What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-22 compared with 2021-03-02 · 1246 added, 1084 removed, 1023 unchanged (69% of the section changed)

6 unchanged sentences

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.

Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, we have conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Under the supervision and with the participation of management, including the Chief Executive Officer and Interim Chief Financial Officer, we have conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Based on this evaluation, we have concluded that our internal control over financial reporting is effective as of December 31, 2021 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.

1 unchanged sentence

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

March 2, 2021

February 22, 2022

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

Valaris Limited:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Valaris plc and subsidiaries (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).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2020, in conformity with U.S.

We have audited the accompanying consolidated balance sheets of Valaris Limited and subsidiaries (the Company) as of December 31, 2021 (Successor) and 2020 (Predecessor), the related consolidated statements of operations, comprehensive loss, and cash flows for the periods from May 1, 2021 to December 31, 2021 (Successor period) and from January 1, 2021 to April 30, 2021 and for each of the years in the two-year period ended December 31, 2020 (Predecessor periods), and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 (Successor) and 2020(Predecessor), and the results of its operations and its cash flows for the Successor and Predecessor periods, in conformity with U.S.

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, 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.

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, 2021, 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 22, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

New Basis of Presentation

As discussed in Note 1 to the consolidated financial statements, on March 3, 2021, the Bankruptcy Court for the Southern District of Texas entered an order confirming the Company's plan for reorganization under Chapter 11, which became effective on April 30, 2021.

Accordingly, the accompanying consolidated financial statements as of December 31, 2021 and for the Successor period have been prepared in conformity with Accounting Standards Codification 852, Reorganization, with the Company's assets, liabilities, and capital structure having carrying amounts not comparable with prior periods.

Basis for Opinion

12 unchanged sentences

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

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.

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 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.

Valuation of drilling rigs upon emergence from bankruptcy

As disclosed in Note 3 to the consolidated financial statements, on April 30, 2021, the Company satisfied all conditions to effect its Plan of Reorganization and emerged from Chapter 11 bankruptcy.

In connection with its emergence and in accordance with ASC 852, the Company qualified for and applied fresh start accounting.

The Company involved third-party valuation advisors to assist with the valuation process of certain assets valued in fresh start.

The Company's principal assets are its property and equipment, which is primarily comprised of the drilling rigs.

As part of fresh start accounting, management recorded property, plant and equipment of $909.1 million, a portion of which related to the drilling rigs.

The valuation of the Company's drilling rigs was estimated using an income approach or estimated sales price.

We identified the valuation of the Company's drilling rigs upon emergence from bankruptcy as a critical audit matter.

A higher degree of subjective auditor judgment was required to evaluate the methodology used in the application of the adjustment to reconcile the fair value of the drilling rigs to the reorganization value and certain assumptions used in the Company's determination of fair value of its drilling rigs using the income approach.

Specifically, future day rates and utilization associated with rig stacking assumptions were based on unobservable inputs for which there was limited information.

In addition, the audit effort involved the use of professionals with 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.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the emergence date valuation process.

This included controls related to management's valuation methodology and the application of fresh start accounting, including application of the adjustment to reconcile the fair value of the drilling rigs to the reorganization value, and controls related to the development of the future day rates and utilization associated with rig stacking assumptions used in the valuation of the drilling rigs.

We evaluated the reasonableness of the future day rates used in the income approach by comparing them to contractual agreements with consideration of the current industry environment and economic trends, including third-party forecasted oil prices and demand curves.

We evaluated the reasonableness of the utilization associated with rig stacking assumptions by comparing the timing of scheduled rig reactivations to third-party demand and supply forecasts.

We involved valuation professionals with specialized skills and knowledge who assisted in evaluating the accuracy of management's model in applying the methodology used in the application of the adjustment to reconcile the valuation of the drilling rigs to the reorganization value.

We also involved professionals with specialized skills and knowledge who assisted in evaluating the appropriateness of the methodology used in the application of the adjustment to reconcile the valuation of the drilling rigs to the reorganization value.

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.

As discussed in Note 1 and 14 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.

3 unchanged sentences

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

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

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 involved tax professionals with specialized skills and knowledge, who assisted in evaluating the Company's interpretation of local tax laws and assessment of whether 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

March 2, 2021

February 22, 2022

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

Valaris Limited:

Opinion on Internal Control Over Financial Reporting

We have audited Valaris plc and subsidiaries’ (the Company) 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 have audited Valaris Limited and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, 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, 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.

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, 2021 (Successor) and 2020 (Predecessor), the related consolidated statements of operations, comprehensive loss, and cash flows for the periods from May 1, 2021 to December 31, 2021 (Successor period) and from January 1, 2021 to April 30, 2021 and for each of the years in the two-year period ended December 31, 2020 (Predecessor periods), and the related notes (collectively, the consolidated financial statements), and our report dated February 22, 2022 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

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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

March 2, 2021

VALARIS PLC AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)

February 22, 2022

VALARIS LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share amounts)

Year Ended December 31,

2020 2019 2018

Successor Predecessor

Eight Months Ended December 31, 2021 Four Months Ended April 30, 2021 Year Ended December 31, 2020 Year Ended December 31, 2019

OPERATING REVENUES $ 835.0 $ 397.4 $ 1,427.2 $ 2,053.2

6 unchanged sentences

OTHER OPERATING INCOME — — 118.1 —

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

EQUITY IN EARNINGS (LOSSES) OF ARO 6.1 3.1 ( 7.8 ) ( 12.6 )

OPERATING LOSS ( 11.9 ) ( 890.1 ) ( 4,334.5 ) ( 669.8 )

1 unchanged sentence

Interest income 28.5 3.6 19.7 28.1

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

Interest expense, net (Unrecognized contractual interest expense for debt subject to compromise was $ 132.9 million and $ 140.7 million for the four months ended April 30, 2021 and the year ended December 31, 2020, respectively)

( 31.0 ) ( 2.4 ) ( 290.6 ) ( 428.3 )

2 unchanged sentences

20.1 ( 3,557.5 ) ( 782.5 ) 606.0

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

INCOME (LOSS) BEFORE INCOME TAXES 8.2 ( 4,447.6 ) ( 5,117.0 ) ( 63.8 )

PROVISION (BENEFIT) FOR INCOME TAXES

2 unchanged sentences

37.4 16.2 ( 259.4 ) 128.4

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

LOSS FROM DISCONTINUED OPERATIONS, NET — — ( 8.1 )

NET LOSS ( 29.2 ) ( 4,463.8 ) ( 4,857.6 ) ( 192.2 )

2 unchanged sentences

LOSS PER SHARE - BASIC AND DILUTED $ ( 0.44 ) $ ( 22.38 ) $ ( 24.42 ) $ ( 1.14 )

Continuing operations $ ( 24.42 ) $ ( 1.14 ) $ ( 5.82 )

Discontinued operations — — ( 0.08 )

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

WEIGHTED-AVERAGE SHARES OUTSTANDING

1 unchanged sentence

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

VALARIS PLC AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)

VALARIS LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in millions)

Year Ended December 31,

2020 2019 2018

Successor Predecessor

Eight Months Ended December 31, 2021 Four Months Ended April 30, 2021 Year Ended December 31, 2020 Year Ended December 31, 2019

NET LOSS $ ( 29.2 ) $ ( 4,463.8 ) $ ( 4,857.6 ) $ ( 192.2 )

1 unchanged sentence

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.

No income tax benefit was recognized during the eight months ended December 31, 2021 (Successor), four months ended April 30, 2021 (Predecessor), and year ended December 31, 2020 (Predecessor).

( 9.1 ) 0.1 ( 76.3 ) ( 21.7 )

1 unchanged sentence

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

— — ( 0.2 ) —

Reclassification of net (gains) losses on derivative instruments from other comprehensive loss into net loss — ( 5.6 ) ( 11.6 ) 8.3

5 unchanged sentences

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

VALARIS PLC AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)

VALARIS LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in millions, except share and par value amounts)

ASSETS 2020 2019

Successor Predecessor

December 31, 2021 December 31, 2020

CURRENT ASSETS

Cash and cash equivalents $ 608.7 $ 325.8

Restricted cash 35.9 11.4

Accounts receivable, net 444.2 449.2

Other 397.9 446.5

Other current assets 117.8 386.5

Total current assets 1,206.6 1,172.9

10 unchanged sentences

Accrued liabilities and other 196.2 250.4

Current maturities of long-term debt — 124.8

Total current liabilities 422.0 426.8

5 unchanged sentences

VALARIS SHAREHOLDERS' EQUITY

Class A ordinary shares, U.S.

$ 0.40 par value, 206.1 and 205.9 million

shares issued as of December 31, 2020 and 2019

Class B ordinary shares, £ 1 par value, 50,000 shares issued

as of December 31, 2020 and 2019

Predecessor Class A ordinary shares, U.S.

$ 0.40 par value, 206.1 million shares issued as of December 31, 2020

Predecessor Class B ordinary shares, £ 1 par value, 50,000 shares issued as of December 31, 2020

Successor common shares, $ 0.01 par value, 700 million shares authorized, 75 million shares issued as of December 31, 2021

Successor preference shares, $ 0.01 par value, 150 million shares authorized, no shares issued as of December 31, 2021

Successor stock warrants 16.4 —

Additional paid-in capital 1,083.0 8,639.9

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 )

Retained deficit ( 33.0 ) ( 4,183.8 )

Accumulated other comprehensive loss ( 9.1 ) ( 87.9 )

Predecessor Treasury shares, at cost, 6.6 million shares as of December 31, 2020

Total Valaris shareholders' equity 1,058.1 4,374.6

3 unchanged sentences

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

VALARIS PLC AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)

VALARIS LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

Year Ended December 31,

2020 2019 2018

Successor Predecessor

Eight Months Ended December 31, 2021 Four Months Ended April 30, 2021 Year Ended December 31, 2020 Year Ended December 31, 2019

OPERATING ACTIVITIES

Net loss $ ( 29.2 ) $ ( 4,463.8 ) $ ( 4,857.6 ) $ ( 192.2 )

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

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

Depreciation expense 66.1 159.6 540.8 609.7

Non-cash reorganization items, net 436.4 — —

Deferred income tax expense (benefit) ( 21.3 ) ( 18.2 ) ( 105.7 ) 23.9

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

Debt discounts and other 36.8 31.5 ( 7.2 )

Gain on asset disposals ( 21.2 ) ( 6.0 ) ( 11.8 ) ( 1.8 )

Accretion of discount on shareholders note ( 20.8 ) — — —

Net periodic pension and retiree medical income ( 8.7 ) ( 5.4 ) ( 14.6 ) ( 4.3 )

Equity in losses (earnings) of ARO ( 6.1 ) ( 3.1 ) 7.8 12.6

Share-based compensation expense 4.3 4.8 21.4 37.3

Equity in losses of ARO 7.8 12.6 —

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

Amortization, net 2.3 ( 4.8 ) 6.2 ( 16.8 )

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

Debt discounts and other 0.5 — 36.8 31.5

Loss on Impairment — 756.5 3,646.2 104.0

Adjustment to (gain on) bargain purchase — — 6.3 ( 637.0 )

Gain on debt extinguishment — — ( 3.1 ) ( 194.1 )

Debtor in possession financing fees and payments on Backstop Commitment Agreement — — 40.0 —

Non-cash reorganization items, net — 3,487.3 436.4 —

Other 0.3 7.3 33.3 16.0

5 unchanged sentences

Net proceeds from disposition of assets 25.1 30.1 51.8 17.7

Acquisition of Rowan, net of cash acquired — 931.9 —

Rowan cash acquired — — — 931.9

Maturities of short-term investments — — — 474.0

2 unchanged sentences

FINANCING ACTIVITIES

Issuance of first lien notes — 520.0 — —

Payments to Predecessor creditors — ( 129.9 ) — —

Borrowings on credit facility — — 596.0 215.0

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

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

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

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

Purchase of noncontrolling interests ( 7.2 ) — —

Purchase of noncontrolling interest — — ( 7.2 ) —

Debt solicitation fees — — — ( 9.5 )

Cash dividends paid — — — ( 4.5 )

Proceeds from issuance of senior notes — — 1,000.0

Debt issuance costs — — ( 17.0 )

Other — ( 1.4 ) ( 1.9 ) ( 10.2 )

Net cash provided by (used in) financing activities — 388.7 522.2 ( 952.3 )

Net cash provided by discontinued operations — — 2.5

Effect of exchange rate changes on cash and cash equivalents ( 0.1 ) ( 0.1 ) 0.1 ( 0.3 )

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

CASH AND CASH EQUIVALENTS, END OF YEAR $ 325.8 $ 97.2 $ 275.1

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH ( 51.4 ) 370.2 228.6 ( 177.9 )

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF YEAR 696.0 325.8 97.2 275.1

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, END OF YEAR $ 644.6 $ 696.0 $ 325.8 $ 97.2

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

VALARIS PLC AND SUBSIDIARIES

VALARIS LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1 unchanged sentence

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

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.

We currently own an offshore drilling rig fleet of 56 rigs, with drilling operations in almost every major offshore market across six continents.

Our rig fleet includes 11 drillships, four dynamically positioned semisubmersible rigs, one moored semisubmersible rig, 40 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 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 are among the most geographically diverse offshore drilling companies, with current operations spanning 14 countries.

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

We provide drilling services on a day rate contract basis.

2 unchanged sentences

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.

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.

Chapter 11 Cases

On August 19, 2020 (the “Petition Date”), Valaris plc (“Legacy Valaris” or “Predecessor”) and certain of its direct and indirect subsidiaries (collectively, the “Debtors”) filed voluntary petitions for reorganization under chapter 11 of the 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.

Companies Act 2006 Section 435 Statement

The accompanying consolidated financial statements have been prepared in accordance with U.S.

GAAP, which the Board of Directors consider to be the most meaningful presentation of our results of operations and financial position.

The accompanying consolidated financial statements do not constitute U.K.

statutory accounts for the year ended December 31, 2020 and 2019 as required to be prepared under the U.K.

Companies Act 2006.

statutory accounts are prepared in accordance with Financial Reporting Standard 102, the financial reporting standard applicable in the U.K.

and Republic of Ireland (“FRS 102”).

The auditor has reported on the U.K.

statutory accounts for the year ended December 31, 2019;

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, 2020 have yet to be finalized and, if required, will be delivered to the U.K.

registrar of companies during 2021.

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

References to the financial position and results of operations of the "Successor" or "Successor Company" relate to the financial position and results of operations of the Company after the Effective Date.

References to the financial position and results of operations of the "Predecessor" or "Predecessor Company" refer to the financial position and results of operations of Legacy Valaris on and prior to the Effective Date.

References to the “Company,” “we,” “us” or “our” in this Annual Report are to Valaris Limited, together with its consolidated subsidiaries, when referring to periods following the Effective Date, and to Legacy Valaris, together with its consolidated subsidiaries, when referring to periods prior to and including Effective Date.

See “ Note 2 – Chapter 11 Proceedings” for additional details regarding the Chapter 11 Cases.

Fresh Start Accounting

On the Effective Date, the Debtors emerged from the Chapter 11 Cases.

Upon emergence from the Chapter 11 Cases, we qualified for and adopted fresh start accounting.

The application of fresh start accounting resulted in a new basis of accounting, and the Company became a new entity for financial reporting purposes.

Accordingly, our financial statements and notes after the Effective Date are not comparable to our financial statements and notes on and prior to that date.

Furthermore, the consolidated financial statements and notes have been presented with a black line division to delineate the lack of comparability between the Predecessor and Successor.

See “ Note 2 – Chapter 11 Proceedings” and “ Note 3 - Fresh Start Accounting” for additional details regarding the Chapter 11 Cases and fresh start accounting.

Changes in Accounting Policies

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

Prior to emergence from bankruptcy, we recorded our drilling rigs as a single asset with a useful life ascribed by the expected useful life of that asset.

Upon emergence, we have identified the significant components of our drilling rigs and ascribed useful lives based on the expected time until the next required overhaul or the end of the expected economic lives of the components.

Historically, we recognized materials and supplies on the balance sheet when purchased and subsequently expensed items when consumed.

Following emergence, materials and supplies will be expensed as a period cost when received.

Additionally, a customer arrangement provides that we take title to their materials and supplies for the duration of the contract and return or pay cash for them at the termination of the contract.

Together with our policy change on materials and supplies, we elected to record these assets and the obligation to our customer on a net basis as opposed to a gross basis.

Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Valaris plc, those of our wholly-owned subsidiaries and entities in which we hold a controlling financial interest.

The accompanying consolidated financial statements include the accounts of Valaris Limited, those of our wholly-owned subsidiaries and entities in which we hold a controlling financial interest.

All intercompany accounts and transactions have been eliminated.

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

Reclassification

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

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

Most transaction gains and losses, including certain gains and losses on our derivative instruments, are included in other, net, in our consolidated statement of operations.

Most transaction gains and losses, including certain gains and losses on our prior derivative instruments, are included in Other, net, in our Consolidated Statements of Operations.

Certain gains and losses from the translation of foreign currency balances of our non-U.S.

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 $ 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.

Net foreign currency exchange gains were $ 8.1 million and $ 13.4 million, and were included in Other, net, in our Consolidated Statements of Operations for the eight months ended December 31, 2021 (Successor) and four months ended April 30, 2021 (Predecessor), respectively.

Net foreign currency exchange losses, inclusive of offsetting fair value derivatives were $ 11.0 million and $ 7.4 million, and were included in Other, net, in our Consolidated Statements of Operations for the year ended December 31, 2020 (Predecessor) and 2019 (Predecessor), 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.

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.

There were no short-term investments as of December 31, 2021 (Successor) and 2020 (Predecessor).

Cash flows from purchases and maturities of short-term investments were classified as investing activities in our Consolidated Statements of Cash Flows for the year ended December 31, 2019.

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.

Repair and maintenance costs are charged to contract drilling expense in the period in which they are incurred.

Upon the sale or retirement of assets, the related cost and accumulated depreciation are removed from the balance sheet, and the resulting gain or loss is included in contract drilling expense.

Upon the sale or retirement of assets, the related cost and accumulated depreciation are removed from the balance sheet, and the resulting gain or loss is included in Other, net in our Consolidated Statements of Operations.

See "Changes in Accounting Policies" above for a discussion of the change in our accounting policy for property and equipment upon emergence from bankruptcy.

Our property and equipment is depreciated on a straight-line basis, after allowing for salvage values, over the estimated useful lives of our assets.

Drilling rigs and related equipment are depreciated over estimated useful lives ranging from four to 35 years.

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 6 years.

Drilling rigs and related equipment are depreciated over estimated useful lives ranging from five to 35 years.

