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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 September 30, 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 incorporation or organization) (I.R.S. employer identification number)
13135 SOUTH DAIRY ASHFORD, SUITE 800 77478
SUGAR LAND, TEXAS (Zip code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (281) 276-6100
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ]
Number of Ordinary Shares outstanding as of November 3, 2004: 135,364,782
(Includes 1,639,156 shares held in a Rabbi Trust)
=============================================================================
FORM 10-Q
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NOBLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
SEPTEMBER 30, DECEMBER 31,
2004 2003
------------- ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents .............................................. $ 94,492 $ 139,467
Investment in marketable securities .................................... 95,752 98,376
Accounts receivable .................................................... 180,880 149,235
Inventories ............................................................ 4,141 4,086
Prepaid expenses ....................................................... 15,909 11,809
Other current assets ................................................... 18,446 18,986
----------- -----------
Total current assets ..................................................... 409,620 421,959
----------- -----------
PROPERTY AND EQUIPMENT
Drilling equipment and facilities ...................................... 3,635,413 3,454,163
Other .................................................................. 62,395 64,591
----------- -----------
3,697,808 3,518,754
Accumulated depreciation ............................................... (1,017,061) (892,888)
----------- -----------
2,680,747 2,625,866
----------- -----------
INVESTMENT IN AND ADVANCES TO JOINT VENTURE .............................. 18,942 19,868
OTHER ASSETS ............................................................. 125,398 121,940
----------- -----------
$ 3,234,707 $ 3,189,633
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt ................................... $ 17,751 $ 47,666
Accounts payable ....................................................... 81,375 87,178
Accrued payroll and related costs ...................................... 52,288 48,511
Taxes payable .......................................................... 27,448 31,734
Interest payable ....................................................... 2,665 9,384
Other current liabilities .............................................. 27,750 19,550
----------- -----------
Total current liabilities ................................................ 209,277 244,023
LONG-TERM DEBT ........................................................... 505,431 541,907
DEFERRED INCOME TAXES .................................................... 207,046 213,357
OTHER LIABILITIES ........................................................ 18,990 18,201
COMMITMENTS AND CONTINGENCIES ............................................ - -
MINORITY INTEREST ........................................................ (8,328) (6,280)
----------- -----------
932,416 1,011,208
----------- -----------
SHAREHOLDERS' EQUITY
Ordinary Shares-par value $0.10 per share .............................. 13,506 13,389
Capital in excess of par value ......................................... 944,872 915,240
Retained earnings ...................................................... 1,400,100 1,306,888
Treasury stock, at cost ................................................ (47,431) (49,121)
Restricted stock (unearned compensation) ............................... (12,667) (7,981)
Accumulated other comprehensive income ................................. 3,911 10
----------- -----------
2,302,291 2,178,425
----------- -----------
$ 3,234,707 $ 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 SEPTEMBER 30,
--------------------------------
2004 2003
--------- ---------
OPERATING REVENUES
Contract drilling services ..................... $232,057 $235,271
Reimbursables .................................. 12,161 7,189
Labor contract drilling services ............... 15,146 6,842
Engineering, consulting and other .............. 6,274 5,344
-------- --------
265,638 254,646
-------- --------
OPERATING COSTS AND EXPENSES
Contract drilling services ..................... 143,901 124,690
Reimbursables .................................. 10,504 6,055
Labor contract drilling services ............... 12,470 5,350
Engineering, consulting and other .............. 4,875 7,154
Depreciation ................................... 42,042 37,759
Selling, general and administrative............. 7,831 6,481
-------- --------
221,623 187,489
-------- --------
OPERATING INCOME ................................. 44,015 67,157
OTHER INCOME (EXPENSE)
Interest expense ............................... (8,382) (10,022)
Other, net ..................................... 1,199 2,367
-------- --------
INCOME BEFORE INCOME TAXES ....................... 36,832 59,502
INCOME TAX PROVISION ............................. (6,261) (6,545)
-------- --------
NET INCOME ....................................... $ 30,571 $ 52,957
======== ========
NET INCOME PER SHARE:
Basic .......................................... $ 0.23 $ 0.40
Diluted ........................................ $ 0.23 $ 0.40
See accompanying notes to the consolidated financial statements.
3
FORM 10-Q
NOBLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
2004 2003
--------- ---------
OPERATING REVENUES
Contract drilling services ..................... $676,307 $672,225
Reimbursables .................................. 31,765 34,498
Labor contract drilling services ............... 35,615 20,757
Engineering, consulting and other .............. 20,393 20,094
-------- --------
764,080 747,574
-------- --------
OPERATING COSTS AND EXPENSES
Contract drilling services ..................... 410,146 371,628
Reimbursables .................................. 27,663 30,825
Labor contract drilling services ............... 28,756 16,951
Engineering, consulting and other .............. 19,756 20,053
Depreciation ................................... 124,201 107,654
Selling, general and administrative............. 24,140 19,918
-------- --------
634,662 567,029
-------- --------
OPERATING INCOME ................................. 129,418 180,545
OTHER INCOME (EXPENSE)
Interest expense ............................... (26,070) (30,865)
Other, net ..................................... 5,722 3,259
-------- --------
INCOME BEFORE INCOME TAXES ....................... 109,070 152,939
INCOME TAX PROVISION ............................. (15,858) (16,823)
-------- --------
NET INCOME ....................................... $ 93,212 $136,116
======== ========
NET INCOME PER SHARE:
Basic .......................................... $ 0.70 $ 1.03
Diluted ........................................ $ 0.70 $ 1.02
See accompanying notes to the consolidated financial statements.
4
FORM 10-Q
NOBLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
2004 2003
--------- -------
NET INCOME ...................................................... $ 30,571 $52,957
-------- -------
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Foreign currency translation adjustments .................... (258) (826)
Unrealized holding gains arising during period .............. 362 180
Unrealized gain on foreign currency forward contracts........ 31 -
-------- -------
Other comprehensive income (loss) ........................... 135 (646)
-------- -------
COMPREHENSIVE INCOME ............................................ $ 30,706 $52,311
======== =======
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
2004 2003
--------- --------
NET INCOME....................................................... $ 93,212 $136,116
-------- -------
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Foreign currency translation adjustments..................... 3,802 (675)
Unrealized holding losses arising during period.............. (165) -
Unrealized gain on foreign currency forward contracts........ 264 -
--------- --------
Other comprehensive income (loss)............................ 3,901 (675)
--------- --------
COMPREHENSIVE INCOME............................................. $ 97,113 $135,441
========= ========
See accompanying notes to the consolidated financial statements.
5
FORM 10-Q
NOBLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
2004 2003
-------- --------
CASH FLOWS FROM OPERATING ACTITIVIES
Net income ..................................................................... $ 93,212 $136,116
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation, and amortization of deferred repair and maintenance ......... 154,333 131,630
Deferred income tax provision ............................................. 1,728 7,669
Loss on sales of marketable securities .................................... 131 343
Equity in income of joint venture ......................................... (2,821) (1,336)
Distributions received from joint venture ................................. 1,452 -
Compensation expense from stock-based plans ............................... 4,257 3,480
Gain on sales of property and equipment ................................... - (519)
Other ..................................................................... 2,224 373
Changes in current assets and liabilities, net of acquired working capital:
Accounts receivable .................................................... (31,645) (13,450)
Other current assets ................................................... (5,483) (5,655)
Accounts payable ....................................................... (5,805) (18,509)
Other current liabilities .............................................. 1,073 (14,018)
-------- --------
Net cash provided by operating activities ......................... 212,656 226,124
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions and related capital upgrades ...................................... (69,473) (191,011)
Other capital expenditures ..................................................... (95,601) (45,175)
Deferred repair and maintenance expenditures ................................... (46,538) (21,144)
Repayments from joint venture .................................................. 2,295 1,494
Proceeds from sales of property and equipment .................................. 1,616 500
Investment in marketable securities ............................................ (90,319) (69,413)
Proceeds from sales and maturities of marketable securities .................... 94,156 69,990
-------- --------
Net cash used for investing activities ............................. (203,864) (254,759)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of long-term debt ...................................................... (66,397) (47,418)
Proceeds from issuance of ordinary shares ...................................... 52,344 6,303
Repurchase of ordinary shares .................................................. (39,714) -
Decrease in restricted cash .................................................... - 1,477
-------- --------
Net cash used for financing activities ............................. (53,767) (39,638)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS ....................................... (44,975) (68,273)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................................... 139,467 192,509
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD ......................................... $ 94,492 $124,236
======== ========
See accompanying notes to the consolidated financial statements.
6
FORM 10-Q
NOBLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF ACCOUNTING
The accompanying consolidated financial statements of Noble Corporation
("Noble" or, together with its consolidated subsidiaries, unless the context
requires otherwise, the "Company", "we", "our" and words of similar import) have
been prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all disclosures required by accounting principles generally accepted
in the United States of America for complete financial statements. All
significant 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 - ACQUISITIONS
On October 28, 2004, we exercised our option to purchase the Maersk
Valiant (renamed the Noble David Tinsley), a MODEC 300C, independent leg,
cantilever jackup rig, for an exercise price of $28,400,000. In June 2003, we
paid an option fee of $13,200,000 for the right to acquire the unit. Our
aggregate purchase price for the rig was therefore $41,600,000. The unit has a
550-day contract in Qatar which is scheduled to commence in February 2005 after
a refurbishment and upgrade program.
On July 16, 2004, we exercised our option to purchase the Maersk Viking
(renamed the Noble Cees van Diemen), a MODEC 300C, independent leg, cantilever
jackup rig, for an exercise price of $32,900,000. In June 2003, we paid an
option fee of $15,000,000 for the right to acquire the unit. Our aggregate
purchase price for the rig was therefore $47,900,000. After undergoing a
refurbishment and upgrade program, the unit commenced an 880-day contract in
Qatar in mid-September 2004.
On June 25, 2004, we purchased the Okhi (renamed the Noble Mark Burns), a
Levingston 111-S designed independent leg jackup rig, for $29,500,000 in cash.
The unit is currently in the Dalian New Shipyard in Dalian, China, where we are
performing refurbishments and upgrades. We plan to mobilize the unit to the
Middle East during the fourth quarter of 2004, where additional upgrade work
will include leg extension to 300 feet water depth capability, a 60 foot
cantilever, and quarters expansion for 160 personnel.
