What changed in this filing

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Item 1A. Risk Factors

2024-02-21 compared with 2023-02-23 · 68 added, 69 removed, 422 unchanged (25% of the section changed)

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Oil and gas prices are extremely volatile and are affected by numerous factors, including the following:

◾ worldwide demand for oil and gas, including economic activity in the U.S., other large energy-consuming markets and in developing and emerging markets, which was significantly impacted by COVID-19 and the governmental, company and individual reactions thereto;

◾ worldwide demand for oil and gas, including economic activity in the U.S., other large energy-consuming markets and in developing and emerging markets;

◾ the ability of the Organization of the Petroleum Exporting Countries (“OPEC”) to set and maintain production levels, productive spare capacity and pricing among its members;

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Consistent with this dynamic, customers may delay or cancel many exploration and development programs, resulting in reduced demand for our services.

Also, increased competition for customers’ drilling budgets could come from, among other areas, land-based energy markets worldwide.

Also, increased competition for customers’ drilling budgets could come from, among other areas, land-based energy markets and renewable energy projects worldwide.

The availability of quality drilling prospects, exploration success, relative production costs, the stage of reservoir development and political and regulatory environments also affect customers’ drilling campaigns.

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During prior periods of high dayrates and rig utilization rates, we and other industry participants responded to increased customer demand by increasing the supply of rigs through ordering the construction of new units.

The introduction of new units delivered without contracts, combined with an increased number of rigs in the global market completing contracts and becoming idle, would intensify price competition.

The introduction of new units delivered without contracts, combined with an increased number of rigs in the global market completing contracts and becoming idle, may intensify price competition.

During periods of low oil and natural gas price levels, new construction has resulted in an oversupply of rigs and has caused a subsequent decline in dayrates and rig utilization rates, sometimes for extended periods of time.

In an oversupplied market, we may have limited bargaining power to negotiate on more favorable terms.

an oversupplied market, we may have limited bargaining power to negotiate on more favorable terms.

Additionally, lower market dayrates and intense price competition may drive customers to seek to renegotiate existing contracts to reduce dayrates in exchange for longer contract terms.

Lower dayrates and rig utilization rates could adversely affect our revenues and profitability.

As of February 9, 2023, we have 13 uncontracted rigs, of which five have been out of service for greater than five years, and these rigs may remain out of service for extended periods of time.

We also have a noncontrolling ownership interest in a company that has an uncontracted newbuild drillship under construction.

As of February 14, 2024, we have 13 uncontracted rigs, of which six have been out of service for greater than five years, and these rigs may remain out of service for extended periods of time.

If we are unable to obtain drilling contracts for our uncontracted rigs, whether due to a prolonged offshore drilling market downturn, a delayed or muted recovery of such market or otherwise, it may have an adverse effect on our results of operations and cash flows.

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As of February 14, 2024, we have 13 stacked or idle rigs.

We also have seven existing drilling contracts for our rigs that are currently operating, which are scheduled to expire before December 31, 2023.

We also have three existing drilling contracts for our rigs that are currently operating, which are scheduled to expire before December 31, 2024.

We may be unable to obtain drilling contracts for our rigs that are currently operating upon the expiration or termination of such contracts, and there may be a gap in the operation of the rigs between the current contracts and subsequent contracts.

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Excess amounts of local currency may also be exposed to the risk of currency exchange losses.

Public and investor sentiment towards climate change, fossil fuels and other esg matters could adversely affect our business, cost of capital and the price of our stock and other securities.

Changing public sentiment concerning fossil fuels, aimed at the investment community, including investment advisors, sovereign wealth funds, public pension funds, universities and other groups, has prompted efforts to promote the divestment of shares of energy companies, as well as to pressure lenders and other financial services companies to limit or curtail activities with energy companies.

These efforts have recently intensified, as demonstrated by the State of New York’s December 2020 announcement that it will be divesting the state’s Common Retirement Fund from fossil fuels by 2040.

