Diamond Offshore Drilling(DO) - 2021 Q1 - Quarterly Report

FORM 10-Q Cover Page This section provides key filing details for Diamond Offshore Drilling, Inc.'s Quarterly Report on Form 10-Q - Diamond Offshore Drilling, Inc. filed its Quarterly Report on Form 10-Q for the period ended March 31, 2021[1] - The registrant is a non-accelerated filer and is not a shell company[1] - As of May 3, 2021, 100,000,019 shares of common stock were outstanding[1] TABLE OF CONTENTS This section outlines the report's structure, detailing financial and other information with page numbers - The table of contents outlines the report's structure, including Part I (Financial Information) and Part II (Other Information), with specific items and their corresponding page numbers[3] PART I. FINANCIAL INFORMATION This part presents unaudited condensed consolidated financial statements and management's discussion and analysis ITEM 1. Financial Statements (Unaudited) This section provides unaudited condensed consolidated financial statements and explanatory notes on key financial impacts Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and equity at specific points in time | Metric (in thousands) | March 31, 2021 | December 31, 2020 | | :-------------------- | :------------- | :---------------- | | Total Assets | $4,679,442 | $4,948,453 | | Total Current Assets | $581,984 | $625,315 | | Cash and Cash Equivalents | $311,357 | $405,869 | | Restricted Cash | $34,308 | $24,511 | | Accounts Receivable, net | $145,653 | $130,660 | | Total Liabilities not subject to compromise | $1,013,680 | $347,082 | | Liabilities subject to compromise | $2,044,877 | $2,618,805 | | Total Stockholders' Equity | $1,620,885 | $1,982,566 | - Total Assets decreased by $269.00 million from December 31, 2020, to March 31, 2021, while Total Liabilities not subject to compromise significantly increased by $666.60 million[5] Condensed Consolidated Statements of Operations This statement details the company's revenues, expenses, and net loss over specific periods | Metric (in thousands) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Total Revenues | $134,817 | $229,170 | | Operating Loss | $(297,211) | $(846,437) | | Impairment of Assets | $197,027 | $774,028 | | Reorganization items, net | $(35,252) | $0 | | Net Loss | $(361,681) | $(861,940) | | Loss per share, Basic and Diluted | $(2.62) | $(6.25) | - Total Revenues decreased by $94.35 million, and Net Loss improved by $500.26 million, primarily due to significantly lower impairment charges in Q1 2021 compared to Q1 2020[7] Condensed Consolidated Statements of Comprehensive Loss This statement presents the net loss and other comprehensive income or loss components for the period | Metric (in thousands) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Net Loss | $(361,681) | $(861,940) | | Total other comprehensive loss | $0 | $(1) | | Comprehensive Loss | $(361,681) | $(861,941) | - Comprehensive loss for Q1 2021 was entirely attributable to Net Loss, with no other comprehensive losses, unlike Q1 2020 which had a minor reclassification adjustment for derivative financial instruments[9] Condensed Consolidated Statements of Stockholders' Equity This statement tracks changes in the company's equity accounts, including common stock and retained earnings | Metric (in thousands) | January 1, 2021 | March 31, 2021 | | :-------------------- | :-------------- | :------------- | | Common Stock Amount | $1,453 | $1,453 | | Additional Paid-In Capital | $2,029,979 | $2,029,979 | | Retained Earnings (Accumulated Deficit) | $157,297 | $(204,384) | | Treasury Stock Amount | $(206,163) | $(206,163) | | Total Stockholders' Equity | $1,982,566 | $1,620,885 | - Total stockholders' equity decreased by $361.68 million from January 1, 2021, to March 31, 2021, primarily due to the Net Loss incurred during the period, resulting in an accumulated deficit[11] Condensed Consolidated Statements of Cash Flows This statement details cash inflows and outflows from operating, investing, and financing activities | Metric (in thousands) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(49,208) | $(22,841) | | Net cash used in investing activities | $(33,217) | $(70,302) | | Net cash (used in) provided by financing activities | $(2,290) | $436,000 | | Net change in cash, cash equivalents and restricted cash | $(84,715) | $342,857 | | Cash, cash equivalents