Attached files

file filename
10-Q - 10-Q - Transocean Ltd.rig-20160331x10q.pdf
EX-31.1 - EX-31.1 - Transocean Ltd.rig-20160331ex3114afd86.htm
EX-31.2 - EX-31.2 - Transocean Ltd.rig-20160331ex312e3eb03.htm
EX-32.1 - EX-32.1 - Transocean Ltd.rig-20160331ex321a2e4fa.htm
EX-32.2 - EX-32.2 - Transocean Ltd.rig-20160331ex322e7ba79.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10‑Q

(Mark one)

 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2016

OR

 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

 


 

Commission file number 000-53533

transocean_color

 

TRANSOCEAN LTD.

(Exact name of registrant as specified in its charter)

 

 

Zug, Switzerland

98-0599916

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

 

10 Chemin de Blandonnet

Vernier, Switzerland

1214

(Address of principal executive offices)

(Zip Code)

 

 

 

+41 (22) 930-9000

(Registrant’s telephone number, including area code)

 

 

 


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes    No 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S‑T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes    No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b‑2 of the Exchange Act.

Large accelerated filer    Accelerated filer    Nonaccelerated filer (do not check if a smaller reporting company)    Smaller reporting company 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act).   Yes    No 

 

As of April 26, 2016, 365,201,707 shares were outstanding.

 


 

TRANSOCEAN LTD. AND SUBSIDIARIES

INDEX TO FORM 10‑Q

QUARTER ENDED MARCH 31, 2016

 

 

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1. 

Financial Statements (Unaudited)

 

 

Condensed Consolidated Statements of Operations

1

 

Condensed Consolidated Statements of Comprehensive Income

2

 

Condensed Consolidated Balance Sheets

3

 

Condensed Consolidated Statements of Equity

4

 

Condensed Consolidated Statements of Cash Flows

5

 

Notes to Condensed Consolidated Financial Statements

6

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

35

Item 4. 

Controls and Procedures

35

 

 

 

PART II. 

OTHER INFORMATION

 

Item 1. 

Legal Proceedings

36

Item 1A. 

Risk Factors

36

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

37

Item 4. 

Mine Safety Disclosures

37

Item 6. 

Exhibits

37

 

 

 

 

 


 

PART I.FINANCIAL INFORMATION

Item I.Financial Statements

TRANSOCEAN LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

 

 

March 31, 

 

 

 

2016

    

2015

 

 

 

 

 

 

 

 

 

Operating revenues

 

 

 

 

 

 

 

Contract drilling revenues

 

$

1,111

 

$

2,000

 

Other revenues

 

 

230

 

 

43

 

 

 

 

1,341

 

 

2,043

 

Costs and expenses

 

 

 

 

 

 

 

Operating and maintenance

 

 

665

 

 

1,084

 

Depreciation

 

 

217

 

 

291

 

General and administrative

 

 

43

 

 

46

 

 

 

 

925

 

 

1,421

 

Loss on impairment

 

 

(3)

 

 

(936)

 

Gain (loss) on disposal of assets, net

 

 

1

 

 

(7)

 

Operating income (loss)

 

 

414

 

 

(321)

 

 

 

 

 

 

 

 

 

Other income (expense), net

 

 

 

 

 

 

 

Interest income

 

 

6

 

 

6

 

Interest expense, net of amounts capitalized

 

 

(89)

 

 

(116)

 

Other, net

 

 

(1)

 

 

47

 

 

 

 

(84)

 

 

(63)

 

Income (loss) from continuing operations before income tax expense

 

 

330

 

 

(384)

 

Income tax expense

 

 

74

 

 

83

 

Income (loss) from continuing operations

 

 

256

 

 

(467)

 

Loss from discontinued operations, net of tax

 

 

(1)

 

 

(2)

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

255

 

 

(469)

 

Net income attributable to noncontrolling interest

 

 

6

 

 

14

 

Net income (loss) attributable to controlling interest

 

$

249

 

$

(483)

 

 

 

 

 

 

 

 

 

Earnings (loss) per share-basic

 

 

 

 

 

 

 

Earnings (loss) from continuing operations

 

$

0.68

 

$

(1.32)

 

Earnings (loss) from discontinued operations

 

 

 

 

(0.01)

 

Earnings (loss) per share

 

$

0.68

 

$

(1.33)

 

 

 

 

 

 

 

 

 

Earnings (loss) per share-diluted

 

 

 

 

 

 

 

Earnings (loss) from continuing operations

 

$

0.68

 

$

(1.32)

 

Earnings (loss) from discontinued operations

 

 

 

 

(0.01)

 

Earnings (loss) per share

 

$

0.68

 

$

(1.33)

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding

 

 

 

 

 

 

 

Basic

 

 

364

 

 

363

 

Diluted

 

 

364

 

 

363

 

 

 

 

See accompanying notes.