Buildings and improvements are depreciated over estimated useful lives ranging from 10 to 30 years.

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

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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 $ 3.6 billion, $ 104.0 million and $ 40.3 million during 2020, 2019 and 2018, respectively.

We recorded pre-tax, non-cash impairment losses related to long-lived assets of $ 756.5 million, $ 3.6 billion and $ 104.0 million, in the four months ended April 30, 2021 (Predecessor), the year ended December 31, 2020 (Predecessor) and the year ended December 31, 2019 (Predecessor), respectively.

See " Note 8 - Property and Equipment" for additional information on our impairment charges.

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Derivative Instruments

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

We did not have any open derivative instruments as of December 31, 2021 (Successor) or 2020 (Predecessor).

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

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Amounts recorded in AOCI associated with cash flow hedges are subsequently reclassified into contract drilling, depreciation or interest expense as earnings are affected by the underlying hedged forecasted transactions.

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.

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.

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 Statements 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 Statements of Operations.

Historically, we 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.

Changes in the fair value of these derivatives are recognized currently in earnings in other, net, in our consolidated statement of operations.

Changes in the fair value of these derivatives are recognized currently in earnings in other, net, in our Consolidated Statements of Operations.

Derivatives with asset fair values are reported in other current assets or other assets, net, on our Consolidated Balance Sheet depending on maturity date.

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Our tax positions are evaluated for recognition using a more-likely-than-not threshold, and those tax positions requiring recognition are measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon effective settlement with a taxing authority that has full knowledge of all relevant information.

Interest and penalties relating to income taxes are included in current income tax expense in our consolidated statement of operations.

Interest and penalties relating to income taxes are included in Current income tax expense in our Consolidated Statements of Operations.

Our drilling rigs frequently move from one taxing jurisdiction to another based on where they are contracted to perform drilling services.

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

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).

Compensation expense for share awards to be settled in cash is remeasured each quarter with a cumulative adjustment to compensation cost during the period based on changes in our share price.

Any adjustments to the compensation cost recognized in our consolidated statement of operations for awards that are forfeited are recognized in the period in which the forfeitures occur.

Our Management Incentive Plan (the “MIP”) allows our Board of Directors to authorize share grants to be settled in cash, shares or a combination of shares and cash.

Compensation expense for time-based 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).

Compensation expense for performance awards is recognized over the requisite service period using the accelerated method and is reduced for forfeited awards in the period in which the forfeitures occur.

For our performance awards that cliff vest and require the employee to render service through the vesting date, even though attainment of performance objectives might be earlier, our expense under the accelerated method would be a ratable expense over the vesting period.

Equity settled performance awards generally vest at the end of a three-year measurement period based on attainment of performance goals.

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 as it relates to performance objectives are recognized as a cumulative adjustment to compensation cost in the period in which the change in estimate occurs, except in the case of objectives based on a market condition, such as our stock price.

Compensation cost for awards based on a market performance objective is recognized as long as the requisite service period is completed and will not be reversed even if the market-based objective is never satisfied.

Compensation expense for share awards to be settled in cash are recognized as liabilities and remeasured each quarter with a cumulative adjustment to compensation cost during the period based on changes in our share price.

Any adjustments to the compensation cost recognized in our Consolidated Statements of Operations for awards that are forfeited are recognized in the period in which the forfeitures occur.

See " Note 1 2 - Share Based Compensation" for additional information on our share-based compensation.

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subsidiaries.

Noncontrolling interests are classified as equity on our consolidated balance sheet, and net income attributable to noncontrolling interests is presented separately in our consolidated statement of operations.

For each of the years in the three-year period ended December 31, 2020, all income attributable to noncontrolling interest was from continuing operations.

Noncontrolling interests are classified as equity on our Consolidated Balance Sheet, and net income attributable to noncontrolling interests is presented separately in our Consolidated Statements of Operations.

For the eight months ended December 31, 2021 (Successor), the four months ended April 30, 2021 (Predecessor), the year ended December 31, 2020 (Predecessor) and the year ended December 31, 2019 (Predecessor), all income attributable to noncontrolling interest was from continuing operations.

Earnings Per Share

We compute basic and diluted earnings per share ("EPS") in accordance with the two-class method.

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.

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

Basic income (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted-average number of common shares outstanding during the period.

Basic and diluted earnings per share ("EPS") for the Predecessor was calculated in accordance with the two-class method.

Predecessor net loss attributable to Legacy Valaris used in our computations of basic and diluted EPS was 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 for the Successor includes the effect of all potentially dilutive warrants, restricted stock unit awards and performance stock unit awards and for the Predecessor includes the effect of all potentially dilutive stock options and excludes non-vested shares.

In the eight months ended December 31, 2021 (Successor), the four months ended April 30, 2021 (Predecessor), the year ended December 31, 2020 (Predecessor) and the year ended December 31, 2019 (Predecessor), 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 our shares, or Legacy Valaris shares in the case of the Predecessor periods, used in our basic and diluted EPS computations (in millions).

Successor Predecessor

Eight Months Ended December 31, 2021 Four Months Ended April 30, 2021 Year Ended December 31, 2020 Year Ended December 31, 2019

Loss from continuing operations attributable to Valaris $ ( 33.0 ) $ ( 4,467.0 ) $ ( 4,855.5 ) $ ( 198.0 )

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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.

Anti-dilutive share awards totaling 600,000 , 300,000 , 400,000 and 300,000 for the eight months ended December 31, 2021 (Successor), the four months ended April 30, 2021 (Predecessor), the year ended December 31, 2020 (Predecessor) and the year ended December 31, 2019 (Predecessor), respectively, were excluded from the computation of diluted EPS.

The Predecessor previously had the 2024 Convertible Notes (as defined and more fully described in Note 9 "Debt") for which we had the option to settle in cash, shares or a combination thereof for the aggregate amount due upon conversion.

On the Effective Date, pursuant to the plan of reorganization, all outstanding obligations under the 2024 Convertible Notes, were cancelled and the holders thereunder received the treatment as set forth in the plan of reorganization.

However, if the Legacy Valaris average share price had exceeded the exchange price during a respective predecessor reporting period, an assumed number of shares required to settle the conversion obligation in excess of the principal amount would have been included in our denominator for the computation of diluted EPS using the treasury stock method.

The Legacy Valaris average share price did not exceed the exchange price during the four months ended April 30, 2021 (Predecessor) or the years ended December 31, 2020 (Predecessor) or 2019 (Predecessor).

Cancellation of Predecessor Equity and Issuance of Warrants

On the Effective Date and pursuant to the plan of reorganization, the Legacy Valaris Class A ordinary shares were cancelled.

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

On the Effective Date and pursuant to the plan of reorganization, the Company issued 5,645,161 Warrants to the former holders of the Company's equity interests outstanding prior to the Effective Date.

The Warrants are exercisable for one Common Share per Warrant at an initial exercise price of $ 131.88 per Warrant, in each case as may be adjusted from time to time pursuant to the applicable warrant agreement.

The Warrants are exercisable for a period of seven years and will expire on April 29, 2028.

The exercise of these Warrants into Common Shares would have a dilutive effect to the holdings of Valaris Limited's existing shareholders.

New Accounting Pronouncements

Recently adopted accounting pronouncements

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

Income Taxes - In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

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

We were 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.

We adopted Update 2019-12 effective January 1, 2021 with no material impact to our financial statements upon adoption.

Accounting pronouncements to be adopted

Reference Rate Reform - In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

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The provisions in Update 2020-04 are effective upon issuance and can be applied prospectively through December 31, 2022.

Our notes receivable with ARO, from which we generate interest income on a LIBOR-based rate, are impacted by the application of this standard.

As the notes bear interest on the LIBOR rate determined at the end of the preceding year, the rate governing our interest income in 2022 has already been determined.

We expect to be able to modify the terms of our notes receivable to a comparable interest rate before the applicable LIBOR rate is no longer available and as such, do not expect this standard to have a material impact to our consolidated financial statements.

Leases - In July 2021, the FASB issued ASU 2021-05, “Leases (Topic 842);

Lessors - Certain Leases with Variable Lease Payments ”, ( “ Update 2021-05”) which requires a lessor to classify a lease with entirely or partially variable payments that do not depend on an index or rate as an operating lease if another classification (i.e.

sales-type or direct financing) would trigger a day-one loss.

Update 2021-05 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted.

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.

Business Combinations - In October 2021, the FASB issued ASU 2021-08, “Accounting for Contracts Assets and Contract Liabilities from Contracts with Customers ” ( “ Update 2021-08”).

ASU 2021-08 requires an entity (acquirer) to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606 and provides practical expedients for acquirers when recognizing and measuring acquired contract assets and contract liabilities from revenue contracts in a business combination.

The amendments also apply to contract assets and contract liabilities from other contracts to which the provisions of Topic 606 apply, such as contract liabilities for the sale of nonfinancial assets within the scope of Subtopic 610-20, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets .

The FASB issued the update to improve the accounting for acquired revenue contracts with customers in a business combination.

The ASU’s amendments are effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years, with early adoption permitted.

We will adopt Update 2021-08 in the period required and will apply it to any business combination completed subsequent to the adoption.

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.

CHAPTER 11 PROCEEDINGS

Chapter 11 Cases and Emergence from Chapter 11

On the Petition Date, the Debtors filed voluntary petitions for reorganization under chapter 11 of the Bankruptcy Code in the Bankruptcy Court.

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

20-34114 (MI).

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

On March 3, 2021, the Bankruptcy Court confirmed the Debtors' chapter 11 plan of reorganization.

On the Effective Date, we successfully completed our financial restructuring and together with the Debtors emerged from the Chapter 11 Cases.

Upon emergence from the Chapter 11 Cases, we eliminated $ 7.1 billion of debt and obtained a $ 520 million capital injection by issuing the first lien secured notes (the "First Lien Notes").

See “ Note 9 - Debt" for additional information on the First Lien Notes.

On the Effective Date, the Legacy Valaris Class A ordinary shares were cancelled and common shares of Valaris with a nominal value of $ 0.01 per share (the “Common Shares”) were issued.

Also, former holders of Legacy Valaris' equity were issued warrants (the "Warrants") to purchase Common Shares.

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

• Appointed six new members to the Company's Board of Directors to replace all of the directors of Legacy Valaris, other than the director also serving as President and Chief Executive Officer at the Effective Date, who was re-appointed pursuant to the plan of reorganization.

All but one of the seven directors became directors as of the Effective Date and one became a director on July 1, 2021.

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

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

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

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

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

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

• The two RCF Lenders who chose to participate in the Rights Offering received their pro rata share of (1) 5.3 %, or 4,005,000 of Common Shares (2) approximately 2.427 % of the First Lien Notes (and associated Common Shares), (3) $ 7.8 million in cash, and (4) their pro rata share of the backstop premium.

The RCF Lenders who entered into the amended restructuring support agreement and elected not to participate in the Rights Offering received their pro rata share of (1) 22.980 %, or 17,235,000 of Common Shares and (2) $ 96.1 million in cash;

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

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

• Legacy Valaris Class A ordinary shares were cancelled and holders received 5,645,161 in Warrants exercisable for one Common Share per Warrant at initial exercise price of $ 131.88 per Warrant, in each case as may be adjusted from time to time pursuant to the applicable warrant agreement.

The Warrants are exercisable for a period of seven years and will expire on April 29, 2028;

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

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

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

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

The DIP Credit Agreement terminated on the Effective Date.

Management Incentive Plan

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

See " Note 12 - Share Based Compensation" for more information on awards granted under the MIP after the Effective date.

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

The Debtors' pre-petition Senior Notes and related unpaid accrued interest as of the Petition Date were classified as Liabilities Subject to Compromise on our Consolidated Balance Sheets as of December 31, 2020 (Predecessor).

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

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

6.875 % Senior notes due 2020

13 unchanged sentences

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

Amounts drawn under the Revolving Credit Facility 581.0

Accrued Interest on Senior Notes 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

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

The contractual interest expense on the outstanding Senior Notes and the Revolving Credit Facility was in excess of recorded interest expense by $ 132.9 million and $ 140.7 million for the four months ended April 30, 2021 (Predecessor) and for the year ended December 31, 2020 (Predecessor), respectively.

This excess contractual interest was not included as interest expense on our Consolidated Statements of Operations as we had discontinued accruing interest on the Predecessor's Senior Notes and Revolving Credit Facility subsequent to the Petition Date.

The Predecessor discontinued making interest payments on the Senior Notes beginning in June 2020.

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 Statements of Operations for the year ended December 31, 2020 (Predecessor) 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 Statements of Operations for the eight months ended December 31, 2021 (Successor), four months ended April 30, 2021 (Predecessor) and the year ended December 31, 2020 (Predecessor).

These costs include legal and other professional advisory service fees pertaining to the Chapter 11 Cases, contract items related to rejecting and amending certain operating leases ("Contract items") and the effects of the emergence from bankruptcy, including the application of fresh start accounting.

Additionally, Reorganization items, net for the year ended December 31, 2020 (Predecessor) included all adjustments made to the carrying amount of certain pre-petition liabilities reflecting claims that were expected to be allowed by the Bankruptcy Court and DIP facility fees.

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

Successor Predecessor

Eight Months Ended December 31, 2021 Four Months Ended April 30, 2021 Year Ended December 31, 2020

DIP facility fees $ — $ — $ 20.0

Professional fees 17.2 93.4 66.8

Contract items ( 1.7 ) 3.9 4.4

Reorganization items (fees) 15.5 97.3 91.2

Write-off of unamortized debt

discounts, premiums and issuance

costs — — 447.9

Contract items — 0.5 ( 11.5 )

Backstop premium — 30.0 —

Gain on settlement of liabilities subject to compromise — ( 6,139.0 ) —

Issuance of Common Shares for

backstop premium — 29.1 —

Issuance of Common Shares to the Shipyard — 5.4 —

Write-off of unrecognized share-based compensation expense — 16.0 —

Impact of newbuild contract amendments — 350.7 —

Loss on fresh start adjustments — 9,194.6 —

Reorganization items (non-cash) — 3,487.3 436.4

Total reorganization items, net $ 15.5 $ 3,584.6 $ 527.6

Reorganization items (fees) unpaid $ 0.8 $ 38.3 $ 61.2

Reorganization items (fees) paid $ 14.7 $ 59.0 $ 30.0

FRESH START ACCOUNTING

Applicability of Fresh Start Accounting

Upon emergence from bankruptcy, we qualified for and applied fresh start accounting, which resulted in the Company becoming a new entity for financial reporting purposes because (1) the holders of the then existing Class A ordinary shares of the Predecessor received less than 50 percent of the Common Shares of the Successor outstanding upon emergence and (2) the reorganization value of the Company’s assets immediately prior to confirmation of the plan of reorganization was less than the total of all post-petition liabilities and allowed claims.

The reorganization value derived from the range of enterprise values associated with the plan of reorganization was allocated to the Company’s identifiable tangible and intangible assets and liabilities based on their fair values (except for deferred income taxes).

The amount of deferred income taxes recorded was determined in accordance with the applicable income tax accounting standard.

The April 30, 2021 fair values of the Company’s assets and liabilities differ materially from their recorded values as reflected on the historical balance sheets.

Reorganization Value

The reorganization value represents the fair value of the Successor's total assets and was derived from the enterprise value associated with the plan of reorganization, which represents the estimated fair value of an entity's long-term debt and equity less unrestricted cash upon emergence from chapter 11.

As set forth in the disclosure statement and approved by the Bankruptcy Court, third-party valuation advisors estimated the enterprise value to be between $ 1,860.0 million and $ 3,145.0 million.

The enterprise value range of the reorganized Debtors was determined primarily by using a discounted cash flow analysis.

The value agreed in the plan of reorganization is indicative of an enterprise value at the low end of this range, or $ 1,860.0 million.

The following table reconciles the enterprise value to the estimated fair value of Successor Common Shares as of the Effective Date (in millions, except per share value):

April 30, 2021

Enterprise Value $ 1,860.0

Cash and cash equivalents 607.6

Fair value of debt ( 544.8 )

Warrants ( 16.4 )

Noncontrolling interest 1.1

Pension and other post retirement benefits liabilities ( 189.0 )

Adjustments not contemplated in Enterprise Value ( 639.0 )

Fair value of Successor Common Shares $ 1,079.5

Shares issued upon emergence 75.0

Per share value $ 14.39

The following table reconciles the enterprise value to the reorganization value as of the Effective Date (in millions):

April 30, 2021

Enterprise Value $ 1,860.0

Cash and cash equivalents 607.6

Non-interest bearing current liabilities 346.0

Adjustments not contemplated in Enterprise Value ( 218.0 )

Reorganization value of Successor assets $ 2,595.6

Adjustments not contemplated in Enterprise Value represent certain obligations of the Successor that were either not contemplated or contemplated in a different amount in the forecasted cash flows of the enterprise valuation performed by third-party valuation advisors that, had they incorporated those anticipated cash flows into their analysis, the resulting valuation would have been different.

For the reconciliation of Reorganization value of Successor assets, this item includes certain tax balances, contract liabilities, as well as an adjustment for the fair value of pension obligations.

The reconciliation to Successor Common Share value includes these same reconciling items as well as other current and non-current liabilities of the Successor at the emergence.

The enterprise value and corresponding implied equity value are dependent upon achieving the future financial results set forth in the valuation utilizing assumptions regarding future day rates, utilization, operating costs and capital requirements as of the emergence date.

All estimates, assumptions, valuations and financial projections, including the fair value adjustments, the enterprise value and equity value projections, are inherently subject to significant uncertainties and the resolution of contingencies beyond our control.

Accordingly, there is no assurance that the estimates, assumptions, valuations or financial projections will be realized, and actual results could vary materially.

Valuation Process

The fair values of the Company's principal assets and liabilities including property, plant and equipment as well as our 50% equity interest in ARO and our notes receivable from ARO, options to purchase Newbuild Rigs, the First Lien Notes, pensions and Warrants were estimated with the assistance of third-party valuation advisors.

Property, Plant and Equipment

The valuation of the Company’s drilling rigs was estimated by using an income approach or estimated sales price.

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

In developing these assumptions, forecasted day rates and utilization took into account current market conditions and our anticipated business outlook.

The cash flows were discounted at our weighted average cost of capital ("WACC"), which was derived from a blend of our after-tax cost of debt and our cost of equity, and computed using public share price information for similar offshore drilling market participants, certain U.S.

Treasury rates and certain risk premiums specific to the Company.

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

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

Notes Receivable from ARO

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

Investment in ARO

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

Options to Purchase Newbuild Rigs

The fair value of the options to purchase Newbuild Rigs was estimated using an option pricing model utilizing the estimated fair value of a newbuild rig, estimated purchase price upon exercise of the options, the holding period, equity volatility and the risk-free rate.

