What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-23 compared with 2022-02-23 · 279 added, 268 removed, 936 unchanged (37% of the section changed)

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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 22, 2023, expressed an unqualified opinion thereon.

Basis for Opinion

Opinion on the Financial Statements

These financial statements are the responsibility of the Company's management.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

Description of the Matter

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Auditing management’s provision for income taxes and related deferred taxes was complex because of the Company’s multi-national operating structure.

In addition, a higher degree of auditor judgment was required to evaluate the Company’s deferred tax provision as a result of the Company’s interpretation of tax law in each jurisdiction across its multiple subsidiaries.

In addition, a higher degree of auditor judgment was required to evaluate the Company’s deferred tax provision as a result of the Company’s interpretation of tax law in certain jurisdictions across its multiple subsidiaries.

How We Addressed the Matter in Our Audit

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(iii) evaluating the completeness and accuracy of deferred income taxes, and (iv) assessing the reasonableness of the Company’s valuation allowance on deferred tax assets, including projections of taxable income from the future reversal of existing taxable temporary differences.

Equity-Method Investment in Orion Holdings (Cayman) Limited

Description of the Matter

As discussed in Notes 2 and 4, the Company recorded an impairment loss of $37 million associated with its equity-method investment in Orion Holdings (Cayman) Limited (Orion) upon determination that the carrying amount of its investment exceeded the estimated fair value and that the impairment was other than temporary.

At December 31, 2021, the aggregate carrying amount of the Company’s equity-method investment in Orion was $57 million.

Auditing management’s equity-method investment valuation was complex and judgmental due to the estimation required in determining the fair value of the investment.

In particular, the fair value estimate of the equity-method investment in Orion was sensitive to significant assumptions such as the discount rate, future demand and supply of harsh environment floaters, rig utilization, revenue efficiency and dayrates.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process to determine the fair value of the investment in Orion, including controls over management’s review of the significant assumptions described above as well as over the underlying data used in the fair value determination.

To test the estimated fair value of the Company’s equity-method investment in Orion, we performed audit procedures that included, among others, assessing the valuation methodologies utilized by management and testing the significant assumptions discussed above and the completeness and accuracy of the underlying data used by the Company in its analysis.

We involved a valuation specialist to assist in our evaluation of the Company's model, valuation methodology and significant assumptions.

We reviewed for contrary evidence related to the determination of the fair value of the equity-method investment, including reviewing relevant market data and internal Company forecasts.

/s/ Ernst & Young LLP

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Interest expense, net of amounts capitalized

Gain (loss) on restructuring and retirement of debt

Gain on restructuring and retirement of debt

Loss before income tax expense

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Issuance of shares

Issuance of warrants

Equity component of convertible debt instruments

Reallocated capital for transactions with holders of noncontrolling interest

Balance, end of period

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Net loss attributable to controlling interest

Effect of adopting accounting standards updates

Effect of adopting accounting standards update

Balance, end of period

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Other comprehensive income (loss) attributable to controlling interest

Effect of adopting accounting standards update

Balance, end of period

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Issuance of shares

Issuance of warrants

Equity component of convertible debt instruments

Reallocated capital for transactions with holders of noncontrolling interest

Balance, end of period

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Acquisition of noncontrolling interest

Reallocated capital for transactions with holders of noncontrolling interest

Balance, end of period

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Issuance of shares

Equity component of convertible debt instrument

Issuance of warrants

Acquisition of noncontrolling interest

Equity component of convertible debt instruments

Balance, end of period

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Loss on disposal of assets, net

(Gain) loss on restructuring and retirement of debt

Gain on termination of construction contracts

Fair value adjustment to bifurcated compound exchange feature

Gain on restructuring and retirement of debt

Deferred income tax expense

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Capital expenditures

Investment in loans to unconsolidated affiliate

Investments in unconsolidated affiliates

Investments in equity of unconsolidated affiliates

Investments in loans to unconsolidated affiliates

Proceeds from disposal of assets, net

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Proceeds from issuance of shares, net of issue costs

Proceeds from issuance of debt, net of discounts and issue costs

Proceeds from issuance of debt, net of issue costs

Proceeds from issuance of warrants, net of issue costs

Net cash used in financing activities

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As of December 31, 2022, we owned or had partial ownership interests in and operated a fleet of 38 mobile offshore drilling units, consisting of 28 ultra-deepwater floaters and 10 harsh environment floaters.

As of December 31, 2021, we were constructing two ultra-deepwater drillships.

As of December 31, 2022, we were constructing one ultra-deepwater drillship and held a noncontrolling ownership interest in a company that is constructing one ultra-deepwater drillship.

We provide, as our primary business, contract drilling services in a single operating segment, which involves contracting our mobile offshore drilling rigs, related equipment and work crews to drill oil and gas wells.

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Accounting estimates —To prepare financial statements in accordance with accounting principles generally accepted in the United States (“U.S.”), we must make judgments by applying estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosures of contingent assets and liabilities.

On an ongoing basis, we evaluate our estimates and assumptions, including those related to our income taxes, property and equipment, equity investments, contingencies, allowance for excess materials and supplies, intangibles, allowance for credit losses, leases, postemployment benefit plans and share-based compensation.

On an ongoing basis, we evaluate our estimates and assumptions, including those related to our income taxes, property and equipment, equity investments, contingencies, allowance for excess materials and supplies, intangibles, postemployment benefit plans and share-based compensation.

We base our estimates and assumptions on historical experience and other factors that we believe are reasonable.

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We recognize revenues from contract terminations as we fulfill our obligations and all contingencies have been resolved.

We apply the optional exemption that permits us to exclude disclosure of the estimated transaction price related to the variable portion of unsatisfied performance obligations at the end of the reporting period, as our transaction price is based

TRANSOCEAN LTD.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued

on a single performance obligation consisting of a series of distinct hourly, or more frequent, periods, the variability of which will be resolved at the time of the future services.

typically based on a single performance obligation consisting of a series of distinct hourly, or more frequent, periods, the variability of which will be resolved at the time of the future services.

To obtain contracts with our customers, we incur pre-operating costs to prepare a rig for contract and mobilize a rig to the drilling location.

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We recognize currency exchange rate gains and losses in other, net.

In the years ended December 31, 2021, 2020 and 2019, we recognized a net loss of $ 1 million, a net loss of $ 8 million and a net gain of $ 2 million, respectively, related to currency exchange rates.

In the years ended December 31, 2022, 2021 and 2020, we recognized a net loss of $ 8 million, $ 1 million and $ 8 million, respectively, related to currency exchange rates.

Income taxes —We provide for income taxes based on expected taxable income, statutory rates, tax laws and tax planning opportunities available to us in the jurisdictions in which we operate or have a taxable presence.

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We estimate the allowance for excess items based on historical experience and expectations for future use of the materials and supplies.

During the year ended December 31, 2021, we identified certain materials and supplies that were in excess of our expected future usage based on our current market outlook.

As a result of these items, we increased our allowance by $ 28 million ($ 0.04 per diluted share, net of tax).

During the year ended December 31, 2021, we identified certain materials and supplies that were in excess of our expected future usage based on our current market outlook, and as a result of these items, we increased our allowance by $ 28 million ($ 0.04 per diluted share, net of tax).

At December 31, 2022 and 2021, our allowance for excess items was $ 199 million and $ 183 million, respectively.

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We compute depreciation using the straight-line method after allowing for salvage values.

The estimated original useful life of our drilling units is 35 years , our buildings and improvements range from two to 30 years and our machinery and equipment range from four to 20 years .

The estimated original useful life of our drilling units is 35 years , our buildings and improvements range from three to 30 years and our machinery and equipment range from four to 20 years .

We reevaluate the remaining useful lives and salvage values of our rigs when certain events occur that directly impact the useful lives and salvage values of the rigs, including changes in operating condition, functional capability and market and economic factors.

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When an impairment of one or more of our asset groups is indicated, we measure the impairment as the amount by which the asset group’s carrying amount exceeds its estimated fair value.

We measure the fair values of our asset groups by applying a variety of valuation methods, incorporating a combination of cost, income and market approaches, using projected discounted cash flows and estimates of the 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.

We measure the fair values of our asset groups by applying a variety of valuation methods, incorporating a combination of income, market and cost approaches, using projected discounted cash flows and estimates of the 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.

For an asset classified as held for sale, we consider the asset to be impaired to the extent its carrying amount exceeds its estimated fair value less cost to sell.

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In the years ended December 31, 2021 and 2020, we recognized a loss of $ 37 million and $ 62 million, respectively, associated with the other-than-temporary impairment of the carrying amount of our equity investments.

We amortize the basis difference caused by such impairments using the straight-line method over the estimated life of the asset.

See Note 3—Unconsolidated Affiliates .

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If gains or losses exceed 10 percent of the greater of plan assets or plan liabilities, we amortize such gains or losses over the average expected future service period of the employee participants.

We measure our actuarially determined obligations and related costs for our defined benefit pension and other postemployment benefit plans, retiree life insurance and medical benefits, by applying assumptions, the most significant of which include long-term rate of return on plan assets, discount rates and mortality rates.

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, and we weight the assumptions based on each plan’s asset allocation.

For the discount rate, we base our assumptions on a yield curve approach using Aa-rated corporate

We measure the actuarially determined obligations and related costs for our defined benefit pension and other postemployment benefit plans, retiree life insurance and medical benefits, by applying assumptions, the most significant of which include long-term rate of return on plan assets, discount rates and mortality rates.

TRANSOCEAN LTD.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued

bonds and the expected timing of future benefit payments.

At December 31, 2021 and 2020, our pension and other postemployment benefit plan obligations represented an aggregate liability of $ 132 million and $ 277 million, respectively, and an aggregate asset of $ 102 million and $ 37 million, respectively, representing the funded status of the plans.

based on each plan’s 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.

At December 31, 2022 and 2021, the funded status of our pension and other postemployment benefit plans represented an aggregate liability of $ 174 million and $ 132 million, respectively, and an aggregate asset of $ 44 million and $ 102 million, respectively.

See Note 9—Postemployment Benefit Plans .

Contingencies —We perform assessments of our contingencies on an ongoing basis to evaluate the appropriateness of our liabilities and disclosures for such contingencies.

Contingencies —We assess our contingencies on an ongoing basis to evaluate the appropriateness of our liabilities and disclosures for such contingencies.

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.

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We recognize expense for legal costs as they are incurred, and we recognize a corresponding asset for such legal costs only if we expect such legal costs to be recovered through insurance.

Note 3—Accounting Standards Update

Recently adopted accounting standards

Debt with conversion and other options —Effective January 1, 2021, we early adopted the accounting standards update that simplifies the accounting for convertible instruments, such as our exchangeable debt, by limiting the accounting models that result in separately recognizing embedded conversion features from the host contract.

The accounting standards update also enhances information transparency by making targeted improvements to the disclosures for convertible instruments and earnings per share guidance.

