UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM 10-Q
(Mark one)
|
þ
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended June 30, 2012
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
_________________________
Commission file number 000-53533
TRANSOCEAN LTD.
(Exact name of registrant as specified in its charter)
|
Zug, Switzerland
|
98-0599916
|
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
|
Chemin de Blandonnet 10
Vernier, Switzerland
|
1214
|
|
(Address of principal executive offices)
|
(Zip Code)
|
|
+41 (22) 930-9000
|
|
|
(Registrant’s telephone number, including area code)
|
|
_________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ Accelerated filer ¨ Non-accelerated filer (do not check if a smaller reporting company) ¨ Smaller reporting company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
As of July 24, 2012, 359,389,049 shares were outstanding.
TRANSOCEAN LTD. AND SUBSIDIARIES
INDEX TO FORM 10-Q
QUARTER ENDED JUNE 30, 2012
|
Page
|
||
|
Item 1.
|
Financial Statements
|
TRANSOCEAN LTD. AND SUBSIDIARIES
(In millions, except per share data)
(Unaudited)
|
Three months ended
June 30,
|
Six months ended
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
|
)
|
435
|
|||||||||||
|
Income tax (benefit) expense
|
(29
|
)
|
77
|
(12
|
)
|
143
|
|||||||||||
|
Income (loss) from continuing operations
|
(310
|
)
|
131
|
(291
|
)
|
292
|
|||||||||||
|
Income from discontinued operations, net of tax
|
7
|
2
|
6
|
174
|
|||||||||||||
|
Net income (loss)
|
(303
|
)
|
133
|
(285
|
)
|
466
|
|||||||||||
|
Net income 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 from discontinued operations
|
0.02
|
0.01
|
0.02
|
0.54
|
|||||||||||||
|
Earnings (loss) per share
|
$
|
(0.86
|
)
|
$
|
0.39
|
$
|
(0.83
|
)
|
$
|
1.38
|
|||||||
|
Earnings (loss) per share-diluted
|
|||||||||||||||||
|
Earnings (loss) from continuing operations
|
$
|
(0.88
|
)
|
$
|
0.38
|
$
|
(0.85
|
)
|
$
|
0.84
|
|||||||
|
Earnings 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
|
|||||||||||||
See accompanying notes.
TRANSOCEAN LTD. AND SUBSIDIARIES
(In millions)
(Unaudited)
|
Three months ended
June 30,
|
Six months ended
June 30,
|
||||||||||||||||
|
2012
|
2011
|
2012
|
2011
|
||||||||||||||
|
Net income (loss)
|
$
|
(303
|
)
|
$
|
133
|
$
|
(285
|
)
|
$
|
466
|
|||||||
|
Other comprehensive income (loss) before income taxes
|
|||||||||||||||||
|
Unrecognized components of net periodic benefit costs
|
1
|
—
|
(27
|
)
|
(6
|
)
|
|||||||||||
|
Unrecognized gain (loss) on derivative instruments
|
(3
|
) |
(8
|
)
|
—
|
(7
|
)
|
||||||||||
|
Recognized components of net periodic benefit costs
|
10
|
6
|
23
|
12
|
|||||||||||||
|
Recognized loss on derivative instruments
|
6
|
3
|
3
|
5
|
|||||||||||||
|
Other comprehensive income (loss) before income taxes
|
14
|
1
|
(1
|
)
|
4
|
||||||||||||
|
Income taxes related to other comprehensive income (loss)
|
1
|
—
|
(2
|
)
|
(2
|
)
|
|||||||||||
|
Other comprehensive income (loss), net of income taxes
|
15
|
1
|
(3
|
)
|
2
|
||||||||||||
|
Total comprehensive income (loss)
|
(288
|
)
|
134
|
(288
|
)
|
468
|
|||||||||||
|
Total comprehensive income attributable to noncontrolling interest
|
1
|
3
|
9
|
21
|
|||||||||||||
|
Total comprehensive income (loss) attributable to controlling interest
|
$
|
(289
|
)
|
$
|
131
|
$
|
(297
|
)
|
$
|
447
|
|||||||
See accompanying notes.