First Lien Notes

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

Our pension and other postretirement benefit liabilities and costs are based upon actuarial computations that reflect our assumptions about future events, including long-term asset returns, interest rates, annual compensation increases, mortality rates and other factors.

Upon emergence, our pension and other post retirement plans were remeasured as of the Effective Date.

Key assumptions at the Effective Date included (1) a weighted average discount rate of 2.81 % to determine pension benefit obligations and (2) an expected long-term rate of return on pension plan assets of 6.03 % to determine net periodic pension cost.

The fair value of the Warrants was determined using an option pricing model considering the contractual terms of the Warrant issuance.

The key market data assumptions for the option pricing model are the estimated volatility and the risk-free rate.

The volatility assumption was estimated using market data for offshore drilling market participants with consideration for differences in leverage.

The risk-free rate assumption was based on U.S.

Treasury Constant Maturity rates with a comparable term.

Condensed Consolidated Balance Sheet

The adjustments included in the following Condensed Consolidated Balance Sheet reflect the effects of the transactions contemplated by the plan of reorganization and executed by the Company on the Effective Date (reflected in the column “Reorganization Adjustments”), and fair value and other required accounting adjustments resulting from the adoption of fresh start accounting (reflected in the column “Fresh Start Accounting Adjustments”).

The explanatory notes provide additional information with regard to the adjustments recorded.

As of April 30, 2021

Predecessor Reorganization Adjustments Fresh Start Accounting Adjustments Successor

CURRENT ASSETS

Cash and cash equivalents $ 280.2 $ 327.4 (a) $ — $ 607.6

Restricted cash 45.7 42.7 (b) — 88.4

Accounts receivable, net 425.9 — — 425.9

Accounts receivable from non-debtor subsidiaries 2,812.0

Other current assets 377.4

Other current assets 370.1 1.5 (c) ( 281.1 ) (o) 90.5

Total current assets 1,121.9 371.6 ( 281.1 ) 1,212.4

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

PROPERTY AND EQUIPMENT, NET 10,026.4 ( 417.6 ) (d) ( 8,699.7 ) (p) 909.1

LONG-TERM NOTES RECEIVABLE FROM ARO 442.7 — ( 214.4 ) (q) 228.3

INVESTMENT IN ARO 123.9 — ( 43.4 ) (r) 80.5

OTHER ASSETS 166.4 ( 10.0 ) (e) 8.9 (s) 165.3

$ 11,881.3 $ ( 56.0 ) $ ( 9,229.7 ) $ 2,595.6

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES

Accounts payable - trade $ 149.4

Accrued liabilities and other 196.2

Accounts payable - trade $ 161.5 $ 13.1 (f) $ ( .5 ) (t) $ 174.1

Accrued liabilities and other 290.7 ( 12.4 ) (g) ( 61.8 ) (u) 216.5

Total current liabilities 452.2 0.7 ( 62.3 ) 390.6

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

OTHER LIABILITIES 602.3

LONG-TERM DEBT — 544.8 (h) — 544.8

OTHER LIABILITIES 706.2 ( 55.2 ) (i) ( 85.6 ) (v) 565.4

Total liabilities not subject to compromise 1,158.4 490.3 ( 147.9 ) 1,500.8

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

LIABILITIES SUBJECT TO COMPROMISE 7,313.7 ( 7,313.7 ) (j) — —

COMMITMENTS AND CONTINGENCIES

VALARIS SHAREHOLDERS' EQUITY

Predecessor Class A ordinary shares 82.5 ( 82.5 ) (k) — —

Predecessor Class B ordinary shares 0.1 ( 0.1 ) (k) — —

Successor common shares — 0.8 (l) — 0.8

Successor stock warrants — 16.4 (m) — 16.4

Predecessor additional paid-in capital 8,644.0 ( 8,644.0 ) (k) — —

Successor additional paid-in capital — 1,078.7 (l) — 1,078.7

Retained deficit ( 5,147.4 ) 14,322.6 (n) ( 9,175.2 ) (w) —

Accumulated other comprehensive loss ( 93.4 ) — 93.4 (x) —

Predecessor treasury shares ( 75.5 ) 75.5 (k) — —

Total Valaris shareholders' equity 3,410.3 6,767.4 ( 9,081.8 ) 1,095.9

NONCONTROLLING INTERESTS ( 1.1 ) — — ( 1.1 )

Total equity 3,409.2 6,767.4 ( 9,081.8 ) 1,094.8

$ 11,881.3 $ ( 56.0 ) $ ( 9,229.7 ) $ 2,595.6

Reorganization Adjustments

Represents the reorganization adjustments (in millions):

Receipt of cash for First Lien Notes $ 500.0

Loan proceeds from backstop lenders 20.0

Funds received for liquidation of rabbi trust related to certain employee benefits 17.6

Payments to Predecessor creditors ( 129.9 )

Transfer of funds for payment of certain professional fees to escrow account ( 42.7 )

Payment for certain professional services fees ( 29.0 )

Various other ( 8.6 )

(b) Restricted cash

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

Reflects certain prepayments incurred upon emergence.

(d) Property and Equipment, net

Reflects the reorganization adjustment to remove $ 417.6 million of work-in-process related to the Newbuild Rigs.

These values have been removed from property and equipment, net, based on the terms of the amended agreements with the Shipyard.

As a result of the option to take delivery, we removed the historical work-in-process balances from the balance sheet.

(e) Other assets

Represents the reorganization adjustments (in millions):

Liquidation of rabbi trust related to certain employee benefits $ ( 17.6 )

Elimination of right-of-use asset associated with Newbuild Rigs ( 5.5 )

Fair value of options to purchase Newbuild Rigs 13.1

Our supplemental executive retirement plans (the "SERP") are non-qualified plans that provided eligible employees an opportunity to defer a portion of their compensation for use after retirement.

The SERP was frozen to the entry of new participants in November 2019 and to future compensation deferrals as of January 1, 2020.

Upon emergence, assets previously held in a rabbi trust maintained for the SERP were liquidated and the SERP was amended.

In accordance with the amended agreement with the Shipyard, our leases were terminated and we have eliminated the historical right-of-use asset associated with the berthing locations of VALARIS DS-13 and VALARIS DS-14.

Additionally, upon effectiveness of the plan of reorganization, the amended agreement with the Shipyard provides the Company with the option to purchase the Newbuild Rigs.

The reorganization adjustments include an asset that reflects the fair value of the option to purchase the Newbuild Rigs and embedded feature related to the ability, under the amended agreements with the Shipyard, for the equity issued pursuant to this arrangement to be put to the Company for $ 8.0 million of consideration for each rig, should we choose to take delivery.

(f) Accounts payable - trade

Reflects the following reorganization adjustments (in millions):

Professional fees incurred upon emergence $ 26.1

Payment of professional fees incurred prior to emergence ( 12.6 )

Payment of certain accounts payable incurred prior to emergence ( 0.4 )

(g) Accrued liabilities and other

Reflects the following reorganization adjustments (in millions):

Elimination of lease liabilities associated with Newbuild Rigs $ ( 5.0 )

Elimination of accrued post-petition holding costs associated with Newbuild Rigs ( 4.1 )

Payment of certain accrued liabilities incurred prior to emergence ( 3.3 )

In accordance with the amended agreement with the Shipyard, our leases were terminated and we have eliminated the historical lease liability associated with the berthing locations of VALARIS DS-13 and VALARIS DS-14.

Accrued post-petition holding costs have also been eliminated as a result of the amendments made effective upon emergence.

Additionally, reorganization adjustments to accrued liabilities and other includes an amount primarily related to payment of professional fees incurred prior to emergence.

(h) Long-term debt

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

(i) Other liabilities

Reflects the following reorganization adjustments (in millions):

Elimination of construction contract intangible liabilities associated with Newbuild Rigs $ ( 49.9 )

Elimination of accrued post-petition holding costs associated with Newbuild Rigs ( 4.7 )

Elimination of lease liabilities associated with Newbuild Rigs ( 0.6 )

The reorganization adjustments to other liabilities primarily relate to the elimination of construction contract intangible liabilities associated with the Newbuild Rigs.

These construction contract intangible liabilities were recorded in purchase accounting for the original contracting entity.

As the amended contract is structured as an option whereby we have the right, not the obligation to take delivery of the rigs, there is no longer an intangible liability associated with the contracts.

We have eliminated the historical lease liability associated with the berthing locations of VALARIS DS-13 and VALARIS DS-14 and accrued post-petition holding costs as described in (g) above.

(j) Liabilities subject to compromise

Reflects the following reorganization adjustments (in millions):

Settlement of liabilities subject to compromise $ 7,313.7

Issuance of common stock to Predecessor creditors ( 721.0 )

Issuance of common stock to backstop parties ( 323.8 )

Payments to Predecessor creditors ( 129.9 )

Gain on settlement of liabilities subject to compromise $ 6,139.0

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

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

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

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

(m) Successor stock warrants

On the Effective Date and pursuant to the plan of reorganization, Valaris Limited issued an aggregate of 5.6 million Warrants exercisable for up to an aggregate of 5.6 million Common Shares to former holders of Legacy Valaris's equity interests.

The fair value of the Warrants as of the Effective Date was $ 16.4 million.

(n) Retained deficit

Represents the reorganization adjustments to total equity as follows (in millions):

Gain on settlement of liabilities subject to compromise $ ( 6,139.0 )

Issuance of Common Shares for backstop premium 29.1

Issuance of Common Shares to the Shipyard 5.4

Write-off of unrecognized share-based compensation expense 16.0

Professional fees and success fees 35.9

Backstop premium 30.0

Impact of newbuild contract amendments 350.7

Reorganization items, net ( 5,671.9 )

Cancellation of Predecessor common shares ( 82.6 )

Cancellation of Predecessor treasury shares 75.5

Cancellation of Predecessor additional paid in capital ( 7,856.4 )

Cancellation of equity component of Predecessor convertible notes ( 220.0 )

Cancellation of Predecessor cash and equity compensation plans ( 583.6 )

Fair value of Warrants 16.4

$ ( 14,322.6 )

Fresh Start Adjustments

(o) Other current assets

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

Elimination of materials and supplies $ ( 260.8 )

Elimination of historical deferred contract drilling expenses ( 20.3 )

Primarily reflects the fresh start adjustment to eliminate the historical balance for materials and supplies as the result of a change in accounting policies upon emergence.

The fresh start adjustment for the elimination of historical deferred contract drilling expenses primarily relates to deferred mobilization costs, deferred contract preparation costs and deferred certification costs.

Costs incurred for mobilization and contract preparation prior to the commencement of drilling services are deferred and subsequently amortized over the term of the related drilling contract.

Additionally, we must obtain certifications from various regulatory bodies in order to operate our drilling rigs and must maintain such certifications through periodic inspections and surveys.

The costs incurred in connection with maintaining such certifications, including inspections, tests, surveys and drydock, as well as remedial structural work and other compliance costs, are deferred and amortized on a straight-line basis over the corresponding certification periods.

These deferred costs have no future economic benefit and are eliminated from the fresh start financial statements.

(p) Property and equipment, net

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

(q) Long-term notes receivable from ARO

Reflects the fresh start adjustment to record the estimated fair value of the long-term notes receivable from ARO.

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

(r) Investment in ARO

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

(s) Other assets

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

Deferred tax impacts of certain fresh start adjustments $ 21.1

Fair value of contracts with customers 8.5

Fair value adjustments to right-of-use assets 0.4

Elimination of historical deferred contract drilling expenses ( 16.5 )

Elimination of other deferred costs ( 4.6 )

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

The fresh start adjustment to record the estimated fair value of contracts with customers represents the intangible assets recognized for firm customer contracts in place at the Effective Date that have favorable contract terms as compared to current market day rates for comparable drilling rigs.

The various factors considered in the adjustment are (1) the contracted day rate for each contract, (2) the remaining term of each contract, (3) the rig class and (4) the market conditions for each respective rig class at the emergence date.

The intangible assets are computed based on the present value of the difference in cash inflows over the remaining contract term as compared to a hypothetical contract with the same remaining term at an estimated current market day rate using a risk-adjusted discount rate and an estimated effective income tax rate.

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

The fresh start adjustment to right-of-use assets reflects the remeasuring of our operating leases as of the emergence date.

Certain operating leases had unfavorable terms as of the emergence date, and as a result the right-of-use asset for such leases does not equal the lease liability upon emergence.

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

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

(t) Accounts payable - trade

The fresh start adjustment to accounts payable trade reflects the write off of certain deferred amounts related to our operating leases.

This value was eliminated through the remeasurement of our leases as of the emergence date.

(u) Accrued liabilities and other

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

Elimination of customer payable balance $ ( 36.8 )

Elimination of historical deferred revenues ( 25.9 )

Fair value of contracts with customers 0.5

Fair value adjustment to lease liabilities 0.4

The fresh start adjustment to eliminate the customer payable balance is related to the change in accounting policy to present the balance on a net basis.

The fresh start adjustment to eliminate historical deferred revenues is primarily related to amounts previously received for the reimbursement for capital upgrades, upfront contract deferral fees and mobilization.

Such amounts are deferred and subsequently amortized over the term of the related drilling contract.

The deferred revenue does not represent any future performance obligations and is therefore eliminated as a fresh start accounting adjustment.

The fresh start adjustment to record the estimated fair value of contracts with customers reflects the intangible liabilities recognized for firm customer contracts in place at the Effective Date that have unfavorable contract terms as compared to current market day rates for comparable drilling rigs.

The intangible liabilities are computed based on the present value of the difference in cash inflows over the remaining contract term as compared to a hypothetical contract with the same remaining term at an estimated current market day rate using a risk-adjusted discount rate and an estimated effective income tax rate.

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

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

(v) Other liabilities

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

Adjustment to fair value of pension and other post-retirement plan liabilities $ ( 82.7 )

Elimination of historical deferred revenue ( 5.9 )

Deferred tax impacts of certain fresh start adjustments 1.7

Fair value adjustments to lease liabilities 1.1

Fair value adjustments to other liabilities 0.2

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

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

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

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

(w) Retained Deficit

Reflects the fresh start adjustments to retained deficit as follows (in millions):

Fair value adjustments to prepaid and other current assets $ ( 281.1 )

Fair value adjustments to property ( 8,699.7 )

Fair value of intangible assets 8.5

Fair value adjustment to investment in ARO ( 43.4 )

Fair value adjustment to note receivable from ARO ( 214.4 )

Fair value adjustments to other assets ( 20.7 )

Fair value adjustments to other current liability 62.8

Fair value of intangible liabilities ( 0.5 )

Fair value adjustment to other liabilities 87.3

Elimination of Predecessor accumulated other comprehensive loss ( 93.4 )

Total fresh start adjustments included in reorganization items, net $ ( 9,194.6 )

Tax impact of fresh start adjustments 19.4

$ ( 9,175.2 )

(x) Accumulated other comprehensive loss

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

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 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 contracts contain a lease component and we have elected to apply the practical expedient provided under ASC 842 to not separate the lease and non-lease components and apply the revenue recognition guidance in ASU No.

2014-09, Revenue from Contracts with Customers (Topic 606).

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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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 .

The remaining duration of our drilling contracts based on those in place as of December 31, 2021 was between approximately 1 month and 3.5 years.

Day Rate Drilling Revenue

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

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

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

Day rate consideration is allocated to the distinct hourly or other time increment to which it relates within the contract term and is generally recognized consistent with the contractual rate invoiced for the services provided during the respective period.

Invoices are typically issued to our customers on a monthly basis and payment terms on customer invoices typically range from 30 to 45 days.

Invoices are typically issued to our customers on a monthly basis and payment terms on customer invoices are typically 30 days.

Certain of our contracts contain performance incentives whereby we may earn a bonus based on pre-established performance criteria.

18 unchanged sentences

Once the previously recognized revenue is invoiced, the corresponding contract asset, or a portion thereof, is transferred to accounts receivable.

Contract liabilities generally represent fees received for mobilization or capital upgrades.

Contract assets and liabilities are presented net on our consolidated balance sheet on a contract-by-contract basis.

Contract liabilities generally represent fees received for mobilization, capital upgrades or in the case of our 50/50 joint venture with Saudi Aramco, represent the difference between the amounts billed under the bareboat charter arrangements and lease revenues earned up to the respective period end.

See “ No te 6 – Equity Method Investment in ARO" for additional details regarding our balances with ARO.

Contract assets and liabilities are presented net on our Consolidated Balance Sheets on a contract-by-contract basis.

Current contract assets and liabilities are included in Other current assets and Accrued liabilities and other, respectively, and noncurrent contract assets and liabilities are included in Other assets and Other liabilities, respectively, on our 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):

Successor Predecessor

December 31, 2021 December 31, 2020

5 unchanged sentences

Contract Assets Contract Liabilities

Balance as of January 1, 2020 $ 3.5 $ 39.7

Balance as of December 31, 2020 (Predecessor) $ 1.8 $ 71.9

Revenue recognized in advance of right to bill customer 2.3 —

1 unchanged sentence

Decrease due to amortization of deferred revenue that was included in the beginning contract liability balance — ( 14.8 )

Decrease due to amortization of deferred revenue that was added during the period — ( 24.7 )

Decrease due to transfer to receivables during the period ( 1.6 ) —

Balance as of December 31, 2020 $ 1.8 $ 71.9

Fresh start accounting revaluation ( 0.3 ) ( 31.6 )

Balance as of April 30, 2021 (Predecessor) 2.2 35.7

Balance as of May 1, 2021 (Successor) 2.2 35.7

Revenue recognized in advance of right to bill customer 2.5 —

Increase due to cash received — 80.1

Decrease due to amortization of deferred revenue that was added during the period — ( 21.5 )

Decrease due to transfer to receivables and payables during the period ( 4.4 ) ( 37.7 )

Balance as of December 31, 2021 (Successor) $ 0.3 $ 56.6

Deferred Contract Costs

3 unchanged sentences

Costs associated with the mobilization of equipment and personnel to more promising market areas without contracts are expensed as incurred.

Deferred contract costs were included in other current assets and other assets on our consolidated balance sheets and totaled $ 13.8 million and $ 19.7 million as of December 31, 2020 and 2019, 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 contract costs were included in Other current assets and Other assets on our Consolidated Balance Sheets and totaled $ 31.4 million and $ 13.8 million as of December 31, 2021 (Successor) and December 31, 2020 (Predecessor), respectively.

For the Successor, during the eight months ended December 31, 2021, amortization of such costs totaled $ 22.0 million.

