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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 March 31, 2004
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 (I.R.S. employer identification number)
incorporation or organization)
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 May 3, 2004: 134,833,185
(Includes 1,678,659 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, except per share amounts)
(Unaudited)
MARCH 31, DECEMBER 31,
2004 2003
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents ...................... $ 160,637 $ 139,467
Investment in marketable securities ............ 121,533 98,376
Accounts receivable ............................ 145,228 149,235
Inventories .................................... 4,150 4,086
Prepaid expenses ............................... 12,329 11,809
Other current assets ........................... 22,691 18,986
------------ ------------
Total current assets ............................. 466,568 421,959
------------ ------------
PROPERTY AND EQUIPMENT
Drilling equipment and facilities .............. 3,469,519 3,454,163
Other .......................................... 65,213 64,591
------------ ------------
3,534,732 3,518,754
Accumulated depreciation ....................... (935,335) (892,888)
------------ ------------
2,599,397 2,625,866
------------ ------------
INVESTMENT IN AND ADVANCES TO JOINT VENTURES ..... 19,842 19,868
OTHER ASSETS ..................................... 126,354 121,940
------------ ------------
$ 3,212,161 $ 3,189,633
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt ........... $ 36,085 $ 47,666
Accounts payable ............................... 72,507 87,178
Accrued payroll and related costs .............. 49,016 48,511
Taxes payable .................................. 31,856 31,734
Interest payable ............................... 2,802 9,384
Other current liabilities ...................... 23,918 19,550
------------ ------------
Total current liabilities ........................ 216,184 244,023
LONG-TERM DEBT ................................... 534,606 541,907
DEFERRED INCOME TAXES ............................ 210,030 213,357
OTHER LIABILITIES ................................ 18,140 18,201
COMMITMENTS AND CONTINGENCIES ....................
MINORITY INTEREST ................................ (7,141) (6,280)
------------ ------------
971,819 1,011,208
------------ ------------
SHAREHOLDERS' EQUITY
Ordinary Shares-par value $0.10 per share ...... 13,478 13,389
Capital in excess of par value ................. 942,293 915,240
Retained earnings .............................. 1,335,148 1,306,888
Treasury stock, at cost ........................ (48,522) (49,121)
Restricted stock (unearned compensation) ....... (6,895) (7,981)
Accumulated other comprehensive income ......... 4,840 10
------------ ------------
2,240,342 2,178,425
------------ ------------
$ 3,212,161 $ 3,189,633
============ ============
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 MARCH 31,
----------------------------
2004 2003
------------ ------------
OPERATING REVENUES
Contract drilling services ........... $ 218,583 $ 216,368
Reimbursables ........................ 10,049 15,856
Labor contract drilling services ..... 8,391 6,696
Engineering, consulting and other .... 8,410 6,088
------------ ------------
245,433 245,008
------------ ------------
OPERATING COSTS AND EXPENSES
Contract drilling services ........... 133,805 123,847
Reimbursables ........................ 9,077 15,198
Labor contract drilling services ..... 6,826 5,723
Engineering, consulting and other .... 8,097 5,396
Depreciation ......................... 40,925 33,864
Selling, general and administrative .. 7,861 6,262
------------ ------------
206,591 190,290
------------ ------------
OPERATING INCOME ....................... 38,842 54,718
OTHER INCOME (EXPENSE)
Interest expense ..................... (9,068) (10,495)
Other, net ........................... 2,486 70
------------ ------------
INCOME BEFORE INCOME TAXES ............. 32,260 44,293
INCOME TAX PROVISION ................... (4,000) (4,872)
------------ ------------
NET INCOME ............................. $ 28,260 $ 39,421
============ ============
EARNINGS PER SHARE:
Basic ................................ $ 0.21 $ 0.30
Diluted .............................. $ 0.21 $ 0.30
See accompanying notes to the consolidated financial statements.
3
FORM 10-Q
NOBLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
THREE MONTHS ENDED MARCH 31,
----------------------------
2004 2003
------------ ------------
NET INCOME ...................................................... $ 28,260 $ 39,421
------------ ------------
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Foreign currency translation adjustments .................... 4,619 255
Unrealized holding gains (losses) arising during period ..... 179 (408)
Unrealized gain on foreign currency forward contracts ....... 32 -
------------ ------------
Other comprehensive income (loss) ........................... 4,830 (153)
------------ ------------
COMPREHENSIVE INCOME ............................................ $ 33,090 $ 39,268
============ ============
See accompanying notes to the consolidated financial statements.
4
FORM 10-Q
NOBLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
THREE MONTHS ENDED MARCH 31,
----------------------------
2004 2003
------------ ------------
CASH FLOWS FROM OPERATING ACTITIVIES
Net income ..................................................................... $ 28,260 $ 39,421
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, and amortization of deferred repair and maintenance ......... 50,427 41,668
Deferred income tax provision ............................................. 1,200 1,624
Loss on sales of marketable securities .................................... 44 93
Equity in (income) loss of joint ventures ................................. (998) 378
Compensation expense from stock-based plans ............................... 1,086 1,185
Other ..................................................................... (938) 537
Changes in current assets and liabilities, net of acquired working capital:
Accounts receivable .................................................... 4,007 223
Other current assets ................................................... (5,329) (14,941)
Accounts payable ....................................................... (14,672) (9,573)
Other current liabilities .............................................. (1,535) (17,485)
------------ ------------
Net cash provided by operating activities .......................... 61,552 43,130
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions and related capital upgrades ...................................... - (60,188)
Other capital expenditures ..................................................... (13,871) (15,833)
Deferred repair and maintenance expenditures ................................... (9,401) (6,226)
Repayments from joint venture .................................................. 1,024 287
Investment in marketable securities ............................................ (63,547) (13,247)
Proceeds from sales and maturities of marketable securities .................... 41,121 7,311
------------ ------------
Net cash used for investing activities ............................. (44,674) (87,896)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of long-term debt ...................................................... (18,883) (15,548)
Proceeds from issuance of ordinary shares ...................................... 23,175 1,713
Decrease in restricted cash .................................................... - 361
------------ ------------
Net cash provided by (used for) financing activities ............... 4,292 (13,474)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............................. 21,170 (58,240)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................................... 139,467 192,509
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ......................................... $ 160,637 $ 134,269
============ ============
See accompanying notes to the consolidated financial statements.
5
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 intercompany accounts and transactions have been eliminated. Certain
reclassifications have been made in the prior year consolidated financial
statements to conform to the classifications used in the 2004 consolidated
financial statements. These reclassifications have no impact on net income. 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, 2003.
NOTE 2 - 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. No compensation expense
was recognized in the three month periods ended March 31, 2004 and 2003 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
MARCH 31,
----------------------------
2004 2003
------------ ------------
Net income - as reported............................. $ 28,260 $ 39,421
Compensation expense, net of tax - as reported....... 706 770
Compensation expense, net of tax - pro forma......... (3,397) (5,359)
------------ ------------
Net income - pro forma............................... $ 25,569 $ 34,832
============ ============
Earnings per share:
Basic - as reported................................ $ 0.21 $ 0.30
Basic - pro forma.................................. $ 0.19 $ 0.26
Diluted - as reported.............................. $ 0.21 $ 0.30
Diluted - pro forma................................ $ 0.19 $ 0.26
6
FORM 10-Q
NOTE 3 - EARNINGS PER SHARE
The following table reconciles the basic and diluted earnings per share
computations for the three month periods ended March 31, 2004 and 2003 (in
thousands, except per share amounts):
NET BASIC BASIC DILUTED DILUTED
INCOME SHARES EPS SHARES EPS
-------- -------- -------- -------- --------
MARCH 31, 2004 $ 28,260 132,626 $ 0.21 133,827 $ 0.21
MARCH 31, 2003 $ 39,421 131,785 $ 0.30 132,978 $ 0.30
Included in diluted shares are ordinary share equivalents relating to
outstanding stock options of 1,201,000 shares and 1,193,000 shares for the three
month periods ended March 31, 2004 and 2003, respectively. The computation of
diluted earnings per share for the three month periods ended March 31, 2004 and
2003 did not include options to purchase 1,772,000 and 1,856,000 ordinary
shares, respectively, because the options' exercise prices were greater than the
average market price of the ordinary shares. Excluded from the basic and diluted
share amounts above for the three month periods ended March 31, 2004 and 2003
are shares held in a Rabbi Trust, which will be used for future funding of the
Company's benefit plans. The number of shares in the Rabbi Trust was 1,679,000
and 1,762,000 at March 31, 2004 and 2003, respectively. Shares in the Rabbi
Trust are included in the number of ordinary shares legally outstanding as of
May 3, 2004, as reflected on the cover of this Form 10-Q, and are accounted for
as Treasury Stock in our Consolidated Balance Sheets.
