<PAGE> 1
Filed Pursuant to Rule 424(a)
Registration No. 333-02929
***************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY *
* NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH *
* SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO *
* REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH *
* STATE. *
* *
***************************************************************************
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 31, 1996
PROSPECTUS
[NOBLE DRILLING CORPORATION LOGO]
$125,000,000
NOBLE DRILLING CORPORATION
% SENIOR NOTES DUE 2006
---------------------
The % Senior Notes due 2006 (the "Senior Notes") are being offered (the
"Debt Offering") by Noble Drilling Corporation (the "Company"). The Senior Notes
will mature on , 2006. Interest on the Senior Notes is payable
semiannually on and of each year, commencing
, 1996. The Senior Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after , 2001 at
redemption prices set forth herein, together with accrued interest to the
redemption date. See "Description of Senior Notes -- Optional Redemption."
Concurrently with the Debt Offering, the Company is offering 16,500,000
shares (18,975,000 shares if the underwriters' over-allotment options are
exercised in full) of Common Stock pursuant to separate prospectuses in the
United States and Canada (the "U.S. Offering") and outside the United States and
Canada (the "International Offering," and together with the U.S. Offering, the
"Equity Offerings"). The Company will use $300,000,000 of the aggregate net
proceeds from the Debt Offering and the Equity Offerings (the "Offerings"), plus
5,000,000 shares of Common Stock, for the acquisition (the "Acquisition") from
Royal Nedlloyd N.V. ("Nedlloyd") of the assets, including $25,000,000 in net
working capital, of Nedlloyd's offshore drilling division, Neddrill
("Neddrill"). See "Use of Proceeds" and "The Acquisition." The closing of each
Offering is conditioned upon the simultaneous closing of the other Offerings and
the simultaneous closing of the Acquisition.
The Senior Notes will be unsecured obligations of the Company ranking pari
passu in right of payment with all other senior unsecured indebtedness of the
Company, which at March 31, 1996 consisted of the Company's outstanding
$125,000,000 principal amount of 9 1/4% Senior Notes Due 2003, and will be
senior in right of payment to all existing and future subordinated indebtedness
of the Company, of which there was none at the date hereof. The Senior Notes
will be effectively subordinated to any secured indebtedness of the Company to
the extent of the value of the assets securing such indebtedness and will be
effectively subordinated to all obligations of the Company's subsidiaries. At
March 31, 1996, after giving effect to the use of proceeds from the Offerings as
described in "Use of Proceeds," the Company would have had no indebtedness for
borrowed money secured by the Company's assets. In addition, subsidiaries of the
Company would have had liabilities (including trade payables) aggregating
approximately $92,900,000 (including $13,700,000 of indebtedness) and would have
had approximately $24,724,000 available for borrowing or to support the issuance
of letters of credit as of that date under lines of credit and a letter of
credit facility. See "Risk Factors -- Ranking of the Senior Notes."
Upon a Change of Control (as defined herein), the Company will be required
to offer to purchase all the outstanding Senior Notes at a purchase price equal
to 101% of their principal amount plus accrued and unpaid interest, if any. In
addition, the Company will be required to make an offer to purchase the Senior
Notes, at a purchase price equal to 100% of their principal amount, plus accrued
interest, if any, from the Net Available Proceeds (as defined herein) of Asset
Sales (as defined herein) to the extent described herein. See "Description of
Senior Notes -- Certain Covenants."
Application has been made to list the Senior Notes on the New York Stock
Exchange. The Common Stock of the Company is listed on the New York Stock
Exchange under the symbol "NE."
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE SENIOR NOTES OFFERED HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(1)(3)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Senior Note...................... % % %
- ------------------------------------------------------------------------------------------------------
Total................................ $ $ $
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from , 1996 to the date of delivery.
(2) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(3) Before deducting expenses payable by the Company estimated at $350,000.
---------------------
The Senior Notes are offered by the several Underwriters, subject to prior
sale, when, as and if issued to and accepted by them, subject to approval of
certain legal matters by counsel for the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the Global Certificate will be made through the book-entry
facilities of the Depositary on or about , 1996.
---------------------
MERRILL LYNCH & CO.
SALOMON BROTHERS INC
SIMMONS & COMPANY
INTERNATIONAL
---------------------
The date of this Prospectus is , 1996.
<PAGE> 2
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OR
THE SENIOR NOTES OF THE COMPANY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK
STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED
AT ANY TIME.
2
<PAGE> 3
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus or in documents and financial statements incorporated in this
Prospectus by reference. Unless otherwise indicated, the information in this
Prospectus assumes that the underwriters' over-allotment options in connection
with the Equity Offerings will not be exercised. As used in this Prospectus,
unless otherwise required by the context, the term "Noble Drilling" refers to
Noble Drilling Corporation and the term "Company" refers to Noble Drilling
Corporation and its consolidated subsidiaries.
THE COMPANY
The Company is a leading provider of diversified services for the oil and
gas industry worldwide. The Company's activities include offshore and land
drilling services, turnkey drilling services and engineering and production
management services. The Company's drilling fleet is broadly diversified,
allowing it to work in a variety of operating conditions. Noble Drilling and its
predecessors have been engaged in the contract drilling of oil and gas wells for
others domestically since 1921 and internationally during various periods since
1939.
BUSINESS STRATEGY. The Company's business strategy has been to actively
expand its international and offshore drilling capabilities through acquisitions
and rig upgrades and modifications, and by redeploying assets in important
geological areas. In recent years the Company has included within its strategic
objectives a focus on increasing the number of rigs in its fleet capable of
drilling in deeper water depths.
Acquisitions
Since 1988, the Company has completed a series of strategic acquisitions
including: the purchases in 1996 and late 1995 of four independent leg
cantilevered jackup rigs; the 1994 merger with Chiles Offshore Corporation
("Chiles"), which added 13 jackup rigs to the Company's fleet; and the 1993
purchase of nine jackup rigs from The Western Company of North America
("Western").
THE NEDDRILL ACQUISITION
On April 25, 1996, the Company entered into an agreement of sale and
purchase with Nedlloyd and its wholly owned subsidiary, Neddrill Holding B.V.,
to acquire Neddrill's offshore contract drilling, accommodation and other oil
and gas exploration and production related service businesses, including the
acquisition of $25,000,000 in net working capital and the transfer of personnel.
The purchase price is $300,000,000 in cash plus 5,000,000 shares of Common
Stock.
The Acquisition promotes the Company's historic and long-term strategic
goals of expanding its international presence and enhancing its deepwater
drilling capabilities. The Acquisition adds deepwater and harsh environment
capabilities to the Company's fleet, diversifies the fleet to include drillships
and a semisubmersible and increases the Company's geographic diversification by
providing entry into the Brazilian offshore market and expanding its presence in
the North Sea.
Neddrill's operations are managed from its headquarters in Rotterdam, The
Netherlands. Its fleet includes two dynamically positioned drillships (one of
which is currently operating offshore West Africa, the second offshore Brazil);
one second generation semisubmersible rig operating in the North Sea; and six
harsh environment jackup drilling rigs (five operating in the North Sea and one
offshore Argentina). Neddrill expects to acquire through a joint venture
arrangement a 41 percent interest in, and to operate, a third dynamically
positioned drillship upon the owner's receipt of final consent from the Russian
authorities. In addition, Neddrill operates under a bareboat charter a seventh
harsh environment jackup rig as a hotel accommodation unit in the North Sea.
Neddrill's semisubmersible and jackup rigs are all currently under contract,
with commitments extending through August 1996 to 2001, depending on the rig.
All three drillships are committed under five to six year contracts to work for
Petroleo Brasileiro S.A. ("Petrobras") offshore Brazil. In addition to the one
drillship already on location, the other two are scheduled to arrive in late
1996 or early 1997.
3
<PAGE> 4
[Omitted here is a picture of the Neddrill 2, a dynamically positioned
drillship, and the caption "Neddrill 2."]
[Omitted here is a picture of the Neddrill 6, a North Sea type, column
stabilized semisubmersible drilling unit, and the caption "Neddrill 6."]
[Omitted here is a logo with the words "Noble Drilling" centered over the
numeral "75" and the years "1921-1996."]
<PAGE> 5
Modifications and Upgrades
The Company continues to pursue an extensive rig modification,
refurbishment and upgrade program. Two of the Company's independent leg rigs,
the Eddie Paul and John Sandifer, completed refurbishment projects in 1995. The
Eddie Paul was converted to an Extended Reach Cantilever (ERC) rig to enable
this unit to drill over larger platforms. The rig's legs were extended from 467
feet to 500 feet to increase its water depth capability to approximately 390
feet. A top drive drilling system and cascading mud system were also installed
on this rig. The modifications make the Eddie Paul the largest rig in the Gulf
of Mexico in terms of cantilever reach and one of the largest in terms of water
depth capability. The John Sandifer was converted to a cantilever rig with a top
drive system and cascading mud system to make the rig more versatile. The total
cost of these two projects was approximately $35,100,000. Both rigs were
contracted for work prior to completion of shipyard work and have been under
contract since departure from the shipyard. In addition, three of the Company's
independent leg cantilevered rigs, the George McLeod, Percy Johns and Charles
Copeland, were refurbished and upgraded in 1995.
During the first three months of 1996, the Company incurred capital
expenditures of approximately $42,200,000 relating primarily to the purchase of
a 300-foot independent leg cantilevered rig, the Gus Androes (formerly the Odin
Explorer), and a 250-foot independent leg cantilevered rig, the Dana, and the
upgrade of a 300-foot independent leg cantilevered rig, the Azteca. At March 31,
1996, the Company had planned capital expenditures for the remainder of 1996 of
approximately $54,000,000 related to upgrades of the Azteca (to be renamed the
Gene Rosser), a second 300-foot independent leg cantilevered rig, the Roy
Butler, the Dana and the Gus Androes, and replacements of equipment and drill
pipe. Neddrill has planned capital expenditures of approximately $77,000,000 in
1996 (approximately $70,000,000 of which is expected to be spent after the
consummation of the Acquisition), including upgrades to the Neddrill 2
drillship, the Neddrill Trigon, a 360-foot harsh environment jackup rig, and the
Neddrill Muravlenko drillship totaling approximately $58,000,000. The Company
continues to evaluate additional upgrade projects and is considering major
upgrades to the Nimitz and Coral Sea, including conversion of the Nimitz to ERC
design. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Redeployments
From time to time, the Company has strategically redeployed certain of its
offshore drilling rigs, primarily from the Gulf of Mexico to other drilling
markets worldwide, in order to position assets in important geological areas.
During 1995 and 1994, the Company transferred two jackup rigs from the U.S. Gulf
of Mexico to the west coast of Africa, a jackup rig from the Mexican Gulf of
Mexico to Qatar and two jackup rigs from the U.S. Gulf of Mexico to Lake
Maracaibo, Venezuela. In addition, the Company in the past has moved other
drilling units from the U.S. Gulf of Mexico to India and the west coast of
Africa and has moved certain of its rigs between the U.S. and Mexican Gulf
markets.
OFFSHORE CONTRACT DRILLING OPERATIONS. The Company's offshore contract
drilling operations, which accounted for approximately 55 percent of operating
revenues in 1995, are conducted worldwide. Giving effect to the Acquisition, the
Company's offshore drilling fleet will consist of 55 units, composed of 42
jackup rigs, two drillships, one semisubmersible rig, eight submersible rigs and
two posted barges. In addition, the Company expects to acquire through a joint
venture arrangement a 41 percent interest in, and to operate, a third
dynamically positioned drillship upon the owner's receipt of final consent from
the Russian authorities. The Company will also acquire Neddrill's rights to
operate under a bareboat charter a harsh environment jackup rig as a hotel
accommodation unit in the North Sea. After the Acquisition, the Company's
principal regions of offshore contract drilling operations will include the
North Sea, the Gulf of Mexico, West Africa, Brazil, Venezuela, the Middle East
and, to a lesser extent, India.
4
<PAGE> 6
The following table sets forth the composition of the Company's and
Neddrill's offshore drilling fleets as of March 31, 1996.
<TABLE>
<CAPTION>
COMPANY NEDDRILL COMBINED
------- -------- --------
<S> <C> <C> <C>
Jackups
Total rigs................................................... 36 6(A) 42
Rigs under contract.......................................... 27 6 33
Drillships
Total rigs................................................... -- 2(B) 2
Rigs under contract.......................................... -- 2 2
Semisubmersible
Total rigs................................................... -- 1 1
Rigs under contract.......................................... -- 1 1
Submersibles
Total rigs................................................... 8 -- 8
Rigs under contract.......................................... 4 -- 4
Posted Barges
Total rigs................................................... 2 -- 2
Rigs under contract.......................................... 2 -- 2
Total Rigs..................................................... 46 9 55
Total Rigs under Contract...................................... 33 9 42
</TABLE>
- ---------------
(A) Excludes the Neddrill Kolskaya harsh environment jackup rig currently
operating as a hotel accommodation unit in the North Sea under a bareboat
charter.
(B) Excludes the Neddrill Muravlenko drillship in which Neddrill expects to
acquire a 41 percent interest.
TURNKEY DRILLING AND ENGINEERING SERVICES. Through the Company's wholly
owned subsidiary, Triton Engineering Services Company ("Triton"), the Company
provides turnkey drilling, drilling project management, drilling and completion
planning and design, specialized drilling tools and services, and contract
engineering and consulting manpower. The Company also provides engineering
services relating primarily to the design of drilling equipment for offshore
development and production services and to the recertification of oilfield
equipment.
LABOR CONTRACTS. The Company's offshore operations also included at March
31, 1996 labor contracts for drilling and workover activities covering 13
offshore rigs, which are not owned or leased by the Company, operating in the
U.K. North Sea. Under these labor contracts, the Company provides its customers
with field personnel and manages the drilling operations. The Company has also
contracted to staff and manage two rigs offshore Newfoundland commencing in the
second half of 1997.
LAND DRILLING OPERATIONS. The Company's land drilling operations are
conducted in Canada, Texas and Louisiana. At March 31, 1996, 19 of the Company's
46 land rigs were available for active bidding. Thirteen of the 19 rigs were
under contract at that date. The Company's land drilling operations have become
less significant as the Company has emphasized its offshore and international
operations. Giving effect to the Acquisition, the Company's land drilling
operations would have comprised approximately six percent of the Company's
revenues in 1995.
The Company's principal executive offices are located at 10370 Richmond
Avenue, Suite 400, Houston, Texas 77042, and its telephone number is (713)
974-3131.
5
<PAGE> 7
THE DEBT OFFERING(1)
Securities................. $125,000,000 principal amount of % Senior Notes
due 2006.
Maturity Date.............. , 2006.
Interest Payment Dates..... Interest on the Senior Notes will be payable
semiannually in arrears on and
of each year, commencing
, 1996.
Optional Redemption........ The Senior Notes will be redeemable at the option of
the Company, in whole or in part, at any time on or
after , 2001, at redemption prices set
forth herein, together with accrued and unpaid
interest, if any, to the redemption date. See
"Description of Senior Notes -- Optional
Redemption."
Certain Covenants.......... The Indenture will also contain covenants
restricting, among other things, the ability of the
Company to (a) create or incur debt or create
certain types of preferred stock; (b) pay dividends
and other distributions and make certain
investments; (c) create liens on its assets; (d)
enter into or permit certain sale and lease-back
transactions; (e) dispose of assets; (f) engage in
certain transactions with affiliates; and (g) merge
or consolidate with or into, or sell, lease or
otherwise transfer all or substantially all its
assets to, another entity. During any time the
ratings assigned to the Senior Notes are no less
than BBB- and Baa3, the covenants described under
(a), (b) and (e) above will be suspended. In
addition, the Indenture will require the Company to
make an offer to purchase Senior Notes, at a
purchase price equal to 100 percent of principal
amount, plus accrued and unpaid interest, if any,
from the Net Available Proceeds (as defined under
"Description of Senior Notes") of certain assets
sales. See "Description of Senior Notes -- Certain
Covenants."
Change of Control.......... Upon a Change of Control, the Company will be
required to offer to purchase all the outstanding
Senior Notes at a purchase price equal to 101
percent of principal amount, plus accrued and unpaid
interest, if any, to the date of purchase, in
accordance with the procedures set forth in the
Indenture. See "Description of Senior Notes --
Change of Control."
Ranking.................... The Senior Notes will be unsecured obligations of
the Company ranking pari passu in right of payment
with all other senior unsecured indebtedness of the
Company, including the 9 1/4% Senior Notes Due 2003
of the Company ("9 1/4% Notes"), and will be senior
in right of payment to all existing and future
subordinated indebtedness of the Company. The Senior
Notes will be effectively subordinated to any
secured indebtedness of the Company to the extent of
the value of the assets securing such indebtedness
and will be effectively subordinated to all
obligations of the Company's subsidiaries. At March
31, 1996, after giving effect to the use of proceeds
from the Offerings as described in "Use of
Proceeds," the Company would have had no
indebtedness for borrowed money secured by the
Company's assets. In addition, subsidiaries of the
Company would have had liabilities (including trade
payables) aggregating approximately $92,900,000
(including $13,700,000 of indebtedness) and would
have had approximately $24,724,000 available for
borrowing or to support the issuance of letters of
credit as of that date under lines of credit and a
letter of credit facility. See "Risk Factors --
Ranking of the Senior Notes."
- ---------------
(1) All capitalized terms used herein with respect to the Debt Offering and not
otherwise defined herein have the meanings assigned thereto under
"Description of Senior Notes -- Certain Definitions."
6
<PAGE> 8
Use of Proceeds............ The Company will use the net proceeds from the sale
of the Senior Notes offered hereby of approximately
$122,150,000, together with the estimated net
proceeds to the Company from the Equity Offerings of
approximately $214,700,000, to fund the $300,000,000
cash portion of the purchase price of the
Acquisition and for general corporate purposes. See
"Use of Proceeds."
Listing.................... Application has been made to list the Senior Notes
on the New York Stock Exchange.
RISK FACTORS
See "Risk Factors" for a discussion of certain considerations relevant to
an investment in the Senior Notes offered hereby.
7
<PAGE> 9
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31,
--------------------------------- ---------------------------------------------
PRO FORMA PRO FORMA
1996(1) 1996 1995 1995(1) 1995 1994 1993
--------- -------- -------- --------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(2):
Operating revenues.................. $146,193 $104,757 $ 85,096 $449,493 $327,968 $351,988 $264,531
Operating costs(3).................. $ 92,819 $ 69,664 $ 63,751 $316,302 $240,102 $243,208 $178,684
Depreciation and amortization(4).... $ 14,247 $ 8,930 $ 8,834 $ 57,759 $ 36,492 $ 39,519 $ 28,886
Operating income.................... $ 25,202 $ 14,097 $ 2,013 $ 29,112 $ 11,449 $ 18,163 $ 28,909
Interest expense.................... $ (6,065) $ (3,176) $ (3,024) $(23,691) $(12,156) $(12,351) $ (8,038)
Interest income..................... $ 830 $ 825 $ 1,492 $ 5,501 $ 5,323 $ 5,640 $ 2,497
Net income (loss)................... $ 17,736 $ 10,726 $ (661) $ 5,179 $ 1,594 $ 21,523 $ 22,852
Preferred stock dividends........... $ (1,511) $ (1,511) $ (2,670) $ (7,199) $ (7,199) $(12,764) $ (7,936)
Net income (loss) applicable to
common shares..................... $ 16,225 $ 9,215 $ (3,331) $ (2,020) $ (5,605) $ 8,759 $ 14,916
Net income (loss) applicable to
common shares per share(5)(6)..... $ 0.14 $ 0.10 $ (0.06) $ (0.03) $ (0.08) $ 0.11 $ 0.22
Weighted average common shares
outstanding....................... 117,282 95,782 80,066 111,236 89,736 77,576 66,923
OTHER FINANCIAL DATA(2):
Capital expenditures................ $ 45,442 $ 42,171 $ 16,082 $162,964 $ 87,428 $ 55,834 $173,501(7)
EBITDA(8)........................... $ 39,449 $ 23,027 $ 10,847 $ 86,871 $ 47,941 $ 57,682 $ 57,795
Ratio of earnings to fixed
charges(9)........................ 4.43 x 4.85x 1.35x 1.44 x 1.40x 3.20x 4.04x
Ratio of EBITDA to interest
expense(8)(10).................... 6.50 x 7.25x 3.59x 3.67 x 3.94x 4.67x 7.19x
Ratio of long-term debt to
EBITDA(8)(10)..................... -- -- -- 2.93 x 2.71x 2.19x 2.20x
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, 1996 1995
------------------------- ------------
PRO FORMA(1) ACTUAL ACTUAL
------------ -------- ------------
<S> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA(2):
Working capital........................................................... $ 185,008 $123,190 $101,623
Property and equipment, net............................................... $ 850,742 $525,742 $542,978
Total assets.............................................................. $1,207,554 $757,953 $741,392
Long-term debt............................................................ $ 251,048 $126,048 $129,923
Total debt(11)............................................................ $ 263,658 $138,658 $142,133
Shareholders' equity...................................................... $ 796,099 $531,431 $523,493
</TABLE>
- ---------------
(1) Such data give effect to (i) the completion of the Acquisition and (ii) the
completion of the Offerings and the application of estimated net proceeds
as described in "Use of Proceeds," as if they had occurred, in the case of
the statement of operations data, as of January 1, 1996 or 1995, as the
case may be, and in the case of the balance sheet data, on March 31, 1996.
The closing of each Offering is conditioned upon the simultaneous closing
of the other Offerings and the simultaneous closing of the Acquisition. The
pro forma financial data do not purport to be indicative of the Company's
financial condition or results of operations had the transactions to which
such data give effect been completed on the dates assumed, nor do such data
purport to project the Company's financial condition or results of
operations at any future date or for any future period. For additional
information concerning pro forma adjustments, see the unaudited pro forma
condensed consolidated financial statements included elsewhere in this
Prospectus.
(2) The Summary Historical and Pro Forma Financial Information presents the
restatement of the Company's historical financial statements for 1994 and
prior periods to reflect the 1994 merger acquisition of Chiles, which was
accounted for as a pooling of interests. The Summary Historical and Pro
Forma Financial Information also includes the acquisition of Triton in
April 1994 and the October 1993 acquisition of nine jackup rigs from
Western, both of which were accounted for under the purchase method.
8
<PAGE> 10
(3) Consists of operating costs and expenses other than depreciation and
amortization, selling, general and administrative, minority interest and
asset sales and write-downs/restructuring charges.
(4) Effective January 1, 1995, the Company revised its estimates of salvage
values and remaining depreciable lives of certain rigs. The effect of this
change was a reduction to depreciation and amortization of $6,160,000, or
$0.07 per common share, for the year ended December 31, 1995.
(5) Net income applicable to common shares per share before extraordinary item
was $0.20 for the year ended December 31, 1993.
(6) Includes the $0.02 per share effect of the March 1995 preferred conversion
payment of $1,524,000 related to the conversion of 923,862 shares of the
Company's $2.25 Convertible Exchangeable Preferred Stock. This payment was
accounted for in the first quarter of 1995 as a reduction of net earnings
applicable to common shares when calculating the net loss applicable to
common shares per share.
(7) Includes the acquisition by the Company of nine jackup rigs from Western
for $150,000,000 in cash.
(8) EBITDA (defined to mean operating income (loss) plus depreciation and
amortization for purposes of this table) is a supplemental financial
measure used by the Company in evaluating its business and should be read
in conjunction with all of the information in the Summary Historical and
Pro Forma Financial Information, as well as the Consolidated Financial
Statements and the Unaudited Pro Forma Consolidated Financial Statements
appearing elsewhere in this Prospectus, including the information shown
under cash provided by/used in operating activities, investing activities
and financing activities, and the components thereof, contained in the
Company's Statements of Cash Flows. EBITDA should not be considered as an
alternative to operating income or cash flow from operations or as an
indication of the Company's performance or as a measure of liquidity. See
the definition of "EBITDA" in "Description of Senior Notes" for the meaning
of such term under the Indenture governing the Senior Notes.
(9) For the purposes of computing the ratio, "earnings" represents income
(loss) from continuing operations before income taxes plus fixed charges
exclusive of capitalized interest, and "fixed charges" consists of
interest, whether expensed or capitalized, amortization of debt expense and
an estimated portion of rentals representing interest costs.
(10) The EBITDA ratios are supplemental financial measures used by the Company
in evaluating its financial and liquidity positions and its ability to
satisfy historical interest obligations.
(11) Consists of short-term debt and current installments of long-term debt, and
long-term debt.
9
<PAGE> 11
SUMMARY COMPANY OPERATING INFORMATION(A)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
--------------------------- ------------------------------------
PRO FORMA PRO FORMA
1996(B) 1996 1995 1995(B) 1995 1994 1993
--------- ---- ---- --------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Sources of Operating Revenues:
Offshore drilling
International................... 49% 29 % 28 % 49% 30 % 30 % 30 %
Domestic........................ 16 22 25 18 25 33 45
--- --- --- --- --- --- ---
65 51 53 67 55 63 75
--- --- --- --- --- --- ---
Land drilling
International................... 2 3 8 3 4 5 7
Domestic........................ 2 3 3 3 4 3 3
--- --- --- --- --- --- ---
4 6 11 6 8 8 10
--- --- --- --- --- --- ---
Labor contract drilling services... 6 8 12 8 11 10 13
Turnkey drilling services.......... 23 32 20 16 22 16 --
Engineering and consulting......... 1 2 2 2 3 1 1
Other revenue...................... 1 1 2 1 1 2 1
--- --- --- --- --- --- ---
100% 100 % 100 % 100% 100 % 100 % 100 %
=== === === === === === ===
Total International Operating
Revenues........................... 59% 42 % 52 % 63% 49 % 48 % 53 %
Total Domestic Operating Revenues.... 41 58 48 37 51 52 47
--- --- --- --- --- --- ---
100% 100 % 100 % 100% 100 % 100 % 100 %
=== === === === === === ===
Rig Fleet (at end of period):
Offshore
International owned............. 27 18 15 27 18 15 15
Domestic owned.................. 28 28 29 28 28 29 32
--- --- --- --- --- --- ---
55(C) 46 44 55(C) 46 44 47
=== === === === === === ===
Land
International owned............. 9 9 9 9 9 9 10
Domestic owned.................. 37 37 37 37 37 37 39
--- --- --- --- --- --- ---
46 46 46 46 46 46 51
=== === === === === === ===
Labor Contracts (at end of period):
Offshore international............. 13 13 15 14 14 17 15
=== === === === === === ===
Average Offshore Rig Utilization Rate(D):
International...................... 95%(E) 92 % 80 % 81%(E) 75 % 82 % 73 %
Domestic........................... 96% 96 % 81 % 84% 84 % 82 % 89 %
</TABLE>
- ---------------
(A) Operating information has been restated for 1994 and prior periods to
reflect the 1994 merger with Chiles. Operating information includes the
acquisition of Triton in April 1994 and the October 1993 acquisition of
nine jackup rigs from Western from the respective dates of acquisition.
(B) Such information gives effect to the completion of the Acquisition as if it
had occurred as of January 1, 1995.
(C) Does not include one drillship operated by Neddrill in which Neddrill
expects to acquire a 41 percent interest through a joint venture
arrangement and one harsh environment jackup drilling rig operated by
Neddrill under a bareboat charter as a hotel accommodation unit.
(D) Information reflects the policy of the Company to report utilization rates
based on the number of actively marketed rigs owned in the fleet. During
the periods presented, the Company purchased and sold certain drilling
rigs. Utilization rates for the periods prior to sales and purchases of
such rigs have not been adjusted.
(E) Neddrill's offshore rig utilization rate for the three months ended March
31, 1996 and year ended December 31, 1995 was 100 percent and 94 percent,
respectively.
10
<PAGE> 12
RISK FACTORS
Prospective purchasers of the Senior Notes offered hereby should carefully
consider the following matters, as well as the information contained elsewhere
in this Prospectus and incorporated herein by reference.
EFFECTS OF LEVERAGE
Upon the consummation of the Offerings, the Company will have outstanding
indebtedness of approximately $263,658,000. The Company's level of indebtedness
will have several important effects on its future operations, including (i) a
substantial portion of the Company's cash flow from operations must be dedicated
to the payment of interest on its indebtedness and will not be available for
other purposes, (ii) the covenants contained in the indentures related to the
Senior Notes and the 9 1/4% Notes will limit the Company's ability to borrow
additional funds or to dispose of assets and may affect the Company's
flexibility in planning for, and reacting to, changes in its business, including
possible acquisition activities, and (iii) the Company's ability to obtain
additional financing in the future for working capital, capital expenditures,
acquisitions, general corporate purposes or other purposes may be impaired. The
Company's ability to meet its debt service obligations and to reduce its total
indebtedness will be dependent upon the Company's future performance, which will
be subject to general economic conditions and to financial, business and other
factors affecting the operations of the Company, many of which are beyond its
control. There can be no assurance that the Company's future performance will
not be adversely affected by such economic conditions and financial, business
and other factors. See "Capitalization" and "Description of Senior
Notes -- Certain Covenants."
INTENSE COMPETITION; INDUSTRY CONDITIONS
The contract drilling industry is a highly competitive and cyclical
business characterized by high capital and maintenance costs. Although
conditions in recent years in the oil and gas industry have precipitated
consolidation of offshore drilling industry participants, the Company believes
the competition for drilling contracts will continue to be intense for the
foreseeable future because of the worldwide oversupply of drilling equipment and
contractors' ability to move rigs from areas of low activity and dayrates to
areas of greater activity and relatively higher dayrates. In addition, there are
inactive non-marketed rigs that could be reactivated to meet an increase in
demand for drilling rigs in any given market. Such movement or reactivation or a
decrease in drilling activity in any major market could depress dayrates and
could adversely affect utilization of the Company's rigs. Certain competitors of
the Company may have access to greater financial resources than the Company.
The Company's operations are materially dependent upon the levels of
activity in offshore world oil and U.S. natural gas exploration, development and
production. Such activity levels are affected both by short-term and long-term
trends in oil and natural gas prices. In recent years, oil and natural gas
prices, the expenditures by oil and gas companies for exploration and production
and the availability of drilling rigs and therefore the level of offshore
drilling and exploration activity, have been extremely volatile. For a number of
years, depressed oil and natural gas prices and an oversupply of rigs have
adversely affected the offshore drilling market, particularly in the Gulf of
Mexico, where the prolonged weakness and uncertainty in the demand for and price
of natural gas resulted in a significant decline in exploration and production
activities. Demand for drilling services outside the United States, excluding
the North Sea, has been less volatile in recent years, but remains dependent on
a variety of political and economic factors beyond the Company's control,
including worldwide demand for oil and natural 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 natural gas reserves.
If the price of natural gas decreases, the Company's dayrates and
utilization rates in the U.S. Gulf could be adversely affected. Similarly, if
the price of natural gas decreases in the southern and central basin North Sea
market, where Neddrill's jackup rigs principally compete, its rates there could
be adversely affected. The
11
<PAGE> 13
Company can predict neither the future level of demand for its drilling services
nor the future conditions in the offshore contract drilling industry.
SUBSTANTIAL INTERNATIONAL OPERATIONS; NIGERIA AND VENEZUELA
A major portion of the Company's revenues has been attributable to
international operations. International sources accounted for approximately 42
percent and 49 percent of the Company's operating revenues for the three months
ended March 31, 1996 and the year ended December 31, 1995, respectively (59
percent and 63 percent, respectively, giving pro forma effect to the
Acquisition). In addition to the risks inherent in the drilling business (see
"-- Operational Risks and Insurance"), the Company's international operations
are subject to certain political, economic and other uncertainties including,
among others, risks of war and civil disturbances, expropriation,
nationalization, renegotiation or modification of existing contracts, taxation
policies, foreign exchange restrictions, international monetary fluctuations,
and other hazards arising out of foreign governmental sovereignty over certain
areas in which the Company conducts operations.
Drilling activities in Nigeria accounted for approximately 14 percent of
the Company's operating revenues in both the three months ended March 31, 1996
and the year ended December 31, 1995, respectively (10 percent in each period,
giving pro forma effect to the Acquisition). During those periods, Nigeria
experienced labor strikes, high inflation and political turmoil, none of which
have materially affected the Company's operations; however, in the future,
labor, economic and political conditions in Nigeria could adversely affect the
Company's operations there.
Drilling activities in Venezuela accounted for approximately eight percent
and 10 percent of the Company's operating revenues in the three months ended
March 31, 1996 and the year ended December 31, 1995, respectively (six percent
and seven percent, respectively, giving pro forma effect to the Acquisition).
The Company currently has three rigs under contract with Lagoven, a subsidiary
of the government-owned oil company of Venezuela. One of these rigs is under a
long-term contract terminating in the year 2000, and contracts for two are
expected to be renewed for periods of twelve months or longer. The fourth rig is
under a long-term contract with Shell Venezuela S.A. through June 1997. In
recent periods, the Venezuelan economy has experienced high inflation and a
shortage of foreign currency. In 1994, the Venezuelan government imposed a
program of currency exchange controls and taxes on certain financial
transactions that temporarily limited the ability of the government-owned oil
companies and their affiliates to make payment in U.S. dollars or other hard
currencies to oilfield service contractors. During this period, the Company's
operations were not materially affected, and the Company received timely payment
for its services in U.S. dollars. During April 1996, the Venezuelan government
announced increases in refined petroleum products prices, interest rates and the
value-added tax rate. In addition, the government eased exchange controls and
granted pay raises to public sector employees. It is unknown what impact, if
any, these events will have on the Company's operations in Venezuela.
CONCENTRATION OF OPERATIONS IN U.S. GULF
A significant portion of the Company's revenues has been attributable to
operations in the U.S. Gulf of Mexico. Operations in the U.S. Gulf accounted for
approximately 54 percent and 40 percent, respectively (39 percent and 29
percent, respectively, giving pro forma effect to the Acquisition), of the
Company's operating revenues for the three months ended March 31, 1996 and year
ended December 31, 1995. Currently, 28 of the Company's 46 mobile offshore
drilling rigs are located in the U.S. Gulf. Twenty of these rigs, of which 12
are mat supported rigs and eight are submersible rigs, are best suited for that
market. Consequently, given the concentration of such drilling rigs in that
market, a decrease in the demand for offshore drilling rigs there could have a
material adverse effect on the financial performance of the Company.
TURNKEY CONTRACTS; EARLY TERMINATION CONTRACT PROVISIONS
The Company through Triton engages in drilling services pursuant to turnkey
drilling contracts under which the Company agrees to drill a well to a specified
depth for a fixed price. Generally, the Company is not entitled to payment
unless the well is drilled to the specified depth. The Company must bear the
costs of performing drilling services until the well has been drilled, and
accordingly, turnkey projects may require
12
<PAGE> 14
significant cash commitments by the Company. In addition, profitability under
the contract is dependent upon keeping expenses within the estimates used by the
Company in determining the contract price. In performing a turnkey project, the
Company employs a drilling unit from its own fleet or from another drilling
contractor under a dayrate contract. Drilling a well under a turnkey contract
offers the possibility of financial gains and losses that are substantially
greater than those that would ordinarily result from drilling the well under a
conventional dayrate contract, since the Company retains any excess of the fixed
price over its expenses (including the drilling unit dayrate) but must pay any
excess of expenses over such price. The financial results of a turnkey contract
depend upon the performance of the drilling unit, drilling conditions and other
factors. See "The Company -- Turnkey Drilling and Engineering Services." For a
discussion of the contribution of turnkey projects to the Company's results, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations."
Other than turnkey contracts, offshore drilling contracts typically extend
over a period of time covering either the drilling of a single well or the
drilling of a group of wells for a stated term. These contracts generally permit
an operator to terminate the contract without further obligation upon prior
notice (in many cases, 30 days). Most of the Company's and Neddrill's contracts
contain such termination provisions. Each of Neddrill's contracts with Petroleo
Brasileiro S.A. ("Petrobras") permit Petrobras to terminate the contract without
further obligation under certain circumstances, including the failure of
Neddrill to perform obligations under the contract.
OPERATIONAL RISKS AND INSURANCE
The Company's operations are subject to hazards inherent in the drilling of
oil and gas wells such as blowouts, reservoir damage, loss of production, loss
of well control, cratering or fires, the occurrence of which could result in the
suspension of drilling operations, injury to or death of rig and other personnel
and damage to or destruction of the Company's, the Company's customer's or a
third party's property or equipment. Damage to the environment could also result
from the Company's operations, particularly through oil spillage or uncontrolled
fires. In addition, offshore drilling operations are subject to perils peculiar
to marine operations, including capsizing, grounding, collision and loss or
damage from severe weather. Although the Company maintains insurance against
many of these hazards, such insurance is subject to substantial deductibles and
provides for premium adjustments based on claims. It also excludes certain
matters from coverage, such as loss of earnings on certain rigs. The Company
expects to have in effect substantially similar coverage for Neddrill's
operations upon closing of the Acquisition. Also, while the Company generally
obtains indemnification from its customers for environmental damage with respect
to offshore drilling, such indemnification is generally only in excess of a
specified amount, which usually ranges from $100,000 to $250,000.
In the case of turnkey drilling operations, the Company maintains insurance
against pollution and environmental damage in amounts ranging from $5,000,000 to
$50,000,000 depending on location, subject to self-insured retentions of $25,000
to $1,000,000. Under turnkey drilling contracts, Triton generally assumes the
risk of pollution and environmental damage, but on occasion receives
indemnification from the customer for environmental and pollution liabilities in
excess of Triton's pollution insurance coverage. Further, Triton is not insured
against certain drilling risks that could result in delays or nonperformance of
a turnkey contract, although it generally maintains insurance against delays
related to loss of well control. Triton typically obtains contractual
indemnification from the drilling contractors that provide the rigs for Triton's
turnkey drilling operations for pollution arising from certain acts of such
contractors.
Notwithstanding the insurance coverage carried by and indemnity coverage
provided to the Company, the occurrence of a significant event not fully insured
or indemnified against or the failure of a customer to meet its indemnification
obligations could materially and adversely affect the Company's operations and
financial condition. Moreover, no assurance can be given that the Company will
be able to maintain adequate insurance in the future at rates it considers
reasonable or that particular types of coverage will be available.
13
<PAGE> 15
GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS
Many aspects of the Company's operations are affected by domestic and
foreign political developments and are subject to numerous domestic and foreign
governmental regulations that may relate directly or indirectly to the contract
drilling industry. The regulations applicable to the Company's operations
include certain regulations that control the discharge of materials into the
environment or require remediation of contamination, under certain
circumstances. For example, the Company may be liable for damages and costs
incurred in connection with oil spills for which it is held responsible. Usually
these environmental laws and regulations impose "strict liability," rendering a
person liable without regard to negligence or fault on the part of such person.
Such environmental laws and regulations may expose the Company to liability for
the conduct of, or conditions caused by, others, or for acts of the Company that
were in compliance with all applicable laws at the time such acts were
performed.
The U.S. Oil Pollution Act of 1990 ("OPA '90") and the regulations
promulgated pursuant thereto impose certain additional operational requirements
on the Company's domestic offshore rigs and govern liability for leaks, spills
and blowouts. Regulations under OPA '90 may increase the level of financial
assurance required of owners and operators of rigs in the waters of the United
States. The Company has monitored these regulations and does not believe that
they are likely to have a material adverse effect on the Company's financial
condition or results of operations.
The Company has made and will continue to make expenditures in its efforts
to comply with environmental requirements. The Company does not believe that it
has to date expended material amounts in connection with such activities or that
compliance with such requirements will have a material adverse effect upon its
capital expenditures, results of operations or competitive position. Although
such requirements do have a substantial impact upon the energy and energy
services industries, generally they do not appear to affect the Company any
differently or to any greater or lesser extent than other companies in the
energy services industry.
The modification of existing laws or regulations or the adoption of new
laws or regulations curtailing exploratory or development drilling for oil and
gas for economic, environmental or other reasons could materially and adversely
affect the Company's operations by limiting drilling opportunities.
LOSSES FROM OPERATIONS
The historical financial data for the Company reflect a net loss applicable
to common shares of $5,605,000 for the year ended December 31, 1995. The Company
had net income applicable to common shares of $9,215,000, $8,759,000 and
$14,916,000 for the three months ended March 31, 1996 and the years ended
December 31, 1994 and 1993, respectively. The profitability of the Company is
materially dependent upon the utilization of and rates for its drilling rigs. No
assurance can be given that utilization levels or dayrates will remain at
current levels or that they will not decrease in the future.
RANKING OF THE SENIOR NOTES
The Senior Notes will be unsecured obligations of the Company ranking pari
passu in right of payment with all other senior unsecured indebtedness of the
Company, including $125,000,000 outstanding principal amount of 9 1/4% Notes,
and will be senior in right of payment to all existing and future subordinated
indebtedness of the Company. In the event of the dissolution, liquidation or
reorganization of, or similar proceeding relating to, the Company, secured
lenders would be entitled to receive payment at least equal to the value of
their collateral, which could exceed the amount recoverable by unsecured
creditors, including the holders of the Senior Notes. At March 31, 1996, after
giving effect to the use or proceeds from the Offerings as described in "Use of
Proceeds," the Company would have had no indebtedness for borrowed money secured
by the Company's assets. In addition, the Senior Notes will be effectively
subordinated to creditors of the Company's subsidiaries in that the right of the
Company to participate as a stockholder in the distribution of the assets of any
subsidiary upon any such proceeding would be subject to the prior claims of the
creditors of such subsidiary. At March 31, 1996, after giving effect to the use
of proceeds from the Offerings, various subsidiaries of the Company would have
had liabilities (including trade payables) aggregating approximately
14
<PAGE> 16
$92,900,000 (including $13,700,000 of indebtedness) and would have had
approximately $24,724,000 available for borrowing or to support the issuance of
letters of credit as of that date under lines of credit and a letter of credit
facility. See "Use of Proceeds," "Capitalization" and "Description of Senior
Notes -- Certain Covenants."
ABSENCE OF A PUBLIC MARKET FOR THE SENIOR NOTES
There is no existing market for the Senior Notes and there can be no
assurance as to the liquidity of any markets that may develop for the Senior
Notes, the ability of holders of the Senior Notes to sell their Senior Notes or
the price at which holders would be able to sell their Senior Notes. Future
trading prices of the Senior Notes will depend on many factors, including, among
other things, prevailing interest rates, the Company's operating results and the
market for similar securities. The Company has been advised by the Underwriters
that, subject to applicable laws and regulations, the Underwriters currently
intend to make a market in the Senior Notes after the consummation of the Debt
Offering, although they are not obligated to do so and may discontinue any
market-making activities with respect to the Senior Notes at any time without
notice. The Company has made application to list the Senior Notes on the New
York Stock Exchange. See "Underwriting."
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). All statements other than statements of historical facts
included in this Prospectus, including without limitation, statements under
"Risk Factors -- Intense Competition; Industry Conditions," "The
Company -- Offshore Contract Drilling Operations -- Offshore Drilling Rigs" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Outlook" and "-- Liquidity and Capital Resources," regarding the
Company's financial position, business strategy, plans and objectives of
management of the Company for future operations and indebtedness covenant
compliance, are forward-looking statements. Although the Company believes that
the expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially from the
Company's expectations ("Cautionary Statements") are disclosed under "Risk
Factors" and elsewhere in this Prospectus, including without limitation in
conjunction with the forward-looking statements included in this Prospectus. All
subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by the Cautionary Statements.
15
<PAGE> 17
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Senior Notes offered
in the Debt Offering will be approximately $122,150,000 after deducting the
underwriting discount and estimated expenses of the Debt Offering payable by the
Company.
