<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
COMMISSION FILE NUMBER: 0-13857
NOBLE DRILLING CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 73-0374541
(State of incorporation) (I.R.S. employer identification number)
10370 RICHMOND AVENUE, SUITE 400 77042
HOUSTON, TEXAS (Zip code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 974-3131
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Number of shares of Common Stock outstanding as of May 9, 2000: 133,585,567
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<PAGE> 2
FORM 10-Q
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amount)
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................................ $ 57,863 $ 132,827
Restricted cash...................................................... 3,761 4,010
Accounts receivable (net allowance of $414 and $414)................. 130,932 117,273
Costs of uncompleted contracts in excess of billings................. 12,370 5,886
Inventories.......................................................... 4,249 4,298
Prepaid expenses..................................................... 15,725 15,979
Income tax receivable................................................ 32,449 --
Other current assets................................................. 12,481 10,352
----------- ------------
Total current assets................................................... 269,830 290,625
----------- ------------
PROPERTY AND EQUIPMENT
Drilling equipment and facilities.................................... 2,475,964 2,417,179
Other................................................................ 28,955 28,249
----------- ------------
2,504,919 2,445,428
Accumulated depreciation............................................. (420,051) (395,659)
----------- ------------
2,084,868 2,049,769
----------- ------------
INVESTMENT IN AND ADVANCES TO JOINT VENTURES........................... 54,142 29,314
OTHER ASSETS........................................................... 91,258 62,616
----------- ------------
$ 2,500,098 $ 2,432,324
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current installments of long-term debt............................... $ 59,009 $ 59,460
Accounts payable..................................................... 58,343 56,586
Accrued payroll and related costs.................................... 30,249 34,116
Taxes payable........................................................ 43,451 47,452
Interest payable..................................................... 4,964 10,180
Other current liabilities............................................ 22,741 25,542
----------- ------------
Total current liabilities.............................................. 218,757 233,336
LONG-TERM DEBT......................................................... 715,967 730,893
DEFERRED INCOME TAXES.................................................. 113,584 70,660
OTHER LIABILITIES...................................................... 10,042 2,340
MINORITY INTEREST...................................................... (3,070) (2,947)
----------- ------------
1,055,280 1,034,282
SHAREHOLDERS' EQUITY
Common stock-par value $0.10......................................... 13,606 13,472
Capital in excess of par value....................................... 980,372 960,803
Retained earnings.................................................... 527,996 502,493
Treasury stock, at cost.............................................. (65,030) (65,072)
Restricted stock (unearned compensation)............................. (6,455) (6,778)
Accumulated other comprehensive loss................................. (5,671) (6,876)
----------- ------------
1,444,818 1,398,042
----------- ------------
COMMITMENTS AND CONTINGENCIES.......................................... -- --
----------- ------------
$ 2,500,098 $ 2,432,324
=========== ============
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
2
<PAGE> 3
FORM 10-Q
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
--------- ---------
<S> <C> <C>
OPERATING REVENUES
Contract drilling services ......................... $ 163,078 $ 148,916
Labor contract drilling services ................... 7,963 10,990
Turnkey drilling services .......................... 13,039 18,196
Engineering and consulting services ................ -- 344
Other revenue ...................................... 739 1,674
--------- ---------
184,819 180,120
--------- ---------
OPERATING COSTS AND EXPENSES
Contract drilling services ......................... 83,193 84,036
Labor contract drilling services ................... 5,726 9,905
Turnkey drilling services .......................... 16,006 21,065
Engineering and consulting services ................ -- 298
Other expense ...................................... 405 740
Depreciation and amortization ...................... 26,364 19,093
Selling, general and administrative ................ 6,377 6,632
Minority interest .................................. (123) (580)
--------- ---------
137,948 141,189
--------- ---------
OPERATING INCOME ..................................... 46,871 38,931
OTHER INCOME (EXPENSE)
Interest expense ................................... (13,499) (4,716)
Interest income .................................... 2,273 2,650
Other, net ......................................... (224) (283)
--------- ---------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY CHARGE ............................... 35,421 36,582
INCOME TAX PROVISION ................................. (9,918) (10,243)
--------- ---------
INCOME BEFORE EXTRAORDINARY CHARGE ................... 25,503 26,339
EXTRAORDINARY CHARGE, NET OF TAX ..................... -- (10,833)
--------- ---------
NET INCOME ........................................... $ 25,503 $ 15,506
========= =========
EARNINGS PER SHARE-BASIC:
