10-Q
0000949039Q1--12-31P1YfalseP9MP1YP2M0000949039country:MM2022-01-012022-03-310000949039us-gaap:PaymentInKindPIKNoteMemberck0000949039:ExitRevolvingCreditFacilityMember2022-03-310000949039country:BRck0000949039:ContractDrillingMember2021-01-012021-03-310000949039us-gaap:AdditionalPaidInCapitalMember2021-03-310000949039country:SN2022-01-012022-03-310000949039country:AU2022-01-012022-03-310000949039country:GBck0000949039:ReimbursableExpenseMember2021-01-012021-03-310000949039ck0000949039:ReimbursableExpenseMember2021-01-012021-03-310000949039us-gaap:RetainedEarningsMember2022-03-3100009490392024-01-012022-03-310000949039us-gaap:AdditionalPaidInCapitalMember2022-01-012022-03-3100009490392020-12-310000949039ck0000949039:ServicesAgreementMember2022-03-310000949039us-gaap:AdditionalPaidInCapitalMember2021-12-3100009490392022-01-012022-03-310000949039us-gaap:AdditionalPaidInCapitalMember2020-12-310000949039us-gaap:FairValueMeasurementsNonrecurringMember2021-12-310000949039ck0000949039:MobilizationAndContractPreparationRevenueMember2024-01-012022-03-310000949039country:AUck0000949039:ContractDrillingMember2021-01-012021-03-310000949039us-gaap:CommonStockMember2021-12-310000949039us-gaap:RetainedEarningsMember2021-12-310000949039us-gaap:CommonStockMember2022-03-310000949039us-gaap:CommonStockMember2020-12-310000949039ck0000949039:ExitTermLoansMember2021-12-310000949039country:MMck0000949039:ReimbursableExpenseMember2021-01-012021-03-310000949039country:AUck0000949039:ReimbursableExpenseMember2022-01-012022-03-310000949039ck0000949039:PersonalInjuryMemberus-gaap:OtherLiabilitiesMember2022-03-310000949039ck0000949039:UncollateralizedContingentLiabilityUnderLettersOfCreditAndBondsMember2022-03-3100009490392022-05-060000949039ck0000949039:CashPayRateMemberck0000949039:FirstLienNotesMember2021-04-230000949039us-gaap:AccruedLiabilitiesMemberck0000949039:PersonalInjuryMember2022-03-310000949039us-gaap:FairValueMeasurementsNonrecurringMember2022-01-012022-03-310000949039us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsNonrecurringMember2021-12-310000949039country:US2022-01-012022-03-310000949039ck0000949039:CapitalModificationRevenueMember2022-03-310000949039ck0000949039:FinanceLeaseRightOfUseAssetMember2022-03-310000949039us-gaap:FinancialStandbyLetterOfCreditMemberus-gaap:SubsequentEventMemberck0000949039:ExitRevolvingCreditFacilityMember2022-04-300000949039ck0000949039:ContractDrillingMembercountry:SN2022-01-012022-03-310000949039ck0000949039:TwoThousandAndTwentyOneImpairedRigsMember2021-01-012021-03-310000949039us-gaap:SubsequentEventMemberck0000949039:ExitRevolvingCreditFacilityMember2022-05-060000949039country:AU2021-01-012021-03-310000949039ck0000949039:PotentiallyCollateralizedContingentLiabilityUnderLettersOfCreditAndBondsMember2022-03-310000949039us-gaap:RetainedEarningsMember2022-01-012022-03-310000949039country:BR2022-01-012022-03-310000949039country:USck0000949039:ReimbursableExpenseMember2021-01-012021-03-310000949039us-gaap:OfficeEquipmentMember2022-03-310000949039ck0000949039:ContractDrillingMember2021-01-012021-03-310000949039ck0000949039:MobilizationAndContractPreparationRevenueMember2022-03-310000949039country:GBck0000949039:ContractDrillingMember2021-01-012021-03-3100009490392021-01-012021-03-310000949039ck0000949039:CashCollateralizedContingentLiabilityUnderLettersOfCreditAndBondsMember2022-03-3100009490392022-01-01ck0000949039:CapitalModificationRevenueMember2022-03-3100009490392022-01-01ck0000949039:DemobilizationAndOtherDeferredRevenueMember2022-03-310000949039srt:MinimumMember2022-01-012022-03-310000949039ck0000949039:ContractDrillingMembercountry:US2021-01-012021-03-310000949039us-gaap:RetainedEarningsMember2021-01-012021-03-310000949039country:GB2022-01-012022-03-310000949039ck0000949039:FirstLienNotesMemberck0000949039:CashPayRateAndPaymentInKindRateMember2021-04-230000949039ck0000949039:ExitTermLoansMember2022-03-310000949039ck0000949039:ContractDrillingMember2021-01-012021-03-310000949039us-gaap:AccountingStandardsUpdate201613Member2022-01-012022-03-310000949039country:MMck0000949039:ReimbursableExpenseMember2022-01-012022-03-310000949039ck0000949039:ReimbursableExpenseMember2021-01-012021-03-310000949039ck0000949039:SeniorSecuredRevolvingCreditFacilityMember2021-04-230000949039ck0000949039:SeniorSecuredRevolvingCreditFacilityMember2021-04-232021-04-230000949039country:SNck0000949039:ReimbursableExpenseMember2022-01-012022-03-310000949039us-gaap:RetainedEarningsMember2020-12-310000949039us-gaap:FairValueMeasurementsRecurringMember2022-01-012022-03-3100009490392021-12-3100009490392024-01-01ck0000949039:CapitalModificationRevenueMember2022-03-310000949039srt:MaximumMember2022-01-012022-03-310000949039us-gaap:RetainedEarningsMember2021-03-310000949039country:MMck0000949039:ContractDrillingMember2021-01-012021-03-310000949039ck0000949039:SeniorSecuredTermLoanCreditAgreementMember2021-04-232021-04-230000949039us-gaap:FairValueInputsLevel1Membersrt:DirectorMemberus-gaap:FairValueMeasurementsRecurringMember2022-03-310000949039ck0000949039:TermLoanCreditFacilityMember2022-03-310000949039srt:DirectorMemberus-gaap:FairValueMeasurementsRecurringMember2022-03-3100009490392021-05-012021-05-310000949039ck0000949039:ContractDrillingMember2022-01-012022-03-310000949039country:AUck0000949039:ContractDrillingMember2022-01-012022-03-310000949039country:US2021-01-012021-03-310000949039ck0000949039:FirstLienNotesMember2021-04-232021-04-230000949039us-gaap:AccountingStandardsUpdate201613Member2021-01-012021-12-310000949039ck0000949039:ContractDrillingMembercountry:GB2022-01-012022-03-310000949039ck0000949039:ExitRevolvingCreditFacilityMember2022-03-310000949039us-gaap:ForeignCountryMember2022-01-012022-03-310000949039ck0000949039:FirstLienNotesMember2022-03-310000949039us-gaap:TreasuryStockMember2021-03-310000949039us-gaap:CommonStockMember2021-03-310000949039ck0000949039:MobilizationAndContractPreparationRevenueMember2023-01-012022-03-310000949039ck0000949039:SeniorSecuredTermLoanCreditAgreementMember2021-04-230000949039ck0000949039:PersonalInjuryMemberus-gaap:OtherLiabilitiesMember2021-12-310000949039ck0000949039:PersonalInjuryMember2021-12-310000949039us-gaap:AccruedLiabilitiesMemberck0000949039:PersonalInjuryMember2021-12-310000949039ck0000949039:DemobilizationAndOtherDeferredRevenueMember2022-03-310000949039ck0000949039:ContractDrillingMembercountry:US2022-01-012022-03-310000949039us-gaap:OfficeEquipmentMember2021-12-310000949039ck0000949039:ServicesAgreementMember2016-02-012016-02-290000949039country:BR2021-01-012021-03-310000949039country:USck0000949039:ReimbursableExpenseMember2022-01-012022-03-310000949039srt:DirectorMemberus-gaap:FairValueMeasurementsRecurringMember2022-01-012022-03-310000949039ck0000949039:MobilizationAndContractPreparationRevenueMember2022-01-012022-03-310000949039us-gaap:LossFromCatastrophesMember2022-01-012022-03-310000949039ck0000949039:PersonalInjuryMember2022-03-310000949039country:MMck0000949039:ContractDrillingMember2022-01-012022-03-310000949039ck0000949039:FirstLienNotesMemberus-gaap:PaymentInKindPIKNoteMember2021-04-230000949039us-gaap:TreasuryStockMember2020-12-310000949039country:BRck0000949039:ContractDrillingMember2022-01-012022-03-310000949039ck0000949039:ContractDrillingMember2022-01-012022-03-310000949039ck0000949039:ReimbursableExpenseMember2022-01-012022-03-310000949039country:AUck0000949039:ReimbursableExpenseMember2021-01-012021-03-310000949039country:GB2021-01-012021-03-310000949039us-gaap:ForeignCountryMember2021-01-012021-03-3100009490392022-03-310000949039ck0000949039:TwoThousandAndTwentyTwoImpairedRigsMember2022-01-012022-03-3100009490392022-01-012022-03-310000949039us-gaap:RevolvingCreditFacilityMember2022-03-310000949039ck0000949039:FinanceLeaseRightOfUseAssetMember2021-12-310000949039us-gaap:LandAndBuildingMember2022-03-310000949039us-gaap:FinancialStandbyLetterOfCreditMemberus-gaap:SubsequentEventMemberck0000949039:ExitRevolvingCreditFacilityMember2022-05-060000949039ck0000949039:StateMember2021-01-012021-03-3100009490392023-01-01ck0000949039:CapitalModificationRevenueMember2022-03-310000949039country:GBck0000949039:ReimbursableExpenseMember2022-01-012022-03-310000949039ck0000949039:ReimbursableExpenseMember2022-01-012022-03-310000949039ck0000949039:FirstLienNotesMember2021-12-3100009490392023-01-012022-03-310000949039ck0000949039:DrillingRigsAndEquipmentMember2022-03-310000949039ck0000949039:DrillingRigsAndEquipmentMember2021-12-310000949039us-gaap:AdditionalPaidInCapitalMember2022-03-3100009490392021-03-310000949039us-gaap:LandAndBuildingMember2021-12-310000949039country:MM2021-01-012021-03-310000949039ck0000949039:ContingentLiabilitiesUnderLettersOfCreditAndBondsMember2021-12-310000949039us-gaap:FinancialStandbyLetterOfCreditMemberck0000949039:ExitRevolvingCreditFacilityMember2022-03-31xbrli:pureck0000949039:Rigxbrli:sharesck0000949039:Segmentiso4217:USDiso4217:USDxbrli:shares