Our adoption did not result in any accounting changes for the 0.50% exchangeable senior bonds due January 2023 (the “0.50% Exchangeable Senior Bonds”) or the 2.50% senior guaranteed exchangeable bonds due January 2027 (the “2.50% Senior Guaranteed Exchangeable Bonds”).

Under previous accounting guidance, for the 4.00% senior guaranteed exchangeable bonds due December 2025 (the “4.00% Senior Guaranteed Exchangeable Bonds”), we would have recorded the debt and exchange features separately and, consequently, we would have recognized in current and future periods greater amortization, as a component of interest expense.

See Note 9—Debt .

Note 3—Unconsolidated Affiliates

Equity investments —We hold noncontrolling equity investments in various unconsolidated companies, including (a) our 33.0 percent ownership interest in Orion Holdings (Cayman) Limited (together with its subsidiary, “Orion”), a Cayman Islands company that, through its wholly owned subsidiary, owns the harsh environment floater Transocean Norge , and (b) our interests in certain companies that are involved in researching and developing technology to improve efficiency, reliability, sustainability and safety for drilling and other activities.

Equity investments

Overview —We hold noncontrolling equity investments in various unconsolidated companies, including (a) our 33 percent ownership interest in Orion Holdings (Cayman) Limited (together with its subsidiary, “Orion”), a Cayman Islands company that owns the harsh environment floater Transocean Norge , (b) our 20 percent ownership interest in Liquila Ventures Ltd.

(together with its subsidiaries, “Liquila”), a Bermuda company formed to construct, own and operate the newbuild ultra-deepwater drillship Deepwater Aquila , (c) our 20 percent ownership interest in Nauticus Robotics, Inc., a publicly traded company that develops highly sophisticated, ultra-sustainable marine robots and intelligent software to power them, (d) our interests in Ocean Minerals LLC, the parent company of Moana Minerals Ltd., a Cook Islands subsea resource development company that intends to explore and extract polymetallic nodules, and (e) our interests in certain other companies that are involved in researching and developing technology to improve efficiency, reliability, sustainability and safety for drilling and other activities.

In the years ended December 31, 2022, 2021 and 2020, we recognized a net loss of $ 24 million, $ 10 million and $ 10 million, respectively, recorded in other income and expense, associated with equity in losses of our equity investments.

At December 31, 2022 and 2021, the aggregate carrying amount of our equity investments was $ 113 million and $ 91 million, respectively, recorded in other assets.

Our equity-method investment in Orion is the most significant of our equity investments.

In the years ended December 31, 2020 and 2019, we made an aggregate cash contribution of $ 8 million and $ 74 million, respectively, to Orion.

In November 2022, we and Perestroika AS (“Perestroika”), an entity affiliated with one of our directors that beneficially owns approximately 11 percent of our shares, each made a cash contribution of $ 15 million and $ 10 million, respectively, to Liquila.

The investments represented proportionate contributions, together with a contribution from the holder of the remaining 67 percent ownership interest, that were used to make the initial payment to the shipyard to acquire a newbuild drillship for a purchase price of approximately $ 200 million.

We concluded that Liquila is a variable interest entity because its equity at risk was insufficient to permit it to carry on its activities without additional subordinated financial support, and we further concluded that we are not the primary beneficiary since the power to direct the activities that most significantly impact its economic performance are jointly controlled.

The holder of the remaining 67 percent ownership interest in Liquila may, at any time through November 10, 2023, elect to require us to repurchase up to 80 percent of such holder’s initial investment at the value that the holder initially paid therefor.

We may, at our election, settle any such repurchase by delivering cash, Transocean Ltd.

shares or a combination of cash and shares, where any shares delivered would be valued using the then-current market price of shares.

At December 31, 2022, the carrying amount of our investment in Liquila was $ 15 million, recorded in other assets.

Impairments —Our equity-method investment in Orion is the most significant of our equity investments.

In the years ended December 31, 2021 and 2020, we recognized a loss of $ 37 million and $ 59 million, respectively, which had no tax effect, recorded in other, net, associated with the impairment of our equity investment in Orion upon determination that the carrying amount exceeded the estimated fair value and that the impairment was other than temporary.

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Related party transactions —We engage in certain related party transactions with our unconsolidated affiliates, the most significant of which are under agreements with Orion.

We have a management services agreement for the operation and maintenance of the harsh environment floater Transocean Norge and a marketing services agreement for the marketing of the rig.

We also leased the rig under a short-term bareboat charter agreement, which expired in June 2021.

Prior to the rig’s placement into service, we also engaged in certain related party transactions with Orion under a shipyard care agreement for the construction of the rig and other matters related to its completion and delivery.

Additionally, we procure services and equipment from other unconsolidated affiliates for technological innovation.

In the years ended December 31, 2021, 2020 and 2019, we received an aggregate cash payment of $ 16 million, $ 46 million and $ 96 million, respectively, under the shipyard care agreement with Orion, primarily related to the commissioning, preparation and mobilization of Transocean Norge .

In the years ended December 31, 2021, 2020 and 2019, we recognized rent expense of $ 12 million, $ 22 million and $ 9 million, respectively, recorded in operating and maintenance costs, and made an aggregate cash payment of $ 15 million, $ 22 million and $ 6 million, respectively, to charter the rig and rent other equipment from Orion.

In the years ended December 31, 2021, 2020 and 2019, we made an aggregate cash payment of $ 6 million, $ 15 million and $ 11 million, respectively, to other unconsolidated affiliates for research and development and for equipment to reduce emissions and improve reliability.

Additionally, in June 2021, Orion refinanced its shipyard loans under a financing arrangement for $ 100 million, in which we participated at a rate equivalent to our ownership interest in Orion.

Borrowings under the financing arrangement are secured by

We operate, stack and maintain Transocean Norge under a management services agreement, and we market Transocean Norge under a marketing services agreement.

During operations, we lease Transocean Norge under a short-term bareboat charter agreement, the next of which is expected to begin in May 2023 and expire in January 2024.

In addition to our ownership interest in Liquila, we maintain the exclusive right to market, and once it is placed into service, manage the operations of the rig under a master services agreement.

Additionally, we procure and provide services and equipment from and to other unconsolidated affiliates for technological innovation and subsea minerals exploration.

In the years ended December 31, 2022, 2021 and 2020, we received an aggregate cash payment of $ 40 million, $ 16 million and $ 46 million, respectively, primarily for services performed under the management services agreement with Orion.

In the years ended

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued

Transocean Norge .

December 31, 2022, 2021 and 2020, we recognized rent expense of $ 11 million, $ 12 million and $ 22 million, respectively, recorded in operating and maintenance costs, and made an aggregate cash payment of $ 10 million, $ 15 million and $ 22 million, respectively, to charter the rig and rent other equipment from Orion.

In the years ended December 31, 2022, 2021 and 2020, we made an aggregate cash payment of $ 7 million, $ 6 million and $ 15 million, respectively, to other unconsolidated affiliates for research and development and for equipment to reduce emissions and improve reliability.

In June 2021, Orion refinanced its shipyard loans under a financing arrangement for $ 100 million, , and we made a cash investment of $ 33 million in the loan facility.

The financing arrangement, which expires in June 2024, requires interest to be paid on outstanding borrowings at the London Interbank Offered Rate plus a margin of 6.50 percent per annum.

In the year ended December 31, 2021, we made a cash investment in loans of $ 33 million.

At December 31, 2021, the outstanding borrowings, including accrued and unpaid interest, due to us under the financing arrangement were $ 34 million, recorded in other assets.

Borrowings under the financing arrangement are secured by Transocean Norge .

At December 31, 2022 and 2021, the aggregate principal amount due to us under the various financing arrangements with our unconsolidated affiliates was $ 41 million and $ 36 million, respectively, recorded in other assets.

Subsequent event

In February 2023, we agreed to make an investment for a noncontrolling ownership interest in Global Sea Mineral Resources, a Belgian company and leading developer of nodule collection technology, which is engaged in the development and exploration of deep-sea polymetallic nodules that contain metals critical to the growing renewable energy market.

In addition to a cash investment of $ 10 million, we agreed to contribute the ultra-deepwater drillship Ocean Rig Olympia , and we expect to contribute engineering services in the future.

In the three months ending March 31, 2023, we expect to recognize a material loss associated with the contribution of the rig and related assets.

Note 4—Revenues

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(i) providing our drilling rig, work crews, related equipment and services necessary to operate the rig (ii) delivering the drilling rig by mobilizing to and demobilizing from the drill location, and (iii) performing certain pre-operating activities, including rig preparation activities or equipment modifications required for the contract.

These services represent a single performance obligation under our drilling contracts with customers that is satisfied over time, the duration of which varies by contract.

At December 31, 2021, the drilling contract with the longest expected remaining duration, excluding unexercised options, extends through February 2028.

These services represent a single performance obligation under most all of our drilling contracts with customers that is satisfied over time, the duration of which varies by contract.

At December 31, 2022, the drilling contract with the longest expected remaining duration, excluding unexercised options, extends through July 2029.

Disaggregation —Our contract drilling revenues, disaggregated by asset group and by country in which they were earned, were as follows (in millions):

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Year ended December 31, 2020

Ultra-deepwater floaters

Harsh environment floaters

Deepwater floaters

Midwater floaters

Other countries (a)

Total contract drilling revenues

(a) Other represents the aggregate value for countries in which we operate that individually had attributable operating revenues representing less than 10 percent of consolidated operating revenues earned .

Major customers —For the year ended December 31, 2021, Shell plc (together with its affiliates, “Shell”) and Equinor ASA (together with its affiliates, “Equinor”) represented approximately 31 percent and 30 percent, respectively, of our consolidated operating revenues.

For the year ended December 31, 2020, Shell, Equinor and Chevron Corporation (together with its affiliates, “Chevron”) represented approximately 28 percent, 27 percent and 14 percent, respectively, of our consolidated operating revenues.

For the year ended December 31, 2019, Shell, Equinor and Chevron represented approximately 26 percent, 21 percent and 17 percent, respectively, of our consolidated operating revenues.

(a) The aggregate contract drilling revenues earned in other countries that individually represented less than 10 percent of total contract drilling revenues.

Major customers —For the year ended December 31, 2022, Shell plc (together with its affiliates, “Shell”), Equinor ASA (together with its affiliates, “Equinor”) and Petróleo Brasileiro S.A.

represented approximately 33 percent, 25 percent and 11 percent, respectively, of our consolidated operating revenues.

For the year ended December 31, 2021, Shell and Equinor represented approximately 31 percent and 30 percent, respectively, of our consolidated operating revenues.

For the year ended December 31, 2020, Shell, Equinor and Chevron Corporation represented approximately 28 percent, 27 percent and 14 percent, respectively, of our consolidated operating revenues.

Contract liabilities —Contract liabilities for our contracts with customers were as follows (in millions):

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Significant changes in contract liabilities were as follows (in millions):

Years ended December 31,

Total contract liabilities, beginning of period

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Total contract liabilities, end of period

Performance obligations satisfied in prior periods —In June 2020, we entered into a settlement and mutual release agreement with a customer, which provided for the final settlement of disputes related to performance obligations satisfied in prior periods.

