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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003
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 CORPORATION
(Exact name of registrant as specified in its charter)
CAYMAN ISLANDS 98-0366361
(State or other jurisdiction of (I.R.S. employer identification
incorporation or organization) 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 [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act).
Yes [X] No [ ]
Number of Ordinary Shares outstanding as of November 6, 2003:
133,787,355 (Includes 1,709,172 shares held in a Rabbi Trust)
================================================================================
FORM 10-Q
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NOBLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
SEPTEMBER 30, DECEMBER 31,
2003 2002
------------- -------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................................ $ 124,236 $ 192,509
Restricted cash.......................................................... 7,191 8,668
Investment in marketable securities...................................... 74,159 72,957
Accounts receivable...................................................... 178,063 164,613
Inventories.............................................................. 4,151 3,628
Prepaid expenses......................................................... 9,863 6,595
Other current assets..................................................... 16,015 16,673
------------- -------------
Total current assets....................................................... 413,678 465,643
------------- -------------
PROPERTY AND EQUIPMENT
Drilling equipment and facilities........................................ 3,384,129 3,153,509
Other.................................................................... 64,713 63,296
------------- -------------
3,448,842 3,216,805
Accumulated depreciation................................................. (852,621) (745,762)
------------- -------------
2,596,221 2,471,043
------------- -------------
INVESTMENT IN AND ADVANCES TO JOINT VENTURES............................... 22,380 22,538
OTHER ASSETS............................................................... 107,434 106,490
------------- -------------
$ 3,139,713 $ 3,065,714
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt..................................... $ 66,659 $ 80,577
Accounts payable......................................................... 46,269 64,783
Accrued payroll and related costs........................................ 46,815 51,125
Taxes payable............................................................ 38,811 41,997
Interest payable......................................................... 3,037 10,089
Other current liabilities................................................ 32,619 32,089
------------- -------------
Total current liabilities.................................................. 234,210 280,660
LONG-TERM DEBT............................................................. 556,073 589,562
DEFERRED INCOME TAXES...................................................... 212,666 206,351
OTHER LIABILITIES.......................................................... 5,345 5,635
COMMITMENTS AND CONTINGENCIES.............................................. - -
MINORITY INTEREST.......................................................... (5,945) (5,704)
------------- -------------
1,002,349 1,076,504
------------- -------------
SHAREHOLDERS' EQUITY
Ordinary Shares-par value $0.10 per share................................ 13,380 13,353
Capital in excess of par value........................................... 912,900 905,865
Retained earnings........................................................ 1,276,588 1,140,472
Treasury stock, at cost.................................................. (49,409) (51,317)
Restricted stock (unearned compensation)................................. (9,128) (12,871)
Accumulated other comprehensive loss..................................... (6,967) (6,292)
------------- -------------
2,137,364 1,989,210
------------- -------------
$ 3,139,713 $ 3,065,714
============= =============
See accompanying notes to the consolidated financial statements.
2
FORM 10-Q
NOBLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
2003 2002
------------- -------------
OPERATING REVENUES
Contract drilling services............................................... $ 235,271 $ 223,882
Reimbursables............................................................ 6,473 5,735
Labor contract drilling services......................................... 6,842 5,593
Engineering, consulting and other........................................ 6,060 6,860
------------- -------------
254,646 242,070
------------- -------------
OPERATING COSTS AND EXPENSES
Contract drilling services............................................... 124,690 124,105
Reimbursables............................................................ 6,055 5,151
Labor contract drilling services......................................... 5,350 4,690
Engineering, consulting and other........................................ 7,154 6,987
Depreciation and amortization............................................ 37,759 31,387
Selling, general and administrative...................................... 6,481 5,230
------------- -------------
187,489 177,550
------------- -------------
OPERATING INCOME........................................................... 67,157 64,520
OTHER INCOME (EXPENSE)
Interest expense......................................................... (10,022) (10,288)
Other, net............................................................... 2,367 626
------------- -------------
INCOME BEFORE INCOME TAXES ................................................ 59,502 54,858
INCOME TAX PROVISION....................................................... (6,545) (5,705)
------------- -------------
NET INCOME................................................................. $ 52,957 $ 49,153
============= =============
EARNINGS PER SHARE:
Basic.................................................................... $ 0.40 $ 0.37
Diluted.................................................................. $ 0.40 $ 0.37
See accompanying notes to the consolidated financial statements.
3
FORM 10-Q
NOBLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------
2003 2002
------------- -------------
OPERATING REVENUES
Contract drilling services............................................... $ 672,225 $ 679,609
Reimbursables............................................................ 32,695 20,294
Labor contract drilling services......................................... 20,757 20,252
Engineering, consulting and other........................................ 21,897 17,294
------------- -------------
747,574 737,449
------------- -------------
OPERATING COSTS AND EXPENSES
Contract drilling services............................................... 371,628 359,398
Reimbursables............................................................ 30,825 17,666
Labor contract drilling services......................................... 16,951 16,104
Engineering, consulting and other........................................ 20,053 17,350
Depreciation and amortization............................................ 107,654 92,919
Selling, general and administrative...................................... 19,918 20,613
------------- -------------
567,029 524,050
------------- -------------
OPERATING INCOME.......................................................... 180,545 213,399
OTHER INCOME (EXPENSE)
Interest expense........................................................ (30,865) (31,579)
Other, net.............................................................. 3,259 4,303
------------- -------------
INCOME BEFORE INCOME TAXES ............................................... 152,939 186,123
INCOME TAX PROVISION...................................................... (16,823) (28,102)
------------- -------------
NET INCOME................................................................ $ 136,116 $ 158,021
============= =============
EARNINGS PER SHARE:
Basic................................................................... $ 1.03 $ 1.19
Diluted................................................................. $ 1.02 $ 1.18
See accompanying notes to the consolidated financial statements.
4
FORM 10-Q
NOBLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
2003 2002
------------- -------------
NET INCOME................................................................. $ 52,957 $ 49,153
------------- -------------
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Foreign currency translation adjustments............................... (826) 140
Unrealized holding gain (loss) arising during period................... 180 (549)
------------- -------------
Other comprehensive loss............................................... (646) (409)
------------- -------------
COMPREHENSIVE INCOME....................................................... $ 52,311 $ 48,744
============= =============
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------
2003 2002
------------- -------------
NET INCOME................................................................. $ 136,116 $ 158,021
------------- -------------
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Foreign currency translation adjustments............................... (675) 1,127
Unrealized holding losses arising during period........................ - (932)
Reclassification of realized loss for impairment of
investment included in net income.................................... - 9,758
------------- -------------
Other comprehensive (loss) income...................................... (675) 9,953
------------- -------------
COMPREHENSIVE INCOME....................................................... $ 135,441 $ 167,974
============= =============
See accompanying notes to the consolidated financial statements.
5
FORM 10-Q
NOBLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
2003 2002
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ..................................................................... $ 136,116 $ 158,021
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ............................................. 107,654 92,919
Deferred income tax provision ............................................. 7,669 20,587
Deferred repair and maintenance amortization .............................. 23,976 21,055
Loss on sales of marketable securities .................................... 343 22
Equity in income of joint ventures ........................................ (1,336) (1,159)
Compensation expense from stock-based plans ............................... 3,480 3,765
Realized loss on impairment of investment ................................. - 9,758
Gain on sale of interest in deepwater exploration property ................ - (5,908)
Gain on sales of property and equipment ................................... (519) (460)
Loss on debt repurchases .................................................. - 400
Other ..................................................................... 373 1,528
Changes in current assets and liabilities, net of acquired working capital:
Accounts receivable .................................................... (13,450) 10,519
Other current assets ................................................... (5,655) 81
Accounts payable ....................................................... (18,509) (9,495)
Other current liabilities .............................................. (14,018) (835)
--------- ---------
Net cash provided by operating activities ......................... 226,124 300,798
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions and related capital upgrades ...................................... (191,011) (179,054)
Other capital expenditures ..................................................... (45,175) (76,181)
Deferred repair and maintenance expenditures ................................... (21,144) (31,878)
Proceeds from sales of property and equipment .................................. 500 1,253
Proceeds from sale of interest in deepwater exploration property ............... - 6,200
Investment in and advances to joint ventures, net .............................. 1,494 2,736
Investment in marketable securities ............................................ (69,413) (41,797)
Proceeds from sales of marketable securities ................................... 69,990 20,189
--------- ---------
Net cash used for investing activities ............................ (254,759) (298,532)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of long-term debt ...................................................... (47,418) (45,471)
Proceeds from issuance of ordinary shares ...................................... 6,303 12,700
Repurchase of ordinary shares .................................................. - (22,951)
Proceeds from sales of put options on ordinary shares .......................... - 3,658
Decrease in restricted cash .................................................... 1,477 710
--------- ---------
Net cash used for financing activities ............................ (39,638) (51,354)
--------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS ............................................ (68,273) (49,088)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................................... 192,509 236,709
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD ......................................... $ 124,236 $ 187,621
========= =========
See accompanying notes to the consolidated financial statements.
6
FORM 10-Q
NOBLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF ACCOUNTING
The accompanying consolidated financial statements of Noble Corporation
("Noble" 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 accounting principles generally accepted in the
United States of America 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 accounting principles generally accepted
in the United States of America for complete financial statements. All
significant transactions involving Noble and its consolidated subsidiaries have
been eliminated. Certain reclassifications have been made to the prior year
consolidated financial statements to conform to the classifications used in the
2003 consolidated financial statements. These reclassifications have no impact
on net income or shareholders' equity. (See "Accounting Pronouncements" in "Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations" for additional information on reclassifications pursuant to Emerging
Issues Task Force No. 01-14, Income Statement Characterization of Reimbursements
Received for Out-of-Pocket Expenses Incurred.) The interim 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 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 consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
included in the Annual Report on Form 10-K of Noble for the year ended December
31, 2002.
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 a Noble
EVA-4000(TM) semisubmersible. Noble Drilling (Paul Romano) Inc. is an indirect,
wholly-owned subsidiary of Noble 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.
NOTE 2 - ACQUISITIONS
In September 2003, we exercised our option to purchase the premium
jackup drilling unit Trident 18 (renamed the Noble Charlie Yester) from a
subsidiary of Schlumberger Limited for an exercise price of $32,900,000 in cash.
In December 2002, we paid an option fee of $14,100,000 in cash for the right to
acquire the unit.
In July 2003, we excercised our option to purchase the premium jackup
drilling unit Trident 19 (renamed the Noble Gene House) from this subsidiary of
Schlumberger for an exercise price of $25,200,000 in cash. In December 2002, we
paid an option fee of $10,800,000 in cash for the right to acquire the unit.
