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: March 31, 2018
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 ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
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 May 2, 2018: Noble Corporation plc — 246,780,734
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) of 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)

 
 
March 31,
2018
 
December 31,
2017
ASSETS
Current assets
 
 
 
 
Cash and cash equivalents
 
$
461,678

 
$
662,829

Accounts receivable, net
 
181,804

 
204,696

Taxes receivable
 
21,530

 
105,345

Prepaid expenses and other current assets
 
55,448

 
66,105

Total current assets
 
720,460

 
1,038,975

Property and equipment, at cost
 
12,072,297

 
12,034,331

Accumulated depreciation
 
(2,673,437
)
 
(2,545,091
)
Property and equipment, net
 
9,398,860

 
9,489,240

Other assets
 
148,803

 
266,444

Total assets
 
$
10,268,123

 
$
10,794,659

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

 
$
249,843

Accounts payable
 
94,275

 
84,032

Accrued payroll and related costs
 
35,473

 
54,904

Taxes payable
 
29,345

 
34,391

Interest payable
 
67,649

 
98,189

Other current liabilities
 
67,708

 
71,665

Total current liabilities
 
294,450

 
593,024

Long-term debt
 
3,841,350

 
3,795,867

Deferred income taxes
 
181,573

 
164,962

Other liabilities
 
291,965

 
290,178

Total liabilities
 
4,609,338

 
4,844,031

Commitments and contingencies (Note 14)
 


 


Shareholders' equity
 
 
 
 
Common stock, $0.01 par value, ordinary shares; 246,778 and 244,971 shares outstanding as of March 31, 2018 and December 31, 2017, respectively
 
2,464

 
2,450

Additional paid-in capital
 
681,883

 
678,922

Retained earnings
 
4,351,061

 
4,637,677

Accumulated other comprehensive loss
 
(47,437
)
 
(42,888
)
Total shareholders' equity
 
4,987,971

 
5,276,161

Noncontrolling interests
 
670,814

 
674,467

Total equity
 
5,658,785

 
5,950,628

Total liabilities and equity
 
$
10,268,123

 
$
10,794,659

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 March 31,
 
 
2018
 
2017
Operating revenues
 
 
 
 
Contract drilling services
 
$
229,106

 
$
354,659

Reimbursables and other
 
6,051

 
8,317

 
 
235,157

 
362,976

Operating costs and expenses
 
 
 
 
Contract drilling services
 
136,849

 
160,769

Reimbursables
 
4,350

 
5,146

Depreciation and amortization
 
128,755

 
135,718

General and administrative
 
22,083

 
15,880

 
 
292,037

 
317,513

Operating income (loss)
 
(56,880
)
 
45,463

Other income (expense)
 
 
 
 
Interest expense
 
(76,015
)
 
(73,447
)
Loss on extinguishment of debt, net
 
(8,768
)
 

Interest income and other, net
 
1,339

 
1,617

Loss from continuing operations before income taxes
 
(140,324
)
 
(26,367
)
Income tax provision
 
(2,996
)
 
(257,407
)
Net loss
 
(143,320
)
 
(283,774
)
Net (income) loss attributable to noncontrolling interests
 
986

 
(17,920
)
Net loss attributable to Noble Corporation plc
 
$
(142,334
)
 
$
(301,694
)
Per share data
 
 
 
 
Basic
 
$
(0.58
)
 
$
(1.24
)
Diluted
 
$
(0.58
)
 
$
(1.24
)
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 March 31,
 
 
2018
 
2017
Net loss
 
$
(143,320
)
 
$
(283,774
)
Other comprehensive income (loss)
 
 
 
 
Foreign currency translation adjustments
 
667

 
186

Foreign currency forward contracts
 

 
(110
)
Amortization of deferred pension plan amounts (net of tax provision of $87 and $167 for the three months ended March 31, 2018 and 2017, respectively)
 
324

 
392

Other comprehensive income, net
 
991

 
468

Net comprehensive (income) loss attributable to noncontrolling interests
 
986

 
(17,920
)
Comprehensive loss attributable to Noble Corporation plc
 
$
(141,343
)
 
$
(301,226
)

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)
 
 
 
Three Months Ended March 31,
 
 
2018
 
2017
Cash flows from operating activities
 
 
 
 
Net loss
 
$
(143,320
)
 
$
(283,774
)
Adjustments to reconcile net loss to net cash flow from operating activities:
 
 
 
 
Depreciation and amortization
 
128,755

 
135,718

Loss on extinguishment of debt, net
 
8,768

 

Deferred income taxes
 
(4,906
)
 
268,076

Amortization of share-based compensation
 
6,282

 
7,297

Other costs, net
 
3,626

 

Changes in components of working capital:
 
 
 
 
Change in taxes receivable
 
84,486

 

Net changes in other operating assets and liabilities
 
(28,778
)
 
14,556

Net cash provided by operating activities
 
54,913

 
141,873

Cash flows from investing activities
 
 
 
 
Capital expenditures
 
(33,816
)
 
(38,382
)
Proceeds from disposal of assets
 
117

 
273

Net cash used in investing activities
 
(33,699
)
 
(38,109
)
Cash flows from financing activities
 
 
 
 
Issuance of senior notes
 
750,000

 

Repayments of debt
 
(952,209
)
 
(300,000
)
Debt issuance costs on senior notes and credit facilities
 
(14,184
)
 
(42
)
Dividends paid to noncontrolling interests
 
(2,667
)
 
(5,393
)
Taxes withheld on employee stock transactions
 
(3,305
)
 
(4,280
)
Net cash used in financing activities
 
(222,365
)
 
(309,715
)
Net decrease in cash and cash equivalents
 
(201,151
)
 
(205,951
)
Cash and cash equivalents, beginning of period
 
662,829

 
725,722

Cash and cash equivalents, end of period
 
$
461,678

 
$
519,771

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, 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
 

 

 
7,297

 

 

 

 
7,297

Issuance of share-based compensation shares
 
1,446

 
15

 
(21
)
 

 

 

 
(6
)
Shares withheld for taxes on equity transactions
 

 

 
(4,295
)
 

 

 

 
(4,295
)
Net income (loss)
 

 

 

 
(301,694
)
 

 
17,920

 
(283,774
)
Dividends paid to noncontrolling interests
 

 

 

 

 

 
(5,393
)
 
(5,393
)
Dividend equivalents (1)
 

 

 

 
83

 

 

 
83

Other comprehensive income, net
 

 

 

 

 
468

 

 
468

Balance at March 31, 2017
 
244,685

 
$
2,447

 
$
657,149

 
$
4,852,610

 
$
(51,672
)
 
$
721,291

 
$
6,181,825

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
 
244,971

 
$
2,450

 
$
678,922

 
$
4,637,677

 
$
(42,888
)
 
$
674,467

 
$
5,950,628

Tax effect of intra-entity asset transfers (Note 2)
 

 

 

 
(149,938
)
 

 

 
(149,938
)
Stranded tax effect resulting from the Tax Cuts and Job Act (Note 2)
 

 

 

 
5,540

 
(5,540
)
 

 

Balance at January 1, 2018
 
244,971

 
2,450

 
678,922

 
4,493,279

 
(48,428
)
 
674,467

 
5,800,690

Employee related equity activity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization of share-based compensation
 

 

 
6,282

 

 

 

 
6,282

Issuance of share-based compensation shares
 
1,807

 
14

 
(2
)
 

 

 

 
12

Shares withheld for taxes on equity transactions
 

 

 
(3,319
)
 

 

 

 
(3,319
)
Net loss
 

 

 

 
(142,334
)
 

