, in our consolidated statements of operations for the years ended December 31, 2019, 2018 and 2017 , respectively.

Net foreign currency exchange losses, inclusive of offsetting fair value derivatives, were $ 11.0 million, $ 7.4 million and $ 17.2 million, and were included in other, net, in our consolidated statements of operations for the years ended December 31, 2020, 2019 and 2018, respectively.

Cash Equivalents and Short-Term Investments

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Highly liquid investments with maturities of greater than three months but less than one year at the date of purchase are classified as short-term investments.

Short-term investments consisted of time deposits with initial maturities in excess of three months but less than one year and totaled $ 329.0 million as of December 31, 2018 .

There were no short-term investments as of December 31, 2019 .

There were no short-term investments as of December 31, 2020 and 2019.

Cash flows from purchases and maturities of short-term investments were classified as investing activities in our consolidated statements of cash flows for the years ended December 31, 2019 and 2018.

To mitigate our credit risk, our investments in time deposits are diversified across multiple, high-quality financial institutions.

To mitigate our credit risk, our investments in time deposits have historically been diversified across multiple, high-quality financial institutions.

Property and Equipment

All costs incurred in connection with the acquisition, construction, major enhancement and improvement of assets are capitalized, including allocations of interest incurred during periods that our drilling rigs are under construction or undergoing major enhancements and improvements.

All costs incurred in connection with the acquisition, construction, major enhancement and improvement of

assets are capitalized, including allocations of interest incurred during periods that our drilling rigs are under construction or undergoing major enhancements and improvements.

Costs incurred to place an asset into service are capitalized, including costs related to the initial mobilization of a newbuild drilling rig.

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Buildings and improvements are depreciated over estimated useful lives ranging from seven to 30 years.

Other equipment, including computer and communications hardware and software costs, is depreciated over estimated useful lives ranging from three to six years .

We evaluate the carrying value of our property and equipment for impairment when events or changes in circumstances indicate that the carrying value of such assets may not be recoverable.

Other equipment, including computer and communications hardware and software costs, is depreciated over estimated useful lives ranging from three to 6 years.

We evaluate the carrying value of our property and equipment, primarily our drilling rigs, on a quarterly basis to identify events or changes in circumstances ("triggering events") that indicate that the carrying value of such rigs may not be recoverable.

For property and equipment used in our operations, recoverability generally is determined by comparing the carrying value of an asset to the expected undiscounted future cash flows of the asset.

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Property and equipment held-for-sale is recorded at the lower of net book value or fair value less cost to sell.

We recorded pre-tax, non-cash impairment losses related to long-lived assets of $ 104.0 million , $ 40.3 million and $ 182.9 million during 2019 , 2018 and 2017 , respectively.

We recorded pre-tax, non-cash impairment losses related to long-lived assets of $ 3.6 billion, $ 104.0 million and $ 40.3 million during 2020, 2019 and 2018, respectively.

See " Note 6 - Property and Equipment" for additional information on our impairment charges.

If the global economy deteriorates and/or our expectations relative to future offshore drilling industry conditions decline, it is reasonably possible that additional impairment charges may occur with respect to specific individual rigs, groups of rigs, such as a specific type of drilling rig, or rigs in a certain geographic location .

Operating Revenues and Expenses

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Derivative Instruments

We use derivatives to reduce our exposure to various market risks, primarily foreign currency exchange rate risk.

See " Note 8 - Derivative Instruments" for additional information on how and why we use derivatives.

All derivatives are recorded on our consolidated balance sheet at fair value.

We did not have any open derivative instruments as of December 31, 2020.

However, we have historically used derivatives to reduce our exposure to various market risks, primarily foreign currency exchange rate risk.

See " Note 9 - Derivative Instruments" for additional information on how and why we used derivatives and the impact of the Chapter 11 Cases.

Derivatives are recorded on our consolidated balance sheet at fair value.

Derivatives subject to legally enforceable master netting agreements are not offset on our consolidated balance sheet.

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Gains and losses on a cash flow hedge, or a portion of a cash flow hedge, that no longer qualifies as effective due to an unanticipated change in the forecasted transaction are recognized currently in earnings and included in other, net, in our consolidated statement of operations based on the change in the fair value of the derivative.

When a forecasted transaction becomes probable of not occurring, gains and losses on the derivative previously recorded in AOCI are reclassified currently into earnings and included in other, net, in our consolidated statement of operations.

We occasionally enter into derivatives that hedge the fair value of recognized assets or liabilities but do not designate such derivatives as hedges or the derivatives otherwise do not qualify for hedge accounting.

When a forecasted transaction becomes probable of not occurring, gains and losses on the derivative

previously recorded in AOCI are reclassified currently into earnings and included in other, net, in our consolidated statement of operations.

Historically, we occasionally would enter into derivatives that hedge the fair value of recognized assets or liabilities but do not designate such derivatives as hedges or the derivatives otherwise do not qualify for hedge accounting.

In these situations, a natural hedging relationship generally exists where changes in the fair value of the derivatives offset changes in the fair value of the underlying hedged items.

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Should we make a distribution from these subsidiaries in the form of dividends or otherwise, we may be subject to additional income taxes.

Tax Cuts and Jobs Act (“U.S.

tax reform”) was enacted on December 22, 2017 and introduced significant changes to U.S.

income tax law, including a reduction in the statutory income tax rate from 35% to 21% effective January 1, 2018, a one-time transition tax on deemed repatriation of deferred foreign income, a base erosion anti-abuse tax that effectively imposes a minimum tax on certain payments to non-U.S.

affiliates, new and revised rules relating to the current taxation of certain income of foreign subsidiaries and revised rules associated with limitations on the deduction of interest.

Treasury Department issued guidance and continued finalizing rules associated with U.S.

tax reform during 2018 and 2019.

See " Note 12 - Income Taxes" for additional information.

Share-Based Compensation

We sponsor share-based compensation plans that provide equity compensation to our key employees, officers and non-employee directors.

Our Long-Term Incentive Plan (the “2018 LTIP”) allows our Board of Directors to authorize share grants to be settled in cash or shares.

Subject to applicable bankruptcy law, our Long-Term Incentive Plan (the “2018 LTIP”) allows our Board of Directors to authorize share grants to be settled in cash or shares.

Compensation expense for share awards to be settled in shares is measured at fair value on the date of grant and recognized on a straight-line basis over the requisite service period (usually the vesting period).

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Actual results may differ from the assumptions included in these calculations.

If gains or losses exceed 10% of the greater of the plan assets or plan liabilities, we

amortize such gains or losses into income over either the period of expected future service of active participants, or over the expected average remaining lifetime of all participants.

If gains or losses exceed 10% of the greater of the plan assets or plan liabilities, we amortize such gains or losses into income over either the period of expected future service of active participants, or over the expected average remaining lifetime of all participants.

We recognize gains or losses related to plan curtailments at the date the plan amendment or termination is adopted which may precede the effective date.

Fair Value Measurements

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Net loss attributable to Valaris used in our computations of basic and diluted EPS is adjusted to exclude net income allocated to non-vested shares granted to our employees and non-employee directors.

Weighted-average shares outstanding used in our computation of diluted EPS is calculated using the treasury stock method and includes the effect of all potentially dilutive stock options and excludes non-vested shares.

Weighted-average shares

outstanding used in our computation of diluted EPS is calculated using the treasury stock method and includes the effect of all potentially dilutive stock options and excludes non-vested shares.

In each of the years in the three-year period ended December 31, 2020, our potentially dilutive instruments were not included in the computation of diluted EPS as the effect of including these shares in the calculation would have been anti-dilutive.

The following table is a reconciliation of loss from continuing operations attributable to Valaris shares used in our basic and diluted EPS computations for each of the years in the three-year period ended December 31, 2020 (in millions):

2020 2019 2018

Loss from continuing operations attributable to Valaris $ ( 4,855.5 ) $ ( 198.0 ) $ ( 631.6 )

Income from continuing operations allocated to non-vested share awards (1)

— ( .1 ) ( .5 )

Loss from continuing operations attributable to Valaris shares $ ( 4,855.5 ) $ ( 198.1 ) $ ( 632.1 )

Anti-dilutive share awards totaling 300,000 , 1.5 million and 2.0 million for the years ended December 31, 2019, 2018 and 2017 , respectively, were excluded from the computation of diluted EPS.

We have the option to settle our 3.00 % exchangeable senior notes due 2024 (the "2024 Convertible Notes") in cash, shares or a combination thereof for the aggregate amount due upon conversion.

See " Note 7 - Debt" for additional information on this issuance.

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.

(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.

Anti-dilutive share awards totaling 400,000 , 300,000 and 1.5 million for the years ended December 31, 2020, 2019 and 2018, respectively, were excluded from the computation of diluted EPS.

Under the terms of our debt agreement, we have the option to settle our 3.00 % exchangeable senior notes due 2024 (the "2024 Convertible Notes") in cash, shares or a combination thereof for the aggregate amount due upon conversion.

However, the commencement of the Chapter 11 Cases on August 19, 2020 constituted an event of default under the 2024 Convertible Notes.

Any efforts to enforce payment obligations under the 2024 Convertible Notes, including any rights to require the repurchase by the Company of the 2024 Convertible Notes upon the NYSE delisting of the Class A ordinary shares, are automatically stayed as a result of the filing of the Chapter 11 Cases.

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 EPS using the treasury stock method.

Our average share price did not exceed the exchange price during the years ended December 31, 2020, 2019 and 2018.

Pursuant to the terms contemplated in the Amended RSA, upon emergence from bankruptcy, our existing Class A ordinary shares will be cancelled.

Depending on certain implementation mechanisms in the restructuring related to our Class A ordinary shares and satisfaction of the applicable support requirements set forth in the Amended RSA, the existing Class A ordinary shares may be exchanged for 7-year warrants to purchase up to 7 % of the New Equity (subject to dilution on account of the management incentive plan contemplated by the Amended RSA).

The strike price of such warrants, if granted, will be set at a price per share equal to the value at which the senior noteholders would receive a 100 % recovery on their claims, including accrued interest up to the Petition Date.

See “ Note 2 - Chapter 11 Proceedings and Ability to Continue as a Going Concern” for additional information related to our Amended RSA.”

Bankruptcy Accounting

The consolidated financial statements included herein have been prepared as if we were a going concern.

See “ Note 2 – Chapter 11 Proceedings and Ability to Continue as a Going Concern” for additional details regarding the bankruptcy and circumstances raising substantial doubt over our ability to continue as a going concern.

As a result, we have segregated liabilities and obligations whose treatment and satisfaction are dependent on the outcome of the Chapter 11 Cases and have classified these items as "Liabilities Subject to Compromise” on our Consolidated Balance Sheets.

In addition, we have classified all income, expenses, gains or losses that were incurred or realized as a result of the Chapter 11 Cases subsequent to the Petition Date as “Reorganization Items” in our Consolidated Statements of Operations.

We anticipate that we will adopt fresh start accounting upon our emergence from chapter 11, becoming a new entity for financial reporting purposes.

As a result, upon emergence, the Company’s assets and liabilities will generally be reported at fair value and will reconcile to the enterprise value confirmed by the Bankruptcy Court.

These fair values are expected to differ materially from the amounts reflected on our historical balance sheet.

New Accounting Pronouncements

Recently adopted accounting pronouncements

Leases - During 2016, the FASB issued ASU 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 - Leases" for additional information.

Derivatives and Hedging - In August 2017, the Financial Accounting Standards Board (the "FASB") issued ASU 2017-12, Derivatives and Hedging (Topic 815):

Targeted Improvements to Accounting for Hedging Activities ("Update 2017-12"), which makes more hedging strategies eligible for hedge accounting, amends presentation and disclosure requirements and changes how companies assess effectiveness, including the elimination of separate measurement and recognition of ineffectiveness on designated hedging instruments.

This update is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted.

We adopted Update 2017-12 effective January 1, 2019.

As a result, beginning on the effective date, we no longer separately measure and recognize ineffectiveness 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 existed 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 for ineffectiveness for hedging relationships that existed as of our adoption date and therefore no cumulative effect adjustment to retained earnings was recorded.

Credit Losses - In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments ("Update 2016-13"), which requires 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.

Defined Benefit Plans - In August 2018, the FASB issued ASU 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 are required to adopt the amended guidance in annual and interim reports beginning after December 15, 2020, but early adoption is permitted.

Adoption is required to be applied on a retrospective basis to all periods presented.

We adopted Update 2018-14 effective January 1, 2020 with no material impact on our consolidated financial statements.

Financial Disclosures about Guarantors - In March 2020, the U.S.

Securities and Exchange Commission issued final rule 33-10762, “Financial Disclosures About Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities.” In October 2020, the FASB issued ASU 2020-09 , Amendments to SEC Paragraphs Pursuant to SEC Release No.

33-10762 ("Update 2020-09") , which amends ASC 470, Debt, for this rule .

The Rule suspends the requirement to disclose condensed financial information within the financial statements for entities whose debt securities are not listed on a national exchange, and meet the reporting obligation under Section 15(d)(1) of the Exchange Act if, on the first day of any fiscal year other than the fiscal year in which the Securities Act registration statement related to the debt securities becomes effective, there are fewer than 300 record holders of the class of debt securities.

The Final Rule is effective on January 4, 2021 with early adoption permitted.

We early adopted the Rule effective December 31, 2020 and as we meet the requirements for suspension, we no longer provide condensed consolidated financial information that resulted from the debt obligations of our 100% owned subsidiaries, Pride International LLC and Ensco International Incorporated.

Accounting pronouncements to be adopted

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Simplifying the Accounting for Income Taxes ("Update 2019-12"), which removes certain exceptions for investments, intraperiod allocations and interim tax calculations and adds guidance to reduce complexity in accounting for income taxes.

We will be required to adopt the amended guidance in annual and interim periods beginning after December 15, 2020, with early adoption permitted.

We are required to adopt the amended guidance in annual and interim periods beginning after December 15, 2020.

The various amendments in Update 2019-12 are applied on a retrospective basis, modified retrospective basis and prospective basis, depending on the amendment.

We are in the process of evaluating the impact this amendment will have on our consolidated financial statements.

Defined Benefit Plans - In August 2018, the FASB issued ASU 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20):

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.

Credit Losses - In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

Update 2016-13 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted.

We will adopt the new standard effective January 1, 2020 and do not expect the adoption of Update 2016-13 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 consolidated financial statements.

Convertible Instruments - In August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40)” ("Update 2020-06”).

ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity.

The ASU is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S.

The ASU’s amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020.

We are in the process of evaluating the impact this amendment may have on our consolidated financial statements.

With the exception of the updated standards discussed above, there have been no accounting pronouncements issued and not yet effective that have significance, or potential significance, to our consolidated financial statements.

CHAPTER 11 PROCEEDINGS AND ABILITY TO CONTINUE AS A GOING CONCERN

Chapter 11 Cases

On August 19, 2020, the Debtors filed voluntary petitions for reorganization under chapter 11 of the Bankruptcy Code in the Bankruptcy Court.

The Debtors obtained joint administration of the Chapter 11 Cases under the caption In re Valaris plc, et al., Case No.

20-34114 (MI).

The Debtors continue to operate their businesses and manage their properties as "debtors-in-possession" under the jurisdiction of the Bankruptcy Court and in accordance with applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.

As part of the Chapter 11 Cases, the Debtors filed with the Bankruptcy Court motions seeking a variety of "first-day" relief, all of which were granted and enabled the Company to continue operating without interruption or disruption to its relationships with its customers and vendors or its high-quality service delivery.

In particular, employee pay and benefits are expected to continue without interruption.

Restructuring Support Agreement

On August 18, 2020, the Debtors entered into the Original RSA with the Consenting Noteholders.

On February 5, 2021, the Debtors entered into the Amended RSA with the Consenting Noteholders and the Consenting Lenders.

The Amended RSA contemplates that the Company will implement the restructuring through the Chapter 11 Cases pursuant to a plan of reorganization and the various related transactions set forth in or contemplated by the Amended RSA.

