NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Diamond Offshore Drilling, Inc. provides contract drilling services to the energy industry around the globe with a fleet of 24 offshore drilling rigs. Our current fleet consists of four
drillships, eight ultra-deepwater, six deepwater and five mid-water semisubmersible rigs, and one jack-up rig. The
Ocean Spur
reported as Assets held for sale in our Consolidated Balance Sheets at December 31, 2016 is
expected to be sold in the near future. Unless the context otherwise requires, references in these Notes to Diamond Offshore, we, us or our mean Diamond Offshore Drilling, Inc. and our consolidated
subsidiaries. We were incorporated in Delaware in 1989.
As of February 10, 2017, Loews Corporation, or
Loews, owned approximately 53% of the outstanding shares of our common stock.
Principles of Consolidation
Our consolidated financial statements include the accounts of Diamond Offshore Drilling, Inc. and our
wholly-owned subsidiaries after elimination of intercompany transactions and balances.
Use of Estimates in
the Preparation of Financial Statements
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States, or U.S., 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.
Cash and Cash Equivalents
We consider
short-term, highly liquid investments that have an original maturity of three months or less and deposits in money market mutual funds that are readily convertible into cash to be cash equivalents.
The effect of exchange rate changes on cash balances held in foreign currencies was not material for the years ended
December 31, 2016, 2015 and 2014.
Marketable Securities
We classify our investments in marketable securities as available for sale and they are stated at fair value in our
Consolidated Balance Sheets. Accordingly, any unrealized gains and losses, net of taxes, are reported in our Consolidated Balance Sheets in Accumulated other comprehensive gain (loss) until realized. The cost of debt securities is
adjusted for amortization of premiums and accretion of discounts to maturity and such adjustments are included in our Consolidated Statements of Operations in Interest income. The sale and purchase of securities are recorded on the date
of the trade. The cost of debt securities sold is based on the specific identification method. Realized gains or losses, as well as any declines in value that are judged to be other than temporary, are reported in our Consolidated Statements of
Operations in Other income (expense) Other, net. See Note 6.
Provision for Bad Debts
We record a provision for bad debts on a case-by-case basis when facts and circumstances indicate
that a customer receivable may not be collectible. In establishing these reserves, we consider historical and other factors that predict collectability, including write-offs, recoveries and the monitoring of credit quality. Such provision is
reported as a component of Operating expense in our Consolidated Statements of Operations. See Note 3.
58
DIAMOND OFFSHORE DRILLING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Derivative Financial Instruments
Our derivative financial instruments have primarily consisted of foreign currency forward exchange, or FOREX, contracts
which we may designate as cash flow hedges. In accordance with GAAP, each derivative contract is stated in the balance sheet at its fair value with gains and losses reflected in the income statement except that, to the extent the derivative
qualifies for and is designated as an accounting hedge, the gains and losses are reflected in income in the same period as offsetting gains and losses on the qualifying hedged positions. Designated hedges are expected to be highly effective, and
therefore, adjustments to record the carrying value of the effective portion of our derivative financial instruments to their fair value are recorded as a component of Accumulated other comprehensive gain (loss), or AOCGL, in our
Consolidated Balance Sheets. The effective portion of the cash flow hedge will remain in AOCGL until it is reclassified into earnings in the period or periods during which the hedged transaction affects earnings or it is determined that the hedged
transaction will not occur. We report such realized gains and losses as a component of Contract drilling, excluding depreciation expense in our Consolidated Statements of Operations to offset the impact of foreign currency fluctuations
in our expenditures in local foreign currencies in the countries in which we operate.
Adjustments to record
the carrying value of the ineffective portion of our derivative financial instruments to fair value and realized gains or losses upon settlement of derivative contracts not designated as cash flow hedges are reported as Foreign currency
transaction gain (loss) in our Consolidated Statements of Operations. See Notes 7 and 8.
Assets Held
For Sale
We reported the $0.4 million and $14.2 million carrying values of certain of our jack-up
rigs as Assets held for sale in our Consolidated Balance Sheets at December 31, 2016 and 2015, respectively. Four of these rigs were sold during 2016 and the remaining jack-up rig reported as Assets held for sale at
December 31, 2016 is expected to be sold in the near future. See Note 2.
Drilling and Other
Property and Equipment
We carry our drilling and other property and equipment at cost, less
accumulated depreciation. Maintenance and routine repairs are charged to income currently while replacements and betterments that upgrade or increase the functionality of our existing equipment and that significantly extend the useful life of an
existing asset, are capitalized. Significant judgments, assumptions and estimates may be required in determining whether or not such replacements and betterments meet the criteria for capitalization and in determining useful lives and salvage values
of such assets. Changes in these judgments, assumptions and estimates could produce results that differ from those reported. During the years ended December 31, 2016 and 2015, we capitalized $177.6 million and $262.4 million, respectively, in
replacements and betterments of our drilling fleet.
Costs incurred for major rig upgrades and/or the
construction of rigs are accumulated in construction work-in-progress, with no depreciation recorded on the additions, until the month the upgrade or newbuild is completed and the rig is placed in service. Upon retirement or sale of a rig, the cost
and related accumulated depreciation are removed from the respective accounts and any gains or losses are included in our results of operations as Loss (gain) on disposition of assets. Depreciation is recognized up to applicable salvage
values by applying the straight-line method over the remaining estimated useful lives from the year the asset is placed in service. Drilling rigs and equipment are depreciated over their estimated useful lives ranging from 3 to 30 years.
59
DIAMOND OFFSHORE DRILLING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Capitalized Interest
We capitalize interest cost for qualifying construction and upgrade projects. During the three years ended
December 31, 2016, we capitalized interest on qualifying expenditures, primarily related to our rig construction projects. See Note 9.
A reconciliation of our total interest cost to Interest expense as reported in our Consolidated Statements of Operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(In thousands)
|
|
Total interest cost including amortization of debt issuance costs
|
|
$
|
110,748
|
|
|
$
|
110,242
|
|
|
$
|
122,656
|
|
Capitalized interest
|
|
|
(20,814
|
)
|
|
|
(16,308
|
)
|
|
|
(60,603
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense as reported
|
|
$
|
89,934
|
|
|
$
|
93,934
|
|
|
$
|
62,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of Long-Lived Assets
We evaluate our property and equipment for impairment whenever changes in circumstances indicate that the carrying amount
of an asset may not be recoverable (such as, but not limited to, cold stacking a rig, the expectation of cold stacking a rig in the near term, contracted backlog of less than one year for a rig, a decision to retire or scrap a rig, or excess
spending over budget on a newbuild, construction project or major rig upgrade). We utilize an undiscounted probability-weighted cash flow analysis in testing an asset for potential impairment. Our assumptions and estimates underlying this analysis
include the following:
|
|
|
utilization rate by rig if active, warm stacked or cold stacked (expressed as the actual percentage of time per year that the rig would
be used at certain dayrates);
|
|
|
|
the per day operating cost for each rig if active, warm stacked or cold stacked;
|
|
|
|
the estimated annual cost for rig replacements and/or enhancement programs;
|
|
|
|
the estimated maintenance, inspection or other reactivation costs associated with a rig returning to work;
|
|
|
|
salvage value for each rig; and
|
|
|
|
estimated proceeds that may be received on disposition of each rig.
|
Based on these assumptions, we develop a matrix for each rig under evaluation using multiple utilization/dayrate
scenarios, to each of which we have assigned a probability of occurrence. We arrive at a projected probability-weighted cash flow for each rig based on the respective matrix and compare such amount to the carrying value of the asset to assess
recoverability.
The underlying assumptions and assigned probabilities of occurrence for utilization and
dayrate scenarios are developed using a methodology that examines historical data for each rig, which considers the rigs age, rated water depth and other attributes and then assesses its future marketability in light of the current and
projected market environment at the time of assessment. Other assumptions, such as operating, maintenance, inspection and reactivation costs, are estimated using historical data adjusted for known developments, cost projections for re-entry of rigs
into the market and future events that are anticipated by management at the time of the assessment.
60
DIAMOND OFFSHORE DRILLING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Managements assumptions are necessarily subjective and are an
inherent part of our asset impairment evaluation
,
and the use of different assumptions could produce results that differ from those reported. Our methodology generally involves the use of significant unobservable inputs, representative of a
Level 3 fair value measurement, which may include assumptions related to future dayrate revenue, costs and rig utilization, quotes from rig brokers, the long-term future performance of our rigs and future market conditions. Managements
assumptions involve uncertainties about future demand for our services, dayrates, expenses and other future events, and managements expectations may not be indicative of future outcomes. Significant unanticipated changes to these assumptions
could materially alter our analysis in testing an asset for potential impairment. For example, changes in market conditions that exist at the measurement date or that are projected by management could affect our key assumptions. Other events or
circumstances that could affect our assumptions may include, but are not limited to, a further sustained decline in oil and gas prices, cancelations of our drilling contracts or contracts of our competitors, contract modifications, costs to comply
with new governmental regulations, capital expenditures required due to advances in offshore drilling technology, growth in the global oversupply of oil and geopolitical events, such as lifting sanctions on oil-producing nations. Should actual
market conditions in the future vary significantly from market conditions used in our projections, our assessment of impairment would likely be different. See Note 2.
Fair Value of Financial Instruments
We believe that the carrying amount of our current financial instruments approximates fair value because of the short
maturity of these instruments. See Note 8.
Debt Issuance Costs
Historically, we have presented deferred costs associated with the issuance of long-term debt as Other Assets
in our consolidated balance sheets and have amortized such costs over the respective terms of the related debt. In April 2015, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2015-03, Interest
- Imputation of Interest (Subtopic 835-30); Simplifying the Presentation of Debt Issuance Costs, or ASU 2015-03, which requires debt issuance costs associated with our senior notes to be presented in the balance sheet as a reduction in the related
long-term debt. We have adopted the provisions of ASU 2015-03 effective January 1, 2016 and have retrospectively applied its provisions to all periods presented in our Consolidated Financial Statements. The retrospective effect of our adoption
of ASU 2015-03, which affected only the presentation of deferred debt issuance costs in our Consolidated Balance Sheets at December 31, 2015, is as follows:
|
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
Long-term
Debt
|
|
|
|
(In thousands)
|
|
Amount as previously presented, before adoption of ASU 2015-03
|
|
$
|
116,480
|
|
|
$
|
1,994,773
|
|
Deferred debt issuance costs
|
|
|
(14,995
|
)
|
|
|
(14,995
|
)
|
|
|
|
|
|
|
|
|
|
Amount as restated, after adoption of ASU 2015-03
|
|
$
|
101,485
|
|
|
$
|
1,979,778
|
|
|
|
|
|
|
|
|
|
|
See Note 10.
Income Taxes
We account for income
taxes in accordance with accounting standards that require the recognition of the amount of taxes payable or refundable for the current year and an asset and liability approach in recognizing the amount of deferred tax liabilities and assets for the
future tax consequences of events that have been currently recognized in our financial
61
DIAMOND OFFSHORE DRILLING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
statements or tax returns. In each of our tax jurisdictions we recognize a current tax liability or asset for the estimated taxes payable or refundable on tax returns for the current year and a
deferred tax asset or liability for the estimated future tax effects attributable to temporary differences and carryforwards. Deferred tax assets are reduced by a valuation allowance, if necessary, which is determined by the amount of any tax
benefits that, based on available evidence, are not expected to be realized under a more likely than not approach. Deferred tax assets and liabilities are classified as noncurrent in a classified statement of financial position. We make
judgments regarding future events and related estimates especially as they pertain to the forecasting of our effective tax rate, the potential realization of deferred tax assets such as utilization of foreign tax credits, and exposure to the
disallowance of items deducted on tax returns upon audit.
We record interest related to accrued unrecognized
tax positions in Interest expense, net of capitalized interest and recognize penalties associated with uncertain tax positions in Income tax benefit (expense) in our Consolidated Statements of Operations. Liabilities for
uncertain tax positions, including any penalty, are denominated in the currency of the related tax jurisdiction and are revalued for changes in currency exchange rates. The revaluation of such liabilities for uncertain tax positions is reported in
Income tax benefit (expense) in our Consolidated Statements of Operations. See Note 16.
Treasury Stock
In connection with the vesting of restricted stock units held by our chief executive officer, or CEO, during 2016 and 2015, we acquired 7,923 and 7,810 shares of our common stock,
respectively (valued at $0.2 million in each year) in satisfaction of tax withholding obligations that were incurred on the vesting date. See Note 3.
Depending on market conditions, we may, from time to time, purchase shares of our common stock in the open market or otherwise. We account for the purchase of treasury stock using the cost
method, which reports the cost of the shares acquired in Treasury stock as a deduction from stockholders equity in our Consolidated Balance Sheets. During the year ended December 31, 2014, we repurchased 1,895,561 shares of
our outstanding common stock at a cost of $87.8 million. We did not repurchase any shares of our outstanding common stock during 2016 or 2015.
Comprehensive Income (Loss)
Comprehensive income (loss) is the change in equity of a business enterprise during a period from transactions and other
events and circumstances except those transactions resulting from investments by owners and distributions to owners. Comprehensive income (loss) for the three years ended December 31, 2016, 2015 and 2014 includes net income (loss) and
unrealized holding gains and losses on marketable securities and financial derivatives designated as cash flow accounting hedges. See Note 11.
