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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
COMMISSION FILE NUMBER: 0-13857
NOBLE CORPORATION
(Exact name of registrant as specified in its charter)
CAYMAN ISLANDS 98-0366361
(State or other jurisdiction of incorporation or organization) (I.R.S. employer identification number)
13135 SOUTH DAIRY ASHFORD, SUITE 800 77478
SUGAR LAND, TEXAS (Zip code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (281) 276-6100
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ]
Number of Ordinary Shares outstanding as of August 5, 2003: 133,671,949
(Includes 1,727,045 shares held in a Rabbi Trust)
================================================================================
FORM 10-Q
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NOBLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
JUNE 30, DECEMBER 31,
2003 2002
------------- -------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................................ $ 123,970 $ 192,509
Restricted cash.......................................................... 7,191 8,668
Investment in marketable securities...................................... 68,212 72,957
Accounts receivable...................................................... 179,387 164,613
Inventories.............................................................. 3,844 3,628
Prepaid expenses......................................................... 14,051 6,595
Other current assets..................................................... 19,532 16,673
------------- -------------
Total current assets....................................................... 416,187 465,643
------------- -------------
PROPERTY AND EQUIPMENT
Drilling equipment and facilities........................................ 3,275,573 3,153,509
Other.................................................................... 63,976 63,296
------------- -------------
3,339,549 3,216,805
Accumulated depreciation................................................. (815,518) (745,762)
------------- -------------
2,524,031 2,471,043
------------- -------------
INVESTMENT IN AND ADVANCES TO JOINT VENTURES............................... 22,591 22,538
OTHER ASSETS............................................................... 135,125 106,490
------------- -------------
$ 3,097,934 $ 3,065,714
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt..................................... $ 71,371 $ 80,577
Accounts payable......................................................... 44,677 64,783
Accrued payroll and related costs........................................ 42,506 51,125
Taxes payable............................................................ 39,078 41,997
Interest payable......................................................... 9,571 10,089
Other current liabilities................................................ 35,498 32,089
------------- -------------
Total current liabilities.................................................. 242,701 280,660
LONG-TERM DEBT............................................................. 567,419 589,562
DEFERRED INCOME TAXES...................................................... 209,024 206,351
OTHER LIABILITIES.......................................................... 5,443 5,635
COMMITMENTS AND CONTINGENCIES.............................................. - -
MINORITY INTEREST.......................................................... (5,937) (5,704)
------------- -------------
1,018,650 1,076,504
------------- -------------
SHAREHOLDERS' EQUITY
Ordinary Shares-par value $0.10 per share................................ 13,366 13,353
Capital in excess of par value........................................... 908,969 905,865
Retained earnings........................................................ 1,223,631 1,140,472
Treasury stock, at cost.................................................. (50,085) (51,317)
Restricted stock (unearned compensation)................................. (10,276) (12,871)
Accumulated other comprehensive loss..................................... (6,321) (6,292)
------------- -------------
2,079,284 1,989,210
------------- -------------
$ 3,097,934 $ 3,065,714
============= =============
See accompanying notes to the consolidated financial statements.
2
FORM 10-Q
NOBLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
THREE MONTHS ENDED JUNE 30,
----------------------------------
2003 2002
------------ -------------
OPERATING REVENUES
Contract drilling services............................................... $ 220,586 $ 234,922
Reimbursables............................................................ 10,366 7,248
Labor contract drilling services......................................... 7,219 6,735
Engineering, consulting and other........................................ 9,749 4,740
------------ -------------
247,920 253,645
------------ -------------
OPERATING COSTS AND EXPENSES
Contract drilling services............................................... 123,091 121,161
Reimbursables............................................................ 9,572 6,254
Labor contract drilling services......................................... 5,878 5,087
Engineering, consulting and other........................................ 7,503 5,459
Depreciation and amortization............................................ 36,031 31,239
Selling, general and administrative...................................... 7,175 6,171
------------ -------------
189,250 175,371
------------ -------------
OPERATING INCOME.......................................................... 58,670 78,274
OTHER INCOME (EXPENSE)
Interest expense........................................................ (10,348) (10,591)
Other, net.............................................................. 822 1,939
------------ -------------
INCOME BEFORE INCOME TAXES ............................................... 49,144 69,622
INCOME TAX PROVISION...................................................... (5,406) (12,184)
------------ -------------
NET INCOME................................................................ $ 43,738 $ 57,438
============ =============
EARNINGS PER SHARE:
Basic................................................................... $ 0.33 $ 0.43
Diluted................................................................. $ 0.33 $ 0.43
See accompanying notes to the consolidated financial statements.
3
FORM 10-Q
NOBLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
SIX MONTHS ENDED JUNE 30,
----------------------------------
2003 2002
------------ -------------
OPERATING REVENUES
Contract drilling services............................................... $ 436,954 $ 455,727
Reimbursables............................................................ 26,222 14,559
Labor contract drilling services......................................... 13,915 14,659
Engineering, consulting and other........................................ 15,837 10,434
------------ -------------
492,928 495,379
------------ -------------
OPERATING COSTS AND EXPENSES
Contract drilling services............................................... 246,938 235,293
Reimbursables............................................................ 24,770 12,515
Labor contract drilling services......................................... 11,601 11,414
Engineering, consulting and other........................................ 12,899 10,363
Depreciation and amortization............................................ 69,895 61,532
Selling, general and administrative...................................... 13,437 15,383
------------ -------------
379,540 346,500
------------ -------------
OPERATING INCOME.......................................................... 113,388 148,879
OTHER INCOME (EXPENSE)
Interest expense........................................................ (20,843) (21,291)
Other, net.............................................................. 892 3,677
------------ -------------
INCOME BEFORE INCOME TAXES ............................................... 93,437 131,265
INCOME TAX PROVISION...................................................... (10,278) (22,397)
------------ -------------
NET INCOME................................................................ $ 83,159 $ 108,868
============ =============
EARNINGS PER SHARE:
Basic................................................................... $ 0.63 $ 0.82
Diluted................................................................. $ 0.63 $ 0.81
See accompanying notes to the consolidated financial statements.
4
FORM 10-Q
NOBLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
THREE MONTHS ENDED JUNE 30,
------------------------------------
2003 2002
------------- ------------
NET INCOME................................................................. $ 43,738 $ 57,438
------------- ------------
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Foreign currency translation adjustments............................... (104) (74)
Unrealized holding gain (loss) arising during period................... 228 (338)
------------- ------------
Other comprehensive income (loss)...................................... 124 (412)
------------- ------------
COMPREHENSIVE INCOME....................................................... $ 43,862 $ 57,026
============= ============
SIX MONTHS ENDED JUNE 30,
------------------------------------
2003 2002
------------- ------------
NET INCOME................................................................. $ 83,159 $ 108,868
------------- ------------
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Foreign currency translation adjustments............................... 151 987
Unrealized holding losses arising during period........................ (180) (383)
Reclassification of realized loss for impairment of
investment included in net income.................................... - 9,758
------------- ------------
Other comprehensive income (loss)...................................... (29) 10,362
------------- ------------
COMPREHENSIVE INCOME....................................................... $ 83,130 $ 119,230
============= ============
See accompanying notes to the consolidated financial statements.
5
FORM 10-Q
NOBLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
SIX MONTHS ENDED JUNE 30,
----------------------------------
2003 2002
-------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................................ $ 83,159 $ 108,868
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization........................................ 69,895 61,532
Deferred income tax provision........................................ 3,426 14,882
Deferred repair and maintenance amortization......................... 15,763 13,383
Loss on sales of marketable securities............................... 336 71
Equity in (income) loss of joint ventures............................ (341) (586)
Compensation expense from stock-based plans.......................... 2,332 2,525
Realized loss on impairment of investment............................ - 9,758
Gain on sale of interest in deepwater exploration property........... - (5,908)
Gain on sales of property and equipment.............................. - (359)
Other................................................................ (964) 1,330
Changes in current assets and liabilities, net of acquired working capital:
Accounts receivable............................................... (14,774) (15,215)
Other current assets.............................................. (12,802) (8,512)
Accounts payable.................................................. (20,095) 1,313
Other current liabilities......................................... (8,647) 3,318
-------------- ---------------
Net cash provided by operating activities.................... 117,288 186,400
-------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions and related capital upgrades................................. (120,326) (136,159)
Other capital expenditures................................................ (30,649) (57,178)
Deferred repair and maintenance expenditures.............................. (14,431) (17,647)
Proceeds from sales of property and equipment............................. - 839
Proceeds from sale of interest in deepwater exploration property.......... - 6,200
Investment in and advances to joint ventures, net......................... 287 2,001
Investment in marketable securities....................................... (53,700) (27,810)
Proceeds from sales of marketable securities.............................. 59,771 12,955
-------------- ---------------
Net cash used for investing activities....................... (159,048) (216,799)
-------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of long-term debt................................................. (31,356) (25,068)
Proceeds from issuance of ordinary shares, net............................ 3,100 12,395
Proceeds from sales of put options on ordinary shares..................... - 1,880
Decrease in restricted cash............................................... 1,477 2,175
-------------- ---------------
Net cash used for financing activities....................... (26,779) (8,618)
-------------- ---------------
DECREASE IN CASH AND CASH EQUIVALENTS....................................... (68,539) (39,017)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............................. 192,509 236,709
-------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................................... $ 123,970 $ 197,692
============== ===============
See accompanying notes to the consolidated financial statements.
6
FORM 10-Q
NOBLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF ACCOUNTING
The accompanying consolidated financial statements of Noble Corporation
("Noble" or, together with its consolidated subsidiaries, unless the context
requires otherwise, the "Company", "we", "our" and words of similar import) have
been prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all disclosures required by accounting principles generally accepted
in the United States of America for complete financial statements. All
significant transactions among Noble and its consolidated subsidiaries have been
eliminated. Certain reclassifications have been made in the prior year
consolidated financial statements to conform to the classifications used in the
2003 consolidated financial statements. These reclassifications have no impact
on net income. (See "Accounting Pronouncements" in "Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
additional information on reclassifications pursuant to Emerging Issues Task
Force No. 01-14, Income Statement Characterization of Reimbursements Received
for Out-of-Pocket Expenses Incurred.) The interim consolidated financial
statements have not been audited. However, in the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the consolidated financial statements have been included.
Results of operations for interim periods are not necessarily indicative of the
results of operations that may be expected for the entire year. These interim
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the Annual
Report on Form 10-K of Noble for the year ended December 31, 2002.
