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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, 1999
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 73-0374541
(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 May 10, 1999: 131,359,981
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NOBLE DRILLIING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ..................................... $ 294,638 $ 211,012
Restricted cash ............................................... 4,034 5,871
Accounts receivable (net allowance of $540 and $610) .......... 153,791 148,168
Costs of uncompleted contracts in excess of billings .......... 4,969 907
Inventories ................................................... 4,880 5,133
Prepaid expenses .............................................. 21,681 21,607
Other current assets .......................................... 18,904 45,511
----------- -----------
Total current assets ............................................ 502,897 438,209
----------- -----------
PROPERTY AND EQUIPMENT
Drilling equipment and facilities ............................. 2,147,172 1,940,919
Other ......................................................... 27,608 27,195
----------- -----------
2,174,780 1,968,114
Accumulated depreciation ...................................... (341,494) (318,981)
----------- -----------
1,833,286 1,649,133
----------- -----------
INVESTMENT IN AND ADVANCES TO JOINT VENTURES .................... 29,360 48,270
DEFERRED INCOME TAXES ........................................... 964 964
OTHER ASSETS .................................................... 44,958 42,056
----------- -----------
$ 2,411,465 $ 2,178,632
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt and current installments of long-term debt .... $ 56,185 $ 148,786
Accounts payable .............................................. 100,382 78,880
Accrued payroll and related costs ............................. 24,806 21,985
Taxes payable ................................................. 50,728 51,495
Interest payable .............................................. 3,555 6,191
Other current liabilities ..................................... 26,978 42,152
----------- -----------
Total current liabilities ....................................... 262,634 349,489
LONG-TERM DEBT .................................................. 767,021 460,842
DEFERRED INCOME TAXES ........................................... 57,015 56,937
OTHER LIABILITIES ............................................... 928 891
MINORITY INTEREST ............................................... (2,303) --
----------- -----------
1,085,295 868,159
----------- -----------
SHAREHOLDERS' EQUITY
Common stock-par value $0.10 .................................. 13,597 13,376
Capital in excess of par value ................................ 947,000 943,122
Retained earnings ............................................. 433,530 418,024
Treasury stock, at cost ....................................... (62,351) (61,771)
Restricted stock (unearned compensation) ...................... (2,981) --
Accumulated other comprehensive loss .......................... (2,625) (2,278)
----------- -----------
1,326,170 1,310,473
----------- -----------
COMMITMENTS AND CONTINGENCIES ................................... -- --
----------- -----------
$ 2,411,465 $ 2,178,632
=========== ===========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
2
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NOBLE DRILLING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
--------- ---------
<S> <C> <C>
OPERATING REVENUES
Contract drilling services ................ $ 148,916 $ 147,042
Labor contract drilling services .......... 10,990 18,267
Turnkey drilling services ................. 18,196 20,002
Engineering and consulting services ....... 344 684
Other revenue ............................. 1,674 3,041
--------- ---------
180,120 189,036
--------- ---------
OPERATING COSTS AND EXPENSES
Contract drilling services ................ 80,267 60,913
Labor contract drilling services .......... 9,810 13,709
Turnkey drilling services ................. 20,962 20,439
Engineering and consulting services ....... 298 638
Other expense ............................. 1,955 1,372
Depreciation and amortization ............. 19,093 17,485
Selling, general and administrative ....... 9,384 8,165
Minority interest ......................... (580) --
--------- ---------
141,189 122,721
--------- ---------
OPERATING INCOME ............................ 38,931 66,315
OTHER INCOME (EXPENSE)
Interest expense .......................... (4,716) (1,132)
Interest income ........................... 2,650 1,575
Other, net ................................ (283) (440)
--------- ---------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY CHARGE ...................... 36,582 66,318
INCOME TAX PROVISION ........................ (10,243) (20,089)
--------- ---------
INCOME BEFORE EXTRAORDINARY CHARGE .......... 26,339 46,229
EXTRAORDINARY CHARGE, NET OF TAX ............ (10,833) --
--------- ---------
NET INCOME .................................. $ 15,506 $ 46,229
========= =========
EARNINGS PER SHARE-BASIC:
Income before extraordinary charge ........ $ 0.20 $ 0.35
Extraordinary charge ...................... (0.08) --
--------- ---------
Net income per common share ............... $ 0.12 $ 0.35
========= =========
EARNINGS PER SHARE-DILUTED:
Income before extraordinary charge ........ $ 0.20 $ 0.35
Extraordinary charge ...................... (0.08) --
--------- ---------
Net income per common share ............... $ 0.12 $ 0.35
========= =========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
3
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NOBLE DRILLING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
-------- --------
<S> <C> <C>
NET INCOME ................................................................ $ 15,506 $ 46,229
-------- --------
OTHER COMPREHENSIVE LOSS, NET OF TAX:
Foreign currency translation adjustments ................................ (347) (30)
-------- --------
Unrealized losses on securities:
Unrealized holding losses arising during period ....................... -- (20)
Less: reclassification adjustment for gains realized in net income .... -- 4
-------- --------
Net unrealized losses ................................................. -- (16)
-------- --------
Other comprehensive loss ................................................ (347) (46)
-------- --------
COMPREHENSIVE INCOME ...................................................... $ 15,159 $ 46,183
======== ========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
4
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NOBLE DRILLING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .................................................... $ 15,506 $ 46,229
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ............................ 19,093 18,747
Deferred income tax provision ............................ 78 7,504
Extraordinary charge, net of tax ......................... 10,833 --
Equity in net income of unconsolidated joint ventures .... 155 --
Other .................................................... (307) 404
Changes in current assets and liabilities:
Accounts receivable ................................... 3,316 (23,309)
Other assets .......................................... 16,888 (7,775)
Accounts payable ...................................... 16,952 7,762
Other liabilities ..................................... (12,106) 14,780
--------- ---------
Net cash provided by operating activities ............. 70,408 64,342
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment ............................ (131,336) (140,231)
Proceeds from sale of property and equipment .................. 6 132
Proceeds from sale of marketable debt securities .............. -- 16,450
--------- ---------
Net cash used by investing activities ................. (131,330) (123,649)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt ...................... 396,731 --
Net (payments) borrowings on revolving credit facility ........ (100,000) 60,000
Payment of long-term debt ..................................... (154,088) (3,205)
Issuance of common stock ...................................... 68 620
Decrease in restricted cash ................................... 1,837 --
--------- ---------
Net cash provided by financing activities ............. 144,548 57,415
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................ 83,626 (1,892)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD .................. 211,012 49,917
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD ........................ $ 294,638 $ 48,025
========= =========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
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NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF ACCOUNTING
The accompanying condensed consolidated financial statements of Noble
Drilling Corporation ("Noble Drilling" or, together with its consolidated
subsidiaries, unless the context required otherwise, the "Company"), have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all disclosures required by
generally accepted accounting principles for complete financial statements. All
significant transactions among Noble Drilling and its consolidated subsidiaries
have been eliminated. The interim condensed consolidated financial statements
have not been audited. However, in the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the condensed consolidated financial statements have been
included. Results of operations for interim periods are not necessarily
indicative of the results of operations that may be expected for the entire
year. These interim condensed consolidated financial statements should be read
in conjunction with the audited consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
Noble Drilling (Paul Romano) Inc. was formed on April 3, 1998 for the
purpose of owning the Noble Paul Romano and financing its conversion to an
EVA-4000TM semisubmersible. Noble Drilling (Paul Romano) Inc. is an indirect,
wholly owned subsidiary of Noble Drilling and is operated in a fashion that is
intended to ensure that its assets and liabilities are distinct and separate
from those of the Company and its affiliates and that the creditors of Noble
Drilling (Paul Romano) Inc. would be entitled to satisfy their claims from the
assets of Noble Drilling (Paul Romano) Inc. prior to any distribution to the
Company or its affiliates.