Foreign Currency
Our functional
currency is the U.S. dollar. Foreign currency transaction gains and losses are reported as Foreign currency transaction gain (loss) in our Consolidated Statements of Operations and include, when applicable, unrealized gains and losses to
record the carrying value of our FOREX contracts not designated as accounting hedges, as well as realized gains and losses from the settlement of such contracts. For the years ended December 31, 2016, 2015 and 2014, we recognized aggregate net
foreign currency (losses) gains of $(11.5) million, $2.5 million and $3.2 million, respectively. See Note 7.
The revaluation of liabilities for uncertain tax positions, including any penalty, is reported in Income tax
benefit (expense) in our Consolidated Statements of Operations. See Note 16.
Revenue Recognition
We recognize revenue from dayrate drilling contracts as services are performed. In connection with
such drilling contracts, we may receive fees (on either a lump-sum or dayrate basis) for the mobilization of equipment. We earn these fees as services are performed over the initial term of the related drilling contracts. We defer mobilization fees
received, as
62
DIAMOND OFFSHORE DRILLING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
well as direct and incremental mobilization costs incurred, and amortize each, on a straight-line basis, over the term of the related drilling contracts (which is the period we estimate to be
benefited from the mobilization activity). Straight-line amortization of mobilization revenues and related costs over the term of the related drilling contracts (which generally range from two to 60 months) is consistent with the timing of net cash
flows generated from the actual drilling services performed. Absent a contract, mobilization costs are recognized currently. Upon completion of a drilling contract, we recognize in earnings any demobilization fees received and costs incurred.
Some of our drilling contracts require downtime before the start of the contract to prepare the rig to meet
customer requirements. At times, we may be compensated by the customer for such work (on either a lump-sum or dayrate basis). These fees are generally earned as services are performed over the initial term of the related drilling contracts. We defer
contract preparation fees received, as well as direct and incremental costs associated with the contract preparation activities and amortize each, on a straight-line basis, over the term of the related drilling contracts (which we estimate to be
benefited from the contract preparation activity).
From time to time, we may receive fees from our customers
for capital improvements to our rigs (on either a lump-sum or dayrate basis). We defer such fees received in Accrued liabilities and Other liabilities in our Consolidated Balance Sheets and recognize these fees into income on
a straight-line basis over the period of the related drilling contract. We capitalize the costs of such capital improvements and depreciate them over the estimated useful life of the improvement.
We record reimbursements received for the purchase of supplies, equipment, personnel services and other services provided
at the request of our customers in accordance with a contract or agreement, for the gross amount billed to the customer, as Revenues related to reimbursable expenses in our Consolidated Statements of Operations.
Recent Accounting Pronouncements
In August 2016, the FASB issued ASU No. 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
, or ASU 2016-15. ASU 2016-15
provides specific guidance on eight cash flow classification issues not specifically addressed by GAAP: debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments; contingent consideration payments; proceeds from the
settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies; distributions from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and
application of the predominance principle. The amendments in ASU 2016-15 are effective for interim and annual periods beginning after December 15, 2017. ASU 2016-15 should be applied using a retrospective transition method, unless it is
impracticable to do so for some of the issues. In such case, the amendments for those issues would be applied prospectively as of the earliest date practicable. Early adoption is permitted. We are currently evaluating the provisions of ASU 2016-15
but do not expect ASU 2016-15 to have a significant impact on the presentation of cash receipts and cash payments within our consolidated statements of cash flows.
In March 2016, the FASB issued ASU No. 2016-09,
Compensation - Stock Compensation (Topic 718)
, or ASU 2016-09, which simplifies several aspects of the accounting for
share-based payment transactions. The new guidance makes several modifications to the accounting for forfeitures, employer tax withholding on share-based compensation and the financial statement presentation of excess tax benefits or deficiencies.
In addition, ASU 2016-09 clarifies the statement of cash flows presentation for certain components of share-based awards. The guidance of ASU 2016-09 is effective for interim and annual reporting periods beginning after December 15, 2016. We
will adopt the provisions of ASU 2016-09 effective January 1, 2017. We do not expect the adoption of ASU 2016-09 to have a material impact on our financial position, results of operations or cash flows.
63
DIAMOND OFFSHORE DRILLING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic
842)
, or ASU 2016-02, which requires an entity to separate the lease components from the non-lease components in a contract. The lease components are to be accounted for under ASU 2016-02, which, under the guidance, may require recognition of
lease assets and lease liabilities by lessees for most leases and derecognition of the leased asset and recognition of a net investment in the lease by the lessor. ASU 2016-02 also provides for additional disclosure requirements for both lessees and
lessors. Non-lease components would be accounted for under ASU 2014-09. The guidance of ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. Early
adoption of ASU 2016-02 is permitted. We expect to adopt ASU 2016-02 on January 1, 2019. We are currently reviewing the provisions of the accounting standard, but have not yet determined the impact of ASU 2016-02 on our financial position,
results of operations or cash flows or our expected transition method.
In May 2014, the FASB issued ASU
No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
, or ASU 2014-09. The new standard supersedes the industry-specific standards that currently exist under GAAP and provides a framework to address revenue recognition issues
comprehensively for all contracts with customers regardless of industry-specific or transaction-specific fact patterns. Under the new guidance, companies recognize revenue to depict the transfer of promised goods or services to customers in an
amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2014-09 provides a five-step analysis of transactions to determine when and how revenue is recognized and requires
enhanced disclosures about revenue. In July 2015, the FASB issued ASU 2015-14, which deferred the effective date of ASU 2014-09. ASU 2014-09 is now effective for annual reporting periods beginning after December 15, 2017. We plan to adopt ASU
2014-09 effective January 1, 2018 using the modified retrospective approach whereby we will record the cumulative effect of applying the new standard to all outstanding contracts as of January 1, 2018 as an adjustment to opening retained
earnings. We do not expect our pattern of revenue recognition under the new guidance to materially differ from our current revenue recognition practice. We expect the cumulative effect adjustment to opening retained earnings to not be significant.
2016 Impairments
During 2016, in response to the continuing industry-wide decline in utilization for semisubmersible rigs, further exacerbated by additional and more frequent
contract cancelations by customers, declining dayrates, as well as the results of a third-party strategic review of our long-term business plan completed in the second quarter of 2016, we reassessed our projections for a recovery in the offshore
drilling market. As a result, we concluded that an expected market recovery is now likely further in the future than had previously been estimated. Consequently, we believe our cold-stacked rigs, as well as those rigs that we expect to cold stack in
the near term after they come off contract, will likely remain cold stacked for an extended period of time. We also believe that the re-entry costs for these rigs will be higher than previously estimated, negatively impacting the undiscounted,
probability-weighted cash flow projections utilized in our earlier impairment analysis. In addition, in response to the declining market, we have also reduced anticipated market pricing and expected utilization of these rigs after reactivation.
During 2016, we evaluated 15 of our drilling rigs with indications that their carrying amounts may not be
recoverable. Based on our updated assumptions and analyses, we determined that the carrying values of eight of these rigs were impaired, including one rig that had been previously impaired in a prior year; (we collectively refer to these eight rigs
as the 2016 Impaired Rigs). The 2016 Impaired Rigs consisted of three ultra-deepwater, three deepwater and two mid-water semisubmersible rigs.
We estimated the fair value of the 2016 Impaired Rigs using an income approach. The fair value of each rig was estimated based on a calculation of the rigs discounted future net cash
flows over its remaining economic life, which
64
DIAMOND OFFSHORE DRILLING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
utilized significant unobservable inputs, including, but not limited to, assumptions related to estimated dayrate revenue, rig utilization, estimated reactivation and regulatory survey costs, as
well as estimated proceeds that may be received on ultimate disposition of the rig. Our fair value estimates were representative of Level 3 fair value measurements due to the significant level of estimation involved and the lack of transparency as
to the inputs used. During the second quarter of 2016, we recorded an impairment loss of $670.0 million related to our 2016 Impaired Rigs.
2015 Impairments
During 2015, we evaluated 25 of our drilling rigs with indications that their carrying amounts may not be recoverable. Using an undiscounted, projected
probability-weighted cash flow analysis, we determined that the carrying value of 17 of these rigs, consisting of two ultra-deepwater, one deepwater and nine mid-water floaters and five jack-up rigs, were impaired (we collectively refer to these 17
rigs as the 2015 Impaired Rigs).
We estimated the fair value of 16 of the 2015 Impaired Rigs
utilizing a market approach, which required us to estimate the value that would be received for each rig in the principal or most advantageous market for that rig in an orderly transaction between market participants. Such estimates were based on
various inputs, including historical contracted sales prices for similar rigs in our fleet, nonbinding quotes from rig brokers and/or indicative bids, where applicable. We estimated the fair value of the one remaining 2015 Impaired Rig using an
income approach, as discussed above. Our fair value estimates are representative of Level 3 fair value measurements due to the significant level of estimation involved and the lack of transparency as to the inputs used.
During the first, third and fourth quarters of 2015, we recognized impairment losses of $358.5 million, $2.6 million and
$499.4 million, respectively, for an aggregate impairment loss of $860.4 million for the year ended December 31, 2015.
2014 Impairments
During 2014, we initiated a plan to retire and scrap six mid-water drilling rigs. Using an undiscounted, projected probability-weighted cash flow analysis,
we determined that the carrying values of these six rigs were impaired (we collectively refer to these six rigs as the 2014 Impaired Rigs). We determined the fair value of the 2014 Impaired Rigs by applying a combination of income and
market approaches which were representative of Level 3 fair value measurements due to the significant level of estimation involved and the lack of transparency as to the inputs used. As a result of our valuations, we recognized an impairment loss
aggregating $109.5 million during the third quarter of 2014. No other impairment losses were recognized during 2014.
Of the 30 rigs impaired during the three-year period ended December 31, 2016, 20 rigs have been sold, and eight rigs are currently cold stacked. Two other previously impaired rigs are
currently operating under contract.
If market fundamentals in the offshore oil and gas industry deteriorate
further or if we are unable to secure new or extend contracts for our current, actively-marketed drilling fleet or reactivate any of our cold-stacked rigs or if we experience unfavorable changes to our actual dayrates and rig utilization, we may be
required to recognize additional impairment losses in future periods, if we are unable to recover the carrying value of any of our drilling rigs.
See Notes 1 and 9.
65
DIAMOND OFFSHORE DRILLING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
3.
|
Supplemental Financial Information
|
Consolidated Balance Sheet Information
Accounts receivable, net of allowance for bad debts, consists of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
Trade receivables
|
|
$
|
236,040
|
|
|
$
|
390,429
|
|
Value added tax receivables
|
|
|
14,639
|
|
|
|
14,475
|
|
Amounts held in escrow
|
|
|
24
|
|
|
|
4,966
|
|
Interest receivable
|
|
|
9
|
|
|
|
336
|
|
Related party receivables
|
|
|
149
|
|
|
|
167
|
|
Other
|
|
|
1,626
|
|
|
|
721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
252,487
|
|
|
|
411,094
|
|
Allowance for bad debts
|
|
|
(5,459
|
)
|
|
|
(5,724
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
247,028
|
|
|
$
|
405,370
|
|
|
|
|
|
|
|
|
|
|
An analysis of the changes in our provision for bad debts for each of the three years
ended December 31, 2016, 2015 and 2014 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(In thousands)
|
|
Allowance for bad debts, beginning of year
|
|
$
|
5,724
|
|
|
$
|
5,724
|
|
|
$
|
27,340
|
|
Bad debt expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for bad debts
|
|
|
|
|
|
|
|
|
|
|
|
|
Recovery of bad debts
|
|
|
(265
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bad debt expense (recovery)
|
|
|
(265
|
)
|
|
|
|
|
|
|
|
|
Write off of uncollectible accounts against reserve
|
|
|
|
|
|
|
|
|
|
|
(21,148
|
)
|
Other
(1)
|
|
|
|
|
|
|
|
|
|
|
(468
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for bad debts, end of year
|
|
$
|
5,459
|
|
|
$
|
5,724
|
|
|
$
|
5,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes revaluation adjustments for non-U.S. dollar denominated receivables, which have been recorded as Foreign currency transaction gain
(loss) in our Consolidated Statements of Operations.
|
See Note 8 for a discussion of our
provision for bad debts and write off of uncollectible accounts against the reserve.
66
DIAMOND OFFSHORE DRILLING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Prepaid expenses and other current assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
Rig spare parts and supplies
|
|
$
|
25,343
|
|
|
$
|
42,804
|
|
Deferred mobilization costs
|
|
|
61,488
|
|
|
|
52,965
|
|
Prepaid BOP Lease
|
|
|
3,873
|
|
|
|
|
|
Prepaid insurance
|
|
|
3,771
|
|
|
|
4,483
|
|
Prepaid taxes
|
|
|
2,894
|
|
|
|
14,969
|
|
Other
|
|
|
4,742
|
|
|
|
4,258
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
102,111
|
|
|
$
|
119,479
|
|
|
|
|
|
|
|
|
|
|
During 2016, we recognized an $8.1 million impairment loss related to our rig spare parts
and supplies.