NOTE 4 - MARKETABLE SECURITIES
As of March 31, 2004, we owned marketable equity securities with a fair
market value of $10,396,000 of which $10,086,000 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 March 31, 2004 at their fair value. The remaining
investment in marketable equity securities, with a fair market value of $310,000
at March 31, 2004, is classified as available for sale and is included in "Other
assets" in the Consolidated Balance Sheets at its fair market value. As of March
31, 2004, we also owned marketable debt securities with a fair market value of
$111,447,000. These investments are classified as available for sale and are
included in "Investment in marketable securities" in the Consolidated Balance
Sheet at March 31, 2004 at their fair market value.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Noble Asset Company Limited ("NACL"), a wholly-owned, indirect subsidiary
of Noble, has been named one of 21 parties served a Show Cause Notice issued by
the Commissioner of Customs (Prev.), Mumbai, India. The Show Cause Notice
concerns alleged violations of Indian Customs laws and regulations regarding one
of our jackup drilling rigs. The Commissioner alleges certain violations to have
occurred before, at the time of, and after NACL acquired the rig from the rig's
previous owner. In connection with the export of the rig from India in 2001,
NACL posted a bank guarantee in the amount of $3,300,000 and a customs bond in
the amount of $21,340,000, both of which remain in place. We maintain that NACL
has acted in accordance with all Indian Customs laws and regulations and believe
the Show Cause Notice is without merit as against NACL. In the purchase
agreement for the rig, NACL received contractual indemnification against
liability for Indian customs duty from the rig's previous owner. We do not
believe the resolution of this matter will have a material adverse effect on our
financial position, results of operations or cash flows.
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,
7
FORM 10-Q
the amounts ultimately paid by us, if any, would be subject to negotiation. As
of March 31, 2004, we had approximately $45,000,000 of outstanding purchase
commitments related to these projects.
NOTE 6 - PARENT GUARANTEE OF REGISTERED SECURITIES ISSUED BY SUBSIDIARY
Noble and Noble Holding (U.S.) Corporation ("Noble Holding"), a
wholly-owned subsidiary of Noble, are guarantors for certain debt securities
issued by Noble Drilling Corporation ("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 March 31, 2004 were $149,947,000 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 investments in both consolidated and
unconsolidated affiliates using the equity method of accounting.
8
FORM 10-Q
NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
MARCH 31, 2004
(In thousands, except per share amounts)
(Unaudited)
NOBLE
HOLDING NOBLE
NOBLE (SUBSIDIARY DRILLING OTHER CONSOLIDATING
(GUARANTOR) (GUARANTOR) (ISSUER) SUBSIDIARIES ADJUSTMENTS TOTAL
----------- ----------- ------------ ------------ ------------- -----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents ................... $ 56,097 $ - $ - $ 104,540 $ - $ 160,637
Investment in marketable securities ......... 46,510 - - 75,023 - 121,533
Accounts receivable ......................... - - 8,093 137,135 - 145,228
Inventories ................................. - - - 4,150 - 4,150
Prepaid expenses ............................ - - 2,911 9,418 - 12,329
Accounts receivable from affiliates ......... 24,584 - 478,986 - (503,570) -
Other current assets ........................ 26,562 - 4,910 22,120 (30,901) 22,691
----------- ----------- ------------ ------------ ------------- -----------
Total current assets .......................... 153,753 - 494,900 352,386 (534,471) 466,568
----------- ----------- ------------ ------------ ------------- -----------
PROPERTY AND EQUIPMENT
Drilling equipment and facilities ........... - - 100,058 3,369,461 - 3,469,519
Other ....................................... - - - 65,213 - 65,213
----------- ----------- ------------ ------------ ------------- -----------
- - 100,058 3,434,674 - 3,534,732
Accumulated depreciation ..................... - - (48,109) (887,226) - (935,335)
----------- ----------- ------------ ------------ ------------- -----------
- - 51,949 2,547,448 - 2,599,397
----------- ----------- ------------ ------------ ------------- -----------
NOTES RECEIVABLE FROM AFFILIATES .............. 507,087 - 169,159 - (676,246) -
INVESTMENTS IN AFFILIATES ..................... 1,580,050 1,884,932 1,664,643 - (5,129,625) -
INVESTMENT IN AND ADVANCES
TO JOINT VENTURES .......................... - - - 19,842 - 19,842
OTHER ASSETS .................................. - - 7,095 119,259 - 126,354
----------- ----------- ------------ ------------ ------------- -----------
$ 2,240,890 $ 1,884,932 $ 2,387,746 $ 3,038,935 $ (6,340,342) $ 3,212,161
=========== =========== ============ ============ ============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt ........ $ - $ 18,371 $ - $ 36,085 $ (18,371) $ 36,085
Accounts payable ............................ (6) - 3,044 69,469 - 72,507
Accrued payroll and related costs ........... 7 - 12,432 36,577 - 49,016
Taxes payable ............................... 557 - - 31,299 - 31,856
Interest payable ............................ - 7,845 1,404 6,083 (12,530) 2,802
Accounts payable to affiliates .............. - 69,822 - 433,748 (503,570) -
Other current liabilities ................... (10) - 2,950 20,978 - 23,918
----------- ----------- ------------ ------------ ------------- -----------
Total current liabilities ..................... 548 96,038 19,830 634,239 (534,471) 216,184
LONG-TERM DEBT ................................ - - 476,642 57,964 - 534,606
NOTES PAYABLE TO AFFILIATES ................... - 507,087 - 169,159 (676,246) -
DEFERRED INCOME TAXES ......................... - - 17,158 192,872 - 210,030
OTHER LIABILITIES ............................. - - 4,982 13,158 - 18,140
COMMITMENTS AND CONTINGENCIES .................
MINORITY INTEREST ............................. - - - (7,141) - (7,141)
----------- ----------- ------------ ------------ ------------- -----------
548 603,125 518,612 1,060,251 (1,210,717) 971,819
----------- ----------- ------------ ------------ ------------- -----------
SHAREHOLDERS' EQUITY
Ordinary Shares-par value $0.10 per share ... 13,478 - - - - 13,478
Capital in excess of par value .............. 942,293 870,744 870,744 693,687 (2,435,175) 942,293
Retained earnings ........................... 1,335,148 411,063 998,390 1,280,157 (2,689,610) 1,335,148
Treasury stock, at cost ..................... (48,522) - - - - (48,522)
Restricted stock (unearned compensation) .... (6,895) - - - - (6,895)
Accumulated other comprehensive income ...... 4,840 - - 4,840 (4,840) 4,840
----------- ----------- ------------ ------------ ------------- -----------
2,240,342 1,281,807 1,869,134 1,978,684 (5,129,625) 2,240,342
----------- ----------- ------------ ------------ ------------- -----------
$ 2,240,890 $ 1,884,932 $ 2,387,746 $ 3,038,935 $ (6,340,342) $ 3,212,161
=========== =========== ============ ============ ============= ===========
9
FORM 10-Q
NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2003
(In thousands, except per share amounts)
(Unaudited)
NOBLE
HOLDING NOBLE
NOBLE (SUBSIDIARY DRILLING OTHER CONSOLIDATING
(GUARANTOR) (GUARANTOR) (ISSUER) SUBSIDIARIES ADJUSTMENTS TOTAL
----------- ----------- ------------ ------------ ------------- ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents .................... $ 33,991 $ - $ - $ 105,476 $ - $ 139,467
Investments in marketable securities ......... 24,798 - - 73,578 - 98,376
Accounts receivable .......................... - - 3,144 146,091 - 149,235
Inventories .................................. - - - 4,086 - 4,086
Prepaid expenses ............................. - - 3,376 8,433 - 11,809
Accounts receivable from affiliates .......... 17,239 - 487,693 - (504,932) -
Other current assets ......................... 26,098 - 3,977 14,926 (26,015) 18,986
----------- ----------- ------------ ------------ ------------- ------------
Total current assets ........................... 102,126 - 498,190 352,590 (530,947) 421,959
----------- ----------- ------------ ------------ ------------- ------------
PROPERTY AND EQUIPMENT
Drilling equipment and facilities ............ - - 100,647 3,353,516 - 3,454,163
Other ........................................ - - - 64,591 - 64,591
----------- ----------- ------------ ------------ ------------- ------------
- - 100,647 3,418,107 - 3,518,754
Accumulated depreciation ..................... - - (47,380) (845,508) - (892,888)
----------- ----------- ------------ ------------ ------------- ------------
- - 53,267 2,572,599 - 2,625,866
----------- ----------- ------------ ------------ ------------- ------------
NOTES RECEIVABLE FROM AFFILIATES ............... 511,821 - 169,159 4,629 (685,609) -
INVESTMENTS IN AFFILIATES ...................... 1,563,494 1,864,823 1,643,124 - (5,071,441) -
INVESTMENT IN AND ADVANCES
TO JOINT VENTURES ............................. - - - 19,868 - 19,868
OTHER ASSETS ................................... - - 7,333 114,607 - 121,940
----------- ----------- ------------ ------------ ------------- ------------
$ 2,177,441 $ 1,864,823 $ 2,371,073 $ 3,064,293 $ (6,287,997) $ 3,189,633
=========== =========== ============ ============ ============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt ......... $ - $ 17,951 $ - $ 47,666 $ (17,951) $ 47,666
Accounts payable ............................. (6) - 4,180 83,004 - 87,178
Accrued payroll and related costs ............ - - 11,412 37,099 - 48,511
Taxes payable ................................ (958) - - 32,692 - 31,734
Interest payable ............................. - 8,064 7,799 1,585 (8,064) 9,384
Accounts payable to affiliates ............... - 57,527 - 447,405 (504,932) -
Other current liabilities .................... (20) - 668 18,902 - 19,550
----------- ----------- ------------ ------------ ------------- ------------
Total current liabilities ...................... (984) 83,542 24,059 668,353 (530,947) 244,023
LONG-TERM DEBT ................................. - - 476,640 65,267 - 541,907
NOTES PAYABLE TO AFFILIATES .................... - 511,821 - 173,788 (685,609) -
DEFERRED INCOME TAXES .......................... - - 16,264 197,093 - 213,357
OTHER LIABILITIES .............................. - - 5,085 13,116 - 18,201
COMMITMENTS AND CONTINGENCIES ..................
