Transocean Proxy Statement and 2010 Annual Report

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TRANSOCEAN LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued Contract drilling intangible revenues—In connection with the Merger, we acquired drilling contracts for future contract drilling services of GlobalSantaFe. The terms of these contracts include fixed dayrates that were above or below the market dayrates available for similar contracts as of the date of the Merger. We recognized the fair value adjustments as contract intangible assets and liabilities, recorded in other assets and other long-term liabilities, respectively. We amortize the resulting contract drilling intangible revenues on a straight-line basis over the respective contract period. During the years ended December 31, 2010, 2009 and 2008, we recognized contract intangible revenues of $98 million, $281 million and $690 million, respectively. See Note 10—Goodwill and Other Intangible Assets. Other revenues—Our other revenues represent those derived from drilling management services, integrated services, oil and gas properties, and customer reimbursable revenues. For fixed-price contracts associated with our drilling management services, we recognize revenues and expenses upon well completion and customer acceptance, and we recognize loss provisions on contracts in progress when losses are anticipated. We refer to integrated services as those services we provide through contractors and our employees under certain contracts that include well and logistics services in addition to our normal drilling services. We consider customer reimbursable revenues to be billings to our customers for reimbursement of certain equipment, materials and supplies, third-party services, employee bonuses and other expenses that we recognize in operating and maintenance expense, the result of which has little or no effect on operating income. Share-based compensation—For time-based awards, we recognize compensation expense on a straight-line basis through the date the employee is no longer required to provide service to earn the award (the “service period”). For market-based awards that vest at the end of the service period, we recognize compensation expense on a straight-line basis through the end of the service period. For performance-based awards with graded vesting conditions, we recognize compensation expense on a straight-line basis over the service period for each separately vesting portion of the award as if the award was, in substance, multiple awards. Share-based compensation expense is recognized, net of a forfeiture rate, estimated at the time of grant based on historical experience and adjusted, if necessary, in subsequent periods based on actual forfeitures. To measure the fair values of time-based restricted shares and deferred units granted or modified, we use the market price of our shares on the grant date or modification date. To measure the fair values of stock options and stock appreciation rights (“SARs”) granted or modified, we use the Black-Scholes-Merton option-pricing model and apply assumptions for the expected life, risk-free interest rate, dividend yield and expected volatility. The expected life is based on historical information of past employee behavior regarding exercises and forfeitures of options. The risk-free interest rate is based upon the published U.S. Treasury yield curve in effect at the time of grant or modification for instruments with a similar life. The dividend yield is based on our history and expectation of dividend payouts. The expected volatility is based on a blended rate with an equal weighting of the (a) historical volatility based on historical data for an amount of time approximately equal to the expected life and (b) implied volatility derived from our at-the-money long-dated call options. To measure the fair values of market-based deferred units granted or modified, we use a Monte Carlo simulation model and, in addition to the assumptions applied for the Black-Scholes-Merton option-pricing model, we apply assumptions using a risk neutral model and an average price at the performance start date. The risk neutral model assumes that all peer group stocks grow at the risk-free rate. The average price at the performance start date is based on the average stock price for the preceding 30 trading days. We recognize share-based compensation expense in the same financial statement line item as cash compensation paid to the respective employees. Tax deduction benefits for awards in excess of recognized compensation costs are reported as a financing cash flow. Share-based compensation expense was $102 million, $81 million and $64 million in the years ended December 31, 2010, 2009 and 2008, respectively. Income tax benefit on share-based compensation expense was $10 million, $8 million, and $8 million in the years ended December 31, 2010, 2009 and 2008, respectively. See Note 17—Share-Based Compensation Plans. Pension and other postretirement benefits—We use a measurement date of January 1 for determining net periodic benefit costs and December 31 for determining benefit obligations and the fair value of plan assets. We determine our net periodic benefit costs based on a market-related valuation of assets that reduces year-to-year volatility by recognizing investment gains or losses over a five-year period from the year in which they occur. Investment gains or losses for this purpose are measured as the difference between the expected return calculated using the market-related value of assets and the actual return based on the market-related value of assets. The obligations and related costs for our defined benefit pension and other postretirement benefit plans, retiree life insurance and medical benefits, are actuarially determined by applying assumptions, including long-term rate of return on plan assets, 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 on plan assets and the discount rate. For the long-term rate of return, we develop our assumptions regarding the expected rate of return on plan assets based on historical experience and projected long-term investment returns, which are weighted to consider each plan’s target asset allocation. For the discount rate, we base our assumptions on a yield curve approach using Aa-rated corporate bonds and the expected timing of future benefit payments. For the projected compensation trend rate, we consider short-term and long-term compensation expectations for participants, including salary increases and performance bonus payments. For the health care cost trend rate for other postretirement benefits, we establish our assumptions for health care cost trends, applying an initial trend rate that reflects both our recent historical experience and broader national statistics with an ultimate trend rate that assumes that the portion of gross domestic product devoted to health care eventually becomes constant. AR-80