 
(986
)
 
(143,320
)
Dividends paid to noncontrolling interests
 

 

 

 

 

 
(2,667
)
 
(2,667
)
Dividend equivalents (1)
 

 

 

 
116

 

 

 
116

Other comprehensive income, net
 

 

 

 

 
991

 

 
991

Balance at March 31, 2018
 
246,778

 
2,464

 
681,883

 
4,351,061

 
(47,437
)
 
670,814

 
5,658,785

(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) 

 
 
March 31,
2018
 
December 31,
2017
ASSETS
Current assets
 
 
 
 
Cash and cash equivalents
 
$
460,831

 
$
662,011

Accounts receivable, net
 
181,804

 
204,696

Taxes receivable
 
21,530

 
105,345

Prepaid expenses and other current assets
 
55,070

 
65,441

Total current assets
 
719,235

 
1,037,493

Property and equipment, at cost
 
12,072,297

 
12,034,331

Accumulated depreciation
 
(2,673,437
)
 
(2,545,091
)
Property and equipment, net
 
9,398,860

 
9,489,240

Other assets
 
148,887

 
266,528

Total assets
 
$
10,266,982

 
$
10,793,261

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

 
$
249,843

Accounts payable
 
94,115

 
83,873

Accrued payroll and related costs
 
35,551

 
54,904

Taxes payable
 
28,919

 
33,965

Interest payable
 
67,649

 
98,189

Other current liabilities
 
67,625

 
71,466

Total current liabilities
 
293,859

 
592,240

Long-term debt
 
3,841,350

 
3,795,867

Deferred income taxes
 
181,573

 
164,962

Other liabilities
 
291,965

 
290,178

Total liabilities
 
4,608,747

 
4,843,247

Commitments and contingencies (Note 14)
 


 


Shareholder equity
 
 
 
 
Common stock, $0.01 par value, ordinary shares; 261,246 shares outstanding as of March 31, 2018 and December 31, 2017
 
26,125

 
26,125

Capital in excess of par value
 
629,419

 
623,137

Retained earnings
 
4,379,314

 
4,669,173

Accumulated other comprehensive loss
 
(47,437
)
 
(42,888
)
Total shareholder equity
 
4,987,421

 
5,275,547

Noncontrolling interests
 
670,814

 
674,467

Total equity
 
5,658,235

 
5,950,014

Total liabilities and equity
 
$
10,266,982

 
$
10,793,261

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 March 31,
 
 
2018
 
2017
Operating revenues
 
 
 
 
Contract drilling services
 
$
229,106

 
$
354,659

Reimbursables and other
 
6,050

 
8,317

 
 
235,156

 
362,976

Operating costs and expenses
 
 
 
 
Contract drilling services
 
136,406

 
160,400

Reimbursables
 
4,350

 
5,146

Depreciation and amortization
 
127,639

 
135,718

General and administrative
 
13,457

 
9,064

 
 
281,852

 
310,328

Operating income (loss)
 
(46,696
)
 
52,648

Other income (expense)
 
 
 
 
Interest expense
 
(76,015
)
 
(73,447
)
Loss on extinguishment of debt, net
 
(8,768
)
 

Interest income and other, net
 
1,346

 
1,503

Loss from continuing operations before income taxes
 
(130,133
)
 
(19,296
)
Income tax provision
 
(2,996
)
 
(257,373
)
Net loss
 
(133,129
)
 
(276,669
)
Net (income) loss attributable to noncontrolling interests
 
986

 
(17,920
)
Net loss attributable to Noble Corporation
 
$
(132,143
)
 
$
(294,589
)
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 March 31,
 
 
2018
 
2017
Net loss
 
$
(133,129
)
 
$
(276,669
)
Other comprehensive income (loss)
 
 
 
 
Foreign currency translation adjustments
 
667

 
186

Foreign currency forward contracts
 

 
(110
)
Amortization of deferred pension plan amounts (net of tax provision of $87 and $167 for the three months ended March 31, 2018 and 2017, respectively)
 
324

 
392

Other comprehensive income, net
 
991

 
468

Net comprehensive (income) loss attributable to noncontrolling interests
 
986

 
(17,920
)
Comprehensive loss attributable to Noble Corporation
 
$
(131,152
)
 
$
(294,121
)
See accompanying notes to the unaudited condensed consolidated financial statements.



10



NOBLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
 
 
Three Months Ended March 31,
 
 
2018
 
2017
Cash flows from operating activities
 
 
 
 
Net loss
 
$
(133,129
)
 
$
(276,669
)
Adjustments to reconcile net loss to net cash flow from operating activities:
 
 
 
 
Depreciation and amortization
 
127,639

 
135,718

Loss on extinguishment of debt, net
 
8,768

 

Deferred income taxes
 
(4,906
)
 
268,076

Amortization of share-based compensation
 
6,282

 
7,265

Other costs, net
 
3,626

 

Changes in components of working capital:
 
 
 
 
Change in taxes receivable
 
84,486

 

Net changes in other operating assets and liabilities
 
(27,869
)
 
14,125

Net cash provided by operating activities
 
64,897

 
148,515

Cash flows from investing activities
 
 
 
 
Capital expenditures
 
(33,816
)
 
(38,382
)
Proceeds from disposal of assets
 
117

 
273

Net cash used in investing activities
 
(33,699
)
 
(38,109
)
Cash flows from financing activities
 
 
 
 
Issuance of senior notes
 
750,000

 

Repayments of debt
 
(952,209
)
 
(300,000
)
Debt issuance costs on senior notes and credit facility
 
(14,184
)
 
(42
)
Dividends paid to noncontrolling interests
 
(2,667
)
 
(5,393
)
Contributions from (distributions to) parent company, net
 
(13,318
)
 
60,164

Net cash used in financing activities
 
(232,378
)
 
(245,271
)
Net decrease in cash and cash equivalents
 
(201,180
)
 
(134,865
)
Cash and cash equivalents, beginning of period
 
662,011

 
653,833

Cash and cash equivalents, end of period
 
$
460,831

 
$
518,968

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, 2016
 
261,246

 
$
26,125

 
$
594,091

 
$
5,115,137

 
$
(52,140
)
 
$
708,764

 
$
6,391,977

Contributions from parent company, net
 

 

 

 
60,164

 

 

 
60,164

Share-based compensation contribution by parent
 

 

 
7,265

 

 

 

 
7,265

Net income (loss)
 

 

 

 
(294,589
)
 

 
17,920

 
(276,669
)
Dividends paid to noncontrolling interests
 

 

 

 

 

 
(5,393
)
 
(5,393
)
Other comprehensive income, net
 

 

 

 

 
468

 

 
468

Balance at March 31, 2017
 
261,246

 
$
26,125

 
$
601,356

 
$
4,880,712

 
$
(51,672
)
 
$
721,291

 
$
6,177,812

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
 
261,246

 
$
26,125

 
$
623,137

 
$
4,669,173

 
$
(42,888
)
 
$
674,467

 
$
5,950,014

Tax effect of intra-entity asset transfers (Note 2)
 

 

 

 
(149,938
)
 

 

 
(149,938
)
Stranded tax effect resulting from the Tax Cuts and Job Act (Note 2)
 

 

 

 
5,540

 
(5,540
)
 

 

Balance at January 1, 2018
 
261,246

 
26,125

 
623,137

 
4,524,775

 
(48,428
)
 
674,467

 
5,800,076

Distribution to parent company, net
 

 

 

 
(13,318
)
 

 

 
(13,318
)
Share-based compensation contribution by parent
 

 

 
6,282

 

 

 

 
6,282

Net loss
 

 

