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Press release from Marketwire

Transocean Ltd. Reports Second Quarter 2012 Results

Wednesday, August 01, 2012

Transocean Ltd. Reports Second Quarter 2012 Results17:19 EDT Wednesday, August 01, 2012ZUG, SWITZERLAND--(Marketwire - August 01, 2012) - Transocean Ltd. (NYSE: RIG) (SIX: RIGN)- Second quarter 2012 revenues were $2.575 billion compared with $2.337 billion in the first quarter 2012;- Excluding an additional $750 million for estimated loss contingencies associated with the Macondo well incident, second quarter 2012 operating and maintenance expenses were $1.607 billion compared with $1.463 billion in the first quarter 2012;- Second quarter 2012 net loss attributable to controlling interest was $304 million, which included $560 million of net unfavorable items. This compares with the first quarter 2012 net income attributable to controlling interest of $10 million, which included $181 million of net unfavorable items;- Revenue efficiency(1) was 92.5 percent in the second quarter, compared with 90.6 percent in the first quarter 2012;- Fleet utilization(2) was 66 percent in the second quarter, compared with 61 percent in the first quarter 2012;- Cash flows from operating activities were $459 million in the second quarter, which compares with $540 million in the first quarter 2012;- Second quarter 2012 Annual Effective Tax Rate(3) was 31.1 percent compared with 27.6 percent in the first quarter 2012;- New contracts totaling $4.7 billion were secured in the Fleet Status Report periods April 18, 2012 through July 18, 2012. Backlog at July 18th was $22.9 billion, a net increase of $2.3 billion. Since July 18, 2012, additional contracts totaling $144 million were secured; and- Prior period consolidated financial statements have been adjusted to correct for an error primarily related to the recognition of assets for insurance recoveries for legal and other costs associated with the Macondo well incident. These corrections, described in Appendix A to this release, are immaterial to the prior period consolidated financial statements.Transocean Ltd. (NYSE: RIG) (SIX: RIGN) today reported a net loss attributable to controlling interest of $304 million, or $0.86 per diluted share, for the three months ended June 30, 2012. Second quarter 2012 results included net unfavorable items of $560 million, or $1.58 per diluted share. The results compare with net income attributable to controlling interest of $124 million, or $0.39 per diluted share, for the three months ended June 30, 2011. Second quarter 2011 results included net unfavorable items of $36 million, or $0.11 per diluted share, primarily associated with impairment losses on three standard jackups and charges related to unfavorable discrete tax items.Net unfavorable items, after tax, impacting the second quarter of 2012 included the following:- $750 million, or $2.12 per diluted share, for estimated loss contingencies associated with the Macondo well incident that the company believes is probable and for which a reasonable estimate can be made at this time. This estimate will be adjusted to reflect new information and future developments as they become known;- $145 million, or $0.41 per diluted share, associated with discrete tax benefits;- $64 million, or $0.18 per diluted share, net gain on the sale of Transocean Nordic, Transocean Shelf Explorer, Roger W. Mowell, and GSF Adriatic II;- $14 million, or $0.04 per diluted share, loss associated with Quantum's exchange of its 50 percent interest in Transocean Pacific Drilling Inc. for Transocean Ltd.'s shares;- $12 million, or $0.03 per diluted share, in impairments of long-lived assets classified as held for sale; and- $7 million, or $0.02 per diluted share, primarily associated with a gain on disposal of the discontinued operations of Challenger Minerals Inc.Operations Quarterly ReviewRevenues for the three months ended June 30, 2012 were $2.575 billion, compared with revenues of $2.337 billion during the three months ended March 31, 2012. Contract drilling revenues increased $170 million mainly due to fewer shipyard days and higher revenue efficiency(1) primarily on High Specification Floaters. Total fleet revenue efficiency(1) was 92.5 percent for the second quarter, compared with 90.6 percent in the first quarter 2012. Other revenues increased $68 million to $185 million for the second quarter 2012, compared with $117 million in the prior quarter, primarily due to increased activity levels in the company's drilling management services reporting unit outside the U.S. GOM.Excluding $750 million for estimated loss contingencies associated with the Macondo well incident, operating and maintenance expenses totaled $1.607 billion for the second quarter 2012. This compares with $1.463 billion in the first quarter 2012. The increase in operating and maintenance expenses was partly due to approximately $82 million in higher costs incurred on rigs undergoing shipyard, maintenance, survey and repair projects. In addition, drilling management services activity levels outside the U.S. GOM increased operating and maintenance costs by $62 million.General and administrative expenses were $79 million for the second quarter 2012 compared with $69 million in the previous quarter. The increase was primarily due to transaction costs associated with the Quantum exchange.Correction of Prior Period Consolidated Financial StatementsPlease note that previously reported consolidated financial statements have been adjusted to reflect prior period corrections primarily related to the recognition of assets for insurance recoveries for legal and other costs associated with the Macondo well incident. These corrections are immaterial to the prior year consolidated financial statements.For the three months