Equity Method Investment In ARO (Tables)

9 Months Ended

Sep. 30, 2020

Equity Method Investments and Joint Ventures [Abstract]

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


	Three Months Ended September 30,				Nine Months Ended September 30,		April 11 - September 30,
	2020		2019		2020		2019
Revenues	$	145.6	$	138.4	$	431.9	$	262.2
Operating expenses
Contract drilling (exclusive of depreciation)	99.0		92.7		319.8		171.7
Depreciation	14.8		14.6		41.1		26.9
General and administrative	5.8		8.8		21.2		13.9
Operating income	26.0		22.3		49.8		49.7
Other expense, net	6.7		9.9		20.0		18.8
Provision (Benefit) for income taxes	(6.1)		2.2		(5.4)		3.8
Net income	$	25.4	$	10.2	$	35.2	$	27.1


	September 30, 2020		December 31, 2019
Current assets	$	391.9	$	407.2
Non-current assets	898.2		874.8
Total assets	$	1,290.1	$	1,282.0

Current liabilities	$	230.8	$	183.2
Non-current liabilities	940.8		1,015.5
Total liabilities	$	1,171.6	$	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 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 September 30,				Nine Months Ended September 30,		April 11 - September 30,
	2020		2019		2020		2019
50% interest in ARO net income	$	12.7	$	5.1	$	17.6	13.6
Amortization of basis differences	(8.8)		(8.8)		(25.2)		(16.7)
Equity in earnings (losses) of ARO	$	3.9	$	(3.7)	$	(7.6)	$	(3.1)

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 and contract assets related to services provided to ARO, partially offset by payables for services received.


	September 30, 2020		December 31, 2019
Total assets	$	597.8	$	623.5
Less: total liabilities	—		.7
Maximum exposure to loss	$	597.8	$	622.8

Schedule of 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 September 30,				Nine Months Ended September 30,		April 11 - September 30,
	2020		2019		2020		2019
Lease revenue	$	21.0	$	19.9	$	62.4	$	37.0
Secondment revenue	.8		17.9		20.8		33.5
Transition Services revenue	.2		5.0		2.2		10.2
Total revenue from ARO (1)	$	22.0	$	42.8	$	85.4	$	80.7

(1) All of the revenues presented above are included in our Other segment in our segment disclosures. See "Note 1 5 - Segment Information" for additional information.