- 2 -
TRANSOCEAN LTD. AND SUBSIDIARIES
(In millions, except share data)
(Unaudited)
|
June 30,
2012
|
December 31,
2011
|
|||||||
|
Assets
|
||||||||
|
Cash and cash equivalents
|
$
|
3,964
|
$
|
4,017
|
||||
|
Accounts receivable, net of allowance for doubtful accounts
of $28 at June 30, 2012 and December 31, 2011
|
2,124
|
2,176
|
||||||
|
Materials and supplies, net of allowance for obsolescence
of $81 and $73 at June 30, 2012 and December 31, 2011, respectively
|
676
|
627
|
||||||
|
Deferred income taxes, net
|
142
|
142
|
||||||
|
Assets held for sale
|
9
|
26
|
||||||
|
Other current assets
|
452
|
537
|
||||||
|
Total current assets
|
7,367
|
7,525
|
||||||
|
Property and equipment
|
30,559
|
29,037
|
||||||
|
Property and equipment of consolidated variable interest entities
|
813
|
2,252
|
||||||
|
Less accumulated depreciation
|
9,165
|
8,756
|
||||||
|
Property and equipment, net
|
22,207
|
22,533
|
||||||
|
Goodwill
|
3,099
|
3,217
|
||||||
|
Other assets
|
1,769
|
1,757
|
||||||
|
Total assets
|
$
|
34,442
|
$
|
35,032
|
||||
|
Liabilities and equity
|
||||||||
|
Accounts payable
|
$
|
917
|
$
|
880
|
||||
|
Accrued income taxes
|
121
|
89
|
||||||
|
Debt due within one year
|
2,772
|
1,942
|
||||||
|
Debt of consolidated variable interest entities due within one year
|
28
|
245
|
||||||
|
Other current liabilities
|
2,888
|
2,372
|
||||||
|
Total current liabilities
|
6,726
|
5,528
|
||||||
|
Long-term debt
|
9,862
|
10,756
|
||||||
|
Long-term debt of consolidated variable interest entities
|
177
|
593
|
||||||
|
Deferred income taxes, net
|
487
|
519
|
||||||
|
Other long-term liabilities
|
1,581
|
1,893
|
||||||
|
Total long-term liabilities
|
12,107
|
13,761
|
||||||
|
Commitments and contingencies
|
||||||||
|
Redeemable noncontrolling interest
|
—
|
116
|
||||||
|
Shares, 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
|
4,982
|
||||||
|
Additional paid-in capital
|
7,472
|
7,211
|
||||||
|
Treasury shares, at cost, 2,863,267 held at June 30, 2012 and December 31, 2011
|
(240
|
)
|
(240
|
)
|
||||
|
Retained earnings
|
3,780
|
4,180
|
||||||
|
Accumulated 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
|
||||
See accompanying notes.
