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Transocean Ltd. Reports Second Quarter 2012 Results

August 1, 2012

Aug 01, 2012 (Marketwire via COMTEX) 

ZUG, SWITZERLAND--(August 1, 2012) - Transocean Ltd. (NYSE: RIG) (SIX: RIGN)

  • Second quarter 2012 revenues were $2.575 billion compared with $2.337 billion in the first quarter 2012;
  • Excluding an additional $750 million for estimated loss contingencies associated with the Macondo well incident, second quarter 2012 operating and maintenance expenses were $1.607 billion compared with $1.463 billion in the first quarter 2012;
  • Second quarter 2012 net loss attributable to controlling interest was $304 million, which included $560 million of net unfavorable items. This compares with the first quarter 2012 net income attributable to controlling interest of $10 million, which included $181 million of net unfavorable items;
  • Revenue efficiency(1) was 92.5 percent in the second quarter, compared with 90.6 percent in the first quarter 2012;
  • Fleet utilization(2) was 66 percent in the second quarter, compared with 61 percent in the first quarter 2012;
  • Cash flows from operating activities were $459 million in the second quarter, which compares with $540 million in the first quarter 2012;
  • Second quarter 2012 Annual Effective Tax Rate(3) was 31.1 percent compared with 27.6 percent in the first quarter 2012;
  • New contracts totaling $4.7 billion were secured in the Fleet Status Report periods April 18, 2012 through July 18, 2012. Backlog at July 18th was $22.9 billion, a net increase of $2.3 billion. Since July 18, 2012, additional contracts totaling $144 million were secured; and
  • Prior period consolidated financial statements have been adjusted to correct for an error primarily related to the recognition of assets for insurance recoveries for legal and other costs associated with the Macondo well incident. These corrections, described in Appendix A to this release, are immaterial to the prior period consolidated financial statements.

Transocean Ltd. (NYSE: RIG) (SIX: RIGN) today reported a net loss attributable to controlling interest of $304 million, or $0.86 per diluted share, for the three months ended June 30, 2012. Second quarter 2012 results included net unfavorable items of $560 million, or $1.58 per diluted share. The results compare with net income attributable to controlling interest of $124 million, or $0.39 per diluted share, for the three months ended June 30, 2011. Second quarter 2011 results included net unfavorable items of $36 million, or $0.11 per diluted share, primarily associated with impairment losses on three standard jackups and charges related to unfavorable discrete tax items.

Net unfavorable items, after tax, impacting the second quarter of 2012 included the following:

  • $750 million, or $2.12 per diluted share, for estimated loss contingencies associated with the Macondo well incident that the company believes is probable and for which a reasonable estimate can be made at this time. This estimate will be adjusted to reflect new information and future developments as they become known;
  • $145 million, or $0.41 per diluted share, associated with discrete tax benefits;
  • $64 million, or $0.18 per diluted share, net gain on the sale of Transocean Nordic, Transocean Shelf Explorer, Roger W. Mowell, and GSF Adriatic II;
  • $14 million, or $0.04 per diluted share, loss associated with Quantum's exchange of its 50 percent interest in Transocean Pacific Drilling Inc. for Transocean Ltd.'s shares;
  • $12 million, or $0.03 per diluted share, in impairments of long-lived assets classified as held for sale; and
  • $7 million, or $0.02 per diluted share, primarily associated with a gain on disposal of the discontinued operations of Challenger Minerals Inc.

Operations Quarterly Review

Revenues for the three months ended June 30, 2012 were $2.575 billion, compared with revenues of $2.337 billion during the three months ended March 31, 2012. Contract drilling revenues increased $170 million mainly due to fewer shipyard days and higher revenue efficiency(1) primarily on High Specification Floaters. Total fleet revenue efficiency(1) was 92.5 percent for the second quarter, compared with 90.6 percent in the first quarter 2012. Other revenues increased $68 million to $185 million for the second quarter 2012, compared with $117 million in the prior quarter, primarily due to increased activity levels in the company's drilling management services reporting unit outside the U.S. GOM.

