As previously disclosed, on April 26, 2020 (or the Petition Date), Diamond Offshore Drilling, Inc. (or the Company) and certain of its direct and indirect subsidiaries (which we refer to, together with the Company, as the Debtors) commenced voluntary cases (or the Chapter 11 Cases) for relief under chapter 11 (or Chapter 11) of title 11 of the United States Code in the United States Bankruptcy Court for the Southern District of Texas (or the Bankruptcy Court). The Chapter 11 Cases were jointly administered under the caption In re Diamond Offshore Drilling, Inc., et al., Case No. 20-32307 (DRJ).

On and following the Petition Date, the Debtors filed motions with the Bankruptcy Court seeking authorization to continue to operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the United States Bankruptcy Code (or the Bankruptcy Code) and orders of the Bankruptcy Court.

On January 22, 2021, the Debtors entered into a Plan Support Agreement (or the PSA) among the Debtors, certain holders of the Company’s then-existing 5.70% Senior Notes due 2039, 3.45% Senior Notes due 2023, 4.875% Senior Notes due 2043 and 7.875% Senior Notes due 2025 (collectively, the Senior Notes) party thereto and certain holders of claims (collectively, the RCF Claims) under the Company’s then-existing $950.0 million syndicated revolving credit facility (or RCF). Concurrently, the Debtors entered into the Backstop Agreement (as defined in the PSA) with certain holders of Senior Notes and entered into the Commitment Letter (as defined in the PSA) with certain holders of RCF Claims to provide exit financing upon emergence from bankruptcy.

The Debtors filed a joint Chapter 11 plan of reorganization with the Bankruptcy Court on January 22, 2021, which was subsequently amended on February 24, 2021 and February 26, 2021 (or the Plan). On March 23, 2021, the Debtors filed the plan supplement for the Plan with the Bankruptcy Court, which was subsequently amended on April 6, 2021 and April 22, 2021 (or the Plan Supplement).

On April 8, 2021, the Bankruptcy Court entered an order confirming the Plan (or the Confirmation Order). On April 23, 2021 (or the Effective Date), all conditions precedent to the Plan were satisfied, the Plan became effective in accordance with its terms, and the Debtors emerged from Chapter 11 reorganization. See Note 11.

In our Annual Report on Form 10-K for the year ended December 31, 2020, we previously disclosed, based on our financial condition and our projected operating results, the defaults under our debt agreements, and the risks and uncertainties surrounding the Chapter 11 Cases, that there was substantial doubt as to our ability to continue as a going concern at that time. Our ability to continue as a going concern was contingent upon confirmation of the Plan by the Bankruptcy Court and our ability to successfully implement the Plan. After the Debtors’ emergence from the Chapter 11 Cases on April 23, 2021 and based on our post-emergence capital structure and liquidity position, we concluded that there is no longer substantial doubt regarding our ability to continue as a going concern for the next 12 months.

We have prepared our unaudited condensed consolidated financial statements as if we were a going concern and in accordance with Financial Accounting Standards Board (or FASB) Accounting Standards Codification Topic No. 852 – Reorganizations (or ASC 852).

Reorganization Items. Expenditures, gains and losses that are realized or incurred by the Debtors subsequent to the Petition Date and as a direct result of the Chapter 11 Cases are reported as “Reorganization items, net” in our unaudited Condensed Consolidated Statements of Operations. These costs include legal and other professional advisory service fees pertaining to the Chapter 11 Cases and all adjustments made to the carrying amount of certain prepetition liabilities, reflecting claims expected to be allowed by the Bankruptcy Court.

The following table provides information about reorganization items incurred during the three-month period ended March 31, 2021, subsequent to the Petition Date (in thousands):

Payments of $20.6 million related to professional fees have been presented as cash outflows from operating activities in our unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021. See Note 5.

