Note 15- Employee Benefit Plans

Defined Benefit Plans

Prior to the Spin-off, each of Noble Drilling (Land Support) Limited (“NDLS”), Noble Enterprises Limited (“NEL”) and Noble Drilling (Nederland) B.V. (“NDNBV”), all indirect, wholly-owned subsidiaries of Noble-UK, maintained a pension plan that covered all of its salaried, non-union employees. Benefits were based on credited service and employees’ compensation near retirement, as defined by the respective plan.

As a result of the Spin-off, employees of Paragon Offshore no longer participate in benefit plans sponsored or maintained by Noble. At the time of the Spin-off, NEL and NDNBV transferred all assets and obligations to Paragon Offshore. The benefits of retained Noble employees who participated in the NEL plan prior to the Spin-off were frozen in the NEL plan and their future benefits were replicated into a new plan maintained by an indirect, wholly-owned subsidiary of Noble-UK, Noble Resources Limited (“NRL”).

Subsequent to the Spin-off, Noble maintains the NDLS and NRL plans. Benefits are based on credited service and employees’ compensation near retirement, as defined by the respective plan. Reference to our “non-U.S. plans” included throughout this report relates to the Noble-maintained NDLS and NRL plans, as well as activity for the NEL and NDNBV plans prior to the Spin-off.

In addition to the non-U.S. plans discussed above, we have two U.S. noncontributory defined benefit pension plans: one which covers certain salaried employees and one which covers certain hourly employees, whose initial date of employment is prior to August 1, 2004 (collectively referred to as our “qualified U.S. plans”). These plans are governed by the Noble Drilling Employees’ Retirement Trust (the “Trust”). The benefits from these plans are based primarily on years of service and, for the salaried plan, employees’ compensation near retirement. These plans qualify under the Employee Retirement Income Security Act of 1974 (“ERISA”), and our funding policy is consistent with funding requirements of ERISA and other applicable laws and regulations. We make cash contributions, or utilize credit balances available to us under the plan, for the qualified U.S. plans when required. The benefit amount that can be covered by the qualified U.S. plans is limited under ERISA and the Internal Revenue Code (“IRC”) of 1986. Therefore, we maintain an unfunded, nonqualified excess benefit plan designed to maintain benefits for specified employees at the formula level in the qualified salary U.S. plan. We refer to the qualified U.S. plans and the excess benefit plan collectively as the “U.S. plans”.

Employees participating in the U.S. plans that transferred to Paragon Offshore at the time of the Spin-off terminated under these plans as of July 31, 2014. In connection with the termination of these employees, we recognized a curtailment expense of $0.2 million for the year ended December 31, 2014. Additionally in 2014, we recognized a settlement expense of $10 million related to those terminated employees that elected to receive their accumulated benefits as a lump sum distribution.

A reconciliation of the changes in projected benefit obligations (“PBO”) for our non-U.S. and U.S. plans is as follows:


	Year Ended December 31,
	2014						2013
	Non-U.S.			U.S.			Non-U.S.			U.S.
Benefit obligation at beginning of year	$	161,591		$	223,938		$	151,781		$	225,885
Service cost		4,777			8,901			5,496			10,724
Interest cost		4,650			10,546			5,085			9,049
Actuarial loss (gain)		6,145			51,524			(4,584	)		(17,652	)
Plan amendments		1,595			—			(227	)		—
Benefits paid		(2,819	)		(4,262	)		(2,558	)		(4,068	)
Settlement		—			(34,397	)		—			—
Curtailment		—			(18,178	)		—			—
Plan participants’ contributions		266			—			956			—
Foreign exchange rate changes		(7,071	)		—			5,642			—
Spin-off adjustment		(96,581	)		—			—			—

Benefit obligation at end of year	$	72,553		$	238,072		$	161,591		$	223,938

A reconciliation of the changes in fair value of plan assets is as follows:


	Year Ended December 31,
	2014						2013
	Non-U.S.			U.S.			Non-U.S.			U.S.
Fair value of plan assets at beginning of year	$	174,257		$	201,011		$	151,819		$	167,170
Actual return on plan assets		6,717			7,750			8,470			31,518
Employer contributions		6,863			2,017			9,365			6,391
Benefits and expenses paid		(2,819	)		(4,262	)		(2,558	)		(4,068	)
Settlement		—			(34,397	)		—			—
Plan participants’ contributions		266			—			956			—
Foreign exchange rate changes		(11,068	)		—			6,205			—
Spin-off adjustment		(96,502	)		—			—			—

