<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 June 30, 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)
13135 SOUTH DAIRY ASHFORD, SUITE 800 77478
SUGAR LAND, TEXAS (Zip code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (281) 276-6100
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 August 8, 2000: 133,391,467
===============================================================================
<PAGE> 2
PART I. FINANCIAL INFORMATION FORM 10-Q
ITEM 1. FINANCIAL STATEMENTS
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value amount)
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------ --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents..................................................... $ 126,649 $ 132,827
Restricted cash............................................................... 3,883 4,010
Accounts receivable (net allowance of $620 and $414).......................... 163,274 117,273
Costs of uncompleted contracts in excess of billings.......................... 2,050 5,886
Inventories................................................................... 4,727 4,298
Prepaid expenses.............................................................. 16,648 15,979
Other current assets.......................................................... 13,472 10,352
------------ ------------
Total current assets............................................................ 330,703 290,625
------------ ------------
PROPERTY AND EQUIPMENT
Drilling equipment and facilities............................................. 2,491,818 2,417,179
Other......................................................................... 28,466 28,249
------------ ------------
2,520,284 2,445,428
Accumulated depreciation...................................................... (447,198) (395,659)
------------ ------------
2,073,086 2,049,769
------------ ------------
INVESTMENTS IN AND ADVANCES TO JOINT VENTURES................................... 68,206 29,314
OTHER ASSETS.................................................................... 88,543 62,616
------------ ------------
$ 2,560,538 $ 2,432,324
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt and current installments of long-term debt.................... $ 61,226 $ 59,460
Accounts payable.............................................................. 43,904 56,586
Accrued payroll and related costs............................................. 35,710 34,116
Taxes payable................................................................. 44,266 47,452
Interest payable.............................................................. 12,178 10,180
Other current liabilities..................................................... 25,179 25,542
------------ ------------
Total current liabilities....................................................... 222,463 233,336
LONG-TERM DEBT.................................................................. 700,586 730,893
DEFERRED INCOME TAXES........................................................... 131,943 70,660
OTHER LIABILITIES............................................................... 10,845 2,340
MINORITY INTEREST............................................................... (3,021) (2,947)
------------ ------------
1,062,816 1,034,282
------------ ------------
SHAREHOLDERS' EQUITY
Common stock-par value $0.10 ................................................. 13,658 13,472
Capital in excess of par value................................................ 989,964 960,803
Retained earnings............................................................. 571,377 502,493
Treasury stock, at cost....................................................... (65,079) (65,072)
Restricted stock (unearned compensation)...................................... (6,068) (6,778)
Accumulated other comprehensive loss.......................................... (6,130) (6,876)
------------ ------------
1,497,722 1,398,042
------------ ------------
COMMITMENTS AND CONTINGENCIES................................................... -- --
------------ ------------
$ 2,560,538 $ 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 JUNE 30,
-----------------------------------
2000 1999
------------- --------------
<S> <C> <C>
OPERATING REVENUES
Contract drilling services....................................................... $ 190,416 $ 142,093
Labor contract drilling services................................................. 7,628 9,747
Turnkey drilling services........................................................ 30,343 21,879
Engineering and consulting services.............................................. 1,144 383
Other revenue.................................................................... 1,193 1,369
------------- -------------
230,724 175,471
------------- -------------
OPERATING COSTS AND EXPENSES
Contract drilling services....................................................... 95,930 77,307
Labor contract drilling services................................................. 6,358 8,693
Turnkey drilling services........................................................ 23,778 22,194
Engineering and consulting services.............................................. 1,022 357
Other expense.................................................................... 776 506
Depreciation and amortization.................................................... 27,865 20,781
Selling, general and administrative.............................................. 5,594 3,900
Minority interest................................................................ 49 (254)
------------- -------------
161,372 133,484
------------- -------------
OPERATING INCOME.................................................................... 69,352 41,987
OTHER INCOME (EXPENSE)
Interest expense................................................................. (13,761) (7,541)
Interest income ................................................................. 4,185 2,831
Other, net....................................................................... 475 (404)