The net proceeds from the sale of the shares of Common Stock offered in the
Equity Offerings being made concurrently herewith will be approximately
$214,700,000, assuming a price to public of $13.625 per share ($247,000,000 if
the underwriters' over-allotment options are exercised in full), after deducting
the underwriting discount and estimated expenses of the Equity Offerings payable
by the Company. The closing of each Offering is conditioned upon the
simultaneous closing of the other Offerings and upon the simultaneous closing of
the Acquisition.
Of the net proceeds from the Offerings, $300,000,000 will be used to fund
the cash portion of the purchase price of the Acquisition (see "The
Acquisition"). The net proceeds from the Offerings remaining after payment of
the purchase price of the Acquisition of approximately $36,850,000 will be added
to the Company's working capital and will be available for general corporate
purposes. Such general corporate purposes are expected to include planned
upgrade and refurbishment capital expenditures for several of the Company's and
Neddrill's drilling rigs and may include the purchase of other capital assets.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Capital Expenditures and
Commitments."
16
<PAGE> 18
CAPITALIZATION
The following table sets forth the consolidated (i) cash and cash
equivalents and investment in marketable debt securities, (ii) short-term debt
and current installments of long-term debt and (iii) capitalization of the
Company at March 31, 1996, and as adjusted to reflect (a) the consummation of
the Offerings (assuming the underwriters' over-allotment options in connection
with the Equity Offerings are not exercised), (b) the application of the
estimated net proceeds therefrom to pay the $300,000,000 cash portion of the
purchase price of the Acquisition and (c) the issuance of 5,000,000 shares of
Common Stock as the balance of the purchase price of the Acquisition. See "Use
of Proceeds" and the Unaudited Pro Forma Consolidated Balance Sheet (including
Note A) included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------
AS
ACTUAL ADJUSTED
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents and investment in marketable debt
securities.................................................... $ 41,755 $ 115,706
======== ==========
Short-term debt and current installments of long-term debt...... $ 12,610 $ 12,610
======== ==========
Long-term debt(1)
U.S. Government Guaranteed Ship Financing Sinking Fund
Bonds...................................................... $ 1,546 $ 1,546
9 1/4% Senior Notes Due 2003.................................. 125,000 125,000
Insurance financing/other..................................... 12,112 12,112
Senior Notes.................................................. -- 125,000
Current installments.......................................... (12,610) (12,610)
-------- ----------
Long-term debt........................................ 126,048 251,048
-------- ----------
Shareholders' equity(2)
Preferred Stock(3)............................................ 4,025 4,025
Common Stock(4)(5)............................................ 9,478 11,628
Capital in excess of par value(5)............................. 590,255 852,773
Unrealized losses on marketable securities.................... (131) (131)
Minimum pension liability..................................... (3,403) (3,403)
Cumulative translation adjustment............................. (2,343) (2,343)
Accumulated deficit........................................... (64,587) (64,587)
Treasury stock, at cost....................................... (1,863) (1,863)
-------- ----------
Total shareholders' equity............................ 531,431 796,099
-------- ----------
Total capitalization............................................ $657,479 $1,047,147
======== ==========
</TABLE>
- ---------------
(1) At March 31, 1996, the Company had lines of credit totaling $26,000,000 and
letter of credit facilities totaling $5,000,000, subject to the Company's
maintenance of certain levels of collateral. Based on levels of collateral
at March 31, 1996, the Company had $24,724,000 available under these lines
of credit. A total of $1,723,580 was available at that date to support the
issuance of letters of credit.
(2) Excludes, as of March 31, 1996, shares reserved for issuance as follows: (i)
2,538,686 shares of Common Stock issuable upon exercise of options
outstanding under the Company's employee stock option plans, (ii) 118,500
shares of Common Stock issuable upon exercise of options outstanding under
the Company's non-employee director stock option plan, (iii) 160,000 shares
of Common Stock under certain nonemployee director stock option agreements,
and (iv) 9,839,515 shares of Common Stock upon conversion of the $1.50
Convertible Preferred Stock. In addition, the Company has reserved for
issuance shares of Common Stock for contingent obligations relating to the
Triton acquisition and for Company matching fund obligations under the
Company's thrift plan and employee retirement plans.
(3) The $1.50 Convertible Preferred Stock has an aggregate liquidation
preference of $100,625,000 and cannot be called for redemption prior to
December 31, 1996.
(4) Concurrently with the Debt Offering, the Company is offering Common Stock
for sale to the public through underwriters for whom the Underwriters of
the Debt Offerings or their affiliates are acting as representatives.
(5) Based on $13.625 per share, less underwriting discount and expenses, for the
16,500,000 shares to be issued upon consummation of the Equity Offerings
and $10.00 per share for the 5,000,000 shares of Common Stock to be issued
as the balance of the purchase price of the Acquisition.
17
<PAGE> 19
THE COMPANY
GENERAL
The Company is a leading provider of diversified services for the oil and
gas industry worldwide. The Company's activities include offshore and land
drilling services, turnkey drilling services and engineering and production
management services. The Company's drilling fleet is broadly diversified
allowing it to work in a variety of operating conditions.
Noble Drilling was organized as a Delaware corporation in 1939. Noble
Drilling and its predecessors have been engaged in the contract drilling of oil
and gas wells for others domestically since 1921 and internationally during
various periods since 1939.
BUSINESS STRATEGY
The Company's business strategy since becoming a publicly held corporation
in 1985 has been to actively expand its international and offshore drilling
capabilities through acquisitions and rig upgrades and modifications, and by
redeploying assets in important geological areas. In recent years the Company
has included within its strategic objectives a focus on increasing the number of
rigs in its fleet capable of drilling in deeper water depths.
Acquisitions
Since 1988, the Company has completed a series of strategic acquisitions:
(i) the purchases in 1996 and late 1995 of four independent leg cantilevered
jackup rigs; (ii) the 1994 merger with Chiles Offshore Corporation ("Chiles"),
which added 13 jackup rigs to the Company's fleet; (iii) the 1994 acquisition of
Triton Engineering Company ("Triton"), which expanded the Company's turnkey
drilling operations; (iv) the 1993 purchase of two submersible rigs from Portal
Rig Corporation; (v) the 1993 purchase of nine jackup rigs from The Western
Company of North America ("Western"); (vi) the 1991 purchase of five jackup and
seven submersible rigs from Transworld Drilling Company, a subsidiary of
Kerr-McGee Corporation; (vii) the 1988 purchase of Peter Bawden Drilling Ltd.
and its subsidiaries, with operations in the U.K. North Sea, Canada, the Far
East and Africa; and (viii) the 1988 purchase of six offshore rigs from General
Electric Capital Corporation.
The Company will use $300,000,000 of the aggregate net proceeds from the
Offerings, plus 5,000,000 shares of Common Stock, to acquire the assets of
Neddrill, including $25,000,000 in net working capital and the transfer of
personnel employed by Neddrill. The Acquisition will add deepwater and harsh
environment capabilities to the Company's fleet and further diversify its
contract drilling operations by providing entry into the North Sea and offshore
Brazil. See "The Acquisition." Giving effect to the Acquisition, the Company
will have one of the world's largest mobile offshore drilling fleets.
Modifications and Upgrades
The Company continues to pursue an extensive rig modification,
refurbishment and upgrade program. Two of the Company's independent leg rigs,
the Eddie Paul and John Sandifer, completed refurbishment projects in 1995. The
Eddie Paul was converted to an Extended Reach Cantilever (ERC) rig to enable
this unit to drill over larger platforms. The rig's legs were extended from 467
feet to 500 feet to increase its water depth capability to approximately 390
feet. A top drive drilling system and cascading mud system were also installed
on this rig. The modifications make the Eddie Paul the largest rig in the Gulf
of Mexico in terms of cantilever reach and one of the largest in terms of water
depth capability. The John Sandifer was converted to a cantilever rig with a top
drive system and cascading mud system to make the rig more versatile. The total
cost of these two projects was approximately $35,100,000. Both rigs were
contracted for work prior to completion of shipyard work and have been under
contract since departure from the shipyard. In addition, three of the Company's
independent leg cantilevered rigs, the George McLeod, Percy Johns and Charles
Copeland, were refurbished and upgraded in 1995.
During the first three months of 1996, the Company incurred capital
expenditures of approximately $42,200,000 relating primarily to the purchase of
the Gus Androes (formerly the Odin Explorer) and the
18
<PAGE> 20
Dana, and the upgrade of the Azteca. At March 31, 1996, the Company had planned
capital expenditures for the remainder of 1996 of approximately $54,000,000
related to upgrades of the Azteca (to be renamed the Gene Rosser), Roy Butler,
Dana, and Gus Androes, and replacements of equipment and drill pipe. Neddrill
has planned capital expenditures of approximately $77,000,000 in 1996
(approximately $70,000,000 of which is expected to be spent after the
consummation of the Acquisition), including upgrades to the Neddrill 2, Neddrill
Trigon and Neddrill Muravlenko totaling approximately $58,000,000. The Company
continues to evaluate additional upgrade projects and is considering major
upgrades to the Nimitz and Coral Sea, including conversion of the Nimitz to ERC
design.
Redeployments
From time to time, the Company has strategically redeployed certain of its
offshore drilling rigs, primarily from the Gulf of Mexico to other drilling
markets worldwide, in order to position assets in important geological areas.
During 1995 and 1994, the Company transferred two jackup rigs from the U.S. Gulf
of Mexico to the west coast of Africa, a jackup rig from the Mexican Gulf of
Mexico to Qatar and two jackup rigs from the U.S. Gulf of Mexico to Lake
Maracaibo, Venezuela. In addition, the Company in the past has moved other
drilling units from the U.S. Gulf of Mexico to India and the west coast of
Africa and has moved certain of its rigs between the U.S. and Mexican Gulf
markets.
OFFSHORE CONTRACT DRILLING OPERATIONS
The Company's offshore contract drilling operations, which accounted for
approximately 51 percent and 55 percent of operating revenues in the three
months ended March 31, 1996 and the year ended December 31, 1995, respectively,
are conducted worldwide. Giving effect to the Acquisition, the Company's
offshore drilling fleet will consist of 55 units, composed of 42 jackup rigs,
two drillships, one semisubmersible rig, eight submersible rigs and two posted
barges. In addition, the Company expects to acquire through a joint venture
arrangement a 41 percent interest in, and to operate, a third dynamically
positioned drillship upon the owner's receipt of final consent from the Russian
authorities. The Company will also acquire Neddrill's rights to operate under a
bareboat charter a harsh environment jackup rig as a hotel accommodation unit in
the North Sea. After the Acquisition, the Company's principal regions of
offshore contract drilling operations will include the North Sea, the Gulf of
Mexico, West Africa, Brazil, Venezuela, the Middle East and, to a lesser extent,
India. See "The Acquisition."
International Contract Drilling
The Company's international offshore contract drilling operations are
conducted in Nigeria, Venezuela, Qatar, Zaire, Mexico and India. At March 31,
1996, the Company's international offshore contract drilling fleet consisted of
18 rigs, of which 16 were working under contract, one was available for bidding,
and one was in the shipyard.
In 1995, approximately 55 percent of the Company's international offshore
contract drilling revenues was derived from contracts with major oil and gas
companies, 37 percent from government-owned companies and the balance from
contracts with independent operators. In 1995, one of the Company's customers,
Lagoven, a subsidiary of the government-owned oil company of Venezuela,
accounted for approximately 11 percent of the Company's total operating
revenues.
The Company has seven jackup rigs and two posted barges located along the
west coast of Africa. Six of the jackup rigs are under long-term contracts
extending through dates ranging from December 1996 to June 1998, with major oil
companies. The seventh jackup rig is available for work. The two posted barges
are under contract through June 1996.
The Company has four jackup rigs located in Venezuela. One of these rigs is
under a long-term contract terminating in the year 2000, and contracts for two
are expected to be renewed for periods of twelve months or longer. The fourth
rig is under a long-term contract with Shell Venezuela S.A.
19
<PAGE> 21
The Company has three jackup rigs located in the Persian Gulf. One rig is
in Qatar under a long-term contract extending through October 1998. A second
rig, which was acquired in March 1996, is scheduled for refurbishment upon
completion of its current well in Qatar prior to commencement of a long-term
contract extending through June 1999. The third rig, currently undergoing
refurbishment in the United Arab Emirates, is scheduled to be available for work
in the third quarter of 1996.
The Company has a jackup rig working in India under a long-term bareboat
charter agreement that expires in September 1996 and a jackup rig working in
Mexico under a long-term contract that expires in November 1996.
Domestic Contract Drilling
The Company's domestic offshore contract drilling fleet consisted of 28
rigs at March 31, 1996, of which 17 were working under contract, three were
being upgraded, modified and/or refurbished, seven were being held in various
stages of readiness to enter the marketplace and one was under evaluation
following damages sustained in transportation. The Company continually evaluates
the economics of re-entering the market with these rigs and expects to do so
when conditions warrant.
In 1995, approximately 55 percent of the Company's domestic offshore
contract drilling revenues was derived from contracts with major oil and gas
companies and the remaining 45 percent was derived from contracts with
independent operators.
Offshore Drilling Rigs
The Company's offshore drilling rig fleet consisted of 36 jackup rigs,
eight submersible rigs and two posted barges at March 31, 1996. Each type of rig
is described further below. There are several factors that determine the type of
rig most suitable for a particular job, the more significant of which include
the water depth and bottom conditions at the proposed drilling location, whether
the drilling is being done over a platform or other structure, and the intended
well depth.
Seventeen of the Company's 46 offshore rigs have a top drive unit, and the
Company has three additional top drive units which have not been installed on
rigs. A top drive unit is a technologically-advanced drilling tool used in many
drilling applications both offshore and on land. Twenty-eight of the Company's
46 offshore rigs are equipped with cascading solids control systems. A cascading
solids control system is a highly efficient method for controlling the solids in
drilling mud, the use of which enhances removal of well bore cuttings and
results in better bit performance and reduced mud conditioning costs to the
operator. In addition, ten of the Company's 46 offshore rigs are equipped with
zero discharge capability.
Jackup Rigs. The Company had 36 jackup rigs in the fleet at March 31, 1996.
Jackup rigs are mobile self-elevating drilling platforms equipped with legs
which can be lowered to the ocean floor until a foundation is established to
support the drilling platform. The rig hull includes the drilling rig, jacking
system, crew quarters, loading and unloading facilities, storage areas for bulk
and liquid materials, helicopter landing deck and other related equipment. The
rig legs may operate independently or have a mat attached to the bottom of them
in order to provide a more stable foundation in soft bottom areas. Twenty-three
of the Company's jackup rigs are independent leg rigs and 13 are mat supported
rigs. Moving a rig to the drill site involves jacking up its legs until the hull
is floating on the surface of the water. The hull is then towed to the drill
site by tugs and the legs are jacked down to the ocean floor. The jacking
operation continues until the hull is raised out of the water and drilling
operations are conducted with the hull in its raised position. A cantilevered
jackup has a feature that permits the drilling platform to be extended out from
the hull, allowing it to perform drilling or workover operations over
pre-existing platforms or structures. Slot type jackup rigs are configured for
the drilling operations to take place through a slot in the hull. The Company's
jackup rigs are capable of drilling to a maximum depth of 25,000 feet in water
depths of up to 390 feet, depending on the jackup rig.
Submersible Rigs. The Company had eight submersibles in the fleet at March
31, 1996. Submersible rigs are mobile drilling platforms which are towed to the
drill site and submerged to drilling position by flooding the lower hull until
it rests on the sea floor, with the upper deck above the water surface. The
Company's
20
<PAGE> 22
submersible rigs are capable of drilling to a maximum depth of 30,000 feet in
water depths of up to 100 feet, depending on the submersible rig.
The Company has conducted a preliminary engineering feasibility study of
converting submersible rigs to semisubmersible rigs capable of conducting
drilling operations in deeper water. The Company has targeted five of its eight
submersible rigs as possible candidates for conversion to semisubmersible rigs.
See "The Acquisition -- Semisubmersible Rigs" for a description of the
semisubmersible type of drilling rig. The Company has held preliminary
discussions with certain offshore operators regarding this project. Because any
such conversion would require substantial capital expenditures, such a project
would not likely be undertaken except in connection with entering into a
long-term drilling contract with an operator. The Company cannot currently
predict whether any conversion projects will be undertaken.
Posted Barges. The two posted barges in the Company's fleet at March 31,
1996 are not a part of the Company's long-term strategic objectives and have
been reclassified as assets held for sale. See "The Company -- Recent
Developments" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Results of Operations."
The following table sets forth certain information concerning the Company's
offshore drilling rig fleet at March 31, 1996. The table does not include 13
offshore rigs owned by operators for which the Company had labor contracts as of
March 31, 1996. Unless otherwise indicated, the Company owns and operates the
rigs included in the table.
OFFSHORE DRILLING RIGS
<TABLE>
<CAPTION>
WATER MAXIMUM
DEPTH DRILLING
YEAR RATING DEPTH
BUILT OR ------ -------
NAME MAKE TYPE(1) REBUILT(2) LOCATION STATUS(3)
- -------------------- --------------------- ------- ---------- (FEET) (FEET) ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
JACKUP RIGS -- 36
Eddie Paul(4) MLT 84-ERC IC 1995 R 390 25,000 U.S. Gulf Active
Coral Sea MLT 53-S IS 1972 320 25,000 U.S. Gulf Stacked
Nimitz MLT 84-S IS 1975 300 25,000 U.S. Gulf Stacked
Carl Norberg MLT 82-C IC 1976 250 20,000 Venezuela Active
Dana(5) MLT 82-C IC 1976 250 20,000 Qatar Active
Charles Copeland(4) MLT 82-SD-C IC 1995 R 250 20,000 Venezuela Active
Earl Frederickson MLT 82-SD-C IC 1979 250 20,000 Venezuela Active
Ed Noble(4) MLT 82-SD-C IC 1990 R 250 20,000 Nigeria Active
Lloyd Noble(4) MLT 82-SD-C IC 1990 R 250 20,000 Nigeria Active
Tom Jobe(4) MLT 82-SD-C IC 1982 250 25,000 U.S. Gulf Active
Azteca(6) Levingston 111-C IC 1996 R 300 20,000 U.S. Gulf Shipyard
Ed Holt(7) Levingston 111-C IC 1994 R 300 25,000 India Active
John Sandifer(4) Levingston 111-C IC 1995 R 300 25,000 U.S. Gulf Active
Maya(8) Levingston 111-C IC 1976 300 20,000 U.S. Gulf Shipyard
Gus Androes(9) Levingston 111-C IC 1996 R 300 25,000 U.A.E. Shipyard
Sam Noble(4) Levingston 111-C IC 1982 300 25,000 Mexican Gulf Active
George McLeod(4) F&G L-780 MOD II IC 1995 R 300 25,000 Qatar Active
Percy Johns(4) F&G L-780 MOD II IC 1995 R 300 25,000 Nigeria Active
Roy Butler(4)(10) F&G L-780 MOD II IC 1982 300 25,000 Zaire Active
Tommy Craighead(4) F&G L-780 MOD II IC 1990 R 300 25,000 Nigeria Active
Johnnie Hoffman(4) Baker Marine BMC 300 IC 1993 R 300 25,000 U.S. Gulf Active
Dick Favor Baker Marine BMC 150 IC 1993 R 150 20,000 Venezuela Active
Don Walker(4) Baker Marine BMC 150 IC 1982 150 20,000 Nigeria Active
Marvin Winters Bethlehem JU-250 MC 1982 250 20,000 U.S. Gulf Active
Duke Hinds Bethlehem JU-200 MC 1990 R 200 25,000 U.S. Gulf Active
Frank Lamaison Bethlehem JU-200 MC 1982 200 20,000 U.S. Gulf Active
Mac McCoy Bethlehem JU-200 MC 1982 200 20,000 U.S. Gulf Active
Red McCarty Bethlehem JU-200 MC 1982 200 25,000 U.S. Gulf Active
W.T. Johnson Bethlehem JU-200 MC 1982 200 20,000 U.S. Gulf Active
</TABLE>
21
<PAGE> 23
<TABLE>
<CAPTION>
YEAR WATER MAXIMUM
BUILT OR DEPTH DRILLING
NAME MAKE TYPE(1) REBUILT(2) RATING DEPTH LOCATION STATUS(3)
- -------------------- --------------------- ------- ---------- ------ ------- ------------ ----------
(FEET) (FEET)
<S> <C> <C> <C> <C> <C> <C> <C>
Cecil Forbes Bethlehem JU-300 MS 1974 300 20,000 U.S. Gulf Stacked
Cliff Matthews Bethlehem JU-250 MS 1976 250 20,000 U.S. Gulf Active
Frank Reiger Bethlehem JU-250 MS 1975 250 20,000 U.S. Gulf Stacked
Jack Clark Bethlehem JU-250 MS 1974 250 20,000 U.S. Gulf Active
Jim Bawcom Bethlehem JU-250 MS 1981 250 25,000 U.S. Gulf Active
Linn Richardson Bethlehem JU-250 MS 1994 R 250 20,000 U.S. Gulf Damage
Assessment
NN-1(11) Bethlehem JU-45 MS 1990 R 45 20,000 Nigeria Available
SUBMERSIBLE
RIGS -- 8
Amos Runner(4) Column Stabilized 1982 100 25,000 U.S. Gulf Active
Jim Thompson Column Stabilized 1993 100 25,000 U.S. Gulf Active
Max Smith Column Stabilized 1980 100 25,000 U.S. Gulf Shipyard
Paul Romano(4) Column Stabilized 1981 100 30,000 U.S. Gulf Active
Paul Wolff Column Stabilized 1981 100 30,000 U.S. Gulf Active
Joe Alford Column Stabilized 1982 85 25,000 U.S. Gulf Stacked
Lester Pettus Column Stabilized 1982 85 25,000 U.S. Gulf Stacked
Fri Rodli Column Stabilized 1979 70 25,000 U.S. Gulf Stacked
POSTED BARGES -- 2
Lewis Dugger(4) Ideco E 3000 1990 R 18 30,000 Nigeria Active
Chuck Syring(4) Oilwell E 3000 1990 R 18 25,000 Nigeria Active
</TABLE>
- ---------------
(1) Type codes are defined as follows:
<TABLE>
<S> <C>
IC......... Independent Leg Cantilevered jackup rig
IS......... Independent Leg Slot jackup rig
MC......... Mat Supported Cantilevered jackup rig
MS......... Mat Supported Slot jackup rig
</TABLE>
(2) Rigs designated with an "R" were modified, refurbished or otherwise upgraded
in such year by capital expenditures in an amount material to the net book
value of such rig.
(3) Rigs listed as "active" were operating under contract and rigs listed as
"available" were available for bidding as of March 31, 1996. Rigs listed as
"stacked" were not operating under contract and were either in need of
expenditures to reactivate or not being actively marketed at such date.
Rigs listed as "shipyard" are undergoing upgrade, modification or
refurbishment. The rigs listed as "stacked" were protected at the time of
deactivation, utilizing procedures recommended by the original equipment
manufacturer. A rig that has undergone this deactivation procedure
generally takes less cost and lead time in order to be returned to active
service than a rig that has not undergone such procedure.
(4) Equipped with a top drive unit.
(5) Planned to be upgraded and refurbished in the third quarter of 1996.
(6) Currently being converted to a cantilever rig and upgraded and refurbished.
To be renamed the Gene Rosser.
(7) Bareboat chartered to a third party under which the Company maintains
operating control of the rig.
(8) Planned to be converted to a cantilever rig and upgraded and refurbished as
market conditions warrant.
(9) Currently being upgraded and refurbished. Formerly named the Odin Explorer.
(10) Although the rig is designed to drill in a maximum water depth of 300 feet,
the rig is currently equipped with legs adequate to drill in approximately
125 feet of water. The Company has fabricated and is currently installing
an additional 120 feet of legs.
(11) Owned by NN-1 Limited Partnership, of which Noble Drilling is the general
partner and in which it has a majority interest. The rig is mortgaged under
a first preferred ship mortgage in favor of the United States government to
secure repayment of the U.S. Government Guaranteed Ship Financing Sinking
Fund Bonds issued in 1978 by the predecessor of the partnership in
connection with the construction and purchase of the rig.
22
<PAGE> 24
TURNKEY DRILLING AND ENGINEERING SERVICES
Through Triton, the Company provides turnkey drilling, drilling project
management, drilling and completion planning and design, specialized drilling
tools and services, and contract engineering and consulting manpower. Turnkey
drilling, Triton's major service, involves the coordination of all equipment,
materials, services and management to drill a well to a specified depth for a
fixed price. Under turnkey drilling contracts, Triton bears the financial risk
of delays in the completion of the well. In providing its services, Triton can
use drilling rigs owned either by the Company or by a third party, depending on
availability. The drilling of a turnkey well is generally completed within 30 to
50 days. Twenty-seven wells were completed by Triton in 1995 compared to 35
wells for 1994. Seven of the 35 wells were completed prior to the Company's
acquisition of Triton in April 1994. Revenues from turnkey drilling services
represented 22 percent and 16 percent of consolidated operating revenues in 1995
and 1994, respectively. The revenue percentage for 1994 consists of Triton's
revenues from the time of the acquisition in April 1994 through year end 1994.
Triton completed eight turnkey wells during the three months ended March 31,
1996. Revenues from turnkey drilling services represented 32 percent of
consolidated operating revenues for the quarter.
The Company provides engineering services relating primarily to the design
of drilling equipment for offshore development and production services and to
the recertification of oilfield equipment. The Company works, on a contract
basis, with operators and prime construction contractors of drilling and
production platforms in the design of drilling equipment configurations aimed at
optimizing the operational efficiency of developmental drilling by maximizing
platform space utilization and load capability.
Through its operations in Venezuela, the Company provides engineering
services in the form of an alliance program with Lagoven. The Company utilizes
its own drilling rigs and employs Triton personnel for the engineering and
operating expertise.
LABOR CONTRACTS
The Company's offshore operations also included at March 31, 1996 labor
contracts for drilling and workover activities covering 13 rigs operating in the
U.K. North Sea. These rigs are not owned or leased by the Company. Under its
labor contracts, the Company provides the personnel necessary to manage and
perform the drilling operations from drilling platforms owned by the operator.
The contracts are generally renewable no more frequently than on an annual
basis. After drilling operations are completed, workover operations usually
become an important element of each platform's activity. Thus, drilling
contractor crews usually remain on the platform until a field is depleted by
production.
The Company was awarded a contract in 1994 by Hibernia Management and
Development Company Ltd. ("Hibernia") for offshore production drilling and
related services. The contract calls for the Company to commission, operate and
maintain two state-of-the-art platform rigs to be installed on the concrete
gravity-based structure that will be used to develop the Hibernia field off the
coast of Newfoundland. The Company established an office in St. Johns,
Newfoundland in late 1994. A team of six experienced personnel are employed in
St. Johns and are presently participating in the preparation of operating,
equipment maintenance and procedures manuals, and the procurement of equipment.
Commissioning of the drilling and related equipment is scheduled to commence in
May 1996 through November 1996. The gravity-based structure is scheduled for tow
out to location in May 1997, with commencement of the first well scheduled to
occur in early September 1997. The Company has a five-year contract with
Hibernia with an option for a five-year extension. It is anticipated that the
Company will have approximately 120 employees assigned to this project at its
peak in 1997.
LAND DRILLING OPERATIONS
The Company's land drilling operations are conducted in Canada, Texas and
Louisiana. At March 31, 1996, 19 of the Company's 46 land rigs were available
for active bidding by the Company. Of these 19 rigs, 10 were located in the
United States and nine were located in Canada. Thirteen of the 19
actively-marketed rigs were operating under contract and six were available for
bidding at that date. Twenty-seven rigs were stacked and not being actively
marketed. The remaining net book value of these stacked rigs is not material.
23
<PAGE> 25
The Company's land drilling operations have become less significant as the
Company has emphasized its offshore and international operations.
RECENT DEVELOPMENTS
Asset Rationalization Program
Consistent with the Company's strategic objectives to enhance the deepwater
capability of its fleet, the Company has sold two of its posted barges (the Gus
Androes and Gene Rosser) and has reclassified its two remaining posted barges
(the Lewis Dugger and Chuck Syring) as assets held for sale. The Company expects
the sale of these two barges to occur during 1996. The net proceeds of sale
received to date and expected to be received with respect to the remaining two
barges, together with working capital, have been used to purchase the two jackup
rigs described in the next paragraph and are planned to be used to enhance the
deepwater capability of the Company's fleet.
On February 26, 1996, the Company purchased the Odin Explorer, renamed the
Gus Androes, a 300-foot independent leg cantilevered jackup rig located in the
United Arab Emirates. The rig is currently undergoing refurbishment and is
scheduled to be available for work in the third quarter of 1996. In addition, on
March 20, 1996, the Company purchased the Dana, a 250-foot independent leg
cantilevered jackup rig located offshore Qatar.
THE ACQUISITION
On April 25, 1996, the Company entered into an Agreement of Sale and
Purchase (the "Acquisition Agreement") with Nedlloyd and Neddrill Holding B.V.
to acquire the assets of Neddrill utilized in its offshore contract drilling,
accommodation and other oil and gas exploration and production related service
businesses, $25,000,000 in net working capital and the personnel employed by
Neddrill. The purchase price is $300,000,000 in cash plus 5,000,000 shares of
Common Stock.
The Acquisition promotes the Company's historic and long-term strategic
goals of expanding its international presence and enhancing its deepwater
drilling capabilities. The Acquisition adds deepwater and harsh environment
capabilities to the Company's fleet, diversifies the fleet to include drillships
and a semisubmersible and increases the Company's geographic diversification by
providing entry into the Brazilian offshore market and expanding its presence in
the North Sea.
Neddrill's operations are managed from its headquarters in Rotterdam, The
Netherlands. Its fleet includes two dynamically positioned drillships (one of
which is currently operating offshore West Africa, the second offshore Brazil);
one second generation semisubmersible rig operating in the North Sea; and six
harsh environment jackup drilling rigs (five operating in the North Sea and one
offshore Argentina). Neddrill expects to acquire through a joint venture
arrangement a 41 percent interest in, and to operate, a third dynamically
positioned drillship upon the owner's receipt of final consent from the Russian
authorities. In addition, Neddrill operates under a bareboat charter a seventh
harsh environment jackup rig as a hotel accommodation unit in the North Sea.
Neddrill's semisubmersible and jackup rigs are all currently under contract,
with commitments extending through August 1996 to 2001, depending on the rig.
All three drillships are committed under five to six year contracts to work for
Petrobras offshore Brazil. In addition to the one drillship already on location,
the other two are scheduled to arrive in late 1996 or early 1997.
Neddrill currently employs approximately 615 personnel in offshore/field
positions and 60 employees in shorebase and administrative positions. Depending
on location, some employees are covered by a labor agreement or are represented
by labor unions. Neddrill's employees will initially receive the same pay rates
and benefits package as they received prior to closing of the Acquisition,
although the Acquisition Agreement does not bind the Company to continue to
provide pay or benefits except as required by applicable law and existing
employment agreements. Neddrill maintains shorebase facilities in Argentina,
Brazil, Denmark, the United Kingdom and The Netherlands.
24
<PAGE> 26
The Acquisition will expand the types of rigs comprising the Company's
offshore fleet to include drillships and a semisubmersible. Each of these types
of rigs is described further below.
Drillships. Drillships are ships that are equipped for drilling and are
typically self-propelled and move from one location to another under their own
power. Drillships are positioned over the well through use of either an
anchoring system or a computer controlled thruster system (dynamic positioning).
Neddrill's two wholly owned drillships are capable of drilling in water depths
of up to 4,500 feet. Upon completion of a scheduled substantial upgrade, the
Neddrill Muravlenko will be capable of drilling in water depths of up to 4,000
feet. Drillships are typically more expensive to construct and operate than
jackup rigs.
Semisubmersible Rigs. Semisubmersible rigs are floating platforms which, by
means of a water ballasting system, can be submerged to a predetermined depth so
that a substantial portion of the hull is below the water surface during
drilling operations. Neddrill's semisubmersible rig maintains its position over
the well through the use of dynamic positioning. Neddrill's semisubmersible rig
is designed to work in water depths of up to 1,500 feet and can drill in many
areas where the Company's jackup rigs can also drill. However, semisubmersible
rigs normally require water depth of at least 200 feet in order to conduct
operations. Semisubmersible rigs are typically more expensive to construct and
operate than jackup rigs.
The following table sets forth certain information concerning Neddrill's
owned and operated offshore drilling fleet at March 31, 1996. Unless otherwise
indicated, Neddrill wholly owns and operates the units listed in the table.
NEDDRILL OFFSHORE DRILLING RIGS
<TABLE>
<CAPTION>
YEAR WATER MAXIMUM
BUILT OR DEPTH DRILLING
NAME MAKE TYPE(1) REBUILT(2) RATING DEPTH LOCATION STATUS(3)
- -------------------------- ------------------------ ------- ---------- ------ ------- ------------ ---------
(FEET) (FEET)
<S> <C> <C> <C> <C> <C> <C> <C>
DYNAMICALLY POSITIONED
DRILLSHIPS-3
Neddrill 1................ Gusto Engineering 1995R 4,500 20,000 West Africa Active
Pelican Class (enhanced)
Neddrill Muravlenko (4)... Gusto Engineering 1982 984 21,000 Norway Docked
Pelican Class
Neddrill 2 (5)............ Neddrill 1977 4,500 25,000 Brazil Active
SEMISUBMERSIBLE-1
Neddrill 6 (6)(7)......... Offshore Co. SCP III 1991R 1,500 25,000 U.K. Active
JACKUP RIGS-7
Neddrill Trigon CFEM T-2005C
(6)(7)(8)............... IC 1982 360 25,000 Argentina Active
Neddrill 10 (6)(7)........ CFEM T-2005C IC 1982 300 25,000 Denmark Active
Neddrill 3 (6)(7)......... Marine Structure CJ-46 IC 1982 250 20,000 Netherlands Active
Neddrill 9 (6)(7)......... Marine Structure CJ-46 IC 1982 230 20,000 France Active
Neddrill 7 (6)(7)......... Marine Structure CJ-46 IC 1981 205 25,000 U.K. Active
Neddrill 4 (6)(7)......... Neddrill IC 1982 250 20,000 Netherlands Active
Neddrill Kolskaya Gusto Engineering
(6)(9).................. IC 1983 330 N/A Denmark Active
</TABLE>
- ---------------
(1) Type code is defined as follows:
IC . . . . Independent Leg Cantilevered jackup rig
(2) Rigs designated with an "R" were modified, refurbished or otherwise upgraded
in such year by capital expenditures in an amount material to the net book
value of the rig.
(3) Rigs listed as active were operating under contract as of March 31, 1996.
(Footnotes continued on following page)
25
<PAGE> 27
(4) Neddrill expects to acquire a 41 percent interest in the drillship through
a joint venture arrangement upon the owner's receipt of final consent from
the Russian authorities. The drillship is scheduled to be upgraded in
Gibraltar in the second half of 1996 to increase water depth rating to
4,000 feet at a projected total cost of $36,000,000 (one-half to be paid by
Neddrill). See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
(5) Scheduled to be upgraded in the second half of 1996 to increase water depth
rating to 6,000 feet at a projected cost of $26,000,000. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
(6) Harsh environment capability.
(7) Equipped with a top drive unit.
(8) Scheduled to be returned to the North Sea in the second half of 1996 and
upgraded to increase leg holding capacity, repair spudcans and extend
cantilever reach at a projected cost of approximately $14,000,000. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
(9) Neddrill operates this unit, which is presently used in offshore hotel
accommodation mode (at a capacity of 250 bunks) instead of drilling mode,
under a bareboat charter terminating in August 1996, with an option to
extend through April 1997.
The Neddrill 2 is currently operating under contract for Petrobras offshore
Brazil. The Neddrill 1, which is currently operating under contract offshore
West Africa, was upgraded in 1995 from moored-only positioning to a rated water
depth of 4,500 with dynamic positioning. The Neddrill 1 is scheduled during the
second half of 1996 for mobilization to Brazil to substitute for the Neddrill 2
while it undergoes a scheduled upgrade during the fourth quarter of 1996 to a
rated water depth of 6,000 feet, after which the Neddrill 2 is scheduled to
continue in a renewed long-term contract with Petrobras. Upon the return
offshore Brazil of the Neddrill 2, the Neddrill 1 is scheduled for certain
refurbishments upon conclusion of which it also is scheduled to commence a
long-term contract with Petrobras. Each of the contracts with Petrobras contains
provisions that permit Petrobras to terminate the contract without further
obligation under certain circumstances, including the failure of Neddrill to
perform its obligations under the contract. Generally, Neddrill's other drilling
contracts permit the operator to terminate the contracts without further
obligation upon relatively short prior notice (in one contract, 10 days) to
Neddrill. Such provisions are common in oil and gas offshore drilling contracts.
The closing of the Acquisition is contingent upon the simultaneous closing
of the Equity Offerings and the Debt Offering. The closing of the Acquisition is
also subject to certain other conditions, including a condition to the
obligation of the Company to proceed with the closing that no actual,
constructive, arranged or compromised total loss of the Neddrill 1, Neddrill 2
or Neddrill 6 or of two or more of Neddrill's other rigs shall have occurred or
that there not have been the cancellation, termination or rescission by
Petrobras of either of the current drilling contracts with Petrobras regarding
the Neddrill 1 or Neddrill 2. If an actual, constructive, arranged or
compromised total loss of only one of the rigs not specified occurs, there will
be a reduction to the purchase price based on an amount scheduled for each
drilling unit in the Acquisition Agreement. There can be no assurance that such
other conditions will be satisfied or that the Acquisition will be completed.
The closing of the Equity Offerings and the Debt Offering is contingent
upon the simultaneous closing of the Acquisition. If the Acquisition is not
completed for any reason, the Offerings will not be consummated.
26
<PAGE> 28
SELECTED FINANCIAL DATA
The following sets forth certain historical consolidated financial data
relating to the Company. The selected financial data for each of the years in
the five-year period ended December 31, 1995 are derived from the audited
consolidated financial statements of the Company. This information should be
read in conjunction with the consolidated financial statements and the
information set forth herein under "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
--------------------- ---------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1)
Operating revenues.............. $104,757 $ 85,096 $327,968 $351,988 $264,531 $184,166 $230,151
Operating costs(2).............. 69,664 63,751 240,102 243,208 178,684 135,252 179,490
Depreciation and
amortization(3)............... 8,930 8,834 36,492 39,519 28,886 27,248 30,052
Selling, general and
administrative................ 12,025 10,556 40,139 47,606 28,284 30,716 32,684
Impairments, net of gains on
asset sales and write-downs/
restructuring charges(4)...... 73 -- -- 3,661 -- 21,120 11,134
Minority interest............... (32) (58) (214) (169) (232) 89 78
-------- -------- -------- -------- -------- -------- --------
Operating income (loss)......... 14,097 2,013 11,449 18,163 28,909 (30,259) (23,287)
Interest expense................ (3,176) (3,024) (12,156) (12,351) (8,038) (13,274) (20,411)
Interest income................. 825 1,492 5,323 5,640 2,497 3,276 2,155
Other income, net............... 483 578 250 15,743 1,047 3,675 4,786
-------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations before income taxes
and extraordinary item........ 12,229 1,059 4,866 27,195 24,415 (36,582) (36,757)
Income tax provision............ (1,503) (1,720) (3,272) (5,672) (3,333) (3,396) (2,417)
-------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations.................... 10,726 (661) 1,594 21,523 21,082 (39,978) (39,174)
Discontinued operations......... -- -- -- -- -- (3,372) (1,815)
Extraordinary item(5)........... -- -- -- -- 1,770 -- 4,978
-------- -------- -------- -------- -------- -------- --------
Net income (loss)............... 10,726 (661) 1,594 21,523 22,852 (43,350) (36,011)
Preferred stock dividends....... (1,511) (2,670) (7,199) (12,764) (7,936) (6,728) (721)
-------- -------- -------- -------- -------- -------- --------
Net income (loss) applicable to
common shares................. $ 9,215 $ (3,331) $ (5,605) $ 8,759 $ 14,916 $(50,078) $(36,732)
======== ======== ======== ======== ======== ======== ========
Net income (loss) applicable to
common shares per
share(6)(7)................... $ 0.10 $ (0.06) $ (0.08) $ 0.11 $ 0.22 $ (1.05) $ (0.81)
Weighted average common shares
outstanding................... 95,782 80,066 89,736 77,576 66,923 47,762 45,554
BALANCE SHEET DATA (AT END OF
PERIOD)(1)
Working capital (deficit)(8).... $123,190 $152,107 $101,623 $157,885 $150,535 $ 42,993 $ (3,239)
Property and equipment, net..... $525,742 $495,738 $542,978 $493,322 $482,029 $338,382 $384,182
Total assets.................... $757,953 $731,618 $741,392 $739,889 $696,553 $456,529 $560,987
Long-term debt.................. $126,048 $126,546 $129,923 $126,546 $127,144 $ 87,280 $ 73,145
Total debt(9)................... $138,658 $130,246 $142,133 $132,790 $127,690 $114,477 $182,784
Shareholders' equity............ $531,431 $524,755 $523,493 $527,611 $516,770 $301,634 $324,367
OTHER DATA(1)
Capital expenditures............ $ 42,171 $ 16,082 $ 87,428 $ 55,834 $173,501(10) $ 5,997 $129,986(11)
Ratio of earnings to fixed
charges(12)................... 4.85x 1.35x 1.40x 3.20x 4.04x N.M. N.M.
</TABLE>
- ---------------
N.M. -- Not Meaningful.
(Table continued on following page)
27
<PAGE> 29
(1) The Selected Financial Data present the restatement of the Company's
historical financial statements for 1994 and prior periods to reflect the
1994 merger of Chiles into a wholly owned subsidiary of the Company, which
was accounted for as a pooling of interests. The Selected Financial Data
also include the acquisition of Triton in April 1994 and the October 1993
acquisition of nine jackup rigs from Western, both of which were accounted
for under the purchase method.
(2) Consists of operating costs and expenses other than depreciation and
amortization, selling, general and administrative, minority interest,
impairments, net of gains on asset sales, and write-downs and restructuring
charges.
(3) Effective January 1, 1995, the Company revised its estimates of salvage
values and remaining depreciable lives of certain rigs. The effect of this
change was a reduction to depreciation and amortization of $6,160,000, or
$0.07 per common share, for the year ended December 31, 1995.
(4) Consists of gains on the sale of assets and provisions resulting from
write-downs of certain assets, facility consolidation costs and, to a
lesser extent, severance costs.
(5) Consists of a gain on extinguishment of debt in 1993 and a gain on an
insurance settlement in 1991.
(6) Net (loss) income applicable to common shares per share before
extraordinary item was $0.20 and $(0.92) for the years ended December 31,
1993 and 1991, respectively. Loss applicable to common shares per share
from discontinued operations was $(0.07) and $(0.04) for the years ended
December 31, 1992 and 1991, respectively.
(7) Includes the $0.02 per share effect of the March 1995 preferred conversion
payment related to the conversion of 923,862 shares of the Company's $2.25
Convertible Exchangeable Preferred Stock. The payment of $1,524,000 was
accounted for as a reduction of net earnings applicable to common shares
when calculating the net loss applicable to common shares per share.
(8) Chiles reclassified $50,500,000 of its outstanding indebtedness from
long-term to current liabilities in 1991. This reclassification was made
because as of December 31, 1991, Chiles anticipated not being able to
remain in compliance, and subsequently was not able to remain in
compliance, with all of the terms of its debt agreements.
(9) Consists of short-term debt and current installments of long-term debt, and
long-term debt.
(10) Includes the acquisition by the Company of nine jackup rigs from Western
for $150,000,000 in cash.