Accrued liabilities
consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
Rig operating expenses
|
|
$
|
33,732
|
|
|
$
|
47,426
|
|
Payroll and benefits
|
|
|
45,619
|
|
|
|
59,787
|
|
Deferred revenue
|
|
|
9,522
|
|
|
|
31,542
|
|
Accrued capital project/upgrade costs
|
|
|
60,308
|
|
|
|
84,146
|
|
Interest payable
|
|
|
18,365
|
|
|
|
18,365
|
|
Personal injury and other claims
|
|
|
6,424
|
|
|
|
8,320
|
|
Other
|
|
|
8,189
|
|
|
|
4,183
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
182,159
|
|
|
$
|
253,769
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statement of Cash Flows Information
Noncash investing activities excluded from the Consolidated Statements of Cash Flows and other supplemental cash flow
information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(In thousands)
|
|
Accrued but unpaid capital expenditures at period end
|
|
$
|
60,308
|
|
|
$
|
84,146
|
|
|
$
|
103,123
|
|
Income tax benefits related to exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
1,458
|
|
Common stock withheld for payroll tax obligations
(1)
|
|
|
181
|
|
|
|
236
|
|
|
|
|
|
Cash interest payments
(2)
|
|
|
105,987
|
|
|
|
110,412
|
|
|
|
133,784
|
|
Cash income taxes paid (refunded), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
|
(31,151
|
)
|
|
|
(21,751
|
)
|
|
|
|
|
Foreign
|
|
|
48,931
|
|
|
|
69,697
|
|
|
|
92,049
|
|
State
|
|
|
1
|
|
|
|
58
|
|
|
|
(18
|
)
|
(1)
|
Represents the cost of 7,923 and 7,810 shares of common stock withheld to satisfy the payroll tax obligation incurred as a result of
the vesting of restricted stock units in 2016 and 2015, respectively. These costs are presented as a
|
67
DIAMOND OFFSHORE DRILLING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
|
deduction from stockholders equity in Treasury stock in our Consolidated Balance Sheets at December 31, 2016 and 2015.
|
(2)
|
Interest payments, net of amounts capitalized, were $86.1 million, $94.7 million and $73.2 million for the years ended December 31, 2016,
2015 and 2014, respectively.
|
4.
|
Stock-Based Compensation
|
We have an Equity Incentive Compensation Plan, or Equity Plan, for our (a) officers (b) independent contractors, (c) employees and (d) non-employee directors, which is
designed to encourage stock ownership by such persons, thereby aligning their interests with those of our stockholders and to permit the payment of performance-based compensation as defined by the Internal Revenue Code of 1986, as amended, or the
Code. Under the Equity Plan, we may grant both time-vesting and performance-vesting awards, which are earned on the achievement of certain performance criteria. The following types of awards may be granted under the Equity Plan:
|
|
|
Stock options (including incentive stock options and nonqualified stock options);
|
|
|
|
Stock appreciation rights, or SARs;
|
|
|
|
Restricted stock units, or RSUs;
|
|
|
|
Performance shares or units; and
|
|
|
|
Other stock-based awards (including dividend equivalents).
|
A maximum of 7,500,000 shares of our common stock is available for the grant or settlement of awards under the Equity
Plan, subject to adjustment for certain business transactions and changes in capital structure. Vesting conditions and other terms and conditions of awards under the Equity Plan are determined by our Board of Directors or the compensation committee
of our Board of Directors, subject to the terms of the Equity Plan. RSUs may be issued with performance-vesting or time-vesting features. Except for RSUs issued to our CEO, RSUs are not participating securities, and the holders of such awards have
no right to receive regular dividends if or when declared.
Total compensation cost recognized for all awards
under the Equity Plan (or its predecessor) for the years ended December 31, 2016, 2015 and 2014 was $7.0 million, $5.7 million and $5.0 million, respectively. Tax benefits recognized for the years ended December 31, 2016, 2015 and 2014
related thereto were $2.4 million, $1.9 million and $1.4 million, respectively. As of December 31, 2016 there was $11.8 million of total unrecognized compensation cost related to non-vested awards under the Equity Plan, which we expect to
recognize over a weighted average period of two years.
Time-Vesting Awards
SARs
. SARs awarded under the Equity Plan generally vest ratably over a four-year period and expire in ten years.
The exercise price per share of SARs awarded under the Equity Plan may not be less than the fair market value of our common stock on the date of grant.
68
DIAMOND OFFSHORE DRILLING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The fair value of SARs granted under the Equity Plan (or its
predecessor) during each of the years ended December 31, 2016, 2015 and 2014 was estimated using the Black Scholes pricing model with the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Expected life of SARs (in years)
|
|
|
7
|
|
|
|
6
|
|
|
|
7
|
|
Expected volatility
|
|
|
45.79
|
%
|
|
|
55.12
|
%
|
|
|
21.68
|
%
|
Dividend yield
|
|
|
.60
|
%
(1)
|
|
|
1.70
|
%
|
|
|
1.10
|
%
|
Risk free interest rate
|
|
|
1.46
|
%
|
|
|
1.66
|
%
|
|
|
2.08
|
%
|
(1)
|
Represents dividend yield related to January 2016 grant of SARs prior to our decision in early 2016 to discontinue paying dividends.
|
The expected life of SARs is based on historical data as is the expected volatility. The
dividend yield is based on the current approved regular dividend rate in effect and the current market price at the time of grant. Risk free interest rates are determined using the U.S. Treasury yield curve at time of grant with a term equal to the
expected life of the SARs.
A summary of SARs activity under the Equity Plan as of December 31, 2016 and
changes during the year then ended is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
Awards
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual
Term
(Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
Awards outstanding at January 1, 2016
|
|
|
1,531,631
|
|
|
$
|
70.26
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
66,000
|
|
|
$
|
21.04
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
10,196
|
|
|
$
|
49.48
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
137,729
|
|
|
$
|
78.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards outstanding at December 31, 2016
|
|
|
1,449,706
|
|
|
$
|
67.43
|
|
|
|
5.0
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards exercisable at December 31, 2016
|
|
|
1,347,992
|
|
|
$
|
68.88
|
|
|
|
4.9
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average grant date fair values per share of awards granted during the years
ended December 31, 2016, 2015 and 2014 were $9.32, $14.44 and $10.40, respectively. The total intrinsic value of awards exercised during the years ended December 31, 2016, 2015 and 2014 was $0, $0 and $169,000, respectively. The total fair
value of awards vested during the years ended December 31, 2016, 2015 and 2014 was $2.2 million, $3.6 million and $4.5 million, respectively.
Restricted Stock Units
. RSUs are contractual rights to receive shares of our common stock in the future if the applicable vesting conditions are met. On April 1, 2016 and 2015,
we granted an aggregate of 183,076 and 153,493 time-vesting RSUs, respectively. One-half of each annual grant will vest two years from the date of grant and the remaining 50% of which will vest three years from the date of grant, conditioned upon
continued employment through the applicable vesting date. The fair value of time-vesting RSUs granted under the Equity Plan was estimated based on the fair market value of our common stock on the date of grant. The fair value of non-participating
RSUs granted in 2015 were discounted at a three-year risk-free interest rate of 1.48%, in consideration of the non-participative rights of the awards. The fair value of non-participating RSUs granted in 2016 was not discounted as the fair value
would have reflected the 2016 suspension of regular dividend payments.
69
DIAMOND OFFSHORE DRILLING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
A summary of activity for time-vesting RSUs under the Equity Plan as of
December 31, 2016 and changes during the year then ended is as follows:
|
|
|
|
|
|
|
|
|
|
|
Number
of
Awards
|
|
|
Weighted-
Average
Grant Date
Fair Value
Per Share
|
|
Nonvested awards at January 1, 2016
|
|
|
149,614
|
|
|
$
|
25.09
|
|
Granted
|
|
|
183,076
|
|
|
$
|
21.61
|
|
Vested
|
|
|
|
|
|
$
|
|
|
Forfeited
|
|
|
13,130
|
|
|
$
|
24.21
|
|
|
|
|
|
|
|
|
|
|
Nonvested awards at December 31, 2016
|
|
|
319,560
|
|
|
$
|
23.13
|
|
|
|
|
|
|
|
|
|
|
No time-vesting RSUs vested during the years ended December 31, 2016 or 2015.
Performance-Vesting Awards
Restricted Stock Units
. On April 1, 2016 and 2015, we granted an aggregate 248,188 and 169,312
performance-vesting RSUs, respectively, which will vest upon achievement of certain performance goals as set forth in the individual award agreements over the three-year performance period beginning on January 1 in the year of grant and ending
on December 31 of the third year following the date of grant. The shares of our common stock to be received upon the vesting of the performance-vesting RSUs will be delivered no later than March 15 of the year following completion of the
three-year performance period. The fair value of performance-vesting RSUs granted under the Equity Plan to employees in 2015, other than to our CEO, was estimated based on the fair market value of our common stock on the date of grant. The fair
value of non-participating, performance-vesting RSUs granted in 2015 was discounted at a three-year risk-free interest rate of 1.48% in consideration of the non-participative rights of the awards. The fair value of performance-vesting RSUs granted
to our CEO in 2015 was not discounted as such awards are participating securities. The fair value of performance-vesting RSUs granted in 2016 were not discounted as the fair value would have reflected the 2016 suspension of regular dividend
payments.
In 2014, we awarded 55,661 targeted performance RSUs, with a volume weighted average price of our
common stock preceding the grant date of $46.99 per share, including 3,080 in RSUs credited upon payment of cash dividends in 2014, to our CEO in connection with his commencement of service with us in March 2014. The RSUs awarded to our CEO in 2014
vest in one-third increments annually, over three years, commencing on the first anniversary of his hire date, conditioned upon continued employment through the applicable vesting date.
A summary of activity for performance-vesting RSUs under the Equity Plan as of December 31, 2016 and changes during
the year then ended is as follows:
|
|
|
|
|
|
|
|
|
|
|
Number
of
Awards
|
|
|
Weighted-
Average
Grant Date
Fair Value
Per Share
|
|
Nonvested awards at January 1, 2016
|
|
|
206,356
|
|
|
$
|
29.93
|
|
Granted
|
|
|
248,188
|
|
|
$
|
21.75
|
|
Vested
|
|
|
18,880
|
|
|
$
|
46.64
|
|
Forfeited
|
|
|
3,958
|
|
|
$
|
23.97
|
|
|
|
|
|
|
|
|
|
|
Nonvested awards at December 31, 2016
|
|
|
431,706
|
|
|
$
|
24.55
|
|
|
|
|
|
|
|
|
|
|
70
DIAMOND OFFSHORE DRILLING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The total grant date fair value of the performance-vesting RSUs that
vested during the years ended December 31, 2016, 2015 and 2014 was $0.4 million, $0.6 million and $0, respectively.
A reconciliation of the numerators and the denominators of the basic and diluted per-share computations follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(In thousands, except per share data)
|
|
Net (loss) income basic and diluted (numerator):
|
|
$
|
(372,503
|
)
|
|
$
|
(274,285
|
)
|
|
$
|
387,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares basic (denominator):
|
|
|
137,168
|
|
|
|
137,157
|
|
|
|
137,473
|
|
Dilutive effect of stock-based awards
|
|
|
|
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares including conversions diluted (denominator):
|
|
|
137,168
|
|
|
|
137,157
|
|
|
|
137,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(2.72
|
)
|
|
$
|
(2.00
|
)
|
|
$
|
2.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(2.72
|
)
|
|
$
|
(2.00
|
)
|
|
$
|
2.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the share effects of stock-based awards excluded from our
computations of diluted earnings per share, or EPS, as the inclusion of such potentially dilutive shares would have been antidilutive for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(In thousands)
|
|
Employee and director:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
7
|
|
|
|
26
|
|
|
|
37
|
|
SARs
|
|
|
1,505
|
|
|
|
1,553
|
|
|
|
1,488
|
|
RSUs
|
|
|
704
|
|
|
|
278
|
|
|
|
|
|
We report our investments in marketable securities as current assets in our Consolidated Balance Sheets in Marketable securities, representing the investment of cash available
for current operations. See Note 8.
Our investments in marketable securities are classified as available for
sale and are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
Amortized
Cost
|
|
|
Unrealized
Gain (Loss)
|
|
|
Market
Value
|
|
|
|
(In thousands)
|
|
Mortgage-backed securities
|
|
$
|
35
|
|
|
$
|
|
|
|
$
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
Amortized
Cost
|
|
|
Unrealized
Gain (Loss)
|
|
|
Market
Value
|
|
|
|
(In thousands)
|
|
Corporate bonds
|
|
$
|
16,480
|
|
|
$
|
(5,042
|
)
|
|
$
|
11,438
|
|
Mortgage-backed securities
|
|
|
77
|
|
|
|
3
|
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
16,557
|
|
|
$
|
(5,039
|
)
|
|
$
|
11,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71
DIAMOND OFFSHORE DRILLING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Proceeds from maturities and sales of marketable securities and gross
realized gains and losses are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(In thousands)
|
|
Proceeds from maturities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
8,000,000
|
|
Proceeds from sales
|
|
|
4,614
|
|
|
|
51
|
|
|
|
57
|
|
During 2016, we sold an investment in corporate bonds for proceeds of $4.6 million and
recognized a loss of $12.9 million. Gross realized gains and losses from the sale of mortgage-backed securities for each of the three years ended December 31, 2016, 2015 and 2014 were not significant.