Noble Drilling (Paul Romano) Inc. was formed on April 3, 1998 for the
purpose of owning the Noble Paul Romano and financing its conversion to a Noble
EVA-4000(TM) semisubmersible. Noble Drilling (Paul Romano) Inc. is an indirect,
wholly-owned subsidiary of Noble and is operated in a fashion that is intended
to ensure that its assets and liabilities are distinct and separate from those
of the Company and its affiliates and that the creditors of Noble Drilling (Paul
Romano) Inc. would be entitled to satisfy their claims from the assets of Noble
Drilling (Paul Romano) Inc. prior to any distribution to the Company or its
affiliates.
NOTE 2 - ACQUISITIONS
In July 2003, we excercised our option to purchase the premium jackup
drilling unit Trident XIX (renamed the Noble Gene House) from a subsidiary of
Schlumberger for an exercise price of $25,200,000. In December 2002, we paid an
option fee of $10,800,000 to the seller for the right to acquire the unit. This
unit is being assimilated into our Middle East operations. We also have an
option outstanding to purchase the premium jackup drilling unit Trident XVIII
from a subsidiary of Schlumberger. We expect to exercise this option in the
third quarter of 2003 for an exercise price of $32,900,000. In December 2002, we
paid an option fee of $14,100,000 to the seller for the right to acquire the
unit.
In June 2003, we entered into option agreements with a subsidiary of A.P.
Moeller that give us the right to acquire two premium jackup drilling units, the
Maersk Viking and Maersk Valiant. Both units are currently operating offshore
Iran. Our right to exercise the options and acquire the units will commence when
the units have completed their current drilling contracts and have mobilized to
United Arab Emirates territorial waters. We paid an aggregate of $28,200,000 in
cash for the two options. If we exercise the options, we would pay an exercise
price not to exceed an additional $65,800,000 to acquire both units. The amount
of this aggregate exercise price is subject to reduction depending on the
delivery date of the units.
7
FORM 10-Q
NOTE 3 - STOCK-BASED COMPENSATION PLANS
We have several stock-based compensation plans. As permitted by Statement
of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based
Compensation ("SFAS 123") and as amended by SFAS No. 148, Accounting for
Stock-Based Compensation-Transition and Disclosure ("SFAS 148"), we have chosen
to continue using the intrinsic value method of accounting for stock-based
compensation awards in accordance with APB Opinion 25. Accordingly, no
compensation expense was recognized in the three and six month periods ended
June 30, 2003 and 2002 related to stock option awards.
The following table reflects pro forma net income and earnings per share
had we elected to adopt the fair value approach of SFAS 123 (in thousands,
except per share amounts):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ------------------------------
2003 2002 2003 2002
------------- -------------- -------------- -------------
Net income - as reported......................... $ 43,738 $ 57,438 $ 83,159 $ 108,868
Compensation expense, net of tax - pro forma..... (4,012) (4,035) (7,964) (8,019)
------------- -------------- -------------- -------------
Net income - pro forma........................... $ 39,726 $ 53,403 $ 75,195 $ 100,849
============= ============== ============== =============
Earnings per share:
Basic - as reported............................ $ 0.33 $ 0.43 $ 0.63 $ 0.82
Basic - pro forma.............................. $ 0.30 $ 0.40 $ 0.57 $ 0.76
Diluted - as reported.......................... $ 0.33 $ 0.43 $ 0.63 $ 0.81
Diluted - pro forma............................ $ 0.30 $ 0.40 $ 0.57 $ 0.75
NOTE 4 - EARNINGS PER SHARE
The following table reconciles the basic and diluted earnings per share
computations for the three and six month periods ended June 30, 2003 and 2002
(in thousands, except per share amounts):
NET BASIC BASIC DILUTED DILUTED
THREE MONTHS ENDED: INCOME SHARES EPS SHARES EPS
- ------------------- ----------- ----------- ----------- ----------- ----------
JUNE 30, 2003............................... $ 43,738 131,880 $ 0.33 132,885 $ 0.33
JUNE 30, 2002............................... $ 57,438 132,507 $ 0.43 134,132 $ 0.43
SIX MONTHS ENDED:
- -----------------
JUNE 30, 2003............................... $ 83,159 131,832 $ 0.63 132,932 $ 0.63
JUNE 30, 2002............................... $ 108,868 132,289 $ 0.82 133,712 $ 0.81
Included in diluted shares are ordinary share equivalents relating to
outstanding stock options of 1,005,000 shares and 1,625,000 shares for the three
month periods ended June 30, 2003 and 2002, respectively, and 1,100,000 shares
and 1,423,000 shares for the six month periods ended June 30, 2003 and 2002,
respectively. The computation of diluted earnings per share for the three month
and six month periods ended June 30, 2003 and 2002 did not include options to
purchase 1,842,295 and 1,873,598 ordinary shares, respectively, because the
options' exercise prices were greater than the average market price of the
ordinary shares.
NOTE 5 - MARKETABLE SECURITIES
As of June 30, 2003, we owned marketable equity securities with a fair
market value of $8,800,000, of which $8,646,000 was included in a Rabbi Trust
for the Noble Drilling Corporation 401(k) Savings Restoration Plan. The
marketable securities included in the Rabbi Trust are classified as trading
securities and are included in "Investment in marketable securities" in the
Consolidated Balance Sheet at June 30, 2003 at their fair value.
8
FORM 10-Q
The remaining investment in marketable equity securities, with a fair market
value of $154,000 at June 30, 2003, is classified as available for sale and is
included in "Other assets" in the Consolidated Balance Sheets at its fair market
value. As of June 30, 2003, we also owned marketable debt securities with a fair
market value of $59,566,000. These investments are classified as available for
sale and are included in "Investment in marketable securities" in the
Consolidated Balance Sheet at June 30, 2003 at their fair market value.
NOTE 6 - CREDIT FACILITIES
Noble Drilling Corporation ("Noble Drilling"), an indirect, wholly-owned
subsidiary of Noble, has an unsecured revolving bank credit facility totaling
$200,000,000 (the "Credit Agreement"), including a letter of credit facility
totaling $50,000,000, through May 30, 2006. Noble and one of its wholly-owned
subsidiaries, Noble Holding (U.S.) Corporation ("Noble Holding"),
unconditionally guarantee the performance of Noble Drilling under the Credit
Agreement. We are required to maintain various affirmative and negative
covenants, including two financial covenants relating to interest coverage and
debt to capital ratios. The Credit Agreement contains restrictive covenants,
including restrictions on incurring additional indebtedness, and restrictions on
permitting additional liens, payment of dividends, transactions with affiliates,
and mergers or consolidations. As of June 30, 2003, we had outstanding
borrowings and outstanding letters of credit of $125,000,000 and $25,099,000,
respectively, under the Credit Agreement, with $49,901,000 remaining available
thereunder. Additionally, as of June 30, 2003, we had other letters of credit
and third-party corporate guarantees totaling $16,154,000, of which $3,300,000
is supported by a restricted cash deposit. We also had $40,402,000 of
performance and customs bonds supported by surety bonds.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
We are a defendant in certain claims and litigation arising out of
operations in the normal course of business. In the opinion of management,
uninsured losses, if any, will not be material to our financial position,
results of operations or cash flows.
In connection with several projects, we have entered into agreements with
various vendors to purchase or construct property and equipment that generally
have long lead times for delivery. If we do not proceed with any particular
project, we may either seek to cancel outstanding purchase commitments related
to that project or complete the purchase of the property and equipment. Any
equipment purchased for a project on which we do not proceed would be used,
where applicable, as capital spares for other units in our fleet. If we cancel
any of the purchase commitments, the amounts ultimately paid by us, if any,
would be subject to negotiation. As of June 30, 2003, we had approximately
$35,000,000 of outstanding purchase commitments related to these projects.
NOTE 8 - PARENT GUARANTEE OF REGISTERED SECURITIES ISSUED BY SUBSIDIARY
Noble and Noble Holding are guarantors for certain debt securities issued
by Noble Drilling. These debt securities include Noble Drilling's 6.95% Senior
Notes due 2009 and its 7.50% Senior Notes due 2019. The outstanding principal
balances of the 6.95% Senior Notes and the 7.50% Senior Notes at June 30, 2003
were $149,939,000 and $201,695,000, respectively. Noble Drilling is an indirect,
wholly-owned subsidiary of Noble and a direct, wholly-owned subsidiary of Noble
Holding. Noble's and Noble Holding's guarantee of these securities is full and
unconditional.
The following consolidating financial statements of Noble, Noble
Holding, Noble Drilling and all other subsidiaries are included so that separate
financial statements of Noble Drilling are not required to be filed with the
Securities and Exchange Commission. These consolidating financial statements
present Noble's and Noble Holding's investment in their subsidiaries using the
equity method of accounting.