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2022

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to

Commission file number 1-13926

 

DIAMOND OFFSHORE DRILLING, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

76-0321760

(State or other jurisdiction of incorporation

or organization)

 

(I.R.S. Employer

Identification No.)

 

15415 Katy Freeway

Houston, Texas

77094

(Address of principal executive offices)

(Zip Code)

(281) 492-5300

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

 

DO

 

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No ☐

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of May 6, 2022 Common stock, $0.0001 par value per share 100,074,948 shares

 


DIAMOND OFFSHORE DRILLING, INC.

 

TABLE OF CONTENTS FOR FORM 10-Q

 

QUARTER ENDED MARCH 31, 2022

 

 

 

 

 

PAGE NO.

 

 

 

 

 

COVER PAGE

 

1

 

 

 

TABLE OF CONTENTS

 

2

 

 

 

PART I. FINANCIAL INFORMATION

 

3

 

 

 

 

ITEM 1.

Financial Statements (Unaudited)

 

3

 

 

Condensed Consolidated Balance Sheets

 

3

 

 

Condensed Consolidated Statements of Operations

 

4

 

 

Condensed Consolidated Statements of Stockholders’ Equity

 

5

 

 

Condensed Consolidated Statements of Cash Flows

 

6

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

7

 

 

 

 

 

 

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

18

 

 

 

 

 

 

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

 

28

 

 

 

 

 

 

ITEM 4.

Controls and Procedures

 

28

 

 

 

 

 

PART II. OTHER INFORMATION

 

29

 

 

 

 

 

 

ITEM 1.

Legal Proceedings

 

29

 

 

 

 

 

 

ITEM 1A.

