Note 9- Equity

Share Capital

As of December 31, 2014, Noble-UK had approximately 247.5 million shares outstanding and trading as compared to approximately 253.4 million shares outstanding and trading at December 31, 2013. Repurchased shares are recorded at cost, and include shares repurchased pursuant to our approved share repurchase program discussed below. Our Board of Directors may increase our share capital through the issuance of up to 53 million authorized shares (at current nominal value of $0.01 per share) without obtaining shareholder approval.

Our most recent quarterly dividend payment to shareholders, totaling approximately $93 million (or $0.375 per share), was declared on January 30, 2015 and paid on February 20, 2015 to holders of record on February 10, 2015.

The declaration and payment of dividends require authorization of the Board of Directors of Noble-UK, provided that such dividends on issued share capital may be paid only out of Noble-UK’s “distributable reserves” on its statutory balance sheet. Noble-UK is not permitted to pay dividends out of share capital, which includes share premiums. The amount of any such dividends will depend on our results of operations, financial condition, cash requirements, future business prospects, contractual restrictions and other factors deemed relevant by our Board of Directors.

Share Repurchases

Under UK law, the company is only permitted to purchase its own shares by way of an “off market purchase” in a plan approved by shareholders. Prior to our redomiciliation to the UK, a resolution was adopted by Noble-UK’s sole shareholder authorizing the repurchase of 6,769,891 shares during the five-year period commencing on the date of the redomiciliation. This number of shares corresponds to the number of shares that Noble-Swiss had authority to repurchase at the time of the redomiciliation. During 2014, we repurchased all shares covered by this authorization.

Share repurchases for each of the three years ended December 31 are as follows:


	Total Number				Average
Year Ended	of Shares				Price Paid
December 31,	Purchased		Total Cost⁽¹⁾		per Share⁽¹⁾
2014		6,769,891	$	154,145	$	22.77
2013		190,187		7,653		40.24
2012		302,150		10,516		34.80

(1)	The total cost and average price paid per share includes the impact of commissions and stamp tax for share repurchases made in the open market.

In December 2014, we received shareholder approval to repurchase up to 37,000,000 additional ordinary shares, or approximately 15 percent of our outstanding ordinary shares at the time of the shareholder approval. Any repurchases are expected to be funded using cash on hand, cash from operations or short-term borrowings under our credit facilities. The authority to make such repurchases will expire on the later of April 2016 or the end of the Company’s 2016 annual general meeting of shareholders, at which time we could seek shareholder approval for further repurchases.

Share-Based Compensation Plans

Stock Plans

The Noble Corporation 1991 Stock Option and Restricted Stock Plan, as amended (the “1991 Plan”), provides for the granting of options to purchase our shares, with or without stock appreciation rights, and the awarding of restricted shares or units to selected employees. In connection with the Spin-off, the total number of shares subject to issue under existing awards under the 1991 Plan was increased from 50.1 million to 60.3 million. As of December 31, 2014, we had 6.5 million shares remaining available for grants to employees under the 1991 Plan.

Prior to October 25, 2007, the Noble Corporation 1992 Nonqualified Stock Option and Share Plan for Non-Employee Directors (the “1992 Plan”) provided for the granting of nonqualified stock options to our non-employee directors. On October 25, 2007, the 1992 Plan was amended and restated to, among other things, eliminate grants of stock options to non-employee directors and modify the annual award of restricted shares from a fixed number of restricted shares to an annually-determined variable number of restricted or unrestricted shares. In connection with the Spin-off, the total number of shares subject to issue under existing awards under the 1992 Plan was increased from 2.0 million to 2.3 million. As of December 31, 2014, we had 0.6 million shares remaining available for award to non-employee directors under the 1992 Plan.

Stock Options

Pursuant to the EMA (see Note 2), we modified the outstanding stock options for our employees in connection with the Spin-off. As the awards contained an antidilution provision, we made certain adjustments to the exercise price and number of our stock options to preserve the economic value of the grants immediately prior to the Spin-off. Each outstanding stock option of Noble, whether or not exercisable, that was held by a current or former Noble employee was adjusted such that the holder received an additional number of stock options of Noble based on a price ratio. The exercise price was adjusted by a factor equal to exercise price of the option prior to the Spin-off divided by the price ratio. The price ratio was calculated by dividing the average closing price of our stock during the 10 trading-day period prior to the Spin-off by the average closing price of our stock during the 10 trading-day period subsequent to the Spin-off. Each outstanding stock option of Noble, whether or not exercisable, that was held by an employee transferring to Paragon Offshore was vested at the Spin-off date and the exercise price and number of awards were adjusted in the same manner as explained above for Noble employees. At the Spin-off, we recognized the remaining expense for the accelerated vesting of stock options held by Paragon Offshore employees.

As a result of the Spin-off, an additional 339,223 stock options were issued to preserve the economic value of the grants immediately prior to the Spin-off, as discussed above. As no incremental fair value was awarded as a result of the issuance of these additional awards, the modification did not result in additional compensation expense.

