<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission file number: 0-13857
NOBLE DRILLING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 73-374541
(State of incorporation) (I.R.S. employer identification number)
10370 Richmond Avenue, Suite 400 77042
Houston, Texas (Zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (713) 974-3131
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No. [ ]
Number of shares of Common Stock outstanding as of April 22, 1996: 94,671,407
================================================================================
<PAGE> 2
DRAFT 2- FORM 10-Q
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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.
2
<PAGE> 3
DRAFT 2- FORM 10-Q
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.
3
<PAGE> 4
DRAFT 2- FORM 10-Q
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.
4
<PAGE> 5
DRAFT 2 - FORM 10-Q
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 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.
5
<PAGE> 6
DRAFT 2 - FORM 10-Q
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
(Dollar amounts in tables are in thousands, except per share amounts)
(Unaudited)
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 UNREALIZED
DEBT SECURITY/MATURITY COST FAIR 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 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>
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.
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, the Lewis Dugger
and the 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.
6
<PAGE> 7
DRAFT 2 - FORM 10-Q
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
(Dollar amounts in tables are in thousands, except per share amounts)
(Unaudited)
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
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)
<S> <C> <C>
Operating revenues . . . . . . . . . . . . . . . . . . . $146,193 $449,493
Net income (loss) applicable to common shares . . . . . $ 16,304 $ (1,708)
Net income (loss) applicable to common shares per share. $ 0.14 $ (0.03)
</TABLE>
7
<PAGE> 8
DRAFT 2 - FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
DISCLOSURES REGARDING FORWARD-LOOKING STATEMENTS
This report on Form 10-Q includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. All statements other
than statements of historical facts included in this Form 10-Q, including,
without limitation, statements contained in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" regarding the
Company's financial position, business strategy, plans and objectives of
management of the Company for future operations, industry conditions, 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 include, but are not
limited to, intense competition in the drilling industry, volatility of oil and
gas prices, political and economic conditions in international markets
(including Nigeria and Venezuela), potential for decrease in demand for
drilling services in the U.S. Gulf of Mexico ("U.S. Gulf") where the Company
has a concentration of drilling rigs, risks associated with turnkey drilling
contracts, early termination provisions generally found in the Company's
offshore drilling contracts, operational risks (such as blowouts, fires and
loss of production), insurance coverage limitations, and requirements and
potential liability imposed by governmental regulation of the drilling industry
(including environmental regulation).
THE COMPANY
The Company's business strategy has been to 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. As used herein, unless otherwise required by the context, "Noble
Drilling" refers to Noble Drilling Corporation and the "Company" refers to Noble
Drilling and its consolidated subsidiaries.
The Company's offshore fleet at March 31,1996, consisted of 46 rigs,
comprised of 36 jackup drilling rigs, eight submersible rigs and two posted
barges. As of March 31, 1996, the offshore fleet was diversified geographically
as follows: U.S. Gulf - 28 rigs; Nigeria - eight rigs; Venezuela - four rigs;
Persian Gulf - three rigs; Mexican Gulf - one rig; India - one rig, and Zaire -
one rig. The Company's offshore operations also include labor contracts for
drilling and workover activities covering 13 rigs operating in the U.K. sector
of the North Sea. These rigs are not owned or leased by the Company. Through its
wholly owned subsidiary, Triton Engineering Services Company, the Company
provides turnkey drilling services and other engineering and consulting services
to the oil and gas industry. The Company's land drilling operations are
conducted in Canada, Texas and Louisiana with an active fleet of 19 land
drilling rigs.
On January 5, 1996, the Company completed the sale of one posted barge,
the Gus Androes, located in the U.S. Gulf. A second posted barge, the Gene
Rosser, located offshore Nigeria was sold on March 27, 1996. These transactions
are part of the Company's strategy to focus on deepwater drilling. In addition,
the Company is planning to sell its remaining two posted barges, the Lewis
Dugger and the Chuck Syring.
On February 23, 1996, the Company purchased the Odin Explorer, renamed
the Gus Androes, a 300-foot independent leg cantilevered jackup rig located
offshore Sharjah, U.A.E. This rig is currently undergoing refurbishment prior to
being returned to service. The Company submitted a tender to an international
oil and gas company for a drilling contract to commence in the third quarter of
1996 for a one-year term plus two one-year options. In addition, the Company
purchased a second rig, the Dana, a 250-foot independent leg cantilevered jackup
rig, on March 20, 1996. The rig is currently under contract in Qatar.
Enhancements to the rig are scheduled for the third quarter of 1996.