 

 
(132,143
)
 

 
(986
)
 
(133,129
)
Dividends paid to noncontrolling interests
 

 

 

 

 

 
(2,667
)
 
(2,667
)
Other comprehensive income, net
 

 

 

 

 
991

 

 
991

Balance at March 31, 2018
 
261,246

 
$
26,125

 
$
629,419

 
$
4,379,314

 
$
(47,437
)
 
$
670,814

 
$
5,658,235

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 provide contract drilling services with our global fleet of mobile offshore drilling units. As of March 31, 2018, our fleet consisted of eight drillships, six semisubmersibles and 14 jackups.
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, 2017 Condensed Consolidated Balance Sheets presented herein are derived from the December 31, 2017 audited consolidated financial statements. 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, 2017, 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.
We have made certain reclassifications to our prior period amounts in our operating revenue by combining other revenue with reimbursables revenue to conform to the current period presentation. Such reclassification did not have a material effect on our condensed consolidated statements of operations.
We have made certain reclassifications to our prior period amounts in our investing activities by combining changes in accrued capital expenditures with capital expenditures to conform to the current period presentation. Such reclassification did not have a material effect on our condensed consolidated statements of cash flows.
Note 2— Accounting Pronouncements
Accounting Standards Adopted
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-9, which creates Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers,” and supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition,” including most industry-specific revenue recognition guidance throughout the Industry Topics of the Codification. In addition, ASU No. 2014-9 supersedes the cost guidance in Subtopic 605-35, “Revenue Recognition—Construction-Type and Production-Type Contracts,” and creates new Subtopic 340-40, “Other Assets and Deferred Costs—Contracts with Customers.” Under the new guidance, revenue is recognized when a customer obtains control of promised goods or services and in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services.
We adopted ASU 2014-09 and its related amendments, or collectively Topic 606, effective January 1, 2018 using the modified retrospective implementation method. Accordingly, we have applied the five-step method outlined in Topic 606 for determining when and how revenue is recognized to all contracts that were not completed as of the date of adoption. Revenues for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts have not been adjusted and continue to be reported under the previous revenue recognition guidance. For contracts that were modified before the effective date, we have considered the modification guidance within the new standard and determined that the revenue recognized and contract balances recorded prior to adoption for such contracts were not impacted. While Topic 606 requires additional disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, its adoption has not had a material impact on the measurement or recognition of our revenues. Our adoption, using the modified retrospective approach, for which we were not required to make any changes to the prior year presentation, did not have a material effect on our condensed consolidated financial statements.

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)



In October 2016, the FASB issued ASU No. 2016-16, which amends ASC Topic 740, “Income Taxes.” The amendments in this update improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. This standard is effective for interim and annual reporting periods beginning after December 15, 2017. We have adopted the new standard effective January 1, 2018 under the modified retrospective approach. As a result of the modified retrospective application, “Other Assets” is reduced in our Condensed Consolidated Balance Sheet with a cumulative adjustment to retained earnings of approximately $149.9 million as of March 31, 2018.
In February 2018, the FASB issued ASU No. 2018-2, which amends ASC Topic 220, “Income Statement—Reporting Comprehensive Income.” The amendments in this update allow for a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (the “Act”). This standard is effective for interim and annual reporting periods beginning after December 15, 2018 with early application permitted. We have elected to adopt the new standard effective January 1, 2018 under the modified retrospective approach. The amendment should be applied on a retrospective basis to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Act was recognized. As a result of the retrospective application, we will reduce “Accumulated Other Comprehensive Income” with a cumulative adjustment to “Retained Earnings” of approximately $5.5 million as of March 31, 2018.
In March 2017, the FASB issued ASU No. 2017-7, which amends ASC Topic 715, “Compensation —Retirement Benefits; Improving the Presentation of Net Periodic Pension Cost and Postretirement Benefits Cost.” The amendments in this update require that an employer disaggregate the service cost component from the other components of net benefit cost for an entity's defined benefit pension and other postretirement plans. The amendments also provide explicit guidance on how to present the service cost component and the other components of net benefit cost in the income statement and allow only the service cost component of net benefit cost to be eligible for capitalization. The amendments in this update require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit costs, as defined in paragraphs 715-30-35-4 and 715-60-35-9, are required to be presented in the income statement separately from the service cost component and outside of income from operations. We adopted ASU No. 2017-7 effective January 1, 2018 and accordingly, we have made certain reclassifications to our prior period amounts between “Contract drilling services” costs and “Interest income and other, net.” Such reclassifications did not have a material effect on our condensed consolidated statement of operations.
Issued Accounting Standards
In February 2016, the FASB issued ASU No. 2016-2, which creates ASC Topic 842, “Leases.” This update increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This standard is effective for interim and annual reporting periods beginning after December 15, 2018. Our adoption, and the ultimate effect on our consolidated financial statements, will be based on an evaluation of the contract-specific facts and circumstances. We expect to adopt ASC 842 effective January 1, 2019. We expect to apply the modified retrospective approach to our adoption. Our adoption will have an impact on how our consolidated financial statements and related disclosures will be presented. With respect to leases whereby we are the lessee, we are currently expecting to recognize lease liabilities and offsetting “right of use” assets upon adoption. We are currently evaluating any other impacts of ASC 842, including any newly issued guidance, will have on our condensed consolidated financial statements and related disclosures. To facilitate that evaluation, we have completed training on the ASU, formed an implementation team and started the review and documentation of contracts.
In February 2017, the FASB issued ASU No. 2017-6, which amends ASC Topic 960, “Defined Benefit Pension Plans,” ASC Topic 962, “Defined Contribution Pension Plans” and ASC Topic 965, “Health and Welfare Benefit Plans.” The amendments in this update clarify presentation requirements for an employee benefit plan’s interest in a master trust and require more detailed disclosures of the plan’s interest in the master trust. The amendments also eliminate a redundancy relating to 401(h) account disclosures. This standard is effective for fiscal years beginning after December 15, 2018, with early application permitted. We are evaluating what impact, if any, the adoption of this guidance will have on our financial condition, results of operations, cash flows or financial disclosures.
With the exception of the updated standards discussed above, there have been no new accounting pronouncements not yet effective that have significance, or potential significance, to our condensed consolidated financial statements.
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.

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)



During the three months ended March 31, 2018 and 2017, the Bully joint ventures approved and paid dividends totaling $5.3 million and $10.8 million, respectively. Of these amounts, 50 percent was paid to our joint venture partner. The combined carrying amount of the Bully-class drillships at both March 31, 2018 and December 31, 2017 totaled $1.3 billion. These assets were primarily funded through partner equity contributions. Cash held by the Bully joint ventures totaled approximately $58.8 million at March 31, 2018 as compared to approximately $41.6 million at December 31, 2017.
Note 4— Earnings Per Share
The following table presents the computation of basic and diluted earnings per share for Noble-UK:
 
 
Three Months Ended March 31,
 
 
2018
 
2017
Numerator:
 
 

 
 
Basic
 
 
 
 
Net loss attributable to Noble-UK
 
$
(142,334
)
 
$
(301,694
)
Net loss from continuing operations to common shareholders - basic
 
$
(142,334
)
 
$
(301,694
)
Diluted
 
 

 
 

Net loss attributable to Noble-UK
 
$
(142,334
)
 
$
(301,694
)
Net loss from continuing operations to common shareholders - diluted
 
$
(142,334
)
 
$
(301,694
)
Denominator:
 
 

 
 

Weighted average shares outstanding - basic
 
246,175

 
244,222

Weighted average shares outstanding - diluted
 
246,175

 
244,222

Loss per share
 
 