Fair value of plan assets at end of year	$	77,714		$	172,119		$	174,257		$	201,011

The funded status of the plans is as follows:


	Year Ended December 31,
	2014					2013
	Non-U.S.		U.S.			Non-U.S.		U.S.
Funded status	$	5,161	$	(65,953	)	$	12,666	$	(22,927	)

Amounts recognized in the Consolidated Balance Sheets consist of:


	Year Ended December 31,
	2014						2013
	Non-U.S.			U.S.			Non-U.S.			U.S.
Other assets (noncurrent)	$	7,725		$	—		$	13,586		$	6,132
Other liabilities (current)		—			(3,037	)		—			(2,120	)
Other liabilities (noncurrent)		(2,564	)		(62,916	)		(920	)		(26,939	)

Net amount recognized	$	5,161		$	(65,953	)	$	12,666		$	(22,927	)

Amounts recognized in AOCL consist of:


	Year Ended December 31,
	2014						2013
	Non-U.S.			U.S.			Non-U.S.			U.S.
Net actuarial loss	$	11,793		$	73,705		$	30,902		$	45,338
Prior service cost		1,531			468			(232	)		905
Deferred income tax asset		(3,096	)		(25,961	)		(2,130	)		(16,185	)

Accumulated other comprehensive loss	$	10,228		$	48,212		$	28,540		$	30,058

Pension cost includes the following components:


	Year Ended December 31,
	2014						2013						2012
	Non-U.S.			U.S.			Non-U.S.			U.S.			Non-U.S.			U.S.
Service Cost	$	4,777		$	8,901		$	5,496		$	10,724		$	4,461		$	9,612
Interest Cost		4,650			10,546			5,085			9,049			5,372			8,719
Return on plan assets		(6,117	)		(15,499	)		(5,836	)		(13,102	)		(5,344	)		(11,171	)
Amortization of prior service cost		46			196			—			227			—			227
Recognized net actuarial loss		769			2,857			1,670			7,639			803			7,356
Curtailment expense		—			241			—			—			—			—
Settlement expense		—			9,872			—			—			—			—

Net pension expense	$	4,125		$	17,114		$	6,415		$	14,537		$	5,292		$	14,743

Included in net pension expense for the years ended December 31, 2014, 2013 and 2012 for non-U.S. plans was approximately $2 million, $4 million and $3 million, respectively, related to Paragon Offshore that was classified as discontinued operations. Included in net pension expense for the years ended December 31, 2014, 2013 and 2012 for U.S. plans was approximately $11 million, $4 million and $4 million, respectively, related to Paragon Offshore that was classified as discontinued operations.

The estimated prior service cost and net actuarial loss that will be amortized from AOCL into net periodic pension cost in 2015 are $0.1 million and $0.3 million, respectively, for non-U.S. plans and $0.1 million and $6.2 million, respectively, for U.S. plans.

During 2014, we adopted the Retirement Plan (“RP”) 2014 mortality tables with the Mortality Projection (“MP”) scale as issued by the Society of Actuaries. The RP 2014 mortality tables represent the new standard for defined benefit mortality assumptions due to longer life expectancies. The adoption of the updated mortality tables and the mortality improvement scales increased our pension liability on our U.S. plans by approximately $14 million as of December 31, 2014.

Defined Benefit Plans—Disaggregated Plan Information

Disaggregated information regarding our non-U.S. and U.S. plans is summarized below:


	Year Ended December 31,
	2014				2013
	Non-U.S.		U.S.		Non-U.S.		U.S.
Projected benefit obligation	$	72,553	$	238,072	$	161,591	$	223,938
Accumulated benefit obligation		68,902		202,716		154,140		185,383
Fair value of plan assets		77,714		172,119		174,257		201,011

The following table provides information related to those plans in which the PBO exceeded the fair value of the plan assets at December 31, 2014 and 2013. The PBO is the actuarially computed present value of earned benefits based on service to date and includes the estimated effect of any future salary increases.


	Year Ended December 31,
	2014				2013
	Non-U.S.		U.S.		Non-U.S.		U.S.
Projected benefit obligation	$	3,157	$	238,072	$	6,740	$	200,472
Fair value of plan assets		592		172,119		5,820		171,413

The PBO for the unfunded excess benefit plan was $20 million at December 31, 2014 as compared to $13 million in 2013, and is included under “U.S.” in the above tables.

The following table provides information related to those plans in which the accumulated benefit obligation (“ABO”) exceeded the fair value of plan assets at December 31, 2014 and 2013. The ABO is the actuarially computed present value of earned benefits based on service to date, but differs from the PBO in that it is based on current salary levels.


