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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM ___________ TO _____________
COMMISSION FILE NUMBER: 0-13857
NOBLE DRILLING CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 73-0374541
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(State of incorporation) (I.R.S. employer identification number)
10370 RICHMOND AVENUE, SUITE 400, HOUSTON, TEXAS 77042
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(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 974-3131
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Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, PAR VALUE $.10 PER SHARE NEW YORK STOCK EXCHANGE
9 1/8% SENIOR NOTES DUE 2006 NEW YORK STOCK EXCHANGE
PREFERRED STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
- -------------------------------------- -----------------------------------------
Title of each class Name of each exchange on which registered
Securities registered pursuant to Section 12(g) of the Act:
NONE
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 [ ]
Indicated by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Aggregate market value of Common Stock held by nonaffiliates as of
March 3, 1999: $1,672,000,000
Number of shares of Common Stock outstanding as of March 3, 1999:
131,142,998
DOCUMENTS INCORPORATED BY REFERENCE
Listed below are documents parts of which are incorporated herein by
reference and the part of this report into which the document is incorporated:
(1) Proxy statement for the 1999 annual meeting of stockholders - Part III
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TABLE OF CONTENTS
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PART ITEM 1. BUSINESS........................................................................ 1
I General............................................................................. 1
Business Strategy................................................................... 1
Development of Business During 1998................................................. 2
Deepwater Conversions........................................................ 2
Drilling Contracts.................................................................. 2
Offshore Drilling Operations........................................................ 3
International Contract Drilling.............................................. 3
Domestic Contract Drilling................................................... 3
Labor Contracts.............................................................. 3
Turnkey Drilling and Engineering Services........................................... 4
Competition and Risks............................................................... 4
Governmental Regulation and Environmental Matters................................... 5
Employees........................................................................... 6
Financial Information about Foreign and Domestic Operations......................... 6
ITEM 2. PROPERTIES...................................................................... 6
Drilling Fleet...................................................................... 6
Semisubmersibles............................................................. 6
Dynamically Positioned Drillships............................................ 6
Jackup Rigs.................................................................. 6
Submersibles................................................................. 7
Facilities.......................................................................... 9
ITEM 3. LEGAL PROCEEDINGS............................................................... 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................. 9
EXECUTIVE OFFICERS OF THE REGISTRANT........................................................ 9
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PART ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS........... 10
II ITEM 6. SELECTED FINANCIAL DATA......................................................... 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS...................................................................... 12
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK............................................................... 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..................................... 22
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE...................................................................... 47
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PART ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.............................. 47
III ITEM 11 EXECUTIVE COMPENSATION.......................................................... 47
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................. 47
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................. 47
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PART ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K................. 47
IV SIGNATURES.................................................................................. 49
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FORM 10-K
This report on Form 10-K 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-K, including,
without limitation, statements contained in "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations", regarding our
financial position, business strategy, plans and objectives of management for
future operations, industry conditions, and indebtedness covenant compliance,
are forward-looking statements. Although we believe that the expectations
reflected in such forward-looking statements are reasonable, we can give no
assurance 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).
PART I
ITEM 1. BUSINESS
GENERAL
The Company is a leading provider of diversified services for the oil
and gas industry. Contract drilling services are performed with the Company's
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. The Company's 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. The Company also provides
engineering and production management services and turnkey drilling services.
Noble Drilling Corporation ("Noble Drilling") was organized as a
Delaware corporation in 1939. Noble Drilling and its predecessors have been
engaged in the contract drilling of oil and gas wells for others domestically
since 1921 and internationally during various periods since 1939. 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.
BUSINESS STRATEGY
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 expand our
international and offshore deepwater capabilities through acquisitions, rig
upgrades and modifications, and to redeploy assets in important geological
areas.
The offshore contract drilling industry has, in recent years,
experienced a series of asset sales and consolidations among drilling
contractors, and we expect this trend to continue as drilling contractors
position themselves strategically in the market. From time to time, we have
discussions with third parties regarding asset acquisitions or business
combinations, and we intend to continue to consider business opportunities that
we believe promote our business strategy.
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DEVELOPMENT OF BUSINESS DURING 1998
DEEPWATER CONVERSIONS
A principal component of our deepwater strategy is our EVA-4000(TM)
semisubmersible conversion program. The EVA-4000(TM)is the Company's proprietary
design that we believe allows us to convert certain of 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 conversion, the Noble Paul
Romano, in the fourth quarter of 1998 and our second EVA-4000(TM) conversion,
the Noble Paul Wolff, is under tow to Brazil for a scheduled delivery in the
first quarter of 1999. Four other semisubmersible conversions 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.
("Petrobras") 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 contracted to a
rig-sharing consortium of operators for a five year term in the U.S. Gulf of
Mexico. The rig is expected to be delivered in the third quarter of 1999. 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. 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. These projects are subject to the risks of
delay or cost overruns inherent in large construction and refurbishment
projects, including shipyard availability, shortages of materials or skilled
labor, unforeseen engineering problems, work stoppages, weather interference,
unanticipated cost increases, nonavailability of necessary equipment and
inability to obtain any of the requisite permits or approvals. Significant
delays would hurt our marketing plans for such rigs and could jeopardize our
long term drilling contracts or letters of intent for drilling contracts for
such rigs.
See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources" for a
discussion of capital expenditures.
DRILLING CONTRACTS
We typically employ each drilling unit under an individual contract.
Although the final terms of such contracts are the result of negotiations
between the Company and its customers, many contracts are awarded based upon
competitive bidding. Our drilling contracts generally contain the following
terms:
o a term extending over a specific period of time or the period
necessary to drill one or more wells (in general, we seek to have a
reasonable balance of short- and long-term contracts to minimize the
downside impact of a decline in the market, while obtaining the
benefit of increasing market prices in a rising market);
o early termination by the customer without cause and extension options
to drill additional wells, in each case, generally exercisable by the
customer upon specified advance notice to us; early termination by the
customer if the unit is lost or destroyed, if operations are suspended
for a specified period of time due to breakdown of major equipment or
if operations are suspended for a specified period of time due to
"force majeure" events beyond our control and the control of the
customer;
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o payment of compensation to the Company (generally in U.S. dollars) on
a "daywork" basis, under which we receive a fixed amount per day that
the drilling unit is operating under contract, with lower rates or no
compensation payable during periods of equipment breakdown and repair
or adverse weather or in the event operations are interrupted by other
conditions, some of which may be beyond our control; and
o payment by the Company of the operating expenses of the drilling unit,
including labor costs and the cost of incidental supplies.
In reaction to depressed market conditions, our customers may seek to
avoid or reduce their obligations under term drilling contracts or letters of
intent for drilling contracts. A customer may no longer need a rig, due to a
reduction in its exploration, development or production program, or it may seek
to obtain a comparable rig at a lower dayrate.
We anticipate that the primary terms of the current contracts on 23 of
38 of our rigs will expire at varying times in 1999, subject to options to
extend in the case of six contracts. Of the contracts expiring in 1999, the
contract for our semisubmersible unit operating in the North Sea and the
contracts for 10 of our jackup rigs and submersibles (five of which are
well-to-well contracts) are scheduled to expire under the terms of the contracts
before the 15th of April, subject to extensions to complete work in progress.
Assuming continuation of the current weak demand for offshore drilling services,
we expect that the dayrate under any new or renewal contract that we enter
generally will be a lower dayrate than under the expiring contract.
Many contracts allow us to recover our mobilization and demobilization
costs associated with moving a drilling unit from one location to another. When
market conditions require us to bear these costs, our operating margins are
accordingly reduced. Market conditions prevailing in 1998 and year to date in
1999 have permitted us to recover our mobilization and demobilization costs to
move a unit long distances between operating areas; however, we cannot predict
our ability to recover these costs in the future. For shorter moves such as
"field moves", our customers have generally agreed to bear the costs of moving
the unit by paying us a reduced dayrate or "move rate" while the unit is being
moved.
Through Triton Engineering Services Company and its subsidiaries, we
also participate in "turnkey" contracts (see "Item 1. Business - Turnkey
Drilling and Engineering Services"). The risk of loss to us is generally higher
with respect to our turnkey drilling operations than it is for daywork contract
drilling operations.
OFFSHORE DRILLING OPERATIONS
Our offshore contract drilling operations, which accounted for
approximately 76 percent and 66 percent of operating revenues for the years
ended December 31, 1998 and 1997, respectively, are conducted worldwide. Our
offshore drilling fleet consists of 47 units. See "Item 2. Properties - Drilling
Fleet." Our principal regions of offshore contract drilling operations include
the North Sea, the Gulf of Mexico, Africa, South America, the Middle East and
India. In 1998, one customer accounted for approximately 12 percent of our total
operating revenues, and no other single customer accounted for more than 10
percent of our total operating revenues.
INTERNATIONAL CONTRACT DRILLING
Offshore contract drilling services from international sources
accounted for approximately 80 percent and 74 percent of our total offshore
contract drilling services revenues for 1998 and 1997, respectively. In 1998,
approximately 39 percent of our international offshore contract drilling
services revenues was derived from contracts with major oil and gas companies,
37 percent from contracts with government-owned companies and the balance from
contracts with independent operators.
DOMESTIC CONTRACT DRILLING
Offshore contract drilling services from domestic sources accounted
for approximately 20 percent and 26 percent of our total offshore contract
drilling services revenues for 1998 and 1997, respectively. In 1998,
approximately 86 percent of our domestic offshore contract drilling revenues was
derived from contracts with independent operators and the remaining 14 percent
was derived from contracts with major oil and gas companies.
LABOR CONTRACTS
Our offshore operations also include labor contracts for drilling and
workover activities covering 12 rigs operating in the U.K. North Sea and two
rigs under a labor contract off the East Coast of Canada. These rigs are not
owned or leased by us. Under our labor contracts, we provide the personnel
necessary to manage and perform the drilling operations from drilling platforms
owned by the operator. The contracts are generally renewable no more frequently
than on an annual basis. After drilling operations are completed, workover
operations usually become an important element of each platform's activity.
Drilling contractor crews will, therefore, typically remain on the platform
until a field is depleted by production.
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TURNKEY DRILLING AND ENGINEERING SERVICES
Through our wholly owned subsidiary, Triton Engineering Services
Company ("Triton"), we provide turnkey drilling, drilling project management,
drilling and completion planning and design, and contract engineering and
consulting manpower. Turnkey drilling, Triton's major service, involves the
coordination of all equipment, materials, services and management to drill a
well to a specified depth, for a fixed price. Under turnkey drilling contracts,
Triton bears the financial risk of delays in the completion of the well. In
providing its services, Triton can use drilling rigs owned either by the Company
or by a third party, depending on availability. The drilling of a turnkey well
is generally completed within 30 to 50 days. Triton completed 14 wells in 1998
compared to 34 wells in 1997. Revenues from turnkey drilling services
represented 14 percent and 25 percent of consolidated operating revenues for
1998 and 1997, respectively.
We provide engineering services relating primarily to the design of
drilling equipment for offshore development and production services and to the
recertification of oilfield equipment. We work on a contract basis with
operators and prime construction contractors of drilling and production
platforms in the design of drilling equipment configurations aimed at optimizing
the operational efficiency of developmental drilling by maximizing platform
space utilization and load capability.
COMPETITION AND RISKS
The contract drilling industry is a highly competitive and cyclical
business characterized by high capital and maintenance costs. We believe that
competition for drilling contracts will continue to be intense for the
foreseeable future. Certain competitors may have access to greater financial
resources than we do.
Competition in contract drilling involves numerous factors, including
price, rig availability and suitability, the experience of the workforce,
efficiency, condition of equipment, operating integrity, reputation, industry
standing and customer relations. Although price is a major consideration in most
markets, especially with respect to domestic drilling, the limited supply of
deepwater units has made rig availability and suitability a principal
consideration in recent periods. We believe that we compete favorably with
respect to all these factors. Competition is primarily on a regional basis and
may vary significantly by region at a particular time. Demand for offshore
drilling equipment is also dependent on the exploration and development programs
of oil and gas producers, which are in turn influenced by the financial
condition of such producers, by general economic conditions and prices of oil
and gas, and, from time to time, by political considerations and policies.
We follow a policy of keeping our equipment well maintained and
technologically competitive. However, our equipment could be made obsolete by
the development of new techniques and equipment. In addition, industry-wide
shortages of supplies, services, skilled personnel and equipment necessary to
conduct our business, such as blowout preventers and drill pipe, occur from time
to time. There can be no assurance that any such shortages experienced in the
past would not occur again or that any such shortages, to the extent currently
existing, will not continue or worsen in the future.
Our results of operations depend on the levels of activity in offshore
oil and gas exploration, development and production in markets worldwide. Both
short-term and long-term trends in oil and gas affect that activity. During the
second quarter of 1998, demand for offshore drilling rigs in the U.S. Gulf of
Mexico began to soften, and, as a result, rig utilization and dayrates began
declining in mid-1998. Later in 1998, international demand for offshore drilling
rigs weakened and rig utilization and dayrates began declining in those markets.
We believe this decreased demand is largely attributable to depressed oil prices
that began declining in 1997 and have remained at low levels as compared to
average prices in recent years.
Oil and gas prices and market expectations of potential changes in
these prices significantly affect the level of activity in oil and gas
exploration, development and production. These market prices are extremely
volatile. 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.
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We believe that any decrease from current oil and gas prices, or
extended periods at current price levels, 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. These reductions adversely affect the demand for our services. For
these reasons, we cannot predict the future level of demand for our drilling
services or future conditions in the offshore contract drilling industry.
Our operations are subject to the many hazards inherent in the
drilling business, including blowouts, cratering, fires, and collisions or
groundings of offshore equipment. In addition, our operations are subject to
damage or loss from adverse weather and seas. These hazards could cause personal
injury and loss of life, suspend drilling operations or seriously damage or
destroy the property and equipment involved and, in addition to causing
environmental damage, could cause substantial damage to producing formations and
surrounding areas. Although we maintain insurance against many of these hazards,
such insurance may be subject to substantial deductibles and provides for
premium adjustments based on claims. It also excludes certain matters from
coverage, such as loss of earnings on certain rigs. Also, while we generally
obtain indemnification from our customers for environmental damage with respect
to offshore drilling, such indemnification is generally only in excess of a
specified amount, which typically ranges from $100,000 to $250,000.
In the case of turnkey drilling operations, we maintain insurance
against pollution and environmental damage in amounts ranging from $5,000,000 to
$50,000,000 depending on location, subject to self-insured retentions of $25,000
to $1,000,000. Under turnkey drilling contracts, Triton generally assumes the
risk of pollution and environmental damage, but on occasion receives
indemnification from the customer for environmental and pollution liabilities in
excess of Triton's pollution insurance coverage. Further, Triton is not insured
against certain drilling risks that could result in delays or nonperformance of
a turnkey drilling contract, although it generally maintains insurance against
delays related to loss of well control. Triton typically obtains contractual
indemnification from the drilling contractors that provide the rigs for Triton's
turnkey drilling operations for pollution arising from certain acts of such
contractors.
Our international operations are also subject to certain political,
economic and other uncertainties including, among others, risks of war and civil
disturbances, expropriation, nationalization, renegotiation or modification of
existing contracts, taxation policies, foreign exchange restrictions,
international monetary fluctuations and other hazards arising out of foreign
governmental sovereignty over certain areas in which we conduct operations. We
have sought to obtain, where economic, insurance against certain political
risks. However, there can be no assurance that such insurance would be available
to us or, if available, would cover all losses that we may incur in respect of
foreign operations.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS
Many aspects of our operations are affected by domestic and foreign
political developments and are subject to numerous governmental regulations that
may relate directly or indirectly to the contract drilling industry. The
regulations applicable to our operations include certain provisions that
regulate the discharge of materials into the environment or require remediation
of contamination, under certain circumstances. Usually these environmental laws
and regulations impose "strict liability", rendering a person liable without
regard to negligence or fault on the part of such person. Such environmental
laws and regulations may expose us to liability for the conduct of, or
conditions caused by, others, or for any of our acts, even if they were in
compliance with all applicable laws at the time such acts were performed.
The U.S. Oil Pollution Act of 1990 ("OPA `90") and regulations
thereunder impose certain additional operational requirements on our domestic
offshore rigs and govern liability for leaks, spills and blowouts involving
pollutants. Regulations under OPA `90 require owners and operators of rigs in
United States waters to maintain certain levels of financial responsibility. We
monitor these regulations and do not believe that they are likely to have a
material adverse effect on our financial condition or results of operations. We
have made and will continue to make expenditures to comply with environmental
requirements. We have not to date expended material amounts in connection with
such activities and do not believe that compliance with such requirements will
have a material adverse effect upon our results of operations or competitive
position or materially increase our capital expenditures. Although such
requirements do have a substantial impact upon the energy and energy services
industries, generally
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they do not appear to affect us any differently or to any greater or lesser
extent than other companies in the energy services industry.
The modification of existing laws or regulations or the adoption of
new laws or regulations curtailing exploratory or developmental drilling for oil
and gas for economic, environmental or other reasons could materially and
adversely affect our operations by limiting drilling opportunities.
EMPLOYEES
At December 31, 1998, we had approximately 3,250 employees, of which
70 percent were engaged in international operations and 30 percent were engaged
in domestic operations. We are not a party to any collective bargaining
agreements that are material. We consider our employee relations to be
satisfactory.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
Information regarding operating revenues, operating income and loss,
and identifiable assets attributable to each of our geographic areas of
operations for the last three fiscal years is presented in Note 15 of Notes to
Consolidated Financial Statements included elsewhere herein.
ITEM 2. PROPERTIES
DRILLING FLEET
Our offshore drilling rig fleet consists of 47 units comprising nine
semisubmersibles (including five submersibles that have been or are being
converted to EVA-4000(TM) semisubmersibles), three drillships, 32 jackup rigs
and three submersibles. The rig count includes one drillship and one
semisubmersible unit in which we have partial ownership interests through joint
venture arrangements and one jackup rig operated pursuant to a long-term
bareboat charter agreement with the owner. Each type of rig is described further
below. There are several factors that determine the type of rig most suitable
for a particular job, the more significant of which include the water depth and
bottom conditions at the proposed drilling location, whether the drilling is
being done over a platform or other structure, and the intended well depth.
SEMISUBMERSIBLES
Our semisubmersible fleet consists of nine units. Among the nine are
three units being converted to EVA-4000(TM) semisubmersibles and three Friede &
Goldman 9500 Enhanced Pacesetter semisubmersibles, including one in which we own
a 50 percent interest (with the option to increase to 70 percent) through a
joint venture arrangement. We intend to convert the three Pacesetter
semisubmersibles to deepwater drilling units. Semisubmersibles are floating
platforms which, by means of a water ballasting system, can be submerged to a
predetermined depth so that a substantial portion of the hull is below the water
surface during drilling operations. These units maintain their position over the
well through the use of either a fixed mooring system or a dynamic positioning
system and are designed to work in water depths of up to 8,900 feet and can
drill in many areas where jackup rigs can also drill. However, semisubmersibles
normally require water depth of at least 200 feet in order to conduct
operations. Three of these units are designed to operate in harsh environments.
Semisubmersibles are typically more expensive to construct and operate than
jackup rigs.
DYNAMICALLY POSITIONED DRILLSHIPS
We have three dynamically positioned drillships in the fleet, one of
which we partially own through a joint venture arrangement. Drillships are ships
that are equipped for drilling and are typically self-propelled and move from
one location to another under their own power. Drillships are positioned over
the well through use of either an anchoring system or a computer controlled
dynamic positioning system. Our two wholly owned drillships, the Noble Leo
Segerius and Noble Roger Eason, are capable of drilling in water depths up to
4,900 feet and 6,000 feet, respectively. The Noble Muravlenko, which we operate
and partially own through a joint venture arrangement, is capable of drilling in
water depths up to 4,000 feet.
JACKUP RIGS
We have 32 jackup rigs in the fleet, including one jackup rig which we
operate pursuant to a long-term bareboat charter agreement with the owner.
Jackup rigs are mobile self-elevating drilling platforms equipped with legs
which can be lowered to the ocean floor until a foundation is established to
support the drilling platform. The rig hull includes the drilling rig, jacking
system, crew quarters, loading and unloading facilities, storage areas for bulk
and liquid materials, helicopter
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landing deck and other related equipment. All of our jackup rigs are independent
leg (i.e., the legs can be raised or lowered independently of each other)
cantilevered rigs. A cantilevered jackup has a feature that permits the drilling
platform to be extended out from the hull, allowing it to perform drilling or
workover operations over pre-existing platforms or structures. Moving a rig to
the drill site involves jacking up its legs until the hull is floating on the
surface of the water. The hull is then towed to the drill site by tugs and the
legs are jacked down to the ocean floor. The jacking operation continues until
the hull is raised out of the water and drilling operations are conducted with
the hull in its raised position. Our jackup rigs are capable of drilling to a
maximum depth of 25,000 feet in water depths ranging between eight and 390 feet,
depending on the jackup rig. Nineteen of our jackup rigs represent premium units
that operate in water depths of 300 feet and greater, four of which operate in
water depths of 360 feet and greater. Seven of our jackup rigs are capable of
operating in harsh environments.
SUBMERSIBLES
We have three submersibles in the fleet. Submersibles are mobile
drilling platforms which are towed to the drill site and submerged to drilling
position by flooding the lower hull until it rests on the sea floor, with the
upper deck above the water surface. Our submersibles are capable of drilling to
a maximum depth of 25,000 feet in water depths ranging between 12 and 85 feet,
depending on the submersible.
The following table sets forth certain information concerning our
drilling rig fleet at February 8, 1999. The table does not include 14 rigs owned
by operators for which we had labor contracts as of February 8, 1999. We operate
and, unless otherwise indicated, own all of the rigs included in the table.
7
<PAGE> 10
Drilling Fleet
<TABLE>
<CAPTION>
WATER DRILLING
DEPTH DEPTH
YEAR BUILT RATING CAPACITY
NAME MAKE OR REBUILT(1) (FEET) (FEET) LOCATION STATUS (2)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SEMISUBMERSIBLES - 9
Noble Paul Wolff (T) Noble EVA-4000(TM) 1998 R 8,900 30,000 Brazil Active
Noble Paul Romano (T) Noble EVA-4000(TM) 1998 R 6,000 30,000 U.S. Gulf of Mexico Active
Noble Amos Runner (T) (3) Noble EVA-4000(TM) 1999 R 6,600 30,000 U.S. Gulf of Mexico Shipyard
Noble Jim Thompson (T) (3) Noble EVA-4000(TM) 1999 R 6,000 30,000 U.S. Gulf of Mexico Shipyard
Noble Max Smith (T) (4) Noble EVA-4000(TM) 1999 R 6,000 30,000 U.S. Gulf of Mexico Shipyard
Noble Homer Ferrington (T) (4) Friede & Goldman 9500 2000 R 6,000 30,000 U.S. Gulf of Mexico Shipyard
Enhanced Pacesetter
Noble Ton van Langeveld (T) (5) Offshore Co. SCP III 1991 R 1,500 20,000 U.K. Active
Noble Shelf 6 (5) Friede & Goldman 9500 1986 6,000 25,000 China Shipyard
Enhanced Pacesetter
Noble Ilion (5) (6) Friede & Goldman 9500 1987 6,000 25,000 U.S. Gulf of Mexico Shipyard
Enhanced Pacesetter
- -----------------------------------------------------------------------------------------------------------------------------------
DYNAMICALLY POSITIONED DRILLSHIPS - 3
Noble Roger Eason (T) Nedlloyd 1997 R 6,000 25,000 Brazil Active
Noble Leo Segerius (T) Gusto Engineering 1996 R 4,900 20,000 Brazil Active
Pelican Class
Noble Muravlenko (T) (7) Gusto Engineering 1997 R 4,000 21,000 Brazil Active
Pelican Class
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT LEG CANTILEVERED JACKUPS - 32
Noble Bill Jennings (T) MLT 84 - E.R.C. 1997 R 390 25,000 U.S. Gulf of Mexico Active
Noble Eddie Paul (T) MLT 84 - E.R.C. 1995 R 390 25,000 U.S. Gulf of Mexico Active
Noble Leonard Jones (T) MLT 53 - E.R.C. 1998 R 390 25,000 U.S. Gulf of Mexico Active
Noble Al White (T) (5) CFEM T-2005C 1997 R 360 25,000 Norway Active
Noble Byron Welliver (T) (5) CFEM T-2005C 1982 300 25,000 Denmark Active
Noble Kolskaya (T) (5) (8) Gusto Engineering 1997 R 330 25,000 Denmark Active
Noble Johnnie Hoffman (T) Baker Marine BMC 300 1993 R 300 25,000 U.S. Gulf of Mexico Active
Noble Roy Butler (T) (9) F&G L-780 MOD II 1996 R 300 25,000 Nigeria Active
Noble Tommy Craighead (T) F&G L-780 MOD II 1990 R 300 25,000 Nigeria Active
Noble Kenneth Delaney (T) F&G L-780 MOD II 1998 R 300 25,000 Qatar Active
Noble Percy Johns (T) F&G L-780 MOD II 1995 R 300 25,000 Nigeria Active
Noble George McLeod (T) F&G L-780 MOD II 1995 R 300 25,000 Qatar Active
Noble Jimmy Puckett (T)(3)(10) F&G L-780 MOD II 1999 R 300 25,000 UAE Shipyard
Noble Gus Androes (T) Levingston 111-C 1996 R 300 25,000 Qatar Active
Noble Lewis Dugger (T) Levingston 111-C 1997 R 300 20,000 Bay of Campeche Active
Noble Ed Holt (T) (9) Levingston 111-C 1994 R 300 25,000 India Active
Noble Sam Noble (T) Levingston 111-C 1982 300 25,000 U.S. Gulf of Mexico Available
Noble Gene Rosser (T) Levingston 111-C 1996 R 300 20,000 Bay of Campeche Active
Noble John Sandifer (T) Levingston 111-C 1995 R 300 20,000 Bay of Campeche Active
Noble Charles Copeland (T) MLT Class 82-SD-C 1995 R 250 20,000 Venezuela Active
Noble Earl Frederickson (T) MLT Class 82-SD-C 1979 250 20,000 U.S. Gulf of Mexico Available
Noble Tom Jobe (T) MLT Class 82-SD-C 1982 250 25,000 U.S. Gulf of Mexico Active
Noble Ed Noble (T) MLT Class 82-SD-C 1990 R 250 20,000 Nigeria Active
Noble Lloyd Noble (T) MLT Class 82-SD-C 1990 R 250 20,000 Nigeria Available
Noble Carl Norberg (T) MLT Class 82-C 1996 R 250 20,000 U.S. Gulf of Mexico Available
Noble Chuck Syring (T) MLT Class 82-C 1996 R 250 20,000 Qatar Active
Noble George Sauvageau (T) (5) (11) NAM Nedlloyd 1981 250 20,000 Denmark Active
Noble Ronald Hoope (T) (5) (11) Marine Structure CJ-46 1982 205 25,000 The Netherlands Active
Noble Lynda Bossler (T) (5) (11) Marine Structure CJ-46 1982 205 25,000 The Netherlands Active
Noble Piet van Ede (T) (5) (11) Marine Structure CJ-46 1982 205 25,000 The Netherlands Active
Noble Dick Favor Baker Marine BMC 150 1993 R 150 20,000 Venezuela Active
Noble Don Walker (T) Baker Marine BMC 150 1992 R 150 20,000 Nigeria Active
- ------------------------------------------------------------------------------------------------------------------------------------
SUBMERSIBLES - 3
Noble Joe Alford Pace Marine 85G 1997 R 85 25,000 U.S. Gulf of Mexico Active
Noble Lester Pettus Pace Marine 85G 1997 R 85 25,000 U.S. Gulf of Mexico Active
Noble Frl Rodli Transworld 1998 R 70 25,000 U.S. Gulf of Mexico Available
</TABLE>
(T) Denotes Top Drive
(1) Rigs designated with an "R" were modified, refurbished or otherwise
upgraded in the year indicated by capital expenditures in an amount deemed
material by management.