Income before extraordinary charge ................. $ 0.19 $ 0.20
Extraordinary charge ............................... -- (0.08)
--------- ---------
Net income per common share ........................ $ 0.19 $ 0.12
========= =========
EARNINGS PER SHARE-DILUTED:
Income before extraordinary charge ................. $ 0.19 $ 0.20
Extraordinary charge ............................... -- (0.08)
--------- ---------
Net income per common share ........................ $ 0.19 $ 0.12
========= =========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
3
<PAGE> 4
FORM 10-Q
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
----------- ---------
<S> <C> <C>
NET INCOME.................................................. $ 25,503 $ 15,506
----------- ---------
OTHER COMPREHENSIVE GAIN (LOSS), NET OF TAX:
Foreign currency translation adjustments................ (55) (347)
Unrealized holding gains arising during period.......... 1,260 --
----------- ---------
Other comprehensive gain (loss)......................... 1,205 (347)
----------- ---------
COMPREHENSIVE INCOME........................................ $ 26,708 $ 15,159
=========== =========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
4
<PAGE> 5
FORM 10-Q
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ..................................................... $ 25,503 $ 15,506
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ............................. 26,364 19,093
Deferred income tax provision ............................. 42,924 78
Extraordinary charge, net of tax .......................... -- 10,833
Equity in net income of unconsolidated joint ventures ..... 190 155
Compensation expense from stock-based plans ............... 386 232
Other ..................................................... (64) (307)
Changes in current assets and liabilities:
Accounts receivable .................................... (13,659) 3,316
Income tax receivable .................................. (32,449) --
Other assets ........................................... (5,775) 16,888
Accounts payable ....................................... (913) 16,952
Other liabilities ...................................... (16,398) (12,338)
--------- ---------
Net cash provided by operating activities .............. 26,109 70,408
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment ............................. (60,703) (131,336)
Proceeds from sale of property and equipment ................... -- 6
Investment in and advances to joint ventures ................... (25,000) --
Investment in marketable debt securities ....................... (19,253) --
--------- ---------
Net cash used by investing activities .................. (104,956) (131,330)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt ....................... -- 396,731
Net payments on revolving credit facility ...................... -- (100,000)
Payment of long-term debt ...................................... (15,379) (154,088)
Proceeds from issuance of common stock, net .................... 19,013 68
Decrease in restricted cash .................................... 249 1,837
--------- ---------
Net cash provided by financing activities .............. 3,883 144,548
--------- ---------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ................. (74,964) 83,626
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................... 132,827 211,012
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD ......................... $ 57,863 $ 294,638
========= =========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
5
<PAGE> 6
FORM 10-Q
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF ACCOUNTING
The accompanying condensed consolidated financial statements of Noble
Drilling Corporation ("Noble Drilling" or, together with its consolidated
subsidiaries, unless the context requires otherwise, the "Company", "we", "our"
and words of similar import), have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all disclosures required by generally accepted accounting principles
for complete financial statements. All significant transactions among Noble
Drilling and its consolidated subsidiaries have been eliminated. The interim
condensed consolidated financial statements have not been audited. However, in
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the condensed consolidated
financial statements have been included. Results of operations for interim
periods are not necessarily indicative of the results of operations that may be
expected for the entire year. These interim condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and notes thereto included in our Annual Report on Form 10-K for the
year ended December 31, 1999.
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.
Certain reclassifications have been made in prior year condensed
consolidated financial statements to conform to the classifications used in the
2000 condensed consolidated financial statements. These reclassifications have
no impact on net income.
NOTE 2 - EARNINGS PER SHARE
The following table reconciles the basic and diluted earnings per share
computations for income before extraordinary charge for the three month periods
ended March 31, 2000 and 1999 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
INCOME BEFORE
EXTRAORDINARY BASIC BASIC DILUTED DILUTED
CHARGE SHARES EPS SHARES EPS
------------- -------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
MARCH 31, 2000............................... $ 25,503 132,414 $ 0.19 134,622 $ 0.19
MARCH 31, 1999............................... $ 26,339 131,152 $ 0.20 131,866 $ 0.20
</TABLE>
Included in diluted shares are common stock equivalents relating to
outstanding stock options of 2,208,000 shares and 714,000 shares for the
three-month periods ended March 31, 2000 and 1999, respectively.