MINORITY INTEREST .............................. - - - (6,280) - (6,280)
----------- ----------- ------------ ------------ ------------- ------------
(984) 595,363 522,048 1,111,337 (1,216,556) 1,011,208
----------- ----------- ------------ ------------ ------------- ------------
SHAREHOLDERS' EQUITY
Ordinary Shares-par value $0.10 per share .... 13,389 - - - - 13,389
Capital in excess of par value ............... 915,240 870,744 870,744 693,687 (2,435,175) 915,240
Retained earnings ............................ 1,306,888 398,716 978,281 1,259,259 (2,636,256) 1,306,888
Treasury stock, at cost ...................... (49,121) - - - - (49,121)
Restricted stock (unearned compensation) ..... (7,981) - - - - (7,981)
Accumulated other comprehensive income ....... 10 - - 10 (10) 10
----------- ----------- ------------ ------------ ------------- ------------
2,178,425 1,269,460 1,849,025 1,952,956 (5,071,441) 2,178,425
----------- ----------- ------------ ------------ ------------- ------------
$ 2,177,441 $ 1,864,823 $ 2,371,073 $ 3,064,293 $ (6,287,997) $ 3,189,633
=========== =========== ============ ============ ============= ============
10
FORM 10-Q
NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 2004
(In thousands)
(Unaudited)
NOBLE
HOLDING NOBLE
NOBLE (SUBSIDIARY DRILLING OTHER CONSOLIDATING
(GUARANTOR) (GUARANTOR) (ISSUER) SUBSIDIARIES ADJUSTMENTS TOTAL
----------- ----------- -------- ------------ ------------- ---------
OPERATING REVENUES
Contract drilling services ................... $ - $ - $ 7,232 $ 211,351 $ - $ 218,583
Reimbursables ................................ - - - 10,049 - 10,049
Labor contract drilling services ............. - - - 8,391 - 8,391
Engineering, consulting and other ............ - - - 8,410 - 8,410
----------- ----------- -------- ------------ ------------- ---------
- - 7,232 238,201 - 245,433
----------- ----------- -------- ------------ ------------- ---------
OPERATING COSTS AND EXPENSES
Contract drilling services ................... (102) - 2,637 131,270 - 133,805
Reimbursables ................................ - - - 9,077 - 9,077
Labor contract drilling services ............. - - - 6,826 - 6,826
Engineering, consulting and other ............ - - - 8,097 - 8,097
Depreciation ................................. - - 1,122 39,803 - 40,925
Selling, general and administrative .......... (232) - 153 7,940 - 7,861
----------- ----------- -------- ------------ ------------- ---------
(334) - 3,912 203,013 - 206,591
----------- ----------- -------- ------------ ------------- ---------
OPERATING INCOME ............................... 334 - 3,320 35,188 - 38,842
OTHER INCOME (EXPENSE)
Equity earnings in affiliates (net of tax) ... 16,556 20,109 21,519 - (58,184) -
Interest expense ............................. - (11,941) (6,907) (3,095) 12,875 (9,068)
Other, net ................................... 12,105 - 1,418 1,838 (12,875) 2,486
----------- ----------- -------- ------------ ------------- ---------
INCOME BEFORE INCOME TAXES ..................... 28,995 8,168 19,350 33,931 (58,184) 32,260
INCOME TAX (PROVISION) BENEFIT ................. (735) 4,179 759 (8,203) - (4,000)
----------- ----------- -------- ------------ ------------- ---------
NET INCOME ..................................... $ 28,260 $ 12,347 $ 20,109 $ 25,728 $ (58,184) $ 28,260
=========== =========== ======== ============ ============= =========
11
FORM 10-Q
NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 2003
(In thousands)
(Unaudited)
NOBLE
HOLDING NOBLE
NOBLE (SUBSIDIARY DRILLING OTHER CONSOLIDATING
(GUARANTOR) (GUARANTOR) (ISSUER) SUBSIDIARIES ADJUSTMENTS TOTAL
----------- ----------- -------- ------------ ------------- ---------
OPERATING REVENUES
Contract drilling services ................... $ - $ - $ 81 $ 216,287 $ - $ 216,368
Reimbursables ................................ - - 218 15,638 - 15,856
Labor contract drilling services ............. - - - 6,696 - 6,696
Engineering, consulting and other ............ - - - 6,088 - 6,088
----------- ----------- -------- ------------ ------------- ---------
- - 299 244,709 - 245,008
----------- ----------- -------- ------------ ------------- ---------
OPERATING COSTS AND EXPENSES
Contract drilling services ................... (6) - 2,597 121,256 - 123,847
Reimbursables ................................ - - 218 14,980 - 15,198
Labor contract drilling services ............. - - - 5,723 - 5,723
Engineering, consulting and other ............ - - - 5,396 - 5,396
Depreciation ................................. - - 1,017 32,847 - 33,864
Selling, general and administrative .......... 91 - 189 5,982 - 6,262
----------- ----------- -------- ------------ ------------- ---------
85 - 4,021 186,184 - 190,290
----------- ----------- -------- ------------ ------------- ---------
OPERATING (LOSS) INCOME ........................ (85) - (3,722) 58,525 - 54,718
OTHER INCOME (EXPENSE)
Equity earnings in affiliates (net of tax) ... 28,002 40,620 47,982 - (116,604) -
Interest expense ............................. - (12,213) (6,988) (3,507) 12,213 (10,495)
Other, net ................................... 12,237 - (616) 662 (12,213) 70
----------- ----------- -------- ------------ ------------- ---------
INCOME BEFORE INCOME TAXES ..................... 40,154 28,407 36,656 55,680 (116,604) 44,293
INCOME TAX (PROVISION) BENEFIT ................. (733) 4,275 3,964 (12,378) - (4,872)
----------- ----------- -------- ------------ ------------- ---------
NET INCOME ..................................... $ 39,421 $ 32,682 $ 40,620 $ 43,302 $ (116,604) $ 39,421
=========== =========== ======== ============ ============= =========
12
FORM 10-Q
NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2004
(In thousands)
(Unaudited)
NOBLE
HOLDING NOBLE
NOBLE (SUBSIDIARY DRILLING OTHER CONSOLIDATING
(GUARANTOR) (GUARANTOR) (ISSUER) SUBSIDIARIES ADJUSTMENTS TOTAL
----------- ----------- --------- ------------ ------------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ......................................... $ 28,260 $ 12,347 $ 20,109 $ 25,728 $ (58,184) $ 28,260
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, and amortization of deferred repair
and maintenance .......................... - - 1,445 48,982 - 50,427
Deferred income tax provision ................... - - - 1,200 - 1,200
Loss on sales of marketable securities .......... - - - 44 - 44
Equity in income of joint ventures .............. - - - (998) - (998)
Compensation expense from stock-based plans ..... 1,086 - - - - 1,086
Equity earnings in affiliates ................... (16,556) (20,109) (21,519) - 58,184 -
Other ........................................... - - 1,029 (1,967) - (938)
Changes in current assets and liabilities:
Accounts receivable ........................... - - (4,949) 8,956 - 4,007
Accounts receivable from affiliates ........... 5,573 - 8,967 - (14,540) -
Other current assets .......................... (464) - (468) (4,397) - (5,329)
Accounts payable .............................. - - (1,136) (13,536) - (14,672)
Accounts payable to affiliates ................ - 7,981 - (22,521) 14,540 -
Other current liabilities ..................... 1,532 (219) (3,093) 245 - (1,535)
----------- ----------- --------- ------------ ------------- ---------
Net cash provided by operating activities .. 19,431 - 385 41,736 - 61,552
----------- ----------- --------- ------------ ------------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions and related capital upgrades .......... - - - - - -
Other capital expenditures ......................... - - (96) (13,775) - (13,871)
Deferred repair and maintenance expenditures ....... - - (289) (9,112) - (9,401)
Repayments from joint venture ...................... - - - 1,024 - 1,024
Investment in marketable securities ................ (51,500) - - (12,047) - (63,547)
Proceeds from sales and maturities of
marketable securities .................. 31,000 - - 10,121 - 41,121
----------- ----------- --------- ------------ ------------- ---------
Net cash used for investing activities ..... (20,500) - (385) (23,789) - (44,674)
----------- ----------- --------- ------------ ------------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of long-term debt .......................... - - - (18,883) - (18,883)
Proceeds from issuance of ordinary shares .......... 23,175 - - - - 23,175
----------- ----------- --------- ------------ ------------- ---------
Net cash provided by (used for)
financing activities ................... 23,175 - - (18,883) - 4,292