(11) Includes the acquisition of five jackup rigs and seven submersible rigs
from Transworld Drilling Company for $5,000,000 in cash and a $70,000,000
promissory note.
(12) For the purposes of computing the ratio, "earnings" represents income
(loss) from continuing operations before income taxes plus fixed charges
exclusive of capitalized interest, and "fixed charges" consists of
interest, whether expensed or capitalized, amortization of debt expense and
an estimated portion of rentals representing interest costs. As a result of
the losses incurred in the years ended December 31, 1992 and 1991, earnings
did not cover fixed charges by $36,582,000 and $36,757,000, respectively.
28
<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OUTLOOK
The Company's operating strategy has been to pursue drilling opportunities
in the U.S. and various international markets. Worldwide drilling conditions
vary substantially from region to region; however, the Company operates in many
markets where there is a demand for offshore rigs. During late 1992, U.S.
natural gas prices improved, resulting in greater demand and higher dayrates for
drilling rigs. Increasing U.S. natural gas prices resulted in significant
improvements in the U.S. Gulf of Mexico rig demand and dayrates during the
second half of 1993. Declining world oil prices during this period reduced rig
demand outside the U.S. Gulf. As a result of declining international rig demand
and improved market conditions in the U.S. Gulf, many contractors mobilized rigs
from international markets to the U.S. Gulf in late 1993 and early 1994. The
increased supply of drilling rigs in the U.S. Gulf more than offset the
increased level of U.S. Gulf rig demand during 1994 and the first half of 1995,
causing increased pressure on dayrates. By mid-year 1995, rig demand in the
international arena began to strengthen. Improved political stability and
strengthened world oil prices caused more favorable market conditions which
enabled the Company to further its strategy of mobilizing its rigs out of the
U.S. Gulf of Mexico to international markets. Simultaneously, the U.S. Gulf of
Mexico market strengthened due to improved gas prices, subsalt drilling, and
deepwater drilling.
The Company anticipates that the domestic offshore market will experience
significant activity levels in the first two quarters of 1996. However, the
Company is cautious and does not predict these robust levels to continue all
year. The international market is anticipated to remain strong, assuming oil
prices remain at current levels and the political environment remains stable. If
the price of natural gas decreases in the near future, the Company's dayrates
and utilization rates in the U.S. Gulf could be adversely affected. The Company
can predict neither the future level of demand for its drilling services nor the
future conditions in the offshore contract drilling industry.
The Company had seven offshore drilling rigs under contract and one
offshore drilling rig available for bidding in Nigeria at March 31, 1996. The
contracts under which the seven rigs are operating each contain provisions
permitting the operator to suspend operations in the event of force majeure and
to terminate the contract if the force majeure continues; however, no operator
has elected to suspend operations pursuant to these provisions. The Company
maintains war and political risk insurance (covering physical damage or loss up
to the insured value of each rig), subject, in the case of certain coverages, to
immediate termination upon certain events or upon termination by the underwriter
on seven days' notice. In recent periods, the Nigerian economy has experienced
high inflation. During these periods, the Company's operations were not
materially affected, and the Company received timely payment for its services in
U.S. dollars. Revenues from drilling activities in Nigeria accounted for
approximately 14 percent, 14 percent and 13 percent, respectively, of the
Company's operating revenues in the three months ended March 31, 1996 and the
years ended December 31, 1995 and 1994.
The Company began to operate in Venezuela in late 1993 and currently has
four rigs located in that country. Three jackup rigs were under contract with
Lagoven, a subsidiary of the government-owned oil company of Venezuela, and one
jackup rig is under contract with Shell Venezuela S.A. In recent periods, the
Venezuelan economy has experienced high inflation and a shortage of foreign
currency. During a banking crisis in July 1994, the Venezuelan government
imposed a program of currency exchange controls and taxes on certain financial
transactions that temporarily limited the ability of the government-owned oil
companies and their affiliates to make payment in U.S. dollars or other hard
currencies to oilfield service contractors. During this period, the Company's
operations were not materially affected, and the Company received timely payment
for its services in U.S. dollars. During April 1996, the Venezuelan government
announced increases in refined petroleum products prices, interest rates and the
value-added tax rate. In addition, the government eased exchange controls and
granted pay raises to public sector employees. Although timely U.S. dollar
payments are currently being made to the Company, future exchange control
actions of the Venezuelan government could adversely affect the Company's
operations in Venezuela. Revenues from drilling activities in Venezuela
accounted for approximately eight percent, 10 percent and 10 percent,
respectively, of the Company's
29
<PAGE> 31
operating revenues in the three months ended March 31, 1996 and the years ended
December 31, 1995 and 1994.
On April 25, 1996, the Company entered into an agreement of sale and
purchase to acquire Neddrill for the purchase price of $300,000,000 in cash plus
5,000,000 shares of Common Stock. The Acquisition adds deepwater and harsh
environment capabilities to the Company's fleet, diversifies the fleet to
include drillships and a semisubmersible and increases the Company's geographic
diversification by providing entry into the Brazilian offshore market and
expanding its presence in the North Sea. See "The Acquisition."
LIQUIDITY AND CAPITAL RESOURCES
Capital Expenditures and Commitments
The Company had working capital of $123,190,000, $101,623,000 and
$157,885,000 as of March 31, 1996 and December 31, 1995 and 1994, respectively.
The increase in working capital was primarily due to the reclassification in the
1996 first quarter of the Company's two remaining barges as assets held for
sale. The decrease in working capital from December 31, 1994 to December 31,
1995 of $56,262,000 was primarily due to 1995 capital expenditures of
$87,428,000 offset by cash provided by operating activities. In addition, the
Company had long-term debt related to the financing of the Company's insurance
package, of which the short-term portion was $11,690,000 at December 31, 1995.
Long-term debt as a percentage of long-term debt plus shareholders' equity was
20 percent and 19 percent at December 31, 1995 and 1994, respectively.
The Company continues to have cash requirements for debt interest and
principal payments, and for preferred dividends, when and if declared. In 1996,
debt interest (exclusive of any interest on the Senior Notes) and principal
payments are estimated to be approximately $23,900,000. Cumulative dividends on
the 4,025,000 outstanding shares of Noble Drilling's $1.50 Convertible Preferred
Stock are estimated to be approximately $6,038,000 for 1996. The Company expects
to fund these 1996 obligations of $29,938,000 out of cash and short-term
investments as well as cash expected to be provided by operations.
During the first three months of 1996, the Company incurred capital
expenditures of approximately $42,200,000 relating primarily to the purchase of
the Gus Androes (formerly the Odin Explorer) and the Dana and the upgrade of the
Azteca. At March 31, 1996, the Company had planned capital expenditures for the
remainder of 1996 of approximately $54,000,000 related to upgrades of the Azteca
(to be renamed the Gene Rosser), Roy Butler, Dana and Gus Androes, and
replacements of equipment and drill pipe. Neddrill has planned capital
expenditures of $77,000,000 in 1996 (approximately $70,000,000 of which is
expected to be spent after consummation of the Acquisition), including upgrades
to the Neddrill 2, Neddrill Trigon and Neddrill Muravlenko totaling
approximately $58,000,000. The Company expects to fund these improvements to its
assets, including those it acquires in the Acquisition, if consummated, out of
cash provided by operations, to the extent available, and/or existing cash
balances, including the proceeds generated prior to the date of this Prospectus
by the sale of two barge rigs. Factors that could cause actual capital
expenditures to exceed materially 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
On a pro forma basis as of March 31, 1996, the Company's total indebtedness
upon consummation of the Offerings and the use of proceeds as described herein
would be $263,658,000, as compared to total shareholders' equity of
$796,099,000. Substantially all of this indebtedness will consist of the
$125,000,000 aggregate principal amount of Senior Notes offered in the Debt
Offering and the $125,000,000 aggregate principal amount of 9 1/4% Notes
currently outstanding.
The amount of interest accruing each year on the Senior Notes will be
approximately $11,250,000. The Senior Notes will not require any payments of
principal prior to maturity in 2006. The terms of the Senior Notes will contain
covenants that limit, among other things, the Company's ability to create or
incur debt, pay
30
<PAGE> 32
dividends and other distributions and make certain investments, create liens on
its assets, dispose of assets, merge or consolidate or sell substantially all of
its assets. See "Description of Senior Notes."
On November 3, 1995, the Company entered into a financing agreement with
Transamerica Insurance Finance for a period of 18 months related to the renewal
of its Marine Package, Protection and Indemnity, and Excess Liability insurance
policies. The amount financed totaled $16,561,000 at a fixed interest rate of
6.23 percent per annum, repayable in 18 equal installments.
On June 16, 1994, the Company entered into a credit agreement with First
Interstate Bank of Texas, N.A. for a $25,000,000 revolving credit facility and a
$5,000,000 letter of credit facility (see Note 5 of Notes to Consolidated
Financial Statements of the Company included elsewhere herein). At March 31,
1996, the Company had lines of credit totaling $26,000,000, of which $3,000,000
was available for letters of credit, and letter of credit facilities aggregating
$5,000,000, subject to the Company's maintenance of certain levels of
collateral. At March 31, 1996, the Company had $24,724,000 available under the
lines of credit. No amounts were outstanding under the lines of credit at March
31, 1996.
In 1993, the Company issued $125,000,000 aggregate principal amount of
9 1/4% Notes, which will mature on October 1, 2003. Interest on the 9 1/4% Notes
is payable semiannually on April 1 and October 1 of each year. The 9 1/4% Notes
are redeemable at the option of the Company, in whole or in part, on or after
October 1, 1998 at 103.47 percent of principal amount, declining ratably to par
on or after October 1, 2001, plus accrued interest. Mandatory sinking fund
payments of 25 percent of the original principal amount of the 9 1/4% Notes at
par plus accrued interest will be required on October 1, 2001 and October 1,
2002. The indenture governing the 9 1/4% Notes contains certain restrictive
covenants, including limitations on additional indebtedness and the ability to
secure such indebtedness, restrictions on dividends and certain investments, and
limitations on sales of assets, sales and leasebacks, transactions with
affiliates, and mergers or consolidations. Although the terms of the Senior
Notes include the same types of restrictive covenants (see "Description of
Senior Notes -- Certain Covenants"), the limitations imposed under the Senior
Notes generally provide the Company with greater financial flexibility,
including with respect to the ability to incur additional indebtedness and to
secure such indebtedness, as compared to the 9 1/4% Notes. Unless and until the
terms of the 9 1/4% Notes are modified to be consistent with the Senior Notes in
terms of the limitations contained in the restrictive covenants, the terms of
the 9 1/4% Notes will govern the Company's ability to, among other things, incur
additional indebtedness and secure such indebtedness.
In connection with the initial construction of the NN-1, the predecessor of
NN-1 Limited Partnership issued its U.S. Government Guaranteed Ship Financing
Sinking Fund Bonds, of which $1,546,000 was outstanding at March 31, 1996. The
bonds are secured by the vessel, and the applicable security agreement contains
certain restrictions, including restrictions on distributions to partners,
dispositions of assets and services to related parties. In addition, there are
minimum working capital, net worth and long-term debt to net worth requirements
applicable to NN-1 Limited Partnership. The Company's sharing percentage in NN-1
Limited Partnership's distributions from operations is generally 90 percent.
Minimum principal payments on the long-term debt as described above are
$12,210,000 in 1996, $4,417,000 in 1997, $506,000 in 1998, $31,250,000 in 2001,
$31,250,000 in 2002 and $62,500,000 in 2003 and, assuming consummation of the
Debt Offering, $125,000,000 in 2006.
31
<PAGE> 33
RESULTS OF OPERATIONS
The following table sets forth selected consolidated financial information
of the Company expressed as a percentage of total operating revenues for the
periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Operating revenues
Contract drilling services
International offshore................................. 29.9% 29.7% 29.8%
Domestic offshore...................................... 24.7 33.0 44.6
International land..................................... 4.2 5.6 7.3
Domestic land.......................................... 3.8 2.7 2.8
----- ----- -----
Total contract drilling services.................. 62.6 71.0 84.5
Labor contract drilling services.......................... 10.7 10.3 12.9
Turnkey drilling services................................. 21.7 16.0 --
Engineering and consulting services....................... 3.4 1.1 0.9
Other revenue............................................. 1.6 1.6 1.7
----- ----- -----
100.0 100.0 100.0
Operating costs
Contract drilling services................................ (42.2) (45.5) (55.2)
Labor contract drilling services.......................... (8.1) (8.1) (10.5)
Turnkey drilling services................................. (19.7) (13.3) --
Engineering and consulting services....................... (2.2) (0.8) (0.8)
Other expense............................................. (1.0) (1.4) (1.1)
Depreciation and amortization............................... (11.1) (11.2) (10.9)
Selling, general and administrative......................... (12.2) (13.5) (10.7)
Other income (expense), net(1).............................. 0.1 (1.0) 0.1
----- ----- -----
Operating income............................................ 3.6 5.2 10.9
Interest expense............................................ (3.7) (3.5) (3.0)
Interest income............................................. 1.6 1.6 0.9
Other income, net........................................... 0.1 4.5 0.4
----- ----- -----
Income from continuing operations before income tax and
extraordinary item........................................ 1.6 7.8 9.2
Income tax provisions....................................... (1.0) (1.6) (1.3)
----- ----- -----
Income from continuing operations before extraordinary
item...................................................... 0.6 6.2 7.9
Extraordinary item.......................................... -- -- 0.7
----- ----- -----
Net income.................................................. 0.6 6.2 8.6
Preferred stock dividends................................... (2.2) (3.6) (3.0)
----- ----- -----
Net (loss) income applicable to common shares............... (1.6)% 2.6% 5.6%
===== ===== =====
</TABLE>
- ---------------
(1) Consists of minority interest in 1995 and 1993 and minority interest and
restructuring charges in 1994.
1995 Compared With 1994
Operating Revenues. During 1995, the Company generated operating revenues
of $327,968,000 compared to operating revenues of $351,988,000 in 1994. This
decrease of $24,020,000 was due primarily to reduced contract drilling services
revenue caused by a softening of market conditions in the U.S. Gulf of Mexico
and Canada. This decrease was partially offset by increased turnkey drilling and
engineering and consulting services revenues.
32
<PAGE> 34
The Company's contract drilling fleet statistics are shown below.
<TABLE>
<CAPTION>
OPERATING DAYS AVERAGE DAYRATE
----------------- -------------------
1995 1994 1995 1994
------ ------ ------- -------
<S> <C> <C> <C> <C>
Contract Drilling Services
Offshore.................................... 10,127 11,013 $17,698 $20,024
Land........................................ 4,453 4,332 $ 5,811 $ 6,763
</TABLE>
Labor contract drilling services revenue decreased by $1,067,000 due to the
decrease in labor contracts and fewer operating days in the U.K.
Turnkey drilling services revenues were $71,273,000 in 1995, compared to
$56,380,000 earned in 1994 subsequent to the Company's acquisition of Triton, an
increase of $14,893,000. Twenty-seven wells were completed in 1995, compared to
28 in 1994. The increase in revenues was due to completion of turnkey wells of
longer duration in 1995. In 1995, the average turnkey well was drilled in 50
days compared to the 1994 average of 30 days. Triton's turnkey success ratio
deteriorated in 1995, primarily because of significant operational problems on
two domestic wells which resulted in losses of $7,293,000 on such wells.
Engineering and consulting revenues increased from $3,796,000 in 1994 to
$11,264,000 in 1995. The increase of $7,468,000 is mainly attributable to bonus
revenues generated from the alliance program between the Company and Lagoven, a
subsidiary of the government-owned oil company in Venezuela.
Operating Costs. Operating costs ("Operating Costs") consist of operating
costs and expenses other than depreciation and amortization, selling, general
and administrative costs, minority interest and restructuring charges. Operating
Costs were $240,102,000, or 73 percent of operating revenues, during 1995
compared to $243,208,000, or 69 percent of operating revenues, in 1994. Contract
drilling services costs in 1995 decreased $21,769,000 from 1994 primarily as a
result of reduced offshore activity levels, primarily in the U.S. Gulf of Mexico
and the Bay of Campeche, Mexico.
Labor contract drilling services costs in 1995 decreased $1,815,000 as
compared to 1994. This decrease was due to a reduced number of operating days in
1995 compared to 1994.
Turnkey drilling services costs increased $17,585,000 during 1995. As noted
above, Triton's average turnkey well drilling time increased in 1995, partially
due to operational issues on certain domestic wells. These operational issues
were also the primary cause of the decline in turnkey profit margins to 10
percent in 1995 compared to 17 percent in 1994.
Engineering and consulting services costs in 1995 increased $4,353,000 from
1994. This increase was due primarily to the inclusion in 1994 costs only of
amounts incurred after the date the Company acquired Triton, as well as the
start-up in 1995 of the Company's operational alliance with Lagoven in
Venezuela.
Depreciation and Amortization Expense. Depreciation and amortization
expenses were $36,492,000 in 1995 compared to $39,519,000 in 1994. The decrease
of $3,027,000 was primarily due to a change in accounting estimates offset by
the effects of 1995 capital spending. Effective January 1, 1995, the estimated
salvage values and remaining depreciable lives of certain rigs were adjusted to
better reflect their economic lives and to be consistent with other similar
assets owned by the Company. The effect of this change in estimate was a
decrease in depreciation and amortization of $6,160,000, or $0.07 per share.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses were $40,139,000 during 1995 as compared to
$47,606,000 in 1994, a decrease of $7,467,000. SG&A expenses decreased from 1994
due in part to reductions in overhead achieved as a result of restructuring and
consolidation efforts. The 1994 SG&A expenses included approximately $5,300,000
in pooling expenses related to the Chiles merger.
Restructuring Charges. A restructuring charge of $3,661,000 related to the
Chiles merger was recorded in 1994 as a result of facility consolidation,
including the write-down of certain of the Company's owned properties and, to a
lesser extent, severance costs.
33
<PAGE> 35
Other, Net. Other, net was $250,000 during 1995 compared to $15,743,000
during 1994. This decrease was principally due to the 1994 gain of $8,000,000 on
the sale of a drilling rig, net unrealized gains of $4,162,000 on marketable
equity investments, and gain of $1,530,000 on the recovery of a previously
written-off note receivable, offset by realized losses on marketable debt
securities of $2,199,000.
The Linn Richardson sustained damages in December 1995 while under tow to
West Africa. The rig has been returned to the U.S. Gulf of Mexico for a complete
damage assessment pursuant to a plan developed jointly by the Company and its
insurance underwriters. A charge of $1,778,000 related to the cost of mobilizing
the rig to West Africa was accrued in the fourth quarter of 1995. This amount
represents management's best estimate of the total loss. Management does not
believe this incident will have any other material adverse effect on the
Company's financial condition or results of operations.
Income Tax Provision. Provisions for income taxes of $3,272,000 and
$5,672,000 were recorded in 1995 and 1994, respectively. This decrease was
primarily due to a $2,100,000 U.S. separate return year loss carryback benefit
recorded by Triton.
At December 31, 1995, the Company had approximately $6,000,000 in
withholding tax receivables related to withholding taxes in Nigeria. Management
believes that this amount will be realized by obtaining the required tax
certificates from the related operators.
1994 Compared With 1993
Operating Revenues. During 1994, the Company generated operating revenues
of $351,988,000 compared to operating revenues of $264,531,000 in 1993. This
increase of $87,457,000 was due primarily to the acquisition of Triton and to
recording a full year's revenue from the assets purchased from Western in
October 1993. The Company's contract drilling fleet statistics are shown below.
<TABLE>
<CAPTION>
OPERATING DAYS AVERAGE DAYRATE
---------------- -------------------
1994 1993 1994 1993
------ ----- ------- -------
<S> <C> <C> <C> <C>
Contract Drilling Services
Offshore..................................... 11,013 9,137 $20,024 $21,105
Land......................................... 4,332 3,464 $ 6,763 $ 7,449
</TABLE>
Labor contract drilling services revenue increased by $1,729,000 in 1994
due to the increased number of labor contracts compared to 1993.
Turnkey drilling services revenues were $56,380,000 in 1994, which
represents revenue from the date of the acquisition of Triton. Twenty-eight
wells were completed in 1994, subsequent to the acquisition of Triton, for
average revenues per completed well of approximately $2,000,000.
The 1994 increases in engineering and consulting services revenues and
other revenue of $1,504,000 and $1,345,000, respectively, were primarily due to
the Triton acquisition.
Operating Costs. Operating Costs were $243,208,000, or 69 percent of
operating revenues, during 1994, compared to $178,684,000, or 68 percent of
operating revenues, in 1993. The increase in Operating Costs is due to the
increase in turnkey drilling services expense and the increase in operating days
as discussed above.
Depreciation and Amortization Expense. Depreciation and amortization
expenses were $39,519,000 in 1994, as compared to $28,886,000 in 1993. The
increase of $10,633,000 was principally due to a full year's depreciation on the
assets purchased from Western in October 1993 and the increase of approximately
$35,000,000 in capital expenditures compared to 1993.
Selling, General and Administrative Expenses. SG&A expenses were
$47,606,000 during 1994, as compared to $28,284,000 in 1993, an increase of
$19,322,000. SG&A expenses increased from 1993 due to the Triton acquisition
($7,800,000), pooling expenses related to the Chiles merger ($5,300,000), and a
full year of administrative expense from the Venezuela and Zaire operations
($2,800,000), with the balance due to an increased level of corporate personnel.
34
<PAGE> 36
Restructuring Charges. A restructuring charge of $3,661,000 related to the
Chiles merger was recorded in 1994 as a result of facility consolidation,
including the write-down of certain of the Company's owned properties and, to a
lesser extent, severance costs.
Interest Expense, Net of Interest Income. Interest expense, net of interest
income, was $6,711,000 in 1994, as compared to net interest expense of
$5,541,000 in 1993. This increase in net interest expense was due to increased
interest expense of $4,313,000 related to the issuance of the 9 1/4% Notes in
October 1993, partially offset by additional interest income of $3,143,000. The
increase in interest income is attributable to the cash proceeds from Chiles'
preferred stock offering in October 1993 (see Note 6 of Notes to Consolidated
Financial Statements of the Company included elsewhere herein).
Other, Net. Other, net was $15,743,000 during 1994, compared to $1,047,000
in 1993. This increase was principally due to a gain of $8,000,000 on the sale
of a drilling rig, net unrealized gains of $4,162,000 on marketable equity
investments, and a gain of $1,530,000 on the recovery of a previously
written-off note receivable, offset by realized losses on marketable debt
securities of $2,199,000.
Income Tax Provision. Provisions for income taxes of $5,672,000 and
$3,333,000 were recorded in 1994 and 1993, respectively. This increase was due
to the foreign deferred tax provision of $3,073,000 in 1994, related to the book
and tax depreciation differences for the assets deployed in Venezuela and
Mexico.
March 31, 1996 Compared With March 31, 1995
During the three months ended March 31, 1996 (the "Current Quarter"), the
Company generated operating revenues of $104,757,000 compared to $85,096,000
during the three months ended March 31, 1995 (the "Comparable Quarter"). The
increase in operating revenues was primarily due to increased offshore contract
and turnkey drilling activity combined with improved dayrates during the Current
Quarter. Domestic offshore contract drilling benefited in the Current Quarter
from a 15 percent improvement in average dayrates compared to the Comparable
Quarter.
Revenues in the Current Quarter for international offshore contract
drilling operations increased primarily due to the strategic relocation of the
Percy Johns and Lloyd Noble from the U.S. Gulf to Nigeria during the third
quarter of 1995. These rigs were replaced in the U.S. Gulf by the redeployment
of the John Sandifer and the Eddie Paul, which completed extensive refurbishment
programs in the third and fourth quarters of 1995, respectively.
Turnkey drilling services revenue increased $15,877,000 in the Current
Quarter due to the completion of wells under contracts of longer durations and
at increased prices caused by growing demand for equipment and services in the
U.S. Gulf.
The utilization rate for the Company's domestic offshore rig fleet
increased to 96 percent in the Current Quarter compared to 81 percent in the
Comparable Quarter. The Company's international offshore rig utilization rate
increased to 92 percent during the Current Quarter from 80 percent in the
Comparable Quarter. At March 31, 1996, the Company had labor contracts on 13
operator-owned rigs in its international operations compared to 15 rigs at the
end of the Comparable Quarter.
Gross margins from contract drilling operations were $21,714,000, or 36
percent of contract drilling revenues, in the Current Quarter as compared to
$17,813,000, or 33 percent of drilling revenues, in the Comparable Quarter. The
increase in gross margins was principally due to higher average dayrates from
the domestic contract drilling operations. Labor contract gross margins were
$2,069,000, or 26 percent of labor contract revenues, in the Current Quarter
compared to $2,480,000, or 23 percent of labor contract revenues, in the
Comparable Quarter. Turnkey drilling operations gross margins were $9,849,000,
or 30 percent of turnkey drilling revenues, in the Current Quarter compared to
gross margins of $801,000, or five percent of turnkey drilling revenues, in the
Comparable Quarter. Eight turnkey wells were completed in the Current Quarter
compared to nine turnkey wells in the Comparable Quarter. The increase in
turnkey drilling operations gross margins was due to an improved success rate on
turnkey wells.
In March 1995, Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of ("SFAS No. 121"), was issued. This statement requires that
long-lived assets and certain identifiable intangibles held and used by an
entity be
35
<PAGE> 37
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The Company adopted
this standard effective January 1, 1996. The Company recorded an impairment loss
of $7,600,000 related to the implementation of SFAS No. 121 during the Current
Quarter.
During the Current Quarter, the Company sold for cash two posted barges,
one located in the U.S. Gulf of Mexico and the other offshore Nigeria. The gains
on the sales of these assets totaling $7,527,000 recorded by the Company in the
Current Quarter partially offset the non-cash charge to net income of $7,600,000
described above. The Company is planning to sell its two remaining posted barges
located in Nigeria.
36
<PAGE> 38
MANAGEMENT
The following table sets forth certain information as of April 26, 1996
with respect to the executive officers and directors of Noble Drilling.
<TABLE>
<CAPTION>
NAME AGE POSITION
-------------------------------------- --- --------------------------------------
<S> <C> <C>
James C. Day.......................... 53 Chairman, President and Chief
Executive Officer and Director
Byron L. Welliver..................... 51 Senior Vice President -- Finance,
Treasurer and Controller
Julie J. Robertson.................... 40 Vice President -- Administration and
Corporate Secretary
Michael A. Cawley(1).................. 49 Director
Lawrence J. Chazen(1)................. 55 Director
Tommy C. Craighead(2)(3).............. 67 Director
James L. Fishel(1).................... 64 Director
Johnnie W. Hoffman(2)................. 69 Director
Marc E. Leland(2)(3).................. 58 Director
Bill M. Thompson(2)(3)................ 63 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Stock Option Committee.
James C. Day has served as Chairman of Noble Drilling since October 22,
1992, and as President and Chief Executive Officer since January 1, 1984. From
January 1983, until his election as President and Chief Executive Officer, Mr.
Day served as Vice President of Noble Drilling. Prior to 1983, Mr. Day served as
Vice President and Assistant Secretary of Noble Affiliates, Inc. He has been a
director of Noble Drilling since 1984. Mr. Day is also a director of Global
Industries Limited, Inc., and the YMCA of Greater Houston.
Byron L. Welliver has served as Senior Vice President -- Finance of Noble
Drilling since April 1989, as Treasurer of Noble Drilling since July 1986, and
as Controller of Noble Drilling since September 1994. Mr. Welliver had served as
Controller form April 1989 to April 1991. From July 1986 to April 1989, he also
served as Vice President -- Finance for Noble Drilling. He joined Noble Drilling
in October 1985, as Controller. Prior to joining Noble Drilling, Mr. Welliver
served consecutively as Tax Manager, Controller and Treasurer of Noble
Affiliates, Inc. beginning in March 1981.
Julie J. Robertson has served as Corporate Secretary of Noble Drilling
since December 1993, and as Vice President -- Administration of Noble Drilling
Services Inc. since September 1994. From January 1989 to September 1994, Ms.
Robertson served consecutively as Manager of Benefits and Director of Human
Resources. Prior to 1989, she served in the capacities of Risk and Benefits
Manager and Marketing Services Coordinator for Bawden Drilling Inc. Ms.
Robertson joined Bawden Drilling Inc. in 1979.
Michael A. Cawley has served as President and Chief Executive Officer of
The Samuel Roberts Noble Foundation, Inc. (the "Foundation") since February 1,
1992, after serving as Executive Vice President of the Foundation since January
1, 1991. For more than five years prior to 1991, Mr. Cawley was the President of
Thompson & Cawley, a professional corporation, attorneys at law; and Mr. Cawley
currently serves as of counsel to the law firm of Thompson, Cawley, Veazey &
Burns, a professional corporation. Mr. Cawley has served as a trustee of the
Foundation since 1988 and is also a director of Noble Affiliates, Inc. and
Panhandle Royalty Company. He has been a director since 1985.
Lawrence J. Chazen has served as Chief Executive Officer of Lawrence J.
Chazen, Inc., a California registered investment advisor, since 1977. He has
provided financial advisory services to Gordon P. Getty, the Gordon P. Getty
Family Trust, and other clients since 1977. Mr. Chazen serves as President and a
director of P.A.J.W. Corporation. He has been a director since 1994.
37
<PAGE> 39
Tommy C. Craighead is the President and owner of T. C. Craighead & Company
(which is the general partner of The Joy Partners, Ltd.) and Astro Oil, Inc.,
all based in Ardmore, Oklahoma. He is also Vice-President of Tom-Sam, Inc. He
has been an oil and gas lease broker and independent operator since 1962. He has
been a director since 1988.
James L. Fishel retired as Vice President and Manager of Corporate Credit
Operations of General Electric Capital Corporation in 1994, after serving with
GECC in various positions since 1974. He is also a director of American Health
Properties, Inc., which is a real estate investment company. He has been a
director since 1989.
Johnnie W. Hoffman conducts his own ranching operations. He retired as Vice
President and Division Manager -- Offshore of the Company in 1986, after serving
the Company in various positions for 39 years. He has been a director since
1983.
Marc E. Leland has served since 1984 as President of Marc E. Leland &
Associates, Inc., a company engaged in the business of providing financial
advisory services. He has been a director since 1994.
Bill M. Thompson retired from Phillips Petroleum Company in December 1992,
after 38 years of service. From October 1988 to December 1991, Mr. Thompson
served as Executive Vice President of Phillips Petroleum Company. In 1992, Mr.
Thompson served as Chairman of the Board, President and Chief Executive Officer
of GPM Gas Corporation, a wholly owned subsidiary of Phillips Petroleum Company,
prior to his retirement. Mr. Thompson serves as a director of MCN Corporation.
He has been a director since 1993.
38
<PAGE> 40
DESCRIPTION OF SENIOR NOTES
The Senior Notes will be issued under an Indenture, dated as of
, 1996 (the "Indenture"), between the Company and Texas Commerce Bank National
Association, as trustee under the Indenture (the "Trustee"). For purposes of
this description of the Senior Notes, the term "Company" refers to Noble
Drilling Corporation and does not include its subsidiaries except for purposes
of financial data determined on a consolidated basis.
The terms of the Senior Notes include those stated in the Indenture and
those made a part of the Indenture by reference to the Trust Indenture Act of
1939 as in effect on the date of the Indenture (the "Trust Indenture Act"). The
Senior Notes are subject to all such terms, and Holders of the Senior Notes are
referred to the Indenture and the Trust Indenture Act for a statement of those
terms. The statements and definitions of terms under this caption relating to
the Senior Notes and the Indenture are summaries and do not purport to be
complete. Such summaries make use of certain terms defined in the Indenture and
are qualified in their entirety by express reference to the Indenture. A copy of
the Indenture, substantially in the form in which it is to be executed, has been
filed with the Securities and Exchange Commission as an exhibit to the
Registration Statement of which this Prospectus is a part. Certain terms used
herein are defined below under "-- Certain Definitions."
GENERAL
The Senior Notes will be senior unsecured obligations of the Company,
ranking pari passu in right of payment with all other senior unsecured
indebtedness of the Company including the Company's $125,000,000 outstanding
principal amount of 9 1/4% Senior Notes Due 2003 (the "9 1/4% Notes"), and will
be senior in right of payment to all existing and future subordinated
indebtedness of the Company. The Senior Notes will be effectively subordinated
to any secured indebtedness of the Company to the extent of the value of the
assets securing such indebtedness and will be effectively subordinated to all
obligations of the Company's subsidiaries. At March 31, 1996, after giving
effect to the use of proceeds from the Offerings as described in "Use of
Proceeds," the Company would have had (i) approximately $250,000,000 of
unsecured indebtedness for borrowed money (the 9 1/4% Notes and the Senior
Notes) and (ii) no indebtedness for borrowed money secured by the Company's
assets. In addition, subsidiaries of the Company would have had liabilities
(including trade payables) aggregating approximately $92,900,000 (including
$13,700,000 of indebtedness) and would have had approximately $24,724,000
available for borrowing or to support the issuance of letters of credit as of
that date under lines of credit and a letter of credit facility.
The Senior Notes will mature on , 2006 and will bear
interest from , 1996, at the rate per annum of percent.
Interest on the Senior Notes will be payable semiannually in arrears on
and of each year, commencing ,
1996, to the persons who are registered holders thereof at the close of business
on the or , as the case may be, immediately preceding
such interest payment date.
Interest on the Senior Notes will be computed on the basis of a 360-day
year of twelve 30-day months. Principal and interest will be payable at the
office of the Paying Agent. In addition, in the event the Senior Notes do not
stay in book entry form, at the option of the Company, interest may be paid by
check mailed to the registered Holders at their registered addresses. The Senior
Notes will be issued without coupons and in fully registered form only, in
denominations of $1,000 and integral multiples thereof.
39
<PAGE> 41
OPTIONAL REDEMPTION
The Senior Notes will not be redeemable at the option of the Company prior
to , 2001. On or after , 2001, the Senior Notes will be
redeemable at the option of the Company, in whole at any time or in part from
time to time, at the following prices (expressed in percentages of the principal
amount), if redeemed during the 12 months beginning of the years
indicated below, in each case together with interest accrued to the redemption
date (subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date):
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---------------------------------------------------------- ----------
<S> <C>
2001...................................................... %
2002...................................................... %
2003...................................................... %
2004 and thereafter....................................... 100%
</TABLE>
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder will have the right
to require the Company to repurchase all of such Holder's Senior Notes in whole
or in part (the "Change of Control Offer") at a purchase price (the "Repurchase
Price") in cash equal to 101 percent of the aggregate principal amount thereof
plus accrued and unpaid interest thereon, if any, to the Change of Control
Payment Date (as defined below).
Within 30 days following any Change of Control, the Company will mail a
notice to each Holder and to the Trustee stating, among other things, (i) that a
Change of Control has occurred and a Change of Control Offer is being made as
described in this provision, and that, although Holders are not required to
tender their Senior Notes, all Senior Notes that are timely tendered will be
accepted for payment; (ii) the Repurchase Price and the repurchase date, which
will be no earlier than 30 days and no later than 60 days after the date such
notice is mailed (the "Change of Control Payment Date"); (iii) that any Senior
Note accepted for payment pursuant to the Change of Control Offer will cease to
accrue interest after the Change of Control Payment Date; and (iv) the
instructions and any other information necessary to enable Holders to tender
their Senior Notes and have such Senior Notes purchased pursuant to this
covenant. The Company will comply with any applicable tender offer rules
(including, without limitation, any applicable requirements of Rule 14e-1 under
the Exchange Act) in the event that the Change of Control Offer is triggered
under the circumstances described herein.
The provisions of the Indenture requiring the Company to repurchase Senior
Notes upon a Change of Control or from the proceeds of Asset Sales may not
afford holders of the Senior Notes protection in the event of a highly leveraged
transaction, reorganization, restructuring, merger or similar transaction
involving the Company or a Subsidiary that may adversely affect Holders of the
Senior Notes, if such transaction is not a transaction defined as a "Change of
Control" or an "Asset Sale," or, if such transaction is an "Asset Sale," the Net
Available Proceeds from such transaction (i) are otherwise used to purchase
Replacement Assets or repay certain Indebtedness as permitted under the
Indenture or (ii) together with the Net Available Proceeds from all other Asset
Sales which are not so used, do not exceed $15,000,000. See "-- Certain
Definitions" for the definitions of "Change of Control" and "Asset Sale" and
"-- Certain Covenants -- Limitation on Asset Sales" for the restrictions on the
ability of the Company and the Subsidiaries to engage in Asset Sales and the
terms of the Company's obligation to repurchase Senior Notes in the event of an
Asset Sale.
Notwithstanding that a transaction of the type described in the preceding
paragraph does not trigger the repurchase obligations of the Company under the
Indenture, the provisions of the Indenture will restrict the ability of the
Company or the Subsidiaries to incur additional Indebtedness or engage in the
transaction if it is a transaction involving an Affiliate of the Company or a
transaction involving a merger or consolidation of the Company or a disposition
of all or substantially all of the assets of the Company and the Subsidiaries,
taken as a whole. See "-- Certain Covenants -- Transactions with Affiliates,"
"-- Certain Covenants -- Limitation on Indebtedness," "-- Certain
Covenants -- Limitation on Subsidiary Indebtedness and Preferred Stock" and
40
<PAGE> 42
"-- Consolidation, Merger, Conveyance, Lease or Transfer" for a description of
such restrictions. Such restrictions, however, may be eliminated or modified
with the consent of, and a Default in respect thereof may be waived by, the
holders of not less than a majority in principal amount of the Outstanding
Senior Notes. See "-- Events of Default" and "-- Amendment, Supplement and
Waiver."
One of the events that constitutes a Change of Control under the Indenture
is a sale, conveyance, transfer or lease of all or substantially all of the
property of the Company and the Subsidiaries, taken as a whole. The Indenture
will be governed by New York law, and there is no established quantitative
definition under New York law of "substantially all" of the assets of a
corporation. Accordingly, if the Company were to engage in a transaction in
which it disposed of less than all of its assets, a question of interpretation
could arise as to whether such disposition was of "substantially all" of its
assets and whether the Company was required to make a Change of Control Offer.
CERTAIN COVENANTS
The Indenture will provide that the covenants set forth herein will be
applicable to the Company, except that during any period of time that (i) the
ratings assigned to the Senior Notes by both Standard & Poor's Ratings Group
("S&P") and Moody's Investors Service, Inc.("Moody's and, together with "S&P,"
the "Rating Agencies") are equal to or higher than BBB- and Baa3, or the
equivalents thereof, respectively (the "Investment Grade Ratings"), and (ii) no
Default has occurred and is continuing, the Company and its Subsidiaries will
not be subject to the provisions of the Indenture described under "Limitation on
Indebtedness," "-- Limitation on Asset Sales," "-- Limitation on Restricted
Payments," and clauses (iii) and (iv) of "-- Consolidation, Merger, Conveyance,
Lease or Transfer" (collectively, the "Suspended Covenants"). In the event that
the Company is not subject to the Suspended Covenants for any period of time as
a result of the preceding sentence and, subsequently, one or both Rating
Agencies withdraws its ratings or downgrades the ratings assigned to the Senior
Notes below the required Investment Grade Ratings, then the Company and its
Subsidiaries will again be subject to the Suspended Covenants and compliance
with the Suspended Covenants with respect to Restricted Payments made after the
time of such withdrawal or downgrade will be calculated in accordance with the
terms of the "Limitation on Restricted Payments" covenant as if such covenant
had been in effect during the entire period of time from the date of the
Indenture.
Set forth below are certain covenants contained in the Indenture:
Transactions with Affiliates. The Indenture provides that, subsequent to
the Issue Date, the Company will not, and will not permit any Subsidiary to,
directly or indirectly, enter into or permit to exist any transaction or series
of related transactions (including, but not limited to, the purchase, sale or
exchange of Property, the making of any Investment, the giving of any Guarantee
or the rendering of any service) with any Affiliate of the Company (other than
the Company or a Wholly Owned Subsidiary (except a Non-Recourse Subsidiary))
unless (i) such transaction or series of related transactions is on terms no
less favorable to the Company or such Subsidiary than those that could be
obtained in a comparable arm's length transaction with a Person that is not such
an Affiliate and (ii)(a) with respect to a transaction or series of related
transactions that has a Fair Market Value in excess of $2,000,000 but less than
$5,000,000, the Company delivers an Officers' Certificate to the Trustee
certifying that such transaction or series of related transactions complies with
clause (i) above and (b) with respect to a transaction or series of related
transactions that has a Fair Market Value equal to, or in excess of, $5,000,000,
the transaction or series of related transactions is approved by a majority of
the Board of Directors (including a majority of the disinterested directors),
which approval is set forth in a resolution certifying that such transaction or
series of transactions complies with clause (i) above.
Limitation on Restricted Payments. The Company will not, and will not
permit any Subsidiary (other than a Non-Recourse Subsidiary) to make any
Restricted Payment, unless at the time of and after giving effect to the
proposed Restricted Payment (the value of any such payment, if other than cash,
to be determined by the Board of Directors, whose determination shall be
conclusive and evidenced by a Board Resolution), (a) no Default shall have
occurred and be continuing (or would result therefrom), (b) the Company could
incur at least $1.00 of additional Indebtedness under paragraph (a) of
"-- Certain
41
<PAGE> 43
Covenants -- Limitation on Indebtedness" and (c) the aggregate amount of all
Restricted Payments declared or made on or after the Issue Date by the Company
or any Subsidiary (other than a Non-Recourse Subsidiary) shall not exceed the
sum of (i) 50 percent of the aggregate Consolidated Net Income of the Company
(or if such Consolidated Net Income shall be a deficit, minus 100 percent of
such deficit) accrued during the period beginning on October 1, 1993 and ending
on the last day of the fiscal quarter ending immediately prior to the date of
such proposed Restricted Payment, (ii) an amount equal to (A) the aggregate net
cash proceeds received by the Company, subsequent to October 7, 1993, from the
issuance or sale (other than to a Subsidiary), subsequent to October 7, 1993, of
shares of its Capital Stock (excluding Redeemable Stock, but including Capital
Stock issued upon the exercise of options, warrants or rights to purchase
Capital Stock (other than Redeemable Stock) of the Company and including the
Equity Offerings) and (B) the liability (expressed as a positive number) in
accordance with GAAP in respect of any Indebtedness of the Company or carrying
value of Redeemable Stock or the Preferred Stock, which has been converted into,
exchanged for or satisfied by the issuance of shares of Capital Stock (other
than Redeemable Stock) of the Company, subsequent to October 7, 1993, (iii) in
the case of the disposition or repayment of any Investment constituting a
Restricted Payment made after the Issue Date in compliance with the provisions
of the Indenture, an amount equal to the lesser of the return of capital with
respect to such Investment and the initial amount of such Investment, in either
case, less the cost of the disposition of such Investment and (iv) $10,000,000;
provided, however, that the foregoing provisions will not prevent (A) the
payment of any dividend on Capital Stock of any class within 60 days after the
date of its declaration if at the date of declaration such payment would be
permitted by the Indenture, (B) the payment of regular dividends on the
Preferred Stock, (C) any repurchase or redemption of Capital Stock or
Subordinated Indebtedness of the Company out of the net cash proceeds from the
substantially concurrent issuance or sale (other than to a Subsidiary (except a
Non-Recourse Subsidiary)) of Capital Stock of the Company (other than Redeemable
Stock); provided that the net cash proceeds from such sale are excluded from
computations under clause (c)(ii) above to the extent such proceeds are applied
to purchase or redeem such Capital Stock or Subordinated Indebtedness or (D) any
repurchase or redemption of Subordinated Indebtedness of the Company solely in
exchange for, or out of the net cash proceeds from the substantially concurrent
sale of, new Subordinated Indebtedness of the Company, so long as such
Subordinated Indebtedness (x) is subordinated to the Senior Notes at least to
the same extent as the Subordinated Indebtedness so exchanged, purchased or
redeemed, (y) has a stated maturity equal to or later than the stated maturity
of the Subordinated Indebtedness so exchanged, purchased or redeemed and (z) has
an Average Life at the time incurred that is greater than the remaining Average
Life of the Indebtedness so exchanged, purchased or redeemed. Restricted
Payments permitted to be made as described in the proviso to the preceding
sentence will be excluded in calculating the amount of Restricted Payments
thereafter, except such Restricted Payments made as described in clause (A),
which will be included in calculating the amount of Restricted Payments
thereafter.
