-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TICdpj4TVpt92KQ+FP4/kZclWyViS0Wyv3IVNKXNH4i9VtLhQQ6Nw49UlFAJgWW4 cMe3T3mmM3yQnxygmxZa5w== 0000950129-97-002099.txt : 19970520 0000950129-97-002099.hdr.sgml : 19970520 ACCESSION NUMBER: 0000950129-97-002099 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NOBLE DRILLING CORP CENTRAL INDEX KEY: 0000777201 STANDARD INDUSTRIAL CLASSIFICATION: DRILLING OIL & GAS WELLS [1381] IRS NUMBER: 730374541 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11669 FILM NUMBER: 97609709 BUSINESS ADDRESS: STREET 1: 10370 RICHMOND AVE STE 400 CITY: HOUSTON STATE: TX ZIP: 77042 BUSINESS PHONE: 7139743131 MAIL ADDRESS: STREET 1: 10370 RICHMOND AVE STREET 2: STE 400 CITY: HOUSTON STATE: TX ZIP: 77042 10-Q 1 NOBLE DRILLING CORP. - 03/31/97 1 ============================================================================= UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1997 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to _____________ Commission file number: 0-13857 NOBLE DRILLING CORPORATION (Exact name of registrant as specified in its charter) Delaware 73-374541 (State of incorporation) (I.R.S. employer identification number) 10370 Richmond Avenue, Suite 400 77042 Houston, Texas (Zip code) (Address of principal executive offices) Registrant's telephone number, including area code: (713) 974-3131 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No. / / Number of shares of Common Stock outstanding as of May 9, 1997: 132,453,295 ============================================================================= 2 PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NOBLE DRILLING CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited)
MARCH 31, DECEMBER 31, 1997 1996 ------------ ------------ CURRENT ASSETS Cash and cash equivalents........................ $ 96,995 $ 149,632 Restricted cash.................................. -- 2,000 Investment in marketable equity securities....... 2,533 2,533 Investment in marketable debt securities......... 17,370 19,296 Accounts receivable (net of allowance of $583 and $1,494).................................. 121,774 101,619 Costs of uncompleted contracts in excess of billings..................................... 13,599 18,505 Inventories...................................... 4,812 3,287 Assets held for sale (see Note 6)................ 62,396 -- Deferred income taxes............................ 39,248 39,248 Prepaid expenses................................. 24,029 19,572 Other current assets............................. 30,847 32,785 ---------- ---------- Total current assets......................... 413,603 388,477 ---------- ---------- PROPERTY AND EQUIPMENT Drilling equipment and facilities................ 1,102,052 1,176,145 Other............................................ 26,265 27,924 ---------- ---------- 1,128,317 1,204,069 Accumulated depreciation......................... (200,706) (247,035) ---------- ---------- 927,611 957,034 ---------- ---------- INVESTMENT IN AND NOTES RECEIVABLE FROM AFFILIATES... 13,528 9,188 OTHER ASSETS......................................... 10,440 12,708 ---------- ---------- $1,365,182 $1,367,407 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Current installments of long-term debt........... $ 161 $ 3,622 Accounts payable................................. 71,896 66,906 Other current liabilities........................ 77,458 80,972 ---------- ---------- Total current liabilities.................... 149,515 151,500 LONG-TERM DEBT....................................... 209,445 239,506 DEFERRED INCOME TAXES................................ 56,163 50,331 OTHER LIABILITIES.................................... 1,274 821 ---------- ---------- 416,397 442,158 ---------- ---------- SHAREHOLDERS' EQUITY Common stock, $0.10 par value.................... 13,248 13,219 Capital in excess of par value................... 918,113 916,004 Retained earnings (accumulated deficit).......... 20,739 (1,205) Other............................................ (3,315) (2,769) ---------- ---------- 948,785 925,249 ---------- ---------- COMMITMENTS AND CONTINGENCIES........................ -- -- ---------- ---------- $1,365,182 $1,367,407 ========== ==========
See accompanying notes to the interim financial statements. 2 3 FORM 10-Q NOBLE DRILLING CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited)
Three Months Ended March 31, ---------------------------- 1997 1996 -------- -------- OPERATING REVENUES Contract drilling services ............................................ $113,379 $ 60,250 Labor contract drilling services ...................................... 9,352 7,994 Turnkey drilling services ............................................. 43,028 33,055 Engineering and consulting services ................................... 863 1,762 Other revenue ......................................................... 2,093 1,696 -------- -------- 168,715 104,757 -------- -------- OPERATING COSTS AND EXPENSES Contract drilling services ............................................ 54,330 38,536 Labor contract drilling services ...................................... 6,557 5,925 Turnkey drilling services ............................................. 36,713 23,206 Engineering and consulting services ................................... 561 1,097 Other expense ......................................................... 1,201 900 Depreciation and amortization ......................................... 17,576 8,930 Selling, general and administrative ................................... 16,312 12,025 Gains on sales of property and equipment, net of impairments .......... - 73 Minority interest ..................................................... 403 (32) -------- -------- 133,653 90,660 -------- -------- OPERATING INCOME ......................................................... 35,062 14,097 OTHER INCOME (EXPENSE) Interest expense ...................................................... (5,457) (3,176) Interest income ....................................................... 