Transocean Inc. Reports Strong Growth in Third Quarter 2006 Revenue and Net Income; Announces Repurchase of $2.0 Billion of Shares.HOUSTON -- Transocean Inc. (NYSE NYSE See: New York Stock Exchange :RIG) today reported net income for the three months ended September 30, 2006 of $309.0 million, or $0.96 per diluted share, on record quarterly revenues of $1,025.7 million. The results compare to net income of $170.4 million, or $0.50 per diluted share, on revenues of $762.6 million for the corresponding three months in 2005. Net income for the three months ended September 30, 2006 included after-tax gains of $40.8 million, or $0.13 per diluted share, resulting primarily from the sale of two tender-assist drilling rigs, the W.D. Kent and the Searex X. For the nine months ended September 30, 2006, net income was $764.2 million, or $2.31 per diluted share, on revenues of $2,696.3 million, compared to net income for the nine months ended September 30, 2005 of $564.0 million, or $1.68 per diluted share, on revenues of $2,120.5 million. Net income for the nine months ended September 30, 2006 included after-tax gains totaling $194.4 million, or $0.58 per diluted share, resulting from the sale of non-strategic assets, including the two above-mentioned rigs. Net income for the nine months ended September 30, 2005 included a gain of $165.0 million, or $0.49 per diluted share, resulting from the sale of TODCO TODCO Technical Order Distribution Control Office common stock, after-tax gains of $27.9 million, or $0.08 per diluted share, resulting from the sale of three rigs, and a loss of $6.7 million, or $0.02 per diluted share, resulting from the early retirement of debt. During the three months ended September 30, 2006, the company repurchased $1.75 billion of its ordinary shares, or 24.4 million shares, at an average price of $71.67 per share, pursuant to the share repurchase Share Repurchase A program by which a company buys back its own shares from the marketplace, reducing the number of outstanding shares. This is usually an indication that the company's management thinks the shares are undervalued. program that was initially authorized au·thor·ize tr.v. au·thor·ized, au·thor·iz·ing, au·thor·iz·es 1. To grant authority or power to. 2. To give permission for; sanction: by its Board of Directors in October 2005 at $2.0 billion and increased in May 2006 to $4.0 billion. During October 2006, the company repurchased an additional $250.0 million of its ordinary shares under the program, or 3.5 million shares, at an average price of $71.79 per share. At October 31, 2006, the company had repurchased a total of $3.0 billion of its ordinary shares under the program, or 41.7 million shares, at an average price of $71.87 per share and still had the authority to repurchase up to an additional $1.0 billion of its ordinary shares under the terms of the share repurchase program. Ordinary shares issued and outstanding at October 27, 2006 were approximately 292.4 million. Robert L. Long, Chief Executive Officer of Transocean Inc., stated, "The company achieved record quarterly revenues and near-record quarterly net income, after adjusting for gains resulting from asset sales, during the third quarter of 2006. Revenue growth from the second quarter of 2006 was due primarily to higher average dayrates and improved utilization on a number of rigs. Operating costs operating costs npl → gastos mpl operacionales for the quarter were below the high end of our expectations due in part to the postponement of rig maintenance and shipyard programs until the final quarter of the year. Although the postponement of shipyards may cause operating and maintenance costs in the fourth quarter to exceed our previous guidance of $515 million to $535 million, aggregate costs for the second half of 2006 are expected to be within our previously stated expectations. "As we near the completion of 2006 and look to 2007, the company's record contract backlog, which has grown to an estimated $20.2 billion at October 31, 2006, should support prospects for further quarterly financial improvement. We remain optimistic op·ti·mist n. 1. One who usually expects a favorable outcome. 2. A believer in philosophical optimism. op regarding the prospects for our business, as rig demand continues to outpace out·pace tr.v. out·paced, out·pac·ing, out·pac·es To surpass or outdo (another), as in speed, growth, or performance. outpace Verb [-pacing, supply, especially in the deepwater sector. New rig construction opportunities with multi-year contract durations support our belief that the deepwater sector should remain strong well into the future." Operations Quarterly Review Revenues for the three months ended September 30, 2006 increased 20% to $1,025.7 million compared to revenues of $853.3 million during the three months ended June 30, 2006. The revenue increase was due primarily to an improvement in average daily revenue, which rose 14% to $146,900 from $129,000 over the same comparative period. This improvement was consistent across the company's fleet as several rigs commenced new contracts with dayrates that reflect the strong business environment prevalent since mid-2004. In addition, third quarter 2006 revenues were enhanced by reduced out-of-service time, as rigs like the drillship Deepwater Frontier and semisubmersible sem·i·sub·mers·i·ble n. A seagoing, self-propelled barge that rides at anchor, stands on partially submerged vertical legs on submerged pontoons, and serves as living quarters and a base of operations in offshore drilling. rig Transocean Richardson, both down for much of the second quarter of 2006, experienced higher utilization following the completion of maintenance programs and, in the case of the Deepwater Frontier, a mobilization from Brazil to India. Finally, increased activity was seen during the third quarter of 2006 as the semisubmersible rigs Transocean Winner and Transocean Prospect commenced contracts following lengthy reactivation reactivation to become active after a period of quiescence or, as in bacterial and viral infections, latency. cross reactivation programs. The return to active service of these two reactivated rigs helped to drive the average third quarter 2006 fleet utilization to 87%, up from 81% during the second quarter of 2006. For the three months ended September 30, 2006, operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. before general and administrative expenses totaled $413.2 million, a 32% improvement from $312.6 million reported during the second quarter of 2006. Field operating income (defined as revenues less operating and maintenance expenses) improved 53% to $464.8 million compared to $304.0 million over the same comparative period. The improved third quarter 2006 results were due chiefly to the strong revenue growth, partially offset by a 2% increase in operating and maintenance expenses, which totaled $560.9 million during the third quarter of 2006 compared to $549.3 million during the previous quarter in 2006. The increase in operating and maintenance expenses was due primarily to higher rig activity following the return of the Transocean Winner and Transocean Prospect to active status and fewer shipyard programs and mobilizations. Third quarter 2006 operating and maintenance expenses included $31.4 million pertaining per·tain intr.v. per·tained, per·tain·ing, per·tains 1. To have reference; relate: evidence that pertains to the accident. 