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

Prior to the Rowan Transaction, Rowan and Saudi Aramco formed a 50/50 joint venture to own, manage and operate drilling rigs offshore Saudi Arabia ("Saudi Aramco Rowan Offshore Drilling Company" or "ARO"). ARO currently owns a fleet of seven jackup rigs, leases another nine jackup rigs from us (one of which is expected to commence drilling operations during the fourth quarter of 2019) and has plans to purchase up to 20 newbuild jackup rigs over an approximate 10 year period. See Note 4 for additional information on ARO.

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

As a result of the Rowan Transaction, Rowan shareholders received 2.750 Valaris Class A ordinary shares for each Rowan Class A ordinary share, representing a value of $43.67 per Rowan share based on a closing price of $15.88 per Valaris share on April 10, 2019, the last trading day before the Transaction Date. Total consideration delivered in the Rowan Transaction consisted of 88.3 million Valaris shares with an aggregate value of $1.4 billion, inclusive of $2.6 million for the estimated fair value of replacement employee equity awards. Upon closing of the Rowan Transaction, we effected a consolidation (being a reverse stock split under English law) where every four existing Class A ordinary shares, each with a nominal value of $0.10, were consolidated into one Class A ordinary share, each with a nominal value of $0.40. All share and per share data included in this report have been retroactively adjusted to reflect the Reverse Stock Split.

Under GAAP, Valaris is considered to be the acquirer for accounting purposes. As a result, Rowan's assets acquired and liabilities assumed in the Rowan Transaction were recorded at their estimated fair values as of the Transaction Date under the acquisition method of accounting. When the fair value of the net assets acquired exceeds the consideration transferred in an acquisition, the difference is recorded as a bargain purchase gain in the period in which the transaction occurs. We have not finalized the fair values 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 assets and liabilities including materials and supplies, long-lived assets, contingencies and unrecognized tax benefits require judgments and assumptions that increase the likelihood that adjustments may be made to these estimates during the measurement period, and those adjustments could be material.


	Amounts Recognized as of Merger Date		Measurement Period Adjustments⁽¹⁾		Estimated Fair Value
Assets:
Cash and cash equivalents	$	931.9	$	—	$	931.9
Accounts receivable⁽²⁾	207.1		(2.6)		204.5
Other current assets	101.6		—		101.6
Long-term notes receivable from ARO	454.5		—		454.5
Investment in ARO	138.8		2.5		141.3
Property and equipment	2,989.8		(14.2)		2,975.6
Other assets	41.7		(1.8)		39.9
Liabilities:
Accounts payable and accrued liabilities	259.4		(0.3)		259.1
Current portion of long-term debt	203.2		—		203.2
Long-term debt	1,910.9		—		1,910.9
Other liabilities	376.3		37.2		413.5
Net assets acquired	2,115.6		(53.0)		2,062.6
Less: Merger consideration	(1,402.8)		—		(1,402.8)
Estimated bargain purchase gain	$	712.8	$	(53.0)	$	659.8

⁽¹⁾The measurement period adjustments reflect changes in the estimated fair values of certain assets and liabilities, primarily related to long-lived assets, deferred income taxes and uncertain tax positions. The measurement period adjustments were recorded to reflect new information obtained about facts and circumstances existing as of the Transaction Date and did not result from subsequent intervening events. These adjustments resulted in a $53.0 million decrease to the bargain purchase gain within current period earnings, which is included in other, net, in our condensed consolidated statement of operations for the three-month and nine-month periods ended September 30, 2019.

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

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

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

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

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

We recorded intangible assets and liabilities of $16.2 million and $2.1 million, respectively, representing the estimated fair value of Rowan's firm contracts in place at the Transaction Date with favorable or unfavorable contract terms compared to then-market day rates for comparable drilling rigs. The various factors considered in the determination of these fair values were (1) the contracted day rate for each contract, (2) the remaining term of each contract, (3) the rig class and (4) the market conditions for each respective rig class at the Transaction Date. The intangible assets and liabilities were calculated based on the present value of the difference in cash flows over the remaining contract term as compared to a hypothetical contract with the same remaining term at an estimated then-current market day rate using a risk-adjusted discount rate and an estimated effective income tax rate.

Operating revenues were reduced by $1.3 million and $2.4 million for net asset amortization during the three-month and nine-month periods ended September 30, 2019, respectively. The remaining balance of intangible assets and liabilities of $13.3 million and $1.6 million, respectively, was included in other assets and other liabilities, respectively, on our condensed consolidated balance sheet as of September 30, 2019. These balances will be amortized to operating revenues over the respective remaining contract terms on a straight-line basis. As of September 30, 2019, the remaining terms of the underlying contracts is approximately 2.3 years. Amortization of these intangibles is expected to result in a reduction to revenue of $1.3 million, $5.1 million and $5.3 million in 2019, 2020 and 2021, respectively.

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

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

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

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

As a result, the amount recognized on our condensed consolidated balance sheet related to the Luxembourg income tax assessments totaled €93.0 million (approximately $101.0 million converted using the current period-end exchange rates) as of September 30, 2019. Our ongoing evaluation of the relevant facts and circumstances surrounding these positions may result in further revisions to this estimate, which could be material.

Our condensed consolidated statements of operations for the three-month and nine-month periods ended September 30, 2019 included revenues of $138.9 million and $286.2 million and net losses of $31.2 million and $95.1 million for the three-month and nine-month periods ended September 30, 2019, respectively.

The following unaudited supplemental pro forma results present consolidated information as if the Rowan Transaction was completed on January 1, 2018. The pro forma results include, among others, (1) the amortization associated with acquired intangible assets and liabilities (2) a reduction in depreciation expense for adjustments to property and equipment (3) the amortization of premiums and discounts recorded on Rowan's debt (4) removal of the historical amortization of unrealized gains and losses related to Rowan's pension plans and (5) the amortization of basis differences in assets and liabilities of ARO. The pro forma results 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 September 30,						Nine Months Ended September 30,
	2019⁽¹⁾		2018		2019⁽¹⁾		2018
Revenues	$	552.0	$	624.0	$	1,729.5	$	1,952.0
Net loss	$	(151.1)	$	(250.0)	$	(795.2)	$	(607.1)
Loss per share - basic and diluted	$	(0.53)	$	(1.27)	$	(3.14)	$	(3.09)

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