(2) Rigs listed as "active" were operating under contract, and rigs listed as
"available" were available for bidding as of February 8, 1999. Rigs listed
as "shipyard" are in a shipyard for repair, refurbishment or upgrade.
Shipyard work is scheduled to be completed during 1999 or early 2000,
except for the Noble Shelf 6 and Noble Ilion which can be upgraded to a
water depth rating of 6,000 feet when the Company receives a long-term
contract with an operator.
(3) Signed long-term contracts in place.
(4) Under letter of intent for long-term contract.
(5) Harsh environment capability.
(6) We own a 50 percent interest in the unit through a joint venture
arrangement. At our election, we can convert a loan we have made to the
venture to an additional 20 percent in the venture.
(7) We operate the unit and own a partial interest in the unit through a joint
venture arrangement.
(8) We have operating control of the unit pursuant to a long-term bareboat
charter agreement with the owner.
(9) Although designed for a water depth rating of 300 feet of water, the rig is
currently equipped with legs adequate to drill in approximately 250 feet of
water. The Company owns the additional legs required to extend the drilling
depth capability to 300 feet of water.
(10) Bareboat chartered to a third party under which the Company maintains
operating control of the rig.
(11) Water depth rating based on North Sea conditions year round.
8
<PAGE> 11
FACILITIES
The Company's principal executive offices are located in Houston,
Texas, and are leased through June 2000. The Company also leases administrative
and marketing offices, and sites used primarily for storage, maintenance and
repairs for drilling rigs and equipment, in New Orleans and Lafitte, Louisiana;
Leduc and St. Johns, Canada; Warri, Lagos and Port Harcourt, Nigeria; Aberdeen,
Scotland; Maracaibo and Cuidad Ojeda, Venezuela; Doha, Qatar; Rotterdam and
Beverwijk, The Netherlands; Macae, Brazil; and Esjberg, Denmark. The Company
owns certain tracts of land, including office and administrative buildings and
warehouse facilities in Lafayette and Bayou Black, Louisiana and Aberdeen,
Scotland.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company
is a party or of which its property is the subject. The Company is involved in
certain routine litigation incidental to the business of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information as of March 2,
1999 with respect to the executive officers of Noble Drilling.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
James C. Day 55 Chairman and Chief Executive Officer and Director
Robert D. Campbell 48 President and Director
Byron L. Welliver 53 Senior Vice President - Finance, Treasurer and Controller
Julie J. Robertson 43 Vice President - Administration and Corporate Secretary
</TABLE>
James C. Day has served as Chairman of Noble Drilling since October
22, 1992 and as Chief Executive Officer since January 1, 1984, and he served as
President from January 1, 1984 to January 1, 1999. From January 1983 until his
election as President and Chief Executive Officer, Mr. Day served as Vice
President of Noble Drilling. Prior to 1983, Mr. Day served as Vice President and
Assistant Secretary of Noble Affiliates, Inc. He has been a director of Noble
Drilling since 1984. Mr. Day is also a director of Global Industries, Ltd. and
Noble Affiliates, Inc.
Robert D. Campbell has served as President of Noble Drilling since
January 1, 1999 and as a director since February 4, 1999. Prior to January 1,
1999, Mr. Campbell practiced corporate/securities law as a senior shareholder
with the firm of Thompson & Knight, P.C. and served as general counsel to the
Company for more than five years.
Byron L. Welliver has served as Senior Vice President - Finance of
Noble Drilling since April 1989, as Treasurer of Noble Drilling since July 1986,
and as Controller of Noble Drilling since September 1994. Mr. Welliver had
served as Controller from April 1989 to April 1991. From July 1986 to April
1989, he also served as Vice President - Finance for Noble Drilling. He joined
Noble Drilling in October 1985, as Controller. Prior to joining Noble Drilling,
Mr. Welliver served consecutively as Tax Manager, Controller and Treasurer of
Noble Affiliates, Inc. beginning in March 1981.
Julie J. Robertson has served as Vice President-Administration of
Noble Drilling since April 1996 and as Corporate Secretary of Noble Drilling
since December 1993. In September 1994, Ms. Robertson became Vice
President-Administration of Noble Drilling Services Inc. From January 1989 to
September 1994, Ms. Robertson served consecutively as Manager of Benefits and
Director of Human Resources for Noble Drilling Services Inc. Prior to 1989, Ms.
Robertson served consecutively in the positions of Risk and Benefits Manager and
Marketing Services Coordinator for a predecessor subsidiary of the Company,
beginning in 1979.
9
<PAGE> 12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Noble Drilling's Common Stock, par value $0.10 per share ("Common
Stock"), is listed and traded on the New York Stock Exchange under the symbol
"NE". The following table sets forth for the periods indicated the high and low
sales prices of the Common Stock.
<TABLE>
<CAPTION>
HIGH LOW
--------------- ------------------
<S> <C> <C>
1998
First quarter............................. $ 32 11/16 $ 21 9/16
Second quarter............................ 34 11/16 22 7/8
Third quarter............................. 25 11/16 10 3/4
Fourth quarter............................ 19 1/4 11
1997
First quarter............................. $ 24 1/2 $ 15 5/8
Second quarter............................ 23 3/8 15 1/2
Third quarter............................. 32 1/2 22 5/8
Fourth quarter............................ 38 3/16 25 9/16
</TABLE>
The Company has not paid any cash dividends on the Common Stock since
becoming a publicly held corporation in October 1985, and does not anticipate
paying dividends on the Common Stock at any time in the foreseeable future.
Certain provisions of the indenture governing the 9 1/8% Senior Notes due 2006
restrict the Company's ability to pay cash dividends on the Common Stock.
At March 2, 1999, there were 2,430 record holders of Common Stock.
10
<PAGE> 13
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1998 1997 1996 1995 1994
----------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (1)
Operating revenues............................... $ 788,241 $ 713,195 $ 514,253 $ 327,968 $ 351,988
Income before extraordinary charge and preferred
stock dividends (2) ............................ $ 162,032 $ 263,882 $ 79,297 $ 1,594 $ 21,523
Net income (loss) applicable to common shares
(2) (3) ....................................... $ 162,032 $ 257,197 $ 72,597 $ (5,605) $ 8,759
Per common share: (2) (4)
Income before extraordinary charge:
Basic........................................ $ 1.24 $ 2.00 $ 0.68 $ (0.08) $ 0.11
Diluted...................................... $ 1.23 $ 1.98 $ 0.67 $ (0.08) $ 0.11
Net income: (3)
Basic........................................ $ 1.24 $ 1.95 $ 0.67 $ (0.08) $ 0.11
Diluted...................................... $ 1.23 $ 1.93 $ 0.66 $ (0.08) $ 0.11
BALANCE SHEET DATA (AT END OF PERIOD) (1)
Property and equipment, net...................... $ 1,649,133 $ 1,182,927 $ 957,034 $ 542,978 $ 493,322
Total assets..................................... $ 2,178,632 $ 1,505,811 $ 1,367,173 $ 742,530 $ 739,889
Long-term debt................................... $ 460,842 $ 138,139 $ 239,272 $ 129,923 $ 126,546
Total debt (5)................................... $ 609,628 $ 147,837 $ 242,894 $ 142,133 $ 132,790
Shareholders' equity............................. $ 1,310,473 $ 1,149,054 $ 925,249 $ 523,493 $ 527,611
OTHER DATA (1)
Cash dividends per common share.................. $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
Capital expenditures............................. $ 540,571 $ 391,065 $ 216,887 $ 91,202 $ 55,834
</TABLE>
- ------------------
(1) The selected financial data include the 1996 acquisition of Royal Nedlloyd
N.V.'s offshore drilling division ("Neddrill") and the 1994 acquisition of
Triton Engineering Services Company, both of which were accounted for under
the purchase method. Certain reclassifications have been made in prior year
selected financial data to conform to the classifications used in 1998.
(2) Effective January 1, 1995, we revised our estimates of salvage values and
remaining depreciable lives of certain rigs. The effect of this change in
estimate was a decrease to depreciation and amortization of $6,160,000, or
$0.07 per basic and diluted share, in 1995. The amounts include
non-recurring gains on sales of property and equipment, net of impairments
and income taxes of $128,489,000 ($0.97 per basic and $0.96 per diluted
share), $19,856,000 ($0.18 per basic and diluted share), $829,000 ($0.01
per basic and diluted share) and $8,858,000 ($0.12 per basic and $0.11 per
diluted share) in 1997, 1996, 1995 and 1994, respectively.
(3) The amounts include net extraordinary charges of $6,685,000 ($0.05 per
basic and diluted share) in 1997 and $660,000 ($0.01 per basic and diluted
share) in 1996.
(4) The 1995 amounts include the $0.02 per share effect of a preferred
conversion payment in March 1995 related to the conversion into common
stock of 923,862 shares of Noble Drilling's $2.25 Convertible Exchangeable
Preferred Stock. The payment of $1,524,000 was accounted for as a reduction
of net earnings applicable to common shares when calculating the net loss
per share.
(5) Consists of long-term debt ($460,842,000 in 1998), short-term debt
($101,227,000 in 1998) and current installments of long-term debt
($47,559,000 in 1998). The 1998 amount includes $112,250,000 principal
amount of fixed rate senior secured notes issued by an indirect, wholly
owned subsidiary of Noble Drilling, which notes are non-recourse except to
the issuer thereof.
11
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion is intended to assist you in understanding the
Company's financial position as of December 31, 1998 and 1997, and our results
of operations for each of the three years in the period ended December 31, 1998.
You should read the accompanying Consolidated Financial Statements and their
Notes in conjunction with this discussion.
BUSINESS ENVIRONMENT
The Company is a leading provider of diversified services for the oil
and gas industry. Contract drilling services are performed with the Company's
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. The Company also provides engineering and
production management services and turnkey drilling services.
Our results of operations depend on the levels of activity in offshore
oil and gas exploration, development and production in markets worldwide. Both
short-term and long-term trends in oil and gas affect that activity. During the
second quarter of 1998, demand for offshore drilling rigs in the U.S. Gulf of
Mexico began to soften, and, as a result, rig utilization and dayrates began
declining in mid-1998. Later in 1998, international demand for offshore drilling
rigs weakened and rig utilization and dayrates began declining in those markets.
We believe this decreased demand is largely attributable to depressed oil prices
that began declining in 1997 and have remained at low levels as compared to
average prices in recent years.
Oil and gas prices and market expectations of potential changes in
these prices significantly affect the level of activity in oil and gas
exploration, development and production. These market prices are extremely
volatile. Demand for drilling services depends on a variety of economic and
political factors, including worldwide demand for oil and gas, the ability of
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.
We believe that any decrease from current oil and gas prices, or
extended periods at current price levels, 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. This reduction adversely affects the demand for our services. For
these reasons, we cannot predict the future level of demand for our drilling
services or future conditions in the offshore contract drilling industry.
A principal component of our deepwater strategy is our EVA-4000(TM)
semisubmersible conversion program. The EVA-4000(TM)is the Company's 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 conversion, the Noble Paul Romano, in the
fourth quarter of 1998 and our second EVA-4000(TM) conversion, the Noble Paul
Wolff, is under tow to Brazil for a scheduled delivery in the first quarter of
1999. Four other semisubmersible conversions 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 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 Petrobras 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 contracted to a rig-sharing
consortium of operators for a five year term in the U.S. Gulf of Mexico. The rig
is expected to be delivered in the third quarter of 1999. 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. 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. These projects are subject to the risks of
delay or cost overruns inherent in large construction and refurbishment
projects, including shipyard availability, shortages of materials or skilled
labor, unforeseen engineering problems, work stoppages, weather interference,
unanticipated cost increases, nonavailability of necessary equipment and
inability to obtain any of the requisite permits or approvals. Significant
delays would hurt our marketing plans for such rigs and could jeopardize our
long term drilling contracts or letters of intent for drilling contracts for
such rigs.
12
<PAGE> 15
RESULTS OF OPERATIONS
1998 COMPARED TO 1997
GENERAL
Net income for 1998 was $162,032,000, or $1.23 per diluted share, on
operating revenues of $788,241,000, compared to net income of $257,197,000, or
$1.93 per diluted share, on operating revenues of $713,195,000 for 1997.
Excluding the effects of non-recurring items, net income for 1998 increased 20
percent to $163,917,000, or $1.24 per diluted share, from net income of
$136,896,000, or $1.03 per diluted share, for 1997. The results for 1997
included a gain of $128,489,000, net of taxes of $69,187,000, related to the
sale of our mat-supported jackup rigs. The results for 1997 also included an
extraordinary charge of $6,685,000, net of taxes of $3,600,000, related to the
purchase of $110,885,000 principal amount of our outstanding 9 1/4% Senior Notes
Due 2003 (the "9 1/4% Notes").
RIG UTILIZATION, OPERATING DAYS AND AVERAGE DAYRATE
The following table sets forth the average rig utilization rates,
operating days and average dayrate for our offshore rig fleet for 1998 and 1997:
<TABLE>
<CAPTION>
AVERAGE RIG
UTILIZATION RATES (1) OPERATING DAYS AVERAGE DAYRATE
------------------------ ----------------------- -----------------------
1998 1997 1998 1997 1998 1997
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Offshore
International ....... 90% 95% 9,148 9,826 $52,348 $35,244
Domestic ............ 78% 98% 2,720 3,474 $44,795 $35,313
</TABLE>
- ---------
(1) Utilization rates reflect our policy of reporting on the basis of the
number of actively marketed rigs owned in the fleet. Rates reflect the
results of rigs only during the period in which they are owned by the
Company.
INTERNATIONAL OPERATIONS
The following table sets forth the operating revenues and gross margin
for our international operations for 1998 and 1997:
<TABLE>
<CAPTION>
REVENUES GROSS MARGIN
------------------------- --------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Contract drilling services ............. $ 478,883 $ 346,304 $ 254,899 $ 178,781
Labor contract drilling services ....... 63,789 49,076 10,806 10,015
Turnkey drilling services .............. 27,699 52,765 (4,278) (766)
Engineering and consulting services .... 1,870 2,548 (225) 698
Other revenue .......................... 8,443 8,289 5,479 6,008
---------- ---------- ---------- ----------
Total ......................... $ 580,684 $ 458,982 $ 266,681 $ 194,736
========== ========== ========== ==========
</TABLE>
OPERATING REVENUES. International contract drilling services revenues
increased $132,579,000 during 1998 as compared to 1997. The increase was
primarily attributable to higher average dayrates from certain contract
13
<PAGE> 16
renewals in West Africa, the North Sea, India and Qatar. The increase was
partially offset by fewer operating days in Brazil and Venezuela in 1998 as
compared to 1997. Labor contract drilling services revenues increased
$14,713,000 in 1998 as compared to 1997 due primarily to revenues generated
from the Hibernia project in Canada, which began operations in June 1997, and
higher average dayrates on the North Sea platform contracts. International
turnkey drilling services revenues decreased $25,066,000 in 1998 as compared to
1997 due to fewer well completions. Only one international turnkey well was
completed in 1998 as compared to eight well completions in 1997.
GROSS MARGIN. International contract drilling services gross margin
increased $76,118,000 in 1998 as compared to 1997. The increase is attributable
to higher average dayrates on certain contract renewals in all our international
areas of operation. Labor contract drilling services gross margin increased
$791,000 in 1998 as compared to 1997 due to the contribution of the Hibernia
project in Canada and higher average dayrates experienced on the North Sea
platform contracts. The negative results from international turnkey drilling
services in 1998 are principally attributable to unexpected drilling delays
experienced on a turnkey well completed offshore Mexico.
DOMESTIC OPERATIONS
The following table sets forth the operating revenues and gross margin
for our domestic operations for 1998 and 1997:
<TABLE>
<CAPTION>
REVENUES GROSS MARGIN
------------------------- --------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Contract drilling services .......... $ 121,843 $ 122,676 $ 78,153 $ 82,324
Turnkey drilling services ........... 84,902 128,098 (11,120) 5,943
Engineering and consulting services . -- 58 -- --
Other revenue ....................... 812 3,381 (1,954) (743)
---------- ---------- ---------- ----------
Total ...................... $ 207,557 $ 254,213 $ 65,079 $ 87,524
========== ========== ========== ==========
</TABLE>
OPERATING REVENUES. Domestic contract drilling services revenues
decreased $833,000 in 1998 as compared to 1997 due primarily to lower
utilization and the Noble Paul Wolff, Noble Jim Thompson and Noble Amos Runner
being taken out of service in 1997 for conversion to EVA-4000TM
semisubmersibles. Domestic contract drilling services revenues were
significantly higher in the first half of 1998 due to the reactivations of the
Noble Bill Jennings, Noble Leonard Jones, Noble Joe Alford, Noble Lester Pettus
and Noble Fri Rodli. The demand for offshore drilling units, however, declined
significantly over the last half of 1998 as oil prices remained at depressed
levels. The resulting oversupply of units caused dayrates in the U.S. Gulf of
Mexico to drop precipitously and our utilization levels decreased from 89
percent during the second quarter of 1998 to 61 percent during the fourth
quarter of 1998. Domestic turnkey drilling services revenues were $43,196,000
lower in 1998 as compared to 1997 due to fewer turnkey well completions.
Thirteen domestic turnkey wells were completed in 1998 as compared to 26 in
1997.
GROSS MARGIN. Domestic contract drilling services gross margin
decreased $4,171,000 in 1998 as compared to 1997 due primarily to lower
utilization. The negative results from turnkey drilling services are primarily
attributable to above market dayrates and lower utilization for certain drilling
rigs which our turnkey subsidiary has under term contract from a third party. In
addition to the turnkey losses sustained in 1998, we accrued $2,900,000 in 1998
for expected 1999 losses on these third party rig contracts.
OTHER OPERATING ITEMS
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense decreased $2,354,000 in 1998 as compared to 1997 due primarily to
certain submersible rigs being taken out of service for conversion to EVA-4000TM
semisubmersibles.
GAINS ON SALES OF PROPERTY AND EQUIPMENT, NET OF IMPAIRMENTS. In May
1997, we completed the sale of our mat-supported jackup rigs, resulting in a
pre-tax gain of $197,676,000.
14
<PAGE> 17
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses increased $5,498,000 in 1998 as compared to
1997 due primarily to higher personnel costs incurred to support our overall
growth and to increased recruiting and training activity.
INTEREST EXPENSE. Interest expense decreased $7,713,000 in 1998 as
compared to 1997 due primarily to the purchase of our outstanding 9 1/4% Notes
in 1997. The Company capitalized $17,200,000 of interest costs related to
construction in progress on qualifying upgrade projects during 1998 as compared
to $4,218,000 in 1997.
INTEREST INCOME. Interest income decreased $2,685,000 in 1998 as
compared to 1997 due to lower average cash balances in 1998.
INCOME TAX PROVISION. Income tax expense decreased $46,844,000 in 1998
as compared to 1997. Taxes of $69,187,000 related to the gain on the sale of the
mat-supported rigs were included in 1997. Excluding non-recurring items, income
tax expense increased $23,358,000 in 1998 as compared to 1997 due primarily to
higher pre-tax earnings.
EXTRAORDINARY CHARGE, NET OF TAX. Results for 1997 include an
extraordinary charge of $6,685,000, net of taxes of $3,600,000, related to the
purchase of $110,885,000 principal amount of our outstanding 9 1/4% Notes.
1997 COMPARED TO 1996
GENERAL
Net income applicable to common shares for 1997 was $257,197,000, or
$1.93 per diluted share, on operating revenues of $713,195,000, compared to net
income applicable to common shares of $72,597,000, or $0.66 per diluted share,
on operating revenues of $514,253,000 for 1996. Excluding the effects of
non-recurring items, net income applicable to common shares for 1997 increased
89 percent over the 1996 period to $136,896,000, or $1.03 per diluted share.
RIG UTILIZATION, OPERATING DAYS AND AVERAGE DAYRATE
The following table sets forth the average rig utilization rates,
operating days and average dayrate for our offshore rig fleet for 1997 and 1996:
<TABLE>
<CAPTION>
AVERAGE RIG
UTILIZATION RATES (1) OPERATING DAYS AVERAGE DAYRATE
---------------------- --------------------- ---------------------
1997 1996 (2) 1997 1996 (2) 1997 1996 (2)
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Offshore
International .. 95% 95% 9,826 7,372 $ 35,244 $ 27,207
Domestic ....... 98% 96% 3,474 5,349 $ 35,313 $ 23,332
</TABLE>
- ------------------
(1) Utilization rates reflect our policy of reporting on the basis of the
number of actively marketed rigs owned in the fleet. Rates reflect the
results of rigs only during the period in which they are owned by the
Company.
(2) Includes the results of Neddrill from July 1, 1996.
15
<PAGE> 18
INTERNATIONAL OPERATIONS
The following table sets forth the operating revenues and gross margin
(excluding non-recurring items) for our international operations for 1997 and
1996:
<TABLE>
<CAPTION>
REVENUES GROSS MARGIN
--------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C>
Contract drilling services
Offshore....................................... $ 346,304 $ 200,566 $ 178,781 $ 67,756(1)
Land (2)....................................... - 10,037 - 3,178
----------- ----------- ----------- -----------
Total contract drilling services................. 346,304 210,603 178,781 70,934
Labor contract drilling services................. 49,076 33,425 10,015 4,148(3)
Turnkey drilling services........................ 52,765 - (766) -
Engineering and consulting services.............. 2,548 2,509 698 611
Other revenue.................................... 8,289 5,675 6,008 4,060
----------- ----------- ----------- -----------
Total................................... $ 458,982 $ 252,212 $ 194,736 $ 79,753
=========== =========== =========== ===========
</TABLE>
- --------------------
(1) Excludes $13,624,000 of non-recurring inventory charges recorded for
obsolescence.
(2) We sold our land drilling assets in December 1996.
(3) Excludes $1,184,000 of non-recurring inventory charges recorded for
obsolescence.
OPERATING REVENUES. International offshore contract drilling services
revenues increased $145,738,000 during 1997 as compared to 1996. The increase is
primarily attributable to the July 1996 acquisition of the Neddrill fleet,
higher average international dayrates and the revenues attributable to the Noble
Jimmy Puckett, Noble Kenneth Delaney, Noble Gus Androes and Noble Chuck Syring
jackup rigs, which were added to the fleet in the latter part of 1996. We sold
all our land assets in December 1996. Labor contract drilling services revenues
increased $15,651,000 in 1997 as compared to 1996 due to higher average dayrates
on the North Sea platform contracts and the startup of the Hibernia project in
Canada. Turnkey drilling services revenues increased $52,765,000 as a result of
five completions in West Africa, two in the North Sea and one in Mexico in 1997.
We completed no international turnkey wells in 1996.
GROSS MARGIN. International offshore contract drilling services gross
margin increased $111,025,000 in 1997 as compared to 1996. The increase is
primarily attributable to the contributions from the Neddrill fleet for all of
1997, higher average international dayrates and contributions from the Noble
Jimmy Puckett, Noble Kenneth Delaney, Noble Gus Androes and Noble Chuck Syring.
The increase in gross margin for labor contract drilling services in 1997, as
compared to 1996, was attributable to higher average dayrates on the North Sea
platform contracts and the start-up of the Hibernia project in Canada. The
negative 1997 turnkey gross margin was due to unexpected drilling difficulty on
a well completed in Mexico.
16
<PAGE> 19
DOMESTIC OPERATIONS
The following table sets forth the operating revenues and gross margin
for our domestic operations for 1997 and 1996:
<TABLE>
<CAPTION>
REVENUES GROSS MARGIN
------------------------- --------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Contract drilling services
Offshore ............................. $ 122,676 $ 124,805 $ 82,324 $ 52,729
Land (1) ............................. -- 14,600 -- 2,714
---------- ---------- ---------- ----------
Total contract drilling services ....... 122,676 139,405 82,324 55,443
Turnkey drilling services .............. 128,098 114,948 5,943 26,601
Engineering and consulting services .... 58 2,445 -- 956
Other revenue .......................... 3,381 5,243 (743) 1,347
---------- ---------- ---------- ----------
Total ......................... $ 254,213 $ 262,041 $ 87,524 $ 84,347
========== ========== ========== ==========
</TABLE>
- ------------------
(1) We sold our land drilling assets in December 1996.
OPERATING REVENUES. Domestic offshore contract drilling services
revenues decreased $2,129,000 in 1997 as compared to 1996. The decrease was due
primarily to the sale of our mat-supported jackup fleet, which reduced the
number of rig operating days in 1997 as compared to 1996. The decrease in rig
operating days was partially offset by a significant increase in the average
domestic contract drilling dayrate. We sold all our land drilling assets in
December 1996. The increase in turnkey drilling services revenues is primarily
attributable to a higher average revenue per well in 1997 as compared to 1996.
GROSS MARGIN. Domestic offshore contract drilling services gross
margin increased $29,595,000 in 1997 as compared to 1996. The increase is
primarily attributable to higher average domestic dayrates, which was partially
offset by the sale of our mat-supported jackup fleet. The decrease in turnkey
drilling services gross margin is attributable to several wells that incurred
losses during 1997 as a result of unexpected drilling difficulty. The negative
gross margin for other revenue in 1997 is primarily attributable to
non-recurring charges of approximately $2,313,000 associated with the
disposition of certain non-core assets of our turnkey business.
OTHER OPERATING ITEMS
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense increased $21,886,000 in 1997 as compared to 1996. Of this amount,
$17,294,000 represents depreciation attributable to the Neddrill fleet, and
approximately $7,618,000 relates to the Noble Jimmy Puckett, Noble Kenneth
Delaney, Noble Gus Androes and Noble Chuck Syring, which were acquired in 1996
and placed into service in the latter part of 1996. These increases were
partially offset by lower depreciation on the mat-supported jackup rigs, which
were sold in May 1997.
GAINS ON SALES OF PROPERTY AND EQUIPMENT, NET OF IMPAIRMENTS. In May
1997, we completed the sale of our mat-supported jackup rigs, resulting in a
pre-tax gain of $197,676,000. In 1996, we sold two posted barge rigs and
recognized pre-tax gains of $7,527,000, excluding an impairment charge of
$7,600,000 that had been recorded to write the rigs down to their estimated net
realizable values. Also during 1996, we sold our land drilling assets, resulting
in a pre-tax gain of $45,414,000. In connection with an asset rationalization
program, we recorded an impairment charge of $10,200,000 on a shallow water
mat-supported jackup rig in 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased
$3,675,000 in 1997 as compared to 1996. The increase is attributable to the
Neddrill acquisition combined with other general increases resulting from higher
activity levels and the costs of stock-based employee compensation plans, which
costs are based solely on changes in the market price of our common stock.
