OCEAN RIG UDW INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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Report of Independent Registered Public Accounting Firm | F-1 |
Report of Independent Registered Public Accounting Firm | F-2 |
Consolidated Balance Sheets as of December 31, 20152016 and 20162017 | F-3 |
Consolidated Statements of Operations for the years ended December 31, 2014, 2015, 2016 and 20162017 | F-4 |
Consolidated Statements of Comprehensive Income / (loss) for the years ended December 31, 2014, 2015, 2016 and 20162017 | F-5 |
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2014, 2015, 2016 and 20162017 | F-6 |
Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2015, 2016 and 20162017 | F-7 |
Notes to Consolidated Financial Statements | F-8 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The BoardTo the shareholders and the board of Directors and Stockholdersdirectors of Ocean Rig UDW Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Ocean Rig UDW Inc. (the "Company") as of December 31, 20162017 and 2015, and2016, the related consolidated statements of operations, comprehensive income/(loss), stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2016. Our audits also included2017, and the related notes (collectively referred to as the "consolidated financial statement schedule listed in Item 18.1. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States)statements"). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Ocean Rig UDW Inc.the Company at December 31, 2017 and 2016, and 2015, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2016,2017, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in note 3 to the consolidated financial statements, the Company expects that during the fourth quarter of 2017 it will be in breach of the maximum leverage ratio requirement of its Secured Term Loan B facilities and does not believe that its then available funds will be sufficient to cure such non-compliance. Furthermore, the Company is considering and evaluating various alternatives including a restructuring plan to address liquidity and the deleveraging of its consolidated balance sheet. These conditions raise substantial doubt about Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in note 3. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, the amounts and classification of liabilities, or any other adjustments that might result in the event the Company is unable to continue as a going concern.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), Ocean Rig UDW Inc.'sthe Company's internal control over financial reporting as of December 31, 2016,2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 22, 201715, 2018 expressed an unqualified opinion thereon.
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company's auditor since 2011.
/s/ Ernst & Young (Hellas) Certified Auditors Accountants S.A.
Athens, Greece
March 22, 201715, 2018
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The BoardTo the shareholders and the board of Directors and Stockholdersdirectors of Ocean Rig UDW Inc.
Opinion on Internal Control over Financial Reporting
We have audited Ocean Rig UDW Inc.'s internal control over financial reporting as of December 31, 2016,2017, based on criteria established in Internal Control—Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Ocean Rig UDW Inc.'s (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive income/(loss), stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2017, and the related notes and our report dated March 15, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company'sCompany's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Ocean Rig UDW Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Ocean Rig UDW Inc. as of December 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive income/ (loss), stockholders' equity and cash flows for each of the three years in the period ended December 31, 2016 of Ocean Rig UDW Inc. and our report dated March 22, 2017 expressed an unqualified opinion thereon that included an explanatory paragraph regarding Ocean Rig UDW Inc.'s ability to continue as a going concern.
/s/ Ernst & Young (Hellas) Certified Auditors Accountants S.A.
Athens, Greece
March 22, 201715, 2018
OCEAN RIG UDW INC.
Consolidated Balance Sheets
As of December 31, 20152016 and 20162017
(Expressed in thousands of U.S. Dollars - except for share and per share data)
| | December 31, 2016 | | | December 31, 2017 | |
ASSETS | | | | | | |
CURRENT ASSETS: | | | | | | |
Cash and cash equivalents (Note 3) | | $ | 718,684 | | | $ | 736,114 | |
Restricted cash (Note 3) | | | 34,274 | | | | 46,967 | |
Trade accounts receivable, net of allowance for doubtful receivables (Note 2) | | | 297,059 | | | | 169,651 | |
Other current assets (Note 5) | | | 29,924 | | | | 37,986 | |
Total current assets | | | 1,079,941 | | | | 990,718 | |
| | | | | | | | |
FIXED ASSETS, NET: | | | | | | | | |
Advances for drilling units under construction and related costs (Note 6) | | | 545,469 | | | | - | |
Drilling units, machinery and equipment, net (Note 7) | | | 2,438,292 | | | | 1,852,167 | |
Total fixed assets, net | | | 2,983,761 | | | | 1,852,167 | |
| | | | | | | | |
OTHER NON-CURRENT ASSETS: | | | | | | | | |
Restricted cash (Note 3) | | | 20,008 | | | | - | |
Other non-current assets (Note 8) | | | 7,834 | | | | 9,080 | |
Total non-current assets, net | | | 27,842 | | | | 9,080 | |
Total assets | | $ | 4,091,544 | | | $ | 2,851,965 | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | |
CURRENT LIABILITIES: | | | | | | | | |
Current portion of long-term debt, net of deferred financing costs (Note 9) | | $ | 640,557 | | | $ | 81,632 | |
Due to related parties (Note 4) | | | 7,231 | | | | 726 | |
Accounts payable and other current liabilities | | | 53,891 | | | | 41,338 | |
Accrued liabilities | | | 86,750 | | | | 45,018 | |
Deferred revenue | | | 23,582 | | | | 15,329 | |
Total current liabilities | | | 812,011 | | | | 184,043 | |
| | | | | | | | |
NON-CURRENT LIABILITIES | | | | | | | | |
Long term debt, net of current portion and deferred financing costs (Note 9) | | | 3,247,216 | | | | 450,000 | |
Deferred revenue | | | 19,615 | | | | 14,385 | |
Other non-current liabilities | | | 1,952 | | | | 317 | |
Total non-current liabilities | | | 3,268,783 | | | | 464,702 | |
| | | | | | | | |
COMMITMENTS AND CONTINGENCIES (Note 17) | | | - | | | | - | |
STOCKHOLDERS' EQUITY: | | | | | | | | |
Preferred stock, $0.01 par value; 500,000,000 and 100,000,000 shares authorized, at December 31, 2016 and 2017 respectively , nil issued and outstanding at December 31, 2016 and 2017, respectively | | | - | | | | - | |
Common stock, $0.01 par value; 1,000,000,000 and 1,800,000,000 shares (1,500,000,000 class A shares and 300,000,000 class B shares) authorized, at December 31, 2016 and December 31, 2017 respectively, 17,486 shares (160,888,606 shares before the 1-for-9,200 reverse stock split) issued and outstanding at December 31, 2016 and 91,567,982 (90,562,138 class A shares and 1,005,844 class B shares) at December 31, 2017 (Note 11) | | | - | | | | 916 | |
Treasury stock; 8,511 shares (78,301,755 shares before the 1-for-9,200 reverse stock split) at $0.01 par value at December 31, 2016 and nil at December 31, 2017 (Note 11) | | | - | | | | - | |
Additional paid-in capital | | | 3,525,252 | | | | 5,722,078 | |
Accumulated other comprehensive income (Note 12) | | | 3,346 | | | | 3,476 | |
Accumulated deficit | | | (3,517,848 | ) | | | (3,523,250 | ) |
Total stockholders' equity | | | 10,750 | | | | 2,203,220 | |
Total liabilities and stockholders' equity | | $ | 4,091,544 | | | $ | 2,851,965 | |
| | December 31, 2015 | | | December 31, 2016 | |
ASSETS | | | | | | |
CURRENT ASSETS: | | | | | | |
Cash and cash equivalents | | $ | 734,747 | | | $ | 718,684 | |
Restricted cash | | | 2,718 | | | | 34,274 | |
Trade accounts receivable, net of allowance for doubtful receivables (Note 2) | | | 416,104 | | | | 297,059 | |
Other current assets (Note 5) | | | 84,533 | | | | 29,924 | |
Total current assets | | | 1,238,102 | | | | 1,079,941 | |
| | | | | | | | |
FIXED ASSETS, NET: | | | | | | | | |
Advances for drilling units under construction and related costs (Note 6) | | | 394,852 | | | | 545,469 | |
Drilling units, machinery and equipment, net (Note 7) | | | 6,336,892 | | | | 2,438,292 | |
Total fixed assets, net | | | 6,731,744 | | | | 2,983,761 | |
| | | | | | | | |
OTHER NON-CURRENT ASSETS: | | | | | | | | |
Restricted cash (Note 2) | | | 10,020 | | | | 20,008 | |
Financial instruments (Note 10) | | | 3,494 | | | | - | |
Other non-current assets (Note 8) | | | 36,860 | | | | 7,834 | |
Total non-current assets, net | | | 50,374 | | | | 27,842 | |
Total assets | | $ | 8,020,220 | | | $ | 4,091,544 | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | |
CURRENT LIABILITIES: | | | | | | | | |
Current portion of long-term debt, net of deferred financing costs (Note 9) | | $ | 56,725 | | | $ | 640,557 | |
Due to related parties (Note 4) | | | - | | | | 7,231 | |
Accounts payable and other current liabilities | | | 104,029 | | | | 53,891 | |
Accrued liabilities | | | 118,231 | | | | 86,750 | |
Deferred revenue | | | 113,548 | | | | 23,582 | |
Financial instruments (Note 10) | | | 8,931 | | | | - | |
Total current liabilities | | | 401,464 | | | | 812,011 | |
| | | | | | | | |
NON-CURRENT LIABILITIES | | | | | | | | |
Long term debt, net of current portion and deferred financing costs (Note 9) | | | 4,271,743 | | | | 3,247,216 | |
Financial instruments (Note 10) | | | 2,743 | | | | - | |
Deferred revenue | | | 66,643 | | | | 19,615 | |
Other non-current liabilities | | | 2,862 | | | | 1,952 | |
Total non-current liabilities | | | 4,343,991 | | | | 3,268,783 | |
| | | | | | | | |
COMMITMENTS AND CONTINGENCIES (Note 17) | | | - | | | | - | |
STOCKHOLDERS' EQUITY: | | | | | | | | |
Preferred stock, $0.01 par value; 500,000,000 shares authorized at December 31, 2015 and 2016, nil issued and outstanding at December 31, 2015 and 2016, respectively | | | - | | | | - | |
Common stock, $0.01 par value; 1,000,000,000 shares authorized, at December 31, 2015 and 2016, 160,888,606 shares issued and outstanding at December 31, 2015 and 2016 (Note 11) | | | 1,609 | | | | 1,609 | |
Treasury stock; 22,222,222 shares at $0.01 par value as at December 31, 2015 and 78,301,755 shares at $0.01 par value at December 31, 2016 (Note 4 and Note 11) | | | (222 | ) | | | (783 | ) |
Additional paid-in capital | | | 3,572,549 | | | | 3,524,426 | |
Accumulated other comprehensive income/ (loss) (Note 12) | | | (22,841 | ) | | | 3,346 | |
Accumulated deficit | | | (276,330 | ) | | | (3,517,848 | ) |
Total stockholders' equity | | | 3,274,765 | | | | 10,750 | |
Total liabilities and stockholders' equity | | $ | 8,020,220 | | | $ | 4,091,544 | |
The accompanying notes are an integral part of these consolidated financial statements.
OCEAN RIG UDW INC.
Consolidated Statement of Operations
For the years ended December 31, 2014, 2015, 2016 and 20162017
(Expressed in thousands of U.S. Dollars - except for share and per share data)
| | Year Ended December 31, | | | Year Ended December 31, | |
| | 2014 | | | 2015 | | | 2016 | | | 2015 | | | 2016 | | | 2017 | |
REVENUES: | | | | | | | | | | | | | | | | | | |
Revenues | | $ | 1,817,077 | | | $ | 1,748,200 | | | $ | 1,653,667 | | | $ | 1,748,200 | | | $ | 1,653,667 | | | $ | 1,007,520 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
EXPENSES: | | | | | | | | | | | | | | | | | | | | | | | | |
Drilling units operating expenses | | | 727,832 | | | | 582,122 | | | | 454,329 | | | | 582,122 | | | | 454,329 | | | | 295,135 | |
Depreciation and amortization | | | 324,302 | | | | 362,587 | | | | 334,155 | | | | 362,587 | | | | 334,155 | | | | 121,193 | |
Impairment loss (Note 6 and Note 7) | | | - | | | | 414,986 | | | | 3,776,338 | | | | 414,986 | | | | 3,776,338 | | | | 1,048,828 | |
General and administrative expenses | | | 131,745 | | | | 100,314 | | | | 103,961 | | | | 100,314 | | | | 103,961 | | | | 73,360 | |
Loss on sale of fixed assets | | | - | | | | 5,177 | | | | 25,274 | | | | 5,177 | | | | 25,274 | | | | 238 | |
Legal settlements and other, net (Note 17) | | | (721 | ) | | | (2,591 | ) | | | (8,720 | ) | | | (2,591 | ) | | | (8,720 | ) | | | (1,519 | ) |
Operating income / (expenses) | | | 633,919 | | | | 285,605 | | | | (3,031,670 | ) | |
Operating income/ (expenses) | | | | 285,605 | | | | (3,031,670 | ) | | | (529,715 | ) |
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OTHER INCOME / (EXPENSES): | | | | | | | | | | | | | |
OTHER INCOME/ (EXPENSES): | | | | | | | | | | | | | |
Interest and finance costs (Note 13) | | | (300,131 | ) | | | (280,348 | ) | | | (226,981 | ) | | | (280,348 | ) | | | (226,981 | ) | | | (248,342 | ) |
Interest income | | | 12,227 | | | | 9,811 | | | | 3,449 | | | | 9,811 | | | | 3,449 | | | | 7,442 | |
Loss on interest rate swaps (Note 10) | | | (12,671 | ) | | | (11,513 | ) | | | (4,388 | ) | | | (11,513 | ) | | | (4,388 | ) | | | - | |
Reorganization gain, net (Note 2 and Note 9) | | | | - | | | | - | | | | 1,029,982 | |
Loss from issuance of shares upon restructuring (Note 4 and Note 11) | | | | - | | | | - | | | | (204,595 | ) |
Gain from repurchase of senior notes (Note 9) | | | - | | | | 189,174 | | | | 125,001 | | | | 189,174 | | | | 125,001 | | | | - | |
Other, net | | | 4,282 | | | | (12,899 | ) | | | (614 | ) | | | (12,899 | ) | | | (614 | ) | | | 3,321 | |
Total other expenses, net | | | (296,293 | ) | | | (105,775 | ) | | | (103,533 | ) | |
Total other (expenses)/ income, net | | | | (105,775 | ) | | | (103,533 | ) | | | 587,808 | |
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INCOME / (LOSS) BEFORE INCOME TAXES | | | 337,626 | | | | 179,830 | | | | (3,135,203 | ) | | | 179,830 | | | | (3,135,203 | ) | | | 58,093 | |
Income taxes (Note 14) | | | (77,823 | ) | | | (99,816 | ) | | | (106,315 | ) | | | (99,816 | ) | | | (106,315 | ) | | | (63,495 | ) |
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NET INCOME / (LOSS) ATTRIBUTABLE TO OCEAN RIG UDW INC. | | $ | 259,803 | | | $ | 80,014 | | | $ | (3,241,518 | ) | | $ | 80,014 | | | $ | (3,241,518 | ) | | $ | (5,402 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
NET INCOME / (LOSS) ATTRIBUTABLE TO OCEAN RIG UDW INC. COMMON STOCKHOLDERS (Note 15) | | $ | 259,031 | | | $ | 78,839 | | | $ | (3,241,518 | ) | |
NET INCOME / (LOSS) ATTRIBUTABLE TO OCEAN RIG UDW INC. CLASS A AND CLASS B COMMON STOCKHOLDERS (Note 15) | | | $ | 78,839 | | | $ | (3,241,518 | ) | | $ | (5,402 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
EARNINGS / (LOSS) PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS, BASIC AND DILUTED (Note 15) | | $ | 1.96 | | | $ | 0.57 | | | $ | (33.43 | ) | |
WEIGHTED AVERAGE NUMBER OF COMMON SHARES, BASIC AND DILUTED (Note 15) | | | 131,837,227 | | | | 138,757,176 | | | | 96,950,847 | | |
Dividend declared per share | | | 0.57 | | | | 0.38 | | | | - | | |
EARNINGS / (LOSS) PER COMMON SHARE OF CLASS A AND CLASS B ATTRIBUTABLE TO COMMON STOCKHOLDERS, BASIC AND DILUTED (Note 15) | | | $ | 5,227.36 | | | $ | (307,602.77 | ) | | $ | (0.21 | ) |
WEIGHTED AVERAGE NUMBER OF CLASS A COMMON SHARES, BASIC AND DILUTED (Note 15) | | | | 15,082 | | | | 10,538 | | | | 25,070,978 | |
WEIGHTED AVERAGE NUMBER OF CLASS B COMMON SHARES, BASIC AND DILUTED (Note 15) | | | | - | | | | - | | | | 167,314 | |
WEIGHTED AVERAGE NUMBER OF CLASS A AND CLASS B COMMON SHARES, BASIC AND DILUTED (Note 15) | | | | 15,082 | | | | 10,538 | | | | 25,238,292 | |
Dividend declared per Class A and Class B common shares | | | | 3,496.00 | | | | - | | | | - | |
The accompanying notes are an integral part of these consolidated financial statements.
OCEAN RIG UDW INC.
Consolidated Statements of Comprehensive Income / (Loss)
For the years ended December 31, 2014, 2015, 2016 and 20162017
(Expressed in thousands of U.S. Dollars)
| | Year Ended December 31, | |
| | 2015 | | | 2016 | | | 2017 | |
| | | | | | | | | |
Net income / (loss) | | $ | 80,014 | | | $ | (3,241,518 | ) | | $ | (5,402 | ) |
| | | | | | | | | | | | |
Other Comprehensive income : | | | | | | | | | | | | |
Reclassification of realized losses associated with capitalized interest to the Consolidated Statement of Operations (Note 10) | | | 1,035 | | | | 26,187 | | | | - | |
Actuarial gains | | | 62 | | | | - | | | | 130 | |
Total Other Comprehensive income | | | 1,097 | | | | 26,187 | | | | 130 | |
| | | | | | | | | | | | |
Total Comprehensive income / (loss) | | $ | 81,111 | | | $ | (3,215,331 | ) | | $ | (5,272 | ) |
| | Year Ended December 31, | |
| | 2014 | | | 2015 | | | 2016 | |
| | | | | | | | | |
Net income / (loss) | | $ | 259,803 | | | $ | 80,014 | | | $ | (3,241,518 | ) |
| | | | | | | | | | | | |
Other Comprehensive income : | | | | | | | | | | | | |
Reclassification of realized losses associated with capitalized interest to the Consolidated Statement of Operations (Note 10) | | | 1,034 | | | | 1,035 | | | | 26,187 | |
Actuarial gains/ (losses) | | | (1,518 | ) | | | 62 | | | | - | |
Total Other Comprehensive income / (loss) | | | (484 | ) | | | 1,097 | | | | 26,187 | |
| | | | | | | | | | | | |
Total Comprehensive income / (loss) | | $ | 259,319 | | | $ | 81,111 | | | $ | (3,215,331 | ) |
| | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
OCEAN RIG UDW INC.
Consolidated Statements of Stockholders' Equity
For the years ended December 31, 2014, 2015, 2016 and 20162017
(Expressed in thousands of U.S. Dollars - except for share data)
| | Class A Common Shares | | | Class B Common Shares | | | Treasury Shares | | | | | | | | | | | | | |
| | Shares | | | Par Value | | | Shares | | | Par Value | | | Shares | | | Par Value | | | Additional Paid-in Capital | | | Accumulated Other Comprehensive Income/Loss | | | Accumulated Deficit | | | Total Stockholders' Equity | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
BALANCE, January 1, 2015 | | | 14,347 | | | $ | - | | | | - | | | $ | - | | | | - | | | $ | - | | | $ | 3,496,277 | | | $ | (23,938 | ) | | $ | (306,063 | ) | | $ | 3,166,276 | |
Net income | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 80,014 | | | | 80.014 | |
Issuance of non-vested shares | | | 33 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Issuance of common stock | | | 3,106 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 193,983 | | | | - | | | | - | | | | 193,983 | |
Treasury stock | | | - | | | | - | | | | - | | | | - | | | | (2,415 | ) | | | - | | | | (120,000 | ) | | | - | | | | - | | | | (120,000 | ) |
Amortization of stock based compensation | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 3,676 | | | | - | | | | - | | | | 3,676 | |
Dividends declared and paid | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (50,281 | ) | | | (50,281 | ) |
Other comprehensive income | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1,097 | | | | - | | | | 1,097 | |
BALANCE, December 31, 2015 | | | 17,486 | | | $ | - | | | | - | | | $ | - | | | | (2,415 | ) | | $ | - | | | $ | 3,573,936 | | | $ | (22,841 | ) | | $ | (276,330 | ) | | $ | 3,274,765 | |
Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (3,241,518 | ) | | | (3,241,518 | ) |
Treasury stock | | | - | | | | - | | | | - | | | | - | | | | (6,096 | ) | | | - | | | | (49,911 | ) | | | - | | | | - | | | | (49,911 | ) |
Amortization of stock based compensation | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1,227 | | | | - | | | | - | | | | 1,227 | |
Other comprehensive income | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 26,187 | | | | - | | | | 26,187 | |
BALANCE, December 31, 2016 | | | 17,486 | | | $ | - | | | | - | | | | - | | | | (8,511 | ) | | $ | - | | | $ | 3,525,252 | | | $ | 3,346 | | | $ | (3,517,848 | ) | | $ | 10,750 | |
Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (5,402 | ) | | | (5,402 | ) |
Issuance of common stock | | | 90,663,603 | | | | 907 | | | | 895,404 | | | | 9 | | | | - | | | | - | | | | 2,196,212 | | | | - | | | | - | | | | 2,197,128 | |
Conversion of Class A to Class B shares (Note 11) | | | (337,533 | ) | | | (3 | ) | | | 337,533 | | | | 3 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Conversion of Class B to Class A shares (Note 11) | | | 227,093 | | | | 2 | | | | (227,093 | ) | | | (2 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Cancellation of treasury stock | | | (8,511 | ) | | | - | | | | - | | | | - | | | | 8,511 | | | | - | | | | - | | | | - | | | | - | | | | - | |
Amortization of stock based compensation | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 614 | | | | - | | | | - | | | | 614 | |
Other comprehensive income | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 130 | | | | - | | | | 130 | |
BALANCE, December 31, 2017 | | | 90,562,138 | | | $ | 906 | | | | 1,005,844 | | | $ | 10 | | | | - | | | $ | - | | | $ | 5,722,078 | | | $ | 3,476 | | | $ | (3,523,250 | ) | | $ | 2,203,220 | |
| | Common Stock | | | Treasury Stock | | | | | | | |
| | Shares | | | Par Value | | | Shares | | | Par Value | | | Additional Paid-in Capital | | | Accumulated Other Comprehensive Income/Loss | | | Accumulated Deficit | | | Total Stockholders' Equity | |
| | | | | | | | | | | | | | | | | | | | | | | | |
BALANCE, January 1, 2014 | | | 131,875,128 | | | $ | 1,319 | | | | - | | | $ | - | | | $ | 3,492,650 | | | $ | (23,454 | ) | | $ | (490,672 | ) | | $ | 2,979,843 | |
Net income | | | - | | | | - | | | | | | | | - | | | | - | | | | - | | | | 259,803 | | | | 259,803 | |
Issuance of non-vested shares | | | 157,500 | | | | 1 | | | | - | | | | - | | | | (1 | ) | | | - | | | | - | | | | - | |
Cancellation of previously issued vested shares | | | (15,450 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Amortization of stock based compensation | | | - | | | | - | | | | - | | | | - | | | | 3,576 | | | | - | | | | - | | | | 3,576 | |
Establishment costs for issuance of subsidiaries shares | | | - | | | | - | | | | - | | | | - | | | | (1,268 | ) | | | - | | | | - | | | | (1,268 | ) |
Dividends declared and paid | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (75,194 | ) | | | (75,194 | ) |
Other comprehensive loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | (484 | ) | | | - | | | | (484 | ) |
BALANCE, December 31, 2014 | | | 132,017,178 | | | $ | 1,320 | | | | - | | | $ | - | | | $ | 3,494,957 | | | $ | (23,938 | ) | | $ | (306,063 | ) | | $ | 3,166,276 | |
Net income | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 80,014 | | | | 80,014 | |
Issuance of non-vested shares | | | 300,000 | | | | 3 | | | | - | | | | - | | | | (3 | ) | | | - | | | | - | | | | - | |
Issuance of common stock | | | 28,571,428 | | | | 286 | | | | - | | | | - | | | | 193,697 | | | | - | | | | - | | | | 193,983 | |
Treasury stock | | | - | | | | - | | | | (22,222,222 | ) | | $ | (222 | ) | | | (119,778 | ) | | | - | | | | - | | | | (120,000 | ) |
Amortization of stock based compensation | | | - | | | | - | | | | - | | | | - | | | | 3,676 | | | | - | | | | - | | | | 3,676 | |
Dividends declared and paid | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (50,281 | ) | | | (50,281 | ) |
Other comprehensive income | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1,097 | | | | - | | | | 1,097 | |
BALANCE, December 31, 2015 | | | 160,888,606 | | | $ | 1,609 | | | | (22,222,222 | ) | | $ | (222 | ) | | $ | 3,572,549 | | | $ | (22,841 | ) | | $ | (276,330 | ) | | $ | 3,274,765 | |
Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (3,241,518 | ) | | | (3,241,518 | ) |
Treasury stock | | | - | | | | - | | | | (56,079,533 | ) | | | (561 | ) | | | (49,350 | ) | | | - | | | | - | | | | (49,911 | ) |
Amortization of stock based compensation | | | - | | | | - | | | | - | | | | - | | | | 1,227 | | | | - | | | | - | | | | 1,227 | |
Other comprehensive income | | | - | | | | - | | | | - | | | | - | | | | - | | | | 26,187 | | | | - | | | | 26,187 | |
BALANCE, December 31, 2016 | | | 160,888,606 | | | $ | 1,609 | | | | (78,301,755 | ) | | $ | (783 | ) | | $ | 3,524,426 | | | $ | 3,346 | | | $ | (3,517,848 | ) | | $ | 10,750 | |
The accompanying notes are an integral part of these consolidated financial statements.
