Transocean Ltd. - FORM 8-K - EX-99.1

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8-K - 8-K - Transocean Ltd.	rig-20170503x8k.htm

EXHIBIT 99.1

TRANSOCEAN LTD. REPORTS FIRST QUARTER 2017 RESULTS

Revenues were $785 million compared with $974 million in the fourth quarter of 2016;

Operating and maintenance expense was $343 million, including $8 million in favorable items associated with litigation matters. This compares with $314 million in the prior period, including $30 million in favorable items associated with litigation matters;

Net income attributable to controlling interest was $91 million, $0.23 per diluted share, compared with $243 million, $0.64 per diluted share, in the fourth quarter of 2016;

Adjusted net income was $4 million, $0.01 per diluted share, excluding $87 million of net favorable items. This compares with $261 million, $0.69 per diluted share, in the prior quarter, excluding $18 million of net unfavorable items;

EBITDA margin was 52 percent, compared with 59 percent in the fourth quarter of 2016. Adjusted Normalized EBITDA margin was 48 percent, compared with 56 percent in the prior quarter;

Cash flows from operating activities were $184 million, compared with $633 million in the prior quarter;

Revenue efficiency(1) was 97.8 percent, compared with 100.3 percent in the fourth quarter of 2016; and

Contract backlog was $10.8 billion as of the April 2017 Fleet Status Report.

ZUG, SWITZERLAND—May 3, 2017—Transocean Ltd. (NYSE: RIG) today reported net income attributable to controlling interest of $91 million, $0.23 per diluted share, for the three months ended March 31, 2017.

First quarter 2017 results included net favorable items of $87 million, or $0.22 per diluted share as follows:

$77 million, $0.20 per diluted share, in discrete tax benefits;

$8 million, $0.02 per diluted share, related to favorable litigation matters; and

$2 million associated with gain on a rig disposal.

After consideration of these net favorable items, first quarter 2017 adjusted net income was $4 million, or $0.01 per diluted share.

Contract drilling revenues for the three months ended March 31, 2017, decreased $55 million sequentially to $738 million due primarily to reduced activity and lower revenue efficiency. These decreases were partially offset by higher dayrates on the ultra‑deepwater drillship Deepwater Invictus while working in the U.S. Gulf of Mexico, and a full quarter’s contribution from the company’s newbuild drillship Deepwater Conqueror.

Other revenues decreased $134 million sequentially to $47 million due primarily to reduced early contract termination fees.

Operating and maintenance expense was $343 million, including $8 million in favorable items associated with litigation matters. This compares with $314 million in the prior quarter, including $30 million in favorable items associated with litigation matters. The increase was due primarily to the commencement of operations of the Deepwater Conqueror and a full quarter’s activity on the Transocean Arctic.

General and administrative expense was $39 million, down from $47 million in the fourth quarter of 2016. The decrease was due primarily to lower restructuring costs.

The Effective Tax Rate(2) was (73.0) percent, down from (6.5) percent in the prior quarter. The decrease was due primarily to favorable items associated with litigation matters. The Effective Tax Rate excluding discrete items(3) was 82.1 percent, up from 3.3 percent in the previous quarter. The increase was due to reduced pre‑tax income.

Interest expense, net of amounts capitalized, was $127 million, compared with $113 million in the prior quarter. Capitalized interest decreased $16 million sequentially to $30 million due primarily to the Deepwater Conqueror commencing operations. Interest income was $6 million, compared with $5 million in the prior quarter.

Cash flows from operating activities decreased $449 million sequentially to $184 million due to reduced operating activities. Additionally, the prior quarter was favorably impacted by the collection of certain lump sum payments from customers.

First quarter 2017 capital expenditures of $122 million were primarily related to the company’s contracted, newbuild drillships. This compares with $272 million in the previous quarter.

