Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________________________________________________________________
FORM 10-Q
_____________________________________________________________________________________________________
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2017
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: 001-36211
_____________________________________________________________________________________________________
Noble Corporation plc
(Exact name of registrant as specified in its charter)
_____________________________________________________________________________________________________
England and Wales (Registered Number 08354954)
 
98-0619597
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. employer
identification number)
Devonshire House, 1 Mayfair Place, London, England, W1J8AJ
(Address of principal executive offices) (Zip Code)
Registrant’s Telephone Number, Including Area Code: +44 20 3300 2300
Commission file number: 001-31306
_____________________________________________________________________________________________________
Noble Corporation
(Exact name of registrant as specified in its charter)
_____________________________________________________________________________________________________
Cayman Islands
 
98-0366361
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. employer
identification number)
Suite 3D Landmark Square, 64 Earth Close, P.O. Box 31327 George Town, Grand Cayman, Cayman Islands, KY1-1206
(Address of principal executive offices) (Zip Code)
Registrant’s Telephone Number, Including Area Code: (345) 938-0293
_______________________________________________________________________________________________
Indicate by check mark whether each 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  þ    No  ¨
Indicate by check mark whether each registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨
Indicate by check mark whether each registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Noble Corporation plc:
Large accelerated filer þ
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company ¨
Emerging growth company ¨
Noble Corporation:
Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer þ
Smaller reporting company ¨
Emerging growth company ¨
Indicate by check mark whether each registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  þ
Number of shares outstanding and trading at July 25, 2017: Noble Corporation plc — 244,903,025
Number of shares outstanding: Noble Corporation — 261,245,693
Noble Corporation, a Cayman Islands company and a wholly owned subsidiary of Noble Corporation plc, a public limited company incorporated under the laws of England and Wales, meets the conditions set forth in General Instructions H(1) (a) and (b) to Form 10-Q and is therefore filing this Quarterly Report on Form 10-Q with the reduced disclosure format contemplated by paragraphs (b) and (c) of General Instruction H(2) of Form 10-Q.



TABLE OF CONTENTS
 
 
 
 
 
Page
PART I
 
 
 
Item 1
 
 
 
 
 
Noble Corporation plc (Noble-UK) Financial Statements:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Noble Corporation (Noble-Cayman) Financial Statements:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2
 
 
Item 3
 
 
Item 4
 
 
PART II
 
 
 
Item 1
 
 
Item 1A
 
 
Item 2
 
 
Item 6
 
 
 
 
 
 
 
 
This combined Quarterly Report on Form 10-Q is separately filed by Noble Corporation plc, a public limited company incorporated under the laws of England and Wales (“Noble-UK”), and Noble Corporation, a Cayman Islands company (“Noble-Cayman”). Information in this filing relating to Noble-Cayman is filed by Noble-UK and separately by Noble-Cayman on its own behalf. Noble-Cayman makes no representation as to information relating to Noble-UK (except as it may relate to Noble-Cayman) or any other affiliate or subsidiary of Noble-UK. Since Noble-Cayman meets the conditions specified in General Instructions H(1)(a) and (b) to Form 10-Q, it is permitted to use the reduced disclosure format for wholly-owned subsidiaries of reporting companies as stated in General Instructions H(2). Accordingly, Noble-Cayman has omitted from this report the information called for by Item 3 (Quantitative and Qualitative Disclosures about Market Risk) of Part I of Form 10-Q and the following items of Part II of Form 10-Q: Item 2 (Unregistered Sales of Equity Securities and Use of Proceeds) and Item 3 (Defaults upon Senior Securities).
This report should be read in its entirety as it pertains to each Registrant. Except where indicated, the Condensed Consolidated Financial Statements and related Notes are combined. References in this Quarterly Report on Form 10-Q to “Noble,” the “Company,” “we,” “us,” “our” and words of similar meaning refer collectively to Noble-UK and its condensed consolidated subsidiaries, including Noble-Cayman.

2


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NOBLE CORPORATION PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)

 
 
June 30,
2017
 
December 31,
2016
ASSETS
Current assets
 
 
 
 
Cash and cash equivalents
 
$
602,977

 
$
725,722

Accounts receivable, net
 
242,657

 
319,152

Taxes receivable
 
18,169

 
55,480

Prepaid expenses and other current assets
 
74,290

 
92,260

Total current assets
 
938,093

 
1,192,614

Property and equipment, at cost
 
12,410,857

 
12,364,888

Accumulated depreciation
 
(2,572,562
)
 
(2,302,940
)
Property and equipment, net
 
9,838,295

 
10,061,948

Other assets
 
248,709

 
185,555

Total assets
 
$
11,025,097

 
$
11,440,117

LIABILITIES AND EQUITY
Current liabilities
 
 
 
 
Current maturities of long-term debt
 
$
249,475

 
$
299,882

Accounts payable
 
86,643

 
108,224

Accrued payroll and related costs
 
38,326

 
48,383

Taxes payable
 
89,738

 
46,561

Interest payable
 
99,662

 
61,299

Other current liabilities
 
84,610

 
68,944

Total current liabilities
 
648,454

 
633,293

Long-term debt
 
3,793,894

 
4,040,229

Deferred income taxes
 
212,526

 
2,084

Other liabilities
 
297,806

 
297,066

Total liabilities
 
4,952,680

 
4,972,672

Commitments and contingencies (Note 14)
 


 


Shareholders' equity
 
 
 
 
Common stock, $0.01 par value, ordinary shares; 244,903 and 243,239 shares outstanding as of June 30, 2017 and December 31, 2016, respectively
 
2,449

 
2,432

Additional paid-in capital
 
665,014

 
654,168

Retained earnings
 
4,759,260

 
5,154,221

Accumulated other comprehensive loss
 
(50,354
)
 
(52,140
)
Total shareholders' equity
 
5,376,369

 
5,758,681

Noncontrolling interests
 
696,048

 
708,764

Total equity
 
6,072,417

 
6,467,445

Total liabilities and equity
 
$
11,025,097

 
$
11,440,117

See accompanying notes to the unaudited condensed consolidated financial statements.

