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Rowan Transaction | 12 Months Ended
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Dec. 31, 2020
Business Combinations [Abstract] |
Business Combination Disclosure | ROWAN TRANSACTION On April 11, 2019 (the "Transaction Date"), we completed our combination with Rowan pursuant to the Transaction Agreement (the "Rowan Transaction"). Assets acquired and liabilities assumed in the Rowan Transaction were recorded at their estimated fair values as of the Transaction Date under the acquisition method of accounting. When the fair value of the net assets acquired exceeds the consideration transferred in an acquisition, the difference is recorded as a bargain purchase gain in the period in which the transaction occurs. As of March 31, 2020, we completed our fair value assessments of assets acquired and liabilities assumed. Consideration 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. Assets and Liabilities Acquired Valaris is considered to be the acquirer for accounting purposes. As a result, Rowan's assets and liabilities acquired in the Rowan Transaction were recorded at their estimated fair values as of the Transaction Date under the acquisition method of accounting. 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. The provisional amounts recorded for assets and liabilities acquired were based on preliminary estimates of their fair values as of the Transaction Date and Measurement Period Adjustments were recorded throughout the measurement period as provisional amounts were finalized and are as follows (in millions):
| Amounts Recognized as of Transaction Date |  | Measurement Period Adjustments (1) |  | Estimated Fair Value
Assets: |  |  |  |  |
Cash and cash equivalents | $ | 931.9 |  |  | $ | — |  |  | $ | 931.9 |
Accounts receivable(2) | 207.1 |  |  | (6.9) |  |  | 200.2 |
Other current assets | 101.6 |  |  | (2.6) |  |  | 99.0 |
Long-term notes receivable from ARO | 454.5 |  |  | — |  |  | 454.5 |
Investment in ARO | 138.8 |  |  | 2.5 |  |  | 141.3 |
Property and equipment | 2,989.8 |  |  | (26.0) |  |  | 2,963.8 |
Other assets | 41.7 |  |  | 1.1 |  |  | 42.8 |
Liabilities: |  |  |  |  |
Accounts payable and accrued liabilities | 259.4 |  |  | 15.7 |  |  | 275.1 |
Current portion of long-term debt | 203.2 |  |  | — |  |  | 203.2 |
Long-term debt | 1,910.9 |  |  | — |  |  | 1,910.9 |
Other liabilities | 376.3 |  |  | 34.5 |  |  | 410.8 |
Net assets acquired | 2,115.6 |  |  | (82.1) |  |  | 2,033.5 |
Less: Merger consideration | (1,402.8) |  |  | — |  |  | (1,402.8) |
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 and $75.8 million decline to bargain purchase gain during the first quarter of 2020 and for the year ended December 31, 2019. The bargain purchase gain adjustments are included in other, net, in our consolidated statements of operations for the year ended December 31, 2020 and 2019, respectively. (2) Gross contractual amounts receivable totaled $208.3 million as of the Transaction Date. Bargain Purchase Gain The estimated fair values assigned to assets acquired net of liabilities assumed exceeded the consideration transferred, resulting in a bargain purchase gain primarily driven by the decline in our share price from $33.92 to $15.88 between the last trading day prior to the announcement of the Rowan Transaction and the Transaction Date. Materials and Supplies We recorded materials and supplies at an estimated fair value of $83.0 million. Materials and supplies consist of consumable parts and supplies maintained on drilling rigs and in shore-based warehouse locations for use in operations and are generally comprised of items of low per unit cost and high reorder frequency. We estimated the fair value of Rowan's materials and supplies primarily using a market approach. Equity Method Investment in ARO The equity method investment in ARO was recorded at its estimated fair value as of the Transaction Date. See "Note 5 - Equity Method Investment in ARO" for additional information on ARO. We estimated the fair value of the equity investment primarily by applying an income approach, using projected discounted cash flows of the underlying assets, a risk-adjusted discount rate and an estimated effective income tax rate. Property and Equipment Property and equipment acquired in connection with the Rowan Transaction consisted primarily of drilling rigs and related equipment, including four drillships and 19 jackup rigs (exclusive of two jackups marked for retirement). We recorded property and equipment acquired at its estimated fair value of $3.0 billion. We estimated the fair value of the rigs and equipment by applying an income approach, using projected discounted cash flows, a risk-adjusted discount rate and an estimated effective income tax rate. The estimated remaining useful lives for Rowan's drilling rigs, which ranged from 16 to 35 years based on original estimated useful lives of 30 to 35 years. Intangible Assets and Liabilities We recorded intangible assets and liabilities of $16.2 million and $2.1 million, respectively, representing the estimated fair value of Rowan's firm contracts in place at the Transaction Date with favorable or unfavorable contract terms compared to then-market day rates for comparable drilling rigs. As a result of a price concession negotiated following the onset of the COVID-19 pandemic, on one of our bare boat charter agreements for a rig leased to our 50/50 joint venture with Saudi Aramco ("ARO"), we recognized a $5.7 