In June 2003, we entered into option agreements with a subsidiary of
A.P. Moeller that give us the right to acquire two premium jackup drilling
units, the Maersk Viking and Maersk Valiant. Both units are currently operating
offshore Iran. Our right to exercise the options and acquire the units will
commence when the units have completed their current drilling contracts and have
mobilized to United Arab Emirates territorial waters. We paid an aggregate of
$28,200,000 in cash for the two options. If we exercise the options, we would
pay an exercise price not to exceed an additional $65,800,000 to acquire both
units. The amount of this aggregate exercise price is subject to reduction
depending on the delivery date of the units.
7
FORM 10-Q
NOTE 3 - STOCK-BASED COMPENSATION PLANS
We have several stock-based compensation plans. As permitted by
Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for
Stock-Based Compensation ("SFAS 123") and as amended by SFAS No. 148, Accounting
for Stock-Based Compensation-Transition and Disclosure ("SFAS 148"), we have
chosen to continue using the intrinsic value method of accounting for
stock-based compensation awards in accordance with APB Opinion 25. Accordingly,
no compensation expense was recognized in the three and nine month periods ended
September 30, 2003 and 2002 related to stock option awards.
The following table reflects pro forma net income and earnings per
share had we elected to adopt the fair value approach of SFAS 123 (in thousands,
except per share amounts):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- ------------------------------
2003 2002 2003 2002
---- ---- ---- ----
Net income - as reported......................... $ 52,957 $ 49,153 $ 136,116 $ 158,021
Compensation expense, net of tax, as reported.... 746 806 2,262 2,447
Compensation expense, net of tax, pro forma...... (6,616) (6,240) (16,096) (15,900)
------------- -------------- -------------- -------------
Net income - pro forma........................... $ 47,087 $ 43,719 $ 122,282 $ 144,568
============= ============== ============== =============
Earnings per share:
Basic - as reported............................ $ 0.40 $ 0.37 $ 1.03 $ 1.19
Basic - pro forma.............................. $ 0.36 $ 0.33 $ 0.93 $ 1.09
Diluted - as reported.......................... $ 0.40 $ 0.37 $ 1.02 $ 1.18
Diluted - pro forma............................ $ 0.35 $ 0.33 $ 0.92 $ 1.08
NOTE 4 - EARNINGS PER SHARE
The following table reconciles the basic and diluted earnings per share
computations for the three and nine month periods ended September 30, 2003 and
2002 (in thousands, except per share amounts):
NET BASIC BASIC DILUTED DILUTED
INCOME SHARES EPS SHARES EPS
------ ------ --- ------ ---
THREE MONTHS ENDED:
- ------------------
SEPTEMBER 30, 2003.......................... $ 52,957 132,009 $ 0.40 133,023 $ 0.40
SEPTEMBER 30, 2002.......................... $ 49,153 132,304 $ 0.37 133,357 $ 0.37
NINE MONTHS ENDED:
- -----------------
SEPTEMBER 30, 2003.......................... $ 136,116 131,891 $ 1.03 132,962 $ 1.02
SEPTEMBER 30, 2002.......................... $ 158,021 132,294 $ 1.19 133,593 $ 1.18
Included in diluted shares are ordinary share equivalents relating to
outstanding stock options of 1,014,000 shares and 1,053,000 shares for the three
month periods ended September 30, 2003 and 2002, respectively, and 1,071,000
shares and 1,299,000 shares for the nine month periods ended September 30, 2003
and 2002, respectively. The computation of diluted earnings per share for the
three month and nine month periods ended September 30, 2003 and 2002 did not
include options to purchase 1,818,000 and 1,851,000 ordinary shares,
respectively, because the options' exercise prices were greater than the average
market price of the ordinary shares. Excluded from the basic and diluted share
amounts above for the three month and nine month periods ended September 30,
2003 and 2002 are shares held in a Rabbi Trust, which will be used for future
funding of the Company's benefit plans. The number of shares in the Rabbi Trust
was 1,710,000 and 1,764,000 at September 30, 2003 and 2002, respectively. Shares
in the Rabbi Trust are included in the number of ordinary shares legally
outstanding as of November 6, 2003, as reflected on the cover of this Form 10-Q,
and are accounted for as Treasury Stock in our Consolidated Balance Sheets.
8
FORM 10-Q
NOTE 5 - MARKETABLE SECURITIES
As of September 30, 2003, we owned marketable equity securities with a
fair market value of $9,082,000, of which $8,928,000 was included in a Rabbi
Trust for the Noble Drilling Corporation 401(k) Savings Restoration Plan. The
marketable securities included in the Rabbi Trust are classified as trading
securities and are included in "Investment in marketable securities" in the
Consolidated Balance Sheet at September 30, 2003 at their fair value. The
remaining investment in marketable equity securities, with a fair market value
of $154,000 at September 30, 2003, is classified as available for sale and is
included in "Other assets" in the Consolidated Balance Sheets at its fair market
value. As of September 30, 2003, we also owned marketable debt securities with a
fair market value of $65,231,000. These investments are classified as available
for sale and are included in "Investment in marketable securities" in the
Consolidated Balance Sheet at September 30, 2003 at their fair market value.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Noble Asset Company Limited ("NACL"), a wholly-owned, indirect
subsidiary of Noble, has been named one of 21 parties served a Show Cause Notice
issued by the Commissioner of Customs (Prev.), Mumbai, India. The Show Cause
Notice concerns alleged violations of Indian Customs laws and regulations
regarding one of our jackup drilling rigs. The Commissioner alleges certain
violations to have occurred before, at the time of, and after NACL acquired the
rig from the rig's previous owner. We maintain that NACL has acted in accordance
with all Indian Customs laws and regulations and believe the Show Cause Notice
is without merit as against NACL. In the purchase agreement for the rig, NACL
received contractual indemnification against liability for Indian customs duty
from the rig's previous owner. In connection with the export of the rig from
India in 2001, NACL posted a bank guarantee in the amount of $3.3 million and a
customs bond, both of which remain in place. We do not believe the Company will
incur a material liability with regards to this issue.
We are a defendant in certain claims and litigation arising out of
operations in the normal course of business. In the opinion of management,
uninsured losses, if any, will not be material to our financial position,
results of operations or cash flows.
In connection with several projects, we have entered into agreements
with various vendors to purchase or construct property and equipment that
generally have long lead times for delivery. If we do not proceed with any
particular project, we may either seek to cancel outstanding purchase
commitments related to that project or complete the purchase of the property and
equipment. Any equipment purchased for a project on which we do not proceed
would be used, where applicable, as capital spares for other units in our fleet.
If we cancel any of the purchase commitments, the amounts ultimately paid by us,
if any, would be subject to negotiation. As of September 30, 2003, we had
approximately $31,000,000 of outstanding purchase commitments related to these
projects.
NOTE 7 - PARENT GUARANTEE OF REGISTERED SECURITIES ISSUED BY SUBSIDIARY
Noble and Noble Holding (U.S.) Corporation, a wholly-owned subsidiary
of Noble, are guarantors for certain debt securities issued by Noble Drilling
Corporation ("Noble Drilling"). These debt securities include Noble Drilling's
6.95% Senior Notes due 2009 and its 7.50% Senior Notes due 2019. The outstanding
principal balances of the 6.95% Senior Notes and the 7.50% Senior Notes at
September 30, 2003 were $149,942,000 and $201,695,000, respectively. Noble
Drilling is an indirect, wholly-owned subsidiary of Noble and a direct,
wholly-owned subsidiary of Noble Holding. Noble's and Noble Holding's guarantee
of these securities is full and unconditional.
The following consolidating financial statements of Noble, Noble
Holding, Noble Drilling and all other subsidiaries are included so that separate
financial statements of Noble Drilling are not required to be filed with the
Securities and Exchange Commission. These consolidating financial statements
present Noble's and Noble Holding's investment in their subsidiaries using the
equity method of accounting.