Certain reclassifications have been made in prior year condensed
consolidated financial statements to conform to the classifications used in the
1999 condensed consolidated financial statements. These reclassifications have
no impact on net income.
NOTE 2 - EARNINGS PER SHARE
The following table reconciles the basic and diluted earnings per share
computations for income before extraordinary charge for the three month periods
ended March 31, 1999 and 1998 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
INCOME BEFORE
EXTRAORDINARY BASIC BASIC DILUTED DILUTED
CHARGE SHARES EPS SHARES EPS
------------- ------- ---------- ------- --------
<S> <C> <C> <C> <C> <C>
MARCH 31, 1999............................... $ 26,339 131,152 $ 0.20 131,866 $ 0.20
MARCH 31, 1998............................... $ 46,229 131,050 $ 0.35 132,541 $ 0.35
</TABLE>
Included in diluted shares are common stock equivalents relating to
outstanding stock options of 714,000 shares and 1,491,000 shares for the three
month periods ended March 31, 1999 and 1998, respectively.
NOTE 3 - INVESTMENTS IN AND ADVANCES TO JOINT VENTURES
Effective January 1, 1999, the Company acquired a majority interest in
Arktik Drilling Limited, Inc. ("Arktik"), and the bareboat charter of the Noble
Kolskaya, in exchange for an obligation to pay Kvaerner Maritime A.S.
("Kvaerner") the aggregate principal amount of $17,500,000 plus interest (the
"Kvaerner Debt"). (See Note 5). Arktik's principal asset is the drillship, the
Noble Muravlenko. As a result of these acquisitions, the results of operations
of Arktik and the Noble Kolskaya are included in the Company's Consolidated
Statements of Operations from January 1, 1999, and at that date, the respective
assets and liabilities were recorded at their estimated fair values. Prior to
January 1, 1999, the investments were accounted for under the equity method. The
results of operations of Arktik and the Noble Kolskaya prior to January 1, 1999
were not material to the Company's consolidated amounts; therefore, pro forma
financial information is not presented.
6
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NOTE 4 - CREDIT FACILITIES
The Company has an unsecured revolving credit facility totaling
$200,000,000 (the "Credit Agreement"), including a letter of credit facility
totaling $40,000,000, through August 14, 2002. As of March 31, 1999, the Company
had no outstanding borrowings under the Credit Agreement and $3,602,000 had been
used to support outstanding letters of credit. Additionally, at March 31, 1999,
$18,431,000 of outstanding letters of credit had been supported through a
combination of unsecured letter of credit facilities and surety bonds. As of
March 31, 1999, $196,398,000 remained available under the Credit Agreement.
NOTE 5 - LONG-TERM DEBT
On March 16, 1999, the Company issued $150,000,000 principal amount of
its 6.95% Senior Notes due 2009 (the "2009 Notes") and $250,000,000 principal
amount of its 7.50% Senior Notes due 2019 (the "2019 Notes" and, together with
the 2009 Notes, the "Notes"). Interest on the Notes is payable on March 15 and
September 15 of each year beginning September 15, 1999. The Notes are
redeemable, as a whole or from time to time in part, at our option on any date
prior to maturity at prices equal to 100 percent of the outstanding principal
amount of the notes redeemed plus accrued interest to the redemption date plus a
make-whole premium, if any is required to be paid. The Notes are senior
unsecured obligations and the indenture governing the Notes contains covenants
that, among other things, limit our ability to create certain liens, engage in
certain sale and lease-back transactions and merge, consolidate and sell assets,
except under certain conditions.
We used approximately $143,000,000 of the net proceeds from the
issuance of the Notes to purchase and retire $125,000,000 principal amount of
our 9 1/8% Senior Notes due 2006, which resulted in an extraordinary charge of
$10,833,000, net of taxes of $5,833,000. The extraordinary charge represents the
difference between the acquisition price and the net carrying value of the
notes, including unamortized debt issuance costs.
In connection with the acquisitions regarding Arktik and the Noble
Kolskaya (see Note 3), the Company incurred the Kvaerner Debt. Additionally, the
Company recorded Arktik's outstanding bank indebtedness in the amount of
$24,000,000 (the "Arktik Debt") and Arktik's indebtedness to a minority equity
owner in Arktik in the amount of $7,900,000 (the "Shareholder Debt"). The Arktik
Debt and the Shareholder Debt are non-recourse except to Arktik. The Arktik Debt
is secured by a preferred mortgage on Arktik's drillship, the Noble Muravlenko.
The Shareholder Debt is also secured by a mortgage on the Noble Muravlenko.
The Kvaerner Debt bears interest at a rate equal to the LIBOR rate plus
1.25 percent. Principal and interest is payable on April 1, 1999 and each
October 1 and April 1 thereafter until October 1, 2003. The Company may prepay
all or any portion of the balance, plus accrued interest, at any time after
December 31, 1999. The interest rate as of March 31, 1999 was 6.33 percent per
annum.
The Arktik Debt bears interest at a rate equal to the LIBOR rate plus
1.0 percent. Principal and interest is payable on each June 1 and December 1.