In connection with the settlement, among other things, our customer agreed to pay us $ 185 million in four equal installments through January 15, 2023.

In the year ended December 31, 2020, we recognized revenues of $ 177 million, representing the discounted value of the future payments, and recorded corresponding accounts receivable, net of imputed interest.

In the years ended December 31, 2021 and 2020, we received an aggregate cash payment of $ 46 million in scheduled installments under the arrangement.

At December 31, 2021 and 2020, the aggregate carrying amount of the related receivable was $ 90 million and $ 133 million, respectively, net of imputed interest, including $ 46 million and $ 45 million, respectively, recorded in accounts receivable, and $ 44 million and $ 88 million, respectively, recorded in other assets.

In the year ended December 31, 2019, we recognized revenues of $ 10 million for other performance obligations satisfied in prior periods due to certain revenues recognized on a cash basis.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued

In connection with the settlement, among other things, our customer agreed to pay us $ 185 million in four equal installments through January 15, 2023.

In each of the three years ended December 31, 2022, we received an aggregate cash payment of $ 46 million in scheduled installments under the arrangement.

At December 31, 2022, the aggregate carrying amount of the related receivable was $ 46 million, net of imputed interest, recorded in accounts receivable.

At December 31, 2021, the aggregate carrying amount of the related receivable was $ 90 million, net of imputed interest, including $ 46 million and $ 44 million, recorded in accounts receivable and other assets, respectively.

Pre-operating costs —In the years ended December 31, 2022, 2021 and 2020, we recognized pre-operating costs of $ 47 million, $ 48 million and $ 60 million, respectively, recorded in operating and maintenance costs.

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Balance, end of period

As of December 31, 2021, the estimated future amortization over the expected remaining contract periods, the longest of which currently extends through March 2024, was as follows (in millions):

Years ending December 31,

Total carrying amount of contract intangible assets

As of December 31, 2022, the estimated future amortization to be recognized over the expected remaining contract periods in the years ending December 31, 2023 and 2024 was $ 52 million and $ 4 million, respectively.

Note 6—Long-Lived Assets

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Total long-lived assets

(a) Other countries represents the aggregate value for countries in which we operate that individually had attributable long-lived assets representing less than 10 percent of consolidated long-lived assets.

(a) The aggregate carrying amount of long-lived assets located in other countries that individually represented less than 10 percent of total long-lived assets.

Because the majority of our assets are mobile, the geographic locations of such assets at the end of the periods are not necessarily indicative of the geographic distribution of the operating revenues generated by such assets during the periods presented.

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Although we are organized under the laws of Switzerland, we have minimal assets located in Switzerland, and we do not conduct any operations or earn operating revenues in Switzerland.

TRANSOCEAN LTD.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued

Construction work in progress —The changes in our construction work in progress were as follows (in millions):

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Total capital expenditures

Non-cash capital additions financed under Shipyard Loans

Changes in accrued capital additions

Construction work in progress impaired

Property and equipment placed into service

Newbuild construction program

Other equipment and construction projects

Construction work in progress, end of period

TRANSOCEAN LTD.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued

Impairments of assets held and used —During the year ended December 31, 2020, we identified indicators that the carrying amounts of our asset groups may not be recoverable.

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Impairments of assets held for sale —In the year ended December 31, 2020, we recognized an aggregate loss of $ 556 million ($ 0.90 per diluted share), which had no tax effect, associated with the impairment of the ultra-deepwater floater GSF Development Driller II , the harsh environment floaters Polar Pioneer and Songa Dee and the midwater floaters Sedco 711 , Sedco 714 and Transocean 712 , along with related assets, which we determined were impaired at the time that we classified the assets as held for sale.

In the year ended December 31, 2019, we recognized an aggregate loss of $ 578 million ($ 0.94 per diluted share), which had no tax effect, associated with the impairment of the ultra-deepwater floaters Discoverer Deep Seas , Discoverer Enterprise and Discoverer Spirit , along with related assets, which we determined were impaired at the time we classified the assets as held for sale.

We measured the impairment of the drilling units and related assets as the amount by which the carrying amount exceeded the estimated fair value less costs to sell.

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Dispositions —During the year ended December 31, 2021, in connection with our efforts to dispose of non-strategic assets, we completed the sale of the harsh environment floater Leiv Eiriksson and related assets.

In the year ended December 31, 2021, we received aggregate net cash proceeds of $ 4 million and recognized an aggregate net loss of $ 57 million ($ 0.09 per diluted share), which had no tax effect, primarily associated with the disposal of these assets.

In the year ended December 31, 2021, we received aggregate net cash proceeds of $ 5 million and recognized an aggregate net loss of $ 5 million associated with the disposal of assets unrelated to rig sales.

During the year ended December 31, 2020, we completed the sale of the ultra-deepwater floater GSF Development Driller II , the harsh environment floaters Polar Pioneer, Songa Dee and Transocean Arctic and the midwater floaters Sedco 711 , Sedco 714 and Transocean 712 , along with related assets.

In the year ended December 31, 2020, we received aggregate net cash proceeds of $ 20 million and recognized an aggregate net loss of $ 61 million ($ 0.10 per diluted share), which had no tax effect, associated with the disposal of these assets.

In the year ended December 31, 2020, we received aggregate net cash proceeds of $ 4 million and recognized an aggregate net loss of $ 23 million associated with the disposal of assets unrelated to rig sales.

During the year ended December 31, 2019, we completed the sale of the ultra-deepwater floaters Deepwater Frontier, Deepwater Millennium, Discoverer Deep Seas, Discoverer Enterprise, Discoverer Spirit and Ocean Rig Paros , the harsh environment floater Eirik Raude , the deepwater floaters Jack Bates and Transocean 706 and the midwater floaters Actinia and Songa Delta , along with related assets.

In the year ended December 31, 2019, we received aggregate net cash proceeds of $ 64 million and recognized an aggregate net gain of $ 4 million ($ 0.01 per diluted share), which had no tax effect, associated with the disposal of these assets.

In the year ended December 31, 2019, we received aggregate net cash proceeds of $ 6 million and recognized an aggregate net loss of $ 16 million associated with the disposal of assets unrelated to rig sales.

Cancelled construction contracts —In the year ended December 31, 2019, we recognized income of $ 132 million, recorded in other income, net, associated with the cancellation of certain construction contracts acquired in December 2018 in connection with our acquisition of Ocean Rig UDW Inc., a Cayman Islands exempted company with limited liability, for the construction of two ultra-deepwater drillships.

Under the acquisition method of accounting for the business combination, the contract liabilities represented the amount by which the remaining payments due under the acquired contracts were above market construction rates for similar drilling units, measured as of the acquisition date.

In the years ended December 31, 2021 and 2020, we received aggregate net cash proceeds of $ 4 million and $ 20 million, respectively, and recognized an aggregate net loss of $ 57 million ($ 0.09 per diluted share) and $ 61 million ($ 0.10 per diluted share), which had no tax effect, primarily associated with the disposal of these rigs and related assets.

In the years ended December 31, 2022, 2021 and 2020, we received aggregate net cash proceeds of $ 7 million, $ 5 million and $ 4 million, respectively and recognized an aggregate net loss of $ 10 million, $ 5 million and $ 23 million, respectively, associated with the disposal of assets unrelated to rig sales.

Note 7—Leases

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Total lease costs

In the year ended December 31, 2019, we recognized a loss of $ 26 million, with no tax effect, associated with the impairment of right-of-use assets and leasehold improvements for certain office facilities that we vacated or committed to sublease.

Lease payments —Supplemental cash flow information for our leases was as follows (in millions):

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued

Outstanding debt —The aggregate principal amounts and aggregate carrying amounts, including the contractual interest payments of debt restructured in the year ended December 31, 2020 and unamortized debt-related balances, such as discounts, premiums and issue costs, were as follows (in millions):

Outstanding debt —The aggregate principal amounts and aggregate carrying amounts, including the contractual interest payments of previously restructured debt, a bifurcated compound exchange feature, and unamortized debt-related balances, such as discounts, premiums and issue costs, were as follows (in millions):

Principal amount

Carrying amount

6.375 % Senior Notes due December 2021

5.52 % Senior Secured Notes due May 2022

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8.00 % Debentures due April 2027

4.50 % Shipyard Loans due September 2027

7.00 % Notes due June 2028

4.625 % Senior Guaranteed Exchangeable Bonds due September 2029

7.50 % Notes due April 2031

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Less debt due within one year

6.375 % Senior Notes due December 2021

5.52 % Senior Secured Notes due May 2022

3.80 % Senior Notes due October 2022

0.50 % Exchangeable Senior Bonds due January 2023

5.375 % Senior Secured Notes due May 2023

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6.875 % Senior Secured Notes due February 2027

4.50 % Shipyard Loans due September 2027

Total debt due within one year

Total long-term debt

(a) Transocean Inc., a 100 percent owned direct subsidiary of Transocean Ltd., is the issuer of the notes and debentures (the “Legacy Guaranteed Notes”).

(a) The subsidiary issuer of the unregistered senior secured notes is a wholly owned indirect subsidiary of Transocean Inc.

The senior secured notes were fully and unconditionally guaranteed by the owner of the collateral rig.

(b) Transocean Inc., a wholly owned direct subsidiary of Transocean Ltd., is the issuer of the notes and debentures (the “Legacy Guaranteed Notes”).

The Legacy Guaranteed Notes are fully and unconditionally, jointly and severally, guaranteed by Transocean Ltd.

(b) The subsidiary issuer of the unregistered senior secured notes is a wholly owned indirect subsidiary of Transocean Inc.

The senior secured notes are fully and unconditionally guaranteed by the owner of the collateral rig.

(c) Each subsidiary issuer of the respective unregistered senior secured notes is a wholly owned indirect subsidiary of Transocean Inc.

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and rank equal in right of payment of all of our existing and future unsecured unsubordinated obligations.

Such notes are structurally senior to the Legacy Guaranteed Notes and the 7.00% notes due June 2028 and are structurally subordinate to the Senior Priority Guaranteed Notes, as defined below, to the extent of the value of the assets of the subsidiaries guaranteeing the notes.

Such notes are structurally senior to the Legacy Guaranteed Notes, the 4.50% shipyard loans due September 2027 (each, a “Shipyard Loan”, and together, the “Shipyard Loans”) and the 7.00% notes due June 2028 and are structurally subordinate to the Senior Priority Guaranteed Notes, as defined below, to the extent of the value of the assets of the subsidiaries guaranteeing the notes.

(e) Transocean Inc.

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and certain wholly owned indirect subsidiaries of Transocean Inc.

and rank equal in right of payment of all of our existing and future unsecured unsubordinated obligations.

Such notes are structurally senior to the Priority Guaranteed Notes to the extent of the value of the assets of the subsidiaries guaranteeing the notes.