9
FORM 10-Q
NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 2003
(In thousands)
(Unaudited)
NOBLE
HOLDING NOBLE
NOBLE (SUBSIDIARY DRILLING OTHER CONSOLIDATING
(GUARANTOR) GUARANTOR) (ISSUER) SUBSIDIARIES ADJUSTMENTS TOTAL
----------- ---------- -------- ------------ ----------- -----
ASSETS
CURRENT ASSETS
Cash and cash equivalents................. $ 20,853 $ - $ - $ 103,383 $ - $ 124,236
Restricted cash........................... - - - 7,191 - 7,191
Investment in marketable securities....... 17,986 - - 56,173 - 74,159
Accounts receivable....................... - - 2,946 175,117 - 178,063
Inventories............................... - - - 4,151 - 4,151
Prepaid expenses.......................... - - 1,021 8,842 - 9,863
Accounts receivable from affiliates....... 12,648 - 510,609 - (523,257) -
Other current assets...................... 25,666 12,865 2,848 304 (25,668) 16,015
------------ ----------- ------------ ------------- ------------- -----------
Total current assets........................ 77,153 12,865 517,424 355,161 (548,925) 413,678
------------ ----------- ------------ ------------- ------------- -----------
PROPERTY AND EQUIPMENT
Drilling equipment and facilities......... - - 89,974 3,294,155 - 3,384,129
Other..................................... - - - 64,713 - 64,713
------------ ----------- ------------ ------------- ------------- -----------
- - 89,974 3,358,868 - 3,448,842
Accumulated depreciation................... - - (46,405) (806,216) - (852,621)
------------ ----------- ------------ ------------- ------------- -----------
- - 43,569 2,552,652 - 2,596,221
------------ ----------- ------------ ------------- ------------- -----------
NOTES RECEIVABLE FROM AFFILIATES............ 516,450 - 169,159 - (685,609) -
INVESTMENTS IN AFFILIATES................... 1,544,725 1,838,568 1,612,594 - (4,995,887) -
INVESTMENT IN AND ADVANCES
TO JOINT VENTURES........................ - - - 22,380 - 22,380
OTHER ASSETS................................ - - 6,404 101,030 - 107,434
------------ ----------- ------------ ------------- ------------- -----------
$ 2,138,328 $ 1,851,433 $ 2,349,150 $ 3,031,223 $ (6,230,421) $ 3,139,713
============ =========== ============ ============= ============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt...... $ - $ 17,535 $ - $ 66,659 $ (17,535) $ 66,659
Accounts payable.......................... (3) - 1,027 45,245 - 46,269
Accrued payroll and related costs......... - - 11,011 35,804 - 46,815
Taxes payable............................. 982 - - 37,829 - 38,811
Interest payable.......................... - 8,129 1,219 1,822 (8,133) 3,037
Accounts payable to affiliates............ - 65,521 - 457,736 (523,257) -
Other current liabilities................. (15) - 743 31,891 - 32,619
------------ ----------- ------------ ------------- ------------- -----------
Total current liabilities................... 964 91,185 14,000 676,986 (548,925) 234,210
LONG-TERM DEBT.............................. - - 476,637 79,436 - 556,073
NOTES PAYABLE TO AFFILIATES................. - 516,450 - 169,159 (685,609) -
DEFERRED INCOME TAXES....................... - - 14,758 197,908 - 212,666
OTHER LIABILITIES........................... - - 5,187 158 - 5,345
COMMITMENTS AND CONTINGENCIES............... - - - - - -
MINORITY INTEREST........................... - - - (5,945) - (5,945)
------------ ----------- ------------ ------------- ------------- -----------
964 607,635 510,582 1,117,702 (1,234,534) 1,002,349
------------ ----------- ------------ ------------- ------------- -----------
SHAREHOLDERS' EQUITY
Ordinary Shares-par value $0.10 per share. 13,380 - - - - 13,380
Capital in excess of par value............ 912,900 870,744 870,744 693,687 (2,435,175) 912,900
Retained earnings......................... 1,276,588 373,054 967,824 1,226,801 (2,567,679) 1,276,588
Treasury stock, at cost................... (49,409) - - - - (49,409)
Restricted stock (unearned compensation).. (9,128) - - - - (9,128)
Accumulated other comprehensive loss...... (6,967) - - (6,967) 6,967 (6,967)
------------ ----------- ------------ ------------- ------------- -----------
2,137,364 1,243,798 1,838,568 1,913,521 (4,995,887) 2,137,364
------------ ----------- ------------ ------------- ------------- -----------
$ 2,138,328 $ 1,851,433 $ 2,349,150 $ 3,031,223 $ (6,230,421) $ 3,139,713
============ =========== ============ ============= ============= ===========
10
FORM 10-Q
NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2002
(In thousands)
(Unaudited)
NOBLE
HOLDING NOBLE
NOBLE (SUBSIDIARY DRILLING OTHER CONSOLIDATING
(GUARANTOR) GUARANTOR) (ISSUER) SUBSIDIARIES ADJUSTMENTS TOTAL
----------- ---------- -------- ------------ ----------- -----
ASSETS
CURRENT ASSETS
Cash and cash equivalents................. $ 9,317 $ - $ - $ 183,192 $ - $ 192,509
Restricted cash........................... - - - 8,668 - 8,668
Investment in marketable securities....... 6,827 - - 66,130 - 72,957
Accounts receivable....................... - - 1,373 163,240 - 164,613
Inventories............................... - - - 3,628 - 3,628
Prepaid expenses.......................... - - 259 6,336 - 6,595
Accounts receivable from affiliates....... - - 644,412 - (644,412) -
Other current assets...................... 16,417 - - 16,645 (16,389) 16,673
------------ ----------- ------------ ------------- ------------- -----------
Total current assets........................ 32,561 - 646,044 447,839 (660,801) 465,643
------------ ----------- ------------ ------------- ------------- -----------
PROPERTY AND EQUIPMENT
Drilling equipment and facilities......... - - 118,684 3,034,825 - 3,153,509
Other..................................... - - - 63,296 - 63,296
------------ ----------- ------------ ------------- ------------- -----------
- - 118,684 3,098,121 - 3,216,805
Accumulated depreciation.................. - - (61,028) (684,734) - (745,762)
------------ ----------- ------------ ------------- ------------- -----------
- - 57,656 2,413,387 - 2,471,043
------------ ----------- ------------ ------------- ------------- -----------
NOTES RECEIVABLE FROM AFFILIATES............ 529,772 - 44,159 - (573,931) -
INVESTMENTS IN AFFILIATES................... 1,443,034 1,700,021 1,462,263 - (4,605,318) -
INVESTMENT IN AND ADVANCES
TO JOINT VENTURES.......................... - - - 22,538 - 22,538
OTHER ASSETS................................ - - 5,312 101,178 - 106,490
------------ ----------- ------------ ------------- ------------- -----------
$ 2,005,367 $ 1,700,021 $ 2,215,434 $ 2,984,942 $ (5,840,050) $ 3,065,714
============ =========== ============ ============= ============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt...... $ - $ 16,389 $ - $ 80,577 $ (16,389) $ 80,577
Accounts payable.......................... - - 1,019 63,764 - 64,783
Accrued payroll and related costs......... - - 8,475 42,650 - 51,125
Taxes payable............................. 48 - - 41,949 - 41,997
Interest payable.......................... - - 7,708 2,381 - 10,089
Accounts payable to affiliates............ 16,109 24,713 - 603,590 (644,412) -
Other current liabilities................. - - 18 32,071 - 32,089
------------ ----------- ------------ ------------- ------------- -----------
Total current liabilities................... 16,157 41,102 17,220 866,982 (660,801) 280,660
LONG-TERM DEBT.............................. - - 476,629 112,933 - 589,562
NOTES PAYABLE TO AFFILIATES................. - 529,772 - 44,159 (573,931) -
DEFERRED INCOME TAXES....................... - - 16,070 190,281 - 206,351
OTHER LIABILITIES........................... - - 5,494 141 - 5,635
COMMITMENTS AND CONTINGENCIES............... - - - - - -
MINORITY INTEREST........................... - - - (5,704) - (5,704)
------------ ----------- ------------ ------------- ------------- -----------
16,157 570,874 515,413 1,208,792 (1,234,732) 1,076,504
------------ ----------- ------------ ------------- ------------- -----------
SHAREHOLDERS' EQUITY
Ordinary Shares-par value $0.10 per share. 13,353 - - - - 13,353
Capital in excess of par value............ 905,865 870,744 870,744 693,687 (2,435,175) 905,865
Retained earnings......................... 1,140,472 258,403 829,277 1,088,755 (2,176,435) 1,140,472
Treasury stock, at cost................... (51,317) - - - - (51,317)
Restricted stock (unearned compensation).. (12,871) - - - - (12,871)
Accumulated other comprehensive loss...... (6,292) - - (6,292) 6,292 (6,292)
------------ ----------- ------------ ------------- ------------- -----------
1,989,210 1,129,147 1,700,021 1,776,150 (4,605,318) 1,989,210
------------ ----------- ------------ ------------- ------------- -----------
$ 2,005,367 $ 1,700,021 $ 2,215,434 $ 2,984,942 $ (5,840,050) $ 3,065,714
============ =========== ============ ============= ============= ===========
11
FORM 10-Q
NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING STATEMENT OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 2003
(In thousands)
(Unaudited)
NOBLE
HOLDING NOBLE
NOBLE (SUBSIDIARY DRILLING OTHER CONSOLIDATING
(GUARANTOR) GUARANTOR) (ISSUER) SUBSIDIARIES ADJUSTMENTS TOTAL
----------- ----------- -------- ------------ ----------- -----
OPERATING REVENUES
Contract drilling services............... $ - $ - $ 4,499 $ 230,772 $ - $ 235,271
Reimbursables............................ - - - 6,473 - 6,473
Labor contract drilling services......... - - - 6,842 - 6,842
Engineering, consulting and other........ - - - 6,060 - 6,060
------------ ----------- ------------ ------------- ------------- -----------
- - 4,499 250,147 - 254,646
------------ ----------- ------------ ------------- ------------- -----------
OPERATING COSTS AND EXPENSES
Contract drilling services............... (7) - 1,578 123,119 - 124,690
Reimbursables............................ - - - 6,055 - 6,055
Labor contract drilling services......... - - - 5,350 - 5,350
Engineering, consulting and other........ - - (143) 7,297 - 7,154
Depreciation and amortization............ - - 959 36,800 - 37,759
Selling, general and administrative...... 195 - 192 6,094 - 6,481
------------ ----------- ------------ ------------- ------------- -----------
188 - 2,586 184,715 - 187,489
------------ ----------- ------------ ------------- ------------- -----------
OPERATING (LOSS) INCOME.................... (188) - 1,913 65,432 - 67,157
OTHER INCOME (EXPENSE)
Equity earnings in affiliates (net of
tax).................................. 41,553 49,110 51,388 - (142,051) -
Interest expense......................... - (12,293) (6,921) (4,087) 13,279 (10,022)
Other, net............................... 12,332 - 1,503 1,811 (13,279) 2,367
------------ ----------- ------------ ------------- ------------- -----------
INCOME BEFORE INCOME TAXES ................ 53,697 36,817 47,883 63,156 (142,051) 59,502
INCOME TAX BENEFIT (PROVISION)............. (740) 4,302 1,227 (11,334) - (6,545)
------------ ----------- ------------ ------------- ------------- -----------
NET INCOME................................. $ 52,957 $ 41,119 $ 49,110 $ 51,822 $ (142,051) $ 52,957
============ =========== ============ ============= ============= ===========
12
FORM 10-Q
NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING STATEMENT OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 2002
(In thousands)
(Unaudited)
NOBLE
HOLDING NOBLE
NOBLE (SUBSIDIARY DRILLING OTHER CONSOLIDATING
(GUARANTOR) GUARANTOR) (ISSUER) SUBSIDIARIES ADJUSTMENTS TOTAL
----------- ----------- -------- ------------ ------------- ---------
OPERATING REVENUES
Contract drilling services............... $ - $ - $ 3,008 $ 220,874 $ - $ 223,882
Reimbursables............................ - - - 5,735 - 5,735
Labor contract drilling services......... - - - 5,593 - 5,593
Engineering, consulting and other........ - - 69 6,860 (69) 6,860
----------- ----------- ------- ------------ ------------- ---------
- - 3,077 239,062 (69) 242,070
----------- ----------- ------- ------------ ------------- ---------
OPERATING COSTS AND EXPENSES
Contract drilling services............... 88 - 2,480 121,606 (69) 124,105
Reimbursables............................ - - - 5,151 - 5,151
Labor contract drilling services......... - - - 4,690 - 4,690
Engineering, consulting and other........ - - - 6,987 - 6,987
Depreciation and amortization............ - - 1,448 29,939 - 31,387
Selling, general and administrative...... 1,171 - (2,035) 6,094 - 5,230
----------- ----------- ------- ------------ ------------- ---------
1,259 - 1,893 174,467 (69) 177,550
----------- ----------- ------- ------------ ------------- ---------
OPERATING (LOSS) INCOME.................... (1,259) - 1,184 64,595 - 64,520
OTHER INCOME (EXPENSE)
Equity earnings in affiliates (net of
tax)................................... 42,058 50,412 54,146 - (146,616) -
Interest expense......................... - (8,354) (6,451) (3,837) 8,354 (10,288)
Other, net............................... 8,354 - (477) 1,103 (8,354) 626
----------- ----------- ------- ------------ ------------- ---------
INCOME BEFORE INCOME TAXES ................ 49,153 42,058 48,402 61,861 (146,616) 54,858