- 3 -
TRANSOCEAN LTD. AND SUBSIDIARIES
(In millions)
(Unaudited)
|
Six months ended
June 30,
|
Six months ended
June 30,
|
|||||||||||||||
|
2012
|
2011
|
2012
|
2011
|
|||||||||||||
|
Shares
|
Amount
|
|||||||||||||||
|
Shares
|
||||||||||||||||
|
Balance, beginning of period
|
350
|
319
|
$
|
4,982
|
$
|
4,482
|
||||||||||
|
Issuance of shares under share-based compensation plans
|
—
|
1
|
11
|
8
|
||||||||||||
|
Issuance of shares in exchange for noncontrolling interest
|
9
|
—
|
134
|
—
|
||||||||||||
|
Balance, end of period
|
359
|
320
|
$
|
5,127
|
$
|
4,490
|
||||||||||
|
Additional paid-in capital
|
||||||||||||||||
|
Balance, beginning of period
|
$
|
7,211
|
$
|
7,504
|
||||||||||||
|
Share-based compensation
|
48
|
54
|
||||||||||||||
|
Issuance of shares under share-based compensation plans
|
(17
|
)
|
(15
|
)
|
||||||||||||
|
Acquisition of noncontrolling interest in exchange for issuance of shares
|
233
|
—
|
||||||||||||||
|
Obligation for distribution of qualifying additional paid-in capital
|
—
|
(1,016
|
)
|
|||||||||||||
|
Other, net
|
(3
|
)
|
2
|
|||||||||||||
|
Balance, end of period
|
$
|
7,472
|
$
|
6,529
|
||||||||||||
|
Treasury shares, at cost
|
||||||||||||||||
|
Balance, beginning of period
|
$
|
(240
|
)
|
$
|
(240
|
)
|
||||||||||
|
Balance, end of period
|
$
|
(240
|
)
|
$
|
(240
|
)
|
||||||||||
|
Retained earnings
|
||||||||||||||||
|
Balance, beginning of period
|
$
|
4,180
|
$
|
9,934
|
||||||||||||
|
Net income (loss) attributable to controlling interest
|
(294
|
)
|
443
|
|||||||||||||
|
Fair value adjustment of redeemable noncontrolling interest
|
(106
|
)
|
—
|
|||||||||||||
|
Balance, end of period
|
$
|
3,780
|
$
|
10,377
|
||||||||||||
|
Accumulated other comprehensive loss
|
||||||||||||||||
|
Balance, beginning of period
|
$
|
(496
|
)
|
$
|
(332
|
)
|
||||||||||
|
Reclassification from redeemable noncontrolling interest
|
(17
|
)
|
—
|
|||||||||||||
|
Other comprehensive income (loss) attributable to controlling interest
|
(3
|
)
|
4
|
|||||||||||||
|
Balance, end of period
|
$
|
(516
|
)
|
$
|
(328
|
)
|
||||||||||
|
Total controlling interest shareholders’ equity
|
||||||||||||||||
|
Balance, beginning of period
|
$
|
15,637
|
$
|
21,348
|
||||||||||||
|
Total comprehensive income (loss) attributable to controlling interest
|
(297
|
)
|
447
|
|||||||||||||
|
Share-based compensation
|
48
|
54
|
||||||||||||||
|
Issuance of shares under share-based compensation plans
|
(6
|
)
|
(7
|
)
|
||||||||||||
|
Reclassification from redeemable noncontrolling interest
|
(17
|
)
|
—
|
|||||||||||||
|
Fair value adjustment of redeemable noncontrolling interest
|
(106
|
)
|
—
|
|||||||||||||
|
Issuance of shares in exchange for noncontrolling interest
|
367
|
—
|
||||||||||||||
|
Obligation for distribution of qualifying additional paid-in capital
|
—
|
(1,016
|
)
|
|||||||||||||
|
Other, net
|
(3
|
)
|
2
|
|||||||||||||
|
Balance, end of period
|
$
|
15,623
|
$
|
20,828
|
||||||||||||
|
Noncontrolling interest
|
||||||||||||||||
|
Balance, beginning of period
|
$
|
(10
|
)
|
$
|
(8
|
)
|
||||||||||
|
Total comprehensive loss attributable to noncontrolling interest
|
(4
|
)
|
(4
|
)
|
||||||||||||
|
Balance, end of period
|
$
|
(14
|
)
|
$
|
(12
|
)
|
||||||||||
|
Total equity
|
||||||||||||||||
|
Balance, beginning of period
|
$
|
15,627
|
$
|
21,340
|
||||||||||||
|
Total comprehensive income (loss)
|
(301
|
)
|
443
|
|||||||||||||
|
Share-based compensation
|
48
|
54
|
||||||||||||||
|
Issuance of shares under share-based compensation plans
|
(6
|
)
|
(7
|
)
|
||||||||||||
|
Reclassification from redeemable noncontrolling interest
|
(17
|
)
|
—
|
|||||||||||||
|
Fair value adjustment of redeemable noncontrolling interest
|
(106
|
)
|
—
|
|||||||||||||
|
Issuance of shares in exchange for noncontrolling interest
|
367
|
—
|
||||||||||||||
|
Obligation for distribution of qualifying additional paid-in capital
|
—
|
(1,016
|
)
|
|||||||||||||
|
Other, net
|
(3
|
)
|
2
|
|||||||||||||
|
Balance, end of period
|
$
|
15,609
|
$
|
20,816
|
||||||||||||
See accompanying notes.
