UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

~~FORM 10-Q~~(Mark One)



~~(Mark One)~~
x☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ~~For the quarterly period ended March 31, 2019~~

For the quarterly period ended March 31, 2020



o☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ~~For the transition period from~~ to

For the transition period from __________ to__________

(State or other jurisdiction of

incorporation or organization)

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

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yesx☒ No o☐

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

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

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

~~Securities registered pursuant to Section 12(b) of the Act:~~



~~Title of each class~~	~~Trading Symbol~~	~~Name of each exchange on which registered~~
~~Class A Ordinary Shares, U.S. $0.40 par value~~	~~ESV~~	~~New York Stock Exchange~~

~~ENSCO ROWAN~~

VALARIS PLC

INDEX TO FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, ~~2019~~2020



PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm	3

~~Condensed Consolidated Statements of Operations~~ ~~Three Months Ended March 31, 2019 and 2018~~	4

Condensed Consolidated Statements of ~~Comprehensive Loss~~ Operations Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019	5

Condensed Consolidated ~~Balance Sheets~~ Statements of Comprehensive Loss Three Months Ended March 31, ~~2019~~2020 and ~~December 31, 2018~~2019	6

Condensed Consolidated ~~Statements of Cash Flows~~ ~~Three Months Ended~~ Balance Sheets March 31, ~~2019~~2020 and ~~2018~~December 31, 2019	7

~~Notes to~~ Condensed Consolidated ~~Financial~~ Statements of Cash Flows Three Months Ended March 31, 2020 and 2019	8

Notes to Condensed Consolidated Financial Statements	9

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	3543

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	5060

ITEM 4. CONTROLS AND PROCEDURES	5060

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS	5161

ITEM 1A. RISK FACTORS	5262

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	5465

ITEM 6. EXHIBITS	5566

SIGNATURES	5667

FORWARD-LOOKING STATEMENTS

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

Such statements are subject to numerous risks, uncertainties and assumptions that may cause actual results to vary materially from those indicated, particularly in light of our projected negative cash flows in 2020 and highly leveraged balance sheet, including:

the coronavirus global pandemic, the related public health measures implemented by governments worldwide and the precipitous decline in oil prices during 2020, including the duration and severity of the outbreak, the duration of the price decline and the extent of disruptions to our operations;

decreases in levels of drilling activity and capital expenditures by our customers, whether as a result of the global capital markets and liquidity, prices of oil and natural gas or otherwise, which may cause us to idle or stack additional rigs;

cancellation, suspension, renegotiation or termination (with or without cause) of drilling contracts or drilling programs as a result of general and industry-specific economic conditions, mechanical difficulties, performance or other reasons;

potential additional asset impairments, including the impact of any impairment on our compliance with debt covenants, our ability to continue to borrow under our revolving credit facility and any resulting acceleration of our debt;

our failure to satisfy the obligations with respect to our indebtedness or recapitalization of the Company (as defined herein), which could result in an event of default that could raise substantial doubt about our ability to continue as a going concern;

the outcome of any discussions with our lenders and bondholders regarding the terms of a potential restructuring of our indebtedness or recapitalization of the Company and any resulting dilution for our shareholders;

our ability to obtain financing, service our indebtedness, fund negative cash flows and capital expenditures and pursue other business opportunities, which may be limited by our significant debt levels, debt agreement restrictions and the credit ratings assigned to our debt by independent credit rating agencies;

the adequacy of sources of liquidity for us and our customers;

potential delisting of our Class A ordinary shares from the New York Stock Exchange ("NYSE") if we fail to satisfy the NYSE's minimum share price requirement, which could result in the holders of our 2024

Convertible Notes having the right to require us to repurchase the notes at a price equal to the principal amount thereof plus accrued interest to the repurchase date;

our ability to successfully integrate the business, operations and employees of Rowan Companies ~~plc~~Limited (formerly Rowan Companies plc) ("Rowan") and ~~Ensco plc and~~the Company to realize synergies and cost savings in connection with the Rowan Transaction (as defined herein);

~~changes in future levels of drilling activity and capital expenditures by our customers, whether as a result of global capital markets and liquidity, prices of oil and natural gas or otherwise;~~

changes in worldwide rig supply and demand, competition or technology, including as a result of delivery of newbuild drilling rigs;

downtime and other risks associated with offshore rig operations, including rig or equipment failure, damage and other unplanned repairs, the limited availability of transport vessels, hazards, self-imposed drilling limitations and other delays due to severe storms and hurricanes and the limited availability or high cost of insurance coverage for certain offshore perils, such as hurricanes in the Gulf of Mexico or associated removal of wreckage or debris;

our ability to successfully recover losses from underwriters under our loss of hire policy in connection with the VALARIS DS-8 non-drilling incident;

governmental action, terrorism, piracy, military action and political and economic uncertainties, including uncertainty or instability resulting from the U.K.'s withdrawal from the European Union, civil unrest, political demonstrations, mass strikes, or an escalation or additional outbreak of armed hostilities or other crises in oil or natural gas producing areas of the Middle East, North Africa, West Africa or other geographic areas, which may result in expropriation, nationalization, confiscation or deprivation or destruction of our ~~assets,~~assets; or suspension and/or termination of contracts based on force majeure events or adverse environmental safety events;

risks inherent to shipyard rig construction, repair, modification or upgrades, unexpected delays in equipment delivery, engineering, design or commissioning issues following delivery, or changes in the commencement, completion or service dates;

possible cancellation, suspension, renegotiation or termination (with or without cause) of drilling contracts as a result of general and industry-specific economic conditions, mechanical difficulties, performance or other reasons;

our ability to enter into, and the terms of, future drilling contracts, including contracts for our newbuild units and acquired rigs, for rigs currently idled and for rigs whose contracts are expiring;

any failure to execute definitive contracts following announcements of letters of intent, letters of award or other expected work commitments;

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

governmental regulatory, legislative and permitting requirements affecting drilling operations, including limitations on drilling locations (such as the Gulf of Mexico during hurricane season); and regulatory measures to limit or reduce greenhouse gases;

potential impacts on our business resulting from climate-change or greenhouse gas legislation or regulations, and the impact on our business from climate-change related physical changes or changes in weather patterns;

new and future regulatory, legislative or permitting requirements, future lease sales, changes in laws, rules and regulations that have or may impose increased financial responsibility, additional oil spill abatement contingency plan capability requirements and other governmental actions that may result in claims of force majeure or otherwise adversely affect our existing drilling contracts, operations or financial results;

our ability to attract and retain skilled personnel on commercially reasonable terms, whether due to labor regulations, unionization or otherwise;

environmental or other liabilities, risks, damages or losses, whether related to storms, hurricanes or ~~hurricanes~~other weather-related events (including wreckage or debris removal), collisions, groundings, blowouts, fires, explosions, other accidents, terrorism or otherwise, for which insurance coverage and contractual indemnities may be insufficient, unenforceable or otherwise unavailable;

our ability to obtain financing, service our indebtedness, fund negative cash flow and capital expenditures and pursue other business opportunities may be limited by our significant debt levels, debt agreement restrictions and the credit ratings assigned to our debt by independent credit rating agencies;

the adequacy of sources of liquidity for us and our customers;

tax matters, including our effective tax rates, tax positions, results of audits, changes in tax laws, treaties and regulations, tax assessments and liabilities for taxes;

our ability to realize the expected benefits of our joint venture with Saudi Aramco, including our ability to fund any required capital contributions;

delays in contract commencement dates or the cancellation of drilling programs by operators;

activism by our security holders;

economic volatility and political, legal and tax uncertainties following the June 23, 2016, vote in the U.K. to exit from the European ~~Union ("Brexit");~~Union;

the occurrence of cybersecurity incidents, attacks or other breaches to our information technology systems, including our rig operating systems; and

adverse changes in foreign currency exchange rates, including their effect on the fair value measurement of our derivative ~~instruments; and~~instruments.

~~potential long-lived asset impairments.~~

In addition to the numerous risks, uncertainties and assumptions described above, you should also carefully read and consider "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part I and "Item 1A. Risk Factors" in Part II of this report and "Item 1A. Risk Factors" in Part I and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II of our annual report on Form 10-K for the year ended December 31, ~~2018,~~2019, which is available on the U.S. Securities and Exchange Commission website at www.sec.gov. Each forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to publicly update or revise any forward looking statements, except as required by ~~law.~~law.

PART I - FINANCIAL INFORMATION

Item 1.Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders

~~Ensco Rowan~~Valaris plc:

Results of Review of Interim Financial Information

We have reviewed the condensed consolidated balance sheet of Valaris plc and subsidiaries (the Company, formerly known as Ensco Rowan plc and ~~subsidiaries~~

~~(the Company, formerly known as~~ Ensco plc) as of March 31, ~~2019, and~~2020, the related condensed consolidated

statements of operations and comprehensive loss for the three-month periods ended March 31, 2020 and 2019, the related condensed consolidated statements of cash flows for the three-month periods ended March 31, ~~2019~~2020 and ~~2018,~~2019, and the related notes (collectively, the consolidated interim financial information). Based on our

reviews, we are not aware of any material modifications that should be made to the consolidated interim

financial information for it to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight

Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, ~~2018,~~

2019, and the related consolidated statements of operations, comprehensive loss, and cash flows for the year then

ended (not presented herein); and in our report dated February ~~28, 2019,~~21, 2020, we expressed an unqualified opinion

on those consolidated financial statements. In our opinion, the information set forth in the accompanying

condensed consolidated balance sheet as of December 31, ~~2018,~~2019, is fairly stated, in all material respects, in

relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

This consolidated interim financial information is the responsibility of the Company’s management. We are a

public accounting firm registered with the PCAOB and are required to be independent with respect to the

Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the

Securities and Exchange Commission and the PCAOB.