Risk Factors

 

29

 

 

 

 

 

 

ITEM 6.

Exhibits

 

30

 

 

 

 

 

SIGNATURES

 

31

 

2


PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements.

DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except par value amounts)

 

 

Successor

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

53,771

 

 

$

38,388

 

Restricted cash

 

 

19,202

 

 

 

24,341

 

Accounts receivable

 

 

124,998

 

 

 

151,917

 

  Less: allowance for credit losses

 

 

(5,572

)

 

 

(5,582

)

Accounts receivable, net

 

 

119,426

 

 

 

146,335

 

Prepaid expenses and other current assets

 

 

62,275

 

 

 

61,440

 

Asset held for sale

 

 

 

 

 

1,000

 

Total current assets

 

 

254,674

 

 

 

271,504

 

Drilling and other property and equipment, net of

 

 

 

 

 

 

accumulated depreciation

 

 

1,175,357

 

 

 

1,175,895

 

Other assets

 

 

82,705

 

 

 

84,041

 

Total assets

 

$

1,512,736

 

 

$

1,531,440

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

46,365

 

 

$

38,661

 

Accrued liabilities

 

 

137,513

 

 

 

143,736

 

Taxes payable

 

 

33,942

 

 

 

34,500

 

Current finance lease liabilities

 

 

16,130

 

 

 

15,865

 

Total current liabilities

 

 

233,950

 

 

 

232,762

 

Long-term debt

 

 

286,338

 

 

 

266,241

 

Noncurrent finance lease liabilities

 

 

144,280

 

 

 

148,358

 

Deferred tax liability

 

 

2,462

 

 

 

1,626

 

Other liabilities

 

 

107,883

 

 

 

114,748

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

Total liabilities

 

 

774,913

 

 

 

763,735

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock (par value $0.0001, 50,000 shares authorized, none issued and outstanding at March 31, 2022 and December 31, 2021)

 

 

 

 

 

 

Common stock (par value $0.0001, 750,000 shares authorized; 100,075 shares issued and outstanding at March 31, 2022 and December 31, 2021)

 

 

10

 

 

 

10

 

Additional paid-in capital

 

 

949,511

 

 

 

945,039

 

Accumulated deficit

 

 

(211,698

)

 

 

(177,344

)

Total stockholders’ equity

 

 

737,823

 

 

 

767,705

 

Total liabilities and stockholders’ equity

 

$

1,512,736

 

 

$

1,531,440

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

3


DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)

 

 

 

Successor

 

 

 

Predecessor

 

 

 

 

Three Months

 

 

 

Three Months

 

 

 

 

Ended

 

 

 

Ended

 

 

 

 

March 31, 2022

 

 

 

March 31, 2021

 

 

Revenues:

 

 

 

 

 

 

 

 

Contract drilling

 

$

150,252

 

 

 

$

122,553

 

 

Revenues related to reimbursable expenses

 

 

35,987

 

 

 

 

12,264

 

 

Total revenues

 

 

186,239

 

 

 

 

134,817

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Contract drilling, excluding depreciation

 

 

144,902

 

 

 

 

141,573

 

 

Reimbursable expenses

 

 

35,613

 

 

 

 

11,837

 

 

Depreciation

 

 

26,952

 

 

 

 

74,626

 

 

General and administrative

 

 

16,732

 

 

 

 

12,366

 

 

Impairment of assets

 

 

 

 

 

 

197,027

 

 

Gain on disposition of assets

 

 

(4,044

)

 

 

 

(5,401

)

 

Total operating expenses

 

 

220,155

 

 

 

 

432,028

 

 

Operating loss

 

 

(33,916

)

 

 

 

(297,211

)

 

Other income (expense):

 

 

 

 

 

 

 

 

Interest income

 

 

1

 

 

 

 

30

 

 

Interest expense, net of amounts capitalized (excludes $28,266 of contractual interest expense on debt subject to compromise for the Predecessor three-month period ended March 31, 2021)

 

 

(8,325

)

 

 

 

(32,562

)

 

Foreign currency transaction (loss) gain

 

 

(2,129

)

 

 

 

625

 

 

Reorganization items, net

 

 

 

 

 

 

(35,252

)

 

Other, net

 