3


NOBLE CORPORATION PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Operating revenues
 
 
 
 
 
 
 
 
Contract drilling services
 
$
271,532

 
$
876,697

 
$
626,191

 
$
1,468,064

Reimbursables
 
6,599

 
17,933

 
14,903

 
38,539

Other
 
11

 
153

 
24

 
153

 
 
278,142

 
894,783

 
641,118

 
1,506,756

Operating costs and expenses
 
 
 
 
 
 
 
 
Contract drilling services
 
162,371

 
244,176

 
322,756

 
495,424

Reimbursables
 
4,394

 
14,298

 
9,540

 
30,304

Depreciation and amortization
 
136,594

 
150,946

 
272,312

 
300,665

General and administrative
 
18,658

 
19,033

 
34,538

 
38,573

Loss on impairment
 
—

 
16,616

 
—

 
16,616

 
 
322,017

 
445,069

 
639,146

 
881,582

Operating income (loss)
 
(43,875
)
 
449,714

 
1,972

 
625,174

Other income (expense)
 
 
 
 
 
 
 
 
Interest expense, net of amount capitalized
 
(73,209
)
 
(57,306
)
 
(146,656
)
 
(114,406
)
Gain on extinguishment of debt, net
 
—

 
11,066

 
—

 
11,066

Interest income and other, net
 
2,664

 
(1,253
)
 
3,897

 
(1,983
)
Income (loss) from continuing operations before income taxes
 
(114,420
)
 
402,221

 
(140,787
)
 
519,851

Income tax benefit (provision)
 
18,213

 
(56,822
)
 
(239,194
)
 
(50,319
)
Net income (loss) from continuing operations
 
(96,207
)
 
345,399

 
(379,981
)
 
469,532

Net loss from discontinued operations, net of tax
 
(1,486
)
 
—

 
(1,486
)
 
—

Net income (loss)
 
(97,693
)
 
345,399

 
(381,467
)
 
469,532

Net (income) loss attributable to noncontrolling interests
 
4,343

 
(22,533
)
 
(13,577
)
 
(41,181
)
Net income (loss) attributable to Noble Corporation plc
 
$
(93,350
)
 
$
322,866

 
$
(395,044
)
 
$
428,351

Net income (loss) attributable to Noble Corporation plc

 
 
 
 
 
 
 
 
Income (loss) from continuing operations
 
$
(91,864
)
 
$
322,866

 
$
(393,558
)
 
$
428,351

Net loss from discontinued operations, net of tax
 
(1,486
)
 
—

 
(1,486
)
 
—

Net income (loss) attributable to Noble Corporation plc
 
$
(93,350
)
 
$
322,866

 
$
(395,044
)
 
$
428,351

Per share data
 
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
 
$
(0.37
)
 
$
1.28

 
$
(1.61
)
 
$
1.70

Loss from discontinued operations
 
(0.01
)
 
—

 
(0.01
)
 
—

Net income (loss) attributable to Noble Corporation plc
 
$
(0.38
)
 
$
1.28

 
$
(1.62
)
 
$
1.70

Diluted:
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
 
$
(0.37
)
 
$
1.28

 
$
(1.61
)
 
$
1.70

Loss from discontinued operations
 
(0.01
)
 
—

 
(0.01
)
 
—

Net income (loss) attributable to Noble Corporation plc
 
$
(0.38
)
 
$
1.28

 
$
(1.62
)
 
$
1.70

See accompanying notes to the unaudited condensed consolidated financial statements.

4


NOBLE CORPORATION PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Net income (loss)
 
$
(97,693
)
 
$
345,399

 
$
(381,467
)
 
$
469,532

Other comprehensive income (loss)
 
 
 
 
 
 

 
 

Foreign currency translation adjustments
 
94

 
38

 
280

 
806

Foreign currency forward contracts
 
849

 
(2,054
)
 
739

 
(1,068
)
Amortization of deferred pension plan amounts (net of tax provision of $161 and $410 for the three months ended June 30, 2017 and 2016, respectively, and $328 and $819 for the six months ended June 30, 2017 and 2016, respectively)
 
375

 
784

 
767

 
1,567

Other comprehensive income (loss), net
 
1,318

 
(1,232
)
 
1,786

 
1,305

Net comprehensive (income) loss attributable to noncontrolling interests
 
4,343

 
(22,533
)
 
(13,577
)
 
(41,181
)
Comprehensive income (loss) attributable to Noble Corporation plc
 
$
(92,032
)
 
$
321,634

 
$
(393,258
)
 
$
429,656


See accompanying notes to the unaudited condensed consolidated financial statements.

5


NOBLE CORPORATION PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
 
 
Six Months Ended June 30,
 
 
2017
 
2016
Cash flows from operating activities
 
 
 
 
Net income (loss)
 
$
(381,467
)
 
$
469,532

Adjustments to reconcile net income to net cash flow from operating activities:
 
 
 
 
Depreciation and amortization
 
272,312

 
300,665

Loss on impairment
 
—

 
16,616

Gain on extinguishment of debt, net
 
—

 
(11,066
)
Deferred income taxes
 
303,084

 
(100,408
)
Amortization of share-based compensation
 
15,187

 
19,565

Other long-term asset write-off
 
14,419

 
—

Net change in other assets and liabilities
 
30,750

 
164,319

Net cash provided by operating activities
 
254,285

 
859,223

Cash flows from investing activities
 
 
 
 
Capital expenditures
 
(48,957
)
 
(120,531
)
Change in accrued capital expenditures
 
(18,651
)
 
(38,378
)
Proceeds from disposal of assets
 
314

 
21,190

Net cash used in investing activities
 
(67,294
)
 
(137,719
)
Cash flows from financing activities
 
 
 
 
Repayments of debt
 
(300,000
)
 
(322,207
)
Debt issuance costs on senior notes and credit facility
 
(42
)
 
—

Premiums paid on early repayment of long-term debt
 
—

 
(1,781
)
Dividend payments
 
—

 
(42,542
)
Dividends paid to noncontrolling interests
 
(5,393
)
 
(41,088
)
Employee stock transactions
 
(4,301
)
 
(3,153
)
Net cash used in financing activities
 
(309,736
)
 
(410,771
)
Net increase (decrease) in cash and cash equivalents
 
(122,745
)
 
310,733

Cash and cash equivalents, beginning of period
 
725,722

 
512,245

Cash and cash equivalents, end of period
 
$
602,977

 
$
822,978

See accompanying notes to the unaudited condensed consolidated financial statements.

6


NOBLE CORPORATION PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(In thousands)
(Unaudited)
 
 
 
Shares
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Noncontrolling Interests
 
Total Equity
 
 
Balance
 
Par Value
 
 
 
 
 
Balance at December 31, 2015
 
241,977

 
$
2,420

 
$
628,483

 
$
6,131,501

 
$
(63,175
)
 
$
723,001

 
$
7,422,230

Employee related equity activity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization of share-based compensation
 
—

 
—

 
19,565

 
—

 
—

 
—

 
19,565

Issuance of share-based compensation shares
 
1,241

 
12

 
(3,585
)
 
—

 
—

 
—

 
(3,573
)
Tax benefit of equity transactions

 
—

 
—

 
(5,499
)
 
—

 
—

 
—

 
(5,499
)
Net income
 
—

 
—

 
—

 
428,351

 
—

 
41,181

 
469,532

Dividends paid to noncontrolling interests
 
—

 
—

 
—

 
—

 
—

 
(41,088
)
 
(41,088
)
Dividends
 
—

 
—

 
—

 
(42,691
)
 
—

 
—

 
(42,691
)
Other comprehensive income, net
 
—

 
—

 
—

 
—

 
1,305

 
—

 
1,305

Balance at June 30, 2016
 
243,218

 
$
2,432

 
$
638,964

 
$
6,517,161

 
$
(61,870
)
 