 

-  1  -


 

TRANSOCEAN LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In millions)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

 

 

March 31, 

 

 

 

2016

    

2015

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

255

 

$

(469)

 

Net income attributable to noncontrolling interest

 

 

6

 

 

14

 

Net income (loss) attributable to controlling interest

 

 

249

 

 

(483)

 

 

 

 

 

 

 

 

 

Other comprehensive loss before reclassifications

 

 

 

 

 

 

 

Components of net periodic benefit costs

 

 

(7)

 

 

(13)

 

 

 

 

 

 

 

 

 

Reclassifications to net income

 

 

 

 

 

 

 

Components of net periodic benefit costs

 

 

2

 

 

5

 

 

 

 

 

 

 

 

 

Other comprehensive loss before income taxes

 

 

(5)

 

 

(8)

 

Income taxes related to other comprehensive loss

 

 

 —

 

 

(2)

 

 

 

 

 

 

 

 

 

Other comprehensive loss

 

 

(5)

 

 

(10)

 

Other comprehensive income attributable to noncontrolling interest

 

 

 —

 

 

 —

 

Other comprehensive loss attributable to controlling interest

 

 

(5)

 

 

(10)

 

 

 

 

 

 

 

 

 

Total comprehensive income (loss)

 

 

250

 

 

(479)

 

Total comprehensive income attributable to noncontrolling interest

 

 

6

 

 

14

 

Total comprehensive income (loss) attributable to controlling interest

 

$

244

 

$

(493)

 

 

 

 

See accompanying notes.

 

-  2  -


 

TRANSOCEAN LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

 

    

2016

    

2015

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,574

 

$

2,339

 

Accounts receivable, net of allowance for doubtful accounts
of less than $1 at March 31, 2016 and December 31, 2015

 

 

1,094

 

 

1,379

 

Materials and supplies, net of allowance for obsolescence
of $154 and $148 at March 31, 2016 and December 31, 2015, respectively

 

 

625

 

 

635

 

Assets held for sale

 

 

8

 

 

8

 

Restricted cash

 

 

338

 

 

340

 

Other current assets

 

 

61

 

 

84

 

Total current assets

 

 

4,700

 

 

4,785

 

 

 

 

 

 

 

 

 

Property and equipment

 

 

26,557

 

 

26,274

 

Less accumulated depreciation

 

 

(5,668)

 

 

(5,456)

 

Property and equipment, net

 

 

20,889

 

 

20,818

 

Deferred income taxes, net

 

 

287

 

 

316

 

Other assets

 

 

369

 

 

410

 

Total assets

 

$

26,245

 

$

26,329

 

 

 

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

 

 

Accounts payable

 

$

370

 

$

448

 

Accrued income taxes

 

 

89

 

 

82

 

Debt due within one year

 

 

1,200

 

 

1,093

 

Other current liabilities

 

 

929

 

 

1,046

 

Total current liabilities

 

 

2,588

 

 

2,669

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

7,253

 

 

7,397

 

Deferred income taxes, net

 

 

310

 

 

339

 

Other long-term liabilities

 

 

1,027

 

 

1,108

 

Total long-term liabilities

 

 

8,590

 

 

8,844

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

Redeemable noncontrolling interest

 

 

11

 

 

8

 

 

 

 

 

 

 

 

 

Shares, CHF 0.10 par value, 393,397,220 authorized, 167,617,649 conditionally authorized, 370,967,382 issued and 365,081,912 outstanding at March 31, 2016 and CHF 15.00 par value, 396,260,487 authorized, 167,617,649 conditionally authorized, 373,830,649 issued and 364,035,397 outstanding at December 31, 2015

 

 

34

 

 

5,193

 

Additional paid-in capital

 

 

10,674

 

 

5,739

 

Treasury shares, at cost, 2,863,267 held at December 31, 2015

 

 

 

 

(240)

 

Retained earnings

 

 

4,389

 

 

4,140

 

Accumulated other comprehensive loss

 

 

(339)

 

 

(334)

 

Total controlling interest shareholders’ equity

 

 

14,758

 

 

14,498

 

Noncontrolling interest

 

 

298

 

 

310

 

Total equity

 

 

15,056

 

 

14,808

 

Total liabilities and equity

 

$

26,245

 

$

26,329

 

 

 

See accompanying notes.

 

-  3  -


 

TRANSOCEAN LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(In millions)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

Three months ended 

 

 

 

March 31, 

 

March 31, 

 

 

    

2016

    

2015

    

2016

    

2015

 

 

 

Quantity

 

Amount

 

Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

 

364

 

 

362

 

$

5,193

 

$

5,169

 

Reduction of par value

 

 

 —

 

 

 

 

(5,159)

 

 

 

Issuance of shares under share-based compensation plans

 

 

1

 

 

1

 

 

 

 

14

 

Balance, end of period

 

 

365

 

 

363

 

$

34

 

$

5,183

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional paid-in capital

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

 

 

 

 

 

 

$

5,739

 

$

5,797

 

Share-based compensation

 

 

 

 

 

 

 

 

13

 

 

19

 

Reduction of par value

 

 

 

 

 

 

 

 

5,159

 

 

 

Issuance of shares under share-based compensation plans

 

 

 

 

 

 

 

 

 —

 

 

(15)

 

Cancellation of shares held in treasury

 

 

 

 

 

 

 

 

(240)

 

 

 —

 

Allocated capital for transactions with holders of noncontrolling interest

 

 

 

 

 

 

 

 

4

 

 

9

 

Other, net

 

 

 

 

 

 

 

 

(1)

 

 

(4)

 

Balance, end of period

 

 

 

 

 

 

 

$

10,674

 

$

5,806

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury shares, at cost

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

 

 

 

 

 

 

$

(240)

 

$

(240)

 

Cancellation of shares held in treasury

 

 

 

 

 

 

 

 

240

 

 

 —

 

Balance, end of period

 

 

 

 

 

 

 

$

 —

 

$

(240)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

 

 

 

 

 

 

$

4,140

 

$

3,349

 

Net income (loss) attributable to controlling interest

 

 

 

 

 

 

 

 

249

 

 

(483)

 

Balance, end of period

 

 

 

 

 

 

 

$

4,389

 

$

2,866

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

 

 

 

 

 

 

$

(334)