For the Predecessor, during the four months ended April 30, 2021, the year ended December 31, 2020 and the year ended December 31, 2019, amortization of such costs totaled $ 7.6 million, $ 42.1 million and $ 42.1 million respectively.

Deferred Certification Costs

1 unchanged sentence

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

Deferred regulatory certification and compliance costs were included in Other current assets and Other assets on our Consolidated Balance Sheets and totaled $ 3.3 million and $ 8.4 million as of December 31, 2021 (Successor) and December 31, 2020 (Predecessor), respectively.

For the Successor, during the eight months ended December 31, 2021, amortization of such costs totaled $ 0.7 million.

For the Predecessor, during the four months ended April 30, 2021, the year ended December 31, 2020 and the year ended December 31, 2019, amortization of these costs totaled $ 3.1 million, $ 8.9 million and $ 10.3 million respectively.

Future Amortization of Contract Liabilities and Deferred Costs

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

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

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 bareboat charter arrangements with ARO which would not be contractually payable until the end of the lease term or termination, if sooner.

See " Note 6 - Equity Method Investment in ARO" for additional information on ARO and related arrangements.

For the Successor, expected future amortization of our contract liabilities, or in the case of our contract liabilities related to our bareboat charter arrangements with ARO, the amount is reflected at the end of the lease term, and deferred costs recorded as of December 31, 2021 is set forth in the table below (in millions):

2022 2023 2024 2025 & Thereafter Total

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ROWAN TRANSACTION

On April 11, 2019 (the "Transaction Date"), we completed our combination with Rowan pursuant to the Transaction Agreement (the "Rowan Transaction").

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.

On April 11, 2019 (the "Transaction Date"), we completed our combination with Rowan Companies Limited (formerly Rowan Companies plc) ("Rowan") pursuant to the Transaction Agreement (the "Rowan Transaction").

We were considered to be the acquirer for accounting purposes.

As a result, Rowan's assets acquired and liabilities assumed in the Rowan Transaction were recorded at their estimated fair values as of the Transaction Date under the acquisition method of accounting.

When the fair value of the net assets acquired exceeds the consideration transferred in an acquisition, the difference is recorded as a bargain purchase gain in the period in which the transaction occurs.

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

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.

Consideration

As a result of the Rowan Transaction, Rowan shareholders received 2.75 Valaris Class A Ordinary shares for each share of Rowan Class A ordinary share, representing a value of $ 43.67 per Rowan share based on a closing price of $ 15.88 per Valaris share on April 10, 2019, the last trading day before the Transaction Date.

Total consideration delivered in the Rowan Transaction consisted of 88.3 million Valaris shares with an aggregate value of $ 1.4 billion, inclusive of $ 2.6 million for the estimated fair value of replacement employee equity awards.

As a result of the Rowan Transaction, Rowan shareholders received 2.75 Legacy Valaris Class A Ordinary shares for each share of Rowan Class A ordinary share, representing a value of $ 43.67 per Rowan share based on a closing price of $ 15.88 per Legacy 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 Legacy Valaris shares with an aggregate value of $ 1.4 billion, inclusive of $ 2.6 million for the estimated fair value of replacement employee equity awards.

Upon closing of the Rowan Transaction, we effected a consolidation (being a reverse stock split under English law) where every 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.

Assets and Liabilities Acquired

Valaris is considered to be the acquirer for accounting purposes.

As a result, Rowan's assets and liabilities acquired in the Rowan Transaction were recorded at their estimated fair values as of the Transaction Date under the acquisition method of accounting.

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

Cash and cash equivalents $ 931.9 $ — $ 931.9

Accounts receivable (2)

207.1 ( 6.9 ) 200.2

Other current assets 101.6 ( 2.6 ) 99.0

Long-term notes receivable from ARO 454.5 — 454.5

Investment in ARO 138.8 2.5 141.3

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

Other assets 41.7 1.1 42.8

Accounts payable and accrued liabilities 259.4 15.7 275.1

Current portion of long-term debt 203.2 — 203.2

Long-term debt 1,910.9 — 1,910.9

Other liabilities 376.3 34.5 410.8

Net assets acquired 2,115.6 ( 82.1 ) 2,033.5

Merger consideration ( 1,402.8 ) — ( 1,402.8 )

Bargain purchase gain $ 712.8 $ ( 82.1 ) $ 630.7

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

Bargain Purchase Gain (Predecessor)

The estimated fair values assigned to assets acquired net of liabilities assumed exceeded the consideration transferred, resulting in a bargain purchase gain at the Transaction date of $ 712.8 million primarily driven by the decline in our Legacy Valaris 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.

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 measurement period adjustments reflect changes in the estimated fair values of certain assets and liabilities, primarily related to long-lived assets, deferred income taxes and uncertain tax positions.

The measurement period adjustments were recorded to reflect new information obtained about facts and circumstances existing as of the Transaction Date and did not result from subsequent intervening events.

The adjustments recorded resulted in a $ 6.3 million 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.

Bargain Purchase Gain

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

Materials and Supplies

We recorded materials and supplies at an estimated fair value of $ 83.0 million.

Materials and supplies consist of consumable parts and supplies maintained on drilling rigs and in shore-based warehouse locations for use in operations and are generally comprised of items of low per unit cost and high reorder frequency.

We estimated the fair value of Rowan's materials and supplies primarily using a market approach.

Equity Method Investment in ARO

The equity method investment in ARO was recorded at its estimated fair value as of the Transaction Date.

See " Note 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.

Property and Equipment

Property and equipment acquired in connection with the Rowan Transaction consisted primarily of drilling rigs and related equipment, including four drillships and 19 jackup rigs (exclusive of two jackups marked for retirement).

We recorded property and equipment acquired at its estimated fair value of $ 3.0 billion.

We estimated the fair value of the rigs and equipment by applying an income approach, using projected discounted cash flows, a risk-adjusted discount rate and an estimated effective income tax rate.

The estimated remaining useful lives for Rowan's drilling rigs, which ranged from 16 to 35 years based on original estimated useful lives of 30 to 35 years.

Intangible Assets and Liabilities

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

As a result of a price concession negotiated following the onset of the COVID-19 pandemic, on one of our bare boat charter agreements for a rig leased to our 50/50 joint venture with Saudi Aramco ("ARO"), we recognized a $ 5.7 million impairment to the related contract intangible during the 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, 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

We remeasured the fair value of plan assets and benefit obligations for the pension and other-post retirement benefit plans assumed as of April 11, 2019.

We used a measurement date of April 11, 2019 for determining net periodic benefit costs.

Long-term Debt

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

Deferred Taxes

The Rowan Transaction was executed through the acquisition of Rowan's outstanding ordinary shares and, therefore, the historical tax bases of the acquired assets and liabilities, net operating losses and other tax attributes of Rowan, were acquired as of the Transaction Date.

However, adjustments were recorded to recognize deferred tax assets and liabilities for the tax effects of differences between acquisition date fair values and tax bases of assets acquired and liabilities assumed.

Additionally, the interaction of our and Rowan's tax attributes that impacted the

deferred taxes of the combined entity were also recognized as part of acquisition accounting.

As of the Transaction Date, a decrease of $ 99.0 million to Rowan's historical net deferred tax assets was recognized.

Deferred tax assets and liabilities recognized in connection with the Rowan Transaction were measured at rates enacted as of the Transaction Date.

Tax rate changes, or any deferred tax adjustments for new tax legislation, following the Transaction Date will be reflected in our operating results in the period in which the change in tax laws or rate is enacted.

Uncertain Tax Positions

Uncertain tax positions assumed in a business combination are measured at the largest amount of the tax benefit that is greater than 50% likely of being realized upon effective settlement with a taxing authority that has full knowledge of all relevant information.

As of the Transaction Date, Rowan had previously recognized net liabilities for uncertain tax positions totaling $ 50.4 million.

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.

The adjustments recorded resulted in a $ 75.8 million decline to the bargain purchase gain during 2019, resulting in a net bargain purchase gain of $ 637.0 million included in Other, net, in our Consolidated Statements of Operations for the year ended December 31, 2019 (Predecessor).

Additionally, adjustments resulted in a $ 6.3 million decline to the bargain purchase gain during the first quarter of 2020, which is included in Other, net, in our Consolidated Statements of Operations for the year ended December 31, 2020 (Predecessor).

Transaction-related costs (Predecessor)

These costs were included in General and administrative expense in our Consolidated Statements 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 amount of revenues and net losses of Rowan that are included from the Transaction Date to December 31, 2019 in the Company's Consolidated Statements of Operations for the Year ended December 31, 2019 (Predecessor) were $ 448.0 million and $ 122.7 million, respectively.

Unaudited Pro Forma Impact of the Rowan Transaction (Predecessor)

The following unaudited supplemental pro forma results present consolidated information as if the Rowan Transaction was completed on January 1, 2019.

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Earnings per share - basic and diluted $ ( 3.82 )

(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.

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

EQUITY METHOD INVESTMENT IN ARO

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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.

As of December 31, 2021, ARO owns seven jackup rigs, has ordered two newbuild jackup rigs and leases seven rigs from us through bareboat charter arrangements (the "Lease Agreements") whereby substantially all operating costs are incurred by ARO.

At December 31, 2021, all of the leased rigs were operating under three-year drilling contracts, or related extensions, 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.

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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 shipyard price of $ 176 million, for delivery scheduled in 2022.

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

In connection with our 50/50 joint venture, we have a potential obligation to fund ARO for newbuild jackup rigs.

ARO has plans to purchase 20 newbuild jackup rigs over an approximate 10 -year period.

In January 2020, ARO ordered the first two newbuild jackups, each with a shipyard price of $ 176.0 million.

The first rig is expected to be delivered in the fourth quarter of 2022 and the second rig is expected either late in the fourth quarter of 2022 or in the first quarter of 2023.

ARO is expected to place orders for two additional newbuild jackups 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.

ARO paid a 25% down payment from cash on hand for each of the newbuilds ordered in January 2020 and is actively exploring financing options for remaining payments due upon delivery.

In the event ARO has insufficient cash from operations or is unable to obtain third-party financing, each partner may periodically be required to make additional capital contributions to ARO, up to a maximum aggregate contribution of $ 1.25 billion from each partner to fund the newbuild program.

Each partner's commitment shall be reduced by the actual cost of each newbuild rig, on a proportionate basis.

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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.

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.

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

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

Year Ended December 31, 2021 Year Ended December 31, 2020 April 11, 2019 - December 31, 2019

Revenues $ 470.6 $ 549.4 $ 410.5

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December 31, 2021 December 31, 2020

Current assets $ 358.6 $ 407.2

Cash and cash equivalents $ 270.8 $ 237.7

Other current assets 135.0 120.9

Non-current assets 775.8 804.0

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Equity in Earnings of ARO

We account for our interest in ARO using the equity method of accounting and only recognize our portion of ARO's net income, adjusted for basis differences as discussed below, which is included in equity in earnings of ARO in our consolidated statements of operations.

We account for our interest in ARO using the equity method of accounting and only recognize our portion of ARO's net income, adjusted for basis differences as discussed below, which is included in Equity in earnings (losses) of ARO in our Consolidated Statements of Operations.

ARO is a variable interest entity;

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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 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.

The basis differences are amortized over the remaining life of the assets or liabilities to which they relate and are recognized as an adjustment to the equity in earnings of ARO in our consolidated statements of operations.

We have an equity method investment in ARO that was recorded at its estimated fair value as of the Transaction Date.

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") on that date.

These basis differences primarily relate to ARO's long-lived assets and the recognition of intangible assets associated with certain of ARO's drilling contracts that were determined to have favorable terms as of the Transaction Date.

Additionally, in fresh start accounting, we have recorded our investment in ARO at its estimated fair value as of the Effective Date.

Basis differences on that date primarily related to ARO's long-lived assets.

Basis differences are amortized over the remaining life of the assets or liabilities to which they relate and are recognized as an adjustment to the equity in earnings (losses) of ARO in our Consolidated Statements of Operations.

The amortization of those basis differences are combined with our 50 % interest in ARO's net income.

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

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

50% interest in ARO net income $ 20.7 $ 12.3

Successor Predecessor

Eight Months Ended December 31, 2021 Four Months Ended April 30, 2021 Year Ended December 31, 2020 April 11, 2019 - December 31, 2019

50% interest in ARO net income (loss) $ ( 4.0 ) $ 6.0 $ 20.7 $ 12.3

Amortization of basis differences 10.1 ( 2.9 ) ( 28.5 ) ( 24.9 )

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

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

Successor Predecessor

Eight Months Ended December 31, 2021 Four Months Ended April 30, 2021 Year Ended December 31, 2020 April 11, 2019 - December 31, 2019

Lease revenue $ 35.4 $ 21.7 $ 52.2 $ 58.2

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See " Note 1 7 - 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.

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.

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.

Amounts receivable from ARO related to the items above totaled $ 12.1 million and $ 21.6 million as of December 31, 2021 (Successor) and December 31, 2020 (Predecessor), respectively, and are included in Accounts receivable, net, on our Consolidated Balance Sheets.

We had $ 10.8 million and $ 38.3 million of contract liabilities and Accounts payable, respectively, related to the Lease Agreements as of December 31, 2021 (Successor).

As of December 31, 2020 (Predecessor), we had $ 30.9 million of contract liabilities related to the Lease Agreements and no Accounts payable to ARO.

The per day bareboat charter amount in the Lease Agreements is subject to adjustment based on actual performance of the respective rig and as such contract liabilities related to the Lease Agreements are subject to adjustment during the lease term.

Upon completion of the lease term, such amount becomes a payable to or a receivable from ARO.

During 2017 and 2018, Rowan contributed cash to ARO in exchange for 10-year shareholder notes receivable based on a one-year LIBOR rate, set as of the end of the year prior to the year applicable, plus two percent.

As of December 31, 2021 (Successor) and December 31, 2020 (Predecessor) the carrying amount of the long-term notes receivable from ARO was $ 249.1 million and $ 442.7 million respectively.

The notes receivable were adjusted to fair value as of the Effective Date.

The discount to the principal amount of $ 442.7 million is being amortized using the effective interest method to interest income over the remaining terms of the notes.

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

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

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.

During the year ended December 31, 2020 (Predecessor), 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 Statements of Operations.

During the eight months ended December 31, 2021 (Successor), interest totaled $ 27.8 million of which $ 20.8 million pertains to non-cash amortization of discount on the shareholder notes.

During the four months ended April 30, 2021 (Predecessor), interest totaled $ 3.5 million.

Interest totaled $ 18.3 million for the year ended December 31, 2020 (Predecessor) and $ 16.8 million for the period from April 11, 2019 - December 31, 2019 (Predecessor).

Interest amounts due were collected prior to the end of the year and we had no interest receivable from ARO as of December 31, 2021 (Successor) and December 31, 2020 (Predecessor).

Maximum Exposure to Loss

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).

The following table 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 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.

(2) the carrying amount of our shareholder notes receivable;

and (3) other receivables and contract assets from ARO, partially offset by contract liabilities as well as payables to ARO.

Successor Predecessor

December 31, 2021 December 31, 2020

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As of December 31, 2020

Supplemental executive retirement plan assets

$ 22.6 $ — $ — $ 22.6

Total financial assets $ 22.6 $ — $ — $ 22.6

As of December 31, 2019

(Predecessor)

Supplemental executive retirement plan assets

$ 22.6 $ — $ — $ 22.6

Derivatives, net

Total financial assets $ 22.6 $ — $ — $ 22.6

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 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.

Our supplemental executive retirement plans (the "SERP") are non-qualified plans that provided eligible employees an opportunity to defer a portion of their compensation for use after retirement.

The SERP was frozen to the entry of new participants in November 2019 and to future compensation deferrals as of January 1, 2020.

Assets held in a rabbi trust maintained for the SERP 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 Sheet as of December 31, 2020 (Predecessor).

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

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.

The fair value measurements of our derivatives were based on market prices that are generally observable for similar assets or liabilities at commonly quoted intervals.

Pursuant to the plan of reorganization, the assets held in the rabbi trust maintained for the SERP were liquidated upon the Effective Date and used to satisfy the claims of creditors.

Effective July 1, 2021, we amended the SERP to provide for quarterly credits of an interest equivalent based upon the rate of interest paid on ten-year United States treasury notes in November of the immediately preceding calendar year and the participant plan balances as of the first day of such quarter.

Net unrealized gains of $ 1.2 million, $ 3.2 million and $ 5.0 million from marketable securities held in our SERP were included in Other, net, in our Consolidated Statements of Operations for the four months ended April 30, 2021 (Predecessor), the year ended December 31, 2020 (Predecessor) and the year ended December 31, 2019 (Predecessor), respectively.

Other Financial Instruments

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

Subject to Compromise (1)

Successor Predecessor

December 31, 2021 December 31, 2020

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Value Carrying

Value Estimated

Secured first lien notes due 2028 $ 545.3 $ 575.7 $ — $ —

6.875 % Senior notes due 2020

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Liabilities Subject to Compromise (4)

current maturities — — 124.8 —

— — 7,096.3 940.8

Total long-term debt $ 545.3 $ 575.7 $ — $ —

(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.

(1) The carrying amount of debt instruments at December 31, 2020 represents the Predecessor's outstanding borrowings as of the Petition Date and are classified as Liabilities Subject to Compromise in our Consolidated Balance Sheet as of December 31, 2020.

(2) For the Predecessor, the 3% exchangeable senior notes due 2024 (the "2024 Convertible Notes") were exchangeable into cash, our Class A ordinary shares or a combination thereof.

The 2024 Convertible Notes were separated, at issuance, into their liability and equity components on our 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, accounts receivable, notes receivable, trade payables and other liabilities approximated their carrying values as of December 31, 2020 and 2019.

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

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

The equity component was $ 220.0 million and was classified as Additional Paid-in Capital as of December 31, 2020.

On the Effective Date, in accordance with the plan of reorganization, all outstanding obligations under the 2024 Convertible Notes were cancelled and the equity component was written off to retained earnings.

(3) In addition to the amount borrowed above, the Predecessor had $ 27.0 million in undrawn letters of credit issued under the Revolving Credit Facility as of December 31, 2020 .

On the Effective Date, in accordance with the plan of reorganization, all undrawn letters of credit issued under the Revolving Credit Facility were collateralized pursuant to the terms of the Revolving Credit Facility.

(4) As discussed in “ Note 2 - Chapter 11 Proceedings” and “ Note 3 - Fresh Start Accounting,” since the Petition Date and through the Effective Date, the Company operated as a debtor-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with the provisions of the Bankruptcy Code.

Accordingly, all of our long-term debt obligations were presented as Liabilities Subject to Compromise in our Consolidated Balance Sheet as of December 31, 2020 (Predecessor).