Below is a summary of the treatment that the stakeholders of the Company would receive under a plan of reorganization pursuant to the terms of the Amended RSA:

• Holders of the Company's outstanding senior notes ("Senior Notes") will receive their pro rata share of (i) approximately 39 % of new common stock issued after consummation of the restructuring (the “New Equity”) and (ii) approximately 97.6 % of the subscription rights to participate in the rights offering (the "Rights Offering") through which the Company will offer $ 550 million of new first lien secured notes (the "New Secured Notes"), which includes the Backstop Premium (as defined below);

• Holders of the Senior Notes who participate in the Rights Offering will receive their pro rata share of approximately 29.3 % of the New Equity pursuant to the Rights Offering, together with the RCF Lenders (as defined below) who will receive their pro rata share of approximately 0.7 % of the New Equity, and senior noteholders who agreed to backstop the Rights Offering will receive their pro rata share of approximately 2.63 % of the New Equity, together with 0.07 % of the New Equity reserved for RCF Lenders and approximately $ 48.8 million in New Secured Notes reserved for the holders of the Senior Notes and approximately $ 1.2 million in New Secured Notes reserved for the RCF Lenders (the "Backstop Premium");

• Senior noteholders, solely with respect to Pride International LLC's ("Pride") 6.875 % senior notes due 2020 and 7.875 % senior notes due 2040, Ensco International 7.20 % Debentures due 2027, and the Company's 4.875 % senior notes due 2022, 4.75 % senior notes due 2024, 7.375 % senior notes due 2025, 5.4 % senior notes due 2042 and 5.85 % senior notes due 2044, will receive an aggregate cash payment of $ 26 million in connection with settlement of certain alleged claims against the Company;

• Lenders under the revolving credit facility (“RCF Lenders”) were provided an option to select between two alternative treatments:

(1) the ability to participate on a pro rata basis in up to 14 % of the Rights Offering plus a recovery of up to 30.8 % of the New Equity and up to $ 45 million in cash, or (2) a pro rata recovery of up to 27.8 % of the New Equity and up to $ 116.2 million in cash.

Following the results of that election, the two RCF Lenders who chose to participate in the Rights Offering will receive their pro rata share of (1) approximately 5.3 % of the New Equity, (2) approximately 2.4 % of the New Secured Notes (and associated New Equity), (3) approximately $ 7.8 million in cash, and (iv) their pro rata share of the Backstop Premium.

The RCF Lenders who entered into the Amended RSA and elected not to participate in the Rights Offering will receive their pro rata share of (1) approximately 23.0 % of the New Equity, and (2) approximately $ 96.1 million in cash;

• Holders of general unsecured claims will receive payment in full or reinstatement pursuant to the Bankruptcy Code (excluding claims against the entities party to, or guaranteeing, the new build contracts to be rejected by the Company, which shall receive their liquidation value unless otherwise agreed);

• If holders of equity interests vote as a class in support of the restructuring, they will each receive their pro rata share of 7-year warrants to purchase up to 7 % of New Equity (subject to dilution), with a strike price set at a price per share equal to the value at which the senior noteholders would receive a 100 % recovery on their claims including accrued interest up to the Petition Date, as applicable;

• To the extent amounts are borrowed under the DIP Facility (as described below), lenders under the DIP Facility will receive payment in full in cash, unless otherwise agreed, and certain other fees owed to the DIP Facility lenders.

The Original RSA provided that for a period of 15 business days after the commencement of the Chapter 11 Cases (the “Joinder Period”), qualified holders of Senior Notes claims, including the Consenting Noteholders, were eligible to become backstop parties (the “Noteholder Backstop Parties”).

All Noteholder Backstop Parties were required to join the Original RSA.

The expiration of the Joinder Period was extended on September 10, 2020, to September 14, 2020 upon which date we had support for the Original RSA from holders of approximately 72 % of the aggregate amount of our Senior Notes outstanding.

The Amended RSA contemplates that holders of claims under the Company’s revolving credit facility also are eligible to become backstop parties (the “Lender Backstop Parties”).

The Lender Backstop Parties are required to join the Amended RSA.

As of the execution of the Amended RSA, we had support for the transactions contemplated by the Amended RSA from holders of approximately 100 % of the total commitments under our revolving credit facility in addition to the holders of approximately 72 % of the aggregate amount of our outstanding Senior Notes who supported the Original RSA.

The Amended RSA contains certain covenants on the part of Valaris and the Consenting Creditors, including commitments by the Consenting Creditors to vote in favor of a plan of reorganization and commitments of Valaris and the Consenting Creditors to negotiate in good faith to finalize the documents and agreements governing the restructuring.

The Amended RSA also provides for certain conditions to the obligations of the parties and for termination upon the occurrence of certain events, including without limitation, the failure to achieve certain milestones and certain breaches by the parties under the Amended RSA.

Subject to certain exceptions, under the Bankruptcy Code, the filing of the Chapter 11 Cases automatically enjoined, or stayed, the continuation of most judicial or administrative proceedings or filing of other actions against the Debtors or their property to recover, collect or secure a claim arising prior to the date of the Chapter 11 Cases.

Notwithstanding the general applicability of the automatic stay described above, governmental authorities may determine to continue actions brought under their regulatory powers.

Although Valaris intends to pursue the restructuring in accordance with the terms set forth in the Amended RSA, there can be no assurance that Valaris will be successful in completing a restructuring or any other similar transaction on the terms set forth in the Amended RSA, on different terms or at all.

Among other things, the Amended RSA includes an outside date milestone requiring the Company’s emergence from chapter 11 by no later than June 15, 2021 (subject to a potential 60-day extension pursuant to the terms of the Amended RSA).

Debtor in Possession Facility

On August 11, 2020, prior to the commencement of the Chapter 11 Cases, certain of the Company’s existing noteholders (or their affiliates or designees) provided the Company with a commitment for a senior secured superpriority debtor-in-possession term loan credit facility in an aggregate principal amount of up to $ 500.0 million (the “DIP Facility”).

On September 25, 2020, following approval by the Bankruptcy Court, the Debtors entered into a senior secured superpriority debtor-in-possession term loan credit agreement (the “DIP Credit Agreement”), by and among the Company and certain wholly owned subsidiaries of the Company, as borrowers, the lenders party thereto and Wilmington Savings Fund Society, FSB, as administrative agent and security trustee, in an aggregate amount not to exceed $ 500.0 million.

Borrowings on the DIP Facility will be used to finance, among other things, the ongoing general corporate needs of the Debtors during the course of the Chapter 11 Cases and to pay certain fees, costs and expenses associated with the Debtors’ Chapter 11 Cases.

The maturity date of the DIP Credit Agreement is the earliest of (1) August 17, 2021, (2) acceleration of the loans under the DIP Facility and termination of the lenders' commitments under the DIP Facility, (3) the substantial consummation of any plan filed in the Chapter 11 Cases that is confirmed pursuant to an order entered by the Bankruptcy Court and (4) the consummation of a sale of all or substantially all of the assets of the Company and the other Debtors under section 363 of the Bankruptcy Code.

Loans under the DIP Credit Agreement accrue interest at a rate of 8.00 % per annum, if paid in kind, and at a rate of 7.00 % per annum, if paid in cash.

The DIP Credit Agreement contains a requirement that the Company and any other borrowers provide every four weeks, a rolling 13 week budget to be approved by the required lenders (the “Approved Budget”).

The Company and any other borrower that becomes party to the DIP Credit Agreement may not vary from the Approved Budget by more than 15 % of the forecasted amounts in any forecast period.

The Approved Budget is, subject to certain exceptions and is tested at certain times in accordance with the DIP Credit Agreement in order to measure variances between the actual total cash disbursements (excluding professional fees and certain other items consistent with the initial Approved Budget) and the disbursements budgeted for the applicable period.

The DIP Credit Agreement contains events of default customary to debtor-in-possession financings, including events related to the Chapter 11 Cases, the occurrence of which could result in the acceleration of the Debtors’ obligation to repay the outstanding indebtedness under the DIP Credit Agreement.

The Debtors’ obligations under the DIP Credit Agreement are secured by a security interest in, and lien on, substantially all present and after acquired property (subject to certain exceptions) of the Debtors and are guaranteed by certain of the Company’s subsidiaries, including other Debtors.

The DIP Credit Agreement also contains customary covenants that limit the ability of the Company and its subsidiaries to, among other things, (1) incur additional indebtedness and permit liens to exist on their assets, (2) pay dividends or make certain other restricted payments, (3) sell assets and (4) make certain investments.

These covenants are subject to exceptions and qualifications as set forth in the DIP Credit Agreement.

As of December 31, 2020, we were in compliance with our covenants under the DIP Credit Agreement.

Additionally, as of December 31, 2020 , we had no borrowings outstanding against our DIP Facility.

Backstop Commitment Agreement

On August 18, 2020, the Company entered into a Backstop Commitment Agreement (the “Initial BCA”) with the Backstop Parties.

Pursuant to the Initial BCA, each of the Backstop Parties will purchase its pro-rata portion (based on an adjusted claims value) of (1) $ 187.5 million of the New Secured Notes held back for purchase by the Backstop Parties (the "Holdback Notes"), (2) all of the New Secured Notes offered to Backstop Parties as part of the $ 312.5 million New Secured Notes offered to all claim holders (the “General Rights Offering”) and (3) New Secured Notes not purchased by non-Backstop Parties in the General Rights Offering.

The Initial BCA was amended on September 10, 2020, January 22, 2021 and February 5, 2021 (as so amended, the “Amended BCA”).

Pursuant to the Amended BCA, certain holders of claims related to the revolving credit facility will be entitled to, among other things 2.427 % of the Holdback Notes and the New Secured Notes (together with certain stapled participation equity) offered in the General Rights Offering, as well as a portion of the equity premium payable to all Backstop Parties consisting of 2.7 % of New Valaris Equity and backstop premium payable in $ 50.0 million in New Secured Notes.

In each instance, 30 % of the new shares issued and outstanding immediately after the effective date of the plan of reorganization (subject to dilution by the new warrants and the management incentive plan) will be allocated proportionally to purchasers of the New Secured Notes for no addition al consideration.

Additionally, in exchange for providing the Backstop Commitments, the Company has agreed to pay the Backstop Parties a backstop premium in an aggregate amount equal to $ 50.0 million payable in New Secured Notes on the effective date of a plan of reorganization, in addition to 2.7 % of New Valaris Equity.

Furth er, the Debtors paid a commitment fee of $ 20.0 million, in cash prior to the Petition Date, which shall be loaned back to the reorganized company upon emergence.

Therefore, upon emergence the Debtors will receive $ 520 million in cash in exchange for a $ 550 million note, which includes the backstop premium.

The Amended BCA will be terminable by the Company and/or the requisite Backstop Parties upon certain customary events specified therein, including, among others, (i) the termination of the Amended RSA, (ii) the mutual written consent of the Company and the requisite Backstop Parties by written notice to the other such Party(ies) or (iii) either the Company or the requisite Backstop Parties if the effective date of the plan of reorganization has not occurred on or prior to the date that is ten months after the execution date of the Initial BCA (subject to certain extensions as set forth in the Initial BCA).

NYSE Delisting of our Common Stock

As a result of the Chapter 11 Cases and in accordance with Section 802.01D of the NYSE Listed Company Manual, on August 19, 2020, we were notified by NYSE of its determination to indefinitely suspend trading of the Company’s Class A ordinary shares and to commence proceedings to delist the Company’s Class A ordinary shares from the NYSE.

Our Class A ordinary shares were delisted from the NYSE effective September 14, 2020.

Effective August 19, 2020, the Company’s Class A ordinary shares commenced trading on the OTC Pink Open Market under the symbol “VALPQ.”

Going Concern

The consolidated financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and satisfaction of liabilities and commitments in the normal course of business.

For the duration of the Chapter 11 Cases, our operations and our ability to develop and execute our business plan are subject to a high degree of risk and uncertainty associated with the Chapter 11 Cases.

The outcome of the Chapter 11 Cases is dependent upon factors that are outside of our control, including actions of the Bankruptcy Court and our creditors.

There can be no assurance that we will confirm and consummate a plan of reorganization as contemplated by the Amended RSA or complete another plan of reorganization with respect to the Chapter 11 Cases and as such, there is substantial doubt about our ability to continue as a going concern.

Further, we have concluded that management’s plans do not alleviate the substantial doubt about our ability to continue as a going concern brought about by the significant risks and uncertainties related to our liquidity and Chapter 11 Cases for a period of one year after the date that the financial statements are issued.

The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

These adjustments could be material.

Pre-petition Charges

We have reported the backstop commitment fee and legal and other professional advisor fees incurred in relation to the Chapter 11 Cases, but prior to the Petition Date, as General and administrative expenses in our Consolidated Statement of Operations for the year ended December 31, 2020 in the amount of $ 64.7 million.

Reorganization Items

Expenditures, gains and losses that are realized or incurred by the Debtors as of or subsequent to the Petition Date and as a direct result of the Chapter 11 Cases are reported as Reorganization items, net in our Consolidated Statement of Operations for the year ended December 31, 2020.

These costs include legal and other professional advisory service fees pertaining to the Chapter 11 Cases, all adjustments made to the carrying amount of certain pre-petition liabilities reflecting claims expected to be allowed by the Bankruptcy Court, contract items related to rejecting and amending certain operating leases ("Contract items") and DIP Facility fees.

The following table provides information about reorganization items incurred during the year ended December 31, 2020 , as of or subsequent to the Petition Date (in millions):

Year Ended December 31, 2020

Write-off of unamortized debt discounts, premiums and issuance costs $ 447.9

Contract items ( 11.5 )

Reorganization items (non-cash) 436.4

DIP Facility fees 20.0

Professional fees 66.8

Contract items 4.4

Reorganization items (fees) 91.2

Total reorganization items, net $ 527.6

Reorganization items (fees) unpaid $ 61.2

Reorganization items (fees) paid $ 30.0

Liabilities Subject to Compromise

The Debtors' pre-petition unsecured senior notes and related unpaid accrued interest as of the Petition Date have been classified as Liabilities Subject to Compromise on our Consolidated Balance Sheets.

The liabilities are reported at the amounts expected to be allowed as claims by the Bankruptcy Court.

Liabilities subject to compromise at December 31, 2020 consist of the following (in millions):

December 31, 2020

6.875 % Senior notes due 2020

4.70 % Senior notes due 2021

4.875 % Senior notes due 2022

3.00 % Exchangeable senior notes due 2024

4.50 % Senior notes due 2024

4.75 % Senior notes due 2024

8.00 % Senior notes due 2024

5.20 % Senior notes due 2025

7.375 % Senior notes due 2025

7.75 % Senior notes due 2026

7.20 % Debentures due 2027

7.875 % Senior notes due 2040

5.40 % Senior notes due 2042

5.75 % Senior notes due 2044

5.85 % Senior notes due 2044

Amounts drawn under revolving credit facility 581.0

Accrued Interest on Senior Notes, Exchangeable Senior Notes, Debentures and Revolving Credit Facility 203.5

Rig holding costs (1)

Total liabilities subject to compromise $ 7,313.7

(1) Represents the holding costs incurred to maintain VALARIS DS-13 and VALARIS DS-14 in the shipyard until the delivery date.

The principal balance on our unsecured senior notes and the amount of outstanding borrowings on our revolving credit facility have been reclassified from Debt to Liabilities Subject to Compromise on our Consolidated Balance Sheet as of December 31, 2020 .

Accrued interest on our unsecured senior notes and revolving credit facility was also reclassified from Other Current Liabilities to Liabilities Subject to Compromise on our Consolidated Balance Sheet as of December 31, 2020 .

The contractual interest expense on our unsecured senior notes and revolving credit facility is in excess of recorded interest expense by $ 140.7 million for the year ended December 31, 2020 .

This excess contractual interest is not included as interest expense on the Consolidated Statements of Operations for the year ended December 31, 2020, as the Company has discontinued accruing interest on the unsecured senior notes and revolving credit facility subsequent to the Petition Date.

We discontinued making interest payments on our unsecured senior notes beginning in June 2020.

See " Note 8 – Debt” for additional information on interest payments.

Debtor Financial Statements

Consolidated financial statements of the Debtors are set forth below.

These financial statements exclude the financial statements of the non-debtor subsidiaries.

Transactions and balances of receivables and payables between the Debtors have been eliminated in consolidation.

Amounts payable to or receivable from the non-Debtor subsidiaries are reported in the unaudited condensed consolidated balance sheet of the Debtors.