Scheduled principal amounts are $4,000,000 for the years 1999 through 2002 and
$8,000,000 in 2003. The interest rate as of March 31, 1999 was 6.08 percent per
annum.
The Shareholder Debt bears interest at 12.0 percent per annum. Interest
is payable on each April 1 and October 1. The principal balance of the debt is
to be repaid over a 3 year period, beginning in 2009.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
The Company has entered into agreements with vendors to purchase or
construct equipment for the conversion of rigs. These agreements generally
require non-refundable payments as certain milestones are met. The cumulative
amount of such payments totaled $226,323,000 through March 31, 1999. As of March
31, 1999, the Company also had $23,400,000 of purchase commitments with a
remaining term in excess of one year related to rig conversion projects. In the
event the Company were to cancel the purchase commitments, the ultimate amounts
refunded would be subject to negotiation.
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NOTE 7 - SEGMENT AND RELATED INFORMATION
The Company adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information ("SFAS 131"), in 1998 which changes the way
the Company reports information about its operating segments.
The Company is a provider of diversified services for the oil and gas
industry. The Company's reportable segments consist of the primary services
provided by the Company. These services include offshore contract drilling,
turnkey drilling and labor contract drilling services. Although each of these
services is generally influenced by the same economic factors, they each
represent a distinct service to the oil and gas industry. Offshore contract
drilling services is then separated into international and domestic contract
drilling segments since there are certain economic and political risks
associated with each of these geographic markets and the Company's management
makes decisions based on these markets accordingly.
The international contract drilling segment conducts contract drilling
services in the North Sea, Africa, South America, Mexico, the Middle East and
India, whereas domestic contract drilling is conducted in the U.S. Gulf of
Mexico. Turnkey drilling operations consist of the coordination of all
equipment, materials, services and management to drill a well to a specified
depth for a fixed price. Turnkey drilling operations are conducted primarily in
the U.S. Gulf of Mexico. Under its labor contracts, the Company provides the
personnel necessary to manage and perform drilling operations from drilling
platforms owned by the operator. Labor contract drilling services are conducted
in the U.K. North Sea and off the east coast of Canada.
All intersegment sales pricing is based on current market conditions.
The Company evaluates the performance of its operating segments based on
operating revenues and earnings.
Summarized financial information of the Company's reportable segments
for the three months ended March 31, 1999 and 1998 is shown in the following
table (in thousands). The "Other" column includes results of other insignificant
operations and corporate related items.
<TABLE>
<CAPTION>
INTERNATIONAL DOMESTIC LABOR
CONTRACT CONTRACT CONTRACT TURNKEY
DRILLING DRILLING DRILLING DRILLING
March 31, 1999: SERVICES SERVICES SERVICES SERVICES OTHER TOTAL
- --------------- ------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues from external customers ....... $ 127,190 $ 22,284 $ 12,512 $ 18,196 $ (62) $ 180,120
Intersegment revenues .................. -- 1,305 -- -- -- 1,305
Segment profit (loss) .................. 32,809 (1,849) 957 (2,839) (2,744) 26,334
Total assets (1) ....................... 1,212,493 835,008 28,080 16,557 319,327 2,411,465
March 31, 1998:
- ---------------
Revenues from external customers ....... $ 105,946 $ 42,313 $ 20,141 $ 20,628 $ 8 $ 189,036
Intersegment revenues .................. 873 -- -- -- -- 873
Segment profit (loss) .................. 29,147 16,216 3,583 (441) (2,275) 46,230
</TABLE>
- --------------------
(1) Total assets - Other at March 31, 1999 include cash and cash
equivalents of $277,790,000.
The following table is a reconciliation of reportable segment profit or
loss to the Company's consolidated totals for the three months ended March 31,
1999 and 1998 (in thousands).
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Total profit for reportable segments ............. $ 26,334 $ 46,230
Elimination of intersegment profits (losses) ..... 5 (1)
Extraordinary charge, net of tax ................. (10,833) --
-------- --------
Total consolidated net income .................. $ 15,506 $ 46,229
======== ========
</TABLE>
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This report on Form 10-Q includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. 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 we believe that the expectations reflected
in such forward-looking statements are reasonable, we cannot be certain that
such expectations will prove to have been correct. Important factors that could
cause actual results to differ materially from our expectations include, but are
not limited to, volatility in crude oil and natural gas prices, potential
further deterioration in the demand for our drilling services and resulting
declining dayrates, the cancellation by our customers of drilling contracts or
letters of intent for drilling contracts or their exercise of early termination
provisions generally found in our drilling contracts, risks associated with our
turnkey drilling operations, intense competition in the drilling industry, heavy
demand for the equipment and services that we need in order to finish our major
shipyard refurbishment and conversion projects on schedule and on budget,
political and economic conditions in international markets where we operate,
adverse weather (such as hurricanes) and seas, operational risks (such as
blowouts, fires and loss of production), limitations on our insurance coverage,
and requirements and potential liability imposed by governmental regulation of
the drilling industry (including environmental regulation).
As used herein, unless otherwise required by the context, the term
"Noble Drilling" refers to Noble Drilling Corporation and the term "Company"
refers to Noble Drilling and its consolidated subsidiaries. The use herein of
such terms as group, organization, we, us, our and its, or references to
specific entities, is not intended to be a precise description of corporate
relationships.
THE COMPANY
We are a leading provider of diversified services for the oil and gas
industry. Contract drilling services are performed with our fleet of 47 offshore
drilling units located in key markets worldwide. Our fleet of floating deepwater
units consists of nine semisubmersibles and three dynamically positioned
drillships, seven of which are designed to operate in water depths greater than
5,000 feet. Our fleet of 32 jackup rigs includes 19 premium units that operate
in water depths of 300 feet and greater, four of which operate in water depths
of 360 feet and greater. In addition, our fleet includes three submersible
drilling units. Ten of our drilling units are capable of operating in harsh
environments. Over 60 percent of the fleet is currently deployed in
international markets, principally including the North Sea, Africa, Brazil, the
Middle East and Mexico. We also provide labor contract drilling services,
turnkey drilling services and engineering and production management services.
Demand for drilling services depends on a variety of economic and
political factors, including worldwide demand for oil and gas, the ability of
the Organization of Petroleum Exporting Countries ("OPEC") to set and maintain
production levels and pricing, the level of production of non-OPEC countries and
the policies of the various governments regarding exploration and development of
their oil and gas reserves.