1,887 825 Other, net ............................................................ 858 483 -------- -------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY CHARGE ...................... 32,350 12,229 INCOME TAX PROVISION ..................................................... (8,702) (1,503) -------- -------- INCOME BEFORE EXTRAORDINARY CHARGE ....................................... 23,648 10,726 EXTRAORDINARY CHARGE, NET OF TAX ......................................... (1,704) - -------- -------- NET INCOME ............................................................... 21,944 10,726 PREFERRED STOCK DIVIDENDS ............................................... - (1,511) -------- -------- NET INCOME APPLICABLE TO COMMON SHARES ................................... $ 21,944 $ 9,215 ======== ======== NET INCOME APPLICABLE TO COMMON SHARES PER SHARE: Income before extraordinary charge ................................... $ 0.17 $ 0.10 Extraordinary charge ................................................. (0.01) - -------- -------- Net income applicable to common shares per share ..................... $ 0.16 $ 0.10 ======== ======== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING ............................... 134,415 95,782
See accompanying notes to the interim financial statements. 3 4 FORM 10-Q NOBLE DRILLING CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Three Months Ended March 31, ---------------------------- 1997 1996 -------- ------- CASH FLOWS FROM OPERATING ACTIVITIES Net income....................................... $ 21,944 $ 10,726 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ............... 17,576 8,930 Gain on sales of property and equipment...... - (7,716) Deferred income tax provision ............... 5,832 - Impairment charge............................ - 7,600 Extraordinary charge, net of tax ............ 1,704 - Other ....................................... 1,078 654 Changes in current assets and liabilities: Accounts receivable ....................... (20,639) (13,294) Other assets .............................. 5,202 (1,612) Accounts payable .......................... 5,088 3,669 Other liabilities ......................... (1,559) 9,079 -------- -------- Net cash provided by operating activities.. 36,226 18,036 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment............... (50,658) (42,171) Proceeds from sale of property and equipment..... - 14,521 Investment in and notes receivable from affiliates .................................... (4,320) - Proceeds from sale of marketable debt securities. 1,928 1,596 -------- -------- Net cash used by investing activities ..... (53,050) (26,054) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Payment of long-term debt ....................... (36,601) (3,875) Dividends paid on preferred stock ............... - (1,509) Issuance of common stock ........................ 959 456 Purchase of shares returned to treasury ......... - (2,052) Proceeds from short-term debt ................... - 400 -------- -------- Net cash used by financing activities ..... (35,642) (6,580) -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH ........... (171) (371) -------- -------- DECREASE IN CASH AND CASH EQUIVALENTS ............. (52,637) (14,969) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD .... 149,632 41,307 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD .......... $ 96,995 $ 26,338 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest ................................... $ 6,599 $ 177 Income taxes ............................... $ 929 $ -
See accompanying notes to the interim financial statements. 4 5 FORM 10-Q NOBLE DRILLING CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Dollar amounts in tables are in thousands, except per share amounts) (Unaudited) NOTE 1 -- BASIS OF ACCOUNTING The accompanying condensed consolidated financial statements of Noble Drilling Corporation ("Noble Drilling" or, together with its consolidated subsidiaries, unless the context requires otherwise, the "Company"), have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all disclosures required by generally accepted accounting principles for complete financial statements. All significant transactions among Noble Drilling and its consolidated subsidiaries have been eliminated. The condensed consolidated financial statements have not been audited. However, in the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of such 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 financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1996. On July 1, 1996, the Company completed the acquisition from Royal Nedlloyd N.V. ("Nedlloyd") and its wholly owned subsidiary, Neddrill Holding B.V., of Nedlloyd's offshore drilling division, Neddrill ("Neddrill"). The Company's condensed consolidated financial statements include the results of Neddrill from July 1, 1996. Certain reclassifications have been made in prior year condensed consolidated financial statements to conform to the classifications used in the 1997 condensed consolidated financial statements. These reclassifications have no impact on net income or loss. NOTE 2 -- ACQUISITIONS On July 1, 1996, the Company completed its agreement with Nedlloyd to acquire the assets utilized in the offshore contract drilling, accommodation and other gas exploration and production related service businesses of Neddrill. The following table provides selected consolidated financial information for the Company on a pro forma basis assuming that the Neddrill acquisition had occurred on January 1, 1996. The pro forma information set forth below is not necessarily indicative of what the Company's results of operations would have been had the transaction been consummated as of January 1, 1996, nor is such information necessarily indicative of the Company's future results of operations.
