SOURCE: Transocean Ltd.

August 03, 2011 16:15 ET

Transocean Ltd. Reports Second Quarter 2011 Results

ZUG, SWITZERLAND--(Marketwire - Aug 3, 2011) - Transocean Ltd. (NYSE: RIG) (SIX: RIGN)

  • Revenues increased nine percent to $2.334 billion compared to $2.144 billion in the first quarter 2011
  • Second quarter 2011 net income attributable to controlling interest was $155 million, which included $36 million of certain net unfavorable items, compared to $310 million in the first quarter 2011, which included $139 million of certain net favorable items noted in our first quarter earnings release
  • Revenue efficiency(1) improved to 92.1 percent, up from 90.0 percent in the first quarter 2011
  • Fleet utilization(2) was 55 percent, unchanged from the first quarter 2011
  • Operating and maintenance expenses were $1.492 billion, up from $1.359 billion in the first quarter 2011
  • The Annual Effective Tax Rate(4) for 2011 has increased to 22.6 percent from 19.3 percent in the first quarter 2011
  • New contracts totaling $1.5 billion were secured in the Fleet Status Report period April 14, 2011 through July 13, 2011
  • Non-core assets George H. Galloway and GSF Labrador were classified as assets held for sale, in addition to the previously announced GSF Britannia
  • The first quarterly installment of the dividend was paid on June 15, 2011

Transocean Ltd. (NYSE: RIG) (SIX: RIGN) today reported net income attributable to controlling interest of $155 million, or $0.48 per diluted share, for the three months ended June 30, 2011. The results compare to net income attributable to controlling interest of $715 million, or $2.22 per diluted share, for the three months ended June 30, 2010.

Second quarter 2011 results included the following items, after tax, that resulted in a net unfavorable impact of approximately $36 million, or $0.11 per diluted share:

  • $25 million loss on impairment relating to the three Standard Jackups, George H. Galloway, GSF Labrador and GSF Britannia, classified as assets held for sale at June 30, 2011, and
  • $11 million of net charges related to discrete tax items and the effect of discontinued operations.

Second quarter 2011 results also included expenses associated with the Macondo well incident of approximately $26 million, $19 million after tax, or $0.06 per diluted share. These expenses were primarily related to legal costs and professional service fees.

Operations Quarterly Review

Revenues for the three months ended June 30, 2011 were $2.334 billion, compared to revenues of $2.144 billion during the three months ended March 31, 2011. Second quarter contract drilling revenues, which increased to $2.086 billion from $1.95 billion in the first quarter, were positively impacted by improved activity in the Gulf of Mexico, the commencement of operations of the newbuild Ultra-Deepwater Floater Deepwater Champion, the reactivation of previously idled rigs, and higher revenue efficiency for our Ultra-Deepwater and Deepwater Floaters, partially offset by the stacking of additional Deepwater and Midwater Floaters. Overall utilization was flat during the period compared to the first quarter.

Other revenues increased $54 million to $238 million, primarily due to additional drilling management services activity.

The company reported improved revenue efficiency for our Ultra-Deepwater and Deepwater Floaters compared to the first quarter, as our program to improve efficiency yielded results. Similar to the first quarter, compliance with new well control equipment certification requirements, higher standards for equipment condition and capacity constraints on our vendors continued to adversely impact revenue efficiency and out-of-service time compared to the prior year.

Operating and maintenance expenses totaled $1.492 billion for the second quarter 2011, up from $1.359 billion for the prior quarter. The increase was primarily due to higher maintenance expenses along with increased levels of contract drilling and drilling management services activity.

Net Interest Expense, Capital Expenditures and Cash Flow

Net Interest Expense was $142 million in the period compared to $130 million in the first quarter. The increase is due primarily to interest income associated with a tax refund recognized in the first quarter.

Capital expenditures increased to $293 million for the second quarter compared to $240 million in the first quarter 2011. The higher expenditures were primarily due to our newbuild construction program.

Cash flows from operating activities decreased to $340 million for the second quarter 2011 compared to $390 million for the first quarter 2011. The decrease in cash flows from operations resulted primarily from an increase in working capital.

Effective Tax Rate

Transocean's second quarter Effective Tax Rate(3) was 33.5 percent compared to 33.1 percent in the first quarter. The company's Annual Effective Tax Rate(4) for 2011, which excludes various discrete items, was 22.6 percent in the second quarter compared to 19.3 percent in the first quarter. The increases are primarily due to a shift in activity between tax jurisdictions. Please see the accompanying schedule entitled "Supplemental Effective Tax Rate Analysis."