7.
|
Derivative Financial Instruments
|
Foreign Currency Forward Exchange Contracts
Our international operations expose us to foreign exchange risk associated with our costs payable in foreign currencies. To manage this risk, we entered into FOREX contracts in past years
for future delivery of Australian dollars, Brazilian reais, British pounds sterling, Mexican pesos and Norwegian kroner. These forward contracts were derivatives as defined by GAAP.
During the years ended December 31, 2015 and 2014, we settled FOREX contracts with aggregate notional values of
approximately $91.6 million and $304.7 million, respectively, of which the entire aggregate amounts were designated as an accounting hedge. During the years ended December 31, 2015 and 2014, we did not enter into or settle any FOREX contracts
that were not designated as accounting hedges. We did not enter into any FOREX contracts during 2016. There were no FOREX contracts outstanding at December 31, 2016 or 2015.
During the years ended December 31, 2015 and 2014, we recognized an aggregate gain (loss) of $(8.4) million and $3.3
million, respectively, related to our FOREX contracts designated as hedging instruments, which was reported in Contract drilling expense in our Consolidated Statements of Operations.
72
DIAMOND OFFSHORE DRILLING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The following table presents the amounts recognized in our Consolidated
Balance Sheets and Consolidated Statements of Operations related to our derivative financial instruments designated as cash flow hedges for the years ended December 31, 2015 and 2014.
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
(In thousands)
|
|
FOREX contracts:
|
|
|
|
|
|
|
|
|
Amount of loss recognized in AOCGL on derivative (effective portion)
|
|
$
|
(2,420)
|
|
|
$
|
(2,281)
|
|
Location of (loss) gain reclassified from AOCGL into income (effective portion)
|
|
|
Contract drilling,
excluding
depreciation
|
|
|
|
Contract drilling,
excluding
depreciation
|
|
Amount of (loss) gain reclassified from AOCGL into income (effective portion)
|
|
$
|
(7,829)
|
|
|
$
|
3,650
|
|
Location of loss recognized in income on derivative (ineffective portion and amount excluded from effectiveness
testing)
|
|
|
Foreign currency
transaction gain
(loss)
|
|
|
|
Foreign currency
transaction gain
(loss)
|
|
Amount of loss recognized in income on derivative (ineffective portion and amount excluded from effectiveness
testing)
|
|
$
|
(1)
|
|
|
$
|
(31)
|
|
During the years ended December 31, 2015 and 2014, we did not reclassify any amounts
from AOCGL due to the probability of an underlying forecasted transaction not occurring.
8.
|
Financial Instruments and Fair Value Disclosures
|
Concentrations of Credit and Market Risk
Financial instruments that potentially subject us to significant concentrations of credit or market risk consist primarily of periodic temporary investments of excess cash, trade accounts
receivable and investments in debt securities, including mortgage-backed securities. We generally place our excess cash investments in U.S. government backed short-term money market instruments through several financial institutions. At times, such
investments may be in excess of the insurable limit. We periodically evaluate the relative credit standing of these financial institutions as part of our investment strategy.
Concentrations of credit risk with respect to our trade accounts receivable are limited primarily due to the entities comprising our customer base. Since the market for our services is the
offshore oil and gas industry, this customer base consists primarily of major and independent oil and gas companies and government-owned oil companies. Based on our current customer base and the geographic areas in which we operate, as well as the
number of rigs currently working in a geographic area, we do not believe that we have any significant concentrations of credit risk at December 31, 2016.
In general, before working for a customer with whom we have not had a prior business relationship and/or whose financial stability may be uncertain to us, we perform a credit review on
that company. Based on that analysis, we may require that the customer present a letter of credit, prepay or provide other credit enhancements. We record a provision for bad debts on a case-by-case basis when facts and circumstances indicate that a
customer receivable may not be collectible and, historically, losses on our trade receivables have been infrequent occurrences.
During 2013, based on our assessment of the financial condition of two of our customers, Niko Resources Ltd., or Niko, and OGX Petróleo e Gás Ltda. (a privately owned
Brazilian oil and natural gas company that filed for bankruptcy in
73
DIAMOND OFFSHORE DRILLING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
October 2013), or OGX, and our expectations at the time regarding the probability of collection of amounts due to us from them, we recorded $22.5 million in bad debt expense to fully reserve all
outstanding receivables owed to us.
In December 2013, we entered into a settlement with Niko with respect to
certain obligations under dayrate contracts for the Ocean Monarch and Ocean Lexington, whereby, we would receive an aggregate $80.0 million. From December 2013 until their default on the agreement, we received $49.0 million from Niko. Commencing in
2015, we filed suit against Niko in the U.S. and Canadian courts, both of which granted judgments against Niko. On October 18, 2016, we executed a final settlement agreement with Niko, or the 2016 Agreement. Under the 2016 Agreement, Niko paid
a cash settlement amount of $3.0 million, agreed to make future payments to us equal to 20% of amounts to be retained by Niko pursuant to a waterfall distribution under their credit facility and assigned to us Nikos interest in potential
contingent payments related to the sale of five Indonesian production sharing contracts. We plan to recognize these amounts in revenue as they are received due to the uncertainty regarding their timing and collection. As of December 31, 2016,
the amount outstanding under the agreement was $28.0 million.
In 2014, the creditors of OGX, including us,
agreed to a settlement whereby the creditors granted us shares of the reorganized OGX company in full settlement of obligations owed to them by OGX. As a result of the settlement, we have written off $21.2 million in receivables due us from OGX
against the associated allowance for bad debts, which was established in 2013. See Note 3.
Fair Values
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy prescribed by GAAP requires an entity to
maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:
|
|
|
Level 1
|
|
Quoted prices for identical instruments in active markets. Level 1 assets include short-term investments such as money market funds, U.S. Treasury Bills and
Treasury notes. Our Level 1 assets at December 31, 2016 consisted of cash held in money market funds of $125.7 million and time deposits of $20.6 million. Our Level 1 assets at December 31, 2015 consisted of cash held in money market funds
of $85.2 million and time deposits of $20.4 million.
|
|
|
Level 2
|
|
Quoted market prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and
model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Level 2 assets and liabilities may include residential mortgage-backed securities, corporate bonds purchased in a private
placement offering and over-the-counter FOREX contracts. Our residential mortgage-backed securities and corporate bonds, prior to being sold in the second quarter of 2016, were valued using a model-derived valuation technique based on the quoted
closing market prices received from a financial institution. The valuation techniques underlying the models are widely accepted in the financial services industry and do not involve significant
judgment.
|
74
DIAMOND OFFSHORE DRILLING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
|
|
|
|
|
Level 3
|
|
Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. Level 3 assets and liabilities
generally include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management
judgment or estimation or for which there is a lack of transparency as to the inputs used. Our Level 3 assets at December 31, 2016 and 2015 consisted of nonrecurring measurements of certain of our drilling rigs and associated spare parts and
supplies for which we recorded an impairment loss during the second quarter of 2016 and the year ended December 31, 2015. See Notes 1, 2 and 3.
|
Market conditions could cause an instrument to be reclassified among Levels 1, 2 and
3. Our policy regarding fair value measurements of financial instruments transferred into and out of levels is to reflect the transfers as having occurred at the beginning of the reporting period. There were no transfers between fair value levels
during the years ended December 31, 2016 and 2015.
Certain of our assets and liabilities are required to
be measured at fair value on a recurring basis in accordance with GAAP. In addition, certain assets and liabilities may be recorded at fair value on a nonrecurring basis. Generally, we record assets at fair value on a nonrecurring basis as a result
of impairment charges. We recorded impairment charges related to certain of our drilling rigs and related spare parts and supplies, which were measured at fair value on a nonrecurring basis in 2016 and 2015, respectively, and have presented the
aggregate loss in Impairment of assets in our Consolidated Statements of Operations for the years ended December 31, 2016 and 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
Fair Value Measurements Using
|
|
|
Assets at Fair
Value
|
|
|
Total
Losses
for Year
Ended
(1)
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
Recurring fair value measurements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
$
|
146,360
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
146,360
|
|
|
|
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
35
|
|
|
|
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
146,360
|
|
|
$
|
35
|
|
|
$
|
|
|
|
$
|
146,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonrecurring fair value measurements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired assets
(2)(3)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
69,153
|
|
|
$
|
69,153
|
|
|
$
|
678,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents impairment losses of $8.1 million and $670.0 million recognized during the year ended December 31, 2016 related to our rig spare parts
and supplies and 2016 Impaired Rigs, respectively. See Notes 2 and 3.
|
(2)
|
Represents the total book value as of December 31, 2016 for 11 drilling rigs ($45.5 million), which were written down to their estimated
recoverable amounts in 2015 and 2016, and for rig spare parts and supplies ($23.6 million), which were written down to their estimated recoverable amounts in the second quarter of 2016. Of the total fair value, $23.6 million, $0.4 million and $45.1
million were reported as Prepaid expenses and other current assets, Assets held for sale and Drilling and other property and equipment, net of accumulated depreciation, respectively, in our Consolidated Balance
Sheets at December 31, 2016. See Notes 1, 2 and 3.
|
(3)
|
Includes depreciation expense of $23.9 million recognized during the year ended December 31, 2016 for rigs which have previously been written down
to their estimated fair values using an income approach. Also excludes four jack-up rigs, three mid-water semisubmersible rigs and one deepwater semisubmersible rig with an aggregate fair value of $16.0 million, which have been sold.
|
75
DIAMOND OFFSHORE DRILLING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
Fair Value Measurements Using
|
|
|
Assets at Fair
Value
|
|
|
Total
Losses
for Year
Ended
(1)
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
Recurring fair value measurements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
$
|
105,659
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
105,659
|
|
|
|
|
|
Corporate bonds
|
|
|
|
|
|
|
11,438
|
|
|
|
|
|
|
|
11,438
|
|
|
|
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
80
|
|
|
|
|
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
105,659
|
|
|
$
|
11,518
|
|
|
$
|
|
|
|
$
|
117,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonrecurring fair value measurements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired assets
(2)(3)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
189,600
|
|
|
$
|
189,600
|
|
|
$
|
860,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents the aggregate impairment loss recognized for the year ended December 31, 2015 related to our 2015 Impaired Rigs.
|
(2)
|
Represents the book value of our 2015 Impaired Rigs, which were written down to their estimated recoverable amounts during 2015, of which $14.2 million
and $175.4 million were reported as Assets held for sale and Drilling and other property and equipment, net of accumulated depreciation, respectively, in our Consolidated Balance Sheets at December 31, 2015.
|
(3)
|
Excludes five rigs with an aggregate fair value of $2.4 million, which were impaired in 2015, but were subsequently sold for scrap during the year.
|
We believe that the carrying amounts of our other financial assets and liabilities (excluding
long-term debt), which are not measured at fair value in our Consolidated Balance Sheets, approximate fair value based on the following assumptions:
|
|
|
Cash and cash equivalents
The carrying amounts approximate fair value because of the short maturity of these instruments.
|
|
|
|
Accounts receivable and accounts payable
The carrying amounts approximate fair value based on the nature of the
instruments.
|
|
|
|
Short-term borrowings
The carrying amounts approximate fair value because of the short maturity of these instruments.
|
76
DIAMOND OFFSHORE DRILLING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
We consider our senior notes, including current maturities, to be Level
2 liabilities under the GAAP fair value hierarchy and, accordingly, the fair value of our senior notes was derived using a third-party pricing service at December 31, 2016 and 2015. We perform control procedures over information we obtain from
pricing services and brokers to test whether prices received represent a reasonable estimate of fair value. These procedures include the review of pricing service or broker pricing methodologies and comparing fair value estimates to actual trade
activity executed in the market for these instruments occurring generally within a 10-day window of the report date. Fair values and related carrying values of our senior notes (see Note 10) are shown below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
Fair Value
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
|
Carrying Value
|
|
|
|
(In millions)
|
|
5.875% Senior Notes due 2019
|
|
$
|
518.6
|
|
|
$
|
499.8
|
|
|
$
|
506.8
|
|
|
$
|
499.7
|
|
3.45% Senior Notes due 2023
|
|
|
215.0
|
|
|
|
249.3
|
|
|
|
208.0
|
|
|
|
249.2
|
|
5.70% Senior Notes due 2039
|
|
|
392.5
|
|
|
|
497.1
|
|
|
|
360.0
|
|
|
|
497.0
|
|
4.875% Senior Notes due 2043
|
|
|
532.7
|
|
|
|
748.9
|
|
|
|
455.3
|
|
|
|
748.9
|
|
We have estimated the fair value amounts by using appropriate valuation methodologies and
information available to management. Considerable judgment is required in developing these estimates, and accordingly, no assurance can be given that the estimated values are indicative of the amounts that would be realized in a free market
exchange.