----------- ----------- --------- ------------ ------------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS .............................. 22,106 - - (936) - 21,170
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD ............................... 33,991 - - 105,476 - 139,467
----------- ----------- --------- ------------ ------------- ---------
CASH AND CASH EQUIVALENTS,
END OF PERIOD ..................................... $ 56,097 $ - $ - $ 104,540 $ - $ 160,637
=========== =========== ========= ============ ============= =========
13
FORM 10-Q
NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 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 .......................................... $ 39,421 $ 32,682 $ 40,620 $ 43,302 $ (116,604) $ 39,421
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, and amortization of deferred repair
and maintenance ............................. - - 1,149 40,519 - 41,668
Deferred income tax provision (benefit) ......... - - 1,990 (366) - 1,624
Loss on sales of marketable securities .......... - - - 93 - 93
Equity in loss of joint ventures ................ - - - 378 - 378
Compensation expense from stock-based plans ..... 1,185 - - - - 1,185
Equity earnings in affiliates ................... (28,002) (40,620) (47,982) - 116,604 -
Other ........................................... - - (959) 1,496 - 537
Changes in current assets and liabilities:
Accounts receivable ........................... - - (418) 641 - 223
Accounts receivable from affiliates ........... - - 18,248 - (18,248) -
Other current assets .......................... (8,343) - (1,287) (5,311) - (14,941)
Accounts payable .............................. - - (232) (9,341) - (9,573)
Accounts payable to affiliates ................ 2,455 4,543 - (25,246) 18,248 -
Other current liabilities ..................... 520 3,395 (5,413) (15,987) - (17,485)
----------- ----------- -------- ------------ ------------- ---------
Net cash provided by operating activities .. 7,236 - 5,716 30,178 - 43,130
----------- ----------- -------- ------------ ------------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions and related capital upgrades ........... - - - (60,188) - (60,188)
Other capital expenditures .......................... - - (4,643) (11,190) - (15,833)
Deferred repair and maintenance expenditures ........ - - (1,073) (5,153) - (6,226)
Repayments from joint venture ....................... - - - 287 - 287
Investment in marketable securities ................. - - - (13,247) - (13,247)
Proceeds from sales and maturities of
marketable securities .................. - - - 7,311 - 7,311
----------- ----------- -------- ------------ ------------- ---------
Net cash used for investing activities ..... - - (5,716) (82,180) - (87,896)
----------- ----------- -------- ------------ ------------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of long-term debt ........................... - - - (15,548) - (15,548)
Proceeds from issuance of ordinary shares ........... 1,713 - - - - 1,713
Decrease in restricted cash ......................... - - - 361 - 361
----------- ----------- -------- ------------ ------------- ---------
Net cash provided by (used for)
financing activities ................... 1,713 - - (15,187) - (13,474)
----------- ----------- -------- ------------ ------------- ---------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS .............................. 8,949 - - (67,189) - (58,240)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD ............................... 9,317 - - 183,192 - 192,509
----------- ----------- -------- ------------ ------------- ---------
CASH AND CASH EQUIVALENTS,
END OF PERIOD ..................................... $ 18,266 $ - $ - $ 116,003 $ - $ 134,269
=========== =========== ======== ============ ============= =========
14
FORM 10-Q
NOTE 7 - 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
domestic and international offshore contract drilling and engineering and
consulting services. Although these segments are generally influenced by the
same economic factors, each represents a distinct service to the oil and gas
industry. Each of our drilling rigs is considered by us to be an operating
segment within our domestic and international offshore contract drilling
services reportable segments, and these operating segments are aggregated to
comprise our domestic and international contract drilling services reportable
segments in accordance with SFAS No. 131, Disclosure about Segments of an
Enterprise and Related Information ("SFAS 131").
Our international contract drilling services segment conducts contract
drilling services in the Middle East, Mexico, the North Sea, Brazil, West
Africa, India and the Mediterranean Sea. Our domestic contract drilling services
segment conducts contract drilling services in the U.S. Gulf of Mexico. Our
engineering and consulting services 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 months ended March 31, 2004 and 2003 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
CONTRACT CONTRACT ENGINEERING
DRILLING DRILLING & CONSULTING
SERVICES SERVICES SERVICES OTHER TOTAL
------------- ------------ ------------ ------------ ------------
Three Months Ended March 31, 2004
Revenues from external customers ....... $ 158,034 $ 68,200 $ 6,046 $ 13,153 $ 245,433
Depreciation ........................... 27,848 12,036 171 870 40,925
Operating costs and expenses ........... 136,660 49,368 7,142 13,421 206,591
Equity in income of
unconsolidated subsidiaries ......... 998 - - - 998
Net income (loss) ...................... 11,204 16,170 (857) 1,743 28,260
Total assets ........................... 1,614,640 1,256,350 35,743 305,428 3,212,161
Three Months Ended March 31, 2003
Revenues from external customers ....... $ 164,618 $ 60,405 $ 10,607 $ 9,378 $ 245,008
Depreciation ........................... 21,499 11,385 139 841 33,864
Operating costs and expenses ........... 121,127 47,151 12,803 9,209 190,290
Equity in loss of
unconsolidated subsidiaries ......... (378) - - - (378)
Net income (loss) ...................... 32,554 5,319 (1,315) 2,863 39,421
Total assets ........................... 1,490,082 1,316,772 29,090 230,860 3,066,804
The following table is a reconciliation of reportable segment net income
(loss) to our consolidated totals for the three months ended March 31, 2004 and
2003 (in thousands).
THREE MONTHS ENDED
MARCH 31,
-------------------
2004 2003
-------- --------
Net income for reportable segments ........................................................... $ 26,517 $ 36,558
Other net income (loss) ...................................................................... 1,743 2,863
-------- --------
Total consolidated net income .............................................................. $ 28,260 $ 39,421
======== ========
15
FORM 10-Q
NOTE 8 - EMPLOYEE BENEFIT PLANS
We have a U.S. noncontributory defined benefit pension plan which covers
substantially all salaried employees and a U.S. noncontributory defined benefit
pension plan which covers certain field hourly employees (collectively referred
to as our "qualified domestic plans"). These plans are governed by the Noble
Drilling Corporation Retirement Trust. The benefits from these plans are based
primarily on years of service and, for the salaried plan, employees'
compensation near retirement. These plans qualify under the Employee Retirement
Income Security Act of 1974 ("ERISA"), and our funding policy is consistent with
funding requirements of ERISA and other applicable laws and regulations. We make
cash contributions to the qualified domestic plans when required. The benefit
amount that can be covered by the qualified domestic plans is limited under
ERISA and the Internal Revenue Code of 1986. Therefore, we maintain an unfunded,
nonqualified excess benefit plan designed to maintain benefits for all employees
at the formula level in the qualified domestic plans. We refer to the qualified
domestic plans and the excess benefit plan collectively as the "domestic plans."
Each of Noble Drilling (U.K.) Limited, Noble Enterprises Limited and Noble
Drilling (Nederland) B.V., all indirect, wholly-owned subsidiaries of Noble,
maintains a pension plan which covers all of its salaried, nonunion employees
(collectively referred to as our "international plans"). Benefits are based on
credited service and the average of the highest three years of qualified salary
within the past 10 years of participation.