------------- -------------
INCOME BEFORE INCOME TAXES ......................................................... 60,251 36,873
INCOME TAX PROVISION................................................................ (16,870) (9,588)
------------- -------------
NET INCOME.......................................................................... $ 43,381 $ 27,285
============= =============
EARNINGS PER SHARE:
Basic............................................................................. $ 0.32 $ 0.21
Diluted........................................................................... $ 0.32 $ 0.21
</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 OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------------
2000 1999
------------- -------------
<S> <C> <C>
OPERATING REVENUES
Contract drilling services....................................................... $ 353,494 $ 291,009
Labor contract drilling services................................................. 15,591 20,737
Turnkey drilling services........................................................ 43,382 40,075
Engineering and consulting services.............................................. 1,144 727
Other revenue.................................................................... 1,932 3,043
------------- -------------
415,543 355,591
------------- -------------
OPERATING COSTS AND EXPENSES
Contract drilling services....................................................... 179,123 161,343
Labor contract drilling services................................................. 12,084 18,598
Turnkey drilling services........................................................ 39,784 43,259
Engineering and consulting services.............................................. 1,022 655
Other expense.................................................................... 1,181 1,246
Depreciation and amortization.................................................... 54,229 39,874
Selling, general and administrative.............................................. 11,971 10,532
Minority interest................................................................ (74) (834)
------------- -------------
299,320 274,673
------------- -------------
OPERATING INCOME.................................................................... 116,223 80,918
OTHER INCOME (EXPENSE)
Interest expense................................................................. (27,260) (12,257)
Interest income ................................................................. 6,458 5,481
Other, net....................................................................... 251 (687)
------------- -------------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY CHARGE................................. 95,672 73,455
INCOME TAX PROVISION................................................................ (26,788) (19,831)
------------- -------------
INCOME BEFORE EXTRAORDINARY CHARGE.................................................. 68,884 53,624
EXTRAORDINARY CHARGE, NET OF TAX.................................................... -- (10,833)
------------- -------------
NET INCOME.......................................................................... $ 68,884 $ 42,791
============= =============
EARNINGS PER SHARE-BASIC:
Income before extraordinary charge................................................ $ 0.52 $ 0.41
Extraordinary charge.............................................................. -- (0.08)
------------- -------------
Net income per common share....................................................... $ 0.52 $ 0.33
============= =============
EARNINGS PER SHARE-DILUTED:
Income before extraordinary charge................................................ $ 0.51 $ 0.40
Extraordinary charge.............................................................. -- (0.08)
------------- -------------
Net income per common share....................................................... $ 0.51 $ 0.32
============= =============
</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 COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
----------------------------------
2000 1999
------------- -------------
<S> <C> <C>
NET INCOME.......................................................................... $ 43,381 $ 27,285
------------- -------------
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Foreign currency translation adjustments.......................................... 129 239
Unrealized holding losses arising during period................................... (588) (1,299)
------------- -------------
Other comprehensive loss.......................................................... (459) (1,060)
------------- -------------
COMPREHENSIVE INCOME................................................................ $ 42,922 $ 26,225
============= =============
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------------
2000 1999
------------- -------------
<S> <C> <C>
NET INCOME.......................................................................... $ 68,884 $ 42,791
------------- -------------
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Foreign currency translation adjustments......................................... 74 (108)
Unrealized holding gains (losses) arising during period.......................... 672 (1,299)
------------- -------------
Other comprehensive income (loss)................................................ 746 (1,407)
------------- -------------
COMPREHENSIVE INCOME................................................................ $ 69,630 $ 41,384
============= =============
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
5
<PAGE> 6
FORM 10-Q
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------------
2000 1999
-------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................................... $ 68,884 $ 42,791
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................................. 54,229 39,874
Deferred income tax provision............................................. 61,283 16,760
(Gain) loss on sales of property and equipment............................ (1,288) 34