Options have a term of 10 years, an exercise price equal to the fair market value of a share on the date of grant and generally vest over a three-year period. A summary of the status of stock options granted under both the 1991 Plan and 1992 Plan as of December 31, 2014, 2013 and 2012 and the changes during the year ended on those dates is presented below:


	2014					2013					2012
	Number of			Weighted		Number of			Weighted		Number of			Weighted
	Shares			Average		Shares			Average		Shares			Average
	Underlying			Exercise		Underlying			Exercise		Underlying			Exercise
	Options			Price		Options			Price		Options			Price
Outstanding at beginning of year		1,808,987		$	33.13		2,027,089		$	32.44		2,498,662		$	29.22
Granted		—			—		—			—		358,772			36.04
Exercised ⁽¹⁾		(131,706	)		20.08		(212,017	)		26.66		(645,731	)		20.97
Forfeited		(57,871	)		30.18		(6,085	)		31.35		(184,614	)		35.92
Spin-off adjustment		339,223			N/A		—			—		—			—

Outstanding at end of year ⁽²⁾		1,958,633			28.43		1,808,987			33.13		2,027,089			32.44

Exercisable at end of year ⁽²⁾		1,846,465		$	28.35		1,510,929		$	32.47		1,453,945		$	30.70

(1)	The intrinsic value of options exercised during the year ended December 31, 2014 was $3 million.

(2)	The aggregate intrinsic value of options outstanding and exercisable at December 31, 2014 was $0.

The following table summarizes additional information about stock options outstanding at December 31, 2014:


	Options Outstanding						Options Exercisable
	Number of		Weighted		Weighted				Weighted
	Shares		Average		Average				Average
	Underlying		Remaining		Exercise		Number		Exercise
	Options		Life (Years)		Price		Exercisable		Price
$20.49 to $21.99		513,103		2.25	$	21.24		513,103	$	21.24
$22.00 to $29.74		312,531		2.71		27.13		294,553		27.24
$29.75 to $35.73		1,132,999		5.37		32.04		1,038,809		32.17

Total		1,958,633		4.13	$	28.43		1,846,465	$	28.35

No stock options were granted during the years ended December 31, 2014 and 2013, respectively. Fair value information and related valuation assumptions for stock options granted during the year ended December 31, 2012 is as follows:


	2012
Weighted average fair value per option granted	$	13.41
Valuation assumptions:
Expected option term (years)		6
Expected volatility		43.0	%
Historical dividend yield		1.4	%
Risk-free interest rate		1.1	%

The fair value of each option is estimated on the date of grant using a Black-Scholes pricing model. Assumptions used in the valuation are shown in the table above. The expected term of options granted represents the period of time that the options are expected to be outstanding and is derived from historical exercise behavior, current trends and values derived from lattice-based models. Expected volatilities are based on implied volatilities of traded options on our shares, historical volatility of our shares, and other factors. The expected dividend yield is based on historical yields on the date of grant. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant.

A summary of the status of our non-vested stock options at December 31, 2014, and changes during the year ended December 31, 2014, is presented below:


	Shares			Weighted-Average
	Under Outstanding			Grant-Date
	Options			Fair Value
Non-Vested Options at January 1, 2014		298,058		$	13.13
Vested		(204,877	)		13.16
Spin-off adjustment		18,987			N/A

Non-Vested Options at December 31, 2014		112,168		$	13.05

At December 31, 2014, there was $0.1 million of total unrecognized compensation cost remaining for option grants awarded under the 1991 Plan. We attribute the service period to the vesting period and the unrecognized compensation is expected to be recognized over a weighted-average period of 0.08 years. Compensation cost recognized during the years ended December 31, 2014, 2013 and 2012 related to stock options totaled $2 million, $3 million and $4 million, respectively. We issue new shares to meet the share requirements upon exercise of stock options.

Restricted Stock Units (“RSU’s)

Pursuant to the EMA (see Note 2), we modified the outstanding RSU awards, both time-vested restricted stock units (“TVRSUs”) and market-based performance-vested restricted stock units (“PVRSUs”), for our employees in connection with the Spin-off. As the awards contained an antidilution provision, we made certain adjustments to the number of our share-based compensation awards to preserve the economic value of the grants immediately prior to the Spin-off. Each outstanding and unvested RSU of Noble that was held by a current or former Noble employee was adjusted such that the holder received an additional number of RSUs of Noble based on a price ratio, which was calculated as noted above in “Stock Options”. Each outstanding and unvested TVRSU of Noble that was held by an employee transferring to Paragon Offshore was cancelled and an equivalent award was granted by Paragon Offshore. Each outstanding and unvested PVRSU of Noble that was held by an employee transferring to Paragon Offshore was continued pro-rata at the time of Spin-off, subject to the achievement of the performance condition at the end of the performance period. The remaining unvested PVRSUs were cancelled and an equivalent award was granted by Paragon Offshore, except for the 2012 PVRSU grants. For the 2012 PVRSU grants, a bonus will be paid by Paragon Offshore for the cancelled portion of the award should the performance factor be achieved.

As a result of the Spin-off, an additional 326,853 TVRSUs and 329,937 PVRSUs were issued to preserve the economic value of the grants immediately prior to the Spin-off, as discussed above. As no incremental fair value was awarded as a result of the issuance of these additional awards, the modification did not result in additional compensation expense.

