UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
(Address of principal executive offices)
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
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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.
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).
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 |
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Accelerated filer |
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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
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
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, $0.0001 par value per share
DIAMOND OFFSHORE DRILLING, INC.
TABLE OF CONTENTS FOR FORM 10-Q
QUARTER ENDED MARCH 31, 2022
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Notes to Unaudited Condensed Consolidated Financial Statements |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except par value amounts)
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Successor |
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March 31, |
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December 31, |
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2022 |
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2021 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Accounts receivable |
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Less: allowance for credit losses |
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Accounts receivable, net |
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Prepaid expenses and other current assets |
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Asset held for sale |
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Total current assets |
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Drilling and other property and equipment, net of |
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accumulated depreciation |
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Other assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued liabilities |
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Taxes payable |
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Current finance lease liabilities |
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Total current liabilities |
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Long-term debt |
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Noncurrent finance lease liabilities |
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Deferred tax liability |
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Other liabilities |
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Total liabilities |
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Stockholders’ equity: |
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Preferred stock (par value $ |
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Common stock (par value $ |
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Additional paid-in capital |
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Accumulated deficit |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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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)
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Successor |
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Predecessor |
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Three Months |
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Three Months |
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Ended |
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Ended |
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March 31, 2022 |
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March 31, 2021 |
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Revenues: |
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Contract drilling |
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$ |
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$ |
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Revenues related to reimbursable expenses |
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Total revenues |
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Operating expenses: |
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Contract drilling, excluding depreciation |
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Reimbursable expenses |
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Depreciation |
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General and administrative |
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Impairment of assets |
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Gain on disposition of assets |
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Total operating expenses |
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Operating loss |
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Other income (expense): |
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Interest income |
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Interest expense, net of amounts capitalized (excludes $ |
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Foreign currency transaction (loss) gain |
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Reorganization items, net |
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Other, net |
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Loss before income tax benefit |
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Income tax benefit |
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Net loss |
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$ |
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$ |
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Loss per share, Basic and Diluted |
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$ |
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$ |
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Weighted-average shares outstanding, Basic and Diluted |
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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)
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Three Months Ended March 31, 2022 |
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Additional |
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Total |
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Common Stock |
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Paid-In |
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(Accumulated |
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Stockholders’ |
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Shares |
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Amount |
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Capital |
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Deficit) |
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Equity |
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January 1, 2022 (Successor) |
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Net loss |
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— |
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— |
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— |
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Stock-based compensation, net of tax |
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— |
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— |
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— |
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March 31, 2022 (Successor) |
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$ |
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$ |
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$ |
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$ |
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Three Months Ended March 31, 2021 |
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Additional |
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Retained Earnings |
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Total |
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Common Stock |
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Paid-In |
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(Accumulated |
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Treasury Stock |
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Stockholders’ |
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Shares |
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Amount |
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Capital |
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Deficit) |
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Shares |
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Amount |
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Equity |
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January 1, 2021 (Predecessor) |
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$ |
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$ |
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$ |
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$ |
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$ |
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Net loss |
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— |
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— |
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— |
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( |
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— |
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— |
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( |
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March 31, 2021 (Predecessor) |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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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)
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Successor |
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Predecessor |
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Three Months Ended |
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Three Months Ended |
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March 31, |
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March 31, |
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2022 |
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2021 |
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Operating activities: |
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Net loss |
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$ |
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$ |
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Adjustments to reconcile net loss to net cash used in |
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Depreciation |
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Loss on impairment of assets |
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— |
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Gain on disposition of assets |
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Deferred tax provision |
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Stock-based compensation expense |
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— |
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Contract liabilities, net |
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( |
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Contract assets, net |
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( |
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Deferred contract costs, net |
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Collateral deposits |
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( |
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— |
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Other assets, noncurrent |
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( |
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Other liabilities, noncurrent |
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( |
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Other |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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( |
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Prepaid expenses and other current assets |
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Accounts payable and accrued liabilities |
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Taxes payable |
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( |
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Net cash provided by (used in) operating activities |
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Investing activities: |
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Capital expenditures |
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Proceeds from disposition of assets, net of disposal costs |
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Net cash used in investing activities |
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( |
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Financing activities: |
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Borrowings under revolving credit facility |
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— |
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Principal payments of finance lease liabilities |
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— |
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Debt issuance costs and arrangement fees |
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— |
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Net cash provided by financing activities |
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Net change in cash, cash equivalents and restricted cash |
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Cash, cash equivalents and restricted cash, beginning of period |
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Cash, cash equivalents and restricted cash, end of period |
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$ |
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$ |
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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
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 to
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
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):
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Successor |
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March 31, |
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December 31, |
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2022 |
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2021 |
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Trade receivables |
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$ |
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$ |
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Current contract assets (1) |
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Current contract liabilities (deferred revenue) (1) |
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( |
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( |
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Noncurrent contract liabilities (deferred revenue) (1) |
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( |
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( |
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Significant changes in the contract assets and the contract liabilities balances during the period are as follows (in thousands):
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Successor |
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Net Contract |
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Balances |
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Contract assets at January 1, 2022 |
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$ |
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Contract liabilities at January 1, 2022 |
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( |
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Net balance at January 1, 2022 |
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( |
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Decrease due to amortization of revenue included in the beginning contract liability balance |
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Increase due to cash received, excluding amounts recognized as revenue during the period |
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Increase due to revenue recognized during the period but contingent on future performance |
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Net balance at March 31, 2022 |
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$ |
( |
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Contract assets at March 31, 2022 |
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$ |
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Contract liabilities at March 31, 2022 |
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( |
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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):
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For the Years Ending December 31, |
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(1) |
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Total |
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Mobilization and contract preparation revenue |
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$ |
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$ |
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$ |
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Capital modification revenue |
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Demobilization and other deferred revenue |
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— |
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|
— |
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
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
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 |
|
$ |
|
|
$ |
|
||
Federal income tax receivables |
|
|
|
|
|
|
||
Value added tax receivables |
|
|
|
|
|
|
||
Related party receivables |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Allowance for credit losses |
|
|
( |
) |
|
|
( |
) |
Total |
|
$ |
|
|
$ |
|
||
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 |
|
$ |
|
|
$ |
|
||
Prepaid taxes |
|
|
|
|
|
|
||
Deferred contract costs |
|
|
|
|
|
|
||
Prepaid rig costs |
|
|
|
|
|
|
||
Rig spare parts and supplies |
|
|
|
|
|
|
||
Prepaid insurance |
|
|
|
|
|
|
||
Current contract assets |
|
|
|
|
|
|
||
Prepaid legal retainers |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total |
||||||||