All unamortized debt discounts, premiums or issuance costs related to our long-term debt obligations were written off to reorganization items as of the Petition Date in 2020.

Additionally, we discontinued accruing interest on our indebtedness as of the Petition Date.

The estimated fair values of the Successor's First Lien Notes and the Predecessor's Senior Notes were determined using quoted market prices, which are level 1 inputs.

As of December 31, 2021 (Successor), the estimated fair value of our long-term notes receivable from ARO was $ 266.7 million and was estimated by using an income approach to value the forecasted cash flows attributed to the notes receivable using a discount rate based on comparable yield with a country-specific risk premium.

The estimated fair values of our cash and cash equivalents, restricted cash, accounts receivable and trade payables approximated their carrying values as of December 31, 2021 (Successor) and December 31, 2020 (Predecessor).

PROPERTY AND EQUIPMENT

Property and equipment as of December 31, 2020 and 2019 consisted of the following (in millions):

Property and equipment consisted of the following (in millions):

Successor Predecessor

December 31, 2021 December 31, 2020

Drilling rigs and equipment $ 886.9 $ 12,584.4

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$ 957.0 $ 13,209.3

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.

Concurrent with our emergence from bankruptcy, we adopted fresh start accounting and adjusted the carrying value of our property and equipment to estimated fair value which included an adjustment to reconcile to our reorganization value.

See " Note 3 - Fresh Start Accounting" for more information.

Work-in-progress as of December 31, 2020 (Predecessor) 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.

During the four months ended April 30, 2021, we recorded an aggregate pre-tax, non-cash impairment with respect to certain floaters of $ 756.5 million.

During the year ended December 31, 2020 and the year ended December 31, 2019, we recorded an aggregate pre-tax, non-cash impairment with respect to certain floaters, jackups and spare equipment of $ 3.6 billion and $ 98.4 million, respectively.

These pre-tax non-cash impairments are 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.

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.

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

During the first quarter of 2021, as a result of challenging market conditions for certain of our floaters, we revised our near-term operating assumptions which resulted in a triggering event for purposes of evaluating impairment.

We determined that the estimated undiscounted cash flows were not sufficient to recover the carrying values for certain rigs and concluded they were impaired as of March 31, 2021.

Based on the asset impairment analysis performed as of March 31, 2021, we recorded a pre-tax, non-cash loss on impairment in the first quarter for certain floaters totaling $ 756.5 million.

We measured the fair value of these assets to be $ 26.0 million at the time of impairment by applying either an income approach, using projected discounted cash flows or estimated sales price.

In instances where we applied an income approach, forecasted day rates and utilization took into account current market conditions and our anticipated business outlook.

During the 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.

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.

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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.

We determined that our estimated undiscounted cash flows were not sufficient to recover the carrying values of certain rigs and concluded they 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.

We measured the fair value of these assets to be $ 72.3 million at the time of impairment by applying either an income approach, using projected discounted cash flows, or estimated sales price.

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.

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

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 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 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.

Assets held-for-sale

Assets held-for-sale and Assets sold

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.

While taking into account certain restrictions on the sales of assets under our Indenture dated April 30, 2021 (the “Indenture”), 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 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.

See “ Note 9 – Debt" for additional details on restrictions on the sales of assets.

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

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

In accordance with our business strategy described above, we sold VALARIS 22, VALARIS 37, VALARIS 100 and VALARIS 142, resulting in a pre-tax gain of $ 20.7 million during the eight months ending December 31, 2021 (Successor).

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.

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

During the third quarter of 2020, we classified VALARIS 8504, VALARIS 84 and VALARIS 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.

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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.

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

The office was subsequently sold in the first quarter of 2021 and we recognized an immaterial pre-tax gain during the four months ended April 30, 2021 (Predecessor).

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

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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

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

With the exception of VALARIS 70, we determined that the fair value, less costs to sell, based on each rig's estimated sales price, was in excess of the respective carrying value.

Therefore, we concluded that there was no impairment for VALARIS 6002 and VALARIS 68.

For VALARIS 70, we recognized a pre-tax impairment charge of $ 10.2 million.

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

VALARIS 101 was sold and resulted in a gain of $ 5.3 million during the four months ended April 30, 2021 (Predecessor).

The carrying value of our debt as of December 31, 2021 (Successor) and 2020 (Predecessor) consisted of the following (in millions):

Successor Predecessor

2021 2020 (1)

Secured first lien notes due 2028 $ 545.3 $ —

6.875 % Senior notes due 2020

4.70 % Senior notes due 2021

4.875 % Senior notes due 2022 (2)

3.00 % Exchangeable senior notes due 2024

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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)

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Total long-term debt $ 545.3 $ —

(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.

(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 (Predecessor).

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 Statements of Operations for the year ended December 31,

2020 (Predecessor).

On the Effective Date, in accordance with the plan of reorganization, all outstanding obligations under the Predecessor's Senior Notes, including the 2024 Convertible Notes, and the Revolving Credit Facility were cancelled and the holders thereunder received their pro rata share of certain Common Shares issued on the Effective Date.

See below and " Note 2 - Chapter 11 Proceedings" for additional information.

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

(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.

On the Effective Date, in accordance with the plan of reorganization and Backstop Commitment Agreement, dated August 18, 2020 (as amended, the "BCA"), the Company consummated the rights offering of the First Lien Notes and associated shares in an aggregate principal amount of $ 550.0 million.

In accordance with the BCA, certain holders of senior notes claims and certain holders of claims under the Revolving Credit Facility who provided backstop commitments received the backstop premium in an aggregate amount equal to $ 50.0 million in First Lien Notes and 2.7 %of the Common Shares on the Effective Date.

T he Debtors paid a commitment fee of $ 20.0 million, in cash prior to the Petition Date, which was loaned back to the reorganized company upon emergence.

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

See “ Note 2 – Chapter 11 Proceedings” for additional information.

The First Lien Notes were issued pursuant to the Indenture, among Valaris Limited, certain direct and indirect subsidiaries of Valaris Limited as guarantors, and Wilmington Savings Fund Society, FSB, as collateral agent and trustee (in such capacities, the “Collateral Agent”).

The First Lien Notes are guaranteed, jointly and severally, on a senior basis, by certain of the direct and indirect subsidiaries of the Company.

The First Lien Notes and such guarantees are secured by first-priority perfected liens on 100 % of the equity interests of each Restricted Subsidiary directly owned by the Company or any guarantor and a first-priority perfected lien on substantially all assets of the Company and each guarantor of the First Lien Notes, in each case subject to certain exceptions and limitations.

The following is a brief description of the material provisions of the Indenture and the First Lien Notes.

The First Lien Notes are scheduled to mature on April 30, 2028.

Interest on the First Lien Notes accrues, at our option, at a rate of:

(i) 8.25 % per annum, payable in cash;

(ii) 10.25 % per annum, with 50 % of such interest to be payable in cash and 50 % of such interest to be paid in kind;

or (iii) 12 % per annum, with the entirety of such interest to be paid in kind.

Interest is due semi-annually in arrears on May 1 and November 1 of each year and shall be computed on the basis of a 360-day year of twelve 30-day months.

The first cash interest payment was made on November 1, 2021.

At any time prior to April 30, 2023, the Company may redeem up to 35 % of the aggregate principal amount of the First Lien Notes at a redemption price of 104 % up to the net cash proceeds received by the Company from equity offerings provided that at least 65 % of the aggregate principal amount of the First Lien Notes remains outstanding and provided that the redemption occurs within 120 days after such equity offering of the Company.

At any time prior to April 30, 2023, the Company may redeem the First Lien Notes at a redemption price of 104 % plus a “make-whole” premium.

On or after April 30, 2023, the Company may redeem all or part of the First Lien Notes at fixed redemption prices (expressed as percentages of the principal amount), plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

The Company may also redeem the First Lien Notes, in whole or in part, at any time and from time to time on or after April 30, 2026 at a redemption price equal to 100 % of the principal amount plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date.

Notwithstanding the foregoing, if a Change of Control (as defined in the Indenture, with certain exclusions as provided therein) occurs, the Company will be required to make an offer to repurchase all or any part of each note holder’s notes at a purchase price equal to 101 % of the aggregate principal amount of First Lien Notes repurchased, plus accrued and unpaid interest to, but excluding, the applicable date.

The Indenture contains covenants that limit, among other things, the Company’s ability and the ability of the guarantors and other restricted subsidiaries, to:

(i) incur, assume or guarantee additional indebtedness;

(ii) pay dividends or distributions on equity interests or redeem or repurchase equity interests;

(iii) make investments;

(iv) repay or redeem junior debt;

(v) transfer or sell assets;

(vi) enter into sale and lease back transactions;

(vii) create, incur or assume liens;

and (viii) enter into transactions with certain affiliates.

These covenants are subject to a number of important limitations and exceptions.

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

The Company incurred $ 5.2 million in issuance costs in association with the First Lien Notes that are being amortized into interest expense over the expected life of the notes using the effective interest method.

Predecessor Debtor in Possession Financing

On September 25, 2020, following approval by the Bankruptcy Court, the Debtors entered into the Debtor-in-Possession ("DIP") 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 that will be used to finance, among other things, the ongoing general corporate needs of the Debtors during the course of the Chapter 11 Cases and to pay certain fees, costs and expenses associated with the Chapter 11 Cases.

As of the Effective Date, there were no borrowings outstanding against our DIP facility and there were no DIP claims payable subsequent to, or that otherwise survived, the Effective Date.

The DIP Credit Agreement terminated on the Effective Date.

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

Predecessor Senior Notes

The commencement of the Chapter 11 Cases was considered 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 were automatically stayed as a result of the filing of the Chapter 11 Cases.

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

On the Effective Date, pursuant to the plan of reorganization, each series of our senior notes were cancelled and the holders thereunder received the treatment as set forth in the plan of reorganization.

The below paragraphs in this section contain further details about the inception or purchase of each of the Predecessor Senior Notes that were cancelled.

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").

(1) $ 201.4 million in aggregate principal amount of 7.875 % unsecured senior notes due 2019, which were repaid at maturity in August 2019, (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 in debt issuance costs.

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

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

During 2017, we exchanged $ 332.0 million aggregate principal amount of unsecured 8.00 % senior notes due 2024 (the “8 % 2024 Notes”) for certain amounts of our outstanding senior notes due 2019, 2020 and 2021.

Interest on the 8% 2024 Notes is payable semiannually on January 31 and July 31 of each year.

Interest on the 8% 2024 Notes was payable semiannually on January 31 and July 31 of each year.

During 2015, we issued $ 700.0 million aggregate principal amount of unsecured 5.20 % senior notes due 2025 (the “2025 Notes”) at a discount of $ 2.6 million and $ 400.0 million aggregate principal amount of unsecured 5.75 % senior notes due 2044 (the “New 2044 Notes”) at a discount of $ 18.7 million in a public offering.

Interest on the 2025 Notes is payable semiannually on March 15 and September 15 of each year.

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

Interest on the 2025 Notes was payable semiannually on March 15 and September 15 of each year.

Interest on the New 2044 Notes was 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") 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 together with the New 2044 Notes, the "2044 Notes", are treated as a single series of debt securities under the indenture governing the notes.

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

The Existing 2044 Notes together with the New 2044 Notes, the "2044 Notes", were 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.

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

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.

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.

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.

Debentures Due 2027

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

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

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

The indenture also contained 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.

Predecessor Debentures Due 2027

During 1997, Ensco International Incorporated issued $ 150.0 million of unsecured 7.20 % Debentures due 2027 (the "Debentures").

Interest on the Debentures is payable semiannually on May 15 and November 15 of each year.

Interest on the Debentures was payable semiannually on May 15 and November 15 of each year.

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, 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

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

Predecessor 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.

Under the terms of the agreement, we had 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.

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

Accordingly, the aggregate principal amount of 2024 Convertible Notes outstanding as well as associated accrued interest as of the Petition Date were classified as Liabilities Subject to Compromise in our Consolidated Balance Sheet as of December 31, 2020 (Predecessor).

If our average share price had exceeded the exchange price during a respective Predecessor reporting period, an assumed number of shares required to settle the conversion obligation in excess of the principal amount would have been included in our denominator for the 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.

Interest on the 2024 Convertible Notes is payable semiannually on January 31 and July 31 of each year.

Interest on the 2024 Convertible Notes was 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.

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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 exchange rate was 17.8336 shares per $1,000 principal amount of notes, representing an exchange price of $ 56.08 per share, and was 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.

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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 carrying amount of the 2024 Convertible Notes at December 31, 2020 (Predecessor) represented 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 (Predecessor).

The equity component was $ 220.0 million at December 31, 2020 (Predecessor) and remained in Additional paid-in capital.

The equity component was not remeasured if we continued 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.

During the years ended December 31, 2020 and 2019 (Predecessor), we recognized $ 16.1 million and $ 25.5 million, respectively, associated with coupon interest.

Amortization of debt discount and issuance costs were $ 21.4 million and $ 32.5 million for the years ended December 31, 2020 and 2019 (Predecessor), 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.

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 Statements of Operations the year ended December 31, 2020 (Predecessor).

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

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

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.

Tender Offers and Open Market Repurchases (Predecessor)

In early March 2020, we repurchased $ 12.8 million of the 2021 Notes outstanding 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.

On June 25, 2019, we commenced cash tender offers for certain series of our senior notes.

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.

As a result of the transaction, we recognized a pre-tax gain from debt extinguishment of $ 194.1 million, net of discounts, premiums and debt issuance costs in other, net, in the consolidated statement of operations.

Concurrent with the issuance of the 2026 Notes in January 2018, we launched cash tender offers for up to $ 985.0 million aggregate principal amount of certain series of senior notes issued by us and Pride, our wholly-owned subsidiary, and as a result we repurchased $ 595.4 million of our senior notes.

Subsequently, we issued a redemption notice for the remaining principal amount of the $ 55.0 million principal amount of the 8.5 % senior notes due 2019 and repurchased $ 71.4 million principal amount of our senior notes due 2020.

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.

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

As a result of the transaction, we recognized a pre-tax gain from debt extinguishment of $ 194.1 million, net of discounts, premiums and debt issuance costs in other, net, in the Consolidated Statements of Operations.

Our tender offers and open market repurchases are summarized in the following table (in millions):

Aggregate Principal Amount Repurchased Aggregate Repurchase Price (1)

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$ 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.

Revolving Credit Facility and DIP Facility

Predecessor Revolving Credit 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)

— — — — 620.8 — 620.8

3.00 % Exchangeable senior notes due 2024

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.

The commencement of the Chapter 11 Cases resulted in an event of default under our Revolving Credit Facility.

However, the ability of the lenders to exercise remedies in respect of the Revolving Credit Facility was stayed upon commencement of the Chapter 11 Cases.

Accordingly, the $ 581.0 million of outstanding borrowing as well as accrued interest as of the Petition Date were classified as Liabilities Subject to Compromise in our Consolidated Balance Sheet as of December 31, 2020 (Predecessor).

On the Effective Date, pursuant to the plan of reorganization, the Revolving Credit Facility was cancelled and the holders thereunder received the treatment as set forth in the plan of reorganization.

Prior to the Effective Date, pursuant to the plan of reorganization, all undrawn letters of credit issued under the Revolving Credit Facility were collateralized pursuant to the terms of the Revolving Credit Facility.

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 .

Interest expense totaled $ 31.0 million and $ 2.4 million for the eight months ended December 31, 2021 (Successor) and the four months ended April 30, 2021 (Predecessor), respectively.

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

This excess contractual interest was not included as interest expense on our Consolidated Statements of Operations, as the Company 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.

6 unchanged sentences

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 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

Foreign currency forward contracts - current (1)

Foreign currency forward contracts - non-current (2)

Derivatives not Designated as Hedging Instruments

Foreign currency forward contracts - current (1)

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):

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

The exercise of these termination rights are not stayed under the Bankruptcy Code and the counterparties elected to terminate their outstanding derivatives with us in September 2020 for an aggregate settlement of $ 3.6 million which was recorded as a gain in Contract drilling expense in our Consolidated Statements of Operations for the year ended December 31, 2020 (Predecessor).

As a result, we no longer had derivative assets or liabilities on our Consolidated Balance Sheet as of December 31, 2020 (Predecessor).

During the four months ended April 30, 2021 (Predecessor) and eight months ended December 31, 2021 (Successor), we did not enter into derivative contracts;

therefore, we do not have derivative assets or liabilities on our Consolidated Balance Sheet as of December 31, 2021(Successor).

Historically we have 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 were as follows (in millions):

Gain (Loss) Recognized in Other Comprehensive

1 unchanged sentence

on Derivatives

(Effective Portion) (Gain) Loss Reclassified from

(Effective Portion)

Successor Predecessor

Eight Months Ended December 31, 2021 Four Months Ended April 30, 2021 Year Ended December 31, 2020 Year Ended December 31, 2019

Foreign currency forward contracts — — ( 5.4 ) 1.6

Total $ — $ — $ ( 5.4 ) $ 1.6

(Gain) Loss Reclassified from

AOCI into Income

(Effective Portion) (1)

Gain (Loss) Recognized

Derivatives (Ineffective

Portion and Amount

Excluded from

Effectiveness Testing) (2)

2020 2019 2018 2020 2019 2018 2020 2019 2018

Successor Predecessor

Eight Months Ended December 31, 2021 Four Months Ended April 30, 2021 Year Ended December 31, 2020 Year Ended December 31, 2019

Interest rate lock contracts (2)

4 unchanged sentences

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

(2) Gains and losses recognized in income for amounts excluded from effectiveness testing were included in other, net, in our consolidated statements of operations.

As a result of our adoption of Update 2017-12 on January 1, 2019, ineffectiveness is no longer separately measured and recognized.

Amounts recorded in AOCI associated with cash flow hedges are subsequently reclassified into contract drilling expense, depreciation or interest expense as earnings are affected by the underlying hedged forecasted transaction.

(2) Losses on interest rate lock derivatives reclassified from AOCI into income were included in Interest expense, net, in our Consolidated Statements of Operations.

(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.

(3) During the four months ended April 30, 2021 (Predecessor), $ 5.6 million of gains were reclassified from AOCI into Loss on impairment in our Consolidated Statements of Operations in connection with the impairment of certain rigs.

During the year ended December 31, 2020 (Predecessor), $ 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 Statements of Operations.

During the year ended December 31, 2019 (Predecessor), $ 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 Statements 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.

3 unchanged sentences

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.

As of December 31, 2021 (Successor) and December 31, 2020 (Predecessor) we did not have open derivative contracts to hedge against this risk.

Net losses of $ 0.2 million and $ 6.4 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 and 2019 (Predecessor), respectively.