VALARIS PLC AND CERTAIN SUBSIDIARIES PARTY TO THE BANKRUPTCY CASES

(DEBTOR-IN-POSSESSION)

CONDENSED COMBINED STATEMENTS OF OPERATIONS

(In millions)

Year Ended December 31, 2020

OPERATING REVENUES

Operating revenues $ 1,185.1

Operating revenues from non-debtor subsidiaries 169.8

Total operating revenues 1,354.9

OPERATING EXPENSES

Contract drilling (exclusive of depreciation) 1,203.0

Loss on impairment 3,643.9

Depreciation 507.5

General and administrative 213.6

Operating expenses for non-debtor subsidiaries 169.1

Total operating expenses 5,737.1

OTHER OPERATING INCOME 118.1

EQUITY IN LOSSES OF ARO ( 7.8 )

OPERATING LOSS ( 4,271.9 )

OTHER INCOME (EXPENSE)

Interest income 19.7

Interest income for non-debtor subsidiaries 285.7

Interest expense, net ( 290.8 )

Interest Expense for non-debtor subsidiaries ( 310.9 )

Reorganization items, net ( 527.6 )

Other, net ( 6.7 )

LOSS BEFORE INCOME TAXES ( 5,102.5 )

EQUITY IN EARNINGS OF SUBSIDIARIES 11.4

PROVISION (BENEFIT) FOR INCOME TAXES ( 277.5 )

NET LOSS $ ( 4,813.6 )

VALARIS PLC AND CERTAIN SUBSIDIARIES PARTY TO THE BANKRUPTCY CASES

(DEBTOR-IN-POSSESSION)

CONDENSED COMBINED BALANCE SHEET

(In millions)

December 31, 2020

CURRENT ASSETS

Cash and cash equivalents $ 228.9

Accounts receivable, net 382.5

Accounts receivable from non-debtor subsidiaries 2,812.0

Other current assets 377.4

Total current assets 3,800.8

PROPERTY AND EQUIPMENT, AT COST 12,256.1

Less accumulated depreciation 1,973.8

Property and equipment, net 10,282.3

LONG-TERM NOTES RECEIVABLE FROM ARO 442.7

LONG-TERM NOTES RECEIVABLE FROM NON-DEBTOR SUBSIDIARIES 2,205.3

INVESTMENT IN ARO 120.9

INVESTMENTS IN NON-DEBTOR SUBSIDIARIES 585.9

OTHER ASSETS 158.2

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES

Accounts payable - trade $ 149.4

Accrued liabilities and other 196.2

Total current liabilities 345.6

LONG-TERM NOTES PAYABLE TO NON-DEBTOR SUBSIDIARIES 2,548.6

OTHER LIABILITIES 602.3

Total liabilities not subject to compromise 3,496.5

Liabilities subject to compromise 7,313.7

Total debtors' equity 6,785.9

Total liabilities and debtors' equity $ 17,596.1

VALARIS PLC AND CERTAIN SUBSIDIARIES PARTY TO THE BANKRUPTCY CASES

(DEBTOR-IN-POSSESSION)

CONDENSED COMBINED STATEMENT OF CASH FLOWS

(In millions)

Year Ended December 31, 2020

OPERATING ACTIVITIES

Net loss $ ( 4,813.6 )

Adjustments to reconcile net loss to net cash used in operating activities:

Loss on impairment 3,643.9

Depreciation expense 507.5

Non cash reorganization items, net 436.4

Deferred income tax benefit ( 107.5 )

Debtor in Possession financing fees and payments on Backstop Agreement 40.0

Debt discounts and other 36.8

Share-based compensation expense 21.4

Equity in earnings of non-debtor subsidiaries ( 11.4 )

Equity in losses of ARO 7.8

(Gain on) adjustment to bargain purchase 6.3

Amortization, net 6.2

Gain on extinguishment of debt ( 3.1 )

Changes in operating assets and liabilities ( 44.5 )

Changes in advances (to)/from non-debtor subsidiaries ( 74.0 )

Net cash used in operating activities ( 330.3 )

INVESTING ACTIVITIES

Additions to property and equipment ( 93.8 )

Net proceeds from disposition of assets 51.8

Net cash used in investing activities ( 42.0 )

FINANCING ACTIVITIES

Borrowings on credit facility 596.0

Debtor in Possession financing fees and payments on Backstop Agreement ( 40.0 )

Repayments of credit facility borrowings ( 15.0 )

Reduction of long-term borrowings ( 9.7 )

Other ( 1.8 )

Net cash provided by financing activities 529.5

Effect of exchange rate changes on cash and cash equivalents —

INCREASE IN CASH AND CASH EQUIVALENTS 157.2

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 71.7

CASH AND CASH EQUIVALENTS, END OF PERIOD $ 228.9

REVENUE FROM CONTRACTS WITH CUSTOMERS

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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.

Our drilling service provided under each drilling contract is a single performance obligation satisfied over time and comprised of a series of distinct time increments, or service periods.

Total revenue is determined for each individual drilling contract by estimating both fixed and variable consideration expected to be earned over the contract term.

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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 Update 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 December 31, 2019 was between approximately one month and four years.

We have applied the optional exemption afforded in ASU No.

2014-09, Revenue from Contracts with Customers (Topic 606), and have not disclosed the variable consideration related to our estimated future day rate revenues.

The remaining duration of our drilling contracts based on those in place as of December 31, 2020 was between approximately one month and two 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.

Our drilling contracts provide for payment on a day rate basis and include a rate schedule with higher rates for periods when the drilling rig is operating and lower rates or zero rates for periods when drilling operations are interrupted or restricted.

The day rate invoiced to the customer is determined based on the varying rates applicable to specific activities performed on an hourly basis or other time increment basis.

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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 consolidated balance sheets.

As of December 31, 2020, we have an ARO contract liability representing the difference between the amount billed under the Lease Agreements and lease revenues earned to date.

See “Note 5 – Equity Method Investment in ARO" for additional details regarding our balances with ARO.

The following table summarizes our contract assets and contract liabilities (in millions):

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

Current contract assets $ 1.4 $ 3.5

Noncurrent contract assets $ .4 $ —

Current contract liabilities (deferred revenue) $ 57.6 $ 30.0

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Changes in contract assets and liabilities during the period are as follows (in millions):

Contract Assets

Contract Liabilities

Contract Assets Contract Liabilities

Balance as of January 1, 2020 $ 3.5 $ 39.7

Contract assets and liabilities acquired in the Rowan Transaction

Revenue recognized in advance of right to bill customer 3.1 —

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Costs incurred for upfront rig mobilizations and certain contract preparations 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.

These costs are deferred and amortized on a straight-line basis over the contract term.

Demobilization costs are recognized as incurred upon contract completion.

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Deferred contract costs were included in other current assets and other assets on our consolidated balance sheets and totaled $ 13.8 million and $ 19.7 million as of December 31, 2020 and 2019, respectively.

Amortization of such costs totaled $ 42.1 million , $ 34.0 million and $ 28.1 million for the years ended December 31, 2019 , 2018 and 2017 , respectively.

Amortization of these costs totaled $ 42.1 million, $ 42.1 million and $ 34.0 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Deferred Certification Costs

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Deferred regulatory certification and compliance costs were included in other current assets and other assets on our consolidated balance sheets and totaled $ 8.4 million and $ 10.8 million as of December 31, 2020 and 2019, respectively.

Amortization of such costs totaled $ 10.3 million , $ 12.4 million and $ 12.1 million for the years ended December 31, 2019 , 2018 and 2017 , respectively.

Amortization of these costs totaled $ 8.9 million, $ 10.3 million and $ 12.4 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Future Amortization of Contract Liabilities and Deferred Costs

Our contract liabilities and deferred costs are amortized on a straight-line basis over the contract term or corresponding certification period to operating revenues and contract drilling expense, respectively, with the exception of the contract liabilities related to our Lease Agreements with ARO which would not be contractually payable until the end of the lease term or termination, if sooner.

Expected future amortization of our contract liabilities and deferred costs recorded as of December 31, 2020 is set forth in the table below (in millions):

2023 & Thereafter

2021 2022 2023 2024 & Thereafter Total

Amortization of contract liabilities $ 57.6 $ 14.3 $ — $ — $ 71.9

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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 consolidating results beginning on the Transaction Date.

The increased scale, diversification and financial strength of the combined company provides us advantages to better serve our customers.

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.

As of March 31, 2020, we completed our fair value assessments of assets acquired and liabilities assumed.

Consideration

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With the exception of certain legal and tax exposures as well as the fair value of materials and supplies, we have substantially completed our fair value assessments of assets acquired and liabilities assumed.

While certain adjustments may be recorded during the remainder of the measurement period, we do not expect them to be material.

The provisional amounts recorded for assets and liabilities acquired are based on preliminary estimates of their fair values as of the Transaction Date and are as follows (in millions):

Amounts Recognized as of Transaction Date

Measurement Period Adjustments (1)

The provisional amounts recorded for assets and liabilities acquired were based on preliminary estimates of their fair values as of the Transaction Date and Measurement Period Adjustments were recorded throughout the measurement period as provisional amounts were finalized and are as follows (in millions):

Amounts Recognized as of Transaction Date Measurement Period Adjustments (1)

Estimated Fair Value

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Accounts receivable (2)

207.1 ( 6.9 ) 200.2

Other current assets 101.6 ( 2.6 ) 99.0

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Property and equipment 2,989.8 ( 26.0 ) 2,963.8

Other assets 41.7 1.1 42.8

Accounts payable and accrued liabilities 259.4 15.7 275.1

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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 and $ 75.8 million decline to bargain purchase gain during the first quarter of 2020 and for the year ended December 31, 2019.

The bargain purchase gain adjustments are included in other, net, in our consolidated statements of operations for the year ended December 31, 2020 and 2019, respectively.

(2) Gross contractual amounts receivable totaled $ 208.3 million as of the Transaction Date.

1 unchanged sentence

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

Merger-related costs were expensed as incurred and consisted of various advisory, legal, accounting, valuation and other professional or consulting fees totaling $ 18.0 million for the year ended December 31, 2019 .

These costs are included in general and administrative expense in our consolidated statements of operations.

Materials and Supplies

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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.

See " Note 5 - Equity Method Investment in ARO" 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.

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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.

The various factors considered in the determination 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 value 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.

Amortization of the intangible assets and liabilities resulted in a net reduction in operating revenues of $ 3.6 million for the year ended December 31, 2019 .

The remaining balance of intangible assets and liabilities of $ 11.9 million and $ 1.4 million , respectively, was included in other assets and other liabilities, respectively, on our consolidated balance sheet of December 31, 2019 .

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 second quarter of 2020.

The impairment is included in loss on impairment in our consolidated statements of operations for the year ended December 31, 2020.

Amortization of the intangible assets and liabilities resulted in a net reduction in operating revenues of $ 2.8 million and $ 3.6 million for the years ended December 31, 2020 and 2019, respectively.

The remaining balances of intangible assets and liabilities of $ 2.4 million and $ 0.4 million, respectively, are included in other assets and other liabilities, respectively, on our consolidated balance sheet of December 31, 2020.

These balances will be amortized to operating revenues over the respective remaining contract terms on a straight-line basis.

As of December 31, 2019 , the remaining terms of the underlying contracts is approximately 2 years.

Amortization of these intangibles is expected to result in a reduction to revenue of $ 5.1 million and $ 5.4 million in 2020 and 2021, respectively.

As of December 31, 2020, the remaining terms of the underlying contracts is approximately 1.0 year.

Amortization of these intangibles is expected to result in a reduction to revenue of $ 2.0 million in 2021.

Pension and Other Post-retirement benefit plans

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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.

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 $ 99.0 million to Rowan's historical net deferred tax assets was recognized.

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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 from Luxembourg tax authorities related to certain filing positions taken by Rowan in prior years for several of Rowan’s Luxembourg subsidiaries totaling approximately € 142.0 million (approximately $ 159.0 million converted using the current period-end exchange rate).

We are contesting these assessments and have filed applications for appeal.

As of the Transaction Date, we recognized liabilities under acquisition accounting of € 47.0 million (approximately $ 52.0 million converted using the current period-end exchange rate) in connection with the 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.

As a result of our continued review and analysis of facts and circumstances that existed at the Transaction Date, we recognized additional liabilities of € 46.0 million (approximately $ 52.6 million converted using the current period-end exchange rate) as measurement period adjustments.

As a result, the amount recognized on our consolidated balance sheet related to the Luxembourg income tax assessments totaled € 93.0 million (approximately $ 104.6 million converted using the current period-end exchange rates) as of December 31, 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.

We cannot predict or provide assurance as to the ultimate outcome of the Luxembourg tax assessments.

Revenues and Earnings of Rowan

Our consolidated statement of operations for the year ending December 31, 2019 included revenues of $ 448.0 million and net losses of $ 122.7 million .

The Luxembourg tax authorities issued aggregate tax assessments totaling approximately € 142.0 million (approximately $ 173.5 million converted using the current period-end exchange rate) related to tax years 2014, 2015 and 2016 for several of Rowan's Luxembourg subsidiaries.

As a result of our review and analysis of facts and circumstances that existed at the Transaction Date, we recognized liabilities related to the Luxembourg tax assessments totaling € 93.0 million (approximately $ 113.6 million converted using the current period-end exchange rates).

See " Note 13 - Income Taxes" for further information on this matter.

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 $ 18.0 million for the year ended December 31, 2019.

These costs were included in general and administrative expense in our consolidated statement of operations.

Revenues and Losses of Rowan

The amount of revenues and net losses of Rowan that are included from the Transaction Date to December 31, 2019 in the Company's Consolidated Statement of Operations for the Year ended December 31, 2019 were $ 448.0 million and $ 122.7 million, respectively.

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, 2019.

The pro forma results include, among others, (1) the amortization associated with acquired intangible assets and liabilities, (2) a reduction in depreciation expense for adjustments to property and equipment, (3) the amortization of premiums and discounts recorded on Rowan's debt, (4) removal of the historical amortization of unrealized gains and losses related to Rowan's pension plans and (5) the amortization of basis differences in assets and liabilities of ARO.

The pro forma results include, among others, (1) the amortization associated with acquired intangible assets and liabilities, (2) a reduction in depreciation expense for adjustments to property and equipment, (3) the amortization of premiums and discounts recorded on Rowan's debt, (iv) removal of the historical amortization of unrealized gains and losses related to Rowan's pension plans and (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) Twelve Months Ended

December 31, 2019 (1)

Revenues $ 2,240.5

Net loss $ ( 997.8 )

Earnings per share - basic and diluted $ ( 3.82 )

(1) Pro forma net loss per share was adjusted to exclude an aggregate $ 108.1 million of transaction-related and integration costs incurred by Ensco and Rowan during 2019 and the $ 637.0 million bargain purchase gain.

(2) Pro forma net loss per share was adjusted to exclude an aggregate $ 13.8 million of transaction-related and integration costs incurred by Ensco and Rowan during 2018.

Note 4 - Equity Method Investment in ARO

During 2016, Rowan and Saudi Aramco entered into an agreement to create a 50/50 joint venture (the "Shareholders' Agreement") to own, manage and operate offshore drilling rigs in Saudi Arabia.

The new entity, ARO, was formed in May 2017 with each of 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 two 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 December 31, 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 receive contracts from 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 seven 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 nine 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.

As of December 31, 2019 , all nine of the rigs were operating under three-year drilling contracts with Saudi Aramco.

(1) Pro forma net loss and loss per share were adjusted to exclude an aggregate $ 108.1 million of transaction related and integration costs during the year ended December 31, 2019.

Additionally, pro forma net loss and loss per share exclude the measurement period adjustments and estimated gain on bargain purchase of $ 637.0 million recognized during the year ended December 31, 2019.

EQUITY METHOD INVESTMENT IN ARO

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 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 seven jackup rigs, has ordered two newbuild jackup rigs and leases nine rigs from us through bareboat charter arrangements (the "Lease Agreements") whereby substantially all operating costs are incurred by ARO.

As of December 31, 2020, all nine of the leased rigs were operating under three-year drilling contracts with Saudi Aramco.

The seven rigs owned by ARO, previously purchased from Rowan and Saudi Aramco, are currently operating under contracts with Saudi Aramco for an aggregate 15 years provided that the rigs meet the technical and operational requirements of Saudi Aramco.

The Lease Agreements with ARO originally provided for a fixed per day bareboat charter amount over the term of the lease, calculated based on a split of projected earnings over the lease term.

However, in December 2020, the Shareholder Agreement was amended ("December Amendment") such that the per day bareboat charter amount in the associated lease agreements is subject to adjustment based on actual performance of the respective rig and that a cash payment based on actual results will be due at the end of the lease term or, if sooner, termination.

The Company, as lessor, accounts for these arrangements as operating leases.

The December Amendment resulted in a modification of the leases and as a result we began accounting for lease revenue using the variable rate as opposed to a fixed rental amount.