and restricted cash, end of period | $345,665 | $499,138 | - Net cash used in operating activities increased by $26.37 million in Q1 2021 compared to Q1 2020; financing activities shifted from a $436.00 million inflow in Q1 2020 to a $2.29 million outflow in Q1 2021[14] Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations and additional information supporting the unaudited financial statements 1. General Information This note outlines the basis of financial statement preparation and key accounting policies - The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information and SEC Form 10-Q instructions[17] - Management's estimates and assumptions are integral to financial statement preparation, and actual results may differ[18] - Restricted cash accounts, subject to court order for professional fees, are classified as current assets if restrictions are expected to resolve within one year[19][20] 2. Chapter 11 Proceedings This note details the company's Chapter 11 bankruptcy filing, emergence, and financial impact of reorganization - Diamond Offshore and certain subsidiaries commenced Chapter 11 cases on April 26, 2020, and emerged from reorganization on April 23, 2021, after the Plan was confirmed[21][22] - Substantial doubt about the company's ability to continue as a going concern has been resolved post-emergence due to the new capital structure and liquidity[23] | Reorganization Item (in thousands) | Three Months Ended March 31, 2021 | | :--------------------------------- | :-------------------------------- | | Professional fees | $25,670 | | Accrued backstop commitment premium | $9,900 | | Net gain on adjustments for allowed claims | $(318) | | Total reorganization items, net | $35,252 | - Liabilities subject to compromise decreased from $2.62 billion at December 31, 2020, to $2.04 billion at March 31, 2021, as certain prepetition liabilities were reclassified or settled[25] - Fresh start accounting will be applied upon emergence, revaluing assets and liabilities to fair value, making post-Effective Date financial statements non-comparable to prior periods[25][26] Debtor Financial Statements This section presents unaudited condensed combined financial statements for the Debtors, excluding non-Debtor subsidiaries - Unaudited condensed combined financial statements are presented for the Debtors, excluding non-Debtor subsidiaries, with inter-Debtor transactions eliminated[27] | Metric (in thousands) | March 31, 2021 | December 31, 2020 | | :-------------------- | :------------- | :---------------- | | Total Assets | $7,088,182 | $7,356,102 | | Total Liabilities not subject to compromise | $2,307,542 | $1,646,912 | | Liabilities subject to compromise | $2,044,877 | $2,618,805 | | Total Debtors' Equity | $2,735,763 | $3,090,385 | | Metric (in thousands) | Three Months Ended March 31, 2021 | | :-------------------- | :-------------------------------- | | Total Revenues | $131,397 | | Operating Loss | $(290,828) | | Net Loss | $(354,631) | | Metric (in thousands) | Three Months Ended March 31, 2021 | | :-------------------- | :-------------------------------- | | Net cash used in operating activities | $(42,908) | | Net cash used in investing activities | $(39,163) | | Net cash used in financing activities | $(2,290) | | Net change in cash, cash equivalents and restricted cash | $(84,361) | | Cash, cash equivalents and restricted cash, end of period | $330,557 | 3. Revenue from Contracts with Customers This note details the company's revenue recognition policies for contract drilling services and contract balances - Contract drilling services are accounted for as a single performance obligation satisfied over time, comprising distinct time increments[33] | Contract Balance (in thousands) | March 31, 2021 | December 31, 2020 | | :------------------------------ | :------------- | :---------------- | | Trade receivables | $130,998 | $115,732 | | Current contract assets | $3,196 | $2,870 | | Current contract liabilities (deferred revenue) | $(57,185) | $(51,763) | | Noncurrent contract liabilities (deferred revenue) | $(6,715) | $(5,164) | | Revenue Type (in thousands) | 2021 (9 months) | 2022 | 2023 | 2024 | Total | | :-------------------------- | :-------------- | :--- | :--- | :--- | :---- | | Mobilization and contract preparation revenue | $26,861 | $5,540 | $2,908 | $80 | $35,389 | | Capital modification revenue | $10,070 | $1,452 | $0 | $0 | $11,522 | | Blended rate revenue and other | $15,054 | $1,070 | $0 | $0 | $16,124 | | Total | $51,985 | $8,062 | $2,908 | $80 | $63,035 | - Fresh start accounting upon emergence from bankruptcy is expected to redetermine contract asset and liability balances, potentially impacting future revenue recognition[35] 4. Impairment of Assets This note explains impairment charges recognized on drilling rigs and the methodology for fair value estimation - Aggregate impairment charges were $197.00 million for Q1 2021 (one rig) and $774.00 million for Q1 2020 (four rigs)[37] - Fair value estimates for impaired rigs use an income approach with significant unobservable inputs (Level 3 fair value measurement)[36] - Further deterioration in market fundamentals or delayed recovery could lead to additional impairment charges in future periods[37] 5. Supplemental Financial Information This note provides detailed breakdowns of accounts receivable, prepaid expenses, other current assets, and accrued liabilities | Accounts Receivable (in thousands) | March 31, 2021 | December 31, 2020 | | :--------------------------------- | :------------- | :---------------- | | Trade receivables | $130,998 | $115,732 | | Value added tax receivables | $10,642 | $10,781 | | Federal income tax receivables | $8,420 | $8,420 | | Related party receivables | $46 | $78 | | Other | $1,118 | $1,211 | | Total | $151,224 | $136,222 | | Allowance for credit losses | $(5,571) | $(5,562) | | Total, net | $145,653 | $130,660 | | Prepaid Expenses and Other Current Assets (in thousands) | March 31, 2021 | December 31, 2020 | | :------------------------------------------------------- | :------------- | :---------------- | | Deferred contract costs | $23,280 | $19,808 | | Prepaid taxes | $15,312 | $16,112 | | Rig spare parts and supplies | $13,007 | $12,606 | | Deferred debt issuance costs | $12,430 | $0 | | Collateral deposits | $8,625 | $0 | | Current contract assets | $3,196 | $2,870 | | Prepaid rig costs | $2,548 | $2,317 | | Prepaid legal retainers | $2,309 | $2,408 | | Prepaid insurance | $2,196 | $2,446 | | Other | $6,763 | $3,708 | | Total | $89,666 | $62,275 | | Accrued Liabilities (in thousands) | March 31, 2021 | December 31, 2020 | | :--------------------------------- | :------------- | :---------------- | | Deferred revenue | $57,185 | $51,763 | | Accrued interest | $35,329 | $0 | | Payroll and benefits | $33,216 | $30,296 | | Shorebase and administrative costs | $23,547 | $17,275 | | Current operating lease liability | $22,548 | $5,072 | | Rig operating costs | $20,673 | $21,123 | | Accrued capital project/upgrade costs | $17,255 | $7,075 | | Deferred debt issuance costs and financing fees | $10,140 | $0 | | Accrued backstop commitment premium | $9,900 | $0 | | Personal injury and other claims | $5,346 | $6,495 | | Other | $1,510 | $1,689 | | Total | $236,649 | $140,788 | 6. Financial Instruments and Fair Value Disclosures This note discusses credit risk concentrations, credit loss estimates, fair value measurements, and senior notes valuation - The company faces significant concentrations of credit risk due to its limited customer base in the offshore oil and gas industry[42] - Under CECL, the estimated credit losses were $0.10 million at both March 31, 2021, and December 31, 2020, with a total allowance for credit losses of $5.60 million[44] - Impaired assets are measured at fair value on a nonrecurring basis, primarily using Level 3 inputs due to significant estimation and lack of transparency[45][47][48] | Senior Notes (in millions) | March 31, 2021 Fair Value | March 31, 2021 Carrying Value | December 31, 2020 Fair Value | December 31, 2020 Carrying Value | | :------------------------- | :------------------------ | :---------------------------- | :--------------------------- | :------------------------------- | | 3.45% Senior Notes due 2023 | $42.7 | $250.0 | $30.6 | $250.0 | | 7.875% Senior Notes due 2025 | $85.0 | $500.0 | $61.3 | $500.0 | | 5.70% Senior Notes due 2039 | $85.0 | $500.0 | $61.2 | $500.0 | | 4.875% Senior Notes due 2043 | $127.5 | $750.0 | $91.9 | $750.0 | 7. Drilling and Other Property and Equipment This note provides a breakdown of property and equipment, including drilling rigs, impairment charges, and asset sales | Asset Category (in thousands) | March 31, 2021 | December 31, 2020 | | :---------------------------- | :------------- | :---------------- | | Drilling rigs and equipment | $6,558,577 | $6,987,630 | | Land and buildings | $40,425 | $41,072 | | Office equipment and other | $83,226 | $83,016 | | Cost | $6,682,228 | $7,111,718 | | Less: accumulated depreciation | $(2,781,814) | $(2,988,909) | | Net | $3,900,414 | $4,122,809 | - A $197.00 million impairment charge was recorded in Q1 2021 to write down one drilling rig to its estimated fair value[51] - The Ocean Valor is reported as 'Assets held for sale' at $1.00 million; the Ocean America and Ocean Rover were sold in Q1 2021 for a net pre-tax gain of $4.40 million[51] 8. Credit Agreements This note discusses the impact of Chapter 11 on credit facilities and recognition of post-petition interest expense - The $436.00 million borrowed under the RCF became immediately due and payable upon the Chapter 11 filing, constituting an event of default[52] - Post-Plan Support Agreement (PSA), outstanding RCF borrowings and accrued pre-petition interest were reclassified to 'Current maturities of long-term debt'[53] - Accrued post-petition interest expense of $32.60 million was recognized in Q1 2021, including a $23.40 million catch-up adjustment, with a weighted average interest rate of 8.50%[53] 9. Commitments and Contingencies This note outlines various legal proceedings, tax assessments, personal injury claims, and contingent liabilities - The company is involved in various legal proceedings, including asbestos litigation, non-income tax assessments, and other claims[54] - A $14.10 million liability was recorded for probable losses related to non-income tax items at March 31, 2021[54] - The estimated liability for personal injury claims was $15.00 million at March 31, 2021, with $5.10 million current and $9.90 million non-current[55] - Contingent liabilities totaled $25.00 million under various bonds and letters of credit, with $23.50 million in aggregate collateral deposits[56] 10. Segments and Geographic Area Analysis This note explains the company's single reportable segment and provides a breakdown of revenues by geographic area - The company aggregates all operations into one reportable segment due to the similar economic characteristics of its contract drilling services[57] | Country | Three Months Ended March 31, 2021 Total Revenues (in thousands) | Three Months Ended March 31, 2020 Total Revenues (in thousands) | | :--------------- | :-------------------------------------------------------------- | :-------------------------------------------------------------- | | United States | $80,039 | $108,044 | | United Kingdom | $26,041 | $35,844 | | Australia | $14,827 | $22,103 | | Myanmar | $10,489 | $0 | | Brazil | $3,421 | $63,179 | | Total | $134,817 | $229,170 | 11. Subsequent Events This note details events after the balance sheet date, including Chapter 11 emergence, new capital structure, and management changes - The Debtors emerged from Chapter 11 reorganization on April 23, 2021, following the Bankruptcy Court's confirmation order[59] - New Diamond Common Shares (100,000,019 shares outstanding) and Emergence Warrants (7,526,894 issued) were distributed to former Senior Notes holders and existing equity interest holders, respectively[62][63][64] - New debt instruments include a $400.00 million Revolving Credit Facility, a $100.00 million Term Loan Credit Facility, and approximately $85.30 million in First Lien Notes, all secured by company assets and maturing between 2026 and 2027[66][67][68] - The Plan outlined specific treatments for various claims, including cash payments, new debt, or new equity for secured, priority, RCF, Senior Notes, and general unsecured claims[78] - The Board of Directors and CEO changed upon emergence, with Ron Woll appointed Interim Chief Executive Officer and Interim President[79] - Amendments to well control equipment service and lease agreements resulted in a reclassification of the lease from operating to finance lease due to a purchase option ceiling[81] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of financial condition and results, covering Chapter 11 impact, market challenges, backlog, and liquidity Company Overview This section provides an overview of Diamond Offshore Drilling, Inc.'s global contract drilling services and fleet - Diamond Offshore Drilling, Inc. provides contract drilling services globally with a fleet of 12 