$
723,094

 
$
7,819,781

Balance at December 31, 2016
 
243,239

 
$
2,432

 
$
654,168

 
$
5,154,221

 
$
(52,140
)
 
$
708,764

 
$
6,467,445

Employee related equity activity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization of share-based compensation
 
—

 
—

 
15,187

 
—

 
—

 
—

 
15,187

Issuance of share-based compensation shares
 
1,664

 
17

 
(23
)
 
—

 
—

 
—

 
(6
)
Shares withheld for taxes on equity transactions
 
—

 
—

 
(4,318
)
 
—

 
—

 
—

 
(4,318
)
Net income (loss)
 
—

 
—

 
—

 
(395,044
)
 
—

 
13,577

 
(381,467
)
Dividends paid to noncontrolling interests
 
—

 
—

 
—

 
—

 
—

 
(26,293
)
 
(26,293
)
Dividends
 
—

 
—

 
—

 
83

 
—

 
—

 
83

Other comprehensive income, net
 
—

 
—

 
—

 
—

 
1,786

 
—

 
1,786

Balance at June 30, 2017
 
244,903

 
$
2,449

 
$
665,014

 
$
4,759,260

 
$
(50,354
)
 
$
696,048

 
$
6,072,417

See accompanying notes to the unaudited condensed consolidated financial statements.

7


NOBLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited) 

 
 
June 30,
2017
 
December 31,
2016
ASSETS
Current assets
 
 
 
 
Cash and cash equivalents
 
$
602,178

 
$
653,833

Accounts receivable, net
 
242,657

 
319,152

Taxes receivable
 
18,169

 
55,480

Prepaid expenses and other current assets
 
74,200

 
88,749

Total current assets
 
937,204

 
1,117,214

Property and equipment, at cost
 
12,410,857

 
12,364,888

Accumulated depreciation
 
(2,572,562
)
 
(2,302,940
)
Property and equipment, net
 
9,838,295

 
10,061,948

Other assets
 
248,794

 
178,552

Total assets
 
$
11,024,293

 
$
11,357,714

LIABILITIES AND EQUITY
Current liabilities
 
 
 
 
Current maturities of long-term debt
 
$
249,475

 
$
299,882

Accounts payable
 
86,414

 
107,868

Accrued payroll and related costs
 
38,340

 
48,319

Taxes payable
 
89,312

 
46,561

Interest payable
 
99,662

 
61,299

Other current liabilities
 
84,478

 
67,312

Total current liabilities
 
647,681

 
631,241

Long-term debt
 
3,793,894

 
4,040,229

Deferred income taxes
 
212,526

 
2,084

Other liabilities
 
297,806

 
292,183

Total liabilities
 
4,951,907

 
4,965,737

Commitments and contingencies (Note 14)
 


 


Shareholder equity
 
 
 
 
Common stock, $0.01 par value, ordinary shares; 261,246 shares outstanding as of June 30, 2017 and December 31, 2016
 
26,125

 
26,125

Capital in excess of par value
 
609,245

 
594,091

Retained earnings
 
4,791,322

 
5,115,137

Accumulated other comprehensive loss
 
(50,354
)
 
(52,140
)
Total shareholder equity
 
5,376,338

 
5,683,213

Noncontrolling interests
 
696,048

 
708,764

Total equity
 
6,072,386

 
6,391,977

Total liabilities and equity
 
$
11,024,293

 
$
11,357,714

See accompanying notes to the unaudited condensed consolidated financial statements.

8


NOBLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Operating revenues
 
 
 
 
 
 
 
 
Contract drilling services
 
$
271,532

 
$
876,697

 
$
626,191

 
$
1,468,064

Reimbursables
 
6,599

 
17,933

 
14,903

 
38,539

Other
 
11

 
253

 
24

 
853

 
 
278,142

 
894,883

 
641,118

 
1,507,456

Operating costs and expenses
 
 
 
 
 
 
 
 
Contract drilling services
 
161,857

 
242,234

 
321,873

 
491,524

Reimbursables
 
4,394

 
14,298

 
9,540

 
30,304

Depreciation and amortization
 
134,633

 
150,938

 
270,351

 
300,611

General and administrative
 
13,231

 
13,853

 
22,295

 
24,458

Loss on impairment
 
—

 
16,616

 
—

 
16,616

 
 
314,115

 
437,939

 
624,059

 
863,513

Operating income (loss)
 
(35,973
)
 
456,944

 
17,059

 
643,943

Other income (expense)
 
 
 
 
 
 
 
 
Interest expense, net of amount capitalized
 
(73,209
)
 
(57,306
)
 
(146,656
)
 
(114,406
)
Gain on extinguishment of debt, net
 
—

 
11,066

 
—

 
11,066

Interest income and other, net
 
2,728

 
(1,203
)
 
3,847

 
(1,936
)
Income (loss) from continuing operations before income taxes
 
(106,454
)
 
409,501

 
(125,750
)
 
538,667

Income tax benefit (provision)
 
18,213

 
(56,120
)
 
(239,160
)
 
(49,617
)
Net income (loss) from continuing operations
 
(88,241
)
 
353,381

 
(364,910
)
 
489,050

Net income from discontinued operations, net of tax
 
2,967

 
—

 
2,967

 
—

Net income (loss)
 
(85,274
)
 
353,381

 
(361,943
)
 
489,050

Net (income) loss attributable to noncontrolling interests
 
4,343

 
(22,533
)
 
(13,577
)
 
(41,181
)
Net income (loss) attributable to Noble Corporation
 
$
(80,931
)
 
$
330,848

 
$
(375,520
)
 
$
447,869

See accompanying notes to the unaudited condensed consolidated financial statements.

9


NOBLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Net income (loss)
 
$
(85,274
)
 
$
353,381

 
$
(361,943
)
 
$
489,050

Other comprehensive income (loss)
 
 
 
 
 
 

 
 

Foreign currency translation adjustments
 
94

 
38

 
280

 
806

Foreign currency forward contracts
 
849

 
(2,054
)
 
739

 
(1,068
)
Amortization of deferred pension plan amounts (net of tax provision of $161 and $410 for the three months ended June 30, 2017 and 2016, respectively, and $328 and $819 for the six months ended June 30, 2017 and 2016, respectively)
 
375

 
784

 
767

 
1,567

Other comprehensive income (loss), net
 
1,318

 
(1,232
)
 
1,786

 
1,305

Net comprehensive (income) loss attributable to noncontrolling interests
 
4,343

 
(22,533
)
 
(13,577
)
 
(41,181
)
Comprehensive income (loss) attributable to Noble Corporation
 
$
(79,613
)
 
$
329,616

 
$
(373,734
)
 
$
449,174

See accompanying notes to the unaudited condensed consolidated financial statements.