SHAREHOLDERS' EQUITY

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):

Activity in our various shareholders' equity accounts for the eight months ended December 31, 2021 (Successor), the four months ended April 30, 2021 (Predecessor) and the years ended December 31, 2020 (Predecessor) and 2019 (Predecessor) were as follows (in millions, except per share amounts):

Shares Par Value Additional

Capital Retained

Earnings AOCI Treasury

Capital Warrants Retained

Earnings (Deficit) 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 )

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

Repurchase of shares — — — — — ( 1.9 ) —

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

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

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

Net income (loss) — — — — ( 198.0 ) — — 5.8

Dividends paid ($ 0.04 per share) — — — — ( 4.5 ) — — —

— — — ( 4.5 ) — — —

Equity issuance in connection with the Rowan Transaction 88.0 35.2 1,367.5 — — — 0.1 —

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

Net changes in pension and other postretirement benefits — — — — — ( 21.7 ) — —

Distributions to noncontrolling interests — — — — — — — ( 4.5 )

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

Equity issuance cost — — ( 0.6 ) — — — — —

Shares issued under share-based compensation plans, net 2.7 1.1 ( 1.3 ) — — — ( 0.7 ) —

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

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 )

BALANCE, December 31, 2019 (Predecessor) 205.9 82.5 8,627.8 — 671.7 6.2 ( 77.3 ) ( 1.3 )

Net loss — — — — ( 4,855.5 ) — — ( 2.1 )

Net changes in pension and other postretirement benefits — — — — — ( 76.5 ) — —

Purchase of noncontrolling interests — — ( 7.2 ) — — — — —

Distributions to noncontrolling interests — — — — — — — ( 0.9 )

Shares issued under share-based compensation plans, net 0.2 0.1 ( 1.9 ) — — — 2.0 —

1 unchanged sentence

Share-based compensation cost — — 21.2 — — — — —

Net other comprehensive loss — — — — — ( 17.6 ) — —

Shares Par Value Additional

Capital Warrants Retained

Earnings (Deficit) AOCI Treasury

Shares Non-controlling

BALANCE, December 31, 2020 (Predecessor) 206.1 82.6 8,639.9 — ( 4,183.8 ) ( 87.9 ) ( 76.2 ) ( 4.3 )

Net income (loss) — — — — ( 4,467.0 ) — — 3.2

Shares issued under share-based compensation plans, net — — ( 0.7 ) — — — 0.7 —

Net changes in pension and other postretirement benefits — — — — — 0.1 — —

Purchase of noncontrolling interests — — ( 7.2 ) — — — —

Distributions to noncontrolling interests — — — — — — ( .9 )

Share-based compensation cost — — 4.8 — — — — —

Net other comprehensive loss — — — — — ( 5.6 ) — —

BALANCE, December 31, 2020 206.1 $ 82.6 $ 8,639.9 $ ( 4,183.8 ) $ ( 87.9 ) $ ( 76.2 ) $ ( 4.3 )

Cancellation of Predecessor equity ( 206.1 ) ( 82.6 ) ( 8,644.0 ) — 8,650.8 93.4 75.5 —

Issuance of Successor Common Shares and Warrants 75.0 0.8 1,078.7 16.4 — — — —

BALANCE, April 30, 2021 (Predecessor) 75.0 0.8 1,078.7 16.4 — — — ( 1.1 )

BALANCE, May 1, 2021 (Successor) 75.0 0.8 1,078.7 16.4 — — — ( 1.1 )

Net income (loss) — — — — ( 33.0 ) — — 3.8

Net changes in pension and other postretirement benefits — — — — — ( 9.1 ) — —

Share-based compensation cost — — 4.3 — — — —

BALANCE, December 31, 2021 (Successor) 75.0 $ 0.8 $ 1,083.0 $ 16.4 $ ( 33.0 ) $ ( 9.1 ) $ — $ 2.7

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 5 - 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 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.

The declaration and amount of future dividends is at the discretion of our Board of Directors and will depend on our profitability, liquidity, financial condition, market outlook, reinvestment opportunities, capital requirements and other factors and restrictions our Board of Directors deems relevant.

There can be no assurance that we will pay a dividend in the future.

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, 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.

Valaris Limited Share Capital

As of the Effective Date, the authorized share capital of Valaris Limited is $ 8.5 million divided into 700 million Common Shares of a par value of $ 0.01 each and 150 million preference shares of a par value of $ 0.01 .

Issuance of Common Shares

On the Effective Date, pursuant to the plan of reorganization, we issued 75 million Common Shares.

Cancellation of Predecessor Equity and Issuance of Warrants

On the Effective Date and pursuant to the plan of reorganization, the Legacy Valaris Class A ordinary shares were cancelled and the Company issued 5,645,161 Warrants to the former holders of the Company's equity interests outstanding prior to the Effective Date.

The Warrants are exercisable for a period of seven years and will expire on April 29, 2028.

The exercise of these Warrants into Common Shares would have a dilutive effect to the holdings of Valaris Limited's existing shareholders.

Management Incentive Plan

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

See " Note 12 - Share Based Compensation" for information on equity awards granted under the MIP subsequent to the Effective Date.

SHARE BASED COMPENSATION

In May 2018, our shareholders approved the 2018 Long-Term Incentive Plan (the "2018 LTIP") effective January 1, 2018, to provide for the issuance of non-vested share awards, share option awards and performance awards (collectively "awards").

The 2018 LTIP is similar to and replaces the Company's previously adopted 2012 Long-Term Incentive Plan (the “2012 LTIP”).

No further awards will be granted under the 2012 LTIP.

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.

As of December 31, 2020, there were 2.6 million shares remaining available for future issuance as awards under the Rowan LTIP which may be granted to employees and other service providers who were not employed or engaged with Valaris prior to the Rowan Transaction.

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, 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

Grants of share awards and share units (collectively "share awards") and share units to be settled in cash ("cash-settled awards"), generally vest at rates of 20 % or 33 % per year, as determined by a committee of the Board of Directors at the time of grant.

Additionally, non-employee directors may annually elect to receive deferred share awards.

Deferred share awards vest at the earlier of the first anniversary of the grant date or the next annual meeting of shareholders following the grant but are not settled until the director terminates service from the Board.

Deferred share awards are settled in cash, shares or a combination thereof at the discretion of the Compensation Committee.

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.

On the Effective Date and pursuant to the plan of reorganization, all of the Predecessor's ordinary shares were cancelled.

Therefore, any Predecessor remaining long-term incentive plans were cancelled, including Legacy Valaris's 2018 Long-Term Incentive Plan (the "2018 LTIP") as well as plans assumed in the Rowan Transaction ("Rowan LTIP") and in connection with the Atwood Merger (the “Atwood LTIP”, and together with the 2018 LTIP and the Rowan LTIP, the "Legacy LTIPs").

See " Note 2 - Chapter 11 Proceedings" for additional information.

As of December 31, 2021, there were 7,493,135 shares available for issuance under the MIP.

Non-Vested Share Awards, Cash-Settled Awards and Non-employee Director Awards

Successor Awards

Under the Company's MIP, time-based restricted stock unit awards were granted to certain employees and senior officers which vest ratably over a three year period from the date of grant.

The grant-date fair value per share for these time-based restricted stock awards was equal to the closing price of the Company's stock on the grant date.

For senior officers, delivery of the shares underlying vested restricted stock awards is deferred until the third anniversary of the date of grant.

Non-employee directors received a one-time grant of time-based restricted awards upon our emergence from the Chapter 11 Cases which vest ratably over a three year period from the date of grant.

Additionally, non-employee directors received an annual grant of time-based restricted awards which vest in full on the earlier of the first anniversary of the grant date or the next annual meeting of shareholders following the grant.

Non-employee directors are permitted to elect to receive deferred share awards which can be settled and delivered at the vesting date, six-month anniversary following the termination of the director's service or a specific pre-determined date.

During the eight months ended December 31, 2021 (Successor), 1.1 million share unit awards were granted to our employees and non-employee directors pursuant to the MIP.

No cash-settled awards were granted during this period under the MIP.

Our non-vested share awards do not have voting or participating rights as the dividend equivalent provided for in the award agreement is forfeitable (except in certain limited circumstances) and further our debt agreements limit our ability to pay dividends and none have been declared.

Compensation expense for share awards 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).

Compensation expense for cash-settled awards is remeasured each quarter with a cumulative adjustment to compensation cost during the period based on changes in our share price.

Our compensation cost is reduced for forfeited awards in the period in which the forfeitures occur.

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

Predecessor Awards

The Predecessor granted share awards and share units (collectively "share awards") and share units to be settled in cash ("cash-settled awards"), which generally vested at a rate of 33 % per year, as determined by the compensation committee of Legacy Valaris' Board of Directors at the time of grant.

Additionally, non-employee directors were permitted to elect to receive deferred share awards.

Deferred share awards vested at the earlier of the first anniversary of the grant date or the next annual meeting of shareholders following the grant but were not to be settled until the director terminated service from the Board.

Deferred share awards were to be settled in cash, shares or a combination thereof at the discretion of the compensation committee.

During the four months ended April 30, 2021 (Predecessor), no share unit awards or cash-settled awards were granted.

Predecessor's non-vested share awards had voting and dividend rights effective on the date of grant, and the non-vested share units had dividend rights effective on the date of grant.

Compensation expense for share awards was 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).

Compensation expense for cash-settled awards was remeasured each quarter with a cumulative adjustment to compensation cost during the period based on changes in the Legacy Valaris share price.

Compensation cost was also reduced for forfeited awards in the period in which the forfeitures occurred.

As discussed above, in accordance with the plan of reorganization, the unvested awards of employees, senior executive officers and non-employee directors remaining on the Effective Date were cancelled for no consideration.

The following table summarizes share award and cash-settled award compensation expense recognized

(in millions):

Successor Predecessor

Eight Months Ended December 31, 2021 Four Months Ended April 30, 2021 Year Ended December 31, 2020 Year Ended December 31, 2019

Contract drilling $ 1.6 $ 2.4 $ 10.7 $ 22.1

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$ 3.4 $ 4.3 $ 18.1 $ 37.0

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:

Share Awards Cash-Settled Awards

As of December 31, 2021, there was $ 19.9 million of total estimated unrecognized compensation cost related to Successor share awards, which has a weighted-average remaining vesting period of 1.7 years.

The following tables summarizes the value of share awards and cash-settled awards granted and vested:

Successor Predecessor

Eight Months Ended December 31, 2021 Four Months Ended April 30, 2021 Year Ended December 31, 2020 Year Ended December 31, 2019

Weighted-average grant-date fair value of share awards granted (per share) (1)

$ 26.07 $ — $ 3.07 $ 11.50

Total fair value of share awards vested during the period (in millions) (2)

$ — $ 0.02 $ 3.26 $ 17.70

(1) During the four months ended April 30, 2021 (Predecessor), no share unit awards were granted.

(2) No share awards vested during the eight months ended December 31, 2021 (Successor).

Cash-Settled Awards

Successor Predecessor

Eight Months Ended December 31, 2021 Four Months Ended April 30, 2021 Year Ended December 31, 2020 Year Ended December 31, 2019

Weighted-average grant-date fair value of share awards granted (per share) (1)

$ — $ — $ 0.75 $ —

Total fair value of share awards vested during the period (in millions) (2)

The following table summarizes share awards and cash-settled awards activity for the year ended December 31, 2020 (shares in thousands):

$ — $ — $ 0.22 $ 3.50

(1) During the eight months ended December 31, 2021 (Successor), four months ended April 30, 2021 (Predecessor) and year ended December 31, 2019 (Predecessor) no cash-settled awards were granted.

(2) During the eight months ended December 31, 2021 (Successor), no cash-settled awards were vested.

The following table summarizes share awards and cash-settled awards activity for the four months ended April 30, 2021 (Predecessor) and eight months ended December 31, 2021 (Successor) (shares in thousands):

Share Awards Cash-settled Awards

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Fair Value Awards Weighted-Average

Share awards and cash-settled awards as of December 31, 2019 6,433 $ 19.89 697 $ 46.28

Granted 1,118 3.07 66 0.75

Share awards and cash-settled awards as of

December 31, 2020 (Predecessor)

2,982 $ 16.40 311 $ 22.74

Vested ( 195 ) 16.93 ( 25 ) 11.35

Forfeited ( 295 ) 32.98 ( 5 ) 29.18

Share awards and cash-settled awards as of December 31, 2020 2,982 $ 16.40 311 $ 22.74

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

Share Appreciation Rights ("SARs") granted to employees generally become exercisable in 33 % increments over a three-year period and, to the extent not exercised, expire on the tenth anniversary of the date of grant.

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 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.

No SARs have been granted since 2013 under the Rowan LTIP, and there was no unrecognized compensation cost related to SARs as of December 31, 2020.

Share Option Awards

Share option awards ("options") granted to employees generally become exercisable in 25 % increments over a four-year period or 33 % increments over a three-year period or 100% after a four-year period and, to the extent not exercised, expire on either the seventh or tenth anniversary of the date of grant.

The exercise price of options granted under the 2018 LTIP equals the market value of the underlying shares on the date of grant.

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 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.

Cancelled ( 2,492 ) 14.25 ( 281 ) 23.65

Share awards and cash-settled awards as of

April 30, 2021 (Predecessor)

Share awards and cash-settled awards as of

May 1, 2021 (Successor)

Granted 1,050 26.07 — —

Forfeited ( 192 ) 25.02 — —

Share awards and cash-settled awards as of

December 31, 2021 (Successor)

858 $ 26.30 — $ —

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 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.

Successor Awards

Under the Company's MIP, performance awards may be issued to our senior executive officers.

The 2021 performance awards are allocated based on three performance goals and subject to achievement of those performance goals based on (a) designated share price hurdles whereby our closing stock price must equal or exceed certain market price targets for ninety consecutive trading days (the "Market-Based Objectives");

(b) relative return on capital employed ("ROCE") as compared to a specified peer group, all as defined in the award agreements (the "ROCE Objective"), and (c) specified strategic goals as established by a committee of the Board of Directors (the "Strategic Goal Objective" and together with the ROCE Objective, the "Performance-Based Objectives").

Awards are payable in equity following a three-year performance period and subject to attainment of relative Market-Based Objectives and Performance-Based Objectives ranging from 0 % to 150 % of target performance under such objectives.

Performance awards generally vest at the end of a three-year measurement period based on attainment of performance goals.

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 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.

Savings Plans

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.

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.

Any subsequent changes in this estimate as it relates to the Performance-Based Objectives are recognized as a cumulative adjustment to compensation cost in the period in which the change in estimate occurs.

Compensation cost for the Market-Based Objectives is recognized as long as the requisite service period is completed and will not be reversed even if the Market-Based Objectives are never satisfied.

The fair value of the 2021 performance awards granted during the eight months ended December 31, 2021 (Successor) are measured on the date of grant.

The grant-date fair value per unit for the portion of the performance awards related to Performance-Based Objectives was equal to the closing price of the Company's stock on the grant date.

The portion of these awards that were based on the Company's achievement of Market-based Objectives were valued at the date of grant using a Monte Carlo simulation with the following weighted average assumptions for the grants made over the eight months ended December 31, 2021:

Expected price volatility 61 %

Expected dividend yield —

Risk-free interest rate 0.73 %

The expected price volatility assumption is estimated using market data for certain peer companies during periods in which our own trading history is limited.

As our trading history increases, it will bear greater weight in determining our expected price volatility assumption.

The following table summarizes the performance award activity for the eight months ended December 31, 2021 (Successor) (shares in thousands):

Awards Weighted Average Grant Date Fair Value Price

Balance as of May 1, 2021 (Successor)

Granted - Market-Based Objectives (1)

Granted - Performance-Based Objectives (1)

Total Granted 1,312 15.93

Forfeited - Market-Based Objectives ( 527 ) 11.04

Forfeited - Performance-Based Objectives ( 176 ) 25.02

Total Forfeited ( 703 ) 14.54

Balance as of December 31, 2021 (Successor)

(1) The number of awards granted reflects the shares that would be granted if the target level of performance were to be achieved.

The number of shares actually issued after considering forfeitures may range from zero to 913,585 .

During the eight months ended December 31, 2021 (Successor), we recognized of $ 0.7 million of compensation expense for performance awards, which was included in General and administrative expense in our Consolidated Statements of Operations.

As of December 31, 2021, there was $ 13.0 million of total estimated unrecognized compensation cost related to share awards, which has a weighted-average remaining vesting period of 2.6 years.

Predecessor Awards

Under the 2018 LTIP, performance awards were permitted to be issued to senior executive officers.

The 2019 performance awards were subject to achievement of specified performance goals based on both relative and absolute total shareholder return ("TSR").

The 2020 performance awards were forfeited in exchange for cash-based incentive and retention awards.

The performance goals were determined by a committee of the Board of Directors and the awards were 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.

Performance awards granted during 2019 were 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 was based primarily on relative performance over the requisite performance period.

Any subsequent changes in this estimate were recognized as a cumulative adjustment to compensation cost in the period in which the change in estimate occurred.

The aggregate grant-date fair value of performance awards granted during 2019 was $ 6.7 million.

Subsequent to issuance, the 2020 performance awards were forfeited.

The aggregate fair value of performance awards vested during 2020 and 2019 (Predecessor) totaled $ 5.2 million and $ 2.2 million, respectively.

During the years ended December 31, 2020 and 2019 (Predecessor) we recognized $ 1.0 million and $ 3.2 million of compensation expense for performance awards, respectively, which was included in General and administrative expense in our Consolidated Statements of Operations.

No compensation expense was recognized in connection with these awards during the four months ended April 30, 2021 (Predecessor), or the eight months ended December 31, 2021 (Successor) as per the terms of these awards no amount could be or can be earned due to the TSR provisions of the award.

While this award was not cancelled in accordance with the plan of reorganization, it has no value.

Share Appreciation Rights

Predecessor Awards

Share Appreciation Rights ("SARs") granted to employees generally became exercisable in 33 % increments over a three-year period and, to the extent not exercised, expired on the tenth anniversary of the date of grant.

The Predecessor had accounted for SARs as equity awards.

No SARs had been granted since 2013 under the Rowan LTIP.

As of December 31, 2020, SARs granted to purchase 426,049 shares were outstanding under the Rowan LTIP.

During the four months ended April 30, 2021 (Predecessor), 106,408 of SARs expired unexercised, and as discussed above, in accordance with the plan of reorganization, the remaining outstanding SARs were cancelled.

Share Option Awards

Predecessor Awards

Share option awards granted to employees generally became exercisable in 25 % increments over a four-year period or 33 % increments over a three-year period or 100% after a four-year period and, to the extent not exercised, expired on either the seventh or tenth anniversary of the date of grant.