Although the recent improvements in oil and gas prices could lead to an
improving market, our customers must be confident that oil and gas prices
approximating current levels will be sustained before any major improvement in
drilling activity will occur. We believe that any significant decrease from
current oil and gas prices will further depress the level of exploration and
production activity and result in a corresponding decline in demand for our
services. Furthermore, the continued consolidation of the oil and gas industry,
as evidenced by the announcement and completion of several recent transactions,
has resulted in, and is likely to continue to result in, a reduction in the
amount of capital spent on exploration and production activities.
In recent years, we have focused on increasing the number of rigs in
our fleet capable of deepwater offshore drilling. We have incorporated this
focus into our broader, long-standing business strategy to actively
9
<PAGE> 10
expand our international and offshore deepwater capabilities through
acquisitions, rig upgrades and modifications, and to redeploy assets in
important geological areas.
A principal component of our deepwater strategy is our EVA-4000(TM)
semisubmersible conversion program. The EVA-4000(TM) is our proprietary design
that we believe allows us to convert our three-column submersible drilling rigs
into ultra-deepwater semisubmersibles at a lower cost and on an accelerated
delivery schedule versus a new construction project. We delivered our first
EVA-4000(TM) semisubmersible, the Noble Paul Romano, in the fourth quarter of
1998, and we recently delivered our second EVA-4000(TM) semisubmersible, the
Noble Paul Wolff. Four other semisubmersible conversions and upgrades are in
progress, including three EVA-4000(TM) conversions, and are expected to be
available for service in 1999 or early 2000.
The Noble Paul Romano, which is capable of drilling in 6,000 feet of
water, is contracted to Shell Deepwater Development Inc. ("Shell Deepwater"), an
affiliate of Shell Oil Company, for a five year contract in the U.S. Gulf of
Mexico. The Noble Paul Wolff, a dynamically positioned unit capable of drilling
in 8,900 feet of water, is contracted to Petroleo Brasiliero S.A. for six years
in Brazil.
The Noble Jim Thompson, which will be capable of drilling in 6,000 feet
of water, is contracted to Shell Deepwater for an initial term of three years,
with options to extend by Shell Deepwater, in the U.S. Gulf of Mexico. Delivery
is anticipated in the second quarter of 1999. The Noble Amos Runner, which will
be capable of drilling in 6,600 feet of water, is under contract to a
rig-sharing consortium of operators for a five year term in the U.S. Gulf of
Mexico. The contract provides for a delivery date of September 1, 1999, subject
to extension for certain force majeure events or delays caused by the operators,
such as requested change orders, after which the operators would be permitted to
terminate. If the contract were terminated, we could experience delays in
finding alternate customers, or if renegotiated (or we enter into a new contract
with alternate customers), we would likely not be able to negotiate contract
terms as favorable as those of the existing contract, either of which would
adversely affect future revenues. The rig is currently scheduled for delivery
pursuant to the contract prior to the termination date, barring adverse weather
or other conditions that could delay final completion and commissioning of the
drilling rig's equipment and systems.
The Noble Max Smith, which is currently subject to a letter of intent,
will be capable of drilling in 6,000 feet of water. We are in the process of
finalizing a five year drilling contract with Amerada Hess Corporation and Union
Pacific Resources Corporation to work the unit in the U.S. Gulf of Mexico. The
rig is expected to be delivered in late 1999. The Noble Homer Ferrington is
subject to a letter of intent with Samedan Oil Corporation and Mariner Energy,
Inc. for a five year drilling contract in the U.S. Gulf of Mexico. We continue
to meet with these two operators to work toward the finalization of the drilling
contract and related rig sharing agreement. Mariner previously expressed its
position that the letter of intent expired by its terms on May 1, 1998, and
further expressed its intention to work toward a mutually acceptable outcome
because Mariner still needs access to such a deepwater rig. We do not agree with
the position that the letter of intent has expired, and we are continuing to
work toward a mutually acceptable outcome. Shipyard work on the rig, which will
be capable of drilling in 6,000 feet of water, is progressing on a schedule for
delivery of the rig in the first quarter of 2000.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
GENERAL
Net income for the first quarter of 1999 (the "Current Quarter"),
excluding the effects of non-recurring items, was $26,339,000, or $0.20 per
diluted share, on operating revenues of $180,120,000, compared to net income for
the first quarter of 1998 (the "Comparable Quarter") of $46,229,000, or $0.35
per diluted share, on operating revenues of $189,036,000. Results from the
Current Quarter included an extraordinary charge of $10,833,000, net of taxes of
$5,833,000, related to our purchase and retirement of $125,000,000 principal
amount of our 9 1/8% Senior Notes due 2006 (the "9 1/8% Notes"). We financed the
purchase and retirement of the 9 1/8% Notes with a portion of the net proceeds
from the issuance on March 16, 1999 of $150,000,000 principal amount of our
6.95% Senior Notes due 2009 (the "2009 Notes") and $250,000,000 principal amount
of our 7.50% Senior Notes due 2019 (the "2019 Notes" and, together with the
2009 Notes, the "Notes").
10
<PAGE> 11
RIG UTILIZATION, OPERATING DAYS AND AVERAGE DAYRATES
The following table sets forth the average rig utilization rates,
operating days and average dayrates for the Company's rig fleet for the three
months ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
AVERAGE RIG
UTILIZATION RATES (1) OPERATING DAYS AVERAGE DAYRATE
------------------------ ------------------------- ------------------------
THREE MONTHS ENDED THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31, MARCH 31,
------------------------ ------------------------- ------------------------
1999 1998 1999 1998 1999 1998
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
International......... 89% 90% 2,281 2,258 $ 55,534 $ 46,699
Domestic.............. 63% 99% 662 792 $ 33,601 $ 52,520
</TABLE>
- ----------------------
(1) Information reflects the policy of the Company to report utilization
rates based on the number of actively marketed rigs in our fleet.