NOTE 3 - MARKETABLE SECURITIES
Our investments in marketable securities are classified as available
for sale and stated at fair market value under the provisions of SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities. Accordingly,
any unrealized gains and losses, net of taxes, are included in "Accumulated
other comprehensive loss" in the accompanying Condensed Consolidated Balance
Sheets. As of March 31, 2000, the fair market value of available for sale debt
securities totaled $19,253,000, with no gross unrealized gains or losses. As of
March 31, 2000, the fair market value of available for sale equity securities
totaled $6,477,000, with gross unrealized losses of $4,426,000. Available for
sale marketable securities are included in "Other assets" in the accompanying
Condensed Consolidated Balance Sheets.
6
<PAGE> 7
FORM 10-Q
NOTE 4 - INVESTMENTS IN AND ADVANCES TO JOINT VENTURES
On January 19, 2000, our joint venture partners and we formed Noble
Rochford Drilling Ltd. ("Noble Rochford"), which purchased the Noble Julie
Robertson (formerly Ocean Scotian), a Baker Marine Europe Class design jackup.
We acquired a 50 percent equity interest in Noble Rochford for an initial equity
investment in the joint venture of $10,000,000. Additionally, we agreed to make
additional equity investments of up to $2,000,000, if needed, to help fund
planned upgrades. At the time of closing, we also agreed to lend up to
$24,000,000 pursuant to a credit agreement (the "Noble Rochford Credit
Agreement") with Noble Rochford to fund the acquisition and upgrade of the Noble
Julie Robertson. As of May 2, 2000, we had funded $15,000,000 to Noble Rochford
under the Noble Rochford Credit Agreement. Additional proceeds necessary to fund
the upgrade will be loaned by us to the joint venture under the terms of the
Noble Rochford Credit Agreement or, if necessary, under a related shareholder
loan agreement. We will manage the upgrade, marketing and operation of the Noble
Julie Robertson. We account for this investment using the equity method.
NOTE 5 - CREDIT FACILITIES
We have an unsecured revolving credit facility totaling $200,000,000
(the "Credit Agreement"), including a letter of credit facility totaling
$40,000,000, through August 14, 2002. As of March 31, 2000, we had no
outstanding borrowings under the Credit Agreement and $4,627,000 had been used
to support outstanding letters of credit. As of March 31, 2000, $195,373,000
remained available under the Credit Agreement. Additionally, at March 31, 2000,
we had supported $2,997,000 of outstanding letters of credit through a
combination of unsecured letter of credit facilities and surety bonds.
NOTE 6 - INCOME TAX RECEIVABLE
During the quarter ended March 31, 2000, we filed a refund claim of
$32,449,000 related to U.S. income taxes paid in 1997 and 1998. The claim
resulted from net operating losses generated in 1999. In April 2000, we received
full payment of this refund.
NOTE 7 - SEGMENT AND RELATED INFORMATION
In 1998, we adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information ("SFAS 131"), which changes the way we report
information about our operating segments.
We provide diversified services for the oil and gas industry. Our
reportable segments consist of the primary services we provide. These services
include offshore contract drilling, turnkey drilling and labor contract drilling
services. Although each of these services is generally influenced by the same
economic factors, they each represent a distinct service to the oil and gas
industry. Offshore contract drilling services is then separated into
international and domestic contract drilling segments since there are certain
economic and political risks associated with each of these geographic markets
and our management makes decisions based on these markets accordingly.
Our international contract drilling segment conducts contract drilling
services in the North Sea, Africa, Brazil, Venezuela, Mexico, the Middle East
and India, whereas domestic contract drilling is conducted in the U.S. Gulf of
Mexico. Our 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. We conduct our turnkey drilling operations primarily in
the U.S. Gulf of Mexico. Under our labor contracts, we provide the personnel
necessary to manage and perform drilling operations from drilling platforms
owned by the operator. We conduct our labor contract drilling services in the
U.K. North Sea and off the east coast of Canada.
7
<PAGE> 8
FORM 10-Q
All intersegment sales pricing is based on current market conditions.
We evaluate the performance of our operating segments based on operating
revenues and earnings. Summarized financial information of our reportable
segments for the three months ended March 31, 2000 and 1999 is shown in the
following table (in thousands). The "Other" column includes results of other
insignificant operations and corporate related items.