 

1,362

 

 

 

 

489

 

 

Loss before income tax benefit

 

 

(43,007

)

 

 

 

(363,881

)

 

Income tax benefit

 

 

8,653

 

 

 

 

2,200

 

 

Net loss

 

$

(34,354

)

 

 

$

(361,681

)

 

Loss per share, Basic and Diluted

 

$

(0.34

)

 

 

$

(2.62

)

 

Weighted-average shares outstanding, Basic and Diluted

 

 

100,075

 

 

 

 

138,054

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

4


DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands)

 

 

 

Three Months Ended March 31, 2022

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

(Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit)

 

 

Equity

 

January 1, 2022 (Successor)

 

 

100,075

 

 

 

10

 

 

 

945,039

 

 

 

(177,344

)

 

 

767,705

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(34,354

)

 

 

(34,354

)

Stock-based compensation, net of tax

 

 

 

 

 

 

 

 

4,472

 

 

 

 

 

 

4,472

 

March 31, 2022 (Successor)

 

 

100,075

 

 

$

10

 

 

$

949,511

 

 

$

(211,698

)

 

$

737,823

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2021

 

 

 

 

 

 

 

 

 

Additional

 

 

Retained Earnings

 

 

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

(Accumulated

 

 

Treasury Stock

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit)

 

 

Shares

 

 

Amount

 

 

Equity

 

January 1, 2021 (Predecessor)

 

 

145,264

 

 

$

1,453

 

 

$

2,029,979

 

 

$

157,297

 

 

 

7,210

 

 

$

(206,163

)

 

$

1,982,566

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(361,681

)

 

 

 

 

 

 

 

 

(361,681

)

March 31, 2021 (Predecessor)

 

 

145,264

 

 

$

1,453

 

 

$

2,029,979

 

 

$

(204,384

)

 

 

7,210

 

 

$

(206,163

)

 

$

1,620,885

 

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

5


DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

Successor

 

 

 

Predecessor

 

 

 

Three Months Ended

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

March 31,

 

 

 

2022

 

 

 

2021

 

Operating activities:

 

 

 

 

 

 

 

Net loss

 

$

(34,354

)

 

 

$

(361,681

)

Adjustments to reconcile net loss to net cash used in
   operating activities:

 

 

 

 

 

 

 

Depreciation

 

 

26,952

 

 

 

 

74,626

 

Loss on impairment of assets

 

 

 

 

 

 

197,027

 

Gain on disposition of assets

 

 

(4,044

)

 

 

 

(5,401

)

Deferred tax provision

 

 

(5,217

)

 

 

 

(5,565

)

Stock-based compensation expense

 

 

4,531

 

 

 

 

 

Contract liabilities, net

 

 

(13,411

)

 

 

 

6,974

 

Contract assets, net

 

 

(334

)

 

 

 

(326

)

Deferred contract costs, net

 

 

1,850

 

 

 

 

(9,176

)

Collateral deposits

 

 

(1,482

)

 

 

 

 

Other assets, noncurrent

 

 

(302

)

 

 

 

1,279

 

Other liabilities, noncurrent

 

 

2,992

 

 

 

 

(110

)

Other

 

 

418

 

 

 

 

282

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

26,909

 

 

 

 

(14,993

)

Prepaid expenses and other current assets

 

 

1,378

 

 

 

 

(1,340

)

Accounts payable and accrued liabilities

 

 

11,129

 

 

 

 

68,274

 

Taxes payable

 

 

(7,957

)

 

 

 

922

 

Net cash provided by (used in) operating activities

 

 

9,058

 

 

 

 

(49,208

)

Investing activities:

 

 

 

 

 

 

 

Capital expenditures

 

 

(20,046

)

 

 

 

(40,617

)

Proceeds from disposition of assets, net of disposal costs

 

 

5,045

 

 

 

 

7,400

 

Net cash used in investing activities

 

 

(15,001

)

 

 

 

(33,217

)

Financing activities:

 

 

 

 

 

 

 

Borrowings under revolving credit facility

 

 

20,000

 

 

 

 

 

Principal payments of finance lease liabilities

 

 

(3,813

)

 

 

 

 

Debt issuance costs and arrangement fees

 

 

