Transocean Proxy Statement and 2010 Annual Report

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TRANSOCEAN LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued The following is a reconciliation of our unrecognized tax benefits, excluding interest and penalties (in millions): Years ended December 31, 2010 2009 2008 Balance, beginning of period $ 460 $ 372 $ 299 Additions for current year tax positions 46 64 46 Additions for prior year tax positions 9 62 67 Reductions for prior year tax positions (11) (22 ) (36 ) Settlements (17) (3 ) (3 ) Reductions related to statute of limitation expirations (2) (13 ) (1 ) Balance, end of period $ 485 $ 460 $ 372 The liabilities related to our unrecognized tax benefits, including related interest and penalties that we recognize as a component of income tax expense, were as follows (in millions): December 31, 2010 2009 Unrecognized tax benefits, excluding interest and penalties $ 485 $ 460 Interest and penalties 235 200 Unrecognized tax benefits, including interest and penalties $ 720 $ 660 For the years ended December 31, 2010, 2009 and 2008, we recognized interest and penalties related to our unrecognized tax benefits, recorded as a component of income tax expense, in the amount of $35 million, $51 million and $24 million, respectively. If recognized, $693 million of our unrecognized tax benefits, including interest and penalties, as of December 31, 2010, would favorably impact our effective tax rate. It is reasonably possible that our existing liabilities for unrecognized tax benefits may increase or decrease in the year ending December 31, 2011 primarily due to the progression of open audits or the expiration of statutes of limitation. However, we cannot reasonably estimate a range of potential changes in our existing liabilities for unrecognized tax benefits due to various uncertainties, such as the unresolved nature of various audits. Tax positions—With respect to our 2004 and 2005 U.S. federal income tax returns, the U.S. tax authorities have withdrawn all of their previously proposed tax adjustments, except a claim regarding transfer pricing for certain charters of drilling rigs between our subsidiaries, resulting in a total proposed adjustment of approximately $79 million, excluding interest. We believe an unfavorable outcome on this assessment with respect to 2004 and 2005 activities would not result in a material adverse effect on our consolidated statement of financial position, results of operations or cash flows. Although we believe the transfer pricing for these charters is materially correct, we have been unable to reach a resolution with the tax authorities. In August 2010, we filed a petition with the U.S. Tax Court to resolve this issue. In May 2010, we received an assessment from the U.S. tax authorities related to our 2006 and 2007 U.S. federal income tax returns. In July 2010, we filed a protest letter with the U.S. tax authorities covering this assessment. The significant issues raised in the assessment relate to transfer pricing for certain charters of drilling rigs between our subsidiaries and the creation of intangible assets resulting from the performance of engineering services between our subsidiaries. These two items would result in net adjustments of approximately $278 million of additional taxes, excluding interest. An unfavorable outcome on these adjustments could result in a material adverse effect on our consolidated statement of financial position, results of operations or cash flows. We believe our returns are materially correct as filed, and we intend to continue to vigorously defend against all such claims. In addition, the May 2010 assessment included adjustments related to a series of restructuring transactions that occurred between 2001 and 2004. These restructuring transactions impacted our basis in our former subsidiary TODCO, which we disposed of in 2004 and 2005. The authorities are disputing the amount of capital losses that resulted from the disposition of TODCO. We utilized a portion of the capital losses to offset capital gains on our 2006, 2007, 2008 and 2009 tax returns. The majority of the capital losses were unutilized and expired on December 31, 2009. The adjustments would also impact the amount of certain net operating losses and other carryovers into 2006 and later years. The authorities are also contesting the characterization of certain amounts of income received in 2006 and 2007 as capital gain and thus the availability of the capital gain for offset by the capital loss. These claims with respect to our U.S. federal income tax returns for 2006 through 2009 could result in net tax adjustments of approximately $295 million. An unfavorable outcome on these potential adjustments could result in a material adverse effect on our consolidated statement of financial position, results of operations or cash flows. We believe that our tax returns are materially correct as filed, and we intend to vigorously defend against any potential claims. AR-86