INTERNATIONAL OPERATIONS
The following table sets forth the operating revenues and gross margin
for the Company's international operations for the three months ended March 31,
1999 and 1998:
<TABLE>
<CAPTION>
REVENUES GROSS MARGIN
--------------------- ----------------------
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
--------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Contract drilling services ......................... $126,672 $105,446 $ 61,773 $ 56,258
Labor contract drilling services ................... 10,990 18,267 1,180 4,558
Turnkey drilling services .......................... 83 3,390 (141) (1,881)
Engineering and consulting services ................ 344 684 46 46
Other revenue ...................................... 1,573 1,932 (134) 788
-------- -------- -------- --------
Total ..................................... $139,662 $129,719 $ 62,724 $ 59,769
======== ======== ======== ========
</TABLE>
OPERATING REVENUES. International contract drilling services revenues
increased $21,226,000 in the Current Quarter as compared to the Comparable
Quarter primarily due to a higher average dayrate in the North Sea and the
consolidation of the results of operations effective January 1, 1999 of Arktik
Drilling Limited, Inc. ("Arktik") and the Noble Kolskaya. See Note 3 to our
accompanying Condensed Consolidated Financial Statements. The higher average
dayrate in the North Sea is the result of certain contract renewals subsequent
to the Comparable Quarter at higher dayrates. Labor contract drilling services
revenues decreased $7,277,000 in the Current Quarter as compared to the
Comparable Quarter due to fewer operating days on the North Sea labor contracts.
International turnkey drilling services revenues decreased $3,307,000 in the
Current Quarter as compared to the Comparable Quarter. There were no
international turnkey well completions in either the Current Quarter or
Comparable Quarter. Turnkey drilling services revenues of $3,390,000,
attributable to dayrate work on a well in Mexico, were earned in the Comparable
Quarter.
GROSS MARGIN. International contract drilling services gross margin
increased $5,515,000 in the Current Quarter as compared to the Comparable
Quarter primarily due to higher dayrates received on certain contract renewals
in the North Sea. Labor contract drilling services gross margin decreased
$3,378,000 in the Current Quarter as compared to the Comparable Quarter
primarily due to fewer operating days on the North Sea labor contracts. The
negative results from international turnkey drilling services in the Comparable
Quarter were attributable to unexpected drilling delays encountered on a turnkey
well in Mexico.
11
<PAGE> 12
DOMESTIC OPERATIONS
The following table sets forth the operating revenues and gross margin
for the Company's domestic operations for the three months ended March 31, 1999
and 1998:
<TABLE>
<CAPTION>
REVENUES GROSS MARGIN
------------------- --------------------
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
------------------- --------------------
1999 1998 1999 1998
------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C>
Contract drilling services .......................... $22,244 $41,596 $ 6,876 $29,871
Turnkey drilling services ........................... 18,113 16,612 (2,625) 1,444
Other revenue ....................................... 101 1,109 (147) 881
------- ------- ------- -------
Total ...................................... $40,458 $59,317 $ 4,104 $32,196
======= ======= ======= =======
</TABLE>
OPERATING REVENUES. Domestic contract drilling services revenues
decreased $19,352,000 in the Current Quarter as compared to the Comparable
Quarter due primarily to lower average dayrates and utilization. The Noble Paul
Romano, the first EVA-4000(TM) semisubmersible delivered in December 1998,
completed its first full three months of operations in the Current Quarter.
There were four jackup rigs stacked for the majority of the Current Quarter,
which led to an average utilization rate of 63 percent in the Current Quarter as
compared to 99 percent in the Comparable Quarter. The demand for offshore
drilling units in the U.S. Gulf of Mexico remains at depressed levels. Domestic
turnkey drilling services revenues were $1,501,000 higher in the Current Quarter
as compared to the Comparable Quarter due to increased turnkey well completions.
Five domestic turnkey wells were completed in the Current Quarter as compared to
two in the Comparable Quarter.
GROSS MARGIN. While the operations of the Noble Paul Romano favorably
impacted domestic contract drilling services gross margin in the Current
Quarter, gross margin decreased $22,995,000 in the Current Quarter as compared
to the Comparable Quarter due primarily to lower average dayrates and
utilization. Although there was an increase in domestic turnkey well completions
in the Current Quarter, the negative gross margin is attributable to above
market dayrates and lower utilization for certain drilling rigs which our
turnkey subsidiary has under term contract from a third party.
OTHER ITEMS
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense increased $1,608,000 in the Current Quarter as compared to the
Comparable Quarter due primarily to the activation of the Noble Paul Romano
EVA-4000(TM) semisubmersible in December 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1,219,000 in the Current Quarter as compared
to the Comparable Quarter primarily due to higher personnel costs to support the
expansion of our deepwater drilling operations and increased training costs.
INTEREST EXPENSE. Interest expense increased $3,584,000 in the Current
Quarter as compared to the Comparable Quarter due to higher average debt
balances resulting from project financings completed in the latter part of 1998
related to EVA-4000(TM) semisubmersible conversions and the March 1999 issuance
of the Notes.
INTEREST INCOME. Interest income increased $1,075,000 in the Current
Quarter as compared to the Comparable Quarter due to higher average cash
balances resulting from project financings and the March 1999 issuance of the
Notes.
INCOME TAX PROVISION. Income tax expense decreased $9,846,000 in the
Current Quarter as compared to the Comparable Quarter due primarily to lower
pretax earnings.
EXTRAORDINARY CHARGE, NET OF TAX. Results for the Current Quarter
include an extraordinary charge of $10,833,000, net of taxes of $5,833,000,
related to the purchase and retirement of our 9 1/8% Notes.
12
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
At March 31, 1999, we had cash and cash equivalents of $294,638,000 and
approximately $196,398,000 of funds available under our line of credit. We had
working capital of $240,263,000 and $88,720,000 at March 31, 1999 and December
31, 1998, respectively. Total debt as a percentage of total debt plus
shareholders' equity was 38 percent at March 31, 1999 compared to 32 percent at
December 31, 1998.
Capital expenditures totaled $131,336,000 for the Current Quarter. We
expect capital expenditures for the remainder of 1999 to aggregate approximately
$350,000,000, of which the majority relates to conversions and upgrades of
drilling units. Approximately $170,800,000 of the $350,000,000 is for the
conversions of the Noble Jim Thompson, Noble Amos Runner and Noble Max Smith to
EVA-4000(TM) semisubmersibles. Additionally, we expect to incur capital
expenditures of approximately $113,300,000 over the remainder of 1999 to upgrade
the equipment and water depth capability of the Noble Homer Ferringon. The
conversion and upgrade of these rigs are scheduled to be completed in 1999 or
early 2000. We expect the total cost of these four semisubmersible conversions
and upgrade projects to be approximately $625,000,000.