If this or similar divestment efforts are successful, our stock price and our ability to access capital markets may be negatively impacted.

Members of the investment community are also increasing their focus on environmental, social and governance (“ESG”) practices and disclosures, including practices and disclosures related to greenhouse gases and climate change, in the energy industry in particular, and diversity and inclusion initiatives and governance standards among public companies more generally.

As a result, we may face

increasing pressure regarding our ESG disclosures and practices.

Changing sentiment towards climate change, fossil fuels and other esg matters could adversely affect our business, cost of capital and the price of our stock and other securities.

Changing sentiment among the public, regulators and non-governmental organizations concerning fossil fuels has prompted efforts aimed in part at the investment community, including investment advisors, sovereign wealth funds, public pension funds, universities and other groups, to discourage initial investments in and promote the divestment of shares of energy companies, as well as to pressure lenders and other financial services companies to limit or curtail activities with certain energy companies.

If such efforts are successful, the market price of our shares and our ability to access capital markets may be negatively impacted.

Members of the investment community are also increasing their focus on environmental, social and governance (“ESG”) practices and disclosures, including those related to greenhouse gas emissions and climate change, in the energy industry in particular, and diversity and inclusion among public companies more generally.

We may be subject in the future to additional reporting requirements that are developing in response to such increased focus and, as a result, we may face increasing pressure regarding our ESG disclosures and practices.

Additionally, members of the investment community may screen companies such as ours for ESG sustainability performance before investing in our stock.

Over the past few years there has also been an acceleration in investor demand for ESG investing opportunities, and many large institutional investors have committed to increasing the percentage of their portfolios that are allocated towards ESG investments.

As a result, there has been a proliferation of ESG focused investment funds seeking ESG oriented investment products.

If we or our securities are unable to meet the sustainability ESG standards or investment criteria set by these investors and funds, we may lose investors or investors may allocate a portion of their capital away from us, our cost of capital may increase, our stock price may be negatively impacted, the cost of capital associated with our securities offerings may increase and our reputation may be negatively affected.

As a result, our cost of capital may increase, the market price of our shares or of our publicly traded debt securities may be negatively impacted and our reputation may also be negatively affected.

Public health threats have had, and may continue to have, significant adverse consequences for general economic, financial and business conditions, as well as for our business and operations.

Public health threats, including pandemics and epidemics, such as the outbreak of COVID-19, new variants thereof, severe influenza, other coronaviruses and other highly communicable viruses or diseases, have impacted and may continue to impact our operations directly or indirectly, including by disrupting the operations of our business partners, suppliers and customers in ways that adversely impact our operations.

Public health threats, including pandemics and epidemics, severe influenza, coronaviruses and other highly communicable viruses or diseases, have impacted and may continue to impact our operations directly or indirectly, including by disrupting the operations of our business partners, suppliers and customers in ways that adversely impact our operations.

Such impacts may include, among others:

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We engage in offshore drilling services for most of the leading integrated energy companies or their affiliates, as well as for many government-owned or government-controlled energy companies and other independent energy companies.

For the year ended December 31, 2022, our most significant customers were Shell, Equinor and Petrobras, representing approximately 33 percent, 25 percent and 11 percent, respectively, of our consolidated operating revenues.

As of February 9, 2023, the customers with the most significant aggregate amount of contract backlog associated with our drilling contracts were Shell, Petrobras and Chevron, representing approximately 33 percent, 31 percent, and 14 percent, respectively, of our total contract backlog.

For the year ended December 31, 2023, our most significant customers were Shell, Equinor, TotalEnergies and Petrobras, representing approximately 27 percent, 16 percent, 12 percent and 11 percent, respectively, of our consolidated operating revenues.

As of February 14, 2024, the customers with the most significant aggregate amount of contract backlog associated with our drilling contracts were Petrobras, Shell and Chevron, representing approximately 31 percent, 25 percent and 10 percent, respectively, of our total contract backlog.