ended March 31, 2012, the corrections reduced income from continuing operations by $55 million and net income attributable to controlling interest by $32 million. For the three months ended June 30, 2011, the corrections reduced income from continuing operations by $31 million, and net income attributable to controlling interest by $31 million. Additional details of these corrections, as well as required reconciliations, are provided in Appendix A.Income TaxesTransocean's second quarter Effective Tax Rate(4) was 8.6 percent compared with 47.2 percent in the first quarter 2012. The decrease in the Effective Tax Rate(4) was due to favorable changes in estimates mainly for settlement of prior year's tax liabilities. Transocean's Annual Effective Tax Rate(3) for the second quarter 2012, which excludes various favorable discrete items totaling $145 million, was 31.1 percent. This compares with 27.6 percent for the prior quarter. The increase was primarily due to changes in the blend of income that is taxed based on gross revenues versus pre-tax income and rig movements between taxing jurisdictions, among other things. Second quarter 2012 income tax expense included an adjustment of $5 million, or $0.01 per diluted share, required to reflect an increase in the Annual Effective Tax Rate(3) to 29.6 percent for the six months ended June 30, 2012, from 27.6 percent for the first quarter of 2012.Other ItemsFor the second quarter, interest expense, net of amounts capitalized, was $183 million, compared with $180 million in the first quarter 2012. Capitalized interest for the second quarter 2012 was $12 million compared with $13 million in the prior quarter. Interest income decreased to $13 million in the second quarter, compared with $15 million in the first quarter 2012.Cash flows from operating activities were $459 million for the second quarter compared with $540 million for the first quarter 2012. Capital expenditures decreased to $236 million for the second quarter compared with $260 million in the first quarter of 2012. The lower capital expenditures were primarily due to timing of shipyard milestone payments associated with the company's newbuild program.Forward-Looking StatementsStatements included in this news release, including those regarding estimates of Transocean's goodwill or long-lived asset impairments and the estimated loss contingencies associated with the Macondo well incident, are forward-looking statements that involve certain assumptions. These statements are based on currently available competitive, financial, and economic data along with our current operating plans and involve risks and uncertainties including, but not limited to, market conditions, Transocean's results of operations, the effect and results of litigation, assessments and contingencies, and other factors detailed in "Risk Factors" and elsewhere in Transocean's filings with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize (or the other consequences of such a development worsen), or should underlying assumptions prove incorrect, actual outcomes may vary materially from those forecasted or expected. Transocean disclaims any intention or obligation to update publicly or revise such statements, whether as a result of new information, future events or otherwise.Conference Call InformationTransocean will conduct a teleconference call at 10:00 a.m. EDT, 4:00 p.m. CEST, on Thursday, August 2, 2012. To participate, dial +1 719-325-4929 and refer to confirmation code 4582389 approximately 10 minutes prior to the scheduled start time of the call.In addition, the conference call will be simultaneously broadcast over the Internet in a listen-only mode and can be accessed by logging onto Transocean's website at www.deepwater.com and selecting "Investor Relations." A file containing four charts that may be discussed during the conference call, titled "2Q12 Charts," has been posted to Transocean's website and can also be found by selecting "Investor Relations/Quarterly Toolkit." The conference call may also be accessed via the Internet at www.CompanyBoardroom.com by typing in Transocean's New York Stock Exchange trading symbol, "RIG."A telephonic replay of the conference call should be available after 1:00 p.m. EDT, 7:00 p.m. CEST, on August 2, 2012, and can be accessed by dialing +1 719-457-0820 or +1 888-203-1112 and referring to the confirmation code 4582389. Also, a replay will be available through the Internet and can be accessed by visiting either of the above-referenced internet addresses. Both replay options will be available for approximately 30 days.About TransoceanTransocean is a leading international provider of offshore contract drilling services for oil and gas wells. We own or have partial ownership interests in and operate a fleet of 128 mobile offshore drilling units consisting of 49 High-Specification Floaters (Ultra-Deepwater, Deepwater and Harsh-Environment semisubmersibles and drillships), 25 Midwater Floaters, 10 High-Specification Jackups, 43 Standard Jackups and one swamp barge. In addition, we have two Ultra-Deepwater Drillships and three High-Specification Jackups under construction. The company specializes in technically demanding sectors of the global offshore drilling business with a particular focus on deepwater and harsh environment drilling services, and believes that it operates one of the most versatile offshore drilling fleets in the world.(1) Revenue efficiency is defined as actual revenue divided by the highest amount of total revenue which could have been earned during the relevant period(s). See the accompanying schedule entitled "Revenue Efficiency."(2) Utilization is defined as the total actual number of revenue earning days in the period as a percentage of the total number of calendar days in the period for all drilling rigs in the company's fleet. See the accompanying schedule entitled "Utilization."