Three Months Ended March 31, 1996 ------------------ (Unaudited) Operating revenues ......................................... $ 146,193 Net income applicable to common shares ..................... $ 14,304 Net income applicable to common shares per share ........... $ 0.12
NOTE 3 -- INVESTMENT IN AND NOTES RECEIVABLE FROM AFFILIATES The Company owns a 41 percent interest in Arktik Drilling Ltd., Inc. ("Arktik") and accounts for this investment using the equity method. Arktik is a Bahamian joint venture company that owns and operates the drillship Neddrill Muravlenko. The investment balance at March 31, 1997 was $410,000 and equity in earnings was not material for the three months ended March 31, 1997. 5 6 FORM 10-Q NOBLE DRILLING CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Dollar amounts in tables are in thousands, except per share amounts) The Neddrill Muravlenko is currently undergoing refurbishment and is expected to be available for workover operations in the latter part of the second quarter of 1997. Upon installation of a blowout preventer, the rig will begin drilling operations with Petroleo Brasiliero S.A. ("Petrobras") under a five-year contract, with a one-year option to Petrobras, in the latter part of the third quarter of 1997. The refurbishment is expected to cost approximately $42,500,000. As of March 31, 1997, the Company has funded $13,118,000 to Arktik, which represents 50 percent of the refurbishment cost incurred. Arktik has negotiated a credit agreement which provides for repayment of approximately 65 percent of the amount funded by the Company once drilling operations begin. The remaining 35 percent of the amount funded by the Company will be repaid by Arktik over the term of the Petrobras contract. As of March 31, 1997, the Company has funded $6,758,000 to Arktik on behalf of one of the other joint venturers. Such amount is included in "Other current assets" in the accompanying Condensed Consolidated Balance Sheet at March 31, 1997. Approximately $5,000,000 of the amount funded by the Company had been repaid by the other joint venturer as of April 30, 1997. NOTE 4 -- DEBT During the first quarter of 1997, the Company purchased $29,555,000 principal amount of its 9 1/4% Senior Notes due 2003 (the "9 1/4% Senior Notes"), which resulted in an extraordinary charge of $1,704,000, net of taxes of $918,000. The extraordinary charge represents the difference between the acquisition price and the net carrying value of the notes, including unamortized debt issue costs. After giving effect to the purchase, the Company had $84,445,000 principal amount of 9 1/4% Senior Notes outstanding at March 31, 1997. On March 31, 1997, the Company redeemed the remaining $1,026,000 principal amount of U.S. Government Financing Sinking Fund Bonds. NOTE 5 -- EARNINGS PER SHARE In February 1997 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 "Earnings Per Share" ("FAS 128"), which established new guidelines for computing and presenting earnings per share and is effective for financial statements issued for periods ending after December 15, 1997. If FAS 128 had been in effect for the three-month periods ended March 31, 1997 and 1996, net income per common share would be unchanged. NOTE 6 -- SUBSEQUENT EVENTS On May 14, 1997, the Company commenced a tender offer to purchase for cash all the $84,445,000 principal amount then outstanding of its 9 1/4% Senior Notes. Under the terms of the offer, the Company will purchase the outstanding 9 1/4% Senior Notes at a price determined by reference to a fixed spread of 15 basis points over the yield to maturity of United States Treasury 6% Notes due September 30, 1998 at 3:00 p.m., New York City time, on June 10, 1997 (of which an amount equal to 1% of the principal amount shall constitute a consent payment that will be paid for 9 1/4% Senior Notes tendered at or prior to 5:00 p.m., New York City time, on May 29, 1997), plus accrued and unpaid interest up to (but excluding) the date of payment of such purchase price. In connection with the tender offer, the Company is also seeking consents from holders of 9 1/4% Senior Notes to certain proposed amendments to the Indenture governing the 9 1/4% Senior Notes. The offer will expire at 5:00 p.m., New York City time, on June 12, 1997, unless extended. Complete and detailed information regarding the offer is contained in the Company's Offer to Purchase and Consent Solicitation Statement dated May 14, 1997 which is being distributed to the holders of the 9 1/4% Senior Notes. On May 12, 1997, the Company announced that its Board of Directors has authorized the repurchase of up to 10,000,000 shares of the Company's common stock, or approximately eight percent of its outstanding common stock. The common stock purchases, if any, will be made from time to time on the open market or through privately negotiated transactions