We conducted our reviews in accordance with the standards of the PCAOB. A review of consolidated interim

financial information consists principally of applying analytical procedures and making inquiries of persons

responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in

accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding

the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/ KPMG LLP

Houston, Texas

~~May 2, 2019~~April 30, 2020

~~ENSCO ROWAN~~

VALARIS PLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share amounts)

(Unaudited)


	Three Months Ended March 31,						Three Months Ended March 31,
	2019			2018			2020			2019
OPERATING REVENUES	$	405.9		$	417.0		$	456.6		$	405.9
OPERATING EXPENSES
Contract drilling (exclusive of depreciation)	332.6			325.2			476.0			332.6
Loss on impairment							2,808.2			—
Depreciation	125.0			115.2			164.5			125.0
General and administrative	29.6			27.9			53.4			29.6
	487.2			468.3
Total operating expenses							3,502.1			487.2
EQUITY IN EARNINGS OF ARO							(6.3		)	—
OPERATING LOSS	(81.3		)	(51.3		)	(3,051.8		)	(81.3		)
OTHER INCOME (EXPENSE)
Interest income	3.5			3.0			4.8			3.5
Interest expense, net	(81.0		)	(65.6		)	(113.2		)	(81.0		)
Other, net	2.3			(8.1		)	.5			2.3
	(75.2		)	(70.7		)	(107.9		)	(75.2		)
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES	(156.5		)	(122.0		)
PROVISION FOR INCOME TAXES
Current income tax expense	25.6			7.1
Deferred income tax expense	5.9			11.3
LOSS BEFORE INCOME TAXES							(3,159.7		)	(156.5		)
PROVISION (BENEFIT) FOR INCOME TAXES
Current income tax expense (benefit)							(72.5		)	25.6
Deferred income tax expense (benefit)							(79.5		)	5.9
	31.5			18.4			(152.0		)	31.5
LOSS FROM CONTINUING OPERATIONS	(188.0		)	(140.4		)
LOSS FROM DISCONTINUED OPERATIONS, NET	—			(.1		)
NET LOSS	(188.0		)	(140.5		)	(3,007.7		)	(188.0		)
NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS	(2.4		)	.4			1.4			(2.4		)
NET LOSS ATTRIBUTABLE TO ENSCOROWAN	$	(190.4	)	$	(140.1	)
NET LOSS ATTRIBUTABLE TO VALARIS							$	(3,006.3	)	$	(190.4	)
LOSS PER SHARE - BASIC AND DILUTED							$	(15.19	)	$	(1.75	)
Continuing operations	$	(1.75	)	$	(1.29	)
Discontinued operations	—			—
	$	(1.75	)	$	(1.29	)

WEIGHTED-AVERAGE SHARES OUTSTANDING
Basic and Diluted	108.7			108.4			197.9			108.7

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

~~ENSCO ROWAN~~

VALARIS PLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In millions)

(Unaudited)


	Three Months Ended March 31,
	2019			2018			Three Months Ended March 31,
							2020			2019
NET LOSS	$	(188.0	)	$	(140.5	)	$	(3,007.7	)	$	(188.0	)
OTHER COMPREHENSIVE INCOME (LOSS), NET
Net change in fair value of derivatives	—			1.9
Reclassification of net (gains) losses on derivative instruments from other comprehensive income into net income	1.6			(2.2		)
Net change in derivative fair value							(12.9		)	—
Reclassification of net (gains) losses on derivative instruments from other comprehensive income (loss) into net loss							(.1		)	1.6
Other	(.1		)	(.1		)	(.4		)	(.1		)
NET OTHER COMPREHENSIVE INCOME (LOSS)	1.5			(.4		)	(13.4		)	1.5

COMPREHENSIVE LOSS	(186.5		)	(140.9		)	(3,021.1		)	(186.5		)
COMPREHENSIVE (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS	(2.4		)	.4			1.4			(2.4		)
COMPREHENSIVE LOSS ATTRIBUTABLE TO ENSCOROWAN	$	(188.9	)	$	(140.5	)
COMPREHENSIVE LOSS ATTRIBUTABLE TO VALARIS							$	(3,019.7	)	$	(188.9	)

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

~~ENSCO ROWAN~~

VALARIS PLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except share and par value amounts)


	March 31, 2019			December 31, 2018			March 31, 2020			December 31, 2019
	(Unaudited)						(Unaudited)
ASSETS							ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	298.4		$	275.1		$	184.9		$	97.2
Short-term investments	245.0			329.0
Accounts receivable, net	313.7			344.7			493.2			520.7
Other	354.8			360.9
Other current assets							427.5			446.5
Total current assets	1,211.9			1,309.7			1,105.6			1,064.4
PROPERTY AND EQUIPMENT, AT COST	15,368.6			15,517.0			14,461.9			18,393.8
Less accumulated depreciation	2,859.7			2,900.8			2,304.7			3,296.9
Property and equipment, net	12,508.9			12,616.2			12,157.2			15,096.9
LONG-TERM NOTES RECEIVABLE FROM ARO							452.9			452.9
INVESTMENT IN ARO							122.4			128.7
OTHER ASSETS	142.2			97.8			187.0			188.3
	$	13,863.0		$	14,023.7		$	14,025.1		$	16,931.2
LIABILITIES AND SHAREHOLDERS' EQUITY							LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade	$	214.2		$	210.5		$	258.4		$	288.2
Accrued liabilities and other	302.7			318.0			402.3			417.7
Current maturities of long-term debt							224.5			124.8
Total current liabilities	516.9			528.5			885.2			830.7
LONG-TERM DEBT	5,018.5			5,010.4			6,148.6			5,923.5
OTHER LIABILITIES	427.3			396.0			695.7			867.4
COMMITMENTS AND CONTINGENCIES
ENSCOROWAN SHAREHOLDERS' EQUITY
Class A ordinary shares, U.S. $.40 par value, 115.2 million shares issued as of March 31, 2019 and December 31, 2018	46.1			46.1
Class B ordinary shares, £1 par value, 50,000 shares authorized and issued as of March 31, 2019 and December 31, 2018	.1			.1
VALARIS SHAREHOLDERS' EQUITY
Class A ordinary shares, U.S. $.40 par value, 205.9 million shares issued as of March 31, 2020 and December 31, 2019							82.4			82.4
Class B ordinary shares, £1 par value, 50,000 shares issued as of March 31, 2020 and December 31, 2019							.1			.1
Additional paid-in capital	7,230.2			7,225.0			8,634.9			8,627.8
Retained earnings	679.3			874.2
Accumulated other comprehensive income	19.7			18.2
Treasury shares, at cost, 5.9 million shares as of March 31, 2019 and December 31, 2018	(74.9		)	(72.2		)
Total EnscoRowan shareholders' equity	7,900.5			8,091.4
Retained (deficit) earnings							(2,334.6		)	671.7
Accumulated other comprehensive (loss) income							(7.2		)	6.2
Treasury shares, at cost, 7.5 million and 7.9 million shares as of March 31, 2020 and December 31, 2019							(77.3		)	(77.3		)
Total Valaris shareholders' equity							6,298.3			9,310.9
NONCONTROLLING INTERESTS	(0.2		)	(2.6		)	(2.7		)	(1.3		)
Total equity	7,900.3			8,088.8			6,295.6			9,309.6
	$	13,863.0		$	14,023.7		$	14,025.1		$	16,931.2

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

~~ENSCO ROWAN~~

VALARIS PLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)


	Three Months Ended March 31,						Three Months Ended March 31,
	2019			2018			2020			2019
OPERATING ACTIVITIES
Net loss	$	(188.0	)	$	(140.5	)	$	(3,007.7	)	$	(188.0	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Adjustments to reconcile net loss to net cash used in operating activities:
Loss on impairment							2,808.2			—
Depreciation expense	125.0			115.2			164.5			125.0
Deferred income tax expense (benefit)							(79.5		)	5.9
Debt discounts and other							14.2			2.2
Share-based compensation expense							7.8			5.3
Adjustment to gain on bargain purchase							6.3			—
Equity in earnings of ARO							6.3			—
Gain on extinguishment of debt							(3.1		)	—
Amortization, net	(14.5		)	(16.8		)	2.8			(14.5		)
Share-based compensation expense	7.8			8.4
Deferred income tax expense	5.9			11.3
Loss on debt extinguishment	—			18.8
Gain on bargain purchase	—			(16.6		)
Other	1.4			(2.1		)	9.7			(.8		)
Changes in operating assets and liabilities	38.0			61.8			(129.9		)	40.5
Net cash (used in) provided by operating activities	(24.4		)	39.5
Contributions to pension plans and other post-retirement benefits							(4.0		)	—
Net cash used in operating activities							(204.4		)	(24.4		)
INVESTING ACTIVITIES
Additions to property and equipment							(36.3		)	(29.0		)
Net proceeds from disposition of assets							10.4			.3
Maturities of short-term investments	204.0			390.0			—			204.0
Purchases of short-term investments	(120.0		)	(349.0		)	—			(120.0		)
Additions to property and equipment	(29.0		)	(269.3		)
Other	.3			.1
Net cash provided by (used in) investing activities	55.3			(228.2		)	(25.9		)	55.3
FINANCING ACTIVITIES
Borrowings on credit facility							343.9			—
Repayments of credit facility borrowings							(15.0		)	—
Reduction of long-term borrowings							(9.7		)	—
Cash dividends paid	(4.5		)	(4.5		)	—			(4.5		)
Proceeds from issuance of senior notes	—			1,000.0
Reduction of long-term borrowings	—			(771.0		)
Debt financing costs	—			(16.8		)
Other	(2.8		)	(1.2		)	(.9		)	(2.8		)
Net cash (used in) provided by financing activities	(7.3		)	206.5
Net cash provided by discontinued operations	—			2.5
Net cash provided by (used in) financing activities							318.3			(7.3		)
Effect of exchange rate changes on cash and cash equivalents	(.3		)	(.3		)	(.3		)	(.3		)
INCREASE IN CASH AND CASH EQUIVALENTS	23.3			20.0			87.7			23.3
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	275.1			445.4			97.2			275.1
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	298.4		$	465.4		$	184.9		$	298.4

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

~~ENSCO ROWAN~~

VALARIS PLC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 -Unaudited Condensed Consolidated Financial Statements

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

We prepared the accompanying condensed consolidated financial statements of ~~Ensco Rowan~~Valaris plc and subsidiaries (the "Company," ~~"EnscoRowan,~~"Valaris," "our," "we" or "us") in accordance with accounting principles generally accepted in the United States of America ("GAAP"), pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") included in the instructions to Form 10-Q and Article 10 of Regulation S-X. The financial information included in this report is unaudited but, in our opinion, includes all adjustments (consisting of normal recurring adjustments) that are necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods presented. The December 31, ~~2018~~2019 condensed consolidated balance sheet data was derived from our ~~2018~~2019 audited consolidated financial statements, but does not include all disclosures required by GAAP. The preparation of our condensed consolidated financial statements requires us to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the related revenues and expenses and disclosures of gain and loss contingencies as of the date of the financial statements. Actual results could differ from those estimates.

