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: September 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 October 25, 2017: Noble Corporation plc — 244,967,113
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)

 
 
September 30,
2017
 
December 31,
2016
ASSETS
Current assets
 
 
 
 
Cash and cash equivalents
 
$
608,763

 
$
725,722

Accounts receivable, net
 
202,533

 
319,152

Taxes receivable
 
55,394

 
55,480

Prepaid expenses and other current assets
 
74,599

 
92,260

Total current assets
 
941,289

 
1,192,614

Property and equipment, at cost
 
12,421,765

 
12,364,888

Accumulated depreciation
 
(2,709,498
)
 
(2,302,940
)
Property and equipment, net
 
9,712,267

 
10,061,948

Other assets
 
244,663

 
185,555

Total assets
 
$
10,898,219

 
$
11,440,117

LIABILITIES AND EQUITY
Current liabilities
 
 
 
 
Current maturities of long-term debt
 
$
249,652

 
$
299,882

Accounts payable
 
83,986

 
108,224

Accrued payroll and related costs
 
46,844

 
48,383

Taxes payable
 
53,629

 
46,561

Interest payable
 
64,280

 
61,299

Other current liabilities
 
96,870

 
68,944

Total current liabilities
 
595,261

 
633,293

Long-term debt
 
3,795,327

 
4,040,229

Deferred income taxes
 
253,444

 
2,084

Other liabilities
 
289,330

 
297,066

Total liabilities
 
4,933,362

 
4,972,672

Commitments and contingencies (Note 12)
 


 


Shareholders' equity
 
 
 
 
Common stock, $0.01 par value, ordinary shares; 244,965 and 243,239 shares outstanding as of September 30, 2017 and December 31, 2016, respectively
 
2,450

 
2,432

Additional paid-in capital
 
671,605

 
654,168

Retained earnings
 
4,662,468

 
5,154,221

Accumulated other comprehensive loss
 
(49,561
)
 
(52,140
)
Total shareholders' equity
 
5,286,962

 
5,758,681

Noncontrolling interests
 
677,895

 
708,764

Total equity
 
5,964,857

 
6,467,445

Total liabilities and equity
 
$
10,898,219

 
$
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 September 30,
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
Operating revenues
 
 
 
 
 
 
 
 
Contract drilling services
 
$
259,740

 
$
373,257

 
$
885,931

 
$
1,841,321

Reimbursables and other
 
6,472

 
11,896

 
21,399

 
50,588

 
 
266,212

 
385,153

 
907,330

 
1,891,909

Operating costs and expenses
 
 
 
 
 
 
 
 
Contract drilling services
 
165,028

 
207,204

 
487,784

 
702,628

Reimbursables
 
3,834

 
9,142

 
13,374

 
39,446

Depreciation and amortization
 
137,607

 
155,242

 
409,919

 
455,907

General and administrative
 
15,331

 
15,773

 
49,869

 
54,346

Loss on impairment
 
—

 
—

 
—

 
16,616

 
 
321,800

 
387,361

 
960,946

 
1,268,943

Operating income (loss)
 
(55,588
)
 
(2,208
)
 
(53,616
)
 
622,966

Other income (expense)
 
 
 
 
 
 
 
 
Interest expense, net of amount capitalized
 
(72,887
)
 
(52,569
)
 
(219,543
)
 
(166,975
)
Gain on extinguishment of debt, net
 
—

 
—

 
—

 
11,066

Interest income and other, net
 
389

 
540

 
4,286

 
(1,443
)
Income (loss) from continuing operations before income taxes
 
(128,086
)
 
(54,237
)
 
(268,873
)
 
465,614

Income tax benefit (provision)
 
28,605

 
10,002

 
(210,589
)
 
(40,317
)
Net income (loss) from continuing operations
 
(99,481
)
 
(44,235
)
 
(479,462
)
 
425,297

Net loss from discontinued operations, net of tax
 
—

 
—

 
(1,486
)
 
—

Net income (loss)
 