TRANSOCEAN LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued Pension and other postretirement benefit plan obligations represented an aggregate liability in the amount of their net underfunded status of $469 million and $514 million, at December 31, 2010 and 2009, respectively. Net periodic benefit costs were $91 million, $87 million and $47 million for the years ended December 31, 2010, 2009 and 2008, respectively. See Note 13— Postemployment Benefit Plans. Capitalized interest—We capitalize interest costs for qualifying construction and upgrade projects. We capitalized interest costs on construction work in progress of $89 million, $182 million and 147 million for the years ended December 31, 2010, 2009 and 2008, respectively. Derivatives and hedging—From time to time, we may enter into a variety of derivative financial instruments in connection with the management of our exposure to variability in foreign exchange rates and interest rates. We record derivatives on our consolidated balance sheet, measured at fair value. For derivatives that do not qualify for hedge accounting, we recognize the gains and losses associated with changes in the fair value in current period earnings. See Note 12—Derivatives and Hedging and Note 20—Financial Instruments and Risk Concentration. We may enter into cash flow hedges to manage our exposure to variability of the expected future cash flows of recognized assets or liabilities or of unrecognized forecasted transactions. For a derivative that is designated and qualifies as a cash flow hedge, we initially recognize the effective portion of the gains or losses in other comprehensive income and subsequently recognize the gains and losses in earnings in the period in which the hedged forecasted transaction affects earnings. We recognize the gains and losses associated with the ineffective portion of the hedges in interest expense in the period in which they are realized. We may enter into fair value hedges to manage our exposure to changes in fair value of recognized assets or liabilities, such as fixed-rate debt, or of unrecognized firm commitments. For a derivative that is designated and qualifies as a fair value hedge, we simultaneously recognize in current period earnings the gains or losses on the derivative along with the offsetting losses or gains on the hedged item attributable to the hedged risk. The resulting ineffective portion, which is measured as the difference between the change in fair value of the derivative and the hedged item, is recognized in current period earnings. Foreign currency—The majority of our revenues and expenditures are denominated in U.S. dollars to limit our exposure to foreign currency fluctuations, resulting in the use of the U.S. dollar as the functional currency for all of our operations. Foreign currency exchange gains and losses are primarily included in other income (expense) as incurred. We had a net foreign currency exchange gain of less than $1 million for the year ended December 31, 2010. We had net foreign currency exchange losses of $34 million and $3 million for the years ended December 31, 2009 and 2008, respectively. Income taxes—We provide for income taxes based upon the tax laws and rates in effect in the countries in which operations are conducted and income is earned. There is little or no expected relationship between the provision for or benefit from income taxes and income or loss before income taxes because the countries in which we operate have taxation regimes that vary not only with respect to nominal rate, but also in terms of the availability of deductions, credits and other benefits. Variations also arise because income earned and taxed in any particular country or countries may fluctuate from year to year. We recognize deferred tax assets and liabilities for the anticipated future tax effects of temporary differences between the financial statement basis and the tax basis of our assets and liabilities using the applicable jurisdictional tax rates in effect at year end. We record a valuation allowance for deferred tax assets when it is more likely than not that some or all of the benefit from the deferred tax asset will not be realized. We provide a valuation allowance to offset deferred tax assets for net operating losses (“NOL”) incurred during the year in certain jurisdictions and for other deferred tax assets where, in our opinion, it is more likely than not that the financial statement benefit of these losses will not be realized. We provide a valuation allowance for foreign tax credit carryforwards to reflect the possible expiration of these benefits prior to their utilization. We maintain liabilities for estimated tax exposures in our jurisdictions of operation, and the provisions and benefits resulting from changes to those liabilities are included in our annual tax provision along with related interest and penalties. Tax exposure items include potential challenges to permanent establishment positions, intercompany pricing, disposition transactions, and withholding tax rates and their applicability. These exposures are resolved primarily through the settlement of audits within these tax jurisdictions or by judicial means, but can also be affected by changes in applicable tax law or other factors, which could cause us to revise past estimates. See Note 6—Income Taxes. Reclassifications—We have made certain reclassifications to prior period amounts to conform with the current year’s presentation. These reclassifications did not have a material effect on our consolidated statement of financial position, results of operations or cash flows. Subsequent events—We evaluate subsequent events through the time of our filing on the date we issue our financial statements. See Note 25—Subsequent Events. AR-81
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Transocean Proxy Statement and 2010
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2010 LETTER TO THE SHAREHOLDERS We
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In addition to a focus on meeting o
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Agenda Items INVITATION TO ANNUAL G
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(9) Election of Three New Directors
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We may accept a proxy by any form o
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PROXY STATEMENT FOR ANNUAL GENERAL
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of the dividend reserve from capita
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You may revoke your proxy card at a
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AGENDA ITEM 2. Discharge of the Mem
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AGENDA ITEM 4. Reallocation of Free
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AGENDA ITEM 6. Conditional Agenda I