 
 

Basic:
 
 
 
 
Loss from continuing operations
 
$
(0.58
)
 
$
(1.24
)
Net loss attributable to Noble-UK
 
$
(0.58
)
 
$
(1.24
)
Diluted:
 
 
 
 
Loss from continuing operations
 
$
(0.58
)
 
$
(1.24
)
Net loss attributable to Noble-UK
 
$
(0.58
)
 
$
(1.24
)
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 March 31, 2018 and 2017, 12.6 million and 9.4 million share-based awards, respectively, were excluded from the diluted earnings per share since the effect would have been anti-dilutive. For the three months ended March 31, 2018 and 2017, approximately 1.1 million and 1.3 million shares underlying stock options, respectively, were excluded from the diluted earnings per share as such stock options were anti-dilutive.
Share capital
As of March 31, 2018, Noble-UK had approximately 246.8 million shares outstanding and trading as compared to approximately 245.0 million shares outstanding and trading at December 31, 2017. In April 2018, our shareholders approved, at our Annual General Meeting, a proposal to allow our Board of Directors to increase our share capital through the issuance of up to 82.2 million ordinary shares (at current nominal value of $0.01 per share).
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.
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 March 31, 2018, we do not have shareholder authority to repurchase shares. During the three months ended March 31, 2018 no shares were repurchased.

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 5— Receivables from Customers
At December 31, 2016, 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. A Mexican subsidiary of Paragon Offshore plc (“Paragon Offshore”), which had operated the Noble Max Smith, had been prosecuting the claim against Pemex. As of December 31, 2017, Paragon Offshore announced that, as part of its bankruptcy plan, it will liquidate the Mexican entity involved.
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 create 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 during the year ended December 31, 2017.
Note 6— Property and Equipment
Property and equipment, at cost, for Noble-UK consisted of the following:
 
 
March 31, 2018
 
December 31, 2017
Drilling equipment and facilities
 
$
11,767,368

 
$
11,746,629

Construction in progress
 
99,200

 
83,509

Other
 
205,729

 
204,193

Property and equipment, at cost
 
$
12,072,297

 
$
12,034,331

Note 7— Debt
Credit Facilities
2015 Credit Facility
At December 31, 2017, we had 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 “2015 Credit Facility”). At December 31, 2017, the 2015 Credit Facility also provided us with the ability to issue up to $500.0 million in letters of credit.
On December 19, 2017, we entered into the First Amendment and Consent and Successor Agent Agreement (the “Amendment”) amending the 2015 Credit Facility. On January 3, 2018, the Amendment to the 2015 Credit Facility became fully effective. The Amendment caused, among other things, a reduction in the aggregate principal amount of commitments under the 2015 Credit Facility to $300.0 million and the termination of the 2015 Credit Facility's letter of credit sub-facility. The maturity of the 2015 Credit Facility remains January 2020. As a result of the 2015 Credit Facility's reduction in the aggregate principal amount of commitments, we recognized a net loss of approximately $2.3 million. At March 31, 2018, we had no borrowings outstanding under the 2015 Credit Facility.
2017 Credit Facility
On December 21, 2017, Noble Cayman Limited, a Cayman Islands company and a wholly-owned indirect subsidiary of Noble-Cayman (“NCL”); Noble International Finance Company, a Cayman Islands company and a wholly-owned indirect subsidiary of Noble-Cayman (“NIFCO”); and Noble Holding UK Limited, a company incorporated under the laws of England and Wales and a wholly-owned direct subsidiary of Noble-UK (“NHUK”), as parent guarantor, entered into a new senior unsecured credit agreement (the “2017 Credit Facility” and, together with the 2015 Credit Facility, the “Credit Facilities”). The maximum aggregate amount of commitments under the 2017 Credit Facility of approximately $1.5 billion became available in January 2018 upon satisfaction of certain conditions, including the effectiveness of the commitment reduction under the 2015 Credit Facility. Borrowings under the 2017 Credit Facility are subject to certain conditions precedent, including that there be no unused commitments to advance loans under the 2015 Credit Facility. The 2017 Credit Facility provides for a letter of credit sub-facility currently in the amount of $15.0 million, with the ability to increase such amount up to $500.0 million. Borrowings may be used for working capital and other general corporate purposes. The 2017 Credit Facility will mature in January 2023. At March 31, 2018, we had no borrowings outstanding or letters of credit issued under the 2017 Credit Facility.
Both of our Credit Facilities have provisions which vary the applicable interest rates for borrowings based upon our debt ratings. We also pay a facility fee under the 2015 Credit Facility on the full commitments thereunder (used or unused) and a commitment fee under the 2017 Credit

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)



Facility on the daily unused amount of the underlying commitments, in each case which varies depending on our credit ratings. At March 31, 2018, the interest rates in effect under our Credit Facilities are the highest permitted interest rates under those agreements.
Debt Issuances
In January 2018, we issued $750.0 million aggregate principal amount of our Senior Notes due 2026 (the “2026 Notes”) through our indirect wholly-owned subsidiary, NHIL. The net proceeds of the offering of approximately $737.4 million, after estimated expenses, were used to retire a portion of our near-term senior notes in a related tender offer.
The 2026 Notes are redeemable, in whole or in part, prior to February 1, 2021, at a redemption price equal to 100% of the aggregate principal amount of the 2026 Notes being redeemed, plus a make-whole premium. Prior to February 1, 2021, we may also redeem up to 40% of the 2026 Notes in an amount not to exceed the net cash proceeds of certain equity offerings at a redemption price equal to approximately 108% of their aggregate principal amount. Further, the 2026 Notes may be redeemed in whole at par as a result of changes in tax law requiring us to withhold taxes from payments on the 2026 Notes. On or after February 1, 2021, we may redeem all or any portion of the 2026 Notes at various redemption prices set forth in the indenture.
Upon (i) the occurrence of a change of control and (ii) a downgrade of the rating of the 2026 Notes within 60 days after the change of control by at least two of Moody’s Investors Service, Inc., Standard & Poor’s Financial Services LLC or Fitch Ratings Inc. we will be required to make an offer to repurchase all outstanding 2026 Notes at a price in cash equal to 101% of the aggregate principal amount of the 2026 Notes repurchased, plus any accrued and unpaid interest to, but excluding, the repurchase date.
The indenture for the 2026 Notes contains certain covenants and restrictions, including, among others, restrictions on our and our subsidiaries’ ability, as applicable, to create certain liens, enter into certain sale and leaseback transactions, merge or consolidate with another entity, sell all or substantially all of their assets and allow our subsidiaries to incur certain additional indebtedness. Additionally, the Subsidiary Guarantors must own, directly or indirectly, (i) assets comprising at least 85% of the revenue of Noble-Cayman and its subsidiaries on a consolidated basis and (ii) jackups, semisubmersibles, drillships, submersibles or other mobile offshore drilling units of material importance, the combined book value of which comprises at least 85% of the combined book value of all such assets of Noble-Cayman and its subsidiaries on a consolidated basis, in each case, with respect to the most recently completed fiscal year.
Senior Notes Interest Rate Adjustments
During 2016 and 2017, we experienced debt rating downgrades by Moody’s Investors Service and S&P Global Ratings, which reduced our debt ratings significantly below investment grade. As a result of these downgrades, we experienced interest rate increases during 2016 and 2017 on our Senior Notes due 2018 (the “2018 Notes”), our Senior Notes due 2025 (the “2025 Notes”) and our Senior Notes due 2045 (the “ 2045 Notes”), all of which are subject to provisions that vary the applicable interest rates based on our debt rating. On October 18, 2017, S&P Global Ratings further reduced our debt rating, which increased the interest rates on the 2025 Notes and the 2045 Notes to 7.95% and 8.95%, respectively, in April 2018. These senior notes have reached the contractually defined maximum interest rate set for each rating agency and no further interest rate increase will occur. 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.
Our other outstanding senior notes, including our Senior Notes due 2024 (the “2024 Notes”) and the 2026 Notes do not contain provisions varying applicable interest rates based upon our credit ratings.
Debt Tender Offers and Repayments
In January 2018, we commenced cash tender offers for our 2018 Notes, Senior Notes due 2019 (the “2019 Notes”), Senior Notes due 2020 (the “2020 Notes”), Senior Notes due 2021, Senior Notes due 2022 (the “2022 Notes”) and Senior Notes due 2024. In February 2018, we purchased $754.2 million aggregate principal amount of these senior notes for $750.0 million, plus accrued interest, using the net proceeds of the 2026 Notes issuance and cash on hand. As a result of this transaction, we recognized a net loss of approximately $3.5 million.
In February 2018, we redeemed the remaining principal amount of $61.9 million of the 2019 Notes for approximately $65.3 million, plus accrued interest. As a result of this transaction, we recognized a net loss of approximately $3.5 million.
In March 2018, we repaid the remaining aggregate principal amount of $126.6 million of the 2018 Notes at maturity using cash on hand.
In March 2018, we purchased $9.5 million aggregate principal amount of various tranches of our senior notes for approximately $8.7 million, plus accrued interest, as open market repurchases and recognized a net gain of approximately $0.5 million.