Limitation on Indebtedness. (a) The Company will not, and will not permit
any Subsidiary (other than a Non-Recourse Subsidiary) to, directly or
indirectly, create, incur, assume, suffer to exist, Guarantee or otherwise
become liable with respect to the payment of (collectively, "incur"), any
Indebtedness unless immediately after the date of such transaction and after
giving effect to the incurrence of such Indebtedness and the receipt and
application of the proceeds thereof as if such Indebtedness had been incurred
and the proceeds thereof applied on the first day of the Determination Period,
the Consolidated Interest Coverage Ratio of the Company at such date is at least
2.50 to 1.0. See "Prospectus Summary -- Summary Historical and Pro Forma
Financial Information."
(b) Notwithstanding the foregoing paragraph (a), the Company or any
Subsidiary may incur Permitted Indebtedness.
42
<PAGE> 44
Limitation on Subsidiary Indebtedness and Preferred Stock. The Company
will not permit any Subsidiary to, directly or indirectly, create, incur,
assume, Guarantee or otherwise become liable with respect to the payment of
(collectively, "incur"), any Indebtedness or to issue or suffer to exist any
preferred stock, other than:
(i) Indebtedness described in clauses (b), (c), (d), (e), (f), (h),
(i), (k), (l), (m) and (n) of the definition of "Permitted Indebtedness;"
(ii) Indebtedness of a Subsidiary which represents the assumption by
such Subsidiary of Indebtedness (other than Non-Recourse Indebtedness) of
another Subsidiary in connection with a merger of such Subsidiaries;
provided that no Subsidiary or any successor (by way of merger) thereto
existing on the Issue Date shall assume or otherwise incur any Indebtedness
of an entity which is not a Subsidiary on the Issue Date, except to the
extent that such Subsidiary would be permitted to incur such Indebtedness
under the Indenture;
(iii) Indebtedness or preferred stock of any Person existing at the
time such Person becomes a Subsidiary; provided that such Indebtedness was
not incurred in anticipation of such corporation becoming a Subsidiary and
would otherwise be permitted under paragraph (a) of "-- Certain Covenants
-- Limitation on Indebtedness;"
(iv) Indebtedness or preferred stock issued to and held by the Company
or a Wholly Owned Subsidiary other than a Non-Recourse Subsidiary, so long
as the transfer of such Indebtedness or preferred stock to a Person other
than the Company or any Wholly Owned Subsidiary would be deemed to
constitute the issuance of such Indebtedness or preferred stock by the
issuer thereof;
(v) Indebtedness or preferred stock issued in exchange for, or the
proceeds of which are used to refinance, repurchase or redeem, Indebtedness
or preferred stock described in clause (iii) above or in clause (b) of the
definition of "Permitted Liens" (the "Retired Indebtedness or Stock");
provided that the Indebtedness or the preferred stock so issued has (A) a
principal amount or liquidation value, as the case may be, not in excess of
the principal amount or liquidation value of the Retired Indebtedness or
Stock, (B) a final redemption date later than the stated maturity or final
redemption date (if any) of the Retired Indebtedness or Stock and (C) an
Average Life at the time of issuance of such Indebtedness or preferred
stock that is greater than the Average Life of the Retired Indebtedness or
Stock; or
(vi) Indebtedness or preferred stock of a Subsidiary, which, when
combined with (A) the aggregate amount of all other outstanding
Indebtedness of the Subsidiaries plus the aggregate liquidation value of
all preferred stock of any Subsidiary, in either case excluding any
Non-Recourse Subsidiary (other than Indebtedness secured by Liens described
under clauses (c), (j), (o) and (s) of the definition of "Permitted
Liens"), plus (B) the aggregate amount of all Indebtedness of the Company
secured by Liens (other than such Indebtedness secured by Liens described
under clauses (b), (c), (j), (o) and (s) of the definition of "Permitted
Liens"), plus (C) the aggregate amount of all Capital Lease Obligations of
the Company and the Subsidiaries, shall not exceed 10 percent of the
Company's Consolidated Net Tangible Assets.
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not permit any Subsidiary (other
than a Non-Recourse Subsidiary) to, directly or indirectly, create, enter into
any agreement with any Person or otherwise cause or suffer to exist or become
effective any consensual encumbrance or restriction of any kind which by its
terms restricts the ability of any Subsidiary (other than a Non-Recourse
Subsidiary) to (a) pay dividends, in cash or otherwise, or make any other
distributions on its Capital Stock, (b) pay any Indebtedness owed to the Company
or any Subsidiary (other than a Non-Recourse Subsidiary), (c) make loans or
advances to the Company or any Subsidiary or
43
<PAGE> 45
(d) transfer any of its Property or assets to the Company or any Subsidiary
(other than a Non-Recourse Subsidiary) except any encumbrance or restriction
contained in any agreement or instrument:
(i) existing on the Issue Date;
(ii) relating to any Property acquired after the date of the
Indenture, so long as such encumbrance or restriction relates only to the
Property so acquired;
(iii) relating to any Indebtedness of any Subsidiary at the date on
which such Subsidiary was acquired by the Company or any Subsidiary (other
than Indebtedness incurred in connection with or anticipation of such
acquisition);
(iv) effecting a refinancing of Indebtedness issued pursuant to an
agreement referred to in the foregoing clauses (i) through (iii), so long
as the encumbrances and restrictions contained in any such refinancing
agreement are no more restrictive than the encumbrances and restrictions
contained in such agreements;
(v) which constitute customary provisions restricting subletting or
assignment of any lease of the Company or any Subsidiary or provisions in
agreements that restrict the assignment of such agreement or any rights
thereunder; and
(vi) which constitute restrictions on the sale or other disposition of
any Property securing Indebtedness as a result of a Permitted Lien on such
Property.
Limitation on Asset Sales. The Company will not engage in, and will not
permit any Subsidiary (other than a Non-Recourse Subsidiary) to engage in, any
Asset Sale unless (a) except in the case of an Asset Sale resulting from the
requisition of title to, seizure or forfeiture of any Property or assets or any
actual or constructive total loss or an agreed or compromised total loss, the
Company or such Subsidiary, as the case may be, receives consideration at the
time of such Asset Sale at least equal to the Fair Market Value of the Property
and (b) at least 75 percent of such consideration consists of Cash Proceeds (or
the assumption of Indebtedness of the Company or such Subsidiary relating to the
Capital Stock or Property that was the subject of such Asset Sale and the
release of the Company or such Subsidiary from such Indebtedness). The Company
or such Subsidiary, as the case may be, may apply the Net Available Proceeds
from each Asset Sale to (i) the acquisition of one or more Replacement Assets,
provided that such acquisitions shall be made within 365 days after the
consummation of the relevant Asset Sale, (ii) repay Indebtedness described under
clause (b) of the definition of "Permitted Indebtedness" (but only if the
related commitments or amounts available to be reborrowed thereunder are
permanently reduced by the amount of such payment) or (iii) purchase and retire,
or otherwise repay, in whole or in part, the 9 1/4% Notes.
Any Net Available Proceeds from any Asset Sale that are not used to
purchase Replacement Assets within 365 days after consummation of the relevant
Asset Sale or applied to repay, or repurchase and retire, Indebtedness as
provided in the preceding sentence constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $15,000,000, the Company shall make
a pro rata offer (an "Asset Sale Offer") to purchase from all holders of Senior
Notes and any then outstanding Indebtedness of the Company that is pari passu in
right of payment to the Senior Notes ("Pari Passu Indebtedness") required to be
repurchased or repaid on a permanent basis in connection with an Asset Sale, an
aggregate principal amount of Senior Notes and any such Pari Passu Indebtedness
equal to the Excess Proceeds as follows:
(i)(A) The Company shall make an offer to purchase (a "Net Proceeds
Offer") from all holders of the Senior Notes in accordance with the
procedures set forth in the Indenture the maximum principal amount
(expressed as a multiple of $1,000) of Senior Notes that may be purchased
out of an amount (the "Payment Amount") equal to the product of such Excess
Proceeds multiplied by a fraction, the numerator of which is the
outstanding principal amount of the Senior Notes and the denominator of
which is the sum of the outstanding principal amount of the Senior Notes
and such Pari Passu Indebtedness, if any (subject to proration in the event
the Payment Amount is less than the aggregate Offered Price (as defined in
clause (ii) below) of all Senior Notes tendered) and (B) to the extent
required by any such Pari Passu Indebtedness and provided there is a
permanent reduction in the
44
<PAGE> 46
principal amount of such Pari Passu Indebtedness, the Company shall make an
offer to purchase such Pari Passu Indebtedness (a "Pari Passu Offer") in an
amount (the "Pari Passu Indebtedness Amount") equal to the excess of the
Excess Proceeds over the Payment Amount.
(ii) The offer price for the Senior Notes shall be payable in cash in
an amount equal to 100 percent of the principal amount of the Senior Notes
tendered pursuant to a Net Proceeds Offer, plus accrued and unpaid
interest, if any, to the date such Net Proceeds Offer is consummated (the
"Offered Price"), in accordance with the procedures set forth in the
Indenture. To the extent that the aggregate Offered Price of the Senior
Notes tendered pursuant to a Net Proceeds Offer is less than the Payment
Amount relating thereto or the aggregate amount of the Pari Passu
Indebtedness that is purchased or repaid pursuant to the Pari Passu Offer
is less than the Pari Passu Indebtedness Amount (such shortfall
constituting a "Net Proceeds Deficiency"), the Company may use such Net
Proceeds Deficiency, or a portion thereof, for general corporate purposes,
subject to the provisions of the Indenture described under "-- Limitation
on Restricted Payments" and the amount of Excess Proceeds shall be reset to
zero.
(iii) If the aggregate Offered Price of Senior Notes validly tendered
and not withdrawn by holders thereof exceeds the Payment Amount, Senior
Notes to be purchased will be selected on a pro rata basis. Upon completion
of such Net Proceeds Offer and Pari Passu Offer, the amount of Excess
Proceeds shall be reset to zero.
The Company will comply with any applicable tender offer rules (including,
without limitation, any applicable requirements of Rule 14e-1 under the Exchange
Act) in the event that an Asset Sale Offer is required under the circumstances
described herein. See "-- Change of Control" for a discussion of the protection
afforded the Holders of the Senior Notes under the provisions of the Indenture
requiring the Company to make a Change of Control Offer or Asset Sale Offer in
the event of a highly leveraged transaction, reorganization, restructuring,
merger or similar transaction.
Limitation on Sale and Lease-Back Transactions. The Company will not, and
will not permit any Subsidiary (other than a Non-Recourse Subsidiary) to,
directly or indirectly, enter into, assume, Guarantee or otherwise become liable
with respect to any Sale and Lease-Back Transaction if the lease obligations of
the Company or any such Subsidiary created or incurred in connection with such
Sale and Lease-Back Transaction constitute Capital Lease Obligations, unless the
Company or such Subsidiary would have been permitted to enter into such
transaction under paragraph (a) of "-- Certain Covenants -- Limitation on
Indebtedness," clause (vi) of "-- Certain Covenants -- Limitation on Subsidiary
Indebtedness and Preferred Stock" and "-- Certain Covenants -- Limitation on
Liens." Any Sale and Lease-Back Transaction that the Company or any Subsidiary
enters into and does not result in the creation or incurrence of any Capital
Lease Obligation of the Company or any Subsidiary, shall be deemed to constitute
an Asset Sale.
Limitation on Liens. The Company will not, and will not permit any
Subsidiary to, directly or indirectly, create, affirm, incur, assume or suffer
to exist any Liens on or with respect to any Property of the Company or such
Subsidiary or any interest therein or any income or profits therefrom, whether
owned at the date of the Indenture or thereafter acquired, without effectively
providing that the Senior Notes shall be secured equally and ratably with (or
prior to) the Indebtedness so secured, other than Permitted Liens.
45
<PAGE> 47
CONSOLIDATION, MERGER, CONVEYANCE, LEASE OR TRANSFER
The Company will not, in any transaction or series of transactions,
consolidate with or merge into any other Person (other than a merger of a
Subsidiary into the Company in which the Company is the continuing corporation),
or sell, convey, assign, transfer, lease or otherwise dispose of all or
substantially all of the Property and assets of the Company and the
Subsidiaries, taken as a whole, to any Person, unless:
(i) either (a) the Company shall be the continuing corporation or (b)
the corporation (if other than the Company) formed by such consolidation or
into which the Company is merged, or the Person which acquires, by sale,
assignment, conveyance, transfer, lease or disposition, all or
substantially all of the Property and assets of the Company and the
Subsidiaries, taken as a whole (such corporation or Person, the "Surviving
Entity"), shall be a corporation organized and validly existing under the
laws of the United States of America, any political subdivision thereof or
any state thereof or the District of Columbia, and shall expressly assume,
by a supplemental indenture, the due and punctual payment of the principal
of (and premium, if any) and interest on all the Senior Notes and the
performance of the Company's covenants and obligations under the Indenture;
(ii) immediately before and after giving effect to such transaction or
series of transactions on a pro forma basis (including, without limitation,
any Indebtedness incurred or anticipated to be incurred in connection with
or in respect of such transaction or series of transactions), no Event of
Default or Default shall have occurred and be continuing or would result
therefrom;
(iii) immediately after giving effect to such transaction or series of
transactions on a pro forma basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or
in respect of such transaction or series of transactions), the Company (or
the Surviving Entity if the Company is not continuing) shall have a
Consolidated Net Worth equal to or greater than the Consolidated Net Worth
of the Company immediately prior to such transaction; and
(iv) immediately after giving effect to any such transaction or series
of transactions on a pro forma basis as if such transaction or series of
transactions had occurred on the first day of the Determination Period, the
Company (or the Surviving Entity if the Company is not continuing) would be
permitted to incur $1.00 of additional Indebtedness pursuant to paragraph
(a) of "-- Certain Covenants -- Limitation on Indebtedness."
EVENTS OF DEFAULT
Each of the following is an "Event of Default" under the Indenture:
(a) default in the payment of any installment of interest upon any
Senior Note when it becomes due and payable, and the continuance of such
default for a period of 30 days;
(b) default in the payment of the principal of (or premium, if any,
on) any Senior Note at its Maturity, upon repurchase, acceleration,
redemption or otherwise;
(c) the Company fails to comply with any of its covenants or
agreements contained in "-- Change of Control" or "-- Consolidation,
Merger, Conveyance, Lease or Transfer" or fails to make an Asset Sale Offer
in accordance with "-- Certain Covenants -- Limitation on Asset Sales" and
such failure continues for a period of five days;
(d) default in the performance, or breach, of any covenant or warranty
of the Company in the Indenture (other than a covenant or warranty a
default in whose performance or whose breach is specifically dealt with)
and continuance of such default or breach for a period of 30 days after
written notice thereof has been mailed, by registered or certified mail, to
the Company by the Trustee or to the Company and the Trustee by the Holders
of at least 25 percent of the outstanding aggregate principal amount of
Senior Notes;
(e) Indebtedness (other than Non-Recourse Indebtedness) of the Company
or any Subsidiary is not paid when due within the applicable grace period
or is accelerated by the holders thereof and, in
46
<PAGE> 48
either case, the principal amount of such due and unpaid or accelerated
Indebtedness exceeds $10,000,000 for any Indebtedness individually or in
the aggregate;
(f) the entry by a court of competent jurisdiction of one or more
judgments or orders against the Company or any Subsidiary in an uninsured
or unindemnified aggregate amount in excess of $10,000,000 which remain
undischarged or unsatisfied for a period of 60 consecutive days after the
right to appeal them has expired;
(g) the entry of a decree or order for relief in respect of the
Company or any Material Subsidiary by a court of competent jurisdiction in
an involuntary case under the Federal bankruptcy laws, as now or hereafter
constituted, or any other Federal or State bankruptcy, insolvency or other
similar law, or appointing a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Company or any
Material Subsidiary or of any substantial part of the Property of the
Company or any Material Subsidiary, or ordering the winding up or
liquidation of the affairs of the Company or any Material Subsidiary, and
the continuance of any such decree or order unstayed and in effect for a
period of 60 consecutive days; or
(h) (i) the commencement by the Company or any Material Subsidiary of
a voluntary case under the Federal bankruptcy laws, as now or hereafter
constituted, or any other applicable Federal or State bankruptcy,
insolvency or other similar law, or (ii) the consent by the Company or any
Material Subsidiary to the entry of an order for relief in an involuntary
case under any such law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of
the Company or any Material Subsidiary or of any substantial part of the
Property of the Company or any Material Subsidiary, or the making by the
Company or any Material Subsidiary of an assignment for the benefit of
creditors, or the admission by the Company or any Material Subsidiary in
writing of its inability to pay its debts generally as they become due, or
the taking of corporate action by the Company or any Material Subsidiary in
furtherance of any such action.
If an Event of Default (other than an Event of Default specified in clauses
(g) and (h) above) occurs and is continuing, then and in every such case the
Trustee or the Holders of not less than 25 percent of the outstanding aggregate
principal amount of Senior Notes may declare the unpaid principal of (and
premium, if any) and accrued and unpaid interest on all Senior Notes then
Outstanding to be immediately due and payable, by a notice in writing to the
Company (and to the Trustee if given by Holders), and, upon any such
declaration, such principal amount (and premium, if any) and accrued interest
will become and be immediately due and payable. If an Event of Default specified
in clause (g) or (h) above occurs, all unpaid principal of (and premium, if any)
and accrued interest on the Senior Notes then Outstanding shall become
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder. The Holders of a majority in principal amount of the
Outstanding Senior Notes, by notice to the Company and the Trustee, may rescind
an acceleration and its consequences, if the Company has deposited with the
Trustee a sum sufficient to pay all overdue installments of interest, the
principal which has become due otherwise than by acceleration and certain other
amounts and all Events of Default, other than non-payment of principal of Senior
Notes which have become due solely by such declaration of acceleration, have
been cured or waived.
AMENDMENT, SUPPLEMENT AND WAIVER
The Company and the Trustee may, at any time and from time to time, without
notice to or consent of any Holder, enter into one or more indentures
supplemental to the Indenture (1) to evidence the succession of another Person
to the Company and the assumption by such successor of the covenants of the
Company under the Indenture and contained in the Senior Notes, (2) to add to the
covenants of the Company, for the benefit of the Holders, or to surrender any
right or power conferred upon the Company by the Indenture, (3) to add any
additional Events of Default, (4) to provide for uncertificated Senior Notes in
addition to or in place of certificated Senior Notes, (5) to change or eliminate
any of the provisions of the Indenture; provided that any such change or
elimination will become effective only when there is not outstanding any Senior
Note created prior to the execution of such supplemental indenture which is
entitled to the benefit of such provision, (6) to
47
<PAGE> 49
evidence and provide for the acceptance of appointment under the Indenture by a
successor Trustee, (7) to secure the Senior Notes, (8) to cure any ambiguity, to
correct or supplement any provision in the Indenture which may be inconsistent
with any other provision therein or to add any other provisions with respect to
matters or questions arising under the Indenture; provided such actions will not
adversely affect the interests of the Holders in any material respect, or (9) to
comply with the requirements of the Commission in order to effect or maintain
the qualification of the Indenture under the Trust Indenture Act.
With the consent of the Holders of a majority in principal amount of the
Outstanding Senior Notes, the Company and the Trustee may enter into one or more
indentures supplemental to the Indenture for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Indenture or of modifying in any manner the rights of the Holders; provided,
however, that no such supplemental indenture will, without the consent of the
Holder of each Outstanding Senior Note, (1) change the Stated Maturity of the
principal of, or any installment of interest on, any Senior Note, or reduce the
principal amount thereof (or premium, if any), or the interest thereon that
would be due and payable upon Maturity thereof, or change the place of payment
where, or the coin or currency in which, any Senior Note or the interest thereon
is payable, or impair the right to institute suit for the enforcement of any
such payment on or after the Stated Maturity thereof, (2) reduce the percentage
in principal amount of the Outstanding Senior Notes, the consent of whose
Holders is necessary for any such supplemental indenture or required for any
waiver of compliance with certain provisions of the Indenture or certain
Defaults thereunder, (3) modify the obligations of the Company to make offers to
purchase Senior Notes upon a Change of Control or from the proceeds of Asset
Sales, (4) subordinate in right of payment, or otherwise subordinate, the Senior
Notes to any other Indebtedness or (5) modify any of the provisions of this
paragraph (except to increase any percentage set forth herein).
The Holders of a majority in principal amount of the Outstanding Senior
Notes may on behalf of the Holders of all the Senior Notes waive any past
Default under the Indenture and its consequences, except a Default (1) in the
payment of the principal of (or premium, if any) or interest on any Senior Note
or (2) in respect of a covenant or provision hereof which under the proviso to
the prior paragraph cannot be modified or amended without the consent of the
Holder of each Outstanding Senior Note affected.
DEFEASANCE
The Company, at its option, either (a) will be discharged from any and all
obligations with respect to the Senior Notes (except for certain obligations to
register the transfer or exchange of Senior Notes, replace stolen, lost or
mutilated Senior Notes or maintain paying agencies and hold moneys for payment
in trust) or (b) will cease to be under any obligation to comply with certain
restrictive covenants of the Indenture, and certain Events of Default will no
longer constitute Events of Default with respect to any Senior Notes upon the
deposit with the Trustee, in trust, of money or the equivalent in U.S.
Government Obligations, or a combination thereof, which through the payment of
interest thereon and principal thereof in accordance with their terms will
provide money in an amount sufficient to pay all the principal and interest on
such Senior Notes on the dates such payments are due in accordance with the
terms of the Senior Notes. To exercise any such option, among other things, no
Event of Default specified under "Events of Default" with respect to such Senior
Notes shall have occurred and be continuing. The Company is required to deliver
to the applicable Trustee an Opinion of Counsel (i) to the effect that the
deposit and related defeasance would not cause the Holders of the Senior Notes
to recognize income, gain or loss for Federal income tax purposes and, in the
case of a discharge pursuant to clause (a), accompanied by a ruling to such
effect from the United States Internal Revenue Service and (ii) with respect to
certain other matters.
THE TRUSTEE
Texas Commerce Bank National Association, the Trustee under the Indenture,
from time to time may extend credit to the Company in the ordinary course of
business. The Trustee's current address is 600 Travis Street, 8th Floor,
Houston, Texas 77002.
48
<PAGE> 50
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any capitalized terms used herein for which no definition
is provided.
"Appraised Value" means (i) with respect to property, equipment, or other
Consolidated Tangible Assets consisting of investments or other tangible
financial assets (excluding cash, cash equivalents and investments in marketable
securities) without a readily determinable market value, the Fair Value of such
Properties as determined within 60 days of the date of the transaction giving
rise to the need to calculate Appraised Value by means of a written appraisal or
valuation report by a nationally recognized investment banking firm, independent
appraisal firm or marine surveyor, in each case, (a) specializing in, or having
a specialty in, valuing or appraising Property of the Company and the
Subsidiaries of the type to be appraised or valued and (b) that is not an
Affiliate of the Company, (ii) with respect to marketable securities of the
Company and the Subsidiaries with a readily determinable market value, the
market value of such assets, as determined within five trading days of the date
of the transaction giving rise to the need to calculate Appraised Value, and as
determined by reference to a published or otherwise readily accessible market
data source selected in good faith by the Company, (iii) with respect to cash
and cash equivalents of the Company and the Subsidiaries, the carrying value
thereof reflected in the accounting records of the Company and (iv) with respect
to all other Consolidated Tangible Assets of the Company and the Subsidiaries,
the Fair Value of such assets, as determined in good faith by the Board of
Directors of the Company; provided, however, that written appraisals or
valuation reports shall not be required in respect of any Consolidated Tangible
Assets of the Company and the Subsidiaries described in clause (i) of this
definition to the extent that the Company determines in good faith the Fair
Value of such unappraised or unvalued assets and the aggregate Fair Value of
such assets does not exceed $25,000,000.
"Asset Sale" means any direct or indirect sale, conveyance, transfer, lease
or other disposition (including, without limitation, by means of a Sale and
Lease-Back Transaction (other than a Sale and Lease-Back Transaction that
results in the creation or incurrence of a Capital Lease Obligation of the
Company or any Subsidiary) or by way of merger or consolidation) (collectively,
for purposes of this definition, a "transfer") by the Company or any Subsidiary
to any Person other than the Company or a Subsidiary, in one transaction, or a
series of related transactions, of (i) any Capital Stock of any Subsidiary or
(ii) any other Property or assets of the Company or any Subsidiary, other than
(A) sales of inventory in the ordinary course of business of the Company and the
Subsidiaries and consistent with past practices, (B) sales of obsolete or worn
out equipment in the ordinary course of business, (C) sales of directors'
qualifying shares in a Subsidiary, (D) any charter (bareboat or otherwise) or
other lease of Property entered into by the Company or any Subsidiary in the
ordinary course of business, other than any charter or lease that provides for
acquisition of such Property by the charterer or lessee during or at the end of
the term thereof, (E) the issuance by the Company of its Capital Stock, (F)
sales in the ordinary course of business of drill pipe and associated equipment
utilized in connection with a drilling contract for the employment of a drilling
rig, (G) a Restricted Payment permitted under "-- Certain
Covenants -- Limitation on Restricted Payments," (H) a Change of Control, (I)
any transfer in a transaction or series of related transactions of Properties
(other than a transfer specifically permitted under clause (A) through (H), (J)
or (K) of this definition) having an aggregate Fair Value of less than $500,000,
(J) any sale or sales of land drilling rigs or barge drilling rigs of the
Company or any Subsidiary owned as of the Issue Date (or any subsequent
disposition of any non-cash consideration received by the Company or any
Subsidiary in any such sale or sales), (K) any trade or exchange by the Company
or any Subsidiary of one or more drilling rigs and related equipment for one or
more other drilling rigs and related equipment owned or held by another Person
that is not an Affiliate of the Company but only to the extent that the Fair
Value of the Property traded or exchanged by the Company or a Subsidiary (other
than cash or cash equivalents) is reasonably equivalent to the Fair Value of the
Properties (together with cash or cash equivalents not to exceed 15 percent of
such Fair Value) to be received by the Company or such Subsidiary as determined
in good faith by the Board of Directors of the Company, provided that if cash
and cash equivalents to be received by the Company or such Subsidiary is greater
than 15 percent of the Fair Value of the Properties to be received, the trade or
exchange shall be treated as an Asset Sale only to the extent that such
49
<PAGE> 51
cash and cash equivalents exceed the 15 percent amount and (L) the disposition
of shares of Capital Stock of Offshore Logistics, Inc. and of Century Drilling
Limited owned by the Company or any Subsidiary on the Issue Date. An Asset Sale
shall include the requisition of title to, seizure of or forfeiture of any
Property or assets, or any actual or constructive total loss or an agreed or
compromised total loss of any Property or assets, other than as provided for in
clause (ii)(F) of the preceding sentence of this definition.
"Average Life" means, as of any date, with respect to any debt security,
the quotient obtained by dividing (i) the sum of the products of (x) the number
of years from such date to the dates of each scheduled principal payment
(including any sinking fund or mandatory redemption payment requirements) of
such debt security multiplied in each case by (y) the amount of such principal
payment by (ii) the sum of all such principal payments.
"Capital Lease Obligation" means, at any time as to any Person with respect
to any Property leased by such Person as lessee, the amount of the liability
with respect to such lease that would be required at such time to be capitalized
and accounted for as a capital lease on the balance sheet of such Person
prepared in accordance with GAAP.
"Capital Stock" in any Person means any and all shares, interests,
participations or other equivalents in the equity interest (however designated)
in such Person and any rights (other than debt securities convertible into an
equity interest), warrants or options to acquire an equity interest in such
Person.
"Cash Proceeds" means, with respect to any Asset Sale by any Person, the
aggregate consideration received for such Asset Sale by such Person in the form
of cash or cash equivalents (including any amounts of insurance or other
proceeds received in connection with an Asset Sale of the type described in the
last sentence of the definition thereof), including payments in respect of
deferred payment obligations when received in the form of cash or cash
equivalents (except to the extent that such obligations are financed or sold
with recourse to such Person or any subsidiary thereof). For purposes of this
definition, "cash or cash equivalents" shall be deemed to include, for a period
not to exceed 12 months from the related Asset Sale, noncash consideration
received with respect to an Asset Sale to the extent that such noncash
consideration consists of (i) publicly traded debt securities of a Person, which
securities are rated as "BBB-" or higher by S&P and "Baa3" or higher by Moody's
or having a comparable rating from the successors of each of such Rating
Agencies or (ii) other Indebtedness or publicly traded Capital Stock of a Person
if (x) the lowest rated long-term, unsecured debt obligation issued by such
Person is rated "BBB-" or higher by S&P and "Baa3" or higher by Moody's or
having a comparable rating from the successors of each such rating agency or (y)
in the case of other Indebtedness, the payment of such other Indebtedness is
secured by an irrevocable letter of credit issued by a commercial bank having
capital and surplus in excess of $100,000,000 and long-term unsecured debt
obligations rated at least "A-" by S&P and "A3" by Moody's or having a
comparable rating from the successors of each of such Rating Agencies.
"Change of Control" means (i) a determination by the Company that any
person or group (as defined in Section 13(d)(3) or 14(d)(2) of the Exchange Act)
has become the direct or indirect beneficial owner (as defined in Rule 13d-3
under the Exchange Act) of more than 50 percent of the Voting Stock of the
Company, (ii) the Company is merged with or into or consolidated with another
corporation and, immediately after giving effect to the merger or consolidation,
less than 50 percent of the outstanding voting securities entitled to vote
generally in the election of directors or persons who serve similar functions of
the surviving or resulting entity are then beneficially owned (within the
meaning of Rule 13d-3 under the Exchange Act) in the aggregate by (x) the
stockholders of the Company immediately prior to such merger or consolidation or
(y) if a record date has been set to determine the stockholders of the Company
entitled to vote on such merger or consolidation, the stockholders of the
Company as of such record date, (iii) the Company, either individually or in
conjunction with one or more Subsidiaries, sells, conveys, transfers or leases,
or the Subsidiaries sell, convey, transfer or lease, all or substantially all of
the property of the Company and the Subsidiaries, taken as a whole (either in
one transaction or a series of related transactions), including Capital Stock of
the Subsidiaries, to any Person (other than a Wholly Owned Subsidiary), (iv) the
liquidation or dissolution of the Company or (v) the first day on which a
majority of the individuals who constitute the Board of Directors are not
Continuing Directors.
50
<PAGE> 52
"Consolidated Asset Coverage Ratio" means as of the date of the transaction
giving rise to the need to calculate the Consolidated Asset Coverage Ratio (the
"Measurement Date") and after giving pro forma effect to the incurrence of any
Project Finance Indebtedness on the Measurement Date, the ratio of (i) the
aggregate Appraised Value of the Consolidated Tangible Assets of the Company
(other than accounts receivable, inventory, and the Properties of the Company
and its Subsidiaries described in clause (s) of the definition of Permitted
Liens as of the Measurement Date) that are not, and will not be, subject to any
Lien (other than Permitted Liens of the type described in clauses (g), (h) and
(i) of the definition of Permitted Liens) to (ii) the aggregate principal amount
of the Senior Notes plus the aggregate principal amount of unsecured
Indebtedness of the Company and its Subsidiaries for borrowed money that is pari
passu in right of payment to the Senior Notes, in each case outstanding as of
the Measurement Date.
"Consolidated Current Liabilities" of any Person means, as of any date, the
total liabilities (including tax and other proper accruals) of such Person and
its subsidiaries on a consolidated basis at such date which may properly be
classified as current liabilities in accordance with GAAP.
"Consolidated Interest Coverage Ratio" means as of the date of the
transaction giving rise to the need to calculate the Consolidated Interest
Coverage Ratio (the "Transaction Date"), the ratio of (i) the sum of (a) the
aggregate amount of EBITDA of the Company and its consolidated Subsidiaries for
the four fiscal quarters for which financial information in respect thereof is
available immediately prior to the applicable Transaction Date (the
"Determination Period") and (b) with respect to any fiscal quarter ending prior
to April 1, 1996, and the period from April 1, 1996 to the Issue Date included
in the calculation set forth in clause (a) above, the EBITDA for any such
quarter or period attributable to the Neddrill Assets to (ii) the aggregate
Consolidated Interest Expense of the Company and its consolidated Subsidiaries
that is anticipated to accrue during a period consisting of the fiscal quarter
in which the Transaction Date occurs and the three fiscal quarters immediately
subsequent thereto (based upon the pro forma amount and maturity of, and
interest payments in respect of, Indebtedness of the Company and its
consolidated Subsidiaries reasonably expected by the Company to be outstanding
on the Transaction Date and reasonably expected by the Company to be outstanding
from time to time during such period), assuming for the purposes of this
measurement the continuation of market interest rates prevailing on the
Transaction Date and base interest rates in respect of floating interest rate
obligations equal to the base interest rates on such obligations in effect as of
the Transaction Date; provided that if the Company or any of its consolidated
Subsidiaries is a party to any Interest Swap Obligation which would have the
effect of changing the interest rate on any Indebtedness of the Company or any
of its consolidated Subsidiaries for such four quarter period (or a portion
thereof), the resulting rate shall be used for such four quarter period or
portion thereof; provided, further, that any Consolidated Interest Expense with
respect to Indebtedness incurred or retired by the Company or any of its
Subsidiaries during the fiscal quarter in which the Transaction Date occurs
shall be calculated as if such debt was so incurred or retired on the first day
of the fiscal quarter in which the Transaction Date occurs; provided, further,
that if the transaction giving rise to the need to calculate the Consolidated
Interest Coverage Ratio would have the effect of increasing or decreasing EBITDA
in the future and if such increase or decrease is readily quantifiable and is
directly attributable to such transaction, EBITDA shall be calculated on a pro
forma basis as if such transaction had occurred on the first day of the four
fiscal quarters referred to in clause (i) of this definition, and if, during the
same four fiscal quarters, (x) the Company or any of its consolidated
Subsidiaries shall have engaged in any Asset Sale, EBITDA for such period shall
be reduced by an amount equal to the EBITDA (if positive), or increased by an
amount equal to the EBITDA (if negative), directly attributable to the assets
which are the subject of such Asset Sale for such period calculated on a pro
forma basis as if such Asset Sale and any related retirement of Indebtedness had
occurred on the first day of such period or (y) after the Issue Date, the
Company or any of its consolidated Subsidiaries shall have acquired any material
assets out of the ordinary course of business, EBITDA and Consolidated Interest
Expense (if Indebtedness is incurred or assumed in connection with such
acquisition) shall be calculated on a pro forma basis as if such asset
acquisition and related financing had occurred on the first day of such period.
"Consolidated Interest Expense" means, with respect to any Person for any
period, without duplication (a) the sum of (i) the aggregate amount of cash and
non-cash interest expense (including capitalized interest) of such Person and
its subsidiaries for such period as determined on a consolidated basis in
51
<PAGE> 53
accordance with GAAP in respect of Indebtedness (including, without limitation,
(v) any amortization of debt discount, (w) net costs associated with Interest
Swap Obligations (including any amortization of discounts), (x) the interest
portion of any deferred payment obligation, (y) all accrued interest and (z) all
commissions, discounts and other fees and charges owed with respect to letters
of credit, bankers' acceptances or similar facilities) paid or accrued, or
scheduled to be paid or accrued, during such period, (ii) dividends on preferred
stock (other than dividends on the Preferred Stock) of such Person (and of its
subsidiaries if paid to a Person other than such Person or its subsidiaries)
declared and payable in cash, (iii) the portion of any rental obligation of such
Person or its subsidiaries in respect of any Capital Lease Obligation allocable
to interest expense in accordance with GAAP, (iv) the portion of any rental
obligation of such Person or its subsidiaries in respect of any Sale and
Lease-Back Transaction allocable to interest expense (determined as if such were
treated as a Capital Lease Obligation), (v) to the extent any debt of any other
Person is Guaranteed by such Person or any of its subsidiaries, the aggregate
amount of interest paid, accrued or scheduled to be paid or accrued, by such
other Person during such period attributable to any such debt, less (b) to the
extent included in (a) above, amortization or write-off of deferred financing
costs of such Person and its subsidiaries during such period and any charge
related to any premium or penalty paid in connection with redeeming or retiring
any Indebtedness of such Person and its subsidiaries prior to its stated
maturity, in the case of both (a) and (b) above, after elimination of
intercompany accounts among such Person and its subsidiaries and as determined
in accordance with GAAP and (vi) with respect to any fiscal quarter ending prior
to April 1, 1996, an amount equal to quarterly interest expense accrued in
respect of the Senior Notes had such Senior Notes been outstanding in the amount
issued on the Issue Date during the entirety of such fiscal quarter.
"Consolidated Net Income" of any Person means, for any period, the
aggregate net income (or net loss, as the case may be) of such Person and its
subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided that there shall be excluded therefrom, without duplication,
(i) gains and losses from Asset Sales or reserves relating thereto, (ii) items
classified as extraordinary (other than the tax benefit of the utilization of
net operating loss carryforwards and alternative minimum tax credits), (iii)
except to the extent of the amount of cash dividends or other cash distributions
in respect of Capital Stock actually paid to such specified Person or a
subsidiary thereof by any other Person during such period, the net income (or
loss) of such other Person other than a subsidiary of such specified Person,
(iv) the net income of any Person acquired by such specified Person or any of
its subsidiaries in a pooling-of-interests transaction for any period prior to
the date of such acquisition, (v) any gain or loss, net of taxes, realized on
the termination of any employee pension benefit plan, (vi) the effect of the
adoption of Statement of Financial Accounting Standards No. 106 to the extent
expenses recognized pursuant to such adoption exceed the amount with respect to
such expenses which would have been recognized during such period using the "pay
as you go" accounting method, (vii) any charge against income for impairment or
write-down of long-lived assets of the Company or any Subsidiary made in
accordance with Statement of Financial Accounting Standards No. 121 and (viii)
the net income of any subsidiary of such specified Person to the extent that the
transfer to that Person of that income is not at the time permitted, directly or
indirectly, by any means (including by dividend, distribution, advance or loan
or otherwise), by operation of the terms of its charter or any agreement with a
Person other than with such specified Person or any Affiliate thereof,
instrument held by a Person other than by such specified Person or any Affiliate
thereof, judgment, decree, order, statute, law, rule or governmental regulations
applicable to such subsidiary or its stockholders, except for any dividends or
distributions actually paid by such subsidiary to such Person.
"Consolidated Net Tangible Assets" of any Person means, as of any date,
Consolidated Tangible Assets of such Person at such date, after deducting
therefrom (without duplication of deductions) all Consolidated Current
Liabilities of such Person at such date.
"Consolidated Net Worth" of any Person means, as of any date, the sum of
the Capital Stock and additional paid-in capital plus retained earnings (or
minus accumulated deficit) of such Person and its subsidiaries on a consolidated
basis at such date, each item determined in accordance with GAAP, less amounts
attributable to Redeemable Stock of such Person or any of its subsidiaries.
52
<PAGE> 54
"Consolidated Tangible Assets" means, as of any date, the sum of the
Property of the Company and its Subsidiaries on a consolidated basis at such
date, after eliminating intercompany items, and after deducting from such total,
without duplication, (i) all Property that would be classified as intangibles
under GAAP (including, without limitation, goodwill, organizational expenses,
trademarks, trade names, copyrights, patents, licenses and any rights in any
thereof) and (ii) any prepaid expenses, deferred charges and unamortized debt
discount and expense, each such item determined in accordance with GAAP.
"Continuing Director" means an individual who (i) is a member of the Board
of Directors and (ii) either (a) was a member of the Board of Directors on the
Issue Date or (b) whose nomination for election or election to the Board of
Directors was approved by a vote of at least 66 2/3 percent of the Continuing
Directors who were members of the Board of Directors at the time of such
nomination or election.
"Currency Hedge Obligations" means, at any time as to any Person, the
obligations of such Person at such time which were incurred in the ordinary
course of business pursuant to any foreign currency exchange agreement, option
or future contract or other similar agreement or arrangement designed to protect
against or manage such Person's or any of its subsidiaries' exposure to
fluctuations in foreign currency exchange rates.
"Default" means any event, act or condition the occurrence of which is, or
after notice or the passage of time or both would be, an Event of Default.
"Determination Period" has the meaning specified under clause (i)(a) of the
definition of "Consolidated Interest Coverage Ratio."
"drilling rig" means any drillship, drilling ship, semisubmersible drilling
unit, jackup or self-elevating drilling unit, submersible drilling unit,
drilling barge or posted barge, platform drilling unit or land drilling rig or
any other similar equipment used in oil, gas or other mineral or thermal well
drilling or workover operations.
"EBITDA" means, with respect to any Person for any period, the Consolidated
Net Income of such Person and its subsidiaries for such period, plus to the
extent reflected in the income statement of such Person for such period from
which Consolidated Net Income is determined, without duplication, (i) the
Consolidated Interest Expense of such Person for such period, (ii) income tax
expense, (iii) depreciation expense, (iv) amortization expense and (v) any
charge related to any premium or penalty paid in connection with redeeming or
retiring any Indebtedness prior to its stated maturity.
"Fair Market Value" means, with respect to the total consideration received
pursuant to any Asset Sale or by any Person as contemplated by Section 10.07 of
the Indenture or any noncash consideration received by any Person, the fair
market value of such consideration as determined in good faith by the Board of
Directors.
"Fair Value" means, with respect to any asset or Property, the price which
could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction.
"GAAP" means, at any date, United States generally accepted accounting
principles, consistently applied, as set forth in the opinions of the Accounting
Principles Board of the American Institute of Certified Public Accountants
("AICPA") and statements of the Financial Accounting Standards Board, or in such
other statements by such other entity as may be designated by the AICPA, that
are applicable to the circumstances as of the date of determination; provided,
however, that all calculations made for purposes of determining compliance with
the provisions set forth in "Consolidation, Merger, Conveyance, Lease or
Transfer" and with the terms of the covenants set forth in "Certain Covenants"
shall utilize GAAP in effect at the Issue Date.
"Guarantee" means any direct or indirect obligation, contingent or
otherwise, of a Person guaranteeing or having the economic effect of
guaranteeing any Indebtedness of any other Person in any manner.