17
<PAGE> 20
INTEREST EXPENSE. Interest expense decreased $5,864,000 in 1997 as
compared to 1996 due primarily to the repurchase of our outstanding 9 1/4% Notes
and the capitalization of $4,218,000 of interest costs related to construction
in progress on qualifying upgrade projects.
INCOME TAX PROVISION. The effective income tax rate in 1997 increased
to approximately 31 percent from approximately 22 percent in 1996. Income taxes
of $69,187,000 were recorded in 1997 in connection with the gain on the sale of
the mat-supported rigs. The recognition of deferred tax benefits related to the
utilization in 1996 of net operating loss carryforwards favorably impacted 1996
results.
EXTRAORDINARY CHARGE, NET OF TAX. Results for 1997 include an
extraordinary charge of 6,685,000, net of taxes of $3,600,000, related to the
purchase of $110,885,000 principal amount of our outstanding 9 1/4% Notes.
Results for 1996 include an extraordinary charge of $660,000, net of taxes of
$355,000, related to the purchase of $11,000,000 principal amount of our
outstanding 9 1/4% Notes.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
At December 31, 1998, we had cash and cash equivalents of $211,012,000
and approximately $96,200,000 of funds available under our line of credit. We
had working capital of $88,720,000 and $112,125,000 at December 31, 1998 and
1997, respectively. Long-term debt as a percentage of long-term debt plus
shareholders' equity was 26 percent at December 31, 1998 compared to 11 percent
at December 31, 1997.
Capital expenditures totaled $540,571,000 and $391,065,000 for 1998
and 1997, respectively. Capital expenditures for 1999 are expected to aggregate
approximately $481,000,000, of which the majority relates to conversions and
upgrades of drilling units. This amount includes approximately $247,000,000 for
the conversions of the Noble Jim Thompson, Noble Amos Runner and Noble Max Smith
to EVA-4000(TM) semisubmersibles. Additionally, the Company expects to incur
expenses of approximately $141,000,000 in 1999 to upgrade the equipment and
water depth capability of the Noble Homer Ferrington. The conversion and upgrade
of these rigs are scheduled to be completed in 1999 or early 2000. The total
cost of these four semisubmersible conversions and upgrade projects is expected
to be approximately $615,500,000.
Backlogs for equipment and services required to complete our
EVA-4000(TM) conversion projects and other shipyard projects could constrain our
ability to complete the projects on a timely basis. We have entered into
agreements with several vendors to purchase or construct equipment for the
conversion and upgrade of units. These agreements generally require
non-refundable payments as certain milestones are met. The cumulative amount of
such payments totaled $192,831,000 through December 31, 1998. As of December 31,
1998, we also had $31,914,000 of purchase commitments with a remaining term in
excess of one year related to rig conversion and upgrade projects. If we
cancelled the purchase commitments, the amount ultimately 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 1999 budget. In addition, the Company will continue to
evaluate acquisitions of drilling units from time to time. Factors that could
cause actual capital expenditures to materially exceed the planned capital
expenditures include delays and cost overruns in shipyards, shortages of
equipment, latent damage or deterioration to hull, equipment and machinery in
excess of engineering estimates and assumptions, and changes in design criteria
or specifications during repair or construction.
Required debt principal and interest payments for currently
outstanding debt are estimated to be approximately $82,000,000 in 1999. We
expect to fund these obligations out of cash and cash equivalents as well as
cash expected to be provided by operations. We anticipate that our 1999 cash
flows generated from operations will be sufficient to meet our required debt
principal and interest payments and a significant portion of our expected
discretionary capital expenditures, assuming no material decrease in demand for
contract drilling and turnkey services. However, due to the anticipated capital
expenditures in 1999 for the four semisubmersible conversion and upgrade
projects of approximately $388,000,000, we plan to seek additional financing in
1999. In December 1998
18
<PAGE> 21
and February 1999, we filed universal shelf registration statements with the
Securities and Exchange Commission which provide for the issuance of securities
in an aggregate amount of up to $400,000,000.
In May 1997, the Board of Directors authorized the repurchase of up to
10,000,000 shares of our common stock, or approximately eight percent of the
then outstanding common stock. As of December 31, 1998, we had repurchased
2,486,000 shares at a total cost of $56,494,000. 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
The term of our bank credit agreement extends through August 14, 2002.
As of December 31, 1998, we had an outstanding balance of $100,000,000 under the
credit agreement and $3,792,000 had been used to support outstanding letters of
credit. Additionally, at December 31, 1998, $24,605,000 of outstanding letters
of credit had been supported through a combination of unsecured letter of credit
facilities and surety bonds. The interest rate on borrowings under the credit
agreement was 5.98 percent per annum at December 31, 1998. As of December 31,
1998, we had the ability to borrow $96,208,000 under available bank facilities.
As of March 2, 1999, we had an outstanding balance of $75,000,000 under the
credit agreement.
During 1998, total long-term borrowings increased to $508,401,000,
including current installments of $47,559,000, due to project financings to fund
certain EVA-4000TM semisubmersible conversion projects. During 1998, two
subsidiaries of the Company issued an aggregate of $260,000,000 principal amount
of various series of fixed rate senior secured notes which are guaranteed by
Noble Drilling. In addition, $112,250,000 principal amount of various series of
fixed rate senior secured notes were issued by an indirect, wholly owned special
purpose subsidiary of Noble Drilling, which notes are non-recourse except to the
issuer thereof. The senior secured notes bear interest rates ranging from 5.93
percent to 7.25 percent per annum and have maturity dates ranging from December
1, 2001 to January 1, 2009. See Notes 1 and 6 to our accompanying Consolidated
Financial Statements.
On February 19, 1999, we commenced a tender offer to purchase for
cash any and all of our outstanding 9 1/8% Senior Notes due 2006 (the "9 1/8%
Senior Notes"), being $125 million in principal amount. In connection with the
tender offer, we also sought consents from holders of 9 1/8% Senior Notes to
certain proposed amendments to the Indenture governing the 9 1/8% Senior Notes.
The tender offer is conditioned upon, among other things, the receipt of
requisite consents to approve such amendments and receipt by us of net proceeds
of the sale of certain debt securities sufficient to finance the tender offer
and consent solicitation. As of 5:00 p.m., New York City time, on March 4, 1999
(the withdrawal date), the holders of an aggregate of approximately $124.3
million in principal amount of the 9 1/8% Senior Notes (99.4 percent) had
consented to the proposed amendments to the Indenture by tendering their 9 1/8%
Senior Notes, which notes cannot be withdrawn nor consents revoked. The tender
offer will expire at 12:00 midnight, New York City time, on March 18, 1999,
unless extended. We plan to access the public debt markets in order to raise the
proceeds required to finance the tender offer and consent solicitation.
We believe that our cash and cash equivalents, cash generated from
operations, borrowings under lines of credit, and access to other financing
sources will be adequate to meet our anticipated short-term and long-term
liquidity requirements, including scheduled debt repayments.
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.
19
<PAGE> 22
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
principally 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 December 31, 1998, we had incurred costs of approximately
$50,000 related to our year 2000 project. The estimated additional costs to
complete the project are approximately $200,000, of which approximately $125,000
will be capitalized. 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.
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 do not
believe the effect of adoption will have a material effect on our results of
operations, cash flows or financial position.
20
<PAGE> 23
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company periodically enters into a variety of off-balance sheet
derivative financial instruments to manage its exposure to fluctuations in
interest rates and foreign currency exchange rates, including interest rate
swaps and foreign currency exchange contracts. The Company does not use
derivative financial instruments for trading purposes. At December 31, 1998,
there were no open derivative financial instruments. For additional information
on financial instruments see "Item 8. Financial Statements and Supplementary
Data - Note 9."
21
<PAGE> 24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements are filed in this Item 8:
Report of Independent Accountants
Consolidated Balance Sheets at December 31, 1998 and 1997
Consolidated Statements of Operations for each of the three years
in the period ended December 31, 1998
Consolidated Statements of Cash Flows for each of the three years
in the period ended December 31, 1998
Consolidated Statements of Shareholders' Equity for each of the
three years in the period ended December 31, 1998
Consolidated Statements of Comprehensive Income for each of the
three years in the period ended December 31, 1998
Notes to Consolidated Financial Statements
22
<PAGE> 25
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Noble Drilling Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows, of shareholders' equity
and of comprehensive income present fairly, in all material respects, the
financial position of Noble Drilling Corporation and its subsidiaries (the
"Company") at December 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 4, 1999
23
<PAGE> 26
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
ASSETS 1998 1997
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ................................ $ 211,012 $ 49,917
Restricted cash .......................................... 5,871 --
Investment in marketable debt securities ................. -- 16,471
Accounts receivable (net allowance of $610 and $1,380) ... 148,168 135,716
Costs of uncompleted contracts in excess billings ........ 907 941
Inventories .............................................. 5,133 4,559
Deferred income taxes .................................... -- 391
Prepaid expenses ......................................... 21,607 21,569
Other current assets ..................................... 45,511 35,451
------------ ------------
Total current assets ....................................... 438,209 265,015
------------ ------------
PROPERTY AND EQUIPMENT
Drilling equipment and facilities ........................ 1,940,919 1,409,918
Other .................................................... 27,195 24,287
------------ ------------
1,968,114 1,434,205
Accumulated depreciation ................................. (318,981) (251,278)
------------ ------------
1,649,133 1,182,927
------------ ------------
INVESTMENTS IN AND ADVANCES TO JOINT VENTURES .............. 48,270 21,097
DEFERRED INCOME TAXES ...................................... 964 5,947
OTHER ASSETS ............................................... 42,056 30,825
------------ ------------
$ 2,178,632 $ 1,505,811
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt and current installments of
long-term debt .......................................... $ 148,786 $ 9,698
Accounts payable ......................................... 78,880 77,366
Accrued payroll and related costs ........................ 21,985 25,858
Taxes payable ............................................ 51,495 23,708
Interest payable ......................................... 6,191 6,088
Other current liabilities ................................ 42,152 10,172
------------ ------------
Total current liabilities .................................. 349,489 152,890
LONG-TERM DEBT ............................................. 460,842 138,139
DEFERRED INCOME TAXES ...................................... 56,937 63,946
OTHER LIABILITIES .......................................... 891 1,782
------------ ------------
868,159 356,757
------------ ------------
SHAREHOLDERS' EQUITY
Common stock-par value $0.10; 200,000 shares authorized;
133,761 issued and 131,101 outstanding in 1998; 133,335
issued and 130,988 outstanding in 1997 ................ 13,376 13,334
Capital in excess of par value ........................... 943,122 934,383
Retained earnings ........................................ 418,024 255,992
Treasury stock, at cost .................................. (61,771) (53,544)
Accumulated other comprehensive income ................... (2,278) (1,111)
------------ ------------
1,310,473 1,149,054
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 13) .................... -- --
------------ ------------
$ 2,178,632 $ 1,505,811
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
24
<PAGE> 27
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING REVENUES
Contract drilling services ................. $ 600,726 $ 468,980 $ 350,008
Labor contract drilling services ........... 63,789 49,076 33,425
Turnkey drilling services .................. 112,601 180,863 114,948
Engineering and consulting services ........ 1,870 2,606 4,954
Other revenue .............................. 9,255 11,670 10,918
---------- ---------- ----------
788,241 713,195 514,253
---------- ---------- ----------
OPERATING COSTS AND EXPENSES
Contract drilling services ................. 267,674 207,875 237,255
Labor contract drilling services ........... 52,983 39,061 30,461
Turnkey drilling services .................. 127,999 175,686 88,347
Engineering and consulting services ........ 2,095 1,908 3,387
Other expense .............................. 5,730 6,405 5,511
Depreciation and amortization .............. 71,691 74,045 52,159
Selling, general and administrative ........ 30,298 24,800 21,125
Minority interest .......................... -- (256) (428)
Gains on sales of property and equipment,
net of impairments ....................... -- (197,676) (36,115)
---------- ---------- ----------
558,470 331,848 401,702
---------- ---------- ----------
OPERATING INCOME ............................. 229,771 381,347 112,551
OTHER INCOME (EXPENSE)
Interest expense ........................... (5,181) (12,894) (18,758)
Interest income ............................ 6,671 9,356 6,409
Other, net ................................. (342) 1,804 1,757
---------- ---------- ----------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY CHARGE ....................... 230,919 379,613 101,959
INCOME TAX PROVISION ......................... (68,887) (115,731) (22,662)
---------- ---------- ----------
INCOME BEFORE EXTRAORDINARY CHARGE ........... 162,032 263,882 79,297
EXTRAORDINARY CHARGE, NET OF TAX ............. -- (6,685) (660)
---------- ---------- ----------
NET INCOME ................................... 162,032 257,197 78,637
PREFERRED STOCK DIVIDENDS .................... -- -- (6,040)
---------- ---------- ----------
NET INCOME APPLICABLE TO
COMMON SHARES .............................. $ 162,032 $ 257,197 $ 72,597
========== ========== ==========
NET INCOME APPLICABLE TO COMMON
SHARES PER SHARE-BASIC:
Income before extraordinary charge ......... $ 1.24 $ 2.00 $ 0.68
Extraordinary charge ....................... -- (0.05) (0.01)
---------- ---------- ----------
Net income applicable to common shares ..... $ 1.24 $ 1.95 $ 0.67
========== ========== ==========
NET INCOME APPLICABLE TO COMMON
SHARES PER SHARE-DILUTED:
Income before extraordinary charge ......... $ 1.23 $ 1.98 $ 0.67
Extraordinary charge ....................... -- (0.05) (0.01)
---------- ---------- ----------
Net income applicable to common shares ..... $ 1.23 $ 1.93 $ 0.66
========== ========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
25
<PAGE> 28
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ........................................................... $ 162,032 $ 257,197 $ 78,637
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ...................................... 71,691 74,045 52,159
Deferred income tax (benefit) provision ............................ (1,128) 48,821 6,596
Equity in loss (earnings) of joint ventures ........................ 2,752 (78)
Compensation expense from stock-based plans ........................ 835 7,036 937
Other .............................................................. (737) 595 (2,570)
Gains on sales of property and equipment, net of impairments ....... -- (197,676) (36,115)
Extraordinary charge, net of tax ................................... -- 6,685 660
Inventory charge ................................................... -- -- 14,808
Gain on foreign exchange ........................................... -- -- (310)
Changes in current assets and liabilities:
Accounts receivable .............................................. (15,637) (38,023) (18,752)
Other assets ..................................................... (9,773) 36,468 (6,783)
Accounts payable ................................................. 1,514 6,217 16,178
Other liabilities ................................................ 51,532 101 27,016
Proceeds from sale of marketable equity securities, net .......... -- 2,353 5,615
---------- ---------- ----------
Net cash provided from operations ............................ 263,081 203,741 138,076
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment ................................. (540,571) (391,065) (216,887)
Proceeds from sale of property and equipment ....................... 3,799 271,764 103,500
Proceeds from sale of (investment in) marketable debt securities ... 16,461 2,870 (2,192)
Investment in and advances to joint ventures ....................... (29,925) (11,831) (410)
Acquisition of Neddrill, net of cash acquired ...................... -- -- (284,726)
Proceeds from insurance settlement ................................. -- -- 14,142
---------- ---------- ----------
Net cash used by investing activities ........................ (550,236) (128,262) (386,573)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt ....................................... 372,250 -- 121,470
Net borrowings on revolving credit facility ........................ 100,000 -- --
Payment of long-term debt .......................................... (15,650) (128,787) (26,130)
Proceeds from issuance of common stock, net ........................ 1,834 5,774 271,312
Purchase of shares returned to treasury stock ...................... (4,313) (52,181) (2,250)
Increase in restricted cash ........................................ (5,871) -- --
Preferred stock conversion costs ................................... -- -- (31)
Dividends paid on preferred stock .................................. -- -- (7,549)
---------- ---------- ----------
Net cash provided (used) by financing activities ............. 448,250 (175,194) 356,822
---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ....................... 161,095 (99,715) 108,325
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ........................... 49,917 149,632 41,307
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR ................................. $ 211,012 $ 49,917 $ 149,632
========== ========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
26
<PAGE> 29
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
1998 1997 1996
----------------------- ----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C>
$1.50 PREFERRED STOCK
Balance at beginning of year................. -- $ -- -- $ -- 4,025 $ 4,025
Conversion/redemption of preferred stock..... -- -- -- -- (4,025) (4,025)
---------- ---------- ---------- ---------- ---------- ----------
Balance at end of year....................... -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
COMMON STOCK
Balance at beginning of year................. 133,335 13,334 132,189 13,219 94,548 9,455
Conversion/redemption of preferred stock..... -- -- -- -- 9,836 984
Sale of common stock......................... -- -- -- -- 21,850 2,185
Purchase of Neddrill......................... -- -- -- -- 5,000 500
Exercise stock options....................... 350 35 951 95 602 60
Issuance of restricted shares................ -- -- 59 6 -- --
Other........................................ 76 7 136 14 353 35
---------- ---------- ---------- ---------- ---------- ----------
Balance at end of year ...................... 133,761 13,376 133,335 13,334 132,189 13,219
---------- ---------- ---------- ---------- ---------- ----------
CAPITAL IN EXCESS OF PAR VALUE
Balance at beginning of year................. 934,383 916,004 589,866
Conversion/redemption of preferred stock..... -- -- 3,012
Sale of common stock......................... -- -- -- -- 266,261
Purchase of Neddrill......................... -- -- -- -- 49,500
Exercise stock options....................... 2,713 5,679 2,806
Contribution of treasury stock to restricted
stock plan................................. -- (793) (850)
Issuance of restricted shares................ -- 826 --
Restricted shares returned to treasury....... 824 423 --
Other........................................ 5,202 12,244 5,409
---------- ---------- ----------
Balance at end of year....................... 943,122 934,383 916,004
---------- ---------- ----------
RETAINED EARNINGS (ACCUMULATED DEFICIT)
Balance at beginning of year................. 255,992 (1,205) (73,802)
Net income................................... 162,032 257,197 78,637
Dividends on preferred stock................. -- -- (6,040)
---------- ---------- ----------
Balance at end of year....................... 418,024 255,992 (1,205)
---------- ---------- ----------
TREASURY STOCK
Balance at beginning of year................. (2,347) (53,544) (209) (1,852) (65) (452)
Contribution to restricted stock plan........ -- -- 88 793 109 850
Restricted stock plans shares returned....... (112) (1,316) (44) (423) (253) (2,250)
Repurchase common stock...................... (300) (4,313) (2,186) (52,181) -- --
Exercise stock options....................... (151) (5,302) -- -- -- --
Other........................................ 250 2,704 4 119 -- --
---------- ---------- ---------- ---------- ---------- ----------
Balance at end of year....................... (2,660) (61,771) (2,347) (53,544) (209) (1,852)
---------- ---------- ---------- ---------- ---------- ----------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance at beginning of year................. (1,111) (917) (5,599)
Other comprehensive (loss) income............ (1,167) (194) 4,682
---------- ---------- ----------
Balance at end of year....................... (2,278) (1,111) (917)
---------- ---------- ----------
TOTAL SHAREHOLDERS' EQUITY..................... 131,101 $1,310,473 130,988 $1,149,054 131,980 925,249
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
27
<PAGE> 30
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
<S> <C>
NET INCOME ................................................................... $ 162,032
------------
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Foreign currency translation adjustments ................................... 319
------------
Unrealized gains on securities:
Unrealized holding loss arising during period ............................ (10)
Less: reclassification adjustment for gains realized in net income ....... (6)
------------
Net unrealized gains ..................................................... (16)
------------
Minimum pension liability adjustment (net of tax benefit of $792) .......... (1,470)
------------
Other comprehensive loss ................................................... (1,167)
------------
COMPREHENSIVE INCOME ......................................................... $ 160,865
============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
<S> <C>
NET INCOME ................................................................... $ 257,197
------------
OTHER COMPREHENSIVE LOSS, NET OF TAX:
Foreign currency translation adjustments ................................... (245)
Unrealized holding gains arising during period ............................. 51
------------
Other comprehensive loss ................................................... (194)
------------
COMPREHENSIVE INCOME ......................................................... $ 257,003
============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
<S> <C>
NET INCOME ................................................................... $ 78,637
------------
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Foreign currency translation adjustments ................................... 1,199
Unrealized holding gains arising during period ............................. 80
Minimum pension liability adjustment ....................................... 3,403
------------
Other comprehensive income ................................................. 4,682
------------
COMPREHENSIVE INCOME ......................................................... $ 83,319
============
</TABLE>
See accompanying notes to the consolidated financial statements.
28
<PAGE> 31
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Noble Drilling Corporation ("Noble Drilling" or, together with its
consolidated subsidiaries, unless the context requires otherwise, the "Company")
is primarily engaged in domestic and international contract oil and gas drilling
and workover operations. The Company's international operations are conducted in
Canada, the North Sea, Mexico, Africa, South America, the Middle East and India.
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-4000(TM) 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. (See Note 6).
CONSOLIDATION
The consolidated financial statements include the accounts of Noble
Drilling and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. The equity
method of accounting is used for investments in affiliates where the Company has
a significant influence but not a controlling interest. (See Note 5).
Certain reclassifications have been made in prior year consolidated
financial statements to conform to the classifications used in the 1998
consolidated financial statements. These reclassifications have no impact on net
income.
FOREIGN CURRENCY TRANSLATION
The Company follows a translation policy in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 52, Foreign Currency Translation
("SFAS 52"). In international locations where the U.S. Dollar has been
designated as the functional currency as appropriate based on an evaluation of
such factors as the markets in which the subsidiary operates, inflation,
generation of cash flow, financing activities and intercompany arrangements,
translation gains and losses are included in net income. In international
locations where the local currency is the functional currency, assets and
liabilities are translated at the rates of exchange on the balance sheet date,
while income and expense items are translated at average rates of exchange. The
resulting gains or losses arising from the translation of accounts from the
functional currency to the U.S. Dollar are included in accumulated other
comprehensive income. The Company did not recognize any material gains or losses
on foreign currency transactions or translations during the years ended
December 31, 1998, 1997 and 1996.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, demand deposits with
banks and all highly liquid investments with original maturities of three months
or less. The Company's cash, cash equivalents and short-term investments are
subject to potential credit risk. The Company's cash management and investment
policies restrict investments to low risk, highly liquid securities and we
perform periodic evaluations of the relative credit standing of the financial
institutions with which we conduct business.
In accordance with SFAS No. 95, Statement of Cash Flows, cash flows
from the Company's operations in the United Kingdom and Canada are calculated
based on its functional currency. As a result, amounts related to assets and
liabilities reported on the Consolidated Statements of Cash Flows will not
necessarily agree with changes in the corresponding balances on the Consolidated
Balance Sheets. The effect of exchange rate changes on cash balances held in
foreign currencies was not material in 1998, 1997 or 1996.
(Unless otherwise indicated, dollar amounts in tables are in thousands,
except per share amounts)
29
<PAGE> 32
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DERIVATIVE INSTRUMENTS
The Company periodically enters into off-balance sheet derivative
financial instruments to manage its exposure to fluctuations in interest rates
and foreign currency exchange rates, including interest rate swaps and foreign
currency exchange contracts. The Company does not use derivative financial
instruments for trading purposes. The Company designates and assigns the
financial instruments as hedges of specific assets, liabilities or anticipated
transactions. Cash flow from hedges are classified in the Consolidated
Statements of Cash Flows under the same category as the cash flows from the
underlying assets, liabilities or anticipated transactions. (See Note 9).
INVENTORIES
Inventories consist of spare parts, material and supplies held for
consumption and are stated principally at average cost. As a result of the
Company's asset rationalization program and the July 1, 1996 acquisition of
Neddrill (see Note 2), during the fourth quarter of 1996, the Company reviewed
the status of its inventories. The Company determined certain adjustments were
appropriate to properly reflect the estimated net realizable value of these
assets. These adjustments consisted primarily of write-downs for inventory
obsolescence totaling approximately $14,808,000 and reclassifications of
approximately $16,555,000 to property and equipment to better reflect their
economic lives and to be consistent with other assets owned by the Company. The
inventory write-down is included in "Contract drilling services" expense in the
Consolidated Statement of Operations for the year ended December 31, 1996.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, reduced by provisions to
recognize economic impairment in value when management determines that such
impairment has occurred. At December 31, 1998 and 1997, there was $511,418,000
and $217,371,000, respectively, of construction in progress related primarily to
EVA-4000(TM) semisubmersible conversion projects. Such amounts are included in
"Drilling equipment and facilities" in the accompanying Consolidated Balance
Sheets. Major replacements and improvements are capitalized. Included in costs
of drilling equipment and facilities is an allocation of interest incurred
during the period that rigs are under construction or refurbishment. Interest
capitalized for the years ended December 31, 1998 and 1997 totaled $17,200,000
and $4,218,000, respectively. No interest was capitalized during 1996. When
assets are sold, retired or otherwise disposed of, the cost and related
accumulated depreciation are eliminated from the accounts and the gain or loss
is recognized.
Scheduled maintenance of equipment and overhauls are performed on a
basis of number of hours operated in accordance with our preventative
maintenance program. Maintenance and repair costs are generally charged to
expense as incurred; however, overhauls related to large-scale maintenance
projects are deferred when incurred and amortized into contract drilling
services expense over a 36-month period. The deferred portion of major overhauls
is included in "Other assets" in the Consolidated Balance Sheets. Such amount
totaled $21,474,000 and $17,988,000 at December 31, 1998 and 1997, respectively.
Total maintenance and repair expenses for the years ended December 31, 1998,
1997 and 1996, were approximately $50,926,000, $44,100,000 and $41,759,000,
respectively. Drilling equipment and facilities are depreciated using the
straight-line method over estimated remaining useful lives as of the in-service
date or date of major refurbishment. Estimated useful lives of the Company's
drilling equipment and facilities range from two to twenty-five years. Other
property and equipment is depreciated using the straight-line method over useful
lives ranging from two to twenty years.
LONG-LIVED ASSETS
The Company evaluates the realizability of its long-lived assets,
including property and equipment and goodwill, whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. An impairment loss exists when estimated undiscounted cash flows
expected to result from the use of the asset and its eventual disposition are
less than its carrying amount. The impairment loss recognized represents the
excess of the asset's carrying value as compared to its estimated fair value.
(Unless otherwise indicated, dollar amounts in tables are in
thousands, except per share amounts)
30
<PAGE> 33
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company recorded an impairment charge of $10,200,000 (excluding a
$289,000 reduction for minority interest) in the fourth quarter of 1996 related
to a shallow-water, mat-supported jackup unit. The amount is included in "Gains
on sales of property and equipment, net of impairments" in the Consolidated
Statement of Operations for the year ended December 31, 1996. The unit was sold
on May 7, 1997. (See Note 2).