 

 

 

 

(2,290

)

Net cash provided by financing activities

 

 

16,187

 

 

 

 

(2,290

)

Net change in cash, cash equivalents and restricted cash

 

 

10,244

 

 

 

 

(84,715

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

62,729

 

 

 

 

430,380

 

Cash, cash equivalents and restricted cash, end of period

 

$

72,973

 

 

 

$

345,665

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

6


DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. General Information

The unaudited condensed consolidated financial statements of Diamond Offshore Drilling, Inc. and subsidiaries, which we refer to as “Diamond Offshore,” “Company,” “we,” “us” or “our,” should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021, as amended by Amendment No. 1 on Form 10-K/A (File No. 1-13926). To facilitate our financial statement presentations, we refer to the post-emergence reorganized company in these unaudited condensed consolidated financial statements and footnotes as the “Successor” for periods subsequent to April 23, 2021 and to the pre-emergence company as the “Predecessor” for periods on or prior to April 23, 2021. This delineation between Predecessor periods and Successor periods is shown in the unaudited condensed consolidated financial statements, certain tables within the footnotes to the unaudited condensed consolidated financial statements and other parts of this Quarterly Report on Form 10-Q through the use of a black line, calling out the lack of comparability between periods.

Interim Financial Information

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission. Accordingly, pursuant to such rules and regulations, they do not include all disclosures required by GAAP for annual financial statements. The condensed consolidated financial information has not been audited but, in the opinion of management, includes all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of Diamond Offshore’s condensed consolidated balance sheets, statements of operations, statements of stockholders’ equity and statements of cash flows at the dates and for the periods indicated. Results of operations for interim periods are not necessarily indicative of results of operations for the respective full years.

Fresh Start Accounting

Upon our emergence from bankruptcy on April 23, 2021 (or the Effective Date), we met the criteria for and were required to adopt fresh start accounting in accordance with the Financial Accounting Standards Board (or FASB) Accounting Standards Codification (or ASC) Topic No. 852 – Reorganizations (or ASC 852), which on the Effective Date resulted in a new entity, the Successor, for financial reporting purposes, with no beginning retained earnings or deficit as of the fresh start reporting date.

Fresh start accounting requires that new fair values be established for the Company’s assets, liabilities, and equity as of the Effective Date. The Effective Date fair values of the Successor’s assets and liabilities differ materially from their recorded values as reflected on the historical balance sheets of the Predecessor. In addition, as a result of the application of fresh start accounting and the effects of the implementation of our restructuring plan, the financial statements for periods after April 23, 2021 will not be comparable with the financial statements prior to and including April 23, 2021. References to “Successor” refer to the Company and its financial position and results of operations after the Effective Date (including December 31, 2021, March 31, 2022 and the three-month period ended March 31, 2022). References to “Predecessor” refer to the Company and its financial position and results of operations on or before the Effective Date (including the three-month period ended March 31, 2021).

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with generally accepted accounting principles (or GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimated.

Restricted Cash

7


We maintain a restricted cash bank account which is subject to restrictions pursuant to a management and marketing services agreement with an offshore drilling company. See Note 2 “Revenue from Contracts with Customers.”

We classify such restricted cash accounts in current assets if the restrictions are expected to expire or otherwise be resolved within one year or if such funds are considered to offset current liabilities. At March 31, 2022 and December 31 2021, our restricted cash was considered to be current and was recorded in “Restricted cash” in our unaudited Condensed Consolidated Balance Sheets.

2. Revenue from Contracts with Customers

The activities that primarily drive the revenue earned from our contract drilling services include (i) providing a drilling rig and the crew and supplies necessary to operate the rig, (ii) mobilizing and demobilizing the rig to and from the drill site and (iii) performing rig preparation activities and/or modifications required for the contract. Consideration received for performing these activities may consist of dayrate drilling revenue, mobilization and demobilization revenue, contract preparation revenue and reimbursement revenue. We account for these integrated services provided within our drilling contracts as a single performance obligation satisfied over time and comprised of a series of distinct time increments in which we provide drilling services.

