Transocean Inc. Reports Third Quarter 2007 Financial Results

Transocean Inc. (NYSE:RIG) today reported net income for the three months ended September 30, 2007 of $973 million, or $3.24 per diluted share, on record quarterly revenues of $1,538 million. The results compare to net income of $309 million, or $0.96 per diluted share, on revenues of $1,025 million, for the three months ended September 30, 2006. Third quarter 2007 results included after-tax income of $336 million, or $1.12 per diluted share, related to $276 million for the TODCO tax sharing agreement, $52 million for changes in estimated taxes, primarily foreign tax credits, and an $8 million gain resulting from the sale of the drilling barge Searex VI. For the quarter ended September 30, 2006, net income included $37 million, or $0.12 per diluted share, primarily from the sale of two tender-assist rigs. For the nine months ended September 30, 2007, net income totaled $2,075 million, or $6.91 per diluted share, on revenues of $4,300 million. For the same period last year, net income totaled $764 million, or $2.31 per diluted share, on revenues of $2,696 million. Results for the first nine months of 2007 include $369 million, or $1.22 per diluted share, including $33 million recognized during the first half of 2007 from rig sales and discrete tax items plus the $336 million recognized during the third quarter as noted above. For the nine months ended September 30, 2006, net income included $191 million, or $0.57 per diluted share, primarily from the sale of six rigs. Operations Quarterly Review Revenues for the three months ended September 30, 2007 increased 7.3 percent to $1,538 million compared to revenues of $1,434 million during the three months ended June 30, 2007. The quarter-to-quarter increase in revenues was primarily due to a higher average dayrate, partially offset by a slight reduction in days in service. The third quarter 2007 average dayrate reached a record high of $219,700, up 8.5 percent, compared to $202,400 during the second quarter 2007. 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. For the three months ended September 30, 2007, operating income before general and administrative expenses totaled $780 million, a 10.6 percent increase from $705 million reported for the second quarter 2007. The $75 million increase in operating income before general and administrative expense was due to higher revenues, driven by increased dayrates. Partially offsetting the higher third quarter 2007 revenues was $36 million in increased operating and maintenance expenses, primarily due to an increase in reimbursable costs and integrated service expenditures, as well as an increase in the number of maintenance projects. Field operating income(1) (defined as revenues less operating and maintenance expenses) increased 8.4 percent to $875 million for the third quarter 2007, compared to $807 million for the prior three-month period. The increase in third quarter 2007 field operating income was due chiefly to strong revenue growth combined with stable operating margins. Liquidity Cash flow from operations totaled $897 million for the third quarter 2007 compared to $289 million for the third quarter 2006. For the nine months ended September 30, 2007, cash flow from operations increased to $2,158 million compared to $733 million for the same period last year. As of September 30, 2007, total debt was $2,593 million, down $471 million compared to $3,064 as of June 30, 2007. The $471 million of debt reduction during the third quarter 2007 reflects the repayment of the company’s two-year term credit facility due August 2008. Effective Tax Rate The company's Annual Effective Tax Rate(2) for the three months ended September 30, 2007 was 14.0 percent, excluding various discrete items. The Effective Tax Rate(3) of 5.1 percent for the third quarter 2007 reflects a $52 million favorable impact resulting primarily from changes in estimated foreign tax credit. The company currently expects the Annual Effective Tax Rate for the remainder of 2007 to be 14.6 