We have entered into agreements with vendors to purchase or construct
equipment for the conversion of units. These agreements generally require
non-refundable payments as certain milestones are met. The cumulative amount of
such payments totaled $226,323,000 through March 31, 1999. As of March 31, 1999,
the Company also had $23,400,000 of purchase commitments with a remaining term
in excess of one year related to the rig conversion projects. If we cancelled
the purchase commitments, the ultimate amounts refunded would be subject to
negotiation. Certain projects currently under consideration could require, if
they materialize, capital expenditures or other cash requirements not included
in the above estimate. In addition, we will continue to evaluate acquisitions of
drilling units from time to time. Other 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 and criteria or specifications
during repair or construction.
In May 1997, the Board of Directors of Noble Drilling authorized the
repurchase of up to 10,000,000 shares of Noble Drilling common stock, or
approximately eight percent of the then outstanding common stock. As of March
31, 1999, we had repurchased 2,711,000 shares of common stock at a total cost of
$62,377,000. Additional purchases, if any, would be made from time to time on
the open market or in private transactions at prices determined by the Company.
CREDIT FACILITIES AND LONG-TERM DEBT
As of March 31, 1999, our short-term debt and current installments of
long-term debt balance was $56,185,000 as compared to $148,786,000 as of
December 31, 1998. As of March 31, 1999, our long-term debt balance was
$767,021,000 as compared to $460,842,000 as of December 31, 1998.
On March 16, 1999, we issued our 2009 Notes and 2019 Notes in the
aggregate principal amount of $400,000,000. We used approximately $218,000,000
of the net proceeds from the issuance of the Notes to purchase and retire our
9 1/8% Notes and to repay $75,000,000 outstanding under our Credit Agreement.
See Note 5 to our accompanying Condensed Consolidated Financial Statements.
As of March 31, 1999, we had no borrowings under the Credit Agreement
and $3,602,000 had been used to support outstanding letters of credit.
Additionally, at March 31, 1999, $18,431,000 of outstanding letters of credit
had been supported through a combination of unsecured letter of credit
facilities and surety bonds. As of March 31, 1999, we had the ability to borrow
$196,398,000 under the Credit Agreement.
In connection with our acquisition effective January 1, 1999 of a
majority interest in Arktik, and the bareboat charter of the Noble Kolskaya, we
incurred indebtedness to Kvaerner Maritime A.S. in the aggregate principal
amount of $17,500,000. Additionally, the Company recorded Arktik's outstanding
bank indebtedness in
13
<PAGE> 14
the amount of $24,000,000 and Arktik's indebtedness to a minority equity owner
in Arktik in the amount of $7,900,000. See Note 3 to our accompanying Condensed
Consolidated Financial Statements.
Required debt principal and interest payments for currently outstanding
debt are estimated to be approximately $80,322,000 over the remainder of 1999.
We expect to fund these obligations out of existing balances of cash and cash
equivalents as well as cash expected to be provided by operations. We anticipate
that our existing cash balances and our cash flows generated from operations
will be sufficient to meet our required debt principal and interest payments and
our expected discretionary capital expenditures, assuming no material decrease
in demand for contract drilling and turnkey services.
YEAR 2000
We are working to resolve the potential impact of the year 2000 on the
ability of our computerized systems to accurately process information that may
be date-sensitive. Any of our programs that recognize a date using "00" as the
year 1900 rather than the year 2000 could result in errors or system failures.
We are managing our year 2000 compliance issues through a committee (the "Y2K
Committee"), which was formed to develop our year 2000 initiatives. As of
December 31, 1998, the Y2K Committee had taken steps to review our critical
information technology ("IT") systems, such as computer hardware and software,
and non-information technology ("Non-IT") systems, which include computer
controlled equipment and electronic devices that are used to operate equipment
on our drilling units. Telephone systems and other office-based electronic
equipment systems are also being considered in the assessment of Non-IT systems.
The Y2K Committee has completed the initial phase of the initiative through
communication to all employees and research of year 2000 compliance issues.
The Y2K Committee has also initiated and/or received communication from
most of our customers, suppliers and service providers on year 2000 issues to
determine the extent to which we may be exposed to the disruption of business
activities in the event these third parties fail to correct their year 2000
system deficiencies. Although there is currently no indication that the various
companies on which we primarily rely will not resolve their year 2000 compliance
issues, there can be no guarantee that the systems of such companies will be
corrected on a timely basis. Additionally, there can be no guarantee that we
will not encounter an unexpected year 2000 problem.
The Y2K Committee began developing and initiating corrective measures
based on the internal and external IT and Non-IT systems reviews, which were
completed during the fourth quarter of 1998. However, if we or the third parties
on which we principally rely are unable to address these issues in a timely
manner, a material adverse impact to our results of operations and financial
position could result. In the event we or the various companies on which we
primarily rely experience year 2000 compliance problems, adverse consequences
could include the interruption of drilling services aboard our drilling units,
delays in shipments of materials and supplies required to operate our drilling
units, delays in transferring personnel to and from the drilling units, and
delays in receiving funds from customers or in making payments to suppliers.
The year 2000 remediation and testing phases for critical IT systems
are expected to be substantially completed by September 30, 1999. We have not
yet developed a contingency plan for year 2000 issues to address worst-case
business interruptions. However, once all of the identification and reviews of
system issues are completed, we will develop a contingency plan to mitigate the
risk of business interruptions, if any. We expect to have a contingency plan
completed by September 30, 1999.
As of March 31, 1999, we had incurred costs of approximately $100,000
related to our year 2000 project. The estimated additional costs to complete the
project are approximately $150,000. A portion of these costs are not
incremental, but rather reflect redeployment of internal resources from other
activities. We do not separately track the internal costs incurred for the year
2000 project. Such internal costs principally relate to payroll costs of project
personnel. All of the costs of the year 2000 project are being borne out of our
operating cash flow.
14
<PAGE> 15
ACCOUNTING PRONOUNCEMENT
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"). SFAS 133 requires that, upon
adoption, all derivative instruments (including certain derivative instruments
embedded in other contracts) be recognized in the balance sheet at fair value,
and that changes in such fair values be recognized in earnings unless specific
hedging criteria are met. Changes in the values of derivatives that meet these
hedging criteria will ultimately offset related earnings effects of the hedged
items; effects of certain changes in fair value are recorded in Other
Comprehensive Income pending recognition in earnings. SFAS 133 is effective for
fiscal years beginning after June 15, 1999. The impact of SFAS 133 on our
financial statements will depend on a variety of factors, including future
interpretive guidance from the FASB, the future level of actual foreign currency
transactions, the extent of our hedging activities, the types of hedging
instruments used and the effectiveness of such instruments. However, we believe
adoption will not have a material effect on our results of operations, cash
flows or financial position.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
We are subject to market risk exposure related to changes in interest
rates on our Credit Agreement and certain variable rate indebtedness. Interest
on these obligations is at an agreed upon percentage point spread from LIBOR. At
March 31, 1999, there were no outstanding borrowings under the Credit Agreement
and $41,500,000 of variable rate obligations were outstanding. Based upon this
balance, an immediate change of one percent in the interest rate would not cause
a material change in interest expense on an annual basis.