9
FORM 10-Q
NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
JUNE 30, 2003
(In thousands)
(Unaudited)
NOBLE
HOLDING NOBLE
NOBLE (SUBSIDIARY DRILLING OTHER CONSOLIDATING
ASSETS (GUARANTOR) GUARANTOR) (ISSUER) SUBSIDIARIES ADJUSTMENTS TOTAL
------------ ----------- ---------- ------------- ------------- -----------
CURRENT ASSETS
Cash and cash equivalents............... $ 24,720 $ - $ - $ 99,250 $ - $ 123,970
Restricted cash......................... - - - 7,191 - 7,191
Investment in marketable securities..... 17,685 - - 50,527 68,212
Accounts receivable..................... - - 3,051 176,336 179,387
Inventories............................. - - - 3,844 3,844
Prepaid expenses........................ - - 999 13,052 14,051
Accounts receivable from affiliates..... - - 522,477 - (522,477) -
Other current assets.................... 25,325 - 1,862 19,526 (27,181) 19,532
------------ ----------- ------------ ------------- ------------- -----------
Total current assets...................... 67,730 - 528,389 369,726 (549,658) 416,187
------------ ----------- ------------ ------------- ------------- -----------
PROPERTY AND EQUIPMENT
Drilling equipment and facilities....... - - 90,074 3,185,499 - 3,275,573
Other................................... - - - 63,976 - 63,976
------------ ----------- ------------ ------------- ------------- -----------
- - 90,074 3,249,475 - 3,339,549
Accumulated depreciation................. - - (45,670) (769,848) - (815,518)
------------ ----------- ------------ ------------- ------------- -----------
- - 44,404 2,479,627 - 2,524,031
------------ ----------- ------------ ------------- ------------- -----------
NOTES RECEIVABLE FROM AFFILIATES.......... 520,974 - 169,159 - (690,133) -
INVESTMENTS IN AFFILIATES................. 1,503,172 1,789,458 1,561,206 - (4,853,836) -
INVESTMENT IN AND ADVANCES
TO JOINT VENTURES...................... - - - 22,591 - 22,591
OTHER ASSETS.............................. - - 6,818 128,307 - 135,125
------------ ----------- ------------ ------------- ------------- -----------
$ 2,091,876 $ 1,789,458 $ 2,309,976 $ 3,000,251 $ (6,093,627) $ 3,097,934
============ =========== ============ ============= ============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt.... $ - $ 17,128 $ - $ 71,371 $ (17,128) $ 71,371
Accounts payable........................ - - 1,043 43,634 - 44,677
Accrued payroll and related costs....... - - 10,610 31,896 - 42,506
Taxes payable........................... 242 (8,563) - 47,399 - 39,078
Interest payable........................ - 8,193 7,939 3,492 (10,053) 9,571
Accounts payable to affiliates.......... 12,348 49,047 - 461,082 (522,477) -
Other current liabilities............... 2 - 818 34,678 - 35,498
----------- ----------- ------------ ------------- ------------- -----------
Total current liabilities................. 12,592 65,805 20,410 693,552 (549,658) 242,701
LONG-TERM DEBT............................ - - 476,634 90,785 - 567,419
NOTES PAYABLE TO AFFILIATES............... - 520,974 - 169,159 (690,133) -
DEFERRED INCOME TAXES..................... - - 18,185 190,839 - 209,024
OTHER LIABILITIES......................... - - 5,289 154 - 5,443
COMMITMENTS AND CONTINGENCIES............. - - - - - -
MINORITY INTEREST......................... - - - (5,937) - (5,937)
------------ ----------- ------------ ------------- ------------- -----------
12,592 586,779 520,518 1,138,552 (1,239,791) 1,018,650
------------ ----------- ------------ ------------- ------------- -----------
SHAREHOLDERS' EQUITY
Ordinary Shares-par value $0.10 per
share................................. 13,366 - - - - 13,366
Capital in excess of par value.......... 908,969 870,744 870,744 693,687 (2,435,175) 908,969
Retained earnings....................... 1,223,631 331,935 918,714 1,174,333 (2,424,982) 1,223,631
Treasury stock, at cost................. (50,085) - - - - (50,085)
Restricted stock (unearned compensation) (10,276) - - - - (10,276)
Accumulated other comprehensive loss.... (6,321) - - (6,321) 6,321 (6,321)
------------ ----------- ------------ ------------- ------------- -----------
2,079,284 1,202,679 1,789,458 1,861,699 (4,853,836) 2,079,284
------------ ----------- ------------ ------------- ------------- -----------
$ 2,091,876 $ 1,789,458 $ 2,309,976 $ 3,000,251 $ (6,093,627) $ 3,097,934
============ =========== ============ ============= ============= ===========
10
FORM 10-Q
NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2002
(In thousands)
(Unaudited)
NOBLE
HOLDING NOBLE
NOBLE (SUBSIDIARY DRILLING OTHER CONSOLIDATING
ASSETS (GUARANTOR) GUARANTOR) (ISSUER) SUBSIDIARIES ADJUSTMENTS TOTAL
------------ ----------- ------------- ------------ ------------- ---------
CURRENT ASSETS
Cash and cash equivalents.............. $ 9,317 $ - $ - $ 183,192 $ - $ 192,509
Restricted cash........................ - - - 8,668 - 8,668
Investment in marketable securities.... 6,827 - - 66,130 - 72,957
Accounts receivable.................... - - 1,373 163,240 - 164,613
Inventories............................ - - - 3,628 - 3,628
Prepaid expenses....................... - - 259 6,336 - 6,595
Accounts receivable from affiliates.... - - 644,412 - (644,412) -
Other current assets................... 16,417 - - 16,645 (16,389) 16,673
------------ ----------- ------------ ------------ ------------ -----------
Total current assets..................... 32,561 - 646,044 447,839 (660,801) 465,643
------------ ----------- ------------ ------------ ------------ -----------
PROPERTY AND EQUIPMENT
Drilling equipment and facilities...... - - 118,684 3,034,825 - 3,153,509
Other.................................. - - - 63,296 - 63,296
------------ ----------- ------------ ------------ ------------ - ----------
- - 118,684 3,098,121 - 3,216,805
Accumulated depreciation............... - - (61,028) (684,734) - (745,762)
------------ ----------- ------------ ------------ ------------ -----------
- - 57,656 2,413,387 - 2,471,043
------------ ----------- ------------ ------------ ------------ -----------
NOTES RECEIVABLE FROM AFFILIATES......... 529,772 - 44,159 - (573,931) -
INVESTMENTS IN AFFILIATES................ 1,443,034 1,700,021 1,462,263 - (4,605,318) -
INVESTMENT IN AND ADVANCES
TO JOINT VENTURES....................... - - - 22,538 - 22,538
OTHER ASSETS............................. - - 5,312 101,178 - 106,490
------------ ----------- ------------ ------------ ------------ -----------
$ 2,005,367 $ 1,700,021 $ 2,215,434 $ 2,984,942 $ (5,840,050) $ 3,065,714
============ =========== ============ ============ ============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt... $ - $ 16,389 $ - $ 80,577 $ (16,389) $ 80,577
Accounts payable....................... - - 1,019 63,764 - 64,783
Accrued payroll and related costs...... - - 8,475 42,650 - 51,125
Taxes payable.......................... 48 - - 41,949 - 41,997
Interest payable....................... - - 7,708 2,381 - 10,089
Accounts payable to affiliates......... 16,109 24,713 - 603,590 (644,412) -
Other current liabilities.............. - - 18 32,071 - 32,089
------------ ----------- ------------ ------------ ------------ -----------
Total current liabilities................ 16,157 41,102 17,220 866,982 (660,801) 280,660
LONG-TERM DEBT........................... - - 476,629 112,933 - 589,562
NOTES PAYABLE TO AFFILIATES.............. - 529,772 - 44,159 (573,931) -
DEFERRED INCOME TAXES.................... - - 16,070 190,281 - 206,351
OTHER LIABILITIES........................ - - 5,494 141 - 5,635
COMMITMENTS AND CONTINGENCIES............ - - - - - -
MINORITY INTEREST........................ - - - (5,704) - (5,704)
------------ ----------- ------------ ------------ ------------ -----------
16,157 570,874 515,413 1,208,792 (1,234,732) 1,076,504
------------ ----------- ------------ ------------ ------------ -----------
SHAREHOLDERS' EQUITY
Ordinary Shares-par value $0.10 per
share.. .......................... 13,353 - - - - 13,353
Capital in excess of par value........ 905,865 870,744 870,744 693,687 (2,435,175) 905,865
Retained earnings..................... 1,140,472 258,403 829,277 1,088,755 (2,176,435) 1,140,472
Treasury stock, at cost............... (51,317) - - - - (51,317)
Restricted stock
(unearned compensation)............. (12,871) - - - - (12,871)
Accumulated other comprehensive loss.. (6,292) - - (6,292) 6,292 (6,292)
------------ ----------- ------------ ------------ ------------ -----------
1,989,210 1,129,147 1,700,021 1,776,150 (4,605,318) 1,989,210
------------ ----------- ------------ ------------ ------------ -----------
$ 2,005,367 $ 1,700,021 $ 2,215,434 $ 2,984,942 $ (5,840,050) $ 3,065,714
============ =========== ============ ============ ============ ===========
11
FORM 10-Q
NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING STATEMENT OF INCOME
THREE MONTHS ENDED JUNE 30, 2003
(In thousands)
(Unaudited)
NOBLE
HOLDING NOBLE
NOBLE (SUBSIDIARY DRILLING OTHER CONSOLIDATING
(GUARANTOR) GUARANTOR) (ISSUER) SUBSIDIARIES ADJUSTMENTS TOTAL
------------ ----------- ------------ ------------- -------------- -----------
OPERATING REVENUES
Contract drilling services................ $ - $ - $ 4,434 $ 216,152 $ - $ 220,586
Reimbursables............................. - - 49 10,317 - 10,366
Labor contract drilling services.......... - - - 7,219 - 7,219
Engineering, consulting and other......... - - - 9,749 - 9,749
------------ ----------- ------------ ------------- ------------- -----------
- - 4,483 243,437 - 247,920
------------ ----------- ------------ ------------- ------------- -----------
OPERATING COSTS AND EXPENSES
Contract drilling services................ (7) 1 2,052 121,045 - 123,091
Reimbursables............................. - - 49 9,523 - 9,572
Labor contract drilling services.......... - - - 5,878 - 5,878
Engineering, consulting and other......... - - - 7,503 - 7,503
Depreciation and amortization............. - - 900 35,131 - 36,031
Selling, general and administrative....... (20) - 341 6,854 - 7,175
------------ ----------- ------------ ------------- ------------- -----------
(27) 1 3,342 185,934 - 189,250
------------ ----------- ------------ ------------- ------------- -----------
OPERATING (LOSS) INCOME..................... 27 (1) 1,141 57,503 - 58,670
OTHER INCOME (EXPENSE)
Equity earnings in affiliates (net of tax) 32,136 48,816 50,960 - (131,912) -
Interest expense.......................... - (12,254) (6,957) (5,251) 14,114 (10,348)
Other, net................................ 12,310 - 2,518 108 (14,114) 822
------------ ----------- ------------ ------------- ------------- -----------
INCOME BEFORE INCOME TAXES ................. 44,473 36,561 47,662 52,360 (131,912) 49,144
INCOME TAX BENEFIT (PROVISION).............. (735) 4,289 1,154 (10,114) - (5,406)
------------ ----------- ------------ ------------- ------------- -----------
NET INCOME.................................. $ 43,738 $ 40,850 $ 48,816 $ 42,246 $ (131,912) $ 43,738
============ =========== ============ ============= ============= ===========
12
FORM 10-Q
NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING STATEMENT OF INCOME
THREE MONTHS ENDED JUNE 30, 2002
(In thousands)
(Unaudited)
NOBLE
HOLDING NOBLE
NOBLE (SUBSIDIARY DRILLING OTHER CONSOLIDATING
(GUARANTOR) GUARANTOR) (ISSUER) SUBSIDIARIES ADJUSTMENTS TOTAL
----------- ---------- ------------ ------------ ------------ ---------
OPERATING REVENUES
Contract drilling services ................ $ -- $ -- $ 2,841 $ 232,081 $ -- $ 234,922
Reimbursables ............................. -- -- -- 7,248 -- 7,248