Our results of operations for the year ended December 31, 2020 reflect the impact of the lease modification on our rental revenues to reflect results through that period.

Valaris and Saudi Aramco have agreed to take all steps necessary to ensure that ARO purchases 20 newbuild jackup rigs ratably over an approximate 10 -year period.

In January 2020, ARO ordered the first two newbuild jackups, each with a price of $176 million, for delivery scheduled in 2022.

The partners intend for the newbuild jackup rigs 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.

In January 2020, ARO ordered the first two newbuild jackups, each with a shipyard price of $ 176 million, for delivery scheduled in 2022.

The joint venture partners intend for the newbuild jackup rigs to be financed out of available cash from ARO's operations and/or 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.

The Company's capital contributions to ARO pursuant to this requirement may require approval of the Bankruptcy Court during the Chapter 11 Cases.

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 joint venture partners agreed that Saudi Aramco, as a customer, will provide drilling contracts to ARO in connection with the acquisition of the newbuild rigs.

The initial contracts provided by Saudi Aramco for each of the newbuild rigs will be for an eight-year term.

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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 remain in place subsequent to the Rowan Transaction.

Upon establishment of ARO, Rowan entered into (1) an agreement to provide certain back-office services for a period of time until ARO develops its own infrastructure (the "Transition Services Agreement"), and (2) an agreement to provide certain Rowan employees through secondment arrangements to assist with various onshore and offshore services for the benefit of ARO (the "Secondment Agreement").

These agreements remained in place subsequent to the Rowan Transaction.

Pursuant to these agreements, we or our seconded employees 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.

Additionally, our services to ARO under the Transition Services Agreement were completed as of December 31, 2020.

Summarized Financial Information

The operating revenues of ARO presented below reflect revenues earned under drilling contracts with Saudi Aramco for the seven ARO-owned jackup rigs and the rigs leased from us that operated from the Transaction Date through December 31, 2019 .

The contract drilling expenses, depreciation and general and administrative expenses presented below are also for the period from the Transaction Date through December 31, 2019 .

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

Contract drilling expense is inclusive of the bareboat charter fees for the rigs leased from us.

Cost incurred under the Secondment Agreement are included in contract drilling expense and general and administrative, depending on the function to which the seconded employee's service relates.

Cost incurred under the Secondment Agreement are included in contract drilling expense and general and administrative, depending on the function to which the seconded employee's service related.

Substantially all costs incurred under the Transition Services Agreement are included in general and administrative.

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Summarized financial information for ARO is as follows (in millions):

April 11, 2019 - December 31, 2019

Year Ended December 31, 2020 April 11, 2019 - December 31, 2019

Revenues $ 549.4 $ 410.5

Operating expenses

Contract drilling (exclusive of depreciation) 388.2 280.2

Depreciation 54.8 40.3

General and administrative 24.2 27.1

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Provision for income taxes 14.2 9.7

December 31, 2019

Net income $ 41.3 $ 24.6

December 31, 2020 December 31, 2019

Current assets $ 358.6 $ 407.2

Non-current assets 804.0 874.8

Total assets $ 1,162.6 $ 1,282.0

Current liabilities $ 70.8 $ 183.2

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however, we are not the primary beneficiary and therefore do not consolidate ARO.

Judgments regarding our level of influence over ARO included considering key factors such as:

each partner's ownership interest, representation on the board of managers of ARO and ability to direct activities that most significantly impact ARO's economic performance, including the ability to influence policy-making decisions.

Judgments regarding our level of influence over ARO included considering key factors such as each partner's ownership interest, representation on the board of managers of ARO and ability to direct activities that most significantly impact ARO's economic performance, including the ability to influence policy-making decisions.

Our investment in ARO would be assessed for impairment if there are changes in facts and circumstances that indicate a loss in value may have occurred.

If a loss were deemed to have occurred and this loss was determined to be other than temporary, the carrying value of our investment would be written down to fair value and an impairment recorded.

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 US GAAP financial statements ("basis differences").

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 U.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.

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A reconciliation of those components is presented below (in millions):

April 11, 2019 - December 31, 2019

Year Ended December 31, 2020 April 11, 2019 - December 31, 2019

50% interest in ARO net income $ 20.7 $ 12.3

Amortization of basis differences ( 28.5 ) ( 24.9 )

Equity in earnings of ARO

Equity in earnings (losses) of ARO $ ( 7.8 ) $ ( 12.6 )

Related-Party Transactions

Revenues recognized by us related to the Lease Agreements, Transition Services Agreement and Secondment Agreement are as follows (in millions):

Year Ended December 31, 2019

Year Ended December 31, 2020 April 11, 2019 - December 31, 2019

Lease revenue $ 52.2 $ 58.2

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Total revenue from ARO (1)

$ 75.1 $ 125.4

(1) All of the revenues presented above are included in our Other segment in our segment disclosures.

See Note 15 for additional information.

Amounts receivable from ARO related to the above items totaled $ 21.8 million as of December 31, 2019 and are included in accounts receivable, net, on our consolidated balance sheet.

See " Note 16 - Segment Information" for additional information.

Amounts receivable from ARO related to the items above totaled $ 21.6 million and $ 21.8 million as of December 31, 2020 and 2019, respectively, and are included in accounts receivable, net, on our consolidated balance sheets.

Additionally, as of December 31, 2019, we had a receivable from ARO of $ 14.2 million related to an agreement between us and ARO, pursuant to which ARO would reimburse us for certain capital expenditures related to the shipyard upgrade projects for the VALARIS JU-147 and VALARIS JU-148.

This amount was collected in the first quarter of 2020.

Accounts payable to ARO totaled $ 0.7 million as of December 31, 2019.

We also have an agreement between us and ARO, pursuant to which ARO will reimburse us for certain capital expenditures related to the shipyard upgrade projects for VALARIS JU-147 and VALARIS JU-148.

As of December 31, 2019 , $ 14.2 million related to reimbursement of these expenditures was included in accounts receivable, net, on our consolidated balance sheet.

There were no Accounts payable to ARO as of December 31, 2020.

We had $ 30.9 million in Contract Liabilities related to our lease agreements with ARO as of December 31, 2020.

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.

Interest is recognized as interest income in our consolidated statement of operations and totaled $ 16.8 million for the period from the Transaction Date through December 31, 2019 , respectively.

As of December 31, 2019 , we had no interest receivable from ARO.

The following table summarizes the maturity schedule of our notes receivable from ARO as of December 31, 2019 (in millions):

Maturity Date

Principal Amount

As of December 31, 2020 and 2019, the carrying amount of the long-term notes receivable from ARO was $ 442.7 million and $ 452.9 million, respectively.

The Shareholders’ Agreement prohibits the sale or transfer of the shareholder note to a third party, except in certain limited circumstances.

The notes receivable may be reduced by future Company obligations to the joint venture.

During the year ended December 31, 2020, we recorded $ 10.2 million of employee benefit obligations against our long-term notes receivable from ARO.

Interest is recognized as interest income in our consolidated statement of operations and totaled $ 18.3 million for the year ended December 31, 2020 and $ 16.8 million for the period from April 11, 2019 through December 31, 2019.

Interest amounts due were collected prior to the end of the year and we had no interest receivable from ARO as of December 31, 2020 or 2019.

Maximum Exposure to Loss

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

The following summarizes the total assets and liabilities as reflected in our consolidated balance sheets as well as our maximum exposure to loss related to ARO (in millions).

Our maximum exposure to loss is limited to (1) our equity investment in ARO;

(2) the outstanding balance on our shareholder notes receivable;

and (3) other receivables for services provided to ARO, partially offset by payables for services received.

December 31, 2019

and (3) other receivables and contract assets related to services provided to ARO, partially offset by contract liabilities as well as payables for services received.

Contract liabilities related to our Lease Agreements are subject to adjustment during the lease term.

The per day bareboat charter amount in the lease agreements is subject to adjustment pursuant to the December Amendment based on actual performance of the respective rig.

December 31, 2020 December 31, 2019

Total assets $ 585.2 $ 623.5

total liabilities 30.9 .7

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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 as of December 31, 2019 and 2018 (in millions):

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

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Identical Assets

(Level 1) Significant

(Level 2) Significant

(Level 3) Total

As of December 31, 2020

Supplemental executive retirement plan assets

Derivatives, net

$ 22.6 $ — $ — $ 22.6

Total financial assets $ 22.6 $ — $ — $ 22.6

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Supplemental executive retirement plan assets

Total financial assets

$ 26.0 $ — $ — $ 26.0

Derivatives, net

Total financial liabilities

Supplemental Executive Retirement Plans

Total financial assets $ 26.0 $ 5.4 $ — $ 31.4

Supplemental Executive Retirement Plan Assets

Our Valaris supplemental executive retirement plans (the "SERPs") are non-qualified plans that provide 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 the SERP were marketable securities measured at fair value on a recurring basis using Level 1 inputs and were included in other assets, net, on our consolidated balance sheets as of December 31, 2019 and 2018 .

Assets held in a rabbi trust maintained for the SERP are marketable securities measured at fair value on a recurring basis using Level 1 inputs and were included in other assets, net, on our consolidated balance sheets as of December 31, 2020 and 2019.

The fair value measurements of assets held in the SERP were based on quoted market prices.

Net unrealized gains of $ 5.0 million , losses of $ 700,000 and gains of $ 4.5 million from marketable securities held in our SERP were included in other, net, in our consolidated statements of operations for the years ended December 31, 2019, 2018 and 2017 , respectively.

Our derivatives were measured at fair value on a recurring basis using Level 2 inputs as of December 31, 2019 and 2018 .

Net unrealized gains of $ 3.2 million and $ 5.0 million and losses of $ 700,000 from marketable securities held in our SERP were included in other, net, in our consolidated statements of operations for the years ended December 31, 2020, 2019 and 2018, respectively.

As of December 31, 2020, we had no derivative contracts outstanding See " Note 9 - Derivative Instruments" for additional information on the impact of the Chapter 11 Cases to our derivatives.

Our derivatives were measured at fair value on a recurring basis using Level 2 inputs as of December 31, 2019.

See " Note 9 - 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.

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Other Financial Instruments

The carrying values and estimated fair values of our debt instruments as of December 31, 2019 and 2018 were as follows (in millions):

December 31, 2019

December 31, 2018

The carrying values and estimated fair values of our debt instruments were as follows (in millions):

Subject to Compromise (1)

December 31, 2020 December 31, 2019

Value Estimated

Value Carrying

Value Estimated

6.875 % Senior notes due 2020

$ 122.9 $ 8.6 $ 124.8 $ 117.3

4.70 % Senior notes due 2021

100.7 4.5 113.2 95.5

4.875 % Senior notes due 2022

620.8 32.9 599.2 460.5

3.00 % Exchangeable senior notes due 2024 (2)

849.5 76.5 699.0 607.4

4.50 % Senior notes due 2024

303.4 13.7 302.0 167.2

4.75 % Senior notes due 2024

318.6 18.8 276.5 201.4

8.00 % Senior notes due 2024

292.3 12.9 295.7 181.7

5.20 % Senior notes due 2025

333.7 12.7 331.7 186.7

7.375 % Senior notes due 2025

360.8 20.9 329.2 218.6

7.75 % Senior notes due 2026

1,000.0 44.0 987.1 575.1

7.20 % Debentures due 2027

112.1 5.7 111.7 70.0

7.875 % Senior notes due 2040

300.0 21.0 373.3 153.5

5.40 % Senior notes due 2042

400.0 23.6 262.8 194.4

5.75 % Senior notes due 2044

1,000.5 38.0 973.3 450.0

5.85 % Senior notes due 2044

400.0 26.0 268.8 194.8

Amounts borrowed under revolving credit facility (3)

581.0 581.0 — —

Total debt $ 7,096.3 $ 940.8 $ 6,048.3 $ 3,874.1

Liabilities Subject to Compromise 7,096.3 940.8 — —

current maturities — — 124.8 —

Total long-term debt $ — $ — $ 5,923.5 $ 3,874.1

Our 2024 Convertible Notes were issued with a conversion feature.

The 2024 Convertible Notes were separated into their liability and equity components on our 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 $ 838.3 million and $ 836.3 million as of December 31, 2019 and 2018 , respectively.

See "Note 7 - Debt" for additional information on this issuance.

These senior notes were assumed by Valaris as a result of the Rowan Transaction.

(1) The commencement of the Chapter 11 Cases on August 19, 2020, constituted an event of default under our Senior Notes and revolving credit facility.

Any efforts to enforce payment obligations under the Senior Notes and revolving credit facility, including any rights to require the repurchase by the Company of the 2024 Convertible Notes (as defined below) upon the NYSE delisting of the Class A ordinary shares, are automatically stayed as a result of the filing of the Chapter 11 Cases.

The carrying amounts above represent the aggregate principal amount of Senior Notes outstanding as well as outstanding borrowings under our revolving credit facility as of the Petition Date and are classified as Liabilities Subject to Compromise in our Consolidated Balance Sheet as of December 31, 2020.

We discontinued accruing interest on our indebtedness following the Petition Date and all accrued interest as of the Petition Date is classified as Liabilities Subject to Compromise in our Consolidated Balance Sheet as of December 31, 2020.

Additionally, we incurred a net non-cash charge of $ 447.9 million to write off any unamortized debt discounts, premiums and issuance costs, including the amounts related to the 2024 Convertible Notes discussed below, which is included in Reorganization Items, net on our Consolidated Statement of Operations for the year ended December 31, 2020.

See " Note 2 - Chapter 11 Proceedings and Ability to Continue as a Going Concern" for additional information.

(2) Our 2024 Convertible Notes are exchangeable into cash, our Class A ordinary shares or a combination thereof.

The 2024 Convertible Notes were separated, at issuance, into their liability and equity components on our Consolidated Balance Sheet.

The equity component was initially recorded to additional paid-in capital and as a debt discount and the discount was being amortized to interest expense over the life of the instrument.

As discussed above, the carrying amount at December 31, 2020 represents the aggregate

principal amount of these notes as of the Petition Date and are classified as Liabilities Subject to Compromise in our Consolidated Balance Sheet as of December 31, 2020.

We discontinued accruing interest on these notes as of the Petition Date.

Additionally, we incurred a net non-cash charge of $ 128.8 million to write off $ 119.5 million of unamortized debt discount and $ 9.3 million of unamortized debt issuance costs related to these notes, which is included in Reorganization Items, net on our Consolidated Statement of Operations for the year ended December 31, 2020.

The equity component is $ 220.0 million at December 31, 2020 and remains in Additional Paid-Capital.

(3) In addition to the amount borrowed above, we had $ 27.0 million in undrawn letters of credit issued under the revolving credit facility.

While the revolving credit facility has not been terminated, no further borrowings are permitted.

As discussed above, the carrying amount at December 31, 2020 represents the outstanding borrowings as of the Petition Date and are classified as Liabilities Subject to Compromise in our Consolidated Balance Sheet as of December 31, 2020.

We discontinued accruing interest on the revolving credit facility as of the Petition Date and wrote off any unamortized debt issuance costs.

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, accounts receivable, notes receivable, trade payables and other liabilities approximated their carrying values as of December 31, 2019 and 2018 .

Our short-term investments consisted of time deposits with initial maturities in excess of three months but less than one year as of December 31, 2018.

The estimated fair values of our cash and cash equivalents, accounts receivable, notes receivable, trade payables and other liabilities approximated their carrying values as of December 31, 2020 and 2019.

PROPERTY AND EQUIPMENT

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Work-in-progress 446.1 473.6

Drilling rigs and equipment as of December 31, 2019 increased by $ 3.2 billion , or 22 % , as compared to prior period, primarily due to $3.0 billion of assets acquired from the Rowan Transaction, and $ 385.0 million due to VALARIS JU-123 which was placed into service in the current period.

Work-in-progress as of December 31, 2019 primarily consisted of $ 417.4 million related to the construction of ultra-deepwater drillships VALARIS DS-13 and VALARIS DS-14.

Work-in-progress as of December 31, 2018 primarily consisted of $ 416.8 million related to the construction of ultra-deepwater drillships VALARIS DS-13 and VALARIS DS-14 and $ 352.4 million related to the construction of VALARIS JU-123, an ultra-premium harsh environment jackup rig.

VALARIS JU-123 was placed into service and reclassified from work-in-progress to drilling rigs and equipment during the year ended December 31, 2019 .

