Transocean Proxy Statement and 2010 Annual Report

TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
recognized a loss on impairment of $49 million ($0.15 per diluted share, which had no tax effect) and $16 million ($11 million or $0.04 per
diluted share, net of tax), respectively. There was no impairment for the year ended December 31, 2010. The carrying amount of the
customer relationships intangible asset, recorded in other assets on our consolidated balance sheets was $59 million and $64 million at
December 31, 2010 and 2009, respectively.
Assets held for sale—During the years ended December 31, 2009 and 2008, we determined that GSF Arctic II and
GSF Arctic IV, both classified as assets held for sale, were impaired due to the global economic downturn and pressure on commodity
prices, both of which had an adverse effect on our industry. We estimated the fair values of these rigs based on an exchange price that
would be received for the assets in the principal or most advantageous market for the assets in an orderly transaction between market
participants as of the measurement date and considering our undertakings to the Office of Fair Trading in the U.K. (“OFT”) that required
the sale of the rigs with certain limitations and in a limited amount of time. We based our estimates on unobservable inputs that require
significant judgment, for which there is little or no market data, including non-binding price quotes from unaffiliated parties, considering the
then-current market conditions and restrictions imposed by the OFT. For each of the years ended December 31, 2009 and 2008, as a
result of our evaluation, we recognized a loss on impairment of $279 million ($0.87 per diluted share) and $97 million ($0.30 per diluted
share), respectively, which had no tax effect. The carrying amount of assets held for sale was $186 million at December 31, 2009, and
these assets were sold in the year ended December 31, 2010. See Note 9—Drilling Fleet.
Note 6—Income Taxes
Tax Provision—Transocean Ltd., a holding company and Swiss resident, is exempt from cantonal and communal income tax in
Switzerland, but is subject to Swiss federal income tax. At the federal level, qualifying net dividend income and net capital gains on the
sale of qualifying investments in subsidiaries are exempt from Swiss federal income tax. Consequently, Transocean Ltd. expects
dividends from its subsidiaries and capital gains from sales of investments in its subsidiaries to be exempt from Swiss federal income tax.
We conduct operations through our various subsidiaries in a number of countries throughout the world, all of which have taxation
regimes with varying nominal rates, deductions, credits and other tax attributes. Our provision for income taxes is based on the tax laws
and rates applicable in the jurisdictions in which we operate and earn income. There is little to no expected relationship between the
provision for or benefit from income taxes and income or loss 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.
The components of our provision (benefit) for income taxes were as follows (in millions):
Years ended December 31,
2010 2009 2008
Current tax expense $ 456 $ 741 $ 735
Deferred tax expense (benefit) (145 ) 13 8
Income tax expense $ 311 $ 754 $ 743
Effective tax rate 23.9 % 19.2 % 15.6 %
We are subject to changes in tax laws, treaties and regulations in and between the countries in which we operate, or in which we
are incorporated or resident. A material change in these tax laws, treaties or regulations could result in a higher or lower effective tax rate
on our worldwide earnings.
A reconciliation of the differences between our income tax expense computed at the Swiss holding company statutory rate of
7.83 percent and our reported provision for income taxes for the years ended December 31, 2010 and 2009, was as follows (in millions):
Years ended December 31,
2010 2009
Income tax expense at the federal statutory rate $ 102 $ 307
Taxes on earnings subject to rates greater than the Swiss rate 89 321
Taxes on impairment loss subject to rates less than the Swiss rate 79 —
Changes in unrecognized tax benefits 71 135
Change in valuation allowance (4 ) 46
Benefit from foreign tax credits (23 ) (49 )
Other, net (3 ) (6 )
Income tax expense $ 311 $ 754
AR-84