The exercise price of options granted under the 2018 LTIP equaled the market value of the underlying shares on the date of grant.

Excluding options assumed under the Atwood LTIP and Rowan LTIP, no options have been granted since 2011.

As of December 31, 2020, options granted to purchase 318,377 shares were outstanding under the Legacy LTIPs.

As discussed above, in accordance with the plan of reorganization, these outstanding options were cancelled.

PENSION AND OTHER POST-RETIREMENT BENEFITS

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Each of the plans has a benefit obligation that exceeds the fair value of plan assets.

As of the Transaction Date, the net projected benefit obligations totaled $ 239.3 million, of which $ 19.2 million was classified as current.

The current and non-current portions of the net benefit obligations are included in accrued liabilities and other liabilities in our consolidated balance sheet, respectively.

The most significant of the assumed plans is the Rowan Pension Plan, which had a net projected benefit obligation of $ 202.1 million.

The most significant of the assumed plans is the Rowan Pension Plan.

Prior to the Transaction Date, Rowan amended the Rowan Pension Plan to freeze the plan as to any future benefit accruals.

As a result, eligible employees no longer receive pay credits in the pension plan and newly hired employees 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, 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

The following table presents the changes in benefit obligations and plan assets for the eight months ended December 31, 2021 (Successor), the four months ended April 30, 2021 (Predecessor) and the year ended December 31, 2020 (Predecessor) and the funded status and weighted-average assumptions used to determine the benefit obligation at the measurement date (dollars in millions):

Successor Predecessor

Eight Months Ended December 31, 2021 Four Months Ended April 30, 2021 Year Ended December 31, 2020

Pension Benefits Other Benefits Total Pension Benefits Other Benefits Total Pension Benefits Other Benefits Total

Projected benefit obligation:

Balance, January 1 and April 11 $ 832.4 $ 16.1 $ 848.5 $ 800.1 $ 15.9 $ 816.0

BALANCE at the beginning of the period $ 826.1 $ 14.8 $ 840.9 $ 886.7 $ 15.9 $ 902.6 $ 832.4 $ 16.1 $ 848.5

Interest cost 15.3 0.3 15.6 6.5 0.1 6.6 24.9 0.5 25.4

24.9 0.5 25.4 21.3 0.4 21.7

Service cost — — — — — — .1 — 0.1

2 unchanged sentences

Plan curtailments — — — — — — ( 3.3 ) — ( 3.3 )

Plan amendments 0.2 — 0.2 — — — — — —

Benefits paid ( 25.7 ) ( 0.3 ) ( 26.0 ) ( 12.1 ) ( 0.2 ) ( 12.3 ) ( 58.6 ) ( 0.6 ) ( 59.2 )

( 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, January 1 and April 11 $ 598.9 $ — $ 598.9 $ 576.8 $ — $ 576.8

Net transfer in/(out) (including the effect of any business combinations/divestitures) 17.3 5.0 22.3 — — — — — —

BALANCE at the end of the period $ 827.9 $ 15.6 $ 843.5 $ 826.1 $ 14.8 $ 840.9 $ 886.7 $ 15.9 $ 902.6

Fair value, at the beginning of the period $ 652.0 $ — $ 652.0 $ 603.1 $ — $ 603.1 $ 598.9 $ — $ 598.9

Actual return 31.8 — 31.8 38.5 — 38.5 57.9 — 57.9

57.9 — 57.9 43.6 — 43.6

Employer contributions 2.4 — 2.4 22.5 — 22.5 11.5 — 11.5

1 unchanged sentence

Benefits paid ( 25.7 ) — ( 25.7 ) ( 12.1 ) — ( 12.1 ) ( 58.6 ) — ( 58.6 )

( 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

Fair value, at the end of the period $ 634.6 $ — $ 634.6 $ 652.0 $ — $ 652.0 $ 603.1 $ — $ 603.1

Net benefit liabilities $ 193.3 $ 15.6 $ 208.9 $ 174.1 $ 14.8 $ 188.9 $ 283.6 $ 15.9 $ 299.5

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Other liabilities (long-term) ( 189.5 ) ( 14.5 ) ( 204.0 ) ( 172.7 ) ( 13.4 ) ( 186.1 ) ( 282.1 ) ( 14.5 ) ( 296.6 )

( 282.1 ) ( 14.5 ) ( 296.6 ) ( 232.1 ) ( 14.6 ) ( 246.7 )

Net benefit liabilities $ ( 193.3 ) $ ( 15.6 ) $ ( 208.9 ) $ ( 174.1 ) $ ( 14.8 ) $ ( 188.9 ) $ ( 283.6 ) $ ( 15.9 ) $ ( 299.5 )

Accumulated contributions in excess of (less than) net periodic benefit cost $ ( 180.0 ) $ ( 19.8 ) $ ( 199.8 ) $ ( 174.1 ) $ ( 14.8 ) $ ( 188.9 ) $ ( 179.6 ) $ ( 15.8 ) $ ( 195.4 )

$ ( 179.6 ) $ ( 15.8 ) $ ( 195.4 ) $ ( 206.2 ) $ ( 15.9 ) $ ( 222.1 )

Amounts not yet reflected in net periodic benefit cost:

Actuarial loss $ ( 104.0 ) $ ( 0.1 ) $ ( 104.1 ) $ ( 27.3 ) $ ( 0.2 ) $ ( 27.5 )

Total accumulated other comprehensive loss ( 104.0 ) ( 0.1 ) ( 104.1 ) ( 27.3 ) ( 0.2 ) ( 27.5 )

Actuarial gain (loss) ( 13.1 ) 4.2 ( 8.9 ) — — — ( 104.0 ) $ ( 0.1 ) ( 104.1 )

Prior service credit (cost) ( 0.2 ) — ( 0.2 ) — — — — — —

Total accumulated other comprehensive income (loss) $ ( 13.3 ) $ 4.2 $ ( 9.1 ) $ — $ — $ — $ ( 104.0 ) $ ( 0.1 ) $ ( 104.1 )

Net benefit liabilities $ ( 193.3 ) $ ( 15.6 ) $ ( 208.9 ) $ ( 174.1 ) $ ( 14.8 ) $ ( 188.9 ) $ ( 283.6 ) $ ( 15.9 ) $ ( 299.5 )

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Discount rate 2.73 % 2.72 % 2.84 % 2.73 % 2.30 % 2.19 %

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.

Cash balance interest credit rate 3.05 % N/A 2.94 % N/A 2.94 % N/A

The unfunded obligation increased by $ 20.0 million as of December 31, 2021 when compared to the unfunded obligation as of April 30, 2021.

The increase was primarily attributable to the unfunded obligation under the SERP, having a balance of $ 16.2 million at December 31, 2021, which was transferred in as of July 1, 2021.

Additionally, a decline in the discount rate and the impact of updated census data contributed to the increase in the unfunded obligation in the amount of $ 9.2 million and $ 13.2 million, respectively.

This was partially offset by higher than expected return on plan assets of $ 7.1 million, and employer contributions of $ 2.4 million during the eight months ended December 31, 2021.

The unfunded obligation decreased by $ 110.6 million as of April 30, 2021 when compared to the unfunded obligation as of December 31, 2020.

The decrease was primarily attributable to the remeasurement of the pension and other post-retirement benefit plans at the Effective Date in fresh start accounting of $ 82.7 million due to an increase in the discount rate and higher than expected return on plan assets of approximately$ 56 million and $ 26 million, respectively.

See " Note 3 - Fresh Start Accounting" for more information on the remeasurement of the pension and other post-retirement benefit plans.

Additionally, employer contributions of $ 22.5 million made during the four months ended April 30, 2021 (Predecessor) drove a further decline in the unfunded obligation.

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 assuming the actual or assumed expected date of separation for retirement.

The accumulated benefit obligations, which are presented below for all plans in the aggregate at December 31, 2021 and 2020, are based on services rendered to date, but exclude the effect of future salary increases (in millions):

Successor Predecessor

Accumulated benefit obligation $ 843.5 $ 902.6

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

Successor Predecessor

Eight Months Ended December 31, 2021 Four Months Ended April 30, 2021 Year Ended December 31, 2020 April 11, 2019 - December 31, 2019

Service cost (1)

$ — $ — 0.1 1.5

Interest cost (2)

15.6 6.6 25.4 21.3

Expected return on plan assets (2)

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Curtailment gain recognized (2)

Settlement gain recognized (2)

— — ( 3.3 ) —

Settlement (gain) loss recognized (2)

0.4 — ( 0.3 ) —

Amortization of net loss (2)

Net periodic pension and retiree medical cost (income) $ ( 8.7 ) $ ( 5.4 ) $ ( 14.6 ) $ ( 4.3 )

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

Settlement accounting is necessary when actual lump sums paid during a fiscal year exceed the sum of the service cost and interest cost for the year.

The settlement threshold was reached for the Rowan Pension Plan and we recognized a settlement charge of $ 0.4 million in our Consolidated Statements of Operations during the eight months ended December 31, 2021 (Successor).

In March 2021, the American Rescue Plan Act of 2021 ("ARPA-21") was passed.

ARPA-21 provides funding relief for U.S.

qualified pension plans which should lower pension contribution requirements over the next few years.

As a result, we did not make contributions to certain plans in 2021.

However, we currently expect to contribute approximately $ 3.8 million to our pension plans and to directly pay other post-retirement benefits of approximately $ 1.2 million in 2022.

These amounts represent the minimum contributions we are required to make under relevant statutes.

We do not expect to make contributions in excess of the minimum required amounts.

The pension plans' investment objectives for fund assets are:

4 unchanged sentences

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

December 31, 2021 (Successor)

large cap 22 % to 28 %

16 unchanged sentences

Total $ 634.6 $ 78.8 $ 555.8 $ —

December 31, 2019

December 31, 2020 (Predecessor)

large cap 22 % to 28 %

22 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.

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• Fair value of mutual fund investments in core plus fixed income securities categorized as Level 1 were based on quoted market prices which represent the net asset value of shares held.

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 6.03 % at December 31, 2020 and 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.

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 plan's 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 plan, which increased to 6.26 % at December 31, 2021 (Successor) from 6.03 % at December 31, 2020 (Predecessor).

Estimated future annual benefit payments from plan assets are presented below.

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2027 through 2030 200.2 4.2

We generated losses of $ 51.0 million, profits of $ 39.0 million and losses of $ 115.1 million from continuing operations before income taxes in the U.S.

and losses of $ 5.1 billion, $ 102.8 million and $ 423.8 million from continuing operations before income taxes in non-U.S.

jurisdictions for the years ended December 31, 2020, 2019 and 2018, respectively.

The following table summarizes components of our provision for income taxes from continuing operations for each of the years in the three-year period ended December 31, 2020 (in millions):

2020 2019 2018

Savings Plans

We have savings plans, (the Ensco Savings Plan, the Valaris Multinational Savings Plan, the Valaris 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 Valaris 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 Valaris Limited Retirement Plan allows eligible employees to make tax-deferred contributions to the plan.

Contributions made to the Valaris 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.

however, depending on the plan and the tier, the match percentage could vary.

Matching contributions totaled $ 8.8 million and $ 18.7 million for the years ended December 31, 2020 and 2019 (Predecessor), respectively.

Effective August 1, 2020, in light of the then current economic environment, we suspended employer matching contributions for the Ensco Savings Plan and the Valaris Multinational Savings Plan.

In addition, effective December 1, 2020, the matching contributions in the Valaris Limited Retirement Plan were reduced.

Employer contributions were reinstated effective January 1, 2022 whereby 100 % of the amount contributed by the employee is matched up to a maximum of 4% of eligible salary.

We generated profits of $ 253.4 million and $ 373.1 million, losses of $ 51.0 million and profits of $ 39.0 million before income taxes in the U.S.

for the eight months ended December 31, 2021 (Successor), the four months ended April 30, 2021 (Predecessor), the years ended December 31, 2020 and 2019 (Predecessor), respectively.

We generated losses of $ 245.2 million, $ 4.8 billion, $ 5.1 billion and $ 102.8 million before income taxes in non-U.S.

jurisdictions for the eight months ended December 31, 2021 (Successor), the four months ended April 30, 2021 (Predecessor), the years ended December 31, 2020 and 2019 (Predecessor), respectively.

The components of our provision for income taxes are summarized as follows (in millions):

Successor Predecessor

Eight Months Ended December 31, 2021 Four Months Ended April 30, 2021 Year Ended December 31, 2020 Year Ended December 31, 2019

Current income tax expense (benefit):

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During 2019, we recognized a tax expense of $ 13.8 million associated with final rules issued related to U.S.

During 2018, we recognized a tax benefit of $ 11.7 million associated with the one-time transition tax on deemed repatriation of the deferred foreign income of our U.S.

subsidiaries.

Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was enacted on March 27, 2020 and introduced various corporate tax relief measures into law.

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Deferred Taxes

The following table summarizes significant components of deferred income tax assets and liabilities as of December 31, 2020 and 2019 (in millions):

The components of deferred income tax assets and liabilities are summarized as follows (in millions):

Successor Predecessor

December 31, 2021 December 31, 2020

Deferred tax assets :

Net operating loss carryforwards $ 2,293.5 $ 2,272.2

Interest limitation carryforwards 221.2 41.5

Property and equipment 1,361.6 —

Foreign tax credits 105.7 171.2

Premiums on long-term debt 115.7 —

Interest limitation carryforwards 74.8 221.2

Employee benefits, including share-based compensation 51.2 81.6

Deferred revenue 1.3 .1

Net capital loss carryforwards — 998.0

Premiums on long-term debt 9.7 115.7

Other 15.4 6.8

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Property and equipment — ( 40.9 )

Net discounts on long-term debt — ( 49.5 )

Deferred U.S.

tax on foreign income — ( 36.7 )

Other ( 14.5 ) ( 11.2 )

Total deferred tax liabilities ( 14.5 ) ( 52.1 )

Net deferred tax asset (liability) $ 28.9 $ ( 39.9 )

Net deferred tax asset $ 68.4 $ 28.9

The realization of substantially all of our deferred tax assets is dependent upon generating sufficient taxable income during future periods in various jurisdictions in which we operate.

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The amount of deferred tax assets considered realizable could increase or decrease in the near-term if our estimates of future taxable income change.

As of December 31, 2020, we had deferred tax assets of $ 2.3 billion relating to $ 9.7 billion of NOL carryforwards, $ 171.2 million for U.S.

foreign tax credits (“FTCs”), and $ 221.2 million for U.S.

interest limitation carryforwards, which can be used to reduce our income taxes payable in future years.

As of December 31, 2021 (Successor), we had gross deferred tax assets of $ 2.3 billion relating to $ 10.0 billion of NOL carryforwards, $ 105.7 million of U.S.

foreign tax credits (“FTCs”), and $ 74.8 million of U.S.

and Luxembourg interest limitation carryforwards, which can be used to reduce our income taxes payable in future years.

NOL carryforwards, which were generated in various jurisdictions worldwide, include $ 9.1 billion that do not expire and $ 807.5 million that will expire, if not utilized, between 2022 and 2040 .

Deferred tax assets for NOL carryforwards at December 31, 2020 includes $ 1.4 billion and $ 687.3 million pertaining to NOL carryforwards in Luxembourg and the United States, respectively.

Deferred tax assets for NOL carryforwards as of December 31, 2021 (Successor) include $ 1.4 billion, $ 599.2 million, $76.4 million, and $ 56.4 million pertaining to NOL carryforwards in Luxembourg, the United States, Switzerland, and the U.K., respectively.

FTCs expire between 2022 and 2026 .

Interest limitation carryforwards do not expire.

Due to the uncertainty of realization, we have a $ 2.7 billion valuation allowance on deferred tax assets relating to NOL carryforwards, U.S.

FTCs and interest limitation carryforwards.

During 2019, we completed various restructuring transactions that generated substantial U.S.

capital gains and losses.

On October 8, 2020, we concluded a pre-filing agreement with the U.S.

Internal Revenue Service involving the amount and characterization of a $ 5.6 billion loss incurred in connection with one of the restructuring transactions completed in 2019.

As a result of this agreement, a $ 998.0 million deferred tax asset was recharacterized from a capital loss carryforward to a NOL carryforward in October 2020.

Interest limitation carryforwards generally do not expire.

Additionally, as a result of our emergence from bankruptcy, the utilization of certain U.S.

deferred tax assets including, but not limited to, NOL carryforwards, FTCs, and interest limitation carryforwards is limited to $0.5 million annually.

We have recognized a $ 3.8 billion valuation allowance as of December 31, 2021 on deferred tax assets relating to those assets for which we are not more likely than not to realize due to the inability to generate sufficient taxable income in the period and/or of the character necessary to use the benefit of the deferred tax assets.

Certain components of deferred tax assets and liabilities as of December 31, 2021 (Successor) have changed significantly from December 31, 2020 (Predecessor) due to the impacts of fresh start accounting, Switzerland tax reform, and other tax attribute reductions resulting from restructurings due to and in connection with the emergence from bankruptcy.

During the eight months ended December 31, 2021, we recognized a $9.8 million deferred tax benefit associated with changes in deferred tax asset valuation allowances.

Given current industry conditions and recent historical losses, we do not project reliable future income other than from existing drilling contracts and other known sources of future income.

If industry conditions improve, which is generally evidenced by increased contract backlog and increased contract day rates, we may rely on projected taxable income from future drilling contracts for the recognition of deferred tax assets.

Effective Tax Rate

Valaris plc, our parent company, is domiciled and resident in the U.K.

Valaris Limited, the Successor Company and our parent company, is domiciled and resident in Bermuda.

Our subsidiaries conduct operations and earn income in numerous countries and are subject to the laws of taxing jurisdictions within those countries.

The income of our non-Bermuda subsidiaries is not subject to Bermuda taxation as there is not an income tax regime in Bermuda.

Valaris plc, the Predecessor Company and our former parent company, was domiciled and resident in the U.K.

The income of our non-U.K.

subsidiaries is generally not subject to U.K.

Income tax rates imposed in the tax jurisdictions in which our subsidiaries conduct operations vary, as does the tax base to which the rates are applied.

In some cases, tax rates may be applicable to gross revenues, statutory or negotiated deemed profits or other bases utilized under local tax laws, rather than to net income.

subsidiaries was generally not subject to U.K.

Income tax rates and taxation systems in the jurisdictions in which our subsidiaries conduct operations vary and our subsidiaries are frequently subjected to minimum taxation regimes.

In some jurisdictions, tax liabilities are based on gross revenues, statutory deemed profits or other factors, rather than on net income, and our subsidiaries are frequently unable to realize tax benefits when they operate at a loss.