10


NOBLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
 
 
Six Months Ended June 30,
 
 
2017
 
2016
Cash flows from operating activities
 
 
 
 
Net income (loss)
 
$
(361,943
)
 
$
489,050

Adjustments to reconcile net income to net cash flow from operating activities:
 
 
 
 
Depreciation and amortization
 
270,351

 
300,611

Loss on impairment
 
—

 
16,616

Gain on extinguishment of debt, net
 
—

 
(11,066
)
Deferred income taxes
 
303,084

 
(100,408
)
Capital contribution by parent - share-based compensation
 
15,154

 
17,653

Other long-term asset write-off
 
14,419

 
—

Net change in other assets and liabilities
 
28,304

 
166,837

Net cash provided by operating activities
 
269,369

 
879,293

Cash flows from investing activities
 
 
 
 
Capital expenditures
 
(48,957
)
 
(120,531
)
Change in accrued capital expenditures
 
(18,651
)
 
(38,378
)
Proceeds from disposal of assets
 
314

 
21,190

Net cash used in investing activities
 
(67,294
)
 
(137,719
)
Cash flows from financing activities
 
 
 
 
Repayments of debt
 
(300,000
)
 
(322,207
)
Debt issuance costs on senior notes and credit facility
 
(42
)
 
—

Premiums paid on early repayment of long-term debt
 
—

 
(1,781
)
Dividends paid to noncontrolling interests
 
(5,393
)
 
(41,088
)
Contributions (distributions) from (to) parent company, net
 
51,705

 
(65,316
)
Net cash used in financing activities
 
(253,730
)
 
(430,392
)
Net increase (decrease) in cash and cash equivalents
 
(51,655
)
 
311,182

Cash and cash equivalents, beginning of period
 
653,833

 
511,795

Cash and cash equivalents, end of period
 
$
602,178

 
$
822,977

See accompanying notes to the unaudited condensed consolidated financial statements.

11


NOBLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(In thousands)
(Unaudited)
 
 
 
Shares
 
Capital in Excess of Par Value
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Noncontrolling Interests
 
Total Equity
 
 
Balance
 
Par Value
 
 
 
 
 
Balance at December 31, 2015
 
261,246

 
$
26,125

 
$
561,309

 
$
6,167,211

 
$
(63,175
)
 
$
723,001

 
$
7,414,471

Distributions to parent company, net
 
—

 
—

 
—

 
(65,316
)
 
—

 
—

 
(65,316
)
Capital contribution by parent - share-based compensation
 
—

 
—

 
17,653

 
—

 
—

 
—

 
17,653

Net income
 
—

 
—

 
—

 
447,869

 
—

 
41,181

 
489,050

Dividends paid to noncontrolling interests
 
—

 
—

 
—

 
—

 
—

 
(41,088
)
 
(41,088
)
Other comprehensive income, net
 
—

 
—

 
—

 
—

 
1,305

 
—

 
1,305

Balance at June 30, 2016
 
261,246

 
$
26,125

 
$
578,962

 
$
6,549,764

 
$
(61,870
)
 
$
723,094

 
$
7,816,075

Balance at December 31, 2016
 
261,246

 
$
26,125

 
$
594,091

 
$
5,115,137

 
$
(52,140
)
 
$
708,764

 
$
6,391,977

Contributions from parent company, net
 
—

 
—

 
—

 
51,705

 
—

 
—

 
51,705

Capital contribution by parent - share-based compensation
 
—

 
—

 
15,154

 
—

 
—

 
—

 
15,154

Net income (loss)
 
—

 
—

 
—

 
(375,520
)
 
—

 
13,577

 
(361,943
)
Dividends paid to noncontrolling interests
 
—

 
—

 
—

 
—

 
—

 
(26,293
)
 
(26,293
)
Other comprehensive income, net
 
—

 
—

 
—

 
—

 
1,786

 
—

 
1,786

Balance at June 30, 2017
 
261,246

 
$
26,125

 
$
609,245

 
$
4,791,322

 
$
(50,354
)
 
$
696,048

 
$
6,072,386

See accompanying notes to the unaudited condensed consolidated financial statements.

12


NOBLE CORPORATION PLC AND SUBSIDIARIES
NOBLE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data)
Note 1— Organization and Basis of Presentation
Noble Corporation plc, a public limited company incorporated under the laws of England and Wales (“Noble-UK”), is a leading offshore drilling contractor for the oil and gas industry. We perform contract drilling services with our global fleet of mobile offshore drilling units. As of June 30, 2017, our fleet consisted of 14 jackups, eight drillships and six semisubmersibles.
We report our contract drilling operations as a single reportable segment, Contract Drilling Services, which reflects how we manage our business, and the fact that all of our drilling fleet is dependent upon the worldwide oil and gas industry. The mobile offshore drilling units comprising our offshore rig fleet operate in a global market for contract drilling services and are often redeployed to different regions due to changing demands of our customers, which consist largely of major independent and government-owned or controlled oil and gas companies throughout the world. As of June 30, 2017, our contract drilling services segment conducted operations in the United States, the North Sea, the Middle East and Asia. Noble and its predecessors have been engaged in the contract drilling of oil and gas wells since 1921.
Noble Corporation, a Cayman Islands company (“Noble-Cayman”), is an indirect, wholly-owned subsidiary of Noble-UK, our publicly-traded parent company. Noble-UK’s principal asset is all of the shares of Noble-Cayman. Noble-Cayman has no public equity outstanding. The condensed consolidated financial statements of Noble-UK include the accounts of Noble-Cayman, and Noble-UK conducts substantially all of its business through Noble-Cayman and its subsidiaries.
The accompanying unaudited condensed consolidated financial statements of Noble-UK and Noble-Cayman have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) as they pertain to Quarterly Reports on Form 10-Q. Accordingly, certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. The unaudited financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the financial position and results of operations for the interim periods, on a basis consistent with the annual audited condensed consolidated financial statements. All such adjustments are of a recurring nature. The December 31, 2016 Condensed Consolidated Balance Sheets presented herein are derived from the December 31, 2016 audited consolidated financial statements, but does not include all disclosures required by GAAP. These interim financial statements should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2016, filed by both Noble-UK and Noble-Cayman. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.
Certain amounts in prior periods have been reclassified to conform to the current year presentation. In accordance with our adoption of Accounting Standards Update (“ASU”) No. 2016-9, prior period excess tax benefits of approximately $5.5 million, previously classified as a financing activity in “Employee stock transactions” on the June 30, 2016 Condensed Consolidated Statement of Cash Flows, are now classified as an operating activity in “Net change in other assets and liabilities” on the accompanying Condensed Consolidated Statement of Cash Flows for the comparative period. Prior period shares withheld for taxes on employee stock transactions of approximately $3.2 million, previously classified as an operating activity in “Net change in other assets and liabilities" on the June 30, 2016 Condensed Consolidated Statement of Cash Flows, are now classified as a financing activity in “Employee stock transactions” on the accompanying Condensed Consolidated Statement of Cash Flows for the comparative period.
Note 2— Spin-off of Paragon Offshore plc ("Paragon Offshore")
On August 1, 2014, Noble-UK completed the separation and spin-off of a majority of its standard specification offshore drilling business (the “Spin-off”) through a pro rata distribution of all of the ordinary shares of its wholly-owned subsidiary, Paragon Offshore, to the holders of Noble’s ordinary shares.
In February 2016, Paragon Offshore sought approval of a pre-negotiated plan of reorganization (the "Prior Plan") by filing for voluntary relief under Chapter 11 of the United States Bankruptcy Code. As part of the Prior Plan, we entered into a settlement agreement with Paragon Offshore (the “Settlement Agreement”) under which, in exchange for a full and unconditional release of any claims by Paragon Offshore in connection with the Spin-off (including fraudulent conveyance claims that could be brought on behalf of Paragon Offshore’s creditors), we agreed to provide certain tax bonding in Mexico as well as assume certain tax liabilities and the administration of Mexican tax claims for a specified number of years. The bonding to be provided by Noble-UK was a key benefit to Paragon Offshore of the Settlement Agreement, which was subject to bankruptcy court confirmation as part of a bankruptcy plan. The Prior Plan was rejected by the bankruptcy court in October 2016.
In April 2017, Paragon Offshore filed an updated disclosure statement and a revised plan of reorganization (the “New Plan”) in its bankruptcy proceeding. Under the New Plan, including Paragon Offshore’s revised business plan, Paragon Offshore no longer needed the Mexican tax bonding that Noble-UK was to provide under the Settlement Agreement. As a result, the Settlement Agreement was no longer applicable to the ongoing business of Paragon Offshore. Consequently, Paragon Offshore abandoned the Settlement Agreement as part of the New Plan, and the Settlement Agreement was terminated at the time of the filing of the New Plan. On May 2, 2017, Paragon Offshore announced that it had reached an agreement in principle with both its secured and unsecured creditors to revise the New Plan to, among other things, create and fund a $10.0 million litigation