The loss of any of these customers or another significant customer, or a decline in payments under any of our drilling contracts, could, at least in the short term, have an adverse effect on our business.

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The occurrence of these events could result in the suspension of drilling operations, damage to or destruction of the equipment involved and injury to or death of rig personnel.

Some experts believe global climate

change could increase the frequency and severity of these extreme weather conditions.

Some experts believe global climate change could increase the frequency and severity of these extreme weather conditions.

Operations may also be suspended because of machinery breakdowns, abnormal drilling conditions, failure of subcontractors to perform or supply goods or services, or personnel shortages.

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Gulf of Mexico.

We maintain per occurrence deductibles that generally range up to $10 million for various third-party liabilities, and we self-insure $50 million of the $750 million excess liability coverage through our wholly owned captive insurance company.

We maintain per occurrence deductibles

that generally range up to $10 million for various third-party liabilities, and we self-insure $50 million of the $750 million excess liability coverage through our wholly owned captive insurance company.

We also retain the risk for any liability that exceeds our excess liability coverage.

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Such payments may not, however, fully compensate us for the loss of the contract.

For example, early in the fourth quarter of 2022, Transocean Equinox concluded the activities contemplated in its drilling contract prior to the end of the contract’s firm term that was previously expected late in the fourth quarter of 2022.

In the third quarter of 2023, as the most recent example, Development Driller III concluded the activities contemplated in its drilling contract prior to the end of the contract’s firm term that was previously expected early in the fourth quarter of 2023.

The termination payment associated with the drilling contract would not fully compensate us for the early termination of the contract.

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Our labor costs and the operating restrictions under which we operate could increase as a result of collective bargaining negotiations and additional unionization efforts.

As of December 31, 2022, approximately 43 percent of our total workforce, working primarily in Norway, Brazil and the U.K., are represented by, and some of our contracted labor work is subject to, collective bargaining agreements, substantially all of which are subject to annual salary negotiation.

As of December 31, 2023, approximately 42 percent of our total workforce, working primarily in Norway and Brazil, are represented by, and some of our contracted labor work is subject to, collective bargaining agreements, substantially all of which are subject to annual salary negotiation.

Negotiations over annual salary or other labor matters could result in higher personnel or other costs or increased operational restrictions or disruptions.

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Our shipyard projects and operations are subject to delays and cost overruns.

We have a variety of shipyard projects underway for our existing rigs at any given time.

Additionally, as of February 14, 2023, we were constructing one ultra-deepwater drillship and held a noncontrolling ownership interest in a company that is constructing one ultra-deepwater drillship.

These shipyard projects are subject to the risks of delay or cost overruns inherent in any such construction project resulting from numerous factors, including the following:

◾ complications arising from pandemics and epidemics, such severe influenza, coronaviruses and other highly communicable viruses or diseases, and associated government orders in the country where the rigs are being constructed or serviced and elsewhere;

We have a variety of shipyard projects underway, at any given time, for our existing rigs at any given time, and as of February 14, 2024, we were constructing one ultra-deepwater drillship.

These shipyard projects are subject to the risks of delays or cost overruns inherent in any such complex projects resulting from numerous factors, including the following:

◾ shipyard availability, failures and difficulties;

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◾ terrorist acts, war, piracy and civil unrest;

◾ unanticipated cost increases;

◾ difficulty in obtaining necessary permits or approvals.

◾ difficulties in obtaining necessary permits or approvals or in completing necessary importation procedures.

These factors may contribute to cost variations and delays in the delivery of rigs undergoing shipyard projects or any future newbuild units.

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In the event of termination of any of these drilling contracts, we may not be able to secure a replacement contract on as favorable terms, if at all.

Our operations also rely on a significant supply of capital and consumable spare parts and equipment to maintain and repair our fleet.