Labor contract drilling services .......... -- -- -- 6,735 -- 6,735
Engineering, consulting and other ......... -- -- 69 4,740 (69) 4,740
--------- --------- --------- --------- --------- ---------
-- -- 2,910 250,804 (69) 253,645
--------- --------- --------- --------- --------- ---------
OPERATING COSTS AND EXPENSES
Contract drilling services ................ 59 -- 2,628 118,543 (69) 121,161
Reimbursables ............................. -- -- -- 6,254 -- 6,254
Labor contract drilling services .......... -- -- -- 5,087 -- 5,087
Engineering, consulting and other ......... -- -- -- 5,459 -- 5,459
Depreciation and amortization ............. -- -- 1,428 29,811 -- 31,239
Selling, general and administrative ....... 754 -- (630) 6,047 -- 6,171
--------- --------- --------- --------- --------- ---------
813 -- 3,426 171,201 (69) 175,371
--------- --------- --------- --------- --------- ---------
OPERATING (LOSS) INCOME ..................... (813) -- (516) 79,603 -- 78,274
OTHER INCOME (EXPENSE)
Equity earnings in affiliates (net of tax) 58,251 58,251 62,313 -- (178,815) --
Interest expense .......................... -- -- (6,482) (4,109) -- (10,591)
Other, net ................................ -- -- 748 1,191 -- 1,939
--------- --------- --------- --------- --------- ---------
INCOME BEFORE INCOME TAXES .................. 57,438 58,251 56,063 76,685 (178,815) 69,622
INCOME TAX BENEFIT (PROVISION) .............. -- -- 2,188 (14,372) -- (12,184)
--------- --------- --------- --------- --------- ---------
NET INCOME .................................. $ 57,438 $ 58,251 $ 58,251 $ 62,313 $(178,815) $ 57,438
========= ========= ========= ========= ========= =========
13
FORM 10-Q
NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 2003
(In thousands)
(Unaudited)
NOBLE
HOLDING NOBLE
NOBLE (SUBSIDIARY DRILLING OTHER CONSOLIDATING
(GUARANTOR) GUARANTOR) (ISSUER) SUBSIDIARIES ADJUSTMENTS TOTAL
----------- ---------- ------------ ------------ ------------ ---------
OPERATING REVENUES
Contract drilling services ................ $ -- $ -- $ 4,515 $ 432,439 $ -- $ 436,954
Reimbursables ............................. -- -- 267 25,955 -- 26,222
Labor contract drilling services .......... -- -- -- 13,915 -- 13,915
Engineering, consulting and other ......... -- -- -- 15,837 -- 15,837
--------- --------- --------- --------- --------- ---------
-- -- 4,782 488,146 -- 492,928
--------- --------- --------- --------- --------- ---------
OPERATING COSTS AND EXPENSES
Contract drilling services ................ (13) 1 4,649 242,301 -- 246,938
Reimbursables ............................. -- -- 267 24,503 -- 24,770
Labor contract drilling services .......... -- -- -- 11,601 -- 11,601
Engineering, consulting and other ......... -- -- -- 12,899 -- 12,899
Depreciation and amortization ............. -- -- 1,917 67,978 -- 69,895
Selling, general and administrative ....... 71 -- 530 12,836 -- 13,437
--------- --------- --------- --------- --------- ---------
58 1 7,363 372,118 -- 379,540
--------- --------- --------- --------- --------- ---------
OPERATING (LOSS) INCOME ..................... (58) (1) (2,581) 116,028 -- 113,388
OTHER INCOME (EXPENSE)
Equity earnings in affiliates (net of tax) 60,138 89,437 98,943 -- (248,518) --
Interest expense .......................... -- (24,467) (13,945) (8,758) 26,327 (20,843)
Other, net ................................ 24,547 -- 1,902 770 (26,327) 892
--------- --------- --------- --------- --------- ---------
INCOME BEFORE INCOME TAXES .................. 84,627 64,969 84,319 108,040 (248,518) 93,437
INCOME TAX BENEFIT (PROVISION) .............. (1,468) 8,563 5,118 (22,491) -- (10,278)
--------- --------- --------- --------- --------- ---------
NET INCOME .................................. $ 83,159 $ 73,532 $ 89,437 $ 85,549 $(248,518) $ 83,159
========= ========= ========= ========= ========= =========
14
FORM 10-Q
NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 2002
(In thousands)
(Unaudited)
NOBLE
HOLDING NOBLE
NOBLE (SUBSIDIARY DRILLING OTHER CONSOLIDATING
(GUARANTOR) GUARANTOR) (ISSUER) SUBSIDIARIES ADJUSTMENTS TOTAL
----------- ---------- ------------ ------------ ------------ ---------
OPERATING REVENUES
Contract drilling services ................ $ -- $ -- $ 5,834 $ 449,893 $ -- $ 455,727
Reimbursables ............................. -- -- -- 14,559 -- 14,559
Labor contract drilling services .......... -- -- -- 14,659 -- 14,659
Engineering, consulting and other ......... -- -- 138 10,434 (138) 10,434
--------- --------- --------- --------- --------- ---------
-- -- 5,972 489,545 (138) 495,379
--------- --------- --------- --------- --------- ---------
OPERATING COSTS AND EXPENSES
Contract drilling services ................ 59 -- 5,032 230,340 (138) 235,293
Reimbursables ............................. -- -- -- 12,515 -- 12,515
Labor contract drilling services .......... -- -- -- 11,414 -- 11,414
Engineering, consulting and other ......... -- -- -- 10,363 -- 10,363
Depreciation and amortization ............. -- -- 2,844 58,688 -- 61,532
Selling, general and administrative ....... 754 -- (572) 15,201 -- 15,383
--------- --------- --------- --------- --------- ---------
813 -- 7,304 338,521 (138) 346,500
--------- --------- --------- --------- --------- ---------
OPERATING (LOSS) INCOME ..................... (813) -- (1,332) 151,024 -- 148,879
OTHER INCOME (EXPENSE)
Equity earnings in affiliates (net of tax) 109,681 109,681 115,612 -- (334,974) --
Interest expense .......................... -- -- (12,964) (8,327) -- (21,291)
Other, net ................................ -- -- 5,171 (1,494) -- 3,677
--------- --------- --------- --------- --------- ---------
INCOME BEFORE INCOME TAXES .................. 108,868 109,681 106,487 141,203 (334,974) 131,265
INCOME TAX BENEFIT (PROVISION) .............. -- -- 3,194 (25,591) -- (22,397)
--------- --------- --------- --------- --------- ---------
NET INCOME .................................. $ 108,868 $ 109,681 $ 109,681 $ 115,612 $(334,974) $ 108,868
========= ========= ========= ========= ========= =========
15
FORM 10-Q
NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2003
(In thousands)
(Unaudited)
NOBLE
HOLDING NOBLE
NOBLE (SUBSIDIARY DRILLING OTHER CONSOLIDATING
(GUARANTOR) GUARANTOR) (ISSUER) SUBSIDIARIES ADJUSTMENTS TOTAL
----------- ---------- ----------- ------------ ------------ ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ....................................... $ 83,159 $ 73,532 $ 89,437 $ 85,549 $(248,518) $ 83,159
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ................ -- -- 1,917 67,978 -- 69,895
Deferred income tax provision ................ -- -- 2,115 1,311 -- 3,426
Deferred repair and maintenance amortization . -- -- 339 15,424 -- 15,763
Loss on sales of marketable securities ....... -- -- -- 336 -- 336
Equity in income of joint ventures ........... -- -- -- (341) -- (341)
Compensation expense from stock-based plans .. 2,332 -- -- -- -- 2,332
Equity earnings in affiliates ................ (60,138) (89,437) (98,943) -- 248,518 --
Other ........................................ -- -- (1,711) 747 -- (964)
Changes in current assets and liabilities,
net of acquired working capital:
Accounts receivable ........................ -- -- (1,678) (13,096) -- (14,774)
Accounts receivable from affiliates ........ -- -- 23,966 -- (23,966) --
Other current assets ....................... (8,908) -- (2,602) (1,292) -- (12,802)
Accounts payable ........................... -- -- 24 (20,119) -- (20,095)
Accounts payable to affiliates ............. (4,338) 16,275 -- (35,903) 23,966 --
Other current liabilities .................. 196 (370) 3,166 (11,639) -- (8,647)
--------- --------- --------- --------- --------- ---------
Net cash provided by operating activities 12,303 -- 16,030 88,955 -- 117,288
--------- --------- --------- --------- --------- ---------
CASH FLOWS USED FOR INVESTING ACTIVITIES
Acquisitions and related capital upgrades ........ -- -- -- (120,326) -- (120,326)
Other capital expenditures ....................... -- -- (5,675) (24,974) -- (30,649)
Deferred repair and maintenance expenditures ..... -- -- (1,355) (13,076) -- (14,431)
Investment in and advances to joint venture, net . -- -- -- 287 -- 287
Investment in marketable securities .............. -- -- (32,000) (21,700) -- (53,700)
Proceeds from sales of marketable securities ..... -- -- 23,000 36,771 -- 59,771
--------- --------- --------- --------- --------- ---------
Net cash used for investing activities .. -- -- (16,030) (143,018) -- (159,048)
--------- --------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of long-term debt ........................ -- -- -- (31,356) -- (31,356)
Proceeds from issuance of ordinary shares, net ... 3,100 -- -- -- -- 3,100
Decrease in restricted cash ...................... -- -- -- 1,477 -- 1,477
--------- --------- --------- --------- --------- ---------
Net cash provided by (used for)
financing activities ................ 3,100 -- -- (29,879) -- (26,779)
--------- --------- --------- --------- --------- ---------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ........................... 15,403 -- -- (83,942) -- (68,539)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD ............................ 9,317 -- -- 183,192 -- 192,509
--------- --------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS,
END OF PERIOD .................................. $ 24,720 $ -- $ -- $ 99,250 $ -- $ 123,970
========= ========= ========= ========= ========= =========
16
FORM 10-Q
NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2002
(In thousands)
(Unaudited)
NOBLE
HOLDING NOBLE
NOBLE (SUBSIDIARY DRILLING OTHER CONSOLIDATING
(GUARANTOR) GUARANTOR) (ISSUER) SUBSIDIARIES ADJUSTMENTS TOTAL
----------- ---------- ------------ ------------ ----------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .......................................... $ 108,868 $ 109,681 $ 109,681 $ 115,612 $(334,974) $ 108,868
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization ................... -- -- 2,844 58,688 -- 61,532
Deferred income tax provision ................... -- -- 422 14,460 -- 14,882
Deferred repair and maintenance amortization .... -- -- 361 13,022 -- 13,383
Loss on sales of marketable securities .......... -- -- -- 71 -- 71
Equity in income of joint ventures .............. -- -- -- (586) -- (586)
Compensation expense from stock-based plans ..... 813 -- 1,670 42 -- 2,525
Realized loss on impairment of investment ....... -- -- -- 9,758 -- 9,758
Gain on sale of interest in deepwater
exploration property ........................... -- -- -- (5,908) -- (5,908)
Gain on sales of property and equipment ......... -- -- -- (359) -- (359)
Equity earnings in affiliates ................... (109,681) (109,681) (115,612) -- 334,974 --
Other ........................................... -- -- 96 1,234 -- 1,330
Changes in current assets and liabilities,
net of acquired working capital: ............... -- --
Accounts receivable ........................... -- -- 20 (15,235) -- (15,215)
Accounts receivable from affiliates ........... (4,044) -- 37,873 -- (33,829) --
Other current assets .......................... -- -- (4,707) (3,805) -- (8,512)
Accounts payable .............................. -- -- 2,106 (793) -- 1,313
Accounts payable to affiliates ................ -- -- -- (33,829) 33,829 --
Other current liabilities ..................... -- -- 1,950 1,368 -- 3,318
--------- --------- --------- --------- --------- ---------
Net cash (used for) provided by