OTHER ASSETS
The excess of cost over the fair value of net tangible assets acquired
in the acquisition of Triton Engineering Services Company ("Triton") is being
amortized over nine years. Amortization expense for goodwill was $213,000 for
each of the years ended December 31, 1998, 1997 and 1996. Accumulated
amortization of goodwill was $709,000 and $496,000 at December 31, 1998 and
1997, respectively. Prepaid insurance is amortized over the terms of the
insurance policies. Deferred debt issuance costs, which totaled $9,073,000 and
$2,766,000 at December 31, 1998 and December 31, 1997, respectively, are being
amortized over the life of the debt securities. Amortization related to debt
issuance costs was $469,000, $493,000 and $526,000 for the years ended December
31, 1998, 1997 and 1996, respectively.
REVENUE RECOGNITION
Revenues generated from the Company's dayrate-basis drilling contracts
are recognized as services are performed. The Company's turnkey drilling
contracts are of a short-term, fixed fee nature, and accordingly, revenues and
expenses are recognized using the completed contract method. The Company may
receive lump-sum fees for the mobilization of equipment and personnel. The net
of mobilization fees received and costs incurred to mobilize an offshore rig
from one market to another is recognized over the term of the related drilling
contract. Costs incurred to relocate drilling units to more promising geographic
areas in which a contract has not been secured are expensed as incurred.
Lump-sum payments received from customers relating to specific contracts are
deferred and amortized to income over the term of the drilling contract.
Provisions for future losses on turnkey contracts are recognized when it is
probable that expenses to be incurred on a specific contract will exceed the
revenue from the contract.
CONCENTRATION OF CREDIT RISK
The primary market for the Company's services is the offshore oil and
gas industry, and the Company's customers consist primarily of major oil
companies, independent oil and gas producers and government-owned oil companies.
The Company performs ongoing credit evaluations of its customers and generally
does not require material collateral. The Company maintains reserves for
potential credit losses when necessary. Results of operations and financial
condition of the Company should be considered in light of the fluctuations in
demand experienced by drilling contractors as changes in oil and gas producers'
expenditures and budgets occur. These fluctuations can impact the Company's
results of operations and financial condition as supply and demand factors
directly affect utilization and dayrates, which are the primary determinants of
cash flow from the Company's operations.
In 1998, one customer accounted for $68,892,000 of contract drilling
services revenues and $27,694,000 of turnkey drilling services revenues, or a
total of 12 percent of consolidated operating revenues. No other customer
accounted for more than 10 percent of consolidated operating revenue in 1998. No
customers accounted for more than 10 percent of consolidated operating revenues
in 1997 and 1996.
NET INCOME APPLICABLE TO COMMON SHARES PER SHARE
The Company has adopted SFAS No. 128, Earnings Per Share ("SFAS 128"),
which established new guidelines for computing and presenting earnings per
share. All prior period earnings per share data have been restated to conform to
the provisions of SFAS 128. Net income applicable to common shares per share has
been computed on the basis of the weighted average number of common shares and,
where dilutive, common share equivalents, outstanding during the indicated
periods.
(Unless otherwise indicated, dollar amounts in tables are in
thousands, except per share amounts)
31
<PAGE> 34
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table reconciles the basic and diluted earnings per
share computations for income before extraordinary charge for the years ended
December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
INCOME BEFORE
EXTRAORDINARY BASIC BASIC DILUTED DILUTED
CHARGE SHARES EPS SHARES EPS
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 $ 162,032 131,203 $ 1.24 132,269 $ 1.23
1997 $ 263,882 131,791 $ 2.00 133,455 $ 1.98
1996 $ 79,297 108,290 $ 0.68 109,581 $ 0.67
</TABLE>
Included in diluted shares are common stock equivalents relating
primarily to outstanding stock options covering 1,066,000, 1,664,000 and
1,291,000 shares for the years ended December 31, 1998, 1997 and 1996,
respectively. Options to purchase 5,335,886 shares of common stock were not
included in the 1998 computation of diluted earnings per share because the
options' exercise price was greater than the average market price of the common
stock.
SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash paid during the period for:
Interest (net of amounts capitalized) .......... $ 5,078 $ 15,363 $ 13,061
Income taxes ................................... $ 42,228 $ 49,737 $ 6,471
Noncash investing and financing activities:
Insurance financing agreement .................. $ 5,168 $ 26,120 $ 1,214
Neddrill acquisition with common stock ......... $ -- $ -- $ 50,000
</TABLE>
CERTAIN SIGNIFICANT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
ACCOUNTING PRONOUNCEMENTS
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 do not
believe the effect of adoption will have a material effect on the Company's
results of operations or financial position. (See Note 9).
NOTE 2 -- ACQUISITIONS, MERGERS AND DISPOSITIONS
On July 1, 1996, the Company completed the agreement with Royal Nedlloyd
N.V. ("Nedlloyd") to acquire the assets utilized in the offshore contract
drilling, accommodation and other oil and gas exploration and production
(Unless otherwise indicated, dollar amounts in tables are in
thousands, except per share amounts)
32
<PAGE> 35
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
related service businesses of Nedlloyd's offshore drilling division
("Neddrill"), including the acquisition of $28,000,000 in net working capital,
and the personnel employed by Neddrill. The purchase price was $300,000,000 in
cash plus 5,000,000 shares of Noble Drilling common stock. The cash portion of
the purchase price was financed by the issuance and sale of 21,850,000 shares of
Noble Drilling common stock and $125,000,000 principal amount of 9 1/8% Senior
Notes due 2006 (the "9 1/8% Senior Notes"). The net proceeds from the public
offerings of securities in excess of the $300,000,000 cash portion of the
purchase price were added to the Company's working capital.
The Neddrill acquisition was accounted for using the purchase method
of accounting and Neddrill's results of operations are included in the
Consolidated Statements of Operations from the date of the acquisition. The
respective assets and liabilities were recorded at their estimated fair values
at the date of acquisition.
The following table provides selected consolidated financial
information for the Company on a pro forma basis assuming that the Neddrill
acquisition, the issuance of 21,850,000 shares of common stock and $125,000,000
principal amount of the 9 1/8% Senior Notes and the application of the net
proceeds therefrom had occurred on January 1, 1996. The unaudited pro forma
information set forth below is not necessarily indicative of what the Company's
results of operations would have been had the transactions been consummated as
of January 1, 1996 nor is such information necessarily indicative of the
Company's future results of operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996
-----------------------
(Unaudited)
<S> <C>
Operating revenues................................................ $ 596,090
Net income applicable to common shares............................ $ 83,705
Net income applicable to common shares per share - Diluted........ $ 0.68
</TABLE>
In July 1998, the Company purchased the Shelf 6, a Friede & Goldman
9500 Enhanced Pacesetter design semisubmersible, for $24,100,000 in cash. As of
December 31, 1998, the Company had spent an additional $3,700,000 in preparation
to upgrade the unit for work in deeper water depths if the Company is able to
secure a long-term drilling contract.
In June 1998, the Company and its joint venture partner formed a
liability company, which purchased the Ilion. (See Note 5).
On May 7, 1997, the Company completed the sale of its 12 mat-supported
jackup rigs for $268,818,000 in cash. The Company recognized a pre-tax gain of
$197,676,000 in connection with the sale, which has been included in "Gains on
sales of property and equipment, net of impairments" in the accompanying
Consolidated Statement of Operations for the year ended December 31, 1997.
Revenues, gross margin and operating income generated from the sold rigs were
$35,155,000, $18,585,000 and $15,231,000, respectively, for the period from
January 1, 1997 through May 7, 1997.
In December 1996, the Company completed the sale of its land drilling
rigs and related assets for $60,000,000 in cash. The Company recognized a
pre-tax gain of $45,414,000 in connection with the sale which has been included
in "Gains on sales of property and equipment, net of impairments" in the
Consolidated Statement of Operations for the year ended December 31, 1996.
Revenues, gross margin and operating income generated from the sold rigs and
assets were $24,637,000, $6,733,000 and $3,025,000, respectively, for the year
ended December 31, 1996.
The Company sold two of its posted barge rigs during the first quarter
of 1996 for $19,000,000. The Company recorded pre-tax gains of $7,527,000
related to the sales of these posted barge rigs. Two other posted barge rigs
were sold in August 1996 for $24,500,000 in cash and $7,500,000 in drill pipe
credit. These two barges had been written down at March 31, 1996 to their
estimated net realizable values based on then recent offers received for these
assets from third parties, resulting in a pre-tax charge to earnings of
$7,600,000. The gains on the sales of the four barge rigs net of the write-downs
are included in "Gains on sales of property and equipment, net of impairments"
in the Consolidated Statement of Operations for the year ended December 31,
1996.
(Unless otherwise indicated, dollar amounts in tables are in
thousands, except per share amounts)
33
<PAGE> 36
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 -- MARKETABLE DEBT SECURITIES
The Company classifies all of its debt securities with original
maturities of more than three months as available for sale. These investments
are classified as marketable securities within current assets on the
Consolidated Balance Sheets. At December 31, 1998, the Company did not own any
marketable securities. At December 31, 1997, the Company owned $16,455,000 of
U.S. Government Obligations with a fair value of $16,471,000. The net unrealized
gain of $16,000 is included in "Accumulated other comprehensive income" on the
Consolidated Balance Sheet at December 31, 1997. Total realized gains (losses)
related to short-term investments were $6,000, ($6,000) and ($7,000) for the
years ended December 31, 1998, 1997 and 1996, respectively.
NOTE 4 -- COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income ("SFAS 130"). SFAS 130 established standards for reporting
and displaying comprehensive income and its components. Components of
comprehensive income are net income and all changes in equity during a period
except those resulting from transactions with owners. SFAS 130 requires
enterprises to display comprehensive income and its components in its financial
statements, to classify items of comprehensive income by their nature in the
financial statements and display the accumulated balance of other comprehensive
income in shareholders' equity separately from retained earnings and additional
paid-in capital. Comparative financial statements provided for earlier periods
have been reclassified to reflect the application of SFAS 130.
The following table sets forth the components of accumulated other
comprehensive income:
<TABLE>
<CAPTION>
UNREALIZED ACCUMULATED
FOREIGN (LOSSES) GAINS MINIMUM OTHER
CURRENCY ON PENSION COMPREHENSIVE
ITEMS SECURITIES LIABILITY INCOME
--------- ---------- --------- ------------
<S> <C> <C> <C> <C>
Balance at January 1, 1997 ........ $ (882) $ (35) $ -- $ (917)
1997-period change ................ (245) 51 -- (194)
--------- --------- --------- ---------
Balance at December 31, 1997 ...... (1,127) 16 -- (1,111)
1998-period change ................ 319 (16) (1,470) (1,167)
--------- --------- --------- ---------
Balance at December 31, 1998 ...... $ (808) $ -- $ (1,470) $ (2,278)
========= ========= ========= =========
</TABLE>
NOTE 5 -- INVESTMENTS IN AND ADVANCES TO JOINT VENTURES
At December 31, 1998 the Company's investments in joint ventures
consisted of a 41 percent interest in Arktik Drilling Limited, Inc. ("Arktik"),
a 50 percent interest in the bareboat charter of the Noble Kolskaya which is
operated by the Company under a term contract, and a 50 percent interest in
Ilion LLC. The Company accounts for these investments using the equity method.
Arktik is a Bahamian joint venture company that owns and operates the Noble
Muravlenko and Ilion LLC is a domestic joint venture company that owns the
Ilion. There were no distributions or dividends received during the years ended
December 31, 1998 and 1997 from Arktik or Ilion LLC. Balances related to these
joint ventures for 1998 and 1997 are reflected in the table below:
<TABLE>
<CAPTION>
1998 1997
----------- --------
<S> <C> <C>
Equity in (loss) earnings of joint ventures (1)........... $ (2,752) $ 78
Investment in joint ventures.............................. 10,761 688
Advances to joint ventures (2)............................ 37,509 20,409
Receivable from other joint venturer (3).................. 5,163 3,900
</TABLE>
- ----------------
(1) Balance included in "Other, net" in the Consolidated Statements of
Operations. There were no equity earnings in 1996.
(2) Balance included in "Investments in and advances to joint ventures" in the
Consolidated Balance Sheets.
(3) Balance included in "Other current assets" in the Consolidated Balance
Sheets.
(Unless otherwise indicated, dollar amounts in tables are in
thousands, except per share amounts)
34
<PAGE> 37
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Noble Muravlenko commenced operations in the fourth quarter of 1997
offshore Brazil for Petroleo Brasiliero S.A. ("Petrobras"). The contract with
Petrobras is for five years with a one-year option to extend by Petrobras. The
terms of the $12,000,000 note receivable from Arktik provide for repayment by
Arktik over the term of Petrobras contract.
The Noble Kolskaya continues operations under a three-year contract
following its conversion from accommodation mode into drilling mode during the
second quarter of 1997. The total cost of this conversion was approximately
$16,100,000.
In June 1998, the Company and its joint venture partner formed Ilion
LLC, a limited liability company, which purchased the Ilion, a Friede & Goldman
9500 Enhanced Pacesetter design submersible. The Company acquired an initial 50
percent equity interest in Ilion LLC for an initial investment in the joint
venture of $12,825,000. In addition, the Company has funded $17,100,000 to Ilion
LLC in the form of a promissory note that is convertible at the election of the
Company into an additional 20 percent equity interest.
NOTE 6 -- DEBT
The Company has outstanding $125,000,000 principal amount of 9 1/8%
Senior Notes which mature on July 1, 2006. Interest is payable on each January 1
and July 1 and the 9 1/8% Senior Notes are redeemable by the Company, beginning
July 1, 2001 at a specified declining premium plus accrued interest. The
indenture governing the 9 1/8% Senior Notes contains certain restrictive
covenants, including restrictions on dividends and certain investments and
limitations on certain sale and lease-back transactions, transactions with
affiliates, and mergers or consolidations.
In 1997, the Company entered into financing agreements with
Transamerica Insurance Finance Corporation related to the renewal of its Marine
Package, Protection and Indemnity and General Liability insurance policies for
periods of 33 months, nine months and 21 months, respectively. Over the course
of 1997, the Company financed a total of $26,120,000 related to these insurance
policies. The fixed annual interest rates on the debt related to the Marine
Package, Protection and Indemnity and General Liability insurance policies are
5.94 percent, 4.85 percent and 5.68 percent, respectively. In 1998, the Company
financed $3,639,000 with Cananwill, Inc. relating to a Protection and Indemnity
policy for 12 months. The fixed annual interest rate on this debt is 4.95
percent. The total amount of insurance financing outstanding at December 31,
1998 includes $2,241,000, which is included in "Long-term debt", and
$10,313,000, which is included in "Short-term debt and current installments of
long-term debt", in the accompanying Consolidated Balance Sheet.
In July 1998, Noble Drilling (Paul Wolff) Ltd., an indirect, wholly
owned subsidiary of the Company and owner of the Noble Paul Wolff, issued
$145,000,000 principal amount of its fixed rate senior secured notes (the "Wolff
Notes") in three series. The Wolff Notes bear interest at rates of 6.43 percent
to 6.55 percent per annum. One series of the Wolff Notes matures on December 1,
2001 ($40,000,000 principal amount) and the other two series mature on December
1, 2004. Principal and interest payments are payable quarterly on the first day
of September, December, March and June except that the first two quarterly
payments were (and the quarterly payments thereafter through September 1, 2001
in the case of one series are) interest only. The Wolff Notes are guaranteed by
Noble Drilling and are secured by a first naval mortgage on the Noble Paul
Wolff. The Wolff Notes can be prepaid, in whole or in part, at a premium at any
time after June 1, 2001.
In December 1998, Noble Drilling (Paul Romano) Inc., an indirect,
wholly owned subsidiary of the Company and owner of the Noble Paul Romano,
issued $112,250,000 principal amount of its fixed rate senior secured notes (the
"Romano Notes") in two series (the "Series A Notes" and the "Series B Notes").
The Series A Notes bear interest at 6.33 percent per annum and the Series B
Notes bear interest at 6.09 percent per annum. The Series A Notes require
principal and interest payments over 60 months beginning on January 20, 1999.
The Series B Notes are interest only for the first 59 months with a balloon
principal payment in month 60. The Romano Notes are secured by a first naval
mortgage on the Noble Paul Romano and are non-recourse except to the issuer
thereof. The Romano Notes can be prepaid, in whole or in part, at a premium at
any time. Pursuant to the trust indenture and security agreement under which the
Romano Notes are issued, Noble Drilling (Paul Romano) Inc. is restricted from
incurring any indebtedness other than the Romano Notes and the Noble Paul Romano
may not be mortgaged to secure any debt other than the Romano Notes. Pursuant to
the trust indenture, the Company was required to deposit
(Unless otherwise indicated, dollar amounts in tables are in
thousands, except per share amounts)
35
<PAGE> 38
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
an amount into two separate accounts, subject to control of a third-party
trustee, to prepay the first month's principal and interest payment and provide
an additional debt reserve balance equal to two months of debt service. Such
amount totaled $5,871,000 at December 31, 1998 and is included in "Restricted
cash" in the Consolidated Balance Sheet.
In December 1998, Noble Drilling (Jim Thompson) Inc., an indirect,
wholly owned subsidiary of the Company and owner of the Noble Jim Thompson,
issued $115,000,000 principal amount of its fixed rate senior secured notes (the
"Thompson Notes") in four series. The Thompson Notes bear interest at rates of
5.93 percent to 7.25 percent per annum. Series A of the Thompson Notes matures
on April 1, 2002 ($15,000,000 principal amount), Series B matures on October 1,
2004 ($40,000,000 principal amount), Series C matures on January 1, 2009
($40,000,000 principal amount) and Series D matures on January 1, 2009
($20,000,000 principal amount). Principal and interest payments are payable
quarterly on the first day of April, July, October and January except that the
first two quarterly payments are interest only for all the notes. The quarterly
payments for each series of the Series B, C and D Notes are interest only until
the repayment in full of the prior series. The Thompson Notes are guaranteed by
Noble Drilling and are secured by a first naval mortgage on the Noble Jim
Thompson and, until completion of its conversion to an EVA-4000(TM)
semisubmersible, a first preferred mortgage on the Noble John Sandifer, and a
first preferred fleet mortgage on the Noble Bill Jennings, Noble Tom Jobe and
Noble Eddie Paul. The Thompson Notes can be prepaid, in whole or in part, at a
premium at any time after January 1, 2001.
The Company issued $125,000,000 principal amount of 9 1/4% Senior Notes
Due 2003 (the "9 1/4% Notes") in 1993. The Company purchased $11,000,000
principal amount of the 9 1/4% Notes in 1996, resulting in an extraordinary
charge of $660,000, net of taxes of $355,000. The Company purchased an
additional $29,555,000 principal amount of the 9 1/4% Notes in 1997, resulting
in an extraordinary charge of $1,704,000, net of taxes of $918,000. Thereafter
in 1997 the Company made a tender offer pursuant to which it purchased an
additional $81,330,000 principal amount of the 9 1/4% Notes. This resulted in an
extraordinary charge of $4,981,000, net of taxes of $2,682,000. The Company
redeemed the remaining $3,115,000 principal amount of 9 1/4% Notes in December
1998 and there was no extraordinary charge recognized as a result of the
redemption.
Annual maturities of long-term debt are $47,559,000 due in 1999,
$47,146,000 due in 2000, $47,828,000 due in 2001, $55,431,000 due in 2002,
$80,580,000 due in 2003 and $229,857,000 thereafter.
The following table summarizes the Company's long-term debt:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
9 1/8% Senior Notes due 2006, net of unamortized discount of
$175 in 1998 and $198 in 1997................................... $ 124,825 $ 124,802
Project Financings:
Wolff Notes..................................................... 145,000 --
Romano Notes.................................................... 112,250 --
Thompson Notes.................................................. 115,000 --
Insurance financing............................................... 11,326 18,417
9 1/4% Senior Notes due 2003...................................... -- 3,115
-------------- --------------
508,401 146,334
Current installments.............................................. (47,559) (8,195)
-------------- --------------
$ 460,842 $ 138,139
============== ==============
</TABLE>
The fair value of the Company's long-term debt at December 31, 1998 was
$522,801,000, based on the quoted market prices for similar issues or on the
current rates offered to the Company for debt of similar remaining maturities.
NOTE 7 -- CREDIT FACILITIES
The Company has an unsecured revolving bank credit facility totaling
$200,000,000 (the "Credit Agreement"), including a letter of credit facility
totaling $40,000,000, through August 14, 2002. The Company is required to
maintain various affirmative and negative covenants relating to interest
coverage, fleet market value and net worth. The Credit Agreement contains
restrictive covenants, including restrictions on incurring additional
indebtedness, and restrictions on permitting additional liens, payment of
dividends, transactions with affiliates, and mergers or consolidations. As of
December 31, 1998, the Company had an outstanding balance of $100,000,000 under
the Credit Agreement and $3,792,000 had been used to support outstanding letters
of credit. As of December 31, 1998, $96,208,000 remained available under the
Credit Agreement. Additionally, at December 31, 1998, $24,605,000 of outstanding
letters of credit had been supported through a
(Unless otherwise indicated, dollar amounts in tables are in
thousands, except per share amounts)
36
<PAGE> 39
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
combination of unsecured letter of credit facilities and surety bonds. The
interest rate on borrowings under the credit agreement was 5.98 percent per
annum at December 31, 1998.
NOTE 8 -- SHAREHOLDERS' EQUITY
The company issued and sold 21,850,000 shares of common stock in 1996
in an underwritten public offering which produced net proceeds of $272,033,000,
after deducting the underwriting discount and other related costs. These
proceeds and the net proceeds from the issuance and sale of the 9 1/8% Senior
Notes were used to purchase Nedrill (see note 2) and for general corporate
purposes.
STOCKHOLDER RIGHTS PLAN
The Company has adopted a stockholder rights plan designed to assure
that the Company's stockholders receive fair and equal treatment in the event of
any proposed takeover of the Company and to guard against partial tender offers
and other abusive takeover tactics to gain control of the Company without paying
all stockholders a fair price. The rights plan was not adopted in response to
any specific takeover proposal. Under the rights plan, one right ("Right") is
attached to each share of Noble Drilling common stock. Each Right will entitle
the holder to purchase one one-hundredth of a share of a new Series A Junior
Participating Preferred Stock, par value $1.00 per share, at an exercise price
of $120.00. The Rights are not currently exercisable and will become exercisable
only in the event a person or group acquires beneficial ownership of 15 percent
or more of Noble Drilling common stock. The Rights expire on July 10, 2005.
NOTE 9 -- FINANCIAL INSTRUMENTS
The Company operates internationally which results in exposure to
foreign currency risk. The Company denominates its contracts predominantly in
U.S. Dollars to mitigate the exposure to fluctuations in foreign currencies. The
Company periodically uses foreign exchange derivative instruments or spot
purchases to hedge its known liabilities in foreign currencies to reduce the
impact of foreign currency gains and losses in its financial results. It is the
Company's policy not to enter into derivative transactions for speculative
purposes. Gains and losses on foreign exchange derivative instruments, which
qualify as accounting hedges, are deferred and recognized when the underlying
foreign exchange exposure is realized. To qualify for hedge accounting, the
contracts must meet defined correlation and effectiveness criteria, be
designated as hedges and result in cash flows and financial statement effects
that substantially offset those of the position being hedged. Gains and losses
on foreign exchange derivative instruments that do not qualify as hedges for
accounting purposes are recognized currently based on the change in the market
value of the derivative instrument. During 1998, the Company entered into
various foreign currency exchange contracts. These contracts expired monthly
throughout 1998 and required the Company to exchange U.S. Dollars for Dutch
Guilders and British Pounds Sterling totaling $33,800,000 and $24,700,000,
respectively. There were no material gains or losses recognized in the year
ended December 31, 1998. At December 31, 1998 there were no open foreign
exchange derivative hedges. The Company did not utilize foreign exchange
derivative instruments in 1997.
In connection with 1998 project financings for the Noble Paul Wolff,
Noble Paul Romano and Noble Jim Thompson EVA-4000TM semisubmersible conversions,
the Company entered into interest rate swap contracts to minimize exposure to
interest rate increases during the period prior to funding. Neither the Company
nor the counterparties, which were prominent bank institutions, were required to
collateralize their respective obligations under the interest rate swaps. A
summary of the interest rate swap contracts is as follows:
<TABLE>
<CAPTION>
NOTIONAL SETTLEMENT AMOUNT RECEIVED (PAID)
PROJECT FINANCING AMOUNT DATE AT SETTLEMENT DATE
- ----------------- ------ ---- ------------------
<S> <C> <C> <C>
Noble Paul Wolff $ 145,000 June 8, 1998 $ 311
Noble Jim Thompson 137,750 November 3, 1998 (3,837)
Noble Paul Romano 16,875 December 14, 1998 (741)
</TABLE>
The amounts received or paid at settlement of the interest rate swap contracts
have been deferred and are classified as "Other assets" in the accompanying
Consolidated Balance Sheet at December 31, 1998. Such amounts will be
(Unless otherwise indicated, dollar amounts in tables are in
thousands, except per share amounts)
37
<PAGE> 40
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
recognized over the term at the respective project financings as an adjustment
to the underlying yield of the financial instrument. (See Note 6).
NOTE 10 -- STOCK-BASED COMPENSATION PLANS
The Company has several stock-based compensation plans, which are
described below. Effective January 1, 1996, the Company adopted the provisions
of SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS 123"). As
permitted by SFAS 123, the Company has chosen to continue using the intrinsic
value method of accounting for stock-based compensation awards in accordance
with APB Opinion 25. Accordingly, no compensation expense has been recognized
for stock option awards.
1991 STOCK OPTION AND RESTRICTED STOCK PLAN
The Company's 1991 Stock Option and Restricted Stock Plan, as amended
(the "1991 Plan"), provides for the granting of options to purchase the
Company's common stock, with or without stock appreciation rights ("SAR's"), and
the awarding of shares of restricted stock to selected employees. At December
31, 1998, 1,740,286 shares were available for grant or award under the 1991
Plan. In general, all options granted under the 1991 Plan have a term of 10
years, an exercise price equal to the fair market value of the common stock on
the date of grant and vest one-third annually, commencing one year after the
grant date.
1992 NONQUALIFIED STOCK OPTION PLAN
The Company's 1992 Nonqualified Stock Option Plan for Non-Employee
Directors (the "1992 Plan") provides for the granting of nonqualified stock
options to non-employee directors. The options are granted at fair market value
on the grant date and are exercisable from time to time over a period commencing
one year from the grant date and ending on the expiration of ten years from the
grant date, unless terminated sooner as described in the 1992 Plan.
A summary of the status of the Company's stock options under both the
1991 Plan and 1992 Plan as of December 31, 1998, 1997 and 1996 and the changes
during the year ended on those dates is presented below (actual amounts):
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------- -------------------------- --------------------------
NUMBER OF WEIGHTED NUMBER OF WEIGHTED NUMBER OF WEIGHTED
SHARES AVERAGE SHARES AVERAGE SHARES AVERAGE
UNDERLYING EXERCISE UNDERLYING EXERCISE UNDERLYING EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of the year . 4,309,696 $ 13.72 3,607,403 $ 7.14 2,904,747 $ 5.43
Granted .............................. 3,776,618 22.49 1,804,500 23.15 1,376,100 9.97
Exercised ............................ (348,880) 7.95 (858,213) 6.28 (515,281) 5.05
Forfeited ............................ (146,961) 22.10 (243,994) 11.97 (158,163) 7.36
---------- ---------- ---------- ---------- ---------- ----------
Outstanding at end of year ........... 7,590,473 $ 18.23 4,309,696 $ 13.72 3,607,403 $ 7.14
========== ========== ========== ========== ========== ==========
Exercisable at end of year ........... 2,430,715 $ 10.58 1,496,289 $ 6.52 1,537,250 $ 5.64
========== ========== ========== ========== ========== ==========
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1998 (actual amounts).