(99,481
)
 
(44,235
)
 
(480,948
)
 
425,297

Net (income) loss attributable to noncontrolling interests
 
2,689

 
(10,846
)
 
(10,888
)
 
(52,027
)
Net income (loss) attributable to Noble Corporation plc
 
$
(96,792
)
 
$
(55,081
)
 
$
(491,836
)
 
$
373,270

Net income (loss) attributable to Noble Corporation plc

 
 
 
 
 
 
 
 
Income (loss) from continuing operations
 
$
(96,792
)
 
$
(55,081
)
 
$
(490,350
)
 
$
373,270

Net loss from discontinued operations, net of tax
 
—

 
—

 
(1,486
)
 
—

Net income (loss) attributable to Noble Corporation plc
 
$
(96,792
)
 
$
(55,081
)
 
$
(491,836
)
 
$
373,270

Per share data
 
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
 
$
(0.40
)
 
$
(0.23
)
 
$
(2.00
)
 
$
1.48

Loss from discontinued operations
 
—

 
—

 
(0.01
)
 
—

Net income (loss) attributable to Noble Corporation plc
 
$
(0.40
)
 
$
(0.23
)
 
$
(2.01
)
 
$
1.48

Diluted:
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
 
$
(0.40
)
 
$
(0.23
)
 
$
(2.00
)
 
$
1.48

Loss from discontinued operations
 
—

 
—

 
(0.01
)
 
—

Net income (loss) attributable to Noble Corporation plc
 
$
(0.40
)
 
$
(0.23
)
 
$
(2.01
)
 
$
1.48

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 September 30,
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
Net income (loss)
 
$
(99,481
)
 
$
(44,235
)
 
$
(480,948
)
 
$
425,297

Other comprehensive income (loss)
 
 
 
 
 
 

 
 

Foreign currency translation adjustments
 
469

 
(543
)
 
749

 
263

Foreign currency forward contracts
 
(65
)
 
463

 
674

 
(605
)
Amortization of deferred pension plan amounts (net of tax provision of $165 and $408 for the three months ended September 30, 2017 and 2016, respectively, and $493 and $1,227 for the nine months ended September 30, 2017 and 2016, respectively)
 
389

 
781

 
1,156

 
2,348

Other comprehensive income, net
 
793

 
701

 
2,579

 
2,006

Net comprehensive (income) loss attributable to noncontrolling interests
 
2,689

 
(10,846
)
 
(10,888
)
 
(52,027
)
Comprehensive income (loss) attributable to Noble Corporation plc
 
$
(95,999
)
 
$
(54,380
)
 
$
(489,257
)
 
$
375,276


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)
 
 
 
Nine Months Ended September 30,
 
 
2017
 
2016
Cash flows from operating activities
 
 
 
 
Net income (loss)
 
$
(480,948
)
 
$
425,297

Adjustments to reconcile net income to net cash flow from operating activities:
 
 
 
 
Depreciation and amortization
 
409,919

 
455,907

Loss on impairment
 
—

 
16,616

Gain on extinguishment of debt, net
 
—

 
(11,066
)
Deferred income taxes
 
343,962

 
(82,774
)
Amortization of share-based compensation
 
21,788

 
27,222

Other long-term asset write-off
 
28,689

 
—

Net change in other assets and liabilities
 
(24,330
)
 
129,166

Net cash provided by operating activities
 
299,080

 
960,368

Cash flows from investing activities
 
 
 
 
Capital expenditures
 
(74,363
)
 
(592,038
)
Change in accrued capital expenditures
 
(12,337
)
 
(41,235
)
Proceeds from disposal of assets
 
1,306

 
23,390

Net cash used in investing activities
 
(85,394
)
 
(609,883
)
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
 
—

 
(47,534
)
Dividends paid to noncontrolling interests
 
(26,293
)
 
(61,980
)
Employee stock transactions
 
(4,310
)
 
(3,176
)
Net cash used in financing activities
 
(330,645
)
 
