GlobeNewswire Inc | Aug 2, 2021 04:46PM EDT

August 02, 2021

-- Total contract drilling revenues were $656million (total adjusted contract drilling revenues of $713million), compared with $653million in the firstquarter of 2021 (total adjusted contract drilling revenues of $709million); -- Revenue efficiency(1) was 98.0%, compared with 97.4% in the prior quarter; -- Operating and maintenance expense was $434million, compared with $435million in the prior period; -- Net loss attributable to controlling interest was $103million, $0.17per diluted share, compared with net loss attributable to controlling interest of $99million, $0.16per diluted share, in the firstquarter of 2021; -- Adjusted EBITDA was $255million, compared with adjusted EBITDA of $245million in the prior quarter; and -- Contract backlog was $7.3billion as of the July2021 Fleet Status Report.

STEINHAUSEN, Switzerland, Aug. 02, 2021 (GLOBE NEWSWIRE) -- Transocean Ltd. (NYSE: RIG) today reported a net loss attributable to controlling interest of $103million, $0.17per diluted share, for the three months ended June30, 2021.

Second quarter 2021 results included net favorable item of $6million, or $0.1per diluted share, related to discrete tax items. After consideration of this net favorable item, secondquarter 2021 adjusted net loss was $109million, $0.18per diluted share, compared to $117million adjusted net loss, $0.19per diluted share, in the first quarter of 2021.

Contract drilling revenues for the three months ended June30, 2021 increased sequentially by $3million to $656million, primarily due to three rigs that returned to work following a shipyard stay, partially offset by two rigs that went idle in the second quarter.

A non-cash revenue reduction of $57million was recognized in the second quarter as a result of contract intangible amortization associated with the Songa and Ocean Rig acquisitions. This compares with $56million in the prior quarter.

Operating and maintenance expense was $434million, compared with $435million in the prior quarter.

General and administrative expense was $39million, in line with the first quarter of 2021.

Interest expense, net of amounts capitalized, was $115million, in line with the first quarter of 2021. Interest income was $4million, compared with $3million in the previous quarter.

The Effective Tax Rate(2) was(4.6)%, down from 17.8% in the prior quarter. The decrease was primarily due to higher earnings in jurisdictions with lower tax rates, releases of uncertain tax positions related to settlements and other various discrete items. The Effective Tax Rate excluding discrete items was (10.2)% compared to (5.7)% in previous quarter.

Cash flows provided by operating activities were $153million, compared to $96million in the prior quarter. This was primarily due to the timing of interest payments and reduced personnel-related payments.

Second quarter 2021 capital expenditures of $41million were primarily related to our newbuild drillships under construction. This compares with $59million in the previous quarter.

Operationally, we delivered another solid quarter, with an Adjusted EBITDA Margin of 36% on Adjusted Revenue of $713 million, said President and Chief Executive Officer, Jeremy Thigpen. These better than anticipated results were driven largely by our continued focus on operational excellence, as evidenced by our strong uptime performance, which resulted in revenue efficiency of 98 percent.

During the quarter, we took meaningful steps to improve our liquidity by agreeing to delay delivery and payment of our two newbuild drillships, the Deepwater Atlas and the Deepwater Titan, ultimately deferring over $450 million of near-term capex. Additionally, we further improved our liquidity through the initiation of our ATM program that provides us with additional optionality. We will remain pragmatic yet disciplined in using this tool now and in the future.

Thigpen concluded: As we enter the back half of this year, we remain encouraged by the upcycle that is currently unfolding. Assuming oil prices remain supportive, we see utilization and dayrates for our ultra-deepwater assets materially improving as we move into 2022.

Non-GAAP Financial Measures

We present our operating results in accordance with accounting principles generally accepted in the U.S. (U.S. GAAP). We believe certain financial measures, such as Adjusted Contract Drilling Revenues, EBITDA, Adjusted EBITDA and Adjusted Net Income, which are non-GAAP measures, provide users of our financial statements with supplemental information that may be useful in evaluating our operating performance. We believe that such non-GAAP measures, when read in conjunction with our operating results presented under U.S. GAAP, can be used to better assess our performance from period to period and relative to performance of other companies in our industry, without regard to financing methods, historical cost basis or capital structure. Such non-GAAP measures should be considered as a supplement to, and not as a substitute for, financial measures prepared in accordance with U.S. GAAP.