	Year Ended December 31,
	2014				2013
	Non-U.S.		U.S.		Non-U.S.		U.S.
Accumulated benefit obligation	$	1,355	$	202,716	$	6,493	$	11,997
Fair value of plan assets		592		172,119		5,820		—

The ABO for the unfunded excess benefit plan was $13 million at December 31, 2014 as compared to $12 million in 2013, and is included under “U.S.” in the above tables.

Defined Benefit Plans—Key Assumptions

The key assumptions for the plans are summarized below:


	Year Ended December 31,
	2014		2013
	Non-U.S.	U.S.	Non-U.S.	U.S.
Weighted-average assumptions used to determine benefit obligations:
Discount Rate	2.6%-3.7%	3.0%-4.1%	3.9%-4.7%	3.9%-5.1%
Rate of compensation increase	3.6%-4.1%	5.0%	3.6%-4.5%	5.0%


	Year Ended December 31,
	2014		2013		2012
	Non-U.S.	U.S.	Non-U.S.	U.S.	Non-U.S.	U.S.
Weighted-average assumptions used to determine periodic benefit cost:
Discount Rate	2.7%-4.7%	3.9%-5.1%	2.5%-4.5%	3.1%-4.2%	4.7%-5.0%	4.3%-4.7%
Expected long-term return on assets	2.3%-6.0%	7.8%	2.3%-5.7%	7.8%	3.9%-5.4%	7.8%
Rate of compensation increase	3.6%-4.5%	5.0%	3.6%-4.1%	5.0%	2.3%-4.4%	5.0%

The discount rate used to calculate the net present value of future benefit obligations for our U.S. plan is based on the average of current rates earned on long-term bonds that receive a Moody’s rating of “Aa” or better. We have determined that the timing and amount of expected cash outflows on our plan reasonably match this index. For non-U.S. plans, the discount rates used to calculate the net present value of future benefit obligations are determined by using a yield curve of high quality bond portfolios with an average maturity approximating that of the liabilities.

We employ third-party consultants for our U.S. and non-U.S. plans that use a portfolio return model to assess the initial reasonableness of the expected long-term rate of return on plan assets. To develop the expected long-term rate of return on assets, we considered the current level of expected returns on risk free investments (primarily government bonds), the historical level of risk premium associated with the other asset classes in which the portfolio is invested and the expectations for future returns of each asset class. The expected return for each asset class was then weighted based on the target asset allocation to develop the expected long-term rate of return on assets for the portfolio.

Defined Benefit Plans—Plan Assets

Non-U.S. Plans

Both the NEL and NDNBV pension plans assets and liabilities were transferred to Paragon Offshore as part of the Spin-off.

The NRL pension plan has a targeted asset allocation of 100 percent debt securities. The investment objective for the NRL Plan assets is to earn a favorable return against the Barclays Capital Euro-Treasury AAA index. We evaluate the performance of this plan on an annual basis.

The NDLS pension plan has a target asset allocation of 70 percent equity securities and 30 percent debt securities. The investment objective of the plan, as adopted by the plan’s trustees, is to achieve a favorable return against a benchmark of blended United Kingdom market indices. By achieving this objective, the trustees believe the plan will be able to avoid significant volatility in the contribution rate and provide sufficient plan assets to cover the plan’s benefit obligations were the plan to be liquidated. To achieve these objectives, the trustees have given the plan’s investment managers full discretion in the day-to-day management of the plan’s assets. The plan’s assets are invested with two investment managers. The performance objective communicated to one of these investment managers is to exceed a blend of FTSE A Over 15 Year Gilts index and iBoxx Sterling Non Gilts index by 1.25 percent per annum. The performance objective communicated to the other investment manager is to exceed a blend of FTSE’s All Share index, North America index, Europe index and Pacific Basin index by 1.00 to 2.00 percent per annum. This investment manager is prohibited by the trustees from investing in real estate. The trustees meet with the investment managers periodically to review and discuss their investment performance.