OCEAN RIG UDW INC.
Consolidated Statements of Cash Flows
For the years ended December 31, 2014, 2015, 2016 and 20162017
(Expressed in thousands of U.S. Dollars)
| | Years Ended December 31, | |
| | | | | | | | | |
| | 2015 | | | 2016 | | | 2017 | |
Cash Flows from Operating Activities: | | | | | | | | | |
Net income/ (loss) | | $ | 80,014 | | | $ | (3,241,518 | ) | | $ | (5,402 | ) |
Adjustments to reconcile net income/ (loss) to net cash provided by operating activities: | | | | | | | | | | | | |
Depreciation and amortization | | | 362,587 | | | | 334,155 | | | | 121,193 | |
Amortization and write-off of financing fees | | | 24,033 | | | | 21,040 | | | | 61,212 | |
Amortization income of deferred financing fees | | | (2,781 | ) | | | - | | | | - | |
Change in fair value of derivatives | | | (8,217 | ) | | | (8,180 | ) | | | - | |
Loss on sale of fixed assets | | | 5,177 | | | | 25,274 | | | | 238 | |
Allowance for doubtful receivables | | | 114,613 | | | | - | | | | - | |
Gain from repurchase of senior notes | | | (189,174 | ) | | | (125,001 | ) | | | - | |
Effect of exchange rate changes on cash | | | 6,748 | | | | - | | | | - | |
Impairment loss | | | 414,986 | | | | 3,776,338 | | | | 1,048,828 | |
Reorganization gain – principal debt discharged | | | - | | | | - | | | | (1,129,125 | ) |
Loss from issuance of shares upon restructuring | | | - | | | | - | | | | 204,595 | |
Amortization of stock based compensation | | | 3,676 | | | | 1,227 | | | | 614 | |
Changes in operating assets and liabilities: | | | | | | | | | | | | |
Trade accounts receivable | | | (188,330 | ) | | | 119,045 | | | | 127,408 | |
Other current and non-current assets | | | 36,027 | | | | 73,038 | | | | (11,176 | ) |
Due to/ (from) related parties | | | (11,287 | ) | | | 7,231 | | | | (6,505 | ) |
Accounts payable and other current and non-current liabilities | | | 19,837 | | | | (51,048 | ) | | | (14,058 | ) |
Accrued liabilities | | | (56,502 | ) | | | (31,478 | ) | | | 159,029 | |
Deferred revenue | | | (18,395 | ) | | | (136,994 | ) | | | (13,483 | ) |
Net Cash Provided by Operating Activities | | | 593,012 | | | | 763,129 | | | | 543,368 | |
Cash Flows from Investing Activities: | | | | | | | | | | | | |
Advances for drilling units under construction and related costs | | | (89,867 | ) | | | (242,990 | ) | | | (27,693 | ) |
Drilling units, machinery, equipment and other improvements/ upgrades | | | (543,976 | ) | | | (97,163 | ) | | | (9,301 | ) |
Proceeds/ (loss) from sale of fixed assets | | | 300 | | | | (10,850 | ) | | | 198 | |
(Increase)/ decrease in restricted cash | | | (10,174 | ) | | | (41,544 | ) | | | 7,315 | |
Net Cash Used in Investing Activities | | | (643,717 | ) | | | (392,547 | ) | | | (29,481 | ) |
Cash Flows from Financing Activities: | | | | | | | | | | | | |
Proceeds from senior secured credit facility | | | 462,000 | | | | - | | | | - | |
Principal payments and repayments of long-term debt and senior notes | | | (61,179 | ) | | | (215,279 | ) | | | (496,457 | ) |
Senior notes repurchase | | | (273,673 | ) | | | (121,455 | ) | | | - | |
Net proceeds from common stock issuance | | | 192,714 | | | | - | | | | - | |
Repurchase of common stock | | | - | | | | (49,911 | ) | | | - | |
Dividends paid | | | (50,281 | ) | | | - | | | | - | |
Payment of financing costs, net | | | (6,314 | ) | | | - | | | | - | |
Net Cash Provided by/(Used in) Financing Activities | | | 263,267 | | | | (386,645 | ) | | | (496,457 | ) |
Effect of exchange rate changes on cash | | | (6,748 | ) | | | - | | | | - | |
Net increase/(decrease) in cash and cash equivalents | | | 205,814 | | | | (16,063 | ) | | | 17,430 | |
Cash and cash equivalents at beginning of year | | | 528,933 | | | | 734,747 | | | | 718,684 | |
Cash and cash equivalents at end of year | | $ | 734,747 | | | $ | 718,684 | | | $ | 736,114 | |
| | | | | | | | | | | | |
SUPPLEMENTAL CASH FLOW INFORMATION: | | | | | | | | | | | | |
Cash paid during the years for: | | | | | | | | | | | | |
Interest, net of amount capitalized | | | 256,056 | | | | 254,207 | | | | 60,862 | |
Income taxes | | | 60,687 | | | | 70,983 | | | | 58,901 | |
Reorganization expenses paid | | | - | | | | - | | | | 99,144 | |
Non cash financing and investing activities: | | | | | | | | | | | | |
Issuance of non-vested shares | | | 3 | | | | - | | | | - | |
Issuance of common stock under the restructuring | | | - | | | | - | | | | 2,197,128 | |
Proceeds from long-term debt | | | - | | | | - | | | | 450,000 | |
| | Years Ended December 31, | |
| | | | | | | | | |
| | 2014 | | | 2015 | | | 2016 | |
Cash Flows from Operating Activities: | | | | | | | | | |
Net income/(loss) | | $ | 259,803 | | | $ | 80,014 | | | $ | (3,241,518 | ) |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | |
Depreciation and amortization | | | 324,302 | | | | 362,587 | | | | 334,155 | |
Amortization and write-off of financing fees | | | 42,995 | | | | 24,033 | | | | 21,040 | |
Amortization income of deferred financing fees | | | (219 | ) | | | (2,781 | ) | | | - | |
Change in fair value of derivatives | | | (15,909 | ) | | | (8,217 | ) | | | (8,180 | ) |
Loss on sale of fixed assets | | | - | | | | 5,177 | | | | 25,274 | |
Allowance for doubtful receivables | | | - | | | | 114,613 | | | | - | |
Gain from repurchase of senior notes | | | - | | | | (189,174 | ) | | | (125,001 | ) |
Effect of exchange rate changes on cash | | | - | | | | 6,748 | | | | - | |
Impairment loss | | | - | | | | 414,986 | | | | 3,776,338 | |
Amortization of stock based compensation | | | 3,576 | | | | 3,676 | | | | 1,227 | |
Changes in operating assets and liabilities: | | | | | | | | | | | | |
Trade accounts receivable | | | (55,469 | ) | | | (188,330 | ) | | | 119,045 | |
Other current and non-current assets | | | 38,460 | | | | 36,027 | | | | 73,038 | |
Due to/(from) related parties | | | 11,287 | | | | (11,287 | ) | | | 7,231 | |
Accounts payable and other current and non-current liabilities | | | (25,728 | ) | | | 19,837 | | | | (51,048 | ) |
Accrued liabilities | | | (40,131 | ) | | | (56,502 | ) | | | (31,478 | ) |
Deferred revenue | | | (73,150 | ) | | | (18,395 | ) | | | (136,994 | ) |
Net Cash Provided by Operating Activities | | | 469,817 | | | | 593,012 | | | | 763,129 | |
Cash Flows from Investing Activities: | | | | | | | | | | | | |
Loan to former parent | | | (120,000 | ) | | | - | | | | - | |
Proceeds from arrangement fees | | | 3,000 | | | | - | | | | - | |
Advances for drilling units under construction and related costs | | | (292,984 | ) | | | (89,867 | ) | | | (242,990 | ) |
Drilling units, machinery, equipment and other improvements/ upgrades | | | (455,997 | ) | | | (543,976 | ) | | | (97,163 | ) |
Proceeds/(loss) from sale of fixed assets | | | - | | | | 300 | | | | (10,850 | ) |
(Increase)/decrease in restricted cash | | | 50,997 | | | | (10,174 | ) | | | (41,544 | ) |
Net Cash Used in Investing Activities | | | (814,984 | ) | | | (643,717 | ) | | | (392,547 | ) |
Cash Flows from Financing Activities: | | | | | | | | | | | | |
Proceeds from short/long-term credit facilities, terms loans and senior notes | | | 2,250,000 | | | | 462,000 | | | | - | |
Principal payments and repayments of long-term debt and senior notes | | | (1,862,250 | ) | | | (61,179 | ) | | | (215,279 | ) |
Senior notes repurchase | | | - | | | | (273,673 | ) | | | (121,455 | ) |
Net proceeds from common stock issuance | | | - | | | | 192,714 | | | | - | |
Repurchase of common stock | | | - | | | | - | | | | (49,911 | ) |
Dividends paid | | | (75,194 | ) | | | (50,281 | ) | | | - | |
Payments for issuance of subsidiaries shares | | | (466 | ) | | | - | | | | - | |
Payment of financing costs, net | | | (43,457 | ) | | | (6,314 | ) | | | - | |
Net Cash Provided by/(Used in) Financing Activities | | | 268,633 | | | | 263,267 | | | | (386,645 | ) |
Effect of exchange rate changes on cash | | | - | | | | (6,748 | ) | | | - | |
Net increase/(decrease) in cash and cash equivalents | | | (76,534 | ) | | | 205,814 | | | | (16,063 | ) |
Cash and cash equivalents at beginning of year | | | 605,467 | | | | 528,933 | | | | 734,747 | |
Cash and cash equivalents at end of year | | $ | 528,933 | | | $ | 734,747 | | | $ | 718,684 | |
| | | | | | | | | | | | |
SUPPLEMENTAL CASH FLOW INFORMATION: | | | | | | | | | | | | |
Cash paid during the years for: | | | | | | | | | | | | |
Interest, net of amount capitalized | | | 212,014 | | | | 256,056 | | | | 254,207 | |
Income taxes | | | 60,374 | | | | 60,687 | | | | 70,983 | |
Non cash financing and investing activities: | | | | | | | | | | | | |
Issuance of non-vested shares | | | 1 | | | | 3 | | | | - | |
The accompanying notes are an integral part of these consolidated financial statements.
OCEAN RIG UDW INC.
Notes to Consolidated Financial Statements
For the years ended December 31, 2014, 2015, 2016 and 20162017
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
1. Basis of Presentation and General Information:
The accompanying consolidated financial statements include the accounts of Ocean Rig UDW Inc., its subsidiaries and consolidated Variable Interest Entities ("VIEs") (collectively, the "Company," "Ocean Rig" or the "Group"). Ocean Rig was formed on December 10, 2007, under the laws of the Republic of the Marshall Islands under the name Primelead Shareholders Inc. as an international contractor of offshore deepwater drilling services. The Company was established by DryShips Inc. ("DryShips" or formerly the "Parent") for the purpose of being the holding company of its drilling segment. DryShips is a publicly listed company on the NASDAQ Capital Market (NASDAQGS: DRYS). On November 24, 2010 and up to December 31, 2016, Ocean Rig UDW had an established office and was registered with the Cypriot Registrar of Companies as an overseas company. On October 6, 2011, the Company's common shares commenced "regular way" trading on the NASDAQ Global Select Market under the ticker symbol "ORIG." As of April 14, 2016, the corporate domicile of the Company moved from the Republic of the Marshall Islands to the Cayman Islands.
On April 5, 2016, the Company purchased all of its shares held by DryShips, through its unrestricted subsidiary, Ocean Rig Investments Inc. (Note 11). After this transaction, DryShips no longer holds any equity interest in the Company.
As of April 14, 2016, the corporate domicile of the Company moved from the Republic of the Marshall Islands to the Cayman Islands.
On September 11, 2015, the Company entered into an agreement to provide third party technical management services for the offshore drilling unit Cerrado. On April 28, 2016, the Company acquired the drilling unit Cerrado which was renamed to Ocean Rig Paros (Note 7).
On September 22, 2017 and in connection with the restructuring of the Company (the "Restructuring") and in order to comply with NASDAQ's listing requirements and meet the minimum bid requirement for continued listing on NASDAQ, the Company commenced trading on a 1-for-9,200 reverse stock split of its issued common shares. All share and per share amounts disclosed in the accompanying consolidated financial statements and notes give effect to the reverse stock split retroactively, for all periods presented.
The Company's customers are mainly oil and gas exploration and production companies, including major integrated oil companies, independent oil and gas producers and government-owned oil and gas companies. Customers individually accounting for more than 10% of the Company's revenues during the years ended December 31, 2014, 2015, 2016 and 2016,2017, were as follows:
| | Year ended December 31, | | | Year ended December 31, | |
| | 2014 | | | 2015 | | | 2016 | | | 2015 | | | 2016 | | | 2017 | |
Customer A | | | 14 | % | | | 14 | % | | | 11 | % | | | 14 | % | | | 11 | % | | | - | |
Customer B | | | 18 | % | | | 19 | % | | | 20 | % | | | 19 | % | | | 20 | % | | | 33 | % |
Customer C | | | 12 | % | | | 13 | % | | | - | | | | 13 | % | | | - | | | | - | |
Customer D | | | 30 | % | | | 15 | % | | | 31 | % | | | 15 | % | | | 31 | % | | | 40 | % |
Customer E | | | 14 | % | | | 13 | % | | | 14 | % | | | 13 | % | | | 14 | % | | | - | |
Customer F | | | - | | | | 15 | % | | | 18 | % | | | 15 | % | | | 18 | % | | | - | |
The loss of any of these significant customers could have a material adverse effect on the Company's results of operations if they were not replaced by other customers.
2. Significant Accounting Policies:
(a) Principles of consolidation: The accompanying consolidated financial statements have been prepared in accordance with Generally Accepted Accounting Principles in the United States of America ("US GAAP") and include the accounts and operating results of Ocean Rig UDW, its wholly-owned subsidiaries and its VIEs. A VIE is an entity that in general does not have equity investors with substantive voting rights or that has equity investors that do not provide sufficient financial resources for the entity to support its activities. A controlling financial interest in a VIE is present when a company has the power to direct the activities of a VIE that most significantly impact the entity's economic performance and absorbs a majority of an entity's expected losses, receives a majority of an entity's expected residual returns, or both. All intercompany balances and transactions have been eliminated on consolidation. As of December 31, 20162017 and 2015,2016, the Company consolidated one VIE which supports our drilling operation in specific locations, for which it is deemed to be the primary beneficiary, i.e. it has a controlling financial interest in this entity.
OCEAN RIG UDW INC.
Notes to Consolidated Financial Statements
For the years ended December 31, 2014, 2015, 2016 and 20162017
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
2. Significant Accounting Policies:Policies-(continued):
The VIE's total assets and liabilities, as of December 31, 2015, were $35,362 and $77,647, respectively, while total liabilities exceeded total assets by $42,285. The VIE's total assets and liabilities, as of December 31, 2016, were $23,227 and $86,119, respectively, while total liabilities exceeded total assets by $62,892.
The VIE's total assets and liabilities, as of December 31, 2017, were $15,029 and $92,622, respectively, while total liabilities exceeded total assets by $77,593.
As of December 31, 2016 and December 31, 2017, the Company also consolidated one additional VIE due to the Trust (as defined) formed for the purpose of the amendment of the $462,000 Senior Secured Credit Facility (Note 9). Since the assets of the Trust can be used only to settle obligations of the Trust itself and at the same time creditors of the Trust do not have recourse to the general credit of the primary beneficiary, such assets and liabilities are analyzed as follows:
| | December 31, 2016 | | | December 31, 2016 | | | December 31, 2017 | |
ASSETS | | | | | | | | | |
CURRENT ASSETS: | | | | | | | | | |
Cash and cash equivalents | | $ | 167 | | | $ | 167 | | | $ | 110 | |
Restricted cash | | | 31,956 | | | | 31,956 | | | | 45,339 | |
Trade accounts receivable, net | | | 3,341 | | | | 3,341 | | | | - | |
Other current assets | | | 1,884 | | | | 1,884 | | | | 1,929 | |
Total current assets | | | 37,348 | | | | 37,348 | | | | 47,378 | |
| | | | | | | | | | | | |
FIXED ASSETS, NET: | | | | | | | | | | | | |
Drilling units, machinery and equipment, net | | | 675,420 | | | | 675,420 | | | | 175,362 | |
Total fixed assets, net | | | 675,420 | | | | 675,420 | | | | 175,362 | |
| | | | | | | | | | | | |
OTHER NON-CURRENT ASSETS: | | | | | | | | | | | | |
Restricted cash | | | 20,008 | | | | 20,008 | | | | - | |
Total non-current assets, net | | | 20,008 | | | | 20,008 | | | | - | |
Total assets | | $ | 732,776 | | | $ | 732,776 | | | $ | 222,740 | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | | | | | |
| | | | | | | | | | | | |
CURRENT LIABILITIES: | | | | | | | | | | | | |
Current portion of long-term debt, net of deferred financing costs | | $ | 164,218 | | | $ | 164,218 | | | $ | 81,632 | |
Accounts payable and other current liabilities | | | 5,218 | | | | 5,218 | | | | 249 | |
Accrued liabilities | | | 1,791 | | | | 1,791 | | | | 4,416 | |
Total current liabilities | | | 171,227 | | | | 171,227 | | | | 86,297 | |
| | | | | | | | | | | | |
NON-CURRENT LIABILITIES | | | | | | | | | | | | |
Long term debt, net of current portion and deferred financing costs | | | 82,947 | | | | 82,947 | | | | - | |
Total non-current liabilities | | | 82,947 | | | | 82,947 | | | | - | |
| | | | | | | | | | | | |
COMMITMENTS AND CONTINGENCIES | | | - | | | | - | | | | - | |
SHAREHOLDERS' EQUITY: | | | | | | | | | | | | |
Common stock, $20 par value; 1,000 shares authorized and issued at December 31, 2016 | | | 20 | | |
Common stock, $20 par value; 1,000 shares authorized and issued at December 31, 2016 and 2017 | | | | 20 | | | | 20 | |
Additional paid-in capital | | | 960 | | | | 960 | | | | 960 | |
Retained earnings | | | 477,622 | | | | 477,622 | | | | 135,463 | |
Total shareholders' equity | | | 478,602 | | | | 478,602 | | | | 136,443 | |
Total liabilities and shareholders' equity | | $ | 732,776 | | | $ | 732,776 | | | $ | 222,740 | |
OCEAN RIG UDW INC.
Notes to Consolidated Financial Statements
For the years ended December 31, 2014, 2015, 2016 and 20162017
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
2. Significant Accounting Policies-(continued):
(b) Use of estimates: The preparation of consolidated financial statements in conformity with US 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(c) Comprehensive income/(loss): The Company's comprehensive income/(loss) is comprised of net income/(loss), actuarial gains/losses related to the adoption and implementation of Accounting Standard Codification ("ASC") 715, "Compensation-Retirement Benefits", as well as losses in the fair value of the derivatives that qualify for hedge accounting in accordance with ASC 815 "Derivatives and Hedging" and realized gains/losses on cash flow hedges associated with capitalized interest in accordance with ASC 815-30-35-38 "Derivatives and Hedging".
During 2013, the Company adopted the requirements of Accounting Standard Update ("ASU") 2013-02, "Comprehensive Income (Topic 220) - Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income". The objective of this amendment is to improve the reporting of reclassifications out of accumulated other comprehensive income. The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements. However, the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under US GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under US GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under US GAAP that provide additional detail about those amounts.
(d) Cash and cash equivalents: The Company considers highly liquid investments such as time deposits and certificates of deposit with an original maturity of three months or less to be cash equivalents.
(e) Restricted cash: Restricted cash may include (i) minimum liquidity collateral requirements or minimum required cash deposits, as defined in the Company's loan agreements; (ii) taxes withheld from employees and deposited in designated bank accounts; (iii) amounts pledged as collateral for bank guarantees to suppliers and, (iv) amounts pledged as collateral for credit facilities and swap agreements.
(f) Trade accounts receivable net: The amount shown as accounts receivable, trade, at each balance sheet date, includes receivables from customers, net of an allowance for doubtful receivables. At each balance sheet date, all potentially uncollectible accounts are assessed individually for purposes of determining the appropriate allowance for doubtful receivables. As of December 31, 20152016 and 2016,2017, the provision for doubtful receivables was $117,438$22,368 and $22,368,$13,526, respectively.