(f) The subsidiary issuer of the registered notes is a wholly owned indirect subsidiary of Transocean Inc.

The notes are fully and unconditionally guaranteed by Transocean Inc.

and rank equal

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued

in right of payment of all of our existing and future unsecured unsubordinated obligations.

Such notes are structurally senior to the Priority Guaranteed Notes to the extent of the value of the assets of the subsidiaries guaranteeing the notes.

(f) The subsidiary borrowers under the Shipyard Loans and the subsidiary issuer of the registered notes are wholly owned indirect subsidiaries of Transocean Inc.

The loans and notes are fully and unconditionally guaranteed by Transocean Inc.

Transocean Ltd.

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Indentures —The indentures that govern our debt generally contain covenants that, among other things, limit our ability to incur certain liens on our drilling units without equally and ratably securing the notes, to engage in certain sale and lease back transactions covering any of our drilling units, to allow our subsidiaries to incur certain additional debt, or to engage in certain merger, consolidation or reorganization transactions or to enter into a scheme of arrangement qualifying as an amalgamation.

The indentures that govern the 5.52% senior secured notes due May 2022 (the “5.52% Senior Secured Notes”), the 5.375% Senior Secured Notes due May 2023 (the “5.375% Senior Secured Notes”), the 5.875% senior secured notes due January 2024, the 7.75% senior secured notes due October 2024, the 6.25% senior secured notes due December 2024, the 6.125% senior secured notes due August 2025 and the 6.875% senior secured notes due February 2027 (the “6.875% Senior Secured Notes”) contain covenants that limit the ability of our subsidiaries that own or operate the collateral rigs to declare or pay dividends to their affiliates.

The indentures that govern the 4.00% Senior Guaranteed Exchangeable Bonds, the 2.50% Senior Guaranteed Exchangeable Bonds and the 0.50% Exchangeable Senior Bonds require such bonds to be repurchased upon the occurrence of certain fundamental changes and events, at specified prices depending on the particular fundamental change or event, which include changes and events related to certain (i) change of control events applicable to Transocean Ltd.

The indentures that govern the 0.50% exchangeable senior bonds due January 2023 (the “0.50% Exchangeable Senior Bonds”), the 4.00% senior guaranteed exchangeable bonds due December 2025 (the “4.00% Senior Guaranteed Exchangeable Bonds”), the 2.50% senior guaranteed exchangeable bonds due January 2027 (the “2.50% Senior Guaranteed Exchangeable Bonds”) and the 4.625% senior guaranteed exchangeable bonds due September 2029 (the “4.625% Senior Guaranteed Exchangeable Bonds”) require such bonds to be repurchased upon the occurrence of certain fundamental changes and events, at specified prices depending on the particular fundamental change or event, which include changes and events related to certain (i) change of control events applicable to Transocean Ltd.

or Transocean Inc., (ii) the failure of our shares to be listed or quoted on a national securities exchange and (iii) specified tax matters.

Interest rate adjustments —The interest rates for certain of our notes are subject to adjustment from time to time upon a change to the credit rating of our non-credit enhanced senior unsecured long-term debt.

At December 31, 2021, the interest rate in effect for the 3.80% senior notes due October 2022 and the 7.35% senior notes due December 2041 was 5.80 percent and 9.35 percent, respectively.

The indentures that govern the 5.375% Senior Secured Notes due May 2023 (the “5.375% Senior Secured Notes”), the 5.875% senior secured notes due January 2024 (the “5.875% Senior Secured Notes”), the 7.75% senior secured notes due October 2024 (the “7.75% Senior Secured Notes”), the 6.25% senior secured notes due December 2024 (the “6.25% Senior Secured Notes”), the 6.125% senior secured notes due August 2025 (the “6.125% Senior Secured Notes”) and the 6.875% senior secured notes due February 2027 contain covenants that limit the ability of our subsidiaries that own or operate the collateral rigs to declare or pay dividends to their affiliates.

The indentures that govern our senior secured notes contain certain lien requirements.

At December 31, 2022, we had restricted cash and cash equivalents of $ 276 million deposited in restricted accounts to satisfy debt service and reserve requirements for the senior secured notes.

At December 31, 2022, the rigs encumbered for the senior secured notes and our Shipyard Loans, including Deepwater Atlas , Deepwater Pontus , Deepwater Poseidon , Deepwater Proteus , Deepwater Thalassa , Transocean Enabler , Transocean Encourage and Transocean Endurance , had an aggregate carrying amount of $ 5.45 billion.

We will be required to redeem the senior secured notes at a price equal to 100 percent of the aggregate principal amount without a make-whole premium, upon the occurrence of certain events related to the respective collateral rigs and related drilling contracts.

Interest rate adjustments —The interest rates for the 7.35% senior notes due December 2041 (the “7.35% Senior Notes”) are subject to adjustment from time to time upon a change to the credit rating of our non-credit enhanced senior unsecured long-term debt.

At December 31, 2022, the interest rate in effect for the 7.35% Senior Notes was 9.35 percent.

Scheduled maturities —At December 31, 2022, the scheduled maturities of our debt, including the principal installments and other installments, representing the contractual interest payments of previously restructured debt, were as follows (in millions):

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Total unamortized debt-related balances, net

Bifurcated compound exchange feature, at estimated fair value

Total carrying amount of debt

Credit agreements

Secured Credit Facility —As of December 31, 2021, we have a $ 1.33 billion secured revolving credit facility established under a bank credit agreement (as amended from time to time, the “Secured Credit Facility”), which is scheduled to expire on June 22, 2023.

Secured Credit Facility —As of December 31, 2022, we have a secured revolving credit facility established under a bank credit agreement (as amended from time to time, the “Secured Credit Facility”), which is scheduled to mature on June 22, 2025.

In July 2022, we amended the bank credit agreement for our Secured Credit Facility to, among other things, (i) extend the maturity date from June 22, 2023

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to June 22, 2025, (ii) reduce the borrowing capacity from $ 1.33 billion to $ 774 million through June 22, 2023, and thereafter reduce the borrowing capacity to $ 600 million through June 22, 2025 and (iii) replace our ability to borrow under the Secured Credit Facility at the reserve adjusted London Interbank Offered Rate plus a margin (the “Secured Credit Facility Margin”) with the ability to borrow under the Secured Credit Facility at a forward looking term rate based on the secured overnight financing rate (“Term SOFR”) plus the Secured Credit Facility Margin and a Term SOFR spread adjustment of 0.10 percent.

The Secured Credit Facility is subject to permitted extensions and certain early maturity triggers, including if on any date the aggregate amount of scheduled principal repayments of indebtedness, with certain exceptions, due within 91 days thereof is equal to or in excess of $ 200 million and available cash is less than $ 250 million.

The amended secured credit facility also permits us to increase the aggregate amount of commitments by up to $ 250 million.

The Secured Credit Facility is guaranteed by Transocean Ltd.

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The Secured Credit Facility is secured by, among other things, a lien on the ultra-deepwater floaters Deepwater Asgard , Deepwater Corcovado , Deepwater Invictus , Deepwater Mykonos , Deepwater Orion , Deepwater Skyros , Development Driller III , Dhirubhai Deepwater KG2 and Discoverer Inspiration and the harsh environment floaters Transocean Barents and Transocean Spitsbergen , and at December 31, 2022, the aggregate carrying amount of which was $ 4.87 billion.

The maximum borrowing capacity will be reduced to $ 1.00 billion if, and so long as, our leverage ratio, measured as the aggregate principal amount of debt outstanding to earnings before interest, taxes, depreciation and amortization, exceeds 10.00 to 1.00.

The Secured Credit Facility contains covenants that, among other things, include maintenance of a minimum guarantee coverage ratio of 3.0 to 1.0, a minimum collateral coverage ratio of 2.1 to 1.0, a maximum debt to capitalization ratio of 0.60 to 1.00 and minimum liquidity of $ 500 million.

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and certain of our subsidiaries to, among other things, merge, consolidate or otherwise make changes to the corporate structure, incur liens, incur additional indebtedness, enter into transactions with affiliates and pay dividends and other distributions.

We may borrow under the Secured Credit Facility at either (1) the reserve adjusted London Interbank Offered Rate plus a margin (the “Secured Credit Facility Margin”), which ranges from 2.625 percent to 3.375 percent based on the credit rating of the Secured Credit Facility, or (2) the base rate specified in the credit agreement plus the Secured Credit Facility Margin, minus one percent per annum.

Throughout the term of the Secured Credit Facility, we pay a facility fee on the amount of the underlying commitment which ranges from 0.375 percent to 1.00 percent based on the credit rating of the Secured Credit Facility.

At December 31, 2021, based on the credit rating of

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the Secured Credit Facility on that date, the Secured Credit Facility Margin was 3.375 percent and the facility fee was 0.875 percent.

At December 31, 2021, we had no borrowings outstanding, $ 17 million of letters of credit issued, and we had $ 1.32 billion of available borrowing capacity under the Secured Credit Facility.

Shipyard financing arrangement —In June 2021, Transocean Offshore Deepwater Holdings Limited, a Cayman Islands company and our wholly owned indirect subsidiary, entered into credit agreements with Jurong Shipyard Pte Ltd.

establishing facilities (the “Shipyard Loans”) to finance all or a portion of the final payments expected to be owed to the shipyard upon delivery of the ultra-deepwater floaters Deepwater Atlas and Deepwater Titan .

The Shipyard Loans are guaranteed by Transocean Inc.

Borrowings under the Shipyard Loan for Deepwater Atlas will be secured by, among other security, a lien on the rig.

In certain circumstances, borrowings under the Shipyard Loan for Deepwater Titan may also be secured by, among other security, a lien on the rig.

We will repay the borrowings, together with interest of 4.5 percent per annum, according to the selected installment schedule over a maximum of a six-year period following delivery of the drilling rigs.

We have the right to prepay any outstanding borrowings, in full or in part, without penalty.

In order to utilize the Secured Credit Facility, we must, at the time of the borrowing request, be in full compliance with the terms and conditions of the Secured Credit Facility and make certain representations and warranties, including with respect to compliance with laws and solvency, to the lenders.

Repayment of borrowings under the Secured Credit Facility are subject to acceleration upon the occurrence of an event of default.

Under the agreements governing certain of our debt and finance lease, we are also subject to various covenants, including restrictions on creating liens, engaging in sale/leaseback transactions and engaging in certain merger, consolidation or reorganization transactions.

A default under our public debt indentures, the agreements governing our senior secured notes, our finance lease contract or any other debt owed to unaffiliated entities that exceeds $ 125 million could trigger a default under the Secured Credit Facility and, if not waived by the lenders, could cause us to lose access to the Secured Credit Facility.

At December 31, 2022, based on the credit rating of the Secured Credit Facility on that date, the Secured Credit Facility Margin was 3.25 percent and the facility fee was 0.75 percent.

At December 31, 2022, we had no borrowings outstanding, $ 6 million of letters of credit issued, and we had $ 767 million of available borrowing capacity under the Secured Credit Facility.