Our operations rely on a significant supply of capital and consumable spare parts and equipment to maintain and repair our fleet.

We also rely on the supply of ancillary services, including supply boats and helicopters.

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Failure to effectively and timely address the transition to renewable or other alternative energy sources, or to respond to other climate related business trends, could adversely affect our business, results of operations and cash flows.

Our long-term success will be impacted by our ability to effectively address the transition to renewable and other alternative energy sources, and our ability to respond to other climate-related business trends that could adversely impact the long-term demand for oil and natural gas and, ultimately, the demand for our services and products from our services.

natural gas and, ultimately, the demand for our services and products from our services.

Addressing increased focus on the development of additional alternative energy sources and other climate-related business trends has required and will further require adapting certain parts of our operations to changing government requirements and customer preferences.

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Our aspirations, goals, commitment targets and initiatives related to sustainability, including emissions reduction, and our public statements and disclosures regarding them, expose us to numerous risks.

We have developed, and will continue to develop and set, goals, targets, and other objectives related to sustainability matters, including our commitment target to reduce greenhouse gas emissions intensity.

Statements related to these goals, commitment targets and objectives reflect our current intentions and do not constitute a guarantee that they will be achieved.

Our efforts to research, establish, accomplish, and accurately report on these goals, commitment targets, and other objectives expose us to numerous operational, reputational, financial, legal, and other risks.

Our ability to achieve any stated goal, commitment target, or objective, including with respect to emissions intensity reduction, is subject to numerous factors and conditions, some of which are outside of our control.

Our business may face increased scrutiny from investors and other stakeholders related to our sustainability activities, including the goals, commitment targets, and other objectives that we announce, and our methodologies and timelines for pursuing them.

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We have a substantial amount of debt, including secured debt, and we may lose the ability to obtain future financing and suffer competitive disadvantages.

At December 31, 2022 and 2021, our total debt was $7.35 billion and $7.17 billion, respectively, of which $2.19 billion and $2.30 billion, respectively, was secured.

We have a bank credit agreement (as amended, the “Secured Credit Facility”), which is currently undrawn, the borrowings under which would be secured.

At December 31, 2023, our total debt was $7.41 billion, of which $2.34 billion was secured.

We have a bank credit agreement (as amended, the “Secured Credit Facility”), which is currently undrawn, the borrowings under which would be secured and guaranteed by certain of our subsidiaries.

This substantial level of debt and other obligations could have significant adverse consequences on our business and future prospects, including the following:

◾ we may be unable to obtain financing in the future to refinance our existing debt or for working capital, capital expenditures, acquisitions, debt service requirements, distributions, share repurchases, or other purposes;

◾ we may be unable to use operating cash flow in other areas of our business because we must dedicate a substantial portion of these funds to service the debt;

◾ we may be unable to use operating cash flows in other areas of our business because we must dedicate a substantial portion of these funds to service the debt;

◾ we could become more vulnerable to general adverse economic and industry conditions, including increases in interest rates, particularly given our substantial indebtedness, some of which bears interest at variable rates;

◾ we may be unable to meet financial ratios in the agreements governing certain of our debt facilities and finance lease or satisfy certain other covenants and conditions included in our debt agreements, which could result in our inability to meet requirements for borrowings under our credit agreement or a default under these agreements, impose restrictions with respect to our access to certain of our capital, and trigger cross default provisions in our other debt instruments;

◾ we may be unable to meet financial ratios in the agreements governing certain of our debt facilities and finance lease or satisfy certain other covenants and conditions included in our debt agreements, which could result in our inability to meet requirements for borrowings under the Secured Credit Facility or a default under such agreements, impose restrictions with respect to our access to certain of our capital, and trigger cross default provisions in our other debt instruments;

◾ if we default under the terms of our secured financing arrangements, the secured debtholders may, among other things, foreclose on the collateral securing the debt, including the applicable drilling units;