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------- -------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF EXERCISE NUMBER REMAINING AVERAGE NUMBER AVERAGE
PRICES OUTSTANDING LIFE (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ---------------------- -------------- ---------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$ 1.72 to $ 5.00 265,950 3.21 $ 3.27 265,950 $ 3.28
$ 5.19 to $14.00 1,949,557 6.15 7.87 1,596,370 7.42
$ 14.25 to $28.31 5,337,466 9.02 22.55 568,395 22.90
$ 32.50 37,500 9.30 32.50 -- --
- ---------------------- -------------- ----------------- --------------- ----------- ---------
$ 1.72 to $32.50 7,590,473 8.11 $ 18.23 2,430,715 $ 10.58
============== ================= =============== =========== =========
</TABLE>
(Unless otherwise indicated, dollar amounts in tables are in
thousands, except per share amounts)
38
<PAGE> 41
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Additional disclosures required by SFAS 123 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Weighted average fair value per option granted ... $ 12.01 $ 10.58 $ 4.39
Valuation assumptions:
Expected option term (years) ................... 5 5 5
Expected volatility ............................ 38.06% 41.27% 40.85%
Expected dividend yield ........................ 0% 0% 0%
Risk-free interest rate ........................ 5.16% 6.20% 5.30%
</TABLE>
The following table reflects pro forma net income and earnings per
share had we elected to adopt the fair value approach of SFAS 123:
<TABLE>
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Pro forma effects:
Net income ........................................ $ 152,113 $ 253,077 $ 71,045
Earnings per share
Basic ........................................... $ 1.16 $ 1.92 $ 0.66
Diluted ......................................... $ 1.15 $ 1.90 $ 0.65
</TABLE>
OTHER STOCK BASED COMPENSATION
In July 1996, a subsidiary of Noble Drilling granted SAR's covering
309,500 shares of Noble Drilling common stock. The SAR's, which are payable
solely in cash, have a five year term, an exercise price of fair market value on
the date of grant and vested fully in July 1997. In January 1998, we entered
into a Deed of Trust with Guiness Flight Trustees SARL to act as trustee of the
Company's Share Appreciation Rights Trust (the "Trust"). The Trust was
established to fund our obligation to pay the employees upon the exercise of
their SAR's. Pursuant to the Trust, 248,000 shares of the Company's common
stock, representing the number of SAR's outstanding, were transferred to the
Trust in January 1998. The Company recognized compensation expense of $0,
$3,500,000 and $776,000 for the years ended December 31, 1998, 1997 and 1996,
respectively, related to SAR's.
In July 1996, the Company awarded 58,863 shares of restricted (i.e.,
nonvested) common stock pursuant to the 1991 Plan to selected employees.
One-half of these shares vested on each of the first and second anniversaries of
the award date. In January 1998, the Company awarded 22,000 shares of restricted
stock to selected employees that vest 20 percent per year over a five year
period commencing on the first anniversary date of the award.
Additionally, the Company has awarded performance restricted shares
pursuant to the 1991 Plan. In general, the performance restricted shares have a
three-year performance period from the date of award. The actual number of
shares awarded and available for vesting may vary depending on the degree of
achievement of certain specified corporate performance criteria over the
three-year performance period. The number of shares awarded as so determined
then vests (subject only to future employment) at the rate of one-third thereof
each year, on each succeeding March 31. Nonvested shares will be forfeited.
(Unless otherwise indicated, dollar amounts in tables are in
thousands, except per share amounts)
39
<PAGE> 42
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the restricted share and performance restricted share
awards and the amounts recognized as compensation expense for the years ended
December 31, 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ----------- -----------
<S> <C> <C> <C>
Restricted shares:
Shares awarded......................................................... 22,000 -- 58,863
Share price at award date.............................................. $ 28.25 -- $ 14.13
Performance Restricted Shares:
Shares awarded......................................................... -- 90,500 105,250
Share price at award date.............................................. -- $ 21.00 $ 8.88
Compensation expense recognized.......................................... $ 835 $ 3,536 $ 161
</TABLE>
NOTE 11 -- INCOME TAXES
The components of and changes in the net deferred taxes were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
--------- ----------
<S> <C> <C>
Deferred tax assets:
Domestic ............................................... $ -- $ --
International:
Net operating loss carryforwards ....................... 3,130 4,580
Tax basis of assets in excess of book basis ............ 964 1,758
-------- --------
Deferred tax assets ........................................ $ 4,094 $ 6,338
======== ========
Deferred tax liabilities:
Domestic:
Excess of net book basis over remaining tax basis ...... $(45,596) $(54,768)
Other, net ............................................. -- (1,951)
International:
Excess of net book basis over remaining tax basis ...... (14,471) (7,512)
-------- --------
Deferred tax liabilities ................................... $(60,067) $(64,231)
======== ========
</TABLE>
Income before income taxes and extraordinary items consisted of the
following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Domestic ..................... $ 106,552 $ 265,122 $ 94,096
International ................ 124,367 114,491 7,863
---------- ---------- ----------
Total ........................ $ 230,919 $ 379,613 $ 101,959
========== ========== ==========
</TABLE>
The income tax provision consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Current - domestic ........... $ 49,506 $ 50,153 $ 2,322
Current - international ...... 20,509 16,757 13,744
Deferred - domestic .......... (10,331) 50,780 3,288
Deferred - international ..... 9,203 (1,959) 3,308
---------- ---------- ----------
Total ........................ $ 68,887 $ 115,731 $ 22,662
========== ========== ==========
</TABLE>
(Unless otherwise indicated, dollar amounts in tables are in
thousands, except per share amounts)
40
<PAGE> 43
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of Federal statutory and effective income tax rates is
shown below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1998 1997 1996
---------------- ------------- --------------
<S> <C> <C> <C>
Statutory rate.................................................... 35% 35% 35%
Effect of:
International tax rates which are different than the U.S. rate.... (7.2) (6.2) 14.7
Other........................................................... 2.0 1.7 2.3
U.S. operating loss carryforward/carryback benefit.............. - - (29.1)
Canadian operating loss carryforward benefit.................... - - (0.7)
----------- ---------- ----------
Total............................................................. 29.8% 30.5% 22.2%
=========== =========== ==========
</TABLE>
The Company had available at December 31, 1996, unused investment tax
credits of $669,000, which were used to offset 1997 U.S. taxes payable. In
addition, Noble Drilling had net operating loss carryforwards ("NOL's") for tax
purposes of approximately $94,253,000 at December 31, 1996, which were fully
utilized in 1997.
Applicable U.S. income and foreign withholding taxes have not been
provided on undistributed earnings of the Company's international subsidiaries.
Management does not intend to repatriate such undistributed earnings for the
foreseeable future except for distributions upon which incremental income taxes
would not be material. At December 31, 1998, the estimated deferred tax
liability associated with the undistributed earnings of the Company's
international subsidiaries is approximately $6,000,000.
NOTE 12 -- EMPLOYEE BENEFIT PLANS
The Company has a noncontributory defined benefit plan which covers
substantially all salaried employees and a noncontributory defined benefit
pension plan which covers certain field employees. The benefits from these plans
are based primarily on years of service and employees' compensation near
retirement. The Company's funding policy is consistent with funding requirements
of applicable laws and regulations. The assets of these plans consist of
corporate equity securities, municipal and government bonds, and cash
equivalents. The Company, when required, makes cash contributions to the
domestic plan. As of September 30, 1998, the domestic plan assets included
$1,669,000 of Noble Drilling's common stock valued at fair value at that date.
The Company changed the measurement date of the plan to September 30 beginning
in 1995. This change did not have a material impact to the financial results of
the Company.
Each of Noble Drilling (U.K.) Limited, Nedstaff Europe Ltd. and Noble
Drilling (Nederland) B.V., wholly owned subsidiaries of Noble Drilling,
maintains pension plans which cover all of their salaried, nonunion employees.
Benefits are based on credited service and the average of the highest three
years of qualified salary within the past ten years of participation.
Pension cost includes the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------
1998 1997 1996
----------------------------- ----------------------------- -----------------------------
INTERNATIONAL DOMESTIC INTERNATIONAL DOMESTIC INTERNATIONAL DOMESTIC
------------- ------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Service cost .................. $ 2,793 $ 1,965 $ 2,498 $ 1,520 $ 523 $ 1,589
Interest cost ................. 1,233 2,334 1,030 2,094 726 2,023
Return on plan assets ......... (1,587) (3,429) (1,264) (2,436) (928) (4,500)
Amortization of prior service
cost ........................ -- 65 -- (10) -- (10)
Amortization of transition
obligation (asset) .......... 151 (456) 93 (456) (55) (456)
Recognized net actuarial
loss ........................ 105 -- 6 183 -- 3,073
------------ ------------ ------------ ------------ ------------ ------------
Net pension expense ........... $ 2,695 $ 479 $ 2,363 $ 895 $ 266 $ 1,719
============ ============ ============ ============ ============ ============
</TABLE>
(Unless otherwise indicated, dollar amounts in tables are in
thousands, except per share amounts)
41
<PAGE> 44
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The funded status of the plans is as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------------------
1998 1997
------------------------------ -------------------------------
INTERNATIONAL DOMESTIC INTERNATIONAL DOMESTIC
-------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Funded status ............................... $ (7,062) $ (222) $ (773) $ 7,372
Unrecognized net gain (loss) ................ 4,798 2,821 (2,291) (3,051)
Unrecognized prior service cost ............. -- 1,914 -- 801
Unrecognized transition obligation (asset) .. 2,256 (142) 2,364 (597)
------------- ------------- ------------- -------------
Net amount recognized ....................... $ (8) $ 4,371 $ (700) $ 4,525
============= ============= ============= =============
</TABLE>
Amounts recognized in the Consolidated Balance Sheet consist of:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------------------
1998 1997
------------------------------ ------------------------------
INTERNATIONAL DOMESTIC INTERNATIONAL DOMESTIC
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Prepaid benefit cost ........................ $ 353 $ 4,353 $ -- $ 4,525
Accrued benefit liability ................... (3,039) (2,846) (1,655) (587)
Intangible asset ............................ 1,279 2,001 955 587
Accumulated other comprehensive income ...... 1,399 863 -- --
------------- ------------- ------------- -------------
Net amount recognized ....................... $ (8) $ 4,371 $ (700) $ 4,525
============= ============= ============= =============
</TABLE>
A reconciliation of the changes in projected benefit obligations is as
follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------------------
1998 1997
------------------------------ ------------------------------
INTERNATIONAL DOMESTIC INTERNATIONAL DOMESTIC
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Benefit obligation at beginning of year ..... $ 18,729 $ 31,010 $ 12,886 $ 27,126
Service cost ................................ 2,793 1,965 2,498 1,520
Interest cost ............................... 1,233 2,334 1,030 2,094
Actuarial losses ............................ 5,571 2,652 2,212 955
Benefits paid ............................... (398) (1,625) (329) (1,535)
Contributions ............................... 496 -- 432 --
Other ....................................... -- 1,178 -- 850
------------- ------------- ------------- -------------
Benefit obligation at end of year ........... $ 28,424 $ 37,514 $ 18,729 $ 31,010
============= ============= ============= =============
</TABLE>
A reconciliation of the changes in fair value of plan assets is as
follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------------------
1998 1997
------------------------------ ------------------------------
INTERNATIONAL DOMESTIC INTERNATIONAL DOMESTIC
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Fair value of plan assets at beginning of year $ 17,956 $ 38,382 $ 11,880 $ 26,656
Actual return on plan assets ................. (20) 109 3,585 12,890
Employer contribution ........................ 3,451 426 2,503 371
Plan participants' contribution .............. 496 -- 432 --
Benefits and expenses paid ................... (521) (1,625) (444) (1,535)
------------- ------------- ------------- -------------
Fair value of plan assets at end of year ..... $ 21,362 $ 37,292 $ 17,956 $ 38,382
============= ============= ============= =============
</TABLE>
The projected benefit obligations for the international and domestic
plans were determined using an assumed discount rate of 5.25 percent and 6.50
percent, respectively, in 1998, 6.75 percent and 7.25 percent, respectively, in
1997 and 8.25 percent and 7.5 percent, respectively, in 1996. Assumed long-term
rate of return on international plan assets was 6.0 percent, 7.5 percent and 9.0
percent for 1998, 1997 and 1996, respectively. Assumed long-term rate of return
on domestic plan assets was 9.0 percent in each of the years presented. The
projected benefit obligations for the international plan assume a compensation
increase of 3.0 percent, 4.5 percent and 6.0 percent for 1998, 1997 and 1996,
respectively, and 4.0 percent per annum for the domestic plan in 1998 and 6.0
percent in each of the years 1997 and 1996.
(Unless otherwise indicated, dollar amounts in tables are in
thousands, except per share amounts)
42
<PAGE> 45
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company presently sponsors a 401(k) savings plan, medical and other
plans for the benefit of its employees. The cost of maintaining these plans
aggregated $11,021,000, $11,868,000 and $8,912,000 in 1998, 1997 and 1996,
respectively.
The Company does not provide post-retirement benefits (other than
pensions) or any post-employment benefits to its employees.
NOTE 13 -- COMMITMENTS, CONTINGENCIES AND OBLIGATIONS
The Company is a defendant in certain claims and litigation arising out
of operations in the normal course of business. In the opinion of management,
uninsured losses, if any, will not be material to the Company's financial
position, results of operations or cash flows.
The Company has entered into agreements with several vendors to
purchase or construct equipment for the conversion of rigs. These agreements
generally require non-refundable payments as certain milestones are met. The
amount of such payments totaled $192,831,000 through December 31, 1998. As of
December 31, 1998, the Company also had purchase commitments of $31,914,000 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. These expenditures will be
funded from operating cash flows, existing cash balances, available lines of
credit and project financing.
At December 31, 1998, the Company had certain noncancellable long-term
operating leases, principally for office space and facilities, with various
expiration dates. Future minimum rentals under such leases aggregate $1,485,000
for 1999, $656,000 for 2000, $87,000 for 2001, $30,000 for 2002 and $2,207,000
thereafter. Rental expense for all operating leases was $2,729,000, $5,583,000
and $4,377,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
NOTE 14 -- UNAUDITED INTERIM FINANCIAL DATA
Unaudited interim financial information for the years ended December
31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------
1998 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating revenues ............................... $ 189,036 $ 216,228 $ 195,049 $ 187,928
Operating income ................................. $ 66,315 $ 70,305 $ 48,401 $ 44,750
Net income ....................................... $ 46,229 $ 50,404 $ 32,616 $ 32,783
Net income per share:
Basic .......................................... $ 0.35 $ 0.38 $ 0.25 $ 0.25
Diluted ........................................ $ 0.35 $ 0.38 $ 0.25 $ 0.25
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------
1997 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating revenues ............................... $ 168,715 $ 184,992 $ 171,636 $ 187,852
Operating income (1) ............................. $ 35,062 $ 242,877 $ 43,647 $ 59,761
Income before extraordinary charge ............... $ 23,648 $ 161,700 $ 33,481 $ 45,053
Earnings per common share:
Income before extraordinary charge: (1)
Basic .......................................... $ 0.18 $ 1.22 $ 0.25 $ 0.34
Diluted ........................................ $ 0.17 $ 1.21 $ 0.25 $ 0.34
</TABLE>
(1) Included in the quarter ended June 30, 1997 is a non-recurring gain of
$197,676,000, or $128,489,000 net of tax ($0.97 per basic and $0.96 per
diluted share), relating to the sale of the Company's 12 mat-supported
jackup rigs.
(Unless otherwise indicated, dollar amounts in tables are in
thousands, except per share amounts)
43
<PAGE> 46
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 -- 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 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 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. The Company currently has labor contract
agreements in the U.K. North Sea and off the east coast of Canada.
The accounting policies of the reportable segments are the same as
those described in the summary of significant accounting policies (see Note 1).
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.
(Unless otherwise indicated, dollar amounts in tables are in
thousands, except per share amounts)
44
<PAGE> 47
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summarized financial information of the Company's reportable segments
for the year ended December 31, 1998, 1997 and 1996 is shown in the following
table. The "Other" column includes results of domestic land drilling operations
for 1996 only, results of other insignificant operations and corporate related
items.
<TABLE>
<CAPTION>
INTERNATIONAL DOMESTIC
CONTRACT CONTRACT LABOR TURNKEY
DRILLING DRILLING CONTRACT DRILLING
SERVICES SERVICES SERVICES SERVICES OTHER TOTAL
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
1998:
Revenues from external customers .... $ 483,086 $ 122,027 $ 70,242 $ 113,171 $ (285) $ 788,241
Intersegment revenues ............... -- 1,683 -- 391 -- 2,074
Depreciation and amortization ....... 53,905 13,144 1,843 171 2,628 71,691
Interest expense .................... 11,205 2,805 61 -- (8,890) 5,181
Equity in (loss) of
unconsolidated subsidiaries ..... (2,752) -- -- -- -- (2,752)
Segment profit (loss) ............... 144,460 33,184 8,767 (11,676) (12,595) 162,140
Total assets (4)..................... 1,152,515 923,461 35,453 7,848 59,355 2,178,632
Capital expenditures ................ 87,171 444,349 28 -- 9,023 540,571
1997:
Revenues from external customers .... $ 349,256 $ 123,497 $ 55,902 $ 184,540 $ -- $ 713,195
Intersegment revenues ............... 10,826 13,253 -- -- -- 24,079
Depreciation and amortization ....... 57,835 9,763 1,194 927 4,326 74,045
Interest expense .................... 10,273 3,333 358 32 (1,102) 12,894
Equity in earnings of
unconsolidated subsidiaries ..... 78 -- -- -- -- 78
Gain on sale of mat rigs ............ 2,177 109,177 -- -- 86,322 197,676
Segment profit (1) .................. 88,949 109,849 7,463 1,108 50,103 257,472
Total assets (4)..................... 947,086 420,598 33,531 39,170 65,426 1,505,811
Capital expenditures ................ 97,064 286,031 4,435 443 3,092 391,065
1996:
Revenues from external customers .... $ 203,597 $ 125,793 $ 38,392 $ 121,612 $ 24,859 $ 514,253
Intersegment revenues ............... 116 20,179 -- 1,339 -- 21,634
Depreciation and amortization ....... 30,685 15,198 690 912 4,674 52,159
Interest expense .................... 9,730 4,183 67 112 4,666 18,758
Gain on sale of land assets ......... -- -- -- -- 45,414 45,414
Segment profit (loss) (2) ........... (23,530) 40,317 3,921 15,489 37,127 73,324
Total assets (3) (4)................. 804,535 270,450 22,169 35,776 234,243 1,367,173
Capital expenditures ................ 158,059 51,593 923 1,069 5,243 216,887
</TABLE>
(1) Segment profit (loss) for 1997 includes the effect of a gain on the sale of
mat-supported rigs. The gain, net of taxes, is included in International
Contract Drilling Services profit, Domestic Contract Drilling Services
profit and Other profit for $2,177,000, $70,965,000 and $55,347,000,
respectively.
(2) Other profit for 1996 includes the effect of a gain on the sale of land
assets of $29,155,000, net of taxes.
(3) Other total assets for 1996 include cash and cash equivalents and
marketable securities of $144,714,000.
(4) Total assets for the International Contract Drilling Services segment
includes $10,761,000, $688,000 and $410,000 of investments in joint
ventures at December 31, 1998, 1997 and 1996, respectively.
(Unless otherwise indicated, dollar amounts in tables are in
thousands, except per share amounts)
45
<PAGE> 48
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table is a reconciliation of reportable segment profit or
loss to the Company's consolidated totals.
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
PROFIT OR LOSS
Total profit for reportable segments ........... $ 162,140 $ 257,472 $ 73,324
Elimination of intersegment (losses) profits ... (108) (275) (727)
--------- --------- ---------
Total consolidated net income ............... $ 162,032 $ 257,197 $ 72,597
========= ========= =========
</TABLE>
The following tables present revenue and identifiable assets by country
based on the location of the service provided.
<TABLE>
<CAPTION>
REVENUES IDENTIFIABLE ASSETS
------------------------------------ ------------------------------------
1998 1997 1996 1998 1997 1996
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
United States ........... $ 206,838 $ 254,213 $ 262,041 $ 953,935 $ 519,079 $ 515,576
Brazil .................. 29,261 33,312 8,722 325,176 146,613 57,833
Canada .................. 15,381 8,153 10,107 10,476 12,489 8,077
Denmark ................. 33,196 23,513 11,414 70,823 81,543 43,375
India ................... 22,150 14,413 5,443 96,716 85,037 81,749
Mexico .................. 96,967 44,373 9,807 100,041 78,849 30,817
Nigeria ................. 99,526 82,067 57,158 133,600 103,217 110,357
Norway .................. 31,389 -- -- 52,973 -- --
Qatar ................... 61,870 34,951 15,825 117,295 80,780 85,358
The Netherlands ......... 45,608 57,179 29,350 158,966 198,298 153,479
United Kingdom .......... 108,964 71,120 52,297 75,998 70,613 70,565
Venezuela ............... 34,778 77,427 36,427 50,865 93,337 85,988
Zaire ................... 2,313 12,474 8,692 112 22,542 25,571
Other ................... -- -- 6,970 31,656 13,414 98,428
---------- ---------- ---------- ---------- ---------- ----------
Total ....... $ 788,241 $ 713,195 $ 514,253 $2,178,632 $1,505,811 $1,367,173
========== ========== ========== ========== ========== ==========
</TABLE>
(Unless otherwise indicated, dollar amounts in tables are in
thousands, except per share amounts)
46
<PAGE> 49
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The sections entitled "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" appearing in our proxy statement for
the annual meeting of stockholders to be held on April 22, 1999 (the "1999 Proxy
Statement"), set forth certain information with respect to the directors of
Noble Drilling and with respect to reporting under Section 16(a) of the
Securities Exchange Act of 1934, and are incorporated herein by reference.
Certain information with respect to the executive officers of Noble
Drilling is set forth under the caption "Executive Officers of the Registrant"
in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
The section entitled "Executive Compensation" appearing in the 1999 Proxy
Statement sets forth certain information with respect to the compensation of
management of Noble Drilling, and, except for the report of the compensation
committee of the board of directors of Noble Drilling on executive compensation
and the information therein under "Performance Graph," is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The sections entitled "Security Ownership of Certain Beneficial Owners"
and "Security Ownership of Management" appearing in the 1999 Proxy Statement set
forth certain information with respect to the ownership of voting securities and
equity securities of Noble Drilling, and are incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) A list of the financial statements filed as a part of this report is
set forth in Item 8 on page 22 and is incorporated herein by
reference.
(2) Financial Statement Schedules:
All schedules are omitted because they are either not applicable or
the required information is shown in the financial statements or notes
thereto.
(Unless otherwise indicated, dollar amounts in tables are in
thousands, except per share amounts)
47
<PAGE> 50
(3) Exhibits:
The information required by this Item 14(a)(3) is set forth in the
Index to Exhibits accompanying this Annual Report on Form 10-K and is
incorporated herein by reference.
(4) Financial Statements required by Form 11-K for the fiscal year ended
December 31, 1998, with respect to the Noble Drilling Corporation
Thrift Plan (to be filed by amendment).
(b) No reports on Form 8-K were filed by the Company during the quarter ended
December 31, 1998.
(Unless otherwise indicated, dollar amounts in tables are in
thousands, except per share amounts)
48
<PAGE> 51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 5, 1999
By: /s/ JAMES C. DAY
--------------------------------------------------
James C. Day, Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following individuals on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY IN WHICH SIGNED DATE
--------- ------------------------ ----
<S> <C> <C>
/s/ JAMES C. DAY Chairman and Chief Executive Officer March 5, 1999
- ------------------------------------- and Director
James C. Day (Principal Executive Officer)
/s/ ROBERT D. CAMPBELL President and Director March 5, 1999
- -------------------------------------
Robert D. Campbell
/s/ BYRON L. WELLIVER Senior Vice President - Finance, March 5, 1999
- ------------------------------------- Treasurer and Controller
Byron L. Welliver (Principal Financial and Accounting Officer)
/s/ MICHAEL A. CAWLEY Director March 5, 1999
- -------------------------------------
Michael A. Cawley
/s/ LAWRENCE J. CHAZEN Director March 5, 1999
- -------------------------------------
Lawrence J. Chazen
/s/ TOMMY C. CRAIGHEAD Director March 5, 1999
- -------------------------------------
Tommy C. Craighead
/s/ WILLIAM J. DORE Director March 5, 1999
- -------------------------------------
William J. Dore
/s/ JAMES L. FISHEL Director March 5, 1999
- -------------------------------------
James L. Fishel
/s/ MARC E. LELAND Director March 5, 1999
- -------------------------------------
Marc E. Leland
/s/ WILLIAM A. SEARS Director March 5, 1999
- -------------------------------------
William A. Sears
</TABLE>
49
<PAGE> 52
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ---------------- ------------------------------------------------------------------------------------------------
<S> <C>
2.1 - Agreement of Sale and Purchase dated as of April 25, 1996 between the Registrant and Royal
Nedlloyd N.V. and Neddrill Holding B.V. (filed as Exhibit 2.1 to the Registrant's Registration
Statement on Form S-3 (No. 333-2927) and incorporated herein by reference).
2.2 - Asset Purchase Agreement dated November 15, 1996 by and between the Registrant, Noble
Properties, Inc. and Noble Drilling (Canada) Ltd. and Nabors Industries, Inc. (filed as
Exhibit 2.1 to the Registrant's Form 8-K dated December 27, 1996 (date of event: December 13,
1996) and incorporated herein by reference).
2.3 - Agreement dated December 13, 1996 by and among the Registrant, Noble Properties, Inc., Noble
Drilling (Canada) Ltd., Noble Drilling (U.S.) Inc., and Noble Drilling Land Limited and Nabors
Industries, Inc., Nabors Drilling USA, Inc. and Nabors Drilling Limited (filed as Exhibit 2.2
to the Registrant's Form 8-K dated December 27, 1996 (date of event: December 13, 1996) and
incorporated herein by reference).
2.4 - Asset Purchase Agreement dated as of February 19, 1997 between the Registrant, Noble Drilling
(U.S.) Inc., Noble Offshore Corporation, Noble Drilling (Mexico) Inc. and NN-1 Limited
Partnership and Pride Petroleum Services, Inc. (filed as Exhibit 2.10 in the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1996 and incorporated herein by
reference.)
2.5 - Agreement dated April 10, 1997 by and between Noble Drilling Corporation, Noble Drilling
(U.S.) Inc., Noble Offshore Corporation, Noble Drilling (Mexico) Inc. and NN-1 Limited
Partnership, and Pride Petroleum Services, Inc. (filed as Exhibit 2.2 to the Registrant's
Form 8-K dated May 21, 1997 (date of event: May 7, 1997) and incorporated herein by reference).