Shipyard financing arrangement —At December 31, 2022, we have credit agreements that established the Shipyard Loans to finance all or a portion of the final payments owed to the shipyard upon delivery of the ultra-deepwater floaters Deepwater Atlas and Deepwater Titan .

Borrowings under the Shipyard Loan for Deepwater Atlas are secured by, among other security, a lien on the rig, and borrowings under the Shipyard Loan for Deepwater Titan are unsecured.

We have the right to prepay outstanding borrowings, in full or in part, without penalty.

The Shipyard Loans contain covenants that, among other things, limit the ability of the subsidiary owners of the drilling rigs to incur certain types of additional indebtedness or make certain additional commitments or investments.

At December 31, 2021, we had no borrowings outstanding under the Shipyard Loans.

In June 2022, we borrowed $ 349 million under the Shipyard Loan for Deepwater Atlas and made a cash payment of $ 46 million to satisfy the final milestone payment due upon delivery of the rig.

In December 2022, we borrowed $ 90 million under the Shipyard Loan for Deepwater Titan and made a cash payment of $ 325 million to satisfy the final milestone payment due upon delivery of the rig.

We recorded each Shipyard Loan, net of imputed interest, with an initial carrying amount of $ 300 million and $ 82 million, respectively, and corresponding non-cash capital additions, recorded in property and equipment.

The carrying amount of each Shipyard Loan at inception represented its estimated fair value using significant other observable inputs, representative of Level 2 fair value measurements, including the terms and credit spreads of our debt, by applying an estimated discount rate of 9.4 percent and 7.6 percent, respectively.

Exchangeable bonds

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2.50 % Senior Guaranteed Exchangeable Bonds due January 2027

The exchange rates of our exchangeable bonds, identified above, are subject to adjustment upon the occurrence of certain events.

4.625 % Senior Guaranteed Exchangeable Bonds due September 2029

The exchange rates, identified above, are subject to adjustment upon the occurrence of certain events.

The 0.50% Exchangeable Senior Bonds may be exchanged by holders into Transocean Ltd.

shares at any time prior to the close of business on the business day immediately preceding the maturity date.

The 2.50% Senior Guaranteed Exchangeable Bonds may be exchanged by holders into Transocean Ltd.

shares at any time prior to the close of business on the second business day immediately preceding the maturity date or redemption date.

The 4.00% Senior Guaranteed Exchangeable Bonds may be exchanged by holders at any time prior to the close of business on the second business day immediately preceding the maturity date and, at our election, such exchange may be settled by delivering cash, Transocean Ltd.

shares or a combination of cash and shares.

The 2.50% Senior Guaranteed Exchangeable

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Bonds may be exchanged by holders into Transocean Ltd.

shares at any time prior to the close of business on the second business day immediately preceding the maturity date or redemption date.

The 4.625% Senior Guaranteed Exchangeable Bonds may be exchanged by holders at any time prior to the close of business on the second business day immediately preceding the maturity date or redemption date and, at our election, such exchange may be settled by delivering cash, Transocean Ltd.

shares or a combination of cash and shares.

Effective interest rates and fair values —At December 31, 2022, the effective interest rates and estimated fair values of our exchangeable bonds were as follows (in millions, except effective interest rates):

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2.50 % Senior Guaranteed Exchangeable Bonds due January 2027

4.625 % Senior Guaranteed Exchangeable Bonds due September 2029

The 4.625% Senior Guaranteed Exchangeable Bonds contain a compound exchange feature that, in addition to the exchange terms outlined above, requires us to pay holders a make whole premium of future interest through March 30, 2028, for exchanges exercised during a redemption notice period.

Such compound exchange feature must be bifurcated from the host debt instrument since it is not considered indexed to our stock.

Accordingly, we recognize changes to the estimated fair value of the bifurcated compound exchange feature, recorded as a component of the carrying amount of debt, with a corresponding adjustment to interest expense.

In the year ended December 31, 2022, we recognized an unrealized loss of $ 157 million as an adjustment to the fair value of the bifurcated compound exchange feature.

We estimated the fair values of the exchangeable debt instruments, including the exchange features, by employing a binomial lattice model using significant other observable inputs, representative of Level 2 fair value measurements, including the terms and credit spreads of our debt and the expected volatility of the market price for our shares.

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Debt issuance

Senior guaranteed exchangeable bonds —On February 26, 2021, we issued $ 294 million aggregate principal amount of the 4.00% Senior Guaranteed Exchangeable Bonds and made an aggregate cash payment of $ 11 million in private exchanges (collectively, the “2021 Private Exchange”) for $ 323 million aggregate principal amount of the 0.50% Exchangeable Senior Bonds.

In the year ended December 31, 2021, as a result of the 2021 Private Exchange, we recognized a gain of $ 51 million ($ 0.08 per diluted share), with no tax effect, associated with the retirement of debt (see “— Debt restructuring, repayment and retirement ”).

Senior guaranteed exchangeable bonds —On September 30, 2022, we issued $ 300 million aggregate principal amount of 4.625% Senior Guaranteed Exchangeable Bonds in connection with exchange and purchase agreements.

Pursuant to the exchange and purchase agreements, we exchanged (the “2022 Private Exchange”) (a) $ 73 million aggregate principal amount of the 0.50% Exchangeable Senior Bonds for (i) $ 73 million aggregate principal amount of 4.625% Senior Guaranteed Exchangeable Bonds and (ii) 6.7 million warrants to purchase Transocean Ltd.

shares, and (b) $ 43 million aggregate principal amount of the 7.25% senior notes due November 2025 for $ 39 million aggregate principal amount of the 4.625% Senior Guaranteed Exchangeable Bonds.

In the year ended December 31, 2022, as a result of the 2022 Private Exchange, we recognized a gain of $ 6 million ($ 0.01 per diluted share), with no tax effect, associated with the retirement of debt.

Additionally, we sold $ 188 million aggregate principal amount of the 4.625% Senior Guaranteed Exchangeable Bonds and issued 15.5 million warrants to purchase Transocean Ltd.

shares for aggregate net cash proceeds of $ 188 million.

On or after March 30, 2026, we may redeem for cash all or a portion of the 4.625% Senior Guaranteed Exchangeable Bonds at a price equivalent to the aggregate principal amount to be redeemed if the closing price of our shares has been greater than 115 percent of the exchange price for a period of at least 20 trading days.

The initial carrying amount of the 4.625% Senior Guaranteed Exchangeable Bonds, measured at the estimated fair value on the date of issuance, was $ 281 million.

We estimated the fair value of the exchangeable debt instrument, including the exchange feature, by employing a binomial lattice model and by using significant other observable inputs, representative of Level 2 fair value measurements, including the terms and credit spreads of our debt and expected volatility of the market price for our shares.

See Note 13—Equity .

On February 26, 2021, we issued $ 294 million aggregate principal amount of the 4.00% Senior Guaranteed Exchangeable Bonds and made an aggregate cash payment of $ 11 million in private exchanges (the “2021 Private Exchange”) for $ 323 million aggregate principal amount of the 0.50% Exchangeable Senior Bonds.

The initial carrying amount of the 4.00% Senior Guaranteed Exchangeable Bonds, measured at the estimated fair value on the date of issuance, was $ 260 million.

We estimated the fair value of the exchangeable debt instrument, including the exchange feature, by employing a binomial lattice model using significant other observable inputs, representative of Level 2 fair value measurements, including the terms and credit spreads of our debt and expected volatility of the market price for our shares.

On August 14, 2020, we issued $ 238 million aggregate principal amount of 2.50% Senior Guaranteed Exchangeable Bonds in non-cash private exchanges (the “2020 Private Exchange”) for $ 397 million aggregate principal amount of the 0.50% Exchangeable Senior Bonds.

In the year ended December 31, 2020, as a result of the 2020 Private Exchange, we recognized a gain of $ 72 million ($ 0.12 per diluted share), with no tax effect, associated with the restructuring of debt.

We may redeem all or a portion of the 2.50% Senior Guaranteed Exchangeable Bonds (i) before August 14, 2023, if certain conditions related to the price of our shares have been satisfied, at a price equal to 100 percent of the aggregate principal amount and (ii) on or after August 14, 2023, at specified redemption prices.

We recorded the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued

On August 14, 2020, we issued $ 238 million aggregate principal amount of 2.50% Senior Guaranteed Exchangeable Bonds in non-cash private exchanges (collectively, the “2020 Private Exchange”) for $ 397 million aggregate principal amount of the 0.50% Exchangeable Senior Bonds.

We may redeem all or a portion of the 2.50% Senior Guaranteed Exchangeable Bonds (i) on or after August 14, 2022, if certain conditions related to the price of our shares have been satisfied, at a price equal to 100 percent of the aggregate principal amount and (ii) on or after August 14, 2023, at specified redemption prices.

We recorded the conversion feature of the 2.50% Senior Guaranteed Exchangeable Bonds, measured at its estimated fair value of $ 46 million, to additional paid-in capital.

conversion feature of the 2.50% Senior Guaranteed Exchangeable Bonds, measured at its estimated fair value of $ 46 million, to additional paid-in capital.

We estimated the fair value by employing a binomial lattice model using significant other observable inputs, representative of Level 2 fair value measurements, including the expected volatility of the market price for our shares.

Related party transactions —In August 2020, Perestroika AS, an entity affiliated with one of our directors that beneficially owns approximately 10 percent of our shares, exchanged $ 356 million aggregate principal amount of the 0.50% Exchangeable Senior Bonds for $ 213 million aggregate principal amount of 2.50% Senior Guaranteed Exchangeable Bonds.

Perestroika AS has certain registration rights related to its shares and shares that may be issued in connection with any exchange of its 2.50% Senior Guaranteed Exchangeable Bonds.

At December 31, 2021 and 2020, Perestroika AS held $ 213 million aggregate principal amount of the 2.50% Senior Guaranteed Exchangeable Bonds.

Guaranteed senior unsecured notes— On January 17, 2020, we issued $ 750 million aggregate principal amount of 8.00 % senior notes due February 2027 (the “8.00% Senior Notes”), and we received aggregate cash proceeds of $ 743 million, net of issue costs.

We may redeem all or a portion of the 8.00% Senior Notes on or prior to February 1, 2023 at a price equal to 100 percent of the aggregate principal amount plus a make-whole premium, and subsequently, at specified redemption prices.

Related party transactions —In August 2020, Perestroika exchanged $ 356 million aggregate principal amount of the 0.50% Exchangeable Senior Bonds for $ 213 million aggregate principal amount of 2.50% Senior Guaranteed Exchangeable Bonds.

Perestroika has certain registration rights related to its shares and shares that may be issued in connection with any exchange of its 2.50% Senior Guaranteed Exchangeable Bonds.

At December 31, 2022 and 2021, Perestroika held $ 213 million aggregate principal amount of the 2.50% Senior Guaranteed Exchangeable Bonds.