All non-GAAP measure reconciliations to the most comparative U.S. GAAP measures are displayed in quantitative schedules on the companys website at: www.deepwater.com.

About Transocean

Transocean is a leading international provider of offshore contract drilling services for oil and gas wells. The company specializes in technically demanding sectors of the global offshore drilling business with a particular focus on ultra-deepwater and harsh environment drilling services and believes that it operates one of the most versatile offshore drilling fleets in the world.

Transocean owns or has partial ownership interests in and operates a fleet of 37mobile offshore drilling units consisting of 27ultra-deepwater floaters and 10harsh environment floaters. In addition, Transocean is constructing twoultra-deepwater drillships.

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

Conference Call Information

Transocean will conduct a teleconference starting at 9a.m. EDT, 3p.m. CEST, on Tuesday, August3, 2021, to discuss the results. To participate, dial +1 313-209-6544 and refer to conference code1865445 approximately 10minutes prior to the scheduled start time.

The teleconference will be simulcast in a listen-only mode at: www.deepwater.com, by selecting Investors, News, and Webcasts. Supplemental materials that may be referenced during the teleconference will be available at: www.deepwater.com, by selecting Investors, Financial Reports.

A replay of the conference call will be available after 12p.m. EDT, 6p.m. CEST, on Tuesday, August3, 2021. The replay, which will be archived for approximately 30days, can be accessed at +1 719-457-0820, passcode1865445, pin1126. The replay will also be available on the companys website.

Forward-Looking Statements

The statements described herein that are not historical facts are forward-looking statements within the meaning of Section27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements could contain words such as "possible," "intend," "will," "if," "expect," or other similar expressions. Forward-looking statements are based on managements current expectations and assumptions, and are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, actual results could differ materially from those indicated in these forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, estimated duration of customer contracts, contract dayrate amounts, future contract commencement dates and locations, planned shipyard projects and other out-of-service time, sales of drilling units, timing of the companys newbuild deliveries, operating hazards and delays, risks associated with international operations, actions by customers and other third parties, the fluctuation of current and future prices of oil and gas, the global and regional supply and demand for oil and gas, the intention to scrap certain drilling rigs, the success of our business following prior acquisitions, the effects of the spread of and mitigation efforts by governments, businesses and individuals related to contagious illnesses, such as COVID-19, and other factors, including those and other risks discussed in the company's most recent Annual Report on Form10-K for the year ended December31, 2020, and in the company's other filings with the SEC, which are available free of charge on the SEC's website at: www.sec.gov. Should one or more of these risks or uncertainties materialize (or the other consequences of such a development worsen), or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or expressed or implied by such forward-looking statements. All subsequent written and oral forward-looking statements attributable to the company or to persons acting on our behalf are expressly qualified in their entirety by reference to these risks and uncertainties. You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that occur, or which we become aware of, after the date hereof, except as otherwise may be required by law. All non-GAAP financial measure reconciliations to the most comparative GAAP measure are displayed in quantitative schedules on the companys website at: www.deepwater.com.

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

Notes

Revenue efficiency is defined as actual contract drilling revenues, excluding revenues for contract terminations and reimbursements, for the measurement period divided by the maximum revenue calculated for the(1) measurement period, expressed as a percentage. Maximum revenue is defined as the greatest amount of contract drilling revenues the drilling unit could earn for the measurement period, excluding revenues for incentive provisions, reimbursements and contract terminations. See the accompanying schedule entitled ?Revenue Efficiency.? Effective Tax Rate is defined as income tax expense divided by income(2) before income taxes. See the accompanying schedule entitled ?Supplemental Effective Tax Rate Analysis.?