operating activities ..................... (4,044) -- 36,704 153,740 -- 186,400
--------- --------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions and related capital upgrades ........... -- -- (45,000) (91,159) -- (136,159)
Other capital expenditures .......................... -- -- (1,464) (55,714) -- (57,178)
Deferred repair and maintenance expenditures ........ -- -- (371) (17,276) -- (17,647)
Proceeds from sales of property and equipment ....... -- -- -- 839 -- 839
Proceeds from sale of interest in deepwater
exploration property .............................. -- -- -- 6,200 -- 6,200
Investments in and advances to joint ventures, net .. -- -- -- 2,001 -- 2,001
Investment in marketable securities ................. -- -- -- (27,810) -- (27,810)
Proceeds from sales of marketable securities ........ -- -- -- 12,955 -- 12,955
--------- --------- --------- --------- --------- ---------
Net cash used for investing activities ..... -- -- (46,835) (169,964) -- (216,799)
--------- --------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of long-term debt ........................... -- -- -- (25,068) -- (25,068)
Proceeds from issuance of ordinary shares, net ...... 3,303 -- 9,092 -- -- 12,395
Proceeds from sales of put options on ordinary shares 841 -- 1,039 -- -- 1,880
Decrease in restricted cash ......................... -- -- -- 2,175 -- 2,175
--------- --------- --------- --------- --------- ---------
Net cash provided by (used for)
financing activities ..................... 4,144 -- 10,131 (22,893) -- (8,618)
--------- --------- --------- --------- --------- ---------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS .............................. 100 -- -- (39,117) -- (39,017)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD ............................... -- -- -- 236,709 -- 236,709
--------- --------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS,
END OF PERIOD ..................................... $ 100 $ -- $ -- $ 197,592 $ -- $ 197,692
========= ========= ========= ========= ========= =========
17
FORM 10-Q
NOTE 9 - SEGMENT AND RELATED INFORMATION
We provide diversified services for the oil and gas industry. Our
reportable segments consist of the primary services we provide, which include
offshore contract drilling and engineering and consulting services. Although
both of these segments are generally influenced by the same economic factors,
each represents a distinct service to the oil and gas industry. Offshore
contract drilling services is then separated into international and domestic
contract drilling segments since there are different economic and political
risks associated with each of these geographic markets and our management makes
decisions based on these markets accordingly.
Our international contract drilling segment conducts contract drilling
services in the North Sea, Brazil, West Africa, the Middle East, Mexico and
India. Our domestic contract drilling is conducted in the U.S. Gulf of Mexico.
Our engineering and consulting segment, as represented by our Noble Technology
Services Division, provides drilling products and drilling related software
programs, well site management, project management, technical services and
operations support for our downhole technology tools.
All intersegment sales pricing is based on current market conditions.
We evaluate the performance of our operating segments based on operating
revenues and net income. Summarized financial information of our reportable
segments for the three and six months ended June 30, 2003 and 2002 is shown in
the following table (in thousands). The "Other" column includes results of labor
contract drilling services, other insignificant operations and corporate related
items.
INTERNATIONAL DOMESTIC
THREE MONTHS ENDED: CONTRACT CONTRACT ENGINEERING
- ------------------- DRILLING DRILLING & CONSULTING
JUNE 30, 2003: SERVICES SERVICES SERVICES OTHER TOTAL
- -------------- -------------- ------------ ------------ ---------- ----------
Revenues from external customers $ 165,390 $ 68,065 $ 6,364 $ 8,101 $ 247,920
Intersegment revenues .......... -- -- -- -- --
Segment net income (loss) ...... 35,859 9,900 (2,344) 323 43,738
Total assets ................... 1,521,419 1,317,977 12,371 246,167 3,097,934
JUNE 30, 2002:
- --------------
Revenues from external customers $ 163,238 $ 78,750 $ 3,204 $ 8,453 $ 253,645
Intersegment revenues .......... -- -- 127 -- 127
Segment net income (loss) ...... 51,728 9,761 (777) (3,287) 57,425
Total assets ................... 1,292,240 1,409,289 11,559 168,845 2,881,933
INTERNATIONAL DOMESTIC
SIX MONTHS ENDED: CONTRACT CONTRACT ENGINEERING
- ----------------- DRILLING DRILLING & CONSULTING
JUNE 30, 2003: SERVICES SERVICES SERVICES OTHER TOTAL
- -------------- -------------- ------------ ------------ ----------- ----------
Revenues from external customers $ 330,008 $ 128,470 $ 17,876 $ 16,574 $ 492,928
Intersegment revenues .......... -- -- -- -- --
Segment net income (loss) ...... 68,413 15,219 (3,659) 3,186 83,159
JUNE 30, 2002:
- --------------
Revenues from external customers $ 315,685 $ 155,047 $ 6,566 $ 18,081 $ 495,379
Intersegment revenues .......... -- -- 148 -- 148
Segment net income (loss) ...... 94,873 19,948 (1,046) (4,919) 108,856
18
FORM 10-Q
The following table is a reconciliation of reportable segment net income to
our consolidated totals for the three and six months ended June 30, 2003 and
2002 (in thousands).
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Total net income for reportable segments $ 43,415 $ 60,712 $ 79,973 $ 113,775
Elimination of intersegment losses ..... -- 13 -- 12
Other net income (loss) ................ 323 (3,287) 3,186 (4,919)
--------- --------- --------- ---------
Total consolidated net income ........ $ 43,738 $ 57,438 83,159 108,868
========= ========= ========= =========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This report on Form 10-Q includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements
other than statements of historical facts included in this Form 10-Q, including,
without limitation, statements contained in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" regarding our
financial position, business strategy, plans and objectives of management for
future operations, industry conditions, and indebtedness covenant compliance,
are forward-looking statements. Although we believe that the expectations
reflected in such forward-looking statements are reasonable, we cannot assure
you that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially
from our expectations include, but are not limited to, changes in United States
tax laws, or the enactment of new United States tax laws, that may result in
Noble being subject to taxation in the United States on its worldwide earnings,
other material changes in the tax laws, tax treaties or tax regulations, or the
interpretation or enforcement thereof, in the United States or other countries
in which we operate which could increase our effective tax rate; volatility in
crude oil and natural gas prices; changes in our customers' drilling programs or
budgets due to their own internal corporate events, changes in the markets and
prices for oil and gas, or shifts in the relative strengths of various
geographic drilling markets brought on by things such as a general economic
slowdown, or regional or worldwide recession, any of which could result in
deterioration in demand for our drilling services; our inability to execute any
of our business strategies; the cancellation by our customers of drilling
contracts or letter agreements or letters of intent for drilling contracts or
their exercise of early termination provisions generally found in our drilling
contracts; intense competition in the drilling industry; changes in the rate of
economic growth in the U.S. or in other major international economics, political
and economic conditions in the United States and in international markets where
we operate; adverse weather (such as hurricanes or monsoons) and seas;
operational risks (such as blowouts, fires and loss of production); changes in
oil and gas drilling technology or in our competitors' drilling fleets that
could make our drilling rigs less competitive or require major capital
investment to keep them competitive; cost overruns or delays on shipyard repair,
maintenance, conversion or upgrade projects; costs and effects of unanticipated
legal and administrative proceedings; limitations on our insurance coverage or
our inability to obtain or maintain insurance coverage at rates and with
deductible amounts that we believe are commercially reasonable; the discovery of
significant additional oil and/or gas reserves or the construction of
significant oil and/or gas delivery or storage systems that impact regional or
worldwide energy markets; potential deterioration in the demand for our drilling
services and resulting declining dayrates; requirements and potential liability
imposed by governmental regulation of the drilling industry (including
environmental regulation); acts of war or terrorism; significant changes in
trade, monetary or fiscal policies worldwide, including changes in interest
rates; and currency fluctuations between the U.S. dollar and other currencies.
All of the foregoing risks and uncertainties are beyond our ability to
control, and in many cases, we cannot predict the risks and uncertainties that
could cause our actual results to differ materially from those indicated by the
forward-looking statements. When used in this Form 10-Q, the words "believes",
"anticipates", "expects", "plans" and similar expressions as they relate to the
Company or its management are intended to identify forward-looking statements.
19
FORM 10-Q
GENERAL
As used herein, unless otherwise required by the context, the term
"Noble" refers to Noble Corporation and the terms "Company", "we", "our", and
words of similar import refer to Noble and its consolidated subsidiaries. The
use herein of such terms as group, organization, we, us, our and its, or
references to specific entities, is not intended to be a precise description of
corporate relationships.
THE COMPANY
We are a leading provider of diversified services for the oil and gas
industry. We perform contract drilling services with our fleet of 56 offshore
drilling units located in key markets worldwide. Our fleet of floating deepwater
units consists of 13 semisubmersibles and three dynamically positioned
drillships, seven of which are designed to operate in water depths greater than
5,000 feet. Our premium fleet of 37 independent leg, cantilever jackup rigs
includes 23 units that operate in water depths of 300 feet or greater, four of
which operate in water depths of 360 feet or greater, and 11 units that operate
in water depths up to 250 feet. In addition, our fleet includes three
submersible drilling units. Nine of our drilling units are capable of operating
in harsh environments. In addition to the rigs in our fleet described above, we
have purchased options to acquire three premium jackup rigs: the Trident XVIII,
Maersk Valiant and Maersk Viking. Approximately 75 percent of the fleet is
currently deployed in international markets, principally including the North
Sea, Brazil, West Africa, the Middle East, Mexico and India. We provide
technologically advanced drilling-related products and services designed to
create value for our customers. We also provide labor contract drilling
services, well site and project management services, and engineering services.