2.6 - First Amendment to Asset Purchase Agreement dated as of May 7, 1997 by and between Noble
Drilling Corporation, Noble Drilling (U.S.) Inc., Noble Offshore Corporation, Noble Drilling
(Mexico) Inc., NN-1 Limited Partnership and Mexico Drilling Partners Inc., and Pride Petroleum
Services, Inc., Pride Offshore, Inc. and Forasol S.A. (filed as Exhibit 2.3 to the
Registrant's Form 8-K dated May 21, 1997 (date of event: May 7, 1997) and incorporated herein
by reference).
3.1 - Restated Certificate of Incorporation of the Registrant dated August 29, 1985 (filed as
Exhibit 3.7 to the Registrant's Registration Statement on Form 10 (No. 0-13857) and
incorporated herein by reference).
3.2 - Certificate of Amendment of Restated Certificate of Incorporation of the Registrant dated May
5, 1987 (filed as Exhibit 4.2 to the Registrant's Registration Statement on Form S-3 (No.
33-67130) and incorporated herein by reference).
3.3 - Certificate of Amendment of Certificate of Incorporation of the Registrant dated July 31, 1991
(filed as Exhibit 3.16 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991 and incorporated herein by reference).
3.4 - Certificate of Amendment of Certificate of Incorporation of the Registrant dated September 15,
1994 (filed as Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for the
three-month period ended March 31, 1995 and incorporated herein by reference).
3.5 - Certificate of Designations of Series A Junior Participating Preferred Stock, par value $1.00
per share, of the Registrant dated as of June 29, 1995 (filed as Exhibit 3.2 to the
Registrant's Quarterly Report on Form 10-Q for the three-month period ended June 30, 1995 and
incorporated herein by reference).
3.6 - Certificate of Amendment of Certificate of Designations of Series A Junior Participating
Preferred Stock of Registrant dated September 5, 1997 (filed as Exhibit 3.6 to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated
herein by reference).
3.7 - Composite copy of the Bylaws of the Registrant as currently in effect (filed as Exhibit 3.7 to
the Registrant's Annual Report on Form 10-K for the year ended December 31, 1997 and
incorporated herein by reference).
3.8 - Amendment of Articles IV and VI of the Bylaws of the Registrant adopted January 29, 1998
(filed as Exhibit 3.8 to the Registrant's Form 10-K/A (Amendment No. 1) and incorporated
herein by reference).
</TABLE>
50
<PAGE> 53
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ---------------- ------------------------------------------------------------------------------------------------
<S> <C>
4.1 - Form of Senior Indenture (filed as Exhibit 4.9 to the Registrant's Registration Statement on
Form S-3 (No. 333-68507) and incorporated herein by reference).
4.2 - Form of Subordinated Indenture (filed as Exhibit 4.10 to the Registrant's Registration
Statement on Form S-3 (No. 333-68507) and incorporated herein by reference).
4.3 - Indenture dated as of July 1, 1996 governing the 9-1/8% Senior Notes due 2006 (including form
of Note) (filed as Exhibit 4.1 to the Registrant's Form 8-K dated July 16, 1996 (date of
event: July 1, 1996) and incorporated herein by reference).
4.4 - Credit Agreement, dated as of August 14, 1997, among Noble Drilling Corporation, the lending
institutions listed from time to time on Annex I thereto, Credit Lyonnais New York Branch, as
Documentation Agent and Christiania Bank Og Kreditkasse ASA, New York Branch, as Arranger and
Administrative Agent (filed as Exhibit 4.4 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1997 and incorporated herein by reference).
4.5 - Rights Agreement dated as of June 28, 1995 between the Registrant and Liberty Bank and Trust
Company of Oklahoma City, N.A. (filed as Exhibit 4 to the Registrant's Form 8-K dated June
29, 1995 (date of event: June 28, 1995) and incorporated herein by reference).
4.6 - Amendment No. 1 to Rights Agreement, dated September 3, 1997, between Noble Drilling
Corporation and Liberty Bank and Trust Company of Oklahoma City, N.A. (filed as Exhibit 4.2 to
the Registrant's Form 8-A/A (Amendment No. 1) dated September 3, 1997 and incorporated herein
by reference).
4.7 - Summary of Rights to Purchase Preferred Shares, as amended as of September 3, 1997 to conform
with Amendment No. 1 to Rights Agreement, dated September 3, 1997 (filed as Exhibit 4.3 to the
Registrant's Form 8-K dated September 3, 1997 (date of event: September 3, 1997) and
incorporated herein by reference).
4.8 - Note Purchase Agreement dated as of September 24, 1998, by and among Noble Drilling (Paul
Romano) Inc. and each of the note purchasers thereunder. Each note purchaser has entered into
a separate Note Purchase Agreement, which agreements are substantially identical in all
material respects, except for the principal amount of notes to be purchased. A schedule
identifying each of the note purchasers that entered into a Note Purchase Agreement with Noble
Drilling (Paul Romano) Inc. and the principal amount of notes to be purchased by each such
note purchaser is included as Schedule A to the Note Purchase Agreement (filed as Exhibit 4.1
to the Registrant's Form 10-Q for the three-month period ended September 30, 1998 and
incorporated herein by reference).
4.9 - Trust Indenture and Security Agreement dated as of November 24, 1998, between Noble Drilling
(Paul Romano) Inc. and Chase Bank of Texas, National Association, as Trustee (filed as Exhibit
4.18 to the Registrant's Form S-3 dated (No. 33-72059) and incorporated herein by reference).
4.10 - First Naval Mortgage covering the Noble Paul Romano dated as of November 24, 1998, made by
Noble Drilling (Paul Romano) Inc. in favor of Chase Bank of Texas, National Association, as
Indenture Trustee (filed as Exhibit 4.19 to the Registrant's Form S-3 (No. 333-72059) and
incorporated herein by reference).
4.11 - Note Purchase Agreement dated as of July 1, 1998, by and among Noble Drilling (Paul Wolff)
Ltd., Chase Bank of Texas, National Association, as Trustee, and each of the note purchasers
thereunder. Each note purchaser has entered into a separate Note Purchase Agreement, which
agreements are substantially identical in all material respects, except for the principal
amount of notes purchased. A schedule identifying each of the note purchasers that entered
into a Note Purchase Agreement with Noble Drilling (Paul Wolff) Ltd. and the principal amount
of notes purchased by each such note purchaser is included in Annex I to the Note Purchase
Agreement (filed as Exhibit 4.4 to the Registrant's Form 10-Q for the three-month period ended
September 30, 1998 and incorporated herein by reference).
4.12 - Indenture of First Naval Mortgage, dated as of July 1, 1998, made by Noble Drilling (Paul
Wolff) Ltd. in favor of Chase Bank of Texas, National Association, as Trustee (filed as
Exhibit 4.5 to the Registrant's Form 10-Q for the three-month period ended September 30, 1998
and incorporated herein).
4.13 - Parent Guaranty, dated as of July 1, 1998, by Noble Drilling Corporation in favor of Chase
</TABLE>
51
<PAGE> 54
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ---------------- ------------------------------------------------------------------------------------------------
<S> <C>
Bank of Texas, National Association, as Trustee (filed as Exhibit 4.6 to the Registrant's Form
10-Q for the three-month period ended September 30, 1998 and incorporated herein by reference).
4.14 - Second Amendment, dated September 10, 1998, to Credit Agreement, dated as of August 14, 1997,
among Noble Drilling Corporation, the lending institutions listed from time to time on Annex I
thereto, Credit Lyonnais, New York Branch, as Documentation Agent, and Christiana Bank Og
Kreditkasse ASA, New York Branch, as Administrative Agent (filed as Exhibit 4.7 to the
Registrant's Form 10-Q for the three-month period ended September 30, 1998 and incorporated
herein by reference).
4.15 - Note Purchase Agreement dated as of December 21, 1998, by and among Noble Drilling (Jim
Thompson) Inc., Chase Bank of Texas, National Association, as Trustee, and each of the note
purchasers thereunder. Each note purchaser has entered into a separate Note Purchase
Agreement, which agreements are substantially identical in all material respects, except for
the principal amount of notes purchased. A schedule identifying each of the note purchasers
that entered into a Note Purchase Agreement with Noble Drilling (Jim Thompson) Inc. and the
principal amount of notes purchased by each such note purchaser is included as Annex I to the
Note Purchase Agreement (filed as Exhibit 4.24 to the Registrant's Form S-3 (No. 333-72059)
and incorporated herein by reference).
4.16 - Indenture of First Naval Mortgage, dated as of December 21, 1998, made by Noble Drilling (Jim
Thompson) Inc. in favor of Chase Bank of Texas, National Association, as Trustee (filed as
Exhibit 4.25 to the Registrant's Form S-3 dated (No. 333-72059) and incorporated herein by
reference).
4.17 - Parent Guaranty, dated as of December 21, 1998, by Noble Drilling Corporation in favor of
Chase Bank of Texas, National Association, as Trustee, filed as Exhibit 4.26 to the
Registrant's Form S-3 dated (No. 333-72059) and incorporated herein by reference).
4.18 - Third Amendment, dated February 25, 1999, to Credit Agreement, dated as of August 14, 1997,
among Noble Drilling Corporation, the lending institutions listed from time to time on Annex I
thereto, Credit Lyonnais, New York Branch, as Documentation Agent, and Christiana Bank Og
Kreditkasse ASA, New York Branch, as Administrative Agent.
10.1 - Assets Purchase Agreement dated as of August 20, 1993 (the "Portal Assets Purchase
Agreement"), between the Registrant and Portal Rig Corporation (filed as Exhibit 2.3 to the
Registrant's Registration Statement on Form S-3 (No. 33-67130) and incorporated herein by
reference).
10.2 - Agreement dated as of October 25, 1993, among the Registrant, Noble (Gulf of Mexico) Inc. and
Portal Rig Corporation, amending the Portal Assets Purchase Agreement (filed as Exhibit 2.5 to
the Registrant's Quarterly Report on Form 10-Q for the three-month period ended September 30,
1993 and incorporated herein by reference).
10.3 - Amended and Restated Letter of Credit Agreement, dated as of October 25, 1993, among Portal
Rig Corporation, Noble (Gulf of Mexico) Inc., NationsBank of Texas, N.A., as agent and as one
of the "Banks" thereunder, and Marine Midland Bank, N.A., Bank of America National Trust and
Savings Association, and Norwest Bank Minnesota, National Association (collectively, the
"Banks") (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the
three-month period ended September 30, 1993 and incorporated herein by reference).
10.4 - Assignment, Assumption and Amended and Restated Preferred Ship Mortgage, dated October 25,
1993, by Noble (Gulf of Mexico) Inc. to the Banks (filed as Exhibit 10.2 to the Registrant's
Quarterly Report on Form 10-Q for the three-month period ended September 30, 1993 and
incorporated herein by reference).
10.5 - Security Agreement and Assignment, dated October 25, 1993, by Noble (Gulf of Mexico) Inc. to
the Banks (filed as Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for the
three-month period ended September 30, 1993 and incorporated herein by reference).
10.6 - Noble Support Agreement, dated October 25, 1993, among the Registrant and the Banks (filed as
Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q for the three-month period
ended September 30, 1993 and incorporated herein by reference).
10.7* - Noble Drilling Corporation 1991 Stock Option and Restricted Stock Plan (as amended and
restated on January 30, 1997 (filed as Exhibit 10.2 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1996 and incorporated herein by reference).
10.8* - Noble Drilling Corporation 1992 Nonqualified Stock Option Plan for Non-Employee Directors
(filed as Exhibit 4.1 to the Registrant's Registration Statement on Form S-8 (No. 33-62394)
</TABLE>
52
<PAGE> 55
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ---------------- ------------------------------------------------------------------------------------------------
<S> <C>
and incorporated herein by reference).
10.9* - Amendment No. 1 to the Noble Drilling Corporation 1992 Nonqualified Stock Option Plan for
Non-Employee Directors dated as of July 28, 1994 (filed as Exhibit 10.44 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994 and incorporated herein by
reference).
10.10* - Noble Drilling Corporation Equity Compensation Plan for Non-Employee Directors (filed as
Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the three-month period
ended September 30, 1996 and incorporated herein by reference).
10.11* - Noble Drilling Corporation Short-Term Incentive Plan (revised April 1998) (filed as Exhibit 10
to the Registrants's Quarterly Report on Form 10-Q for the three-month period ended June 30,
1998 and incorporated herein by reference).
10.12* - Noble Drilling Corporation Amended and Restated Thrift Restoration Plan (filed as Exhibit
10.46 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 and
incorporated herein by reference).
10.13* - Amendment No. 1 to the Noble Drilling Corporation Amended and Restated Thrift Restoration Plan
dated January 29, 1998 (filed as Exhibit 10.18 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1997 and incorporated herein by reference).
10.14* - Noble Drilling Corporation Retirement Restoration Plan dated April 27, 1995 (filed as Exhibit
10.2 to the Registrant's Quarterly Report on Form 10-Q for the three-month period ended March
31, 1995 and incorporated herein by reference).
10.15* - Amendment No. 1 to the Noble Drilling Corporation Retirement Restoration Plan dated January
29, 1998 (filed as Exhibit 10.18 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997 and incorporated herein by reference).
10.16* - Form of Indemnity Agreement entered into between the Registrant and each of the Registrant's
directors and bylaw officers (filed as Exhibit 10.46 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1995 and incorporated herein by reference).
10.17 - Guarantee dated August 26, 1994 between the Registrant and Hibernia Management and Development
Company Ltd. (filed as Exhibit 10.45 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994 and incorporated herein by reference).
10.18 - Registration Rights Agreement dated as of July 1, 1996 between the Registrant and Royal
Nedlloyd N.V. (filed as Exhibit 10.25 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996 and incorporated herein by reference).
10.19* - Employment Agreement, dated as of October 22, 1998, by and between Noble Drilling Corporation
and James C. Day (filed as Exhibit 10.1 to the Registrant's Quarterly Report filed on Form
10-Q for the three-month period ended September 30, 1998 and incorporated herein by reference).
10.20* - Employment Agreement, dated as of October 22, 1998, by and between the Company and Byron L.
Welliver (filed as Exhibit 10.2 to the Registrant's Quarterly Report filed on Form 10-Q for
the three-month period ended September 30, 1998 and incorporated herein by reference).
10.21 - Employment Agreement dated as of October 22, 1998, by and between the Company and Julie J.
Robertson (filed as Exhibit 10.3 to the Registrant's Quarterly Report filed on Form 10-Q for
the three-month period ended September 30, 1998 and incorporated herein by reference).
10.22* Employment Agreement dated as of January 1, 1999 by and between Noble Drilling Corporation and
Robert D. Campbell.
10.23* - Amendments to the Noble Drilling Corporation 1991 Stock Option and Restricted Stock Plan,
dated July 24, 1997.
12.1 - Statement re Computation of Ratio of Earnings to Fixed Charges.
21.1 - Subsidiaries of the Registrant.
23.1 - Consent of PricewaterhouseCoopers LLP.
27.1 - Financial Data Schedule.
</TABLE>
- ------------------
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit hereto.
53
<PAGE> 1
EXHIBIT 4.18
THIRD AMENDMENT
THIRD AMENDMENT (this "Amendment"), dated as of February 25, 1999,
among NOBLE DRILLING CORPORATION, a Delaware corporation (the "Borrower"),
various lending institutions party to the Credit Agreement referred to below
(the "Banks"), CREDIT LYONNAIS NEW YORK BRANCH, as Documentation Agent and
CHRISTIANIA BANK OG KREDITKASSE ASA, NEW YORK BRANCH, as Administrative Agent
(the "Administrative Agent"). All capitalized terms used herein and not
otherwise defined shall have the meanings assigned such terms in the Credit
Agreement referred to below.
W I T N E S E T H :
WHEREAS, the Borrower, the Banks and the Administrative Agent are
parties to a Credit Agreement, dated as of August 14, 1997 (as amended, modified
or supplemented to the date hereof, the "Credit Agreement");
WHEREAS, subject to the terms and conditions set forth herein, the
parties hereto wish to amend the Credit Agreement as herein provided;
NOW, THEREFORE, it is agreed:
1. Section 8.03 of the Credit Agreement is hereby amended by (i)
replacing the reference to "$200,000,000" appearing in clause (h) thereof with a
reference to "$125,000,000, (ii) deleting the word "and" appearing at the end of
clause (h) thereof, (iii) redesignating clause (i) thereof as clause (j) and
(iv) inserting the following new clause (i) immediately following clause (h)
thereof:
(i) unsecured Indebtedness of the Borrower which shall have a final
maturity not earlier than seven years after the issuance thereof and shall
require no principal payments prior to the final maturity thereof, which
Indebtedness shall be incurred pursuant to a public issuance of debt
securities, in an aggregate principal amount not to exceed $400,000,000,
provided that the proceeds thereof shall, upon receipt thereof, be used to
fund (to the extent of such obligations): first, a tender offer (which
tender offer shall be effected not later than March 31, 1999) to purchase
100% of the outstanding $125,000,000 principal amount of 9-1/8% Senior Notes
and second, to repay outstanding Loans; provided further that the amount of
Indebtedness permitted pursuant to this clause (i) shall be reduced by 100%
of the amount by which the 9-1/8% Senior Notes tendered and repurchased
pursuant to such tender offer is less than $115,000,000; and
2. Section 8.11 of the Credit Agreement is hereby amended by
replacing the reference therein to "2.5" with a reference to "2.0".
<PAGE> 2
3. Section 8.04(h) of the Credit Agreement is hereby amended by (i)
replacing the reference therein to "$400,000,000" with a reference to "(x) at
any time prior to the completion of the Jim Thompson, $175,000,000 and (y) at
any time thereafter, $125,000,000" and (ii) inserting the parenthetical "(other
than the Noble Max Smith and Noble Amos Runner (each as such rig was named on
the Third Amendment Effective Date))" immediately following the reference to
"Fleet Rigs" in clause (ii) of said section.
4. Section 8.05(a) of the Credit Agreement is hereby amended by
deleting said Section in its entirety and inserting the following new clause (a)
in lieu thereof:
(a) So long as no Default or Event of Default exists or would result
therefrom, the Borrower and its Subsidiaries may pay Dividends in an amount
not to exceed in the aggregate the Cumulative Net Income Amount then in
effect.
5. Section 10 of the Credit Agreement is hereby amended by deleting
the definitions of "Applicable Commitment Commission Percentage" and "Applicable
Eurodollar Margin" appearing therein and inserting the following new definition
in lieu thereof:
"Applicable Commitment Commission Percentage" shall be equal to (i) at
all times during which the Borrower's Credit Rating falls in category 1,2 or
3, the percentage per annum set forth below opposite the Borrower's
applicable Credit Rating:
<TABLE>
<CAPTION>
Credit Rating Applicable Commitment Commission Percentage
------------- -------------------------------------------
<S> <C>
Category 1 0.150% per annum
Category 2 0.175% per annum
Category 3 0.200% per annum
</TABLE>
and (ii) at all times during which the Borrower's Credit Rating falls in
category 4, the percentage per annum set forth below opposite the Borrower's
then applicable Pricing Ratio:
<TABLE>
<CAPTION>
Pricing Ratio Applicable Commitment Commission Percentage
------------- -------------------------------------------
<S> <C>
Less than 1.00:1.00 0.250% per annum
Greater than or equal
to 1.00:1.00 and less
than 1.75:1.00 0.300% per annum
Greater than or equal
to 1.75:1.00 0.350% per annum
</TABLE>
-2-
<PAGE> 3
"Applicable Eurodollar Margin" shall be equal to (i) at all times during
which the Borrower's Credit Rating falls in category 1,2 or 3, the
percentage per annum set forth below opposite the Borrower's applicable
Credit Rating:
<TABLE>
<CAPTION>
Credit Rating Applicable Eurodollar Margin
------------- ----------------------------
<S> <C>
Category 1 0.50% per annum
Category 2 0.70% per annum
Category 3 0.90% per annum
</TABLE>
and (ii) at all times during which the Borrower's Credit Rating falls in
category 4, the percentage per annum set forth below opposite the Borrower's
then applicable Pricing Ratio:
<TABLE>
<CAPTION>
Pricing Ratio Applicable Eurodollar Margin
------------- ----------------------------
<S> <C>
Less than 1.00:1.00 1.10% per annum
Greater than or equal
to 1.00:1.00 and less
than 1.75:1.00 1.30% per annum
Greater than or equal
to 1.75:1.00 1.50% per annum
</TABLE>
6. Section 10 of the Credit Agreement is hereby further amended by
inserting the following new proviso immediately before the period at the end of
the definition of "Consolidated Indebtedness" appearing therein:
; provided that, for purposes of calculating the Leverage Ratio,
"Consolidated Indebtedness" shall not include any Indebtedness which is
non-recourse to the Borrower or any Subsidiary Guarantor.
7. In order to induce the Banks to enter into this Amendment, the
Borrower (i) agrees to pay to each Bank which executes a copy of this amendment
on or before 5:00 P.M. New York time on Friday, February 26, 1999 an amendment
fee (the "Amendment Fee") equal to .075% of such Bank's Commitment immediately
prior to giving effect to this Amendment, which fee shall be earned by and
payable to each such Bank concurrently with the occurrence of the Third
Amendment Effective Date and (ii) (x) represents and warrants that no Default or
Event of Default exists on the Third Amendment Effective Date (as hereinafter
defined) both before and after giving effect to this Amendment, and (y) makes
each of the representations, warranties and agreements contained in the Credit
Agreement and the other Credit Documents on and as of the Third Amendment
Effective Date both before and after giving effect to this Amendment (it being
understood that any representation or warranty which by its terms is made as of
a specified date shall be required to be true and correct in all material
respects as of such date).
-3-
<PAGE> 4
8. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
9. This Amendment may be executed in any number of counterparts and
by the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Borrower and the Administrative Agent.
10. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.
11. This Amendment shall become effective on the first date (the
"Third Amendment Effective Date") on which (i) each of the Borrower and the
Required Banks shall have signed a counterpart hereof (whether the same or
different counterparts) and shall have delivered (including by way of
telecopier) the same to the Administrative Agent at its Notice Office and (ii)
the Borrower shall have paid the Amendment Fee to each Bank entitled thereto.
12. At all times on and after the Third Amendment Effective Date, all
references in the Credit Agreement and each of the Credit Documents to the
Credit Agreement shall be deemed to be references to the Credit Agreement as
Amended hereby.
* * *
-4-
<PAGE> 5
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Amendment to be duly executed and delivered as of the date first above
written.
NOBLE DRILLING CORPORATION
By /s/ BYRON L. WELLIVER
-----------------------------------
Title: Senior Vice President
CHRISTIANIA BANK OG KREDITKASSE ASA,
NEW YORK BRANCH, Individually and as
Administrative Agent
By /s/ MARTIN LUNDER
-----------------------------------
Title: Senior Vice President
By /s/ A. DOGANCAY
-----------------------------------
Title: Vice President
CREDIT LYONNAIS NEW YORK BRANCH,
Individually and as Documentation Agent
By /s/ PHILIPPE SOUSTRA
-----------------------------------
Title: Senior Vice President
BANK OF TOKYO-MITSUBISHI, LTD.,
HOUSTON AGENCY
By /s/ JOHN W. MCGHEE
-----------------------------------
Title: Vice President & Manager
<PAGE> 6
WESTDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK BRANCH
By /s/ DUNCAN M. ROBERTSON
-----------------------------------
Title: Vice President
THE BANK OF NOVA SCOTIA
By /s/ F.C.H. ASHBY
-----------------------------------
Title: Senior Manager
Loan Operations
SKANDINAVISKA ENSKILDA BANKEN AB
(Publ.)
By /s/ JAN SJOLIE
-----------------------------------
Title: Senior Client Executive
THE SANWA BANK, LIMITED
By /s/ TAKURO OJIMA
-----------------------------------
Title: Vice President
FIRST NATIONAL BANK OF COMMERCE
By
-----------------------------------
Title:
THE FUJI BANK LIMITED
By /s/ RAYMOND VENTURA
-----------------------------------
Title: Vice President & Manager
KBC BANK N.V.
By /s/ MICHAEL V. CURRAN
-----------------------------------
Title: Vice President
By /s/ RAYMOND F. MURRAY
-----------------------------------
Title: First Vice President
MEESPIERSON CAPITAL CORPORATION
By /s/ SVEIN ENGH
-----------------------------------
Title: Managing Director
By /s/ C. TURTON
-----------------------------------
Title: Managing Director
ROYAL BANK OF CANADA
By /s/ LINDA M. STEPHENS
-----------------------------------
Title: Senior Manager
WELLS FARGO BANK (TEXAS) NATIONAL
ASSOCIATION
By /s/ BRET C. WEST
-----------------------------------
Title: Vice President
<PAGE> 7
DG BANK,
Deutsche Genossenschaftsbank AG
By /s/ MARK K. CONNELLY
-----------------------------------
Title: Vice President
By /s/ LYNNE MCCARTHY
-----------------------------------
Title: Asst. Vice President
BANK ONE, LOUISIANA, NA
By /s/ KENNETH J. FATUR
-----------------------------------
Title: Vice President
<PAGE> 1
EXHIBIT 10.22
EMPLOYMENT AGREEMENT
BY AND BETWEEN
NOBLE DRILLING CORPORATION
AND
ROBERT D. CAMPBELL
January 1, 1999
<PAGE> 2
EMPLOYMENT AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C> <C>
1. Employment..................................................................................1
2. Employment Term.............................................................................1
(a) Term............................................................................1
(b) Relationship Prior to Effective Date............................................1
3. Positions and Duties........................................................................2
4. Compensation and Related Matters............................................................3
(a) Base Salary.....................................................................3
(b) Annual Bonus....................................................................3
(c) Employee Benefits...............................................................4
(i) Incentive, Savings, and Retirement Plans..........................4
(ii) Welfare Benefit Plans.............................................4
(d) Expenses........................................................................4
(e) Fringe Benefits.................................................................4
(f) Vacation........................................................................5
5. Termination of Employment...................................................................5
(a) Death...........................................................................5
(b) Disability......................................................................5
(c) Termination by Company..........................................................5
(d) Termination by Executive........................................................6
(e) Notice of Termination...........................................................7
(f) Date of Termination.............................................................7
6. Obligations of the Company Upon Termination.................................................8
(a) Good Reason or During the Window Period; Other Than for
Cause, Death, or Disability.....................................................8
(b) Death..........................................................................10
(c) Disability.....................................................................11
(d) Cause; Other Than for Good Reason or During the Window
Period.........................................................................11
7. Certain Additional Payments by the Company.................................................12
8. Representations and Warranties.............................................................14
9. Confidential Information...................................................................14
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
10. Certain Definitions........................................................................15
(a) Effective Date.................................................................15
(b) Change of Control Period.......................................................15
(c) Change of Control..............................................................15
11. Full Settlement............................................................................17
12. No Effect on Other Contractual Rights......................................................18
13. Indemnification; Directors and Officers Insurance..........................................18
14. Injunctive Relief..........................................................................18
15. Governing Law..............................................................................18
16. Notices....................................................................................18
17. Binding Effect; Assignment; No Third Party Benefit.........................................19
18. Miscellaneous..............................................................................19
(a) Amendment......................................................................19
(b) Waiver.........................................................................20
(c) Withholding Taxes..............................................................20
(d) Nonalienation of Benefits......................................................20
(e) Severability...................................................................20
(f) Entire Agreement...............................................................20
(g) Captions.......................................................................20
(h) References.....................................................................20
</TABLE>
ii
<PAGE> 4
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement"), dated as of January 1,
1999, by and between NOBLE DRILLING CORPORATION, a Delaware corporation (the
"Company"), and ROBERT D. CAMPBELL (the "Executive");
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that it is in the best interests of the Company and its stockholders
to assure that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat, or occurrence of a Change of Control
(as defined in Paragraph 10(c)) of the Company; and
WHEREAS, the Board believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal uncertainties
and risks created by a pending or threatened Change of Control and to encourage
the Executive's full attention and dedication to the Company currently and in
the event of any pending or threatened Change of Control, and to provide the
Executive with compensation and benefits upon a Change of Control which ensure
that the compensation and benefits expectations of the Executive will be
satisfied and which are competitive with those of other corporations; and
WHEREAS, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, the Company and the Executive hereby agree as follows:
1. Employment. The Company agrees that the Company or an affiliated
company (as hereafter defined) will continue the Executive in its employ, and
the Executive agrees to remain in the employ of the Company or an affiliated
company, for the period set forth in Paragraph 2(a), in the positions and with
the duties and responsibilities set forth in Paragraph 3, and upon the other
terms and conditions herein provided. As used in this Agreement, the term
"affiliated company" shall include any company controlled by, controlling, or
under common control with the Company.