Other 178.8 206.2

$ 13,209.3 $ 18,393.8

Drilling rigs and equipment as of December 31, 2020 decreased by $ 5.1 billion, or 29 %, as compared to the prior period primarily due to impairments and sales of certain assets in our fleet.

Work-in-progress as of December 31, 2020 and 2019 primarily consisted of approximately $ 418 million related to the construction of ultra-deepwater drillships VALARIS DS-13 and VALARIS DS-14.

Impairment of Long-Lived Assets

During the year ended December 31, 2020, 2019 and 2018, we recorded an aggregate pre-tax, non-cash impairment with respect to certain floaters, jackups and spare equipment of $ 3.6 billion, $ 98.4 million and $ 40.3 million which is included in loss on impairment in our Consolidated Statements of Operations.

Assets held-for-use

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

Together with the Rowan Transaction, and as a result of the evaluation of the strategy of the combined fleet, we determined that a triggering event occurred resulting in the performance of a fleet-wide recoverability test.

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

During the first quarter of 2020, the COVID-19 global pandemic and the response thereto negatively impacted the macro-economic environment and global economy.

Global oil demand fell sharply at the same time

global oil supply increased as a result of certain oil producers competing for market share which lead to a supply glut.

As a consequence, Brent crude oil fell from around $ 60 per barrel at year-end 2019 to around $ 20 per barrel as of mid-April 2020.

These adverse changes and impacts to our customer's capital expenditure plans in the first quarter resulted in further deterioration in our forecasted day rates and utilization for the remainder of 2020 and beyond.

As a result, we concluded that a triggering event had occurred and we performed a fleet-wide recoverability test.

We determined that our estimated undiscounted cash flows were not sufficient to recover the carrying values of certain rigs and concluded such were impaired as of March 31, 2020.

Based on the asset impairment analysis performed as of March 31, 2020, we recorded a pre-tax, non-cash loss on impairment in the first quarter with respect to certain floaters, jackups and spare equipment totaling $ 2.8 billion.

We measured the fair value of these assets to be $ 72.3 million at the time of impairment by applying either an income approach, using projected discounted cash flows or estimated 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 had been impacted by the adverse changes in the business environment observed during the first quarter.

During the second quarter of 2020, given the anticipated sustained market impacts arising from the decline in oil price and demand late in the first quarter, we revised our long-term operating assumptions which resulted in a triggering event for purposes of evaluating impairment and we performed a fleet-wide recoverability test.

As a result, we recorded a pre-tax, non-cash impairment with respect to two floaters and spare equipment totaling $ 817.3 million.

We measured the fair value of these assets to be $ 69.0 million at the time of impairment by applying an income approach or estimated scrap value.

These valuations were based on unobservable inputs that require significant judgments for which there is limited information including, in the case of the income approach, assumptions regarding future day rates, utilization, operating costs and capital requirements.

During 2019, together with the Rowan Transaction, and as a result of the evaluation of the strategy of the combined fleet, we determined that a triggering event occurred resulting in the performance of a fleet-wide recoverability test.

We determined that estimated undiscounted cash flows were sufficient to cover the rigs carrying values and concluded that no impairments were necessary.

During 2019 , we recorded a pre-tax, non-cash loss on impairment of $ 98.4 million on two older, non-core assets in our fleet upon classification as held-for-sale.

We determined that the fair value less cost to sell was lower than each rig's carrying value and concluded that the rigs were impaired.

During 2018 , we recorded a pre-tax, non-cash loss on impairment of $ 40.3 million related to one older non-core jackup rig.

During 2018, we recognized a pre-tax, non-cash loss on impairment of $ 40.3 million related to one older non-core jack up rig.

We concluded that a triggering event occurred due to the expiration of a legacy higher day rate contract resulting in the performance of a recoverability test.

We determined that the estimated undiscounted cash flows over

the remaining useful life of the rig were not sufficient to recover the rig’s carrying value and concluded the rig was impaired as of December 31, 2018 .

During 2017 , we recognized a pre-tax, non-cash loss on impairment of $ 182.9 million related to older, less capable, non-core assets in our fleet.

We determined that the remaining useful life of certain non-core rigs would not extend substantially beyond their current contracts, resulting in triggering events and the performance of recoverability tests.

Our estimates of undiscounted cash flows over the revised estimated remaining useful lives were not sufficient to recover each asset’s carrying value.

Accordingly, we concluded that two semisubmersibles and one jackup were impaired as of December 31, 2017 .

For rigs classified as held-for-sale, we recorded an impairment for the difference between their carrying value and the fair value less costs to sell.

We estimated fair value using significant other observable inputs including indicative scrap values based on historical sale prices.

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

We determined that the estimated undiscounted cash flows over the remaining useful life of the rig were not sufficient to recover the rigs carrying value and concluded the rig was impaired as of December 31, 2018 .

We estimated the fair values of these rigs by applying an income approach, using projected discounted cash flows.

These valuations were based on unobservable inputs that require significant judgments for which there is limited information, including assumptions regarding future day rates, utilization, operating costs and capital requirements.

These valuations were based on unobservable inputs that required significant judgments for which there was limited information, including assumptions regarding future day rates, utilization, operating costs and capital requirements.

Forecasted day rates and utilization took into account market conditions and our anticipated business outlook.

If the global economy, our overall business outlook and/or our expectations regarding the marketability of one or more of our drilling rigs deteriorate further, we may conclude that a triggering event has occurred and perform a recoverability test that could lead to a material impairment charge in future periods.

The carrying value of our long-term debt as of December 31, 2019 and 2018 consisted of the following (in millions):

Assets held-for-sale

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

We continue to focus on our fleet management strategy in light of the composition of our rig fleet.

While taking into account certain restrictions on the sales of assets under our DIP Credit Agreement, as part of our strategy, we may act opportunistically from time to time to monetize assets to enhance stakeholder value and improve our liquidity profile, in addition to reducing holding costs by selling or disposing of older, lower-specification or non-core rigs.

To this end, we continually assess our rig portfolio and actively work with our rig broker to market certain rigs.

On a quarterly basis, we assess whether any rig meets the criteria established for held-for-sale classification on our balance sheet.

All rigs classified as held-for-sale are recorded at fair value, less costs to sell.

We measure the fair value of our assets held-for-sale by applying a market approach based on unobservable third-party estimated prices that would be received in exchange for the assets in an orderly transaction between market participants or a negotiated sales price.

We reassess the fair value of our held-for-sale assets on a quarterly basis and adjust the carrying value, as necessary.

During the second quarter of 2020, we classified the following rigs as held-for-sale:

VALARIS 8500, VALARIS 8501, VALARIS 8502, VALARIS DS-3, VALARIS DS-5, VALARIS DS-6 and VALARIS JU-105.

The carrying value of these rigs was reduced to fair value, less costs to sell, based on their estimated sales price, and we recorded a pre-tax, non-cash loss on impairment totaling $ 15.0 million.

These rigs were subsequently sold during the third quarter of 2020.

During the third quarter of 2020, we classified VALARIS 8504, VALARIS JU-84 and VALARIS JU-88 as held-for-sale.

The fair value, less costs to sell, based on each rig's estimated sales price, was in excess of the respective carrying value.

As a result, we concluded that there was no impairment of these rigs.

These rigs were sold during the fourth quarter of 2020.

During the fourth quarter of 2020, we classified our Australia office building as held-for-sale.

The fair value, less cost to sale, of this asset was determined to be in excess of the carrying value and we concluded that there was no impairment for the asset.

Our Australia office building had a remaining aggregate carrying value of $ 2.3 million and is included in other assets, net, on our Consolidated Balance Sheet as of December 31, 2020.

During the third quarter of 2019, we decided to retire VALARIS 5006 and classified the rig as held-for-sale.

We recognized a pre-tax, non-cash loss on impairment of $ 88.2 million, which represented the difference between the carrying value of the rig and related assets and their estimated fair value, less costs to sell.

We subsequently sold the rig during the fourth quarter of 2019.

During the fourth quarter of 2019, we classified VALARIS 6002, VALARIS JU-68 and VALARIS JU-70 as held-for-sale.

We recognized a pre-tax impairment charge of $ 10.2 million for the VALARIS JU-70.

VALARIS 6002 and VALARIS JU-68 were subsequently sold in the first quarter of 2020 and VALARIS JU-70 was sold in the second quarter of 2020.

The carrying value of our debt as of December 31, 2020 and 2019 consisted of the following (in millions):

6.875 % Senior notes due 2020

$ 122.9 $ 124.8

4.70 % Senior notes due 2021

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7.75 % Senior notes due 2026

1,000.0 987.1

7.20 % Debentures due 2027

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5.75 % Senior notes due 2044

1,000.5 973.3

5.85 % Senior notes due 2044 (2)

Amounts drawn under the revolving credit facility (3)

Total debt $ 7,096.3 $ 6,048.3

Liabilities Subject to Compromise 7,096.3 —

current maturities — 124.8

Total long-term debt $ — $ 5,923.5

The decline in the carrying value of our 4.50 % and 8.00 % senior notes due 2024, 5.20 % senior notes due 2025 and 7.20 % debentures due 2027 resulted from repurchases made pursuant to the tender offer discussed below.

Our 2024 Convertible Notes were issued with a conversion feature.

The 2024 Convertible Notes were separated into their liability and equity components on our 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 $ 838.3 million and $ 836.3 million as of December 31, 2019 and 2018 , respectively.

(1) The carrying amounts above represent the aggregate principal amount of Senior Notes outstanding as well as outstanding borrowings under our revolving credit facility as of the Petition Date and are classified as Liabilities Subject to Compromise in our Consolidated Balance Sheet as of December 31, 2020.

See below and " Note 2 - Chapter 11 Proceedings and Ability to Continue as a Going Concern" for additional information.

(2) These senior notes were acquired in the Rowan Transaction.

2024 Convertible Notes

In December 2016, Ensco Jersey Finance Limited, a wholly-owned subsidiary of Valaris plc, issued $ 849.5 million aggregate principal amount of 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.

Upon conversion of the 2024 Convertible Notes, holders will receive cash, our Class A ordinary shares or a combination thereof, at our election.

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 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 the denominator for our computation of diluted EPS using the treasury stock method.

See " Note 1 - Description of the Business and Summary of Significant Accounting Policies" for additional information regarding the impact to our EPS.

The 2024 Convertible Notes were separated into their liability and equity components and included in long-term debt and additional paid-in capital on our consolidated balance sheet, respectively.

The carrying amount of the liability component was calculated by measuring the estimated fair value of a similar liability that does not include an associated conversion feature.

The carrying amount of the equity component representing the conversion feature was determined by deducting the fair value of the liability component from the principal amount of the 2024 Convertible Notes.

The difference between the carrying amount of the liability and the principal amount is amortized to interest expense over the term of the 2024 Convertible Notes, together with the coupon interest, resulting in an effective interest rate of approximately 8 % per annum.

The equity component is not remeasured if we continue to meet certain conditions for equity classification.

The costs related to the issuance of the 2024 Convertible Notes were allocated to the liability and equity components based on their relative fair values.

Issuance costs attributable to the liability component are amortized to interest expense over the term of the notes and the issuance costs attributable to the equity component were recorded to additional paid-in capital on our consolidated balance sheet.

As of December 31, 2019 and 2018 , the 2024 Convertible Notes consist of the following (in millions):

Liability component:

Unamortized debt discount and issuance costs

Net carrying amount

Equity component, net

During the year ended December 31, 2019 , 2018 and 2017 , we recognized $ 25.5 million associated with coupon interest.

Amortization of debt discount and issuance costs were $ 32.5 million , $ 31.0 million and $ 31.4 million for the years ended December 31, 2019 , 2018 and 2017 , respectively.

The indenture governing the 2024 Convertible Notes contains customary events of default, including failure to pay principal or interest on such notes when due, among others.

The indenture also contains certain restrictions, including, among others, restrictions on our ability and the ability of our subsidiaries to create or incur secured indebtedness, enter into certain sale/leaseback transactions and enter into certain merger or consolidation transactions.

As a result of the Rowan Transaction, we acquired the following debt issued by Rowan Companies, Inc.

("RCI") and guaranteed by Rowan:

(1) $ 201.4 million in aggregate principal amount of 7.875 % unsecured senior notes, which was repaid at maturity in August 2019, (2) $ 620.8 million in aggregate principal amount of 4.875 % unsecured senior notes due 2022 (the "Rowan 2022 Notes"), (3) $ 398.1 million in aggregate principal amount of 4.75 % unsecured senior notes due 2024 (the "Rowan 2024 Notes"), (4) $ 500.0 million in aggregate principal amount of 7.375 % unsecured senior notes due 2025 (the "Rowan 2025 Notes"), (5) $ 400.0 million in aggregate principal amount of 5.4 % unsecured senior notes due 2042 (the "Rowan 2042 Notes") and (6) $ 400.0 million in aggregate principal amount of 5.85 % unsecured senior notes due 2044 (the "Rowan 2044 Notes" and collectively, the "Rowan Notes").

Upon closing of the Rowan Transaction, we terminated Rowan's outstanding credit facilities.

(3) In addition to the amount borrowed above, we had $ 27.0 million in undrawn letters of credit issued under the revolving credit facility.

The commencement of the Chapter 11 Cases constituted an event of default under our pre-petition indebtedness.

Any efforts to enforce payment obligations under our Debt Instruments and other obligations of the Debtors are automatically stayed as a result of the filing of the Chapter 11 Cases and the holders' rights of enforcement in respect of the Debt Instruments are subject to the applicable provisions of the Bankruptcy Code.

See “ Note 2 - Chapter 11 Proceedings and Ability to Continue as a Going Concern” for additional details regarding the Chapter 11 Cases.

On September 25, 2020, following approval by the Bankruptcy Court, the Debtors entered into the DIP Credit Agreement, by and among the Company and certain wholly owned subsidiaries of the Company, as borrowers, the lenders party thereto and Wilmington Savings Fund Society, FSB, as administrative agent and security trustee, in an aggregate amount not to exceed $ 500.0 million that will be used to finance, among other things, the ongoing general corporate needs of the Debtors during the course of the Chapter 11 Cases and to pay certain fees, costs and expenses associated with the Chapter 11 Cases.

For additional information related to the terms, covenants and restrictions under the DIP Credit Agreement, please See “ Note 2 - Chapter 11 Proceedings and Ability to Continue as a Going Concern”.

As of December 31, 2020, we had no borrowings outstanding against our DIP Facility.

The commencement of the Chapter 11 Cases resulted in an event of default under each series of our Senior Notes and all obligations thereunder were accelerated.

However, any efforts to enforce payment obligations related to the acceleration of our debt have been automatically stayed as a result of the filing of the Chapter 11 Cases.

Pursuant to the plan of reorganization contemplated by the Amended RSA, each series of our Senior Notes will be cancelled and the holders thereunder will receive the treatment as set forth in the plan of reorganization.

Accordingly, the $ 6.5 billion in aggregate principal amount under the Senior Notes are Liabilities Subject to Compromise in our Consolidated Balance Sheet as of December 31, 2020.

As a result of the Rowan Transaction, we acquired the following senior notes issued by Rowan Companies, LLC (formerly 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 have been repaid in full, (2) $ 620.8 million in aggregate principal amount of 4.875 % 2022 Notes (the "4.875% 2022 Notes"), (3) $ 398.1 million in aggregate principal amount of 4.75 % 2024 Notes (the "4.75% 2024 Notes"), (4) $ 500.0 million in aggregate principal amount of 7.375 % 2025 Notes (the "7.375% 2025 Notes"), (5) $ 400.0 million in aggregate principal amount of 2042 Notes (the "2042 Notes"), and (6) $ 400.0 million in aggregate principal amount of 5.85 % 2044 Notes (the "5.85% 2044 Notes").

On 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 notes and the related indenture.

On January 26, 2018, we issued $ 1.0 billion aggregate principal amount of unsecured 7.75 % senior notes due 2026 (the "2026 Notes") at par, net of $ 16.5 million of debt issuance costs.

On January 26, 2018, we issued $ 1.0 billion aggregate principal amount of unsecured 7.75 % senior notes due 2026 (the "2026 Notes") at par, net of $ 16.5 million in debt issuance costs.

Interest on the 2026 Notes is payable semiannually on February 1 and August 1 of each year.

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Interest on the New 2044 Notes is payable semiannually on April 1 and October 1 of each year.

During 2014, we issued $ 625.0 million aggregate principal amount of unsecured 4.50 % senior notes due 2024 (the "2024 Notes") at a discount of $ 0.9 million and $ 625.0 million aggregate principal amount of unsecured 5.75 % senior notes due 2044 (the "Existing 2044 Notes" and together with the New 2044 Notes, the "2044 Notes") at a discount of $ 2.8 million .