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)



In March 2017, we repaid the aggregate principal amount of $300.0 million of the Senior Notes due 2017 at maturity using cash on hand.
Covenants
The 2015 Credit Facility is guaranteed by NHUS and NHIL. The 2015 Credit Facility contains a covenant that limits our ratio of debt to total tangible capitalization, as defined in the 2015 Credit Facility, to 0.60 at the end of each fiscal quarter.
The 2017 Credit Facility contains certain financial covenants applicable to NHUK and its subsidiaries, including (i) a covenant restricting debt to total tangible capitalization to not greater than 0.55 at the end of each fiscal quarter, (ii) a minimum Liquidity requirement of $300.0 million, (iii) a covenant that, beginning with the fiscal quarter ending March 31, 2018, the ratio of the Rig Value (as defined in the 2017 Credit Facility) of Marketed Rigs (as defined in the 2017 Credit Facility) to the sum of commitments under the 2017 Credit Facility plus indebtedness for borrowed money of the borrowers and guarantors, in each case, that directly own Marketed Rigs, is not less than 3:00 to 1:00 at the end of each fiscal quarter and (iv) a covenant that, beginning with the fiscal quarter ending March 31, 2018, the ratio of (A) the Rig Value of the Closing Date Rigs (as defined in the 2017 Credit Facility) that are directly wholly owned by the borrowers and guarantors to (B) the Rig Value of the Closing Date Rigs owned by NHUK, subsidiaries of NHUK and certain local content affiliates, is not less than 80% at the end of each fiscal quarter (such covenants described in (iii) and (iv) of this paragraph, the “Guarantor Ratio Covenants”). The 2017 Credit Facility also includes restrictions on borrowings if, after giving effect to any such borrowings and the application of the proceeds thereof, the aggregate amount of Available Cash (as defined in the 2017 Credit Facility) would exceed $200.0 million.
NHUK has guaranteed the obligations of the borrowers under the 2017 Credit Facility. In addition, on January 19, 2018 certain indirect subsidiaries of Noble-UK became guarantors under the 2017 Credit Facility, including Noble Dave Beard Limited, Noble Drilling (TVL) Ltd., Noble Resources Limited, Noble SA Limited, Noble Bob Douglas LLC, Noble Drilling Holding LLC, Noble Drilling International GmbH, Noble Leasing (Switzerland) GmbH, and Noble Leasing III (Switzerland) GmbH. Certain other subsidiaries of Noble-UK may be required from time to time to guarantee the obligations of the borrowers under the 2017 Credit Facility in order maintain compliance with the Guarantor Ratio Covenants.
The 2017 Credit Facility contains additional restrictive covenants generally applicable to NHUK and its subsidiaries, including restrictions on the incurrence of liens and indebtedness, mergers and other fundamental changes, restricted payments, repurchases and redemptions of indebtedness with maturities outside of the maturity of the 2017 Credit Facility, sale and leaseback transactions and transactions with affiliates.
In addition to the covenants from the Credit Facilities noted above and the covenants from the 2026 Notes described under “— Debt Issuances” above, the indentures governing our other 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 March 31, 2018, we were in compliance with all applicable debt covenants. We continually monitor compliance with the covenants under our Credit Facilities and senior notes and expect to remain in compliance throughout 2018.
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 13— 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 carrying value, net of unamortized debt issuance costs and discounts, and the estimated fair value of our total debt, not including the effect of unamortized debt issuance costs, respectively:
 
 
March 31, 2018
 
December 31, 2017
 
 
Carrying Value
 
Estimated Fair Value
 
Carrying Value
 
Estimated Fair Value
Senior unsecured notes:
 
 
 
 
 
 
 
 
5.75% Senior Notes due March 2018
 
$

 
$

 
$
249,843

 
$
250,830

7.50% Senior Notes due March 2019
 

 

 
201,535

 
206,881

4.90% Senior Notes due August 2020
 
65,775

 
65,639

 
167,422

 
163,283

4.625% Senior Notes due March 2021
 
92,847

 
90,557

 
208,095

 
195,687

3.95% Senior Notes due March 2022
 
41,599

 
37,402

 
125,307

 
107,348

7.75% Senior Notes due January 2024
 
781,313

 
742,964

 
971,498

 
861,160

7.70% Senior Notes due April 2025
 
446,206

 
397,373

 
446,106

 
380,732

7.875% Senior Notes due February 2026
 
737,611

 
743,070

 

 

6.20% Senior Notes due August 2040
 
396,755

 
265,296

 
396,738

 
274,988

6.05% Senior Notes due March 2041
 
394,541

 
263,500

 
394,514

 
273,988

5.25% Senior Notes due March 2042
 
494,093

 
314,970

 
494,063

 
315,430

8.70% Senior Notes due April 2045
 
390,610

 
334,800

 
390,589

 
320,396

Total debt
 
3,841,350

 
3,255,571

 
4,045,710

 
3,350,723

Current maturities of long-term debt (1)
 

 

 
249,843

 
250,830

Long-term debt
 
$
3,841,350

 
$
3,255,571

 
$
3,795,867

 
$
3,099,893

 
(1) 
Presented net of current portion of unamortized debt issuance costs of $0.1 million at December 31, 2017.

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)



Note 8— Accumulated Other Comprehensive Income (Loss)
The following table presents the changes in the accumulated balances for each component of AOCI for the three months ended March 31, 2018 and 2017. All amounts within the tables are shown net of tax.
 