2. Employment Term.
(1) Term. The employment of the Executive by the Company as provided
in Paragraph 1 shall be for the period commencing on the Effective Date (as
defined in Paragraph 10 (a)) through and ending on the third anniversary of
such date (the "Employment Term").
(2) Relationship Prior to Effective Date. The Executive and the
Company acknowledge that, except as may otherwise be provided under any written
agreement between the Executive and the Company other than this Agreement, the
employment of the Executive by the Company is "at will" and, prior to the
Effective Date, may be terminated by either the Executive or
1
<PAGE> 5
the Company at any time. Moreover, if prior to the Effective Date, the
Executive's employment with the Company terminates, then the Executive shall
have no further rights under this Agreement. For purposes of this Paragraph
2(b) only, the term Company shall mean and include the company that employs
Executive, whether Noble Drilling Corporation or an affiliated company of Noble
Drilling Corporation.
3. Positions and Duties.
(1) During the Employment Term, the Executive's position (including
status, offices, titles, and reporting requirements), duties, functions,
responsibilities, and authority shall be at least commensurate in all material
respects with the most significant of those held or exercised by or assigned to
the Executive in respect of the Company and its affiliated companies at any
time during the 120-day period immediately preceding the Effective Date.
(2) During the Employment Term, the Executive shall devote the
Executive's full time, skill, and attention and the Executive's reasonable best
efforts during normal business hours to the business and affairs of the
Company, and in furtherance of the business and affairs of its affiliated
companies, to the extent necessary to discharge faithfully and efficiently the
duties and responsibilities delegated and assigned to the Executive herein or
pursuant hereto, except for usual, ordinary, and customary periods of vacation
and absence due to illness or other disability; provided, however, that the
Executive may (i) serve on industry-related, civic or charitable boards or
committees, (ii) with the approval of the Board, serve on corporate boards or
committees, (iii) deliver lectures, fulfill speaking engagements, or teach at
educational institutions, and (iv) manage the Executive's personal investments,
so long as such activities do not significantly interfere with the performance
and fulfillment of the Executive's duties and responsibilities as an employee
of the Company or an affiliated company in accordance with this Agreement and,
in the case of the activities described in clause (ii) of this proviso, will
not, in the good faith judgment of the Board, constitute an actual or potential
conflict of interest with the business of the Company or an affiliated company.
It is expressly understood and agreed that, to the extent that any such
activities have been conducted by the Executive during the term of the
Executive's employment by the Company or its affiliated companies prior to the
Effective Date consistent with the provisions of this Paragraph 3(b), the
continued conduct of such activities (or of activities similar in nature and
scope thereto) subsequent to the Effective Date shall not thereafter be deemed
to interfere with the performance and fulfillment of the Executive's duties and
responsibilities to the Company.
(3) In connection with the Executive's employment hereunder, the
Executive shall be based at the location where the Executive was regularly
employed immediately prior to the Effective Date or any office which is the
headquarters of the Company and is less than 50 miles from such location,
subject, however, to required travel on the business of the Company to an
extent substantially consistent with the Executive's business travel
obligations during the three-year period immediately preceding the Effective
Date.
(4) All services that the Executive may render to the Company or any
of its affiliated companies in any capacity during the Employment Term shall be
deemed to be services required by this Agreement and consideration for the
compensation provided for herein.
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4. Compensation and Related Matters.
(1) Base Salary. During the Employment Term, the Executive shall
receive an annual base salary ("Base Salary") at least equal to 12 times the
highest monthly base salary paid or payable, including any base salary that has
been earned but deferred, to the Executive by the Company and its affiliated
companies in respect of the 12-month period immediately preceding the month in
which the Effective Date occurs. The Base Salary shall be payable in
installments in accordance with the general payroll practices of the Company in
effect at the time such payment is made, but in no event less frequently than
monthly, or as otherwise mutually agreed upon. During the Employment Term, the
Executive's Base Salary shall be subject to such increases (but not decreases)
as may be determined from time to time by the Board in its sole discretion;
provided, however, that the Executive's Base Salary (i) shall be reviewed by
the Board no later than 12 months after the last salary increase awarded to the
Executive prior to the Effective Date and thereafter at least annually, with a
view to making such upward adjustment, if any, as the Board deems appropriate,
and (ii) shall be increased at any time and from time to time as shall be
substantially consistent with increases in base salary generally awarded in the
ordinary course of business to the Executive's peer executives of the Company
or any of its affiliated companies. Base Salary shall not be reduced after any
such increase. The term Base Salary as used in this Agreement shall refer to
the Base Salary as so increased. Payments of Base Salary to the Executive shall
not be deemed exclusive and shall not prevent the Executive from participating
in any employee benefit plans, programs, or arrangements of the Company and its
affiliated companies in which the Executive is entitled to participate.
Payments of Base Salary to the Executive shall not in any way limit or reduce
any other obligation of the Company hereunder, and no other compensation,
benefit, or payment to the Executive hereunder shall in any way limit or reduce
the obligation of the Company regarding the Executive's Base Salary hereunder.
(2) Annual Bonus. In addition to Base Salary, the Executive shall be
awarded, in respect of each fiscal year of the Company ending during the
Employment Term, an annual bonus (the "Annual Bonus") in cash in an amount at
least equal to the Executive's highest aggregate bonus under all Company bonus
plans, programs, arrangements, and awards (including the Company's Short-Term
Incentive Plan and any successor plan), in respect of any fiscal year in the
three full fiscal year period ended immediately prior to the Effective Date
(annualized for any fiscal year consisting of less than 12 full months or with
respect to which the Executive has been employed by the Company for less than
12 full months) (such highest amount is hereinafter referred to as the "Recent
Annual Bonus"). Each such Annual Bonus shall be paid no later than the end of
the third month of the fiscal year next following the fiscal year in respect of
which the Annual Bonus is awarded, unless the Executive shall elect to defer
the receipt of such Annual Bonus.
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(3) Employee Benefits.
(1) Incentive, Savings, and Retirement Plans. During the
Employment Term, the Executive shall be entitled to participate in
all incentive, savings, and retirement plans, programs, and
arrangements applicable generally to the Executive's peer executives
of the Company and its affiliated companies, but in no event shall
such plans, programs, and arrangements provide the Executive with
incentive opportunities (measured with respect to both regular and
special incentive opportunities, to the extent, if any, that such
distinction is applicable), savings opportunities, and retirement
benefit opportunities, in each case, less favorable, in the
aggregate, than the most favorable of those provided by the Company
and its affiliated companies for the Executive under such plans,
programs, and arrangements as in effect at any time during the
120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, those provided generally at any time
after the Effective Date to the Executive's peer executives of the
Company and its affiliated companies.
(2) Welfare Benefit Plans. During the Employment Term, the
Executive and/or the Executive's family, as the case may be, shall be
eligible to participate in and shall receive all benefits under all
welfare benefit plans, programs, and arrangements provided by the
Company and its affiliated companies (including, without limitation,
medical, prescription, dental, disability, salary continuance,
employee life, group life, accidental death, and travel accident
insurance plans, programs, and arrangements) to the extent applicable
generally to the Executive's peer executives of the Company and its
affiliated companies, but in no event shall such plans, programs, and
arrangements provide the Executive with welfare benefits that are
less favorable, in the aggregate, than the most favorable of such
plans, programs, and arrangements as in effect for the Executive at
any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, those provided
generally at any time after the Effective Date to the Executive's
peer executives of the Company and its affiliated companies.
(4) Expenses. During the Employment Term, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred
by the Executive in performing the Executive's duties and responsibilities
hereunder, in accordance with the most favorable policies, practices, and
procedures of the Company and its affiliated companies as in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally
at any time thereafter with respect to the Executive's peer executives of the
Company and its affiliated companies.
(5) Fringe Benefits. During the Employment Term, the Executive shall
be entitled to fringe benefits, including, without limitation, tax and
financial planning services, payment of club dues, and, if applicable, use of
an automobile and payment of related expenses, in accordance with the most
favorable policies, practices, and procedures of the Company and its affiliated
companies as in effect for the Executive at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time after the Effective Date with
respect to the Executive's peer executives of the Company and its affiliated
companies.
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(6) Vacation. During the Employment Term, the Executive shall be
entitled to paid vacation and such other paid absences, whether for holidays,
illness, personal time, or any similar purposes, in accordance with the most
favorable policies, practices, and procedures of the Company and its affiliated
companies as in effect for the Executive at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time after the Effective Date with
respect to the Executive's peer executives of the Company and its affiliated
companies.
5. Termination of Employment.
(1) Death. The Executive's employment shall terminate automatically
upon the Executive's death during the Employment Term.
(2) Disability. If the Company determines in good faith that the
Disability (as defined below) of the Executive has occurred during the
Employment Term, the Company may give the Executive notice of its intention to
terminate the Executive's employment. In such event, the Executive's employment
hereunder shall terminate effective on the 30th day after receipt of such
notice by the Executive (the "Disability Effective Date"), provided that,
within the 30-day period after such receipt, the Executive shall not have
returned to full-time performance of the Executive's duties. For purposes of
this Agreement, "Disability" shall mean the absence of the Executive from the
Executive's duties hereunder on a full-time basis for an aggregate of 180 days
within any given period of 270 consecutive days (in addition to any statutorily
required leave of absence and any leave of absence approved by the Company), as
a result of incapacity of the Executive, despite any reasonable accommodation
required by law, due to bodily injury or disease or any other mental or
physical illness, which will, in the opinion of a physician selected by the
Company or its insurers and acceptable to the Executive or the Executive's
legal representative, be permanent and continuous during the remainder of the
Executive's life.
(3) Termination by Company. The Company may terminate the Executive's
employment hereunder for Cause (as defined below). For purposes of this
Agreement, "Cause" shall mean:
(1) the willful and continued failure of the Executive to
perform substantially the Executive's duties hereunder (other than
any such failure resulting from bodily injury or disease or any other
incapacity due to mental or physical illness), after a written demand
for substantial performance is delivered to the Executive by the
Board or the Chief Executive Officer of the Company which
specifically identifies the manner in which the Board or Chief
Executive Officer believes the Executive has not substantially
performed the Executive's duties; or
(2) the willful engaging by the Executive in illegal conduct or
gross misconduct that is materially and demonstrably detrimental to
the Company, monetarily or otherwise.
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For purposes of this provision, no act, or failure to act, on the part of the
Executive shall be considered "willful" unless done, or omitted to be done, by
the Executive in bad faith or without reasonable belief that the Executive's
action or omission was in the best interests of the Company. Any act, or
failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
another senior officer of the Company or based upon the advice of counsel for
the Company shall be conclusively presumed to be done, or omitted to be done,
by the Executive in good faith and in the best interests of the Company. The
cessation of employment of the Executive shall not be deemed to be for Cause
unless and until there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than two-thirds of
the entire membership of the Board then in office at a meeting of the Board
called and held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel, to
be heard before the Board) finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described in subparagraph (i) or
(ii) above, and specifying the particulars thereof in detail.
(4) Termination by Executive. The Executive may terminate the
Executive's employment hereunder (i) at any time during the Employment Term for
Good Reason (as defined below) or (ii) during the Window Period (as defined
below) without any reason.
For purposes of this Agreement, the "Window Period" shall mean the 30-day
period immediately following the first anniversary of the Effective Date, and
"Good Reason" shall mean any of the following (without the Executive's express
written consent):
(1) the assignment to the Executive of any duties inconsistent
in any respect with the Executive's position (including status,
offices, titles, and reporting requirements), duties, functions,
responsibilities, or authority as contemplated by Paragraph 3(a) of
this Agreement, or any other action by the Company that results in a
diminution in such position, duties, functions, responsibilities, or
authority, excluding for this purpose an isolated, insubstantial, and
inadvertent action not taken in bad faith and which is remedied by
the Company promptly after receipt of notice thereof given by the
Executive;
(2) any failure by the Company to comply with any of the
provisions of Paragraph 4 of this Agreement, other than an isolated,
insubstantial, and inadvertent action not taken in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(3) the Company's requiring the Executive to be based at any
office or location other than as provided in Paragraph 3(c) of this
Agreement or the Company's requiring the Executive to travel on
Company business to a substantially greater extent than during the
three-year period immediately preceding the Effective Date;
(4) any failure by the Company to comply with and satisfy
Paragraph 17(c) of this Agreement; or
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(5) any purported termination by the Company of the Executive's
employment hereunder otherwise than as expressly permitted by this
Agreement, and for purposes of this Agreement, no such purported
termination shall be effective.
For purposes of this Paragraph 5(d), any good faith determination of "Good
Reason" made by the Executive shall be conclusive.
(5) Notice of Termination. Any termination of the Executive's
employment hereunder by the Company or by the Executive (other than a
termination pursuant to Paragraph 5(a)) shall be communicated by a Notice of
Termination (as defined below) to the other party hereto. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice which (i) indicates
the specific termination provision in this Agreement relied upon, (ii) in the
case of a termination for Disability, Cause, or Good Reason, sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated, and
(iii) specifies the Date of Termination (as defined in Paragraph 5(f) below);
provided, however, that, notwithstanding any provision in this Agreement to the
contrary, a Notice of Termination given in connection with a termination for
Good Reason shall be given by the Executive within a reasonable period of time,
not to exceed 120 days, following the occurrence of the event giving rise to
such right of termination. The failure by the Company or the Executive to set
forth in the Notice of Termination any fact or circumstance which contributes
to a showing of Disability, Cause, or Good Reason shall not waive any right of
the Company or the Executive hereunder or preclude the Company or the Executive
from asserting such fact or circumstance in enforcing the Company's or the
Executive's rights hereunder.
(6) Date of Termination. For purposes of this Agreement, the "Date of
Termination" shall mean the effective date of termination of the Executive's
employment hereunder, which date shall be (i) if the Executive's employment is
terminated by the Executive's death, the date of the Executive's death, (ii) if
the Executive's employment is terminated because of the Executive's Disability,
the Disability Effective Date, (iii) if the Executive's employment is
terminated by the Company for Cause or by the Executive for Good Reason, the
date on which the Notice of Termination is given, (iv) if the Executive's
employment is terminated pursuant to Paragraph 2(a), the date on which the
Employment Term ends pursuant to Paragraph 2(a) due to a party's delivery of a
Notice of Termination thereunder, and (v) if the Executive's employment is
terminated for any other reason, the date specified in the Notice of
Termination, which date shall in no event be earlier than the date such notice
is given; provided, however, that if within 30 days after any Notice of
Termination is given, the party receiving such Notice of Termination notifies
the other party that a dispute exists concerning the termination, the Date of
Termination shall be the date on which the dispute is finally determined,
either by mutual written agreement of the parties or by a final judgment,
order, or decree of a court of competent jurisdiction (the time for appeal
therefrom having expired and no appeal having been perfected).
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6. Obligations of the Company Upon Termination.
(1) Good Reason or During the Window Period; Other Than for Cause,
Death, or Disability. If, during the Employment Term, the Company shall
terminate the Executive's employment hereunder other than for Cause or
Disability or the Executive shall terminate the Executive's employment either
for Good Reason or without any reason during the Window Period:
(1) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
(1) the sum of (1) the Executive's Base Salary through the Date
of Termination to the extent not theretofore paid, (2) the product of
(x) the greater of (I) the Recent Annual Bonus and (II) the Annual
Bonus paid or payable, including by reason of any deferral, to the
Executive (and annualized for any fiscal year consisting of less than
12 full months or for which the Executive has been employed by the
Company for less than 12 full months) in respect of the most recently
completed fiscal year of the Company during the Employment Term, if
any (such greater amount hereinafter referred to as the "Highest
Annual Bonus"), and (y) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of
Termination, and the denominator of which is 365, and (3) any
compensation previously deferred by the Executive (together with any
accrued interest or earnings thereon) and any accrued vacation pay,
in each case to the extent not theretofore paid (the sum of the
amounts described in clauses (1), (2), and (3) are hereinafter
referred to as the "Accrued Obligations"); and
(2) an amount (such amount is hereinafter referred to as the
"Severance Amount") equal to the product of (1) three and (2) the sum
of (x) the Executive's Base Salary and (y) the Highest Annual Bonus;
and
(3) a separate lump-sum supplemental retirement benefit (the
amount of such benefit hereinafter referred to as the "Supplemental
Retirement Amount") equal to the difference between (1) the actuarial
equivalent (utilizing for this purpose the actuarial assumptions
utilized with respect to the qualified defined benefit retirement
plan of the Company and its affiliated companies in which the
Executive is eligible to participate (or any successor plan thereto)
(the "Retirement Plan") during the 120-day period immediately
preceding the Effective Date) of the benefit payable under the
Retirement Plan and any supplemental and/or excess retirement plan of
the Company and its affiliated companies providing benefits for the
Executive (the "SERP") which the Executive would receive if the
Executive's employment continued at the compensation level provided
for in Paragraphs 4(a) and 4(b)(i) for the remainder of the
Employment Term, assuming for this purpose that all accrued benefits
are fully vested and that benefit accrual formulas are no less
advantageous to the Executive than those in effect during the 120-day
period immediately preceding the Effective Date, and
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(2) the actuarial equivalent (utilizing for this purpose the
actuarial assumptions utilized with respect to the Retirement Plan
during the 120-day period immediately preceding the Effective Date)
of the Executive's actual benefit (paid or payable), if any, under
the Retirement Plan and the SERP; and
(2) for three years after the Executives's Date of Termination,
or such longer period as any plan, program, or arrangement may
provide, the Company shall continue benefits to the Executive and/or
the Executive's family at least equal to those that would have been
provided to them in accordance with the plans, programs, and
arrangements described in Paragraph 4(c)(ii) if the Executive's
employment had not been terminated, in accordance with the most
favorable plans, programs, and arrangements of the Company as in
effect and applicable generally to the Executive's peer executives of
the Company and its affiliated companies and their families during
the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive, as in effect generally at any time
thereafter with respect to the Executive's peer executives of the
Company and its affiliated companies and their families; provided,
however, that if the Executive becomes reemployed with another
employer and is eligible to receive medical or other welfare benefits
under another employer provided plan, the medical and other welfare
benefits described herein shall be secondary to those provided under
such other plan during such applicable period of eligibility (such
continuation of such benefits for the applicable period herein set
forth is hereinafter referred to as "Welfare Benefit Continuation")
(for purpose of determining eligibility of the Executive for retiree
benefits pursuant to such plans, programs, and arrangements, the
Executive shall be considered to have remained employed until three
years after the Date of Termination and to have retired on the last
day of such period); and
(3) the Company shall, at its sole expense as incurred, provide
the Executive with outplacement services the scope and provider of
which shall be selected by the Executive in the Executive's sole
discretion; and
(4) with respect to all options to purchase Common Stock held by
the Executive pursuant to a Company stock option plan on or prior to
the Date of Termination, irrespective of whether such options are
then exercisable, the Executive shall have the right, during the
60-day period after the Date of Termination, to elect to surrender
all or part of such options in exchange for a cash payment by the
Company to the Executive in an amount equal to the number of shares
of Common Stock subject to the Executive's option multiplied by the
excess of (x) over (y), where (x) equals the highest reported sale
price of a share of Common Stock in any transaction reported on the
New York Stock Exchange during the 60-day period prior to and
including the Executive's Date of Termination and (y) equals the
purchase price per share covered by the option. Such cash payments
shall be made within 30 days after the date of the Executive's
election; provided, however, that if the Executive's Date of
Termination is within six months after the date of grant of a
particular option held by the Executive and the Executive is subject
to Section 16(b) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), any cash payments related thereto shall be made
on the date which is six months and one day after the date of grant
of such option to the extent necessary to prevent the imposition of
the disgorgement provisions under Section 16(b).
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Notwithstanding the foregoing, if any right granted pursuant to the
foregoing would make any change of control transaction ineligible for
pooling of interests accounting treatment under APB No. 16 that but
for this Section 6(a)(iv) would otherwise be eligible for such
accounting treatment, the Executive shall receive shares of Common
Stock with a fair market value equal to the cash that would otherwise
be payable hereunder in substitution for the cash, provided that any
such shares of Common Stock so delivered to the Executive shall be
registered under the Securities Act of 1933, as amended; any options
outstanding as of the Date of Termination and not then exercisable
shall become fully exercisable as of the Executive's Date of
Termination, and to the extent the Executive does not elect to
surrender same for a cash payment (or the equivalent number of shares
of Common Stock) as provided above, such options shall remain
exercisable after the Executive's Date of Termination in accordance
with the terms thereof; and restrictions applicable to any shares of
Common Stock awarded to the Executive by the Company shall lapse, as
of the date of the Executive's Date of Termination; and
(5) all club memberships and other memberships that the Company
was providing for the Executive's use at the time Notice of
Termination is given shall, to the extent possible, be transferred
and assigned to the Executive at no cost to the Executive (other than
income taxes owed), the cost of transfer, if any, to be borne by the
Company; and
(6) all benefits under the Noble Drilling Corporation 1991 Stock
Option and Restricted Stock Plan and any other similar plans,
including any stock options or restricted stock held by the
Executive, not already vested shall be 100% vested, to the extent
such vesting is permitted under the Code; and
(7) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is
eligible to receive under any plan, program, policy, practice, or
arrangement or contract or agreement of the Company and its
affiliated companies (such other amounts and benefits hereinafter
referred to as the "Other Benefits").
(2) Death. If the Executive's employment is terminated by reason of
the Executive's death during the Employment Term, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for (i) payment of Accrued Obligations (which
shall be paid to the Executive's estate or beneficiary, as applicable, in a
lump sum in cash within 30 days of the Date of Termination) and the timely
payment or provision of the Welfare Benefit Continuation and the Other Benefits
and (ii) payment to the Executive's estate or beneficiaries, as applicable, in
a lump sum in cash within 30 days of the Date of Termination of an amount equal
to the sum of the Severance Amount and the Supplemental Retirement Amount. With
respect to the provision of Other Benefits, the term Other Benefits as used in
this Section 6(b) shall include, without limitation, and the Executive's estate
and/or beneficiaries shall be entitled to receive, benefits at least equal to
the most favorable benefits provided by the Company and affiliated companies to
the estates and beneficiaries of peer executives of the Company and such
affiliated companies under such plans, programs, practices, and policies
relating to death benefits, if any, as in effect with respect to other peer
executives and their beneficiaries at any time during the 120-day
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period immediately preceding the Effective Date or, if more favorable to the
Executive's estate and/or the Executive's beneficiaries, as in effect on the
date of the Executive's death with respect to other peer executives of the
Company and its affiliated companies and their beneficiaries.
(3) Disability. If the Executive's employment is terminated by reason
of the Executive's Disability during the Employment Term, this Agreement shall
terminate without further obligations to the Executive, other than for (i)
payment of Accrued Obligations (which shall be paid to the Executive in a lump
sum in cash within 30 days of the Date of Termination) and the timely payment
or provision of the Welfare Benefit Continuation and the Other Benefits and
(ii) payment to the Executive in a lump sum in cash within 30 days of the Date
of Termination of an amount equal to the sum of the Severance Amount and the
Supplemental Retirement Amount. With respect to the provision of Other
Benefits, the term Other Benefits as used in this Section 6(c) shall include,
without limitation, and the Executive shall be entitled after the Disability
Effective Date to receive, disability and other benefits at least equal to the
most favorable of those generally provided by the Company and affiliated
companies to disabled executives and/or their families in accordance with such
plans, programs, practices, and policies relating to disability, if any, as in
effect generally with respect to other peer executives and their families at
any time during the 120-day period immediately preceding the Effective Date or,
if more favorable to the Executive and/or the Executive's family, as in effect
at any time thereafter generally with respect to other peer executives of the
Company and its affiliated companies and their families.
(4) Cause; Other Than for Good Reason or During the Window Period. If
the Executive's employment is terminated for Cause during the Employment Term,
this Agreement shall terminate without further obligations to the Executive
other than the obligation to pay to the Executive Base Salary through the Date
of Termination plus the amount of any compensation previously deferred by the
Executive, in each case to the extent theretofore unpaid. If the Executive
voluntarily terminates the Executive's employment during the Employment Term,
excluding a termination either for Good Reason or without any reason during the
Window Period, this Agreement shall terminate without further obligations to
the Executive, other than for Accrued Obligations and the timely payment or
provision of the Other Benefits. In such case, all Accrued Obligations shall be
paid to the Executive in a lump sum in cash within 30 days of the Date of
Termination subject to applicable laws and regulations.
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7. Certain Additional Payments by the Company.
(1) Notwithstanding any provision in this Agreement to the contrary
and except as set forth below, if it shall be determined that any payment or
distribution by the Company to or for the benefit of the Executive (whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional
payments required pursuant to this Paragraph 7) (a "Payment") would be subject
to the excise tax imposed by Section 4999 of the Code or any interest or
penalties are incurred by the Executive with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Executive of all taxes (including any interest
or penalties imposed with respect to such taxes), including any income taxes
(and any interest and penalties imposed with respect thereto) and Excise Tax
imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Paragraph 7(a), if it shall be
determined that the Executive is entitled to a Gross-Up Payment, but that the
Executive, after taking into account the Payments and the Gross-Up Payment,
would not receive a net after-tax benefit of at least $50,000 (taking into
account both income taxes and any Excise Tax) as compared to the net after-tax
proceeds to the Executive resulting from an elimination of the Gross-Up Payment
and a reduction of the Payments, in the aggregate, to an amount (the "Reduced
Amount") such that the receipt of payments would not give rise to any Excise
Tax, then no Gross-Up Payment shall be made to the Executive and the Payments,
in the aggregate, shall be reduced to the Reduced Amount.