- 4 -
TRANSOCEAN LTD. AND SUBSIDIARIES
(In millions)
(Unaudited)
|
Three months ended
June 30,
|
Six months ended
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
|
|||||||||
See accompanying notes.
Note 1—Nature of Business
Transocean Ltd. (together with its subsidiaries and predecessors, unless the context requires otherwise, “Transocean,” the “Company,” “we,” “us” or “our”) is a leading international provider of offshore contract drilling services for oil and gas wells. We specialize in technically demanding sectors of the offshore drilling business with a particular focus on deepwater and harsh environment drilling services. Our mobile offshore drilling fleet is considered one of the most versatile fleets in the world. We contract our drilling rigs, related equipment and work crews predominantly on a dayrate basis to drill oil and gas wells. At June 30, 2012, we owned or had partial ownership interests in and operated 130 mobile offshore drilling units. As of this date, our fleet consisted of 50 High-Specification Floaters (Ultra-Deepwater, Deepwater and Harsh Environment semisubmersibles and drillships), 25 Midwater Floaters, 10 High-Specification Jackups, 44 Standard Jackups and one swamp barge. In addition, we had two Ultra-Deepwater drillships and three High-Specification Jackups under construction. See Note 11—Drilling Fleet.
We also provide oil and gas drilling management services, drilling engineering and drilling project management services through Applied Drilling Technology Inc., our wholly owned subsidiary, and through ADT International, a division of one of our United Kingdom (“U.K”). subsidiaries (together, “ADTI”). ADTI conducts drilling management services primarily on either a dayrate or a completed-project, fixed-price (or “turnkey”) basis.
Note 2—Significant Accounting Policies
Basis of presentation—We have prepared our accompanying unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (“U.S.”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the U.S. Securities and Exchange Commission (“SEC”). Pursuant to such rules and regulations, these financial statements do not include all disclosures required by accounting principles generally accepted in the U.S. for complete financial statements. The condensed consolidated financial statements reflect all adjustments, which are, in the opinion of management, necessary for a fair presentation of financial position, results of operations and cash flows for the interim periods. Such adjustments are considered to be of a normal recurring nature unless otherwise noted. Operating results for the three and six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012 or for any future period. The accompanying condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto as of December 31, 2011 and 2010 and for each of the three years in the period ended December 31, 2011 included in our annual report on Form 10-K filed on February 27, 2012.
Accounting estimates—To prepare financial statements in accordance with accounting principles generally accepted in the U.S., we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and assumptions, including those related to our allowance for doubtful accounts, materials and supplies obsolescence, property and equipment, investments, notes receivable, goodwill and other intangible assets, income taxes, defined benefit pension plans and other postretirement benefits, contingencies and share-based compensation. We base our estimates and assumptions on historical experience and on various other factors we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results could differ from such estimates.