<TABLE>
<CAPTION>
INTERNATIONAL DOMESTIC LABOR
THREE MONTHS ENDED: CONTRACT CONTRACT CONTRACT TURNKEY
- ------------------- DRILLING DRILLING DRILLING DRILLING
MARCH 31, 2000: SERVICES SERVICES SERVICES SERVICES OTHER TOTAL
- ------------------- ------------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues from external customers .... $ 84,886 $ 78,432 $ 8,463 $ 13,039 $ (1) $ 184,819
Intersegment revenues ............... -- 102 -- -- -- 102
Segment profit (loss) ............... 10,109 18,995 2,006 (2,085) (3,522) 25,503
Total assets (1) .................... 1,159,748 1,159,261 36,072 14,062 130,955 2,500,098
MARCH 31, 1999:
- -------------------
Revenues from external customers .... $ 127,190 $ 22,284 $ 12,512 $ 18,196 $ (62) $ 180,120
Intersegment revenues ............... -- 1,305 -- -- -- 1,305
Segment profit (loss) ............... 32,809 (1,849) 957 (2,839) (2,744) 26,334
Total assets (1) .................... 1,212,493 835,008 28,080 16,557 319,327 2,411,465
</TABLE>
- ------------------
(1) "Total assets - Other" at March 31, 2000 and 1999 include cash and cash
equivalents of $34,082,000 and $277,790,000, respectively.
The following table is a reconciliation of reportable segment profit or
loss to our consolidated totals for the three months ended March 31, 2000 and
1999 (in thousands).
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Total profit for reportable segments............. $ 25,503 $ 26,334
Elimination of intersegment losses............... -- 5
Extraordinary charge, net of tax................. -- (10,833)
-------- --------
Total consolidated net income.................. $ 25,503 $ 15,506
======== ========
</TABLE>
NOTE 8 - SUBSEQUENT EVENT
On April 19, 2000, we received notification from Amerada Hess
Corporation that it was exercising its option to reduce the term of its drilling
contract dated August 1999 for the Noble Max Smith from 30 months to 15 months.
The option was included in the contract in order to allow Amerada Hess to be on
the same terms as another operator with which we might subsequently enter into a
drilling contract for the Noble Max Smith. In January 2000, we finalized a
drilling contract with Union Pacific Resources Group for use of the Noble Max
Smith for 15 months out of a five-year period. As a result, Amerada Hess and
Union Pacific have contracted to utilize the unit for a minimum number of days
over the five-year period ending in January 2005 as follows: 360 days in 2000,
180 in 2001, 0 in 2002, 180 in 2003 and 180 in 2004.
8
<PAGE> 9
FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This report on Form 10-Q includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. All statements other than statements of
historical facts included in this Form 10-Q including, without limitation,
statements contained in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" regarding our financial position, business
strategy, plans and objectives of our management for future operations, industry
conditions, and indebtedness covenant compliance, are forward-looking
statements. Although we believe that the expectations reflected in such
forward-looking statements are reasonable, we cannot be certain that such
expectations will prove to have been correct. Important factors that could cause
actual results to differ materially from our expectations include, but are not
limited to, volatility in crude oil and natural gas prices, potential
deterioration in the demand for our drilling services and resulting declining
dayrates, the cancellation by our customers of drilling contracts or letter
agreements or letters of intent for drilling contracts or their exercise of
early termination provisions generally found in our drilling contracts, risks
associated with our turnkey drilling operations, intense competition in the
drilling industry, 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 of and potential liability imposed by
governmental regulation of the drilling industry (including environmental
regulation).
As used herein, unless otherwise required by the context, the term
"Noble Drilling" refers to Noble Drilling Corporation and the term "Company",
"we", "our", and words of similar import refer to Noble Drilling and its
consolidated subsidiaries. The use herein of such terms as group, organization,
we, us, our and its, or references to specific entities, is not intended to be a
precise description of corporate relationships.
THE COMPANY
We are a leading provider of diversified services for the oil and gas
industry. We perform contract drilling services with our fleet of 48 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 33 jackup rigs includes 20 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. Eleven 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,
Venezuela, the Middle East, India and Mexico. We also provide labor contract
drilling services, turnkey drilling services and engineering and production
management services.
Demand for drilling services depends on a variety of economic and
political factors, including worldwide demand for oil and gas, the ability of
the Organization of Petroleum Exporting Countries ("OPEC") to set and maintain
production levels and pricing, the level of production of non-OPEC countries and
the policies of the various governments regarding exploration and development of
their oil and gas reserves.
Despite a decline in oil prices as a result of recent OPEC production
increases, oil and natural gas prices generally remain strong. The U.S. Gulf of
Mexico jackup market continues to strengthen in the form of improved
utilization, particularly for the higher-end equipment, and higher dayrates,
although current drilling activity in many international markets remains weak.
The strengthening demand for jackups in the U.S. Gulf of Mexico could be
adversely impacted by jackups mobilized back to the U.S. Gulf of Mexico from
weaker international markets. Oil companies continue to work through the effects
of industry consolidation, which inhibited capital spending on exploration and
development in 1999 and the first part of 2000. Although we are witnessing signs
of increased capital spending by our customers, further consolidation among our
customer base could dampen near-term drilling activity levels. We cannot predict
the future level of demand for our drilling services or future conditions in the
offshore contract drilling industry.