(436,678
)
Net decrease in cash and cash equivalents
 
(116,959
)
 
(86,193
)
Cash and cash equivalents, beginning of period
 
725,722

 
512,245

Cash and cash equivalents, end of period
 
$
608,763

 
$
426,052

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
 
—

 
—

 
27,222

 
—

 
—

 
—

 
27,222

Issuance of share-based compensation shares
 
1,256

 
12

 
(3,609
)
 
—

 
—

 
—

 
(3,597
)
Tax benefit of equity transactions

 
—

 
—

 
(5,495
)
 
—

 
—

 
—

 
(5,495
)
Net income
 
—

 
—

 
—

 
373,270

 
—

 
52,027

 
425,297

Dividends paid to noncontrolling interests
 
—

 
—

 
—

 
—

 
—

 
(61,980
)
 
(61,980
)
Dividends
 
—

 
—

 
—

 
(47,700
)
 
—

 
—

 
(47,700
)
Other comprehensive income, net
 
—

 
—

 
—

 
—

 
2,006

 
—

 
2,006

Balance at September 30, 2016
 
243,233

 
$
2,432

 
$
646,601

 
$
6,457,071

 
$
(61,169
)
 
$
713,048

 
$
7,757,983

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
 
—

 
—

 
21,788

 
—

 
—

 
—

 
21,788

Issuance of share-based compensation shares
 
1,726

 
18

 
(23
)
 
—

 
—

 
—

 
(5
)
Shares withheld for taxes on equity transactions
 
—

 
—

 
(4,328
)
 
—

 
—

 
—

 
(4,328
)
Net income (loss)
 
—

 
—

 
—

 
(491,836
)
 
—

 
10,888

 
(480,948
)
Dividends paid to noncontrolling interests
 
—

 
—

 
—

 
—

 
—

 
(26,293
)
 
(26,293
)
Dividends unpaid to noncontrolling interests
 
—

 
—

 
—

 
—

 
—

 
(15,464
)
 
(15,464
)
Dividends (1)
 
—

 
—

 
—

 
83

 
—

 
—

 
83

Other comprehensive income, net
 
—

 
—

 
—

 
—

 
2,579

 
—

 
2,579

Balance at September 30, 2017
 
244,965

 
$
2,450

 
$
671,605

 
$
4,662,468

 
$
(49,561
)
 
$
677,895

 
$
5,964,857

(1) 
Activity associated with dividend equivalents, which are related to 2016 performance awards to be paid upon vesting.
See accompanying notes to the unaudited condensed consolidated financial statements.



7


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

 
 
September 30,
2017
 
December 31,
2016
ASSETS
Current assets
 
 
 
 
Cash and cash equivalents
 
$
607,958

 
$
653,833

Accounts receivable, net
 
202,533

 
319,152

Taxes receivable
 
55,394

 
55,480

Prepaid expenses and other current assets
 
73,649

 
88,749

Total current assets
 
939,534

 
1,117,214

Property and equipment, at cost
 
12,421,765

 
12,364,888

Accumulated depreciation
 
(2,709,498
)
 
(2,302,940
)
Property and equipment, net
 
9,712,267

 
10,061,948

Other assets
 
244,748

 
178,552

Total assets
 
$
10,896,549

 
$
11,357,714

LIABILITIES AND EQUITY
Current liabilities
 
 
 
 
Current maturities of long-term debt
 
$
249,652

 
$
299,882

Accounts payable
 
83,875

 
107,868

Accrued payroll and related costs
 
46,844

 
48,319

Taxes payable
 
53,203

 
46,561

Interest payable
 
64,280

 
61,299

Other current liabilities
 
96,788

 
67,312

Total current liabilities
 
594,642

 
631,241

Long-term debt
 
3,795,327

 
4,040,229

Deferred income taxes
 
253,444

 
2,084

Other liabilities
 
289,330

 
292,183

Total liabilities
 
4,932,743

 
4,965,737

Commitments and contingencies (Note 12)
 


 


