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  • 10-Q (Nov 1, 2017)
  • 10-Q (Aug 2, 2017)
  • 10-Q (May 3, 2017)
  • 10-Q (Nov 2, 2016)
  • 10-Q (Aug 3, 2016)
  • 10-Q (May 5, 2016)

 
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Transocean 10-Q 2017
rig_Current_Folio_10Q

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, 2017

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, a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and ”emerging growth 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 ☐   Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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 25, 2017, 391,045,417 shares were outstanding.

 


 

TRANSOCEAN LTD. AND SUBSIDIARIES

INDEX TO QUARTERLY REPORT ON FORM 10‑Q

QUARTER ENDED MARCH 31, 2017

 

 

 

 

 

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

15

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

26

Item 4. 

Controls and Procedures

27

 

 

 

PART II. 

OTHER INFORMATION

 

Item 1. 

Legal Proceedings

28

Item 1A. 

Risk Factors

28

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

28

Item 4. 

Mine Safety Disclosures

28

Item 6. 

Exhibits

29

 

 

 

 

 


 

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, 

 

 

 

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

 

 

 

 

See accompanying notes.

 

-  1  -


 

TRANSOCEAN LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

 

 

March 31, 

 

 

 

2017

    

2016

 

 

 

 

 

 

 

 

 

Net income

 

$

95

 

$

241

 

Net income attributable to noncontrolling interest

 

 

 4

 

 

 6

 

Net income attributable to controlling interest

 

 

91

 

 

235

 

 

 

 

 

 

 

 

 

Components of net periodic benefit costs before reclassifications

 

 

(2)

 

 

(7)

 

Components of net periodic benefit costs reclassified to net income

 

 

 1

 

 

 2

 

 

 

 

 

 

 

 

 

Other comprehensive loss before income taxes

 

 

(1)

 

 

(5)

 

Income taxes related to other comprehensive loss

 

 

 —

 

 

 —

 

Other comprehensive loss

 

 

(1)

 

 

(5)

 

Other comprehensive income attributable to noncontrolling interest

 

 

 —

 

 

 —

 

Other comprehensive loss attributable to controlling interest

 

 

(1)

 

 

(5)

 

 

 

 

 

 

 

 

 

Total comprehensive income

 

 

94

 

 

236

 

Total comprehensive income attributable to noncontrolling interest

 

 

 4

 

 

 6

 

Total comprehensive income attributable to controlling interest

 

$

90

 

$

230

 

 

 

See accompanying notes.

 

-  2  -


 

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

 

 

 

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, 

 

 

    

2017

    

2016

    

2017

    

2016

 

 

 

Quantity

 

Amount

 

Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

 

389

 

 

364

 

$

36

 

$

5,193

 

Issuance of shares under share-based compensation plans

 

 

 2

 

 

 1

 

 

 1

 

 

 —

 

Reduction of par value

 

 

 —

 

 

 

 

 —

 

 

(5,159)

 

Balance, end of period

 

 

391

 

 

365

 

$

37

 

$

34

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional paid-in capital

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

 

 

 

 

 

 

$

10,993

 

$

5,736

 

Share-based compensation

 

 

 

 

 

 

 

 

10

 

 

13

 

Issuance of shares under share-based compensation plans

 

 

 

 

 

 

 

 

(1)

 

 

 —

 

Reduction of par value

 

 

 

 

 

 

 

 

 —

 

 

5,159

 

Cancellation of shares held in treasury

 

 

 

 

 

 

 

 

 —

 

 

(240)

 

Allocated capital for transactions with holders of noncontrolling interest

 

 

 

 

 

 

 

 

 —

 

 

 4

 

Other, net

 

 

 

 

 

 

 

 

(2)

 

 

(1)

 

Balance, end of period

 

 

 

 

 

 

 

$

11,000

 

$

10,671

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury shares, at cost

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

 

 

 

 

 

 

$

 —

 

$

(240)

 

Cancellation of shares held in treasury

 

 

 

 

 

 

 

 

 —

 

 

240

 

Balance, end of period

 

 

 

 

 

 

 

$

 —

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

 

 

 

 

 

 

$

5,056

 

$

4,278

 

Net income attributable to controlling interest

 

 

 

 

 

 

 

 

91

 

 

235

 

Balance, end of period

 

 

 

 

 

 

 

$

5,147

 

$

4,513

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

 

 

 

 

 

 

$

(283)

 

$

(277)

 

Other comprehensive loss attributable to controlling interest

 

 

 

 

 

 

 

 

(1)

 

 

(5)

 

Balance, end of period

 

 

 

 

 

 

 

$

(284)

 

$

(282)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total controlling interest shareholders’ equity

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

 

 

 

 

 

 

$

15,802

 

$

14,690

 

Total comprehensive income attributable to controlling interest

 

 

 

 

 

 

 

 

90

 

 

230

 

Share-based compensation

 

 

 

 

 

 

 

 

10

 

 

13

 

Allocated capital for transactions with holders of noncontrolling interest

 

 

 

 

 

 

 

 

 —

 

 

 4

 

Other, net

 

 

 

 

 

 

 

 

(2)

 

 

(1)

 

Balance, end of period

 

 

 

 

 

 

 

$

15,900

 

$

14,936

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

 

 

 

 

 

 

$

 3

 

$

310

 

Total comprehensive income (loss) attributable to noncontrolling interest

 

 

 

 

 

 

 