Demand for drilling services depends on the activity levels of our
customers in the oil and gas industry. These activity levels are affected by a
variety of economic and political factors, including worldwide demand for oil
and gas, the ability of the Organization of Petroleum Exporting Countries
("OPEC") to set and maintain production levels and pricing, the level of
production of non-OPEC countries, and the policies of the various governments
regarding exploration and development of their oil and gas reserves.
Our results of operations depend on the levels of activity in offshore
oil and gas exploration, development and production in markets worldwide.
Historically, oil and gas prices and market expectations of potential changes in
these prices have significantly affected that level of activity. Generally
speaking, higher oil and natural gas prices or our customers' expectations of
higher prices results in a greater demand for our services. These prices are
extremely volatile. Despite higher oil prices in the first six months of 2003 as
compared to the first six months of 2002, drilling activity in many
international markets, which are influenced more by oil prices than natural gas
prices, was generally weaker in the second quarter of 2003 as compared to the
second quarter of 2002. We believe that operators in international markets were
reluctant to increase drilling activity in the latter part of 2002 and first six
months of 2003, despite higher oil prices, due to the uncertainty surrounding
the worldwide economy and the political unrest in the Middle East (including the
prospect of and subsequent actual military action in Iraq) and Nigeria, which
contributed to the higher oil prices.
Natural gas prices in the U.S. were also significantly higher during
the first six months of 2003 as compared to the first six months of 2002, as
inventory storage has fallen below average historical levels. The decline in
natural gas inventory storage is attributable to reduced North American natural
gas production and increased demand for natural gas this past winter due to
temperatures that were generally colder than the previous winter. Despite the
higher natural gas prices, operators on average have not increased offshore
drilling activities. We believe this is due principally to the uncertainty
surrounding the world economy. Drilling activity in the U.S. Gulf of Mexico has
remained flat, which has resulted in continued depressed utilization rates and
dayrates for drilling rigs in that region.
Oil companies continue to work through the effects of industry
consolidation, which has inhibited capital spending on exploration and
development. We expect that further consolidation among our customer base would
dampen drilling activity levels near-term.
We cannot predict the future level of demand for our drilling services
or future conditions in the offshore contract drilling industry. Declines in the
level of demand for our drilling services have an adverse effect on our results
of operations.
In recent years, we have focused on increasing the number of rigs in
our fleet capable of deepwater offshore drilling. We have incorporated this
focus into our broader, long-standing business strategy to actively expand our
international and deepwater capabilities through acquisitions, rig upgrades and
modifications and to deploy assets in important geological areas.
20
FORM 10-Q
ACQUISITIONS
In July 2003, we exercised our option to purchase the premium jackup
drilling unit Trident XIX (renamed the Noble Gene House) from a subsidiary of
Schlumberger for an exercise price of $25,200,000. In December 2002, we paid an
option fee of $10,800,000 to the seller for the right to acquire the unit. This
unit is being assimilated into our Middle East operations. We also have an
option outstanding to purchase the premium jackup drilling unit Trident XVIII
from a subsidiary of Schlumberger. We expect to exercise this option in the
third quarter of 2003 for an exercise price of $32,900,000. In December 2002, we
paid an option fee of $14,100,000 to the seller for the right to acquire the
unit.
In June 2003, we entered into option agreements with a subsidiary of
A.P. Moeller that give us the right to acquire two premium jackup drilling
units, the Maersk Viking and Maersk Valiant. Both units are currently operating
offshore Iran. Our right to exercise the options and acquire the units will
commence when the units have completed their current drilling contracts and have
mobilized to United Arab Emirates territorial waters. We paid an aggregate of
$28,200,000 in cash for the two options. If we exercise the options, we would
pay an exercise price not to exceed an additional $65,800,000 to acquire both
units. The amount of this aggregate exercise price is subject to reduction
depending on the delivery date of the units.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2003 AND 2002
GENERAL
Net income for the second quarter of 2003 (the "Current Quarter") was
$43,738,000, or $0.33 per diluted share, on operating revenues of $247,920,000,
compared to net income for the second quarter of 2002 (the "Comparable Quarter")
of $57,438,000, or $0.43 per diluted share, on operating revenues of
$253,645,000.
RIG UTILIZATION, OPERATING DAYS AND AVERAGE DAYRATES
The following table sets forth the average rig utilization, operating
days (days during contract terms) and average dayrates for our rig fleet for the
three months ended June 30, 2003 and 2002:
AVERAGE RIG
UTILIZATION (1) OPERATING DAYS AVERAGE DAYRATE
------------------------- ------------------------ ----------------------------
THREE MONTHS ENDED THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30,
------------------------- ------------------------ ----------------------------
2003 2002 2003 2002 2003 2002
---------- ----------- ----------- ---------- -------------- ------------
International:
Jackups...................... 85% 99% 2,392 2,066 $ 52,286 $ 59,996
Semisubmersibles - Deepwater. 100% 100% 91 91 125,628 112,482
Semisubmersibles - Other..... 100% 100% 91 91 42,181 70,118
Drillships................... 100% 88% 273 240 73,950 76,527
---------- ---------- ----------- ---------- -------------- ------------
Total International.......... 87% 98% 2,847 2,488 $ 56,384 $ 63,881
========== ========== =========== ========== ============== ============
Domestic (2):
Jackups...................... 97% 93% 354 848 $ 27,876 $ 25,957
Semisubmersibles - Deepwater. 71% 92% 321 420 138,826 124,174
Semisubmersibles - Other..... 60% -- 55 -- 48,073 --
Submersibles................. 84% 52% 152 95 19,638 19,180
---------- ---------- ----------- ---------- -------------- ------------
Total Domestic............... 81% 88% 882 1,363 $ 68,095 $ 55,750
========== ========== =========== ========== ============== ============
- ----------------------
(1) Information reflects our policy of reporting on the basis of the number of
actively marketed rigs in our fleet. Percentages reflect the results of
rigs only during the period in which they are owned or operated by us.
(2) "Domestic" encompasses the U.S. Gulf of Mexico.
21
FORM 10-Q
INTERNATIONAL OPERATIONS
The following table sets forth the operating revenues and gross margin
(operating revenues less direct operating expenses) for our international
operations for the three months ended June 30, 2003 and 2002:
REVENUES GROSS MARGIN
------------------------- -------------------------
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
2003 2002 2003 2002
-------- -------- -------- --------
(In thousands)
Contract drilling services ...... $160,526 $158,935 $ 69,773 $ 83,004
Reimbursables ................... 4,257 4,555 464 673
Labor contract drilling services 7,219 6,735 1,341 1,648
Engineering, consulting and other 2,928 2,436 254 428
-------- -------- -------- --------
Total .................. $174,930 $172,661 $ 71,832 $ 85,753
======== ======== ======== ========
OPERATING REVENUES. International contract drilling services revenues
increased $1,591,000 due to additional operating days in Mexico, mostly offset
by lower utilization rates in West Africa and lower average dayrates in the
North Sea. The additional operating days in Mexico were attributable to the
mobilization of six rigs to Mexico from the U.S. Gulf of Mexico commencing in
the latter part of 2002. Labor contract drilling services revenues increased
$484,000 due to additional equipment rentals on the Hibernia project in Canada.
International engineering, consulting and other revenues increased $492,000 due
primarily to a consulting engagement in Canada by our Noble Engineering &
Development Limited ("NED") subsidiary.
Reimbursables set forth in the above table and certain other tables in
this "Results of Operations" section are reported in accordance with Emerging
Issues Task Force No. 01-14, Income Statement Characterization of Reimbursements
Received for Out-of-Pocket Expenses Incurred. For additional information, see
"Accounting Pronouncements" hereafter in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
GROSS MARGIN. International contract drilling services gross margin
decreased $13,231,000 despite the higher revenue as the gross margin impact of
the lower utilization rates in West Africa and lower average dayrates in the
North Sea more than offset the impact of the additional operating days in
Mexico. International labor contract drilling services gross margin decreased
$307,000 due to lower utilization on two of our North Sea labor contracts,
partially offset by increased equipment rentals on the Hibernia project in
Canada, which have low margins. International engineering, consulting and other
gross margin decreased $174,000 due to reduced activity on an engineering
services engagement in the North Sea, partially offset by NED's consulting
engagement in Canada.
DOMESTIC OPERATIONS
The following table sets forth the operating revenues and gross margin
(operating revenues less direct operating expenses) for our domestic operations
for the three months ended June 30, 2003 and 2002:
REVENUES GROSS MARGIN
------------------------- -------------------------
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
2003 2002 2003 2002
-------- -------- -------- --------
(In thousands)
Contract drilling services ...... $ 60,060 $ 75,987 $ 27,722 $ 30,757
Reimbursables ................... 6,109 2,693 330 321
Engineering, consulting and other 6,821 2,304 1,992 (1,147)
-------- -------- -------- --------
Total .................. $ 72,990 $ 80,984 $ 30,044 $ 29,931
======== ======== ======== ========
OPERATING REVENUES. Domestic contract drilling services revenues
decreased $15,927,000 due to fewer operating days on our domestic jackup rigs
and lower utilization rates on our domestic deepwater semisubmersibles,
partially offset by a higher average dayrate for our semisubmersibles. The fewer
operating days on our jackup rigs were attributable to the
22
FORM 10-Q
mobilization of six rigs from the U.S. Gulf of Mexico to Mexico commencing in
the latter part of 2002. Domestic engineering, consulting and other revenues
increased $4,517,000 due to income from interests in deepwater exploration
properties, which began producing in the latter part of 2002, and revenue earned
by the Noble Homer Ferrington semisubmersible while the unit was not operating,
pursuant to its long-term contract. These were partially offset by fewer
third-party engagements by our Maurer Technology Incorporated ("Maurer")
subsidiary.
GROSS MARGIN. Domestic contract drilling services gross margin
decreased $3,035,000 due to lower utilization rates on our domestic deepwater
semisubmersible rigs and fewer operating days on our domestic jackup rigs,
partially offset by a higher average dayrate for our semisubmersibles. Domestic
engineering, consulting and other gross margin increased $3,139,000 due to
income from interests in deepwater exploration properties and revenue earned by
the Noble Homer Ferrington while not operating. These were partially offset by
fewer third-party engagements by Maurer and additional operating costs related
to the testing and development of the Well Director(TM) rotary steerable
drilling tools that we acquired in May 2002.