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◾ less favorable terms and conditions on any refinancing arrangements, debt issuances or bank credit agreements, some of which could require collateral and restrict, among other things, our ability to pay distributions or repurchase shares;

◾ increases to certain fees under our Secured Credit Facility and the interest rate under the indenture governing the 7.35% senior notes due December 2041, which has reached the maximum rate increase of 2 percent pursuant to the indenture due to the downgrades of certain credit rating agencies;

◾ increases to certain fees under our Secured Credit Facility and interest rates under the indentures governing certain of our senior notes;

◾ reduced willingness of current and prospective customers, suppliers and creditors to transact business with us;

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If economic conditions preclude or limit financing from banking institutions participating in our credit facilities, we may not be able to obtain similar financing from other institutions.

A slowdown in economic activity could further reduce worldwide demand for energy and extend or worsen the recovery from low oil and natural gas prices.

A slowdown in economic activity could reduce worldwide demand for energy and reverse or worsen the recovery from low oil and natural gas prices.

These potential developments, or market perceptions concerning these and related issues, could adversely affect our financial position, results of operations or cash flows.

In addition, turmoil and hostilities in the Middle East, Ukraine, North Africa and other geographic areas and countries present incremental risk.

In addition, turmoil and hostilities in the Middle East, Eastern Europe, North Africa and other geographic areas and countries present incremental risk.

An extended period of negative outlook for the world economy could further reduce the overall demand for oil and natural gas and for our services.

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Gulf of Mexico.

In addition, the oil and gas industry has adopted equipment and operating standards, such as the American Petroleum Institute Standard 53, related to the installation and testing of well control equipment.

The Bureau of Ocean Energy Management (the “BOEM”) has also proposed changes regarding when oil, gas and sulfur lessees and certain other parties operating in the offshore Outer Continental Shelf must post additional bonds or other supplemental financial assurance, which could, if finalized, increase bonding requirements for some of our customers.

The oil and gas industry has adopted equipment and operating standards, such as the American Petroleum Institute Standard 53, related to the installation and testing of well control equipment.

A failure to comply with applicable laws and regulations may result in administrative and civil penalties, criminal sanctions or the suspension or termination of our operations.

Additionally, our customers may elect to voluntarily comply with any non-mandatory laws, regulations or other standards.

Any such safety, environmental and other regulatory restrictions or standards, including voluntary customer compliance with respect thereto, could decrease, disrupt or delay operations, decrease demand for offshore drilling services, increase operating costs and compliance costs or penalties, increase out-of-service time, decrease dayrates, or reduce the area of operations for drilling rigs in the U.S.

decrease dayrates, or reduce the area of operations for drilling rigs in the U.S.

offshore areas.

Any such effects could have an adverse effect on our financial position, results of operations or cash flows.

To the extent new laws are enacted, existing laws are changed or other governmental actions are taken that prohibit or restrict offshore drilling or impose additional environmental protection and safety requirements that result in increased costs to the oil and gas industry, in general, or the offshore drilling industry, in particular, our business or prospects could be materially adversely affected.

The operation of our drilling rigs will require certain governmental approvals, some of which may involve public hearings and costly undertakings on our part.

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Also, these indemnities may be held to be unenforceable in certain jurisdictions, as a result of public policy or for other reasons.

See “ — Our business involves numerous operating hazards, and our insurance and indemnities from our customers may not be adequate to cover potential losses from our operations .”

Environmental and safety laws and regulations protecting the environment have become increasingly stringent and may in some cases impose strict liability on facility or vessel owners or operators, rendering a person liable for environmental damage without regard to negligence.

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The application of these requirements or the adoption of new requirements or measures could have an adverse effect on our financial position, results of operations or cash flows.

Regulatory and various other risks, including litigation, associated with greenhouse gases, other emissions and climate change could have an adverse impact on our business and demand for our services.

Regulatory and various other risks, including litigation, associated with greenhouse gas emissions, other emissions and climate change could have an adverse impact on our business and demand for our services.