9
<PAGE> 10
FORM 10-Q
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.
RECENT DEVELOPMENT
On April 19, 2000, we received notification from Amerada Hess
Corporation that it was exercising its option to reduce the term of its drilling
contract dated August 1999 for the Noble Max Smith from 30 months to 15 months.
The option was included in the contract in order to allow Amerada Hess to be on
the same terms as another operator with which we might subsequently enter into a
drilling contract for the Noble Max Smith. In January 2000, we finalized a
drilling contract with Union Pacific Resources Group for use of the Noble Max
Smith for 15 months out of a five-year period. As a result, Amerada Hess and
Union Pacific have contracted to utilize the unit for a minimum number of days
over the five-year period ending in January 2005 as follows: 360 days in 2000,
180 in 2001, 0 in 2002, 180 in 2003 and 180 in 2004.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
GENERAL
Net income for the first quarter of 2000 (the "Current Quarter"), was
$25,503,000, or $0.19 per diluted share, on operating revenues of $184,819,000,
compared to net income, excluding the effects of non-recurring items, for the
first quarter of 1999 (the "Comparable Quarter") of $26,339,000, or $0.20 per
diluted share, on operating revenues of $180,120,000. Results from the
Comparable Quarter included an extraordinary charge of $10,833,000, net of taxes
of $5,833,000, related to our purchase and retirement of $125,000,000 principal
amount of our 9 1/8% Senior Notes due 2006 (the "9 1/8% Notes"). We financed the
purchase and retirement of the 9 1/8% Notes with a portion of the net proceeds
from the issuance on March 16, 1999 of $150,000,000 principal amount of our
6.95% Senior Notes due 2009 (the "2009 Notes") and $250,000,000 principal amount
of our 7.50% Senior Notes due 2019 (the "2019 Notes" and, together with the 2009
Notes, the "Notes").
RIG UTILIZATION, OPERATING DAYS AND AVERAGE DAYRATES
The following table sets forth the average rig utilization rates,
operating days and average dayrates for our rig fleet for the three months ended
March 31, 2000 and 1999:
<TABLE>
<CAPTION>
AVERAGE RIG
UTILIZATION RATES (1) OPERATING DAYS AVERAGE DAYRATE
------------------------ ------------------------- ------------------------
THREE MONTHS ENDED THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31, MARCH 31,
------------------------ ------------------------- ------------------------
2000 1999 2000 1999 2000 1999
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
International......... 64% 89% 1,624 2,281 $ 52,200 $ 55,534
Domestic.............. 84% 63% 1,240 662 $ 63,149 $ 33,601
</TABLE>
- ----------------------
(1) Information reflects our policy to report utilization rates based on the
number of actively marketed rigs in our fleet.
10
<PAGE> 11
FORM 10-Q
INTERNATIONAL OPERATIONS
The following table sets forth the operating revenues and gross margin
for our international operations for the three months ended March 31, 2000 and
1999:
<TABLE>
<CAPTION>
REVENUES GROSS MARGIN
------------------- -------------------
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Contract drilling services ................... $ 84,773 $126,672 $ 32,280 $ 59,295
Labor contract drilling services ............. 7,963 10,990 2,237 1,085
Turnkey drilling services .................... -- 83 -- (141)
Engineering and consulting services .......... -- 344 -- 46
Other revenue ................................ 613 1,573 279 1,081
-------- -------- -------- --------
Total ............................... $ 93,349 $139,662 $ 34,796 $ 61,366
======== ======== ======== ========
</TABLE>
OPERATING REVENUES. International contract drilling revenues decreased
$41,899,000 in the Current Quarter as compared to the Comparable Quarter
primarily due to lower average rig utilization rates and operating days. The
geographic locations affected most by decreased average rig utilization were the
North Sea, Africa and Mexico. The decrease in utilization was partially offset
by the operations of the Noble Paul Wolff, a Noble EVA-4000(TM) semisubmersible,
which began operating in Brazil for Petroleo Brasiliero S.A. in May 1999 at a
dayrate that is above our average dayrate. Labor contract drilling services
revenues decreased $3,027,000 in the Current Quarter as compared to the
Comparable Quarter due to fewer operating days on the North Sea labor contracts
as a result of certain contract expirations which were not renewed coupled with
reduced drilling and workover activities by our customers. There were no
international turnkey well completions in either the Current Quarter or
Comparable Quarter.