Priority guaranteed senior unsecured notes —On September 11, 2020, we issued $ 687 million aggregate principal amount of 11.50% senior guaranteed notes due January 2027 (the “11.50% Senior Guaranteed Notes”) in non-cash exchange offers, pursuant to an exchange offer memorandum, dated August 10, 2020, as supplemented, for an aggregate principal amount of $ 1.5 billion of several series of our existing debt securities that were validly tendered and accepted for purchase (the “2020 Exchange Offers” and, together with the 2020 Private Exchange, the “2020 Exchange Transactions”).

In the year ended December 31, 2020, as a result of the 2020 Exchange Offers, we recognized a gain of $ 355 million ($ 0.58 per diluted share), with no tax effect, associated with the restructuring of debt (see “— Debt restructuring, repayment and retirement ”).

We may redeem all or a portion of the 11.50% Senior Guaranteed Notes prior to July 30, 2023 at a price equal to 100 percent of the aggregate principal amount plus a make-whole premium, and subsequently, at specified redemption prices.

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to redeem, on one or more occasions prior to July 30, 2023, up to a maximum of 40 percent of the original aggregate principal amount of the 11.50% Senior Guaranteed Notes, subject to certain adjustments, at a redemption price equal to 111.50 percent of the aggregate principal amount.

Senior secured notes —On February 1, 2019, we issued $ 550 million aggregate principal amount of 6.875% Senior Secured Notes, and we received $ 539 million aggregate cash proceeds, net of discount and issue costs.

The 6.875% Senior Secured Notes are secured by the assets and earnings associated with the ultra-deepwater floater Deepwater Poseidon and the equity of the wholly owned subsidiaries that own or operate the collateral rig.

Additionally, we are required to maintain certain balances in restricted cash accounts to satisfy debt service requirements.

We are required to pay semiannual installments of principal and interest.

We may redeem all or a portion of the 6.875% Senior Secured Notes on or prior to February 1, 2022 at a price equal to 100 percent of the aggregate principal amount plus a make-whole premium, and subsequently, at specified redemption prices.

On May 24, 2019, we issued $ 525 million aggregate principal amount of 5.375% Senior Secured Notes, and we received $ 517 million aggregate cash proceeds, net of discount and issue costs.

The 5.375% Senior Secured Notes are secured by the assets and earnings associated with the harsh environment floaters Transocean Endurance and Transocean Equinox and the equity of the wholly owned subsidiaries that own or operate the collateral rigs.

Additionally, we are required to maintain certain balances in restricted cash accounts to satisfy debt service requirements.

We are required to pay semiannual installments of principal and interest.

We may redeem all or a portion of the 5.375% Senior Secured Notes on or prior to May 15, 2021 at a price equal to 100 percent of the aggregate principal amount plus a make-whole premium, and subsequently, at specified redemption prices.

Encumbered assets —At December 31, 2021, we had restricted cash and cash equivalents of $ 409 million deposited in restricted accounts to satisfy debt service and reserve requirements for the senior secured notes.

At December 31, 2021, the rigs encumbered for the senior secured notes, including Deepwater Conqueror, Deepwater Pontus , Deepwater Proteus , Deepwater Thalassa , Deepwater Poseidon , Transocean Enabler , Transocean Encourage , Transocean Endurance and Transocean Equinox , had an aggregate carrying amount of $ 5.93 billion.

Debt restructuring, repayment and retirement

Guaranteed senior unsecured notes— On January 17, 2020, we issued $ 750 million aggregate principal amount of 8.00% senior notes due February 2027 (the “8.00% Senior Notes”), and we received aggregate cash proceeds of $ 743 million, net of issue costs.

Debt repayment, redemption, restructuring, and retirement

Restructuring and early retirement —During the years ended December 31, 2022, 2021 and 2020, we restructured or retired certain notes as a result of exchange offers, private exchanges, redemption, tender offers and open market repurchases.

We recorded the

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2020 Exchange Transactions completed in August 2020 and September 2020 under ASC 470-60, Troubled Debt Restructuring by Debtors.

We recorded the 2020 Exchange Transactions completed in August 2020 and September 2020 under ASC 470-60, Troubled Debt Restructuring by Debtors.

The aggregate principal amounts, cash payments and recognized gain or loss for such transactions were as follows (in millions):

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6.375 % Senior Notes due December 2021

5.52 % Senior Secured Notes due May 2022

3.80 % Senior Notes due October 2022

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7.35 % Senior Notes due December 2041

Aggregate principal amount restructured or retired

Aggregate principal amount of debt retired

Aggregate cash payment

Aggregate principal amount of debt issued in exchanges

Aggregate fair value of warrants issued in exchanges

Aggregate net gain (loss)

Scheduled maturities and installments —On the scheduled maturity date of December 15, 2021, we made a cash payment of $ 38 million to repay an equivalent aggregate principal amount of the outstanding 6.375% senior notes due December 2021.

On the scheduled maturity date of November 16, 2020, we made a cash payment of $ 153 million to repay an equivalent aggregate principal amount of the outstanding 6.50% senior notes due November 2020.

On the scheduled maturity date of November 16, 2020, we made a cash payment of $ 153 million to repay an equivalent aggregate principal amount

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued

of the outstanding 6.50% senior notes due November 2020.

In the years ended December 31, 2022, 2021 and 2020, we made an aggregate cash payment of $ 479 million, $ 478 million and $ 375 million, respectively, to repay other indebtedness in scheduled installments.

Subsequent events

Debt issuance —In January 2023, we issued $ 525 million aggregate principal amount of 8.375 % senior secured notes due February 2028 (the “8.375% Senior Secured Notes”), and we received $ 515 million aggregate cash proceeds, net of issue costs.

The 8.375% Senior Secured Notes are secured by the assets and earnings associated with the ultra-deepwater floater Deepwater Titan and the equity of the wholly owned subsidiary that owns or operates the collateral rig.

Additionally, we are required to maintain certain balances in a restricted cash account to satisfy debt service requirements.

We may redeem all or a portion of the 8.375% Senior Secured Notes on or prior to February 1, 2025 at a price equal to 100 percent of the aggregate principal amount plus a make-whole premium, and subsequently, at specified redemption prices.

In January 2023, we issued $ 1.175 billion aggregate principal amount of 8.75 % senior secured notes due February 2030 (the “8.75% Senior Secured Notes”), and we received $ 1.157 billion aggregate cash proceeds, net of issue costs.

The 8.75% Senior Secured Notes are fully and unconditionally guaranteed on an unsecured basis by Transocean Ltd.

and on a limited senior secured basis by certain of our wholly owned subsidiaries.

The 8.75% Senior Secured Notes are secured by a lien on the ultra-deepwater floaters Deepwater Pontus , Deepwater Proteus and Deepwater Thalassa and the harsh environment floaters Transocean Enabler and Transocean Encourage , together with certain related assets.

Additionally, we are required to maintain certain balances in a restricted cash account to satisfy debt service requirements.

Debt retirement —On the scheduled maturity date of January 30, 2023, we made a cash payment of $ 49 million to repay an equivalent aggregate principal amount of the outstanding 0.50% Exchangeable Senior Bonds.

In January 2023, we made a cash payment of $ 121 million to redeem an equivalent aggregate principal amount of the outstanding 5.375% Senior Secured Notes, and the trustee notified holders of our intent to redeem the remaining outstanding $ 122 million aggregate principal amount of notes for an equivalent aggregate cash payment, expected to be made on February 24, 2023.

In January 2023, in connection with the issuance of the 8.75% Senior Secured Notes, we made an aggregate payment of $ 1.156 billion, including a make-whole premium, to redeem the remaining outstanding $ 311 million, $ 240 million, $ 250 million, and $ 336 million aggregate principal amount of the 5.875% Senior Secured Notes, the 7.75% Senior Secured Notes, the 6.25% Senior Secured Notes and the 6.125% Senior Secured Notes, respectively.

Note 9—Postemployment Benefit Plans

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Plans”), and in the U.K., we had one funded defined benefit plan (the “U.K.

During the year ended December 31, 2021, as required by local authorities, we terminated our two remaining plans in Norway (together with the U.K.

During the year ended December 31, 2021, as required by local authorities, we terminated our remaining plans in Norway (together with the U.K.

Plan, the “Non-U.S.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued

Net periodic benefit costs recognized included the following components (in millions):

The components of net periodic benefit costs, recognized in other income and expense, were as follows (in millions):

Year ended December 31, 2022

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“na” means not applicable.

The changes in projected benefit obligation, plan assets and funded status and the amounts recognized on our consolidated balance sheets were as follows (in millions):

The changes in funded status, balance sheet classifications and accumulated benefit obligations were as follows (in millions):

Year ended December 31, 2022

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Projected benefit obligation, beginning of period

Actuarial losses (gains), net

Actuarial gains, net

Interest cost

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Benefits paid

Plan amendment

Projected benefit obligation, end of period

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Cash and money market funds

Investment contracts

Total other investments

Total investments

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Since plan investment managers are required to maintain well diversified portfolios, the actual investment in our securities would be immaterial relative to asset categories and the overall plan assets.

Funding contributions and benefit payments —In the years ended December 31, 2022, 2021 and 2020, we made an aggregate contribution of $ 3 million, $ 10 million and $ 14 million, respectively, to the defined benefit pension plans and the OPEB Plans using our cash

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued

Funding contributions and benefit payments —In the years ended December 31, 2021, 2020 and 2019, we made an aggregate contribution of $ 10 million, $ 14 million and $ 22 million, respectively, to the defined benefit pension plans and the OPEB Plans using our cash flows from operations.

flows from operations.

In the year ending December 31, 2023, we expect to make an aggregate contribution of $ 4 million, including $ 1 million and $ 3 million to the defined benefit pension plans and the OPEB Plans, respectively.

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Years ended December 31,

Current tax benefit

Current tax expense (benefit)

Deferred tax expense

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Income tax benefit at Swiss federal statutory rate

Changes in valuation allowance

Earnings subject to rates different than the Swiss federal statutory rate

Deemed profits taxes

Jurisdictional ownership changes of certain assets

Swiss Federal Act on Tax Reform and AHV Financing

Changes in valuation allowance

Audit settlement

Withholding taxes

Losses on impairment

Deemed profits taxes

Changes in unrecognized tax benefits, net

Swiss Federal Act on Tax Reform and AHV Financing

Changes due to organizational restructuring

Losses on impairment

Base erosion and anti-abuse tax

Coronavirus Aid, Relief, and Economic Security Act

Operating structural changes

Income tax expense

In January 2020, Switzerland made effective the Federal Act on Tax Reform and AHV Financing (“TRAF”), which will subject us to ordinary taxation, effective January 1, 2022, following the expiration of our transition rulings.

In November 2021, we reached an agreement with the Swiss tax authorities regarding the manner by which TRAF will apply to certain Swiss subsidiaries, which will allow us to access historic depreciation and costs related to financing assets not previously deducted on Swiss tax returns, which can be apportioned to offset taxable income based on the remaining useful lives of the rigs and financing assets.