9.
|
Drilling and Other Property and Equipment
|
Cost and accumulated depreciation of drilling and other property and equipment are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
Drilling rigs and equipment
|
|
$
|
8,950,385
|
|
|
$
|
9,345,484
|
|
Construction work-in-progress
|
|
|
|
|
|
|
269,605
|
|
Land and buildings
|
|
|
64,449
|
|
|
|
64,775
|
|
Office equipment and other
|
|
|
73,108
|
|
|
|
71,537
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
9,087,942
|
|
|
|
9,751,401
|
|
Less accumulated depreciation
|
|
|
(3,361,007
|
)
|
|
|
(3,372,587
|
)
|
|
|
|
|
|
|
|
|
|
Drilling and other property and equipment, net
|
|
$
|
5,726,935
|
|
|
$
|
6,378,814
|
|
|
|
|
|
|
|
|
|
|
During the year ended December 31, 2016, we recognized an impairment loss of $670.0
million. See Note 2.
Our harsh environment, ultra-deepwater semisubmersible rig,
Ocean GreatWhite
,
reported as construction work-in-progress at December 31, 2015, was placed in service in December 2016.
10.
|
Credit Agreement, Commercial Paper and Senior Notes
|
Credit Agreement
We have a syndicated
revolving credit agreement with Wells Fargo Bank, National Association, as administrative agent and swingline lender, which provides for a $1.5 billion senior unsecured revolving credit facility for general corporate purposes, or the Credit
Agreement. Our Credit Agreement matures on October 22, 2020, except for $40 million of commitments that mature on March 17, 2019 and $60 million of commitments that mature on October 22, 2019. In
77
DIAMOND OFFSHORE DRILLING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
addition, we also have the option to increase the revolving commitments under the Credit Agreement by up to an additional $500 million from time to time, upon receipt of additional commitments
from new or existing lenders, and to request one additional one-year extension of the maturity date. The entire amount of the facility is available, subject to its terms, for revolving loans. Up to $250 million of the facility may be used for the
issuance of performance or other standby letters of credit and up to $100 million may be used for swingline loans.
Revolving loans under the Credit Agreement bear interest, at our option, at a rate per annum based on either an alternate base rate, or ABR, or a Eurodollar Rate, as defined in the Credit
Agreement, plus the applicable interest margin for an ABR loan or a Eurodollar loan. Based on our current credit ratings, the applicable interest rate for ABR loans under the Credit Agreement is 0.25% over the greater of (i) the prime rate,
(ii) the federal funds rate plus 0.50% and (iii) the daily one-month Eurodollar Rate plus 1.00%. The applicable interest rate for Eurodollar loans under the Credit Agreement is currently 1.25% over British Bankers Association LIBOR.
Swingline loans bear interest, at our option, at a rate per annum equal to (i) the ABR plus the
applicable interest margin for ABR loans or (ii) the daily one-month Eurodollar Rate plus the applicable interest margin for Eurodollar loans.
Under our Credit Agreement, we also pay, based on our current long-term credit ratings, and as applicable, other customary fees including, but not limited to, a commitment fee on the
unused commitments under the Credit Agreement, varying between 0.06% and 0.20% per annum, and a fronting fee to the issuing bank for each letter of credit. Participation fees for letters of credit are dependent upon the type of letter of credit
issued, varying between 0.375% and 0.625% per annum for performance letters of credit, and between 0.75% and 1.25% per annum for all other letters of credit. Based on our current credit ratings, the applicable commitment fee is 0.20%, and
the participation fee for letters of credit is 0.625%. Favorable changes in our current credit ratings could lower the fees that we pay under the Credit Agreement; however, any further downgrade in our credit ratings would have no further impact on
the applicable interest rates and fees.
The Credit Agreement contains customary covenants including, but not
limited to, maintenance of a ratio of consolidated indebtedness to total capitalization, as defined in the Credit Agreement, of not more than 60% at the end of each fiscal quarter, as well as limitations on liens; mergers, consolidations,
liquidation and dissolution; changes in lines of business; swap agreements; transactions with affiliates; and subsidiary indebtedness. As of December 31, 2016, we were in compliance with all covenant requirements.
At December 31, 2016, we had $104.2 million in borrowings outstanding under the Credit Agreement. These borrowings
bore interest at a weighted average interest rate of 1.9%. As of February 10, 2017, we had no borrowings outstanding under the Credit Agreement and an additional $1.5 billion available. There were no amounts outstanding under the Credit
Agreement at December 31, 2015.
Commercial Paper
In January 2016, we repaid $286.6 million in commercial paper notes outstanding at December 31, 2015 with proceeds
from borrowings under the Credit Agreement. We subsequently canceled our commercial paper program in the first quarter of 2016 as a result of a downgrade of our short-term credit rating to sub-prime by Moodys Investors Service and our
expectation that we would be unable to access the commercial paper market in the foreseeable future.
78
DIAMOND OFFSHORE DRILLING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Senior Notes
At December 31, 2016, our senior notes were comprised of the following debt issues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Amount
|
|
|
|
|
Interest Rate
|
|
Semiannual
Interest Payment
Dates
|
Debt Issue
|
|
(In millions)
|
|
|
Maturity Date
|
|
Coupon
|
|
Effective
|
|
5.875% Senior Notes due 2019
|
|
$
|
500.0
|
|
|
May 1, 2019
|
|
5.875%
|
|
5.89%
|
|
May 1 and November 1
|
3.45% Senior Notes due 2023
|
|
$
|
250.0
|
|
|
November 1, 2023
|
|
3.45%
|
|
3.50%
|
|
May 1 and November 1
|
5.70% Senior Notes due 2039
|
|
$
|
500.0
|
|
|
October 15, 2039
|
|
5.70%
|
|
5.75%
|
|
April 15 and October 15
|
4.875% Senior Notes due 2043
|
|
$
|
750.0
|
|
|
November 1, 2043
|
|
4.875%
|
|
4.89%
|
|
May 1 and November 1
|
At December 31, 2016 and 2015, the carrying value of our senior notes, net of
unamortized discount and debt issuance costs, was as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
5.875% Senior Notes due 2019
|
|
$
|
498,679
|
|
|
$
|
498,146
|
|
3.45% Senior Notes due 2023
|
|
|
247,879
|
|
|
|
247,605
|
|
5.70% Senior Notes due 2039
|
|
|
492,812
|
|
|
|
492,663
|
|
4.875% Senior Notes due 2043
|
|
|
741,514
|
|
|
|
741,364
|
|
|
|
|
|
|
|
|
|
|
Total senior notes, net
|
|
$
|
1,980,884
|
|
|
$
|
1,979,778
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016, the aggregate annual maturity of our senior notes,
excluding net unamortized discounts and debt issuance costs of $5.0 million and $14.1 million, respectively, was as follows:
|
|
|
|
|
|
|
Aggregate
Principal
Amount
|
|
|
|
(In thousands)
|
|
Year Ending December 31,
|
|
|
|
|
2017
|
|
$
|
|
|
2018
|
|
|
|
|
2019
|
|
|
500,000
|
|
2020
|
|
|
|
|
2021
|
|
|
|
|
Thereafter
|
|
|
1,500,000
|
|
|
|
|
|
|
Total maturities of senior notes
|
|
$
|
2,000,000
|
|
|
|
|
|
|
Senior Notes Due 2023 and 2043
. Our 3.45% Senior Notes due 2023 and 4.875% Senior
Notes due 2043 are unsecured and unsubordinated obligations of Diamond Offshore Drilling, Inc., and rank equally in right of payment to all of its existing and future unsecured and unsubordinated indebtedness, and are effectively subordinated to all
existing and future obligations of our subsidiaries. We have the right to redeem all or a portion of the Senior Notes Due 2023 and 2043 for cash at any time or from time to time, on at least 15 days but not more than 60 days prior written notice, at
a make-whole redemption price specified in the governing indenture (if applicable) plus accrued and unpaid interest to, but excluding, the date of redemption.
Senior Notes Due 2019 and 2039
. Our 5.875% Senior Notes due 2019 and 5.70% Senior Notes due 2039 are unsecured and unsubordinated obligations of Diamond Offshore Drilling, Inc. and
rank equally in right of payment to its existing
79
DIAMOND OFFSHORE DRILLING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
and future unsecured and unsubordinated indebtedness, and are effectively subordinated to all existing and future obligations of our subsidiaries. We have the right to redeem all or a portion of
these notes for cash at any time or from time to time, on at least 15 days but not more than 60 days prior written notice, at the redemption price specified in the governing indenture plus accrued and unpaid interest to the date of redemption.
11.
|
Other Comprehensive Income (Loss)
|
The following table sets forth the components of Other comprehensive gain (loss) and the related income tax effects thereon for the three years ended December 31, 2016 and
the cumulative balances in AOCGL by component at December 31, 2016, 2015 and 2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Gain (Loss) on
|
|
|
Total
AOCGL
|
|
|
|
Derivative
Financial
Instruments
|
|
|
Marketable
Securities
|
|
|
|
|
(In thousands)
|
|
Balance at January 1, 2014
|
|
$
|
357
|
|
|
$
|
(7
|
)
|
|
$
|
350
|
|
Change in other comprehensive loss before reclassifications, after tax of $799 and $(15)
|
|
|
(1,482
|
)
|
|
|
(69
|
)
|
|
|
(1,551
|
)
|
Reclassification adjustments for items included in Net Income, after tax of $1,279 and $7
|
|
|
(2,379
|
)
|
|
|
(25
|
)
|
|
|
(2,404
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive (loss)
|
|
|
(3,861
|
)
|
|
|
(94
|
)
|
|
|
(3,955
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014
|
|
|
(3,504
|
)
|
|
|
(101
|
)
|
|
|
(3,605
|
)
|
Change in other comprehensive loss before reclassifications, after tax of $846 and $(1)
|
|
|
(1,574
|
)
|
|
|
(4,940
|
)
|
|
|
(6,514
|
)
|
Reclassification adjustments for items included in Net Income, after tax of $(2,737) and $0
|
|
|
5,084
|
|
|
|
|
|
|
|
5,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss)
|
|
|
3,510
|
|
|
|
(4,940
|
)
|
|
|
(1,430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
6
|
|
|
|
(5,041
|
)
|
|
|
(5,035
|
)
|
Change in other comprehensive loss before reclassifications, after tax of $0 and $2
|
|
|
|
|
|
|
(6,559
|
)
|
|
|
(6,559
|
)
|
Reclassification adjustments for items included in Net Loss, after tax of $3 and $0
|
|
|
(5
|
)
|
|
|
11,600
|
|
|
|
11,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive (loss) income
|
|
|
(5
|
)
|
|
|
5,041
|
|
|
|
5,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
DIAMOND OFFSHORE DRILLING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The following table presents the line items in our Consolidated
Statements of Operations affected by reclassification adjustments out of AOCGL.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Major Components of AOCGL
|
|
Year Ended December 31,
|
|
|
Consolidated Statements of
Operations
Line Items
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
(In thousands)
|
|
|
|
Derivative financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss (gain) on FOREX contracts
|
|
$
|
|
|
|
$
|
7,829
|
|
|
$
|
(3,650
|
)
|
|
Contract drilling, excluding depreciation
|
Unrealized gain on Treasury Lock Agreements
|
|
|
(8
|
)
|
|
|
(8
|
)
|
|
|
(8
|
)
|
|
Interest expense
|
|
|
|
3
|
|
|
|
(2,737
|
)
|
|
|
1,279
|
|
|
Income tax expense (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(5
|
)
|
|
$
|
5,084
|
|
|
$
|
(2,379
|
)
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss (gain) on marketable securities
|
|
$
|
11,600
|
|
|
$
|
|
|
|
$
|
(32
|
)
|
|
Other, net
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,600
|
|
|
$
|
|
|
|
$
|
(25
|
)
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.
|
Commitments and Contingencies
|
Various claims have been filed against us in the ordinary course of business, including claims by offshore workers alleging personal injuries. With respect to each claim or exposure, we
have made an assessment, in accordance with GAAP, of the probability that the resolution of the matter would ultimately result in a loss. When we determine that an unfavorable resolution of a matter is probable and such amount of loss can be
determined, we record a liability for the amount of the estimated loss at the time that both of these criteria are met. Our management believes that we have recorded adequate accruals for any liabilities that may reasonably be expected to result
from these claims.
Asbestos Litigation
. We are one of several unrelated defendants in lawsuits filed
in Louisiana state courts alleging that defendants manufactured, distributed or utilized drilling mud containing asbestos and, in our case, allowed such drilling mud to have been utilized aboard our drilling rigs. The plaintiffs seek, among other
things, an award of unspecified compensatory and punitive damages. The manufacture and use of asbestos-containing drilling mud had already ceased before we acquired any of the drilling rigs addressed in these lawsuits. We believe that we are not
liable for the damages asserted in the lawsuits pursuant to the terms of our 1989 asset purchase agreement with Diamond M Corporation. We are unable to estimate our potential exposure, if any, to these lawsuits at this time but do not believe that
our ultimate liability, if any, resulting from this litigation will have a material effect on our consolidated financial condition, results of operations or cash flows.
Other Litigation.
We have been named in various other claims, lawsuits or threatened actions that are incidental to the ordinary course of our business, including a claim by
Petrobras that it will seek to recover from its contractors, including us, any taxes, penalties, interest and fees that it must pay to the Brazilian tax authorities for our applicable portion of withholding taxes related to Petrobras charter
agreements with its contractors. We intend to defend these matters vigorously; however, litigation is inherently unpredictable, and the ultimate outcome or effect of these claims, lawsuits and actions cannot be predicted with certainty. As a result,
there can be no assurance as to the ultimate outcome of these matters. Any claims against us, whether meritorious or not, could cause us to incur costs and expenses, require significant amounts of management time and result in the diversion of
significant operational resources. In the opinion of our management, no pending or known threatened claims, actions or proceedings against us are expected to have a material adverse effect on our consolidated financial position, results of
operations or cash flows.