OTHER ITEMS
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense increased $4,792,000 due to the acquisition of the Dhabi II and Noble
Roy Rhodes (formerly Trident III) jackups in December 2002 and the activation of
the Noble Lorris Bouzigard in March 2003 following its upgrade.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1,004,000 due to higher employee compensation
costs.
INTEREST EXPENSE. Interest expense decreased $243,000 due to lower
average balances of higher interest rate debt in the Current Quarter.
OTHER, NET. Other, net decreased $1,117,000 due to lower interest
income, which was attributable to a lower average yield earned on our cash
balances and investments in marketable securities.
INCOME TAX PROVISION. Income tax provision decreased $6,778,000 due to
a lower effective tax rate and lower pretax earnings. The effective tax rate was
11 percent in the Current Quarter compared to 18 percent in the Comparable
Quarter. The lower effective tax rate in the Current Quarter was a result of our
corporate restructuring in April 2002 and a higher percentage of our pretax
earnings being derived from international operations, which generally have lower
effective tax rates than our domestic operations.
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002
GENERAL
Net income for the six months ended June 30, 2003 (the "Current
Period") was $83,159,000, or $0.63 per diluted share, on operating revenues of
$492,928,000, compared to net income for the six months ended June 30, 2002 (the
"Comparable Quarter") of $108,868,000, or $0.81 per diluted share, on operating
revenues of $495,379,000.
23
FORM 10-Q
RIG UTILIZATION, OPERATING DAYS AND AVERAGE DAYRATES
The following table sets forth the average rig utilization, operating
days (days during contract terms) and average dayrates for our rig fleet for the
six months ended June 30, 2003 and 2002:
AVERAGE RIG
UTILIZATION (1) OPERATING DAYS AVERAGE DAYRATE
---------------------- --------------------- ---------------------
SIX MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30,
---------------------- --------------------- ---------------------
2003 2002 2003 2002 2003 2002
-------- -------- -------- -------- -------- --------
International:
Jackups .................... 87% 97% 4,793 4,046 $ 51,923 $ 60,013
Semisubmersibles - Deepwater 100% 100% 181 181 139,921 105,585
Semisubmersibles - Other ... 90% 59% 163 107 42,012 69,943
Drillships ................. 100% 94% 543 510 72,545 73,593
-------- -------- -------- -------- -------- --------
Total International ........ 88% 96% 5,680 4,844 $ 56,414 $ 63,365
======== ======== ======== ======== ======== ========
Domestic (2):
Jackups .................... 87% 84% 704 1,518 $ 28,178 $ 27,911
Semisubmersibles - Deepwater 78% 91% 707 828 125,187 124,174
Semisubmersibles - Other ... 70% -- 86 -- 47,105 --
Submersibles ............... 60% 45% 218 185 18,927 19,469
-------- -------- -------- -------- -------- --------
Total Domestic ............. 78% 81% 1,715 2,531 $ 67,942 $ 58,786
======== ======== ======== ======== ======== ========
- ----------------------
(1) Information reflects our policy of reporting on the basis of the number of
actively marketed rigs in our fleet. Percentages reflect the results of
rigs only during the period in which they are owned or operated by us.
(2) "Domestic" encompasses the U.S. Gulf of Mexico.
INTERNATIONAL OPERATIONS
The following table sets forth the operating revenues and gross margin
(operating revenues less direct operating expenses) for our international
operations for the six months ended June 30, 2003 and 2002:
REVENUES GROSS MARGIN
--------------------- ---------------------
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
2003 2002 2003 2002
-------- -------- -------- --------
(In thousands)
Contract drilling services ...... $320,433 $306,940 $137,190 $154,584
Reimbursables ................... 10,007 8,423 794 927
Labor contract drilling services 13,915 14,659 2,314 3,245
Engineering, consulting and other 5,028 5,209 528 1,422
-------- -------- -------- --------
Total .................. $349,383 $335,231 $140,826 $160,178
======== ======== ======== ========
OPERATING REVENUES. International contract drilling services revenues
increased $13,493,000 due to additional operating days in Mexico and the Middle
East, partially offset by lower utilization rates in West Africa and lower
average dayrates in the North Sea. The additional operating days in Mexico were
attributable to the mobilization of six rigs to Mexico from the U.S. Gulf of
Mexico commencing in the latter part of 2002. The additional operating days in
the Middle East were attributable to the operations of the Noble Roy Rhodes and
Dhabi II jackups, which we purchased in December 2002. Labor contract drilling
services revenues decreased $744,000 due to lower utilization on two of our
North Sea labor contracts, partially offset by additional equipment rentals on
the Hibernia project in Canada. International engineering, consulting and other
revenues decreased $181,000 due to reduced activity on an engineering services
engagement in the North Sea, mostly offset by a consulting engagement in Canada
by NED.
24
FORM 10-Q
GROSS MARGIN. International contract drilling services gross margin
decreased $17,394,000 despite the higher revenue as the gross margin impact of
the lower utilization rates in West Africa and lower average dayrates in the
North Sea more than offset the impact of the additional operating days in Mexico
and the Middle East. International labor contract drilling services gross margin
decreased $931,000 due to lower utilization on two of our North Sea labor
contracts, partially offset by increased equipment rentals on the Hibernia
project in Canada. International engineering, consulting and other gross margin
decreased $894,000 due to reduced activity on an engineering services engagement
in the North Sea, partially offset by additional gross margin attributable to
NED's consulting engagement in Canada.
DOMESTIC OPERATIONS
The following table sets forth the operating revenues and gross margin
(operating revenues less direct operating expenses) for our domestic operations
for the six months ended June 30, 2003 and 2002:
REVENUES GROSS MARGIN
--------------------- ---------------------
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
2003 2002 2003 2002
-------- -------- -------- --------
(In thousands)
Contract drilling services ...... $116,521 $148,787 $ 52,826 $ 65,850
Reimbursables ................... 16,215 6,136 658 1,117
Engineering, consulting and other 10,809 5,225 2,410 (1,351)
-------- -------- -------- --------
Total .................. $143,545 $160,148 $ 55,894 $ 65,616
======== ======== ======== ========
OPERATING REVENUES. Domestic contract drilling services revenues
decreased $32,266,000 due to fewer operating days on our domestic jackup rigs
and lower utilization rates on our domestic deepwater semisubmersibles. The
fewer operating days on our jackup rigs were attributable to the mobilization of
six rigs from the U.S. Gulf of Mexico to Mexico commencing in the latter part of
2002. Domestic engineering, consulting and other revenues increased $5,584,000
due to income from interests in deepwater exploration properties, which began
producing in the latter part of 2002, and revenue earned by the Noble Homer
Ferrington semisubmersible while the unit was not operating, pursuant to its
long-term contract. These were partially offset by fewer third-party engagements
by Maurer.
GROSS MARGIN. Domestic contract drilling services gross margin
decreased $13,024,000 due to lower utilization rates on our domestic deepwater
semisubmersible rigs and fewer operating days on our domestic jackup rigs.
Domestic engineering, consulting and other gross margin increased $3,761,000 due
to income from interests in deepwater exploration properties and revenue earned
by the Noble Homer Ferrington while not operating. These were partially offset
by fewer third-party engagements by Maurer and additional operating costs
related to the testing and development of the Well Director(TM) rotary steerable
drilling tools that we acquired in May 2002.
OTHER ITEMS
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense increased $8,363,000 due to the acquisition of the Dhabi II and Noble
Roy Rhodes (formerly Trident III) jackups in December 2002 and the activation of
the Noble Lorris Bouzigard in March 2003 following its upgrade.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $1,946,000 due to professional fees and filing
fees incurred during the first half of 2002 related to our corporate
restructuring in 2002.
INTEREST EXPENSE. Interest expense decreased $448,000 due to lower
average balances of higher interest rate debt in the Current Period.
OTHER, NET. Other, net decreased $2,785,000 due to lower interest
income, which was attributable to a lower average yield earned on our cash
balances and investments in marketable securities. The Comparable Period
included a realized loss of $9,758,000 on an investment in marketable equity
securities resulting from a decline in value considered by management to be
permanent. This loss was partially offset by a gain during the Comparable Period
of $5,908,000 on the sale of our five percent working interest in one of Mariner
Energy, Inc.'s deepwater exploration properties to Pioneer Natural Resources
25
FORM 10-Q
USA, Inc. for $6,200,000 in cash and the assumption of liabilities related to
our share of drilling and development costs on this property.
INCOME TAX PROVISION. Income tax provision decreased $12,119,000 due to
a lower effective tax rate and lower pretax earnings. The effective tax rate was
11 percent in the Current Period compared to 17 percent in the Comparable
Period. The lower effective tax rate in the Current Period was a result of our
corporate restructuring in April 2002 and a higher percentage of our pretax
earnings being derived from international operations, which generally have lower
effective tax rates than our domestic operations.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
Our principal capital resource in the Current Period was net cash
provided by operating activities of $117,288,000. At June 30, 2003, we had cash
and cash equivalents of $123,970,000, $59,566,000 of marketable debt securities
and $49,901,000 of funds available under our bank credit facility. We had
working capital, including cash, of $173,486,000 and $184,983,000 at June 30,
2003 and December 31, 2002, respectively. Total debt as a percentage of total
debt plus shareholders' equity decreased to 24 percent at June 30, 2003 from 25
percent at December 31, 2002.
CAPITAL EXPENDITURES
Capital expenditures for the Current Quarter totaled $74,954,000,
including capital upgrades to certain semisubmersibles of $31,938,000 and the
acquisition of options for $28,200,000 to purchase two premium jackup rigs from
a subsidiary of A.P. Moeller. Capital expenditures for the Current Period
totaled $150,975,000, including capital upgrades to certain semisubmersibles of
$92,126,000 and the acquisition of the two purchase options for $28,200,000.