INCOME TAX BENEFIT (PROVISION)............. - - 2,010 (7,715) - (5,705)
----------- ----------- ------- ------------ ------------- ---------
NET INCOME................................. $ 49,153 $ 42,058 $50,412 $ 54,146 $ (146,616) $ 49,153
=========== =========== ======= ============ ============= =========
13
FORM 10-Q
NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 2003
(In thousands)
(Unaudited)
NOBLE
HOLDING NOBLE
NOBLE (SUBSIDIARY DRILLING OTHER CONSOLIDATING
(GUARANTOR) GUARANTOR) (ISSUER) SUBSIDIARIES ADJUSTMENTS TOTAL
----------- ----------- -------- ------------ ------------- --------
OPERATING REVENUES
Contract drilling services ........ $ - $ - $ 9,014 $ 663,211 $ - $672,225
Reimbursables ..................... - - 267 32,428 - 32,695
Labor contract drilling services .. - - - 20,757 - 20,757
Engineering, consulting and other . - - - 21,897 - 21,897
----------- ----------- -------- ------------ ------------- --------
- - 9,281 738,293 - 747,574
----------- ----------- -------- ------------ ------------- --------
OPERATING COSTS AND EXPENSES
Contract drilling services ........ (20) 1 6,227 365,420 - 371,628
Reimbursables ..................... - - 267 30,558 - 30,825
Labor contract drilling services .. - - - 16,951 - 16,951
Engineering, consulting and other.. - - (143) 20,196 - 20,053
Depreciation and amortization ..... - - 2,876 104,778 - 107,654
Selling, general and
administrative .................. 266 - 722 18,930 - 19,918
----------- ----------- -------- ------------ ------------- --------
246 1 9,949 556,833 - 567,029
----------- ----------- -------- ------------ ------------- --------
OPERATING (LOSS) INCOME ............. (246) (1) (668) 181,460 - 180,545
OTHER INCOME (EXPENSE)
Equity earnings in affiliates
(net of tax)..................... 101,691 138,547 150,331 - (390,569) -
Interest expense .................. - (36,760) (20,866) (12,845) 39,606 (30,865)
Other, net ........................ 36,879 - 3,405 2,581 (39,606) 3,259
----------- ----------- -------- ------------ ------------- --------
INCOME BEFORE INCOME TAXES .......... 138,324 101,786 132,202 171,196 (390,569) 152,939
INCOME TAX BENEFIT (PROVISION) ...... (2,208) 12,865 6,345 (33,825) - (16,823)
----------- ----------- -------- ------------ ------------- --------
NET INCOME .......................... $ 136,116 $ 114,651 $138,547 $ 137,371 $ (390,569) $136,116
=========== =========== ======== ============ ============= ========
14
FORM 10-Q
NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 2002
(In thousands)
(Unaudited)
NOBLE
HOLDING NOBLE
NOBLE (SUBSIDIARY DRILLING OTHER CONSOLIDATING
(GUARANTOR) GUARANTOR) (ISSUER) SUBSIDIARIES ADJUSTMENTS TOTAL
------------ ------------- ----------- ------------ ------------- ------------
OPERATING REVENUES
Contract drilling services ........ $ - $ - $ 8,842 $ 670,767 $ - $ 679,609
Reimbursables ..................... - - - 20,294 - 20,294
Labor contract drilling services .. - - - 20,252 - 20,252
Engineering, consulting and other . - - 207 17,294 (207) 17,294
----------- ------------ ----------- ------------ ------------ ------------
- - 9,049 728,607 (207) 737,449
----------- ------------ ----------- ------------ ------------ ------------
OPERATING COSTS AND EXPENSES
Contract drilling services ........ 147 - 7,512 351,946 (207) 359,398
Reimbursables ..................... - - - 17,666 - 17,666
Labor contract drilling services .. - - - 16,104 - 16,104
Engineering, consulting and other.. - - - 17,350 - 17,350
Depreciation and amortization ..... - - 4,292 88,627 - 92,919
Selling, general and
administrative .................. 1,925 - (2,607) 21,295 - 20,613
----------- ------------ ----------- ------------ ------------ ------------
2,072 - 9,197 512,988 (207) 524,050
----------- ------------ ----------- ------------ ------------ ------------
OPERATING (LOSS) INCOME ............. (2,072) - (148) 215,619 - 213,399
OTHER INCOME (EXPENSE)
Equity earnings in affiliates
(net of tax) ................... 151,739 160,093 169,758 - (481,590) -
Interest expense .................. - (8,354) (19,415) (12,164) 8,354 (31,579)
Other, net ........................ 8,354 - 4,694 (391) (8,354) 4,303
----------- ------------ ----------- ------------ ------------ ------------
INCOME BEFORE INCOME TAXES .......... 158,021 151,739 154,889 203,064 (481,590) 186,123
INCOME TAX BENEFIT (PROVISION) ...... - - 5,204 (33,306) - (28,102)
----------- ------------ ----------- ------------ ------------ ------------
NET INCOME .......................... $ 158,021 $ 151,739 $ 160,093 $ 169,758 $ (481,590) $ 158,021
=========== ============ =========== ============ ============ ============
15
FORM 10-Q
NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2003
(In thousands)
(Unaudited)
NOBLE
HOLDING NOBLE
NOBLE (SUBSIDIARY DRILLING OTHER CONSOLIDATING
(GUARANTOR) GUARANTOR) (ISSUER) SUBSIDIARIES ADJUSTMENTS TOTAL
----------- ----------- ---------- ------------ ------------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ......................................... $ 136,116 $ 114,651 $ 138,547 $ 137,371 $ (390,569) $ 136,116
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .................. - - 2,876 104,778 - 107,654
Deferred income tax provision .................. - - (1,312) 8,981 - 7,669
Deferred repair and maintenance amortization ... - - 539 23,437 - 23,976
Loss on sales of marketable securities ......... - - - 343 - 343
Equity in income of joint ventures ............. - - - (1,336) - (1,336)
Compensation expense from stock-based plans .... 3,480 - - - - 3,480
Gain on sales of property and equipment ........ - - - (519) - (519)
Equity earnings in affiliates .................. (101,691) (138,547) (150,331) - 390,569 -
Other .......................................... - - (1,399) 1,772 - 373
Changes in current assets and liabilities,
net of acquired working capital:
Accounts receivable .......................... - - (1,573) (11,877) - (13,450)
Accounts receivable from affiliates .......... - - 35,642 - (35,642) -
Other current assets ......................... (9,249) (12,865) (3,610) 20,069 - (5,655)
Accounts payable ............................. (3) - 8 (18,514) - (18,509)
Accounts payable to affiliates ............... (24,339) 28,632 - (39,935) 35,642 -
Other current liabilities .................... 919 8,129 (3,228) (19,838) - (14,018)
----------- ----------- --------- ------------ ------------ ---------
Net cash provided by operating activities.. 5,233 - 16,159 204,732 - 226,124
----------- ----------- --------- ------------ ------------ ---------
CASH FLOWS USED FOR INVESTING ACTIVITIES
Acquisitions and related capital upgrades .......... - - - (191,011) - (191,011)
Other capital expenditures ......................... - - (5,738) (39,437) - (45,175)
Deferred repair and maintenance expenditures ....... - - (1,395) (19,749) - (21,144)
Proceeds from sales of property and equipment ...... - - - 500 - 500
Investment in and advances to joint venture, net ... - - - 1,494 - 1,494
Investment in marketable securities ................ - - (39,656) (29,757) - (69,413)
Proceeds from sales of marketable securities ....... - - 30,630 39,360 - 69,990
----------- ----------- --------- ------------ ------------ ---------
Net cash used for investing activities - - (16,159) (238,600) - (254,759)
----------- ----------- --------- ------------ ------------ ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of long-term debt .......................... - - - (47,418) - (47,418)
Proceeds from issuance of ordinary shares .......... 6,303 - - - - 6,303
Decrease in restricted cash ........................ - - - 1,477 - 1,477
----------- ----------- --------- ------------ ------------ ---------
Net cash provided by (used for)
financing activities .................. 6,303 - - (45,941) - (39,638)
----------- ----------- --------- ------------ ------------ ---------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ............................. 11,536 - - (79,809) - (68,273)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD .............................. 9,317 - - 183,192 - 192,509
----------- ----------- --------- ------------ ------------ ---------
CASH AND CASH EQUIVALENTS,
END OF PERIOD .................................... $ 20,853 $ - $ - $ 103,383 $ - $ 124,236
=========== =========== ========= ============ ============ =========
16
FORM 10-Q
NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2002
(In thousands)
(Unaudited)
NOBLE
HOLDING NOBLE
NOBLE (SUBSIDIARY DRILLING OTHER CONSOLIDATING
(GUARANTOR) GUARANTOR) (ISSUER) SUBSIDIARIES ADJUSTMENTS TOTAL
----------- ----------- ---------- ------------ ------------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ......................................... $ 158,021 $ 151,739 $ 160,093 $ 169,758 $ (481,590) $ 158,021
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .................. - - 4,292 88,627 - 92,919
Deferred income tax provision .................. - - 225 20,362 - 20,587
Deferred repair and maintenance amortization ... - - 559 20,496 - 21,055
Loss on sales of marketable securities ......... - - - 22 - 22
Equity in income of joint ventures ............. - - - (1,159) - (1,159)
Compensation expense from stock-based plans .... 2,033 - 1,670 62 - 3,765
Realized loss on impairment of investment ...... - - - 9,758 - 9,758
Gain on sale of interest in deepwater
exploration property ......................... - - - (5,908) - (5,908)
Gain on sales of property and equipment ........ - - - (460) - (460)
Loss on debt repurchase ........................ - - 400 - - 400
Equity earnings in affiliates .................. (151,739) (160,093) (169,758) - 481,590 -
Other .......................................... - - 38 1,490 - 1,528
Changes in current assets and liabilities,
net of acquired working capital: - -
Accounts receivable .......................... - - 26 10,493 - 10,519
Accounts receivable from affiliates .......... 18,067 - 55,351 - (73,418) -
Other current assets ......................... (8,354) - (4,237) 4,318 8,354 81
Accounts payable ............................. - - (397) (9,098) - (9,495)
Accounts payable to affiliates ............... - - - (73,418) 73,418 -
Other current liabilities .................... - 8,354 (5,789) 4,954 (8,354) (835)
----------- ----------- --------- ------------ ------------ ---------
Net cash (used for) provided by
operating activities .................... 18,028 - 42,473 240,297 - 300,798
----------- ----------- --------- ------------ ------------ ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions and related capital upgrades .......... - - (45,000) (134,054) - (179,054)
Other capital expenditures ......................... - - (1,461) (74,720) - (76,181)
Deferred repair and maintenance expenditures ....... - - (793) (31,085) - (31,878)
Proceeds from sales of property and equipment ...... - - - 1,253 - 1,253
Proceeds from sale of interest in deepwater
exploration property ............................. - - - 6,200 - 6,200
Investments in and advances to joint
ventures, net..................................... - - - 2,736 - 2,736
Investment in marketable securities ................ - - - (41,797) - (41,797)
Proceeds from sales of marketable securities ....... - - - 20,189 - 20,189
----------- ----------- --------- ------------ ------------ ---------
Net cash used for investing activities .... - - (47,254) (251,278) - (298,532)
----------- ----------- --------- ------------ ------------ ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of long-term debt .......................... - - (5,350) (40,121) - (45,471)
Proceeds from issuance of ordinary shares .......... 3,608 - 9,092 - - 12,700
Repurchase of ordinary shares ...................... (22,951) - - - - (22,951)
Proceeds from sales of put options on ordinary
shares ........................................... 2,619 - 1,039 - - 3,658
Decrease in restricted cash ........................ - - - 710 - 710
----------- ----------- --------- ------------ ------------ ---------
Net cash provided by (used for) financing
activities .............................. (16,724) - 4,781 (39,411) - (51,354)
----------- ----------- --------- ------------ ------------ ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ..... 1,304 - - (50,392) - (49,088)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ....... - - - 236,709 - 236,709
----------- ----------- --------- ------------ ------------ ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............. $ 1,304 $ - $ - $ 186,317 $ - $ 187,621
=========== =========== ========= ============ ============ =========
17
FORM 10-Q
NOTE 8 - SEGMENT AND RELATED INFORMATION
We provide diversified services for the oil and gas industry. Our
reportable segments consist of the primary services we provide, which include
offshore contract drilling and engineering and consulting services. Although
both of these segments 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 different 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, Brazil, West Africa, the Middle East, Mexico and
India. Our domestic contract drilling is conducted in the U.S. Gulf of Mexico.