million impairment to the related contract intangible during the second quarter of 2020. The impairment is included in loss on impairment in our consolidated statements of operations for the year ended December 31, 2020. Amortization of the intangible assets and liabilities resulted in a net reduction in operating revenues of $2.8 million and $3.6 million for the years ended December 31, 2020 and 2019, respectively. The remaining balances of intangible assets and liabilities of $2.4 million and $0.4 million, respectively, are included in other assets and other liabilities, respectively, on our consolidated balance sheet of December 31, 2020. These balances will be amortized to operating revenues over the respective remaining contract terms on a straight-line basis. As of December 31, 2020, the remaining terms of the underlying contracts is approximately 1.0 year. Amortization of these intangibles is expected to result in a reduction to revenue of $2.0 million in 2021. Pension and Other Post-retirement benefit plans We remeasured the fair value of plan assets and benefit obligations for the pension and other-post retirement benefit plans assumed as of April 11, 2019. We used a measurement date of April 11, 2019 for determining net periodic benefit costs. Long-term Debt We recorded Rowan's long-term debt at its estimated fair value as of the Transaction Date, which was based on quoted market prices as of April 10, 2019. Deferred Taxes The Rowan Transaction was executed through the acquisition of Rowan's outstanding ordinary shares and, therefore, the historical tax bases of the acquired assets and liabilities, net operating losses and other tax attributes of Rowan, were acquired as of the Transaction Date. However, adjustments were recorded to recognize deferred tax assets and liabilities for the tax effects of differences between acquisition date fair values and tax bases of assets acquired and liabilities assumed. Additionally, the interaction of our and Rowan's tax attributes that impacted the deferred taxes of the combined entity were also recognized as part of acquisition accounting. As of the Transaction Date, a decrease of $99.0 million to Rowan's historical net deferred tax assets was recognized. Deferred tax assets and liabilities recognized in connection with the Rowan Transaction were measured at rates enacted as of the Transaction Date. Tax rate changes, or any deferred tax adjustments for new tax legislation, following the Transaction Date will be reflected in our operating results in the period in which the change in tax laws or rate is enacted. Uncertain Tax Positions Uncertain tax positions assumed in a business combination are measured at the largest amount of the tax benefit that is greater than 50% likely of being realized upon effective settlement with a taxing authority that has full knowledge of all relevant information. As of the Transaction Date, Rowan had previously recognized net liabilities for uncertain tax positions totaling $50.4 million. The Luxembourg tax authorities issued aggregate tax assessments totaling approximately €142.0 million (approximately $173.5 million converted using the current period-end exchange rate) related to tax years 2014, 2015 and 2016 for several of Rowan's Luxembourg subsidiaries. As a result of our review and analysis of facts and circumstances that existed at the Transaction Date, we recognized liabilities related to the Luxembourg tax assessments totaling €93.0 million (approximately $113.6 million converted using the current period-end exchange rates). See "Note 13 - Income Taxes" for further information on this matter. Transaction-related costs Transaction-related costs were expensed as incurred and consisted of various advisory, legal, accounting, valuation and other professional or consulting fees totaling $18.0 million for the year ended December 31, 2019. These costs were included in general and administrative expense in our consolidated statement of operations. Revenues and Losses of Rowan The amount of revenues and net losses of Rowan that are included from the Transaction Date to December 31, 2019 in the Company's Consolidated Statement of Operations for the Year ended December 31, 2019 were $448.0 million and $122.7 million, respectively. Unaudited Pro Forma Impact of the Rowan Transaction The following unaudited supplemental pro forma results present consolidated information as if the Rowan Transaction was completed on January 1, 2019. The pro forma results include, among others, (1) the amortization associated with acquired intangible assets and liabilities, (2) a reduction in depreciation expense for adjustments to property and equipment, (3) the amortization of premiums and discounts recorded on Rowan's debt, (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.
(unaudited) (in millions, except per share amounts) | Twelve Months Ended December 31, 2019(1) |  |
Revenues | $ | 2,240.5 |  |  |
Net loss | $ | (997.8) |  |  |
Earnings per share - basic and diluted | $ | (3.82) |  |  |
(1) Pro forma net loss and loss per share were adjusted to exclude an aggregate $108.1 million of transaction related and integration costs during the year ended December 31, 2019. Additionally, pro forma net loss and loss per share exclude the measurement period adjustments and estimated gain on bargain purchase of $637.0 million recognized during the year ended December 31, 2019.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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