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XNYS:RIG Transocean Ltd Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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 • FORM 10-Q 2Q2012  • EXHIBIT 31.1 CEO CERTIFICATION  • EXHIBIT 31.2 CFO CERTIFICATION  • EXHIBIT 32.1 CEO CERTIFICATION  • EXHIBIT 32.2 CFO CERTIFICATION  • XBRL INSTANCE DOCUMENT  • XBRL TAXONOMY ESTENSION SCHEMA  • XBRL TAXONOMY EXTENSION CALCULATION LINKBASE  • XBRL TAXONOMY EXTENSION DEFINITION LINKBASE  • XBRL TAXONOMY EXTENSION LABEL LINKBASE  • XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE  • FORM 10-Q 2Q2012  


 
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)
 
Transocean Logo

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
 
 
 
 
 
 
 
 
     
 



 
 
 

 
PART I.                 FINANCIAL INFORMATION
 
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.
- 1 -
Index
 
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.
- 5 -
Index
 
TRANSOCEAN LTD. AND SUBSIDIARIES
(Unaudited)



 
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