Analyst Contact:Lexington May+1 832-587-6515

Media Contact:Pam Easton+1 713-232-7647

TRANSOCEAN LTD. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(Inmillions, except per share data)(Unaudited)

Three months ended Six months ended June30, June30, 2021 2020 2021 2020 Contract drilling $ 656 $ 930 $ 1,309 $ 1,689 revenues Costs and expenses Operating and 434 525 869 1,065 maintenanceDepreciation and 186 196 373 402 amortizationGeneral and 39 45 78 88 administrative 659 766 1,320 1,555 Loss on impairment ? (429 ) ? (597 ) Gain (loss) ondisposal of assets, 1 1 (58 ) ? netOperating loss (2 ) (264 ) (69 ) (463 ) Other income (expense), netInterest income 4 4 7 13 Interest expense, netof amounts (115 ) (153 ) (230 ) (313 ) capitalizedGain (loss) on ? 4 51 (53 ) retirement of debtOther, net 14 (56 ) 23 (44 ) (97 ) (201 ) (149 ) (397 ) Loss before income (99 ) (465 ) (218 ) (860 ) tax expenseIncome tax expense 4 32 (17 ) 28 (benefit) Net loss (103 ) (497 ) (201 ) (888 ) Net incomeattributable to ? ? 1 1 noncontrollinginterestNet loss attributableto controlling $ (103 ) $ (497 ) $ (202 ) $ (889 ) interest Loss per share, basic $ (0.17 ) $ (0.81 ) $ (0.33 ) $ (1.45 ) and dilutedWeighted averageshares, basic and 621 615 619 615 diluted

TRANSOCEAN LTD. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(Inmillions, except share data)(Unaudited)

June30, December 31, 2021 2020 Assets Cash and cash equivalents $ 988 $ 1,154 Accounts receivable, net of allowance of $2 at 539 583 June 30, 2021 and December 31, 2020Materials and supplies, net of allowance of$145 and $143 at June 30, 2021 and December 31, 433 434 2020, respectivelyRestricted cash and cash equivalents 502 406 Other current assets 156 163 Total current assets 2,618 2,740 Property and equipment 23,054 23,040 Less accumulated depreciation (5,718 ) (5,373 ) Property and equipment, net 17,336 17,667 Contract intangible assets 280 393 Deferred income taxes, net 8 9 Other assets 956 995 Total assets $ 21,198 $ 21,804 Liabilities and equity Accounts payable $ 198 $ 194 Accrued income taxes 8 28 Debt due within oneyear 536 505 Other current liabilities 577 659 Total current liabilities 1,319 1,386 Long-term debt 6,991 7,302 Deferred income taxes, net 325 315 Other long-term liabilities 1,251 1,366 Total long-term liabilities 8,567 8,983 Commitments and contingencies Shares, CHF 0.10 par value, 891,379,015authorized, 142,363,647 conditionally authorized, 685,676,165 issuedand 634,629,502 outstanding at June 30, 2021,and 824,650,660 authorized, 142,363,647 conditionallyauthorized, 639,676,165 issued and 615,140,276 62 60 outstanding at December 31, 2020Additional paid-in capital 13,578 13,501 Accumulated deficit (2,068 ) (1,866 ) Accumulated other comprehensive loss (264 ) (263 ) Total controlling interest shareholders? equity 11,308 11,432 Noncontrolling interest 4 3 Total equity 11,312 11,435 Total liabilities and equity $ 21,198 $ 21,804

TRANSOCEAN LTD. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Inmillions)(Unaudited)

Six months ended June30, 2021 2020 Cash flows from operating activities Net loss $ (201 ) $ (888 ) Adjustments to reconcile to net cash provided by operating activities:Contract intangible asset amortization 113 101 Depreciation and amortization 373 402 Share-based compensation expense 14 15 Loss on impairment ? 597 Loss on impairment of investment in ? 59 unconsolidated affiliatesLoss on disposal of assets, net 58 ? (Gain) loss on retirement of debt (51 ) 53 Deferred income tax expense 11 30 Other, net 14 32 Changes in deferred revenues, net (72 ) (10 ) Changes in deferred costs, net 7 (4 ) Changes in other operating assets and (17 ) (348 ) liabilities, netNet cash provided by operating activities 249 39 Cash flows from investing activities Capital expenditures (100 ) (153 ) Proceeds from disposal of assets, net 7 3 Investments in loans to unconsolidated (33 ) ? affiliatesInvestments in unconsolidated affiliates ? (6 ) Net cash used in investing activities (126 ) (156 ) Cash flows from financing activities Repayments of debt (239 ) (1,009 ) Proceeds from issuance of shares, net of 66 ? issue costsProceeds from issuance of debt, net of issue ? 743 costsOther, net (20 ) (18 ) Net cash used in financing activities (193 ) (284 ) Net decrease in unrestricted and restricted (70 ) (401 ) cash and cash equivalentsUnrestricted and restricted cash and cash 1,560 2,349 equivalents, beginning of periodUnrestricted and restricted cash and cash $ 1,490 $ 1,948 equivalents, end of period

