Transocean Proxy Statement and 2010 Annual Report

impartiality of the local courts; and the potential for changes in the taxes paid to one country that either produce, or fail to produce,
offsetting tax changes in other countries.
We consider the earnings of certain of our subsidiaries to be indefinitely reinvested. As such, we have not provided for taxes on
these unremitted earnings. At December 31, 2010, the amount of indefinitely reinvested earnings was approximately $2.0 billion. Should
we make a distribution from the unremitted earnings of these subsidiaries, we would be subject to taxes payable to various jurisdictions.
We estimate taxes in the range of $150 million to $200 million would be payable upon distribution of all previously unremitted earnings at
December 31, 2010.
We have recognized deferred taxes related to the earnings of certain subsidiaries that are not permanently reinvested or that will
not be permanently reinvested in the future. If facts and circumstances cause us to change our expectations regarding future tax
consequences, the resulting adjustments to our deferred tax balances could have a material effect on our consolidated statement of
financial position, results of operations or cash flows.
Estimates, judgments and assumptions are required in determining whether deferred tax assets will be fully or partially realized.
When it is estimated to be more likely than not that all or some portion of certain deferred tax assets, such as foreign tax credit carryovers
or net operating loss carryforwards, will not be realized, we establish a valuation allowance for the amount of the deferred tax assets that is
considered to be unrealizable. We continually evaluate strategies that could allow for the future utilization of our deferred tax assets. We
did not make any significant changes to our valuation allowance against deferred tax assets during the years ended December 31, 2008,
2009 and 2010.
See Notes to Consolidated Financial Statements—Note 6—Income Taxes.
Goodwill—The carrying amount of goodwill was $8.1 billion, representing 22 percent of our total assets, as of December 31,
2010. We conduct impairment testing for our goodwill annually as of October 1 and more frequently, on an interim basis, when an event
occurs or circumstances change that may indicate a reduction in the fair value of a reporting unit below its carrying amount. We test
goodwill at the reporting unit level, which is defined as an operating segment or a component of an operating segment that constitutes a
business for which financial information is available and is regularly reviewed by management. We have determined that our reporting
units for this purpose are as follows: (1) contract drilling services, (2) drilling management services and (3) oil and gas properties.
To determine the fair value of each reporting unit, we use a combination of valuation methodologies, including both income and
market approaches. For our contract drilling services reporting unit, we estimate fair value using discounted cash flows, publicly traded
company multiples and acquisition multiples. To develop the projected cash flows associated with our contract drilling services reporting
unit, which are based on estimated future dayrates and utilization, we consider key factors that include assumptions regarding future
commodity prices, credit market conditions and the effect these factors may have on our contract drilling operations and the capital
expenditure budgets of our customers. We discount projected cash flows using a long-term weighted-average cost of capital, which is
based on our estimate of the investment returns that market participants would require for each of our reporting units. To develop the
publicly traded company multiples, we gather available market data for companies with operations similar to our reporting units and
publicly available information for recent acquisitions in the marketplace.
Because our business is cyclical in nature, the results of our impairment testing are expected to vary significantly depending on
the timing of the assessment relative to the business cycle. Altering either the timing of or the assumptions used in a reporting unit’s fair
value calculations could result in an estimate that is significantly below its carrying amount, which may indicate its goodwill is impaired.
For our annual impairment testing, conducted on October 1, 2010, the remaining goodwill was associated with our contract
drilling services reporting unit. In calculating the fair value of this reporting unit for the annual impairment test, we applied a discount rate
of 11 percent and a terminal growth rate of three percent to our contract drilling services reporting unit. Applying a hypothetical
three percent increase in the discount rate and a hypothetical 10 percent decrease in our projected cash flows for the annual impairment
test would not have resulted in the impairment of goodwill associated with the contract drilling services reporting unit.
Property and equipment—The carrying amount of our property and equipment was $21 billion as of December 31, 2010,
representing 58 percent of our total assets. The carrying amount of these assets is subject to our estimates, assumptions, and judgments
related to capitalized costs, useful lives and salvage values.
Capitalized costs—We capitalize costs incurred to enhance, improve and extend the useful lives of our assets and expense
costs incurred to repair and maintain the existing condition of our rigs. Capitalized costs increase the carrying amounts and depreciation
expense of the related assets, which would also impact our results of operations.
Useful lives—We depreciate our assets over their estimated useful lives, which we determine by applying judgments and
assumptions that reflect both historical experience and expectations regarding future operations, utilization and asset performance. Useful
lives of rigs are difficult to estimate due to a variety of factors, including (a) technological advances that impact the methods or cost of oil
and gas exploration and development, (b) changes in market or economic conditions, and (c) changes in laws or regulations affecting the
drilling industry. Applying different judgments and assumptions in establishing the useful lives would likely result in materially different net
carrying amounts and depreciation expense for our assets. We evaluate the remaining useful lives of our rigs when certain events occur
that directly impact the useful lives of the rigs, including changes in operating condition, functional capability and market and economic
factors. When evaluating the remaining useful lives of rigs, we also consider major capital upgrades required to perform certain contracts
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