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

 
26,125

Capital in excess of par value
 
615,822

 
594,091

Retained earnings
 
4,693,525

 
5,115,137

Accumulated other comprehensive loss
 
(49,561
)
 
(52,140
)
Total shareholder equity
 
5,285,911

 
5,683,213

Noncontrolling interests
 
677,895

 
708,764

Total equity
 
5,963,806

 
6,391,977

Total liabilities and equity
 
$
10,896,549

 
$
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 September 30,
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
Operating revenues
 
 
 
 
 
 
 
 
Contract drilling services
 
$
259,740

 
$
373,257

 
$
885,931

 
$
1,841,321

Reimbursables and other
 
6,472

 
11,896

 
21,399

 
51,288

 
 
266,212

 
385,153

 
907,330

 
1,892,609

Operating costs and expenses
 
 
 
 
 
 
 
 
Contract drilling services
 
164,568

 
206,072

 
486,441

 
697,596

Reimbursables
 
3,834

 
9,142

 
13,374

 
39,446

Depreciation and amortization
 
136,651

 
155,242

 
407,002

 
455,853

General and administrative
 
9,823

 
12,033

 
32,118

 
36,491

Loss on impairment
 
—

 
—

 
—

 
16,616

 
 
314,876

 
382,489

 
938,935

 
1,246,002

Operating income (loss)
 
(48,664
)
 
2,664

 
(31,605
)
 
646,607

Other income (expense)
 
 
 
 
 
 
 
 
Interest expense, net of amount capitalized
 
(72,887
)
 
(52,569
)
 
(219,543
)
 
(166,975
)
Gain on extinguishment of debt, net
 
—

 
—

 
—

 
11,066

Interest income and other, net
 
274

 
568

 
4,121

 
(1,368
)
Income (loss) from continuing operations before income taxes
 
(121,277
)
 
(49,337
)
 
(247,027
)
 
489,330

Income tax benefit (provision)
 
28,605

 
9,307

 
(210,555
)
 
(40,310
)
Net income (loss) from continuing operations
 
(92,672
)
 
(40,030
)
 
(457,582
)
 
449,020

Net income from discontinued operations, net of tax
 
—

 
—

 
2,967

 
—

Net income (loss)
 
(92,672
)
 
(40,030
)
 
(454,615
)
 
449,020

Net (income) loss attributable to noncontrolling interests
 
2,689

 
(10,846
)
 
(10,888
)
 
(52,027
)
Net income (loss) attributable to Noble Corporation
 
$
(89,983
)
 
$
(50,876
)
 
$
(465,503
)
 
$
396,993

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 September 30,
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
Net income (loss)
 
$
(92,672
)
 
$
(40,030
)
 
$
(454,615
)
 
$
449,020

Other comprehensive income (loss)
 
 
 
 
 
 

 
 

Foreign currency translation adjustments
 
469

 
(543
)
 
749

 
263

Foreign currency forward contracts
 
(65
)
 
463

 
674

 
(605
)
Amortization of deferred pension plan amounts (net of tax provision of $165 and $408 for the three months ended September 30, 2017 and 2016, respectively, and $493 and $1,227 for the nine months ended September 30, 2017 and 2016, respectively)
 
389

 
781

 
1,156

 
2,348

Other comprehensive income, net
 
793

 
701

 
2,579

 
2,006

Net comprehensive (income) loss attributable to noncontrolling interests
 
2,689

 
(10,846
)
 
(10,888
)
 
(52,027
)
Comprehensive income (loss) attributable to Noble Corporation
 
$
(89,190
)
 
$
(50,175
)
 
$
(462,924
)
 
$
398,999

See accompanying notes to the unaudited condensed consolidated financial statements.