“I would like to recognize and thank the entire Transocean team for producing strong first quarter operating and financial results,” said Jeremy Thigpen, President and Chief Executive Officer. “Our 98% revenue efficiency demonstrates our unwavering commitment to maximizing uptime for our customers. Our 48% Adjusted Normalized EBITDA Margin is the direct result of our ongoing efforts to optimize our business to enhance shareholder value. And, most importantly, our 12 months without a Lost Time Incident, proves our resolve to deliver incident free operations, all the time, everywhere.”

Thigpen added, “This excellent and consistent performance, coupled with our industry‑leading $10.8 billion backlog and solid liquidity, positions us well for a market recovery.”

Non-GAAP Financial Measures

All non-GAAP financial measure reconciliations to the most comparative GAAP measure are displayed in quantitative schedules on the company’s website at: www.deepwater.com.

About Transocean

Transocean is a leading international provider of offshore contract drilling services for oil and gas wells. 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.

Transocean owns or has partial ownership interests in, and operates a fleet of 56 mobile offshore drilling units consisting of 30 ultra-deepwater floaters, seven harsh-environment floaters, three deepwater floaters, six midwater floaters and 10 high-specification jackups. In addition, the company has four ultra-deepwater drillships and five high-specification jackups under construction or under contract to be constructed.

For more information about Transocean, please visit: www.deepwater.com.

Conference Call Information

Transocean will conduct a teleconference starting at 9 a.m. EDT, 3 p.m. CEST, on Thursday, May 4, 2017, to discuss the results. To participate, dial +1 913-312-1522 and refer to confirmation code 8258213 approximately 10 minutes prior to the scheduled start time.

The teleconference will be simulcast in a listen-only mode over the internet and can be accessed at: www.deepwater.com, by selecting Investors, News, and Webcasts. Supplemental materials that may be referenced during the teleconference will be posted to Transocean’s website and can be found by selecting Investors, Financial Reports.

A replay of the conference call will be available after 12 p.m. EDT, 6 p.m. CEST, on May 4, 2017. The replay, which will be archived for approximately 30 days, can be accessed at +1 719-457-0820, passcode 8258213 and PIN 9876. The replay will also be available on the company’s website.

Forward-Looking Statements

The statements described in this press release that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements contain words such as "possible," "intend," "will," "if," "expect," or other similar expressions. Forward-looking statements are based on management’s current expectations and assumptions, and are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, actual results could differ materially from those indicated in these forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, estimated duration of customer contracts, contract dayrate amounts, future contract commencement dates and locations, planned shipyard projects and other out-of-service time, sales of drilling units, timing of the company’s newbuild deliveries, operating hazards and delays, risks associated with international operations, actions by customers and other third parties, the future prices of oil and gas, the intention to scrap certain drilling rigs, the results of our final accounting for the periods presented in this press release and other factors, including those and other risks discussed in the company's most recent Annual Report on Form 10-K for the year ended December 31, 2016, and in the company's other filings with the SEC, which are available free of charge on the SEC's website at: www.sec.gov. 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 results may vary materially from those indicated or expressed or implied by such forward-looking statements. All

subsequent written and oral forward-looking statements attributable to the company or to persons acting on our behalf are expressly qualified in their entirety by reference to these risks and uncertainties. You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that occur, or which we become aware of, after the date hereof, except as otherwise may be required by law. All non-GAAP financial measure reconciliations to the most comparative GAAP measure are displayed in quantitative schedules on the company’s website at: www.deepwater.com.

This press release, or referenced documents, do not constitute an offer to sell, or a solicitation of an offer to buy, any securities, and do not constitute an offering prospectus within the meaning of article 652a or article 1156 of the Swiss Code of Obligations. Investors must rely on their own evaluation of Transocean and its securities, including the merits and risks involved. Nothing contained herein is, or shall be relied on as, a promise or representation as to the future performance of Transocean.