FOREIGN CURRENCY EXCHANGE RATE RISK
We conduct business internationally; however, the vast majority of our
foreign transactions are denominated in U.S. dollars. With minor exceptions, we
structure our drilling contracts in U.S. dollars to mitigate the exposure to
fluctuations in foreign currencies. Other than our trade accounts receivable and
trade accounts payable, we do not currently have financial instruments that are
sensitive to foreign currency rates.
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 22,
1999.
(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 for election as directors
as listed in the proxy statement and all of such nominees were
duly elected.
15
<PAGE> 16
(c) Out of a total of 131,142,998 shares of Noble Drilling common
stock outstanding and entitled to vote at the annual meeting,
117,528,695 shares were present in person or by proxy,
representing approximately 90 percent of the outstanding
shares. The first matter voted on by the stockholders, as
fully described in the proxy statement for the annual meeting,
was the election of directors 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 Number of Shares WITHHOLDING AUTHORITY
for Re-election Voting FOR Re-election to Vote for Re-election
as Director as Director as Director
------------------ ---------------------- -----------------------
<S> <C> <C>
Lawrence J. Chazen 116,739,289 789,406
William J. Dore 116,740,824 787,871
William A. Sears 116,740,928 787,767
</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 increase by 5,000,000 the number of shares of
common stock available under Noble Drilling's 1991 Stock
Option and Restricted Stock Plan. The results of voting on
this proposal were as follows:
For: 82,133,676 Against: 34,772,993 Abstain: 622,026
(d) Inapplicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The information required by this Item 6(a) is set forth in the
Index to Exhibits accompanying this quarterly report and is
incorporated herein by reference.
(b) One report on Form 8-K was filed during the quarter ended
March 31, 1999.
A report on Form 8-K dated March 1, 1999 was filed reporting
that in connection with the registered offering by Noble
Drilling of its 6.95% Senior Notes due 2009 and its 7.50%
Senior Notes due 2019, Noble Drilling had entered into an
Underwriting Agreement with the underwriters of such offering
and an Indenture and First Supplemental Indenture with the
Trustee thereunder. Copies of the Underwriting Agreement, the
Indenture and the First Supplemental Indenture were filed as
exhibits to such report on Form 8-K.
16
<PAGE> 17
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: May 14, 1999 /s/ ROBERT D. CAMPBELL
-------------------------------------------
ROBERT D. CAMPBELL,
President
DATE: May 14, 1999 /s/ BYRON L. WELLIVER
-------------------------------------------
BYRON L. WELLIVER,
Senior Vice President-Finance,
Treasurer and Controller
(Principal Financial and Accounting Officer)
17
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------ -------
<S> <C>
10 Noble Drilling Corporation Short-Term Incentive Plan
(revised April 1999).
27 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 10
NOBLE DRILLING CORPORATION
SHORT TERM INCENTIVE PLAN
Revised: April 1999*
SECTION 1. 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 efforts of all employees. In order to focus each
employee's attention on available opportunities to increase revenues, control
costs and seek out profitable ventures, the Company maintains this Short Term
Incentive Plan (the "Plan") to reward employees for successful achievement of
specific goals.
An effective incentive plan should both align employee interests with
those of stockholders and motivate and influence employee behavior. Each
position within the Company has the ability to make a positive contribution to
key factors that increase stockholder value. These factors can be quantified and
measured through achievement of various financial and operational targets, such
as net income, internal rate of return, return on capital employed, cash flow
from operations, EVA(R)1, capital expenditures and safety. The objectives of
using such targets in the formulation of the specific Company goals are to link
an employee's annual incentive award more closely to the creation of stockholder
wealth and to promote a culture of high performance and ownership by employees.
SECTION 2. PARTICIPATION AND ELIGIBILITY
The Plan covers all full-time employees in salary classifications 18N
and higher who have completed one year of service at the close of the Plan year
(December 31), which shall be the calendar year. Each such employee will be
considered either a "corporate employee" or a "division employee" for purposes
of adjustment of such employee's target bonus pursuant to Section 6. In addition
to the employees in such salary classifications, the Plan is available to
full-time, non-exempt employees not in such salary classifications who have
completed one year of service at the close of the Plan year based upon merit.
* Established in 1977
- ----------
(1) EVA(R), which stands for economic value added, is a registered trademark of
Stern Stewart & Co.
1
<PAGE> 2
To be eligible to receive a bonus payment with respect to a Plan year,
the person must be on the employee roster on the last day of such Plan year and
must continue to be employed through the date on which bonus payments for such
Plan year are made. The bonus for an employee with less than two years of
service will be prorated based upon the number of full months employed.
SECTION 3. ADMINISTRATIVE PROCEDURES
During the fourth quarter of each year, the Company will commence
preparation of budgets and forecasts for the succeeding Plan year. The Board of
Directors (the "Board") of Noble Drilling will approve the budget for the Plan
year not later than March 31st of such Plan year.
Goals for a Plan year for each of the categories in Section 5 will be
approved by the Compensation Committee (the "Committee") of the Board not later
than the annual meeting of the Board held immediately following the annual
meeting of stockholders in such Plan year. The specific goals established for
the Plan year will be set forth in an Annex I to this Plan for such Plan year,
and the Annex I hereto for each Plan year shall be incorporated into and made a
part of this Plan for such Plan year.
If, after the establishment of goals for a Plan year, the budget
changes substantially due to subsequent events, then the Chief Executive Officer
of Noble Drilling (the "CEO") shall, at his discretion, recommend and submit
revised goals to the Committee for its approval. Any such revised goals shall be
applicable to the Plan year from and after the time of their approval by the
Committee.