Pension costs for the three months ended March 31, 2004 and 2003 includes
the following components (in thousands):
THREE MONTHS ENDED MARCH 31,
---------------------------------------------------
2004 2003
------------------------ ------------------------
INTERNATIONAL DOMESTIC INTERNATIONAL DOMESTIC
------------- -------- ------------- --------
Service cost ........................... $ 604 $ 1,114 $ 489 $ 876
Interest cost .......................... 598 1,024 504 872
Return on plan assets .................. (747) (1,068) (464) (844)
Amortization of prior service cost ..... - 65 - 54
Amortization of transition obligation .. 91 - 133 -
Recognized net actuarial (gain) loss ... (65) 225 (90) 174
------------- -------- ------------- --------
Net pension expense .................... $ 481 1,360 $ 572 $ 1,132
============= ======== ============= ========
We previously disclosed in our financial statements for the year ended
December 31, 2003 that we expect to contribute approximately $5,000,000 to our
plans in 2004. As of March 31, 2004, there has been no change to this
expectation. We funded a total of $241,000 to our plans during the three months
ended March 31, 2004.
NOTE 9 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Our North Sea operations has a significant amount of its cash operating
expenses payable in either the Euro or British Pound. To reduce our exposure to
fluctuations in these currencies over the remainder of 2004, we entered into
forward contracts in March and April of this year to purchase 1,400,000 Euros
and 1,200,000 British Pounds, respectively, per month for the months April 2004
through December 2004. These contracts represent approximately 50 percent of our
forecasted Euro and British Pound requirements for the remainder of this year.
These forward contracts are being accounted for as cash flow hedges under SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities, as
amended by SFAS No. 138, Accounting for Certain Derivative Instruments and
Certain Hedging Activities (an amendment of FASB Statement No. 133), and SFAS
No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities. During the quarter ended March 31, 2004, we recognized a $32,000
unrealized gain associated with these forward contracts, which is included in
"Accumulated other comprehensive income" in our Consolidated Balance Sheet at
March 31, 2004. We did not recognize a gain or loss in our Consolidated
Statement of Income for the quarter ended March 31, 2004 related to these
forward contracts.
16
FORM 10-Q
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.
We have identified factors that could cause actual plans or results to
differ materially from those included in any forward-looking statements. These
factors include, but are not limited to, the following:
- 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;
- changes in tax laws, tax treaties or tax regulations or the interpretation
or enforcement thereof, including taxing authorities not agreeing with our
assessment of the effects of such laws, treaties and regulations;
- 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 economies;
- political and economic conditions in markets where we from time to time
operate;
- adverse weather (such as hurricanes and 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
rig fleets that could make our drilling rigs less competitive or require
major capital investment to keep them competitive;
- costs and effects of unanticipated legal and administrative proceedings;
- cost overruns or delays in shipyard repair, maintenance, conversion or
upgrade projects;
- 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;
- requirements and potential liability imposed by governmental regulation of
the drilling industry (including environmental regulation);
- acts of war or terrorism;
17
FORM 10-Q
- 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.
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 57 offshore
drilling units located in key markets worldwide. This fleet consists of 13
semisubmersibles (including five Noble EVA-4000(TM) semisubmersibles), three
dynamically positioned drillships, 38 jackup rigs and three submersibles. Eight
of our jackup rigs and one of our semisubmersibles are capable of operating in
harsh environments. In addition to the rigs in our fleet described above, we
have purchased options to acquire two jackup rigs: the Maersk Valiant and Maersk
Viking. Approximately 75 percent of the fleet is currently deployed in
international markets, principally including the Middle East, Mexico, the North
Sea, Brazil, West Africa, India and the Mediterranean Sea. 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 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. These prices
are extremely volatile. International markets are influenced more by oil prices
than natural gas prices. Despite oil prices in the first quarter of 2004 being
favorable for demand for our services, drilling activity in many international
markets, including West Africa and the North Sea, was generally weaker in the
recent quarter than the first quarter of 2003. We believe that operators in
these international markets have been reluctant to increase drilling activity
due to the uncertainty surrounding the worldwide economy, the political unrest
in the Middle East (including the military action in Iraq), Nigeria and
Venezuela, and difficulties in obtaining funding from government-affiliated oil
companies (especially in Nigeria).
Natural gas inventory storage in the U.S. during the first quarter of 2004
remained below average historical levels, and natural gas prices during this
period remained above average historical levels. The lower natural gas inventory
storage is attributable to reduced North American natural gas production.
Despite relatively high natural gas prices, operators generally have not
increased offshore drilling activities. We believe the drilling activity levels
in the U.S. Gulf of Mexico in water depths applicable to jackups and
submersibles are due principally to a lack of quality drilling prospects. We
believe that drilling activity levels in water depths applicable to
semisubmersibles are beginning to show signs of improvement.
Oil and gas companies continue to work through the effects of industry
consolidation. We expect that further consolidation among our customer base,
which can inhibit capital spending on exploration and development, could dampen
drilling activity levels.
We cannot predict the future level of demand for our drilling services or
future conditions in the offshore contract drilling industry.
In recent years, we have focused on increasing the number of rigs in our
fleet capable of deepwater offshore drilling. Since the beginning of 2000, we
have added two deepwater semisubmersibles to our fleet and have acquired two
additional semisubmersible baredeck hulls. 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. We have also
increased the number of jackups in key international markets. Since the
beginning of 2000, through several acquisitions we have added six jackups to our
international fleet and have acquired options to purchase two additional
jackups. We have also mobilized nine jackups from the U.S. Gulf of Mexico to
various international markets, including Mexico, the Middle East and the
Mediterranean Sea.
18
FORM 10-Q
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
GENERAL
Net income for the first quarter of 2004 (the "Current Quarter") was
$28,260,000, or $0.21 per diluted share, on operating revenues of $245,433,000,
compared to net income for the first quarter of 2003 (the "Comparable Quarter")
of $39,421,000, or $0.30 per diluted share, on operating revenues of
$245,008,000.
The following table sets forth operating revenues and operating costs and
expenses for each of our reportable segments (for additional information
regarding our reportable segments, see Note 7 of our accompanying consolidated
financial statements) for the periods indicated:
INTERNATIONAL DOMESTIC
CONTRACT CONTRACT ENGINEERING
DRILLING DRILLING & CONSULTING
SERVICES SERVICES SERVICES OTHER TOTAL
------------- ------------ ------------ ------------ ------------
(In thousands)
THREE MONTHS ENDED MARCH 31, 2004
Operating Revenues:
Contract drilling services............ $ 153,975 $ 64,608 $ - $ - $ 218,583
Reimbursables......................... 3,969 2,950 541 2,589 10,049
Labor contract drilling services...... - - - 8,391 8,391
Engineering, consulting and other..... 90 642 5,505 2,173 8,410
------------- ------------ ------------ ------------ ------------
$ 158,034 $ 68,200 $ 6,046 $ 13,153 $ 245,433
============= ============ ============ ============ ============
Operating Costs and Expenses:
Contract drilling services............ $ 101,644 $ 32,161 $ - $ - $ 133,805
Reimbursables......................... 3,143 2,883 554 2,497 9,077
Labor contract drilling services...... - - - 6,826 6,826
Engineering, consulting and other..... (860) 243 6,107 2,607 8,097
Depreciation ....................... 27,848 12,036 171 870 40,925
Selling, general and administrative... 4,885 2,045 310 621 7,861
------------- ------------ ------------ ------------ ------------
$ 136,660 $ 49,368 $ 7,142 $ 13,421 $ 206,591
============= ============ ============ ============ ============
THREE MONTHS ENDED MARCH 31, 2003
Operating Revenues:
Contract drilling services............ $ 159,907 $ 56,461 $ - $ - $ 216,368
Reimbursables......................... 3,932 1,899 8,207 1,818 15,856
Labor contract drilling services...... - - - 6,696 6,696
Engineering, consulting and other..... 779 2,045 2,400 864 6,088
------------- ------------ ------------ ------------ ------------
$ 164,618 $ 60,405 $ 10,607 $ 9,378 $ 245,008
============= ============ ============ ============ ============
Operating Costs and Expenses:
Contract drilling services............ $ 92,490 $ 31,357 $ - $ - $ 123,847
Reimbursables......................... 3,647 1,791 7,987 1,773 15,198
Labor contract drilling services...... - - - 5,723 5,723
Engineering, consulting and other..... (166) 557 4,368 637 5,396
Depreciation ................... 21,499 11,385 139 841 33,864
Selling, general and administrative... 3,657 2,061 309 235 6,262
------------- ------------ ------------ ------------ ------------
$ 121,127 $ 47,151 $ 12,803 $ 9,209 $ 190,290
============= ============ ============ ============ ============
19
FORM 10-Q
RIG UTILIZATION, OPERATING DAYS AND AVERAGE DAYRATES
The following table sets forth the average rig utilization, operating days
and average dayrates for our rig fleet for the three months ended March 31, 2004
and 2003:
AVERAGE RIG
UTILIZATION (1) OPERATING DAYS (2) AVERAGE DAYRATE
-------------------- ------------------- -------------------
THREE MONTHS ENDED THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31, MARCH 31,
-------------------- ------------------- -------------------
2004 2003 2004 2003 2004 2003
-------- -------- -------- -------- -------- --------
International (3):
Jackups ..................... 80% 89% 2,557 2,401 $ 49,962 $ 51,562
Semisubmersibles - >6,000'(4) 100% 100% 91 90 130,510 154,372
Semisubmersibles - <6,000'(5) 100% 80% 91 72 40,147 41,799
Drillships .................. 67% 100% 182 270 58,755 71,125
-------- --------
Total International ......... 80% 90% 2,921 2,833 $ 52,713 $ 56,444
======== ========
Domestic (6):
Jackups ..................... 95% 79% 173 350 $ 41,292 $ 28,482
Semisubmersibles - >6,000'(4) 100% 86% 455 386 110,322 113,845
Semisubmersibles - <6,000'(5) 32% 100% 58 31 38,103 45,387
Submersibles ................ 79% 37% 215 66 23,523 17,288
-------- --------
Total Domestic .............. 83% 76% 901 833 $ 71,707 $ 67,780
======== ========
- --------------------
(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) Information reflects the number of days that our rigs were operating under
contractual terms.