 
Unrealized Losses on Cash Flow Hedges (1)
 
Defined Benefit Pension Items (2)
 
Foreign Currency Items
 
Total
Balance at December 31, 2016
 
$

 
$
(35,865
)
 
$
(16,275
)
 
$
(52,140
)
Activity during period:
 
 
 
 
 
 
 
 
Other comprehensive income (loss) before reclassifications
 
(110
)
 

 
186

 
76

Amounts reclassified from AOCI
 

 
392

 

 
392

Net other comprehensive income (loss)
 
(110
)
 
392

 
186

 
468

Balance at March 31, 2017
 
$
(110
)
 
$
(35,473
)
 
$
(16,089
)
 
$
(51,672
)
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
 
$

 
$
(27,603
)
 
$
(15,285
)
 
$
(42,888
)
Activity during period:
 
 
 
 
 
 
 
 
Stranded tax effect resulting from the Act (Note 2)
 

 
(5,540
)
 

 
(5,540
)
Balance at January 1, 2018
 

 
(33,143
)
 
(15,285
)
 
(48,428
)
Other comprehensive income before reclassifications
 

 

 
667

 
667

Amounts reclassified from AOCI
 

 
324

 

 
324

Net other comprehensive income (loss)
 

 
324

 
667

 
991

Balance at March 31, 2018
 
$

 
$
(32,819
)
 
$
(14,618
)
 
$
(47,437
)
(1) 
Unrealized losses on cash flow hedges are related to foreign currency forward contracts. Reclassifications from AOCI are recognized through “Contract drilling services” costs on our Condensed Consolidated Statements of Operations. See “Note 12— Derivative Instruments and Hedging Activities” for additional information.
(2) 
Defined benefit pension items relate to actuarial changes. Reclassifications from AOCI are recognized as expense on our Condensed Consolidated Statements of Operations through either “Contract drilling services” or “General and administrative.” See “Note 11— Employee Benefit Plans” for additional information.


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)



Note 9— Revenue and Customers
Overview
The activities that primarily drive the revenue earned in our drilling contracts include (i) providing a drilling rig and the crew and supplies necessary to operate the rig, (ii) mobilizing and demobilizing the rig to and from the drill site, and (iii) performing rig preparation activities and/or modifications required for the contract. Consideration received for performing these activities may consist of dayrate drilling revenue, mobilization and demobilization revenue, contract preparation revenue and reimbursement revenue. We account for these integrated services provided within our drilling contracts as a single performance obligation satisfied over time and comprised of a series of distinct time increments in which we provide drilling services.
Our standard drilling contracts require that we operate the rig at the direction of the customer throughout the contract term (which is the period we estimate to be benefited from the corresponding activities and generally ranges from two to 60 months). The activities performed and the level of service provided can vary hour to hour. Our obligation under a standard contract is to provide whatever level of service is required by the operator, or customer, over the term of the contract. We are, therefore, under a stand-ready obligation throughout the entire contract duration. Consideration for our stand-ready obligation corresponds to distinct time increments, though the rate may be variable depending on various factors, and is recognized in the period in which the services are performed. The total transaction price is determined for each individual contract by estimating both fixed and variable consideration expected to be earned over the term of the contract. We have elected to exclude from the transaction price measurement all taxes assessed by a governmental authority. See further discussion regarding the allocation of the transaction price to the remaining performance obligations below.
The amount estimated for variable consideration may be subject to interrupted or restricted rates and is only included in the transaction price to the extent that it is probable that a significant reversal of previously recognized revenue will not occur throughout the term of the contract ("constrained revenue"). When determining if variable consideration should be constrained, management considers whether there are factors outside the Company’s control that could result in a significant reversal of revenue as well as the likelihood and magnitude of a potential reversal of revenue. These estimates are re-assessed each reporting period as required.
Dayrate Drilling Revenue. Our drilling contracts generally provide for payment on a dayrate basis, with higher rates for periods when the drilling unit is operating and lower rates or zero rates for periods when drilling operations are interrupted or restricted. The dayrate invoices billed to the customer are typically determined based on the varying rates applicable to the specific activities performed on an hourly basis. Such dayrate consideration is allocated to the distinct hourly increment it relates to within the contract term, and therefore, recognized in line with the contractual rate billed for the services provided for any given hour.
Mobilization/Demobilization Revenue. We may receive fees (on either a fixed lump-sum or variable dayrate basis) for the mobilization and demobilization of our rigs. These activities are not considered to be distinct within the context of the contract and, therefore, the associated revenue is allocated to the overall performance obligation and recognized ratably over the initial term of the related drilling contract. We record a contract liability for mobilization fees received, which is amortized ratably to contract drilling revenue as services are rendered over the initial term of the related drilling contract.
In most contracts, there is uncertainty as to the amount of expected demobilization revenue due to contractual provisions that stipulate that certain conditions must be present at contract completion for such revenue to be received and as to the amount thereof, if any. For example, contractual provisions may require that a rig demobilize a certain distance before the demobilization revenue is payable or the amount may vary dependent upon whether or not the rig has additional contracted work within a certain distance from the wellsite. Therefore, the estimate for such revenue may be constrained, as described earlier, depending on the facts and circumstances pertaining to the specific contract. We assess the likelihood of receiving such revenue based on past experience and knowledge of the market conditions. In cases where demobilization revenue is expected to be received upon contract completion, it is estimated as part of the overall transaction price at contract inception and recognized in earnings ratably over the initial term of the contract with an offset to an accretive contract asset.
Contract Preparation Revenue. Some of our drilling contracts require downtime before the start of the contract to prepare the rig to meet customer requirements. At times, we may be compensated by the customer for such work (on either a fixed lump-sum or variable dayrate basis). These activities are not considered to be distinct within the context of the contract and, therefore, the related revenue is allocated to the overall performance obligation and recognized ratably over the initial term of the related drilling contract. We record a contract liability for contract preparation fees received, which is amortized ratably to contract drilling revenue over the initial term of the related drilling contract.
Bonuses, Penalties and Other Variable Consideration. We may receive bonus increases to revenue or penalty decreases to revenue. Based on historical data, and ongoing communication with the operator/customer, we are able to reasonably estimate this variable consideration. We will record such estimated variable consideration and re-measure our estimates at each reporting date. For revenue estimated, but not received, we will record to “Prepaid expenses and other current assets” on our Condensed Consolidated Balance Sheets.

21

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)



Capital Modification Revenue. From time to time, we may receive fees from our customers for capital improvements to our rigs to meet contractual requirements (on either a fixed lump-sum or variable dayrate basis). Such revenue is allocated to the overall performance obligation and recognized ratably over the initial term of the related drilling contract as these activities are integral to our drilling activities and are not considered to be a stand-alone service provided to the customer within the context of our contracts. We record a contract liability for such fees and recognize them ratably as contract drilling revenue over the initial term of the related drilling contract.
Revenues Related to Reimbursable Expenses. We generally receive reimbursements from our customers for the purchase of supplies, equipment, personnel services and other services provided at their request in accordance with a drilling contract or other agreement. Such reimbursable revenue is variable and subject to uncertainty, as the amounts received and timing thereof is highly dependent on factors outside of our influence. Accordingly, reimbursable revenue is constrained revenue and not included in the total transaction price until the uncertainty is resolved, which typically occurs when the related costs are incurred on behalf of a customer. We are generally considered a principal in such transactions and record the associated revenue at the gross amount billed to the customer as “Revenues related to reimbursable expenses” in our Condensed Consolidated Statements of Operations. Such amounts are recognized ratably over the period within the contract term, during which the corresponding goods and services are to be consumed.
Contract Balances
Accounts receivable are recognized when the right to consideration becomes unconditional based upon contractual billing schedules. Payment terms on invoiced amounts are typically 30 days. Current contract asset and liability balances are included in “prepaid expenses and other current assets” and “other current liabilities,” respectively and noncurrent contract assets and liabilities are included in “other assets” and “other liabilities,” respectively, on our condensed consolidated balance sheets.
The following table provides information about contract assets and contract liabilities from contracts with customers:
 