"Indebtedness" as applied to any Person means, at any time, without
duplication, (i) any obligation of such Person, contingent or otherwise, for
borrowed money, (ii) any obligation of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) any obligation of such
Person for all or any part of the purchase price of Property or for the cost of
Property constructed or of improvements thereto (including any obligation under
or in connection with any letter of credit related thereto), other than accounts
payable
53
<PAGE> 55
included in current liabilities incurred in respect of Property and services
purchased in the ordinary course of business, (iv) any obligation of such Person
upon which interest charges are customarily paid (other than accounts payable
incurred in the ordinary course of business), (v) any obligation of such Person
under conditional sale or other title retention agreements relating to purchased
Property, (vi) any obligation of such Person issued or assumed as the deferred
purchase price of Property (other than accounts payable incurred in the ordinary
course of business), (vii) any Capital Lease Obligation or any obligation
pursuant to any Sale and Lease-Back Transaction of such Person, (viii) any
obligation of any other Person secured by (or for which the obligee thereof has
an existing right, contingent or otherwise, to be secured by) any Lien on
Property owned or acquired, whether or not any obligation secured thereby has
been assumed, by such Person, (ix) any obligation of such Person in respect of
any letter of credit supporting any obligation of any other Person, (x) the
maximum fixed repurchase price of any Redeemable Stock of such Person (or if
such Person is a subsidiary, any preferred stock of such Person), (xi) any
Interest-Swap Obligation or Currency Hedge Obligation of such Person and (xii)
any obligation which is in economic effect a Guarantee, regardless of its
characterization, with respect to any Indebtedness of another Person, to the
extent guaranteed. For purposes of the preceding sentence, the maximum fixed
repurchase price of any Redeemable Stock or subsidiary preferred stock that does
not have a fixed repurchase price shall be calculated in accordance with the
terms of such Redeemable Stock or subsidiary preferred stock as if such
Redeemable Stock or subsidiary preferred stock were repurchased on any date on
which Indebtedness shall be required to be determined pursuant to the Indenture;
provided, however, that if such Redeemable Stock or subsidiary preferred stock
is not then permitted to be repurchased, the repurchase price shall be the book
value of such Redeemable Stock or subsidiary preferred stock. The amount of
Indebtedness of any Person at any date shall be (x) the outstanding book value
at such date of all unconditional obligations as described above and (y) the
maximum liability of any such contingent obligation at such date.
"Interest-Swap Obligations" means, with respect to any Person, the
obligations of such Person pursuant to any interest rate swap agreement,
interest rate cap, collar or floor agreement or other similar agreement or
arrangement designed to protect against or manage such Person's or any of its
subsidiaries' exposure to fluctuations in interest rates.
"Investment" means any direct or indirect loan, advance, guarantee or other
extension of credit or capital contribution to (by means of transfers of cash or
other Property to others or payments for Property or services for the account or
use of others, or otherwise), or purchase or acquisition of Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any other Person. The amount of any Investment shall be the original cost of
such Investment, plus the cost of all additions thereto, and minus the amount of
any portion of such Investment repaid to such Person in cash as a repayment of
principal or a return of capital, as the case may be, but without any other
adjustments for increases or decreases in value, or write-ups, write-downs or
write-offs with respect to such Investment. In determining the amount of any
investment involving a transfer of any Property other than cash, such Property
shall be valued at its Fair Value at the time of such transfer, as determined in
good faith by the board of directors (or comparable body) of the Person making
such transfer.
"Issue Date" means the date on which the Senior Notes are first
authenticated and delivered under the Indenture.
"Lien" means any mortgage, pledge, hypothecation, charge, assignment,
deposit arrangement, encumbrance, security interest, lien (statutory or other),
or preference, priority or other security or similar agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation, any
agreement to give or grant a Lien or any lease, conditional sale or other title
retention agreement having substantially the same economic effect as any of the
foregoing).
"Material Subsidiary" means a Subsidiary that (a) has assets with an
aggregate book value in an amount greater than 5 percent of the Consolidated Net
Tangible Assets of the Company as of any date of determination as shown on a
separate balance sheet of such Subsidiary or (b) had operating revenues in
excess of 5 percent of the operating revenues of the Company and the
Subsidiaries as determined on a
54
<PAGE> 56
consolidated basis in accordance with GAAP for the four calendar quarters
immediately preceding the calendar quarter that includes the determination date.
"Maturity" means the date on which the principal of a Senior Note becomes
due and payable as provided therein or in the Indenture, whether at the Stated
Maturity or by declaration of acceleration or otherwise.
"Neddrill Agreement" means the Agreement of Sale and Purchase dated as of
April 25, 1996, between the Company and Royal Nedlloyd N.V. and Neddrill Holding
B.V.
"Neddrill Assets" means the Assets (as defined in the Neddrill Agreement)
being acquired by the Company and the Subsidiaries pursuant to the Neddrill
Agreement.
"Neddrill Joint Ventures" means (i) the drillship joint venture described
in the Acquisition Agreement relating to the Neddrill Muravlenko and (ii) a
joint venture relating to the drillship Valentin Shashin pursuant to which
Neddrill or an Affiliate of Neddrill may in the future acquire an indirect
ownership interest in such drillship.
"Net Available Proceeds" means, as to any Asset Sale, the Cash Proceeds
therefrom, (i) minus, without duplication, the sum of (a) reasonable legal and
title expenses, commissions and other reasonable fees and expenses incurred, and
all Federal, state, provincial, foreign, recording and local taxes payable as a
consequence of such Asset Sale and (b) all payments made to any Person other
than the Company or a Subsidiary on any Indebtedness of the Company or its
Subsidiaries which is secured by such assets, in accordance with the terms of
any Lien upon or with respect to such assets, or which must by its terms, or in
order to obtain a necessary consent to such Asset Sale, or by applicable law, be
repaid out of the proceeds from such Asset Sale, and (ii) in the case of an
Asset Sale by a Subsidiary, multiplied by the percentage of the Voting Stock of
such Subsidiary directly or indirectly owned by the Company.
"Non-Recourse Indebtedness" means any Indebtedness of a Non-Recourse
Subsidiary (a) in respect of which neither the Company nor any of its
Subsidiaries (other than a Non-Recourse Subsidiary) is liable or obligated in
any manner including, without limitation, liabilities or obligations
constituting Indebtedness of the Company or any of its Subsidiaries (other than
a Non-Recourse Subsidiary) and (b) the occurrence of any event or the existence
of any condition under any agreement or instrument relating to which shall not
at any time have the effect of accelerating, or permitting the acceleration of,
the maturity of any Indebtedness of the Company or any of its Subsidiaries
(other than a Non-Recourse Subsidiary) or otherwise permitting any such
Indebtedness to be declared to be due and payable, or to be required to be
prepaid, purchased or redeemed, prior to the stated maturity thereof.
"Non-Recourse Subsidiary" means a Subsidiary that (a) owns only Property
acquired by such Subsidiary after the Issue Date and (b) has no Indebtedness
other than Non-Recourse Indebtedness.
"Permitted Indebtedness" means (a) Indebtedness of the Company under the
Senior Notes; (b) Indebtedness of the Company and the Subsidiaries under one or
more bank credit facilities; provided that at the date such Indebtedness is
incurred and after giving effect to the incurrence of such Indebtedness and any
substantially concurrent repayment of Indebtedness permitted under this clause
(b) or under any bank credit facility permitted pursuant to clause (e), the
aggregate amount of all Indebtedness outstanding at such time under this clause
(b) and under any bank credit facility permitted in clause (e) hereof shall not
exceed $100,000,000 (except as such amount may be permanently reduced by the
application of Net Available Proceeds from Asset Sales to repay Indebtedness as
provided in clause (ii) of the first paragraph under "-- Certain
Covenants -- Limitation on Asset Sales"); (c) Indebtedness of the Company or any
Subsidiary under Interest-Swap Obligations; provided that (i) such Interest Swap
Obligations are related to payment obligations on Indebtedness otherwise
permitted under the covenants described in " -- Certain Covenants -- Limitation
on Indebtedness" and (ii) the notional principal amount of such Interest-Swap
Obligations does not exceed the principal amount of the Indebtedness to which
such Interest-Swap Obligations relate; (d) Indebtedness of the Company or any
Subsidiary under Currency Hedge Obligations; provided that (i) such Currency
Hedge Obligations are related to payment obligations on Indebtedness otherwise
permitted under the covenants described in " -- Certain Covenants -- Limitation
on Indebtedness" or to the foreign currency cash flows reasonably expected to be
generated by the Company and the Subsidiaries and (ii) the
55
<PAGE> 57
notional principal amount of such Currency Hedge Obligations does not exceed the
principal amount of the Indebtedness or the amount of the foreign currency cash
flows to which such Currency Hedge Obligations relate; (e) Indebtedness of the
Company or any Subsidiary outstanding on the Issue Date; (f) Indebtedness of the
Company or any Subsidiary in respect of performance bonds, surety bonds, appeal
bonds and letters of credit issued for the account of the Company or any
Subsidiary, in each case incurred in the ordinary course of business and not in
connection with the borrowing of money; (g) Indebtedness of the Company to any
Wholly Owned Subsidiary (but only so long as it remains a Wholly Owned
Subsidiary); (h) Indebtedness of any Subsidiary to the Company or any Wholly
Owned Subsidiary (but only so long as it remains a Wholly Owned Subsidiary); (i)
Non-Recourse Indebtedness of any Non-Recourse Subsidiary; (j) Indebtedness of
the Company in connection with a purchase of the Senior Notes pursuant to a
Change of Control Offer, provided that the aggregate principal amount of such
Indebtedness does not exceed 101 percent of the aggregate principal amount of
the Senior Notes purchased pursuant to such Change of Control Offer plus the
amount of expenses incurred in connection therewith, provided, further, that
such Indebtedness (i) has an Average Life equal to or greater than the remaining
Average Life of the Senior Notes and (ii) does not mature prior to one year
following the Stated Maturity of the Senior Notes; (k) other Indebtedness of the
Company or any Subsidiary, provided that at the date such Indebtedness is
incurred and after giving effect to the incurrence of such Indebtedness, the
aggregate amount of all Indebtedness outstanding at such time under this clause
(k) shall not exceed $30,000,000; (l) Permitted Refinancing Indebtedness; (m)
Indebtedness of a Subsidiary, if any, in respect of the Safe Harbor Leases, the
Letter of Credit Agreement and the Mortgage, as such terms are defined in, and
as contemplated by, the Assets Purchase Agreement dated August 20, 1993 between
the Company and Portal Rig Corporation; and (n) Project Finance Indebtedness,
provided that at the date such Indebtedness is incurred and after giving effect
to the incurrence of such Indebtedness, the aggregate principal amount of all
Indebtedness incurred and outstanding at such time under this clause (n) (or
under clause (i) of the covenants described in "-- Certain
Covenants -- Limitation on Subsidiary Indebtedness and Preferred Stock" by
reason of this clause (n) being referenced therein) shall not exceed
$75,000,000. So as to avoid duplication in determining the amount of Permitted
Indebtedness under any clause of this definition, Guarantees of, or obligations
in respect of letters of credit supporting, Indebtedness otherwise included in
the determination of such amount shall not also be included.
"Permitted Investments" means (a) certificates of deposit, bankers'
acceptances, time deposits, Eurocurrency deposits and similar types of
investments routinely offered by commercial banks with final maturities of one
year or less issued by commercial banks having capital and surplus in excess of
$100,000,000; (b) commercial paper issued by any corporation, if such commercial
paper has credit ratings of at least "A-1" by S&P and at least "P-1" by Moody's;
(c) U.S. Government Obligations with a maturity of four years or less; (d)
repurchase obligations for instruments of the type described in clause (c); (e)
shares of money market mutual or similar funds having assets in excess of
$100,000,000; (f) payroll advances in the ordinary course of business; (g) other
advances and loans to officers and employees of the Company or any Subsidiary,
so long as the aggregate principal amount of such advances and loans does not
exceed $500,000 at any one time outstanding; (h) Investments represented by that
portion of the proceeds from Asset Sales (i) that is not Cash Proceeds or (ii)
that is deemed to be Cash Proceeds pursuant to the second sentence of the
definition of "Cash Proceeds"; (i) Investments in the NN-1 Limited Partnership,
a Texas limited partnership, pursuant to the Agreement of Limited Partnership of
the NN-1 Limited Partnership in an aggregate amount not to exceed the amount of
U.S. Government Guaranteed Ship Financing Sinking Fund Bonds outstanding on the
Issue Date; and (j) Investments in respect of the interest being acquired by the
Company or any Subsidiary in the Neddrill Joint Ventures.
"Permitted Liens" means (a) Liens in existence on the Issue Date; (b) Liens
created for the benefit of the Senior Notes; (c) Liens covering (i) accounts
receivable and inventory of the Company and the Subsidiaries and (ii) other
assets of the Company and the Subsidiaries with a Fair Value (as determined in
good faith by the Board of Directors) not to exceed $100,000,000, in each case
securing Indebtedness that may be incurred under clause (b) of the definition of
"Permitted Indebtedness," provided that if at the time Liens are proposed to be
granted or created in reliance on this clause (ii), Liens have been granted to
secure Project Finance Indebtedness as permitted by the proviso of clause (l) of
this definition and the aggregate principal amount of such secured Project
Finance Indebtedness exceeds $75,000,000, then the Fair Value of
56
<PAGE> 58
assets on which Liens may be granted or created under this clause (ii) shall be
limited to the greater of (x) $100,000,000 less the amount by which the
outstanding aggregate principal of Project Finance Indebtedness exceeds
$75,000,000, (y) an amount that would permit the Company, after the grant or
creation of proposed Liens pursuant to this clause (ii), to incur at least $1.00
of additional secured Project Finance Indebtedness under the proviso of clause
(l) of this definition and (z) an amount such that the Consolidated Assets
Coverage Ratio would have been at least 2.50 to 1 at the time of the incurrence
of Liens in reliance on the proviso of clause (l) of this definition had the
Liens proposed to be granted or created under this clause (ii) been granted or
created immediately prior to the Measurement Date of such Consolidated Asset
Coverage Ratio; (d) Liens on Property of a Person existing at the time such
Person is merged or consolidated with or into the Company or a Subsidiary (and
not incurred as a result of, or in anticipation of, such transaction); provided
that such Lien relates solely to the Property subject thereto; (e) Liens on
Property existing at the time of the acquisition thereof (and not incurred as a
result of, or in anticipation of, such transaction); provided that such Lien
relates solely to the Property subject thereto; (f) Liens incurred or pledges
and deposits in connection with worker's compensation, unemployment insurance
and other social security benefits, statutory obligations, surety or appeal
bonds, performance bonds or other obligations of a like nature (and obligations
with respect to any letters of credit issued in favor of the Company or a
Subsidiary and in order to secure or obtain any of the foregoing), in each case
incurred in the ordinary course of business and not in connection with the
borrowing of money; (g) Liens imposed by law or arising by operation of law,
including, without limitation, landlords', mechanics', carriers',
warehousemen's, materialmen's, suppliers' and vendors' Liens and Liens for
master's and crew's wages and other similar maritime Liens, and incurred in the
ordinary course of business; (h) zoning restrictions, easements, licenses,
covenants, reservations, restrictions on the use of real property and defects,
irregularities and deficiencies in title to real property that do not,
individually or in the aggregate, materially affect the ability of the Company
or any Subsidiary to conduct its business as presently conducted; (i) Liens for
taxes or assessments or other governmental charges or levies not yet due and
payable, or the validity of which is being contested by the Company or a
Subsidiary in good faith by appropriate proceedings upon stay of execution or
the enforcement thereof and for which adequate reserves in accordance with GAAP
or other appropriate provision has been made; (j) Liens to secure the payment of
all or a part of the purchase price or construction cost of Property acquired or
constructed after the Issue Date; provided that (i) the principal amount of
Indebtedness secured by such Liens shall not exceed the lesser of cost or Fair
Market Value of the assets or Property so acquired or constructed and (ii) such
Liens shall not encumber any other assets or Property of the Company or any
Subsidiary and shall attach to such Property within 120 days of the construction
or acquisition of such assets or Property; (k) Liens securing Capital Lease
Obligations; provided, that such Liens secure Capital Lease Obligations which,
when combined with (i) the outstanding secured Indebtedness of the Company
(other than Indebtedness secured by Liens described under clauses (b), (c), (j)
and (s) hereof), (ii) all Indebtedness and the aggregate liquidation value of
all preferred stock of any Subsidiary (other than a Non-Recourse Subsidiary)
incurred and outstanding in accordance with the covenants described in
"-- Certain Covenants -- Limitation on Subsidiary Indebtedness and Preferred
Stock" (other than of the type described in clauses (c), (j), (o), (s) hereof),
and (iii) the aggregate amount of all other Capital Lease Obligations of the
Company and the Subsidiaries, does not exceed 10 percent of the Company's
Consolidated Net Tangible Assets; (l) Liens securing Project Finance
Indebtedness incurred under clause (n) of the definition of Permitted
Indebtedness, provided that if, at the date such Project Finance Indebtedness is
incurred and after giving effect to the incurrence of such Indebtedness, the
Consolidated Asset Coverage Ratio shall equal or exceed 2.50 to 1.0 and such
additional Indebtedness can be incurred under paragraph (a) of "-- Certain
Covenants -- Limitation on Indebtedness," then, notwithstanding the $75,000,000
limitation set forth in clause (n) of the definition of Permitted Indebtedness,
the aggregate principal amount of Project Finance Indebtedness that may be
secured under this clause (l) shall not exceed (i) $250,000,000, if the
Consolidated Interest Coverage Ratio (after giving pro forma effect to the
incurrence of such Project Finance Indebtedness) shall be equal to or greater
than 3.00 to 1.0 but less than 4.00 to 1.0 or (ii) $400,000,000, if the
Consolidated Interest Coverage Ratio (after giving pro forma effect to the
incurrence of such Project Finance Indebtedness) shall be equal to or greater
than 4.00 to 1.0; (m) Liens securing Indebtedness of the Company or any
Subsidiary; provided that such Liens secure Indebtedness which, when combined
with (i) outstanding secured Indebtedness of the Company (other than
Indebtedness secured by Liens described under clauses (b), (c), (j) and (s)
hereof), (ii) all Indebtedness and the aggregate
57
<PAGE> 59
liquidation value of all preferred stock of any Subsidiary (other than a
Non-Recourse Subsidiary) incurred and outstanding in accordance with the
covenants described in "-- Certain Covenants -- Limitation on Subsidiary
Indebtedness and Preferred Stock" (other than of the type described in clauses
(c), (j), (o) and (s) hereof) and (iii) the aggregate amount of all Capital
Lease Obligations of the Company and the Subsidiaries, does not exceed 10
percent of the Company's Consolidated Net Tangible Assets; (n) Liens to secure
any extension, renewal, refinancing or refunding (or successive extensions,
renewals, refinancings or refundings), in whole or in part, of any Indebtedness
secured by Liens referred to in the foregoing clauses (a), (b), (d) and (e);
provided that such Lien does not extend to any other Property of the Company or
any Subsidiary and the principal amount of the Indebtedness secured by such Lien
is not increased; (o) Liens granted by a Non-Recourse Subsidiary securing
Non-Recourse Indebtedness of such Non-Recourse Subsidiary and Liens on the
Capital Stock of a Non-Recourse Subsidiary securing Non-Recourse Indebtedness of
such Non-Recourse Subsidiary; (p) any charter or lease that would not constitute
an Asset Sale pursuant to clause (ii)(D) of the definition of "Asset Sale"; (q)
leases or subleases of real property to other Persons; (r) Liens under the Safe
Harbor Leases, the Letter of Credit Agreement and the Mortgage, as such terms
are defined in, and as contemplated by, the Assets Purchase Agreement dated
August 20, 1993 between the Company and Portal Rig Corporation, with respect to
the Property being acquired pursuant to such Assets Purchase Agreement; (s)
Liens on (i) up to eight submersible drilling rigs, owned by the Company or any
Subsidiaries as of the Issue Date including any improvements on such rigs,
provided, that the Company may from time to time designate one or more of such
rigs as Property that is not, and will not be, subject to this clause (s) by
delivery of written notice of such designation to the trustee under the
Indenture, whereupon such designated rig or rigs shall cease to be covered by
this clause (s) and, if unencumbered by any Lien (other than Permitted Liens
described in clauses (g), (h) and (i) of this definition), the Appraised Value
of such designated rig or rigs as of any Measurement Date shall be included in
any determination of "Consolidated Asset Coverage Ratio" or (ii) the Property
described in clause (ii)(L) of the definition of "Asset Sale" and (t) Liens
resulting from the deposit of funds or evidences of Indebtedness in trust for
the purpose of defeasing Indebtedness of the Company or any of the Subsidiaries.
"Permitted Refinancing Indebtedness" means Indebtedness of the Company or a
Subsidiary, incurred in exchange for, or the proceeds of which are used to
renew, extend, refinance, refund or repurchase outstanding Indebtedness of the
Company or any Subsidiary which outstanding Indebtedness was incurred in
accordance with, or is otherwise permitted by, the terms of the Indenture, other
than any such Indebtedness permitted pursuant to clause (k) of the definition of
"Permitted Indebtedness"; provided that (i) if the Indebtedness being renewed,
extended, refinanced, refunded or repurchased is pari passu with or subordinated
in right of payment to the Senior Notes, then such new Indebtedness is pari
passu with or subordinated in right of payment to, as the case may be, the
Senior Notes at least to the same extent as the Indebtedness being renewed,
extended, refinanced, refunded or repurchased, (ii) such new Indebtedness is
scheduled to mature later than the Indebtedness being renewed, extended,
refinanced, refunded or repurchased, (iii) such new Indebtedness has an Average
Life at the time such Indebtedness is incurred that is greater than the Average
Life of the Indebtedness being renewed, extended, refinanced, refunded or
repurchased and (iv) such new Indebtedness is in an aggregate principal amount
(or, if such Indebtedness provides for an amount less than the principal amount
thereof to be due and payable upon a declaration of acceleration of the maturity
thereof, the original issue price of such Indebtedness is) not in excess of the
aggregate principal amount then outstanding of the Indebtedness being renewed,
extended, refinanced, refunded or repurchased (or if the Indebtedness being
renewed, extended, refinanced, refunded or repurchased provides for an amount
less than the principal amount thereof to be due and payable upon a declaration
of acceleration of the maturity thereof, the original issue price of such
Indebtedness plus any accreted value attributable thereto since the original
issuance of such Indebtedness) plus the amount of any premium required to be
paid in connection therewith pursuant to the terms of such Indebtedness or the
amount of any premium reasonably determined by the Company or the Subsidiary, as
applicable, as necessary to accomplish the foregoing by means of a tender or
exchange offer or privately negotiated purchase, plus the amount of fees and
expenses in connection therewith; provided, further that Permitted Refinancing
Indebtedness shall not include (a) Indebtedness of a Subsidiary that is incurred
to renew, extend, refinance, refund or repurchase Indebtedness of the Company
and (b) Indebtedness (other than Non-Recourse Indebtedness of the related
Non-Recourse Subsidiary) that is
58
<PAGE> 60
incurred to renew, extend, refinance, refund or repurchase Non-Recourse
Indebtedness of such Non-Recourse Subsidiary.
"Preferred Stock" means the $1.50 Convertible Preferred Stock of the
Company outstanding as of the Issue Date.
"Project Finance Indebtedness" of a Person means any Indebtedness the
proceeds of which will be used solely to make capital expenditures to repair,
refurbish, upgrade or improve one or more drilling rigs owned or acquired (or to
be owned or acquired) by such Person or an Affiliate thereof.
"Property" means, with respect to any Person, any interest of such Person
in any kind of property or asset, whether real, personal or mixed, or tangible
or intangible, excluding Capital Stock in any other Person.
"Redeemable Stock" means, with respect to any Person, any equity security
that by its terms or otherwise is required to be redeemed, or is redeemable at
the option of the holder thereof, at any time prior to one year following the
Stated Maturity of the Senior Notes or is exchangeable into Indebtedness of such
Person or any of its subsidiaries.
"Replacement Asset" means, with respect to any Asset Sale, a Property or
asset that, as determined by the Board of Directors as evidenced by a Board
Resolution, is used or is useful in a line of business of the Company or any
Subsidiary existing on the Issue Date.
"Restricted Payment" means to (i) declare or pay any dividend on, or make
any distribution in respect of, or purchase, redeem, retire or otherwise acquire
for value any Capital Stock of the Company or any Affiliate of the Company, or
warrants, rights or options to acquire such Capital Stock, other than (x)
dividends payable solely in the Capital Stock (other than Redeemable Stock) of
the Company or such Affiliate, as the case may be, or in warrants, rights or
options to acquire such Capital Stock and (y) dividends or distributions by a
Subsidiary to the Company or to a Wholly Owned Subsidiary (except a Non-Recourse
Subsidiary); (ii) make any principal payment on, or redeem, repurchase, defease
or otherwise acquire or retire for value, prior to any scheduled principal
payment, scheduled sinking fund payment or other stated maturity, Indebtedness
of the Company or any Subsidiary which is subordinated in right of payment to
the Senior Notes; or (iii) make any Investment (other than Permitted Investments
and Investments made by the Company in its Wholly Owned Subsidiaries (or any
Person that will be a Wholly Owned Subsidiary as a result of such Investment)
except Non-Recourse Subsidiaries or by a Subsidiary in the Company or one or
more Wholly Owned Subsidiaries (or any Person that will be a Wholly Owned
Subsidiary as a result of such Investment) except Non-Recourse Subsidiaries) in
any Person.
"Sale and Lease-Back Transaction" means, with respect to any Person, any
direct or indirect arrangement pursuant to which Property is sold or transferred
by such Person or a subsidiary of such Person and is thereafter leased back from
the purchaser or transferee thereof by such Person or one of its subsidiaries.
"Stated Maturity", when used with respect to a Senior Note or any
installment of interest thereon, means the date specified in such Senior Note as
the fixed date on which the principal of such Senior Note or such installment of
interest is due and payable.
"Subordinated Indebtedness" means any Indebtedness of the Company that is
subordinated in right of payment to the Senior Notes and does not mature prior
to one year following the Stated Maturity of the Senior Notes.
"subsidiary" means, with respect to any Person, (i) any corporation more
than 50 percent of the outstanding Voting Stock of which is owned, directly or
indirectly, by such Person, or by one or more other subsidiaries of such Person,
or by such Person and one or more other subsidiaries of such Person, (ii) any
general partnership, joint venture or similar entity, more than 50 percent of
the outstanding partnership or similar interests of which is owned, directly or
indirectly, by such Person, or by one or more other subsidiaries of such Person,
or by such Person and one or more other subsidiaries of such Person and (iii)
any limited partnership of which such Person or any subsidiary of such Person is
a general partner.
"Subsidiary" means a subsidiary of the Company.
59
<PAGE> 61
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged; (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case under
clauses (i) or (ii) above, are not callable or redeemable at the option of the
issuer thereof or (iii) depository receipts issued by a bank or trust company as
custodian with respect to any such U.S. Government Obligations or a specific
payment of interest on or principal of any such U.S. Government Obligation held
by such custodian for the account of the holder of a depository receipt;
provided that (except as required by law) such custodian is not authorized to
make any deduction from the amount payable to the holder of such depository
receipt from any amount received by the custodian in respect of the U.S.
Government Obligation or the specific payment of interest on or principal of the
U.S. Government Obligation evidenced by such depository receipt.
"Voting Stock" means, with respect to any Person, securities of any class
or classes of Capital Stock in such Person entitling the holders thereof
(whether at all times or at the times that such class of Capital Stock has
voting power by reason of the happening of any contingency) to vote in the
election of members of the board of directors or comparable body of such Person.
"Wholly Owned Subsidiary" means any Subsidiary of which 100 percent of the
total Voting Stock (other than directors' qualifying shares) is at the time
owned by the Company, either directly or indirectly through ownership of one or
more Subsidiaries.
BOOK-ENTRY DELIVERY AND FORM
The Senior Notes will be issued in the form of a fully registered Global
Certificate. The Global Certificate will be deposited with, or on behalf of, The
Depository Trust Company, New York, New York (the "Depositary") and registered
in the name of the Depositary's nominee.
Except as set forth below, the Global Certificate may be transferred, in
whole and not in part, only to another nominee of the Depositary or to a
successor of the Depositary or its nominee.
The Depositary has advised the Company and the Underwriters as follows: It
is a limited-purpose trust company which was created to hold securities for its
participating organizations (the "Participants") and to facilitate the clearance
and settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. Participants
include securities brokers and dealers (including the Underwriters), banks,
trust companies, clearing corporations and certain other organizations. Access
to the Depositary's book-entry system is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
("indirect participants"). Persons who are not Participants may beneficially own
securities held by the Depositary only through Participants or indirect
participants.
The Depositary has also advised that pursuant to procedures established by
it (i) upon the issuance by the Company of the Senior Notes, the Depositary will
credit the accounts of Participants designated by the Underwriters with the
principal amount of the Senior Notes purchased by the Underwriters, and (ii)
ownership of beneficial interests in the Global Certificate will be shown on,
and the transfer of that ownership will be effected only through, records
maintained by the Depositary (with respect to Participants' interests), the
Participants and the indirect participants. The laws of some states require that
certain persons take physical delivery in definitive form of securities which
they own. Consequently, the ability to transfer beneficial interests in the
Global Certificate is limited to such extent.
So long as a nominee of the Depositary is the registered owner of the
Global Certificate, such nominee will be considered the sole owner or holder of
the Senior Notes for all purposes under the Indenture. Except as provided below,
owners of beneficial interests in the Global Certificate will not be entitled to
have Senior Notes registered in their names, will not receive or be entitled to
receive physical delivery of Senior Notes in definitive form and will not be
considered the owners or holders thereof under the Indenture.
60
<PAGE> 62
Neither the Company, the Trustee, the paying agent nor the Senior Notes
registrar will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the Global Certificate, or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
Principal and interest payments on the Global Certificate registered in the
name of the Depositary's nominee will be made by the Company, either directly or
through a paying agent, to the Depositary's nominee as the registered owner of
the Global Certificate. Under the terms of the Indenture, the Company and the
Trustee will treat the persons in whose names the Senior Notes are registered as
the owners of such Senior Notes for the purpose of receiving payments of
principal and interest on such Senior Notes and for all other purposes
whatsoever. Therefore, neither the Company, the Trustee nor any paying agent has
any direct responsibility or liability for the payment of principal or interest
on the Senior Notes to owners of beneficial interests in the Global Certificate.
The Depositary has advised the Company and the Trustee that its present practice
is, upon receipt of any payment of principal or interest to credit immediately
the accounts of the Participants with payment in amounts proportionate to their
respective holdings in principal amount of beneficial interests in the Global
Certificate as shown on the records of the Depositary. Payments by Participants
and indirect participants to owners of beneficial interests in the Global
Certificate will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers in bearer
form or registered in "street name" and will be the responsibility of such
Participants or indirect participants.
As long as the Senior Notes are represented by a Global Certificate, the
Depositary's nominee will be the holder of the Senior Notes and therefore will
be the only entity that can exercise a right to repayment or repurchase of the
Senior Notes. See "-- Change of Control" and "-- Certain Covenants -- Limitation
on Asset Sales." Notice by Participants or indirect participants or by owners of
beneficial interests in a Global Certificate held through such Participants or
indirect participants of the exercise of the option to elect repayment of
beneficial interests in Senior Notes represented by a Global Certificate must be
transmitted to the Depositary in accordance with its procedures on a form
required by the Depositary and provided to Participants. In order to ensure that
the Depositary's nominee will timely exercise a right to repayment with respect
to a particular Senior Note, the beneficial owner of such Senior Note must
instruct the broker or other Participant or indirect participant through which
it holds an interest in such Senior Note to notify the Depositary of its desire
to exercise a right to repayment. Different firms have cut-off times for
accepting instructions from their customers, and accordingly, each beneficial
owner should consult the broker or other Participant or indirect participant
through which it holds an interest in a Senior Note in order to ascertain the
cut-off time by which such an instruction must be given in order for timely
notice to be delivered to the Depositary. The Company will not be liable for any
delay in delivery of notices of the exercise of the option to elect repayment.
The Company will issue Senior Notes in definitive form in exchange for the
Global Certificate if, and only if, either (1) the Depositary is at any time
unwilling or unable to continue as depositary and a successor depositary is not
appointed by the Company within 90 days, or (2) an Event of Default has occurred
and is continuing and the Senior Notes registrar has received a request from the
Depositary to issue Senior Notes in definitive form in lieu of all or a portion
of the Global Certificate. In either instance, an owner of a beneficial interest
in the Global Certificate will be entitled to have Senior Notes equal in
principal amount to such beneficial interest registered in its name and will be
entitled to physical delivery of such Senior Notes in definitive form. Senior
Notes so issued in definitive form will be issued in denominations of $1,000 and
integral multiples thereof and will be issued in registered form only, without
coupons.
61
<PAGE> 63
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement") among the Company and the underwriters named below (the
"Underwriters"), the Company has agreed to sell to the Underwriters, and the
Underwriters have severally agreed to purchase from the Company, the respective
principal amounts of the Senior Notes set forth after their names below. The
Purchase Agreement provides that the obligations of the Underwriters are subject
to certain conditions precedent and that the Underwriters will be obligated to
purchase all of the Senior Notes if any are purchased.
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITERS AMOUNT
- ------------------------------------------------------------------------------- ------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................................... $
Salomon Brothers Inc...........................................................
Simmons & Company International................................................
------------
Total............................................................. $125,000,000
</TABLE>
The Underwriters have advised the Company that they propose initially to
offer the Senior Notes to the public at the public offering price set forth on
the cover page of this Prospectus, and to certain dealers at such price less a
concession not in excess of % of the principal amount of the Senior Notes.
The Underwriter may allow, and such dealers may reallow, a discount not in
excess of % of the principal amount of the Senior Notes to certain other
dealers. After the initial public offering of the Senior Notes, the public
offering price, concession and discount may be changed.
The Senior Notes are a new issue of securities for which there is currently
no public market. The Company has made application to list the Senior Notes on
the New York Stock Exchange. The Company has been advised by the Underwriters
that, subject to applicable laws and regulations, each of the Underwriters
presently intend to make a market in the Senior Notes after consummation of the
offering, although the Underwriters are under no obligation to do so and may
discontinue any market-making activities with respect to the Senior Notes at any
time without notice. No assurance, however, can be given as to the liquidity of
the trading market for the Senior Notes or that an active trading market for the
Senior Notes will develop. If an active public market does not develop, the
market price and liquidity of the Senior Notes may be adversely affected.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.
The Underwriters are serving as the representatives of the underwriters for
the Equity Offerings and will receive customary compensation for such services
consisting of underwriting discounts.
From time to time, Salomon Brothers Inc ("Salomon") and Simmons & Company
International ("Simmons & Company") have been engaged by the Company to provide
advisory and investment banking services. Pursuant to the terms of a Standby
Agreement entered into in connection with the June 1995 redemption of the
Company's $2.25 Convertible Exchangeable Preferred Stock, par value $1.00 per
share (the "$2.25 Preferred Stock"), Salomon agreed to purchase all shares of
the $2.25 Preferred Stock properly tendered and to convert all such shares so
purchased or otherwise acquired by Salomon into Common Stock. Salomon received
customary compensation pursuant to the Standby Agreement. Simmons & Company, in
return for a customary fee, has provided the Company with financial advisory
services in connection with the Acquisition.
62
<PAGE> 64
LEGAL OPINIONS
The legality of the Senior Notes offered hereby will be passed upon for the
Company by Thompson & Knight, P.C., Dallas, Texas. Certain legal matters in
connection with the Senior Notes offered hereby will be passed upon for the
Underwriters by Andrews & Kurth L.L.P., Houston, Texas.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1995 and 1994, and for each of the two years in the period ended December 31,
1995 included in this Prospectus have been so included in reliance on the report
of Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
The 1993 consolidated financial statements of the Company included in this
Prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
in this Prospectus in reliance upon the authority of said firm as experts in
giving said report.
The consolidated financial statements of Neddrill as of December 31, 1995
and 1994, and for each of the three years in the period ended December 31, 1995
have been so included in reliance on the report of KPMG Accountants N.V.,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy and information statements, and other information
with the Securities and Exchange Commission (the "Commission"). These reports,
proxy and information statements, and other information concerning the Company
can be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549; and at
the Commission's regional offices at Suite 1400, Northwestern Atrium Center, 500
West Madison Avenue, Chicago, Illinois 60661-2551 and at Seven World Trade
Center, 13th Floor, New York, New York 10048. Copies of such material can also
be obtained from the Commission at prescribed rates through its Public Reference
Section at 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, the
Common Stock is listed on the New York Stock Exchange, 20 Broad Street, New
York, New York 10005, where such material may also be inspected and copied.
The Company has filed with the Commission a Registration Statement on Form
S-3 (No. 333-02929) under the Securities Act with respect to the Senior Notes
offered hereby (including all amendments and supplements thereto, the
"Registration Statement"). This Prospectus, which forms a part of the
Registration Statement, does not contain all the information set forth in the
Registration Statement, certain parts of which have been omitted in accordance
with the rules and regulations of the Commission. Statements contained herein
concerning the provisions of certain documents are not necessarily complete and,
in each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference. The
Registration Statement and the exhibits thereto can be inspected and copied at
the public reference facilities and regional offices referred to above.
63
<PAGE> 65
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with the
Commission (File No. 0-13857) pursuant to the Exchange Act, are incorporated
herein by reference and made a part of this Prospectus: (i) the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995 and (ii) the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Common Stock covered hereby shall be
deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the date of filing of such documents. Any statement contained in a
document or information incorporated or deemed to be incorporated herein by
reference shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any
subsequently filed document that also is, or is deemed to be, incorporated
herein by reference, modifies or supersedes such statement. Any such statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
THE COMPANY UNDERTAKES TO PROVIDE, WITHOUT CHARGE, TO EACH PERSON,
INCLUDING ANY BENEFICIAL OWNER, TO WHOM A COPY OF THIS PROSPECTUS IS DELIVERED,
UPON THE WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY OF ANY AND ALL OF THE
DOCUMENTS OR INFORMATION REFERRED TO ABOVE THAT HAS BEEN OR MAY BE INCORPORATED
BY REFERENCE IN THIS PROSPECTUS (EXCLUDING EXHIBITS TO SUCH DOCUMENTS UNLESS
SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE). REQUESTS SHOULD BE
DIRECTED TO BYRON L. WELLIVER, SENIOR VICE PRESIDENT -- FINANCE, TREASURER AND
CONTROLLER, NOBLE DRILLING CORPORATION, 10370 RICHMOND AVENUE, SUITE 400,
HOUSTON, TEXAS 77042 (THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY), TELEPHONE
(713) 974-3131.
64
<PAGE> 66
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
NOBLE DRILLING CORPORATION AND SUBSIDIARIES:
Annual Financial Statements:
Report of Independent Accountants................................................... F-2
Report of Independent Public Accountants............................................ F-3
Consolidated Balance Sheets at December 31, 1995 and 1994........................... F-4
Consolidated Statements of Operations for the three years in the period ended
December 31, 1995................................................................ F-5
Consolidated Statements of Cash Flows for the three years in the period ended
December 31, 1995................................................................ F-6
Consolidated Statements of Shareholders' Equity for the three years in the period
ended December 31, 1995.......................................................... F-7
Notes to Consolidated Financial Statements.......................................... F-9
Interim Financial Statements (Unaudited):
Consolidated Balance Sheets at March 31, 1996 and
December 31, 1995................................................................ F-27
Consolidated Statements of Operations for the three months ended
March 31, 1996 and 1995.......................................................... F-28
Consolidated Statements of Cash Flows for the three months ended March 31, 1996 and
1995............................................................................. F-29
Notes to Consolidated Interim Financial Statements.................................. F-30
NEDDRILL HOLDING B.V.:
Annual Financial Statements:
Independent Auditor's Report........................................................ F-33
Consolidated Balance Sheets at December 31, 1995 and 1994........................... F-34
Consolidated Statements of Operations for the three years in the period ended
December 31, 1995................................................................ F-35
Consolidated Statements of Cash Flows for the three years in the period ended
December 31, 1995................................................................ F-36
Consolidated Statements of Shareholders' Deficit for the three years in the period
ended December 31, 1995.......................................................... F-37
Notes to Consolidated Financial Statements.......................................... F-38
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS:
Unaudited Pro Forma Consolidated Balance Sheet at March 31, 1996.................... F-53
Unaudited Pro Forma Consolidated Statement of Operations for the three months ended
March 31, 1996................................................................... F-54
Unaudited Pro Forma Consolidated Statement of Operations for the year ended
December 31, 1995................................................................ F-55
</TABLE>
F-1
<PAGE> 67
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Noble Drilling Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows and of changes in
shareholders' equity present fairly, in all material respects, the financial
position of Noble Drilling Corporation and its subsidiaries (the "Company") at
December 31, 1995 and 1994, and the results of their operations and their cash
flows for the two years ended December 31, 1995, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Houston, Texas
January 31, 1996, except as to Note 16, which is as of March 13, 1996
F-2
<PAGE> 68
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Noble Drilling Corporation:
We have audited the accompanying consolidated statements of operations,
cash flows and shareholders' equity of Noble Drilling Corporation (a Delaware
corporation) and subsidiaries for the year ended December 31, 1993. These
financial statements reflect a restatement of the Company's previously reported
amounts for the merger with Chiles Offshore Corporation ("Chiles"), see Note 2.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Noble
Drilling Corporation and subsidiaries (including Chiles) for year ended December
31, 1993, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
September 15, 1994
F-3
<PAGE> 69
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value amounts)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.................................................... $ 41,307 $ 95,163
Restricted cash.............................................................. -- 898
Investment in marketable equity securities................................... 6,131 9,489
Investment in marketable debt securities..................................... 17,031 39,673
Accounts receivable (net allowance of $1,280 and $691)....................... 60,251 61,563
Costs of uncompleted contracts in excess of billings......................... 6,646 841
Inventories.................................................................. 19,795 14,008
Other current assets......................................................... 36,851 18,584
--------- ---------
Total current assets.................................................. 188,012 240,219
--------- ---------
PROPERTY AND EQUIPMENT
Drilling equipment and facilities............................................ 871,539 804,445
Other........................................................................ 23,891 20,461
--------- ---------
895,430 824,906
--------- ---------
Accumulated depreciation..................................................... (352,452) (331,584)
--------- ---------
542,978 493,322
--------- ---------
OTHER ASSETS................................................................... 10,402 6,348
--------- ---------
$ 741,392 $ 739,889
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt and current installments of long-term debt................... $ 12,210 $ 6,244
Accounts payable............................................................. 30,782 34,662
Accrued payroll and related costs............................................ 13,674 14,888
Taxes payable................................................................ 12,953 12,972
Interest payable............................................................. 2,860 2,853
Other current liabilities.................................................... 13,910 10,715
--------- ---------
Total current liabilities............................................. 86,389 82,334
LONG-TERM DEBT................................................................. 129,923 126,546
OTHER LIABILITIES.............................................................. 1,338 2,767
MINORITY INTEREST.............................................................. 249 631
--------- ---------
217,899 212,278
--------- ---------
SHAREHOLDERS' EQUITY
$2.25 Preferred stock -- par value $1; all shares converted or redeemed as of
December 31, 1995; 15,000 shares authorized; 2,989 issued and outstanding
as of December 31, 1994.................................................... -- 2,989
$1.50 Preferred stock -- par value $1; convertible; cumulative; redeemable at
the option of the Company; aggregate liquidation preference of $100,625;
15,000 shares authorized; 4,025 issued and outstanding..................... 4,025 4,025
Common stock -- par value $.10; 200,000 shares authorized; 94,548 issued and
94,483 outstanding in 1995; 78,076 issued and 77,826 outstanding in 1994... 9,455 7,808
Capital in excess of par value............................................... 589,866 590,733
Unrealized losses on marketable securities................................... (115) (1,847)
Minimum pension liability.................................................... (3,403) (3,825)
Cumulative translation adjustment............................................ (2,081) (2,325)
Accumulated deficit.......................................................... (73,802) (68,197)
Treasury stock, at cost...................................................... (452) (1,750)
--------- ---------
523,493 527,611
--------- ---------
COMMITMENTS AND CONTINGENCIES.................................................. -- --
--------- ---------
$ 741,392 $ 739,889
========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-4
<PAGE> 70
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
OPERATING REVENUES
Contract drilling services............................... $205,110 $249,820 $223,321
Labor contract drilling services......................... 35,136 36,203 34,474
Turnkey drilling services................................ 71,273 56,380 --
Engineering and consulting services...................... 11,264 3,796 2,292
Other revenue............................................ 5,185 5,789 4,444
-------- -------- --------
327,968 351,988 264,531
-------- -------- --------
OPERATING COSTS AND EXPENSES
Contract drilling services............................... 138,340 160,109 146,008
Labor contract drilling services......................... 26,540 28,355 27,857
Turnkey drilling services................................ 64,471 46,886 --
Engineering and consulting services...................... 7,311 2,958 2,083
Other expense............................................ 3,440 4,900 2,736
Depreciation and amortization............................ 36,492 39,519 28,886
Selling, general and administrative...................... 40,139 47,606 28,284
Restructuring charges.................................... -- 3,661 --
Minority interest........................................ (214) (169) (232)
-------- -------- --------
316,519 333,825 235,622
-------- -------- --------
OPERATING INCOME........................................... 11,449 18,163 28,909
OTHER INCOME (EXPENSE)
Interest expense......................................... (12,156) (12,351) (8,038)
Interest income.......................................... 5,323 5,640 2,497
Other, net............................................... 250 15,743 1,047
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM....................................... 4,866 27,195 24,415
INCOME TAX PROVISION....................................... (3,272) (5,672) (3,333)
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY
ITEM..................................................... 1,594 21,523 21,082
-------- -------- --------
EXTRAORDINARY ITEM......................................... -- -- 1,770
-------- -------- --------
NET INCOME................................................. 1,594 21,523 22,852
PREFERRED STOCK DIVIDENDS.................................. (7,199) (12,764) (7,936)
-------- -------- --------
NET (LOSS) INCOME APPLICABLE TO COMMON
SHARES................................................ $ (5,605) $ 8,759 $ 14,916
======== ======== ========
NET (LOSS) INCOME APPLICABLE TO COMMON SHARES PER SHARE:
Before extraordinary item................................ $ (0.08) $ 0.11 $ 0.20
Extraordinary item....................................... -- -- 0.02
-------- -------- --------
NET (LOSS) INCOME APPLICABLE TO COMMON SHARES PER SHARE.... $ (0.08) $ 0.11 $ 0.22
======== ======== ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING.............................................. 89,736 77,576 66,923
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE> 71
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
-------- -------- ---------
<S> <C> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES
Net income.......................................................... $ 1,594 $ 21,523 $ 22,852
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization..................................... 36,492 39,519 28,886
Gain on sale of assets............................................ (829) (9,546) (785)
(Gain) loss on foreign exchange................................... (206) 76 (79)
Deferred income tax (benefit) provision........................... (449) 3,433 --
Restructuring charges............................................. -- 3,661 --
Extraordinary item................................................ -- -- (1,770)
Other............................................................. 132 (6,009) 227
Changes in current assets and liabilities:
Accounts receivable............................................. (8,480) 20,208 (18,694)
Proceeds from sale of marketable equity securities, net......... 3,398 -- --
Other assets.................................................... (17,361) 20,791 (11,508)
Accounts payable................................................ 11,356 (2,635) 7,863
Other liabilities............................................... 3,836 (12,365) 7,806
-------- -------- ---------
29,483 78,656 34,798
-------- -------- ---------
CASH (USED IN) INVESTING ACTIVITIES
Purchase of property and equipment.................................. (91,202) (55,834) (20,259)
Acquisition of Western rigs and related assets...................... -- -- (150,000)
Proceeds from Triton acquisition, net of negative noncash working
capital of $3,532 acquired........................................ -- 13,600 --
Proceeds from sale of property and equipment........................ 1,879 13,792 1,712
Proceeds from sale of (investment in) marketable debt securities.... 24,374 (2,069) (15,100)
Investment in unconsolidated affiliate.............................. -- (342) (983)
Payments to minority interest holders, net.......................... -- (4,478) --
-------- -------- ---------
(64,949) (35,331) (184,630)
-------- -------- ---------
CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
Preferred stock conversion costs.................................... (2,406) -- --
Proceeds from long-term debt........................................ -- -- 125,000
Payment of long-term debt........................................... (520) (598) (109,592)
Dividends paid on preferred stock................................... (8,881) (12,764) (7,936)
Proceeds from issuance of common stock, net......................... 356 2,604 97,451
Proceeds from issuance of preferred stock, net...................... -- -- 96,500
Payment of short-term debt.......................................... (6,698) (7,500) (2,449)
Other............................................................... 898 1,211 (820)
-------- -------- ---------
(17,251) (17,047) 198,154
-------- -------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH............................... (1,139) (292) 645
-------- -------- ---------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS...................... (53,856) 25,986 48,967
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........................ 95,163 69,177 20,210
-------- -------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD.............................. $ 41,307 $ 95,163 $ 69,177
======== ======== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest.......................................................... $ 11,738 $ 11,947 $ 7,033
Income taxes...................................................... $ 3,946 $ 6,254 $ 2,123
Noncash investing and financing activities:
Insurance financing agreement..................................... $ 14,838 -- --
Triton acquisition with common stock.............................. -- $ 5,169 --
Triton acquisition with notes payable............................. -- $ 4,000 --
Triton acquisition, minority interest assumed..................... -- $ 5,392 --
Rig purchase with common stock.................................... -- -- $ 5,725
</TABLE>
See accompanying notes to the consolidated financial statements.