TRANSOCEAN LTD. AND SUBSIDIARIES FLEET OPERATING STATISTICS Three months ended Six months ended June30, March 31, June30, June30, June30, ContractDrilling 2021 2021 2020 2021 2020 Revenues (inmillions)Contractdrilling revenuesUltra-deepwater $ 424 $ 436 $ 636 $ 860 $ 1,164 floatersHarshenvironment 232 217 293 449 513 floatersMidwater ? ? 1 ? 12 floatersTotal contractdrilling $ 656 $ 653 $ 930 $ 1,309 $ 1,689 revenues Three months ended Six months ended June30, March 31, June30, June30, June30, Average Daily 2021 2021 2020 2021 2020 Revenue ^(1)Ultra-deepwater $ 363,500 $ 371,600 $ 296,500 $ 367,500 $ 314,800 floatersHarshenvironment 379,900 377,800 331,900 378,900 317,000 floatersMidwater ? ? 99,400 ? 111,400 floatersTotal fleetaverage daily $ 369,400 $ 373,700 $ 307,800 $ 371,500 $ 311,300 revenue Three months ended Six months ended June30, March 31, June30, June30, June30, Utilization ^ 2021 2021 2020 2021 2020 (2)Ultra-deepwater 48 % 48 % 61 % 48 % 61 % floatersHarshenvironment 73 % 65 % 80 % 69 % 71 % floatersMidwater ? % ? % 25 % ? % 37 % floatersTotal fleetaverage rig 55 % 53 % 66 % 54 % 63 % utilization Three months ended Six months ended June30, March 31, June30, June30, June30, Revenue 2021 2020 2020 2021 2020 Efficiency ^(3)Ultra-deepwater 98 % 97 % 98 % 98 % 98 % floatersHarshenvironment 98 % 98 % 97 % 98 % 93 % floatersMidwater ? % ? % 79 % ? % 86 % floatersTotal fleetaverage revenue 98 % 97 % 97 % 98 % 96 % efficiency ^(1) Average daily revenue is defined as contract drilling revenues, excludingrevenues for contract terminations, reimbursements and contract intangibleamortization, earned per operating day. An operating day is defined as a calendar day during which a rig is contracted to earn a dayrate during the firmcontract period after commencement of operations. ^(2) Rig utilization is defined as the total number of operating days dividedby the total number of rig calendar days in the measurement period, expressed as a percentage. ^(3) Revenue efficiency is defined as actual contract drilling revenues,excluding revenues for contract terminations and reimbursements, for themeasurement period divided by the maximum revenue calculated for themeasurement period, expressed as a percentage. Maximum revenue is defined as the greatest amount of contract drilling revenues the drilling unit could earnfor the measurement period, excluding revenues for incentive provisions,reimbursements and contract terminations.



