Transocean Proxy Statement and 2010 Annual Report

TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
Note 17—Share-Based Compensation Plans
Overview—We have (i) a long-term incentive plan (the “Long-Term Incentive Plan”) for executives, key employees and outside
directors under which awards can be granted in the form of stock options, restricted shares, deferred units, SARs and cash performance
awards and (ii) other incentive plans under which awards are currently outstanding. Awards that may be granted under the Long-Term
Incentive Plan include traditional time-vesting awards (“time-based awards”) and awards that are earned based on the achievement of
certain performance criteria (“performance-based awards”) or market factors (“market-based awards”). Our executive compensation
committee of our board of directors determines the terms and conditions of the awards granted under the Long-Term Incentive Plan. As of
December 31, 2010, we had 36 million shares authorized and 16 million shares available to be granted under the Long-Term Incentive
Plan.
Time-based awards typically vest either in three equal annual installments beginning on the first anniversary date of the grant or
in an aggregate installment at the end of the stated vesting period. Performance-based and market-based awards are typically awarded
subject to either a two-year or a three-year measurement period during which the number of options, shares or deferred units remains
uncertain. At the end of the measurement period, the awarded number of options, shares or deferred units is determined (the
“determination date”) subject to the stated vesting period. The two-year awards generally vest in three equal installments beginning on the
determination date and on January 1 of each of the two subsequent years. The three-year awards generally vest in one aggregate
installment following the determination date. Once vested, options and SARs generally have a 10-year term during which they are
exercisable.
In connection with the Redomestication Transaction, we adopted and assumed the Long-Term Incentive Plan and other
employee benefit plans and arrangements of Transocean Inc., and those plans and arrangements were amended as necessary to give
effect to the Redomestication Transaction, including to provide (1) that our shares will be issued, held, available or used to measure
benefits as appropriate under the plans and arrangements, in lieu of Transocean Inc. ordinary shares, including upon exercise of any
options or SARs issued under those plans and arrangements; and (2) for the appropriate substitution of us for Transocean Inc. in those
plans and arrangements. Additionally, we issued 16 million of our shares to Transocean Inc., 13 million of which remained available as of
December 31, 2010, for future use to satisfy our obligations to deliver shares in connection with awards granted under incentive plans,
warrants or other rights to acquire our shares (see Note 16—Shareholders’ Equity).
As of December 31, 2010, total unrecognized compensation costs related to all unvested share-based awards totaled
$99 million, which is expected to be recognized over a weighted-average period of 1.8 years. During the years ended December 31, 2010
and 2009, we recognized additional share-based compensation expense of $12 million and $8 million, respectively, in connection with
modifications of share-based awards. During the year ended December 31, 2008, we did not recognize a significant amount of additional
share-based compensation expense in connection with modifications of share-based awards.
Option valuation assumptions—We estimated the fair value of each option award under the Long-Term Incentive Plan on the
grant date using the Black-Scholes-Merton option-pricing model with the following weighted-average assumptions:
Years ended December 31,
2010 2009 2008
Dividend yield 4% — —
Expected price volatility 39% 49% 36%
Risk-free interest rate 2.30% 1.80% 3.00%
Expected life of options 4.7 years 4.8 years 4.4 years
Weighted-average fair value of options granted $ 30.03 $ 26.07 $ 49.32
We estimated the fair value of each option grant under the Employee Stock Purchase Plan (“ESPP”) using the
Black-Scholes-Merton option-pricing model with the following weighted-average assumptions:
Years ended December 31,
2010 (a) 2009 (a) 2008
Dividend yield — — —
Expected price volatility — — 31%
Risk-free interest rate — — 3.15%
Expected life of options — — 1.0 year
Weighted-average fair value of options granted
______________________________
(a) As of January 1, 2009, we discontinued offering the ESPP.
$ — $ — $ 41.39
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