GROSS MARGIN. International contract drilling services gross margin
decreased $27,015,000 in the Current Quarter as compared to the Comparable
Quarter primarily due to lower average rig utilization rates coupled with
ongoing operating expenses incurred on rigs that were stacked during the Current
Quarter. Labor contract drilling services gross margin increased $1,152,000 in
the Current Quarter as compared to the Comparable Quarter primarily due to the
expiration of certain North Sea labor contracts with lower gross margins than
our average gross margin for labor contracts.
DOMESTIC OPERATIONS
The following table sets forth the operating revenues and gross margin
for our domestic operations for the three months ended March 31, 2000 and 1999:
<TABLE>
<CAPTION>
REVENUES GROSS MARGIN
--------------------------- --------------------------
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
--------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C>
Contract drilling services................. $ 78,305 $ 22,244 $ 47,605 $ 5,585
Turnkey drilling services.................. 13,039 18,113 (2,967) (2,728)
Other revenue.............................. 126 101 55 (147)
----------- ----------- ----------- -----------
Total............................. $ 91,470 $ 40,458 $ 44,693 $ 2,710
=========== =========== =========== ===========
</TABLE>
OPERATING REVENUES. Domestic contract drilling services revenues
increased $56,061,000 in the Current Quarter as compared to the Comparable
Quarter due to a higher average rig utilization rate, operating days and average
dayrate. The higher average dayrate was primarily attributable to the delivery
of four semisubmersibles during 1999
11
<PAGE> 12
FORM 10-Q
which are currently operating at dayrates that are above our average dayrate.
Domestic turnkey drilling services revenues decreased $5,074,000 in the Current
Quarter as compared to the Comparable Quarter due to an additional well
completion in the Comparable Quarter. There were four domestic turnkey well
completions in the Current Quarter compared to five well completions in the
Comparable Quarter.
GROSS MARGIN. Domestic contract drilling services gross margin
increased $42,020,000 in the Current Quarter as compared to the Comparable
Quarter due to a higher average rig utilization rate, operating days and average
dayrate. The negative results from domestic turnkey drilling services in the
Current Quarter was primarily due to a loss on a well because of unexpected
drilling difficulties. The negative gross margin for domestic turnkey drilling
services in the Comparable Quarter was attributable to above market dayrates and
lower utilization for certain drilling rigs which our turnkey subsidiary had
under term contract from a third party.
OTHER ITEMS
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense increased $7,271,000 in the Current Quarter as compared to the
Comparable Quarter due primarily to the activation of four Noble EVA-4000(TM)
semisubmersibles during 1999 and the Noble Homer Ferrington semisubmersible in
March 2000. The Noble Paul Wolff, Noble Jim Thompson, Noble Amos Runner and
Noble Max Smith were activated in May 1999, June 1999, August 1999 and December
1999, respectively.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased slightly during the Current Quarter as
compared to the Comparable Quarter primarily due to savings in the Current
Quarter attributable to a restructuring during the fourth quarter of 1999.
INTEREST EXPENSE. Interest expense increased $8,783,000 in the Current
Quarter as compared to the Comparable Quarter due to higher average debt
balances resulting from the March 1999 issuance of the Notes. In addition,
capitalized interest costs were lower in the Current Quarter than the Comparable
Quarter due to the completion of the four Noble EVA-4000(TM) conversion projects
during 1999 and the Noble Homer Ferrington upgrade during March 2000.
Capitalized interest costs related to construction in progress on qualifying
upgrade projects were $1,872,000 and $7,181,000 in the Current Quarter and
Comparable Quarter, respectively.
INTEREST INCOME. Interest income decreased $377,000 in the Current
Quarter as compared to the Comparable Quarter due to lower average cash
balances.
INCOME TAX PROVISION. Income tax expense decreased $325,000 in the
Current Quarter as compared to the Comparable Quarter due to lower pretax
earnings.
EXTRAORDINARY CHARGE, NET OF TAX. Results for the Comparable Quarter
include an extraordinary charge of $10,833,000, net of taxes of $5,833,000,
related to the purchase and retirement of our 9 1/8% Notes.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
At March 31, 2000, we had cash and cash equivalents of $57,863,000 and
approximately $195,373,000 of funds available under our line of credit. We had
working capital of $51,073,000 and $57,289,000 at March 31, 2000 and December
31, 1999, respectively. Total debt as a percentage of total debt plus
shareholders' equity was 35 percent at March 31, 2000 compared to 36 percent at
December 31, 1999.