TRANSOCEAN LTD. AND SUBSIDIARIES NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS ADJUSTED NET INCOME (LOSS) AND ADJUSTED DILUTED EARNINGS (LOSS) PER SHARE (In millions, except per share data) YTD QTD YTD 06/30/21 06/30/21 03/31/21 Adjusted Net Loss Net loss attributable to controlling $ (202 ) $ (103 ) $ (99 ) interest, as reportedLoss on disposal of assets, net 60 ? 60 Gain on retirement of debt (51 ) ? (51 ) Discrete tax items (33 ) (6 ) (27 ) Net loss, as adjusted $ (226 ) $ (109 ) $ (117 ) Adjusted Diluted Loss Per Share: Diluted loss per share, as reported $ (0.33 ) $ (0.17 ) $ (0.16 ) Loss on disposal of assets, net 0.10 ? 0.10 Gain on retirement of debt (0.08 ) ? (0.08 ) Discrete tax items (0.06 ) (0.01 ) (0.05 ) Diluted loss per share, as adjusted $ (0.37 ) $ (0.18 ) $ (0.19 )

YTD QTD YTD QTD YTD QTD YTD 12/31/20 12/31/20 09/30/20 09/30/20 06/30/20 06/30/20 03/31/20 Adjusted Net LossNet income(loss)attributable $ (567 ) $ (37 ) $ (530 ) $ 359 $ (889 ) $ (497 ) $ (392 ) to controllinginterest, asreportedRestructuring 5 (1 ) 6 5 1 1 ? costsLoss onimpairment of 597 ? 597 ? 597 430 167 assetsLoss ondisposal of 61 ? 61 61 ? ? ? assets, netLoss onimpairment ofinvestment in 62 3 59 ? 59 59 ? unconsolidatedaffiliates(Gain) loss onrestructuring (533 ) (137 ) (396 ) (449 ) 53 (4 ) 57 and retirementof debtDiscrete tax (91 ) (37 ) (54 ) (45 ) (9 ) 10 (19 ) itemsNet loss, as $ (466 ) $ (209 ) $ (257 ) $ (69 ) $ (188 ) $ (1 ) $ (187 ) adjusted AdjustedDiluted Loss Per Share:Dilutedearnings(loss) per $ (0.92 ) $ (0.06 ) $ (0.86 ) $ 0.51 $ (1.45 ) $ (0.81 ) $ (0.64 ) share, asreportedRestructuring 0.01 ? 0.01 0.01 ? ? ? costsLoss onimpairment of 0.97 ? 0.97 ? 0.97 0.70 0.28 assetsLoss ondisposal of 0.10 ? 0.10 0.09 ? ? ? assets, netLoss onimpairment ofinvestment in 0.10 ? 0.10 ? 0.10 0.10 ? unconsolidatedaffiliates(Gain) loss onrestructuring (0.87 ) (0.22 ) (0.65 ) (0.65 ) 0.09 (0.01 ) 0.09 and retirementof debtDiscrete tax (0.15 ) (0.06 ) (0.09 ) (0.07 ) (0.02 ) 0.02 (0.03 ) itemsDiluted lossper share, as $ (0.76 ) $ (0.34 ) $ (0.42 ) $ (0.11 ) $ (0.31 ) $ ? $ (0.30 ) adjusted

TRANSOCEAN LTD. AND SUBSIDIARIES NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS ADJUSTED CONTRACT DRILLING REVENUES EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION AND RELATED MARGINS(In millions, except percentages) YTD QTD YTD 06/30/21 06/30/21 03/31/ 21 Contract drilling revenues $ 1,309 $ 656 $ 653 Contract intangible asset amortization 113 57 56 Adjusted Contract Drilling Revenues $ 1,422 $ 713 $ 709 Net loss $ (201 ) $ (103 ) $ (98 ) Interest expense, net of interest income 223 111 112 Income tax expense (benefit) (17 ) 4 (21 ) Depreciation and amortization 373 186 187 Contract intangible asset amortization 113 57 56 EBITDA 491 255 236 Loss on disposal of assets, net 60 ? 60 Gain on retirement of debt (51 ) ? (51 ) Adjusted EBITDA $ 500 $ 255 $ 245 EBITDA margin 35 % 36 % 33 %Adjusted EBITDA margin 35 % 36 % 35 %