Fair value measurements—We estimate fair value at a price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market for the asset or liability. Our valuation techniques require inputs that we categorize using a three-level hierarchy, from highest to lowest level of observable inputs, as follows: (1) significant observable inputs, including unadjusted quoted prices for identical assets or liabilities in active markets (“Level 1”), (2) significant other observable inputs, including direct or indirect market data for similar assets or liabilities in active markets or identical assets or liabilities in less active markets (“Level 2”), and (3) significant unobservable inputs, including those that require considerable judgment for which there is little or no market data (“Level 3”). When multiple input levels are required for a valuation, we categorize the entire fair value measurement according to the lowest level of input that is significant to the measurement even though we may have also utilized significant inputs that are more readily observable.
Consolidation—We consolidate entities in which we have a majority voting interest and entities that meet the criteria for variable interest entities for which we are deemed to be the primary beneficiary for accounting purposes. We eliminate intercompany transactions and accounts in consolidation. We apply the equity method of accounting for investments in entities if we have the ability to exercise significant influence over an entity that (a) does not meet the variable interest entity criteria or (b) meets the variable interest entity criteria, but for which we are not deemed to be the primary beneficiary. We apply the cost method of accounting for investments in other entities if we do not have the ability to exercise significant influence over the unconsolidated entity. See Note 5—Variable Interest Entities.
- 6 -
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Share-based compensation—Share-based compensation expense was $25 million and $48 million for the three and six months ended June 30, 2012, respectively. Share-based compensation expense was $27 million and $54 million for the three and six months ended June 30, 2011, respectively.
Capitalized interest—We capitalize interest costs for qualifying construction and upgrade projects. We capitalized interest costs on construction work in progress of $12 million and $25 million for the three and six months ended June 30, 2012, respectively. We capitalized interest costs for construction work in progress of $10 million and $25 million for the three and six months ended June 30, 2011, respectively.
Reclassifications—We have made certain reclassifications, which did not have an effect on net income, to prior period amounts to conform with the current period’s presentation. These reclassifications did not have a material effect on our condensed consolidated statement of financial position, results of operations or cash flows.
Subsequent events—We evaluate subsequent events through the time of our filing on the date we issue our financial statements. See Note 20—Subsequent Events.
Note 3—New Accounting Pronouncements
Recently Adopted Accounting Standards
Intangibles-goodwill and other—Effective January 1, 2012, we adopted the accounting standards update that amends the goodwill impairment testing requirements by giving an entity the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount and whether the two-step impairment test is required. The update is effective for goodwill impairment tests performed for annual and interim periods beginning after December 15, 2011. Our adoption did not have an effect on our condensed consolidated financial statements because a goodwill impairment test was not required in the six months ended June 30, 2012.
Fair value measurements—Effective January 1, 2012, we adopted the accounting standards update that requires additional disclosure about fair value measurements that involve significant unobservable inputs, including additional quantitative information about the unobservable inputs, a description of valuation techniques used, and a qualitative evaluation of the sensitivity of these measurements. Our adoption did not have a material effect on the disclosures contained in our notes to condensed consolidated financial statements.
Recently Issued Accounting Standards
Balance sheet—Effective January 1, 2013, we will adopt the accounting standards update that expands the disclosure requirements for the offsetting of assets and liabilities related to certain financial instruments and derivative instruments. The update requires disclosures to present both gross information and net information for financial instruments and derivative instruments that are eligible for net presentation due to a right of offset, an enforceable master netting arrangement or similar agreement. The update is effective for interim and annual periods beginning on or after January 1, 2013. We do not expect that our adoption will have a material effect on our condensed consolidated balance sheet or the disclosures contained in our notes to condensed consolidated financial statements.
- 7 -
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 4—Correction of Errors in Previously Reported Consolidated Financial Statements
We 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):
|
Three months
ended
|
Six months
ended
|
Years
ended
|
||||||||||||||||||
|
March 31,
2012
|
June 30,
2011
|
June 30,
2011
|
December 31,
2011
|
December 31,
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.