10


NOBLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
 
 
Nine Months Ended September 30,
 
 
2017
 
2016
Cash flows from operating activities
 
 
 
 
Net income (loss)
 
$
(454,615
)
 
$
449,020

Adjustments to reconcile net income to net cash flow from operating activities:
 
 
 
 
Depreciation and amortization
 
407,002

 
455,853

Loss on impairment
 
—

 
16,616

Gain on extinguishment of debt, net
 
—

 
(11,066
)
Deferred income taxes
 
343,961

 
(82,774
)
Capital contribution by parent - share-based compensation
 
21,731

 
25,296

Other long-term asset write-off
 
28,689

 
—

Net change in other assets and liabilities
 
(24,805
)
 
132,911

Net cash provided by operating activities
 
321,963

 
985,856

Cash flows from investing activities
 
 
 
 
Capital expenditures
 
(74,363
)
 
(592,038
)
Change in accrued capital expenditures
 
(12,337
)
 
(41,235
)
Proceeds from disposal of assets
 
1,306

 
23,390

Net cash used in investing activities
 
(85,394
)
 
(609,883
)
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
 
(26,293
)
 
(61,980
)
Contributions (distributions) from (to) parent company, net
 
43,891

 
(76,051
)
Net cash used in financing activities
 
(282,444
)
 
(462,019
)
Net decrease in cash and cash equivalents
 
(45,875
)
 
(86,046
)
Cash and cash equivalents, beginning of period
 
653,833

 
511,795

Cash and cash equivalents, end of period
 
$
607,958

 
$
425,749

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
 
—

 
—

 
—

 
(76,051
)
 
—

 
—

 
(76,051
)
Capital contribution by parent - share-based compensation
 
—

 
—

 
25,296

 
—

 
—

 
—

 
25,296

Net income
 
—

 
—

 
—

 
396,993

 
—

 
52,027

 
449,020

Dividends paid to noncontrolling interests
 
—

 
—

 
—

 
—

 
—

 
(61,980
)
 
(61,980
)
Other comprehensive income, net
 
—

 
—

 
—

 
—

 
2,006

 
—

 
2,006

Balance at September 30, 2016
 
261,246

 
$
26,125

 
$
586,605

 
$
6,488,153

 
$
(61,169
)
 
$
713,048

 
$
7,752,762

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
 
—

 
—

 
—

 
43,891

 
—

 
—

 
43,891

Share-based compensation contribution by parent
 
—

 
—

 
21,731

 
—

 
—

 
—

 
21,731

Net income (loss)
 
—

 
—

 
—

 
(465,503
)
 
—

 
10,888

 
(454,615
)
Dividends paid to noncontrolling interests
 
—

 
—

 
—

 
—

 
—

 
(26,293
)
 
(26,293
)
     Dividends unpaid to noncontrolling interests
 
—

 
—

 
—

 
—

 
—

 
(15,464
)
 
(15,464
)
Other comprehensive income, net
 
—

 
—

 
—

 
—

 
2,579

 
—

 
2,579

Balance at September 30, 2017
 
261,246

 
$
26,125

 
$
615,822

 
$
4,693,525

 
$
(49,561
)
 
$
677,895

 
$
5,963,806

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 September 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. 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 primarily of large, integrated, independent and government-owned or controlled oil and gas companies throughout the world.
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, and as a result, they do 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, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, prior period excess tax benefits of approximately $5.5 million, previously classified as a financing activity in “Employee stock transactions” in the Consolidated Statement of Cash Flows for the nine months ended September 30, 2016, 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” in the Consolidated Statement of Cash Flows for the nine months ended September 30, 2016, are now classified as a financing activity in “Employee stock transactions” on the accompanying Condensed Consolidated Statement of Cash Flows for the comparative period. See Note 13— Accounting Pronouncements for additional information.
We have made certain reclassifications to our prior period amounts in our operating revenue by combining our other revenue with reimbursables revenue to conform to the current period presentation. Such reclassification did not have a material effect on our condensed consolidated statement of financial position, results of operations or cash flows.
Note 2— 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 three and nine months ended September 30, 2017, the Bully joint ventures approved dividends totaling $30.9 million and $83.5 million, respectively, and paid dividends totaling $41.8 million and $52.6 million, respectively. During the three and nine months ended September 30, 2016, the Bully joint ventures approved and paid dividends totaling $41.8 million and $124.0 million, respectively. Of these amounts, 50 percent was paid to our joint venture partner.
The combined carrying amount of the Bully-class drillships at September 30, 2017 and December 31, 2016 totaled $1.3 billion and $1.4 billion, respectively. These assets were primarily funded through partner equity contributions. Cash held by the Bully joint ventures totaled approximately $79.3 million at September 30, 2017 as compared to approximately $34.7 million at December 31, 2016.