In the year ended December 31, 2021, we recorded a deferred tax liability of $ 238 million and a deferred tax asset of $ 1.33 billion, offset with a valuation allowance of $ 1.17 billion.

In January 2020, Switzerland made effective the Federal Act on Tax Reform and AHV Financing (“TRAF”).

In March 2020, we entered into discussions with the Swiss tax authorities regarding the manner by which the TRAF applies to certain Swiss subsidiaries, which allows us to access historic depreciation and costs related to financing assets not previously deducted on Swiss tax returns, which can be apportioned to offset taxable income based on the remaining useful lives of the rigs and financing assets.

In the three months ended December 31, 2021, we reached an agreement with the Swiss Tax authorities regarding the TRAF treatment.

At December 31, 2022 and 2021, we had a deferred tax liability of $ 226 million and $ 238 million, respectively, and a deferred tax asset of $ 1.23 billion and $ 1.33 billion, respectively, offset with a valuation allowance of $ 1.10 billion and $ 1.17 billion, respectively.

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In the year ended December 31, 2020, we recognized an income tax benefit of $ 28 million related to the carryback of our net operating losses under this provision.

In the year ended December 31, 2019, as a result of the U.S.

base erosion and anti-abuse tax, we recognized income tax expense of $ 21 million related to the bareboat charter structure of our U.S.

operations, a significant portion of which was contractually reimbursed by our customers under a change-in-law provision in our drilling contracts.

Deferred taxes —The significant components of our deferred tax assets and liabilities were as follows (in millions):

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As of December 31, 2022, our consolidated cumulative loss incurred over the recent three-year period represented significant objective negative evidence for the evaluation of the realizability of our deferred tax assets.

Although such evidence has limited our ability to consider other subjective evidence, we evaluate each jurisdiction separately.

Because such evidence has limited our ability to consider other subjective evidence, we evaluate each jurisdiction separately.

We consider objective evidence, such as contract backlog activity, in jurisdictions in which we have profitable contracts, and the ability to carryback losses or utilize losses against potential exposures.

If estimated future taxable income changes during the carryforward periods or if the cumulative loss is no longer present, we may adjust the amount of deferred tax assets that we expect to realize.

At December 31, 2021 and 2020, due to uncertainty of realization, we had a valuation allowance of $ 1.82 billion and $ 685 million, respectively, on net operating losses and other deferred tax assets due to the uncertainty of realization.

At December 31, 2022 and 2021, due to uncertainty of realization, we had a valuation allowance of $ 1.91 billion and $ 1.82 billion, respectively, on net operating losses and other deferred tax assets due to the uncertainty of realization.

Unrecognized tax benefits —The changes to unrecognized tax benefits, excluding interest and penalties that we recognize as a component of income tax expense, were as follows (in millions):

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We intend to defend our tax positions vigorously.

Although we can provide no assurance as to the outcome of the aforementioned changes, examinations or assessments, we do not expect the ultimate liability to have a material adverse effect on our condensed consolidated statement of financial position or results of operations;

however, it could have a material adverse effect on our condensed consolidated statement of cash flows.

Although we can provide no assurance as to the outcome of the aforementioned changes, examinations or assessments, we do not expect the ultimate liability to have a material adverse effect on our consolidated statement of financial position or results of operations;

however, it could have a material adverse effect on our consolidated statement of cash flows.

Brazil tax investigations —In December 2005, the Brazilian tax authorities began issuing tax assessments with respect to our tax returns for the years 2000 through 2004.

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Denominator for loss per share, basic and diluted

Weighted-average shares outstanding

Effect of share-based awards

Weighted-average shares for per share calculation

Loss per share, basic and diluted

In the years ended December 31, 2021, 2020 and 2019, we excluded from the calculation 12.6 million, 10.8 million and 12.0 million share-based awards, respectively, since the effect would have been anti-dilutive.

In the years ended December 31, 2021, 2020 and 2019, we excluded from the calculation 104.4 million, 84.0 million and 84.0 million shares, respectively, issuable upon conversion of the 0.50 % Exchangeable Senior Bonds, the 2.50 % Senior Guaranteed Exchangeable Bonds and the 4.00 % Senior Guaranteed Exchangeable Bonds since the effect would have been anti-dilutive.

We excluded from the computations certain shares issuable as follows because the effect would have been antidilutive (in millions):

Years ended December 31,

Exchangeable bonds

Share-based awards

Note 12—Commitments and Contingencies

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At December 31, 2022 and 2021, we also had outstanding surety bonds totaling $ 161 million and $ 146 million, respectively, to secure customs obligations related to the importation of our rigs and certain performance and other obligations.

At December 31, 2021 and 2020, the aggregate cash collateral held by institutions to secure our letters of credit and surety bonds was $ 8 million.

At December 31, 2022 and 2021, the aggregate cash collateral held by institutions to secure our letters of credit and surety bonds was $ 7 million and $ 8 million, respectively.

Legal proceedings

Debt exchange litigation and purported notice of default —Prior to the consummation of the 2020 Exchange Transactions (see Note 9—Debt ), we completed certain internal reorganization transactions (the “Internal Reorganization”).

In September 2020, funds managed by, or affiliated with, Whitebox Advisors LLC (“Whitebox”) as holders of certain series of our notes subject to the 2020 Exchange Offers, filed a claim (the “Claim”) in the U.S.

District Court for the Southern District of New York (the “Trial Court”) related to such certain internal reorganization transactions and the 2020 Exchange Offers.

Additionally, in September and October 2020, Whitebox and funds managed by, or affiliated with, Pacific Investment Management Company LLC, as debtholders, together with certain other advisors and debtholders, provided purported notices of alleged default with respect to the indentures governing, respectively, the 8.00% Senior Notes and the 7.25% senior notes due November 2025 (the “7.25% Senior Notes”).

On September 23, 2020, we filed an answer to the Claim with the Trial Court and asserted counterclaims seeking a declaratory judgment that, among other matters, the Internal Reorganization did not cause a default under the indenture governing the 8.00% Senior Notes.

Concurrently, with our answer and counterclaims, we also submitted a motion for summary judgment seeking an expedited judgment on our request for declaratory judgment.

Whitebox subsequently submitted a cross-motion for summary judgment seeking dismissal of our counterclaims.

On November 30, 2020, while awaiting the Trial Court’s ruling on our motion for summary judgment, we amended certain of our financing documents and implemented certain internal reorganization transactions, which resolved the allegations contained in the purported notices of default.

On December 17, 2020, the Trial Court issued its ruling granting our motion for summary judgment and denying the plaintiff’s cross-motion for summary judgment, holding, among other matters, that the allegations contained in the purported notice of default did not constitute a default under the indenture governing the 8.00% Senior Notes.

Whitebox has appealed the Trial Court’s ruling.

The facts alleged in the purported notice of default under the 8.00% Senior Notes were the same as the facts underlying the Claim and the purported notice of default under the 7.25% Senior Notes.

Accordingly, following the amendment and internal reorganization transactions on November 30, 2020, and the subsequent ruling from the Trial Court granting our motion for summary judgment, we do not expect the liability, if any, resulting from these matters to have a material adverse effect on our consolidated statement of financial position, results of operations or cash flows.

See Note 20—Subsequent Event .

Asbestos litigation —In 2004, several of our subsidiaries were named, along with numerous other unaffiliated defendants, in complaints filed in the Circuit Courts of the State of Mississippi, and in 2014, a group of similar complaints were filed in Louisiana.

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One of our subsidiaries was named in additional complaints filed in Illinois and Missouri, where the plaintiffs similarly allege that the defendants manufactured asbestos containing products or used asbestos-containing drilling mud additives in connection with land-based drilling operations.

At December 31, 2021, 11 plaintiffs have claims pending in Louisiana and 9 plaintiffs have claims pending in Illinois and Missouri, in which we have or may have an interest.

At December 31, 2022, seven plaintiffs have claims pending in Louisiana and 12 plaintiffs in the aggregate have claims pending in either Illinois or Missouri, in which we have or may have an interest.

We intend to defend these lawsuits vigorously, although we can provide no assurance as to the outcome.

We historically have maintained broad liability insurance, although we are not certain whether insurance will cover the liabilities, if any, arising out of these claims.

We historically have maintained broad liability insurance, although we can provide no assurance as to whether insurance will cover the liabilities, if any, arising out of these claims.

Based on our evaluation of the exposure to date, we do not expect the liability, if any, resulting from these claims to have a material adverse effect on our consolidated statement of financial position, results of operations or cash flows.

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One of our subsidiaries was named as a defendant, along with numerous other companies, in lawsuits arising out of the subsidiary’s manufacture and sale of heat exchangers, and involvement in the construction and refurbishment of major industrial complexes alleging bodily injury or personal injury as a result of exposure to asbestos.

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While we cannot predict or provide assurance as to the outcome of these matters, we do not expect the ultimate liability, if any, resulting from these claims to have a material adverse effect on our consolidated statement of financial position, results of operations or cash flows.

Macondo well incident —In June 2020, the U.S.

District Court for the Eastern District of Louisiana (the “MDL Court”) released the then-remaining $125 million of assets held in the escrow account established to satisfy our remaining obligations under the settlement agreement that we and the Plaintiff Steering Committee filed in May 2015 with the MDL Court, in which most claims against us for damages related to the blowout of the Macondo well in April 2010 were consolidated by the U.S.

Judicial Panel on Multidistrict Litigation.

Following the release of assets, all significant litigation, including civil and criminal claims, resulting from the Macondo well incident had been resolved.

Other matters —We are involved in various regulatory matters and a number of claims and lawsuits, asserted and unasserted, all of which have arisen in the ordinary course of our business.

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We can provide no assurance that our beliefs or expectations as to the outcome or effect of any tax, regulatory, lawsuit or other litigation matter will prove correct and the eventual outcome of these matters could materially differ from management’s current estimates.

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Environmental matters

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Note 13—Equity

Share issuance —In June 2021, we commenced an at the market equity offering program (the “ATM Program”) with no expected expiration.

On June 14, 2021, we entered into an equity distribution agreement with a sales agent for the offer and sale of our shares, with up to a maximum aggregate net offering price of $ 400 million, under the ATM Program.

We intend to use the net proceeds from the ATM Program for general corporate purposes, which may include, among other things the repayment or refinancing of indebtedness and the funding of working capital, capital expenditures, investments and additional balance sheet liquidity.

In the year ended December 31, 2021, we received aggregate cash proceeds of $ 158 million, net of issue costs, for the aggregate sale of 36.1 million shares, under the ATM Program.

Share issuance —We maintain an at-the-market equity offering program (the “ATM Program”).

We intend to use the net proceeds from our ongoing ATM Program for general corporate purposes, which may include, among other things, the repayment or refinancing of indebtedness and the funding of working capital, capital expenditures, investments and additional balance sheet liquidity.

In June 2021, we entered into an equity distribution agreement with a sales agent for the offer and sale of our shares, with a maximum aggregate net offering price of up to $ 400 million, under the ATM Program.