Extraordinary charge, net of tax.......................................... -- 10,833
Equity in net income of unconsolidated joint ventures..................... 427 308
Compensation expense from stock-based plans............................... 773 --
Other..................................................................... 192 364
Changes in current assets and liabilities:
Accounts receivable.................................................... (46,001) 8,804
Other assets........................................................... 2,431 17,490
Accounts payable....................................................... (12,413) 9,067
Other liabilities...................................................... 1,506 (10,164)
-------------- --------------
Net cash provided by operating activities.............................. 130,023 136,161
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment........................................... (77,359) (256,053)
Proceeds from sale of property and equipment................................. 1,900 53
Investment in and notes receivable from affiliates........................... (39,300) --
Investment in marketable securities.......................................... (19,253) (6,830)
-------------- --------------
Net cash used by investing activities.................................. (134,012) (262,830)
-------------- --------------
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.................................................... (30,307) (177,807)
Issuance of common stock..................................................... 27,991 416
Decrease in restricted cash................................................... 127 1,948
-------------- --------------
Net cash (used) provided by financing activities............................. (2,189) 121,288
-------------- --------------
DECREASE IN CASH AND CASH EQUIVALENTS.......................................... (6,178) (5,381)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD................................. 132,827 211,012
-------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD....................................... $ 126,649 $ 205,631
============== ==============
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
6
<PAGE> 7
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 financial statements
and notes thereto included in the Company's 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 and six
month periods ended June 30, 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> <C>
THREE MONTHS ENDED:
JUNE 30, 2000 $ 43,381 133,601 $ 0.32 135,616 $ 0.32
JUNE 30, 1999 $ 27,285 131,336 $ 0.21 132,341 $ 0.21
SIX MONTHS ENDED:
JUNE 30, 2000 $ 68,884 133,026 $ 0.52 135,134 $ 0.51
JUNE 30, 1999 $ 53,624 131,248 $ 0.41 132,106 $ 0.40
</TABLE>
Included in diluted shares are common stock equivalents relating to
outstanding stock options of 2,015,000 shares and 1,005,000 shares for the three
month periods ended June 30, 2000 and 1999, respectively, and 2,108,000 shares
and 858,000 shares for the six month periods ended June 30, 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 June 30, 2000, the fair market value of available for sale debt
securities totaled $19,253,000, with no gross unrealized gains or losses. As of
June 30, 2000, the fair value of available for sale equity securities totaled
$5,820,000, with gross unrealized losses of $5,014,000. Available for sale
securities are included in "Other assets" in the accompanying Condensed
Consolidated Balance Sheets.
7
<PAGE> 8
FORM 10-Q
NOTE 4 - INVESTMENTS IN AND ADVANCES TO JOINT VENTURES
On June 13, 2000, we formed Noble Crosco Drilling Ltd. ("Noble Crosco")
with our joint venture partner. We acquired a 50 percent equity interest in
Noble Crosco for an initial investment of $14,300,000 in cash. Our joint venture
partner contributed the Panon, a Levingston 111-S design jackup, to Noble Crosco
for its 50 percent equity interest. We also agreed to lend up to $5,200,000
pursuant to a credit agreement (the "Noble Crosco Credit Agreement") with Noble
Crosco to finance part of the upgrade costs of the Panon. As of August 8, 2000,
we had not made any fundings to Noble Crosco under the Noble Crosco Credit
Agreement. Any funds required for the upgrade, maintenance and operation of the
Panon in excess of those funds generated from operations of the joint venture
and available under the Noble Crosco Credit Agreement will be loaned by us to
the joint venture. We will manage the upgrade of the Panon from a slot to a
cantilever configuration, as well as the marketing and operation of the unit. We
account for this investment using the equity method.
On January 19, 2000, we formed Noble Rochford Drilling Ltd. ("Noble
Rochford") with our joint venture partners, 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 (together with
our joint venture partners) 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 August 8, 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 in the amount of
$200,000,000 (the "Credit Agreement"), including a letter of credit facility
totaling $40,000,000, through August 14, 2002. As of June 30, 2000, we had no
outstanding borrowings under the Credit Agreement and $4,952,000 had been used
to support outstanding letters of credit. As of June 30, 2000, $195,048,000
remained available under the Credit Agreement. Additionally, at June 30, 2000,
we had supported $2,997,000 of outstanding letters of credit through surety
bonds.
NOTE 6 - SEGMENT AND RELATED INFORMATION
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 and turnkey drilling services. Although both
of these services are generally influenced by the same economic factors, each
represents 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.
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 and six months ended June 30, 2000 and 1999 is shown in
the following table (in thousands). The "Other" column includes results of labor
contract drilling services, other insignificant operations, and corporate
related items.