Excluding $750 million for estimated loss contingencies associated with the Macondo well incident, operating and maintenance expenses totaled $1.607 billion for the second quarter 2012. This compares with $1.463 billion in the first quarter 2012. The increase in operating and maintenance expenses was partly due to approximately $82 million in higher costs incurred on rigs undergoing shipyard, maintenance, survey and repair projects. In addition, drilling management services activity levels outside the U.S. GOM increased operating and maintenance costs by $62 million. 

General and administrative expenses were $79 million for the second quarter 2012 compared with $69 million in the previous quarter. The increase was primarily due to transaction costs associated with the Quantum exchange.

Correction of Prior Period Consolidated Financial Statements

Please note that previously reported consolidated financial statements have been adjusted to reflect prior period corrections primarily related to the recognition of assets for insurance recoveries for legal and other costs associated with the Macondo well incident. These corrections are immaterial to the prior year consolidated financial statements. 

For the three months ended March 31, 2012, the corrections reduced income from continuing operations by $55 million and net income attributable to controlling interest by $32 million. For the three months ended June 30, 2011, the corrections reduced income from continuing operations by $31 million, and net income attributable to controlling interest by $31 million. Additional details of these corrections, as well as required reconciliations, are provided in Appendix A.

Income Taxes

Transocean's second quarter Effective Tax Rate(4) was 8.6 percent compared with 47.2 percent in the first quarter 2012. The decrease in the Effective Tax Rate(4) was due to favorable changes in estimates mainly for settlement of prior year's tax liabilities. Transocean's Annual Effective Tax Rate(3) for the second quarter 2012, which excludes various favorable discrete items totaling $145 million, was 31.1 percent. This compares with 27.6 percent for the prior quarter. The increase was primarily due to changes in the blend of income that is taxed based on gross revenues versus pre-tax income and rig movements between taxing jurisdictions, among other things. Second quarter 2012 income tax expense included an adjustment of $5 million, or $0.01 per diluted share, required to reflect an increase in the Annual Effective Tax Rate(3) to 29.6 percent for the six months ended June 30, 2012, from 27.6 percent for the first quarter of 2012.

Other Items

For the second quarter, interest expense, net of amounts capitalized, was $183 million, compared with $180 million in the first quarter 2012. Capitalized interest for the second quarter 2012 was $12 million compared with $13 million in the prior quarter. Interest income decreased to $13 million in the second quarter, compared with $15 million in the first quarter 2012.

Cash flows from operating activities were $459 million for the second quarter compared with $540 million for the first quarter 2012. Capital expenditures decreased to $236 million for the second quarter compared with $260 million in the first quarter of 2012. The lower capital expenditures were primarily due to timing of shipyard milestone payments associated with the company's newbuild program.

Forward-Looking Statements

Statements included in this news release, including those regarding estimates of Transocean's goodwill or long-lived asset impairments and the estimated loss contingencies associated with the Macondo well incident, are forward-looking statements that involve certain assumptions. These statements are based on currently available competitive, financial, and economic data along with our current operating plans and involve risks and uncertainties including, but not limited to, market conditions, Transocean's results of operations, the effect and results of litigation, assessments and contingencies, and other factors detailed in \"Risk Factors\" and elsewhere in Transocean's filings with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize (or the other consequences of such a development worsen), or should underlying assumptions prove incorrect, actual outcomes may vary materially from those forecasted or expected. Transocean disclaims any intention or obligation to update publicly or revise such statements, whether as a result of new information, future events or otherwise.

Conference Call Information

Transocean will conduct a teleconference call at 10:00 a.m. EDT, 4:00 p.m. CEST, on Thursday, August 2, 2012. To participate, dial +1 719-325-4929 and refer to confirmation code 4582389 approximately 10 minutes prior to the scheduled start time of the call.