 

$

(404)

 

Other comprehensive loss attributable to controlling interest

 

 

 

 

 

 

 

 

(5)

 

 

(10)

 

Balance, end of period

 

 

 

 

 

 

 

$

(339)

 

$

(414)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total controlling interest shareholders’ equity

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

 

 

 

 

 

 

$

14,498

 

$

13,671

 

Total comprehensive income (loss) attributable to controlling interest

 

 

 

 

 

 

 

 

244

 

 

(493)

 

Share-based compensation

 

 

 

 

 

 

 

 

13

 

 

19

 

Issuance of shares under share-based compensation plans

 

 

 

 

 

 

 

 

 —

 

 

(1)

 

Allocated capital for transactions with holders of noncontrolling interest

 

 

 

 

 

 

 

 

4

 

 

9

 

Other, net

 

 

 

 

 

 

 

 

(1)

 

 

(4)

 

Balance, end of period

 

 

 

 

 

 

 

$

14,758

 

$

13,201

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

 

 

 

 

 

 

$

310

 

$

311

 

Total comprehensive income attributable to noncontrolling interest

 

 

 

 

 

 

 

 

3

 

 

14

 

Reacquired noncontrolling interest

 

 

 

 

 

 

 

 

(3)

 

 

 —

 

Distributions to holders of noncontrolling interest

 

 

 

 

 

 

 

 

(8)

 

 

(7)

 

Allocated capital for transactions with holders of noncontrolling interest

 

 

 

 

 

 

 

 

(4)

 

 

(9)

 

Balance, end of period

 

 

 

 

 

 

 

$

298

 

$

309

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total equity

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

 

 

 

 

 

 

$

14,808

 

$

13,982

 

Total comprehensive income (loss)

 

 

 

 

 

 

 

 

247

 

 

(479)

 

Share-based compensation

 

 

 

 

 

 

 

 

13

 

 

19

 

Issuance of shares under share-based compensation plans

 

 

 

 

 

 

 

 

 —

 

 

(1)

 

Reacquired noncontrolling interest

 

 

 

 

 

 

 

 

(3)

 

 

 —

 

Distributions to holders of noncontrolling interest

 

 

 

 

 

 

 

 

(8)

 

 

(7)

 

Other, net

 

 

 

 

 

 

 

 

(1)

 

 

(4)

 

Balance, end of period

 

 

 

 

 

 

 

$

15,056

 

$

13,510

 

 

See accompanying notes.

 

-  4  -


 

TRANSOCEAN LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

 

 

March 31, 

 

 

    

2016

    

2015

 

 

 

 

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

 

 

Net income (loss)

 

$

255

 

$

(469)

 

Adjustments to reconcile to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation

 

 

217

 

 

291

 

Share-based compensation expense

 

 

13

 

 

19

 

Loss on impairment

 

 

3

 

 

936

 

(Gain) loss on disposal of assets, net

 

 

(1)

 

 

7

 

Deferred income tax benefit

 

 

(1)

 

 

(98)

 

Other, net

 

 

5

 

 

8

 

Changes in deferred revenues, net

 

 

(25)

 

 

(39)

 

Changes in deferred costs, net

 

 

37

 

 

57

 

Changes in operating assets and liabilities

 

 

128

 

 

(186)

 

Net cash provided by operating activities

 

 

631

 

 

526

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

Capital expenditures

 

 

(368)

 

 

(201)

 

Proceeds from disposal of assets, net

 

 

4

 

 

9

 

Net cash used in investing activities

 

 

(364)

 

 

(192)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

Repayments of debt

 

 

(55)

 

 

(63)

 

Deposit to cash account restricted for financing activities

 

 

(24)

 

 

 

Proceeds from cash investments restricted for financing activities

 

 

49

 

 

57

 

Distributions of qualifying additional paid-in capital

 

 

 —

 

 

(272)

 

Distributions to holders of noncontrolling interest

 

 

(7)

 

 

(7)

 

Other, net

 

 

5

 

 

(2)

 

Net cash used in financing activities

 

 

(32)

 

 

(287)

 

 

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

 

235

 

 

47

 

Cash and cash equivalents at beginning of period

 

 

2,339

 

 

2,635

 

Cash and cash equivalents at end of period

 

$

2,574

 

$

2,682

 

 

 

 

 

See accompanying notes.

 

-  5  -


 

Table of Contents

TRANSOCEAN LTD. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1—Business

Transocean Ltd. (together with its subsidiaries and predecessors, unless the context requires otherwise, “Transocean,” “we,” “us” or “our”) is a leading international provider of offshore contract drilling services for oil and gas wells.  We specialize in technically demanding sectors of the offshore drilling business with a particular focus on deepwater and harsh environment drilling services.  Our mobile offshore drilling fleet is considered one of the most versatile fleets in the world.  We contract our drilling rigs, related equipment and work crews predominantly on a dayrate basis to drill oil and gas wells.  At March 31, 2016, we owned or had partial ownership interests in and operated 60 mobile offshore drilling units, including 28 ultra‑deepwater floaters, seven harsh environment floaters, five deepwater floaters, 10 midwater floaters and 10 high‑specification jackups.  At March 31, 2016, we also had six ultra‑deepwater drillships and five high‑specification jackups under construction or under contract to be constructed.  See Note 8—Drilling Fleet.

On October 29, 2015, shareholders at our extraordinary general meeting approved the reduction of the par value of each of our shares to CHF 0.10 from the original par value of CHF 15.00.  Following formal notification to creditors and establishment of a public deed of compliance, the reduction of par value became effective as of January 7, 2016, upon registration in the commercial register.  See Note 12—Shareholders’ Equity.