Liabilities Subject to Compromise. We have reported prepetition unsecured and under-secured obligations that may be impacted by the Chapter 11 Cases as “Liabilities subject to compromise” in our unaudited Condensed Consolidated Balance Sheets at March 31, 2021 and December 31, 2020. ASC 852 requires prepetition liabilities that are subject to compromise to be reported at the amounts expected to be allowed by the Bankruptcy Court. The amounts reported as liabilities subject to compromise at December 31, 2020 were preliminary and subject to potential future adjustment depending on Bankruptcy Court actions, further developments with respect to disputed claims, determinations of the secured status of certain claims, the values of any collateral securing such claims, rejection of executory contracts, continued reconciliation or other events. Upon filing the Plan in January 2021, we reclassified all prepetition liabilities out of “Liabilities subject to compromise,” because these claims will be paid in full and are unimpaired per the Plan, except for our Senior Notes and the corresponding prepetition interest, which were the only claims considered to be impaired and unsecured per the Plan.

Liabilities subject to compromise at March 31, 2021 and December 31, 2020 consisted of the following (in thousands):

	March 31,		December 31,
	2021		2020
Debt subject to compromise:
Borrowings under RCF	$	—	$	436,000
3.45% Senior Notes due 2023		250,000		250,000
7.875% Senior Notes due 2025		500,000		500,000
5.70% Senior Notes due 2039		500,000		500,000
4.875% Senior Notes due 2043		750,000		750,000
Lease liabilities		—		112,646
Accrued interest		44,877		47,636
Accounts payable		—		16,725
Other accrued liabilities		—		1,302
Other liabilities		—		4,496
Total liabilities subject to compromise	$	2,044,877	$	2,618,805

Upon filing of the Chapter 11 Cases on April 26, 2020, we ceased accruing interest on our Senior Notes and borrowings under the RCF. Accordingly, we did not record $28.3 million of contractual interest expense related to our Senior Notes for the three months ended March 31, 2021. However, due to provisions in the PSA signed in January 2021 and other orders of the Bankruptcy Court, we resumed recognizing interest on our outstanding borrowings under the RCF and also recorded the unpaid post-petition interest not previously recognized. As a result, during the first quarter of 2021, we accrued interest expense of $32.6 million for the period from April 26, 2020 through March 31, 2021, inclusive of a $23.4 million catch-up adjustment for the period from April 26, 2020 to December 31, 2020, and have reported such amount as “Interest expense” in our unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2021.

Fresh Start Accounting. Upon emergence from bankruptcy, we will be required to apply fresh start accounting to our financial statements because the following fresh start accounting criteria have been met: (i) the holders of existing voting shares of our common stock prior to the Effective Date will receive less than 50% of the voting shares outstanding following emergence from the Chapter 11 Cases and (ii) the reorganization value of our assets immediately prior to confirmation of the Plan is expected to be less than the post-petition liabilities and allowed claims. Fresh start accounting will be applied to our consolidated financial statements as of the Effective Date. Under the principles of fresh start accounting, a new reporting entity is considered to have been created, and, as a result, we will allocate our reorganization value to our individual assets, including property, plant and equipment, based on their estimated fair values, which may differ materially from the recorded values of assets and liabilities on our unaudited condensed consolidated financial statements. The process of estimating the fair value of our assets, liabilities and equity on the Effective Date is currently ongoing and such amounts have not yet been finalized. In support of confirmation of the Plan, the enterprise value of the reorganized company was estimated to be approximately $805.0 million to $1,520.0 million, with a selected mid-point of $1,130.0 million as of an anticipated emergence date of April 30, 2021.

In addition, the cancellation of indebtedness income in relation to the Plan, along with other restructuring transactions contemplated in the Plan, are expected to materially reduce the Company’s existing U.S. tax attributes, including, but not limited to, net operating loss carryforwards.

As a result of the application of fresh start accounting and the effects of the implementation of the Plan, the financial statements on or after the Effective Date will not be comparable with the financial statements prior to that date.

Unaudited condensed combined financial statements of the Debtors are set forth below. These financial statements exclude the financial statements of the non-Debtor subsidiaries. Transactions and balances of receivables and payables between the Debtors have been eliminated. Amounts payable to the non-Debtor subsidiaries are reported in the unaudited condensed combined balance sheet of the Debtors.