In addition, the conference call will be simultaneously broadcast over the Internet in a listen-only mode and can be accessed by logging onto Transocean's website at http://www.deepwater.com/ and selecting \"Investor Relations.\" A file containing four charts that may be discussed during the conference call, titled \"2Q12 Charts,\" has been posted to Transocean's website and can also be found by selecting \"Investor Relations/Quarterly Toolkit.\" The conference call may also be accessed via the Internet at http://www.companyboardroom.com/ by typing in Transocean's New York Stock Exchange trading symbol, \"RIG.\"

A telephonic replay of the conference call should be available after 1:00 p.m. EDT, 7:00 p.m. CEST, on August 2, 2012, and can be accessed by dialing +1 719-457-0820 or +1 888-203-1112 and referring to the confirmation code 4582389. Also, a replay will be available through the Internet and can be accessed by visiting either of the above-referenced internet addresses. Both replay options will be available for approximately 30 days.

About Transocean

Transocean is a leading international provider of offshore contract drilling services for oil and gas wells. We own or have partial ownership interests in and operate a fleet of 128 mobile offshore drilling units consisting of 49 High-Specification Floaters (Ultra-Deepwater, Deepwater and Harsh-Environment semisubmersibles and drillships), 25 Midwater Floaters, 10 High-Specification Jackups, 43 Standard Jackups and one swamp barge. In addition, we have two Ultra-Deepwater Drillships and three High-Specification Jackups under construction. The company specializes in technically demanding sectors of the global offshore drilling business with a particular focus on deepwater and harsh environment drilling services, and believes that it operates one of the most versatile offshore drilling fleets in the world. 

(1) Revenue efficiency is defined as actual revenue divided by the highest amount of total revenue which could have been earned during the relevant period(s). See the accompanying schedule entitled \"Revenue Efficiency.\"

(2) Utilization is defined as the total actual number of revenue earning days in the period as a percentage of the total number of calendar days in the period for all drilling rigs in the company's fleet. See the accompanying schedule entitled \"Utilization.\"

(3) Annual Effective Tax Rate is defined as income tax expense from continuing operations excluding various discrete items (such as changes in estimates and tax on items excluded from income before income tax expense) divided by income from continuing operations before income tax expense excluding gains on sales and similar items pursuant to the accounting standards for income taxes. See the accompanying schedule entitled \"Supplemental Effective Tax Rate Analysis.\"

(4) Effective Tax Rate is defined as income tax expense from continuing operations divided by income from continuing operations before income taxes. See the accompanying schedule entitled \"Supplemental Effective Tax Rate Analysis.\"

For more information about Transocean, please visit the website at http://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,
 
  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 (loss) from discontinued operations, net of tax  7   2   6   174 
                 
Net income (loss)  (303)  133   (285)  466 
Net income (loss) attributable to noncontrolling interest  1   9   9   23 
Net income (loss) attributable to controlling interest $(304) $124  $(294) $443 
                 
Earnings (loss) per share-basic                
 Earnings (loss) from continuing operations $(0.88) $0.38  $(0.85) $0.84 
 Earnings (loss) from discontinued operations  0.02   0.01   0.02   0.54 
 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 (loss) from discontinued operations  0.02   0.01   0.02   0.54 
 Earnings (loss) per share $(0.86) $0.39  $(0.83) $1.38 
                 
Weighted-average shares outstanding                
 Basic  353   320   352   319 
 Diluted  353   320   352   320 
                  
                  
                  
TRANSOCEAN LTD. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
(In millions, except share data)
(Unaudited)
 
  June 30,
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 
           
           
           
TRANSOCEAN LTD. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
 
(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 
                 
                 
                 