The actual fair values of Non-U.S. pension plans as of December 31, 2014 and 2013 are as follows:


			December 31, 2014
			Estimated Fair Value
			Measurements
			Quoted		Significant
			Prices in		Other		Significant
			Active		Observable		Unobservable
	Carrying		Markets		Inputs		Inputs
	Amount		(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents	$	87	$	87	$	—	$	—
Equity securities:
International companies	$	53,261	$	53,261	$	—	$	—
Fixed income securities:
Corporate bonds	$	23,774	$	—	$	23,774	$	—
Other		592		—		—		592

Total	$	77,714	$	53,348	$	23,774	$	592


			December 31, 2013
			Estimated Fair Value
			Measurements
			Quoted		Significant
			Prices in		Other		Significant
			Active		Observable		Unobservable
	Carrying		Markets		Inputs		Inputs
	Amount		(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents	$	207	$	207	$	—	$	—
Equity securities:
International companies	$	54,722	$	54,722	$	—	$	—
Fixed income securities:
Corporate bonds	$	41,767	$	—	$	41,767	$	—
Other		77,561		—		—		77,561

Total	$	174,257	$	54,929	$	41,767	$	77,561

At December 31, 2013, assets of both NEL and NDNBV were invested in instruments that are similar in form to a guaranteed insurance contract, which were transferred to Paragon Offshore in the Spin-off. At December 31, 2014, assets of NRL were invested in instruments that are similar in form to a guaranteed insurance contract. There are no observable market values for these assets (Level 3); however, the amounts listed as plan assets were materially similar to the anticipated benefit obligations that were anticipated under the plans. Amounts were therefore calculated using actuarial assumptions completed by third-party consultants employed by Noble. The following table details the activity related to these investments during the year.


	Market
	Value
Balance as of December 31, 2013	$	77,561
Assets transferred out in Spin-off		(77,561	)
Assets purchased		749
Assets sold/benefits paid		(157	)

Balance as of December 31, 2014	$	592

U.S. Plans

The Trust invests in equity securities, fixed income debt securities, and cash equivalents and other short-term investments. The Trust may invest in these investments directly or through pooled vehicles, including mutual funds.

The Company’s overall investment strategy, or target range, is to achieve a mix of approximately 66.5 percent in equity securities, 32 percent in debt securities and 1.5 percent in cash holdings. Actual results may deviate from the target range, however any deviation from the target range of asset allocations must be approved by the Trust’s governing committee.

The performance objective of the Trust is to outperform the return of the Total Index Composite as constructed to reflect the target allocation weightings for each asset class. This objective should be met over a market cycle, which is defined as a period not less than three years or more than five years. U.S. equity securities (common stock, convertible preferred stock and convertible bonds) should achieve a total return (after fees) that exceeds the total return of an appropriate market index over a full market cycle of three to five years. Non-U.S. equity securities (common stock, convertible preferred stock and convertible bonds), either from developed or emerging markets, should achieve a total return (after fees) that exceeds the total return of an appropriate market index over a full market cycle of three to five years. Fixed income debt securities should achieve a total return (after fees) that exceeds the total return of an appropriate market index over a full market cycle of three to five years. Cash equivalent and short-term investments should achieve relative performance better than the 90-day Treasury bills. When mutual funds are used by the Trust, those mutual funds should achieve a total return that equals or exceeds the total return of each fund’s appropriate Lipper or Morningstar peer category over a full market cycle of three to five years. Lipper and Morningstar are independent mutual fund rating and information services.

For investments in equity securities, no individual options or financial futures contracts are purchased unless approved in writing by the Trust’s governing committee. In addition, no private placements or purchases of venture capital are allowed. The target amount in international equities is 20 percent of plan assets and may not exceed 23 percent of plan assets. Of the international equities amount, no more than 30 percent can be related to any particular country. The Trust’s equity managers vote all proxies in the best interest of the Trust without regards to social issues. The Trust’s governing committee reserves the right to comment on and exercise control over the response to any individual proxy solicitation.

For fixed income debt securities, corporate bonds purchased are primarily limited to investment grade securities as established by Moody’s or Standard & Poor’s. The total fixed income exposure from any single non-government or government agency issuer shall not exceed 42 percent of the Trust’s fixed income holdings. The average duration of the total portfolio shall not exceed the Barclays Capital Aggregate Bond Index by 1.5 years. All interest and principal receipts are swept, as received, into an alternative cash management vehicle until reallocated in accordance with the Trust’s core allocation.

For investments in mutual funds, the assets of the Trust are subject to the guidelines and limits imposed by such mutual fund’s prospectus and the other governing documentation at the fund level.

For investments in cash equivalent and short-term investments, the Trust utilizes a money market mutual fund which invests in U.S. government and agency obligations, repurchase agreements collateralized by U.S. government or agency securities, commercial paper, bankers’ acceptances, certificate of deposits, delayed delivery transactions, reverse repurchase agreements, time deposits and Euro obligations. Bankers’ acceptances shall be made in larger banks (ranked by assets) rated “Aa” or better by Moody’s and in conformance with all FDIC regulations concerning capital requirements.