percent. Conference Call Information Transocean will conduct a teleconference call at 10:00 a.m. Eastern Time on October 31, 2007. To participate, dial 913-981-5542 and refer to confirmation code 1852427 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 "3Q07 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 October 31, 2007 and can be accessed by dialing 719-457-0820 and referring to the passcode 1852427. Also, a replay will be available through the Internet and can be accessed by visiting either of the above-referenced Worldwide Web addresses. Forward-Looking Disclaimer Statements regarding our Annual Effective Tax Rate, as well as any other statements that are not historical facts in this release, are forward-looking statements that involve certain risks, uncertainties and assumptions. These include but are not limited to operating hazards and delays, risks associated with international operations, future financial results, actions by customers and other third parties, factors affecting the supply and demand of drilling rigs, including newbuilds, reactivations and the reallocation of current rigs, factors affecting the duration of contracts including well-in-progress provisions, the actual amount of downtime, factors resulting in reduced applicable dayrates, hurricanes and other weather conditions, the future price of oil and gas and other factors detailed in the company's most recent Form 10-K and other filings with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated. Transocean Inc. is the world's largest offshore drilling contractor with a fleet of 82 mobile offshore drilling units. The company's mobile offshore drilling fleet, consisting of a large number of high-specification deepwater and harsh environment drilling units, 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's fleet consists of 34 High-Specification Floaters (semisubmersibles and drillships), 19 Other Floaters, 25 Jackups and other assets utilized in the support of offshore drilling activities worldwide. With a current equity market capitalization of $33.4 billion, Transocean Inc.'s ordinary shares are traded on the New York Stock Exchange under the symbol "RIG." (1) For a reconciliation of operating income before general and administrative expense to field operating income, see the accompanying schedule entitled "Non-GAAP Financial Measures and Reconciliations - Operating Income Before General and Administrative Expense to Field Operating Income." (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 "Effective Tax Rate Analysis." (3) Effective Tax Rate is defined as income tax expense divided by income before income taxes. See the accompanying schedule entitled "Effective Tax Rate Analysis." TRANSOCEAN INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except per share data) (Unaudited)     Three months ended September 30, Nine months ended September 30,   2007       2006     2007       2006   Operating revenues Contract drilling revenues $ 1,455 $ 991 $ 4,088 $ 2,598 Other revenues     83       34       212       98         1,538       1,025       4,300       2,696   Costs and expenses Operating and maintenance 663 561 1,858 1,585 Depreciation 103 99 304 303 General and administrative     27       22       82       67         793       682       2,244       1,955   Gain from disposal of assets, net     8       47       30       222   Operating income     753       390       2,086       963     Other income (expense), net Interest income 7 4 17 14 Interest expense, net of amounts capitalized (23 ) (28 ) (93 ) (72 ) Other, net     287       7       295       9         271       (17 )     219       (49 )   Income before income taxes and minority interest 1,024 373 2,305 914 Income tax expense 52 64 230 150 Minority interest     (1 )     –       –       –     Net income   $ 973     $ 309     $ 2,075     $ 764     Earnings per share Basic $ 3.36 $ 0.99 $ 7.17 $ 2.39 Diluted   $ 3.24     $ 0.96     $ 6.91     $ 2.31     Weighted average shares outstanding Basic 290 312 289 320 Diluted     300       323       301       