Transocean Inc. Reports First Quarter 2008 Financial Results

Transocean Inc. (NYSE:RIG) today reported net income for the three months ended March 31, 2008 of $1,189 million, or $3.71 per diluted share, compared to net income of $553 million, or $2.62 per diluted share for the three months ended March 31, 2007. Revenues for the first quarter of 2008 were $3,110 million compared to $1,328 million for the first quarter of 2007. On November 27, 2007, Transocean Inc. merged with GlobalSantaFe Corporation (the "Merger”) and reclassified its ordinary shares into cash and shares (the "Reclassification”). Reported results for the first quarter of 2008 include a full three months from GlobalSantaFe’s operations. Diluted earnings per share for the first quarter of 2007 excludes GlobalSantaFe’s operations and is based on a weighted average diluted share count of 212 million shares, which includes the effect of restating the historical diluted share count for the Reclassification. Results for the fourth quarter of 2007 include approximately one month of GlobalSantaFe’s operations. First quarter 2008 results included after-tax charges of $30 million, or $0.09 per diluted share, related to $27 million for discrete tax items, $1 million for Merger-related costs and a $2 million loss resulting from the retirement of debt. Net income for the quarter ended March 31, 2007 included after-tax gains of $22 million, or $0.10 per diluted share, resulting from the sale of a tender-assist rig and a tax benefit on discrete items. Operations Quarterly Review Revenues for the three months ended March 31, 2008 increased 49.7 percent to $3,110 million compared to revenues of $2,077 million during the three months ended December 31, 2007. Of the $1,033 million quarter-to-quarter increase, $919 million reflected the addition of a full quarter of GlobalSantaFe revenues, including an increase of $136 million in non-cash contract intangible revenue. The remaining increase was primarily due to a higher average dayrate for the Transocean fleet as well as a decrease in shipyards and maintenance time. The increase in average dayrate was experienced across all rig categories, primarily as a result of rigs commencing new contracts at the higher prevailing current dayrates. First quarter of 2008 results benefited from the postponement of several shipyard projects to later in the year. Operating and maintenance expenses for the three months ended March 31, 2008 were $1,157 million compared to $923 million for the prior three-month period, an increase of $234 million or 25.4 percent. The addition of GlobalSantaFe’s operations accounted for an increase of $332 million, which was partially offset by a decrease in costs for shipyards and major maintenance projects. Costs for the first quarter of 2008 benefited from the postponement of several shipyard and major maintenance projects to later in the year. Depreciation, depletion and amortization increased to $367 million in the first quarter of 2008, an increase of 88.2 percent compared to $195 million in the fourth quarter of 2007. Property and equipment and certain intangible assets acquired in the Merger accounted for the majority of this increase. General and administrative expenses decreased 18.3 percent to $49 million in the first quarter of 2008 compared to $60 million in the prior three-month period. The decrease primarily reflects a reduction in Merger-related compensation costs compared to the fourth quarter of 2007. Interest Expense and Liquidity Interest expense, net of amounts capitalized, for the first quarter of 2008 increased to $137 million compared to $79 million for the fourth quarter of 2007. The increase primarily resulted from interest on the borrowings incurred in conjunction with the Merger and Reclassification. Cash flow from operating activities totaled $1,482 million for the first quarter of 2008 compared to $915 million for the fourth quarter of 2007. As of March 31, 2008, total debt was $16.6 billion, down $0.7 billion from $17.3 billion as of December 31, 2007. Effective Tax Rate The reported Effective Tax Rate(1) of 15.5 percent for the first quarter of 2008 reflects the unfavorable impact of various discrete tax items of $27 million resulting from changes in estimates. Excluding these various discrete tax items, the Annual Effective Tax Rate(2) for the first quarter of 2008 was 13.5 percent. Conference Call Information Transocean will conduct a teleconference call at 10:00 a.m. Eastern Time on May 7, 2008. To participate, dial 913-312-0968 and refer to confirmation code 9574214 approximately five to 10 minutes prior to the scheduled start time of the call. In addition, the conference call will be simultaneously broadcast over the Internet in a listen-only mode and can be accessed by logging onto the company's website at www.deepwater.com and selecting "Investor Relations/News & Events/Webcasts & Presentations." A file containing four charts to be discussed during the conference call, titled "1Q08 Charts," has been posted to the company's website and can also be found by selecting "Investor Relations/News & Events/Webcasts & Presentations." The conference call may also be accessed via the Internet at www.CompanyBoardroom.com by typing in the company's New York Stock Exchange