Scientific studies have suggested that emissions of certain gases, including greenhouse gases, such as carbon dioxide and methane, contribute to warming of the earth’s atmosphere and other climatic changes.

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enacted the Inflation Reduction Act of 2022, which contains hundreds of billions of dollars in incentives for the development of renewable energy, clean hydrogen, clean fuels, electric vehicles and supporting infrastructure and carbon capture and sequestration, amongst other provisions.

Such attention could also result in other adverse impacts for the oil and gas industry, including further restrictions or bans

imposed by lawmakers, lawsuits by governments or third-parties seeking recoveries for damages resulting from the combustion of fuels that may contribute to climate change effects, decreased demand for goods or services that produce significant greenhouse gas emissions, or reduced interest from investors if they elect in the future to shift some or all of their investments to non-fossil fuel related sectors.

Additionally, at the United Nations Climate Change Conference in the United Arab Emirates in December 2023, more than 190 governments reached a non-binding agreement to transition away from fossil fuels and encourage the growth and expansion of renewable energy.

Such attention could also result in other adverse impacts for the oil and gas industry, including further restrictions or bans imposed by lawmakers, lawsuits by governments or third-parties seeking recoveries for damages resulting from the combustion of fuels that may contribute to climate change effects, decreased demand for goods and services that produce significant greenhouse gas emissions, or reduced interest from investors if they elect in the future to shift some or all of their investments to non-fossil fuel related sectors.

To the extent financial markets view climate change and greenhouse emissions as a financial risk, this could negatively impact our cost of or access to capital.

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and globally.

Though we are not currently a party to any such lawsuit, these suits present a high degree of uncertainty regarding the extent to which energy companies, including offshore drillers, face an increased risk of liability stemming from climate change, which risk would also adversely impact the oil and gas industry and impact demand for our services.

Though we are not currently a party to any such lawsuit, these suits present a high degree of uncertainty regarding the extent to which energy companies,

including offshore drillers, face an increased risk of liability stemming from climate change, which risk would also adversely impact the oil and gas industry and impact demand for our services.

Any restrictions on oil and natural gas operations on the U.S.

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government has the power to limit oil and gas activities on this area, known as the OCS.

Under the Outer Continental Shelf Lands Act, as amended, the U.S.

Bureau of Ocean Energy management (“BOEM”) within the DOI must prepare and maintain forward-looking five-year plans—referred to as national programs or five-year programs—to schedule proposed oil and gas lease sales on the OCS.

Under the Outer Continental Shelf Lands Act, as amended, the BOEM within the DOI must prepare and maintain forward-looking five-year plans—referred to as national programs or five-year programs—to schedule proposed oil and gas lease sales on the OCS.

On July 1, 2022, BOEM announced the availability of the Proposed Program for the 2023-2028 timeframe for public comments.

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◾ terrorist acts, war, piracy and civil unrest;

◾ seizure, expropriation or nationalization of our equipment;

◾ expropriation or nationalization of our customers’ property;

◾ seizure, expropriation or nationalization of our equipment or of our customers’ property;

◾ customs delays or disputes;

◾ repudiation or nationalization of contracts;

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◾ complications associated with supplying, repairing and replacing equipment in remote locations;

◾ public health threats, including pandemics and epidemics, severe influenza, coronaviruses and other highly communicable viruses or diseases;

◾ the inability to move income or capital;

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Shipping delays or denials could cause unscheduled operational downtime.

Our results are directly affected by the applicability of certain customs duties and importation tax relief programs under customs regimes for the exportation and importation of goods and equipment, including rigs, related to the oil and gas sector.

Among other incentives, such programs grant full suspension of certain import taxes, resulting in reduced tax burdens from operations.