at prices determined by the Company. On May 7, 1997, the Company completed the sale of its 12 mat supported jackup rigs to Pride Petroleum Services, Inc. The sale also included the hull of one former mat supported jackup rig (Linn Richardson) which has had all drilling machinery and equipment removed. The sales price was $268,818,000 in cash. At March 31, 1997, the carrying value of the mat rigs was $62,396,000 and is classified as "Assets held for sale" in the accompanying Condensed Consolidated Balance Sheet. The carrying value is stated at the lower of cost or estimated net realizable value. Revenues, gross margin and operating income generated from the 12 mat supported jackup rigs were $23,933,000, $12,686,000 and $10,526,000, respectively, for the three months ended March 31, 1997. 6 7 FORM 10-Q ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS This report on Form 10-Q includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, 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 the Company's financial position, business strategy, plans and objectives of management of the Company for future operations, industry conditions, and indebtedness covenant compliance, are forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the Company's expectations include, but are not limited to, intense competition in the drilling industry, volatility of oil and gas prices, political and economic conditions in international markets (including Nigeria and Venezuela), potential for decrease in demand for drilling services in the U.S. Gulf of Mexico ("U.S. Gulf") where the Company has a concentration of drilling rigs, risks associated with turnkey drilling contracts, early termination provisions generally found in the Company's offshore drilling contracts, operational risks (such as blowouts, fires and loss of production), insurance coverage limitations, and requirements and potential liability imposed by governmental regulation of the drilling industry (including environmental regulation). OUTLOOK The Company's business strategy has been to expand its international and offshore drilling capabilities through acquisitions and rig upgrades and modifications, and by redeploying assets in important geological areas. In recent years, the Company has included within its strategic objectives a focus on increasing the number of rigs in its fleet capable of drilling in deeper water depths. As used herein, unless otherwise required by the context, "Noble Drilling" refers to Noble Drilling Corporation and the "Company" refers to Noble Drilling and its consolidated subsidiaries. The increased demand and higher dayrates for offshore drilling rigs that began in 1995 has continued into 1997. The improvement in the markets was due in part to technological advances that expanded the opportunities for offshore exploration and development. The increased activity levels have resulted in demand sufficient enough to absorb virtually all of the rigs that are in working condition and being actively marketed in the major offshore oil and gas markets throughout the world. The Company believes that the current level of offshore drilling activity in the U.S. Gulf is sustainable for the remainder of 1997 unless there is a significant and unexpected deterioration in natural gas and oil prices. The international market is anticipated to remain strong in 1997, assuming oil prices remain at current levels and the respective political environments remain stable. Historically, the offshore contract drilling market has been highly competitive and cyclical, and the Company cannot predict the future level of demand for its drilling services nor the future conditions in the offshore contract drilling industry. The Company continues to enhance its fleet to meet customer demand for diverse drilling capabilities, including those required for deepwater and harsh environment operations. The Noble Bill Jennings and Noble Leonard Jones are being converted to independent leg cantilever drilling units with proprietary, extended reach cantilever design and water depth ratings of 390 feet. These rigs are scheduled to be available for work in the fourth quarter of 1997. The Noble Paul Romano, an Economic Value Advantage ("EVA-4000") design semisubmersible rig capable of drilling in 6,000 feet of water, is scheduled to complete its conversion in the spring of 1998 and will then go on contract for Shell Deepwater Development, Inc., an affiliate of Shell Oil Company. The Noble Paul Wolff, an EVA-4000 design semisubmersible conversion, which will be designed to operate in 8,900 feet of water, is scheduled to be completed in June 1998 for a six-year contract with Petroleo Brasiliero S.A. ("Petrobras"). The Noble Lewis Dugger, an independent leg cantilever drilling unit capable of drilling in 300 feet of water, recently 7 8 FORM 10-Q completed refurbishment and began operations