(2) Subject to the provisions of Paragraph 7(c), all determinations
required to be made under this Paragraph 7, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made by
PricewaterhouseCoopers (the "Accounting Firm") or, as provided below, such
other certified public accounting firm as may be designated by the Executive,
which shall provide detailed supporting calculations both to the Company and
the Executive within 15 business days after the receipt of notice from the
Executive that there has been a Payment, or such earlier time as is requested
by the Company. If the Accounting Firm is serving as accountant or auditor for
the individual, entity, or group effecting the Change of Control, the Executive
shall have the option, in the Executive's sole discretion, to appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Paragraph 7, shall be paid by the Company to the Executive within five days of
the receipt of the Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by the Executive, it shall furnish the
Executive with a written opinion that failure to report the Excise Tax on the
Executive's applicable federal income tax return would not result in the
imposition of a negligence or similar penalty. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999 of the Code at the
time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments that will not have been made by the Company
should have been made ("Underpayment"), consistent with the calculations
required to be made hereunder. If the Company exhausts its
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remedies pursuant to Paragraph 7(c) and the Executive thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine the
amount of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive.
(3) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment (or an additional amount of Gross-Up
Payment) in the event the Internal Revenue Service seeks higher payment. Such
notification shall be given as soon as practicable but no later than 10
business days after the Executive is informed in writing of such claim and
shall apprise the Company of the nature of such claim and the date on which
such claim is requested to be paid. The Executive shall not pay such claim
prior to the expiration of the 30-day period following the date on which it
gives such notice to the Company (or such shorter period ending on the date
that any payment of taxes with respect to such claim is due). If the Company
notifies the Executive in writing prior to the expiration of such period that
it desires to contest such claim, the Executive shall:
(1) give the Company any information reasonably requested by the
Company relating to such claim;
(2) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time,
including the acceptance of legal representation with respect to such
claim by an attorney reasonably selected by the Company;
(3) cooperate with the Company in good faith in order
effectively to contest such claim; and
(4) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation of the foregoing provisions
of this Paragraph 7(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings, and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction, and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis, and shall indemnify and
hold the Executive harmless, on an after-tax basis, from any Excise Tax or
income tax (including interest or penalties with respect thereto) imposed with
respect to such
13
<PAGE> 17
advance or with respect to any imputed income with respect to such advance; and
provided further that any extension of the statute of limitations relating to
payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Paragraph 7(c), the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject to
the Company's complying with the requirements of Paragraph 7(c)) promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Paragraph 7(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
8. Representations and Warranties.
(1) The Company represents and warrants to the Executive that the
execution, delivery, and performance by the Company of this Agreement have been
duly authorized by all necessary corporate action of the Company and do not and
will not conflict with or result in a violation of any provision of, or
constitute a default under, any contract, agreement, instrument, or obligation
to which the Company is a party or by which it is bound.
(2) The Executive represents and warrants to the Company that the
execution, delivery, and performance by the Executive of this Agreement do not
and will not conflict with or result in a violation of any provision of, or
constitute a default under, any contract, agreement, instrument, or obligation
to which the Executive is a party or by which the Executive is bound.
9. Confidential Information. The Executive recognizes and
acknowledges that the Company's trade secrets and other confidential or
proprietary information, as they may exist from time to time, are valuable,
special, and unique assets of the Company's business, access to and knowledge
of which are essential to the performance of the Executive's duties hereunder.
The Executive confirms that all such trade secrets and other information
constitute the exclusive property of the Company. During the Employment Term
and thereafter without limitation of time, the Executive shall hold in strict
confidence and shall not, directly or indirectly, disclose or reveal to any
person, or use for the Executive's own personal benefit or for the benefit of
anyone else, any trade secrets, confidential dealings, or other confidential or
proprietary information of any kind, nature, or description (whether or not
acquired, learned, obtained, or developed by the Executive alone or in
conjunction with others) belonging to or concerning the Company or any of its
affiliated companies, except (i) with the prior written consent of the Company
duly authorized by its Board, (ii) in the course of the proper performance of
the Executive's duties hereunder, (iii) for information
14
<PAGE> 18
(x) that becomes generally available to the public other than as a result of
unauthorized disclosure by the Executive or the Executive's affiliates or (y)
that becomes available to the Executive on a nonconfidential basis from a
source other than the Company or its affiliated companies who is not bound by a
duty of confidentiality, or other contractual, legal, or fiduciary obligation,
to the Company, or (iv) as required by applicable law or legal process. The
provisions of this Paragraph 9 shall continue in effect notwithstanding
termination of the Executive's employment hereunder for any reason.
10. Certain Definitions.
(1) Effective Date. The "Effective Date" shall mean the first date
during the Change of Control Period (as defined in Paragraph 10(b)) on which a
Change of Control occurs. Notwithstanding anything in this Agreement to the
contrary, if a Change of Control occurs and if the Executive's employment with
the Company is terminated prior to the date on which the Change of Control
occurs, and if it is reasonably demonstrated by the Executive that such
termination of employment (i) was at the request of a third party who has taken
steps reasonably calculated to effect a Change of Control or (ii) otherwise
arose in connection with or anticipation of a Change of Control, then for all
purposes of this Agreement the "Effective Date" shall mean the date immediately
prior to the date of such termination of employment.
(2) Change of Control Period. The "Change of Control Period" shall
mean the period commencing on the date of this Agreement and ending on the
third anniversary of such date; provided, however, that commencing on the date
one year after the date hereof, and on each annual anniversary of such date
(such date and each annual anniversary thereof herein referred to as the
"Renewal Date"), the Change of Control Period shall be automatically extended
so as to terminate three years after such Renewal Date, unless at least 60 days
prior to the Renewal Date the Company shall give notice to the Executive that
the Change of Control Period shall not be so extended.
(3) Change of Control. For purposes of this Agreement, a "Change of
Control" shall mean:
(1) the acquisition by any individual, entity, or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 15% or more of either (A) the
then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (B) the combined voting power
of the then outstanding voting securities of the Company entitled to
vote generally in the election of directors (the "Outstanding Company
Voting Securities"); provided, however, that for purposes of this
subparagraph (c)(i) the following acquisitions shall not constitute a
Change of Control: (w) any acquisition directly from the Company
(excluding an acquisition by virtue of the exercise of a conversion
privilege), (x) any acquisition by the Company, (y) any acquisition
by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the
Company, or (z) any acquisition by any corporation pursuant to a
reorganization, merger, or consolidation, if, following such
reorganization,
15
<PAGE> 19
merger, or consolidation, the conditions described in clauses (A),
(B), and (C) of subparagraph (iii) of this Paragraph 10 (c) are
satisfied; or
(2) individuals who, as of the date of this Agreement,
constitute the Board (the "Incumbent Board") cease for any reason to
constitute a majority of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company's stockholders,
was approved by a vote of a majority of the directors then comprising
the Incumbent Board shall be considered as though such individual
were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office
occurs as a result of either an actual or threatened election contest
or other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board; or
(3) consummation of a reorganization, merger, or consolidation
of the Company, with or without approval by the stockholders of the
Company, in each case, unless, following such reorganization, merger,
or consolidation, (A) more than 50% of, respectively, the then
outstanding shares of common stock of the corporation resulting from
such reorganization, merger, or consolidation and the combined voting
power of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization,
merger, or consolidation in substantially the same proportions as
their ownership, immediately prior to such reorganization, merger, or
consolidation, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (B) no
Person (excluding the Company, any employee benefit plan (or related
trust) of the Company or such corporation resulting from such
reorganization, merger, or consolidation, and any Person beneficially
owning, immediately prior to such reorganization, merger, or
consolidation, directly or indirectly, 15% or more of the Outstanding
Company Common Stock or Outstanding Company Voting Securities, as the
case may be) beneficially owns, directly or indirectly, 15% or more
of, respectively, the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger, or
consolidation or the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in
the election of directors, and (C) a majority of the members of the
board of directors of the corporation resulting from such
reorganization, merger, or consolidation were members of the
Incumbent Board at the time of the execution of the initial agreement
providing for such reorganization, merger, or consolidation; or
(4) consummation of a sale or other disposition of all or
substantially all the assets of the Company, with or without approval
by the stockholders of the Company, other than to a corporation, with
respect to which following such sale or other disposition, (A) more
than 50% of, respectively, the then outstanding shares of common
stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned,
directly or indirectly, by all or substantially all the individuals
and entities who were the
16
<PAGE> 20
beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to
such sale or other disposition in substantially the same proportion
as their ownership, immediately prior to such sale or other
disposition, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, (B) no Person
(excluding the Company, any employee benefit plan (or related trust)
of the Company or such corporation, and any Person beneficially
owning, immediately prior to such sale or other disposition, directly
or indirectly, 15% or more of the Outstanding Company Common Stock or
Outstanding Company Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 15% or more of,
respectively, the then outstanding shares of common stock of such
corporation or the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in
the election of directors, and (C) a majority of the members of the
board of directors of such corporation were members of the Incumbent
Board at the time of the execution of the initial agreement or action
of the Board providing for such sale or other disposition of assets
of the Company; or
(5) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
11. Full Settlement.
(1) There shall be no right of set off or counterclaim against, or
delay in, any payments to the Executive, or to the Executive's heirs or legal
representatives, provided for in this Agreement, in respect of any claim
against or debt or other obligation of the Executive or others, whether arising
hereunder or otherwise.
(2) In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement, and such
amounts shall not be reduced whether or not the Executive obtains other
employment.
(3) The Company agrees to pay as incurred, to the full extent
permitted by law, all costs and expenses (including attorneys' fees) that the
Executive, or the Executive's heirs or legal representatives, may reasonably
incur as a result of any contest (regardless of the outcome thereof) by the
Company, the Executive, or others of the validity or enforceability of, or
liability under, any provision of this Agreement, or any guarantee of
performance thereof (including as a result of any contest by the Executive, or
the Executive's heirs or legal representatives, about the amount of any payment
pursuant to this Agreement), plus in each case interest on any delayed payment
at the applicable federal rate provided for in Section 7872(f)(2) of the Code.
12. No Effect on Other Contractual Rights. The provisions of this
Agreement, and any payment provided for hereunder, shall not reduce any amounts
otherwise payable to the Executive, or in any way diminish the Executive's
rights as an employee of the Company, whether existing on the date of this
Agreement or hereafter, under any employee benefit plan, program, or
arrangement or other contract or agreement of the Company providing benefits to
the Executive.
17
<PAGE> 21
13. Indemnification; Directors and Officers Insurance. The Company
shall (a) during the Employment Term and thereafter without limitation of time,
indemnify and advance expenses to the Executive to the fullest extent permitted
by the laws of the State of Delaware from time to time in effect and (b) during
the Employment Term, acquire and maintain directors and officers liability
insurance covering the Executive (and to the extent the Company desires, other
directors and officers of the Company and its affiliated companies) to the
extent it is available at commercially reasonable rates as determined by the
Board; provided, however, that in no event shall the Executive be entitled to
indemnification or advancement of expenses under this Paragraph 13 with respect
to any proceeding, or matter therein, brought or made by the Executive against
the Company other than one initiated by the Executive to enforce the
Executive's rights under this Paragraph 13. The rights of indemnification and
to receive advancement of expenses as provided in this Paragraph 13 shall not
be deemed exclusive of any other rights to which the Executive may at any time
be entitled under applicable law, the certificate of incorporation or bylaws of
the Company, any agreement, a vote of stockholders, a resolution of the Board,
or otherwise. The provisions of this Paragraph 13 shall continue in effect
notwithstanding termination of the Executive's employment hereunder for any
reason.
14. Injunctive Relief. In recognition of the fact that a breach by
the Executive of any of the provisions of Paragraph 9 will cause irreparable
damage to the Company for which monetary damages alone will not constitute an
adequate remedy, the Company shall be entitled as a matter of right (without
being required to prove damages or furnish any bond or other security) to
obtain a restraining order, an injunction, an order of specific performance, or
other equitable or extraordinary relief from any court of competent
jurisdiction restraining any further violation of such provisions by the
Executive or requiring the Executive to perform the Executive's obligations
hereunder. Such right to equitable or extraordinary relief shall not be
exclusive but shall be in addition to all other rights and remedies to which
the Company may be entitled at law or in equity, including without limitation
the right to recover monetary damages for the breach by the Executive of any of
the provisions of this Agreement.
15. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Texas, without regard
to the principles of conflicts of laws thereof.
16. Notices. All notices, requests, demands, and other communications
required or permitted to be given or made hereunder by either party hereto
shall be in writing and shall be deemed to have been duly given or made (i)
when delivered personally, (ii) when sent by telefacsimile transmission, or
(iii) five days after being deposited in the United States mail, first class
registered or certified mail, postage prepaid, return receipt requested, to the
party for which intended at the following addresses (or at such other addresses
as shall be specified by the parties by like notice, except that notices of
change of address shall be effective only upon receipt):
If to the Company, at: Noble Drilling Corporation
10370 Richmond Avenue, Suite 400
Houston, Texas 77042
Fax No.: 713-974-3181
Attention: Chief Executive Officer
18
<PAGE> 22
If to the Executive, at: Robert D. Campbell
10370 Richmond Avenue, Suite 400
Houston, Texas 77042
Fax No.: 713-953-1126
17. Binding Effect; Assignment; No Third Party Benefit.
(1) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and shall be enforceable by the Executive's legal
representatives.
(2) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(3) The Company shall require any successor or assign (whether direct
or indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all the business and/or assets of the Company, by agreement in
writing in form and substance reasonably satisfactory to the Executive,
expressly, absolutely, and unconditionally to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession or assignment had taken place. As
used in this Agreement, the "Company" shall mean the Company as hereinbefore
defined and any successor or assign to its business and/or assets as aforesaid
which executes and delivers the agreement provided for in this Paragraph 17(c)
or which otherwise becomes bound by all the terms and provisions of this
Agreement by operation of law.
(4) Nothing in this Agreement, express or implied, is intended to or
shall confer upon any person other than the parties hereto, and their
respective heirs, legal representatives, successors, and permitted assigns, any
rights, benefits, or remedies of any nature whatsoever under or by reason of
this Agreement.
18. Miscellaneous.
(1) Amendment. This Agreement may not be modified or amended in any
respect except by an instrument in writing signed by the party against whom
such modification or amendment is sought to be enforced. No person, other than
pursuant to a resolution of the Board or a committee thereof, shall have
authority on behalf of the Company to agree to modify, amend, or waive any
provision of this Agreement or anything in reference thereto.
(2) Waiver. Any term or condition of this Agreement may be waived at
any time by the party hereto which is entitled to have the benefit thereof, but
such waiver shall only be effective if evidenced by a writing signed by such
party, and a waiver on one occasion shall not be deemed to be a waiver of the
same or any other type of breach on a future occasion. No failure or delay by a
19
<PAGE> 23
party hereto in exercising any right or power hereunder shall operate as a
waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right or power.
(3) Withholding Taxes. The Company may withhold from any amounts
payable under this Agreement such federal, state, local, or foreign taxes as
shall be required to be withheld pursuant to any applicable law or regulation.
(4) Nonalienation of Benefits. The Executive shall not have any right
to pledge, hypothecate, anticipate, or in any way create a lien upon any
payments or other benefits provided under this Agreement; and no benefits
payable hereunder shall be assignable in anticipation of payment either by
voluntary or involuntary acts, or by operation of law, except by will or
pursuant to the laws of descent and distribution.
(5) Severability. If any provision of this Agreement is held to be
invalid or unenforceable, (a) this Agreement shall be considered divisible, (b)
such provision shall be deemed inoperative to the extent it is deemed invalid
or unenforceable, and (c) in all other respects this Agreement shall remain in
full force and effect; provided, however, that if any such provision may be
made valid or enforceable by limitation thereof, then such provision shall be
deemed to be so limited and shall be valid and/or enforceable to the maximum
extent permitted by applicable law.
(6) Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto concerning the subject matter hereof, and from and
after the date of this Agreement, this Agreement shall supersede any other
prior agreement or understanding, both written and oral, between the parties
with respect to such subject matter.
(7) Captions. The captions herein are inserted for convenience of
reference only, do not constitute a part of this Agreement, and shall not
affect in any manner the meaning or interpretation of this Agreement.
(8) References. All references in this Agreement to Paragraphs,
subparagraphs, and other subdivisions refer to the Paragraphs, subparagraphs,
and other subdivisions of this Agreement unless expressly provided otherwise.
The words "this Agreement", "herein", "hereof", "hereby", "hereunder", and
words of similar import refer to this Agreement as a whole and not to any
particular subdivision unless expressly so limited. Whenever the words
"include", "includes", and "including" are used in this Agreement, such words
shall be deemed to be followed by the words "without limitation". Words in the
singular form shall be construed to include the plural and vice versa, unless
the context otherwise requires.
20
<PAGE> 24
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed on its behalf by its duly authorized officer, and the Executive has
executed this Agreement, as of the date first above set forth.
NOBLE DRILLING CORPORATION
By: /s/ JAMES C. DAY
-----------------------------------------------
Name: James C. Day
Title: Chairman and Chief Executive Officer
"COMPANY"
/s/ ROBERT D. CAMPBELL
---------------------------------------------
Robert D. Campbell
"EXECUTIVE"
21
<PAGE> 1
EXHIBIT 10.23
AMENDMENTS TO THE
NOBLE DRILLING CORPORATION
1991 STOCK OPTION AND RESTRICTED STOCK PLAN
Pursuant to the provisions of Section 15 thereof, the Noble Drilling
Corporation 1991 Stock Option and Restricted Stock Plan, as amended and restated
effective as of January 30, 1997, is hereby amended as follows:
1. The second sentence of Section 8 is hereby amended by restating
it in its entirety to read as follows:
"The option price for each Share covered by a Nonqualified
Option shall not be less than the greater of (a) the par value of such
Share or (b) 100 percent of the Fair Market Value of such Share at the
time the Option is granted, except that the minimum option price may be
equal to or greater than 85 percent of the Fair Market Value of such
Share at the time the Option is granted if and to the extent the
discount from Fair Market Value is expressly granted in lieu of a
reasonable amount of salary or cash bonus."
2. Section 15 is hereby amended by (i) deleting the word "or" before
the words "(b) reduce the option price" and (ii) adding the clause "or (c)
permit the "repricing" of Options and any SARs that relate to such new Options
in contravention of Section 18 of the Plan" after the words "in Section 8 of the
Plan" and before the semicolon.
3. Section 18 is hereby amended by restating it in its entirety to read
as follows:
"Subject to the terms and conditions of and within the limitations
of the Plan, the Committee may modify, extend or renew outstanding
Options and any SARs that relate to such Options granted under the
Plan. The Committee shall not have authority to accept the surrender or
cancellation of any Options and any SARs that relate to such Options
outstanding hereunder (to the extent not theretofore exercised) and
grant new Options and any SARs that relate to such new Options
hereunder in substitution therefor (to the extent not theretofore
exercised) at an Option Price that is less than the Option Price of the
Options surrendered or cancelled. Notwithstanding the foregoing
provisions of this Section 18, no modification of an outstanding Option
and any SARs that relate to such Option granted hereunder shall,
without the consent of the Optionee, alter or impair any rights or
obligations under any Option and any SARs that relate to such Option
theretofore granted hereunder to such Optionee, except as may be
necessary, with respect to Incentive Options, to satisfy the
requirements of Section 422(b) of the Code."
<PAGE> 2
4. The first sentence of Section 20(b) of the Plan is hereby amended by
adding the following to the end thereof:
"; provided, however, that the minimum restriction period
shall be three years from the date of award (one year in the case of
Shares of Restricted Stock awarded with performance-based conditions);
and provided further, that up to 50 percent of the Shares of Restricted
Stock awarded under an Agreement that have not previously vested may be
made subject to vesting annually commencing with the first anniversary
of the award."
IN WITNESS WHEREOF, these Amendments have been executed this 24th day
of July, 1997.
NOBLE DRILLING CORPORATION
By /s/ JAMES C. DAY
--------------------------------------
Name: James C. Day
Title: Chairman, President and Chief
Executive Officer
2
<PAGE> 1
EXHIBIT 12.1
NOBLE DRILLING CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994
----------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Earnings:
Income before income taxes and
extraordinary charge....................(1) $230,919 $379,613 $101,959 $ 4,866 $ 27,195
Add:
Interest on indebtedness and
amortization of debt expense
and discount.......................... 5,181 12,894 18,758 12,156 12,351
Interest component of rent expense...... 1,314 2,128 1,668 731 457
Equity in losses of joint ventures...... 4,216 528 -- -- --
Minority interest....................... -- 256 428 214 169
-------- -------- -------- -------- --------
Earnings as adjusted.............. $241,630 $395,419 $122,813 $ 17,967 $ 40,172
======== ======== ======== ======== ========
Fixed Charges:
Interest on indebtedness and
amortization of debt expense
and discount.......................... $ 5,181 $ 12,894 $ 18,758 $ 12,156 $ 12,351
Capitalized interest.................... 17,200 4,218 -- -- --
Interest component of rent expense...... 1,314 2,128 1,668 731 457
-------- -------- -------- -------- --------
Fixed charges ........ $ 23,695 $ 19,240 $ 20,426 $ 12,887 $ 12,808
======== ======== ======== ======== ========
Ratio of earnings to fixed charges......(2) 10.2 20.6 6.0 1.4 3.1
======== ======== ======== ======== ========
</TABLE>
(1) Included in the 1997 amount is a non-recurring gain of $197,676,000 related
to the sale of the Company's mat-supported jackup rigs.
(2) Excluding a non-recurring gain of $197,676,000 related to the sale of the
Company's mat-supported jackup rigs, the ratio of earnings to fixed charges
for 1997 was 10.3.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
The following table sets forth the subsidiaries of Noble Drilling
Corporation as of March 3, 1999 excluding certain subsidiaries that, if
considered in the aggregate as a single subsidiary, would not constitute a
significant subsidiary (as defined in Rule 1-02 (W) of Regulation S-X as of
December 31, 1998):
<TABLE>
<CAPTION>
SUBSIDIARY NAME INCORPORATED OR ORGANIZED IN:
- --------------- -----------------------------
<S> <C>
Noble Drilling Asset Holding Corporation (1) Delaware
Noble Drilling International Inc. (1) Delaware
Noble Drilling Services Inc. (1) Delaware
Noble Drilling (U.S.) Inc. (1) Delaware
Noble Engineering & Development Limited (1) Cayman Islands
Noble Properties, Inc. (1) Oklahoma
Triton Engineering Services Company (1) Delaware
Noble Drilling International (Cayman) Ltd. (2) Cayman Islands
Noble Drilling (Canada) Ltd. (2) Alberta
Mexico Drilling Partners Inc. (3) Nevada
Noble Drilling (Jim Thompson) Inc. (3) Delaware
Noble Drilling (Mexico) Inc. (3) Delaware
Noble Drilling (Paul Romano) Inc. (3) Delaware
Noble (Gulf of Mexico) Inc. (3) Delaware
Triton Engineering Services Company, S.A. (4) Venezuela
Triton International, Inc. (4) Delaware
Triton Tool & Supply, Inc. (4) Texas
Triton USA, Inc. (4) Delaware
International Directional Services Ltd. (5) Bermuda
Noble do Brasil S/C Ltda. (5) Brazil
Nedstaff Ltd. (5) Hong Kong
Noble Asset Company Limited (5) Cayman Islands
Noble Asset (U.K.) Limited (5) Cayman Islands
Noble Contracting GmbH (5) Switzerland
Noble Drilling (Nederland) B.V. (5) The Netherlands
Noble Drilling (Nigeria) Ltd. (5) Nigeria
Noble Drilling (Paul Wolff) Ltd. (5) Cayman Islands
Noble Drilling (TVL) Ltd. (5) Cayman Islands
Noble Drilling (U.K.) Ltd. (5) U.K.
Noble Drilling (West Africa) Ltd. (5) Cayman Islands
Noble Drilling de Venezuela C.A. (5) Venezuela
Noble Enterprises Limited (5) Cayman Islands
Noble International Finance Company (5) Cayman Islands
Noble International Limited (5) Cayman Islands
Noble Mexico Limited (5) Cayman Islands
Noble-Neddrill International Limited (5) Cayman Islands
372733 Alberta Inc. (6) Alberta
Bawden Drilling Inc. (6) Delaware
Bawden Drilling International Ltd. (6) Bermuda
Drilhawk Service & Supply Ltd. (6) Alberta
Noble International Services Ltd. (6) Bermuda
Triton Drilling (Nigeria) Ltd. (7) Nigeria
Triton International (Europe) Ltd. (7) U.K.
Triton International de Mexico, S.A. de C.V. (7) Mexico
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
TSIA International (Antilles) N.V. (8) Antilles
Arktik Drilling Limited, Inc. (9) Bahamas
Nedstaff Europe Limited (10) U.K.
Noble Drilling (Europe) Ltd. (10) Bermuda
Noble Land Support Limited (10) U.K.
Rigquip Ltd. (10) U.K.
Noble Drilling International Ltd. (11) Bermuda
Noble Drilling International Services Pte. Ltd. (11) Singapore
Noble Drilling (Malaysia) Sdn. Bhd. (11) Malaysia
Noble Drilling Arabia Limited (12) Saudi Arabia
Resolute Insurance Group Ltd. (13) Bermuda
Ilion, LLC (14) Delaware
(1) 100% owned by Noble Drilling Corporation
(2) 100% owned by Noble Drilling International Inc.
(3) 100% owned by Noble Drilling (U.S.) Inc.
(4) 100% owned by Triton Engineering Services Company
(5) 100% owned by Noble Drilling International (Cayman) Ltd.
(6) 100% owned by Noble Drilling (Canada) Ltd.
(7) 100% owned by Triton International, Inc.
(8) 100% owned by Noble Asset Company Limited
(9) Joint venture (owned 41% by Noble Asset Company Limited)
(10) 100% owned by Noble Drilling (U.K.) Ltd.
(11) 100% owned by Noble Enterprises Limited (70% in the case of Noble Drilling (Malaysia) Sdn. Bhd.)
(12) 100% owned by Noble International Limited
(13) 100% owned by Bawden Drilling International Ltd.
(14) Joint Venture (owned 50% by Noble Drilling (U.S.) Inc.)
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-3289), Form S-8 (No. 33-15269), Form S-8
(No. 33-18966), Form S-8 (No. 33-46724), Form S-8 (No. 33-50270), Form S-8
(No. 33-50272), Form S-8 (No. 33-62394), Form S-8 (No. 33-57675), Form S-8
(No. 333-17407), Form S-8 (No. 333-25857), Form S-3 (No. 333-68507) and Form S-3
(No. 333-72059) of Noble Drilling Corporation of our report dated February 4,
1999 appearing on page 23 of this Form 10-K.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
March 5, 1999
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 211,012
<SECURITIES> 0
<RECEIVABLES> 148,778
<ALLOWANCES> 610
<INVENTORY> 5,133
<CURRENT-ASSETS> 438,209
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0
0
<COMMON> 13,376
<OTHER-SE> 1,297,097
<TOTAL-LIABILITY-AND-EQUITY> 2,178,632
<SALES> 0
<TOTAL-REVENUES> 788,241
<CGS> 0
<TOTAL-COSTS> 456,481
<OTHER-EXPENSES> 101,989
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<INCOME-PRETAX> 230,919
<INCOME-TAX> 68,887
<INCOME-CONTINUING> 0
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<NET-INCOME> 162,032
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