(3) Annual Effective Tax Rate is defined as income tax expense from continuing operations excluding various discrete items (such as changes in estimates and tax on items excluded from income before income tax expense) divided by income from continuing operations before income tax expense excluding gains on sales and similar items pursuant to the accounting standards for income taxes. See the accompanying schedule entitled "Supplemental Effective Tax Rate Analysis."(4) Effective Tax Rate is defined as income tax expense from continuing operations divided by income from continuing operations before income taxes. See the accompanying schedule entitled "Supplemental Effective Tax Rate Analysis."For more information about Transocean, please visit the website at www.deepwater.com. TRANSOCEAN LTD. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except per share data) (Unaudited) Three months ended Six months ended June 30, June 30, ------------------ ------------------ 2012 2011 2012 2011 -------- -------- -------- --------Operating revenues Contract drilling revenues $ 2,390 $ 2,096 $ 4,610 $ 4,056 Other revenues 185 238 302 422 -------- -------- -------- -------- 2,575 2,334 4,912 4,478 -------- -------- -------- --------Costs and expenses Operating and maintenance 2,357 1,528 3,820 2,905 Depreciation and amortization 345 359 700 713 General and administrative 79 66 148 133 -------- -------- -------- -------- 2,781 1,953 4,668 3,751 -------- -------- -------- --------Loss on impairment (12) (25) (239) (25)Gain (loss) on disposal of assets, net 55 (1) 51 7 -------- -------- -------- --------Operating income (loss) (163) 355 56 709 -------- -------- -------- --------Other income (expense), net Interest income 13 5 28 20 Interest expense, net of amounts capitalized (183) (147) (363) (292) Other, net (6) (5) (24) (2) -------- -------- -------- -------- (176) (147) (359) (274) -------- -------- -------- --------Income (loss) from continuing operations before income tax expense (339) 208 (303) 435Income tax (benefit) expense (29) 77 (12) 143 -------- -------- -------- --------Income (loss) from continuing operations (310) 131 (291) 292Income (loss) from discontinued operations, net of tax 7 2 6 174 -------- -------- -------- --------Net income (loss) (303) 133 (285) 466Net income (loss) attributable to noncontrolling interest 1 9 9 23 -------- -------- -------- --------Net income (loss) attributable to controlling interest $ (304) $ 124 $ (294) $ 443 ======== ======== ======== ========Earnings (loss) per share-basic Earnings (loss) from continuing operations $ (0.88) $ 0.38 $ (0.85) $ 0.84 Earnings (loss) from discontinued operations 0.02 0.01 0.02 0.55 -------- -------- -------- -------- Earnings (loss) per share $ (0.86) $ 0.39 $ (0.83) $ 1.39 ======== ======== ======== ========Earnings (loss) per share-diluted Earnings (loss) from continuing operations $ (0.88) $ 0.38 $ (0.85) $ 0.84 Earnings (loss) from discontinued operations 0.02 0.01 0.02 0.54 -------- -------- -------- -------- Earnings (loss) per share $ (0.86) $ 0.39 $ (0.83) $ 1.38 ======== ======== ======== ========Weighted-average shares outstanding Basic 353 320 352 319 Diluted 353 320 352 320 TRANSOCEAN LTD. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In millions, except share data) (Unaudited) June 30, December 31, 2012 2011 ------------ ------------AssetsCash and cash equivalents $ 3,964 $ 4,017Accounts receivable, net of allowance for doubtful accounts of $28 at June 30, 2012 and December 31, 2011 2,124 2,176Materials and supplies, net of allowance for obsolescence of $81 and $73 at June 30, 2012 and December 31, 2011, respectively 676 627Deferred income taxes, net 142 142Assets held for sale 9 26Other current assets 452 537 ----------- ----------- Total current assets 7,367 7,525 ----------- -----------Property and equipment 30,559 29,037Property and equipment of consolidated variable interest entities 813 2,252Less accumulated depreciation 9,165 8,756 ----------- ----------- Property and equipment, net 22,207 22,533 ----------- -----------Goodwill 3,099 3,217Other assets 1,769 1,757 ----------- ----------- Total assets $ 34,442 $ 35,032 =========== ===========Liabilities and equityAccounts payable $ 917 $ 880Accrued income taxes 121 89Debt due within one year 2,772 1,942Debt of consolidated variable interest entities due within one year 28 245Other current liabilities 2,888 2,372 ----------- ----------- Total current liabilities 6,726 5,528 ----------- -----------Long-term debt 9,862 10,756Long-term debt of consolidated variable interest entities 177 593Deferred income taxes, net 487 519Other long-term liabilities 1,581 1,893 ----------- ----------- Total long-term liabilities 12,107 13,761 ----------- -----------Commitments and contingenciesRedeemable noncontrolling interest -- 116Shares, CHF 15.00 par value, 402,282,355 authorized, 167,617,649 conditionally authorized, and 373,830,649 and 365,135,298 issued at June 30, 2012 and December 31, 2011, respectively; 359,284,907 and 349,805,793 outstanding at June 30, 2012 and December 31, 2011, respectively 5,127 4,982Additional paid-in capital 7,472 7,211Treasury shares, at cost, 2,863,267 held at June 30, 2012 and December 31, 2011 (240) (240)Retained earnings 3,780 4,180Accumulated other comprehensive loss (516) (496) ----------- ----------- Total controlling interest shareholders' equity 15,623 15,637 ----------- ----------- Noncontrolling interest (14) (10) ----------- ----------- Total equity 15,609 15,627 ----------- ----------- Total liabilities and equity $ 34,442 $ 35,032 =========== =========== TRANSOCEAN LTD. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW (In millions) (Unaudited) Three months ended Six months ended June 30, June 30, ------------------ ------------------ 2012 2011 2012 2011 -------- -------- -------- --------Cash flows from operating activities Net income (loss) $ (303) $ 133 $ (285) $ 466 Adjustments to reconcile to net cash provided by operating activities Amortization of drilling contract intangibles (12) (10) (23) (20) Depreciation and amortization 345 359 700 713 Share-based compensation expense 25 27 48 54 Loss on impairment 12 25 239 25 (Gain) loss on disposal of assets, net (55) 1 (51) (7) (Gain) loss on disposal of discontinued operations, net (10) -- (10) (169) Amortization of debt issue costs, discounts and premiums, net 17 36 35 62 Deferred income taxes (26) 12 (43) 36 Other, net 20 14 41 11 Changes in deferred revenue, net 7 (3) (5) 43 Changes in deferred expenses, net 28 (48) (21) (84) Changes in operating assets and liabilities 411 (206) 374 (400) -------- -------- -------- --------Net cash provided by operating activities 459 340 999 730 -------- -------- -------- --------Cash flows from investing activities Capital expenditures (236) (293) (496) (533) Proceeds from disposal of assets, net 144 5 185 18 Proceeds from disposal of discontinued operations, net 17 -- 17 259 Other, net 13 (27) 25 (33) -------- -------- -------- --------Net cash used in investing activities (62) (315) (269) (289) -------- -------- -------- --------Cash flows from financing activities Changes in short-term borrowings,net (260) 5 (260) 56 Proceeds from debt -- -- -- 5 Repayments of debt (173) (202) (320) (249) Proceeds from restricted cash investments 84 -- 192 -- Deposits to restricted cash investments (74) -- (116) -- Distribution of qualifying additional paid-in capital -- (254) (278) (254) Other, net 8 3 (1) (4) -------- -------- -------- --------Net cash used in financing activities (415) (448) (783) (446) -------- -------- -------- --------Net decrease in cash and cash equivalents (18) (423) (53) (5)Cash and cash equivalents at beginning of period 3,982 3,772 4,017 3,354 -------- -------- -------- --------Cash and cash equivalents at end of period $ 3,964 $ 3,349 $ 3,964 $ 3,349 ======== ======== ======== ======== TRANSOCEAN LTD. AND SUBSIDIARIES FLEET OPERATING STATISTICS Operating Revenues (in millions) (1) --------------------------------------------- Six months ended Three months ended June 30, --------------------------- ----------------- June 30, March 31, June 30, 2012 2012 2011 2012 2011 -------- --------- -------- -------- --------Contract Drilling Revenues High-Specification Floaters: Ultra Deepwater Floaters $ 1,141 $ 1,092 $ 1,005 $ 2,233 $ 1,849 Deepwater Floaters 328 242 238 570 528 Harsh Environment Floaters 264 255 181 519 331 -------- --------- -------- -------- -------- Total High-Specification Floaters 1,733 1,589 1,424 3,322 2,708 Midwater Floaters 337 347 376 684 776 Jackups: High-Specification Jackups 102 78 48 180 79 Standard Jackups 200 189 230 389 459 -------- --------- -------- -------- -------- Total Jackups 302 267 278 569 538 Other Rigs 7 6 8 13 14 -------- --------- -------- -------- -------- Total Contract Drilling Revenues 2,379 2,209 2,086 4,588 4,036 -------- --------- -------- -------- -------- Contract Intangible Revenue 11 11 10 22 20 Other Revenues Client Reimbursable Revenues 41 48 40 89 77 Integrated Services and Other 6 - 15 6 30 Drilling Management Services 138 69 183 207 315 -------- --------- -------- -------- --------Total Other Revenues 185 117 238 302 422 -------- --------- -------- -------- --------Total Company $ 2,575 $ 2,337 $ 2,334 $ 4,912 $ 4,478 ======== ========= ======== ======== ======== Average Daily Revenue (1) --------------------------------------------- Six months ended Three months ended June 30, --------------------------- ----------------- June 30, March 31, June 30, 2012 2012 2011 2012 2011 -------- --------- -------- -------- -------- High-Specification Floaters: Ultra Deepwater Floaters $537,000 $ 534,900 $516,600 $536,000 $493,100 Deepwater Floaters 379,200 357,800 396,400 369,800 396,200 Harsh Environment Floaters 433,200 478,600 430,100 454,400 417,100 Total High-Specification Floaters 481,600 488,800 479,900 485,000 460,800 Midwater Floaters 295,800 275,600 333,000 285,200 322,400 High-Specification Jackups 138,400 116,900 110,300 128,200 108,700 Standard Jackups 89,900 91,200 111,700 90,500 110,400 Other Rigs 77,800 73,300 76,400 75,600 74,900 -------- --------- -------- -------- --------Total Drilling Fleet $305,400 $ 301,100 $312,100 $303,300 $302,400 ======== ========= ======== ======== ======== (1) Average daily revenue is defined as contract drilling revenue earned per revenue earning day in the period. A revenue earning day is defined as a day for which a rig earns dayrate after commencement of operations. TRANSOCEAN LTD. AND SUBSIDIARIES FLEET OPERATING STATISTICS (continued) Utilization (2) --------------------------------------------- Six months ended Three months ended June 30, --------------------------- ----------------- June 30, March 31, June 30, 2012 2012 2011 2012 2011 -------- --------- -------- -------- -------- High-Specification Floaters: Ultra Deepwater Floaters 87% 83% 80% 85% 79% Deepwater Floaters 59% 47% 41% 53% 46% Harsh Environment Floaters 96% 84% 93% 90% 88% Total High-Specification Floaters 79% 71% 69% 75% 69% Midwater Floaters 52% 56% 54% 54% 57% High-Specification Jackups 84% 81% 56% 83% 48% Standard Jackups 55% 47% 43% 51% 43% Other Rigs 100% 98% 50% 99% 50% -------- --------- -------- -------- --------Total Drilling Fleet 66% 61% 55% 64% 55% ======== ========= ======== ======== ======== (2) Utilization is defined as the total actual number of revenue earning days in the period as a percentage of the total number of calendar days in the period for all drilling rigs in our fleet. Revenue Efficiency(3) Trailing