NEDDRILL ACQUISITION
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 "Acquisition") 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.
The Acquisition promotes the Company's historic and long-term strategic
goals of expanding its international presence and enhancing the Company's
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.
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.
The Acquisition will expand the types of rigs comprising the Company's
offshore fleet to include drillships and a semisubmersible. 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 Company expects to file two registration statements with the
Securities and Exchange Commission on April 29, 1996: one to be used in
connection with the proposed offer and sale of up to 18,975,000 shares of
Common Stock and the other to be used in connection with the proposed offer and
sale of $125,000,000 aggregate principal amount of __% Senior Notes due 2006.
The Company will use $300,000,000 of the aggregate net proceeds from these
offerings to pay the cash portion of the Acquisition purchase price.
8
<PAGE> 9
DRAFT 2 - FORM 10-Q
INDUSTRY CONDITIONS AND RISKS
The offshore contract drilling industry has experienced a series of
consolidations and acquisitions among drilling contractors. The Company expects
this trend to continue as drilling contractors position themselves
strategically in the market. The Company, from time to time, has discussions
with third parties regarding asset acquisitions or business combinations and
intends to continue to consider business opportunities that it believes promote
its business strategy. 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.
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 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 dayrates to soften. 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 into international markets. Simultaneously, the U.S.
Gulf market strengthened due to improved gas prices and increased subsalt and
deepwater drilling opportunities.
The Company anticipates that the domestic offshore market will continue
to experience significant activity levels through the second quarter and into
the third quarter of 1996. However, the Company is cautious and does not
necessarily predict that these robust levels will continue indefinitely. The
international market is anticipated to remain strong, assuming oil prices remain
at current levels and the various political environments remain 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's revenues are balanced between international and domestic
services. Revenues from 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.
Currently, the Company has seven offshore drilling units under contract
and one offshore drilling rig available for bidding offshore Nigeria.
9
<PAGE> 10
DRAFT 2 - FORM 10-Q
Revenues from drilling activities in Nigeria accounted for approximately 14
percent of the Company's operating revenues for both the three months ended
March 31, 1996, and the year ended December 31, 1995. In those periods, Nigeria
experienced labor strikes, high inflation and political turmoil, none of which
has materially affected the Company's operations; however, no assurance can be
given that the political and economic climate in Nigeria will not worsen or
that it will not materially affect the Company's operations in the future.
The Company currently has three rigs under contract with Lagoven, a
subsidiary of the government-owned oil company of Venezuela. Two of these rigs
are under long-term contracts terminating in the year 2000 and the third is
operating on a well-to-well basis. A 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 gas 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. Revenues from drilling activities in Venezuela accounted for
approximately eight percent and 10 percent of the Company's operating
revenues for the three months ended March 31, 1996 and the year ended
December 31, 1995, respectively.
10
<PAGE> 11
DRAFT 2 - FORM 10-Q
SELECTED FINANCIAL INFORMATION
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>
THREE MONTHS ENDED MARCH 31,
------------------------------
1996 1995
------ ------
<S> <C> <C>
Operating revenues
Contract drilling services
International offshore . . . . . . . . . . . . . . . . . . . . . . . . 28.9% 27.7%
Domestic offshore . . . . . . . . . . . . . . . . . . . . . . . . . . 22.2 24.7
International land . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 8.0
Domestic land . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 3.0
------ ------
Total contract drilling services . . . . . . . . . . . . . . . . . 57.5 63.4
------ ------
Labor contract drilling services . . . . . . . . . . . . . . . . . . . . . 7.6 12.4
Turnkey drilling services . . . . . . . . . . . . . . . . . . . . . . . . 31.6 20.2
Engineering services . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.7 1.8
Other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.6 2.2
------ ------
100.0 100.0
Operating costs
Contract drilling services . . . . . . . . . . . . . . . . . . . . . . . . (36.8) (42.4)
Labor contract drilling services . . . . . . . . . . . . . . . . . . . . . (5.7) (9.5)
Turnkey drilling services . . . . . . . . . . . . . . . . . . . . . . . . (22.2) (19.2)
Engineering services . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.0) (1.7)
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.9) (2.1)
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . (8.5) (10.4)
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . (11.5) (12.4)
Impairments, net of gains on asset sales (1) . . . . . . . . . . . . . . . . (0.1) 0.0
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.0 0.1
------ ------
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.3 2.4
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3.0) (3.6)
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.8 1.8
Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.5 0.7
------ ------
Income from continuing operations before
income tax and extraordinary item . . . . . . . . . . . . . . . . . . . . . 11.6 1.3
Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.4) (2.0)
------ ------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.2 (0.7)
Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . (1.4) (3.1)
------ ------
Net income (loss) applicable to common shares . . . . . . . . . . . . . . . . 8.8% (3.8)%
====== ======
</TABLE>
- -------------
(1) Consists of an impairment write-down related to adoption of SFAS No. 121 in
an amount equal to $7,600,000 offset by gains from the sale of two posted
barges aggregating $7,527,000, recorded in the first quarter of 1996.