F-6
<PAGE> 72
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
$2.25 PREFERRED $1.50 PREFERRED
STOCK STOCK COMMON STOCK
----------------- ---------------- ----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
JANUARY 1, 1993........................... 2,990 $ 2,990 -- -- 63,088 $6,308
Net income................................ -- -- -- -- -- --
Issuance of stock:
Sale of common stock.................... -- -- -- -- 12,041 1,204
Sale of preferred stock................. -- -- 4,025 $4,025 -- --
Purchase of Portal rigs................. -- -- -- -- 626 63
Exercise of stock options............... -- -- -- -- 486 49
Contribution to benefit plans........... -- -- -- -- 130 13
Stock options granted at discount......... -- -- -- -- -- --
Dividends on preferred stock.............. -- -- -- -- -- --
Translation adjustment.................... -- -- -- -- -- --
------ ------- ----- ------ ------ ------
DECEMBER 31, 1993......................... 2,990 2,990 4,025 4,025 76,371 7,637
Net income................................ -- -- -- -- -- --
Issuance of stock:
Purchase of Triton...................... -- -- -- -- 752 75
Exercise of stock options............... -- -- -- -- 197 20
Contribution to benefit plans........... -- -- -- -- 271 27
Exchange of Chiles options.............. -- -- -- -- 480 48
Stock options granted at discount......... -- -- -- -- -- --
Conversion of preferred stock............. (1) (1) -- -- 5 1
Dividends on preferred stock.............. -- -- -- -- -- --
Net unrealized losses on marketable
securities.............................. -- -- -- -- -- --
Minimum pension liability................. -- -- -- -- -- --
Translation adjustment.................... -- -- -- -- -- --
------ ------- ----- ------ ------ ------
DECEMBER 31, 1994......................... 2,989 2,989 4,025 4,025 78,076 7,808
Net income................................ -- -- -- -- -- --
Conversion/redemption of preferred
stock................................... (2,989) (2,989) -- -- 16,199 1,620
Preferred stock conversion costs.......... -- -- -- -- -- --
Net unrealized losses on marketable
securities.............................. -- -- -- -- -- --
Minimum pension liability................. -- -- -- -- -- --
Translation adjustment.................... -- -- -- -- -- --
Dividends on preferred stock.............. -- -- -- -- -- --
Issuance of stock:
Exercise of stock options............... -- -- -- -- 109 11
Contribution to benefit plans........... -- -- -- -- 164 16
Contribution of treasury stock to
restricted stock plan................ -- -- -- -- -- --
Restricted stock plan shares returned to
treasury............................. -- -- -- -- -- --
------ ------- ----- ------ ------ ------
DECEMBER 31, 1995......................... -- $ -- 4,025 $4,025 94,548 $9,455
====== ======= ===== ====== ====== ======
</TABLE>
See accompanying notes to the consolidated financial statements.
F-7
<PAGE> 73
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY -- (CONTINUED)
(In thousands)
<TABLE>
<CAPTION>
UNREALIZED
CAPITAL LOSSES ON MINIMUM CUMULATIVE
IN EXCESS OF MARKETABLE PENSION TRANSLATION ACCUMULATED TREASURY
PAR VALUE SECURITIES LIABILITY ADJUSTMENT DEFICIT SHARES AMOUNT
------------ ---------- ------- ----------- ----------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
JANUARY 1, 1993.................. $388,453 -- -- $(2,495) $(91,872) 250 $(1,750)
Net income....................... -- -- -- -- 22,852 -- --
Issuance of stock:
Sale of common stock........... 93,705 -- -- -- -- -- --
Sale of preferred stock........ 92,475 -- -- -- -- -- --
Purchase of Portal rigs........ 5,662 -- -- -- -- -- --
Exercise of stock options...... 2,047 -- -- -- -- -- --
Contribution to benefit
plans........................ 560 -- -- -- -- -- --
Stock options granted at
discount....................... 208 -- -- -- -- -- --
Dividends on preferred stock..... -- -- -- -- (7,936) -- --
Translation adjustment........... -- -- -- 209 -- -- --
-------- ------- ------- ------- -------- ---- --------
DECEMBER 31, 1993................ 583,110 -- -- (2,286) (76,956) 250 (1,750)
Net income....................... -- -- -- -- 21,523 -- --
Issuance of stock:
Purchase of Triton............. 5,094 -- -- -- -- -- --
Exercise of stock options...... 1,208 -- -- -- -- -- --
Contribution to benefit
plans........................ 1,781 -- -- -- -- -- --
Exchange of Chiles options..... (480) -- -- -- -- -- --
Stock options granted at
discount....................... 20 -- -- -- -- -- --
Conversion of preferred stock.... -- -- -- -- (12,764) -- --
Dividends on preferred stock..... -- -- -- -- -- -- --
Net unrealized losses on
marketable securities.......... -- $(1,847) -- -- -- -- --
Minimum pension liability........ -- -- $(3,825) -- -- -- --
Translation adjustment........... -- -- -- (39) -- -- --
-------- ------- ------- ------- -------- ---- --------
DECEMBER 31, 1994................ 590,733 (1,847) (3,825) (2,325) (68,197) 250 (1,750)
Net income....................... -- -- -- -- 1,594 -- --
Conversion/redemption of
preferred stock................ 1,369 -- -- -- -- -- --
Preferred stock conversion
costs.......................... (2,406) -- -- -- -- -- --
Net unrealized losses on
marketable securities.......... -- 1,732 -- -- -- -- --
Minimum pension liability........ -- -- 422 -- -- -- --
Translation adjustment........... -- -- -- 244 -- -- --
Dividends on preferred stock..... -- -- -- -- (7,199) -- --
Issuance of stock:
Exercise of stock options...... 345 -- -- -- -- -- --
Contribution to benefit
plans........................ 1,123 -- -- -- -- -- --
Contribution of treasury stock
to restricted stock plan..... (1,480) -- -- -- -- (211) 1,480
Restricted stock plan shares
returned to treasury......... 182 -- -- -- -- 26 (182)
-------- ------- ------- ------- -------- ---- --------
DECEMBER 31, 1995................ $589,866 $ (115) $(3,403) $(2,081) $(73,802) 65 $ (452)
======== ======= ======= ======= ======== ==== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-8
<PAGE> 74
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar amounts in tables are in thousands, except
per share amounts)
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Noble Drilling Corporation ("Noble Drilling" or, together with its
consolidated subsidiaries, unless the context requires otherwise, the "Company")
is primarily engaged in domestic and international contract oil and gas drilling
and workover operations. The Company's international operations are conducted in
the United Kingdom, Nigeria, Zaire, India, Venezuela, Mexico, Canada, and Qatar.
On September 15, 1994, Chiles Offshore Corporation ("Chiles") merged with Noble
Offshore Corporation ("NOC"), a wholly owned subsidiary of Noble Drilling (the
"Chiles Merger"). See Note 2.
The contract drilling industry is a highly competitive and cyclical
business characterized by high capital and maintenance costs. Although
conditions in recent years in the oil and gas industry have precipitated
consolidation of industry participants, there remains an oversupply of drilling
equipment. As a consequence, there has been intense competition for available
drilling contracts resulting in equipment being idle for long periods of time
and at generally unfavorable terms and prices for contract drilling.
The Company follows a policy of keeping its equipment well maintained and
technologically competitive. However, its equipment could be made obsolete by
the development of new techniques and equipment. In addition, industry-wide
shortages of supplies, services, skilled personnel, and equipment necessary to
conduct the Company's business, such as drill pipe, have occurred from time to
time in the past and such shortages could occur again.
The Company's operations are subject to the many hazards inherent in the
drilling business, including blowouts, cratering, fires and collisions or
groundlings of offshore equipment, which could cause substantial damage to the
environment. In addition, the Company's operations are subject to damage or loss
from adverse weather and seas. These hazards could cause personal injury and
loss of life, suspend drilling operations or seriously damage or destroy the
property and equipment involved and, in addition to the environmental damage,
could cause substantial damage to producing formations and surrounding areas.
Although the Company maintains insurance against many of these hazards, such
insurance is subject to substantial deductibles and provides for premium
adjustments based on claims. It also excludes certain matters from coverage,
such as loss of earnings on certain rigs.
Under turnkey drilling contracts, Triton Engineering Services Company
("Triton") generally assumes the risk of pollution and environmental damage, but
on occasion receives indemnification from the customer for environmental and
pollution liabilities in excess of Triton's pollution insurance coverage.
Further, Triton is not insured against certain drilling risks that could result
in delays or nonperformance of a turnkey drilling contract, although it
generally maintains insurance against delays related to loss of well control.
The Company's international operations are also subject to certain
political, economic and other uncertainties including, among others, risks of
war and civil disturbances, expropriation, nationalization, renegotiation or
modification of existing contracts, taxation policies, foreign exchange
restrictions, international monetary fluctuations and other hazards arising out
of foreign governmental sovereignty over certain areas in which the Company
conducts operations. The Company has insurance covering expropriation and other
political risks to the extent available to the Company at rates it considers
prudent to pay.
Consolidation
The consolidated financial statements include the accounts of the Company,
its wholly owned subsidiaries, and the Company's share of the assets,
liabilities and operations of Perforadora Faja de Oro, S.A. de C.V. ("Faja Joint
Venture") and NN-1 Limited Partnership, of which the Company is the general
partner. The minority interest in Faja Joint Venture (10 percent) and NN-1
Limited Partnership (approximately 10
F-9
<PAGE> 75
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Unless otherwise indicated, dollar amounts in tables are in thousands, except
per share amounts)
percent) is included in the balance sheets and the statements of operations as
minority interest. In 1994, the Company made distributions of $4,500,000 to its
partner in Faja Joint Venture. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Certain reclassifications have been made in the 1994 and 1993 consolidated
financial statements to conform to the classifications used in the 1995
consolidated financial statements. These reclassifications have no impact on net
income or loss.
Foreign Currency Translation
The Company follows a translation policy in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 52, Foreign Currency Translation.
The U.S. dollar has been designated as the functional currency where
appropriate, based on an evaluation of such factors as the markets in which the
subsidiary operates, generation of cash flow, financing activities and
intercompany arrangements. For the Company's subsidiaries in the United Kingdom
and Canada, the local currency is the functional currency. Assets and
liabilities are translated at the rates of exchange on the balance sheet date.
Income and expense items are translated at average rates of exchange. The
resulting gains or losses arising from the translation of accounts from the
functional currency to the U.S. dollar are included as a separate component of
shareholders' equity designated as cumulative translation adjustment.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, demand deposits with banks
and all highly liquid investments with original maturities of three months or
less.
In accordance with SFAS No. 95, Statement of Cash Flows, cash flows from
the Company's operations in the United Kingdom and Canada are calculated based
on their functional currency. As a result, amounts related to assets and
liabilities reported on the Consolidated Statements of Cash Flows will not
necessarily agree with changes in the corresponding balances on the Consolidated
Balance Sheets. The effect of exchange rate changes on cash balances held in
foreign currencies is reported on a separate line below cash (used in) provided
by financing activities.
The restricted cash balance of $898,000 at December 31, 1994, was
restricted as a result of collateral requirements imposed by a lender of the
Company. This restriction was lifted in 1995.
Investment in Marketable Securities
Pursuant to the cash management policy implemented in 1992, the Company
invests in marketable debt securities. Effective January 1, 1994, the Company
adopted SFAS No. 115, Accounting for Certain Investments in Debt and Equity
Securities. The Company classifies its investments in marketable debt securities
as available for sale and its investments in marketable equity securities as
trading. See Note 3.
Investment in Unconsolidated Affiliates
The Company uses the equity method to account for affiliates in which it
does not have voting control.
Inventories
Inventories of spare parts, material and supplies held for consumption are
stated principally at average cost.
F-10
<PAGE> 76
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Unless otherwise indicated, dollar amounts in tables are in thousands, except
per share amounts)
Property and Equipment
Property and equipment is stated at cost, reduced by provisions to
recognize economic impairment in value when management determines that such
impairment has occurred. Drilling equipment and facilities are depreciated using
the straight-line method over estimated remaining useful lives ranging from
three to twenty-five years from the date of construction or major refurbishment.
All other property and equipment is depreciated using the straight-line method
over useful lives ranging from three to twenty years.
Effective January 1, 1995, the Company revised its estimates of salvage
values and remaining depreciable lives of certain rigs to better reflect their
economic lives and to be consistent with other similar assets owned by the
Company. The effect of this change in estimates was a reduction in the net loss
applicable to common shares of $6,160,000, or $0.07 per common share, for the
year ended December 31, 1995.
Maintenance and repairs on drilling equipment are charged to expense as
incurred. Total maintenance and repair expenses for the years ended December 31,
1995, 1994, and 1993, were approximately $26,189,000, $33,700,000, and
$25,900,000, respectively. When assets are sold, retired or otherwise disposed
of, the cost and related accumulated depreciation are eliminated from the
accounts and the gain or loss is recognized.
In March 1995, SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, was issued. This statement
requires that long-lived assets and certain identifiable intangibles held and
used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company adopted this standard effective January 1, 1996. The
Company expects the adoption of this standard to require a charge to net income
of approximately $7,000,000 in the first quarter of 1996.
Other Assets
In 1995, other assets primarily included deferred debt issuance costs in
connection with the October 7, 1993, issuance of debt securities (see Note 4),
the long-term portion of prepaid insurance costs and goodwill related to the
Triton acquisition. The deferred debt issuance costs in connection with the
October 7, 1993 issuance of debt securities (see Note 4) totaled $4,015,000 and
are being amortized over the life of the debt securities. The accumulated
amortization at December 31, 1995 and 1994, was $864,000 and $540,000,
respectively. The prepaid insurance costs totaled $3,230,000 at December 31,
1995, and are being amortized over the term of the insurance policy. The
goodwill related to Triton totaled $1,775,000 at December 31, 1995, and is being
amortized over seventeen years.
Revenue Recognition
Revenues generated from the Company's dayrate-basis drilling contracts are
recognized as services are performed. The Company's turnkey drilling contracts
are of a short-term, fixed fee nature, and accordingly, revenues and expenses
are recognized using the completed contract method. When estimates of projected
revenues and costs indicate a loss, the total estimated loss is accrued.
Concentration of Credit Risk
The primary market for the Company's services is the offshore oil and gas
industry, and the Company's customers consist primarily of major oil companies,
independent oil and gas producers and government-owned oil companies. The
Company performs ongoing credit evaluations of its customers and generally does
not require material collateral. The Company provides allowances for potential
credit losses when necessary.
F-11
<PAGE> 77
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Unless otherwise indicated, dollar amounts in tables are in thousands, except
per share amounts)
Net (Loss) Income Applicable to Common Shares Per Share
Net (loss) income applicable to common shares per share has been computed
on the basis of the weighted average number of common shares and, where
dilutive, common share equivalents, outstanding during the indicated periods.
Each outstanding share of the $2.25 Preferred Stock and $1.50 Convertible
Preferred Stock ("$1.50 Preferred Stock") was assumed to be converted, at
January 1, 1995, into 5.41946 and 2.4446 shares of common stock, respectively,
for purposes of calculating fully diluted earnings per share. The calculation of
net (loss) income applicable to common shares per share assuming full dilution
was antidilutive; therefore, fully diluted amounts are not presented. The
Preferred Conversion Payment of approximately $1,524,000 in March 1995 (see Note
6) was accounted for as a reduction of net earnings applicable to common shares
for purposes of calculating the net loss per common share. This accounting
treatment increased the net loss applicable to common shares per share from
$0.06 to $0.08 for the year ended December 31, 1995. See Note 13.
Certain Significant Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
NOTE 2 -- ACQUISITIONS AND MERGERS
The Chiles Merger was consummated on September 15, 1994 through the
exchange of 28,598,777 shares of Noble Drilling common stock for all the
outstanding common stock of Chiles and the exchange of 4,025,000 shares of Noble
Drilling $1.50 convertible preferred stock ("$1.50 Preferred Stock")
(liquidation preference $25.00 per share), par value $1.00 per share, for all
the outstanding shares of Chiles $1.50 convertible preferred stock. The Chiles
Merger was accounted for as a pooling of interests and all financial information
for the year of the transaction and prior periods has been restated to reflect
this merger. In addition, Noble Drilling issued an additional 480,000 shares of
its common stock in exchange for the cancellation of outstanding Chiles stock
options.
On April 22, 1994, the Company acquired all of the issued and outstanding
shares of common stock (the "Shares") of Triton pursuant to the terms of the
Stock Purchase Agreement dated April 22, 1994. In consideration for the Shares,
the Company paid approximately $4,085,000 in cash, issued promissory notes in
the aggregate amount of $4,000,000, and issued 751,864 shares of Noble Drilling
common stock valued at $5,169,000. The promissory notes were paid on October 21,
1994. In addition, the Company has a contingent obligation to pay additional
consideration on April 22, 1996, including issuance of up to 254,551 shares of
Noble Drilling common stock, if certain financial conditions are achieved. At
December 31, 1995, a reserve for payment of these contingent payments
approximating $600,000 has been accrued as an adjustment to the original
purchase price paid. No future amounts are expected to be recognized relating to
these contingent payments. The conditions to be achieved which trigger the
contingent consideration primarily relate to the ultimate collection of certain
trade receivables and the settlement of litigation matters. The acquisition of
Triton has been accounted for under the purchase method, and accordingly,
Triton's operating results have been included in the consolidated operating
results since the date of acquisition.
The Company acquired nine mobile offshore jackup drilling rigs and
associated assets (the "Western Acquisition") from The Western Company of North
America ("Western") for $150,000,000 in cash on October 7, 1993. The Western
Acquisition has been accounted for under the purchase method, and
F-12
<PAGE> 78
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Unless otherwise indicated, dollar amounts in tables are in thousands, except
per share amounts)
accordingly, the operating results have been included in the consolidated
operating results since the date of acquisition.
The following table summarizes certain unaudited pro forma condensed
consolidated results of operations data that give effect to the acquisition of
Triton as if it had occurred on January 1, 1994 and January 1, 1993 and the
acquisition of Western as if it had occurred on January 1, 1993.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1994 1993
-------- --------
(UNAUDITED)
<S> <C> <C>
Operating revenues............................................. $378,123 $428,284
Net income applicable to common shares......................... $ 8,853 $ 9,256
Net income applicable to common shares per share............... $ 0.11 $ 0.12
</TABLE>
On September 16, 1994, the Company exchanged its interest in Grasso
Corporation for 645,656 shares of common stock of Offshore Logistics, Inc. This
investment is classified as a marketable equity security. See Note 3.
NOTE 3 -- MARKETABLE SECURITIES
Effective January 1, 1994, the Company adopted SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities. Under the provisions of SFAS
No. 115, investments in debt and equity securities are required to be classified
into one of three categories: held to maturity, available for sale or trading
securities. At each reporting date, the appropriateness of such classification
is required to be reassessed. Realized gains and losses on sales of investments
are included in income on a specific identification basis.
As of December 31, 1995, the Company classified all of its debt securities
with original maturities of more than three months as available for sale. These
investments are classified as marketable securities within current assets on the
accompanying consolidated balance sheets. The following table highlights
information applicable to the Company's investments classified as available for
sale as of December 31, 1995 and December 31, 1994:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------------
AMORTIZED UNREALIZED
DEBT SECURITY/MATURITY COST FAIR VALUE LOSSES
---------------------------------------------------- --------- ---------- ----------
<S> <C> <C> <C>
Corporate Obligations
Mature within 1 year.............................. $ 1,520 $ 1,520 --
Mature after 1 year through 5 years............... 7,258 7,214 $ (44)
------- ------- -----
8,778 8,734 (44)
------- ------- -----
U.S. Government Obligations
Mature after 1 year through 5 years............... 8,368 8,297 (71)
------- ------- -----
Total............................................... $17,146 $ 17,031 $ (115)
======= ======= =====
</TABLE>
F-13
<PAGE> 79
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Unless otherwise indicated, dollar amounts in tables are in thousands, except
per share amounts)
<TABLE>
<CAPTION>
DECEMBER 31, 1994
---------------------------------------
AMORTIZED UNREALIZED
DEBT SECURITY/MATURITY COST FAIR VALUE LOSSES
---------------------------------------------------- --------- ---------- ----------
<S> <C> <C> <C>
Corporate Obligations
Mature within 1 year.............................. $11,526 $11,447 $ (79)
Mature after 1 year through 5 years............... 4,485 4,412 (73)
------- ------- ---------
16,011 15,859 (152)
------- ------- ---------
U.S. Government Obligations
Mature within 1 year.............................. $ 5,156 $ 5,010 $ (146)
Mature after 1 year through 5 years............... 20,353 18,804 (1,549)
------- ------- ---------
25,509 23,814 (1,695)
------- ------- ---------
Total............................................... $41,520 $39,673 $ (1,847)
======= ======= ========
</TABLE>
The unrealized loss on debt securities of $115,000 and $1,847,000 as of
December 31, 1995 and 1994, respectively, is included as a reduction of
shareholders' equity in accordance with SFAS No. 115. Total realized losses
related to short-term investments for the twelve months ended December 31, 1995
and 1994, were $15,000 and $2,199,000, respectively.
The Company categorizes its investments in marketable equity securities as
trading securities. These investments are classified as current assets and were
recorded at a fair value of $6,131,000 at December 31, 1995. Total proceeds from
the sale of these securities were $3,670,000 and $0 for the years ended December
31, 1995 and 1994, respectively. Total realized gains on these equity
investments for the years ended December 31, 1995 and 1994 were $371,000 and $0,
respectively. Total net unrealized (losses) and gains related to these equity
investments for the years ended December 31, 1995 and 1994, were $(56,000) and
$4,162,000, respectively.
NOTE 4 -- DEBT
On November 3, 1995, the Company entered into a financing agreement with
Transamerica Insurance Finance for a period of eighteen months related to the
renewal of its Marine Package, Protection and Indemnity, and Excess Liability
insurance policies. The amount financed totaled $16,561,000 at a fixed interest
rate of 6.23 percent per annum.
On October 14, 1993, the Company prepaid a promissory note with proceeds
from the Public Offerings (as defined below). The terms of the note provided
that interest did not accrue from September 1, 1991 through December 31, 1992,
after which date interest on the unpaid principal amount accrued at a fixed rate
of 7.5 percent per annum. The Company had accrued interest on the note at 4.9
percent for all periods, which was the imputed rate based on the revised note
terms. An extraordinary gain of $1,770,000 for extinguishment of debt was
recognized in 1993 (see Note 10) from the prepayment of the note, representing
excess accrued interest.
On October 7, 1993, in connection with the Western Acquisition and the
issuance of 12,041,000 shares of Noble Drilling common stock in an underwritten
public offering (the "Stock Offering") (see Note 6), the Company issued
$125,000,000 principal amount of 9 1/4% Senior Notes Due 2003 (the "9 1/4%
Notes") (the Stock Offering and the issuance of the 9 1/4% Notes are
collectively referred to as the "Public Offerings"). The 9 1/4% Senior Notes
will mature on October 1, 2003. Interest on the 9 1/4% Notes is payable
semi-annually on April 1 and October 1 of each year. The 9 1/4% Notes are
redeemable at the option of the Company, in whole or in part, on or after
October 1, 1998 at 103.47 percent of principal amount, declining ratably to par
on or after October 1, 2001, plus accrued interest. Mandatory sinking fund
payments of 25 percent of the original
F-14
<PAGE> 80
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Unless otherwise indicated, dollar amounts in tables are in thousands, except
per share amounts)
principal amount of the 9 1/4% Notes at par plus accrued interest will be
required on October 1, 2001 and October 1, 2002. The indenture governing the
9 1/4% Notes contains certain restrictive covenants, including limitations on
additional indebtedness and the ability to secure such indebtedness,
restrictions on dividends and certain investments and limitations on sales of
assets, sales and leaseback, transactions with affiliates, and mergers or
consolidations.
In connection with the initial construction of the NN-1, the predecessor of
NN-1 Limited Partnership issued U.S. Government Guaranteed Ship Financing
Sinking Fund Bonds, of which $1,546,000 principal amount was outstanding at
December 31, 1995. The bonds mature in 1998, and bear interest at the rate of
8.95 percent per annum, payable semi-annually on June 15 and December 15. The
bonds are secured by the vessel, and the applicable security agreement contains
certain restrictions, among others, on distributions to partners, dispositions
of assets and services to related parties. In addition, there are minimum
working capital, net worth and long-term debt to net worth requirements
applicable to NN-1 Limited Partnership. The net book value of the vessel at
December 31, 1995, was $12,131,000. The Company's sharing percentage in NN-1
Limited Partnership's distribution from operations is generally 90 percent. The
NN-1 has not been under contract since March of 1993.
The Company and its wholly owned subsidiary, Noble Drilling (West Africa)
Inc. ("NDWA"), were parties to a secured loan agreement (the "Project Loan
Agreement") with US WEST Financial Services, Inc. dated as of October 31, 1990,
as amended, pursuant to which NDWA borrowed $52,500,000 for the purpose of
financing, in part, the equipping, refurbishment and mobilization to Nigeria of
four offshore drilling rigs: the NN-1, Gene Rosser, Lewis Dugger and Chuck
Syring. On July 2, 1993, the final installment of $6,562,000 plus accrued
interest was paid in accordance with the terms of the Project Loan Agreement.
Interest was charged under the Project Loan Agreement at the fixed rate of 11.12
percent per annum.
Annual maturities of long-term debt are $12,210,000 in 1996, $4,417,000 in
1997, $506,000 in 1998, $31,250,000 in 2001, $31,250,000 in 2002 and $62,500,000
in 2003.
The following table summarizes the Company's long-term debt:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
<S> <C> <C>
9 1/4% Senior Notes Due 2003................................... $125,000 $125,000
U.S. Government Guaranteed Ship Financing Sinking Fund Bonds... 1,546 2,066
Insurance financing............................................ 15,587 --
-------- --------
142,133 127,066
Current installments........................................... (12,210) (520)
-------- --------
$129,923 $126,546
======== ========
</TABLE>
The fair value of the Company's long-term debt at December 31, 1995,
estimated based on the quoted market prices for similar issues or on the current
rates offered to the Company for debt of similar remaining maturities, was
approximately $130,300,000.
NOTE 5 -- CREDIT FACILITIES
At December 31, 1995, the Company had available credit facilities
aggregating $31,000,000, as described below, of which $26,000,000, subject to
certain limitations, is related to lines of credit and $5,000,000 is related to
letter of credit facilities. Based on the level of the borrowing base at
December 31, 1995, the Company had $26,000,000 available under the credit lines
and $895,000 available to support issuance of letters of credit at that date.
F-15
<PAGE> 81
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Unless otherwise indicated, dollar amounts in tables are in thousands, except
per share amounts)
The Company has an unsecured credit agreement with First Interstate Bank of
Texas, N.A., which provided for a $25,000,000 revolving credit line facility and
$5,000,000 letter of credit facility at December 31, 1995. The Company pays a
quarterly commitment fee on the unused portion of the facility. The agreement
contains certain restrictive and financial covenants, including those related to
indebtedness, net worth and fixed charges, and provides for guarantees of the
indebtedness by certain subsidiaries of Noble Drilling.
NOTE 6 -- SHAREHOLDERS' EQUITY
On October 25, 1993, the Company issued 626,410 shares of common stock to
purchase two rigs from Portal as discussed in Note 12. The shares were issued to
Portal pursuant to a private placement, and the Company does not have an
obligation to register the resale of the shares under the Securities Act of
1933, as amended.
Chiles completed a public offering of $1.50 convertible preferred stock on
October 21, 1993 with the sale and issuance to the public of 4,025,000 shares by
Chiles at $25.00 per share. Net proceeds to Chiles were approximately
$96,500,000 after underwriting discounts and issuance costs. Chiles utilized
approximately $45,200,000 of these proceeds to retire all of Chiles' outstanding
long-term indebtedness, including principal and interest, during the fourth
quarter of 1993. In the Chiles Merger, this series of preferred stock was
converted into and exchanged for an equivalent number of shares of $1.50
Preferred Stock having substantially the same rights, privileges, preferences
and voting power as the Chiles preferred stock. Holders of the $1.50 Preferred
Stock are entitled to receive cumulative cash dividends at an annual rate of
$1.50 per share, when, as and if declared by the board of directors of Noble
Drilling, payable quarterly. Each share of $1.50 Preferred Stock is convertible,
at the option of the holder, into 2.4446 shares of common stock (subject to
adjustment in certain circumstances). The $1.50 Preferred Stock is not
redeemable prior to December 31, 1996. On or after such date, the $1.50
Preferred Stock is redeemable at the option of the Company, in whole or part, at
$26.05 per share if redeemed prior to December 31, 1997, and at prices
decreasing in increments of $0.15 per year to $25.00 per share on and after
December 31, 2003, plus accrued and unpaid dividends to the redemption date.
On October 7, 1993, the Company issued and sold 12,041,000 shares of common
stock in the Stock Offering (see Note 4) at an initial offering price of $8.375
per share. This resulted in net proceeds of $94,900,000, after deducting
underwriting discounts, commissions and other related costs. The net proceeds of
the Public Offerings (see Note 4) were used to purchase the nine jackup rigs and
related assets discussed previously in Note 2, and to prepay a promissory note
discussed in Note 4, with the balance of the proceeds, approximately
$26,000,000, used for general corporate purposes.
In 1991, the Company issued and sold 2,990,000 shares of a new series of
$2.25 Convertible Exchangeable Preferred Stock ("$2.25 Preferred Stock"), par
value $1.00 per share. Holders of the $2.25 Preferred Stock received a cash
dividend at an annual rate of $2.25 per share. In March 1995, an aggregate of
923,862 shares of $2.25 Preferred Stock were converted into 5,006,830 shares of
Noble Drilling common stock. The Company paid an aggregate of approximately
$1,524,000 in cash ("Preferred Conversion Payment") in the first quarter in
connection with this conversion. In the second quarter of 1995, the Company
called for the redemption of all remaining outstanding shares of the $2.25
Preferred Stock. Of the 2,065,238 shares then outstanding, 2,062,537 were
surrendered for conversion and 2,701 were redeemed by the Company, resulting in
the Company's issuance of 11,192,359 shares of common stock (including 14,637
shares sold to a standby underwriter).
NOTE 7 -- STOCK OPTIONS
1991 Stock Option Plan
The Company's 1991 Stock Option and Restricted Stock Plan (the "1991 Plan")
was amended and restated ("Amended 1991 Plan") in September 1994. The Amended
1991 Plan was adopted by the board of
F-16
<PAGE> 82
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Unless otherwise indicated, dollar amounts in tables are in thousands, except
per share amounts)
directors of Noble Drilling in July 1994 and approved by stockholders on
September 15, 1994. The Company's two other employee stock option plans, adopted
in 1985 and 1987, were amended in connection with the adoption of the 1991 Plan
to provide that no further grants would be made under those plans after April
25, 1991; however, all options outstanding at that date ("Pre-1991 Options")
remained in effect in accordance with their respective terms.
Under the Amended 1991 Plan, a maximum of 5,200,000 shares of the Company's
common stock may be subject to grants of options or awards of restricted stock
to participants, who are selected from regular salaried officers or other
employees of the Company. Options may be either incentive options or
nonqualified options, and may be with or without stock appreciation rights
("SARs"). The option price under the Amended 1991 Plan may not be less than 100
percent of the fair market value of the common stock at the time of grant, in
the case of an incentive option, and may not be less than 50 percent of the fair
market value of the common stock at the time of grant, in the case of a
nonqualified option. The Amended 1991 Plan also limits to 1,500,000 the total
number of shares of common stock that may be made subject to grants of options
or stock appreciation rights or awards of restricted stock to any one person
during any five-year period. All Pre-1991 Options were granted at an option
price of at least 100 percent of the fair market value of the common stock at
the time of grant. The exercise of either the tandem SAR or the option serves to
cancel the other. At December 31, 1995, 2,571,767 shares were available for
grant under the Amended 1991 Plan.
As of January 1, 1995, there were 250,000 shares of common stock held by
the Company as treasury shares. During February 1995, 211,500 treasury shares
were issued to certain employees pursuant to the terms of the Amended 1991 Plan
and the applicable restricted stock agreements. The issued shares of restricted
stock have been placed in escrow subject to satisfaction of various performance
criteria during a three-year period. In June 1995, 26,000 of these shares were
returned to treasury stock following the resignation of one employee. As of
December 31, 1995, 64,500 shares were held as treasury stock. Subsequent to
December 31, 1995, 250,000 shares of common stock were purchased by the Company
and returned to treasury stock, increasing the balance of treasury stock to
314,500 shares. In January 1996, 108,750 shares of treasury stock were issued to
certain employees as restricted stock under the Amended 1991 Plan and have been
placed in escrow under the aforementioned terms.
The following is a summary of option transactions under the plans:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994
--------- ---------
<S> <C> <C>
Outstanding, beginning of the year............................ 1,810,472 1,312,617
Granted....................................................... 1,240,400 728,000
Canceled...................................................... (141,975) (58,875)
Exercised (at share prices ranging from $1.72 to $7.69)....... (109,150) (171,270)
--------- ---------
Outstanding at end of year (at share prices ranging from $1.72
to $7.69 in 1995)........................................... 2,799,747 1,810,472
========= =========
Exercisable at end of year (at share prices ranging from $1.72
to $7.69 in 1995)........................................... 1,273,505 855,672
========= =========
</TABLE>
Options granted in 1995 under the Amended 1991 Plan become exercisable on
certain dates that range from February 2, 1996, through February 2, 1998, at a
price $5.188 per share.
Other Stock Options
During 1987, in addition to the options described above, options to
purchase a total of 300,000 shares of Noble Drilling's common stock at $2.50 per
share were granted to certain non-employee directors of the
F-17
<PAGE> 83
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Unless otherwise indicated, dollar amounts in tables are in thousands, except
per share amounts)
Company pursuant to stock option agreements which were approved by stockholders
at the 1988 annual meeting. Options to purchase 160,000 shares were outstanding
and exercisable at December 31, 1995.
In 1993, the stockholders approved the 1992 Nonqualified Stock Option Plan
for Non-Employee Directors (the "1992 Option Plan"). Under the 1992 Option Plan,
non-employee directors received a one-time grant of an option to purchase 10,000
shares of common stock, and thereafter, after each annual meeting of
shareholders of the Company, receive an annual grant of an option to purchase
3,500 shares of common stock. The options are granted at fair market value on
the grant date and are exercisable from time to time over a period commencing
one year from the grant date and ending on the expiration of ten years from the
grant date, unless terminated sooner as described in the 1992 Option Plan.
Options to purchase 77,500 shares were outstanding and exercisable at December
31, 1995.
SFAS No. 123 -- Accounting for Stock-Based Compensation
In October 1995, SFAS No. 123, Accounting for Stock-Based Compensation, was
issued. This statement establishes financial accounting and reporting standards
for stock-based employee compensation plans. Those plans include all
arrangements by which employees receive shares of stock or other equity
instruments of the employer or the employer incurs liabilities to employees in
amounts based on the price of the employer's stock. The Company adopted this
standard effective January 1, 1996. As provided in the statement, the Company
elected to continue to measure compensation cost using the guidelines of APB
Opinion No. 25 and to include disclosures of net income and earnings per share
as if the fair value based method of accounting were utilized.
Stockholder Rights Plan
The Company adopted a stockholder rights plan on June 28, 1995, designed to
assure that the Company's stockholders receive fair and equal treatment in the
event of any proposed takeover of the Company and to guard against partial
tender offers and other abusive takeover tactics to gain control of the Company
without paying all stockholders a fair price. The rights plan was not adopted in
response to any specific takeover proposal. Under the rights plan, the Company
declared a dividend of one right ("Right") on each share of Noble Drilling
common stock. Each Right will entitle the holder to purchase one one-hundredth
of a share of a new Series A Junior Participating Preferred Stock, par value
$1.00 per share, at an exercise price of $35.00. The Rights are not currently
exercisable and will become exercisable only in the event a person or group
acquires beneficial ownership of 15 percent or more of Noble Drilling common
stock. The dividend distribution was made on July 10, 1995 to stockholders of
record at the close of business on that date. The Rights will expire on July 10,
2005.
NOTE 8 -- INCOME TAXES
The Company follows SFAS No. 109, Accounting for Income Taxes, which
requires the use of the liability method of accounting for deferred income
taxes. Under SFAS No. 109, deferred tax assets and liabilities are recognized
based upon differences between the financial statement and tax bases of assets
and liabilities using presently enacted tax rates. If it is more likely than not
that some portion or all of a deferred tax asset will not be realized, a
valuation allowance is recognized.
F-18
<PAGE> 84
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Unless otherwise indicated, dollar amounts in tables are in thousands, except
per share amounts)
Amounts of deferred tax assets and liabilities are as follows at:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
<S> <C> <C>
Deferred tax asset, net of valuation allowance of $22,243 in
1995 and $21,329 in 1994..................................... $ 57,443 $ 47,696
Deferred tax liability......................................... (59,919) (51,089)
-------- --------
Net, total..................................................... $ (2,476) $ (3,393)
======== ========
</TABLE>
The components of and changes in the net deferred taxes were as follows:
<TABLE>
<CAPTION>
DEFERRED
DECEMBER 31, EXPENSE DECEMBER 31,
1994 (CREDIT) 1995
------------ -------- ------------
<S> <C> <C> <C>
Deferred tax assets:
Domestic
Net operating loss carryforwards............. $ 63,117 $ 11,663 $ 74,780
Investment tax credit carryforward........... 1,457 -- 1,457
Other........................................ 149 -- 149
International
Net operating loss carryforwards............. 3,055 (404) 2,651
Tax basis of assets in excess of book
basis...................................... 1,247 (598) 649
-------- -------- --------
Total............................................. 69,025 10,661 79,686
Valuation allowance............................... (21,329) (914) (22,243)
-------- -------- --------
Net deferred tax assets........................... $ 47,696 $ 9,747 $ 57,443
======== ======== ========
Deferred tax liabilities:
Domestic
Excess of net book basis over remaining tax
basis...................................... $(45,884) $(10,910) $(56,794)
International
Excess of net book basis over remaining tax
basis...................................... (5,205) 2,080 (3,125)
-------- -------- --------
Deferred tax liabilities.......................... $(51,089) $ (8,830) $(59,919)
======== ======== ========
</TABLE>
Income (loss) from continuing operations before income taxes and
extraordinary items consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Domestic................................................ $(9,578) $ 7,024 $16,948
International........................................... 14,444 20,171 7,467
------- ------- -------
Total................................................... $ 4,866 $27,195 $24,415
======= ======= =======
</TABLE>
F-19
<PAGE> 85
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Unless otherwise indicated, dollar amounts in tables are in thousands, except
per share amounts)
The income tax provision consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Current -- domestic..................................... $(2,093) -- $ 205
Current -- international................................ 6,282 $ 2,599 3,128
Deferred -- international............................... (917) 3,073 --
------- ------- -------
Total................................................... $ 3,272 $ 5,672 $ 3,333
======= ======= =======
</TABLE>
Included in the current domestic tax benefit for the year ended December
31, 1995, is $2,100,000 related to a separate return year loss carryback benefit
recorded by Triton.