Note 2—Significant Accounting Policies

Presentation—We have prepared our accompanying unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (“U.S.”) for interim financial information and with the instructions to Form 10‑Q and Article 10 of Regulation S‑X of the U.S. Securities and Exchange Commission (“SEC”).  Pursuant to such rules and regulations, these financial statements do not include all disclosures required by accounting principles generally accepted in the U.S. for complete financial statements.  The condensed consolidated financial statements reflect all adjustments, which are, in the opinion of management, necessary for a fair presentation of financial position, results of operations and cash flows for the interim periods.  Such adjustments are considered to be of a normal recurring nature unless otherwise noted.  Operating results for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016 or for any future period.  The accompanying condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto as of December 31, 2015 and 2014 and for each of the three years in the period ended December 31, 2015 included in our annual report on Form 10‑K filed on February 25, 2016.

Accounting estimates—To prepare financial statements in accordance with accounting principles generally accepted in the U.S., we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosures of contingent assets and liabilities.  On an ongoing basis, we evaluate our estimates and assumptions, including those related to our allowance for doubtful accounts, materials and supplies obsolescence, property and equipment, assets held for sale, income taxes, contingencies, share‑based compensation, defined benefit pension plans and other postretirement benefits.  We base our estimates and assumptions on historical experience and on various other factors we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amounts of assets and liabilities that are not readily apparent from other sources.  Actual results could differ from such estimates.

Fair value measurements—We estimate fair value at a price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market for the asset or liability.  Our valuation techniques require inputs that we categorize using a three‑level hierarchy, from highest to lowest level of observable inputs, as follows: (1) significant observable inputs, including unadjusted quoted prices for identical assets or liabilities in active markets (“Level 1”), (2) significant other observable inputs, including direct or indirect market data for similar assets or liabilities in active markets or identical assets or liabilities in less active markets (“Level 2”) and (3) significant unobservable inputs, including those that require considerable judgment for which there is little or no market data (“Level 3”).  When multiple input levels are required for a valuation, we categorize the entire fair value measurement according to the lowest level of input that is significant to the measurement even though we may have also utilized significant inputs that are more readily observable.

Capitalized interest—We capitalize interest costs for qualifying construction and upgrade projects.  In the three months ended March 31, 2016 and 2015, we capitalized interest costs of $49 million and $26 million, respectively, for our construction work in progress.

Reclassifications—We have made certain reclassifications to prior period amounts to conform with the current period’s presentation.  Such reclassifications did not have a material effect on our condensed consolidated statement of financial position, results of operations or cash flows.

Subsequent events—We evaluate subsequent events through the time of our filing on the date we issue our financial statements.  See Note 16—Subsequent Events.

-  6  -


 

Table of Contents

TRANSOCEAN LTD. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—continued

(Unaudited)

Note 3—New Accounting Pronouncements

Recently issued accounting standards

Presentation of financial statements—Effective with our annual report for the year ending December 31, 2016, we will adopt the accounting standards update that requires us to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued.  The update is effective for the annual period ending after December 15, 2016 and for interim and annual periods thereafter.  We do not expect that our adoption will have a material effect on the disclosures contained in our notes to condensed consolidated financial statements.

Stock compensation—Effective no later than our annual report for the year ending December 31, 2016, we will adopt the accounting standards update that allows for simplification of the accounting for share‑based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows.  The update, which permits early adoption, is effective for the annual period ending after December 15, 2016 and for interim and annual periods thereafter do not expect that our adoption will have a material effect on our condensed consolidated statements of financial position, operations and cash flows or the notes thereto.

Revenue from contracts with customers—Effective January 1, 2018, we will adopt the accounting standards update that requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  The update, which permits early adoption, is effective for interim and annual periods beginning on or after December 15, 2017.  We are evaluating the requirements to determine the effect such requirements may have on our condensed consolidated statements of financial position, operations and cash flows and on the disclosures contained in our notes to condensed consolidated financial statements.

Leases—Effective no later than January 1, 2019, we will adopt the accounting standards update that (a) requires lessees to recognize a right‑to‑use asset and a lease liability for virtually all leases, and (b) updates previous accounting standards for lessors to align certain requirements with the updates to lessee accounting standards and the revenue recognition accounting standards.  The update, which permits early adoption, is effective for interim and annual periods beginning on or after December 15, 2018.  We are evaluating the requirements to determine the effect such requirements may have on our condensed consolidated statements of financial position, operations and cash flows and on the disclosures contained in our notes to condensed consolidated financial statements.

Note 4—Variable Interest Entities

Angola Deepwater Drilling Company Limited (“ADDCL”), a consolidated Cayman Islands company, and Transocean Drilling Services Offshore Inc. (“TDSOI”), a consolidated British Virgin Islands company, are variable interest entities for which we are the primary beneficiary.  Accordingly, we consolidate the operating results, assets and liabilities of ADDCL and TDSOI.  The carrying amounts associated with our consolidated variable interest entities, after eliminating the effect of intercompany transactions, were as follows (in millions):

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

 

    

2016

    

2015

 

Assets

 

$

1,154

 

$

1,157

 

Liabilities

 

 

43

 

 

49

 

Net carrying amount

 

$

1,111

 

$

1,108

 

 

Note 5—Impairments

Assets held for sale—In the three months ended March 31, 2016, we recognized an aggregate loss of $3 million ($2 million, net of tax), associated with the impairment of the midwater floater Transocean John Shaw, along with related equipment, which was classified as an asset held for sale at the time of impairment.  We measured the impairment of the drilling unit and related equipment as the amount by which the carrying amount exceeded the estimated fair value less costs to sell.  We estimated fair value of the assets using significant other observable inputs, representative of Level 2 fair value measurements, including indicative market values for the drilling unit and related equipment to be sold for scrap value.

In the three months ended March 31, 2015, we recognized an aggregate loss of $429 million ($393 million, or $1.07 per diluted share, net of tax), associated with the impairment of the ultra‑deepwater floater Deepwater Expedition, the deepwater floaters Sedco 707 and Transocean Rather and the midwater floaters GSF Aleutian Key, GSF Arctic III and Transocean Legend, along with related equipment, which were classified as assets held for sale at the time of impairment.  We measured the impairment of the drilling units and related equipment as the amount by which the carrying amount exceeded the estimated fair value less costs to sell.  We estimated the fair value of the assets using significant other observable inputs, representative of Level 2 fair value measurements, including indicative market values for the drilling units and related equipment to be sold for scrap value.

-  7  -


 

Table of Contents

TRANSOCEAN LTD. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—continued

(Unaudited)

If we commit to plans to sell additional rigs for values below the respective carrying amounts, we may be required to recognize additional losses in future periods associated with the impairment of such assets.

Assets held and used—During the three months ended March 31, 2015, we identified indicators that the asset groups in our contract drilling services reporting unit may not be recoverable.  Such indicators included a reduction in the number of new contract opportunities, low dayrate fixtures and contract terminations.  Our deepwater floater asset group, in particular, experienced further declines in projected dayrates and utilization partly caused by more technologically advanced drilling units aggressively competing with less capable drilling units.  As a result of our testing, we determined that the carrying amount of the deepwater floater asset group was impaired.  In the three months ended March 31, 2015, we recognized a loss of $507 million ($481 million, or $1.34 per diluted share, net of tax) associated with the impairment of these long‑lived assets.  We measured the fair value of the asset group by applying a combination of income and cost approaches, using projected discounted cash flows and estimates of the exchange price that would be received for the assets in the principal or most advantageous market for the assets in an orderly transaction between market participants as of the measurement date.  Our estimates of fair value required us to use significant unobservable inputs, representative of a Level 3 fair value measurement, including assumptions related to the future performance of our contract drilling services reporting unit, such as future commodity prices, projected demand for our services, rig availability and dayrates.

If we experience increasingly unfavorable changes to actual or anticipated dayrates or other impairment indicators, or if we are unable to secure new or extended contracts for our active units or the reactivation of any of our stacked units, we may be required to recognize additional losses in future periods as a result of impairments of the carrying amount of one or more of our asset groups.

Note 6—Income Taxes

Tax rate—Transocean Ltd., a holding company and Swiss resident, is exempt from cantonal and communal income tax in Switzerland, but is subject to Swiss federal income tax.  At the federal level, qualifying net dividend income and net capital gains on the sale of qualifying investments in subsidiaries are exempt from Swiss federal income tax.  Consequently, Transocean Ltd. expects dividends from its subsidiaries and capital gains from sales of investments in its subsidiaries to be exempt from Swiss federal income tax.

Our provision for income taxes is based on the tax laws and rates applicable in the jurisdictions in which we operate and earn income.  The relationship between our provision for or benefit from income taxes and our income or loss before income taxes can vary significantly from period to period considering, among other factors, (a) the overall level of income before income taxes, (b) changes in the blend of income that is taxed based on gross revenues rather than income before taxes, (c) rig movements between taxing jurisdictions and (d) our rig operating structures.  Generally, our annual marginal tax rate is lower than our annual effective tax rate.  In the three months ended March 31, 2016 and 2015, our estimated annual effective tax rate was 22.8 percent and 25.8 percent, respectively, based on estimated annual income from continuing operations before income taxes, after excluding certain items, such as losses on impairment and gains and losses on certain asset disposals.  The tax effect, if any, of the excluded items as well as settlements of prior year tax liabilities and changes in prior year tax estimates are all treated as discrete period tax expenses or benefits.

Deferred taxes—The valuation allowance for our deferred tax assets was as follows (in millions):

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

 

    

2016

    

2015

 

Valuation allowance for deferred tax assets

 

$

391

 

$

374

 

 

The increase in the valuation allowance for our deferred tax assets was primarily related to net operating losses generated in Norway and the United Kingdom (the “U.K.”).

Unrecognized tax benefits—The liabilities related to our unrecognized tax benefits, including related interest and penalties that we recognize as a component of income tax expense, were as follows (in millions):

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

 

    

2016

    

2015

 

Unrecognized tax benefits, excluding interest and penalties

 

$

296

 

$

287

 

Interest and penalties

 

 

119

 

 

118

 

Unrecognized tax benefits, including interest and penalties

 

$

415

 

$

405

 

 

In the year ending December 31, 2016, it is reasonably possible that our existing liabilities for unrecognized tax benefits may increase or decrease primarily due to (a) the progression of open audits or investigations or (b) the expiration of statutes of limitation.  However, we cannot reasonably estimate a range of potential changes in our existing liabilities for unrecognized tax benefits due to various uncertainties, such as the unresolved nature of various audits.

-  8  -


 

Table of Contents

TRANSOCEAN LTD. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—continued

(Unaudited)

Tax returns—We file federal and local tax returns in several jurisdictions throughout the world.  With few exceptions, we are no longer subject to examinations of our U.S. and non‑U.S. tax matters for years prior to 2010.