TRANSOCEAN LTD. AND SUBSIDIARIES
FLEET OPERATING STATISTICS
 
  Operating Revenues (in millions) (1)
  Three months ended Six months ended
June 30,
  June 30,
2012
 March 31,
2012
 June 30,
2011
 2012 2011
Contract Drilling Revenues               
 High-Specification Floaters:               
  Ultra Deepwater Floaters $1,141 $1,092 $1,005 $2,233 $1,849
  Deepwater Floaters  328  242  238  570  528
  Harsh Environment Floaters  264  255  181  519  331
 Total High-Specification Floaters  1,733  1,589  1,424  3,322  2,708
 Midwater Floaters  337  347  376  684  776
 Jackups:               
  High-Specification Jackups  102  78  48  180  79
  Standard Jackups  200  189  230  389  459
 Total Jackups  302  267  278  569  538
 Other Rigs  7  6  8  13  14
 Total Contract Drilling Revenues  2,379  2,209  2,086  4,588  4,036
 Contract Intangible Revenue  11  11  10  22  20
 Other Revenues               
 Client Reimbursable Revenues  41  48  40  89  77
 Integrated Services and Other  6  -  15  6  30
 Drilling Management Services  138  69  183  207  315
Total Other Revenues  185  117  238  302  422
Total Company $2,575 $2,337 $2,334 $4,912 $4,478
                
  Average Daily Revenue (1)
  Three months ended Six months ended
June 30,
  June 30,
2012
 March 31, 2012 June 30,
2011
 2012 2011
 High-Specification Floaters:               
  Ultra Deepwater Floaters $537,000 $534,900 $516,600 $536,000 $493,100
  Deepwater Floaters  379,200  357,800  396,400  369,800  396,200
  Harsh Environment Floaters  433,200  478,600  430,100  454,400  417,100
 Total High-Specification Floaters  481,600  488,800  479,900  485,000  460,800
 Midwater Floaters  295,800  275,600  333,000  285,200  322,400
 High-Specification Jackups  138,400  116,900  110,300  128,200  108,700
 Standard Jackups  89,900  91,200  111,700  90,500  110,400
 Other Rigs  77,800  73,300  76,400  75,600  74,900
Total Drilling Fleet $305,400 $301,100 $312,100 $303,300 $302,400
                
 (1) Average daily revenue is defined as contract drilling revenue earned per revenue earning day in the period. A revenue earning day is defined as a day for which a rig earns dayrate after commencement of operations.
                
                
                
TRANSOCEAN LTD. AND SUBSIDIARIES
FLEET OPERATING STATISTICS (continued)
 
  Utilization (2)
  Three months ended Six months ended
June 30,
  June 30,
2012
 March 31,
2012
 June 30,
2011
 2012 2011
 High-Specification Floaters:          
  Ultra Deepwater Floaters 87% 83% 80% 85% 79%
  Deepwater Floaters 59% 47% 41% 53% 46%
  Harsh Environment Floaters 96% 84% 93% 90% 88%
 Total High-Specification Floaters 79% 71% 69% 75% 69%
 Midwater Floaters 52% 56% 54% 54% 57%
 High-Specification Jackups 84% 81% 56% 83% 48%
 Standard Jackups 55% 47% 43% 51% 43%
 Other Rigs 100% 98% 50% 99% 50%
Total Drilling Fleet 66% 61% 55% 64% 55%
           
 (2) Utilization is defined as the total actual number of revenue earning days in the period as a percentage of the total number of calendar days in the period for all drilling rigs in our fleet.
 
 
 
  Revenue Efficiency(3)
  Trailing Five Quarters and Historical Data
               
  2Q 2012 1Q 2012 4Q 2011 3Q 2011 2Q 2011 FY 2011 FY 2010
               
Ultra Deepwater 92.2% 89.4% 89.5% 86.4% 89.3% 87.7% 88.6%
Deepwater 92.1% 83.2% 88.1% 87.7% 93.9% 89.4% 90.3%
Harsh Environment Floaters 98.1% 97.8% 98.0% 94.4% 98.4% 97.4% 96.0%
Midwater Floaters 87.4% 90.8% 94.2% 90.8% 91.9% 92.6% 92.5%
High Specification Jackups 95.1% 93.4% 94.3% 97.3% 95.6% 95.6% 95.3%
Standard Jackups 97.3% 97.8% 96.4% 98.2% 98.4% 97.7% 97.3%
Others 99.4% 97.3% 98.6% 99.5% 97.6% 98.7% 98.4%
               
Total Fleet 92.5% 90.6% 91.9% 89.5% 92.1% 90.9% 91.7%
               
 (3) Revenue efficiency is defined as actual revenue divided by the highest amount of total revenue which could have been earned during the relevant period(s).              
                