Equity securities include our shares in the amounts $4 million (2.1 percent of total U.S. plan assets) at December 31, 2013. No shares of Noble were included in equity securities at December 31, 2014.

The actual fair values of U.S. pension plan assets as of December 31, 2014 and 2013 are as follows:


			December 31, 2014
			Estimated Fair Value
			Measurements
			Quoted		Significant
			Prices in		Other		Significant
			Active		Observable		Unobservable
	Carrying		Markets		Inputs		Inputs
	Amount		(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents	$	5,998	$	—	$	5,998	$	—
Equity securities:
United States	$	80,823	$	80,823	$	—	$	—
International		33,392		33,392		—		—
Fixed income securities:
Corporate bonds	$	51,906	$	51,906	$	—	$	—

Total	$	172,119	$	166,121	$	5,998	$	—


			December 31, 2013
			Estimated Fair Value
			Measurements
			Quoted		Significant
			Prices in		Other		Significant
			Active		Observable		Unobservable
	Carrying		Markets		Inputs		Inputs
	Amount		(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents	$	2,184	$	—	$	2,184	$	—
Equity securities:
United States	$	104,899	$	80,714	$	24,185	$	—
International		33,012		33,012		—		—
Fixed income securities:
Corporate bonds	$	60,916	$	60,916	$	—	$	—

Total	$	201,011	$	174,642	$	26,369	$	—

While the underlying investments related to the equity securities are traded in active markets, which is a Level 1 measurement, the funds we own the investments through are not themselves actively traded, and therefore are being presented as a Level 2 measurement at December 31, 2013.

As of December 31, 2014, no single security made up more than 10 percent of total assets of either the U.S. or the Non-U.S. plans.

Defined Benefit Plans—Cash Flows

In 2014, we made total contributions of $7 million and $2 million to our non-U.S. and U.S. pension plans, respectively. In 2013, we made total contributions of $9 million and $6 million to our non-U.S. and U.S. pension plans, respectively. In 2012, we made total contributions of $6 million and $11 million to our non-U.S. and U.S. pension plans, respectively. We expect our aggregate minimum contributions to our non-U.S. and U.S. plans in 2015, subject to applicable law, to be $2 million and $3 million, respectively. We continue to monitor and evaluate funding options based upon market conditions and may increase contributions at our discretion.

The following table summarizes our estimated benefit payments at December 31, 2014:


			Payments by Period
	Total		2015		2016		2017		2018		2019		Thereafter
Estimated benefit payments
Non U.S. plans	$	23,037	$	1,630	$	1,693	$	1,882	$	1,955	$	2,207	$	13,670
U.S. plans		105,192		8,029		6,687		7,327		7,989		8,914		66,246

Total estimated benefit payments	$	128,229	$	9,659	$	8,380	$	9,209	$	9,944	$	11,121	$	79,916

Other Benefit Plans

We sponsor a 401(k) Restoration Plan, which is a nonqualified, unfunded employee benefit plan under which specified employees may elect to defer compensation in excess of amounts deferrable under our 401(k) savings plan. The 401(k) Restoration Plan has no assets, and amounts withheld for the 401(k) Restoration Plan are kept by us for general corporate purposes. The investments selected by employees and associated returns are tracked on a phantom basis. Accordingly, we have a liability to the employee for amounts originally withheld plus phantom investment income or less phantom investment losses. We are at risk for phantom investment income and, conversely, benefit should phantom investment losses occur. At December 31, 2014 and 2013, our liability for the 401(k) Restoration Plan was $7 million and $8 million, respectively, and is included in “Accrued payroll and related costs.”

In 2005 we enacted a profit sharing plan, the Noble Drilling Services Inc. Profit Sharing Plan, which covers eligible employees, as defined. Participants in the plan become fully vested in the plan after five years of service, or three years beginning in 2007. Profit sharing contributions are discretionary, require Board of Directors approval and are made in the form of cash. Contributions recorded related to this plan totaled $6 million, $5 million and $4 million in 2014, 2013 and 2012, respectively.

We sponsor a 401(k) savings plan and other retirement, health and welfare plans for the benefit of our employees. The cost of maintaining these plans for continuing operations aggregated approximately $70 million, $80 million and $69 million in 2014, 2013 and 2012, respectively. We do not provide post-retirement benefits (other than pensions) or any post-employment benefits to our employees.