(g) Concentration of credit risk: Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist principally of cash and cash equivalents; trade accounts receivable and derivative contracts (interest rate swaps and foreign currency contracts). The maximum exposure to loss due to credit risk is the book value at the balance sheet date. The Company places its cash and cash equivalents, consisting mostly of bank deposits, with qualified financial institutions. The Company performs periodic evaluations of the relative credit standing of those financial institutions. The Company is exposed to credit risk in the event of non-performance by counter parties to derivative instruments; however, the Company limits its exposure by diversifying among counter parties. When considered necessary, additional arrangements are put in place to minimize credit risk, such as letters of credit or other forms of payment guarantees. The Company limits its credit risk with trade accounts receivable by performing ongoing credit evaluations of its customers' financial condition and generally does not require collateral for its trade accounts receivable.
OCEAN RIG UDW INC.
Notes to Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
2. Significant Accounting Policies-(continued):
(g) Concentration of credit risk (continued):The Company has made advances for the construction of drilling units in a major shipyard in Korea. The ownership of the drilling units is transferred from the yard to the Company at delivery. As of December 31, 2016,2017, cumulative installment payments made to the yard amounted to approximately $466,258 for the two drilling units under construction (Note 6). These installment payments are secured with irrevocable letters of guarantee, or "refund guarantees", issued by financial institutions.
OCEAN RIG UDW INC.
Notes to Consolidated Financial Statements
For the years ended December 31, 2015, 2016 and 2017
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
2. Significant Accounting Policies-(continued):
(h) Advances for drilling units under construction and related costs: This represents amounts expended by the Company in accordance with the terms of the construction contracts for drilling units as well as other expenses incurred directly or under a management agreement with a related party in connection with on siteonsite supervision. In addition, interest costs incurred during the construction (until the asset is substantially complete and ready for its intended use) are capitalized. The carrying value of drilling units under construction represents the accumulated costs at the balance sheet date. Cost components include payments for yard installments and variation orders, commissions to a related party, construction supervision, equipment, spare parts and capitalized interest.
(i) Capitalized interest: Interest expense is capitalized during the construction period of drilling units based on accumulated expenditures for the applicable project at the Company's current rate of borrowing. The amount of interest expense capitalized in an accounting period is determined by applying an interest rate (the "capitalization rate") to the average amount of accumulated expenditures for the asset during the period. The capitalization rates used in an accounting period are based on the rates applicable to borrowings outstanding during the period. The Company does not capitalize amounts in excess of actual interest expense incurred in the period. If the Company's financing plans associate a specific new borrowing with a qualifying asset, the Company uses the rate on that borrowing as the capitalization rate to be applied to that portion of the average accumulated expenditures for the asset that does not exceed the amount of that borrowing. If average accumulated expenditures for the asset exceed the amounts of specific new borrowings associated with the asset, the capitalization rate applied to such excess is a weighted average of the rates applicable to other borrowings of the Company. Capitalized interest expense for the years ended December 31 2014, 2015, 2016 and 2016,2017, amounted to $37,342, $26,055, $28,265 and $28,265,$27,718, respectively (Note 13).
(j) Insurance claims: The Company records insurance claim recoveries for insured losses incurred on damages to fixed assets, loss of hire and for insured crew medical expenses under "Other current assets". Insurance claims are recorded, net of any deductible amounts, at the time the Company's fixed assets suffer insured damages or loss due to the drilling unit being wholly or partially deprived of income as a consequence of damage to the unit or when crew medical expenses are incurred, recovery is probable under the related insurance policies and the Company can make an estimate of the amount to be reimbursed following the insurance claim.
(k) Foreign currency translation: The functional currency of the Company is the U.S. Dollar since the Company operates in international drilling markets and therefore, primarily transacts business in U.S. Dollars. The Company's accounting records are maintained in U.S. Dollars. Transactions involving other currencies during the year are converted into U.S. Dollars using the exchange rates in effect at the time of the transactions. At the balance sheet dates, monetary assets and liabilities, which are denominated in other currencies, are translated into U.S. Dollars at the year-end exchange rates. Resulting gains or losses are included in "Other, net" in the accompanying consolidated statements of operations.
(l) Long lived assets held for sale: The Company classifies long lived assets and disposal groups as being held for sale in accordance with ASC 360, "Property, Plant and Equipment", when: (i) management has committed to a plan to sell the long lived assets; (ii) the long lived assets are available for immediate sale in their present condition; (iii) an active program to locate a buyer and other actions required to complete the plan to sell the long lived assets have been initiated; (iv) the sale of the long lived assets is probable and transfer of the asset is expected to qualify for recognition as a completed sale within one year; and (v) the long lived assets are being actively marketed for sale at a price that is reasonable in relation to its current fair value and (vi) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
Long lived assets classified as held for sale are measured at the lower of their carrying amount or fair value less cost to sell. These long lived assets are not depreciated once they meet the criteria to be classified as held for sale. If circumstances arise that previously were considered unlikely and, as a result, the Company decides not to sell a long-lived asset previously classified as held for sale, the asset shall be reclassified as held and used. A long-lived asset that is reclassified shall be measured individually at the lower of its carrying amount before the asset or disposal group was classified as held for sale, adjusted for any depreciation expense that would have been recognized had the asset or disposal group been continuously classified as held and used and its fair value at the date of the subsequent decision not to sell.
OCEAN RIG UDW INC.
Notes to Consolidated Financial Statements
For the years ended December 31, 2014, 2015, 2016 and 20162017
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
2. Significant Accounting Policies-(continued):
(l)(m) Drilling units, machinery and equipment, net: Drilling units are stated at historical cost less accumulated depreciation. Such costs include the cost of adding or replacing parts of drilling unit machinery and equipment when the cost is incurred, if the recognition criteria are met. The recognition criteria require that the cost incurred extends the useful life of a drilling unit. The carrying amounts of those parts that are replaced are written off and the cost of the new parts is capitalized. Depreciation is calculated on a straight- line basis over the useful life of the assets after considering the estimated residual value as follows: bare deck 30 years and other asset parts from five to 30 years for the drilling units.
Effective January 1, 2017, the Company revised its' residual value estimate for each drilling unit. The Company assessed this residual value based on current and historical market trends. The effect of this change in accounting estimate, which did not require retrospective adoption as per ASC 250 "Accounting Changes and Error Corrections," was to increase net loss for the year ended December 31, 2017 by $14,469 and had also an increase on loss per common share, basic and diluted by $(0.57).
(m)(n) Impairment of long-lived assets: The Company reviews for impairment long-lived assets whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. To the extent impairment indicators are present; the Company assesses recoverability of the carrying value of the asset by estimating the undiscounted future net cash flows expected to result from the asset.
In developing estimates of future undiscounted cash flows, the Company makes assumptions and estimates about the drilling units future performance, with the significant assumptions being related to drilling rates, fleet utilization, operating expenses, capital expenditures, class survey costs, residual value and the estimated remaining useful life of each drilling unit.
The projected net operating cash flows are determined by considering the drilling revenues from existing drilling contracts for the fixed days, while for the unfixed days the Company uses an estimated daily rate equivalent by utilizing available market data. The salvage value used in the impairment test is estimated using the Light Weight Tons (LWT) and the market scrap rate. The remaining significant assumptions used to develop estimates of future undiscounted cash flows are based on historical trends as well as future expectations. Although the Company believes that the assumptions used to evaluate potential impairment are reasonable and appropriate, such assumptions are highly subjective. If the Company's estimate of undiscounted future cash flows for any drilling unit is lower than the carrying value, the carrying value is written down, by recording a charge to operations, to the drilling units' fair market value if the fair market value is lower than the vessel'sdrilling unit's carrying value. The fair market value for the drilling unit is obtained by independent appraisals.
As a result of the impairment review, the Company determined that the carrying amounts of its assets held for use were recoverable and therefore, concluded that no impairment loss was necessary for the year ended December 31, 2014. For the year ended December 31, 2015, 2016 and 2016,2017, as a result of the impairment review, the Company determined that the carrying amount of two, eight and eight drillingone units, wererespectively, was not recoverable and, therefore, a charge of $414,986, $3,658,815 and $3,658,815,$473,343, respectively, was recognized and is included in "Impairment loss", in the accompanying consolidated statement of operations (Note 7),. In addition, an impairment charge of total advances and related costs provided to the impairment of $92,371yard, amounting to $92.4 million for the drilling unit under construction Ocean Rig Amorgos (Note(Note 6) and the impairment of $25,152$25.2 million relating to the cashflow hedges for interest capitalized on vesselsdrilling units impaired (Note 12).10) is included in "Impairment loss" in the consolidated statement of operations. For the year ended December 31, 2017 the Company determined that the full amount of the carrying value of the two drilling units under construction Ocean Rig Crete and Ocean Rig Santorini was not recoverable and, therefore, an impairment charge of $573,162 was recognized and included in the "Impairment loss" in the consolidated statement of operations (Note 6) and a loss of $2,323 due to the reclassification of two drilling units as held and used (previously classified as held for sale) (Note 10 and Note 7) was recognized and included in "Impairment loss", in the consolidated statement of operations.
OCEAN RIG UDW INC.
Notes to Consolidated Financial Statements
For the years ended December 31, 2014, 2015, 2016 and 20162017
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
2. Significant Accounting Policies-(continued):
(o) Reorganizations: In accordance with GAAP, the Company has applied ASC 852 "Reorganizations" (ASC 852), in preparing the accompanying consolidated financial statements. ASC 852 requires that the financial statements, for periods subsequent to the Chapter 15 filing, distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, certain revenues, expenses (including professional fees), realized gains and losses and provisions for losses that are realized or incurred in the Chapter 15 proceedings are recorded in reorganization gain, net on the accompanying consolidated statement of operations. Upon emerging from Chapter 15 proceedings on September 22, 2017, the Company did not meet the criteria to qualify for fresh-start reporting. Therefore, the discharge of debt is reported as an extinguishment of debt and classified in accordance with Subtopic 225-20.
(n)Non-monetary transactions - exchange of the capital stock of an entity for nonmonetary assets or services: Such transactions are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. Any difference between the fair value and the transaction price is considered as gain or loss for the Company. The Company considered as appropriate date to use to measure the fair value of the equity instruments issued, the restructuring effective date and accounts for such transactions in accordance with ASC 845 at fair value of its common shares on that date.
(p) Class costs: The Company follows the direct expense method of accounting for periodic class costs incurred during special surveys of drilling units, normally every five years. Class costs and other maintenance costs are expensed in the period incurred and included in "Drilling units operating expenses."
(o)(q) Deferred financing costs: Deferred financing costs include fees, commissions and legal expenses associated with the Company's long- term debt. These costs are amortized over the life of the related debt using the effective interest method and are included in interest expense. Unamortized fees relating to loans repaid or refinanced as debt extinguishments are expensed as interest and finance costs in the period the repayment or extinguishment is made. Arrangement fees paid to lenders for loans which the Company has not drawn down are capitalized and included in other current and non-current assets. Amortization and write offs for each of the years ended December 31 2014, 2015, 2016 and 2016,2017, amounted to $42,995, $24,033, $21,040 and $21,040,$61,212, respectively (Note 13).
(p)(r) Revenue and related expenses:
Revenues: The Company's services and deliverables are generally sold based upon contracts with customers that include fixed or determinable prices. The Company recognizes revenue when delivery occurs, as directed by its customer, and collectability is reasonably assured. The Company evaluates if there are multiple deliverables within its contracts and whether the agreement conveys the right to use the drilling units for a stated period of time and meets the criteria for lease accounting, in addition to providing a drilling services element, which is generally compensated for by day rates. In connection with drilling contracts, the Company may also receive revenues for preparation and mobilization of equipment and personnel or for capital improvements to the drilling units and day rate or fixed price mobilization and demobilization fees. Revenues are recorded net of agents' commissions. There are two types of drilling contracts: well contracts and term contracts.
(i) Well contracts: Well contracts are contracts under which the assignment is to drill a certain number of wells. Revenue from day-rate based compensation for drilling operations is recognized in the period during which the services are rendered at the rates established in the contracts. All mobilization revenues, direct incremental expenses of mobilization and contributions from customers for capital improvements are initially deferred and recognized as revenues and expenses, as applicable, over the estimated duration of the drilling period. To the extent that expenses exceed revenue to be recognized, they are expensed as incurred. Demobilization revenues and expenses are recognized over the demobilization period. All revenues for well contracts are recognized as "Service revenues" in the consolidated statement of operations.
OCEAN RIG UDW INC.
Notes to Consolidated Financial Statements
For the years ended December 31, 2015, 2016 and 2017
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
2. Significant Accounting Policies-(continued):
(r) Revenue and related expenses (continued):
(ii) Term contracts: Term contracts are contracts under which the assignment is to operate the unit for a specified period of time. For these types of contracts the Company determines whether the arrangement is a multiple element arrangement containing both a lease element and drilling services element. For revenues derived from contracts that contain a lease, the lease elements are recognized as "Leasing revenues" in the consolidated statement of operations on a basis approximating straight line over the lease period. The drilling services element is recognized as "Service revenues" in the period in which the services are rendered at estimated fair value. Revenues related to the drilling element of mobilization and direct incremental expenses of drilling services are deferred and recognized over the estimated duration of the drilling period. To the extent that expenses exceed revenue to be recognized, they are expensed as incurred. Demobilization fees and expenses are recognized over the demobilization period. Contributions from customers for capital improvements are initially deferred and recognized as revenues over the estimated duration of the drilling contract.
Other revenues: Other revenues represent the revenues derived from customer contract terminations. The Company recognizes revenues from contract terminations as it has fulfilled obligations for such terminations and when all contingencies have expired.
expiredF-13.
Reimbursable revenues: Effective January 1, 2017, reimbursements received from the customers for the provision of catering services in accordance with relevant contracts are recorded as revenue. The related costs are recorded as running expenses in the same period.
OCEAN RIG UDW INC.
Notes to Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
2. Significant Accounting Policies-(continued):
(q)(s) Earnings / (loss) per common share: Basic earnings / (loss) per common share are computed by dividing net income/ (loss) available to common stockholders by the weighted average number of common shares outstanding during the year. Diluted earnings per common share reflect the potential dilution that could occur if securities or other contracts to issue common stockshares were exercised. Dilution has been computed by the treasury stock method whereby all of the Company's dilutive securities are assumed to be exercised or converted and the proceeds used to repurchase common shares at the weighted average market price of the Company's common stockshares during the relevant periods. The incremental shares (the difference between the number of shares assumed issued and the number of shares assumed purchased) are included in the denominator of the diluted earnings / (loss) per share computation.
(r)(t) Segment reporting: The Company has determined that it operates in one reportable segment, the offshore drilling operations.
(s)(u) Financial instruments: The Company designates its derivatives based upon guidance of ASC 815, "Derivatives and Hedging" which establishes accounting and reporting requirements for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. The guidance on accounting for certain derivative instruments and certain hedging activities requires all derivative instruments to be recorded on the balance sheet as either an asset or liability measured at its fair value, with changes in fair value recognized in earnings unless specific hedge accounting criteria are met. As of December 31, 2017 the Company has adopted the provisions of ASU 2016-06 on the Contingent Put and Call Options in Debt Instruments and provided relevant disclosures in Note 9. By this change there is no cumulative effect on the Accumulated Deficit, as of the beginning of the earliest period presented.
(i) Hedge accounting: At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship to which the Company wishes to apply hedge accounting and the risk management objective and strategy undertaken for the hedge. The documentation includes identification of the hedging instrument, hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument's effectiveness in offsetting exposure to changes in the hedged item's cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in cash flows and are assessed on an ongoing basis to determine whether they actually have been highly effective throughout the financial reporting periods for which they were designated.
OCEAN RIG UDW INC.
Notes to Consolidated Financial Statements
For the years ended December 31, 2015, 2016 and 2017
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
2. Significant Accounting Policies-(continued):
(u) Financial instruments-(continued):
(i) Hedge accounting-(continued):
The Company is party to interest swap agreements where it receives a floating interest rate and pays a fixed interest rate for a certain period. Contracts which meet the strict criteria for hedge accounting are accounted for as cash flow hedges. A cash flow hedge is a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with a recognized asset or liability, or a highly probable forecasted transaction that could affect profit or loss.
The effective portion of the gain or loss on the hedging instrument is recognized directly as a component of "Accumulated other comprehensive income/ (loss)" in equity, while any ineffective portion, if any, is recognized immediately in current period earnings.
The Company discontinues cash flow hedge accounting if the hedging instrument expires and it no longer meets the criteria for hedge accounting or designation is revoked by the Company. At that time, any cumulative gain or loss on the hedging instrument recognized in equity is kept in equity until the forecasted transaction occurs. When the forecasted transaction occurs, any cumulative gain or loss on the hedging instrument is recognized in the consolidated statement of operations. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognized in equity is transferred to net profit or loss for the year as financial income or expense.
(ii) Other derivatives: Changes in the fair value of derivative instruments that have not been designated as hedging instruments are reported in current period earnings.
OCEAN RIG UDW INC.
Notes to Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
2. Significant Accounting Policies-(continued):
(t)(v) Fair value measurements: The Company follows the provisions of ASC 820, "Fair Value Measurements and Disclosures" which defines and provides guidance as to the measurement of fair value. ASC 820 creates a hierarchy of measurement and indicates that, when possible, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The fair value hierarchy gives the highest priority (Level 1) to quoted prices in active markets and the lowest priority (Level 3) to unobservable data, for example, the reporting entities own data. Under the standard, fair value measurements are separately disclosed by level within the fair value hierarchy (Note 10).
(u)(w) Income taxes: Income taxes have been provided for based upon the tax laws and rates in effect in the countries in which the Company's operations are conducted and income is earned. There is no expected relationship between the provision for/or benefit from income taxes and income or loss before income taxes because the countries in which the Company operates have taxation regimes that vary not only with respect to the nominal rate, but also in terms of the availability of deductions, credits and other benefits. Variations also arise because income earned and taxed in any particular country or countries may fluctuate from year to year. Deferred tax assets and liabilities are recognized for the anticipated future tax effects of temporary differences between the financial statement basis and the tax basis of the Company's assets and liabilities using the applicable jurisdictional tax rates in effect at the year in which the asset is realized or the liability settled. A valuation allowance for deferred tax assets is recorded when it is more likely than not that some or all of the benefit from the deferred tax asset will not be realized. As of December 31, 2017 the Company has adopted the provisions of ASU 2015-17 on the Balance Sheet Classification on Deferred Taxes, which requires all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. The new guidance did not impact the consolidated financial statements. The Company accrues interest and penalties related to its liabilities for unrecognized tax benefits as a component of income tax expense.
(v)(x) Commitments and contingencies: Provisions are recognized when: the Company has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and a reliable estimate of the amount of the obligation can be made. Provisions are reviewed at each balance sheet date.
(w)(y) Stock-based compensation: Stock-based compensation represents vested and non-vested common stockshares granted to certain employees for their services. The Company calculates total compensation expense for the award based on its fair value on the grant date and amortizes the total compensation on an accelerated basis over the vesting period of the award or service period and recognizes forfeitures as they occur (Note 11). As of December 31, 2017, the Company has adopted the provisions of ASU 2016-09, which did not impact the consolidated financial statements.
OCEAN RIG UDW INC.
Notes to Consolidated Financial Statements
For the years ended December 31, 2015, 2016 and 2017
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
2. Significant Accounting Policies-(continued):
(x)(z) Inventories: Inventories consist of short term operating supplies held in warehouses which are stated at their historical cost, and consumable bunkers (if any), whose cost is determined by the first in - first out method. Inventories are recorded under "Other Current Assets".
In July 2015, the FASB issued ASU No. 2015-11 – Inventory, as part of FASB Simplification Initiative, according to which the entities are required to measure inventory at the lower of cost or net realizable value. Net realizable value is defined as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This update was effective for public entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years prospectively. During fiscal year 2017, the Company adopted the aforementioned update, which did not impact its results of operations, financial position or cash flows, in the current and previous interim and annual reporting periods.
(y)(aa) Consolidation: In February 2015, the FASB issued Accounting Standards Update No. 2015-02 (ASU 2015-02): Consolidation - Amendments to the Consolidation Analysis, which changes the guidance as to whether an entity is a variable interest entity (VIE) or a voting interest entity and how related parties are considered in the VIE model. As of December 31, 2016, the Company has adopted the provisions of ASU 2015-02, which did not impact the consolidated financial statements.
(z)(aa) Going Concern: In August 2014, the FASB issued ASU No. 2014-15–Presentation of Financial Statements - Going Concern. ASU 2014-15 provides guidance about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 requires an entity's management to evaluate at each reporting period based on the relevant conditions and events that are known at the date of financial statements are issued, whether there are conditions or events, that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued and to disclose the necessary information. ASU 2014-15 is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. TheEffective January 1, 2017, the Company has adopted the provisions of ASU 2014-15 and provided the required note disclosure (Note 3).
OCEAN RIG UDW INC.
Notes to Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
2. Significant Accounting Policies-(continued):
(aa) (ab) Recent accounting pronouncements:
Accounting Changes and Error Corrections: In January 2017, FASB issued ASU 2017-03, "Accounting Changes and Error Corrections (Topic 250) and Investments-Equity Method and Joint Ventures (Topic 323)". The ASU amends the Codification for SEC staff announcements made at recent Emerging Issues Task Force (EITF) meetings. The SEC guidance that specifically relates to our combined financial statement was from the September 2016 meeting, where the SEC staff expressed their expectations about the extent of disclosures registrants should make about the effects of the new FASB guidance as well as any amendments issued prior to adoption, on revenue (ASU 2014-09), leases (ASU 2016-02) and credit losses on financial instruments (ASU 2016-13) in accordance with SAB Topic 11.M. Registrants are required to disclose the effect that recently issued accounting standards will have on their financial statements when adopted in a future period. In cases where a registrant cannot reasonably estimate the impact of the adoption, then additional qualitative disclosures should be considered. The ASU incorporates these SEC staff views into ASC 250 and adds references to that guidance in the transition paragraphs of each of the three new standards.
Leases: In February 2016, the FASB issued ASU No. 2016-02, Leases (ASC 842), which requires lessees to recognize most leases on the balance sheet. This is expected to increase both reported assets and liabilities. The new lease standard does not substantially change lessor accounting. For public companies,The accounting standards update requires (a) lessees to recognize a right to use asset and a lease liability for virtually all leases, and (b) updates previous accounting standards for lessors to align certain requirements with the standard will beupdates to lessee accounting standards and the revenue recognition accounting standards. The update is effective for the first interim reporting period withinand annual periods beginning after December 15, 2018, although early adoption is permitted. Lessees and lessors will be requiredincluding interim periods within those annual periods. The Company previously disclosed its intention to apply the newadopt this standard at the beginning of the earliest period presented in the financial statements in which they first applysame time as it adopted the new guidance, using a modified retrospective transition method. Under the updated accounting standards, the Company's drilling contracts may contain a lease component and the adoption, therefore, may require thatrevenue standard discussed below; however, the Company separately recognizes revenues associated with the lease and services components. Given the interaction with the accounting standard update related to revenue from contracts with customers, the Companynow expects to adopt this new guidance in the updates concurrently, effective January 1, 2018 expecting to apply the modified retrospective approach. The adoption and ultimate effect on the consolidated financial statements will be based on an evaluationfirst quarter of the Company's contracts.2019. The Company is currently evaluating the related requirements to determine the effects such requirements mayimpact that this new guidance will have on theits consolidated financial statements.