Consideration for activities that are not distinct within the context of our contracts and do not correspond to a distinct time increment within the contract term are allocated across the single performance obligation and recognized ratably over the initial term of the contract (which is the period we estimate to be benefited from the corresponding activities and generally ranges from two to 60 months). Such consideration may include mobilization, demobilization, contract preparation and capital modification revenue that is stipulated in our drilling contracts. Consideration for activities that correspond to a distinct time increment within the contract term is recognized in the period when the services are performed. The total transaction price is determined for each individual contract by estimating both fixed and variable consideration expected to be earned over the term of the contract.

Revenues Related to Managed Rigs

In May 2021, we entered into an arrangement with Aquadrill LLC, an offshore drilling company, whereby we provide management and marketing services (or the MMSA) for three of its rigs. Per the MMSA, for stacked rigs we earn a daily service fee and are entitled to reimbursement of direct costs incurred in accordance with the agreement. For rigs operating under a drilling contract, in addition to the service fee and reimbursement of direct costs, we are entitled to a gross margin bonus, as adjusted pursuant to the MMSA, and a commission. The daily service fee revenue is recognized in line with the contractual rate billed for the services provided and is reported in “Contract Drilling Revenue” in our unaudited Condensed Consolidated Statements of Operations. We record the revenue relating to reimbursed expenses at the gross amount incurred and billed to the rig owner, as “Revenues related to reimbursable expenses” in our unaudited Condensed Consolidated Statements of Operations. Two of the managed rigs were considered stacked rigs at March 31, 2022.

In March 2022, the West Auriga, one of the three managed rigs, began a one-year contract in the U.S. Gulf of Mexico (or GOM). Upon commencement of operations of the West Auriga, the MMSA for this rig was suspended and replaced by a charter agreement for the duration of the drilling contract. We have entered into the drilling contract directly with the customer and will receive and recognize revenue under the terms of the contract and have reported the revenue earned as “Contract Drilling Revenue” in our unaudited Condensed Consolidated Statements of Operations. We have determined that the charter arrangement is an operating lease, and the related charter fee has been reported as lease expense within “Contract drilling, excluding depreciation” in our unaudited Condensed Consolidated Statements of Operations.

8


Contract Balances

The following table provides information about receivables, contract assets and contract liabilities from our contracts with customers (in thousands):

 

 

 

Successor

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Trade receivables

 

$

107,824

 

 

$

130,021

 

Current contract assets (1)

 

 

2,169

 

 

 

1,835

 

Current contract liabilities (deferred revenue) (1)

 

 

(27,682

)

 

 

(38,506

)

Noncurrent contract liabilities (deferred revenue) (1)

 

 

(7,202

)

 

 

(9,787

)

(1)
Contract assets and contract liabilities may reflect balances which have been netted together on a contract basis. Net current contract asset and liability balances are included in “Prepaid expenses and other current assets” and “Accrued liabilities,” respectively, and net noncurrent contract liability balances are included in “Other liabilities” in our unaudited Condensed Consolidated Balance Sheets.

Significant changes in the contract assets and the contract liabilities balances during the period are as follows (in thousands):

 

 

Successor

 

 

 

Net Contract

 

 

 

Balances

 

Contract assets at January 1, 2022

 

$

1,835

 

Contract liabilities at January 1, 2022

 

 

(48,293

)

Net balance at January 1, 2022

 

 

(46,458

)

Decrease due to amortization of revenue included in the beginning contract liability balance

 

 

6,086

 

Increase due to cash received, excluding amounts recognized as revenue during the period

 

 

7,138

 

Increase due to revenue recognized during the period but contingent on future performance

 

 

519

 

Net balance at March 31, 2022

 

$

(32,715

)

Contract assets at March 31, 2022

 

$

2,169

 

Contract liabilities at March 31, 2022

 

 

(34,884

)

Transaction Price Allocated to Remaining Performance Obligations

The following table reflects the specified types of revenue expected to be recognized in the future related to unsatisfied performance obligations as of March 31, 2022 (in thousands):

 

 

 

For the Years Ending December 31,

 

 

 

2022 (1)

 

 

2023

 

 

2024

 

 

Total

 

Mobilization and contract preparation revenue

 

 

2,973

 

 

$

3,947

 

 

$

162

 

 

$

7,082

 

Capital modification revenue

 

 

16,012

 

 

 

5,371

 

 

 

207

 

 

 

21,590

 

Demobilization and other deferred revenue

 

 

6,750

 

 

 

 

 

 

 

 

 

6,750

 

Total

 

$

25,735

 

 

$

9,318

 

 

$

369

 

 

$

35,422

 

(1)
Represents the nine-month period beginning April 1, 2022.