DIAMOND OFFSHORE DRILLING, INC. AND CERTAIN SUBSIDIARIES PARTY TO THE BANKRUPTCY CASES (DEBTOR-IN-POSSESSION)

	March 31,			December 31,
	2021			2020
ASSETS
Current assets:
Cash and cash equivalents	$	296,249		$	390,407
Restricted cash		34,308			24,511
Accounts receivable		138,619			123,981
Less: allowance for credit losses		(113	)		(102	)
Accounts receivable, net		138,506			123,879
Prepaid expenses and other current assets		77,833			50,439
Asset held for sale		1,000			1,000
Total current assets		547,896			590,236
Drilling and other property and equipment, net of
accumulated depreciation		3,890,261			4,112,527
Investments in non-debtor subsidiaries		2,468,384			2,468,384
Other assets		181,641			184,955
Total assets	$	7,088,182		$	7,356,102
LIABILITIES AND DEBTORS’ EQUITY
Current liabilities:
Accounts payable	$	64,316		$	30,280
Accrued liabilities		223,311			130,133
Taxes payable		27,517			25,005
Current maturities of long-term debt		442,034			-
Amounts payable to non-debtor subsidiaries		1,053,795			1,057,913
Total current liabilities		1,810,973			1,243,331
Note payable to non-debtor subsidiary		328,000			328,000
Deferred tax liability		6,342			11,907
Other liabilities		162,227			63,674
Total liabilities not subject to compromise		2,307,542			1,646,912
Liabilities subject to compromise		2,044,877			2,618,805
Total debtors’ equity		2,735,763			3,090,385
Total liabilities and debtors’ equity	$	7,088,182		$	7,356,102

DIAMOND OFFSHORE DRILLING, INC. AND CERTAIN SUBSIDIARIES PARTY TO THE BANKRUPTCY CASES (DEBTOR-IN-POSSESSION)

	Three Months Ended
	March 31,
	2021
Revenues:
Contract drilling	$	119,133
Revenues related to reimbursable expenses		12,264
Total revenues		131,397
Operating expenses:
Contract drilling, excluding depreciation		130,268
Reimbursable expenses		11,837
Depreciation		74,496
General and administrative		12,039
Impairment of assets		197,027
Gain on disposition of assets		(3,442	)
Total operating expenses		422,225
Operating loss		(290,828	)
Other income (expense):
Interest income		15
Interest expense, net of amounts capitalized		(32,900	)
Foreign currency transaction gain		402
Reorganization items, net		(35,252	)
Other, net		467
Loss before income tax benefit		(358,096	)
Income tax benefit		3,465
Net loss	$	(354,631	)

DIAMOND OFFSHORE DRILLING, INC. AND CERTAIN SUBSIDIARIES PARTY TO THE BANKRUPTCY CASES (DEBTOR-IN-POSSESSION)

	Three Months Ended
	March 31,
	2021
Operating activities:
Net loss	$	(354,631	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		74,496
Loss on impairment of assets		197,027
Gain on disposition of assets		(3,442	)
Deferred tax provision		(5,558	)
Contract liabilities, net		6,974
Contract assets, net		(326	)
Deferred contract costs, net		(9,176	)
Other assets, noncurrent		1,256
Other liabilities, noncurrent		2,494
Other		(370	)
Changes in operating assets and liabilities:
Accounts receivable		(14,628	)
Prepaid expenses and other current assets		(506	)
Accounts payable and accrued liabilities		66,599
Taxes payable		1,001
Due to non-debtor subsidiaries		(4,118	)
Net cash used in operating activities		(42,908	)
Investing activities:
Capital expenditures		(43,605	)
Proceeds from disposition of assets, net of disposal costs		4,442
Net cash used in investing activities		(39,163	)
Financing activities:
Debt issuance costs and arrangement fees		(2,290	)
Net cash used in financing activities		(2,290	)
Net change in cash, cash equivalents and restricted cash		(84,361	)
Cash, cash equivalents and restricted cash, beginning of period		414,918
Cash, cash equivalents and restricted cash, end of period	$	330,557