NOTE 3 - STOCK-BASED COMPENSATION PLANS
We have several stock-based compensation plans. As permitted by Statement
of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based
Compensation ("SFAS 123") and as amended by SFAS No. 148, Accounting for
Stock-Based Compensation-Transition and Disclosure ("SFAS 148"), we have chosen
to continue using the intrinsic value method of accounting for stock-based
compensation awards in accordance with APB Opinion 25. No compensation expense
was recognized in the three and nine month periods ended September 30, 2004 and
2003 related to stock option awards.
7
FORM 10-Q
The following table reflects pro forma net income and net income per share
had we elected to adopt the fair value approach of SFAS 123 (in thousands,
except per share amounts):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -----------------------
2004 2003 2004 2003
----------- ---------- --------- ----------
Net income - as reported............................................. $ 30,571 $ 52,957 $ 93,212 $ 136,116
Compensation expense, net of tax - as reported....................... 1,061 746 2,767 2,262
Compensation expense, net of tax - pro forma......................... (2,792) (5,281) (9,917) (16,096)
---------- --------- -------- ---------
Net income - pro forma............................................... $ 28,840 $ 48,422 $ 86,062 $ 122,282
========== ========= ======== =========
Net income per share:
Basic - as reported................................................. $ 0.23 $ 0.40 $ 0.70 $ 1.03
Basic - pro forma................................................... $ 0.22 $ 0.37 $ 0.65 $ 0.93
Diluted - as reported............................................... $ 0.23 $ 0.40 $ 0.70 $ 1.02
Diluted - pro forma................................................. $ 0.22 $ 0.36 $ 0.64 $ 0.92
NOTE 4 - NET INCOME PER SHARE
The following table reconciles the basic and diluted net income per share
("EPS") computations for the three and nine month periods ended September 30,
2004 and 2003 (in thousands, except per share amounts):
NET BASIC BASIC DILUTED DILUTED
INCOME SHARES EPS SHARES EPS
--------- ------- -------- ------- -------
THREE MONTHS ENDED:
SEPTEMBER 30, 2004................................................... $ 30,571 132,519 $ 0.23 133,810 $ 0.23
SEPTEMBER 30, 2003................................................... $ 52,957 132,009 $ 0.40 133,023 $ 0.40
NET BASIC BASIC DILUTED DILUTED
INCOME SHARES EPS SHARES EPS
--------- ------- -------- ------- -------
NINE MONTHS ENDED:
SEPTEMBER 30, 2004................................................... $ 93,212 132,562 $ 0.70 133,717 $ 0.70
SEPTEMBER 30, 2003................................................... $ 136,116 131,891 $ 1.03 132,962 $ 1.02
Included in diluted shares are ordinary share equivalents relating to
outstanding stock options of 1,291,000 shares and 1,014,000 shares for the three
month periods ended September 30, 2004 and 2003, respectively, and 1,155,000 and
1,071,000 shares for the nine months ended September 30, 2004 and 2003,
respectively. The computation of diluted net income per share for the three and
nine month periods ended September 30, 2004 and 2003 did not include options to
purchase 1,721,000 and 1,818,000 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 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 1,639,000
and 1,710,000 at September 30, 2004 and 2003, respectively. Shares in the Rabbi
Trust are included in the 135,364,782 ordinary shares legally outstanding as of
November 3, 2004, and are accounted for as Treasury Stock in our Consolidated
Balance Sheets.
We repurchased 1,087,000 of our ordinary shares during the nine month
period ended September 30, 2004 at a total cost of $39,714,000, with none
repurchased during the three month period ended September 30, 2004. Ordinary
shares that were repurchased were automatically cancelled and retired pursuant
to Cayman Islands law. These repurchases were recorded as a decrease of $109,000
and $39,605,000 to the balances of our ordinary shares and capital in excess of
par value, respectively, on our Consolidated Balance Sheet.
8
FORM 10-Q
NOTE 5 - MARKETABLE SECURITIES
As of September 30, 2004, we owned marketable equity securities with a
fair market value of $11,252,000, of which $10,855,000 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 September 30, 2004 at their fair value. The
remaining investment in marketable equity securities, with a fair market value
of $397,000 at September 30, 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 September 30, 2004, we also owned marketable debt securities with a
fair market value of $84,897,000. These investments are classified as available
for sale and are included in "Investment in marketable securities" in the
Consolidated Balance Sheet at September 30, 2004 at their fair market value.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
In August 2004, an indirect, wholly-owned subsidiary of Noble was served
as a named defendant in two lawsuits filed in the Circuit Courts of the State of
Mississippi involving numerous other companies (not affiliated with Noble) as
co-defendants. The lawsuits seek an unspecified amount of monetary damages on
behalf of approximately 94 named individuals alleging personal injury or death,
including claims under the Jones Act, purportedly resulting from exposure to
asbestos on drilling rigs and associated facilities during the period 1965
through 1986. The lawsuits are in preliminary stages and we have not confirmed
the number of plaintiffs, if any, that were employed by our subsidiary or
otherwise associated with our drilling operations during the relevant period. We
intend to defend vigorously against the litigation, and based on information
currently available, we do not believe the resolution of these lawsuits will
have a material adverse effect on our financial position, results of operations
or cash flows.
Noble Asset Company Limited ("NACL"), an indirect, wholly-owned 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. 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. As of September 30, 2004, we had approximately
$30,000,000 of outstanding purchase commitments related to these projects.
NOTE 7 - 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 September 30, 2004 were $149,953,000 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 guarantees of these securities are 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
U.S. 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.
9
FORM 10-Q
NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 2004
(In thousands)
(Unaudited)
NOBLE
HOLDING NOBLE
NOBLE (SUBSIDIARY DRILLING OTHER CONSOLIDATING
(GUARANTOR) GUARANTOR) (ISSUER) SUBSIDIARIES ADJUSTMENTS TOTAL
------------ ------------ ------------ ------------ ------------- ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents ................... $ 37,772 $ - $ - $ 56,720 $ - $ 94,492
Investment in marketable securities ......... 10,855 - - 84,897 - 95,752
Accounts receivable ......................... - - 5,664 175,216 - 180,880
Inventories ................................. - - - 4,141 - 4,141
Prepaid expenses ............................ - - 1,829 14,080 - 15,909
Accounts receivable from affiliates ......... 103,225 - 583,842 - (687,067) -
Other current assets ........................ 32,244 - 225 13,380 (27,403) 18,446
----------- ----------- ----------- ----------- ----------- -----------
Total current assets .......................... 184,096 - 591,560 348,434 (714,470) 409,620
----------- ----------- ----------- ----------- ----------- -----------
PROPERTY AND EQUIPMENT
Drilling equipment and facilities ........... - - 99,620 3,535,793 - 3,635,413
Other ....................................... - - - 62,395 - 62,395
----------- ----------- ----------- ----------- ----------- -----------
- - 99,620 3,598,188 - 3,697,808
Accumulated depreciation .................... - - (50,422) (966,639) - (1,017,061)
----------- ----------- ----------- ----------- ----------- -----------
- - 49,198 2,631,549 - 2,680,747
----------- ----------- ----------- ----------- ----------- -----------
NOTES RECEIVABLE FROM AFFILIATES .............. 497,209 - 44,159 - (541,368) -
INVESTMENTS IN AFFILIATES ..................... 1,622,983 1,946,299 1,729,507 - (5,298,789) -
INVESTMENT IN AND ADVANCES TO JOINT VENTURE ... - - - 18,942 - 18,942
OTHER ASSETS .................................. - - 5,963 119,435 - 125,398
----------- ----------- ----------- ----------- ----------- -----------
$ 2,304,288 $ 1,946,299 $ 2,420,387 $ 3,118,360 $(6,554,627) $ 3,234,707
=========== =========== =========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt ........ $ - $ 19,241 $ - $ 17,751 $ (19,241) $ 17,751
Accounts payable ............................ (11) - 2,480 78,906 - 81,375
Accrued payroll and related costs ........... 20 - 13,038 39,230 - 52,288
Taxes payable ............................... 1,991 - - 25,457 - 27,448
Interest payable ............................ - 7,936 1,484 1,407 (8,162) 2,665
Accounts payable to affiliates .............. - 94,163 - 592,904 (687,067) -
Other current liabilities ................... (3) - 1,515 26,238 - 27,750
----------- ----------- ----------- ----------- ----------- -----------
Total current liabilities ..................... 1,997 121,340 18,517 781,893 (714,470) 209,277
LONG-TERM DEBT ................................ - - 451,648 53,783 - 505,431
NOTES PAYABLE TO AFFILIATES ................... - 497,209 - 44,159 (541,368) -
DEFERRED INCOME TAXES ......................... - (2,700) 14,944 194,802 - 207,046
OTHER LIABILITIES ............................. - 1,043 4,777 13,170 - 18,990
COMMITMENTS AND CONTINGENCIES ................. - - - - - -
MINORITY INTEREST ............................. - - - (8,328) - (8,328)
----------- ----------- ----------- ----------- ----------- -----------
1,997 616,892 489,886 1,079,479 (1,255,838) 932,416
----------- ----------- ----------- ----------- ----------- -----------
SHAREHOLDERS' EQUITY
Ordinary Shares-par value $0.10 per share .... 13,506 - - - - 13,506
Capital in excess of par value ............... 944,872 870,744 870,744 689,786 (2,431,274) 944,872
Retained earnings ............................ 1,400,100 458,663 1,059,757 1,345,184 (2,863,604) 1,400,100
Treasury stock, at cost ...................... (47,431) - - - - (47,431)
Restricted stock (unearned compensation) ..... (12,667) - - - - (12,667)
Accumulated other comprehensive income ....... 3,911 - - 3,911 (3,911) 3,911
----------- ----------- ----------- ----------- ----------- -----------
2,302,291 1,329,407 1,930,501 2,038,881 (5,298,789) 2,302,291
----------- ----------- ----------- ----------- ----------- -----------
$ 2,304,288 $ 1,946,299 $ 2,420,387 $ 3,118,360 $(6,554,627) $ 3,234,707
=========== =========== =========== =========== =========== ===========
10
FORM 10-Q
NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2003
(In thousands)
(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 VENTURE......................... - - - 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
============ ========== ============ ============ ============= ============
11
FORM 10-Q
NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING STATEMENT OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 2004
(In thousands)
(Unaudited)
NOBLE
HOLDING NOBLE
NOBLE (SUBSIDIARY DRILLING OTHER CONSOLIDATING
(GUARANTOR) GUARANTOR) (ISSUER) SUBSIDIARIES ADJUSTMENTS TOTAL
------------ ----------- ------------ ------------ ------------- ---------
OPERATING REVENUES
Contract drilling services.................. $ - $ - $ 7,635 $ 224,422 $ - $ 232,057
Reimbursables............................... - - 4 12,157 - 12,161
Labor contract drilling services............ - - - 15,146 - 15,146
Engineering, consulting, and other.......... - - - 6,274 - 6,274
------------ ---------- ------------ ------------ ------------- ---------
- - 7,639 257,999 - 265,638
------------ ---------- ------------ ------------ ------------- ---------
OPERATING COSTS AND EXPENSES
Contract drilling services.................. (102) - 2,408 141,595 - 143,901
Reimbursables............................... - - 4 10,500 - 10,504
Labor contract drilling services............ - - - 12,470 - 12,470
Engineering, consulting and other........... - - - 4,875 - 4,875
Depreciation................................ - - 1,163 40,879 - 42,042
Selling, general and administrative......... 352 - 31 7,448 - 7,831
------------ ---------- ------------ ------------ ------------- ---------
250 - 3,606 217,767 - 221,623
------------ ---------- ------------ ------------ ------------- ---------
OPERATING INCOME............................... (250) - 4,033 40,232 - 44,015
OTHER INCOME (EXPENSE)
Equity earnings in affiliates (net of tax).. 19,713 34,653 36,646 - (91,012) -
Interest expense............................ - (11,855) (6,992) (1,390) 11,855 (8,382)
Other, net.................................. 11,826 - (107) 1,335 (11,855) 1,199
------------ ---------- ------------ ------------ ------------- ---------
INCOME BEFORE INCOME TAXES..................... 31,289 22,798 33,580 40,177 (91,012) 36,832
INCOME TAX (PROVISION) BENEFIT................. (718) 5,841 1,073 (12,457) - (6,261)
------------ ---------- ------------ ------------ ------------- ---------
NET INCOME..................................... $ 30,571 $ 28,639 $ 34,653 $ 27,720 $ (91,012) $ 30,571
============ ========== ============ ============ ============= =========
12
FORM 10-Q
NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING STATEMENT OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 2003
(In thousands)
(Unaudited)
NOBLE
HOLDING NOBLE
NOBLE (SUBSIDIARY DRILLING OTHER CONSOLIDATING
(GUARANTOR) GUARANTOR) (ISSUER) SUBSIDIARIES ADJUSTMENTS TOTAL
----------- ---------- -------- ------------ ----------- -----
OPERATING REVENUES
Contract drilling services .................. $ - $ - $ 4,499 $ 230,772 $ - $ 235,271
Reimbursables ............................... - - - 7,189 - 7,189
Labor contract drilling services ............ - - - 6,842 - 6,842
Engineering, consulting, and other .......... - - - 5,344 - 5,344
--------- --------- --------- --------- --------- ---------
- - 4,499 250,147 - 254,646
--------- --------- --------- --------- --------- ---------
OPERATING COSTS AND EXPENSES
Contract drilling services .................. (7) - 1,578 123,119 - 124,690
Reimbursables ............................... - - - 6,055 - 6,055
Labor contract drilling services ............ - - - 5,350 - 5,350
Engineering, consulting and other ........... - - (143) 7,297 - 7,154
Depreciation ................................ - - 959 36,800 - 37,759
Selling, general and administrative ......... 195 - 192 6,094 - 6,481
--------- --------- --------- --------- --------- ---------
188 - 2,586 184,715 - 187,489
--------- --------- --------- --------- --------- ---------
OPERATING INCOME (LOSS) ........................ (188) - 1,913 65,432 - 67,157
OTHER INCOME (EXPENSE)
Equity earnings in affiliates (net of tax)... 41,553 49,110 51,388 - (142,051) -
Interest expense ............................ - (12,293) (6,921) (4,087) 13,279 (10,022)
Other, net .................................. 12,332 - 1,503 1,811 (13,279) 2,367
--------- --------- --------- --------- --------- ---------
INCOME BEFORE INCOME TAXES ..................... 53,697 36,817 47,883 63,156 (142,051) 59,502
INCOME TAX (PROVISION) BENEFIT ................. (740) 4,302 1,227 (11,334) - (6,545)
--------- --------- --------- --------- --------- ---------
NET INCOME ..................................... $ 52,957 $ 41,119 $ 49,110 $ 51,822 $(142,051) $ 52,957
========= ========= ========= ========= ========= =========
13
FORM 10-Q
NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 2004
(In thousands)
(Unaudited)
NOBLE
HOLDING NOBLE
NOBLE (SUBSIDIARY DRILLING OTHER CONSOLIDATING
(GUARANTOR) GUARANTOR) (ISSUER) SUBSIDIARIES ADJUSTMENTS TOTAL
----------- ---------- -------- ------------ ----------- -----
OPERATING REVENUES
Contract drilling services .................. $ - $ - $ 22,637 $ 653,670 $ - $ 676,307
Reimbursables ............................... - - 17 31,748 31,765
Labor contract drilling services ............ - - - 35,615 35,615
Engineering, consulting, and other .......... - - - 20,393 20,393
--------- --------- --------- --------- --------- ---------
- - 22,654 741,426 - 764,080
--------- --------- --------- --------- --------- ---------
OPERATING COSTS AND EXPENSES
Contract drilling services .................. (241) - 7,653 402,734 - 410,146
Reimbursables ............................... - - 17 27,646 - 27,663
Labor contract drilling services ............ - - - 28,756 - 28,756
Engineering, consulting and other ........... - - - 19,756 - 19,756
Depreciation ................................ - - 3,435 120,766 - 124,201
Selling, general and administrative ......... 380 - 376 23,384 - 24,140
--------- --------- --------- --------- --------- ---------
139 - 11,481 623,042 - 634,662
--------- --------- --------- --------- --------- ---------
OPERATING INCOME ............................... (139) - 11,173 118,384 - 129,418
OTHER INCOME (EXPENSE)
Equity earnings in affiliates (net of tax)... 59,489 81,476 86,383 - (227,348) -
Interest expense ............................ - (35,724) (20,806) (7,134) 37,594 (26,070)
Other, net .................................. 36,030 - 2,084 5,202 (37,594) 5,722
--------- --------- --------- --------- --------- ---------
INCOME BEFORE INCOME TAXES ..................... 95,380 45,752 78,834 116,452 (227,348) 109,070
INCOME TAX (PROVISION) BENEFIT ................. (2,168) 14,195 2,642 (30,527) - (15,858)
--------- --------- --------- --------- --------- ---------
NET INCOME ..................................... $ 93,212 $ 59,947 $ 81,476 $ 85,925 $(227,348) $ 93,212
========= ========= ========= ========= ========= =========
14
FORM 10-Q
NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 2003
(In thousands)
(Unaudited)
NOBLE
HOLDING NOBLE
NOBLE (SUBSIDIARY DRILLING OTHER CONSOLIDATING
(GUARANTOR) GUARANTOR) (ISSUER) SUBSIDIARIES ADJUSTMENTS TOTAL
----------- ---------- -------- ------------ ----------- -----
OPERATING REVENUES
Contract drilling services ................. $ - $ - $ 9,014 $ 663,211 $ - $ 672,225
Reimbursables ............................... - - 267 34,231 - 34,498
Labor contract drilling services ............ - - - 20,757 - 20,757
Engineering, consulting, and other .......... - - - 20,094 - 20,094
--------- --------- --------- --------- --------- ---------
- - 9,281 738,293 - 747,574
--------- --------- --------- --------- --------- ---------
OPERATING COSTS AND EXPENSES
Contract drilling services .................. (20) 1 6,227 365,420 - 371,628
Reimbursables ............................... - - 267 30,558 - 30,825
Labor contract drilling services ............ - - - 16,951 - 16,951
Engineering, consulting and other ........... - - (143) 20,196 - 20,053
Depreciation ................................ - - 2,876 104,778 - 107,654
Selling, general and administrative ......... 266 - 722 18,930 - 19,918
--------- --------- --------- --------- --------- ---------
246 1 9,949 556,833 - 567,029
--------- --------- --------- --------- --------- ---------
OPERATING (LOSS) INCOME ........................ (246) (1) (668) 181,460 - 180,545
OTHER INCOME (EXPENSE)
Equity earnings in affiliates (net of tax)... 101,691 138,547 150,331 - (390,569) -
Interest expense ............................ - (36,760) (20,866) (12,845) 39,606 (30,865)
Other, net .................................. 36,879 - 3,405 2,581 (39,606) 3,259
--------- --------- --------- --------- --------- ---------
INCOME BEFORE INCOME TAXES ..................... 138,324 101,786 132,202 171,196 (390,569) 152,939
INCOME TAX (PROVISION) BENEFIT ................. (2,208) 12,865 6,345 (33,825) - (16,823)
--------- --------- --------- --------- --------- ---------
NET INCOME ..................................... $ 136,116 $ 114,651 $ 138,547 $ 137,371 $(390,569) $ 136,116
========= ========= ========= ========= ========= =========
15
FORM 10-Q
NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 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............................................. $93,212 $59,947 $81,476 $ 85,925 $(227,348) $ 93,212
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, and amortization of deferred
repair and maintenance......................... - - 4,411 149,922 - 154,333
Deferred income tax provision.................... - - - 1,728 - 1,728
Loss on sales of marketable securities............ - - - 131 - 131
Equity in income of joint venture................. - - - (2,821) - (2,821)
Distributions received from joint venture......... - - - 1,452 - 1,452
Compensation expense from stock-based plans....... 4,257 - - - - 4,257
Equity earnings in affiliates..................... (59,489) (81,476) (86,383) - 227,348 -
Other............................................. - (1,657) (258) 4,139 - 2,224
Changes in current assets and liabilities:
Accounts receivable............................. - - (2,520) (29,125) - (31,645)
Accounts receivable from affiliates............. (72,852) - 28,583 - 44,269 -
Other current assets............................ (6,146) - 5,299 (4,636) - (5,483)
Accounts payable................................ (5) - (1,700) (4,100) - (5,805)
Accounts payable to affiliates.................. - 36,636 - 7,633 (44,269) -
Other current liabilities....................... 2,986 (128) (3,842) 2,057 - 1,073
------- -------- ------- --------- --------- ---------
Net cash (used for) provided by
operating activities.................... (38,037) 13,322 25,066 212,305 - 212,656
------- -------- ------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions and related capital upgrades........... - - - (69,473) - (69,473)
Other capital expenditures.......................... - - 334 (95,935) - (95,601)
Deferred repair and maintenance expenditures........ - - (400) (46,138) - (46,538)
Repayments from joint venture....................... - - - 2,295 - 2,295
Proceeds from sales of property and equipment....... - - - 1,616 - 1,616
Repayments from affiliate........................... 13,322 - - - (13,322) -
Investment in marketable securities................. (51,500) - - (38,819) - (90,319)
Proceeds from sales and maturities of
marketable securities......................... 67,366 - - 26,790 - 94,156
------- -------- ------- --------- --------- ---------
Net cash provided by (used for) investing
activities................................ 29,188 - (66) (219,664) (13,322) (203,864)
------- -------- ------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of long-term debt........................... - (13,322) (25,000) (41,397) 13,322 (66,397)
Proceeds from issuance of ordinary shares........... 52,344 - - - - 52,344
Repurchase of ordinary shares....................... (39,714) - - - - (39,714)
------- -------- ------- --------- --------- ---------
Net cash provided by (used for)
financing activities..................... 12,630 (13,322) (25,000) (41,397) 13,322 (53,767)
------- -------- ------- --------- --------- ---------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS............................. 3,781 - - (48,756) - (44,975)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD.............................. 33,991 - - 105,476 - 139,467
------- -------- ------- --------- --------- ---------
CASH AND CASH EQUIVALENTS,
END OF PERIOD.................................... $37,772 $ - $ - $ 56,720 $ - $ 94,492
======= ======== ======= ========= ========= =========
16
FORM 10-Q
NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2003
(In thousands)
(Unaudited)
NOBLE
HOLDING NOBLE
NOBLE (SUBSIDIARY DRILLING OTHER CONSOLIDATING
(GUARANTOR) GUARANTOR) (ISSUER) SUBSIDIARIES ADJUSTMENTS TOTAL
----------- ---------- -------- ------------ ------------ ---------
CASH FLOWS FROM OPERATING ACTITIVIES
Net income ............................................. $ 136,116 $ 114,651 $ 138,547 $ 137,371 $(390,569) $136,116
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, and amortization of deferred repair
and maintenance ................................ - - 3,415 128,215 - 131,630
Deferred income tax provision ..................... - - (1,312) 8,981 - 7,669
Loss on sales of marketable securities ............ - - - 343 - 343
Equity in income of joint venture ................. - - - (1,336) - (1,336)
Compensation expense from stock-based plans ....... 3,480 - - - - 3,480
Gain on sales of property and equipment ........... - - - (519) - (519)
Equity earnings in affiliates ..................... (101,691) (138,547) (150,331) - 390,569 -
Other ............................................. - - (1,399) 1,772 - 373
Changes in current assets and liabilities:
Accounts receivable ............................. - - (1,573) (11,877) - (13,450)
Accounts receivable from affiliates ............. - - 26,616 - (26,616) -
Other current assets ............................ (9,249) (12,865) (3,610) 20,069 - (5,655)
Accounts payable ................................ (3) - 8 (18,514) - (18,509)
Accounts payable to affiliates .................. (27,488) 40,807 - (39,935) 26,616 -
Other current liabilities ....................... 919 8,129 (3,228) (19,838) - (14,018)
--------- --------- --------- --------- --------- --------
Net cash provided by operating activities ... 2,084 12,175 7,133 204,732 - 226,124
--------- --------- --------- --------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions and related capital upgrades ........... - - - (191,011) - (191,011)
Other capital expenditures .......................... - - (5,738) (39,437) - (45,175)
Deferred repair and maintenance expenditures ........ - - (1,395) (19,749) - (21,144)
Repayments from joint venture ....................... - - - 1,494 - 1,494
Proceeds from sales of property and equipment ....... - - - 500 - 500
Repayments from affiliates .......................... 12,175 - - - (12,175) -
Investment in marketable securities ................. (39,656) - - (29,757) - (69,413)
Proceeds from sales and maturities of
marketable securities ......................... 30,630 - - 39,360 - 69,990
--------- --------- --------- --------- --------- --------
Net cash used for investing activities ...... 3,149 - (7,133) (238,600) (12,175) (254,759)
--------- --------- --------- --------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of long-term debt ........................... - (12,175) - (47,418) 12,175 (47,418)
Proceeds from issuance of ordinary shares ........... 6,303 - - - - 6,303
Decrease in restricted cash ......................... - - - 1,477 - 1,477
--------- --------- --------- --------- --------- --------
Net cash provided by (used for)
financing activities ........................ 6,303 (12,175) - (45,941) 12,175 (39,638)
--------- --------- --------- --------- --------- --------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ............................. 11,536 - - (79,809) - (68,273)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD .............................. 9,317 - - 183,192 - 192,509
--------- --------- --------- --------- --------- --------
CASH AND CASH EQUIVALENTS,
END OF PERIOD .................................... $ 20,853 $ - $ - $ 103,383 $ - $ 124,236
========= ========= ========= ========= ========= ========
17
FORM 10-Q
NOTE 8 - 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 operations
in the Middle East, Mexico, the North Sea, Brazil, West Africa, India and the
Mediterranean Sea. Our domestic contract drilling services segment conducts
operations 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 and nine months ended September 30, 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 ENGINEERING
CONTRACT CONTRACT &
DRILLING DRILLING CONSULTING
SERVICES SERVICES SERVICES OTHER TOTAL
------------- ---------- ----------- ---------- ----------
THREE MONTHS ENDED
SEPTEMBER 30, 2004
Revenues from external customers ....... $ 182,557 $ 60,876 $ 3,748 $ 18,457 $ 265,638
Depreciation ........................... 30,847 10,159 162 874 42,042
Operating costs and expenses ........... 148,822 50,210 5,657 16,934 221,623
Equity in income of
unconsolidated subsidiaries ......... 1,017 - - - 1,017
Net income (loss) ...................... 28,389 5,447 (2,352) (913) 30,571
Total assets ........................... 1,586,978 1,216,908 34,401 396,420 3,234,707
THREE MONTHS ENDED
SEPTEMBER 30, 2003
Revenues from external customers ....... $ 172,380 $ 69,941 $ 4,041 $ 8,284 $ 254,646
Depreciation ........................... 25,143 11,513 221 882 37,759
Operating costs and expenses ........... 127,123 44,406 8,114 7,846 187,489
Equity in income of
unconsolidated subsidiaries ......... 995 - - - 995
Net income (loss) ...................... 38,144 15,163 (4,167) 3,817 52,957
Total assets ........................... 1,593,842 1,266,844 31,377 247,650 3,139,713
18
FORM 10-Q
INTERNATIONAL DOMESTIC ENGINEERING
CONTRACT CONTRACT &
DRILLING DRILLING CONSULTING
SERVICES SERVICES SERVICES OTHER TOTAL
------------- -------- ---------- -------- --------
NINE MONTHS ENDED
SEPTEMBER 30, 2004
Revenues from external customers ..... $511,977 $189,911 $ 13,445 $ 48,747 $764,080
Depreciation ......................... 86,955 34,137 490 2,619 124,201
Operating costs and expenses ......... 423,631 146,171 18,989 45,871 634,662
Equity in income of
unconsolidated subsidiaries ....... 2,821 - - - 2,821
Net income (loss) .................... 68,430 28,881 (6,169) 2,070 93,212
NINE MONTHS ENDED
SEPTEMBER 30, 2003
Revenues from external customers ..... $502,388 $198,411 $ 20,296 $ 26,479 $747,574
Depreciation ......................... 69,966 34,582 500 2,606 107,654
Operating costs and expenses ......... 370,092 141,899 29,387 25,651 567,029
Equity in income of
unconsolidated subsidiaries ....... 1,336 - - - 1,336
Net income (loss) .................... 108,534 30,382 (9,803) 7,003 136,116
NOTE 9 - 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 hourly employees, whose initial date of
employment is prior to August 1, 2004 (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.
19
FORM 10-Q
Pension costs for the three and nine months ended September 30, 2004 and
2003 include the following components (in thousands):
THREE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------------------------------
2004 2003
----------------------------- -----------------------------
INTERNATIONAL DOMESTIC INTERNATIONAL DOMESTIC
------------- -------- ------------- --------
Service cost ........................... $ 573 $ 1,162 $ 490 $ 876
Interest cost .......................... 599 1,025 503 870
Return on plan assets .................. (748) (1,069) (464) (844)
Amortization of prior service cost ..... - 65 - 55
Amortization of transition obligation .. 91 - 132 -
Recognized net actuarial (gain) loss ... (64) 225 (89) 175
------- ------- ------- -------
Net pension expense .................... $ 451 $ 1,408 $ 572 $ 1,132
======= ======= ======= =======
NINE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------------------------------
2004 2003
--------------------------- -----------------------------
INTERNATIONAL DOMESTIC INTERNATIONAL DOMESTIC
------------- -------- ------------- --------
Service cost ........................... $ 1,717 $ 3,486 $ 1,468 $ 2,628
Interest cost .......................... 1,795 3,073 1,511 2,614
Return on plan assets .................. (2,242) (3,205) (1,392) (2,532)
Amortization of prior service cost ..... - 195 - 163
Amortization of transition obligation .. 273 - 398 -
Recognized net actuarial (gain) loss ... (194) 675 (269) 523
------- ------- ------- -------
Net pension expense .................... $ 1,349 $ 4,224 $ 1,716 $ 3,396
======= ======= ======= =======
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
pension plans in 2004. As of September 30, 2004, this estimate has been revised
to $1,424,000. We funded a total of $693,000 to our pension plans during the
nine months ended September 30, 2004.
NOTE 10 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Our North Sea operations have 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 during 2004, we entered into forward contracts
in March and April 2004 to purchase 1,400,000 Euros and 1,200,000 British
Pounds, respectively, per month for the months April 2004 through December 2004.
These forward contracts represented approximately 50 percent of our forecasted
Euro and British Pound requirements for 2004 after the respective dates we
entered into the forward contracts. 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. The cumulative net unrealized
gain on these forward contracts is included in "Accumulated other comprehensive
income" in our Consolidated Balance Sheet at September 30, 2004. We did not
recognize a gain or loss due to hedge ineffectiveness in our Consolidated
Statements of Income for the three and nine months ended September 30, 2004
related to these forward contracts.
20
FORM 10-Q
The balance of the net unrealized gain related to our foreign currency
forward contracts included in Accumulated other comprehensive income and related
activity for the three and nine months ended September 30, 2004 is presented in
the following table:
THREE MONTHS ENDED
SEPTEMBER 30, 2004
------------------
Net unrealized gain at June 30, 2004 $ 233,000
Activity during period:
Settlement of forward contracts outstanding at June 30, 2004 (113,000)
Net unrealized gain on outstanding forward contracts 144,000
-----------------
Net unrealized gain at September 30, 2004 $ 264,000
=================
NINE MONTHS ENDED
SEPTEMBER 30, 2004
------------------
Net unrealized gain at December 31, 2003 $ -
Activity during period:
Net unrealized gain on outstanding forward contracts 264,000
-----------------
Net unrealized gain at September 30, 2004 $ 264,000
=================
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;
21
FORM 10-Q
- 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;
- 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 60 mobile
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, 41 jackup rigs and three submersibles.
Approximately 80 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 favorable oil prices in the first nine months
of 2004, drilling activity in certain international markets, including the North
Sea and West Africa, was generally weaker in this period than the first nine
months 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
22
FORM 10-Q
oil companies. However, drilling activity is now improving in the North Sea and
West Africa, while remaining strong in other international markets in which we
operate, including the Middle East, Mexico and Brazil.
Natural gas prices during the first nine months of 2004 averaged $5.81 per
thousand cubic feet (source: average Henry Hub closing bidweek price). Although
natural gas prices were comparable during 2003, operators generally did not
significantly increase drilling activities in the U.S. Gulf of Mexico in water
depths applicable to jackups and submersibles until 2004 due principally to a
lack of economically viable drilling prospects. Drilling activity levels in
water depths applicable to semisubmersibles began to improve during the third
quarter of 2004.
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 nine jackups to
our international fleet. 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.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
GENERAL
Net income for the three months ended September 30, 2004 (the "Current
Quarter") was $30,571,000, or $0.23 per diluted share, on operating revenues of
$265,638,000, compared to net income for the three months ended September 30,
2003 (the "Comparable Quarter") of $52,957,000, or $0.40 per diluted share, on
operating revenues of $254,646,000. Net income in the Current Quarter included a
$5,850,000, or $0.04 per diluted share, after-tax charge related to damage
incurred on three of our semisubmersibles in the U.S. Gulf of Mexico as a result
of Hurricane Ivan.
23
FORM 10-Q
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 8 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 SEPTEMBER 30, 2004
Operating Revenues:
Contract drilling services................. $ 174,821 $ 57,236 $ - $ - $ 232,057
Reimbursables.............................. 5,874 3,334 685 2,268 12,161
Labor contract drilling services........... - - - 15,146 15,146
Engineering, consulting and other.......... 1,862 306 3,063 1,043 6,274
---------- ---------- ---------- --------- ----------
$ 182,557 $ 60,876 $ 3,748 $ 18,457 $ 265,638
========== ========== ========== ========= ==========
Operating Costs and Expenses:
Contract drilling services................. $ 108,791 $ 35,110 $ - $ - $ 143,901
Reimbursables.............................. 4,611 3,110 673 2,110 10,504
Labor contract drilling services........... - - - 12,470 12,470
Engineering, consulting and other.......... (706) (115) 4,562 1,134 4,875
Depreciation............................... 30,847 10,159 162 874 42,042
Selling, general and administrative........ 5,279 1,946 260 346 7,831
---------- ---------- ---------- --------- ----------
$ 148,822 $ 50,210 $ 5,657 $ 16,934 $ 221,623
========== ========== ========== ========= ==========
INTERNATIONAL DOMESTIC
CONTRACT CONTRACT ENGINEERING
DRILLING DRILLING & CONSULTING
SERVICES SERVICES SERVICES OTHER TOTAL
------------- ---------- ------------ ---------- ----------
(In thousands)
THREE MONTHS ENDED SEPTEMBER 30, 2003
Operating Revenues:
Contract drilling services............... $ 169,099 $ 66,172 $ - $ - $ 235,271
Reimbursables............................ 3,018 1,547 2,200 424 7,189
Labor contract drilling services......... - - - 6,842 6,842
Engineering, consulting and other........ 263 2,222 1,841 1,018 5,344
---------- ---------- ---------- ---------- ----------
$ 172,380 $ 69,941 $ 4,041 $ 8,284 $ 254,646
========== ========== ========== ========== ==========
Operating Costs and Expenses:
Contract drilling services............... $ 96,077 $ 28,613 $ - $ - $ 124,690
Reimbursables............................ 2,033 1,438 2,202 382 6,055
Labor contract drilling services......... - - - 5,350 5,350
Engineering, consulting and other........ 16 788 5,383 967 7,154
Depreciation............................. 25,143 11,513 221 882 37,759
Selling, general and administrative...... 3,854 2,054 308 265 6,481
---------- ---------- ---------- ---------- ----------
$ 127,123 $ 44,406 $ 8,114 $ 7,846 $ 187,489
========== ========== ========== ========== ==========
24
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 September 30,
2004 and 2003:
AVERAGE RIG
UTILIZATION (1) OPERATING DAYS (2) AVERAGE DAYRATE
------------------------ ----------------------- -----------------------
THREE MONTHS ENDED THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
------------------------ ----------------------- -----------------------
2004 2003 2004 2003 2004 2003
---------- ---------- ---------- ---------- ---------- ----------
International (3):
Jackups............................... 85% 80% 2,864 2,450 $ 49,954 $ 52,209
Semisubmersibles - >6,000'(4) ........ 50% 100% 92 92 $ 158,924 $ 158,632
Semisubmersibles - <6,000'(5) ........ 100% 100% 92 92 $ 57,804 $ 45,067
Drillships............................ 43% 100% 119 276 $ 99,277 $ 81,327
---------- ----------
Total International................... 80% 83% 3,167 2,910 $ 55,201 $ 58,110
========== ==========
Domestic (6):
Jackups............................... 100% 95% 184 260 $ 45,935 $ 29,931
Semisubmersibles - >6,000'(4) ........ 100% 95% 368 438 $ 106,880 $ 124,607
Semisubmersibles -< 6,000'(5) ........ 39% 3% 72 3 $ 35,708 $ 29,333
Submersibles.......................... 100% 100% 276 184 $ 24,931 $ 20,239
---------- ----------
Total Domestic........................ 89% 88% 900 885 $ 63,596 $ 74,771
========== ==========
- ----------
(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.
25
FORM 10-Q
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 September 30, 2004 and 2003:
OPERATING COSTS
OPERATING REVENUES AND EXPENSES
----------------------- ------------------------
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- ------------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
(In thousands)
Contract drilling services............... $ 174,821 $ 169,099 $ 108,791 96,077
Reimbursables (1)........................ 5,874 3,018 4,611 2,033
Labor contract drilling services - - - -
Engineering, consulting and other........ 1,862 263 (706) 16
Depreciation............................. N/A N/A 30,847 25,143
Selling, general and administrative...... N/A N/A 5,279 3,854
---------- ---------- ---------- ----------
Total........................... $ 182,557 $ 172,380 $ 148,822 127,123
========== ========== ========== ==========
- ----------
(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. International contract drilling services revenues
increased $5,722,000 due to additional operating days in our Middle East
division, which includes India and the Mediterranean Sea, West Africa division
and Mexico division. These additional operating days were partially offset by
weaker market conditions in the North Sea and shipyard projects on two of our
deepwater drillships in Brazil. We had an additional 379 operating days in our
Middle East division in the Current Quarter due primarily to the acquisition of
the Noble Gene House and Noble Charlie Yester premium jackups in July 2003 and
September 2003, respectively, and the mobilization of the Noble Carl Norberg
premium jackup to the Mediterranean Sea from the U.S. Gulf of Mexico in December
2003. The Noble Carl Norberg began a 14-month contract in January 2004. In
addition, in December 2003 we mobilized the Noble Dick Favor to the Middle East
from Brazil, where the rig had been stacked since March 2003, to pursue
opportunities in this strengthening region. Following an upgrade program, the
rig commenced operations in Bahrain during August.
Nigeria traditionally has had 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. As a result, we have elected to keep our six jackups in
this market currently. Average dayrates and utilization on our six jackups in
West Africa improved during the Current Quarter. By the end of the Current
Quarter, five of our jackups were operating under long-term contracts.
Currently, all of our West Africa jackups are operating as the Noble Don Walker
commenced a 250-day contract in October 2004. In July 2004, we began upgrades
and refurbishments to our deepwater semisubmersible Noble Homer Ferrington in
preparation for a two-year contract with ExxonMobil in Nigeria. We believe that
the long-term contracts initiated over the past several months, combined with
the upcoming commencement of our long-term contract for the Noble Homer
Ferrington semisubmersible, support our favorable outlook for this region.
Since September 2002, we have mobilized a total of seven jackups from the
U.S. Gulf of Mexico to Mexico for long-term contracts with Petroleos Mexicanos
("Pemex"). 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. The most recent rig mobilized from the U.S. Gulf of
Mexico to Mexico was the Noble Bill Jennings in August 2003, which resulted in
an additional 22 operating days in Mexico during the Current Quarter.
26
FORM 10-Q
In the North Sea, utilization in the Current Quarter was 86 percent as
compared to 98 percent in the Comparable Quarter, as two of our eight premium
jackups in the region experienced a combined 118 stacked days during the Current
Quarter. In addition, the average dayrate on our North Sea units of $52,966 was
over $7,000 lower than the Comparable Quarter's average dayrate of $60,304. 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. Market conditions appear to be improving in the North Sea, as
all our units in the region are currently operating and dayrates have increased
during the Current Quarter. In Brazil, the Noble Roger Eason drillship was in
the shipyard for all of the Current Quarter, versus operating the entire
Comparable Quarter. We are currently performing regulatory maintenance and
upgrades to this unit, including water depth increase to 7,200 feet, which we
estimate to be completed during November 2004. Upon completion of the shipyard
work, the unit will commence a 700-day contract with Petrobras at a dayrate of
$96,250, plus the opportunity for a performance bonus. The Noble Muravlenko
drillship was released from its contract with Petrobras in late July 2004 and
was drydocked for the remainder of the Current Quarter. However, the unit
commenced a 160-day contract for Petrobras in October 2004. Our deepwater
semisubmersible in Brazil, the Noble Paul Wolff, as well as the Noble Leo
Segerius drillship, experienced less downtime in the Current Quarter versus the
Comparable Quarter, which partially offset the fewer operating days for the
Noble Roger Eason and Noble Muravlenko. The increase in engineering, consulting
and other revenues of $1,599,000 was attributable primarily to an equipment
inspection fee earned on a per day basis by the Noble Homer Ferrington as part
of the rig's preparations for a two-year contract in Nigeria.
OPERATING COSTS AND EXPENSES. International contract drilling services
expenses increased $12,714,000 primarily due to the additional operating days in
our Middle East and West Africa divisions. The increase was largely attributable
to the acquisition of the Noble Charlie Yester and Noble Gene House jackup rigs,
which are both in our Middle East operating division, and the mobilization of
the Noble Bill Jennings and Noble Carl Norberg jackups from the U.S. Gulf of
Mexico to Mexico and the Mediterranean Sea, respectively. In addition, we
incurred additional costs attributable to our shipyard projects on the Noble
Roger Eason drillship and Noble Homer Ferrington semisubmersible. We also
experienced labor increases in all regions. Engineering, consulting and other
expenses decreased $722,000 due to reduced minority interest related to the
operations of the Noble Muravlenko drillship, in which we have an 82 percent
interest, as the unit was drydocked for the majority of the Current Quarter.
Depreciation expense in our international contract drilling services segment
increased $5,704,000 due to the acquisition of the Noble Charlie Yester and
Noble Gene House, the mobilization of the two jackup rigs from the U.S. Gulf of
Mexico, and the transfer of the Noble Homer Ferrington to our West Africa
division. See the discussion below under "Other Items" regarding selling,
general and administrative expenses.
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 September 30, 2004 and 2003:
OPERATING COSTS
OPERATING REVENUES AND EXPENSES
-------------------------------- --------------------------------
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- --------------------------------
2004 2003 2004 2003
------------- -------------- -------------- --------------
(In thousands)
Contract drilling services...................... $ 57,236 $ 66,172 $ 35,110 $ 28,613
Reimbursables (1)............................... 3,334 1,547 3,110 1,438
Labor contract drilling services................ - - - -
Engineering, consulting and other............... 306 2,222 (115) 788
Depreciation ................................... N/A N/A 10,159 11,513
Selling, general and administrative............. N/A N/A 1,946 2,054
------------- -------------- -------------- --------------
Total.................................. $ 60,876 $ 69,941 $ 50,210 $ 44,406
============= ============== ============== ==============
- ----------
(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.
27
FORM 10-Q
OPERATING REVENUES. Domestic contract drilling services revenues decreased
$8,936,000 due to the shipyard project on the Noble Homer Ferrington
semisubmersible and lower average dayrates on our EVA-4000(TM) semisubmersibles
during the Current Quarter, as certain units operated on the spot-rate market
with lower average dayrates than those earned while under previous long-term
contracts. The Noble Homer Ferrington completed operations in the U.S. Gulf of
Mexico in June 2004 and entered the shipyard the following month to prepare for
a two-year contract in Nigeria. Although we had fewer operating days for our
domestic jackup rigs following the mobilization of two units to international
locations during 2003, the average dayrate on these rigs increased $16,000 in
the Current Quarter. In addition, we experienced additional operating days and
higher average dayrates on our three submersibles in the U.S. Gulf of Mexico.
The Noble Lorris Bouzigard and Noble Therald Martin semisubmersibles also
experienced additional operating days in the Current Quarter, and both units are
currently under contract. The decrease in engineering, consulting and other
revenues of $1,916,000 was primarily related to the sale of our interests in
certain deepwater oil and gas properties during the fourth quarter of 2003.
Although we are mobilizing the Noble Homer Ferrington semisubmersible out
of the U.S. Gulf of Mexico, we believe the demand 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 jackups and
submersibles. Average dayrates for semisubmersibles in the U.S. Gulf of Mexico
began to improve towards the end of the Current Quarter, as operators' demand
for these units increased due to upcoming development projects in the region.
The mobilization of the Noble Bill Jennings and Noble Carl Norberg from the U.S.
Gulf of Mexico to Mexico and the Mediterranean Sea, respectively, was pursuant
to our long-standing business strategy of deploying our assets in important
geological regions as described earlier.
OPERATING COSTS AND EXPENSES. Domestic contract drilling services expenses
increased $6,497,000 due to a $9,000,000 pre-tax charge related to costs
incurred to repair damage to three of our semisubmersibles in the U.S. Gulf of
Mexico as a result of Hurricane Ivan. Excluding this charge, domestic contract
drilling services expenses decreased $2,503,000 due to the mobilization of
jackup rigs to Mexico and the Mediterranean Sea during the second half of 2003
and the transfer of the Noble Homer Ferrington semisubmersible to our West
Africa division in July 2004. The lower engineering, consulting and other
expenses of $903,000 was due to the sale of our interests in certain deepwater
oil and gas properties during the fourth quarter of 2003. Depreciation expense
decreased $1,354,000 as lower depreciation attributable to the mobilization of
two jackup rigs to international locations and the transfer of the Noble Homer
Ferrington semisubmersible to our West Africa division was mostly offset by
additional depreciation due to the activation of the Noble Therald Martin
semisubmersible in November 2003. See the discussion below under "Other Items"
regarding selling, general and administrative expenses.
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 September 30, 2004 and 2003:
OPERATING COSTS
OPERATING REVENUES AND EXPENSES
-------------------------------- --------------------------------
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- --------------------------------
2004 2003 2004 2003
------------- -------------- -------------- --------------
(In thousands)
Contract drilling services...................... $ - $ - $ - $ -
Reimbursables (1)............................... 685 2,200 673 2,202
Labor contract drilling services................ - - - -
Engineering, consulting and other............... 3,063 1,841 4,562 5,383
Depreciation.................................... N/A N/A 162 221
Selling, general and administrative............. N/A N/A 260 308
------------- -------------- -------------- --------------
Total.................................. $ 3,748 $ 4,041 $ 5,657 $ 8,114
============= ============== ============== ==============
- ----------
(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 $1,222,000 due primarily
to additional project management engagements conducted by our Triton Engineering
Services subsidiary.
28
FORM 10-Q
OPERATING COSTS AND EXPENSES. Excluding reimbursables, operating costs and
expenses for our engineering and consulting services segment decreased $928,000
due primarily to higher research and development costs in the Comparable Quarter
for our Noble Technology Services Division.
OTHER
The following table sets forth the operating revenues and the operating
costs and expenses for our other services for the three months ended September
30, 2004 and 2003:
OPERATING COSTS
OPERATING REVENUES AND EXPENSES
-------------------------------- --------------------------------
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- --------------------------------
2004 2003 2004 2003
------------- -------------- -------------- --------------
(In thousands)
Contract drilling services...................... $ - $ - $ - $ -
Reimbursables (1)............................... 2,268 424 2,110 382
Labor contract drilling services................ 15,146 6,842 12,470 5,350
Engineering, consulting and other............... 1,043 1,018 1,134 967
Depreciation.................................... N/A N/A 874 882
Selling, general and administrative............. N/A N/A 346 265
------------- -------------- -------------- --------------
Total.................................. $ 18,457 $ 8,284 $ 16,934 $ 7,846
============= ============== ============== ==============
- ----------
(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 $8,304,000 due to additional operating days in the North Sea, mostly
attributable to the start of a new labor contract for Apache Corporation in
which we commenced operations on three platforms on the Forties Field during
2004.
OPERATING COSTS AND EXPENSES. Excluding reimbursables, operating costs and
expenses for our other services increased $7,360,000 due to the additional labor
contract operating days in the North Sea.
OTHER ITEMS
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1,350,000 due to additional professional fees
associated with compliance under the requirements of the Sarbanes-Oxley Act of
2002, additional stock-based compensation expense, additional retirement
expenses, and higher insurance premiums for corporate-related policies.
INTEREST EXPENSE. Interest expense decreased $1,640,000 due to the
continued retirement of debt since the beginning of the Comparable Quarter.
Since July 1, 2003, we have made repayments of long-term debt totaling
$115,621,000, including $36,349,000 in the Current Quarter. Included in the
Current Quarter's long-term debt repayments was $25,000,000 principal amount on
the outstanding balance of our bank credit facility.
OTHER, NET. Other, net decreased $1,168,000 due primarily to unrealized
losses on the assets in the Rabbi Trust for the Noble Drilling Corporation
401(k) Savings Restoration Plan compared to unrealized gains in the Comparable
Quarter, and decreased equity in income from our Noble Crosco Drilling Ltd.
joint venture, which owns the Panon jackup drilling rig.
INCOME TAX PROVISION. Income tax provision decreased $284,000 due to lower
pretax earnings, mostly offset by a higher effective tax rate in the Current
Quarter. The effective tax rate was 17 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 India and the Mediterranean Sea, and
reduced earnings from our Brazil and North Sea divisions, which have lower
effective tax rates.
29
FORM 10-Q
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
GENERAL
Net income for the nine months ended September 30, 2004 (the "Current
Period") was $93,212,000, or $0.70 per diluted share, on operating revenues of
$764,080,000, compared to net income for the nine months ended September 30,
2003 (the "Comparable Period") of $136,116,000, or $1.02 per diluted share, on
operating revenues of $747,574,000. Net income in the Current Period included a
$5,850,000, or $0.04 per diluted share, after-tax charge related to damage
incurred on three of our semisubmersibles in the U.S. Gulf of Mexico as a result
of Hurricane Ivan.
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 8 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)
NINE MONTHS ENDED SEPTEMBER 30, 2004
Operating Revenues:
Contract drilling services.................... $ 496,166 $ 180,141 $ - $ - $ 676,307
Reimbursables................................. 13,760 8,408 2,703 6,894 31,765
Labor contract drilling services.............. - - - 35,615 35,615
Engineering, consulting and other............. 2,051 1,362 10,742 6,238 20,393
------------- -------------- ------------- ------------- --------------
$ 511,977 $ 189,911 $ 13,445 $ 48,747 $ 764,080
============= ============== ============= ============= ==============
Operating Costs and Expenses:
Contract drilling services.................... $ 312,487 $ 97,659 $ - $ - $ 410,146
Reimbursables................................. 10,549 7,887 2,659 6,568 27,663
Labor contract drilling services.............. - - - 28,756 28,756
Engineering, consulting and other............. (2,048) 228 14,961 6,615 19,756
Depreciation.................................. 86,955 34,137 490 2,619 124,201
Selling, general and administrative........... 15,688 6,260 879 1,313 24,140
------------- -------------- ------------- ------------- --------------
$ 423,631 $ 146,171 $ 18,989 $ 45,871 $ 634,662
============= ============== ============= ============= ==============
30
FORM 10-Q
INTERNATIONAL DOMESTIC
CONTRACT CONTRACT ENGINEERING
DRILLING DRILLING & CONSULTING
SERVICES SERVICES SERVICES OTHER TOTAL
------------- -------------- ------------- ------------- --------------
(In thousands)
NINE MONTHS ENDED SEPTEMBER 30, 2003
Operating Revenues:
Contract drilling services.................... $ 489,532 $ 182,693 $ - $ - $ 672,225
Reimbursables................................. 11,973 6,539 13,423 2,563 34,498
Labor contract drilling services.............. - - - 20,757 20,757
Engineering, consulting and other............. 883 9,179 6,873 3,159 20,094
------------- -------------- ------------- ------------- --------------
$ 502,388 $ 198,411 $ 20,296 $ 26,479 $ 747,574
============= ============== ============= ============= ==============
Operating Costs and Expenses:
Contract drilling services.................... $ 279,327 $ 92,301 $ - $ - $ 371,628
Reimbursables................................. 9,209 6,022 13,175 2,419 30,825
Labor contract drilling services.............. - - - 16,951 16,951
Engineering, consulting and other............. (216) 2,575 14,786 2,908 20,053
Depreciation ................................. 69,966 34,582 500 2,606 107,654
Selling, general and administrative........... 11,806 6,419 926 767 19,918
------------- -------------- ------------- ------------- --------------
$ 370,092 $ 141,899 $ 29,387 $ 25,651 $ 567,029
============= ============== ============= ============= ==============
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 nine months ended September 30,
2004 and 2003:
AVERAGE RIG
UTILIZATION (1) OPERATING DAYS (2) AVERAGE DAYRATE
--------------------- --------------------- ----------------------------
NINE MONTHS ENDED NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
--------------------- --------------------- ----------------------------
2004 2003 2004 2003 2004 2003
---- ---- ----- ------ -------------- ------------
International (3):
Jackups........................ 83% 84% 8,119 7,243 $ 50,064 $ 52,020
Semisubmersibles - >6,000'(4).. 75% 100% 274 273 $ 144,361 $ 146,226
Semisubmersibles - <6,000'(5).. 100% 93% 274 255 $ 47,347 $ 43,116
Drillships..................... 59% 100% 483 819 $ 76,959 $ 75,505
----- ----------
Total International............ 82% 86% 9,150 8,590 $ 54,226 $ 56,989
===== ==========
Domestic (6):
Jackups........................ 96% 89% 528 964 $ 44,360 $ 28,650
Semisubmersibles - >6,000'(4).. 99% 84% 1,276 1,145 $ 104,458 $ 124,965
Semisubmersibles - <6,000'(5).. 24% 42% 130 89 $ 36,885 $ 46,506
Submersibles .................. 92% 74% 758 402 $ 24,584 $ 19,527
----- ----------
Total Domestic................. 84% 81% 2,692 2,600 $ 66,917 $ 70,267
===== ==========
- ----------
(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.
31
FORM 10-Q
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 nine
months ended September 30, 2004 and 2003:
OPERATING COSTS
OPERATING REVENUES AND EXPENSES
--------------------------------- -----------------------------------
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------- -----------------------------------
2004 2003 2004 2003
------------- -------------- -------------- --------------
(In thousands)
Contract drilling services...................... $ 496,166 $ 489,532 $ 312,487 $ 279,327
Reimbursables (1)............................... 13,760 11,973 10,549 9,209
Labor contract drilling services................ - - - -
Engineering, consulting and other............... 2,051 883 (2,048) (216)
Depreciation ................................... N/A N/A 86,955 69,966
Selling, general and administrative............. N/A N/A 15,688 11,806
------------- -------------- -------------- --------------
Total.................................. $ 511,977 $ 502,388 $ 423,631 $ 370,092
============= ============== ============== ==============
- ----------
(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. International contract drilling services revenues
increased $6,634,000 as additional operating days in our Middle East and Mexico
divisions were partially offset by weaker market conditions in the North Sea and
West Africa, and a shipyard project on the Noble Roger Eason drillship in
Brazil. We had 943 additional operating days in our Middle East division due
primarily to the acquisition of the Noble Gene House and Noble Charlie Yester
premium jackups in July 2003 and September 2003, respectively, and the
mobilization of the Noble Carl Norberg premium jackup to the Mediterranean Sea
from the U.S. Gulf of Mexico in December 2003. In Mexico, we experienced an
additional 373 operating days due to the mobilization of three premium jackups
from the U.S. Gulf of Mexico since the beginning of the Comparable Period for
long-term contracts with Pemex. The generally weaker market conditions in the
North Sea resulted in lower utilization and average dayrates in the Current
Period for this region. Utilization in the North Sea in the Current Period
decreased to 87 percent from 97 percent in the Comparable Period, while our
average dayrate decreased 13 percent to $51,000. Although our average dayrate in
West Africa increased slightly, utilization on our jackups in this region was 54
percent in the Current Period as compared to 61 percent in the Comparable
Period. The increase in engineering, consulting and other revenue of $1,168,000
was attributable primarily to an equipment inspection fee earned on a per day
basis by the Noble Homer Ferrington as part of the rig's preparations for a
two-year contract in Nigeria.
OPERATING COSTS AND EXPENSES. International contract drilling services
expenses increased $33,160,000 due to the additional operating days in our
Middle East and Mexico divisions following the acquisition of two premium
jackups and the mobilization of a combined four premium jackups out of the U.S.
Gulf of Mexico into these regions since the beginning of the Comparable Period,
and the shipyard project on the Noble Homer Ferrington semisubmersible, which
was transferred to our West Africa division from the U.S. Gulf of Mexico in July
2004. In addition, we performed maintenance projects on our three drillships in
Brazil, including the Noble Roger Eason project that we expect to complete
during the fourth quarter of 2004, and we experienced higher labor costs in all
our international regions. Engineering, consulting and other expenses in our
international contract drilling services segment decreased $1,832,000 due to
lower minority interest related to our Noble Muravlenko drillship. The Noble
Muravlenko, in which we own an 82 percent interest, incurred additional downtime
in the Current Period, as well as the rig's drydocking in late July 2004,
resulting in reduced minority interest. Depreciation expense increased
$16,989,000 due to the mobilization of four rigs to international locations
during 2003, the acquisition of the Noble Gene House and Noble Charlie Yester
during 2003, and the transfer of the Noble Homer Ferrington to our West Africa
division. See the discussion below under "Other items" regarding selling,
general and administrative expenses.
32
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 nine
months ended September 30, 2004 and 2003:
OPERATING COSTS
OPERATING REVENUES AND EXPENSES
------------------------------- -------------------------------
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- -------------------------------
2004 2003 2004 2003
------------- -------------- -------------- --------------
(In thousands)
Contract drilling services...................... $ 180,141 $ 182,693 $ 97,659 $ 92,301
Reimbursables (1)............................... 8,408 6,539 7,887 6,022
Labor contract drilling services................ - - - -
Engineering, consulting and other............... 1,362 9,179 228 2,575
Depreciation.................................... N/A N/A 34,137 34,582
Selling, general and administrative............. N/A N/A 6,260 6,419
------------- -------------- -------------- --------------
Total.................................. $ 189,911 $ 198,411 $ 146,171 $ 141,899
============= ============== ============== ==============
- ----------
(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 decreased
$2,552,000 due to a lower average dayrate on our semisubmersibles and fewer
operating days on our jackups following the mobilization of four premium jackups
out of the U.S. Gulf of Mexico to international locations since the beginning of
the Comparable Period. These items were mostly offset by a higher average
dayrate on our jackups and higher utilization and average dayrates on our
submersibles. Market conditions for jackups and submersibles in the U.S. Gulf of
Mexico began to improve during the Current Period as the supply of such rigs has
come closer into balance with demand following the industry's mobilization of
jackup rigs out of this region for international opportunities. Utilization of
our submersibles increased to 92 percent from 74 percent in the Comparable
Period, while the average dayrate on these units increased 26 percent to
$24,584. Likewise, the average dayrate on our jackup rigs increased 55 percent,
although we experienced 436 fewer operating days due to the mobilization of the
three premium jackups to Mexico for long-term contracts with Pemex and the
mobilization of another premium jackup to the Mediterranean Sea during 2003. The
Noble Homer Ferrington operated for an additional 54 days in the Current Period
as compared to the Comparable Period before entering the shipyard in early July
2004 for upgrades in preparation for its two-year contract in Nigeria. However,
the average dayrate on the units with water depth ratings of 6,000 feet or
greater decreased 16 percent due to certain units operating on the spot-rate
market with lower average dayrates than those earned while under long-term
contracts, and additional downtime in the Current Period. The decrease in
engineering, consulting and other revenues of $7,817,000 was attributable to the
sale of our interest in certain deepwater oil and gas properties during the
fourth quarter of 2003.
OPERATING COSTS AND EXPENSES. Domestic contract drilling services expenses
increased $5,358,000 due to a $9,000,000 pre-tax charge related to costs
incurred to repair damage to three of our semisubmersibles in the U.S. Gulf of
Mexico as a result of Hurricane Ivan. Excluding this charge, domestic contract
drilling services expenses decreased $3,642,000 due to the mobilization of four
jackup rigs from the U.S. Gulf of Mexico to international regions and the
transfer of the Noble Homer Ferrington semisubmersible to our West Africa
division, partially offset by increased costs attributable to the activation of
the Noble Lorris Bouzigard and Noble Therald Martin semisubmersibles, which were
placed into service in March 2003 and November 2003, respectively. The lower
engineering, consulting and other expenses of $2,347,000 was due to the sale of
our interests in certain deepwater oil and gas properties during the fourth
quarter of 2003. Depreciation expense decreased $445,000 due to the mobilization
of four premium jackups out of the U.S. Gulf of Mexico and transfer of the Noble
Homer Ferrington to our West Africa division, mostly offset by additional
depreciation attributable to the activation of the Noble Lorris Bouzigard and
Noble Therald Martin semisubmersibles. See the discussion below under "Other
items" regarding selling, general and administrative expenses.
33
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 nine
months ended September 30, 2004 and 2003:
OPERATING COSTS
OPERATING REVENUES AND EXPENSES
------------------------------- ---------------------------------
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- ---------------------------------
2004 2003 2004 2003
------------- -------------- -------------- --------------
(In thousands)
Contract drilling services...................... $ - $ - $ - $ -
Reimbursables (1)............................... 2,703 13,423 2,659 13,175
Labor contract drilling services................ - - - -
Engineering, consulting and other............... 10,742 6,873 14,961 14,786
Depreciation.................................... N/A N/A 490 500
Selling, general and administrative............. N/A N/A 879 926
------------- -------------- -------------- --------------
Total.................................. $ 13,445 $ 20,296 $ 18,989 $ 29,387
============= ============== ============== ==============
- ----------
(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 $3,869,000 due principally
to the sale of a license of our OptiDrill(TM) drilling efficiency technology in
the Current Period and additional project management engagements conducted by
our Triton Engineering Services subsidiary.
OPERATING COSTS AND EXPENSES. Excluding reimbursables, operating costs and
expenses for our engineering and consulting services segment increased $118,000
due to the additional project management engagements, mostly offset by higher
research and development costs in the Comparable Period for our Noble Technology
Services Division.
OTHER
The following table sets forth the operating revenues and the operating
costs and expenses for our other services for the nine months ended September
30, 2004 and 2003:
OPERATING COSTS
OPERATING REVENUES AND EXPENSES
------------------------------- -------------------------------
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- -------------------------------
2004 2003 2004 2003
------------- -------------- -------------- --------------
(In thousands)
Contract drilling services...................... $ - $ - $ - $ -
Reimbursables (1)............................... 6,894 2,563 6,568 2,419
Labor contract drilling services................ 35,615 20,757 28,756 16,951
Engineering, consulting and other............... 6,238 3,159 6,615 2,908
Depreciation.................................... N/A N/A 2,619 2,606
Selling, general and administrative............. N/A N/A 1,313 767
------------- -------------- -------------- --------------
Total.................................. $ 48,747 $ 26,479 $ 45,871 $ 25,651
============= ============== ============== ==============
- ----------
(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 $14,858,000 due to additional operating days in the North Sea, mostly
attributable to the start of a new labor contract under which we commenced
34
FORM 10-Q
operations on three platforms during the Current Period. Foreign exchange
fluctuations related to our operations in Canada on the Hibernia project also
resulted in higher revenues. We are paid for this work in Canadian dollars, and
the Canadian dollar was stronger in the Current Period than in the Comparable
Period. In addition, contractual provisions covering the Hibernia project
allowed for increases in the labor, maintenance and administrative portions of
the dayrate on the project during the Current Period. Engineering, consulting
and other revenues increased $3,079,000 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 $16,071,000 due to the additional
labor contract operating days in the North Sea, the stronger Canadian dollar,
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 $4,222,000 due to additional professional fees
associated with compliance under the requirements of the Sarbanes-Oxley Act of
2002, additional stock-based compensation expense, additional retirement
expenses and higher insurance premiums for corporate-related policies.
INTEREST EXPENSE. Interest expense decreased $4,795,000 due to the
continued retirement of debt since the beginning of the Comparable Period. Since
January 1, 2003, we have made repayments of long-term debt totaling
$146,977,000, including $66,397,000 in the Current Period.
OTHER, NET. Other, net increased $2,463,000 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 lower foreign exchange losses
in the Current Period. The Panon was in the shipyard for two months during the
Comparable Period, whereas the rig operated the entire Current Period.
INCOME TAX PROVISION. Income tax provision decreased $965,000 due to lower
pretax earnings, mostly offset by a higher effective tax rate in the Current
Period. The effective tax rate was 15 percent in the Current Period compared to
11 percent in the Comparable Period. The higher effective tax rate in the
Current Period was a result of additional earnings from rigs owned by U.S.
subsidiaries which were operating in Mexico, India and the Mediterranean Sea and
reduced earnings from our Brazil and North Sea divisions, which have lower
effective tax rates.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
Our principal capital resource in the Current Period was net cash provided
by operating activities of $212,656,000, which compared to $226,124,000 in the
Comparable Period. Although net income in the Current Period was $42,904,000
less than the Comparable Period, $22,703,000 of the decrease was attributable to
increased depreciation and the amortization of deferred repairs and maintenance
expenditures. However, our change in working capital was $9,772,000 less in the
Current Period than the Comparable Period.
At September 30, 2004, we had cash and cash equivalents of $94,492,000,
$84,897,000 of marketable debt securities and $88,999,000 of funds available
under our bank credit facility. We had working capital, including cash, of
$200,343,000 and $177,936,000 at September 30, 2004 and December 31, 2003,
respectively. Total debt as a percentage of total debt plus shareholders' equity
decreased to 19 percent at September 30, 2004 from 21 percent at December 31,
2003 and 23 percent at September 30, 2003.
We repurchased 1,087,000 of our ordinary shares during the Current Period
at an average price of $36.54 per ordinary share for a total cost of
$39,714,000, with none during the Current Quarter. 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 November 3, 2004, 9,162,000 shares remained
available under this authorization. Proceeds from the exercise of stock options
by employees of the Company were
35
FORM 10-Q
$52,344,000 in the Current Period, as compared to $6,303,000 in the Comparable
Period. The sales price of our ordinary shares reached a high of $46.50 in the
Current Period, as compared to a high of $38.40 in the Comparable Period.
CAPITAL EXPENDITURES
Capital expenditures totaled $86,624,000 and $85,211,000 for the Current
Quarter and Comparable Quarter, respectively, and $165,074,000 and $236,186,000
for the Current Period and Comparable Period, respectively. Included in capital
expenditures for the Current Quarter and Current Period was $32,900,000 for the
exercise of our option to purchase the Maersk Viking (renamed the Noble Cees van
Diemen) premium jackup rig. Together with the option fee of $15,000,000 we paid
in June 2003, the aggregate purchase price for the rig was $47,900,000. Also
included in capital expenditures for the Current Period was $29,500,000 for the
acquisition of the Okhi (renamed the Noble Mark Burns), a Levingston 111-S
designed independent leg jackup unit. Expenditures in the Comparable Period
included capital upgrades to certain semisubmersibles of $103,680,000, the
exercise price of options to purchase the Noble Gene House and Noble Charlie
Yester premium jackup rigs for an aggregate exercise price of $58,100,000 and
the acquisition of options for $28,200,000 to purchase the Maersk Viking and
Maersk Valiant premium jackup rigs from a subsidiary of A.P. Moeller. Deferred
repair and maintenance expenditures totaled $23,847,000 and $6,713,000 for the
Current Quarter and Comparable Quarter, respectively, and $46,538,000 and
$21,144,000 for the Current Period and Comparable Period, respectively. We
expect our capital expenditures and deferred repair and maintenance expenditures
for the period October 1 through December 31, 2004 will aggregate approximately
$70,000,000 and $7,000,000, respectively. Included in our expected capital
expenditures is $28,400,000 representing the exercise of our option to purchase
the Maersk Valiant (renamed the Noble David Tinsley) on October 28, 2004.
The Noble Mark Burns is currently in the Dalian New Shipyard in Dalian,
China, where we are performing refurbishments and upgrades. We plan to mobilize
the unit to the Middle East during the fourth quarter of 2004, where additional
upgrade work will include leg extension to 300 feet water depth capability, a 60
foot cantilever, and quarters expansion for 160 personnel. We estimate this
upgrade will approximate $30,000,000.
In connection with several projects, we have entered into agreements with
various vendors to purchase or construct property and equipment that generally
have long lead times for delivery. 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. As of September 30, 2004, we had approximately
$30,000,000 of outstanding purchase commitments related to these projects, which
are included in the projected 2004 capital expenditure and deferred repair and
maintenance amounts described 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. During the Current Quarter, we repaid $25,000,000 of the
outstanding borrowings under the Credit Agreement. At September 30, 2004, we had
outstanding borrowings and outstanding letters of credit of $100,000,000 and
$11,001,000, respectively, under the Credit Agreement, with $88,999,000
remaining available thereunder. Additionally, at September 30, 2004, we had
other letters of credit and third-party corporate guarantees totaling
$36,644,000 and $41,386,000 of performance and customs bonds supported by surety
bonds.
At September 30, 2004, total long-term debt was $523,182,000, including
current maturities of $17,751,000, compared to total long-term debt of
$589,573,000, including current maturities of $47,666,000, at December 31, 2003.
At September 30, 2003, total long-term debt was $622,732,000, including current
maturities of $66,659,000.
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
In August 2004, an indirect, wholly-owned subsidiary of Noble was served
as a named defendant in two lawsuits filed in the Circuit Courts of the State of
Mississippi involving numerous other companies (not affiliated with Noble) as
co-defendants. The lawsuits seek an unspecified amount of monetary damages on
behalf of approximately 94 named individuals alleging personal injury or death,
including claims under the Jones Act, purportedly resulting from exposure to
asbestos on drilling rigs and associated facilities during the period 1965
through 1986. The lawsuits are in preliminary stages and we have not confirmed
the number of plaintiffs, if any, that were employed by our subsidiary or
otherwise associated with our drilling operations during the relevant period. We
intend to defend vigorously against the litigation, and based on information
currently available, we do not believe the resolution of these lawsuits will
have a material adverse effect on our financial position, results of operations
or cash flows.
Noble Asset Company Limited ("NACL"), an indirect, wholly-owned 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
36
FORM 10-Q
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.
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 9 to our accompanying
consolidated financial statements for the disclosures required by SFAS 132
(revised 2003).
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, is
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 September 30, 2004, there was
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FORM 10-Q
$100,000,000 of outstanding borrowings under our Credit Agreement. An immediate
change of one percent in the interest rate would cause a $1,000,000 change in
interest expense on an annual basis.
Although we conduct business internationally, a substantial majority of
the value of our foreign transactions are denominated in U.S. Dollars.
Generally, we structure our drilling contracts in U.S. Dollars to mitigate our
exposure to fluctuations in foreign currencies. Other than trade accounts
receivable and trade accounts payable, which mostly offset each other, we do not
currently have any other significant assets, liabilities or financial
instruments that are sensitive to foreign currency exchange rates.
Our North Sea operations have 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 during 2004, we entered into forward contracts
in March and April 2004 to purchase 1,400,000 Euros and 1,200,000 British
Pounds, respectively, per month for the months April 2004 through December 2004.
These forward contracts represented approximately 50 percent of our forecasted
Euro and British Pound requirements for 2004 after the respective dates we
entered into the forward contracts. 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. The cumulative net unrealized
gain on these forward contracts is included in "Accumulated other comprehensive
income" in our Consolidated Balance Sheet at September 30, 2004. We did not
recognize a gain or loss due to hedge ineffectiveness in our Consolidated
Statements of Income for the three and nine months ended September 30, 2004
related to these forward contracts. See Note 10 to our accompanying consolidated
financial statements for additional information on the balance of the net
unrealized gain on these forward contracts and the related activity for the
three and nine months ended September 30, 2004.
ITEM 4. CONTROLS AND PROCEDURES
Noble's Chairman and Chief Executive Officer, James C. Day, and Noble's
Senior Vice President 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 U.S. 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 September 30, 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 6. EXHIBITS
The information required by this Item 6 is set forth in the Index to
Exhibits accompanying this quarterly report and is incorporated herein by
reference.
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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: November 9, 2004 By: /s/ Mark A. Jackson
------------------------------------------------
Mark A. Jackson,
Senior Vice President, Chief Financial Officer,
Treasurer, Controller and Assistant Secretary
(Principal Financial and Accounting Officer)
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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.
40