Conference Call Information

Transocean will conduct a teleconference call at 10:00 a.m. EDT, 4:00 p.m. CEST, on August 4, 2011. To participate, dial +1 719-457-2698 and refer to confirmation code 4734310 approximately five to 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 to be discussed during the conference call, titled "2Q11 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 4, 2011, and can be accessed by dialing +1 719-457-0820 and referring to the confirmation code 4734310. 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 Transocean

Transocean is the world's largest offshore drilling contractor and the leading provider of drilling management services worldwide. With a fleet of 134 mobile offshore drilling units as well as four High-Specification Jackups under construction, Transocean's fleet is considered one of the most modern and versatile in the world due to its emphasis on technically demanding segments of the offshore drilling business. Transocean owns or operates a contract drilling fleet of 48 High-Specification Floaters (Ultra-Deepwater, Deepwater and Harsh-Environment semisubmersibles and drillships), 25 Midwater Floaters, nine High-Specification Jackups, 51 Standard Jackups and one swamp barge utilized in the support of offshore drilling activities.

(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 our fleet. See the accompanying schedule entitled "Utilization."

(3) 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."

(4) 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."

For more information about Transocean, please visit our website at www.deepwater.com.

TRANSOCEAN LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)
Three months ended
June 30,
Six months ended
June 30,
2011 2010 2011 2010
(As adjusted) (As adjusted)
Operating revenues
Contract drilling revenues $ 2,086 $ 2,272 $ 4,036 $ 4,697
Contract drilling intangible revenues 10 29 20 62
Other revenues 238 178 422 299
2,334 2,479 4,478 5,058
Costs and expenses
Operating and maintenance 1,492 1,347 2,851 2,533
Depreciation and amortization 359 393 713 767
General and administrative 66 58 133 121
1,917 1,798 3,697 3,421
Loss on impairment (25 ) -- (25 ) --
Gain (loss) on disposal of assets, net (1 ) 268 7 254
Operating income 391 949 763 1,891
Other income (expense), net
Interest income 5 5 20 10
Interest expense, net of amounts capitalized (147 ) (141 ) (292 ) (273 )
Other, net (5 ) (3 ) (2 ) 12
(147 ) (139 ) (274 ) (251 )
Income from continuing operations before income tax expense 244 810 489 1,640
Income tax expense 82 98 163 245
Income from continuing operations 162 712 326 1,395
Income from discontinued operations, net of tax 2 8 178 10
Net income 164 720 504 1,405
Net income attributable to noncontrolling interest 9 5 39 13
Net income attributable to controlling interest $ 155 $ 715 $ 465 $ 1,392
Earnings per share-basic
Earnings from continuing operations $ 0.47 $ 2.20 $ 0.89 $ 4.29
Earnings from discontinued operations 0.01 0.03 0.55 0.03
Earnings per share $ 0.48 $ 2.23 $ 1.44 $ 4.32
Earnings per share-diluted
Earnings from continuing operations $ 0.47 $ 2.20 $ 0.89 $ 4.28
Earnings from discontinued operations 0.01 0.02 0.55 0.03
Earnings per share $ 0.48 $ 2.22 $ 1.44 $ 4.31
Weighted-average shares outstanding
Basic 320 319 319 320
Diluted 320 320 320 321

___________________
Certain reclassifications have been made to prior period amounts to conform with the current period's presentation, including reclassifications associated with our discontinued operations. The financial statements contained within this release should be read in conjunction with the consolidated financial statements and notes thereto included in our most recent reports on Form 10-K and Form 10-Q.

TRANSOCEAN LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
(Unaudited)
June 30,
2011
December 31,
2010
(As adjusted)
Assets
Cash and cash equivalents $ 3,389 $ 3,394
Accounts receivable, net of allowance for doubtful accounts
of $30 and $38 at June 30, 2011 and December 31, 2010, respectively
2,114 1,843
Materials and supplies, net of allowance for obsolescence
of $73 and $70 at June 30, 2011 and December 31, 2010, respectively
546 514
Deferred income taxes, net 112 115
Assets held for sale 139 --
Other current assets 438 329
Total current assets 6,738 6,195
Property and equipment 26,897 26,721
Property and equipment of consolidated variable interest entities 2,243 2,214
Less accumulated depreciation 8,144 7,616
Property and equipment, net 20,996 21,319
Goodwill 8,132 8,132
Other assets 1,070 1,165
Total assets $ 36,936 $ 36,811
Liabilities and equity
Accounts payable $ 742 $ 832
Accrued income taxes 26 109
Debt due within one year 1,820 1,917
Debt of consolidated variable interest entities due within one year 96 95
Other current liabilities 1,800 883
Total current liabilities 4,484 3,836
Long-term debt 8,375 8,354
Long-term debt of consolidated variable interest entities 790 855
Deferred income taxes, net 594 575
Other long-term liabilities 1,754 1,791
Total long-term liabilities 11,513 11,575
Commitments and contingencies
Redeemable noncontrolling interest 66 25
Shares, CHF 15.00 par value, 335,235,298 authorized, 167,617,649 conditionally authorized, 335,235,298 issued at June 30, 2011 and December 31, 2010; 319,639,362 and 319,080,678 outstanding at June 30, 2011 and December 31, 2010, respectively 4,490 4,482
Additional paid-in capital 6,529 7,504
Treasury shares, at cost, 2,863,267 held at June 30, 2011 and December 31, 2010 (240 ) (240 )
Retained earnings 10,434 9,969
Accumulated other comprehensive loss (328 ) (332 )
Total controlling interest shareholders' equity 20,885 21,383
Noncontrolling interest (12 ) (8 )
Total equity 20,873 21,375
Total liabilities and equity $ 36,936 $ 36,811