Accordingly, during periods of declining profitability, our income tax expense may not decline proportionally with income, which could result in higher effective income tax rates.

Furthermore, we will continue to incur income tax expense in periods in which we operate at a loss.

Our drilling rigs frequently move from one taxing jurisdiction to another to perform contract drilling services.

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As a result of frequent changes in the taxing jurisdictions in which our drilling rigs are operated and/or owned, changes in profitability levels and changes in tax laws, our annual effective income tax rate may vary substantially from one reporting period to another.

In periods of declining profitability, our income tax expense may not decline proportionally with income, which could result in higher effective income tax rates.

Further, we will continue to incur income tax expense in periods in which we operate at a loss.

Our consolidated effective income tax rate on continuing operations for each of the years in the three-year period ended December 31, 2020, differs from the U.K.

statutory income tax rate as follows:

Our consolidated effective income tax rate for the eight months ended December 31, 2021 (Successor), the four months ended April 30, 2021 (Predecessor), the year ended December 31, 2020 (Predecessor) and the year ended December 31, 2019 (Predecessor), respectively, differs from the Bermuda and U.K.

statutory income tax rates as follows:

Successor Predecessor

Eight Months Ended December 31, 2021 Four Months Ended April 30, 2021 Year Ended December 31, 2020 Year Ended December 31, 2019

Bermuda (Successor)/ U.K.

(Predecessor) statutory income tax rate

— % 19.0 % 19.0 % 19.0 %

statutory income tax rate 19.0 % 19.0 % 19.0 %

Asset impairments — ( 3.2 ) ( 12.5 ) ( 31.0 )

taxes ( 2.8 ) ( 280.9 ) ( 18.0 )

Non-Bermuda (Successor) taxes

(Predecessor) taxes

— 1.0 ( 2.8 ) ( 280.9 )

Resolution of prior year items

387.9 ( 0.4 ) 1.8 12.3

Switzerland Tax Reform ( 188.3 ) — — —

Valuation allowance ( 119.5 ) ( 1.8 ) ( 1.5 ) ( 145.1 )

tax reform and U.S.

CARES Act — — 2.4 ( 21.6 )

Valuation allowance ( 1.5 ) ( 145.1 ) ( 16.9 )

Restructuring transactions 1.3 7.9 1.7

Bargain purchase gain — — — 189.7

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Effective income tax rate 456.1 % ( 0.4 ) % 5.1 % ( 201.3 ) %

Our eight months ended December 31, 2021 (Successor) consolidated effective income tax rate includes $ 15.3 million associated with the impact of various discrete items, including $ 30.7 million income tax expense associated with changes in liabilities for unrecognized tax benefits and resolution of other prior period tax matters, offset by $ 15.4 million of tax benefit related to deferred taxes associated with Switzerland tax reform.

Our four months ended April 30, 2021 (Predecessor) consolidated effective income tax rate included $ 2.2 million associated with the impact of various discrete items, including $ 21.5 million of income tax expense associated with changes in liabilities for unrecognized tax benefits and resolution of other prior period tax matters, offset by $ 19.3 million of tax benefit related to fresh start accounting adjustments.

Our 2020 consolidated effective income tax rate includes a $ 322.4 million tax benefit associated with the impact of various discrete tax items, including restructuring transactions, impairments of rigs and other assets, implementation of the U.S.

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tax reform, gains on repurchase of debt and settlement proceeds, partially offset by $ 26.0 million of tax benefit related to restructuring transactions, changes in liabilities for unrecognized tax benefits associated with tax positions taken in prior years and other resolutions of prior year tax matters and rig sales.

Our 2018 consolidated effective income tax includes the impact of various discrete tax items, including $ 46.0 million of tax benefit associated with the utilization of foreign tax credits subject to a valuation allowance, the transition tax on deemed repatriation of the deferred foreign income of our U.S.

subsidiaries and a restructuring transaction, partially offset by $ 21.0 million of tax expense related to recovery of certain costs associated with an ongoing legal matter, repurchase and redemption of senior notes, unrecognized tax benefits associated with tax positions taken in prior years and rig sales.

Excluding the impact of the aforementioned discrete tax items, our consolidated effective income tax rates for the years ended December 31, 2020, 2019 and 2018 were ( 7.6 )%, ( 14.6 )% and ( 24.8 )%.

Excluding the impact of the aforementioned discrete tax items, our consolidated effective income rates for the eight months ended December 31, 2021 (Successor) and the four months ended April 30, 2021 (Predecessor) were 387.7% and (12.9)%, respectively.

Excluding the impact of the aforementioned discrete tax items, our consolidated effective income tax rates for the years ended December 31, 2020 and 2019 (Predecessor) were ( 7.6 )% and ( 14.6 )%, respectively.

The changes in our consolidated effective income tax rate excluding discrete tax items during the three-year period result primarily from changes in the relative components of our earnings from the various taxing jurisdictions in which our drilling rigs are operated and/or owned and differences in tax rates in such taxing jurisdictions.

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As of December 31, 2020, we had $ 237.7 million of unrecognized tax benefits, of which $ 213.0 million was included in other liabilities on our consolidated balance sheet, $ 20.7 million, which is associated with a tax position taken in tax years with NOL carryforwards, was presented as a reduction of deferred tax assets and $ 4.0 million was presented as a reduction of long-term income tax receivable.

As of December 31, 2019, we had $ 296.7 million of unrecognized tax benefits, of which $ 264.2 million was included in other liabilities on our consolidated balance sheet and the remaining $ 32.5 million, which is associated with a tax position taken in tax years with NOL carryforwards, was presented as a reduction of deferred tax assets.

If recognized, $ 206.2 million of the $ 237.7 million unrecognized tax benefits as of December 31, 2020 would impact our consolidated effective income tax rate.

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2020 and 2019 is as follows (in millions):

Balance, beginning of year $ 296.7 $ 143.0

Decreases in unrecognized tax benefits as a result of tax positions taken during prior years ( 89.3 ) ( 2.4 )

As of December 31, 2021 (Successor), we had $ 234.3 million of unrecognized tax benefits, of which $ 212.2 million was included in Other liabilities on our Consolidated Balance Sheet, $ 21.1 million, which is associated with tax positions taken in tax years with NOL carryforwards, was presented as a reduction of deferred tax assets and $ 1.0 million was presented as a reduction of long-term income tax receivable.

As of December 31, 2020 (Predecessor), we had $ 237.7 million of unrecognized tax benefits, of which $ 213.0 million was included in Other liabilities on our Consolidated Balance Sheet, $ 20.7 million, which is associated with tax positions taken in tax years with NOL carryforwards, was presented as a reduction of deferred tax assets and $ 4.0 million was presented as a reduction of long-term income tax receivable.

If recognized, $ 208.9 million of the $ 234.3 million unrecognized tax benefits as of December 31, 2021 (Successor) would impact our consolidated effective income tax rate.

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the eight months ended December 31, 2021 (Successor), the four months ended April 30, 2021 (Predecessor) and the year ended December 31, 2020 (Predecessor), respectively (in millions):

Successor Predecessor

Eight Months Ended December 31, 2021 Four Months Ended April 30, 2021 Year Ended December 31, 2020

Balance, beginning of period $ 235.4 $ 237.7 $ 296.7

Increase in unrecognized tax benefits as a result of tax positions taken during prior years 33.8 2.9 22.4

Lapse of applicable statutes of limitations ( 20.2 ) ( 0.2 ) ( 13.2 )

Increases in unrecognized tax benefits as a result of tax positions taken during the current year 12.8 17.8

Impact of foreign currency exchange rates ( 10.5 ) ( 17.6 ) 9.0

Increases in unrecognized tax benefits as a result of tax positions taken during the current year 6.9 12.6 12.8

Settlements with taxing authorities ( 6.6 ) — ( 0.7 )

Increases in unrecognized tax benefits as a result of the Rowan Transaction — 149.9

Balance, end of year $ 237.7 $ 296.7

Several of our rigs are owned by subsidiaries in Switzerland that are subject to a special finance taxation regime under Swiss income tax rules.

Swiss federal and cantonal governments have enacted tax legislation (“Swiss tax reform”) effective January 1, 2020.

Under Swiss tax reform, the finance taxation regime has been abolished but our Swiss subsidiaries will remain subject to the finance taxation regime through December 31, 2021 and transition to deriving income tax based on net income beginning January 1, 2022.

There are various uncertainties relating to the application of Swiss tax reform to finance taxation regime taxpayers, the most prominent of which is the

determination of the Swiss tax basis of property and equipment.

Based on all information currently available, we do not expect to recognize significant deferred tax assets or liabilities in connection with Swiss tax reform.

As the Swiss tax authorities further clarify the application of Swiss tax reform to finance taxation regime taxpayers, we may recognize deferred tax adjustments and they may have a material effect on our consolidated financial statements.

Accrued interest and penalties totaled $ 73.1 million and $ 58.9 million as of December 31, 2020 and 2019, respectively, and were included in other liabilities on our consolidated balance sheets.

We recognized a net expense of $ 13.8 million, $ 5.7 million and $ 1.9 million associated with interest and penalties during the years ended December 31, 2020, 2019, and 2018 respectively.

Decreases in unrecognized tax benefits as a result of tax positions taken during prior years ( 4.5 ) — ( 89.3 )

Balance, end of period $ 234.3 $ 235.4 $ 237.7

Accrued interest and penalties totaled $ 108.0 million and $ 73.1 million as of December 31, 2021 (Successor) and 2020 (Predecessor), respectively, and were included in Other liabilities on our Consolidated Balance Sheets.

We recognized a net expense of $ 21.3 million, $ 13.5 million, $ 13.8 million and $ 5.7 million associated with interest and penalties during the eight months ended December 31, 2021 (Successor), the four months ended April 30, 2021 (Predecessor), the years ended December 31, 2020 and 2019 (Predecessor), respectively.

Interest and penalties are included in Current income tax expense in our Consolidated Statements of Operations.

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Tax years as early as 2005 remain subject to examination in the other major tax jurisdictions in which we operated.

Statutes of limitations applicable to certain of our tax positions lapsed during 2020, 2019 and 2018, resulting in net income tax benefits, inclusive of interest and penalties, of $ 4.3 million, $ 5.3 million and $ 5.3 million, respectively.

Statutes of limitations applicable to certain of our tax positions lapsed during the eight months ended December 31, 2021 (Successor), the four months ended April 30, 2021 (Predecessor), the years ended December 31, 2020 and 2019 (Predecessor), resulting in net income tax benefits, inclusive of interest and penalties, of $ 17.9 million, $ 0.2 million, $ 4.3 million and $ 5.3 million, respectively.

Absent the commencement of examinations by tax authorities, statutes of limitations applicable to certain of our tax positions will lapse during 2022.

Therefore, it is reasonably possible that our unrecognized tax benefits will decline during the next 12 months by $ 4.0 million, inclusive of $ 1.4 million of accrued interest and penalties, all of which would impact our consolidated effective income tax rate if recognized.

Recent Tax Assessments

Tax Assessments

During 2019, the Luxembourg tax authorities issued aggregate tax assessments totaling approximately € 142.0 million (approximately $ 161.5 million converted using the current period-end exchange rates) related to tax years 2014, 2015 and 2016 for several of Rowan's Luxembourg subsidiaries.

We recorded € 93.0 million (approximately $ 113.6 million converted using the current period-end exchange rates) in purchase accounting related to these assessments.

We recorded a liability for uncertain tax positions of € 93.0 million (approximately $ 105.7 million converted using the current period-end exchange rates) in purchase accounting related to these assessments.

During the first quarter of 2020, in connection with the administrative appeals process, the tax authority withdrew assessments of € 142.0 million (approximately $ 161.5 million converted using the current period-end exchange rates), accepting the associated tax returns as previously filed.

Accordingly, we de-recognized previously accrued liabilities for uncertain tax positions and net wealth taxes of € 79.0 million (approximately $ 89.8 million converted using the current period-end exchange rates) and € 2.0 million (approximately $ 2.3 million converted using the current period-end exchange rates), respectively.

The de-recognition of amounts related to these assessments was recognized as a tax benefit during the first quarter of 2020 and is included in changes in operating assets and liabilities on the consolidated statement of cash flows for the year-ended December 31, 2020.

The de-recognition of amounts related to these assessments was recognized as a tax benefit during the three-month period ended March 31, 2020 and is included in Changes in operating assets and liabilities on the Consolidated Statements of Cash Flows for the year ended December 31, 2020 (Predecessor).

On December 31, 2021, we de-recognized the remaining liability for uncertain tax position balance of € 14.0 million (approximately $ 15.9 million converted using the current period-end exchange rates) upon the lapse of the applicable statute of limitations.

During 2019, the Australian tax authorities issued aggregate tax assessments totaling approximately A$ 101 million (approximately $ 73.4 million converted at current period-end exchange rates) plus interest related to the examination of certain of our tax returns for the years 2011 through 2016.

During the third quarter of 2019, we made a A$ 42 million payment (approximately $ 29 million at then-current exchange rates) to the Australian tax authorities to litigate the assessment.

We have a $ 17.9 million liability for unrecognized tax benefits relating to these assessments as of December 31, 2020.

We have an $ 18.0 million liability for unrecognized tax benefits relating to these assessments as of December 31, 2021 (Successor).

We believe our tax returns are materially correct as filed, and we are vigorously contesting these assessments.

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Undistributed Earnings

Dividend income received by Valaris plc from its subsidiaries is exempt from U.K.

Dividend income received by Valaris Limited from its subsidiaries is exempt from Bermuda taxation.

We do not provide deferred taxes on undistributed earnings of certain subsidiaries because our policy and intention is to reinvest such earnings indefinitely.

As of December 31, 2020, the aggregate undistributed earnings of the subsidiaries for which we maintain a policy and intention to reinvest earnings indefinitely totaled $ 268.0 million.

As of December 31, 2021 (Successor), the aggregate undistributed earnings of the subsidiaries for which we maintain a policy and intention to reinvest earnings indefinitely totaled $ 279.5 million.

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

The unrecognized deferred tax liability related to these undistributed earnings was not practicable to estimate as of December 31, 2020.

The unrecognized deferred tax liability related to these undistributed earnings was not practicable to estimate as of December 31, 2021 (Successor).

COMMITMENTS AND CONTINGENCIES

Capital Commitments

The following table summarizes the timing of our remaining current contractual commitments for VALARIS DS-13 and VALARIS DS-14, which were under construction as of December 31, 2020 (in millions):

2021 2022 Thereafter Total (1)

VALARIS DS-13 $ 83.9 $ — $ — $ 83.9

VALARIS DS-14 — 165.0 — 165.0

$ 83.9 $ 165.0 $ — $ 248.9

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

Total commitments also exclude holding costs and interest.

As of December 31, 2020, the contractual delivery dates for the VALARIS DS-13 and VALARIS DS-14 were September 30, 2021 and June 30, 2022, respectively.

The remaining milestone payments for VALARIS DS-13 and VALARIS DS-14 are included in the table above in the period in which they were contractually owed.

The Amended RSA provides that on or before the effective date of the reorganization, the construction contracts for these rigs shall be rejected under Section 365 of the Bankruptcy Code, unless otherwise agreed between the shipyard and the Company with the consent of required Consenting Noteholders.

If rejected, it is contemplated that we would have to pay an amount equal to the liquidation recovery, which is the amount the contract counterparty would be entitled to receive or retain if the applicable Company entity was liquidated under chapter 7 of the Bankruptcy Code.

Prior to December 31, 2020, a Stipulation was filed with the Bankruptcy Court which included an Assumption Term Sheet stating amended terms of these construction agreements.

Following further negotiations, we entered into amended agreements with the shipyard on February 26, 2021 that become effective upon our emergence from bankruptcy.

Prior to our chapter 11 filing, we had contractual commitments for the construction of VALARIS DS-13 and VALARIS DS-14.

On February 26, 2021, we entered into amended agreements with the shipyard that became effective upon our emergence from bankruptcy.

The amendments provide for, among other things, an option construct whereby the Company has the right, but not the obligation, to take delivery of either or both rigs on or before December 31, 2023.

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If the Company elects not to purchase the rigs, the Company has no further obligations to the shipyard.

The amended agreements remove any Company guarantee.

Angola Non-Drilling Event

In March 2020, VALARIS DS-8 experienced a non-drilling incident while operating offshore Angola, resulting in the blowout preventer (BOP) stack being disconnected from the riser while the rig was moving between well locations.

The BOP stack, which we later recovered, dropped to the seabed floor, clear of any subsea

No injuries, environmental pollution or third-party damage resulted from the BOP stack being disconnected.

As a result of the incident, the operator terminated the contract.

The termination resulted in a decline in our contracted revenue backlog of approximately $ 150 million.

We carried loss of hire insurance covering $ 602,500 per day, after a 45-day deductible waiting period, through the end of the contract in November 2020.

The waiting period expired on April 22, 2020.

We received loss of hire insurance recoveries of $ 118.1 million, which represents the total amount owed to us under the applicable insurance policy.

The recovery was recognized and recorded in Other Operating Income on our Consolidated Statements of Operations in the year ended December 31, 2020.

The amended agreements removed any parent company guarantee.

Indonesian Well-Control Event

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Indonesian authorities initiated an investigation into the event and have contacted the customer, us and other parties involved in drilling the well for additional information.

We are cooperating with the Indonesian authorities.

We cooperated with the Indonesian authorities.

We cannot predict the scope or ultimate outcome of this investigation.

If the Indonesian authorities determine that we violated local laws in connection with this matter, we could be subject to penalties including environmental or other liabilities, which may have a material adverse impact on us.

Middle East Dispute

On July 30, 2019, we received notice that a local partner of legacy Ensco plc in the Middle East filed a lawsuit in the U.K.

against the Company alleging it induced the breach of a non-compete provision in an agreement between the local partner and a subsidiary of the Company.

The lawsuit included a claim for an unspecified amount of damages in excess of £ 100 million and other relief.

We reached an agreement to settle this matter and to acquire the local partner's interest in the subsidiary for an aggregate amount of $ 27.5 million, which was paid in April 2020.

Of this amount, we concluded that $ 20.3 million was attributable to the settlement of the dispute and was recognized as a loss included in other, net, in our consolidated statement of operations for the year ended December 31, 2019.

The remaining amount is attributable to the acquisition of the local partner's interest in the subsidiary and was recognized in 2020 as an adjustment to Additional paid-in-capital and is included on our Consolidated Balance Sheet as of December 31, 2020.

ARO Funding Obligations

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 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.

ARO paid a 25% down payment from cash on hand for each of the newbuilds ordered in January 2020.