Five Quarters and Historical Data ------------------------------------------------------- 2Q 2012 1Q 2012 4Q 2011 3Q 2011 2Q 2011 FY 2011 FY 2010 ------- ------- ------- ------- ------- ------- -------Ultra Deepwater 92.2% 89.4% 89.5% 86.4% 89.3% 87.7% 88.6%Deepwater 92.1% 83.2% 88.1% 87.7% 93.9% 89.4% 90.3%Harsh Environment Floaters 98.1% 97.8% 98.0% 94.4% 98.4% 97.4% 96.0%Midwater Floaters 87.4% 90.8% 94.2% 90.8% 91.9% 92.6% 92.5%High Specification Jackups 95.1% 93.4% 94.3% 97.3% 95.6% 95.6% 95.3%Standard Jackups 97.3% 97.8% 96.4% 98.2% 98.4% 97.7% 97.3%Others 99.4% 97.3% 98.6% 99.5% 97.6% 98.7% 98.4% ------- ------- ------- ------- ------- ------- -------Total Fleet 92.5% 90.6% 91.9% 89.5% 92.1% 90.9% 91.7% ======= ======= ======= ======= ======= ======= ======= (3) Revenue efficiency is defined as actual revenue divided by the highest amount of total revenue which could have been earned during the relevant period(s). TRANSOCEAN LTD. AND SUBSIDIARIES SUPPLEMENTAL EFFECTIVE TAX RATE ANALYSIS (In US$ millions, except percentages) Three months ended Six months ended ----------------------------- ------------------ June 30, March 31, June 31, June 30, June 30, 2012 2012 2011 2012 2011 -------- --------- -------- -------- --------Income (loss) from continuing operations before income taxes $ (339) $ 36 $ 208 $ (303) $ 435 Add back (subtract): Litigation matters 750 -- -- 750 -- Gain on disposal of other assets, net (64) -- -- (64) (9) Loss on impairment of goodwill and other assets 12 227 25 239 25 Loss on redeemed noncontrolling interest 14 11 -- 25 -- Other, net -- 1 -- 1 5 -------- --------- --------- -------- --------Adjusted income from continuing operations before income taxes 373 275 233 648 456Income tax (benefit) expense from continuing operations (29) 17 77 (12) 143 Add back (subtract): Loss on impairment -- 30 -- 30 -- Changes in estimates (1) 145 29 (13) 174 (33) Other, net -- -- -- -- 2 -------- --------- -------- -------- --------Adjusted income tax expense from continuing operations (2) $ 116 $ 76 $ 64 $ 192 $ 112 ======== ========= ======== ======== ========Effective Tax Rate (3) 8.6% 47.2% 37.0% 4.0% 32.9%Annual Effective Tax Rate (4) 31.1% 27.6% 27.5% 29.6% 24.6%(1) Our estimates change as we file tax returns, settle disputes with tax authorities or become aware of other events and include changes in (a) deferred taxes, (b) valuation allowances on deferred taxes and (c) other tax liabilities.(2) The three and six months ended June 30, 2012 includes $5 million of additional tax expense (benefit) reflecting the catch-up effect of an increase (decrease) in the annual effective tax rate from the previous quarter estimate.(3) Effective Tax Rate is income tax expense divided by income before income taxes.(4) Annual Effective Tax Rate is income tax expense excluding various discrete items (such as changes in estimates and tax on items excluded from income before income taxes) divided by income before income taxes excluding gains and losses on sales and similar items pursuant to the accounting standards for income taxes and estimating the annual effective tax rate.TRANSOCEAN LTD. AND SUBSIDIARIESAPPENDIX ACorrection of Errors in Previously Reported Consolidated Financial StatementsWe perform assessments of our contingencies and corresponding assets for insurance recoveries on an ongoing basis to evaluate the appropriateness of our balances and disclosures for such contingencies and insurance recoveries. We establish liabilities for estimated loss contingencies when we believe a loss is probable and the amount of the probable loss can be reasonably estimated. We recognize corresponding assets for those loss contingencies that we believe are probable of being recovered through insurance. In performing these assessments in the three months ended June 30, 2012, we identified an error in our previously issued financial statements for the year ended December 31, 2011 and the three months ended March 31, 2012 related to the recognition of assets for insurance recoveries related to legal and other costs totaling $67 million and $37 million, respectively, which we have concluded should not have been recorded because they were not probable of recovery.We assessed the materiality of this error in accordance with SEC Staff Accounting Bulletin ("SAB") No. 99, Materiality and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements ("SAB 108"), using both the rollover method and the iron curtain method, as defined in SAB 108, and concluded the error, inclusive of other adjustments discussed below, was immaterial to prior years but could be material to the current year. Under SAB 108, if the prior year error that, if corrected in the current year, would be material to the current year, the prior year financial statements should be corrected, even though such correction previously was immaterial to the prior year financial statements. Correcting prior year financial statements for immaterial errors does not require our previously filed reports to be amended, but rather these corrections will be made the next time we file the prior period consolidated financial statements.In addition to the adjustments in 2011 and 2012 related to the assets for insurance recoveries, we recorded other adjustments related to the years ended December 31, 2011 and 2010 and the three months ended March 31, 2012 to correct for immaterial errors for repair and maintenance costs, income taxes, discontinued operations, and the allocation of net income attributable to noncontrolling interest. These other adjustments were not previously recorded in the appropriate periods, as we concluded that they were immaterial to our previously issued consolidated financial statements.For the three months ended March 31, 2012, the correction of these errors reduced