Interest on the 2024 Notes and the Existing 2044 Notes is payable semiannually on April 1 and October 1 of each year.

The Existing 2044 Notes and the New 2044 Notes are treated as a single series of debt securities under the indenture governing the notes.

The Existing 2044 Notes together with the New 2044 Notes, the "2044 Notes", are treated as a single series of debt securities under the indenture governing the notes.

During 2011, we issued $ 1.5 billion aggregate principal amount of unsecured 4.70 % senior notes due 2021 (the “2021 Notes”) at a discount of $ 29.6 million in a public offering.

Interest on the 2021 Notes is payable semiannually on March 15 and September 15 of each year.

Upon consummation of the Pride International LLC ("Pride") acquisition during 2011, we assumed outstanding debt comprised of $ 900.0 million aggregate principal amount of unsecured 6.875 % senior notes due 2020 , $ 500.0 million aggregate principal amount of unsecured 8.5 % senior notes due 2019 and $ 300.0 million aggregate principal amount of unsecured 7.875 % senior notes due 2040 (collectively, the "Acquired Notes" and together with the Rowan Notes, 2021 Notes, 8% 2024 Notes, 2024 Notes, 2025 Notes, 2026 Notes and 2044 Notes, the "Senior Notes").

Upon consummation of our acquisition of Pride International LLC ("Pride") during 2011, we assumed outstanding debt comprised of $ 900.0 million aggregate principal amount of unsecured 6.875 % senior notes due 2020 , $ 300.0 million aggregate principal amount of unsecured 7.875 % senior notes due 2040 (collectively, the "Pride Notes"), and $ 500.0 million aggregate principal amount of unsecured 8.5 % senior notes due 2019 (collectively, with the Pride Notes, the "Acquired Notes").

Valaris plc has fully and unconditionally guaranteed the performance of all Pride obligations with respect to the Acquired Notes.

See " Note 17 - Guarantee of Registered Securities " for additional information on the guarantee of the Acquired Notes.

We may redeem the Senior Notes in whole at any time, or in part from time to time, prior to maturity.

If we elect to redeem the Rowan 2022 Notes, Rowan 2024 Notes, 8% 2024 Notes, 2024 Notes, 2025 Notes, Rowan 2025 Notes and 2026 Notes before the date that is three months prior to the maturity date or the Rowan 2042 Notes, Rowan 2044 Notes and 2044 Notes before the date that is six months prior to the maturity date, we will pay an amount equal to 100 % of the principal amount of the notes redeemed plus accrued and unpaid interest and a "make-whole" premium.

If we elect to redeem these notes on or after the aforementioned dates, we will pay an amount equal to 100 % of the principal amount of the notes redeemed plus accrued and unpaid interest but we are not required to pay a "make-whole" premium.

We may redeem each series of the 2021 Notes and the Acquired Notes, in whole or in part, at any time at a price equal to 100 % of their principal amount, plus accrued and unpaid interest and a "make-whole" premium.

The indentures governing the Senior Notes contain customary events of default, including failure to pay principal or interest on such notes when due, among others.

The indentures governing the Senior Notes also contain certain restrictions, including, among others, restrictions on our ability and the ability of our subsidiaries to create or incur secured indebtedness, enter into certain sale/leaseback transactions and enter into certain merger or consolidation transactions.

Certain of these senior notes allow us to redeem these senior notes, either in whole in part, subject to the payment of certain “make whole” premiums.

However, due to the commencement of the Chapter 11 Cases we do not expect to make any such redemptions.

The indentures governing these senior notes contain customary events of default, including failure to pay principal or interest on such notes when due, among others.

Debentures Due 2027

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We may redeem the Debentures, in whole or in part, at any time prior to maturity, at a price equal to 100 % of their principal amount, plus accrued and unpaid interest and a "make-whole" premium.

During 2009, Ensco plc entered into a supplemental indenture to unconditionally guarantee the principal and interest payments on the Debentures.

See " Note 17 - Guarantee of Registered Securities " for additional information on the guarantee of the Debentures.

During 2009, Valaris plc entered into a supplemental indenture to unconditionally guarantee the principal and interest payments on the Debentures.

The Debentures and the indenture pursuant to which the Debentures were issued also contain customary events of default, including failure to pay principal or interest on the Debentures when due, among others.

2024 Convertible Notes

In December 2016, Ensco Jersey Finance Limited, a wholly-owned subsidiary of Valaris plc, issued $ 849.5 million aggregate principal amount of 3.00 % convertible senior notes due 2024 (the "2024 Convertible Notes") in a private offering.

The 2024 Convertible Notes are fully and unconditionally guaranteed, on a senior, unsecured basis, by Valaris plc.

Under the terms of our debt agreement, we have the option to settle our 2024 Convertible Notes in cash, shares or a combination thereof for the aggregate amount due upon conversion.

However, the commencement of the Chapter 11 Cases on August 19, 2020, constituted an event of default under the 2024 Convertible Notes.

See " Note 1 - Description of the Business and Summary of Significant Accounting Policies" for additional information regarding the impact to our EPS.

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.

The 2024 Convertible Notes were separated, at issuance, into their liability and equity components on our consolidated balance sheet.

The equity component was initially recorded to additional paid-in capital and as a debt discount and the discount was being amortized to interest expense over the life of the instrument.

The carrying amount of the liability component was initially calculated by measuring the estimated fair value of a similar liability that did not include an associated conversion feature.

The carrying amount of the equity component representing the conversion feature was initially determined by deducting the fair value of the liability component from the principal amount of the 2024 Convertible Notes.

The difference between the carrying amount of the liability and the principal amount has been amortized to interest expense over the term of the 2024 Convertible Notes, together with the coupon interest, resulting in an effective interest rate of approximately 8.00 % per annum.

As discussed above, the carrying amount of the 2024 Convertible Notes at December 31, 2020 represents the aggregate principal amount of these notes as of the Petition Date and are classified as Liabilities Subject to Compromise in our Consolidated Balance Sheet as of December 31, 2020.

The equity component is $ 220.0 million at December 31, 2020 and remains in Additional Paid-Capital.

The equity component is not remeasured if we continue to meet certain conditions for equity classification.

The costs related to the issuance of the 2024 Convertible Notes were initially allocated to the liability and equity components based on their relative fair values.

Issuance costs attributable to the liability component were amortized to interest expense over the term of the notes and the issuance costs attributable to the equity component were recorded to additional paid-in capital on our consolidated balance sheet.

During the year ended December 31, 2020, 2019 and 2018, we recognized $ 16.1 million, $ 25.5 million, and $ 25.5 million, respectively, associated with coupon interest.

Amortization of debt discount and issuance costs were $ 21.4 million, $ 32.5 million and $ 31.0 million for the years ended December 31, 2020, 2019 and 2018, respectively.

We discontinued accruing interest on these notes as of the Petition Date.

As of December 31, 2020 and 2019, the 2024 Convertible Notes consist of the following (in millions):

Liability component:

Principal $ 849.5 $ 849.5

Unamortized debt discount and issuance costs — ( 150.5 )

Net carrying amount (1)

$ 849.5 $ 699.0

Equity component, net $ 220.0 $ 220.0

(1) The carrying amount at December 31, 2020 represents the aggregate principal amount of these notes as of the Petition Date and are classified as Liabilities Subject to Compromise in our Consolidated Balance Sheet as of December 31, 2020.

The indenture governing the 2024 Convertible Notes contains customary events of default, including failure to pay principal or interest on such notes when due, among others.

The indenture also contains certain restrictions, including, among others, restrictions on our ability and the ability of our subsidiaries to create or incur secured

indebtedness, enter into certain sale/leaseback transactions and enter into certain merger or consolidation transactions.

The 2021 Notes, 4.875 % 2022 Notes, 4.75 % 2024 Notes, 8.00 % 2024 Notes, 2024 Notes, 2025 Notes, 7.375 % 2025 Notes, 2026 Notes, 2042 Notes, 5.85 % 2044 Notes, Existing 2044 Notes, the Pride Notes, the Debentures and 2024 Convertible Notes" together are the "Senior Notes".

The commencement of the Chapter 11 Cases on August 19, 2020, constituted an event of default under our Senior Notes.

Tender Offers and Open Market Repurchases

On June 25, 2019, we commenced cash tender offers for certain series of senior notes issued by us, Ensco International Incorporated and RCI, our wholly-owned subsidiaries.

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 statements of operations.

On June 25, 2019, we commenced cash tender offers for certain series of senior notes issued by us and Ensco International Incorporated and RCI, our wholly-owned subsidiaries.

The tender offers expired on July 23, 2019, and we repurchased $ 951.8 million of our outstanding senior notes for an aggregate purchase price of $ 724.1 million.

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As a result of these transactions, we recognized a pre-tax loss from debt extinguishment of $ 19.0 million, net of discounts, premiums, debt issuance costs and commissions in other, net, in the consolidated statement of operations.

During 2017, we repurchased $ 194.1 million of our outstanding senior notes on the open market for an aggregate purchase price of $ 204.5 million with cash on hand and recognized an insignificant pre-tax gain, net of discounts, premiums and debt issuance costs.

Our tender offers and open market repurchases during the three-year period ended December 31, 2019 were as follows (in millions):

Aggregate Principal Amount Repurchased

Aggregate Repurchase Price (1)

Our tender offers and open market repurchases during the three-year period ended December 31, 2020 are summarized in the following table (in millions):

Aggregate Principal Amount Repurchased Aggregate Repurchase Price (1)

Year Ended December 31, 2020

4.70 % Senior notes due 2021

4.75% Senior notes due 2024

8.00% Senior notes due 2024

Year Ended December 31, 2019

4.50 % Senior notes due 2024

$ 320.0 $ 240.0

4.75 % Senior notes due 2024

8.00 % Senior notes due 2024

Year Ended December 31, 2018

5.20 % Senior notes due 2025

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7.20 % Senior notes due 2027

$ 951.8 $ 724.1

Year Ended December 31, 2018

8.50 % Senior notes due 2019

$ 237.6 $ 256.8

6.875 % Senior notes due 2020

4.70 % Senior notes due 2021

$ 721.8 $ 771.2

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

Exchange Offers

During 2017, we completed exchange offers to exchange our outstanding 2019 , 2020 and 2021 Notes for our 8 % 2024 Notes and cash.

The exchange offers resulted in the tender of $ 649.5 million aggregate principal amount of our outstanding notes that were settled and exchanged as follows (in millions):

Aggregate Principal Amount Repurchased

8% Senior Notes Due 2024 Consideration

Consideration

Total Consideration

Revolving Credit Facility and DIP Facility

Effective upon closing of the Rowan Transaction, our revolving credit facility was $ 1.6 billion.

As previously disclosed, prior to the commencement of the Chapter 11 Cases, we entered into a series of waiver agreements (the “Waivers”) between the dates of June 1, 2020 and August 3, 2020 in respect of the revolving credit facility.

The Waivers did not address any event of default resulting under the revolving credit facility attributed to the filing of Chapter 11 Cases.

Consequently, the principal and interest under our revolving credit facility became immediately due and payable upon filing of such Chapter 11 Cases, which constituted an event of default under the revolving credit facility.

However, the ability of the lenders under the revolving credit facility to exercise remedies in respect of the revolving credit facility was stayed upon commencement of the Chapter 11 Cases.

While the revolving credit facility has not been terminated, notwithstanding the $ 1.6 billion borrowing capacity under the revolving credit facility, no further borrowings under the revolving credit facility are permitted.

As of December 31, 2020 , we had $ 581.0 million of borrowings outstanding under our revolving credit facility and $ 27.0 million of undrawn letters of cred it.

The outstanding borrowings as well as accrued interest as of the Petition Date are classified as Liabilities Subject to Compromise in our Consolidated Balance Sheet as of December 31, 2020.

See " Note 2 - Chapter 11 Proceedings and Ability to Continue as a Going Concern" for more information related to our Chapter 11 Cases to effect a comprehensive restructuring of our indebtedness.

On September 25, 2020, following approval by the Bankruptcy Court, the Debtors entered into the DIP Credit Agreement in an aggregate amount not to exceed $ 500.0 million.

We expect cash on hand and the DIP Facility will provide sufficient liquidity for us during the pendency of the Chapter 11 Cases based on current projections of cash flows.

Should we experience material variations from our projected cash flows, this could result in us having insufficient liquidity from the DIP Facility and in turn could have a material adverse impact on our financial position, operating results or cash flows.

See " Note 2 - Chapter 11 Proceedings and Ability to Continue as a Going Concern" for a more detailed description of our DIP Facility.

The original principal amounts issued under our senior notes have subsequently changed as a result of our tenders, repurchases, exchanges, redemptions and new debt issuances such that the balance outstanding at December 31, 2020 were as follows (in millions):

Subject to Compromise (2)

Senior Notes (2)

Original Principal 2016 Tenders, Repurchases and Equity Exchange 2017 Exchange Offers and Repurchases 2018 Tender Offers, Redemption and Debt Issuance 2019 Tender Offers and Acquired Debt 2020 Open Market Repurchase Remaining Principal

6.875 % Senior Notes due 2020

$ 900.0 $ ( 219.2 ) $ ( 229.9 ) $ ( 328.0 ) $ — $ — $ 122.9

4.70 % Senior Notes due 2021

1,500.0 ( 817.0 ) ( 413.3 ) ( 156.2 ) — ( 12.8 ) 100.7

4.875 % Senior notes due 2022 (1)

During the year ended December 31, 2017, we recognized a pre-tax loss on the exchange offers of approximately $ 6.2 million .

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 credit facility had a borrowing capacity of $ 2.0 billion through September 2019 that declined to $ 1.3 billion through September 2020 and $ 1.2 billion through September 2022.

Subsequent to the amendment, our borrowing capacity is $ 1.6 billion through September 2022.

The credit agreement governing the Credit Facility includes an accordion feature allowing us to increase the 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 $ 1.6 billion commitment, which is also based on our credit ratings.

On December 6, 2019, Moody's downgraded our corporate family rating from B3 to Caa1 and our senior unsecured notes from Caa1 to Caa2.

Previously, in September 2019, Standard & Poor's downgraded our senior unsecured bonds from B to B- and our issuer rating from B- to CCC+.

The applicable margin rates are 3.25 % per annum for Base Rate advances and 4.25 % per annum for LIBOR advances.

The quarterly commitment fee is 0.75 % per annum on the undrawn portion of the $ 1.6 billion commitment.

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;

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 credit facility) would exceed $ 200 million ;

and entering into certain transactions with affiliates.

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

This covenant is subject to certain exceptions that permit us to manage our balance sheet, including the ability to make repayments of indebtedness (i) of acquired companies within 90 days of the completion of the acquisition or (ii) if, after giving effect to such repayments, available

cash is greater than $ 250 million and there are no amounts outstanding under the credit facility.

The July 2019 tender offers discussed above were in compliance with these covenants.

As of December 31, 2019 , we were in compliance in all material respects with our covenants under the credit facility.

We expect to remain in compliance with our credit facility covenants during 2020 .

We had no amounts outstanding under the credit facility as of December 31, 2019 and 2018 .

As of January 31, 2020, we had $90 million of total outstanding borrowings under our credit facility.

Our access to credit and capital markets depends on the credit ratings assigned to our debt.

As a result of rating actions by credit rating agencies, 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 are likely to involve higher borrowing costs and require more restrictive terms and covenants, which may further restrict our operations.