(3) "International" encompasses contract drilling services conducted in the
Middle East, Mexico, the North Sea, Brazil, West Africa, India and the
Mediterranean Sea.
(4) These units have water depth ratings of 6,000 feet or greater depending on
the unit.
(5) These units have water depth ratings less than 6,000 feet.
(6) "Domestic" encompasses contract drilling services conducted in the U.S.
Gulf of Mexico.
INTERNATIONAL CONTRACT DRILLING SERVICES
The following table sets forth the operating revenues and the operating
costs and expenses for our international contract drilling services for the
three months ended March 31, 2004 and 2003:
OPERATING COSTS
OPERATING REVENUES AND EXPENSES
----------------------- -----------------------
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
----------------------- -----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
(In thousands)
Contract drilling services .................. $ 153,975 $ 159,907 $ 101,644 $ 92,490
Reimbursables (1) ........................... 3,969 3,932 3,143 3,647
Labor contract drilling services ............ - - - -
Engineering, consulting and other ........... 90 779 (860) (166)
Depreciation ................................ N/A N/A 27,848 21,499
Selling, general and administrative ......... N/A N/A 4,885 3,657
---------- ---------- ---------- ----------
Total ........................... $ 158,034 $ 164,618 $ 136,660 $ 121,127
========== ========== ========== ==========
- ---------------------
(1) We record reimbursements from customers for out-of-pocket expenses as
revenues and the related direct cost as operating expenses. Changes in the
amount of these reimbursables do not have a material effect on our financial
position, results of operations or cash flows.
20
FORM 10-Q
OPERATING REVENUES. International contract drilling services revenues
decreased $5,932,000 due to lower utilization in West Africa and for one of our
drillships in Brazil, a lower average dayrate on two of our drillships in Brazil
attributable to scheduled maintenance projects, operational downtime on our
semisubmersible in Brazil, and a lower average dayrate on jackups in the North
Sea. These items were partially offset by additional operating days in the
Middle East, Mexico and Mediterranean Sea. Nigeria traditionally has the largest
concentration of drilling rigs in West Africa. Demand in Nigeria began to
decline in the latter part of 2002 due to political unrest attributable to
elections and strikes. Although this unrest declined towards the end of 2003,
demand did not improve as our customers were in the process of obtaining
approval for projects from the government-affiliated oil companies. Due to
geology which is favorable for offshore exploration and production, we believe
the prospects for drilling activity in West Africa are good and that our
operations in the region will provide financial returns over time which are
comparable to other key international regions, and consistent with returns in
the West Africa region in the years immediately preceding the rise in political
unrest in 2002. As a result, we have elected to keep our six jackups in this
market currently. During the Current Quarter, we experienced 236 fewer operating
days in West Africa than in the Comparable Quarter. One of our jackups in this
region operated for all of the Current Quarter. Another jackup commenced a
two-year contract on January 10, and a third jackup commenced a two-year
contract on April 1. We are actively marketing our three remaining jackups in
this region.
Operating days for our three drillships in Brazil in the Current Quarter
decreased 88 days from the Comparable Quarter as the Noble Roger Eason was
stacked for all of the Current Quarter, versus operating for all of the
Comparable Quarter. We are currently performing regulatory maintenance and
upgrades to this unit, which we estimate to be completed during the third or
fourth quarter of 2004. The average dayrate for drillships in Brazil was lower
in the Current Quarter than in the Comparable Quarter as we performed 66 days of
scheduled maintenance on our two remaining units, the Noble Muravlenko and Noble
Leo Segerius, while these units were under contract. Our Noble Paul Wolff
semisubmersible in Brazil realized a lower average dayrate in the Current
Quarter due to the receipt of lower performance bonuses than in the Comparable
Quarter.
The average dayrate for our drilling rigs in the North Sea declined 11
percent from the Comparable Quarter. We believe the gradual maturing of the
North Sea basin contributed to the decrease in average dayrates in the region.
We also believe that improvement in dayrates in this region will be driven by
the independent operators, who historically have been more aggressive than major
oil and gas companies in developing smaller reserve targets.
We had 180 additional operating days in the Middle East in the Current
Quarter than the Comparable Quarter due to the acquisition of the Noble Charlie
Yester and Noble Gene House jackup rigs during September 2003 and July 2003,
respectively. We experienced 275 additional operating days in Mexico due
primarily to the mobilization of three jackup rigs to Mexico from the U.S. Gulf
of Mexico since the beginning of the Comparable Quarter. Beginning in September
2002, we have mobilized seven rigs to Mexico from the U.S. Gulf of Mexico. The
mobilization of these jackup rigs was pursuant to our long-standing business
strategy of deploying our assets in important geological regions. We believe the
long-term financial returns for our jackup rigs will be higher in international
regions due to relatively fewer quality drilling prospects in the U.S. Gulf of
Mexico at water depths applicable to these units. As a result, we made the
strategic decision to mobilize these units to Mexico for long-term contracts
with Petroleos Mexicanos ("Pemex"). The Noble Carl Norberg jackup rig, which we
mobilized to the Mediterranean Sea from the U.S. Gulf of Mexico during 2003,
commenced a 14-month contract in January 2004.
OPERATING COSTS AND EXPENSES. International contract drilling services
expense increased $9,154,000 primarily due to the additional operating days in
Mexico and the Mediterranean Sea resulting from the mobilization of four jackup
rigs from the U.S. Gulf of Mexico. In addition, contract drilling services
expense was higher due to the acquisition of the Noble Charlie Yester and Noble
Gene House jackup rigs, and the maintenance projects on our three drillships in
Brazil. We also experienced labor increases in all regions. We did not reduce
our operating expenses in West Africa significantly during the Current Quarter
even though we experienced fewer operating days there because we maintained crew
sizes on stacked units sufficient to perform repairs, maintenance, and asset
preservation work. Depreciation expense in our international contract drilling
services segment increased $6,349,000 due to the mobilization of the four jackup
rigs from the U.S. Gulf of Mexico, and to the acquisition of the Noble Charlie
Yester and Noble Gene House. See discussion below under "Other Items" regarding
selling, general and administrative costs.
21
FORM 10-Q
DOMESTIC CONTRACT DRILLING SERVICES
The following table sets forth the operating revenues and the operating
costs and expenses for our domestic contract drilling services for the three
months ended March 31, 2004 and 2003:
OPERATING COSTS
OPERATING REVENUES AND EXPENSES
----------------------- -----------------------
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
----------------------- -----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
(In thousands)
Contract drilling services .................. $ 64,608 $ 56,461 $ 32,161 $ 31,357
Reimbursables (1) ........................... 2,950 1,899 2,883 1,791
Labor contract drilling services ............ - - - -
Engineering, consulting and other ........... 642 2,045 243 557
Depreciation ................................ N/A N/A 12,036 11,385
Selling, general and administrative ......... N/A N/A 2,045 2,061
---------- ---------- ---------- ----------
Total ........................... $ 68,200 $ 60,405 $ 49,368 $ 47,151
========== ========== ========== ==========
- ---------------------
(1) We record reimbursements from customers for out-of-pocket expenses as
revenues and the related direct cost as operating expenses. Changes in the
amount of these reimbursables do not have a material effect on our financial
position, results of operations or cash flows.