13
NOBLE CORPORATION PLC AND SUBSIDIARIES
NOBLE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data)


trust to pursue litigation against us. On June 7, 2017, the revised New Plan was approved by the bankruptcy court and Paragon Offshore emerged from bankruptcy on July 18, 2017.
We expect Paragon Offshore or its creditors will use the litigation trust to pursue claims against us relating to the Spin-off, including alleged fraudulent conveyance claims. We continue to believe that Paragon Offshore, at the time of the Spin-off, was properly funded, solvent and had appropriate liquidity and that any fraudulent conveyance claim or other claim related to the Spin-off that may be brought by Paragon Offshore or its creditors, would be without merit and would be contested vigorously by us.
Prior to the completion of the Spin-off, Noble-UK and Paragon Offshore entered into a series of agreements to effect the separation and Spin-off and govern the relationship between the parties after the Spin-off (the "Separation Agreements"), including the Master Separation Agreement (the "MSA") and the Tax Sharing Agreement (the "TSA").
As part of its final bankruptcy plan, Paragon Offshore rejected the Separation Agreements. Accordingly, the indemnity obligations that Paragon Offshore potentially would have owed us under the Separation Agreements have now terminated, including indemnities arising under the MSA and the TSA in respect of obligations related to Paragon Offshore’s business that were incurred through Noble-retained entities prior to the Spin-off. Likewise, any potential indemnity obligations that we would have owed Paragon Offshore under the Separation Agreements, including those under the MSA and the TSA in respect of Noble-UK’s business that was conducted prior to the Spin-off through Paragon Offshore-retained entities, are now also extinguished. In the absence of the Separation Agreements, liabilities relating to the respective parties will be borne by the owner of the legal entity or asset at issue and neither party will look to an allocation based on the historic relationship of an entity or asset to one of the party’s business, as had been the case under the Separation Agreements.
The rejection and ultimate termination of the indemnity and related obligations under the Separation Agreements has resulted in a number of accounting charges and benefits in this period and such termination may continue to affect us in the future as liabilities arise for which we would have been indemnified by Paragon Offshore or would have had to indemnify Paragon Offshore. We do not expect that, overall, the rejection of the Separation Agreements by Paragon Offshore will have a material adverse effect on our financial condition or liquidity. However, any loss we experience with respect to which we would have been able to secure indemnification from Paragon Offshore under one or more of the Separation Agreements could have an adverse impact on our results of operations in any period, which impact may be material depending on our results of operations during this down-cycle.
For the three and six months ended June 30, 2017, we recognized net charges of $15.9 million, with a non-cash loss of $1.5 million recorded in "Net loss from discontinued operations, net of tax" on our Condensed Consolidated Statement of Operations relating to the emergence from bankruptcy of Paragon Offshore.
For more information on the Separation Agreements, see our Annual Report on Form 10-K for the year ended December 31, 2016.
Note 3— Consolidated Joint Ventures
We maintain a 50 percent interest in two joint ventures, each with a subsidiary of Royal Dutch Shell plc (“Shell”), that own and operate the two Bully-class drillships. We have determined that we are the primary beneficiary of the joint ventures. Accordingly, we consolidate the entities in our condensed consolidated financial statements after eliminating intercompany transactions. Shell’s equity interests are presented as noncontrolling interests on our Condensed Consolidated Balance Sheets.
During the six months ended June 30, 2017, the Bully joint ventures approved dividends totaling $52.6 million and paid dividends totaling $10.8 million. During the six months ended June 30, 2016, the Bully joint ventures approved and paid dividends totaling $82.2 million. Of these amounts, 50 percent was paid to our joint venture partner.
The combined carrying amount of the Bully-class drillships at both June 30, 2017 and December 31, 2016 totaled $1.4 billion. These assets were primarily funded through partner equity contributions. Cash held by the Bully joint ventures totaled approximately $83.3 million at June 30, 2017 as compared to approximately $34.7 million at December 31, 2016.

14
NOBLE CORPORATION PLC AND SUBSIDIARIES
NOBLE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data)


Note 4— Share Data
Earnings per share
The following table presents the computation of basic and diluted earnings per share for Noble-UK:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Numerator:
 
 

 
 

 
 

 
 

Basic
 
 
 
 
 
 
 
 
Net income (loss) attributable to Noble-UK
 
$
(93,350
)
 
$
322,866

 
$
(395,044
)
 
$
428,351

Net loss from discontinued operations, net of tax
 
1,486

 
—

 
1,486

 
—

Earnings allocated to unvested share-based payment awards
 
—

 
(11,577
)
 
—

 
(15,371
)
Net income (loss) from continuing operations to common shareholders - basic
 
$
(91,864
)
 
$
311,289

 
$
(393,558
)
 
$
412,980

Diluted
 
 

 
 

 
 

 
 

Net income (loss) attributable to Noble-UK
 
$
(93,350
)
 
$
322,866

 
$
(395,044
)
 
$
428,351

Net loss from discontinued operations, net of tax
 
1,486

 
—

 
1,486

 
—

Net income (loss) from continuing operations to common shareholders - diluted
 
$
(91,864
)
 
$
322,866

 
$
(393,558
)
 
$
428,351

Denominator:
 
 

 
 

 
 

 
 

Weighted average shares outstanding - basic
 
244,828

 
243,217

 
244,527

 
243,021

Incremental shares issuable from assumed exercise of stock options and outstanding unvested share-based payment awards
 