Our engineering and consulting segment, as represented by our Noble Technology
Services Division, provides drilling products and drilling related software
programs, well site management, project management, technical services and
operations support for our downhole technology tools.
All intersegment sales pricing is based on current market conditions.
We evaluate the performance of our operating segments based on operating
revenues and net income. Summarized financial information of our reportable
segments for the three and nine months ended September 30, 2003 and 2002 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.
INTERNATIONAL DOMESTIC
CONTRACT CONTRACT ENGINEERING
THREE MONTHS ENDED: DRILLING DRILLING & CONSULTING
SEPTEMBER 30, 2003: SERVICES SERVICES SERVICES OTHER TOTAL
- ------------------- -------------- -------------- -------------- -------------- --------------
Revenues from external customers .. $ 172,380 $ 69,941 $ 4,631 $ 7,694 $ 254,646
Intersegment revenues.............. - - - - -
Segment net income (loss).......... 36,775 15,163 (2,798) 3,817 52,957
Total assets....................... 1,614,048 1,266,844 11,171 247,650 3,139,713
SEPTEMBER 30, 2002:
- ------------------
Revenues from external customers... $ 155,034 $ 77,200 $ 3,263 $ 6,573 $ 242,070
Intersegment revenues.............. - - 542 - 542
Segment net income (loss).......... 42,747 8,487 (1,791) (278) 49,165
Total assets....................... 1,290,507 1,406,482 11,102 174,242 2,882,333
INTERNATIONAL DOMESTIC
CONTRACT CONTRACT ENGINEERING
NINE MONTHS ENDED: DRILLING DRILLING & CONSULTING
SEPTEMBER 30, 2003: SERVICES SERVICES SERVICES OTHER TOTAL
- ------------------- -------------- -------------- -------------- -------------- --------------
Revenues from external customers... $ 502,388 $ 198,411 $ 22,507 $ 24,268 $ 747,574
Intersegment revenues.............. - - - - -
Segment net income (loss).......... 105,188 30,382 (6,457) 7,003 136,116
SEPTEMBER 30, 2002:
- ------------------
Revenues from external customers... $ 470,719 $ 232,247 $ 9,829 $ 24,654 $ 737,449
Intersegment revenues.............. - - 690 - 690
Segment net income (loss).......... 137,620 28,435 (2,837) (5,197) 158,021
18
FORM 10-Q
The following table is a reconciliation of reportable segment net income to
our consolidated totals for the three and nine months ended September 30, 2003
and 2002 (in thousands).
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- ------------------------------
2003 2002 2003 2002
-------------- --------------- -------------- -------------
Total net income for reportable segments........ $ 49,140 $ 49,443 $ 129,113 $ 163,218
Elimination of intersegment profits............. - (12) - -
Other net income (loss) ........................ 3,817 (278) 7,003 (5,197)
-------------- --------------- -------------- -------------
Total consolidated net income................. $ 52,957 $ 49,153 136,116 158,021
============== =============== ============== =============
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, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements
other than statements of historical facts included in this Form 10-Q, including,
without limitation, statements contained in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" regarding our
financial position, business strategy, plans and objectives of management for
future operations, industry conditions, and indebtedness covenant compliance,
are forward-looking statements. Although we believe that the expectations
reflected in such forward-looking statements are reasonable, we cannot assure
you that such expectations will prove to have been correct.
We have identified factors that could cause actual plans or results to
differ materially from those included in any forward-looking statements. These
factors include, but are not limited to, the following:
- volatility in crude oil and natural gas prices;
- changes in our customers' drilling programs or budgets due to their own
internal corporate events, changes in the markets and prices for oil
and gas, or shifts in the relative strengths of various geographic
drilling markets brought on by things such as a general economic
slowdown, or regional or worldwide recession, any of which could result
in deterioration in demand for our drilling services;
- our inability to execute any of our business strategies;
- changes in tax laws, tax treaties or tax regulations or the
interpretation or enforcement thereof, including taxing authorities not
agreeing with our assessment of the effects of such laws, treaties and
regulations;
- 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;
- intense competition in the drilling industry;
- changes in the rate of economic growth in the U.S. or in other major
international economies;
- political and economic conditions in markets where we from time to time
operate;
- adverse weather (such as hurricanes and monsoons) and seas;
- operational risks (such as blowouts, fires and loss of production);
- changes in oil and gas drilling technology or in our competitors'
drilling rig fleets that could make our drilling rigs less competitive
or require major capital investment to keep them competitive;
- costs and effects of unanticipated legal and administrative
proceedings;
19
FORM 10-Q
- cost overruns or delays in shipyard repair, maintenance, conversion or
upgrade projects;
- limitations on our insurance coverage or our inability to obtain or
maintain insurance coverage at rates and with deductible amounts that
we believe are commercially reasonable;
- the discovery of significant additional oil and/or gas reserves or the
construction of significant oil and/or gas delivery or storage systems
that impact regional or worldwide energy markets;
- requirements and potential liability imposed by governmental regulation
of the drilling industry (including environmental regulation);
- acts of war or terrorism;
- significant changes in trade, monetary or fiscal policies worldwide,
including changes in interest rates; and
- currency fluctuations between the U.S. dollar and other currencies.
All of the foregoing risks and uncertainties are beyond our ability to
control, and in many cases, we cannot predict the risks and uncertainties that
could cause our actual results to differ materially from those indicated by the
forward-looking statements. When used in this Form 10-Q, the words "believes",
"anticipates", "expects", "plans" and similar expressions as they relate to the
Company or its management are intended to identify forward-looking statements.
GENERAL
As used herein, unless otherwise required by the context, the term
"Noble" refers to Noble Corporation and the terms "Company", "we", "our", and
words of similar import refer to Noble 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 57 offshore
drilling units located in key markets worldwide. Our fleet of floating deepwater
units consists of 13 semisubmersibles and three dynamically positioned
drillships, seven of which are designed to operate in water depths greater than
5,000 feet. Our premium fleet of 38 independent leg, cantilever jackup rigs
includes 24 units that operate in water depths of 300 feet or greater, four of
which operate in water depths of 360 feet or greater, and 11 units that operate
in water depths up to 250 feet. In addition, our fleet includes three
submersible drilling units. Nine of our drilling units are capable of operating
in harsh environments. In addition to the rigs in our fleet described above, we
have purchased options to acquire two premium jackup rigs: the Maersk Valiant
and Maersk Viking (See "Acquisitions" in this Management's Discussion and
Analysis of Financial Condition and Results of Operations for additional
information on the acquisition of these two purchase options). Approximately 75
percent of our fleet is currently deployed in international markets, principally
including the North Sea, Brazil, West Africa, the Middle East, Mexico and India.
We provide technologically advanced drilling-related products and services
designed to create value for our customers. We also provide labor contract
drilling services, well site and project management services, and engineering
services.
Demand for drilling services depends on the activity levels of our
customers in the oil and gas industry. These activity levels are affected by 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.
Our results of operations depend on the levels of activity in offshore
oil and gas exploration, development and production in markets worldwide.
Historically, oil and gas prices and market expectations of potential changes in
these prices have significantly affected that level of activity. Generally
speaking, higher oil and natural gas prices or our customers' expectations of
higher prices results in a greater demand for our services. These prices are
extremely volatile. Despite higher oil prices in the first nine months of 2003
as compared to the first nine months of 2002, drilling activity in many
international
20
FORM 10-Q
markets, which are influenced more by oil prices than natural gas prices, was
generally weaker in the third quarter of 2003 as compared to the third quarter
of 2002. We believe that operators in international markets have been reluctant
to increase drilling activity since the latter part of 2002, despite higher oil
prices, due to the uncertainty surrounding the worldwide economy and the
political unrest in the Middle East (including the prospect of and subsequent
actual military action in Iraq) and Nigeria, which contributed to the higher oil
prices.