floater rigs (four drillships and eight semisubmersibles), including two cold-stacked rigs[83] - The company sold the Ocean America and Ocean Rover for scrap value in Q1 2021 and is marketing the Ocean Valor for sale[83] Bankruptcy Filing This section summarizes the company's Chapter 11 filing and subsequent emergence with new financing arrangements - Diamond Offshore and certain subsidiaries commenced Chapter 11 cases on April 26, 2020, and emerged from reorganization on April 23, 2021, following the confirmation of its Plan of Reorganization[84] - The emergence was supported by a Plan Support Agreement and new exit financing arrangements[84] Market Overview This section describes the challenging offshore contract drilling market, including rig oversupply, commodity prices, and utilization - The offshore contract drilling market remains severely challenged by an oversupply of rigs, depressed commodity prices, and reduced drilling projects[85] - The global COVID-19 outbreak significantly impacted oil demand, though commodity prices have modestly recovered to the high-$60-per-barrel range for Brent crude by the report date[85] - Global floater contracted utilization was approximately 63% at the end of Q1 2021, with 131 of 207 available rigs contracted[86] - Drilling contractors retired seven additional floaters in 2021 to manage supply; 45 floaters are currently cold-stacked, with increasing reactivation costs over time[86] - The company recognized a $197.00 million asset impairment in Q1 2021 for one semisubmersible rig due to concerns over future opportunities[86] Contract Drilling Backlog This section provides a summary of the company's contract drilling backlog and committed rig days | Date | Contract Drilling Backlog (in millions) | | :--------------- | :-------------------------------------- | | April 1, 2021 | $1,092 | | January 1, 2021 | $1,187 | | April 1, 2020 | $1,393 | | Year | Contract Drilling Backlog (in millions) | | :--------------- | :-------------------------------------- | | 2021 (9 months) | $530 | | 2022 | $415 | | 2023 | $144 | | 2024 | $3 | | Total | $1,092 | | Year | Percentage of Rig Days Committed | | :--------------- | :------------------------------- | | 2021 (9 months) | 76% | | 2022 | 12% | | 2023 | 0% | | 2024 | 0% | - The backlog calculation assumes full utilization and excludes revenues for mobilization, demobilization, contract preparation, and customer reimbursables[87] Important Factors That May Impact Our Operating Results, Financial Condition or Cash Flows This section discusses key factors, including reorganization costs, COVID-19 impacts, planned downtime, and insurance, affecting future financial performance - The company expects to incur $20 million to $25 million in incremental reorganization costs during Q2 2021 for professional fees related to the Chapter 11 Cases[91] - The COVID-19 pandemic continues to impact operations through travel restrictions, increased personnel costs, freight surcharges, and additional health protocols[92] - Planned downtime for regulatory inspections, upgrades, contract preparation, and rig mobilizations negatively impacts operating income; approximately 195 days are expected in the remainder of 2021[92] - The company is self-insured for physical damage from U.S. Gulf of Mexico named windstorms and carries marine liability insurance with deductibles up to $100.00 million for subsequent occurrences[92][93] Results of Operations This section analyzes the company's financial performance, focusing on revenue, expenses, and net loss | Key Performance Indicator | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :------------------------ | :-------------------------------- | :-------------------------------- | | Revenue-Earning Days | 580 | 795 | | Utilization | 54% | 56% | | Average Daily Revenue | $211,300 | $273,900 | | Financial Metric (in thousands) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :------------------------------ | :-------------------------------- | :-------------------------------- | | Contract Drilling Revenue | $122,553 | $217,866 | | Contract Drilling Expense, Excluding Depreciation | $141,573 | $184,511 | | Depreciation Expense | $74,626 | $93,043 | | Impairment of Assets | $197,027 | $774,028 | | Interest Expense, net | $(32,562) | $(32,321) | | Reorganization Items, net | $(35,252) | $0 | | Net Loss | $(361,681) | $(861,940) | - Contract