The financial data for the ~~quarters~~three-month periods ended March 31, ~~2019~~2020 and ~~2018~~2019 included herein have been subjected to a limited review by KPMG LLP, our independent registered public accounting firm. The accompanying independent registered public accounting firm's review report is not a report within the meaning of Sections 7 and 11 of the Securities Act, and the independent registered public accounting firm's liability under Section 11 does not extend to it.

Results of operations for the ~~quarter~~three months ended March 31, ~~2019~~2020 are not necessarily indicative of the results of operations that will be realized for the year ending December 31, ~~2019.~~2020. We recommend these condensed consolidated financial statements be read in conjunction with our annual report on Form 10-K for the year ended December 31, ~~2018,~~2019, filed with the SEC on February 28, 2019. On April 11, 2019, we completed our combination with Rowan Companies plc and effected a four-to-one share consolidation (being a reverse stock under English law). See "Note 3 - Rowan Transaction" and "Note 14 - Subsequent Events" for additional information.21, 2020.

New Accounting Pronouncements

Recently adopted accounting standards

Credit Losses - In ~~August 2017,~~June 2016, the FASBissued ~~Update 2017-12,~~ ~~Derivatives and Hedging~~ASU 2016-13, Financial Instruments - Credit Losses (Topic ~~815)~~326): ~~Targeted Improvements to Accounting for Hedging Activities~~ Measurement of Credit Losses on Financial Instruments ("Update ~~2017-12"~~2016-13"), which ~~makes more hedging strategies eligible~~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.

Accounting pronouncements to be adopted

Income Taxes - In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for ~~hedge~~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 ~~amends presentation and disclosure requirements and changes how companies assess effectiveness, including~~for income taxes. We will be required to adopt the ~~elimination of separate measurement and recognition of ineffectiveness on designated hedging instruments. This update is effective for~~amended guidance in annual and interim periods beginning after December 15, ~~2018,~~2020, with early adoption permitted. ~~We adopted Updated 2017-12 effective January 1, 2019. As~~The various amendments in Update 2019-12 are applied on a ~~result, beginning~~retrospective basis, modified retrospective basis and prospective basis, depending on the ~~effective date, we~~amendment. We are in the process of evaluating the impact this amendment will ~~no longer separately measure and recognize ineffectiveness~~have on our designated cash flow hedges. Update 2017-02 requires a modified retrospective adoption approach whereby amounts previously recorded to earnings for hedge ineffectiveness on hedging relationships that exist as of the adoption date are recorded as a cumulative effect adjustment to opening retained earnings. As of our adoption date, we had no amounts previously recorded for ineffectiveness for hedging relationships that existed as of our adoption date and therefore no cumulative effect adjustment to retained earnings was recorded.consolidated financial statements.

~~During 2016,~~Defined Benefit Plans - In August 2018, the FASB issued ASU No. 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans ("Update ~~2016-02, Leases (Topic 842) ("Update 2016-02"~~2018-14"), which ~~requires an entity~~modifies the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans. We will be required to ~~recognize lease assets and lease liabilities on~~adopt the ~~balance sheet and to disclose key qualitative and quantitative information about the entity's leasing arrangements. This update is effective for~~amended guidance in annual and interim ~~periods~~reports beginning ~~after December 15, 2018,~~January 1, 2021, with early adoption permitted. ~~During our evaluation~~Adoption is required to be applied on a retrospective basis to all periods presented. We will adopt the new standard effective January 1, 2021 and do not expect the adoption of Update ~~2016-02, we concluded that~~2018-14 to have a material impact on our ~~drilling contracts contain a lease component.~~consolidated financial statements.

Reference Rate Reform - In ~~July 2018,~~March 2020, the FASB issued ~~Accounting Standard Update 2018-11,~~

~~Leases~~ASU 2020-04, Reference Rate Reform (Topic 842), Targeted Improvements, which (1) provides for a new transition method whereby entities may elect to adopt the Update using a prospective with cumulative catch-up approach (the "effective date method") and (2) provides lessors with a practical expedient, by class of underlying asset, to not separate lease and non-lease components and account for the combined component under Topic 606 when the non-lease component is the predominant element848): Facilitation of the ~~combined component.~~Effects of Reference Rate Reform on Financial Reporting ("Update 2020-04"), which provides optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The ~~lessor practical expedient is limited~~amendments in Update 2020-04 apply only to ~~circumstances in which~~contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the ~~lease, if accounted for separately, would be classified as an operating lease under Topic 842. We adopted ASU 2016-02, effective January 1, 2019, using the effective date method.~~

With respect to our drilling contracts, which contain a lease component, we elected to apply the practical expedient to not separate the lease and non-lease components and account for the combined component under Topic 606. With respect to all of our drilling contracts that existed on the adoption date, we concluded that the criteria to elect the lessor practical expedient had been met. As a result, we will continue to recognize the revenue associated with our drilling contracts under Topic 606. Therefore, weamendments do not ~~expect any change~~apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The provisions in Update 2020-04 are effective upon issuance and can be applied prospectively through December 31, 2022. We are in the process of evaluating the impact this amendment will have on our ~~revenue recognition patterns or disclosures as a result of our adoption of Topic 842.~~consolidated financial statements.

With respect to leases whereby we are the lessee, we elected several practical expedients afforded under Topic 842. We elected the package of practical expedients permitted under the transition guidance of Topic 842, including the hindsight practical expedient which permits entities to use hindsight in determining the lease term and assessing impairment. We also elected the practical expedient to not separate lease components from non-lease components for all asset classes, with the exception of ~~office space. Furthermore, we also elected~~ the ~~practical expedient~~updated standards discussed above, there have been no accounting pronouncements issued and not yet effective that ~~permits entities not~~have significance, or potential significance, to apply the recognition requirements for leases with a term of 12 months or less. Upon adoption of ASU 2016-02 on January 1, 2019, we recognized lease liabilities and right-of-use assets of $64.6 million and $53.7 million, respectively. See "Note 10 - Leases" for additional information.our consolidated financial statements.

Note 2 -Revenue from Contracts with Customers

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

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

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

The amount estimated for variable consideration is only recognized as revenue to the extent that it is probable that a significant reversal will not occur during the contract term. We have applied the optional exemption afforded in Update 2014-09, Revenue from Contracts with Customers (Topic 606), and have not disclosed the variable consideration related to our estimated future day rate revenues. The remaining duration of our drilling contracts based on those in place as of March 31, ~~2019~~2020 was between approximately one month and ~~four~~three years.

Day Rate Drilling Revenue

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

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

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

Mobilization / Demobilization Revenue

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

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

Capital Upgrade / Contract Preparation Revenue

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

Contract Assets and Liabilities

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

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

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

The following table summarizes our ~~trade receivables,~~ contract assets and contract liabilities (in millions):


	March 31, 2019		December 31, 2018		March 31, 2020		December 31, 2019
Current contract assets	$	3.1	$	4.0	$	7.2	$	3.5
Noncurrent contract assets					$	.4	$	—
Current contract liabilities (deferred revenue)	$	55.9	$	56.9	$	24.5	$	30.0
Noncurrent contract liabilities (deferred revenue)	$	17.8	$	20.5	$	8.8	$	9.7

~~Significant changes~~Changes in contract assets and liabilities during the ~~three-month~~ period ~~ended March 31, 2019~~ are as follows (in millions):


	Contract Assets			Contract Liabilities			Contract Assets			Contract Liabilities
Balance as of December 31, 2018	$	4.0		$	77.4
Balance as of December 31, 2019							$	3.5		$	39.7
Revenue recognized in advance of right to bill customer	.1			—			5.1			—
Increase due to cash received	—			22.3			—			6.2
Decrease due to amortization of deferred revenue that was included in the beginning contract liability balance	—			(24.6		)	—			(12.0		)
Decrease due to amortization of deferred revenue that was added during the period	—			(1.4		)	—			(.6		)
Decrease due to transfer to receivables during the period	(1.0		)	—			(1.0		)	—
Balance as of March 31, 2019	$	3.1		$	73.7
Balance as of March 31, 2020							$	7.6		$	33.3

Deferred Contract Costs

Costs incurred for upfront rig mobilizations and certain contract ~~preparation~~preparations are attributable to our future performance obligation under each respective drilling contract. Such costs are deferred and amortized on a straight-line basis over the contract term. Demobilization costs are recognized as incurred upon contract completion. Costs associated with the mobilization of equipment and personnel to more promising market areas without contracts are expensed as incurred. Deferred contract costs were included in other current assets and other assets on our condensed consolidated balance sheets and totaled ~~$26.6~~$29.2 million and ~~$23.5~~$19.7 million as of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. During the ~~three months~~three-month periods ended March 31, ~~2019~~2020 and ~~2018,~~2019, amortization of such costs totaled ~~$6.4~~$11.5 million and ~~$6.8~~$6.4 million, respectively.

Deferred Certification Costs

We must obtain certifications from various regulatory bodies in order to operate our drilling rigs and must maintain such certifications through periodic inspections and surveys. The costs incurred in connection with maintaining such certifications, including inspections, tests, surveys and drydock, as well as remedial structural work and other compliance costs, are deferred and amortized on a straight-line basis over the corresponding certification periods.

Deferred regulatory certification and compliance costs were included in other current assets and other assets on our condensed consolidated balance sheets and totaled ~~$13.4~~$10.7 million and ~~$13.6~~$10.8 million as of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. During the ~~three months~~three-month periods ended March 31, ~~2019~~2020 and ~~2018,~~2019, amortization of such costs totaled ~~$2.8~~$3.1 million and ~~$3.1~~$2.8 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. Expected future amortization of our contract liabilities and deferred costs recorded as of March 31, ~~2019~~2020 is set forth in the table below (in millions):



	Remaining 2020		2021		2022		2023 and Thereafter		Total
Amortization of contract liabilities	$	21.3	$	9.8	$	2.2	$	—	$	33.3
Amortization of deferred costs	$	28.6	$	9.3	$	1.6	$	.4	$	39.9

Remaining 2019 2020 2021 2022 and Thereafter Total
Amortization of contract liabilities $ 52.4
$ 11.8
$ 7.7
$ 1.8
$ 73.7
Amortization of deferred costs $ 25.4
$ 10.4
$ 2.7
$ 1.5
$ 40.0

Note 3 -Rowan Transaction

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

Prior to the Rowan Transaction, Rowan and Saudi Aramco formed a 50/50 joint venture to own, manage and operate drilling rigs offshore Saudi Arabia ("Saudi Aramco Rowan Offshore Drilling Company" or "ARO"). ARO currently owns a fleet of seven jackup rigs, leases another nine jackup rigs from us and has plans to order up to 20 newbuild jackup rigs over the next 10 years.