The descriptions of our senior notes above reflect the original principal amounts issued, which have subsequently changed as a result of our tenders, repurchases, exchanges, redemptions and new debt issuances such that the maturities of our debt were as follows (in millions):

Original Principal

2016 Tenders, Repurchases and Equity Exchange

2017 Exchange Offers and Repurchases

2018 Tender Offers, Redemption and Debt Issuance

2019 Tender Offers, Redemption and Debt Issuance

Remaining Principal

6.875% due 2020

4.70% due 2021

4.875% due 2022 (1)

— — — — 620.8 — 620.8

3.00 % Exchangeable senior notes due 2024

4.50% due 2024

4.75% due 2024 (1)

8.00% due 2024

5.20% due 2025

7.375% due 2025 (1)

7.75% due 2026

7.20% due 2027

7.875% due 2040

5.40% due 2042 (1)

5.75% due 2044

5.85% due 2044 (1)

849.5 — — — — — 849.5

4.50 % Senior notes due 2024

625.0 ( 1.6 ) — — ( 320.0 ) — 303.4

4.75 % Senior notes due 2024 (1)

— — — — 318.6 — 318.6

8.00 % Senior Notes due 2024

— — 332.0 — ( 39.7 ) — 292.3

5.20 % Senior Notes due 2025

700.0 ( 30.8 ) — — ( 335.5 ) — 333.7

7.375 % Senior Notes due 2025 (1)

— — — — 360.8 — 360.8

7.75 % Senior Notes due 2026

— — — 1,000.0 — — 1,000.0

7.20 % Debentures due 2027

150.0 — — — ( 37.9 ) — 112.1

7.875 % Senior notes due 2040

300.0 — — — — — 300.0

5.40 % Senior notes due 2042 (1)

— — — — 400.0 — 400.0

5.75 % Senior notes due 2044

1,025.0 ( 24.5 ) — — — — 1,000.5

5.85 % Senior notes due 2044 (1)

— — — — 400.0 — 400.0

Total $ 6,049.5 $ ( 1,093.1 ) $ ( 311.2 ) $ 515.8 $ 1,367.1 $ ( 12.8 ) $ 6,515.3

(1) These senior notes were acquired in the Rowan Transaction.

(2) The $ 6.5 billion aggregate principal amount of Senior Notes outstanding as well as associated $201.9 million in accrued interest as of the Petition Date are classified as Liabilities Subject to Compromise in our Consolidated Balance Sheet as of December 31, 2020.

The maturity dates represent the maturity dates per the debt agreements;

however, we are in default on these senior notes and are currently in chapter 11 proceedings.

See "Senior Notes" above and " Note 2 – Chapter 11 Proceedings and Ability to Continue as a Going Concern” for additional information for additional details regarding Chapter 11 Cases.

Interest Expense

Interest expense totaled $ 290.6 million, $ 428.3 million and $ 282.7 million for the years ended December 31, 2020, 2019 and 2018, respectively, which was net of capitalized interest of $ 1.3 million, $ 20.9 million and $ 62.6 million associated with newbuild rig construction and other capital projects.

The contractual interest expense on our unsecured senior notes and revolving credit facility is in excess of recorded interest expense by $ 140.7 million for the year ended December 31, 2020 .

We discontinued making interest payments on our unsecured senior notes beginning in June 2020.

DERIVATIVE INSTRUMENTS

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dollars based on a combination of both current and historical exchange rates.

We use derivatives to reduce our exposure to various market risks, primarily foreign currency exchange rate risk.

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 mitigate our credit risk relating to the counterparties of our derivatives by transacting with multiple, high-quality financial institutions, thereby limiting exposure to individual counterparties, and by entering into International Swaps and Derivatives Association, Inc.

(“ISDA”) Master Agreements, which include provisions for a legally enforceable master netting agreement, with our derivative counterparties.

See " Note 16 - Supplemental Financial Information" for additional information on the mitigation of credit risk relating to counterparties of our derivatives.

We do not enter into derivatives for trading or other speculative purposes.

We previously used derivatives to reduce our exposure to various market risks, primarily foreign currency exchange rate risk.

The commencement of the Chapter 11 Cases constituted a termination event with respect to the Company’s derivative instruments, which permits the counterparties of our derivative instruments to terminate their outstanding contracts.

The exercise of these termination rights are not stayed under the Bankruptcy Code.

During September 2020, the counterparties to the Company’s derivative instruments elected to terminate their outstanding derivatives with us for an aggregate settlement of $ 3.6 million which was recorded as a gain in contract drilling expense in our Consolidated Statement of Operations for the year ended December 31, 2020 related to this termination.

All derivatives were recorded on our consolidated balance sheets at fair value.

Derivatives subject to legally enforceable master netting agreements were not offset on our 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.

See "Note 1 - Description of the Business and Summary of Significant Accounting Policies" for additional information on our accounting policy for derivatives and "Note 5 - Fair Value Measurements" for additional information on the fair value measurement of our derivatives.

As of December 31, 2019 and 2018 , our consolidated balance sheets included net foreign currency derivative assets of $ 5.4 million and liabilities of $ 10.7 million , respectively.

All of our derivatives mature within the next 18 months.

Derivatives recorded at fair value on our consolidated balance sheets as of December 31, 2019 and 2018 consisted of the following (in millions):

Derivative Assets

Derivative Liabilities

Accounting for the gains and losses resulting from changes in the fair value of derivatives depended on the use of the derivative and whether it qualified for hedge accounting.

See " Note 1 - Description of the Business and Summary of Significant Accounting Policies" for additional information on our accounting policy for derivatives.

As of December 31, 2019, our consolidated balance sheets included net foreign currency derivative assets of $ 5.4 million.

See "Note 6 - Fair Value Measurements" for additional information on the fair value measurement of our derivatives.

Derivatives recorded at fair value on our consolidated balance sheet as of December 31, 2019, consisted of the following (in millions):

Derivative Assets Derivative Liabilities

Derivatives Designated as Hedging Instruments

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Foreign currency forward contracts - current (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 consolidated balance sheets.

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 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 contract drilling expenses and capital expenditures denominated in various currencies.

As of December 31, 2019 , we had cash flow hedges outstanding to exchange an aggregate $ 199.1 million for various foreign currencies, including $ 114.8 million for British pounds, $ 45.9 million

for Australian dollars, $ 15.9 million for euros, $ 10.9 million for Norwegian krone, $ 7.9 million for Singapore dollars and $ 3.7 million for Brazilian reals.

Total $ 6.3 $ .9

(1) Derivative assets and liabilities that have maturity dates equal to or less than 12 months from the respective balance sheet date were included in other current assets and accrued liabilities and other, respectively, on our consolidated balance sheet.

(2) Derivative assets and liabilities that have maturity dates greater than 12 months from the respective balance sheet date were included in other assets and other liabilities, respectively, on our consolidated balance sheet.

We have historically utilized cash flow hedges to hedge forecasted foreign currency denominated transactions, primarily to reduce our exposure to foreign currency exchange rate risk associated with contract drilling expenses and capital expenditures denominated in various currencies.

Gains and losses, net of tax, on derivatives designated as cash flow hedges included in our consolidated statements of operations and comprehensive loss for each of the years in the three-year period ended December 31, 2020 were as follows (in millions):

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on Derivatives

(Effective Portion)

(Gain) Loss Reclassified from

(Effective Portion) (Gain) Loss Reclassified from

AOCI into Income

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Effectiveness Testing) (2)

2020 2019 2018 2020 2019 2018 2020 2019 2018

Interest rate lock contracts (3)

$ — $ — $ — $ — $ 1.9 $ .2 $ — $ — $ —

Foreign currency forward contracts (4)

( 5.4 ) 1.6 ( 9.7 ) ( 11.6 ) 6.4 ( 1.2 ) — — ( 1.9 )

Total $ ( 5.4 ) $ 1.6 $ ( 9.7 ) $ ( 11.6 ) $ 8.3 $ ( 1.0 ) $ — $ — $ ( 1.9 )

(1) Changes in the fair value of cash flow hedges are recorded in AOCI.

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(4) During the year ended December 31, 2020, $ 2.0 million of losses were reclassified from AOCI into contract drilling expense and $ 13.6 million of gains were reclassified from AOCI into depreciation expense in our consolidated statement of operations.

During the year ended December 31, 2019, $ 7.3 million of losses were reclassified from AOCI into contract drilling expense and $ 0.9 million of gains were reclassified from AOCI into depreciation expense in our consolidated statement of operations.

During the year ended December 31, 2018, $ 400,000 of gains were reclassified from AOCI into contract drilling expense and $ 800,000 of gains were reclassified from AOCI into depreciation expense in our consolidated statement of operations.

During the year ended December 31, 2017 , $ 1.1 million of losses were reclassified from AOCI into contract drilling expense and $ 900,000 of gains were reclassified from AOCI into depreciation expense in our 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.

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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 December 31, 2019 , we held derivatives not designated as hedging instruments to exchange an aggregate $ 47.1 million for various foreign currencies, including $ 15.4 million for British pounds, $ 6.6 million for Israeli New shekel, $ 5.9 million for Norwegian krone, $ 4.9 million for Nigerian naira, $ 4.5 million for Thai baht, $ 4.3 million for Australian dollars and $ 5.5 million for other currencies.

Net losses of $ 6.4 million and $ 11.8 million and gains of $ 10.0 million associated with our derivatives not designated as hedging instruments were included in other, net, in our consolidated statements of operations for the years ended December 31, 2019, 2018 and 2017 , respectively.

As of December 31, 2019 , the estimated amount of net gains associated with derivatives, net of tax, that will be reclassified to earnings during the next 12 months was as follows (in millions):

Net unrealized losses to be reclassified to contract drilling expense

Net realized gains to be reclassified to depreciation expense

Net losses to be reclassified to earnings

Historically, we have occasionally entered into derivatives that hedged the fair value of recognized foreign currency denominated assets or liabilities but did not designate such derivatives as hedging instruments.

In these situations, a natural hedging relationship generally existed whereby changes in the fair value of the derivatives offset changes in the fair value of the underlying hedged items.

As of December 31, 2020, we did not have open derivative contracts to hedge against this risk.

Net losses of $ 0.2 million, $ 6.4 million and $ 11.8 million associated with our derivatives not designated as hedging instruments were included in other, net, in our consolidated statements of operations for the years ended December 31, 2020, 2019 and 2018, respectively.

SHAREHOLDERS' EQUITY

Activity in our various shareholders' equity accounts for each of the years in the three-year period ended December 31, 2019 was as follows (in millions):

Non-controlling

Activity in our various shareholders' equity accounts for each of the years in the three-year period ended December 31, 2020 was as follows (in millions, except per share amounts):

Shares Par Value Additional

Capital Retained

Earnings AOCI Treasury

Shares Non-controlling

BALANCE, December 31, 2017 111.8 $ 44.8 $ 7,195.0 $ 1,532.7 $ 28.6 $ ( 69.0 ) $ ( 2.1 )

Net loss — — — ( 639.7 ) — — 3.1

Dividends paid ($ 0.16 per share)

— — — ( 18.0 ) — — —

Cumulative-effect reduction from adoption of ASU 2018-02 — — — ( .8 ) .8 — —

Distributions to noncontrolling interests — — — — — — ( 3.6 )

Equity issuance in connection with Atwood Merger

Shares issued under share-based compensation plans, net 3.4 1.4 ( .6 ) — — ( 1.3 ) —

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Share-based compensation cost — — 30.6 — — — —

Net other comprehensive income

Net other comprehensive loss — — — — ( 11.2 ) — —

BALANCE, December 31, 2018 115.2 46.2 7,225.0 874.2 18.2 ( 72.2 ) ( 2.6 )

Net loss — — — ( 198.0 ) — — 5.8

Dividends paid ($ 0.04 per share)

Cumulative-effect reduction from adoption of ASU 2018-02

— — — ( 4.5 ) — — —

Equity issuance in connection with the Rowan Transaction 88.0 35.2 1,367.5 — — .1 —

Shares issued under share-based compensation plans, net 2.7 1.1 ( 1.3 ) — — ( .7 ) —

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Repurchase of shares — — — — — ( 4.5 ) —

Equity issuance cost — — ( .6 ) — — — —

Share-based compensation cost — — 37.2 — — — —

Net changes in pension and other postretirement benefits — — — — ( 21.7 ) — —

Net other comprehensive income — — — — 9.7 — —

BALANCE, December 31, 2019 205.9 82.5 8,627.8 671.7 6.2 ( 77.3 ) ( 1.3 )

Dividends paid ($0.04 per share)

Equity issuance in connection with the Rowan Transaction

Net loss — — — ( 4,855.5 ) — — ( 2.1 )

Shares issued under share-based compensation plans, net .2 .1 ( 1.9 ) — — 2.0 —

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Share-based compensation cost — — 21.2 — — — —

Equity issuance cost

Net changes in pension and other postretirement benefits — — — — ( 76.5 ) — —

Purchase of noncontrolling interests — — ( 7.2 ) — — — —

Distributions to noncontrolling interests — — — — — — ( .9 )

Net other comprehensive income

Net other comprehensive loss — — — — ( 17.6 ) — —

BALANCE, December 31, 2020 206.1 $ 82.6 $ 8,639.9 $ ( 4,183.8 ) $ ( 87.9 ) $ ( 76.2 ) $ ( 4.3 )

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 consolidated financial statements have been retrospectively adjusted to reflect the Reverse Stock Split.

In October 2017, as a result of our acquisition of Atwood Oceanics, Inc.

(the "Atwood Merger"), we issued 33.1 million of our Class A Ordinary shares, representing total equity consideration of $ 770.7 million based on a closing price of $ 5.83 per Class A ordinary share on October 5, 2017, the last trading day before the Merger Date.

company governed in part by the U.K.

See " Note 4 - Rowan Transaction" for additional information.

public limited company subject to the U.K.

Companies Act 2006, we cannot issue new shares (other than in limited circumstances) without being authorized by our shareholders.

At our 2019 annual general meeting, our shareholders authorized the allotment of 67.6 million Class A ordinary shares (or 135.3 million Class A ordinary shares in connection with an offer by way of a rights issue or other similar issue), subject to the completion of the Rowan Transaction.

At our 2020 annual general meeting held on June 15, 2020, our shareholders authorized the allotment of shares up to an aggregate nominal amount of $ 26,431,699 (or up to an aggregate nominal amount equal to $ 52,863,399 in connection with an offer by way of a rights issue or other similar pre-emptive issue), representing approximately 33.3 % and 66.6 % respectively of the issued share capital (excluding treasury shares) of Valaris plc as of 20 April 2020.

Under English law, we are only able to declare dividends and return funds to our shareholders out of the accumulated distributable reserves on our statutory balance sheet.

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There can be no assurance that we will pay a dividend in the future.

Our shareholders approved a share 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 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.

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 for Valaris plc to have sufficient distributable reserves and for the Board to conclude that a repurchase is in the best interest of Valaris plc taking into account the interests of relevant stakeholders, 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 December 31, 2019 , there had been no share repurchases under this program.

As of December 31, 2020, there had been no share repurchases under the repurchase program.

Our DIP Facility only permits the repurchase of shares of our common stock in certain circumstances and the repurchase of shares would likely require approval of the bankruptcy court.

We do not currently expect to make repurchases under the program whilst Valaris plc remains subject to chapter 11 bankruptcy proceedings.

SHARE BASED COMPENSATION

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Under the 2018 LTIP, 10.5 million shares were reserved for issuance as awards to officers, non-employee directors and key employees who are in a position to contribute materially to our growth, development and long-term success.

In April 2020, the 2018 LTIP was amended to increase the number of shares authorized for issuance by 8.2 million.

As of December 31, 2020, there were 12.2 million shares available for issuance as awards under the 2018 LTIP.

Awards may be satisfied by newly issued shares, including shares held by a subsidiary or affiliated entity, or by delivery of shares held in an affiliated employee benefit trust at the Company's discretion.

Grants under the 2018 LTIP are subject to applicable bankruptcy law and settlement of vested share awards and cash-settled awards (each as defined below) held by insiders has been delayed until the Company’s emergence from chapter 11, at which point, such awards are expected to be cancelled unless the insider elects to have their award treated in accordance with the terms of the chapter 11 plan.

In connection with the Rowan Transaction, we assumed the Amended and Restated 2013 Rowan Companies plc Incentive Plan (the "Rowan LTIP") and the non-vested share unit awards, options and share appreciation rights outstanding thereunder.

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In connection with the Atwood Merger, we assumed Atwood’s Amended and Restated 2007 Long-Term Incentive Plan (the “Atwood LTIP”, and together with the 2018 LTIP and the Rowan LTIP, the "LTIP Plans") and the options outstanding thereunder.

As of December 31, 2019 , there were 100,000 shares remaining available for future issuance as awards under the Atwood LTIP, which may be granted to employees and other service providers who were not employed or engaged with Valaris prior to the Atwood Merger.

As of December 31, 2020, there were approximately 200,000 shares remaining available for future issuance as awards under the Atwood LTIP, which may be granted to employees and other service providers who were not employed or engaged with Valaris prior to the Atwood Merger.

Non-Vested Share Awards, Cash-Settled Awards and Non-employee Director Deferred Awards

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Deferred share awards are settled in cash, shares or a combination thereof at the discretion of the Compensation Committee.

During 2019 , no cash-settled awards were granted while 4.5 million share unit awards were granted to our employees and non-employee directors pursuant to the LTIP Plans.