9


The revenue included above consists of expected fixed mobilization and upgrade revenue for both wholly and partially unsatisfied performance obligations, as well as expected variable mobilization and upgrade revenue for partially unsatisfied performance obligations, which has been estimated for purposes of allocating across the entire corresponding performance obligations. The amounts are derived from the specific terms within drilling contracts that contain such provisions, and the expected timing for recognition of such revenue is based on the estimated start date and duration of each respective contract based on information known at March 31, 2022. The actual timing of recognition of such amounts may vary due to factors outside of our control. We have applied the disclosure practical expedient in FASB Accounting Standards Update (or ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606) and its related amendments, and have not included estimated variable consideration related to wholly unsatisfied performance obligations or to distinct future time increments within our contracts, including dayrate revenue.

3. Impairment of Assets

2021 Impairment. During the first quarter of 2021, we identified indicators that the carrying amounts of certain of our assets may not be recoverable and evaluated three of our drilling rigs with indicators of impairment. Based on our assumptions and analysis at that time, we determined that the carrying value of one of these rigs, for which we had concerns regarding future opportunities, was impaired (or the 2021 Impaired Rig). We estimated the fair value of the 2021 Impaired Rig using an income approach, whereby the fair value of the rig was estimated based on a calculation of the rig’s future net cash flows. These calculations utilized significant unobservable inputs, including management’s assumptions related to estimated dayrate revenue, rig utilization, estimated capital expenditures, repair and regulatory survey costs, as well as estimated proceeds that may be received on ultimate disposition of the rig. Our fair value estimate was representative of a Level 3 fair value measurement due to the significant level of estimation involved and the lack of transparency as to the inputs used. We recorded asset impairments aggregating $197.0 million for the Predecessor period for the three months ended March 31, 2021.

No asset impairments were recorded in the Successor three-month period ended March 31, 2022.

4. Supplemental Financial Information

Unaudited Condensed Consolidated Balance Sheets Information

Accounts receivable, net of allowance for credit losses, consist of the following (in thousands):

 

 

 

Successor

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Trade receivables

 

$

107,824

 

 

$

130,021

 

Federal income tax receivables

 

 

9,288

 

 

 

9,278

 

Value added tax receivables

 

 

5,362

 

 

 

9,729

 

Related party receivables

 

 

81

 

 

 

66

 

Other

 

 

2,443

 

 

 

2,823

 

 

 

 

124,998

 

 

 

151,917

 

Allowance for credit losses

 

 

(5,572

)

 

 

(5,582

)

Total

 

$

119,426

 

 

$

146,335

 

The allowance for credit losses at March 31, 2022 and December 31, 2021 represents our estimate of credit losses associated with our “Trade receivables” and “Current contract assets.” See Note 5 “Financial Instruments and Fair Value Disclosures” for a discussion of our concentrations of credit risk and allowance for credit losses.

10


Prepaid expenses and other current assets consist of the following (in thousands):

 

 

 

Successor

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Collateral deposits

 

$

18,961

 

 

$

17,480

 

Prepaid taxes

 

 

17,339

 

 

 

16,163

 

Deferred contract costs

 

 

6,776

 

 

 

7,267

 

Prepaid rig costs

 

 

4,511

 

 

 

4,048

 

Rig spare parts and supplies

 

 

3,611

 

 

 

3,716

 

Prepaid insurance

 

 

2,180

 

 

 

3,436

 

Current contract assets

 

 

2,169

 

 

 

1,835

 

Prepaid legal retainers

 

 

730

 

 

 

746

 

Other

 

 

5,998

 

 

 

6,749

 

Total

 

$

62,275

 

 

$

61,440

 

 

Accrued liabilities consist of the following (in thousands):

 

 

 

Successor

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Rig operating costs

 

$

43,536

 

 

$

42,532

 

Payroll and benefits

 

 

29,141