—

 
9,045

 
—

 
9,045

Weighted average shares outstanding - diluted
 
244,828

 
252,262

 
244,527

 
252,066

Earnings per share
 
 

 
 

 
 

 
 

Basic:
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
 
$
(0.37
)
 
$
1.28

 
$
(1.61
)
 
$
1.70

Loss from discontinued operations
 
(0.01
)
 
—

 
(0.01
)
 
—

Net income (loss) attributable to Noble-UK
 
$
(0.38
)
 
$
1.28

 
$
(1.62
)
 
$
1.70

Diluted:
 
 
 
 
 


 
 
Income (loss) from continuing operations
 
$
(0.37
)
 
$
1.28

 
$
(1.61
)
 
$
1.70

Loss from discontinued operations
 
(0.01
)
 
—

 
(0.01
)
 
—

Net income (loss) attributable to Noble-UK
 
$
(0.38
)
 
$
1.28

 
$
(1.62
)
 
$
1.70

Dividends per share
 
$
—

 
$
0.02

 
$
—

 
$
0.17

Only those items having a dilutive impact on our basic earnings per share are included in diluted earnings per share. For the three months ended June 30, 2017 and 2016, approximately 1.3 million and 1.6 million shares underlying stock options, respectively, were excluded from the diluted earnings per share as such stock options were anti-dilutive. For both the three and six months ended June 30, 2017, we experienced net losses from continuing operations and as a result approximately 11.3 million outstanding unvested share-based payment awards were excluded from the earnings per share calculation, as such awards were anti-dilutive.
Share capital
As of June 30, 2017, Noble-UK had approximately 244.9 million shares outstanding and trading as compared to approximately 243.2 million shares outstanding and trading at December 31, 2016. Our Board of Directors may increase our share capital through the issuance of up to 53.0 million authorized shares (at current nominal value of $0.01 per share) without obtaining shareholder approval.
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 resumption of the payment of future 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.

15
NOBLE CORPORATION PLC AND SUBSIDIARIES
NOBLE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data)


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. We do not currently have shareholder authority to repurchase shares, as our approval to repurchase up to 37.0 million ordinary shares expired on April 22, 2016. During the three and six months ended June 30, 2017, we did not repurchase any of our shares.
Note 5— Contract Settlement and Termination Agreement with Freeport-McMoRan Inc.
On May 10, 2016, Freeport-McMoRan Inc. (“Freeport”), Freeport-McMoRan Oil & Gas LLC and one of our subsidiaries entered into an agreement terminating the contracts on the Noble Sam Croft and Noble Tom Madden (“FCX Settlement”), which were scheduled to end in July 2017 and November 2017, respectively.
Pursuant to the FCX Settlement, Noble could have received contingent payments based upon the average price of oil over a 12-month period from June 30, 2016 through June 30, 2017. These contingent payments were not designated for hedge accounting treatment under FASB standards, and therefore, the change in fair value was recognized as a loss in the accompanying Condensed Consolidated Statements of Operations. For the three and six months ended June 30, 2017, we recognized losses of approximately $6.5 million and $14.4 million, respectively, in “Contract drilling services revenue,” related to the valuation of these contingent payments. As of June 30, 2017, the average price of oil did not meet the FCX Settlement's threshold during the 12-month period. Accordingly, as of June 30, 2017, the fair value of these contingent payments was reduced to zero, as the period for earning the contingent payments had ended. (See Note 11— Derivative Instruments and Hedging Activities and Note 12— Fair Value of Financial Instruments for additional information).
Note 6— Receivables from Customers
In prior periods, we had receivables of approximately $14.4 million related to the Noble Max Smith, which had been disputed by our former customer, Petróleos Mexicanos (“Pemex”) and were classified as long-term and included in "Other assets" on our Condensed Consolidated Balance Sheet. The receivables were related to lost revenues for downtime that occurred after our rig was damaged when one of Pemex's supply boats collided with our rig in 2010.
Paragon Offshore has announced that, as part of its bankruptcy plan, it will liquidate the Mexican entity currently prosecuting the Noble Max Smith claim against Pemex. While Noble owns all rights to amounts from that claim and will take available actions to recover such amounts, we believe the announced actions by Paragon Offshore creates uncertainty relating to the prosecution of the claim and associated recovery, and accordingly, the disputed amounts of approximately $14.4 million were written off through "Contract drilling services costs" on the accompanying Condensed Consolidated Statements of Operations as of June 30, 2017.
Note 7— Property and Equipment
Property and equipment, at cost, as of June 30, 2017 and December 31, 2016 for Noble-UK consisted of the following:
 
 
June 30, 2017
 
December 31, 2016
Drilling equipment and facilities
 
$
12,128,734

 
$
12,048,571

Construction in progress
 
78,345

 
112,103

Other
 
203,778

 
204,214

Property and equipment, at cost
 
$
12,410,857

 
$
12,364,888

Capital expenditures, including capitalized interest, totaled $49.0 million and $120.5 million for the six months ended June 30, 2017 and 2016, respectively. There was no capitalized interest for the six months ended June 30, 2017, due to the completion of our newbuild program. Capitalized interest was $3.6 million and $7.4 million for the three and six months ended June 30, 2016, respectively.

16
NOBLE CORPORATION PLC AND SUBSIDIARIES
NOBLE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data)


Note 8— Debt
Our total debt consisted of the following at June 30, 2017 and December 31, 2016:
 
 
June 30, 2017
 
December 31, 2016
Senior unsecured notes
 
 
 
 
2.50% Senior Notes due March 2017
 
$
—

 
$
299,992

5.75% Senior Notes due March 2018
 
249,864

 
249,771

7.50% Senior Notes due March 2019
 
201,695

 
201,695

4.90% Senior Notes due August 2020
 
167,600

 
167,576

4.625% Senior Notes due March 2021
 
208,552

 
208,538

3.95% Senior Notes due March 2022
 
125,503

 
125,488

7.75% Senior Notes due January 2024
 
981,187

 
980,117

7.70% Senior Notes due April 2025
 
448,958

 
448,909

6.20% Senior Notes due August 2040
 
399,899

 
399,898

6.05% Senior Notes due March 2041
 
397,779

 
397,758

5.25% Senior Notes due March 2042
 
498,384

 
498,369

8.70% Senior Notes due April 2045
 
394,636

 
394,613

Total debt
 
4,074,057

 
4,372,724

Less: Unamortized debt issuance costs
 
(30,688
)
 
(32,613
)
Less: Current maturities of long-term debt (1)
 
(249,475
)
 