OCEAN RIG UDW INC.
Notes to Consolidated Financial Statements
For the years ended December 31, 2015, 2016 and 2017
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
2. Significant Accounting Policies-(continued):
(ab) Recent accounting pronouncements (continued):
Revenue from Contracts with Customers: In March 2016, the FASB issued ASU 2016-08, "Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) ("ASU 2016-08"), which clarifies the implementation guidance on principal versus agent considerations. In May and April 2016, the FASB issued two Updates with respect to Topic 606: ASU 2016-10, "Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing" and ASU 2016-12, "Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients." The amendments in these Updates do not change the core principle of the guidance in Topic 606, which is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services by applying the following steps: (1) Identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The amendments in Update 2016-10 simply clarify the following two aspects of Topic 606: (1) identifying performance obligations and (2) licensing implementation guidance. The amendments in Update 2016-12 similarly affect only certain narrow aspects of Topic 606; namely, (1) "Assessing the Collectibility Criterion in Paragraph 606-10-25-1(e) and Accounting for Contracts That Do Not Meet the Criteria for Step 1 (Applying Paragraph 606-10-25-7)," (2) "Presentation of Sales Taxes and Other Similar Taxes Collected from Customers," (3) "Noncash Consideration," (4) "Contract Modifications at Transition," (5) "Completed Contracts at Transition," and (6) "Technical Correction." The amendments in these Updates also affect the guidance in Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in these Updates are the same as the effective date and transition requirements in Topic 606 (and any other Topic amended by Update 2014-09). Accounting Standards Update 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date," has deferred the effective date of Update 2014-09 for public business entities to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted.
The new revenue standard may be applied using either of the following transition methods: (1) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (2) a modified retrospective approach with the cumulative effect of initially adopting the standard recognized at the date of adoption (which includes additional footnote disclosures). Due to the significant interaction between Update 2014-09 and Accounting Standards Update 2016-02 Leases (ASC 842),On January 1, 2018, the Company adopted the accounting standards update that requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to adopt Update 2014-09 and Update 2016-02 concurrently with an effective date of January 1, 2018. The Company expects to applybe entitled in exchange for those goods or services, using the modified retrospective approach to the adoption.method. The Company is evaluating the effect Update 2014-09 and Update 2016-02 will have on theCompany's consolidated financial statements and related disclosures.
OCEAN RIG UDW INC.
Notesdue to Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
2. Significant Accounting Policies-(continued):
(aa) Recent accounting pronouncements:
Share-based Payments: On March 30, 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which requires recognition of the income tax effects of equity awards in the income statement when the awards vest or are settled. The standard also allows employers to withhold shares upon settlement of an award for an amount up to the employees' maximum individual tax rate in the relevant jurisdiction without resulting in liability classification of the award. The standard permits entities to make an accounting policy election for the impact of forfeitures on the recognition of expense for share-based payment awards. We will adopt the standard for our annual and interim periods beginning January 1, 2017. The Company does not expect the adoption of the new accounting standard to have ais based on the evaluation of the contract‑specific facts and circumstances and has no material effect on itsthe consolidated balance sheets, statements of operations and cash flows. The company is currently evaluating the requirements and assessing the impact such requirements may have on the disclosures contained in the notes to consolidated financial statements and related disclosures.
statements.
Statement of Cash Flows: In August 2016, the FASB issued ASU No. 2016-15- Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts and Cash Payments which addresses certain cash flow issues with the objective of reducing the existing diversity in practice: ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period, however, early adoption is permitted. The Company is currently evaluating the provisions of this guidance and assessing its impact on its consolidated financial statements and notes disclosures. In November 2016, the FASB issued ASU No. 2016-18—Statement of Cash Flows (Topic 230) - Restricted Cash which addresses the requirement that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this Update apply to all entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows under Topic 230. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period, however early adoption is permitted. The Company is currently evaluating the provisions of this guidance and assessing its impact on its consolidated financial statements and notes disclosures.
2. Significant Accounting Policies-(continued):
(ab) Recent accounting pronouncements (continued):
Measurement of Credit Losses on Financial Instruments: On June 16, 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), which introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. The new model will apply to: (1) loans, accounts receivable, trade receivables, and other financial assets measured at amortized cost, (2) loan commitments and certain other off-balance sheet credit exposures, (3) debt securities and other financial assets measured at fair value through other comprehensive income, and (4) beneficial interests in securitized financial assets. This update is effective for annual and interim periods beginning after January 1, 2020. The Company is currently evaluating the provisions of this guidance and assessing its impact on its consolidated financial statements and notes disclosures.
Deferred Taxes: On November 20, 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes, which requires all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. The new guidance, however, does not change the existing requirement that only permits offsetting within a tax jurisdiction. The Company is currently evaluating the provisions of this guidance and assessing its impact on its consolidated financial statements and notes disclosures.
Tax Accounting for Intra-Entity Asset Transfers: On October 24, 2016, the FASB issued ASU 2016-16, Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory, which requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transaction occurs as opposed to deferring tax consequences and amortizing them into future periods. This update is effective for annual and interim periods, beginning after January 1, 2018, with early adoption permitted and requires a modified retrospective approach with a cumulative-effect adjustment directly to retained earnings at the beginning of the period of adoption. The Company is currently evaluating the provisions of this guidance and assessing its impact on its consolidated financial statements and notes disclosures.
OCEAN RIG UDW INC.
Notes to Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
2. Significant Accounting Policies-(continued):
(aa) Recent accounting pronouncements:
Definition of business: In January 2017, the FASB issued ASU 2017-01 Business Combinations to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisition (or disposals) of assets of business. Under current implementation guidance, the existence of an integrated set of acquired activities (inputs and processes that generate outputs) constitutes an acquisition of business. This ASU provides a screen to determine when a set of assets and activities does not constitute a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set in not a business. This update is effective for public entities with reporting periods beginning after December 15, 2017, including interim periods within those years. The amendments of this ASU should be applied prospectively on or after the effective date. Early adoption is permitted, including adoption in an interim period 1) for transactions for which the acquisition date occurs before the issuance date or effective date of the ASU, only when the transaction has not been reported in financial statements that have been issued or made available for issuance and 2) for transactions in which a subsidiary is deconsolidated or a group of assets is derecognized that occurs before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been issued or made available for issuance. This FASB standard Update is not expected to have a material effect on the Company's future or historical statements of cash flows; however, Management will assess such impact, if circumstances arise.
OCEAN RIG UDW INC.
Notes to Consolidated Financial Statements
For the years ended December 31, 2015, 2016 and 2017
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
3.Liquidity and Going Concern considerations
As of December 31, 2016, the Company was in compliance with covenants contained in the $1.9 billion Secured Term Loan B Facility and $1.3 billion Senior Secured Term Loan B Facility (the "Secured Term Loan B Facilities"), with an aggregate outstanding balance of $3.1 billion. In addition, at December 31, 2016, the Company had cash and cash equivalents of $718,684, current and non-current restricted cash of $54,282 and apositive working capital surplus of $267,930 (working capital is defined as current assets minus current liabilities, including the current portion of long-term debt)liabilities). The Company's liquidity fluctuates depending on a number of factors, including, among others, revenue efficiency, collection of accounts receivable, debt and interest repayments, as well as payments for operating and general administrative expenses.
During October 2017 and as discussed in Note 9, the 6.50% Senior Secured Notes (the "Drill Rigs Senior Notes") are due and payable, with an outstanding balance, net of the notes repurchased in the open market amounting to $459,723, as of December 31, 2016.
In addition, the Company expects that during the fourth quarter of 2017, it will be in breach of the maximum leverage ratio covenant requirement for the Secured Term Loan B Facilities and will require additional cash liquidity in order to cure the covenant and remain in compliance, otherwise the Secured Term Loan B Facilities will be callable and payable in full.
The prolonged market downturn in the offshore drilling industry and the continued depressed outlook, have led to materially lower levels of investing in for offshore exploration and development by the current and potential customers on a global basis, while at the same time supply of available high specification drilling units has increased, which in turn has affected the Company with the early termination of five drilling contracts during the year ended December 31, 2016 and one drilling contract during the year ended December 31, 2017. It also led to the stacking of six drilling units of the Company's fleet as of the date of this report.
Considering all the above the Company doesdid not believe that cash on hand following the repayment of $459,723 in relation tothe Drill Rigs Senior Notes due in October 2017 and cash generated from operations willwould be sufficient to meet the maximum leverage ratio covenant requirement for the Securedrepayment of the Term B Loan B Facilities. In addition,As a result, Ocean Rig UDW Inc. and certain of its subsidiaries, Drillships Financing Holding Inc. ("DFH"), Drillships Ocean Ventures Inc. ("DOV") and Drill Rigs Holdings Inc. ("DRH"), which are collectively referred to as the current market conditions will not allowScheme Companies, have effected schemes of arrangement, or the Schemes, under Section 86 of the Companies Law (2016 Revision) to implement a financial restructuring plan, (the "Restructuring").
On March 23, 2017, the Scheme Companies entered into a Restructuring Support Agreement ("RSA"), with certain creditors of their then-outstanding consolidated indebtedness to implement the Restructuring. Pursuant to the terms of the RSA, the Scheme Companies presented winding up petitions to the Grand Court of the Cayman Islands, on March 24, 2017, and filed applications seeking the appointment of joint provisional liquidators (the "JPLs"), under section 104(3) of the Companies Law (2016) Revision. On March 27, 2017, following a hearing before the Grand Court, the JPLs were appointed in respect to each of the Scheme Companies.
The RSA proposed that the Restructuring of each of the Scheme Companies be effected by way of scheme of arrangement under Cayman law. The Schemes provided for substantial deleveraging of the Scheme Companies through an exchange by their creditors or the Scheme Creditors, of approximately $3.7 billion principal amount of debt (plus accrued interest) for new equity of the Company, to improve its liquidity position throughapproximately $288 million in cash (excluding early consent fee) and $450 million of new secured debt.
On March 27, 2017, the saleJPLs as "foreign representatives" of any of its drilling units, access to equity offerings, debt refinancing or a combination thereof, over the next year following the dateeach of the issuanceScheme Companies filed petitions with the U.S. Bankruptcy Court under Chapter 15 of these financial statements.the Bankruptcy Code seeking recognition of the provisional liquidation proceedings and the contemplated Schemes as "foreign main proceedings." On April 3, 2017, the U.S. Bankruptcy Court granted provisional relief extending the protections of the temporary restraining order pending a recognition hearing, which was held on August 16, 2017. Following the recognition hearing, the U.S. Bankruptcy Court granted an order granting recognition to the provisional liquidation proceedings and the Schemes as in the terms sought by the JPLs.
On July 20, 2017, the Grand Court gave permission to the Scheme Companies to convene meetings of the Scheme Creditors for the purpose of considering and if thought fit approving the Schemes, or the Schemes Meetings.
On August 11, 2017, the Scheme Meetings were held and each of the Schemes was approved by a majority in number of the Scheme Creditors and holding at least 75% in value of claims present and voting at the respective Scheme Meeting. The Schemes were approved by Scheme Creditors holding over 97% of our then-outstanding indebtedness.
On August 22, 2017, the JPLs filed an application for an order of the U.S. Bankruptcy Court recognizing and giving full force and effect to the Schemes in the United States. Following the sanction of the Schemes by the Grand Court, a hearing was held before the U.S. Bankruptcy Court on September 20, 2017 to consider the relief requested in the JPLs' application. Shortly after the conclusion of this hearing, the U.S. Bankruptcy Court entered an order giving full force and effect to the Grand Court's orders, the Schemes, and all documents and other agreements related thereto.
On August 25, 2017, the U.S. Bankruptcy Court issued a memorandum opinion and an order granting recognition of the provisional liquidation and scheme of arrangement proceedings of the Company and its subsidiaries, DRH, DFH, and DOV pending in the Grand Court of the Cayman Islands as foreign main proceedings, and of the JPLs as the foreign representatives of the Scheme Companies in the United States. If the Schemes were approved by the Cayman Court, the U.S. Bankruptcy Court would conduct a hearing on September 20, 2017, to consider the entry of an order giving full force and effect to the Schemes in the United States.
OCEAN RIG UDW INC.
Notes to Consolidated Financial Statements
For the years ended December 31, 2014, 2015, 2016 and 20162017
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
3.Liquidity and Going Concern considerations considerations-(continued):
On September 15, 2017, following a hearing held between September 4, 2017 and September 6, 2017, the Grand Court issued orders sanctioning the Schemes.
On September 21, 2017, the Company effected a 1-for-9,200 reverse stock split of its common shares. Company's common shares commenced trading on a split-adjusted basis on September 22, 2017. The reverse stock split reduced the number of the issued and outstanding common shares from 82,586,851 shares to approximately 8,975 shares and affected all issued and outstanding common shares. The number of the Company's authorized common shares and the par value and other terms of the common shares were not affected by the reverse stock split. No fractional shares were issued in connection with the reverse stock split. Shareholders of record who would have otherwise been entitled to receive a fractional share as a result of the reverse stock split received a cash payment in lieu thereof. The reverse stock split was completed in connection with the Company's Restructuring and in order to comply with NASDAQ's listing requirements and meet the minimum bid requirement for continued listing on NASDAQ.
On September 22, 2017, referred as the Restructuring Effective Date, the Restructuring took effect. Pursuant to the Schemes, on the Restructuring Effective Date, Scheme Creditors exchanged their existing claims against the respective Scheme Companies for cash, new debt and new equity issued by the Company, togetheras outlined above. The existing claims were either transferred to the Company or released. In particular, Scheme Creditors received shares equivalent to 90.68% of the post-Restructuring equity of the Company and aggregate cash consideration of $320.8 million (including the early consent fee) across all of the Schemes, and the Scheme Companies and certain subsidiaries entered into the New Credit Agreement with its financialthe DOV and legal advisorsDFH Scheme Creditors. The New Credit Agreement contains limited restrictive covenants that are usual and key stakeholders, is currently considering and evaluating various alternatives, includingcustomary for facilities of this type. The remaining 9.32% of post-Restructuring equity was issued to Prime Cap Shipping Inc., a restructuring plan to address liquidity and a comprehensive balance sheet deleveragingcompany that may be deemed to be sustainable inbeneficially owned by the longer term.Company's Chairman, Mr. George Economou, pursuant to the management services agreement with TMS Offshore Services Ltd. as described below.
If such strategic alternatives do not result in completionOn September 26, 2017, Ocean Rig received formal notice from NASDAQ that the Company had demonstrated compliance with all applicable requirements for the continued listing of the restructuring withCompany's common shares on NASDAQ and confirmed that, as a consensual solution among all stakeholders,result of its favorable determination, the Company mayCompany's common shares will continue to be forced to seek reorganization under schemeslisted on the Nasdaq Global Select Market.
On October 4, 2017, the Grand Court of arrangement in the Cayman Islands issued an order discharging the U.S. Bankruptcy CodeJPLs effective as of October 18, 2017.
In addition, Lundin Norway AS ("Lundin") has declared their fifth option to extend the existing contract of the Leiv Eiriksson which is now expected to have firm employment up to March 2018. The Company has granted to Lundin two additional options to drill further wells in the future and should Lundin exercise its remaining well options, currently un-declared, the drilling unit could be employed until the middle of 2019.
On October 5, 2017, the Company has signed a new drilling contract with Statoil, for one-well drilling program offshore in Tanzania. The contract is expected to commence in the first quarter of 2018 and be performed by the drilling unit Ocean Rig Poseidon.
As a result of the above, at December 31, 2017, the Company reported a positive working capital of $806,675 and had cash and cash equivalents of $736,114 and current restricted cash of $46,967. Furthermore, the Company's substantially reduced debt is comprised of two Senior Secured Term Loan Facilities with a maturity date of June 2018 and September, 2024, respectively. The Company, following the Restructuring, expects that it will fund its operations either with cash on hand, cash generated from operations and new bank debt, or pursue other restructuring options. Asa combination thereof, in the twelve-month period ending one year after the accompanying consolidated financial statements. Therefore, there can beis no assurance that a successful restructuring plan will be concluded, there exists substantial doubt about the Company's ability to continue as a going concern, overfor a reasonable period of time.
OCEAN RIG UDW INC.
Notes to Consolidated Financial Statements
For the twelve months following the dateyears ended December 31, 2015, 2016 and 2017
(Expressed in thousands of the issuance of these consolidated financial statements.United States Dollars – except for share and per share data, unless otherwise stated)
The consolidated financial statements have been prepared assuming that the Company will continue as a going concern. Accordingly, the consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, the amounts and classification of liabilities, or any other adjustments that might result in the event the Company is unable to continue as a going concern.
4. Transactions with Related Parties:
The amounts included in the accompanying consolidated balance sheets and consolidated statements of operations are as follows:
| Year ended December 31, | |
| 2016 | | 2017 | |
Balance Sheet | | | | |
Advances for drilling units under construction and related costs | | $ | 1,569 | | | $ | - | |
Drilling units, machinery and equipment, net | | | 488 | | | | - | |
Due to related parties | | $ | (7,231 | ) | | $ | (726 | ) |
Accrued liabilities | | $ | (3,100 | ) | | $ | (11,786 | ) |
| | Year ended December 31, | |
| | 2015 | | | 2016 | |
Balance Sheet | | | | | | |
Due to related parties | | $ | - | | | $ | 7,231 | |
| | | | | | | | |
| | | | | | | | |
Advances for drilling units under construction and related costs | | $ | 394 | | | $ | 1,569 | |
Drilling units, machinery and equipment, net | | | 2,961 | | | | 488 | |
Accrued liabilities | | $ | 6,432 | | | $ | 3,100 | |
| | Year ended December 31, | |
Statement of Operations | | 2015 | | | 2016 | | | 2017 | |
Revenues – commission fees | | $ | 16,524 | | | $ | 14,925 | | | $ | 10,342 | |
Drilling units operating expenses | | $ | - | | | $ | 4,209 | | | $ | 904 | |
Amortization and write-off of financing fees | | $ | 2,781 | | | $ | - | | | $ | - | |
General and administrative expenses | | $ | 7,409 | | | $ | 24,924 | | | $ | 26,008 | |
Interest income | | $ | 6,024 | | | $ | - | | | $ | - | |
Reorganization expenses (including non-cash issuance of shares and other expenses) | | $ | - | | | $ | - | | | $ | 223,178 | |
TMS Offshore Services Ltd.: On March 31, 2016 and effective from January 1, 2016 and up to September 22, 2017, the Company signed a management services agreement with TMS Offshore Services Ltd. (''TMS"), a company that may be deemed to be beneficially owned by the Company's Chairman, Mr. George Economou, to provide certain management services related to the Company's drilling units including but not limited to commercial, financing, legal and insurance services. Under the terms of this agreement, in January 2017 and effective from January 1, 2017, the Company and TMS agreed to make certain amendments and expand the scope of the agreement. For the year ended December 31, 2017, total charges from TMS under this agreement amounted to $45,521.The Management Services Agreement discussed below, replaced the management services agreement that the Company and its subsidiaries entered into with TMS on March 31, 2016, as amended.
| | Year ended December 31, | |
Statement of Operations | | 2014 | | | 2015 | | | 2016 | |
Revenues – commission fees | | $ | 16,826 | | | $ | 16,524 | | | $ | 14,925 | |
Drilling units operating expenses | | | - | | | | - | | | | 4,209 | |
Amortization and write-off of financing fees - DryShips | | | - | | | | 2,781 | | | | - | |
General and administrative expenses | | | 32,660 | | | | 7,409 | | | | 24,924 | |
Interest income | | $ | 1,164 | | | $ | 6,024 | | | $ | - | |
On September 22, 2017, the Restructuring Effective Date, as part of the Restructuring, the Company and each of its drilling-unit-owning subsidiaries entered into the Management Services Agreement with TMS to provide certain management services related to the Company's drilling units including but not limited to executive management, commercial, financing, accounting, reporting, information technology, legal, manning, insurance, catering and superintendency services. In consideration for the management services the Company agreed to pay TMS an annual fee of $15,500 (not including reimbursement for certain expenses incurred in connection with their performance of services as manager) plus up to an additional $10,000 based on the satisfaction of certain metrics. The Company will also pay a 1.0% commercial fee on all earnings under any existing drilling contract and any drilling contract entered into after the commencement of the Management Services Agreement. The Company may terminate the Management Services Agreement at any time, subject to the payment of a termination fee of the greater of $150,000, which amount shall be reduced ratably on a daily basis over the term of the Management Services Agreement or $30,000 (the "Convenience Termination Fee"). The Company may also terminate the Management Services Agreement for "cause" upon five business days' notice to TMS, subject to certain conditions, including the Company's payment to an escrow account of the lesser of $50,000 or the Convenience Termination Fee, due and owing at the time, such funds to be released in accordance with the decision of an appointed arbitrator. A refundable security deposit of $5,000 has been agreed to be placed into an escrow account and if, for any reason, the Company fails to make payments under the Management Services Agreement, then TMS may draw upon such security deposit, until paid in full (Note 8).
On December 19, 2017, the Board of Directors approved to pay to TMS the maximum bonus under the previous Management Services Agreement due to the success of the Restructuring. In addition a provision for a maximum bonus on a pro rata basis from September 22, 2017 to December 31, 2017 was accrued, under the new Management Services Agreement.
OCEAN RIG UDW INC.
Notes to Consolidated Financial Statements
For the years ended December 31, 2014, 2015, 2016 and 20162017
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
4. Transactions with Related Parties-(continued):
Cardiff Drilling Inc.: Effective January 1, 2013, Ocean Rig Management Inc. ("Ocean Rig Management"), a wholly-owned subsidiary of Ocean Rig entered into a Global Services Agreement with Cardiff Drilling Inc. ("Cardiff Drilling") a company controlledthat may be deemed to be beneficially owned by the Chairman, and Chief Executive Officer of the Company, Mr. George Economou, pursuant to which Ocean Rig Management engaged Cardiff Drilling to act as consultant on matters of chartering and sale and purchase transactions for the offshore drilling units operated by the Company. Under the Global Services Agreement, Cardiff Drilling, or its subcontractor, (i) provided consulting services related to the identification, sourcing, negotiation and arrangement of new employment for offshore assets of the Company and its subsidiaries; and (ii) identified, sourced, negotiated and arranged the sale or purchase of the offshore assets of the Company and its subsidiaries. In consideration of such services, the Company paid Cardiff Drilling a fee of 1.0% in connection with employment arrangements and 0.75% in connection with sale and purchase activities. Costs from the Global Services Agreement were expensed in the consolidated statement of operations or capitalized as a component of "Advances for drilling units under construction and related costs" being a directly attributable cost to the construction, as applicable. The consultancy agreement had a term of five years and could be terminated (i) at the end of its term unless extended by mutual agreement of the parties; and, (ii) at any time by the mutual agreement of the parties. As of March 31, 2016, the Company terminated the agreement with Cardiff Drilling, at no cost.