YTD QTD YTD QTD YTD QTD YTD 12/31/20 12/31/20 09/30/20 09/30/20 06/30/20 06/30/20 03/31/20 Contractdrilling $ 3,152 $ 690 $ 2,462 $ 773 $ 1,689 $ 930 $ 759 revenuesContractintangible 215 57 158 57 101 53 48 assetamortizationAdjustedContract $ 3,367 $ 747 $ 2,620 $ 830 $ 1,790 $ 983 $ 807 DrillingRevenues Net income $ (568 ) $ (39 ) $ (529 ) $ 359 $ (888 ) $ (497 ) $ (391 ) (loss)Interestexpense, net 554 115 439 139 300 149 151 of interestincomeIncome taxexpense 27 23 4 (24 ) 28 32 (4 ) (benefit)Depreciationand 781 189 592 190 402 196 206 amortizationContractintangible 215 57 158 57 101 53 48 assetamortizationEBITDA 1,009 345 664 721 (57 ) (67 ) 10 Restructuring 5 (1 ) 6 5 1 1 ? costsLoss onimpairment of 597 ? 597 ? 597 429 168 assetsLoss ondisposal of 61 ? 61 61 ? ? ? assets, net(Gain) loss onrestructuring (533 ) (137 ) (396 ) (449 ) 53 (4 ) 57 and retirementof debtLoss onimpairment ofinvestment in 62 3 59 ? 59 59 ? unconsolidatedaffiliatesAdjusted $ 1,201 $ 210 $ 991 $ 338 $ 653 $ 418 $ 235 EBITDA EBITDA margin 30 % 46 % 25 % 87 % (3 ) % (7 ) % 1 %Adjusted 36 % 28 % 38 % 41 % 36 % 43 % 29 %EBITDA margin

TRANSOCEAN LTD. AND SUBSIDIARIES SUPPLEMENTAL EFFECTIVE TAX RATE ANALYSIS (In millions, except tax rates) Three months ended Six months ended June30, March June30, June30, June30, 31, 2021 2021 2020 2021 2020 Loss before $ (99 ) $ (119 ) $ (465 ) $ (218 ) $ (860 ) income taxesRestructuring ? ? 1 ? 1 costsLoss onimpairment of ? ? 429 ? 597 assetsLoss ondisposal of ? 60 ? 60 ? assets, netLoss onimpairment ofinvestment in ? ? 59 ? 59 unconsolidatedaffiliates(Gain) loss onretirement of ? (51 ) (4 ) (51 ) 53 debtAdjustedincome (loss) $ (99 ) $ (110 ) 20 $ (209 ) (150 ) before incometaxes Revenuesrecognized for (157 ) (157 ) the settlementof disputesAdjusted lossbefore incometaxes for $ (137 ) $ (307 ) determiningeffective taxrate Income taxexpense $ 4 $ (21 ) $ 32 $ (17 ) $ 28 (benefit)Restructuring ? ? ? ? ? costsLoss onimpairment of ? ? (1 ) ? ? assetsLoss ondisposal of ? ? ? ? ? assets, netLoss onimpairment ofinvestment in ? ? ? ? ? unconsolidatedaffiliates(Gain) loss onretirement of ? ? ? ? ? debtChanges in 6 27 (8 ) 33 11 estimates (1)Revenuesrecognized for ? ? (2 ) ? (2 ) the settlementof disputesAdjustedincome tax $ 10 $ 6 $ 21 $ 16 $ 37 expense (2) Effective Tax (4.6 ) % 17.8 % (6.8 ) % 7.7 % (3.2 ) %Rate (3) Effective TaxRate,excluding (10.2 ) % (5.7 ) % (15.0 ) % (7.8 ) % (12.0 ) %discrete items(4) (1) Our estimates change as we file tax returns, settle disputes with taxauthorities, or become aware of changes in laws and other events that have an effect on our (a) deferred taxes, (b) valuation allowances on deferred taxesand (c) other tax liabilities. (2) The three months ended June 30, 2021 included $2 million of additional taxexpense, reflecting the cumulative effect of an increase in the annual effective tax rate from the previous quarter estimate. (3) Our effective tax rate is calculated as income tax expense divided by income before income taxes. (4) Our effective tax rate, excluding discrete items, is calculated as incometax expense, excluding various discrete items (such as changes in estimates andtax on items excluded from income before income taxes), divided by income before income tax expense, excluding gains and losses on sales and similaritems pursuant to the accounting standards for income taxes related toestimating the annual effective tax rate.