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)


Note 3— Earnings Per Share
The following table presents the computation of basic and diluted earnings per share for Noble-UK:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
Numerator:
 
 

 
 

 
 

 
 

Basic
 
 
 
 
 
 
 
 
Net income (loss) attributable to Noble-UK
 
$
(96,792
)
 
$
(55,081
)
 
$
(491,836
)
 
$
373,270

Net loss from discontinued operations, net of tax
 
—

 
—

 
1,486

 
—

      Earnings allocated to unvested share-based payment awards
 
—

 
—

 
—

 
(12,754
)
Net income (loss) from continuing operations to common shareholders - basic
 
$
(96,792
)
 
$
(55,081
)
 
$
(490,350
)
 
$
360,516

Diluted
 
 

 
 

 
 

 
 

Net income (loss) attributable to Noble-UK
 
$
(96,792
)
 
$
(55,081
)
 
$
(491,836
)
 
$
373,270

Net loss from discontinued operations, net of tax
 
—

 
—

 
1,486

 
—

Net income (loss) from continuing operations to common shareholders - diluted
 
$
(96,792
)
 
$
(55,081
)
 
$
(490,350
)
 
$
373,270

Denominator:
 
 

 
 

 
 

 
 

Weighted average shares outstanding - basic
 
244,940

 
243,224

 
244,666

 
243,089

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

 
—

 
—

 
8,600

Weighted average shares outstanding - diluted
 
244,940

 
243,224

 
244,666

 
251,689

Earnings per share
 
 

 
 

 
 

 
 

Basic:
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
 
$
(0.40
)
 
$
(0.23
)
 
$
(2.00
)
 
$
1.48

Loss from discontinued operations
 
—

 
—

 
(0.01
)
 
—

Net income (loss) attributable to Noble-UK
 
$
(0.40
)
 
$
(0.23
)
 
$
(2.01
)
 
$
1.48

Diluted:
 
 
 
 
 


 
 
Income (loss) from continuing operations
 
$
(0.40
)
 
$
(0.23
)
 
$
(2.00
)
 
$
1.48

Loss from discontinued operations
 
—

 
—

 
(0.01
)
 
—

Net income (loss) attributable to Noble-UK
 
$
(0.40
)
 
$
(0.23
)
 
$
(2.01
)
 
$
1.48

Dividends per share
 
$
—

 
$
0.02

 
$
—

 
$
0.19

Only those items having a dilutive impact on our basic earnings per share are included in diluted earnings per share. In the three and nine months ended September 30, 2017, approximately 12.1 million share-based awards, were excluded from the diluted earnings per share since the effect would have been anti-dilutive. In the three months ended September 30, 2016, approximately 10.6 million share-based awards were excluded from the diluted earnings per share since the effect would have been anti-dilutive. For the nine months ended September 30, 2016, approximately 1.5 million shares underlying stock options were excluded from the diluted earnings per share as such stock options were anti-dilutive.
Share capital
As of September 30, 2017, Noble-UK had approximately 245.0 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.