in the Bay of Campeche in May 1997 under a two-year contract with Petroleos Mexicanos ("Pemex"). The Neddrill Trigon is scheduled to undergo refurbishment in July 1997 and to begin working under an 18-month contract in the North Sea in the latter part of the third quarter of 1997. The Neddrill Muravlenko is undergoing refurbishment and should be available for workover operations in the latter part of the second quarter of 1997. Upon installation of a blowout preventer, the rig is expected to begin drilling operations under a five-year contract with Petrobras in the latter part of the third quarter of 1997. Noble's Joe Alford, Lester Pettus and Fri Rodli are anticipated to be reactivated in 1997 with service availability dates scheduled in the fourth quarter of 1997. The Company anticipates a significant increase in the total number of turnkey well completions in 1997 as compared to 1996. For the year ended December 31, 1996, there were 28 turnkey well completions. Profitability under a turnkey contract is dependent upon keeping expenses within the estimates used by the Company in determining the contract price. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 GENERAL Net income applicable to common shares for the first quarter of 1997 (the "Current Quarter") was $21,944,000, or $0.16 per share, on operating revenues of $168,715,000, compared to net income applicable to common shares of $9,215,000, or $0.10 per share, on operating revenues of $104,757,000 for the first quarter of 1996 (the "Comparable Quarter"). The increases in revenues and net income were due principally to increased rig utilization in the U.S. Gulf, significantly higher domestic and international average dayrates, the contribution by Neddrill, which was acquired on July 1, 1996, and contributions from the Noble Jimmy Puckett, Noble Kenneth Delaney and Noble Chuck Syring independent leg jackup rigs, which were acquired on December 24, 1996, September 4, 1996 and March 20, 1996, respectively. Results for the Current Quarter included an extraordinary charge of $1,704,000, net of tax of $918,000, or $0.01 per share, related to the Company's purchase of $29,555,000 principal amount of its 9 1/4% Senior Notes due 2003 (the "9 1/4% Senior Notes"). Results for the Comparable Quarter included gains on the sale of two posted barge rigs totaling $7,527,000, which were offset by an impairment charge of $7,600,000. RIG UTILIZATION, OPERATING DAYS AND AVERAGE DAYRATES The following table sets forth the average rig utilization rates, operating days and average dayrates for the Company's rig fleet for the three months ended March 31, 1997 and 1996:
AVERAGE RIG UTILIZATION RATES(1) OPERATING DAYS AVERAGE DAYRATES -------------------- -------------------- -------------------------- THREE MONTHS ENDED THREE MONTHS ENDED THREE MONTHS ENDED MARCH 31, MARCH 31, MARCH 31, -------------------- -------------------- -------------------------- 1997(2) 1996 1997(2) 1996 1997(2) 1996 --------- ------- ------- ------ --------- -------- International ....... 92% 92% 2,341 1,343 $ 33,089 $ 22,563 Domestic ............ 99% 96% 1,223 1,165 $ 29,369 $ 19,957
- ------------- (1) Information reflects the policy of the Company to report utilization rates based on the number of actively marketed rigs owned in the fleet. During the periods presented, the Company purchased and sold certain drilling rigs. Utilization rates for the periods prior to sales and purchases of such rigs have not been adjusted. (2) Includes the results of Neddrill. 8 9 FORM 10-Q INTERNATIONAL OPERATIONS The following table sets forth the operating revenues and gross margin for the Company's international operations for the three months ended March 31, 1997 and 1996:
REVENUES GROSS MARGIN ------------------- ------------------- THREE MONTHS ENDED THREE MONTHS ENDED MARCH 31, MARCH 31, ------------------- ------------------- 1997 1996 1997 1996 -------- -------- -------- -------- (In thousands) Contract drilling services Offshore..................... $ 77,461 $ 30,302 $ 39,399 $ 12,157 Land......................... -- 3,278 -- 791 -------- -------- -------- -------- Total contract drilling services. 77,461 33,580 39,399 12,948 Labor contract drilling services. 9,352 7,994 2,795 2,069 Turnkey contract drilling services..................... 14,346 -- 5,780 -- Engineering and consulting services..................... 824 1,747 302 781 Other revenue.................... 1,537 1,071 1,312 763 -------- -------- -------- -------- Total.................... $103,520 $ 44,392 $ 49,588 $ 16,561 ======== ======== ======== ========