The Rowan Transaction is expected to enhance the market leadership of the combined company with a fleet of high-specification floaters and jackups and position us well to meet increasing and evolving customer demand. The increased scale, diversification and financial strength of the combined company will provide us advantages to better serve our customers. Exclusive of two older jackup rigs marked for retirement, Rowan’s offshore rig fleet consists of four ultra-deepwater drillships and 19 jackup rigs.

~~Consideration~~

As a result of the Rowan Transaction, Rowan shareholders received 2.750 Ensco Class A Ordinary shares for each Rowan Class A ordinary share, representing a value of $43.67 per Rowan share based on a closing price of $15.88 per Ensco 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 Ensco shares with an aggregate value of $1.4 billion, inclusive of $2.6 million for the estimated fair value of replacement employee equity awards. All share and per share data included in this report have been retroactively adjusted to reflect the reverse stock split discussed in "Note 14 - Subsequent Events".

Assets ~~Acquired and Liabilities Assumed~~

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

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

The provisional amounts for assets acquired and liabilities assumed ~~are based on preliminary estimates of their fair values~~ as of the Transaction Date and ~~are~~respective measurement period adjustments were as follows (in millions):


	Estimated Fair Value			Amounts Recognized as of Transaction Date			Measurement Period Adjustments ⁽¹⁾			Estimated Fair Value
Assets:
Cash and cash equivalents	$	928.9		$	931.9		$	—		$	931.9
Accounts receivable⁽¹⁾⁽²⁾	199.1			207.1			(6.9		)	200.2
Other current assets	200.0			101.6			(2.6		)	99.0
Long-term notes receivable from ARO	454.5			454.5			—			454.5
Investment in ARO	152.3			138.8			2.5			141.3
Property and equipment	2,755.3			2,989.8			(26.0		)	2,963.8
Other assets	184.4			41.7			1.1			42.8
Liabilities:
Accounts payable and accrued liabilities	252.1			259.4			15.7			275.1
Current portion of long-term debt	181.2			203.2			—			203.2
Long-term debt	1,910.9			1,910.9			—			1,910.9
Other liabilities	372.0			376.3			34.5			410.8
Net assets acquired	2,158.3			2,115.6			(82.1		)	2,033.5
Less: Transaction consideration	(1,404.6		)
Bargain purchase gain	$	753.7
Less: Merger consideration				(1,402.8		)	—			(1,402.8		)
Estimated bargain purchase gain				$	712.8		$	(82.1	)	$	630.7

⁽¹⁾

The measurement period adjustments reflect changes in the estimated fair values of certain assets and liabilities, primarily related to long-lived assets, deferred income taxes and uncertain tax positions. The measurement period adjustments were recorded to reflect new information obtained about facts and circumstances existing as of the Transaction Date and did not result from subsequent intervening events. The adjustments recorded resulted in a $6.3 million decline to bargain purchase gain during the three-months ended March 31, 2020 and are included in other, net, in our condensed consolidated statements of operations.


⁽²⁾	Gross contractual amounts receivable totaled ~~$201.1~~$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.

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. Amortization of the intangible assets and liabilities resulted in a net reduction of operating revenues of $1.3 million for the three months ended March 31, 2020. The ~~estimated gain will be reflected~~remaining balance of intangible assets and liabilities of $10.4 million and $1.2 million, respectively, was included in other ~~net, in~~assets and other liabilities, respectively, on our condensed consolidated ~~statement~~balance sheet as of ~~operations during~~March 31, 2020. These balances will be amortized to operating revenues over the ~~second quarter.~~respective remaining contract terms on a straight-line basis. As of March 31, 2020, the remaining terms of the underlying contracts is approximately 1.8 years. Amortization of these intangibles is expected to result in a reduction to revenue of $3.8 millionand$5.4 million for 2020 and 2021, respectively.

~~Transaction-Related Costs~~Uncertain Tax Positions

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

During 2019, the Luxembourg tax authorities issued aggregate tax assessments totaling approximately €142.0 million (approximately $156.7 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 $102.6 million converted using the current period-end exchange rates).

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 $5.9 million during the ~~three-month period~~three months ended March 31, 2019. These costs were included in general and administrative expense in our condensed consolidated ~~statements~~statement of operations. ~~Upon closing of the Rowan Transaction, we incurred additional transaction-related costs of $14.2 million.~~

Unaudited Pro Forma Impact of the Rowan Transaction

The following unaudited supplemental pro forma results present consolidated information as if the Rowan Transaction was completed on January 1, ~~2018.~~2019. The pro forma results include, among others, (i) the amortization associated with acquired intangible assets and liabilities (ii) a reduction in depreciation expense for adjustments to property and equipment (iii) the amortization of premiums and discounts recorded on Rowan's debt (iv) removal of the historical amortization of unrealized gains and losses related to Rowan's pension plans and (v) the amortization of basis differences in assets and liabilities of ARO. The pro forma results do not include any potential synergies or non-recurring charges that may result directly from the Rowan Transaction.



(in millions, except per share amounts)	Three Months Ended March 31, 2019

Revenues	$	582.0
Net loss	$	(275.0	)
Loss per share - basic and diluted	$	(1.40	)

(in millions, except per share amounts) Three Months Ended March 31,

2019⁽¹⁾
2018
Revenues $ 580.4
$ 628.2
Net loss $ (271.6 ) $ (191.4 )
Earnings per share - basic and diluted $ (1.38 ) $ (0.97 )


⁽¹⁾	Pro forma net ~~income~~loss and ~~earnings~~loss per share were adjusted to exclude an aggregate $9.4 million of ~~transaction-related~~transaction - related and integration costs incurred by Ensco and Rowan during ~~the three-month period~~three months ended March 31, 2019.

Note 4 - Equity Method Investment in ARO

Background

ARO, a company that owns and operates offshore drilling rigs in Saudi Arabia, was formed and commenced operations in 2017 pursuant to the terms of an agreement entered into by Rowan and Saudi Aramco to create a 50/50 joint venture ("Shareholder Agreement"). Pursuant to the Rowan Transaction, Valaris acquired Rowan's interest in ARO making Valaris a 50% partner. ARO owns 7 jackup rigs and leases 9 rigs from us through bareboat charter arrangements (the "Lease Agreements") whereby substantially all operating costs are incurred by ARO. As of March 31, 2020, all 9 of the leased rigs were operating under three-year drilling contracts with Saudi Aramco. The seven rigs owned by ARO, previously purchased from Rowan and Saudi Aramco, are currently operating under contracts with Saudi Aramco for an aggregate 15 years, renewed and re-priced every three years, provided that the rigs meet the technical and operational requirements of Saudi Aramco.

Valaris and Saudi Aramco have agreed to take all steps necessary to ensure that ARO purchases at least 20 newbuild jackup rigs ratably over an approximate 10 -year period. In January 2020, ARO ordered the first two newbuild jackups, each with a price of $176 million, for delivery scheduled in 2022. The partners intend for the newbuild jackup rigs to be financed out of available cash from ARO's operations and/or funds available from third-party debt financing. In the event ARO has insufficient cash from operations or is unable to obtain third-party financing, each partner may periodically be required to make additional capital contributions to ARO, up to a maximum aggregate contribution of $1.25 billion from each partner to fund the newbuild program. Each partner's commitment shall be reduced by the actual cost of each newbuild rig, on a proportionate basis. The partners agreed that Saudi Aramco, as a customer, will provide drilling contracts to ARO in connection with the acquisition of the newbuild rigs. The initial contracts provided by Saudi Aramco for each of the newbuild rigs will be for an eight-year term. The day rate for the initial contracts for each newbuild rig will be determined using a pricing mechanism that targets a six-year payback period for construction costs on an EBITDA basis. The initial eight-year contracts will be followed by a minimum of another eight years of term, re-priced in three-year intervals based on a market pricing mechanism.

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

Rowan Transaction. Pursuant to these agreements, we or our seconded employees provide various services to ARO, and in return, ARO provides remuneration for those services. From time to time, we may also sell equipment or supplies to ARO.

Summarized Financial Information

The operating revenues of ARO presented below reflect revenues earned under drilling contracts with Saudi Aramco for the 7 ARO-owned jackup rigs and the rigs leased from us that operated during the three months ended March 31, 2020.

The contract drilling expenses, depreciation and general and administrative expenses presented below are also for the three months ended March 31, 2020. Contract drilling expense is inclusive of the bareboat charter fees for the rigs leased from us. Cost incurred under the Secondment Agreement are included in contract drilling expense and general and administrative, depending on the function to which the seconded employee's service relates. Substantially all costs incurred under the Transition Services Agreement are included in general and administrative. See additional discussion below regarding these related-party transactions.

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



	Three Months Ended March 31, 2020
Revenues	$	140.3
Operating expenses
Contract drilling (exclusive of depreciation)	108.3
Depreciation	13.0
General and administrative	8.3
Operating income	10.7
Other expense, net	6.6
Provision for income taxes	.9
Net income	$	3.2



	March 31, 2020		December 31, 2019
Current assets	$	351.2	$	407.2
Non-current assets	943.8		874.8
Total assets	$	1,295.0	$	1,282.0

Current liabilities	$	215.6	$	183.2
Non-current liabilities	992.9		1,015.5
Total liabilities	$	1,208.5	$	1,198.7

Equity in Earnings of ARO

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

As a result of the Rowan Transaction, we recorded our equity method investment in ARO at its estimated fair value on the Transaction Date. Additionally, we computed the difference between the fair value of ARO's net assets and the carrying value of those net assets in ARO's US GAAP financial statements ("basis differences"). The basis differences primarily relate to ARO's long-lived assets and the recognition of intangible assets associated with certain of ARO's drilling contracts that were determined to have favorable terms as of the Transaction Date. The basis differences are amortized over the remaining life of the assets or liabilities to which they relate and are recognized as an adjustment to the equity in earnings of ARO in our condensed consolidated statements of operations. The amortization of those basis differences are combined with our 50% interest in ARO's net income. A reconciliation of those components is presented below (in millions):



	Three Months Ended March 31, 2020
50% interest in ARO net income	$	1.6
Amortization of basis differences	(7.9		)
Equity in earnings of ARO	$	(6.3	)

Related-Party Transactions

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



	Three Months Ended March 31, 2020
Lease revenue	$	21.5
Secondment revenue	18.3
Transition Services revenue	3.5
Total revenue from ARO ⁽¹⁾	$	43.3


⁽¹⁾	All of the revenues presented above are included in our Other segment in our segment disclosures. See Note 14 - Segment Information for additional information.