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)


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. At September 30, 2017, we do not have shareholder authority to repurchase shares. During the three and nine months ended September 30, 2017, no shares were repurchased.
Note 4— 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 during the nine months ended September 30, 2017.
Note 5— Property and Equipment
Property and equipment, at cost, as of September 30, 2017 and December 31, 2016 for Noble-UK consisted of the following:
 
 
September 30, 2017
 
December 31, 2016
Drilling equipment and facilities
 
$
12,156,374

 
$
12,048,571

Construction in progress
 
75,331

 
112,103

Other
 
190,060

 
204,214

Property and equipment, at cost
 
$
12,421,765

 
$
12,364,888

Capital expenditures, including capitalized interest, totaled $74.4 million and $592.0 million for the nine months ended September 30, 2017 and 2016, respectively. During the three and nine months ended September 30, 2017, there was no capitalized interest due to the completion of our newbuild program. Capitalized interest was $8.5 million and $15.9 million for the three and nine months ended September 30, 2016, respectively.
During the three and nine months ended September 30, 2017, we recognized $14.3 million in "Contract drilling services" costs related to damages sustained on the Noble Danny Adkins and the Noble Jim Day during Hurricane Harvey in the U.S. Gulf of Mexico region.

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)


Note 6— Debt
Our total debt consisted of the following at September 30, 2017 and December 31, 2016:
 
 
September 30, 2017
 
December 31, 2016
Senior unsecured notes
 
 
 
 
2.50% Senior Notes due March 2017
 
$
—

 
$
299,992

5.75% Senior Notes due March 2018
 
249,911

 
249,771

7.50% Senior Notes due March 2019
 
201,695

 
201,695

4.90% Senior Notes due August 2020
 
167,612

 
167,576

4.625% Senior Notes due March 2021
 
208,561

 
208,538

3.95% Senior Notes due March 2022
 
125,510

 
125,488

7.75% Senior Notes due January 2024
 
981,738

 
980,117

7.70% Senior Notes due April 2025
 
448,983

 
448,909

6.20% Senior Notes due August 2040
 
399,899

 
399,898

6.05% Senior Notes due March 2041
 
397,790

 
397,758

5.25% Senior Notes due March 2042
 
498,393

 
498,369

8.70% Senior Notes due April 2045
 
394,647

 
394,613

Total debt
 
4,074,739

 
4,372,724

Less: Unamortized debt issuance costs
 
(29,760
)
 
(32,613
)
Less: Current maturities of long-term debt (1)
 
(249,652
)
 
(299,882
)
Long-term debt, net of debt issuance costs
 
$
3,795,327

 
$
4,040,229

(1) 
Presented net of current portion of unamortized debt issuance costs of $0.3 million and $0.1 million at September 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 with each agency. At September 30, 2017, based on our debt ratings on that date, the facility fee was 0.35 percent. At September 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 September 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 a portion of our near-term Senior Notes in a related tender offer and the remaining portion was 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 (“S&P”), 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 based on our debt rating. On October 18, 2017, S&P further reduced our debt rating, which will increase the interest rates on our 2025 and 2045 Senior Notes to 7.95% and 8.95%, respectively, beginning in April 2018. Once the new interest rates take effect in April 2018, these Senior Notes will have reached the contractually-defined maximum interest rate set for each rating agency. The interest rates on these Senior Notes may be decreased if our debt ratings were to be raised by either rating agency above specified levels.

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)


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 $300.0 million 2.50% Senior Notes using cash on hand.
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 September 30, 2017, our ratio of debt to total tangible capitalization was approximately 0.41. We were in compliance with all covenants under the credit facility as of September 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 September 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 10— Fair Value of Financial Instruments.
The following table presents the estimated fair value of our total debt, not including the effect of unamortized debt issuance costs, as of September 30, 2017 and December 31, 2016, respectively:
 