A reconciliation of Federal statutory and effective income tax rates is
shown below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1994 1993
----- ---- -----
<S> <C> <C> <C>
Statutory rate............................................. 35.0% 35.0% 35.0%
Effect of:
U.S. operating loss generating no current tax benefit.... 68.9 -- --
U.S. operating loss carryforward/carryback benefit....... (43.1) (9.0) (23.6)
Canadian operating loss carryforward benefit............. -- -- (2.2)
International tax rates which are different than the U.S.
rate.................................................. 6.4 (5.8) 3.7
Other.................................................... -- .7 .8
----- ---- -----
Effective rate............................................. 67.2% 20.9% 13.7%
===== ==== =====
</TABLE>
The Company had available at December 31, 1995, unused investment tax
credits, which may be used to offset future U.S. taxes payable, of $1,457,000
expiring in various years from 1998 to 2001. In addition, Noble Drilling had net
operating loss carryforwards ("NOLs") for tax purposes of approximately
$145,902,000 at December 31, 1995, which expire in the years 2000 through 2010,
and NOC has NOLs for tax purposes of approximately $67,756,000 which expire in
the years 2004 through 2009.
The Chiles Merger qualifies as a tax-free reorganization. NOC, as the
surviving entity, inherited all of Chiles' tax attributes, including NOL
carryforwards. In accordance with the "Separate Return Limitation Year" rules of
the Internal Revenue Code of 1986, as amended (the "Code"), Chiles' NOL
carryforwards may only be used to reduce Noble Drilling's future taxable income
to the extent of NOC's taxable income.
If a corporation undergoes an "ownership change" within the meaning of
Section 382 of the Code, the corporation's right to use its then existing NOLs
(and certain other tax attributes) is limited during each future year to a
percentage of the fair market value of such corporation's stock immediately
before the ownership change (the "Section 382 Limitation"). In general, there is
an "ownership change" under Section 382 if over a three-year period certain
shareholders increase their percentage ownership of a corporation by more than
50 percent. To the extent the amount of the NOLs existing at the time of an
ownership change that are used in any subsequent year is less than the annual
Section 382 Limitation, the otherwise available Section 382 Limitation is
correspondingly increased for future years. An ownership change for purposes of
Section 382 took place on September 15, 1994, as a result of the Chiles Merger.
The cumulative Section 382 Limitation attributable to the Noble Drilling
pre-merger carryforwards is $47,231,000. The cumulative Section 382 Limitation
attributable to NOC is $22,185,000.
Applicable U.S. income and foreign withholding taxes have not been provided
on undistributed earnings of the Company's international subsidiaries.
Management does not intend to repatriate such undistributed
F-20
<PAGE> 86
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Unless otherwise indicated, dollar amounts in tables are in thousands, except
per share amounts)
earnings for the foreseeable future except for distributions upon which
incremental income taxes would not be material.
NOTE 9 -- ADDITIONAL BALANCE SHEET AND STATEMENT OF OPERATIONS
INFORMATION
Other current assets consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
------- -------
<S> <C> <C>
Prepaid expenses................................................. $15,364 $ 9,287
Withholding tax receivable....................................... 8,886 5,223
Operating costs and mobilization................................. 7,907 26
Other............................................................ 4,694 4,048
------- -------
$36,851 $18,584
======= =======
</TABLE>
Other current liabilities consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
------- -------
<S> <C> <C>
Deferred revenue................................................. $ 4,290 $ 1,421
Accrued dividends................................................ 1,510 3,191
Accrued restructuring costs...................................... 817 844
Other............................................................ 7,293 5,259
------- -------
$13,910 $10,715
======= =======
</TABLE>
Rent expense was $1,918,000, $1,200,000, and $1,297,000 for 1995, 1994, and
1993, respectively.
Withholding tax receivables include approximately $6,000,000 related to
withholding taxes in Nigeria. To recognize these receivables, the Company must
receive tax certificates from the applicable operators. Management believes that
the full amount of these receivables will be realized.
Operating costs and mobilization for the year ended December 31, 1995
consists of costs incurred in mobilizing rigs from the U.S. Gulf of Mexico to
various international locations. Such costs are amortized over the term of the
related contract.
Other income -- other, net consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1994 1993
------- ------- ------
<S> <C> <C> <C>
Gain on sale of property and equipment................. $ 829 $ 8,858 $ 737
Unrealized (loss) gain on marketable equity
investments.......................................... (56) 4,162 --
Realized gain (loss) on marketable investments......... 356 (2,199) 272
Recovery of written-off notes receivable............... -- 1,530 --
Linn Richardson mobilization costs..................... (1,778) -- --
Adjustment related to Triton acquisition............... 1,078 -- --
Other.................................................. (179) 3,392 38
------- ------ ------
$ 250 $15,743 $1,047
======= ====== ======
</TABLE>
On December 15, 1995, the Linn Richardson, a 250-foot mat slot rig, lost
overboard approximately 200 feet of leg while under tow to perform a contract
offshore Senegal, Africa. On the following day, the rig lost overboard
approximately 240 feet of a second leg which also caused damage to equipment and
facilities on the
F-21
<PAGE> 87
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Unless otherwise indicated, dollar amounts in tables are in thousands, except
per share amounts)
deck of the rig. Pursuant to a preliminary assessment plan developed jointly by
the Company and its insurance underwriters, the third leg of the rig has been
removed and the rig has been towed to the U.S. Gulf of Mexico where a complete
evaluation will take place. A charge of $1,778,000 related to the cost of
mobilizing the rig to Senegal was accrued in the fourth quarter of 1995. This
amount represents management's best estimate of the total loss. Management does
not believe this incident will have any other material adverse effect on its
financial condition or results of operations.
A restructuring charge of $3,661,000 related to the Chiles Merger was
recorded in 1994 as a result of facility consolidation, including the write-down
of certain of the Company's owned properties, and to a lesser extent severance
costs. This restructuring plan was developed in the fourth quarter of 1994 and
approved by the board of directors of Noble Drilling.
NOTE 10 -- EXTRAORDINARY ITEM
The Company prepaid a promissory note in the fourth quarter of 1993 with
proceeds from the Public Offerings (see Notes 4 and 6). This prepayment resulted
in an extraordinary gain from extinguishment of debt of $1,770,000 ($0.02 per
common share), representing excess accrued interest.
NOTE 11 -- EMPLOYEE BENEFIT PLANS
The Company has a noncontributory defined benefit plan which covers
substantially all salaried employees and a noncontributory defined benefit
pension plan which covers certain field employees. The benefits from these plans
are based primarily on years of service and employees' compensation near
retirement. The Company's funding policy is consistent with funding requirements
of applicable laws and regulations. The assets of these plans consist of
corporate equity securities, municipal and government bonds, and cash
equivalents. The Company, when required, makes contributions to the domestic
plan in the form of Noble Drilling common stock. As of September 30, 1995, the
domestic plan assets included $2,067,000 of Noble Drilling's common stock valued
at fair value at that date. The Company changed the measurement date of the plan
to September 30 beginning in 1995. This change did not have a material impact to
the financial results of the Company.
Noble Drilling (U.K.) Limited, a wholly owned subsidiary of Noble Drilling,
maintains a pension plan which covers all of its salaried, nonunion employees.
Benefits are based on credited service and the average of the highest three
years of qualified salary within the past ten years of participation.
Pension cost includes the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1995 1994 1993
-------------------- -------------------- --------------------
INTER- INTER- INTER-
NATIONAL DOMESTIC NATIONAL DOMESTIC NATIONAL DOMESTIC
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Service costs (benefits
earned during the year).... $ 581 $ 1,201 $ 544 $ 758 $ 563 $ 535
Interest cost on projected
benefit obligation......... 702 1,890 607 1,698 549 1,534
Actual return on assets...... (870) (2,439) (787) 1,806 (597) (2,506)
Amortization of net (gain)
loss at January 1.......... (44) 757 (77) (3,758) 12 563
------- -------- ------- -------- ------- --------
Net pension (credit)
expense.................... $ 369 $ 1,409 $ 287 $ 504 $ 527 $ 126
====== ======== ====== ======== ====== ========
</TABLE>
F-22
<PAGE> 88
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Unless otherwise indicated, dollar amounts in tables are in thousands, except
per share amounts)
The funded status of the plans is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1995 1994
-------------------- --------------------
INTER- INTER-
NATIONAL DOMESTIC NATIONAL DOMESTIC
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligations Vested benefits................ $ (7,449) $(21,359) $ (6,578) $(18,513)
Nonvested benefits......................... -- (780) -- (373)
-------- -------- -------- --------
Accumulated benefits....................... (7,449) (22,139) (6,578) (18,886)
Effect of projected future compensation
levels.................................. (1,114) (3,982) (1,223) (1,895)
-------- -------- -------- --------
Projected benefits........................... (8,563) (26,121) (7,801) (20,781)
Plan assets at fair value.................... 9,725 21,274 8,625 19,192
-------- -------- -------- --------
Plan assets in excess (shortfall) of
projected benefit obligations.............. 1,162 (4,847) 824 (1,589)
Unrecognized net (loss) gain................. (1,831) 9,708 (1,595) 8,327
Unrecognized prior service cost.............. -- (69) -- (79)
Unrecognized transition obligation (asset)... 107 (1,509) 120 (1,966)
Additional liability......................... -- (3,403) -- (3,825)
-------- -------- -------- --------
(Accrued liability) prepaid asset............ $ (562) $ (120) $ (651) $ 868
======== ======== ======== ========
</TABLE>
In accordance with SFAS No. 87, Employers' Accounting for Pensions, the
Company recorded an additional minimum liability of $3,403,000 and $3,825,000 at
December 31, 1995 and 1994, respectively. This liability represents the excess
of the accumulated benefit obligations over the fair value of plan assets and
accrued pension liabilities of the domestic salaried pension plan. This
additional minimum pension liability is reported as a separate reduction of
shareholders' equity.
The projected benefit obligations for the international and domestic plans
were determined using an assumed discount rate of 8.5 percent and 7.5 percent,
respectively, in 1995, 9.0 percent and 8.5 percent, respectively, in 1994 and
8.0 percent and 7.25 percent, respectively, in 1993. Assumed long-term rate of
return on international plan assets was 9.25 percent, 9.75 percent and 8.75
percent in 1995, 1994 and 1993, respectively. Assumed long-term rate of return
on domestic plan assets was 9.0 percent in each of the years presented. The
projected benefit obligations for the international plan assume a compensation
increase of 6.25 percent, 6.75 percent and 5.75 percent in 1995, 1994 and 1993,
respectively, and 6.0 percent per annum for the domestic plan in each of the
years presented.
The Company presently sponsors medical and other plans for the benefit of
its employees. The cost of maintaining these plans aggregated $6,628,000,
$5,500,000, and $3,793,000 in 1995, 1994, and 1993, respectively.
The Company does not provide post-retirement benefits (other than pensions)
or any post-employment benefits to its employees.
NOTE 12 -- COMMITMENTS, CONTINGENCIES AND OBLIGATIONS
On October 25, 1993, the Company purchased two submersible offshore
drilling rigs from Portal Rig Corporation ("Portal") for 626,410 shares of Noble
Drilling common stock. The Company acquired the rigs subject to certain federal
income tax "safe harbor leases" and a related preferred ship mortgage relating
to a
F-23
<PAGE> 89
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Unless otherwise indicated, dollar amounts in tables are in thousands, except
per share amounts)
tax benefit transaction entered into in 1982 by a predecessor of Portal. Portal
has agreed to indemnify the Company for any potential liabilities as a result of
this earlier tax benefit transaction.
During 1993, Chiles entered into severance agreements with its officers and
certain managerial employees, including Chiles' rig management personnel. These
agreements provide for severance payments equal to between six months and two
years of such person's annual salary in the event a person's employment is
terminated otherwise than for cause within one year following the occurrence of
a change in control of Chiles or in the event that a person voluntarily
terminates his employment within one year of a change in control of Chiles for
"good reason," as defined in the agreement.
The Company is a defendant in certain other 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 the Company's
financial position or results of operations.
In connection with the damage sustained on the Linn Richardson, the Company
has recorded an estimated loss of $1,778,000 related to mobilization costs. See
Note 9.
At December 31, 1995, the Company had certain noncancellable long-term
operating leases, principally for office space and facilities, with various
expiration dates. Future minimum rentals under sub-leases aggregate $1,630,000
for 1996, $1,292,000 for 1997, $1,169,000 for 1998, $1,148,000 for 1999,
$866,000 for 2000, and $2,923,000 thereafter.
NOTE 13 -- SUPPLEMENTAL LOSS PER SHARE DISCLOSURE
Assuming that all shares of $2.25 Preferred Stock had been converted on
January 1, 1995 the supplemental primary net loss applicable to common shares
per share for the year ended December 31, 1995 would have changed from $0.08 to
$0.06. Supplemental fully diluted net loss applicable to common shares per share
for the year ended December 31, 1995 is the same as supplemental primary net
loss applicable to common shares per share since the effect of the conversion is
anti-dilutive.
NOTE 14 -- UNAUDITED INTERIM FINANCIAL DATA
Unaudited interim financial information for the years ended December 31,
1995 and 1994 is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- -------
<S> <C> <C> <C> <C>
1995
Operating revenues............................ $85,096 $73,985 $ 84,652 $84,235
Operating income(3)........................... $ 2,013 $(2,303) $ 3,240 $ 8,499
Net (loss) income applicable to common
shares(1)................................... $(3,331) $(5,847) $ 806 $ 2,767
Net (loss) income applicable to common shares
per share(1)(2)(3).......................... $ (0.06) $ (0.07) $ 0.01 $ 0.03
1994
Operating revenues............................ $78,921 $87,595 $ 98,060 $87,412
Operating income.............................. $10,362 $ 5,309 $ 2,216 $ 276
Net income (loss) applicable to common
shares...................................... $ 4,930 $ 9,206 $ (695) $(4,682)
Net income (loss) applicable to common shares
per share................................... $ 0.06 $ 0.12 $ (0.01) $ (0.06)
</TABLE>
- ---------------
(1) Included in the quarters ended September 30, 1995 and December 31, 1995 were
$800,000 ($0.01 per share) and $1,300,000 ($0.01 per share), respectively,
of separate return year loss carryback benefit related to Triton. See Note
8.
F-24
<PAGE> 90
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Unless otherwise indicated, dollar amounts in tables are in thousands, except
per share amounts)
Included in the quarter ended December 31, 1995 is a credit of $1,078,000
($0.01 per share) related to the adjustment of the Triton acquisition
contingency.
Included in the quarter ended December 31, 1995 is a charge of $1,778,000
($0.02 per share) related to the mobilization costs of the Linn Richardson
to the West Coast of Africa. See Note 9.
(2) Included in the quarter ended March 31, 1995 results is the $0.02 per share
impact of the $1,524,000 Preferred Conversion Payment made in conjunction
with the conversion of 923,862 shares of $2.25 Preferred Stock into common
stock. See Note 6.
(3) Included in the quarters ended March 31, June 30, September 30 and December
31, 1995 were $1,116,000 ($0.01 per share), $1,116,000 ($0.01 per share),
$1,116,000 ($0.01 per share) and $2,812,000 ($0.03 per share), respectively,
related to the effect of change in estimates of salvage values and remaining
depreciable lives. See Note 1.
NOTE 15 -- GEOGRAPHICAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Operating revenues
Domestic................................................... $165,391 $181,950 $125,505
International
Canada.................................................. 13,929 20,059 19,141
India................................................... 3,771 2,041 4,093
Mexico.................................................. 9,398 21,269 10,503
Nigeria................................................. 45,860 44,195 58,630
Qatar................................................... 2,452 -- --
United Kingdom.......................................... 37,891 39,939 40,036
Venezuela............................................... 40,223 34,155 3,736
Zaire................................................... 8,860 7,781 1,763
Other................................................... 193 599 1,124
-------- -------- --------
Total.............................................. $327,968 $351,988 $264,531
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Operating income (loss)
Domestic................................................... $ (6,068) $ (3,852) $ 20,057
International
Canada.................................................. 2,521 4,549 363
India................................................... 283 (676) (116)
Mexico.................................................. 94 5,434 5,316
Nigeria................................................. 3,597 1,727 734
Qatar................................................... (2,455) -- --
United Kingdom.......................................... 4,766 3,505 1,486
Venezuela............................................... 7,178 6,289 832
Zaire................................................... 2,139 1,613 400
Other................................................... (606) (426) (163)
-------- -------- --------
Total.............................................. $ 11,449 $ 18,163 $ 28,909
======== ======== ========
</TABLE>
F-25
<PAGE> 91
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Unless otherwise indicated, dollar amounts in tables are in thousands, except
per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Identifiable assets
Domestic................................................... $312,099 $404,010 $393,525
International
Canada.................................................. 13,206 12,421 8,416
India................................................... 21,104 20,912 16,422
Mexico.................................................. 32,328 51,167 36,999
Nigeria................................................. 179,934 138,716 140,542
Qatar................................................... 37,506 -- --
United Kingdom.......................................... 15,051 14,147 13,394
Venezuela............................................... 84,042 73,977 64,025
Zaire................................................... 25,023 22,833 21,602
Other................................................... 21,099 1,706 1,628
-------- -------- --------
Total.............................................. $741,392 $739,889 $696,553
======== ======== ========
</TABLE>
Customer A accounted for approximately 11 percent of the Company's
consolidated operating revenues during 1995. Customer B accounted for
approximately 11 percent and 17 percent of the Company's consolidated operating
revenues during 1994 and 1993, respectively. Customer C accounted for
approximately 13 percent of the Company's consolidated operating revenues during
1993.
NOTE 16 -- SUBSEQUENT EVENTS
Subsequent to December 31, 1995, the Company sold for cash a posted barge
rig located in the U.S. Gulf of Mexico. The Company will record a gain on the
sale of this asset of approximately $4,815,000 in the first quarter of 1996.
On March 13, 1996, the Company entered into a letter of intent with Royal
Nedlloyd N.V. and its wholly owned subsidiary, Neddrill Holding B.V. and its
subsidiaries (collectively, "Neddrill"), to acquire the assets, including
$25,000,000 in net working capital, and the personnel used by Neddrill in its
offshore contract drilling, accommodation and other oil and gas exploration and
production related service businesses. The purchase price would be $300,000,000
in cash plus 5,000,000 shares of Noble Drilling common stock. The Company
currently plans to access the public securities markets to finance the cash
portion of the purchase price.
Consummation of the acquisition is subject to customary due diligence,
execution and delivery of an agreement of sale and purchase, financing being
obtained by the Company, and satisfaction of customary closing conditions
expected to be contained in the agreement of sale and purchase.
F-26
<PAGE> 92
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
-------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents....................................... $ 26,338 $ 41,307
Investment in marketable equity securities...................... 6,416 6,131
Investment in marketable debt securities........................ 15,417 17,031
Accounts receivable (net of allowance of $1,307 and $1,280)..... 73,184 60,251
Costs of uncompleted contracts in excess of billings............ 3,717 6,646
Inventories..................................................... 22,825 19,795
Assets held for sale (See Note 6)............................... 31,968 --
Other current assets............................................ 41,811 36,851
-------- --------
Total current assets.................................... 221,676 188,012
-------- --------
PROPERTY AND EQUIPMENT
Drilling equipment and facilities............................... 843,965 871,539
Other........................................................... 24,523 23,891
-------- --------
868,488 895,430
Accumulated depreciation........................................ (342,746) (352,452)
-------- --------
525,742 542,978
-------- --------
OTHER ASSETS...................................................... 10,535 10,402
-------- --------
$757,953 $741,392
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt and current installments of long-term debt...... $ 12,610 $ 12,210
Accounts payable................................................ 35,476 30,782
Accrued payroll and related costs............................... 17,821 13,674
Taxes payable................................................... 13,977 12,953
Interest payable................................................ 5,785 2,860
Other current liabilities....................................... 12,817 13,910
-------- --------
Total current liabilities............................... 98,486 86,389
LONG-TERM DEBT.................................................... 126,048 129,923
OTHER LIABILITIES................................................. 1,015 1,338
MINORITY INTEREST................................................. 973 249
-------- --------
226,522 217,899
-------- --------
SHAREHOLDERS' EQUITY
$1.50 Preferred stock........................................... 4,025 4,025
Common stock.................................................... 9,478 9,455
Capital in excess of par value.................................. 590,255 589,866
Unrealized losses on marketable securities...................... (131) (115)
Minimum pension liability....................................... (3,403) (3,403)
Cumulative translation adjustment............................... (2,343) (2,081)
Accumulated deficit............................................. (64,587) (73,802)
Treasury stock, at cost......................................... (1,863) (452)
-------- --------
531,431 523,493
-------- --------
COMMITMENTS AND CONTINGENCIES..................................... -- --
-------- --------
$757,953 $741,392
======== ========
</TABLE>
See accompanying notes to the interim financial statements.
F-27
<PAGE> 93
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1996 1995
-------- -------
<S> <C> <C>
OPERATING REVENUES
Contract drilling services........................................... $ 60,250 $53,932
Labor contract drilling services..................................... 7,994 10,590
Turnkey drilling services............................................ 33,055 17,178
Engineering and consulting services.................................. 1,762 1,567
Other revenue........................................................ 1,696 1,829
-------- -------
104,757 85,096
-------- -------
OPERATING COSTS AND EXPENSES
Contract drilling services........................................... 38,536 36,119
Labor contract drilling services..................................... 5,925 8,110
Turnkey drilling services............................................ 23,206 16,377
Engineering and consulting services.................................. 1,097 1,457
Other expense........................................................ 900 1,688
Depreciation and amortization........................................ 8,930 8,834
Selling, general and administrative.................................. 12,025 10,556
Impairments, net of gains on asset sales (See Notes 4 and 6)......... 73 --
Minority interest.................................................... (32) (58)
-------- -------
90,660 83,083
-------- -------
OPERATING INCOME....................................................... 14,097 2,013
OTHER INCOME (EXPENSE)
Interest expense..................................................... (3,176) (3,024)
Interest income...................................................... 825 1,492
Other, net........................................................... 483 578
-------- -------
INCOME BEFORE INCOME TAXES............................................. 12,229 1,059
INCOME TAX PROVISION................................................... (1,503) (1,720)
-------- -------
NET INCOME (LOSS)...................................................... 10,726 (661)
PREFERRED STOCK DIVIDENDS.............................................. (1,511) (2,670)
-------- -------
NET INCOME (LOSS) APPLICABLE TO COMMON SHARES.......................... $ 9,215 $(3,331)
======== =======
NET INCOME (LOSS) APPLICABLE TO COMMON SHARES PER SHARE (SEE NOTE 3)... $ 0.10 $ (0.06)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING............................. 95,782 80,066
</TABLE>
See accompanying notes to the interim financial statements.
F-28
<PAGE> 94
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1996 1995
-------- --------
<S> <C> <C>
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net income (loss)................................................... $ 10,726 $ (661)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization.................................... 8,930 8,834
(Gain) loss on sale of assets.................................... (7,716) 206
Loss (gain) on foreign exchange.................................. 215 (494)
Deferred income tax benefit...................................... -- (682)
Asset impairments................................................ 7,600 --
Other............................................................ 439 144
Changes in current assets and liabilities:
Accounts receivable............................................ (13,294) (994)
Other assets................................................... (1,612) (2,612)
Accounts payable............................................... 3,669 2,472
Other liabilities.............................................. 9,079 (2,736)
-------- --------
18,036 3,477
-------- --------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
Purchase of property and equipment.................................. (42,171) (16,082)
Proceeds from sale of property and equipment........................ 14,521 70
Proceeds from sale of (investment in) marketable debt securities.... 1,596 (3,274)
-------- --------
(26,054) (19,286)
-------- --------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
Payment of long-term debt........................................... (3,875) --
Dividends paid on preferred stock................................... (1,509) (2,670)
Issuance of common stock............................................ 456 557
Purchase of shares returned to treasury............................. (2,052) --
Preferred stock conversion payment (See Note 2)..................... -- (1,524)
Proceeds from (payment of) short-term debt.......................... 400 (2,544)
Other............................................................... -- 139
-------- --------
(6,580) (6,042)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH............................... (371) 230
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS................................. (14,969) (21,621)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........................ 41,307 95,163
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD.............................. $ 26,338 $ 73,542
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest......................................................... $ 177 $ --
Income taxes..................................................... $ -- $ 1,494
Noncash investing and financing activities:
Triton acquisition with common stock............................. $ -- $ 1,500
</TABLE>
See accompanying notes to the interim financial statements.
F-29
<PAGE> 95
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in tables are in thousands, except per share amounts)
(unaudited)
NOTE 1 -- BASIS OF ACCOUNTING
The Consolidated Balance Sheet as of March 31, 1996, of Noble Drilling
Corporation ("Noble Drilling" or, together with its consolidated subsidiaries,
unless the context requires otherwise, the "Company"), the related Consolidated
Statements of Operations and Consolidated Statements of Cash Flows for the three
months ended March 31, 1996 and 1995, respectively, are unaudited. In the
opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of such financial statements have
been included. These interim financial statements and notes are presented in
condensed form as permitted by Form 10-Q.
Certain reclassifications have been made in the 1995 consolidated financial
statements to conform to the classifications used in the 1996 consolidated
financial statements. These reclassifications have no impact on net income or
loss.
NOTE 2 -- CONVERSION OF $2.25 CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
In March 1995, an aggregate of 923,862 shares of Noble Drilling's $2.25
Convertible Exchangeable Preferred Stock were converted into 5,006,830 shares of
Noble Drilling common stock. The Company paid an aggregate of approximately
$1,524,000 in cash ("Preferred Conversion Payment") in the first quarter of 1995
in connection with this conversion.
NOTE 3 -- NET INCOME (LOSS) APPLICABLE TO COMMON SHARES PER SHARE
Net income (loss) applicable to common shares per share has been computed
on the basis of the weighted average number of common shares and, where
dilutive, common share equivalents outstanding during the indicated periods. The
calculation of net income (loss) applicable to common shares per share assuming
full dilution was antidilutive; therefore, fully diluted amounts are not
presented. The Preferred Conversion Payment of approximately $1,524,000 in March
1995 was accounted for as a reduction of net earnings applicable to common
shares for purposes of calculating the net loss per common share. This
accounting treatment increased the net loss applicable to common shares per
share from $0.04 to $0.06 for the three months ended March 31, 1995.
NOTE 4 -- ACQUISITION AND SALE OF ASSETS
Consistent with its business strategy, the Company sold two of its posted
barge units during the first quarter of 1996. The Gus Androes, located in the
U.S. Gulf of Mexico ("U.S. Gulf"), was sold for $6,000,000 on January 5, 1996. A
second posted barge unit, the Gene Rosser, located offshore Nigeria was sold for
$13,000,000; payments of $2,000,000 and $8,000,000 were received in the fourth
quarter of 1995 and the first quarter of 1996, respectively. The remaining
proceeds will be received in the second quarter of 1996 ($2,000,000) and the
first quarter of 1997 ($1,000,000). The Company recorded gains of $4,815,000 and
$2,712,000, respectively, related to the sales of these posted barge units in
the first quarter of 1996. The Company's remaining two posted barges are located
offshore Nigeria and are being held for sale (See Note 6).
On February 26, 1996, the Company purchased the Odin Explorer, renamed the
Gus Androes, a 300-foot Levingston III-C independent leg cantilevered unit. The
rig is presently located offshore Sharjah, U.A.E. undergoing refurbishment and
is scheduled to be available for work in the third quarter of 1996. The Company
submitted a tender to an international oil and gas company for a drilling
contract to commence in the third quarter, following refurbishment, for a term
of one year plus two one-year options.
The Company also purchased the Dana, a 250-foot Marathon LeTourneau 82-C
independent leg cantilevered rig, on March 20, 1996. Currently the rig is
employed under a contract with Qatar General Petroleum Corporation (QGPC). Rig
enhancements are scheduled for the latter part of the third quarter
F-30
<PAGE> 96
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
(Dollar amounts in tables are in thousands, except per share amounts)
(unaudited)
upon completion of the current contract. The rig will commence a three-year
contract for QGPC after the scheduled refurbishment is complete.
NOTE 5 -- MARKETABLE SECURITIES
The Company accounts for its investments in debt and equity securities in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 115,
Accounting for Certain Investments in Debt and Equity Securities. Under the
provisions of SFAS No. 115, investments in debt and equity securities are
required to be classified into one of three categories: held to maturity,
available for sale or trading securities. At each reporting date, the
appropriateness of such classification is required to be reassessed. Realized
gains and losses on sales of investments are included in income on a specific
identification basis.
As of March 31, 1996, the Company classified all of its debt securities
with original maturities of more than three months as available for sale. These
investments are classified as current assets on the accompanying consolidated
balance sheets. The following table highlights information applicable to the
Company's investments classified as available for sale as of March 31, 1996 and
December 31, 1995:
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------------
NET
AMORTIZED FAIR UNREALIZED
DEBT SECURITY/MATURITY COST VALUE LOSSES
- ------------------------------------------------------------ ------- ------- -------
<S> <C> <C> <C>
Corporate Obligations:
Mature within 1 year...................................... $ 2,113 $ 2,107 $ (6)
Mature after 1 year through 5 years....................... -- -- --
------- ------- -------
2,113 2,107 (6)
------- ------- -------
U.S. Government Obligations:
Mature within 1 year...................................... 8,206 8,134 (72)
Mature after 1 year through 3 years....................... 5,229 5,176 (53)
------- ------- -------
13,435 13,310 (125)
------- ------- -------
Total............................................. $15,548 $15,417 $ (131)
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------
NET
AMORTIZED FAIR UNREALIZED
DEBT SECURITY/MATURITY COST VALUE LOSSES
- ------------------------------------------------------------ ------- ------- -------
<S> <C> <C> <C>
Corporate Obligations:
Mature within 1 year...................................... $ 1,520 $ 1,520 --
Mature after 1 year through 5 years....................... 7,258 7,214 $ (44)
------- ------- -------
8,778 8,734 (44)
------- ------- -------
U.S. Government Obligations:
Mature after 1 year through 5 years....................... 8,368 8,297 (71)
------- ------- -------
Total............................................. $17,146 $17,031 $ (115)
======= ======= =======
</TABLE>
An allowance for unrealized losses has been included as a reduction of
shareholders' equity. Total realized losses related to short-term investments
amounted to $16,000 and $22,000, for the three months ended March 31, 1996 and
1995, respectively.
F-31
<PAGE> 97
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
(Dollar amounts in tables are in thousands, except per share amounts)
(unaudited)
The Company categorizes its investments in marketable equity securities of
$6,416,000 as trading securities and such investments are classified as current
assets and are recorded at fair value at March 31, 1996. Total net unrealized
gains related to these equity investments at March 31, 1996 were $286,000
compared to net unrealized losses of $202,000 at March 31, 1995.
NOTE 6 -- PROPERTY AND EQUIPMENT
In March 1995, SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, was issued. This statement
requires that long-lived assets and certain identifiable intangibles held and
used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company adopted this standard effective January 1, 1996. In
accordance with SFAS No. 121, the Company recorded an impairment loss of
$7,600,000 in the first quarter of 1996.
The Company is planning to sell its remaining two barges, Lewis Dugger and
Chuck Syring, and these assets have been reduced to their estimated net
realizable value and are classified as assets held for sale at March 31, 1996.
The Company expects the sale of these assets to occur during 1996. These rigs
are currently under contract and contributed gross margins of $1,495,000 during
the first quarter of 1996.
NOTE 7 -- STOCK REPURCHASE
In January 1996, 250,000 shares of common stock were repurchased by the
Company and returned to treasury stock. Subsequent to the repurchase, 108,750
shares of treasury stock were issued to certain employees as restricted stock
under the Company's 1991 Stock Option and Restricted Stock Plan and have been
placed in escrow subject to satisfaction of various performance criteria during
a three-year period.
NOTE 8 -- SUBSEQUENT EVENT
On April 25, 1996, the Company entered into an agreement of sale and
purchase with Royal Nedlloyd N.V. ("Nedlloyd") and its wholly owned subsidiary,
Neddrill Holding B.V., to acquire the offshore contract drilling, accommodation
and other oil and gas exploration and production related service businesses of
Nedlloyd's offshore drilling division ("Neddrill"), including the acquisition of
$25,000,000 in net working capital and the transfer of personnel. The purchase
price is $300,000,000 in cash plus 5,000,000 shares of Noble Drilling common
stock. Consummation of the acquisition is subject to financing being obtained by
the Company and satisfaction of customary closing conditions contained in the
acquisition agreement.
The following table reflects unaudited pro forma consolidated statement of
operations data for the three months ended March 31, 1996 and for the year ended
December 31, 1995 as if the acquisition had occurred at the beginning of these
periods.
<TABLE>
<CAPTION>
THREE
MONTHS YEAR
ENDED ENDED
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
(UNAUDITED)
Operating revenues............................................ $146,193 $449,493
Net income (loss) applicable to common shares................. $ 16,225 $ (2,020)
Net income (loss) applicable to common shares per share....... $ 0.14 $ (0.03)
</TABLE>
F-32
<PAGE> 98
INDEPENDENT AUDITOR'S REPORT
To the Shareholder of Neddrill Holding B.V.
We have audited the consolidated financial statements of Neddrill Holding B.V.
and subsidiaries ("Neddrill") as of December 31, 1995 and 1994 and for each of
the years in the three-year period ended December 31, 1995 as listed in the
accompanying Index to Financial Statements under the heading "Neddrill Holding
B.V." These consolidated financial statements are the responsibility of
Neddrill's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Neddrill as of
December 31, 1995 and 1994, and the results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 1995, in
conformity with generally accepted accounting principles in the United States of
America.
Rotterdam, The Netherlands KPMG ACCOUNTANTS N.V.
February 15, 1996
F-33
<PAGE> 99
NEDDRILL HOLDING B.V.
CONSOLIDATED BALANCE SHEETS
(in thousands of United States dollars (USD) or Netherlands guilders (NLG))
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------
NOTES 1995 1995 1994
----- ------- -------- --------
(USD) (NLG) (NLG)
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash................................................. 3 3,055 4,909 6,437
Receivables.......................................... 4 26,205 42,091 31,851
Inventories.......................................... 5 1,571 2,524 2,698
Prepaid expenses and other assets.................... 6 13,403 21,538 7,800
------- -------- --------
Total current assets................................... 44,234 71,062 48,789
Drilling units and equipment......................... 7 166,750 267,959 183,329
Investments in nonconsolidated companies............. 8 416 669 7,197
Deferred tax assets.................................. 16 10,188 16,390 18,528
------- -------- --------
Total Assets........................................... 221,588 356,080 257,840
======= ======== ========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Accounts payable..................................... 9 11,562 18,579 10,904
Accrued expenses..................................... 12,904 20,737 17,735
Other current liabilities............................ 10 10,292 16,539 23,490
------- -------- --------
Total current liabilities.............................. 34,758 55,855 52,129
Long-term debt......................................... 11 27,014 43,410 57,779
Other long-term liabilities............................ 12 1,328 2,134 1,515
Deferred income........................................ 13 1,636 2,629 4,468
Long-term loans with shareholder....................... 14 238,949 383,978 270,261
Shareholders' Deficit
Common stock, 100,000 shares, nominal value NLG
1,000, authorized and 20,000 shares issued and
outstanding....................................... 12,446 20,000 20,000
Accumulated deficit.................................... (91,326) (146,756) (143,531)
Foreign exchange translation........................... (3,217) (5,170) (4,781)
------- -------- --------
Total shareholders' deficit............................ (82,097) (131,926) (128,312)
------- -------- --------
Total liabilities and shareholders' deficit............ 221,588 356,080 257,840
======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-34
<PAGE> 100
NEDDRILL HOLDING B.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands of United States dollars (USD) or Netherlands guilders (NLG))
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
NOTES 1995 1995 1994 1993
----- ------- ------- ------- -------
(USD) (NLG) (NLG) (NLG)
<S> <C> <C> <C> <C> <C>
Net revenue..................................... 2, 4 121,525 195,283 156,622 226,189
Operating expenses
Salaries, wages and related expenses.......... 19 31,890 51,246 42,543 46,402
Depreciation.................................. 1 18,791 30,196 38,508 49,190
Other operating and administrative expenses... 20 50,889 81,776 82,439 78,358
------- ------- ------- -------
Total operating expenses.............. 101,570 163,218 163,490 173,950
------- ------- ------- -------
Operating income................................ 2 19,955 32,065 (6,868) 52,239
Gain on sale of assets.......................... 184 296 205 74
Equity in (loss) income of unconsolidated
companies..................................... 8 (716) (1,151) 4,165 (3,647)
Interest income................................. 21 178 286 757 3,114
Interest expense shareholder's loans............ 22 (19,100) (30,693) (19,846) (29,635)
Interest expense other.......................... 22 (2,320) (3,729) (4,799) (3,040)
Other financial income and expense.............. 23 3,141 5,048 5,959 808
------- ------- ------- -------
Income (loss) before taxation................... 1,322 2,122 (20,427) 19,913
Taxation on income.............................. 16 (3,327) (5,347) (421) (14,713)
------- ------- ------- -------
Net income (loss)............................... (2,005) (3,225) (20,848) 5,200
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-35
<PAGE> 101
NEDDRILL HOLDING B.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of United States dollars (USD) or Netherlands guilders (NLG))
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1995 1995 1994 1993
------- -------- -------- -------
(USD) (NLG) (NLG) (NLG)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss)..................................... (2,005) (3,225) (20,848) 5,200
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation........................................ 18,791 30,196 38,508 49,190
Amortisation of investment premiums................. (950) (1,839) (2,401) (2,921)
Equity in results of unconsolidated companies....... 716 1,151 (4,165) 3,647
Gain on sale of assets.............................. (184) (296) (205) (74)
Deferred tax provision.............................. 1,330 2,138 4,582 4,591
Change in operating assets and liabilities:
Receivables......................................... (6,372) (10,240) (3,406) 28,057
Inventories......................................... 108 174 (242) (201)
Current liabilities................................. 2,318 3,726 (4,408) 9,900
Other............................................... 1,047 (6,675) 8,963 (331)
------- -------- ------- -------
Net cash provided by operating activities............. 14,799 15,110 16,378 97,058
Cash flows from investing activities
Drilling units and equipment:
Additions........................................... (75,536) (121,382) (7,227) (56,461)
Proceeds from disposal of assets.................... 254 408 227 158
Dividend received from (investments in) unconsolidated
companies........................................... 3,346 5,377 560 (5,050)
------- -------- ------- -------
Net cash (used in) provided by investing activities... (71,936) (115,597) (6,440) (61,353)
Cash flows from financing activities
Net change in long-term loans with shareholder........ 70,766 113,717 2,869 (68,637)
Increase (Repayment) of long-term debt................ (14,579) (14,758) (20,791) 33,093
------- -------- ------- -------
Net cash (used in) provided by financing activities... 56,187 98,959 (17,922) (35,544)
------- -------- ------- -------
Net change in cash.................................... (950) (1,528) (7,984) 161
======= ======== ======= =======
Cash at beginning of period........................... 4,005 6,437 14,421 14,260
======= ======== ======= =======
Cash at end of period................................. 3,055 4,909 6,437 14,421
======= ======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-36
<PAGE> 102
NEDDRILL HOLDING B.V.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
(in thousands of Netherlands guilders, unless otherwise stated)
<TABLE>
<CAPTION>
FOREIGN
EXCHANGE TOTAL
COMMON ACCUMULATED TRANSLATION SHAREHOLDER'S
STOCK DEFICIT ADJUSTMENT EQUITY
------ ----------- ---------- -------------
<S> <C> <C> <C> <C>
Balance at January 1, 1993....................... 20,000 (127,883) 102 (107,781)
Net income....................................... -- 5,200 -- 5,200
Foreign exchange translation
adjustments.................................... -- -- (659) (659)
------ -------- ------ -------
Balance at December 31, 1993..................... 20,000 (122,683) (557) (103,240)
Net loss......................................... -- (20,848) -- (20,848)
Foreign exchange translation
adjustments.................................... -- -- (4,224) (4,224)
------ -------- ------ -------
Balance at December 31, 1994..................... 20,000 (143,531) (4,781) (128,312)
Net income....................................... -- (3,225) -- (3,225)
Foreign exchange translation
adjustments.................................... -- -- (389) (389)
------ -------- ------ -------
Balance at December 31, 1995..................... 20,000 (146,756) (5,170) (131,926)
====== ======== ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-37
<PAGE> 103
NEDDRILL HOLDING B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 BASIS OF PRESENTATION AND ACCOUNTING POLICIES
Basis of presentation
Neddrill Holding B.V. and subsidiaries (Neddrill), a wholly-owned
subsidiary of Royal Nedlloyd N.V., is a drilling contractor engaged in offshore
and onshore exploration drilling and production operations on an international
basis, providing drilling and production services to oil companies world-wide.
Neddrill was established in 1974 under the laws of The Netherlands.
The preparation of financial statements inherently requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
The reporting currency of Neddrill is the Netherlands guilder. Certain
financial statements for the year ended December 31, 1995 have also been
translated into US-dollars solely for convenience at the noon buying rate of the
Federal Reserve Bank of New York on December 31, 1995 of USD 0.6223 per NLG 1.
Principles of consolidation
The consolidated financial statements include the accounts of Neddrill
Holding B.V. and the companies which Neddrill Holding B.V. directly and/or
indirectly controls. Investments in which Neddrill can exercise significant
influence are accounted for by the equity method.
Foreign currencies
Receivables and payables in foreign currency are translated into guilders
at the rates prevailing on the balance sheet date, unless in specific cases the
foreign currency position has been hedged by forward transactions. In that case,
the short-term receivables and payables are valued at the relevant forward
rates. Exchange differences resulting from these short-term receivables and
payables in foreign currency are recorded in the operating result in the period
in which they arise.
The balance sheets of foreign subsidiaries are translated at the year-end
exchange rate. The statements of operations have been translated at the average
exchange rate for the year. Exchange differences in respect of foreign
subsidiaries and long-term financing to or from those subsidiaries are credited
or charged directly to shareholders' equity.
Drilling units and equipment
Drilling units and equipment are stated at historical cost less
straight-line depreciation based on the assets estimated useful life, calculated
from the date of commissioning, and less other devaluations, which are
considered to be permanent. In 1995 Neddrill undertook a review of the useful
lives of its drilling units. Neddrill determined that as a result of
preventative maintenance programs it has had in place, the actual lives of its
drilling units were generally longer than the useful lives for depreciation
purposes. Therefore, Neddrill extended the estimated useful lives of its
drilling units, effective January 1, 1995, from 15 years to 20 years. The effect
of this change in accounting estimate reduced depreciation expense for the year
ended December 31, 1995 by NLG 17 million and increased net income by NLG 13
million.