OPERATING REVENUES. Offshore contract drilling services revenues increased $47,159,000 in the Current Quarter as compared to the Comparable Quarter. The increase is primarily attributable to the acquisitions of Neddrill and the Noble Jimmy Puckett, Noble Kenneth Delaney and Noble Chuck Syring jackup rigs. These acquisitions contributed $38,520,000 in contract drilling services revenues in the Current Quarter. The remaining increase is attributable to higher average dayrates in the Current Quarter as compared to the Comparable Quarter. In December 1996, the Company sold its land drilling assets. Land contract drilling services contributed $3,278,000 in revenues in the Comparable Quarter. Labor contract drilling services revenues increased $1,358,000 in the Current Quarter as compared to the Comparable Quarter due to higher average dayrates on the platform contracts. Turnkey contract drilling services revenues increased $14,346,000 as there were three completions offshore Nigeria in the Current Quarter as compared to no completions in the Comparable Quarter. There were two turnkey wells in progress at March 31, 1997, one offshore Nigeria and one in the Bay of Campeche. GROSS MARGIN. Offshore contract drilling services gross margin increased $27,242,000 in the Current Quarter as compared to the Comparable Quarter. The increase is primarily attributable to the contributions from Neddrill and the Noble Jimmy Puckett, Noble Kenneth Delaney and Noble Chuck Syring jackup rigs. These acquisitions contributed $18,304,000 in gross margin in the Current Quarter. The remaining increase is primarily attributable to higher average dayrates in the Current Quarter as compared to the Comparable Quarter. The increases in gross margin for labor contract drilling services and turnkey contract drilling services in the Current Quarter as compared to the Comparable Quarter were attributable to higher average dayrates on the platform contracts and increased turnkey well completions, respectively. 9 10 DOMESTIC OPERATIONS The following table sets forth the operating revenues and gross margin for the Company's domestic operations for the three months ended March 31, 1997 and 1996:
REVENUES GROSS MARGIN ------------------- ------------------- THREE MONTHS ENDED THREE MONTHS ENDED MARCH 31, MARCH 31, ------------------- ------------------- 1997 1996 1997 1996 -------- -------- -------- -------- (In thousands) Contract drilling services Offshore..................... $ 35,918 $ 23,250 $ 19,650 $ 8,230 Land......................... -- 3,420 -- 536 -------- -------- -------- -------- Total contract drilling services..................... 35,918 26,670 19,650 8,766 Turnkey contract drilling services..................... 28,682 33,055 535 9,849 Engineering and consulting services..................... 39 15 -- (116) Other revenue.................... 556 625 (420) 33 -------- -------- -------- -------- Total................... $ 65,195 $ 60,365 $ 19,765 $ 18,532 ======== ======== ======== ========
10 11 FORM 10-Q OPERATING REVENUES. Offshore contract drilling services revenues increased $12,668,000 in the Current Quarter as compared to the Comparable Quarter due to significantly higher rig utilization rates and higher average dayrates. In December 1996, the Company sold its land drilling assets. Land contract drilling services contributed $3,420,000 in revenues in the Comparable Quarter. Turnkey contract drilling services revenues decreased $4,373,000 in the Current Quarter as compared to the Comparable Quarter due to a decrease in the number of completions from nine in the Comparable Quarter to six in the Current Quarter. The decrease in the number of completions was partially offset by increased contract rates as demand for equipment and services remained strong in the U.S. Gulf. There were four turnkey wells in progress at March 31, 1997. GROSS MARGIN. Offshore contract drilling services gross margin increased $11,420,000 in the Current Quarter as compared to the Comparable Quarter due to significantly higher rig utilization rates and higher average dayrates. Turnkey contract drilling services gross margin decreased $9,314,000 due primarily to two wells which incurred losses during the Current Quarter as a result of unexpected drilling difficulty. OTHER OPERATING ITEMS DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense increased $8,646,000 in the Current Quarter as compared to the Comparable Quarter. Of this amount, $5,334,000 is attributable to the acquisition of Neddrill. The remaining increase is attributable to rig acquisitions and refurbishments subsequent to March 31,1996. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative ("SG&A") expenses increased $4,287,000 in the Current Quarter as compared to the Comparable Quarter. The increase is primarily attributable to the Neddrill acquisition combined with other general increases resulting from higher activity levels. GAINS ON SALES OF PROPERTY AND EQUIPMENT, NET OF IMPAIRMENTS. In the Comparable Quarter, the Company sold two posted barge rigs, resulting in pre-tax gains of $7,527,000, which were offset by the recognition of impairment charges totaling $7,600,000. INTEREST EXPENSE. Interest expense increased $2,281,000 in the Current Quarter as compared to the Comparable Quarter due to the July 1, 1996 issuance of $125,000,000 principal amount of 9 1/8% Senior Notes due 2006 (the "9 1/8% Senior Notes"). The proceeds from the issuance of the 9 1/8% Senior Notes were used to finance the Neddrill acquisition. The Company purchased $11,000,000 principal amount of its 9 1/4% Senior Notes in December 1996 and $29,555,000 principal amount of 9 1/4% Senior Notes during the Current Quarter, which partially offset the increased interest expense resulting from the issuance of the 9 1/8% Senior Notes. INTEREST INCOME. Interest income increased $1,062,000 in the Current Quarter as compared to the Comparable Quarter due to higher average cash balances resulting primarily from increased operating activity. INCOME TAX PROVISION. The effective income tax rate in the Current Quarter increased to approximately 27% from approximately 12% in the Comparable Quarter. The Comparable Quarter was favorably impacted by the recognition of deferred tax benefits related to net operating loss carryforwards. LIQUIDITY AND CAPITAL RESOURCES OVERVIEW The Company had working capital of $264,088,000 and $236,977,000 as of March 31, 1997, and December 31, 1996, respectively. Long-term debt as a percentage of long-term debt plus shareholders' equity was 18 percent at March 31, 1997 compared to 21 percent at December 31, 1996. At March 31, 1997, the Company had cash, cash equivalents, and investments in marketable debt securities of $114,365,000 and had $17,788,000 of funds available under various lines of credit. The Company expects to generate positive cash flow from operations for the remainder of 1997, assuming no material decrease in demand 11 12 FORM 10-Q for contract drilling and turnkey services. The Company will continue to have cash requirements for debt principal and interest payments. For the remainder of 1997, required debt principal and interest payments for currently outstanding debt are estimated to be approximately $14,623,000. The Company expects to fund these obligations out of cash and short-term investments as well as cash expected to be provided by operations. Capital expenditures totaled $50,658,000 and $42,171,000 for the Current Quarter and Comparable Quarter, respectively. Capital expenditures for the remainder of 1997 are expected to aggregate approximately $335,000,000, of which the majority are discretionary and relate to upgrades of equipment. This amount includes approximately $147,000,000 for the conversions of the Noble Paul Romano and the Noble Paul Wolff to EVA-4000 semisubmersible units. The conversion of these two rigs will not be completed until 1998. The total cost of the Noble Paul Romano and Noble Paul Wolff EVA-4000 conversions is expected to be approximately $240,000.000. These capital expenditures will be funded from operating cash flows, existing cash balances, available lines of credit and/or net proceeds from the sale of the 12 mat supported jackup rigs. The Company is currently reviewing proposals from several financial institutions to provide project financing for the EVA-4000 semisubmersible rig conversions. Certain projects currently being considered by the Company could require, if they materialize, capital expenditures or other cash requirements not included in the above estimate. In addition, the Company will continue to evaluate acquisitions of drilling units from time to time. Factors that could cause actual capital expenditures to exceed materially the planned capital expenditures include delays and cost overruns in shipyards, shortages of equipment, latent damage or deterioration to hull, equipment and machinery in excess of engineering estimates and assumptions, and changes in design criteria or specifications during repair or construction. On May 7, 1997, the Company completed the sale of its 12 mat supported jackup rigs to Pride Petroleum Services, Inc. The sale also included the hull of one former mat supported jackup rig (Linn Richardson) which has had all drilling machinery and equipment removed. The sales price was $268,818,000 in cash. On May 12, 1997, the Company announced that its Board of Directors has authorized the repurchase of up to 10,000,000 shares of the Company's common stock, or approximately eight percent of its outstanding common stock. The common stock purchases, if any, will be made from time to time on the open market or through privately negotiated transactions at prices determined by the Company. CREDIT FACILITIES AND LONG-TERM DEBT At March 31, 1997, the Company had lines of credit totaling $25,000,000, of which $15,000,000 was available to support letters of credit, and letter of credit facilities totaling $10,000,000, subject to the Company's maintenance of certain levels of collateral. At March 31, 1997, $17,212,000 