If unprecedented interpretations are applied by the customs and tax authorities governing such programs and regimes, including those that would deny us the use of such incentives granted historically in the ordinary course, and assuming we are unable to successfully challenge such interpretation or otherwise able to recover any amounts pursuant to the contractual provisions of the applicable drilling contract, then the amount of the applicable tariff, which would depend on many factors, could reasonably be expected to increase our operating costs.

Our ability to operate worldwide depends on our ability to obtain the necessary visas and work permits for our personnel to travel in and out of, and to work in, the jurisdictions in which we operate.

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We are also subject to a number of significant tax disputes.

We cannot predict the outcome of these investigations and cases or the potential costs

to resolve them.

We cannot predict the outcome of these investigations and cases or the potential costs to resolve them.

Insurance may not be applicable or sufficient in all cases, insurers may not remain solvent and policies may not be located.

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If such a cyber-incident were to occur, it could have a material adverse effect on our business or on our financial position, results of operations or cash flows.

In addition, governing data privacy and the unauthorized disclosure of personal data and confidential information pose increasingly complex compliance challenges and potential to elevate our costs under various laws and regulations, including (a) the European Union General Data Protection Regulation, the Data Protection Act, as revised, of the Cayman Islands, (b) the General Data Protection Law of Brazil and (c) the California Consumer Privacy Act, as well as (d) the amended Swiss Data Protection Act, which will enter into force in September 2023,.

In addition, data privacy and the unauthorized disclosure of personal data and confidential information pose increasingly complex compliance challenges and have the potential to elevate our costs under various laws and regulations, including privacy regulations that have been adopted or may in the future be adopted by, or be applicable from time to time to, countries, states, and other jurisdictions or authorities.

Any failure by us to comply with these laws and regulations, including as a result of a security or privacy breach, could result in significant penalties, litigation and liabilities for us.

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We are subject to changes in applicable tax laws, treaties or regulations in the jurisdictions in which we operate and earn income, and such changes could include laws or policies directed toward companies organized in jurisdictions with low tax rates with the intent to increase the tax burden.

The Organization for Economic Co-operation and Development, for example, issued its action plan of tax reform measures that called for member states to take action to prevent base erosion and profit shifting.

Some of these measures impact transfer pricing, requirements to qualify for tax treaty benefits, and the definition of permanent establishments depending on each jurisdiction’s adoption and interpretation of such proposals.

Respective countries, including Switzerland, have adopted various measures into their own tax laws.

In addition, the European Union has issued Anti-Tax Avoidance Directives and proposed directives that required or require member states to adopt specific tax reform measures, some of which relate to a 15 percent minimum tax.

Other tax jurisdictions in which we operate have expressed an intent to implement similar measures.

Any material change to tax laws, treaties, regulations or policies, their interpretation or application, or the adoption of new interpretations of existing laws and rulings, in any of the jurisdictions in which we operate, are incorporated or resident, could result in a higher effective tax rate on our worldwide earnings and such change could have a significant adverse effect on our financial position, results of operations or cash flows.

Several jurisdictions have implemented or are expected to implement in the future, the Organization for Economic Co-operation and Development Pillar 2 or other tax related provision that are aimed at preventing base erosion and profit shifting, ensuring income is subject to a minimum level of taxation and preventing treaty misuse.

The application of these provisions is not always certain, and jurisdictions are still developing their rules and interpretations with regard to same.

As such, any material change to tax laws, treaties, regulations or policies, their interpretation or application, or the adoption of new interpretations of existing laws and rulings, in any of the jurisdictions in which we operate, are incorporated or resident, could result in a higher effective tax rate on our worldwide earnings and such change could have a significant adverse effect on our financial position, results of operations or cash flows.

A loss of a major tax dispute or a successful tax challenge to our operating structure, intercompany pricing policies or the taxable presence of our key subsidiaries in certain countries could result in a higher effective tax rate on our consolidated earnings and increase our cash tax payments.

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Our income tax returns are subject to review and examination in these jurisdictions, and we do not recognize the benefit of income tax positions we believe are more likely than not to be disallowed upon challenge by a tax authority.