Notes

(1)

Revenue efficiency is defined as actual contract drilling revenues for the measurement period divided by the maximum revenue calculated for the measurement period, expressed as a percentage. Maximum revenue is defined as the greatest amount of contract drilling revenues the drilling unit could earn for the measurement period, excluding amounts related to incentive provisions. See the accompanying schedule entitled “Revenue Efficiency.”

(2)

Effective Tax Rate is defined as income tax expense for continuing operations divided by income from continuing operations before income taxes. See the accompanying schedule entitled “Supplemental Effective Tax Rate Analysis.”

(3)

Effective Tax Rate excluding discrete items 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 taxes), divided by income from continuing operations before income tax expense excluding gains and losses on sales and similar items pursuant to the accounting standards for income taxes and estimating the annual effective tax rate. See the accompanying schedule entitled “Supplemental Effective Tax Rate Analysis.”

Analyst Contacts:

Bradley Alexander

+1 713-232-7515

Diane Vento

+1 713-232-8015

Media Contact:

Pam Easton

+1 713-232-7647

TRANSOCEAN LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(In millions, except share data)

(Unaudited)


	Three months ended
	March 31,
	2017		2016

Operating revenues
Contract drilling revenues	$	738	$	1,111
Other revenues		47		230
		785		1,341
Costs and expenses
Operating and maintenance		343		655
Depreciation		232		217
General and administrative		39		43
		614		915
Loss on impairment		—		(3)
Gain on disposal of assets, net		2		1
Operating income		173		424

Other income (expense), net
Interest income		6		6
Interest expense, net of amounts capitalized		(127)		(89)
Other, net		3		(1)
		(118)		(84)
Income from continuing operations before income tax expense		55		340
Income tax expense (benefit)		(40)		98
Income from continuing operations		95		242
Loss from discontinued operations, net of tax		—		(1)

Net income		95		241
Net income attributable to noncontrolling interest		4		6
Net income attributable to controlling interest	$	91	$	235

Earnings per share-basic
Earnings from continuing operations	$	0.23	$	0.64
Earnings from discontinued operations		—		—
Earnings per share	$	0.23	$	0.64

Earnings per share-diluted
Earnings from continuing operations	$	0.23	$	0.64
Earnings from discontinued operations		—		—
Earnings per share	$	0.23	$	0.64

Weighted-average shares outstanding
Basic		390		364
Diluted		390		364

TRANSOCEAN LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except share data)

(Unaudited)


	March 31,		December 31,
	2017		2016

Assets
Cash and cash equivalents	$	3,093	$	3,052
Accounts receivable, net of allowance for doubtful accounts of less than $1 at March 31, 2017 and December 31, 2016		850		898
Materials and supplies, net of allowance for obsolescence of $154 and $153 at March 31, 2017 and December 31, 2016, respectively		553		561
Restricted cash		442		466
Other current assets		133		121
Total current assets		5,071		5,098

Property and equipment		27,459		27,372
Less accumulated depreciation		(6,493)		(6,279)
Property and equipment, net		20,966		21,093
Deferred income taxes, net		309		298
Other assets		371		400
Total assets	$	26,717	$	26,889

Liabilities and equity
Accounts payable	$	162	$	206
Accrued income taxes		76		95
Debt due within one year		1,458		724
Other current liabilities		851		960
Total current liabilities		2,547		1,985

Long-term debt		6,937		7,740
Deferred income taxes, net		170		178
Other long-term liabilities		1,128		1,153
Total long-term liabilities		8,235		9,071

Commitments and contingencies
Redeemable noncontrolling interest		35		28

Shares, CHF 0.10 par value, 417,060,033 authorized, 143,783,041 conditionally authorized and 394,801,990 issued at March 31, 2017 and December 31, 2016 and 390,930,439 and 389,366,241 outstanding at March 31, 2017 and December 31, 2016, respectively		37		36
Additional paid-in capital		11,000		10,993
Retained earnings		5,147		5,056
Accumulated other comprehensive loss		(284)		(283)
Total controlling interest shareholders’ equity		15,900		15,802
Noncontrolling interest		—		3
Total equity		15,900		15,805
Total liabilities and equity	$	26,717	$	26,889