                
                
TRANSOCEAN LTD. AND SUBSIDIARIES
SUPPLEMENTAL EFFECTIVE TAX RATE ANALYSIS
(In US$ millions, except percentages)
                     
  Three months ended  Six months ended 
  June 30,
2012
  March 31,
2012
  June 31,
2011
  June 30,
2012
  June 30,
2011
 
                     
Income (loss) from continuing operations before income taxes $(339) $36  $208  $(303) $435 
 Add back (subtract):                    
 Litigation matters  750   --   --   750   -- 
 Gain on disposal of other assets, net  (64)  --   --   (64)  (9)
 Loss on impairment of goodwill and other assets  12   227   25   239   25 
 Loss on redeemed noncontrolling interest  14   11   --   25   -- 
 Other, net  --   1   --   1   5 
Adjusted income from continuing operations before income taxes  373   275   233   648   456 
                     
Income tax (benefit) expense from continuing operations  (29)  17   77   (12)  143 
 Add back (subtract):                    
 Loss on impairment  --   30   --   30   -- 
 Changes in estimates (1)  145   29   (13)  174   (33)
 Other, net  --   --   --   --   2 
Adjusted income tax expense from continuing operations (2) $116  $76  $64  $192  $112 
                     
Effective Tax Rate (3)  8.6%  47.2%  37.0%  4.0%  32.9%
                     
Annual Effective Tax Rate (4)  31.1%  27.6%  27.5%  29.6%  24.6%
   
(1) Our estimates change as we file tax returns, settle disputes with tax authorities or become aware of other events and include changes in (a) deferred taxes, (b) valuation allowances on deferred taxes and (c) other tax liabilities.
(2) The three and six months ended June 30, 2012 includes $5 million of additional tax expense (benefit) reflecting the catch-up effect of an increase (decrease) in the annual effective tax rate from the previous quarter estimate.
(3) Effective Tax Rate is income tax expense divided by income before income taxes.
(4) Annual Effective Tax Rate is income tax expense excluding various discrete items (such as changes in estimates and tax on items excluded from income before income taxes) divided by income before income taxes excluding gains and losses on sales and similar items pursuant to the accounting standards for income taxes and estimating the annual effective tax rate.
   
   
   

TRANSOCEAN LTD. AND SUBSIDIARIES
APPENDIX A

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.

 
TRANSOCEAN LTD. AND SUBSIDIARIES
APPENDIX A
 
Correction of Errors in Previously Reported Consolidated Financial Statements (continued)
 
  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 
             
             
             
TRANSOCEAN LTD. AND SUBSIDIARIES
APPENDIX A
 
Correction of Errors in Previously Reported Consolidated Financial Statements (continued)
 
  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 
                         
 
 
TRANSOCEAN LTD. AND SUBSIDIARIES
APPENDIX A
 
Correction of Errors in Previously Reported Consolidated Financial Statements (continued)
 
  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)
 Other, net  (81)  --   (81)  (23)  --   (23)
   (658)  --   (658)  (567)  --   (567)
Income (loss) from continuing operations before income tax expense  (5,434)  (47)  (5,481)  1,290   (15)  1,275 
Income tax (benefit) expense  395   (16)  379   336   4   340 
Income (loss) from continuing operations  (5,829)  (31)  (5,860)  954   (19)  935 
Income (loss) from discontinued operations, net of tax  197   (14)  183   34   --   34 
                         
Net income (loss)  (5,632)  (45)  (5,677)  988   (19)  969 
Net income (loss) attributable to noncontrolling interest  93   (16)  77   27   16   43 
Net income (loss) attributable to controlling interest $(5,725) $(29) $(5,754) $961  $(35) $926 
                         