TRANSOCEAN LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued The May 2010 assessment also included certain claims with respect to withholding taxes and certain other items resulting in net tax adjustments of approximately $166 million, exclusive of interest. In addition, the tax authorities assessed penalties associated with the various tax adjustments in the aggregate amount of approximately $92 million, exclusive of interest. We believe that our tax returns are materially correct as filed, and we intend to vigorously defend against any potential claims. Norwegian civil tax and criminal authorities are investigating various transactions undertaken by our subsidiaries in 2001 and 2002 as well as the actions of certain of our former external advisors on these transactions. The authorities issued tax assessments of (a) approximately $268 million plus interest, related to certain restructuring transactions, (b) approximately $117 million plus interest, related to the migration of a subsidiary that was previously subject to tax in Norway, (c) approximately $71 million plus interest, related to a 2001 dividend payment and (d) approximately $7 million plus interest, related to certain foreign exchange deductions and dividend withholding tax. We have filed or expect to file appeals to these tax assessments. We may be required to provide some form of financial security, in an amount up to $1.0 billion, including interest and penalties, for these assessed amounts as this dispute is appealed and addressed by the Norwegian courts. The authorities have indicated that they plan to seek penalties of 60 percent on all matters. For these matters, we believe our returns are materially correct as filed, and we have and will continue to respond to all information requests from the Norwegian authorities. We intend to vigorously contest any assertions by the Norwegian authorities in connection with the various transactions being investigated. An unfavorable outcome on these Norwegian civil tax matters could result in a material adverse effect on our consolidated statement of financial position, results of operations or cash flows. While we cannot predict or provide assurance as to the final outcome of these proceedings, we do not expect the ultimate resolution of these matters to have a material adverse effect on our consolidated statement of financial position or results of operations, although it may have a material adverse effect on our consolidated cash flows. The Norwegian authorities issued notification of criminal charges against Transocean Ltd. and certain of its subsidiaries related to disclosures included in one of our Norwegian tax returns. This notification, however, does not itself constitute an indictment under Norwegian law nor does it initiate legal proceedings but represents a formal expression of suspicion and continued investigation. All income taxes, interest charges and penalties related to this Norwegian tax return have previously been settled. We believe that these charges are without merit and plan to vigorously defend Transocean Ltd. and its subsidiaries to the fullest extent. Certain of our Brazilian income tax returns for the years 2000 through 2004 are currently under examination. The Brazilian tax authorities have issued tax assessments totaling $115 million, plus a 75 percent penalty of $86 million and $138 million of interest through December 31, 2010. An unfavorable outcome on these proposed assessments could result in a material adverse effect on our consolidated statement of financial position, results of operations or cash flows. We believe our returns are materially correct as filed, and we are vigorously contesting these assessments. On January 25, 2008, we filed a protest letter with the Brazilian tax authorities, and we are currently engaged in the appeals process. Note 7—Earnings Per Share The reconciliation of the numerator and denominator used for the computation of basic and diluted earnings per share is as follows (in millions, except per share data): 2010 Years ended December 31, 2009 2008 Basic Diluted Basic Diluted Basic Diluted Numerator for earnings per share Net income attributable to controlling interest $ 961 $ 961 $ 3,181 $ 3,181 $ 4,031 $ 4,031 Undistributed earnings allocable to participating securities (5 ) (5 ) (18) (18) (10) (10) Net income available to shareholders $ 956 $ 956 $ 3,163 $ 3,163 $ 4,021 $ 4,021 Denominator for earnings per share Weighted-average shares outstanding Effect of dilutive securities: 320 320 320 320 318 318 Stock options and other share-based awards — — — 1 — 2 Stock warrants — — — — — 1 Weighted-average shares for per share calculation 320 320 320 321 318 321 Earnings per share $ 2.99 $ 2.99 $ 9.87 $ 9.84 $ 12.63 $ 12.53 For the years ended December 31, 2010, 2009 and 2008 we have excluded 2.2 million, 1.7 million and 0.4 million share-based awards, respectively, from the calculation since the effect would have been anti-dilutive. The 1.625% Series A Convertible Senior Notes, 1.50% Series B Convertible Senior Notes and 1.50% Series C Convertible Senior Notes did not have an effect on the calculation for the periods presented. See Note 11—Debt. AR-87
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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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Patent litigation—In 2007, severa
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Executive Officers of the Registran
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PART II Item 5. Market for Registra
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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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