11
<PAGE> 12
DRAFT 2 - FORM 10-Q
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
OPERATIONAL REVIEW. 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.
IMPAIRMENTS, NET OF GAINS ON ASSET SALES. The Company is planning to sell
its two remaining posted barges located in Nigeria. The Company recorded
$7,600,000 in asset impairments related to the implementation of SFAS No. 121
during the Current Quarter. This charge was offset by gains on the sales of two
posted barge units totaling $7,527,000.
12
<PAGE> 13
DRAFT 2 - FORM 10-Q
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
The Company had working capital of $123,190,000 and $101,623,000 as of
March 31, 1996, and December 31, 1995, respectively. The increase in working
capital was primarily due to the reclassification of the Company's two remaining
barges as assets held for sale in the Current Quarter. Long-term debt as a
percentage of long-term debt plus shareholders' equity was 19 percent at
March 31, 1996, compared to 20 percent at December 31, 1995.
At March 31, 1996, the Company had cash, cash equivalents, and investments
in marketable debt securities of $41,755,000 and had $24,724,000 of funds
available under various lines of credit. The Company expects to generate
positive cash flow from operations for the remainder of 1996, assuming no
material decrease in demand for contract drilling and turnkey services. The
Company will continue to have cash requirements for debt principal and interest
payments and preferred dividends, when and if declared. For the remainder of
1996, debt principal and interest payments for currently outstanding debt are
estimated to be approximately $21,406,000. Cumulative dividends on the $1.50
Convertible Preferred Stock for the remainder of 1996 are approximately
$4,528,000. The Company expects to fund these obligations, totaling
$25,934,000, out of cash and short-term investments as well as cash expected
to be provided by operations.
Capital expenditures for the remainder of 1996 are planned to aggregate
approximately $54,000,000, of which the majority are discretionary and relate
to upgrades of equipment. Management considers such upgrades desirable to
improve the marketability of the fleet, but the upgrades could be deferred if
necessary. These capital expenditures will be funded from operating cash flows
to the extent available, existing cash balances, and/or available lines of
credit.
CREDIT FACILITIES AND LONG-TERM DEBT
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 totaling $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 these lines of credit, including $1,723,580 available to
support the issuance of letters of credit.
On March 29, 1996, the Company's Venezuelan subsidiary signed a
three-month promissory note with Banco Provincial for the equivalent of
$400,000. This note accrues interest at a variable interest rate, 44 percent
as of March 29, 1996, determined by a committee of bankers on the second
business day of each week, payable monthly in advance. This note is due and
payable on June 29, 1996.
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 payments.
In 1993, the Company issued $125,000,000 aggregate principal amount of
9-1/4% Senior Notes Due 2003 (the "Senior Notes"). The Senior Notes will mature
on October 1, 2003. Interest on the Senior Notes is payable semi-annually on
April 1 and October 1 of each year. The Senior 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 Senior Notes at par plus
accrued interest will be required on October 1, 2001 and October 1, 2002. The
indenture governing the Senior 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.
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 was outstanding at March 31, 1996.
Interest and principal are payable semi-annually on June 15 and December 15 of
each year with interest at 8.95 percent, and the bonds mature in 1998. 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 the provision of 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.
The Company expects to file two registration statements with the
Securities and Exchange Commission on April 29, 1996: one to be used in
connection with the proposed offer and sale of up to 18,975,000 shares of Noble
Drilling common stock and the other to be used in connection with the proposed
offer and sale of $125,000,000 aggregate principal amount of __% Senior Notes
due 2006. The Company will use $300,000,000 of the aggregate net proceeds from
these offerings to pay the cash portion of the Acquisition purchase price. The
Company plans to use the remaining proceeds from such offerings, if any, for
general corporate and working capital purposes.
13
<PAGE> 14
DRAFT 2 - FORM 10-Q
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of stockholders of Noble Drilling was held in
Houston, Texas, at 10:00 a.m., local time, on April 25, 1996.