332     TRANSOCEAN INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In millions, except share data)     September 30, December 31,   2007     2006   (Unaudited) ASSETS   Cash and cash equivalents $ 618 $ 467 Accounts receivable, net of allowance for doubtful accounts of $41 and $26 at September 30, 2007 and December 31, 2006, respectively 1,266 946 Materials and supplies, net of allowance for obsolescence of $21 and $19 at September 30, 2007 and December 31, 2006, respectively 179 160 Deferred income taxes, net 28 16 Other current assets     132       67   Total current assets     2,223       1,656     Property and equipment 11,460 10,539 Less accumulated depreciation     3,489       3,213   Property and equipment, net     7,971       7,326     Goodwill 2,187 2,195 Other assets     319       299   Total assets   $ 12,700     $ 11,476     LIABILITIES AND SHAREHOLDERS’ EQUITY   Accounts payable $ 406 $ 477 Accrued income taxes 156 98 Debt due within one year   1,018 95 Other current liabilities     419       369   Total current liabilities     1,999       1,039     Long-term debt 1,575 3,200 Deferred income taxes, net 57 54 Other long-term liabilities     566       343   Total long-term liabilities     2,198       3,597     Commitments and contingencies   Minority interest 1 4   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, 290,802,699 and 292,454,457 shares issued and outstanding at September 30, 2007 and December 31, 2006, respectively 3 3 Additional paid-in capital 7,780 8,044 Accumulated other comprehensive loss (31 ) (30 ) Retained earnings (accumulated deficit)     750       (1,181 ) Total shareholders’ equity     8,502       6,836   Total liabilities and shareholders’ equity   $ 12,700     $ 11,476     TRANSOCEAN INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) (Unaudited)     Three months ended September 30, Nine months ended September 30,   2007       2006     2007       2006   Cash flows from operating activities Net income $ 973 $ 309 $ 2,075 $ 764 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 103 99 304 303 Share-based compensation expense 11 5 30 13 Gain from disposal of assets, net (8 ) (47 ) (30 ) (222 ) Deferred income taxes 9 (7 ) 2 18 Deferred expenses, net (4 ) (40 ) (17 ) (95 ) Deferred revenues, net (20 ) 12 18 32 Other long-term liabilities 19 (4 ) 31 17 Other, net (7 ) (7 ) (3 ) (14 ) Changes in operating assets and liabilities Accounts receivable (82 ) (169 ) (320 ) (273 ) Other current assets 3 15 (29 ) (36 ) Accounts payable and other current liabilities (75 ) 76 65 167 Income taxes receivable/payable, net     (25 )     47       32       59   Net cash provided by operating activities     897       289       2,158       733     Cash flows from investing activities Capital expenditures (305 ) (434 ) (1,060 ) (710 ) Proceeds from disposal of assets, net 21 95 62 298 Joint ventures and other investments, net     –       –       (3 )     –   Net cash used in investing activities     (284 )     (339 )     (1,001 )     (412 )   Cash flows from financing activities Borrowings under the Revolving Credit Facility, net – 900 – 900 Proceeds from issuance of debt, net – 1,000 – 1,000 Repayment of borrowings under Term Credit Facility (470 ) – (700 ) – Release of escrow funds – Nautilus lease financing – 30 – 30 Repurchase of ordinary shares – (1,751 ) (400 ) (2,351 ) Proceeds from issuance of ordinary shares under share-based compensation plans, net 1 1 56 67 Tax benefit from issuance of ordinary shares under share-based compensation plans 23 – 33 – Other, net     6       (5 )     5       (5 ) Net cash provided by (used in) financing activities     (440 )     175       (1,006 )     (359 )   Net increase (decrease) in cash and cash equivalents     173       125       151       (38 ) Cash and cash equivalents at beginning of period     445       282       467       445   Cash and cash equivalents at end of period   $ 618     $ 407     $ 618     $ 407     Transocean Inc. Fleet Operating Statistics   Operating Revenues (in millions) (1) Three months ended   Nine months