 
March 31, 2018
 
January 1, 2018
Current contract assets
 
$
24,330

 
$
21,229

Noncurrent contract assets
 
36,285

 
34,520

Total contract assets
 
60,615

 
55,749

 
 
 
 
 
Current contract liabilities (deferred revenue)
 
(35,125
)
 
(35,422
)
Noncurrent contract liabilities (deferred revenue)
 
(65,504
)
 
(73,439
)
Total contract liabilities
 
$
(100,629
)
 
$
(108,861
)
Significant changes in the remaining performance obligation contract assets and the contract liabilities balances for the three months ended March 31, 2018 are as follows:
 
 
Contract Assets
 
Contract Liabilities
Net balance at January 1, 2018
 
$
55,749

 
$
(108,861
)
 
 
 
 
 
Amortization of deferred costs
 
(6,116
)
 

Additions to deferred costs
 
10,982

 

Amortization of deferred revenue
 

 
9,823

Additions to deferred revenue
 

 
(1,591
)
Total
 
4,866

 
8,232

 
 
 
 
 
Net balance at March 31, 2018
 
$
60,615

 
(100,629
)
We have elected, as a practical expedient, not to disclose significant changes in the remaining performance obligation for the three months ended March 31, 2017, which was before our adoption date of January 1, 2018.
Contract Costs
Certain direct and incremental costs incurred for upfront preparation, initial mobilization and modifications of contracted rigs represent costs of fulfilling a contract as they relate directly to a contract, enhance resources of the Company that will be used in satisfying its performance

22

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)



obligations in the future and are expected to be recovered. Such costs are deferred and amortized ratably to contract drilling expense as services are rendered over the initial term of the related drilling contract.
Costs incurred for the demobilization of rigs at contract completion are recognized as incurred during the demobilization process. Costs incurred for rig modifications or upgrades required for a contract, which are considered to be capital improvements, are capitalized as drilling and other property and equipment and depreciated over the estimated useful life of the improvement.
Transaction Price Allocated to the Remaining Performance Obligations
The following table reflects revenue expected to be recognized in the future related to unsatisfied performance obligations, by rig type, at the end of the reporting period:
 
 
Three Months Ended
March 31, 2018
 
 
2018
 
2019
 
2020
 
2021
 
2022 and beyond
 
Total
Drillships
 
$
18,027

 
$
16,441

 
$
15,141

 
$
15,141

 
$
12,552

 
$
77,302

Jackups
 
9,177

 
10,480

 
3,670

 

 

 
23,327

Total (1)
 
$
27,204

 
$
26,921

 
$
18,811

 
$
15,141

 
$
12,552

 
$
100,629

(1) Our Semisubmersible fleet contained no unsatisfied performance obligations as of March 31, 2018.
The revenue included above consists of expected mobilization, demobilization, and upgrade revenue for unsatisfied performance obligations. The amounts are derived from the specific terms within drilling contracts that contain such provisions, and the expected timing for recognition of such revenue is based on the estimated start date and duration of each respective contract based on information known at March 31, 2018. The actual timing of recognition of such amounts may vary due to factors outside of our control. We have taken the optional exemption, permitted by accounting standards, to exclude disclosure of the estimated transaction price related to the variable portion of unsatisfied performance obligations at the end of the reporting period, as our transaction price is based on a single performance obligation consisting of a series of distinct hourly, or more frequent, periods, the variability of which will be resolved at the time of the future services.
Our revenue recognition pattern under ASC 606 is materially equivalent to revenue recognition under the previous guidance. For the three months ended March 31, 2018, there were no material effects to our Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations, or Condensed Consolidated Statements of Cash Flows.
Disaggregation of Revenue
The following table provides information about contract drilling revenue by rig types:
 
 
Three Months Ended March 31, 2018
Drillships
 
$
111,747

Seimsubmerisibles
 
8,889

Jackups
 
108,470

Total
 
$
229,106

Note 10— Income Taxes
At March 31, 2018, the reserves for uncertain tax positions totaled $183.5 million (net of related tax benefits of $1.0 million). At December 31, 2017, the reserves for uncertain tax positions totaled $191.9 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 March 31, 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

23

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)



deployment of cash throughout the business and consolidate operations into one centralized group of entities. The effect of this tax restructuring has been to lower current tax expense.
For interim and annual reporting periods beginning after December 15, 2017, ASU No. 2016-16 will be applied on a modified retrospective basis to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. As the result of the application of this standard, we reclassified deferred charges of $149.9 million in “Other assets” and “Other liabilities” to “Retained earnings” on the accompanying Condensed Consolidated Balance Sheets.
Note 11— Employee Benefit Plans
Pension costs include the following components for the three months ended March 31, 2018 and 2017:
 
 
Three Months Ended March 31,
 
 
2018
 
2017
 
 
Non-U.S.
 
U.S.
 
Non-U.S.
 
U.S.
Interest cost
 
$
465

 
$
2,045

 
$
478

 
$
2,148

Return on plan assets
 
(716
)
 
(2,979
)
 
(701
)
 
(2,941
)
Recognized net actuarial loss
 

 
411

 
266

 
366

Net pension benefit cost (gain)
 
$
(251
)
 
$
(523
)
 
$
43

 
$
(427
)
During the three months ended March 31, 2018 and 2017, we made no contributions to our pension plans. Effective December 31, 2016, employees and alternate payees will accrue no future benefits under the plans and, as such, Noble recognized no service costs with the plans for the three months ended March 31, 2018 and 2017. Interest cost, return on plan assets and net actuarial losses were aggregated and disclosed within "Interest income and other, net” on the Condensed Consolidated Statements of Operations. For more information refer to “Note 2— Accounting Pronouncements.”
Note 12— 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 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 have historically settled monthly in the operations’ respective local currencies. These contracts had a maturity of less than 12 months. There were no foreign currency forward contracts entered into or outstanding as of March 31, 2018.
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 our Consolidated Statements of Operations. These contingent payments are referred to as non-designated derivatives in the following tables.

24

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 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 13— Fair Value of Financial Instruments,” summarizes the recognized gains and losses of cash flow hedges and non-designated derivatives through AOCI or as “Contract drilling services” revenue or costs for the three months ended March 31, 2017:
 
 
Three Months Ended March 31, 2017
 
 
Unrealized loss recognized through AOCI
 
Loss recognized through Contract drilling services revenue
Cash flow hedges
 
 
 
 
Foreign currency forward contracts
 
$
(110
)
 
$
(73
)
Non-designated derivatives
 
 
 
 
FCX Settlement
 
$

 
$
(7,900
)
There were no foreign currency forward contracts entered into or outstanding as of March 31, 2018.
Note 13— Fair Value of Financial Instruments
The following tables present the carrying amount and estimated fair value of our financial instruments recognized at fair value on a recurring basis:
 
 
March 31, 2018
 
 
 
 
Estimated Fair Value Measurements
 
 
Carrying Amount
 
Quoted Prices in Active Markets (Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
Assets -
 
 
 
 
 
 
 
 
Marketable securities
 
$
7,138

 
$
7,138

 
$

 
$

 
 
December 31, 2017
 
 
 
 
Estimated Fair Value Measurements
 
 
Carrying Amount
 
Quoted Prices in Active Markets (Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
Assets -
 
 
 
 
 
 
 
 
Marketable securities
 
$
7,321

 
$
7,321

 
$

 
$

Our cash and cash equivalents, accounts receivable, marketable securities and accounts payable are by their nature short-term. As a result, the carrying values included in the accompanying Condensed Consolidated Balance Sheets approximate fair value.
Note 14— Commitments and Contingencies
Transocean Ltd.
In January 2017, a subsidiary of Transocean Ltd. (“Transocean”) filed suit against us and certain of our subsidiaries for patent infringement in a Texas federal court. The suit claims that five of our newbuild rigs that operated in the U.S. Gulf of Mexico violated Transocean patents relating to what is generally referred to as dual-activity drilling. We were aware of the patents when we constructed the rigs, and we do not believe that our rigs infringe the Transocean patents, which are now expired. The lawsuit is proceeding and we intend to defend ourselves vigorously against this claim.