(b) Proxies were solicited by the Board of Directors of Noble Drilling
pursuant to Regulation 14A under the Securities Exchange Act of 1934.
There was no solicitation in opposition to the Board of Directors'
nominees as listed in the proxy statement and all of such nominees
were duly elected.
(c) Out of a total of 94,468,350 shares of Noble Drilling common stock
outstanding and entitled to vote, 90,719,796 shares were present in
person or by proxy, representing approximately 96 percent of
outstanding shares. The first matter voted on by the stockholders, as
fully described in the proxy statement for the annual meeting, was the
re-election of Johnnie W. Hoffman and Lawrence J. Chazen to serve
three-year terms on the Board of Directors of Noble Drilling. The
results of voting were as follows:
<TABLE>
<CAPTION>
Number of Shares
Nominee for Re-election Number of Shares Voting WITHHOLDING AUTHORITY
as Director FOR Re-election as Director to Vote for Re-election as Director
----------------------- --------------------------- -----------------------------------
<S> <C> <C>
Johnnie W. Hoffman 85,465,569 5,254,227
Lawrence J. Chazen 85,467,713 5,252,083
</TABLE>
The only other matter voted on by the stockholders, as fully described
in the proxy statement for the annual meeting, was the proposal to
approve and ratify indemnity agreements between the Company and its
directors and certain officers and to authorize the Company to enter
into such agreements in the future with directors and certain
officers. The results of voting on this proposal were as follows:
For: 82,295,620 Against: 1,325,745 Abstain: 98,431
(d) Inapplicable.
14
<PAGE> 15
DRAFT 2 - FORM 10-Q
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The information required by this Item 6(a) is set forth in the Index
to Exhibits accompanying this quarterly report and is incorporated
herein by reference.
(b) No reports on Form 8-K were filed by the Company during the quarter
ended March 31, 1996.
15
<PAGE> 16
DRAFT 2 - FORM 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NOBLE DRILLING CORPORATION
DATE: April 26, 1996 /S/ JAMES C. DAY
---------------------------------------
JAMES C. DAY, Chairman, President and
Chief Executive Officer
DATE: April 26, 1996 /S/ BYRON L. WELLIVER
---------------------------------------
BYRON L. WELLIVER,
Senior Vice President-Finance,
Treasurer and Controller
(Principal Financial and Accounting
Officer)
16
<PAGE> 17
DRAFT 2 - FORM 10-Q
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<S> <C>
10.1* Noble Drilling Corporation Short-Term Incentive Plan (revised
April 1996).
27 Financial Data Schedule
</TABLE>
- -----------
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit hereto.
<PAGE> 1
EXHIBIT 10.1
NOBLE DRILLING CORPORATION
SHORT TERM INCENTIVE PLAN
Revised: April 1996*
PURPOSE
The success of Noble Drilling Corporation ("Noble Drilling") and its
subsidiaries (collectively, unless the context otherwise requires, the
"Company") is a result of the collective efforts of all employees. Each
position within the Company has the ability to make a positive contribution to
key factors making up the components used to measure a successful year. Those
components include factors such as: Increase in Shareholder Value, Cash Flow
from Operations, Major New Contracts/Operating Days, Net Income and Safety. In
order to intensify each employee's attention on available opportunities to
increase revenues, control costs and seek out profitable ventures, the Company
maintains a bonus program that rewards employees for successful achievement of
specific goals. It is management's belief that shareholders will benefit from
the creation of an environment that ties employee compensation to the success
of the Company.
PARTICIPATION AND ELIGIBILITY
The bonus plan covers all full-time employees in salary classifications 18 and
higher who have completed one year of service at the close of the bonus plan
year, which will be a calendar year. The bonus earned by employees with less
than two full years of service will be adjusted based upon the number of full
months employed compared to twenty-four months. Additionally, no bonus
payments will be made for partial year's service; the eligibility will be
determined from the employee roster at the close of the bonus plan year.
STRUCTURE
TARGET BONUS
The target bonus amount shall be determined on an aggregate basis for each
division and department. The target bonus shall be the base salary at year end
of eligible employees multiplied times the appropriate percentage factor
assigned to the salary classification. Salary classifications and target bonus
factors are as follows:
* Established 1977
- 1 -
<PAGE> 2
<TABLE>
<CAPTION>
Salary Classification(1) Target Factor
--------------------- -------------
<S> <C>
18N through 23N 15%
24N through 25N 20%
26N through 27N 25%
28N through 32N 30%
30C through 32C 30%
33C through 36C 35%
37C 50%
</TABLE>
GOALS
At the end of each year, the total bonus pool will be determined by the Board
of Directors, considering target bonus levels, the Board's assessment of
overall company results, and attainment of specific, predetermined division or
corporate goals. Goals in the following categories will be recommended each
year by the Chief Executive Officer of Noble Drilling and approved by the Board
of Directors for the corporation and for each division. The percentage
weighting assigned to each goal shall be as follows subject to annual review by
the Board of Directors.