Specifically, capital upgrade costs during the Current Period for the Noble
Therald Martin, Noble Clyde Boudreaux and Noble Lorris Bouzigard were
$52,960,000, $24,333,000 and $14,833,000, respectively. As previously disclosed,
the majority of the steel work has been carried out on the Noble Clyde
Boudreaux's hull. A lay-up plan for suspension of the project is being
implemented, with further structural work and installation of drilling equipment
to be carried out pending a commitment from an operator. The upgrade to the
Noble Lorris Bouzigard was completed during the first quarter of 2003. Deferred
repair and maintenance expenditures totaled $8,205,000 and $14,431,000 for the
Current Quarter and Current Period, respectively. We expect our capital
expenditures and deferred repair and maintenance expenditures for the remainder
of 2003 will aggregate approximately $135,000,000 and $25,000,000, respectively,
including $80,000,000 for acquisitions and related capital upgrades, which
includes the exercise price of options to purchase two additional jackup
drilling rigs. One of these options was exercised in July 2003, in which we
acquired the Noble Gene House (formerly the Trident XIX) for an exercise price
of $25,200,000.
In connection with several projects, we have entered into agreements
with various vendors to purchase or construct property and equipment that
generally have long lead times for delivery. If we do not proceed with any
particular project, we may either seek to cancel outstanding purchase
commitments related to that project or complete the purchase of the property and
equipment. Any equipment purchased for a project on which we do not proceed
would be used, where applicable, as capital spares for other units in our fleet.
If we cancel any of the purchase commitments, the amounts ultimately paid by us,
if any, would be subject to negotiation. As of June 30, 2003, we had
approximately $35,000,000 of outstanding purchase commitments related to these
projects, which are included in the projected 2003 capital expenditure and
deferred repair and maintenance amounts above.
Certain projects currently under consideration could require, if they
materialize, capital expenditures or other cash requirements not included in the
above estimates. In addition, we will continue to evaluate acquisitions of
drilling units from time to time. Other factors that could cause actual capital
expenditures to materially exceed the planned capital expenditures include
delays and cost overruns in shipyards, shortages of equipment, latent damage or
deterioration to hull, equipment and machinery in excess of engineering
estimates and assumptions, and changes in design criteria or specifications
during repair or construction.
26
FORM 10-Q
CREDIT FACILITIES AND LONG-TERM DEBT
Noble Drilling Corporation ("Noble Drilling"), an indirect,
wholly-owned subsidiary of Noble, has in place a $200,000,000 bank credit
agreement (the "Credit Agreement"), which extends through May 30, 2006. Noble
and one of its wholly-owned subsidiaries, Noble Holding (U.S.) Corporation,
unconditionally guarantee the performance of Noble Drilling under the Credit
Agreement. As of June 30, 2003, we had outstanding borrowings and outstanding
letters of credit of $125,000,000 and $25,099,000, respectively, under the
Credit Agreement, with $49,901,000 remaining available thereunder. Additionally,
as of June 30, 2003, we had other letters of credit and third-party corporate
guarantees totaling $16,154,000, of which $3,300,000 is supported by a
restricted cash deposit. We also had $40,402,000 of performance and customs
bonds supported by surety bonds.
At June 30, 2003, total long-term debt was $638,790,000, including
current maturities of $71,371,000, compared to total long-term debt of
$670,139,000, including current maturities of $80,577,000, at December 31, 2002.
We believe that our cash and cash equivalents, net cash provided by
operating activities, available borrowings under lines of credit, and access to
other financing sources will be adequate to meet our anticipated short-term and
long-term liquidity requirements, including capital expenditures and scheduled
debt repayments.
ACCOUNTING PRONOUNCEMENTS
In November 2002, the Financial Accounting Standards Board ("FASB")
issued Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others ("FIN
45"). FIN 45 expands existing accounting guidance and disclosures to be made by
a guarantor in its interim and annual financial statements about its obligations
under certain guarantees that it has issued. FIN 45 also clarifies that a
guarantor is required to recognize, at the inception of a guarantee, a liability
for the fair value of the obligation undertaken in issuing the guarantee. The
disclosure requirements of FIN 45 are effective for financial statements ending
after December 15, 2002. The remaining provisions of FIN 45 are effective for
guarantees issued or modified after December 31, 2002. Our adoption of these
remaining provisions of FIN 45 on January 1, 2003 did not have a material impact
on our consolidated results of operations, cash flows or financial position.
During 2002, we adopted Emerging Issues Task Force No. 01-14, Income
Statement Characterization of Reimbursements Received for Out-of-Pocket Expenses
Incurred ("EITF 01-14"). EITF 01-14 requires that "out-of-pocket" expenses
incurred be included in direct costs and the reimbursements received from
customers related to such expenses be included in operating revenues. Prior to
EITF 01-14, we recorded reimbursements received from customers for
"out-of-pocket" expenses as a reduction to the related direct cost to the extent
of the amount of the expense. Any amount received in addition to the related
expense was included in operating revenues. Pursuant to EITF 01-14, we have
reclassified the reimbursements from customers that were recorded as a reduction
to direct costs to operating revenues for all periods presented. The impact of
adopting EITF 01-14 on operating revenues and direct costs was an increase of
$6,254,000 for the Comparable Quarter and $12,515,000 for the Comparable Period.
This adoption had no impact on operating income or net income.
In January 2003, the FASB issued Interpretation No. 46, Consolidation
of Variable Interest Entities, an Interpretation of ARB No. 51 ("FIN 46"). FIN
46 clarifies the application of Accounting Research Bulletin No. 51,
Consolidated Financial Statements, to certain entities in which equity investors
do not have the characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 requires a
company to consolidate a variable interest entity, as defined, when the company
will absorb a majority of the variable interest entity's expected losses or
receive a majority of the variable interest entity's expected residual returns.
FIN 46 also requires certain disclosures relating to consolidated variable
interest entities and unconsolidated variable interest entities in which a
company has a significant variable interest. The disclosure provisions of FIN 46
are effective for financial statements issued after January 31, 2003. The
consolidation provisions of FIN 46 apply immediately to variable interest
entities created after January 31, 2003 and to variable interest entities in
which a company obtains an interest after January 31, 2003. With respect to
variable interest entities in which a company holds a variable interest that it
acquired before February 1, 2003, the consolidation provisions are required to
be applied no later than the first fiscal or interim period beginning after June
15, 2003. We do not expect the adoption of FIN 46 to have a material impact on
our consolidated results of operations, cash flows or financial position.
27
FORM 10-Q
In May 2003, the FASB issued Statement of Financial Accounting Standard
No. 150, Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity ("SFAS 150"). SFAS 150 establishes standards for the
classification and measurement of financial instruments with characteristics of
both liabilities and equity. SFAS 150 affects the classification of certain
freestanding instruments, including mandatory redeemable instruments, financial
instruments to repurchase an entity's own equity instruments, and financial
instruments that embody unconditional obligations that the issuer must or could
choose to settle by issuing a variable number of its shares or other equity
instruments based solely on a fixed monetary amount known at inception or an
event trigger other than changes in its own equity instruments. SFAS 150 is
generally effective for all such financial instruments entered into or modified
after May 31, 2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. Our adoption of SFAS 150 did not
have a material impact on our consolidated results of operations, cash flows or
financial position.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the potential for loss due to a change in the value of a
financial instrument as a result of fluctuations in interest rates, currency
exchange rates or equity prices. We own investments in both marketable equity
and debt securities. To mitigate the risk of losses, these investments are
marked to market periodically and are monitored by management to assure
compliance with policies established by the Company. A portion of the marketable
equity securities we own, consisting primarily of interests in mutual funds, are
held by a Rabbi Trust established and maintained by us in connection with the
Noble Drilling Corporation 401(k) Savings Restoration Plan. Any decrease in the
fair value of these investments would result in a comparable decrease in the
deferred compensation plan obligation and would not materially affect our
consolidated results of operations, cash flows or financial position.
We are subject to market risk exposure related to changes in interest
rates on our Credit Agreement. Interest on our Credit Agreement is at an agreed
upon percentage point spread from LIBOR. At June 30, 2003, there were
$125,000,000 of outstanding borrowings under our Credit Agreement. An immediate
change of one percent in the interest rate would cause a $1,250,000 change in
interest expense on an annual basis.
We conduct business internationally; however, a substantial majority of
the value of our foreign transactions is denominated in U.S. Dollars. With minor
exceptions, we structure our drilling contracts in U.S. Dollars to mitigate our
exposure to fluctuations in foreign currencies. Other than trade accounts
receivable and trade accounts payable, which mostly offset each other, we do not
currently have any other significant assets, liabilities or financial
instruments that are sensitive to foreign currency exchange rates.
ITEM 4. CONTROLS AND PROCEDURES
Noble's Chairman and Chief Executive Officer, James C. Day, and Noble's
Senior Vice President - Finance and Chief Financial Officer, Mark A. Jackson,
have overseen and participated in an evaluation of the Company's disclosure
controls and procedures as of the end of the period covered by this report. On
the basis of this evaluation, Mr. Day and Mr. Jackson have concluded that the
Company's disclosure controls and procedures are functioning effectively. The
Company's disclosure controls and procedures are designed to ensure that
information required to be disclosed by the Company in the reports that it files
with or submits to the Securities and Exchange Commission is recorded,
processed, summarized and reported within the time periods specified in the
Commission's rules and forms.
In connection with the evaluation described in the preceding paragraph,
no change was identified in the Company's internal control over financial
reporting that occurred during the quarter ended June 30, 2003 that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
28
FORM 10-Q
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The information required by this Item 6(a) is set forth in the
Index to Exhibits accompanying this quarterly report and is
incorporated herein by reference.
(b) Reports on Form 8-K
We furnished a Form 8-K on May 22, 2003, which included our
Fleet Status Update as of May 22, 2003 as Exhibit 99.1.
We furnished a Form 8-K on April 23, 2003, which included our
press release dated April 23, 2003 as Exhibit 99.1, announcing
financial results for the quarter ended March 31, 2003.
We furnished a Form 8-K on April 17, 2003, which included our
Fleet Status Update as of April 17, 2003 as Exhibit 99.1.
29
FORM 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NOBLE CORPORATION
DATE: August 13, 2003 By: /s/ MARK A. JACKSON
--------------------------------------------
Mark A. Jackson,
Senior Vice President - Finance,
Chief Financial Officer, Treasurer,
Controller and Assistant Secretary
(Principal Financial and Accounting Officer)
30
FORM 10-Q
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
- ------ -------
10 Noble Corporation Short Term Incentive Plan (revised April 2003).
31.1 Certification of James C. Day Pursuant to SEC Rule 13a-14(a) or Rule 15d-14(a).
31.2 Certification of Mark A. Jackson Pursuant to SEC Rule 13a-14(a) or Rule 15d-14(a).
32.1* Certification of James C. Day Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2* Certification of Mark A. Jackson Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
* Furnished in accordance with Item 601(b) (32) (ii) of Regulation S-K.
31