8
<PAGE> 9
FORM 10-Q
<TABLE>
<CAPTION>
INTERNATIONAL DOMESTIC
THREE MONTHS ENDED: CONTRACT CONTRACT TURNKEY
------------------ DRILLING DRILLING DRILLING
JUNE 30, 2000: SERVICES SERVICES SERVICES OTHER TOTAL
-------------- ------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues from external customers ........................ $ 95,068 $ 95,946 $ 31,487 $ 8,223 $ 230,724
Intersegment revenues ................................... -- 191 -- -- 191
Segment profit .......................................... 8,769 27,312 3,999 3,301 43,381
Total assets at June 30, 2000 (1) ....................... 1,148,581 1,242,284 6,035 163,638 2,560,538
JUNE 30, 1999:
--------------
Revenues from external customers ........................ $ 117,535 $ 24,791 $ 21,879 $ 11,266 $ 175,471
Intersegment revenues ................................... -- -- -- -- --
Segment profit (loss) ................................... 27,886 (2,366) (389) 2,131 27,262
Total assets at June 30, 1999 (1) ....................... 1,207,356 955,661 12,646 270,491 2,446,154
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL DOMESTIC
SIX MONTHS ENDED: CONTRACT CONTRACT TURNKEY
----------------- DRILLING DRILLING DRILLING
JUNE 30, 2000: SERVICES SERVICES SERVICES OTHER TOTAL
-------------- ------------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Revenues from external customers ........................ $ 179,954 $ 174,378 $ 44,526 $ 16,685 $ 415,543
Intersegment revenues ................................... -- 293 -- -- 293
Segment profit (loss) ................................... 18,878 46,307 1,914 1,785 68,884
JUNE 30, 1999:
--------------
Revenues from external customers ........................ $ 244,725 $ 47,075 $ 40,075 $ 23,716 $ 355,591
Intersegment revenues ................................... -- 1,305 -- -- 1,305
Segment profit (loss) ................................... 60,695 (4,215) (3,228) 344 53,596
</TABLE>
----------
(1) Total assets - Other at June 30, 2000 and 1999 includes cash and cash
equivalents of $98,501,000 and $190,325,000, respectively.
The following table is a reconciliation of reportable segment profit or
loss to our consolidated totals for the three and six months ended June 30, 2000
and 1999 (in thousands).
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
-------------------------------
2000 1999
---------- ---------
<S> <C> <C>
Total profit for reportable segments................... $ 40,080 $ 25,131
Other profit........................................... 3,301 2,131
Elimination of intersegment losses..................... -- 23
---------- ---------
Total consolidated net income $ 43,381 $ 27,285
========== =========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------------
2000 1999
---------- ---------
<S> <C> <C>
Total profit for reportable segments................... $ 67,099 $ 53,252
Other profit........................................... 1,785 344
Elimination of intersegment losses .................... -- 28
Extraordinary charge, net of tax....................... -- (10,833)
---------- ---------
Total consolidated net income $ 68,884 $ 42,791
========== =========
</TABLE>
NOTE 7 - SUBSEQUENT EVENT
On August 10, 2000, we settled our lawsuit against Samedan Oil
Corporation for use of the Noble Homer Ferrington and have entered into a
drilling contract with Samedan for use of the rig. Our contract with Samedan
for the Noble Homer Ferrington, which is capable of drilling in 6,000 feet of
water, is at variable dayrates for 660 days over a contract period of 1,625
days and
9
<PAGE> 10
FORM 10-Q
includes a stacking dayrate following the first 30 days of non-usage for each
year of the contract. In addition, we received from Samedan an assignment of
working interests (ranging from 0.8 to 3.2 percent depending on the lease) in
seven of Samedan's deepwater exploration prospects, in which Samedan will pay
our share of the drilling costs during the initial test well on each of the
prospects, and a $2,000,000 cash payment.
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 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 terms "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. Contract drilling services are performed with our fleet of 49 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 34 jackup rigs includes 21 premium units that are
capable of operating 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, the Middle East and Mexico. We also provide labor contract drilling
services, turnkey drilling services, and engineering and production management
services.
Demand for drilling services depends on a variety of economic and
political factors, including worldwide demand for oil and gas, the ability of
the Organization of Petroleum Exporting Countries ("OPEC") to set and maintain
production levels and pricing, the level of production of non-OPEC countries and
the policies of the various governments regarding exploration and development of
their oil and gas reserves.
Despite recent OPEC production increases, oil and natural gas prices
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, and current drilling activity in many international markets is
showing signs of improvement. 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 half 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 with certainty the future level of demand for our
drilling services or future conditions in the offshore contract drilling
industry.