OPERATING REVENUES. Domestic contract drilling services revenues increased
$8,147,000 due to additional operating days for our semisubmersibles and
submersibles in the Current Quarter, partially offset by the mobilization of
four jackup rigs out of the U.S. Gulf of Mexico for long-term contracts in
Mexico and the Mediterranean Sea during 2003. The mobilization of these units
was pursuant to our long-standing business strategy of deploying our assets in
important geological regions as described earlier. Although we continue to
evaluate opportunities to mobilize one or more of our semisubmersibles from the
U.S. Gulf of Mexico to international regions, we believe the drilling prospects
in the U.S. Gulf of Mexico for semisubmersibles should continue to improve as
more quality drilling prospects exist at water depths applicable to these units
than for our jackups and submersibles. We reactivated the Noble Fri Rodli
submersible in November 2003, which contributed to the increase in operating
days for our submersibles. The decrease in engineering, consulting and other
revenues of $1,403,000 is primarily attributable to the sale of our interests in
certain deepwater oil and gas properties during the fourth quarter of 2003.
OPERATING COSTS AND EXPENSES. Domestic contract drilling services expense
and depreciation expense increased $804,000 and $651,000, respectively, due to
the activation of the Noble Lorris Bouzigard and Noble Therald Martin
semisubmersibles, partially offset by the mobilization of jackups rigs to Mexico
and the Mediterranean Sea. The Noble Lorris Bouzigard and Noble Therald Martin
were placed in service in March 2003 and November 2003, respectively, after
undergoing refurbishments and upgrades upon their acquisition in 2002. See
discussion below under "Other Items" regarding selling, general and
administrative costs.
22
FORM 10-Q
ENGINEERING & CONSULTING SERVICES
The following table sets forth the operating revenues and the operating
costs and expenses for our engineering and consulting services for the three
months ended March 31, 2004 and 2003:
OPERATING COSTS
OPERATING REVENUES AND EXPENSES
----------------------- -----------------------
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
----------------------- -----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
(In thousands)
Contract drilling services .................. $ - $ - $ - $ -
Reimbursables (1) ........................... 541 8,207 554 7,987
Labor contract drilling services ............ - - - -
Engineering, consulting and other ........... 5,505 2,400 6,107 4,368
Depreciation ................................ N/A N/A 171 139
Selling, general and administrative ......... N/A N/A 310 309
---------- ---------- ---------- ----------
Total ........................... $ 6,046 $ 10,607 $ 7,142 $ 12,803
========== ========== ========== ==========
- ---------------------
(1) We record reimbursements from customers for out-of-pocket expenses as
revenues and the related direct cost as operating expenses. Changes in the
amount of these reimbursables do not have a material effect on our financial
position, results of operations or cash flows.
OPERATING REVENUES. Excluding reimbursables, operating revenues for our
engineering and consulting services segment increased $3,105,000 due to a
license sale for our OptiDrill(TM) drilling efficiency technology by our Noble
Engineering & Development Limited subsidiary in the Current Quarter. The
decrease in reimbursables was attributable to a significant project management
engagement by our Triton Engineering Services Company subsidiary, which was
completed in the Comparable Quarter.
OPERATING COSTS AND EXPENSES. Excluding reimbursables, operating costs and
expenses for our engineering and consulting segment increased $1,772,000 due to
the testing and development of our Well Director(TM) automatic rotary steerable
drilling system.
OTHER
The following table sets forth the operating revenues and the operating
costs and expenses for our other services for the three months ended March 31,
2004 and 2003:
OPERATING COSTS
OPERATING REVENUES AND EXPENSES
----------------------- -----------------------
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
----------------------- -----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
(In thousands)
Contract drilling services .................. $ - $ - $ - $ -
Reimbursables (1) ........................... 2,589 1,818 2,497 1,773
Labor contract drilling services ............ 8,391 6,696 6,826 5,723
Engineering, consulting and other ........... 2,173 864 2,607 637
Depreciation ................................ N/A N/A 870 841
Selling, general and administrative ......... N/A N/A 621 235
---------- ---------- ---------- ----------
Total ........................... $ 13,153 $ 9,378 $ 13,421 $ 9,209
========== ========== ========== ==========
- -------------------
(1) We record reimbursements from customers for out-of-pocket expenses as
revenues and the related direct cost as operating expenses. Changes in the
amount of these reimbursables do not have a material effect on our financial
position, results of operations or cash flows.
OPERATING REVENUES. Revenues from our labor contract drilling services
increased $1,695,000 due to additional days in operating mode on a platform in
the North Sea, and because of foreign exchange fluctuations due in large part to
our operations in Canada on the Hibernia project. We are paid for that work in
Canadian dollars, and the Canadian dollar was
23
FORM 10-Q
stronger in the Current Quarter than in the Comparable Quarter. In addition,
contractual provisions covering the Hibernia project allowed for increases in
the labor, maintenance and administrative portions of the dayrate on the
Hibernia project during the Current Quarter. Engineering, consulting and other
revenues increased $1,309,000 due to increased activity on an engineering
services engagement in the North Sea.
OPERATING COSTS AND EXPENSES. Excluding reimbursables, operating costs and
expenses for our other services increased $3,488,000 due to the additional days
in operating mode on a platform in the North Sea, the stronger Canadian dollar
and higher labor, maintenance and administrative costs related to our Hibernia
project in Canada, and the increased activity on an engineering services
engagement in the North Sea.
OTHER ITEMS
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1,599,000 due to a net gain in the Current
Quarter on the assets in the Rabbi Trust for the Noble Drilling Corporation
401(k) Savings Restoration Plan, higher insurance premiums, and additional
professional fees in the Current Quarter associated with compliance under the
requirements of the Sarbanes-Oxley Act of 2002. Gains and losses from
fluctuations in the market value of assets held in the Rabbi Trust increase or
decrease selling, general and administrative expenses, respectively. Except for
gains or losses attributable to assets consisting of the Company's ordinary
shares, there is an offsetting gain or loss included in Other, net (see
discussion under "Other, net" below).
INTEREST EXPENSE. Interest expense decreased $1,427,000 due to the
continued retirement of debt since the beginning of the Comparable Quarter.
Since January 1, 2003, we have made repayments of long-term debt totaling
$99,463,000, including $18,883,000 in the Current Quarter.
OTHER, NET. Other, net increased $2,416,000 due to additional equity in
income from our 50 percent equity interest in Noble Crosco Drilling Ltd., a
joint venture which owns the Panon jackup rig, and to a net gain on the assets
in the Rabbi Trust for the Noble Drilling Corporation 401(k) Savings Restoration
Plan (see additional discussion under "Selling, General and Administrative
Expenses" above). The Panon was in the shipyard for two months during the
Comparable Quarter. The unit operated for all of the Current Quarter.
INCOME TAX PROVISION. Income tax provision decreased $872,000 due to lower
pretax earnings, partially offset by a higher effective tax rate. The effective
tax rate was 12 percent in the Current Quarter compared to 11 percent in the
Comparable Quarter. The higher effective tax rate in the Current Quarter was a
result of additional earnings from rigs owned by U.S. subsidiaries which were
operating in Mexico, India and the Mediterranean Sea.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
Our principal capital resource in the Current Quarter was net cash
provided by operating activities of $61,552,000, which compared to $43,130,000
in the Comparable Quarter. Although net income in the Current Quarter was
$11,161,000 less than the Comparable Quarter, $8,759,000 of the decrease was
attributable to depreciation and the amortization of deferred repairs and
maintenance expenditures. In addition, our change in working capital was
$24,247,000 higher in the Current Quarter than the Comparable Quarter due to
improved collection of receivables in the Current Quarter, and additional
payments of accounts payable and other current liabilities in the Comparable
Quarter attributable to capital projects ongoing at December 31, 2002.
At March 31, 2004, we had cash and cash equivalents of $160,637,000,
$111,447,000 of marketable debt securities and $66,668,000 of funds available
under our bank credit facility. We had working capital, including cash, of
$250,384,000 and $177,936,000 at March 31, 2004 and December 31, 2003,
respectively. Total debt as a percentage of total debt plus shareholders' equity
decreased to 20 percent at March 31, 2004 from 21 percent at December 31, 2003
and 24 percent at March 31, 2003.
We did not repurchase any of our ordinary shares during the Current
Quarter or the Comparable Quarter. However, as of May 7, 2004, we have
repurchased since the end of the Current Quarter 812,000 of our ordinary shares
at a total cost of $30,234,000. Additional repurchases, if any, may be made on
the open market or in private transactions at prices determined by us. Share
repurchases are effected pursuant to the share repurchase program which our
board of directors authorized and adopted and which we announced on January 31,
2002. The program authorization covers an aggregate of 15,000,000 ordinary
shares. As of May 7, 2004, 9,437,000 shares remained available under this
authorization. Proceeds from the exercise of stock options by employees of the
Company were $23,175,000 in the Current Quarter, which compared to
24
FORM 10-Q
$1,713,000 during the Comparable Quarter. The sales price of our ordinary shares
reached a high of $42.91 in the Current Quarter, as compared to a high of $38.40
in the Comparable Quarter.
CAPITAL EXPENDITURES
Capital expenditures totaled $13,871,000 and $76,021,000 for the Current
Quarter and Comparable Quarter, respectively. Expenditures in the Comparable
Quarter included capital upgrade costs for the Noble Clyde Boudreaux, Noble
Lorris Bouzigard and Noble Therald Martin of $17,065,000, $14,833,000 and
$28,290,000, 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 was initiated, with further structural work and
installation of drilling equipment to be carried out pending a commitment from
an operator. Deferred repair and maintenance expenditures totaled $9,401,000 and
$6,226,000 for the Current Quarter and Comparable Quarter, respectively. We
expect our capital expenditures and deferred repair and maintenance expenditures
for the remainder of 2004 will aggregate approximately $180,000,000 and
$45,000,000, respectively, including $62,000,000 for the exercise of options to
purchase two additional jackup drilling rigs, and $16,000,000 for the related
capital upgrades of those two units.
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 March 31, 2004, we had approximately
$45,000,000 of outstanding purchase commitments related to these projects, which
are included in the projected 2004 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.
CREDIT FACILITIES AND LONG-TERM DEBT
Noble Drilling Corporation ("Noble Drilling"), an indirect, wholly-owned
subsidiary of Noble Corporation ("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 March 31, 2004, we had outstanding borrowings and
outstanding letters of credit of $125,000,000 and $8,332,000, respectively,
under the Credit Agreement, with $66,668,000 remaining available thereunder.
Additionally, as of March 31, 2004, we had other letters of credit and
third-party corporate guarantees totaling $26,166,000 and $40,382,000 of
performance and customs bonds supported by surety bonds.
At March 31, 2004, total long-term debt was $570,691,000, including
current maturities of $36,085,000, compared to total long-term debt of
$589,573,000, including current maturities of $47,666,000, at December 31, 2003.
At March 31, 2003, total long-term debt was $654,589,000, including current
maturities of $76,008,000.
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.
CONTINGENCIES
Noble Asset Company Limited ("NACL"), a wholly-owned, indirect subsidiary
of Noble, has been named one of 21 parties served a Show Cause Notice issued by
the Commissioner of Customs (Prev.), Mumbai, India. The Show Cause Notice
concerns alleged violations of Indian Customs laws and regulations regarding one
of our jackup drilling rigs. The Commissioner alleges certain violations to have
occurred before, at the time of, and after NACL acquired the rig from the rig's
previous owner. In connection with the export of the rig from India in 2001,
NACL posted a bank guarantee in the amount of $3,300,000 and a customs bond in
the amount of $21,340,000, both of which remain in place. We maintain that NACL
has acted in accordance with all Indian Customs laws and regulations and believe
the Show Cause Notice is without merit as against NACL. In the purchase
agreement for the rig, NACL received contractual indemnification against
liability for Indian
25
FORM 10-Q
customs duty from the rig's previous owner. We do not believe the resolution of
this matter will have a material adverse effect on our financial position,
results of operations or cash flows.
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.
ACCOUNTING PRONOUNCEMENTS
In January 2003, the Financial Accounting Standards Board 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. In December 2003, the FASB issued FIN 46-R, which amended the
effective date of FIN 46 other than for variable interest entities which are
special purpose entities created prior to February 1, 2003. Pursuant to FIN
46-R, except for special purpose entities, the consolidation and disclosure
provisions of FIN 46 are effective for reporting periods ending after March 15,
2004. The disclosure and consolidation provisions of FIN 46 applied immediately
to special purpose entities. We did not consolidate our equity interest in our
Noble Crosco Drilling Ltd. joint venture under the provisions of FIN 46-R, and
therefore the adoption of FIN 46-R did not have a material impact on our
consolidated results of operations, cash flows or financial position.
In December 2003, the FASB issued SFAS 132 (revised 2003), Employers'
Disclosures about Pensions and Other Postretirement Benefits, an amendment of
FASB Statements No. 87, 88 and 106, and a revision of FASB Statement No. 132
("SFAS 132 (revised 2003)"). SFAS 132 (revised 2003) revises employers'
disclosures about pension plans and other postretirement benefit plans. SFAS 132
(revised 2003) does not change the measurement or recognition of those plans
required by SFAS No. 87, Employer's Accounting for Pensions, SFAS No. 88,
Employer's Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits, and SFAS No. 106, Employer's
Accounting for Postretirement Benefits Other than Pensions. The new rules
require additional disclosures about the assets, obligations, cash flows, and
net periodic benefit cost of defined benefit pension plans and other
postretirement benefit plans. The new disclosures are effective for fiscal
periods ending after December 15, 2003, with a delayed effective date until
fiscal years ending after June 15, 2004 for certain disclosures regarding
foreign plans. Beginning in the first interim period commencing after December
15, 2003, SFAS 132 (revised 2003) requires companies to disclose in their
interim financial reports net periodic benefit costs (and the components of
those costs) for pension and other postretirement benefits and updated
information on expected contributions. See Note 8 to our accompanying
consolidated financial statements for the new disclosures required to be adopted
by us during the three months ended March 31, 2004.
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 above LIBOR. At March 31, 2004, there was
$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 are 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
26
FORM 10-Q
offset each other, we do not currently have any other significant assets,
liabilities or financial instruments that are sensitive to foreign currency
exchange rates.
Our North Sea operations has a significant amount of its cash operating
expenses payable in either the Euro or British Pound. To reduce our exposure to
fluctuations in these currencies over the remainder of 2004, we entered into
forward contracts in March and April of this year to purchase 1,400,000 Euros
and 1,200,000 British Pounds, respectively, per month for the months April 2004
through December 2004. These contracts represent approximately 50 percent of our
forecasted Euro and British Pound requirements for the remainder of this year.
These forward contracts are being accounted for as cash flow hedges under SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities, as
amended by SFAS No. 138, Accounting for Certain Derivative Instruments and
Certain Hedging Activities (an amendment of FASB Statement No. 133), and SFAS
No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities. During the quarter ended March 31, 2004, we recognized a $32,000
unrealized gain associated with these forward contracts, which is included in
"Accumulated other comprehensive income" in our Consolidated Balance Sheet at
March 31, 2004. We did not recognize a gain or loss in our Consolidated
Statement of Income for the quarter ended March 31, 2004 related to these
forward contracts.
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.
There were no changes in the Company's internal control over financial
reporting that occurred during the quarter ended March 31, 2004 that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual general meeting of members of Noble was held in New York,
New York, at 10:00 a.m., local time, on April 22, 2004.
(b) Proxies were solicited by the Board of Directors of Noble pursuant
to Regulation 14A under the Securities Exchange Act of 1934. There
was no solicitation in opposition to the Board of Directors'
nominees for election as directors as listed in the proxy statement
and all of such nominees were duly elected. The terms of Lawrence J.
Chazen, James C. Day, Marc E. Leland, Mary P. Ricciardello and
William A. Sears, each an incumbent director, continued following
the annual general meeting.
(c) Out of a total of 134,515,639 ordinary shares of Noble outstanding
and entitled to vote at the annual general meeting, 119,016,597
shares were present in person or by proxy, representing
approximately 88 percent of the outstanding shares. Two matters, as
fully described in the proxy statement for the annual general
meeting, were voted on by members. The first matter voted on was the
election of directors to serve three-year terms on the Board of
Directors of Noble. The results of voting were as follows:
27
FORM 10-Q
Number of Shares
Nominee Number of Shares WITHHOLDING AUTHORITY
for Re-election Voting FOR Re-election to Vote for Re-election as
as Director as Director Director
- ----------------- ---------------------- --------------------------
Michael A. Cawley 111,573,311 7,422,286
Luke R. Corbett 107,397,384 11,619,213
Jack E. Little 108,793,943 10,222,564
The second matter voted on was a proposal to approve the appointment of
PricewaterhouseCoopers LLP as independent auditors for 2004. The results
of the voting on this proposal were as follows:
For: 112,306,335 Against: 6,135,622 Abstain: 574,640
(d) Inapplicable.
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 March 1, 2004, which included our Fleet
Status Update as of March 1, 2004 as Exhibit 99.1.
We furnished a Form 8-K on January 22, 2004, which included our
press release dated January 22, 2004 as Exhibit 99.1, announcing
financial results for the quarter ended and year ended December 31,
2003.
We furnished a Form 8-K on January 15, 2004, which included our
Fleet Status Update as of January 15, 2004 as Exhibit 99.1.
28
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: May 10, 2004 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)
29
FORM 10-Q
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
- ------ -------
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.
30