Vivid Finance Limited: Under the consultancy agreement effective from January 1, 2013, between Ocean Rig Management and Vivid Finance Limited ("Vivid"), a company controlledthat may be deemed to be beneficially owned by the Chairman, and Chief Executive Officer of the Company, Mr. George Economou, pursuant to which Vivid acted as a consultant on financing matters for Ocean Rig and its subsidiaries, Vivid provided the Company with financing-related services such as (i) negotiating and arranging new loan and credit facilities, interest rate swap agreements, foreign currency contracts and forward exchange contracts, (ii) renegotiating existing loan facilities and other debt instruments and, (iii) the raising of equity or debt in the capital markets. In exchange for its services in respect of the Company, Vivid was entitled to a fee equal to 0.20% on the total transaction amount. The consultancy agreement had a term of five years and could be terminated (i) at the end of its term unless extended by mutual agreement of the parties; and, (ii) at any time by the mutual agreement of the parties. On July 29, 2015, the Company amended its agreement with Vivid to expand the scope of the services provided under the agreement to the Company and its subsidiaries or affiliates, to cover certain cash management and cash investment services. In exchange for its services in respect of the Company, Vivid was entitled to a fee equal to 30% of any profits provided the profits are at least 10% of the invested amount. As of March 31, 2016, the Company terminated the agreement with Vivid, at no cost.
Basset Holdings Inc.: Effective June 1, 2012, the Company entered through one of its' wholly owned subsidiaries into a consultancy agreement with Basset Holdings Inc. ("Basset"), a Marshall Islands entitycompany that may be deemed to be beneficially owned by the Company's President and Chief Financial OfficerExecutive Vice Chairman, Mr. Anthony Kandylidis, for the provision of his services to the Company. The agreement had an initial term of five years and could be renewed or extended for one-year successive terms with the consent of both parties. Under the terms of the agreement, the Company was obligated to pay an annual remuneration to Basset. Basset was also entitled to cash or equity-based bonuses to be awarded at the Company's sole discretion. The Company could terminate the agreement for cause, as defined in the agreement, in which case Basset would not be entitled to further payments of any kind. Upon termination of the agreement without cause, or in the event the agreement was terminated within three months of a change of control, as defined in the agreement, the Company would be obligated to pay a lump sum amount. Basset could terminate the agreement without cause upon three months written notice. In addition, Basset may terminate the agreement for good reason and in such event, the Company would be obligated to pay a lump sum amount. With effect as of December 31, 2016, the Company terminated the agreement with Basset at no cost.
Basset is also the owner of 114,28612 (114,286 shares before the 1-for- 9,200 reverse stock split) shares of the Company's common stock,shares, as of December 31, 2016.
2017.
Steel Wheel Investments Limited: Steel Wheel Investments Limited ("Steel Wheel"), a company controlledthat may be deemed to be beneficially owned by the Company's President and Chief Financial Officer,Executive Vice Chairman, Mr. Anthony Kandylidis, is the owner of 1,570,226170 (1,570,226 shares before the 1-for- 9,200 reverse stock split) shares of the Company's common stock,shares as of December 31, 2016.
OCEAN RIG UDW INC.
NotesPrime Cap Shipping Inc.: Prime Cap Shipping Inc. ("Prime Cap") is a Cayman Islands company that may be deemed to Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
4. Transactions with Related Parties-(continued):
be beneficially owned by George Economou: As of June 8, 2015, Mr. George Economou, the Company's Chairman, Mr. George Economou. On September 22, 2017 pursuant to the Restructuring and Chief Executive Officer, purchased $10,000, or 1,428,571 shares,under the terms of common stock in the offering of 28,571,428Management Services Agreement, 8,524,793 common shares of the Company's common stock at the public offering priceshares were issued to Prime Cap (Note 11). As of December 31, 2016,2017 Mr. George Economou, haswas deemed to beneficially own 8,525,596 common shares (including 8,524,793 shares issued to Prime Cap) representing a 9.0%9.3% shareholding of the Company.
Azara Services S.A.: Effective January 1, 2013, the Company entered through one of its' wholly owned subsidiaries into a consultancy agreement with Azara Services S.A. ("Azara"), a Marshall Islands entitycompany that may be deemed to be beneficially owned by the Company's Chairman, and Chief Executive Officer, Mr. George Economou, for the provision of the services of the Company's Chief Executive Officer. The agreement had an initial term of five years and could be renewed or extended with the consent of both parties. Under the terms of the agreement, the Company was obligated to pay an annual remuneration to Azara. Azara was also entitled to cash or equity-based bonuses to be awarded at the Company's sole discretion. The Company could terminate the agreement for cause, as defined in the agreement, in which case Azara would not be entitled to further payments of any kind. Upon termination of the agreement without cause, or in the event the agreement was terminated within three months of a change of control, as defined in the agreement, the Company would be obligated to pay a lump sum amount. Azara could terminate the agreement without cause upon three months written notice. In addition, Azara could terminate the agreement for good reason and in such event the Company would be obligated to pay a lump sum amount. With effect as of December 31, 2016, the Company terminated the agreement with Azara at no cost.
DryShips Inc.: On November 18, 2014, the Company entered into a $120,000 Exchangeable Promissory Note with its former parent company, DryShips. The loan from the Company to DryShips bore interest at a LIBOR plus margin rate and was due in May 2016. On June 4, 2015, the Company and DryShips signed an amendment under the $120,000 Exchangeable Promissory Note to, among other things, partially exchange $40,000 of the loan for 4,444,444 of the Company's shares owned by DryShips, amend the interest of the loan and pledged to the Company 20,555,556 shares of the Company's stock owned by DryShips. On August 13, 2015, the Company reached an agreement with DryShips and exchanged the remaining outstanding balance of $80,000 owed to the Company under the $120,000 Exchangeable Promissory Note, for 17,777,7781,932 (17,777,778 shares before the 1-for-9,200 reverse stock split) shares of the Company's shares owned by DryShips. During the year ended December 31, 2015, the Company earned interest income amounting to $8,805 from DryShips under this loan agreement. During the year ended December 31, 2015, the Company paid dividends of $50,281 of which, $29,755 were paid to DryShips.
On March 29, 2016, the Company entered into 60 day time charter agreements for the offshore support vessels Crescendoand Jubilee with two subsidiaries of DryShips to assist with the stacking of the Company's drilling units in Las Palmas.
On April 5, 2016, the Company's unrestricted subsidiary, Ocean Rig Investments Inc., purchased 56,079,5336,096 (56,079,533 shares before the 1-for-9,200 reverse stock split) shares of the Company's common stockshares previously held by DryShips. After this transaction, DryShips no longer holds any equity interest in the Company (Note 11).
TMS Tankers Ltd. /TMS Offshore Services Ltd.: During 2016 TMS Tankers Ltd., and TMS Offshore Services Ltd., entities a company that may be deemed to be beneficially owned by the Company's Chairman, and Chief Executive Officer, Mr. George Economou, charged the Company for various ad-hoc ancillary services.
OCEAN RIG UDW INC.
Notes to Consolidated Financial Statements
For the years ended December 31, 2014, 2015, 2016 and 20162017
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
4. Transactions with Related Parties-(continued):
TMS Offshore Services Ltd.: On March 31, 2016, the Company signed a management services agreement with TMS Offshore Services Ltd. (''TMS"), a company affiliated with the Company's Chairman and Chief Executive Officer, Mr. George Economou, to provide certain management services related to the Company's drilling units including but not limited to commercial, financing, legal and insurance services, which is effective from January 1, 2016. Under the terms of this agreement, TMS will be compensated with a one-time set up fee of $2,000, a fixed monthly fee of $835 as well as certain variable fees including 1.00% on monies earned under drilling contracts, 0.75% on sale and purchase or M&A transactions and 0.20% on all financing transactions. Furthermore, the Company will reimburse TMS for all out-of-pocket expenses and travel expenses. The Company may terminate the agreement for convenience for a fee of $150,000. This agreement supersedes the previous agreements with Vivid and Cardiff Drilling, which were cancelled at no cost to the Company. On March 31, 2016 and effective from January 1, 2017, the Company and TMS agreed to alter, among some other terms of the agreement, the existing monthly fee from $835 to $1,291.7, provision of services by the Company's Chairman and Chief Executive Officer and President and Chief Financial Officer and the annual reduction of the termination fee by $15,000 per annum starting from 2018 which at any given time may not be lower than $30,000, a performance fee of up to $10 million per annum to be provided in stock or cash and the increase in the variable fee to 0.50% on all financing transactions.
5. Other Current AssetsAssets:
The amount of other current assets shown in the accompanying consolidated balance sheets is analyzed as follows:
| | December 31, | |
| | 2015 | | | 2016 | |
Inventories | | $ | 18,088 | | | $ | 12,988 | |
Deferred mobilization expenses | | | 43,825 | | | | 6,351 | |
Prepayments and advances | | | 20,607 | | | | 10,500 | |
Other | | | 2,013 | | | | 85 | |
Total | | $ | 84,533 | | | $ | 29,924 | |
OCEAN RIG UDW INC.
Notes to Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
| | December 31, | |
| | 2016 | | | 2017 | |
Inventories | | $ | 12,988 | | | $ | 9,573 | |
Deferred mobilization expenses | | | 6,351 | | | | 6,482 | |
Prepayments and advances | | | 10,500 | | | | 17,064 | |
Intangible assets, net | | | - | | | | 402 | |
Insurance claims | | | - | | | | 2,980 | |
Other | | | 85 | | | | 1,485 | |
Total | | $ | 29,924 | | | $ | 37,986 | |
6. Advances for drilling units under construction and related costs:
The amounts shown in the accompanying consolidated balance sheets include milestone payments under the drilling unit building contracts with the shipyards, supervision costs and any material related expenses incurred during the construction periods, all of which are capitalized in accordance with the accounting policy discussed in Note 2. For the years ended December 31, 20152016 and 2016,2017, the movement of the advances for drilling units under construction and related costs was as follows:
| | December 31, | | | December 31, | |
| | 2015 | | 2016 | | | 2016 | | | 2017 | |
Balance at beginning of year | | $ | 622,507 | | $ | 394,852 | | | $ | 394,852 | | | $ | 545,469 | |
Advances for drilling units under construction and related costs | | | 500,031 | | | 242,988 | | | | 242,988 | | | | 27,693 | |
Drilling units delivered | | | (727,686 | ) | | | - | | |
Impairment loss (advances and related costs for drilling unit under construction) | | | - | | | (92,371) | | | | (92,371 | ) | | | (573,162 | ) |
Balance at end of year | | $ | 394,852 | | $ | 545,469 | | | $ | 545,469 | | | $ | - | |
As of December 31, 2016,2017, the Company has advanced $309,358 $156,900 and $76,600$156,900 to the yard for the construction of the Ocean Rig Santorini and the Ocean Rig Crete and the Ocean Rig Amorgos respectively. respectively. On August 11, 2016, the Company entered into agreements with the yard to amend certain terms relating to contracts for the construction of its three seventh generation drilling units (the Ocean Rig Santorini, the Ocean Rig Crete and the Ocean Rig Amorgos) which were previously scheduled for delivery in 2017, 2018 and 2019, respectively. As part of the agreements, the deliveries of the Ocean Rig Santorini and the Ocean Rig Crete were postponed to June 2018 and January 2019, respectively, certain installments were rescheduled and the total construction costs were increased to $694,790 and $709,565, respectively. With respect to the
Ocean Rig Santorini, the Company's subsidiary that holds the shipbuilding contract for the Ocean Rig Santorini has received a notice of default in February 2018 for failure to pay an interim installment that was due on February 5, 2018, and is currently in commercial discussions with the shipyard to further postpone the delivery of the drilling unit and amend other terms of the shipbuilding contract. Should the Company's subsidiary that holds the shipbuilding contract and the shipyard fail to renegotiate terms while in default, the contract could be rescinded by the shipyard and all installment payments paid by us of $309,358 to date could be forfeited. With respect to the Ocean Rig Amorgos, the Company had previously agreed to suspend its construction with an option, subject to the Company's option, to bring it back into force within a period of 18 months after the date of the addendum.addendum, which option expired in February 2018. Further to that, as of December 31, 2016, the Company impairedrecognized an impairment charge of $92,371 of the total advances and related costs provided to the yard for the Ocean Rig Amorgos which was included in the "Impairment loss", in the accompanying consolidated statements of operations.
For the year ended December 31, 2017, as a result of the impairment review, the Company determined that the full amount of the carrying value of the two drilling units under construction Ocean Rig Crete and Ocean Rig Santorini was not recoverable and, therefore, an impairment charge of $573,162 was recognized and included in the "Impairment loss", in the accompanying consolidated statements of operations.
OCEAN RIG UDW INC.
Notes to Consolidated Financial Statements
For the years ended December 31, 2015, 2016 and 2017
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
7. Drilling units, machinery and equipment, net:
The amounts in the accompanying consolidated balance sheets are analyzed as follows:
| | Cost | | | Accumulated Depreciation | | | Net Book Value | | | Cost | | | Accumulated Depreciation | | | Net Book Value | |
Balance December 31, 2014 | | $ | 7,331,372 | | | $ | (1,123,739 | ) | | $ | 6,207,633 | | |
Additions/ Transfer from drilling units under construction | | | 909,830 | | | | - | | | | 909,830 | | |
Disposal of assets | | | (5,477 | ) | | | - | | | | (5,477 | ) | |
Impairment loss | | | (976,730 | ) | | | 561,744 | | | | (414,986 | ) | |
Depreciation | | | - | | | | (360,108 | ) | | | (360,108 | ) | |
Balance December 31, 2015 | | $ | 7,258,995 | | | | (922,103 | ) | | | 6,336,892 | | | $ | 7,258,995 | | | $ | (922,103 | ) | | $ | 6,336,892 | |
Additions | | | 99,515 | | | | - | | | | 99,515 | | | | 99,515 | | | | - | | | | 99,515 | |
Disposal of assets | | | (7,756 | ) | | | 133 | | | | (7,623 | ) | | | (7,756 | ) | | | 133 | | | | (7,623 | ) |
Impairment loss | | | (3,658,815 | ) | | | - | | | | (3,658,815 | ) | | | (3,658,815 | ) | | | - | | | | (3,658,815 | ) |
Depreciation | | | - | | | | (331,677 | ) | | | (331,677 | ) | | | - | | | | (331,677 | ) | | | (331,677 | ) |
Balance December 31, 2016 | | $ | 3,691,939 | | | | (1, 253,647 | ) | | | 2,438,292 | | | $ | 3,691,939 | | | | (1,253,647 | ) | | | 2,438,292 | |
Additions | | | | 9,726 | | | | - | | | | 9,726 | |
Disposal of assets | | | | (1,648 | ) | | | 1,212 | | | | (436 | ) |
Impairment loss | | | | (475,666 | ) | | | - | | | | (475,666 | ) |
Depreciation | | | | - | | | | (119,749 | ) | | | (119,749 | ) |
Balance December 31, 2017 | | | $ | 3,224,351 | | | | (1,372,184 | ) | | | 1,852,167 | |
For the years ended December 31, 20152016 and 2016,2017, as a result of the impairment review, the Company determined that the carrying amount of twoeight and eightone drilling units,unit, respectively, were not recoverable and, therefore, a charge of $414,986$3,658,815 and $3,658,815,$473,343, respectively was recognized and included in the "Impairment loss", in the accompanying consolidated statements of operations in order to write down those drilling units to their fair value.
On February 21, 2017, the Company's Board of Directors announced the availability for sale of the Leiv Eiriksson and the Eirik Raude. Consequently, the Company classified the two drilling units as held for sale, as all criteria required for their classification as "Assets held for sale" were met and depreciation for these drilling units was ceased.
Effective September 30, 2017, the Company's Board of Directors resolved that the two drilling units, that were previously classified as held for sale, will not be considered as held for sale but held and used. The decision was based upon relevant Company's management recommendation to the Board of Directors, taking into consideration Company's expectations of harsh weather drilling market. The Company reclassified its drilling units as held and used and a loss of $2,323 was recognized and included in "Impairment loss", based on the respective US GAAP guidance, in the accompanying consolidated statement of operations.
As of December 31, 2017, all of the Company's drilling units have been pledged as collateral to secure the Company's $450,000 and $462,000 Senior Secured Credit Facilities, as discussed in Note 9.
OCEAN RIG UDW INC.
Notes to Consolidated Financial Statements
For the years ended December 31, 2014, 2015, 2016 and 20162017
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
7. Drilling units, machinery and equipment, net (continued):
On April 28, 2016, the Company acquired the sixth generation ultra-deepwater drilling unit Cerrado, which was sold through an auction, for a purchase price of $65,000. The drilling unit was built in 2011 to similar design specifications to the Company's existing sixth generation drilling units and was renamed as Ocean Rig Paros.
As of December 31, 2016, all of the Company's operating drilling units, apart from the Ocean Rig Paros have been pledged as collateral to secure the Company's 6.50% Senior Secured Notes due 2017, the $462,000 Senior Secured Credit Facility and the Term Loan B facilities discussed in Note 9.
8. Other non-current assets
assets:
The amount of other non-current assets shown in the accompanying consolidated balance sheets is analyzed as follows:
| | December 31, | | | December 31, | |
| | 2015 | | | 2016 | | | 2016 | | | 2017 | |
Deferred mobilization expenses | | $ | 23,992 | | | $ | 5,564 | | | $ | 5,564 | | | $ | 4,080 | |
Intangible assets, net | | | 3,289 | | | | 1,845 | | | | 1,845 | | | | - | |
Prepaid investments | | | 9,579 | | | | 425 | | | | 425 | | | | - | |
Security deposit | | | | - | | | | 5,000 | |
Total | | $ | 36,860 | | | $ | 7,834 | | | $ | 7,834 | | | $ | 9,080 | |
9. Long-term Debt:
| | December 31, 2015 | | | December 31, 2016 | | | December 31, 2016 | | December 31, 2017 | |
$1.3 billion Senior Secured Term Loan B Facility | | $ | 1,283,750 | | | $ | 1,270,750 | | | $ | 1,270,750 | | $ | - | |
$1.9 billion Secured Term Loan B Facility | | | 1,857,250 | | | | 1,838,250 | | | 1,838,250 | | - | |
$462 million Senior Secured Credit Facility | | | 432,821 | | | | 249,542 | | | 249,542 | | 81,886 | |
$500 million Senior Unsecured Notes | | | 229,411 | | | | 130,974 | | | 130,974 | | - | |
$800 million Senior Secured Notes | | | 607,742 | | | | 459,723 | | | 459,723 | | - | |
$450 million Senior Secured Term Loan Facility | | | - | | 450,000 | |
Less: Deferred financing costs | | | (82,506 | ) | | | (61,466 | ) | | | (61,466 | ) | | (254) | |
Total debt | | | 4,328,468 | | | | 3,887,773 | | | | 3,887,773 | | 531,632 | |
Less: Current portion | | | (56,725 | ) | | | (640,557 | ) | | | (640,557 | ) | | (81,632 | ) |
Long-term portion | | $ | 4,271,743 | | | $ | 3,247,216 | | | $ | 3,247,216 | | $ | 450,000 | |
7.25% Senior Unsecured Notes due 2019
On March 26, 2014, the Company issued $500,000 aggregate principal amount of 7.25% Senior Unsecured Notes due 2019 (the "$500 million Senior Unsecured Notes"), offered inwith a private placement, resulting in net proceedssemi-annual coupon interest rate of approximately $493,625. The Senior Notes are unsecured obligations and rank senior in right of payment to any future subordinated indebtedness and equally in right of payment to all of its existing and future unsecured senior indebtedness.7.25% per year. The Company used the net proceeds from the offering, of the 7.25% Senior Unsecured Notes,amounting to $493,625, together with cash on hand, and repurchasedto repurchase the outstanding balance of $462,300 ofunder its 9.5% Senior Unsecured Notes,Notes.
As of which $500,000 in aggregate principal amount was outstanding prior to closing of the 7.25% Senior Unsecured Notes Offering, at a tender premium of 105.375%, while the remaining $37,700 was redeemed at a redemption price of 104.5% on May 13, 2014.
The 7.25% Senior Unsecured Notes are not guaranteed by any of the Company's subsidiaries. Upon a change of control, which would occur if 50% or more of the Company's shares are acquired by any person or group other than DryShips or its affiliates, the noteholders will have an option to require the Company to purchase all outstanding notes at a redemption price of 101% of the principal amount thereof plus accrued and unpaid interest to the date of purchase. The contractual semi-annual coupon interest rate is 7.25% per year.
During the years ended December 31, 2015 and 2016, one of the Company's wholly owned subsidiary, hashad purchased in the open market an aggregate principal amount of $270,589 and $98,437$369,026 of these notes, respectively, andreducing the then outstanding balance reported above, of $229,411 and $130,974 respectively, is net of the notes repurchased.to $130,974. Effective March 21, 2017, these repurchased notes have been cancelled.
During the year ended December 31, 2016, the purchase of the notes, resulted in a gain of $57,160 and is included in "Gain from repurchase of senior notes" in the accompanying consolidated statement of operations.
6.50% Senior Secured Notes held bydue 2017
On September 20, 2012, the Company's wholly owned subsidiary DRH (the "Issuer"), issued $800,000 aggregate principal amount of 6.50% Senior Secured Notes due 2017 (the "$800 million Senior Secured Notes"), with a semi-annual coupon interest rate of 6.5% per year. The $800 million Senior Secured Notes were secured by Issuer's and its subsidiaries' certain assets, including stocks, and guaranteed by the Company and certain of the existing and future subsidiaries have been cancelled.
of the Issuer.
OCEAN RIG UDW INC.
Notes to Consolidated Financial Statements
For the years ended December 31, 2014, 2015, 2016 and 20162017
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
9. Long-term Debt Debt-(continued):
During the years endedAs of December 31, 2015 and 2016, the purchase of the notes, resulted in a gain of $130,454 and $57,160, respectively, and is included in "Gain from repurchase of senior notes" in the accompanying consolidated statement of operations.
6.50% Senior Secured Notes due 2017
On September 20, 2012, the Company's wholly owned subsidiary Drill Rigs Holdings Inc. (the "Issuer"), issued $800,000 aggregate principal amount of 6.50% Senior Secured Notes due 2017 (the "$800 million Senior Secured Notes") offered in a private offering. The Drill Rigs Senior Notes are secured obligations and rank senior in right of payment to any future subordinated indebtedness and equally in right of payment to all of its existing and future unsecured senior indebtedness.
The Drill Rigs Senior Notes are fully and unconditionally guaranteed by the Company and certain of its existing and future subsidiaries of the Issuer and are secured by certain assets of, and by a pledge of the stock of, the Issuer and the subsidiaries of the Issuer. The contractual semi-annual coupon interest rate is 6.5% on the Drill Rigs Senior Notes. On or after October 1, 2015, the Issuer may, at its option, redeem all or a portion of the Drill Rigs Senior Notes at the time or from time to time at 103.25% (from October 1, 2015 to September 30,2016) or 100% (October 1, 2016 and thereafter) of the principal amount thereof, plus any accrued and unpaid interest thereof to the date of the redemption.
Upon a change of control, which occurs if 50% or more of the Company's shares are acquired by any person or group other than DryShips or its affiliates, the Issuer will be required to make an offer to repurchase the Drill Rigs Senior Notes at a price equal to 101% of the principal amount thereof, plus any accrued and unpaid interest thereon to the date of repurchase.
During the years ended December 31, 2015 and 2016, two of the Company's wholly owned subsidiaries had purchased in the open market an aggregate principal amount of $192,258 and $148,019, of these notes, respectively and the outstanding balance reported above, of $607,742 and $459,723 respectively, is net of the notes repurchased. Effective March 21, 2017, the Notes held by the Company's wholly owned subsidiaries have been cancelled.