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Proposal of the Board of Directors
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AGENDA ITEM 8. Reduction of the Max
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Nominees for Director—Class III
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November 2007. Since August 2008, M
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The Board of Directors has conclude
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e disclosed and not whether a parti
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Submit nominations to our Corporate
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The Executive Compensation Committe
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Committee is ‘‘financially lite
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AUDIT COMMITTEE REPORT The Audit Co
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SECURITY OWNERSHIP OF DIRECTORS AND
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As a direct consequence of the Maco
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Executive Compensation Program—Gu
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$100,000. Accordingly, neither Long
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Element Targeted Position Comments
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In February 2010, the Committee rev
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Safety Performance. Our business in
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Timing of the system roll out compr
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total target value for stock option
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Executive Compensation Program—He
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Perquisites and Other Personal Bene
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• a cash severance benefit equal
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Summary Compensation Table EXECUTIV
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(17) In 2010, Mr. Toma’s base pay
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Outstanding Equity Awards at Fiscal
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Option Exercises and Shares Vested
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offset to allow for the fact that h
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Contributions are based on a partic
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(3) The terms and conditions of the
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(1) Based on the target (100%) payo
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Mr. Newman Mr. Rosa Mr. Brown Mr. B
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AGENDA ITEM 10 Appointment of Ernst
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Proposal AGENDA ITEM 11. Advisory V
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OTHER MATTERS Compensation Committe
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Annexes P-81
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(2) Shareholders may, upon the term
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3 Der Verwaltungsrat ist ermächtig
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Annex C Amended Article 22 of the A
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TRANSOCEAN LTD. AND SUBSIDIARIES IN
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Item 1. Business PART I Overview Tr
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Jackup rigs are mobile self-elevati
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Midwater Floaters The following tab
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Markets Our operations are geograph
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Integrated Services From time to ti
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Item 1A. Risk Factors Risks related
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Our business depends on the level o
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events” above. Our inability to r
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The application of the Working Time
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We are subject to litigation that,
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these tests, “passive income” i
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Item 2. Properties The description
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LDEQ would not rescind the enforcem
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Page 141 and 142: Item 6. Selected Financial Data The
Page 143 and 144: payment of $453 million. In connect
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Page 157 and 158: applicable margin, ranging from 3.1
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TRANSOCEAN LTD. STATUTORY FINANCIAL
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TRANSOCEAN LTD. STATEMENT OF OPERAT
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Note 1—General TRANSOCEAN LTD. NO
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TRANSOCEAN LTD. NOTES TO STATUTORY
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Note 7—Board of Directors Compens
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As of December 31, 2009 Name TRANSO
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As of December 31, 2009 TRANSOCEAN
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provided, however, that: TRANSOCEAN
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Transocean is a leading internation
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Under the terms and conditions cont
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As of December 31, 2010, December 3
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3. Board of Directors 3.1/ The memb
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Corporation during 1994 and 1995 an
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� Members of Executive Management
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Long-Term Incentive Plan The annual
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Pension Benefits for Fiscal Year 20
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Our Articles of Association further
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7. Mandatory Offer Requirement / Ch
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Annex 1 Subsidiaries of Transocean
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Name Jurisdiction Registered Office
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Name Jurisdiction Registered Office
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Board Of Directors Robert E. Rose C
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Transocean Proxy Statement and 2010 Annual Report

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