2. to the reactivation of the Winner, Prospect and C.K. Rhein, Jr., compared to $39.2 million in the second quarter of 2006. Completion of the C.K. Rhein, Jr. reactivation project is expected during January 2007, while the commencement of a two-year contract is expected in February 2007 following mobilization of the rig to India. Liquidity Cash flow from operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses increased to $732.2 million for the nine months ended September 30, 2006. The company reported an increase in total debt of approximately $1.9 billion, to $3,495.4 million at September 30, 2006 compared to total debt at June 30, 2006 of $1,596.0 million, resulting from the issuance in September 2006 of $1.0 billion principal amount of two-year floating rate notes and $900 million drawn on an up to $1.0 billion multi-draw term credit facility. During October 2006, the company drew a final $100 million available on the term credit facility. Net proceeds Net Proceeds The amount received after all costs are deducted from the sale of a piece of property or security. Notes: In the case of an investor selling a security, net proceeds represent the proceeds from the sale minus any trading costs (i.e. commissions). from the debt issuance were used to completely repay $640 million of the outstanding borrowings under the company's existing $1.0 billion, five-year revolving credit Revolving Credit A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is usually used for operating purposes, fluctuating each month depending on the customers current cash flow needs. facility and the repurchase of company ordinary shares. Conference Call Information Transocean will conduct a teleconference call at 10:00 a.m. Eastern on November 2, 2006. To participate, dial 913-981-5591 and refer to confirmation code 4658614 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/Presentations." A file containing four charts to be discussed during the conference call, titled "3Q06 Charts," has been posted to the company's website and can also be found by selecting "Investor Relations/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 New York Stock Exchange (NYSE) World's largest marketplace for securities. The exchange began as an informal meeting of 24 men in 1792 on what is now Wall Street in New York City. trading symbol Trading symbol See: Ticker symbol , "RIG." A telephonic replay of the conference call should be available after 1:00 p.m. Eastern on November 2, 2006 and can be accessed by dialing 719-457-0820 and referring to the passcode 4658614. 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 financial results, operating revenues operating revenue Revenue from any regular source. Revenue from sales is adjusted for discounts and returns when calculating operating revenue. Compare other revenue. , operating and maintenance expenses, prospects for our business, new rig opportunities, as well as any other statements that are not historical facts in this release, are forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. that involve certain risks, uncertainties and assumptions. These include but are not limited to operating hazards and delays, risks associated with international operations Internal Operations (I.O., IO or I/O) is a fictional American Intelligence Agency in Wildstorm comics. It was originally called International Operations. I.O. first appeared in WildC.A.T.S. volume 1 #1 (August, 1992) and was created by Brandon Choi and Jim Lee. , 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 Noun 1. reallocation - a share that has been allocated again allocation, allotment - a share set aside for a specific purpose 2. reallocation of current rigs, factors affecting the duration of contracts including well-in-progress provisions, the actual amount of downtime The time during which a computer is not functioning due to hardware, operating system or application program failure. , 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 Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 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 Offshore drilling typically refers to the act of extracting resources, primarily oil, in an ocean or lake. Controversy As with all oil drilling, there has been a certain level of controversy surrounding the issue. 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 33 High-Specification Floaters floaters /float·ers/ (flo´ters) “spots before the eyes”; deposits in the vitreous of the eye, usually moving about and probably representing fine aggregates of vitreous protein occurring as a benign degenerative change. (semisubmersibles and drillships), 20 Other Floaters, 25 Jackups and other assets other assets Assets of relatively small value. For financial reporting purposes, firms frequently combine small assets into a single category rather than listing each item separately. utilized in the support of offshore drilling activities worldwide. With a current equity market capitalization Equity Market Capitalization A measure of the total market value of an equity market. The measure is calculated by taking the market capitalization of all companies in the equity market and adding them together to arrive at the capitalization for the market as a whole. in excess of $20 billion, Transocean Inc.'s ordinary shares are traded on the New York Stock Exchange under the symbol "RIG." 1 For a reconciliation of segment operating income before general and administrative expense to field operating income, see the accompanying schedule titled Non-GAAP Financial Measures and Reconciliations - Operating Income Before General and Administrative Expense to Field Operating Income by Segment.
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(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.
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(1) Loss on retirement for Q3 05 and YTD Q3 05 of $1.5 million and
$3.7 million, respectively, was reclassed out of operating and
maintenance expense and into gain from disposal of assets, net.
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