F-38
<PAGE> 104
NEDDRILL HOLDING B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The applicable terms of depreciation are as follows:
<TABLE>
<S> <C>
Drilling units........................... 20 years
Accommodation unit....................... dependent on use, on a daily basis
Dockings................................. 3-5 years
Technical equipment a.o. drillstring..... 4-15 years, dependent on use
Upgrades................................. remaining lifetime rig
Client modifications as from 1995........ remaining lifetime rig
Client modifications before 1995......... term of the project
Spare equipment.......................... no depreciation.
</TABLE>
The depreciation methods are applied taking into account residual values of
drilling units ranging from NLG 3.9 million to NLG 10 million depending on the
size and the expected proceeds at the end of the useful lifetimes. The total
estimated residual value of the fleet at December 31, 1995 amounts to NLG 59.2
million. Tangible fixed assets under construction are included at the amounts
invoiced.
At the date of purchase of a drilling unit, initial spare parts on board
are capitalised as a component of the purchase price. All subsequent spare parts
purchased are expensed as repair and maintenance.
Other tangible fixed assets
This category of assets is stated at historical cost less straight-line
depreciation calculated from the date of commissioning.
The following depreciation periods are applied:
<TABLE>
<S> <C>
Automation (hard and software)........... 5 years
Office equipment and others.............. 2-5 years
Motor vehicles........................... 3 years
</TABLE>
Investments in non-consolidated companies
These financial fixed assets are valued at the corresponding part of the
shareholders' equity according to the balance sheet of the joint-venture,
converted into NLG at the exchange rate prevailing on the balance sheet date;
currency differences are taken into equity.
Current assets
Current assets are valued as follows:
Inventory is stated at the lower of cost or net realisable value, taking
in account a provision for obsolescence, when necessary;
Receivables are stated at face value, less a provision for doubtful
accounts, when appropriate; and
Cash and bank balances are stated at face value. Cash represents amounts
with a maturity of 3 months or less at origination.
Liabilities
Liabilities and provisions are stated at face value.
Deferred income
Amounts received or offset against tax payable in respect of drilling units
under the Investment Account Act and the Investment Premium Scheme for the
maritime shipping industry are amortised over the whole or
F-39
<PAGE> 105
NEDDRILL HOLDING B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
remaining estimated life of the asset, with a maximum of fifteen years
commencing on the date of commissioning or date of settlement, by means of a
degressive method.
The premium received or offset against tax payable for the other fixed
assets is credited to the operating result on a straight line method over their
(remaining) useful life with a maximum of five years.
Revenue recognition
Substantially all of Neddrill's revenues are earned under contracts, which
provide daily charter rates. Revenue is recognised on a daily basis in
accordance with the terms of Neddrill's contracts.
Operating costs on contracts in progress at year-end are allocated to the
respective years on a proportional basis.
Taxation
Provisions for income taxes include deferred taxes resulting from temporary
differences in income for financial and tax purposes, using the liability
method. Such temporary differences result primarily from differences in the
carrying value of assets and liabilities.
Although Neddrill is for Dutch tax purposes included in a fiscal unity with
the Royal Nedlloyd N.V. the provision for income taxes is stated in the
financial statements as if Neddrill is a stand-alone taxable entity.
Accounting standards issued not yet adopted
During 1995 the Financial Accounting Standards Board in the United States
issued Statement of Financial Standards No. 121, "Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121").
Neddrill is required to adopt SFAS 121 in 1996. Neddrill does not presently
envisage any financial statement impact as a consequence of adoption of such
statement.
2 GEOGRAPHIC DATA
Geographic data
The information presented below concerning net sales, operating income and
identifiable assets of the consolidated companies illustrates the geographic
pattern of Neddrill's operations.
<TABLE>
<CAPTION>
NET SALES BY ORIGIN
-------------------------------
1995 1994 1993
------- ------- -------
(IN NLG 1,000)
<S> <C> <C> <C>
European Community countries.......................... 137,920 93,264 142,370
Other European countries.............................. -- 16,758 49,887
The Americas.......................................... 48,053 25,629 29,718
Asia Pacific and Africa............................... 9,310 20,971 4,214
------- ------- -------
Total................................................. 195,283 156,622 226,189
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
OPERATING INCOME BY REGION
--------------------------------
1995 1994 1993
------- -------- -------
(IN NLG 1,000)
<S> <C> <C> <C>
European Community countries......................... 30,092 (15,588) 36,682
Other European countries............................. -- 2,506 6,732
The Americas......................................... 5,213 9,688 8,825
Asia Pacific and Africa.............................. (3,240) (3,474) --
------- -------- -------
Total................................................ 32,065 (6,868) 52,239
======= ======== =======
</TABLE>
F-40
<PAGE> 106
NEDDRILL HOLDING B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
IDENTIFIABLE ASSETS
--------------------------------
1995 1994 1993
------- -------- -------
(IN NLG 1,000)
<S> <C> <C> <C>
European Community countries......................... 227,069 178,523 223,375
Other European countries............................. -- 659 8,633
The Americas......................................... 51,521 21,082 17,087
Asia Pacific and Africa.............................. 76,821 50,379 52,586
------- -------- -------
355,411 250,643 301,681
Non-consolidated companies........................... 669 7,197 3,592
------- -------- -------
Total................................................ 356,080 257,840 305,273
======= ======== =======
</TABLE>
3 CASH AND BANK BALANCES
<TABLE>
<CAPTION>
DECEMBER 31
---------------
1995 1994
----- -----
(IN NLG 1,000)
<S> <C> <C>
Cash, bank, giro and money on call................................... 4,909 6,437
===== =====
</TABLE>
The balance as at December 31, 1995 and 1994, includes a retention account
of USD 700,000 and USD 1,270,000, respectively, and a survey account of USD
240,000 and USD 1,350,000, respectively.
The retention account is a collection account maintained throughout the
term of the loan agreement with banks to secure repayment of the loan and
interest due. As the related loan matures on April 1, of each year such
retention account has been classified as cash. Under the survey account money
may only be drawn for the payment of costs of periodical survey and/or
drydocking and the costs of the repairs necessary to meet the recommendations
(if any) as a result of such surveys.
4 RECEIVABLES
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1995 1994
------ ------
(IN NLG 1,000)
<S> <C> <C>
Trade.............................................................. 42,054 26,592
Related parties.................................................... 37 5,259
------ ------
Total.............................................................. 42,091 31,851
====== ======
</TABLE>
The trade receivables balance is net of an allowance for doubtful amounts
of NLG 361,000 and NLG 151,000 as of December 31, 1995 and 1994, respectively.
Significant customers
Neddrill conducts a significant portion of its business with customers,
which individually represent more than 10% of Neddrill's revenues.
For the year ended December 31, 1995 revenues aggregating 65.8% were earned
from five such customers (17.7%, 13.1%, 12.1%, 11.7% and 11.2%, individually).
For the year ended December 31, 1994 two such customers represented 36.1% (18.5%
and 17.6%, individually) and for the year ended December 31, 1993 five such
customers represented 87.4% (27.9%, 20.9%, 14,9%, 13.0% and 10.7%, individually)
of Neddrill's revenues.
F-41
<PAGE> 107
NEDDRILL HOLDING B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition, at December 31, 1995 and 1994 such significant customers
represented, in the aggregate, 60.4% and 44.9% respectively, of trade accounts
receivable.
Contract termination
In August 1993 the long-term drilling contract related to the Neddrill-4
was terminated. The contract termination was initiated by the operator due to
the fact that the day rates as specified by the 15 years contract were
significantly above market day rates. Neddrill agreed to the termination on the
condition that the operator pays Neddrill a lump-sum amount of approximately NLG
38.3 million. This payment was received by Neddrill in 1993 and recognised as
net revenue in the statement of operations for the period ended December 31,
1993. Immediately following the contract termination, Neddrill re-contracted the
rig to another party at current market rates.
Related party transactions
Related party receivables consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------
1995 1994
---- -----
(IN NLG 1,000)
<S> <C> <C>
Related parties........................................................ 37 27
Current income taxes................................................... -- 5,232
-- -----
37 5,259
== =====
</TABLE>
Interest is not charged on the receivables from related parties due to
their short-term nature.
For the current income taxes, reference is made to note 9 accounts payable.
5 INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31
---------------
1995 1994
----- -----
(IN NLG 1,000)
<S> <C> <C>
Goods held for resale................................................ 830 830
On-shore spare parts and other inventories........................... 1,694 1,868
----- -----
Total................................................................ 2,524 2,698
===== =====
</TABLE>
Inventories consist principally of wellhead equipment, fuel, lubricants and
on-shore spare parts.
6 PREPAID EXPENSES AND OTHER CURRENT ASSETS
These items include in 1995 an UK-VAT claim of NLG 2.9 million (1994: NLG
2.4 million) and a claim of NLG 13.3 million (1994: nil) from an insurance
company. The latter relates to the loss of the "Neddrill 1" B.O.P.-stack during
operations offshore West Africa in June 1995 and includes direct damage costs
paid and salvage fees. Neddrill's total claim against the insurance company,
including the to be replaced (in 1996) lost and damaged riser equipment, is
estimated at approx. USD 13.5 million and is presently under review by and
discussed with the insurance agencies. Management of Neddrill believes such
insurance claim is fully recoverable and has not received any indications that
the insurance company will dispute their claim.
F-42
<PAGE> 108
NEDDRILL HOLDING B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7 DRILLING UNITS AND EQUIPMENT
<TABLE>
<CAPTION>
MACHINERY,
EQUIPMENT CONSTRUCTION
DRILLING UNITS AND OTHER IN PROGRESS TOTAL
-------------- --------- ------------ --------
(IN NLG 1,000)
<S> <C> <C> <C> <C>
At December 31, 1995
Cost............................................ 936,296 24,271 1,173 961,740
Accumulated depreciation........................ (673,306) (20,475) -- (693,781)
-------- ------- ----- --------
Book value...................................... 262,990 3,796 1,173 267,959
======== ======= ===== ========
At December 31, 1994
Cost............................................ 848,972 23,736 -- 872,708
Accumulated depreciation........................ (669,759) (19,620) -- (689,379)
-------- ------- ----- --------
Book value...................................... 179,213 4,116 -- 183,329
======== ======= ===== ========
</TABLE>
8 INVESTMENTS IN NON-CONSOLIDATED COMPANIES
These represent Neddrill's 33 1/3% participation in a joint venture with
Cliffs Drilling International Inc. and Perforada Central S.A.
The movements are:
<TABLE>
<CAPTION>
1995 1994
------ -----
(IN NLG 1,000)
<S> <C> <C>
Opening balance............................................................. 7,197 3,592
Dividends received.......................................................... (4,800) --
Share results............................................................... (1,151) 4,165
Translation adjustments..................................................... (577) (560)
------ -----
Closing balance............................................................. 669 7,197
====== =====
</TABLE>
The loss of NLG 1,151,000 shown is Neddrill Holding's share in the net
result, calculated after deduction of taxation on profit.
This joint venture performs turnkey projects in Mexico, which includes
eight well programs as from the end of 1992 until September 1995.
9 ACCOUNTS PAYABLE
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1995 1994
------ ------
(IN NLG 1,000)
<S> <C> <C>
Trade...................................................................... 13,175 9,913
Related parties............................................................ 2,098 991
Current income taxes....................................................... 3,306 --
------ ------
18,579 10,904
====== ======
</TABLE>
Related party transactions
The Royal Nedlloyd group companies provide various administrative services
on behalf of Neddrill. These services primarily consist of crewing and sea
freight services, technical support, treasury and financial management and
administrative functions.
F-43
<PAGE> 109
NEDDRILL HOLDING B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Royal Nedlloyd group policy is that such inter-company transactions
should be on third-party terms. In the opinion of management of Neddrill, such
charges are representative of the cost of services Neddrill would incur if it
were operating as a stand-alone entity or as an affiliate of another entity.
Accordingly, the Royal Nedlloyd companies charged Neddrill NLG 1.0 million, NLG
1.0 million and NLG 1.5 million for the years ended December 31, 1995, 1994 and
1993, respectively, related to these services. These charges have been included
as other operating and administrative expenses in the consolidated statements of
operations.
For a contract carried out in Argentina in 1995 Neddrill has been operating
via a French legal entity (subsidiary) of Royal Nedlloyd N.V. Revenues of NLG
1.8 million and the result of NLG 0.1 million is accounted for as part of the
operating result of Neddrill. The outstanding balance related to this entity
amounts NLG 0.4 million.
Interest is not charged on the outstanding balances due to their short-term
nature.
As described in note 1, Neddrill is in a fiscal unity with the Royal
Nedlloyd N.V. The current income tax payable (1994: receivable) is due from
Royal Nedlloyd N.V. and represents Neddrill's share of the fiscal unity's
current income tax benefit. Interest is charged on these balances at current
market interest rates as determined by Royal Nedlloyd N.V.
10 OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1995 1994
------ ------
(IN NLG 1,000)
<S> <C> <C>
Taxation and social security....................................... 1,210 802
Current instalments long-term debt................................. 10,496 12,167
Current portion of other long-term liabilities..................... 1,992 6,630
Other.............................................................. 2,841 3,891
------ ------
16,539 23,490
====== ======
</TABLE>
11 LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1995 1994
------- -------
(IN NLG 1,000)
<S> <C> <C>
Bank loans....................................................... 45,264 60,639
Other loans...................................................... 4,374 5,510
------- -------
49,638 66,149
Less: Current instalments........................................ (10,496) (12,167)
------- -------
39,142 53,982
Related party loan............................................... 4,268 3,797
------- -------
43,410 57,779
======= =======
</TABLE>
The bank loans are denominated in US dollars and are secured by mortgages
on the "Neddrill Trigon" and "Neddrill 1". Additionally both Trigon Inc. and
Neddrill Workship Inc. granted the following securities to the lenders:
First preferred assignment of earnings
First preferred assignment of relevant insurance policies
F-44
<PAGE> 110
NEDDRILL HOLDING B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pledge of any reserve held in retention accounts
Pledge of earnings and retention accounts.
Such bank loans contain covenants (some in conjunction with Neddrill):
Assets Protection Claus of 130%.
No dividends or intercompany loans to be paid to the shareholders of
Trigon Inc., respectively, Neddrill Workship Inc. without prior
written consent of the banks.
Commercial and technical management of the rig by a company controlled
by Neddrill Holding B.V. on terms acceptable to the banks.
Change in shareholders only in consent with the banks.
Requirement to keep the rig in class and free of recommendations.
Minimum Neddrill Holding's working capital of USD 6.5 million.
In conjunction with the bank loans, Neddrill has entered into an interest
rate swap agreement with the same financial institution issuing the bank loans,
to exchange the variable interest due under the bank loans for a fixed amount of
interest. The notional amount of the swap agreement is the same as the balance
of the underlying bank loans. Accordingly, the rate of interest for the bank
loans in 1995 and 1994 averaged approximately 6%.
The aggregate maturity of the bank loans as of December 31, 1995 is as
follows:
<TABLE>
<CAPTION>
(IN NLG 1,000)
--------------
<S> <C>
Year ending December 31:
1996............................................................ 10,496
1997............................................................ 10,496
1998............................................................ 15,456
1999............................................................ 4,416
2000............................................................ 4,400
Thereafter........................................................... --
-------
45,264
=======
</TABLE>
The other loans are denominated in US dollars and relate to the drilling
vessel "Neddrill 1".
A part of the loan -- USD 2,333,333 -- has a repayment schedule of seven
yearly equal instalments of USD 333,333 on December 31, of each year.
Another part of the loan -- USD 400,567 -- has a repayment schedule, which
is depending on the day rate of the "Neddrill 1". The first repayment is due in
January 1997.
The rate of interest for both loan amounts are day-rate dependent with a
maximum of 7%.
The long-term loan granted by a related party (Faxion B.V.) amounts to NOK
16,829,658 (equivalent NLG 4,268,000) and has no agreed redemption scheme.
The rate of interest at December 31, 1995 amounts to 10%.
F-45
<PAGE> 111
NEDDRILL HOLDING B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12 OTHER LONG-TERM LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1995 1994
------ ------
(IN NLG 1,000)
<S> <C> <C>
Provisions for:
Repair and survey costs............................................ 3,992 8,065
Early retirement schemes........................................... 134 80
------ ------
4,126 8,145
Less: Balance classified as current................................ (1,992) (6,630)
------ ------
Balance classified as long-term.................................... 2,134 1,515
====== ======
</TABLE>
The provision for repair and survey costs is intended to amortise
periodically recurring repair and survey costs over the years to which they
relate and is calculated on a proportional basis.
The movements in the provision for repair and survey costs can be specified
as follows:
<TABLE>
<CAPTION>
1995 1994
------- ------
(IN NLG 1,000)
<S> <C> <C>
Opening balance................................................... 8,065 5,273
Additions......................................................... 6,313 9,500
Payments.......................................................... (10,386) (6,708)
------- ------
Closing balance................................................... 3,992 8,065
======= ======
</TABLE>
13 DEFERRED INCOME
Investment premiums not yet credited to the operating result are included
under this heading. Movements during the year:
<TABLE>
<CAPTION>
1995 1994
------ ------
(IN NLG 1,000)
<S> <C> <C>
Opening balance.................................................... 4,468 6,869
Amortisation....................................................... (1,839) (2,401)
------ ------
Closing balance.................................................... 2,629 4,468
====== ======
</TABLE>
F-46
<PAGE> 112
NEDDRILL HOLDING B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14 LONG-TERM LOANS WITH SHAREHOLDER
The composition of long-term loans with shareholder is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1995 1994
------- -------
(IN NLG 1,000)
<S> <C> <C>
Subordinated debt, interest determined by shareholder annually
(8.75% and 7.5% in 1995 and 1994, respectively), no fixed
repayment date................................................. 228,751 228,751
Subordinated debt of USD 24,675,000, interest at Libor + 1.25%
(9.25% in 1995), with a redemption scheme of eleven annual
instalments of USD 2,000,000 for the first time due on December
31, 1996 and a final repayment of USD 2,675,000................ 39,480 --
Long-term debt of USD 24,675,000, interest at Libor + 0.75%
(8.75% in 1995) with a similar redemption scheme............... 39,480 --
Long-term debt, interest at AIBOR + 0.75% (average rate of 5.53%
and 7.76% in 1995 and 1994, respectively), maturing in
semi-annual instalments of NLG 3.1 million with a final payment
due on June 30, 1997........................................... 9,300 15,500
Long-term loan, interest determined by shareholder annually
(7.26% and 7.76% in 1995 and 1994, respectively), no fixed
repayment date................................................. 66,967 26,010
------- -------
383,978 270,261
======= =======
</TABLE>
The aggregate maturity of this debt as of December 31, 1995 is as follows:
<TABLE>
<CAPTION>
(IN NLG 1,000)
--------------
<S> <C>
Year ending December 31:
1996................................................................... 12,600
1997................................................................... 9,500
1998................................................................... 6,400
1999................................................................... 6,400
2000................................................................... 6,400
Thereafter............................................................. 46,960
No fixed repayment date................................................ 295,718
-------
383,978
=======
</TABLE>
Interest expense related to the long-term loans due to the shareholder
amounted to NLG 30.69 million, NLG 19.85 million and NLG 29.63 million for the
years ended December 31, 1995, 1994 and 1993, respectively.
F-47
<PAGE> 113
NEDDRILL HOLDING B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15 COMMITMENTS AND CONTINGENT LIABILITIES
Lease commitments
Obligations under long-term non-cancellable operating leases for each of
the next five years and thereafter are as follows:
<TABLE>
<CAPTION>
(IN NLG 1,000)
<S> <C>
1996................................................................... 4,186
1997................................................................... 581
1998................................................................... 101
-----
4,868
</TABLE>
Rental expense charged to operations for the years ended December 31, 1995,
1994 and 1993 were NLG 8,076,000, NLG 11,540,000 and NLG 14,513,000,
respectively.
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1995 1994
------- -------
(IN NLG 1,000)
<S> <C> <C>
Capital expenditure commitments.................................. 27,442 94,687
Guarantees....................................................... 800 10,569
</TABLE>
Litigation
In Norway, Neddrill is currently in litigation against a tax claim of USD
3.8 million, which has been levied against the operations of the "Neddrill
Trigon" in 1989 and 1990. On February 5, 1996 the Norwegian High Court has given
a judgement, which may lead to a total tax claim for both years of USD 600,000.
In Denmark, Neddrill is in discussions with the Danish tax authorities
regarding the treatment of approximately USD 1.6 million in revenues relating to
the operation of the "Neddrill Trigon" in 1987 through 1989. Neddrill and its
Danish tax advisers believe that Trigon Contracting AG is not taxable in Denmark
during the years in question, and that only the agency fee of Neddrill Nederland
B.V. (which sustained a small loss during this period) should be taxable.
Management believes there is no other pending material litigation and is
confident, that the outcome of these procedures will be favourable and within
the amounts provided for in the financial statements.
Neddrill has not had any material environmental incidents with any of its
drilling units. Management believes Neddrill is in compliance with all relevant
environmental regulations.
16 TAXATION ON INCOME
Pre-tax income (loss) is analysed over its component parts as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN NLG 1,000)
<S> <C> <C> <C>
The Netherlands....................................... 18,161 (411) 36,223
Foreign............................................... (16,039) (20,016) (16,310)
------- ------- -------
2,122 (20,427) 19,913
======= ======= =======
</TABLE>
F-48
<PAGE> 114
NEDDRILL HOLDING B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Taxation expense (benefit) is allocated between current and deferred as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
----- ------ ------
(IN NLG 1,000)
<S> <C> <C> <C>
The Netherlands
Current tax............................................. 3,750 (4,839) 10,071
Deferred tax............................................ 2,138 4,582 4,591
----- ------ ------
Foreign................................................... 5,888 (257) 14,662
Current................................................. (541) 678 51
----- ------ ------
5,347 421 14,713
===== ====== ======
</TABLE>
The amounts of deferred taxes stated in the consolidated balance sheets
relate to:
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN NLG 1,000)
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards................................. 12,660 12,400
Depreciation..................................................... 16,389 18,528
------- -------
29,049 30,928
Less: Valuation allowance........................................ (12,660) (12,400)
------- -------
Net deferred tax assets.......................................... 16,390 18,528
======= =======
</TABLE>
At December 31, 1995 Neddrill had net operating loss carryforwards, which
are available to offset future taxable income if any, in the United Kingdom of
NLG 38.0 million. Such net operating loss carry forwards have no expiration
date.
Neddrill's valuation allowance for deferred tax assets as of December 31,
1995 and 1994, which relates entirely to Neddrill's net operating loss carry
forward in the United Kingdom, was NLG 12.7 million and NLG 12.4 million,
respectively. The net increase in the total valuation allowance for the years
ended December 31, 1995, 1994 and 1993 was (including the effects of foreign
currency translations) NLG 260,000, NLG 7.2 million and NLG 4.6 million,
respectively. The ultimate realisation of Neddrill's net operating loss carry
forwards in the United Kingdom is dependent upon the generation of future
taxable income in such jurisdiction. As Neddrill has not generated taxable
income in the United Kingdom since inception of its operations there, Management
believes it more likely than not that in the near future Neddrill will not
realise the benefit of such net operating loss carry forwards. Accordingly,
Neddrill has recorded a 100% valuation allowance against its United Kingdom net
operating loss carry forwards at December 31, 1995, 1994 and 1993.
The table below reconciles the expected corporate income taxation in The
Netherlands to the effective consolidated income taxation expense:
<TABLE>
<CAPTION>
1995 1994 1993
----- ------ ------
(IN NLG 1,000)
<S> <C> <C> <C>
Expected corporate taxation expense in The Netherlands.... 743 (7,149) 6,970
Foreign tax rate differential............................. 3,261 909 1,998
Increase in valuation allowance........................... 1,410 8,231 2,485
Non-deductible expenses................................... 55 57 3,326
Non-taxable investment grant income....................... (464) (608) (742)
Results from non-consolidated companies................... 402 (1,458) 1,276
Other..................................................... (60) 439 (600)
----- ------ ------
5,347 421 14,713
===== ====== ======
</TABLE>
F-49
<PAGE> 115
NEDDRILL HOLDING B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17 DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, receivables and current liabilities
approximate fair value because of the short maturity of those investments. The
fair value of Neddrill's long-term debt does not materially differ from the
carrying value.
18 SUPPLEMENTAL CASH FLOW DISCLOSURES
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
(IN NLG 1,000)
<S> <C> <C> <C>
Cash paid (received) during the year for:
Interest on shareholder's loans........................ 30,693 19,846 29,635
Other interest expense................................. 3,729 4,799 3,040
Income taxes paid...................................... 3,552 8,547 1,003
</TABLE>
19 SALARIES, WAGES AND RELATED EXPENSES
The composition is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
(IN NLG 1,000)
<S> <C> <C> <C>
Salaries and wages....................................... 47,487 39,687 43,129
Pension costs............................................ 1,002 967 1,008
Social security costs.................................... 2,757 1,889 2,265
------ ------ ------
51,246 42,543 46,402
====== ====== ======
</TABLE>
Neddrill's domestic on-shore employees participate in the Royal Nedlloyd
N.V. defined benefit pension plan. Separate actuarial valuations for Neddrill's
participation in this plan are not available. There were no contributions
required to be made by Nedlloyd to the pension plan for the years ended December
31, 1995, 1994 and 1993, as such Neddrill was also not charged for their
participation in the plan for these years.
Neddrill's offshore employees principally participate in a third-party
sponsored defined benefit scheme. Due to the nature of this pension plan under
which (coming) backservice is not applicable, Neddrill's liability under such
scheme is not material to the financial position of Neddrill. During the years
ended December 31, 1995, 1994 and 1993 Neddrill was charged NLG 1,002,000, NLG
967,000 and NLG 1,008,000 by the third-party for its participation in the plan.
F-50
<PAGE> 116
NEDDRILL HOLDING B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20 OTHER OPERATING EXPENSES
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
(IN NLG 1,000)
<S> <C> <C> <C>
Labour costs third parties............................... 14,590 12,324 12,396
Lease and rental equipment............................... 3,654 5,127 7,043
Bareboat charter hire.................................... 4,422 6,413 7,470
Insurance costs.......................................... 7,175 7,098 6,740
Repair and maintenance................................... 26,591 24,618 19,866
Crewchange expenses...................................... 5,448 3,890 2,499
Catering expenses........................................ 7,511 7,685 7,930
Corporate restructuring costs............................ -- -- 9,414
Salvage fee.............................................. (4,102) -- --
Other operating costs.................................... 18,602 18,042 8,379
------ ------ ------
83,891 85,197 81,737
Amortization of investment premiums...................... (2,115) (2,758) (3,379)
------ ------ ------
81,776 82,439 78,358
====== ====== ======
</TABLE>
21 INTEREST INCOME
The composition is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
(IN NLG 1,000)
<S> <C> <C> <C>
Royal Nedlloyd N.V....................................... -- 487 2,745
Third parties............................................ 286 270 369
--- --- -----
286 757 3,114
=== === =====
</TABLE>
22 INTEREST EXPENSES
The composition is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
(IN NLG 1,000)
<S> <C> <C> <C>
Royal Nedlloyd N.V....................................... 30,693 19,846 29,635
Other Nedlloyd companies................................. 387 301 --
Third parties............................................ 3,342 4,498 3,040
------ ------ ------
34,422 24,645 32,675
====== ====== ======
</TABLE>
23 OTHER FINANCIAL INCOME AND EXPENSE
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
(IN NLG 1,000)
<S> <C> <C> <C>
Hedging result........................................... 6,507 6,140 --
Currency exchange difference............................. (1,459) (181) 808
------ ----- ---
5,048 5,959 808
====== ===== ===
</TABLE>
Under an agreement with the Royal Nedlloyd N.V., Neddrill hedged its
estimated 1995 and 1994 surplus USD cash flow against a rate of exchange of USD
1 equalling NLG 1.75 (1994 at USD 1 equalling NLG 2.00). Such agreements are
closed out before the end of each year.
F-51
<PAGE> 117
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following financial statements provide unaudited pro forma consolidated
balance sheet data as of March 31, 1996 and unaudited pro forma consolidated
statement of operations data for the three months ended March 31, 1996 and for
the year ended December 31, 1995. These unaudited pro forma consolidated
financial data give effect to (i) the completion of the Acquisition, and (ii)
the completion of the Equity Offerings and the Debt Offering and the application
of the estimated net proceeds therefrom as described elsewhere in this
Prospectus, as if each had occurred, in the case of the balance sheet data, on
March 31, 1996, and in the case of the operations statement data, on January 1,
1995. Pursuant to the Acquisition, the Company will acquire Neddrill's assets
including $25,000,000 in net working capital, and the personnel it employs.
The following unaudited pro forma consolidated financial data may not be
indicative of what the financial condition or results of operations of the
Company would have been, had the transactions to which such data give effect
been completed on the dates assumed, nor are such data necessarily indicative of
the financial condition or results of operations of the Company that may exist
in the future. The following unaudited pro forma consolidated information should
be read in conjunction with the historical financial statements and notes
thereto appearing elsewhere in this Prospectus.
F-52
<PAGE> 118
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
(In thousands)
<TABLE>
<CAPTION>
ADJUSTMENTS
-------------------------------------
THE THE EQUITY THE DEBT PRO FORMA
COMPANY ACQUISITION OFFERINGS OFFERING COMBINED
-------- ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................. $ 26,338 $(262,867)A $214,668B $122,150C $ 100,289
Investment in marketable equity securities............ 6,416 -- -- -- 6,416
Investment in marketable debt securities.............. 15,417 -- -- -- 15,417
Accounts receivable................................... 73,184 32,379 A -- -- 105,563
Costs of uncompleted contracts in excess of
billings............................................ 3,717 -- -- -- 3,717
Inventories........................................... 22,825 1,423 A -- -- 24,248
Assets held for sale.................................. 31,968 -- -- -- 31,968
Other current assets.................................. 41,811 13,998 A -- -- 55,809
-------- ----------- ---------- -------- ----------
Total current assets............................ 221,676 (215,067) 214,668 122,150 343,427
-------- ----------- ---------- -------- ----------
PROPERTY AND EQUIPMENT
Drilling equipment and facilities..................... 843,965 325,000 A -- -- 1,168,965
Other................................................. 24,523 -- -- -- 24,523
-------- ----------- ---------- -------- ----------
868,488 325,000 -- -- 1,193,488
Accumulated depreciation.............................. (342,746) -- -- -- (342,746)
-------- ----------- ---------- -------- ----------
525,742 325,000 -- -- 850,742
-------- ----------- ---------- -------- ----------
OTHER ASSETS............................................ 10,535 -- -- 2,850 C 13,385
-------- ----------- ---------- -------- ----------
$757,953 $ 109,933 $214,668 $125,000 $1,207,554
======== ========== ========== ======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt and current installments of long-term
debt................................................ $ 12,610 -- -- -- $ 12,610
Accounts payable...................................... 35,476 8,852 A -- -- 44,328
Accrued payroll and related costs..................... 17,821 14,276 A -- -- 32,097
Taxes payable......................................... 13,977 -- -- -- 13,977
Interest payable...................................... 5,785 -- -- -- 5,785
Other current liabilities............................. 12,817 36,805 A -- -- 49,622
-------- ----------- ---------- -------- ----------
Total current liabilities....................... 98,486 59,933 -- -- 158,419
LONG-TERM DEBT.......................................... 126,048 -- -- $125,000C 251,048
OTHER LIABILITIES....................................... 1,015 -- -- -- 1,015
MINORITY INTEREST....................................... 973 -- -- -- 973
-------- ----------- ---------- -------- ----------
226,522 59,933 -- 125,000 411,455
-------- ----------- ---------- -------- ----------
SHAREHOLDERS' EQUITY
Preferred stock....................................... 4,025 -- -- -- 4,025
Common stock.......................................... 9,478 $ 500 A $ 1,650B -- 11,628
Capital in excess of par value........................ 590,255 49,500 A 213,018B -- 852,773
Unrealized losses on marketable securities............ (131) -- -- -- (131)
Minimum pension liability............................. (3,403) -- -- -- (3,403)
Cumulative translation adjustment..................... (2,343) -- -- -- (2,343)
Accumulated deficit................................... (64,587) -- -- -- (64,587)
Treasury stock, at cost............................... (1,863) -- -- -- (1,863)
-------- ----------- ---------- -------- ----------
531,431 50,000 214,668 -- 796,099
-------- ---------- ---------- -------- ----------
$757,953 $ 109,933 $214,668 $125,000 $1,207,554
======== ========== ========== ======== ==========
</TABLE>
- ---------------
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
A -- To record the purchase of nine offshore drilling units, related drilling
assets and $25,000,000 of net working capital pursuant to the Acquisition
for a purchase price of $300,000,000 in cash plus 5,000,000 shares of
Common Stock based on an issue price of $10.00 per share. The net working
capital has been determined based on historical financial information for
Neddrill Holding B.V. at March 31, 1996 derived from unaudited financial
statements furnished by Neddrill Holding B.V. The actual net working
capital component balances will be determined upon closing of the
Acquisition, and the balance of any specific component may vary from the
amounts presented. The net effect of changes may reflect a reduction in
actual post-closing cash and cash equivalents.
B -- To record the issuance of Common Stock pursuant to the Equity Offerings and
the application of assumed net proceeds of $214,668,000 (16,500,000 shares
at $13.625 per share less underwriting discount and expenses estimated at
$10,144,500) to partially fund the Acquisition.
C -- To record the assumed net proceeds from the issuance of $125,000,000
aggregate principal amount of Senior Notes (net of underwriting discount
and expenses estimated at $2,850,000).
F-53
<PAGE> 119
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
ADJUSTMENTS
---------------------------------------
THE THE EQUITY THE DEBT PRO FORMA
COMPANY NEDDRILL(A) ACQUISITION OFFERINGS OFFERING COMBINED
-------- ----------- ----------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES
Contract drilling services........... $ 60,250 $ 38,952 -- -- -- $ 99,202
Labor contract drilling services..... 7,994 -- -- -- -- 7,994
Turnkey drilling services............ 33,055 -- -- -- -- 33,055
Engineering and consulting
services........................... 1,762 -- -- -- -- 1,762
Other revenue........................ 1,696 2,484 -- -- -- 4,180
-------- -------- ------- ------- -------- --------
104,757 41,436 -- -- -- 146,193
-------- -------- ------- ------- -------- --------
OPERATING COSTS AND EXPENSES
Contract drilling services........... 38,536 21,692 $ (150)B,C -- -- 60,078
Labor contract drilling services..... 5,925 -- -- -- -- 5,925
Turnkey drilling services............ 23,206 -- -- -- -- 23,206
Engineering and consulting
services........................... 1,097 -- -- -- -- 1,097
Other expense........................ 900 1,613 -- -- -- 2,513
Depreciation and amortization........ 8,930 4,858 459 D -- -- 14,247
Selling, general and
administrative..................... 12,025 1,857 -- -- -- 13,882
Asset sales and writedowns........... 73 2 -- -- -- 75
Minority interest.................... (32) -- -- -- -- (32)
-------- -------- ------- ------- -------- --------
90,660 30,022 309 -- -- 120,991
-------- -------- ------- ------- -------- --------
OPERATING INCOME (LOSS)................ 14,097 11,414 (309) -- -- 25,202
-------- -------- ------- ------- -------- --------
OTHER INCOME (EXPENSE)
Interest expense..................... (3,176) (4,702) 4,697 E -- $(2,884)F,G (6,065)
Interest income...................... 825 5 -- -- -- 830
Equity income (loss) of
unconsolidated affiliate........... -- 27 (27)H -- -- --
Other, net........................... 483 (1,719) 2,050 I -- -- 814
-------- -------- ------- ------- -------- --------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES.................. 12,229 5,025 6,411 -- (2,884) 20,781
INCOME TAX BENEFIT (PROVISION)......... (1,503) (1,542) -- -- -- (3,045)
-------- -------- ------- ------- -------- --------
NET INCOME (LOSS)...................... 10,726 3,483 6,411 -- (2,884) 17,736
PREFERRED STOCK DIVIDENDS.............. (1,511) -- -- -- -- (1,511)
-------- -------- ------- ------- -------- --------
NET INCOME APPLICABLE TO COMMON
SHARES............................... $ 9,215 $ 3,483 $ 6,411 -- $(2,884) $ 16,225
======== ======== ======= ======= ======== ========
NET INCOME PER SHARE................... $ 0.10 $ 0.14
======== ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING.......................... 95,782 -- 5,000 J 16,500 J -- 117,282
</TABLE>
- ---------------
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<S> <C>
A -- Historical financial information for Neddrill Holding B.V. for the three months ended March 31, 1996 was
derived from unaudited financial statements furnished by Neddrill Holding B.V.
B -- To record anticipated consolidation savings in connection with the expected inclusion of the Neddrill assets
and operations under the Company's existing insurance program after closing of the Acquisition estimated at
$375,000.
C -- To eliminate $225,000 of Dutch investment tax credits not applicable to the Acquisition.
D -- To record the estimated additional depreciation expense resulting from the allocation of the purchase price
of the Acquisition to the drilling equipment and associated assets.
Assumes 15 year remaining life for six jackup rigs (salvage value -- $500,000 per rig), one semisubmersible
(salvage value -- $1,000,000 per drilling unit) and two drillships (salvage value -- $1,000,000 per
drillship).
As the Company completes its detailed assessment of rig components, there may be resulting allocation
adjustments. As a result of this additional evaluation and the upgrades to be undertaken after the completion
of the Acquisition, management of the Company anticipates that remaining useful lives may be adjusted.
E -- To eliminate interest on loans not assumed in connection with the Acquisition.
F -- To record estimated interest expense on the Senior Notes.
G -- To record amortization of $71,000 of the estimated deferred costs relating to the Senior Notes.
H -- To eliminate profit of $27,000 from non-consolidated subsidiaries not assumed as part of the Acquisition.
I -- To eliminate the losses on the foreign exchange hedge transactions of $2,050,000 not applicable to the
Acquisition.
J -- To record the issuance of Common Stock pursuant to the Equity Offerings and the non-cash part of the purchase
price of the Acquisition.
</TABLE>
F-54
<PAGE> 120
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
ADJUSTMENTS
---------------------------------------
THE THE EQUITY THE DEBT PRO FORMA
COMPANY NEDDRILL ACQUISITION OFFERINGS OFFERING COMBINED
-------- -------- ----------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES
Contract drilling services.............. $205,110 $111,806 -- -- -- $316,916
Labor contract drilling services........ 35,136 -- -- -- -- 35,136
Turnkey drilling services............... 71,273 -- -- -- -- 71,273
Engineering and consulting services..... 11,264 -- -- -- -- 11,264
Other revenue........................... 5,185 9,719 -- -- -- 14,904
-------- -------- ------- ------- -------- --------
327,968 121,525 -- -- -- 449,493
-------- -------- ------- ------- -------- --------
OPERATING COSTS AND EXPENSES
Contract drilling services.............. 138,340 69,229 $ (184)A,B -- -- 207,385
Labor contract drilling services........ 26,540 -- -- -- -- 26,540
Turnkey drilling services............... 64,471 -- -- -- -- 64,471
Engineering and consulting services..... 7,311 -- -- -- -- 7,311
Other expense........................... 3,440 7,155 -- -- -- 10,595
Depreciation and amortization........... 36,492 18,791 2,476 C -- -- 57,759
Selling, general and administrative..... 40,139 6,395 -- -- -- 46,534
Minority interest....................... (214) -- -- -- -- (214)
-------- -------- ------- ------- -------- --------
316,519 101,570 2,292 -- -- 420,381
-------- -------- ------- ------- -------- --------
OPERATING INCOME (LOSS)................... 11,449 19,955 (2,292) -- -- 29,112
-------- -------- ------- ------- -------- --------
OTHER INCOME (EXPENSE)
Interest expense........................ (12,156) (21,420) 21,420D -- $(11,535)E,F (23,691)
Interest income......................... 5,323 178 -- -- -- 5,501
Equity (loss) income of unconsolidated
affiliate............................. -- (716) 716 G -- -- --
Other, net.............................. 250 3,325 (4,049)H -- -- (474)
-------- -------- ------- ------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND EXTRAORDINARY
ITEM.................................... 4,866 1,322 15,795 -- (11,535) 10,448
INCOME TAX BENEFIT (PROVISION)............ (3,272) (3,327) 1,330 I -- -- (5,269)
-------- -------- ------- ------- -------- --------
NET INCOME (LOSS)......................... 1,594 (2,005) 17,125 -- (11,535) 5,179
PREFERRED STOCK DIVIDENDS................. (7,199) -- -- -- -- (7,199)
-------- -------- ------- ------- -------- --------
NET (LOSS) INCOME APPLICABLE TO COMMON
SHARES................................ $ (5,605) $ (2,005) $17,125 -- $(11,535) $ (2,020)
======== ======== ======= ======= ======== ========
NET (LOSS) PER SHARE...................... $ (0.08) $ (0.03)
======== ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING............................. 89,736 -- 5,000 J 16,500 J -- 111,236
</TABLE>
- ---------------
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<S> <C>
A -- To record anticipated consolidation savings in connection with the expected inclusion of the Neddrill assets
and operations under the Company's existing insurance program after closing of the Acquisition estimated at
$1,500,000.
B -- To eliminate $1,316,000 of Dutch investment tax credits not applicable to the Acquisition.
C -- To record the estimated additional depreciation expense resulting from the allocation of the purchase price
of the Acquisition to the drilling equipment and associated assets.
Assumes 15 year remaining life for six jackup rigs (salvage value -- $500,000 per rig), one semisubmersible
(salvage value -- $1,000,000 per drilling unit) and two drillships (salvage value -- $1,000,000 per
drillship).
As the Company completes its detailed assessment of rig components, there may be resulting allocation
adjustments. As a result of this additional evaluation and the upgrades to be undertaken after the completion
of the Acquisition, management of the Company anticipates that remaining useful lives may be adjusted.
D -- To eliminate interest on loans not assumed in connection with the Acquisition.
E -- To record estimated interest expense on the Senior Notes.
F -- To record amortization of $285,000 of the estimated deferred costs relating to the Senior Notes.
G -- To eliminate loss of $716,000 from non-consolidated subsidiaries not assumed as part of the Acquisition.
H -- To eliminate gains on the foreign exchange hedge transactions in an amount of $4,049,000 not applicable to
the Acquisition.
I -- To eliminate the deferred income tax charge of $1,330,000 not applicable to the Acquisition.
J -- To record the issuance of Common Stock pursuant to the Equity Offerings and the non-cash part of the purchase
price of the Acquisition.
</TABLE>
F-55
<PAGE> 121
[Omitted here is a picture of the Eddie Paul, an independent-leg, cantilevered
jack-up unit with an extended reach cantilever of 70 feet and the caption "Eddie
Paul".]
[Omitted here is a picture of the Paul Romano, a submersible, cantilevered
drilling unit and the caption "Paul Romano".]
<PAGE> 122
================================================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE SENIOR NOTES IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE SUCH DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................... 3
Risk Factors............................... 11
Disclosure Regarding Forward-Looking
Statements............................... 15
Use of Proceeds............................ 16
Capitalization............................. 17
The Company................................ 18
The Acquisition............................ 24
Selected Financial Data.................... 27
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 29
Management................................. 37
Description of Senior Notes................ 39
Underwriting............................... 62
Legal Opinions............................. 63
Experts.................................... 63
Available Information...................... 63
Incorporation of Certain Documents by
Reference................................ 64
Index to Financial Statements.............. F-1
</TABLE>
================================================================================
================================================================================
$125,000,000
[NOBLE DRILLING LOGO]
NOBLE DRILLING
CORPORATION
% SENIOR NOTES DUE 2006
------------------------
PROSPECTUS
------------------------
MERRILL LYNCH & CO.
SALOMON BROTHERS INC
SIMMONS & COMPANY
INTERNATIONAL
, 1996
================================================================================