We have awarded both TVRSU’s and PVRSU’s under the 1991 Plan. The TVRSU’s generally vest over a three year period. The number of PVRSU’s which vest will depend on the degree of achievement of specified corporate performance criteria over a three-year performance period. These criteria are strictly market based criteria as defined by FASB standards.

The TVRSU is valued on the date of award at our underlying share price. The total compensation for units that ultimately vest is recognized over the service period. The shares and related nominal value are recorded when the restricted stock unit vests and additional paid-in capital is adjusted as the share-based compensation cost is recognized for financial reporting purposes.

The market-based PVRSU is valued on the date of grant based on the estimated fair value. Estimated fair value is determined based on numerous assumptions, including an estimate of the likelihood that our stock price performance will achieve the targeted thresholds and the expected forfeiture rate. The fair value is calculated using a Monte Carlo Simulation Model. The assumptions used to value the PVRSU’s include historical volatility, risk-free interest rates, and expected dividends over a time period commensurate with the remaining term prior to vesting, as follows:


	2014			2013			2012
Valuation assumptions:
Expected volatility		33.0	%		34.8	%		41.4	%
Expected dividend yield		4.7	%		1.3	%		1.5	%
Risk-free interest rate		0.7	%		0.4	%		0.3	%

Additionally, similar assumptions were made for each of the companies included in the defined index and the peer group of companies in order to simulate the future outcome using the Monte Carlo Simulation Model.

A summary of the RSU awards for each of the years in the period ended December 31 is as follows:


	2014		2013		2012
TVRSU
Units awarded (maximum available)		1,617,534		1,033,009		932,274
Weighted-average share price at award date	$	31.56	$	41.32	$	36.53
Weighted-average vesting period (years)		3.0		3.0		3.0
PVRSU
Units awarded (maximum available)		740,364		565,650		481,206
Weighted-average share price at award date	$	31.66	$	41.42	$	36.90
Three-year performance period ended December 31		2016		2015		2014
Weighted-average award-date fair value	$	19.66	$	24.97	$	20.05

In October 2014, our Board of Directors approved a modification of certain PVRSU awards. The modification related to the composition of our peer groups for a portion of the 2013 and 2014 grants currently in place. The value of the modification was determined by taking the fair value of the modified award as compared to the fair value of the previous award immediately prior to modification, using a Monte Carlo Simulation Model to value both grants. In connection with this modification, we expect to incur approximately $0.5 million of related compensation cost over the life of the grant.

We award shares under the 1992 Plan. During the years ended December 31, 2014, 2013 and 2012, we awarded 50,796, 57,095 and 65,329 shares to non-employee directors, resulting in related compensation cost of $2 million in each of the three years.

A summary of the status of non-vested RSU’s at December 31, 2014 and changes during the year ended December 31, 2014 is presented below:


				Weighted					Weighted
				Average					Average
	TVRSU’s			Award-Date		PVRSU’s			Award-Date
	Outstanding			Fair Value		Outstanding⁽¹⁾			Fair Value
Non-vested RSU’s at January 1, 2014		1,652,360		$	39.40		1,397,137		$	21.06
Awarded		1,617,534			31.56		740,364			19.66
Vested		(749,935	)		38.76		(180,975	)		16.77
Forfeited		(149,006	)		35.50		(253,882	)		17.66
Surrendered in connection with Spin-off		(816,627	)		34.22		(89,612	)		20.95
Spin-off adjustment		326,853			N/A		329,937			N/A

Non-vested RSU’s at December 31, 2014		1,881,179		$	34.66		1,942,969		$	21.44

(1)	The number of PVRSU’s shown equals the units that would vest if the “maximum” level of performance is achieved. The minimum number of units is zero and the “target” level of performance is 50 percent of the amounts shown.

At December 31, 2014 there was $31 million of total unrecognized compensation cost related to the TVRSU’s which is expected to be recognized over a remaining weighted-average period of 1.6 years. The total award-date fair value of TVRSU’s vested during the year ended December 31, 2014 was $29 million.

At December 31, 2014, there was $13 million of total unrecognized compensation cost related to the PVRSU’s which is expected to be recognized over a remaining weighted-average period of 1.6 years. The total potential compensation for PVRSU’s is recognized over the service period regardless of whether the performance thresholds are ultimately achieved. During the year ended December 31, 2014, 218,195 PVRSU’s for the 2011-2013 performance period were forfeited. In January 2015, 517,223 PVRSU’s for the 2012-2014 performance period were forfeited.

Share-based amortization recognized during the years ended December 31, 2014, 2013 and 2012 related to all restricted stock totaled $46 million ($37 million net of income tax), $44 million ($36 million net of income tax) and $36 million ($31 million net of income tax), respectively. Included in share-based amortization for the years ended December 31, 2014, 2013 and 2012 was approximately $7 million, $10 million and $8 million, respectively, related to Paragon Offshore that was classified as discontinued operations. Capitalized share-based amortization totaled approximately $1 million per year in 2014, 2013 and 2012, respectively.