Amounts receivable from ARO related to the above items totaled $34.0 million and $21.8 million as of March 31, 2020 and December 31, 2019, respectively, and are included in accounts receivable, net, on our condensed consolidated balance sheets. Accounts payable to ARO totaled $0.7 million as of March 31, 2020 and December 31, 2019.

We also had an agreement between us and ARO, pursuant to which ARO will reimburse us for certain capital expenditures related to the shipyard upgrade projects for the VALARIS JU-147 and VALARIS JU-148. As of December 31, 2019, $14.2 million related to reimbursement of these expenditures were outstanding and included in accounts receivable, net, on our condensed consolidated balance sheet. Such amount was received in the first quarter of 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 March 31, 2020 and December 31, 2019, the carrying amount of the long-term notes receivable from ARO was $452.9 million. The Shareholders’ Agreement prohibits the sale or transfer of the shareholder note to a third party, except in certain limited circumstances. Interest is recognized as interest income in our condensed consolidated statement of operations and totaled $4.6 million for the three months ended March 31, 2020. As of March 31, 2020, we had interest receivable from ARO of $4.6 million, which is included in Other current assets on our condensed consolidated balance sheet. There was no interest receivable from ARO as of December 31, 2019.

Maximum Exposure to Loss

The following summarizes the total assets and liabilities as reflected in our condensed consolidated balance sheet as well as our maximum exposure to loss related to ARO (in millions). Our maximum exposure to loss is limited to (1) our equity investment in ARO; (2) the outstanding balance on our shareholder notes receivable; and (3) other receivables for services provided to ARO, partially offset by payables for services received.



	March 31, 2020
Total assets	$	613.9
Less: total liabilities	.7
Maximum exposure to loss	$	613.2

Note 45 -Fair Value Measurements

The following fair value hierarchy table categorizes information regarding our ~~net~~ financial assets and liabilities measured at fair value on a recurring basis (in millions):



	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Total
As of March 31, 2020
Supplemental executive retirement plan assets	$	21.2	$	—		$	—	$	21.2
Total financial assets	21.2		—			—		21.2
Derivatives, net	—		(12.6		)	—		(12.6		)
Total financial liabilities	$	—	$	(12.6	)	$	—	$	(12.6	)
As of December 31, 2019
Supplemental executive retirement plan assets	$	26.0	$	—		$	—	$	26.0
Derivatives, net	—		5.4			—		5.4
Total financial assets	$	26.0	$	5.4		$	—	$	31.4

Quoted Prices in Active Markets for Identical Assets
(Level 1)

Significant Other Observable Inputs
(Level 2)

Significant Unobservable Inputs
(Level 3)
Total
As of March 31, 2019

Supplemental executive retirement plan assets $ 29.3
$ —
$ —
$ 29.3
Total financial assets $ 29.3
$ —
$ —
$ 29.3
Derivatives, net $ —
$ (6.9 ) $ —
$ (6.9 )
Total financial liabilities $ —
$ (6.9 ) $ —
$ (6.9 )

As of December 31, 2018

Supplemental executive retirement plan assets $ 27.2
$ —
$ —
$ 27.2
Total financial assets $ 27.2
$ —
$ —
$ 27.2
Derivatives, net $ —
$ (10.7 ) $ —
$ (10.7 )
Total financial liabilities $ —
$ (10.7 ) $ —
$ (10.7 )

Supplemental Executive Retirement Plan Assets

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

Derivatives

Our derivatives were measured at fair value on a recurring basis using Level 2 inputs. See ~~"Note 5~~"Note 8 - 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 ~~measurement~~measurements of our derivatives ~~was~~were based on market prices that are generally observable for similar assets or liabilities at ~~commonly-quoted~~commonly quoted intervals.

Other Financial Instruments

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



	March 31, 2020				December 31, 2019
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
6.875% Senior notes due 2020	$	124.1	$	27.8	$	124.8	$	117.3
4.70% Senior notes due 2021	100.4		10.4		113.2		95.5
4.875% Senior notes due 2022	601.2		125.9		599.2		460.5
3.00% Exchangeable senior notes due 2024⁽¹⁾	707.7		214.3		699.0		607.4
4.50% Senior notes due 2024	302.0		28.6		302.0		167.2
4.75% Senior notes due 2024	278.6		64.2		276.5		201.4
8.00% Senior notes due 2024	295.5		27.6		295.7		181.7
5.20% Senior notes due 2025	331.8		33.8		331.7		186.7
7.375% Senior notes due 2025	330.2		82.6		329.2		218.6
7.75% Senior notes due 2026	987.7		107.7		987.1		575.1
7.20% Debentures due 2027	111.7		16.6		111.7		70.0
7.875% Senior notes due 2040	372.8		46.9		373.3		153.5
5.40% Senior notes due 2042	263.2		78.8		262.8		194.4
5.75% Senior notes due 2044	974.2		93.5		973.3		450.0
5.85% Senior notes due 2044	269.1		80.6		268.8		194.8
Amounts borrowed under credit facility⁽²⁾	322.9		328.9		—		—
Total debt	$	6,373.1	$	1,368.2	$	6,048.3	$	3,874.1
Less: current maturities	224.5		—		124.8		—
Total long-term debt	$	6,148.6	$	1,368.2	$	5,923.5	$	3,874.1

March 31,
2019 December 31,
2018
Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value
6.875% senior notes due 2020 $ 126.9
$ 122.8
$ 127.5
$ 121.6
4.70% senior notes due 2021 112.9
108.5
112.7
101.8
3.00% exchangeable senior notes due 2024⁽¹⁾
674.7
655.5
666.8
575.5
4.50% senior notes due 2024 620.0
476.0
619.8
405.2
8.00% senior notes due 2024 336.7
305.1
337.0
273.7
5.20% senior notes due 2025 664.6
517.7
664.4
443.9
7.75% senior notes due 2026 985.6
849.8
985.0
725.5
7.20% debentures due 2027 149.4
121.1
149.3
109.1
7.875% senior notes due 2040 374.6
238.2
375.0
223.2
5.75% senior notes due 2044 973.1
648.2
972.9
566.3
Total $ 5,018.5
$ 4,042.9
$ 5,010.4
$ 3,545.8

⁽¹⁾

Our ~~exchangeable senior notes due~~ 2024 ~~(the "2024~~ Convertible ~~Notes")~~Notes were issued with a conversion feature. The 2024 Convertible Notes were separated into their liability and equity components on our condensed consolidated balance sheet. The equity component was initially recorded to additional paid-in capital and as a debt discount that will be amortized to interest expense over the life of the instrument. Excluding the unamortized discount, the carrying value of the 2024 Convertible Notes was ~~$836.9~~$839.2 million and $838.3 million as of March 31, ~~2019.~~2020 and December 31, 2019, respectively.


⁽²⁾	Total outstanding borrowings under our credit facility are $328.9 million and are recorded net of $6.0 million of unamortized deferred financing cost on our condensed consolidated balance sheet. In addition, we have $3.2 million in letters of credit issued under our credit facility, leaving $1.3 billion of undrawn borrowing capacity.

The estimated fair values of our cash and cash equivalents, short-term investments, receivables, trade payables and other liabilities approximated their carrying values as of March 31, 2019 and December 31, 2018. Our short-term investments consisted of time deposits with initial maturities in excess of three months but less than one year as of each respective balance sheet date. 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 March 31, 2020 and December 31, 2019.

Note 6 -Property and Equipment

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



	March 31, 2020		December 31, 2019
Drilling rigs and equipment	$	13,792.0	$	17,714.0
Work-in-progress	482.4		473.6
Other	187.5		206.2
	$	14,461.9	$	18,393.8

Impairment of Long-Lived Assets

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

During the first quarter, the coronavirus global pandemic and the response thereto has negatively impacted the macro-economic environment and global economy. Global oil demand has fallen sharply at the same time global oil supply has increased as a result of certain oil producers competing for market share, leading to a supply glut. As a consequence, Brent crude oil has fallen from around $60 per barrel at year-end 2019 to around $20 per barrel as of mid-April 2020. In response to dramatically reduced oil price expectations for the near term, our customers are reviewing and in most cases lowering significantly, their capital expenditure plans in light of revised pricing expectations. Customers are expected to continue to operate under reduced budgets until we see a meaningful recovery in commodity prices. The significant supply and demand imbalance will continue to be adversely impacted by future newbuild deliveries, program delays and lower capital spending by operators. These adverse changes in the first quarter resulted in further deterioration in our forecasted day rates and utilization for the remainder of 2020 and beyond. As a result, we concluded that a triggering event had occurred and we performed a fleet-wide recoverability test. We determined that our estimated undiscounted cash flows were not sufficient to recover the carrying values of certain rigs and concluded such were impaired as of March 31, 2020.

Based on the asset impairment analysis performed as of March 31, 2020, we recorded a pre-tax, non-cash loss on impairment with respect to certain floaters, jackups and spare equipment totaling $2.8 billion. The impairment charge was included in loss on impairment in our condensed consolidated statement of operations for the three months ended March 31, 2020. We measured the fair value of these assets to be $72.3 million as of March 31, 2020 by applying either an income approach, using projected discounted cash flows or estimated scrap value. These valuations were based on unobservable inputs that require significant judgments for which there is limited information, including, in the case of an income approach, assumptions regarding future day rates, utilization, operating costs and capital requirements.

In instances where we applied an income approach, forecasted day rates and utilization take into account current market conditions and our anticipated business outlook, both of which have been impacted by the adverse changes in the business environment observed during the first quarter.

Note 7 -Pension and Other Post-retirement Benefits

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

The components of net periodic pension cost were as follows (in millions):



	Three Months Ended March 31, 2020
Service cost ⁽¹⁾	$	.6
Interest cost ⁽²⁾	6.5
Expected return on plan assets ⁽²⁾	(9.5		)
Net periodic pension cost	$	(2.4	)


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


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

During the three months ended March 31, 2020, we contributed $4.0 million to our pension and other post-retirement benefit plans and expect to make additional contributions to such plans totaling approximately $32.6 million for the remainder of 2020, which represent the minimum contributions we are required to make under relevant statutes. We do not expect to make contributions in excess of the minimum required amounts.