<TABLE>
<CAPTION>
Corporate Goals Assigned Weight
--------------- ---------------
<S> <C> <C>
1. Increase shareholder value 30%
2. Budgeted cash flow from operations 30%
3. Major new contracts(2)/operating days 20%
4. Budgeted net income 10%
5. Safety results 10%
</TABLE>
<TABLE>
<CAPTION>
Division Goals Assigned Weight
-------------- ---------------
<S> <C>
(Gulf Coast Land, Gulf Coast Marine, Canada,
Nigeria, Venezuela, Middle East and Zaire)
1. Budgeted cash flow 35%
2. Budgeted total daily operating costs 35%
3. Budgeted capital expenditures 10%
4. Safety results 10%
5. Rig maintenance and appearance 10%
</TABLE>
- 2 -
- ---------------
(1) There is some grade classification variance by division.
(2) Defined: One (1) year contract with a 20% internal rate of return, $8.5
million in revenue - applicable to international divisions.
<PAGE> 3
<TABLE>
<CAPTION>
U.K. and Triton Goals Assigned Weight
--------------------- ---------------
<S> <C> <C>
1. Budgeted net income 80%
2. Safety results 20%
</TABLE>
The goal weighting percentage will be used in measuring overall performance,
considering measurement of actual results measured against the goal for each
factor. The adjustment to the goal weighting will be based upon the following
schedule.
<TABLE>
<CAPTION>
Goal Achievement Range Adjustment Factor
---------------------- -----------------
<S> <C>
Greater than 135% 2.00
126--135% 1.75
116--125% 1.50
106--115% 1.25
96--105% 1.00
86-- 95% .75
76-- 85% .50
Less than 75% .00
</TABLE>
The target bonus for corporate employees will be adjusted to reflect the
combined percentage of achievement of all assigned corporate goals. The target
bonus for division employees will be adjusted to reflect the combined
percentage of achievement of all assigned goals using the ratio of 50 percent
for division goal achievement and 50 percent for corporate goal achievement.
Accordingly, the bonus payable to division employees is dependent on the level
of achievement of both division and corporate goals. The dollar amount of the
bonus payable, if any, will be calculated using the target bonus amount times
the applicable multiplier determined under the following adjustment schedule:
<TABLE>
<CAPTION>
Combined Target Bonus
Goal Achievement Payable
---------------- -------
<S> <C>
Greater than 160% 2.00
141--160% 1.75
131--140% 1.50
121--130% 1.40
106--120% 1.20
96--105% 1.00
76-- 95% .75
66-- 75% .25
Below 65% .00
</TABLE>
- 3 -
<PAGE> 4
BONUS ALLOCATION
Each division manager, department head and operating committee member shall
receive a bonus (assuming a bonus is payable) as calculated using the target
bonus times the applicable multiplier. The remaining bonus pool shall be
allocated to eligible employees within the division or department based upon
merit. Deviation above or below the target bonus percent must be justified in
writing by the employee's supervisor. Division managers and department heads
shall submit the allocated bonus listing to the Chief Executive Officer of
Noble Drilling for review and approval. All bonus calculations, allocations
and recommendations are subject to review and approval by the Compensation
Committee of the Board of Directors.
GOAL FLEXIBILITY
It is intended that the total bonus pool will reflect the best judgment of the
Board of Directors in determining overall Company performance for the year. In
determining overall Company performance, the Board will consider the Company's
performance in relation to the pre-determined goals and market conditions.
However, because the goals are established in November/December of the
preceding plan year, some consideration to subsequent budget revisions may be
given. It is expected that the Company will prepare budgets and forecasts in
March/April of the plan year. If such budgets have substantially changed due
to subsequent events, then the Chief Executive Officer of Noble Drilling shall,
at his discretion, submit revised goals to the Board of Directors of Noble
Drilling for its approval. Revision to the goals can be considered subsequent
to April at the Board's discretion.
CORPORATE WILL NOT BE ELIGIBLE TO RECEIVE BONUSES UNDER THE STIP UNLESS
POSITIVE NET EARNINGS ARE ACHIEVED.
- 4 -
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