___________________
Certain reclassifications have been made to prior period amounts to conform with the current period's presentation, including reclassifications associated with our discontinued operations. The financial statements contained within this release should be read in conjunction with the consolidated financial statements and notes thereto included in our most recent reports on Form 10-K and Form 10-Q.

TRANSOCEAN LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Three months ended
June 30,
Six months ended
June 30,
2011 2010 2011 2010
Cash flows from operating activities
Net income $ 164 $ 720 $ 504 $ 1,405
Adjustments to reconcile to net cash provided by operating activities
Amortization of drilling contract intangibles (10 ) (29 ) (20 ) (62 )
Depreciation and amortization 359 393 713 767
Share-based compensation expense 27 18 54 53
Loss on impairment 25 -- 25 --
Gain on disposal of discontinued operations, net -- -- (173 ) --
(Gain) loss on disposal of assets, net 1 (268 ) (7 ) (254 )
Amortization of debt issue costs, discounts and premiums, net 36 51 62 100
Deferred income taxes 5 (12 ) 16 (34 )
Other, net 14 1 11 32
Deferred revenue, net (3 ) 7 43 158
Deferred expenses, net (48 ) (23 ) (84 ) (37 )
Changes in operating assets and liabilities (230 ) 411 (414 ) 313
Net cash provided by operating activities 340 1,269 730 2,441
Cash flows from investing activities
Capital expenditures (293 ) (300 ) (533 ) (669 )
Proceeds from disposal of assets, net 5 10 18 51
Proceeds from disposal of discontinued operations, net -- -- 259 --
Proceeds from insurance recoveries for loss of drilling unit -- 560 -- 560
Other, net (27 ) 10 (33 ) 15
Net cash provided by (used in) investing activities (315 ) 280 (289 ) (43 )
Cash flows from financing activities
Change in short-term borrowings, net 5 (46 ) 56 (177 )
Proceeds from debt -- -- 5 54
Repayments of debt (202 ) (22 ) (249 ) (275 )
Distribution of qualifying additional paid-in capital (254 ) -- (254 ) --
Purchases of shares held in treasury -- (180 ) -- (240 )
Other, net 3 1 (4 ) (2 )
Net cash used in financing activities (448 ) (247 ) (446 ) (640 )
Net increase (decrease) in cash and cash equivalents (423 ) 1,302 (5 ) 1,758
Cash and cash equivalents at beginning of period 3,812 1,586 3,394 1,130
Cash and cash equivalents at end of period $ 3,389 $ 2,888 $ 3,389 $ 2,888

___________________
Certain reclassifications have been made to prior period amounts to conform with the current period's presentation. The financial statements contained within this release should be read in conjunction with the consolidated financial statements and notes thereto included in our most recent reports on Form 10-K and Form 10-Q.

TRANSOCEAN LTD. AND SUBSIDIARIES
FLEET OPERATING STATISTICS
Operating Revenues (in millions) (1)
Three months ended Six months ended
June 30,
June 30,
2011
March 31,
2011
June 30,
2010
2011 2010
Contract Drilling Revenues
High-Specification Floaters:
Ultra Deepwater Floaters $ 1,005 $ 844 $ 809 $ 1,849 $ 1,710
Deepwater Floaters 238 290 382 528 772
Harsh Environment Floaters 181 150 166 331 342
Total High-Specification Floaters 1,424 1,284 1,357 2,708 2,824
Midwater Floaters 376 400 521 776 1,044
Jackups:
High-Specification Jackups 48 31 75 79 152
Standard Jackups 230 229 312 459 664
Total Jackups 278 260 387 538 816
Other Rigs 8 6 7 14 13
Total Contract Drilling Revenues 2,086 1,950 2,272 4,036 4,697
Contract Intangible Revenue 10 10 29 20 62
Other Revenues
Client Reimbursable Revenues 40 37 38 77 78
Integrated Services and Other 15 15 11 30 42
Drilling Management Services 183 132 129 315 179
Total Other Revenues 238 184 178 422 299
Total Company $ 2,334 $ $2,144 $ 2,479 $ $4,478 $ $5,058