Note 58 -Derivative Instruments

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

All ~~of our~~ derivatives were recorded on our condensed consolidated balance sheets at fair value. Derivatives subject to legally enforceable master netting agreements were not offset inon our condensed consolidated balance sheets. Accounting for the gains and losses resulting from changes in the fair value of derivatives depends on the use of the derivative and whether it qualifies for hedge accounting. ~~Net liabilities~~As of ~~$6.9 million~~March 31, 2020 and ~~$10.7 million associated with our derivatives were included on~~December 31, 2019, our condensed consolidated balance sheets asincluded net foreign currency derivative liabilities of ~~March 31, 2019~~$12.6 million and ~~December 31, 2018,~~assets of $5.4 million, respectively. All of our ~~derivatives~~derivative instruments mature during the next 18 months. See ~~"Note 4~~ "Note 5- Fair Value Measurements" for additional information on the fair value measurement of our derivatives.

Derivatives recorded at fair value on our condensed consolidated balance sheets consisted of the following (in millions):


	Derivative Assets				Derivative Liabilities				Derivative Assets				Derivative Liabilities
	March 31, 2019		December 31, 2018		March 31, 2019		December 31, 2018		March 31, 2020		December 31, 2019		March 31, 2020		December 31, 2019
Derivatives Designated as Hedging Instruments
Foreign currency forward contracts - current⁽¹⁾	$	.2	$	.2	$	5.1	$	8.3	$	1.0	$	4.2	$	10.8	$	.7
Foreign currency forward contracts - non-current⁽²⁾	.1		—		.2		.4		.1		.8		1.3		—
	.3		.2		5.3		8.7		$	1.1	$	5.0	$	12.1	$	.7
Derivatives Not Designated as Hedging Instruments

Derivatives not Designated as Hedging Instruments
Foreign currency forward contracts - current⁽¹⁾	.2		.4		2.1		2.6		$	1.7	$	1.3	$	3.3	$	.2
Total	$	.5	$	.6	$	7.4	$	11.3	$	2.8	$	6.3	$	15.4	$	.9


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


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

We utilize cash flow hedges to hedge forecasted foreign currency denominated transactions, primarily to reduce our exposure to foreign currency exchange rate risk associated with contract drilling expenses and capital expenditures denominated in various currencies. As of March 31, ~~2019,~~2020, we had cash flow hedges outstanding to exchange an aggregate ~~$169.6~~$206.4 million for various foreign currencies, including ~~$88.3~~$119.8 million for British pounds, ~~$39.8~~$55.7 million for Australian dollars, ~~$21.5~~$13.5 million for euros, ~~$12.9~~$8.4 million for Norwegian krone, $5.6 million for Singapore dollars, and $3.4 million for Brazilian ~~reals and $7.1 million for other currencies.~~reals.

Gains and losses, net of tax, on derivatives designated as cash flow hedges included in our condensed consolidated statements of operations and comprehensive loss for the ~~quarters~~three-month periods ended March 31, ~~2019~~2020 and ~~2018~~2019 were as follows (in millions):



	Loss Recognized in Other Comprehensive Loss ("OCI") on Derivatives (Effective Portion)					(Gain) Loss Reclassified from ("AOCI") into Income(Effective Portion)⁽¹⁾
	2020			2019		2020			2019
Interest rate lock contracts⁽²⁾	$	—		$	—	$	—		$	.1
Foreign currency forward contracts⁽³⁾	(12.9		)	—		(.1		)	1.5
Total	$	(12.9	)	$	—	$	(.1	)	$	1.6

Gain Recognized in Other Comprehensive Income ("OCI") (Effective Portion)
(Gain) Loss Reclassified from Accumulated Other Comprehensive Income ("AOCI") into Income (Effective Portion)⁽¹⁾

Loss Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing)⁽²⁾
2019 2018 2019 2018 2019 2018
Interest rate lock contracts⁽³⁾
$ —
$ —
$ .1
$ .1
$ —
$ —
Foreign currency forward contracts⁽⁴⁾
—
1.9
1.5
(2.3 ) —
(.2 )
Total $ —
$ 1.9
$ 1.6
$ (2.2 ) $ —
$ (.2 )


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

⁽²⁾

Gains and losses recognized in income for ineffectiveness and amounts excluded from effectiveness testing were included in other, net, in our condensed consolidated statements of operations. As a result of our adoption of Update 2017-12, which we adopted effective January 1, 2019, ineffectiveness is no longer separately measured and recognized. See additional information in "Note 1 - Unaudited Condensed Consolidated Financial Statements".


⁽³⁾	Losses on interest rate lock derivatives reclassified from AOCI into income ~~(effective portion)~~ were included in interest expense, net, in our condensed consolidated statements of operations.

⁽⁴⁾⁽³⁾

During the ~~first quarter~~three months ended March 31, 2020, $0.9 million of losses were reclassified from AOCI into contract drilling expense and $1.0 million of gains were reclassified from AOCI into depreciation expense in our condensed consolidated statement of operations. During the three months ended March 31, 2019, $1.7 million of losses were reclassified from AOCI into contract drilling expense and $0.2 million of gains were reclassified from AOCI into depreciation expense in our condensed consolidated statement of operations. During the prior year quarter, $2.1 million of gains were reclassified from AOCI into contract drilling expense and $0.2 million of gains were reclassified from AOCI into depreciation expense in our condensed consolidated statement of operations.

We have net assets and liabilities denominated in numerous foreign currencies and use various methods to manage our exposure to foreign currency exchange rate risk. We predominantly structure our drilling contracts in U.S. dollars, which significantly reduces the portion of our cash flows and assets denominated in foreign currencies. We occasionally enter into derivatives that hedge the fair value of recognized foreign currency denominated assets or liabilities but do not designate such derivatives as hedging instruments. In these situations, a natural hedging relationship generally exists whereby changes in the fair value of the derivatives offset changes in the fair value of the underlying hedged items. As of March 31, ~~2019,~~2020, we held derivatives not designated as hedging instruments to exchange an aggregate ~~$191.8~~$65.0 million for various foreign currencies, including ~~$84.3~~$21.8 million for ~~euros, $31.7 million for Australian dollars, $18.5 million for Qatari riyals, $13.2~~Euros, $20.7 million for British pounds, ~~$10.1~~$8.3 million for ~~Indonesian rupiahs~~Norwegian krone, $5.5 million for Nigerian Naira, 5.4 million for Egyptian dollars and ~~$34.0~~$3.3 million for other currencies.

Net losses of ~~$3.1~~$0.1 million and ~~net gains of $1.8~~$3.1 million associated with our derivatives not designated as hedging instruments were included in other, net, in our condensed consolidated statements of operations for the ~~quarters~~three-month periods ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively.

As of March 31, ~~2019,~~2020, the estimated amount of net losses associated with ~~derivative instruments,~~derivatives, net of tax, that ~~would~~will be reclassified ~~into~~to earnings during the next ~~twelve~~12 months totaled ~~$3.0~~$7.9 million.

Note 69 -Earnings Per Share

We compute basic and diluted earnings per share ("EPS") in accordance with the two-class method. Net ~~income~~loss attributable to ~~EnscoRowan~~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.

~~During~~ In each of the three-month ~~period~~periods ended March 31, 2020 and 2019, ~~all income attributable to noncontrolling interest was from continuing operations.~~ 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 ~~income~~loss from continuing operations attributable to ~~EnscoRowan~~Valaris shares used in our basic and diluted EPS computations for the ~~quarters~~three-monthperiods ended March 31, ~~2019~~2020 and ~~2018~~2019 (in millions):



	Three Months Ended March 31,
	2020			2019
Loss from continuing operations attributable to Valaris	$	(3,006.3	)	$	(190.4	)
Income from continuing operations allocated to non-vested share awards⁽¹⁾	—			(.1		)
Loss from continuing operations attributable to Valaris shares	$	(3,006.3	)	$	(190.5	)

2019 2018
Loss from continuing operations attributable to EnscoRowan $ (190.4 ) $ (140.0 )
Income from continuing operations allocated to non-vested share awards (.1 ) (.1 )
Loss from continuing operations attributable to EnscoRowan shares $ (190.5 ) $ (140.1 )


⁽¹⁾	Losses are not allocated to non-vested share awards. Therefore, in periods in which we were in a net loss position, only dividends attributable to our non-vested share awards are included.

Anti-dilutive share awards totaling ~~200,000~~$400,000 and ~~400,000~~$200,000 for the three-month periods ended March 31, 2020 and 2019, respectively, were excluded from the computation of diluted ~~EPS for the quarters ended March 31, 2019 and 2018, respectively.~~EPS.

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

During each respective reporting period that our average share price exceeds the exchange price, an assumed number of shares required to settle the conversion obligation in excess of the principal amount will be included in our denominator for the computation of diluted EPS using the treasury stock method. Our average share price did not exceed the exchange price during the ~~quarters~~three-month periods ended March 31, ~~2019 or 2018.~~2020 and 2019.

Note 10 -Debt

Rowan Transaction

As a result of the Rowan Transaction, we acquired the following senior notes issued by Rowan Companies, Inc. ("RCI") and guaranteed by Rowan: (1) $201.4 million in aggregate principal amount of 7.875% unsecured senior notes due 2019, which have been repaid in full, (2) $620.8 million in aggregate principal amount of 4.875% unsecured senior notes due 2022, (3) $398.1 million in aggregate principal amount of 4.75% unsecured senior notes due 2024, (4) $500.0 million in aggregate principal amount of 7.375% unsecured senior notes due 2025, (5) $400.0 million in aggregate principal amount of 5.4% unsecured senior notes due 2042 and (6) $400.0 million in aggregate principal amount of 5.85% unsecured senior notes due 2044 (collectively, the "Rowan 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.

Revolving Credit Facility

As of March 31, 2020, we had $332.1 million outstanding under our credit facility, inclusive of $3.2 million in letters of credit, leaving $1.3 billion of undrawn capacity available. As of March 31, 2020, we were in compliance with our debt covenants. We expect to remain in compliance with our credit facility covenants during the next twelve months. However, the full impact that the pandemic and the precipitous decline in oil prices will have on our results of operations, financial condition, liquidity and cash flows is uncertain. If we were to violate the covenants of the revolving credit facility, further borrowings under the credit facility would not be permitted, absent a waiver, and all outstanding borrowings could become immediately due and payable by action of lenders holding a majority of the commitments under the facility. Any such acceleration would trigger a cross-acceleration event of default with respect to approximately $2.1 billion of our outstanding senior notes. The revolving facility generally limits the company to no more than $200.0 million in available cash (including certain liquid investments as defined in the facility documents), and requires consent of all lenders for draws on the facility that would result in the company having more than $200.0 million in available cash and liquid investments.