10
<PAGE> 11
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 into important geological
areas.
RECENT DEVELOPMENT
On August 10, 2000, we settled our lawsuit against Samedan Oil
Corporation for use of the Noble Homer Ferrington and have entered into a
drilling contract with Samedan for use of the rig. Our contract with Samedan
for the Noble Homer Ferrington, which is capable of drilling in 6,000 feet of
water, is at variable dayrates for 660 days over a contract period of 1,625
days and includes a stacking dayrate following the first 30 days of non-usage
for each year of the contract. In addition, we received from Samedan an
assignment of working interests (ranging from 0.8 to 3.2 percent depending on
the lease) in seven of Samedan's deepwater exploration prospects, in which
Samedan will pay our share of the drilling costs during the initial test well
on each of the prospects, and a $2,000,000 cash payment.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999
GENERAL
Net income for the second quarter of 2000 (the "Current Quarter") was
$43,381,000, or $0.32 per diluted share, on operating revenues of $230,724,000,
compared to net income for the second quarter of 1999 (the "Comparable Quarter")
of $27,285,000, or $0.21 per diluted share, on operating revenues of
$175,471,000.
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
June 30, 2000 and 1999:
<TABLE>
<CAPTION>
AVERAGE RIG
UTILIZATION RATES (1) OPERATING DAYS AVERAGE DAYRATE
------------------------ ------------------------- ---------------------
THREE MONTHS ENDED THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30,
------------------------ ------------------------- ---------------------
2000 1999 2000 1999 2000 1999
----------- ----------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
International......... 87% 76% 2,163 1,984 $ 43,786 $ 59,201
Domestic.............. 88% 66% 1,429 735 $ 66,974 $ 33,521
</TABLE>
----------
(1) Information reflects our policy to report utilization rates based on the
number of actively marketed rigs in our fleet.
INTERNATIONAL OPERATIONS
The following table sets forth the operating revenues and gross margin
for our international operations for the three months ended June 30, 2000 and
1999:
<TABLE>
<CAPTION>
REVENUES GROSS MARGIN
------------------- -------------------
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Contract drilling services .......................... $ 94,710 $117,455 $ 31,623 $ 57,070
Labor contract drilling services .................... 7,628 9,747 1,270 1,054
Engineering and consulting services ................. -- 383 -- 26
Other ............................................... 869 1,216 387 711
-------- -------- -------- --------
Total ...................................... $103,207 $128,801 $ 33,280 $ 58,861
======== ======== ======== ========
</TABLE>
OPERATING REVENUES. International contract drilling revenues decreased
$22,745,000 in the Current Quarter as compared to the Comparable Quarter due
primarily to lower average dayrates on certain contract renewals in the North
Sea. This decrease was
11
<PAGE> 12
FORM 10-Q
partially offset by a higher average rig utilization rate in West Africa in the
Current Quarter and operations of the Noble Paul Wolff, a Noble EVA-4000(TM)
semisubmersible that began operating in Brazil for Petroleo Brasiliero S.A.
("Petrobras") in May 1999 at a dayrate that is above our average international
dayrate. Labor contract drilling services revenues decreased $2,119,000 in the
Current Quarter as compared to the Comparable Quarter due to fewer operating
days on the North Sea labor contracts resulting from certain contract
expirations, coupled with reduced drilling and workover activities by our
customers.