 
September 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
 
249,911

 
252,638

 
249,771

 
249,808

7.50% Senior Notes due March 2019
 
201,695

 
208,347

 
201,695

 
209,524

4.90% Senior Notes due August 2020
 
167,612

 
164,664

 
167,576

 
167,329

4.625% Senior Notes due March 2021
 
208,561

 
194,303

 
208,538

 
196,416

3.95% Senior Notes due March 2022
 
125,510

 
104,816

 
125,488

 
112,791

7.75% Senior Notes due January 2024
 
981,738

 
890,160

 
980,117

 
945,317

7.70% Senior Notes due April 2025
 
448,983

 
386,802

 
448,909

 
423,267

6.20% Senior Notes due August 2040
 
399,899

 
278,956

 
399,898

 
280,221

6.05% Senior Notes due March 2041
 
397,790

 
274,376

 
397,758

 
273,854

5.25% Senior Notes due March 2042
 
498,393

 
329,460

 
498,369

 
325,814

8.70% Senior Notes due April 2045
 
394,647

 
325,600

 
394,613

 
328,608

Total debt
 
$
4,074,739

 
$
3,410,122

 
$
4,372,724

 
$
3,812,077

 

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)


Note 7— Income Taxes
At September 30, 2017, the reserves for uncertain tax positions totaled $192.3 million (net of related tax benefits of $1.0 million). If the September 30, 2017 reserves are not realized, the provision for income taxes would be reduced by $186.8 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.
During the nine months ended September 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.
As of September 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 8— Employee Benefit Plans
Pension costs include the following components for the three and nine months ended September 30, 2017 and 2016:
 
 
Three Months Ended September 30,
 
 
2017
 
2016
 
 
Non-U.S.
 
U.S.
 
Non-U.S.
 
U.S.
Service cost
 
$
—

 
$
—

 
$
763

 
$
1,662

Interest cost
 
506

 
2,148

 
589

 
2,389

Return on plan assets
 
(739
)
 
(2,941
)
 
(828
)
 
(3,097
)
Amortization of prior service cost
 
—

 
—

 
25

 
30

Recognized net actuarial loss
 
264

 
366

 
35

 
1,099

Settlement and curtailment gains
 
(620
)
 
—

 
—

 
—

Net pension benefit cost (gain)
 
$
(589
)
 
$
(427
)
 
$
584

 
$
2,083


 
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
 
Non-U.S.
 
U.S.
 
Non-U.S.
 
U.S.
Service cost
 
$
—

 
$
—

 
$
2,337

 
$
4,986

Interest cost
 
1,476

 
6,445

 
1,864

 
7,167

Return on plan assets
 
(2,161
)
 
(8,823
)
 
(2,627
)
 
(9,291
)
Amortization of prior service cost
 
—

 
—

 
78

 
88

Recognized net actuarial loss
 
775

 
1,098

 
110

 
3,299

Settlement and curtailment gains
 
(620
)
 
—

 
—

 
—

Net pension benefit cost (gain)
 
$
(530
)
 
$
(1,280
)
 
$
1,762

 
$
6,249

During the three and nine months ended September 30, 2017, we made contributions to our pension plans of approximately $0.4 million and $0.6 million, which satisfied our obligations under our defined benefit plan for the North Sea region.
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.

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)


Note 9— 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.
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.
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 the Noble Tom Madden (“FCX Settlement”), which were scheduled to end in July 2017 and November 2017, respectively. 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.
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 $10.1 million at September 30, 2017. Total unrealized gains related to these forward contracts were approximately $0.7 million as of September 30, 2017 and were recorded as part of “Accumulated other comprehensive income (loss)” (“AOCL”).
FCX Settlement
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. 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.
Financial Statement Presentation
The following table, together with Note 10— Fair Value of Financial Instruments, summarizes the financial statement presentation and fair value of our derivative positions as of September 30, 2017 and December 31, 2016:
 
 
 
 
Estimated fair value
 
 
Balance sheet
classification
 
September 30,
2017
 
December 31,
2016
Asset derivatives
 
 
 
 
 
 
Cash flow hedges
 
 
 
 
 
 
Foreign currency forward contracts
 
Prepaid expenses and other current assets
 
$
674

 
$
—

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

 
$
14,400


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)


The following table, together with Note 10— Fair Value of Financial Instruments, summarizes the recognized gains and losses of cash flow hedges and non-designated derivatives through AOCL or as “Contract drilling services” revenue or costs for the three and nine months ended September 30, 2017 and 2016: