Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes [Abstract]

Income Taxes

16.    Income Taxes

Income (loss) before income taxes consisted of the following (in thousands):

	Year Ended December 31,
	2011			2010			2009
United States	$	(186,154	)	$	(314,293	)	$	(256,659	)
Foreign		84,293			94,260			102,798
Total	$	(101,861	)	$	(220,033	)	$	(153,861	)

The income tax (benefit) provision consisted of the following (in thousands):

	Year Ended December 31,
	2011			2010			2009
Current-United States	$	—		$	—		$	(14,853	)
Current-foreign		16,153			8,752			35,144
Current-state		314			76			(9,082	)
Current income tax provision		16,467			8,828			11,209
Deferred-United States		(50,535	)		(100,569	)		(76,613	)
Deferred-foreign		304			3,748			61
Deferred-state		(1,577	)		53			(7,471	)
Deferred income tax benefit		(51,808	)		(96,768	)		(84,023	)
Total income tax benefit	$	(35,341	)	$	(87,940	)	$	(72,814	)

The components of and changes in the net deferred taxes were as follows (in thousands):

	December 31,
	2011			2010
Deferred tax assets:
Net operating loss carryforward (Federal, State & Foreign)	$	160,272		$	144,720
Credit carryforwards		14,711			14,711
Accrued expenses		15,767			11,530
Unearned income		5,135			1,296
Intangibles		7,199			9,030
Stock-Based Compensation		7,272			7,155
Deferred tax assets		210,356			188,442
Deferred tax liabilities:
Fixed assets		(258,762	)		(290,749	)
Convertible Notes		(8,199	)		(7,586	)
Deferred expenses		(5,202	)		(9,148	)
Other		(6,079	)		(8,028	)
Deferred tax liabilities		(278,242	)		(315,511	)
Net deferred tax liabilities	$	(67,886	)	$	(127,069	)

A reconciliation of statutory and effective income tax rates is as shown below:

	Year Ended December 31,
	2011			2010			2009
Statutory rate		35.0	%		35.0	%		35.0	%
Effect of:
State income taxes		1.4			—			8.7
Taxes on foreign earnings at greater than the U.S. statutory rate		0.4			7.8			4.2
Uncertain Tax Positions		(0.6	)		2.2			(3.1	)
Deemed Repatriation of foreign earnings		—			(3.7	)		—
Other		(1.5	)		(1.3	)		2.5
Effective rate		34.7	%		40.0	%		47.3	%

The amount of consolidated U.S. net operating losses (“NOLs”) available as of December 31, 2011 is approximately $457.9 million. These NOLs will expire in the years 2020 through 2032. Because of the TODCO acquisition, the Company’s ability to utilize certain of its tax benefits is subject to an annual limitation, in addition to certain additional limitations resulting from TODCO’s prior transactions. However, the Company believes that, in light of the amount of the annual limitations, it should not have a material effect on the Company’s ability to utilize its tax benefits for the foreseeable future and the Company has not recorded a valuation allowance related to the tax assets. In addition, the Company has $14.7 million of non-expiring alternative minimum tax credits.

The Company has not recorded deferred income taxes on the remaining undistributed earnings of its foreign subsidiaries because of management’s intent to permanently reinvest such earnings. At December 31, 2011, the aggregate amount of undistributed earnings of the foreign subsidiaries was $133.9 million. Upon distribution of these earnings in the form of dividends or otherwise, the Company may be subject to U.S. income taxes and foreign withholding taxes. It is not practical, however, to estimate the amount of taxes that may be payable on the remittance of these earnings.

In accordance with FASB ASC 740, Income Taxes, the Company recognizes interest and penalties related to uncertain tax positions in income tax expense. The Company recorded interest and penalties of $0.2 million, $0.4 million and $6.3 million through the Consolidated Statement of Operations for the years ended December 31, 2011, 2010 and 2009, respectively.

The Company, directly or through its subsidiaries, files income tax returns in the United States, and multiple state and foreign jurisdictions. The Company’s tax returns for 2006 through 2010 remain open for examination by the taxing authorities in the respective jurisdictions where those returns were filed. Although, the Company believes that its estimates are reasonable, the final outcome in the event that the Company is subjected to an audit could be different from that which is reflected in its historical income tax provision and accruals. Such differences could have a material effect on the Company’s income tax provision and net income in the period in which such determination is made. In addition, certain tax returns filed by TODCO and its subsidiaries are open for years prior to 2004, however, TODCO tax obligations from periods prior to its initial public offering in 2004 are indemnified by Transocean under the tax sharing agreement, except for the Trinidad and Tobago jurisdiction. The Company’s Trinidadian tax returns are open for examination for the years 2006 through 2010.

Effective April 27, 2011 the Company completed the Seahawk Transaction. The Company’s financial statements have been prepared assuming that this transaction should be characterized as a purchase of assets for income tax purposes. Seahawk is currently in a Chapter 11 proceeding in the United States Bankruptcy Court. The resolution of the bankruptcy and future actions taken in the reorganization of Seahawk’s operations may require that the transaction is instead treated by the Company as a reorganization pursuant to IRC §368(a)(1)(G). Any resulting change, which is currently indeterminable, to the Company’s financial position would be reflected in its financial statements as a period adjustment to income at that future date.

The following table presents the reconciliation of the total amounts of unrecognized tax benefits that, if recognized, would impact the effective income tax rate (in thousands):

	Years Ended December 31,
	2011		2010			2009
Balance, beginning of period	$	4,109	$	13,529			13,476
Gross increases — tax positions in prior periods		1,424		—			—
Gross decreases — tax positions in prior periods		—		(1,499	)		—
Gross increases — current period tax positions		—		—			141
Settlements		—		(7,921	)		(88	)
Balance, end of period	$	5,533	$	4,109		$	13,529

From time to time, the Company’s tax returns are subject to review and examination by various tax authorities within the jurisdictions in which the Company operates or has operated. The Company is currently contesting tax assessments in Venezuela, and may contest future assessments where the Company believes the assessments are meritless.

In January 2008, SENIAT, the national Venezuelan tax authority, commenced an audit for the 2003 calendar year, which was completed in the fourth quarter of 2008. The Company has not yet received any proposed adjustments from SENIAT for that year.

In March 2007, a subsidiary of the Company received an assessment from the Mexican tax authorities related to its operations for the 2004 tax year. This assessment contested the Company’s right to certain deductions and also claimed it did not remit withholding tax due on certain of these deductions. In 2008, the Mexican tax authorities commenced an audit for the 2005 tax year. During 2010, the Company effectively reached a compromise settlement of all issues for 2004 through 2007. The Company paid $11.6 million and reversed (i) previously provided reserves and (ii) an associated tax benefit in the year ended December 31, 2010 which totaled $5.8 million.

As of December 31, 2011, the Company was in a net income tax payable position of $4.8 million which is included in Other Current Liabilities on the Consolidated Balance Sheets and as of December 31, 2010, the Company was in a net income tax receivable position of $5.6 million which is included in Other on the Consolidated Balance Sheets.