Contract Assets, Deferred Contract Costs Asset and Contract Liabilities

Costs incurred for mobilization, upfront modifications/upgrades and contract preparation are direct costs incurred to fulfill contracts and are expensed over the expected recognition period in the event they are deemed recoverable or in the case of capital upgrades or capital modifications such costs are capitalized and depreciated in accordance with the Company's fixed asset capitalization policy. Such costs other than those capitalized as fixed assets are deferred and recorded as deferred contract costs. Demobilization contract assets reflect the amount of unconstrained demobilization revenue recognized for which the Company's entitlement to invoice the customer is dependent on future performance.

The following table sets forth deferred contract costs, demobilization contract assets and deferred revenue on the Condensed Consolidated Balance Sheets (in millions):



	Balance Sheet Classification	September 30, 2018		December 31, 2017
Deferred Contract Costs and Demobilization Contract Assets
Current	Prepaid expenses and other current assets	$	6.7	$	2.8
Noncurrent	Other assets	0.4		—
		$	7.1	$	2.8

Deferred Revenue - Contract liabilities
Current	Deferred revenue	$	17.8	$	1.1
Noncurrent	Other liabilities	20.2		0.5
		$	38.0	$	1.6

Presented in the table below are the changes in deferred contract costs during the nine months ended September 30, 2018 (in millions):



	September 30, 2018
Deferred Contract Costs Asset
Beginning balance	$	2.8
Plus: contractual additions	4.8
Less: amortization	5.8
Ending balance	$	1.8

Presented in the table below are the changes in contract assets (See Note 1) during the nine months ended September 30, 2018 (in millions):



	September 30, 2018
Contract Assets - Demobilization
Beginning balance	$	—
Plus: contractual additions	5.3
Ending balance	$	5.3

Presented in the table below are the changes in deferred revenue during the nine months ended September 30, 2018 (in millions):



	September 30, 2018
Deferred Revenue - Deferred mobilization and upgrade/modification revenue
Beginning balance	$	1.6
Plus: contractual additions ⁽¹⁾	45.5
Less: amortization	9.1
Ending balance	$	38.0

⁽¹⁾Includes $28.6 million of deferred revenue related to capital expenditures for the Bess Brants, Earnest Dees, EXL I and EXL IV (all leased to ARO) to be received as reimbursement from ARO. A receivable of $28.6 million is included in Receivables - trade and other on the Condensed Consolidated Balance Sheet at September 30, 2018.

Estimated future amortization at September 30, 2018 of our deferred revenue and deferred contract costs to be recognized over the expected recognition period is set forth in the following table (in millions):



	Remaining
	2018		2019		2020		2021		Total
Amortization of deferred revenue	$	6.2	$	13.9	$	9.6	$	8.3	$	38.0
Amortization of deferred contract costs	0.9		0.6		0.2		0.1		1.8

No impairment losses were recognized on contract assets during the three and nine months ended September 30, 2018.

Customer Contract Amendment (Cobalt) - Deferred Revenue – During the three and nine months ended September 30, 2017, the Company amortized $28.9 million and $57.5 million, respectively, of the $95.9 million of revenue deferred in 2016 related to a contract amendment to our subsidiary's drilling contract with Cobalt with respect to the drillship Rowan Reliance (the "Cobalt Contract"). The Cobalt Contract was originally scheduled to conclude on February 1, 2018, and the amendment provided for termination of the Cobalt Contract as early as March 31, 2017 in consideration for a lump sum payment of $95.9 million. As the Company had the obligation and intent to have the drillship or a substitute available through the pre-amended contract scheduled end date, in certain circumstances (including a 90 day notice of intent to use the rig prior to the original contract scheduled end date of February 1, 2018), the $95.9 million settlement was recorded in 2016 as a deferred revenue liability with an amortization period beginning April 1, 2017 and extending no further than the pre-amended contract scheduled end date. The deferred revenue liability was fully amortized as of December 31, 2017 as Cobalt did not provide notice to the Company by November 2, 2017 (90 day notice of intent to use the rig).