GROSS MARGIN. International contract drilling services gross margin
decreased $25,447,000 in the Current Quarter as compared to the Comparable
Quarter due primarily to lower average dayrates on certain contract renewals in
the North Sea. Labor contract drilling services gross margin increased $216,000
in the Current Quarter as compared to the Comparable Quarter due primarily to
the expiration of certain North Sea labor contracts with lower 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 June 30, 2000 and 1999:
<TABLE>
<CAPTION>
REVENUES GROSS MARGIN
------------------- -------------------
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Contract drilling services ........................... $ 95,706 $ 24,638 $ 62,863 $ 7,716
Turnkey drilling services ............................ 30,343 21,879 6,565 (315)
Engineering and consulting services .................. 1,144 -- 122 --
Other ................................................ 324 153 30 152
-------- -------- -------- --------
Total ....................................... $127,517 $ 46,670 $ 69,580 $ 7,553
======== ======== ======== ========
</TABLE>
OPERATING REVENUES. Domestic contract drilling services revenues
increased $71,068,000 in the Current Quarter as compared to the Comparable
Quarter due to increased operating days, higher average rig utilization rates
and a higher average dayrate. The increased operating days and higher average
dayrate were primarily attributable to the delivery of three domestic Noble
EVA-4000(TM) semisubmersibles since June of 1999 and the Noble Homer Ferrington
semisubmersible in March 2000, which are currently operating at dayrates that
are above our average domestic dayrate. The Noble Jim Thompson, Noble Amos
Runner and Noble Max Smith, Noble EVA-4000(TM) semisubmersibles, were activated
in June 1999, August 1999 and December 1999, respectively. Domestic turnkey
drilling services revenues increased $8,464,000 in the Current Quarter as
compared to the Comparable Quarter due to the completion of a well in the
Current Quarter with significantly higher revenue than the average turnkey well
completion. There were six domestic turnkey well completions in the Current
Quarter compared to seven well completions in the Comparable Quarter.
Engineering and consulting services revenues in the Current Quarter were
attributable to a project management engagement by our Triton Engineering
Services Company ("Triton Engineering") subsidiary.
GROSS MARGIN. Domestic contract drilling services gross margin
increased $55,147,000 in the Current Quarter as compared to the Comparable
Quarter due to increased operating days, higher average rig utilization rates
and a higher average dayrate. Domestic turnkey drilling services gross margin
increased $6,880,000 in the Current Quarter as compared to the Comparable
Quarter due to the completion of a well in the Current Quarter with a
significantly higher gross margin than the average turnkey well completion.
OTHER ITEMS
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense increased $7,084,000 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, Noble EVA-4000(TM) semisubmersibles, were activated in May
1999, June 1999, August 1999 and December 1999, respectively.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses increased $1,694,000 in the Current Quarter as
compared to the Comparable Quarter due primarily to additional employee costs.
INTEREST EXPENSE. Interest expense increased $6,220,000 in the Current
Quarter as compared to the Comparable Quarter due to there being no capitalized
interest costs in the Current Quarter compared to capitalized interest costs of
$7,260,000 on qualifying
12
<PAGE> 13
FORM 10-Q
upgrade and conversion projects in the Comparable Quarter. There were
no capitalized interest costs in the Current 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.
INTEREST INCOME. Interest income increased $1,354,000 in the Current
Quarter as compared to the Comparable Quarter due primarily to interest earned
on marketable debt securities purchased in early 2000 and interest earned on a
loan to our Noble Rochford Drilling Ltd. ("Noble Rochford") joint venture
through a credit agreement. For additional information on Noble Rochford, see
Note 4 to our accompanying Condensed Consolidated Financial Statements.
INCOME TAX PROVISION. Income tax expense increased $7,282,000 in the
Current Quarter as compared to the Comparable Quarter due to higher pretax
earnings and a higher proportion of our earnings being U.S. sourced earnings
that are taxed at higher effective rates than international earnings.
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
GENERAL
Net income for the six months ended June 30, 2000 (the "Current
Period") was $68,884,000, or $0.51 per diluted share, on operating revenues of
$415,543,000, compared to net income, excluding extraordinary items, of
$53,624,000, or $0.40 per diluted share, on operating revenues of $355,591,000
for the six months ended June 30, 1999 (the "Comparable Period"). Results of the
Comparable Period 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") in March 1999.
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 7.5% 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 six months ended
June 30, 2000 and 1999:
<TABLE>
<CAPTION>
AVERAGE RIG
UTILIZATION RATES (1) OPERATING DAYS AVERAGE DAYRATE
--------------------- ------------------ ----------------------
SIX MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30,
--------------------- ------------------ ----------------------
2000 1999 2000 1999 2000 1999
--------- ---------- ------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
International......... 75% 83% 3,787 4,265 $ 47,395 $ 57,240
Domestic.............. 86% 64% 2,669 1,397 $ 65,197 $ 33,559
</TABLE>
----------
(1) Information reflects our policy to report utilization rates based on the
number of actively marketed rigs in our fleet.