During the years ended December 31, 2015 and 2016, the purchase of the notes resulted inresulting to a gain of $58,720 and $67,841 respectively, and is included in "Gain from repurchase of senior notes" in the accompanying consolidated statements of operations.
Effective March 21, 2017, these repurchased notes have been cancelled.$1.3 billion Senior Secured Term Loan B Facility
On July 25, 2014, the Company's wholly owned subsidiary, Drillships Ocean Ventures Inc.,DOV, entered into a $1.3 billion$1,300,000 Senior Secured Term Loan B facility ("New Term Loan B facility") to repay the $1.35 billionthen outstanding balance of $1,300,000 under the $1,350,000 Senior Secured Credit Facility, which had an outstanding loan balance of approximately $1.3 billion on that date.Facility. The New Term Loan B facility, which iswith a maturity date on July 25, 2021, was secured primarily by first priority mortgages on the vessels,drilling units, the Ocean Rig Mylos, the Ocean RigSkyros and the Ocean RigAthena, bears interest at and bore a fixed rate, and matures on July 25, 2021.interest rate.
$1.9 billion Term Loan B Facility
On July 12, 2013, the Company, through its wholly-owned subsidiaries, Drillships Financing Holding Inc. ("DFHI")DFH and Drillships Projects Inc., entered into a $1,800,000 senior secured term loan facility, comprised of two tranches, tranche B-1 term loans in an aggregate principal amount equal toof $975,000 ("Tranche B-1 Term Loans"B-1") and tranche B-2 term loans in an aggregate principal amount equal toof $825,000 ("Tranche B-2 Term Loans" and, together with the "Tranche B-1 Term Loans"B-2"), collectively, the "$1.9 billion Term Loan B Facility"), with respective maturity dates in the first quarter of 2021, subject to adjustment to the third quarter of 2020 in certain circumstances, and the third quarter of 2016.
The $1.9 billion Term Loans are initiallyLoan B Facility was: (i) guaranteed by the Company and certain existing and future subsidiaries of DFHIDFH and are(ii) secured by certain assets of, and by a pledge of the stock of, DFHIDFH and the subsidiary guarantors. On July 26, 2013, the Company through its wholly-owned subsidiaries DFHIDFH and Drillships Projects Inc. entered into an incremental amendment to the $1,800,000 senior term loan for additional trancheTranche B-1 term loans in an aggregate principal amount of $100,000.
On February 7, 2014, the Company refinanced its then existing short-term Tranche B-2 with a fungible add-on to its existing long-term Tranche B-1 with maturity date at no earlier than the third quarter of 2020.
Discharge of the 7.25% Senior Unsecured Notes, 6.50% Senior Secured Notes, $1.3 billion Senior Secured Term Loan B Facility and $1.9 billion Term Loan B Facility
F-25On September 22, 2017, the restructuring effective date, the outstanding principal amounts, accrued interest and default interest of the 7.25% Senior Unsecured Notes, $6.50% Senior Secured Notes, $1.3 billion Senior Secured Term Loan B Facility and $1.9 billion Term Loan B Facility were discharged in exchange for new equity in the Company amounting to $1,992,533, cash consideration amounting to $320,800 and the $450 million Senior Secured Term Loan Facility discussed below. The resulted gain amounting to $1,129,125 is included as a "Reorganization Gain, net" in the accompanying consolidated statement of operations. Deferred finance fees related to discharged notes and facilities have been written off and are included in "interest and finance costs" in the accompanying consolidated statement of operations.
$450 million Senior Secured Term Loan Facility
On September 22, 2017 the Company, including certain of its subsidiaries, as borrowers and guarantors, entered into a New Credit Agreement. The New Credit Agreement contains limited restrictive covenants that are usual and customary for facilities of this type, including, without limitation: (i) delivery of financial statements, reports, accountants' letters, certificates and SEC filings; (ii) notices of defaults, material litigation and other material events; (iii) continuation of business and maintenance of existence and material rights and privileges; (iv) compliance with laws, including sanctions laws; and (v) maintenance of property and insurance.
The Company and certain of its subsidiaries will guarantee the obligations of the New Credit Agreement and collateral has been granted to the lenders by way of first priority lien over substantially all existing and newly acquired assets of the borrowers and guarantors. The New Credit Agreement consists of a $450,000 Senior Secured Term Loan Facility, bearing interest at 8.00% per annum and with a maturity date of September 20, 2024. In addition, under the terms of the New Credit Agreement, the Company has the option to refinance the facility in full at no cost until March 22, 2018, at 105% from March 23, 2018 until March 22, 2019, at 103% from March 23, 2019 until March 22, 2020 and at 101% from March 23, 2020 until March 22, 2021.
OCEAN RIG UDW INC.
Notes to Consolidated Financial Statements
For the years ended December 31, 2014, 2015, 2016 and 20162017
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
9. Long-term Debt Debt-(continued):
On February 7, 2014,Under ASU 2016-06 (Note 2) this option is considered as an embedded call option which has been assessed as closely related to the Company refinanced its then existing short-term Tranche B-2 Term Loans withhost contract (the New Credit Agreement), therefore is not valued separately and is not considered a fungible add-onderivative, pursuant to its existing long-term Tranche B-1 Term Loans. As a result of this refinancing, the total $1.9 billion of Tranche B-1 Term Loans will mature no earlier than the third quarter of 2020.ASC 815 provisions.
$462 million Senior Secured Credit Facility
On February 13, 2015, the Company's wholly owned subsidiary, Drillship Alonissos Shareholders Inc., entered into a secured term loan facility agreement with a syndicate of lenders and DNB Bank ASA, as facility agent and security agent, for up to $475,000 to partially finance the construction costs of the Ocean Rig Apollo. This facility has a 5 year term and bears interest at LIBOR plus a margin. On March 3, 2015, the Company drew down an amount of $462,000 under this facility and pledged restricted cash of $15,000, as of June 30, 2016, associated with the respective loan.facility. On February 11, 2016, the client of the Ocean Rig Apollo sent to the Company a notice of termination. Under the $462,000 Senior Secured Credit Facility, the Company was required to find a new Satisfactory Drilling Contract (as defined in the loan agreement) by May 21, 2016. The Company did not secure a new drilling contract for the Ocean Rig Apollo and, therefore, was required to make a mandatory prepayment of approximately $145,894 on August 22, 2016.
On August 31, 2016, the Company's wholly owned subsidiary, Drillship Alonissos Shareholders Inc., entered into an amendment to the term loan facility agreement in consideration for the lenders agreeing: (i) to reduce the amount of the mandatory prepayment from $145,894 to $125,000;(ii) to release the Company as Guarantor and from all obligations, actual or contingent, joint or several, now or at any time outstanding; (iii) to waive any existing breaches and, (iv) the cold-stacking of the drilling unit. Furthermore, a trust was formed, namely "Drillship Alonissos Stock Trust" (the "Trust"), in which the Company has transferred the shares of Drillship Alonissos Shareholders Inc. together with the shares of Drillship Alonissos Owners Inc., previously held by Drillship Alonissos Shareholders Inc. Additionally, the repayment schedule of the loan was altered to include a cash sweep term authorizing the lenders to transfer any excess cash flow on a monthly basis, as a prepayment pro rata across the loan, therefore, leading to the full repayment of the loan by June 2018, whereas according to the initial repayment schedule it would have been fully repaid by June 2020. Following the repayment, the Trust, will be dissolved and shares will be returned to their initial holders.
The Company's outstanding debt is secured by, among other things, first priority mortgages over the Company's operating drilling units, corporate guarantees, first priority assignments of all freights, earnings, insurances and requisition compensation relating to such drilling units and a pledge of the shares of capital stock of certain of the Company's subsidiaries.
Certain of our debt instruments contain financial covenants, minimum coverage ratio requirements and minimum liquidity and restrict, without the lender's prior consent, the Company's and its subsidiaries ability to, among other things, pay dividends, change the management and ownership of its drilling units, incur additional indebtedness, incur and create liens on its assets, change in the general nature of the Company's business and require that the Company maintain an established place of business in the United States or the United Kingdom.
F-26
OCEAN RIG UDW INC.
Notes to Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
9. Long-term Debt (continued):
Total interest and debt amortization cost incurred on long-term debt for the years ended December 31, 2014, 2015, 2016 and 2016,2017, amounted to $304,132, $300,543, $256,222 and $256,222,$275,494, respectively, of which $37,342, $26,055, $28,265 and $28,265,$27,718, respectively, were capitalized as part of the cost of the drilling units under construction. Total interest incurred and amortization of debt issuance cost on long-term debt, net of capitalized interest, are included in "Interest and finance costs" in the accompanying consolidated statement of operations.
The Company's weighted average interest rates on the above bank loans and notes were 6.4%6.3%, 6.3%6.2% and 6.2%6.9%, as of December 31, 2014, 2015, 2016, and 2016,2017, respectively.
The bank loans$462 million and $450 million Senior Secured Credit Facilities are payable in U.S. Dollars in quarterly and monthly instalments with balloon paymentsare due at maturity betweenon June 2018 to July 2021.
Loan movements for the Company's Senior Unsecured Notes and secured credit facilities throughout 2017, is as follows:September 2024, respectively.
Loan | Loan Agreement Date | | Original Amount | | | December 31, 2015 | | | Repayments/ Repurchase of senior notes | | | December 31, 2016 | |
| | | | | | | | | | | | | |
$800 million Senior Notes | September 20, 2012 | | $ | 800,000 | | | | 607,742 | | | | (148,019 | ) | | $ | 459,723 | |
$1.9 billion Secured Term Loan B Facility | July 12, 2013 | | | 1,900,000 | | | | 1,857,250 | | | | (19,000 | ) | | | 1,838,250 | |
$500 million Senior Unsecured Notes | March 26, 2014 | | | 500,000 | | | | 229,411 | | | | (98,437 | ) | | | 130,974 | |
$1.3 billion Senior Secured Term Loan B | July 25, 2014 | | | 1,300,000 | | | | 1,283,750 | | | | (13,000 | ) | | | 1,270,750 | |
$462 million Senior Secured Credit Facility | February 13, 2015 | | $ | 462,000 | | | $ | 432,821 | | | $ | (183,279 | ) | | $ | 249,542 | |
| | | | | | | $ | 4,410,974 | | | $ | (461,735 | ) | | $ | 3,949,239 | |
The annual principal payments required to be made after December 31, 2016, including balloon payments, totaling $3,949,239 due through July 2021, are as follows:
2017 | | | 658,063 | |
2018 | | | 115,202 | |
2019 | | | 162,974 | |
2020 | | | 1,794,250 | |
2021 | | | 1,218,750 | |
Total principal payments | | | 3,949,239 | |
Less: Financing fees | | | (61,466 | ) |
Total debt | | $ | 3,887,773 | |
OCEAN RIG UDW INC.
Notes to Consolidated Financial Statements
For the years ended December 31, 2014, 2015, 2016 and 2017
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
9. Long-term Debt-(continued):
Loan movements for the Company's Senior Unsecured Notes and secured credit facilities throughout 2017, is as follows:
Loan | Loan Agreement Date | | Original Amount | | | December 31, 2016 | | | New Loan | | | Discharges/ Repayment | | | December 31, 2017 | |
| | | | | | | | | | | | | | | | |
$800 million Senior Notes | September 20, 2012 | | $ | 800,000 | | | | 459,723 | | | | - | | | | (459,723 | ) | | $ | - | |
$1.9 billion Secured Term Loan B Facility | July 12, 2013 | | | 1,900,000 | | | | 1,838,250 | | | | - | | | | (1,838,250 | ) | | | - | |
$500 million Senior Unsecured Notes | March 26, 2014 | | | 500,000 | | | | 130,974 | | | | - | | | | (130,974 | ) | | | - | |
$1.3 billion Senior Secured Term Loan B | July 25, 2014 | | | 1,300,000 | | | | 1,270,750 | | | | - | | | | (1,270,750 | ) | | | - | |
$462 million Senior Secured Credit Facility | February 13, 2015 | | | 462,000 | | | | 249,542 | | | | - | | | | (167,656 | ) | | | 81,886 | |
$ 450 million Senior Secured Term Loan Facility | September 22, 2017 | | | 450,000 | | | | - | | | | 450,000 | | | | - | | | | 450,000 | |
| | | | | | | $ | 3,949,239 | | | $ | 450,000 | | | $ | (3,867,353 | ) | | $ | 531,886 | |
The annual principal payments required to be made after December 31, 2017, including balloon payments, totaling $531,886 due on June 2018 and September 2024, are as follows:
2018 | | $ | 81,886 | |
2019 | | | - | |
2020 | | | - | |
2021 | | | - | |
2022 | | | - | |
2023 and thereafter | | | 450,000 | |
Total principal payments | | | 531,886 | |
Less: Financing fees | | | (254 | ) |
Total debt | | $ | 531,632 | |
OCEAN RIG UDW INC.
Notes to Consolidated Financial Statements
For the years ended December 31, 2015, 2016 and 2017
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
10. Financial Instruments and Fair Value Measurements:
ASC 815, "Derivatives and Hedging" requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the statement of financial position. The Company recognizes all derivative instruments as either assets or liabilities at fair value on its consolidated balance sheets.
Changes in the fair value of derivative instruments that have not been designated as hedging instruments are reported in the accompanying consolidated statement of operations.
The Company enters into interest rate swap transactions to manage interest costs and risk associated with changing interest rates with respect to its variable interest rate loans and credit facilities. The Company also enters from time to time into foreign currency forward contracts in order to manage risks associated with fluctuations in foreign currencies. All of the Company's derivative transactions are entered into for risk management purposes.
As of December 31, 2014, the Company had seven interest rate swaps outstanding, with a notional amount of $1.8 billion, maturing from April 2016 through November 2017. As of December 31, 2015, the Company had seven interest rate swaps outstanding, with a notional amount of $1.6 billion, maturing from April 2016 through November 2017. During the year ended December 31. 2016, the Company terminated the interest rate swaps and there were no interest rate swaps outstanding as of December 31, 2016.
Effective January 1, 2011, the Company removed the designation of interest rate swaps previously designated as cash flow hedges and discontinued hedge accounting for the associated interest rate swaps. As a result, as of December 31, 2015, these agreements did not qualify for hedge accounting and, as such, changes in their fair values are included in the accompanying consolidated statements of operations.2017.
Accumulated Other Comprehensive Loss also included realized losses on cash flow hedges associated with interest capitalized during prior years under "Advances for drilling units under construction" amounting to $27,776, which according to ASC 815-30-35 is being reclassified into earnings in the same period or periods during which the hedged forecasted transaction affects earnings. As a result, during the years ended December 31, 2014, 2015, 2016 and 2016,2017, amounts of $1,034, $1,035, $26,187 and $26,184,nil, respectively, were reclassified into the consolidated statements of operations.
The estimated amount in other comprehensive income/ (loss) of cash flow hedge losses at December 31, 2016, that will be reclassified into earnings within the next twelve months, is zero.
Tabular disclosure of financial instruments is as follows:
Fair Values of Derivative Instruments in the Balance Sheets:
Derivatives not designated as Hedging Instruments | Balance Sheet Location | | December 31, 2015 Fair value | | | December 31, 2016 Fair value | |
Interest rate swaps | Financial Instruments non-current assets | | $ | 3,494 | | | $ | - | |
Interest rate swaps | Financial Instruments current liabilities | | | (8,931 | ) | | | - | |
Interest rate swaps | Financial Instruments non-current liabilities | | | (2,743 | ) | | | - | |
Total derivatives | | | $ | (8,180 | ) | | $ | - | |
The effect of Derivative Instrumentsderivative instruments not designated or qualifying as hedging instruments on the Consolidated Statement of Operations:Operations is as follows:
| | | | Amount of Loss | |
Derivatives not designated as hedging instruments | Location of Loss Recognized | Year ended December 31, 2015 | | Year ended December 31, 2016 | | Year ended December 31, 2017 | |
Interest rate swaps | Loss on interest rate swaps | | $ | (11,513 | ) | | $ | (4,388 | ) | | $ | - | |
OCEAN RIG UDW INC.
Notes to Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
10. Financial Instruments and Fair Value Measurements – (continued):
| | | | Amount of Gain/(Loss) | |
Derivatives not designated as hedging instruments | Location of Gain or (Loss) Recognized | Year ended December 31, 2014 | | Year ended December 31, 2015 | | Year ended December 31, 2016 | |
Interest rate swaps | Gain/ (Loss) on interest rate swaps | | $ | (12,671 | ) | | $ | (11,513 | ) | | $ | (4,388 | ) |
The carrying amounts of cash and cash equivalents, restricted cash, trade accounts receivable, other current assets and accounts payable and other current liabilities reported in the consolidated balance sheets approximate their respective fair values because of the short-term nature of these accounts. The fair value of credit facilities is estimated based on current rates offered to the Company for similar debt of the same remaining maturities. Additionally, the Company considers its creditworthiness in determining the fair value of the credit facilities. The carrying value approximates the fair market value for floating rate loans. The fair value of the interest rate swaps was determined using a discounted cash flow method based on market-based LIBOR swap yield curves, taking into account current interest rates and the creditworthiness of both the financial instrument counterparty and the Company. The 7.25% Senior Unsecured Notes, the Drill Rigs Senior Notes and the Term Loan B Facilities have a fixed rate and their estimated fair values are determined through Level 2 inputs of the fair value hierarchy (quoted price in the over-the counter market). WhileThe $450 million Senior Secured Term Loan Facility has a fixed rate and the estimated fair value was determined through Level 2 inputs of the fair value hierarchy (quoted price in the over-the counter market). The fair value of the $450 million Senior Secured Term Loan Facility at December 31, 2017 was approximately $456 million. The $462 million Senior Secured Credit Facility, has a floating rate on LIBOR and its' carrying value is approximately the same as its' fair market value.
The estimated fair value of the above 7.25% Senior Unsecured Notes, Drill Rigs Senior Notes, $1.9 billion Secured Term Loan B Facility and $1.3 billion Senior Secured Term Loan B Facility at December 31, 2015, was approximately $100,367, $357,431, $427,168 and $628,242 respectively. For the aforementioned senior notes and term loans their carrying value net of finance fees as at December 31, 2015, was $226,655, $601,845, $1,814,746 and $1,257,484, respectively.
The estimated fair value of the above 7.25% Senior Unsecured Notes, Drill Rigs Senior Notes, $1.9 billion Secured Term Loan B Facility and $1.3 billion Senior Secured Term Loan B Facility at December 31, 2016, was approximately $51,080, $201,129, $1,156,958 and $1,002,304, respectively. For the aforementioned senior notes and term loans their carrying value net of finance fees as at December 31, 2016, was $129,844, $457,745, $1,804,272 and $1,248,747, respectively.
OCEAN RIG UDW INC.
Notes to Consolidated Financial Statements
For the years ended December 31, 2015, 2016 and 2017
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
10. Financial Instruments and Fair Value Measurements-(continued):
The guidance for fair value measurement applies to all assets and liabilities that are being measured and reported on a fair value basis. This guidance enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The statement requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories.
Fair value measurements are classified based upon inputs used to develop the measurement under the following hierarchy:
Level 1--Quoted market prices in active markets for identical assets or liabilities.
Level 2--Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3--Unobservable inputs that are not corroborated by market data.
OCEAN RIG UDW INC.
Notes to Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
10. Financial Instruments and Fair Value Measurements-(continued):
The following table summarizes the valuation of assets and liabilities measured at fair value on a recurring basis as of the valuation date.
| | December 31, 2015 | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Unobservable Inputs (Level 3) | |
Interest rate swaps-asset position | | $ | 3,494 | | | | - | | | | 3,494 | | | $ | - | |
Interest rate swaps-liability position | | | (11,674 | ) | | | - | | | | (11,674 | ) | | | - | |
| | | | | | | | | | | | | | | | |
Total | | $ | (8,180 | ) | | | - | | | | (8,180 | ) | | $ | - | |
The following table summarizes the valuation of assets measured at fair value on a non-recurring basis as of December 31, 2015.
| Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1) | | Significant Other Observable Inputs (Level 2) | | Unobservable Inputs (Level 3) | | Impairment loss | |
Non-Recurring measurements: | | | | | | | | |
Long-lived assets | | $ | - | | | $ | 610,000 | | | $ | - | | | $ | (414,986 | ) |
| | | | | | | | | | | | | | | | |
As a result of the impairment analysis performed for the year ended December 31, 2015, the Company's two drilling units, with a carrying amount of $1,024,986 were written down to their fair value as determined based on the valuations of the independent valuators, resulting in an impairment charge of $414,986 which was included in the accompanying consolidated statement of operations for the year ended December 31, 2015 (Note 7).
The following table summarizes the valuation of assets measured at fair value on a non-recurring basis as of December 31, 2016.
| Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1) | | Significant Other Observable Inputs (Level 2) | | Unobservable Inputs (Level 3) | | Impairment loss | | Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1) | | Significant Other Observable Inputs (Level 2) | | Unobservable Inputs (Level 3) | | Impairment loss | |
Non-Recurring measurements: | | | | | | | | | | | | | | | | |
Long-lived assets | | $ | - | | | $ | 1,035,499 | | | $ | - | | | $ | (3,658,815 | ) | | $ | - | | | $ | 1,035,499 | | | $ | - | | | $ | (3,658,815 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
As a result of the impairment analysis performed for the year ended December 31, 2016, the Company's eight drilling units, with a carrying amount of $4,694,314 were written down to their fair value as determined based on the valuations of the independent valuators, resulting in an impairment charge of $3,658,815 which was included in the accompanying consolidated statement of operations for the year ended December 31, 2016 (Note 7), the impairment of $92,371 for the drilling unit under construction Ocean Rig Amorgos (Note 6) and the impairment of $25,152 relating to the cashflow hedges for interest capitalized on vesselsdrilling units impaired (Note 12).
The following table summarizes the valuation of assets measured at fair value on a non-recurring basis as of December 31, 2017.
| Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1) | | Significant Other Observable Inputs (Level 2) | | Unobservable Inputs (Level 3) | | Impairment loss | |
Non-Recurring measurements: | | | | | | | | |
Long-lived assets | | $ | - | | | $ | 234,139 | | | $ | - | | | $ | (475,666 | ) |
| | | | | | | | | | | | | | | | |
Effective September 30, 2017,one of the Company's drilling units, with a carrying amount of $650,843 was written down to its fair value as determined based on the valuations of the independent valuators, resulting in an impairment charge of $473,343 which was included in the accompanying consolidated statement of operations for the year ended December 31, 2017 (Note 7).
Effective September 30, 2017 the Company's Board of Directors resolved that the two drilling units, that were previously classified as held for sale, will not be considered as held for sale but held and used. The Company reclassified its drilling units carrying amount of $56,639 as held and used and a loss of $2,323 was recognized and included in the accompanying consolidated statement of operations (Note 7).
OCEAN RIG UDW INC.
Notes to Consolidated Financial Statements
For the years ended December 31, 2014, 2015, 2016 and 20162017
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
10. Financial Instruments and Fair Value Measurements-(continued):
The Company also determined that the whole carrying amount of the two drilling units under construction Ocean Rig Crete and Ocean Rig Santorini was not recoverable and, therefore, a charge of $573,162 was recognized and included in the accompanying consolidated statement of operations (Note 6).