trading symbol, "RIG." A telephonic replay of the conference call should be available after 1:00 p.m. Eastern Time on May 7, 2008 and can be accessed by dialing 719-457-0820 and referring to the passcode 9574214. Also, a replay will be available through the Internet and can be accessed by visiting either of the above-referenced Worldwide Web addresses. Transocean Inc. is the world's largest offshore drilling contractor and the leading provider of drilling management services worldwide. With a fleet of 138 mobile offshore drilling units plus nine announced ultra-deepwater newbuild units, the company's fleet is considered one of the most modern and versatile in the world due to its emphasis on technically demanding segments of the offshore drilling business. The company owns or operates a contract drilling fleet of 39 High-Specification Floaters (Ultra-Deepwater, Deepwater and Harsh-Environment semisubmersibles and drillships), 29 Midwater Floaters, 10 High-Specification Jackups, 56 Standard Jackups and other assets utilized in the support of offshore drilling activities worldwide. (1)   Effective Tax Rate is defined as income tax expense divided by income before income taxes. See the accompanying schedule entitled "Supplemental Effective Tax Rate Analysis." (2) Annual Effective Tax Rate is defined as 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 on sales and similar items pursuant to Financial Accounting Standards Board Interpretation No. 18. See the accompanying schedule entitled "Supplemental Effective Tax Rate Analysis." TRANSOCEAN INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except per share data) (Unaudited)   Three months ended March 31, 2008   2007 Operating revenues Contract drilling revenues $ 2,640 $ 1,273 Contract intangible revenues 224 — Other revenues     246       55         3,110       1,328   Costs and expenses Operating and maintenance 1,157 568 Depreciation, depletion and amortization 367 100 General and administrative     49       26         1,573       694   Gain from disposal of assets, net     3       23   Operating income     1,540       657     Other income (expense), net Interest income 13 5 Interest expense, net of amounts capitalized (137 ) (37 ) Other, net     (8 )     13         (132 )     (19 )   Income before income taxes and minority interest 1,408 638 Income tax expense 218 85 Minority interest     1       —     Net income   $ 1,189     $ 553     Earnings per share Basic $ 3.75 $ 2.72 Diluted   $ 3.71     $ 2.62     Weighted average shares outstanding Basic 317 203 Diluted     321       212   TRANSOCEAN INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In millions, except share data)     March 31, December 31, 2008 2007 (Unaudited) ASSETS Cash and cash equivalents $ 1,567 $ 1,241   Accounts receivable, net of allowance for doubtful accounts of $61 and $50 at March 31, 2008 and December 31, 2007, respectively 2,357 2,370 Materials and supplies, net of allowance for obsolescence of $20 and $22 at March 31, 2008 and December 31, 2007, respectively 367 333 Deferred income taxes, net 96 119 Assets held for sale 666 — Other current assets     177       233   Total current assets     5,230       4,296     Property and equipment 24,237 24,545 Less accumulated depreciation     3,949       3,615   Property and equipment, net     20,288       20,930   Goodwill 8,424 8,219 Other assets     920       919   Total assets   $ 34,862     $ 34,364     LIABILITIES AND SHAREHOLDERS’ EQUITY   Accounts payable $ 722 $ 805 Accrued income taxes 238 99 Debt due within one year 3,356 6,172 Other current liabilities     772       826   Total current liabilities     5,088       7,902     Long-term debt 13,239 11,085 Deferred income taxes, net 814 681 Other long-term liabilities     1,928       2,125   Total long-term liabilities     15,981       13,891     Commitments and contingencies   Minority interest 6 5   Preference shares, $0.10 par value; 50,000,000 shares authorized, none issued and outstanding — — Ordinary Shares, $0.01 par value; 800,000,000 shares authorized, 318,217,122 and 317,222,909 shares issued and outstanding at March 31, 2008 and December 31, 2007, respectively 3 3 Additional paid-in capital 10,853 10,799 Accumulated other comprehensive loss (64 ) (42 ) Retained earnings     2,995       1,806   Total shareholders’ equity     13,787       12,566   Total liabilities and shareholders’ equity   $ 34,862     $ 34,364   TRANSOCEAN INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) (Unaudited)     Three months ended March 31,   2008   2007 Cash flows from operating activities Net income $ 1,189 $ 553 Adjustments to reconcile net income to net cash provided by operating activities Amortization of drilling contract intangibles (224 ) — Depreciation, depletion and amortization 367 100 Share-based compensation expense 22 10 Gain from disposal of assets, net (3 ) (23 ) Deferred revenue, net 18 34 Deferred expenses, net 16 (7 ) Deferred income taxes (25 ) (2 ) Other, net (12 ) (1 ) Changes in operating assets and liabilities     134       (10 ) Net cash provided by operating activities     1,482       654     Cash flows from investing activities Capital expenditures (769 ) (465 ) Proceeds from disposal of assets, net 254 39 Joint ventures and other investments, net     (3 )     (3 ) Net cash used in investing activities     (518 )     (429 )   Cash flows from financing activities Borrowings under commercial paper program, net 1,316 — Borrowings under Five-Year Revolving Credit Facility 180 — Repayments under 364-Day Revolving Credit Facility (1,500 ) — Proceeds from debt 1,976 190 Repayments of debt (2,633 ) — Financing costs (3 ) — Payments made upon exercise of warrants, net (4 ) — Proceeds from issuance of ordinary shares under share-based compensation plans, net 27 15 Repurchase of ordinary shares — (400 ) Other, net     3       5   Net cash used in financing activities     (638 )     (190 )   Net increase in cash and cash equivalents 326 35 Cash and cash equivalents at beginning of period     1,241       467   Cash and cash equivalents at end of period   $ 1,567     $ 502   Transocean Inc. Fleet Operating Statistics   Operating Revenues ($ Millions) (1) Three months ended March 31, 2008   December 31, 2007   March 31, 2007 Contract Drilling Revenues High-Specification Floaters: Ultra Deepwater Floaters $ 608 $ 453 $ 340 Deepwater Floaters 325 290 260 Harsh Environment Floaters 150 120 85 Total High-Specification Floaters 1,083 863 685 Midwater Floaters 675 534 379 High-Specification Jackups 157 64 12 Standard Jackups 711 386 182 Other Rigs 14 13 15 Subtotal 2,640 1,860 1,273 Contract Intangible Revenue 224 88 0 Other Revenues Client Reimbursable Revenues 47 32 30 Integrated Services and Other 36 52 25 Drilling Management Services 139 36 0 Oil and Gas Properties 24 9 0 Subtotal 246 129 55 Total Company $ 3,110 $ 2,077 $ 1,328   Average Dayrates (1) Three months ended March 31, 2008 December 31, 2007 March 31, 2007 High-Specification Floaters: Ultra Deepwater Floaters $ 380,800 $ 346,100 $ 301,400 Deepwater Floaters $ 284,100 $ 265,300 $ 235,800 Harsh Environment Floaters $ 344,000 $ 326,300 $ 238,800 Total High-Specification Floaters $ 340,900 $ 311,600 $ 264,800 Midwater Floaters $ 292,300 $ 274,600 $ 223,700 High-Specification Jackups $ 173,800 $ 173,400 $ 133,400 Standard Jackups $ 146,200 $ 130,800 $ 103,200 Other Rigs $ 49,700 $ 48,600 $ 50,300 Total Drilling Fleet $ 229,000 $ 224,000 $ 198,000   Utilization (1) Three Months Ended March 31, 2008 December 31, 2007 March 31, 2007 High-Specification Floaters: Ultra Deepwater Floaters 98 % 97 % 97 % Deepwater Floaters 79 % 75 % 77 % Harsh Environment Floaters 96 % 80 % 99 % Total High-Specification Floaters 90 % 85 % 87 % Midwater Floaters 88 % 95 % 94 % High-Specification Jackups 99 % 100 % 100 % Standard Jackups 93 % 91 % 82 % Other Rigs 100 % 97 % 100 % Total Drilling Fleet 91 % 90 % 88 % (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. 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. Transocean Inc. and Subsidiaries Non-GAAP Financial Measures and Reconciliations       Operating Income Before General and Administrative Expense to Field Operating Income (in millions)   Three months ended Mar 31, Dec 31, Mar 31, 2008 2007 2007   Operating revenue $ 3,110 $ 2,077 $ 1,328 Operating and maintenance expense 1,157 923 568 Depreciation, depletion and amortization 367 195 100 (Gain) loss from disposal of assets, net   (3 )   (254 )   (23 ) Operating income before general and administrative expense 1,589 1,213 683 Add back (subtract): Depreciation, depletion and amortization 367 195 100   (Gain) loss from disposal of assets, net   (3 )   (254 )   (23 ) Field operating income $ 1,953   $ 1,154   $ 760   Transocean Inc. and Subsidiaries Supplemental Effective Tax Rate Analysis (In millions)             Three months ended Years ended Dec. 31, March 31, Dec. 31, March 31, 2008 2007   2007 2007 2006 Income (Loss) before income taxes and minority interest $ 1,408 $ 1,079 $ 638 $ 3,384 $ 1,607 Add back (subtract): (Gain) loss on disposal of assets, net - (233 ) (23 ) (264 ) (410 ) Income from TODCO tax sharing agreement - (1 ) - (277 ) (51 ) (Gain) loss on retirement of debt 2 8 - 8 - GSF Merger related costs   1       82       -       82       -     Adjusted income before income taxes 1,411 935 615 2,933 1,146   Income tax expense 218 23 85 253 222 Add back (subtract):   (Gain) loss on disposal of assets, net - - (3 ) (3 ) (24 ) GSF Merger related costs - 15 - 15 - Changes in estimates (1)   (27 )     36       2       101       14   Adjusted income tax expense (2) $ 191     $ 74     $ 84     $ 366     $ 212     Effective Tax Rate (3) 15.5 % 2.1 % 13.3 % 7.5 % 13.8 %   Annual Effective Tax Rate (4) 13.5 % 7.9 % 13.7 % 12.5 % 18.5 % (1)   Our estimates change as we file tax returns, settle disputes with tax authorities or become aware of other events impacting our liabilities for income taxes. Changes in estimates include changes in deferred taxes, valuation allowances on deferred taxes or other tax liabilities and the impact of changes in currency exchange rates. (2) The three months ended December 31, 2007 included $ (43) million of additional tax expense (benefit) reflecting the catch-up effect of an increase (decrease) in the annual effective tax rate and included $17 million related to customer identification that is also reflected as a reduction of revenue. (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 on sales and similar items pursuant to Financial Accounting Standards Board Interpretation No. 18.