drilling revenue decreased by $95.30 million due to 215 fewer revenue-earning days and lower average daily revenue; contract drilling expense, excluding depreciation, decreased by $42.90 million due to cold-stacking and cost-cutting initiatives[95] Liquidity and Capital Resources This section discusses the company's cash position, new debt instruments, operating cash flow, and capital expenditure plans - Post-emergence from Chapter 11, the company established new debt instruments: a $400.00 million Revolving Credit Facility, a $100.00 million Term Loan Credit Facility, and approximately $85.30 million in First Lien Notes[96][97] - Cash flow from operations decreased by $26.40 million in Q1 2021 compared to Q1 2020, primarily due to lower cash receipts from contract drilling services[99] - Expected cash capital expenditures for the last nine months of 2021 are $50 million to $70 million, totaling $90 million to $110 million for the full year, including equipment upgrades[99] - As of March 31, 2021, the company had $311.40 million cash available for current operations and a contractual backlog of $1.10 billion[98] Off-Balance Sheet Arrangements This section confirms the absence of off-balance sheet debt or other arrangements at the reporting dates - The company reported no off-balance sheet debt or other off-balance sheet arrangements at March 31, 2021, and December 31, 2020[101] Forward-Looking Statements This section cautions readers about forward-looking statements, their inherent risks, and the company's disclaimer regarding updates - The report contains forward-looking statements regarding future results, events, and financial performance, identified by specific terminology[102] - These statements are subject to inherent risks and uncertainties, including the ability to continue as a going concern, increased bankruptcy-related costs, market conditions, and the effects of the COVID-19 pandemic[102][103] - Investors should not place undue reliance on forward-looking statements, and the company disclaims any obligation to update them[104] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk This section reports no material changes in market risk components for Q1 2021, referencing the Annual Report on Form 10-K for details - No material changes in market risk components were identified for the three months ended March 31, 2021[106] ITEM 4. Controls and Procedures The CEO and CFO concluded effective disclosure controls and procedures as of March 31, 2021, with no material changes in internal control during Q1 2021 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2021[107] - No material changes in internal control over financial reporting were identified during the first fiscal quarter of 2021[107] PART II. OTHER INFORMATION This part includes information on legal proceedings, risk factors, and a list of exhibits filed with the report ITEM 1. Legal Proceedings This section incorporates by reference details on legal proceedings from Note 9 and Chapter 11 Cases from Note 2 - Information related to legal proceedings is incorporated by reference from Note 9 'Commitments and Contingencies' in the financial statements[110] - Information related to the Chapter 11 Cases is incorporated by reference from Note 2 'Chapter 11 Proceedings – Chapter 11 Cases'[110] ITEM 1A. Risk Factors This section confirms no material changes to risk factors discussed in the Annual Report on Form 10-K for 2020 - No material changes have been made to the risk factors discussed in the Annual Report on Form 10-K for the year ended December 31, 2020, as of March 31, 2021[111] ITEM 6. Exhibits This section lists exhibits filed with the Form 10-Q, including the Chapter 11 Plan, organizational documents, Plan Support Agreement, and certifications - Exhibits include the Second Amended Joint Chapter 11 Plan of Reorganization, Third Amended and Restated Certificate of Incorporation, Second Amended and Restated Bylaws, and the Plan Support Agreement[112] - Also included are Rule 13a-14(a) Certifications from the CEO and CFO, Section 1350 Certification, and Inline XBRL documents[112] SIGNATURES This section provides the official signatures for the Form 10-Q report - The report was signed on May 7, 2021, by Scott Kornblau, Senior Vice President and Chief Financial Officer, and Dominic A. Savarino, Vice President and Chief Accounting & Tax Officer[113]