Earnings (loss) per share-basic                        
 Earnings (loss) from continuing operations $(18.40) $(0.05) $(18.45) $2.88  $(0.11) $2.77 
 Earnings (loss) from discontinued operations  0.61   (0.04)  0.57   0.11   --   0.11 
 Earnings (loss) per share $(17.79) $(0.09) $(17.88) $2.99  $(0.11) $2.88 
                          
 Earnings (loss) per share-diluted                        
 Earnings (loss) from continuing operations $(18.40) $(0.05) $(18.45) $2.88  $(0.11) $2.77 
 Earnings (loss) from discontinued operations  0.61   (0.04)  0.57   0.11   --   0.11 
 Earnings (loss) per share $(17.79) $(0.09) $(17.88) $2.99  $(0.11) $2.88 
                          
 
 
TRANSOCEAN LTD. AND SUBSIDIARIES
APPENDIX A
 
Correction of Errors in Previously Reported Consolidated Financial Statements (continued)
 
  December 31, 2011  December 31, 2010 
  Previously reported  Adjustments  As
adjusted
  Previously reported  Adjustments  As
adjusted
 
Assets                        
Cash and cash equivalents $4,017  $--  $4,017  $3,394  $(40) $3,354 
Accounts receivable, net                        
 Trade  2,049   --   2,049   1,653   --   1,653 
 Other  127   --   127   190   --   190 
Materials and supplies, net  627   --   627   514   --   514 
Deferred income taxes, net  142   --   142   115   --   115 
Assets held for sale  26   --   26   --   --   -- 
Other current assets  621   (84)  537   329   43   372 
  Total current assets  7,609   (84)  7,525   6,195   3   6,198 
                         
Property and equipment  29,037   --   29,037   26,721   --   26,721 
Property and equipment of consolidated variable interest entities  2,252   --   2,252   2,214   --   2,214 
Less accumulated depreciation  8,760   (4)  8,756   7,616   --   7,616 
 Property and equipment, net  22,529   4   22,533   21,319   --   21,319 
Goodwill  3,205   12   3,217   8,132   --   8,132 
Other assets  1,745   12   1,757   1,165   --   1,165 
  Total assets $35,088  $(56) $35,032  $36,811  $3  $36,814 
                         
Liabilities and equity                        
Accounts payable $880  $--  $880  $832  $--  $832 
Accrued income taxes  89   --   89   109   --   109 
Debt due within one year  1,942   --   1,942   1,917   --   1,917 
Debt of consolidated variable interest entities due within one year  97   148   245   95   148   243 
Other current liabilities  2,350   22   2,372   883   12   895 
  Total current liabilities  5,358   170   5,528   3,836   160   3,996 
                         
Long-term debt  10,756   --   10,756   8,354   --   8,354 
Long-term debt of consolidated variable interest entities  741   (148)  593   855   (148)  707 
Deferred income taxes, net  523   (4)  519   575   10   585 
Other long-term liabilities  1,903   (10)  1,893   1,791   --   1,791 
  Total long-term liabilities  13,923   (162)  13,761   11,575   (138)  11,437 
                         
Commitments and contingencies                        
Redeemable noncontrolling interest  116   --   116   25   16   41 
                         
Shares  4,982   --   4,982   4,482   --   4,482 
Additional paid-in capital  7,211   --   7,211   7,504   --   7,504 
Treasury shares, at cost  (240)  --   (240)  (240)  --   (240)
Retained earnings  4,244   (64)  4,180   9,969   (35)  9,934 
Accumulated other comprehensive loss  (496)  --   (496)  (332)  --   (332)
 Total controlling interest shareholders' equity  15,701   (64)  15,637   21,383   (35)  21,348 
 Noncontrolling interest  (10)  --   (10)  (8)  --   (8)
  Total equity  15,691   (64)  15,627   21,375   (35)  21,340 
  Total liabilities and equity $35,088  $(56) $35,032  $36,811  $3  $36,814