(299,882
)
Long-term debt, net of debt issuance costs
 
$
3,793,894

 
$
4,040,229

(1) 
Presented net of current portion of unamortized debt issuance costs of $0.4 million and $0.1 million at June 30, 2017 and December 31, 2016, respectively.
Credit Facility and Commercial Paper Program
We currently have a five-year $2.4 billion senior unsecured credit facility that matures in January 2020 and is guaranteed by our indirect, wholly owned subsidiaries, Noble Holding (U.S.) LLC ("NHUS") and Noble Holding International Limited ("NHIL"). The credit facility provides us with the ability to issue up to $500.0 million in letters of credit. The issuance of letters of credit under the facility reduces the amount available for borrowing.
Throughout the term of the credit facility, we pay a facility fee on the daily unused amount of the underlying commitment which ranges from 0.1 percent to 0.35 percent depending on our debt ratings. At June 30, 2017, based on our debt ratings on that date, the facility fee was 0.35 percent. At June 30, 2017, we had no borrowings outstanding or letters of credit issued. In addition, our credit facility has provisions which vary the applicable interest rates based upon our debt ratings. At June 30, 2017, the interest rate in effect is the highest permitted interest rate under the credit facility.
Debt Issuances
In December 2016, we issued $1.0 billion aggregate principal amount of 7.75% Senior Notes, which we issued through our indirect wholly-owned subsidiary, NHIL. The net proceeds of approximately $967.6 million, after estimated expenses, were primarily used to retire debt related to our tender offer and the remaining portion will be used for general corporate purposes.
Senior Notes Interest Rate Adjustments
During 2016 and to date in 2017, we experienced debt rating downgrades by Moody’s Investors Service and S&P Global Ratings, which reduced our debt ratings below investment grade. As a result of these downgrades, we experienced interest rate increases during 2016 and 2017 on our Senior Notes due 2018, 2025 and 2045, all of which are subject to provisions that vary the applicable interest rates if our debt rating falls below investment grade, with continued adjustments up to a contractually-defined maximum interest rate increase set for each rating agency. On April 28, 2017, Moody’s Investors Service reduced our debt rating. However, there was no further increase in the interest rates on these Senior Notes because we have reached the contractually-defined maximum interest rate increase in respect of Moody’s Investors Service downgrades. The interest rates on these Senior Notes may be further increased if our debt ratings were to be downgraded further by S&P Global Ratings (up to a maximum of an additional 25 basis points) or decreased if our debt ratings were to be raised by either rating agency above specified levels.

17
NOBLE CORPORATION PLC AND SUBSIDIARIES
NOBLE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data)


Our other outstanding senior notes, including the Senior Notes due 2024 issued in December 2016, do not contain provisions varying applicable interest rates based upon our credit rating.
Debt Tender Offers and Repayments
In December 2016, we commenced cash tender offers for our 4.90% Senior Notes due 2020, of which $467.8 million principal amount was outstanding, our 4.625% Senior Notes due 2021, of which $396.6 million principal amount was outstanding and our 3.95% Senior Notes due 2022, of which $400.0 million principal amount was outstanding. On December 28, 2016, we purchased $762.3 million of these Senior Notes for $750.0 million, plus accrued interest, using a portion of the net proceeds of the $1.0 billion Senior Notes due 2024 issuance in December 2016. In December 2016, as a result of this transaction, we recognized a net gain of approximately $6.7 million.
In March 2016, we commenced cash tender offers for our 4.90% Senior Notes due 2020, of which $500.0 million principal amount was outstanding, and our 4.625% Senior Notes due 2021, of which $400.0 million principal amount was outstanding. On April 1, 2016, we purchased $36.0 million of these Senior Notes for $24.0 million, plus accrued interest, using cash on hand. In April 2016, as a result of this transaction, we recognized a net gain of approximately $11.1 million.
In March 2017, we repaid our maturing $300.0 million 2.50% Senior Notes using cash on hand.
We currently anticipate using cash on hand to repay the outstanding principal balance of our $250.0 million 5.75% Senior Notes, maturing in March 2018.
Covenants
The credit facility is guaranteed by NHUS and NHIL. The credit facility contains a covenant that limits our ratio of debt to total tangible capitalization, as defined in the credit facility, to 0.60. At June 30, 2017, our ratio of debt to total tangible capitalization was approximately 0.40. We were in compliance with all covenants under the credit facility as of June 30, 2017.
In addition to the covenants from the credit facility noted above, the indentures governing our outstanding senior unsecured notes contain covenants that place restrictions on certain merger and consolidation transactions, unless we are the surviving entity or the other party assumes the obligations under the indenture, and on the ability to sell or transfer all or substantially all of our assets. In addition, there are restrictions on incurring or assuming certain liens and on entering into sale and lease-back transactions. At June 30, 2017, we were in compliance with all of our debt covenants. We continually monitor compliance with the covenants under our notes and expect to remain in compliance during the remainder of 2017.
Fair Value of Debt
Fair value represents the amount at which an instrument could be exchanged in a current transaction between willing parties. The estimated fair value of our senior notes was based on the quoted market prices for similar issues or on the current rates offered to us for debt of similar remaining maturities (Level 2 measurement). All remaining fair value disclosures are presented in Note 12— Fair Value of Financial Instruments.

18
NOBLE CORPORATION PLC AND SUBSIDIARIES
NOBLE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data)


The following table presents the estimated fair value of our total debt, not including the effect of unamortized debt issuance costs, as of June 30, 2017 and December 31, 2016, respectively:
 
 
June 30, 2017
 
December 31, 2016
 
 
Carrying Value
 
Estimated Fair Value
 
Carrying Value
 
Estimated Fair Value
Senior unsecured notes:
 
 
 
 
 
 
 
 
2.50% Senior Notes due March 2017
 
$
—

 
$
—

 
$
299,992

 
$
299,128

5.75% Senior Notes due March 2018
 
249,864

 
250,682

 
249,771

 
249,808

7.50% Senior Notes due March 2019
 
201,695

 
204,378

 
201,695

 
209,524

4.90% Senior Notes due August 2020
 
167,600

 
153,912

 
167,576

 
167,329

4.625% Senior Notes due March 2021
 
208,552

 
171,182

 
208,538

 
196,416

3.95% Senior Notes due March 2022
 
125,503

 
99,223

 
125,488

 
112,791

7.75% Senior Notes due January 2024
 
981,187

 
793,560

 
980,117

 
945,317

7.70% Senior Notes due April 2025
 
448,958

 
348,899

 
448,909

 
423,267

6.20% Senior Notes due August 2040
 
399,899

 
244,636

 
399,898

 
280,221

6.05% Senior Notes due March 2041
 
397,779

 
236,908

 
397,758

 
273,854

5.25% Senior Notes due March 2042
 
498,384

 
281,715

 
498,369

 
325,814

8.70% Senior Notes due April 2045
 
394,636

 
292,756

 
394,613

 
328,608

Total debt
 
$
4,074,057

 
$
3,077,851

 
$
4,372,724

 
$
3,812,077

 
Note 9— Income Taxes
At June 30, 2017, the reserves for uncertain tax positions totaled $190.3 million (net of related tax benefits of $1.0 million). If the June 30, 2017 reserves are not realized, the provision for income taxes would be reduced by $184.1 million. At December 31, 2016, the reserves for uncertain tax positions totaled $172.5 million (net of related tax benefits of $1.0 million).
It is reasonably possible that our existing liabilities related to our reserve for uncertain tax positions may fluctuate in the next 12 months primarily due to the completion of open audits or the expiration of statutes of limitation. However, we cannot reasonably estimate a range of changes in our existing liabilities due to various uncertainties, such as the unresolved nature of various audits.
At June 30, 2017, our income tax provision included a non-cash, discrete item of $260.7 million as the result of an internal tax restructuring, which was implemented to reduce costs associated with the ownership of multiple legal entities, simplify the overall legal entity structure, ease deployment of cash throughout the business and consolidate operations into one centralized group of entities. The effect of this tax restructuring will be to lower current tax expense.
As of June 30, 2017, we recorded deferred charges of $147.5 million related to the deferral of income tax expense on intercompany asset transfers as a result of our internal tax restructuring. The deferred charges are included in “Other assets” on the accompanying Condensed Consolidated Balance Sheet and are amortized as a component of income tax expense over the remaining life of the underlying assets.
Note 10— Employee Benefit Plans
Pension costs include the following components for the three months ended June 30, 2017 and 2016:
 