Our tax returns in the major jurisdictions in which we operate, other than the U.S., Norway and Brazil, which are mentioned below, are generally subject to examination for periods ranging from three to six years.  We have agreed to extensions beyond the statute of limitations in two major jurisdictions for up to 20 years.  Tax authorities in certain jurisdictions are examining our tax returns and in some cases have issued assessments.  We are defending our tax positions in those jurisdictions.  While we cannot predict or provide assurance as to the timing or the outcome of these proceedings, we do not expect the ultimate liability to have a material adverse effect on our condensed consolidated statement of financial position or results of operations, although it may have a material adverse effect on our condensed consolidated statement of cash flows.

U.S. tax investigationsIn January 2014, we received a draft assessment from the U.S. tax authorities related to our 2010 and 2011 U.S. federal income tax returns.  The significant issue raised in the assessment relates to transfer pricing for certain charters of drilling rigs between our subsidiaries.  This issue, if successfully challenged, would result in net adjustments of approximately $290 million of additional taxes, excluding interest and penalties.  We believe our U.S. federal income tax returns are materially correct as filed, and we intend to continue to vigorously defend against all such claims to the contrary.  An unfavorable outcome on these adjustments could result in a material adverse effect on our condensed consolidated statement of financial position, results of operations or cash flows.  Furthermore, if the authorities were to continue to pursue these positions with respect to subsequent years and were successful in such assertions, our effective tax rate on worldwide earnings with respect to years following 2011 could increase substantially, and could have a material adverse effect on our condensed consolidated results of operations or cash flows.  See Note 16—Subsequent Events.

Norway tax investigations and trial—Norwegian civil tax authorities are investigating certain transactions undertaken by our subsidiaries in 1999, 2001 and 2002 as well as the actions of certain employees of our former external tax advisors on these transactions.  At March 31, 2016, outstanding civil tax assessments were as follows: (a) NOK 412 million, equivalent to approximately $50 million, plus interest, related to a 2001 dividend payment and (b) NOK 43 million, equivalent to approximately $5 million, plus interest, related to certain foreign exchange deductions and dividend withholding tax.  On June 26, 2014, the Norwegian district court in Oslo ruled that our subsidiary was liable for the civil tax assessment of NOK 412 million, equivalent to approximately $50 million, but waived all penalties and interest.  On September 12, 2014, we appealed the ruling.  We intend to take all other appropriate action to continue to support our position that our Norwegian tax returns are materially correct as filed.  An unfavorable outcome on the Norwegian civil tax matters could result in a material adverse effect on our condensed consolidated statement of financial position, results of operations or cash flows.

In June 2011, the Norwegian authorities issued criminal indictments against two of our subsidiaries alleging misleading or incomplete disclosures in Norwegian tax returns for the years 1999 through 2002, as well as inaccuracies in Norwegian statutory financial statements for the years ended December 31, 1996 through 2001.  The Norwegian authorities subsequently extended a criminal indictment against a third subsidiary in April 2012.  The Norwegian authorities also issued criminal indictments against two employees of our former external tax advisors related to the disclosures in our tax returns, and our former external Norwegian tax attorney related to certain of our restructuring transactions and the 2001 dividend payment.  In January 2016, the Norwegian authorities formally and unconditionally dropped all criminal charges against our subsidiaries and the two employees of our former external advisors and our former external Norwegian attorney.  As a result, no criminal charges remain outstanding for any of the previously reported Norway tax investigations or trials, and all of our subsidiaries and external advisors have been fully acquitted of all criminal charges.

Brazil tax investigations—Certain of our Brazilian income tax returns for the years 2000 through 2004 are currently under examination.  In December 2005, the Brazilian tax authorities issued an aggregate tax assessment of BRL 778 million, equivalent to approximately $217 million, including penalties and interest.  On January 25, 2008, we filed a protest letter with the Brazilian tax authorities, and we are currently engaged in the appeals process.  On May 19, 2014, with respect to our Brazilian income tax returns for the years 2009 and 2010, the Brazilian tax authorities issued an aggregate tax assessment of BRL 133 million, equivalent to approximately $37 million, including penalties and interest.  On June 18, 2014, we filed a protest letter with the Brazilian tax authorities.  We believe our returns are materially correct as filed, and we are vigorously contesting these assessments.  An unfavorable outcome on these proposed assessments could result in a material adverse effect on our condensed consolidated statement of financial position, results of operations or cash flows.

Other tax matters—We conduct operations through our various subsidiaries in a number of countries throughout the world.  Each country has its own tax regimes with varying nominal rates, deductions, employee contribution requirements and tax attributes.  From time to time, we may identify changes to previously evaluated tax positions that could result in adjustments to our recorded assets and liabilities.  Although we are unable to predict the outcome of these changes, we do not expect the effect, if any, resulting from these adjustments to have a material adverse effect on our condensed consolidated statement of financial position, results of operations or cash flows.

-  9  -


 

Table of Contents

TRANSOCEAN LTD. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—continued

(Unaudited)

Note 7—Earnings (Loss) Per Share

The numerator and denominator used for the computation of basic and diluted per share earnings from continuing operations were as follows (in millions, except per share data):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended  March 31, 

 

 

 

2016

 

2015

 

 

    

Basic

    

Diluted

    

Basic

    

Diluted

 

Numerator for earnings (loss) per share

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations attributable to controlling interest

 

$

250

 

$

250

 

$

(481)

 

$

(481)

 

Undistributed earnings allocable to participating securities

 

 

(3)

 

 

(3)

 

 

 —

 

 

 —

 

Income (loss) from continuing operations available to shareholders

 

$

247

 

$

247

 

$

(481)

 

$

(481)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator for earnings (loss) per share

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding

 

 

364

 

 

364

 

 

363

 

 

363

 

Effect of stock options and other share-based awards

 

 

 

 

 

 

 —

 

 

 —

 

Weighted-average shares for per share calculation

 

 

364

 

 

364

 

 

363

 

 

363

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per share earnings (loss) from continuing operations

 

$

0.68

 

$

0.68

 

$

(1.32)

 

$

(1.32)

 

 

In the three months ended March 31, 2016 and 2015, we excluded from the calculation 3.2 million and 5.0 million share‑based awards, respectively, since the effect would have been anti‑dilutive.