Capital expenditures totaled $60,703,000 for the Current Quarter, of
which $36,327,000 was used to complete the upgrade of equipment and water depth
capability of the Noble Homer Ferrington. We expect capital expenditures for the
remainder of 2000 to aggregate approximately $58,000,000. We also invested
$25,000,000 in Noble Rochford Drilling Ltd. ("Noble Rochford") in the Current
Quarter to fund our committed equity and debt contributions toward the
acquisition and planned upgrade of the Noble Julie Robertson. We expect to loan
an additional approximately $12,000,000 to Noble Rochford in 2000 to fund the
upgrade of the unit. We have a 50 percent equity interest in Noble Rochford, a
joint venture which was formed in January 2000 and purchased the Noble Julie
Robertson. For additional
12
<PAGE> 13
FORM 10-Q
information, see Note 4 to our accompanying Condensed Consolidated Financial
Statements. In addition, deferred repair and maintenance expenditures totaled
$5,600,000 in the Current Quarter.
Projects we are currently considering could require, if they
materialize, capital expenditures or other cash requirements not included in the
above estimate. In addition, we will continue to evaluate acquisitions of
drilling units from time to time. Other factors that could cause actual capital
expenditures to exceed materially the planned capital expenditures include
delays and cost overruns in shipyards, shortages of equipment, latent damage or
deterioration to hull, equipment and machinery in excess of engineering
estimates and assumptions, and changes in design and criteria or specifications
during repair or construction.
CREDIT FACILITIES AND LONG-TERM DEBT
As of March 31, 2000, our current installments of long-term debt
balance was $59,009,000 as compared to $59,460,000 as of December 31, 1999. As
of March 31, 2000, our long-term debt balance was $715,967,000 as compared to
$730,893,000 as of December 31, 1999.
As of March 31, 2000, we had no borrowings under our unsecured
revolving credit facility totaling $200,000,000 (the "Credit Agreement") and
$4,627,000 had been used to support outstanding letters of credit. As of March
31, 2000, we had the ability to borrow $195,373,000 under the Credit Agreement.
Additionally, at March 31, 2000, we had supported $2,997,000 of outstanding
letters of credit through a combination of unsecured letter of credit facilities
and surety bonds.
Required debt principal and interest payments for currently outstanding
debt are estimated to be approximately $70,170,000 over the remainder of 2000.
We expect to fund these obligations out of existing balances of cash and cash
equivalents as well as cash expected to be provided by operations. We anticipate
that our existing cash balances and our cash flows generated from operations
will be sufficient to meet our required debt principal and interest payments and
our expected discretionary capital expenditures, assuming no material decrease
in demand for contract drilling and turnkey services.
ACCOUNTING PRONOUNCEMENT
In June 1998, the FASB issued Statement of Financial Accounting
Standards ("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, as amended by SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities-Deferral of the Effective Date of
SFAS No. 133, is effective for fiscal years beginning after June 15, 2000. The
impact of SFAS 133 on our financial statements will depend on a variety of
factors, including future interpretive guidance from the FASB, the future level
of actual foreign currency transactions, the extent of our hedging activities,
the types of hedging instruments used and the effectiveness of such instruments.
However, we believe adoption will not have a material effect on our results of
operations, cash flows or financial position.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
We are subject to market risk exposure related to changes in interest
rates on our Credit Agreement and certain variable rate indebtedness. Interest
on these obligations is at an agreed upon percentage point spread from LIBOR. At
March 31, 2000, there were no outstanding borrowings under the Credit Agreement
and $12,250,000 of variable rate obligations was outstanding. Based upon this
balance, an immediate change of one percent in the interest rate would not cause
a material change in interest expense on an annual basis.
13
<PAGE> 14
FORM 10-Q
FOREIGN CURRENCY EXCHANGE RATE RISK
We conduct business internationally; however, a substantial majority of
our foreign transactions are denominated in U.S. dollars. With minor exceptions,
we structure our drilling contracts in U.S. dollars to mitigate the exposure to
fluctuations in foreign currencies. Other than our trade accounts receivable and
trade accounts payable, which mostly offset each other, we do not currently have
financial instruments that are sensitive to foreign currency rates.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously disclosed in our Annual Report on Form 10-K for the year
ended December 31, 1999, we filed suit against Samedan Oil Corporation and
Mariner Energy, Inc. on January 6, 2000 in the 55th Judicial District Court of
Harris County, Texas to enforce our rights under letter agreements for use of
the Noble Homer Ferrington. As was also previously disclosed, we have settled
our dispute with Mariner and have entered into a drilling contract with Mariner
for use of the rig. Our suit against Samedan is still pending and a trial date
has been set by the court for May 7, 2001. We believe that the letter agreement
with Samedan requires Samedan to sign a drilling contract for its portion of a
five-year contract period and a related rig-sharing agreement with Mariner.