- 8 -
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
|
Three months ended March 31, 2012
|
||||||||||||||||||||||||
|
Previously reported
|
Adjustments
|
As
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
|
)
|
36
|
||||||||||||||||||||
|
Income tax (benefit) expense
|
24
|
(7
|
)
|
17
|
||||||||||||||||||||
|
Income (loss) from continuing operations
|
74
|
(55
|
)
|
19
|
||||||||||||||||||||
|
Income (loss) from discontinued operations, net of tax
|
(15
|
)
|
14
|
(1
|
)
|
|||||||||||||||||||
|
Net income (loss)
|
59
|
(41
|
)
|
18
|
||||||||||||||||||||
|
Net 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
|
|||||||||||||||||
- 9 -
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
|
Three months ended June 30, 2011
|
Six months ended June 30, 2011
|
|||||||||||||||||||||||
|
Previously reported
|
Adjustments
|
As
adjusted
|
Previously reported
|
Adjustments
|
As
adjusted
|
|||||||||||||||||||
|
Operating revenues
|
||||||||||||||||||||||||
|
Contract drilling revenues
|
$
|
2,096
|
$
|
—
|
$
|
2,096
|
$
|
4,056
|
$
|
—
|
$
|
4,056
|
||||||||||||
|
Other revenues
|
238
|
—
|
238
|
422
|
—
|
422
|
||||||||||||||||||
|
2,334
|
—
|
2,334
|
4,478
|
—
|
4,478
|
|||||||||||||||||||
|
Costs and expenses
|
||||||||||||||||||||||||
|
Operating and maintenance
|
1,492
|
36
|
1,528
|
2,851
|
54
|
2,905
|
||||||||||||||||||
|
Depreciation and amortization
|
359
|
—
|
359
|
713
|
—
|
713
|
||||||||||||||||||
|
General and administrative
|
66
|
—
|
66
|
133
|
—
|
133
|
||||||||||||||||||
|
1,917
|
36
|
1,953
|
3,697
|
54
|
3,751
|
|||||||||||||||||||
|
Loss on impairment
|
(25
|
)
|
—
|
(25
|
)
|
(25
|
)
|
—
|
(25
|
)
|
||||||||||||||
|
Gain (loss) on disposal of assets, net
|
(1
|
)
|
—
|
(1
|
)
|
7
|
—
|
7
|
||||||||||||||||
|
Operating income (loss)
|
391
|
(36
|
)
|
355
|
763
|
(54
|
)
|
709
|
||||||||||||||||
|
Other income (expense), net
|
||||||||||||||||||||||||
|
Interest income
|
5
|
—
|
5
|
20
|
—
|
20
|
||||||||||||||||||
|
Interest expense, net of amounts capitalized
|
(147
|
)
|
—
|
(147
|
)
|
(292
|
)
|
—
|
(292
|
)
|
||||||||||||||
|
Other, net
|
(5
|
)
|
—
|
(5
|
)
|
(2
|
)
|
—
|
(2
|
)
|
||||||||||||||
|
(147
|
)
|
—
|
(147
|
)
|
(274
|
)
|
—
|
(274
|
)
|
|||||||||||||||
|
Income (loss) from continuing operations before income tax expense
|
244
|
(36
|
)
|
208
|
489
|
(54
|
)
|
435
|
||||||||||||||||
|
Income tax (benefit) expense
|
82
|
(5
|
)
|
77
|
163
|
(20
|
)
|
143
|
||||||||||||||||
|
Income (loss) from continuing operations
|
162
|
(31
|
)
|
131
|
326
|
(34
|
)
|
292
|
||||||||||||||||
|
Income (loss) from discontinued operations, net of tax
|
2
|
—
|
2
|
178
|
(4
|
)
|
174
|
