Transocean Proxy Statement and 2010 Annual Report

and the long-term impact of those upgrades on future marketability. A hypothetical one-year increase in the useful lives of all of our rigs
would cause a decrease in our annual depreciation expense of approximately $280 million. A hypothetical one-year decrease would cause
an increase in our annual depreciation expense of approximately $371 million.
Impairment of long-lived assets—We review our property and equipment for impairment when events or changes in
circumstances indicate that the carrying amounts of our assets held and used may not be recoverable or when carrying amounts of assets
held for sale exceed fair value less cost to sell. Potential impairment indicators include rapid declines in commodity prices and related
market conditions, actual or expected declines in dayrates or utilization, cancellations of contracts or credit concerns of multiple customers.
During periods of oversupply, we may idle or stack rigs for extended periods of time, which could be an indication that an asset group may
be impaired since supply and demand are the key drivers of rig utilization and our ability to contract our rigs at economical rates. Our rigs
are mobile units, equipped to operate in geographic regions throughout the world and, consequently, we may move rigs from an
oversupplied market sector to a more lucrative and undersupplied market sector when it is economical to do so. Many of our contracts
generally allow our customers to relocate our rigs from one geographic region to another, subject to certain conditions, and our customers
utilize this capability to meet their worldwide drilling requirements. Accordingly, our rigs are considered to be interchangeable within
classes or asset groups, and we evaluate impairment by asset group. We consider our asset groups to be Ultra-Deepwater Floaters,
Deepwater Floaters, Harsh Environment Floaters, Midwater Floaters, High-Specification Jackups, Standard Jackups and Other Rigs.
We assess recoverability of assets held and used by projecting undiscounted cash flows for the asset group being evaluated.
When the carrying amount of the asset group is determined to be unrecoverable, we recognize an impairment loss, measured as the
amount by which the carrying amount of the asset group exceeds its estimated fair value. The evaluation requires us to make judgments
about long-term projections for future revenues and costs, dayrates, rig utilization and idle time. These projections involve uncertainties
that rely on assumptions about demand for our services, future market conditions and technological developments. Significant and
unanticipated changes to these assumptions could materially alter an outcome that could otherwise result in an impairment loss. Given the
nature of these evaluations and their application to specific asset groups and specific time periods, it is not possible to reasonably quantify
the impact of changes in these assumptions.
Pension and other postretirement benefits—We use a January 1 measurement date for net periodic benefit costs and a
December 31 measurement date for projected benefit obligations and plan assets. We measure our pension liabilities and related net
periodic benefit costs using actuarial assumptions based on a market-related valuation of assets that reduces year-to-year volatility. In
applying this approach, we recognize investment gains or losses over a five-year period beginning with the year in which they occur.
Investment gains or losses for this purpose are measured as the difference between the expected and actual returns calculated using the
market-related value of assets. Actual results may differ from these measurements under different conditions or assumptions. Future
changes in plan asset returns, assumed discount rates and various other factors related to the pension plans will impact our future pension
obligations and net periodic benefit costs.
Additionally, the pension obligations and related net periodic benefit costs for our defined benefit pension and other
postretirement benefit plans, including retiree life insurance and medical benefits, are actuarially determined and are affected by
assumptions, including long-term rate of return, discount rates, compensation increases, employee turnover rates and health care cost
trend rates. The two most critical assumptions are the long-term rate of return and the discount rate. We periodically evaluate our
assumptions and, when appropriate, adjust the recorded liabilities and expense. Changes in these and other assumptions used in the
actuarial computations could impact our projected benefit obligations, pension liabilities, net periodic benefit costs and other
comprehensive income. See “�Retirement Pension Plans and Other Postretirement Benefit Plans.”
Long-term rate of return—We develop our assumptions regarding the estimated rate of return on plan assets based on historical
experience and projected long-term investment returns, considering each plan’s target asset allocation and long-term asset class expected
returns. We regularly review our actual asset allocation and periodically rebalance plan assets as appropriate. For each percentage point
the expected long-term rate of return assumption is lowered, pension expense would increase by approximately $11 million.
Discount rate—As a basis for determining the discount rate, we utilize a yield curve approach based on Aa-rated corporate
bonds and the expected timing of future benefit payments. For each one-half percentage point the discount rate is lowered, net periodic
benefit costs would increase by approximately $18 million.
Contingent liabilities—We establish liabilities for estimated loss contingencies when we believe a loss is probable and the
amount of the probable loss can be reasonably estimated. Once established, we adjust the carrying amount of a contingent liability upon
the occurrence of a recognizable event when facts and circumstances change, altering our previous assumptions with respect to the
likelihood or amount of loss.
New Accounting Pronouncements
For a discussion of the new accounting pronouncements that have had or are expected to have an effect on our consolidated
financial statements, see Notes to Consolidated Financial Statements—Note 3—New Accounting Pronouncements.
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