Note 8—Drilling Fleet

Construction work in progress—For the three months ended March 31, 2016 and 2015, the changes in our construction work in progress, including capital expenditures and other capital additions, such as capitalized interest, were as follows (in millions):

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

 

 

March 31, 

 

 

    

2016

    

2015

 

Construction work in progress, at beginning of period

 

$

3,736

 

$

2,451

 

 

 

 

 

 

 

 

 

Capital additions

 

 

 

 

 

 

 

Newbuild construction program

 

 

324

 

 

83

 

Other equipment and construction projects

 

 

44

 

 

118

 

Total capital expenditures

 

 

368

 

 

201

 

Changes in accrued capital additions

 

 

(74)

 

 

(22)

 

 

 

 

 

 

 

 

 

Property and equipment placed into service

 

 

 

 

 

 

 

Newbuild construction program

 

 

(849)

 

 

 —

 

Other property and equipment

 

 

(115)

 

 

(91)

 

Construction work in progress, at end of period

 

$

3,066

 

$

2,539

 

 

Dispositions—During the three months ended March 31, 2016, in connection with our efforts to dispose of non‑strategic assets, we completed the sale of the midwater floaters Falcon 100 and Sedneth 701, along with related equipment.  In the three months ended March 31, 2016, we received aggregate net cash proceeds of $3 million and recognized an aggregate net gain of $1 million associated with the disposal of these assets.  In the three months ended March 31, 2016, we received cash proceeds of $1 million and recognized an aggregate net gain of less than $1 million associated with the disposal of assets unrelated to rig sales.

During the three months ended March 31, 2015, in connection with our efforts to dispose of non‑strategic assets, we completed the sale of the deepwater floater Discoverer Seven Seas and the midwater floater C. Kirk Rhein, Jr. along with related equipment.  In the three months ended March 31, 2015, we received aggregate net cash proceeds of $5 million and recognized an aggregate net gain of $2 million associated with the disposal of these assets.  In the three months ended March 31, 2015, we received cash proceeds of $4 million and recognized an aggregate net loss of $9 million associated with the disposal of assets unrelated to rig sales.

-  10  -


 

Table of Contents

TRANSOCEAN LTD. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—continued

(Unaudited)

During the three months ended March 31, 2016, we committed to a plan to sell the midwater floater Transocean John Shaw, along with related equipment.  At March 31, 2016, the aggregate carrying amount of our assets held for sale was $8 million, including the deepwater floater Deepwater Navigator and the midwater floaters GSF Grand Banks, GSF Rig 135, and Transocean John Shaw, along with related equipment, and certain corporate assets.  At December 31, 2015, the aggregate carrying amount of our assets held for sale was $8 million, including the deepwater floater Deepwater Navigator and the midwater floaters Falcon 100, GSF Grand Banks, GSF Rig 135 and Sedneth 701, along with related equipment, and certain corporate assets.

See Note 5—Impairments.

 

Note 9—Debt

Overview—Debt, net of debt‑related balances, including unamortized discounts, premiums, issue costs and fair value adjustments, was comprised of the following (in millions):

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

 

 

2016

 

2015

 

5.05% Senior Notes due December 2016 (a)

 

$

974

 

$

973

 

2.5% Senior Notes due October 2017 (a)

 

 

568

 

 

568

 

Eksportfinans Loans due January 2018

 

 

179

 

 

216

 

6.00% Senior Notes due March 2018 (a)

 

 

795

 

 

789

 

7.375% Senior Notes due April 2018 (a)

 

 

236

 

 

236

 

6.50% Senior Notes due November 2020 (a)

 

 

910

 

 

911

 

6.375% Senior Notes due December 2021 (a)

 

 

1,144

 

 

1,143

 

3.8% Senior Notes due October 2022 (a)

 

 

726

 

 

726

 

7.45% Notes due April 2027 (a)

 

 

94

 

 

94

 

8% Debentures due April 2027 (a)

 

 

57

 

 

57

 

7% Notes due June 2028

 

 

308

 

 

309

 

Capital lease contract due August 2029

 

 

585

 

 

591

 

7.5% Notes due April 2031 (a)

 

 

589

 

 

589

 

6.80% Senior Notes due March 2038 (a)

 

 

991

 

 

991

 

7.35% Senior Notes due December 2041 (a)

 

 

297

 

 

297

 

Total debt

 

 

8,453

 

 

8,490

 

Less debt due within one year

 

 

 

 

 

 

 

5.05% Senior Notes due December 2016 (a)

 

 

974

 

 

973

 

2.5% Senior Notes due October 2017 (a)

 

 

34

 

 

 —

 

6.00% Senior Notes due March 2018 (a)

 

 

15

 

 

 —

 

7.375% Senior Notes due April 2018 (a)

 

 

6

 

 

 —

 

6.50% Senior Notes due November 2020 (a)

 

 

2

 

 

 —

 