81
DIAMOND OFFSHORE DRILLING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
NPI Arrangement.
We received customer payments measured by a
percentage net profits interest (primarily of 27%) under an overriding royalty interest in certain developmental oil-and-gas producing properties, or NPI, which we believe is a real property interest. Our drilling program related to the NPI was
completed in 2011, and the balance of the amounts due to us under the NPI was received in 2013. However, in August 2012, the customer that conveyed the NPI to us filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy
Code. Certain parties (including the debtor) in the bankruptcy proceedings questioned whether our NPI, and certain amounts we received under it after the filing of the bankruptcy, should be included in the debtors estate under the
bankruptcy proceeding. In 2013, we filed a declaratory judgment action in the bankruptcy court seeking a declaration that our NPI, and payments that we received from it after the filing of the bankruptcy, are not part of the bankruptcy estate.
We agreed to a settlement with the company that purchased most of the debtors assets (including the debtors claims against our NPI) whereby the nature of our NPI will not be challenged by that party and our declaratory judgment action
was dismissed. Following the settlement, the bankruptcy was converted to a Chapter 7 liquidation proceeding. Several lienholders who had previously intervened in the declaratory judgment action filed motions in the bankruptcy contending that their
liens have priority and seeking disgorgement of $3.25 million of payments made to us after the bankruptcy was filed. We believe that our rights to the payments at issue are superior to these liens, and we filed motions to dismiss the claims. In
November 2016, the court dismissed the lienholders claims, and the lienholders are appealing the ruling. In addition, the bankruptcy trustee filed counterclaims seeking disgorgement of a total of $30.0 million of pre- and post-bankruptcy
payments made to us under the original NPI. The bankruptcy court has dismissed all but one of the trustees disgorgement claims, which is limited in amount to $17.0 million. In December 2016, the company that purchased most of the debtors
assets from bankruptcy also filed for bankruptcy. We continue to pursue all available defenses and available protections, and still expect the bankruptcy proceedings to be concluded with no further material impact to us.
Personal Injury Claims
. Under our current insurance policies, which renewed effective May 1, 2016, our
deductibles for marine liability insurance coverage with respect to personal injury claims not related to named windstorms in the U.S. Gulf of Mexico, which primarily result from Jones Act liability in the Gulf of Mexico, are $10.0 million for the
first occurrence, with no aggregate deductible, and vary in amounts ranging between $5.0 million and, if aggregate claims exceed certain thresholds, up to $100.0 million for each subsequent occurrence, depending on the nature, severity and frequency
of claims that might arise during the policy year. Our deductible for personal injury claims arising due to named windstorms in the U.S. Gulf of Mexico is $25.0 million for the first occurrence, with no aggregate deductible, and vary in amounts
ranging between $25.0 million and, if aggregate claims exceed certain thresholds, up to $100.0 million for each subsequent occurrence, depending on the nature, severity and frequency of claims that might arise during the policy year.
The Jones Act is a federal law that permits seamen to seek compensation for certain injuries during the course of their
employment on a vessel and governs the liability of vessel operators and marine employers for the work-related injury or death of an employee. We engage outside consultants to assist us in estimating our aggregate liability for personal injury
claims based on our historical losses and utilizing various actuarial models. We allocate a portion of the aggregate liability to Accrued liabilities based on an estimate of claims expected to be paid within the next twelve months with
the residual recorded as Other liabilities. At December 31, 2016 our estimated liability for personal injury claims was $32.9 million, of which $6.1 million and $26.8 million were recorded in Accrued liabilities and
Other liabilities, respectively, in our Consolidated Balance Sheets. At December 31, 2015 our estimated liability for personal injury claims was $40.4 million, of which $8.2 million and $32.2 million were recorded in Accrued
liabilities and Other liabilities, respectively, in our Consolidated Balance Sheets. The eventual settlement or adjudication of these claims could differ materially from our estimated amounts due to uncertainties such as:
|
|
|
the severity of personal injuries claimed;
|
82
DIAMOND OFFSHORE DRILLING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
|
|
|
significant changes in the volume of personal injury claims;
|
|
|
|
the unpredictability of legal jurisdictions where the claims will ultimately be litigated;
|
|
|
|
inconsistent court decisions; and
|
|
|
|
the risks and lack of predictability inherent in personal injury litigation.
|
Purchase Obligations
. At December 31, 2016, we had no purchase obligations for major rig upgrades or any
other significant obligations, except for those related to our direct rig operations, which arise during the normal course of business.
Operating Leases.
We lease office and yard facilities, housing, non-rig equipment and vehicles under operating leases, which expire at various times through the year 2022. Total
rent expense amounted to $5.5 million, $7.8 million and $10.6 million for the years ended December 31, 2016, 2015 and 2014, respectively. Future minimum rental payments under leases are approximately $1.8 million and $0.5 million for 2017 and
2018, respectively, $0.1 million for each of the years 2019 through 2021 and $32,000 thereafter.
In addition,
we lease certain blowout preventer, or BOP, and related well control equipment under ten-year operating leases. See Note 13.
Letters of Credit and Other.
We were contingently liable as of December 31, 2016 in the amount of $57.2 million under certain performance, supersedeas, tax, court and customs
bonds and letters of credit. Agreements relating to approximately $53.9 million of performance, tax, supersedeas, court and customs bonds can require collateral at any time. As of December 31, 2016, we had not been required to make any
collateral deposits with respect to these agreements. The remaining agreements cannot require collateral except in events of default. On our behalf, banks have issued letters of credit securing certain of these bonds.
13.
|
Sale and Leaseback Transactions
|
In February 2016, we entered into a ten-year agreement with a subsidiary of GE Oil & Gas, or GE, to provide services with respect to certain blowout preventer and related well
control equipment, or Well Control Equipment, on our four newly-built drillships. Such services include management of maintenance, certification and reliability with respect to such equipment. In connection with the contractual services
agreement with GE, we agreed to sell the Well Control Equipment to another GE affiliate and subsequently lease back such equipment pursuant to separate ten-year operating leases.
During 2016, we completed four sale and leaseback transactions with respect to the Well Control Equipment on our
ultra-deepwater drillships. As a result of these transactions, we received an aggregate of $210.0 million in proceeds from the sale of the Well Control Equipment on these rigs, which was less than the carrying value of the equipment. The resulting
difference was recorded as prepaid rent with no gain or loss recognized on the transactions, and will be amortized over the respective terms of the operating leases. In connection with the sale of the equipment, we simultaneously executed four
ten-year operating lease and contractual services agreements with respect to the Well Control Equipment. Future commitments under the operating leases and contractual services agreements for our ultra-deepwater drillships are estimated to be
approximately $65.0 million per year or an aggregate $655.0 million over the term of the agreements. During the year ended December 31, 2016 we recognized $34.0 million in aggregate expense related to the Well Control Equipment leases and
contractual services agreements.
83
DIAMOND OFFSHORE DRILLING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
14.
|
Related-Party Transactions
|
Transactions with Loews.
We are party to a services agreement with Loews, or the Services Agreement, pursuant to which Loews performs certain administrative and technical services
on our behalf. Such services include personnel, internal auditing, accounting, and cash management services, in addition to advice and assistance with respect to preparation of tax returns and obtaining insurance. Under the Services Agreement, we
are required to reimburse Loews for (i) allocated personnel costs (such as salaries, employee benefits and payroll taxes) of the Loews personnel actually providing such services and (ii) all out-of-pocket expenses related to the provision
of such services. The Services Agreement may be terminated at our option upon 30 days notice to Loews and at the option of Loews upon six months notice to us. In addition, we have agreed to indemnify Loews for all claims and damages
arising from the provision of services by Loews under the Services Agreement unless due to the gross negligence or willful misconduct of Loews. We were charged $1.0 million, $1.3 million and $1.1 million by Loews for these support functions during
the years ended December 31, 2016, 2015 and 2014, respectively.
Transactions with Other Related
Parties.
We hire marine vessels and helicopter transportation services at the prevailing market rate from subsidiaries of SEACOR Holdings Inc. and Era Group Inc. The Chief Executive Officer and Executive Chairman of the Board of Directors of
SEACOR Holdings Inc. and the Non-Executive Chairman of the Board of Directors of Era Group Inc. is also a member of our Board of Directors. We paid $0.7 million, $6.0 million and $0.8 million for the hire of such vessels and such services during the
years ended December 31, 2016, 2015 and 2014, respectively.
The wife of our former President and Chief
Executive Officer was an audit partner at Ernst & Young LLP, or E&Y, during his term of service with us. For the year ended December 31, 2014, we made payments aggregating $2.9 million to E&Y for tax and other consulting
services; however, E&Y ceased to be a related party on March 3, 2014.
15.
|
Restructuring and Separation Costs
|
During 2015, in response to the continuing decline in the offshore drilling market, we reviewed our cost and organization structure, and, as a result, our management approved and initiated
a reduction in workforce at our onshore bases and corporate facilities, also referred to as the Corporate Reduction Plan. As of December 31, 2015, appropriate communications had been made to substantially all impacted personnel, and we paid
$9.8 million in restructuring and employee separation related costs during 2015. There were no accrued costs associated with the Corporate Reduction Plan as of December 31, 2015.
Our income tax expense is a function of the mix between our domestic and international pre-tax earnings or losses, as well as the mix of international tax jurisdictions in which we
operate. Certain of our rigs are owned and operated, directly or indirectly, by Diamond Foreign Asset Company, or DFAC, a Cayman Islands subsidiary that we own. It is our intention to indefinitely reinvest future earnings of DFAC and its foreign
subsidiaries to finance foreign activities. Accordingly, we have not made a provision for U.S. income taxes on approximately $1.8 billion of undistributed foreign earnings and profits. Although we do not intend to repatriate the earnings of our
foreign subsidiary, and have not provided U.S. income taxes for such earnings, except to the extent that such earnings were immediately subject to U.S. income taxes, these earnings could become subject to U.S. income tax if remitted, or if deemed
remitted as a dividend; however, it is not practical to estimate this potential liability.
84
DIAMOND OFFSHORE DRILLING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The components of income tax expense (benefit) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(In thousands)
|
|
Federal current
|
|
$
|
230
|
|
|
$
|
63,223
|
|
|
$
|
66,843
|
|
State current
|
|
|
(60
|
)
|
|
|
93
|
|
|
|
(121
|
)
|
Foreign current
|
|
|
10,297
|
|
|
|
71,655
|
|
|
|
59,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
10,467
|
|
|
|
134,971
|
|
|
|
126,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal deferred
|
|
|
(108,274
|
)
|
|
|
(245,045
|
)
|
|
|
(6,699
|
)
|
Foreign deferred
|
|
|
2,011
|
|
|
|
3,011
|
|
|
|
8,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(106,263
|
)
|
|
|
(242,034
|
)
|
|
|
1,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(95,796
|
)
|
|
$
|
(107,063
|
)
|
|
$
|
128,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The difference between actual income tax expense and the tax provision computed by
applying the statutory federal income tax rate to income before taxes is attributable to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(In thousands)
|
|
Income before income tax expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
(146,037
|
)
|
|
$
|
(11,158
|
)
|
|
$
|
288,080
|
|
Foreign
|
|
|
(322,262
|
)
|
|
|
(370,190
|
)
|
|
|
227,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Worldwide
|
|
$
|
(468,299
|
)
|
|
$
|
(381,348
|
)
|
|
$
|
515,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected income tax expense at federal statutory rate
|
|
$
|
(163,905
|
)
|
|
$
|
(133,472
|
)
|
|
$
|
180,317
|
|
Foreign earnings of foreign subsidiaries (not taxed at the statutory federal income tax rate) net of related
foreign taxes
|
|
|
47,932
|
|
|
|
(5,518
|
)
|
|
|
(46,163
|
)
|
Foreign earnings of foreign subsidiaries for which U.S. federal income taxes have been provided
|
|
|
(1,265
|
)
|
|
|
9
|
|
|
|
7,190
|
|
Foreign taxes of domestic and foreign subsidiaries for which U.S. federal income taxes have also been
provided
|
|
|
28,569
|
|
|
|
27,193
|
|
|
|
38,358
|
|
Foreign tax credits
|
|
|
(26,663
|
)
|
|
|
(26,590
|
)
|
|
|
(39,843
|
)
|
Allowance for foreign tax credits
|
|
|
62,400
|
|
|
|
|
|
|
|
|
|
Interest capitalized by foreign subsidiaries
|
|
|
(7,285
|
)
|
|
|
(5,708
|
)
|
|
|
(16,492
|
)
|
Uncertain tax positions, including foreign currency revaluation
|
|
|
(42,423
|
)
|
|
|
1,169
|
|
|
|
(47,964
|
)
|
Amortization of deferred charges associated with intercompany rig sales to other tax
jurisdictions
|
|
|
|
|
|
|
38,466
|
|
|
|
44,301
|
|
Net expense (benefit) in connection with resolutions of tax issues and adjustments relating to prior
years
|
|
|
7,757
|
|
|
|
(2,283
|
)
|
|
|
7,775
|
|
Other
|
|
|
(913
|
)
|
|
|
(329
|
)
|
|
|
701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) expense
|
|
$
|
(95,796
|
)
|
|
$
|
(107,063
|
)
|
|
$
|
128,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85
DIAMOND OFFSHORE DRILLING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Deferred Income Taxes.