Samedan has questioned the extent of its obligations under the letter agreement
and expressed concerns about the rig's design criteria. We believe Samedan has a
binding commitment for the use of the rig, and that the rig meets the originally
agreed upon design criteria. Our inability to contract the unit during the times
when the unit is not used by Mariner over the five-year contract period, whether
in the spot market or pursuant to a long-term contract, at the dayrate specified
in the letter agreement with Samedan would adversely affect our future revenues
and operating income during the relevant time periods.
There are no other material pending legal proceedings to which we are a
party or of which our property is the subject. We are involved in certain
routine litigation incidental to our business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of stockholders of Noble Drilling was held
in Houston, Texas, at 10:00 a.m., local time, on April 27,
2000.
(b) Proxies were solicited by the Board of Directors of Noble
Drilling pursuant to Regulation 14A under the Securities
Exchange Act of 1934. There was no solicitation in opposition
to the Board of Directors' nominees for election as directors
as listed in the proxy statement and all of such nominees were
duly elected.
(c) Out of a total of 132,602,991 shares of Noble Drilling common
stock outstanding and entitled to vote at the annual meeting,
121,399,964 shares were present in person or by proxy,
representing approximately 92 percent of the outstanding
shares. The only matter voted on by the stockholders, as fully
described in the proxy statement for the annual meeting, was
the election of directors to serve three-year terms on the
Board of Directors of Noble Drilling. The results of voting
were as follows:
<TABLE>
<CAPTION>
Number of Shares
Nominee Number of Shares WITHHOLDING AUTHORITY
for Re-election Voting FOR Re-election to Vote for Re-election as
as Director as Director Director
------------------ ---------------------- --------------------------
<S> <C> <C>
Robert D. Campbell 102,950,901 18,449,063
James C. Day 105,311,474 16,088,490
Marc E. Leland 120,755,631 644,333
</TABLE>
(d) Inapplicable.
14
<PAGE> 15
FORM 10-Q
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The information required by this Item 6(a) is set forth in the Index to
Exhibits accompanying this quarterly report and is incorporated herein
by reference.
(b) One report on Form 8-K was filed during the quarter ended March 31,
2000.
A report on Form 8-K dated January 10, 2000 was filed reporting that
Noble Drilling Corporation and certain subsidiaries had filed a lawsuit
against Samedan Oil Corporation and Mariner Energy, Inc. A copy of the
Noble Drilling Corporation Press Release dated January 10, 2000
announcing the filing of the lawsuit was filed as an exhibit to such
report on Form 8-K. See "Part II. Other Information - Item 1. Legal
Proceedings" for additional information regarding this lawsuit.
15
<PAGE> 16
FORM 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NOBLE DRILLING CORPORATION
DATE: May 12, 2000 /s/ ROBERT D. CAMPBELL
----------------------------------
ROBERT D. CAMPBELL,
President
DATE: May 12, 2000 /s/ MARK L. MEY
----------------------------------
MARK L. MEY,
Principal Financial Officer
DATE: May 12, 2000 /s/ STEVEN A. MANZ
----------------------------------
STEVEN A. MANZ,
Principal Accounting Officer
16
<PAGE> 17
FORM 10-Q
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<S> <C>
27 Financial Data Schedule.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 57,863
<SECURITIES> 0
<RECEIVABLES> 131,346
<ALLOWANCES> 414
<INVENTORY> 4,249
<CURRENT-ASSETS> 269,830
<PP&E> 2,504,919
<DEPRECIATION> 420,051
<TOTAL-ASSETS> 2,500,098
<CURRENT-LIABILITIES> 218,757
<BONDS> 715,967
0
0
<COMMON> 13,606
<OTHER-SE> 1,431,212
<TOTAL-LIABILITY-AND-EQUITY> 2,500,098
<SALES> 0
<TOTAL-REVENUES> 184,819
<CGS> 0
<TOTAL-COSTS> 105,330
<OTHER-EXPENSES> 32,618
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,499
<INCOME-PRETAX> 35,421
<INCOME-TAX> 9,918
<INCOME-CONTINUING> 25,503
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,503
<EPS-BASIC> 0.19
<EPS-DILUTED> 0.19
</TABLE>