The fair values of the non-monetary transactions are determined through Level 1 of the fair value hierarchy as defined in FASB guidance for Fair Value Measurements and are derived principally from quoted market prices that allow value to be determined. The fair value of the Company's exchanged capital stock as of the restructuring effective date should be valued by using the share closing price as of that date. As of September 22, 2017, the Company's share closing price was $24.00.
The difference between the fair value price as of September 22, 2017 and the consideration price of the common shares issued for the reduction of the principal outstanding balance, accrued interest and default interest of the Company's 7.25% Senior Unsecured Notes, 6.50% Senior Secured Notes, $1.3 billion Senior Secured Term Loan B Facility and $1.9 billion Term Loan B Facility with the Scheme Creditors (Note 9), resulted in a loss and was included in "Reorganization Gain, net" in the accompanying consolidated statement of operations for the year ended December 31, 2017.
11. Common Stock and Additional Paid-in Capital:
General
TheOn April 24, 2017, the Company's Annual General Meeting of Shareholders (the "Meeting"), approved the increase in the Company's authorized share capital stock consisted of 1,000,000,000one billion (1,000,000,000) common shares of a par value of $0.01 each and 500,000,000five hundred million (500,000,000) preferred shares of a par value of $0.01 each to one trillion (1,000,000,000,000) common shares of a par value of $0.01 each and five hundred million (500,000,000) preferred shares of a par value of $0.01 each.
On November 3, 2017, an extraordinary general meeting of shareholders, or EGM was held. At the EGM, the shareholders of the Company approved the Second Amended and Restated Memorandum and Articles of Association based on which Company's authorized share capital as this approved on April 24,2017 by the Annual General Meeting of Shareholders, was reduced to one billion eight hundred million (1,800,000,000) common shares, consisting of one billion five hundred million (1,500,000,000) Class A common shares of a par value of $0.01 each, and three hundred million (300,000,000) Class B common shares of a par value of $0.01 each, and one hundred million (100,000,000) preferred shares of par value $0.01 per share.each. Common shares outstanding prior to the adoption of the Second Amended and Restated Memorandum and Articles of Association will remain outstanding and are redesignated as Class A common shares on our register of members.
All Company's common stock hasshares have equal voting rights and participates equally in dividend distributions.
Dividends
In March 2015 and in May 2015, the Company paid dividends of $0.19 per common share to its shareholders, with respect to the quarters ended December 31, 2014 and March 31, 2015, respectively.
OCEAN RIG UDW INC.
Notes to Consolidated Financial Statements
For the years ended December 31, 2015, 2016 and 2017
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
11. Common Stock and Additional Paid-in Capital-(continued):
Issuance of common shares
On June 8, 2015, the Company successfully completed the offering of 28,571,4283,106 (28,571,428 shares before the 1-for-9,200 reverse stock split) shares of its common stock,shares, par value $0.01 per share, at a price of $7.00 per share (share price before reverse stock split), resulting in proceeds of $194,134, after deducting placement fees. As part of the offering, Mr. George Economou, the Company's Chairman, and Chief Executive Officer, purchased $10,000, or 1,428,571155,299 (1,428,571 before the 1-for-9,200 reverse stock split) shares, of common stockshares in the offering at the public offering price.
On September 22, 2017, upon the occurrence of the restructuring effective date, the Company issued 90,651,603 common shares, par value $0.01 per share, at a price of $24.00 per share resulting in an amount of $1,992,533 issued to the Scheme creditors and $204,595 to Prime Cap, respectively and were recorded in "Common stock" and "Additional paid-in capital" in the accompanying consolidated balance sheets.
On November 3, 2017, following the designation of three hundred million (300,000,000) of the Company's common shares as Class B Common Shares the EGM, the Company issued 895,404 Class B Common Shares to certain of shareholders pursuant to the terms of the recently completed financial restructuring. The Class B common shares are convertible into Class A common shares on a one-for-one basis, have equal voting rights and participate equally in dividend distributions and are not and will not be listed on a national securities exchange or a national market system..
Issuance of common shares
On November 13, 2017, certain of the Company's shareholders elected to convert 337,533 Class A Common Shares into 337,533 Class B Common Shares, in accordance with the terms of the Company's Second Amended and Restated Memorandum and Articles of Association. As of December 31, 2017, the Company's total outstanding common shares amounted to 91,567,982 (Class A Common Shares: 90,562,138 and Class B Common Shares: 1,005,844).
Treasury stock
During the year ended December 31, 2015, the Company exchanged the $120,000 Exchangeable Promissory Note for an aggregate amount of 22,222,2222,415 (22,222,222 shares before the 1-for-9,200 reverse stock split) of the Company's shares owned by DryShips (Note 4). These shares were not retired and are held as treasury stock.
on September 21, 2017.
On April 5, 2016, the Company's unrestricted subsidiary, Ocean Rig Investments Inc., purchased 56,079,5336,096 (56,079,533 shares before the 1-for-9,200 reverse stock split) shares of the Company's common stockshares previously held by DryShips (Note 4). These shares were not retired and are treated as treasury stock for accounting purposes since under U.S. GAAP the parent's shares purchased by a subsidiary are treated as treasury shares. The Company is incorporated in the Cayman Islands. Under Cayman Islands law, shares of a parent company held by a subsidiary company are not characterized as treasury shares, are entitled to vote and be counted in determining the total number of outstanding shares in the Company. These shares were ultimately retired on September 21, 2017.
RestrictedReverse stock awards
splits
On March 21, 2012,April 24, 2017, the Company's Annual General Meeting of Shareholders, approved a proposal to allow the Company to effect one or more reverse stock splits for ratios ranging from 1-for-2 to not more than 1-for-100,000, with the exact ratio to be set within this range as determined by the Board of Directors approvedor duly constituted committee thereof and any time following the 2012 Equity Incentive Plan (the "Plan") and reservedAnnual General Meeting of Shareholders.
On September 21, 2017, the Company effected a total1-for-9,200 reverse stock split of 2,000,000its common shares. Under the Plan, officers, key employees and directors are eligible to receive awards ofThe Company's common shares commenced trading on a split-adjusted basis on September 22, 2017. The reverse stock options, stock appreciation rights, restricted stock, restricted stock units, phantom stock units and unrestricted stock.
On March 31, 2014,split was completed in connection with the Company's Compensation Committee approvedRestructuring and in order to comply with NASDAQ's listing requirements and meet the grant of 161,200 shares of non-vested commonminimum bid requirement for continued listing on NASDAQ..
All previously reported share and per share amounts have been restated to reflect the reverse stock to employees of Ocean Rig. The shares vest over a period of three years. The stock-based compensation is being recognized to expenses over the vesting period and based on the fair value of the Ocean Rig shares on the grant date of $17.79 per share.
On August 19, 2014, the Compensation Committee approved a bonus in the form of 150,000 shares to be granted to Azara for the contribution of Mr. George Economou for Chief Executive Officer's services rendered during 2013. The shares vest over a period of three years. The stock-based compensation is being recognized to expenses over the vesting period and based on the fair value of the Ocean Rig shares on the grant date of $18.37 per share.split.
OCEAN RIG UDW INC.
Notes to Consolidated Financial Statements
For the years ended December 31, 2014, 2015, 2016 and 20162017
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
11. Common Stock and Additional Paid-in Capital Capital-(continued):
Restricted stock awards
On November 4, 2014,During 2015 and 2016, under the Company's Compensation Committee approvedthen 2012 Equity Incentive Plan an aggregate of 20 shares (186,702 before the grant of 45,450 shares1-for-9,200 reverse stock split) of non-vested common stockshares were granted to employees of Ocean Rig. The shares vest over a period of three years. The stock-based compensation is being recognized to expenses over the vesting period and based on the fair value of the Ocean Rig shares on the grant date of $12.60 per share.
On December 30, 2014, the Compensation Committee approved a bonus in the form of 300,000 shares to be granted to Azara for the contribution of Mr. George Economou for Chief Executive Officer's services rendered during 2014. The shares vest over a period of three years. The stock-based compensation is being recognized to expenses over the vesting period and based on the fair value of the Ocean Rig shares on the grant date of $9.46 per share.
On April 29, 2015, the Company's Compensation Committee approved the grant of 173,200 shares of non-vested common stock to employees of Ocean Rig. The shares vest over a period of three years. The stock-based compensation is being recognized to expenses over the vesting period and based on the fair value of the Ocean Rig shares on the grant date of $7.24 per share.
On August 5, 2015, the Company's Compensation Committee approved the grant of 13,502 shares of non-vested common stock to employees of Ocean Rig. The shares vest over a period of three years. The stock-based compensation is being recognized to expenses over the vesting period and based on the fair value of the Ocean Rig shares on the grant date of $3.19 per share.
As of December 31, 2015, 609,887 shares have vested, while 235,576 shares were forfeited due to employees' resignations.
On May 17, 2016, the Company's Compensation Committee approved the discontinuance of the granting of stock awards to the employees of the Company. Following the approval, all the Company's restricted stock awards, apart from those awarded to Azara, were cancelled.
AsOn November 14, 2017, the Company's Board of December 31, 2016, 343,885Directors approved the grant of 4,000 shares have vested.of Company's common shares to each of the three new directors of the Board. The shares vested immediately and were recognized to expenses based on the fair value on the grant date, being $25.56 per share.
The 2012 Equity Incentive Plan of the Company was terminated in connection with the Company's financial restructuring which was completed in September of 2017.
A summary of the status of Ocean Rig's non vested shares as of December 31, 20152016 and 20162017 and movement during the years then ended, is presented below.
| | Number of non vested shares | | | Weighted average grant date fair value per non vested shares | | | Number of non vested shares | | | Weighted average grant date fair value per non vested shares | |
| | | | | | | | | | | | |
Balance December 31, 2014 | | | 612,798 | | | $ | 13.49 | | |
Granted | | | 186,702 | | | | 6.95 | | |
Forfeited | | | (63,950 | ) | | | 12.29 | | |
Vested | | | (330,252 | ) | | | 13.33 | | |
Balance December 31, 2015 | | | 405,298 | | | $ | 10.80 | | | | 44 | | | $ | 99,360.00 | |
Forfeited | | | (155,298 | ) | | | 10.08 | | | | (17 | ) | | | 92,736.00 | |
Vested | | | (150,000 | ) | | | 12.43 | | | | (16 | ) | | | 114,356.00 | |
Balance December 31, 2016 | | | 100,000 | | | $ | 9.46 | | | | 11 | | | $ | 87,032.00 | |
Granted | | | | 12,000 | | | | 25.56 | |
Vested | | | | (12,011 | ) | | | 105.24 | |
Balance December 31, 2017 | | | | - | | | $ | - | |
OCEAN RIG UDW INC.
Notes to Consolidated Financial Statements
For the years ended December 31, 2014, 2015, 2016 and 20162017
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
11. Common Stock and Additional Paid-in Capital-(continued):
Restricted stock awards
| | Number of vested shares | | | Weighted average grant date fair value per vested shares | |
| | | | | | |
As at December 31, 2015 | | | 66 | | | $ | 139,380.00 | |
Vested shares granted in prior years | | | 16 | | | | 114,356.00 | |
Granted and vested shares in prior years, but cancelled during 2016 | | | (45 | ) | | | 124,384.00 | |
As at December 31, 2016 | | | 37 | | | $ | 146,648.00 | |
Vested shares granted in prior years | | | 11 | | | | 87,032.00 | |
Vested shares granted in 2017 | | | 12,000 | | | | 25.56 | |
As at December 31, 2017 | | | 12,048 | | | $ | 558.94 | |
| | Number of vested shares | | | Weighted average grant date fair value per vested shares | |
| | | | | | |
As at December 31, 2014 | | | 309,452 | | | $ | 17.22 | |
Granted and vested | | | 52,802 | | | | 6.89 | |
Non vested shares granted in prior years and vested 2015 | | | 277,450 | | | | 14.56 | |
Granted and vested shares in prior years, but cancelled during 2015 | | | (29,817 | ) | | | 16.59 | |
As at December 31, 2015 | | | 609,887 | | | $ | 15.15 | |
Vested shares granted in prior years | | | 150,000 | | | | 12,43 | |
Granted and vested shares in prior years, but cancelled during 2016 | | | (416,002 | ) | | | 13.52 | |
As at December 31, 2016 | | | 343,885 | | | $ | 15.94 | |
| | | | | | | | |
As of December 31, 2015, 2016 and 2016,2017, there was $2,299, $314 and $314nil, respectively, of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted by the Company, respectively. That cost is expected to be recognized over a period of two years. The amounts of $3,576, $3,676, $1,506 and $1,506$314 represent the stock based compensation expense which are recorded in "General and administrative expenses", in the accompanying consolidated statements of operations for the years ended December 31, 2014, 2015, 2016 and 2016,2017, respectively. That cost of $314 relating to the Company's restricted stock award, entitled to Azara, was fully recognized as at December 31, 2017.
12. Accumulated Other Comprehensive Income / (Loss):Income:
The amounts in the accompanying balance sheets are analyzed as follows:
| December 31, | | December 31, | |
| 2015 | | 2016 | | 2016 | | 2017 | |
Cash flows hedges realized loss | | $ | (26,187 | ) | | $ | - | | |
Actuarial pension gain | | | 3,346 | | | | 3,346 | | | | 3,346 | | | | 3,476 | |
Total | | $ | (22,841 | ) | | $ | 3,346 | | | $ | 3,346 | | | $ | 3,476 | |
13. Interest and Finance Costs:
The amounts in the accompanying consolidated statements of operations are analyzed as follows:
| | December 31, | |
| | 2015 | | | 2016 | | | 2017 | |
Interest costs on long term debt | | $ | 276,510 | | | $ | 235,182 | | | $ | 214,282 | |
Amortization and write off of financing fees | | | 24,033 | | | | 21,040 | | | | 61,212 | |
Discount on receivable from drilling contract | | | 3,018 | | | | (2,821 | ) | | | (308 | ) |
Capitalized borrowing costs | | | (26,055 | ) | | | (28,265 | ) | | | (27,718 | ) |
Commissions, commitment fees and other financial expenses | | | 2,842 | | | | 1,845 | | | | 874 | |
Total | | $ | 280,348 | | | $ | 226,981 | | | $ | 248,342 | |
OCEAN RIG UDW INC.
Notes to Consolidated Financial Statements
For the years ended December 31, 2014, 2015, 2016 and 20162017
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
13. Interest and Finance Costs:
The amounts in the accompanying consolidated statements of operations are analyzed as follows:
| | December 31, | |
| | 2014 | | | 2015 | | | 2016 | |
Interest costs on long term debt | | $ | 261,137 | | | $ | 276,510 | | | $ | 235,182 | |
Amortization and write off of financing fees (Note 2) | | | 42,995 | | | | 24,033 | | | | 21,040 | |
Discount on receivable from drilling contract | | | - | | | | 3,018 | | | | (2,821 | ) |
Capitalized borrowing costs (Note 2) | | | (37,342 | ) | | | (26,055 | ) | | | (28,265 | ) |
Commissions, commitment fees and other financial expenses | | | 33,341 | | | | 2,842 | | | | 1,845 | |
Total | | $ | 300,131 | | | $ | 280,348 | | | $ | 226,981 | |
14. Income Taxes:
Ocean Rig UDW is subject to Cayman Islands tax which is zero and operates through its various subsidiaries in a number of countries throughout the world. Therefore the Company may pay tax within some jurisdictions even though it might have losses in others. Income taxes have been provided based upon the laws and rates in effect in the countries in which our operations are conducted or in which our subsidiaries are considered residents for income tax purposes. OurThe Company's income tax expense or benefit arises from our mix of pre-tax earnings or losses, respectively, in the international tax jurisdictions in which we operate. Since the countries in which operates in have different statutory tax rates and tax regimes with respect to one another there is no expected relationship between the provision for income taxes and income or loss before income taxes. A loss in one jurisdiction may not be offset against taxable income in another jurisdiction.
The components of the Company's income/(losses) before taxes, after adjusting for impairment losses and gains from repurchases of senior notes, are as follows:
| | Year ended December 31 | |
| | 2015 | | | 2016 | | | 2017 | |
Domestic income/ (loss) (Marshall Islands/ Cayman Islands) | | $ | 219,900 | | | $ | 126,244 | | | $ | - | |
Foreign income | | | 185,742 | | | | 93,633 | | | | - | |
Domestic (loss)/ income (Cayman Islands) | | | - | | | | (97,939 | ) | | | (276,471 | ) |
Foreign income | | | - | | | | 394,196 | | | | 558,005 | |
Total income before taxes, excluding impairment loss, gain from repurchases of senior notes, reorganization gain, net and loss from issuance of shares upon restructuring | | $ | 405,642 | | | $ | 516,134 | | | $ | 281,534 | |
| | Year ended December 31 | |
| | 2014 | | | 2015 | | | 2016 | |
Domestic income/ (loss) (Marshall Islands/ Cayman Islands) | | $ | (161,913 | ) | | $ | 219,900 | | | $ | 126,244 | |
Foreign income (January 1, 2016 to April 14, 2016) | | | 499,539 | | | | 185,742 | | | | 93,633 | |
(Domestic loss) Cayman Islands | | | - | | | | - | | | | (97,939 | ) |
Foreign income (April 15, 2016 to December 31, 2016) | | | - | | | | - | | | | 394,196 | |
Total income before taxes, excluding impairment loss and gain from repurchases of senior notes | | $ | 337,626 | | | $ | 405,642 | | | $ | 516,134 | |
The components of the Company's tax expense were as follows:
| | Year Ended December 31, | |
| | 2015 | | | 2016 | | | 2017 | |
Current Tax expense | | $ | 99,816 | | | $ | 106,315 | | | $ | 63,495 | |
Deferred Tax expense | | | - | | | | - | | | | - | |
Income taxes | | $ | 99,816 | | | $ | 106,315 | | | $ | 63,495 | |
| | | | | | | | | | | | |
Effective tax rate on income / (loss) excluding impairment loss and gain from repurchase of the senior secured notes | | | 24.6 | % | | | 20.6 | % | | | 22.6 | % |
In 2017, approximately 92% of the current tax expense related to taxes Angola, Brazil and Congo, in 2016, approximately 93% of the current tax expense related to taxes in Angola, Brazil, Norway, Congo and Senegal and in 2015, approximately 90% of the current tax expense related to taxes in Angola, Brazil, Norway and Congo.
Taxes have not been reflected in other comprehensive income/ (loss) since the valuation allowances would not result in the recognition of deferred tax.
A reconciliation between the statutory tax rate to the effective tax rate is as follows:
| Year Ended December 31, | |
Reconciliation of total tax expense: | 2015 | | 2016 | | 2017 | |
Income tax | | | 94,331 | | | | 106,315 | | | | 63,495 | |
Taxes on litigation matters subject to statutory rates, including interest and penalties | | | 5,485 | | | | - | | | | - | |
Total | | $ | 99,816 | | | $ | 106,315 | | | $ | 63,495 | |
OCEAN RIG UDW INC.
Notes to Consolidated Financial Statements
For the years ended December 31, 2014, 2015, 2016 and 20162017
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
14. Income Taxes-(continued):
The components of the Company's tax expense were as follows:
| | Year Ended December 31, | |
| | 2014 | | | 2015 | | | 2016 | |
Current Tax expense | | $ | 77,823 | | | $ | 99,816 | | | $ | 106,315 | |
Deferred Tax expense | | | - | | | | - | | | | - | |
Income taxes | | $ | 77,823 | | | $ | 99,816 | | | $ | 106,315 | |
| | | | | | | | | | | | |
Effective tax rate on income / (loss) excluding impairment loss and gain from repurchase of the senior secured notes | | | 23.1 | % | | | 24.6 | % | | | 20.6 | % |
In 2016, approximately 93% of the current tax expense related to taxes in Angola, Brazil, Norway, Congo and Senegal. In 2015, approximately 90% of the current tax expense related to taxes in Angola, Brazil, Norway and Congo and in 2014, approximately 64% of the current tax expense related to taxes in Angola.
Taxes have not been reflected in other comprehensive income/(loss) since the valuation allowances would not result in the recognition of deferred tax.
A reconciliation between the statutory tax rate to the effective tax rate is as follows:
| Year Ended December 31, | |
Reconciliation of total tax expense: | 2014 | | 2015 | | 2016 | |
Income tax | | | 70,441 | | | | 94,331 | | | | 106,315 | |
Taxes on litigation matters subject to statutory rates, including interest and penalties | | | 7,382 | | | | 5,485 | | | | - | |
Total | | $ | 77,823 | | | $ | 99,816 | | | $ | 106,315 | |
Ocean Rig has elected to use the statutory tax rate for each year based upon the location where the largest parts of its operations were domiciled. During 2014, 2015, 2016 and 2016,2017, most of its activities were in the Republic of the Marshall Islands, and Cayman Island (from April 2016) with a tax rate of zero. On April 14, 2016, the corporate domicile of the Company moved from Republic of the Marshall Islands to the Cayman Islands.
Ocean Rig is subject to changes in tax laws, treaties, regulations and interpretations in and between the countries in which its subsidiaries operate. A material change in these tax laws, treaties, regulations and interpretations could result in a higher or lower effective tax rate on worldwide earnings.
As of December 31, 2016 and 2017, the current liability for corporate income tax amounts to $8,991 and $10,994, respectively and is included in "Accounts payable and other current liabilities" in the accompanying consolidated balance sheets.
Deferred tax assets and liabilities are recognized for the anticipated future tax effects of temporary differences between the financial statement basis and the tax basis of the Company's assets and liabilities using the applicable jurisdictional tax rates in effect the year the asset is realized or the liability is settled. The Company has not recognized any deferred tax liability, while the significant components of deferred tax assets are as follow:
| | Year ended December 31, | |
| | 2015 | | | 2016 | |
Deferred tax assets | | | | | | |
Losses carried forward | | | 13,197 | | | | 10,110 | |
Total deferred tax assets | | $ | 13,197 | | | $ | 10,110 | |
| | | | | | | | |
Less: valuation allowance | | | (13,197 | ) | | | (10,110 | ) |
Total deferred tax assets, net | | $ | - | | | $ | - | |
OCEAN RIG UDW INC.
Notes to Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
14. Income Taxes-(continued):
| Year ended December 31, | |
| 2016 | | 2017 | |
Deferred tax assets | | | | |
Losses carried forward | | | 10,110 | | | | 12,176 | |
Total deferred tax assets | | $ | 10,110 | | | $ | 12,176 | |
| | | | | | | | |
Less: valuation allowance | | | (10,110 | ) | | | (12,176 | ) |
Total deferred tax assets, net | | $ | - | | | $ | - | |
A valuation allowance for deferred tax assets is recorded when it is more likely than not that some or all of the benefit from the deferred tax asset will not be realized. The Company provides a valuation allowance to offset deferred tax assets for carry forward of operating losses incurred during the year in certain jurisdictions and for other deferred tax assets where, in the Company's opinion, it is more likely than not that the financial statement benefit of these losses will not be realized. The Company provides a valuation allowance for foreign tax loss carry forward to reflect the possible expiration of these benefits prior to their utilization. As of December 31, 2016,2017, the valuation allowance for deferred tax assets amounted to $13,326.