Significant components of our deferred
income tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards, or NOLs
|
|
$
|
159,653
|
|
|
$
|
143,231
|
|
Foreign tax credits
|
|
|
95,145
|
|
|
|
33,699
|
|
Workers compensation and other current accruals
|
|
|
14,824
|
|
|
|
19,888
|
|
Bareboat charter deductions
|
|
|
23,353
|
|
|
|
32,469
|
|
UK depreciation deduction
|
|
|
21,222
|
|
|
|
17,358
|
|
Disputed receivables reserved
|
|
|
122
|
|
|
|
3,109
|
|
Deferred compensation
|
|
|
4,689
|
|
|
|
5,362
|
|
Foreign contribution taxes
|
|
|
3,857
|
|
|
|
3,630
|
|
Stock compensation awards
|
|
|
11,679
|
|
|
|
11,294
|
|
Deferred deductions
|
|
|
8,185
|
|
|
|
14,185
|
|
Interest Uncertain Tax Positions
|
|
|
592
|
|
|
|
1,153
|
|
Other
|
|
|
1,812
|
|
|
|
2,089
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
345,133
|
|
|
|
287,467
|
|
Valuation allowance for NOLs
|
|
|
(91,219
|
)
|
|
|
(93,191
|
)
|
Valuation allowance for foreign tax credits
|
|
|
(62,400
|
)
|
|
|
|
|
Valuation allowance for other deferred tax assets
|
|
|
(57,097
|
)
|
|
|
(53,456
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
134,417
|
|
|
|
140,820
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
(284,480
|
)
|
|
|
(372,334
|
)
|
Mobilization
|
|
|
(46,274
|
)
|
|
|
(30,990
|
)
|
Unbilled revenue
|
|
|
(38
|
)
|
|
|
(13,971
|
)
|
Undistributed earnings of foreign subsidiaries
|
|
|
(220
|
)
|
|
|
(50
|
)
|
Other
|
|
|
(416
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(331,428
|
)
|
|
|
(417,349
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(197,011
|
)
|
|
$
|
(276,529
|
)
|
|
|
|
|
|
|
|
|
|
We record a valuation allowance to derecognize a portion of our deferred tax assets,
which we do not expect to be ultimately realized. A summary of changes in the valuation allowance is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(In thousands)
|
|
Valuation allowance as of January 1
|
|
$
|
146,647
|
|
|
$
|
48,036
|
|
|
$
|
7,321
|
|
Establishment of valuation allowances:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating losses
|
|
|
10,318
|
|
|
|
82,155
|
|
|
|
15,677
|
|
Foreign tax credits
|
|
|
62,400
|
|
|
|
|
|
|
|
516
|
|
Other deferred tax assets
|
|
|
4,823
|
|
|
|
27,928
|
|
|
|
27,243
|
|
Releases of valuation allowances in various jurisdictions
|
|
|
(13,472
|
)
|
|
|
(11,472
|
)
|
|
|
(2,721
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance as of December 31
|
|
$
|
210,716
|
|
|
$
|
146,647
|
|
|
$
|
48,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86
DIAMOND OFFSHORE DRILLING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Net Operating Loss Carryforwards
As of December 31,
2016, we had recorded a deferred tax asset of $159.7 million for the benefit of NOL carryforwards, $67.4 million related to our U.S. losses and $92.3 million related to our international operations. Approximately $33.7 million of this deferred tax
asset relates to NOL carryforwards that have an indefinite life. The remaining $126.0 million relates to NOL carryforwards in various of our foreign subsidiaries as well as in the United States. Unless utilized, tax benefits of NOL carryforwards
will expire between 2020 and 2036 as follows:
|
|
|
|
|
Year Expiring
|
|
Tax Benefit
of
NOL
Carryforwards
(In millions)
|
|
2020
|
|
$
|
0.1
|
|
2021
|
|
|
0.1
|
|
2022
|
|
|
0.1
|
|
2023
|
|
|
0.1
|
|
2024
|
|
|
0.1
|
|
2025
|
|
|
58.1
|
|
2036
|
|
|
67.4
|
|
|
|
|
|
|
Total
|
|
$
|
126.0
|
|
|
|
|
|
|
As of December 31, 2016, a valuation allowance for $91.2 million has been recorded
for our NOLs for which the deferred tax assets are not likely to be realized.
Foreign Tax Credits.
As
of December 31, 2016, we had recorded a deferred tax asset of $95.1 million for the benefit of foreign tax credits in the U.S. We intend to carryback foreign tax credits of $32.7 million to prior years by filing amended tax returns. Unless
utilized, our excess foreign tax credits of $62.4 million in the U.S. will expire in 2024, 2025 and 2026 as follows:
|
|
|
|
|
Year Expiring
|
|
Foreign Tax
Credits
(In millions)
|
|
2024
|
|
$
|
6.6
|
|
2025
|
|
|
27.4
|
|
2026
|
|
|
28.4
|
|
|
|
|
|
|
Total
|
|
$
|
62.4
|
|
|
|
|
|
|
As of December 31, 2016, a valuation allowance of $62.4 million has been recorded
for our foreign tax credits for which the deferred tax assets are not likely to be realized.
Valuation
Allowances Other Deferred Tax Assets.
As of December 31, 2016, we recorded valuation allowances for other deferred tax assets as follows:
|
|
|
|
|
Deferred Tax Asset
|
|
Valuation
Allowance
(In millions)
|
|
Bareboat charter deductions in the U.K.
|
|
$
|
23.4
|
|
Depreciation deduction in the U.K.
|
|
|
21.7
|
|
Construction services invoices in Mexico
|
|
|
8.1
|
|
Foreign contribution taxes in Brazil
|
|
|
3.9
|
|
|
|
|
|
|
Total
|
|
$
|
57.1
|
|
|
|
|
|
|
87
DIAMOND OFFSHORE DRILLING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Unrecognized Tax Benefits.
Our income tax returns are subject to
review and examination in the various jurisdictions in which we operate and we are currently contesting various tax assessments. We accrue for income tax contingencies, or uncertain tax positions, that we believe are more likely than not exposures.
A reconciliation of the beginning and ending amount of unrecognized tax benefits, gross of tax carryforwards and excluding interest and penalties, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(In thousands)
|
|
Balance, beginning of period
|
|
$
|
(53,952
|
)
|
|
$
|
(57,116
|
)
|
|
$
|
(90,921
|
)
|
Additions for current year tax positions
|
|
|
(4,233
|
)
|
|
|
(7,013
|
)
|
|
|
(5,813
|
)
|
Additions for prior year tax positions
|
|
|
(1,020
|
)
|
|
|
(82
|
)
|
|
|
(292
|
)
|
Reductions for prior year tax positions
|
|
|
19,661
|
|
|
|
2,673
|
|
|
|
34,630
|
|
Reductions related to statute of limitation expirations
|
|
|
4,574
|
|
|
|
7,586
|
|
|
|
5,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
(34,970
|
)
|
|
$
|
(53,952
|
)
|
|
$
|
(57,116
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The $19.7 million reduction for prior year tax positions results primarily from the
devaluation of the Egyptian Pound.
At December 31, 2016, $2.1 million, $3.1 million and $35.0 million of
the net liability for uncertain tax positions were reflected in Other assets, Deferred tax liability and Other liabilities, respectively. At December 31, 2015, $2.8 million, $1.9 million and $50.3 million of
the net liability for uncertain tax positions were reflected in Other assets, Deferred tax liability and Other liabilities, respectively. Of the net unrecognized tax benefits at December 31, 2016, 2015 and
2014, all $36.0 million, $49.4 million and $50.5 million, respectively, would affect the effective tax rates if recognized.
The following table presents the amount of accrued interest and penalties at December 31, 2016 and 2015 related to uncertain tax positions:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
Uncertain tax positions net, excluding interest and penalties
|
|
$
|
(36,019
|
)
|
|
$
|
(49,380
|
)
|
Accrued interest on uncertain tax positions
|
|
|
(2,651
|
)
|
|
|
(2,743
|
)
|
Accrued penalties on uncertain tax positions
|
|
|
(16,751
|
)
|
|
|
(39,924
|
)
|
|
|
|
|
|
|
|
|
|
Uncertain tax positions net, including interest and penalties
|
|
$
|
(55,421
|
)
|
|
$
|
(92,047
|
)
|
|
|
|
|
|
|
|
|
|
We record interest related to accrued uncertain tax positions in interest expense and
recognize penalties associated with uncertain tax positions in tax expense. Interest expense and penalties recognized during the three years ended December 31, 2016 related to uncertain tax positions are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(In thousands)
|
|
Net increase (decrease) in interest expense related to uncertain tax positions
|
|
$
|
(92
|
)
|
|
$
|
(4,761
|
)
|
|
$
|
(5,283
|
)
|
Net increase (decrease) in penalties related to uncertain tax positions
|
|
|
(23,172
|
)
|
|
|
2,302
|
|
|
|
(22,175
|
)
|
The $23.2 million reduction in penalties related to uncertain tax positions results
primarily from the devaluation of the Egyptian Pound.
In several of the international locations in which we
operate, certain of our wholly-owned subsidiaries enter into agreements with other of our wholly-owned subsidiaries to provide specialized services and equipment in support of our foreign operations. We apply a transfer pricing methodology to
determine the amount to be charged for providing the services and equipment. In most cases, there are alternative transfer pricing methodologies that could be applied to these transactions and, if applied, could result in different chargeable
amounts. Taxing authorities in the various foreign
88
DIAMOND OFFSHORE DRILLING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
locations in which we operate could apply one of the alternative transfer pricing methodologies which could result in an increase to our income tax liabilities with respect to tax returns that
remain subject to examination.
We expect the statute of limitations for the 2010 tax year to expire in 2017
for one of our subsidiaries operating in Malaysia, and we anticipate that the related unrecognized tax benefit will decrease by $3.0 million at that time.
Tax Returns and Examinations.
We file income tax returns in the U.S. federal jurisdiction, various state jurisdictions and various foreign jurisdictions. Tax years that remain
subject to examination by these jurisdictions include years 2009 to 2016. We are currently under audit in several of these jurisdictions. We do not anticipate that any adjustments resulting from the tax audit of any of these years will have a
material impact on our consolidated results of operations, financial condition or cash flows.
U.S. Tax
Jurisdiction. Our 2013 tax year is under audit by the U.S. Internal Revenue Service.
Brazil Tax Jurisdiction.
In December 2009, we received an assessment of approximately $26.0 million for the years 2004 and 2005, including interest and penalty. We contested the tax assessment in 2010 and, during the third quarter of 2014, received a favorable court
decision resulting in the closure of the 2004 and 2005 tax years. As a consequence, we reversed our $14.0 million reserve for this uncertain tax position, of which $3.5 million was interest and $4.4 million was penalty.
In February 2012, the tax authorities concluded their audit of our income tax return for the 2007 tax year for which we
received an assessment of approximately $17.1 million for income tax, including interest and penalties. We contested the assessment and a court in Brazil ruled to cancel the assessment. However, the Brazilian tax authorities have appealed the
ruling, and we are awaiting the outcome of the appeal. We have not accrued any tax expense related to this assessment. If our position is not sustained, tax expense and related interest and penalties as of December 31, 2016 would be approximately
$13.7 million.
In addition, the Brazilian tax authorities have issued an assessment for the 2000 tax year of
approximately $1.5 million as of December 31, 2016, including interest and penalty. We have appealed the tax assessment and are awaiting the outcome of the appeal.
Egypt Tax Jurisdiction. During 2014, we settled certain disputes for years 2006 through 2008 with the Egyptian tax authorities, which resulted in an aggregate $17.2 million reduction in
tax expense, comprised of a $23.2 million reversal of uncertain tax positions, partially offset by $6.0 million in current foreign income tax expense. One issue for the 2006 through 2008 period remains open, which we appealed. Our court case is
currently pending. We have sought assistance from an agency of the U.S. Treasury Department, pursuant to international tax treaties, and continue to believe that our position will, more likely than not, be sustained. However, if our position is not
sustained, tax expense and related penalties would increase by approximately $22 million related to this issue for the 2006 through 2008 tax years as of December 31, 2016.
We are also under audit by the Egyptian tax authorities for the tax years 2009 through 2012.
Malaysia Tax Jurisdiction. During the year ended December 31, 2016, the statute of limitations for the 2009 tax year
related to an uncertain tax position expired and we reversed our $5.6 million tax accrual, of which $2.1 million was
89
DIAMOND OFFSHORE DRILLING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
penalty. During the third quarter of 2014, we received final approval from the Malaysian tax authorities for the settlement of tax liabilities and penalties for the years 2003 through 2008
resulting in the reversal of a $14.2 million reserve for uncertain tax positions for these years, of which $5.3 million was penalty.
Mexico Tax Jurisdiction. During the year ended December 31, 2016, the statute of limitations related to an uncertain tax position for the 2010 tax year expired, and we reversed our
$1.6 million tax accrual, of which $0.7 million was interest and $0.3 million was penalty.