had been used to support outstanding letters of credit. At March 31, 1997, borrowings of $17,788,000 were available under the lines of credit, including $7,788,000 to support letters of credit. During the Current Quarter, the Company acquired $29,555,000 principal amount of its 9 1/4% Senior Notes, resulting in $84,445,000 principal amount of 9 1/4% Senior Notes outstanding at March 31, 1997. On March 31, 1997, the Company redeemed the remaining $1,026,000 principal amount of U.S. Government Financing Sinking Fund Bonds. On May 14, 1997, the Company commenced a tender offer to purchase for cash all the $84,445,000 principal amount then outstanding of its 9 1/4% Senior Notes. Under the terms of the offer, the Company will purchase the outstanding 9 1/4% Senior Notes at a price determined by reference to a fixed spread of 15 basis points over the yield to maturity of United States Treasury 6% Notes due September 30, 1998 at 3:00 p.m., New York City time, on June 10, 1997 (of which an amount equal to 1% of the principal amount shall constitute a consent payment that will be paid for 9 1/4% Senior Notes tendered at or prior to 5:00 p.m., New York City time, on May 29, 1997), plus accrued and unpaid interest up to (but excluding) the date of payment of such purchase price. In connection with the tender offer, the Company is also seeking consents from holders of 9 1/4% Senior Notes to certain proposed amendments to the Indenture governing the 9 1/4% Senior Notes. The offer will expire at 5:00 p.m., New York City time, on June 12, 1997, unless extended. Complete and detailed information regarding the offer is contained in the Company's Offer to Purchase and Consent Solicitation Statement dated May 14, 1997 which is being distributed to the holders of the 9 1/4% Senior Notes. The Company believes that its cash and cash equivalents, cash generated from operations, borrowings under its lines of credit and access to other financing sources will be adequate to meet its anticipated short-term and long-term liquidity requirements, including scheduled debt repayments. 12 13 FORM 10-Q PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The annual meeting of stockholders of Noble Drilling was held in Houston, Texas, at 10:00 a.m., local time, on April 24, 1997. (b) Proxies were solicited by the Board of Directors of Noble Drilling pursuant to Regulation 14A under the Securities Exchange Act of 1934. There was no solicitation in opposition to the Board of Directors' nominees as listed in the proxy statement and all of such nominees were duly elected. (c) Out of a total of 132,313,617 shares of Noble Drilling common stock outstanding and entitled to vote, 112,944,994 shares were present in person or by proxy, representing approximately 85 percent of outstanding shares. The first matter voted on by the stockholders, as fully described in the proxy statement for the annual meeting, was the re-election of James C. Day and Marc E. Leland to serve three-year terms on the Board of Directors of Noble Drilling. The results of voting were as follows:
Nominee Number of Shares Number of Shares for Re-election Voting FOR Re-election WITHHOLDING AUTHORITY as Director as Director to Vote for Re-election as Director - ------------------- ---------------------- ----------------------------------- James C. Day 112,256,961 688,033 Marc E. Leland 112,257,528 687,466
The only other matter voted on by the stockholders, as fully described in the proxy statement for the annual meeting, was the proposal to approve and ratify the Company's 1991 Stock Option and Restricted Stock Plan as amended and restated. The results of voting on this proposal were as follows: For: 82,121,274 Against: 30,621,150 Abstain 202,570 (d) Inapplicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. The information required by this Item 6(a) is set forth in the Index to Exhibits accompanying this quarterly report and is incorporated herein by reference. (b) No reports on Form 8-K were filed by the Company during the quarter ended March 31, 1997. 13 14 FORM 10-Q SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NOBLE DRILLING CORPORATION DATE: May 14, 1997 /s/ JAMES C. DAY --------------------------------- JAMES C. DAY, Chairman, President and Chief Executive Officer DATE: May 14, 1997 /s/ BYRON L. WELLIVER --------------------------------- BYRON L. WELLIVER, Senior Vice President-Finance, Treasurer and Controller (Principal Financial and Accounting Officer) 14 15 INDEX TO EXHIBITS Exhibit Number Exhibit - ------- ------- 27 Financial Data Schedule EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1997 MAR-31-1997 96,995 19,903 122,357 583 4,812 413,603 1,128,317 200,706 1,365,182 149,515 209,445 0 0 13,248 935,537 1,365,182 0 168,715 0 99,362 34,291 0 5,457 32,350 8,702 23,648 0 (1,704) 0 21,944 0.16 0.16
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