If any tax authority successfully challenges our operational structure, intercompany pricing policies or the taxable presence of our key subsidiaries in certain countries;

If any tax authority successfully challenges our operational structure, intercompany pricing policies or the taxable presence of our key subsidiaries in certain

or if the terms of certain income tax treaties are interpreted in a manner that is adverse to our structure;

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As a Swiss corporation, our flexibility may be limited with respect to certain aspects of capital management AND swift implementation of certain initiatives or strategies.

Under Swiss law, our shareholders may approve an authorized share capital that allows the board of directors to issue new shares without additional shareholder approval within a period of up to two years and for up to a maximum of 50 percent of a company’s issued share capital.

The authorized share capital approved by our shareholders at the May 2022 annual general meeting will expire on May 12, 2024.

Our currently available authorized share capital is approximately 13.5 percent of our issued share capital as of February 14, 2023.

Accordingly, shareholders at our annual general meeting in May 2023 may be requested to approve a renewal and an increase in authorized share capital.

Under Swiss law, our shareholders may approve a general share capital authorization, referred to under Swiss law as a capital band, that allows the board of directors to issue new shares without additional shareholder approval within a period of up to five years and for up to a maximum of 50 percent of a company’s issued share capital.

The general share capital authorization approved by our shareholders at the May 2023 annual general meeting will expire on May 11, 2024.

Our currently available authority under this general share capital authorization is equivalent to approximately 17.5 percent of our issued share capital as of February 14, 2024.

Accordingly, shareholders at our annual general meeting in May 2024 may be requested to approve a renewal and increase of our general share capital authorization for an additional term.

Subject to certain exceptions, Swiss law also grants preemptive rights to existing shareholders to subscribe for new issuances of shares.

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At our 2009 annual general meeting, our shareholders approved the repurchase of up to CHF 3.50 billion of our shares for cancellation under the share repurchase program.

If we repurchase shares, we expect to use an alternative procedure pursuant to which we repurchase shares via a “virtual second trading line” from market players, such as banks and

institutional investors, who are generally entitled to receive a full refund of the Swiss withholding tax.

If we repurchase shares, we expect to use an alternative procedure pursuant to which we repurchase shares via a “virtual second trading line” from market players, such as banks and institutional investors, who are generally entitled to receive a full refund of the Swiss withholding tax.

The use of such “virtual second trading line” with respect to share repurchase programs is subject to the approval of the competent Swiss tax and other authorities.

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Actions taken under such provisions may adversely affect prevailing market prices for our shares, and could, among other things:

◾ provide that the board of directors is authorized, subject to obtaining shareholder approval every two years, at any time during a maximum two-year period, which under our current authorized share capital will expire on May 12, 2024, to issue a specified number of shares, which under our current authorized share capital is approximately 13.5 percent of the share capital registered in the commercial register as of February 14, 2023, and to limit or withdraw the preemptive rights of existing shareholders in various circumstances;

◾ provide that the board of directors is authorized to issue a specified number of shares, which under our current general share capital authorization as of February 14, 2024 is approximately 17.5 percent of the share capital registered in the commercial register, and to limit or withdraw the preemptive rights of existing shareholders in various circumstances.

Pursuant to the terms of the current general share capital authorization, the board’s authority to issue new shares expires on May 11, 2024, subject to shareholders approving a renewal or increase of this authorization in accordance with the current company practice;

◾ provide for a conditional share capital that authorizes the issuance of additional shares up to a maximum amount of approximately 16.9 percent of the share capital registered in the commercial register as of February 14, 2024 without obtaining additional shareholder approval through:

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◾ limit transactions between us and an “interested shareholder,” which is generally defined as a shareholder that, together with its affiliates and associates, beneficially, directly or indirectly, owns 15 percent or more of our shares entitled to vote at a general meeting.

Unresolved Staff Comments

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 1A. Risk Factors