During the year
ended December 31, 2015, the statute of limitations related to an uncertain tax position for the 2008 tax year expired, and we reversed our $3.8 million tax accrual, of which $1.3 million was interest and $0.5 million was penalty. In addition,
the statute of limitations related to an uncertain tax position for the 2009 tax year expired, and we reversed our $10.7 million tax accrual, of which $3.6 million was interest and $1.4 million was penalty.
In August 2015, the Mexican tax authorities completed an audit for the 2008 tax year of one of our subsidiaries operating
in Mexico and issued an assessment in the amount of $5.3 million, including interest and penalty. We have appealed the tax assessment and are awaiting the outcome of the appeal. We have not accrued any tax expense related to this assessment. In June
2015, the Mexican tax authorities initiated an audit of the 2009 income tax return of one of our other subsidiaries operating in Mexico. If our position is not sustained, tax expense and related interest and penalties as of December 31, 2016 would
be approximately $4.6 million.
Due to the 2014 expiration of the statute of limitations in Mexico for the
2008 tax year for one of our subsidiaries operating in Mexico, we reversed our $8.0 million accrual for an uncertain tax position, of which $2.7 million was interest and $1.1 million was penalty, during the year ended December 31, 2014.
Australia Tax Jurisdiction. We are currently under audit for tax years 2010 through 2013.
17.
|
Employee Benefit Plans
|
Defined Contribution Plans
We
maintain defined contribution retirement plans for our U.S., U.K. and third-country national, or TCN, employees. The plan for our U.S. employees, or the 401k Plan, is designed to qualify under Section 401(k) of the Code. Under the 401k Plan,
each participant may elect to defer taxation on a portion of his or her eligible earnings, as defined by the 401k Plan, by directing his or her employer to withhold a percentage of such earnings. A participating employee may also elect to make
after-tax contributions to the 401k Plan. During 2016, 2015 and 2014, we matched 6% of each employees compensation contributed to the 401k Plan. We made discretionary profit sharing contributions to the 401k Plan equal to 4% of a
participants defined compensation during 2014 and the first four months of 2015. We ceased making profit sharing contributions on May 1, 2015. Participants are fully vested in the employer match immediately upon enrollment in the 401k
Plan and subject to a three-year cliff vesting period for any profit sharing contribution. For the years ended December 31, 2016, 2015 and 2014, our provision for contributions was $12.9 million, $23.8 million and $34.1 million, respectively.
The defined contribution retirement plan for our U.K. employees provides that we make annual contributions in
an amount equal to the employees contributions generally up to a maximum percentage of the employees defined compensation per year. Our contribution for employees working in the U.K. sector of the North Sea during 2016 was 10% of the
employees defined compensation during the first six months of 2016 and was reduced to 6% for the remainder of 2016. Our contribution during 2015 and 2014 for employees working in the U.K. sector of the North Sea was 10% of the employees
defined compensation. Our provision for contributions was $2.0 million, $3.4 million and $5.0 million for the years ended December 31, 2016, 2015 and 2014, respectively.
90
DIAMOND OFFSHORE DRILLING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The defined contribution retirement plan for our TCN employees, or
International Savings Plan, is similar to the 401k Plan. During 2016, 2015 and 2014, we matched 6% of each employees compensation contributed to the International Savings Plan. During the four months ended April 30, 2015 and in 2014, we
made discretionary profit sharing contributions to the International Savings Plan equal to 4% of a participants defined compensation. We ceased making profit sharing contributions on May 1, 2015. Our provision for contributions was $0.8
million, $2.2 million and $3.7 million for 2016, 2015 and 2014, respectively.
Deferred Compensation and
Supplemental Executive Retirement Plan
Our Amended and Restated Diamond Offshore Management Company
Supplemental Executive Retirement Plan, or Supplemental Plan, provides benefits to a select group of our management or other highly compensated employees to compensate such employees for any portion of our base salary contribution and/or matching
contribution under the 401k Plan that could not be contributed to that plan because of limitations within the Code. Our provision for contributions to the Supplemental Plan for 2016, 2015 and 2014 was approximately $146,000, $153,000 and $265,000,
respectively.
18.
|
Segments and Geographic Area Analysis
|
Although we provide contract drilling services with different types of offshore drilling rigs and also provide such services in many geographic locations, we have aggregated these
operations into one reportable segment based on the similarity of economic characteristics due to the nature of the revenue-earning process as it relates to the offshore drilling industry over the operating lives of our drilling rigs.
Revenues from contract drilling services by equipment-type are listed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(In thousands)
|
|
Floaters:
|
|
|
|
|
|
|
|
|
|
|
|
|
Ultra-Deepwater
|
|
$
|
989,158
|
|
|
$
|
1,339,059
|
|
|
$
|
987,565
|
|
Deepwater
|
|
|
256,997
|
|
|
|
548,667
|
|
|
|
494,247
|
|
Mid-Water
|
|
|
248,846
|
|
|
|
387,549
|
|
|
|
1,076,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Floaters
|
|
|
1,495,001
|
|
|
|
2,275,275
|
|
|
|
2,558,654
|
|
Jack-ups
|
|
|
30,213
|
|
|
|
84,909
|
|
|
|
178,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contract drilling revenues
|
|
|
1,525,214
|
|
|
|
2,360,184
|
|
|
|
2,737,126
|
|
Revenues related to reimbursable expenses
|
|
|
75,128
|
|
|
|
59,209
|
|
|
|
77,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,600,342
|
|
|
$
|
2,419,393
|
|
|
$
|
2,814,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91
DIAMOND OFFSHORE DRILLING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Geographic Areas
Our drilling rigs are highly mobile and may be moved to other markets throughout the world in response to market
conditions or customer needs. At December 31, 2016, our actively-marketed drilling rigs were en route to or located offshore five countries in addition to the United States. Revenues by geographic area are presented by attributing revenues to
the individual country or areas where the services were performed.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(In thousands)
|
|
United States
|
|
$
|
548,024
|
|
|
$
|
513,605
|
|
|
$
|
418,095
|
|
International:
|
|
|
|
|
|
|
|
|
|
|
|
|
South America
|
|
|
434,956
|
|
|
|
812,271
|
|
|
|
1,088,796
|
|
Europe/Africa/Mediterranean
|
|
|
344,964
|
|
|
|
532,824
|
|
|
|
558,367
|
|
Australia/Asia
|
|
|
234,182
|
|
|
|
415,033
|
|
|
|
503,814
|
|
Mexico
|
|
|
38,216
|
|
|
|
145,660
|
|
|
|
245,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,052,318
|
|
|
|
1,905,788
|
|
|
|
2,396,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,600,342
|
|
|
$
|
2,419,393
|
|
|
$
|
2,814,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
An individual international country may, from time to time, comprise a material
percentage of our total contract drilling revenues from unaffiliated customers. For the years ended December 31, 2016, 2015 and 2014, individual countries that comprised 5% or more of our total contract drilling revenues from unaffiliated
customers are listed below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Brazil
|
|
|
18.0
|
%
|
|
|
23.1
|
%
|
|
|
31.0
|
%
|
United Kingdom
|
|
|
15.3
|
%
|
|
|
11.4
|
%
|
|
|
10.7
|
%
|
Australia
|
|
|
12.8
|
%
|
|
|
7.0
|
%
|
|
|
6.4
|
%
|
Trinidad and Tobago
|
|
|
9.2
|
%
|
|
|
9.8
|
%
|
|
|
4.0
|
%
|
Romania
|
|
|
4.0
|
%
|
|
|
9.7
|
%
|
|
|
3.9
|
%
|
Mexico
|
|
|
2.4
|
%
|
|
|
6.0
|
%
|
|
|
8.7
|
%
|
Malaysia
|
|
|
1.7
|
%
|
|
|
6.8
|
%
|
|
|
5.5
|
%
|
92
DIAMOND OFFSHORE DRILLING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The following table presents our long-lived tangible assets by
geographic location as of December 31, 2016, 2015 and 2014. A substantial portion of our assets is comprised of rigs that are mobile, and therefore asset locations at the end of the period are not necessarily indicative of the geographic
distribution of the earnings generated by such assets during the periods and may vary from period to period due to the relocation of rigs. In circumstances where our drilling rigs were in transit at the end of a calendar year, they have been
presented in the tables below within the geographic area in which they were expected to operate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
(1)
|
|
|
2015
(1)
|
|
|
2014
|
|
|
|
(In thousands)
|
|
Drilling and other property and equipment, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
2,753,511
|
|
|
$
|
3,292,474
|
|
|
$
|
2,637,621
|
|
International:
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia/Asia/Middle East
|
|
|
1,429,563
|
|
|
|
1,224,089
|
|
|
|
1,460,841
|
|
South America
|
|
|
1,030,069
|
|
|
|
1,051,283
|
|
|
|
1,445,832
|
|
Europe/Africa/Mediterranean
|
|
|
380,462
|
|
|
|
664,520
|
|
|
|
1,128,857
|
|
Mexico
|
|
|
133,330
|
|
|
|
146,448
|
|
|
|
272,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,973,424
|
|
|
|
3,086,340
|
|
|
|
4,308,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,726,935
|
|
|
$
|
6,378,814
|
|
|
$
|
6,945,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
During 2016 and 2015, we recorded an aggregate impairment loss of $678.1 million and $860.4 million, respectively, to write down certain of our
drilling rigs and related equipment with indicators of impairment to their estimated recoverable amounts.
|
The following table presents the countries in which material concentrations of our long-lived tangible assets were located as of December 31, 2016, 2015 and 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
United States
|
|
|
48.1
|
%
|
|
|
51.6
|
%
|
|
|
38.0
|
%
|
Brazil
Malaysia
|
|
|
16.8
13.6
|
%
%
|
|
|
15.3
10.4
|
%
%
|
|
|
20.3
6.6
|
%
%
|
South Korea
|
|
|
|
|
|
|
4.2
|
%
|
|
|
6.3
|
%
|
Spain
|
|
|
|
|
|
|
2.7
|
%
|
|
|
8.1
|
%
|
Vietnam
|
|
|
|
|
|
|
|
|
|
|
6.9
|
%
|
As of December 31, 2016, 2015 and 2014, no other countries had more than a 5%
concentration of our long-lived tangible assets.
Major Customers
Our customer base includes major and independent oil and gas companies and government-owned oil companies. Revenues from
our major customers for the years ended December 31, 2016, 2015 and 2014 that contributed more than 10% of our total revenues are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Customer
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Anadarko
|
|
|
22.4
|
%
|
|
|
12.4
|
%
|
|
|
3.6
|
%
|
Petróleo Brasileiro S.A.
|
|
|
17.9
|
%
|
|
|
24.1
|
%
|
|
|
31.9
|
%
|
ExxonMobil
|
|
|
5.8
|
%
|
|
|
12.4
|
%
|
|
|
5.0
|
%
|
93
DIAMOND OFFSHORE DRILLING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
19.
|
Unaudited Quarterly Financial Data
|
Unaudited summarized financial data by quarter for the years ended December 31, 2016 and 2015 is shown below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
|
(In thousands, except per share data)
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
470,543
|
|
|
$
|
388,747
|
|
|
$
|
349,178
|
|
|
$
|
391,874
|
|
Operating (loss) income
(1)
|
|
|
111,569
|
|
|
|
(626,669
|
)
|
|
|
54,071
|
|
|
|
104,145
|
|
(Loss) income before income tax expense
|
|
|
83,196
|
|
|
|
(666,115
|
)
|
|
|
34,746
|
|
|
|
79,874
|
|
Net (loss) income
|
|
|
87,425
|
|
|
|
(589,937
|
)
|
|
|
13,927
|
|
|
|
116,082
|
|
Net (loss) income per share, basic and diluted
|
|
$
|
0.64
|
|
|
$
|
(4.30
|
)
|
|
$
|
0.10
|
|
|
$
|
0.85
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
620,056
|
|
|
$
|
634,032
|
|
|
$
|
609,742
|
|
|
$
|
555,563
|
|
Operating (loss) income
(2)
|
|
|
(269,530
|
)
|
|
|
134,121
|
|
|
|
181,434
|
|
|
|
(340,099
|
)
|
(Loss) income before income tax expense
|
|
|
(287,118
|
)
|
|
|
106,028
|
|
|
|
159,767
|
|
|
|
(360,025
|
)
|
Net (loss) income
|
|
|
(255,709
|
)
|
|
|
90,386
|
|
|
|
136,422
|
|
|
|
(245,384
|
)
|
Net (loss) income per share, basic and diluted
|
|
$
|
(1.86
|
)
|
|
$
|
0.66
|
|
|
$
|
0.99
|
|
|
$
|
(1.79
|
)
|
(1)
|
During the second quarter of 2016, we recognized an aggregate impairment loss of $678.1 million to write down certain of our drilling rigs and
related spare parts with indicators of impairment to their estimated recoverable amounts. See Notes 1 and 2.
|
(2)
|
During the first, third and fourth quarters of 2015, we recognized impairment losses of $358.5 million, $2.6 million and $499.4 million,
respectively, aggregating $860.4 million for the year ended December 31, 2015 to write down certain of our drilling rigs with indicators of impairment to their estimated recoverable amounts. See Notes 1 and 2.
|
94