In August 2022, we entered into an equity distribution agreement with a sales agent for the offer and sale of our shares, with a maximum aggregate net offering price of up to $ 435 million, under the ATM Program.

In the years ended December 31, 2022 and 2021, we received aggregate cash proceeds of $ 263 million and $ 158 million, respectively, net of issue costs, for the aggregate sale of 61.0 million shares and 36.1 million shares, respectively, under the ATM Program.

Warrants —On September 30, 2022, in connection with the issuance and sale of the 4.625% Senior Guaranteed Exchangeable Bonds in the 2022 Private Exchange, we issued 22.2 million warrants to purchase Transocean Ltd.

The warrants may be exercised by holders at any time prior to the close of business on March 13, 2026 at an exercise price equal to $ 3.71 per share, subject to certain anti-dilutive adjustments, and at our election, such exercise may be settled by delivering cash, Transocean Ltd.

shares or a combination of cash and shares.

If at any time prior to expiration, the closing price of Transocean Ltd.

shares equals or exceeds $ 10.00 per share, subject to adjustment upon the occurrence of certain events, for a period of five consecutive trading days, we will have the right to effect an exercise of all, but not less than all, of the warrants upon notice to holders.

The initial carrying amount of the warrants, recorded in additional paid-in capital and measured at the estimated fair value on the date of issuance, was $ 16 million, net of issue costs.

We estimated the fair value of the warrants by employing a binomial lattice model and by using significant other observable inputs, representative of Level 2 fair value measurements, including the expected volatility of the market price for our shares.

Shares held by subsidiaries — One of our subsidiaries holds our shares for future use to deliver shares in connection with sales under the ATM Program and in connection with awards granted under our incentive plans or other rights to acquire our shares.

At December 31, 2022 and 2021, our subsidiary held 75.4 million and 72.7 million shares, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued

Note 14—Share-Based Compensation

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Performance awards are typically subject to a three-year measurement period during which the number of shares to be issued remains uncertain until the end of the performance period, at which time the awarded number of shares to be issued is determined.

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Service awards

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Unvested at December 31, 2022

In the year ended December 31, 2021, the vested service-based units had an aggregate grant-date fair value of $ 16 million.

In the year ended December 31, 2022, the service-based units that vested had an aggregate grant-date fair value of $ 18 million.

During the years ended December 31, 2021 and 2020, we granted 6,148,361 and 7,093,421 service-based units, respectively, with a per unit weighted-average grant-date fair value of $ 3.56 and $ 1.41 , respectively.

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Vested and exercisable at December 31, 2022

In the years ended December 31, 2021, 2020 and 2019, the vested stock options had an aggregate grant-date fair value of $ 9 million, $ 12 million and $ 10 million, respectively.

At December 31, 2021 and 2020, there were outstanding unvested stock options to purchase 482,688 and 1,355,448 shares, respectively.

During the year ended December 31, 2019, we granted stock options to purchase 1,594,528 shares with a per option weighted-average grant-date fair value of $ 8.35 .

In the years ended December 31, 2022, 2021 and 2020, the stock options that vested had an aggregate grant-date fair value of $ 4 million, $ 9 million and $ 12 million, respectively.

At December 31, 2021, there were outstanding unvested stock options to purchase 482,688 shares.

Performance awards

Restricted share units —We grant performance awards in the form of restricted share units that can be earned depending on the achievement of market factors and performance targets.

The number of shares ultimately earned per unit is quantified upon completion of

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued

the specified period at the ultimate determination date.

The number of shares ultimately earned per unit is quantified upon completion of the specified period at the ultimate determination date.

The following table summarizes unvested activity during the year ended December 31, 2022 for performance-based units under our incentive plan:

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Unvested at December 31, 2022

In each of the years ended December 31, 2021, 2020 and 2019, the vested performance-based units had an aggregate grant-date fair value of $ 11 million.

In the years ended December 31, 2022, the performance-based units that vested had an aggregate grant-date fair value of $ 5 million, $ 11 million and $ 11 million, respectively.

During the years ended December 31, 2021 and 2020, we granted 3,025,512 and 2,530,460 performance-based units, respectively, with a per unit weighted-average grant-date fair value of $ 3.70 and $ 1.80 , respectively.

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Note 15—Supplemental Balance Sheet Information

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Note 16—Supplemental Cash Flow Information

The reconciling adjustments of our net cash provided by operating activities that were attributable to the net change in other operating assets and liabilities were as follows (in millions):

Years ended December 31,

Changes in other operating assets and liabilities

Decrease in accounts receivable

Increase in other assets

Decrease in accounts payable and other current liabilities

Increase (decrease) in other long-term liabilities

Change in income taxes receivable / payable, net

Change in receivables from / payables to affiliates, net

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Additional cash flow information was as follows (in millions):

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Capital additions, accrued at end of period

Capital additions financed under Shipyard Loans

Issuance of debt in exchange transactions

Issuance of warrants in exchange transactions

Settlement of finance lease payments

Equity component of exchangeable debt

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See Note 6—Long-Lived Assets .

(b) In the year ended December 31, 2021, in connection with the 2021 Private Exchange, we issued $ 294 million aggregate principal amount of the 4.00% Senior Guaranteed Exchangeable Bonds.

In the year ended December 31, 2020, in connection with the 2020 Exchange Transactions, we issued $ 687 million and $ 238 million aggregate principal amount of the 11.50% Senior Guaranteed Notes and the 2.50% Senior Guaranteed Exchangeable Bonds, respectively.

(b) In the year ended December 31, 2022, we borrowed an aggregate principal amount of $ 439 million under the Shipyard Loans to satisfy a portion of the final milestone payments due upon delivery of Deepwater Atlas and Deepwater Titan and recorded the initial carrying amount, net of imputed interest, with a corresponding entry to construction in progress.

See Note 6—Long-Lived Assets and Note 8—Debt .

(c) In the year ended December 31, 2022, in connection with the 2022 Private Exchange, we issued $ 112 million aggregate principal amount of the 4.625% Senior Guaranteed Exchangeable Bonds.

In the year ended December 31, 2021, in connection with the 2021 Private Exchange, we issued $ 294 million aggregate principal amount of the 4.00% Senior Guaranteed Exchangeable Bonds.

In the year ended December 31, 2020, in connection with the 2020 Private Exchange, we issued $ 687 million and $ 238 million aggregate principal amount of the 11.50% Senior Guaranteed Notes and the 2.50% Senior Guaranteed Exchangeable Bonds, respectively.

See Note 8—Debt .

(c) In connection with the issuance of the 2.50% Senior Guaranteed Exchangeable Bonds, we recorded the conversion feature, measured at its estimated fair value, to additional paid-in capital.

(d) In the year ended December 31, 2022, in connection with the 2022 Private Exchange, we issued 6.7 million warrants to purchase Transocean Ltd.

shares with an estimated fair value of $ 5 million.

See Note 8—Debt and Note 13—Equity .

(e) In the year ended December 31, 2022, we agreed to settle installments due to the lessor under our finance lease by issuing corresponding credits to our customer for amounts due to us under the drilling contract.

See Note 7—Leases .

(f) In connection with the issuance of the 2.50% Senior Guaranteed Exchangeable Bonds in the 2020 Private Exchange, we recorded the conversion feature, measured at its estimated fair value, to additional paid-in capital.

See Note 8—Debt .

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued

The reconciling adjustments of our net cash provided by operating activities that were attributable to the net change in other operating assets and liabilities were as follows (in millions):

Years ended December 31,

Changes in other operating assets and liabilities

(Increase) decrease in accounts receivable

Increase in other assets

Increase (decrease) in accounts payable and other current liabilities

Increase (decrease) in other long-term liabilities

Change in income taxes receivable / payable, net

Change in receivables from / payables to affiliates, net

Note 17—Financial Instruments

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We are also exposed to interest rate risk related to our restricted and unrestricted cash equivalents, as the interest income earned on these investments is based on variable or short-term interest rates, which change with market interest rates.

Currency exchange rate risk —We are exposed to currency exchange rate risk primarily related to employee compensation costs and purchasing costs that are denominated in currencies other than our functional currency, the U.S.

Currency exchange rate risk —We are exposed to currency exchange rate risk primarily related to contract drilling revenues, employee compensation costs and purchasing costs that are denominated in currencies other than our functional currency, the U.S.

We use a variety of techniques to minimize the exposure to currency exchange rate risk, including the structuring of customer contract payment terms and occasional use of forward exchange contracts.

Our primary tool to manage currency exchange rate risk involves structuring customer contracts to provide

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for payment in both U.S.

Our primary tool to manage currency exchange rate risk involves structuring customer contracts to provide for payment in both U.S.

dollars and local currency.

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The currency exchange effect resulting from our international operations generally has not had a material impact on our operating results.

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Credit risk —We are exposed to concentrations of credit risk primarily related to our restricted and unrestricted cash and cash equivalents and customer receivables, both current and long-term.

We generally maintain our restricted and unrestricted cash and cash equivalents in time deposits at commercial banks with high credit ratings or mutual funds, which invest exclusively in high-quality money market instruments, and we limit the amount of exposure to any one institution and do not believe we are exposed to any significant credit risk.

Regarding our customer receivables, which are dispersed in various countries, we earn our revenues by providing our drilling services to integrated energy companies, government-owned or government-controlled energy companies and other independent energy companies.

We establish an allowance for credit losses by applying an expected loss rate based on current and forecasted future and historical experience.

We generally maintain our restricted and unrestricted cash and cash equivalents in time deposits at commercial banks with high credit ratings or mutual funds, which invest exclusively in high-quality money market instruments, and because we limit the amount of exposure to any one institution, we do not believe we are exposed to any significant credit risk.

Our customer receivables, which are dispersed in various countries, are due from integrated energy companies, government-owned or government-controlled energy companies and other independent energy companies.

For such receivables, we establish an allowance for credit losses by applying an expected loss rate based on current and forecasted future and historical experience.

Although we have encountered only isolated credit concerns related to independent energy companies, we occasionally require collateral or other security to support customer receivables.

In certain instances, when we determine that collection is not reasonably assured, we may occasionally offer extended payment terms and recognize revenues associated with the contract on a cash basis.

In certain infrequent instances, when we determine that collection is not reasonably assured, we may offer extended payment terms and recognize revenues associated with the contract on a cash basis.

Labor agreements —At December 31, 2022, we had a global workforce of approximately 5,340 individuals, including approximately 300 contractors.

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A failure to reach an agreement on certain key issues could result in strikes, lockouts or other work stoppages.

Note 20—Subsequent Event

Debt exchange litigation and purported notice of default —On February 1, 2022, the U.S.

Court of Appeals for the Second Circuit dismissed as moot the appeal filed by funds managed by, or affiliated with, Whitebox following the ruling by the Trial Court on December 17, 2020, which among other matters, granted our motion for summary judgment in connection with the previously disclosed lawsuit filed against us in September 2020 by Whitebox.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data