income from continuing operations by $55 million and net income attributable to controlling interest by $32 million. For the three and six month periods ended June 30, 2011, correction of these errors reduced income from continuing operations by $31 million and $34 million, respectively, and net income attributable to controlling interest by $31 million and $22 million, respectively. For the year ended December 31, 2011, correction of these errors increased loss from continuing operations by $31 million and net loss attributable to controlling interest by $29 million. For the year ended December 31, 2010, correction of these errors reduced income from continuing operations by $19 million and net income attributable to controlling interest by $35 million. The summary of adjustments for increases and (decreases) to net income (loss) from continuing operations and net income (loss) attributable to controlling interest for the applicable periods were as follows (in millions): Six Three months months Years ended ended ended ------------------- -------- -------------------------- March 31, June 30, June 30, December 31, December 31, 2012 2011 2011 2011 2010 --------- -------- -------- ------------ ------------Legal and other costs $ (37) $ (19) $ (30) $ (67) $ --Repair and maintenance costs -- (32) (48) 11 (11)Income tax (expense) benefit 7 5 20 16 (4)Other immaterial adjustments, net (25) 15 24 9 (4) --------- -------- -------- ------------ ------------Net adjustment to income from continuing operations (55) (31) (34) (31) (19)Net adjustment to income from discontinued operations, net of tax 14 -- (4) (14) --Net adjustment to net income attributable to noncontrolling interest 9 -- 16 16 (16) --------- -------- -------- ------------ ------------Net adjustment to net income attributable to controlling interest $ (32) $ (31) $ (22) $ (29) $ (35) ========= ======== ======== ============ ============The effects of the corrections of the errors on our consolidated statements of operations and balance sheets are presented in the tables below. The corrections of the errors had no effect on our consolidated statements of comprehensive income (loss) other than the effect of the changes to net income (loss) for each period. The corrections of the errors had no effect on the previously reported amounts of operating, investing, and financing cash flows in our consolidated statements of cash flows. TRANSOCEAN LTD. AND SUBSIDIARIES APPENDIX A Correction of Errors in Previously Reported Consolidated Financial Statements (continued) Three months ended March 31, 2012 --------------------------------- Previously As reported Adjustments adjusted ---------- ----------- --------Operating revenues Contract drilling revenues $ 2,214 $ 6 $ 2,220 Other revenues 117 -- 117 ---------- ----------- -------- 2,331 6 2,337 ---------- ----------- -------- Costs and expenses Operating and maintenance 1,410 53 1,463 Depreciation and amortization 351 4 355 General and administrative 69 -- 69 ---------- ----------- -------- 1,830 57 1,887 ---------- ----------- --------Loss on impairment (227) -- (227)Gain (loss) on disposal of assets, net (4) -- (4) ---------- ----------- --------Operating income (loss) 270 (51) 219 ---------- ----------- --------Other income (expense), net Interest income 15 -- 15 Interest expense, net of amounts capitalized (180) -- (180) Other, net (7) (11) (18) ---------- ----------- -------- (172) (11) (183) ---------- ----------- --------Income (loss) from continuing operations before income tax expense 98 (62) 36Income tax (benefit) expense 24 (7) 17 ---------- ----------- --------Income (loss) from continuing operations 74 (55) 19Income (loss) from discontinued operations, net of tax (15) 14 (1) ---------- ----------- --------Net income (loss) 59 (41) 18Net income (loss) attributable to noncontrolling interest 17 (9) 8 ---------- ----------- --------Net income (loss) attributable to controlling interest $ 42 $ (32) $ 10 ========== =========== ========Earnings (loss) per share-basic Earnings (loss) from continuing operations $ 0.16 $ (0.13) $ 0.03 Earnings (loss) from discontinued operations (0.04) 0.04 -- ---------- ----------- -------- Earnings (loss) per share $ 0.12 $ (0.09) $ 0.03 ========== =========== ========Earnings (loss) per share-diluted Earnings (loss) from continuing operations $ 0.16 $ (0.13) $ 0.03 Earnings (loss) from discontinued operations (0.04) 0.04 -- ---------- ----------- -------- Earnings (loss) per share $ 0.12 $ (0.09) $ 0.03 ========== =========== ======== TRANSOCEAN LTD. AND SUBSIDIARIES APPENDIX A Correction of Errors in Previously Reported Consolidated Financial Statements (continued) Three months ended June 30, 2011 --------------------------------- Previously As reported Adjustments adjusted ---------- ----------- --------Operating revenues Contract drilling revenues $ 2,096 $ -- $ 2,096 Other revenues 238 -- 238 ---------- ----------- -------- 2,334 -- 2,334 ---------- ----------- -------- Costs and expenses Operating and maintenance 1,492 36 1,528 Depreciation and amortization 359 -- 359 General and administrative 66 -- 66 ---------- ----------- -------- 1,917 36 1,953 ---------- ----------- --------Loss on impairment (25) -- (25)Gain (loss) on disposal of assets, net (1) -- (1) ---------- ----------- --------Operating income (loss) 391 (36) 355 ---------- ----------- --------Other income (expense), net Interest income 5 -- 5 Interest expense, net of amounts capitalized (147) -- (147) Other, net (5) -- (5) ---------- ----------- -------- (147) -- (147) ---------- ----------- --------Income (loss) from continuing operations before income tax expense 244 (36) 208Income tax (benefit) expense 82 (5) 77 ---------- ----------- --------Income (loss) from continuing operations 162 (31) 131Income (loss) from