Natural gas prices in the U.S. were also significantly higher during
the first nine months of 2003 as compared to the first nine months of 2002, as
inventory storage has fallen below average historical levels. The decline in
natural gas inventory storage is attributable to reduced North American natural
gas production and increased demand for natural gas this past winter due to
temperatures that were generally colder than the previous winter. However,
natural gas inventory storage levels have recently begun to increase due to
weakening demand, although prices remain at levels above last year. Despite the
higher natural gas prices, operators on average have not increased offshore
drilling activities. We believe this is due principally to a lack of quality
drilling prospects and the uncertainty surrounding the world economy. Drilling
activity in the U.S. Gulf of Mexico has remained flat, which has resulted in
continued depressed utilization rates and dayrates for drilling rigs in that
region.
Oil companies continue to work through the effects of industry
consolidation, which has inhibited capital spending on exploration and
development. We expect that further consolidation among our customer base would
dampen drilling activity levels near-term.
We cannot predict the future level of demand for our drilling services
or future conditions in the offshore contract drilling industry. Declines in the
level of demand for our drilling services have an adverse effect on our results
of operations.
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 deepwater capabilities through acquisitions, rig upgrades and
modifications and to deploy assets in important geological areas.
ACQUISITIONS
In September 2003, we exercised our option to purchase the premium
jackup drilling unit Trident 18 (renamed the Noble Charlie Yester) from a
subsidiary of Schlumberger Limited for an exercise price of $32,900,000 in cash.
In December 2002, we paid an option fee of $14,100,000 in cash for the right to
acquire the unit. This unit is currently in the shipyard in Sharjah preparing
for a three-year contract in India.
In July 2003, we excercised our option to purchase the premium jackup
drilling unit Trident 19 (renamed the Noble Gene House) from this subsidiary of
Schlumberger for an exercise price of $25,200,000 in cash. In December 2002, we
paid an option fee of $10,800,000 in cash for the right to acquire the unit.
This unit is being assimilated into our Middle East operations.
In June 2003, we entered into option agreements with a subsidiary of
A.P. Moeller that give us the right to acquire two premium jackup drilling
units, the Maersk Viking and Maersk Valiant. Both units are currently operating
offshore Iran. Our right to exercise the options and acquire the units will
commence when the units have completed their current drilling contracts and have
mobilized to United Arab Emirates territorial waters. We paid an aggregate of
$28,200,000 in cash for the two options. If we exercise the options, we would
pay an exercise price not to exceed an additional $65,800,000 to acquire both
units. The amount of this aggregate exercise price is subject to reduction
depending on the delivery date of the units.
21
FORM 10-Q
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
GENERAL
Net income for the third quarter of 2003 (the "Current Quarter") was
$52,957,000, or $0.40 per diluted share, on operating revenues of $254,646,000,
compared to net income for the third quarter of 2002 (the "Comparable Quarter")
of $49,153,000, or $0.37 per diluted share, on operating revenues of
$242,070,000.
RIG UTILIZATION, OPERATING DAYS AND AVERAGE DAYRATES
The following table sets forth the average rig utilization, operating
days and average dayrates for our rig fleet for the three months ended September
30, 2003 and 2002:
AVERAGE RIG
UTILIZATION (1) OPERATING DAYS (2) AVERAGE DAYRATE
------------------ ------------------ ----------------------
THREE MONTHS ENDED THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------ ----------------------
2003 2002 2003 2002 2003 2002
---- ---- ----- ----- ---------- ----------
International (3):
Jackups........................ 80% 95% 2,450 2,055 $ 52,209 $ 57,950
Semisubmersibles - Deepwater... 100% 100% 92 92 158,632 156,388
Semisubmersibles - Other....... 100% 100% 92 92 45,067 71,240
Drillships..................... 100% 67% 276 184 81,327 60,086
--- --- ----- ----- ---------- ----------
Total International............ 83% 92% 2,910 2,423 $ 58,110 $ 62,355
=== === ===== ===== ========== ==========
Domestic (4):
Jackups........................ 95% 93% 260 814 $ 29,931 $ 31,078
Semisubmersibles - Deepwater... 95% 82% 438 379 124,607 118,135
Semisubmersibles - Other....... 3% - 3 - 29,333 -
Submersibles................... 100% 71% 184 130 20,239 20,975
--- --- ----- ----- ---------- ----------
Total Domestic................. 88% 87% 885 1,323 $ 74,771 $ 55,024
=== === ===== ===== ========== ==========
- ----------------------
(1) Information reflects our policy of reporting on the basis of the number
of actively marketed rigs in our fleet. Percentages reflect the results of
rigs only during the period in which they are owned or operated by us.
(2) Information reflects the number of days that our rigs were operating under
contractual terms.
(3) "International" encompasses contract drilling services conducted in the
North Sea, Brazil, West Africa, the Middle East, Mexico and India.
(4) "Domestic" encompasses contract drilling services conducted in the U.S.
Gulf of Mexico.
22
FORM 10-Q
INTERNATIONAL OPERATIONS
The following table sets forth the operating revenues and direct
operating expenses for our international operations for the three months ended
September 30, 2003 and 2002:
OPERATING REVENUES DIRECT OPERATING EXPENSES
----------------------------- ------------------------------
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- ------------------------------
2003 2002 2003 2002
------------- -------------- -------------- --------------
(In thousands)
Contract drilling services...................... $ 169,099 $ 151,085 $ 96,077 $ 79,873
Reimbursables................................... 2,726 3,567 2,415 3,111
Labor contract drilling services................ 6,842 5,593 5,350 4,690
Engineering, consulting and other............... 2,369 2,721 2,395 2,813
------------- -------------- -------------- --------------
Total.................................. $ 181,036 $ 162,966 $ 106,237 $ 90,487
============= ============== ============== ==============
OPERATING REVENUES. International contract drilling services revenues
increased $18,014,000 due to additional operating days in Mexico and the Middle
East, and a higher average dayrate in Brazil. These increases were partially
offset by lower utilization rates in West Africa and lower average dayrates in
the North Sea. The additional operating days in Mexico were attributable to the
mobilization of seven rigs to Mexico from the U.S. Gulf of Mexico beginning in
September 2002. The additional operating days in the Middle East were
attributable to the operations of the Noble Roy Rhodes and Dhabi II jackups,
which we purchased in December 2002. Labor contract drilling services revenues
increased $1,249,000 as a result of additional equipment rentals on the Hibernia
project in Canada and a foreign exchange fluctuation due to a stronger Canadian
dollar as compared to the U.S. dollar. International engineering, consulting and
other revenues decreased $352,000 due primarily to reduced activity on an
engineering services engagement in the North Sea.
Reimbursables set forth in the above table and certain other tables in
this "Results of Operations" section are reported in accordance with Emerging
Issues Task Force No. 01-14, Income Statement Characterization of Reimbursements
Received for Out-of-Pocket Expenses Incurred. For additional information, see
"Accounting Pronouncements" hereafter in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
DIRECT OPERATING EXPENSES. International contract drilling services
direct operating expenses increased $16,204,000 due to the additional operating
days in Mexico and the Middle East. International labor contract drilling
services direct operating expenses increased $660,000 due to the foreign
exchange fluctuation related to our Canadian labor contracts. International
engineering, consulting and other direct operating expenses decreased $418,000
due to reduced activity on an engineering services engagement in the North Sea.
DOMESTIC OPERATIONS
The following table sets forth the operating revenues and direct
operating expenses for our domestic operations for the three months ended
September 30, 2003 and 2002:
OPERATING REVENUES DIRECT OPERATING EXPENSES
------------------------------ ----------------------------
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ----------------------------
2003 2002 2003 2002
-------------- -------------- ------------- -------------
(In thousands)
Contract drilling services...................... $ 66,172 $ 72,797 $ 28,613 $ 44,232
Reimbursables................................... 3,747 2,168 3,640 2,040
Engineering, consulting and other............... 3,691 4,139 4,759 4,174
-------------- -------------- ------------- -------------
Total.................................. $ 73,610 $ 79,104 $ 37,012 $ 50,446
============== ============== ============= =============
23
FORM 10-Q
OPERATING REVENUES. Domestic contract drilling services revenues
decreased $6,625,000 due to fewer operating days on our domestic jackup rigs,
partially offset by higher utilization and average dayrates on our domestic
deepwater semisubmersibles. The fewer operating days on our jackup rigs were
attributable to the mobilization of seven rigs from the U.S. Gulf of Mexico to
Mexico beginning in September 2002. Domestic engineering, consulting and other
revenues decreased $448,000 due to reduced revenue from interests in deepwater
exploration properties and fewer projects undertaken by our Maurer Technology
Incorporated ("Maurer") subsidiary. These decreases were partially offset by
revenue earned by the Noble Homer Ferrington semisubmersible while the unit was
not operating, pursuant to its long-term contract.
DIRECT OPERATING EXPENSES. Domestic contract drilling services direct
operating expenses decreased $15,619,000 due to the fewer operating days on our
domestic jackup rigs. Domestic engineering, consulting and other direct
operating expenses increased $585,000 due to additional operating costs related
to the testing and development of our Well Director(R) rotary steerable drilling
tools, partially offset by fewer projects undertaken by Maurer.
OTHER ITEMS
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense increased $6,372,000 due to the acquisition of the Dhabi II and Noble
Roy Rhodes jackups in December 2002, the acquisitions of the Noble Gene House
and Noble Charlie Yester jackups in the Current Quarter, and the activation of
the Noble Lorris Bouzigard semisubmersible in March 2003 following its upgrade.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1,251,000 due to unrealized gains on the
assets in the Rabbi Trust for the Noble Drilling Corporation 401(k) Savings
Restoration Plan, which increased the related liability for the plan, and higher
pension expense due to a lower discount rate and assumed long-term rate of
return on plan assets.
INTEREST EXPENSE. Interest expense decreased $266,000 due to lower
average balances of higher interest rate debt in the Current Quarter.
OTHER, NET. Other, net increased $1,741,000 due to unrealized gains on
the assets in the Rabbi Trust for the Noble Drilling Corporation 401(k) Savings
Restoration Plan and increased equity in income from our Noble Crosco Drilling
Ltd. joint venture, which owns the Panon jackup drilling rig.
INCOME TAX PROVISION. Income tax provision increased $840,000 due to a
higher effective tax rate and higher pretax earnings. The effective tax rate was
11 percent in the Current Quarter compared to 10 percent in the Comparable
Quarter.
24
FORM 10-Q
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
GENERAL
Net income for the nine months ended September 30, 2003 (the "Current
Period") was $136,116,000, or $1.02 per diluted share, on operating revenues of
$747,574,000, compared to net income for the nine months ended September 30,
2002 (the "Comparable Period") of $158,021,000, or $1.18 per diluted share, on
operating revenues of $737,449,000.