25

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)



Department of Justice settlement.
In December 2014, one of our subsidiaries reached a settlement with the U.S. Department of Justice (“DOJ”) regarding our former drillship, the Noble Discoverer, and the Kulluk, a rig we were providing contract labor services for, in respect of violations of applicable law discovered in connection with a 2012 Coast Guard inspection in Alaska and our own subsequent internal investigation. Under the terms of the agreement, the subsidiary paid $8.2 million in fines and $4.0 million in community service payments and was placed on probation for four years, with the right to petition the court for early dismissal of probation after three years. The subsidiary's motion to early terminate the plea agreement was granted and the plea agreement was terminated effective as of March 1, 2018. We also implemented a comprehensive environmental compliance plan in connection with the settlement.
Brazil commercial agent.
We have used a commercial agent in Brazil in connection with our Petróleo Brasileiro S.A. (“Petrobras”) drilling contracts. We understand that this agent has represented a number of different companies in Brazil over many years, including several offshore drilling contractors. In November 2015, this agent pled guilty in Brazil in connection with the award of a drilling contract to a competitor and implicated a Petrobras official as part of a wider investigation of Petrobras’ business practices. Following news reports relating to the agent’s involvement in the Brazil investigation in connection with his activities with other companies, we conducted a review, which is now substantially complete, of our relationship with the agent and with Petrobras. We have been in contact with the SEC, the Brazilian federal prosecutor’s office and the DOJ about this matter. We have cooperated with these agencies and they are aware of our internal review. To our knowledge, neither the agent, nor the government authorities investigating the matter, has alleged that the agent or Noble acted improperly in connection with our contracts with Petrobras.
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”). 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 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.
On December 15, 2017, the litigation trust filed claims relating to the Spin-off against us and certain of our current and former officers and directors in the Delaware bankruptcy court that heard Paragon Offshore’s bankruptcy. The complaint alleges claims of alleged actual and constructive fraudulent conveyance, unjust enrichment and recharacterization of intercompany notes as equity claims against Noble and claims of breach of fiduciary duty and aiding and abetting breach of fiduciary duty against the officer and director defendants. We continue to believe that Paragon Offshore, at the time of the Spin-off, was properly funded, solvent and had appropriate liquidity and that the claims brought by the litigation trust are without merit and will be contested vigorously by us.
We are entering into the discovery phase of the litigation. The presiding court has approved a litigation schedule which, if followed, would conclude all pre-trial motions and other activity by approximately the end of the third quarter of 2019. If any of the litigation trust’s claims are successful, or if we elect to settle any claims, any damages or other amounts we would be required to or agree to pay could have a material adverse effect on our business, financial condition and results of operations. We may be required to establish reserves on our financial statements in advance of the conclusion of the litigation. Such reserves may be substantial and could have a material adverse effect on our financial condition as presented in such financial statements.
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 a Master Separation Agreement (the “MSA”) and a 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

26

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 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 resulted in a number of accounting charges and benefits during the year ended December 31, 2017, 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.
Tax matters.
During 2014, the Internal Revenue Service (“IRS”) began its examination of our tax reporting in the U.S. for the taxable years ended December 31, 2010 and 2011. The IRS examination team has completed its examination of our 2010 and 2011 U.S. tax returns and proposed adjustments and deficiencies with respect to certain items that were reported by us for the 2010 and 2011 tax year. On December 19, 2016, we received the Revenue Agent Report (“RAR”) from the IRS. We believe that we have accurately reported all amounts in our tax returns, and have submitted administrative protests with the IRS Office of Appeals contesting the examination team’s proposed adjustments. We intend to vigorously defend our reported positions, and believe the ultimate resolution of the adjustments proposed by the IRS examination team will not have a material adverse effect on our condensed consolidated financial statements. During the third quarter of 2017, the IRS initiated its examination of our 2012, 2013, 2014 and 2015 tax returns.
Audit claims of approximately $52.8 million attributable to income and other business taxes have been assessed against Noble entities in Mexico. We intend to vigorously defend our reported positions, and believe the ultimate resolution of the audit claims will not have a material adverse effect on our Condensed Consolidated Financial Statements.
We operate in a number of countries throughout the world and our tax returns filed in those jurisdictions are subject to review and examination by tax authorities within those jurisdictions. We recognize uncertain tax positions that we believe have a greater than 50 percent likelihood of being sustained. We cannot predict or provide assurance as to the ultimate outcome of any existing or future assessments.
Other legal matters.
We have entered into agreements with certain of our executive officers, as well as certain other employees. These agreements become effective upon a change of control of Noble-UK (within the meaning set forth in the agreements) or a termination of employment in connection with or in anticipation of a change of control, and remain effective for three years thereafter. These agreements provide for compensation and certain other benefits under such circumstances.
We are a defendant in certain claims and litigation arising out of operations in the ordinary course of business, including personal injury claims, the resolution of which, in the opinion of management, will not be material to our financial position, results of operations or cash flows. There is inherent risk in any litigation or dispute and no assurance can be given as to the outcome of these claims.
Note 15— Supplemental Financial Information
Condensed Consolidated Balance Sheets Information
Deferred revenues from drilling contracts totaled $104.2 million and $114.3 million at March 31, 2018 and December 31, 2017, respectively. Such amounts are included in either “Other current liabilities” or “Other liabilities” in the accompanying Condensed Consolidated Balance Sheets, based upon our expected time of recognition. Related expenses deferred under drilling contracts totaled $60.7 million at March 31, 2018 as compared to $55.7 million at December 31, 2017, and are included in either “Prepaid expenses and other current assets,” “Other assets” or “Property and equipment, net” in the accompanying Condensed Consolidated Balance Sheets, based upon our expected time of recognition.
In April 2015, we agreed to contract dayrate reductions for five rigs working for Saudi Arabian Oil Company (“Saudi Aramco”), which were effective from January 1, 2015 through December 31, 2015. These rates were once again adjusted downward in 2016 to the adjusted 2015 levels and will remain at these same reduced rates through the end of the existing contracts. In accordance with accounting standards, we are recognizing the reductions on a straight-line basis over the remaining life of the existing Saudi Aramco contracts. At March 31, 2018 and

27

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)



December 31, 2017, revenues recorded in excess of billings as a result of this recognition totaled $8.6 million and $6.9 million, respectively, which are included in “Prepaid expenses and other current assets” in the accompanying Condensed Consolidated Balance Sheets, based upon our expected time of recognition.
Condensed Consolidated Statements of Cash Flows Information
Operating cash activities
The net effect of changes in other assets and liabilities on cash flows from operating activities is as follows:
 
 
Noble-UK
 
Noble-Cayman
 
 
Three Months Ended March 31,
 
Three Months Ended March 31,
 
 
2018
 
2017
 
2018
 
2017
Accounts receivable
 
$
22,892

 
$
33,630

 
$
22,892

 
$
33,630

Other current assets
 
9,986

 
(11,451
)
 
9,699

 
(11,719
)
Other assets
 
(11,668
)
 
89,065

 
(10,552
)
 
89,029

Accounts payable
 
6,175

 
(9,017
)
 
6,175

 
(8,800
)
Other current liabilities