discontinued operations, net of tax 2 -- 2 ---------- ----------- --------Net income (loss) 164 (31) 133Net income (loss) attributable to noncontrolling interest 9 -- 9 ---------- ----------- --------Net income (loss) attributable to controlling interest $ 155 $ (31) $ 124 ========== =========== ========Earnings (loss) per share-basic Earnings (loss) from continuing operations $ 0.47 $ (0.09) $ 0.38 Earnings (loss) from discontinued operations 0.01 -- 0.01 ---------- ----------- -------- Earnings (loss) per share $ 0.48 $ (0.09) $ 0.39 ========== =========== ======== Earnings (loss) per share-diluted Earnings (loss) from continuing operations $ 0.47 $ (0.09) $ 0.38 Earnings (loss) from discontinued operations 0.01 -- 0.01 ---------- ----------- -------- Earnings (loss) per share $ 0.48 $ (0.09) $ 0.39 ========== =========== ======== Six months ended June 30, 2011 --------------------------------- Previously As reported Adjustments adjusted ---------- ----------- --------Operating revenues Contract drilling revenues $ 4,056 $ -- $ 4,056 Other revenues 422 -- 422 ---------- ----------- -------- 4,478 -- 4,478 ---------- ----------- -------- Costs and expenses Operating and maintenance 2,851 54 2,905 Depreciation and amortization 713 -- 713 General and administrative 133 -- 133 ---------- ----------- -------- 3,697 54 3,751 ---------- ----------- --------Loss on impairment (25) -- (25)Gain (loss) on disposal of assets, net 7 -- 7 ---------- ----------- --------Operating income (loss) 763 (54) 709 ---------- ----------- --------Other income (expense), net Interest income 20 -- 20 Interest expense, net of amounts capitalized (292) -- (292) Other, net (2) -- (2) ---------- ----------- -------- (274) -- (274) ---------- ----------- --------Income (loss) from continuing operations before income tax expense 489 (54) 435Income tax (benefit) expense 163 (20) 143 ---------- ----------- --------Income (loss) from continuing operations 326 (34) 292Income (loss) from discontinued operations, net of tax 178 (4) 174 ---------- ----------- --------Net income (loss) 504 (38) 466Net income (loss) attributable to noncontrolling interest 39 (16) 23 ---------- ----------- --------Net income (loss) attributable to controlling interest $ 465 $ (22) $ 443 ========== =========== ========Earnings (loss) per share-basic Earnings (loss) from continuing operations $ 0.89 $ (0.05) $ 0.84 Earnings (loss) from discontinued operations 0.55 (0.01) 0.55 ---------- ----------- -------- Earnings (loss) per share $ 1.44 $ (0.06) $ 1.39 ========== =========== ======== Earnings (loss) per share-diluted Earnings (loss) from continuing operations $ 0.89 $ (0.05) $ 0.84 Earnings (loss) from discontinuedoperations 0.55 (0.01) 0.54 ---------- ----------- -------- Earnings (loss) per share $ 1.44 $ (0.06) $ 1.38 ========== =========== ======== TRANSOCEAN LTD. AND SUBSIDIARIES APPENDIX A Correction of Errors in Previously Reported Consolidated Financial Statements (continued) Year ended December 31, 2011 --------------------------------- Previously As reported Adjustments adjusted ---------- ----------- --------Operating revenues Contract drilling revenues $ 8,380 $ (6) $ 8,374 Other revenues 762 -- 762 ---------- ----------- -------- 9,142 (6) 9,136 ---------- ----------- -------- Costs and expenses Operating and maintenance 6,956 45 7,001 Depreciation and amortization 1,449 (4) 1,445 General and administrative 288 -- 288 ---------- ----------- -------- 8,693 41 8,734 ---------- ----------- --------Loss on impairment (5,229) -- (5,229)Gain (loss) on disposal of assets, net 4 -- 4 ---------- ----------- --------Operating income (loss) (4,776) (47) (4,823) ---------- ----------- --------Other income (expense), net Interest income 44 -- 44 Interest expense, net of amounts capitalized (621) -- (621) Other, net (81) -- (81) ---------- ----------- -------- (658) -- (658) ---------- ----------- --------Income (loss) from continuing operations before income tax expense (5,434) (47) (5,481)Income tax (benefit) expense 395 (16) 379 ---------- ----------- --------Income (loss) from continuing operations (5,829) (31) (5,860)Income (loss) from discontinued operations, net of tax 197 (14) 183 ---------- ----------- --------Net income (loss) (5,632) (45) (5,677)Net income (loss) attributable to noncontrolling interest 93 (16) 77 ---------- ----------- --------Net income (loss) attributable to controlling interest $ (5,725) $ (29) $ (5,754) ========== =========== ========Earnings (loss) per share-basic Earnings (loss) from continuing operations $ (18.40) $ (0.05) $ (18.45) Earnings (loss) from discontinued operations 0.61 (0.04) 0.57 ---------- ----------- -------- Earnings (loss) per share $ (17.79) $ (0.09) $ (17.88) ========== =========== ======== Earnings (loss) per share-diluted Earnings (loss) from continuing operations $ (18.40) $ (0.05) $ (18.45) Earnings (loss) from discontinued operations 0.61 (0.04) 0.57 ---------- ----------- -------- Earnings (loss) per share $ (17.79) $ (0.09) $ (17.88) ========== =========== ======== Year ended December 31, 2010 --------------------------------- Previously As reported Adjustments adjusted ---------- ----------- --------Operating revenues Contract drilling revenues $ 8,986 $ -- $ 8,986 Other revenues 480 -- 480 ---------- ----------- --------- 9,466 -- 9,466 ---------- ----------- --------- Costs and expenses Operating and maintenance 5,074 15 5,089 Depreciation and amortization 1,536 -- 1,536 General and administrative 246 -- 246 ---------- ----------- --------- 6,856 15 6,871 ---------- ----------- ---------Loss on impairment (1,010) -- (1,010)Gain (loss) on disposal of assets, net 257 -- 257 ---------- ----------- ---------Operating income (loss) 1,857 (15) 1,842 ---------- ----------- ---------Other income (expense), net Interest income 23 -- 