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

2024 Convertible Notes

In December 2016, Ensco Jersey Finance Limited, a wholly-owned subsidiary of Valaris plc, issued $849.5 million aggregate principal amount of unsecured 2024 Convertible Notes in a private offering. The 2024 Convertible Notes are fully and unconditionally guaranteed, on a senior, unsecured basis, by Valaris plc and are exchangeable into cash, our Class A ordinary shares or a combination thereof, at our election. Interest on the 2024 Convertible Notes is payable semiannually on January 31 and July 31 of each year. The 2024 Convertible Notes will mature on January 31, 2024, unless exchanged, redeemed or repurchased in accordance with their terms prior to such date. Holders may exchange their 2024 Convertible Notes at their option any time prior to July 31, 2023 only under certain circumstances set forth in the indenture governing the 2024 Convertible Notes. On or after July 31, 2023, holders may exchange their 2024 Convertible Notes at any time. The exchange rate is 17.8336 shares per $1,000 principal amount of notes,

representing an exchange price of $56.08 per share, and is subject to adjustment upon certain events. The 2024 Convertible Notes may not be redeemed by us except in the event of certain tax law changes.

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

Open Market Repurchases

During the three months ended March 31, 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, with cash on hand. As a result of the transaction, we recognized a pre-tax gain of $3.1 million, net of discounts in other, net, in the consolidated statement of operations.

Note 711 - Shareholders' Equity

Activity in our various shareholders' equity accounts for the three-month periods ended March 31, ~~2019~~2020 and ~~2018~~2019 were as follows (in ~~millions)~~millions, except per share amounts):


	Shares	Par Value		Additional Paid-in Capital			Retained Earnings			AOCI		Treasury Shares			Non-controlling Interest			Shares	Par Value		Additional Paid-in Capital			Retained Earnings (Deficit)			AOCI			Treasury Shares			Non-controlling Interest
BALANCE, December 31, 2018	115.2	$	46.2	$	7,225.0		$	874.2		$	18.2	$	(72.2	)	$	(2.6	)
BALANCE, December 31, 2019																		205.9	$	82.5	$	8,627.8		$	671.7		$	6.2		$	(77.3	)	$	(1.3	)
Net loss	—	—		—			(190.4		)	—		—			2.4			—	—		—			(3,006.3		)	—			—			(1.4		)
Dividends paid ($0.04 per share)	—	—		—			(4.5		)	—		—			—
Shares issued under share-based compensation plans, net	—	—		(.1		)	—			—		.1			—			—	—		(.7		)	—			—			.9			—
Repurchase of shares	—	—		—			—			—		(2.8		)	—			—	—		—			—			—			(.9		)	—
Share-based compensation cost	—	—		5.3			—			—		—			—			—	—		7.8			—			—			—			—
Net other comprehensive income	—	—		—			—			1.5		—			—
BALANCE, March 31, 2019	115.2	$	46.2	$	7,230.2		$	679.3		$	19.7	$	(74.9	)	$	(0.2	)
Net other comprehensive loss																		—	—		—			—			(13.4		)	—			—
BALANCE, March 31, 2020																		205.9	$	82.5	$	8,634.9		$	(2,334.6	)	$	(7.2	)	$	(77.3	)	$	(2.7	)

Shares Par Value Additional
Paid-in
Capital Retained
Earnings AOCI Treasury
Shares Non-controlling
Interest
BALANCE, December 31, 2017 111.8
$ 44.8
$ 7,195.0
$ 1,532.7
$ 28.6
$ (69.0 ) $ (2.1 )
Net loss —
—
—
(140.1 ) —
—
(.4 )
Dividends paid ($0.04 per share) —
—
—
(4.4 ) —
—
—
Cumulative-effect due to ASU 2018-02 —
—
—
(.8 ) .8
—
—
Shares issued under share-based compensation plans, net —
—
(.1 ) —
—
.1
—
Repurchase of shares —
—
—
—
—
(1.1 ) —
Share-based compensation cost —
—
7.5
—
—
—
—
Net other comprehensive loss —
—
—
—
(.4 ) —
—
BALANCE, March 31, 2018 111.8
$ 44.8
$ 7,202.4
$ 1,387.4
$ 29.0
$ (70.0 ) $ (2.5 )

~~In connection with the Rowan Transaction, on April 11, 2019, we issued 88.3 million Class A Ordinary shares with an aggregate value of $1.4 billion. See "Note 3~~Note 12 - ~~Rowan Transaction" for additional information.~~

~~Additionally, on April 11, 2019, we effected a four-for-one reverse stock split. See "Note 14 - Subsequent Events" for additional information.~~

~~Note 8 -~~Income Taxes

~~Ensco Rowan~~Valaris plc, our parent company, is domiciled and resident in the U.K. Our subsidiaries conduct operations and earn income in numerous countries and are subject to the laws of taxing jurisdictions within those countries. The income of our non-U.K. subsidiaries is generally not subject to U.K. taxation. Income tax rates imposed in the tax jurisdictions in which our subsidiaries conduct operations vary, as does the tax base to which the rates are applied. In some cases, tax rates may be applicable to gross revenues, statutory or negotiated deemed profits or other bases utilized under local tax laws, rather than to net income. Therefore, we generally incur income tax expense in periods in which we operate at a loss.

Our drilling rigs frequently move from one taxing jurisdiction to another to perform contract drilling services. In some instances, the movement of ~~our~~ drilling rigs among taxing jurisdictions will involve the transfer of ownership of the drilling rigs among our subsidiaries. As a result of frequent changes in the taxing jurisdictions in which our drilling rigs are operated and/or owned, changes in ~~the overall level of our income~~profitability levels and changes in tax laws, our ~~consolidated~~annual effective income tax rate may vary substantially from one reporting period to another.

Income tax rates and taxation systems in the jurisdictions in which our subsidiaries conduct operations vary and our subsidiaries are frequently subjected to minimum taxation regimes. In some jurisdictions, tax liabilities are based on gross revenues, statutory or negotiated deemed profits or other factors, rather than on net income and our subsidiaries are frequently unable to realize tax benefits when they operate at a loss. Accordingly, during periods of declining profitability, our ~~consolidated~~ income tax expense ~~generally does~~may not decline proportionally with ~~consolidated~~ income, which ~~results~~could result in higher effective income tax rates. Furthermore, we ~~generally~~will continue to incur income tax expense in periods in which we operate at a ~~loss on a consolidated basis.~~loss.

Historically, we calculated our provision for income taxes during interim reporting periods by applying the estimated annual effective tax rate for the full fiscal year to pre-tax income or loss, excluding discrete items, for the reporting period. We determined that since small changes in estimated pre-tax income or loss would result in significant changes in the estimated annual effective tax rate, the historical method would not provide a reliable estimate of income taxes for the ~~quarter~~three-month periods ended March 31, 2020 and 2019. We used a discrete effective tax rate method to calculate income taxes for the ~~quarters~~three-monthperiods ended March 31, ~~2019~~2020 and ~~2018.~~2019. We will continue to evaluate income tax estimates under the historical method in subsequent quarters and employ a discrete effective tax rate method if warranted.

Discrete income tax benefit for the three-month period ended March 31, 2020 was $164.4 million and was primarily attributable to a restructuring transaction, implementation of the U.S. Cares Act, changes in liabilities for unrecognized tax benefits associated with tax positions taken in prior years and other resolutions of prior year tax matters. Discrete income tax expense for the ~~quarter~~three-month period ended March 31, 2019 was $0.6 million and was attributable to unrecognized tax benefits associated with tax positions taken in prior years. ~~Discrete~~Excluding the aforementioned discrete tax items, income tax ~~benefit~~expense for the ~~quarter~~three-month periods ended March 31, ~~2018~~2020 and 2019 was ~~$8.9~~$12.4 million and ~~was primarily attributable~~$30.9 million, respectively.

Restructuring Transactions

As discussed in "Note 10 - Debt", on February 3, 2020, Rowan and RCI transferred substantially all their assets and liabilities to ~~U.S.~~Valaris plc and Valaris plc became the obligor on the Rowan Notes. We recognized a tax ~~reform and a restructuring transaction, partially offset by discrete~~benefit of $66.0 million during the three-month period ended March 31, 2020 in connection with this transaction.

Unrecognized tax ~~expense~~benefits

~~On January 4, 2016, Petrobras sent a notice to us declaring~~assessments. During the drilling services agreement with Petrobras (the "DSA") for ENSCO DS-5, a drillship ordered from Samsung Heavy Industries, a shipyard in South Korea ("SHI"), void effective immediately, reserving its rights and stating its intention to seek any restitution to which it may be entitled. The previously disclosed arbitral hearing on liability related to the matter was held in March 2018. Prior to the arbitration tribunal issuing its decision, we and Petrobras agreed in August 2018 to a settlementfirst quarter of ~~all claims relating to the DSA. No payments were made by either party~~2020, in connection with the ~~settlement agreement.~~administrative appeals process, the tax authority withdrew assessments of €142.0 million (approximately $156.7 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 $87.2 million converted using the current period-end exchange rates) and €2.0 million (approximately $2.2 million converted using the current period-end exchange rates), respectively. The ~~parties agreed~~de-recognition of amounts related to ~~normalize business relations~~these assessments was recognized as a tax benefit during the three-month period ended March 31, 2020 and ~~the settlement agreement provides for our participation~~is included in ~~current~~changes in operating assets and ~~future Petrobras tenders~~liabilities on the ~~same basis as all other companies invited to these tenders. No losses were recognized during 2018 with respect to this settlement as all disputed receivables with Petrobras~~condensed consolidated statement of cash flows for the three-month period ended March 31, 2020.

During 2019, the Australian tax authorities issued aggregate tax assessments totaling approximately A$101 million (approximately $62.0 million converted at current period-end exchange rates) plus interest related to the ~~DSA were fully reserved in 2015.~~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 recorded a $13.6 million liability for these assessments as of March 31, 2020. We believe our tax returns are materially correct as filed, and we are vigorously contesting these assessments. Although the outcome of such assessments and related administrative proceedings cannot be predicted with certainty, we do not expect these matters to have a material adverse effect on our financial position, operating results and cash flows.

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 structures. No injuries, environmental pollution or third-party damage resulted from the BOP stack being disconnected.