Average Daily Revenue (1)
Three months ended Six months ended
June 30,
June 30,
2011
March 31,
2011
June 30,
2010
2011 2010
High-Specification Floaters:
Ultra Deepwater Floaters $ 516,600 $ 467,700 $ 482,100 $ 493,100 $ 484,100
Deepwater Floaters 396,400 395,900 395,800 396,200 389,600
Harsh Environment Floaters 430,100 402,400 428,500 417,100 413,400
Total High-Specification Floaters 479,900 441,300 447,800 460,800 445,400
Midwater Floaters 333,000 313,000 319,000 322,400 325,200
High-Specification Jackups 110,300 106,200 138,500 108,700 149,700
Standard Jackups 111,700 109,200 117,100 110,400 125,000
Other Rigs 76,400 73,400 72,000 74,900 72,400
Total Drilling Fleet $ 312,100 $ 292,600 $ 285,200 $ 302,400 $ 292,500
(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)
Three months ended Six months ended
June 30,
June 30,
2011
March 31,
2011
June 30,
2010
2011 2010
High-Specification Floaters:
Ultra Deepwater Floaters 80% 77% 76% 79% 82%
Deepwater Floaters 41% 51% 66% 46% 68%
Harsh Environment Floaters 93% 83% 85% 88% 91%
Total High-Specification Floaters 69% 69% 74% 69% 78%
Midwater Floaters 54% 60% 69% 57% 68%
High-Specification Jackups 56% 40% 66% 48% 62%
Standard Jackups 43% 43% 53% 43% 53%
Other Rigs 50% 49% 50% 50% 50%
Total Drilling Fleet 55% 55% 64% 55% 65%
(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 2011 1Q 2011 4Q 2010 3Q 2010 2Q 2010 FY 2010 FY 2009
(As adjusted) (As adjusted) (As adjusted) (As adjusted) (As adjusted)
Ultra Deepwater 89.3% 85.3% 86.1% 86.5% 89.1% 88.6% 94.3%
Deepwater 93.9% 88.2% 88.6% 90.1% 92.8% 90.3% 89.6%
Harsh Environment Floaters 98.4% 99.2% 96.1% 96.4% 96.9% 96.0% 97.7%
Midwater Floaters 91.9% 93.6% 85.0% 96.2% 93.9% 92.5% 93.7%
High Specification Jackups 95.6% 95.1% 97.7% 93.3% 98.9% 95.3% 96.2%
Standard Jackups 98.4% 97.7% 98.9% 96.4% 97.3% 97.3% 96.2%
Others 97.6% 99.0% 96.1% 99.6% 98.5% 98.4% 93.9%
Total Fleet 92.1% 90.0% 88.7% 91.8% 92.8% 91.7% 94.0%
(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 millions, except percentages)
Three months ended Six months ended
June 30,
2011
March 31,
2011
June 30,
2010
June 30,
2011
June 30,
2010
(As adjusted) (As adjusted)
Income from continuing operations before income taxes $ 244 $ 245 $ 810 $ 489 $ 1,640
Add back (subtract):
Litigation matters -- 8 12 8 12
Gain on loss of Deepwater Horizon -- -- (267 ) -- (267 )
(Gain) loss on disposal of other assets, net -- (9 ) -- (9 ) 14
Loss on impairment of assets 25 -- -- 25 --
Gain on retirement of debt -- -- -- -- (2 )
Other, net -- 5 -- 5 5
Adjusted income from continuing operations before income taxes 269 249 555 518 1,402
Income tax expense from continuing operations 82 81 98 163 245
Add back (subtract):
Changes in estimates (1) (13 ) (35 ) 1 (48 ) (16 )
Other, net -- 2 -- 2 (1 )
Adjusted income tax expense from continuing operations (2) $ 69 $ 48 $ 99 $ 117 $ 228
Effective Tax Rate (3) 33.5 % 33.1 % 12.1 % 33.3 % 15.0 %
Annual Effective Tax Rate (4) 25.6 % 19.3 % 18.0 % 22.6 % 16.3 %

(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 months ended June 30, 2011 includes $8 million of additional tax expense reflecting the catch-up effect of an increase 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 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.