ended Sept 30, September 30, 2007   June 30, 2007   September 30, 2006   2007       2006   Contract Drilling Revenues High-Specification Floaters: Ultra Deepwater Floaters $ 381 $ 336 $ 257 $ 1,057 $ 711 Other Deepwater Floaters 298 272 246 830 611 Other High-Specification Floaters 101 103 62 290 176 Total High-Specification Floaters 780 711 565 2,177 1,498 Other Floaters 412 403 218 1,193 551 Jackups 248 230 184 673 483 Other Rigs 15 16 24 45 66 Subtotal 1,455 1,360 991 4,088 2,598 Other Revenues Client Reimbursable Revenues 32 29 30 92 77 Integrated Services and Other 51 45 4 120 21 Subtotal 83 74 34 212 98 Total Company $ 1,538 $ 1,434 $ 1,025 $ 4,300 $ 2,696   Average Dayrates (1) Three months ended Nine months ended Sept 30, September 30, 2007 June 30, 2007 September 30, 2006   2007     2006   High-Specification Floaters: Ultra Deepwater Floaters $ 323,200 $ 288,900 $ 246,000 $ 304,600 $ 223,700 Other Deepwater Floaters $ 257,700 $ 228,400 $ 222,300 $ 240,600 $ 188,700 Other High-Specification Floaters $ 316,400 $ 286,900 $ 181,500 $ 279,500 $ 172,000 Total High-Specification Floaters $ 293,900 $ 262,100 $ 226,700 $ 273,600 $ 201,400 Other Floaters $ 251,400 $ 226,300 $ 136,800 $ 233,500 $ 122,000 Jackups $ 120,500 $ 117,900 $ 83,400 $ 114,600 $ 75,800 Other Rigs $ 54,900 $ 57,200 $ 52,400 $ 54,100 $ 49,100 Total Drilling Fleet $ 219,700 $ 202,400 $ 146,900 $ 206,800 $ 132,000   Utilization (1) Three months ended Nine months ended Sept 30, September 30, 2007 June 30, 2007 September 30, 2006   2007     2006   High-Specification Floaters: Ultra Deepwater Floaters 99 % 98 % 88 % 98 % 90 % Other Deepwater Floaters 79 % 82 % 75 % 79 % 75 % Other High-Specification Floaters 87 % 99 % 93 % 95 % 94 % Total High-Specification Floaters 87 % 90 % 82 % 88 % 83 % Other Floaters 89 % 98 % 86 % 94 % 78 % Jackups 90 % 86 % 96 % 86 % 93 % Other Rigs 98 % 100 % 76 % 99 % 64 % Total Drilling Fleet 89 % 91 % 87 % 89 % 83 %   (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 Nine months ended Sept 30, June 30, Sept 30, Sept 30, Sept 30, 2007 2007 2006 2007 2006     Operating revenue $ 1,538 $ 1,434 $ 1,025 $ 4,300 $ 2,696 Operating and maintenance expense 663 627 561 1,858 1,585 Depreciation 103 101 99 304 303 (Gain) loss from disposal of assets, net   (8 )   1   (47 )   (30 )   (222 ) Operating income before general and administrative expense 780 705 412 2,168 1,030 Add back (subtract): Depreciation 103 101 99 304 303 (Gain) loss from disposal of assets, net   (8 )   1   (47 )   (30 )   (222 ) Field operating income $ 875   $ 807 $ 464   $ 2,442   $ 1,111   Transocean Inc. and Subsidiaries Effective Tax Rate Analysis (In millions)               Three months ended Nine months ended Twelve months ended September 30, June 30, September 30, September 30, Dec. 31 2007 2007 2006 2007 2006 2006 Income (Loss) before income taxes and minority interest $ 1,024 $ 643 $ 373 $ 2,305 $ 914 $ 1,607 Add back (subtract): $ - $ - (Gain) loss on disposal of assets, net (9 ) 1 (44 ) (31 ) (219 ) (410 ) Income from TODCO tax sharing agreement   (276 )   -     -     (276 )   -     (51 ) Adjusted income before income taxes $ 739 $ 644 $ 329 $ 1,998 $ 695 $ 1,146   Income tax expense $ 52 $ 93 $ 64 $ 230 $ 150 $ 222 Add back (subtract): (Gain) loss on disposal of assets, net - - (3 ) (3 ) (25 ) (24 ) Changes in estimates (1)   52     11     (4 )   65     (3 )   14   Adjusted income tax expense (2) $ 104 $ 104 $ 57 $ 292 $ 122 $ 212   Effective tax rate (3) 5.1 % 14.4 % 17.1 % 10.0 % 16.4 % 13.8 %   Annual effective tax rate (4) 14.0 % 16.1 % 17.3 % 14.6 % 17.5 % 18.5 % (1)   Our estimates change as we file tax returns, settle disputes with tax authorities or become aware of other events and include changes in deferred taxes, valuation allowances on deferred taxes and other tax liabilities.   (2) The three months ended September 30, 2007 include $(4) million of additional tax expense (benefit) reflecting the catch-up effect of an increase (decrease) in the annual effective tax rate.   (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.