As a result of the incident, the operator terminated the contract. The termination results in a decline in our contracted revenue backlog of approximately $150 million. We have loss of hire insurance for $602,500 per day, after a 45-day deductible waiting period, through the end of the contract in November ~~2016,~~2020. The waiting period expired on April 22, 2020. We will seek to recover losses incurred in accordance with the terms of this insurance policy, which would largely offset the lost backlog noted above. There can be no assurance as to the timing or amount of insurance proceeds ultimately received.

Indonesian Well-Control Event

In July 2019, a well being drilled offshore Indonesia by one of our jackup rigs experienced a well-control event requiring the cessation of drilling activities. In February 2020, the rig resumed operations. 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 cannot predict the scope or ultimate outcome of this investigation . If the Indonesian authorities determine that we ~~initiated separate arbitration proceedings~~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.

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 ~~SHI~~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 ~~losses incurred~~year ended 31 December 2019. The remaining amount is attributable to the acquisition of the local partner's interest in the subsidiary and will be recorded to equity in the second quarter of 2020.

Valaris and Saudi Aramco have agreed to take all steps necessary to ensure that ARO purchases at least 20 newbuild jackup rigs ratably over an approximate 10-year period. In January 2020, ARO ordered the first two newbuild jackups for delivery scheduled in 2022. The partners intend for the newbuild jackup rigs to 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. In the event ARO has insufficient cash from operations or is unable to obtain third-party financing, each partner may periodically be required to make additional capital contributions to ARO, up to a maximum aggregate contribution of $1.25 billion from each partner to fund the newbuild program. Each partner's commitment shall be reduced by the actual cost of each newbuild rig, on a proportionate basis. The partners agreed that Saudi Aramco, as a customer, will provide drilling contracts to ARO in connection with the foregoing Petrobras arbitration and certain other losses relating to the DSA. SHI subsequently filed a statement of defense disputing our claim. In January 2018, the arbitration tribunal for the SHI matter issued an award on liability fully in our favor. In August 2018, the tribunal awarded us approximately $2.8 million in costs and legal fees incurred to date, plus interest, which was collected during the fourth quarter of 2018.

The January 2018 arbitration award provides that SHI is liable to us for $10.0 million or damages that we can prove. We submitted our claim for damages to the tribunal, and the arbitral hearing on damages owed to us by SHI took place in the first quarter of 2019. We are awaiting the resultacquisition of the ~~tribunal’s decision, and we are unable to estimate the ultimate outcome~~newbuild rigs. The initial contracts for each newbuild rig will be determined using a pricing mechanism that targets a six-year payback period for construction costs on an EBITDA basis. The initial eight-year contracts will be followed by a minimum of ~~recovery for damages at this time.~~another eight years of term, re-priced in three-year intervals based on a market pricing mechanism.

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

In the ordinary course of business with customers and others, we have entered into letters of credit to guarantee our performance as it relates to our drilling contracts, contract bidding, customs duties, tax appeals and other obligations in various jurisdictions. Letters of credit outstanding as of March 31, ~~2019~~2020 totaled ~~$128.0~~$117.9 million and are issued under facilities provided by various banks and other financial institutions. Obligations under these letters of credit ~~and surety bonds~~ are not normally called, as we typically comply with the underlying performance requirement. As of March 31, ~~2019,~~2020, we had not been required to make collateral deposits with respect to these agreements.

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

~~The components of lease expense are as follows (in millions):~~

~~Supplemental balance sheet information related to our operating leases is as follows (in millions, except lease term and discount rate):~~

For the quarter ended March 31, 2019, cash paid for amounts included in the measurement of our operating lease liabilities was $7.0 million. Right-of-use assets and lease liabilities recorded for leases commencing during the quarter ended March 31, 2019 were insignificant.

~~Maturities of lease liabilities as of March 31, 2019 were as follows (in millions):~~

Note 1114 -Segment Information

~~Our~~Prior to the Rowan Transaction, our business ~~consists~~consisted of ~~three~~3 operating segments: (1) Floaters, which ~~includes~~included our drillships and semisubmersible rigs, (2) Jackups and (3) Other, which ~~consists~~consisted of management services on rigs owned by third-parties. ~~Our two reportable segments,~~ Floaters and Jackups ~~provide one service, contract drilling.~~were also reportable segments.

Segment information for the three-month periods ended March 31, 2020 and 2019 is presented below (in millions):

Floaters Jackups Other Operating Segments Total Reconciling Items Consolidated Total
Revenues $ 232.7
$ 157.0
$ 16.2
$ 405.9
$ —
$ 405.9
Operating expenses
Contract drilling (exclusive of depreciation) 181.8
135.4
15.4
332.6
—
332.6
Depreciation 84.8
36.9
—
121.7
3.3
125.0
General and administrative —
—
—
—
29.6
29.6
Operating income (loss) $ (33.9 ) $ (15.3 ) $ .8
$ (48.4 ) $ (32.9 ) $ (81.3 )
Property and equipment, net $ 9,383.6
$ 3,091.7
$ —
$ 12,475.3
$ 33.6
$ 12,508.9

Floaters Jackups Other Operating Segments Total Reconciling Items Consolidated Total
Revenues $ 259.0
$ 143.4
$ 14.6
$ 417.0
$ —
$ 417.0
Operating expenses
Contract drilling (exclusive of depreciation) 185.1
126.9
13.2
325.2
—
325.2
Depreciation 75.3
36.5
—
111.8
3.4
115.2
General and administrative —
—
—
—
27.9
27.9
Operating income (loss) $ (1.4 ) $ (20.0 ) $ 1.4
$ (20.0 ) $ (31.3 ) $ (51.3 )
Property and equipment, net $ 9,636.9
$ 3,154.3
$ —
$ 12,791.2
$ 43.6
$ 12,834.8

Information about Geographic Areas

As of March 31, ~~2019,~~2020, the geographic distribution of our and ARO's drilling rigs ~~by reportable segment~~ was as follows:

Asia & Pacific Rim (under construction)⁽²⁾

Held-for-Sale⁽³⁾

We provide management services on 2 rigs owned by third-parties not included in the table above.

Note 1215 -Supplemental Financial Information

~~Condensed~~ Consolidated Balance Sheet Information

Accounts receivable, net, consisted of the following (in millions):

March 31,
2019 December 31,
2018
Trade $ 274.8
$ 301.7
Other 42.2
46.4
317.0
348.1
Allowance for doubtful accounts (3.3 ) (3.4 )
$ 313.7
$ 344.7

Other current assets consisted of the following (in millions):

Other assets consisted of the following (in millions):

March 31,
2019 December 31,
2018
Right-of-use assets $ 47.9
$ —
Supplemental executive retirement plan assets 29.3
27.2
Deferred tax assets 27.8
29.4
Deferred costs 19.1
21.5
Other 18.1
19.7
$ 142.2
$ 97.8

Accrued liabilities and other consisted of the following (in millions):

Other liabilities consisted of the following (in millions):

Accumulated other comprehensive income consisted of the following (in millions):

March 31,
2019 December 31,
2018
Derivative instruments $ 14.2
$ 12.6
Currency translation adjustment 7.3
7.3
Other (1.8 ) (1.7 )
$ 19.7
$ 18.2

Concentration of Risk

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

We mitigate our credit risk relating to ~~derivative~~ counterparties of our derivatives through a variety of techniques, including transacting with multiple, high-quality financial institutions, thereby limiting our exposure to individual counterparties and by entering into International Swaps and Derivatives Association, Inc. ("ISDA") Master Agreements, which include

provisions for a legally enforceable master netting agreement, with ~~almost all of~~ our derivative counterparties. The terms of the ISDA agreements may also include credit support requirements, cross default provisions, termination events or set-off provisions. Legally enforceable master netting agreements reduce credit risk by providing protection in bankruptcy in certain circumstances and generally permitting the closeout and netting of transactions with the same counterparty upon the occurrence of certain events. See ~~"Note 5~~"Note 8 - Derivative Instruments" for additional information on our ~~derivatives.~~derivative activity.

Consolidated revenues by customer for the ~~quarters~~three-month periods ended March 31, ~~2019~~2020 and ~~2018~~2019 were as follows:

Consolidated revenues by region for the three-month periods ended March 31, 2020 and 2019 were as follows:

~~Consolidated revenues by region for the quarters ended March 31, 2019 and 2018 were as follows:~~

⁽⁴⁾~~During the quarters ended March 31, 2019 and 2018, all revenues were attributable to our jackups segment.~~

⁽⁵⁾ ~~During the quarters ended March 31, 2019 and 2018, all revenues were attributable to our floaters segment.~~

Note 1316 -Guarantee of Registered Securities

In connection with the Pride acquisition, ~~in 2011, Ensco Rowan plc~~Valaris and Pride entered into a supplemental indenture to the indenture dated as of July 1, 2004 between Pride and the Bank of New York Mellon, as indenture trustee, providing for, among other matters, the full and unconditional guarantee by ~~Ensco Rowan plc~~Valaris of Pride’s 6.875% ~~unsecured~~ senior notes due 2020 and 7.875% ~~unsecured~~ senior notes due 2040, which had an aggregate outstanding principal balance of $422.9 million as of March 31, ~~2019.~~2020. The ~~Ensco Rowan plc~~Valaris guarantee provides for the unconditional and irrevocable guarantee of the prompt payment, when due, of any amount owed to the holders of the notes.

~~Ensco Rowan plc~~Valaris is also a full and unconditional guarantor of the 7.2% debentures due 2027 issued by ~~ENSCO~~Ensco International Incorporated ~~during~~in November 1997, which had an aggregate outstanding principal balance of ~~$150.0~~$112.1 million as of March 31, ~~2019.~~2020.

Pride and Ensco International Incorporated are 100% owned subsidiaries of ~~Ensco Rowan plc.~~Valaris. All guarantees are unsecured obligations of ~~Ensco Rowan plc~~Valaris ranking equal in right of payment with all of its existing and future unsecured and unsubordinated indebtedness.

The following tables present the unaudited condensed consolidating statements of operations for the ~~three month~~three-month periods ended March 31, ~~2019~~2020 and ~~2018;~~2019; the unaudited condensed consolidating statements of comprehensive ~~loss~~income (loss) for the ~~three month~~three-month periods ended March 31, ~~2019~~2020 and ~~2018;~~2019; the condensed consolidating balance sheets as of March 31, ~~2019~~2020 (unaudited) and December 31, ~~2018;~~2019; and the unaudited condensed consolidating statements of cash flows for the ~~three month~~three-month periods ended March 31, ~~2019~~2020 and ~~2018,~~2019, in accordance with Rule 3-10 of Regulation S-X.

ENSCO ROWAN PLC AND SUBSIDIARIES