TRANSOCEAN LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)


	Three months ended
	March 31,
	2017		2016
Cash flows from operating activities
Net income	$	95	$	241
Adjustments to reconcile to net cash provided by operating activities:
Depreciation		232		217
Share-based compensation expense		10		13
Loss on impairment		—		3
Gain on disposal of assets, net		(2)		(1)
Deferred income tax expense (benefit)		(19)		20
Other, net		7		5
Changes in deferred revenues, net		(68)		(25)
Changes in deferred costs, net		16		35
Changes in operating assets and liabilities		(87)		123
Net cash provided by operating activities		184		631

Cash flows from investing activities
Capital expenditures		(122)		(368)
Proceeds from disposal of assets, net		4		4
Net cash used in investing activities		(118)		(364)

Cash flows from financing activities
Repayments of debt		(72)		(55)
Deposits to cash accounts restricted for financing activities		—		(24)
Proceeds from cash accounts and investments restricted for financing activities		50		49
Distributions to holders of noncontrolling interest		—		(7)
Other, net		(3)		5
Net cash used in financing activities		(25)		(32)

Net increase in cash and cash equivalents		41		235
Cash and cash equivalents at beginning of period		3,052		2,339
Cash and cash equivalents at end of period	$	3,093	$	2,574

TRANSOCEAN LTD. AND SUBSIDIARIES

FLEET OPERATING STATISTICS


	Operating Revenues (in millions)
	Three months ended
	March 31,		December 31,		March 31,
	2017		2016		2016
Contract drilling revenues
Ultra-deepwater floaters	$	505	$	560	$	621
Harsh environment floaters		122		100		181
Deepwater floaters		35		35		85
Midwater floaters		13		30		138
High-specification jackups		63		66		82
Contract intangible revenue		—		2		4
Total contract drilling revenues		738		793		1,111

Other revenues
Customer early termination fees		37		169		209
Customer reimbursement revenues and other		10		12		21
Total other revenues		47		181		230
Total revenues	$	785	$	974	$	1,341


	Average Daily Revenue (1)
	Three months ended
	March 31,		December 31,		March 31,
	2017		2016		2016
Ultra-deepwater floaters	$	519,900	$	490,600	$	490,300
Harsh environment floaters		276,700		253,500		548,600
Deepwater floaters		192,000		204,500		310,000
Midwater floaters		92,300		128,600		361,400
High-specification jackups		141,200		143,500		150,200
Total drilling fleet	$	337,700		329,400	$	395,400


	Utilization (2)
	Three months ended
	March 31,		December 31,		March 31,
	2017		2016		2016
Ultra-deepwater floaters	36	%	43	%	50	%
Harsh environment floaters	70	%	61	%	52	%
Deepwater floaters	67	%	53	%	60	%
Midwater floaters	27	%	37	%	39	%
High-specification jackups	50	%	50	%	60	%
Total drilling fleet	43	%	46	%	51	%


	Revenue Efficiency (3)
	Three months ended						Years ended
	March 31,		December 31,		March 31,		December 31,		December 31,
	2017		2016		2016		2016		2015
Ultra-deepwater floaters	97.8	%	100.1	%	94.3	%	97.8	%	95.1	%
Harsh environment floaters	97.0	%	97.1	%	98.6	%	97.8	%	98.1	%
Deepwater floaters	92.6	%	93.4	%	97.4	%	96.3	%	97.4	%
Midwater floaters	91.3	%	94.7	%	97.6	%	99.0	%	95.2	%
High-specification jackups	104.1	%	115.0	%	86.7	%	97.6	%	99.2	%
Total drilling fleet	97.8	%	100.3	%	95.0	%	97.8	%	96.0	%

(1) Average daily revenue is defined as contract drilling revenues earned per operating day. An operating day is defined as a calendar day during which a rig is contracted to earn a dayrate during the firm contract period after commencement of operations.

(2) Rig utilization is defined as the total number of operating days divided by the total number of available rig calendar days in the measurement period, expressed as a percentage.

(3) Revenue efficiency is defined as actual contract drilling revenues for the measurement period divided by the maximum revenue calculation for the measurement period, expressed as a percentage. Maximum revenue is defined as the greatest amount of contract drilling revenues the drilling unit could earn for the measurement period, excluding amounts related to incentive provisions.

TRANSOCEAN LTD. AND SUBSIDIARIES

NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS

ADJUSTED NET INCOME AND ADJUSTED DILUTED EARNINGS PER SHARE

(in US$ millions, except per share data)


	YTD
	03/31/17
Adjusted Net Income
Net income attributable to controlling interest, as reported	$	91
Add back (subtract):
Litigation matters		(8)
Gain on disposal of assets, net		(2)
Discrete tax items and other, net		(77)
Net income, as adjusted	$	4

Adjusted Diluted Earnings Per Share:
Diluted earnings per share, as reported	$	0.23
Add back (subtract):
Litigation matters		(0.02)
Gain on disposal of assets, net		—
Discrete tax items and other, net		(0.20)
Diluted earnings per share, as adjusted	$	0.01


	YTD		QTD		YTD		QTD		YTD		QTD		QTD
	12/31/16		12/31/16		09/30/16		09/30/16		06/30/16		06/30/16		03/31/16
Adjusted Net Income
Net income attributable to controlling interest, as reported	$	778	$	243	$	535	$	218	$	317	$	82	$	235
Add back (subtract):
Litigation matters		(28)		(28)		—		—		—		—		—
Restructuring charges		26		11		15		4		11		7		4
Loss on impairment of assets		91		66		25		11		14		12		2
Gain on disposal of assets, net		(13)		(5)		(8)		(3)		(5)		(4)		(1)
Gain on retirement of debt		(148)		—		(148)		(110)		(38)		(38)		—
(Income) loss from discontinued operations		—		—		—		—		—		(1)		1
Discrete tax items and other, net		(50)		(26)		(24)		(32)		8		7		1
Net income, as adjusted	$	656	$	261	$	395	$	88	$	307	$	65	$	242

Adjusted Diluted Earnings Per Share:
Diluted earnings per share, as reported	$	2.08	$	0.64	$	1.44	$	0.59	$	0.86	$	0.22	$	0.64
Add back (subtract):
Litigation matters		(0.08)		(0.07)		—		—		—		—		—
Restructuring charges		0.07		0.03		0.04		0.01		0.03		0.02		0.01
Loss on impairment of assets		0.25		0.16		0.06		0.03		0.04		0.03		—
Gain on disposal of assets, net		(0.04)		(0.01)		(0.02)		(0.01)		(0.01)		(0.01)		—
Gain on retirement of debt		(0.40)		—		(0.40)		(0.30)		(0.11)		(0.11)		—
(Income) loss from discontinued operations		—		—		—		—		—		—		—
Discrete tax items and other, net		(0.12)		(0.06)		(0.06)		(0.08)		0.02		0.02		—
Diluted earnings per share, as adjusted	$	1.76	$	0.69	$	1.06	$	0.24	$	0.83	$	0.17	$	0.65

TRANSOCEAN LTD. AND SUBSIDIARIES

NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS

EARNINGS BEFORE INTEREST, TAXES AND DEPRECIATION AND RELATED MARGINS

(in US$ millions, except percentages)


	QTD
	03/31/17

Operating revenues	$	785
Drilling contract termination fees		(37)
Adjusted Normalized Revenues	$	748

Net income	$	95
Interest expense, net of amounts capitalized		121
Income tax expense (benefit)		(40)
Depreciation expense		232
EBITDA		408