 

(3)

 

 

 3

 

Distributions to holders of noncontrolling interest

 

 

 

 

 

 

 

 

 —

 

 

(8)

 

Acquisition of noncontrolling interest

 

 

 

 

 

 

 

 

 —

 

 

(3)

 

Allocated capital for transactions with holders of noncontrolling interest

 

 

 

 

 

 

 

 

 —

 

 

(4)

 

Balance, end of period

 

 

 

 

 

 

 

$

 —

 

$

298

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total equity

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

 

 

 

 

 

 

$

15,805

 

$

15,000

 

Total comprehensive income

 

 

 

 

 

 

 

 

87

 

 

233

 

Share-based compensation

 

 

 

 

 

 

 

 

10

 

 

13

 

Distributions to holders of noncontrolling interest

 

 

 

 

 

 

 

 

 —

 

 

(8)

 

Acquisition of noncontrolling interest

 

 

 

 

 

 

 

 

 —

 

 

(3)

 

Other, net

 

 

 

 

 

 

 

 

(2)

 

 

(1)

 

Balance, end of period

 

 

 

 

 

 

 

$

15,900

 

$

15,234

 

 

See accompanying notes.

 

-  4  -


 

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

 

 

 

 

 

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, 2017, we owned or had partial ownership interests in and operated 56 mobile offshore drilling units, including 30 ultra‑deepwater floaters, seven harsh environment floaters, three deepwater floaters, six midwater floaters and 10 high‑specification jackups.  At March 31, 2017, we also had four ultra‑deepwater drillships and five high‑specification jackups under construction or under contract to be constructed.

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.  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, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017 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, 2016 and 2015 and for each of the three years in the period ended December 31, 2016 included in our annual report on Form 10‑K filed on March 7, 2017.

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 and only capitalize interest costs during periods in which progress for the construction projects continues to be underway.  As of March 31, 2017, we had ceased capitalization of interest costs on four of our uncontracted newbuilds due to a pause in construction progress.  In the three months ended March 31, 2017 and 2016, we capitalized interest costs of $30 million and $49 million, respectively, for 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.

Note 3—New Accounting Pronouncements

Recently adopted accounting standards

Stock compensation—Effective January 1, 2017, we adopted 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 is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods.  Our adoption did not have a material effect on our condensed consolidated statements of financial position, operations or cash flows or on the disclosures contained in our notes to condensed consolidated financial statements.

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Table of Contents

TRANSOCEAN LTD. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—continued

(Unaudited)

Recently issued accounting standards

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 annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period.  Given the interaction with the accounting standards update related to leases, we expect to adopt the updates concurrently, effective January 1, 2018, and we expect to apply the full retrospective approach to our adoption.  Our adoption, and the ultimate effect on our consolidated financial statements, will be based on an evaluation of the contract‑specific facts and circumstances, and such effect could introduce variability to the timing of our revenue recognition relative to current accounting standards.  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 after December 15, 2018, including interim periods within those annual periods.  Under the updated accounting standards, we have determined that our drilling contracts contain a lease component, and our adoption, therefore, will require that we separately recognize revenues associated with the lease and services components.  Given the interaction with the accounting standards update related to revenue from contracts with customers, we expect to adopt the updates concurrently, effective January 1, 2018, and we expect to apply the modified retrospective approach to our adoption.  Our adoption, and the ultimate effect on our condensed consolidated financial statements, will be based on an evaluation of the contract‑specific facts and circumstances, and such effect could introduce variability to the timing of our revenue recognition relative to current accounting standards.  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.

Income taxes—Effective no later than January 1, 2018, we will adopt the accounting standards update that requires an entity to recognize the income tax consequences of an intra‑entity transfer of an asset other than inventory when the transaction occurs as opposed to deferring such recognition into future periods.  The update, which permits early adoption, is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual periods.  We do not expect that our adoption will have a material effect on our condensed consolidated statements of financial position, operations or cash flows or on the disclosures contained in our notes to condensed consolidated financial statements.

Statement of cash flows—Effective no later than January 1, 2018, we will adopt the accounting standards update that requires that amounts generally described as restricted cash or restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning and end of period total amounts presented on the statement of cash flows.  The update, which permits early adoption, is effective for annual periods beginning after December 15, 2017 and interim periods within those annual periods.  Aside from presenting the restricted cash and restricted cash equivalents as a component of the beginning and ending cash balances on our condensed consolidated statements of cash flows, we will remove the effect of proceeds from and deposits to restricted accounts from our cash flows provided by or used in operating and financing activities, as applicable.  For the three months ended March 31, 2017 and 2016, such changes would not have had a material effect on our condensed consolidated statements of cash flows.

Retirement benefits—Effective no later than January 1, 2018, we will adopt the accounting standards update that requires an employer to disaggregate the service cost component from the other components of net benefit cost related to defined benefit retirement plans and other postemployment benefit plans.  The update requires that the service cost component be presented in the same line item as other compensation costs for employees and the other components of net benefit cost in other income and expense on our condensed consolidated statements of operations.  The update also allows only the service cost component of net benefit cost to be eligible for capitalization.  The update, which permits early adoption, is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods.  We do not expect that our adoption will have a material effect on our condensed consolidated statements of cash flows or 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, is a variable interest entity for which we are the primary beneficiary.  The carrying amount of ADDCL, after eliminating the effect of intercompany transactions, was as follows (in millions):