RIG UTILIZATION, OPERATING DAYS AND AVERAGE DAYRATES
The following table sets forth the average rig utilization, operating
days and average dayrates for our rig fleet for the nine months ended September
30, 2003 and 2002:
AVERAGE RIG
UTILIZATION (1) OPERATING DAYS (2) AVERAGE DAYRATE
------------------ ------------------ ----------------------------
NINE MONTHS ENDED NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------ ----------------------------
2003 2002 2003 2002 2003 2002
---- ---- ----- ----- -------------- ------------
International (3):
Jackups........................ 84% 96% 7,243 6,101 52,020 59,318
Semisubmersibles - Deepwater... 100% 100% 273 273 146,226 122,705
Semisubmersibles - Other....... 93% 73% 255 199 43,116 70,543
Drillships..................... 100% 85% 819 694 75,505 70,012
--- --- ----- ----- -------------- ------------
Total International............ 86% 95% 8,590 7,267 $ 56,989 $ 63,028
=== === ===== ===== ============== ============
Domestic (4):
Jackups........................ 89% 87% 964 2,332 28,650 28,520
Semisubmersibles - Deepwater... 84% 88% 1,145 1,207 124,965 123,236
Semisubmersibles - Other....... 42% - 89 - 46,506 -
Submersibles................... 74% 53% 402 315 19,527 20,090
--- --- ----- ----- -------------- ------------
Total Domestic................. 81% 83% 2,600 3,854 $ 70,267 $ 57,495
=== === ===== ===== ============== ============
- ----------------------
(1) Information reflects our policy of reporting on the basis of the number
of actively marketed rigs in our fleet. Percentages reflect the results of
rigs only during the period in which they are owned or operated by us.
(2) Information reflects the number of days that our rigs were operating under
contractual terms.
(3) "International" encompasses contract drilling services conducted in the
North Sea, Brazil, West Africa, the Middle East, Mexico and India.
(4) "Domestic" encompasses contract drilling services conducted in the U.S.
Gulf of Mexico.
INTERNATIONAL OPERATIONS
The following table sets forth the operating revenues and direct
operating expenses for our international operations for the nine months ended
September 30, 2003 and 2002:
OPERATING REVENUES DIRECT OPERATING EXPENSES
----------------------------- ------------------------------
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- ------------------------------
2003 2002 2003 2002
------------- -------------- -------------- --------------
(In thousands)
Contract drilling services...................... $ 489,532 $ 458,025 $ 279,320 $ 232,229
Reimbursables................................... 12,733 11,990 11,628 10,607
Labor contract drilling services................ 20,757 20,252 16,951 16,104
Engineering, consulting and other............... 7,397 7,930 6,895 6,600
------------- -------------- -------------- --------------
Total.................................. $ 530,419 $ 498,197 $ 314,794 $ 265,540
============= ============== ============== ==============
25
FORM 10-Q
OPERATING REVENUES. International contract drilling services revenues
increased $31,507,000 due to additional operating days in Mexico and the Middle
East, partially offset by lower utilization rates in West Africa and lower
average dayrates in the North Sea and West Africa. The additional operating days
in Mexico were attributable to the mobilization of seven rigs to Mexico from the
U.S. Gulf of Mexico since September 2002. The additional operating days in the
Middle East were attributable to the operations of the Noble Roy Rhodes and
Dhabi II jackups, which we purchased in December 2002. Labor contract drilling
services revenues increased $505,000 as a result of additional equipment rentals
on the Hibernia project in Canada and a foreign exchange fluctuation due to a
stronger Canadian dollar as compared to the U.S. dollar. These increases were
partially offset by lower utilization on two of our North Sea labor contracts.
International engineering, consulting and other revenues decreased $533,000 due
to reduced activity on an engineering services engagement in the North Sea,
partially offset by additional project management engagements performed by our
Triton Engineering ("Triton") subsidiary.
DIRECT OPERATING EXPENSES. International contract drilling services
direct operating expenses increased $47,091,000 due to the additional operating
days in Mexico and the Middle East. International labor contract drilling
services direct operating expenses increased $847,000 due to the foreign
exchange fluctuation related to our Canadian labor contracts, partially offset
by lower utilization on two of our North Sea labor contracts. International
engineering, consulting and other direct operating expenses increased $295,000
due to additional project management engagements performed by Triton, partially
offset by reduced activity on an engineering services engagement in the North
Sea.
DOMESTIC OPERATIONS
The following table sets forth the operating revenues and direct
operating expenses for our domestic operations for the nine months ended
September 30, 2003 and 2002:
OPERATING REVENUES DIRECT OPERATING EXPENSES
------------------------------ ----------------------------
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ----------------------------
2003 2002 2003 2002
-------------- -------------- ------------- -------------
(In thousands)
Contract drilling services...................... $ 182,693 $ 221,584 $ 92,308 $ 127,169
Reimbursables................................... 19,962 8,304 19,197 7,059
Engineering, consulting and other............... 14,500 9,364 13,158 10,750
-------------- -------------- ------------- -------------
Total.................................. $ 217,155 $ 239,252 $ 124,663 $ 144,978
============== ============== ============= =============
OPERATING REVENUES. Domestic contract drilling services revenues
decreased $38,891,000 due to fewer operating days on our domestic jackup rigs
following the mobilization of seven rigs from the U.S. Gulf of Mexico to Mexico
beginning in September 2002. Domestic engineering, consulting and other revenues
increased $5,136,000 due to additional revenue from interests in deepwater
exploration properties, which began producing during the Comparable Period, and
revenue earned by the Noble Homer Ferrington semisubmersible while the unit was
not operating, pursuant to its long-term contract. These increases were
partially offset by fewer projects undertaken by Maurer.
DIRECT OPERATING EXPENSES. Domestic contract drilling services direct
operating expenses decreased $34,861,000 due to the fewer operating days on our
domestic jackup rigs. Domestic engineering, consulting and other direct
operating expenses increased $2,408,000 due to additional expenses related to
interests in deepwater exploration properties and additional operating costs
related to the testing and development of our Well Director(R) rotary steerable
drilling tools. These increases were partially offset by fewer projects
undertaken by Maurer.
OTHER ITEMS
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense increased $14,735,000 due to the acquisition of the Dhabi II and Noble
Roy Rhodes jackups in December 2002, the acquisition of the Noble Gene House and
Noble Charlie Yester in the Current Period, and the activation of the Noble
Lorris Bouzigard semisubmersible in March 2003 following its upgrade.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $695,000 due to professional fees and filing
fees incurred during the first half of 2002 related to our corporate
restructuring. This
26
FORM 10-Q
decrease was partially offset by unrealized gains on the assets in the Rabbi
Trust for the Noble Drilling Corporation 401(k) Savings Restoration Plan, which
increased the related liability for the plan, and higher pension expense due to
a lower discount rate and assumed long-term rate of return on plan assets.
INTEREST EXPENSE. Interest expense decreased $714,000 due to lower
average balances of higher interest rate debt in the Current Period.
OTHER, NET. Other, net decreased $1,044,000 due to lower interest
income, which was attributable to a lower average yield earned on our cash
balances and investments in marketable securities. The Comparable Period
included a realized loss of $9,758,000 on an investment in marketable equity
securities resulting from a decline in value considered by management to be
permanent. This loss was partially offset by a gain during the Comparable Period
of $5,908,000 on the sale of our five percent working interest in one of Mariner
Energy, Inc.'s deepwater exploration properties to Pioneer Natural Resources
USA, Inc. for $6,200,000 in cash and the assumption of liabilities related to
our share of drilling and development costs on this property.
INCOME TAX PROVISION. Income tax provision decreased $11,279,000 due to
a lower effective tax rate and lower pretax earnings. The effective tax rate was
11 percent in the Current Period compared to 15 percent in the Comparable
Period. The lower effective tax rate in the Current Period was a result of our
corporate restructuring in April 2002 and a higher percentage of our pretax
earnings being derived from our international operations, which generally have
lower effective tax rates than our domestic operations.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
Our principal capital resource in the Current Period was net cash
provided by operating activities of $226,124,000. At September 30, 2003, we had
cash and cash equivalents of $124,236,000, $65,231,000 of marketable debt
securities and $52,803,000 of funds available for future borrowing under our
bank credit facility. We had working capital, including cash, of $179,468,000
and $184,983,000 at September 30, 2003 and December 31, 2002, respectively.
Total debt as a percentage of total debt plus shareholders' equity decreased to
23 percent at September 30, 2003 from 25 percent at December 31, 2002.
CAPITAL EXPENDITURES
Capital expenditures for the Current Quarter totaled $85,211,000,
including the exercise price of options to purchase the Noble Gene House
(formerly Trident 19) and Noble Charlie Yester (formerly Trident 18) premium
jackup rigs for exercise prices of $25,200,000 and $32,900,000, respectively.
Capital expenditures for the Current Period totaled $236,186,000, including
capital upgrades to certain semisubmersibles of $103,680,000 and the recently
acquired premium jackup rigs of $1,031,000, the exercise price of options to
purchase the two premium jackup rigs for an aggregate exercise price of
$58,100,000, and the acquisition of options for $28,200,000 to purchase two
additional premium jackup rigs from a subsidiary of A.P. Moeller. Specifically,
capital upgrade costs during the Current Period for the Noble Therald Martin,
Noble Clyde Boudreaux and Noble Lorris Bouzigard were $58,404,000, $30,443,000
and $14,833,000, respectively. As previously disclosed, the majority of the
steel work has been carried out on the Noble Clyde Boudreaux's hull. A lay-up
plan for suspension of the project is being implemented, with further structural
work and installation of drilling equipment to be carried out pending a
commitment from an operator. The upgrade to the Noble Lorris Bouzigard was
completed during the first quarter of 2003. Deferred repair and maintenance
expenditures totaled $6,713,000 and $21,144,000 for the Current Quarter and
Current Period, respectively. We expect our capital expenditures and deferred
repair and maintenance expenditures for the remainder of 2003 will aggregate
approximately $60,000,000 and $10,000,000, respectively, including $20,000,000
for acquisitions and related capital upgrades. For additional information on
acquisitions, see "Acquisitions" in this Management's Discussion and Analysis of
Financial Condition and Results of Operations.
In connection with several projects, we have entered into agreements
with various vendors to purchase or construct property and equipment that
generally have long lead times for delivery. If we do not proceed with any
particular project, we may either seek to cancel outstanding purchase
commitments related to that project or complete the purchase of the property and
equipment. Any equipment purchased for a project on which we do not proceed
would be used, where applicable, as capital spares for other units in our fleet.