INTERNATIONAL OPERATIONS
The following table sets forth the operating revenues and gross margin
for our international operations for the six months ended June 30, 2000 and
1999:
<TABLE>
<CAPTION>
REVENUES GROSS MARGIN
------------------- -------------------
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Contract drilling services ......................... $179,483 $244,127 $ 63,903 $116,365
Labor contract drilling services ................... 15,591 20,737 3,507 2,139
Engineering and consulting services ................ -- 727 -- 72
Other .............................................. 1,482 2,789 666 1,792
-------- -------- -------- --------
Total ..................................... $196,556 $268,380 $ 68,076 $120,368
======== ======== ======== ========
</TABLE>
13
<PAGE> 14
FORM 10-Q
OPERATING REVENUES. International contract drilling revenues decreased
$64,644,000 in the Current Period as compared to the Comparable Period due
primarily to lower average dayrates, rig utilization rates and operating days.
The geographic locations affected most by decreased average dayrates and rig
utilization were the North Sea, Africa and Mexico. This decrease was partially
offset by the operations of the Noble Paul Wolff, a Noble EVA-4000(TM)
semisubmersible that began operating in Brazil for Petrobras in May 1999 at a
dayrate that is above our average international dayrate. Labor contract drilling
services revenues decreased $5,146,000 in the Current Period as compared to the
Comparable Period due to fewer operating days on the North Sea labor contracts
resulting from certain contract expirations, coupled with reduced drilling and
workover activities by our customers.
GROSS MARGIN. International contract drilling services gross margin
decreased $52,462,000 in the Current Period as compared to the Comparable Period
due primarily to lower average dayrates and rig utilization rates coupled with
ongoing operating expenses incurred on rigs that were stacked during the Current
Period. Labor contract drilling services gross margin increased $1,368,000 in
the Current Period as compared to the Comparable Period due primarily to the
expiration of certain North Sea labor contracts with lower 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 six months ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
REVENUES GROSS MARGIN
------------------- -------------------
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Contract drilling services ....................... $174,011 $ 46,882 $110,468 $ 13,301
Turnkey drilling services ........................ 43,382 40,075 3,598 (3,184)
Engineering and consulting services............... 1,144 -- 122 --
Other ............................................ 450 254 85 5
-------- -------- -------- --------
Total ................................... $218,987 $ 87,211 $114,273 $ 10,122
======== ======== ======== ========
</TABLE>
OPERATING REVENUES. Domestic contract drilling services revenues
increased $127,129,000 in the Current Period as compared to the Comparable
Period due to increased operating days, higher average rig utilization rates and
a higher average dayrate. The increased operating days and higher average
dayrate were primarily attributable to the delivery of three domestic Noble
EVA-4000(TM) semisubmersibles in 1999 and the Noble Homer Ferrington
semisubmersible in March 2000, which are currently operating at dayrates that
are above our average domestic dayrate. Although there were fewer turnkey wells
completed, domestic turnkey drilling services revenues increased $3,307,000 in
the Current Period as compared to the Comparable Period due to the completion of
a well in the Current Period with significantly higher revenue than the average
turnkey well completion. There were 10 domestic turnkey well completions in the
Current Period compared to 12 well completions in the Comparable Period.
Engineering and consulting services revenues in the Current Period were
attributable to a project management engagement by our Triton Engineering
subsidiary.
GROSS MARGIN. Domestic contract drilling services gross margin
increased $97,167,000 in the Current Period as compared to the Comparable Period
due to increased operating days, higher average rig utilization rates and a
higher average dayrate. Domestic turnkey drilling services gross margin
increased $6,782,000 in the Current Period as compared to the Comparable Period
due to the completion of a well in the Current Period with a significantly
higher gross margin than the average turnkey well completion.
OTHER ITEMS
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense increased $14,355,000 in the Current Period as compared to the
Comparable Period due primarily to the activation of four Noble EVA-4000(TM)
semisubmersibles during 1999 and the Noble Homer Ferrington semisubmersible in
March 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased
$1,439,000 in the Current Period as compared to the Comparable Period due
primarily to additional employee costs.
INTEREST EXPENSE. Interest expense increased $15,003,000 in the Current
Period as compared to the Comparable Period due primarily to lower capitalized
interest costs in the Current Period than the Comparable Period 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 $14,441,000 in the Current Period and
14
<PAGE> 15
FORM 10-Q
Comparable Period, respectively. In addition, the Current Period had a higher
average debt balance than the Comparable Period due to the March 1999 issuance
of the Notes.