SECTION 4. TARGET BONUS
A target bonus is determinable for each full-time employee in salary
classification 18N or higher who has completed one year of service at the close
of a Plan year. The target bonus for an employee is an amount equal to the
employee's salary at the end of the Plan year multiplied times the target bonus
percentage assigned to such employee's salary classification. Target bonus
percentages range from 10 percent to 75 percent based on salary classification,
as follows:
2
<PAGE> 3
<TABLE>
<CAPTION>
Salary Classification (1) Target Bonus Percentage
- ------------------------- -----------------------
<S> <C>
18N through 19N 10%
20N through 23N 15%
24N through 25N 25%
26N through 27N 30%
28N through 32N 35%
30C through 32C 45%
33C through 36C 55%
37C 75%
</TABLE>
(1) Rig managers in all divisions, except the U.K. platform operation,
are assigned a 10% target bonus percentage. Platform superintendents
and rig managers in the U.K. are assigned a 5% target bonus percentage.
SECTION 5. GOAL CATEGORIES AND WEIGHTINGS
Goals for the following categories will be approved by the Committee
for each Plan year. Such goals will then be set forth in the Annex I to this
Plan for such Plan year. The relative weighting assigned to each goal will be as
set forth below subject to annual review by the Committee.
CORPORATE GOALS
<TABLE>
<CAPTION>
Assigned Weight
---------------
<S> <C>
1. Net income 50%
2. Cash flow from operations 50%
</TABLE>
DIVISION GOALS
A. Gulf Coast Marine (including Mexico), Middle East (Qatar and India),
Venezuela, West Africa, North Sea and Brazil
<TABLE>
<CAPTION>
Assigned Weight
---------------
<S> <C>
1. Safety results 40%
2. Net income 20%
3. Cash flow from operations 20%
4. Budgeted capital expenditures 20%
</TABLE>
<TABLE>
<CAPTION>
B. Hibernia and Triton Assigned Weight
---------------
<S> <C>
1. Net income 50%
2. Safety results 50%
</TABLE>
3
<PAGE> 4
SECTION 6. ADJUSTMENT OF TARGET BONUS
The respective employee target bonuses determined pursuant to Section 4
for a Plan year are subject to adjustment as set forth in this Section to
reflect the levels of achievement of the specific, predetermined goals for such
Plan year.
Corporate Employee. The target bonus for a corporate employee will be
adjusted to reflect the combined weighted percentage of achievement of
the corporate goals as set forth in Section 5.
Division Employee. In order to promote cooperation among the divisions
and recognition by each division of its contribution to the Company's
overall performance, the target bonus for a division employee will be
weighted 50 percent for achievement of the applicable division goals
and 50 percent for achievement of the corporate goals. The target bonus
for a division employee will therefore be adjusted to reflect the
combined weighted percentage of achievement of (i) the division goals
applicable to such division employee as set forth in Section 5 (50
percent) and (ii) the corporate goals as set forth in Section 5 (50
percent). Accordingly, the bonuses payable to division employees are
dependent upon the levels of achievement of both division and corporate
goals.
Subject to the determination by the Board of a sufficient bonus pool
for a Plan year pursuant to Section 7, the bonus payable to an eligible employee
in salary classification 18N or higher will be an amount equal to such
employee's target bonus amount multiplied times the applicable multiplier
determined under the following schedule:
<TABLE>
<CAPTION>
Combined Weighted Applicable Multiplier
Percentage of Goal Achievement to Calculate Bonus 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>
Schedule A to Annex I to this Plan for each Plan year sets forth an
example bonus calculation pursuant to the terms of this Plan.
4
<PAGE> 5
SECTION 7. ALLOCATION OF BONUS PAYABLE
After the end of each Plan year, the Board, in its best business
judgment, will determine the total bonus pool for such Plan year, giving due
consideration to the aggregate target bonus amounts, overall Company
performance, and levels of attainment of the specific, predetermined corporate
or division goals for such Plan year. In determining overall Company
performance, the Board will consider the Company's performance in relation to
both the predetermined corporate and division goals and the prevailing market
conditions in the industry during the Plan year.
The total bonus pool authorized by the Board for a Plan year may be an
amount equal to, less than, or greater than the aggregate amount of the bonuses
payable to all eligible employees in salary classifications 18N through 37C (the
"Aggregate Calculated Pool").
All eligible employees in salary classifications 18N through 37C will
receive a bonus as calculated in accordance with Section 6, provided the Board
has determined and authorized a total bonus pool in an amount equal to or
greater than the Aggregate Calculated Pool. If the Board authorizes a total
bonus pool in an amount less than the Aggregate Calculated Pool, then the Board
shall also determine the percentage of such bonus pool (which may be any
percentage up to 100 percent) that shall be allocated to the eligible employees
in salary classifications 18N through 37C, and the bonuses otherwise payable to
such employees will be prorated accordingly based on the amount so allocated. In
such event, the percentage of the total bonus pool not so allocated, if any,
shall be available for payment to the eligible full-time, non-exempt employees
not in salary classifications 18N through 37C based upon merit. If the Board
authorizes a total bonus pool in an amount greater than the Aggregate Calculated
Pool, then the excess amount will be allocated to eligible full-time, non-exempt
employees not in salary classifications 18N through 37C based upon merit.
Managers having responsibility for allocating merit-based bonuses to eligible
full-time, non-exempt employees not in salary classifications 18N through 37C
shall submit their proposed allocated bonus listing for such employees to the
CEO for review and approval.
All bonus calculations, allocations and recommendations are subject to
review and approval by the Committee. Notwithstanding anything otherwise
contained in this Plan, the Committee and the CEO shall have the authority to
adjust individual bonus amounts as deemed to be appropriate for any reason.
5
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 294,638
<SECURITIES> 0
<RECEIVABLES> 154,331
<ALLOWANCES> 540
<INVENTORY> 4,880
<CURRENT-ASSETS> 502,897
<PP&E> 2,174,780
<DEPRECIATION> 341,494
<TOTAL-ASSETS> 2,411,465
<CURRENT-LIABILITIES> 262,634
<BONDS> 767,021
0
0
<COMMON> 13,597
<OTHER-SE> 1,312,573
<TOTAL-LIABILITY-AND-EQUITY> 2,411,465
<SALES> 0
<TOTAL-REVENUES> 180,120
<CGS> 0
<TOTAL-COSTS> 113,292
<OTHER-EXPENSES> 27,897
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,716
<INCOME-PRETAX> 36,582
<INCOME-TAX> 10,243
<INCOME-CONTINUING> 26,339
<DISCONTINUED> 0
<EXTRAORDINARY> (10,833)
<CHANGES> 0
<NET-INCOME> 15,506
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