During 2020, 66,000 cash-settled awards were granted while 1.1 million share unit awards were granted to our employees and non-employee directors pursuant to the LTIP Plans.

The 2020 share awards issued to certain executive officers were subsequently forfeited in conjunction with the chapter 11 proceedings.

Our non-vested share awards have voting and dividend rights effective on the date of grant, and our non-vested share units have dividend rights effective on the date of grant.

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The following table summarizes share award and cash-settled award compensation expense recognized during each of the years in the three-year period ended December 31, 2020 (in millions):

2020 2019 2018

Contract drilling $ 10.7 $ 22.1 $ 18.9

General and administrative 9.2 17.4 14.5

19.9 39.5 33.4

Tax benefit ( 1.8 ) ( 2.5 ) ( 2.8 )

$ 18.1 $ 37.0 $ 30.6

The following table summarizes the value of share awards and cash-settled awards granted and vested during each of the years in the three-year period ended December 31, 2020:

Cash-Settled Awards

Share Awards Cash-Settled Awards

2020 2019 2018 2020 2019 2018

Weighted-average grant-date fair value of share awards granted (per share) $ 3.07 $ 11.50 $ 24.62 $ 0.75 $ — $ 21.35

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The following table summarizes share awards and cash-settled awards activity for the year ended December 31, 2020 (shares in thousands):

Cash-settled Awards

Weighted-Average

Share Awards Cash-settled Awards

Awards Weighted-Average

Fair Value Awards Weighted-Average

Share awards and cash-settled awards as of December 31, 2019 6,433 $ 19.89 697 $ 46.28

Rowan share awards assumed

Granted 1,118 3.07 66 0.75

Vested ( 2,473 ) 16.55 ( 342 ) 29.59

Forfeited ( 2,096 ) 8.15 ( 110 ) 28.01

Share awards and cash-settled awards as of December 31, 2020 2,982 $ 16.40 311 $ 22.74

As of December 31, 2019 , there was $ 115.9 million of total unrecognized compensation cost related to share awards, which is expected to be recognized over a weighted-average period of 1.7 years.

As of December 31, 2020, there was $ 30.4 million of total unrecognized compensation cost related to share awards, which has a weighted-average remaining vesting period of 1.4 years.

Share Appreciation Rights

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The exercise price of SARs granted under the Rowan LTIP equals the excess of the market value of the underlying shares on the date of exercise over the market value of the shares on date of grant multiplied by the number of shares covered by the SAR.

The Company intends to share-settle any exercises of SARs and has therefore accounted for SARs as equity awards.

The Company has accounted for SARs as equity awards.

As of December 31, 2020, SARs granted to purchase 426,049 shares with a weighted-average exercise price of $ 53.23 were outstanding under the Rowan LTIP.

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As of December 31, 2020, options granted to purchase 318,377 shares with a weighted-average exercise price of $ 44.94 were outstanding under the Company LTIPs.

Excluding options assumed under the Atwood LTIP, no options have been granted since 2011, and there was no unrecognized compensation cost related to options as of December 31, 2019 .

Excluding options assumed under the Atwood LTIP and Rowan LTIP, no options have been granted since 2011, and there was no unrecognized compensation cost related to options as of December 31, 2020.

Performance Awards

Under the Company LTIPs, performance awards may be issued to our senior executive officers.

The 2019 performance awards are subject to achievement of specified performance goals based on both relative and absolute total shareholder return ("TSR"), while the 2017 and 2018 performance awards are subject to achievement of specified performance goals based on relative TSR and relative return on capital employed ("ROCE") as compared to a specified peer group.

The performance goals are determined by a committee or subcommittee of the Board of Directors.

Awards are payable in either Valaris shares or cash upon attainment of relative TSR and ROCE performance goals.

Performance awards granted since 2017 are payable in cash.

The 2019 performance awards are subject to achievement of specified performance goals based on both relative and absolute total shareholder return ("TSR"), while the 2018 performance awards are subject to achievement of specified performance goals based on relative TSR and relative return on capital employed ("ROCE") as compared to a specified peer group.

The 2020 performance awards were forfeited in exchange for cash-based retention awards.

The performance goals are determined by a committee of the Board of Directors.

Awards are payable in cash upon attainment of relative performance goals.

Performance awards generally vest at the end of a three-year measurement period based on attainment of performance goals.

Our performance awards granted during 2017, 2018 and 2019 are classified as liability awards, all

with compensation expense recognized over the requisite service period.

Our performance awards granted during 2018 and 2019 are classified as liability awards, all with compensation expense recognized over the requisite service period.

The estimated probable outcome of attainment of the specified performance goals is based primarily on relative performance over the requisite performance period.

Any subsequent changes in this estimate are recognized as a cumulative adjustment to compensation cost in the period in which the change in estimate occurs.

The aggregate grant-date fair value of performance awards granted during 2019, 2018 and 2017 totaled $ 6.7 million .

The aggregate grant-date fair value of performance awards granted during 2019 and 2018 was $ 6.7 million.

The 2020 performance awards were subsequently forfeited in conjunction with the Chapter 11 Cases.

The aggregate fair value of performance awards vested during 2020, 2019 and 2018 totaled $ 5.2 million, $ 2.2 million and $ 0.7 million, respectively.

During the years ended December 31, 2020, 2019 and 2018, we recognized $ 1.0 million, $ 3.2 million and $ 8.2 million of compensation expense for performance awards, respectively, which was included in general and administrative expense in our consolidated statements of operations.

As of December 31, 2019 , there was $ 0.8 million of total unrecognized compensation cost related to unvested performance awards, which is expected to be recognized over a weighted-average period of 1.1 years.

Savings Plans

We have savings plans, (the Ensco Savings Plan, the Ensco Multinational Savings Plan, the Ensco Limited Retirement Plan, the Rowan Companies, Inc.

Savings & Investment Plan (the "Rowan Savings Plan"), the RDIS International Savings Plan and the Rowan Drilling UK Pension Scheme), which cover eligible employees as defined within each plan.

The Ensco Savings Plan and the Rowan Savings Plan include a 401(k) savings plan feature, which allows eligible employees to make tax-deferred contributions to the plans.

The Ensco Limited Retirement Plan and the Rowan Drilling UK Pension Scheme also allows eligible employees to make tax-deferred contributions to the plan.

Contributions made to the Ensco Multinational Savings Plan and the RDIS International Savings Plan may or may not qualify for tax deferral based on each plan participant's local tax requirements.

We generally make matching cash contributions to the plans.

The legacy Ensco plans match 100 % of the amount contributed by the employee up to a maximum of 5 % of eligible salary, where the legacy Rowan plans also provide up to a 5% match of eligible salary;

We have savings plans, (the Ensco Savings Plan, the Ensco Multinational Savings Plan, the Ensco Limited Retirement Plan and the frozen RDIS International Savings Plan), which cover eligible employees as defined within each plan.

During 2020, the plan assets of the legacy Rowan savings plans (the Rowan Companies, Inc.

Savings & Investment Plan and the Rowan Drilling UK Pension Scheme) were transferred to the Ensco Savings Plan and the Ensco Limited Retirement Plan, respectively.

The Ensco Savings Plan includes a 401(k) savings plan feature, which allows eligible employees to make tax-deferred contributions to the plans.

The Ensco Limited Retirement Plan allows eligible employees to make tax-deferred contributions to the plan.

Contributions made to the Ensco Multinational Savings Plan may or may not qualify for tax deferral based on each plan participant's local tax requirements.

Historically, we made matching cash contributions to the plans.

The legacy Ensco plans previously matched 100 % of the amount contributed by the employee up to a maximum of 5 % of eligible salary, where the legacy Rowan plans also provided up to a 5% match of eligible salary;

however, depending on the plan and the tier, the match percentage could vary.

Matching contributions totaled $ 8.8 million, $ 18.7 million and $ 14.4 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Any additional discretionary contributions made into the plans require approval of the Board of Directors and are generally paid in cash.

Effective August 1, 2020, in light of the current economic environment, we suspended employer matching contributions for the Ensco Savings Plan and the Ensco Multinational Savings Plan.

In addition, effective December 1, 2020, the matching contributions in the Ensco Limited Retirement Plan were reduced.

Employer contributions may be reinstated in future periods at the discretion of the Board of Directors.

As of January 1, 2019, the plans were modified such that all previous, current and future employer contributions become 100% vested.

We have 1.0 million shares reserved for issuance as matching contributions under the Ensco Savings Plan.

Note 11 - Pension and Other Post-retirement Benefits

PENSION AND OTHER POST- RETIREMENT BENEFITS

Prior to the Rowan Transaction, Rowan established various defined-benefit pension plans and a post-retirement health and life insurance plan that provide benefits upon retirement for certain full-time employees.

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As a result, eligible employees no longer receive pay credits in the pension plan and newly hired employees are not eligible to participate in the pension plan.

The following table presents the changes in benefit obligations and plan assets for the year ended December 31, 2019 and the funded status and weighted-average assumptions used to determine the benefit obligation at year end (dollars in millions):

Pension Benefits

Other Benefits

The following table presents the changes in benefit obligations and plan assets for the year ended December 31, 2020 and 2019 and the funded status and weighted-average assumptions used to determine the benefit obligation at year end (dollars in millions):

Pension Benefits Other Benefits Total Pension Benefits Other Benefits Total

Projected benefit obligation:

Balance, April 11

Balance, January 1 and April 11 $ 832.4 $ 16.1 $ 848.5 $ 800.1 $ 15.9 $ 816.0

Interest cost

Actuarial loss

24.9 0.5 25.4 21.3 0.4 21.7

Service cost 0.1 — 0.1 1.5 — 1.5

Actuarial loss (gain) 97.8 ( 0.1 ) 97.7 43.8 0.2 44.0

Plan settlements ( 6.6 ) — ( 6.6 ) — — —

Plan curtailments ( 3.3 ) — ( 3.3 ) — — —

Benefits paid

( 58.6 ) ( 0.6 ) ( 59.2 ) ( 34.1 ) ( 0.4 ) ( 34.5 )

Foreign currency adjustments

— — — ( 0.2 ) — ( 0.2 )

Balance, December 31 $ 886.7 $ 15.9 $ 902.6 $ 832.4 $ 16.1 $ 848.5

Fair value, April 11

Fair value, January 1 and April 11 $ 598.9 $ — $ 598.9 $ 576.8 $ — $ 576.8

Actual return

57.9 — 57.9 43.6 — 43.6

Employer contributions 11.5 — 11.5 12.8 — 12.8

Plan settlements ( 6.6 ) — ( 6.6 ) — — —

Benefits paid

( 58.6 ) — ( 58.6 ) ( 34.1 ) — ( 34.1 )

Foreign currency adjustments

— — — ( 0.2 ) — ( 0.2 )

Fair value, December 31 $ 603.1 $ — $ 603.1 $ 598.9 — $ 598.9

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Other liabilities (long-term)

( 282.1 ) ( 14.5 ) ( 296.6 ) ( 232.1 ) ( 14.6 ) ( 246.7 )

Net benefit liabilities $ ( 283.6 ) $ ( 15.9 ) $ ( 299.5 ) $ ( 233.5 ) $ ( 16.1 ) $ ( 249.6 )

Accumulated contributions in excess of (less than) net periodic benefit cost

$ ( 179.6 ) $ ( 15.8 ) $ ( 195.4 ) $ ( 206.2 ) $ ( 15.9 ) $ ( 222.1 )

Amounts not yet reflected in net periodic benefit cost:

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Discount rate 2.30 % 2.19 % 3.16 % 3.06 %

Rate of compensation increase

Cash balance interest credit rate 2.94 % N/A 3.29 % N/A

Rate of compensation increase N/A N/A N/A N/A

The unfunded obligation increased by $ 49.9 million.

In addition to the expected year-to-year changes, the increase was primarily attributable to a decline in the discount rate and the impact of updated census data.

This was partially offset by higher than expected return on plan assets and employer contributions of $ 11.5 million.

The projected benefit obligations for pension benefits in the preceding table reflect the actuarial present value of benefits accrued based on services rendered to date and include the estimated effect of future salary increases.

The accumulated benefit obligations, which are presented below for all plans in the aggregate at December 31, 2019 , are based on services rendered to date, but exclude the effect of future salary increases (in millions):

The accumulated benefit obligations, which are presented below for all plans in the aggregate at December 31, 2020 and 2019, are based on services rendered to date, but exclude the effect of future salary increases (in millions):

Accumulated benefit obligation $ 902.6 $ 844.3

The components of net periodic pension cost and the weighted-average assumptions used to determine net periodic pension cost were as follows (dollars in millions):

April 11, 2019 - December 31, 2019

The components of net periodic pension, retiree medical cost and the weighted-average assumptions used to determine net periodic pension and retiree medical cost were as follows (dollars in millions):

Year Ended December 31, 2020 April 11, 2019 - December 31, 2019

Service cost (1)

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Expected return on plan assets (2)

Net periodic pension cost (benefit)

( 36.5 ) ( 27.1 )

Curtailment gain recognized (2)

Settlement gain recognized (2)

Net periodic pension and retiree medical cost (income) $ ( 14.6 ) $ ( 4.3 )

Discount rate 3.16 % 3.82 %

Expected return on assets 6.48 % 6.70 %

Cash balance interest credit rate 3.29 % 3.29 %

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

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The plans employ several active managers with proven long-term records in their specific investment discipline.

Target allocations among asset categories and the fair value of each category of plan assets as of December 31, 2019 , classified by level within the US GAAP fair value hierarchy are presented below.

Target allocations among asset categories and the fair value of each category of plan assets as of December 31, 2020 and 2019, classified by level within the fair value hierarchy are presented below.

The plans will reallocate assets in accordance with the allocation targets, after giving consideration to the expected level of cash required to pay current benefits and plan expenses (dollars in millions):

Quoted prices in active markets for identical assets (Level 1)

Significant observable inputs (Level 2)

Significant unobservable inputs (Level 3)

Target range Total Quoted prices in active markets for identical assets (Level 1) Significant observable inputs (Level 2) Significant unobservable inputs (Level 3)

December 31, 2020

large cap 22 % to 28 %

$ 151.9 $ — $ 151.9 $ —

small cap 4 % to 10 %

48.1 — 48.1 —

International all cap

158.5 — 158.5 —

International small cap

37.0 — 37.0 —

Real estate equities

53.5 — 53.5 —

Fixed income:

Cash and equivalents

Aggregate 9 % to 19 %

74.3 — 74.3 —

Core plus 9 % to 19 %

75.8 75.8 — —

Cash and equivalents 0 % to 10 %

Group annuity contracts — — — —

Total $ 603.1 $ 79.8 $ 523.3 $ —

December 31, 2019

large cap 22 % to 28 %

$ 148.9 $ — $ 148.9 $ —

41.1 — 41.1 —

International all cap

152.4 — 152.4 —

International small cap

34.7 — 34.7 —

Real estate equities

54.9 — 54.9 —

Fixed income:

Aggregate 9 % to 19 %

76.7 — 76.7 —

Core plus 9 % to 19 %

77.6 77.6 — —

Cash and equivalents 0 % to 10 %

Group annuity contracts 6.1 — 6.1 —

Total $ 598.9 $ 84.1 $ 514.8 $ —

Assets in the U.S.

5 unchanged sentences

government, corporate, mortgage- and asset-backed securities and Yankee bonds, and both categories target an average credit rating of “A” or better at all times.

Individual securities in the aggregate fixed income category must be investment grade or above at the time of purchase, whereas securities in the core plus category may have a rating of “B” or above.

Individual securities in the aggregate fixed income category must be investment grade or above at the time of purchase, whereas securities in the core plus category may have a rating

of “B” or above.

Additionally, the core plus category may invest in non-U.S.

10 unchanged sentences

To develop the expected long-term rate of return on assets assumption, we considered the current level of expected returns on risk-free investments (primarily government bonds), the historical level of the risk premium associated with the plans’ other asset classes and the expectations for future returns of each asset class.

The expected return for each asset class was then weighted based upon the current asset allocation to develop the expected long-term rate of return on assets assumption for the plans, which was 6.48 % at December 31, 2019 .

We currently expect to contribute approximately $ 39.8 million to our pension plans in 2021 and to directly pay other post-retirement benefits of approximately $ 1.4 million.

1 unchanged sentence

Such amounts are based on existing benefit formulas and include the effect of future service (in millions):

Pension Benefits

What changed 10-K

Item 8. Financial Statements and Supplementary Data