23 Interest expense, net of amounts capitalized (567) -- (567) Other, net (23) -- (23) ---------- ----------- --------- (567) -- (567) ---------- ----------- ---------Income (loss) from continuing operations before income tax expense 1,290 (15) 1,275Income tax (benefit) expense 336 4 340 ---------- ----------- ---------Income (loss) from continuing operations 954 (19) 935Income (loss) from discontinued operations, net of tax 34 -- 34 ---------- ----------- ---------Net income (loss) 988 (19) 969Net income (loss) attributable to noncontrolling interest 27 16 43 ---------- ----------- ---------Net income (loss) attributable to controlling interest $ 961 $ (35) $ 926 ========== =========== =========Earnings (loss) per share-basicEarnings (loss) from continuing operations $ 2.88 $ (0.11) $ 2.77 Earnings (loss) from discontinued operations 0.11 -- 0.11 ---------- ----------- --------- Earnings (loss) per share $ 2.99 $ (0.11) $ 2.88 ========== =========== ========= Earnings (loss) per share-diluted Earnings (loss) from continuing operations $ 2.88 $ (0.11) $ 2.77 Earnings (loss) from discontinued operations 0.11 -- 0.11 ---------- ----------- --------- Earnings (loss) per share $ 2.99 $ (0.11) $ 2.88 ========== =========== ========= TRANSOCEAN LTD. AND SUBSIDIARIES APPENDIX A Correction of Errors in Previously Reported Consolidated Financial Statements (continued) December 31, 2011 --------------------------------- Previously As reported Adjustments adjusted ---------- ----------- --------AssetsCash and cash equivalents $ 4,017 $ -- $ 4,017Accounts receivable, net Trade 2,049 -- 2,049 Other 127 -- 127Materials and supplies, net 627 -- 627Deferred income taxes, net 142 -- 142Assets held for sale 26 -- 26Other current assets 621 (84) 537 ---------- ----------- -------- Total current assets 7,609 (84) 7,525 ---------- ----------- --------Property and equipment 29,037 -- 29,037Property and equipment of consolidated variable interest entities 2,252 -- 2,252Less accumulated depreciation 8,760 (4) 8,756 ---------- ----------- -------- Property and equipment, net 22,529 4 22,533 ---------- ----------- --------Goodwill 3,205 12 3,217Other assets 1,745 12 1,757 ---------- ----------- -------- Total assets $ 35,088 $ (56) $ 35,032 ========== =========== ========Liabilities and equityAccounts payable $ 880 $ -- $ 880Accrued income taxes 89 -- 89Debt due within one year 1,942 -- 1,942Debt of consolidated variable interest entities due within one year 97 148 245Other current liabilities 2,350 22 2,372 ---------- ----------- -------- Total current liabilities 5,358 170 5,528 ---------- ----------- --------Long-term debt 10,756 -- 10,756Long-term debt of consolidated variable interest entities 741 (148) 593Deferred income taxes, net 523 (4) 519Other long-term liabilities 1,903 (10) 1,893 ---------- ----------- -------- Total long-term liabilities 13,923 (162) 13,761 ---------- ----------- --------Commitments and contingenciesRedeemable noncontrolling interest 116 -- 116Shares 4,982 -- 4,982Additional paid-in capital 7,211 -- 7,211Treasury shares, at cost (240) -- (240)Retained earnings 4,244 (64) 4,180Accumulated other comprehensive loss (496) -- (496) ---------- ----------- -------- Total controlling interest shareholders' equity 15,701 (64) 15,637 ---------- ----------- -------- Noncontrolling interest (10) -- (10) ---------- ----------- -------- Total equity 15,691 (64) 15,627 ---------- ----------- -------- Total liabilities and equity $ 35,088 $ (56) $ 35,032 ========== =========== ======== December 31, 2010 --------------------------------- Previously As reported Adjustments adjusted ---------- ----------- --------AssetsCash and cash equivalents $ 3,394 $ (40) $ 3,354Accounts receivable, net Trade 1,653 -- 1,653 Other 190 -- 190Materials and supplies, net 514 -- 514Deferred income taxes, net 115 -- 115Assets held for sale -- -- --Other current assets 329 43 372 ---------- ----------- -------- Total current assets 6,195 3 6,198 ---------- ----------- --------Property and equipment 26,721 -- 26,721Property and equipment of consolidated variable interest entities 2,214 -- 2,214Less accumulated depreciation 7,616 -- 7,616 ---------- ----------- -------- Property and equipment, net 21,319 -- 21,319 ---------- ----------- --------Goodwill 8,132 -- 8,132Other assets 1,165 -- 1,165 ---------- ----------- -------- Total assets $ 36,811 $ 3 $ 36,814 ========== =========== ========Liabilities and equityAccounts payable $ 832 $ -- $ 832Accrued income taxes 109 -- 109Debt due within one year 1,917 -- 1,917Debt of consolidated variable interest entities due within one year 95 148 243Other current liabilities 883 12 895 ---------- ----------- -------- Total current liabilities 3,836 160 3,996 ---------- ----------- --------Long-term debt 8,354 -- 8,354Long-term debt of consolidated variable interest entities 855 (148) 707Deferred income taxes, net 575 10 585Other long-term liabilities 1,791 -- 1,791 ---------- ----------- -------- Total long-term liabilities 11,575 (138) 11,437 ---------- ----------- --------Commitments and contingenciesRedeemable noncontrolling interest 25 16 41Shares 4,482 -- 4,482Additional paid-in capital 7,504 -- 7,504Treasury shares, at cost (240) -- (240)Retained earnings 9,969 (35) 9,934Accumulated other comprehensive loss (332) -- (332) ---------- ----------- -------- Total controlling interest shareholders' equity 21,383 (35) 21,348 ---------- ----------- -------- Noncontrolling interest (8) -- (8) ---------- ----------- -------- Total equity 21,375 (35) 21,340 ---------- ----------- -------- Total liabilities and equity $ 36,811 $ 3 $ 36,814 ========== =========== ========FOR FURTHER INFORMATION PLEASE CONTACT: Thad VaydaAnalyst Contacts:+1 713-232-7551OR+1 713-232-8015Diane VentoORGuy A. CantwellMedia Contact:+1 713-232-7647