 
Three Months Ended June 30,
 
 
2017
 
2016
 
 
Non-U.S.
 
U.S.
 
Non-U.S.
 
U.S.
Service cost
 
$
—

 
$
—

 
$
799

 
$
1,662

Interest cost
 
492

 
2,149

 
641

 
2,389

Return on plan assets
 
(721
)
 
(2,941
)
 
(904
)
 
(3,097
)
Amortization of prior service cost
 
—

 
—

 
27

 
29

Recognized net actuarial loss
 
245

 
366

 
38

 
1,100

Net pension benefit cost (gain)
 
$
16

 
$
(426
)
 
$
601

 
$
2,083


19
NOBLE CORPORATION PLC AND SUBSIDIARIES
NOBLE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data)


Pension costs include the following components for the six months ended June 30, 2017 and 2016:
 
 
Six Months Ended June 30,
 
 
2017
 
2016
 
 
Non-U.S.
 
U.S.
 
Non-U.S.
 
U.S.
Service cost
 
$
—

 
$
—

 
$
1,574

 
$
3,324

Interest cost
 
970

 
4,297

 
1,275

 
4,778

Return on plan assets
 
(1,422
)
 
(5,882
)
 
(1,799
)
 
(6,194
)
Amortization of prior service cost
 
—

 
—

 
53

 
58

Recognized net actuarial loss
 
511

 
732

 
75

 
2,200

Net pension benefit cost (gain)
 
$
59

 
$
(853
)
 
$
1,178

 
$
4,166

During the second quarter of 2017, we made contributions to our pension plans totaling approximately $0.2 million.
During the fourth quarter of 2016, we approved amendments, effective as of December 31, 2016, to our non-U.S. and U.S. defined benefit plans. With these amendments, employees and alternate payees will accrue no future benefits under the plans after December 31, 2016. However, these amendments will not affect any benefits earned through that date.
Note 11— Derivative Instruments and Hedging Activities
We periodically enter into derivative instruments to manage our exposure to fluctuations in interest rates and foreign currency exchange rates. We have documented policies and procedures to monitor and control the use of derivative instruments. We do not engage in derivative transactions for speculative or trading purposes, nor are we a party to leveraged derivatives.
The FCX Settlement included two contingent payments, which are further discussed below. We accounted for these contingent payments as derivative instruments that did not qualify under the Financial Accounting Standards Board (“FASB”) standards for hedge accounting treatment, and therefore, changes in fair values were recognized as a loss in the accompanying Condensed Consolidated Statements of Operations.
For foreign currency forward contracts, hedge effectiveness is evaluated at inception based on the matching of critical terms between derivative contracts and the hedged item. Any change in fair value resulting from ineffectiveness is recognized immediately in earnings.
Cash Flow Hedges
Several of our regional shorebases, including our North Sea operations, have a significant amount of their cash operating expenses payable in local currencies. To limit the potential risk of currency fluctuations, we periodically enter into forward contracts, which settle monthly in the operations’ respective local currencies. All of these contracts have a maturity of less than 12 months. The forward contract settlements in the remainder of 2017 represent approximately 70 percent of these forecasted local currency requirements. The notional amount of the forward contracts outstanding, expressed in U.S. Dollars, was approximately $20.6 million at June 30, 2017. Total unrealized gains related to these forward contracts were approximately $0.7 million as of June 30, 2017 and were recorded as part of “Accumulated other comprehensive income (loss)” (“AOCL”).
FCX Settlement
As discussed in Note 5— Contract Settlement and Termination Agreement with Freeport-McMoRan Inc., pursuant to the FCX Settlement, Noble could have received contingent payments from the FCX Settlement on September 30, 2017, depending on the average price of oil over a 12- month period from June 30, 2016 through June 30, 2017. The average price of oil was calculated using the daily closing price of West Texas Intermediate crude oil (“WTI”) (CL1) on the New York Mercantile Exchange for the period of June 30, 2016 through June 30, 2017. If the price of WTI averaged more than $50 per barrel during such period, Freeport would have paid $25.0 million to Noble. In addition to the $25.0 million contingent payment, if the price of WTI averaged more than $65 per barrel during such period, Freeport would have paid an additional $50.0 million to Noble. These contingent payments did not qualify for hedge accounting treatment under FASB standards, and therefore, the change in fair value was recognized as a loss in the accompanying Condensed Consolidated Statements of Operations. These contingent payments are referred to as non-designated derivatives in the following tables.
The price of WTI did not average more than $50 per barrel during the 12-month period. For the three and six months ended June 30, 2017, we recognized losses of approximately $6.5 million and $14.4 million, respectively, in “Contract drilling services revenue,” related to the valuation of these contingent payments. As of June 30, 2017, the fair value of these contingent payments was reduced to zero, as the period for earning the contingent payments had ended.

20
NOBLE CORPORATION PLC AND SUBSIDIARIES
NOBLE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data)


Financial Statement Presentation
The following table, together with Note 12— Fair Value of Financial Instruments, summarizes the financial statement presentation and fair value of our derivative positions as of June 30, 2017 and December 31, 2016:
 
 
 
 
Estimated fair value
 
 
Balance sheet
classification
 
June 30,
2017
 
December 31,
2016
Asset derivatives
 
 
 
 
 
 
Cash flow hedges
 
 
 
 
 
 
Foreign currency forward contracts
 
Prepaid expenses and other current assets
 
$
739

 
$
—

Non-designated derivatives
 
 
 
 
 
 
FCX Settlement
 
Prepaid expenses and other current assets
 
$
—

 
$
14,400

To supplement the fair value disclosures in Note 12— Fair Value of Financial Instruments, the following table summarizes the recognized gains and losses of cash flow hedges and non-designated derivatives through AOCL or as “contract drilling services” revenue or expense for the three months ended June 30, 2017 and 2016:
 
 
Unrealized gain/(loss) recognized through AOCL
 
Gain/(loss) reclassified from AOCL to "contract drilling services" expense
 
Gain/(loss) recognized through "contract drilling services" revenue
 
 
2017