Transocean Proxy Statement and 2010 Annual Report

services operations and (d) approximately $40 million related to the sale of our ownership interest in two rigs. These reductions were
partially offset by $260 million of expenses resulting from our newbuilds that commenced operations during 2009 and 2010, approximately
$225 million of expense due to increased shipyard and maintenance projects and $137 million of costs associated with the Macondo well
incident, net of insurance recoveries.
Depreciation, depletion and amortization increased primarily due to $84 million of additional expense related to the
commencement of operations of five newbuilds in late 2009, $32 million related to the commencement of operations of four newbuilds in
2010, $21 million due to accelerated depletion of our oil and gas properties during 2010 and $22 million due to normal operations of our
contract drilling services. Partially offsetting the increase was $20 million of reduced depreciation related to the extension of useful lives of
five rigs in 2010, $6 million related to the loss of Deepwater Horizon, and $6 million related to the stacking of rigs.
In the year ended December 31, 2010, we determined that the Standard Jackups asset group in our contract drilling services
reporting unit was impaired due to projected declines in dayrates and utilization for this asset group, and we recognized a loss on
impairment of $1.0 billion. During the year ended December 31, 2009, GSF Arctic II and GSF Arctic IV, both previously classified as
assets held for sale, were impaired due to the global economic downturn and pressure on commodity prices, both of which have had an
adverse effect on our industry, and we recognized a loss on impairment of $279 million. Additionally, during the year ended December 31,
2009, we recognized losses on the impairment of the intangible assets associated with our drilling management services reporting unit in
the aggregate amount of $55 million.
During the year ended December 31, 2010, we recognized a net gain on disposal of assets of $257 million, including a
$267 million gain on insurance recoveries for the loss of Deepwater Horizon that exceeded the carrying amount of the rig. Partially
offsetting the gain was a loss of $15 million related to the sale of GSF Arctic II and GSF Arctic IV. During the year ended December 31,
2009, we recognized a net loss of $9 million related to sales of rigs and other property and equipment.
Other income and expense—Interest income increased in the year ended December 31, 2010 compared to 2009, primarily due
to higher average cash balances.
Interest expense increased in the year ended December 31, 2010 compared to the year ended December 31, 2009, primarily
due to a $93 million reduction in interest capitalized for our newbuild projects, $33 million of increased interest expense associated with the
Petrobras 10000 capital lease and $33 million of increased interest expense associated with additional borrowings and debt issued
subsequent to December 31, 2009. Partially offsetting these increases was $76 million associated with debt repaid or repurchased
subsequent to 2009.
In the year ended December 31, 2010, we recognized losses on retirement of debt of $35 million primarily related to repurchases
of the Series B Convertible Senior Notes and Series C Convertible Senior Notes and recognized a gain on debt retirement of $2 million
related to the termination of the GSF Explorer capital lease obligation. In the year ended December 31, 2009, we recognized a loss on
retirement of debt of $29 million primarily related to repurchases of the Series A Convertible Senior Notes.
Income tax expense—We operate internationally and provide for income taxes based on the tax laws and rates in the countries
in which we operate and earn income. The annual effective tax rates at December 31, 2010 and 2009 were 13.8 percent and
16.0 percent, respectively, based on income before income taxes, after excluding certain items, such as losses on impairment, net gains
on disposal of assets, costs for litigation matters, and the gain resulting from insurance recoveries on the loss of Deepwater Horizon. 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. For the years ended December 31, 2010 and December 31, 2009, the impact of the
various discrete period tax items was a net tax expense of $15 million and $54 million, respectively. These discrete tax items, coupled with
the excluded income and expense items noted above, resulted in effective tax rates of 23.9 percent and 19.2 percent on income before
income tax expense for the years ended December 31, 2010 and 2009, respectively.
There is little to no expected relationship between our provision for income taxes and income before income taxes considering,
among other factors, (a) changes in the blend of income that is taxed based on gross revenues versus income before taxes, (b) rig
movements between taxing jurisdictions and (c) our rig operating structures. With respect to the annual effective tax rate calculation for
the year ended December 31, 2010, a significant portion of our income tax expense was generated in countries in which income taxes are
imposed on gross revenues, with the most significant of these countries being Angola, India and Nigeria. Conversely, the most significant
countries in which we operated during this period that impose income taxes based on income before income tax include the U.K., Brazil
and the U.S.
Our rig operating structures further complicate our tax calculations, especially in instances where we have more than
one operating structure for the particular taxing jurisdiction and, thus, more than one method of calculating taxes depending on the
operating structure utilized by the rig under the contract. For example, two rigs operating in the same country could generate significantly
different provisions for income taxes if they are owned by two different subsidiaries that are subject to differing tax laws and regulations in
the respective country of incorporation.
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