|||||||||||||||||
|
Net income (loss)
|
164
|
(31
|
)
|
133
|
504
|
(38
|
)
|
466
|
||||||||||||||||
|
Net income (loss) attributable to noncontrolling interest
|
9
|
—
|
9
|
39
|
(16
|
)
|
23
|
|||||||||||||||||
|
Net income (loss) attributable to controlling interest
|
$
|
155
|
$
|
(31
|
)
|
$
|
124
|
$
|
465
|
$
|
(22
|
)
|
$
|
443
|
||||||||||
|
Earnings (loss) per share-basic
|
||||||||||||||||||||||||
|
Earnings (loss) from continuing operations
|
$
|
0.47
|
$
|
(0.09
|
)
|
$
|
0.38
|
$
|
0.89
|
$
|
(0.05
|
)
|
$
|
0.84
|
||||||||||
|
Earnings (loss) from discontinued operations
|
0.01
|
—
|
0.01
|
0.55
|
(0.01
|
)
|
0.54
|
|||||||||||||||||
|
Earnings (loss) per share
|
$
|
0.48
|
$
|
(0.09
|
)
|
$
|
0.39
|
$
|
1.44
|
$
|
(0.06
|
)
|
$
|
1.38
|
||||||||||
|
Earnings (loss) per share-diluted
|
||||||||||||||||||||||||
|
Earnings (loss) from continuing operations
|
$
|
0.47
|
$
|
(0.09
|
)
|
$
|
0.38
|
$
|
0.89
|
$
|
(0.05
|
)
|
$
|
0.84
|
||||||||||
|
Earnings (loss) from discontinued operations
|
0.01
|
—
|
0.01
|
0.55
|
(0.01
|
)
|
0.54
|
|||||||||||||||||
|
Earnings (loss) per share
|
$
|
0.48
|
$
|
(0.09
|
)
|
$
|
0.39
|
$
|
1.44
|
$
|
(0.06
|
)
|
$
|
1.38
|
||||||||||
- 10 -
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
|
Year ended December 31, 2011
|
Year ended December 31, 2010
|
|||||||||||||||||||||||
|
Previously reported
|
Adjustments
|
As
adjusted
|
Previously reported
|
Adjustments
|
As
adjusted
|
|||||||||||||||||||
|
Operating revenues
|
||||||||||||||||||||||||
|
Contract drilling revenues
|
$
|
8,380
|
$
|
(6
|
)
|
$
|
8,374
|
$
|
8,986
|
$
|
—
|
$
|
8,986
|
|||||||||||
|
Other revenues
|
762
|
—
|
762
|
480
|
—
|
480
|
||||||||||||||||||
|
9,142
|
(6
|
)
|
9,136
|
9,466
|
—
|
9,466
|
||||||||||||||||||
|
Costs and expenses
|
||||||||||||||||||||||||
|
Operating and maintenance
|
6,956
|
45
|
7,001
|
5,074
|
15
|
5,089
|
||||||||||||||||||
|
Depreciation and amortization
|
1,449
|
(4
|
)
|
1,445
|
1,536
|
—
|
1,536
|
|||||||||||||||||
|
General and administrative
|
288
|
—
|
288
|
246
|
—
|
246
|
||||||||||||||||||
|
8,693
|
41
|
8,734
|
6,856
|
15
|
6,871
|
|||||||||||||||||||
|
Loss on impairment
|
(5,229
|
)
|
—
|
(5,229
|
)
|
(1,010
|
)
|
—
|
(1,010)
|
|||||||||||||||
|
Gain (loss) on disposal of assets, net
|
4
|
—
|
4
|
257
|
—
|
257
|
||||||||||||||||||
|
Operating income (loss)
|
(4,776
|
)
|
(47
|
)
|
(4,823
|
)
|
1,857
|
(15
|
)
|
1,842
|
||||||||||||||
|
Other income (expense), net
|
||||||||||||||||||||||||
|
Interest income
|
44
|
—
|
44
|
23
|
—
|
23
|
||||||||||||||||||
|
Interest expense, net of amounts capitalized
|
(621
|
)
|
—
|
(621
|
)
|
(567
|
)
|
—
|
(567
|
|||||||||||||||