$12,176.
The earnings of certain of our subsidiaries are considered to be indefinitely reinvested. Should the Company make a distribution from these subsidiaries in the form of dividends or otherwise, the Company would be subject to additional income taxes. The unrecognized deferred tax liabilities related to these undistributed earnings was not practicable to be estimated as of December 31, 2016.2017. Accordingly, the Company has not provided for taxes on these unremitted earnings.
The Company is subject to taxation in various jurisdiction in which it conducts business. Tax years as early as 2010 remain subject to examination. As of December 31, 2016,2017, the Company has various ongoing tax audits.
OCEAN RIG UDW INC.
Notes to Consolidated Financial Statements
For the years ended December 31, 2015, 2016 and 2017
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
15. Earnings / (loss) per shareshare:
| 2014 | | | | 2015 | | | | 2016 | | | |
| Income (numerator) | | Weighted- average number of outstanding shares (denominator) | | Amount per share | | Income (numerator) | | Weighted- average number of outstanding share (denominator) | | Amount per share | | Loss (numerator) | | Weighted- average number of outstanding shares (denominator) | | Amount per share | |
Net income/ loss | | $ | 259,803 | | | | - | | | | - | | | $ | 80,014 | | | | - | | | | - | | | $ | (3,241,518 | ) | | | - | | | | - | |
Less: Allocation of undistributed earnings to non-vested stock | | | (772 | ) | | | - | | | | - | | | | (1,175 | ) | | | - | | | | - | | | | - | | | | - | | | | - | |
Basic and diluted Earnings/ (loss) per share attributable to common stockholders | | $ | 259,031 | | | $ | 131,837,227 | | | | 1.96 | | | $ | 78,839 | | | $ | 138,757,176 | | | | 0.57 | | | $ | (3,241,518 | ) | | | 96,950,847 | | | | (33.43 | ) |
| | 2015 | | | | | | 2016 | | | | | | 2017 | | | | | | | |
| | Income (numerator) | | | Weighted- average number of outstanding shares (denominator) | | | Amount per share | | | Loss (numerator) | | | Weighted- average number of outstanding share (denominator) | | | Amount per share | | | Loss (numerator) | | | Weighted- average number of outstanding shares (denominator) | | | Amount per share | |
| | Class A | | | Class A | | | Class A | | | Class A | | | Class A | | | Class A | | | Class A | | | Class B | | | Class A | | | Class B | | | Class A | | | Class B | |
Basic net income/ (loss) per share: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income/ (loss) | | $ | 80,014 | | | | - | | | | - | | | $ | (3,241,518 | ) | | | - | | | | - | | | $ | (5,366 | ) | | $ | (36 | ) | | | - | | | | - | | | | - | | | | - | |
Less: Non- vested common stock dividends declared and undistributed earnings | | | (1,175 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Basic Earnings/ (loss) per share attributable to common stockholders | | $ | 78,839 | | | $ | 15,082 | | | | 5,227.36 | | | $ | (3,241,518 | ) | | | 10,538 | | | | (307,602.77 | ) | | $ | (5,366 | ) | | $ | (36 | ) | | | 25,070,978 | | | | 167,314 | | | | (0.21 | ) | | | (0.21 | ) |
Diluted net income/ (loss) per share: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Allocation of undistributed earnings/ (losses) for basic computation | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (5,366 | ) | | | (36 | ) | | | - | | | | - | | | | - | | | | - | |
Reallocation of undistributed earnings/ (losses) as a result of conversion of Class B to Class A shares | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Diluted Earnings/ (loss) per share | | $ | 78,839 | | | $ | 15,082 | | | | 5,227.36 | | | $ | (3,241,518 | ) | | | 10,538 | | | | (307,602.77 | ) | | $ | (5,366 | ) | | $ | (36 | ) | | | 25,070,978 | | | | 167,314 | | | | (0.21 | ) | | | (0.21 | ) |
Non-vested share-based payment awards that contain rights to receive non forfeitable dividends or dividend equivalents (whether paid or unpaid) and participate equally in undistributed earnings/ loss are participating securities and, thus, are included in the two-class method of computing earnings per share for the year ended December 31, 2014, 2015, 2016 and 2016.2017. For the yearsyear ended December 31, 2014 and 2015, non-vested participating restricted common stockshares were not included in the computation of diluted earnings/ loss per share because the effect is anti-dilutive.
Earnings/loss per share of Class A and Class B common shares is computed using the two-class method. Basic earnings/loss per share is computed using the weighted average number of shares outstanding during the year ended December 31, 2017. Diluted net earnings/loss per share is computed using the weighted average number of shares and the effect of potentially dilutive securities outstanding during the year ended December 31, 2017. Potentially dilutive securities consist of restricted stock units and other contingently issuable shares. The computation of the diluted earnings/ loss per share of Class A common shares assumes the conversion of Class B common shares, while the diluted earnings/loss per share of Class B common shares does not assume the conversion of those shares.
The Class B common shares are convertible into Class A common shares on a one-for-one basis, have equal voting rights and participate equally in dividend distributions and are not and will not be listed on a national securities exchange or a national market system (Note 11). As a result, the undistributed earnings/losses for the year ended December 31, 2017 are allocated based on the contractual participation rights of the Class A and Class B common shares on a proportionate basis. Furthermore, as we assume the conversion of Class B common shares in the computation of the diluted earnings/loss per share of Class A common shares, the undistributed earnings/losses are equal to net income/loss for that computation.
OCEAN RIG UDW INC.
Notes to Consolidated Financial Statements
For the years ended December 31, 2014, 2015, 2016 and 20162017
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
16. Geographic information for offshore drilling operationsoperations:
The revenue shown in the table below is based upon the location where the drilling takes place:
| | | | | | | | | | | | | | | | | | |
Country | | 2014 | | | 2015 | | | 2016 | | | 2015 | | | 2016 | | | 2017 | |
Angola | | | 807,742 | | | | 527,098 | | | | 500,413 | | | | 527,098 | | | | 500,413 | | | | 435,785 | |
Brazil | | | 581,635 | | | | 581,438 | | | | 517,885 | | | | 581,438 | | | | 517,885 | | | | 333,186 | |
Congo | | | - | | | | 157,235 | | | | 241,953 | | | | 157,235 | | | | 241,953 | | | | 185,040 | |
Norway | | | 220,044 | | | | 231,189 | | | | 74,925 | | | | 231,189 | | | | 74,925 | | | | 53,509 | |
Falklands | | | - | | | | 154,606 | | | | 21,106 | | | | 154,606 | | | | 21,106 | | | | - | |
Senegal | | | - | | | | 52,214 | | | | 289,162 | | | | 52,214 | | | | 289,162 | | | | - | |
Ivory Coast | | | 97,232 | | | | 33,723 | | | | 1,164 | | | | 33,723 | | | | 1,164 | | | | - | |
South Africa | | | 110,424 | | | | - | | | | - | | |
Other service revenues | | | - | | | | 10,697 | | | | 7,059 | | | | 10,697 | | | | 7,059 | | | | - | |
Total service revenues | | $ | 1,817,077 | | | | 1,748,200 | | | | 1,653,667 | | | $ | 1,748,200 | | | | 1,653,667 | | | | 1,007,520 | |
The drilling units the Leiv Eiriksson, the Eirik Raude, the Ocean Rig Corcovado, the Ocean Rig Olympia, the Ocean Rig Poseidon, the Ocean Rig Mykonos, the Ocean Rig Mylos, the Ocean Rig Skyros, the Ocean Rig Athena, the Ocean Rig Apollo and the Ocean Rig Parosconstitute the Company's long lived assets. For the year ended, December 31, 2016 and 2015, other service revenues relate to management fees from the services provided by the Company to the offshore drilling unit Cerrado.
17. Commitments and ContingenciesContingencies:
17.1 Legal proceedingsproceedings:
Various claims, suits, and complaints, including those involving government regulations and product liability, arise in the ordinary course of the offshore drilling business.
As part of the Company's normal course of operations, the Company's customer may disagree on amounts due to the Company under the provision of the contracts which are normally settled through negotiations with the customer. Disputed amounts are normally reflected in revenues at such time as the Company reaches agreement with the customer on the amounts due.
OCR Falklands Drilling Inc., a subsidiary of the Company, commenced arbitration proceedings against Premier Oil Plc. and Noble Energy Falklands Ltd. for terminating the contract on February 12, 2016, for the drilling unit Eirik Raude. Subsequently, the parties reached a commercial agreement to amicably settle this matter and a Settlement Agreement dated February 6, 2017, was entered into among the parties.
HPOR Servicos De Consultaria Ltda ("HPOR") on September 1, 2016, commenced arbitration proceedings against, amongst others, the Company seeking payment of certain commissions that HPOR is alleging were due by, amongst others, the Company for certain agency and marketing services provided for the Ocean Rig Mykonos and the Ocean Rig Corcovado drilling units. The Company is disputing such allegations and has counterclaimed repayment of the commission already paid to HPOR. On March 7, 2018, the Tribunal issued awards in each of the references disallowing HPOR's claims and allowing the counterclaims brought by the Company, which we are currently evaluating.
On March 7, 2016, two of the Company's subsidiaries commenced arbitration proceedings against Total E&P Angola for the termination of the contract with the drilling unit Ocean Rig Olympia. Subsequently, the parties reached a commercial agreement to amicably settle this matter and we expect to have our hearing ona Settlement Agreement dated December 29, 2017, was entered into among the matter in June 2017.parties.
On December 22, 2016, Mayze Services Limited ("Mayze") issued a claim before the English High Court of Justice against the Company and others seeking payment of GBP 5,230,074.135,230,074 in respect of fees allegedly owed in connection with marketing services provided by Mayze to the Company. We areAs of December 31, 2017, a provision of $4,000 has been recorded under "Legal settlements and other, net", in the processaccompanying consolidated statement of defending these proceedings.operations.
OCEAN RIG UDW INC.
Notes to Consolidated Financial Statements
For the years ended December 31, 2014, 2015, 2016 and 20162017
(Expressed in thousands of United States Dollars – except for share and per share data, unless otherwise stated)
17. Commitments and Contingencies – (continued):
17.1 Legal proceedings (continued):
On August 31, 2017, a complaint was filed in the High Court of the Republic of the Marshall Islands (Civil Action No. 2017-198) by certain of the Company's creditors against, among others, two subsidiaries of the Company, two of the Company's executive officers up to December 31, 2017– which currently are directors, the Company's manager TMS Offshore Services Ltd. and other parties. The plaintiffs purport to allege nine causes of action, including claims for avoidance and recovery of actual and/or constructive fraudulent conveyances under common law or 6 Del. Code §§ 1304(A)(1), 1305, 1307, and 1308; aiding and abetting fraudulent conveyances; and declaratory judgment under 30 MIRC § 202. All defendants moved to dismiss the case on October 31, 2017, and that motion has been briefed. In a scheduling conference held on February 14, 2018 in the Marshall Islands, the court scheduled oral argument to proceed on June 6, 2018. We are not in a position at this time to express an opinion as to the ultimate outcome of this matter, or to provide an estimate on the amount or range of any potential loss.
On September 22, 2017, the Restructuring Effective Date, a shareholder filed an appeal of certain orders of the bankruptcy court to the United States District Court for the Southern District of New York.
On the Restructuring Effective Date, we funded a preserved claims trust, or PCT. The PCT was established to preserve, for the benefit of Scheme Creditors, any causes of action held by the Company, Agon Shipping Inc. and/or Ocean Rig Investments Inc. arising from the facts and circumstances identified in the draft complaint prepared by certain of the Company's creditors referenced above. If the trustees under the PCT determine that there is merit to any such claims, the trustees may take legal action for the benefit of all of the scheme creditors in the Restructuring.
Except for the matters discussed above, the Company is not a party to any material litigation where claims or counterclaims have been filed against the Company other than routine legal proceedings incidental to its business.
17.2 Purchase Obligations:
The following table sets forth the Company's contractual purchase obligations of certain of the Company's subsidiaries for the Ocean Rig Santorini and the Ocean Rig Crete, as of December 31, 2016.2017, if they decide to go ahead with the construction of two drilling unit newbuildings.
| | 2018 | | | 2019 | | | Total | |
Drilling units building contracts | | $ | 417,931 | | | | 520,165 | | | $ | 938,096 | |
Total obligations | | $ | 417,931 | | | | 520,165 | | | $ | 938,096 | |
18. Subsequent Events:
18.1 On February 10, 2017,Effective January 1, 2018, the Company's Board of Directors appointed Mr. Pankaj Khanna as President and Chief Executive Officer of the Company, reached an agreement with ConocoPhillips to terminate the contract of the Ocean Rig Athena. As part of the agreement, ConocoPhillips will pay a termination fee.
18.2 Effective March 21, 2017, the Company cancelled the $369.0 million of the 7.25% Senior Unsecured Notes due in 2019Mr. Iraklis Sbarounis as Chief Financial Officer, Mr. David Cusiter as Chief Operations Officer and $340.3 million of the 6.5% Senior Secured Notes due in 2017 held by wholly owned subsidiariesMr. Anthony Kandylidis as Executive Vice Chairman of the Company.
18.2 During January 2018 and February 2018, we converted an aggregate of 349,711 Class B Common Shares, par value $0.01, into 349,711 Class A Common Shares, par value $0.01. Pursuant to our Company's Second Amended and Restated Memorandum and Articles of Association each Class B Common Share is convertible into a Class A Common Share at a one for one conversion ratio.
F-3818.3
On February 23, 2018, the Company signed a new drilling contract with Tullow Namibia Ltd., for a one-well drilling program plus options for drilling offshore West Africa. The contract is expected to commence in the third quarter of 2018 and to be performed by the Ocean Rig Poseidon.
Schedule I- Condensed Financial Information18.4 On March 5, 2018, we held our 2018 Annual General Meeting of Ocean Rig UDW Inc. (Parent Company Only)Shareholders.
Balance Sheets
December 31, 2015 and 2016
(Expressed in thousands of U.S. Dollars – except for share and per share data)
| | December 31, | |
| | 2015 | | | 2016 | |
ASSETS | | | | | | |
CURRENT ASSETS: | | | | | | |
Cash and cash equivalents | | $ | 35 | | | $ | 26 | |
Other current assets | | | 182 | | | | 194 | |
Total current assets | | | 217 | | | | 220 | |
| | | | | | | | |
NON-CURRENT ASSETS: | | | | | | | | |
Investments in subsidiaries* | | | 3,781,705 | | | | 143,381 | |
Total non-current assets | | | 3,781,705 | | | | 143,381 | |
| | | | | | | | |
Total assets | | $ | 3,781,922 | | | $ | 143,601 | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | |
CURRENT LIABILITIES: | | | | | | | | |
Other current liabilities | | $ | 9,913 | | | $ | 3,007 | |
Total current liabilities | | | 9,913 | | | | 3,007 | |
| | | | | | | | |
NON-CURRENT LIABILITIES | | | | | | | | |
Long term debt, net of current portion | | | 497,244 | | | | 129,844 | |
Total non-current liabilities | | | 497,244 | | | | 129,844 | |
| | | | | | | | |
STOCKHOLDERS' EQUITY: | | | | | | | | |
Preferred stock, $0.01 par value; 500,000,000 shares authorized at December 31, 2015 and 2016, nil issued and outstanding at December 31, 2015 and 2016, respectively | | | - | | | | - | |
Common stock, $0.01par value; 1,000,000,000 shares authorized, at December 31, 2015 and 2016, 160,888,606 issued and outstanding at December 31, 2015 and 2016, respectively | | | 1,609 | | | | 1,609 | |
Treasury stock ; 22,222,222 shares at December 31, 2015 and $0.01 par value; 78,301,755 shares at December 31, 2016 | | | (222 | ) | | | (783 | ) |
Additional paid-in capital | | | 3,572,549 | | | | 3,524,426 | |
Accumulated other comprehensive loss | | | (22,841 | ) | | | 3,346 | |
Accumulated deficit | | | (276,330 | ) | | | (3,517,848 | ) |
Total stockholders' equity | | | 3,274,765 | | | | 10,750 | |
Total liabilities and stockholders' equity | | $ | 3,781,922 | | | $ | 143,601 | |
| | | | | | | | |
* Eliminated in consolidation
Schedule I- Condensed Financial Information of Ocean Rig UDW Inc. (Parent Company Only)
Statements of Operations
For the years ended December 31, 2014, 2015 and 2016
(Expressed in thousands of U.S. Dollars – except for share and per share data)
| | For the year ended December 31, | |
| | 2014 | | | 2015 | | | 2016 | |
EXPENSES: | | | | | | | | | |
| | | | | | | | | |
General and administrative expenses | | $ | 7,983 | | | $ | 6,924 | | | | 17,995 | |
| | | | | | | | | | | | |
Operating loss | | | (7,983 | ) | | | (6,924 | ) | | | (17,995 | ) |
| | | | | | | | | | | | |
OTHER INCOME / (EXPENSES): | | | | | | | | | | | | |
Interest and finance costs | | | (82,109 | ) | | | (65,988 | ) | | | (37,905 | ) |
Interest income | | | 1,383 | | | | - | | | | - | |
Other, net | | | 6,224 | | | | 5,041 | | | | 177 | |
| | | | | | | | | | | | |
Total other (expenses), net | | | (74,502 | ) | | | (60,947 | ) | | | (37,728 | ) |
| | | | | | | | | | | | |
Equity/(loss) in earnings of subsidiaries* | | | 342,288 | | | | 147,885 | | | | (3,185,795 | ) |
| | | | | | | | | | | | |
Net income/(loss) | | $ | 259,803 | | | $ | 80,014 | | | $ | (3,241,518 | ) |
| | | | | | | | | | | | |
Net Income/(loss) To Common Stockholders | | $ | 259,031 | | | $ | 78,839 | | | $ | (3,241,518 | ) |
| | | | | | | | | | | | |
Earnings/(loss) per common share, basic and diluted | | $ | 1.96 | | | $ | 0.57 | | | $ | (33.43 | ) |
| | | | | | | | | | | | |
Weighted average number of shares, basic and diluted | | | 131,837,227 | | | | 138,757,176 | | | | 96,950,847 | |
* Eliminated in consolidation
Schedule I- Condensed Financial Information of Ocean Rig UDW Inc. (Parent Company Only)
Statements of Comprehensive Income / (loss)
For the years ended December 31, 2014, 2015 and 2016
(Expressed in thousands of U.S. Dollars – except for share and per share data)
| | For the year ended December 31, | |
| | 2014 | | | 2015 | | | 2016 | |
Net income/(loss) | | $ | 259,803 | | | $ | 80,014 | | | | (3,241,518 | ) |
| | | | | | | | | | | | |
Other Comprehensive income / (loss): | | | | | | | | | | | | |
Reclassification of realized losses associated with capitalized interest to Consolidated Statement of Operations | | | 1,034 | | | | 1,035 | | | | 26,187 | |
Actuarial gains/(losses) | | | (1,518 | ) | | | 62 | | | | - | |
Other Comprehensive income / (loss) | | | (484 | ) | | | 1,097 | | | | 26,187 | |
Total Comprehensive income /(loss) | | $ | 259,319 | | | $ | 81,111 | | | | (3,215,331 | ) |
Schedule I- Condensed Financial Information of Ocean Rig UDW Inc. (Parent Company Only)
Statements of Cash Flows
For the years ended December 31, 2014, 2015 and 2016
(Expressed in thousands of U.S. Dollars)
| | For the year ended December 31, | |
| | 2014 | | | 2015 | | | 2016 | |
Net Cash Used in Operating Activities | | $ | (88,302 | ) | | | 237,535 | | | $ | (54,326 | ) |
| | | | | | | | | | | | |
Cash Flows from Investing Activities: | | | | | | | | | | | | |
Investments in subsidiaries | | | 289,654 | | | | (379,993 | ) | | | 54,317 | |
Loan to parent | | | (120,000 | ) | | | - | | | | - | |
Proceeds from arrangement fees | | | 3,000 | | | | - | | | | - | |
Net Cash Provided by / (used in) Investing Activities | | | 172,654 | | | | (379,993 | ) | | | 54,317 | |
| | | | | | | | | | | | |
Cash Flows from Financing Activities: | | | | | | | | | | | | |
Proceeds from senior notes | | | 500,000 | | | | - | | | | - | |
Payment of senior notes | | | (500,000 | ) | | | - | | | | - | |
Dividends paid | | | (75,194 | ) | | | (50,281 | ) | | | - | |
Payments for issuance of subsidiaries shares | | | (466 | ) | | | - | | | | - | |
Payment of financing fee | | | (8,690 | ) | | | - | | | | - | |
Net proceeds from common stock issuance | | | - | | | | 192,714 | | | | - | |
Net Cash (used in)/provided by Financing Activities | | | (84,350 | ) | | | 142,433 | | | | - | |
Net increase/(decrease) in cash and cash equivalents | | | 2 | | | | (25 | ) | | | (9 | ) |
Cash and cash equivalents at beginning of year | | | 58 | | | | 60 | | | | 35 | |
Cash and cash equivalents at end of year | | $ | 60 | | | | 35 | | | $ | 26 | |
Schedule I- Condensed Financial Information of Ocean Rig UDW Inc. (Parent Company Only)
In the condensed financial information of the Parent Company, the Parent Company's investment in subsidiaries is stated at cost plus equity in undistributed earnings/(loss) of subsidiaries.
There are no legal or regulatory restrictions on the Parent Company's ability to obtain funds from its subsidiaries through dividends, loans or advances sufficient to satisfy the obligations discussed below that are due on or before December 31, 2016.
On April 27, 2011, the Parent Company issued $500,000 aggregate principal amount of 9.5% Senior Unsecured Notes due 2016. The notes were unsecured obligations and ranked senior in right of payment to any future subordinated indebtedness and equally in right of payment to all of its existing and future unsecured senior indebtedness. The 9.5% Senior Unsecured Notes were repurchased or redeemed in connection with the 7.25% Senior Unsecured Notes offering discussed below.
On March 26, 2014, the Parent Company issued $500,000 aggregate principal amount of 7.25% senior unsecured notes due 2019. The notes are unsecured obligations and rank senior in right of payment to any future subordinated indebtedness and equally in right of payment to all of its existing and future unsecured senior indebtedness.
On November 18, 2014, the Parent Company entered into a $120,000 unsecured facility with its former parent company, DryShips. The loan from the Parent Company to DryShips bore interest at a LIBOR plus margin rate and was due in May 2016. During the year ended December 31, 2015, the Parent Company exchanged the $120,000 unsecured facility for an aggregate amount of 22,222,222 of the Company's shares owned by Dryships. These shares were not retired and are held as treasury stock.
The Parent Company is guarantor on the $1,300,000 facilities, the $1,900,000 facilities, the $462,000 facility and the 6.5% Senior Secured Notes due 2017 described in Note 9 "Long-term Debt" to the consolidated financial statements. As of December 31, 2016, the amount outstanding relating to these three facilities amounted to $3,358,542 in aggregate and the amount outstanding relating to the 6.5% Senior Secured Notes amounted to $459,723.
During the year ended December 31, 2015, the Parent Company paid dividends of $50,281 and no dividends were paid during 2016.
The condensed financial information of the Parent Company should be read in conjunction with the Company's consolidated financial statements.