Litigation matters		(8)
Gain on disposal of assets, net		(2)
Adjusted EBITDA		398

Drilling contract termination fees		(37)
Adjusted Normalized EBITDA	$	361

EBITDA margin		52%
Adjusted EBITDA margin		51%
Adjusted Normalized EBITDA margin		48%


	YTD		QTD		YTD		QTD		YTD		QTD		QTD
	12/31/16		12/31/16		09/30/16		09/30/16		06/30/16		06/30/16		03/31/16

Operating revenues	$	4,161	$	974	$	3,187	$	906	$	2,281	$	940	$	1,341
Drilling contract termination fees		(396)		(169)		(227)		(9)		(218)		(9)		(209)
Adjusted Normalized Revenues	$	3,765	$	805	$	2,960	$	897	$	2,063	$	931	$	1,132

Net income	$	827	$	257	$	570	$	236	$	334	$	93	$	241
Interest expense, net of amounts capitalized		389		108		281		104		177		94		83
Income tax expense (benefit)		107		(15)		122		6		116		18		98
Depreciation expense		893		226		667		225		442		225		217
EBITDA		2,216		576		1,640		571		1,069		430		639

Restructuring charges		28		11		17		4		13		8		5
Litigation matters		(30)		(30)		—		—		—		—		—
Loss on impairment of assets		93		67		26		11		15		12		3
Gain on disposal of assets, net		(13)		(5)		(8)		(3)		(5)		(4)		(1)
Gain on retirement of debt		(148)		—		(148)		(110)		(38)		(38)		—
(Income) loss from discontinued operations, net of tax		—		—		—		—		—		(1)		1
Adjusted EBITDA		2,146		619		1,527		473		1,054		407		647

Drilling contract termination fees		(396)		(169)		(227)		(9)		(218)		(9)		(209)
Adjusted Normalized EBITDA	$	1,750	$	450	$	1,300	$	464	$	836	$	398	$	438

EBITDA margin		53%		59%		51%		63%		47%		46%		48%
Adjusted EBITDA margin		52%		64%		48%		52%		46%		43%		48%
Adjusted Normalized EBITDA margin		46%		56%		44%		52%		41%		43%		39%

TRANSOCEAN LTD. AND SUBSIDIARIES

SUPPLEMENTAL EFFECTIVE TAX RATE ANALYSIS

(In US$ millions, except tax rates)


	Three months ended
	March 31,			December 31,			March 31,
	2017			2016			2016
Income from continuing operations before income taxes	$	55		$	242		$	340
Add back (subtract):
Litigation matters		(8)			(30)			—
Restructuring charges		—			11			5
Loss on impairment of assets		—			67			3
Gain on disposal of assets, net		(2)			(5)			(1)
Gain on retirement of debt		—			—			—
Adjusted income from continuing operations before income taxes		45			285			347

Income tax expense (benefit) from continuing operations		(40)			(15)			98
Add back (subtract):
Litigation matters		—			(2)			—
Restructuring charges		—			—			1
Loss on impairment of assets		—			1			1
Gain on disposal of assets, net		—			—			—
Changes in estimates (1)		77			26			(1)
Adjusted income tax expense from continuing operations	$	37		$	10		$	99

Effective Tax Rate (2)		(73.0)	%		(6.5)	%		29.1	%

Effective Tax Rate, excluding discrete items (3)		82.1	%		3.3	%		28.6	%

(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 of allowances on deferred taxes and (c) other tax liabilities.

(2)

Our effective tax rate is calculated as income tax expense for continuing operations divided by income from continuing operations before income taxes.

(3)

Our effective tax rate, excluding discrete items, is calculated as income tax expense for continuing operations, excluding various discrete items (such as changes in estimates and tax on items excluded from income before income taxes) divided by income from continuing operations before income tax expense excluding gains and losses on sales and similar items pursuant to the accounting standards for income taxes and estimating the annual effective tax rate.

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