If we cancel any of the purchase commitments, the amounts ultimately paid by us,
if any, would be subject to negotiation. As of September 30, 2003, we had
approximately $31,000,000 of outstanding purchase commitments related to these
projects, which are included in the projected 2003 capital expenditure and
deferred repair and maintenance amounts above.
27
FORM 10-Q
Certain projects currently under consideration could require, if they
materialize, capital expenditures or other cash requirements not included in the
above estimates. In addition, we will continue to evaluate acquisitions of
drilling units from time to time. Other factors that could cause actual capital
expenditures to materially exceed the planned capital expenditures include
delays and cost overruns in shipyards, shortages of equipment, latent damage or
deterioration to hull, equipment and machinery in excess of engineering
estimates and assumptions, and changes in design criteria or specifications
during repair or construction.
CREDIT FACILITIES AND LONG-TERM DEBT
Noble Drilling Corporation ("Noble Drilling"), an indirect,
wholly-owned subsidiary of Noble, has in place a $200,000,000 bank credit
agreement (the "Credit Agreement"), which extends through May 30, 2006. Noble
and one of its wholly-owned subsidiaries, Noble Holding (U.S.) Corporation,
unconditionally guarantee the performance of Noble Drilling under the Credit
Agreement. As of September 30, 2003, we had outstanding borrowings and
outstanding letters of credit of $125,000,000 and $22,197,000, respectively,
under the Credit Agreement, with $52,803,000 remaining available thereunder.
Additionally, as of September 30, 2003, we had other letters of credit and
third-party corporate guarantees totaling $37,766,000, of which $3,300,000 is
supported by a restricted cash deposit. We also had $40,402,000 of performance
and customs bonds supported by surety bonds.
Noble Asset Company Limited ("NACL"), a wholly-owned, indirect
subsidiary of Noble, has been named one of 21 parties served a Show Cause Notice
issued by the Commissioner of Customs (Prev.), Mumbai, India. The Show Cause
Notice concerns alleged violations of Indian Customs laws and regulations
regarding one of our jackup drilling rigs. The Commissioner alleges certain
violations to have occurred before, at the time of, and after NACL acquired the
rig from the rig's previous owner. We maintain that NACL has acted in accordance
with all Indian Customs laws and regulations and believe the Show Cause Notice
is without merit as against NACL. In the purchase agreement for the rig, NACL
received contractual indemnification against liability for Indian customs duty
from the rig's previous owner. In connection with the export of the rig from
India in 2001, NACL posted a bank guarantee in the amount of $3.3 million and a
customs bond, both of which remain in place. We do not believe the Company will
incur a material liability with regards to this issue.
At September 30, 2003, total long-term debt was $622,732,000, including
current maturities of $66,659,000, compared to total long-term debt of
$670,139,000, including current maturities of $80,577,000, at December 31, 2002.
We believe that our cash and cash equivalents, net cash provided by
operating activities, available borrowings under lines of credit, and access to
other financing sources will be adequate to meet our anticipated short-term and
long-term liquidity requirements, including capital expenditures and scheduled
debt repayments.
ACCOUNTING PRONOUNCEMENTS
In November 2002, the Financial Accounting Standards Board ("FASB")
issued Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others ("FIN
45"). FIN 45 expands existing accounting guidance and disclosures to be made by
a guarantor in its interim and annual financial statements about its obligations
under certain guarantees that it has issued. FIN 45 also clarifies that a
guarantor is required to recognize, at the inception of a guarantee, a liability
for the fair value of the obligation undertaken in issuing the guarantee. The
disclosure requirements of FIN 45 are effective for financial statements ending
after December 15, 2002. The remaining provisions of FIN 45 are effective for
guarantees issued or modified after December 31, 2002. Our adoption of these
remaining provisions of FIN 45 on January 1, 2003 did not have a material impact
on our consolidated results of operations, cash flows or financial position.
During 2002, we adopted Emerging Issues Task Force No. 01-14, Income
Statement Characterization of Reimbursements Received for Out-of-Pocket Expenses
Incurred ("EITF 01-14"). EITF 01-14 requires that "out-of-pocket" expenses
incurred be included in direct costs and the reimbursements received from
customers related to such expenses be included in operating revenues. Prior to
EITF 01-14, we recorded reimbursements received from customers for
"out-of-pocket" expenses as a reduction to the related direct cost to the extent
of the amount of the expense. Any amount received in addition to the related
expense was included in operating revenues. Pursuant to EITF 01-14, we have
reclassified the reimbursements from customers that were recorded as a reduction
to direct costs to operating revenues for all periods presented. The impact of
adopting EITF 01-14 on operating revenues and direct costs was an increase of
$5,151,000 for the Comparable Quarter and $17,666,000 for the Comparable Period.
This adoption had no impact on operating income or net income.
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FORM 10-Q
In January 2003, the FASB issued Interpretation No. 46, Consolidation
of Variable Interest Entities, an Interpretation of ARB No. 51 ("FIN 46"). FIN
46 clarifies the application of Accounting Research Bulletin No. 51,
Consolidated Financial Statements, to certain entities in which equity investors
do not have the characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 requires a
company to consolidate a variable interest entity, as defined, when the company
will absorb a majority of the variable interest entity's expected losses or
receive a majority of the variable interest entity's expected residual returns.
FIN 46 also requires certain disclosures relating to consolidated variable
interest entities and unconsolidated variable interest entities in which a
company has a significant variable interest. The disclosure provisions of FIN 46
are effective for financial statements issued after January 31, 2003. The
consolidation provisions of FIN 46 apply immediately to variable interest
entities created after January 31, 2003 and to variable interest entities in
which a company obtains an interest after January 31, 2003. With respect to
variable interest entities in which a company holds a variable interest that it
acquired before February 1, 2003, the consolidation provisions are required to
be applied no later than the first fiscal or interim period beginning after
December 15, 2003. We do not expect the adoption of FIN 46 to have a material
impact on our consolidated results of operations, cash flows or financial
position.
In May 2003, the FASB issued Statement of Financial Accounting
Standards No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity ("SFAS 150"). SFAS 150
establishes standards for the classification and measurement of financial
instruments with characteristics of both liabilities and equity. SFAS 150
affects the classification of certain freestanding instruments, including
mandatory redeemable instruments, financial instruments to repurchase an
entity's own equity instruments, and financial instruments that embody
unconditional obligations that the issuer must or could choose to settle by
issuing a variable number of its shares or other equity instruments based solely
on a fixed monetary amount known at inception or an event trigger other than
changes in its own equity instruments. SFAS 150 is generally effective for all
such financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period beginning
after June 15, 2003. In October 2003, the FASB decided to defer the provisions
of paragraphs 9 and 10 of SFAS 150 as they apply to mandatorily redeemable
noncontrolling interests. Those provisions require that mandatorily redeemable
minority interests within the scope of SFAS 150 be classified as a liability on
a parent company's financial statements in certain situations, including when a
finite-lived entity is consolidated. Our adoption of all currently required
provisions of SFAS 150 in the Current Quarter did not have a material impact on
our consolidated results of operations, cash flows or financial position.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the potential for loss due to a change in the value of a
financial instrument as a result of fluctuations in interest rates, currency
exchange rates or equity prices. We own investments in both marketable equity
and debt securities. To mitigate the risk of losses, these investments are
monitored by management to assure compliance with policies established by the
Company. A portion of the marketable equity securities we own, consisting
primarily of interests in mutual funds, are held by a Rabbi Trust established
and maintained by us in connection with the Noble Drilling Corporation 401(k)
Savings Restoration Plan. Any decrease in the fair value of these investments
would result in a comparable decrease in the deferred compensation plan
obligation and would not materially affect our consolidated results of
operations, cash flows or financial position.
We are subject to market risk exposure related to changes in interest
rates on our Credit Agreement. Interest on our Credit Agreement is at an agreed
upon percentage point spread from LIBOR. At September 30, 2003, there were
$125,000,000 of outstanding borrowings under our Credit Agreement. An immediate
change of one percent in the interest rate would cause a $1,250,000 change in
interest expense on an annual basis.
We conduct business internationally; however, a substantial majority of
the value of our foreign transactions is denominated in U.S. Dollars. With minor
exceptions, we structure our drilling contracts in U.S. Dollars to mitigate our
exposure to fluctuations in foreign currencies. Other than trade accounts
receivable and trade accounts payable, which mostly offset each other, we do not
currently have any other significant assets, liabilities or financial
instruments that are sensitive to foreign currency exchange rates.
ITEM 4. CONTROLS AND PROCEDURES
Noble's Chairman and Chief Executive Officer, James C. Day, and Noble's
Senior Vice President - Finance and Chief Financial Officer, Mark A. Jackson,
have overseen and participated in an evaluation of the Company's disclosure
controls and procedures as of the end of the period covered by this report. On
the basis of this evaluation, Mr. Day and Mr.
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FORM 10-Q
Jackson have concluded that the Company's disclosure controls and procedures are
functioning effectively. The Company's disclosure controls and procedures are
designed to ensure that information required to be disclosed by the Company in
the reports that it files with or submits to the Securities and Exchange
Commission is recorded, processed, summarized and reported within the time
periods specified in the Commission's rules and forms.
In connection with the evaluation described in the preceding paragraph,
no change was identified in the Company's internal control over financial
reporting that occurred during the quarter ended September 30, 2003 that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
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FORM 10-Q
PART II. OTHER INFORMATION
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) Reports on Form 8-K
We furnished a Form 8-K on August 20, 2003, which included our
Fleet Status Update as of August 20, 2003 as Exhibit 99.1.
We furnished a Form 8-K on July 24, 2003, which included our
press release dated July 24, 2003 as Exhibit 99.1, announcing
financial results for the quarter ended June 30, 2003.
We furnished a Form 8-K on July 9, 2003, which included our
Fleet Status Update as of July 9, 2003 as Exhibit 99.1.
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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 CORPORATION
DATE: November 12, 2003 By: /s/ MARK A. JACKSON
--------------------------------------------
Mark A. Jackson,
Senior Vice President - Finance,
Chief Financial Officer, Treasurer,
Controller and Assistant Secretary
(Principal Financial and Accounting Officer)
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FORM 10-Q
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
- ------ -------
31.1 Certification of James C. Day Pursuant to SEC Rule 13a-14(a) or
Rule 15d-14(a).
31.2 Certification of Mark A. Jackson Pursuant to SEC Rule 13a-14(a) or
Rule 15d-14(a).
32.1* Certification of James C. Day Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.2* Certification of Mark A. Jackson Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
* Furnished in accordance with Item 601(b) (32) (ii) of Regulation S-K.
33