Note 14—Redeemable Noncontrolling Interest

Through February 29, 2012, Quantum Pacific Management Limited (“Quantum”) had the unilateral right, pursuant to a put option agreement, to exchange its 50 percent interest in TPDI for our shares or cash, at its election, at an amount based on an appraisal of the fair value of the drillships that are owned by TPDI, subject to certain adjustments. Accordingly, we presented Quantum’s interest as redeemable noncontrolling interest on our consolidated balance sheets until Quantum exercised its rights under the put option agreement.

On February 29, 2012, Quantum exercised its rights under the put option agreement to exchange its interest in TPDI for our shares or cash, at its election. As a result of the exercised option, we reclassified the carrying amount of Quantum’s interest to other current liabilities and, based on the redemption value as of that date, we adjusted the balance to its estimated fair value at the time of the exercise with a corresponding adjustment of $106 million to retained earnings within shareholders’ equity. We estimated the fair value of Quantum’s interest using significant other observable inputs, representative of a Level 2 fair value measurement, including indications of market values of the drilling units owned by TPDI.

Changes in redeemable noncontrolling interest were as follows (in millions):

	Six months ended June 30, 2012
Redeemable noncontrolling interest
Balance, beginning of period	$	116
Net income attributable to noncontrolling interest		13
Fair value adjustment to redeemable noncontrolling interest		106
Reclassification to accumulated other comprehensive loss		17
Reclassification to other current liabilities		(252	)
Balance, end of period	$	—

On March 29, 2012, Quantum elected to exchange its interest in TPDI for our shares, net of Quantum’s share of TPDI’s indebtedness, as defined in the put option agreement. Quantum had the right, prior to settlement of this transaction, to change its election to cash, net of Quantum’s share of TPDI’s indebtedness.

Through settlement of the exchange transaction on May 31, 2012, we measured the carrying amount of Quantum’s interest at its estimated fair value resulting in a cumulative adjustment of $25 million to increase the liability with corresponding adjustments to other expense on our condensed consolidated statement of operations. On May 31, 2012, we issued 8,695,351 shares to Quantum in a non-cash exchange for its interest in TPDI to satisfy our obligation, resulting in an adjustment of $134 million and $233 million to shares and additional paid-in capital, respectively. The adjustment included the extinguishment of $148 million of TPDI Notes payable to Quantum and accrued and unpaid interest of $16 million. As a result of this transaction, TPDI became our wholly owned subsidiary.