6.375% Senior Notes due December 2021 (a)

 

 

42

 

 

 —

 

Eksportfinans Loans due January 2018

 

 

103

 

 

97

 

Capital lease contract due August 2029

 

 

24

 

 

23

 

Total debt due within one year

 

 

1,200

 

 

1,093

 

Total long-term debt

 

$

7,253

 

$

7,397

 


(a)

Transocean Inc., a 100 percent owned subsidiary of Transocean Ltd., is the issuer of the notes and debentures, which have been guaranteed by Transocean Ltd.  Transocean Ltd. has also guaranteed borrowings under the Five‑Year Revolving Credit Facility.  Transocean Ltd. and Transocean Inc. are not subject to any significant restrictions on their ability to obtain funds from their consolidated subsidiaries by dividends, loans or return of capital distributions.  See Note 15—Condensed Consolidating Financial Information.

 

In March 2016, we entered into transactions to repurchase in the open market an aggregate principal amount of $100 million of our debt securities for an aggregate cash payment of $82 million, including $24 million that was recorded in current assets and held in an escrow account as of March 31, 2016 pending settlement of certain of the repurchased notes.  At March 31, 2016, in connection with such transactions, which are expected to be settled in April 2016, we reclassified the respective carrying amount of such notes to debt due within one year as presented above.

Five‑Year Revolving Credit Facility—In June 2014, we entered into an amended and restated bank credit agreement, which established a $3.0 billion unsecured five‑year revolving credit facility, that is scheduled to expire on June 28, 2019 (the “Five‑Year Revolving Credit Facility”).  Among other things, the Five‑Year Revolving Credit Facility includes limitations on creating liens, incurring subsidiary debt, transactions with affiliates, sale/leaseback transactions, mergers and the sale of substantially all assets.  The Five‑Year Revolving Credit Facility also includes a covenant imposing a maximum debt to tangible capitalization ratio of 0.6 to 1.0.  Borrowings under the Five‑Year Revolving Credit Facility are subject to acceleration upon the occurrence of an event of default, borrowings are guaranteed by Transocean Ltd. and may be prepaid in whole or in part without premium or penalty.

-  11  -


 

Table of Contents

TRANSOCEAN LTD. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—continued

(Unaudited)

We may borrow under the Five‑Year Revolving Credit Facility at either (1) the adjusted London Interbank Offered Rate (“LIBOR”) plus a margin (the “Five‑Year Revolving Credit Facility Margin”), which ranges from 1.125 percent to 2.0 percent based on the credit rating of our non‑credit enhanced senior unsecured long‑term debt (“Debt Rating”), or (2) the base rate specified in the credit agreement plus the Five‑Year Revolving Credit Facility Margin, less one percent per annum.  Throughout the term of the Five‑Year Revolving Credit Facility, we pay a facility fee on the daily unused amount of the underlying commitment which ranges from 0.15 percent to 0.35 percent depending on our Debt Rating.  Effective February 29, 2016, as a result of a further reduction of our Debt Rating, the Five‑Year Revolving Credit Facility Margin increased to 2.0 percent from 1.75 percent and the facility fee increased to 0.35 percent from 0.275 percent.  At March 31, 2016, based on our Debt Rating on that date, the Five‑Year Revolving Credit Facility Margin was 2.0 percent and the facility fee was 0.35 percent.  At March 31, 2016, we had no borrowings outstanding or letters of credit issued, and we had $3.0 billion of available borrowing capacity under the Five‑Year Revolving Credit Facility.

5.05% Senior Notes, 6.375% Senior Notes and 7.35% Senior Notes—In December 2011, we issued $1.0 billion aggregate principal amount of 5.05% Senior Notes due December 2016 (the “5.05% Senior Notes”), $1.2 billion aggregate principal amount of 6.375% Senior Notes due December 2021 (the “6.375% Senior Notes”) and $300 million aggregate principal amount of 7.35% Senior Notes due December 2041 (the “7.35% Senior Notes”).  The interest rates for the notes are subject to adjustment from time to time upon a change to our Debt Rating.  Effective June 15, 2016, as a result of a further reduction of our Debt Rating, the interest rates on the 5.05% Senior Notes, the 6.375% Senior Notes and the 7.35% Senior Notes will increase to 6.30 percent, 7.625 percent and 8.60 percent, respectively.

2.5% Senior Notes and 3.8% Senior Notes—In September 2012, we issued $750 million aggregate principal amount of 2.5% Senior Notes due October 2017 (the “2.5% Senior Notes”) and $750 million aggregate principal amount of 3.8% Senior Notes due October 2022 (the “3.8% Senior Notes”).  The interest rates for the notes are subject to adjustment from time to time upon a change to our Debt Rating.  Effective April 15, 2016, as a result of a further reduction of our Debt Rating, the interest rates on the 2.5% Senior Notes and the 3.8% Senior Notes will increase to 3.75 percent and 5.05 percent, respectively.

Note 10—Postemployment Benefit Plans

As of March 31, 2016, we maintained certain funded and unfunded defined benefit plans in the U.S., under which benefits had ceased accruing (collectively, the “U.S. Plans”).  As of March 31, 2016, we also maintained defined benefit plans in the U.K., under which benefits had ceased accruing, and in Norway, Nigeria and Indonesia (collectively, the “Non‑U.S. Plans”).  We also maintained certain unfunded other postretirement employee benefit plans (collectively, the “OPEB Plans”), under which benefits to eligible participants diminish during a phase‑out period ending December 31, 2025.

The components of net periodic benefit costs, before tax, and funding contributions for these plans were as follows (in millions):