On October 7, 2018, we entered into a transaction agreement (the "Transaction Agreement") with Rowan. On April 11, 2019 (the "Transaction Date"), we completed our combination with Rowan pursuant to the Transaction Agreement (the "Rowan Transaction"). Rowan's financial results are included in our consolidating results beginning on the Transaction Date. The Rowan Transaction enhanced the market leadership of the combined company with a fleet of high-specification floaters and jackups and positions us well to meet increasing and evolving customer demand. The increased scale, diversification and financial strength of the combined company provides us advantages to better serve our customers.

As a result of the Rowan Transaction, Rowan shareholders received 2.75 Valaris Class A Ordinary shares for each share of Rowan Class A ordinary share, representing a value of $43.67 per Rowan share based on a closing price of $15.88 per Valaris share on April 10, 2019, the last trading day before the Transaction Date. Total consideration delivered in the Rowan Transaction consisted of 88.3 million Valaris shares with an aggregate value of $1.4 billion, inclusive of $2.6 million for the estimated fair value of replacement employee equity awards. Upon closing of the Rowan Transaction, we effected a consolidation (being a reverse stock split under English law) where every four existing Class A ordinary shares, each with a nominal value of $0.10, were consolidated into one Class A ordinary share, each with a nominal value of $0.40 (the "Reverse Stock Split"). All share and per share data included in this report have been retroactively adjusted to reflect the Reverse Stock Split.

Valaris is considered to be the acquirer for accounting purposes. As a result, Rowan's assets and liabilities acquired in the Rowan Transaction were recorded at their estimated fair values as of the Transaction Date under the acquisition method of accounting. 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. With the exception of certain legal and tax exposures as well as the fair value of materials and supplies, we have substantially completed our fair value assessments of assets acquired and liabilities assumed. While certain adjustments may be recorded during the remainder of the measurement period, we do not expect them to be material.



	Amounts Recognized as of Transaction Date			Measurement Period Adjustments ⁽¹⁾			Estimated Fair Value
Assets:
Cash and cash equivalents	$	931.9		$	—		$	931.9
Accounts receivable⁽²⁾	207.1			(3.6		)	203.5
Other current assets	101.6			(2.4		)	99.2
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			(25.8		)	2,964.0
Other assets	41.7			1.3			43.0
Liabilities:
Accounts payable and accrued liabilities	259.4			13.7			273.1
Current portion of long-term debt	203.2			—			203.2
Long-term debt	1,910.9			—			1,910.9
Other liabilities	376.3			34.1			410.4
Net assets acquired	2,115.6			(75.8		)	2,039.8
Less: Merger consideration	(1,402.8		)	—			(1,402.8		)
Bargain purchase gain	$	712.8		$	(75.8	)	$	637.0

⁽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 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.

Merger-related costs were expensed as incurred and consisted of various advisory, legal, accounting, valuation and other professional or consulting fees totaling $18.0 million for the year ended December 31, 2019. These costs are included in general and administrative expense in our consolidated statements of operations.

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

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 acquired at its estimated fair value of $3.0 billion. We estimated the fair value of the rigs and equipment by applying an income approach, using projected discounted cash flows, a risk-adjusted discount rate and an estimated effective income tax rate. The estimated remaining useful lives for Rowan's drilling rigs, which ranged from 16 to 35 years based on original estimated useful lives of 30 to 35 years.

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

Amortization of the intangible assets and liabilities resulted in a net reduction in operating revenues of $3.6 million for the year ended December 31, 2019. The remaining balance of intangible assets and liabilities of $11.9 million and $1.4 million, respectively, was included in other assets and other liabilities, respectively, on our consolidated balance sheet of December 31, 2019. These balances will be amortized to operating revenues over the respective remaining contract terms on a straight-line basis. As of December 31, 2019, the remaining terms of the underlying contracts is approximately 2 years. Amortization of these intangibles is expected to result in a reduction to revenue of $5.1 million and $5.4 million in 2020 and 2021, respectively.

We remeasured the fair value of plan assets and benefit obligations for the pension and other-post retirement benefit plans assumed as of April 11, 2019. We used a measurement date of April 11, 2019 for determining net periodic benefit costs.

The Rowan Transaction was executed through the acquisition of Rowan's outstanding ordinary shares and, therefore, the historical tax bases of the acquired assets and liabilities, net operating losses and other tax attributes of Rowan, were acquired as of the Transaction Date. However, adjustments were recorded to recognize deferred tax assets and liabilities for the tax effects of differences between acquisition date fair values and tax bases of assets acquired and liabilities assumed. Additionally, the interaction of our and Rowan's tax attributes that impacted the deferred taxes of the combined entity were also recognized as part of acquisition accounting. As of the Transaction Date, a decrease of $99.0 million to Rowan's historical net deferred tax assets was recognized.

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

Uncertain tax positions 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 in prior years for several of Rowan’s Luxembourg subsidiaries totaling approximately €142.0 million (approximately $159.0 million converted using the current period-end exchange rate). We are contesting these assessments and have filed applications for appeal. As of the Transaction Date, we recognized liabilities under acquisition accounting of €47.0 million (approximately $52.0 million converted using the current period-end exchange rate) in connection with the Luxembourg assessments, which reflected the amount of the Rowan filing positions that we concluded, on a preliminary basis, we would not more-likely-than-not sustain. As a result of our continued review and analysis of facts and circumstances that existed at the Transaction Date, we recognized additional liabilities of €46.0 million (approximately $52.6 million converted using the current period-end exchange rate) as measurement period adjustments.

As a result, the amount recognized on our consolidated balance sheet related to the Luxembourg income tax assessments totaled €93.0 million (approximately $104.6 million converted using the current period-end exchange rates) as of December 31, 2019. Our ongoing evaluation of the relevant facts and circumstances surrounding these positions may result in further revisions to this estimate, which could be material. We cannot predict or provide assurance as to the ultimate outcome of the Luxembourg tax assessments.

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.



(unaudited) (in millions, except per share amounts)	Year Ended
	2019⁽¹⁾			2018⁽²⁾
Revenues	$	2,240.5		$	2,530.4
Net loss	$	(994.3	)	$	(796.5	)
Earnings per share - basic and diluted	$	(3.80	)	$	(4.05	)

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