INTEREST INCOME. Interest income increased $977,000 in the Current
Period as compared to the Comparable Period due primarily to interest earned on
marketable debt securities purchased in early 2000 and interest earned on a loan
to our Noble Rochford joint venture through a credit agreement. For additional
information on Noble Rochford, see Note 4 to our accompanying Condensed
Consolidated Financial Statements.
INCOME TAX PROVISION. Income tax expense increased $6,957,000 in the
Current Period as compared to the Comparable Period due primarily to higher
pretax earnings and a higher proportion of our earnings being U.S. sourced
earnings that are taxed at higher effective rates than international earnings.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
At June 30, 2000, we had cash and cash equivalents of $126,649,000 and
approximately $195,048,000 of funds available under our line of credit. We had
working capital of $108,240,000 and $57,289,000 at June 30, 2000 and December
31, 1999, respectively. Total debt as a percentage of total debt plus
shareholders' equity was 34 percent at June 30, 2000 compared to 36 percent at
December 31, 1999.
Capital expenditures totaled $16,656,000 and $77,359,000 for the
Current Quarter and Current Period, respectively. We expect capital expenditures
for the remainder of 2000 to aggregate approximately $42,300,000. We also
invested $14,300,000 and $39,300,000 in certain joint ventures in the Current
Quarter and Current Period, respectively. We invested $14,300,000 in Noble
Crosco Drilling Ltd. ("Noble Crosco") in the Current Quarter to fund our
committed equity contribution toward the planned upgrade of the Panon. We have a
50 percent equity interest in Noble Crosco, a joint venture which was formed in
June 2000. We also invested $25,000,000 in Noble Rochford in the Current Period
to fund our committed equity and debt contributions toward the acquisition and
planned upgrade of the Noble Julie Robertson. We expect additional investments
in Noble Rochford in 2000 to fund the upgrade of the unit to approximate
$12,000,000. We have a 50 percent equity interest in Noble Rochford, a joint
venture which was formed in January 2000 and owns the Noble Julie Robertson. For
additional information, see Note 4 to our accompanying Condensed Consolidated
Financial Statements. In addition, deferred repair and maintenance expenditures
totaled $3,538,000 and $9,186,000 in the Current Quarter and Current Period,
respectively.
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 criteria or specifications
during repair or construction.
CREDIT FACILITIES AND LONG-TERM DEBT
As of June 30, 2000, our short-term debt and current installments of
long-term debt balance was $61,226,000 as compared to $59,460,000 as of December
31, 1999. As of June 30, 2000, our long-term debt balance was $700,586,000 as
compared to $730,893,000 as of December 31, 1999.
As of June 30, 2000, we had no borrowings under our unsecured revolving
credit facility totaling $200,000,000 (the "Credit Agreement") and $4,952,000
had been used to support outstanding letters of credit. As of June 30, 2000, we
had the ability to borrow $195,048,000 under the Credit Agreement. Additionally,
at June 30, 2000, we had supported $2,997,000 of outstanding letters of credit
through surety bonds.
Required debt principal and interest payments for currently outstanding
debt are estimated to be approximately $57,400,000 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.
15
<PAGE> 16
FORM 10-Q
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, and SFAS 138, Accounting for Certain Derivative Instruments and
Certain Hedging Activities - an amendment of FASB Statement 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
June 30, 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.
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, 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. On August 10, 2000, we settled our lawsuit against Samedan
for use of the Noble Homer Ferrington and have entered into a drilling contract
with Samedan for use of the rig. See "Part I. Financial Information, Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Recent Development."
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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The information required by this Item 6(a) is set forth in the
Index to Exhibits accompanying this quarterly report and is
incorporated herein by reference.
(b) No reports on Form 8-K were filed by us during the quarter
ended June 30, 2000.
16
<PAGE> 17
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: August 14, 2000 /s/ ROBERT D. CAMPBELL
----------------------------------
ROBERT D. CAMPBELL,
President
DATE: August 14, 2000 /s/ MARK L. MEY
----------------------------------
MARK L. MEY
Principal Financial Officer
DATE: August 14, 2000 /s/ STEVEN A. MANZ
----------------------------------
STEVEN A. MANZ
Principal Accounting Officer
17
<PAGE> 18
FORM 10-Q
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
